[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]



 
                 TREASURY, POSTAL SERVICE, AND GENERAL
                     GOVERNMENT APPROPRIATIONS FOR
                            FISCAL YEAR 2000

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS
                              FIRST SESSION
                                ________

  SUBCOMMITTEE ON THE TREASURY, POSTAL SERVICE, AND GENERAL GOVERNMENT 
                             APPROPRIATIONS
                      JIM KOLBE, Arizona, Chairman

 FRANK R. WOLF, Virginia            STENY H. HOYER, Maryland
 MICHAEL P. FORBES, New York        CARRIE P. MEEK, Florida
 ANNE M. NORTHUP, Kentucky          DAVID E. PRICE, North Carolina
 JO ANN EMERSON, Missouri           LUCILLE ROYBAL-ALLARD, California
 JOHN E. SUNUNU, New Hampshire
 JOHN E. PETERSON, Pennsylvania     

 NOTE: Under Committee Rules, Mr. Young, as Chairman of the Full 
Committee, and Mr. Obey, as Ranking Minority Member of the Full 
Committee, are authorized to sit as Members of all Subcommittees.
      Michelle Mrdeza, Bob Schmidt, Jeff Ashford, and Tammy Hughes,
                            Staff Assistants
                                ________

                                 PART 2

                      UNITED STATES POSTAL SERVICE

                              

                                ________

         Printed for the use of the Committee on Appropriations
                                ________

                     U.S. GOVERNMENT PRINTING OFFICE
 56-058 O                   WASHINGTON : 1999





                        COMMITTEE ON APPROPRIATIONS

                   C. W. BILL YOUNG, Florida, Chairman

 RALPH REGULA, Ohio                    DAVID R. OBEY, Wisconsin
 JERRY LEWIS, California               JOHN P. MURTHA, Pennsylvania
 JOHN EDWARD PORTER, Illinois          NORMAN D. DICKS, Washington
 HAROLD ROGERS, Kentucky               MARTIN OLAV SABO, Minnesota
 JOE SKEEN, New Mexico                 JULIAN C. DIXON, California
 FRANK R. WOLF, Virginia               STENY H. HOYER, Maryland
 TOM DeLAY, Texas                      ALAN B. MOLLOHAN, West Virginia
 JIM KOLBE, Arizona                    MARCY KAPTUR, Ohio
 RON PACKARD, California               NANCY PELOSI, California
 SONNY CALLAHAN, Alabama               PETER J. VISCLOSKY, Indiana
 JAMES T. WALSH, New York              NITA M. LOWEY, New York
 CHARLES H. TAYLOR, North Carolina     JOSE E. SERRANO, New York
 DAVID L. HOBSON, Ohio                 ROSA L. DeLAURO, Connecticut
 ERNEST J. ISTOOK, Jr., Oklahoma       JAMES P. MORAN, Virginia
 HENRY BONILLA, Texas                  JOHN W. OLVER, Massachusetts
 JOE KNOLLENBERG, Michigan             ED PASTOR, Arizona
 DAN MILLER, Florida                   CARRIE P. MEEK, Florida
 JAY DICKEY, Arkansas                  DAVID E. PRICE, North Carolina
 JACK KINGSTON, Georgia                CHET EDWARDS, Texas
 RODNEY P. FRELINGHUYSEN, New Jersey   ROBERT E. ``BUD'' CRAMER, Jr., 
 ROGER F. WICKER, Mississippi            Alabama
 MICHAEL P. FORBES, New York           JAMES E. CLYBURN, South Carolina
 GEORGE R. NETHERCUTT, Jr.,            MAURICE D. HINCHEY, New York
Washington                             LUCILLE ROYBAL-ALLARD, California
 RANDY ``DUKE'' CUNNINGHAM,            SAM FARR, California
California                             JESSE L. JACKSON, Jr., Illinois
 TODD TIAHRT, Kansas                   CAROLYN C. KILPATRICK, Michigan
 ZACH WAMP, Tennessee                  ALLEN BOYD, Florida
 TOM LATHAM, Iowa
 ANNE M. NORTHUP, Kentucky
 ROBERT B. ADERHOLT, Alabama
 JO ANN EMERSON, Missouri
 JOHN E. SUNUNU, New Hampshire
 KAY GRANGER, Texas
 JOHN E. PETERSON, Pennsylvania     

                 James W. Dyer, Clerk and Staff Director

                                  (ii)


 
  TREASURY, POSTAL SERVICE, AND GENERAL GOVERNMENT APPROPRIATIONS FOR 
                                  2000

                              ----------                              

                                          Wednesday, March 3, 1999.





                      UNITED STATES POSTAL SERVICE

                                WITNESSES

WILLIAM HENDERSON, POSTMASTER GENERAL AND CHIEF EXECUTIVE OFFICER
M. RICHARD PORRAS, CHIEF FINANCIAL OFFICER AND SENIOR VICE PRESIDENT

                     Opening Comments by Mr. Kolbe

    Mr. Kolbe. The subcommittee on Treasury, Postal Service, 
and General Government will come to order.
    This afternoon, we welcome Postmaster General Bill 
Henderson before our subcommittee. It is his first time to 
appear before us in this capacity as the Postmaster General and 
we are looking forward to your testimony as well as to your 
tenure in overseeing the many different operations of the 
Postal Service.
    In reviewing both your opening remarks and the 1998 Annual 
Report, I have been impressed to see that the Postal Service 
has now operated at a surplus for four consecutive years, has 
reduced its debt, and continues to achieve high scores for on-
time delivery.
    It is also clear that the Postal Service continues to keep 
its eye on not only what its customers are looking for in the 
way of service, but also in the challenges brought on by 
technology and fierce competition in the world economy.
    I note with interest the announcement, I think it was 
yesterday, that you were teaming up with DHL for express mail 
service delivery to Western Europe. I am all too familiar with 
some of the controversies surrounding USPS's presence in the 
international mail arena and the criticisms that have been 
levied against you for the advantages that you hold, and some 
believe unfair advantages.
    I am curious to learn more about your new business venture 
and whether or not this arrangement might help to alleviate 
some of the criticisms that you have had unfair advantages in 
this very competitive market or whether, indeed, it will 
actually worsen that problem.
    Mr. Postmaster, although I commend you and your predecessor 
for seeking new ways to manage the Postal Service and make it 
as responsive as possible to its customers, which are the 
American people, I also continue to have questions in my own 
mind about the appropriate role of the Postal Service in some 
of the more competitive and non-postal areas.
    It is my understanding that the authorizing committee is 
continuing to hold hearings and solicit input on the Postal 
Modernization Act of 1999. I am pleased to learn that they are 
taking a comprehensive look at the many faces of the Postal 
Service, the many aspects of your operations. In particular, I 
know they are looking at the competitive services that you 
offer.
    I think it is critical that we not lose sight of the 
primary mission of the Postal Service and that is assuring that 
all Americans have access to postal services which will deliver 
their mail.
    I am optimistic that you will be able to lead the Postal 
Service into the next millennium in a way that balances the 
needs of your customers, but also at the same time helps to 
keep your bottom line in the black.
    Mr. Hoyer is not with us today, but I understand Mr. Price 
has a personal connection to you and I would like to call on 
Mr. Price for a few opening remarks and then we will go to your 
statement.

                     Opening Comments by Mr. Price

    Mr. Price. Thank you, Mr. Chairman. I do indeed have a 
personal tie with this new Postmaster General, and so I am 
pleased to have the chance to say a word about that and to 
introduce him to my colleagues.
    I am glad to introduce to the Subcommittee today the 71st 
Postmaster General of the United States, William J. Henderson. 
Bill was appointed Postmaster General in May, so this is his 
first hearing before our Subcommittee. But as we all know, he 
is no stranger to the U.S. Postal Service.
    He is the son of a career postal clerk and is himself a 27-
year veteran of the agency. I first got to know Bill years ago 
when he was heading up postal operations for the central North 
Carolina postal district, and he was a truly invaluable 
resource to my office and to the postal customers of my state. 
We had a remarkably good working relationship.
    He came to central headquarters in 1992 when he was named 
Vice President of Employee Relations for the Postal Service, 
and in 1994, he was promoted to Chief Operating Officer, 
responsible for nationwide postal operations and the daily 
delivery of more than 650 million pieces of mail to over 130 
million addresses.
    Bill has been an innovator throughout his career. He has 
been recognized with the Postal Service's John Wanamaker Award, 
and American University's Roger W. Jones Award for Executive 
Leadership.
    In one sense, I regret that Bill has been elevated to his 
present level because he can no longer focus his impressive 
management talents exclusively on North Carolina. But I know 
the rest of the nation will benefit immeasurably from his 
service as Postmaster General. So, Bill, as a member of this 
Subcommittee, it gives me special pleasure to welcome you. We 
look forward to working with you in your new capacity, and we 
look forward to your testimony here today.
    Mr. Henderson. Thank you.
    Mr. Kolbe. Thank you very much, Mr. Price. Mr. Henderson, 
the floor is yours. As always, the full statement will be 
placed in the record, if you care to summarize it. It is not a 
very long statement anyhow, but please proceed as you choose 
here.

                postmaster general henderson's statement

    Mr. Henderson. Good afternoon, Mr. Chairman and members of 
the subcommittee. With me today is the Chief Financial Officer 
of the Postal Service, Richard Porras.
    I appreciate this opportunity to testify before the 
subcommittee to present the Postal Service's appropriation 
request for FY 2000. The Postal Service has made significant 
strides over the past several years on the road to restoring 
our financial condition to where it needs to be.

                  postal service's financial condition

    I want to thank the members of this subcommittee for your 
continuing guidance and support. The Postal Service has come a 
long way and we still have a lot more to do. When the 
Postmaster General appeared before this committee four years 
ago, the Postal Service was then reporting an accumulated 
operating deficit for all years since postal reorganization of 
$9 billion.
    This was an unacceptable risk that the Postal Service could 
not afford to continue. A cycle of good years followed by bad 
years was not working. Our Board of Governors decided that we 
would rebuild the equity position of the Postal Service 
incrementally by restoring a significant portion of the past 
deficit every single year.
    During the past four years, we have succeeded in restoring 
equity. By the close of this fiscal year, that $9 billion 
deficit has been cut to $3.8 billion. A number of factors have 
been critical. We have held down costs and we have kept rates 
at reasonable levels below inflation. We have had support from 
our customers and the favorable economy has also been a key.
    More progress is still required and the challenge will get 
tougher, not easier. In the 21st century, the Postal Service 
faces the prospect of more relentless global competition. For 
this current year, FY99, our financial plan sets a net income 
target of $200 million, the smallest gain in recent years.
    This target would have been higher, but the Postal Service 
decided last summer to postpone the 33-cent rate increase and 
the other approved increases until January of 1999. This was 
the right decision to make for our customers, but it 
contributes to FY 99 posing a stiff challenge for the Postal 
Service to continue attacking that accumulated deficit.

                        postal service's success

    The Postal Service has accomplished these significant 
financial gains while not only maintaining, but improving 
service performance from 87 percent on time to 93 percent on 
time in 1998.
    The Postal Service's record of success is also reflected in 
recent independent surveys of the American people. In 1998, the 
Pew Research Center for the People and the Press reported that 
nine out of ten Americans gave the Postal Service the highest 
favorability rating among all Federal agencies.
    In January 1999, an Associated Press poll found that three-
quarters of the American people thought the Postal Service was 
doing an excellent or good job and that two-thirds of those 
questioned said that the price of a stamp was about right or a 
bargain. It should be noted that this poll was conducted after 
our January 10th rate increase was implemented.

                         appropriations request

    The congressional appropriation to the Postal Service is 
not as large as it once was, but the amounts are still very 
significant to us in having a chance to meet our financial plan 
and to continue the positive trend we have started. For FY 
2000, the Postal Service is requesting the total appropriation 
of $122.4 million.
    This appropriation is authorized in connection with a 
deficiency which the Postal Service would otherwise incur 
because the law has directed us to carry some free mail, or 
formerly at reduced rates of postage, for reasons of social 
policy established by Congress.
    Within this total request, by far the largest amount is for 
free mail for the blind and for overseas voting. This request 
for FY 2000 comes to $71 million. The law provides for 
appropriations based on current estimates to be followed in a 
subsequent year by an adjustment based on actual experience 
once the final audited mail volumes become available.
    At this time, the audit shows actual volumes for FY 97 were 
short of the estimate. Thus, our request includes a $6.4 
million offset against the $71 million amount otherwise needed 
for this year.
    The other element of our annual appropriations, as 
authorized in the Revenue Forgone Reform Act of 1993, is an 
amortization of the amount still owed for fiscal years '91 
through '98. Rather than saddling the Postal Service with a 
large bad debt in the amount of $1.2 billion, the law 
authorized payment of this money in equal installments of $29 
million per year over 42 years covering fiscal years 1994 
through the year 2035.
    The request for this year includes the FY 2000 installment 
of $29 million, plus the $29 million for the FY 99 installment. 
The FY 99 portion was not appropriated last year, but the 
committee recognized its obligation to reimburse the Postal 
Service for this amount.
    As an alternative, the Postal Service has also requested 
that the FY 99 installment be provided in a supplemental 
appropriation for that year. Finally, the Postal Service does 
not request a public service appropriation, which is authorized 
by law, in an annual amount up to $460 million. We have neither 
requested nor received this appropriation since FY 82.
    Universal postal service, convenient for all people in 
every community at reasonable prices, remains just as valid for 
the 21st century America. This is the essence of the Postal 
Service's unique contribution, binding the nation together. We 
accept the responsibility to continue to meet this obligation 
without burdening the Federal budget with this public service 
appropriation.
    Over the 18 years from FY 83 through the year 2000, 
avoiding the need for this appropriation will have saved the 
American taxpayers more than $8 billion. This concludes my 
remarks. I will be happy to respond to any questions.
    [The statement of Mr. Henderson follows:]

[The official Commmittee record contains additional material here.]



                        free mail for the blind

    Mr. Kolbe. Thank you very much, Mr. Henderson. Let me begin 
by talking about that issue which you spoke of, the money, the 
appropriation, something that we actually have something to do 
with, the appropriation subsidy for the blind and overseas 
voter.
    It is a service that this Congress, through the years, has 
deemed a socially important one and one which we are willing to 
pay the Postal Service to perform. As you pointed out, you have 
an amount of almost $71 million with an offset of $6.5 million 
based on the actual '97 activity, so that the appropriation is 
actually $64 million.
    I have some concern about the tremendous fluctuations we 
have had in the actual versus the estimated amounts for this 
account. Over the last five years, the amounts have fluctuated 
from $2 to $21 million in this account. It would seem to me 
that it is not that difficult to project either of those 
amounts, that you have a fairly steady amount in the blind 
mail, I would think.
    On the elections portion, you can judge whether it is a 
non-election year or an election year, a presidential or non-
presidential election year, and I would think that there would 
be some fairly good history in terms of the amounts of money 
that would be needed there.
    So I guess my question is, how confident are you about your 
projection that $70 million is going to be needed for this 
year, or what kind of fluctuation are we likely to see and why 
are we seeing these fluctuations?
    Mr. Henderson. We actually use history to project, so where 
you have actual fluctuations, that will affect the use of 
history. I will ask Richard to comment on the last five years. 
He has been controlling it for a long time.
    Mr. Porras. That was not under my responsibility. 
[Laughter.]
    We, in fact, have to project out the costs and the 
associated revenues with that. As Mr. Henderson just mentioned, 
we do look at past experience, but we also look at more recent 
trends. It is not an exact science. We are trying to also, for 
example, factor in '99 and 2000, any particular price changes, 
but we will be looking to see if we can make it more accurate.
    But we are forecasting a couple of years in advance and it 
does make it a little bit difficult to get all of those 
components correct, but we are going to try to get as accurate 
as possible.
    Mr. Kolbe. Can you explain how you have had those 
fluctuations of $2 to $21 million? Why would we have had those 
kinds of fluctuations? Why haven't we been able to be more 
accurate?
    Mr. Porras. Again, you are trying to figure out exactly 
what is going to happen in the future.
    Mr. Kolbe. You are saying the past has not been a good 
predictor?
    Mr. Porras. Not necessarily because of other cost 
fluctuations that we have to try to identify at the same time. 
That is where it gets a little bit more complex.
    Mr. Henderson. I would just jump in and say the past has 
not been a good predictor because that is what we use and we 
have been off. We do not have an economic model that we use, 
like we forecast mail volume in the United States. For mail 
volume we use an economic model that takes in a whole lot of 
factors that are occurring in the economy. We do not use that 
for this appropriations and history has not been a good 
predictor for us in that regard.
    Mr. Kolbe. I know the amount is certainly not a lot in 
comparison to your total budget, and certainly not a lot in 
comparison to the Federal Government's total budget, but for 
this subcommittee, that kind of variation is significant 
because we operate under very, very tight budget caps and a 
variation of $2 to $21 million makes a huge difference in what 
we do over in law enforcement or some other area.
    I would just ask you to take a look at that and see if 
there is some model you might use that would give us a better 
predictor of requirements and give us a little more confidence 
in the future that we are getting a more accurate prediction.
    Mr. Henderson. I will do that and I will also provide you a 
lot more detail on the way we calculate the numbers to see if 
we can't answer some of those questions.
    [The information follows:]

     Clarification on why Non-profit Rates Have Risen Dramatically

    Rates for each subclass are set by applying a markup to the 
underlying cost (the costs to the Postal Service) of the 
subclass. In the last rate case, the cost for nonprofit 
increased for nonprofit since the markup (the other determinant 
of the rates) is set according to the Revenue Forgone Reform 
Act.
    Despite the faster growth, nonprofit costs (and rates) 
remain significantly lower than commercial. The resulting rates 
for nonprofit are 35 percent lower, on average, than the 
commercial rates. The combined effect of the last three rates 
cases (including the one implemented January 10) is a price 
increase of 8.6 percent for Standard (A) Nonprofit versus 15.4 
percent for the Standard (A) commercial.

                               year 2000

    Mr. Kolbe. Let me ask you, in the remaining couple of 
minutes that I have in my time here, a couple questions about 
Y2K software conversion. Your Inspector General report last 
September--and I recognize that is now nearly six months out of 
date--said that only about 12.5 percent of your mission 
critical systems were ready for verification for Y2K 
compliance, and that only five of the 166 mission systems have 
been verified as compliant. Can you tell me what the current 
status is?
    Mr. Henderson. We have 131 systems out of 153 that now have 
been remediated.
    Mr. Kolbe. I'm sorry?
    Mr. Henderson. Over 130 of the 153 have been remediated as 
of today.
    Mr. Kolbe. Of your mission critical?
    Mr. Henderson. Yes. The 153 are the critical systems.
    Mr. Kolbe. Ready, but not validated, though, right?
    Mr. Henderson. They are remediated.
    Mr. Kolbe. Not tested, though?
    Mr. Henderson. No, they are not tested.
    Mr. Kolbe. Not tested. How many----
    Mr. Henderson. I believe there are 50-some--I have got 
something here that shows that.
    Mr. Kolbe. I notice you just said 153, so you have somehow 
dropped 13 mission critical systems since last fall?
    Mr. Henderson. One hundred fifty-three is the correct 
answer.
    Mr. Porras. That is the total number of systems.
    Mr. Henderson. Yes, the total number of severe and critical 
systems.
    Mr. Kolbe. Can you tell me what happened to the 13 that got 
dropped off since last fall?
    Mr. Henderson. They are re-evaluated all the time.
    Mr. Kolbe. Not being mission critical?
    Mr. Henderson. Yes. We are trying to minimize the use of 
resources, as the IG said, on non-mission critical systems.
    Mr. Kolbe. And you said about 50 have been tested?
    Mr. Henderson. Yes, about a third of them. We have 153 
mission critical systems. And 55 of them have been 
independently verified and 131 have been remediated.
    Mr. Kolbe. Okay. So 131 have been remediated and of those, 
55----
    Mr. Henderson. Have been independently verified. We will 
independently verify all of the mission critical systems.
    Mr. Kolbe. When is your projection for the remaining 25?
    Mr. Henderson. They will be remediated by the end of 
Summer.
    Mr. Kolbe. It will be that tight, up that close?
    Mr. Henderson. It is tight at the end, yes.
    Mr. Kolbe. Are you satisfied with the progress you are 
making?
    Mr. Henderson. Yes, I am. We discuss the Y2K issue every 
week in my management committee meeting, which is held weekly 
to talk about the top issues. We get a business update from all 
the executive VPs and senior VPs.
    Mr. Kolbe. Are you doing the testing in-house or have you 
hired independent contractors?
    Mr. Henderson. Independent contractors are testing.
    Mr. Kolbe. What is going to be the total cost of your Y2K 
compliance?
    Mr. Henderson. Somewhere in the neighborhood of $600 
million.
    Mr. Kolbe. Okay. I will have a couple of other questions. 
Mr. Price.

                           facility projects

    Mr. Price. Thank you, Mr. Chairman. Bill, I would like to 
ask you about an issue I know you are quite familiar with, that 
is the state of Postal Service facilities, and in particularly 
the way you are coping with high growth and increased demand in 
areas like the region I represent in North Carolina.
    In the Research Triangle, for example, we are beginning to 
discover the challenges as well as the benefits of low 
unemployment and healthy economic development. Our population 
is simply exploding, and our infrastructure resources are not 
sufficient to meet demand. We have crowded schools. Our traffic 
is leading some to fear that we will become a Los Angeles with 
seasons, as they put it.
    Our postal facilities are also being taxed to the limit. In 
many cases, it is some of our smaller towns that are hardest 
hit because they have only one facility. At some point when you 
are having to add a new route every 12 to 18 months, you simply 
run out of room, particularly in facilities that were never 
designed to handle that much mail.
    Now, as you know, we have gotten some good new facilities 
on line in places like Raleigh and Cary. We have new facilities 
scheduled for Fuquay-Varina, Mebane, and Chapel Hill. We have 
done pretty well, but it seems like we are always running to 
stay in place.
    I know you have a lot of competing needs. You have a large 
debt and you have equipment modernization priorities, among 
others. But I am particularly concerned that the state of your 
facilities be given appropriate and appropriate funding 
priority.
    So I would like to ask you to fill us in on what the future 
looks like in that regard, both in light of the proposed budget 
you are working with, and also the prospect a little farther 
into the future.
    You have just gotten a small rate increase that has just 
gone into effect.To what extent is that going to help? Can we 
expect the Postal Service to begin reinvesting in facilities 
that have been on the so-called five-year plan for often much 
more than five years?
    Mr. Henderson. The short answer is yes, but the longer 
answer is that revitalizing our infrastructure is a high 
priority. In areas like your district, for example, where 
growth explodes, it is very difficult for us to keep up 
sometimes. That has been the experience over the years and we 
have had to play catch up.
    We are now identifying those high growth areas around the 
country. Florida is another one. There are some in California. 
Rudy Umsheid is our Vice President of Real Estate. He has done 
an exceptional job of getting his arms around the 
infrastructure problem in the Postal Service.We have monies to 
fix it and we have plans to fix it.
    Mr. Price. Is there any way you can give us some basis for 
comparison--either in terms of other growth areas of your 
budget or what you have been able to do on infrastructure in 
past years--to put that in perspective?
    Mr. Henderson. We have about $1.5 billion earmarked for 
facility projects out of the $4 billion that we have planned in 
FY 2000 for capital investment. That is a substantial 
investment for the Postal Service.
    Mr. Price. I see. Thank you. Thank you, Mr. Chairman.
    Mr. Kolbe. Mr. Forbes.
    Mr. Forbes. Thank you, Mr. Chairman.
    General, thank you for being here and I would like to align 
myself with the comments of Mr. Price and many on this 
committee, I think, who have great respect for your past 
history and the fact that you come to this position after a 
career with the Postal Service. So I want you to know that I 
share in those comments.

                         advertising contracts

    That is probably why also it is a little troubling to me, 
and I know you are new at the helm, so I do not hold you 
necessarily personally responsible for this, but I think that 
the whole issue of sky boxes is an important issue and I know 
that the authorizing committee, Mr. McHugh, has raised some 
concerns about this.
    I think in light of some unfortunate incidents in the past 
where the perks at the Postal Service have shown up in the 
newspaper and caused quite a stir, I have great faith in your 
leadership that some of these incidents hopefully will not be 
occurring in the future.
    I know that the question has been posed about purchasing of 
sky boxes and I know that the Postal Service did not purchase a 
sky box. That is clear. But what did happen apparently was that 
it was part of a ``sports marketing package'' that a sky box 
for the Postal Service was made available.
    I am a little bit mystified as to how this kind of a perk 
does not run afoul of existing Federal statutes that govern 
perks. In fact, 5 U.S.C. 7353 suggests that a Federal officer 
or employee cannot receive any gift of any amount from a 
prohibited source, that is from someone who is seeking action 
from or doing business with or is regulated by an agency.
    Of course, exceptions are made and what I am gathering here 
is that your folks got some clearance from the ethics people at 
the Postal Service, but between you and me and the lamppost, I 
mean, if it looks bad--wouldn't you agree, General, that this 
is not necessarily sending a good signal?
    Mr. Henderson. We have been getting tickets with sports 
packages since the early '80s. It is just a part of the deal. 
When sky boxes came with our contract to place Priority Mail 
signs, we did go to the ethics people. We do have strict rules 
to follow in taking only customers or rewarding employees.
    We manage that from Washington for the national media buys 
and from the area offices for the area media buys. We looked at 
giving them back for some sort of rebate and it just is not 
possible.
    So we have two choices. We can ensure no one uses the 
skyboxes, or we can try to maximize their value. But it is 
important to understand that we are not, as you said, in the 
business of buying sky boxes.
    Mr. Forbes. But General, in all due respect, Jack Kent 
Cooke was the one that you responded to by Chairman McHugh, but 
there are 18 different places around the country, sports 
complexes, where it just happened to be that the Postal Service 
was the beneficiary of sky boxes.
    Was this not a part of the promotional package that the 
Postal Service went out and said, ``we want billboards, and by 
the way, we want access to sky boxes''?
    Mr. Henderson. No. The sky boxes come with the advertising 
as I said. We do not want sky boxes. It draws the kind of 
attention that you are talking about right now.
    Mr. Forbes. Are you prepared to return them?
    Mr. Henderson. We are going to try to return them, yes. We 
did try and there is no rebate for them. But we are not 
interested in sky boxes. That is not why we are buying the 
advertising. It is to promote our product.
    Mr. Forbes. Well, I can appreciate that, but why is it very 
difficult to turn down the use of a sky box? Other Federal 
agencies and departments do not have the benefit of taking 
their customers to sky boxes, get free sports tickets without 
running afoul of Federal statute.
    Mr. Henderson. As I say, we could not use them.
    Mr. Forbes. Well, could you just turn them back to the 
owners of the stadium and then they could let them out to other 
people?
    Mr. Henderson. I actually do not know the answer to that 
question.
    Mr. Forbes. Could you find out for us?
    Mr. Henderson. Yes, I would be happy to find out for you.
    [The information follows:]

                             Stadium Boxes

    The Postal Service is reviewing options for returning 
tickets to sporting events. Each sport/event contract is 
currently being reviewed to see if the Postal Service can 
receive additional in-stadium signage, advertising in team 
publications, or other traditional advertising in lieu of 
ticket usage.

    Mr. Forbes. It would be of great interest. You know, you 
had almost a half-a-billion dollar profit in the last fiscal 
year and because of the delay in the 33-cent stamp, you say 
that the profit is going to be down to $200 million this year.
    Again, I think that we have to be sensitive as public 
officials that this kind of thing sends a bad message to the 
public when you just raised the price of a stamp one-cent and 
mass mailers, newspapers, magazines, and others are forking 
over a tremendous amount of additional dollars. I think that if 
the Postal Service would take a look at that, I would be 
certainly one very appreciative individual.
    I have a couple of other concerns, if I might raise them 
with you. I will get them on the second round. Thank you.
    Mr. Kolbe. Mrs. Northup.
    Mrs. Northup. Thank you, Mr. Chairman. I appreciate also, 
Mr. Henderson, you being here. I have a concern, too, about the 
sky boxes and I would just like to follow up for a 
clarification. The sky boxes were given in a package with your 
advertising?
    Mr. Henderson. That is correct.
    Mrs. Northup. Don't you negotiate the advertising package? 
I mean, every business I know, they negotiate this. What is 
included? Does every single person that does that advertising 
in that way automatically have to take a sky box?
    Mr. Henderson. It is my understanding that it comes with 
the package. I did not negotiate the deal. We use a third 
party. We do not negotiate that ourselves.
    Mrs. Northup. Well, I know, but you actually help decide 
who goes into the sky boxes. Have you ever been in a sky box?
    Mr. Henderson. No. I do not decide who goes in there. We 
have someone in marketing make those decisions.
    Mrs. Northup. That is reassuring. But I guess my feeling 
is, that one of the issues I have followed up all along was, 
are you going to be a private company or are you going to be a 
government entity? You cannot sort of pick from both sides what 
you want to do.
    If the resources of the Post Office are for selling stamps 
and you can say, well, we do not cross-subsidize, but it looks 
to me like the GAO report says you do. If you lose money, which 
your extra services did, then they have to be paid for by 
somebody. It seems to me like that is the Postal Service.
    So anyway, if you were negotiating contracts and you were 
going to be a government entity, it seems to me like you ought 
to be bound by all the same restrictions, and everybody in your 
organization, that are bound by the executive branch.
    Mr. Henderson. You are asking me a question?
    Mrs. Northup. Well, does that seem reasonable to you?
    Mr. Henderson. We are required to operate in a business 
manner, unlike other Federal agencies. We compete head-to-head 
in the private sector. The purpose of the Postal Reorganization 
Act in 1971 was to operate the Postal Service in a business-
like manner.
    So advertising, as an example, is just a part of how we 
promote our products in the marketplace. The private sector 
behavior of the Postal Service is driven by the law that says 
we are to act in a business-like manner.
    H.R. 22, which is Chairman McHugh's bill, actually divides 
the Postal Service into three entities and there are two very 
competitive entities in that bill. So with that legislation, 
this sort of ambiguity should be resolved.
    The other thing is that we did not hear much from the 
private sector over the last 27 years or so. The real 
difference is that we have concentrated on quality in the last 
five years.
    We were not a choice in the marketplace really. We were a 
deliverer of last resort, at times. Now, because of our 
improvement in quality across the United States, we have become 
more of a deliverer of choice. That has raised the eyebrows of 
our competitors, FedEx and UPS, and they see us now on their 
radar screen.
    But I do not think the solution to that is to go back to 
being a mediocre organization.
    Mrs. Northup. Well, wait a minute. That is a really 
slanted--that is a very one-sided explanation of why you are 
hearing from the private sector. The fact is, I do not agree 
that you were the deliverer of last resort. You were in exactly 
the type of business that was envisioned in 1971 and that is 
door-to-door mail, first-class, second-class, third-class mail 
delivery service.
    In fact, in the last five years you, have expanded what you 
have done into totally new areas that the private sector was 
already in, and that is why we are hearing so much about the 
private sector, because they want to know why it is fair that 
an organization, as we have talked about before, that does not 
pay taxes, is not overseen, and does not have the same sort of 
oversight that they have, is advertising on television.
    They have all the best of the private sector and none of 
the worst. I want to ask you a couple of other questions. Do I 
have a minute left?
    Mr. Kolbe. No.
    Mrs. Northup. None? All right. I will come back. That is 
fine.
    Mr. Kolbe. We will have a second round.
    Mrs. Northup. Okay.
    Mr. Kolbe. Mr. Peterson.

                           MAIL VOLUME TRENDS

    Mr. Peterson. Good afternoon. I guess first, what kind of 
volume trends do you see, where have you been, where are you 
going with all the competition that is out there. But with a 
hot economy, what are your volume trends?
    Mr. Henderson. Our overall volume grows about 3 percent a 
year. It pretty much tracks over time the GDP of the United 
States. Our volume is very economy-sensitive, so when the 
economy is fairly robust, around 3 percent, we project growth 
of 2.5 to 3 percent a year.
    Mr. Peterson. You have been able to do that in spite of all 
the other abilities to transmit messages today, e-mail, all the 
other ways we talk to each other? I guess it would just seem to 
me--I was a retailer for 26 years, so I am thinking that way.
    Mr. Henderson. There has been an explosion in 
communications, but we have seen an absolute decline in 
business-to-business communications by mail. But we have seen 
double digit growth in some areas such as advertising mail. You 
can probably see that in the number of advertising pieces you 
get yourself.
    So while overall growth has remained at 2 to 3 percent, 
there are a lot of dynamic changes going on in the market 
place.
    Mr. Peterson. The 2 to 3 percent you are talking about is 
the traditional----
    Mr. Henderson. It is overall mail growth.
    Mr. Peterson. Overall?
    Mr. Henderson. Yes.
    Mr. Peterson. So that includes----
    Mr. Henderson. Total mail growth.
    Mr. Peterson. So maybe the magazines and all these 
advertising booklets have taken over for some of the business 
envelopes you may have lost?
    Mr. Henderson. Advertising mail definitely has replaced 
some of the business-to-business mail.

                        nonprofit rate increase

    Mr. Peterson. We have had a fair amount of flak on the 22 
percent increase for non-profits. Have you talked about that 
yet today? I got here a little bit late.
    Mr. Henderson. No, I have not talked about that.
    Mr. Peterson. Would you mind just giving us a quick cap on 
it?
    Mr. Henderson. The increase for non-profits is based on a 
formula prescribed by law. In some years, they benefit 
dramatically; in this case, they did not. But it is a 
prescribed formula that we use.
    Mr. Peterson. What drives that, that it would be 22 
percent?
    Mr. Henderson. I think it is a piece of legislation that 
was passed.
    Mr. Peterson. A bill that was passed?
    Mr. Henderson. Yes.

                         technology investments

    Mr. Peterson. What kind of technology changes are you 
looking at for your investments?
    Mr. Henderson. We are continuing to expand our ability to 
scan and read handwritten addresses. That is our primary look-
see into the letter mail. We also are looking at putting an 
information platform in the Postal Service that does three 
things.
    Number one, it gives us some real life costing and 
operational information so we can make better judgments and 
save more money. Number two, it provides an activity-based 
accounting system so that we can price better. And number 
three, it provides information to our customers so that they 
can track their mail. We have used the euphemism of saying let 
the mail talk.
    We plan on unveiling the platform this summer. We are 
developing it now and trying to determine how much it would 
cost the Postal Service to put such a platform in place and how 
much money we could save with having that kind of information.

                            service quality

    Mr. Peterson. Do you have any way of measuring the quality 
of service per region? Maybe some time I should talk to you. I 
have known of certain areas. I have a huge rural district, 17 
counties in Pennsylvania, and I kind of have the feeling that 
some parts of the district have really good service and some 
parts of the district do not get their mail in the same fashion 
as others. Would that be something I should share with you?
    Mr. Henderson. Yes, by all means. And I will just make a 
comment. We do track service on First-Class Mail. It is done 
independently by PricewaterhouseCoopers. They actually mail it, 
receive it, and then report back to us. We measure small 
geographies up to entire areas. The United States is divided 
into ten areas and we use that as a source to determine the 
bonus payments for managers.
    Mr. Peterson. Well, I will always have a warm and fuzzy for 
the postal system because I have rural America where most of 
your competitors do some business, but would not want to be the 
main server, period, because it is too sparse and I think that 
is the one thing we have to remember, that if all America has 
some equality of access to the mail system, it is the only way 
we are going to stay economically alive.
    So I do commend you for much of the success you have had 
and I guess I look forward to working with you to solve any 
problems I might see.
    Mr. Henderson. Thank you.
    Mr. Kolbe. Mr. Sununu.
    Mr. Sununu. Thank you, Mr. Chairman. Recognizing that you 
were very generous with me this morning, I will try to be brief 
in my questioning.
    You stated in your comments that your on-time delivery rate 
is 93 percent. Is that for all classes, and in particular, what 
is your on-time delivery rate for First-Class Mail?
    Mr. Henderson. That is first-class overnight mail.
    Mr. Sununu. That is first-class overnight?
    Mr. Henderson. Overnight mail.
    Mr. Sununu. So is that a normal first-class, 33-cent 
letter?
    Mr. Henderson. Yes.
    Mr. Sununu. And 93 percent are delivered overnight?
    Mr. Henderson. We deliver 93 percent on time in the 
overnight area, which is a delivery area of roughly 150 miles.
    Mr. Sununu. And what percentage of your mail is sent within 
the overnight area?
    Mr. Henderson. Roughly 65 percent.
    Mr. Sununu. So 93 percent for 65 percent?
    Mr. Henderson. Right. We also measure two-day and three-day 
service. On-time performance runs in the mid-80s.

                           stadium contracts

    Mr. Sununu. Mr. Forbes asked a question about the sky boxes 
that you received as part of a marketing package, and as I 
understood your answer, you stated that if you gave the boxes 
back, you would not receive any reimbursement. Is that correct?
    Mr. Henderson. That is correct.
    Mr. Sununu. Have you looked at and assessed thepossibility 
of subletting those boxes?
    Mr. Henderson. I have not. That is a thought. I do not know 
what the reaction would be to that, but no, we have not thought 
about that.
    Mr. Sununu. The reaction from who would be to that?
    Mr. Henderson. The sports marketers we are going through to 
get the packages.
    Mr. Sununu. If you could find out for the record----
    Mr. Henderson. Sure.
    Mr. Sununu [continuing]. Whether or not the boxes are able 
to be subletted, I would appreciate that very much.
    Mr. Henderson. Sure.
    [The information follows:]

                             Stadium Boxes

    The Postal Service is reviewing options for returning 
tickets to sporting events. Each sport/event contract is 
currently being reviewed to see if the Postal Service can 
receive additional in-stadium signage, advertising in team 
publications, or other traditional advertising in lieu of 
ticket usage.

    Mr. Sununu. Thank you.

                          nonprofit rate case

    Mr. Kolbe. I will start a second round here. Let me ask you 
about the non-profit postal rates. The non-profit mailers, of 
course, have expressed their dissatisfaction with the increase 
in the non-profit postal rates. They alleged in January that 
those were both unnecessary and illegal, and as a result, 
requested that they not be implemented at all.
    You basically ignored that request. Ignored may not be the 
right word, but you did not abide by that and those increases 
were put into effect. As a result, the Alliance has filed an 
appeal of the rate before the U.S. Court of Appeals. I think I 
have got the sequence correct there. Can you tell me what the 
current status of that case is?
    Mr. Henderson. It is still in the courts. I think the 
Postal Service is actually having a conversation with the non-
profits in the next couple of weeks, to see if there is any 
opportunity to resolve the issue. Right now, it is still in the 
courts.

                        Postal Service Finances

    Mr. Kolbe. In the case that you have just completed, the 
one dealing with first-class mail, you said that without a rate 
increase, the USPS would suffer a $1.4 billion operating loss; 
yet, you did not put that into effect until 1999 and your 1998 
fiscal year shows a net operating surplus of $550 million, as 
you pointed out in your opening remarks, for the fourth 
consecutive year of positive net income.
    How come there is such a huge discrepancy between the 
estimates for the loss you would have and what you actually 
had, even though there was no increase in the rate?
    Mr. Henderson. Are you talking about the last fiscal year?
    Mr. Kolbe. Yes. I think you said if you did not put that 33 
cents into effect during fiscal year 1998, you would have a 
$1.4 billion loss and, of course, it did not go into effect 
until 1999.
    Mr. Henderson. Right. We were only going to have a $200 
million surplus at the end of this year. Postponing that rate 
increase effectively gave our customers about $800 million 
back.
    Mr. Kolbe. Well, my question was about 1998. You had 
projected a loss of $1.4 billion in 1998. You had a surplus of 
$550 million. That is a discrepancy of almost $2 billion.
    Mr. Henderson. I will have to answer that for the record. 
Richard do you want to go ahead?
    Mr. Porras. I can give you some clarification. I believe 
that was the number we had in the rate case as a projected 
loss.
    Mr. Kolbe. If you did not have the rate increase?
    Mr. Porras. Right. First of all, the economy remained 
strong, Inflation stayed low, our health benefits in 1998 were 
lower than expected, and the cost of living adjustments we paid 
to our employees were under projections. You add those all up 
and that saved us $700 million.
    We also had a number of program investments projected for 
1998 to improve our customer satisfaction, our customer 
service, build our infrastructure, and create more efficiencies 
in the future, and we had some problems getting a lot of those 
programs started.
    That also caused us to be under our expense plan for 1998. 
The field also gave us another $400 million of efficiencies 
that we didn't know they were going to be able to do. So we 
ended up with our expenses coming in a lot less than what we 
had originally projected.
    Mr. Kolbe. I think you have answered it for the record. It 
was lower inflation, it was increased effectiveness and 
efficiencies, and postpone capital investments that resulted in 
a surplus rather than a loss. Is that correct?
    Mr. Porras. A lot of our programs, yes.

                         nonprofit rate review

    Mr. Kolbe. I understand Mr. McHugh recently sent you a 
letter asking you to review the rates paid by non-profit 
mailers. What is the status of that review?
    Mr. Henderson. The average rate increase for Standard A 
non-profit mail was 8.7 percent. The average rate increase for 
commercial classes was 3.5 percent. That was the outcome of the 
review.
    Mr. Kolbe. So that is an overall increase or that is just a 
rate increase? I am not sure I understand what you mean.
    Mr. Henderson. The average rate increase for Standard A 
non-profit mail is 8.7 percent. There are fluctuations within 
that, but that is the average.
    Mr. Kolbe. That is the average increase during last fiscal 
year as a result of the rate increase?
    Mr. Henderson. As a result of the rate increase.
    Mr. Kolbe. As a result of the rate increase. And for the 
commercial, you said it was what?
    Mr. Henderson. Three point five.
    Mr. Kolbe. Three point five percent.
    Mr. Henderson. The overall rate increase was 2.9 percent.
    Mr. Kolbe. What is the justification for a rate increase 
for the non-profits that is twice that of----
    Mr. Henderson. It is computed under the Revenue Forgone 
Reform Act of 1993. That is the methodology that we used.
    Mr. Kolbe. My time is up. Mr. Price.

                          competitive services

    Mr. Price. Thank you, Mr. Chairman. Mr. Henderson, I 
understand, I believe, what you are saying with respect to the 
frustrations that sometimes come with your unique legal status. 
You are sometimes accused of having unfair advantages over 
companies in the private sector, but it seems to me you must 
sometimes feel like you get the worst of both worlds.
    You have some of the legal and administrative restrictions, 
the public scrutiny and oversight that come with governmental 
status, but you have all those things without Federal 
subsidies. You are expected to sink or swim in the marketplace.
    That does lead to difficult policy questions sometimes, 
many of which have been hashed out on this Subcommittee. So I 
would like to get back to that area and just give you a chance 
to comment on that general set of issues.
    It arises all the way from international agreements--for 
example, your Global Package Link program which lets you give 
expedited Customs service to your frequent mailers--all the way 
to the kind of retail services you may be offering in these new 
model post offices you are opening that are much more customer-
friendly.
    What would you like to say about that? In particular, are 
there any current areas of controversy or areas where you are 
working out accommodations that the Subcommittee ought to know 
about?
    Mr. Henderson. I think all of this, as I said earlier, is 
simply about postal quality. When your quality becomes very 
competitive, people choose to come to you for postal services. 
That tends to irritate the private sector players in this 
market and I understand why.
    The Postal Service essentially looks today like it did 25 
years ago except that it is delivering a much higher quality 
product. So all of the efforts that we are putting in now are 
about quality and about advertising our quality to the American 
people so that they can have choices.
    Our efforts internationally have been to try to shore up a 
sagging international business. That is where we are seeing a 
huge hit from electronics. People simply are not using mail to 
correspond internationally. We have been affected, but we are a 
bit player internationally.
    Last year there was a hearing over Global Package Link, 
which is a $25 million total product. It is a fraction of total 
marketplace revenues. The one issue where we are severely 
disadvantaged in the marketplace, except for international, is 
in our inability to negotiate prices with customers. All of our 
competitors can do that and that inhibits our ability, 
especially in the package business, to be competitive. We 
simply are undercut by pricing at will, really, so we are 
different entities than the private sector.
    But if you look at the whole world, the posts of the world 
are all becoming more commercial. They are becoming more 
competitive. The Deutsche Post has bought 25 percent of DHL. 
The Dutch bought TNT. Royal Mail is buying package companies in 
Germany. The whole world is getting turned upside down in terms 
of government versus private, and virtually all of these postal 
administrations are envolving into private entities. In some 
instances, they are issuing stock.
    And they are here on U.S. soil. That is what really 
concerns me. A few years ago, I could meet with the posts of 
the world in a room like this and everybody would be very 
collegial and nice. Now there is tension because we are 
competing with one another.
    A Royal Mail official made a speech two days ago to a 
graphics design convention in Florida and he made the claim 
that they were taking $80 million in postage out of the United 
States as freight to London. The Dutch are also over here. They 
bought Mail 2000, which is a Washington-based hybrid mail 
service. The Germans just hired the number two guy in our 
strategic planning group and he now heads up Deutsche Post USA, 
which is designed to get mail and take it to Germany.
    So it is a very changing world, and I think the United 
States Postal Service is an American treasure. If you are not 
competitive, you are not going to stay in the marketplace.
    Mr. Price. Thank you.
    Mr. Kolbe. Mr. Forbes.

                         business partnerships

    Mr. Forbes. General, you mentioned about getting a 
partnership going with DHL on international express mail 
delivery. Are there plans by the Postal Service to perhaps do 
that on the domestic side, to link up with DHL or other private 
carriers for overnight express delivery?
    Mr. Henderson. We already link up with private carriers on 
the domestic side. We have hubs in the United States. Priority 
Mail is transported by Emery Air Freight and has been for some 
time, and most of our mail is moved by private carriers.
    Mr. Forbes. Is that all across the country or just in 
selected parts of the country?
    Mr. Henderson. Right now, Emery is primarily on the East 
Coast, but there will be an out source, likely an out source as 
a result of our labor contract. There will be some out-sourced 
plants and some inside processing plants spreading across the 
United States. One of the issues affecting our decision is 
whether we have the capital to build our own plants.
    Mr. Forbes. Will that impact the FTEs, the number of 
employees that you have at the Postal Service?
    Mr. Henderson. Not dramatically, no.
    Mr. Forbes. That is a yes, you will be downsizing 
employees?
    Mr. Henderson. It is slight, but we can absorb that through 
attrition.
    Mr. Forbes. Okay. So nobody would actually lose their job, 
but the positions will not get filled?
    Mr. Henderson. No.
    Mr. Forbes. Do you have any idea how many positions we 
might be talking about?
    Mr. Henderson. No, not off the top of my head.
    Mr. Forbes. How many employees are there at the Postal 
Service?
    Mr. Henderson. There are just over 800,000.

                               child care

    Mr. Forbes. How many of those employees might be--and 
again, I do not know if you would know that--single parents who 
are considered maybe working poor? Do you have any idea of the 
percentage of your employees that might be doing that?
    Mr. Henderson. I do not have any idea how many are single 
parents.
    Mr. Forbes. The President and many members of Congress have 
talked at great length about increasing the Federal role in 
helping Federal employees get child care and that is really 
where I was going with this. Obviously, the child care at the 
U.S. Postal Service is a little bit more unique than if you are 
at the Department of Defense or if you are in a courthouse or 
obviously, at your larger facilities. Do you have any child 
care facilities at this point?
    Mr. Henderson. We have six efforts going on across the 
United States. It is part of our collective bargaining 
agreement, and we have a committee that looks at that issue.
    One of the problems we have with child care is that the 
majority of our work is done in the evenings and at night. Many 
single parents do not want their children sleeping in a child 
care facility. So we are looking at a referral service. We have 
also tested dependent care. But it is a matter that we have 
been working on with our unions.
    Having been a single parent myself, I see the difficulty in 
managing a job and raising two kids, too.
    Mr. Forbes. So it sounds like obviously you and the senior 
management of the Postal Service are amenable to trying to 
increase child care opportunities for your employees?
    Mr. Henderson. I do not know what the solution is, but we 
are amenable to trying to solve that problem for our employees.

                       facility project schedule

    Mr. Forbes. I just have one final quick question, actually 
a request, if I might. General, if you would be kind enough to 
provide me a list of the construction projects that are planned 
in the next couple of years? I know that there has been a 
dramatic increase in construction.
    I do not necessarily question that, especially with the 
expansion of products and services, but I have seen a dramatic 
increase, particularly in my district, of new postal facilities 
and for that we are thankful. But I would just like to get an 
idea, in a quantitative sense, of how much that is and how many 
you are planning in the next couple of years. Thank you, Mr. 
Chairman.
    Mr. Henderson. I would be happy to provide that 
information.
    [The information follows:]

       Requested List of Construction Projects for Next Two Years

                          UNITED STATES POSTAL SERVICE FACILITY PLAN--FY 1999 and 2000
----------------------------------------------------------------------------------------------------------------
                                                                       FY 1999            Estimated \1\ FY 2000
                                                             ---------------------------------------------------
                                                                Projects     Millions     Projects     Millions
----------------------------------------------------------------------------------------------------------------
NEW CONSTRUCTION OWNED/EXPANSIONS...........................          330       $1,030          220       $1,005
NEW CONSTRUCTION-LEASED; MODULARS, LEASING ALTERNATE SPACE..          700      \2\ N/A          710      \2\ N/A
REPAIR & ALTERATION (capital & expense).....................    20-30,000      500-600    20-30,000      500-600
----------------------------------------------------------------------------------------------------------------
\1\ The FY 2000 Expense and Capital Budgets are now in review and have not been finalized. The number of
  projects and total estimated expenditures may change as a result of final authorized budgets.
\2\ The dollars for new construction owned/expanded represent site acquisition and/or design/construction
  awards. They do not include initial planning funds or modifications to projects where construction is under
  way.
We do not have a planned dollar amount for the new construction-leased, modulars, or leasing space in existing
  buildings, since many will not have lease payments begin until the facility is ready for occupancy. The total
  dollars over the terms of the leases would vary, based on the lease term (from 5 to 20 years, in general)
For both new construction owned/expansions and mew construction leased, modulars and leasing alternate space,
  the number of projects being worked on at any time is greater than the number shown, so that if a project is
  delayed, another can be substituted.
A range is given for repair and alteration projects. These are averages.

    Mr. Forbes. Thank you.
    Mr. Kolbe. Mrs. Northup.

                           employee training

    Mrs. Northup. Mr. Henderson, I would like to ask you about 
some of the new employee training. I know that your managers, 
supervisors, and actual employees have been trained to be 
experts in efficient and experienced delivery of mail,and it 
represents a significant investment in time and energy. Obviously, the 
introduction of some of the new retail items also require some employee 
training.
    I just wondered what the cost of formal training employees 
on non-postal product lines would be.
    Mr. Henderson. I would be happy to give that to you. I just 
do not have it off the top of my head.
    Mrs. Northup. I am also interested in how many employees 
were trained, and how long the average training session was. I 
have a letter from a woman--I mean, from a gentleman whose 
sister works in Missouri and she had to go to training for ten 
days, leaving her two children at home at great inconvenience 
and actual expense to learn how to sell coffee mugs, t-shirts, 
and other things that the post office was selling. That was 
actually about a year ago. I just wondered if that is something 
that----
    Mr. Henderson. To my knowledge, there is no program in the 
Postal Service that teaches you how to sell coffee mugs and t-
shirts and if there is, I will eliminate it tomorrow.
    Mrs. Northup. Well, I would be interested in knowing 
whether that letter was----
    Mr. Henderson. Sure. If you will give me the name, I will 
get the actual facts.
    Mrs. Northup. Well, I do not think I had better give you 
the name.
    Mr. Henderson. I promise there will be no retaliation.

                          post office closings

    Mrs. Northup. I also wondered, I know the Postal Service 
has issued a moratorium on post office closures. However, it is 
reported that there have been many additional post offices that 
have closed, as many as two per week, under the classification 
of emergency closures.
    Do you know how many post offices were actually closed in 
1998?
    Mr. Henderson. I believe there were 90 post offices closed. 
[Clerk's note.--USPS later changed this to 94.] Those are not 
management-initiated actions. Most of those occur when somebody 
decides they do not want us in their store anymore, or they 
close the store and no one wants the post office. We suspend 
them because nobody wants the post office, we cannot find a 
building, or we cannot find a person to run the post office.
    We have a joint committee with the Postmaster Associations 
that is now looking at those locations to see if there is a 
resolution. When we put that moratorium in place on May 16th of 
last year, our goal was not to close post offices if at all 
possible. For business reasons, however, it is not always 
possible to keep them open.
    Mrs. Northup. So there were 94 and were they all under the 
classification of emergency closures?
    Mr. Henderson. I remember the number 90, but I will get you 
that information.
    [Clerk's note.--USPS later reported that, of the 94, 69 
were emergency suspensions.]
    Mrs. Northup. Could you give me a list of those, too, that 
were closed?
    Mr. Henderson. Yes.

                   List of Closings Since Moratorium

    See Attachment 4.

[The official Commmittee record contains additional material here.]



    Mrs. Northup. I wondered how many more closures are 
anticipated this year?
    Mr. Henderson. I do not have an idea today. I can tell you 
how many are in suspension, which would give you some idea of 
the number that are susceptible to closing.
    Mrs. Northup. Well, I am just interested in knowing--if you 
could find out from whoever is in charge how many they would 
anticipate this year, how many closures, and also, what those 
closures would be expected to save.
    Mr. Henderson. Sure. I want to clarify a point. We do not 
close post offices to save money. We close post offices, in all 
instances, because we do not have a post office or cannot find 
a postmaster.
    It is prohibited by law to close post offices to save 
money, because they do not make a profit. It is in the Postal 
Reorganization law.
    Mrs. Northup. Do you actually keep an accounting, though, 
of each post office and whether it makes money or not? I mean, 
do you have a station-by-station accounting system?
    Mr. Henderson. Yes.
    Mrs. Northup. So what I would also like besides the 90 that 
were closed and whether they were closed under emergency 
provisions, whether they lost money or made a profit.
    Mr. Henderson. I can almost assure you they lost money, 
because the 17,000 smallest post offices in America, spend 
roughly a $1.75 to take in $1.00. So these are very small 
offices.
    Mrs. Northup. Well, don't you think it is sort of odd that 
the only places where you have been kicked out or the building 
has closed and you could not replace it is where you have lost 
money and not in any of the postal stations, by coincidence, 
that have made money?
    Mr. Henderson. The ones that make money are very large. I 
am talking about a post office in a grocery store and if you 
are talking about money, you are talking about a huge post 
office and we do not get kicked out of those.
    These are very small offices where people, for various 
reasons, decide that they do not want to work for the Postal 
Service and no one wants to run the post office and we put them 
in suspension. This is not some plan by us to close offices.
    Mrs. Northup. Well, first of all, I would tell you that I 
am not sure I would object to you closing a station that is 
losing money and that you believe can be served more 
efficiently in another way. My point is not to say you can 
never close one.
    What is the problem is the people that contact us believe 
that you are actually closing them to save money and you are 
using the emergency closure provisions in order to accomplish 
that. If it is, then let's put the issue on the table and 
decide that we need to be able to close them.
    I am not trying to lock you into never closing. I just 
think--you know it is hard to give people an answer and have 
them fire back a letter to you that says, ``Well, I am sorry, I 
think they are saying one thing and doing something else.'' I 
would be willing to help you ensure that you can do what you 
really do believe is in the best interests of the people you 
serve and the taxpayers.
    If it means closing, I would take a look to make sure 
everybody gets served, but what we can also do to save money.
    Mr. Kolbe. Mr. Peterson.

                          post office revenues

    Mr. Peterson. How many stores do you have, or post offices?
    Mr. Henderson. Roughly 30,000.
    Mr. Peterson. You said 20,000 lose money?
    Mr. Henderson. Yes. There are 40,000 post offices.
    Mr. Peterson. Oh, there is 40,000?
    Mr. Henderson. Yes.
    Mr. Peterson. You just told me 30,000. So half of them lose 
money?
    Mr. Henderson. That number includes retail units--a 
station, as an example. In the 17,000 smallest post offices in 
America, it costs $1.75 to take in $1.00. Most of the money is 
made in the top 5,000 post offices. Most of the retail money is 
made in those offices.
    Mr. Peterson. Is there somewhat of a percentage that when 
you get to a certain volume the costs continue to go down and 
that is where--you measure them that way, their efficiencies?
    Mr. Henderson. We measure that, but we do not call that 
efficiency. It is a function of traffic.
    Mr. Peterson. I understand that. I was in retail for 26 
years.
    Mr. Henderson. I can visualize a rural Tennessee strip mall 
where the only thing left in the strip mall is the post office 
because everything else has gone out of business. That is where 
we lose money, these small places.

                      source of employee training

    Mr. Peterson. I am familiar also with the little ones you 
were talking about. I know of a community where nobody wanted 
to take the post office and I commend you for that. The issue 
of employee training, do you find it difficult in rural America 
to get the training you need or do you do all your in-house 
training?
    Mr. Henderson. We do most for the first level and second 
level managers. Mid-level we do mostly in-house training. We 
have academies, including one here in Washington [Clerk's 
note.--USPS revised this to read Potomac, MD.]. For craft 
employees, the only off-site training we do is technical 
training in Norman, Oklahoma.
    It is difficult to communicate because we have such a large 
work force. It does not make any difference if you are General 
Motors or any other organization. If you have an 800,000-plus 
employee work force, training is always an issue. It is always 
an issue to keep people current. It is always an issue to try 
to communicate with your employees about what is going on.
    Mr. Peterson. But you do not out-source training?
    Mr. Henderson. We do for our senior executive levels, yes. 
We have programs with Harvard. We out-source our executive 
level training, for example. We require our executives to 
attend a special two-week course and we usually out-source that 
to a university such as the University of Virginia or Duke 
University.
    When I was in the field, all of the executives went to Duke 
University for three weeks of training. It is really an MBA 
refresher-type course.

                         management promotions

    Mr. Peterson. Now, do you have a classification that 
becomes management?
    Mr. Henderson. Yes.
    Mr. Peterson. Where you really manage?
    Mr. Henderson. Yes.
    Mr. Peterson. What are those?
    Mr. Henderson. It is the front-line supervisor. I mean, the 
level would not be material to you, but it is the front-line 
supervisor. The first supervisor level is a manager of craft 
employees. The next level of supervision is the manager of 
managers. We also have some technical people in management, who 
are paid as management, but they are computer analysts and 
people like that.
    Mr. Peterson. How do you get to be a top manager? Survive a 
long time in the system or have management skills?
    Mr. Henderson. Do a great job. If you do a great job, you 
get promoted.
    Mr. Peterson. Do you promote over the seniority system in 
management?
    Mr. Henderson. We promote purely on merit, no seniority.
    Mr. Peterson. On merit?
    Mr. Henderson. Yes.
    Mr. Peterson. Okay, that is good. Thank you.

                         International Service

    Mr. Kolbe. Just a couple of quick questions. One, I wanted 
to follow up on the mention of DHL and the new express mail 
service in Europe. One of the criticisms that has been leveled 
against USPS was that you are in a position to negotiate 
special deals with foreign postal administrations. Were there 
any special negotiations? This service, as Iunderstand it, goes 
to 18 European countries. Did this involve any negotiations with these 
countries involved?
    Mr. Henderson. There were no negotiations with any foreign 
postal administration or any country. This is a transportation 
issue similar to those we have done in the past.
    Mr. Kolbe. Okay. So how does the service fit in with the 
international services you provide through the Universal Postal 
Union?
    Mr. Henderson. This has nothing to do with the UPU.
    Mr. Kolbe. It does not fall into their purview?
    Mr. Henderson. No.
    Mr. Kolbe. Another criticism was that your international 
stuff had bypassed Customs. Does this bypass Customs?
    Mr. Henderson. This is treated--DHL handles this. We do not 
handle this through Customs. It is purely a DHL thing.
    Mr. Kolbe. So DHL goes through Customs as would any package 
they are carrying themselves?
    Mr. Henderson. That is right.

                            revenue forgone

    Mr. Kolbe. My final question is one on a budget issue, 
believe it or not, here. The President's request in the 
supplemental request has a supplemental request of $29 million. 
Basically, these were the funds that were due to you in fiscal 
year 1999, but because of budgetary constraints, we deferred. 
This is part of the money, the 42 annual appropriations for 
back payments that we have not made to you.
    I know you are asking for it, of course, again in your 2000 
appropriation. I might be begging the answer to this question, 
but I would just like you to tell me, what difference does it 
make to you, to the operations and finance of the Postal 
Service if this money is provided as a fiscal year '99 
supplement or as part of the regular fiscal year 2000 
appropriation?
    Mr. Henderson. [Clerk's note.--The USPS later added: ``It 
makes very little difference whether we received this money as 
a FY 99 supplemental appropriation or as part of the regular FY 
2000 appropriation; however, if we do not receive the money 
from either source.''] we would be forced to write-off $380 
million.
    Mr. Kolbe. I am sorry. Tell me how that works. Twenty-nine 
million writes down $380 million?
    Mr. Henderson. Because you no longer can assume--when our 
accountants, our outside accountants look at the books and they 
know--
    [Clerk's note.--The USPS later added: ``Our independent 
auditors will require us to write off the entire amount.'']
    Mr. Kolbe. You have to write the whole thing down?
    Mr. Henderson. You have to write the whole thing down.
    Mr. Kolbe. When you miss one payment?
    Mr. Henderson. Yes, if there is speculation on their part 
that we will not get paid. There was language in last year's 
appropriations to make sure that it was not a permanent short 
fall, but if our accountants believe that it is going to be a 
permanent, that is, we will not get the money every year, then 
they will force us to write it off and that is what we are 
concerned about. Rich, do you want to add something?
    Mr. Porras. Well, the financial side of the house would 
take it right away. We would prefer to get '99.
    Mr. Kolbe. I am sorry?
    Mr. Porras. The financial side of the house would prefer to 
get the payment in '99 and not 2000.
    Mr. Kolbe. Gee, why am I not surprised by this? [Laughter.]
    Mr. Porras. I just thought I would say that.
    Mr. Kolbe. So I guess the answer is, if you never got that 
'99 reimbursement, but subsequent ones did come through on 
time, you would just have to write off that payment or else it 
would be added on to the end, I suppose.
    Mr. Henderson. You would write off the $380 million.
    Mr. Kolbe. You would write off $380 million?
    Mr. Henderson. Yes.
    Mr. Kolbe. You are sure your accountants would force you to 
do that?
    Mr. Henderson. We would try to talk them out of it, but 
that is a problem that we have.
    Mr. Porras. You have to take the present value of the 42 
years that have been unpaid and write off all of that in the 
current year when you use an accrued accounting system that we 
use. The external auditor has been very, very careful with the 
wording to make certain that you promised to pay us and we do 
not have to write it off.
    Mr. Henderson. Right.
    Mr. Kolbe. Okay. Well, it is in the supplemental and we are 
going to mark that up tomorrow. As far as I know, that item 
will remain in there. That is all the questions I have. Another 
round, do you have any others? Yes, Mr. Forbes.

                            labor contracts

    Mr. Forbes. General, I think it is pretty common knowledge 
that there have been some rocky relations between labor and 
management over the years at the Postal Service. I am sure you 
have heard, since you have assumed the helm of your position 
there, that many of the rank and file have great optimism with 
you there having come from the ranks.
    Could you maybe discuss, within the parameters that you can 
discuss this obviously, the negotiations, where the status of 
negotiations are with the letter carriers? I guess you have 
been trying to get a contract with the letter carriers for how 
long?
    Mr. Henderson. Since the summer when negotiations started. 
We have an agreement with the American Postal Worker's Union, 
we have an agreement with the Mail Handler's Union, and we are 
going to sign an agreement this afternoon with the National 
Rural Letter Carrier's Association.
    We are in mediation with National Association of Letter 
Carriers and it is still our express desire to get a contract. 
Thus far, we have come down to a few issues that I have agreed 
not to talk about publicly in the collective bargaining process 
and we will just see how it goes.
    Mr. Forbes. Would the consumers of the Postal Service have 
to be concerned about productivity and service if this 
languishes for an inordinate amount of additional time?
    Mr. Henderson. No. The letter carriers of America are very 
dedicated people. They do their jobs diligently every day.

                        productivity Incentives

    Mr. Forbes. On the issue of bonuses and targets, am I 
correct to understand that bonuses are paid when targets are 
met by the various, I guess, senior managers or their units 
across the country? Do you have a bonus/target kind of system 
that works?
    Mr. Henderson. Yes.
    Mr. Forbes. Is that right?
    Mr. Henderson. We use EVA, economic value added, and I will 
not bore you with the arithmetic construction, but essentially 
the principle is, you earn a bonus of x amount. Part of it is 
put at risk in a bank and part of it you are paid out of what 
you have in the bank.
    So our system provides both a short-term incentive, 
encouraging you to meet your target, and a longer term 
incentive because you could lose your bank ifyou do not meet 
your targets in subsequent years. So it is purely merit-driven.
    Mr. Forbes. When was that last time that bonus/target 
arrangement was reviewed?
    Mr. Henderson. It is reviewed every year. In fact, an 
independent consultant is reviewing it now at the request of 
our Board of Governors.
    Mr. Forbes. Just one final request, and I thank you for 
your indulgence today. If you could, if I could get a list of 
the perks and bonuses paid to the very senior management of the 
Postal Service, I would appreciate that. Thank you.
    Mr. Henderson. Sure.
    [The information follows:]

                       Senior Management Bonuses

    See Attachment 5.

[The official Commmittee record contains additional material here.]



    Mr. Kolbe. Mrs. Northup.

                           upu representation

    Mrs. Northup. Mr. Henderson, Mr. Kolbe raised a couple of 
issues that I was confused about your answers to, and it also, 
since we are sort of talking about the Global Package Link, I 
want to start with another question.
    The UPU is going to meet this year and I thought it would 
be of interest to the committee as to whether or not any other 
countries are proposing this sort of neutrality between public 
and private carriers that many are clamoring for in the United 
States, for example, Germany, Netherlands, places like that.
    Mr. Henderson. To my knowledge, in my last conversations, 
most of those foreign postal administrations object to any kind 
of private sector entity. They do not have the arrangement that 
we have here in the United States. That may have changed with 
some of these complete privatizations in other nations. I 
actually do not know what the attitude of the UPU is to those 
private entities.
    Mrs. Northup. I think it is of interest because in this 
committee, we have support for free trade, and what is 
happening is, it seems to me, as I read is that countries like 
Germany are asking for this neutrality. Other countries that 
support free trade are asking for this neutrality, that there 
is a movement in the developed countries, in some of those, to 
actually embrace the very same things that UPS and FedEx are 
asking for in this country.
    Mr. Henderson. I will find out from Tom Leavy, who is the 
head of the UPU, but I know the heads of the foreign postal 
administrations----
    Mrs. Northup. Oh, I did not mean the foreign postal. I mean 
that Germany----
    Mr. Henderson. The country?
    Mrs. Northup. For example, Germany, the country itself, is 
separate from the postal, but the rest of the government has 
come down on the side of the private sector.
    Mr. Henderson. I do not know the answer to that question, 
but I would be interested in that question, too.

                          customs arrangements

    Mrs. Northup. Okay. And I thought in both the GAO report 
and the Customs report that both of them, which I think we 
would call independent agencies, did, in fact, find that the 
Postal Service benefitted from the agreements, that they 
benefitted to the exclusion of the private sector or to the 
benefit of the public sector over the private sector through 
both their arrangements with Customs and with their 
arrangements with the postal--let's see, Customs and the 
ability to speedily deliver packages by using the postal 
systems in other countries.
    Mr. Henderson. It shows how two people can read a document 
and disagree over the interpretation. No, we do not have an 
advantage in Customs. We are treated as a post. We have no 
control. Take Japan, for example. They treat United States 
Postal Service mail going into Japan as mail. Commercial 
carriers are treated commercially.
    It takes us, for example, two days to get a package through 
Customs and it takes commercial carriers a couple hours. They 
pay more money.
    Mrs. Northup. They pay more money?
    Mr. Henderson. Yes. We have gone on record as saying, given 
a choice between the two, we would rather have the commercial 
carriers' Customs arrangements than the postal Customs 
arrangements.
    Mrs. Northup. And isn't the goal to make sure everybody has 
the same arrangements? Isn't that the whole point of last 
year's bill and going to the UPU?
    Mr. Henderson. We wanted everybody to have a commercial set 
of arrangements so you could get in thorough Customs, depending 
on how much you wanted to pay. But the problem is, you cannot 
pass laws in the United States that affect Japanese Customs. 
The Japanese do not treat us the way we are because we are the 
U.S. Postal Service. They treat us a certain way because they 
treat all postal services of the world that way. And generally, 
the value of what is going through is significantly less than 
the commercial carriers.
    So we do not have any ability to influence the Japanese in 
the way they view Customs. But as we said to you privately and 
publicly, we are very willing to take the commercial 
arrangements for Customs because I think they are better than 
our arrangements.
    Mrs. Northup. Okay.
    Mr. Kolbe. General Henderson, thank you very much for 
appearing today. I think this has been a useful hearing and I 
think we have covered a lot of territory today. We thank you in 
this initial meeting with us and wish you well.
    Mr. Henderson. Thank you.
    Mr. Kolbe. Thank you very much. The subcommittee stands 
adjourned.

[The official Commmittee record contains additional material here.]





                               I N D E X

                              ----------                              
                                                                   Page
United States Postal Service.....................................     1
    Advertising Contracts........................................    13
    Appropriations Request.......................................     4
    Business Partnerships........................................    22
    Child Care...................................................    23
    Clarification on Why Non-Profit Rates Have Risen Dramatically    11
    Competitive Services.........................................    21
    Customs Arrangements.........................................    36
    Employee Training............................................    24
    Facility Project Schedule....................................    23
    Facility Projects............................................    12
    Free Mail for the Blind......................................    10
    International Service........................................    31
    Labor Contracts..............................................    33
    List of Closings Since Moratorium............................    26
    Mail Volume Trends...........................................    16
    Management Promotions........................................    31
    Nonprofit Rate Case..........................................    19
    Nonprofit Rate Increase......................................    17
    Nonprofit Rate Review........................................    20
    Opening Comments By Mr. Kolbe................................     1
    Opening Comments By Mr. Price................................     2
    Post Office Closings.........................................    25
    Post Office Revenues.........................................    30
    Postal Service Finances......................................    19
    Postal Service's Financial Condition.........................     3
    Postal Service's Success.....................................     3
    Postmaster General Henderson's Statement.....................     3
    Productivity Incentives......................................    33
    Questions Submitted by the Committee.........................    38
    Representive Anne Northup....................................    44
    Representative Carrie P. Meek................................    78
    Representative Jo Ann Emerson................................    64
    Revenue Forgone..............................................    31
    Senior Management Bonuses....................................    35
    Service Quality..............................................    18
    Source of Employee Training..................................    30
    Stadium Boxes................................................    19
    Stadium Contracts............................................    19
    Technology Investments.......................................    17
    UPU Representation...........................................    36
    Year 2000....................................................   119