U.S. Postal Service Lost Record $8.5 Billion in 2010

December 7, 2010 - 5:01 AM

U.S. Postal Service

U.S Postal Service truck. (Wikimedia Commons photo)

(CNSNews.com) - The U.S. Postal Service (USPS) accrued a record loss of $8.5 billion in fiscal year 2010, up $4.7 billion from 2009, highlighting financial pressures that are not expected to improve in 2011 or in the “foreseeable future,” according to the Government Accountability Office (GAO).

The loss was mainly driven by employee benefits and compensation costs, including a $5-billion-plus congressionally mandated retiree health benefits payment and a drop in mail volume.

“USPS must modernize and restructure to become more efficient, control costs, keep rates affordable, and meet changing customer needs,” the GAO stated in an audit released on Dec. 2.  

To do so, according to the audit, some of the challenges the USPS must address include a continued drop in mail volume, “compensation and benefit costs that are close to 80 percent [$60 billion] of total costs,” and “large unfunded financial obligations and liabilities of roughly $100 billion at the end of fiscal year 2010.”

“The U.S. Postal Service’s (USPS) financial condition and outlook deteriorated sharply during fiscal years 2007 through 2009,” the GAO said.

“USPS’ financial condition continued to decline over the past fiscal year [2010] and its financial outlook is poor for fiscal year 2011 and the foreseeable future,” the audit added.   

In fiscal 2010, there was a $1.0 billion decline in total revenue to $67.1 billion, and a $3.7 billion increase in total expenses to $75.6 billion, the GAO stated. 

That resulted in a record loss of $8.5 billion—up $4.7 billion from fiscal year 2009; a $1.8 billion increase in outstanding debt to the Treasury, thus making the total outstanding debt $12 billion; and a $1.2 billion cash balance at the end of the fiscal year, according to the audit. 

USPS’ financial outlook for fiscal year 2011 is grim. For that period, USPS has projected one of the largest financial losses in its history – $6.4 billion mainly driven by the impact of a $5.5 billion payment due in 2011 to prefund retiree health benefits, the audit revealed.  

Further, USPS projects a $3-billion increase in outstanding debt owed to the Department of Treasury, which puts it at its $15 billion dollar statutory limit, and a $2.7 billion cash shortfall in fiscal 2011.  

The drop in revenue in 2010 was mainly driven by a continued drop in total mail volume, primarily first-class mail, the result of the recession as well as the growing us of email, the GAO said.

“In fiscal year 2010, mail volume decreased about 6 billion pieces from the previous fiscal year to 171 billion pieces,” the GAO audit noted.

The $3.7 billion rise in expenses for fiscal 2010 is attributed to the cost of employee benefits and compensation, which include a “statutorily required payment of $5.5 billion to prefund health benefits for its retirees, in contrast to fiscal year 2009 when Congress deferred all but $1.4 billion of USPS’s scheduled payment of $5.4 billion.”

In addition, workers’ compensation costs in fiscal year 2010 were $3.6 billion, up $1.3 billion from the previous fiscal year.

Although the USPS saved about $13 billion in cost during fiscal years 2006 through 2010 primarily by reducing 280 million work hours and its workforce by 131,000 employees, those savings “were insufficient to offset rising costs in other areas,” the GAO said.

Former USPS Deputy Postmaster General Patrick Donahoe, who became the nation’s postmaster general on Dec. 6, and Phillip Herr, the GAO’s director of physical infrastructure issues who authored the audit, testified about the USPS’ financial condition during a Senate panel hearing on Dec. 2.

Donahoe blamed the $8.5 billion loss in 2010 on two legislatively mandated payments – the $5.5 billion to the Retiree Health Benefits Fund and a $2.5 billion non-cash workers compensation adjustment. 

Without those payments, “the loss was less than $500 million, a significant accomplishment” especially in light of a 6.6 percent mail volume decline, Donahoe told lawmakers.

Donahoe supports passage of the Postal Operations Sustainment and Transformation (POST) Act of 2010, saying, “We don’t want to be a burden to the American taxpayer, and the POST Act helps ensure that won’t happen.”

In regards to the legislation, the GAO stated in its audit that it “provides a starting point to addressing the key issues facing USPS.”

When asked if there was any hope for USPS’ financial future, GAO’s Herr told CNSNews.com, “It’s a situation that can be worked through, but it’s going to require some sheer sacrifices across the board and re-examining the way the postal service does business and then also looking at some of the things like the [retiree health benefit] payments as well and try to make sure that it all aligns so that they can remain a self-sustaining institution.”

In regards to privatization as a means to restore financial soundness to USPS, Herr told CNSNews.com, “it’s not something we’ve taken a position on at this point.”

However, he added, “The Postal Service has a very big and broad mandate. I’m not sure whether there will be an appetite in the private sector to take on the scope of what the Postal Service currently provides.” 

According to the GAO audit, "Congress and USPS urgently need to reach agreement on a package of actions to restore USPS’s financial viability and enable it to begin making necessary changes."