USPS urgently needs to restructure its networks and operations as its financial condition and outlook reach a crisis level. USPS has experienced a cumulative net loss of nearly $20 billion over the last 5 fiscal years and has already reported a net loss of $2.6 billion through the first 6 months of fiscal year 2011. By the end of this fiscal year, USPS projects that it will incur a $8.3 billion loss, experience a substantial cash shortfall, reach its $15 billion borrowing limit, and be unable to make its scheduled retiree health benefits payment to the federal government. USPS’s financial problems have been building, as customers’ mail use has been changing— that is, mail volume is declining as customers shift to electronic communications and payment alternatives. Total mail volume peaked in fiscal year 2006 at 213 billion pieces and declined by about 20 percent by the end of fiscal year 2010, to about 170 billion pieces. In the first 2 quarters of this fiscal year, the volume for First-Class Mail—USPS’s most profitable product that accounted for 44 percent of USPS total volume— has declined by almost 7 percent. USPS has projected a further drop in total mail volume to 150 billion pieces or less by 2020. Declining mail volume exposes fundamental weaknesses in USPS’s business model, which has historically relied on mail volume growth to help cover the costs associated with national retail, processing, and delivery networks. USPS does not have sufficient revenue to cover the growing costs of expanding delivery service to roughly 1 million new residences and businesses each year while maintaining about 33,000 USPS-operated retail and processing facilities. Furthermore, USPS faces a variety of challenges in trying to reduce costs, including an inflexible cost structure; legal and regulatory restrictions; stakeholder resistance; difficulty reducing compensation and benefit costs, which comprise 80 percent of USPS’s total expenses; and increasing difficulty in achieving work hour savings. For these reasons and more, we placed USPS’s financial condition and outlook on our 2011 list of high-risk programs and agencies. USPS currently operates about 32,500 retail facilities. Customers can also purchase some USPS products or services at over 70,000 locations, including about 3,700 contract postal units and community post offices and through partnerships with retailers, as well as through usps.com. In fiscal year 2010, about 31 percent of retail revenue from USPS products and services was generated through retail alternatives, and USPS estimates that by 2020, these alternatives may account for nearly 60 percent of retail sales. Meanwhile, fewer customers are visiting USPS- operated retail locations. According to USPS, customer visits have declined over the last decade by about 21 percent and retail revenue generated at USPS-operated retail locations has dropped by about 16 percent, yet the number of USPS-operated facilities has remained largely unchanged since fiscal year 2001. Although the number of channels through which customers can access USPS’s products and services is expanding, USPS has been slow to modernize its legacy retail network. Figure 1 compares the number of selected groups of postal retail facilities—USPS-operated facilities and non-USPS-operated—in fiscal years 2001 and 2010. Non-USPS facilities may be operated by partners and are therefore less costly for USPS and may be more conveniently located where there is higher customer traffic. While USPS has slightly reduced the total number of USPS-operated and non-USPS-operated retail facilities over the last 10 years, the ratio of USPS-operated versus non-USPS-operated facilities has barely changed (88 percent in fiscal year 2001 compared with 90 percent in fiscal year 2010). Foreign postal operators we studied have modernized their legacy brick-and-mortar retail networks by drastically reducing the proportion of facilities they operate relative to the proportion of those operated by others. Several factors have constrained USPS’s efforts to make significant changes to its retail network: Legal requirements: USPS officials have stated that the legal process has hindered USPS’s ability to make progress in retail realignment. Statutory requirements prohibit USPS from closing small post offices solely for operating at a deficit, and, therefore, certain retail facilities cannot be closed based on financial performance alone. USPS has reported that about 80 percent of postal retail facilities do not generate sufficient revenue to cover their costs. Additionally, the Postal Regulatory Commission (PRC) has authority to hear appeals on “post office” closures. However, USPS and the PRC have differed in their interpretation of the PRC’s statutory authority to review appeals of USPS decisions to close stations and branches. Further, when USPS proposes changes in the nature of postal services that will generally affect service on a nationwide or substantially nationwide basis, it must request an advisory opinion from the PRC. According to USPS officials, the amount of time taken to complete the required statutory process for closing facilities has hindered USPS from timely realignment of its retail network. USPS is required to provide 60 days advance notice of closing a post office, and any person served by the facility may appeal the closure decision. The PRC has 120 days after receiving an appeal to make a determination, which is made on a case-by-case basis. So far this fiscal year, the PRC has received more appeals of retail facility closures than it did in the last decade combined (18 in 2011 compared with 8 in fiscal years 2001 through 2010). Of these 18 appeals, 10 involved stations and branches. The PRC may affirm USPS’s decision or require USPS to reconsider its closure decisions, but the ultimate authority to close a post office rests with USPS. Currently, after the PRC’s determination, USPS must wait at least 90 days to take action after posting a final closure determination. In its filings with the PRC, USPS has asserted that, in cases where the closing involves a station or branch, the PRC lacks subject matter jurisdiction to hear appeals that do not involve a “post office.” Nevertheless, the PRC issues determinations on appeals of USPS decisions to close retail facilities, including stations and branches. This issue remains unresolved. In 2009, USPS filed a request for a PRC advisory opinion of its analysis of over 4,000 stations and branches for possible closure, which resulted in the closure of about 145 facilities from this proceeding. The PRC’s opinion advised USPS to improve public notice and input prior to making closure decisions. It also suggested that USPS implement uniform procedures for closing or consolidating all types of retail facilities—post offices, stations, or branches. Since then, USPS officials have told us that they plan additional closings of certain retail facilities. Stakeholder resistance: USPS has often faced formidable resistance from employees, affected communities, and Members of Congress when it has attempted to close post offices because of concerns about possible effects on service, employees, and communities. Although USPS is taking steps to improve its communication for making these retail changes, stakeholders continue to protest the closure of postal facilities. The foreign posts we recently studied have also experienced declining mail volume and revenue. Their solutions to addressing stakeholder resistance involved regular engagement with stakeholders, including strategic communication and outreach efforts. These posts emphasized that although a neighborhood post office would be closing, retail alternatives were available with local merchants who had extended operating hours and were located where customers frequently visit—such as grocery, convenience, and drug stores. For example, when modernizing its retail network, the Swedish postal operator launched a nationwide campaign that focused on the post as “a service” instead of “a place” and proactively informed customers about how and where they could access postal services. The Swedish Post reported that customers adapted to the change and preferred the expanded service options. Officials we interviewed at Australia Post discussed the importance of involving local communities in deciding, for example, whether to contract with a local retail partner or close a post office. USPS has taken actions to reduce excess capacity and improve operational efficiency throughout its mail processing network for sorting and transporting mail, but has had difficulty comprehensively adjusting its network to respond to the unprecedented mail volume decline since fiscal year 2006. As a result, costly excess capacity remains. USPS’s mail processing network comprises over 500 mail processing facilities and corresponding transportation services, equipment, and staff. USPS has made some progress in streamlining its processing network, such as by closing smaller facilities like Airport Mail Centers and Remote Encoding Centers. These and other actions have helped USPS eliminate nearly 108 million workhours from its processing network over the last 5 years (or nearly 40 percent of its total workhour reduction over that time). Costly excess mail processing capacity remains for several reasons: Mail volume has declined, particularly single-piece First-Class Mail, which has dropped by about 23 billion pieces over the past decade. As a result, less mail is processed end-to-end through USPS’s processing network. In 2009, for example, a USPS official testified that USPS had 50 percent excess plant capacity in its First-Class Mail processing operations. Continuing automation improvements enable USPS to sort mail faster and more efficiently. Some space once needed for manual sorting is now excess. Eighty-three percent of Standard Mail in fiscal year 2010 was destination entered by mailers, meaning that it bypassed most of USPS’s mail processing network and long-distance transportation. This increase—16 percent over the last decade—has left USPS with excess processing capacity. As a result of these factors, USPS’s mail processing network could handle significantly more mail than is currently going through the system. USPS has often faced resistance from employees, affected communities, and Members of Congress when it has attempted to consolidate its processing operations and networks, close mail processing facilities, or both because of concerns about possible effects on service, employees, and communities. In particular, we have reported that stakeholders have concerns about USPS’s ongoing efforts to consolidate its Area Mail Processing (AMP) facilities.