USPS faces a dire financial situation and does not have sufficient revenues to cover its expenses, putting its mission of providing prompt, reliable, and efficient universal services to the public at risk. USPS continues to incur operating deficits that are unsustainable, has not made required payments of $11.1 billion to prefund retiree health benefit liabilities, and has reached its $15 billion borrowing limit. Moreover, USPS lacks liquidity to maintain its financial solvency or finance needed capital investment. As presented in table 1, since fiscal year 2006, USPS has achieved about $15 billion in savings and reduced its workforce by about 168,000, while also experiencing a 25 percent decline in total mail volume and net losses totaling $40 billion. As a result of significant declines in volume and revenue, USPS reported that it took unprecedented actions to reduce its costs by $6.1 billion in fiscal year 2009. Also, in fiscal year 2009, a cash shortfall necessitated congressional action to reduce USPS’s mandated payment to prefund retiree health benefits from $5.4 billion to $1.4 billion. In 2011, USPS’s $5.5 billion required retiree health benefit payment was delayed until August 1, 2012. USPS missed that payment as well as the $5.6 billion that was due by September 30, 2012. USPS continues to face significant decreases in mail volume and revenues as online communication and e-commerce expand. While remaining among USPS’s most profitable products, both First-Class Mail and Standard Mail volumes have declined in recent years as illustrated in figure 1. First-Class Mail—which is highly profitable and generates the majority of the revenues used to cover overhead costs—declined 33 percent since it peaked in fiscal year 2001, and USPS projects a continued decline through fiscal year 2020. Standard Mail (primarily advertising) has declined 23 percent since it peaked in fiscal year 2007, and USPS projects that it will remain roughly flat through fiscal year 2020. Standard Mail is profitable overall, but it takes about three pieces of Standard Mail, on average, to equal the profit from the average piece of First-Class Mail. First-Class Mail and Standard Mail also face competition from electronic alternatives, as many businesses and consumers have moved to electronic payments over the past decade in lieu of using the mail to pay bills. USPS reported that for the first time, in fiscal year 2010, fewer than 50 percent of household bills were paid by mail. In addition to lost mail volume and revenue, USPS also has incurred debt, workers’ compensation, and unfunded benefit liabilities, such as pension and retiree health benefits, that totaled $96 billion at the end of fiscal year 2012. Table 2 shows the amounts of these liabilities over the last 6 fiscal years. One of these liabilities, USPS’s debt to the U.S. Treasury, increased over this period from $4 billion to its statutory limit of $15 billion. Thus, USPS can no longer borrow to maintain its financial solvency or finance needed capital investment. USPS continues to incur unsustainable operating deficits. In this regard, the USPS Board of Governors recently directed postal management to accelerate restructuring efforts to achieve greater savings. These selected USPS liabilities increased from 83 percent of revenues in fiscal year 2007 to 147 percent of revenues in fiscal year 2012 as illustrated in figure 2. This trend demonstrates how USPS liabilities have become a large and growing financial burden. USPS’s dire financial condition makes paying for these liabilities highly challenging. In addition to reaching its limit in borrowing authority in fiscal year 2012, USPS did not make required prefunding payments of $11.1 billion for fiscal year 2011 and 2012 retiree health benefits. At the end of fiscal year 2012, USPS had $48 billion in unfunded retiree health benefit liabilities. Looking forward, USPS has warned that it suffers from a severe lack of liquidity. As USPS has reported, “Even with some regulatory and legislative changes, our ability to generate sufficient cash flows from current and future management actions to increase efficiency, reduce costs, and generate revenue may not be sufficient to meet all of our financial obligations.” For this reason, USPS has stated that it continues to lack the financial resources to make its annual retiree health benefit prefunding payment. USPS has also reported that in the short term, should circumstances leave it with insufficient liquidity, it may need to prioritize payments to its employees and suppliers ahead of those to the federal government. For example, near the end of fiscal year 2011, in order to maintain its liquidity USPS temporarily halted its regular contributions for the Federal Employees Retirement System (FERS) that are supposed to cover the cost of benefits being earned by current employees. However, USPS has since made up those missed FERS payments. USPS’s statements about its liquidity raise the issue of whether USPS will need additional financial help to remain solvent while it restructures and, more fundamentally, whether it can remain financially self-sustainable in the long term. USPS has also raised the concern that its ability to negotiate labor contracts is essential to maintaining financial stability and that failure to do so could have significant adverse consequences on its ability to meet its financial obligations. Most USPS employees are covered by collective bargaining agreements with four major labor unions which have established salary increases, cost-of-living adjustments, and the share of health insurance premiums paid by employees and USPS. When USPS and its unions are unable to agree, binding arbitration by a third-party panel is used to establish agreement. There is no statutory requirement for USPS’s financial condition to be considered in arbitration. In 2010, we reported that the time has come to reexamine USPS’s 40-year-old structure for collective bargaining, noting that wages and benefits comprise 80 percent of its costs at a time of escalating losses and a dramatically changed competitive environment. We also reported that Congress should consider revising the statutory framework for collective bargaining to ensure that USPS’s financial condition be considered in binding arbitration. USPS has several initiatives to reduce costs and increase its revenues to curtail future net losses. In February 2012, USPS announced a 5-year business plan with the goal of achieving $22.5 billion in annual cost savings by the end of fiscal year 2016. USPS has begun implementing this plan, which includes initiatives to save:  $9 billion in mail processing, retail, and delivery operations, including consolidation of the mail processing network, and restructuring retail and delivery operations;  $5 billion in compensation and benefits and non-personnel initiatives;  $8.5 billion through proposed legislative changes, such as moving to a 5-day delivery schedule and eliminating the obligation to prefund USPS’s retiree health benefits. Simultaneously, USPS’s 5-year plan would further reduce the overall size of the postal workforce by roughly 155,000 career employees, with many of those reductions expected to result from attrition. According to the plan, half of USPS’s career employees are currently eligible for full or early retirement. Reducing its workforce is vital because, as noted, compensation and benefits costs continue to generate about 80 percent of USPS’s expenses. Compensation alone (primarily wages) exceeded $36 billion in fiscal year 2012, or close to half of its costs. Compensation costs decreased by $542 million in fiscal year 2012 as USPS offered separation incentives to postmasters and mail handlers to encourage more attrition. This fiscal year, separation incentives were offered to employees represented by the American Postal Workers Union (e.g., mail processing and retail clerks) to encourage further attrition as processing and retail operations are redesigned and consolidated to more closely correspond with workload. To accelerate implementation of its plan, in early February 2013, USPS announced plans to transition to a new delivery schedule by early August 2013 that would limit its delivery of mail on Saturdays to mail addressed to Post Office Boxes and to packages. USPS’s operational plan for the new delivery schedule anticipates a combination of employee reassignment and attrition to generate an expected annual cost savings of about $2 billion once its plan is fully implemented. Over the past several years, USPS has advocated shifting to a 5-day delivery schedule for both mail and packages. According to USPS, however, recent strong growth in package delivery—as we will discuss in more detail below—and projections for continued strong package growth throughout the coming decade led to a revised approach to maintain package delivery 6 days per week. Another key area of potential savings included in the 5-year plan focused on reducing compensation and benefit costs. USPS’s largest benefit payments in fiscal year 2012 included:  $7.8 billion in current-year health insurance premiums for employees, retirees, and their survivors (USPS’s health benefit payments would have been $13.4 billion if USPS had paid the required $5.6 billion retiree health prefunding payment);  $3.0 billion in FERS pension funding contributions;  $1.8 billion in social security contributions;  $1.4 billion in workers’ compensation payments; and  $1.0 billion in Thrift Savings Plan contributions. USPS has proposed administering its own health care plan for its employees and retirees and withdrawing from the Federal Employee Health Benefits (FEHB) program so that it can better manage its costs and achieve significant savings, which USPS has estimated could be over $7 billion annually. About $5.5 billion of the estimated savings would come from eliminating the retiree health benefit prefunding payment and another $1.5 billion would come from reducing health care costs. We are currently reviewing USPS’s proposal including its potential financial effects on participants and USPS. To increase revenue, USPS is working to increase use of shipping and package services.