U.S. Postal Service: Challenges Related to Restructuring the Postal Service's Retail Network
Published: 2012-04-17T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Since 2006, USPS has accumulated losses of $25 billion and projects a $14.1 billion net loss for fiscal year 2012. In September 2011, the Postmaster General testified that USPS needed to reduce its annual costs by $20 billion, or 27 percent of its projected expenses. One effort to reduce costs includes restructuring, or optimizing, the size of USPSs retail network and workforce. The network includes approximately 32,000 USPS-operated facilities, such as traditional post offices, as well as alternative non-USPS-operated locations that sell its products and services. To optimize this network, USPS plans to evaluate and locate its retail facilities to maximize revenue and minimize costs while still providing access to services.
As requested, this report discusses (1) key actions USPS has taken over thepast 5 years to restructure its retail network, (2) concerns raised by stakeholders, and (3) the challenges USPS faces in changing its retail network. GAO analyzed USPS documents, interviewed USPS officials and stakeholders, and observed public meetings on retail facility closures.
section_title: What GAO Found
paragraphs: Over the past 5 years, the U.S. Postal Service (USPS) has taken several actions to restructure its retail network through reducing its workforce and its footprint while expanding retail alternatives. USPS officials estimated that it had saved about $800 million from reducing the number of work hours dedicated to retail operations. USPS also closed 631 of its post offices, but it did not have cost-savings estimates for these closures. Most of the facilities closed (500) were in response to a postmaster vacancy or the suspension of operations due to an expired lease or irreparable damage following a natural disaster. Fewer closures (131) have resulted from nationwide reviews that USPS initiated in 2009 and 2011. USPS has also restructured its retail network by expanding alternatives through self-service options as well as partnerships with other retailers.
Members of Congress, the Postal Regulatory Commission (PRC), the USPS Office of Inspector General (OIG), customers, employee associations, and some community residents have raised concerns about USPSs retail restructuring initiatives. The concerns include
access to postal services, including community residents ability to obtain retail services, the adequacy of retail alternatives, and changes to delivery services;
the impact of facility closures on communities;
the adequacy of USPS analysis of facilities facing closure and the reliability of USPS data, particularly the accuracy of USPS cost savings estimates; ·
the transparency and equity of USPS closure decisions;
the fairness of USPSs facility closure procedures; and
changes in who can manage a post office.
PRC, USPS OIG, and GAO have recommended improvements to address some of these issues. In particular, GAO has recommended that USPS develop a plan that addresses both traditional post offices and retail alternatives and ensures that USPS has a viable strategy for effectively adapting its networks to changing mail use and maintaining adequate service as it reduces costs. USPS officials have said they are in the process of addressing these recommendations.
USPS faces challenges, such as legal restrictions and resistance from some Members of Congress and the public, that have limited its ability to change its retail network. For example, USPS is supposed to be self-financing, but it is also restricted by law from making decisions that businesses would commonly make, such as closing unprofitable units. Additionally, some Members of Congress and the public have challenged USPSs plans to close retail facilities in their districts or communities. Certain policy issues remain unresolved related to what level of retail services USPS should provide, how the cost of these services should be paid, and how USPS should optimize its retail network. Pending legislation takes differing approaches to addressing these policy issues. If Congress prefers to retain the current level of retail service and associated network, decisions will need to be made about how USPS will pay for these services, including through additional cost reductions or revenue sources.
section_title: What GAO Recommends
paragraphs: GAO makes no recommendations in this report, as it has previously reported on the urgency for Congress to allow USPS to adapt its retail network to changing customer behavior and reduce costs. USPS agreed with GAOs draft report, noting limitations it faces to retailrestructuring. It also observed that maintaining the same level of retail services will require solutions to cover the costs of those services.

section_title: Letter
paragraphs: Congress conceived of the U.S. Postal Service (USPS) as a financially  self-sufficient entity that was expected to cover its expenses almost  entirely through postal revenues, yet at the end of fiscal year 2011, it had  incurred a $5.1 billion loss for the year, had $2 billion remaining on its $15  billion borrowing limit, and had not yet made its $5.5 billion scheduled  retiree health benefits payment to the federal government. Approximately  80 percent of its retail facilities do not generate sufficient revenue to cover  their costs. Moreover, the number of USPS-operated retail facilities,about 32,000, has remained largely unchanged over the past 5 years  even as visits to, and transactions at, postal retail facilities have  decreased by about 16 percent and 18 percent, respectively. Also during  this period, mail volume has declined by about 21 percent, and USPS’s  financial condition continued to deteriorate as net losses accumulated to  more than $25 billion. USPS projects a $14.1 billion net loss for fiscal  year 2012 and faces a continuing decline in the demand for its products  and services. Figure 1 compares the decline in transactions and visits to  USPS-operated facilities with the percentage decline in USPS-operated  facilities over the past 5 years.
To address its financial crisis, the Postmaster General told Congress last  September that USPS plans to reduce annual costs organization-wide by  $20 billion—or 27 percent of its projected $73 billion total operating  expenses—by fiscal year 2015. One of the cost-savings initiatives he  discussed was optimizing the retail network by reducing the number of  USPS-operated facilities and increasing the number of lower-cost,  alternative retail options, such as self-service kiosks and partnerships  with retailers, that would preserve service close to where customers live,  work and shop. Currently, in addition to USPS-operated facilities,  customers can purchase postal products or services at over 70,000  locations, including non-USPS-operated facilities consisting of 3,700  contract postal units and community post offices, retailers that have  partnered with USPS to sell postal products and services, and on its  website. Customers can also order supplies by phone and have  packages picked up at their door.
The scale of the actions that USPS plans to take over the next 3 years is  greater than anything it has previously undertaken. It plans to review  approximately half of its retail facilities for possible closure, reduction in  hours, and alternative access, including transfer of services to a contract  unit or rural delivery service. In addition, USPS is exploring expansion of  alterative access through such things as franchising opportunities and use  of kiosks to create additional channels to access retail services. Some  Members of Congress have raised concerns about these plans and the  potential negative impact that closing post offices could have on affected  communities. Congress has been considering several postal reform bills to  put USPS on a path to financial viability, and some Members have asked  USPS to postpone retail facility closures so as not to pre-empt  congressional action on postal reform. In response, USPS agreed to place  a moratorium on closing any postal retail facilities until May 15, 2012.
To help inform your consideration of actions needed to restructure USPS  operations and help it achieve financial viability, you asked us to examine  its retail network. This report discusses (1) key actions USPS has taken  to restructure its retail network over the past 5 years; (2) concerns raised  by postal stakeholders, including Congress, the Postal Regulatory  Commission (PRC), USPS Office of Inspector General (OIG), and postal  business and residential customers, and USPS’s response to these  concerns; and (3) the challenges that USPS faces in changing its retail  network. To address these objectives, we reviewed USPS guidance and  other documents on its retail actions and initiatives, as well as retail  network goals, analyzed USPS retail network operating statistics from  fiscal years 2007 to 2011, and interviewed agency officials responsible for  managing and overseeing the retail network. Based on interviews with  USPS staff about how they collect information and maintain their  databases, we assessed the reliability of USPS data and noted limitations  where appropriate. We also noted problems with data and analysis as  reported by PRC and USPS OIG, and we analyzed regulatory  proceedings, and proposed legislation addressing postal reform. We  conducted site visits to the Arkansas and Colorado/Wyoming postal  districts to observe public meetings and obtain information on challenges  to restructuring the retail network. We selected these sites based on  several criteria, including the number and timing of upcoming public  meetings and location. We interviewed stakeholders relevant to retail  network restructuring, including USPS officials involved in district reviews  of proposed facility closures, PRC officials, and postmaster associations.  We also reviewed laws, regulations, legislative proposals, and prior work  by GAO, USPS OIG, PRC, and the Congressional Research Service.
We conducted this performance audit from April 2011 to April 2012 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: USPS has a universal service obligation, part of which requires it to  provide access to retail services. Several statutory provisions govern  USPS when considering changes to its retail network, such as the  following.
Section 101 of Title 39 of the U.S. Code states, “The Postal Service  shall have as its basic function the obligation to provide postal  services to bind the Nation together through the personal,  educational, literary, and business correspondence of the people.”
USPS is required to serve the public and provide a maximum degree  of effective and regular postal services to rural areas, communities,  and small towns where post offices are not self-sustaining.
USPS is authorized to determine the need for post offices and to  provide such offices as it determines are needed.
Regarding post offices, the law requires that no small post office shall   solely for operating at a deficit, and language in annual  be closed appropriations has provided that none of the appropriated funds shall  be used to consolidate or close small rural and other small post  offices.
39 U.S.C. § 404(a)(3).
USPS guidance uses the term “discontinuance” to describe ending operations at a  USPS-operated retail facility, such as a post office, station, or branch. Stations and  branches are subordinate units of a main post office and generally offer the same  products and services as post offices. Throughout this report, we use the term “closure,”  except when referring to USPS guidance.   39 U.S.C. § 404(d)(5). closing postal facilities is provided in a recent report by the Congressional  Research Service.
The size of USPS’s retail network has remained largely unchanged over  the past 5 years, although customer visits and transactions have  declined, as shown in table 1.
In 2002, USPS released a transformation planchallenges it faced with its retail network and optimization strategy. It also  described plans to address these challenges—for example, by  introducing retail alternatives in concert with reducing its retail network  footprint and operating costs. USPS stated that it would “provide  customers with easier and more convenient retail access. Postal services  will be available where customers need them—at home, at work, where  they shop, or at the post office. The Postal Service will promote the  convenience of existing, underutilized alternatives and develop new low- cost solutions using technology, partnerships, and product simplification.”   that described  In 2003, the President’s Commission on the Postal Service issued a  report that noted many of the nation’s post offices were no longer  necessary to fulfill USPS’s universal service obligation, given the  proliferation of alternative retail access points in grocery stores, drug  stores, ATMs, and other more convenient locales in communities across  the country. The commission recommended that USPS maximize the  potential of low-activity post offices by operating those necessary for  fulfilling the universal service obligation, even if they operate at a  substantial economic loss. However, where low-activity post offices are  not necessary, it should have flexibility to dispose of them, with  appropriate local community involvement, and existing statutes and  appropriations that limit flexibility should be repealed.
We have said that network restructuring is a key action to help USPS  reduce its costs and improve efficiency. In 2009, we suggested that  USPS restructure its retail network to eliminate growing excess capacity,  reduce costs, and improve efficiency. recommended that it develop a plan for optimizing its retail network that  addresses both traditional post offices and retail alternatives. A senior  USPS official told us in January 2012 that USPS was in the process of  developing a retail optimization plan.
Additionally, in 2011, we  In February 2012, USPS released a 5-year business plan, with an  organization-wide goal to achieve $22.5 billion in annual cost savings  through a combination of legislative and operational changes, including $2 billion in savings from optimizing the retail network. According to  USPS, it plans to reduce its total workforce of 557,000 employees by  155,000 within the next 5 years through attrition, as over half of its career  employees are now retirement-eligible. The plan did not indicate how  many of these proposed employee reductions would occur as a result of  changes to its retail network.
GAO, High Risk Series: Restructuring the U.S. Postal Service to Achieve Sustainable  Financial Viability, GAO-09-937SP (Washington, D.C. July 2009).
section_title: USPS Has Taken Several Actions to Restructure Its Retail Network
paragraphs: Over the past 5 years, USPS has taken several actions to change its  retail network through reducing its workforce and retail footprints, while  expanding retail alternatives. It estimated that it saved about $800 million  by reducing retail work hours during this period. It also closed 631 of its  post offices, but it did not have cost savings estimates related to these  closures. Further, most of the facilities closed (500) were post offices  where operations had first been suspended due to emergencies or a  postmaster vacancy. Fewer closures (131) have resulted from the  nationwide reviews that USPS initiated in 2009 and 2011.
subsections: section_title: Retail Workforce Reductions
paragraphs: Over the past 5 years, USPS reduced the number of retail clerks by 26  percent and the number of postmasters by 7.4 percent at USPS-operated  facilities, as shown in table 2. It also created a new noncareer postal  support employee position, whose wages will be approximately one-third  of a clerk’s average wage. An agreement reached with the American  Postal Workers Union in May 2011 allows USPS to increase its use of  noncareer employees by up to 20 percent of clerk positions covered by  the agreement. In related efforts to cut costs, USPS has reduced total  retail work hours of clerks and postmasters by about 20 percent since  fiscal year 2006 through employee attrition and schedule adaptation.
During the past 5 years, USPS designed two nationwide initiatives— known as the Station and Branch Optimization Initiative (2009 Retail  Initiative) and the Retail Access Optimization Initiative (2011 Retail  Initiative)—to review (1) over 3,000 USPS-operated retail facilities in  urban and suburban areas and (2) about 3,650 primarily rural facilities for  possible closure. Table 3 describes key information about these  initiatives.
In addition, over the last 5 years, USPS district offices have identified and  closed around 500 USPS-operated retail facilities on an individual, ad-hoc  basis as they determined the need.response to a postmaster vacancy or the suspension of operations due to   These individual closures were in  an expired lease or irreparable damage to the facility following a natural  disaster. Many of these closures were for facilities that had suspended  operations years ago, but USPS did not formally close the facility until  recently.
section_title: Alternative Retail Expansion
paragraphs: USPS has continued to expand the number and type of alternatives at  which customers can access retail postal products and services outside  of USPS-operated postal facilities. These alternatives include self-service  options as well as partnerships with retailers, which could help it contain  facility and labor costs while still providing access for customers.  Examples of retail alternatives include its website, self-service kiosks,  contract postal units, rural carrier services, approved shippers, Village  Post Offices, stamp retailers, orders of supplies by telephone, and  package pickup at the door. The percentage of retail revenue from these  alternatives increased from 24 percent in 2007 to 35 percent in 2011, as  shown in table 4. USPS has projected that by 2020, alternatives to USPS- operated retail facilities may account for 60 percent of its retail revenue.
section_title: Stakeholders Have Expressed Concerns about USPS Retail Initiatives
paragraphs: Postal stakeholders, including Members of Congress, PRC, USPS OIG,  customers, employee associations, and some community residents have  raised concerns about USPS’s retail restructuring initiatives. These  concerns include access to postal services, including community residents’ ability to  obtain retail services, the adequacy of retail alternatives, and changes  to delivery services;  the impact of facility closures on communities;  the adequacy of data analysis of facilities facing closure and the  reliability of data, particularly with regard to the accuracy of cost- savings estimates;  the transparency and equity of closure decisions;  the fairness of facility closure procedures; and  changes in who can manage a post office.
subsections: section_title: Access to Postal Services
paragraphs: USPS regulations provide that local management host a community  meeting to obtain public input when it proposes to close a facility. One  of the major concerns of community residents at meetings we attended  was that the communities’ access to postal services would decline if  USPS closed the facility and the next closest postal facility was too far.  For example, at a meeting we attended in Colorado, one resident  described the community as “isolated” and expressed concern that the  distance to the next closest post office (about 25 miles) was  unreasonable. Another resident stated that should the post office close,  driving about 50 miles round-trip to mail packages was not a viable  option. At another site we visited in Arkansas, postal officials told us that  proximity of all post offices is one of the major factors they consider when  reviewing facilities on the 2011 Retail Initiative study list.
At meetings we attended, community residents also raised questions  about the adequacy of other available alternatives. For example, one  resident said that he could not access retail services on USPS’s website  because Internet service was not available. Additional concerns about  retail alternatives were raised by PRC. In the 2011 Retail Initiative, PRC  questioned whether USPS had adequate alternative retail access options  available for retail facilities that it proposed closing. PRC said that  alternative access should be considered concurrently with closure studies  and be presently available. Postal officials at the meetings we attended  encouraged customers to provide feedback on proposed retail  alternatives, and USPS officials told us they have attempted to coordinate  expanding alternatives with closures. They gave the example of  introducing the concept of partnering with local businesses to create a  Village Post Office along with the announcement of the 2011 Retail  Initiative. However, Village Post Offices may not offer a realistic  alternative for customers in some rural areas because there may not be  businesses in the community to host a post office. As of January 2012,  nine Village Post Offices were in operation, and 13 others were under  contract, according to USPS.
Citizens in the rural communities we visited also had concerns about how  mail delivery, including post office box locations and addresses would  change if USPS closed the community’s postal facility. USPS officials  presented rural route service as an alternative, acknowledging that it  could require an address change. In addition, according to officials,  because some customers may not meet the requirements to receive rural  route delivery, they may have to go to another post office to pick up their  mail. Some community members who used post office boxes as their only  mode of delivery were worried about the inconvenience of having to travel  further to another postal facility to pick up their mail. Several customers stated that if their post office were to close, they would prefer having  some postal physical presence in their town, such as cluster boxes.
section_title: Impact on Communities
paragraphs: We observed USPS and its customers sometimes had varied  expectations about its role in the community. For example, community  residents in one small town stated that they were concerned about loss of  community identity if the post office were to close.
Appeals filed with the PRC highlight issues similar to those brought up at  community meetings. For example, various appeals that we examined  included concerns that  losing the local post office would have a negative impact on  community, including loss of identity and inhibiting economic growth; because USPS did not have accurate information about the  community, customers believed USPS did not have complete  information about the community’s needs.
USPS had not allowed for adequate community input; at public  meetings, residents perceived that a decision had already been made  about the closure; and  residents believed that the available alternatives were not adequate or  were too inconvenient.
In written responses to customer concerns in appeals cases, USPS has  indicated that community identity comes from the interest and vitality of its  residents and that it would still help to preserve the identity by maintaining  a community’s ZIP Code. At one community meeting we attended, a  postal official told those in attendance that the community’s identity is not  dependent on the post office. USPS has responded to concerns about the  economic effects of closures by stating that businesses require regular  and effective service, which would be provided to them by the alternative  offered to replace the closing facility. It also indicated that its analysis of  customer questionnaires helps to determine if the potential change would  have a negative impact on local businesses by asking whether customers  would continue to use those businesses in the event of a facility closure.  Postal officials we spoke with noted that they used the responses to  customer questionnaires to see where customers obtained other services,  such as buying groceries, to figure out which alternative locations could  offer community residents convenient access to postal services.
section_title: Adequacy of USPS Analysis and Data
paragraphs: Another issue the PRC and other stakeholders raised was related to the  adequacy of USPS’s analysis and data. For example, in the 2009 Retail  Initiative, the PRC recommended that USPS improve its financial analysis  to better reflect potential revenue declines and operational expenses that  may result from closing a post office. In the 2011 Retail Initiative  proceeding, USPS reported that it had improved its financial analysis  model, generating data that it determined would provide a better  assessment of cost savings than the previous model. Despite the change,  PRC’s 2011 Retail Initiative advisory opinion stated that it was unable to  develop a reasonable estimate of the financial impact of the initiative  because USPS did not collect facility-specific revenue and cost data or  separate retail costs from other operational costs.
In addition to questions about the overall financial impact of initiatives, the  adequacy of USPS’s cost-savings estimates for individual facilities has  also been questioned by the PRC during the appeals process. year 2011, in six of the nine cases that PRC remanded—that is, where  the PRC sent the cases back to USPS for further consideration—PRC  either found that USPS did not adequately consider economic savings  and asked USPS to clarify aspects of its estimate upon remand or cited  related concerns such as overestimating savings from postmaster  salaries or leases.
When USPS makes a decision to close or consolidate a post office, customers of the  post office may appeal the decision to PRC. 39 U.S.C. § 404(d)(5). PRC may affirm the  decision or remand it to USPS for further consideration. USPS and PRC do not agree on  whether PRC has jurisdiction over appeals for station and branches.
PRC, USPS OIG, and we have raised concerns about USPS’s retail  network data. PRC outlined concerns and recommendations, including  in the following examples, about USPS’s data pertaining to its retail  network in its advisory opinion on the 2011 Retail Initiative.
USPS does not collect cost and revenue data separately for post  offices, stations, and branches. Additionally, operating costs for retail  activities cannot be separated from nonretail operating costs,  restricting USPS’s ability to estimate the potential cost savings from  closures because it makes it difficult to determine the actual costs  associated with individual retail facilities.
USPS does not collect the data to measure revenue lost due to  closures, restricting the ability to perform a post-implementation  analysis on the net financial impact of closures. Postal officials told us  they were in the process of creating a tool that would estimate total  demand for retail postal services by geographic area and account for  the revenue and cost implications of alternatives.
PRC found that USPS should develop a method to measure how  successfully it met its goals for the 2011 Retail Initiative and that it  should attempt to coordinate and estimate the impact of all relevant  initiatives that could affect customer access to services. This analysis  would also help ensure that the right data are collected to measure  stated goals. USPS officials told us that although they have looked at  the overall effect on customers, they are unable to predict which  initiatives will eventually be implemented, as some require statutory  change and therefore they have examined the impact of each initiative  independently.
Additional data concerns that we and the USPS OIG have raised include  the following:  In November 2011, we reported that USPS lacks performance  measures and data needed to know the extent to which customers  are aware of and willing to use its various retail alternatives.
We also  spoke with USPS officials about customer data, and they stated that  transaction data and customer visits are not tracked in electronic  databases for some small post offices—approximately 10 percent of  the total retail facilities it operates. Lack of tracking makes it difficult to  match alternatives to the services that customers are demanding or  using at small post offices. A USPS official commented that it is  developing a strategic retail plan that includes a charter designed to  provide greater convenience, lower-cost service, and improve the  customer experience, but it is unclear how this plan will address the  lack of data at small post offices.
In December 2011, the USPS OIG recommended that USPS improve  the reliability and usefulness of retail facilities data by validating,  correcting, and updating information in its retail facility database.  Moreover, we have also recommended improvements to USPS’s  retail facilities data. In both cases, USPS agreed to implement the  recommendations related to the facilities data.
section_title: Transparency and Equity Concerns Raised about USPS Closure Decisions
paragraphs: Recent USPS OIG analyses of the 2009 and 2011 Retail Initiatives found  that USPS could make improvements in establishing clear criteria for  evaluating closure decisions and implementing an integrated retail  network strategy that includes short- and long-term plans, milestones,  and goals. USPS OIG found that these improvements could raise  stakeholders’ confidence that USPS will make transparent, equitable, and  fact-based decisions. USPS agreed with the findings in these reports  but noted that a “one-size-fits-all” approach might not take factors about  the local community into account and that its retail operations will never  be uniform across the entire network.
Other customers raised equity issues with USPS’s decisions. For  example, some people in a small community at a public meeting we  attended viewed rural post offices as bearing the brunt of closures and  viewed urban areas as not being equally affected. Customers also  wanted clarification on the criteria used to decide which facilities would be  studied and whether other closure initiatives would affect their service.  Similarly, in an appeals case, customers expressed concerns that the  nearest post office was also being studied for closure and that if both  facilities were closed, they would have to travel even further to obtain  services.
section_title: Fairness in Facility Closure Procedures
paragraphs: PRC raised a concern in its 2009 Retail Initiative advisory opinion that  USPS was not providing customers of stations and branches with the  same rights as customers of post offices in a closure proceeding. The  advisory opinion also noted that the public does not really understand the  distinction between various facility types and it is confusing to have  procedures for stations and branches that are different for post offices.  Further, PRC found that stations and branches fulfill the same operational  purposes as post offices and recommended that USPS provide similar  treatment to customers if their local station, branch, or post office were  closed. In another PRC proceeding in 2010, PRC raised a similar concern  about the practice of suspending operations at offices for extended  periods without giving the public the right to comment as would be  afforded in a formal closure study. At some facilities, USPS suspended  services and took no further action to restore service or proceed with  closure for, at times, many years.
In response to PRC concerns, USPS made several changes, including as  part of the 2011 Retail Initiative and in district office-initiated post office  closures that began after July 2011. These changes included the  following:  Implementing uniform closure procedures for all USPS-operated retail  facilities. USPS developed standards that were finalized in July 2011  to address internal and public confusion over different discontinuance  procedures.
Clarifying circumstances that can prompt a closure study. New  regulations allow USPS headquarters to identify USPS-operated retail  facilities for studies and also provide details on the particular  circumstances that can prompt a study. These circumstances  include: a postmaster vacancy, an emergency suspension, low- workload levels, insufficient customer demand, and the availability of  reasonable alternative access to postal services.
Creating a web-based data program to guide closure studies. USPS  created this program and incorporated it into its closure processes as  of December 2010. The program is used to collect information, such  as all community comments during the closure process, and to guide  USPS along a series of required steps. According to USPS, the web- based program has helped streamline the overall closure process and  improved the internal tracking of facility closures, including customer  comments and community statistics, such as the number of  businesses in the community and the nearest retail alternatives.
Clarifying procedures for reviewing facilities where operations have  undergone emergency suspensions. USPS issued revised guidance  in July 2011, affirming that customers of facilities that have  undergone emergency suspensions must be allowed an opportunity to  comment on the proposed discontinuance.  This provision  addressed long-standing concerns of stakeholders regarding postal  facilities where USPS suspends services for long periods of time.
In addition, there has been a sharp increase recently in the number of  appeals filed with PRC related to USPS decisions to close or consolidate  a post office. In fiscal year 2010, 6 appeals were filed with PRC. In fiscal  year 2011, PRC received more than 100 post office closing appeals and  100 were filed in the first quarter of fiscal year 2012. To expedite the  appeals process, PRC streamlined and simplified its procedures for  reviewing appeals and simplified the process to make it easier for the  public to participate in and to understand PRC’s decision-making  process.
section_title: Changes in Who Can Manage Post Offices
paragraphs: USPS also changed its regulations related to the staffing of post offices.  Previously, a postmaster was the only employee who could manage  operations at a post office. New regulations now allow post offices to be  operated or staffed by other types of postal employees, who would be  paid less than postmasters and would report to a postmaster. USPS  expects that this change would give it more staffing flexibility, reduce the  number of postmasters, and reduce costs. A USPS official explained that  changes in operations, such as the removal of delivery operations from  some retail facilities, have resulted in a decreased level of responsibility  for some postmasters over time. Postmasters filed a complaint with PRC  about these proposed changes.because it was filed before this provision of the proposed rule was  finalized.
section_title: Challenges Restrict USPS from Changing Its Retail Network
paragraphs: USPS faces challenges such as legal restrictions and resistance from  some Members of Congress and the public that have limited its ability to  restructure its network. Also, certain policy issues are unresolved, and  pending legislation takes differing approaches to resolving USPS’s  challenges.
subsections: section_title: Legal Restrictions and Resistance
paragraphs: Some legal restrictions have presented challenges to USPS’s plans to  restructure its retail network. As described in the background section of  this report, the law states that no small post office shall be closed solely  for operating at a deficit. Further, language in annual appropriations acts  has provided that none of the funds appropriated in the acts (about $100  million for fiscal year 2011) shall be used to consolidate or close small  rural and other small post offices.“act like a business” and be self-financing, but on the other hand, it is  restricted by law from making decisions that businesses would commonly  make, such as closing unprofitable units.
On one hand, USPS is supposed to  In addition to these statutory restrictions, USPS faces resistance from  some Members of Congress and the public who oppose some facility  closures. For example, at some public meetings we attended, staff from  some congressional offices spoke to community members about actions  they could take to challenge potential closures. For example, they  encouraged residents to write letters to their Members of Congress and  cite specific, negative impacts a potential closing might have. At one  community meeting, congressional staffers said they had received  several letters from community members. In response to such actions by  constituents, many Members of Congress have written letters to USPS  requesting that it not close post offices in their districts. In December  2011, 20 Senators signed a letter to Senate leaders requesting that they  consider including language in an appropriations bill that would prevent  USPS from closing any rural post offices until Congress has passed  reform legislation. USPS then placed a moratorium on all facility closures  until May 15, 2012, while Congress considers postal reform bills. USPS  has encouraged Congress to enact postal reform legislation that would  provide USPS with more flexibility to make retail closure decisions by  eliminating statutory restrictions. Further, USPS officials told us that in  response to resistance to closures, they are considering reducing post  office operating hours rather than closing some facilities.
section_title: Certain Policy Issues and Pending Legislation
paragraphs: Pending postal reform legislation provides an opportunity for Congress to  address certain unresolved policy issues related to USPS’s retail  restructuring plans. These policy issues include what level or type of retail services should USPS provide to meet  customers’ changing use of postal services; how should the cost of these services be paid; how should USPS restructure its operations, networks, and workforce  to support changes in services; and how should Congress provide USPS with flexibility to restructure its  networks and workforce while still holding USPS accountable to  Congress and the public?
Several bills related to postal reform have been introduced in the 112th  Congress, and two have been approved by the Senate and House  oversight committees—S. 1789 and H.R. 2309. As seen in the following  two examples, these bills provide different approaches to addressing the  legal restrictions and resistance USPS faces to closing facilities and the  unresolved policy issues.
S. 1789 requires USPS to establish retail service standards and  consider several factors before making a closure decision, including  consolidating with another facility, reducing hours of operation, and  procuring a contract to provide retail services within the community.  The bill also allows USPS to provide retail alternatives to dedicated  post offices but also puts in place considerations before closing post  offices.
H.R. 2309 removes the statutory restriction on post office closures  “solely for operating at a deficit” and establishes a commission similar  to the Base Realignment and Closure Commission. USPS would  submit a plan to the commission, which would then make closure  recommendations to Congress that would be implemented unless  Congress passed a joint resolution of disapproval.
Table 5 summarizes several challenges to restructuring the retail   network and some options to address these challenges that are included  in these bills.
section_title: Concluding Observations
paragraphs: USPS must carefully work to ensure a viable strategy to effectively size  its retail network to reduce costs to match declining mail volume while  maintaining access to retail services. It is clear that USPS cannot support  its current level of services and operations from its current revenues.  USPS’s ability to continue providing its current level of services is in  jeopardy, and it is up to both Congress and USPS to construct solutions  that will either reduce the cost of services or increase revenues from  other sources. But it appears that USPS cannot restructure its retail  network unless Congress addresses USPS’s financial instability and the  long-standing challenges that hinder its ability to change its retail network.  If Congress prefers to retain the current level of service and associated  network, decisions will need to be made about how USPS’s costs for  providing these services will be paid, including additional cost reductions  or revenue sources. Because USPS is in the process of responding to  several retail restructuring recommendations that its OIG, the PRC, and  we have made, we are not making any additional recommendations.
section_title: Agency Comments
paragraphs: USPS provided written comments on a draft of this report by a letter dated  April 11, 2012. USPS agreed with our findings, noting limitations  management faces to restructuring. Further, it observed that its operating  model is unsustainable and that maintaining the same level of retail  services will require solutions to cover the costs of those services either  through cost reductions or revenue enhancements. USPS also provided us  with technical comments that were incorporated into the final version of this  report as appropriate. USPS’s comments are reprinted in appendix II.
We are sending copies of this report to the appropriate congressional  committees, the Postmaster General, and other interested parties. In  addition, the report is available at no charge on GAO’s website at  http://www.gao.gov.
If you or your staffs have any questions about this report, please contact  me at (202) 512-2834 or stjamesl@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. Key contributors to the report are listed in  appendix III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: To help inform your consideration of actions needed to restructure U.S.  Postal Service (USPS) operations and help it achieve financial viability,  you asked us to examine USPS’s retail network. This report discusses (1)  key actions USPS has taken to restructure its retail network over the past  5 years; (2) concerns raised by postal stakeholders, including Congress,  the Postal Regulatory Commission (PRC), USPS Office of Inspector  General (OIG), and postal business and residential customers, and  USPS’s response to these concerns; and (3) the challenges that USPS  faces in changing its retail network.
To determine what key actions USPS has taken to restructure its retail  network, we reviewed documents related to the Station and Branch  Optimization and Consolidation (2009 Retail Initiative) and Retail Access  Optimization (2011 Retail Initiative), retail alternatives, and individual  district-initiated discontinuances. We examined criteria and goals of the  initiatives, the number of facilities studied, and the number of facilities  closed. In describing trends in the number of USPS-operated facilities,  retail transactions, and other retail operating statistics, we  reviewed reports from USPS OIG and documents filed in several  dockets from PRC related to the 2009 and 2011 Retail Initiatives, and  other discontinuance procedures in general. We also reviewed past  GAO work on the development of retail alternatives.  reviewed USPS documents, including guidance for discontinuance  processes, background documents on major initiatives, and overall  goals for the retail network. Our review included examining rule  changes between old and new discontinuance procedures.  interviewed USPS officials who oversee retail network restructuring to  discuss background of initiatives, criteria used for closures,  discontinuance processes, and relevant data.  reviewed USPS data from fiscal years 2006-2011 on the facilities,  costs of the retail network, employees, and customer statistics to  show trends in number of retail facilities, retail revenues, and  operating costs over the past 5 years. We also requested estimates  and projections for fiscal year 2015.
To understand the context of data provided by USPS, we spoke with  knowledgeable officials to get a more-detailed understanding of how  databases are used by officials and USPS’s methodology for collecting  information. We observed a demonstration of USPS’s Change Suspension  Discontinuance Center program, which contains all of the information used  during the discontinuance process. This demonstration gave us an idea of  how district officials would use the program in support of discontinuance  activities. We also interviewed USPS officials to discuss data we  requested, including how variables were collected, and the methodology for  cost-savings estimates and future projections. For customer visits and retail  transaction data, we used an extrapolation provided by USPS since it does  not collect data for some small post offices. We also reviewed variables  used to estimate cost savings for individual facilities and the overall cost  savings USPS provided us for the retail facility closures from fiscal years  2007 through 2011. We assessed the reliability of USPS data and noted,  where appropriate, the limitations of certain data. For example, we  requested annual cost-savings data related to USPS retail facility closures  for fiscal years 2007 through 2011. USPS initially provided us with  aggregate annual cost savings, but because it did not provide  disaggregated data, we were not able to assess the reliability of these data.  We also discuss in this report the problems with USPS data and analysis  as reported by PRC and the USPS OIG.
To identify concerns raised by postal stakeholders and to determine what  challenges USPS faces in restructuring its retail network, we analyzed  past work by GAO, USPS OIG, and PRC as well as statutory  requirements regarding facility closures and access to retail services. We  also identified stakeholder concerns, both from communities and  Members of Congress, that contributed to resistance to closures and  reviewed proposed legislation to identify potential options for addressing  retail network restructuring. We also discussed challenges to retail  network restructuring with USPS and PRC officials. For example, when  PRC attempted to estimate the costs and savings of the 2011 Retail  Initiative, it reported it was unable to develop a reasonable estimate of the  financial impact of the 2011 Retail Initiative because USPS did not collect  facility-specific revenue and cost data or separate retail costs from other  operational costs. In addition to questions about the overall financial  impact of initiatives, the adequacy of USPS’s cost-savings estimates for  individual facilities has also been questioned by PRC during the appeals  process.
To obtain information on stakeholder issues raised by customers during  past facility closures and USPS’s communication, we conducted an  analysis of the PRC appeals docket for fiscal year 2011. We examined  reasons why facility closures were appealed, alternatives given by  USPS to replace services provided at closed facilities, customer  concerns and USPS’s responses to the concerns contained in the  administrative record, and PRC’s analyses of the cases.
To obtain information on stakeholder concerns for the ongoing 2011  Retail Initiative and recommendations for improving the initiative, we  conducted an analysis of the Nature of Service docket on the 2011  Retail Initiative and the resulting PRC advisory opinion. We examined  USPS testimony, briefs, and responses to interrogatories,  summarized major issues brought up by stakeholders (including  unions, postmaster groups, the National Newspaper Association, and  the Public Representative), and examined the PRC advisory opinion  to inform GAO findings on challenges to making progress in  optimizing the retail network.
To obtain information on resistance to closing facilities, we observed  congressional hearings and community meetings, reviewed relevant  news articles about congressional resistance to closures, and  interviewed USPS and PRC officials.
To observe stakeholder concerns firsthand, we conducted site visits to  USPS districts to attend public meetings and to obtain detailed  information on discontinuance procedures, including criteria for closures  and the 2009 and 2011 Retail Initiatives. We chose two sites to visit, the  Arkansas and Colorado/Wyoming districts, based on the following criteria: number of upcoming public meetings,
2011 Retail Initiative study category,  time range of meetings, proximity of meetings to district offices or cities, and  cost and convenience of travel.
After applying these criteria to choose site visit locations, we attended two  to three community meetings per location and met with various district  officials to discuss the district-level discontinuance review process and  challenges to closing retail facilities. District officials we met with included:  district discontinuance coordinators, managers of marketing, managers of  customer and industry, and managers of post office operations. When  possible, we met with other relevant stakeholders during the site visits to  further our understanding of issues to facility closures. In Arkansas, we  spoke with a small business owner who had filed a petition for appeal of a  closure in a suburban area. In Colorado, we spoke with senior postal  officials in USPS’s Western area office.
In addition to conducting site visits to areas that had predominantly small  post offices, we also attended community meetings in urban areas for  stations and branches. In total, we attended 10 community meetings at  the following locations:  Ivan, AR, Post Office.
Jacksonport, AR, Post Office.
Conejos, CO, Post Office.
Chama, CO, Post Office.
Jaroso, CO, Post Office.
Theological Seminary Station in Alexandria, VA.
Leisure World Station in Aspen Hill, MD.
Market Center Station in Baltimore, MD.
T Street and Kalorama Stations in Washington, D.C. (2 meetings).
Five meetings were for small post offices we observed during site visits,  and 5 were for suburban or urban stations and branches in the  Washington, D.C., area. To analyze which concerns were raised most  frequently at the meetings we attended, we recorded all of the questions  and comments made by customers during all of the meetings we attended.
To examine options for addressing challenges to restructuring the retail  network, we compared provisions in several pieces of proposed postal  reform legislation. We also spoke with USPS officials to discuss how to get  an update on their ongoing initiatives, current options to achieve cost  savings in the retail network, and their strategy for the retail network,  including the integration of retail alternatives with facility closure initiatives.
We conducted this performance audit from April 2011 to April 2012 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Comments from the U.S. Postal Service
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Teresa Anderson (Assistant  Director), Amy Abramowitz, Shelby Kain, Margaret McDavid, SaraAnn  Moessbauer, Amrita Sen, and Crystal Wesco made key contributions to  this report.