Government Accountability Office Assesses the USPS

Is the Postal Service Sustainable?

On his Jan. 23 NAPS Chat, Director of Legislative & Political Affairs Bob Levi talked with Government Accountability Office (GAO) Director of Physical Infrastructure David Marroni about key policy decisions Congress must make if the U.S. Postal Service is to be sustainable and continue to provide Americans the essential service to which they are entitled and expect.

Marroni, a 22-year veteran of the GAO, discussed choices Congress needs to make and reviewed recent GAO evaluations of the USPS. Among the issues discussed were the agency’s universal service obligation and finances. Following are highlights of the discussion.

Marroni explained that GAO’s mission is to support Congress in carrying out its constitutional duties. The GAO examines how federal dollars are spent and how effectively and efficiently federal programs work.

He stressed the results are objective, nonpartisan, fact-based recommendations to agencies and, sometimes, Congress, in how to make improvements. Recommendations are not binding, but, often, are ultimately implemented by the agencies.

Levi noted the Postal Service long has been categorized by the GAO as high-risk. “Why is the agency so important to our nation and why is it at risk?” he asked.

Marroni affirmed the USPS helps bind the nation together and is important to our economy for communication and connecting every American across the country. The USPS has been on the GAO’s high-risk list since 2009 because of its fundamentally unsustainable business model and poor financial condition.

“There is a tension between the level of services the Postal Service is required to provide versus its ability to fund those services,” Marroni said. “That has been a long-standing challenge going back even before 2009. It continues to be the case as mail volumes have declined over the past 20 years, but the number of delivery points has increased across the country and the agency has been in an increasing financial crunch.”

Levi observed that government agencies that provide essential services typically are not considered businesses or have a business model. He asked why the Postal Service is different.

Marroni said the USPS is unique. It’s an independent establishment of the executive branch and is expected to be financially self-standing. “The Postal Service is expected to generate enough revenue from its business to cover expenses,” he explained. “That means it’s not getting appropriations from Congress, except for some very explicit things.

“The problem with that model is the revenue the USPS has been generating for the past two decades has not been sufficient to cover its expenses. So you continue having this fundamental gap that keeps adding up to losses and, ultimately, if not resolved, could have real impacts on taxpayers, users of the USPS and its employees and retirees.”

Levi asked Marroni if the GAO ever has explored whether it is appropriate for an agency such as the Postal Service to be self-sufficient inasmuch as it provides such an essential public service.

Marroni responded the GAO has identified that as a matter for Congress to consider. “Ultimately, it’s a policy choice,” he said, “whether the USPS maintains its self-sustaining model or moves to a model that existed prior to the creation of the USPS — the Post Office Department before 1971 — where it was appropriated money by Congress. Another option would be to go a more-privatized route.

“All these scenarios have tradeoffs; there are pros and cons with each. But the fundamental issue is the model that exists today is not working. The agency needs to continue to take actions to get its finances in as good shape as it can within its own power, but, ultimately, we think Congress is going to need to act to decide what level of services the nation requires and how those services are going to be funded.”

Levi noted 1982 was the last year the USPS received a congressional appropriation for a public service subsidy, which still is authorized under current law, although it is a modest subsidy. Regarding the importance of the Postal Service and the universal service obligation, he asked, “How deep does Congress need to get involved?”

Marroni responded that Congress, as the legislative body, needs to make some fundamental decisions about the structure of the Postal Service, how it is to be funded and the services it is to provide. “What level of service is expected and, based on that, how are you going to fund it — what structure will support it?” he offered.

“That could be a range of different options. It could mean more appropriations from Congress for specific items. Again, it could mean moving toward a more-privatized model or something in between; pros and cons for both.

“When you are talking about congressional appropriations, one advantage is it would help the USPS with its financial condition, particularly with some money-losing services. On the flip side, though, being part of the appropriations process can add some uncertainty that might be challenging for the Postal Service that operates more like a business. “

The appropriations process takes longer to resolve in some years than others; there can be gaps in funding. Adding that into the mix could be a challenge. There definitely are tradeoffs for Congress to consider in making these decisions.”

Levi referred to former PMG Louis DeJoy’s complaint that the agency has too much oversight — he had to report to Congress, the Postal Regulatory Commission, the USPS Office of Inspector General, GAO, the Office of Personnel Management and the Office of Management and Budget. “Is there too much oversight, evaluation, regulation — even intergovernmental entanglement — that could potentially impair the agency’s ability to perform?” Levi asked.

Marroni agreed there is a significant amount of oversight, but noted the USPS is a very large, significant public organization. “Even as an independent establishment, oversight is important,” he affirmed. “And those entities you listed generally perform different roles. The OIG and GAO are conducting audits, the PRC is there as the regulator and Congress is there in its policy-making and legislative roles.

“The level of oversight and regulation can introduce challenges the agency has to manage compared to a private-sector business. And it also can get caught in the push and pull of stakeholder interests that can create challenges for how it operates. That’s something Congress and these other entities must recognize.

“Oversight is important for any public institution, especially one as important as the Postal Service, so count me in for saying oversight is going to remain key. But how that oversight is done always can be considered, as well as how much is appropriate; people have different views.”

Levi asked if oversight improves performance or undermines performance.

“It depends,” Marroni responded. “The oversight that GAO does — recommendations on how to improve performance and achieve efficiency in other ways — can lead to improved performance. Also, regarding regulation, the goal may not be to just improve performance; there may be other goals oversight is trying to accomplish.

“There are multiple goals when it comes to public institutions — performance being key. But there also is transparency, ensuring compliance with rules and regulations. It depends on the situation.”

Levi circled back to the universal service obligation and asked, “Who should define what the Postal Service ought to do? Where it delivers, the speed and frequency of delivery — where does that come from?”

Marroni responded that Congress, at the fundamental level, decides how many days a week the USPS delivers; it’s in statute that the agency must deliver, as far as practicable, to every American. There are certain high-level requirements that Congress sets out.

“In terms of the details, more specifics about routes, where things go, that generally will fall to the USPS in line with its Board of Governors in making those decisions,” he offered. “But there will be plenty of views expressed; it’s a complicated picture.”

Levi asked, “What is the universal service obligation?”

“It’s defined in statute, but not in a single place,” Marroni responded. “At a high level, I think of it as the requirement for the Postal Service to deliver mail, as far as practicable, to the American public six days a week. There are other aspects to it, but that’s the fundamental point — to deliver to the entire nation.”

Levi mentioned the state of postal services in other parts of the world, specifically Denmark that recently ceased governmental mail services because it did not make any money. “Are we in danger of falling into that type of trap?” he asked.

Marroni said the Postal Service and Congress have consistently emphasized the importance of the USPS mission of delivering mail and he doesn’t have any sense of that ending. Rather, the issues are defining exactly how service is provided and how it is going to be paid.

“I don’t see an end to letter mail as happened in Denmark,” he affirmed. “But I think there needs to be some serious considerations of the current model to ensure letter mail is delivered in a way the American public needs and is financially sustainable.” Levi referenced the GAO’s report on USPS sustainability that recommended the PMG develop publicly available financial projections of revenue and expenses, although the Postal Service pushed back on that recommendation.

The “Delivering for America” (DFA) plan was intended to reduce expenses and improve performance. “Why does the GAO feel such long-term projections are essential for postal financing and performance?” he asked. Marroni said projections are a key practice for any organization — linking near-term goals for a transformation like the DFA is trying to accomplish to longterm outcomes — where the organization wants to end up. “The USPS noted correctly that projections are inherently uncertain, particularly the further out you get,” he observed. “But they still are valuable. Projections give a sense of how the organization is doing against what it hopes to achieve — changes may need to be made based on whether goals are being met or not. What may be the causes of goals not being met?

“It’s also an important communication tool to Congress and other stakeholders regarding where the USPS sees its actions and communicating how it is doing. It’s also important communication to Congress — if there are clear points when certain things happen and the USPS would be in worse financial condition — when it needs to act.

“You do not have a single, perfect projection 10 years from now that you are going to hit exactly and nothing changes between now and then. You can have projections that have a range of different assumptions about inflation, potential congressional action and how your initiatives played out that still can give you a sense of how to adjust going forward, making sure you are achieving the results you hope to while also communicating to Congress and others how you are doing and what additional actions may be needed.

“So, we think it’s really important for the Postal Service, particularly given its financial condition, to have these types of long-term projections.” Levi noted the GAO has done a lot of work in evaluating the DFA plan and its implementation. “Currently, where do these evaluations stand — plant reorganizations, performance, finances?” Marroni said the DFA plan is a work in progress and
has been a mixed bag in terms of results. The GAO has found, as have the IGO and others, the USPS has increased some of its revenues and reduced some of its costs and, at a fundamental level, has taken action.

“That’s important to emphasize,” Marroni offered. “It’s important for the agency to have bold ideas to, within its own control, try to return to financial sustainability as it can; stasis is not an option.

“But, on the flip side, expenses continue to exceed revenue. Unfunded benefits liabilities continue to increase. Service performance has taken a hit over the past several years during the course of the transformation. There have been some significant bumps in the road. And the agency’s financial condition continues to fall, so our fundamental assessment has not changed on that front.

“Ultimately, while we emphasize in our latest report that the USPS should continue to take whatever actions it can within its own authority to improve its financial situation, we believe Congress is going to have to take action and consider the level of services required by the nation, how to fund those services and what the appropriate institutional structure is going forward.”

Levi referenced the GAO’s efforts over the years looking to reduce costs and expenses by the Postal Service. “Has the GAO looked at opportunities for enhanced revenue generation?” Marroni responded that revenue generation is another opportunity, including additional services the agency potentially could offer at post offices. “PMG David Steiner has been looking at ways to increase revenue with some action at the last mile,” he observed. “There certainly are steps the USPS could take on its own to further increase revenue.

“We encourage them to do so. It’s important for the agency to continue and try to reduce costs and increase revenues. But it gets back to that fundamental issue we’ve been discussing that, while those actions are important, we do not think on its own the USPS is going to be able to raise enough revenues to exceed expenses and, therefore, get back to a sustainable business model. Ultimately, we think congressional action is going to be required.” Levi told Marroni to assume Levi was chairman of a combined House/Senate committee with oversight of the Postal Service. “What are the three most important issues I should deal with in a postal bill?”

“In our report, we identify a number of options for Congress to consider when it comes to ways to increase revenue, reduce expenses and address the funding structure,” Marroni emphasized.

“The three big issues are, one, what is the level of service? Right now it’s six days a week across the nation. What services are required? Take a look at that. Is that the level of service you want? Is it something different? “Second, once you have determined that, ask how we are going to fund that. Right now, the current model where the USPS is meant to be self-sustaining is not working. Does that mean Congress subsidizes it — provides appropriations for certain money-losing services important for public reasons but are not profitable lines of business? Does it go with a more-privatized model or does it make other adjustments? “And third, does the current structure as an independent establishment of the executive branch continue to make sense? Does that allow a balance between service levels and funding to work? “Those are three big areas I would ask Congress to consider. Ultimately, those are policy choices. The GAO does not weigh in on the specifics of which of those is the right approach. “They all come with pros and cons; that’s for Congress to decide. But really getting into the details of those and deciding, as a Congress — where they want the nation’s Postal Service to be — is important.

“Let me paraphrase,” Levi offered. “Congress needs to do its job — decide the level of service, how they will pay for that service and the structure by which that service is delivered to the American public. Would that be accurate?” “Those are the matters we put before Congress in 2020 and in our most recent report,” Marroni affirmed.