USPS has taken steps to respond to most of our prior recommendations to strengthen planning and accountability for its network realignment efforts. It has clarified how it makes realignment decisions and generally addressed how it integrates its realignment initiatives, but it has not established measurable performance targets for these initiatives. USPS believes that its budgeting process accounts for the cost reductions achieved through these initiatives. In our 2007 report we stated that without measurable performance targets for achieving its realignment goals, USPS remains unable to demonstrate to Congress and other stakeholders the costs and benefits associated with its network realignment initiatives. We also reported that although USPS had made progress on several of its realignment initiatives, it remained unclear how the various initiatives were individually and collectively contributing to the achievement of realignment goals because the initiatives lacked measurable targets. Appendix I provides a brief description and identifies the status of USPS’s key realignment initiatives. Appendix II provides updated status information for all AMP consolidations through July 2008. PAEA calls for USPS to, among other matters, establish performance goals and identify anticipated costs, cost savings, and other benefits associated with the infrastructure realignment alternatives in its Network Plan. The Network Plan describes an overall goal to create an efficient and flexible network that results in lower costs for both the Postal Service and its customers, improves the consistency of mail service, and reduces the Postal Service’s overall environmental footprint. In addition, the plan states that USPS’s goals are continuous improvement and savings of $1 billion per year through realignment and other efforts. According to the plan, USPS will achieve these savings, in part, through three core realignment initiatives, including Airport Mail Center (AMC) closures, AMP consolidations, and Bulk Mail Center (BMC) transformations. The specificity of the expected savings and other benefits related to the core initiatives varies in the plan’s discussion of measurable goals, targets, and results achieved. Overall program targets: USPS estimated total savings of $117 million for AMC closures—including savings of $57 million in 2008 and $21 million in 2009—but provided no such figure for the AMP consolidations. Postal officials told us USPS is developing an overall program target for transforming the BMCs. Evaluation of results: USPS has measured the results of its AMP consolidations through a post-implementation review. In 2007, we identified data consistency problems with this review. USPS has addressed these problems in an updated handbook issued in 2008, by revising its data calculation worksheets. No analogous process exists for measuring the results of USPS’s AMC closures, which included outsourcing some operations conducted at these facilities, relocating some operations to other postal facilities, and closing some facilities. We are issuing a report today on USPS’s outsourcing activities, which discusses USPS’s realignment decisions related to its AMCs. As part of this review, we concluded that USPS does not track and could not quantify the results of its outsourcing activities. We recommended that USPS establish a process to measure the results and effectiveness of those outsourcing activities that are subject to collective bargaining, including the AMCs. USPS agreed to establish a process for future outsourcing initiatives subject to collective bargaining, in which it would compare the financial assumptions that supported its outsourcing decision with actual contract award data 1 year after project implementation. When we met with USPS officials in June 2008, we asked why they did not have measurable performance goals and targets for the individual realignment initiatives. The Deputy Postmaster General explained that the realignment targets are captured in USPS’s goal of saving $1 billion per year. Specifically, he explained that USPS will present its overall goals and targets in more detail as part of its internal budget, which will be presented to the Board of Governors in July 2008. USPS will have additional opportunities to provide information about its estimated costs and cost savings related to its realignment efforts in its annual report to Congress, which is required by the end of December. Developing and implementing more transparent performance targets and results can help inform Congress about the effectiveness of USPS’s realignment efforts. In 2007, we found there was little transparency into how USPS’s efforts were integrated with each other. We recommended that USPS explain how it will integrate the various initiatives that it will use in realigning the postal facilities network. In its Network Plan, USPS identifies three major realignment efforts: (1) Airport Mail Center closures, (2) consolidations of Area Mail Processing operations and (3) transformations of Bulk Mail Centers. USPS briefly addresses the integration of its network initiatives, stating that their overall impact and execution are tightly integrated, and provides a few examples, but little contextual information about what its future network will look like and how its realignment goals are being met. In a recent meeting, senior USPS officials provided more information that helps to put the integration of USPS’s three network realignment initiatives in context. They said this integration is expected to reduce USPS’s network and shrink its mail processing operations. After integrating these three efforts, they said, USPS will continue to be the “first and last mile”—the “first mile” being the point of entry for mail into the system, and the “last mile” being the delivery of mail to customers nationwide, as required to meet USPS’s universal service mission. They expect to lower costs and achieve savings by reducing excess processing capacity and fuel consumption, as well as by working with the mailing industry to implement new technologies such as delivery point sequencing, flats sequencing, and Intelligent Mail.® Going forward, USPS has opportunities, in its annual report to Congress and in other reports and strategic plans, to further articulate how it plans to integrate these three initiatives and to what extent they are helping USPS meet its goals. USPS has partially responded to our prior recommendations related to improving delivery performance information by establishing delivery performance standards and committing to develop performance targets against these standards and provide them to the PRC in August. However, full implementation of performance measures and reporting is not yet completed. Delivery service performance is a critical area that may be affected by the implementation of the realignment initiatives. Delivery standards are essential for setting realistic expectations for mail delivery so that USPS and mailers can plan their mailing activities accordingly. Delivery performance information is critical for stakeholders to understand how USPS is achieving its mission of providing universal postal service, including requirements for the prompt, expeditious, and reliable delivery of mail throughout the nation. Delivery performance data are also necessary for USPS and its customers to identify and address delivery problems and to enable Congress, the PRC, and others to hold management accountable for results and to conduct independent oversight. Our July 2006 report found that USPS’s delivery performance standards, measurement, and reporting needed improvement. We recommended that USPS update its outdated delivery standards, which did not reflect postal operations and thus were unsuitable for setting realistic expectations and measuring performance. We also recommended that the Service implement representative measures of delivery performance for all major types of mail because only one-fifth of mail volume was being measured and there were no representative measures for Standard Mail, bulk First-Class Mail, Periodicals, and most Package Services. Furthermore, we recommended that USPS improve the transparency of its delivery standards, measurement, and reporting. In December 2006, Congress enacted postal reform legislation that required USPS to modernize its delivery standards and measure and report to the PRC on the speed and reliability of delivery for each market-dominant product. Collectively, market-dominant products represent 99 percent of mail volume. In December 2007, USPS issued its new delivery standards and has committed to measuring and reporting on delivery performance for market-dominant products starting in fiscal year 2009. Moreover, USPS provided a specific proposal for measuring and reporting its delivery performance to the PRC, which has requested public comment on USPS’s proposal. Full implementation of delivery performance measures and reporting for all major types of mail will require both mailers and USPS to take actions to barcode mail and track its progress—a system referred to as Intelligent Mail®. USPS has taken steps to respond to our recommendations that it improve its communication of realignment plans and proposals with stakeholders. For key realignment efforts such as AMP consolidations, we found it is critical for USPS to communicate with and engage the public. Stakeholder input can help USPS understand and address customer concerns, reach informed decisions, and achieve buy-in. In our 2007 report, we concluded that USPS was not effectively engaging stakeholders and the public in its AMP consolidation process and effectively communicating decisions. For example, USPS was not clearly communicating to stakeholders what it was planning to study, why studies were necessary, and what study outcomes might be. In addition, USPS did not provide stakeholders with adequate notice of the public input meeting or materials to review in preparation for the meeting. Furthermore, according to stakeholders, USPS offered no explanation as to how it evaluates and weighs public input in its decision-making process. To help resolve these and other issues concerning how USPS communicates its realignment plans with stakeholders, we recommended that USPS take the following actions: Improve public notice. Clarify notification letters by explaining whether USPS is considering closing the facility under study or consolidating operations with another facility, explaining the next decision point, and providing a date for the required public meeting. Improve public engagement. Hold the public meeting during the data- gathering phase of the study and make an agenda and background information, such as briefing slides, available to the public in advance. Increase transparency. Update AMP guidelines to explain how public input is considered in the decision-making process. USPS has incorporated into its 2008 AMP Communication Plan several modifications aimed at improving public notification and engagement. Most notably, USPS has moved the public input meeting to an earlier point in the AMP process and plans posts a meeting agenda, summary brief, and presentation slides on its Web site 1 week before the public meeting. USPS has increased transparency, largely by clarifying its processes for addressing public comments and plans to make additional information available to the public on its Web site. In 2007, we found that stakeholders potentially affected by AMP consolidations could not discern from USPS’s initial notification letters what USPS was planning to study and what the outcomes of the study might be. This lack of clarification led to speculation on the part of stakeholders, which in turn increased public resistance to USPS’s realignment efforts. The initial notification letters were also confusing to stakeholders because they contained jargon and lacked adequate context to understand the purpose of the study. Furthermore, in 2007 we reported that stakeholders were not given enough notice about the public meeting, and we recommended that USPS improve public notice by providing stakeholders with a date for the public meeting earlier in the AMP process. In its 2008 AMP Communication Plan, USPS has eliminated most of the jargon from its notification letters and has generally provided more context as to why it is necessary for USPS to conduct the feasibility studies. For example, letters now name both facilities that would be affected by a proposed consolidation, whereas previously, only one facility was named. USPS also added a requirement that the public be notified at least 15 days in advance of a public meeting. In 2007, we found that public meetings required for AMP consolidations were occurring too late in the decision-making process for the public to become engaged in this process in any meaningful way. At that time, the meetings were held after the area office and headquarters had completed their reviews of the AMP consolidation studies and just before headquarters had made its final consolidation decisions. Stakeholders we spoke with were not satisfied with the public input process and told us that USPS solicited their input only when it considered the AMP consolidation a “done deal.” We also found that USPS did not publish agendas in advance of public meetings or provide the public with much information about the proposed studies. The only information available was a series of bullet points posted on USPS’s Web site several days before the meetings. This lack of timely and complete information further inhibited the public’s ability to meaningfully participate in the process. To make the meetings more focused and productive, and to give the public an opportunity to adequately prepare for them, we recommended that USPS make an agenda and background information available to the public in advance of the public meetings. Although USPS still holds the public meetings after the data-gathering phase of the study has been completed, the meeting now occurs earlier in the AMP review process. Currently, before the meeting, the study has been approved only at the district level—the area office and headquarters have not yet completed their reviews or validated the data by the time of the meeting. When we asked USPS why it did not move the meeting to the data-gathering phase of the study, USPS officials responded that it would be difficult to hold the meeting during the data-gathering phase because at that point, they do not know what operations could potentially be consolidated. However, to ensure that the public meeting is held within a reasonable amount of time after the study’s completion, USPS included a requirement in its 2008 AMP Communication Plan that the public meeting take place within 45 days after the District Manager forwards the study to the area office and headquarters. In addition, the initial notification letter now includes contact information for the local Consumer Affairs Manager, to whom the public can submit written comments up to 15 days after the public meeting; previously, this contact information appeared in the second notification letter. To help stakeholders better prepare for the public meeting, USPS plans to post a meeting agenda, presentation slides, and a summary brief of the AMP proposal on its Web site 1 week before the meeting. In addition, USPS plans to inform stakeholders in the public meeting notification letter that these materials will be posted on its Web site 1 week before the meeting. In our 2007 report, we found that stakeholders and the public were unclear as to how public input factored into USPS’s consolidation decisions. They wanted to know precisely how USPS took their input—letters, phone calls, public meeting results—into consideration when it made its decisions. We recommended that USPS increase the transparency of its decision-making process by explaining how it considers public input in the decision-making process. In a recent interview, senior USPS officials identified two additions to the 2008 AMP Communication Plan that address stakeholders’ concerns about how USPS considers public input. First, USPS considers written comments from stakeholders before the public input meetings and addresses these comments as part of the public input meetings. Second, USPS has modified its public input review process so that officials at the district, area, and headquarters levels consider, and are responsive to, public concerns. Senior USPS officials told us that they weigh public input primarily by considering the impact of any consolidations on customer services and service standards. Additionally, USPS officials told us that as AMP consolidations go forward, USPS will post standard information about each consolidation on its Web site and update this information regularly. Specifically, USPS plans to post initial notifications, a summary brief of the proposed AMP consolidation, specifics about the scheduled public meeting, a summary of written and verbal public input, and the final decision and implementation plans if an AMP consolidation is approved. Congress has also addressed USPS’s communication process. PAEA required USPS to describe its communication procedures related to AMP consolidations in its Network Plan. In response, the Network Plan discusses how USPS will publicly notify communities potentially affected by realignment changes and how it will obtain and consider public input. In addition, PAEA directed USPS to identify any statutory or regulatory obstacles that have prevented it from taking action to realign or consolidate facilities. Accordingly, USPS’s Network Plan identified delays related to implementing AMP consolidations. For example, USPS was directed not to implement certain consolidations until after GAO has reported to Congress on whether USPS has implemented GAO recommendations from its report issued in July 2007 to strengthen planning and accountability in USPS’s realignment efforts. These directions were included in the joint explanatory statement accompanying the Consolidated Appropriations Act for fiscal year 2008. We have previously discussed the difficulties that stakeholder resistance poses for USPS when it tries to close facilities and how delays may affect USPS’s ability to achieve its cost-reduction and efficiency goals. Part of the problem stemmed from USPS’s limited communication with the public. We believe that USPS has made significant progress toward improving its AMP communication processes since 2005. Now, it will be crucial for USPS, in going forward, to establish and maintain an ongoing and open dialogue with its various stakeholders, including congressional oversight committees and Members of Congress who have questions or are concerned about proposed realignment changes. Mr. Chairman, this concludes my prepared statement. I would be pleased to respond to any questions that you or Members of the Subcommittee may have. For further information about this statement, please contact Phillip Herr, Director, Physical Infrastructure Issues, at (202) 512-2834 or at herrp@gao.gov. Individuals making key contributions to this statement included Teresa Anderson, Kenneth John, Summer Lingard, Margaret McDavid, and Jaclyn Nidoh. Realignment of Airport Mail Centers (AMC) AMCs are postal facilities that have traditionally been operated for the purpose of expediting the transfer of mail to and from commercial passenger airlines. USPS’s Network Plan stated that USPS had terminated operations at 46 AMCs during fiscal years 2006 and 2007, and another 8 AMCs in fiscal year 2008. AMP consolidations of mail processing operations are intended to reduce costs and increase efficiency by eliminating excess capacity at USPS’s more than 400 processing plants. From 2005 through July 2008, USPS implemented 11 AMP consolidations, decided not to implement 35 studies (5 placed on indefinite hold), was continuing to consider 7 consolidations, and had closed 1 facility after consolidation. Because mailers have increased their sorting and transport of mail shipments to postal facilities near mail destinations, mailers have been bypassing BMCs and the centers are underused. Also, increased highway contract expenses and an aging postal distribution infrastructure have prompted USPS to evaluate its BMC network to determine how it can best support future postal operations. In July 2008, USPS issued a Request for Proposal to obtain input on a proposal to outsource some of its BMC workload so that USPS can use its 21 BMCs for alternative postal work. The Regional Distribution Centers were expected to perform bulk processing operations and act as Surface Transfer Centers and mailer entry points. The Network Plan stated that this initiative has been discontinued because USPS determined that it would not generate the benefits originally anticipated. GAO. U.S. Postal Service: Data Needed to Assess the Effectiveness of Outsourcing. GAO-08-787. Washington, D.C.: July 24, 2008. GAO. U.S. Postal Service: Progress Made in Implementing Mail Processing Realignment Efforts, but Better Integration and Performance Measurement Still Needed. GAO-07-1083T. Washington, D.C.: July 26, 2007. GAO. U.S. Postal Service: Mail Processing Realignment Efforts Under Way Need Better Integration and Explanation. GAO-07-717. Washington, D.C.: June 21, 2007. GAO. U.S. Postal Service: Delivery Performance Standards, Measurement, and Reporting Need Improvement. GAO-06-733. Washington, D.C.: July 27, 2006. GAO. U.S. Postal Service: The Service’s Strategy for Realigning Its Mail Processing Infrastructure Lacks Clarity, Criteria, and Accountability. GAO-05-261. Washington, D.C.: April 8, 2005. GAO. U.S. Postal Service: USPS Needs to Clearly Communicate How Postal Services May Be Affected by Its Retail Optimization Plans. GAO-04-803. Washington, D.C.: July 13, 2004. GAO. U.S. Postal Service: Bold Action Needed to Continue Progress on Postal Transformation. GAO-04-108T. Washington, D.C.: November 5, 2003. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Summary: GAO has issued reports on the U.S. Postal Service's (USPS) strategy for realigning its mail processing network and improving delivery performance information. These reports recommended that the Postmaster General (1) strengthen planning and the overall integration of its realignment efforts, and enhance accountability by establishing measurable targets and evaluating results, (2) improve delivery service standards and performance measures, and (3) improve communication with stakeholders by revising its Area Mail Processing (AMP) Communication Plan to improve public notice, engagement, and transparency. The 2006 postal reform act required USPS to develop a network plan by June 2008 that described its vision and strategy for realigning its network; the anticipated costs, cost savings, and other benefits of its realignment initiatives; performance measures for its delivery service standards, and its communication procedures for consolidating AMP operations. This testimony discusses USPS's actions toward addressing GAO recommendations to (1) strengthen network realignment planning and accountability, (2) improve delivery performance information, and (3) improve communication with stakeholders. This testimony is based on prior GAO work, a review of USPS's 2008 Network Plan and revised AMP Communication Plan, and updated information from USPS officials. USPS did not have comments on this testimony. USPS has taken steps to respond to most of GAO's prior recommendations to strengthen planning and accountability for its network realignment efforts. In its June 2008 Network Plan, USPS clarified how it makes realignment decisions, and generally addressed how it integrates its realignment initiatives. However, USPS has not established measurable performance targets for its realignment initiatives. USPS believes that its budgeting process accounts for the cost reductions achieved through these initiatives. The Deputy Postmaster General explained that such performance targets are captured in USPS's overall annual goal of achieving $1 billion in savings. While these measures are not as explicit or transparent as GAO had recommended, USPS is required to report annually by the end of December to Congress on, among other matters, its realignment costs and savings. Also, USPS's annual compliance reports to the Postal Regulatory Commission (PRC) will provide opportunities for further transparency of performance targets and results. USPS's Network Plan notes that to respond to declining mail volumes, USPS must increase efficiency and decrease costs across all its operations. Given USPS's challenging financial situation, effective implementation of network realignment is needed; and USPS's annual reports could help inform Congress about the effectiveness of its realignment efforts. USPS has partially responded to GAO's recommendations to improve its delivery performance standards, measurement, and reporting, but full implementation of performance measures and reporting is not yet completed. USPS established delivery performance standards in December 2007. USPS's Network Plan stated that USPS would develop targets and measures to assess performance against these standards by fiscal year 2009. In addition, USPS has recently submitted a proposal for measuring and reporting on delivery service performance to the PRC. The PRC has requested public comment on USPS's proposal, which depends upon USPS and mailers implementing new technology. Delivery service performance is a critical area that may be affected by the implementation of the realignment initiatives. USPS has also taken steps to address GAO's recommendations to improve communication with its stakeholders as it consolidates its AMP operations by modifying its Communication Plan to improve public notification and engagement, increasing transparency by clarifying its processes for addressing public comments, and making additional information available on its Web site. Going forward, it will be crucial that USPS establishes and maintains an ongoing and open dialogue with stakeholders, including congressional oversight committees and Members of Congress who have questions or are concerned about proposed realignment changes