2. EXPENSES
Compensation and benefits dominate Postal Service expenses, comprising more than 76 percent of our total expenses. Interest on the deferred Civil Service Retirement System (CSRS) retirement liability accounts for an additional two percent of expenses. These costs are detailed in Table 3-3. In 2002, Postal management continued to control personnel costs aggressively, cutting work hours by almost 78 million and reducing career complement by 23,000. These actions held the increase in compensation and benefits expenses to 0.4 percent, or $206 million, down from the growth of $1.8 billion (3.7 percent) in the previous year. Still, higher costs per work hour, increased workers’ compensation costs, and rising health benefit premiums continued to exert upward pressure on expenses. In particular, workers’ compensation costs increased by over $500 million in 2002, following a $60 million increase in this category in 2001. We anticipate that some of the trends that caused this increase will continue, most notably that of medical cost inflation. Our primary strategies for controlling workers’ compensation costs is to reduce accidents and identifying productive work assignments for those employees who cannot return to their normal duties. Historical fluctuations in this expense can be seen in Table 3-4. Health benefits for employees and retirees are another significant expense driver, increasing by almost $500 million in 2002.

		2002    ($ million)	2001    ($ million)	Variance	%Change
	Personnel
	Compensation	$38,876	$37,978	$(1,102)	-2.9%
	Benefits	14,681	13,373	1,308	9.8%
	SUBTOTAL	51,557	51,351	206	0.4%
	Non-personnel
	Transportation	5,132	5,056	76	1.5%
	Supplies and Services	2,614	3,207	(593)	-18.5%
	Building Occupancy	1,653	1,636	17	1.0%
	Depreciation / Write-Offs	2,296	2,223	73	3.3%
	Interest Expense
	Deferred Retirement	1,601	1,603	(2)	-0.1%
	Borrowing	340	306	34	11.1%
	Other	2,171	2,167	4	0.2%
	SUBTOTAL	15,807	16,198	(391)	-2.4%
	TOTAL	$67,364	$67,549	$ (185)	-0.3%

(dollars in millions)

	Fiscal Year	Extimated Annual Increase/Decrease in Liability for Active Claims	Administrative Charge (DOL)	Total Annual Expenses	Payments to DOL for Postal Service Active Claims and Admin. Charges*
	1993	928	17	945	487
	1994	311	16	327	501
	1995	860	17	877	520
	1996	718	19	737	531
	1997	187	19	206	538
	1998	739	21	760	567**
	1999	583	20	603	585
	2000	891	20	911	671
	2001	937	33	970	694***
	2002	1,471	37	1,511	818****

	*		Payments in this table are on cash basis by fiscal year in which the payments were made. Listed payments include payments for active Postal Service claims and for associated DOL administrative charges. Payments exclude all payments for Post Office Department (POD) claimants.
	**		Previously-reported number changed to exclude POD portion of payment from USPS total payments.
	***		Excludes contested and unpaid administrative expense of $37 million.
	****		Includes $32 million paid for 2001 administrative expenses and $27 million paid for 2002 administrative expenses.