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U.S. Postal Service: Deteriorating Financial Outlook Increases Need for Transformation

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USPSs financial outlook is becoming increasingly dire. USPS has continuing deficits, severe cash-flow pressures, rising debt, and liabilities that exceed its assets. USPS also lacks sufficient income to fund growing capital asset needs for safety, maintenance, expansion, and modernization as well as to fund its liabilities. In fiscal year 2001, USPS reported a 1.68 billion deficit, up from a 199 million deficit in the preceding fiscal year. Further, USPS budgeted for a 1.35 billion deficit in fiscal year 2002, before the catastrophic events of September 11 and subsequent use of the mail to transmit anthrax. The combined effect of these events and the current economic slowdown have served to further exacerbate USPSs financial difficulties by decreasing postal revenues, while postal costs continued to increase despite additional USPSS cost-cutting efforts. USPSs mail volumes are beginning to decline in its major revenue producing areas, and despite recent rate increases, its costs are increasing faster than its revenues. USPSS has requested an above-inflation rate increase that is expected to take effect later this year. In the short term, USPSS may have to rely primarily on cutting costs and raising rates. However, raising rates may cause mail volumes to decrease and encourage mailers to shift more mail to electronic and other delivery alternatives. In the long term, pressures to increase rates will continue as USPSS will need increasing amounts of funds to pay its growing long-term obligations, which include employee retirement and health benefits. Thus, USPSs ability to continue to fulfill its mission by providing the current level of universal postal services at reasonable rates on a self-supporting basis is increasingly at risk.

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  • Economics and Cost Analysis

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