GAO is adding the U.S. Postal Service's (USPS) financial condition to the list of high-risk areas needing attention by Congress and the executive branch to achieve broad-based transformation. Amid challenging economic conditions and a changing business environment, USPS is facing a deteriorating financial situation in which it does not expect to cover its expenses and financial obligations in fiscal years 2009 and 2010. This year, USPS expects to increase its year-end debt to $10.2 billion and incur a cash shortfall of about $1 billion. Another key risk factor is the accelerated decline in mail volume. Mail volume declined by 9.5 billion pieces in fiscal year 2008 to about 203 billion pieces. As of the end of May 2009, mail volume had decreased another 18.5 billion pieces, and USPS expects to end fiscal year 2009 with mail volume of 175 billion pieces--about 28 billion pieces fewer than in fiscal year 2008. Further, it expects flat or continued volume and revenue declines over the next 5 years. These trends expose weaknesses in USPS's business model, which has relied on growth in mail volume to help cover costs and enable USPS to be self-supporting.

USPS urgently needs to restructure to address its current and long-term financial viability. USPS has not been able to cut costs fast enough to offset the accelerated decline in mail volume and revenue--particularly costs related to its workforce, retail and processing networks, and delivery services. To achieve financial viability, USPS must align its costs with revenues, generate sufficient earnings to finance capital investment, and manage its debt. Mail use has been changing over the past decade as businesses and consumers have moved to electronic communication and payment alternatives. Mail volume decline has accelerated with the recession, particularly among major 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 recent volume decline will not return. Action is needed in multiple areas, including possible action and support by Congress; no single change will be sufficient to address USPS's challenges. (1) The short-term challenge for USPS is to cut costs quickly enough to offset volume and revenue declines, so that it can cover its operating expenses. (2) The long-term challenge is to restructure USPS operations, networks, and workforce to reflect changes in mail volume, revenue, and use of mail.