[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



 
                 TREASURY, POSTAL SERVICE, AND GENERAL

                     GOVERNMENT APPROPRIATIONS FOR

                            FISCAL YEAR 2003

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS
                             SECOND SESSION
                                ________
  SUBCOMMITTEE ON THE TREASURY, POSTAL SERVICE, AND GENERAL GOVERNMENT 
                             APPROPRIATIONS
                ERNEST J. ISTOOK, Jr., Oklahoma, Chairman
 FRANK R. WOLF, Virginia             STENY H. HOYER, Maryland
 ANNE M. NORTHUP, Kentucky           CARRIE P. MEEK, Florida
 JOHN E. SUNUNU, New Hampshire       DAVID E. PRICE, North Carolina
 JOHN E. PETERSON, Pennsylvania      STEVEN R. ROTHMAN, New Jersey
 TODD TIAHRT, Kansas                 PETER J. VISCLOSKY, Indiana   
 JOHN E. SWEENEY, New York
 DON SHERWOOD, 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, Jeff Ashford, Kurt Dodd, Walter Hearne, 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
 80-032                     WASHINGTON : 2002




                       COMMITTEE ON APPROPRIATIONS

                   C. W. BILL YOUNG, Florida, Chairman

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

                                  (ii)
                                         Wednesday, March 13, 2002.

                      UNITED STATES POSTAL SERVICE

                               WITNESSES

JOHN E. POTTER, POSTMASTER GENERAL, USPS
RICHARD STRASSER, CHIEF FINANCIAL OFFICER, EXECUTIVE VICE PRESIDENT, 
    USPS
TOM DAY, VICE PRESIDENT OF ENGINEERING, USPS

                           Summary Statement

    Mr. Potter. Good afternoon, Mr. Chairman and members of the 
subcommittee. Thank you for this opportunity to come before you 
to present the Postal Service's appropriation request for 
fiscal year 2003.
    The United States Postal Service was established in 1789. 
Since then, we have served to bind the nation together through 
the establishment of a national network to deliver postal 
communications to every citizen in the United States. With over 
750,000 career employees and yearly revenues approaching $68 
billion, we are the eighth-largest organization in America. We 
process and deliver over 200 billion pieces of mail each year. 
Our more than 300,000 letter carriers deliver mail to almost 
135 million addresses across the nation.
    Today's mailing industry is a vital part of the nation's 
economy. Nearly nine million Americans are employed in that 
industry, which generates an estimated $900 billion annually. 
However, as you said earlier, Mr. Chairman, the Postal Service 
now faces extraordinary challenges brought on by the recession 
which began last March. Last fiscal year alone, we reported a 
$1.68 billion loss. This year those challenges became even more 
pronounced in the wake of the September 11 attacks and the 
subsequent incidents of anthrax.
    Despite the rate increase in January 2001, our revenues for 
the first two quarters of fiscal year 2002 are below the same 
period last year. We are now $1.5 billion below our revenue 
plan for this year. Mail volume this year has declined over 
four billion pieces. In the face of this bleak picture, we took 
aggressive measures to shore up our finances. We reduced costs, 
while maintaining the levels of quality service our customers 
have come to expect and deserve.
    During fiscal year 2001, we reduced the number of career 
employees by almost 12,000, and we trimmed programs, for a 
combined cost savings of $900 million. Through the first half 
of this fiscal year, we have cut career employment by an 
additional 8,000 people. We are well on our way to achieving a 
cost savings of another $1 billion. We have curtailed all 
capital construction for the past year, which means we have 
been forced to delay construction of new post offices. At the 
same time, our letter carriers are delivering mail to an 
additional 1.7 million new homes and businesses across the 
nation each year.
    While the nation was gripped with the fear of terrorist 
attacks and anthrax contamination, our employees rose to the 
challenge. They continued to process and deliver the mail day 
in and day out. Our employees remain faithful to our common 
commitment to provide universal service to the nation. I want 
to thank them and I want to thank the mailers who came together 
as a team to help us keep that commitment.
    We also want to thank the members of this subcommittee and 
the Congress for the $500 million appropriation to strengthen 
America's mail system against acts of terrorism. This was in 
addition to the $175 million that President Bush provided us to 
offset our initial costs in response to the terrorist attacks. 
The Postal Service is extremely grateful to you and to the 
administration.
    Last week we presented our emergency preparedness plan to 
Congress, outlining the use of these funds and our plans to 
further enhance the safety and security of our mail processing 
system. We have begun testing new detection equipment for 
eventual deployment. Advance filtration vacuum systems will be 
installed on mail processing equipment to reduce risks to our 
employees and customers and to prevent cross-contamination.
    We still have two facilities closed--Brentwood, the main 
post office and plant here in Washington D.C. and the Trenton, 
New Jersey main plant. We are preparing to fully decontaminate 
both facilities, but it will be several months before we are 
able to complete both. To put the cleanup in perspective, at 
the Hart office building approximately 100,000 cubic feet of 
space was decontaminated. Our Brentwood facility has 17.5 
million cubic feet of space. We will be using the same chlorine 
dioxide techniques used successfully at Hart. The science is 
known; it is the engineering issues that have added complexity.
    The American people have shown their appreciation for the 
steps we have taken to maintain their confidence and trust in 
the mail system of this country. Shortly before the attacks in 
September, 98 percent of those surveyed told us they had 
positive feelings about sending and receiving mail. Just after 
the anthrax attacks, the number fell to 82 percent. I am 
pleased to report to you today that the number has now climbed 
back--back to 96 percent and is still climbing. While we are 
challenged, we recognize that we can no longer rely on the past 
strategy of simply raising rates to maintain a viable national 
delivery system. We must be prepared to make some fundamental 
changes in the way we do business if we are to continue to 
provide universal service in the future.
    Even before the terrorist attack of last fall, the Congress 
asked us to create a transformation plan that will become a 
blueprint for our future. In the simplest terms, the plan will 
recommend ways the Postal Service can be transformed. We have 
reached out and sought the input and support of all of our 
stakeholders. Our goal is to gain long-term financial 
stability. We will suggest legislative changes to make us more 
effective in the 21st century marketplace. We will present that 
plan to Congress early next month.
    Now, Mr. Chairman, let me turn my attention to 
appropriations.
    Let me be clear, we are not here to request appropriations 
to subsidize operating expenses. Instead, we come before you to 
request a net of $31 million to reimburse us for free mailing 
for the blind and for overseas voting materials. In addition, 
we request $29 million for the 10th payment of 42 payments 
authorized by the Revenue Foregone Act of 1993. Given our 
financial condition, we are requesting that the remaining $928 
million balance, owed to us under the Act, be paid in 2003. We 
would use the $928 million to restart our facilities' projects 
in more than 800 cities and towns that are affected by the 
ongoing freeze. We would be able to build new post offices 
where needed and replace older ones that are no longer adequate 
to meet the needs of our customers.
    The Postal Service remains committed to providing a 
universal mail delivery service for every American, regardless 
of where they reside or do business in this great nation. 
Clearly, the events of September 11 and the anthrax incidents 
serve to underscore the importance of the nation's mail system 
in binding together and uniting our nation.
    We ask for your help and support to enable us to provide 
the level of quality service our nation needs and asks from us.
    I would like to thank you, Mr. Chairman and members of the 
subcommittee. We would be pleased to respond to any questions 
you have at this time.
    [The information follows:]

              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                             APPROPRIATIONS


    Mr. Istook. Thank you, Postmaster General Potter.
    Let me ask first about the largest part of your request for 
appropriations from this subcommittee, and that is the 
$928,174,000 as paying off now the 32 future payments of the 
Revenue Foregone account. As you know, that was originally set 
up at a rate of payments over a period of 42--I guess it is 42 
years. And I recognize that your calculation is equivalent to 
$29 million a year, times 32 remaining years equals 
$928,174,000. But it does not take into account the time value 
of money.
    Anyone who has ever seen a sweepstakes contest or a 
lottery, or any sort of give away where maybe they say, ``You 
can win $1 million,'' it turns out they are saying, ``We are 
going to give you $25,000 a year for 40 years.'' It is still 
not anything to sneeze at. But it is not the same as having $1 
million in your pocket right now. When you apply the 
appropriate discount rates, considering the time value of 
money, you may find that the present value of a stream of 
payments is only maybe a fourth--maybe fifth--but, certainly, a 
much smaller fraction than the amount requested.
    Were this committee to honor the Postal Service's request 
for making a lump sum payment of all these future streams--
these 32 additional payments of $29 million per year--is it 
acceptable to the Postal Service to discount it to current day 
value, which--I do not know what the exact amount would be, but 
it might be a fourth, it might be a fifth of that amount--is 
that an agreeable situation for the Postal Service to resolve 
that future stream of payments?
    Mr. Potter. Mr. Chairman, when we were owed that money, we 
were not provided interest on the original balance that was 
due.
    Mr. Istook. Correct.
    Mr. Potter. That was simple mathematical division; divide 
the number by 42, and it turned out to be $29 million a year.
    What we are proposing is that, since there was no future 
value of money in the original proposal, that we are requesting 
the full $928 million, and we are not proposing that we take 
into account, at this time, just as we did not take into 
account back in 1993, the future value of money.
    Mr. Istook. I would certainly submit that the future value 
was taken in to account. It may not have been resolved in a way 
that you people like, but that is like reopening your original 
negotiation, as it were.
    So I take it that the answer is no; the Postal Service 
would not consider it adequate to reduce this future stream of 
payments to its current value. And therein, I think, lies part 
of the challenge for this Congress in considering the request, 
as well as the concern of people taking operating expenses, as 
it were, and seeking to capitalize them now.


                          PAY FOR PERFORMANCE


    I need to bring up directly what I think is one of the 
major challenges that this subcommittee has in dealing with the 
Postal Service request, and, frankly, it is a credibility 
question.
    This past December there were the annual payments of what I 
believe you call the pay-for-performance--most people would 
call it a bonus--that went to, I believe, some 80,000 
supervisory or managerial level employees of the Postal 
Service. And over, I believe, it was the last three years, 
those amounts total something like $800 million. Right after 
this Congress made a special appropriation to the Postal 
Service of some $500 million that annual payment continued, and 
we find that the payments were not reduced or abated because 
the Postal Service, this past year, operated in the red rather 
than in the black, as it had in prior years.
    Is it correct that there was an assumption that there had 
been economic value added that was used to fill in the gap in 
the formula that was used to pay postal employees so that the 
fact that the Postal Service was operating at a loss, not a 
profit, could not be used to undermine paying out the large 
amounts of bonuses?
    Mr. Potter. Mr. Chairman, by law the Postal Service is 
obligated to pay wages and use pay practices that are 
comparable to the private sector.
    In 1996 we changed from a federal pay system, where people 
were given automatic raises in terms of a step process to get 
from the bottom or entry-level wage to a top wage. We also 
eliminated overtime for our supervisory employees where they 
get straight time. And, as part of that pay package, we 
instituted a pay for performance program, which basically puts 
our compensation in line with the private sector.
    We tied the compensation of our employees to business 
outcomes in two respects: One is in terms of their merit 
process--the annual adjustments that are made to their base 
pay; as well as, we created a lump sum pay-for-performance 
program that rewarded team performance. By law, we are required 
to go into a consultation process with our management 
associations. And prior to fiscal year 2001, which payouts 
occurred this January, a commitment was made to our employees 
that based on a set of goals and using an economic value-added 
formula, there would be pay outs.
    Now, in that fiscal year, our employees saved some $900 
million--and that is all of our employees--saved some $900 
million through increased productivity.
    Mr. Istook. So had they, for example, as you calculated 
through increased productivity, saved $10 billion, but still 
operated at a $1.6 billion loss, that would not have made any 
difference. I mean, that is part of because you say you are 
required by law. There is no law that requires you to have made 
those payments. You are required to consider the concept of 
private companies, but you are not required to assume that you 
had the same result as if you had made a profit.
    I understand profitability is not the sole measure in 
evaluating an employee's ability to collect a bonus. But 
removing that factor from the equation with an economic 
assumption, which is as I understand it, I do not consider 
proper. And your own inspector general--I have got a copy of 
his letter dated December 5 of last year, from Assistant 
Inspector General for Core Operations, Ronald K. Steith--that 
talks about what you call the ``economic value-added concept'' 
that you used to assume away the losses of the postal service. 
States that ``it was not appropriate to fund the postal''--the 
audit revealed that the use of the economic value-added concept 
was not appropriate to fund the Postal Service's pay-for-
performance program.
    The concept created for profit making entities did not fit 
the Postal Service's break-even environment. Management 
disagreed with our analysis but agreed to look at alternatives 
to funding the pay-for-performance program.
    I mean, Mr. Postmaster, I think that this situation has 
done the Postal Service a world of harm. When you are operating 
at a loss--you mention there is a recession; we heard recently 
the recession is over. And, nevertheless, it is that type of 
management approach that causes a great amount of trepidation 
with me and with many other members of Congress.
    Is anything being done to change whether profitability or 
lack of it is going to have a significant impact upon whether 
the pay-for-performance bonuses are paid or in how they are 
calculated; whether they will be significantly diminished if 
the Postal Service does not return to profitability?
    Mr. Potter. If I could add a couple of points before I 
answer that specific question.
    Mr. Istook. Sure.
    Mr. Potter. The funding formula, EVA, the economic value 
added formula, was put in place because the Postal Service 
operates as a break-even entity. As a break-even entity, you 
are going to have years where you lose money; you are going to 
have years where you barely break even; you are going to have 
years where you make money.
    At the time that the discussion was underway regarding the 
formula, there was a concern that should we only be able to 
reward managers in a year where you make a profit--or have net 
income, I should say--that that would cause us to be motivated 
to raise rates. And so, there was a desire on the part of 
everyone to make sure that we were motivated to operate as 
efficiently as we possibly can.
    That program produced record productivity, record service 
levels and contributed to record safety performance. So there 
is a history of performance under this program that, when you 
look back at it, there were a lot of positives. I do not 
disagree with the fact that there are a lot of concerns out 
there. But when the decision was made about what we did about 
2001, we entered fiscal year 2001 having agreed with those 
82,000 managers that we were going to use that formula.
    Now, I did not come into this office until July. But prior 
to that, we understood that there were concerns about the 
funding mechanism.
    In the fiscal year that we are in, 2002, there has been no 
commitment made to use that EVA formula. We are, right now, in 
consultation with our management associations, the postmaster 
groups, and the National Association of Postal Supervisors, 
looking at our overall pay plan. Our goal is to continue with 
the principle that we tie wage increases and lump sum payments, 
if there are any, to performance. We are looking at alternative 
funding mechanisms and the level of funding, if any, for 
performance-related lump sums. That is on the table.
    In order to pay good-faith to the consultation process, I 
do not really feel that I am at liberty to go beyond what I 
just described. Suffice it to say, we would have preferred to 
have had an alternative in place prior to the beginning of this 
fiscal year. The fact of the matter is that our contract with 
the American Postal Workers Union is the trigger for 
consultation on management pay. Their contract expired in 
November of 2000. Their contract went to arbitration. There was 
a prolonged period. Normally, it would be resolved in the 
spring with enough time for us to have consulted with 
management and be ready for this fiscal year. It was not. It 
was not resolved until December. We began our consultation 
process with the management organizations in February, as 
required by law 60 days after that contract.
    So we are aware of your concerns. We are aware of the fact 
that people have questions about our programs, particularly the 
EVA funding mechanism, and we are attempting to address that in 
consultation as we speak.
    If I could make one other point, too?
    Mr. Istook. Go ahead.
    Mr. Potter. In the funding mechanism, EVA does work. We did 
have payouts this year. And the funding would have actually 
been about $100 million more had it not been for the fact that 
we had the attacks on September 11 (sic), which dramatically 
hurt our finances in a 3-week period of time. So, you know, 
there is a relationship between payout and what actually 
happens in terms of performance.
    And we hope, and we are working very hard, to make sure 
that we put a program in place that is transparent to all and 
that is easily understood. But we want to make sure that our 
managers are still motivated to earn wage increases and lump 
sum payments through performance.
    Mr. Istook. I appreciate your comments, and I think you 
have understood what I had to say. I would just mention finally 
that just as the Postal Service, of course, was not responsible 
for the anthrax attacks occurring--certainly not you, not the 
postal service workers--nor were the airlines or the airline 
executives responsible for the fact that terrorists chose to 
attack the World Trade Center.
    Nevertheless, you had boards and executives and airlines 
foregoing pay--many of them for an entire quarter; you had many 
people that--whether it be in their retirement plans that had 
stock value loss; whether it be that their jobs were either 
curtailed for a while; whether they were laid off or their job 
was actually lost--despite the best efforts of Congress to 
insulate people as much as possible from a systemic collapse, 
so, too, you know, there are consequences from events that you 
cannot control that, nevertheless, I believe the Postal Service 
must accept just like the private sector has to accept.
    I appreciate your time and testimony.
    I would like to defer time now to Mr. Tiahrt.
    Mr. Tiahrt. Thank you, Mr. Chairman.
    Welcome to the committee.


                     FACILITY INSPECTION GALLERIES


    I was recently in the Wichita sorting facility that the 
Post Office has and I was amazed at how many millions of pieces 
of mail they push through there, and they do a very fine job. I 
guess it is very similar to the Brentwood facility here 
locally. And I noticed there was, just in the sorting machines, 
a great deal of dust, and you could see how an anthrax problem 
would be proliferated in a facility like that, and I appreciate 
the safeguards that you are putting in place. I know it is 
expensive and time consuming.
    There are some other things that I noticed at the facility. 
One was these enclosed walkways where the people work with 
positions where they can anonymously overlook the workers. I 
suppose they are there so people do not tamper with the mail. 
But are not there severe enough restrictions in place so that 
if some employee did tamper with the United States mail that 
they would be severely punished? What is the purpose of the 
walkways other than that?
    Mr. Potter. Congressman, those are what we call, inspection 
galleries, and they are used to observe our employees for the 
sole purpose of criminal investigations. They are able to mount 
cameras in there and collect evidence against employees. That 
is their sole purpose. In a number of facilities around the 
country, they have been replaced with cameras.
    Mr. Tiahrt. I think cameras are a lot less personal. It 
seemed almost like a gulag mentality, when we have to have that 
old archaic system.
    Mr. Potter. I do not disagree with you, having been a 
clerk. [Laughter.]


                              MAIL VOLUME


    Mr. Tiahrt. In your testimony you said that the mail volume 
this year has declined over four billion pieces. Is that a 
combination of first-class and third-class? Where are you 
feeling the pinch the most?
    Mr. Potter. The biggest drop we have seen is in advertising 
mail. So it is the third-class as you describe it. The decline 
there is somewhere on the order of 7, 8 percent. First-class is 
about in the range of 2 percent. Priority Mail is down about 15 
percent.


                             MAIL SECURITY


    We have been impacted in our ability to fly mail. We are 
not able to tender anything over 16 ounces to commercial 
airlines. So we have had to reroute mail, and we have expanded 
our Federal Express contract.
    Mr. Tiahrt. Why is that?
    Mr. Potter. For security reasons.
    Mr. Tiahrt. And who imposed that?
    Mr. Potter. The FAA.
    Mr. Tiahrt. The FAA, only 16 ounces.
    Mr. Potter. Yes, sir and we have had to expand our Fed Ex 
contract. And that is costing us in the order of $150 million 
annually to take the mail off of commercial air and put it on--
    Mr. Tiahrt. Are considering that as delta or that just an 
outlay of $150 million?
    Mr. Potter. That is a delta.


                        POSTAL SERVICE FINANCES


    Mr. Tiahrt. Okay. You mentioned in your testimony that the 
president bumped up in October USPS funding by $175 million. In 
December, Congress added a half a billion--or $500 million to 
that. The last rate increase was about $2.78 billion for the 
Post Office. I think the next one is expected to generate over 
$4 billion.
    So in two years, we had an increase of about $7.7 billion 
going to the USPS, and still we are in a deficit.
    Now what is your projected deficit for fiscal year 2002?
    Mr. Potter. For this year?
    Mr. Tiahrt. Yes.
    Mr. Potter. I think we are going to be somewhere above $2 
billion. We are still trying to put the numbers together. Early 
on, it looked like it was going to be as much as $5 billion, 
but we have tightened our belt as best we can. We are very 
grateful that the Rate Commission--we are hoping that the Rate 
Commission accelerates the rate case. If not, we will be over 
$3, maybe $4 billion.
    Mr. Tiahrt. I have got a chart here that I can give you 
afterwards. It quotes sources of the deficit of fiscal year 
2001 was going to have at USPS. And the first is from PostCom 
on October 10, 2000. It looks like one third of a billion was 
going to be the deficit. The second one was reported in 
December 11 in the Federal Times of $1.2 billion. And March 2 a 
letter from President Bush from the Postal Service Board of 
Governors said it was going to be $2 billion.
    And then the next one was a statement from William 
Henderson, former postmaster general, on April 4 that it was 
going to be at the time close to $3 billion and then drop down 
to $1.5 billion on a report on June or excuse me, May 15 from 
the statement made by Robert Rider, USPS chairman of the board 
of governors.
    Then on June 5, it was reported it was going to be $2.4 
billion on a press release that came out of your office. And 
then the Wall Street Journal finally reported on December 5 
that is was going to be $1.7 billion and it came out $1.6 
billion.
    So we have all these projected deficits for fiscal year 
2001. It is hard for us to plan and budget and try to help when 
we do not know exactly what the target is. When will you be 
firming up your numbers?
    Mr. Potter. That was for this year you are talking about?
    Mr. Tiahrt. Fiscal year 2001.
    Mr. Potter. Right. That was fiscal year 2001. Let me just 
say that if you take 3 percent of our operating revenues, we 
are talking about a $1.8 billion swing. Because of our size, 
$68 billion in revenue, a shift in volume or any kind of 
movement in one direction or the other creates a significant 
number, just like the federal government.
    And so our deficits are a function of a varying number of 
issues. For example, I just described the transportation issue. 
This year, we are looking at volumes. If we were to project at 
current volumes and assume that that was a straight line going 
out, we would be offering a very high number.
    If we made an assumption that we were not going to get an 
acceleration in the rate case, that number would be very high. 
If we were to make assumptions, negative assumptions about what 
might happen in terms of our employee contracts, that number 
could be high or low.
    Each one of these variables has swings of $400 to $500 
million. And in the case of the Rate Commission decision, $1 
billion. That is why it is very difficult for us to--
particularly in a time when you are in a recession or in the 
time now when you are coming out of a recession, to accurately 
predict within $100 million, as I would love to be able to do, 
where we might end the year.
    So I am not trying to say that we would not be more 
credible if we could hit a number and then stick to it. What I 
am saying to you is that there are a lot of influences that are 
beyond our control, that we wish were not there. But the fact 
of the matter is, we are dealing with a very delicate economy. 
We are dealing with, in some cases, arbitrators' decisions. We 
are dependent upon the Rate Commission to make a decision. All 
of those things are factors.
    Mr. Tiahrt. Well, I guess when the weatherman cannot hit 
the weather next we, we probably ought to cut you some slack. I 
do have to tell you it does make it more difficult on our part.


                    ELECTRONIC MAIL IMPACT ON VOLUME


    Last question I have is what impact do you think email has 
had on USPS? And how are you going to--you know, how do you 
deal with that?
    Mr. Potter. We have seen a decline in single piece First 
Class Mail, so we know that there has been a migration by some 
bill payers away from us to email, electronic transfers of 
funds. We also have seen over the years the movement of 
business-to-business mail away from hard copy to electronic 
exchange of information.
    And we are building a transformation plan that was 
described earlier, to look into the future and try as best we 
can to look at what assumptions could be made about where the 
mail volume is going and what we would have to do as a 
government entity to deal with that.
    Mr. Tiahrt. Thank you, Mr. Chairman.
    Mr. Istook. Thank you, Mr. Tiahrt.
    Ms. Northup?


                  INTERNATIONAL MAIL BORDER INSPECTION


    Mrs. Northup. Thank you. Thank you. Let me just first of 
all ask you, in this climate of heightened awareness everybody 
is extremely concerned about what goes in and out of this 
country. I have what I think is an obvious question, but one 
that I think should be asked for the record nonetheless. Am I 
correct in assuming that the postal service's policy to 
comply--it is your policy to comply with all of the U.S. border 
protection inspection laws?
    Mr. Potter. I assume so. I have never asked. And I could 
probably provide a more accurate answer for the record. I would 
not imagine that we would not.
    Mrs. Northup. So I mean, basically you do think though that 
the postal service is expected to comply with all the 
inspection laws for ingoing or outgoing mail?
    Mr. Potter. Yes. I think we are required to comply with the 
law.
    Mrs. Northup. Okay.


                          PAY FOR PERFORMANCE


    Let me go back to the bonuses. I understand that--I think 
what I understand, though I realize I was a few minutes late, 
that basically you had targets on production and quality and 
movement efficiencies that if these were met, bonuses would be 
predicated on that, not on profits or losses.
    Mr. Potter. Right. Lump sum payouts, what we would call 
them in pay for performance.
    Mrs. Northup. And did everybody get these, or just a couple 
of managers?
    Mr. Potter. They varied across the country based on the 
level of performance in different areas around the country.
    Mrs. Northup. And did every area get bonuses?
    Mr. Potter. Every area qualified for some level of bonus, 
yes.
    Mrs. Northup. I mean, I do not object to using criteria 
other than profits. But I have never heard of anybody setting 
the criteria so that if you meet the expectations you do not 
also have a profit.
    In other words, if you are going to be rewarding 
efficiencies, if you are going to examine quantity versus cost, 
that all the bonuses would be predicated on if everybody 
attained them. Now, it would be one thing if one whole section 
of the country collapsed, caused such a loss that that 
particular deficit would give the overall business a deficit. 
Or if half of them had. So that, you know, you have half of 
them offsetting the half that did a great job, I would 
understand bonuses to that half.
    But what you clearly did was set up equations so that even 
when every target was hit, you were going to lose money, but 
they were going to get the bonuses.
    Mr. Potter. Well, I would describe the Postal Service as a 
break-even entity. There was a great concern when we entered 
this program that we should provide people an incentive in a 
year when we were not going to make a profit or have a net 
income, because we must break-even and because of our rate 
cycles, the desire to spread out the rate increases as far as 
we can; historically, the Postal Service has had more negative 
net income years than it has had positive income years. So if 
you designed a system where the only time you could earn an 
incentive was a year when you raised rates, then you would have 
a year where----
    Mrs. Northup. I agree.
    Mr. Potter [continuing]. People tank it so that when they 
raise rates they could make it. So it is a very complicated 
situation to take and apply a private-sector model for 
government.
    Mrs. Northup. Well, yes, let me--my time is going to be 
over. I have heard, exactly that explanation. But again, I 
mean, it is hard for me to understand why, first of all, 
businesses, whether they are talking about dividends, whether 
they are expected not to pay--they all have bad years.
    And the airlines, I think is the chairman's perfect 
example. When we paid out money to save the airlines, the 
criteria was you cannot pay bonuses. And it sort of shocks me 
to find out that we paid out this money and you are thinking 
about paying bonuses out in the same year.
    Mr. Potter. We would not characterize them as bonuses. We 
would characterize them as pay for performance. When you look 
at it historically, it has worked. I will be glad to share more 
data with you, but when you look at the overall program, it has 
been a huge success for the Postal Service.
    Mrs. Northup. You know, and let me just say if the airlines 
came in and gave us that answer, about why we should pay their 
executives bonuses of 25 percent of their income, we would not 
accept it. I mean we would not accept it when they also--when 
they are also needed to be an extra appropriation.
    Let me just, along that line, point out one of the maybe 
also unfortunate things that happened, is that based on this 
way of bonuses, you had in Louisville, Kentucky, 200 trailer 
trucks full of third class mail that had been given credit for 
being delivered, misdated, all stored some place.
    There was a whistle blower that first of all went to the 
supervisor there and said, ``This is illegal. We are collecting 
money for this and we have trucks--all of these trailer truck 
loads full of mail that is not being delivered because we are 
trying to meet efficiency standards.''
    And when he could not get anything done there, he actually 
then went to the inspector general that went down and 
investigated and found out that it in fact was true.
    I think I asked you last year, do you think that there are 
other places in the country where this is going on in order to 
get these bonuses?
    Mr. Potter. The instance that you are referring to happened 
several years ago. What we have done is we have put out our 
Inspection Service. It is not the inspector general. They are 
our postal inspectors, and we have them out there conducting 
reviews while they are in there doing security and other 
issues, to make sure that the data that we are getting are 
accurate. I am aware of----
    Mrs. Northup. The report just came out a year ago in 
January.
    Mr. Potter. Right, the incident, I think, had been the year 
prior to the report.
    Mrs. Northup. Right. But it had been denied up until then.
    Mr. Potter. Again, we have put in procedures with an 
independent body, not the managers self reporting, but the 
Inspection Service going in to make sure that that is not the 
case.
    Mrs. Northup. Well, I know my time is up. Let me just say, 
I know that the rank and file workers at the Post Office feel 
that they are under a lot of productive pressure. They feel 
more and more demands on them.
    I think that there is probably an increase in resentment if 
they feel that at the very top of the chain the people that are 
running the postal system are not making sacrifices, are not 
being asked to also make efficiency changes, then there is a 
lot of that feeling that the culture of the Post Office is 
where the rank and file are being expected to be more 
productive and that there are people at the top that are living 
a much more guaranteed life.
    Mr. Potter. Well, if I could respond to that Mr. Chairman. 
Last year in September when I got on board, we eliminated 20 
percent of our officers. We eliminated 20 percent of mid-level 
management structure. We are right now undergoing a RIF in our 
headquarters building. People are losing jobs. So we are 
stepping up and meeting that management challenge, I think, to 
reduce costs.
    On the other hand, we are at the current time, losing good 
managers to the federal government because of our pay 
structure. So not having the ability to pay will mean that the 
quality of our managers will go down. And we are not talking 
about, the airlines where there were certain provisions that 
people that make more than $300,000 have limitations on what 
they can get.
    We have no one in the Postal Service who makes close to 
$300,000 I can assure you of that.
    Mrs. Northup. I think you make a good point. Thank you.
    Mr. Istook. Thank you, Ms. Northup.
    Let me mention for the benefit of the members, unless it 
causes anybody any scheduling difficulty, I want to deviate 
slightly from the order of arrival of members so that we can 
let both sides of the panel do some alternation.
    With that in mind, I intend to call next upon Mrs. Meek, 
then Mr. Peterson, Mr. Hoyer, Mr. Sherwood and Mr. Rothman. If 
anyone thinks that that needs to be adjusted, please just let 
me know and we will try to accommodate everyone.
    Mrs. Meek.


                    FLORIDA WEATHER EMERGENCY POLICY


    Mrs. Meek. Thank you, Mr. Chairman. And welcome Postmaster 
Potter. Welcome Mr. Postmaster.
    Mr. Potter. Thank you.
    Mrs. Meek. We recognize the extraordinary challenges that 
postal workers and the service industry have. And you faced 
that all of this year practically. And we thank you very much. 
We are indebted to you for your service.
    In the face of these challenges, you continue to provide 
universal service and deliver in a timely way these services. 
In my view that committed professional work force is the reason 
why the Postal Service is going so well with the public in all 
of the public opinion surveys that have been taken.
    Thank you for that.
    For the past two years this subcommittee has expressed its 
concerns about the Postal Service's weather emergency policy, 
particularly in my district especially as those policies affect 
south Florida.
    I have read your most recent report dated March 6, 2002. 
The report details the process through which the Postal Service 
developed its weather emergency policy and the process for 
which local emergency management authorities developed their 
weather emergency policy.
    However, your report fails to indicate whether you will 
follow the recommendations and directives of local emergency 
management authorities in weather emergencies.
    I could explain this to you a little bit better. During one 
of the last emergencies we had in south Florida, a big flood as 
well as big storms that come down many times unannounced, many 
of the postal workers had to work under very bad conditions. 
That is the local emergency service people said to everyone 
else in Florida, ``You go home, the weather is too bad.''
    But they did not send this kind of letter to the postal 
workers. I need to hear what do you think about that? And will 
you agree to do so in terms of sticking with the local 
emergency authorities because they are on the ground and they 
can see what is happening?
    Will the Postal Service also adjust and agree to do some of 
the guidelines for local emergency managers recommended?
    Do you know anything about this?
    Mr. Potter. I am not familiar to the level that you are 
talking about--local managers. I know that we updated our 
policy because there were concerns.
    Our local managers around the country have the authority to 
do what is in the best interest of their employees. Now I would 
be glad to get off line with you and have a conversation about 
something very specific, and I am a little surprised to see 
that there is a dissatisfaction with the new policy.
    So I recommend that maybe we do that.
    Mrs. Meek. Now I did not see in your policy to explain 
whether or not you refused to go along with the emergency 
management people.
    Let me go through that scenario once more.
    You have local emergency management people----
    Mr. Potter. If I am a manager out there and my employees 
face a condition that is threatening to them, I have the 
ability to pull my people back. I have the ability to do 
things.
    Mrs. Meek. Well, they have not been following your 
mandate----
    Mr. Potter. Well, again----
    Mrs. Meek [continuing]. Where it needs to get to----
    Mr. Potter. Again, there is judgment involved. And I think 
that might be an issue that we would be better off taking off 
line so that I am familiar with more of the specific that you 
are talking about.
    Mrs. Meek. Well, I would not want you to take this off line 
at this point. What I want you to do is to tell me whether or 
not if a local emergency, your policy regarding local 
management, emergency management people.
    Mr. Potter. If there is an evacuation order----
    Mrs. Meek. I do not think I am finished with that.
    Mr. Potter. Okay.
    Mrs. Meek. In terms of local management people have certain 
mandates they give to their employees. The thing that I am 
asking you to, will you go along with this, these directives 
that are put in by local management authority in weather 
emergencies?
    Mr. Potter. If there is is a mandatory evacuation, we 
evacuate. Again, I do not--I am not familiar with----
    Mrs. Meek. Your policy states then that in a local 
emergency and people have been granted the--the emergency 
management people have said evacuate, you are saying----
    Mr. Potter. If we have a mandatory evacuation, we evacuate.
    Mrs. Meek. Well, they did not do it. So I wanted to call 
that to your attention. From management's point of view, what 
do you do in a case like this?
    Mr. Potter. For example, when were told to evacuate because 
of the World Trade Center, we evacuated. We did not go back 
into that geographic area until I think it was three or four 
days later when the city said the streets are open for people 
to go. We did not say to our employees, ``You know, find a way 
to get through the police barricades.''
    Mrs. Meek. Well, I wanted to call that to your attention 
that other workers were released, they were evacuated, but the 
postal carriers, the mail carriers were not in south Florida.
    Mr. Potter. And it is my understanding that is why we 
updated our policy because of concerns with hurricanes I 
believe.
    Mrs. Meek. Would you please quiz--I did not see that 
particular policy in your statement. Would you please share 
that with me----
    Mr. Potter. Yes.
    Mrs. Meek [continuing]. In my office?
    Mr. Potter. Yes, definitely.


                     REVENUE FOREGONE REIMBURSEMENT


    Mrs. Meek. My next question is, you asked for $928 million 
this year. The total remaining unpaid and the revenue foregone 
reimbursement, you state that these funds if received, would be 
used for capital projects. You also note that the Postal 
Service needs to spend $600 million on capital improvements 
simply as a result of adding 1.7 new homes and businesses this 
year.
    Yet you have a facilities freeze currently in effect. What 
will you do next year if you do not receive this money?
    Mr. Potter. If we do not receive this money, we will 
continue to and manage with what monies we have. We have a 
borrowing cap. We are very limited in terms of our flexibility. 
In an ideal situation, we would look for there to be volume 
growth that would generate the type of revenues that could 
allow us to start our facility capital projects again. But, 
right now, we do not have those funds available.
    Mrs. Meek. How much more funding will you need this fiscal 
year from the $500 million that you are to receive from the 
supplemental in order to deal with your security needs?
    Mr. Potter. Beyond the $175 million that was provided by 
the White House and the president and the $500 million that the 
Congress provided, we think that we might spend an additional 
$87 million.
    Mrs. Meek. Is my time up?
    Mr. Istook. It is, Mrs. Meek. Hopefully, we will be able to 
come back to you.
    Mr. Peterson?


                          PAY FOR PERFORMANCE


    Mr. Peterson. Thank you and welcome. I do not know that we 
have met, Mr. Potter, but----
    Mr. Potter. I do not think we have, Congressman.
    Mr. Peterson. No.
    I represent the most rural district east of the Mississippi 
so I have lots of your facilities in numbers in my district and 
very small ones, and I know the vital role you play in rural 
America and I hope you consider me as a friend, someone who 
would work with you to improve service and become more 
efficient.
    But I also have a retail business background through a 
market, so I provided food service; you provide mail service. 
So I think I have some ability to assess.
    I am going to come back to the bonus system. I know it has 
been beat to death and it was talked about before I got here, 
but who gets the bonuses?
    Mr. Potter. Eighty-two thousand people, including those 
small postmasters that you have in your district.
    Mr. Peterson. Supervisory people?
    Mr. Potter. All postmasters--all 28,000 postmasters; all 
supervisors and management on up.
    Mr. Peterson. Have the majority of your supervisors had 
experience delivering the mail?
    Mr. Potter. The bulk of our managers have----
    Mr. Peterson. Supervisors.
    Mr. Potter [continuing]. Have come up through the ranks, 
whether that is supervisors or postmasters. A lot of the 
clerks. I mean, people do come up from the bottom.
    Mr. Peterson. Okay. But do you hire supervisors that have 
never delivered mail?
    Mr. Potter. Yes. Not many, very few.
    Mr. Peterson. Okay. Maybe I just have a----
    Mr. Potter. In order of magnitude, out of--I think we have 
some--how many supervisors--about 35,000. I would think it 
would be a stretch to say we have 500 that were hired----
    Mr. Peterson. Is that right? Okay. Well, it was an issue.
    Mr. Potter [continuing]. Other than up through the ranks.
    Mr. Peterson. Well, some months ago I had a request to meet 
with some postal employees, and I have done that routinely and 
so I said I would do it at my office and, fortunately, my 
office was closed and when I got there it was packed. They had 
come from many villages around and I was really kind of taken 
back.
    And I was taken back by the frustration level that I felt 
and, as a former employer, I mean, I took them seriously 
because it was people who had had 30 years experience and 
people who had had five years experience and people who had 
been supervisors and had given up the supervisor's role, went 
back being clerks for whatever reason. But there was a cross 
section and there was unanimity.
    Well, then, I went back to some of my small towns of people 
I have known all my life and I asked them, ``Are you frustrated 
with the system?'' And they shared, ``Yes, we are.'' And there 
seemed to be an equal frustration between postmasters and 
clerks. I mean, it was kind of a unified front. I was taken 
back by it. And then, you know and I know that any system you 
are going to impact positively, you have to have the people 
with you. You have to have your employees pull on your rope in 
an agreement.
    The biggest contention was the bonus system and I found 
that surprising because they felt it was a system where people 
were managing to maximize bonus, not service. And things like 
mail put in storage and claiming it was delivered, including 
next-day delivery mail; mail double-counted so they reached 
their quotas.
    They went on and listed things that happened with some 
regularity and everybody in a group of 50 people agreed that is 
how it happens, and from numerous post offices and from 
numerous centers. So it was a broad section.
    I mean, I expected to meet with a half a dozen people and I 
met with a room full. But I have not gotten a different message 
from people out across the district, as I meet and I just visit 
with them; people out on the street delivering mail, I would 
just say, you know.
    So I guess, my question to you is, do you agree that there 
are problems in your system?
    Mr. Potter. I would say a system that has over 750,000 
career employees and has upwards of 900,000 when you take 
noncareer into place--a system that is that large will have 
problems. I think there has been some dissatisfaction on the 
part of people with compensation for managers because we have 
put performance as one of the criteria.
    We are not a business that has a lot of excess right now. 
We are in a very difficult position and, obviously, we want to 
raise the bar first on service because if our service is not 
high, you know, then our customers do not have value for what 
they are paying for.
    And then, we want to do that as efficiently as we can, and 
if you were talking to the folks, there has been some 
dissatisfaction because we went from a system where people 
automatically got raises. They went from the bottom of a pay 
scale to a top without linking it to performance.
    There are people who are dissatisfied that they used to get 
overtime--time and a half pay--as a supervisor and they went to 
straight time as part of this program. Yes, there is 
dissatisfaction over that. But there is a need for the Postal 
Service, particularly as you look at the future, to be a 
performer, and we would like to do it the right way and people-
friendly way. But there was a need to change the entitlement 
mentality that existed. Part of the pay-for-performance program 
looked to address that.
    And if you look at our performance over the past years, our 
service, as measured by an independent auditor--Price 
Waterhouse measures it--it is at all-times high. Our 
productivity is at the highest level it is ever been in the 
history of the Postal Service, and our safety record continues 
to get better.
    So, you know, I understand that there are concerns on the 
part of some people and change is tough for people, and we are 
in the process, as I described earlier, of consulting with our 
management groups about their pay and about the whole pay-for-
performance program.
    There are some concerns, as was expressed by the chairman 
before you got here, about the funding mechanism; that is under 
review. And, unfortunately, we are in a good-faith consultation 
process, so I wish I could comment further on what I think the 
outcome will be. Perhaps, at the next hearing we will have the 
results and then you can evaluate it based on that.
    Mr. Istook. Your time has expired, Mr. Peterson, unless you 
have some quick closely comment.
    Mr. Peterson. Well, I guess, I was just going to say that I 
am surprised that the level of frustration that was out there 
and I guess my one comment might be; change is difficult, but 
did it come from the top down or did you somehow involve the 
folks in helping to develop and design that change? When you go 
top down, you are always going to have huge frustration. If you 
work from the ground up and get your employees to buy-in, they 
will change themselves.
    Mr. Potter. Right. I have been here eight months and I 
agree with your comments.
    Mr. Peterson. Top down does not work.
    Mr. Potter. I agree with your comments.
    Mr. Istook. We do have, unfortunately, not just one vote, 
but multiple votes, which is going to force us to a recess in a 
moment. But before we do so, I want to recognize Mr. Hoyer to 
give him time both for the opening statement that he might have 
deferred, as well as for questioning the witness. And I presume 
that is going to bring us to the point where we have to recess 
and then resume with Mr. Sherwood and after that Mr. Rothman.
    Mr. Hoyer. Mr. Chairman, I will just ask that my statement 
be included in the record at this time.
    I would make a general comment that I have been involved 
with the Postal Service for many years now and they are at a 
time of great difficulty. However, if you have served on this 
subcommittee for very long, you know that we went through a 
real fader of performance, if you will.
    In my opinion, not so much because of the people, but 
because of--we lost too many people too quickly in not 
necessarily the right places. Our equipment was not put on line 
as quickly as it could have been and our training lagged and it 
all came together and we were doing performance levels of 60-
65-68 percent around the country. Those performance levels are 
now in the 90s in my own area.
    I do not know off the top of my head how many millions of 
pieces are delivered daily in the 5th Congressional District, 
but even the University of Maryland Terrapins would take the 
percentages that the post office takes in terms of win-loss.
    They are at, in my district, 95 percent on-time delivery. 
Obviously, 5 percent of a big number is a big number. You have 
people who are concerned, as all of us would be. I think we 
focus too often on the negative.
    The United States Postal Service is 40 percent higher in 
productivity than any postal service in the world--40 percent. 
There is no business in America that would not be eating their 
competitor's lunch internationally if they were 40 percent 
ahead in productivity. As a matter of fact, there are some, I 
suppose, that are 40 percent ahead in some industries.
    It is an extraordinarily good system that produces one of 
the more costly services, akin to gasoline, if you will. Now, 
that may sound strange, but in terms of the money that we pay 
for gasoline in the United States compared to what we paid for 
it 50 years ago, it probably had a quite low inflation rate, 
lower than almost any other consumer product.
    The same is true in the Postal Service. Now, I do not want 
to spend a lot of time defending the Postal Service because Mr. 
Potter does a very good job of that--General Potter does a good 
job of that on his own. I do want to say--I am sorry Mr. 
Northrop left--that the airlines--yes, we came up with $15 
billion and we came up in a real hurry with $15 billion. Why?
    Because the airline industry is essential for the commerce 
of this country--well, actually the cultural and social aspects 
of this country, but also the Postal Service is as well. We 
need to come up with money in the short-term to overcome what 
are not operating problems that they could foresee any more 
than the airlines could foresee being grounded for days, weeks, 
at a time and customers falling off very substantially. The 
same thing happened in the Postal Department and we need to 
make sure that in the short-term, we help them bridge that gap, 
and we need to do it with grant money.
    I know you have got formula now to, as I understand it, 
accelerate the $29 million payment which is 32 or 33 years that 
it has got a pay out, coming up with about $950 million figure. 
That may be the way to do it. Frankly, I think that the $29 
million was contemplated for other purposes over those years 
and this is a short-term crisis and probably we should fund it 
with short-term dollars and not go into that $29 million. It is 
a creative way to try to get to that end.


                          PAY FOR PERFORMANCE


    Let me ask you a question on bonuses. I do not want to 
focus on that, but I do want--if you have the figure--if the 
old system were in place--I understand that we talked about the 
$805 million for the 82,000 people--if the old system were in 
place and we did cost of living adjustments and the regular 
adjustments unrelated to performance, what would the 
incremental dollars have been for the 82,000 people? Do you 
know that figure?
    Mr. Potter. It is over a half a billion dollars annually.
    Mr. Hoyer. So it would have been $500 million. So in 
effect, those 82,000, we would have done an extra $300 million 
in terms of performance recognition.
    Mr. Potter. No, what I am saying is, had we continued with 
our original pay schedule and if we had the same increases as 
the federal government over the last----
    Mr. Hoyer. Yes, that is my question.
    Mr. Potter. Yes. We would be spending about $500 million 
more annually--more than $500----
    Mr. Hoyer. But more than the $805 million?
    Mr. Potter. It would be annually. This year, if you look at 
it--well, 2001, if you look at 2001 and you say, ``What did the 
Postal Service pay out in wages, benefits and the lump sum 
payments,'' and you had compared that to what it would have 
been had we stayed under our own system----
    Mr. Hoyer. It would have been $500 million annually or the 
$805 is a three-year figure, so the $805----
    Mr. Potter. What I am saying is in that one year, it would 
have probably cost us better than a half a billion dollars 
more.
    Mr. Hoyer. Okay. Follow me, see if I am right. $500 million 
more than the $805?
    Mr. Potter. What I am saying is if you take an annual 
number--take what we paid out--forget about the----
    Mr. Hoyer. You paid out $805.
    Mr. Potter. Yes, we did. It was----
    Mr. Hoyer. Bonuses over three years.
    Mr. Potter. Over three years we did. But take one year----
    Mr. Hoyer. All right.
    Mr. Potter. Last year we paid out something like $170 
million, in that neighborhood. If you add that to what people 
got paid in terms of base pay, straight pay instead of 
overtime, the merit increases they had--just their general 
compensation--had we, in 1996, not changed and gone to this new 
program, our annual compensation would probably be somewhere in 
the order of a half billion dollars more.
    So this is not what is being described as this super-
generous program where we are giving away people's money. This 
is a program where----
    Mr. Hoyer. Let's make it clear because I am still not 
clear.
    If it would have been $500 million more and you did $805 
million over three years, are we talking about $1.5 plus the $8 
or a $2.3 billion figure related to an $805 million figure?
    Mr. Potter. I am talking about on the order of a $1 billion 
because it grows over time.
    Mr. Hoyer. I think I am hearing some yeses back there.
    Mr. Potter. It would be a $1 billion on top of the $800 
million.
    Mr. Hoyer. So $1.8 as opposed to $2.3. Okay. Whatever it 
is----
    [Laughter.]
    Mr. Hoyer. No, I understand.
    Mr. Potter. It is more.
    Mr. Hoyer. The point, I think, is----
    Mr. Potter. At the time that we entered into this program, 
when we did a comparability study----
    Mr. Hoyer. General, I am trying to help you and I think----
    Mr. Potter. Thank you.
    Mr. Hoyer [continuing]. That we are on the same----
    [Laughter.]
    Mr. Potter. Sorry.
    Mr. Hoyer [continuing]. Wave link. My point is and your 
point is that if you stayed with the old system, the dollar 
pay-out would have been a $.5 billion, a $1 billion more over 
those three years. It is either $1.8 to $8 or $2.3 to $8, 
whatever. We are having a little trouble getting to the exact--
--
    Mr. Potter. It would be about $1.3 billion.
    Mr. Hoyer. Right. Okay.
    More than we did pay out. So that when you get an article 
that says that you paid out $805 million without any base to 
relate that to, it appears that it is a very large figure. It 
is like saying that federal employees do not make anything 
today and they are going to make $30,000 tomorrow. Well, that 
is terrific. But if they made $29,500 today and they are going 
to make $30,000 tomorrow, it is not nearly as much.
    Or, in this case, if they made $30,000 yesterday and they 
are going to make $29,500 tomorrow--which is essential because 
we have done down, in fact, in payments--some people may have 
gotten more; some people got less, which, General, as I 
understand it, was your explanation of why there may be some 
people who do not think this is a great system, who do not 
perform highly as managers and who, therefore, do not get as 
big an increment as they would have under the old system. 
Correct?
    Mr. Potter. Exactly.
    Mr. Hoyer. All right. I think the time is up. [Laughter.]
    Mr. Istook. I do not know which one of you just got left 
off the hook or taken off the hook by that. I appreciate it.
    Mr. Hoyer. It took a little of my time to get there, but I 
hope we succeeded.
    Mr. Istook. I believe we have three different votes on the 
floor. So I imagine that we are going to be at least 20 minutes 
probably before we are able to resume the hearing.
    Thank you for your patience. I wish we did not have to do 
so, but we do stand in recess.
    [Recess.]
    Mr. Istook. I thank everyone for your patience.
    We will resume from the recess, and Mr. Sherwood, I would 
like to recognize you.
    Mr. Sherwood. Thank you, Mr. Chairman.
    Gentlemen, thank you for being here.
    Two things that I think have defined the American character 
to a certain extent in the American experience and our success; 
our universal public schooling and the mail service. And my 
greatest fear is that we do something that will end up in 
hurting my rural constituency by not having 6-day-a-week 
dependable mail service.
    And so, I think the things we have to look at are, how do 
we be efficient enough that this thing works again on its own 
because it definitely as, at times, very well? You have just 
gone through some very difficult times; things that were beyond 
your control. But in private industry or small business, things 
happen that are beyond managers' control every day.
    So I have a couple of questions I would like to ask you.


                              LABOR COSTS


    What percentage of your total costs are personnel costs?
    Mr. Potter. About 75 percent.
    Mr. Sherwood. About 75 percent. And have you communicated 
to all your employees how dire the financial straits the post 
office is in right now?
    Mr. Potter. Yes, on a regular basis.
    Mr. Sherwood. Because I think a great example of success is 
the Lee Iacocca-Chrysler situation, and what he was able to do 
is to communicate very effectively to his employees and his 
suppliers and everybody that was in his constituency is that 
they were in trouble and everybody had to share the pain. And 
when everybody thinks the pain is going to be equal, it is 
surprising what average people will stand up and do.
    And I think the thrust of Congressman Peterson's question--
I do not know how to get to the bottom of that because I know 
everybody hates change.
    And so, if it is different, they do not like that. But if I 
read him right, there are people who are working in the post 
office that do not think the bonus system is productive, and 
now if that is--if they do not think that because they do not 
want to accept the change and accept the challenge, that is 
their problem.
    But if they correctly assess that it does not lead to good 
results, that is your problem. And I do not know where that is, 
but I think we have to sort it out.
    With the resulting downturn in mail since 9-11 in your 
product, what have you been able to do with your personnel? In 
other words, do you have a freeze on? You cannot pay people 
less; you have to reward them for hard work, but you do not 
have the luxury of having too many.
    Mr. Potter. Congressman, since that time, we have 
eliminated or reduced our career workforce by 8,000 people.
    Mr. Sherwood. What percent is that?
    Mr. Potter. That is not a big percentage. It is about 1 
percent.
    Mr. Sherwood. But is it commensurate with the downturn in 
your workload?
    Mr. Potter. No, but our work hours are commensurate with 
the downturn of the workload because we have a significant 
amount of overtime. We have lost some 8,000 career employees 
since the beginning of the year. Our noncareer employees are 
now some 7,000. Our work hours are 38 million work hours below 
the same period last year, over this first six counting periods 
or months of our fiscal year.
    So we have managed to maintain our labor productivity level 
throughout this crisis, and it is a matter of balancing. In 
fact, our labor productivity went down at first because it took 
us a while to react to the tremendous volume loss that we saw. 
But our labor productivity is slightly positive for this fiscal 
year. So we have managed to match our use of labor resources to 
workload.
    Mr. Sherwood. Productivity is something that employees are 
very proud to do, but it has to be explained to them that you 
are not just squeezing more out of them, but that they are a 
productive member of the team. And it is hard in a huge 
organization to get that communication level done. But I was 
very concerned that personnel costs would be a huge amount, and 
they are; they are 75 percent, you told me, or thereabouts.
    So if your revenue stream goes down, any other business 
would run their personnel costs down about the same way, and 
they would try to run all the other costs down. And, of course, 
you want to make sure that you are set up such that it is in 
everybody's best interest to make it work because, you know, 
the old theory would be, ``Well, we will just go to Uncle and 
get another $1 billion,'' which is what I think we would like. 
But today, what do we do? Do we take that out of border 
security? Or, you know, we have unusual demands on our money 
right now--unexpected, just as you have unexpected demands on 
your people. They have been subjected to dangers that we would 
have never expected earlier.

                             MAIL SECURITY

    If I can get off on another question. I read where you are 
trying to make it safer--make the mail safer by putting it in--
some of it in bags and a chlorine gas treatment and so forth, 
is that actually in the plan? We do not want something where we 
lose more people with the cure than we do with the disease.
    Mr. Potter. No, sir. The plan calls immediately for 
detection technology to be introduced and for vacuum systems to 
be added to our machines to prevent widespread contamination of 
a facility. And so, through detection and this control of air 
movement around the building, we hope to contain, should there 
be, and we are praying that there is not, any bioterror agents 
put into the mail.
    Our radiation technology is something that is part of the 
plan but on a longer term basis because the current technology, 
as you describe, has as many downsides as upsides. So we are 
being very cautious. We are using, technologies that are 
available to us and there is a need for some breakthrough, to 
be quite candid with you, in certain areas.
    Mr. Sherwood. But the vacuum technology is good even if 
these scares get over because it will reduce the dust in your 
workplace. I mean, that sounds like good management to me. 
Everybody talks about how dusty the sorting machines are and, 
you know, this anthrax deal might go away. But that would be a 
good long-term improvement. How fast can you get that done?
    Mr. Potter. Let me turn to Tom Day.
    Mr. Day. Congressman, we are working with our current 
vendors that have built the letter and flap distribution 
equipment that is already in the Postal Service to modify the 
existing equipment to build in that vacuuming infiltration 
system.
    The one prototype that has already been evaluated is 
located locally here in our Dulles mail facility. We have 
worked with NIOSH to validate that it works. We are moving 
forward to get the same prototypes built for our other 
distribution equipment.
    We believe we can move forward and that is a key part of 
the funding of the $500 million that we will go forward with, 
that we could do contract awards this fiscal year and probably 
spend most of fiscal year 03 actually getting that equipment 
deployed and in place.
    Mr. Sherwood. But if that is our policy, I think we owe it 
to all the people that work in the system to get it executed as 
soon as possible.
    Mr. Potter. As we get the contract award with those 
vendors, everything we can do to accelerate the deployment will 
be done.

                            BORROWING LIMIT

    Mr. Sherwood. I understand that you have the authority to 
borrow up to $15 billion from the U.S. Treasury, but are we 
right that you are at about $12 billion of that now?
    Mr. Potter. Currently we are at $11.3 billion. This year we 
can go up to $14.3 billion.
    Mr. Sherwood. But last year the service ran about a $1.7 
deficit and I thought I heard you testify earlier that it might 
run a little over $2 this year?
    Mr. Potter. Right. Yes, sir.
    Mr. Sherwood. So it looks like under statutory authority if 
we do not do something pretty substantial, you are running out 
of head room on your line of credit.
    Mr. Potter. We will, in all likelihood, we will be under 
the $15 billion this year, the $14.3. We are working very hard 
to assure that we are there for this year--this fiscal year. 
And for 2003, obviously, we are trying to manage as diligently, 
as quickly as we can to make sure we do not exceed that $15 
billion.
    Mr. Sherwood. In that regard, what congressional actions do 
you need?
    Mr. Istook. We are at the end of your time, Mr. Sherwood, 
but go ahead and finish on if that is a simple question.
    Mr. Sherwood. It is.

                          LEGISLATIVE CHANGES

    What congressional actions--what do you need from us to 
give you the authority to cut cost and move toward becoming a 
more performance-base culture?
    Mr. Potter. We are moving ahead, as we speak. In the very 
short run, what we have been looking and asking for is some 
pricing freedom, so that we can begin to negotiate with 
businesses for their business.
    One of the things that is a concern to us, is our inability 
to lock down customers for multiyear periods. And that would 
give us better opportunity to plan, in terms of the use of our 
resources. But the one area that we could use the most 
immediate help is in the pricing area and as well as the 
appropriations we discussed.
    Mr. Istook. Thank you, Mr. Sherwood.

                            MAIL IRRADIATION

    Mr. Potter, you mentioned in response to a question to Mr. 
Sherwood, regarding irradiation of the mail, that although it 
was not originally thought that it would be that way that it is 
turning out the process, I believe you said has as many 
downsides as it has upsides. And I appreciate that. I 
appreciate the effort to look to technology for finding some 
key answers; sometimes it works, sometimes it does not. I think 
it is important to ask, if indeed it has as many downsides as 
upsides, should we continue with irradiating mail that is 
destined for government offices here in Washington?
    Mr. Potter. Mr. Chairman, I believe----
    Mr. Istook. I understand you are not the only voice in 
this, but----
    Mr. Potter. I was just going to say----
    Mr. Istook [continuing]. Voice would be appreciated.
    Mr. Potter. The key to that answer is an assessment of 
risk. Right now that the only technology that is available on 
the market to decontaminate mail or to overcome the spores. So, 
today, based on a risk assessment that is the best practice.
    Now, as we go in the future, there will be continual 
evaluation of risk, and I think we can make judgments as we go. 
Today I think it is the appropriate thing to do.
    Mr. Istook. But, obviously, you are open minded as to how 
quickly that risk assessment might change.
    Mr. Potter. I think as we put new technologies in place, 
particularly detection technology, that assessment will, 
perhaps, change.

                             MAIL SECURITY

    Mr. Istook. Okay. Is the ability to deploy sensing 
technology, for example, sensors within a mail collection box 
or others that you were looking at--I know you are looking at 
broad scale changes and how mail is received when it comes from 
an anonymous sender, how it is received into the stream of 
postal mail--is the ability to deploy those safety measures 
dependent upon this Congress providing any appropriation beyond 
the normal revenue foregone accounts that we have historically 
provided year after year?
    Mr. Potter. Our emergency preparedness plan lays out a 
three-year horizon, in terms of what monies--could be spent in 
terms of dealing with bioterrorist agents in the mail. And 
certainly, we would constantly be evaluating risk as we go 
along, and our financial capability in terms of being able to 
meet the costs of those technologies.
    Mr. Istook. I take it, because my question was whether the 
ability to do so--my question was whether you would still be 
able to employ these measures with collecting this stream of 
mails from the mail collection boxes, even if this Congress 
does not provide any greater than normal appropriation? And I 
gather from your answer that the ability to deploy that does 
not depend upon whether we have any extraordinary 
appropriation.
    Mr. Potter. It very well could depending on our financial 
situation. And as described earlier, our financial situation is 
very tenuous.
    Mr. Istook. I understand it is tenuous and that is 
obviously why the questions have focused upon postal 
transformation, expense, control. I understand, as you 
testified, that 75 percent of your expense, of course, is 
personnel. I recognize there are contractual obligations that 
are there. There are binding arbitration issues that come up. 
And I realize you do not always have the flexibility over 
expenses that you would like to have. And I also recognize that 
that situation is not a product simply of the management of the 
Postal Service. It is also a product of legislation and laws 
enacted by this Congress, which is why you are looking at 
potential changes in laws on it.

                         E-COMMERCE INITIATIVES

    But looking at other areas of costs, for example, for the 
Postal Service, the e-commerce initiatives. Now, is it correct 
that the revenue projections for what would come through e-
commerce have been off by a factor of about 100, that it has 
only been approximately 1 percent of the revenue stream that 
was anticipated from e-commerce.
    Mr. Potter. I do not have the exact percentage, but it is 
probably close to that.
    Mr. Istook. And I believe there was, for example, a revenue 
projection for the most--I believe it was for the most recent 
year projecting something like $104 million in e-commerce 
revenue, and only about 1 percent of that revenue stream was 
realized. That is the figure I have seen, whether it is 
precisely accurate or not, that is the figure I have been 
given. With that in mind, how much has the Postal Service spent 
on trying to create these Internet-based e-commerce streams for 
electronic bill payment, for example, and secured handling of 
documents on line, how much has the Postal Service expended on 
that?
    Mr. Potter. I do not know the exact number. But I know it 
is nearly $80 million, and I will be happy to provide that for 
the record, but it is a significant amount of money.
    [The information follows:]

    From the period 1997 through mid-2002, the Postal Service 
spent just under $80 million on e-commerce development.

    Mr. Istook. But the effort continues. Well, we have not 
canceled the program.
    Mr. Potter. We have discontinued our post-ECS product. We 
are in the process of evaluating all of our electronic commerce 
initiatives. We are working through each and every one of them. 
I expect to be making announcements in the near future on the 
programs that will change. It is not as simple as you just pull 
a plug. It is a matter of, an investment has been made; if we 
can recoup some of that investment, we would like to do that. 
We do have customers for some of these products, so if and when 
we discontinue there will be a need for notification, and we 
have business partners. So we are working through each and 
every one of these.
    And as I said, we have discontinued our post-ECS product. I 
announced that earlier this month. And you can expect us to 
make additional announcements than the ones I have.
    Mr. Istook. And let me be clear: I would not condemn the 
Postal Service or any enterprise for making decisions that, in 
hindsight, did not work out. That is normal. You can pick up 
the paper everyday and read whether it is business decisions, 
corporations or this Congress or anyone else, we all try things 
that do not work out. The bigger problem is if we do not learn 
any lessons from those experiences. Therefore, my question is, 
from the Postal Service's ventures into e-commerce, what 
lessons do you believe have been learned?
    Mr. Potter. One lesson is that there are certain market 
places where we just do not belong. There are market places 
that we thought would grow that have not grown. There is a need 
when you enter into some of these new product arenas for a much 
more aggressive marketing and sales effort than we had planned 
for. And so, we have learned, those lessons and we would hope, 
in the future, to make sure that we take advantage of those 
lessons as we look to new things.
    We do think there is a need for every business in America 
to be on the Internet and to operate in that medium, and we are 
trying to find our niche. But I can not guarantee you that we 
will not make mistakes in the future. And as you said, every 
business in America has to try different things and we are 
going to continue to look at opportunities.
    Mr. Istook. Well, certainly, I mean, speaking as a person 
that definitely is a believer in e-commerce and the potential 
of Internet and electronic commerce and opportunities, I do not 
know necessarily what lessons, perhaps, ultimately we will find 
should be learned. But I would certainly encourage you and we 
will be trying to assist in making sure there is some good 
analysis as to whether those are the factors or perhaps some 
other things that may not be as obvious right now.
    But the Postal Service, talking with private enterprises, 
looking at approaches that they are taking compared to 
approaches that the Postal Service is taking, I think there is 
still a lot of need for innovation. And the last thing I would 
want to do by criticizing some effort at innovation that 
failed, the last thing I would want to do to would be to cut 
off an attitude toward innovating, because I certainly want to 
encourage that attitude.
    Mr. Hoyer.

                   EMERGENCY PREPAREDNESS PLAN COSTS

    Mr. Hoyer. Thank you, Mr. Chairman.
    General, I have a lot of questions about the emergency 
preparedness plan, some were preliminary. I am going to submit 
those for the record. Let me go to what I think are the 
questions I would like to hear right now.
    Your plan states that an additional $87 million is needed 
for immediate safety needs. I do not know whether you have 
spoken of those already, I was late to the hearing so if you 
have, we will move on. My question is, have you submitted a 
request to OMB for these funds to be included in an emergency 
supplemental package?
    Mr. Potter. We have shared those numbers with the 
administration, yes, we have.
    Mr. Hoyer. Have you requested that they be included in a 
supplemental?
    Mr. Potter. Yes.
    Mr. Hoyer. Has the Office of Homeland Security reviewed 
that, to your knowledge, your request?
    Mr. Potter. Yes.
    Mr. Hoyer. Do you know what response they made?
    Mr. Potter. No.
    Mr. Hoyer. So they gave you no response.
    Mr. Potter. Well, they told us that they would look at it 
and give us full consideration. But they did not say a definite 
yes or a definite no.
    Mr. Hoyer. What will be the impact of not receiving those 
funds in fiscal year 2002?
    Mr. Potter. We would probably look to delay some piece of 
our plan for this year. So as an example, if we were buying 
filtration systems on our equipment, we might break the 
contract up such that we would commit monies in an out-year. My 
preference would be to do it as quickly as possible. The more 
you commit, the better the price and, the quicker we can 
provide safety for our employees and the American public.
    Mr. Hoyer. Now, your planning calls for over $4 billion 
beyond 2002 to provide for mail safety. Is it your expectation 
that these funds will be provided by Congress and later 
appropriations?
    Mr. Potter. We certainly will request that.
    Mr. Hoyer. Now, what will be the impact if these funds are 
not provided?
    Mr. Potter. Again, it is a matter of our economics and 
whether or not we have sufficient funds from operations to put 
these new technologies in. At the present time, you know, we 
are looking for the Congress and the administration to help us 
because our outlook is not that positive.
    Mr. Hoyer. I understand that. Now, if the Congress does not 
provide supplemental funds either for 2002 or 2003, 2004 and 
2005, how necessary is it that we expend those funds to provide 
for the safety of employees and users of the mails? If they are 
essential, will that then require monies from service sectors 
to accomplish?
    Mr. Potter. Throughout this program we are going to 
constantly be assessing risk, risk to our employees. Obviously, 
we are moving ahead with the technologies that we feel provide 
the greatest protection with detection and vacuum.
    And I do not know, Tom, would you want to add to that?
    Mr. Day. Congressman, what we are faced with is that, we 
believe with the $500 million that was appropriated that we can 
provide a layer of protection that will provide a level of risk 
reduction, both to our employees and to the public in general, 
but it is not the full layer of protection that we believe is 
necessary. And so, that is why in 2003, 2004 especially, there 
is a need to progress further to provide the layer of 
protection that we think is commensurate with the threat that 
bioterrorism would present to the Postal Service, that we need 
to go forward and provide that further layer of protection that 
is much more system-wide and gives the opportunity to protect 
the broad range of employees and the public.
    Mr. Hoyer. Here is my concern: If that money is not 
provided to supplement your revenues, are the services, 
activities or objectives so critical that you would have to 
take away from service money that would then put a downward 
pressure on use, which would be a cycle of downward performance 
and revenues?
    Mr. Potter. The short answer is yes.
    Dick would like to add a comment.
    Mr. Strasser. I think that is a good point, Mr. 
Congressman. What we have been talking about, waiting from the 
rate commission for is a proposed rate package that was due to 
go into effect in 2003. We have got a settlement with the 
mailing community to move it forward to June. That rate setting 
package increases the First-Class stamp to 37 cents. 
Incorporated in that was no cost for security. It was filed 
before the terrorist actions, so there is no funding or 
financing in the rate. We are in a situation where we may raise 
rates this summer, but those rates are only designed to sustain 
our excellent levels of service and our current financing of 
operations. They are not designed to raise the $1.5 billion 
that we need in 2003 and 2004 for security.
    And so, if we were, because of risk assessment and because 
there was a determination that we needed to raise the level of 
security and safety for employees and postal customers, if we 
were forced to spend the $1.5 billion from operating funds, we 
could, in fact, as the Postmaster General says, have a 
situation where we are ratcheting down such that we would have 
to look to other areas that might limit access to our postal 
system, make us less competitive, or features that could 
threaten the future viability of mail volume and growth, which 
already is threatened by electronic diversion, as we have seen.
    Mr. Hoyer. Let me move to another segment, commercial mail. 
What is the percentage of commercial mail handled by the Postal 
Service?
    Mr. Potter. Commercial-related mail is over 95 percent.
    Mr. Hoyer. In your analysis, preparation of your emergency 
plan, what is the difference in threat level from commercial 
mail to individual mail?
    Mr. Potter. We use the term manufactured mail; but the 
greatest threat is from open access to our system, which is 
through collection boxes. There has never been, to the best of 
my understanding, a threat through manufactured mail.
    Mr. Hoyer. So that essentially, it is the 5 percent that 
poses the greatest risk. If commercial mail or manufactured 
mail is 95 percent, would it be accurate to conclude that it is 
5 percent of the mail stream that causes the greatest risk?
    Mr. Potter. Let me back up just a second. We said that 95 
percent of the mail is business-related, that includes people 
paying bills.
    Mr. Hoyer. Right.
    Mr. Potter. So some 17 percent of our mail comes to us 
through collections, collection boxes. So it is that 17 percent 
of mail that comes in. And I do not want to confuse things, 
but----
    Mr. Hoyer. I understand what you are saying.
    Mr. Potter [continuing]. It is that 17 percent that we are 
dealing with.
    Mr. Hoyer. In the emergency report you state the following: 
The Postal Service is continuing its efforts to create an 
intelligent mail stream, whereby each mail item can be uniquely 
identified. Can you describe how, quote, intelligent mail 
stream, would be effective in deterring terrorists from using 
the mail?
    Mr. Potter. I will turn that to Tom.
    Mr. Day. Congressman, that has actually been an ongoing 
effort that predates the security issues of 9-11 or the anthrax 
attack. We have worked with the mailing community to develop 
the concept of intelligent mail. It takes several different 
forms, there are different bar code formats. In fact, I am on a 
committee now. We are working together with the mailing 
industry to determine what are the right formats and data 
structure for how intelligent mail works.
    But the basic concept of how it provides a level of 
security is you have the ability of the individual mail piece 
to know information, in terms of who the sender is, when the 
mail piece was created, what the mail piece is, who it is going 
to, and having the ability to track all of that data through 
the system. That kind of end-to-end tracking of mail, which 
primarily is coming from the manufactured mail source, so the 
overwhelming majority of the mail we deal with is what becomes 
intelligent mail, provides us the capability to just understand 
what is in the system, where it is coming from and going to. So 
just that knowledge and data flow give you a much higher level 
of security as compared to the anonymous mail that is dropped 
in the individual collection box.
    Mr. Hoyer. My time is up.
    Mr. Istook. It is, unless you----
    Mr. Hoyer. No.
    Mr. Istook. Thank you. Okay.
    We will recognize Ms. Meek for the concluding questions.

                       LABOR-MANAGEMENT RELATIONS

    Mrs. Meek. How would you characterize the current state of 
labor management in your particular area, Mr. Potter? And when 
you do that, what steps are you taking to involve the union in 
the transformational plan, which I notice from your testimony?
    Mr. Potter. Regarding the transformation plan, we have 
reached out to all of the unions and management associations. 
As a matter of fact, we had the union presidents and the 
management association presidents meet with our Board of 
Governors. They formed a panel. They met with the Postal 
Service Board of Governors. I think that is the first time in 
the history of the Postal Service that that has occurred. We 
have and I am personally going to meet with all of the 
presidents between now and the time that we put the plan out.
    We have shared our discussion draft with the unions, and 
asked and solicited their comments. As I said, we ratcheted 
that up with personal conversations with me, as well as their 
participation with the Board.
    As far as overall labor relations within the Postal 
Service, I think that we have made some great strides in the 
last several years. One of the things that has been most 
helpful to us--there are two things that have been most 
helpful. One is a joint contract administration manual that we 
have with three of our unions, where in the past we have had 
contentions over interpretations of the contract. And we have 
sat down and had a mutual understanding of what the contract 
means. We have gone out and trained labor representatives from 
the Postal Service, union representatives throughout the 
country and our employees, so that we take some of the 
grievances that are in the system out. We have been very 
successful, as I said, with three of the unions.
    The fourth union, I just received a letter from this week 
saying that they were going to provide to us their version of 
the contract interpretation, a manual. We have been working on 
that. They have been working on their version since 1998. So 
that was a good sign and I was very happy to hear from the 
presidents regarding that.
    In the area of EEO complaints, which have been a 
significant problem for the Postal Service. Annually we had 
been receiving 14,000. We have dropped that down to some 
10,000. It is still too high. I am not saying that we are 
satisfied to even have one, but we have driven that number 
down. We have introduced a redress process so that we attempt 
to mediate solutions as soon as a complaint becomes formal. And 
so we are working hard.
    I would be less than accurate if I characterized it as a 
perfect situation, but we do know that--and I would like you to 
know--that there are efforts under way to improve that 
relationship from the bottom right up to the top.
    Mrs. Meek. Thank you. I ask you that question, because 
during the interim time I served on this committee I served on 
the Post Office Committee, the Authorizing Committee, and I 
learned of a lot of situations. And I am glad that you are on 
top of them and it will continue to get better for the workers.

              EMPLOYEE COMMUNICATION ABOUT ANTHRAX THREAT

    My next question has to do with the health-related problems 
with anthrax. Are you reaching out and involving the unions and 
all the stakeholders in your planning to go up against any kind 
of anthrax threat?
    Mr. Potter. This is one of probably the things I am more 
proud of when it comes to our efforts with anthrax. What I am 
proud of is that, the unions, management associations joined 
with management of the Postal Service to address the health-
related concerns of anthrax. We met when we initially had the 
problem on a daily basis. We shared with them everything that 
we knew about anthrax. When they said, ``We heard this from the 
CDC or this from somebody else,'' if they had concerns, we 
brought those people into those sessions. As a result of that, 
we have ongoing committees that are part of a task force that 
are related to dealing with bioterrorism and other security 
matters in the Postal Service.
    And I am very grateful to the unions for their 
participation. And we have shared everything that we know. And 
I am not saying that we knew a lot initially, but as we 
learned, they learned. And it is one of the things of which I 
am most proud of our people for the way they have rallied 
together to deal with this issue.
    Mrs. Meek. Thank you very much. I yield back, Mr. Chairman.
    Mr. Istook. Thank you, Mrs. Meek.
    General Potter, thank you for taking the time, for everyone 
that has come here to assist you. I appreciate your testimony 
and efforts. It has, I know, been a little bit of a difficult 
day for you, but that is because circumstances are difficult. 
And we appreciate your efforts and the progress that you are 
making and that we hope we can help you to improve with the 
Postal Service.
    And we will submit the other questions for the record. 
Thank you for taking time.
    We stand adjourned.

              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]




                               I N D E X

                              ----------                              
                                                                   Page
Appropriations...................................................    14
Borrowing Limit..................................................    33
E-Commerce Initiatives...........................................    35
Electronic Mail Impact on Volume.................................    20
Emergency Preparedness Plan Costs................................    37
Employee Communication About Anthrax Threat......................    40
Facility Inspection Galleries....................................    18
Fiscal Year 2003 Budget Congressional Submission.................   122
Florida Weather Emergency Policy.................................    23
International Mail Border Inspection.............................    20
Labor Costs......................................................    31
Labor-Management Relations.......................................    39
Legislative Changes..............................................    34
Mail Irradiation.................................................    34
Mail Security--Congressman Tiahrt................................    18
Mail Security--Congressman Sherwood..............................    32
Mail Security--Chairman Istook...................................    34
Mail Volume......................................................    18
Pay for Performance--Chairman Istook.............................    14
Pay for Performance--Congressman Hoyer...........................    29
Pay For Performance--Congressman Peterson........................    25
Pay For Performance--Congresswoman Northup.......................    21
Postal Service Finances..........................................    19
Postmaster General's Statement...................................     4
Postmaster General's Summary Statement...........................     1
Questions Submitted for the Record by Chairman Istook............    42
Qeustions Submitted for the Record by Congressman Hoyer..........    92
Questions Submitted for the Record by Congressman Price..........   115
Questions Submitted for the Record by Congressman Rothman........   117
Questions Submitted for the Record by Congresswoman Meek.........   109
Questions Submitted for the Record by Congresswoman Northup......    86
Revenue Foregone Reimbursement...................................    25

                                
                                                                      ?
