Problems of the U.S. Postal Service


Material Information

Problems of the U.S. Postal Service a compendium of studies, articles, and statements of the U.S. Postal Service
Physical Description:
United States -- Congress. -- Senate. -- Committee on Post Office and Civil Service
U.S. Govt. Print. Off.
Place of Publication:
Publication Date:


Subjects / Keywords:
Postal service -- Finance -- United States   ( lcsh )
federal government publication   ( marcgt )
non-fiction   ( marcgt )


Statement of Responsibility:
Committee on Post Office and Civil Service, United States Senate, Ninety-fourth Congress, second session, March 1976.
General Note:
At head of title: 94th Congress, 2d session. Committee print.

Record Information

Source Institution:
University of Florida
Rights Management:
All applicable rights reserved by the source institution and holding location.
Resource Identifier:
aleph - 025789234
oclc - 02837190
System ID:

Full Text
41 fW

94th Congress








MARCH 1976

Printed for the use of the
Committee on Post Office and Civil Service

%4170 WASHINGTON : 1976

For sale by the Superintendent of Documents, U.S. Government Printing Office
Washington, D.C. 20402 Price $2.40


-GALE W. McGEE, Wyoming, Ckairman
JENNINGS RANDOLPH, West Virginia HIRAM L. FONG, Hawaii QUENTIN N. BURDICK, North Dakota TED STEVENS, Alaska ERNEST F. HOLLINGS, South-Carolina HENRY BELLMON, Oklahoma FRANK E. MOSS, Utah PATRICK 3. LEAHY, Vermont ROD CRowuE, Staff Diretor

II 1



4 .4 -


Introduction -------------------------------------------------- ------ v
S. 2844 --------------------------------------------------------------- 1
GAO report: A Summary of Observations On Postal Service Operations from July 19TI to January 19T6 ------------------------------------ 17
Congressional Budget Office report: Financing Postal Operations--Alternative Approaches and Their Budgetary Implications, March 1976------ 117 Excerpt from the "Congressional Quarterly," March 15, 1976. "Soaring Costs Cloud Postal Service Future", by Ted Vaden ------------------ 137
Speech of Postmaster General Benjamin K Ballar before the Economic Club of Detroit entitled "Postal Service-Political Birthright or Economic Choice? ------------------------------------------------------- 155
Speech of Senator 'McGee excerpted from the "Congressional Record!% March 18, 1976 ----------------------------------------------------- 177
The Washington Post editorial "Paying for the Mail", March 17, 1976 --- 181

Digitized by the Internet Archive
in 2013


The Senate Post Office and Civil Service Committee is currently holding hearings on S. 2844, a bill to authorize increases in the public-service allowance to the United States Postal Service by amounts not to exceed 10 percent of the Postal Service operating expenses for Fiscal Years 1977, 1978, and 1979. This authorization could amount to $1. 5 billion in FY 1977 and amounts of that same order for FY 1978 and 1979. Observers of the mounting Postal Service deficit (totalling close to $3. 5 billion by the beginning of FY 1977) believe that the financial relief which S. 2844 would bring the Postal Service is urgently needed - that appropriation of the funds authorized would slov, dow,,n rate increases and allow the current lqZk;vel of ser-vice to be maintained These effects would help to stabilize postal volume upon which the Postal Service relies so heavily for undiminished revenue.

In its consideration of Postal Service operations and finances the Committee has taken into account a number of studies, speeches,/ and assessments which have been prepared both within and outside Government. For the convenience of Members of the Senate and House who will be considering solutions to the postal problem, and for others, a compendium of these studies and public statements follows.

Post Office and Civil Service
C -mmilttee
U. S. Senate

March 29, 1976


JANUARY 19, 1976
Mr. BUYRDICK for Mr. MCGE9E introduced the following bill; which was read
twice and referred to the Co-mmittee on Post Office and Civil Service

To amend title 39, United States Code, with respect to the
organizational and financial matters of the United States Postal. Service and the Postal Rate Commission, and for
other purposes.

I Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 3 That this Act may be cited as the "Postal Reorganization

4 Act Amendments of 1976".

5 Suc. 2. (a) Section 2401 (b) of title -39, United States
6 Code, is amended by striking out paragraph (3).

7 ,(b) Section 2401 of title 39, United- States Code, is 8 amended by adding at the end thereof the following new

9 subsections:


(d) There is authorized to be appropriated to the 2 Postal Service for each of the fiscal years ending September
30 1977, 1978, and 1979, an amount not exceeding .10 4 percent of the total estimated operating expenses of the 5 Postal Service for the fiscal year for which such approC, priations are requested. In requesting appropriations under 7 this subsection, or under subsection (b) of this section, the 8 Postal Service ;shall present to the appropriate committees
of the Congress a. comprehensive and detailed statement 10 relating to the following matters:
(1) the plans, policies, and procedures of the Postal 12 Service designed comply with all of the provisions of
13 section 101 of this title;
14 (2) the operations of the Postal Service, including
15 the use of revenues, appropriations, and amounts bor16 rowed under chapter .90 of this title, for all purposes for
17 the most recent fiscal year for which such information is
18 available, and for the fiscal year for which funds are

19 requested to be appropriated,;
20 (3) estimates as to the revenue requirements of
21 the Postal Service for the fiscal year for which funds are
22 requested to be appropriated, and the means by which
23 the total estimated costs of the Postal Service shall be
'4 'AfiAfi ed; -and


1 "(4) -such other matters as the committees nmay

2 determine to insure that the Congress is fully and cur3 rently consulted and iformed on postal operations, plans,

4 and policies.

5 (e) (1) Except as provided in paragraph- (2), the

6 Postal Service sliall provide door delivery or curbline 7 -delivery to all permanent residential addresses (other than 8- apartment building addresses) during any fiscal year for ,9 which the Congress has appropriated all of the funds au10 thorized to be appropriated under subsection (1)) or sub11 section (d) of this section. The Postal Service shall provide 12 door delivery in any case in which the unit of general local 13 government ha-ving jurisdiction over the address involved 14 'has adopted zoning ordinances in the interest of protecting 13 the public safety which prohibit the construction or main16 tenance of any structure on the property adjacent to the 17 curbline.

18' "(2) In lieu of the delivery service required under para19, graph (1) the Postal Service may provide cluster box 20 delivery service for any permanent residential address in 21 any case in which a unit of general local government having 22 jurisdiction over such address specifically approves the pro23 vision of such cluster box delivery service. 24 (3) The failure of the President to. request the appro25 piliation of any of the funds authorized by this section may



1not be deemed a failure of Appropriations, and shall not 2 relieve the Postal Service of the reqluiremnt to provide the 3 delivery service required under paragraphs (1) and (2)

4 of this subsection.

5 (f) The rates and fees established under chapter 36 of

6 this title for zone-rated mail matter formerly entered under 7 former chapter 67 of this title shall niot be more than 10 8 percent less than the rates and fees for such mail matter 9 would be if the funds authorized under this section were 10 not appropriated.".

11 -SEC. 3. (a) Section 3)601 of title 39, United States

12 Code, is amended to read as follows: 13 "3601. Establishment

14 (a) The Postal Rate Commission is an independent

15 establishment of the executive branch of the Government of, 16 the United States. The Commnission is composed of 5 Corn17 iiiisioners, appointed by the President, by and with the 18 advice and consent of the Senate. The Commissioners shall 19 be chosen on the basis of their professional qualifications and 20 may -be removed by the President only for cause. Not more 21' 'than 3 of the Commissioners may be adherents of the same 22' political party.

23 (b) A Commissioner may continue to serve after the

24 expiration of his term until his successor has qualified, except 25 that such Commissioner may not so continue to serve for


.1 more than 1 year after the date upon which his term other2 wise would expire under section 3602 of this title.
3 "(c) One of 'the Commissioners shall be designated as 4 Chairman by, and shall serve in the position of Chairmian at

5 the pleasure of, the President.

6 "(d) The Commissioners shall by majority vote desigSnate a Vice Chairman of the Commission. The Vice Chair8man, shall act as Chairman of the Commission in the ab9sence of the Chairman."

10 (b) The provisions of section 3601 (a) of title 39,
1.1 United States Code, as amended by subsection (a), shall 12 not apply with respect to any Commissioner of the Postal, 13 Rate Commission holding office on the date of the enadt14 ment of this Act except that such provisions shall apply to 15 any appointment of such a Commissioner occurring after the :16 date of the enactment of this Act. 17 SEC. 4. Section 3604 of title 39, United States Code,

18 is amended to read as follows: 19 "3604. Administration.

20 "(a) The Chairman of the Postal Rate Commiission.

21 shall be the principal executive officer of the Commission. 22 The Chairman shall exercise or direct the exercise of all the 23 executive and administrative functions of the Commission,, 24 including functions of the Commnission with r-esp~ect to (1) 25 ,the appointment and supervision of personnel employed


1 under the Commission, (2) the distribution of business 2 among such personnel, and anong tihe Comnmissioners, and

3 (3) the use and expenditure of funds.
4 (b) In carrying out any of his functions under this

5 section, the Chairman shall be governed by the general
6 policies of the Commission.

7 (c) The Chairmian may obtain such facilities and sup8 plies ais may be necessary to permit the Commission to carry 9 out its functions. Any officer or employee appointed under 10 this section shall be paid at rates -of compensation, subject to 11 chapter 51 and subchapter III of chapter 53 of title 5 (relat12 ing to classification and General Schedule pay rates), and 13 shall be entitled to programs offering employee benefits, 14 established under chapter 10 or chapter 12 of this title, as 15 appropriate.
16 (d) The Commission shall periodically prepare a
17 budget of the Commission's expenses, including but not 18 limited to expenses for facilities, supplies, compensation, and 19 employee benefits. The Commission shall transmit a copy of 20 the budget to the Postal Service. Expenses incurred under the 21 budget prepared by the Commission under this subsection 22 shall be paid out of the Postal Service Fund established under 23 section 2003 of this title.
24 (e) The provisions of section 410 and chapter 10 of
25 this title shall apply to the Commission, as appropriate.".


1 SEC. 5. (a) Section 3624 of title 39, United States

2 Code, is amended by redesignating subsection (c) as sub3 section (d) and by inserting immediately after subsection

4 (b) the following new subsection:

5 "(c) (1) Except as provided by paragraph (2) of this
6 subsection, in any case in which the Postal Service makes a 7 request under section 3622 of this title for a recommended 8 decision by the Commission on changes in a rate or rates of 9 postage or in a fee or fees for postal services, or a request 10 under section 3623 (b) of this title for a recommended deci11 sion by the Commission on changes in the mail classification 12 schedule, the Commission shall transmit its recommended 13 decision to the Governors under subsection (d) of this sec14- tion no later than 10 months after receiving any such request 15 from the Postal Service.
16 "(2) In any case in which the Commission determines
17 that the Postal Service has unreasonably delayed considera18 tion of a request made by the Postal Service under section 19 3622 or section 3623 (b) by failing to respond within a 20 reasonable time to any lawful order of the Commission, the 21 Commission may extend the 10-month period described in 22 paragraph (1) of this subsection by one day for each day 23 of such delay.".
24 (b) The amendment made by subsection (a) shall not
25 apply to any nation or proceeding with respect to (1) the


1 recommended decision of the Postal Rate Commission alat2 ing to proposed changes in rates of postage, and in fees for 3 pos-tal services, requested ,on September 18, 1975, by the 4 United States Postal Service in a request bearing Postal Rate 5 Commission Docket Number R76-1; or (2) the recom6 mended decision of the Commission relating to the proposed 7 establishment of a mail classification schedule made on Jan8 uary 18, 19703, by the Postal Service in a request bearing
9 Postal Rate Commission Docket Numbered MC73-1. 10 SEC. 6. (a) Section 3641 of title 39, United States
11 Code, is amended to read as follows: 12 " 3641. Temporary changes in rates and classes. 13 (a) In any case in which the Postal Rate Commission
14 fails to transmit a recommended decision on 'a change in rates 15 of postage o1 in fees for postal services, or on a change in the 16 mail classification schedule, to the Governors in accordance 17 w-lith section 3624 (c) of this title, the Postal Service mlay 18 establish ,temporary changes in rates of postage, in fees for 19 postal services, or in the mail classification schedule, in ac20 cordance with the provisions of this section. Such temporary 21 changes may take effect upon such date as the Postal 'Service 22 may determine, excel)t that such temporary changes may 23 take effect -only after 10 days' notice in the Federal Register. 24 "(b) Any temporary rate or fee established by the Postal
25 Service under subsection (a) of this section shall be in



1 accordance with the policies of this title and shall not exceed 2 such amount as may be necessary for sufficient, revenues to 3 assure -that the total estimated income, including appropria4 tions, of the Postal Service shall, to the extent practicable, be 5 equal to the total estimated costs of the Postal Service. 6 (c) The Postal Service may not establish any tempo7 rary rate for a class of mail or any temporary fee for a postal 8 service which is more than the permanent rate or fee re9 quested for such class or postal service by the Postal Service 10 under section 3622 of this title. 11 "(d) Any temporary change in rates of postage, in fees

12 for postal services, or in the mail classification schedule made 13 'by the Postal Service under this section -shall remain in effect 14 no longer than 150 days after the date upon which the Coin15 mission transmits its recommended decision to the Gfovernors 16 under section 3624 (d) of this title, unless such temporary 17 change is terminated by the Governors before the expiration 18 of such period.".

19 (b) (1) The amendment made by subsection (a) of this

20 section shall net apply to any action or proceeding with 21 respect to (A) the recommended decision of the Postal Rate 22 Commision relating to proposed changes in rates of postage, 23 and in fees for postal services, requested on September 18, 24 1975, by the United States Postal Service in a request bear-



1 ing Postal Rate Commission Docket Number R76-1; or (B) 2 the recommended decision of the Commission relating to the 3 proposed establishment of a mail classification schedule re4 quested on January 18, 1973, by the Postal Service in a 5 request bearing Postal Rate Commission Docket Number 6, MC73-1.
7 (2) The provisions of section 3641 of title 39,. United

s States Code, as such provisions were in effect on the day 9 before the date of the enactment of this Act, -shall apply 10 to any temporary rate or fee established by the Postal 11 Service pursuant to its request to the Postal Rate Coin12 mission, dated September 18, 1975, for a recommended 13 -decision, bearing Docket Number R7 6-1. 14 SEc. 7. (a) (1) There is hereby established -the Coin15 mission on Postal Service (hereinafter in this -section referred 16 to as the "Commission") The Commission shall be composed 17 of 5 members, to be selected as follows: 18 (A' 2 appointed by the President of the United

19 States, of whom one shall be appointed as Chairman;
20 (B) 1 appointed by the President pro tempore of

21 the Senate;

22 (C) 1 appointed by the Speaker of the House of'

23 Representatives; and

24 (D) 1 appointed by the Postmazster Gener-al.



1 (2) The members of the Commission shall be appointed
2 within .30 days following the date of the enactment of this
3 Act.
4 (3) Any vacancy in the Commission shall not affect its
5 powers, but shall be filled in the same manner as original

6 appointment.
7 (b) (1) The Commission shall identify and study the

8 public service functions of the United States Postal Service 9 and shall recommend to what extent and by what means such 10 function may be defined and costs thereof reasonably esti11 mated. The Comnmission shall also identify, insofar as prac12 ticable, any difference between13 (A) the costs that the Postal Service should reason14 ably be expected to incur in providing postal services in
15 accordance with the policies of title 39, United States

16 Code;and
17 (B) the revenues that the Postal Service may rea18 sonably be expected to receive from rates and fees for

19 postal services, with due consideration that demands for
20 postal services may be reflected by changes in the levels
21 of such rates and fees.
22 (2) The Commission shall determine the extent to
23 which the public service functions of the Postal Service shall 24 lbe sape)td by approprial tions. The Cominission shall rec25 ommend such a plan witli due consideration beimg given to68-417 0 76 2


(A) the economic and social benefits of the postal

2 system to the user and recipient of the mail;
(B) the relative economic ability of the users of
4 various classes of mail to absorb the costs of the postal

5 system;
6 (C) the costs of maintaining a system which would
7 provide a reasonable degree of regular postal services to
8 the entire public, and the degree to which such costs

9 should be borne by the public generally rather than
10 by mail users in particular; and
11 (D) the need of the Postal Service for adequate and
12 dependable funding and for systematic planning and
13 ratemaking to provide efficient and economical postal
14 services in accordance with the policies of title 39,
15 United States Code.
16 (c) (1) For purposes of carrying out its functions
17 under this section, the Commission may sit and act at such 18 times and places and receive such evidence and testimony ig as it considers advisable.

20 (2) The Commission may secure directly from any de21 apartment or agency of the "United States information and 22 assistance necessary to carry out its duties under this section. 23 Each department or agency is authorized and directed, to the 24 extent permitted by law tind -vvithin the limits of available



funds, to furnish information and assistance to the Corn2 mlissionl.
3 (3) When so authorized by the Commission, any mem4 ber or agent of the Commission may take any action which
5 the Commission is authorized to take by this section.

6 (4) All meetings, hearings, conferences, or other pro7 ceedings of the Commission shall be open to the chairmen 8 of the appropriate committees of the Congress or their 9 designees and reasonable notice of such meetings or hear10 ings shall be given to such chairmen or their designees. 11 (d) (1) Except as provided in paragraph (2), mem12 bers of the Commission each shall receive as compensation 13 the daily equivalent of the annual rate of basic pay in effect 14 for- grade GS-18 for each day (including traveltirne) during 15 which they are engaged in the actual performance of duties 16 vested in the Commnission.

17 (2) Members of the Commission who are full-time

18 officers or employees of the United States shall receive no 19 additional pay on account of their service on the Commis20 Sion.

21 (3) While away from their homes or regular places of

22 business in the performance of service for the Commission, 23 members of the Commission shall be allowed travel expenses, 24 including per diem in lieu of subsistence, in the same manner



11 as persons employed intermittently in the Government 2 service are allowed expenses under section 5703 (,b) of
3 title 5, United States Code.

4 (e) The Commission may appoint and fix the compen5 sation of such personnel as it considers advisable withot 6 regard to the provisions of title 5, United States Code, gov7 erning appointments in the competitive service, and such 8 personnel may be paid without regard to the provisions of 9 chapter 51 and subchapter III of chapter 53 of such title 10 relating to classification and General Schedule pay rates, 11 but at a rate not to exceed the maximum rate auitthorized by 12 the General Schedule. The Commission may procure' the 13 services of experts and consultants in accordance with sec14 tion 3109 of title 5, United States Code, but at rates for 15 individuals not to exceed the daily equivalent of the annual 16 rate of -basic pay in effect for the maximum rate authorized 17 by the General Schedule.

18 (f) (1) The Commission shall transmit to the President

19 and to each House of the Congress an interim report and a 20 final report containing a detailed statement of its findings 21 and recommendations, together with any individual views, 22 within 2 years after the date of the enactment of this Act. 23 (2) The Commission shall not be required to obtain



1 the clearance of any Federal agency before the transmittal

2 of its report.

3 (g) The, Commission shall cease to exist 60 days after

4 the transmission of its report under subsection (f) and all

5 offices and employment under it shall then expire.

6 (h) There is authorized to be appropriated to the Posta-l

7 Service Fund established under section 200.2 of title 39, 8 United States Code, without fiscal year limitation, such 9 sums as may be necessary to carry out the provisions of 10 this section. Expenses incurred by the Commission shall be 11 paid out of the Postal Service Fund.


A Summary Of Observations On Postal Service Operations From July 1971 To January 1976



C o n t e n t s



Genesis of the Postal Service 1
Objectives of the Postal Service 3

Delivery standards 4
How successful has the Postal
Service been in meeting its delivery standards? 4
Are delivery performance statistics reliable? 5
If mail service is good, why all the complaints? 8
Other perceptions of quality mail service 9
Where to from here? 11
First-class improvement program 11
Service in rural America 12
Curbside and cluster box delivery 13
Mechanization 14
Conclusion 15

What are reasonable rates? 17
Comparison of domestic and foreign rates 18
Consumer price index/rates relationship 23
What are equitable rates? 23
Future rates 26
Postal Rate Commission/Postal Service relationship 27
Timeliness of rate cases 28

Present financial condition 30
Use of debt financing 32
Conclusion 33
Reasons for deficits 34
Impact of inflation on Postal Service employee compensation costs 34


Page 2


4 (cont'd.) Increased fuel and gasoline
prices 34
Higher employee pay required by Act 35
What has the Service done to cut costs? 35
Investment in new plant and equipment 35
Productivity improvements 36
Other labor economy measures 37
Improved procurement practices 37
Sole-sourde contracting and costs overruns 38
Automatic data processing equipment purchases 39
Professional services 40
Mail transportation contracting 40
Vehicle procurement 41
Mechanization improvements 41
National bulk mail system 42
Other mechanization efforts 43 Conclusion 44

Employee compensation 45
Career advancement 47
Working conditions improvement program 47
Employee accidents 48
Conclusion 49


A listing by job classification of GAO
reports issued on Postal Service
operations 50

Digests of selected GAO reports 69

Chronology of GAO testimony on Postal
Service operations before Senate and
House committees 94





Both before and after passage of the Postal Reorganization Act, GAO has maintained a strong audit presence in postal operations. During the period of the Postal Service's existence, about 225 staff-years of effort have been spent auditing postal operations. GAO has issued 126 reports on a wide range of postal topics during the period--ll were issued to the Congress, 74 were in response to requests of Committees or Members of Congress, and 41 were addressed to the Postmaster General or other Postal Service officials. A comDlete list of the reports issued is provided in appendixI; excerpts from selected reports are provided in appendix II.

The Comptroller General and other GAO officials have, on eight occasions, testified before Senate and House committees and subcommittees on the Postal Service's operations such as the financial status of the Service, savings available in postal operations in rural America, and procurement and contracting activities. (See appendix III.) GAO has also responded to numerous requests from the general public on various matters concerning the Postal Service.

Moreover, in this case, we believe the whole is more than the sum of the parts. Through its continuous monitoring of postal operations, GAO has gained insights into the Postal Service's problems that go beyond written reports on individual subjects.

The purpose then of this staff paper is simply to bring together in one document the sum of GAO's experience and expertise in postal operations to assist Members of the Congress in their efforts to find solutions to the Postal Service's problems.


In the years preceding the Postal Reorganization Act, the Post Office Department was engaged in what the Postmaster General termed a "race with catastrophe." In December 1963 and in October 1966 major breakdowns in the postal system resulted in millions of parcels and letters being delayed for extended periods. While the immediate causes of these breakdowns were identifiable and correctable, they were merely symptomatic of an organization that was in deep trouble. The Post Office Department's difficulties were caused by a series of inter-related problems including



--a management system that rendered impotent those
in a position of responsibility,

--an antiquated physical plant incapable of handling
the ever increasing volume of maii,

--a lack-of mechanization necessitating vast armies
of people to move the mails, and

--a workforce that suffered from poor pay, poor working
conditions, poor career opportunities, and poor morale.

Recognizing the malaise inherent in the Post Office Department, the President established the Commission on Postal Organization in 1967.

In its 1968 report, the Commission recommended the
establishment of an independent, postal service free of the operating constraints that had plagued the Post Office Department. These constraints were best expressed in a short exchange between the Postmaster General and the Chairman of the Post Office's appropriations subcommittee:
Mr. Steed: General . would this be a fair
summary: that at the present time, as the manager of the Post Office Department, you have no control
over your workload, you have no control over the
rates of revenue, you have no control over the pay
rates of the employees that you employ, you have
very little control over the conditions of the service of these employees, you have virtually
no control, by the nature of it, of your physical
facilities, and you have only a limited control, at best, over the transportation facilities that
you are compelled to use--all of which adds up to a staggering amount of "no control" in terms
of the duties you have to perform. .

Mr. O'Brien: Mr. Chairman, I would have to generally agree with your premise. . that is a
staggering list of "no control." I don't know
[whether] it has ever been put that succinctly to
me. If it had been at an appropriate time, perhaps
I wouldn't be sitting here.

The Congress was persuaded by the arguments advanced for an independent Postal Service and passed the Postal Reorganization Act in August 1970. The Postal Service began operations in July 1971, amidst high expectations of improved performance. In essence, it was felt that with independence, management would be able to cure the



ills of the postal system through the application of business-like practices.

Turning around the Postal Service is not an easy task considering it

--processes about 90 billion pieces of mail a year;

--employs 700,000;

--uses 220,000 vehicles;

--operates 40,000 post offices, stations, and branches;


--spends about $13 billion a year. OBJECTIVES OF THE POSTAL SERVICE

As embodied in the Reorganization Act, the objectives of the Postal Service can be summarized as

--providing quality mail service,

--charging reasonable and equitable rates,

--attaining financial self-sufficiency, and

--providing fair treatment of employees.

A reasoned evaluation of the Postal Service's first 4-1/2 years of operation would of necessity require an evaluation of its performance in meeting each of these four objectives.
From our work, we observe that:

--mail delivery standards, as established by the
Postal Service, are generally being met,

--rates may be getting close to the unacceptable

--self-sufficiency has not been attained and there
are no immediate prospects of doing so, and

--the lot of the postal employee has been greatly

The remaining sections of this staff report goes into detail on GAO's findings and conclusions regarding the Service's performance and what might be done in each of these important areas.





One of the major goals of the Postal Reorganization Act is good quality mail service. But what is quality mail service, and how do you measure it? The Postal Service answers these questions largely in terms of its success in meeting delivery performance standards established for first-class mail. It is currently meeting or exceeding these standards for the majority of such mail.

The Postal Service believes that mail service is good, the best in the world. Yet widespread discontent is evident from daily newspaper articles and continuing customer complaints to the Service and to their elected representatives.


To provide quality mail delivery,,the Service established the following standards for first-class mail:

--1-day (overnight) delivery within local areas (generally within sectional centers and among adjoining
sectional centers).

--2-day delivery within a 600-mile radius.

--3-day delivery to all other areas.

These standards apply only to mail which has the proper address and ZIP code and which is posted by the last mail pickup time-generally 5 p.m. The statistics indicating the extent of the Service's achievement of these goals are collected and analyzed under what is called the "OriginDestination Information System" (ODIS).

HOW Successful Has The Postal Service Been In Meeting Its Delivery Standards?

The Postal Service's standards for first-class mail in overnight areas were established in fiscal year 1972 and in 2- and 3-day areas about a year later. During the first year, about 94 percent of stamped first-class mail destined for local delivery was delivered overnight. Since then, delivery performance has improved and the Service consistently achieves its 95-percent goal. During the two quarters ending September 30, 1975, the Service achieved 96 percent on overnight delivery nationwide.

It has been less successful in 2-day and 3-day areas
where delivery performance averaged in the mid to high 80's



initially. Performance has improved steadily. For the same two quarters, the Service achieved 94 percent in 2-day areas and 92 and 93 percent in 3-day areas, the highest delivery percentages to date.

In order to compare first-class mail delivery performance before and after the postal reorganization, we used average time to delivery, the only continuing measure of first-class mail service available. As shown on the graph below, first-class mail service has improved since July 1, 1971, when the postal reorganization became fully effective but is still not as good as the service provided
during the last half of fiscal year 1969 under the former Post Office Department.,

First-class mail service deteriorated to its lowest point in the first quarter following enactment of the act (the quarter ending December 1970) but has continually improved since that time. According to postal officials, the deterioration of service was caused by uncertainties surrounding the postal reorganization, management emphasis on cost reductions rather than on customer service, increases in mail volume, and changes in the processing of first-class mail.

At the beginning of the first postal quarter of fiscal Year 1972, the Postal Service discontinued considering Sundays and holidays in computing the average number of
days to deliver local first-class mail; at the beginning of the second postal quarter of fiscal year 1972, this
procedure was expanded to cover all first-class mail. Eliminating Sundays and holidays in the computations understates the delivery time, the effect of which is contrasted on the graph in solid and broken lines.

For example, before July 1971, first-class mail postmarked on Friday and received at a delivery 'Point on Monday was counted as receiving 3-day service; however, at the
beginning of the second postal quarter of fiscal year 1972, all first-class mail postmarked on Friday and received at a delivery point on Monday was counted as receiving 2-day service. Eliminating Sundays and holidays in computing the average time to deliver first-class mail understates actual delivery time by an average 0.16 days.

Are Delivery Performance
Statistics Reliable?

Since frequent reference is made to ODIS statistics as a measure of the quality of mail service, we looked into the accuracy and reliability of the system. In our report to the Congress entitled, "System for Measuring Mail Delivery Performance--Its Accuracy and Limits" (GGD-75-109, 10-17-75)




4. ...... ....

-j ....w:.A .....,.~ ~ 4

~~ ........~

xM-u=~ ~. ... .........

.. .. .....

...... ..U
I- ~~ .. .. ..........le

OC ..... .. .

.. .. -- ... ... ..
.. . . .. .. .. I . .

I. a z

4 L . . . . . .

.. . . .. ..6.


we pointed out that ODIS does provide a reliable measure of first-class mail delivery performance on a nationwide basis within the specifications established by the Service.
That is, as pointed out above, it includes only stamped first-class mail which is properly addressed, ZIP coded, and deposited prior to the last mail pickup time--generally
5 P.M.

Delivery time is measured from the date mail is postmarked to the date it reaches the last delivery unit before being placed into the addressee's hands. Delays can occur prior to postmarking and in delivery which ODIS 4ould not recognize. And, ODIS does not provide a reliable measure of other first-class mail (metered, permit, and Government). However, we have no reason to believe that this mail moves any differently than stamped.

The most important delivery statistic to the Service is overnight delivery. The geographic areas committed for overnight deliveries are determinedly local postal management. Overnight commitments range from local metropolitan areas to*an entire state or more. Generally, however,. commitments are made to only those areas where postal management expects to meet its goal 95 percent of the time. The Service is continually expanding the overnight delivery areas which now include over 50 percent of firstclass mail volume. The First-Class Improvement Program, currently being tested by the Service, will further expand overnight delivery areas as well as 2-day delivery areas. This program is discussed in more detail later in the
report (see p. 11).

Although ODIS statistics are reliable on a nationwide basis, there are weaknesses in ODIS which make local overnight delivery performance statistics less reliable.
Examples include

--ODIS can be manipulated at the local level.

--Samples for local areas may be too small for
reliable biweekly performance reports.

--The system has a flaw resulting from dual purpose measurement of mail delivery performance
and volume.

--Inadequately trained clerks make many datarecording errors. A well-trained, independent
cadre would be the most effective way of assuring
that tests are properly and accurately taken.

--Some data on the characteristics of sample mail
is lost during the processing of data collection
forms at Service headquarters.



Because of the large amount of data collected and the relatively small amounts of erroneously recorded and lost data, nationwide statistics are not greatly affected.

we made a number of recommendations to the Service for improving the accuracy and reliability of local delivery performance statistics. The Service concurred with our recommendations and has taken or begun corrective action on each.


The Service is achieving high marks on delivery performance. Why then the seemingly widespread dissatisfaction with the quality of service as expressed through customer complaints, critical newspaper articles, and continued requests to us by Members of Congress -to take a look at the quality of mail service in their constituencies? The volume of such complaints has prompted individual Members and oversight committees to request us to look into the quality of mail service in 17 cities or states.

Who's right? Everyone!

It's a fact that the mail is moving well. It's also, unfortunately, probably correct to state that more mail is being delayed for longer periods than was the case a few years ago. The explanation is obviously that although most of the mail is moving well, the part that isn't, despite being proportionately small, still adds up to several billion potential complaints a year. For example, even if the Service delivered 95 percent of the 51.4 billion pieces of firstclass mail handled during fiscal year 1975 on time, 2.6 billion pieces would be late. Customer concern for delayed mail is substantiated in the early results of the Service's national customer complaint program. Complaints resulting from delayed mail led the list. Our reviews indicate that a substantial part of the delays is caused by missent mail.

As discussed in our October 1974 report to the Congress entitled "Missent Mail--A Contributing Factor to Mail Delay and Increased Costs," the multi-position letter sorting machine operation is largely to blame.

Before the Service began using letter sorting machines in the 1960's, it sorted all mail by hand. Today, it sorts less than half the letters manually in 49 and 77 bin cases of a type used when Benjamin Franklin was Postmaster General. Because of the limited capacity of these cases, several sorts are often necessary to properly distribute letters by hand. The hand-sorting rate is about 30 letters per minute.



The machines have increased the letter-sorting rate per operator to about 60 letters per minute and the distribution capacity to 277 bins. Thus, the need for several sorting
of a letter has been reduced and productivity has been greatly increased. The 12 machine operators can process up to 43,200 letters per hour.

Our test of sorting machine operations at three post offices, however, showed that about 7 percent of outgoing mail was being missent. The delay in delivering missent mail is a major reason why the Service has not achieved its delivery standards in 2-day and 3-day areas.

Currently, about 60 percent of the 51 billion pieces of first-class mail are being processed on letter sorting machines. The Service is constantly adding more machines around the country to further mechanize the sorting of mail to speed deliveries and cut labor costs. At the time of reorganization, the Service had about 280 letter sorting machines. Today, including those on order, the Service has 712 such machines.

It follows that as more multi-position letter sorting machines are added, and more mail is processed on them, the amount of missent mail will rise proportionately-unless, and we stress "unless," the Postal Service can solve this problem. In response to the recommendations in our report, the Service has taken actions which have reduced the amount of missent mail. Examples include

--design changes to reduce both machine and operator

--improved overall working conditions,

--established work standards,

--implemented quality control Programs for improving
letter-sorting machine output, and

--removing and expeditiously forwarding missent mail.


An exact definition of what constitutes quality mail
service is hard to come by because the needs and perceptions of mail users differ. As we pointed out earlier, the Postal Service measures it in terms of delivery time for first-class mail. First-class mail accounts for 60 percent of total mail volume. It is probably the most important and certainly the most visible and easiest of the classes to



measure because of the postmark date. The Service gets more complaints about first class than any other class.

But complaints are also filed concerning the other
three classes of mail; the dozen or more special services (express mail, special delivery, etc.); hours of collections, window service, and deliveries; and any number of other things. Obviously, some people do not measure the quality of mail service strictly in terms of first-class mail delivery speed.

As we pointed out in our report to the Congress
entitled "Problems Affecting Mail Service And Improvements Being Taken" (B-114874, dated March 20, 1974) the Service took a number of economy measures at the time of reorganization which have affected the quality of mail service. They include

--reducing collection services,

--reducing delivery services, and

--curtailing Saturday window service.

People's perception of service deterioration is often cause by a misunderstanding of postal operations. The Service's area mail processing program, implemented in 1971, is a good example.

The objectives of the program are to achieve (1) more efficient processing through use of mechanized equipment,
(2) better use of existing and planned facilities, and (3) better use of manpower. To achieve these objectives, all mail originating within a specified geographic area is consolidated at a sectional center facility for processing and for dispatch to its destination, a fairly radical change from the previous method whereby most mail was sorted locally.

The massing of mail at large facilities under area mail processing to take advantage of mechanization to reduce labor costs, although conceptually sound, resulted in numerous complaints. Many people could not accept the idea that it was cost effective to truck the mail over long distances to the mail processing facility only to be returned to the same locale to be delivered.

To get a better feel for the extent of customer dissatisfaction and to better direct its effort to solving problems, the Service instituted a nationwide consumer service system in the Fall of 1975. The Postmaster General stated that once established, the system would demonstrate both the Service's willingness to solve people's problems and the overall high quality of its service.



The key to the new system is the Consumer Service
Card. The Consumer Service Card is a two-piece card--two postcards with carbon paper between them. It is bound with a detachable tab which, when pulled, removes the carbon paper and leaves two mailable, prepaid cards.

The card allows not only for complaints, but ilso
for information requests, suggestions, and other comments, including compliments. One card goes to the local postmaster or station or branch manager, who has full responsibility for handling the complaint or inquiry. The other goes to the Office of Consumer Affairs in Washington, D.C., where the information is extracted to create an index of consumer satisfaction. Both halves of the card carry a-unique serial number.

After acting satisfactorily on an individual Service
Card, the postmaster jots an explanation of how the problem was handled on the reverse side of his copy of the card and mails it to Washington. The case is then marked closed.

Preliminary returns indicate fewer complaints than
expected by the Service. During the first 7 weeks of the program, more than 148,000 consumer cards arrived at headquarters of which about 88.2 percent had complaints. It is still too early, however, to draw any conclusions on whether. the volume of complaints indicate general satisfaction of customers with the quality of mail service.


What avenues are open to the Postal Service in the near future if it is to improve service and control rising costs? Obviously, a breakthrough in mechanization would be necessary to effect any substantial reduction in labor, which accounts for over 85 percent of the Service's expenditures. What then is the Service doing and what more can be done?

The Postal Service recently implemented its new FirstClass Improvement Program and announced other service changes currently in process or under study., Some involve altering the form of services provided, but not the quality, such as closing small post offices and providing an alternative service. One proposal under study--eliminating delivery one day a week--would reduce the quality of mail service in the eyes of many. The Service estimates savings of about $350 million would result if 5-day delivery was instituted.

First-Class Improvement Progra

On October 11, 1975, the Service implemented the "FirstClass Improvement Program" (FCIP), a test plan to upgrade



first-class mail service to achieve delivery equal to or
better than airmail. Prior to the new program, airmail service was destined for 1- to 2-day delivery while firstclass mail was destined for 1- to 3-day delivery depending on distance and available transportation. Under FCIP, 90 percent of all first-class mail weighing 13 ounces or less is programmed for next and second day delivery. For the mailing public, the practical effect of FCIP is that there no longer will be an advantage in purchasing airmail postage for domestic delivery.

The Service estimates that it will save $90 to $96
million by implementing FCIP because airmail will no longer
be collected, handled, and processed separately from firstclass mail. An independent study by the Postal Rate Commission concluded the Service might expect to achieve a net annual saving of at least $88 million.

Because airmail and first-class mail will be receiving essentially the same level of service, the existence of two separate rate categories is planned to be discontinued if FCIP is determined successful. Cost, revenue, volume, and service data will be evaluated throughout the test period and within 9 months the Service will provide the Postal Rate Commission with its final evaluation of the program. This report will indicate (1) whether the program has succeeded in increasing the speed of delivery for firstclass mail to the point where the need for airmail service no longer exists, (2) whether additional steps should be taken to improve the speed of delivery for first-class mail, and (3) whether some form of separately processed mail, such as an express service, is warranted.

Service In Rural America

In response to.our report entitled n$100 Million Could Be Saved Annually In Postal Operations In Rural America Without Affecting The Quality Of Service," the Service has begun to identify which small post offices could be closed without impairing service to their customers.

Mail service to rural areas is provided through 18,300 small offices (formerly referred to as third- and fourthclass post offices); 2,100 contractor operated facilities; and 30,700 rural routes. About 4 million families are served by the facilities. About 12 million families are given rural box delivery by rural carriers who are postal employees or contract carriers.

As we pointed out in our report, as many as 12,000
offices could be closed and mail services continued through an equally satisfactory but less costly alternative. The change amounts to little more than giving 2 million rural



families essentially the same type of service provided to
the 12 million other rural families, and the Service's annual costs could be reduced by about $100 million.

Unfortunately, when the report was released, some persons got the impression that we were advocating the wholesale, indiscriminate closure of small post offices to save money. This is not true. We are aware of the need to act judiciously in this matter.

Our concern about the impact of closing small post offices led us into 28 states in which we talked to hundreds of people most affected--the rural customer.

During our review, we personally asked hundreds of rural customers how their mail service was affected when their post offices were closed. These customers reside in 32 communities in 28 states all across the country. Communities selected were such that the postal customers could remember the service provided by their old post office and
yet have sufficient experience with their new service to make a reasonable comparison. Given the geographic spread of the communities, we feel that the results are indicative of the nationwide attitudes of rural postal customers.

The results of our review were overwhelming. Ninety-one percent of all customers interviewed felt their new mail
service was as good as, and in a number of instances better, than the service provided by their former post offices.

Curbside And Cluster Box Delivery

In another area of mail delivery the Service instituted
a new policy of providing only curbside or cluster box delivery to new housing developments. Developments currently receiving door-to-door service would not be affected. The Service estimates that the average door-to-door delivery costs $49, while curbside and cluster box deliveries average $39 and $24, respectively.

During the past 5 years, motorized delivery and improved methods have allowed the Service to handle a 13-percent increase in delivery points, while reducing the number of carriers and drivers by almost 5 percent. The Service estimated that delivering to curbside and cluster boxes could reduce fuel costs and save the Service $115 million by 1980.

The Service has met with strong opposition to this
policy in many local areas, some in the form of ordinances which prohibit residents from installing curbside boxes. S. 2844 would restrict the Service's use of cluster boxes



in any case in which a unit of local government does not specifically approve the use of such cluster box delivery service. The Service is opposed to this proposal.


To speed mail deliveries, increase productivity, and
reduce costs, the Service is steadily increasing the amount of mail being sorted on letter sorting machines. Two changes in the mail distribution system have enabled the Service to do this--the Managed Mail Program, implemented in February 1970, and Area Mail Processing, implemented in February 1971. Under the Managed Mail Program, post offices sort mail going out of State to large, mechanized facilities in each State designated as State distribution centers. At the State distribution center, mail is sorted and sent to the other mechanized facilities in the State for processing and delivery. Previously, post offices sorted mail directly to the individual mechanized facilities in the destination State.

Under Area Mail Processing, all mail originating within a specified geographic area is consolidated at a mechanized facility for processing and for dispatch to its destination. The objectives of mail massing under Area Mail Processing are to achieve (1) more effici ent processing through use of mechanized equipment, (2) better use of existing and planned facilities, and (3) better use of manpower.

In fiscal year 1972, about 35 percent of letter mail was sorted by machine; whereas, in fiscal year 1975, about 60 percent was machine sorted. We believe that more emphasis should be placed on standardizing both the size of letters and ZIP code placement to further increase the benefits of mechanization. The Service has been reluctant to move in this direction because of possible adverse reaction from the public.

Japan and the Soviet Union are developing systems which require standardization of envelope sizes and the use of preprinted blocks for address codes which are optically read. With this system, handwritten script can be optically read. The optical character reader currently in use in our system can only be used with certain typed addresses. The Soviet and Japanese systems overcome the principal problem of where to look on the envelope for the material to be read. A further refinement would be to expand the number of digits in the ZIP code to allow for optical secondary sorting--sorting down to the sequence of individual addresses within a delivery route.

The Postal Service is also continuing to test a system known as Letter Mail Code Sort System. In this system,



a machine-readable code is imprinted on an envelope the first time the address is read, either by a postal worker or an optical character reader. With this imprint, the letter can be sorted by machine at all subsequent processing points.

This mail Processing equipment was to be an integral part of a highly mechanized mail processing system--the Preferential Mail System--which the Service had under study. At the request of the Chairman, Senate Post Office and Civil Service Committee, we examined the program and issued a report--"Observations On The Preferential Mail System" (B-114874, Oct. 30, 1973).

The Service originally estimated--based largely on
studies made by private firms--that the proposed system would
reduce operating cost by about $1 billion a year. The basic concept of the system provided for about 180 highly mechanized processing centers, as opposed to the less mechanized 588 centers the system then had.

Our report concluded that the new type of equipment had not been proven in the field, the economic advantages of the new equipment were overstated in a study contracted for by the Service, the advantages of 180 centers vs. 588 centers were also overstated in the study, and the massing of mail at 180 processing centers could cause mail service quality to deteriorate.

The report noted that the Service had deferred implementation of the Preferential Mail System until the Letter Mail Code Sort System had been successfully demonstrated and the Service had proved that it has the technical and managerial ability to implement the National Bulk Mail System. We concluded that, overall, the Service's decision to defer action was appropriate.


At present quality of mail service equates with speed of delivery for first-class mail. The Postal Service has established reasonable delivery standards for first-class mail; it is consistently meeting or exceeding a 95-percent delivery goal in overnight delivery areas which accounts for the majority of this mail. It is approaching this goal in other areas.

What about the future? The Postmaster General has questioned whether the present structure of traditional postal services is essential or even relevant to future national needs. In fiscal year 1975, letter mail volume dropped. Was the drop a sign of dissatisfaction with



present postal services, inroads made by more advanced technology, or merely the manifestation of a stagnant economy?

The recent drop in volume coupled with forecasts of
continuing inflation and technological developments in communications which might affect demand for traditional postal services were topics of general discussion in the January 6, 1976, meeting of the Board of Governors. As a result, the Board requested that a report on planning for the Postal Service's future be presented at the next meeting. If the Service is to remain a viable part of American society, it must continue to keep abreast of society's needs.






Much of the criticism of the Postal Service centers on the fact that postal rates have increased dramatically since reorganization. In 1971, a unit of first-class mail cost $.08, increased to $.10 in 1974, and in 1975 increased, on a temporary basis, to the current rate of $.13. First-class rates tell only one side of the story, however. Rates for other classes of mail have increased even more rapidly. On the basis of complaints raised with each postage hike, indications are that rates may be getting close to the unacceptable range.

The furor over the present rates can be attributed, in part, to the historically low rates that prevailed for newspapers and magazines. Congress had, in the past, subsidized such rates. Under reorganization, these rates have been climbing to bear their full share of the costs. The increases have hurt some concerns.

Section 3621 of the Postal Reorganization Act provides (in part) that:
"***Postal rates and fees shall be reasonable and
equitable and sufficient to enable the Postal
Service under honest, efficient, and economical
management to maintain and continue the development of postal services of the kind and quality
adapted to the needs of the United States. Postal
rates and fees shall provide sufficient revenues so that the total estimated income and appropriations to the Postal Service will equal as nearly as practicable total estimated costs of the Postal

To fulfill what it sees as its mandate under the act, the Postal Service filed a request with the Postal Rate Commission on September 18, 1975, for a permanent rate increase averaging 26 percent and which would provide an estimated $2.4 billion in additional revenues. This is the third rate increase proposed since passage of the Postal Reorganization Act in 1970.


The obvious question to be answered is what are reasonable rates?



In one sense, the general public 'may have already indicated their answer to the question. In fiscal year 1975, mail volume dropped by 832 million pieces. This is the first time since the depression that peace time mail volume has failed to increase and may be the beginning of things to come. In recent congressional testimony, the Postmaster General questioned the validity of the assumption behind the Reorganization Act that mail volume would continue to increase indefinitely and stated that if rates continue to rise, large-volume mailers would find more economical alternatives 'to the Postal Service.

He also observed that unless the pace of rate increases is slackened, the Postal Service may be caught in a vicious cycle of rate increases to compensate for volume decreases brought on by rate increases.

Accepting the fact that there is general unhappiness with the way rates have been going, the question remains as to how well the Postal Service is doing. There are some other indicators.

Co!Earison of Domestic
and Foreign Rates

One indication of reasonable rates may be the cost of a unit of first-class postage in other countries. In a recent report (GGD-76-35, Dec. 11, 1975), we compared data concerning revenue, expenses, and some operational data for 10 major foreign postal systems with similar data forthe Service. We have since updated these figures.

Using the foreign exchange rate prevailing on February 3, 1976, and a 13-cent first class rate for the United States, we found a range in price from 23.0 cents for Sweden to 8.0 cents (the only rate lower than the United States) for Canada. We also found that, overall, the Service:

--handles from 5 to 56 times more letter mail,

--handles more letters per postal employee, and

--covers a larger geographical area.

Another useful measure in evaluating postal systems may be the time a factory worker must work to purchase postage for a letter. Of the citizens of the 10 countries, only the Canadians work less time for postage than do U.S. workers. This could change, however, if postal charges are increased in Canada because of wage negotiations resulting from the postal workers' strike.


V3 0

Comparisons of postal efficiency based solely on postal rates, however, are of doubtful validity because the rates are based on different operations and financing. For example,
some countries

--combine telecommunications, financial (savings
accounts and life insurance), or radio functions
with postal operations.

--erase their postal deficit, if any, either by
revenues generated by the other functions or
a Government subsidy.

--conversely, use excess postal revenues, if any,
to eliminate deficits in the other functions.

Accordingly, stamp prices may not be established strictly on the basis of postal expenses. More detailed comparisons of various statistics are in the following tables.





Cost of letter postage
(national currency) Percentage
Country August 30, 1974 7976 change

Australia .07 dollars .18 dollars 157

Belgium 5.00 francs 6.50 francs 30
Canada .08 dollars .08 dollars -France .50 francs .80 francs 60

Japan 20.00 yen 50.00 yen 150
Netherlands .40 guilders .50 guilders 25

Sweden .75 kronas 1.00 kronas 33

Switzerland .30 francs .40 francs 33

United Kingdom .045 pounds .085 pounds 89

United States .10 dollars .13 dollars 30

West Germany .50 marks .50 marks -a
Wage negotiations from the postal strike, which began in Oct. 1975, may result in increased rates.

Rate increase to .55 guilders planned for April 1, 1976.

Source: U.S. Postal Service




Estimated letter Estimated letter
postage in postage in U.S.
national currency cents (note a)

Australia .18 dollars 22.9

Belgium 6.50 francs 16.7
Canada .08 dollars 8.0

France .80 francs 18.0

Japan 50.00 ven 16.6
Netherlands .50 guilders 20.7

Sweden 1.00 kronas 23.0

Switzerland .40 francs 15.5

United Kingdom .085 pounds 17.3

United States .13 dollars 13.0

West Germany .50 marks 19.5

Using foreign exchange rate prevailing on Feb. 3, 1976.

Wage negotiations from the postal strike, which began in Oct. 1975, may result in increased rates.

Rate increase to .55 guilders planned for April 1, 1976.

Source: U.S. Postal Service




a Estimated cost of Minutes of workEstimated letter postage in time required to
compensation national currency earn the cost of
Country per hour February 3, 1976 letter postage

Australia 2.99 dollars .18 dollars 3 min. 37 sec.

Belgium 202.30 francs 6.50 francs 1 min. 56 sec.
Canada 5.35 dollars .08 dollars 54 sec.

France 16.25 francs .80 francs 2 min. 57 sec.

Japan 782.00 yen 50.00 yen 3 min. 50 sec.
Netherlands 13.24 guilders 50 guilders 2 min. 16 sec.

Sweden 24.29 kronas 1.00 kronas 2 min. 28 sec.

Switzerland 14.36 francs .40 francs 1 min. 40 sec.

United Kingdom 1.108 pounds .085 pounds 4 min. 36 sec.

United States 5.70 dollars .13 dollars 1 min. 22 sec.

West Germany 13.67 marks .50 marks 2 min. 12 sec.

Preliminary estimates from U.S. Bureau of Labor Statistics for 1974. Represents wages of manufacturing workers and value of fringe benefits.

Wage negotiations from the postal strike, which began in Oct. 1975, may result in increased costs.

Rate increase to .55 guilders planned for April 1, 1976. Source: U.S. Postal Service



Consumer Price Index/Rates

Another indication of reasonable rates may be how rate increases compare with.increases in the Consumer Price Index (CPI). As presented in its 1973-1974 annual report, the Postal Service compared the price of first-class postage with the CPI and found that first-class postage had rise n historically at a lesser rate than the CPI. The base year for beginning the comparison was 1933. Had first-class postage followed the CPI

in 1958, instead of 4 cents it would have been 6.4 cents
1963, 5 cents 6.7 cents
1968, 6 cents 7.6 cents
1971t 8 cents 8.9 cents
1974, 10 cents 10.7 cents

Over more recent years, the price of postage has increased more rapidly than most other prices. As a consequence, the CPI component for postage has, in fiscal year 1974f increased to 175.4 percent of base year 1967 (1967=100). By year's end,, the overall CPI indicator for the economy stood at 147.1 of base year 1967. (See p. 27 for a further discussion of the use of indexing.)


In the Postal Reorganization Act, the Congress established
the principles upon which equitable postal rates are to be based. With respect to the Postal Service's costs, the Congress specifically provided that the Postal Rate Commission was required to insure that each class of mail or type of mail service bears the direct and indirect costs attributable to that class or type plus that portion of all other costs of the Postal Service reasonably assignable to such class or type.

In its report explaining the Reorganization Act, the Senate Post Office and Civil Service Committee took note of the fact that there was a strong temptation to resolve the financial problems of the Post Office by charging the lion's share of all operational costs to first-class mail. The Committee believed that an independent Postal Rate Commission was needed to prevent such an imposition on first-class mail users.

The reason for the Committee's concern can readily be
seen in the findings of the President's Commission on Postal Organization. The President's Commission criticized the



Post Office's Cost Ascertainment System because only 17 percent of total postal costs were directly identifiable with classes of mail. The remaining 83 percent of total costs were allocated to the classes of mail on the basis of one or more judgmental allocations. The large proportion of total costs judgmentally allocated, made it impossible to determine whether a particular class of mail paid its true costs.

In 1969, the Post Office Department took steps to
improve its costing methods by developing a system to provide cost data on a continuing basis for postal ratemaking. Using the new costing system, the Postal Service filed its first proposal for increased rates with the Postal Rate Commission in 1971. Under this proposal, about half of the Service's total costs were attributed to the various classes of mail.

Much controversy was generated by the Service's costing methods revolving around charges that the method used resulted in some classes of mail not paying their true costs.

The Commission's Chief Administrative Law Judge stated that the Service's costing method gave the Service too much latitude to distribute large amounts of costs on the basis of judgments that were largely subjective and that the scope for judgment in setting rates should be reduced. He stated also that distributing billions of dollars on the basis of thinly supported judgments was not acceptable. He did, however, allow the cost allocations presented by the Service to stand with only minimum changes, on the basis that the record in the case did not permit the determination of rates on what should have been the proper basis. He indicated that he would expect better cost data in the next rate case.

Subsequently, the Service was taken to court by
intervenors (mail users) in the 1971 rate case. The Chief Judge of the United States Court of Appeals for the District of Columbia, in an opinion upholding the increased postal rates, commented adversely on the Service's costing procedures. He said the Service's response to the act's requirement that costs be properly attributed, was
questionable at best."

In the second rate case filed in September 1973, no change was made in the Service's costing criteria.

The presiding Administrative Law Judge found that the Service used the same costing methodology as in the first case with the result that one class of mailers were paying higher rates than necessary to the benefit of other mailers who were thus paying lower rates. To rectify the inequities


68-417 0 76 4


he believed existed, the Judge attributed an additional 25 percent of costs to the various classes of mail based on data made available to him by the Service. The Judge published his decision in May 1975, recommending a reduction in first-class mail rates and increases in other classes.

In its recommended decision, the Commission rejected the Law Judge's findings and generally agreed with the Service's costing methods. The Commission stated that by building on the Service's methods it had managed to raise the attributable cost level to 52.5 percent. An appeal in this rate case contesting the Service's and the Commission's costing methodology is currently pending in the U.S. Court of Appeals for the District of Columbia.

The Service, in its third filing for new rate increases in September 1975, broadened somewhat its definition of attributable costs. The new definition increased to 56 percent the proportion of total costs attributed to the classes of mail.

In December 1975, several intervenors in the third
rate case also filed suit against the Service challenging the methodology used in determining rate increases under the second rate case and challenging the temporary rate increases proposed by the Service following the second rate case. In January 1976, these cases were consolidated for purposes of an appellate argument to be held later this month.

A detailed explanation of why the Service's methods continue to be challenged is complex, requiring lengthy explanations involving accounting and economic theory. However, a few examples showing how the Service's definition of attributable costs can be construed as resulting in users of one class of mail paying for costs incurred for the benefit of users of another class should illustrate why the controversy remains and is likely to remain.

The Service has invested about $1 billion in a new bulk mail system. The bulk mail system will handle Some second-, third-, and fourth-class mail, but no first-class mail. Under the Service's costing methods, Tirst-class mail will be charged with about 29 percent of the bulk mail system's costs. Why? Because the Service treats about 50 percent of the bulk mail system's costs as institutional costs--costs of the enterprise as a whole--of which about 58 percent is allocated to first-class mail.

Similarly, letter sorting machines are used 90 percent of the time to process first-class mail and 10 percent of the time for single piece third-class mail. Some



of the costs of these machines are considered institutional costs and are charged not only to first- and third-class mail but to the other classes of mail as well, even though the machines are not used to process this mail.

Thus, the controversy continues as do the charges that certain classes of mail subsidize others.


The previous sections discussed conditions as they exist today. What about the future?

We estimated in February 1975, that depending on productivity gains and inflation pressures, a unit of first-class postage could cost as much as 36 cents in 1984. This was discussed in our report to the House Post Office and Civil Service Committee "Forecast of Postal Service Self-Sufficiency Potential" (GGD-75-58, Feb. 20, 1975). In a more recent report, (GGD-76-19, Dec. 5, 1975), we updated our projections through 1978 to reflect a decrease in the estimate of growth of disposable personal income, a major factor in the projection of volume, and an increase in the estimate of future inflation.

Our forecast for fiscal year 1978, which assumes a total of 95.63 billion pieces of mail, an inflation rate of 8 percent and annual productivity increases of 0.7 percent, indicates that with subsidies of zero and $1 billion, the price of first-class postage would have to be $0.18 and $0.16, respectively, to recover expenses. The effect of inflation can be seen by considering that in terms of 1975 dollars, these figures would be $0.14 and $0.12, respectively. The Postmaster General has estimated that under the current appropriations system, first-class postage will be 23 cents in 1981. Conversely, if first-class postage rates were held to 13 cents, the Congress would be requested to appropriate $8.5 billion by 1981.

In other sections of this report, we discuss why
the annual cost of operating the Postal Service has risen by about $3.5 billion since reorganization and why the price of a unit of first-class postage has risen from 6 to 13 cents over the same period.

Historically? the costs of operating the postal system have been split between the mail user and the taxpayer. However, a new wrinkle was introduced by passage of the Postal Reorganization Act. To that time, the Federal subsidy was a residual--the difference between the revenues generated by the congressionally authorized rate structure and the expenses of operating the Post Office Department.



In contrast, today the rates are, in effect, the
residual. The amount of the Federal subsidy is largely fixed, being based on specific provisions of the Postal Reorganization Act. With no change in this principle,, the reasonableness of rates could be considered academic in that you must recover costs.

A pending bill, S. 2844, would establish a Commission on Postal Service to identify and study the public service aspects of postal operations with a view to determining what portion of the Service's expenses should be supported by appropriations. We endorse such a study.

Ideally, the calculated public service subsidy would be the difference between the revenues generated by reasonable postage rates and the cost of operating the Postal Service. But again the question is what are reasonable postage rates? It is very possible that after the Commission determines
what public service subsidies should be, the residual costs would still be high enough to require postage rates considered unacceptably high in some quarters.

We are currently studying the pros and cons of tying postage rates to some index--perhaps the Consumer Price Index. Presumably, rates moving with prices generally will be more palatable to the public. Indexing would serve the
dual purpose of setting an "acceptable" level of rates and providing a basis for determining the amount of the Federal subsidies--which would be an amount equal to Postal-Service expenses less index-derived revenue. Of course, Congress may choose not to subsidize part or all of the public service expenses.

We expect that our study will shed light on whether
indexing is a feasible alternative to the existing procedures. One problem to be overcome is that indexing would probably give the Postal Service appropriated funds to cover the shortfall between revenue and. expenses and, as such, provisions would have to be made to measure the effectiveness of management's actions.


In 1970, the Congress made a judgment that rates and
classifications should be based on a more elaborate and exact analysis than the time and staff resources of the Legislative Branch could provide. The Postal Reorganization Act was designed to take the whole question of mail rates and classification out of the political process, and to have these matters determined on the basis of an evidentiary record by an independent commission, selected on the basis of professional qualifications. Under the act, it is the Commission



that furnishes the only formal opportunity for users of the
mails and other members of the public (1) to present their views on postal rates and classifications, (2) to question and evaluate the data submitted by the Service, and (3) to offer rebuttal evidence.

The legislative history of the act makes it clear that
in creating the independent, bipartisan Postal Rate Commission, the Congress intended the Commission to serve as a "true partner" of the Governors of the Postal Service. The Senate Post Office and Civil Service Committee noted that if a bureaucratic struggle developed between the Commission and the Servicer then the whole theory of independent ratemaking will have failed.

The need for a close working relationship was closely tied to the concern that ratemaking must be timely. Both Senate and House committees noted that since the Postal Service was a labor-intensive organization, it was important for the Commission to act promptly on rate requests.

Timeliness of Rate Cases

Since inception of the Postal Rate Commission, two rate increases have been completed. The first case took 17 months and the second 23 months. A third request is now in process.

In the Service's 1975 Annual Report, the Postmaster General stated:

"Rate relief did not take place during Fiscal 1975,
and as a result, the Postal Service experienced a financial crisis that could have been avoided had the ratemaking process responded to the realities
of the times.

Without question, postal rate revision calls for careful deliberation that uncovers the facts and
preserves the right of all parties to be heard.
The proceedings before the Postal Rate Commission,
however, were prolonged to the point of threatening
the economic future of the Postal Service."

In a statement before the Senate Committee on Post
Office and Civil Service, the Postmaster General said that one of the major factors in the grave financial condition of the Service is the breakdown in the ratemaking process established under the Postal Reorganization Act. He stated further that if the Service's request for a 10-cent firstclass stamp had been approved in a reasonable time, it would
have been able to obtain a 13-cent first-class stamp in July 1975, and would not have the better-than-a-billion dollar deficit it accrued in the first half of fiscal year 1976.



These themes have been repeated often by many Service officials in many forums.

The Postal Rate Commission, while agreeing that there
is a problem with the length of proceedings, feels the central reason is an inadequate Postal Service data base. It is the Commission's position that substantial expenditures of time are required by parties to obtain from the Service information they need to present evidence addressed to:

(1) the revenue requirements of the Postal Service, and

(2) the method it uses to allocate costs to the various
classes of mail.

The Postal Service does not agree with this position. The Service believes that many of the interrogatories filed with them are trivial and unrelated to the issues at hand. It is clear that the goal of speedy rate deliberations has not been achieved. For the third rate case, the Commission made a number of changes intended to speed up the ratemaking process. Foremost is the decision of the Commission to hear the case directly,, eliminating the role of the Administrative Law Judge.

Only time will tell if this will have a significant favorable effect.





The Postal Service is in very poor financial condition, as the data in this chapter will show. The questions that need to be asked as a result of the Service I s inability to balance costs and revenues are

--Does the financial condition of the Service reveal
some fundamental flaw in the thinking that an independent postal management team would be able to
better control costs?

--What are the future prospects of the Service in
reaching self-sufficiency?

Much of the criticism of the Service centers on the
fact that the business-like practices that were supposed to be brought to bear on postal problems have not controlled costs or eliminated deficits. In assessing management's performance over the past 4-1/2 years, some distinction needs to be made between cost s that were controllable by management and those that were not. In subsequent sections
we attempt to do this.

Whether Postal Service self-sufficiency remains a viable long-term goal is a much more difficult question and one we are not in a position to address. In the short-runt self-sufficiency is clearly not possible without higher rates and/or lesb service.

To some, the failure of the Service to achieve selfsufficiency either now or in the future carries with it the failure of the idea that an independent Postal Service is a better way of providing service than existed previously. We hope that the information we can bring to bear on this issue will aid the Congress in deciding the future course and shape of the Postal Service.


The Service has lost money every year since its creation as shown in the table below:




75 74 73 72

------------------------- a/(millions)------------OPERATING REVENUE
Mail Revenue
--postage $9160.5 $ 8184.7 $7603.7 $7261.5
--Federal Government
payment 484.1 470.8 404.0 294.0
Special Services 370.5 352.8 332.2 343.7
Government Appropriations
--public service cost 920.0 920.0 920.0 920.0
--revenue foregone 612.9 497.0 856.6 504.2
--other -- b/ 333.4 -To-tal Revenue* $flT3111T $107581 $UT_3 $ Mv. I

Compensation and Employees
Benefits $10805.4 $ 9641.6 $8450.9 $8145.5
Other Expenses 1768.8 1653.8 1475.5 1439.8
Total Operating Expenses $T23T72 $TI7V ". $972'9T $M374T

OPERATING LOSS $ 1026.1 $_ 536.6 $ 101.9 $ 277.0

Interest Income $ 109.2 $ 116.5 $ 106.1 $ 108.6
Interest Expense 71.9 18.3 17.2 7.1
Total Other Income $__777 I W7 $__9979 TU

NET LOSS $ 988.8 $ 438.4 $, 13.0 $ 175.4

Columns may not foot due to rounding.

Appropriations to offset (1) delay in implementation of
temporary rate increases and (2) Civil Service retirement



On July 1, 1971, the Postal Service commenced operations with an equity (an excess of assets over liabilities) of $1.7 billion. By June 30, 1975, the Service's equity balance bad shrunk to $190 million. It is expected to continue to decrease dramatically.

The changes in assets and liabilities and its effect on the Service's equity are detailed in the following table:


Fiscal year Assets Increase Liabilities Increase Equity

------------------ (billions) ------------------1971 $ 3.4 $ 1.7 $ -- $ 1.7

1972 4.7 1.3 3.2 1.5 1.5

1973 5.6 .9 4.0 .8 1.6

1974 6.8 1.2 5.7 1.7 1.1

1975 7.5 .7 7.3 1,.6 .2

1976 (est.) 9.9 2.4 11.2 3.9 (1.3)

1977 (est.) 10.7 .8 13.5 2.3 (2.8)

The Postal Service is in a negative equity position,
$831 million, at December 31, 1975. In the private sector, an excess of liabilities over assets, coupled with revenues that regularly fail to cover expenses, strongly suggest that the entity is bankrupt.

The Postal.Service's equity is not ouite like that of
a corporate entity since about $1.5 billion of the Service's liabilities are held by the Federal fl acing Bank of the U.S. Treasury, another Government entity. Use of Debt Financing

I'n order to absorb its continuing deficits and to maintain the level of assets necessary to support adequate service to the public, the Postal Service resorted to borrowing. There is currently outstanding over $1.75 billion of debt incurred to meet operating expenses and capital



expenditures. Two promissory notes of $500 million each, for operating expenses, are held by the Federal Financing Bank. Another $500 million promissory note also held by FFB is for capital expenditures. The repayment schedule of these three notes follows:

Debt Financing Repayment Schedule

to Federal Financing Bank

Three promissory notes of $500 million Repayment May 30 July 11 May 30
schedule a/ 1975 1975 1975
---------- (millions) ---------May 30, 1976 $ $200 $ 20

May 30, 1977 200 20

May 30, 1978 200 100 20

May 30, 1979 200 20

May 30, 1980 100 20

May 30, 1981-85 400

This debt incurred in FY 1974 at a high interest rate
of 9.3 percent was due June 30, 1975; refinanced on
May 30, 1975.

One-year note "rolled-over" at July 11, 1975.

Additional long-term debt consists of $250 million of 6-7/8 percent Postal Service bonds issued February 1, 1972, under a trust indenture secured by a first lien on revenue, income, fees, and appropriations; and mortgages payable of $33.4 million secured by land and buildings. Interest on these mortgages range from 4 to 8 percent maturing from 1976 through 1998.


A reduction in equity represents a reduction in the
assets of the system as a whole. Consequently, the Service is consuming its capital structure and, over time, there will be little or no money available for maintenance of plant and equipment let alone improvements. The future prospect is poorer service, higher rates to be borne by the users of the mails, or an increase in the Federal subsidy.




Chapter 3 outlined the increases in rates that have occurred since reorganization. Obviously, cost increases have greatly exceeded the revenue that increasing rates have generated. Why have costs increased so fast?

Impact of Inflation on Postal Service Employee Compensation Costs

The largest deficits occurred during the time (fiscal
years 1974 and 1975) that inflation reached a nearly unprecedented rate. This had particular significance because costof-living pay adjustments for most postal workers are pegged to movements in the Consumer Price Index. With personnel costs representing 86 percent of the Service's expenses, large CPI increases have a significant impact on postal salary costs.

The Index increased 11 percent in FY 1974 and 9.3 percent in FY 1975 compared to increases of 2.9 percent in FY 1972 and 5.9 in FY 1973. The cost-of-living allowances based on the CPI resulted in increases in total pay to postal employees of $987 million in the last 2 years. The Service's expenses for salaries and fringe benefits are shown below.

Salaries and Benefits

Percent of
Fiscal year Amount total expenses

1975 $10r805F408 85.9
1974 9r64lr557 85.3
1973 8r45Or9l4 85.1
1972 8rl45o,538 84.9

The increase in employee compensation is particularly significant since the Service used about 50,000 man-years less in 1975 than in 1971 when it began operations.

Increased Fuel and Gasoline Prices

As the operator of one of the world's largest vehicle fleets, the Service has been hit hard by the increases in gasoline prices. The Service consumes about 350 million gallons of gasoline in its owned, leased, and contracted vehicles. A 1-cent increase in gasoline prices adds about $3.5 million to the Service's annual costs. Since 1971, the cost of gasoline to the Service has increased about 20 cents a gallon.



Similarly, the Service operates about 30,000 buildings. Since 1971, fuel costs have increased about 69 percent.

Higher Employee Pay
Required by the Act

The Reorganization Act requires the Service to compensate postal workers at rates comparable to those paid in private industry. The compensation for about 620,000 postal workers moreover, is determined through the collective bargaining process and three labor agreements have been negotiated by the Service since reorganization. Prior to reorganization, postal workers' pay was linked to the pay of a GS-5 civil servant.

In fiscal year 1975, the higher rates of pay negotiated by the postal unions increased the Service's costs by about $1.25 billion more than it would have been under the pay system used before reorganization.

Under the terms of the latest contract, postal workers will receive pay increases in March and November 1976 and July 1977.


The President's Commission on Postal Organization recognized that rate increases in an era of rising costs cannot be entirely avoided. However, it believed that in a well managed postal service, the need for rate increases could be largely offset by operating efficiencies. This belief was founded on the Commission's findings of obsolete work methods and the lack of mechanical aids for employees in the Post Office Department.

Since much of the improvements necessitated investments in new facilities and equipment, the Commission recognized that the full savings would not be realized for several years.

Investment in New
Plant and Equipment

The old Post Office Department had not received adequate funds for capital investment to modernize its plant and equipment. As a consequence, the Service has had to spend billions of dollars in a short time period to upgrade its plant and
equipment, as indicated by the chart below:



Capital Investment Commitments

Fiscal years 1971-76

Category 1971 1972 1973 1974 1975

---------------------------(thousands) ------------------Construction and
improvements $114,609 $392,712 $484,764 $285,942 $472,677
Mail processing
equipment 67,823 258,439 231,398 63,869 134,782

Vehicles 28,255 44,0-18 43,098 59,208 78,123

Customer services
equipment 4,519 6,535 8,850 13,401 17,440

Postal support
equipment 20,196 22,168 34,786 41,492 32,094

$235,402 $723,872 $802,896 $463,912 $735,116

In fiscal year 1976 the Service expects to invest another
$954 million.

Overall, the Service has made gains in productivity
since the reorganization. In fiscal year 1971, 723,500 manyears were used to move 87 billion pieces of mail or 120,212 pieces per man-year. In fiscal year 1975, 693,000 man-years
were used to move 89 billion pieces of mail or 128,764 per
man-year. Had the productivity increase not occurred it
would have taken 50,000 more man-years in fiscal year 1975
to move the mail.

The Postal Service, through the implementation of two
major new programs to increase productivity--the Productivity
Improvement Program and the Letter Carrier Route Evaluation Syst4em--anticipates further decreases in staff requirements.

The Productivity Improvement Program (PIP) is presently
being tested in various post offices throughout the Nation.
The objectives of this program are to:

--develop the capability to implement and maintain a
computer model to calculate optimum mail processing
staffing levels,



--maximize mail processing operations through mechanization,

--install a system to measure and evaluate cost saving
methods, and

--identify opportunities for methods improvements.

The effectiveness of this program has yet to be determined due to its limited implementation.

Another efficiency program which has been tested by the
Service is the Letter Carrier Route Evaluation System (LCRES). This system is intended to standardize letter carrier delivery routes in a metropolitan area, evening out the workload of letter carriers, thus allowing the Service to utilize its manpower more efficiently to meet delivery needs. LCRES has been tested in Kokomo, Indiana, and Portland, Oregon. At present, nationwide implementation of LCRES is the subject of an arbitration proceeding between the Postal Service and the National Association of Letter Carriers.

Other Labor Economy Measures

Other ways in which the Service is trying to reduce its labor costs is through the reassignment of excess craft employees and reduction of overtime. The Service has established a new Excess Craft Employee Reporting Procedure to enable it to systematically adjust its manpower requirements to fit the actual workload at every postal installation. Under the new system, understaffed offices will be brought up
to strength by reassigning excess employees from other offices rather than hiring new employees.

Improved Procurement Practices

Procurement in the Postal Service is big business--well in excess of $1 billion annually. Service contracting covers a wide variety of goods and services including: land acquisition, construction of buildings, mail processing equipment, vehicles, customer service, professional services, support services, building supplies, printing, fuel and utilities just to mention a few.

The Service's procurement policies and procedures
emanate from the authority contained in section 410 of the Reorganization Act. Basically, this section exempted the Service from Federal laws relating to contracts with a few exceptions such as those laws pertaining to labor, civil rights, and criminality. As a result the Service was given wide latitude in the conduct of its procurement activities.



Though the Service was given considerable freedom, its procurement policies and regulations closely parallel those of other Federal agencies.

Since reorganization, we have continually devoted part of our audit effort to procurement. Overall, our reviews have shown the Service record to be mixed--disclosing both good and bad aspects. Generally, problems we have noted occurred because (1) procedures were not followed and/or
(2) the procedures were not adequate. When we have pointed out problems to the Service, it has instituted corrective actions. Some of our major efforts in the past are discussed below.

Sole-source contracting and cost overruns

This review was undertaken because of allegations that the Service was awarding an excessive number of sole-source contracts and that cost overruns were occurring on these contracts. The review was restricted to the headquarters contracting activities of the Procurement and Supply Department.

Sole-source contracts totaling $98 million represented 25 percent by number and 44 percent by dollar value of total contract awards. A wide variety of goods and services were procured on a sole-source basis-from complex items such as Mark II Facer Cancellers to simple items such as office furniture and letter mail tray covers. Two reasons frequently used to justify sole source were:'

--the item was urgently needed, and/or

--a particular contractor was the only source of supply.

We concluded, in certain cases, these justifications were questionable and that the Service could have avoided going sole source.

Cost overruns on sole-source contracts were not excessive. The $28.2 million cost growth on 9 contracts we reviewed was caused by:

--definitization of letter contracts ($18.3 million)

--changes to scope of work ($7.5 million

--cost overrun ($2.4 million)

The Service instituted several corrective actions:

--establishing an office to identify future needs earlier
so as to avoid the urgent needs;



--vesting sole authority for approving sole-source contracts over $5,000 with Assistant Postmaster General,
Procurement and Supply Department;

--establishing a policy to secure data rights to avoid
being forced to obtain items from the previous supplier,

we noted some basic problem areas in procurement of
developmental equipment. Briefly these were: (1) no highlevel review, committee with authority to modify or terminate programs moving in questionable directions or showing little progress or potential, ( ) test and evaluation activities being largely under control of project management rather than
being independent, and (3) lack of periodic cost benefit analyses to provide top management with information to evaluate programs in terms of costs to be incurred and benefits to be realized.,

Postal officials told us that although mistakes were made in the accelerated effort to develop mechanization, lessons were learned from the experience and corrective actions were taken including:

--requiring more careful, formal justification for
procurement actions;

--separating, organizationally, the testing and evaluation function; and

--requiring a verification of cost-benefit analysis.

Automatic data processing
equipment purchases

We were requested to determine whether contracts for automatic data processing equipment for Postal Data Centers in St. Louis and New York City were fairly awarded. In both procurements, we found no evidence that the Service attempted to rig the awards. However, we did note some deficiencies.

In the St. Louis procurement, the request for proposal did not adequately describe the workload to be processed on vendor equipment and provide information on the criteria to be used to evaluate proposals. These deficiencies worked to the advantage of the vendor awarded the contract.

In the New York procurement, the request for proposal did
not (1) adequately describe the workload requirements and the benchmark demonstration to be performed on vendor equipment or (2) provide information on the criteria to bemused to evaluate vendor proposals.



As a result of the deficiencies, the Service revised its policies and procedures for selecting automatic data processing equipment.

Professional services

Our report on contract awards for advertising and promotional services demonstrates that questionable procurements may result when established procurement policy and procedures are bypassed,

Altogether one contractor was paid a total of $815,000 under four contracts, three purchase orders, and five claims. The initial contract was justified on the basis that the company was the only source. However, the Service did not attempt to locate other potential sources as required by regulations. The contractor acknowledged that other firms could have performed the work. Subsequent arrangements with the contractor were justified on the basis of the company's knowledge of postal operations and the high quality of its work.

The five claims were for projects undertaken on the basis
of oral understandings which were not corroborated in formal contracts. In four of the five claims, the Service paid the contractor amounts shown on its invoices without audit to determine their reasonableness.

For the fogr formal contracts awarded the contractor the cost and price data submitted was not sufficiently detailed to determine the reasonableness of proposed prices. Two of the contract exceeded $100,000, and audits were required but not performed.

The contracts discussed above along with several other professional services contracts were the subject of considerable adverse publicity because of the personal involvement of senior postal officials,

Mail transportation contracting

The Service uses contracted vehicle service as one means to transport mail between postal and private facilities. The bulk of the contracts, referred to as star routes, are for moving mail between cities and between post offices. Other star routes move mail between post offices and transportation terminals, airports, and postal and private stations. There are about 14,000 star route contracts throughout the country. Expenditures for these contracts totaled $262 million in
fiscal year 1973.


68-417 0 76 5


The Service was rnot Promptly identifying opportunities
to improve the routing of a star route vehicles. As a result, the Service was incurring unnecessary costs and fuel use.' For example, the sectional center facilities at Rockford and Springfield, Illinois, could have saved about $185,000 and 88,000 gallons of fuel annually by better coordination of their star routes.

We recommended that the Service issue instructions requiring periodic reviews of star routes and that the requisite procedures be covered in appropriate Postal Service training programs. We further recommended that the Service consider centralizing the review at a level higher than the sectional center facilities to

--provide independent analysis of the need for routes,

--eliminate jurisdictional problems involving different
fiscal and contracting authorities, and

--build a degree of expertise for the personnel
reviewing the star routes.

Service corrective actions included revised procedures for reviewing star routes and covering the review procedures in Service training programs. The Service is experimenting with centralizing star route contracting and administration.

Vehicle procurement

We reviewed a Service decision to pruchase 35,695 1/4-ton vehicles for approximately $102 million. Th e purpose of'our review was to determine if (1) the cost benefit analyses used to justify the purchase were prepared properly and (2) the most economical procurement method was adopted.

We found that the cost benefit analyses were prepared using an accepted method. Also, the decision to purchase, rather than lease, was the more economical alternative.

Mechanization Improvements

The Service's primary research and development effort is geared toward mechanizing the mail stream. While Productivity improvement can be achieved to some degree through better methods and management, the majority of future savings are expected to come through mechanization. The payout in mechanization, it is hoped, will take the form of increased speed and efficiency while at the same time reducing labor costs.

Chapter 2 discussed the advances made by the Service in mechanizing letter sorting operations. Some other mechanization efforts are discussed below.


National bulk mail system

The Postal Service is investing about $1 billion in the National Bulk Mail System (NBMS)--a nationwide system for processing bulk mail. The NBMS represents the Service's first-scale attempt to develop a mechanized nationwide mail processing system. The system, approved on March 11, 1971, will consist of 21 bulk mail center-s and 12 auxiliary service facilities located throughout the country. Its original estimated cost was $950 million.

A 1970 study by a consulting firm to determine the benefits to be derived by a bulk mail system showed that such a national system would save about $300 million annually. This savings determination was based on an analysis of what the 1969 actual bulk mail costs would have been had the bulk mail system been in operation at that time. On the basis of a June-1972 consultant's study, the Service stated the system would increase revenues and reduce costs by about $500 million by 1984.

In GAO's report "Observations and Questions on the
Development of the New National Bulk Mail System" (B-114874, Nov. 1, 1974)r we stated that the Service's projection of $500 million may prove correct, but it is far from certain for two reasons:

--The.certainty of the-Service's future share of the
parcel delivery market and future revenues.

--The uncertainty of the accuracy of the Service's
prediction of how the new system will affect its
overall costs.

The Service expects the NBMS to be completely operational on March 27, 1976. The estimated cost to complete the system is about $997 million, $47 million more than the original estimate of $950 million.

The Service lowered the estimated annual benefits to
be realized from the system to $209 million on March 4, 1975, and to $149 million on July 1, 1975. On October 7, 1975, the Assistant Postmaster General, Bulk Mail Processing Department stated that benefits from NBMS should exceed $138 million annually, if parcel post volumes did not fall below 400 million pieces, and if bulk second- and thirdclass volumes did not drop below anticipated levels, for an investment return in excess of 10 percent.

Annual benefits of $138 million would be a decrease of 54 percent in the original annual benefits estimate of $300 million.



Other mechanization efforts

In testimony before the Subcommittee on Postal Facilities, Mail, and Labor Management, House Post Office and Civil Service Committee, in August 1974 we discussed the air culler, advanced facer canceller, and advanced optical character reader; three pieces of equipment being developed to reduce labor requirements.

To that time, the Service had spent about $43.4 million developing these machines. Our general observations were that:

--none of the machines were suitable for full-scale production and deployment within the postal system, and'

--all three had manpower requirement similar to existing
alternatives and therefore did not appear to offer
substantive manpower savings.

The ongoing mechanization program is divided into the following areas:

--Letter Mail

--Flats, Small Parcels, and Rolls

--Bulk Mail

--Transportation and Containerization


--Advanced Mail

--Technology Research

The long-range goal in transportation and containerization is to develop containers compatible with transportation (material handling equipment and vehicles). The Service's view is that containerization can improve productivity, while transportation improvements can achieve dollar savings primarily through reductions in fuel costs. An example of the Service effort is the use of electronic delivery vehicles. Currently, 350 1/4-ton electric vehicles are being field tested to determine whether they will be an economical alternative to the gasoline powered jeeps. Tentative plans call for the purchase of 1,000 additional vehicles
in fiscal year 1976 and 5,000 in fiscal year 1977.

Under the Flats, Small Parcels, and Rolls (FSPR) Program, two proto-types have been developed--the envelope flat sorter and a small parcels and rolls sorter. The Service has plans
to deploy these items.



The Point-of-Sale program involves developing self service equipment, window operations equipment, and delivery services equipment. Examples of Service equipment include stamp and coin vending machines and neighborhood "cluster boxes."

The Advanced Mail and Technology Research programs are really the "think tank" programs. The concept here is to evaluate new technologies in terms of potential Postal Service applications. For example, the Service is now studying the feasibility of an electronic message service system.


The 126 GAO reports demonstrate that there is much management can and should do to make the Service more efficient and effective. On the other hand, the facts, as we see them, do show that much of the Service's financial problems were beyond its control.





""he Postal Reorganization Act tasked the Postal Service

--achieving and maintaining compensation for its
employees comparable to the rates and types of compensation paid in the private sector,

--providing all employees with opportunities for career
advancements and achievements of worthwhile and
satisfying careers, and

--providing desirable working cond-itions for its

Since reorganization, the Postal Service has been successful in increasing employee compensation, establishing a comprehensive training program, improving working conditions, and reducing employee accidents. The impact of salary increases on the Service's goal of self-sufficiency was discussed in chapter 4.


The Act authorized employees to organize and bargain
collectively with management on matters related to wages and hours. The first collective bargaining agreement was completed on November 18, 1970, and expired July 20, 1971. There have been three labor contracts since that time as follows:

From To Term

7/21/71 7/20/73 2 years
7/21/73 7/20/75 2 years
7/21/75 7/20/78 3 years

The Service conducted a study of compensation costs and occupational wage rates that covered 67 companies in manufacturing and nonmanufacturing industries during the period November 18, 1974, to February 7. 1975. According to the study the average straight-time pay plus benefit cost for Service bargaining unit employees was $8.05 per hour and the average wage for employees in the industries surveyed was $8.04 per hour as shown below.



Comparison of Compensation Costs in the

Service With that in 14 Selected Industries

February 1975

Postal Service Private sector

Straight-time pay $ 6.02 $ 5.55
Total benefits 2.03 2.49

Total Compensation $ 8.05 $ 8.04

The survey results indicated that there was little difference in compensation costs between the Service and the
private sector.

As a matter of interest, GAO has traced the compensation
growth for employees of the Service. The following table
shows salary growth for Service employees since reorganization. It also shows the salary growth for General Schedule
employees, grade 5/step 5 and. for Postal Service Schedule employees, grade 5/step 5 (the former equivalent point in
the General Schedule and Service scales).

Salary Growth Since Postal Reorganization ......Per cent
July 1, 1971 July 21, 1975 March 21, 1976 3/76
(note a) (note b) (note c)

Postal Service
Average Salary
w/o fringes $8,694 $13,254 $13,650 57.00
w/fringes 9,746 15,493 15,957 63.73

Grade 5/step 5
w/o fringes $8,012 $12,238 $12,634 57.69
w/fringes 8,981 14,306(note d) 14,769(note d) 64.45

General Schedule 1
w/o fringes $7,862 $ 9,632 $10,117 28.68
w/fringes 8,813 11,809 12,403 40.73

a/ Compensation prior to collective bargaining. b/ Date of first increase under current contract. c/ Date of second increase under current contract. d/ Does not reflect a contribution for retirement benefits as
complete as the General Schedule.


By the end of the current contract period, July 1978, we estimate the average compensation and benefit costs per labor agreement employee will be $18,700.

Since reorganization, total employee salaries and benefits costs have increased $3.5 billion or 47 percent. This expense, as a percent of total postal expenses, has increased from 83.3 in 1971 to about 86 percent in 1975. Coupled with the compensation and benefit increases is the "no lay-off" clause. This package would certainly seem to give postal union employees a financial standing comparable to that of employees in the private sector of the economy.


The Postal Service training program is designed to
increase employee opportunity for advancement and the professionalism of the organization. The Service's program is carried.out through its Postal Employee Development Centers located in the larger and geographically acceptable post offices, Technical Center in Oklahoma# and Training and Development Institute in Maryland.

The Development Centers are the basic units in the Service's program. The centers, of which there were 170 in fiscal 1975, use self-learning techniques to enable employees to improve their general education or develop specific skills for better-paying jobs. An estimated 354,000 employees--over half the postal workforce--took courses at centers during 1975.

The Technical Center teaches advanced technical skills and the Development Institute specializes in management instruction. In 1975t the Institute started a new management development program designed to insure that all city-delivery supervisors, manager, and postmasters receive thorough training when they are appointed to a new management position. In fiscal year 1975, 55,342 employees attended the Center and 67,569 attended the Institute.


The adequacy of many postal facilities had been a long-standing problem. The President's Commission on Postal Organization in its June 1068 report stated:,

"Though some modern post offices are pleasant enough
places to work, working conditions in many are appalling. * Dirty facilities, crowded and noisy work areas, inadequate locker space and
rest rooms, and poor lighting and cooling systems
are common."



Recognizing the problem,. the Service, in early 1972, started a multi-million dollar effort--the Working Conditions Improvement Program (WCIP)--that had the objective of having at least 95 percent of postal employees housed jn adequate facilities by June 30, 1975. The program's importance, as expressed by headquarters management, was such that it had 'a priority second only to expeditious and economic delivery of the mails. The program tackled problems ranging from poor lighting and ventilation on the workroom floor to sprucing up employee locker rooms.

On December-16,'1974, GAO reported to the Postmaster General that the program was not well managed in its early stages. As a-result, its progress was hindered by problems that could have been avoided or ameliorated by better planning and execution. The problems inhibiting WCIP's
progress during its early stages were:

--insufficient staffing and direction to effectively
execute the program,

--inadequate reporting procedures for informing
management of program progress,

--a need for improved identification of needed
facility improvements,

--a need to obtain employee views on required
facility improvement,

--inadequate guidance on improving leased
facilities, and

--a need to insure that improvements are made in
order of their priority.

Program management improved considerably during our review,
to some extent, as a result of GAO discussions with and suggestions to postal managers.

The WCIP was completed in fiscal year 1975 with a total commitment of $260 million. At the end of the fiscal year, 87 percent of postal employees were housed in fully adequate space or in buildings being upgraded. Another 12 percent
were in buildings scheduled for replacement.


The Service has taken action to reduce the number of accidents involving its employees. This includes the Service's efforts to modernize facilities, improve working conditions, and increase employees' awareness of safety.



The following table shows the number of industrial and vehicle accidents in the Service from fiscal year 1971 (prepostal reorganization) to fiscal year 1975.

Postal Service Accident Statistics

1971 1972 1973 1974 1975

Number of accidents:

Industrial 49,517 45,229 46,868 51f766 4'5,962
Vehicle 22fO35 19f786 16,328 12f398 10,408

While there has been a favorable trend in the number of accidents, the cost of accidents including medical cost payments for lost time, and property damage has risen steadily as shown in the following table.

Total Cost of Accidents

1972 $18f336,805
1973 20f6Olf8OO
1974 2lo28OrlO4
1975 23,147f345


In many ways the post office is a better employer and a better place to work than it was prior to the reorganization. The amounts expended by the Service show that it is working to fulfill the objectives of the Postal Reorganization Act.










JANUARY 31, 1976













Addressee and date issued
or Members Agency Reference Congress of Congress official FISCAL YEAR 1972

Implementation of the bulk
mail facility concept,
Pittsburgh, PA (Request
of Congressman H. R. Gross) 171594 9-07-71

Questionable savings attributed
to Key Cities Program --5-04-7-'

Survey of the transportation
activities of the Post Office
Department 114874 6-29-72FISCAL YEAR 1973

Determination of whether the
Postal Service has improved
first-class mail service
(Request of Congressman
H. R. Gross) 114874 12-01-72

Quality of mail service in
Florida (Request of Congressman Paul G. Rogers) 114874 5-02-73

Quality of mail service in
Texas (Request of Senator
Lloyd M. Bentsen) 114874 5-15-73

Examination of selected aspects of the preferential
mail system (Request of
Chairman, Subcommittee on
Postal Facilities and Mail,
House Committee on Post
Office and Civil Service 171594 6-25-73

Survey of Self-Service
Postal Center Program --9-21-72

Mail forwarded or returned
to patrons 10-31-72
Evaluation of the letter mail
code sort system prototype 114874 11-08-72





Addressee and date issued
or Members Agency Reference Congress of Congress officials

FISCAL YEAR 1973 (cont'd.)

Service-wide mail containerization program needed 1148741-87

Survey of the area and managed mail processing programs -2-08-7:

Survey of damaged and lost
parcels 3-13-7:Survey of registered and COD mail 31~


Review of air mail improvement
p rog ram 114874 8-06-73

Problems affecting mail service
and improvements being taken 114874 3-20-74

Review status of mail service
(Request of Chairman, House
Post Office and Civil Service
New York 114874 7-20-73
Miami 114874 10-0.2-73
Boston 114874 10-11-73
Detroit 114874 10-19-73
San Francisco 114874 1-03-74
Denver 114874 1-04-74
Honolulu 114874 1-07-74
Los Angeles 114874 1-09-74
New Orleans 114874 3-08.-74

Review quality of mail service
in Delaware (Request of Congressman Pierre S. du Pont) 114874 7-26-73

Review handling of publications
at Texarkana Sectional Center
Facility (Request of Congressman Wright Patman) 114874 9-28-73




QUALITY MAIL SERVICE Addressee and date issued Committees
or Members Agency Reference Congress o Congress official

FISCAL YEAR 1974 (cont'd.)

Review quality of mail service
in Alaska (Request of Senator
Mike Gravel) 114874 10-26-73

Observations on the Preferential Mail System (Request
of Chairman, Senate Committee on Post Office and Civil
Service) 114874 10-30-73

Postal Service actions on
problems cited in GAO report
on mail service in Florida
(Request of Congressman
Paul G. Rogers) 114874 3-12-74

z esults of GAO test mailings
during 1973 Christmas period 6-19-7Review of letter sorting machine
operations in Detroit 6-28-7FISCAL YEAR 1975

Missent mail--a contributing
factor to mail delay and GGD-75-002
increased costs 114874 10-22-74

Observations and questions
on the development of the
new National Bulk Mail GGD-75-31
System 114874 11-01-74

$100 million could be saved
annually in postal operations in rural America without affecting the quality of GGD-75-87
service 114874 6-04-75

Problems affecting mail service in New Haven, CT (Request of Congressman Robert GGD-75-020
N. Giaimo} 114874 9-04-74





Addressee and date issued

or Members Agency
Reference Congress of onress official

FISCAL YEAR 1975 (cont'd.)

Information on certain costs of the National Bulk Mail System
(Request of Congressman GGD-75-042
H. R. Gross) 114874 11-12-74

Review of airmail and firstclass delivery times (Request GGD-75-047
of Senator Eagleton) 114874 12-17-74

Survey of the reliability of air transportation of mail -43

Report on improved mail service 1973 Christmas period
over 1972 Christmas period 114874 10-23-7-SCAL YEAR 1976

System for measuring mail delivery performance--its GGD-75-109
accuracy and limits 114874 10-17-75

Quality of mail service in New Mexico (Request of
Chairman, Subcommittee on
Treasury, Postal Service
and General Government,
Senate Committee on GGD-76-6
Appropriations) 114874 11-04-75

Potential for savings through consolidating certain mail
operations in the San Francisco and Seattle
Postal Concentration
Centers 10-17-75

ed to formulate policies
and procedures which would
ensure evaluation of tradeoffs between transportation
savings and service impact 11 l-07-755




Addressee and date issued Committee
or Members Agency Reference Congress of Congress official


Contract for study of suitable
interior finishes (Request
of Congressman H. R. Gross) 172134 7-12-71

Planning a new postal facility
in Charlotte Amalie, St.
Thomas, Virgin Islands (Request of Chairman, Subcommittee on Public Buildings
and Grounds, House Committee
on Public Works) 171594 8-16-71

Site selection and contract
awards for construction and
mechanization of New York
Bulk and Foreign Mail Facility (Request of Congressman
H. R. Gross) 171594 10-29-71

Transfer of postal building
site acquisition and construction responsibilities
(Request of Chairman,
Senate Committee on Post
Office and Civil Service) 172186 11-03-71

Leasing vs buying Postal
Service vehicle maintenance facility in New York
City (Request of Congresswoman Bella S. Abzug) 114874 2-14-72

Selection of a new facility
site in Thousand Oaks, CA (Request of Senators Alan
Cranston and John V. Tunney) 171594 2-17-72

3mination of selected terminated architect-engineering
design contracts (Request of
Chairman, Subcommittee on
Postal Facilities and Mail,
House Committee on Post
Office and Civil Service) 171594 6-13-72


68-417 0 76 6




Addressee and date issued Committees
or Members Agency Reference Congress of Congress official.

FISCAL YEAR 1972 (cont'd.)

Leasing vs buying vehicle
maintenance facility in New York City (Request of Congresswoman Bella S. Abzug,
and Senators Jacob K. Javits
and James L. Buckley) 114874 6-16-72

Contract award and administration procedures --8-18-71

Vehicle maintenance program,
San Francisco region --2-14-72

Procurement of security containers and safes to reduce
burglary lossess 4-17-72
Survey of vehicle utilization
in Chicago area --4-18-72


Economies of a decision by
the Postal Service to
abrogate an existing lease arrangement South Boston
Postal Annex Addition, Boston, MA (Request of
Congressman James B. Burke) 145650 12-29-72

Review of the purchase of a
new Postal Service Headquarters (Request of Chairmand, Subcommittee on Postal
Facilities and Mail, House
Committee on Post Office
and Civil Service) 114874 1-05-73





Addressee and date issued Committees
or Members Agency Reference Congress of Congress officia'L

Selection of bulk mail facilities in Memphis, 7N, and
Philadelphia, PA (Request*of
Chairman, Subcommittee on
Postal Facilities and Mail,
House Committee on Post
Office and Civil Service) 114874 1-30-73

Examination of the promotional
activities of the U.S. Postal Service (Request of Congressman John M. Murphy) 114874 6-12-73


.,Examination of construction
contract awarded for Des
Moines, Iowa, Bulk Mail
Facility (Request of
Chairman, House Committee
on Post Office and Civil
Service) 171594 7-19-73

Justification for leasing
foreign-made vehicles
(Request of Congressman
Henry S. Reuss) 167196 9-05-73

Review of site selection,
Cuba City, Wisconsin
(Request of Congressman
Vernon W. Thomson) 171594 9-19-73

Facility site selection procedures at Cincinnati,
Ohio (Request of Congressman William J. Keating) 114874 10-19-73





Addressee and date issued
or Members Agency Reference Congress of Congress official.

FISCAL YEAR 1974 (cont'd.)

Review of costs for Headquarter's furnishings
(Request of Senators
Robert P. Griffin and
John C. Stennis, and
Congressmen Charles E.
Bennett and H. R. Gross) 114874 12-14-73

Review of cost of kitchens
for Board of Governors and
for Postmaster General
(Request of Senator Alan
Cranston) 114874 2-12-74

Review of contracts with
Burnaford and Company
(Request of Senator Alan
Cranston) 114874 6-12-74

Review of Postal Service's $3.8
million advertising campaign
(Request of Senator Alan
Cranston) 114874 6-25-74

Review of expenditures to
furnish and equip Postmaster
General's new office (Request
of Senator Sam Nunn) 114874 6-27-74

Economic analysis on Letter
Sorting Machines in Western
Region 8-06-7.

Need for improved security
measures at, and a consolidation of, the St. Louis
ADP faciltiy 2-28-7,





Addressee and date issued
or Members Agency Reference Concress of Congress official=


Observations on Procurement of
equipment for Postal Data
Centers (Request of Chairman,
House Committee on Post
Office and Civil Servi-ce) GGD-74-098 St. Louis, MO 180235 7-17-74
New York, NY 180235 7-19-74

Review of site acquisition for
Kansas City Bulk Mail Facility (Request of Congressman GGD-74-102
Larry Winn, Jr.) 171594 7-17-74

-ed for a review mechanism for
contracted vehicle service 114874 7-03-74

Problems affecting operations
at the St. Louis Postal Data
Center 180235 12-10-74

Review of working conditions
improvement program 114874 12-16-74

Observations on sole-source
procurement and overruns
(Request of Chairman, House
Post Office and Civil Ser- GGD-75-81
vice Committee) 171594 5-09-75

Review of policies regarding
neighborhood collection and
delivery boxes (Request of GGD-75-92
Senator Alan Cranston) 114874 6-09-75





Addressee and date issued
or Members Aqency Reference Congress of Congress official:


Review site selection for new
San Antonio postal facility
(Request of Congressman
Eenry Gonzalez) ,171594 8-11-75

Large contract for purchase of
letter sorting machines by
U.S. Postal Service (Request GGD-75-100
of Senator Stuart Symington) 173423 8-26-75

Efforts to develop improved
mail processing equipment
have not succeeded to date
(Request of Chairman, House
Committee on Post Office GGD-75-96
and Civil Service) 114874 9-19-75

Automotive Parts Distribution
System (Request of Chairman,
Subcommittee on Environmental
Problems Affecting Small
Business, House Permanent Select Committee on Small
Business) (addressed to
Chairman, House Committee GGD-76-13
on Small Business) 114874 11-05-75

Use of commercial facilities
for the maintenance of postal
vehicles (Request of Chairman, Souse Committee on Post GGD-76-30
Office and Civil Service) 114874 12-23-75





Addressee and date issued
or Members Agency Reference Congress of Congress officialFISCAL YEAR 1976 (cont'd.)

postal Service justified in
purchasing mail delivery
vehicles (Request of Chairman, House Committee On
post Office and Civil GGD-76-40
Service) 114874 1-09-76





Addressee and date issued
or Members Agency Reference Cogrs of Congress officia.'


Payroll activities at Atlanta
Postal Data Center and
Atlanta and Columbus, GA, and Greenville, SC, post
of fices 1-18-7


Examination into statements
concerning use of overtime
instead of replacing employees who retire (Request
of Congressman Edwin B.
Forsythe) 114874 11-20-72

'ministration of sick leave within the Postal Service
needs improvement 114874 2-28-7:


Survey of Postal Service
Training Programs --7-31-7:Procedures to reimburse
Department of Labor for
Workmen's Compensation paid
to postal employees --10-25-7:'

Findings on Groettum-type
overtime compensation 1- 0-30-7-63




Addressee and date issued Committees
or Members Agency Reference Congress of Congress official .


Need to evaluate and improve
postal source data system
before further expansion 114874 7-01-71

Need to increase rates to
recover cost of providing
service to commercial firms
renting multiple post office
boxes 114874 7-19-71

Need to recover the costs of
processing business reply
mail 114874 10-28-71

Determination of nonprofit
organizations' eligibility
for reduced postage rates
should be improved 114874 4-04-72

Research and engineering
activities 1-28-7-Postal rates should be adjusted
to recover costs of providing priority handling to publications 114874 3-23-7:

Policies followed in selling
and exchanging ZIP code
directories 4-28-7'


Improvements needed in collection
of data for the U.S. Postal Service's revenue and cost
analysis system 114874 2-20-73

Examination into the rationale
for engaging a firm of certified public accountants
(Request of Congressman
H. R. Gross) 114874 9-07-72





Addressee and date issued
or Members Agency Reference Congress of Congress official.

FISCAL YEAR 1973 (cont'd.)

Examination of statements concerning Postal Service authority to sell bonds (Request of
Senator Alan Bible) 114874 12-13-72

Comparison of budgeted and
actual obligations, fiscal
year 1972 (Request of
Congressman H. R. Gross) 114874 1-18-73

Evaluation of Postal Service
opinion concerning possible conflict of interest on the part of Ernst & Ernst (Request of Congressman H. R.
Gross) 114874 2-20-73

L-omments on senders of thirdclass mail Paying return
postage (Request of Senator
Mike Gravel) 114874 5-10-73

Survey of the Customer Cooperation Programs 10-26-7Z

Cash management practices --11-30-72


Information on law enforcement
activities of the Postal
Service (Request of Chairman,
House Committee on Post Office
and Civil Service) 114874 2-14-74

Cost reduction reporting program --7-31-72

3pection Service's consumer
protection activities relating
to mail fraud 10-30-71

Variations in cost effectiveness
of post offices during 1973
Christmas Period --4-22-74





Addressee and date issued
Comm it tees
or Members Agency Reference Cogrs of Congress Official


Report on second- and thirdclass mail rates and regulations (Request of Senator GGD-74-097
Alan Cranston) 114874 7-17-74

Examination of Capital Investment Program (Request of
Chairman, House Committee
on Post Office and Civil GGD-75-017
Service) 119600 8-22-74

Analysis of Public Service
Costs (Request of Congress- GGD-75-025
man Edward J. Derwinski) 114874 10-09-74

'Thservations on sales of
postal-related products and photocopy services (Request
of Chairman, House Committee
on Post Office and Civil
Service; Senators Alan
Cranston, Pete V. Domenici, Barry Goldwater, Sam Nunn,
and Congressman John J. GGD-75-29
Rhodes) 114874 10-10-74

Profitability of sales of
printed return address envelopes (Request of Chairman, Subcommiittee on
Environmental Problems
Affecting Small Business) GGD-75-62
(Congressman Hungate) 114874 2-13-75

Review of billing system for
DOD mail usage (Request of
staff of Senate Committee GGD-75-1
on Appropriations) 182343 2-20-75

Forecast of Postal Service
self-sufficiency potential (Request of staff of House
Committee on Post Office GGD-75-58
and Civil Service) 114874 2-20-75





Addressee and date issued
or Members Agency Reference Congress of onress official.

FISCAL YEAR 1975 (cont'd.)

Survey of Postal Service's collection of customs duties --7-26-7Survey of impact of new postal
products and services on revenue, customers, and
existing postal products --8-23-7

Survey of Postal Service
procurement and material
Assessment and collection of
fourth-class mail revenues 5-19-7:

"7SCAL YEAR 1976

Federal agencies could do
more to economize on
mailing costs (Request
of Chairman, House
Committee on Post Office GGD-75-99
and Civil Service) 114874 8-25-75

Estimates of mail volume,
expenses, and first-class
postage under various subsidies for FY 76, 77, and
78 (Request of Congressman GGD-76-19
Leo Ryan) 114874 12-05-75

Statistical Comparison of
U.S. Postal Service with
Selected Foreign Postal
Systems (Request of Rep. GGD-76-35
Donald M. Fraser) (22388) 114874 12-11-75

leged mismanagement of the
District of Columbia's City
Post Office (Request of
Chairman, House Committee
on Post Office and Civil GGD-76-41
Service) 114874 1-20-76





Addressee and date issued Committees
or Members Agency Reference Congress of Congress official.

FISCAL YEAR 1976 (cont'd.)

Alleged improprieties at the
Eugene, Oregon, Post Office
(Joint request of Senator
Mark 0. Hatfield and Cong- GGD-76-39
resaman James Weaver) 114874 1-30-76











In a report to the Congress, we stated that the Post Office Department began a multimillion dollar program to install a nationwide -automated data collection and processing system, the Postal Source Data .System (PSDS), which was to provide postal management with more timely-and accurate information on employee time and attendance, labor hour distribution, and mail volumes processed than was possible under manual data systems. PSDS was to be installed initally in 75 of the largest post offices but the Department later made plans to install PSDS in 35 other large post offices-The Department estimated in 1966 that (1) the total
acquisition cost of PSDS would be $30.2 million and (2) it would be fully operational in the initial 75 post offices by November 1968. The Department predicted that savings would average $7.2 million annually, during each of the first 5 years ~of PSDS operations.

Despite the lack of sufficient data on the feasibility of proposed system and the types and quantities of equipment needed and contrary to the recommendation of its own study groups, the Department awarded a $22.7 million contract for the purchase and nationwide installation of equipment for PSDS. The premature award of the contract resulted in acquisition of unneeded electronic data collection equipment costing $1.2 million and of other equipment that was not used for substantial periods of time.

As of November 20, 1970, a fully operational system had not been implemented at 9 of the initial 75 post offices, including two of the largest in the country--New York, N.Y.; and Washington, D.C. PSDS acquisition costs at the initial 75 offices had reached $44.5 million by February 1971, an increase of $14.3 million over the original estimate.

We believed that the predicted savings would not be realized. Annual employee costs, as of October 1970, for authorized PSDS positions had exceeded the Department's original estimate of $5.5 million by at least $14.1 million. Increased costs also resulted from diversion of other postal employees from their regular duties to operate the system.




Other annual operational costs, for such items as supplies and services, maintenance, and amortization of equipment, had exceeded the Department's original estimate of $9.1 million by at least $7.9 million.

The reports generated by PSDS at the time of our review were less timely, less meaningful, and less accurate than reports available prior to installation of PSDS and therefore, were less useful to postal management.

Despite the many deficiencies in the system, the'Department continued expanding PSDS to additional post offices.

We recommended that the Postmaster General (1) suspend the expansion program pending a comprehensive evaluation and cost-benefit study of PSDS and (2) curtail the procurement of equipment and software for the system and keep operational costs to a minimum pending the outcome of the evaluation and study.

The Postmaster General concurred generally with our
recommendation that further expansion of PSDS be suspended pending a comprehensive evaluation and cost-benefit study of the system. He stated, however, that expansion of PSDS to 110 post offices would continue because the equipment had been purchased and the preparatory work at the offices was underway. We believed that it was neither a desirable nor a judicious use of funds to expand the system to 110 of 'fices. Future expansion of PSDS, beyond the 110 offices, would depend on the outcome of a major review of the Service's management information needs which was planned for completion in late 1972. (B-114874, July 1, 1971)





In a report to the Congress, we stated that many commercial firms receiving large volumes of mail had been renting numerous post-office boxes (multiple boxes). Each box was designated by a firm as the address to which its customers and other correspondents were to send particular types of business mail. In many instances there was no actual lockbox, but mail addressed to a box number was sorted and placed in a mail bag for pickup by the addressee. Boxes rented under these circumstances were referred to as phantom boxes.

The costs of providing commercial firms with multiple
and phantom boxes at 80 selected large post offices exceeded the revenues by about $3.1 million annually. These additional
costs primarily consisted of increased clerical cost of sorting a large volume of mail sent to recipients with numerous post office boxes.

The Postmaster General advised us that the box rental
policy would be revised to recover the costs of multiple and phantom box services. On July 1, 1975, the Postal Service revised box rental rates to cover the costs attributable to such. The Service anticipates increased annual revenues of $40 million. (B-114874, July 19, 1971)


68-417 0 76 7




Our report to the Congress noted that theCongress.
intended that fees charged for business reply mail service be adequate for recovering the cost of this service. Although Postal Service costs had increased, the fees had not been changed since they were established by law in 1958..

The Postal Service was not recovering the cost of providing the business reply mail service because personnel costs had increased significantly from the time the fees were established. The average direct labor cost for each piece of business reply mail exceeded the average fee by .9 cent at 13 postal facilities located in seven cities. The Postal Service processed 733 million pieces of business reply mail during fiscal year 1970.

We recommended that the Postal Service determine the
nationwide cost of the business reply mail service and propose to the Postal Rate Commission appropriate fee adjustments to recover the costs of providing this service. The Postmaster General stated that the relationship between costs for a postal service and rates for that service was a matter for review by the Postal Rate 'Commission.

Because the Postal Service had not compiled information on the nationwide costs of providing the business reply mail service, we believed that an informed decision could not be made as to the fees that are required to recover the costs of providing the service. (B-114874,. October 28, 1971)






At the request of Congressman H. R. Gross, we reviewed the site selection and contract awards for the construction and mechanization of the U.S. Postal Service's New York Bulk and Foreign-Mail Facility located in Jersey City, New Jersey. Emphasis was placed on certain allegations regarding cost overruns on the construction contract and the selection of the property owned by the Penn Central Railroad as the site for the postal facility. We reported that:

--Alternative properties were eliminated from consideration as potential sites for the facility before
sufficient data had been obtained to form a reasonable judgment that the property acquired was the most
feasible site under consideration.

The Service awarded a $4.2 million contract for piling without obtaining more soil condition information on which to base better estimates of pile lengths. When actual soil conditions became known, additional piling was required, increasing the contract price by more than $2.1 million.

Sufficient data was not obtained to reasonably support the Service's selection of the two architect and engineering firms to compete for the final design contract for the New York facility.

Had the Service obtained available information on construction activities and on the labor market in the New Jersey area, it could have prepared more reliable construction cost estimates and more realistic construction time schedules. Total project costs were originally estimated at $62.3 million. The latest estimate is $130.1 million.

The Service awarded, on a sole-source noncompetitive
basis, an $8.4 million contract for equipment critical to the economical operation of the facility. A preaward survey of the contractor's performance capability was not made and adequate measures to evaluate the contract prices were not taken.

The matters discussed in our report were the subject of extensive hearings held between October and December 1971 before the Subcommittee on Postal Facilities and mail, House Committee on Post Office and C.ivil Service. (B-171594, October 29, 1971)





In a report to the Acting Assistant Postmaster General, Research Department, U.S. Postal Service, concerning the Service's research and engineering activities,-we showed that there was no agencywide planning system that set forth goals and priorities for improving postal service which could be used to determine the feasibility of proposed. research and development projects.

We concluded that, in the absence of an integrated,
agencywide plan for improving postal operations and a timetable for implementation, the Service's research group had no real basis for evaluating the need for or the priority of projects proposed by the operating groups,.research personnel, or outside sources. Further, we concluded that operating without such a plan was not conducive to gettingthe most out of the research dollars being spent. In 7 years, the budget for research had increased almost 10-fold-from $12 million in 1966 to $110 million in 1972.

A Headquarters Research Department official told us that certain organizational changes had occurred and that the Research Department was in a position to require justification, approval, and transfer of funds from operating groups before a project was initiated. He said that before any long-range and expensive research project was undertaken, a complete study and evaluation were made of benefits to be gained and economic advantages to be achieved. The official told us also that consideration was being given to integrating the project with existing and planned mechanization. (January 28, 1972)