[Senate Hearing 105-296]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 105-296


 
                ANNUAL REPORT OF THE POSTMASTER GENERAL

=======================================================================


                                HEARING

                               before the

                SUBCOMMITTEE ON INTERNATIONAL SECURITY,
                  PROLIFERATION, AND FEDERAL SERVICES

                                 of the

                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                       ONE HUNDRED FIFTH CONGRESS

                             FIRST SESSION

                               __________

                            NOVEMBER 3, 1997

                               __________

      Printed for the use of the Committee on Governmental Affairs


                               



                    U.S. GOVERNMENT PRINTING OFFICE                    
45-593cc                   WASHINGTON : 1998


_______________________________________________________________________
           For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402



                   COMMITTEE ON GOVERNMENTAL AFFAIRS

                   FRED THOMPSON, Tennessee, Chairman
SUSAN M. COLLINS, Maine              JOHN GLENN, Ohio
SAM BROWNBACK, Kansas                CARL LEVIN, Michigan
PETE V. DOMENICI, New Mexico         JOSEPH I. LIEBERMAN, Connecticut
THAD COCHRAN, Mississippi            DANIEL K. AKAKA, Hawaii
DON NICKLES, Oklahoma                RICHARD J. DURBIN, Illinois
ARLEN SPECTER, Pennsylvania          ROBERT G. TORRICELLI, New Jersey
BOB SMITH, New Hampshire             MAX CLELAND, Georgia
ROBERT F. BENNETT, Utah
             Hannah S. Sistare, Staff Director and Counsel
                 Leonard Weiss, Minority Staff Director
                    Michal Sue Prosser, Chief Clerk
                                 ------                                

   SUBCOMMITTEE ON INTERNATIONAL SECURITY, PROLIFERATION AND FEDERAL 
                                SERVICES

                  THAD COCHRAN, Mississippi, Chairman
SUSAN M. COLLINS, Maine              CARL LEVIN, Michigan
PETE V. DOMENICI, New Mexico         DANIEL K. AKAKA, Hawaii
DON NICKLES, Oklahoma                RICHARD J. DURBIN, Illinois
ARLEN SPECTER, Pennsylvania          ROBERT G. TORRICELLI, New Jersey
BOB SMITH, New Hampshire             MAX CLELAND, Georgia
                   Mitchel B. Kugler, Staff Director
                Linda Gustitus, Minority Staff Director
                       Julie Sander, Chief Clerk



                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Cochran..............................................     1
    Senator Domenici.............................................    10
    Senator Levin................................................    14
    Senator Cleland..............................................    18

                               WITNESSES
                        Monday, November 3, 1997

Hon. Marvin Runyon, Postmaster General and Chief Executive 
  Officer, U.S. Postal Service, accompanied by Michael S. 
  Coughlin, Deputy Postmast General..............................     2

                                APPENDIX

Additional questions submitted for the record regarding USPS 
  plans to centralize employee uniform purchasing................    31
Additional questions for the U.S. Postal Service submitted for 
  the record by Sen. Domenici....................................    31



                ANNUAL REPORT OF THE POSTMASTER GENERAL

                              ----------                              


                        MONDAY, NOVEMBER 3, 1997

                                     U.S. Senate,  
            Subcommittee on International Security,
                     Proliferation, and Federal Services,  
                  of the Committee on Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:31 p.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Thad Cochran, 
Chairman of the Subcommittee, presiding.
    Present: Senators Cochran, Domenici, Levin and Cleland.

              OPENING STATEMENT OF SENATOR COCHRAN

    Senator Cochran. The Subcommittee will please come to 
order.
    Today we welcome Postmaster General Marvin Runyon, who is 
accompanied by Deputy Postmaster General Mike Coughlin, to our 
Subcommittee's hearing on the annual report of the Postmaster 
General.
    This hearing offers the Postmaster General the opportunity 
to report publicly on the state of the U.S. Postal Service. 
Congress passed the Postal Reorganization Act of 1970 for the 
purpose of transforming the old Post Office Department from a 
taxpayer-subsidized executive department to a self-sustaining 
new entity that would use modern business practices and 
procedures and operate in an efficient and economical manner.
    With approximately 800,000 employees and more than $56 
billion in annual revenues, today's Postal Service far exceeds 
the size and scope of most U.S. industries. Its management is a 
tremendous challenge.
    Since becoming Postmaster General in 1992, Mr. Runyon has 
sought to improve service quality and customer satisfaction 
while improving the financial health of the Postal Service. 
Under his leadership, the Postal Service has experienced 3 
remarkably profitable years. In fiscal year 95, the Postal 
Services' profit was $1.8 billion; in fiscal year 96, it was 
$1.6 billion; and in fiscal year 97, the profit is expected to 
be $1 billion.
    Also, Postmaster General Runyon has made impressive 
progress in helping meet the emerging needs of the users of the 
Postal Service. According to the most recent annual report, 
service quality improved during 1996, with an independent 
accounting firm reporting a national performance average of 91 
percent for overnight, on-time, local first-class deliveries.
    While these results are encouraging, other performance data 
suggest that problems remain. For example, last year's delivery 
of 2-day mail was only 80 percent on time, and 3-day mail 
deliveries were only 83 percent on time--though it appears some 
improvements have been made in 1997. And, according to a recent 
report from the General Accounting Office, the Postal Service 
and its major labor unions have made little progress resolving 
their problems.
    Earlier this summer, the Postal Service Board of Governors 
filed a request with the Postal Rate Commission for the third 
increase in postal rates this decade. The new rates if approved 
could take effect as early as June 1998. The new increase would 
average 4.5 percent across all domestic services. This proposed 
rate hike coincides with recordbreaking profits and makes us 
wonder whether the increases are justified.
    This Subcommittee understands that the Postal Service 
requires a sophisticated distribution network for collecting, 
processing, transporting and delivering America's mail, and 
maintaining this network is a costly enterprise. However, the 
Postal Service should be able to manage its costs to meet its 
mandate of universal, customer-friendly service at reasonable 
and affordable prices.
    Mr. Runyon, we welcome you, and we look forward to hearing 
your report on the state of the U.S. Postal Service. We have a 
copy of your statement which we appreciate very much, and we 
will make that part of our hearing record in full and encourage 
you to make whatever comments in addition to that you may care 
to.
    You may proceed.

 TESTIMONY OF HON. MARVIN RUNYON, POSTMASTER GENERAL AND CHIEF 
EXECUTIVE OFFICER, U.S. POSTAL SERVICE, ACCOMPANIED BY MICHAEL 
             S. COUGHLIN, DEPUTY POSTMASTER GENERAL

    Mr. Runyon. Thank you, Mr. Chairman, and good afternoon, 
everyone. With me is Deputy Postmaster General Mike Coughlin, 
and we are glad to have this opportunity to talk with you 
today.
    The Postal Service is working harder than ever to shoulder 
the responsibility of delivering America's mail faithfully and 
effectively. We are squarely focused on our congressional 
charter to be a ``basic and fundamental service to the 
people,'' to bind the Nation together with prompt, affordable, 
and reliable communication services, to serve everyone, 
everywhere, every day.
    I am pleased to say that we are fulfilling this mandate in 
record fashion. We have just finished another strong year, and 
I have some positive performance numbers to report this 
afternoon.
    For the third straight year, the employees of the Postal 
Service have lifted overnight service scores for First-Class 
Mail to record levels. Over the summer, we achieved a national 
average of 92 percent for the second straight quarter. That 
meets our goal for the year and represents the 11th straight 
quarter of improvement. Since the winter of 1994, we have 
improved this important service indicator 13 points overall and 
achieved a national score of 90 percent or better for six 
straight quarters. We are raising the bar.
    In 1998, our goal is to achieve an overnight mark of at 
least 92 percent while improving service scores for Priority 
Mail and second- and third-day delivery of First-Class Mail.
    In 1997, the Postal Service also achieved its highest 
ratings ever for residential customer satisfaction--a score of 
91 percent in each quarter. This improvement reflects not only 
our rising delivery scores, but also the many steps we are 
taking to address our customers' needs for quality and 
convenience.
    In recent years, we have expanded hours of business in many 
locations. We have provided training in interpersonal skills 
for 100,000 employees who deal directly with customers. We have 
equipped post offices nationwide to accept credit and debit 
cards, recently expanding that convenience to a total of 32,000 
locations. And we have now opened more than 500 postal stores, 
the most customer-friendly retail experience in the Postal 
Service. In the coming year, we will be using a new ``Ease of 
Use'' index to focus managers and employees more squarely on 
improving key service indicators.
    We are also addressing the service needs of our business 
customers. We are phasing in a new Business Service Network 
that combines customer resources at the district, area, and 
headquarters levels. It sets up a central point of contact for 
resolving service issues that our customers face day to day, 
and it establishes a two-way dialogue, giving us a link back to 
customers to find out how well we are meeting their needs.
    We have also set up more than a dozen work groups with 
customers to address and improve some key areas of service. 
They include the delivery consistency of advertising mail, the 
needs of small business mailers, the electronic tracking of 
containers, service issues for publications, and state-of-the-
art payment and manifesting systems.
    This past year, our employees proved once again that 
quality service and financial success go hand-in-hand. We had 
expected to end the fiscal year with a modest surplus of $55 
million. As the year progressed, we also found that revenues 
were below budget.
    The employees of the Postal Service responded, driving down 
costs without impacting service quality. Mail volume increased 
more than 3 percent, more than doubling last year's growth 
rate. And we achieved historic reductions in accidents and 
injuries, not only creating a safer workplace for our 
employees, but saving hundreds of millions of dollars for our 
customers in the process.
    The auditors are still reviewing our finances, but we 
expect to end the year with a net income of $1.2 billion. That 
will give us 3 straight years with a surplus of $1 billion or 
more--an unprecedented achievement.
    These financial gains have done several important things 
for us. First, they have helped us substantially restore the 
financial health of the Postal Service. In its first 23 years 
as a self-supporting entity, this organization posted 
accumulated losses of $9 billion. In the last 3 years, we have 
erased half of that amount.
    Second, they have allowed us to make historic investments 
to improve service quality and increase the efficiency of our 
operations. In both 1996 and 1997, the Postal Service committed 
$3 billion in capital investments for the first time ever. Over 
the next 5 years, we are planning to invest $17 billion, our 
largest amount ever. This includes $5.9 billion for new 
technologies, $6.4 billion for new facilities and delivery 
vehicles, and $4.7 billion for service and revenue-building 
initiatives.
    One of our most significant investments has been a $1.7 
billion contract awarded earlier this year. It will create 
separate processing facilities and dedicated air transportation 
for Priority Mail packages traveling along the East Coast. We 
expect this effort to pay big dividends to customers, helping 
us drive service scores for this growth product to historic 
levels.
    Third, these financial gains have made it possible to put 
forward the lowest rate request in modern times. Our proposal 
to add a penny to the price of a First-Class stamp and increase 
overall rates by just 4.5 percent continues our trend of 
keeping price changes well below inflation. The new rates will 
not take effect until at least June 1998, giving the Nation 
3\1/2\ years of stable postage rates, the second longest period 
in three decades.
    There is one more important highlight from the year that I 
want to mention. For 16 days in August, the Postal Service's 
ability to deliver was put to the test. When the Nation's 
largest parcel shipper went on strike, many of its customers 
came to us. The result was a virtual ``Christmas in August''--
20 percent more parcels and more than double the usual amount 
of expedited packages.
    Our employees came through. They handled the extra mail 
effectively, coordinated operations with new and existing 
customers, and even made deliveries on Sundays. Many customers 
were pleasantly surprised by our performance and our attitude 
of service during the strike. Some were so impressed that they 
have continued giving us their business.
    As I told our employees after the strike, I have never 
witnessed a more superior level of dedication and commitment 
during my entire career in business and government. I am proud 
of the way employees have taken our performance up a notch 
these past 3 years. Even more satisfying and encouraging to me 
is the new, cohesive approach we are taking to managing the 
Postal Service that is helping us deliver these results. It is 
called CustomerPerfect.
    CustomerPerfect is based on the most effective principles 
of performance excellence around--the Baldrige criteria. It is 
instilling a sense of focus and discipline in how we go about 
serving the Nation. CustomerPerfect is helping to integrate the 
many different aspects of our operations--planning, goal-
setting, budgeting, training, compensation, product innovation, 
and the continuous improvement processes from the board room to 
plants to the most distant post offices. It is giving us clear 
targets for improvements each year and putting us firmly on the 
path to excellence.
    Over the past 3 years, we have used the CustomerPerfect 
process to listen to one of our most important voices--that of 
our employees. We have made significant strides in the key 
target areas of training and safety. In the coming months, we 
will be expanding this focus to address workplace relationships 
on a broader scale. At the same time, we are sitting down with 
representatives of our unions and management associations to 
explore innovative ways to resolve disputes and address the 
issues that divide us.
    Clearly, we have some work to do, but I am confident that 
we are headed in the right direction. Tomorrow I will speak at 
length on workplace relationships with Chairman John McHugh and 
his House Oversight Subcommittee.
    By now, each of you should also have received a copy of our 
new 5-year Strategic Plan. It provides more detailed 
information on the CustomerPerfect approach, the challenging 
goals we have set for ourselves, and the strategies that will 
enable us to succeed in the complex and fast-changing 
communications environment.
    As the plan indicates, several external challenges will 
affect our success in the coming years. The most significant is 
competition. Today, dozens of competitors are siphoning mail 
out of our system. Other delivery firms provide high-quality, 
end-to-end service in specialized markets. Private mailing 
centers serve as alternative post offices. New technologies 
allow individuals and businesses to send messages and money 
electronically, bypassing hard copy mail.
    These growing alternatives are challenging our ability to 
realize the economies of scale that are so vital to improving 
productivity and holding postage rates down. Worse yet, they 
are calling into question the very future of universal mail 
service, a network that includes thousands of small-town post 
offices and rural delivery routes that no private business 
would want to operate.
    It may seem like we are crying ``Wolf'' when you consider 
that mail volumes have risen 48 of the last 50 years. But some 
of the our most profitable products are now at risk. First-
Class Mail--nearly half of our entire revenue base--is 
increasingly vulnerable to electronic diversion. That is 
especially true in the area of bills, payments and statements, 
where one-quarter of our business may be up-for-grabs if--and 
probably--when PC banking and bill-paying takes firm hold. As 
the speed and security of the Internet is improved, the Postal 
Service and many other forms of mass communication may also see 
a sizeable hunk of their advertising revenues go on-line.
    We cannot predict with any great certainty where the 
communications marketplace will go or how fast. But we do know 
this. Even the slightest deviation could have a disastrous 
effect on the Postal Service. At today's levels, a 5 percent 
drop in postal revenue would amount to $3 billion. Just a 2 
percent decrease would represent more than a $1 billion decline 
in revenue. With our ever-expanding network of deliveries and 
our massive infrastructure, it is difficult for us to shed 
large amounts of costs quickly. And that makes us vulnerable to 
dramatic shifts in the communications marketplace.
    Given this scenario, it is imperative that we manage our 
costs aggressively. We are now exploring some innovative 
approaches. They include process management, performance-based 
pay, strategic alliances with the private sector, and 
sophisticated technologies like robotics and a highly automated 
plant of the future.
    We are also getting much more serious about designing a 
modern-day lineup of products and services. With the growing 
array of communications choices, the Postal Service is only 
going to be as viable as its products. They must be able to 
stand their ground in the marketplace, serving as valuable 
tools for personal and professional success.
    That is why the Postal Service is putting greater focus 
today on finding new markets and new ways to meet emerging 
needs. We are working with our customers to build on our 
current range of products. For example, we are exploring 
services that blend hard copy and electronics. We are adding 
product features, like delivery confirmation, that customers 
want, and we are working to leverage our existing retail 
network like many businesses do.
    These efforts are not only helping us better serve our 
customers, they are giving us additional revenues that offset 
rising costs and help us keep postage rates low.
    I also believe that it is important for the Postal Service 
to have the right management tools to get the job done for the 
21st century. The time is ripe for postal reform. Our 
legislative framework is more than a quarter-century old. It is 
clearly out of sync with the fast-paced communications 
marketplace and modern-day needs of our customers. Key members 
of the mailing community support reform. This includes the CEOs 
and executives of some of the Nation's most prominent 
businesses and members of a Blue Ribbon Committee who recently 
gave us their recommendations on the future of the Postal 
Service. We have an historic opportunity before us. Together, I 
hope that we will seize it.
    Mr. Chairman, I appreciate your leadership in this area. 
You have taken an important, prudent step in this direction by 
introducing the Postal Financing Reform Act, S. 1296, which 
would give the Postal Service greater flexibility in banking, 
borrowing and investing.
    However, we are disappointed at the turn it has taken. The 
concepts in this bill are not new. They have been debated for 
the better part of a decade and were included in postal reform 
legislation introduced last year in the House that has been 
widely disseminated and discussed.
    Now, competitors and special interest groups have raised 
issues that go far beyond the intent of the legislation. Even 
though you addressed their basic concerns by revising the bill, 
their complaints have persisted. Their objections are 
unjustified. As you know, the purpose of this legislation is to 
give the Postal Service greater speed, flexibility and 
innovation in meeting its financial needs. It would allow us to 
deposit operating funds in Federal Reserve or commercial banks 
and to borrow from capital markets. At the same time, this bill 
would strengthen market accountability. It would limit our 
investments in the open market to government-guaranteed 
securities, while maintaining the requirement that all other 
investments be approved by the Secretary of the Treasury.
    I do not understand why competitors object. The bill would 
have no effect on their businesses. But it could save postal 
customers millions of dollars each year--money they will not 
have to pay in the form of higher postage rates.
    The only special interest this bill serves is the 
pocketbooks of the American people. We hope that you will 
continue to pursue this legislation in the coming months and 
that all who have a sincere interest in a healthy Postal 
Service will step forward to support your actions.
    Our competitors' efforts to block this bill are yet another 
attempt on their part to derail our drive to modernize the 
Postal Service. They are now opposing virtually everything we 
do--every new service or legislative change that would make us 
more effective and responsive to the American people. When we 
move forward an inch, they want to push us back a mile.
    I understand that those who have built their businesses by 
taking away our business may not want to see a strong, 
effective Postal Service. But our customers do. They want us to 
do everything we can to improve service and hold down prices. 
Most of all, they want us to preserve our national network of 
mail delivery. They recognize, as we do, that no other 
organization or technology today can satisfy this need, and 
that universal mail service brings benefits to our Nation that 
no balance sheet can measure.
    The Postal Service will continue to press forward. Our 
commitment to delivering superior levels of service and 
fulfilling our historic mandate of universal mail delivery, at 
uniform prices, will not waver.
    Our seriousness is shown in the way we are transforming 
this organization using the Baldrige principles of business 
excellence. And the historic results we are achieving are proof 
that we are on the right path. Many challenges await us in the 
21st Century, but I have great faith that together, the 
employees of the Postal Service, our customers, and this 
Congress can ensure the continuing viability of the mail and 
protect the great legacy of mail delivery to every home and 
business in America.
    Thank you, Mr. Chairman. That concludes my remarks.
    Senator Cochran. Thank you, Mr. Postmaster General.
    I appreciate the complete review of many of the issues that 
face the Postal Service and the challenges that you have to 
keep postal rates reasonably priced and service at a high 
quality, and I also appreciate very much your comments about 
the recent legislation which I introduced to try to help 
control those costs and make it possible to continue to provide 
higher quality service at reasonable rates by cutting down the 
cost of borrowing and relieving the Postal Service of some of 
the expensive burdens that come with having to look to the 
Treasury Department whenever you want to obtain securities or 
do any banking activity at all.
    As it was initially explained to me, there are some 
Government-Sponsored Enterprises (GSEs), such as Fannie Mae and 
Freddie Mac, the Tennessee Valley Authority, which you once 
headed up, which have access to private market entities for 
investment and banking. Is it your understanding that the 
request that was made for legislation of this kind is based 
primarily on the experiences of those GSEs, and what would be 
the dangers to the Treasury or to the general public if the 
Postal Service were given this new authority?
    Mr. Runyon. Well, I believe you are right that those 
agencies you have named do have that authority today, and I am 
not aware of any real problems that that has caused, but it 
has, in most cases, reduced the cost of that service. I am not 
aware of any dangers to the American public or to the Congress 
of the United states that would be presented if we had that 
opportunity.
    Senator Cochran. There was some indication that the Postal 
Service might intend to use this new investing authority to 
purchase controlling shares of some of its competitors. Would 
that be something that would be permitted under this law as it 
has been amended?
    Mr. Runyon. No, it would not be permitted in the law as it 
has been amended. We would have no intention of acquiring our 
competitors, as we said, but the law as it is now written says 
that the Treasury has to approve purchase of interest in a 
company before we do it.
    Senator Cochran. There was also some question about how 
much money you would actually go into the market and borrow. 
Would the Postal Service be borrowing large sums of money each 
year under this new authority? Could you give us an idea of 
what your expectations would be as to what the volume of 
borrowing would be?
    Mr. Runyon. I could give you for the record--I do not have 
it with me right now--what we think our borrowing will be for 
the next 5 years, but Congress had put a borrowing limit on the 
U.S. Postal Service, so our debt cannot go above $15 billion--
--
    Mr. Coughlin. A total of $15 billion.
    Mr. Runyon. A total of $15 billion is the limit that 
Congress has set, so we could not borrow more than that, and it 
would not be our intention at any rate to do that.
    Senator Cochran. The legislation, as amended, does not 
contain any lifting of that limitation or any modification of 
that limitation at all.
    Mr. Runyon. No, sir, it does not address it at all to my 
knowledge.
    Senator Cochran. Let me ask you this. There has been a 
great deal of attention paid to the fact that you have turned 
around the Postal Service from an entity that was losing money 
every year, year in and year out. Even though it was designed 
to be self-supporting, there were many difficulties in 
achieving that goal. Now, however, in the last 3 years, 
according to your testimony and the information we have 
received here in this Committee, the Postal Service has made 
over $1 billion in profit for each of the last 3 years. Why, 
then, is it necessary to ask for a postal rate increase after 
you have had that kind of economic success?
    Mr. Runyon. Well, even if you consider all of that economic 
success that we have had--and by the way, I might go back and 
give you a little bit of history about how postal rates used to 
be set. It used to be that we had to lose about $2 billion. 
Then we would go in for a rate increase, and we would get the 
rate increase; the first year, we would make money, the second 
year, we would break even, and the third year, we would lose 
money and go back to raise rates again. We tried to reverse 
that, and as you recall, in 1994, we had a rate increase of 
10.3 percent, which was less than the price of inflation. That 
was after 4 years without a rate increase. Now it has been 3\1/
2\ years, and we are asking for 4\1/2\ percent, which is less 
than half the rate of inflation. So we have really changed the 
way we operate.
    Now, at the time we filed for that rate increase, it was 
our notion that we would probably, in the year just past, have 
somewhere between $600 and $700 million of profit, or surplus. 
In fact, we have $1.2 billion, which is about $600 million 
more. And the fact is that even with that increase if we do it 
in June, we would still lose $228 million, based on our budget 
numbers for this year. With no rate increase, we would lose 
over $2 billion in the following year, 1999.
    So we feel that the increase is necessary, and we think 
that by going now with one penny is the right thing to do. 
Because if we were to wait for another year and make our filing 
based on another year of economic progressions, it would be 
something like a 3-cent increase that we would have to make in 
the following year. And we are trying not to do that, because 
people who use the mail do not like to be hit with 10, 15, or 
20 percent, every 3 years, because it is very hard to calculate 
your business.
    What people would like to see is a small increase if there 
has to be one, and have it more often than to come along every 
third year with a big increase.
    So I think the answer to your question is, even with the 
increase, we would probably lose a little money next year; 
without the increase, we would lose a lot of money next year 
and more the following year.
    Senator Cochran. One way that you have increased revenues 
is to offer new services and new products to those who use the 
Postal Service and buy those services and products. That has 
brought with it, though, some criticism from others in the 
private sector who operate businesses similar to those that you 
are now operating in effect in the Postal Service--selling 
greeting cards, selling other services--there is a long list. 
What is your answer to those who say that you have a great 
advantage because you do not have to pay taxes, you do not have 
to pay rent, in effect, to private building owners?
    You have a lot of different benefits because you are a 
government entity, even though you are operating as a 
business--trying to break even or make a profit. What is your 
answer to that? Are you unfairly using these characteristics to 
compete unfairly with the private businesses?
    Mr. Runyon. We do not think we are. First, when you talk 
about rent, a lot of the buildings that we have are leased, not 
owned, by the Postal Service. I do not know the volume of 
that--maybe Mike would know that better--but the fact is we do 
lease a lot of those buildings.
    Second, a lot of the products that we are offering now are 
things that our customers want. For example, we started a 
service on the West Coast called ``Pack and Send,'' at about 
270 post offices. As you may know, we have carried packing 
supplies in post offices for a long time--boxes, wrapping 
paper, tape, things of that nature. People come in and say they 
forgot to wrap a package, and so they buy these things. So we 
ask, would you like us to wrap the package, and they say yes. 
So we put up a service called ``Pack and Send'' on the West 
Coast, and it is a very popular product.
    Now, people who are also wrapping packages did not think 
that was such a neat idea, and they went to the Postal Rate 
Commission, which said, well, you started doing this, and this 
is something that is going to get mailed, and therefore, we 
should have set the rates. They did not say we should not have 
done it; they just said we should set the rates. So at that 
time, we dropped that service, and now we have filed with the 
Postal Rate Commission a case as to how much our rates should 
be for this ``Pack and Send,'' because it is something our 
customers want.
    So there are things like that that our customers are really 
actively seeking, and we are trying to supply their needs. 
Service is what we supply. We are a service business, and we 
provide service to the citizens of the United States.
    Senator Cochran. Mr. Deputy?
    Mr. Coughlin. Could I add, Mr. Chairman, that the products 
you talked about are, in almost all cases, directly related to 
the basic business we perform as additional services or 
products made available to customers, services they have asked 
for. It is related to the stamp art that we own.
    But another point relates to the benefits that we have, 
that others have alleged we have here. There are also 
significant obligations that go along with those benefits that 
are conferred on us--the most important of which is the 
obligation to provide universal service. We maintain a 
widespread network of facilities around the country--totalling 
almost 40,000--facilities that would not be there if we were a 
straightforward, tax-paying private entity.
    So it is important to keep those two things in balance, the 
benefits and the obligations.
    Senator Cochran. Senator Domenici.

             OPENING STATEMENT OF SENATOR DOMENICI

    Senator Domenici. Thank you, Mr. Chairman.
    I am learning all the time about the wonderful jurisdiction 
of this little Subcommittee. I have been getting along with Mr. 
Runyon famously; now I will not even be able to categorize how 
well I am going to be getting along with him--isn't that right, 
Mr. Runyon? We get along pretty well. Now, think about this--I 
am on this Subcommittee, and that means we can get along even 
better; right?
    Mr. Runyon. I would hope so. [Laughter.]
    Senator Domenici. I came today on a parochial issue, and I 
will raise it shortly, but I will let the Chairman do his 
second line of questioning, and then I will raise on the 400th 
anniversary of Onate's arrival in America and why we cannot do 
something about that.
    But I would like to ask you just a couple questions about 
service. First of all, I think that we have all learned that 
things are changing very fast, and the service industries here 
and around the world are just changing and growing, and 
innovation rampant. But I think that we have got to every now 
and then step back and ask what is our Postal Service for. And 
I get kind of worried when I hear people say they want to take 
bits and pieces of your business, because I have not heard any 
of them offer to take all the rural post offices in New Mexico 
and service them, and I have not heard them offer to serve all 
the post offices in rural Mississippi.
    Maybe I have not been listening, but I have been hearing 
that people want to take all the business between some major 
cities, some huge companies, and obviously, if we let that 
disappear, then not only will we have rural rates that are 
outrageous for our rural people, but we will have to subsidize 
you at an enormous rate.
    So I am interested in permitting you to sufficiently serve 
the general population in the area of postal delivery, delivery 
of messages, in whatever mode fits the changing times, provided 
that is necessary to continue the universal delivery that we 
have chartered you with doing.
    I saw you 1 day and complimented you on the advertisement 
that you had on national television with reference to the new 
product to compete with rapid delivery--what was it--overnight?
    Mr. Runyon. Priority Mail.
    Senator Domenici. Priority Mail. I looked at it, and I 
said, gee, the post office is doing something pretty neat; they 
are about as good as any private sector company in advertising 
this service.
    Did it work?
    Mr. Runyon. Yes, sir, it is working. Our Priority Mail is 
up 13 to 15 percent this year, and it is working.
    I would just like to comment--you said something about 
letters. A lot of that Priority Mail is parcels.
    Senator Domenici. Oh, I understand.
    Mr. Runyon. You included parcels in that statement, I 
assume.
    Senator Domenici. I should not have said just messages--
messages and parcels.
    Mr. Runyon. Yes.
    Senator Domenici. But is anybody saying you should not be 
running that kind of advertisement with respect to this 
priority service?
    Mr. Runyon. There is somebody who is unhappy with one of 
our ads--is that the one that they are unhappy with?
    Mr. Coughlin. Some of our competitors have filed 
complaints--one has even sued us--about the content of the 
advertising. It has been before an advertising review board, 
and they found the ads to be acceptable. In addition, before 
they were ever shown, they were vetted through the internal 
television advertising system, our own attorneys and their 
attorneys as well.
    Senator Domenici. Well, I do not know what your 
competitors' complaints are, but I repeat that if you are going 
to stay in the business that we have charged you with being in, 
and there can be other businesses competing--and there probably 
are more today than there ever have been; you stated that in 
your statement--clearly, you have got to do what must be done 
to stay alive and deliver the universal delivery which we ask 
you to do for all of our people.
    Let me ask you this. Ten years ago--and I have been here 
longer than that--but 10 years ago, we were receiving huge 
amounts of mail in our offices complaining about the service of 
the post office. Now, I have not checked in the last week, but 
I have checked in the last year, and we are not getting very 
many complaints. Does that mean people have just stopped 
complaining to me, or is the service better?
    Mr. Runyon. It means the service is better. We have 
statistics that are taken by outside consultants who tell us 
the service is better. For overnight service--right now, we are 
shooting for an on-time overnight goal of 92 percent. For the 
past month, we have been at almost 93 percent. So we are 
improving that.
    We are not doing as well as we should be doing on 2- and 3-
day service standards. We need to work on that, and another one 
of our prime objectives this year is to get that up from where 
it is.
    Senator Domenici. Now, Mr. Runyon, it seems to me that this 
in sustained period of recovery that we are having in the 
United States, people are really trying to find out how are we 
doing that with such low inflation, and what is really the 
prime mover; and I guess, depending upon whom you talk to, 
there are three or four different reasons. But I think one that 
is there in everybody's assessment is the increased 
productivity of the American service and manufacturing 
industry, which is based upon a decade or so of new technology, 
new equipment and innovation, and it has finally caught on, and 
it is producing per unit of man or woman's time more goods and 
services of value than they were producing 10 years ago, and 
much more than 20 years ago.
    Now, I would assume if you are going to stay in business 
and not be up here with very large subsidies and having 
competitors who are really up here saying, ``We ought to take 
it over because we can do it a lot better,'' that you have to 
have productivity increases; is that correct?
    Mr. Runyon. Yes, sir, that is correct.
    Senator Domenici. Do you have productivity increases that 
you could share with the Committee?
    Mr. Runyon. Yes, sir. We had a productivity increase last 
year of roughly one percent, and we have in our budget this 
year I think another one percent in productivity. So we are 
making progress. We were not doing very well a few years back, 
but we are making progress in productivity now.
    I might add that a lot of the automation that we have been 
buying over the years is now beginning to be installed, put in 
place, and is starting to yield the productivity that we have 
been trying to get.
    I mentioned in my opening remarks that we have increased 
our capital expenditure plan to $17 billion. It was $14 billion 
the previous 5 years, but we have revised that to $17 billion 
for the next 5 years. A lot of the reason for that was for the 
automation that is available, that we know works, that we can 
buy and put in place and improve our productivity. So, yes sir, 
we are doing that, and it is paying off.
    Senator Domenici. Could I ask this to you another way? 
Generally speaking, if you tried to measure productivity in an 
industry like yours, you would try to determine how much total 
service you are presenting to the American people year over 
year, and then you would try to determine whether you are able 
to do it with the same manpower, or whether you have to have a 
lot more manpower. It does not mean you have to lay off people, 
but as you increase productivity, I assume you are also bucking 
up against more service needed as postal delivery is going up.
    Mr. Runyon. Right.
    Senator Domenici. What is the status of your employment in 
terms of how many people you have working full-time at things 
that really effectuate the delivery of packages and messages?
    Mr. Runyon. I do not have the exact numbers with me--I will 
supply them for the record.
    Senator Domenici. Will you, please?
    Mr. Runyon. We have more people today than we did 5 years 
ago, but the fact is our volume has increased by about 11 
percent, and the number of places that we deliver to has 
increased several percentage points. So we have to provide the 
necessary people to do that.
    However, had we provided and hired people just to take care 
of those increases, we would have had to hire twice as many 
people as we did. So the productivity is showing itself there, 
even though our total numbers today are higher than they were. 
What I am saying is they would be about 60,000 people higher 
today if we had not had productivity plans in place.
    Senator Domenici. OK. So what you are saying is that you 
could chart for us if we asked over the last 5 years and your 
projections for the next 5, how much service increased each 
year and how many employees increased, and you wold be able to 
say proportionately, based on prior years, we have only had to 
hire half as many people as we would have but for innovation?
    Mr. Runyon. Yes, sir. I have those numbers. I should have 
brought them with me, but I do not have them with me.
    Senator Domenici. Could you give us for the record, please?
    Mr. Runyon. Yes, sir.
    Senator Domenici. In due course, whenever you want them, 
Mr. Chairman--a week, 2 weeks, whatever is your wish.
    Senator Cochran. In a timely fashion, I think is what we 
would ask for.
    Senator Domenici. Thank you.
    [Information follows:]

            INSERT RESPONDING TO SENATOR DOMENICI'S REQUEST
                 FOR WORKLOAD AND STAFFING INFORMATION
    Following is a chart of annual employee complement and growth in 
mail volume and delivery points for the last five fiscal years:


                          Year                               Complement        Mail Volume      Delivery Points

1997...................................................        824,578             4.1%               1.3%
1996...................................................        818,728             1.5%               1.5%
1995...................................................        811,320             1.5%               1.5%
1994...................................................        791,218             4.0%               1.4%
1993...................................................        758,734             2.9%               1.3%



    Following is a chart of projected employee complement and growth in 
mail volume and delivery points for the next five years:


                          Year                               Complement        Mail Volume      Delivery Points

1998...................................................        829,500             2.0%               1.4%
1999...................................................        837,700             2.0%               1.4%
2000...................................................        846,000             2.0%               1.4%
2001...................................................        854,300             2.0%               1.4%
2002...................................................        862,800             2.0%               1.4%

Complement does not include Postmaster Relief, Rural Carrier Substitutes, or nonbargaining temporaries.

    Itemized below are major changes in equivalent complement for 
workload and programs since restructuring in July 1992. The list 
identifies complement needed because of increased workload in mail 
volume, delivery points, and other miscellaneous workload. Major 
program changes are for Remote Encoding sites, our emphasis on better 
customer service through increased window service, and better 
utilization of rehabilitated Postal Service employees who were on the 
Department of Labor's compensation rolls due to injuries. Finally, the 
reductions from the 1992 restructuring and the net savings from 
operational programs between 1992 and 1997 are identified.

                                           MAJOR CHANGES SINCE FY 1992

                                                                    Employee Percent Change       Equivalents

Workload:
  Mail Volume Workload.........................................             10.8%                   37,700
  Delivery Points Workload.....................................              7.7%                   32,600
  Other Workload...............................................              9.4%                    5,000
Programs:
  Remote Encoding Sites........................................                                     25,235
  Customer Focus-Retail........................................                                      4,000
  Rehabilitation Programs......................................                                      6,231
  Overhead Reduction...........................................                                   (22,691)
  Operations Programs..........................................                                   (35,679)



    Senator Domenici. Mr. Chairman, I am going to yield. I have 
a couple of parochial questions at the end, but I would like 
you to go ahead.
    Senator Cochran. Thank you, Senator.
    Senator Cleland.

              OPENING STATEMENT OF SENATOR CLELAND

    Senator Cleland. Thank you, Mr. Chairman. It is good to be 
with you today, and my dear friend, Senator Domenici. I have to 
agree with him on so many points, and certainly, I am learning 
about the dimensions of this Committee as well--International 
Security, Proliferation and Federal Services. I came in here 1 
day thinking it was an oversight hearing on a government agency 
and found out it was dealing with arms from China to Iran and 
nuclear proliferation, so that was a shock.
    But I will tell you, when you try to close down a Postal 
Service operation in my home town, that is nuclear 
proliferation. [Laughter.]
    Senator Cleland. So we are covering the waterfront here.
    I want to thank you and your wonderful staff for being 
responsive to some of the parochial questions I did have up 
front. I am very pleased with the Postal Service's recent 
decision to build a new post office in an emerging and evolving 
county, Gwinnett County, outside Atlanta, to serve the 
Snellville-Centerville area in my home State of Georgia. This 
proposal will address many of the needs of a lot of those new 
residents who want to have their mailing address and post 
office changed to a more convenient location. I thank you and 
your staff for working that out.
    I especially want to thank you for working out the idea of 
keeping the Postal Service operation in my home town of 
Lithonia alive and well, and not only to keep it, but to expand 
it and almost double it. That means an awful lot to me and to 
the people who are served thereby. I understand that the 
contract is virtually let and that that expansion will be 
completed by the end of 1998. So thank you very, very much.
    Mr. Robert Sheehan, the Atlanta District Manager of the 
U.S. Postal Service, has been very cooperative in this regard. 
I have just a small technical question here. Concerning the 
proposal for a new Centerville-Snellville Postal Service 
office, while keeping the Lithonia office where it is and 
actually expanding it. What is the current thinking, if you 
know it--would that also involve keeping the existing 
Snellville Post Office, or would it be closed? Has there been 
any real decision on that at this point?
    Mr. Runyon. I am not aware. I would be glad to supply that 
to you for the record, though.
    Senator Cleland. All right. Thank you very much.
    [Information follows:]

            INSERT RESPONDING TO SENATOR CLELAND'S QUESTION
                    ABOUT THE SNELLVILLE POST OFFICE
          The construction of a new Centerville Branch postal facility 
        will allow us to relocate delivery routes in the 30039 and 
        30058 ZIP Code areas under one roof. These are currently housed 
        in the Snellville and Lithonia Post Offices. The relocation of 
        Snellville carrier operations to a new building will not affect 
        retail operations at the existing Snellville postal facility.

    Senator Cleland. One question about S. 1296, the Postal 
Financing Reform Act, introduced by my dear friend and 
colleague, Senator Cochran. As you know, Senator Cochran has 
modified some of the language of the bill in an effort to 
address some of the concerns that have been raised. The 
revision strikes the language that would have allowed the 
Postal Service to invest excess funds in the open market 
provided that ``such investment is closely related to Postal 
Service operations as determined by the Board of Governors.''
    This change addresses two of my concerns. First, it allays 
fears that the Postal Service would buy out its competitors. 
Second, the new language limits USPS investments in the open 
market to government-guaranteed securities while maintaining 
the requirement in current law that all the other investments 
be approved by the Secretary of the Treasury.
    I am among the number of people who had concerns with the 
bill's original language, which gave the Postal Service a broad 
spectrum for portfolio investments. I am reminded of what 
happened to Orange County, California just a few years ago, 
where the treasurer of Orange County pursued a risky investment 
strategy in order to maximize investment returns. It was an 
investment policy based on the county's forecast of what would 
happen to interest rates. The rest is history--contrary to the 
county's forecast, interest rates began to rise, the market 
turned against them, and Orange County was forced into 
bankruptcy. They lost their shirts. So I am pleased that the 
revised section provides for third party approval in those 
cases where the Postal Service wants to invest in securities 
which are not government-guaranteed.
    I do, however, have a concern about the borrowing authority 
which S. 1296 gives the Postal Service. First let me say, Mr. 
Runyon, that I understand the Postal Service must offer its 
debt to Treasury for first refusal before it can go elsewhere 
for financing, and I understand the bind this can put you in 
when you must wait up to 15 days to find out if the Treasury 
has approved your financing request. I know that time often 
means money; in this case, it can mean lots of money, lots of 
money lost. But I also have a concern with this section. The 
Treasury Department states that about 99 percent of the time, 
borrowing from Treasury is actually less expensive for the 
Postal Service than borrowing from the private markets. Just 
playing devil's advocate here, how would you respond and 
address the repercussions that would arise if it were found 
that the Postal Service lost millions of taxpayer dollars 
because of borrowing from the private market, which is often at 
a higher interest rate than you could have gotten from 
Treasury? Are there any comments you would like to make on 
that?
    Mr. Runyon. I think that the history of government agencies 
that have that ability today indicates that they do very well 
in the market; they are not losing money. If at any point in 
time, you say can you borrow it cheaper, the answer is yes, you 
can borrow it cheaper from Treasury because they will give it 
to you for one-eighth over prime--is that right, Mike?
    Mr. Coughlin. One-eighth over Treasury's cost of borrowing.
    Mr. Runyon. Yes, one-eighth over the average. They will do 
that, but the problem is--there are other important factors. 
One is the 15 days you are talking about. It may be that at the 
end of 15 days, the market is not in such good shape, and one-
eighth over Treasury's rate is not so good because Treasury 
rates are too high, and you would like to wait for 3 days or 
wait until the market drops. If you wait, then you do better 
than what you were going to do at Treasury. So that is one 
important point.
    Senator Cleland. So in terms of borrowing, not particularly 
in terms of investment--and I think we have got that pretty 
much straightened out----
    Mr. Runyon. Right.
    Senator Cleland [contining]. But in terms of borrowing, you 
would like to have that capability.
    Mr. Runyon. Right. The other thing is that when we first 
came to the Postal Service, we did not have the ability to have 
any kind of provisions other than just borrowing at fixed rates 
and without call features on our debt. Now Treasury has 
changed--and they are to be commended for changing--to allow us 
to call debt after a certain number of years. Now they have 
changed that for any government borrower so they can have call 
provisions. And call provisions are very important. If you 
borrow for 30 years, and you cannot pay it back for 30 years 
without incurring a penalty, that is not a good way to do it. 
And that is the way it used to be until just a few years ago, 
when we said to Treasury, look, we really need to have this, 
and they gave it to us.
    So there are those kinds of things that you need to talk 
about, and it makes it much better for us in being able to deal 
with people who deal with this on the hour. Treasury really is 
not into the lending business.
    Mr. Coughlin. If I might add on that, on the issue of call 
features that Mr. Runyon talked about, call features in the 
public markets have been available for a number of years. They 
had not been available from the Treasury Department to any of 
its clients up to that point in 1992, and the Postal Service, 
after some fairly tough negotiations with the Treasury 
Department at that time, finally succeeded with a lot of help 
from Mr. Runyon to get the Treasury Department to agree to call 
provisions on our debt.
    The particular issuance of debt at that time and those call 
provisions--which I think we are about to call the last one--
has saved us a significant amount of money on our interest 
expense.
    The point here is that one of the things that is missing 
because our banker today is the Treasury, which is really not 
set up to service a customer like us. They do everything else 
well, but they are just not set up to do that. As a result, we 
forego the opportunity to get timely access to a lot of the 
innovations going on in the public markets that can really have 
a big impact on how we effectively finance this organization.
    Senator Cleland. And in terms of borrowing, you would like 
that access?
    Mr. Coughlin. Yes, very much so.
    Senator Cleland. Thank you.
    Just a couple of quick questions, Mr. Chairman, concerning 
the Postal Service's decision to centralize the procurement of 
uniforms. I understand that under the current system, your 
employees buy their uniforms from a network of some 700 retail 
vendors who establish their own pricing. Under the proposed 
system as I understand it, uniform purchasing would be limited 
to a relatively small number of businesses, and contracts would 
be awarded through a competitive bidding process that you hope 
will achieve cost savings.
    I understand that the postal unions have signed off on the 
proposed uniform procurement program; however, I have heard 
concerns that this new system may leave thousands of 
hardworking Americans without jobs. Is there any reason why the 
Postal Service cannot sit down with the affected parties, the 
representatives from industry and concerned unions, to work out 
some solutions before sending out the bid, just to ensure that 
the uniform program will not destroy some small businesses and 
good jobs?
    For instance, the Postal Service has stated that it will 
not allow subcontracted work to be performed in so-called 
sweatshops; however, I have been told that one of the companies 
that wants to bid for centralized procurement of uniforms, Lyon 
Apparel in Kentucky, has been accused of paying its workers so 
little wages that many of its long-term employees must turn to 
welfare, food stamps and Medicaid to care for their families.
    I would just like you to comment on the allegation. We do 
not want to get into the business of encouraging sweatshops 
here just to provide uniforms.
    Mr. Runyon. I would like to comment, and then I will ask 
Mr. Coughlin to comment. First, we are probably the only large 
user of uniforms that does not do the purchasing this way. All 
the other government agencies, large companies like General 
Motors and Ford, that use uniforms do it this way. It is an 
economical way of doing it. It is a better way of controlling 
the quality. When you have several hundred manufacturers out 
there, it is hard to control the quality--it is hard to control 
sizes and all that kind of thing.
    We do have, and we have recently put out a new 
communication, to the effect that uniforms will be made of 
American material and by American labor. So we have got that 
all covered. And if you are a supplier to the government, you 
have got to meet certain laws, and these people that you are 
talking about I think would have a little problem complying 
with the laws they would have to meet in order to supply our 
contract.
    I think Mike has some numbers that would be interesting to 
you.
    Mr. Coughlin. As of about a year ago at this time, which is 
the latest data we have, we had a little over 900 licensees to 
either manufacture or vend these postal uniforms for our 
employees. Interestingly enough, over half of those do less 
than $5,000 a year business on this program. This is a $75 
million-a-year program. A little over 90 percent of that 
business is done by about one-fifth of the licensees.
    As we have looked at it--and our purposes in the program 
are, first of all, to try to lower our cost, to improve the 
quality of the uniforms we are providing our employees, and to 
comply with a collective bargaining agreement. This is a 
provision of the collective bargaining agreement with three of 
our individual unions that have agreed across the table with us 
that this is an issue that needs to be addressed.
    We have tried to take into account some of the concerns 
that have been expressed through the Congress, both in the 
Senate and the House, through the provisions that Mr. Runyon 
just described. We have tried first of all to preclude any 
possibility of sweatshop activity here through the provisions 
of the contract, to go to a virtual 100 percent domestic source 
requirement. So we cannot go overseas for it, and we are going 
to try to structure the request for proposal so that it is 
possible that we have more than one vendor, that we have 
perhaps as many as two or three or four.
    Unfortunately, the greater the number of vendors, the more 
you tend to affect negatively the benefits of this effort. But 
we have agreed to try to do that, and it will be in our Request 
for Proposals.
    Senator Cleland. Thank you very much, Mr. Coughlin, Mr. 
Runyon. Nice to see you.
    Thank you very much, Mr. Chairman.
    Senator Cochran. Thank you, Senator Cleland, for your 
contribution to the hearing.
    Senator Levin.

               OPENING STATEMENT OF SENATOR LEVIN

    Senator Levin. Thank you, Mr. Chairman. Let me add my 
welcome to our witnesses.
    About 3 years ago, Mr. Runyon, you appeared at a hearing 
here to address and respond to a 1994 GAO report that described 
the relationship between the Postal Service and its employees, 
and that report of the General Accounting Office described 
numerous problems that existed in the Postal Service's 
relations with its employees and detailed a general climate of 
mistrust and hostility.
    During that hearing, as a matter of fact, you agreed that 
too often there were combative relationships between management 
and employees in the Postal Service and pledged to address 
those issues.
    Last month, the General Accounting Office issued a follow-
up report, reviewing the Postal Service's efforts to improve 
both overall performance at the Postal Service, but also postal 
employees' working conditions. And with respect to postal 
performance, the report stated that in the past few years, the 
Postal Service has made some significant improvements in its 
overall financial performance, in mail delivery, noting both 
what your net income was for 1995 and 1996, your on-time 
delivery record which was at an all-time high of, I believe, 89 
percent for fiscal year 1996 for overnight First-Class Mail. So 
you really made some significant performance improvements, and 
you and your staff and all the employees of the Postal Service 
are entitled to a lot of credit for those.
    But in the area of labor-management relations, the GAO 
report indicates that some problems continue to plague the 
Postal Service, and specifically, the report said that little 
progress had been made in improving the persistent labor-
management relations problems that have resulted from 
autocratic management styles or poor management attitudes and 
programs. I noted the number of grievances which had been filed 
and that had not been settled in the first two steps of the 
grievance procedures, that they had increased from 65,000 in 
1994 to about 90,000 in 1996, and that there also was a 
significant increase in the number of grievances that await 
arbitration. Also, it was noted that the labor-management 
summit which you had hoped to convene at a meeting here in 1994 
has not been convened.
    So I would be interested in asking you a number of 
questions in that area. First, let us talk about the summit 
issue. I gather that it has not been convened, and maybe you 
can tell us why that is.
    Mr. Runyon. I am very pleased to report that on the 29th of 
last month, the summit was convened----
    Senator Levin. Oh, good.
    Mr. Runyon [contining]. And even prior to that, we had been 
meeting with individual unions along with the Federal Mediation 
Service. We have reached agreement with the APWU and with the 
NALC on methods to look at these grievances that you are 
talking about, the 90,000 you mentioned, that are there. I know 
that in one particular instance, we have reduced a group by 
12,000. So we are doing very well at that.
    We are looking at the process by which we do grievances. We 
need to go back and change the process, because we can all get 
together, look at the grievances that are there and resolve 
them, but that does not help. That is like pulling the plug on 
the bathtub, and it all drains out. But if you put the plug 
back in, you have got a problem.
    What we are looking at now is the process of how we do 
grievances. My personal reaction is that we should get that 
down as low as possible so that we have accountability at the 
lowest level possible to resolve those grievances, and stop 
having them come all the way up. That makes more people 
understand that, really, they have the responsibility to settle 
it, rather than pass it on. So that is one thing that we are 
doing, and I think we are working very well with those two 
unions to resolve it.
    We have also reached an agreement with the Letter Carriers 
Union that we are going to look at the way the letter carriers 
deliver the mail. The way the system is set up, it is sort of 
adversarially designed. A letter carrier and his supervisor 
decide each day how many hours it takes to do so much mail, and 
that is on their minds, and if it does not go one way or the 
other, there is a grievance about that. So we are looking at 
how we do that, and I might say this is the most encouraging 
news I have had: We are sitting down, working together, to try 
to figure out how to resolve the cause of the grievances. If we 
can resolve the causes, then the grievances are not going to be 
there. That is another thing that we have done.
    We also agreed at the summit that we would set up another 
committee to discuss union-management issues, so that unions 
can understand more about management issues. And also so that 
management can understand more about union issues. We can get 
all of those things out on the table and talk about them, and 
how we can resolve them.
    So I think that what has happened from the summit is really 
good news. We have had it, and we have agreed that we will meet 
every quarter--the whole group: And everybody has bought into 
following up on what we are doing. As I said, we have a 
Committee on the process of how we handle grievances; we have a 
committee set up to handle this union-management business 
relationship; and we have set up another group to talk about 
the strategies of the Postal Service. It is very important not 
only to the management but to the employees what our strategies 
are. It is their jobs that we are talking about. So those are 
three different working groups that we have set up as a result 
of this summit.
    So I think we are making progress. We are going to be going 
to another Subcommittee hearing tomorrow, John McHugh's 
oversight subcommittee, focusing only on that subject. He will 
be having the unions, the Federal Mediation Council, GAO, 
ourselves, and management associations all testifying at that 
hearing.
    Senator Levin. That union-management working group that is 
going to address the business relationships, is that what is 
going to take the place of what you described in 1994 as the 
regular weekly or biweekly meetings between your district and 
your plant managers and their counterparts in the unions? It 
sounds like it really does not address that issue, that it is 
much more of a lower level. What happened to that plan to have 
those weekly meetings between your managers and their employee 
representative counterparts?
    Mr. Runyon. That is working very well in some locations and 
not well at all in other locations. There again, we do not have 
a simple formula where we can say, ``Go and do it like that.''
    Senator Levin. Are the meetings taking place everywhere?
    Mr. Runyon. Not everywhere, no, sir.
    Senator Levin. Is there a directive from you to your 
managers to convene those meetings everywhere?
    Mr. Runyon. No, I do not have a directive that says you 
will meet every week, no, sir.
    Senator Levin. Or biweekly?
    Mr. Coughlin. I might add, Senator, that there is a 
contractual requirement that we have regular labor-management 
meetings in certain locations throughout the system, in 
district offices and plants. Those are going on by contractual 
requirement.
    Senator Levin. Can you take a look at the places where they 
are not taking place and reach a conclusion as to whether they 
should, and if not, whether a directive would not get that on 
track and let us know what happens on that?
    Mr. Coughlin. Sure.
    Senator Levin. Senator Cleland as I came in was asking you 
about the purchase of postal uniforms. I had some similar 
concerns I believe to his, and I wrote you a letter with those 
concerns, and you gave me a response which really was not 
specifically responsive. What I would appreciate you doing is 
going back and looking at my letter and addressing the 
specifics in the letter. I got a very general response. If you 
would do that, I would also appreciate that.
    Mr. Runyon. I would be glad to do that.
    [Information follows:]

INSERT RESPONDING TO SEN. LEVIN'S REQUEST FOR INFORMATION REGARDING THE 
      STATUS OF REGULAR LABOR-MANAGEMENT MEETINGS AT FIELD POSTAL 
                             INSTALLATIONS

    As explained by Mr. Coughlin in response to your inquiry, local 
labor officials are entitled to participate in regularly scheduled 
Joint Labor-Management Committee meetings pursuant to a provision in 
the collective bargaining agreements with our unions. The regularity 
and frequency of such labor-management meetings are set by agreement at 
the local level. Because this is a local responsibility, we at the 
national level do not actively track whether or not such meetings are 
being held. Therefore, with respect to the information you requested, 
we are surveying the field to determine the locations where meetings 
are being held and, if they are not occurring, we will remind them of 
the responsibility to do so.
    Also, as stated in my testimony, we have made progress in our 
national summits and continue to actively work with the unions at the 
national level to come to understandings of the shortfalls of the 
systems we have in place to attempt to reach agreement on how to best 
fix them. As we told you in the hearing, we are looking to establish 
more accountability at the local level to ensure that the 
responsibility for the resolution of grievances stays at that level and 
is not passed up through the system to others. Better communication 
between local managers and local union officials is a tool that can 
help us to achieve this goal.
    Once we have compiled the information and taken appropriate follow-
up actions, we will advise you of the results.

   INSERT RESPONDING TO SENATOR LEVIN'S REQUEST FOR A MORE DETAILED 
RESPONSE TO HIS LETTER REGARDING THE POSTAL SERVICE'S EMPLOYEE UNIFORM 
                                PROGRAM.

    November 14 letter to Senator Levin is attached.

                              United States Postal Service,
                                                   November 14,1997
Hon. Carl Levin
U.S. Senate
Washington, DC

    Dear Senator Levin: This responds to your August 1 letter regarding 
the Postal Service's proposal to centralize the purchasing of employee 
uniforms. I regret that our earlier reply did not fully address your 
concerns.
    I should explain that the uniform allowance program is not being 
abolished. Uniform allowances are employee benefits that have been 
negotiated through the collective bargaining agreements with our 
unions. In fact, the Postal Service and its unions have signed 
memorandums of understanding that call for a centralized system of 
purchasing and distributing uniforms and work clothes.
    Centralizing the purchase of uniforms can provide better and more 
consistent quality in uniform items, as well as standard pricing 
features that will benefit uniformed employees. In addition, simplified 
administrative and purchasing processes can offer savings to the Postal 
Service and, ultimately, our customers who actually underwrite the 
costs of our uniform program.
    While we recognize that changing the way we provide uniforms to our 
employees will affect existing retail vendors, our experience has shown 
that a relatively small number of businesses account for the majority 
of sales. In 1996, employees obtained authorized uniform items through 
more than 928 retail vendors. Ninety-three of those vendors--10 
percent--accounted for 83 percent of employee purchases, with the top 
10 firms accounting for 54 percent of sales. At the other end of the 
scale, 293 firms, about one-third of the total, did less than $1,000 in 
postal sales. Another 180, one-fifth, sold between $1,000 and $5,000 
worth of postal uniform items.
    Very few of our vendors limit their business to postal sales; most 
sell postal uniforms as a part of a broader retail apparel activity or 
as part of a business supplying uniforms to other professions and 
trades, such as public safety and health care workers. Four of the top 
seven vendors have submitted pre-qualification packages for the first 
phase of this two-phase initiative.
    We expect to implement this program over a period of at least 3 
years. This will provide vendors time to adjust to the changes that 
will result. As the system changes over, contractors will be required 
to submit plans for buying existing inventories from current vendors to 
minimize any loss on their investment. In addition, our solicitation 
will call for pricing proposals that allow for sales persons and/or 
stores in addition to mail order. Under the current system, most 
uniform orders are delivered to employees by mail.
    The Postal Service presently spends some $75 million annually on 
employee uniforms and work clothes. Savings can be achieved both 
through the simplification of the uniform program's administration, 
which involves processing more than one-million individual invoices 
each year, and through the economies of scale made possible by working 
through a limited number of suppliers. However, until we have published 
a public solicitation and reviewed the offers it generates, we are 
unable to provide specific savings we could expect to realize.
    In the interim, we believe that commenting on estimated savings 
would be counterproductive, having the potential to direct bids toward 
the range of the savings we project rather than reflecting the costs of 
satisfying the solicitation's requirements. However, if the offers we 
receive do not provide clear savings and benefits, there is no 
requirement that we make a contract award.
    We believe, however, the experiences of other uniform purchasers 
support our conclusion that centralization can result in cost savings. 
When the National Forest Service changed from a vendor system to a 
contractor system, its savings were 15 percent on a program of less 
than $2 million a year. A study of inventory practices in the Canadian 
government found that when Canada Post went to a contractor system, 
cost reductions of 25 percent were achieved. The Department of Defense, 
in comparing a selection of postal uniform items against comparable Air 
Force items purchased under the prime vendor concept, found that our 
current costs are 25 to 70 percent higher.
    We are very aware of concerns regarding subcontracting to overseas 
firms and manufacturers that may operate under ``sweatshop'' 
conditions. To prevent this, we have gone beyond domestic source 
standards by requiring that virtually all products be manufactured in 
the United States using domestic materials. Our standard contract 
clauses require contractors to comply with the Fair Labor Standards 
Act, the applicable standards promulgated by the Occupational Safety 
and Health Administration, and the National Labor Relations Act. A 
third-party quality assurance contract will monitor contractor and 
subcontractor plants, referring any possible violations to the 
appropriate enforcement agency. Our contracts also require the use of 
small business and minority- and women-owned businesses.
    Through this change, the Postal Service's uniform purchasing 
program will reflect common industry practice and bring added value to 
our expenditures. It makes good sense for the Postal Service, its 
employees and its customers.
                                              Best regards,
                                                      Marvin Runyon

    Senator Levin. There has been some discussion here today 
about the bill our chairman has introduced, S. 1296, and I just 
want to ask you one question on that. We are really just 
getting into that issue. You and I spoke very briefly on the 
telephone about it, and I indicated we had not been briefed on 
it by the Postal Service, so I did not even know what was in 
the bill. But I did have a process question on that, and we are 
looking into it, as I mentioned to the chairman in a letter 
which I dropped to you, Senator Cochran, the other day, that we 
would look into the specifics of the bill as quickly as 
possible and get back with you on it.
    But the question that I have is a process question on that 
bill, as to whether or not the Postal Service consulted with 
the Treasury Department or with business groups prior to that 
bill being introduced. Is that a process which you engaged in--
because we are getting a lot of response from some of your 
customers and from the Treasury Department on that bill, and a 
lot of concerns have been raised. I am just wondering whether 
or not they were aired early in this process and whether you 
had dialogue and discussion with the Treasury Department and 
with business groups.
    Mr. Runyon. I did not specifically have a discussion with 
Treasury at the time this bill went forward. I did, however, 
some time ago, have a couple of meetings with the Secretary 
about those concerns and asked him to please look at them.
    Senator Levin. The Secretary of the Treasury?
    Mr. Runyon. Yes, sir, Secretary Rubin. We have had those 
discussions, and Mr. Coughlin was there with me.
    Mike, maybe you could talk about other meetings we have had 
with Treasury.
    Mr. Coughlin. Senator, as a result of the reform bill that 
Congressman McHugh introduced last year, we have had regular, 
ongoing discussions with numerous stakeholder groups who have 
an interest and a stake in the outcome of that piece of 
proposed legislation.
    A feature of that legislation is very similar to what 
Senator Cochran has proposed here. During the hearings last 
year, a number of those same groups endorsed the bill, 
including those provisions of it. Few if any, as I recall, 
expressed the kinds of concerns we heard expressed in the last 
couple of weeks, either in those hearings or in meetings that 
we have had with them.
    Now, having said that, they expressed those concerns. Our 
reaction to them and certainly to the Senator was that we can 
accommodate those concerns, we believe.
    Senator Levin. Good. Thank you both.
    Thank you, Mr. Chairman.
    Senator Cochran. Thank you, Senator Levin.
    Senator Levin asked some questions about the labor 
relations issues, some of which I was going to ask. One that I 
do not think has been asked is do you see your personnel and 
labor-related costs being reduced a automation increases? I 
mean, you can make it almost a friend or an enemy, I guess, 
depending on how you embrace automation, but it seems like 
labor costs are coming down in many industries, and cost 
savings are occurring because of automation or new 
technologies. Are you finding that to be true in the Postal 
Service, or not?
    Mr. Runyon. I think that as we introduce automation, there 
will be fewer people. That has been discussed with the heads of 
the unions; I have had that discussion. And you need to ask 
them yourself--I am not trying to dodge your question--but you 
need to hear it from them. What they say to me, however--and I 
will relay this to you--is, we understand about that, we accept 
that, and we know that if we are going to be competitive, you 
are going to have to do the kinds of things that are necessary 
for us to be competitive, and we have to agree with that.
    So I do not think there is any basic conflict here. Now, 
there would be a big conflict if I brought in 5,000 machines 
and put 5,000 people on the street. We have no intention of 
doing that. Our intention as we bring in the machines--is to 
work with the substantial attrition in the Postal Service. But 
even with all the automation we have brought in, we still have 
more people now than we did before we started because of the 
demand of the product. A growth of 2 percent a year or 
something of that nature; a growth in the number of places we 
have to deliver; all of that increases people.
    So I do not think we are going to have a problem with that.
    Senator Cochran. There was a letter last July, written by 
the president of the American Postal Workers Union, Moe Biller, 
in response to that GAO report that Senator Levin mentioned on 
labor relations in the Postal Service, and he says this, and I 
quote: ``It is not its relations with its employees that is 
bogging down USPS operations; it is its management of its 
outside contractors.''
    To what extent do you agree or disagree with Mr. Biller's 
statement?
    Mr. Runyon. I do not know if I understand what he means by 
``management of outside contractors''; do you understand that?
    Mr. Coughlin. Well, I think generally speaking, the union 
has been concerned about any efforts we have had to use outside 
labor sources to do part of the work we do. We have had several 
efforts in that area in recent years, so I am sure that is what 
he is referring to.
    My own reaction would be that, no, I do not agree with him 
at all.
    Mr. Runyon. If that is what he means, I do not agree with 
it, either. He is saying that we----
    Senator Cochran. But do you contract out labor?
    Mr. Runyon. Yes, sir.
    Senator Cochran. Substantially, or is it a minimal amount?
    Mr. Runyon. For years, the Postal Service has contracted 
out. For example, we contract 15,000 flights a day with 
American Airlines, United Airlines, and others, to carry our 
mail. They are a contractor to us to carry mail from city to 
city. We have over 40,000 trucks on the highway operted by 
private contractors who move mail from city to city. We have 
that now.
    We have a lot of people who work for the Postal Service as 
contractors. We have recently on Priority Mail set up 10 units 
on the East Coast where we have contracted with a company 
there--it is about a $1.7 billion contract--where we deliver 
Priority Mail to them. They, in turn, take it from that 
location to the location nearest the delivery point, with 
dedicated air. We are contracted to do that. Mr. Biller is not 
happy with that--but we are doing that. And we did not do that 
to save money on labor. We do not save money on labor. What we 
did was buy a complete package to take that Priority Mail and 
deliver it to us in another city. That is where we are going to 
deliver it. They take care of the air and everything so that we 
can deliver it on time. And in the contract, there is a 
requirement that they have to meet a certain on-time schedule.
    Senator Cochran. There is a structure, of course, in the 
Postal Service that is mandated by law in effect, and I wonder, 
in connection with this October 1997 GAO report about a better 
relationship between Postal Service labor and management, is 
there anything in the Federal statutes that you could identify 
that we could change or modify that would help bring about a 
better working relationship between labor and management?
    Mr. Runyon. The way the statute is written now, it says 
that we will participate under the National Labor Relations Act 
with our unions. And we do, and there is really nothing wrong 
with that. We have collective bargaining with our unions.
    The only difference between us and a private sector union 
is that in our collective bargaining, the unions are not 
allowed to strike. We go to mandatory binding arbitration. And 
I am not prepared today to ask you to change that.
    Senator Cochran. Senator Domenici, I have a couple more 
questions, but if you are prepared to ask more questions, I 
will be happy to yield to you, sir.
    Senator Domenici. Thanks.
    I have just one, Mr. Chairman, and it might interest you 
also, just because it is kind of absurd, and you do not like 
absurd things to be happening with government.
    Mr. Runyon, as you know from our previous correspondence, 
1998--that is next year--marks the 400th anniversary of the 
first continuous European Hispanic settlement in North America. 
That event took place in 1598, when Don Juan Onate established 
the first permanent European Hispanic settlement in New Mexico 
just north of the little city of Espanola, at a church known as 
San Gabriel. You have been kind enough to urge the Citizens' 
Stamp Advisory Committee to reconsider their decision not to 
issue a stamp commemorating the stamp commemorating the 400th 
anniversary of this event, and I thank you for that effort. 
Unfortunately, the Committee has again rejected the 400th 
anniversary as a proper topic for a 1998 stamp.
    I am puzzled by the process that the advisory committee 
uses. For example, Mr. Chairman, the Postal Service issued a 
new series of movie monster stamps for Halloween. Dracula, The 
Mummy, Phantom of the Opera, Wolf Man, and the Frankenstein 
monster were all honored with a stamp.
    Now, I think there is some misplaced and, I might say 
parenthetically, monstrous, closed parentheses, values here. 
Dracula gets a stamp, but the 400th anniversary of the first 
permanent European Hispanic settlement in the United States 
does not. Dracula is about 60 years old, and Onate is 400. 
Dracula is a fake, a fiction; Onate is historical fact.
    The one and only Wolf Man gets a stamp, but the heritage of 
millions of Hispanic Americans is ignored.
    The Frankenstein monster gets a stamp, but the Nation's 
largest and fastest-growing minority gets no recognition for 
having been the first to settle in the uncharted waters of the 
United States from Europe 400 years ago.
    The Phantom of the Opera gets a stamp, a Broadway plan, but 
the Postal Service will not recognize the cultural, social and 
economic relationships resulting from 400 years of an Hispanic 
settlement.
    So the Mummy--who, as I see it, did darned little--he lay 
around; that is all he did--gets a stamp, but Onate, who blazed 
the first trade route, introduced Christianity to the whole 
region west of the Mississippi, is ignored.
    Bugs Bunny got a stamp. And frankly, as one who represents 
a very large Hispanic community, I assume many of them should 
be ``hopping mad'' when Frankenstein is recognized over their 
400 years of involvement in our culture and history.
    I wonder what I can do about it or what we can do about it. 
Do you think the advisory committee has too much authority? I 
should not ask you to answer that.
    Mr. Runyon. I do not know that they have too much 
authority. I think that you have communicated to me very well, 
and I think I should go back and communicate with the Citizens' 
Stamp Advisory Committee again and see what we can do about it.
    Senator Domenici. Well, I had three more questions, but you 
have answered them all by that statement, and so I have no 
further observations even about it.
    Thank you very much. I would appreciate finding out as 
quickly as you can what their response is to your very gentle 
and kind, yet backed up by some very interesting facts--you 
could take these and ask them whether Dracula is more important 
than 400 years of Spanish history. That might be interesting.
    Thank you, Mr. Chairman.
    Senator Cochran. Senator, I commend you. You have been very 
persuasive and eloquent and clever in the way you presented 
your point of view on this subject.
    Senator Domenici. Thank you.
    Senator Cochran. I commend you. It reminded me of Silvio 
Conti, the distinguished Congressman from Massachusetts, who 
often would use persuasive language similar to that--but 
probably not even up to that standard for Silvio.
    Senator Domenici. I remember he did one at Christmas once, 
didn't he?
    Senator Cochran. Yes. He would do one annually. He would 
occasionally pick out an agriculture issue to make fun of. I 
always remember all of those. [Laughter.]
    Senator Cochran. Let me say that I think we have had a good 
discussion. I have some more questions, and I may submit a few 
for the record that we have not been able to discuss. But one 
thing that I wanted to raise is that the postal rate issue to 
me is still one that bears some careful scrutiny.
    I have heard that the Postal Rate Commission has expressed 
some concern in the past over the accuracy of data that is 
provided by the Postal Service that accompanies requests for 
increases. Are these concerns valid, and if you have heard 
them, what are you doing to try to address those concerns?
    Mr. Runyon. Mr. Chairman, I am going to let Mr. Coughlin 
address that since he has had more experience with the Postal 
Rate Commission than I have. And I like them, but I would just 
as soon not have to go for increases too often. But I think Mr. 
Coughlin can answer that question better than I.
    Senator Cochran. Mr. Coughlin.
    Mr. Coughlin. I think that fundamentally, the data systems 
and the data we provide the Commission are accurate and 
reliable, certainly enough to set rates in the manner they do. 
I think there were a couple of instances in the last rate case, 
one involving in-county newspapers, and the second one I have 
forgotten offhand. It was a relatively--I do not want to say 
unimportant--but it was a relatively small piece of the 
business. We did find some data problems there, and we 
corrected them during the course of that case.
    As a matter of fact, right now, at the urging of 
Congressman McHugh and the GAO, we are taking a joint look with 
a third party contractor at our data systems to try to see how 
they are operating and how they might be improved. I think when 
we get the results of that, we will have a better feel for how 
they might have to change in the future.
    Senator Cochran. One of the concerns I have heard from some 
of the competitors--and I am curious to know your reaction to 
this, because I do not know what the seriousness of it is--do 
you use certain classes of mail to subsidize the cost of other 
classes, and is that prohibited by law? Are you not allowed to 
do that?
    Mr. Runyon. I will answer the question the way I think it 
is, and I will let the expert here tell me if I am right or 
wrong.
    Senator Cochran. OK.
    Mr. Runyon. We cannot subsidize one sort of mail with the 
other part of our mail. Every mail has to carry its own 
expenses. Is that not right?
    Mr. Coughlin. That is correct. Every class must cover its 
attributable cost.
    Senator Cochran. You are asking for a 4.5 percent overall 
increase--but just a one-cent increase for First-Class Mail--is 
that right?
    Mr. Runyon. Yes.
    Senator Cochran. How do you allocate the 4.5 percent 
increase? You say half your business is First-Class Mail? That 
sounds like a small increase for the First-Class Mail compared 
with a 4.5 for the overall increase. That means some rates are 
going to go up a considerable amount, aren't they?
    Mr. Runyon. On each class of mail that we have, there are 
different amounts for covering our costs. For example, we may 
have a cost coverage of 110 percent on one and 180 percent on 
another. Both cover their costs; one covers it better than the 
other. Where we have those that are about 90 percent, they are 
not covering their costs, so we have to increase more. We have 
one of those that we are going to catch a lot of trouble with 
in this rate filing. I have forgotten what it is, but we have 
one rate that is not making its costs, and it is going to be 
very troublesome when people understand that. But we do have a 
different rate coverage, or cost coverage, in each class. We do 
not try to make all of them come out the same, but they all 
cover their costs.
    Senator Cochran. What about the advertising expenses? That 
is another question that is similar to this. Do revenues for 
the advertising budget come from the general fund, supported by 
all mailing, or are revenues taken from a specific mail 
category to pay for the advertising and marketing of that 
category?
    Mr. Coughlin. They are treated as institutional costs, 
Senator; that means they are part of the general fund. 
Advertising is viewed as benefitting the institution as a 
whole, and it may or may not target a specific product.
    Senator Cochran. Well, what about a minute ago when Senator 
Domenici asked a question about the Priority Mail advertising 
and how effective it is and is it working. Does the cost of the 
Priority Mail advertising come out of the general fund, or is 
it attributable to the costs of Priority Mail?
    Mr. Coughlin. I would have to go back and check to be 
certain. I think it is part of the institutional base, but I 
would have to check for certain.
    Senator Cochran. Another way to ask it is are the revenues 
from Priority Mail used to pay for the ads that promote 
Priority Mail; and similarly, are revenues from Third Class 
Mail used to pay for advertisements promoting Direct Mail?
    Mr. Coughlin. Yes--I might add, though, that the 
contribution from Priority Mail, for example, the subject of 
the example you gave, is almost double the attributable costs 
that we incur. In other words for the $3 we get for a basic 
piece of Priority Mail, approximately $1.50 covers the 
attributable costs, and the other $1.50 contributes to the 
institutional costs.
    On other categories of mail, that might be $1 of revenue 
and 5 cents of contribution. So there is quite a difference 
between the products and the spread.
    Senator Cochran. Some in the newspaper business have raised 
objections to the Service's advertising campaign--I think it is 
``Direct mail delivers''--saying that a government agency 
should not use revenues from the sale of postage stamps to 
promote direct mail over other media such as newspapers, 
magazines, television and radio and the like. What is your 
reaction to that?
    Mr. Coughlin. Well, first of all, let me say that, while 
they do not always believe it, newspapers are very important 
customers of ours. At the same time, I believe it is 
appropriate for the Postal Service to promote the use of the 
mail, generally, where we believe there is an effective 
utilization that can be made. That would include, in our case, 
the use of mail for advertising purposes. Advertising in the 
mail is a unique medium. It has its own set of benefits as well 
as disadvantages, and in fact, when you look at mail as opposed 
to other ways to advertise, there are clear differences. 
Somebody who is looking for a way to use media of any sort is 
going to examine those and ask what is the best way to get my 
message home. I believe it is appropriate on those occasions.
    Senator Cochran. The question then follows, why should the 
Postal Service pay for the advertising rather than leaving the 
advertising and promotion of direct mail to the direct mail 
industry?
    Mr. Coughlin. Because the use of advertising mail or any 
other product we have benefits directly the system as a whole 
in terms of the contribution in revenues that it brings to the 
system. The very large fixed costs we have and that expanding 
delivery service requirement that Senator Domenici mentioned 
earlier really requires this system to have volume in it to 
continue to thrive financially. The bigger the network gets, 
the bigger that fixed cost portion of that network gets, the 
more volume it has to feed through it.
    Senator Cochran. Well, I think this has been a good 
hearing, and I appreciate very much the cooperation from the 
Postmaster General and the Deputy Postmaster General today.
    We have had good Senator participation, we have covered a 
wide range of issues and, as I said before, there may be some 
other questions that we will submit for answers to complete our 
hearing record.
    Let me end the hearing by congratulating you. I really do 
think you have done an outstanding job. The management team, 
while you have labor problems--in an organization this large, 
you are going to have problems--but we have had some 
experiences in the past which I think you have addressed in a 
very effective and thoughtful way. Obviously, turning around 
the economics of the Postal Service has been a tremendous 
accomplishment, and I think the general public appreciates 
that, we appreciate it from a budget point of view, making a 
contribution toward keeping the deficit under control. We are 
reaching the point where the Federal Government is going to 
have a surplus, believe it or not, and that is coming as a 
shock to a lot of people--even those who designed the Balanced 
Budget Act. I let Senator Domenici get away before I made a 
comment like that.
    You were talking about unexpected revenues which came in, 
``Christmas in August'' as a result of the UPS strike, in 
effect. Well, the Federal Government has had some good news, 
too, on the financial front. But I think you have done a great 
job in that way and in looking to the future. Trying to figure 
out ways to hold down cost increases, I think is good for the 
country and good for the general public, and I congratulate you 
for that.
    We are going to continue to work to resolve questions about 
the legislation to reform the Postal Service and to permit some 
new flexibilities. We will continue to work on that and try to 
answer other questions that might be raised about it.
    Thank you very much. That concludes our hearing, and the 
Subcommittee is adjourned.
    [Whereupon, at 3:59 p.m., the Subcommittee was adjourned.]
                            A P P E N D I X

                              ----------                              


 ADDITIONAL QUESTIONS SUBMITTED FOR THE RECORD REGARDING USPS PLANS TO 
                 CENTRALIZE EMPLOYEE UNIFORM PURCHASING

    1. Has USPS consulted with the Small Business Administration and 
the Office of Management and Budget in developing the uniform 
procurement consolidation proposal? If not, would USPS have any 
objection to allowing SBA and OMB to comment before the consolidation 
moves forward?

    The Postal Service has not consulted with these agencies. While we 
are aware of no activities on the part of SBA and OMB regarding our 
plans to consolidate the purchasing of employee uniforms, their 
comments would be considered. We do not feel it would be prudent, 
however, to hold off implementation of the program.

    2. Will USPS agree to suspend the uniform procurement consolidation 
effort while the General Accounting Office conducts a study on the 
likely cost savings to be achieved under consolidation and the 
potential impact on jobs in small and medium sized uniform businesses?

    We would be happy to review the results of any General Accounting 
Office (GAO) study regarding uniform procurement. In fact, GAO studied 
uniform procurement in the Department of Defense and published its 
results in April, 1994. According to this study, ``GAO maintains that 
the costs-benefits possible from adopting a prime vendor arrangement 
for items where volume is high and demand is more predictable appears 
to be substantial.'' The Postal Service is seeking the same arrangement 
under similar circumstances.

    3. Deputy Postmaster General Coughlin testified that USPS intends 
to modify its uniform procurement consolidation proposal from the 
single-vendor to a plan involving between two and four uniform vendors. 
In light of this change in the procurement policy, does USPS intend to 
restart vendor prequalification?

    There are no plans to restart vendor prequalification.

    4. USPS has indicated that the president of the American Postal 
Workers Union expressed support for uniform procurement consolidation. 
What does the Postal Service believe to be the position of the 
leadership of the National Postal Mail Handlers Union and the National 
Association of Letter Carriers.

    Each of these unions is party to a binding agreement with the 
Postal Service regarding these changes to our uniform program. As such, 
we would expect that the leadership of each union would support its 
agreements.

  ADDITIONAL QUESTIONS FOR THE U.S. POSTAL SERVICE SUBMITTED FOR THE 
                        RECORD BY SEN. DOMENICI

    1. Who appoints the members of the Citizens' Stamp Advisory 
Committee?

    The members of the Committee are appointed by the Postmaster 
General.

    2. Do the members of the Citizens' Stamp Advisory Committee serve 
for fixed terms, or at the pleasure of some official?

    The Committee's members are appointed by and serve at the pleasure 
of the Postmaster General for fixed terms of 5 years, not to exceed 
three terms.

    3. If the Committee serves at the pleasure of some official, who is 
that official?

    See response to question 2.

    4. What is the shortest period of time in which a stamp has been 
developed?

    The shortest time frame for a regular commemorative stamp is the 4 
month preparation for 1991's stamp honoring the American men and women 
who served in Operations Desert Shield and Desert Storm.

    5. What was the timeline from the date the request was made for an 
AIDS Awareness stamp, to the time the decision was made by the 
Citizens' Stamp Advisory Committee to approve and issue the stamp?

    Initial requests for an AIDS Awareness stamp were received by the 
Citizens' Stamp Advisory Committee (CSAC) as early as 1988. At its 
December 18, 1992 meeting, the Committee approved the subject and 
requested that designs be developed. The design was approved by the 
Committee at its July, 1993 meeting, and approved by the Postmaster 
General the same month. The stamp was put into immediate print 
production and was issued on December 1, 1993.

    6. What was the timeline from the date the request was made for a 
Breast Cancer Awareness stamp, to the time the decision was made for 
its approval and issuance?

    The initial requests for a Breast Cancer Awareness stamp were 
received by the CSAC in 1994. At the July, 1995 meeting, the Committee 
approved the subject and requested that designs be developed. The 
design was approved by CSAC at its September 29, 1995 meeting and 
approved by the Postmaster General in November, 1995. The stamp was 
then put into print production and issued on June 15, 1996.
      
      

                                  
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