- TREASURY, POSTAL SERVICE, AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2000

[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

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