[Annual Report of the Postmaster General, 1973-1974]
[From the U.S. Government Publishing Office, www.gpo.gov]

Financial and Operating Highlights . . . 1 Postmaster General's Letter to
the Board of Governors.............2
Postage is a Bargain ................ 6
Mail Service is Very Good............10
Financial Review and Outlook.........15
Capital Investment...................23
Operations...........................26
Bulk Mail............................30
Postal People........................33
Protecting Employees, Customers
and Their Mail ...................36
Legislation and Litigation...........37
Research and Development.............39
Financial Statements.................40
Balance Sheet ....................40
Operations and Changes in Equity. . 42
Changes in Financial Position.....43
Notes to Financial Statements.....44
Report of Independent Accountants 46
Financial History ...................47
Operating Statistics.................48
FINANCIAL AND OPERATING HIGHLIGHTS
UUH f ■
SCIENCE & INDUSTRY
Fiscal Years Ended June 30
1973	1972	1971	1970
1974
Pieces of mail (millions) % change	90,098 0.5	89,683 2.9	87,156 0.2	86,983 2.5	84,882 3.5
Operating Revenue		(in millions of dollars) . . . .	$ 9,008	$ 8,339		$ 7,884	$ 6,665	$ 6,347
% change		....	8.0	5.8	18.3	5.0	3.3
Govt. Appropriations		....	1,750	1,486	1,424	2,086	1,355
% change		....	17.8	4.3	-31.7	53.9	53.3
Total Operating Expenses		....	11,295	9,926	9,585	8,955	7,867
% change		13-8	3.6	7.0	13.8	9.8
Net Loss		438	13	175	204	166
% change		3,281.4	-92.6	-14.0	22.9	16.1
Fixed assets (net of depreciation) June 30		1,670	1,379	1,297	1,150	1,049
% change		21.1	6.3	12.8	9.6	35.2
Equity, June 30		1,147	1,566	1,548	1,686	1,538
% change		-26.7	1.1	-8.2	9.6	33.7
U.S. population (millions), Jan. 1		(in units as indicated) ....	210.2	209.7		208.1	206.7	204.4
% change		....	0.2	0.8	0.7	1.1	1.0
Pieces of mail per capita		....	429	428	419	421	415
% change		....	0.2	2.1	— 0.5	1.4	2.5
Operating Revenue per capita		....	$ 42.85	$ 39.77	$ 37.89	$ 32.24	$ 31.05
% change		....	7.7	5.0	17.5	3.8	2.3
Accrued Cost per piece of mail		....	12.549	11.07c	11.00c	10.30c	9.27c
% change		....	13.3	0.6	6.8	11.1	6.1
Operating Revenue per piece of mail		....	10.009	9.30c	9.05c	7.66c	7.48c
% change		....	7.5	2.8	18.1	2.4	-0.1
Net Loss per piece of mail		....	0.499	0.01c	0.20c	0.23c	0.20c
% change		....	4,800.0	-95.0	-13.0	15.0	17.6
Pieces of mail per total postal man year		....	127,977	131,079	123,158	120,212	116,931
% change		....	-2.4	6.4	2.4	2.8	1.8
Man years	  .	. . .	....	704,016	684,192	707,674	723,581	725,913
% change		....	2.9	- 3.3	-2.2	-0.3	1.7
Employees, June 30		....	710,433	701,051	706,400	728,911	741,216
% change		....	1.3	- 0.8	-3.1	-1.7	0.3
Financial and Operating Details, See pages 40 through 51.
1
3 1336 06403 6636
E. T. Klassen
POSTMASTER GENERAL'S
LETTER TO THE
BOARD OF GOVERNORS
To the Governors:
The report which follows details the operations of the United States Postal Service in its third year. In a very large operation such as ours, most employees work quietly and efficiently at moving the mail, serving the public, and making the Service a better, safer, more effective organization. The Annual Report provides an opportunity to talk about their too often unheralded contributions.
Above and overriding the day-to-day considerations, there are several major policy matters that I want to call to your attention in this summary letter. They concern:
1.	Our fiscal situation;
2.	Quality of mail service; and
3.	Implementation of the
Bulk Mail System
Our Fiscal Situation
The first section of the Report is entitled "Postage is a Bargain."
It is aptly titled, for postage is a bargain by almost any measure applied to it—the price of postage in other nations; the value of the service rendered; and the long-term trend of postage prices compared with other price indices.
But its bargain nature is obscured by the fact that the Postal Reorganization Act required (justly, in my opinion) that a substantial
part of the burden of postal costs be shifted from the public treasury to the users of the mail in proportion to their use of the mail. That corrective action resulted in large percentage rate increases for some types of mail users. In order to mitigate that effect the Act provided that the increases be phased in over a period of years. Mail users protested that this period should have been longer and Congress and the Administration acknowledged the validity of their protest by enacting legislation which this past year increased the phase-in period from five to eight years for some commercial users and from 10 to 16 years for nonprofit institutions.
It is important for the long-range future of the mail system that customers appreciate the bargain nature of postage and effects of extended phase-in periods.
Because, despite a very great reluctance on my part to do so, the Postal Service will within the next year almost surely have to seek a new rate increase.
The financial statements in this report indicate a net loss for Fiscal Year 1974 of more than $438-million, even after last spring’s rate increase. The forecast for 1975 indicates another substantial loss in the absence of further rate relief.
It is appropriate for you to ask why we cannot bring our costs into line. The fact is that we have been cutting costs in all areas not essential to the delivery of the mail. Last year’s deficit, for example, could well have approached $500-million, had we not succeeded in paring expenses to offset some of the added costs
2
of runaway inflation. Further, we remain dedicated to tightening our belt as far as possible in Fiscal Year 1975—again with the qualifier that we will not do so at the expense of service.
All our economy efforts must be viewed, however, against the reality of the strong forces pushing basic costs upward. Three forces, in particular, must be recognized.
1.	Inflation has hit the Postal Service harder than most businesses. We are heavily labor-intensive, and we operate vast physical facilities which use great quantities of energy. Both labor and energy costs, as you well know, have increased substantially since we filed our last rate increase proposal. In the absence of any retained earnings to absorb the extra costs, they must be taken as losses.
2.	Comparability of compensation—that is, bringing postal pay in line with that of the private sector—was a basic requirement mandated as part of the Postal Reorganization Act. Pay increases agreed to with our employees in our first three years of operation have, I believe, achieved basic comparability, but that achievement has placed a severe strain on our financial resources. A final pay increase under our current labor contract took effect July 21,1974 and will add significantly to costs for Fiscal Year 1975.
3.	Productivity declined 2.4 per cent in 1974. This decline must be understood in the light of a Postal Service increase of 6.4 per cent in 1973 and in the light of the fact that productivity declined in
much of American industry.in Fiscal Year 1974. Nevertheless, the 1974 decline cost us considerably. We are working very hard to recover our upward momentum in productivity.
These are the three principal factors in a complex fiscal mixture that led us to project a loss in 1975. We have only three choices for funding that loss —an increase in postage rates, a further subsidy from the public treasury, or a renewed effort to cut costs and increase productivity.
Recourse to the public treasury is a narcotic solution back down the road to fiscal irresponsibility. We must not take that road. Unpopular though it will be, difficult as it will be, we must undertake to raise postage rates once more, while redoubling our efforts to cut costs and increase productivity.
Even with a new increase, postage will still be one of the last remaining authentic bargains in America.
The Quality of Mail Service
Mail service as a whole improved in 1974. There were obviously exceptions to this rule and trouble spots which demand our constant attention, but, as the third section of this Report says, "Mail Service is Very Good."
It is good compared to mail service in other nations, particularly when consideration is given to our much greater distances, our much greater volumes, and our much greater number of delivery points.
It is good compared to what it was last year and before
Reorganization. And I believe it is better in most instances than it has been for a number of years, although we have not had adequate measuring tools long enough to make objective comparisons beyond a few years.
Most Americans agree with me that our mail service is generally good, as demonstrated by a recent opinion survey. But they (and I) believe that good service can always be better.
It is our goal to strive constantly to do better.
We are pursuing the goal actively, regularly, scientifically, objectively every day. The results of our pursuit are detailed in the Report for your reading.
The Implementation of the Bulk Mail System
Several years ago, during the transition from Post Office Department to Postal Service, the service embarked on an ambitious and innovative program to design, build and install a new system for handling our bulk mail.
"Bulk mail" includes parcel post, most second class (publications) and most third-class, non-local (advertising) mail.
During Fiscal Year 1974, the first installation of the system began to operate in the Jersey Meadows opposite New York City. It is the first, the largest and the most complex of the units, incorporating the Postal Service’s largest foreign mail operation, in addition to the bulk mail facility.
The other 20 units of the system are all under construction, and some are quite close to operational status. The system is projected to be completed within
3
the overall budgeted figure of $950 million. Fortunately, the contracts were let prior to the recent surge of inflation. It is certain that the construction costs would be much higher now.
The system is ambitious and innovative—and risky. We have been steadily losing parcel post business for the last decade. The goal of the system is to halt our loss of market share, so we can then share in future overall market growth. In addition, the system will accommodate the other elements of bulk mail — special rate fourth class and the second-and third-class components.
The New York facility has experienced problems in beginning operation. The system is new, highly automated and complicated. The sorters operate at substantially higher speeds than previous equipment. Management and employees are learning to work together in a new type of environment. It is by no means an easy task.
But we expected we would have start-up problems. We are working on them with some of our most talented and dedicated managers, and we are confident we shall work through to a smooth and efficient operation. We expect the lessons learned in the Jersey Meadows to be applicable throughout our system.
Other Matters
The Report covers a wide range of postal subjects. I am especially pleased with our
progress in improving conditions for our employees, with the startling success of the Inspection Service in reducing the incidence of postal crimes and mail thefts, with our strong training and management development program, with our renewed emphasis on safety.
And I am pleased with the way our employees and our managers are adapting to the Postal Service concept.
I frequently hear comments that our morale is low.
I don’t believe it.
For one thing, it is contradicted by personnel separation figures, leading indicators of employee content or discontent. Civil Service Commission statistics show that employee separation rates in the Postal Service are down significantly from levels of 1969 and 1970.
In addition, I made many visits last year to postal installations. On work room floors, on loading docks and in carrier stations I have talked to many employees face to face, person to person. They made it clear that everything isn't perfect. But they were dedicated and proud of their work, convinced of its essential worth to the American public.
With this dedication, the Postal Service will do what it takes to continue the job of moving the mail with ever-increasing efficiency.
E. T. Klassen
Postmaster General
4
POSTAGE IS A BARGAIN
Despite a long-overdue rate increase on March 2,1974, the first-class letter is still one of the best bargains in America.
When one compares the cost of a bus ride across town to the price for pickup and delivery service given an ordinary letter, the value of a stamp is clear.
A recent Roper survey conducted independent of Postal Service sponsorship indicates
that the public recognizes the bargain it is getting when it sends a letter.
Of 12 basic services covered by the survey, mail service was picked as the best value for the money.
Six of every 10 Americans interviewed by the Roper organization said the Postal Service gives good-to-excellent value for the money.
This was the top pick of all 12 categories, ranking above service provided by doctors and hospitals; by the telephone and electric industries; by life and
automobile insurance companies; by home repair, television repair and auto repair firms; and by local property tax and Federal income tax agencies.
As the accompanying table indicates, the price of first class postage has risen historically at a lesser rate than the Consumer Price Index (CPI).
Over more recent years, the price of postage has increased more rapidly than most other prices, representing effects of high inflation over that period, to which the service is particularly susceptible, achieving wage
If 1st Class Postage Had Followed the CPI
comparability for workers, additional costs associated with service expansion and improvements, and a declining dependence on various forms of public subsidy.
As a consequence the CPI component for postage has 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.
The CPI for total services, less rent, was 154.7 at Fiscal Year’s end.
Since the Postal Service is
heavily labor intensive, some comparisons to price changes in other labor-intensive industries may be of interest. In the construction industry, household maintenance and repair service had risen to 179 per cent by end of the Fiscal Year. In the health care field, hospital service charges for semi-private rooms had increased to 198.4 by lune, 1974.
The Postal Service is also particularly affected by energy price actions. By June of 1974, the CPI component for fuel oil and coal had risen to 214.2.
. . . Among the Cheapest in the World.
Few countries on earth provide less expensive postage than the United States.
The average American must work only one minute and nine seconds to earn the price of a first-class stamp. The average West German must work two minutes and 30 seconds; the average Briton, three minutes and four seconds; and the average Canadian, one minute and one second.
Also, major increases in domestic first-class postage
Public Opinion on Value of Mail Service
are not unique to the United States. In the past year, letter postage increased 25 per cent to about 19 cents (50 pfennig) in West Germany and to nearly 10.4 cents (4.5 pence) in England, a nearly 29 per cent increase in a nation with substantially lower postal wages.
An American tourist travelling to an industrialized nation would also find that the cost of his U.S. mail compares favorably to the first unit of letter postage in the host country. The comparison is generally favorable even though it does not take into account varying purchasing power of workers and other economic
Nonetheless, both tables indicate the relative bargain nature of U.S. postage compared to postage in other industrialized nations.
The price increases for first-class U.S. postage would have been less were it not for a declining dependence on Federal subsidies. During the 12 years prior to postal reorganization (July 1, 1971), subsidies averaged 17.7 per cent of income. Over the past three years, they have averaged 15.4 per cent.
In other words the taxpayer's proportionate burden for financing postal operations has been reduced. However, those who use
investments. Over the 12 years prior to reorganization, mailers paid an average of 82.4 per cent of postal costs. In the three years since reorganization, their share has been 81.9 per cent, which includes $500 million in Fiscal Year 1974 borrowings which will be paid by future rate payers.
The Postal Service recognizes, of course, that some rates, particularly for second-class publications and magazines, have shown significant percentage increases. These have been used by some to suggest "excessive" rate charges. The explanation is a matter of elementary arithmetic:
mail volume (billions)
8
any rate increase applied to an almost no-cost base will produce a misleadingly high percentage increase.
When publications could previously be mailed for as little as two-tenths of a cent per copy, any rate increase aimed at recovering costs associated with that service would show a very high percentage change. Second class rates for magazines and newspapers have been historically low. In accordance with governing statutes, the Postal Service is gradually increasing second-class rates so that eventually publishers of magazines and newspapers, rather than taxpayers, will pay the cost of their mailing service.
In the main, though, Postal Service management has been able to restrain price increases. This has been possible through a significant change that has taken place in the historic relationship between mail volume and the number of man years required to collect, process and deliver it.
From 1940 to 1971, as volume increased, the number of man years increased proportionately. Thus, productivity remained constant, showing little or no improvement.
But, in Fiscal Year 1972, the first year of operation for the new Postal Service, while mail volume increased, man hours declined.
The productivity rate began to improve.
A three-decade pattern was reversed within the first year of the new Postal Service’s existence.
Had this change not taken place, postal costs would have risen an additional $1.4 billion over Fiscal Years 1972 through 1974.
This cumulative benefit was achieved even though Fiscal Year 1974’s productivity declined 2.4 per cent. Further, the three-
Foreign Rate Conversion of Selected Countries' First Unit of Letter Postage Rate
Country
Canada U.S.A.
Switzerland Australia Belgium Japan France Sweden Netherlands W. Germany United Kingdom
Cost of First Unit of Letter Postage (National Currency)
84 ($.08)
104
30 Centimes (.30 Franc)
74 ($.07)
5.00 Francs
20 Yen
50 Centimes (.50 Franc)
75 Ore (.75 Krona)
40 Cents (.40 Guilder)
50 Pfenning (.50 Mark)
4.5 Pence (.045 Pound)
(1) Source: New York Times, 8-30-74, p. 44.
Minutes of Worktime Required to Match the Cost of a Letter Stamp
Country	Estimated compensation per hours of work (1973)1	Cost of first unit of letter postage (national currency)	Minutes of work required to obtain one unit of letter postage
Canada	$4.69	89	1 min. 1 sec.
U.S.A.	$5.25	109	1 min. 9 sec.
Switzerland	11.91 francs	30 centimes	1 min. 31 sec.
Australia	$2.32	79	1 min. 49 sec.
Belgium	158.73 francs	5.00 francs	1 min. 53 sec.
Japan	624 yen	20 yen	1 min. 55 sec.
France	13.87 francs	50 centimes	2 min. 10 sec.
Sweden	20.69 krona	75 ore	2 min. 11 sec.
Netherlands	10.91 guilder	40 cents	2 min. 12 sec.
West Germany	11.79 marks	50 pfennig	2 min. 33 sec.
United Kingdom	88.29 pence	4.5 pence	3 min. 4 sec.
'Preliminary estimates from U.S. Bureau of Labor Statistics. Represents wages of manufacturing workers (including value of fringe benefits).
year average since Fiscal Year 1972 is 2.1 per cent increase per year. This is in stark contrast to the 1960s, when virtually no changes in productivity took place.
Column 2 at
Foreign Exchanged!
Rate Conversion (4)
8.14
10.0
10.0
10.4
12.7
6.6
10.4
16.8
14.8
18.8
10.4
9
MAIL SERVICE
IS VERY GOOD
Fiscal Year 1974 was a very good year for mail service.
The quality of service improved over that of the previous year.
Mail moved better during Christmas ’73 than at any other comparable time since statistics have been kept.
And the number of complaints received by both the Consumer Advocate at Headquarters and postmasters across the nation dropped from those of
the two previous years.
Accompanying charts show year-to-year improvement in service, as a function of reliability and speed.
Management's public commitment to service is as follows, for qualified (correctly ZIP-Coded, in by 5 p.m.) first class mail:
Local............Overnight
Regional.........Two days
Cross country....Three days
The promise is to meet these service goals at least 95 per cent of the time.
For airmail, the goal is overnight service between major
cities up to 600 miles distant and two days for coast-to-coast, at least 95 per cent of the time.
While the Postal Service is meeting the overnight standard for local first class mail, it is still falling short of its public commitment on service for regional and cross country first class mail. Such mail represents about 35 per cent of total first class mail.
Regional and cross country mail service, however, is particularly affected by available transportation. During the Fiscal Year, there were major reductions in available scheduled flights, mostly during evening hours
Complaints Received by Consumer Advocate (Weekly)
July August September October November December January February March April May June
when the mail moves.
Postal management is committed to continued improvement in service performance. That commitment is being met through innovations such as the following:
—	An increase in the amount of airline cargo space committed to carrying mail;
—	A new and expanded system of containerization, including introduction of an improved fiberboard container model; containerized mail shipment is faster and less expensive and protects the condition of mail pieces;
—A new service measure
ment system for second-class mail, enabling the service to monitor its performance more closely and correct problems more readily; full national benefits will accrue in Fiscal Year 1975;
—An improved pouch labeling system; larger, more legible labels will reduce mail handling time and expedite processing;
—Use of colored stickers for identifying bundles of mail, thus reducing misrouting errors brightly-colored discs, applied to the top letter in a bundle, denote city, sectional center facility, state, firm or five-digit
ZIP Code area;
— Introduction of a palletized mail shipment program; the use of sturdy wooden pallets for handling unitized shipments, such as magazines, books and uniform parcels, will speed delivery and reduce costs to both large mailers and the Postal Service.
Public Attitudes Regarding Service
Not everyone agrees on the definition of good service.
To some, it is a courteous, smiling window clerk. And that’s part of it, to be sure.
But a comprehensive survey shows that the first consideration
PerCent Meeting Next Day Delivery
(Qualified Local 1st Class Mail)
Per cent
100
1974
FY Jul
Aug
Sep Oct Nov Dec
Jan
Feb Mar Apr
May Jun
for most Americans is consistency of delivery (regularly getting the mail there in the allotted time). The second is speed.
A Postal Service analysis of service requirements of commercial (non-household) customers showed that the need for reliable and consistent service is greater than for "fast” service, although a reasonable amount of speed is required.
This is a break with past assumptions, which held that customers wanted "fastest possible" service first with consistency second. The survey is believed to be the first seeking to find out what customers want in the way of service.
With some minor modifications, existing service standards appear to be within customer wants.
For parcel post, customers want some overnight local service, second-day delivery up to 150 miles distant and three to eight-day delivery nationally, depending on distance . . ."all on a consistent basis." Additionally, of course, they want their parcels to arrive in the same condition in in which they were sent.
Service standards for the new National Bulk Mail System are designed to meet these customer service demands.
Measuring the Performance
To keep tabs on service performance, 100,000 pieces of mail are sampled each day by the Origin-Destination Information System (ODIS).
Added Touches, Added Services
The Postal Service continued to improve existing services and to test new ones to see how well they could meet customer needs.
Express Mail:
This experimental service offers high-speed delivery of important items such as contracts, payroll data, urgently needed spare parts and countless other documents and materials requiring fastest possible delivery. Express Mail service is now underway among 200 U.S. cities and to four foreign countries. Domestically, the Postal Service promises overnight delivery, or your money back. During the year more than 95 per cent of shipments were delivered on time, with the typical delivery within 12 hours. Weight of shipments can range from that of a single letter to a pouch carrying up to 40 lbs.
Mailgram:
Messages combining the speed of electronic transmission with the Postal Service’s unrivaled delivery network nearly doubled in volume during the year, reaching 15.5 million. Mailgram messages may originate with a telephone call or come into Western Union centers from telegraph terminals or by computer tape. Western Union then transmits this information to a post office near the addressee for printing and next day delivery by letter carrier. Some Mailgrams are now transmitted coast-to-coast through a new domestic communications satellite, the nation’s first.
Stamp Services and Collecting:
Americans' growing interest in stamp collecting was aided during the year by a number of improvements in services to these hobbyists. New
stamp collecting items were introduced, including another edition of "Stamps and Stories," the authoritative full-color encyclopedia of U.S. stamps; starter kits for beginners; commemorative stamp panels; and souvenir pages of first-day issue cancelled stamps. Plans were completed for expanding a system of buying philatelic items by mail order.
On-Site Meter Settings:
Customers no longer have to take their postage meters to post offices to purchase additional credit in most large cities. Instead, for a nominal fee, clerks are now going to company mailrooms to handle this transaction.
National Accounts:
Many national organizations control or coordinate shipment activities of their suppliers and their plants from central staffs. Since Postal Reorganization, the service has embarked on an aggressive program with top corporate officials of these firms to help insure responsive, nationwide support. It also provides opportunities to introduce new products and services on a coordinated nationwide basis.
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Space launch vehicle roars from pad at Cape Kennedy, Fla., to loft first domestic U.S. communications satellite into orbit. Satellite was subsequently used for relaying MAILGRAMS coast-to-coast.
FINANCIAL REVIEW AND OUTLOOK
Run-away inflation hit the Postal Service, with its huge demand for goods and services, particularly hard in Fiscal Year 1974.
Coupled with a critical delay in implementing needed rate increases, it created a serious stumbling block in the Postal Service’s path to financial self-sufficiency. By increased efficiencies, the service was able to reduce the adverse impact significantly. But at year’s end, as inflation continued to grow, the outlook for Fiscal Year 1975 was clouded.
Postal Service plans for Fiscal Year 1974 were based on the Council of Economic Advisers’ projections that inflation would increase modestly.
Allowing for this, and for an expected six-month delay between the settlement of a new labor contract (July, 1973) and the start of increased rates (scheduled for January, 1974), a deficit of $352 million was anticipated for
Upper left: Last pick up of day is 5:30 p.m., as shown in big decal the Postal Service is applying to collection boxes so dispatch times may be read by motorists.
Upper right: Express Mail, an overnight delivery service, continues to grow rapidly in customer acceptance. Here Express Mail shipments are made up in one major mailer’s mailroom.
Lower left: The nation's growing interest in stamp collecting was matched during the year with more products and services for stamp collectors. In addition to the stamps themselves, the service offers stamp collecting kits, commemorative stamp panels and souvenir mint sets.
Fiscal Year 1974, to be followed by a contingent surplus of $149 million in Fiscal Year 1975.
This plan, however, was damaged by a rapid and largely unprecedented increase in the rate of inflation. In Fiscal Year 1973, the rate of inflation, as measured by the comprehensive G.N.P. deflator, was 5.0 per cent. Over the first half of Fiscal Year 1974, the rate rose to 8.2 per cent. And during the second half, it rose to 10.5 per cent, for a combined annual rate for Fiscal Year 1974 of 9.6 per cent, nearly double the prior year’s rate.
Changes in the Consumer Price Index, upon which cost of living payments to postal employees are based, were even more dramatic. In Fiscal Year 1973, the CPI rose 5.9 per cent. In the first half of Fiscal Year 1974, it rose 9.2 per cent. During the
Inflation 1972-1974
Index 100=1967 for CPI
100=1958 for GNP Deflator
6/72	9/72 12/72 3/73	6/73	9/73 12/73 3/74	6/74
second half, the rate was 12.4 per cent, for an annualized increase of 11.1 per cent.
The two most significant effects in the Postal Service were increases in cost-of-living payments to employees and in costs for fuel for transportation. The cost-of-living payments exceeded budgeted amounts by $63 million, while transportation, fuel and other related costs rose an estimated $45 million above budgeted sums despite stringent conservation controls.
Ostensibly to aid the national effort to reduce inflation, the Cost of Living Council in the meantime delayed to March 2 the rate increases originally scheduled for January 5,1974. The two-month delay cost an estimated $236 million in planned-for revenues.
It did not reduce postal costs.
A supplemental Congressional appropriation restored $220 million of the loss in planned-for revenues, for a net unexpected loss in revenue of $16 million.
The net result, however, had no impact on inflation since it simply transferred the burden of cost from mailer to taxpayer, helping to inflate the latter's tax burden.
The impact of these three extraordinary items was $124 million.
Through additional belttightening and higher yields on investments, however, $38 million of this potential cost was offset. The $352 million deficit that had been projected when the year opened was increased by a net of $86 million to a total of $438 million despite the impact of inflationary items.
The original financial plan had, in addition to projecting a $352 million deficit for Fiscal Year 1974, indicated a $149 million contingent surplus for Fiscal Year 1975, for a cumulative net
loss of $203million. Given the Service’s equity position at the beginning of Fiscal Year 1974, the Postal Service felt the loss could be accommodated over the two-year period.
But, under the impact of current runaway inflation, the present forecast suggests that the cumulative deficit could reach $1.3 billion for the two fiscal years.
To avoid future deficits, management would have to reduce service, thereby cutting costs, and increase rates, thereby lifting revenues.
Management cannot increase rates until the present temporary schedule is acted upon by the independent Postal Rate Commission.
Cost reductions through service cutbacks are unacceptable.
The fiscal challenges faced by the service, then, are similar to those faced by regulated utilities throughout the economy during this period of intense price instability. Costs increase far
more rapidly than institutions can offset them through increasing productivity or raising prices.
It is a dismal fork in the road for the nation’s price-regulated industries, one leading to less than adequate service, the other to price increases.
Financial Summary
Total operating revenue, appropriations, and other income for 1974 increased $944 million or 9.5 per cent over last year.
Total expenses incurred increased $1,369 billion or 13.8 per cent over last year.
The net loss for 1974 was $438 million.
As a result of this loss, the Postal Service was forced to borrow funds from the Federal Financing Bank to meet operating expenses. At year’s end the service borrowed $500 million for one year, bearing an interest rate of 9.305 per cent.
Future rate adjustments will have to be sufficient to offset anticipated operating cost increases, including interest, and to cover repayment of the loan for operating purposes. Revenue and Income
Operating revenue increased $669 million or 8 per cent over Fiscal Year 1973. Higher rates contributed some $611 million of that increase.
Appropriations for Fiscal Year 1974 were $1,750,445,000 compared to $1,485,595,000 in Fiscal Year 1973 (excludes
Better movement of sacked letter mail by air carrier was achieved during the year through establishment of a “committed space" arrangement that guarantees the Postal Service a predetermined amount of space on each airline flight. Results included reduced delays in getting first-class mail on to airplanes and improved delivery performance between distant points.
$61 million in 1974 and $32 million in Fiscal Year 1973 for former Post Office Department expenses). Had it not been for the supplemental appropriation to offset effects of the Cost-of-Living Council’s two-month delay of the postal rate increase, government appropriations would have remained essentially the same from Fiscal Year 1973 to Fiscal Year 1974.
Net other income increased $9.3 million or 10.4 per cent over 1973.
Operating revenue and other income provided 81 per cent of operating expenses in Fiscal Year 1974, down from 86 per cent in Fiscal Year 1973, but over the average of 80 per cent for the period 1969-1971, the final three years of the Post Office Department. Without effects of the Cost-of-Living Council’s delay of rates and the offsetting supplementary appropriation, operating revenues and other income would have provided 83 per cent of operating expenses for the year.
Expenses
Compensation and employees’ benefit costs rose $1,191 billion or 14.1 per cent over last year. Payroll increases were due to salary increases and an increase in the number of employees. Personnel costs accounted for 85.4 per cent of total expenses, as compared to 85.1 per cent of total expenses last year.
Net transportation costs increased $43 million or 6.6 per cent over last year. Transportation accounted for 6.2 per cent of total expenses in Fiscal Year 1974 as compared to 6.6 per cent of total expenses last year.
All other expenses increased $135 million or 16.5 per cent over last year.
HIGHER SUBSIDIES?
Given the impact of inflation and the inability to cut many of its costs quickly, the Postal Service faces rough going in trying to bring costs and revenues more nearly into balance. Some have suggested increasing postal subsidies as a solution.
Under the Postal Reorganization Act, the Treasury pays a “public service” subsidy each year to the service—10 per cent of the amount appropriated in Fiscal 1971. (For Fiscal Years 1980 through 1984, the amount of this payment is to be reduced by one percentage point each year to a level of five per cent. After 1984, the Postal Service will have the option of reducing or eliminating the amount, depending upon need.)
Various proposals have been introduced in Congress to increase the postal subsidy.
But increased subsidies would relieve management of much of the pressure that promotes greater efficiencies. They would tempt management to take the easier course —to penalize taxpayers by relying on the public Treasury rather than better operating practices to improve financial performance.
Such payments shift part of of the cost of the mail service from those who use it a great
deal —such as large business mailers —to taxpayers. About 80 per cent of mail volume is related to commerce. Yet Federal tax payments are largely derived from individual taxpayers, according to government budget reports.
The unequal benefit of such payments can be illustrated by referring to “revenue foregone” phasing subsidies (which are appropriated in addition to public service subsidies). Under the existing statutory requirement, a subsidy of $252 million was paid during the year for magazine and newspaper mailings. The publishers compete for advertising revenues against radio and television stations, which receive no postal subsidy, and direct mail advertising firms, which pay the full cost of their postage through non-subsidized bulk third-class rates.
To increase subsidies in the future would increase these inequities.
The call for increased public payments has also been made to forestall or minimize rate increases. Again, this would result in no savings, only a shifting of the burden of cost.
A better Postal Service involves rates that more honestly reflect the true costs of the item or service rendered. In this manner mailers and postal managers can make decisions on the basis of more honest economic and pricing information, better serving the long-range economic interests of the nation.
CHANGES IN SUBSIDIES
In Fiscal Year 1974, a law was enacted extending the phasing schedule for rate increases for certain classes of mail.
Under the Postal Reorganization Act of 1970, subsidies for regular-rate mailers of newspapers; third-class mail; and books, recordings and other fourth-class “special rate” mailings were to be phased out over five years and subsidies for certain other mailings, mainly nonprofit mail and library materials, over 10 years.
The new law authorizes an extension of these phase-out periods to eight years (except for regular-rate third class) and 16 years, respectively.
This authorization will permit smaller annual rate increases than would otherwise have taken place, assuming subsequent appropriations in accordance with the law’s provisions. Thus, the new law will increase the amount of subsidies over the entire phase-in periods by about $750 million, a highly conservative estimate.
As a consequence of stretching out scheduled rate increases, tax supported appropriations are therefore increased to compensate the Postal Service for “revenues foregone.”
Through all manner of weather, the service extended delivery services to 1.6-million more addresses and 250,000 families along rural routes.
19
Analysis of Fiscal Year 1974 Revenue Foregone Subsidy 1 — By Class of Mail (in millions)
Service Category	FY 1974 Total Income Identifiable by Class of Mail	Source of Income		Subsidy as a % of Total FY ’74 Income
		Postage Revenues	Revenue Foregone Subsidy2	
First-class mail		$	5,018.6	$ 5,018.6	none	none
Domestic airmail		230.8	230.8	none	none
Priority mail		394.4	394.4	none	none
Second-class mail:				
Within-the-county		35.3	10.3	$	25.0	70.7%
Outside-the-county:				
Nonprofit publications		92.2	20.7	71.5	77.5%
Classroom publications		5.7	1.7	4.0	70.6%
Regular-rate publications		317.8	172.2	145.6	45.8%
Fees		3.4	3.4	none	none
Transient mail		4.5	4.5	none	none
TOTAL SECOND-CLASS MAIL		458.9	212.8	246.1	53.6%
Controlled circulation publications . . . .	46.6	40.0	6.6	14.2%
Third-class mail:				
Single-piece rate		154.5	154.5	none3	none3
Bulk rate—regular		952.7	952.7	none3	none3
Bulk rate —nonprofit		267.9	93.5	174.4	65.1%
Fees		12.8	12.8	none	none
TOTAL THIRD-CLASS MAIL		1,387.9	1,213.5	174.4	12.6%
Fourth-class mail:				
Parcels (zone rate) . . 			559.9	559.9	none	none
Catalogues		31.1	31.1	none	none
Special-rate matter		175.1	129.9	45.2	25.8%
Library materials		18.9	5.0	13.9	73.5%
Fees		5.8	5.8	none	none
TOTAL FOURTH-CLASS MAIL		790.8	731.7	59.1	7.5%
Federal Government				
(Franked and Penalty)				
Mail		470.8	470.8	none	none
Free mail for the blind and handicapped.	17.4	none	17.4	100.0%
International mail		342.9	342.9	none	none
Unallocated (appropriations shortfall) . .	(6.6)	—	(6.6)	—
TOTALS		$ 9,152,5	$ 8,655.5	$ 497.0	_	5.4%
				
1 Revenue Foregone is that revenue given up or "foregone" by the Postal Service as a result of providing mail service at a reduced rate. This revenue loss, which is the difference between the reduced rate and the full rate, is given to the Postal Service by an annual appropriation of Congress, as specified in the Postal Reorganization Act of 1970.
2 In addition to revenue foregone subsidies that are phased over five or ten years, the Congress authorized an additional, continuing subsidy for certain public-benefit mailings (e.g., by nonprofit organizations). This continuing subsidy provides reimbursement for mandated free services and for those postage rates which must by statute be set at a reduced rate which only covers attributable costs and does not help defray the Postal Service’s institutional costs. This is a significant additional subsidy in that attributable costs roughly cover only 50 percent of the Service's total costs.
3 $172.1 million was requested but not appropriated for phasing of regular-rate third-class rates.
Financial Operations —Fiscal Year 1974 (in millions)
Total Operating Expenses		$11,295.3
Source of income:		
Mail revenue		
—postage	$8,184.7	
— Federal Government payments	470.8	$ 8,655.5
Special services		352.8
Government appropriations		
— public service costs	920.0	
— revenue foregone subsidy for free and reduced rate mails	497.0	
— delay in implementation of temporary rate increases		
and Civil Service retirement expense	333.4	1,750.4
Other income		98.2
Total income
Net Loss (charge to equity)
10,856.9
438.4
Total Income and Net Loss
Note: These figures do not include $31.0 million transitional payment for unfunded liabilities of the former Post Office Department.
Young people learned how to be better mailers through education program offered to the nation's schools during the year. More than 11,000 teachers wrote in
$11,295.3
to express their enthusiasm for the program, which helped instruct young people in proper addressing, mailing procedures and importance of ZIP Code.
-prohabh the most important MrvAmerium artist in the nations history."
I
CAPITAL INVESTMENTS
The Postal Service committed $463.9 million in Fiscal Year 1974 for capital projects designed to move the mail with modern efficiency. The amount represents a significant decline from the previous year, when $805.9 million was committed; however, it is consistent with the overall program the Postal Service began at its inception to com-pletly overhaul the largely
antiquated postal plant.
Cumulatively, the Postal Service has committed almost $2.0 billion in capital investments during its first three years of operation. This is about three times the amount ($719 million) committed during the last three years of the old Post Office Department.
The decline in Fiscal Year 1974 capital commitments resulted from a delay in the facilities construction program caused by a tranfer in the program’s management.
In 1971, the postal constrution program was transferred to the Army Corps of Engineers for
805.9
725.2
463.9
248.3
235.4
235.5
225.7
Capital Investments
(Commitments by Fiscal Years) (in millions of dollars)
1966	1967
1968	1969	1970
1971
1972	1973	1974
23
management and implementation. In February, 1973, the Office of Management and Budget ordered that the Corps’ participation be ended and that the Postal Service resume complete responsibility. The transfer of projects was completed during Fiscal Year 1974. One exception was the National Bulk Mail System, which the Corps will see through to completion.
During Fiscal Year 1974, the service began construction of 7 major facilities ($2-million in
Quarter-ton delivery vehicles come off the assembly line to keep pace with efforts to motorize delivery operations. The program, now nearly complete, has helped to lead the way to significant improvements in carrier productivity.
value or 50,000 square feet in size or larger), completed construction on 9 such major facilities, and had 25 under design. At Fiscal Year’s end, 17 major facilities were under construction (figures do not include 21 bulk mail facilities).
Field construction organizations began design, had under construction or completed about 750 smaller postal-owned facilities and approximately 2,000 leased facilities during the Fiscal Year.
A program of standardized post offices was also begun during the year, promising speedier and more economical construction of smaller post offices requiring 1,000 to 4,500 square feet of space. These post offices will be constructed from industrially manufactured components rather than "job built” on the site.
Improving Working Conditions
Crowded and dirty offices with poor lighting, inadequate heating and no ventilation do not serve the cause of postal employee efficiency nor postal productivity. The Postal Service has been vigorously attacking this problem and last year increased its effort. As a result, some 100,000 more postal employees ended Fiscal Year 1974 working in facilities that were vastly better places than at year's start.
Clean, bright and modern lobbies for customers are one result of unprecedented facilities modernization effort in Postal Service. Here customers transact their business in Chicago's new "loop" post office.
A standard post office featuring industrially manufactured building subsystems and components is under development to achieve greater construction economies and improved architecture for smaller offices. This prototype was erected in less than three months in Oneco, Florida.
1

OPERATIONS
Mail Volume
Mail volume for Fiscal Year 1974 totaled 90.1 billion pieces, an increase of 415 million pieces or .5 per cent over the Fiscal Year 1973.
First class mail, which accounts for 57.3 per cent of the total mail volume, had the largest increase, 630 million pieces, or 1.2 per cent.
Second class mail, publications accounting for 10.5 per cent of the total mail volume, decreased 157 million pieces, or 1.6 per cent.
Third class mail, advertising matter and parcels under one pound comprising 25 per cent of the total mail volume, decreased 152 million pieces or 0.7 per cent.
Fourth class mail decreased 33.9 million pieces or 3.8 per cent. This category, which includes parcel post, records, catalogs, books and other educational materials, accounts for one per cent of the total mail volume.
Letters Sorted Mechanically
50%
FY 70	71	72	73	74
ZIP Code Usage
ZIP Code usage, so essential to efficient mail processing, continued to improve during the year. For first class letters, usage increased two per cent during the year, to 90 per cent. For airmail, it was up one percentage point to 93 per cent. Improvements were also made for priority parcels, up one per cent to 97 per cent.
Use of ZIP Codes by various types of mail ranges in the 90 per cent area, from 90 per cent for first class letters to 98 per cent for third class letters. The codes reduce the number of times mail must be sorted, lower processing costs, and generally aid more reliable and speedier service.
Productivity
Postal productivity declined 2.4 per cent in Fiscal Year 1974 compared to the unprecedented gain of 6.4 per cent in Fiscal Year 1973. Although the decline paralleled the nation's slight overall dip in productivity, it resulted primarily from measures taken to meet anticipated increases in mail volume that fell short of projections, and efforts to maintain and improve service.
Despite the overall decline, there were significant bright spots. City delivery productivity, for example, improved 2.6 per cent during the year through better and more effective management of delivery services, and expansion of a semi-automated method for forwarding misaddressed mail. The latter has the effect of increasing carrier time on the street for delivery.
Equipment
Equipment commitments during Fiscal Year 1974 amounted to $178 million.
Of the total, $63.9 million was for mail processing equipment, $13.4 million for customer service equipment, $59.2 million for vehicles, and $41.5 million for various other equipment designed to improve service performance.
Added equipment included 164 multi-position and 200 singleposition letter sorters, capable of sorting approximately 36,000 and 3,000 letters per machine per hour respectively, and 200 edger-facer systems which mechanically cull non-letter mail from the sorting process.
At the beginning of Fiscal Year 1974, approximately 44 per cent of all letters received their first sort by mechanical means, through a multi-position letter sorting machine, a single position letter sorting machine, or an optical character reader. By year’s end the percentage had been lifted to 51.7 per cent (as measured in 116 key processing centers).
Of total piece handlings for letter mail at these key centers, the percentage handled by machines increased from 29.4 per cent at the end of Fiscal Year 1973 to 34.3 per cent at the end of Fiscal Year 1974.
Service Improvement
City delivery service was extended to approximately 1.6 million more addresses and about 250,000 families were added to rural delivery service.
Postal managers expanded areas qualifying for overnight delivery of local first class mail. This, together with a willingness by customers to post local mail before 5 p.m., resulted in a 6 per cent increase in the volume of first class mail receiving overnight delivery.
During the year the service continued to emphasize use of
clustered-mail boxes for new high-density residential areas, such as town houses, apartments, cluster houses, and closely situated single family residences. Under the program, which helps improve carrier productivity, no resident is more than 300 feet from his mail box, contained in a contemporary and eyepleasing 18-box cluster. Reaction from customers has been favorable. During the year the service ordered 6,000 cluster box units.
For new developments of single family residences with greater distances among homes, the service is providing curbside delivery of mail rather than door-to-door.
Transportation and Handling
If you thought you had problems getting gasoline for your car during last year’s energy crisis, imagine what it must have been like for the Postal Service to fuel a fleet of vehicles that traveled 2.16 billion miles.
Add the many drastic cuts in scheduled service that the airline industry made during October, November and December. Approximately 1,500 scheduled flights, about 12 per cent of the total, were cancelled during the crisis. Many were critical to movement of the mail. As a result major rearrangements were made and, in several instances, it was necessary for the Postmaster General to invoke statutory authority requiring air carriers to reinstate flights determined necessary to proper mail service.
Pieces of Mail (in billions)
Mail Classification	Fiscal Year		Percent change
	1974	1973	
Domestic:			
First Class	51.59	50.96	1.2
Airmail	1.56	1.54	1.4
Second Class	9.46	9.61	-1.6
Third Class	22.54	22.69	-0.7
Fourth Class	0.86	0.89	-3.8
Penalty and Franked	3.18	3.07	3.6
International	0.91	0.92	-0.5
Total Mail	90.10	89.68	0.5
Composition of Mail
27
Recall also that the oil embargo hit during the most critical time of the year —the Christmas rush — and you will have some idea of what the Postal Service was faced with in transporting more than 90 billion pieces of mail in Fiscal Year 1974.
Nevertheless, the mail was moved and service maintained.
Committed Space
To improve first class mail service between cities, the Postal Service supported establishment of a single fee to airlines for letter mail.
In October, 1973, separate fees for priority (air mail flown on a guaranteed space committed basis) and non-priority (first class mail flown on a space available basis) mail were ended. The Civil Aeronautics Board established a single fee and one set of operating conditions for sacked mail.
This means the Postal Service is guaranteed a predetermined amount of space on each airline flight. Air mail gets first call for this space. Any space not used for air mail is used for other first class mail.
This change was more than technical. It reduced delays in getting first-class mail on to airplanes and contributed to meeting delivery standards between distant points.
Air Containers
New and more economical rates were established with air carriers to permit the Postal Service to increase its air container operations.
By the end of Fiscal Year 1974, containerization had been expanded to approximately 600,000 pounds of mail daily among 27 cities compared to 90,000 pounds of mail daily among five cities at the inception of the containerization program in Fiscal Year 1973.
The goal is to move at least half of the air carrier mail via containers by the end of Fiscal Year 1975, saving an estimated $20 million annually as well as improving service.
Postal Service expects to save an estimated $20-million annually through rapidly expanding use of air containers. The program also offers better protection of mail.
28
BULK MAIL
The New York Bulk and Foreign Mail Center opened in Fiscal Year 1974, the first step towards the completion of the National Bulk Mail System.
This $950 million system is the single largest modernization project in postal history. It is a network of 21 new, highly
mechanized and computerized mail processing plants designed to handle bulk mail —4th class, including parcel post, and nontime-value 2nd class and 3rd-class in bulk form—consistently, reliably, and damage-free. Twelve Auxiliary Service Facilities will supplement the 21 centers to maintain service standards in geographic areas where the
population is dispersed.
When the system is completed in 1975, bulk mail processing will be concentrated at the Bulk Mail Centers, where it can be efficiently and economically sorted by computer-controlled machinery. A special truck and rail network will link bulk mail centers and speed movement of this mail.
Implementation of the system will also help improve preferential mail service. Badly needed floor space in post offices will be freed for the more efficient processing of preferential mails as bulk mail operations are transferred to the new centers.
New York's Bulk and Foreign Mail Center opened during the year across the river from Manhattan. The center is a major processing facility for advertising mail and much of the publications mail. The plant also processes parcel post and other fourthclass mail, such as catalogues. It is the first of 21 centers to improve bulk mail service. The foreign mail portion of the New York
plant is a major mail gateway to much of Europe, Latin America and Africa.
Below: Plant loaded truck leaves customer's facility for new Bulk Mail Center.
Below center: Palletized shipment is loaded. In other photos, new equipment speeds sorting of mail sacks containing advertising mail and publications.
I

4^
POSTAL PEOPLE
Merit Appointments
During the year the Postal Service completed a new program for merit appointment to first level supervisory positions. It substitutes appraisals of performance and potential for time-in-service credit. And it opens up promotional opportunities for employees outside of their own offices. In the first phase of the program, 112,000 postal employees took job and skill related examinations.
Merit selection of postmasters continued, with appointment of 3,570 postmasters during the year, 1,505 of whom were women.
More than 12,000 merit appointments for postmasters have been made since the merit system was put into effect in 1970. More than 5,500 of the new postmasters are women.
Appointment to middle management positions is also on the basis of merit. Approximately 5,100 such promotions were made from the ranks of supervisors and lower level managers.
Training
The Postal Service continued its major expansion of technical and management training during the year. By Fiscal Year’s end, 101 Postal Employee Development Centers (PEDCs) were in operation, bringing training to within
geographic reach of about 70 per cent of the work force. By the end of Fiscal Year 1975, 200 such centers will be open.
Employees can also learn at home through a comprehensive correspondence program. During Fiscal Year 1974, 34,609 employees enrolled in courses and 19,879 completed courses. The correspondence program enrolled its 100,000th participant and graduated its 50,000th employee.
The Postal Service Training and Development Institute’s Technical Center at Norman, OK, provided advanced technical training to 7,374 postal employees.
The Institute’s Management Centers provided training in managerial skills to 32,421 postal employees.
Results of Training
In Fiscal Year 1974, the Postal Service analyzed office productivity and service achievements in relation to training
Nearly 7,500 employees have completed training at the service's technical training center at Norman, Okla.
programs entered into by managers, supervisors and employees.
The 60 largest post offices were surveyed. Twelve indices of office productivity and service were measured. In every index, the highest performing offices were those with the largest investment in training.
Employment of Women
Like many other employers, both public and private, the Postal Service is striving to provide greater employment and advancement opportunities for women.
The postal census for June, 1974, counts 132,201 female employees.
Jobs once closed to women have opened up in recent years. For
People opportunity has replaced patronage for advancement in service. Above, Postmaster Edna Oedkoven, of Recluse, Wy, prepares mail for distribution. Of 3,570 postmaster appointments in year, 1,505 were women. Below, Richmond, Ind., Postmaster Arthur R. Bietry, the service's 1972 handicapped employee of the year, reviews his office’s operating reports.
instance, women now work as letter carriers and Postal Inspectors. And the number of women in supervisory and executive jobs increased by 758 during the year.
Equal Employment Opportunities
Approximately 30 per cent of new employees during the year were from America's minorities. Half of the 158 largest offices have greater proportional minority representation in their work forces than that of their surrounding communities.
Minority employees in supervisory and executive jobs (levels 15 and above) increased 1,309 in the year.
To insure that women have equal job and advancement opportunities, the Postal Service established the Office of Career Planning during Fiscal Year 1974.
Employee Safety
The Postal Service launched an intensified campaign during the year to reduce motor vehicle and industrial-type accidents by five per cent.
Program elements include a massive awareness communications program reaching into every postal installation. Employees are being involved through a system of "safety captains" in all installations, who promote efforts to identify safety hazards. Postal Life magazine started a series of safety contests to keep employees aware of the problem.
Managers are being encouraged to improve safety enforcement, inspection and training.
Employee training, more training, and mechanization are becoming a way of life in the service. Increased attention was paid to driver training and development of electronics technicians during the year. Below, employees operate letter sorting machine. More than 160 such machines were added during the year.
PROTECTING
EMPLOYEES, CUSTOMERS AND THEIR MAIL
The Postal Inspection Service, the nation’s oldest law enforcement agency, completed testing during the year of an improved program for special handling of consumer complaints against mail order firms who may fail to furnish merchandise ordered by mail. In the past, inspectors took action only if fraud was evident. Under the new program, inspectors inform mailers of such complaints so that appropriate action may be taken between
Burglary Losses
$3,203,449
During the year, a total of
$1,349,146
$196,642
$470,987
$342,964
mailers and their customers. The improved consumer protection practice was put into effect nationwide on July 1,1974.
Customer complaints continue to be reviewed individually and retained for analysis by the inspectors. Whenever they suggest by pattern or individual case a fraudulent use of the mail, criminal investigations are immediately undertaken.
Losses of registered mail in the custody of airline carriers, counted in millions of dollars as recently as 1970, have been virtually eliminated.
Losses sustained in post office burglaries, which reached a high of $3.2 million in Fiscal Year 1970, were held to less than $200,000
Inspection Service employee checks collection box ripped by an explosive.
During the year, 15 persons were convicted for mailing bombs or other explosive devices.
during the past year, a reduction of 93 per cent in just four years.
16,366 convictions were handed down for postal-related crimes. Convictions were obtained in 98.5 per cent of the cases brought to trial.
No single postal crime receives more investigative attention than mailing of a bomb parcel. During the Fiscal Year, 15 persons were convicted for mailing bombs or other explosive devices and several others were awaiting trial at the end of the Fiscal Year.
Inspection Service chemist conducts analysis of materials related to a postal crime.
1970
1971
1972
1973
1974
LEGISLATION AND LITIGATION
Three members of Congress, in Buchanan v. U.S. Postal Service, obtained a preliminary injunction preventing the service from making certain field organization and retail outlet changes. The suit that was brought would require the Postal Service in the future to first seek an advisory opinion on such changes from the Postal Rate Commission. The preliminary injunction was handed down by the U.S. District Court in Birmingham, Ala. An appeal from this decision is now pending. The service believes it has the right, indeed, the obligation, to be fully responsible for its own organization structure and location of retail outlets.
The Direct Mail/Marketing Association also sought during the year to challenge the service's 1974 temporary rates based upon their allegedly unduly discriminatory nature. A U.S. Court of Appeals sustained a District Court decision upholding the service’s temporary rates.
In the labor area, the National Labor Relations Board upheld the Postal Service position that national craft bargaining units — as opposed to local units —are appropriate, given present facts,
for collective bargaining in the service. The decision did not rule out possibility of local unit bargaining in the future, given a different set of circumstances.
A U.S. Court of Appeals rejected challenges from several former employees to the way in which they were separated from employment at the time of reorganization and reduction-in-force in the summer of 1971. The former employees have requested a review by the Supreme Court, which is now pending.
In addition to new laws discussed elsewhere in the report (subsidy extension for certain mail classes, a supplementary appropriation to offset effects of the rate increase delay, and one on unfunded retirement liability), the Senate and the House Post Office and Civil Service Committees conducted extensive oversight hearings.
A number of bills were introduced, covering such items as granting employees the right to strike, increasing mailer subsidies, closer scrutiny of postal budgets, and elimination of the Board of Governors.
On May 1,1974, the Fair Labor Standards Act, which has generally applied to the private sector since 1938, was extended to cover public sector employment, including the Postal Service. Most requirements of the Act are in keeping with long-standing postal pay practices. However, there are some variances and the Service is adjusting its pay practices accordingly, to be in full compliance with the law. There will likely be additional labor costs as a result, although the amount has not as yet been accurately ascertained.
37

RESEARCH AND DEVELOPMENT
The Postal Service invested $38.5 million in research and development in Fiscal Year 1974, up 37 per cent over the previous year.
Program activities were organized around four major categories: letter mail systems, package mail and transportation systems, advanced mail systems, and technology research.
A major experimental letter mail coding system in Cincinnati, OH, was significantly modified during the year, resulting in a less complex and more effective system for reading and coding letter mail for high-speed mechanical processing. At the end of the Fiscal Year, the system was stabilized in its design, and definitive testing began. The tests will help determine during Fiscal Year 1975 the amount of additional development warranted and suitability for system deployment.
Improvements to present letter mail equipment and systems in Fiscal Year 1974 included completion of an electronic sort processor that substantially improves performance of letter sorting machines. The new electronic sort processor reduces machine noise, lowers maintenance, and makes the letter sorting machines operate more accurately.
Postal engineers and scientists also concentrated on developing equipment to process large flat envelopes, small parcels and rolls.
New mail dispatch unit automatically supplies mail to each encoding clerk at the Cincinnati coded letter mail experimental station.
These non-standard or oddly shaped pieces cannot be processed by conventional sorting equipment, although some require the same service performance as first class letters. Such mail pieces constitute roughly one-third of total mail processed and more than 20 per cent of processing costs. Promising progress was made on an advanced sorter for large envelopes, known in post offices as "flats," and an advanced sorter for small parcels and rolls.
The service established a new development group during the year for advanced mail systems. This group of engineers and scientists will be concerned with long-range technological applications to mail service, such as the electronic transmittal of letters for business and home delivery.
A comprehensive, integrated national system will evolve during the balance of the 70s for processing mail. It is expected to be a flexible system tailored to
volume and mail characteristics of individual offices. It will use the best combination of equipment now in service or being tested; for example, high-speed optical readers that scan addresses or codes and direct letters to the correct destination.
The system, as the 70s end, is expected to include wide spread use of electro-mechanical equipment to sort non-standard size letters, flats, small parcels and rolls.
Beyond the current decade, postal scientists and engineers are studying the role of advanced electronics in the movement of mail. Research and developement activities in this area, while secondary to development of next generation systems and equipment, will move forward to assure that the Postal Service is capable of exercising its responsibilities for public communications in the years to come.
The service continues to experiment with coded mail sorting techniques in which machine-readable bar codes are printed on envelopes either by major mailers at the time of addressing, or by optical character reading equipment, or by clerks operating code desks.
39
FINANCIAL STATEMENTS
Balance Sheet, United States Postal Service
Assets
CURRENT ASSETS
(Dollars in Thousands)
June 30
1974	1973
(Note 3)
.................................... $	312,409	$ 596,875
U.S. Government securities, at cost (approximate market).................... 797,887	1,090,288
Accounts receivable:
U.S. Government —Note 3 .................................................. 591,376	205,880
Foreign countries.......................................................... 29,029	31,363
Other...................................................................... 11,428	7,806
631,833	245,049
Less allowances...........................................................  50,733	5,383
581,100	239,666
Supplies, advances, and prepayments.........................................  27,062	23,847
TOTAL CURRENT ASSETS	1,718,458	1,950,676
OTHER ASSETS Amounts receivable from U.S. Government —Note 3 ...................... —	171,126
Other......................................................................... 4,872	3,825
4,872	174,951
PROPERTY AND EQUIPMENT-Notes 1 and 4
Land........................................................................ 201,568	197,615
Buildings................................................................. 1,222,487	1,042,588
Equipment................................................................. 1,156,961	982,234
2,581,016	2,222,437
Less allowances for depreciation............................................ 910,694	843,398
1,670,322	1,379,039
Construction in process..................................................... 815,014	514,646
Leasehold improvements, net of amortization.................................. 29,842	31,098
2,515,178	1,924,783
DEFERRED RETIREMENT COSTS-Note 3 ........................................... 2,595,800	1,574,271
$6,834,308	$5,624,681
See notes to financial statements.
40
Liabilities and Equity	June 30	
	1974	1973
CURRENT LIABILITIES		(Note 3)
Outstanding postal money orders		$ 170,209	$ 396,695
Compensation and employee benefits —Note 3		680,250	312,622
Amounts payable to other U.S. Government agencies		136,685	184,558
Other accounts payable and accrued expenses		187,784	158,462
Prepaid permit mail and box rentals 		124,997	115,328
Estimated prepaid postage in the hands of the public —Note 1		368,000	316,000
Note payable to Federal Financing Bank, 9.3%, due June 30,1975		500,000	—
TOTAL CURRENT LIABILITIES LONG-TERM DEBT-Note 4	2,167,925	1,483,665
Postal Service Bonds, Series A		250,000	250,000
Mortgage notes payable 		14,983	—
OTHER LIABILITIES	264,983	250,000
Amounts payable for retirement benefits —Note 3		2,551,405	1,745,397
Employees' accumulated leave —Note 5		485,085	424,859
Workmen's compensation claims —Note 1		196,628	136,208
Other claims and self-insurance		21,500	19,000
EQUITY OF THE U.S. GOVERNMENT	3,254,618	2,325,464
Capital contributions —Notes 1 and 5		1,773,540	1,753,951
Deficit from operations since commencement on July 1,1971 		626,758	188,399
COMMITMENTS AND CONTINGENCIES-Notes 3, 5, 6 and 7	1,146,782	1,565,552
	$6,834,308	$5,624,681
41
Statement Of Operations And Changes In Equity United States Postal Service
(Dollars in Thousands)
Year ended lune 30
	1974	1973 (Note 3)
Operating revenues		$ 9,008,314	$8,338,945
U.S. Government operating appropriations —Note 2		1,750,445	1,485,595
Operating expenses:	10,758,759	9,824,540
Compensation and employees’ benefits		9,641,557	8,450,914
	1,653,782	1,475,527
	11,295,339	9,926,441
	(536,580)	(101,901)
Interest income, net of interest expense (1974 — $18,277; 1973— $17,187)		98,221	88,937
NET LOSS	(438,359)	( 12,964)
Equity of U.S. Government at beginning of year	 Contributions by the U.S. Government to partially fund employees’	1,565,552	1,548,306
accumulated leave at July 1,1971 —Note 5		31,000	31,000
Property transfers (to) from U.S. Government agencies		( 1,646)	2,807
Refunds of unused appropriations for years prior to July 1, 1971		( 9,765)	( 3,597)
EQUITY OF U.S. GOVERNMENT AT END OF YEAR	$ 1,146,782	$1,565,552
See notes to financial statements.
42
Statement Of Changes In Financial Position
United States Postal Service
(Dollars in Thousands)	Year ended June 30	
	1974	1973
SOURCES OF WORKING CAPITAL		(Note 3)
From operations:		
Net loss		($ 438,359)	($ 12,964)
Charges to operations not requiring current outlays of working capital:		
Depreciation and amortization —Note 1		105,931	94,315
Provision for noncurrent workmen's compensation claims, other		
claims, and self-insurance		62,920	60,395
Increase in employees’ accumulated leave 		60,226	36,018
Total from (used by) operations	( 209,282)	177,764
Increase in noncurrent amounts payable for retirement benefits		806,008	728,661
Decrease in noncurrent amounts receivable from U.S. Government		171,126	—
Capital contributions by U.S. Government		31,000	33,807
Mortgage notes payable assumed 		14,983	—
TOTAL SOURCES	813,835	940,232
USES OF WORKING CAPITAL		
Additions to deferred retirement costs		1,021,529	620,526
Additions to property and equipment, net		696,326	362,889
Increase in noncurrent amounts receivable from U.S. Government 		—	108,135
Capital withdrawn by U.S. Government		11,411	3,597
Increase (decrease) in other assets:		1,047	(	26)
TOTAL USES	1,730,313	1,095,121
DECREASE IN WORKING CAPITAL	$ 916,478	$ 154,889
CHANGES IN COMPONENTS OF WORKING CAPITAL		
Increase (decrease) in current assets:		
Cash and short-term securities		($ 576,867)	($ 146,329)
Accounts receivable		341,434	39,196
Supplies, advances, and prepayments 		3,215	(	2,020)
	( 232,218)	( 109,153)
Increase (decrease) in current liabilities:		
Outstanding postal money orders		( 226,486)	99,068
Compensation and employee benefits 		367,628	(	2,156)
Amounts payable to other U.S. Government agencies		(	47,873)	(	18,611)
Other accounts payable and accrued expenses		29,322	(	47,180)
Prepaid permit mail and box rentals		9,669	13,615
Estimated prepaid postage in the hands of the public		52,000	1,000
Note payable to Federal Financing Bank		500,000	—
	684,260	45,736
DECREASE IN WORKING CAPITAL	$ 916,478	$ 154,889
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS UNITED STATES POSTAL SERVICE June 30,1974
Note 1-POSTAL REORGANIZATION AND ACCOUNTING POLICIES
The United States Postal Service commenced operations on July 1,1971, in accordance with the provisions of the Postal Reorganization Act. Its initial capital consisted of the equity of the Government of the United States in the former Post Office Department. Assets were valued on the basis of original cost less depreciation. All liabilities attributable to operations of the former Post Office Department remained liabilities of the U.S. Government, except that the unexpended balances of appropriations made to, held or used by, or available to the former Post Office Department and all liabilities chargeable thereto became assets and liabilities, respectively, of the Postal Service.
Certain minor equipment items (mailbags, locks, etc.) with a net book value of approximately $116,000,000 at July 1, 1971, do not lend themselves to normal property control procedures and, accordingly, the Postal Service has not provided for depreciation of this initial carrying amount but has expensed all subsequent acquisitions of such items. All other property and equipment acquisitions, including renewals and replacements when the capacity, operating efficiency, or useful life of the asset is significantly extended, are recorded at cost. Repairs and maintenance are expensed as incurred. Depreciation is provided on a straight-line basis and is computed on asset balances at the beginning of the year. Research and development costs are expensed when incurred; if usable equipment results from such expenditures, it is capitalized at estimated replacement cost.
The Workmen’s Compensation program for the Postal Service is administered by the Department of Labor. Commencing July 1, 1971, the Postal Service has recorded as an operating expense in the year of injury the estimated present value of the total cost of such claims. Under the Postal Reorganization Act, all payments to be made by the Department of Labor for injuries experienced prior to July 1, 1971, remain liabilities of the U.S. Government to be funded by appropriations from the U.S. Treasury.
Estimated prepaid postage in the hands of the public represents the estimated revenue collected prior to the end of the year for which services will be subsequently rendered.
Note 2-OPERATING
APPROPRIATIONS
The Postal Reorganization Act appropriated to the Postal Service all revenue received by it and, additionally, authorized to be appropriated "for public service costs incurred by it in providing a maximum degree of effective and regular postal service nationwide" the following amounts: for each of the fiscal years 1972 through 1979, an amount equal to 10% of the sum appropriated to the former Post Office Department by Congress for its use in fiscal 1971, and for fiscal years 1980 through 1984, the amount is reduced by 1% each year to a level of 5%. After 1984, the Postal Service may reduce the amount authorized to be appropriated if it finds the amounts so determined are no longer required to operate it in accordance with the policies of the Act. Further, the Act authorizes to be appropriated each year a sum determined by the Postal Service to be equal to revenue foregone by it in providing certain mail services at free or reduced rates.
The Postal Service Appropriation Act, 1974, provided $1,311,904,000 for operations, of which $142,333,500 was required to be paid to the Civil Service Retirement and Disability Fund. However, as more fully explained in Note 3, legislation passed on July 12,1974, removed this requirement. To reflect the retroactivity of the July 12, 1974 legislation, the financial statements of the Postal Service have been adjusted by increasing operating appropriations for fiscal years 1974 and 1973 by $113,541,000 and $108,135,000, respectively, in anticipation of the appropriation referred to in the legislation (a supplemental appropriation is currently pending). Passage of the Supplemental Appropriation Act, 1974, provided additional operating appropriations of $105,000,000 for revenue foregone and $220,000,000 to offset the effect of a Cost of Living Council order delaying the implementation of the 1974 temporary rate increases as described in Note 7.
On August 21,1974, Congress appropriated a total of $1,489,849,000 for operations of the Postal Service for fiscal year 1975.
Note 3-RETIREMENT PROGRAM
The Postal Reorganization Act provides that officers and employees of the Postal Service (other than the Governors) shall be covered by the Civil Service Retirement Program and the Postal Service shall withhold from pay and shall pay to the Civil Service Retirement and Disability Fund the amounts specified by such program. The Postal Service contributes 7% of base payroll to the Fund.
Legislation enacted July 12,1974, establishes that the Postal Service is liable for that
portion of any estimated increase in the unfunded liability of the Civil Service Retirement and Disability Fund which is attributable to any benefits payable from the Fund when the increase results from a Postal Service employee-management agreement which authorizes increases in pay on which benefits are computed. The estimated increase in the unfunded liability is to be determined by the Civil Service Commission. The Postal Service is to pay the amount so determined in 30 equal annual installments with interest computed at the rate used in the most recent valuation of the Civil Service Retirement System (currently 5%), with the first payment thereof due at the end of the fiscal year in which an increase in pay becomes effective. The Act is effective retroactively to July 1,1971, except that the Postal Service is not required to make (1) the payments due June 30,1972,1973, and 1974 attributable to pay increases granted prior to July 1,1973 ($284,667,000), until such time as funds are appropriated to the Postal Service for that purpose and (2) the transfer of $142,333,500 to the Civil Service Commission previously required by the Postal Service Appropriation Act, 1974 (see Note 2).
The accompanying financial statements give retroactive effect to this July 12,1974, legislation by reflecting the Postal Service’s legal obligation to the Civil Service Retirement and Disability Fund as a liability in an amount equal to the present value of the equal annual installments due to the Fund as determined by the Civil Service Commission ($2,880,467,000 at June 30,1974, of which $329,062,000 is included in current liabilities, and $1,745,397,000 at June 30, 1973), with offsetting charges to (1) receivables from the U.S. Government representing the anticipated appropriations as referred to in Note 2, to fund the payments due June 30, 1972, 1973 and 1974 attributable to pay increases granted prior to July 1,1973 ($284,667,000 at June 30,1974, which is included in current assets, and $171,126,000 at June 30,1973), and (2) deferred retirement costs applicable to operations of future years ($2,595,800,000 at June 30,1974, and $1,574,271,000 at June 30,1973). As provided by the Appropriation Act, 1974, the Postal Service transferred $142,333,500 to the Fund on June 28,1974, of which $73,133,500 has been included in accounts
44
receivable as a result of the July 12,1974 legislation representing the balance after deducting $69,200,000 charged to pension expense for fiscal year 1974 relating to pay increases granted subsequent to July 1, 1973. Increases in pension expense resulting from this legislation relating to pay increases granted prior to July 1,1973 ($113,541,000 in 1974, $108,135,000 in 1973, and $62,991,000 in 1972) had no effect on net losses or equity of the U.S. Government, as they were offset by equivalent appropriations receivable.
Pension expense for fiscal years 1974 and 1973, including the effect of this July 12,1974 legislation, aggregated $699,693,000 and $559,842,000, respectively.
Note 4-LONG-TERM DEBT
The Postal Reorganization Act authorizes the Postal Service to issue and sell obligations not to exceed $10,000,000,000 outstanding at any one time. Under the Trust Indenture dated February 1,1972, the Postal Service issued $250,000,000 of 6-7/8% Postal Service Bonds, Series A, due February 1,1997, with interest payable semiannually. The bonds are secured by a first lien on the revenue, income, fees, rents, appropriations, and other receipts of the Postal Service; the proceeds of all obligations issued by the Postal Service; and all sinking and improvement funds established pursuant to the Indenture. On July 31 of each year commencing in 1978, the Postal Service is required to deposit in a sinking and improvement fund the sum of $10,000,000 either in cash or reacquired Series A Bonds. The bonds are redeemable prior to maturity, at the option of the Postal Service, on or after February 1,1982, at the principal amount plus accrued interest.
During fiscal year 1974, the Postal Service acquired a number of postal facilities and assumed the related mortgage notes payable. The notes are payable in monthly installments including interest (4 1/2-6%), mature at various dates from 1976 through 1992, and are secured by properties carried at approximately $25,000,000.
Note 5—ACCUMULATED LEAVE
Employees are permitted to accumulate certain unused annual leave which is payable when taken, upon severance of employment, or retirement. The former Post Office Department consistently accrued such accumulated annual leave and, at July 1,1971, its balance was recorded on the books of the Postal Service. In the opinion of General Counsel, the basic rule on the transferability of liabilities set forth in the Postal Reorganization Act applies to accrued annual leave earned but not taken at July 1,1971, and, accordingly, the U.S. Government is primarily liable on the obligation. The Act does provide, however, that "sick and annual leave, and compensatory time of officers and employees of the Postal Service, whether accrued prior to or after commencement of operations of the Postal Service, shall be obligations of the Postal Service under the provisions of this
Note 6 —COMMITMENTS
At June 30,1974, the estimated cost to complete approved Postal Service capital projects was approximately $732,866,000.
1974	1973
Noncancellable real estate leases, including related taxes (1974-$27,851,379; 1973-$27,098,556)........... $201,736,000	$196,205,000
Facilities leased from GSA subject to 30-day notice of cancellation........................................ 31,351,000	31,398,000
Equipment and other short-term rentals................. 15,931,000	13,582,000
TOTAL $249,018,000	$241,185,000
As of June 30,1974, the future minimum rentals for all noncancellable leases are as follows:
Year	Amount
1975	$ 160,579,000
1976	142,640,000
1977	123,731,000
1978	107,267,000
1979	93,243,000
1980-1984	367,591,000
1985-1989	256,605,000
1990-1994	150,517,000
After 1994	104,863,000
TOTAL	$1,507,036,000
chapter." In view of the latter language, the General Counsel believes that the Postal Service can appropriately be viewed as being secondarily liable for the accrued annual leave and could be held to make payment thereof if Congress fails to appropriate funds therefor. At June 30, 1974 and 1973, the Postal Service has recorded as a receivable the $31,000,000 of appropriated funds collected in the following July to cover one-twelfth of the annual leave liability carried forward at July 1,1971. It is expected that similar annual appropriations will be requested and received for each of the next nine years until the U.S. Government’s primary responsibility for this liability is liquidated.
With respect to accumulated unused sick leave, no accrual is necessary since employees do not have a vested interest in such leave and no amounts are paid unless sick leave is used.
During the years ended June 30,1974 and 1973, total rental expense is summarized as follows:
Note 7-CONTINGENT LIABILITIES
In accordance with the Postal Reorganization Act, the Postal Service planned to place into effect on January 5,1974, temporary rate increases based on its request to the Postal Rate Commission on September 25,1973. Action by the Cost of Living Council delayed the increase to March 2,1974. A recommendation for new permanent rates by the Postal Rate Commission has not yet been received. In the opinion of General Counsel, any revision to the temporary rates would not require any refund of postage paid as such refund is prohibited by the Postal Reorganization Act.
Most of these leases contain renewal options for periods ranging from 10 to 40 years. Certain leases have options to purchase the facilities at prices aggregating approximately $600,000,000.
45
On August 26,1971, the U.S. District Court for the District of Columbia entered a consent order establishing an administrative procedure for the disposition of individual claims arising from a decision whereby the former Post Office Department was held liable for the payment of overtime compensation to certain annual-rate regular postal employees for work performed outside their regular work schedules. While these claims, as yet indeterminable in total, may represent a substantial liability, it is the opinion of General Counsel that unobligated balances of prior year appropriations to the former Post Office Department would be available to fund any such liabilities relating to years prior to July 1,1971, in whole or in part; and that to the extent such unobligated balances are insufficient for full funding, the Postal Service could request appropriations from Congress. In the opinion of management, the Postal Service has made adequate provision for any such claims relating to the period since July 1,1971.
In proceedings before the Civil Aeronautics Board, domestic air carriers have sought substantial increases in rates to be paid for domestic and international air transportation of mail. The Board has issued temporary rate orders setting provisional rates for various classes of mail. The Board has required interested parties to show cause why the Board should not find that such carriers were entitled to additional revenues for prior periods relating to certain classes of mail and generally higher fuel costs. While it is not possible to predict with certainty when these proceedings will be resolved, the management of the Postal Service believes that adequate provision has been made for settlement in the accompanying financial statements.
A grievance has been filed by several unions representing postal employees asserting the Postal Service had violated its collective bargaining agreement by considering certain employees eligible for retirement prior to the date they would otherwise be eligible. In the ensuing arbitration proceeding, among the remedies sought by the unions is the payment of six months’ salary to each of the approximately 20,000 employees who retired under the provisions of the challenged “early retirement” program. The matter is pending before the arbitrator. It is the opinion of the General Counsel that the granting of relief in this proceeding is not warranted.
A lawsuit is pending in a U.S. District Court whereby the plaintiffs maintain that certain wage payments made by the Postal Service gave rise to a requirement for the Postal Service to make contributions to employee retirement and life
Report of Independent Accountants
Board of Governors
United States Postal Service
Washington, D.C.
We have examined the balance sheet of the United States Postal Service as of June 30,1974 and 1973, and the related statements of operations and changes in equity and changes in financial position for the years then ended. Our examinations were made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
In our opinion, the accompanying financial statements identified above present fairly the financial position of the United States Postal Service at June 30,1974 and 1973, and the results of its operations, changes in equity, and changes in financial position for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis.
insurance programs. Although there has been no final order in this matter, the District Court has issued an opinion favorable to the plaintiffs. If an adverse order is received, the Postal Service will request the Department of Justice to appeal the order. In the opinion of management, an adverse order will not have a significant effect on the accompanying financial statements.
In addition, there are certain pending suits and claims resulting from traffic accidents involving postal vehicles and injuries on postal properties, and certain suits and claims arising out of postal contracts.
In the opinion of General Counsel, the aggregate final settlement of the above suits, claims, and proceedings will not have a material effect upon the accompanying financial statements.
Washington, D.C. October 23,1974
46
UNITED STATES POSTAL SERVICE FINANCIAL HISTORY SUMMARY
June 30					
	1974	1973	1972	1971*	1970
Statement of Operations				(In Thousands)	
Operating revenues		$9,008,314	$8,338,945	$7,884,188	$6,664,988	$6,346,655
Government appropriations**		1,750,445	1,485,595	1,424,191	2,086,496	1,355,040
Total Income		10,758,759	9,824,540	9,308,379	8,751,484	7,701,695
Salaries and benefits		9,641,557	8,450,914	8,145,538	7,467,036	6,524,819
Other expenses		1,653,782	1,475,527	1,439,831	1,488,228	1,342,450
Total Operating Expenses		11,295,339	9,926,441	9,585,369	8,955,264	7,867,269
Operating Loss		536,580	101,901	276,990	203,780	165,574
Other income, net		98,221	88,937	101,555		
Net Loss		$ 438,359	$	12,964	$ 175,435	$ 203,780	$ 165,574
					
Balance Sheet					
Assets					
Current assets		$1,718,458	$1,950,676	$2,059,829	$1,989,212	$1,501,827
Property plant & equip. & other assets		5,115,850	3,674,005	2,676,796	1,415,466	1,259,405
Total Assets		$6,834,308	$5,624,681	$4,736,625	$3,404,678	$2,761,232
Liabilities					
Current liabilities		$2,167,925	$1,483,665	$1,437,929	$1,346,165	$ 890,314
Reserves		3,254,618	2,325,464	1,500,390	372,796	333,368
Long-term debt —USPS Bonds & Mortgages . . . .	264,983	250,000	250,000		
Equity		1,146,782	1,565,552	1,548,306	1,685,717	1,537,550
Total Liabilities and Equity		$6,834,308	$5,624,681	$4,736,625	$3,404,678	$2,761,232
					
Analysis of Changes in Equity					
Beginning balance	 Deduct:	$1,565,552	$1,548,306	$1,685,717	$1,537,550	$1,149,834
Retroactive adjustments recorded at July 1, 1971 .				(243,678)	
Balance July 1		1,565,552	1,548,306	1,685,717	1,293,872	1,149,834
Net loss		438,359	12,964	175,435	203,780	165,574
	1,127,193	1,535,342	1,510,282	1,090,092	984,260
Add:					
Capital Contributions	 Government appropriations — Capital** Buildings and other transfers to/from	21,235	27,403	32,539	486,825	380,000
government agencies		(1,646)	2,807	5,485	108,800	173,290
Ending balance		$1,146,782	•$1,565,552	$1,548,306	$1,685,717	$1,537,550
					
*The United States Postal Service was established July 1, 1971. Financial statements prior to that date are those of the Post Office Department. Such statements for 1970 and 1971 have been restated above to be in a format generally consistent with 1972 -1974 .
**Prior to 1972, Government appropriations were made to cover entire POD operations and capital commitments. See Note 2 of audited financial statements for 1974 for basis for appropriations.
OPERATING STATISTICS
Classes of Mail	1974	1973	1972	1971	1970
1st Class:			(Thousands)		
Pieces, number		51,594,460	50,964,631	48,933,443	50,035,754	48,640,276
Weight, pounds		1,705,927	1,668,942	1,571,500	1,622,855	1,561,803
Revenue		$ 5,018,656	$ 4,578,252	$ 4,379,050	$ 3,506,137	$ 3,290,755
Domestic air:					
Pieces, Number		1,334,733	1,326,629	1,359,525	1,457,405	1,533,191
Weight, pounds		78,116	74,880	71,764	73,328	73,836
Revenue		$	230,764	$	212,772	$	209,914	$	197,879	$	201,287
Priority mail:					
Pieces, number		222,194	209,046	207,604	196,963	184,696
Weight, pounds		451,607	423,446	412,196	390,795	370,449
Revenue		$	394,379	$	352,128	$	348,290	$	302,888	$	282,449
2nd class:					
Pieces, number		8,837,663	9,033,839	9,493,992	9,603,669	9,351,493
Weight, pounds		2,932,877	3,051,551	3,125,339	3,282,854	3,417,392
Revenue		$	212,828	$	185,990	$	176,787	$	156,628	$	155,166
Controlled circulation publications:					
Pieces, number		620,376	581,645	549,660	522,413	562,449
Weight, pounds		242,196	229,459	207,322	201,264	224,365
Revenue		$	40,021	$	36,805	$	33,404	$	32,324	$	35,205
3rd class:					
Pieces, number		22,537,096	22,689,120	21,907,627	20,532,160	19,974,208
Weight, pounds			2,365,380	2,384,557	2,290,048	2,156,887	2,032,452
Revenue		$ 1,213,520	$ 1,162,349	$ 1,005,928	$	844,162	$	827,174
4th class:					
Pieces, number		859,212	893,081	914,369	967,653	977,178
Weight, pounds		3,983,032	4,164,854	4,420,787	4,835,869	4,786,440
Revenue		$	731,670	$	758,861	$	809,721	$	819,337	$	777,929
48
Classes of Mail	1974	1973	1972	1971	1970
International surface:			(Thousands)		
Pieces, number			 346,770	354,465	361,604	365,281	365,198
Weight, pounds			 190,647	189,917	174,438	188,940	191,566
Revenue			 $	82,006	$	77,408	$	73,193	$	68,580	$	68,164
International air:					
Pieces, number			 568,870	565,375	554,356	537,450	531,244
Weight, pounds			 43,451	41,399	38,988	35,560	34,342
Revenue* 			 $	260,854	$	239,144	$	225,192	$	208,163	$	202,265
Penalty:					
Pieces, number			 2,843,705	2,755,976	2,563,516	2,505,925	2,543,695
Weight, pounds			 607,500	539,405	573,247	525,765	539,408
Revenue 			 $	440,013	$	374,348	$	272,003	$	191,642	$	187,587
Franked:					
Pieces, number			 315,239	293,171	293,186	239,782	202,784
Weight, pounds			 11,794	11,712	11,759	8,819	11,472
Revenue 			 $	30,793	$	29,604	$	22,000	$	14,594	$	11,386
Free for the blind:					
Pieces, number			 17,790	16,461	17,202	18,545	15,421
Weight, pounds			 33,094	39,518	38,124	50,459	37,729
TOTALS:					
Pieces, number			 90,098,108	89,683,439	87,156,084	86,983,000	84,881,833
Weight, pounds			 12,645,621	12,819,640	12,935,512	13,373,395	13,281,254
Revenue 			 $	8,655,504	$ 8,007,661	$ 7,555,482	$ 6,342,334	$ 6,039,367
includes transit special handling and miscellaneous revenue
49
Special Services
	1974	1973	1972	1971	1970
Registry: Number of articles (paid and free) . . . Revenue		(Thousands) 66,347	62,234 $	72,126	$	60,058		65,124 $	63,172	63,779 $	58,550	61,173 $	51,055
Certified: Number of pieces	 Revenue		71,090 $	31,168	73,637 $	31,148	67,934 $	29,395	61,654 $	26,986	55,739 $	24,561
Insurance: Number of articles	 Revenue		95,920 $	29,838	99,566 $	30,285	107,912 $	32,392	114,062 $	33,771	113,727 $	32,826
Collection-on-delivery: Number of articles	 Revenue		17,167 $	14,200	18,586 $	15,120	18,916 $	15,522	19,235 $	15,849	20,075 $	16,235
Special delivery: Number of articles: Revenue		81,945 $	52,728	83,904 $	54,565	85,269 $	55,804	103,567 $	54,864	110,125 $	55,615
Money orders: Number issued	 Revenue fees		164,491 $	51,655	170,776 $	54,037	176,089 $	54,672	179,439 $	55,074	181,750 $	56,174
Box rents revenue 		$	63,134	$	61,066	$	58,277	$	48,903	$	44,106
Stamped envelope revenue		$	17,312	$	15,282	$	15,794	$	16,806	$	17,662
Other revenue, Net		$	20,649	$	9,723	$	3,678	$	11,861	$	9,054
Special services revenue		$ 352,810	$ 331,284	$ 328,706	$ 322,654	$ 307,288
Mail revenue		$ 8,655,504	$8,007,661	$7,555,482	$6,342,334	$6,039,367
Operating revenue		$ 9,008,314	$8,338,945	$7,884,188	$6,664,988	$6,346,655
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Employees
	1974	1973	1972	1971	1970
Employee Groups	(on payroll as of June 30)				
Headquarters employees	 Field regular employees: Regional and other field units	2,931	2,531	2,301	2,611	2,883
reporting to headquarters		10,079	5,128	5,460	5,761	6,663
Inspection Service		5,461	4,680	4,716	2,511	2,112
Postmasters		30,288	29,490	30,731	29,945	29,679
Post Office supervisors and technical personnel.	37,422	34,474	38,102	37,357	37,412
Post Office clerks and mail handlers		243,291	238,727	250,390	239,571	243,090
City delivery carriers and vehicle drivers		171,460	171,504	174,974	166,006	165,488
Rural delivery carriers		30,674	30,423	31,024	31,131	31,063
Special delivery messengers		2,964	2,995	3,205	2,661	2,656
Building and equipment maintenance personnel	24,708	23,508	23,962	22,768	22,235
Vehicle maintenance facility personnel		5,289	5,416	5,823	5,589	5,291
Total regular employees		. . . .	564,567	548,876	570,688	545,911	548,572
Total substitute employees		145,866	152,175	135,712	183,000	192,644
Grand total		710,433	701,051	706,400	728,911	741,216
Offices, Stations and Branches
	1974	1973	1972	1971	1970
Number of post offices, by Class	(as of June 30)				
1st class			 5,407	5,254	5,192	5,162	4,977
2d class			 7,477	7,495	7,436	7,396	7,331
3d class			 12,233	12,254	12,468	12,551	12,641
4th class			 5,883	6,382	6,590	6,838	7,053
Total			 31,000	31,385	31,686	31,947	32,002
Number of branches and stations:					
Classified branches and stations			 3,955	3,939	3,729	3,906	3,869
Contract branches and stations			 3,952	4,096	4,603	4,437	4,963
Rural Branches and Stations			 1,901	1,990	2,236	1,997	2,278
Community Post Offices			 106	24	—	—	—
Total			 9,914	10,049	10,568	10,340	11,110
Grand Total			 40,914	41,434	42,254	42,287	43,112
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BOARD OF GOVERNORS
Charles H. Codding, Jr.
Rancher and co-owner Codding Cattle Research Company (term expires Dec 8,1978)
Robert Earl Holding
General Manager Little America Refining Co. (term expires Dec 8,1982)
Andrew D. Holt
President Emeritus University of Tennessee (term expires Dec 8,1975)
Dr. John Y. Ing
Dentist and Real Estate Developer (term expires Dec 8,1981)
George E. Johnson
President and Chief Executive Officer Johnson Products Company (term expires Dec 8,1976)
Frederick R. Kappel
Chairman of the Board of Governors U.S.‘Postal Service Chairman, Board of Directors (Retired) American Telephone and Telegraph Co.
(term expires Dec 8,1974)
E. T. Klassen
Postmaster General
Crocker Nevin
Vice Chairman of the Board Evans Products Company (term expires Dec 8,1977)
Hayes Robertson
Director, Udyco Industries, Inc. (term expires Dec 8, 1979)
M. A. Wright
Vice Chairman of the Board of Governors U.S. Postal Service
Chairman and Chief Executive EXXON Company, U.S.A.
(term expires Dec 8,1980)
SENIOR POSTAL SERVICE OFFICIALS
E. T. Klassen
Postmaster General
Benjamin F. Bailar
Senior Assistant Postmaster General Administration Group
Darrell F. Brown
Senior Assistant Postmaster General Employee and Labor Relations Group
Louis A. Cox
General Counsel
E. V. Dorsey
Senior Assistant Postmaster General Operations Group
Ralph W. Nicholson
Senior Assistant Postmaster General
Finance Group
Carl C. Ulsaker
Senior Assistant
Postmaster General Manpower and Cost Control
Frank E. Biglin
Regional Postmaster General
Eastern Region
William F. Bolger
Regional Postmaster General Northeast Region
Clarence B. Gels
Regional Postmaster General Central Region
Frank M. Sommerkamp
Regional Postmaster General Southern Region
William J. Sullivan
Regional Postmaster General Western Region
BOARD COMMITTEES
Audit
Robert Earl Holding, Chairman Charles H. Codding Crocker Nevin
Finance and Compensation Committee Crocker Nevin, Chairman
Frederick R. Kappel
M. A. Wright
Postal Rates
M. A. Wright, Chairman Andrew D. Holt Hayes Robertson
BOARD CHANGES
Hayes Robertson, appointed June 4, 1974, replaced Patrick E. Haggerty. He was also appointed member of the Postal Rates Committee. George E. Johnson resigned from the Board of Governors August 7,1974. He was also on the Committee on Finance and Compensation.
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SAN DIEGO PUBLIC LIBRARY
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