[Senate Hearing 107-551]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 107-551
 
  THE POSTAL SERVICE IN THE 21ST CENTURY: THE USPS TRANSFORMATION PLAN
=======================================================================




                                HEARING

                               before the


INTERNATIONAL SECURITY, PROLIFERATION AND FEDERAL SERVICES SUBCOMMITTEE

                                 of the

                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION


                               __________

                              MAY 13, 2002

                               __________

      Printed for the use of the Committee on Governmental Affairs










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80-598                         WASHINGTON : 2003
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                   COMMITTEE ON GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 FRED THOMPSON, Tennessee
DANIEL K. AKAKA, Hawaii              TED STEVENS, Alaska
RICHARD J. DURBIN, Illinois          SUSAN M. COLLINS, Maine
ROBERT G. TORRICELLI, New Jersey     GEORGE V. VOINOVICH, Ohio
MAX CLELAND, Georgia                 THAD COCHRAN, Mississippi
THOMAS R. CARPER, Delaware           ROBERT F. BENNETT, Utah
JEAN CARNAHAN, Missouri              JIM BUNNING, Kentucky
MARK DAYTON, Minnesota               PETER G. FITZGERALD, ILLINOIS
           Joyce A. Rechtschaffen, Staff Director and Counsel
              Richard A. Hertling, Minority Staff Director
                     Darla D. Cassell, Chief Clerk

                                 ------                                

INTERNATIONAL SECURITY, PROLIFERATION AND FEDERAL SERVICES SUBCOMMITTEE

                   DANIEL K. AKAKA, Hawaii, Chairman
CARL LEVIN, Michigan                 THAD COCHRAN, Mississippi
ROBERT G. TORRICELLI, New Jersey     TED STEVENS, Alaska
MAX CLELAND, Georgia                 SUSAN M. COLLINS, Maine
THOMAS R. CARPER, Delaware           GEORGE V. VOINOVICH, Ohio
JEAN CARNAHAN, Missouri              ROBERT F. BENNETT, Utah
MARK DAYTON, Minnesota               PETER G. FITZGERALD, Illinois
                Nanci E. Langley, Deputy Staff Director
                Dennis M. Ward, Minority Staff Director
                      Brian D. Rubens, Chief Clerk















                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Akaka................................................     1
    Senator Cochran..............................................     6
    Senator Carper...............................................     7
    Senator Stevens..............................................    12

                               WITNESSES
                          Monday, May 13, 2002

Hon. John E. Potter, Postmaster General, U.S. Postal Service.....     3
Hon. David M. Walker, Comptroller General, General Accounting 
  Office.........................................................     9

                     Alphabetical List of Witnesses

Potter, Hon. John E.:
    Testimony....................................................     3
    Prepared statement...........................................    39
Walker, Hon. David M.:
    Testimony....................................................     9
    Prepared statement...........................................    46

                                Appendix

Questions for Postmaster General Potter from:
    Senator Akaka................................................    82
    Senator Cochran..............................................   105
    Senator Levin................................................   109
    Senator Carper...............................................   112

Questions for Mr. Walker from:
    Senator Akaka................................................   115
    Senator Thompson.............................................   119


















  THE POSTAL SERVICE IN THE 21ST CENTURY: THE USPS TRANSFORMATION PLAN

                              ----------                              


                          MONDAY, MAY 13, 2002

                                     U.S. Senate,  
                 International Security, Proliferation,    
                       and Federal Services Subcommittee,  
                  of the Committee on Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:02 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Daniel K. 
Akaka, Chairman of the Subcommittee, presiding.
    Present: Senators Akaka, Dayton, Carper, Cochran, and 
Stevens.

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka. Good morning. This hearing will come to 
order.
    This morning, we have a very rare privilege of having two 
Generals with us and a full house. We are pleased to have with 
us today John Potter, the Postmaster General, and David Walker, 
Comptroller General. Both of you have contributed so much to 
framing our discussion of how to strengthen the Postal Service 
and safeguard its core mission: Providing universal mail 
service to all Americans at affordable prices.
    Mr. Potter, in the first 11 months of your tenure, the 
Postal Service has faced events that no one could have 
foretold. Over the past 10 days, the Service and its employees 
has once again found themselves on the front lines, and I want 
to commend them for the courage and determination they showed 
in response to this latest attack.
    All too often, we take them for granted, and I was so 
pleased when the Senate unanimously adopted a resolution last 
November, that Senator Boxer and I introduced, that commended 
Postal employees for their service and dedication. The events 
of the past 8 months have clearly demonstrated these men and 
women deserve to be recognized for their courage in the face of 
substantial risk.
    We are also honored to have with us today the Comptroller 
General, whose commitment to an effective and efficient 
government has been underscored by his continued personal 
involvement with oversight of the Postal Service--the work that 
we are doing. Mr. Walker, I thank you and your staff for 
spotlighting the serious financial and operational challenges 
facing the Postal Service and for your recommendation for 
transformation.
    I sincerely believe that we have the right folks in the 
right place at the right time to assist us with the task of 
securing the Postal Service's future. I also wish to thank 
those members of our audience who worked with the Postal 
Service as it put together this Transformation Plan. Your 
cooperation and partnership added exceptional value to what we 
are doing.
    Last March, the leadership of this Subcommittee and the 
full Committee asked the GAO to review the financial condition 
of the Postal Service after learning that the Service faced a 
possible $3 billion deficit for fiscal year 2001. A month 
later, GAO placed the Service's transformation efforts on its 
high risk list, and in May, at a joint Committee/Subcommittee 
hearing, we responded to Mr. Walker's recommendation for a 
Transformation Plan by asking the Postal Service to provide us 
with its short-, mid-, and long-term vision. That Plan and the 
GAO report are the focus of today's hearing.
    I do not have to remind any of you that the operation of 
the Postal Service and the delivery of mail is critical to our 
Nation's economy. It is the linchpin of a $900 billion mailing 
industry that employs nearly nine million workers and is 8 
percent of gross domestic product.
    This morning we will examine the consequences of ignoring 
the challenges facing the Service, as laid out by the Plan and 
GAO's report. I believe both reports make a strong case for 
change and both propose some tough options on tough issues, 
some of which will be politically unpopular.
    I am also aware that given the diverse nature of the 
mailing industry, it may be difficult to forge a true 
consensus, but I agree with the Postmaster General that the 
only way to tackle the future of the Postal Service is through 
working together.
    I will not take any more time to discuss where we have 
been. Rather, I would like to talk about the Transformation 
Plan. I appreciate the extent to which the Plan addresses many 
of the fundamental issues associated with Postal questions and 
operations, rates and pricing, human resources, regulatory 
reform, and mail safety. However, within these categories, 
there were details that were not clearly defined, such as 
implementation time frames, how proposed cost cutting goals and 
no rate increases until 2004 will provide adequate funds for 
capital needs and debt reduction, and how the Postal Service 
will deal with the long-term liabilities associated with 
pension plans and post-retirement health benefits while 
ensuring the retirement security of its employees.
    We need fuller explanations of the Service's strategies to 
improve labor-management relations and how it will enhance 
workforce culture. How will changes to procurement and 
contracting procedures produce savings? And how will the 
Service fund mail safety and security programs beyond 
Congressional appropriations?
    It is also fair to ask why existing flexibilities have been 
seldom used, and what has changed that makes the Postal Service 
believe it can now take advantage of the short-term options 
outlined in the Plan? How do we balance the interests of those 
who use First-Class Mail with the interests of commercial 
mailers as the Postal Service seeks additional pricing 
flexibilities? How do we protect universal service and make 
sure that the Postal Service's core mission does not erode?
    Although we do not have the time to examine all of these 
issues today, we will seek answers to these and other 
questions.
    Let me conclude by saying that should Congress agree with 
the recommendation that the Postal Service become a commercial 
government enterprise, we must protect the institutional and 
fiduciary interests of the Federal Government, the Congress, 
and the public. We must consider how a government entity with 
commercial mandates would function and how we would ensure 
Congressional accountability and protect against the misuse of 
Federal funds and authority.
    Without strong guarantees of accountability and credible 
financial auditing to protect the public interest, a future 
generation of lawmakers will be obligated to reconsider the 
very issues we will discuss today.
    I now yield to our first witness. I ask that you keep your 
oral statements to 5 minutes. Be assured, however, that your 
written testimonies will be made a part of the record. Again, I 
express my gratitude for your presence this morning. Postmaster 
General, please proceed.

 TESTIMONY OF HON. JOHN E. POTTER,\1\ POSTMASTER GENERAL, U.S. 
                         POSTAL SERVICE

    Mr. Potter. Good morning, Mr. Chairman. Thank you for the 
opportunity to speak with you today about the transformation of 
the U.S. Postal Service.
---------------------------------------------------------------------------
    \1\ The prepared statement of Postmaster General Potter appears in 
the Appendix on page 39.
---------------------------------------------------------------------------
    One year ago, the Congress asked the Postal Service to 
create a comprehensive Transformation Plan that would chart its 
current and future mission and the reforms that would be 
necessary to fulfill that mission. We delivered that plan to 
Congress 1 month ago.
    In developing the Plan, the Postal Service Board of 
Governors and Postal management reached out to our 
stakeholders, the mailing industry, Postal unions, our 
management associations, and individual consumers. We received 
their input and recommendations on the future of the Postal 
Service. There was consensus among this very diverse group that 
the Postal Service must change if it expects to continue to 
provide universal service to all Americans. Our Transformation 
Plan maintains our commitment to that core value, that is, to 
provide access to postal service and daily delivery for all 
Americans, regardless of where they live, where they work, or 
their economic circumstances.
    It was that national mandate to provide universal service 
that led to the establishment of a network of post offices 
throughout the original 13 colonies. Today, we preserve that 
commitment by providing a national communications network that 
connects 280 million people, 105 million households, and 13 
million businesses across America through some 38,000 post 
offices, stations, and branches.
    Throughout our 225-year history, the Postal Service has 
adapted to meet the changing needs of our customers. The 
circumstances we find ourselves in today necessitate a 
reevaluation of our operations and the business model which 
governs us. Today, we are experiencing extraordinary declines 
in mail volume and resulting losses in revenues. Our projected 
volume decline for this year will be more than six billion 
pieces of mail below last year. That is the largest volume 
decline ever experienced in a single year.
    Despite this decline, we are working to reduce our net loss 
below our earlier projections. To achieve this, we will reduce 
the number of career employees through attrition by 20,000 
people this year. In addition, we will cut over 60 million work 
hours compared to last year, and we are postponing program 
expenditures and delaying capital investments.
    The net effect of these actions will reduce current year 
planned expenses by $2 billion. Those savings, combined with 
the $1 billion infusion of revenue from the early 
implementation of the rate case, means our projected net loss 
for the year will be in the range of $1.5 billion instead of 
what easily could have been a loss of $4.5 billion.
    But these circumstances dictate that we must take a more 
comprehensive approach to address these issues in the future. 
That approach is presented in our Transformation Plan. The Plan 
identifies three parallel courses of action: First, initiatives 
to improve service and efficiency under current legislation; 
second, moderate regulatory and legislative change needed to 
better manage today; and finally, comprehensive legislative 
reform which addresses complex issues, such as a definition of 
universal service. Let me take a moment to discuss each.
    Internally, we have to balance the need to grow volume with 
the need for efficiency to assure affordable rates. In short, 
we must increase the value of our products. Value starts with 
service. Timely delivery remains our No. 1 priority.
    In addition, we have begun to leverage our experience with 
technology to enhance our products and services. For instance, 
we have introduced the first intelligent mail product, called 
Confirm, that enables mailers to track their letters or flats 
through each step of the Postal Service distribution process. 
This tool gives mailers information to plan marketing 
strategies and sales based on more predictable and reliable 
mail delivery.
    The second element of value is price. By law, we are 
required to set prices based on costs, which is why we have 
embarked on a 5-year plan to reduce costs by $5 billion through 
2006. Our plans include the use of technology to automate 
operations, facility and transportation network changes, and 
establishment of a customer-focused, performance-driven 
culture.
    I would add, Mr. Chairman, that we continue to work closely 
with representatives from mailers' organizations, citizens' 
groups, and our unions and management associations to solicit 
their input and support for these initiatives.
    Concurrent with this effort, we have focused on immediate, 
moderate regulatory and legislative changes. Our No. 1 priority 
is to modify the rates process to be more compatible with the 
needs of our customers and to provide management with the 
flexibility to grow the business. We have joined with the 
Chairman of the Postal Rate Commission, George Omas, to convene 
a joint summit of all stakeholders in the mailing industry 
later this month. While this effort may produce some positive 
results, a moderate change in legislation will assure that the 
will of the people, as determined by its elected 
representatives, is carried out and that protection of 
universal service is assured.
    To that end, the Transformation Plan calls for a 
comprehensive legislative change to address the future needs of 
the Postal Service. There are many complex public policy 
issues, such as the definition of universal service and the 
Postal Service's business model, which require careful 
evaluation.
    While there were many alternatives for consideration, the 
Transformation Plan lays out three possible scenarios for our 
future. We have provided two scenarios that are at the far ends 
of the spectrum of alternatives available, putting the Postal 
Service back on budget as a traditional government agency at 
one end, or creating a privatized corporation at the other end.
    In addition, we provided another scenario for converting 
the current business model to a Commercial Government 
Enterprise. This third model, a Commercial Government 
Enterprise, would provide the tools needed to ensure universal 
service for the American public and long-term financial 
stability. Essentially, the Postal Service could become profit-
driven, generate returns to finance capital projects instead of 
increasing our debt load, introduce flexible pricing based on 
market demand, and develop better relationships with our 
employees.
    These and other long-term changes to transform the Postal 
Service can only come with legislative reforms. Every American 
and every policy maker has a stake in Postal reform and 
transformation. The mailing industry of this country employs 
over nine million Americans. It contributes $900 billion to the 
Nation's economy, representing 8 percent of the gross domestic 
product. This national asset must be protected and preserved. 
We look to this Subcommittee, the Congress, and the 
administration to help and guide us toward that goal.
    Finally, I want to take this opportunity to thank the 
American public for their support in helping us respond to the 
recent mailbox bombing incidents in the Midwest. Residents in 
rural areas helped by opening their mailboxes to minimize risk 
to our letter carriers and themselves. Our employees deserve 
credit, too, for their courage and commitment to deliver the 
mail under difficult circumstances. Their actions brought new 
meaning to our commitment to provide universal delivery service 
to America.
    I also want to acknowledge and thank the many local, State, 
and Federal law enforcement authorities who worked to resolve 
the mailbox bombing incidents. I especially want to thank 
Acting Chief Inspector Jim Rowan for helping coordinate all our 
resources and getting 150 Postal inspectors deployed throughout 
the Midwest to help in the investigation.
    In reviewing the news accounts of last weekend, I was 
reminded that the American people place a high value on the 
daily delivery of their mail. It is that value that underscores 
the importance of universal service and the need to change the 
Postal Service. To that end, my staff and I would be pleased to 
work with this Subcommittee in any way possible to advance the 
transformation of the Postal Service.
    Thank you, Mr. Chairman. I would be pleased to respond to 
any questions or suggestions you might have.
    Senator Akaka. Thank you very much for your statement. We 
certainly look forward to working together with you.
    I would like to call on my friend for any statement he may 
have, Senator Cochran.

              OPENING STATEMENT OF SENATOR COCHRAN

    Senator Cochran. Mr. Chairman, thank you very much. I am 
pleased to join you this morning to hear the presentation by 
the Postal Service, the Postmaster General specifically, of his 
Transformation Plan and his observations about the challenges 
that face the Postal Service, and to welcome David Walker, 
Comptroller. We appreciate very much your cooperation with our 
Subcommittee.
    I know that many of us, particularly Postal Service 
employees, long for the good old days when the worst thing that 
could happen to you if you were a Postal employee was to be 
bitten by a dog. [Laughter.]
    But the fact is, in this current environment, you can be 
anthraxed or pipe-bombed and confused with changing trends and 
demands in the marketplace. We are in a very fast transition 
phase, it seems to me, in terms of the business challenges that 
face the Postal Service, and I use that term ``business'' 
because I can remember when I used to talk about the fact that 
we have to realize that the Postal Service is really not a 
business. It is a service. It is the U.S. Postal Service. It 
has a greater and larger responsibility to the people of this 
country.
    So it is a unique challenge that the people who run the 
Postal Service face. It is not just one or the other. It is a 
combination of an entity that has to comply with the strict 
mandates of Federal law. It is independent from government. 
Congress really is not supposed to run it and meddle in its 
business, but it tends to all the time anyway. So there are a 
lot of anomalies when it comes to trying to figure out how to 
proceed to improve and fulfill the missions and the challenges 
of the future that I think the Postmaster General has really 
articulated in his statement today very well.
    Reducing costs is a priority. Improving the reliability of 
services, that is a must, reaching out for advice from those 
who use the services out of the U.S. Postal Service, and 
realizing that we have to embark upon some commercial 
realities, government enterprises. The use of the phrase 
``commercial government enterprise'' is interesting and 
challenging. I think we need to commit ourselves as a 
Subcommittee to working with you and trying to figure out ways 
to improve the basic underlying laws and restrictions that 
apply to the Postal Service.
    I am willing to commit to you my best efforts, and I am 
sure others of the Subcommittee and Congress will join me in 
that commitment today. Thank you.
    Senator Akaka. Thank you very much for your statement, 
Senator Cochran.
    I would like to call on Senator Dayton for an opening 
statement.
    Senator Dayton. Thank you. Nothing at this time, Mr. 
Chairman. Thank you.
    Senator Akaka. Senator Carper, any statement.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. Thank you, Mr. Chairman, and to the 
Postmaster General and to the Comptroller General, welcome, 
both of you. We thank you for your presence here today. We 
thank you for your good work, as well.
    I grew up in Danville, Virginia, and had a newspaper route 
in the mornings and in the afternoons. Later on, my stepson 
would deliver newspapers in New Castle, Delaware. If you go 
back to Danville, Virginia and New Castle, Delaware today, you 
do not have kids delivering newspapers anymore. It is a sign of 
the times.
    I think what your employees have been through in the last 
6, 7, or 8 months with respect to the anthrax, the chemicals in 
the mail, and more recently the bombings in the Midwest, is a 
sign of the times, as well, and not a very good sign of the 
times.
    Postmaster General Potter, I would just ask that you convey 
to your employees our continued thanks for their service to all 
of us in what we know are challenging, challenging times.
    I think the attacks I mention may have come at what is 
perhaps the lowest point in the Postal Service's 30-year 
history. Volume is down. Revenues are down. Deficits are 
growing and fixed costs are not going away. Some of the 
customers who left the Postal Service because of safety 
concerns in recent months may come back as the economy 
continues to recover. Others may never return and it is 
possible that the Postal Service would have lost a good number 
of them in any event.
    As the Transformation Plan that you submitted points out, 
the Internet is already eating into volume and will continue to 
do so in coming years as younger generations who are more 
comfortable with technology take advantage of innovations like 
electronic bill pay. I just paid my bills this weekend. It was 
interesting to note, and I thought about this in anticipation 
of today's hearing, how many of the bills we pay now through 
electronic billing that we used to put stamps on the envelopes 
and pop them into the mail on Monday mornings. Obviously, we 
are not the only family that does that.
    So what do we do? What do we want our Postal Service to 
look like in the Internet age? These are questions we have to 
answer or else the circumstances will answer them for all of 
us. As GAO has pointed out, the Postal Service cannot simply 
continue to do business the way it has been doing it and 
continue to survive and prosper.
    One thing that we do need to think, I believe, long and 
hard about in Postal reform is whether to allow the Postal 
Service to become a ``communication company,'' as it has taken 
to calling itself recently. The Postal Service is in the 
mailing business and should stick to what it does best, I 
think, and that is delivering the mail. Offering e-commerce 
services and selling greeting cards and stationery in the post 
office might be in some ways a little more exciting, maybe more 
challenging than delivering letters and packages, but we need 
to ask ourselves, will it improve the Postal Service's bottom 
line and can it be done in a manner that is fair to the Postal 
Service's private sector competitors?
    Making smart management decisions aimed at increasing 
volume, raising revenue, cutting costs, and capitalizing on 
quick, efficient delivery of the mail will improve the bottom 
line, and that is for sure.
    A number of years ago, I went to business school and we did 
case studies, as a lot of students in business schools do, and 
I told my staff in anticipation of this meeting, Mr. Chairman, 
that if I were the person responsible for running the Postal 
Service, and particularly with the business school bent, I 
would be trying to figure out how to reinvent the company and 
probably how to turn it into a communications company. Doing 
so, however, may not be fair to the private sector companies 
with whom you compete for the non-monopoly business, and doing 
so may not be fair to those of us who pay for First-Class Mail 
and may be paying actually more than our fair share of the 
costs in order to cover the non-First-Class Mail.
    I believe, and we will get into this in Q&A, I believe that 
about 50 percent of your revenues come from First-Class Mail. 
Those revenues cover maybe 70 percent of your operating costs, 
your institutional costs. That is a point I want to come back 
to a bit later.
    Mr. Chairman, I have a couple more things that are in my 
statement. I would ask unanimous consent that those comments be 
added to the record, and again, we thank our witnesses and look 
forward to just a real good dialog with you. Thank you.
    [The prepared statement of Senator Carper follows:]
              PREPARED OPENING STATEMENT OF SENATOR CARPER
    Thank you, Mr. Chairman and thank you General Potter for being here 
today to talk about the Transformation Plan the Postal Service 
submitted to Congress last month. Let me also thank you for your 
service to our country during what has been a difficult time for the 
Postal Service and postal employees across the country. Through the 
threat of biological attack and, most recently, bombs in mailboxes, 
you've all been vigilant in carrying out your mission--connecting 
America through the mail. I think I speak for all of my colleagues on 
the Subcommittee today when I say that your work is greatly 
appreciated.
    Unfortunately, the attacks I mention have come at what has to be 
the lowest point in the Postal Service's 30-year history. Volume is 
down, revenue is poor, deficits are growing and fixed costs are not 
going away. Some of the customers who left the Postal Service because 
of safety concerns in recent months may come back as the economy 
continues to recover. Others may never return, and it is possible that 
the Postal Service would have lost a good number of them anyway. As the 
Transformation Plan points out, the Internet is already eating into 
volume and will continue to do so in coming years as younger 
generations who are more comfortable with technology take advantage of 
innovations like electronic bill pay.
    So what do we do? What do we want the Postal Service to look like 
and do in the age of the Internet? These are the questions we have to 
find the answer to, or else circumstances will answer them for us. As 
GAO has pointed out, the Postal Service simply cannot continue to do 
business the way it has been and hope to survive.
    One thing I think we should not do in postal reform is to allow the 
Postal Service to become a ``Communications Company,'' as it has taken 
to calling itself recently. The Postal Service is in the mailing 
business and should stick to doing what it does best--delivering the 
mail. Offering e-commerce services and selling greeting cards and 
stationery in post offices might be more exciting than delivering 
letters and packages but it will not improve the Postal Service's 
bottom line. Making smart management decisions aimed at increasing 
volume, raising revenue, cutting costs and capitalizing on quick, 
efficient delivery of the mail will.
    Congress has a role to play in digging the Postal Service out of 
the hole it finds itself in. Our aim should be to allow the Postal 
Service to operate more like a business but in a way that is fair to 
its private sector competitors. First, we need to reform the rate-
making process to give the Postal Service the flexibility to offer 
volume and seasonal discounts that would increase volume and even to 
raise rates in high volume seasons or in the event of an energy crisis. 
We need to remove the break-even mandate and allow the Postal Service 
to retain earnings that could be invested in new technologies or saved 
for a rainy day. We may also need to look into removing the constraints 
we place on the Postal Service every year during the appropriations 
process that require them to maintain expensive facilities and small 
post offices that they may need to carry out their mission.
    Most of the heavy lifting in the short term, however, will have to 
come from the Postal Service itself. I was pleased that the 
Transformation Plan took a step in the right direction by putting 
forward some strong proposals aimed at cutting costs and improving 
operational efficiency. One thing I'd like to learn from General Potter 
today, however, is where exactly the $5 billion in savings the Plan 
says it will generate through 2006 will come from.
    All that being said, the toughest decisions Congress and the Postal 
Service will have to make in the coming months will be on what 
universal service should mean next year, or even 10 or 20 years from 
now when the pace of electronic diversion begins to quicken. Some easy 
answers would be to go to a shorter delivery week, to cut back service 
in hard-to-reach rural areas or to weaken delivery standards. I can't 
profess to be an expert on postal issues but I truly believe that 
actions like these, while they should be examined, may weaken the 
Postal Service instead of strengthening it. Our overarching goal in 
postal reform should be to preserve as much of the promise of universal 
service as possible, not to preserve the Postal Service at its current 
size and under its current construction at all costs. Cutting service 
and raising rates to finance an inefficient Postal Service will only 
drive more customers away.
    In closing, let me say that its time for all of us, both here in 
Congress and in the mailing community, to get serious about the 
problems the Postal Service faces. The postal economy is too large and 
the number of jobs that depend on the mail is too high for us not to 
act. I congratulate the Chairman and Ranking Member on this 
subcommittee, Senators Akaka and Cochran, and Senators Lieberman and 
Thompson on the full Committee for doing their part in calling this 
hearing today and in asking the Postal Service to prepare this Plan we 
have before us. I also urge postal stakeholders--the unions, the 
mailers and the Postal Service's private competitors--to recognize 
that, while they may not like some of what postal reform will 
inevitably mean, compromises will have to be made. If we don't work 
together now, there may not be much left of the Postal Service to 
reform. Service should be our focus, not any one group's narrow 
interests. If we don't keep this in mind, I think we'll all lose. The 
businesses and everyday Americans who depend on the mail, however, will 
lose the most.
    Thank you again Mr. Chairman. I look forward to hearing from the 
witnesses.

    Senator Akaka. Your statement will be included in the 
record.
    Now, I would like to ask the Comptroller General for your 
testimony.

  TESTIMONY OF HON. DAVID M. WALKER,\1\ COMPTROLLER GENERAL, 
                   GENERAL ACCOUNTING OFFICE

    Mr. Walker. Thank you, Mr. Chairman and Senators. I am 
pleased to be here today to participate in this hearing on the 
financial condition of and transformation challenges facing the 
U.S. Postal Service.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Walker appears in the Appendix on 
page 46.
---------------------------------------------------------------------------
    As you know, it was about a year ago that I appeared before 
this Subcommittee and we talked about the challenges that the 
Postal Service faced at that point in time. It was immediately 
after the GAO put the Postal Service's transformation effort on 
our high risk list. As you know, our high risk designation 
normally generates light, with light, you get heat, and with 
heat, you get action.
    I am pleased to say that there has been a variety of 
actions taken during the last year, the most recent being the 
Service's promulgation of its proposed Transformation Plan, 
which I think is a positive step. I think in many cases, the 
Transformation Plan exceeded the expectations of many parties. 
It represented a good faith effort to be able to address the 
nature and extent of the problems that the Postal Service faces 
and it also employed a three-step approach.
    What can management do within the context of current law? 
What type of incremental legislative reforms might be helpful 
to the Postal Service to provide it with some additional 
flexibility, additional empowerment, and reduce some barriers, 
while at the same point in time coupled with appropriate 
transparency and accountability mechanisms to go with that? And 
what needs to be done on a long-term basis to deal with the 
fundamental transformation challenge that the Postal Service 
faces?
    Its current business model does not work in the 21st 
Century. Let me state that again. The Postal Service's current 
business model does not work in the 21st Century and will not 
work in the 21st Century. So there are fundamental questions 
that have to be addressed.
    At the same point in time, there are some key things that 
we think need to be addressed that were not in the 
Transformation Plan, a few key topics as well as an action 
plan, not only what needs to be done, but how to do it. What 
are the mechanisms that need to be done and what are the 
important milestones that can help to gauge progress?
    Mr. Chairman, you have been kind to include my entire 
statement in the record, let me hit a few of the highlights 
that I think it is important to keep in mind.
    Obviously, the catastrophic events of September 11 and the 
subsequent use of mail to transmit anthrax, as well as the most 
recent pipe bombings, have changed the ballgame fundamentally. 
They have served to decrease mail volume and they have served 
to increase the cost of the Postal Service, and only time will 
tell how much of this decreased volume and how much of this 
increased cost is long-term versus short-term in nature.
    Despite additional cost cutting efforts in the first half 
of fiscal year 2002, the Service's revenues declined 
approximately twice as fast as its expenses, in part because 
the Service has large fixed expenditures that are very 
difficult to change quickly.
    Productivity increases continue to be difficult to achieve 
and sustain. As you know, recently, the Postal Service has been 
granted a rate increase to be effective on July 1. That will, 
among other things, end up increasing First-Class postage to 37 
cents, an increase of three cents. I think while over a number 
of years, if you look over several decades, the Postal Service 
rate increases for First-Class Mail have equaled inflation. 
However, if you look since January 1999, its rate increases 
have far outpaced inflation, and if you look at what some of 
the underlying pressures that the Postal Service faces, that is 
likely to continue to be the case in the future unless the 
Postal Service is successful in achieving the fundamental 
transformation that we are calling for.
    Cash flow difficulties continue. The Service's debt is 
budgeted to rise to $12.9 billion by the end of fiscal year 
2002, up $1.6 billion from the previous year, and only $2.1 
billion below the statutory cap of $15 billion. To conserve 
cash and to limit debt, the Service has continued to freeze its 
capital spending for most facility projects, resulting in a 
growing backlog, and that is just a timing difference. Sooner 
or later, you are going to have to deal with it, and sometimes 
delays conserve to exacerbate the problem.
    The Service's financial condition has deteriorated. Its 
liabilities exceed its assets. It has a negative net worth. The 
Service's major liabilities and obligations are estimated at 
close to $100 billion, which include liabilities for pensions, 
workers' compensation, debt to the Treasury, and certain other 
obligations for Postal retirement health benefits.
    While some of these amounts are reflected on the balance 
sheet of the Postal Service, some of these amounts are not. For 
example, $49 billion in unfunded retiree health benefits are 
not reflected on the balance sheet. In addition, they are not 
adequately disclosed in the notes. In addition, there is a $32 
billion number that is reflected as a pension liability, but it 
is also reflected as a deferred asset, therefore netting out to 
zero with regard to the Postal Services overall financial 
condition.
    Mr. Chairman and Senators, I am very concerned about 
whether or not the current accounting treatment for Postal 
retirement health obligations and pension obligations fairly 
presents the economic reality associated with the Postal 
Service's commitments with regard to these programs. I have 
brought this to the attention of Postmaster General Jack Potter 
as well as the Inspector General. We are trying to contact the 
external auditors, and I expect this is an issue that we are 
going to be talking about over the next several weeks. But the 
fact of the matter is that these are significant sums that, 
depending upon what the resolution is, could significantly 
change the net financial condition of the Postal Service today 
as well as the factors that will impact future rate increases 
and a variety of other factors looking forward.
    The Service's financial difficulties are not just a 
cyclical phenomenon that will fade as the economy recovers. Its 
basic business model does not work. It is facing increasing 
competition, including from the two things that are on my belt. 
Through my wireless e-mail device, I get e-mail and can tap 
into the Internet, and through my cell phone, I can make 
unlimited calls nationwide to be able to keep in touch with 
parties, whether for business or personal reasons, rather than 
sending a letter, as was the case in the past.
    Clearly, a range of stakeholders are looking for positive 
and constructive ways to work through the difficult Postal 
transformation issues and the Postal Service's Transformation 
Plan is a positive first step. It is clear, however, that real 
transformation will require tough choices, shared sacrifices, 
and that it is unrealistic to expect that, given the complexity 
and the controversy associated with these issues and the 
difficulty associated therewith, that there will be a consensus 
on a plan forward, and, therefore, tough choices will have to 
be made.
    However, we believe that the Service's worsening financial 
condition and outlook intensify the need for Congress to act on 
meaningful Postal reform and transformation legislation. We 
believe that comprehensive legislative change will be needed to 
address certain key unresolved transformation issues, some of 
which have not been fully addressed by proposed legislation or 
the Service's Transformation Plan.
    Meanwhile, the Service's growing financial problems call 
for continued close Congressional oversight of its financial 
condition, progress, and meeting its Transformation Plan. We 
believe that it is important that there be greater transparency 
on a quarterly basis regarding to where the Postal Service 
stands with regard to its financial results, where it stands 
with regard to its Transformation Plan along the lines of what 
you would expect from a $67 billion a year enterprise, one of 
the Nation's leading employers, and if it was a Fortune 
company, would be a Fortune 10 company.
    The Congress's strong support for the Service to develop 
the Transformation Plan, and this Subcommittee's in particular, 
has helped to move the discussion forward. We look forward to 
working with the Congress to try to deal with these very 
difficult issues.
    Mr. Chairman, thank you again for the opportunity to 
appear. I will be more than happy to answer any questions you 
or the other Senators may have. Thank you.
    Senator Akaka. Thank you very much, Comptroller General, 
for your candid statement.
    I would like to ask my friend, Senator Stevens, for any 
statement you may have.

              OPENING STATEMENT OF SENATOR STEVENS

    Senator Stevens. You are very kind, Mr. Chairman. I am 
sorry to be late. I do not have any questions. I am pleased to 
be able to be here for this annual event. No State in the Union 
has more interest in the continued health of the U.S. Postal 
Service than my State. Without any basic road system, the 
Postal Service delivers our mail literally through hail, sleet, 
and snow, and we are pleased to have an opportunity to work 
with the Postmaster General and I appreciate Mr. Walker's 
report. Thank you very much.
    Senator Akaka. Thank you very much, Senator Stevens.
    Let me begin the first round of questions by asking the 
Postmaster General to detail the consequences if the short-term 
options proposed in the Transformation Plan are not adopted. I 
would also like to know what the consequence will be if the 
Service reaches its statutory borrowing limit of $15 billion.
    Mr. Potter. Let me begin with the borrowing limit. 
Obviously, it is my job and the job of everyone in the Postal 
Service to make sure that we do not reach that borrowing limit. 
The Board of Governors of the Postal Service has been very 
clear in its direction to Postal management that we are not to 
exceed that borrowing limit. By law, we cannot, and we are not 
to seek relief from that because that simply pushes the cost of 
providing today's service on future ratepayers.
    I can assure you that we have no intention of hitting that 
borrowing limit this year. Our plans would result in us not 
approaching that borrowing limit next year, and it is our job 
to make sure that we do not do that, not only in the near 
future, but in the long term.
    As regards what we are doing today, our short-term plans, 
obviously, there are many things that we built into the 
Transformation Plan that we in the Postal Service can control, 
particularly when it comes to efforts to improve the value of 
the mail, both from a service standpoint as well as a cost 
standpoint. We are very proud of the efforts of the men and 
women of the Postal Service, particularly this year, to reduce 
our costs.
    We have had eight accounting periods thus far in our fiscal 
year. The first accounting period, our total factor 
productivity was a negative 2.9 percent. That was the period 
right after September 11. Then we had our accounting period 
five, which is just post-Christmas, where we had a negative 0.9 
percent total factor productivity. In every other accounting 
period, our total factor productivity has been positive, and 
year-to-date, our total factor productivity is positive. It is 
0.2 positive. Our labor productivity, output per work hour, is 
up 1 percent.
    So we are managing the business. Our employees understand 
the challenge that faces the Postal Service. They are 
responding to that challenge, and given the fact that we will 
lose some six billion pieces of mail this year, I think our 
people, right on down to the clerks, mail handlers, carriers, 
rural carriers, are doing their part to make sure that the 
Postal Service remains efficient.
    We do need help, and we are seeking short-term legislative 
help, particularly in the area of pricing, because there we 
feel that there are opportunities to grow the business and we 
are exploring those with the Rate Commission. We think there 
are opportunities to improve the relationship between the 
Postal Service and our unions. We spend some $300 million a 
year on dispute resolution. That certainly represents an 
opportunity where, working with our unions and management 
associations, to address those costs to see whether or not we 
can bring them down.
    So we are embarked on a very aggressive plan, what we can 
do within the current legislation. Beyond the current 
legislation, we are seeking help, but believe me, we are going 
to work as hard as we can, regardless of what happens, to do 
our best. The more tools that are available to Postal 
management, the greater our opportunity will be to succeed in 
the short run.
    Senator Akaka. Mr. Walker, last spring, the GAO placed the 
Postal Service's transformation efforts on your high risk list, 
as you have stated. What should the Service do to move forward 
and make progress on implementing the actions called for in its 
Transformation Plan, and would taking these actions remove the 
Postal Service from the high risk list?
    Mr. Walker. First, Mr. Chairman, I think that Postmaster 
General Jack Potter and his management team, working with other 
stakeholders, including the Board of Governors, are taking this 
seriously and they are trying to do what they can within the 
context of current law to try to achieve cost reductions, to 
enhance productivity, while at the same point in time improving 
service.
    I do, however, believe that they cannot do it alone. I 
believe that legislative changes are in order. Specifically, 
some additional flexibility, additional transparency and 
accountability, and other issues have to be addressed by 
elected officials, issues such as what is the definition of 
universal postal service in the 21st Century?
    Clearly, as Senator Stevens pointed out, there are areas of 
this country that rely very heavily on the Postal Service, and 
whatever that definition of universal postal service is, the 
Postal Service has to meet it irrespective of the cost, 
irrespective of the geographic proximity. But now, today, I 
would respectfully suggest, given the advances in technology 
and alternative means of communication, the definition should 
be fundamentally different than it was in the 1700's when the 
Postal Service was created.
    I also think that it is important that other key issues be 
addressed, as well, that are not in this transformation effort, 
and importantly, there is going to have to be a vehicle to 
achieve this type of change. We have said before that we think 
that some type of commission is likely to be necessary in order 
to be able to make a package of recommendations that the 
Congress can consider as a package, possibly for an up or down 
vote, because of the difficult choices that are going to have 
to be made.
    The infrastructure has to be rationalized. There is a 
difference between points of service, which arguably should be 
more numerous than they are now, and bricks and mortar, which, 
hopefully, you would want to minimize the amount of bricks and 
mortar, not only for cost reasons, but for security and safety 
and various other reasons.
    In summary, I think that there are things that the Postal 
Service can and should do within the context of current law, 
but I do not think there is any question that legislation is 
going to be necessary and that probably some sort of commission 
is going to be necessary to address some of these more 
fundamental questions where there are legislative constraints 
or other constraints that exist.
    Senator Akaka. Mr. Potter, as you know, our request for a 
Transformation Plan was prompted by the need to have a more 
complete and accurate picture of the Postal Service's financial 
situation. One of our primary goals was to learn how the Postal 
Service planned to reduce its outstanding debt, an issue that 
is of serious concern to the Treasury Department, as well. 
Would you comment on why the Plan did not provide specific 
details on how the Postal Service will reduce its debt or offer 
benchmarks to judge the Postal Service's progress?
    Mr. Potter. Mr. Chairman, when we put together the 
Transformation Plan, it was during a very trying period for the 
Postal Service. Earlier projections for this fiscal year called 
for the Postal Service to have some 212 billion pieces of mail 
this year. Right now, our best estimate is that we will come in 
somewhere around 200 billion pieces of mail.
    Given the circumstances, it is very difficult to understand 
whether or not the changes, as the Comptroller General earlier 
said, that we have seen, particularly at the beginning of this 
fiscal year, are structural or whether they would rebound. So 
it was very difficult for us to make any sort of accurate 
projections on where volume was going to go long-term.
    Suffice it to say, though, that there are serious 
challenges facing the Postal Service. The diversion of First-
Class Mail to electronic medium is potentially as high as $18 
billion. The timing of that diversion is in question, and 
certainly if we had gone back 5 years, there are many people 
who would have expected that the diversion would have happened 
at a much more rapid pace than it has over this past 5 years.
    So it was difficult in terms of being able to project into 
the future what our volumes would be, and considering the 
circumstances that we found ourselves in over the last 6 months 
with the threat of anthrax, the great impact on the economy 
that we have seen, and the recessionary period that we find 
ourselves in.
    That is not to say that we are not working to develop 
better projections, and certainly there are limitations within 
the current legislation for us to reduce our debt load. We are 
taking actions that we feel are possible in terms of improving 
productivity as well as our efforts to increase our volumes. 
But we are very much limited in terms of our ability under the 
current legislation to be much more aggressive than we have 
been.
    Senator Akaka. Mr. Potter, I thank you for your response. 
As you know, I believe the Service's financial house must be in 
order before the Postal Service is granted greater 
flexibilities and I want to be as helpful as possible in this 
regard.
    Mr. Walker's testimony points to the need to focus on the 
transparency and accountability issues. I would, therefore, ask 
that before we hold our annual hearing to receive your report 
to the Senate this fall, we have a detailed step-by-step plan 
as to how the Postal Service will reduce its debt and what 
further steps the Service will take to provide greater 
transparency of its finances. This will increase our 
understanding, I believe, of Postal finances, and I thank you 
for your responses.
    Let me then move on to questions from Senator Cochran.
    Senator Cochran. Mr. Chairman, thank you very much.
    General Potter, you mentioned in your presentation of this 
Transformation Plan the necessity to have a transition to a 
less monopolistic and more competitive organization, but you 
also suggested in the long term some parts of the Postal 
monopoly are liable to remain. How important is this retention 
of the monopoly on letter mail, and in order for the Postal 
Service to be transformed, should this, too, be changed?
    Mr. Potter. One of the strengths of the Postal Service, the 
key strength, is the universality of the service that we 
provide to all Americans. Our ability to offer uniform rates, 
affordable rates, to all Americans is contingent upon, in my 
opinion, having a monopoly, which we do today, for letter mail. 
Lack of a monopoly would have competitors coming in and 
literally skimming the cream off the top. They would serve big 
cities at a reasonable price but would not serve rural 
communities, and certainly people in Alaska and remote parts of 
Hawaii would not have access to affordable services.
    So, therefore, I believe it is very important that the 
Postal Service have a monopoly. Again, that is the will of the 
people, and it is there in law today. I think there were a lot 
of very sound reasons why a monopoly was created for that 
product, and I believe, looking into the future, that those 
reasons for the establishment of a monopoly for letter mail are 
probably stronger today than they have ever been in the past.
    But I do feel, on the other hand, that the Postal Service 
does need to look at its infrastructure. These are public 
policy decisions for which we need guidance from the Congress, 
from the administration, from the Senate regarding where we go 
in the future, and that is why in the Transformation Plan we 
look to those decisions to be made in a legislative arena, not 
with the Postal Service making independent decisions, but with 
the will of the American public to be the driving force behind 
the future of the Postal Service and the definition of 
universal service.
    Senator Cochran. In that connection, there is a statement 
in the executive summary that universal service could be 
defined under contract, a contract between the Postal Service 
and the government. Do you see any difference between the 
current universal service obligation and the Postal Service's 
performance of universal service as a commercial government 
enterprise?
    Mr. Potter. It is very interesting. If you ask ten people 
what the definition of universal service is, you tend to get 10 
different answers, so we have to start with a clear definition 
of what that is. In my mind, universal service is 6-days-a-week 
delivery to every delivery address. It is a uniform rate across 
the country. And by law today, it is the existing 
infrastructure of 38,000 post offices. It is that 
infrastructure that we are talking about when we define 
universal service.
    Now, as we look to the future, there are within each of 
those definitions opportunities to save money and keep rates 
affordable, but also, in some cases, to make changes that would 
improve the service offerings that people have.
    I was pleased to find a GAO report from the 1970's, as an 
example, that looked at post office closings. They said that in 
the evaluation of some of the post offices that were closed at 
that time, that the level of service that was provided to those 
customers or those post offices actually increased customers 
did not have to pick up their mail at the post office, because 
we delivered mail to the door of the customer. Rural carriers 
sell stamps. They are literally a post office on wheels. So 
rather than forcing a customer to come to the post office, we 
actually brought the post office to each of those customers.
    So, again, I think we have to look at those opportunities 
and carefully evaluate how we provide service today to the 
American public that is different than what might have been 
provided in 1970, and a change in the law is required. A 
redefinition, given today's marketplace, of universal service, 
I think, would be beneficial not only to the Postal Service but 
to the American public as well.
    Senator Cochran. We are all aware of the anthrax challenge 
and these other threats of terrorism and the realities of 
terrorism, and you talk about the inevitability of increases in 
costs. How much of the financial difficulty that the post 
office faces now can be attributed to the terrorism threats and 
the reality of the terrorism acts that we experienced after 
September 11?
    Mr. Potter. I am very proud of the fact that the confidence 
that the American public has in the mail has bounced back. We 
saw a significant decline in people's confidence in the safety 
of mail shortly after the anthrax incidents, but that 
confidence in the mail has bounced back.
    I believe that when one looks at the volume decline that 
the Postal Service has experienced this year, you can point to 
two factors. The first factor is that, certainly, the incidents 
of September 11 had an impact. But if you look at us today, the 
recession is the No. 1 issue affecting mail volume. One part of 
that recession is the very weak advertising economy, because 
about 10 percent of First Class-Mail is advertising mail. Our 
volume of First-Class Mail dropped more than 2 percent 
initially after September 11. We are back to same-period-last-
year (SPLY) levels on First-Class Mail. For advertising mail, 
though, we are still seeing a 3 percent decline from SPLY. 
Certainly, there has been diversion to electronic medium over 
that time, but the bigger impacts have been the recession, the 
downturn in the economy, and particularly within the economy, 
the tremendous impact on advertising.
    Senator Cochran. Let me turn now to the Comptroller 
General. Mr. Walker, it was your idea when you testified before 
our Subcommittee that a Transformation Plan ought to be 
developed, and because of that, we sent a letter to Mr. Potter 
asking that he provide us with a Transformation Plan. Senators 
Akaka, Thompson, and Lieberman joined me in making that 
request.
    Do you see this as a plan that is responsive to the 
suggestions that you made and responsive to the reasons that 
you had in mind why a Transformation Plan ought to be 
formulated and presented?
    Mr. Walker. Senator Cochran, I think it is a positive first 
step. As I mentioned before, I think it exceeded the 
expectations of many parties as to what it was going to be. I 
do, however, think there are some important items that are not 
in the Transformation Plan that need to be addressed. For 
example, how we are going to go about defining universal postal 
service in the 21st Century?
    Second, what about the infrastructure? How is the 
infrastructure going to be reviewed and rationalized?
    Third, what about comparable wages? What are comparable 
wages? What about labor flexibility? It is not only a matter of 
having the right number of people, but it is having the right 
number of people with the right skills and knowledge in the 
right place to get the job done, and sometimes that can be a 
problem.
    There are issues like the governance structure. Does the 
governance structure of the Postal Service make sense now, 
given the fact that it is, in effect, a Fortune 10 company, the 
second largest employer in the United States, and yet its 
governance structure is unusual, I think. For example, there is 
nobody at the Postal Service at the management level that is 
appointed by the President and confirmed by the Senate. The 
Postmaster General is appointed by the Board of Governors, and 
so, therefore, what does that do to accountability with regard 
to the American people? Also, the composition of the governance 
structure, the board itself.
    I think there needs to be a look at not only the debt 
service repayment, which has been mentioned here this morning, 
but also the issue of the significant retirement obligations. 
Thirty-two billion dollars for pensions, $49 billion for post 
retirement health, $81 billion in total, far exceeds the amount 
that we are talking about for the debt to the U.S. Government. 
So these are huge sums of money. What is going to be done about 
these items?
    Having an action plan for how are we going to take the good 
ideas that are in the Plan, what is the vehicle, what is the 
mechanism, whether it be a commission or otherwise, to try to 
deal with some of these issues that management cannot do on its 
own, that it is going to need enabling legislation to be able 
to address.
    Senator Cochran. Thank you very much, Mr. Chairman.
    Senator Akaka. Thank you very much, Senator Cochran. 
Senator Dayton.
    Senator Dayton. Thank you, Mr. Chairman.
    General Potter, I hope I can evidence my skepticism and yet 
still be respectful of the enormity of the task that you have 
before you and the entity that you are charged with guiding. I 
think Senator Cochran said it well when he said at the outset 
that you are a service to this country and need to be 
recognized as such in a category almost under yourself.
    I have trouble with the word ``transformation'' in the 
context that you use it because I do not know what it is that 
you could be transformed to or how you would be transformed 
given the liabilities that you and the Comptroller General have 
outlined without going through something that would be almost 
draconian in its measures. If you were a business today and 
someone came in and was given the chance to transform you, I 
could only imagine what it would entail.
    But it would seem to me it would be--I mean, $81 billion in 
unfunded health and pension liabilities and negative 
productivity over the last decade, and 75 percent of your costs 
are in labor, as I recall, and your liabilities exceed your 
assets, certainly you are not going to find many venture 
capital firms that are going to want to take you on.
    The measures that you would have to take to shed yourself 
of all of those liabilities and impediments would be such, and 
given, as you say, the constraints, social and the ones that 
you say Congress imposes, but certainly as an agent for the 
American people and the expectations established, I do not see 
how you would begin to be able to undertake those kind of 
extreme measures. Even if you had public license to do so, 
where would it get you?
    Mr. Potter. Well, your description of the enormity of the 
challenge is real. I am not going to sit here and deny that the 
challenge is not significant. I think that one merely has to 
look at the numbers, and we could easily draw the conclusion 
that privatization was not an option. We did not have 
stockholders, or people, or venture capitalists lining up with 
dollars in their pockets to buy into this entity.
    What we do have, though, is an ongoing concern that meets 
its obligations. The obligations for health benefits and 
pensions is one that we have had since 1970 in terms of our 
transition from a Federal agency to the U.S. Postal Service. By 
law, we are obligated to provide to our employees Federal 
pension benefits and Federal health benefits. They are non-
negotiable. So you begin with some very basic structural 
requirements of the Postal Service. By law, we cannot eliminate 
a post office for economic reasons. So there are constraints 
within your ability to manage.
    In terms of long-term viability, transformation, I believe 
that the path, given all the constraints, is to be a better 
Postal Service and to begin to pay down, as best we can, those 
obligations. Certainly, if we are not successful, the $100 
billion burden falls to the Federal Government.
    Senator Dayton. I guess it is my concept of that word that 
causes me difficulty, because as you say, if we were to 
eliminate all the legal constraints today and you just had to 
operate in the real world, most of those constraints would 
still exist. I mean, you cannot just shed pension and health 
obligations. You cannot shed labor costs. You can negotiate and 
you can go through the disruptions that those kind of, as I 
say, literally draconian negotiations would entail. You could 
start shedding areas where you thought it was not advisable or 
profitable to serve, but you are what you are.
    Rather than, at least in my mind, trying to transform 
yourself into something that you, in a sense, do not want to 
be, because you said you want to retain the monopoly as the 
essential element of your operation, it seems to me that you 
would better serve the public purpose by just identifying how 
can you be the best at what it is that you are essential to do, 
which is to deliver regular mail 6 days a week all over the 
country as efficiently and as cost effectively as possible. If 
it is not possible to do so within the parameters of the modern 
realm, those of us who still want to pay our bills by stamp 
rather than by electronic device, then we are going to have to 
make adjustments. But I do not see how you can do any better by 
trying to get into some sort of transformation.
    Comptroller General, yes?
    Mr. Walker. If I can, Senator Dayton, I think the word 
``transformation'' may or may not be appropriate to use in this 
context. If you talk about what is the Postal Service--and part 
of the definition is, what do you want the Postal Service to 
be? I mean, part of the answer could be is it should focus more 
on core and so it should try to do less, but focus on core and 
do that to the best of its ability. That is part of the debate 
that I think is intended in the transformation.
    The other thing is that there are certain commitments and 
obligations that you have today that you cannot shed and you 
would not want to shed. It would not be right to do that. On 
the other hand, what you can do is to try to end up 
aggressively managing as much as you can from this point going 
forward to the extent that you have got the flexibility, the 
will, and the commitment to do that. We cannot change the past, 
but I think what we can do, hopefully, is try to see what can 
happen in order to minimize what that ultimate potential put 
option would be on the taxpayers, because that is really what 
you are talking about. There is a put option here on the 
taxpayers.
    Senator Dayton. And I guess I am much more comfortable with 
that parameter, Mr. Comptroller General. Where is the freedom 
within the structural yoke and how can you improve the quality 
of what it is that you exist to do? We have private enterprises 
who can do overnight deliveries and send things all over the 
world and the like. I mean, I do not know whether that is--I 
would be interested to know whether that aspect of your 
business is a profitable one for you or not. But that is not 
why we need you to exist, unless you can do it more efficiently 
or unless you can generate revenues for other purposes. But we 
do need you to deliver the mail 6 days a week all over the 
country, unless we determine as a society that we would rather 
do it otherwise.
    I just think that rather than transforming yourself, just, 
as you say, improve the quality of what it is that you 
essentially are there to do and tell us, how can we help you or 
how can we modify the law that gives you a better ability to do 
that. I mean, 10 months for the Postal Rate Commission to be 
deliberating over what your rate should be and when it turns 
out to be what you proposed it to be at the beginning, to me, 
is just absurd. There ought to be ways in which we can help you 
move more expeditiously and efficiently and do a better job of 
what you do, and that, to me, would be preferable to trying to 
figure out how you get yourself transformed into something that 
you are not going to be.
    Mr. Potter. I think what you just said is exactly what we 
attempted to do in the document. Transformation was not a 
Postal term, it was a Senate term.
    Senator Dayton. Well, I was not here then. [Laughter.]
    Mr. Potter. We were requested to provide a Transformation 
Plan, and we built a plan that gets at exactly what you just 
said. It attempts to, within the constraints and with the 
understanding that we are a service, to provide delivery of 
hard copy mail and provide access to those services for all 
Americans. We attempted to do that and build a plan that makes 
for a better Postal Service, one which would even be better and 
more enhanced if we had some freedoms within the statutory 
requirements to, again, make decisions about how we meet that 
obligation.
    Senator Dayton. We all want some form of transformation. I 
go to the Senate gym and I want to be transformed into this 
different figure from what I am. [Laughter.]
    Senator Stevens, one day he reported his weight. I was 
avoiding doing that. I did not want anybody even to look or to 
be able to see the notations, and he gave me good advice. He 
said, ``You just have to set your mind to it and then do it.'' 
Well, it involves, as you know, little steps that I would 
prefer not to take, like eating less and exercising more, but 
lo and behold, if I just sort of stick with that--I will never 
be like Mike, but I can get a little bit farther down the road 
to looking a little more like Senator Carper here. [Laughter.]
    I think that realm of the great is the enemy of the good, 
just get better.
    Mr. Potter. Right. Well, the Postal Service is committed to 
getting better. We welcomed the opportunity to build a 
Transformation Plan, but to build a plan that will make us 
better in the future, better serve the American public, and 
fulfill our universal service obligation.
    I looked at other agencies, because it is a term that has 
been used by other agencies in the Federal Government, and the 
difference between us and what other Federal agencies were 
asked to do was that they were provided a direction. Transform 
yourself into this. Well, no one has ever defined what the 
``this'' is for the Postal Service, and we attempted to do that 
with our Transformation Plan.
    Suffice it to say, there is more to be done. I do not 
disagree with the Comptroller General. There is more to be 
done. We are going to do our best to make it happen and to 
become a better Service and more financially stable, well into 
the future.
    Senator Dayton. And there are a lot of ingredients here to 
do that.
    Mr. Potter. Yes.
    Senator Dayton. Thank you, Mr. Chairman.
    Mr. Walker. Can I say, Mr. Chairman, for the record, I will 
assume responsibility for use of the term ``transformation,'' 
and the reason I say that was because when we put the Postal 
Service on our high risk list a year ago, we said Postal 
Service transformation. We did so intentionally, because, 
obviously, the Postal Service does a lot of things right, and 
so we did not want to say the Postal Service, as an entity, was 
high risk. That would not be fair to the dedicated men and 
women that comprise the Postal Service.
    On the other hand, what we were really talking about is 
what should the Postal Service do, which could be more or less 
than it is doing now, but it is different than what it is doing 
now, and how should the Postal Service do business? I would 
respectfully suggest that no matter what you call it, 
transformation or whatever, those are the key issues.
    I would also respectfully suggest that the Postal Service 
in many ways is a microcosm of the challenges that many other 
Federal Government agencies face, and the Federal Government 
has to change what it does and how it does business, too, and 
the only difference is with the Postal Service, you have got an 
income statement and a balance sheet. You touch virtually every 
American. It is easier to identify with and associate with the 
Postal Service. As a result maybe we start here first, but 
there is a lot more work to do on this.
    Senator Akaka. Thank you very much for your question and 
responses.
    Senator Carper, do you have any questions?
    Senator Carper. I sure do. Thank you.
    Senator Akaka. I also need to call on Senator Stevens.
    Senator Carper. Let us go to Senator Stevens first.
    Senator Akaka. Senator Stevens.
    Senator Stevens. Go right ahead.
    Senator Carper. Thank you. Senator Dayton was talking about 
the gym, going to the gym and working out. We do have options, 
whether you are Senators or those who are not, with respect to 
our weight, our physical condition. We can eat more. We can eat 
less. We can eat different kinds of foods. We can exercise. We 
can run. We can go to the gym. There are all kinds of different 
things we can do to enhance our physical health.
    In some respects, we do not give that kind of freedom of 
flexibility to the Postal Service. In your transformation 
document, you refer to some of those. I have heard the 
Comptroller General talk about some of them, as well. I would 
like to focus on those initially, if we could.
    Let us talk about pricing--pricing the product that you 
sell. Just explain to me, just crisply and succinctly, if you 
will, the process for pricing your services, for raising the 
cost of First-Class Mail and other kinds of service. Just run 
through that briefly for me, Mr. Potter, if you will.
    Mr. Potter. It is about a 16-month process. It takes about 
4 months for us to assemble the documentation necessary to file 
a rate case. After that, at the Rate Commission, we go through 
a 10-month process where we supply testimony; we supply 
witnesses. There is an opportunity for rebuttal testimony on 
our part, but there is also an opportunity for any intervenor 
to provide testimony regarding our rates.
    After a 10-month period of time, the Rate Commission 
recommends rates. It goes to the Board of Governors. The Board 
of Governors has the option of approving the rates as 
recommended. They can implement those rates under protest and 
send them back to the Rate Commission for reevaluation.
    And then assume that the Board of Governors adopts the 
rates as recommended by the Rate Commission. Then we provide 
customers with a 2-month period, at a minimum, prior to 
implementation. That allows the more sophisticated customers an 
opportunity to update their computer systems for the new rate 
structures, and it gives us an opportunity to get stamps in 
place so that we can implement the new rates.
    All in all, it is approximately a 16-month procedure, and 
generally, again, because of the timing, you try to predict 
what your revenue requirements are going to be, in many cases, 
2 years-plus out. Given the fact that, for argument's sake, we 
are a $70 billion industry, a 1 percent swing in terms of our 
projection, if it is a 3-year projection, that is $210 billion, 
a $2 billion swing. So it is a very difficult process.
    Senator Carper. How would you like to change that, and then 
I am going to ask Mr. Walker to critique the proposed changes, 
if you would.
    Mr. Potter. We have two different, very different, 
clientele that we serve. One is major mailers, and the major 
mailers have told us repeatedly for years that they would 
prefer to have much more predictable rates. They would prefer, 
for example, that we have annual smaller rate increases versus 
what ends up today being a 2-year-plus cycle, and they get hit 
with large increases.
    So our desire would be to have phased rates for commercial 
mailers, and for John Q. Public, individual mailers, we would 
prefer to have a rate cycle that might be on a 2-year or 3-year 
basis because people do not like to go and buy a penny stamp, 
or in this case, a three-cent stamp, to augment what they have, 
and we would look to do that.
    We would also like to have the ability to have market-based 
rates for non-monopoly products. There are products that, 
because they are cost-based, we simply do not price as high as 
we might be able to if we were basing it on market-based rates.
    And, last but not least, we would like to have the ability 
to negotiate prices with individual customers where the 
customers' mail, the contribution from that mail, what they 
contribute to overhead, can be enhanced through an agreement. 
That agreement might have that customer perform work that is 
beyond what is called for in our current rate offering, whether 
that is pre-sort or discounts or work share offerings. Where 
there is an opportunity for the Postal Service to benefit and 
the customer to benefit, we believe that we should have the 
flexibility to work out those arrangements and grow the 
business. As a result of making sure that the contribution was 
maintained on increased volume, all rate payers would benefit. 
Those are the main things that we are concerned about.
    Senator Carper. All right, thank you. Mr. Walker.
    Mr. Walker. My comment at the highest level would be that 
we believe that there is conceptual merit to many of the 
changes that the Postmaster General is suggesting. We do, 
however, believe that you would have to couple it with 
additional flexibility. Because right now, they basically have 
a one-size-fits-all approach, and one would debate whether or 
not that makes sense, especially if it takes an average of 16 
months in order to make a rate increase happen when new 
generations of technology happen every 18 months nowadays.
    At the same point in time, if you are going to provide 
additional flexibility, you have got to have adequate 
transparency and accountability mechanisms to understand what 
is being done and to make sure that it makes economic sense and 
to make sure that there are not unintended consequences 
happening with regard to other parties.
    One other thing that I would suggest is, in many ways, what 
we are really talking about here is what is universal postal 
service? What do you want to guarantee that everybody has a 
right to? For example, that might be everybody has a guaranteed 
right to receive postal delivery at their location X-number of 
days a week. That X may not be six. That is something to be 
decided.
    On the other hand, if you want more than that, you can get 
it. It is your choice, but there is an economic cost associated 
with that. In many ways, these concepts are concepts that we 
are going to have to start coming to grips with in other areas 
where we have big financial imbalances, like health care, where 
sometimes we try to define a one-size-fits-all and where we 
have a huge financial imbalance, we are going to have to start 
talking about, well, what is the minimum? What do you want to 
guarantee that everybody has? And then are there other choices 
or options that you might be able to make available to people 
if they want it and if they think they need it, but there are 
some economics, whether it be on the--different forms of 
customers, if you will, I think, to be able to deal with it.
    Senator Carper. Mr. Walker, earlier in your comments, I 
think you said that the U.S. Postal Service model as it exists 
today is not a working model, not a workable model for the 21st 
Century. My recollection is Senator Stevens was present at the 
creation of the model that has worked now for over three 
decades and deserves a lot of credit for the leadership, time, 
and energy that he put into its creation.
    If this is not a workable model, if the current model is 
not workable in the 21st Century, what major changes do we need 
to make so that it does become a workable model?
    Mr. Walker. Well, I think that----
    Senator Carper. You talked about some of them with respect 
to pricing flexibility. What are some others?
    Mr. Walker. Right, and there are many outlined in my 
testimony, but I think the bottom line is that while what was 
done in 1970 under Senator Stevens' leadership and others 
obviously made sense at the time, the world is a fundamentally 
different place in 2002 than it was in 1970 in so many 
different ways. What is more important is not what it is today 
or what it was in 1970, but how rapidly it is changing and what 
forces are we experiencing today and are we likely to 
experience looking forward. I think if you look at all of those 
factors, the numbers just do not add up. It just will not work.
    And so I think you need to do a number of the things that 
the Postmaster General has talked about within the context of 
current law and you need to address the elements that I talked 
about that are not in the Transformation Plan and we need to 
figure out what is a mechanism, be it a commission or whatever 
else, to try to start dealing with some of these difficult 
questions to make some recommendation to the elected officials 
who represent the American public so that they can make 
informed judgments about what makes sense looking forward.
    Senator Carper. General Potter, your thoughts with respect 
to Mr. Walker's assertion that the Postal Service as it exists 
today is not a workable model in the 21st Century?
    Mr. Potter. Well, I believe that the challenges that face 
the Postal Service require change, and I think we outlined a 
significant amount of change that we can make internally today 
that certainly should be available to the Postal Service, 
particularly in terms of defining its infrastructure. We should 
have the most efficient infrastructure possible that serves the 
American public.
    Regarding the long-term model, again, as I said earlier 
today, the challenge to a monopoly product, First-Class Mail, 
and the risk that we have in terms of diversion of that product 
make the business model that we have today, under the current 
definition of universal service, one that will not have the 
Postal Service sustain itself long into the future. We do need 
to change to meet the challenges that face us.
    Senator Carper. Mr. Chairman, my time has expired. If there 
is a second round, I would welcome the opportunity to ask a 
couple more questions. Thank you.
    Senator Akaka. Thank you for your questions and the 
responses. Senator Stevens.
    Senator Stevens. Thank you, Mr. Chairman.
    It appears to me, or maybe I should say it sounds to me 
like some people are suggesting more Congressional involvement 
in the Postal Service. I hope that is not the case, because I 
remember too well the time when we appointed the postmasters in 
every little town in our States. If nothing else, we had one 
friend and 12 enemies because everyone wanted to be postmaster.
    But from my point of view, it seems to me we are premature 
in transitioning into the perfect model for this century 
because there is a generational problem. I was told the other 
day that when the baby boomers retire, that generation will be 
the first generation that is really computer literate and we 
are going to go into a different mode, I think, in terms of 
mail and in terms of personal mail sometime around 2015, 
according to the projection I saw.
    But let me go back and ask this question. It is my memory 
that a lot of this debt that we are talking about today really 
comes out of the old Post Office Department. Has that debt ever 
been totally eliminated? I think you are still carrying forward 
enormous debt, are you not, from the Post Office Department?
    Mr. Potter. Well, we are carrying a liability for retirees, 
some of whom worked under the old Post Office Department, so in 
that regard, yes, we do have some liability that is carried 
over.
    Senator Stevens. Another difficulty I have with the Postal 
Service, looking at transformation or transition, whatever you 
want to call it, is that in most of the rural areas, the 
package delivery services reach a certain point and then they 
drop them in the mail. Most people do not understand that. 
These ubiquitous services are in the urban areas. When they get 
to rural America, they just end up mailing the packages. If 
there is to be a total universal service delivery of packages, 
the Postal Service has to be maintained in the rural areas more 
than in the urban areas, would you agree with that?
    Mr. Potter. I would say that our ability even to provide 
affordable package services in rural areas is dependent upon a 
national network of packages that provides the revenues 
necessary to maintain that network.
    Senator Stevens. And it is the revenue base from the short-
distance delivery that gives you the ability to maintain the 
long-distance, out to Unalakleet and Chignik and up into the 
mountains of Tennessee or Kentucky, is that not right?
    Mr. Potter. That is right. The short-term delivery, we make 
money on that, and that helps us with the greater cost for some 
of the more remote deliveries that we provide.
    Senator Stevens. And as we look at the First-Class Mail, 
one of the significant differences in delivery of First-Class 
Mail is the protection for the U.S. Postal Service for the 
mailboxes, right?
    Mr. Potter. Right.
    Senator Stevens. None of these other businesses maintains 
the security services you have to assure the privacy of 
mailboxes.
    Mr. Potter. Right. We have the Postal Inspection Service, 
some 2,000 people strong, that maintain the sanctity of the 
mailbox. Only a mail carrier can place or has access to a 
mailbox around America.
    Senator Stevens. And all you have to do is pick up a Sunday 
paper to realize how much that means, because if it were not 
for the privacy of that mailbox, all that stuff you get in your 
Sunday paper would be in your mailbox every day.
    Mr. Potter. Well, that would not bother me. I would like 
the revenue from that. [Laughter.]
    Senator Stevens. I question, really, the timeliness of 
really making decisions for a long-term future right now in 
terms of a transformation process. I still think we ought to be 
going for another interim period. The Postal Reform Act of 1970 
really provided one interim period. It has lasted longer than 
we thought it would, really, 30 years, 32 years. It does seem 
to me we ought to have an interim date in time and head for the 
time when more and more of the people involved are, in fact, 
using E-mail or digital mail and look at what the system is 
going to be sometime between 2015 and 2020 and look out not 
much further than that, because I think technology is tumbling 
so fast now, we do not know what is going to happen.
    The only thing I do believe is that no matter what we do 
now, if rural America is going to survive, it has to have the 
package delivery service. How much of your business really is 
associated with packages now?
    Mr. Potter. It is probably on the order of about 6 to 7 
percent of our business in terms of revenue. It is much smaller 
in terms of volume.
    Senator Stevens. How about in terms of cost?
    Mr. Potter. In terms of cost, it is about the same. But we 
are the sole provider of package services to many addresses in 
America, and so it is vitally important to those communities 
that the Postal Service maintain its presence in the package 
market.
    Senator Stevens. Precisely. And now we have the Social 
Security Administration and the IRS making it easy to deal with 
them totally online. That affects your revenue base, does it 
not?
    Mr. Potter. It certainly does, and we have seen a dramatic 
decline in revenue right here in Washington, DC, as a result of 
the Federal Government's efforts to move mail transactions to 
electronic medium.
    Senator Stevens. Let me get really provincial, because I 
think we are going to ask the Committee to mark up a bill here 
this month that deals with what we call the bypass mail system 
of Alaska. For your information, gentlemen, after the Airline 
Deregulation Act, we provided an essential air service concept 
for areas that had received air service and guaranteed they 
would receive at least 3-days-a-week service, and that was 
related to the mails, really, because mail was delivered in 
those small planes.
    We then in Alaska found that one of the great problems was 
that some of the planes were capable of carrying packages, 
large amounts of packages, and some were not, so we devised 
what we call a bypass mail system. It literally bypassed the 
Postal Service, made up into pallets to the size of the carrier 
involved. That has gotten into a very difficult situation now 
with too many small planes and the cost has increased for the 
Postal Service. I understand the Postal Service expects to lose 
this year in excess of $100 million in Alaska----
    Mr. Potter. Yes.
    Senator Stevens [continuing]. And we are trying to counter 
that. Are you aware of the bill that Congressman Young and I 
have introduced to try and fix this system so we will still 
maintain the bypass mail system and reduce the cost to the 
Postal Service?
    Mr. Potter. I am very aware of that legislation, and the 
Postal Service supports the passage of that legislation. We 
think it is vital to two things, one, providing a high level of 
service and, two, providing economic relief in the sense that 
it will lower our cost to provide that service. So we are very 
much in support of that legislation.
    Senator Stevens. It is controversial up my way because it 
would prohibit further entry into that system as long as there 
were a sufficient number of planes available to you to handle 
the mail as it exists now unless new carriers want to provide 
passenger service, and it has become controversial, so the 
members will hear more later, but I appreciate your comment on 
it.
    My last comment would be this. If you look at the system 
now in terms of cost effectiveness, would you rather have the 
Post Office Department or the USPS?
    Mr. Potter. I would much rather have the U.S. Postal 
Service. I think we have done a phenomenal job in terms of 
moving the mail effectively. As a matter of fact, I asked some 
people to go back and look at our statistics. Today, we have 
the same number of people in the Postal Service as we had in 
1991. But since 1991, the number of possible deliveries we 
have, the number of households and businesses that we serve, 
has gone up 15.4 million. So every day, 6 days a week, we are 
at 15.4 million additional doors than we were in 1991, and we 
have some 33 billion more pieces of mail.
    So we have managed to grow as America has grown, and we 
have done that, in my opinion, in an efficient way. I know 
Senator Dayton referred to some data regarding productivity, 
and I think we can have a debate about what model one might use 
to determine productivity. But the fact of the matter is the 
Postal Service has met the demands of the American public in 
terms of new households and the growing volume in our system, 
and we have done that more efficiently and our people are doing 
an outstanding job.
    Senator Stevens. One last question. Mr. Walker, are you 
suggesting more Congressional involvement in management of the 
Postal Service?
    Mr. Walker. Senator, no, I am not suggesting that. What I 
am suggesting is, just as you noted, in 1970, where there was a 
need to go to a new model and that the Congress had a role to 
play in order to enact legislation that would enable that to 
happen, that we are now at the point today where in order for 
the Postal Service to try to address a number of these 
challenges, there is going to need to be legislation in order 
to position it for the future.
    You are correct in saying that a lot of things about this 
country are going to change in about 2015 because of the 
beginning of the retirement of the baby boom generation and we 
need to recognize that and we need to assess what changes need 
to be made in light of that fact, not just with regard to the 
Postal Service, but our fiscal condition, among other things.
    But I do think Congress is going to have to do something 
similar to what it did in 1970. Namely, to step back and say, 
all right, this is not working. What do we need to do going 
forward and what type of legislation is necessary in order to 
enable the Postal Service to do the best that it can for the 
next 10 or 20 years without micromanaging.
    Senator Stevens. But you said something about not having a 
presidentially-appointed Postmaster. Do you think that is 
advisable?
    Mr. Walker. I think that you just need to think if from the 
standpoint that the only persons that are directly accountable 
to the Congress with regard to access issues and testimony 
historically have been presidential appointees or PASs. 
Fortunately, you have not had a problem with Postmaster General 
Potter. He has been kind to come up here any time you have 
asked him. I think that is appropriate, given his role and 
responsibility.
    But the only presidential appointees that you have with 
regard to the Postal Service is the Board of Governors and they 
are all part-time employees. I think you need to think about, 
given the challenges that the Postal Service has, do you think 
that is adequate for accountability to the Congress and the 
public? That is your call.
    Senator Stevens. My call would be the same as it was in 
1970---- [Laughter.]
    Mr. Walker. And----
    Senator Stevens [continuing]. And that is to keep it as far 
away from Congress as possible----
    Mr. Walker. I hear you. [Laughter.]
    Senator Stevens [continuing]. On a day-to-day basis and to 
get professionals in the Postal Service and use the Board of 
Governors as really overseers of those professionals and to 
assure the professional capability.
    The Postmaster General is happy to come up here once in a 
while because every once in a while, we do give him a little 
bit of money.
    Mr. Potter. True, and we appreciate that. [Laughter.]
    Senator Stevens. We just went through that period, and 
without it, they would not have survived. So I think that there 
is always the connection of ultimately stepping in with Federal 
money. I think we ought to step in with Federal money to try to 
slowly retire some of that debt, too. That is eventually going 
to be our burden. We would be better off to attack it on the 
basis of a few hundred million a year than to sometime have to 
swallow $8 or $9 billion, and I really think we should do that.
    But I thank you very much for your comments. I personally 
believe that this system has evolved better than any of us 
dreamed it could at the time, because the Post Office 
Department was a mess and I do not think that the Postal 
Service is a mess now. So we need to try to improve it, but 
Senator Hollings tells me, ``Don't fix it if it ain't broke,'' 
and I do not think the Postal Service is broken.
    Mr. Walker. Senator, I would totally agree with you that 
you do not want Congress involved in ongoing operations of the 
Postal Service or, frankly, any other entity. I mean, the 
Congress should not be micromanaging any enterprise, if you 
will. You do need professional management.
    I do think you should look at the Board of Governors and 
make sure that you are comfortable with how that is working. 
Clearly, the Board of Governors, I would argue, if it is 
similar to a board of directors, you are expecting those 
individuals to be very knowledgeable about the activities of an 
enterprise of this size and magnitude and scope and that they 
should be the ones, in many ways, in the vanguard, talking 
about some of these difficult issues and bringing them to the 
attention of the Congress and trying to make sure that 
management is doing what it can, but to the extent that it 
cannot and it needs legislation, they should be here talking 
about that, as well. I think that is part of the governance 
structure.
    Senator Stevens. Thank you very much, Mr. Chairman.
    Senator Akaka. Thank you very much, Senator Stevens, for 
your historical perspectives and solutions that you bring to 
the Subcommittee.
    Let me begin the next round with a question for Mr. Potter. 
Mr. Postmaster General, I was pleased that the Plan highlights 
the longstanding human capital and labor issues facing the 
Service. According to the Plan, ``Challenges in this area 
include workforce planning and complementary adjustments within 
the constraints of current labor agreements.'' Would you 
explain why the Plan focused solely on the Railway Labor Act 
and whether other options have been discussed now that you have 
met with the union representatives.
    Mr. Potter. We have begun a process of working with our 
union leadership to address some of our concerns about the 
collective bargaining process and the dispute resolution 
processes that we have. I am very happy with the nature of 
those interactions. I think that management has built trust 
with our unions and management associations, and that trust, 
believe it or not, started with the anthrax incident. I mean, 
we have been working right along together for a number of 
years, but I think that crisis solidified our relationship, 
because early on, we brought the leadership, the union 
leadership, and management association leadership, together to 
discuss what was going on with anthrax. We made them part of 
our day-to-day management meetings regarding that topic.
    We followed that same model with the recent mailbox pipe 
bombs, brought them in early, communicated to everybody. In my 
mind, the key to the future is communication.
    What we are attempting to do with our discussion of the 
Railway Labor Act is to highlight the problems that we have 
with the current arbitration model. That model, that collective 
bargaining process model that we have today, has both parties 
come to a table and state public positions that are very much 
apart. Management might say that the employees deserve no 
raise. The employees could say, give us 10 percent per year. 
And then, from a public standpoint, we retain those positions 
because of the fact that, ultimately, we might end up in front 
of an arbitrator. So neither party wants to state publicly as 
to what their positions are.
    In the meantime, in the back room, we manage to narrow 
those differences, and then, if we are lucky and if things work 
out, we reach agreements. Recently, we just reached an 
agreement with the National Association of Letter Carriers on a 
5-year deal. We have had successful negotiations. But if we do 
not reach a negotiated agreement, we go to optional fact 
finding, where again the parties go back to stating 
diametrically opposed positions to posture themselves for 
arbitration. We might narrow the difference in fact finding or 
optional mediation, and then we move into arbitration, where 
again, publicly, we have significant differences, just to 
narrow them again and then have an arbitrator make a decision.
    Well, our proposal, and what we think the benefits of the 
Railway Labor Act would be, is that it would have us use a 
mediator to narrow our differences and push the parties toward 
settlement. Both parties would not have the easy out that they 
do today with an arbitrator.
    Now, we have also had discussions with the unions about a 
process called med-arb, where after negotiations, if they are 
not successful, we move into mediation that would then carry 
through into arbitration. So if the positions are narrowed, the 
arbitrator's decision would be on a narrow range of topics as 
opposed to a very broad range of topics.
    We are going to continue to have discussions with our 
unions on this matter. Our goal would be to reach agreement 
with them, and should we reach agreement, then that would very 
much change our position regarding what ultimately would need 
to be legislated.
    So we are working every track we can. Short-term, we are 
trying to work with the parties that might be impacted by the 
changes that would affect them throughout the Transformation 
Plan. We are working again with you and the Congress on some 
short-term, less complex legislation that would give us a few 
tools, and then long-term, on the more complex legislative 
reform that we think would enhance the Postal Service's ability 
to provide for its universal service obligation.
    Senator Akaka. Do you have any further comments, 
Comptroller General?
    Mr. Walker. Yes, I do, Mr. Chairman. I think there is merit 
to the idea of trying to narrow the number of issues that might 
go for binding arbitration. Obviously, to the extent the 
parties can agree through the normal collective bargaining 
process, that is desirable, but mediation, the possible use of 
mediation before you get to the point of arbitration, I think 
is something that should be given serious consideration.
    There are some important issues here that have to be 
focused on that in my opinion have not been focused on 
adequately in the past under the current system. First, what is 
competitive compensation? On what basis are you trying to 
determine what comparable wages are, and by the way, you just 
cannot go by wages. You have got to consider total benefits, 
including pension benefits, retiree health benefits, and a 
variety of other benefits. On what basis is there an attempt to 
try to understand what is competitive compensation and how is 
that cranked into the process right now. I do not think it is 
adequate right now.
    Second, what about labor flexibility? To what extent is 
there a need to try to create some additional flexibility with 
regard to utilization of the existing employees?
    Third, what about management? On the other side, what about 
management compensation arrangements? On what basis should 
management be paid bonuses and what type of productivity 
increases should be rewarded? Do they really increase capacity 
where it is needed? Do they really decrease cost?
    So I think there are a number of issues that have to be 
focused on here that I think the current system has not allowed 
it to be focused on adequately and some changes may be 
appropriate.
    Senator Akaka. Mr. Potter.
    Mr. Potter. If I could just add to that, regarding 
comparability to the private sector in terms of wages, 
comparability is an issue that has been the subject of many 
arbitrations over our 32-year history. Today, that is defined 
through arbitral history as opposed to being defined more 
narrowly by the legislation that guides us. So that is a term 
that obviously is subject to interpretation, and today, the 
interpretation is that of the third-party arbitrator that 
guides the outcome of our negotiations/arbitration.
    Senator Akaka. Mr. Walker, do you have any comments on the 
appropriateness of the Railway Labor Act for the Postal Service 
Act?
    Mr. Walker. Well, as I mentioned, Mr. Chairman, I think 
that the current process has resulted in some challenges, most 
notably in the area of comparable wages. I mean, in effect, the 
arbitrator is trying to decide that without having some type of 
real foundation or definition as to what should be looked at.
    Before I became Comptroller General, among other things, 
other than being a CPA, I ran the global practice for a major 
firm in the human capital area and I dealt with executive 
compensation strategies and pension and health care. These are 
issues that are not novel concepts, and yet it does not seem to 
me that they have been adequately addressed, and you are 
talking about significant sums of money. Seventy-plus percent 
of the cost of the Postal Service deals with people costs.
    So I think that there are some issues that have to be 
looked at under the current act, including whether or not some 
definitional guidance ought to be provided in a few areas.
    Senator Akaka. Mr. Potter, the Transformation Plan suggests 
that the Postal Service, in finding new ways to reduce costs, 
may want to have more control over the investment of its 
retirement fund assets. Does the Service want to establish a 
new single employer plan covering Postal workers, and if so, 
would it want to take over CSRS or FERS? Who would make the 
investment decisions and who would bear the risk?
    Mr. Potter. Today, our banker is the Treasury, and what we 
would propose is that the monies that are collected from our 
employees in terms of their contributions to retirement be put 
to work. So, the risk would be borne by us, that is, the 
Federal Government, but we think that there are vehicles there 
that would enable those funds to be put to work to help 
contribute to the costs of providing those benefits.
    Senator Akaka. Thank you. I will yield to Senator Cochran.
    Senator Cochran. Mr. Chairman, just a couple more 
questions.
    On the issue of debt reduction, Senator Stevens made a 
point that I thought we need to think about some. You have come 
to the realization that there are only two ways that you can 
generate revenue to apply to debt reduction, cut costs or raise 
revenues, or a combination of both. Then there is the option 
that Senator Stevens suggested and that is direct appropriation 
by Congress to apply to debt reduction. What is your reaction 
to that? I will ask the Comptroller General first, and then the 
Postmaster General.
    Mr. Walker. Obviously, there are a variety of parties that 
would like for the Federal Government to assume directly 
certain existing obligations, whether it be debt service or 
whether it be unfunded pension or health liabilities. When 
Congress created the Postal Service, the idea was it was 
supposed to be a self-sustaining entity. I mean, these types of 
obligations normally would have to be borne by an employer and 
they would be expected to be able to cover them in their cost.
    But, obviously, the Postal Service is a hybrid entity. I 
mean, it is, on one hand, a commercial enterprise, on the other 
hand, part of the social fabric of our Nation, and it is also 
part of the U.S. Government. So I think that is something that, 
frankly, only elected officials can decide. I would not want to 
have a recommendation on that.
    Let me just put it this way. Senator Stevens mentioned that 
a lot of things are going to change in this country starting in 
about 2015, and I agree with that. One of the things that the 
long-range budget simulations that GAO has done shows is that 
we are going to have serious fiscal problems starting at about 
that point in time due to known demographic trends and rising 
health care costs. So even if the Federal Government was to 
decide that it wanted to assume part of these obligations, it 
has got its own problem in figuring out how it is going to be 
able to deliver on its promises, given some of the simulations 
that GAO has done. So I think we need to be thinking about 
making sure that the U.S. Government can deliver on its 
promises, too.
    Senator Cochran. Mr. Potter.
    Mr. Potter. The health benefit and pension liabilities that 
we are discussing have been built up over a 32-year history of 
the Postal Service. The Postal Service has in its annual 
reports provided information on both of those matters. In fact, 
from a transparency standpoint, every 4 weeks, we publish our 
financial and operating statements. So it is not a surprise to 
me, and I do not think it should be a surprise to anyone, that 
those obligations have grown over the years.
    Certainly, one option that is available to the Congress is 
to help fund that. Now, we have not asked for that help, but 
when funding that obligation, there are two alternatives, or 
three alternatives. It is borne by the ratepayer, Congress 
helps, and/or we find ways of becoming more efficient or 
redefining our obligations within statutory requirements that 
will allow us to generate the funds necessary to pay down that 
obligation. I think that all three need to be considered.
    Senator Cochran. One thing about deficit reduction is that 
there is nothing in the Transformation Plan that looks like a 
deficit reduction plan. Did we miss something, or is there a 
proposal by the Service for debt reduction or revitalization of 
your capital program?
    Mr. Potter. Obviously, there is a process today to pay down 
our debt, the some $12 billion that we may have by the end of 
this fiscal year. It is built into the rate process. It is 
prior year loss recovery.
    Today, there is no vehicle to consider the health benefit 
liabilities or the retirement obligations as part of the rate-
setting process. So the vehicles that are available to us today 
are basically to cut our costs, and we have a narrow window 
where that cost cutting can be used to pay down. First, we pay 
down our debt, and then we would be able to address those 
liabilities. So today, there is no mechanism that I am aware of 
beyond paying down our debt, the $12 billion that we referred 
to, to deal with those long-term liabilities, and that is 
certainly an issue that we have to wrestle with. I do not 
disagree that there is a need to address that problem.
    Senator Cochran. This weekend when I was home, one of my 
constituents came up to me at a commencement exercise where I 
was speaking, a graduation class at a college, and said, ``Be 
careful what you approve that is being recommended for 
transforming the Postal Service,'' and I got the impression 
this person was a local Postal manager, maybe a postmaster, 
although I did not really have an opportunity to explore the 
details of what the concerns were.
    Now that I am here today and I look at some of the 
suggestions, one is that there be performance-based 
compensation, and I thought, whoops, maybe that is it. Maybe 
that is what I was running into there on the ground, that they 
have heard about this. Should Postal managers be held 
accountable in some way for the declines in the financial or 
service performance of the Postal Service?
    Mr. Potter. I do not believe that they should, but I do 
think that they should have incentives and be held accountable 
for improving the Postal Service and for the level of 
efficiency that their operations have, for the level of service 
that they provide to the American public, and for the way they 
treat employees. And certainly, there is a need for 
accountability.
    There is a need to have a performance, customer-focused 
culture, and we are moving ahead to change that culture and to 
make sure that people understand what is expected of them and 
that we hold them to those expectations, making sure, though, 
that we provide them the tools to be successful. You can create 
expectations, but if you do not provide people the mechanism 
and the tools to achieve those expectations, then it is not a 
fair system. What we are talking about is building a fair 
system that recognizes and rewards people's successes.
    Senator Cochran. Mr. Walker.
    Mr. Walker. Senator, I would say that any type of 
enterprise, whether you are in the government, the private 
sector, the not-for-profit sector, needs to have a system that 
provides incentives for people to do the right thing, adequate 
transparency to provide reasonable assurance the right thing is 
done, and appropriate accountability to make sure that the 
right thing is done.
    In that regard, in looking at compensation arrangements, 
typically, most state-of-the-art enterprises are focusing on a 
balanced scorecard model where you end up saying, I want to see 
what type of results or positive outcomes have been achieved 
based upon predetermined measures at the beginning of the year. 
I want to know what your customers think of you and I want to 
know what your employees think of you. It is a combination of 
those three things that end up giving you a better picture to 
properly be able to recognize and reward people that need to be 
and to deal with people who have to be dealt with.
    Senator Cochran. Thank you very much. Thank you, Mr. 
Chairman.
    Senator Akaka. Thank you very much, Senator Cochran. 
Senator Carper.
    Senator Carper. Thank you, Mr. Chairman.
    Earlier in my first round of questioning, I was trying to 
explore with both of you some things that we might be doing 
differently as a Congress in order to help you right the 
financial ship of state of the Postal Service. We talked about 
pricing flexibility, and I appreciate the comments of both of 
you in that regard.
    Earlier in your testimony, Mr. Potter, I think you spoke of 
productivity and I think you looked back through the first 6 or 
7 months of this fiscal year and indicated that productivity, 
while it dipped a bit in the earlier part of the year, was, 
year-to-date, up by a small margin. I do not follow very 
closely productivity for our economy as a whole, but I think if 
you look at productivity in the most recent quarter, 
productivity was up by about 8 percent, and I think that is an 
aberration, but it is certainly strong performance. I think 
productivity in the fourth quarter of calendar year 2001 was up 
somewhere between 2 and 3 percent, which is probably a little 
closer to the mark.
    The point I am getting to is productivity at the Postal 
Service, long before you became Postmaster General, has tended 
to lag that of the rest of the economy. I am sure a lot of 
trees have been killed printing reports on why the productivity 
is not better in the Postal Service. I just ask you today, what 
can we do as a legislative body with the President to enable 
you to capture some real gains in productivity? It is pretty 
clear that that is one of the things that has to be done. What 
do we need to do? What do we need to do to enable you and your 
employees to be more productive?
    Mr. Potter. I think the one thing that stands out in my 
mind is to provide us the ability to change our infrastructure. 
I think when Senator Cochran talked about talking to a 
constituent back home, it could have been anybody. I think that 
when you think about change, people tend to resist change. 
Certainly, we have opportunities----
    Senator Carper. Certainly never in the Senate. [Laughter.]
    Mr. Potter. We have the opportunity to reconfigure our 
networks, our networks of processing plants, our network of 
post offices, stations, and branches; to reconfigure those 
buildings that we have, those processing operations that we 
have that we can become more efficient, so that we can drive 
service levels even higher than they are today. But there is a 
resistance and a reluctance on the part of people to support 
that change.
    When I look at where we are today, and the one thing that I 
think we can do to really impact the bottom line in the short 
term, it is the changes that are necessary in our 
infrastructure that will allow us to reduce the nodes on our 
network. With fewer nodes to serve, there is less 
transportation and greater convenience to customers. There are 
a lot of major customers that bring mail to us. There is a lot 
of opportunity there, in my mind. And that is the one area that 
I think we need to embark on, and embark on rather quickly, if 
we are to be successful.
    Senator Carper. In the Carper family, for the most part, 
the husband does the grocery shopping, and I was out grocery 
shopping this weekend and I noticed in one part of the 
supermarket, this regular old supermarket, they have the bread 
and the deli and the butcher shop and all, and in one part of 
the supermarket, they had a bank and a couple people actually 
working there over the weekend in the bank.
    I used to be a Congressman for about 10 years and then I 
was Governor for 8 years and I have been here for about the 
last year and half with these fellows, and I have never had 
anybody come to me in Delaware and say, boy, we would like for 
you to close our post office. I am still waiting for the first 
person. [Laughter.]
    I have a lot of people who say, we would like to see a new 
one built, or we sure would like to see you intercede and not 
have a post office closed in our community. I have never had 
anybody come and say, close our post office. What is it going 
to take to get people to say, I was not crazy about closing 
that post office, but by golly, we can go down to the 
supermarket and get better service--much better service, more 
extended hours than we ever could in the old regime.
    Mr. Potter. I think it is a function of knowledge. If one 
thinks about the network of post offices that we have today and 
we had some 28,000 or 29,000 post offices in 1970, we pretty 
much have that same network of post offices. In addition to 
that, we have stations and branches in our larger cities.
    Since that time, though, people's access to postal services 
has changed dramatically because most people now buy stamps in 
supermarkets. That supermarket that you were in with the bank, 
if you had gone to the checkout counter and said, ``Can I have 
a book of stamps?'' you would have been provided a book of 
stamps for a fee. That access did not exist 32 years ago. So we 
have stamps on consignment at over 40,000 locations throughout 
America, in supermarkets and the like. We have 4,400 contract 
post office units. We have stamps by mail. That is a very 
convenient way to access postal services, stamps on line. You 
can now buy postage over the Internet.
    So I think that there is a need to reevaluate on 
everybody's part what services they can access, how much more 
convenient the Postal Service has made things, and how much 
more convenient things could become if the Postal Service had 
certain latitudes when it comes to brick and mortar.
    I was in Evansville, Indiana, not too long ago, and I went 
down to the downtown area to this beautiful post office 
building, a really nice historic building. Unfortunately, that 
whole area was surrounded by businesses that had been shuttered 
because Wal-Mart moved to a strip mall on the outskirts of town 
and with it went all the businesses. So the convenience that 
the people in that location had in terms of accessing the 
postal services as a part of doing their normal day-to-day 
business was lost because they were out at the strip mall in 
the new business center, retail business center, and the Postal 
Service was in a downtown location in the old business center. 
Now, it is great for us to be there. We are ready for the 
revival of the downtown area 20 to 50 years from now, but I do 
not think that that is a good business model.
    Senator Carper. Mr. Walker.
    Mr. Walker. Senator, I think this is critically important. 
There is a difference between points of service, which I would 
assert we ought to have a lot more of, and we do have a lot 
more of than we did in 1970. It could be at a grocery store, it 
could be at a bank. There are a lot of different places you can 
have where you have points of service other than the 
traditional post office, if you will, online, etc.
    We have got to maximize points of service in an economical 
fashion. We ought to minimize bricks and mortar. We have too 
much bricks and mortar. To the extent that we have bricks and 
mortar, we ought to maximize utilization of that bricks and 
mortar from an economic standpoint.
    The fact is, in the current situation, the one that 
Postmaster General Potter just mentioned, what happens is that 
the post office ends up opening up a new facility where the new 
business is, to the extent that it has got the capital to be 
able to do that, but it does not do anything about the facility 
that use to be viable and is no longer viable because it cannot 
close post offices based upon economic performance. What 
happens, then, is that you end up driving your cost up, you end 
up driving your productivity down, and then you have got asset 
recovery values that are hanging out there, as well, and these 
are on a huge scale.
    So I think it is something that is critically important and 
that Congress will have to end up authorizing in order for 
something to be done in this area, because right now, they are 
constrained. They just cannot do it.
    Senator Carper. Let me change gears and return to something 
I mentioned during my first round. It is the idea of using the 
revenue from first class service, over which the Postal Service 
has a monopoly, to cover expenses for services that are 
competitive. I said, General Potter, my recollection is about 
half your volume is First-Class Mail, but my understanding is 
that First-Class Mail covers about two-thirds of the Postal 
Service's institutional costs. If that is wrong, please correct 
me.
    Over in the House, I met with a fellow named Congressman 
McHugh, who has been working on these issues for a long time, 
and I like to say that in the Congress, you have to be really 
good at deferring gratification. He must be very good at 
deferring gratification because he has been working and working 
at this for a long time. I am not sure I am that good.
    But I understand that he has drafted some legislation that 
would separate competitive and non-competitive products so that 
each of the competitive products would pay for its share of 
institutional costs. Do I have that right? I would be 
interested in your comments and those of Mr. Walker, please.
    Mr. Potter. There is a misperception that there is cross-
subsidization of products, and I think that is where we are 
headed. Right now, it is illegal for the Postal Service to 
cross-subsidize one product with another. The Postal Rate 
Commission is charged with assuring that we obey the law in 
terms of our rate setting. Now, there are opportunities for us 
to take advantage and customers to take advantage of our 
economies of scale and scope when it comes to other products.
    The legislation that you are referring to would, again, not 
allow cross-subsidization--it is not allowed today--but it 
would give the Postal Service more freedom on the competitive 
side in terms of pricing flexibility. It does not--today. The 
premise that those products do not pay their share of costs is 
not accurate. So I would have concerns with the premise on 
which you base that question.
    Mr. Walker. I have not seen the latest piece of 
legislation, so let me just say that I think that some 
additional degree of flexibility, pricing flexibility, as I 
mentioned before, I think makes sense, coupled with additional 
transparency and accountability.
    Second, I think that part of it is, how do you define what 
cost is? As I mentioned in my opening statement, right now, we 
have got significant retiree health obligations, we have got 
significant pension obligations. How are they being accounted 
for? What about existing infrastructure costs? How are they 
being accounted for and how are those costs being allocated in 
determining what the appropriate rates are? I think there are 
some real issues there that involve lots of money.
    Senator Carper. Mr. Chairman, my time is expired. If there 
is another round, I would be pleased to ask another question or 
two.
    Senator Cochran. We are out of rounds. [Laughter.]
    Senator Carper. I thought we might be. Can I just mention 
one last quick point?
    Senator Akaka. Go ahead.
    Senator Carper. This sort of relates to productivity, but 
the issue is workplace safety. I understand there is a fair 
amount of Workers' Compensation costs that are borne by the 
Postal Service. I think we have actually talked a little bit 
about this before. I know I have talked with the Chairman of 
the Board of Governors about it. Workplace safety, how are you 
proposing in the transformation document to enhance workplace 
safety and just try to reduce the very substantial costs that 
you have there?
    Mr. Potter. Let me make a couple of points. The Postal 
Service has about half of the Workers' Compensation claims that 
the Federal Government has, but we have about one-third of the 
costs of that program. We manage safety very aggressively. As 
you are probably aware, we came under OSHA guidelines for 
private companies recently. We are working very hard, and we 
are having some good success at bringing our accident rates 
down.
    This year, Workers' Compensation is a particular problem 
because our accident rates are down, yet our Workers' 
Compensation costs this year are going to be some $500 million 
greater than planned. Much of that is driven by some actuarial 
changes, as well as the rising costs of health care and costs 
of the procedures that we have for those people who are on 
OWCP.
    The key, in my mind, the first step when it comes to 
Workers' Compensation, is to have a safe work environment. That 
is our No. 1 priority when it comes to addressing Workers' 
Compensation costs today and into the future. We are making 
some good progress regarding the safety record in the Postal 
Service.
    Mr. Walker. Just very quickly, Senator, we at GAO believe 
that there are some issues with regard to Workers' Compensation 
that need to be looked at, and if GAO can be of any assistance 
in trying to do any analysis here, we would be happy to do 
that.
    Senator Carper. Mr. Chairman, thank you for giving me a 
little extra time here.
    Senator Akaka. Thank you for your questions.
    Senator Carper. Thank you, and to our witnesses, thank you 
for being here.
    Senator Akaka. I have many more questions to ask you. 
However, as tempted as we are to continue, we must call this 
hearing to an end. But let me ask a follow-up question to 
Senator Carper's, since you raised it, Mr. Walker, and this is 
to Mr. Potter and Mr. Walker. Do you believe a base closing 
commission would be helpful to deal with facility closing and 
consolidations?
    Senator Cochran. Like the military has.
    Mr. Potter. Well, I think an effort to address the 
infrastructure of the Postal Service is necessary. I believe 
that with the Postal Service in a position to outline the 
opportunities and make a business case for why we should change 
the current infrastructure, and while we would prefer to have a 
change in the legislation that would give us some more 
freedoms, certainly anything that moves in the direction of 
looking at this situation and, again, providing guidance to the 
Postal Service, would be welcome.
    Senator Akaka. Mr. Walker.
    Mr. Walker. I think given the real political realities, you 
are going to need to consider something like a Base Realignment 
and Closure Process or BRAC. Obviously, you would expect that 
Postal management would come forward and make recommendations. 
Obviously, you would expect that other stakeholders, the 
employees, customers, and a variety of others would come 
forward and make their case. But in the end, nobody likes to 
close anything and change is difficult. So, therefore, I think 
from a practical standpoint, in order to be able to look at 
this in a comprehensive fashion rather than a piecemeal 
fashion, you are going to need to consider something like that, 
I think, in order to make it a reality.
    Senator Akaka. I thank you very much, Postmaster General 
and Comptroller General, for being with us today. Your 
testimonies and responses to our questions have been valuable 
to our review of the U.S. Postal Service.
    This hearing will not be the last that we will hold on a 
plan, I am sure. It was, however, as you mentioned, a good 
first step towards a Transformation Plan.
    I want to commend the Postmaster General and the Chairman 
of the Postal Rate Commission for taking the next step, which 
is convening an open summit on May 28 to discuss potential 
changes to the omnibus rate making process.
    Senator Cochran, do you have anything else to add?
    Senator Cochran. Nothing further, Mr. Chairman. Thank you.
    Senator Akaka. I want to thank everyone for joining us 
today. All that you have done will be helpful to our cause. 
Thank you very much.
    This heating stands adjourned.
    [Whereupon, at 12:15 p.m., the Subcommittee was adjourned.]






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