USPS’s financial condition and outlook continue to deteriorate with a worsening outlook for mail volume and revenue. USPS currently projects a mail volume decline of 13.7 percent for fiscal year 2009, triple the 4.5 percent decline in fiscal year 2008 and the largest percentage decline since the Great Depression. As a result, USPS is projecting the following for fiscal year 2009: a net loss of about $7 billion, even if it achieves record cost savings of about $6 billion; an increase in outstanding debt by the annual statutory limit of $3 billion; and, despite this borrowing, an unprecedented $1 billion cash shortfall. USPS has reported that it does not expect to generate sufficient cash from operations to fully make its mandated payment of $5.4 billion for future retiree health benefits that is due by September 30, 2009. Further, USPS recently reported to Congress that—due to the need to maintain sufficient cash to cover costs—it will not fully make this payment, even if it receives $2 billion in relief from fiscal year 2009 retiree health benefits payments that would be provided by H.R. 22, which has been reported out of the House Committee on Oversight and Government Reform. USPS also expects continued financial problems in fiscal year 2010, with a similar deficit even if it achieves larger cost savings, and an even larger cash shortfall. Under this scenario, USPS would increase its outstanding debt by an additional $3 billion, which would bring its total debt to $13.2 billion at the end of fiscal year 2010—only $1.8 billion less than its $15 billion statutory limit. USPS’s projected cost cutting of about $6 billion for this fiscal year is much larger than its previous annual cost-cutting targets that have ranged from nearly $900 million to $2 billion since 2001. However, USPS projects cash shortfalls because cost cutting and rate increases will not fully offset the impact of mail volume declines and other factors that increase costs— notably semiannual cost-of-living allowances (COLA) for employees covered by union contracts. Compensation and benefits constitute close to 80 percent of its costs—a percentage that has remained similar over the years despite major advances in technology and automating postal operations. Also, USPS continues to pay a higher share of employee health benefit premiums than other federal agencies. Further, it has high overhead (institutional) costs that are hard to change in the short term, such as providing universal service that includes 6-day delivery and maintaining a network of 37,000 post offices and retail facilities, as well as a delivery network of more than 149 million addresses. Two days ago, we added USPS’s financial condition to the list of high-risk areas needing attention by Congress and the executive branch to achieve broad-based transformation. We reported that USPS urgently needs to restructure to address its current and long-term financial viability. USPS’s cost structure has not been cut fast enough to offset accelerated decline in mail volume and revenue. In this regard, USPS has high personnel costs, including those to provide 6-day delivery and retail services. To achieve financial viability, USPS must align its costs with revenues, generate sufficient earnings to finance capital investment, and manage its debt. We noted that mail use has been changing over the past decade as businesses and consumers have moved to electronic communication and payment alternatives. Further innovations in, and use of, e-commerce and broadband are expected. The percentage of households paying bills by mail is declining while the percentage of electronic payments is increasing (see fig. 1). Mail volume peaked in 2006, and its decline has accelerated with the economic recession, particularly among major mail users in the advertising, financial, and housing sectors. Mail volume has typically returned after recessions, but USPS’s 5-year forecast suggests that much of the lost volume will not return. For these reasons, we concluded that action is needed in multiple areas, including possible action and support by Congress, as no single change will be sufficient to address USPS’s challenges. The short-term challenge for USPS is to cut costs quickly enough to offset the unprecedented volume and revenue declines, so that it can cover its operating expenses. The long-term challenge is to restructure USPS operations, networks, and workforce to reflect changes in mail volume, use of the mail, and revenue. Accordingly, we have called for USPS to develop and implement a broad restructuring plan—with input from the Postal Regulatory Commission (PRC) and other stakeholders, and approval by Congress and the administration—that includes key milestones and time frames for actions, addresses key issues, and identifies what steps Congress and other stakeholders may need to take. We stated that USPS’s restructuring plan should address how it plans to realign postal services, such as delivery frequency, delivery standards, and access to retail services, with changes in the use of mail by consumers and businesses; better align costs and revenues, including compensation and benefit costs; optimize its operations, networks, and workforce; increase mail volumes and revenues; and retain earnings, so that it can finance needed capital investments and repay its growing debt. USPS needs to optimize its retail, mail processing, and delivery networks to eliminate growing excess capacity and maintenance backlogs, reduce costs, and improve efficiency. We recently reported that USPS needs to rightsize its retail and mail processing networks and reduce the size of its workforce. USPS has a window of opportunity to further reduce the cost and size of its workforce through attrition and the large number of upcoming retirements to minimize the need for layoffs. As the Postmaster General testified this March, about 160,000 USPS employees are eligible for regular retirement this fiscal year, and this number will grow within the next 4 years to nearly 300,000. USPS has begun efforts to realign and consolidate some of its mail processing, retail, and delivery operations, but much more restructuring is urgently needed. We recognize that USPS would face formidable resistance to restructuring with many facility closures and consolidations because of concerns that these actions would impact service, employees, and local communities. USPS senior management will need to provide leadership and work with stakeholders to overcome resistance for its actions to be successfully implemented. USPS must use an open and transparent process that is fairly and consistently applied; engage with its unions, management associations, the mailing industry, and political leaders; and demonstrate results of actions. In turn, these stakeholders and Congress need to recognize that major changes are urgently needed for USPS to be financially viable. To its credit, USPS recently began a national initiative to consolidate some of its 3,200 postal retail stations and branches in urban and suburban areas. It has nearly completed an initial review to identify which facilities will be studied for consolidation, and expects the studies to take about 4 months, with final decisions made starting this October. USPS has processes for notifying its unions and management associations, soliciting community input, and notifying affected employees as it winnows the list of stations and branches it is considering for consolidation (see fig. 2). On July 2, 2009, USPS requested that PRC provide an advisory opinion on USPS’s retail consolidation initiative, which has led to a public process that will provide stakeholders with opportunities for input. In its request, USPS stated it would identify opportunities to consolidate retail operations and improve efficiency, but only after concluding that such changes will continue to provide ready access to essential postal services. USPS noted that the branches and stations considered for consolidation are often in close proximity to each other. USPS stated that it could not estimate the savings because it had not made decisions on how many or which facilities would be closed. Going forward, issues may include whether stations and branches will be considered subject to statutory requirements for maintaining and closing post offices, and the similar question of whether any branches and stations are covered by the long- standing appropriations provision that restricts post office closures. USPS is required, among other things, to provide adequate, prompt, reliable, and efficient services to all communities, including a maximum degree of effective and regular services in rural areas, communities, and small towns where post offices are not self-sustaining. USPS is specifically prohibited from closing small post offices solely for operating at a deficit. Consistent with reasonable economies, USPS is authorized to establish and maintain facilities as are necessary to provide ready access to essential services to customers throughout the nation. Before closing a post office, USPS must, among other things, provide customers with at least 60 days of notice before the proposed closure date, and any person served by the post office may appeal its closure to the PRC. However, USPS plans state that customers will have 20 days to comment on a proposed closure of a station or branch and that no appeals will be permitted. USPS explained that stations and branches are different from post offices. A recent Congressional Research Service report discussed this matter and other issues related to the closure of these retail facilities. To put USPS’s retail consolidation initiative into context, we recently testified before this subcommittee that USPS can streamline its network of 37,000 post offices, branches, and stations—a network that has remained largely static despite expanding use of retail alternatives and shifts in population. We have previously reported that the number of postal retail facilities has varied widely among comparable counties in urban areas, and a number of facilities we visited appeared to merit consideration for closure based on leading federal practices for rightsizing facility networks. Our report also noted that USPS has a maintenance backlog for its retail facilities, and USPS officials stated that USPS has historically underfunded its maintenance needs. USPS has limited its capital expenditures to help conserve cash, which may affect its maintenance backlog. Fewer retail facilities would reduce maintenance needs.