[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
ANSWERING THE ADMINISTRATION'S CALL FOR POSTAL REFORM--PARTS I, II, AND
III
=======================================================================
HEARINGS
before the
SPECIAL PANEL ON POSTAL
REFORM AND OVERSIGHT
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
JANUARY 28, FEBRUARY 5 AND 11, 2004
__________
Serial No. 108-135
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
93-087 U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2003
____________________________________________________________________________
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COMMITTEE ON GOVERNMENT REFORM
TOM DAVIS, Virginia, Chairman
DAN BURTON, Indiana HENRY A. WAXMAN, California
CHRISTOPHER SHAYS, Connecticut TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana CAROLYN B. MALONEY, New York
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
DOUG OSE, California DENNIS J. KUCINICH, Ohio
RON LEWIS, Kentucky DANNY K. DAVIS, Illinois
JO ANN DAVIS, Virginia JOHN F. TIERNEY, Massachusetts
TODD RUSSELL PLATTS, Pennsylvania WM. LACY CLAY, Missouri
CHRIS CANNON, Utah DIANE E. WATSON, California
ADAM H. PUTNAM, Florida STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia CHRIS VAN HOLLEN, Maryland
JOHN J. DUNCAN, Jr., Tennessee LINDA T. SANCHEZ, California
JOHN SULLIVAN, Oklahoma C.A. ``DUTCH'' RUPPERSBERGER,
NATHAN DEAL, Georgia Maryland
CANDICE S. MILLER, Michigan ELEANOR HOLMES NORTON, District of
TIM MURPHY, Pennsylvania Columbia
MICHAEL R. TURNER, Ohio JIM COOPER, Tennessee
JOHN R. CARTER, Texas CHRIS BELL, Texas
MARSHA BLACKBURN, Tennessee ------
------ ------ BERNARD SANDERS, Vermont
(Independent)
Peter Sirh, Staff Director
Melissa Wojciak, Deputy Staff Director
Rob Borden, Parliamentarian
Teresa Austin, Chief Clerk
Brien Beattie, Deputy Clerk
Phil Barnett, Minority Chief of Staff/Chief Counsel
Special Panel on Postal Reform and Oversight
JOHN M. McHUGH, New York Chairman
DAN BURTON, Indiana DANNY K. DAVIS, Illinois
EDWARD L. SCHROCK, Virginia MAJOR R. OWENS, New York
CANDICE S. MILLER, Michigan EDOLPHUS TOWNS, New York
TIM MURPHY, Pennsylvania CAROLYN B. MALONEY, New York
MARSHA BLACKBURN, Tennessee WM. LACY CLAY, Missouri
Robert Taub, Counsel
Jack Callendar, Counsel
C O N T E N T S
----------
Page
Hearing held on:
January 28, 2004............................................. 1
February 5, 2004............................................. 125
February 11, 2004............................................ 263
Statement of:
Burrus, William, president of American Postal Workers Union,
AFL-CIO; William H. Young, president of National
Association of Letter Carriers; Dale Holton, president of
National Rural Letter Carriers Association; and John
Hegarty, national president of National Postal Mail
Handlers Union............................................. 130
Fineman, David, chairman, U.S. Postal Service Board of
Governors, accompanied by John E. Potter, Postmaster
General of the United States............................... 28
Hess, Lester, chairman, Grand Lodge Advisory Committee,
Benevolent and Protective Order of Elks; Hamilton Davison,
chief executive officer, Paramount Cards, Inc.; Rebecca
Jewett, president and chief executive officer, Norm
Thompson Outfitters, Inc.; and Gary Mulloy, chairman and
chief executive officer, ADVO, Inc......................... 366
Olihovik, Walter M., national president of the National
Association of Postmasters of the United States; Steve D.
Lenoir, president of the League of Postmasters; and Vincent
Palladino, president of the National Association of Postal
Supervisors................................................ 198
Omas, George A., chairman, U.S. Postal Rate Commission....... 56
Roseboro, Brian C., Acting Under Secretary for Domestic
Finance, Department of the Treasury........................ 20
Smith, Fred, chairman and chief executive officer, FEDEX; Ann
Moore, chairman and chief executive officer, Time Inc.;
Michael Critelli, chairman and chief executive officer,
Pitney Bowes; William Davis, president and chief executive
officer, R.R. Donnelley & Sons; and Nigel Morris, co-
founder and vice chairman, Capital One..................... 284
Walker, David M., Comptroller General of the United States... 72
Letters, statements, etc., submitted for the record by:
Burrus, William, president of American Postal Workers Union,
AFL-CIO, prepared statement of............................. 135
Burton, Hon. Dan, a Representative in Congress from the State
of Indiana, prepared statement of.......................... 274
Clay, Hon. Wm. Lacy, a Representative in Congress from the
State of Missouri, prepared statement of................... 11
Critelli, Michael, chairman and chief executive officer,
Pitney Bowes, prepared statement of........................ 309
Davis, Chairman Tom, a Representative in Congress from the
State of Virginia, prepared statement of.................120, 271
Davis, William, president and chief executive officer, R.R.
Donnelley & Sons, prepared statement of.................... 324
Davison, Hamilton, chief executive officer, Paramount Cards,
Inc., prepared statement of................................ 390
Fineman, David, chairman, U.S. Postal Service Board of
Governors, prepared statement of........................... 32
Hegarty, John, national president of National Postal Mail
Handlers Union, prepared statement of...................... 170
Hess, Lester, chairman, Grand Lodge Advisory Committee,
Benevolent and Protective Order of Elks, prepared statement
of......................................................... 368
Holton, Dale, president of National Rural Letter Carriers
Association, prepared statement of......................... 163
Jewett, Rebecca, president and chief executive officer, Norm
Thompson Outfitters, Inc., prepared statement of........... 402
Lenoir, Steve D., president of the League of Postmasters,
prepared statement of...................................... 229
Maloney, Hon. Carolyn B., a Representative in Congress from
the State of New York, prepared statement of............... 14
McHugh, Hon. John M., a Representative in Congress from the
State of New York, prepared statement of................... 4
Miller, Hon. Candice S., a Representative in Congress from
the State of Michigan, prepared statement of............... 121
Moore, Ann, chairman and chief executive officer, Time Inc.,
prepared statement of...................................... 301
Morris, Nigel, co-founder and vice chairman, Capital One,
prepared statement of...................................... 342
Mulloy, Gary, chairman and chief executive officer, ADVO,
Inc., prepared statement of................................ 412
Olihovik, Walter M., national president of the National
Association of Postmasters of the United States:
A NAPUS Action Guide..................................... 200
Prepared statement of.................................... 218
Omas, George A., chairman, U.S. Postal Rate Commission,
prepared statement of...................................... 58
Palladino, Vincent, president of the National Association of
Postal Supervisors, prepared statement of.................. 246
Potter, John E., Postmaster General of the United States,
prepared statement of...................................... 44
Roseboro, Brian C., Acting Under Secretary for Domestic
Finance, Department of the Treasury, prepared statement of. 24
Smith, Fred, chairman and chief executive officer, FEDEX,
prepared statement of...................................... 286
Walker, David M., Comptroller General of the United States,
prepared statement of...................................... 75
Waxman, Hon. Henry A., a Representative in Congress from the
State of California, prepared statements of...............17, 266
Young, William H., president of National Association of
Letter Carriers, prepared statement of..................... 153
ANSWERING THE ADMINISTRATION'S CALL FOR POSTAL REFORM--PART I
----------
WEDNESDAY, JANUARY 28, 2004
House of Representatives,
Special Panel on Postal Reform and Oversight,
Committee on Government Reform,
Washington, DC.
The special panel met, pursuant to notice, at 2 p.m., in
room 2154, Rayburn House Office Building, Hon. John M. McHugh
(chairman of the special panel) presiding.
Present: Representatives McHugh, Burton, Schrock, Miller,
Murphy, Blackburn, Davis of Illinois, Owens, Towns, Maloney and
Clay.
Also present: Representatives Shays, Waxman and Tierney.
Staff present: Robert Taub, counsel; John Callender, senior
counsel; Drew Crockett, deputy communications director; Teresa
Austin, chief clerk; Brien Beattie, deputy clerk; Michael
Layman, professional staff member; Phil Barnett, minority staff
director/chief counsel; Kristin Amerling, minority deputy chief
counsel; Karen Lightfoot, minority senior policy advisor and
communications director; Anna Laitin, minority communications
and policy assistant; Althea Gregory, minority counsel; David
McMillen, Denise Wilson, and Andrew Su, minority professional
staff members; Earley Green, minority chief clerk; and Cecelia
Morton, minority office manager.
Mr. McHugh. Now here's something I haven't done. The Postal
hearing will come to order. It's been about, I don't know, a
few months. I feel very Freddy Kruegerish. You've seen those
Nightmare on Elm Street movies. They always bury him at the
end, but we manage to rise for another version, and you are
part of it. So thank you for being here.
I also want to, before I begin, thank the full committee
chairman and the ranking member, Mr. Tom Davis and Mr. Waxman,
the gentleman from Virginia, for allowing those of us who have
had no small interest in this question of postal reform to
continue under the auspices of this specially-constructed
panel.
And, of course, we have Mr. Davis, Danny Davis, my good
friend from the great State of Illinois, who has been such a
partner in this process, still on board and still pushing the
issue; and to my left, your right, which is where he ought to
be and should be to people's right, former chairman of the full
committee, who was an absolute stalwart in postal reform and
put his personal interest and his personal integrity on the
line and asked to serve on this panel. So, Dan, thank you so
much for being here.
I certainly want to welcome all of you back. I make light
of the fact that in spite of the smart money to the contrary,
we engaged in this issue again, but I think it underscores the
fact that the mission we took up, while I think we did a lot of
good work, remains unsolved. And as we look at our panel here
today, really an excellent panel of witnesses to kick off what
will be the first of three hearings that we are formally
entitling ``Answering the Administration's Call for Postal
Reform,'' I think we have yet another opportunity. And let me,
with that, extend a formal welcome to our panel members: Brian
Roseboro, who is Acting Under Secretary at the Department of
Treasury, here to talk about the administration's call for
reform. And he has been joined by the chairman of the Postal
Service's Board of Governors, our dear friend David Fineman;
the very distinguished Postmaster General of the United States,
Jack Potter; and the Postal Rate Commission chairman, no
stranger to this room, to this Congress, to this Hill, George
Omas; and one of the stalwarts of not just postal reform, but
so many issues that transpire here on Capitol Hill, the
Comptroller General of the United States, David Walker.
Gentlemen, thank you all so much for being here; we appreciate
it.
Before we hear from those witnesses, I would like to stress
perhaps the obvious to those in this room, and that is the
gravity of the matter that faces us today. The Postal Service,
as I have said many, many times before, is a critical nature
and critical thread in the fabric of this country. It's a
nearly $900 billion industry. It employs in its total some 9
million workers nationwide and represents more than 8 percent
of the gross domestic product of our Nation. Our Postal Service
is in trouble and requires reform legislation to prevent a
meltdown, and indeed there is good reason, in my opinion, why
this administration--George W. Bush's is the first
administration since President Nixon's to call on Congress to
modernize our Nation's postal laws. And I remain hopeful, as I
did some 8 years ago when we began this process, that as in
1970, Congress will once again in 2004 answer the President's
charge.
My longstanding belief that I think is reflected by the
Presidential Commission on the Postal Service's findings is
that the Postal Service itself, the administration and the GAO
all hold the opinion that universal service as we know it is at
risk and, simply put, that reform is needed to minimize the
danger of a significant taxpayer bailout or, on the converse,
may substitute a dramatic postal increase. The Congress
provided a bit of financial breathing room for the Postal
Service last year when we reduced its payment for pension
obligations, but the fundamental problems remain unchanged,
and, as the President's Commission found, the Postal Service's
current business model is not sustainable going into the 21st
century.
Our witness testimony will make the case quite clear, I
believe, but let's review some of the larger problems. First of
all, under the heading of major financial liabilities and
obligations, the Postal Service still faces about $90 billion
in liabilities and obligations despite the passage of that
pension legislation last year. Declining mail volume: In a
historical first for the Postal Service, total mail volume
declined last year for the third year in a row. Another
unsettling milestone was achieved as first class mail volume
declined by 3.2 percent in 2003 and is projected to decline
annually for the foreseeable future, and this is a very serious
problem because first class mail is the bread and butter of the
Postal Service, paying for more than two-thirds of its
institutional costs. Under revenues, the Postal Service
revenues are budgeted for zero growth in 2004, which would be
the first year since postal reorganization in 1970 that postal
revenues have failed to increase. However, even the zero growth
target will be challenging. In the absence of revenue generated
by increasing volume, the Postal Service must rely even more on
rate increases. Indeed, if it weren't for the postal pension
legislation of last year, ratepayers would likely be facing yet
another double-digit increase in rates at the present time. And
these are just the highlights of the problems, which
unfortunately go on and on: changes in the mail mix, increased
competition from private delivery companies, declining capital
investment, insufficient increases in postal productivity,
uncertain funding for emergency preparedness, and major
challenges to continue cost-cutting.
While the problems are, without question, in my opinion,
dire, the President's Commission and the President's subsequent
articulation of principles for legislative change, I think,
show us a path to some solutions. Fortunately, we have a very
strong bipartisan basis upon which to proceed, including if I
might define as a well-refined bill that we put together in
last year's Congress, again on a bipartisan basis, largely
under the leadership of Mr. Burton, the former chairman, and
the ranking member, Mr. Waxman. The Postal Service is too
important an institution to our economy to await the full brunt
of the crisis that is clearly upon our doorstep, and as a
resident of rural America, I know only too well the importance
of the Postal Service's presence and operation in our daily
life. And I look forward to working with my colleagues on that
bipartisan basis within this committee, within this special
panel, with the collaboration of our witnesses here today to
respond to the President's call for action. We must preserve
universal postal services at an affordable, uniform rate, and
that is our challenge, and we can't fail.
[The prepared statement of Hon. John M. McHugh follows:]
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[GRAPHIC] [TIFF OMITTED] T3087.002
[GRAPHIC] [TIFF OMITTED] T3087.003
Mr. McHugh. And again, with a word of thanks to all of our
witnesses, I would be happy to yield to the ranking member, Mr.
Davis, who has joined us here, for any opening comments he
might have.
Mr. Davis of Illinois. Thank you very much, Mr. Chairman,
and I'm pleased to join you in opening this hearing and in
welcoming our witnesses and postal stakeholders.
Before I begin my remarks, I'd like to commend Chairman Tom
Davis, and Ranking Member Henry Waxman as well as yourself for
the interest and willingness to work together in a bipartisan
manner that all of you have shown. We began the 108th Congress
on a very positive and productive note. We passed and
subsequently enacted into law legislation correcting the
calculation of postal payments to the Civil Service Retirement
System. As consumers and members of the postal mailing
community know, this change in postal pension law allowed the
Postal Service to reduce its outstanding debt and hold postage
rates steady until 2006. The Postal Service received a
financial break and so did the public.
As we begin the second session of the 108th Congress, we
have additional work to do. First, because we created an escrow
account in the postal pension law, the Postal Service must
provide us a workable plan on its capital investments for
productivity gains and cost-saving initiatives. We are
expecting additional planning information in this area by the
end of the month. This effort on behalf of the Postal Service
to provide us with greater detail is critical if we are to
address the escrow requirement as part of postal reform
legislation. As for postal reform efforts, we are moving at a
positive pace, picking up on a much more positive note than
where we left off in the 107th Congress. Using your postal
reform bill, H.R. 4970, as a starting point, we are working on
establishing a strong foundation for reform. To date our staffs
have met with several postal stakeholders to solicit their
recommendations for positive changes. In addition to the
recommendations submitted by the President's Commission on the
Postal Service in July 2003, the administration's principles
for postal reform are critical to the process. The Senate, too,
is engaged. Senator Susan Collins, Chair of the Senate
Governmental Affairs Committee, began holding hearings last
year on recommendations of the Presidential Commission on the
Postal Service. Additional hearings will be held next week. To
put it succinctly, we are on a mission and working together to
achieve a common goal; that is, changing the laws governing the
Postal Service so that it is fully prepared and capable of
thriving in the 21st century.
Mr. Chairman, again, I would like to acknowledge the hard
work of those in the postal mailing community, postal labor
unions, nonprofits, mailers, postmasters, printers and
consolidators, newspapers, banks, credit card companies,
greeting card companies, magazines, catalog merchandisers, and
a host of others. Their continued support and input is
important as all of us work cooperatively to strengthen the
Postal Service. I thank you very much and yield back the
balance of my time.
Mr. McHugh. I thank the gentleman not just for his comments
and his presence here today, but for his hard work and for his
devotion to this issue.
Next, as I mentioned, someone to whom we all owe a debt of
gratitude for his leadership, for his commitment on this issue,
particularly during his time, 6 years, as chairman, the
gentleman from Indiana, the Honorable Dan Burton. Dan.
Mr. Burton. Thank you Mr. Chairman. First of all, I want to
thank you for all the hard work you've put forth on this effort
over the last 6 or 7 years. I don't think anybody's more
knowledgeable about the problem than Chairman McHugh, and I
really appreciate his hard work. When I was chairman, he was
the point person on this issue, and we worked very hard for a
long time to get a postal reform bill passed. We worked with
the Postmaster and a number of you other folks to get the job
done. Unfortunately, there were a number of different interests
that had differing views and it ended up we tried to get the
bill passed, and we couldn't. But now we're facing a much more
difficult situation than we faced even then in that, according
to the President's Commission on Postal Service, they are
estimating the unfunded postal obligations at $90 billion. And
when you say meltdown, Mr. Chairman, boy, you're not kidding.
Something has to be done, and I don't know how we are going
to get the various entities to see eye to eye on a final bill,
but somehow it's got to be done because a meltdown is
inevitable. And we add to that the fact that more and more
businesses and industry are going to e-mails and faxes, thus
taking away an awful lot of revenue from the Postal Service. It
only complicates the problem further.
So this is a very, very difficult problem. I don't envy you
your position as chairman and trying to come up with
legislation that will meet everybody's views, but it is
something that I think has to be done. Otherwise we are going
to have another huge government bailout, and it won't be a one-
time thing.
And so this is a major problem, and I hope all of the
people on the panel--I know they will--I know all the people on
the panel and the people in the interested industries will work
together to try to help us draft a bill that we can get passed
through the Congress that will preserve the postal system, make
it more workable, and thus not face a huge taxpayer bailout now
and in the future.
And with that, Mr. Chairman, thank you very much.
Mr. McHugh. I thank the gentleman, and thank him again for
his interest and participation.
I don't want to presume the order of speaking and the
normal rules as to my friends on this side. I was going to
offer the opportunity to the ranking member of the committee to
speak, but he's graciously deferred to his colleagues who were
in attendance first. So I am happy to yield to a fellow New
Yorker, the gentleman from New York, of course, Ed Towns.
Mr. Towns. Thank you very much, Mr. Chairman. Let me thank
Ranking Member Waxman, of course Chairman Davis, and also you,
Mr. Chairman, for all the work you've done on this issue and
also for holding this hearing on reforming the U.S. Postal
Service.
This is likely one of the most important series of hearings
our committee will hold this year. Our decision will also
affect the jobs of thousands of workers in the Postal Service
and millions more connected to it, and that is something that
we should never, never forget. While there may be significant
disagreement over the recommendations made by the President's
Commission, I think it is critical that we all agree and
recognize that some change needs to be made.
The Postal Service is on a course that is economically
unsustainable. Each year the Postal Service adds 1.7 million
new homes, businesses or other new delivery points; however, at
the same time, volume has been declining for 3 straight years.
While some of that decrease is due to the recent economic
recession and the anthrax incidents, a portion of the decline
in mail volume is due to structural changes that are only going
to become more pronounced. I'm talking about e-mail, fax
transmission, cell phones without distance charges have become
substitutes for written correspondence. The Internet is also
becoming an increasingly popular alternative for financial
billing and payment. As residents and companies continue to
take advantage of electronic options to communicate or make
transactions, mail volume will drop. Overall, the Postal
Service has lost $2.3 billion, that's ``B'' as in boy, in the
last 3 years. We have bought some time by passing the Civil
Service Retirement System Funding Act, which saved more than $6
billion for the last 2 years, but we cannot allow this
breathing room to deter us from making important but tough
decisions. Usually, a crisis needs to be at hand to make such
choices. I hope we do not wait that long on this one.
Finally, Mr. Chairman, I would like to make one last point
about the Commission's recommendations, which I think is
critical. As we review the difficult choices ahead, I believe
that the recommendation to preserve the Postal Service as an
entity of the Federal Government that continues to provide
universal service is of utmost importance and should be a lens
through which we view possible solutions. The Commission said
that privatization of the Postal Service was too risky and
could disrupt universal service, so I think it is critical to
remember as we consider possible changes to the institution
that the Postal Service is not a private company, but an
institution that holds a place of special public trust, and I
think that's the thing that we need to keep in mind as we
continue to deliberate. On that note I yield back.
Mr. McHugh. I thank the gentleman for his comments and for
his obvious interest in this issue.
Just as a matter of procedure, and as I'm sure the
gentleman from Connecticut is aware, my friend Mr. Shays, the
policy is to allow the members of the panel to speak, and
thereafter Members who are not a member are welcome. And we are
thankful that they have an interest in this issue.
So with that I would be happy to yield to one of the newer
members of the full committee, not one of the newer members of
the panel because she's been on it since its beginning, but
someone who has sought out this position, this challenge, and
we are very grateful for that, the gentlelady from Tennessee,
Mrs. Blackburn.
Mrs. Blackburn. Thank you, Mr. Chairman. I have no opening
statement, but I do have a list of questions, so I will yield
back my time and look forward to the questioning. Thank you,
sir.
Mr. McHugh. Best speech so far, Marsha. I like that very
much. Thank you.
Next I am happy to yield to the gentleman from Missouri I
believe is next, Mr. Clay.
Mr. Clay. Thank you. Thank you for yielding, Mr. Chairman.
I would like to thank you and Ranking Member Waxman for the
opportunity to participate in this important discussion on
congressional postal reform activity. The U.S. Postal Service
represents a mainstay of American culture and commerce. It is
almost inconceivable to think that in the future universal
service could be diminished or that small post offices would be
closed.
Reform means change, and the beginning of that change came
last year with the passage of the Civil Service Retirement
System Funding Reform Act of 2003. As a result, the Postal
Service experienced some immediate financial relief,
particularly in the area of pension savings funds. However,
there are still many challenges ahead in order to bring the
Postal Service up to a healthy financial position. Hopefully
these hearings will bring us closer to understanding and
accomplishing that goal.
Finally, I would be remiss if I did not mention the fact
that I have a deep concern for the women and men who perform
the Postal Service function. I want to make it clear that their
concerns are my concerns. That means opposing any changes that
would deny postal employees the right to engage in free
collective bargaining.
Mr. Chairman, I look forward to hearing from today's
witnesses and ask unanimous consent to submit my statement into
the record. Thank you.
Mr. McHugh. Without objection, so ordered.
[The prepared statement of Hon. Wm. Lacy Clay follows:]
[GRAPHIC] [TIFF OMITTED] T3087.004
Mr. McHugh. I have to ask the gentleman, did your father
help you write that?
Mr. Clay. No. And he doesn't work for me.
Mr. McHugh. I have no doubt you work for him. That's an
awkward way of saying we are honored to have the President--the
presence of former Chair of the Post Office and Civil Service
Committee in the House, Bill Clay, who is also somewhat related
to the gentleman who just spoke. Bill, good to see you. Thanks
for being here.
Next is the gentlelady from New York. Another New Yorker; I
love it. Mrs. Maloney.
Mrs. Maloney. Thank you, Chairman McHugh. And I really want
to compliment you and Ranking Member Waxman and Danny Davis
because you have really worked relentlessly on postal reform.
And as one who represents upstate New York in many areas, there
are more bears than people, but we have our post offices there,
and we can get our mail up there, and so I know you have a
vested interest in making sure that the services are there for
the people.
And we are here basically to review the report, the
President's Commission report on the U.S. Postal Service. And
it contained a number of principles that a number of people
concerned about this support, obviously best practices,
transparency, flexibility, collective bargaining,
accountability, and self-financing.
I do want to note the heroic work of postal workers in my
district that I'm honored to represent during the terrible
anthrax emergency. But we do need to do something because the
Postal Service is facing billions of dollars in debt. They are
in billions of dollars in debt and over the next few years, and
the GAO--with them listing it on their high-risk list, postal
reform is one of the most pressing issues we will address this
year, and it will literally affect all of our constituents.
I also, in addition to representing many postal workers, I
represent much of the magazine industry. I represent Madison
Avenue, and the magazine industry is enormously important both
for the economy of New York and really, I would say, the
economy of our country in general, and magazines and mailers
are an essential part of our culture; they educate us, they
entertain us, they are a part of our life. But I want to note
that high costs have forced many magazines that I represent out
of business in the last 2 years, including Mademoiselle, Mode,
Brill's Content, and the Industry Standard, to name four,
leaving these workers without jobs and really affecting our
economy. So at a time when millions of Americans are out of
work, we should protect the jobs of everyone who relies on the
Postal Service for their employment.
We need postal rates that are as low as possible, and I
understand the importance of keeping rates affordable so that
publishers, individuals and industries can continue to use the
Postal Service. Any postal reform must take a balanced approach
that considers the needs of everyone who depends on the Postal
Service. All customers deserve the best service possible, and
while the Postal Service continues to face stiff competition
from e-mail, fax, the Internet, private delivery services, we
need a mail system that reaches every household across the
Nation, whether an apartment building in New York or a remote
farmhouse in upstate New York or in some other rural area.
Today we have the opportunity to review the Commission's
recommendations and to look at the details included in the
report. As they say, the devil is always in the details, and I
look forward to the testimony. And I would like to know if
there are any recommendations from those that are testifying
today in support or in opposition to the assessments or the
recommendations that have come forward and what steps the
panelists feel are necessary to achieve true postal reform.
Again, I thank Danny Davis, who heads the Postal Caucus on
the Democratic side and, of course, Mr. Waxman, and my
colleague from the great State of New York, our chairman. Thank
you.
Mr. McHugh. Thank the gentlelady.
[The prepared statement of Hon. Carolyn B. Maloney
follows:]
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Mr. McHugh. The last member on the panel is here to speak,
the ranking member of the full committee and someone who,
although he wasn't here, I want to again compliment for his
understanding, his dedication to this reform initiative, the
gentleman from California, Mr. Waxman.
Mr. Waxman. Thank you very much, Mr. Chairman. I am pleased
we are having this hearing today, and I am also pleased that we
are starting off the issue of postal reform in a cooperative
and bipartisan manner since we are addressing these issues with
a starting point of looking at last year's Postal Civil Service
Retirement System Funding Reform Act as a model for working
together, and I look forward to continuing that cooperative
approach.
The Postal Service has long operated under a set of laws
written in 1970, and they have not been adapted to the changing
delivery environment, and the effects are showing. Over the
past few years the Postal Service has been facing an increasing
financial crisis and was approaching its debt ceiling.
Fortunately we did pass that bill last year which provided some
immediate financial relief to the Postal Service, but this law
was not a comprehensive postal reform. Today as we begin this
series of hearings on the need for postal reform legislation,
we need to sort through what is a vital and complex subject,
and I think we have the best opportunity that we've had in
years to a resolve some of these issues and put the Postal
Service on a sound footing for the future.
I would like to highlight two important financial issues
confronting the Postal Service. First, the pension law we
passed last year changed the entity responsible for paying for
the pensions or the cost of retirement benefits related to
military service, shifting the responsibility from the
Department of the Treasury to the Postal Service. The measure
also required proposals from the Postal Service and the
administration regarding the long-term treatment of such
military costs. I agree with the Postal Service that these
costs should be returned to the Treasury. Doing so would both
relieve the Postal Service of an unnecessary burden and give
the Postal Service a source of funds to deal with its unfunded
health care liabilities.
The second unresolved financial issue is the escrow account
created for savings resulting from the postal pension law for
fiscal years after 2005. The account cannot be used by the
Postal Service until Congress has reviewed and approved the
Service's plan for using the savings. While the recent proposal
set forth by the Postal Service contained valuable ideas, we
are not satisfied with the Postal Service's explanation of its
plans and have asked for more details. I do not want to leave
the escrow account in place, but I need to see that the Postal
Service has thought through the best use of those savings. At
the very least, the Postal Service needs to demonstrate that it
has a workable plan to fund the key capital investments needed
to ensure its long-term viability.
I look forward to working with my colleagues. I
particularly want to single out the chairman of this
subcommittee Mr. McHugh, and our ranking Democrat, Mr. Davis,
and the chairman of our full committee, Congressman Davis, as
well. We need to think through and address the postal reform
issues to give the Postal Service the tools it needs to serve
the Nation into the 21st century. And I thank the witnesses
that are here today, I look forward to their testimony.
Mr. McHugh. I thank the gentleman again for his leadership
and hard work and devotion to this issue.
[The prepared statement of Hon. Henry A. Waxman follows:]
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Mr. McHugh. Seeing no other members of the panel here, I'd
be happy to yield to one of the senior members of the full
committee, a subcommittee chairman, and someone who over the
years has expressed a great deal of interest in this issue,
even though he has not been legislatively directly involved,
the gentleman from Connecticut, Mr. Shays, if he would care to
make any comments.
Mr. Shays. Thank you, Chairman McHugh. A very short
statement to say I am here in part to just support your effort
because I think you have been a rock in a very difficult
circumstance, and to thank your ranking member, Mr. Davis, for
being such a wonderful partner.
The Postal Service is a public and very critical
infrastructure of the United States. A reformed Postal Service
needs to be immune from not just anthrax contamination but from
fiscal suffocation in a very competitive marketplace. And I
just know that you have the full support of the chairman of
this committee in your efforts and I think that this is the
year we get something done and it is very exciting to see your
work finally pay off. Thank you, Mr. Chairman.
Mr. McHugh. I thank the gentleman.
I no sooner said no other panel members were here than the
gentleman from Virginia joined us, and I'd be happy to hear
from him.
Mr. Schrock. Believe it or not, I have no opening statement
but I've got lots of questions.
Mr. McHugh. I appreciate the gentleman's being here.
Having said all that, let me first of all say two things--
three things probably. A couple of unanimous consent request:.
Gentlemen, we have your written statements, and without
objection, we would ask that those be entered in their entirety
in the record. Also, note that members on the committee who
wish to enter written statements, whether those members are
here or not--we have several, like Mrs. Miller, for example,
who is on a very important CODEL to Libya and is still on her
way back, who would like to make a statement--without
objection, those too will be entered in their entirety in the
record. And third, as some of the veterans at the front table
know, it is the policy of the committee to swear in witnesses
who appear, so if you gentlemen would please rise.
[Witnesses sworn.]
Mr. McHugh. The record will reflect that all of the
witnesses responded in the affirmative.
Gentlemen, again, our deepest thanks to you. And let's get
right to the meat of this hearing. And as I mentioned, we are
honored to have a very distinguished panel. And first I'm
pleased to yield to the honorable Brian Roseboro, who's Acting
Under Secretary of Domestic Finance for the Department of the
Treasury. Mr. Secretary, thank you for being here. As you heard
me say, your entire written statement is entered into the
record. If you could summarize to the greatest extent that is
possible, that would facilitate matters, but our attention is
yours.
STATEMENT OF BRIAN C. ROSEBORO, ACTING UNDER SECRETARY FOR
DOMESTIC FINANCE, DEPARTMENT OF THE TREASURY
Mr. Roseboro. Thank you very much, Chairman McHugh. I'd
like to thank you, Ranking Member Davis and the other
distinguished members of the committee. We welcome this
opportunity to testify on comprehensive postal reform today. We
as well agree that, as many of you have already mentioned, the
Postal Service plays a vital role in the commercial life of our
Nation; however, the current business model, we feel, is not
sustainable going into the 21st century. It is widely known
that electronic diversion of mail volumes has caused a
substantial, and likely irreplaceable, decline in first class
mail. This trend is expected to continue. The Postal Service
ended the latest fiscal year with large on- and off-balance-
sheet liabilities. These liabilities include $7.3 billion of
debt owed to the Treasury, $7.1 billion for future workers'
compensation costs, $8.7 billion for operating leases, and
approximately $60 billion of unfunded postretirement health
care liabilities.
Recognizing this increasing financial vulnerability,
President Bush took a decisive action. In December 2002, the
President established a bipartisan nonstakeholders commission
and tasked it with completing a comprehensive review of the key
postal issues. The Commission was to articulate an integrated
set of recommendations that would put the Postal Service on the
path toward long-term financial viability and operational
excellence. The Commission report is the most important
document on postal reform in the last 30 years, in our opinion.
The administration was pleased with the comprehensive array of
recommendations that the Commission submitted as outlined in
the President's Executive Order framing his commission. It
considered the components of business, including revenue and
cost. With its 35 recommendations the report takes us a great
distance toward reaching a common goal; that is, to implement
changes that best prepare the Postal Service to be a sound and
efficient provider of services, a quality employer and a fair
competitor long into the 21st century.
While the administration may not agree with every aspect of
each of the 35 recommendations, we encourage congressional
leaders to carefully consider how the full range of
recommendations for legislative consideration might be
incorporated in meaningful, comprehensive postal reform.
According to the Commission, 16 of the 35 recommendations do
not require any legislative action. The Commission concluded
that the Postal Service could implement each of these without
any undue delay connected with legislative changes.
I also note that the Postal Service transformation plan of
April 2002 and the Commission's recommendations are not
incongruous. In fact, they are remarkably similar. While I
understand that the Postal Service management is prudent to
take time to carefully analyze proposed changes and implement
reform actions in a sound manner, I take this opportunity to
underscore the administration's strong support for the Postal
Service's efforts to implement reforms as expeditiously as
possible. As Postmaster General Potter has frequently stated,
the transformation plan is a blueprint for positive change and
should remain a guideline for future change. We agree, and
would add the Commission's recommendations to this list of
action items.
In outlining the circumstances that led to where we are
today, we must add the Civil Service Retirement System [CSRS],
Postal Refunding Reform Act signed into law by the President in
April 2003. As you well know, this act contributed
significantly to the financial recovery of the Postal Service
and is a tribute to the hard work and dedication of the members
of this panel in particular. Thanks to this legislation, which
allowed a transformation of the Postal Service's CSRS regime
into a calculation mechanism that matches the Federal Employees
Retirement System [FERS], the Postal Service immediately
yielded an estimated $78 billion financial gain. We believe
that this has established the appropriate funding provisions
for CSRS.
Despite this enormous one-time gain, the Postal Service is
not yet out of the woods. Even with the strong leadership of
the Postmaster General and the Postal Service Board of
Governors' drive and ever more competitive organization, more
needs to be done. The principles that the administration would
articulate for Postal Service reform are as follows: Principle
1: To implement best practices. The administration supports
comprehensive reform that ensures that the Postal Service's
governing body is equipped to meet the responsibilities and
objectives of a business of this size and scope. We recognize
the hard work the President and past Boards of Governors as
well as postal management and its work force.
Principle 2: Enhanced transparency. In keeping with our
desire to implement best practices, we seek postal reform
legislation that takes steps to ensure that important factual
information on the Postal Service's operations and performance
is accurately measured and made available to the public.
Principle 3: Provide for greater operating flexibility. In
return for increased transparency and accountability, and given
its self-financing obligation, the administration believes that
the Postal Service's governing body and management should have
a greater authority to reduce costs, set rates and adjust key
aspects of its business in order to meet its obligations to
customers in a dynamic marketplace.
Principle 4: Foster greater accountability. Given its
existing monopoly, potentially greater flexibility for
operations in this competitive position and some important
segments of the delivery marketplace, we urge Congress to enact
legislation that ensures that there is appropriate independent
oversight to protect consumer welfare and universal mail
service. We would like to see legislation that provides the
corporate governing body with necessary tools to properly
motivate postal management to achieve key objectives, such as
increasing productivity, enhancing service and improving labor
relations.
Principle 5: Ensuring self-financing. The administration is
committed to its desire to see a Postal Service that is
financially self-sufficient, covering all of its obligations.
We believe that ratepayers should be responsible for covering
liabilities, including the off-balance sheet, unfunded
liabilities. By doing so the Postal Service remains motivated
to operate in a manner that strengthens the financial and
operational health of the Postal Service.
The administration sees postal reform as an integrated
whole. It is crucial to address all aspects of the Postal
Service's cost and revenue lines, its balance sheet, off-
balance sheet components, its corporate governance, its
competitors, as well as the taxpayers and ratepayers. Reform
should be characterized by the five principles which, when
implemented, will ask each stakeholder to accept shared
sacrifice in order to achieve a better, stronger and more
accountable, transparent Postal Service.
Issues surrounding postal reform are indeed complex. We are
in the presence today of congressional leaders such as
yourself, Chairman McHugh, and others who have spent a
tremendous amount of time and dedication in making the Postal
Service better. Postmaster General Potter's sustained
dedication to achieve this objective must also be recognized.
The issues that are involved with postal reform are complex;
however, the administration stands ready to work with you to
take this critical issue forward.
I thank you, and I'll be pleased to answer questions at the
appropriate time.
Mr. McHugh. Mr. Secretary, thank you for your comments, for
your being here today.
[The prepared statement of Mr. Roseboro follows:]
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Mr. McHugh. And I mentioned what I thought was a very
proactive position by the administration, by the President,
given the first time it's been focused upon since the Nixon
administration. But I would be remiss if I didn't pay a tip of
the hat to the Treasury Department that really, in terms of the
administration, kind of led the charge and brought the issue to
that end of Pennsylvania Avenue's attention, and we appreciate
deeply the leadership role that the Department played. Thank
you again for being here.
With that, our next witness, as I mentioned in my opening
remarks, is a good friend of this subcommittee, a good friend
of the Postal Service, and a man who, not for power or glory or
money, I don't believe, dedicated himself and continues to
dedicate himself to the best possible Postal Service that the
United States can produce, the chairman of the Postal Board of
Governors, David Fineman.
STATEMENT OF DAVID FINEMAN, CHAIRMAN, U.S. POSTAL SERVICE BOARD
OF GOVERNORS, ACCOMPANIED BY JOHN E. POTTER, POSTMASTER GENERAL
OF THE UNITED STATES
Mr. Fineman. Thank you, Mr. Chairman.
Mr. McHugh. Thank you.
Mr. Fineman. I'm now in the last year of my term on the
Board of Governors and you and I, Mr. Chairman, I think, began
to attack this issue together almost about 8 years ago. And I
want to thank you particularly, Congressman Davis, and other
members of the committee who have been there with us for so
long in trying to enact reform. I do want to take this
opportunity to also thank the administration for putting in a
lot of labor on this issue.
Mr. Chairman, I remember some time ago you and I spoke to
an industry group, and I think at that time, which was probably
someplace around 7, 8 years ago, I talked about a train wreck
that was about ready to happen. I'm somebody from Philadelphia,
and I commute here by taking that Northeast train. It begins in
Boston. And if we assume that train wreck is going to occur in
Washington, I'd suggest to the members of the committee that
the train's about ready to leave Baltimore now and about ready
to come into Washington.
There is a necessity to change the law, and I've been here
and said that on numerous occasions. And the real evidence of
that has been alluded to before, but a couple of facts have
made it even more apparent. If you look at first class volume
as an example, we peaked at about 104 billion pieces in 2001.
We declined by 1 billion pieces in 2002 and declined by 3
billion pieces in 2003. The President's Commission and others
really don't know where that's going to lead, and I'm not sure
anybody does, quite frankly. And for the first time since
postal reorganization, first class mail volume is less than 50
percent of the total of mail. All of us, every day--I'm an
attorney in Philadelphia--how many pieces of e-mail do I get
per day? How many documents do I get that are sent to me by
lawyers from throughout the country that previously would have
been sent to me in the mail? How many times do I print out
letters that are sent to me by e-mail so that I can put them
into my files? We know what the problem is.
I commend all of you for taking the leadership. The Board
understood as well, and particularly in the last 4 years or so,
I think that the Board has exerted leadership and begun to work
with management as a board should work with management, and
that is to say to management, ``Look, these are the things that
we want to get done.'' And management, the Postmaster General,
has executed that plan. I think it began by us saying some time
ago--I was looking at testimony before this committee some time
ago when we froze facility spending, capital spending. It
wasn't that popular with some of the Members of Congress, but
it needed to be done. And what we did by doing that was to
begin to change the way we spend money at the Postal Service
and begin to have more money to spend and to be able to keep
rates at a level that made a little bit of sense. We began to
examine our core values. So we did look at the e-commerce area,
where a lot of money had been spent, and my testimony reflects
it wasn't a good venture. And the Board put pressure on
management, and you'll notice that we are not involved in those
kinds of issues anymore. We selected a Postmaster General, who
I'll speak about a little bit later. We reduced the average
interest rate that we now pay on our debt from 5.1 percent to
1.1 percent. More importantly, we said to the Postmaster
General, ``It looks to us like we have to decrease our career
complement, that is the number of employees we have. And that's
declined by 24,000 in 2003 and will probably decline by 11,000
more positions next year. And we did that, I would suggest, by
working closely with our labor unions, without having any
layoffs; and it was done with attrition and cooperation with
our labor unions. And what we need now is to attack, as
Congressman Waxman has indicated, our facility and
infrastructure. You know, in Philadelphia, for years the Postal
Service building was across from the train station, and that is
where it's located in so many major cities, and that's because
mail traveled on trains. Mail doesn't travel on trains any
longer. It travels on an interstate highway system. We've got
to be able to rationalize what this infrastructure and network
system is. And I commend the leadership also of David Walker. I
think that by issuing his report--and he has said to us that we
need to look closely at many issues, and I commend you for
doing that, and it gave us the discipline to do that. But now
we need help. We need help to change the laws.
As you know, Mr. Chairman, the entire Board, at least since
March 2001, has sent a letter to Congress and to the President,
and we've testified before the President, the Commission, and
we have said that we need change. And we agree to a large
degree with most of what the President's Commission has said.
The President's Commission raised the issue of transparency,
and the Board reacted to it. I think that you'll see within the
next months reports that are far in excess of, I think, what
might be--the SEC requirements are going to be. We are going to
report on a monthly basis. We are going to take action to be as
transparent as we can, but we need additional flexibility.
The rate process is broken. There's no necessity for me to
testify at length about that. I've done it before. We can
support a system that includes well-constructed price caps
which--when we need special relief, we are going to need
special relief in exigent circumstances. And as many of my
friends know, many of us, I've been a strong advocate of
collective bargaining. I do not believe that the Commission
should, or a postal rate commission, or a postal regulatory
board should interfere in any way with the collective
bargaining process. On the other hand, I do believe that
everything should be on the table for collective bargaining,
including health benefits.
There are, as Congressman Waxman has indicated, and as
others, two important legislative issues before Congress in the
near term, funding of the military service cost and eliminating
the escrow provisions. And all that I ask is--as chairman of
the Board, is that we attack those issues quickly. And the
reason that I say that is if we have the present law that we
operate under, which is a ridiculous ratemaking process, we
have to set--we have to propose rates to the Postal Rate
Commission some 10 months before rates would be enacted. We
have to begin to work on that system, I've said, 18 months to
24 months ahead of time. We need action on this, so that we,
the Board, can talk about rates and can consider rates in a
considered manner.
Where we disagree with the President's Commission, or where
I disagree, are basically three areas, one I've mentioned
already being collective bargaining. The other is the Postal
Regulatory Board, and I think that the Postal Regulatory Board,
there has to be a clear line between what your functions are,
the managerial, the public policy decisions about universal
service, about the monopoly, and those that the Postal
Regulatory Board would make. And second of all, and I guess
there's nobody who should shun their responsibility, but rather
to comment upon what the President's Commission has recommended
in regard to its Board of Directors, I personally don't care if
you change the name from Board of Governors to Board of
Directors, but I think that one of the most important things
that we can do is to keep the bipartisan nature of this Board.
We have not had Democrat and Republican fights on this Board.
It has five of one party and four of another. The President's
Commission, I think well intended, could result in a very
highly partisan Board, which I would not like to see happen.
There are, in that report, certain age restrictions which I
think are appropriate. However, I think that the bar of 70
years of age, we might raise it a little bit. You know, Jack
McKeon did win the World Series. He was about 72, so I am not
sure that's appropriate.
In conclusion, Mr. Chairman, I am saying that we can do--
we're doing everything we can, but the business model from 1970
is no longer valid, and we're reaching the limits of what
current opportunities are available to us, and we've got to
change those assumptions. I think that you and I, Congressman
Davis, Congressman Waxman, I see here, you know we've said the
time is now on numerous occasions, but I'm telling you that
train is about ready to run into Union Station, and it's about
time that we really made some changes. Before I conclude, I do
congratulate all of you on working in a bipartisan way to
change this law, and I look forward--I want to say that I'm
about ready to finish my term, and I do look forward to working
with all of you on changing that law,
and I continue--even if I should be gone within some period of
time as chairman of the Board, I would look forward to
continuing our relationship to change this law. I think I have
a lot invested in it at this point.
[The prepared statement of Mr. Fineman follows:]
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Mr. Fineman. With that, Mr. Chairman, I'd like to introduce
the Postmaster General, if I could.
Mr. McHugh. Please do.
Mr. Fineman. That is one of the key decisions that the
Board has to make, from time to time, is to choose the
Postmaster General. We chose Jack Potter as a career employee
of the Postal Service because we understood that we needed
someone who was willing to make tough decisions, and willing to
make hard decisions, understanding the desperate place that the
Postal Service was in. Jack has made those decisions and at the
same time has created an atmosphere that I have never seen
before between our labor unions and ourselves. He's done that
in a manner that is really admirable and, I think, clearly one
of the best decisions that we made was to have Jack Potter as
our Postmaster General. So with pleasure, Mr. Chairman, I would
like to introduce the Postmaster General.
Mr. Potter. Thank you, David. And I, too, want to add my
thanks to every member of the special panel for the opportunity
to add to the discussion of the need for comprehensive postal
legislative reform. I want to thank you, Chairman McHugh, for
your personal commitment over these many years. It's been a
long struggle. I'm also grateful to Congressman Davis,
Congressman Waxman and Congressman Davis who's not here,
Congressman Burton for all of the efforts that have been made
to move postal reform. And there are many people on the
Committee on Government Reform and they too have taken part in
leading the way to protect and preserve universal mail service
for all Americans well into the future. My compliments to the
administration--and Brian's here representing them--the
Congress, to my friend Comptroller General David Walker for
recent legislation that adjusted the Postal Service's payments
to the Civil Service Retirement System. The legislation has
provided a period of rate stability for the American people and
American businesses until at least 2006. Given the challenging
economic conditions in recent years, stable rates could not
have come at a better time. In addition, the legislation allows
us to significantly lower our debt.
However, there are two open issues remaining that we need
to discuss regarding the 2003 CSRS legislation that require
your action, and Congressman Waxman mentioned them. The first
open issue concerns shifting to the Postal Service from the
Treasury the retirement liability costs of our employees'
military service before they became postal employees. This
obligation transferred payment of more than $27 billion from
taxpayers to ratepayers.
Last year the President's Commission examined the impact of
the move. In its final report, the Commission recognized the
complexity of the issue, understood the long-term financial
ramifications, and recommended that Congress reverse the
position. We agree with the Commission and with Congressman
Waxman. Not only does $17 billion of the $27 billion represent
a repayment of funds already provided to retirees by the
Treasury, but more than 90 percent of the $27 billion
obligation results from military service performed before the
Postal Service was established in 1971. We believe that these
military service obligations should be returned to the Treasury
and not be the responsibility of postal ratepayers. Further, we
propose that the funds required to finance the $27 billion
military service cost instead be allocated to fund our long-
term obligation and retiree health care benefits estimated to
be between $47 and $57 billion. Funding retiree health care has
been a major issue for the GAO and the Congress, and we believe
has greater priority than funding military service costs that
have no linkage to operating the Postal Service. Finally, our
proposal is that these funds stay in the CSRS fund, and
therefore will not negatively impact the Federal deficit in a
significant way. I look forward to continued discussion on this
proposal with this committee.
The second issue deals with an escrow account, as
previously mentioned. As constructed in the legislation, the
Postal Service will be required to put the CSRS, ``savings,''
in fiscal years 2006 and beyond into escrow pending
congressional review. In effect, in 2006 the requirement could
negate the very benefit the CSRS legislation made possible by
putting postal customers back where they started before the
legislation was enacted.
I agree with Congressman Waxman that we need to deal with
this escrow fund and put it to bed. Moreover, the rate increase
required to fund the escrow could have a damaging effect if we
were made to create it on the mailing industry and businesses
that rely on the mail to reach their customers. I recognize the
intent of the provision in last year's legislation, and let me
assure you that postal management and the Postal Board of
Governors will not in any way squander the benefits gained from
reduced CSRS benefit payments. As requested, we are now
developing added detail relating to our networks and employee
complement requirements in the future. I look forward to
continued dialog on this issue. We really want to make sure
that this committee is satisfied with our response. Resolution
of these issues in this session of Congress will help us in
every mailer segment in this country as we examine our revenue
needs for 2006 and beyond.
The Postal Service has made great strides in the past few
years. As chairman of the Board Fineman mentioned, there is a
mood of optimism among our employee and management ranks that
we can do things we never thought possible. This can-do
attitude transcends every aspect of our business and compels us
to reexamine long-held presumptions. In 2003, we experienced
our fourth straight year of increased productivity. We achieved
record levels of service in all measured categories. We saw
customer satisfaction reach record levels. We saw workplace
environment indicators reach record levels, too. There is a new
positive and constructive relationship between labor and
management as evidenced by significant reduction in employee
grievances and voluntary contract extensions that we reached
with several major unions. We have been aggressively, and with
common sense, managing the business, and we will continue to do
so.
Yet for all the success that we have had, no one should be
lulled into a false sense that all is right with the postal
world. As Chairman Fineman pointed out, the underlying business
model remains problematic and compels legislative change if we
are to continue to provide the American people and American
business with a similar level of affordable service that we
have today. No, the Postal Service is not broken today, nor
will it be broken in the next year or the year after; however,
mail volume trends are a cause for concern. Without new growth
opportunities and aggressive cost reductions, we could be
forced to raise rates such that volumes will decline
precipitously.
Management and the Board must have sufficient tools to
increase revenue and lower costs to meet the changing customer
needs for mail services. We should not wait for a crisis event.
That is why I applaud the foresight of the President and this
committee to craft a new blueprint. We can and should buildupon
the President's Commission recommendations and the five
principles outlined by the President. As detailed in my written
testimony, I believe a sixth principle is the commitment to a
strong collective bargaining process.
I look forward to working with each of you on legislation
that addresses the need for pricing flexibility, including
annual adjustments; that includes appropriate regulation and
transparency; that provides management and the Board with the
necessary authority to adjust postal network infrastructure of
plants and post offices with appropriate community input; that
defines public policy responsibilities among management, the
Board, the regulator, and the Congress regarding issues such as
universal service; and one that takes a fresh look at the
collective bargaining process to strengthen the relationship
between management and labor, balancing the legitimate concerns
of the customer. With Chairman Fineman and the Governors of the
Postal Service, I look forward to developing, at this unique
time in our history, legislative reform that works for the
American people, works for our employees, and will deliver for
America. Thank you very much, Mr. Chairman.
Mr. McHugh. Thank you.
[The prepared statement of Mr. Potter follows:]
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Mr. McHugh. And I certainly want to associate myself with
the words of the chairman of the Postal Board of Governors with
respect to the great work you have done, Jack. We appreciate
that effort and look forward to our continuing partnership in
that regard.
I would note we were just notified that sometime, 3:15,
3:30, we are going to have votes. I would therefore suggest,
and that is all we can do in this great democracy, suggest our
last two witnesses do the best they can, and I would like to at
least get through the oral presentations prior to the vote. I
think that would facilitate all of our schedules. So to the
extent that is possible, we appreciate your cooperation.
With that, Mr. George Omas, whom I said is no stranger to
this Hill, and certainly spent long and very dedicated service
in the Post Office Civil Service Committee in his previous
life, and now serves, of course, as chairman of the Postal Rate
Commission. George, welcome. We look forward to your comments.
STATEMENT OF GEORGE A. OMAS, CHAIRMAN, U.S. POSTAL RATE
COMMISSION
Mr. Omas. Thank you, Mr. Chairman.
Mr. Chairman, members of the committee, thank you for
inviting me to present testimony to the Special Panel on Postal
Reform and Oversight of the Committee of Government Reform. I
am pleased to have the opportunity to discuss the need and
prospects for comprehensive postal reform, focusing on the five
principles recently suggested as guides by the administration.
Starting with your efforts almost 8 years ago, Mr.
Chairman, there has been a gradual awakening to the necessity
and potential benefits of modernizing the Postal Service. The
administration should be commended for bringing this issue of
postal reform to the forefront of public debate by establishing
a blue ribbon commission to review the problems and then
releasing its five principles for postal reform. We at the
Postal Rate Commission agree that modernization is essential,
that legislation is necessary to accomplish it, and that these
five principles provide a sound foundation for going forward.
The administration calls for the Postal Service to
implement corporate best practices to meet its responsibilities
and objectives. The President's Commission suggested that the
Postal Service's Board of Directors and senior management need
greater flexibility to manage without some limitations imposed
by current statutory constraints. To counterbalance greater
management independence, the Commission also recommended that a
postal regulatory board be vested with broad authority to set
the public policy parameters within which the Postal Service is
allowed to operate. I support, as does the Commission,
enhancing both Postal Service flexibility and accountability.
This balanced approach is directly in line with the principles
proposed by the administration.
One area where additional flexibility is possible is rate-
setting. The new ratemaking system envisioned by the
President's Commission has several potential virtues, including
reduction in administrative burden and uncertainty about
pending rate changes. However, it would also limit the
opportunity for parties who might be affected by rate changes
to participate in the process, and severely curtail the amount
of time available for evaluating the justification for above-
inflation rate increases. Congress should carefully consider
the views of mailers and other stakeholders on this issue.
The President's Commission recommended a new regime of
public accountability by the Postal Service, including the
establishment of a postal regulatory board vested with
substantial expanded authority. The President's Commission also
recommended that the Postal Regulatory Board have authority to
hear and resolve a variety of complaints, thereby supplying a
substantial amount of public protection not available under
current law. I believe that providing regulators with authority
to order appropriate remedial action when a complaint is found
justified should limit the current concern that the Postal
Service is not sufficiently accountable. The President's
Commission also recommended that the new regulator be assigned
oversight on the scope of both postal monopoly and its
universal service obligation. The Commission provides a sound
public policy rationale for assigning these functions, but
criteria for defining the appropriate scope of Postal Service
operations should be clarified. The PRC suggests that any
legislation implementing postal reform should explicitly direct
the regulatory body to consider preserving an adequate level of
universal service as the principal criterion when reviewing the
scope of the postal monopoly.
Last, Mr. Chairman, I cannot overemphasize the importance
of ensuring that the reformed Postal Service become financially
transparent, as the President's Commission recommended. In the
Postal Rate Commission's view, establishing a financially
transparent Postal Service is essential to assuring that it
will function as a successful, performance-driven public
service in the future. Furthermore, financial transparency--in
the form of immediately accessible basic data about Postal
Service finances and operation--will be an indispensable tool
for implementing effective regulatory oversight of a
transformed Postal Service.
Mr. Chairman, I believe we all recognize that fostering a
financially self-sufficient Postal Service that will be able to
cover all of its anticipated financial obligations is the
primary challenge of postal reform. However, in moving to
improve the Postal Service's ``bottom line,'' care should be
taken to assure the preservation of the Postal Service's
honored tradition of binding the Nation together by making
affordable services readily available to all. Americans trust
their Postal Service to meet their needs regardless of
geographic location or economic circumstances. This trust has
been earned through decades of dedicated service and it must
not be squandered.
Mr. Chairman, thank you for the opportunity to present my
views, and I look forward to working with you and the
committee. And should any of you need anything from the Rate
Commission, we would be most happy to oblige.
Mr. McHugh. Thank you very much, Chairman Omas.
[The prepared statement of Mr. Omas follows:]
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Mr. McHugh. And I would be remiss if I didn't know you were
joined by two of your current colleagues, Tony Hammond and Dana
Covington, seated behind you, also members of the Rate
Commission. As you were giving this--and by the way, he did
summarize; this was a 14-page written statement, I know, I have
seen it, and I appreciate that. But as you were going through
those, I couldn't help but wonder if Ed Gleiman would agree
with you, and I am watching to see if the former chairman of
the PRC nodded or did anything. He is stone cold. He gave no
indication at all. So I will have to talk to him directly about
it. But I appreciate your comments.
Last, and certainly not least, a gentleman who, as I said,
is no stranger to this Hill let alone this committee,
particularly the former subcommittee and now panel, and his
organization has been absolutely outstanding in providing the
Congress with dispassionate, sometimes very cold and hard
facts, but cold and hard facts we absolutely need. And our
efforts with respect to postal reform would have been far less
revealing and helpful had it not been for the input of his good
people and under his leadership. And we are looking forward
today to the comments and the appearance once again of the
Comptroller General of the United States, the Honorable David
Walker. David, welcome.
STATEMENT OF DAVID M. WALKER, COMPTROLLER GENERAL OF THE UNITED
STATES
Mr. Walker. Thank you, Mr. Chairman and members of the
special committee. It is a pleasure to be before you to talk
about postal reform and transformation.
GAO believes that comprehensive postal reform is necessary.
As you know, Mr. Chairman, we put postal transformation on our
high-risk list in 2001, and the reason we did that was because
we believed that the current postal business model is not
sustainable in the 21st century. We were pleased that the
President appointed a special commission, which we had
recommended, and that the Commission agreed with our bottom-
line conclusion.
I would also like to note for the record that we believe
that much progress has been made, and there have been many
positive developments under Chairman Fineman's and Postmaster
General Potter's leadership during the last 2 years. Those are
encouraging developments. At the same point in time, many, many
challenges remain. And, clearly, one of the things that has to
be done is that Congress is going to have to help in order to
ultimately achieve the necessary transformation that is
required.
We agree with the administration's five key principles and,
I might add, with the sixth principle that the Postmaster
General just added here that is outlined in their statement.
The Commission's report provided many valuable insights and
recommendations. We agree with most of them, but not all of
them.
One key challenge for the Congress in developing postal
reform legislation is to draw clear distinctions among those
areas involving public policy issues where statutory guidance
would be appropriate versus those areas that should be the
purview of a regulatory body and those that should be within
the authority of postal management and its governing body. One
clear example of this has to do with the public policy issue
that Congress needs to address dealing with defining the
appropriate mission and role for the Postal Service in the 21st
century, including how universal, affordable Postal Service
should be defined given 21st century realities.
Where the distinction between regulatory, management and
the Board's responsibilities should be drawn is a more
difficult and controversial issue, but a necessary undertaking.
Although we have not taken a position on the proposed price cap
system or any particular rate-setting model, I do have some
thoughts on one possible approach to this if you would like to
address it in a Q and A session.
In the governance area, we share the concerns raised by the
Postal Service regarding the Presidential Commission's
recommendations on the appointment process for Board members.
Namely, that the proposed process could result in the
politicization of the Board.
Transparency is key to ensuring appropriate accountability
in any area, including the Postal Service. In this regard, the
regulatory body can play an important role in ensuring adequate
financial and performance reporting, cost allocation, and data
collection. Postal management does need additional flexibility
to meet its transformation objectives by implementing best
practices to achieve cost savings and efficiency gains, many
examples of which were suggested by the Presidential
Commission.
One area where the Service has indicated a need for
additional flexibility, and we agree, is rationalizing its
infrastructure and work force. At the same point in time, they
have disagreed with the idea of creating a special commission,
such as a BRAC-type commission, for rationalizing its
infrastructure. That was recommended by the President's
Commission as well as by GAO as one possible alternative. If
the Postal Service wants to do this on its own, we believe it
is imperative that there be a comprehensive and transparent
plan for rationalizing the infrastructure and the workforce, as
well as policies and procedures. While much can be done and has
been accomplished during the last few years without such a
comprehensive and transparent plan, we believe the heavy
lifting will not be able to be done without such a
comprehensive or transparent plan.
In the human capital area, we believe that Congress has a
rare opportunity to address several key issues, including who
should have the responsibility for military service pension
costs, funding issues relating to the Service's pension and
retiree health obligations, as well as the escrow fund that was
established last year as part of pension legislation. The
Service has made some very good points regarding the need to
make changes in its workers' compensation benefits as well.
Another difficult issue that needs to be addressed is the issue
of pay comparability, where we suggest that some additional
statutory guidance in this area might be in order. Regarding
the Service's retiree health benefits, we are pleased that the
Service has proposed prefunding some of its retiree health
benefits obligation. In our view, this approach represents a
better balancing of interests between current and future
ratepayers, given the demographic profile of the Service. We do
have some concerns about how it would be implemented, but
conceptually we think it has merit.
Finally, we applaud Chairman Fineman's emphasis on improved
financial transparency, but we also agree with the Treasury
Department that serious consideration should be given to the
proper accounting and reporting of retiree health obligations
in the Postal Service's financial statements. In summary,
comprehensive pension reform is necessary. Such reform should
be designed to attain a modern, effective, and sustainable
business model for the Postal Service. It needs to provide
reasonable flexibility to management, appropriate transparency
to the public, and adequate accountability for all parties
involved.
And the last thing, Mr. Chairman, I think it is important
to note that while nobody likes rate increases, we should not
measure success in the Postal Service by how long we are able
to delay rate increases. Some rate increases are inevitable. In
fact, delaying rate increases in certain circumstances may be
imprudent in light of the demographic profile of the Postal
Service. If the result of a delay is to preposition more
significant and dramatic rate increases in the future in the
face of increasing competition, that is not necessarily
success. And so I think that we have to recognize that there is
a balancing of interests that has to occur and that ultimately
achieving a universal, affordable Postal Service that is
sustainable is of critical importance.
Thank you, Mr. Chairman.
Mr. McHugh. Thank you, General Walker.
[The prepared statement of Mr. Walker follows:]
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Mr. McHugh. Gentlemen, I am not going to take a lot of time
asking questions, at least at the outset. I want to defer to my
colleagues who were gracious enough to be here. I would just
say that Chairman Fineman mentioned the train a long time
coming. I am always reminded now, after 8 years of being at
this, the story of the man who lived his entire life as a
hypochondriac, and went to the doctor every week convinced that
he had a life-threatening illness, and of course every week he
was found not to. And then he finally died at the age of 109
and had on his tombstone: ``See, I told you I was sick.''
We have been saying that there is a crisis looming for
about 8 years now, as you noted, David, but I think it is real.
And in spite of the lack of material evidence of that, it has
far more to do with the amazing job that Jack Potter and the
800-some thousand employees of the Postal Service have done in
kind of patching up the holes that many of us on this side of
the hearing room at least have chosen to ignore. And I don't
think we can get away with it for too much longer.
I would just ask you good folks one question. There is a
menu of things out here in the Treasury Department, and the
President's Commission listed them as principles, but within
each of those principles are some points. I don't know if it is
within the political ability of the Congress to do everything
we need to do in one fell swoop, but we are certainly going to
try to do as much as we can, but there are certain political
dynamics that can't be ignored. If you gentlemen could pick two
or three items that you think are sine qua nons, absolute
musts, without this, nothing, as opposed to reform, what would
those two or three items be? And I am going to start with the
Postmaster General, if he could tick them off, because he has
the closest hand on the pulse, I think.
Mr. Potter. Mr. Chairman, there are two things or three
things that I think need to be done. First, the Civil Service
retirement legislation needs to be brought to completion, and
we were anxious to work with the committee to do that. In
addition to that, I believe that we need to give management and
the Board the tools when it comes to pricing flexibility. We
need to be able to operate as a business. We need to be able
to--along the lines of what David Walker just said, the
Comptroller General just said--we need to be able to adjust our
rates. And we would like to be able to do that on an annual
basis so there is no sticker shock, so that we are able to take
into account what happens over the course of the year. And,
last but not least, we need to have the ability to manage our
infrastructure and to make what are going to be some tough
decisions to modernize the Postal Service and make it more
efficient.
Those are the three things I believe are most important.
Mr. McHugh. If I could come back down to General Walker.
Mr. Walker. Large agreement. I believe you need to deal
with the most immediate issues, which are military service and
the escrow. I believe that it is important to provide
additional flexibility to rationalize infrastructure and work
force issues, and also to look at how rates are set. I think
those are the three key issues that are of critical importance.
Mr. McHugh. David? You have only got a year left or so; you
can disagree with Jack.
Mr. Fineman. Right. No, I am not disagreeing with anybody.
I think that the bottom line here is that we have to be able to
run a business that allows us to manage to the bottom line. As
of now what we do is we say, ``OK, it is just a break-even
proposition.'' I think that we have to add incentives that
allow management to manage to the bottom line. Let them run it
like a business, let them make a profit, let that profit be
distributed to executives. Run it like a business. And I think
that if you would manage to the bottom line, you might be able
to bring about more productivity in a better-run service.
And the ratemaking process, as somebody who sat on the
Board for 8 years, I listened to David's testimony at the end
when he talked about rate increases. I agree with you, David.
The problem is, under the present process, what we are
confronted with consistently is a process that makes no sense;
so, therefore, we are put into a box. We are put into this
terrible box where we say, ``If we raise rates, we will have a
declining base of mail.'' And you know what? We can't raise
rates for another few years because we don't have any
flexibility. Under those circumstances, it becomes a business
that is just unmanageable.
Mr. McHugh. George, you might want to say something about
your need for flexibility on the regulatory side.
Mr. Omas. Well, I think there can be some flexibility. In
my opening statement, I mentioned that I totally agree with
flexibility. However, the Postal Service should realize that it
is a government entity. They are an operator, and as an
operator they should have a certain amount of oversight, and
that oversight was recommended. It would be up to Congress to
determine whether it is in the form of a regulatory board or
whether Congress does that.
But I think that serious thought should be given to the
monopoly and to the universal service. Right now, the Postal
Service defines both of those things, and the President's
Commission recommended that go under the regulatory board. It
views the Postal Service as the operator and the regulator as
the government entity to oversee those things and to make that
decision. And I think it would behoove Congress in their
legislation to give guidance to both the Postal Service and to
the regulatory board or to whomever would regulate those
entities.
And just in one other comment, we get beaten up about the
process, the process, the process, the process. Mr. Chairman,
we follow the guides of the law, of Title 39, and as a result
we try to do the best job we can. Since I have become chairman,
I have tried to open up and work and to experiment within the
guides of the law to give the Postal Service more flexibility
in the form of negotiated service agreement classifications,
and we have settled over 14 cases since my tenure. And I think
that the process is broken to some degree, and it needs to be
looked at, but right now we do work within the guides of the
law.
Mr. McHugh. Well, let me say, I have had a lot of
conversation with David Fineman, with Jack Potter, a lot of
people in the postal administrative level, and it has never
been an issue of the PRC not doing its job. It is the process,
it is the law. And that is one of the things we are looking to
streamline. And by the way, I certainly don't want to see
Congress as a direct regulator in the Postal Service. We got
rid of that in 1970, and good riddance.
Mr. Secretary, we really do have to go vote. I think it
would be unfair of me to ask you to pick amongst your
principles. If you want to do that when we get back, you know,
load up the gun and put it to your head and--I will be happy
to. But as I said, in fairness, I think the Commission and the
administration did a good job, and we will stick by that. So
having said that, I would ask your patience, and we will be
back as soon as we get finished with this vote. We will stand
in adjournment.
[Recess.]
Mrs. Blackburn [presiding]. We will be called back into
order and reconvene. I will take the Chair's spot until our
chairman is able to return, and we thank you all for your
patience. Of course, seeing that you are productive and viable
and solvent is important to each and every one of us, and we
appreciate your patience because we all do have some questions
that we would like to ask and some things that we would like to
get on the record. So if I may--and it looks like I am the only
Member to finish my votes. I guess that just goes to show, if
you want it done right, ask a woman; get it done right the
first time.
Secretary Roseboro, I think I will begin with the questions
that I had wanted to ask you. If the Postal Service is to
operate as a self-sustaining commercial enterprise, which we
have heard mentioned repeatedly not only in the written
testimony but the testimony delivered today, it needs--Mr.
Fineman mentioned several times it needs to run like a
business, we need to have it run like a business. Then--and
everyone has mentioned flexibility and the importance of
flexibility. What boundaries and flexibilities specifically--
and I am looking for specifics, not just generalities--but
specifically should be given to the Postal Service to deal with
the problems that you have, such as debt and deficits? And the
reason I would like some specifics on this is because both in
the written and the delivered testimony, there has been mention
of the services delivered charging at a rate enough to cover
the cost so that you would be self-sustaining. So if you will
talk a little bit about the boundaries and the flexibilities to
deal with those issues.
Mr. Roseboro. Yes, thank you.
We feel, again, as that principle outlined--and this ties
into Chairman McHugh's question just before he left--what
principle would we greatly endorse if we just had to choose
one. Ensuring the self-financing principle of the Postal
Service is critically important. And that would, in terms of
specifics, actually dovetail well into what the previous panel
members mentioned in terms of those specifics, which I would
say the administration is in agreement with except for the
disposition of the Civil Service Retirement System military
funding issue.
More specifically, again, with regard to the flexibility to
respond to the macroeconomic environment and have some
flexibility, or greater flexibility, to respond in terms of
rates, as Chairman Fineman articulated earlier, the difficulty
in the long-term process of being able to foster rate increases
as needed in response to events is a burden, a liability on the
Postal Service. To have flexibility as well on the cost side in
terms of managing technology implementations, managing the
development of the workforce as is directed toward the Postal
Service's business needs we think would be key criteria to
meeting this principle of self-financing with regard to that.
As well the bottom-line objective or mandate of the Postal
Service of having to break even, also we would be supportive of
a bit more flexibility in that regard, given the variable
nature of year-to-year, of ups and downs in the business cycle
or other surprising challenges that are met. For example, if
the Postal Service could retain earnings in the eventuality of
or to plan for negative swings would be a specific prescription
that--or flexibility that we think should be considered.
Mrs. Blackburn. Now, when you talk about having some of the
flexibility, and specifically looking at technology
implementation, have you developed a plan of what you would do?
Do you have a long-range plan? Do you have a time line on
implementation? Or at this point are you just in broad-brush
thinking, putting it down, putting a plan together? Where are
you on that?
Mr. Roseboro. We feel it is just appropriate at this time
for it to be a guiding principle for postal----
Mrs. Blackburn. But you have no specifics.
Mr. Roseboro. No, we don't think it would be appropriate
for us to have specific prescriptions in that area or many of
the other areas, specifically because that would be more
micromanaging business, which the Postal Service is in a better
position to implement as well as address.
Mrs. Blackburn. OK. And if you continue to operate at a
loss for the next several years, what would be the appropriate
actions to remedy that problem?
Mr. Roseboro. We don't think there is any one action.
Again, we would encourage flexibility on the revenue as well as
cost side, a thorough analysis accounting in terms of product
lines, activities of the Postal Service to make sure that all
of those, the areas that it is involved in, are cost-effective
and will serve its customers well.
Mrs. Blackburn. So there are no specifics for how you would
remedy that situation?
Mr. Roseboro. No. We would rely on the Postal Service's
management and its Board of Directors to address the specific
drivers of those factors, that they analyzed them and managed
them over the year, and would look to work with them as we do
in terms of any borrowing needs they have through the Treasury
directly, and working with Congress to address the other issues
that they would need help with to remedy the specific problems
that would arise driving the loss scenario which you described.
Mrs. Blackburn. Thank you, sir.
Chairman Fineman, I want to talk for just a moment about
mail. You mentioned that--let's see. Your volume, your first
class volume, was reduced by 3 billion pieces in 2003, and that
first class mail is less than 50 percent of your total volume;
and that overall your drop in first class mail last year was
3.2 percent, which resulted in a $1.2 million loss. Am I
correct?
Mr. Fineman. $3.2 million loss in that category mail. Is
that what you are saying?
Mrs. Blackburn. In that category. OK. And standard mail has
increased by 3.6 percent.
Mr. Fineman. That's correct.
Mrs. Blackburn. OK. What I would like to know is if you--is
this a recent or a long-term trend? And then as you look at
different revenue streams becoming more profitable, what are
you all doing to maximize that, and where is your emphasis on
growing those streams?
Mr. Fineman. I am going to attempt an answer to your
question, and I am going to ask the Postmaster General to
comment on my answer afterwards, if that is OK with you.
Mrs. Blackburn. Sure.
Mr. Fineman. First of all, let me try to start with the
recent and long-term effects. We began to see some of what we
call diversion of first class mail sometime in early--around
2000 you started to envision that it was happening. We knew
that it was happening within society. But to a large degree the
model that we have was based upon there being continual
increases in first class mail. So what was happening initially
was that the increases----
Mrs. Blackburn. Excuse me just a moment. When was that
model constructed?
Mr. Fineman. 1970.
Mrs. Blackburn. OK.
Mr. Fineman. So what you began to see was that the
increases were not the same as the increases had been
previously. You no longer were having that same increase in
first class mail. Remember, at the same time that we are
getting decreases in mail, the fact that really comes home to
you is that we are increasing the number of addresses that we
are going to have to deliver mail to. Leave aside what the
burden is. One would think naturally that what would happen is
that if you increase the number of addresses about 1.7 million
a year, because you have new homes that are being built--I kind
of use the analogy, you know, somebody who played by the rules,
sent all their kids to college, and they had three children.
You know, one of them moved to Las Vegas, one of them moved to
Arizona, the other moved around the corner, and Mom and Dad
still stayed there.
Mrs. Blackburn. They are the lucky ones. Some of them come
back home.
Mr. Fineman. Right. But we have three new houses to deliver
to, and we still deliver to Mom and Dad. So we increase the
number of houses. You would think, well, then you are going to
increase the volume of mail. But it didn't happen that way. And
we began to see clearly this decrease in 2002, you know, of 1
billion pieces and 3 billion in 2003. And now the model is
broken, and it is hard--if you read the President's Commission
and our internal studies, it is very hard to predict. You know,
if we went from 1 billion to 3 billion, does that mean that in
2006 we are going to be at 9 billion? I am not quite sure that
that is the number. And why is it so important?
You know, when we construct the model--and the Postmaster
General can comment upon this. But from our financial
situation, first class mail is the largest contributor to
overhead. So when you talked about we are increasing, the
increase in standard mail, sure, the postperson who comes to
deliver mail to your home is maybe delivering some more
standard mail than they might have delivered previously, but
they are delivering less first class mail, and there is less of
a contribution for that.
It is less--if we just talk about it in terms we would
understand, we don't make as much profit on it, we don't do as
well. Where are the opportunities? I mean--and that was the
next question that you asked, I think. From our point of view
as a board, we have asked management and management has made a
big effort this year that what we want them to do is to
increase the opportunities for revenue. We want to look at
those opportunities within what is our business; not divert to
e-commerce, not diversion to anything else, but within our
business. We want to have postal people out on the street
selling our product to small businesses. We want to increase
the amount of marketing that we are doing within the
advertising community and to other communities, and we have
made a big effort this year, and we have asked the Postmaster
General to make this one of his priorities, which he has done.
And I'd ask the Postmaster General if he had any comment
about my answer to that question.
Mr. Potter. Let me just add that we are facing a structural
issue here. Historically, as homes grew and businesses grew, so
too did mail. And right now, our possible deliveries, the
amount of deliveries we make, rises about 1.2, 1.3 percent a
year. That's 1.8 billion deliveries, the equivalent of the size
of the cities of Chicago and Baltimore. So we're growing at
that level every year. Mail volume has not kept pace with that.
If it were, we'd see a 1.2 percent growth in first class mail
and in other classes of mail.
Now the reason why first class mail has declined, there are
a number of them. Right now we're not sure how much the
economic conditions have caused the reduction of first class
mail. We know that jobs are down and we think that there's a
correlation between first class mail and people working. We
also know that there's a structural change where mail is moving
to the Internet. In addition to that, our standard product has
gotten much better and first class mail is about 18 percent
advertising. And people have bought down from first class mail
to standard mail as a result of the better performance that
we're giving it. So in a sense the service that we're giving
has hurt us a little. But that in a nutshell is the problem
that we have.
Now, what we're doing to try and offset that are a number
of things. First, we're very much focused on productivity,
because if we don't improve productivity our only recourse will
be to raise rates, assuming that volume doesn't grow. So our
initial thrust has been to go after productivity to try and
offset this increased infrastructure that we have to deliver to
and we're delivering less revenue over a broader
infrastructure--a broader delivery base. In addition to that,
as the chairman said, we're going after growth this year. We're
working with all of our customers to determine whether or not
the decline that we've seen is a result of truly a structural
issue that we'll never see the mail come back or whether there
were other reasons why people aren't mailing. And I think over
the course of this year we're going to learn a lot. 2001 and
2002, 2003 were unique years. I think we're starting to see the
economy rebound. We're hopeful that mail will rebound with it
and we are going to work hard to help mail rebound with the
economy.
Mrs. Blackburn. OK. Now, if the Postal Service were limited
only to first class and standard mail, then what effect would
that have on your revenue and your infrastructure?
Mr. Potter. First class and standard are about 90 percent
of our revenue and obviously, therefore, the infrastructure
wouldn't change that much because we'd still be going to every
door every day. Some of our plant operations might be modified.
But the fact of the matter is the bulk of the infrastructure
would stay just as it is.
Mrs. Blackburn. So those two combined are 90 percent. I
thought first class was 93 percent. So I guess that was an
incorrect figure.
Mr. Potter. First class mail is about half of our total
volume and it's about 65 percent of our revenue.
Mrs. Blackburn. OK. All right. Chairman Fineman, again,
let's talk about labor costs. And your labor costs are 80
percent of your operating expenses, is that correct?
Mr. Fineman. I think just about that. The Postmaster
General whispered into my ear ``78 percent.'' I know we've
always been in and around 80 percent for the last few years.
It's been decreased on a percentage basis, but about 80
percent.
Mrs. Blackburn. And how does that compare to similar
industries in the private sector?
Mr. Fineman. It's difficult to answer that question because
you've got to remember that we put it within a sector. You
know, within--what sector would you compare us to? Would you
compare us to some sort of service business or to other mailers
who were doing other kinds of business? Similar to our
business, that is, you know, UPS's mainstay is packages or
FedEx's mainstay is----
Mrs. Blackburn. You choose the examples. I'd just like to
know.
Mr. Fineman. Right. I'd suspect our costs are higher on a
basis percentage. But maybe the Postmaster General can answer
that question with specifics.
Mr. Potter. I don't think there's a comparable institution
out there that you can compare us to. We have a mandate to go
to every door 6 days a week. No one that I'm aware of has such
a labor-intensive requirement.
Mrs. Blackburn. OK. That is fair. I still think that there
are some comparisons that could be drawn with other services
that are within your industry sector as you look at what your
labor costs are and consider what those are and what it means
to your bottom line.
Let's see. General Potter, let me ask you, if I may, just
one thing. On the integrated technology, how have you
integrated technology into your operations as far as your
productivity? You mentioned that was one of your focuses, so
where are you with that?
Mr. Potter. Where are we? Today 95 percent of all letter
mail that comes into the Postal Service to be sorted is sorted
on automated equipment. Today about 80 to 85 percent of the
mail that a carrier brings to a door is walk sequenced by a
machine. It's not sorted by a carrier. In fact it's not touched
by the carrier until they get on their route. We have the most
modern and efficient postal service in the world. We've made
capital investments in automated equipment throughout the years
to modernize ourselves. We have plans to continue along those
lines that we're going to share with this committee in our
response for more detail on our capital plan. We do have areas
of opportunity and we're continuing to explore the notion of
using capital to improve our productivity. We have never put a
cap on expenditures when it comes to capital or automated
equipment that has a return on investment. And we continue to
make that our No. 1 priority when it comes to use of our
capital resources.
Mrs. Blackburn. And what percentage of your annual budget
are you using on technology and equipment?
Mr. Potter. We spend anywhere from $1 billion to $1\1/2\
billion a year on automated equipment.
Mrs. Blackburn. OK.
Mr. Potter. And as a matter of fact, when it comes to
computer technology, IT technology, the Postal Service has and
will replace its entire infrastructure of--from PCs to servers
throughout the Nation--we will have, I believe if we don't
already have, we will have a world class IT infrastructure. We
do not minimize our investment when it comes to IT.
Mrs. Blackburn. So 85 percent of your operations have
transitioned to bar code or optical reader sorting; is that
correct? Is that what you said?
Mr. Potter. That's letter walk sequence and when it comes
to oversize letter mail, flat mail, it's above 90 as well.
Mrs. Blackburn. OK. Excellent. And Chairman Fineman, you
mentioned the business model and the old model was constructed
for you in 1970. Who is working with you on constructing a new
business model? Are you outsourcing that? Have you brought a
consultant in, or who is advising on that?
Mr. Fineman. The board and management has been working
closely to try to come up with what would be a new business
model, and I look at your counsel here, I would only say that
we've worked closely with this committee for almost 8 years now
to try to construct a model that'll make some sense for the
future. We've commented upon various pieces of legislation and
have from time to time over the years submitted our own
legislation, so we look forward to working with this committee
to get legislation that we think can correct what is a
deficient model that was constructed in 1970.
Mrs. Blackburn. OK. Mr. Walker, I always enjoy my
conversations with you. It's always great and I guess--may I
continue questioning since no one else has shown up? And I did
reserve my time. Y'all have to remember that. I didn't have an
opening statement. If the Postal Service were subject to SEC
reporting requirements, would they have sufficient financial
transparency?
Mr. Walker. No. They would need additional transparency in
order to meet the SEC requirements. I will say that the Postal
Service is making progress with regard to the transparency
issue. They have done some things already. They've got some
other plans in process right now. I would also say that one of
the reasons that I didn't say that transparency was one of the
areas that would necessarily require legislation is because
people can do what they believe is the right thing without
legislation and SEC registration. Specifically, the Board and
management could decide that in substance they want to meet the
SEC requirements and therefore wouldn't require legislation. So
that's why it wasn't one of my top three priorities.
Mrs. Blackburn. What about FFMIA?
Mr. Walker. I don't believe that they would be totally
compliant with that. As you know, they are focusing on the
private sector model, and private sector entities aren't
subject to FFMIA, and therefore, there would be some gap there.
Mrs. Blackburn. OK. How would--or can you target anything
that would--any specific that financial transparency would do
to help with their efficiency and their operations?
Mr. Walker. Well, clearly we believe that they need to go
to--you know the SEC requires quarterly reporting, fairly
extensive reporting with regard to not only financial results
but also operating results and we think it's important that
comparable to SEC information reporting should occur. I think
another area that I have testified on from time to time, where
some additional progress has been made but we think additional
progress is necessary, is the Postal Service's significant
retiree health obligations, which were estimated to be between
$47 and $57 billion in current present value terms.
Mrs. Blackburn. And one last question. What would be your
assessment of the management structure that is in place at the
Postal Service?
Mr. Walker. You mean how much management, the layers of
management?
Mrs. Blackburn. Correct. The layers, right.
Mr. Walker. We have not done a separate, independent
assessment of the management structure. Let me just say this,
Madam Chair: I believe that the Postal Service needs to be
subject to the same thing that much of the Federal Government
needs to be subject to, and that is what I'm going to refer to
as a baseline review. The Postal Service is doing many good
things and they've made a lot of progress in the last couple of
years under the leadership of Chairman Fineman and Postmaster
General Potter. But they face a major challenge; their business
model is based upon the 1970's. The world is fundamentally
different. On my belt I have two of their competitors. I have
little doubt in my mind that there are permanent structural
changes that have occurred. Reasonable people can differ as to
what the magnitude is and whether some things are just timing
differences with regard to employment levels, etc., but I think
they're going to need to fundamentally reassess their
infrastructure, their human capital policies and practices,
their rate-setting, and what the scope of their business ought
to be. I mean, getting back to the core business, if you will,
capitalizing on their inherent assets--which is the first mile
and the last mile--capitalizing on what they can do to also
generate additional revenue or cost-sharing dealing with their
significant infrastructure, I think there are real
opportunities. But I think it's a fundamental review and
reassessment, including the ratio of management to individual
contributors, how many layers, how many levels. I think it all
has to be reviewed and reconsidered.
Mrs. Blackburn. Thank you, sir. I see that our chairman has
returned and I also know that Mr. Roseboro needs to be excused,
that 5 is the time that you need to depart.
Mr. Roseboro. Yes, unfortunately. I have a prior commitment
with some of your other colleagues on another issue, but any
questions that yourself or any other committee members have
I'll be glad to answer in writing back to the committee.
Chairman Tom Davis. I had one burning question, Mr.
Roseboro, for you that I just can't resist. Are you related to
John Roseboro?
Mr. Roseboro. A distant cousin.
Chairman Tom Davis. He was one of my favorites, so I
couldn't help but ask that question. The others I'll write.
Mr. Roseboro. Thank you.
Mrs. Blackburn. Mr. Davis, would you like to be recognized
for questions?
Chairman Tom Davis. Thank you, Madam Chairwoman. I guess
I've really got a whole bunch of them, but Mr. Postmaster
General, in your testimony on page 6, you expressed concern
over the Presidential Commission's recommendations to limit the
Postal Service to activities directly related to its core
mission. You state that the Postal Service needs to maintain
the flexibility to pursue appropriate revenue streams in areas
related to core businesses. Yet Chairman Fineman mentioned some
difficulties the Postal Service has had such as in e-commerce.
Could you elaborate on the type of flexibilities you have in
mind when you----
Mr. Potter. Yes, Congressman. What I've observed around the
world is that other Postal Services have the same challenges
that the U.S. Postal Service has. And what they've done is,
they've looked at their infrastructure to determine whether or
not there were opportunities to take advantage of the
infrastructure that they are trying to maintain. So, as an
example in the retail arena, in other posts around the world,
they use that retail service to offer banking access to
communities that may not have a bank. And so when I talk about
other services, I'm talking about within the structure of the
facilities that we have to maintain. I'm not talking about
becoming an e-commerce company. But the fact of the matter is,
we have a lot of trucks and other folks have gone beyond mail
and are using those trucks and moving into the whole area of
logistics and moving freight. And I don't think that going
forward we'd want to preclude that the only thing that the
Postal Service could do with its infrastructure would be to
deliver, you know, a 1-ounce letter. And I think we should be
open-minded about that going forward.
Chairman Tom Davis. I attended--and this might be for each
one of you because it can be fairly brief--I attended a union
meeting a few weeks ago, and I thought I was at--well, I don't
know what I thought I was at because there was a tremendous
amount of frustration displayed at that particular meeting in
terms of fears that the individuals there were expressing about
things that were already happening such as excessing. They were
highly frustrated by that but also by the possibility that
there may be serious closures, that there may be a serious
reduction in personnel, that there may be conditions changed
from what they were accustomed to, that our definition of
universal service may be restructured and changed. How would
you respond to those fears that are being expressed, especially
by individuals who work for the Postal Service?
Mr. Potter. Well, Congressman, I hear those fears all the
time. In fact, one of the reasons that we agreed to a contract
well in advance of contracts expiring with a couple of our
major unions was in response to concerns of some of our
employees regarding layoffs. And I, as a result of those
contracts--those contracts contain no layoff clauses--I wanted
to assure every one of our craft employees that there are no
plans to lay off those employees. However, the fact of the
matter is, Congressman, that mail volume is declining and
mailers are changing the way they present mail to the Postal
Service. When I began my career in the Postal Service, every
piece of mail that left Washington, DC, and was bound for
another part of the country was handed to the Postal Service.
Today there are rates that allow people in Washington, DC, to
truck their mail across the country and deposit it for a
discount. All those folks that used to move the mail from one
end of the country to the other are no longer needed because of
the fact that there's been a change, a behavioral change on the
part of mailers. And again, it was in response to a discount,
but they've changed their pattern of deposit of mail.
What we've done is we've looked through this network and
we've determined that there are people who are not as
productive as we'd like them to be, and we do need to move them
to more productive jobs. The security is that they won't be
laid off. They will have to move to where the work is. We can't
have unproductive people. And we're trying to be as
accommodating as we can and as considerate as we can about
their individual needs, but we need to react to what's going on
around us. As far as I'm concerned, if you look at the long-
term viability of the Postal Service and the security of these
folks' jobs, we need to react today and we need to react
together, working together to ensure that we don't have a
situation where rates could rise precipitously, as I said in my
testimony, because we don't address those places where we're
not as productive as we could be.
Now, the fact is, and I would share the concern of folks,
we've dropped over 80,000 people in the last 5 years. Since
1999 we've dropped 80,000 career employees. We've done that in
response to what's gone on with the mail. We've done it as a
result of investments that we've made in technology and
automated equipment. And as you can see, from everyone that's
talking here today, it doesn't appear to be enough. So we need
to continue to change. I think our employees understand that we
need to change as society changes, as use of the mail changes,
and again we're trying to work with people, keep them informed
and we want to assure them and have assured them through the
contracts that we do not plan to lay them off.
Chairman Tom Davis. Mr. Walker, do you have any ideas
relative to how long it might take the normal rate of attrition
that's being dealt with as well as the efficiencies that are
being developed before we reach a point where there would in
all likelihood have to be some serious postal changes?
Mr. Walker. Well, I am not privy to all the detailed data
the Postmaster General would have. I will say this from a
conceptual standpoint: change is inevitable. The fact of the
matter is, if you look at the trends and challenges that face
the Postal Service in the United States and what's occurred
over the last 40 years and what's likely to occur in the future
as we end up updating the business model, there are going to
have to be changes in a variety of areas, including in the area
of the work force.
Now what the Postmaster General has tried to do is to try
to avoid layoffs, and the way he's done that is through the
bargaining process. I would respectfully suggest, I personally
am a strong believer in collective bargaining and to have the
parties try to work these things out. The fact of the matter is
that they do have shared interests to the extent that the
parties can end up making sure that compensation is reasonable
and competitive in the aggregate sense, to the extent that the
parties can end up increasing flexibility for work rules and
utilization of the work force. That can help to minimize, delay
and hopefully avoid in some cases any layoffs that might
ultimately have to occur down the road. But I think the bottom
line is that normal attrition can help you get to where you
need to be, but you don't necessarily have the amount of
attrition at the time in the areas that you need in order to
get the job done. And so that's why you have to do a much more,
I think, sophisticated work force planning effort to try to
understand where are we, where we think we're going to need to
be, how we are going to get there, how much of it can come
through normal attrition, how much can come through early outs
or other types of mechanisms, and where might there be some
other opportunities to redeploy the work force and still
maintain employment opportunities at reasonable wages.
Mr. Potter. If I could add, we have a great opportunity
right now because today the Postal Service has over 120,000
employees who are eligible to retire. We have another 130,000
who will be eligible within the next 5 years. So there is an
opportunity to make the kind of structural changes that we
think might have to happen and do it through the collective
bargaining process, do it in an employee-friendly way. Now that
doesn't mean that we're not going to change people's schedules.
We may ask them to, you know, drive down the road 5, 10 miles
to be employed but they will be employed and we are working
through that process with the unions and with individual
employees to deal with issues that people are going to have
with change.
Chairman Tom Davis. Well, thank you very much, Mr.
Chairman, and I thank you gentlemen. I'm going to have to leave
in order to catch a flight tonight. But I would say that I
really appreciate the candor of your testimony. I'm reminded of
something that Lyndon Johnson used to say and that is speak
truth to the people. There are no gains without some pain. And
so it looks as though there's going to be some pain. But we
obviously want to make that pain as narrow as possible.
So I thank you very much and I thank you, Mr. Chairman.
Mr. McHugh [presiding]. I thank the distinguished
gentleman, wish him a safe flight and, as always, greatly
appreciate not just his participation but his leadership.
First of all, I want to apologize to everyone for my
tardiness in coming back. I had a must-do conference call with
Senator Clinton. We had an unexpected plant closure in my
district and it was just unavoidable. I would have rather been
here, trust me, given the topic of that call. As such, I was
not privy to a lot of the give-and-take and the Q-and-A, but
having had the opportunity to talk to most of you in the past,
I suspect I note the tenor.
I would just put in an editorial comment. Well, let me ask
one question, because I hear some back-and-forth about parcel
delivery, and that not being the core which is absolutely true
of the Postal Service's revenue stream, etc. And we've got a
lot of great private parcel carriers in this country. Two
particularly come immediately to mind. I'm not providing them
free advertising time, I'll just leave it at that. But as
someone who lives in the rural part of the country I place a
particular value on that option for the folks that I represent,
because there are some higher cost alternatives, but the Postal
Service is an important alternative to those. And did I
understand, Mr. Potter, you to say that in the immediate future
you do see parcel delivery as part of your mission? I mean,
after all you have a parcel delivery agreement, do you not,
with one of those companies as we speak?
Mr. Potter. I think parcel delivery is a core product of
the Postal Service. The questioning was along the lines of how
much of your business is first class mail and standard mail and
I answered those. And if the attempt was to try and minimize
our commitment to parcels, certainly I wasn't trying to portray
that in my response. There are many Americans who rely on
access to parcel services to put a parcel into the system,
using our 38,000 outlets. We deliver to communities without a
surcharge that others would surcharge. I think we provide a
vital service to America when we deliver parcels, and our
intent is to make sure that we continue to do that well into
the future.
Mr. McHugh. Yes, sir. Mr. Chairman.
Mr. Fineman. Congressman, can I just make one comment,
which is, there's no reason--and one of the things that the
board has looked upon favorably, former Governor McWhorter, who
was Governor McWhorter, the former Governor of Tennessee, I
remember him commenting upon this. He just left our board.
There's great opportunity here. There's no reason why there has
to be this friction. We deliver to the last mile, to every
household, to all those rural areas that you represent. We are
beginning to work with those that have been considered to be
our competitors, beginning to work with them as they realize
that we can do that in a fashion that they might not be able
to. And therefore, it would cost the customer less money for
them to deliver the packages to the Post Office some place in
your congressional district and let our letter carrier deliver
it the last mile rather than them having a truck that delivers
one parcel to one little town in your area and another parcel
to another little town. That costs a lot of money. Our people
are on the street all the time. So we look forward to working
with them. There's no reason we have to be antagonists.
Mr. McHugh. Well, I wish you well in that, and certainly in
theory that's absolutely correct. I couldn't agree more. You
know, in fairness, there are some competitive issues,
equitability and competitiveness, that need to be addressed. I
mean they have the right to make a dollar and to make a lot of
dollars and they have and they should continue in the future.
But I just wanted--because I kind of caught the back end of
that conversation--I just wanted to make sure that the record
showed what I thought was the case. And I appreciate that
clarification.
Anybody want to say anything? General Walker.
Mr. Walker. Mr. Chairman, I think it is important that the
Congress get as much done as quickly as possible. Earlier,
there was a discussion about if you couldn't do the whole
enchilada this year, whatever that is, then what are the most
critical elements? I think my comments were very consistent
with Postmaster General Potter's and the others' comments. But
those are in fact essential, essential that those be addressed.
It is desirable that more than that be addressed but those
three elements I believe are essential.
And on the issue of transparency, I think much can and
should be done without legislation there and hopefully that'll
get the job done without legislation. That's something we can
always go back and revisit if for some reason people don't
voluntarily do what is arguably the reasonable and appropriate
thing to do.
Mr. Omas. I would like to concur with Mr. Walker that
legislation is definitely needed. However, I would like to take
this opportunity to commend Postmaster General Potter and Mr.
Fineman for the cooperation that we have been able to pull
together in the last year or so and I'd like to thank them. And
I know the mailers and the stakeholders are appreciative. We
have started programs whereby the Postal Service will brief us
on new costing methods as well as the fact that the
commissioners meet several times a year with the Board of
Governors to discuss various issues. So we do need legislation,
but we're trying to work within the parameters, which we will
endeavor to do until there's legislation that changes that.
Mr. McHugh. Well, I appreciate that, George, Mr. Chairman,
and it is important and there are a lot of opportunities to
have everyone work more cooperatively together. And General
Walker mentioned transparency and then the rate-setting process
that, as you noted earlier, Mr. Omas, is a problem that you are
dictated to in terms of the structure, the procedure, and we
need to update that. I think--I'm a big believer that if we're
going to provide this flexibility then I think everyone in this
room knows I believe in very, very strongly, but an empowered
regulator of some sort, an overseer outside the Congress is
equally important and subpoena power and such and such. So you
know I am sure that those are things that we are going to be
looking at. But the main objective at the end of the day is to
have a Postal Service that continues to be what it has been for
over 2 centuries, and that is the lifeblood of communication in
this country for the foreseeable future, and that's what we are
going to do. And to that extent I want to thank all of you
gentlemen. You've been terrific on this and leaders, and over 3
hours we'll get you a couple more gold stars.
So with that and our appreciation, we'll adjourn the
hearing until we reconvene in the windy city of Chicago next
week. So y'all come.
[Whereupon, at 5:20 p.m., the committee was adjourned.]
[The prepared statements of Chairman Tom Davis and Hon.
Candice S. Miller follow:]
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ANSWERING THE ADMINISTRATION'S CALL FOR POSTAL REFORM--PART II
----------
THURSDAY, FEBRUARY 5, 2004
House of Representatives,
Special Panel on Postal Reform and Oversight,
Committee on Government Reform,
Washington, DC.
The special panel met, pursuant to notice, at 12:56 a.m.,
in room 2525, Dirksen Federal Courthouse, 219 South Dearborn
Street, Chicago, IL, Hon. John M. McHugh (chairman of the
special panel) presiding.
Present: Representatives McHugh, Schrock and Davis.
Staff present: Jack Callender, counsel; Brien Beattie,
deputy clerk; Allyson Blandford, office manager; and Michael
Layman, professional staff member.
Mr. McHugh. Particularly because we have our first panel of
esteemed witnesses, no one would object if we gavel in a few
minutes early. Two words, snow storm, four words, airplane. I
know that is one word, but I think we want to make sure that we
have the opportunity, as much time as possible to hear from our
distinguished panelists in a way that provides opportunity for
those who may have other destinations this evening to make
those.
So first of all let me thank all of you in the audience and
certainly our presenters, our witnesses, for joining us. I
should say particularly it is a thrill to be here once again in
the hometown as I understand it, actually the home district, of
our ranking member, my friend and partner in this thing called
postal reform for a few years now, Congressman Danny Davis.
Danny, thank you for your hospitality, sir. You have a nice
place here, I have to say.
The last time, as I mentioned, that I came to Chicago, was
for a postal hearing as well. That was in October 1996. The
subject of that was the, shall we say, less than optimal mail
service that was being experienced in the city and now, nearly
7\1/2\ years later, while we are here clearly to discuss the
future of the Postal Service and where the Postal Service
itself goes tomorrow and the day after, it is important to note
that the mail service quality that we came to hear about those
7 plus years ago has dramatically, dramatically improved. And I
do not think there is any question as to how that has happened.
Certainly the main reason for those strides in mail service
improvements are the hundreds and thousands of men and women
who are represented by our witnesses here today.
You can argue, as my opponents do every even numbered year,
that I do not know much, but there is one thing I know for
certain and certainly something that became clearly obvious to
me coming out of that first Chicago hearing. The key to
universal service, the key to our universal and uniform pricing
provisions for all Americans wherever they might live, the most
important fact in America is enjoying the most affordable,
reliable, service-oriented mail system found anywhere on the
planet is the work of the professional postal employees and the
facilities out on the routes stretching to every corner of
every community in this great land.
And as we undertake the effort to try to make necessary
changes to the Nation's postal laws, I certainly never do, and
I hope none of us ever want to take for granted and never
forget those that not only make the system work but understand
too how important the mails are to every U.S. citizen. Even if
every American, because of their busy schedules, really never
gives much thought to that fact themselves, have never really
had to, because the postal employees always have been there and
I suspect, and it is a dangerous thought, in their minds that
postal employees will always be there no matter what. And that
is why we are here today, to ensure that happens, because
without, in my opinion, some definitive actions soon that may
not be the case.
And I welcome--we have two esteemed panels of witnesses for
this second in a series of three hearings entitled, ``Answering
the Administration's Call for Postal Reform.'' The presidents
of all four postal unions and three management associations
have made the journey here to Chicago. We are honored,
gentlemen, by your effort to be here and your presence and your
concerns. And I think it is important to stress the gravity of
the matter that faces us today.
The Postal Service is the focus, is the source, of nearly
$900 billion in industrial activity. We have talked a lot about
economic development and economic activity. The Postal Service,
$900 billion is what it represents and it employs 9 million
workers nationwide, and it represents some 8 percent of the
entire domestic product of the United States of America. That
is an incredible figure--8 percent--and in my opinion the
Postal Service is in trouble and it requires reform legislation
to prevent a meltdown. I believe there is a good reason why
this is the first administration since Richard Nixon to call on
Congress to modernize our postal laws. I remain hopeful as
Congress did back in 1970 that we too and this panel and in
this Congress will do so in 2004 and answer the President's
charge.
And last week we heard from the Postal Service itself, we
heard from the administration, we heard from the Rate
Commission, we heard from the General Accounting Office [GAO].
And we heard that universal postal service is at risk and
reform is needed to minimize the danger of significant taxpayer
bailout or dramatic postal rate increases. While Congress
provided last year--and I think in a very important step--a bit
of financial breathing room for the Postal Service when we
reduced its payment for pension obligations, the fundamental
challenge, fundamental problem, remains unchanged and that is
that the Postal Service's current business model is not
sustainable going into the 21st century.
And last week at that hearing I mentioned, we heard the
Postal Service still faces about a $90 billion obligation
liability despite passage of the pension bill last year. Total
mail volume declined for the third year in a row. It is a
historical first for the Postal Service, which has depended on
larger mail volume year in and year out to help to cover the
cost and cover rising costs and mitigate rate increases. First
class mail volume declined by 3.2 percent in 2003, and it is
projected to continue to decline for the foreseeable future.
And this is particularly serious because first class mail
revenues cover more than two thirds of the overhead cost of the
U.S. Postal Service. And as GAO noted, the Postal Service's
revenues are budgeted for zero, no growth, flat line growth in
2004. And should that happen, it would be the first time since
postal reorganization in 1970 that postal revenues had failed
to increase.
Those are just the highlights, some would understand we
call them the low lights, of the problems which disturbingly go
on and on. Changes in the mail mix, increased competition from
private delivery companies, declining capital investment,
insufficient increases in postal productivity, uncertain
funding for emergency preparedness as we have seen in the past
several days in Washington with now not anthrax but ricin
poisoning possibly, maybe probably, in the mail. And major
challenges continu to continued cost cutting.
While the problems are dire, I think the administration's
principle for legislative changes show us a path, show us some
solutions that can build on the now more than 8 years of this
postal reform committee, and fortunately we have a strong
bipartisan basis upon which to proceed, including the well-
refined bill that Congressman Davis and I and Congressman
Waxman, Congressman Burton and Congressman Tom Davis helped put
together in the last Congress. And the Postal Service is too
important an institution to our economy to await the full brunt
of a crisis that is clearly upon our doorstep. And over the
past 9 years, the structure of this oversight body has changed.
We have been a full committee, a subcommittee, a special panel.
But whatever you call us, our goal has remained constant: to
try to address those issues that confront the postal employees
today, and plan for timely action on those challenges that lie
ahead. And there is no greater matter confronting the Service
than the future of our Nation's postal system.
So, with that I would like to thank all of our witnesses
for appearing. I want to particularly appreciate Congressman Ed
Schrock, the gentleman from Virginia, who made the long trip
here to join us. Ed, good to see you. Obviously, through his
mere presence he shows his commitment and concern about this.
And most of all, I would like to yield to, as I said, my
partner in this process and someone who has been as devoted and
some say as headstrong in this effort as I have. I mean that as
a compliment, Danny. I am not sure everybody would but, Danny
Davis.
Mr. Davis. Thank you very much. You know, Mr. Chairman, no
matter what the structure--I was thinking that you have been
there whether it was a full committee, subcommittee or a
special panel, you have been there leading the way, and I want
to commend you for your steady, long, tedious attention to
these matters and to these issues. And I also want to thank you
and Congressmen Schrock for coming to Chicago. It is not
everybody who would want to come to Chicago February 1st. It is
indeed an inviting city, but it also has some characteristics--
we have a lot of things to offer--Wrigley Field, Soldier Field,
Marshall Field, and we have some wind that blows, but it is
still Chicago and we are delighted that all of you are here.
I also want to thank all of those who have come as
witnesses to discuss issues concerning postal reform. I am
pleased to welcome you and note that this is the second in a
series of meetings to consider the need and prospect for postal
reform. We began the 108th Congress on a very positive and
productive note. We passed and subsequently enacted into law
legislation correcting the calculations of postal payments to
the Civil Service Retirement System. As consumers and members
of the postal mailing community know, this change in postal
pension law allowed the Postal Service to reduce its
outstanding debt and hold postage rates steady until 2006. The
Postal Service received a financial break and so did the
public. As we begin the second session of the 108th Congress,
obviously we have a great deal of additional work to do.
First, because of the fact that we created an escrow
account in the postal pension law, the Postal Service must
provide us a workable plan on its capital investments for our
productivity gains and cost saving initiatives. I am pleased to
note that the plan was delivered a couple of days ago. As for
postal reform efforts, we are now moving at a positive pace,
picking up on a much more positive note than where we left off
in the 107th Congress. Using Chairman McHugh's Postal Reform
Bill, H.R. 4970, as a starting point, we are working on
establishing a strong foundation for reform. To date, our
staffs have met with several postal stakeholders to solicit
their recommendations for positive changes. In addition, the
recommendations submitted by the President's Commission on the
Postal Service in July 2003 and the administration's principles
for postal reform are critical to the process. I look forward
to hearing the testimony from our outstanding labor unions
represented in addition to our witnesses' thoughts on the
Presidential Commission's recommendations, and I look forward
to hearing about whether we have done a good enough job in
making sure that postal employees are safe from biological
hazards like anthrax or ricin.
Moreover, I am concerned with the issue of excesses. I am
also pleased that both the House and Senate are fully engaged
in the issue of postal reform. It is my hope that with
continued bipartisan support and the leadership you have all
demonstrated that we will obtain the goal of assuring that our
postal system continues as an effective instrument, as an
effective vehicle through which people in this country can
continue to communicate.
Mr. Chairman, again I thank you for coming to Chicago, I
thank all of those who have been involved in getting us to this
point, and look forward to the testimony of our witnesses.
Mr. McHugh. Thank you very much, Danny. I cannot tell you
how very much I appreciate the devotion you have brought to the
subject. We have been up and down and around, and through it
all the one constant has been you sitting there trying to do
the right thing. And it is an admirable quality and I am proud
to call you my partner in this.
I would be delighted to yield now to a gentleman, as I
said, who made a particular effort to be here today, a good
friend of mine and a great American and a great Virginian, the
gentleman from Virginia, obviously, Mr. Schrock, Ed.
Mr. Schrock. Thank you, Mr. Chairman, thank you for holding
this second hearing on the administration's call for postal
reform. Danny Davis said if I would be willing to come here he
could guarantee me some warm weather. But I guess I am going to
have to come back for that. Two of my closest friends, both of
whom were in my wedding, live in Naperville, my wife has an
aunt and an uncle that live in the Chicago area. So, I do know
you have good weather and I think I am going to have to come
back for that.
Thank you also to the witnesses for being with us today to
provide your organizations' views on the Commission's report
and the next process and the next steps in the postal reform
process.
As we all know, tackling postal reform is no easy task.
Every American is a stakeholder in the viability and future of
the Postal Service and thousands of American companies rely on
the Postal Service to do business. But the men and women at the
Postal Service who provide the services that keep our mail
moving are a valuable commodity and I look forward to hearing
from their representatives today.
The President's Commission focused a great deal in their
report on right-sizing the Postal Service and its processes,
including adopting a faster and simpler rate-setting process,
consolidation and rationalization of the postal facility
network, and developing an appropriately sized work force at
all levels of the postal work force structure. After reading
through your testimony, it is clear that you and your members
do not agree with all the Commission's recommendations, and I
know that you and I will probably disagree on a number of their
recommendations. But I think there is a great deal of room
where we can work together to implement legislation that will
benefit the future of the Postal Service, its employees, and
the postal customers, and frankly, I would not have traveled
here today if I did not think so. I could have been home in
Virginia Beach where it is not much warmer, but a little bit
warmer. So, I look forward to your testimony today and a
healthy dialog about how we can ensure a positive and thriving
future for our Postal Service.
And again thank you, Congressmen Davis, for welcoming us
here, and thank you, Mr. Chairman, for holding this second
hearing.
Mr. McHugh. Thank you, sir. In the interest of full
disclosure I want to say two things: One, I came here for the
good weather: my district borders Canada and 2 weeks ago it was
42 below zero; this is beach weather, I think Chicago is.
Second of all, I think every politician has dreams and every
politician has nightmares. My nightmare is when I wake up
sitting where these gentlemen are in a Federal courthouse
having to take an oath of office. So, it is good to be awake
and the reason I say that is that these gentlemen know we now
have to take an oath to actually begin the hearing as it is
committee policy. If the gentlemen will rise, I will administer
the oath. Raise your right hands please.
[Witnesses sworn.]
Mr. McHugh. The record will show that all the witnesses
responded in the affirmative. We are not going to turn on the
light yet, we are going to do that when we get to the questions
and answers, which is, as I am sure most of you know, the 5-
minute limit. We have all of the written statements from both
panels here today and, without objection, I would ask they all
be entered into the record in their entirety. Hearing no
objection, so ordered.
Gentlemen, to the extent it is possible, we would ask you
to summarize your comments, but however you choose to proceed
we are very grateful for your presence here today; most
importantly, grateful for your leadership and for the
membership that you represent, who are, as I tried to indicate
in my opening statement, some amazing people doing an
incredible job. Thank you for your service, thank you for being
here and we are very anxious to hear your comments. I imagine--
oh, there it is. Thank you, Robert, we have to read them as
they are written here. The first panel--and as I am quickly
scanning I believe that it is going from my left to right, from
the audience's right to left--Mr. William Burrus, president of
the American Postal Workers Union; good to see you. Mr. William
Young, president of the National Association of Letter
Carriers; thank you for being here. Mr. Dale Holton, who is
president of the National Rural Letter Carriers Association,
someone I am familiar with and his people. Mr. John Hegarty,
who is national president, National Postal Mail Handlers Union;
John, thank you. Gentlemen all. It makes sense to me that we
begin with testimony as we presented you, so with that, Bill,
we would be anxious to hear your comments, sir, and welcome.
STATEMENTS OF WILLIAM BURRUS, PRESIDENT OF AMERICAN POSTAL
WORKERS UNION, AFL-CIO; WILLIAM H. YOUNG, PRESIDENT OF NATIONAL
ASSOCIATION OF LETTER CARRIERS; DALE HOLTON, PRESIDENT OF
NATIONAL RURAL LETTER CARRIERS ASSOCIATION; AND JOHN HEGARTY,
NATIONAL PRESIDENT OF NATIONAL POSTAL MAIL HANDLERS UNION
Mr. Burrus. Thank you, and good afternoon, Mr. Chairman and
members of the special panel. Thank you for providing me this
opportunity to testify on behalf of the more than 300,000
members of the American Postal Workers Union. Arguably, the
APWU is the largest single bargaining unit in the country, and
we appreciate your foresight in addressing the structural
weaknesses of the Postal Reorganization Act as applied to
conditions in the present and beyond. In response to the
chairman's request that we limit our remarks to 5 minutes, I
have abbreviated my oral testimony but ask that the full
statement be entered into the record.
This hearing is called to review the current state of
postal services, and to consider legislative change to ensure
its viability far into the future. Over the past 3 years, mail
volume has declined, and there is concern over the future of
first class mail. The generally accepted view is that the
expanded use of technology has been and will be at the expense
of hard-copy communications. Our union shares the concern of
the mailing community, but we caution against drawing firm
conclusions based upon the experiences of the past 3 years.
But, whether mail volume increases or decreases, the need
for a viable Postal Service will continue. Despite the effects
of Internet communications, facsimile machines, and the
telephone, the unifying role of the Postal Service will be
critical. But while others are absolutely certain of the
future, I offer a note of caution. At this time, the facts
simply do not support a conclusion that the Postal Service is
in a death spiral.
We must remember that postal volume was affected by several
national events. The first was the terrorist attacks of
September 11, followed by the anthrax attack that took the
lives of two postal workers, members of my union. The combined
effects of the September 11 and anthrax attacks were
superimposed over the recession that began in early 2001, and
from which we are only now experiencing a relatively weak and
inconsistent recovery. If one were to extract the impact of
technological diversion, these events standing alone would have
had a serious impact on postal volume. There are positive
signs. The Postal Service recently reported that mail volume
during the 2003 holiday mailing season increased sharply over
the previous year, resulting in the highest volume period in
the history of the Postal Service. Are we to believe that
technological impact took a holiday this Christmas season, or
are other factors at work?
I wish to make an important point on the subject of future
mail volume and the impact on the Postal Service's ability to
provide universal service. It is not the business model that
determines the relative contributions to overhead cost of first
class mail as compared to standard mail. As first class mail
grows or declines, the question of dividing institutional costs
among all classes of mail will remain. At present, it takes
approximately three pieces of standard mail to make up for one
piece of first class mail. This distribution of costs is a
rate-setting decision that will be unresolved by postal reform.
In your invitation to testify today, you asked that I pay
particular attention to the five principles outlined by the
administration, and I will. Clearly, there is a consensus that
the Postal Service performs a vital public service, and that it
must be preserved and maintained. However, it is difficult to
tell from the five principles what specifically the
administration supports. Our union supports the broad
principles of the administration, but as they say, the devil is
in the details. We have some very strongly held views about how
the principles must be carried out, and we are aware that
others believe that these same principles justify changes which
we adamantly oppose.
The first principle stated by the administration is that we
should, ``Implement best practices that ensure that the Postal
Service governing body is equipped to meet the responsibilities
and objectives of an enterprise of its size and scope.'' We
find little to disagree with the direction to implement best
practices in managing and operating the Postal Service. Many
private and public entities have adopted practices that should
be considered by the Postal Service, while taking into account
the unique role of this government entity and its role in
binding our Nation together.
The relevant question is, what are the best practices that
should be adopted to preserve and protect the Postal Service?
Some who propose what they call best practices have advocated
regressive labor policies that would roll back the clock to
1970. The report of the Presidential Commission includes a
number of such recommendations, which we adamantly oppose.
It is completely inconsistent and totally unacceptable for
the Commission to espouse a commitment to collective bargaining
while simultaneously recommending that postal compensation be
dictated by an appointed board. The Commission seems to believe
that postal workers are fools. The following disingenuous
platitudes appear in the report: ``Plans for modernizing the
Nation's postal network must effectively utilize the Postal
Service's most valuable asset, it employees.'' ``Essential to
this process is the ability of management and labor to work
constructively together.'' ``First and foremost, the Postal
Service management must repair its strained relationship with
its employees.''
Those are fine statements but in contrast to those
statements, the Commission's specific recommendations are an
invitation to open conflict with postal employees. The report
paid lip service to the importance of good labor relations,
while making recommendations that would ensure labor conflict.
The Commission also urged Congress to consider removing
postal employees from Federal retirement and retiree health
care plans. This would be a diametric departure from
appropriate public policy. We categorically reject the
contention that it would be appropriate for postal employees,
now or in the future, to be paid fringe benefits that are less
than those provided to other Federal employees. In recent
years, postal workers have repeatedly stood on the front line
of homeland security. When hired, they must submit to
background checks and fingerprinting, and they are administered
a Federal oath of office. It would be an insult to their
courage and dedication to suggest that they should be afforded
anything less than Federal status. Health benefits, whether for
active workers and their families, or people injured on the
job, or retirees and their families, are very powerful and
emotional issues. It would be a callous act to reduce the
health benefits of postal workers injured by anthrax, to reduce
their injury compensation benefits, or to reduce the benefits
of the widows of the workers killed by anthrax.
The administration also has endorsed the principle of
transparency, ``Ensure that the important factual information
on the Postal Service's product cost and performance is
accurately measured and made available to the public in a
timely manner.'' In a democracy, government agencies have a
fundamental obligation to function with the consent of the
government, which could only be achieved through the public
sharing of information. However, transparency cannot be used to
place the Postal Service at a competitive disadvantage. Postal
competitors must not be permitted to use transparency as a
means of competing unfairly or unduly influencing decisions
that are central to a healthy and effective Postal Service.
The third principle endorsed by the administration is
flexibility, ``Ensure that the Postal Service's governing body
and management have the authority to reduce costs, set rates
and adjust key aspects of its business in order to meet its
obligations to customers in a dynamic marketplace.'' We believe
that barriers that prevent the Postal Service from adjusting to
the marketplace should be reviewed and adjusted accordingly. To
permit the Postal Service to grow in the future, we support
flexible rate setting, giving postal management the authority
to design and introduce new products and freedom to borrow,
invest, and retain earnings. In the area of work force
flexibility, however, we urge Congress to be extremely careful
about imposing its judgment on postal management and the
unions.
The fourth principle is accountability, ``Ensure that a
Postal Service operating with greater flexibility has
appropriate independent oversight to protect consumer welfare
and universal mail service.'' No one will quarrel with the
suggestion that there should be an appropriate independent
oversight of the Postal Service. We expect that there will be
many disagreements, however, over what type of oversight is
appropriate. We have serious reservations about the creation of
a postal regulatory board with broader power than the present
rate commission. In our view the Board of Governors should be
strengthened and made more effective in its management
oversight, and importantly, the consumer advocate should be
afforded appropriate independence. If rate-setting is made more
flexible, as we think it must be, certainly there must be an
appropriate watchdog agency where interested parties can take
complaints about alleged abuse or violations of the law.
Employees are and have always been held accountable for their
actions.
The fifth principle is self-financing, ``Ensure that a
Postal Service operating with greater flexibility is
financially self-sufficient, covering all its obligations.''
For the past 33 years, the Postal Service has been a powerful
financial engine that has more than sustained itself through
times of enormous growth and change. During the 1980's and
early 1990's, Congress imposed billions of dollars of cost on
the Postal Service that had no relation to its operations. This
cannot be repeated.
We are informed that the Office of Personnel Management is
now seeking to impose an $86 billion liability on the Postal
Service for retirement benefits for workers with Federal
service credits. This act is inconsistent with the
administration's statement of broad support for postal reform.
The same can be said of seeking to shift the cost of military
retirees or forcing the Postal Service to escrow the funds it
has overpaid to the CSRS fund. Using the Postal Service as a
cash cow to help reduce the Federal deficit is a luxury the
American ratepayer can no longer afford.
This brings me to what I consider a most important point
for the Congress to understand about Postal Service financial
self-sufficiency. The Postal Service is currently giving away
hundreds of millions of dollars every year in the form of
excessive worksharing discounts. Postal data show that
discounts provided to major mailers exceed the cost avoided by
the Postal Service. It is not possible to create a business
model for a healthy Postal Service if the rate-setting process
continues to hemorrhage hundreds of millions of dollars a year.
There are a number of discounts that should be reduced to
bring them into line with costs avoided. These include: First
class non-automation pre-sort discounts; standard A three to
five digit pre-sort discount; standard A automation discounts;
and first class automation discounts.
This problem was tacitly acknowledged by the Presidential
Commission in its recommendation that all future discounts be
limited to the costs avoided. That is simply not good enough.
That horse has left the barn and we need to get it back to
preserve universal service in the public interest.
Some interested parties, when confronted with the fact that
discounts cannot be justified, have responded by calling for
bottom up pricing. This radical concept, which purports to
establish a system whereby mailers pay only for the service
they use, would actually relieve the largest mailers of any
responsibility for the cost of maintaining a universal system.
It would almost certainly result in surcharges for services to
rural communities and low volume post offices. Such a structure
would be tantamount to proposing that public education be
funded only by those who have children in school.
In conclusion, the American Postal Workers Union supports
the broad principles of the administration, but we reserve our
position on the details. We also wish to emphasize the
importance of addressing the most immediate concerns. For long
term financial solvency, the Postal Service must be relieved of
the burden of paying for military retirement and must be
permitted to make appropriate use of the savings from the
recalculation of its CSRS contributions. In addition, OPM's
effort to shift Federal service retirement costs to the Postal
Service must be addressed. This adds up to $27 billion for
military retirees, $10 billion for the escrow account, and $86
billion in the Federal service retirement costs. In applying
the principles supported by the administration we trust that
these issues will receive favorable consideration. Because if
the objective is to stabilize the Postal Service and secure its
future this is where the process must begin.
Thank you, Mr. Chairman, and thank you once again for the
opportunity to present testimony today, and I will be pleased
to answer questions after my colleagues have their opportunity
to make their remarks.
Mr. McHugh. Thank you, President Burrus, appreciate your
insights and your thoughts.
Next, Mr. William Young who is president of the National
Association of Letter Carriers. Bill.
[The prepared statement of Mr. Burrus follows:]
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Mr. Young. On behalf of the 300,000 active and retired city
letter carriers across the Nation, thank you for this
opportunity to share our views on the crucial issue of postal
reform. NALC is the exclusive collective bargaining
representative of approximately 220,000 letter carriers who
work every day in every State and territory of the Nation. City
letter carriers have a tremendous stake in the future of the
Postal Service. For them postal reform is not simply a policy
matter or even a political issue, it is a matter of great
personal importance for themselves and their families. So I
wish to thank Chairman Tom Davis, panel Chairman John McHugh,
Congressman Henry Waxman, Congressman Danny Davis and all the
members of the Special Panel on Postal Reform and Oversight for
taking up once again this vitally important issue.
Over the past decade, my union has been urging Congress to
pursue comprehensive postal reform. We have long recognized the
need for a new business model for the Postal Service in the age
of the Internet. Until recently the debate on postal reform has
been largely confined to the House of Representatives. Progress
has been slow, but thanks to your hard work and perseverance,
both the White House and the Senate are now fully engaged on
postal reform. As you know, the Bush administration recently
issued a set of general principles for postal legislation. We
support these principles and look forward to working with the
leaders of both houses of Congress to achieve bipartisan postal
reform in 2004.
Today, I would like to briefly address the big picture of
postal reform before turning to the key work force issues that
are the main topic of this panel's testimony. NALC believes
that the Postal Service's unmatched ability to reach every
household and business in America 6 days a week is a vital part
of the Nation's infrastructure that is essential to the
economic health of the United States. As such, it is important
to take steps now to strengthen its ability to function in the
face of tremendous technological change. We urge Congress to
reject a feared downsizing strategy and to embrace an
empowerment strategy for the Postal Service. The Postal Service
should be given the commercial freedom it needs to maximize the
value of the universal service network by adding services and
working with its customers to find new uses of the mail to
replace those uses that are now migrating to electronic
alternatives.
Greater commercial freedom which involves flexibility over
prices and the ability to strike partnerships to optimize the
value of its network would allow the Postal Service to maximize
revenues and control costs while retaining the value of
universal service. We recognize this approach poses the
difficult challenge of balancing commercial concerns and public
service considerations. We believe it is possible to give the
Postal Service the flexibility it needs while protecting the
legitimate concerns of competitors, customers and the public at
large.
Let me now turn to the main topic of this hearing, postal
work force issues. Our starting point is pretty simple,
collective bargaining is a fundamental right of all, and the
Postal Reorganization Act of 1970 rightly established
collective bargaining under the auspices of the NLRB. I would
like to make a couple of general observations before suggesting
some guiding principles on work force reform.
First, I would like to point out that collective bargaining
in the Postal Service has been a resounding success. Since the
Postal Reorganization Act was enacted, there has not been a
single work stoppage or disruption in service as a result of
labor relations. Given the fact that the Postal Reorganization
Act was enacted in part at least as a result of a national
postal strike in 1970, this 34 year record of peaceful labor
relations should not be minimized. The fact is that collective
bargaining has been a win-win-win proposition. Postal workers
have achieved decent pay imperatives, taxpayers have saved
billions through the elimination of direct and indirect
taxpayer subsidies, and the mailers have enjoyed affordable
postal rates.
Second, it is important to note that neither the postal
unions nor postal management favor radical changes to the
existing postal collective bargaining system. Given that all
sides agree that mail delivery is an essential public service
that should not be disrupted by lockout or strikes, a workable
system for resolving collective bargaining impasses is
essential. NALC believes the existing system of interest
arbitration has worked extremely well.
Third, it is important to note that postal labor relations
have improved dramatically in recent years. Three of the four
unions now have labor contracts in place that were voluntarily
negotiated. All four have made progress in reducing the number
of workplace grievances using various mechanisms. These
improvements occurred not because Congress or the GAO or any
other outside party mandated them. They happened because the
parties themselves worked very hard to find common ground and
to seek ways to resolve mutual problems. Postmaster General
Jack Potter and his team deserve credit for working with us to
achieve this transformation. With these general points in mind,
NALC urges you to abide by four principles when you consider
reform of the collective bargaining system.
One, I urge you to follow the Hippocratic Oath: ``First do
no harm.'' The system we have is not perfect. Indeed no system
is perfect. But the parties have learned to work with each
other within the current framework. As I outlined above, the
process has worked well for all concerned. At a time of great
change for the Postal Service in other areas, labor stability
is crucial.
Two, maintain the flexibility that is currently built into
the law. The PRA contains specific but flexible timetables for
negotiating contracts and resolving collective bargaining
impasses. It also provides a menu of options for impasse
resolution and gives the parties the flexibility to shape these
options for use, when appropriate, as conditions change.
Indeed, the unions at this table have at various times used
mediation, fact finding, mediation-arbitration, mediation-fact
finding in combination, and last best offer arbitration. In the
face of constant change, the flexibility of the current law is
a virtue.
Three, avoid politicizing the collective bargaining
process. Congress or White House intervention in the process
would be highly destructive. This would inevitably happen if a
politically appointed regulatory board were injected into the
negotiations process.
Four, avoid exposing the process to outside litigation.
Subjecting the results of collective bargaining to litigation
before a Postal Regulatory Board, as proposed by the
President's Commission, would be disastrous to the process.
Depending on the prevailing political winds of the day and the
makeup of the regulatory board at any particular moment, either
side might be tempted to try to obtain from regulators what
they could not expect to achieve through good faith bargaining.
Finally, I wish to address a couple of specific issues that
have arisen in the wake of the report of the President's
Commission on the Postal Service--the direct negotiation of
pension and health benefits, and changes to the system of
interest arbitration. As you know, as employees of the Federal
Government, postal employees are covered by one of two pension
plans, and also allowed in the Federal Employees Health
Benefits Program. Although eligibility for participation in
these programs is automatic and is not subject to collective
bargaining, it is important that you understand that the cost
of such benefits figures very prominently in postal labor
negotiations. In the area of health benefits, postal management
and its unions already directly negotiate the share of premiums
to be paid by workers and the Postal Service. And when it comes
to negotiating wage increases, the rising cost of pensions is
explicitly discussed by the parties. The so-called ``roll up
factor'' for employee fringe benefits, the added cost of
benefits when postal wages are increased, is never far from the
negotiators' minds. And you can be sure that no interest
arbitration panel employed over the past 20 years has been
spared the evidence from both sides on the cost of health and
pension benefits.
My point is this: Although the parties do not directly
negotiate over all aspects of postal benefit costs, these costs
are not ignored and they invariably affect the results of wage
negotiations. Indeed, a close examination of postal wage trends
over the last 25 years reveals that postal wages have increased
nearly 15 percent less than wages in the private sector as
measured by the Employment Cost Index. This wage restraint is a
direct reflection of the effort of negotiators and interest
arbitrators to restrain wage costs in the face of rising health
and pension costs to the USPS, a trend, which you all know
affects all American employers. Given this context, we do not
believe that it is necessary to formally place health and
pension programs on the collective bargaining table. The
parties already effectively take these costs into account under
the existing system.
Let me turn to one other work force topic raised by the
President's Commission. That would be reform of the postal
interest arbitration process. We believe these changes are
unnecessary and counter-productive for a couple of very
practical reasons. First, the Commission's proposal would
discard 30 years of experience by the parties and require us to
start all over again, under a radically different process. That
is a prospect that would inevitably impose significant cost on
both sides. Second, we believe the only workable changes to the
system of collective bargaining must be developed and
negotiated by the parties themselves, not externally legislated
or mandated. Both parties must see this process as their
process for the results to be legitimate. The existing system
gives us the flexibility to share the dispute resolution
process without outside intervention.
Allow me to add one last note on interest arbitration. We
believe the existing dispute resolution system is fair and an
acceptable alternative to the right to strike. I say this not
because we always prevail when we go to interest arbitration;
indeed, on more than one occasion we have lost. In the 1990's,
an interest arbitration panel chaired by Richard Mittenthal
adopted a USPS proposal to create a lower-paid temporary work
force to handle the transition to full automation, and another
panel chaired by Rolf Valtin increased the employees' share of
health benefit premiums. I say it because, win or lose, my
members know that the existing system gives us a fair shot on
the merits, and therefore they accept the results as
legitimate.
I want to conclude my testimony by repeating something I
told the members of the President's Commission at its first
public hearing in February 2003. Good labor relations must be
built on trust and good faith between the parties. No amount of
tinkering with the mechanics of the collective bargaining
process will change that basic fact. At this moment of great
challenges for the Postal Service, we have worked very hard
with the Postmaster General to build trust between us and to
improve the workplace culture in the Postal Service. Please
tread lightly in these areas so as not to risk the progress we
have made.
I offer the committee the full cooperation of the men and
women who deliver the Nation's mail every day. Working together
we can ensure that every American household and business will
continue to enjoy the best postal service in the world for
decades to come. Thank you very much.
Mr. McHugh. Thank you, President Young, and we all share
that objective, and that is why we are all collectively here
today. I appreciate your comments.
Next, Mr. Dale Holton, President of the National Rural
Letter Carriers Association, Dale.
[The prepared statement of Mr. Young follows:]
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Mr. Holton. My name is Dale Holton, I am president of the
103,000 member National Rural Letter Carriers' Association. I
too would like to thank the panel for the opportunity to be
here to testify before you today.
Rural letter carriers deliver mail on 70,000 routes, drive
3 million miles a day, serve 32 million families and
businesses. Our members are also known nationwide as a post
office on wheels. The reason for that is we offer our customers
all the services performed over the counter at a post office.
We sell stamps, money orders, express and priority mail,
delivery confirmation, certified or other accountable, and we
accept parcels to be mailed. Rural letter carriers deliver on
average 2,875 pieces of mail a day on each route. And this
total includes approximately 200 parcels a week, a higher
number than you would find on some city routes because of where
we deliver. It is also because of the buying habits of our
customers and the fact that, unlike our competitors, we have no
surcharge for rural delivery.
The United States is unique in the world with regards to
mail. We handle 46 percent of the world's mail. Americans do
more financial transactions through the mail than any other
nation in the world. Only 22 percent of Americans receive or
pay any portion of their bills electronically. Yet, under
current circumstances, the Postal Service business model will
fail. There must be legislative changes to protect the U.S.
Postal Service that Americans have come to count on and trust.
These opinions were confirmed by the poll conducted by the
Presidential Commission. The antiquated rate-setting process
needs to be revamped or replaced. Our competitor, electronic
communication, goes around the world instantaneously. In order
to remain competitive, the U.S. Postal Service needs the
flexibility of being able to adjust rates as quickly as our
competition. The ``break-even'' and ``no retained earnings''
provisions in the current business model that governs the
Postal Service are years beyond their usefulness. Let us work
with the business mail community and grow the U.S. mail volume
with increased negotiated service agreements and intelligent
mail.
The collective bargaining provisions of the current law
have served their purpose well. As my colleagues said earlier,
the U.S. Postal Service has had no labor disruption in over 30
years, unlike our counterparts in other nations. When
bargaining becomes deadlocked, binding arbitration resolves the
dispute. The current statute provides great flexibility for the
bargaining parties to shape the process in a variety of ways.
The Presidential Commission recommended mandating certain
procedures rather than opting to utilize processes suited for
the circumstances. We believe the flexibility of having options
is vastly preferable. However, let me make one thing absolutely
clear. Utilizing binding arbitration does not guarantee your
side will prevail.
In our most recent bargaining, the Postal Service and the
Rural Letter Carriers' went to binding arbitration. We tried
the proposed route where we chose one arbitrator to go through
the whole process with us and at the end, through binding
arbitration, the Postal Service won and they won big. The
average rural carrier lost 3.1 hours of productivity gains
granted to the Postal Service per week. That translated to an
average loss for each carrier of $4,600 per year. It was offset
only slightly by $2,600 in arbitrator-granted raises. The
savings to the Postal Service, by their own figures, was
approximately 12 million less paid hours annually due to this
arbitration award. The award's savings to the Postal Service in
rural carrier compensation amounts to $312 million annually.
I want to say that we appreciate the Presidential
Commission's work and we welcome the active involvement of the
White House and the Department of the Treasury. We believe
their participation has expanded the interest in postal reform
in Congress and in the mailing community. The National Rural
Letter Carriers' Association has been at the forefront of
attempts to enact meaningful postal reform legislation, and has
publicly endorsed such legislation when it was introduced in
the last three Congresses. We believe mail to be an important
continuing government function. And one of the basic strengths
of the U.S. Postal Service is our collection and delivery to
everyone, everywhere, every day.
Chairman McHugh and Congressman Davis, we are today on a
path toward enactment of postal reform legislation, primarily
because of your Herculean efforts to update, educate,
illuminate, and enact a new law for our mail community. You
have our sincerest gratitude for your intellect and fortitude.
And this concludes my testimony, and I would be pleased to
answer questions.
Mr. McHugh. Thank you very much, President Holton.
As they say, last but not least, John Hegarty, national
president of the National Postal Mail Handlers Union. John,
thanks for being here.
[The prepared statement of Mr. Holton follows:]
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Mr. Hegarty. Good afternoon, and thank you Chairman McHugh
and members of the committee for this opportunity to testify.
My name is John Hegarty and I am the president of the National
Postal Mail Handlers Union, which serves as the exclusive
bargaining representative for 57,000 mail handlers nationwide.
The Mail Handlers Union hopes to remain an active
participant in the process of postal reform. The recently
released White House principles show that the White House has
considerable confidence in the expertise and legislative
initiative----
[Public announcement interruption.]
Mr. Hegarty. Let me continue. The recently released White
House principles show that the White House has considerable
confidence in the expertise and legislative initiative of your
committee and that of your Senate counterparts. I would like to
congratulate you, Chairman McHugh and Representatives Danny
Davis, Henry Waxman, and Tom Davis, and all others who have
provided leadership on this issue.
I would like to take a few moments to comment on the last
terrorist act against homeland security affecting both Congress
and the U.S. Postal Service, and of course I am talking about
the poison ricin, which was found in Senator Frist's mailroom
on Monday. A similar powder spill incident in Wallingford, CT,
has thankfully tested out negative for both ricin and anthrax.
It is perhaps ironic that the ricin incident occurred on
the evening before we were scheduled to testify before the
Senate Committee on Governmental Affairs on the future of the
Postal Service and its employees. The advance NPMHU written
testimony raised the danger of substances such as anthrax and
ricin and noted why mail handlers are so crucial to the safety
and security of our country. That hearing obviously has been
postponed as the need for safety and security goes on.
As a mail handler from a large processing plant in
Springfield, MA, let me briefly explain how these types of
terrorist threats could attack mail handlers and indeed all
craft employees. Mail handlers are generally the first to
handle mail when it enters a processing plant. Raw or
unprocessed mail, which could be letter-sized envelopes or
larger, flat-sized envelopes, packages, or parcels are dumped,
typically on a conveyer belt-type of a system and worked--or
culled and sorted--by mail handlers. Letters and flats are run
through a cancellation machine to cancel the stamps and are
then forwarded to other mail processing machinery throughout
the building which is typically manned by either mail handlers
or clerks. After all the processing is completed, mail handlers
load the processed mail onto outbound transportation. As you
can see, this is a labor-intensive, hands-on type of mail
processing. Mail handlers and all craft employees therefore are
on the front lines when it comes to possible exposure to
biological agents or other terrorist threats through the mail.
As always, the safety of mail handlers and other postal
employees is the first concern of the National Postal Mail
Handlers Union. We are working with the Postal Service through
the Task Force on Mail Security on these dangerous incidents.
We appreciate the funding that Congress has already
appropriated for bio-protection systems to keep our employees
safe and we look forward to working with Congress on those
issues in the future.
The Mail Handlers Union appreciates the swiftness of your
reaction to the CSRS funding problems and the financial strain
caused by the deadly anthrax attacks. Similar financial issues
remain, however, and congressional resolution of both the
escrow issue and the military service issue are of immediate
and paramount importance to the financial future of the Postal
Service. Not releasing the postal escrow account or forcing the
Postal Service to pick up more than $27 billion in military
costs that no other Federal agency has to pay certainly will
result in a severe crisis in the Postal Service and,
ultimately, a hike in postage and cost to all ratepayers.
As I noted, the White House provided broad guidelines in
terms of postal reform. We believe the Postal Service needs the
tools to be more competitive. In accordance with those
guidelines, those tools could include price flexibility and a
ratemaking structure that, as the White House indicated, is
more similar to generally accepted business models. For
example, we are experiencing yet another spike in fuel costs
and, once again, the Postal Service is not structurally set up
to respond quickly to the problem. It is difficult to run in a
businesslike fashion when common business practices are not an
available option.
My union, therefore, counts itself in strong support of
legislative change that would grant the Postal Service
additional flexibility in pricing, additional flexibility in
borrowing and the design of postal products. Such changes must
allow the Postal Service to establish postal rates that remain
affordable, both to the major business mailers and the American
consumer, while providing sufficient revenue to protect and
support the infrastructure that universal service requires and
to provide postal employees with a decent and fair standard of
living.
I do have considerable expertise in the area of the
President's Commission in work force issues. I believe that the
term ``best practices'' can be applied to the Postal Service's
labor relations. In general our collective bargaining process
is seen by others as a model of flexibility and labor peace. In
recent years, moreover, all parties have been working on these
matters diligently and our efforts have resulted in dramatic
changes.
The Mail Handlers Union strongly endorses the current
process for collective bargaining under the Postal
Reorganization Act. Our current national agreement covers the
period from November 2000 through November 2006. Although it
originally was scheduled to terminate later this year, we
recently reached an agreement on a 2-year extension to the
contract that was overwhelmingly ratified by our members. Nor
is productive collective bargaining a recent phenomenon.
Since the PRA was enacted in 1970, we have engaged in 13
rounds of full collective bargaining with the Postal Service, 8
of which, including the last 3, have resulted in voluntary
agreements that were endorsed by postal management and ratified
by the union membership. The other five were resolved through
arbitration with the results willingly accepted by both
parties. On at least three of the five occasions when the
parties used arbitration, however, the parties actually settled
most open issues and only arbitrated one or two issues that
could not be resolved without an arbitrator's decision. Even
when arbitration does occur, there are no guarantees. For
example, arbitration in the 1984 round of bargaining created a
lower entry rate for new mail handlers, and an arbitration in
the 1990 round produced a 3-year contract without any general
wage increases for mail handlers. Because both parties accept
the process, however, even these clear management victories
were implemented peacefully.
The key advantage of the current bargaining process is its
flexibility, which coincidentally is one of the
administration's principles. Under the current statute, the
parties to any bargaining dispute are allowed to devise their
own procedural system for resolving their dispute. Thus, under
the PRA fact-finding followed by arbitration is the default
position, but the parties in prior years have used fact-
finding, mediation, arbitration, and multiple combinations of
these processes to resolve their disputes. If the procedural
changes recommended by the Presidential Commission were
adopted, this flexibility would be eliminated and instead the
parties would be constrained by rigid procedures that, in our
view, would not improve the bargaining process one iota.
The Commission said that a core ingredient of its revised
procedure is the mediation-arbitration approach to resolving
bargaining impasses. Under a ``med-arb'' approach, the fact-
finding phase now set forth in the PRA would be replaced with a
mandatory mediation phase of 30 days, and if mediation were
unsuccessful, the appointed mediator would become one of the
final arbitrators. We believe, however, that requiring this
``med-arb'' approach would be counter-productive to the
successful resolution of many bargaining disputes. The
flexibility now part and parcel of the PRA permits the use of
``med-arb'' and it has been utilized in prior rounds of
bargaining when the parties deemed it advisable.
Also, part of the President's Commission recommendation is
a proposal that would replace the parties' current practice,
which uses a three-member arbitration panel, in which each
party chooses one arbitrator and then the parties jointly
select one neutral arbitrator, with three outside arbitrators.
In our view this change would have extremely negative
consequence for the arbitration process, as it would completely
remove the parties' respective representatives and their unique
expertise from the decisionmaking process.
The Commission also has recommended that after the
arbitration decision is issued the parties have 10 days to
review the decision and possibly bargain changes agreeable to
both union and management. This proposal would be completely
unnecessary if the current process allowing for each party to
have a representative involved in the arbitration decision were
made or maintained. It also poses problems for most unions,
like the mail handlers, that require membership ratification
for any bargaining agreement.
The Commission has also recommended that binding
arbitration be required to use the ``last best final offer''
model, in which each party is required to submit a total
package of proposals and the arbitration panel is required to
choose one or the other package and cannot compromise between
the two. In theory, this would place extraordinary pressures on
both sides to produce reasonable comprises. Sometimes this
model of arbitration would be helpful, but other rounds of
bargaining would not be helped by requiring ``last best final
offers.'' The current statute allows for ``last best final
offer,'' and it has been used in certain bargaining. The
flexibility built into the current system is essential and
should be maintained.
Frankly, I believe the Nation is better off with bargaining
and binding interest arbitration under the PRA than with those
other models. The testimony before the Presidential Commission
from postal management and the postal unions and even from a
panel of highly respected neutral arbitrators was consistent:
that the current collective bargaining process is working well.
For 33 years the parties have avoided labor strife and economic
warfare that often characterize private sector labor-management
relations. Arbitrators and participants all agree that the
process has improved dramatically over the years and may be a
model for other labor-management negotiations. There is, in
short, no reason whatsoever to amend the statutory provisions
governing collective bargaining or to otherwise adopt
provisions that would allow outside entities to interfere in
the bargaining process.
The Presidential Commission also has proposed bargaining
over health insurance, pensions and other benefit programs. In
fact, the current employee contribution rates for health
insurance already are bargained, and the health benefits
themselves established through the Federal Employees Health
Benefit Act are universally acknowledged to be well maintained
and well negotiated by the Office of Personal Management. The
Mail Handlers Union happens to be the sponsor of one of the
largest Federal health plans, and I can assure you that if the
Postal Service ever were to withdraw from the Federal employees
health system, chaos would be the result. As for pension
benefits, with the passage last year of the ``CSRS fix''
legislation, all pension benefits for postal employees are now
fully funded. The recommendation on bargaining benefits,
therefore, is clearly aimed at guaranteed health insurance for
postal retirees. We see absolutely no reason why promises of
lifetime health insurance to postal employees should be the
subject of bargaining, especially when the Federal Government
provides these benefits to Federal employees through
legislation and many other large employers provide similar
benefits. In any event, recent proposals from postal management
would allow the Postal Service to ensure funding of these
retiree health costs by using the escrow account now available
because of pension over-funding. That is an appropriate use for
those funds and should be part of any postal reform.
Thank you for allowing me to testify and I would be happy
to answer any questions.
[The prepared statement of Mr. Hegarty follows:]
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Mr. McHugh. Thank you very much, President Hegarty.
Gentlemen, as I have said, we deeply appreciate you being
here today. This is, as Yogi Berra said, ``deja vu all over
again'' for many of us. We have had private meetings, we have
had previous hearings that your organizations have been
represented at, and I do not want to beat the proverbial dead
horse. Also, I would add that your statements are very, very
comprehensive in your analysis of the challenges, your analysis
of particularly, as we asked you to do, the President's
Commission recommendations and findings.
What I would like to hear, because Congress sometimes has
trouble walking and chewing gum at the same time. We cannot
have too many balls in the air, and while I do not for a moment
minimize the incredible breadth----
[Public announcement interruption.]
Mr. McHugh. But in any event we have an excellent profile
of the concerns of the issues that you deem important, but if
you had to individually name for us the one or two issues that
you feel a postal reform bill must include, in other words,
without those particular components, it is useless, what do you
tell us would have to be in such a bill? And I will start with
Bill Burrus.
Mr. Burrus. I think it is absolutely essential in
addressing the future needs of the Postal Service, if reform
means putting the Postal Service in a position, financial
position to provide universal service to the American public
far into the future, I think the absolutely essential issues
that must be resolved are those that sap the financial
resources of the Postal Service. During my testimony I listed
three that add up to some $123 billion of cost to be imposed on
the Postal Service. I am not aware of any other modification
that is under consideration or that is on the radar screen
within the realm of possibility that would generate one fifth
of that obligation that is being imposed upon the Postal
Service, through the escrow and the CSRS and the prior Federal
service. And on top of that is the interest in requiring that
the Postal Service fund their health care for their retirees.
If you add that on top of the $120 billion, you are talking
about now almost $180 billion of financial obligation of the
Postal Service during a period where there are those who say
the Postal Service is in a death spiral, it will be ill-
equipped to fund.
So, I do not know of any other--we went through a period in
the 1980's where reform of the Postal Service was changing the
logo; we reinvented the postal logo, changed the colors of the
Postal Service, did the mail boxes and all the trucks under the
umbrella of reform. I think fundamental to the Postal Service
and its ability to exist in the future is money and almost $200
billion in costs. If you do flexible rate setting, it is not
going to generate $200 billion. If you permit us to compete
with UPS and FedEx, compete in other markets out there, there
is no possibility you are going to get anywhere near $200
billion.
So, if I were to select a single issue I think stands
alone, I do not think there is even a close second that one has
to address the three main issues and somehow address the health
care for retirees, because it is going to continue to surface
over the years. So that $200 billion has to be addressed. I
think anything else while we are seeking and achieving reform,
I think we are whistling into the wind.
Mr. McHugh. Thank you, sir. President Young.
Mr. Young. From my perspective the most important element
is the perseverance of universal service. That to me is the
linchpin of the whole organization. If we do not have that, I
think everything else tumbles behind it.
The second most important thing to me would be to work on
the business model. Thirty years ago, when the Postal
Reorganization Act was enacted, we did not have computers, e-
mails and things like that were just distant dreams. We have to
change the structure of the way the Postal Service is allowed
to operate so that they can be competitive in the Internet age.
So those are my two issues, and I think those are the
essential points. Of course, I am very concerned about
collective bargaining, but that would be a definite element of
the second issue that I raised. But the key one, the most
important one above all, is perseverance of universal service.
Mr. McHugh. Thank you, sir.
Mr. Holton. And I agree wholly with the universal service
at an affordable price for everybody, but in order to maintain
that I also believe that you have to do something with the
business model in the form of pricing flexibility to allow the
Postal Service to have a little bit better way of trying to
establish prices as they need to, rather than waiting 18 months
after they determine they need a rate increase. And then 18
months later, they finally get it, only to find out that fuel
costs have gone up and other expenses have gone up to where now
they have to ask for another one. So I would say universal
service and improving the model through pricing flexibility are
the main things at an affordable cost.
Mr. McHugh. Thank you, sir. Mr. Hegarty.
Mr. Hegarty. I agree with my colleagues. I also feel the
escrow account and the military retirement money is very
important to the survival of the Postal Service. But I would
also like to say one thing that should not be done through
postal reform, and that is to change the collective bargaining
along the lines of what the Presidential Commission is
recommending. And I am sure you have seen it in all of our
testimony.
You have 750,000 dedicated career craft employees,
management employees, we work weekends, we work nights, we work
24 hours a day, 7 days a week. And I think cutting postal
employees' pay and benefits or subjecting our current
collective bargaining system to the draconian changes that have
been recommended, could have a drastic effect on the morale and
wellbeing of all of our employees. And I think that is the
essence of the organization--the dedication of these front line
employees that do the work day in and day out.
Mr. McHugh. Thank you, gentlemen. Mr. Davis.
Mr. Davis. Thank you very much, Mr. Chairman.
Gentlemen, let me thank you for your testimony. Oftentimes,
when we talk about finding economies of scale and when we talk
about finding the most efficient and effective way of providing
a service or producing a product, we hear about downsizing,
outsourcing and privatizing, especially as that has been
related to anything connected with government. What impact do
you think these concepts would have on restructuring the Postal
Service and on the memberships that you represent?
Mr. Burrus. I have enjoyed a 50-year career as a postal
employee and throughout that period the Postal Service has
always been in a period of flux of people. There is no real
security in postal jobs except against layoff. Employees
currently in the city of Chicago, some 200, 300 or 400
employees are facing the possibility of being reassigned
outside of their work location, the office in which they have
spent all of their working lives. So that is a part of postal
employment. It is something we do not like but it is part of
postal employment. We have attached that protection against
layoff, but within those very broad parameters, employees are
reassigned from post to post.
In this discussion of reform the Commission made the
recommendation of applying an economic model to rural post
offices. If they were not self sufficient, there would be
authority to close them, based upon economic issues. Plus,
applying a BRAC model to the consolidation of plants. As a
service agency, I think that the Postal Service's fundamental
obligation is to the American public and that on occasion it is
at odds with making a profit in a specific location. So for the
job protection of the employees and for the continuation of
universal service at universal cost to all Americans, we
believe there should be some stability; in those very broad
parameters, there has to be some stability.
Now we are entering an age in our society where workers'
changing jobs 20, 30, 40 times is expected during their working
life. I guess you could apply that to postal employees where
they are not really changing jobs, they are just changing work
locations, but individually it causes a lot of unrest, and a
lot of uncertainty, and a lot dislocation for the employees. So
we would hope that whatever this new business model--and we use
all these cliches to describe the future--reform, business
model--what are we going to do? Let us put on the table what it
is we are going to do, and I am saying there should be some
continuation of service to the American public at reasonable
cost without paying greater concern for the interests of the
major areas of the country.
Mr. Davis. Mr. Young.
Mr. Young. Congressman Davis, as the committee wrestles
with the issues of postal reform, I hope there comes a time
when things other than finances are examined. I do not like to
politicize a tragedy, but there has been some conversation
around the table, you all have been victimized by it yourself,
by bio-terrorism and the results of bio-terrorism. And when I
testified before the Commission I reminded them, ``just think
what would happen if we had a fragmented or privatized Postal
Service with 60 or 70 companies involved in the mix.'' How
would we ever contain that as quickly and as well as we did,
notwithstanding the fact that it took the lives of two of
Bill's members? So, it was not quick enough.
I just think that you have to decide as a public policy
matter, what role you want the Postal Service to play, and more
importantly what role do you want the postal employees to play.
Then it comes down to balancing that with the needs of the
business community, the mailers, and the people that are
footing the bill for the cost of the Postal Service. And I hope
that this committee looks really carefully at the Commission's
recommendations because I am very concerned about giving too
much authority to an independent regulator who would not be
responsible to any of you, in the area that I will just coin as
public policy arena. Why let an independent regulatory body
determine what constitutes universal service, when you all are
the ones that are going to hear the complaints from it? If they
cut service off in Chicago, they are not going to go to the
independent regulator to complain, they are going to come to
you. So I would think if I were a Congressman, I would want to
keep some control of that, so I could be responsible to the
people that I represent.
And I just hope as we get through this--it seems like
everybody focuses, and I understand this, on the finances,
because right now we are in financial trouble. And I am not
saying you do not need to focus on that, I am saying I hope and
I pray that does not become the sole focus of postal reform.
There is a lot more needed than just what financially would put
us in a better position, in my perspective.
Mr. Holton. And when you talk about universal service, if
you talk about the service that my members provide, we are
usually the last mile of the way, when it comes to delivering
the Postal Service, and we serve a lot of customers in rural
America who, if you change the Postal Service too much--and I
think you used the word awhile ago--privatization--if
privatization comes along that is we have to make a dollar and
we have to satisfy stockholders and shareholders. But if you
are going to define universal service, it has to include those
people that live at that last mile of the last rural route,
wherever it happens to be. And you have to be careful, because
if you start breaking it apart, those are the people in America
that are going to be most affected, because where the work gets
done the most is where it is going to be most profitable. And
then you are going to have a Postal Service that is fragmented
and it is not going to provide that universal service.
So I would hope that we would pay close attention to that
as we move forward and realize that the Postal Service is one
of the institutions of America. A study that was done by the
Presidential Commission itself found it was one of the most
admired, trusted agencies in the government. They all believe
that the Postal Service has done a good job as it is. But we
just have to find ways to make sure that that universal service
can continue without affecting the price too much.
Mr. Hegarty. While downsizing is happening now, Congressman
Davis--I noticed in your opening remarks you said you were
concerned about excessing, we are concerned about that as
well--we have a protection built into our collective bargaining
agreement that when excessing occurs at a location, any
inconvenience to employees should be cut to a minimum. To that
end, we have established a task force with the Postal Service
at the headquarters level to meet on Article 12 issues, whether
it be moving employees from plant A to plant B, because of a
consolidation, or whether it be just downsizing a specific
plant. So we are working with the Postal Service, but it is a
big concern of the Mail Handler Union. And we do not want
downsizing and excessing to take place just for the sake of
change. We want it to be legitimate.
And it leads me to the Postal Network Optimization
Commission that the President's Commission recommended, which I
think is a terrible idea. I think that takes the flexibility
and the decisionmaking authority away from the Postal Service,
to make the decisions that they need to make as a business, and
puts it into somebody's hands who I do not think would
understand the business. So we are against the PNOC, as it is
called.
As far as outsourcing, I think outsourcing, subcontracting,
whatever you want to call it, has been shown to be a failure
many times to the Postal Service. A prime example is the Emery
contract for the processing of priority mail. That contract
lasted for 4 or 5 years; it was a colossal failure. It cost the
Postal Service millions of dollars and it showed that postal
employees process that mail more efficiently and better than a
private company could, and I believe the Board of Governors'
Nick McWhorter commented that it was the biggest mistake that
the Board of Governors ever made, authorizing the outsourcing
of the priority mail network. We have a similar situation now
with the mail transport equipment network. It was subcontracted
and I believe a recent study showed that the figures that was
based on were incorrect, and that the Postal Service is
actually losing money on that deal as well.
As far as privatization outright, having private companies
performing some of the service, I agree with President Young on
that. I think it would be a nightmare, to try and track
packages or letters with a biological or hazardous material in
them. The other thing is we cannot lose sight that private
companies are in business to make money. They are not in
business to provide a service to the American people, and that
is what the Postal Service does, and we do not want the service
to suffer.
Mr. Davis. Thank you very much, gentlemen. Thank you, Mr.
Chairman.
Mr. McHugh. I thank the ranking member. Just for the
record, I want to respond to President Young's comments on
universal service which, given my district where my largest
community is 29,000, I kind of have an interest in that. I
totally agree personally with what you say. I would be willing
to bet, and we have been talking to Danny Davis and his people
and the ranking member on the full committee, Henry Waxman,
that we are going to have for the first time--because as you
gentlemen know there is no definition of universal service. And
that concerns me, because I think the inclination in these
fiscally challenging times would be to define it less than what
I would like to see, that we have the Postal Service, not an
independent body, look at it and then come back to us, because
that should be--I agree, Bill, that should be our prerogative,
and our responsibility, because you are right, if we lose
coverage to Pierrepont Manor--and nobody in this room except
maybe Robert Taub, my chief of staff, knows where that is, and
that is where I live, with about 214 people--if they lose
universal service, they are not go anywhere but--they know
where I live, put it that way. So, that is an important issue,
and I promised not to editorialize too much any more. With that
I would be thrilled to yield to my friend and colleague from
Virginia, Mr. Schrock.
Mr. Schrock. Thank you, Mr. Chairman.
As you noticed from some of the testimonies, when they were
talking about the Members of Congress who have been very
involved in this, my name was not there. I asked to be on this
panel, I know it is a big issue, I want to understand it,
because I have to make the same vote Mr. Davis, Mr. McHugh
make, and the better I understand it, the better educated I am
going to be when it comes time to vote. That is why I wanted to
be here, and listening to your testimonies is very, very
valuable to me. The more I hear--it is too bad that every
Member of Congress cannot hear this, because it impacts every
single constituent of every single Member and I think the more
they learn, the more they understand, the better they are going
to be when it comes time to vote on this sometime down the
pike.
I have several questions, but I am going to have to narrow
them down to a couple. I want to start with Mr. Burrus. In your
testimony, you called the Commission's recommendation to limit
future worksharing discounts to costs avoided simply not good
enough. How do you suggest deriving a system to share those
costs to preserve important customers and yet maintain
universal service? We are talking about universal service. I
would be interested to know what your opinion is on that.
Mr. Burrus. I think the effort to develop a system to
determine whether or not worksharing discounts exceed or are
under the costs avoided by the Postal Service, is a task that
should be best left to the Postal Service and not be considered
by Congress. All our union seeks is a simple statement that if
there are to be worksharing discounts, and there will, they
should not exceed costs avoided. Not to get into these
specifics of any specific discount but to set the standard, set
the bar that all future and all past discounts will be measured
against. That is our objective. Human interaction leads to
abuses and argument suggests that interaction has led to
discounts that resulted in the Postal Service subsidizing
private entities.
If we perform a service that has a certain value to it, if
the private sector performs that service they should do it
cheaper than the Postal Service, or at least at the same cost.
We have absolute proof and we are willing to slug this out
before the Rate Commission, or whatever body is set up, to
prove our case. But we know without any doubt that there are
great incentives added to those discounts to continue those
private entities in their business endeavors.
A large enterprise out there has hundreds of millions of
dollars invested, and that is all dependent upon the setting of
the discount. So questions come into play, not only whether or
not it exceeds the costs avoided, but what the impact of that
discount would be on that newly established business in the
private sector. And we think that is becoming very dangerous,
the payers of those mistakes are the average ratepayer. I took
to the committee the other day two letters I received at my
home, both first class. One, the postage paid was 37 cents the
other was 27 cents. The one for 27 cents was put in the Postal
Service in Greenville, NC. The one for 37 cents was put in the
post office in Washington, DC. So, the 27-cent piece had no
transportation, I mean it had transportation cost attached to
it, the 37-cent piece had no transportation attached to it.
Yet, there was a 10 cent difference in the postage paid for two
first class pieces. And I think those judgments--there should
be a standard fee applied, a perfectly reasonable standard.
Mr. Schrock. Help me understand why the 30--I should know
this but, help me understand why the 37-cent did not have a
transportation cost.
Mr. Burrus. It was put in the mail in Washington, and I
live in Washington.
Mr. Schrock. OK, I guess I think everybody lives in
Chicago, and they do not. I understand.
Mr. Burrus. While the one put in the post office in
Greenville had to be taken to Washington.
Mr. Schrock. I see.
Mr. Burrus. It paid 10 cents less postage than the other
piece that they could have delivered to me by hand.
Mr. Schrock. Now I should know the answer to this too. Who
sets the rates for the businesses, is it you all or is it----
Mr. Burrus. No, the Postal Rate Commission.
Mr. Schrock. Postal Rate Commission.
I want to ask all of you this question. This is one that
has been on my mind for a long time, and I find it interesting,
your views on the ability of the Postal Service to participate
and compete with businesses in non-postal areas. Folks at the
D.C. headquarters decide what businesses to get into and it is
your members that are responsible for implementing them. And do
you think there should be limits on business ventures by the
Postal Service?
Mr. Young. My view is I do not know about limits,
Congressman, but I definitely think the Postal Service has got
to be allowed to explore new sources of revenue, because unlike
my colleague to my right here I am pretty much convinced that
this loss of first class mail is not a cyclical thing, it is
something that is being created by the alternate electronic
means that are available to people, and in my judgment this
problem is going to get worse and worse as we go along and not
better and better.
Having said that, I have been meeting with some of the
competitors, to be honest with you, and I have been talking to
the CEO of UPS and other competitors, because I understand that
allowing us into some markets can be trampling on other
people's--where they are at now, and they are going to have
some concerns with that. In my testimony, I suggested to you
all that I think we can strike a balance, if everybody is
interested in the survivability of the Postal Service--and
look, the CEO of UPS told me they do $200 million worth of
business with the Postal Service every year, that they are not
interested in carrying letters, that their business is packages
and really packages over 1 pound. So I was encouraged by that.
I just think what should happen is we ought to take the
approach that my union has been taking since 1993 to be honest
with you. We have been meeting with all of the stakeholders and
trying to consider everybody's view and trying to let everybody
get into this so we do not cripple anybody or hurt anybody. All
of us working together have the same objective: to improve the
viability of the U.S. Postal Service because it serves us all,
in one capacity or the other.
Mr. Schrock. Dale.
Mr. Holton. I do not know that I have an opinion on non-
postal-related business, and what I think of are retail items
in the postal lobby, which I look at as more of a convenience
for customers that promote--if you look at a lot of it, promote
philatelic items, maybe T-shirts and mugs, and that kind of
thing. But, I understand what Bill is saying about the other
things out there, that the Postal Service needs to have the
ability to look into the other ventures that might be postal
related, and if they are not then those things need to be
carefully monitored to make sure we do not get into a different
business.
But I have always taken the perspective that the Postal
Service is a business that has to survive and do whatever it
can, as long as it is within the bounds of what the law says.
So I guess that is where I am with non-postal-related business
ventures. What we can do to help the Postal Service survive I
would be in support of, but I would not want it to go too far
to a point where it infringes on other people, other business.
Mr. Schrock. Other commercial ventures.
Mr. Holton. Right.
Mr. Schrock. Mr. Hegarty.
Mr. Hegarty. I believe they should be allowed to engage in
retail operations that are reasonably related to the postal
business. As Dale mentioned, T-shirts, lapel pins, if some one
buys a T-shirt, hats, things like that--if they buy a T-shirt
or something like that at the post office while they are buying
stamps I do not think that hurts any competitors. I do not
think that is one less T-shirt they are going to buy.
Mr. Schrock. But if you start selling groceries, that is
where it stops.
Mr. Hegarty. There you go. If they can engage in
moneymaking ventures that will help them maintain universal
service, although we have not defined it yet, or help them keep
their head above water financially, I think it is a good thing
for the Postal Service.
Mr. Schrock. That is probably something we need to do,
clearly define universal service. Because is it here, is it
here, is it here. Mr. Burrus.
Mr. Burrus. Yes, I support the Postal Service's right, new
right, to engage in new enterprises, understanding clearly that
it is opening up Pandora's box. There will always be the
question of cross-subsidization.
Mr. Schrock. Cross what?
Mr. Burrus. Cross-subsidization: taking the profit from
first class mail that is protected by the monopoly and using
that profit to subsidize a new market. There would be the other
issues of whether or not the business the Postal Service is
entering is best served by the private sector and whether or
not a government agency should be involved in such activities.
It would open up a whole range of issues that the Postal
Service would have to respond to, but I do favor their
expanding their base.
There are many services we can perform in our current
environment. The recently passed Medicare legislation,
prescription drugs, there is no better vehicle to provide that
service to the American public than the U.S. Postal Service. We
are in every community. We already serve as a service with
draft registration, and other places that have a hard time with
their drivers' licenses, particularly Washington, DC, they
could use some postal facilities for something like that.
So we could expand under our existing charter, but I do
favor expanding that charter to permit commercial. I caution
everyone, the Postal Service has had attacks upon its share of
the market in the past. We have survived the telephone, the
telegraph, and I believe we will survive technology.
Mr. Schrock. You will survive these things.
Mr. Burrus. Yes, I think we will survive, because every day
I look at my mailbox. My mail is not determined by the number
of letters I have sent, the mail I receive goes up every month,
every month. I receive more letters today than I did 10 years
ago.
Mr. Schrock. Oh, I am on every sucker list in the world.
Yeah, I really am.
Does the sale of those items like the hats, the shirts, the
cups, does that really impose a hardship on those great folks
behind the counters?
Mr. Burrus. I was pleased to hear from the Mail Handlers
that they would like for my members to sell T-shirts and caps;
we have been there, done that. That was not a major revenue
generator. It caused some distraction in our lobbies. If they
expand their base, I certainly would not suggest that they go
into the direction of T-shirts and mugs.
Mr. Schrock. And if it is not a major revenue generator,
why are they doing it?
Mr. Burrus. In most places, I think they have scaled back,
they are not doing much there.
Mr. Schrock. Oh, they are not, OK.
Mr. Burrus. It was, by and large, a failure.
Mr. Schrock. Thank you. I have really enjoyed listening to
you all. Thank you, Mr. Chairman.
Mr. McHugh. I thank the gentleman. I promised not to
editorialize, but I was lying. I happen to be one of the people
that believe that parcel post and packages by the Postal
Service is not competing against the private sector. I happen
to believe the private sector is competing against the Postal
Service, because long before there were these--and they are
wonderful companies--these private companies doing this, the
Postal Service was doing it. And I know, back to Pierrepont
Manor, you remember that I mentioned it a few moments ago, when
you use one of these private companies you get a surcharge
because you are in a zip code that is not quite as profitable.
I think it is interesting that some of these private companies
have created a relationship with the Postal Service whereby you
are carrying their packages the last miles. So I mean, I reject
that, I do not think there ought to be a Postal Service used
car lot, and we need to ensure that we are focusing the----
Mr. Schrock. I think some Members liked that, they shook
their heads yes.
Mr. Young. Selling cars.
Mr. McHugh. Under the current law you could. So, I mean, we
have to strike a balance here, and I do think there are things
we can do, in fairness to private companies, to level that
playing field absolutely, and we need to do that.
I would also like--just a question, because I know Bill
Burrus said he had been in there 50 years.
Mr. Burrus. 1954.
Mr. McHugh. Now you are under oath, Mr. President. How old
are you? Yeah, and then my colleague, from Virginia, says,
``Were there not child labor laws back then?''
Mr. Burrus. You want on the record my age under oath?
Mr. McHugh. You can take the fifth.
Mr. Burrus. 67.
Mr. McHugh. Are you really? God bless you. You do not look
it. I would like to say I would like to look that good when I
am 67; I would like to look that good now. That is remarkable,
my compliments to you.
Mr. Davis, do you have any further questions?
Mr. Davis. No, I am satisfied with listening to this panel
and, you know, I want to invite them back again when the
weather is a little different, but we were pleased that they
have been here.
Mr. McHugh. Sir?
Mr. Young. Could I just have an opportunity to--I would
just like to put one thing on the record if I could. I was
advised of the outcome of the Senate hearings yesterday, and I
want to issue a formal apology to the Congress on behalf of the
members of the National Association of Letter Carriers. As I
reflect back over the years, I think too often we ran to
Congress and complained because we were unable to adjudicate
our differences with postal management. And I think what gets
done is that led a lot of Congresspeople to think that we need
your assistance. And I just wanted to--in the arena--we
definitely need your assistance, believe me when I tell you
that, but in the arena of collective bargaining I just want to
have one last chance to convince you that I am now of the
mindset that was just because we were not sophisticated enough
to deal with the issues we had to deal with. And I am more
encouraged now than ever that the capacity to engage in
meaningful labor relations is built into the system that we
have, it does not need to be messed with. And I am terrified
that somebody is just going to discard the 34 years that it
took us to learn this process and replace it with something
that is going to make us start all over again, and then there
will be screaming and hollering when neither one of us can make
an immediate adjustment to it.
So I thank you, for giving me that opportunity and on
behalf of over 300,000 active and retired letter carriers, I
apologize if we have misled Congress into believing that we are
unable to deal with our own labor relation issues. And I am
here to tell you that I do not feel that way and my members do
not feel that way, and I hope that the past has not done too
much to be able to convince you that is not so. And I thank you
for allowing me to say that, sir.
Mr. McHugh. Well, President Young, I appreciate that. You
know, as I mentioned in my opening comments, we worked very
hard over more than 8 years to try to do something that is
necessary, do something that is positive, and do something that
is achievable. I mean, we could go through the academic
exercise of talking about postal reform, and I have been doing
it now for over 8 years. The only true measurement on Capitol
Hill of success is passing a bill and getting it signed, and
the agreement we had last year, for a whole host of reasons,
put aside, did not bring into its context the kinds of things
that you are talking about.
I fully respect the President's Commission in the
recommendation that they made in this area. They were charged
to look at the full range of issues and they did, I think,
outstanding work. But speaking for myself, I do not see a
political small calculation that allows us to go in and address
the issue, particularly that you just spoke about, in a
successful way. And I do think we need to take some positive
steps, and I might be proved wrong there, I am not trying to
prejudice this process, and we are trying to keep an open mind
and we will. Your apology is appreciated. I am not sure it is
necessary, but it is appreciated and taken not just for the
record, but into our recognition.
So, gentlemen again, thank you, I was trying to be, and I
hope I was very sincere about the amazing work that your
employees do. And the service that you provide to every
American, each and every day, God bless you. Thank you.
[Pause.]
Mr. McHugh. I would like to welcome the members of our
second panel. And as happened with the first panel, the first
order of business, prior to my having the honor of introducing
them, is to ask them to rise and raise their right hands, so we
can do the oath as required under the committee rules.
[Witnesses sworn.]
Mr. McHugh. The record will reflect all three of our
distinguished panelists responded in the affirmative.
We have next, in the order they are presented here and in
the order I see in which they are seated, Mr. Olihovik, who is
national president of the National Association of Postmasters
of the United States. Now we welcome Mr. Steve LeNoir,
president of the National League of Postmasters, and Mr.
Vincent Palladino, president of the National Association of
Postal Supervisors. Vince, good to see you again. Gentlemen,
thank you so much for being here. Thank you for you patience.
As I noted with the previous panel, we do have your written
testimony, and without objection they will all be entered into
the record in their entirety. Hearing no objection, so ordered.
To the extent it is possible, we would ask you to summarize
those, and gentlemen, our attention is yours.
So, with that, President Olihovik, welcome sir, we look
forward to your comments.
STATEMENTS OF WALTER M. OLIHOVIK, NATIONAL PRESIDENT OF THE
NATIONAL ASSOCIATION OF POSTMASTERS OF THE UNITED STATES; STEVE
D. LENOIR, PRESIDENT OF THE LEAGUE OF POSTMASTERS; AND VINCENT
PALLADINO, PRESIDENT OF THE NATIONAL ASSOCIATION OF POSTAL
SUPERVISORS
Mr. Olihovik. Mr. Chairman and distinguished members of the
committee, on behalf of the 42,000 members of the National
Association of Postmasters of the United States, I welcome the
opportunity to share with you my thoughts regarding the need to
update the Postal Reorganization Act of 1970. I would be remiss
if I did not thank you, Mr. Chairman, for your strong
leadership with the introduction of the Postmasters Equity Act
recently signed into law by President Bush. Congressman Davis
and Congressman Schrock, you also have my deep appreciation for
your strong support for that bill as well.
The consistent erosion of first class mail even in times of
plenty is an ominous sign for the Postal Service. During the
third quarter of last year the Gross Domestic Product rose by
an impressive 8 percent. Yet, the Postal Service projects a 3.2
percent drop in first class mail volume.
As you know, this committee assisted the Postal Service, if
only temporarily, by passing Public Law 108-18. The CSRS
legislation provided a short reprieve; however, Congress needs
to revisit the issue as part of your postal reform effort. It
is important to reverse the decision to shift the military
retirement liability onto the Postal Service. In addition, the
Postal Service must be permitted to use the escrow that will
accrue as the result of the CSRS recalculation. Over the last 2
years, the Postal Service has successfully reduced costs to
balance shrinking revenue. However, the Postal Service cannot
continue to chip away at costs without influencing the quality
of mail service that Americans expect and demand. Rather, we
need the tools and flexibility that are essential to grow
revenue. President Bush has emerged as a strong ally in your
effort to push forward.
The fundamental mission of the Postal Service remains
unchallenged. The institution performs an inherently
governmental function and it should continue to provide
affordable universal postal services. This policy matter
Congress must reserve to itself and not delegate to a postal
regulator. Universal service encompasses a nationwide retail
and delivery network that reaches into every city and town. It
is clear that under current law and postal regulations, the
Postal Service may, and in fact does, close post offices. This
authority is not to be taken lightly. NAPUS urges Congress to
reject attempts to weaken those rights afforded to American
communities. In many situations, this is the only opportunity
for communities to appeal post office closures.
NAPUS has worked with communities in safeguarding their
legal rights to protect their post office. As part of this
effort, NAPUS publishes and circulates ``The Red Book: A NAPUS
Action Guide for preventing the Closing or Consolidation of
Your Post Office.'' In addition, NAPUS has worked closely with
the Congressional Rural Caucus to safeguard a community's due
process rights. Mr. Chairman, I request that the committee
include the NAPUS Action Guide as part of the official hearing
record.
Mr. McHugh. Without objection, so ordered.
[The information referred to follows:]
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Mr. Olihovik. Closing small post offices is a dreadful and
misguided strategy. Such actions would have a devastating
effect on many communities yet have little impact on postal
finances. As Robert Cohen of the Postal Rate Commission
testified before the Presidential Commission, closing the
10,000 smallest post offices would only net savings of about
$567 million, considerably less than 1 percent of the Postal
Service's operating budget. The postal network is not merely
the sum of its parts, it is an integrated system which relies
even on its smallest components. Americans expect access to a
full service post office. The Postal Service's own
transformation plan recognized this reality. Despite the fact
that 70 percent of postal customers are aware that postal
products might have been available elsewhere, 80 percent of
stamp sales continue to take place at the post office.
It is crucial that the Postal Service have the flexibility
to respond to and anticipate customers' needs. In part, the
President, his Commission, and legislation considered by the
House Government Reform Committee understood the barriers
erected by the act. In response, a consensus emerged that
endorsed providing the Postal Service with enhanced pricing
strategies. Permitting the Postal Service the ability to adjust
postage rates within defined limits would be an appropriate
mechanism to grant the agency enhanced pricing flexibility.
Postal Headquarters recently put into place a new pay for
performance program. This replaced the controversial EVA
program. The link between performance incentives and achieving
corporate goals reflects the strategy employed by the private
sector.
It is important to note that it is difficult to manage a
postal facility when performance incentives are inconsistent.
The managerial force is compensated using a system that rewards
performance. The current salary structure for craft employees
does not reward performance. Unless, we are somehow able,
through collective bargaining, to create a pay plan that
rewards individual or unit achievement, we will miss a crucial
opportunity to optimize efficiencies and encourage exemplary
performance. In sum, the present pay system compromises the
workplace by rewarding one set of employees, yet insulating
another. This practice adversely affects morale and
performance.
We must also do a better job with our unions to train
employees to perform different tasks within the post office. We
should work with the crafts to lower or eliminate barriers that
preclude postmasters from assigning personnel different duties
within a post office. Postal employees should have the
flexibility and training to cross over and perform a variety of
tasks. I would also suggest that cross training improves job
security for those employees whose skills could become
obsolete.
Finally, NAPUS remains extremely concerned about the
Presidential Commission suggestion to sunset FEHBP and for its
coverage of the postal employees. The proposal would subject
health and retirement benefits to collective bargaining. My two
primary concerns with the proposal are that it does not address
the impact upon current and future postal retirees and it
ignores the effect that separating postal employees from the
health and retirement programs would have on the entire Federal
benefits program.
Mr. Chairman, this concludes my remarks. I look forward to
working with you and other members of this panel as we strive
to ensure that the Postal Service will prosper for many years
to come.
Mr. McHugh. Thank you, very much, Wally. Appreciate your
effort to be here and your continued support and interest in
this process.
Next, as I have introduced previously, Mr. Steve LeNoir,
who is president of the League of Postmasters. Steve, thanks.
[The prepared statement of Mr. Olihovik follows:]
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Mr. LeNoir. Thank you, Mr. Chairman and members of the
special panel. Thank you for inviting me to appear before you
today. My name is Steve LeNoir and I am the president of the
National League of Postmasters. Before coming to Washington,
DC, I served as postmaster in Horatio, SC for the last 23
years. And while you say Pierrepont Manor has a population of
214, my community has well over 1,000 citizens in it.
Mr. McHugh. Actually, to be honest, 213, because I am out
of town today.
Mr. LeNoir. Chairman McHugh, I want to publicly thank you
for your efforts over the last decade on the behalf of the
Postal Service, and we look forward to working with you and
your committee. And Congressman Davis, we thank you for hosting
this hearing.
I welcome the opportunity to discuss the important issue of
postal reform. Started in 1887 to represent rural postmasters
and formally organized in 1904, the National League of
Postmasters is a management association representing the
interests of all postmasters. Although we represent postmasters
from all across the country, from the very largest to the
smallest post offices, rural postmasters are a sizable portion
of our membership. The League speaks for thousands of retired
postmasters as well. Mr. Chairman, we would like to thank you
and your colleagues on the Government Reform Committee for your
dedication to the issue of postal reform.
Postal reform is critical to the long term ability of the
Postal Service to provide affordable universal mail service to
every individual, home, and business in America. There is no
doubt that the Postal Service needs fundamental change. We know
that our jobs and those of the people we manage are ultimately
at stake. While we know that the Postal Service's
transformation plan takes us in the right direction, we also
know that legislative reform is necessary to finish the
process. We commit ourselves to work with you to make this a
reality.
Mr. Chairman, as Congressman Davis stated in his opening
remarks, the most critical issue facing the Postal Service now
is the civil service retirement issue. Last year's legislation
corrected an overpayment to the CSRS that saved the Postal
Service billions of dollars, but put those savings from 2006 on
into an escrow account. The Postal Service has suggested using
it to pre-fund retirees' benefits, thus funding one of the
biggest unfunded liabilities that the Postal Service would face
in the future. We think this is an excellent idea.
Also, last year CSRS legislation forced the Postal Service
to assume the responsibility for $27 billion in military
retirement benefits that were earned by postal employees before
joining the Postal Service. That responsibility is not one that
the Postal Service should bear, and it deserves to be
transferred back to the Treasury. We strongly urge Congress and
the committee to make both of these issues a top priority.
On December 8th of last year, the Bush administration
called on Congress to enact postal reform and listed five
principles that it believes should guide postal reform. We
believe these five principles are an excellent foundation for
postal reform.
One issue that does concern us is the possibility of
closing rural post offices. The League is concerned that access
to a post office in a rural community could dramatically change
if postal reform is not implemented properly. We are
particularly concerned that overzealous individuals could
develop a mistaken belief that closing small post offices would
net meaningful savings for the Postal Service. As my colleague,
President Wally, pointed out, the facts do not support that.
The record shows that the cost of the 10,000 smallest post
offices is less than 1 percent of the total budget for the
Postal Service.
Mr. Chairman, rural post offices are a key to a healthy
rural economy and are necessary to provide a universal service
in rural America. As supported by our written testimony, the
local post office is an American institution that literally
binds rural America together politically, socially, and
economically. It is the lifeblood of rural communities and it
should not be harmed.
No less important are small post offices in inner city
areas. They provide a vital link to the Postal Service and the
country and they also should not be harmed. While we understand
there may be a legitimate reason to close a post office, we do
not believe that the existing rules pertaining to these
closings of post offices should be changed. These rules are
fair to the customers, the local community and the Postal
Service.
The League of Postmasters looks forward to working with you
and your committee in passing responsible postal reform and we
pledge ourselves to that effort. And I would be happy to answer
any questions the committee may have.
[The prepared statement of Mr. Lenior follows:]
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Mr. McHugh. Thank you very much, Steve. Let me ask you a
question. It has nothing to do with postal reform, but what is
the name of the post office, in Horatio?
Mr. LeNoir. It is the Horatio Post Office.
Mr. McHugh. What is the name of your Member of Congress,
and I do not mean to embarrass you, if you do not know?
Mr. LeNoir. John Spratt and also Jim Clyburn, I am right on
the line between those two.
Mr. McHugh. Well, the reason I ask, the folks in the
audience do not have the benefit of the written testimony I do
not believe, maybe they do. They do not have the benefit of the
written testimony, just in case you think this gentleman's
association with the post office is tenuous, according to his
written testimony, he comes from an old postal family, ``when I
speak of the Postal Service, I speak from a century old
tradition.'' Steve's wife is a postmaster in South Carolina and
she was a postmaster in West Virginia before that. His mother
was a postmaster for 32 years, and as he absolutely correctly
noted, the type of dedicated person that worked in the Post
Office right until the day he was born. And his great-
grandfather, Walter LeNoir, was Postmaster in Horatio, where he
has been Postmaster since, what 1981?
Mr. LeNoir. 1900-1935.
Mr. McHugh. His, I mean you, the same post office.
Mr. LeNoir. Yes, I have been there since 1981.
Mr. McHugh. If we do not name this one the LeNoir Post
Office, there is something wrong. We will have to talk about
that. In any event, thank you very much, sir.
It hasn't been since 1900 that Vince Palladino has been in
his esteemed position, but when I began this process and had
the honor of serving as the chairman of the Postal
Subcommittee, in my second term in the House of
Representatives, Vince Palladino at that time was president of
the National Association of Postal Supervisors, and it is a
comfort to me and I am sure to his many members that he remains
the president. So, Vince, it is good to see you again; welcome,
and as always we look forward to your comments.
Mr. Palladino. Thank you very much, Chairman McHugh. I have
reduced my remarks due to the pending storm, possibility of
fire or other hazards. [Laughter.]
Thank you, Chairman McHugh, for the opportunity to appear
before the Special Panel on Postal Reform and Oversight on
behalf of the 36,000 postal supervisors, managers and
postmasters who belong to the National Association of Postal
Supervisors. I am pleased to be here today to participate in
this hearing to add our voice in support of congressional
passage of comprehensive postal reform. This hearing is an
important step toward the achievable goal of passing a postal
reform bill this year.
My testimony today is devoted to four areas that should be
embraced by postal reform: rationalizing the postal network,
achieving effective labor-management relations, improving pay
and performance incentives, and postal pension funding reform.
We agree with the Postal Commission that the current
network of post offices and plants requires streamlining,
leading to the closure of unneeded facilities, to assure that
universal service is delivered in the most effective and cost-
efficient manner possible. Indeed, many of the Nation's post
offices are probably no longer necessary to fulfill the
universal service obligation.
Streamlining or rationalizing of the postal network should
be carried out on a comprehensive basis under the authority and
the control of the Postal Service, in consultation with
Congress and its stakeholders. The ultimate aim should be to
arrive at cost savings while preserving affordable universal
service.
We see no need for the establishment of a Postal Network
Optimization Commission [PNOC], as recommended by the
President's Commission, applying a base closing approach to
unneeded postal facilities. The Postal Service is the best-
equipped entity to arrive at the optimal number, location and
function for the mail processing and distribution functions,
just as the Postal Service is similarly equipped to arrive at
the optimal number, location and function for post offices.
Under current law, the Postal Service is not allowed to
close post offices for economic reasons alone. The Commission
recommended that such statutory restrictions be repealed and
that the Service be allowed to close post offices that are no
longer necessary for the fulfillment of universal service. We
agree and urge the Congress to grant the Postal Service the
flexibility and necessary accountability in fair and rational
ways to fulfill its universal service obligation in a cost
efficient and effective manner.
From my perspective, as president of one of the foremost
management associations within the Postal Service, progress is
being achieved in fostering better communication at the
national level between the Postal Service and the leadership of
the craft unions and the management associations. However,
progress in lower levels and in other areas continues to remain
uneven, especially in the resolution of grievances.
The Postal Commission noted that ``Encouraging progress is
being made by the Postal Service and one of its unions in
resolving grievances through the use of a streamlined grievance
process involving a Dispute Resolution Team [DRT], comprised of
representatives of management and the craft. We believe the DRT
approach is best directed to the resolution of contract-related
disputes in the field where they begin, while workplace
environment disputes are best resolved by mediation. We also
are concerned by the growing reliance by DRT upon non-binding
arbitration decisions as precedent by Dispute Resolution Teams.
We encourage the panel to continue its oversight in these
endeavors.
Recently, the National Association of Postal Supervisors
and postmaster organizations have collaborated with the Postal
Service in establishing a new pay for performance system,
reshaping the EVA system first established in 1995, that better
rewards teamwork, efficiency, and service quality in a fair
manner. Measurable and realistic goals are now being
established at the unit, district and area levels as part of
the new system; progress is being made. We agree with the
Commission that it is time to expand merit-based pay to the
entirety of the postal work force, including bargaining unit
employees. The establishment of an incentive-based culture of
excellence in any organization relies upon performance
management systems that reach across the entire organization
and cover all employees, not only those in management ranks.
The Commission urged the Postal Service to undertake a
study of performance-based compensation programs for both
management and union employees and work with the unions and
management associations to design and implement a performance-
based compensation program. We are counting on the Postmaster
General and the craft unions to negotiate some form of pay for
performance at the bargaining table. We also urge Congress to
repeal the current statutory salary cap as it applies to the
Postal Service--currently $171,900--and that the Postal Service
be authorized to establish rates of pay for top Postal Service
officers and employees that are competitive with the private
sector. Additionally, we encourage the special panel to take a
critical view toward the necessity of establishing a new
regulatory body, such as the Postal Regulatory Board, to assume
authority over total compensation, scope of the monopoly,
definition of universal service, as well as other important
policy and regulatory powers exercised by Congress, the Postal
Rate Commission, and the Postal Service itself.
Similarly, we question the wisdom of subjecting Postal
Service pension and post-retirement health benefits to
collective bargaining. This could significantly impact the
vitality of the entire Federal pension and retiree health
benefit programs, and we caution Congress to move very
carefully in full consultation with the postal stakeholder
community before proceeding in these areas. We support the
Postal Service's proposal to eliminate the escrow requirements
so the Service would not have to include $3 billion as a
mandated incremental operating expense in fiscal year 2006. We
also support relieving the Postal Service of the burden of
funding retirement benefits attributed to military service and
returning that responsibility to the Department of the
Treasury. We support the use of savings to pre-fund retiree
health benefits obligations for current and former employees,
estimated at approximately $50 billion. Under the proposal, the
funds would stay in the Civil Service Retirement System and
therefore not impact the Federal deficit. Finally, we have
recently been apprised of the difference in methodology used by
the Office of Personnel Management and the Postal Service in
determining the Postal Service's CSRS obligation. We were very
surprised to learn that according to the Postal Service
calculation, its obligation is $86 billion less. Somebody has
to take a look at that.
Thank you for the opportunity to present these views. We
look forward to continuing to work with you, Mr. Chairman, and
the committee, to secure a sensible postal reform. And I remain
available to answer any questions.
[The prepared statement of Mr. Palladino follows:]
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Mr. McHugh. Thank you very much, Vincent, and again I
deeply appreciate your years of commitment to this, I
congratulate you.
As I had a chance to go through your written testimony, all
three--with the exception of the approach on some of the
closure issues--you obviously all three are pretty much on the
same page. One of the issues that the Commission identified in
what they called ``critical'' to controlling the future costs
of and capabilities of the Postal Service is the ability of
management and labor to work together to constructively
determine the right size of the Postal Service work force, as
they put it, to ensure flexibilities in its deployment. As
management associations, your folks are out on the floor and
are the main line of interface between management and the
workers. What do you feel, if anything, is something that this
panel should work to get into whatever reform bill we might do
legislatively to enhance that opportunity for cooperation and a
better work force management relationship? Is there anything
legislatively or is that just something that has to be worked
out almost on a personal level? Wally.
Mr. Olihovik. Mr. Chairman, I do not know about
legislatively. It could possibly be done internally among
ourselves. I think one of the biggest things that we all seem
to agree on is the pay for performance program that we put
implemented. I have been in the Postal Service now for over 25
years. I think we have made some tremendous strides with the
unions. If you take a look at the individuals that you had up
here before us, I think each and every one of them had a 21st
century mentality of where this organization, the Postal
Service, needs to go.
We all have to clearly be on the right path and it should
be the same path. I mean, I am very, very optimistic about the
new pay for performance program that we have recently talked
with the Postal Service Headquarters about. We had a lot of
input into that program. But, as I said in my prepared remarks,
it is very, very, difficult when you have one group going in
one direction, being rewarded for a certain set of principles,
and another group going in another.
I think the idea of striving for excellence together will
really bring us right at the end. And I know it is not going to
be as easy as I possibly think it might be at this point in
time. But, we have good recognition. I mean, being a
postmaster, I have held a lot of positions in the Postal
Service. I will tell you, being a postmaster, looking at some
of my fellow postmasters, they are some of the most dedicated
people. We are the people that are out there on the front lines
every day dealing with customers, and we fully realize, Mr.
Chairman, that those customers are not our enemies. Those
customers are our valued customers, and we need them. I would
rue the day that they ever thought of taking their business and
going elsewhere. So, it is going to take a collective effort to
head in the right direction. I think that the pay for
performance model that we are under now is a good first step.
Mr. McHugh. Thank you, sir. Steve.
Mr. LeNoir. I would also like to point out that relations
between the unions and management associations and postal
headquarters, I believe, is at an all-time high. I think we are
working together on the same page, and I think we want to
continue in that direction.
I would also like to point out that the number of
grievances has decreased dramatically. That was a major problem
2 to 3 years ago that the Postal Service decided to tackle head
on, and I believe we have made a lot of progress in that area.
One area that I do think we could work toward is
flexibility in how we can use our employees. Currently, in a
large post office, if a clerk has down time and tries to push a
mail cart across the floor, that is mail handler work. We may
need a little flexibility in how we can use our employees. And
I am not certain if that is a legislative remedy or if that is
just something we need to sit down and work with our unions on,
to revise outdated rules.
Mr. McHugh. Thank you. Vince.
Mr. Palladino. To be blunt, I do not think we need any
legislation. I think with the new Postmaster General in
cooperation, we have been working together, things will change,
but I think it has gone pretty fast. You were there when we had
to go through the Federal Mediation to have a meeting. We do
not do that anymore, the Postmaster General calls it, everybody
shows up, we all have our say and I think we can do better in
the future; in fact I know we can.
The workroom floor rules can be talked about with the
craft. I think they are responsive today and we are working
together. So I would rather it be left with the Postmaster
General and the stakeholders to make this Postal Service better
and better.
Mr. McHugh. Thank you, sir, I appreciate it. Mr. Davis.
Mr. Davis. Thank you very much, Mr. Chairman.
Gentlemen, as we go through this process of determining
what the postal system is going to look like, I think there is
going to be a great deal of conversation trying to determine
what universal service will actually mean. And I think we are
going to look at the whole notion of what extent do we
consolidate or will we see the consolidation, especially of
smaller postal units, throughout the country. Could you help me
with how you think we can reconcile those two notions. One,
universal service, what are we really talking about, and
whether or not consolidation of any units will help shape the
ability to provide universal service in terms of resources
being available to do that, so could you----
Mr. Olihovik. Congressman Davis, I would like to say my
definition of universal service is delivering every day to
everybody, and one of the things that is very important that we
have to keep in mind is uniform pricing. I think on one of the
last panels we might have gone a little bit on a tangent with
the cost of pricing, taking it from one location to another. I
for one, would hate to see the day where we are charging all
sorts of different prices throughout this country based on
where you live. I think that would be the absolute wrong way to
do it. We can never look upon rural America as being second
class citizens.
As far as looking at what the network might look like, I am
absolutely certain that, in order to be successful, we are all
going to have to be involved in shared sacrifices, there is no
doubt about that. There are some people who believe that you
cannot close post offices. There is nothing written anywhere
that says you cannot close a post office. There is no
moratorium as of today on closing post offices. We have a very
defined process and the historical record will speak for
itself. When that process has been followed, we have in fact
closed 14,000 post offices within the last 30 years. There are
other options and in many of our big cities we have things
called contract postal units to assist.
The process was put in place for a very, very good reason,
because before you take that drastic step of telling a
community that you are going to close their post office, you
better take everything into consideration. It would be very
different if you were to define why we should be closing post
offices. I would suggest to you if you use the yardstick of a
post office losing money that would be an improper yardstick
for closing a post office. I would suggest, if you look at the
record, that in the State of Maine, where Chairman Susan
Collins is from, that if you were to use that yardstick for
closing a post office, you would in fact close 77 percent of
the post offices in the State of Maine. And where committee
member John Sununu is from, my home State, New Hampshire, you
take a look at that you would be closing a similar amount.
I do not think that is the way to go. I think that the
process is an established process and I think if people follow
the process, the Postal Service has done it--and as I said,
14,000 post offices have in fact been closed by following that
process over the last 30 years.
Mr. LeNoir. Congressman Davis, I appreciate your effort to
try to get a clear definition of universal service. We share
that same concern.
My friend Dale Holton from the Rural Carriers said that the
rural carriers were a post office on wheels and provided every
service that the post office did. I respectfully disagree with
that assessment. Just like in the weather here, would you like
for your grandmother to have to figure out when the rural
carrier is coming by her house and sit out in front of the mail
box and wait for services? I just do not think it is an equal
service if you take that option away from rural America.
There are so many things that we do in those offices that
it is hard to put a dollar value on. We have people in my
hometown that did not have an educational opportunity and we
help fill out money orders, answer mail and do things for those
people that otherwise would not be done, and it is very hard to
put a dollar amount on those things.
As far as the network of plants and things of that nature,
we are a customer of the plants, we ultimately receive the mail
at our post office put together by those plants. And how they
are aligned, we are not taking a strong stance on that now, we
just want to do what is best for the Postal Service. But I
think the key is to utilize the full value of the network that
we have out there. I do not think we fully maximize the value
of our post offices. And I think there are other services that
we could be providing that would bring us closer to the break
even point.
Mr. Palladino. I have a wider prospect on what you--on the
question you are asking. We are in a position where we are
losing mail and losing revenue and doing what every company in
the United States today is doing, we are reducing support jobs,
and we will reduce plants. If we can get the mail to the post
office with one less plant the post office is going to do it.
And the reason that we are looking for some help is
because, I think, if we get this help from you all, we can do
it through attrition, not through something that has to be done
drastically like we did in 1992. But eventually we are going to
cut somewhere or we are going to have to go for subsidy.
So I think it is like a ``catch 22;'' we want to get to the
most efficient source with the right price and in order to do
that we are looking for postal reform, for flexibility to get
there. And I do not know if that answered your--I think you
were talking about downsizing. I think it is a fait accompli.
We are going to right-size or whatever term you want to use,
they are looking at all of our support positions to bring it
down to where they can serve and still serve everybody
correctly. And the same thing is being done with mail
processing and possibly post offices.
Mr. Davis. Well, I do not know if we get there, but it is
certainly helping as we try to rationalize the most effective
approach to looking at the needs of all the different types of
communities that exist in our country and look at the needs of
those individuals who have given so much of themselves to try
and make systems work. And your testimony has certainly helped
me as I try to determine where I am, where I stand and what
approach I think really works.
So I certainly want to thank you for coming in and sharing
and giving that information. That helps a committee or helps an
individual like myself make a determination when ultimately we
reach the point where there is no return and you just have to
simply decide where you are.
So I thank you very much. Thank you, Mr. Chairman.
Mr. McHugh. I thank the gentleman as always. Mr. Schrock.
Mr. Schrock. Thank you, Mr. Chairman, and thank the three
of you. I want to identify myself with what Mr. Davis said. I
have learned a lot, too. It was worth coming to this cold city
to hear all this today and I really appreciate it.
I was going to ask Mr. LeNoir questions about transferring
excess post offices in local communities. I will not because
you have all pretty much discussed that. I think I heard you
say that the savings would ``only be'' $500 million. I am not a
rich guy and I would love nothing better than to take $500
million home to the Second District of Virginia for the
military, for education, for highways, and a lot of things. I
would be the hero forever. So, I think that is a lot of money.
As the man whose name is on this building said, ``A million
here, a million there and pretty soon you are talking about
real money.'' To me $500 million is a pretty substantial sum of
money that I would take any day of the week to take home to the
district I represent.
I just have one final question. Do you support allowing the
postal system to retain their earnings and how do you think
those earnings should be used? To what use should they be put?
All of you.
Mr. Olihovik. I do support that concept. I think there are
a number of things we can do and I think one of the main things
that we need to look at is our capital expenses right now. We
have had too many buildings that have been put on hold as far
as needed repairs in the facilities and I think that is one of
the things that we could look at. I do support that concept.
Mr. LeNoir. Congressman, I also support that concept
because with the rate cycle we have now, the first year you are
supposed to make money, and the second year break even, and
then lose money the third year. It just seems like a vicious
cycle.
I would like to comment on your $500 million comment. I
certainly am not trying to trivialize that amount of money, not
whatsoever, but if you look at it compared to a $70 billion
budget, you have to put it into perspective. As we said, we are
trying to figure out ways we can make additional funds that we
are not currently making. I will use an example. In my little
office I put in a fax and copy machine because the closest
service was 20 miles away. I cannot compete with private
industry, yet it allowed us to make additional revenue in that
office and it paid for itself many times over.
Mr. Schrock. Sure, I agree.
Mr. LeNoir. So I just think we need to look at solutions
like that so we can close that $500 million gap.
Thank you.
Mr. Schrock. Thank you. Mr. Palladino.
Mr. Palladino. Repair our infrastructure and reduce our
debt.
Mr. Schrock. What is it, $87 billion in infrastructure and
$90 billion in debt? We need to help.
Mr. Palladino. Yes.
Mr. Schrock. Again, thank you. Thank you for allowing me to
come here and thank you all for being here as well.
Mr. McHugh. I thank the gentleman for coming here. I have
been in Congress for 12 years and I still happen to believe
that, as my colleague from Virginia suggested, $500 million is
worth thinking about. I know for many that is a rounding error.
[Laughter.]
But I think the point that Mr. Olihovik made is still
relevant, that if you were to close every post office under
that rubric, the savings would be, in a relative term to the
entire financial situation of the Postal Service, kind of
minor. But the political ramifications would be enormous. I may
have mentioned Pierrepont Manor--[laughter]--you close that
post office in Pierrepont Manor, in my humble opinion--the mail
service component is obviously paramount, but that is the one
public facility we have in that entire community 214--213, I am
out of town. And it is a meeting place, it is a facility that
gives a sense of community. Now, I am not saying that we should
save every post office in America, but I am saying it is
important and it has to be considered, is the only point I
would make and I would fully endorse what President Olihovik
said, in spite of the current impression to the contrary, and
the Commission made a distinction, it really did. It talked
about lifting the financial consideration component of the
barrier against closures. But we can--the Postal Service can
close post offices today. And I am not encouraging them
necessarily to do that, but they are empowered, they just have
to go through a process. I think a community that has such a
stake in a facility should have available to it a process by
which to take its case and be heard. Again, I am
editorializing.
Before I close the hearing, and with my appreciation to the
final panel, I want to emphasize something that I hope I made
clear in my opening comments. We are here today resurrected
from the grave of congressional irrelevancy, in large measure
because of President Bush and the work of his Commission, and I
thank him for that. I hope I made that clear. And if there is
any question about the interest and dedication of the
administration to this initiative, I think it is important that
I underscore that we are joined very quietly, and I do not
believe he has made his presence known to anyone but he has
been spotted, by Mr. Roger Kodat, who is the Deputy Assistant
Secretary, I believe, for Government Financial Policy--did I
get that right, Roger--who just flew out here for this hearing,
and came out and sat and listened, and to have a Deputy
Assistant Secretary of a Federal department here to monitor the
progress and what has been said, I think underscores what I, as
I said, tried to convey.
This is an important issue to this administration, and for
no other reason alone I commend the President and his
administration, particularly the Department of Treasury which
has been so interested in this, for their interest.
Gentlemen, thank you so much for being here. As I tried to
indicate, I appreciate the work you do, appreciate the
management associations' members and the great work that they
do. When I go in and see my postmaster, you know, she is one of
yours. And we look forward to working with you collectively on
a bipartisan basis to try to do something that ensures the
future one of the most important organizations in this Nation,
the U.S. Postal Service. God bless you.
And with that we adjourn and look forward to the next trip
to Chicago. I hope it is sooner than 7\1/2\ years, as the last
one was for me.
Mr. Schrock. As long it is in the summer.
Mr. McHugh. Yes, well, we will talk to Congressman Tom
Davis about that. But, Danny, thank you so much for your
hospitality and thank you for letting us be in your wonderful
city and district.
Mr. Davis. Thank you for being here.
Mr. McHugh. The hearing is adjourned.
[Whereupon, at 3:28 p.m., the special panel was adjourned.]
[Additional information submitted for the hearing record
follows:]
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ANSWERING THE ADMINISTRATION'S CALL FOR POSTAL REFORM--PART III
----------
WEDNESDAY, FEBRUARY 11, 2004
House of Representatives,
Special Panel on Postal Reform and Oversight,
Committee on Government Reform,
Washington, DC.
The special panel met, pursuant to notice, at 1:02 p.m., in
room 2154, Rayburn House Office Building, Hon. John McHugh
(chairman of the special panel) presiding.
Present: Representatives McHugh, Burton, Schrock, Miller,
Murphy, Blackburn, Davis of Illinois, Towns, Maloney, and Clay.
Also present: Representatives Tom Davis of Virginia, Shays,
and Waxman.
Staff present: Robert Taub and Jack Callender, counsels;
Drew Crockett, deputy director of communications; Teresa
Austin, chief clerk; Allyson Blandford, office manager; Michael
Layman, professional staff member; Phil Barnett, minority staff
director/chief counsel; Kristin Amerling, minority deputy chief
counsel; Althea Gregory, minority counsel; Denise Wilson,
minority professional staff member; Earley Green, minority
chief clerk; and Cecelia Morton, minority office manager.
Mr. McHugh. The panel will come to order. With the gracious
agreement of Mr. Davis' staff, the ranking member who is on his
way--he will be here shortly--he has agreed to let us try to
begin this hearing. I certainly want to welcome all of you here
today.
This is the third installment of three panel sessions that
we have had during the past 2 weeks. In that task, we continue
today to examine the President's call for postal reform, which
he made in December and reiterated again in his budget message
that was presented to Congress on February 2. Today, we are
truly honored and want to welcome highly esteemed panels, two
of them in number, of chief executive officers representing the
views of customers, competitors and postal-reliant businesses.
I have said it before and I will say it again, and
certainly our witnesses, I believe you will hear today, know it
all too well. The Postal Service is the focus of a nearly $900
billion-a-year in industry activity. It employs some 9 million
workers nationwide, and it represents approximately 8 percent
of our Nation's gross domestic product.
Our Postal Service is in trouble and it requires reform to
preserve universal service and prevent a worsening crisis. Last
week, in a panel held in the ranking member's hometown of
Chicago, we heard unanimous support from the Postal Service
employee groups for the administration's broad principles on
postal reform. Two weeks ago, in our first session, the Postal
Service itself, along with the administration, the Rate
Commission, and the General Accounting Office, all testified
that universal postal service is at risk and that reform is
urgently needed to minimize the danger of significant taxpayer
bailout or dramatic postal rate increases. All agreed that the
Postal Service's current business model, formulated as it was
in 1970, is no longer sustainable going into the 21st century.
To understand the challenges at hand, one needs simply to read
the testimony we received regarding the enormous liability
still facing the Postal Service, the serious declines in mail
volume and revenue, changes in the mail mix, increased
competition from private delivery companies, declining capital
investment, insufficient increases in postal productivity,
uncertain funding for emergency preparedness, and major
impediments to continued cost cutting.
While the problems are clearly dire, I believe the
President's principles for legislative change identify a path
to some solutions. Fortunately, there currently exists the
strong bipartisan basis upon which to proceed, including the
highly refined bill that we developed in the last Congress with
Representatives Davis, Waxman and Burton. Senator Carper has
introduced an almost identical version of our legislation in
the Senate.
The Postal Service is simply too important an institution
to the people of this Nation, to our economy, to await the full
brunt of a crisis that is clearly on the doorstep. Indeed,
there is good reason why this is the first administration since
that of President Nixon to call on Congress to modernize our
Nation's postal laws. I remain hopeful, as Congress did in
1970, that we too, in the year 2004, will answer the
President's charge and the President's challenge.
I would like to thank all of our witnesses for appearing
before the committee today, and I look forward to their
testimony. I will have the honor of introducing them in a
moment, but before I do that, as I said, we would like to cover
opening statements. As I begin to yield, I see the ranking
member of the full committee, Mr. Waxman, the gentleman from
California, has joined us. Do you want to make your opening
statement now?
Mr. Waxman. Sure.
Mr. McHugh. I would be delighted to yield to him. He was
out of the room, so I will repeat it. I deeply thank the
gentleman for his leadership, for his input, and for being here
not just today, but through this entire challenge.
Mr. Waxman.
Mr. Waxman. Thank you very much, Mr. Chairman. I am pleased
to join with you in this third hearing on postal reform.
The Postal Service is one of the country's most venerable
institutions. Since its inception over 200 years ago, the
Postal Service has played a vital role in our national
commerce. Today it remains integral to business activities
around the country and the world. The postal system supports an
$891 billion industry, representing over 8 percent of the gross
national product. Businesses and families across America depend
each day on Postal Service delivery and services. Rain or
shine, the Postal Service now delivers more than 200 billion
pieces of mail a year to roughly 141 million addresses. The
Postal Service is an American institution that we must protect.
Yet this historic institution that is so vital to our
Nation is facing enormous challenges. The Internet and e-
commerce are eroding mail volumes. Security threats like
anthrax and ricin pose new risks. The Service is operating
under a set of laws that have not been adapted to the changing
delivery environment. While the postal pension law we enacted
last year provided some immediate financial relief to the
Postal Service, the Postal Service continues to face large
financial challenges. The Postal Service's unfunded health care
liabilities alone are estimated at between $47 billion and $57
billion.
Our challenge is to modernize the laws that govern the
Postal Service so that it can remain effective and viable in
the 21st century. This will not be easy, because the Postal
Service affects so many parts of our economy. A wide range of
organizations with many conflicting interests will be affected
by what we do, but change is essential if we are to strengthen
and preserve the Postal Service.
A key part of this process is that we listen well and that
is why today is so important. Today's witnesses range from
printers to delivery companies, from a catalog merchandiser to
a nonprofit organization, from a greeting card company to a
direct mail marketer. All of these businesses are dependent on
the Postal Service. The Postal Service's success will
contribute to their success, and a withering Postal Service
will impact these businesses, their customers and their
employees.
Similarly, these businesses, each in their own way,
contribute to the Postal Service's success. For example, many
of the companies we will hear from today play an important role
in providing the mail volume that is so important to the Postal
Service's viability. I look forward to hearing their views on
the importance of rate stability, price flexibility,
continuation of universal service, and enhanced regulatory
authority.
As I conclude my remarks, I want to commend three of my
colleagues who have taken crucial leadership roles in this
process: Chairman Tom Davis, Postal Panel Chairman John McHugh,
and Postal Panel Ranking Member Danny Davis. Chairman Davis
said last fall that if this committee is going to pass postal
reform legislation, the legislation has to be a bipartisan
product, and that is exactly the approach that we have been
following.
Thank you all for your interest and I look forward to
hearing the testimony.
[The prepared statement of Hon. Henry A. Waxman follows:]
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Mr. McHugh. I thank the gentleman, and again express my
appreciation for rolling up his shirtsleeves as always, and
becoming so productively involved in this issue.
Next, I would be honored to yield to the gentleman from
Virginia, the chairman of the full committee, who truly has
taken the leadership role in this process, who has not allowed
it to sit on the back burner, but has dragged the pot from the
back to the front of the stove, my friend Mr. Davis.
Mr. Davis of Virginia. Thank you very much. I want to
begin, Mr. Chairman, by thanking the chairman of the special
panel, John McHugh, for yielding. I would especially like to
thank him for his leadership and vision on this important issue
and for conducting this series of hearings.
The panel's first two hearings have been very instructive
and have also made it clear that there is a broad consensus
developing around the administration's five principles for
postal reform. Perhaps the stars at long last are aligning. I
look forward to working with Chairman McHugh, the ranking
member of the committee, Mr. Waxman, the ranking member of this
panel, Danny Davis, and other members of the special panel to
craft postal reform legislation that will allow the Postal
Service to survive well into this century.
We have two very distinguished panels of witnesses here
today and I want to thank each of them for taking the time out
of their busy schedules to appear before us. I should note that
the special panel would have benefited greatly from two
witnesses who were invited to testify today, Mike Eskew, the
CEO of UPS, and John Fellows, the CEO of DHL Worldwide Express
in the Americas. Unfortunately, they both had unavoidable
commitments so they were not able to appear, but they have
submitted testimony for the record and we will give them an
opportunity to appear in person later. I want to thank them for
doing so.
Mr. Chairman, the last time Congress passed comprehensive
postal reform many of the technologies that we take for granted
today, such as fax machines, e-mails, the Worldwide Web, were
the stuff of science fiction. But the threat of electronic
diversion to the Postal Service's ability to provide uniform
service at uniform rates is very real today. First class mail
volumes have been in decline for several years and the only way
the Postal Service can legally respond to declining volumes and
revenues right now is by raising rates even further. As rates
go up, even more volume leaves the system, contributing to what
David Walker, who testified at the panel's first hearing, and
is the head of the GAO, has called a ``death spiral.''
If we do nothing, the Postal Service will be defunct before
we know it. I think the time is right for Congress to prevent
this from happening. For the first time since the Nixon
administration the White House has called for comprehensive
postal reform. Our colleagues in the other body are as
committed as we are to preventing the Postal Service from
melting down. We also have the guidance of the President's
Commission on the Postal Service, which did an extraordinary
job in a very short amount of time. Last but not least, we can
build on the 9 years of hard work that Chairman McHugh has
devoted to this issue, and I might add, Chairman Burton before
me. I look forward to working with him and the rest of our
colleagues on the other side of the aisle as we confront this
vital issue.
Thank you.
[The prepared statement of Chairman Tom Davis follows:]
[GRAPHIC] [TIFF OMITTED] T3087.421
Mr. McHugh. I thank the distinguished chairman for his kind
comments and for his leadership on this issue.
For those of you in the back who cannot see the next
speaker, you can look right up there and see him. [Laughter.]
That is not an exercise in ego. It is an exercise of the
fact that he was the esteemed chairman of this full committee
for the 6 years in which every Member is allowed if they are
lucky enough, fortunate enough, hard-working enough, and good
enough to reach that pinnacle. I will tell you that during my
time previously as a subcommittee chairman and later as a
special panel committee chairman, Dan Burton took this issue up
and worked it to his fullest. You could not ask more of a full
committee chairman than Mr. Burton to render unto this issue.
So I am thrilled he asked, volunteered, aggressively pursued a
position on this panel. It is a thrill for me to see him seated
here today. I am honored to yield to him once more.
Mr. Chairman.
Mr. Burton. Thank you, Mr. Chairman. Would you send a copy
of your remarks out to my district? I really would appreciate
it. [Laughter.]
I should look that good.
Let me just make a couple of brief comments. I have a
statement I would like to present for the record, Mr. Chairman.
But one of the things that is very important, in addition to
having the administration get on board in trying to get
legislation passed which will help solve the problems of the
Postal Service, is to get the interested parties involved in a
positive way.
Now, I do not mean to throw any rocks at anybody and I am
not going to go into specifics, but there are certain
organizations that have a vested interest in the Postal Service
not doing as well as they should because they pick up market
share. I think it is real important that this subcommittee and
the chairman and the administration work very closely with
these individuals to make sure that they are on board, because
if they are not on board, then their employees will be lobbying
their Congressmen and Senators against passage of legislation,
and we will be in the same mess we are in now, 2 years from now
and 4 years from now, and the situation will just get worse and
worse.
So it is extremely important that all interested parties be
involved in a positive way in coming to a positive conclusion
about this legislation. FedEx, Mr. Smith, has been with us for
a long, long time in trying to solve this problem. I really
appreciate that. I hope that your counterparts in your industry
will likewise look at this in a very positive way so that we
can get on with solving this problem.
Ultimately, and I hope the industries that I am talking
about realize that if the Postal Service goes belly up or
becomes defunct down the road, it may in the long run look like
it is going to be a positive for them, but it will not be. It
will be a negative. So it is in the best interests of the
private sector of this country, as well as the post office, to
get together and solve this problem.
With that, Mr. Chairman, I thank you very much for giving
me this time.
Mr. McHugh. I thank the gentleman. Without objection, his
entire statement will be entered into the record.
[The prepared statement of Hon. Dan Burton follows:]
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[GRAPHIC] [TIFF OMITTED] T3087.179
Mr. McHugh. The next gentleman who hosted us last week in
the Windy City, the great city of Chicago, who as I mentioned
in my opening remarks has been an ever-present and ever-
forceful individual in terms of this initiative, Mr. Davis, the
gentleman from Chicago, from Illinois, and the ranking member
on this panel as he was the ranking member on the subcommittee.
Mr. Davis.
Mr. Davis of Illinois. Thank you very much, Mr. Chairman.
Let me apologize for being a bit late, but I have three
hearings going on all at the same time. I have been trying to
figure out how to do a double version of the Watusi, to go
forward and go backward and you move. [Laughter.]
Let me thank you for, first of all, coming to Chicago with
the hearing last week. All of us in the Midwest were pleased
and delighted that we had the opportunity for a discussion in
the greatest city in the country, with all due respect to all
others.
But I am pleased to join with you in convening this
hearing, and welcoming our witnesses today. This is the third
of a series of hearings being held by the Special Panel on
Postal Reform and Oversight. It is my understanding that a
final wrap-up here will be held with the Senate Governmental
Affairs Committee next month.
Last week, we heard from the postal employee unions and
management organizations. The message was clear and resounding:
collective bargaining has worked and worked well. Today, we
will hear from postal business-reliant companies. To that end,
I would like to give a special welcome to Mr. William Davis,
chairman, president and CEO of R.R. Donnelley. Of course, R.R.
Donnelley is a Chicago-based printing and logistics company
located in my district. Mr. Davis' corporate and civic
leadership has been outstanding.
I would also like to recognize Capital One and Pitney
Bowes. Pitney Bowes and R.R. Donnelley were both in attendance
at an advisory group meeting I held in Chicago last week, prior
to the field hearing. In reviewing the testimony, I was pleased
to note that we seem to agree on many, many of the important
issues. We need and must protect universal service. The Postal
Service needs flexibility to set rates and provide rate
stability, and the Postal Service must not bear the military
service payment obligation.
As my colleagues and I continue to work together to craft
responsible postal reform legislation, I would like to commend
our panelists for taking the time to be engaged and provide
input into the process. Your support of our efforts is critical
if we are to be successful in passing postal reform
legislation. I only ask that you stay the course with us and
stay engaged.
Again, Mr. Chairman, I want to thank you for your
leadership, welcome our panelists, and look forward to all of
our participation as we continue one of the great traditions of
this country, and that is the ability to communicate from
border to border at a cost that is possible for people to pay.
Mr. McHugh. Again, I thank the gentleman for his
leadership.
Next, I would be pleased to yield to one of the newer
Members of the House, one of the newer members certainly to
this panel because it is a new panel--we are all newer members
of the panel--but the gentlelady, again, like everyone else on
the panel, sought membership and who was very, very concerned
about that. The gentlelady from Michigan, Ms. Miller.
Ms. Miller. Thank you, Mr. Chairman. Certainly, your
commitment to postal reform and creating a successful Postal
Service is very much appreciated. I would also like to thank
Chairman Tom Davis for his commitment to this issue, and
certainly for allowing me the opportunity to serve on this
panel as well.
I think with all the issues facing the Government Reform
Committee, there are few that are more important than postal
reform. I am pleased to be given the opportunity to help make a
substantial change for the better. The Postal Service has not
been subject to significant reform since its inception over 30
years ago. Its current business model is certainly not adequate
for the 21st century, and we can do better. We need to do
better.
Prior to coming to Washington, before I got this job, I was
a township supervisor. I was a county treasurer. I was the
Secretary of State in Michigan. All of these jobs were very
administrative in nature, but each of them had a similar theme
for me, and that was reform of an antiquated agency. So in each
of my positions, my office conducted an expansive operational
audit, initiated reform that resulted in more cost-effective
practices, and certainly more efficient ways of doing business.
I think this same attitude seems to be certainly
transferred to the Federal Government and so many of its
agencies. Customer service needs to be a goal of each and every
postal employee because when this kind of an attitude is
combined with an effective business model, the customer is
better served and business can actually expand.
The establishment of postal rates also have to be customer
service oriented. If rates are unnecessarily high due to waste
or inefficiencies, then such a situation would amount to really
nothing less than a tax on citizens and businesses in our
Nation as well. Certainly the witnesses before us today
represent some of the Postal Service's biggest customers, and
they need the predictability as they construct their own
business models.
At the State level of government, we were always forced to
make a business case for the reforms that we put forward. By
law, the Postal Service is required to fund its own operations,
but bureaucracy and inefficiencies sometimes can rule with an
iron fist. This is a problem, and the President's criteria for
reform will certainly help us as lawmakers cut through some of
the red tape and remove unnecessary hurdles.
Postal reform is a challenge, but it is also an opportunity
to change a government entity for the better through
transparency, flexibility, and accountability, the Postal
Service can be successful.
Again Mr. Chairman, I want to thank you for holding this
hearing today. I am very confident that each of the witnesses
today will provide this panel with information that will allow
us to help the Postal Service become a success well into the
21st century. I look forward to working with you and all the
members of this panel to draft legislation to that end. Thank
you.
Mr. McHugh. I appreciate the gentlelady's presence and her
interest and hard work on the committee.
Next, a fellow New Yorker who has dual zip code
residencies, both in the greater New York area and also in the
even greater New York area of Blue Mountain Lake in my
district, Mrs. Maloney.
Mrs. Maloney. I would like to thank Chairman McHugh from
the great State of New York for all of his efforts, along with
Ranking Member Danny Davis, who is the founder of the Postal
Caucus, as well as Chairman Tom Davis and Ranking Member
Waxman.
I would also like to really thank all of the industry
representatives today, and a very special welcome to one of my
constituents, Ann Moore, who happens to be chairwoman and chief
executive officer of Time Inc. We are very proud that you are
here today. I believe she is the first woman to hold this
important position and that is an important role model to women
in general. I know how active she has been in the PTA and the
civic fabric of our city, so we appreciate that.
We are here today to review the Commission's
recommendations, but I do want to note that the Postal Service
is the second largest civilian employer in the Nation,
employing well over 800,000 talented and dedicated workers. The
mail industry is 8 percent of our GDP, a $900 billion industry
that includes not only the Postal Service, but also 9 million
individuals in the private sector.
I also have the honor of representing a large part of the
magazine industry, which is enormously important both to the
economy of New York, and I would say, the entire country. These
are not jobs that go overseas. These are highly paid jobs that
are important to our economy. I mentioned that I just came from
a hearing with Chairman Greenspan from the Federal Reserve. We
were talking about the 3 million jobs lost in the past 3 years.
So maintaining jobs in our country is a very important social
goal.
I do want to note that as much as we appreciate magazines,
they entertain us, they educate us, but because of the
escalating cost of the mail, a number of magazines in the
district that I represent have folded: Mademoiselle, one that I
used to read in my youth, Mode, Brill's Content, and Industry
Standard. These are magazines that contacted me. There may have
been more that folded, but these are several magazines that
folded in the recent 3 years. The reason that they gave was the
escalating cost. So by keeping postal rates affordable,
publishers, individuals and industries can continue to use the
Postal Service, whether it is to send a letter to a friend or a
magazine.
Today, we have the opportunity to hear the responses we
have heard in two former hearings, their response to the
Commission's recommendations, and to hear how the postal reform
recommendations will affect their businesses, and very
importantly, their ability to employ citizens in our
communities. So I look forward to the hearings, and again I
congratulate particularly Chairman McHugh and Danny Davis. This
is an issue they have worked on for at least 5 years, so I hope
we can come to a conclusion this year.
Thank you very much.
Mr. McHugh. I thank the gentlelady for her hard work.
Next, the gentleman from Pennsylvania, who again asked
voluntarily to be on this special panel. We deeply appreciate
that. It demonstrates his concern and his devotion to the
issue, Mr. Murphy.
Mr. Murphy. Thank you, Mr. Chairman. I appreciate the
opportunity to be here today and to serve on this panel.
There is no better time than the present to thoroughly
examine the health and viability of the U.S. Postal Service. It
has been said many times by both members of this panel as well
as other witnesses testifying before it, but it bears
repeating, that if the Postal Service is to continue to serve
the public in the future as ably as it has in the past, changes
must be made.
The Postal Service and the private mailing industry, postal
employees and the public, cannot afford to wait any longer for
meaningful action to be taken. I want to commend the President
for taking the initiative and highlighting the pressing need
for postal reform by establishing the President's Commission on
the Postal Service, as well as thank this panel.
I need to offer thanks to the many workers of the U.S.
Postal Service who have themselves offered ideas from the
inside to improve efficiency, reduce waste, and enhance
consumer services. I am looking forward to hearing testimony
today, particularly from Mr. Smith, as you may know, Dan
Sullivan, the president and CEO of FedEx Ground who really is
the reason why you are so successful. [Laughter.]
I hope he reminds you of that daily. He did not pay me to
say that today. [Laughter.]
It is extremely helpful for me to hear from those who are
involved with private delivery, as well as those who are
involved with the Postal Service, to hear ideas come from the
inside. I certainly encourage all services to continue to get
us that kind of information, which helps us make the best of
good organizations.
Thank you, Mr. Chairman.
Mr. McHugh. I thank the gentleman.
Next, another New Yorker. You can never have too many New
Yorkers, the gentleman from the great city of New York, my good
friend, Ed Towns. Mr. Towns.
Mr. Towns. Thank you very much, Mr. Chairman. Let me thank
you for holding this hearing. This is our third hearing. This
has been an informative process, and Subcommittee Chairman
McHugh and also Mr. Davis should be really commended for their
hard work. I salute you for it.
I would also like to recognize one of our witnesses here
today.
Mr. McHugh. Because he always says so many important
things, the audience is expressing an interest, they cannot
hear you. Could you swing that mic closer?
Mr. Towns. Can they hear me? That's a new one.
Mr. McHugh. Yes, it is. [Laughter.]
Mr. Towns. Thank you, anyway. [Laughter.]
Mr. McHugh. You can repeat the nice things you said about
me. I don't care about the rest of it. [Laughter.]
Mr. Towns. I would also like to thank, of course, Ann
Moore, the chairman and CEO of Time Inc. Carolyn Maloney, my
colleague, said some nice things about her and claimed her, but
her daughter goes to school in her district, but she actually
lives in my area, so I want you to know that. I want to make
that distinction. She is Kings County. [Laughter.]
It is always good to have someone from Kings County appear
before this committee. You are always welcome. I want you to
know that. I have to make certain that I top Carolyn Maloney.
[Laughter.]
Though it has been widely reported and often repeated about
the fact that we must reform, I do not want to lose track here
about what we are supposed to be doing because reform is
neither positive or negative. We want to talk about some
positive kind of reforms. When you say ``reform,'' you have to
tell us what you are going to do. When we hear ``reform''
around here, we get all excited.
What I have learned over the years that I have been around
is that when you say ``reform'' around here, that means cut
your budget. We do not want to be involved in that. It is like
my dad used to tell my brother and I about prayer. He said,
``Son, if somebody says they are going to pray for you, you
need to try and find out what they are going to say.''
[Laughter.]
He said, ``the prayer is neither positive or negative. They
might pray that they break your neck.'' So we have to make
certain that the changes that we make here are positive,
because I think that is more important than anything else, just
not to reform, but to make certain that we reform in a positive
kind of way.
So far there seems to be nearly unanimous agreement on some
of the issues. We all agree that outstanding issues related to
the escrow must be resolved quickly so those funds can be used
to address long-term liabilities like retiree health care and
capital improvements.
There is also widespread agreement that the Treasury
Department should take responsibility on military pensions.
That is something that I think should happen. This position has
been adopted by the Presidential Commission, members of both
sides of the committee, union representatives, and according to
our witnesses' testimony, they also agreed with it as well, by
the mailing industry as well.
The only stakeholder not to adopt this position so far has
been the administration. Given such support from a diverse
array of interests, I hope that the administration understands
that there is no negotiation on this point. This is a point
that we will not back off of. As one union official noted, the
Postal Service will not be a cash cow to reduce the deficit.
But beyond these issues, some divisions have emerged. On
paper, the objectives set out by the Commission seem reasonable
and fair. Just like any nonprofit organization or business, why
would we not want to implement the best practices in postal
operations?
Additionally, as a public institution, it would seem to
make sense that Postal Service operations are transparent and
accountable. The difficulty arises when we have to translate
these principles into actual legislative language. Given the
slow and steady drumbeat of consensus that is beginning to
emerge on these issues, I remain hopeful that we will be able
to reach consensus on some of these difficult issues.
The long-term viability of the Postal Service and its
workers, our constituents, and the millions of employees in the
mailing industry depend on us. We must not let them down. I
look forward to hearing today from the witnesses on why they
believe these reforms are critical and why we need to act on
these changes now.
Thank you, Mr. Chairman. On that note, I yield back.
Mr. McHugh. I thank the gentleman, and I listen to his
words very carefully. He should listen to mine. Depending on
how he votes, I will pray for you. [Laughter.]
Next, I am honored to yield to the gentlelady who, again as
we all have, volunteered to be on this panel, the gentlelady
who helped with chairing one of our hearings and has done a
great job, from Tennessee, Mrs. Blackburn.
Mrs. Blackburn. Thank you, Mr. Chairman. I will be very
brief, and look forward to hearing from our panelists.
I want to thank each and every one of you for taking your
time to be here today. I especially would like to extend a
welcome to Mr. Smith. And it is always a pleasure to see
someone from Tennessee and from our district, Mr. Critelli, who
has many employees that are in our district and are
constituents. We welcome you. We look forward to hearing from
you, and also learning from you lessons learned, best practices
that we are looking forward to seeing implemented in the Postal
Service as we address the need for reform and equipping the
Postal Service for 21st century delivery of service. We thank
you and we appreciate your contribution.
Mr. McHugh. I thank the gentlelady.
Next, a gentleman who cares enough about this issue to even
in the month of February, no offense, Mr. Ranking Member, Mr.
Davis made the journey from Virginia to Chicago. I will allow
you to make the judgment as to what kind of devotion that shows
on an issue.
Mr. Schrock.
Mr. Schrock. Thank you, Mr. Chairman.
When Danny Davis promises if you come to Chicago he will
give you good weather in January or February, please beware.
[Laughter.]
You know, ``fool me once, shame on him; fool me twice,
shame on me.'' But I must admit, I have not been involved in
this postal issue as long as people like the chairman and the
ranking member and other members, but like so many here, I
volunteered. I asked to be on this panel because of the great
impact the Postal Service has on our economy and every single
American.
The Postal Service would fail if it were not for its
largest customers that we see sitting here today, and their
input on the future direction of the Postal Service is of
utmost importance. I am glad to have those leaders here to talk
about those customers today. I have read all your testimony and
I look forward to hearing that and then asking questions at the
end.
Thank you, Mr. Chairman.
Mr. McHugh. I thank the gentleman. Again, I have found,
where I am from, the weather in Chicago is wonderful.
[Laughter.]
But it was really great that you made the effort to be
there. We deeply appreciate it.
Next, a gentleman, and last I believe, only by order of
congressional procedures, a gentleman who is not a member of
this panel, but who has previously been a member of the full
subcommittee. I will tell you from our personal conversations,
he is one of the most interested and concerned members on this
issue, the gentleman from Connecticut, Mr. Shays, who wanted to
be here and particularly make a statement about one of our
panel witnesses, who has a somewhat passing interest in the
great State of Connecticut.
Mr. Shays.
Mr. Shays. Thank you, Mr. Chairman.
Mr. Chairman, not being a freshman, I certainly did not
volunteer for this committee, having had the opportunity to do
some of this work in the past.
I am here, frankly, to thank those who have volunteered,
and to thank you, Mr. Chairman, and Danny Davis and our ranking
member, and in particular the chairman of the full committee,
Tom Davis. This is a hugely important issue. I think it speaks
volumes that we have such a distinguished group of panelists.
I do not intend to ask questions, but I do intend to stay
for the first round of statements from all of our panelists. I
want to thank them, each and every one, for being here. I do
want to particularly thank Michael Critelli. He has been
laboring on this issue for an extraordinarily long time and has
sought to make this bipartisan. Frankly, that is the only way
it is going to succeed, and not just management, but with
unions as well. Michael, I just thank you for what you have
done.
I also want to say something else to this full committee
and to the audience here as well. Pitney Bowes made a decision
in Stamford, CT, which is a corporate mecca, frankly, of the
United States, in my judgment, to move some of its operations
to the old industrial city of Bridgeport, which I also
represent. He did it without any fanfare. He just knew it
needed to happen. He could have moved some of these folks to
suburban areas. For that, as well, Michael, I just thank you
for what your company is doing. It speaks volumes for who you
are, but it also speaks volumes for the commitment of your
wonderful company to the well-being of our country and to the
district that you are in.
Thank you for allowing me that opportunity. I will, as
recompense, stay for all the statements since I have been
allowed to make a statement.
Thank you.
Mr. McHugh. I thank the gentleman for being here and for
his leadership on this full committee, and his deep concern on
this issue.
It is now time for me to have the honor of introducing our
witnesses. I can assure the audience that these captains of
industry are not entirely accustomed to sitting for as long
they patiently have listening to a bunch of politicians make
statements. No American should have to go through that.
[Laughter.]
But they did, and I am deeply appreciative for it. I want
to introduce them to you.
These are partners in our effort at postal reform. If you
look at the interests that they represent, it is a remarkable
one and one that perhaps some would argue places their
corporate interest behind the national interest. That is about
as high a praise as I think anyone could assess to any
individual.
The gentleman from Connecticut just introduced Mr. Mike
Critelli from Pitney Bowes. You heard about his interest in the
State of Connecticut, but they have long been a partner in this
initiative. He has done yeoman's work in creating the Mailing
Industry CEO's Council, which has been instrumental in trying
to move forward this issue. Ms. Ann Moore, I don't know where
she lives, I don't know where she works other than New York,
and that is all I care about, but obviously Time Inc. is a true
giant, not just on the corporate scene in the United States,
but on the world stage. We are deeply honored to have her here
today.
Bill Davis from R.R. Donnelley, from the great city of
Chicago. Mr. Davis and his company were one of the earliest
partners with this original subcommittee and now panel, in
trying to move in this area. We are deeply, deeply appreciative
of his efforts.
Mr. Nigel Morris of Capital One. Mr. Morris represents a
company that has enormous financial interest in the U.S.
economy, in the world economy. His recognition of this interest
as one of great importance is demonstrated in his presence here
today. We are deeply appreciative of that.
In particular, I want to especially welcome and thank Fred
Smith from Federal Express. Fred has been a steadfast partner,
a supporter throughout our most early efforts at postal reform
in the mid- and late-1990's. And as he has done here today,
when you have a chance to hear his testimony, and I hope you
get a chance to read his full statement, has provided
constructive, honest, credible, reasonable recommendations. He
is a competitor of the Postal Service. This is a gentleman who
started a company from nothing; who has become an enormous
example of what the American opportunity can present to people
with initiative and the willingness to work hard, and who still
at the end of the day as a U.S. citizen recognizes the
importance of a viable Postal Service. Fred, a particular
welcome and thanks to you.
I would state, and I have always felt it was somewhat of an
anomaly, that Members of Congress should take the oath of
telling the truth, but our committee policy is that all
witnesses should be sworn in prior to their testimony. So if
you would please all rise and raise your right hands and answer
the following question.
[Witnesses sworn.]
Mr. McHugh. And they have so answered in the affirmative.
I am going to ask the witnesses to present their testimony
based on the list that I have in front of me. I think it
generally goes from our left to the audience's right. Note that
without objection, all of your written testimonies will be
entered in their entirety to the record. Without objection, so
ordered.
With that, to the extent it is possible, we are not going
to run red lights on you, but clearly your time is probably far
more valuable than ours, if you could try to summarize your
comments, it would be greatly appreciated.
With that, Fred Smith, chairman and chief executive officer
of FedEx, Federal Express. Fred.
STATEMENTS OF FRED SMITH, CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
FEDEX; ANN MOORE, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, TIME,
INC.; MICHAEL CRITELLI, CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
PITNEY BOWES; WILLIAM DAVIS, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, R.R. DONNELLEY & SONS; AND NIGEL MORRIS, CO-FOUNDER
AND VICE CHAIRMAN, CAPITAL ONE
Mr. Smith. Thank you very much, Mr. Chairman. As you
suggested, I will submit our testimony for the record and just
summarize it.
On behalf of hundreds of thousands of FedEx shareowners and
over 220,000 FedEx employees in the United States, we
appreciate the opportunity to comment on this important
initiative. As you noted, we do support USPS transformation and
modernization so it can survive and prosper. We have supported
reform legislation which you championed in previous Congresses.
We will submit detailed comments on a new bill when it is
ready.
FedEx is no stranger to the requirement to modernize and
meet market conditions. As Mr. Murphy mentioned a moment ago,
we have become a major player in the ground parcel business, in
the freight business. We have become an enormous presence in
the international trade of the United States and the world. All
during those diversifications and new initiatives, our domestic
express business has declined in the sector that can be
transmitted electronically.
So we have seen this as a company, and we have seen it
observing the Postal Service and industry and technological
development, and as a supplier to the Postal Service. So we
strongly believe that the Postal Service must transform. We are
in the midst of a truly unprecedented phase of the Information
Revolution, with the Internet and the other remarkable
technologies as Chairman Davis mentioned at the onset. To
properly transform, we feel that the USPS needs flexibility and
incentives. General Potter has testified to this committee
quite succinctly that his management needs the flexibility to
manage the business. The right incentives to managing any
business are critical, whether it is FedEx or the USPS or any
other enterprise.
Certainly, the obstacle is not a lack of good people at the
USPS. We have been uniformly impressed with the quality of the
folks that we deal with at USPS and their executives in
particular. But quite frankly, we could not have transformed
and become a $25 billion business had we had the same
restrictions and disincentives of a monopoly that currently
shackle the Postal Service.
The Presidential Commission, as was noted a moment ago,
recommended that the best practices of the private sector be
applied to the USPS. Again, that means flexibility and
incentives. The Postal Service regulatory regime needs to
transform, and we support the guarantee of universal postal
service, and at the same time appropriate restrictions on
cross-subsidy and unfair competition where the Postal Service
competes with private companies.
The key to this regulatory transformation is to have
separate management and governance. Congress should set the
scope of the universal service that you desire, and then the
appointed regulator should enforce that scope. The regulator
should set the monopoly at a level that is at a minimum needed
to fund universal service, and this should be an economic and
not a political question. The regulator should set price caps
for non-competitive products.
On the other hand, the management of the USPS, in our
opinion, should set the wages, other input costs, manage
retained earnings, and so forth. The regulator should then set
public policy objectives for the USPS management to manage
against.
We strongly believe that regulatory transformation can
result in better universal service and appropriate controls on
unfair competition that are better than the current law. FedEx
also supports the USPS on some of the issues that have been
discussed today: military pensions, the matter of the escrow
account and so forth.
In short, we think that the USPS at the end of the day in
this legislative process should end up being a much more
business-like enterprise with less political agendas, with the
USPS board empowered to oversee an appropriate transformation.
Thank you very much, Mr. Chairman.
[The prepared statement of Mr. Smith follows:]
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Mr. McHugh. I thank the gentleman, again, deeply appreciate
his courage and his leadership on this issue.
I would say to the panel, I apologize. You can hear. We
have at least one, perhaps two votes. If you could please bear
with us and smoke them if you have them, and we will return as
soon as we can.
With that, we stand in adjournment.
[Recess.]
Mr. Davis of Virginia. The meeting will reconvene. We are
coming back. We have Ms. Ann Moore, the chairman and chief
executive officer of Time Inc. as our next witness. Ann, thanks
for bearing with us. It is just a pleasure to have you here
today.
Ms. Moore. Thank you, Chairman McHugh, Ranking Member
Davis, Chairman Davis, Congressman Waxman and members of the
panel, for this opportunity to discuss the crucial issue of
reforming the U.S. Postal Service.
As you have heard, I am Ann Moore, the chairman and CEO of
Time Inc. We are the world's largest magazine publisher, with
134 magazines including Time, People, Sports Illustrated, and
Fortune. I have been involved with postal reform issues for a
long, long time, almost as long as Chairman McHugh. I, like
Congressman Schrock, volunteered to work on this back when I
was president of People.
There is no issue more critical to the magazine business
and to magazine readers than the future viability of the postal
system. The great majority of our readers depend upon the
postal system to deliver their magazines. We need to work
together, obviously, to ensure that this can continue over the
long term. It affects everybody from the mom who reads
Parenting to the sports fan who reads Sports Illustrated.
The core value of the post office has always been reliable,
affordable delivery of the mail to every American home. We know
that Congress wants to maintain this goal. We have a tremendous
opportunity to pass meaningful, comprehensive legislation at
this time, and we are all committed to working with you to get
it done.
The current Postal Service business model, as we have all
heard this morning, is not sustainable in a climate of
expanding addresses and declining mail volume. We really
applaud the efforts of Jack Potter to reduce Postal Service
costs. But reducing costs alone will not solve the problem.
Really broad and sweeping change is required.
President Bush and the Treasury deserve thanks for creating
the Presidential Commission to help address these issues, and
we do support the report's five core principles. However, it is
also crucial that a rational rate cap system be put in place by
Congress. The dramatic rate increases we have seen are simply
not acceptable. As a result of rate increases in recent years,
postage expenses have become our single biggest line item at
Time Inc. This year we will spend more than $500 million on
postage.
This surprises people, but we actually spend more on
postage than we do on paper or printing. We spend more on
postage I think than any other company in America. So we are
acutely aware that postage costs have been going up at a rate
that far exceeds the rate of inflation. These statistics are
documented in our written testimony, but in 2001 and 2002, we
experienced three rate increases within an 18-month period. If
you go back to 1986, magazine postage costs have gone up by 220
percent, nearly double the rate of inflation.
From our own experience, we know that these rising postal
costs drive mail volume out of the system, which compounds
their problem. Today's rate system fails to provide the Postal
Service with strong incentives to hold down costs. It also
fails to provide mailers with predictable rates. That is why
Congress needs to institute a rational rate cap system. Give us
predictable rates and we will give the Postal Service more
volume, from our current magazines to all the new ones I would
like to launch. We have many creative ideas on the drawing
board, magazines that consumers tell us they want. But if I
cannot predict the future costs of mail and the long-term cost
of a new launch, I am not able to launch. I do not need to tell
you that ventures like new magazines create jobs. We have only
15,000 employees at Time Inc., but if you count all the
suppliers that depend on us, from the paper mills to the
printers to the mail houses, we are part of the 9 million
workers who are part of our mailing industry. A little-known
fact is that one subscription, by the way, to a weekly magazine
can generate over 90 pieces of mail. That is real growth and
that is what the Postal Service needs.
For all of these reasons, it is crucial that rates be
capped to an inflation benchmark and that rates be based on
cost, kind of a pay for what you use. It is a good business
principle. Of course, price caps must not be met at the expense
of service. Any reform bill must include service measurement
systems and delivery standards for all classes of mail.
Before I conclude, I want to also comment on last year's
CSRS legislation. This bill provided much-needed relief for the
mailing industry, and I want to thank each of you for getting
it passed. That said, the bill as we all know included two
problem items that need to be addressed. First, the bill's
escrow provision, which forces mailers to pay an additional $4
billion in 2006. This item alone will add another 5.4 percent
increase to our postage rates. And second, the CSRS bill also
shifts the $27 billion in military retirement costs from the
Treasury to the postal system. Since 90 percent of those costs
date back to before the establishment of the postal system in
1971, we support transferring that back.
So in summary, Time Inc. believes that the issues
challenging the post office are urgent, and they really require
bold action by Congress. So we need only three things:
predictable rate increases that do not exceed the rate of
inflation, a rate cap system; resolution of CSRS escrow and the
retirement issues; and finally, service standards for all
classes of mail.
I am personally committed to working with you and all
interested parties to help implement urgently needed postal
reform. I just want to thank you again, Mr. Chairman, for this
opportunity to share the views of Time Inc. with this special
panel.
[The prepared statement of Ms. Moore follows:]
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Mr. McHugh. I thank the gentlelady for her interest, her
support, and obviously for her patience and effort to be here
today.
Next, as I mentioned, I hope, in my opening statements, a
gentleman who represents an organization and who is a gentleman
who has been involved in this initiative over the long haul,
for which we are deeply appreciative, Mr. Michael Critelli,
chairman and chief executive officer of Pitney Bowes.
Mr. Critelli.
Mr. Critelli. Thank you very much, Chairman McHugh. I
appreciate the opportunity to testify today, and I also
appreciate the kind remarks that you and many members of the
panel made about me and my fellow CEOs that have worked on
postal reform.
Pitney Bowes is vitally interested in postal reform. Let me
give you a few facts. We automate mail processing for mailers
of all sizes. We have over 1.3 million such mailers in the
United States alone. Metered mail, which we invented, is almost
one-half of all first class mail, and we collect approximately
one-third of all Postal Service revenue. We are the leading
manager of corporate and government mail rooms, and we now own
the Nation's largest pre-sort business.
More than 90 percent of the mail stream today is sent to or
from businesses, governments and nonprofits, and much of it is
generated by known mailers who typically use meters or permits
for postage. They do much of the work preparing the mail by
sorting it, applying bar codes and presenting the mail at
designated postal facilities. Our vision of postal commerce
includes the Postal Service as a booster of economic growth,
not a drain on public resources.
We at Pitney Bowes and the members of the Mailing Industry
CEO Council believe that postal reform legislation needs to get
done now. Chairman McHugh, you and this committee have led this
reform effort for quite a while, and last year the President's
Commission and now the administration have joined your efforts
to call for enactment of legislation. I am here to pledge today
that the members of the CEO Council and I stand ready to assist
you in any way possible.
I want to highlight briefly five essential elements of
postal reform legislation. First, the mission of the Postal
Service is clearly to maintain universal access and universal
delivery of physical mail at affordable rates, but it must
focus its core physical mail business on growing the mail. More
mail means more jobs within the Postal Service, the mailing
industry, and other mailers who depend on mail to help them
grow. We also believe that the Postal Service should remain a
public entity, but implement best practices and right-size the
postal network and the work force through attrition
opportunities.
Second, legislation should enhance private sector
partnerships for the most cost-effective postal system. For
example, if work-sharing discounts can drive lower cost, while
requiring partners to meet the Postal Service's quality
standards, the public, the Postal Service, and the mailing
industry will all benefit. These discounts could be for
reducing or eliminating costs of mail preparation, payment
evidencing, collections, sorting, addressing, or
transportation.
Third, the legislation should encourage the Postal Service
to embrace technology. The heart of this vision is to encourage
mailers to create machine-readable mail to uniquely marked mail
pieces with sender, recipient and other information, and to use
available technologies for the highest address quality
possible. Bad addresses alone cost the Postal Service over $1.5
billion a year, and mailers several times that. Intelligent
mail, as referenced in the Presidential Commission report, is
more valuable to the sender because it allows coordination with
other services based on when a piece of mail is received. It
reduces postal costs, helps the Service manage its workload and
it improves mail security because it is traceable. Those who
use the mail for terrorism do so anonymously in order to evade
detection.
Fourth, postal reform legislation should maintain price
stability, while increasing pricing flexibility. Postal rates
should not increase faster than the rate of inflation, and
productivity should enable rate increases to be constrained
below the rate of inflation. Subject to these caps, pricing
flexibility is also important, including negotiated service
agreements. We believe the Postal Service should be able to
pursue dynamic pricing to change postal rates by month, day or
even time of day, much like telephone companies or hotels, to
promote increased use of mail.
Fifth and finally, the principle is to improve the Postal
Service's tools, to manage its employees and its business. The
Postal Service should be judged by sound business metrics
across all product lines. Performance measures should be based
on careful and comprehensive cost accounting and a governing
board should be organized around and designed to function in
accordance with best practices for financial transparency.
We recognize postal reform is a big job and it will not be
solved overnight, but reform legislation in this Congress is
essential. We also support congressional action approving the
use of CSRS savings currently held in escrow and returning
responsibility for funding Civil Service retirement system
pension benefits related to the military service of Postal
Service retirees back to the Department of the Treasury.
Thank you all very much. I again appreciate the opportunity
to present today.
[The prepared statement of Mr. Critelli follows:]
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Mr. McHugh. Thank you very much, Mr. Critelli. Again, I
deeply appreciate your leadership and involvement on this.
Next, Mr. William Davis, who is president and chief
executive officer of R.R. Donnelley, a proud company of
Chicago, IL, and more importantly from the perspective of this
hearing, an individual and a firm that has been deeply involved
in this issue from virtually the first day, at least in so far
as my perspective is concerned.
Bill, thanks for being here. Our attention is yours.
Mr. William Davis. Thank you, Mr. Chairman, and my
particular thanks to my Chicago neighbor and soulmate, Danny
Davis, for everything and for your kind comments a few minutes
ago.
Good afternoon, I am Bill Davis, chairman, president and
CEO of R.R. Donnelley. I sit before you today as a founding
member of the Mailing Industry CEO Council and as a member of
the U.S. Postal Service's Mailing Industry Task Force, and then
finally as CEO of the largest commercial printer in the United
States and one of the largest users of the U.S. postal system.
R.R. Donnelley fundamentally supports the recommendations of
the President's Commission and we urge Congress to push ahead
right now, right now, with changes that will ensure that we in
fact have a healthy, viable and affordable mail channel for the
future.
Change is essential to the health of the U.S. mailing
industry. I know you have heard the numbers before. I have to
repeat them quickly. This is a $900 billion industry. There are
9 million jobs at stake, only a small percentage of them
actually in USPS. That is not quite 9 percent of our GDP. That
is the reason why I am here today. This is so much more than
reforming the U.S. postal system. This is about our economy.
This is about our jobs. This is about our future. We need to
keep that in perspective throughout our joint efforts on this
transformation. The total postal system as it stands today is
inefficient. The President's Commission recognized these
inefficiencies and now recommends major changes. I hope you
will agree with the President's Commission and me, and I have
heard this already today, you do agree that there is
substantial potential for improvement.
However, any piece of legislation that simply protects the
status quo is not going to be acceptable. At its heart, the
governance concept of the USPS must change. It must change to
allow, encourage and, in fact, demand continuous, ongoing
improvement. By doing so, the USPS will function more like a
business. With my limited time, I would like to focus on two of
these areas. One is worksharing, the other, network
optimization.
In today's world where technology is constantly changing to
allow for new improvements, companies cannot and should not try
to do everything themselves. It is impossible for any company
to keep up with all that change. As a result, we have all
learned to rely on others and their expertise in emerging
capabilities in order to maximize our company's performance.
Frankly, the USPS does not do enough of this. It tries to do
too much itself. The USPS should focus on its core competency,
universal service, the ubiquitous presence of that local mail
carrier that is delivering to every one of us 6 days a week.
Universal service has become an integral part of the
economic and social fiber of our country. Now, worksharing can
better allow the USPS to focus on this core competency, and at
the same time drive down costs substantially. In fact, back in
1999, the GAO did a study and showed that the limited amount of
worksharing that had already occurred has saved the USPS an
estimated $15 billion to $17 billion. Yet it is as difficult
today to enter into a worksharing agreement with the Postal
Service as ever before. Let me give you a recent example.
At R.R. Donnelley, we and other printers recently reached
an agreement with the USPS on something called co-
palletization. It took us 18 months to get this done--18
months. And what did we get? We got a 3-year trial. If I were
doing this same deal with any private company in America it
would take 6 to 8 weeks. And if it didn't work we would undo
it. We should not have to work this hard to persuade our
partner to reach a result that benefits everybody: our
customers, the Postal Service, us, all users of the system.
The second area I would like to talk about is network
optimization. Frankly, it is inconceivable to me that the USPS
network is not making adjustments constantly. Facility
locations, facility size, transportation routing should be
changing all the time to keep up with demand, to eliminate
redundancy, to eliminate overcapacity, to achieve productivity
gains. All businesses need to adjust to changes in customer
traffic, demographics, or other factors, especially service
businesses like the USPS.
The USPS must be given the flexibility to make these types
of changes on an ongoing basis and frankly, politics should not
get in the way. As a businessperson I am constantly faced with
these hard decisions, closing some facilities, consolidating
others, as well as having to outsource non-core functions. I do
not mean outsource to India; I mean outsource to FedEx, non-
core functions, so we can best focus on our customers and on
what Ann Moore and her counterparts expect from us.
I can tell you that closing a facility is one of the
hardest things I ever have to do. It is not fun. But I can also
tell you that because we do this when needed, we are a
stronger, better company. In the long run, it was the right
thing to do. The USPS must be granted that same kind of
flexibility to make these tough decisions. Furthermore, they
must be allowed to make them. Utilizing worksharing and network
optimization makes it possible to achieve the lowest combined
cost, and that is at the core of what R.R. Donnelley and our
customers expect from the USPS, which as Ann Moore pointed out,
is an extremely critical component of the business models that
we support.
Finally, a short word on parcels. Any effort that will
limit the ability or effectiveness of the letter carrier will
negatively impact on the important brand of the USPS. That is
why we must find ways to encourage first class mail and to
continuously focus on improvements to handle parcels,
magazines, catalogs, and the like. If any of these classes of
service is eliminated or substantially reduced, the costs to
cover the route carrier is simply spread across all other
classes. That impacts negatively on those companies' business
models.
We have a chance right now, a real opportunity, to make the
necessary changes to ensure that the USPS and the mailing
industry as a whole remain healthy and viable. Frankly, several
more years of business as usual could bring us to a point of
real disrepair. This could be a crisis meeting rather than a
planning meeting. Let's not allow that to happen. Let's work
together. We are all committed on this side to get meaningful
reform and get it now.
I thank you very much, Mr. Chairman.
[The prepared statement of Mr. William Davis follows:]
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Mr. McHugh. I thank the gentleman. As his testimony
underscored his commitment to this, we again express our
appreciation for his commitment and leadership.
Last on this panel, as we say, and it is certainly true,
not least, Mr. Nigel Morris, who is co-founder and vice
chairman of Capital One, one of the true financial powerhouses
of this Nation and the planet. We welcome you here, sir, today
and we look forward to your comments.
Mr. Morris. Good afternoon everybody, and thank you very
much Chairman McHugh and members of the Special Panel on Postal
Reform and Oversight for giving me the chance to be able to
share some of my thoughts here with you today. This is actually
the first time that I have had the opportunity to speak at such
a forum. Should there be any questions of me later, I hope you
will be awfully gentle on me for being such a political
neophyte.
I am here actually representing Capital One, a company that
I co-founded and am vice-chairman of, but also the Financial
Service Roundtable, a group comprised of the hundred largest
financial service companies, including but not limited to
Citigroup, JPM-Chase, Bank of America, and also the National
Postal Policy Council, a mailing association representing many
of the largest mailers and the users of first class mail from a
variety of industries including telco, utilities, and other
financial service companies.
Capital One is actually a leading provider of diversified
financial service products. You may know us from our ``What's
in your wallet?'' campaign. Of course, with vikings and
visigoths and yetis and mermaids we are on the TV a lot, but
also aside from being the fourth or fifth credit card company
in the world, with a vibrant business here in the United States
as well as in my home country of England we are also involved
in auto loans, installment loans, and mortgages and are
building out our portfolio at a rapid rate. We have 17,000
people, 47 million customers, and that gives us a relationship
with one in four or one in five American households. We have
revenues of $10 billion and growing. Six years ago, we had only
10 million customers. We now have nearly 50 million customers.
We acquired every single one of those customers, almost every
single one of them, through the mail. So we have to be very
indebted to the Postal Service for allowing us not only to talk
to those customers basically every month but also for the
ability to build a tremendous franchise and now one of the
largest credit card issuers in the world. We owe a great deal
to the Postal Service for enabling us to do that.
Today, we are the largest first class mailer in the United
States and have been for the last 2 years. So the USPS clearly
is a vital, incredibly powerful part of our business model,
without which I think we would be in very deep trouble. It is
in the light of that that I have the opportunity to talk to you
today, because I think we today face some really grave threats
to the USPS's business model. The USPS's success is critical to
our success in being able to deliver product and to be able to
service our large and burgeoning and increasingly demanding
customer base.
It has been 34 years by my count since we last had
significant postal reform. Thirty-five years ago we did not
have any cell phones. Thirty-five years ago the Internet was a
twinkle in some techie's eyes. The world has changed
immeasurably in that period. Today, the USPS has to deal with a
torrent of technological change. Thanks to those changes,
consumers can talk to each other, businesses can talk to their
consumers in very different ways. The post office clearly has
an opportunity to do a better job of keeping pace with those
technological changes.
Left unaddressed, the Postal Service's financial
instability will ultimately lead to a vicious downward cycle.
The cycle goes like this. Higher postal rates drive away
customers and revenue. Fewer customers means lower volume and
lower revenue because people, if prices go up, people mail
less. Lower mail volume will force the post office again to
raise its rates. Lower volume and lower revenue will create
pressure not to invest in people and technology. The end result
is a perpetuation of the downward cycle where we are charging
more and more to fewer and fewer. It is a death spiral, but I
do not think it has to be that way.
Clearly, mailers have other options. We can communicate
with our customers via the Internet. We can do it on cell
phones. But the mail is a critical part of many of our business
models, and we very much want it to be and continue to be a
vital part of that model. The effective mail system is just as
important as a sound highway system. I think that is how we
need to think about it.
That is why I am here today. I do not think we can afford
to wait on this. The opportunities the post office has are just
tremendous, but it takes bold and it takes unprecedented steps.
I do not think we are talking here about tinkering at the
margin with a business model that needs some tweaking. I think
we are talking about something much more audacious, much more
fundamental, and in that, much more difficult. I believe the
Postal Service has to tap into the talents of the people it
has, develop them, and grow their skill base so they can face
an increasingly complicated world. It needs to harness the
technology it has and invest in more technology. It is not just
technology for reducing costs though, that is an important part
of it. It is technology in delivery. It is technology in
service levels. It needs to make the cost structure more
productive and more flexible so it can deal with changes in
revenues. It needs to develop innovative, value-added products
and services. The Postal Service has some very unique assets.
It has the monopoly on the last mile delivery. It has a
tremendous brand. Those things can be levered, as well as many
other things. Such innovations include the negotiated service
agreements, which really provide incentives for mailers such as
Capital One to actually mail more. I think we are in the very
beginning of a major opportunity. The business basically has to
become much more nimble, much more pragmatic, and be able to
meet the changing demands of customers, particularly in a world
where technology is moving at such a tremendous rate.
We have had the challenge to work with the Postal Service
in the development of one of those innovations. That innovation
is the negotiated service agreement. Basically, the idea is
that we as Capital One agree to receive undeliverable first
class mail back to the company electronically rather than
physically. It is much cheaper for the Postal Service,
something like $40 million over the next 3 years, a significant
savings. In addition to that, we receive volume discounts on
first class mail. So if we mail more than we were going to
mail, we basically at the margin get a lower price. That
incentivizes us to mail more, which means that the post office
is able to put more volume through its fixed-cost structure,
which means it creates more sustainability in the business
model.
I think that is a wonderful story, and I am hats off to the
people at the Postal Service and at Capital One who worked
tirelessly to put this together. The challenge is that we filed
for that more than 18 months ago. It took nearly 2 years to
negotiate that deal. As we are aware today, nobody else is
waiting in the wings to put together any such kind of NSA. I do
not think that is anybody's fault. I think it is the fact that
it is very difficult to do. It is a very onerous process, but
the opportunity is clearly there for the Postal Service to
incent companies to reduce their costs and in doing so put
something else on the table for the company, and I think there
is a real opportunity to build it.
NSAs and arrangements like NSAs help everybody. They help
the Postal Service by creating an increase in revenue stream.
They help the companies of America and they help the U.S.
taxpayer. They also help the customers and the people out there
who receive the mail every day. Mr. Chairman and members of the
committee, I strongly feel that implementing reforms like the
NSAs and other things are really critical to the future. I also
think it is worthwhile and important to recognize that
reforming the post office is not an overnight project. We are
not talking here about clicking our fingers and immediately
moving to a different level of business capability.
To achieve the kind of changes that we are talking about
will require enormous patience from people on the dais. It will
require a lot of investment and it will take a long time to do
it. The Postal Service is very large, very complicated, and it
requires an enormous amount of change. To do that, we need to
align the staff and the investment dollars against specific
goals, agree on those goals, set milestones, measure them,
monitor them, report them, have a progress mechanism that makes
sense, and establish clear accountabilities and transparencies.
I believe that this all can be done. I believe it can be
done because I have seen the changes in the Postal Service over
the last couple of years. Many Americans should take
encouragement from the outstanding successes and the solid
efforts that have been made in the last few years by Jack
Potter, his management team, and the 800,000 dedicated postal
workers out there. It lowered costs by $1.1 billion last year,
achieved 4 consecutive years of positive productivity gains,
implemented a new pay-for-performance system for supervisors,
postmasters, managers, and executives. These are big changes,
but it is a drop in the ocean. In light of these
accomplishments, we believe that the reforms that I have
outlined today are not only realistic and achievable but also
possible and incredibly exciting.
Finally, I would like to put my word in here on the CSRS
and urge speedy action to eliminate the escrow provision of the
Postal Civil Service Retirement System Funding Reform Act. I
urge you to remove the escrow created by legislation, which
will allow the Postal Service to put these assets to better use
and prevent a larger rate hike for all users in 2006. I urge
you to transfer the cost of the military-related CSRS benefits
from the Postal Service to the Department of the Treasury, as
recommended by the Presidential Commission on Postal Reform.
These steps will allow the USPS to have the financial breathing
room to tackle some of the reforms and some of the actions that
I have highlighted.
So in conclusion, Mr. Chairman and members of the special
panel, thank you very much for listening to me, and thanks for
the opportunity to be able to speak.
[The prepared statement of Mr. Morris follows:]
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Mr. McHugh. I thank the gentleman for being here, and thank
him for his enlightening testimony, at a truly historic moment,
congressionally speaking: your first appearance, as you noted,
representing a company of very significant fiscal impact in
both the Nation and the world. I guess you could describe it as
a ``What's in your wallet?'' company meeting a ``What's in your
wallet?'' Congress. [Laughter.]
So if I could ask one question of each of the panelists. If
you could list one or two, three at the outside, ``must-haves''
in terms of any piece of reform legislation, what one or two
would you pick?
Mr. Smith.
Mr. Smith. I think, Mr. Chairman, the one thing that is
important to get the legislation through and solve a lot of
people's fears about this is to have an appropriate firewall or
appropriate control mechanism on the competitive product so the
funds generated by the monopoly portion of the business don't
go in and distort a competitive market. I think the reason that
people are so concerned about that is what has gone on in
Europe. As I am sure you know, or most of the committee knows,
the British, the French, the Germans, and the Dutch all made
the decision that they were going to permit their postal
monopolies to take the funds from the mailers and the customers
of that postal monopoly and to diversify into competitive
markets.
If you look at it from a purely return on investment
standpoint, it is absolutely crazy. There is no rationale for
it at all. You have taken 20 percent margin monopoly business
cash-flows that really belong to those mailers or to the
taxpayers of those countries and allowed managements to
diversify sometimes in businesses that have a 1-percent margin
that then has to compete against private industries on an
unfavorable, unfair basis. So I think that is a key element of
this and it is essential to have an appropriate mechanism if
you are going to get the support necessary to pass the bill.
Mr. McHugh. Thank you, sir.
Ms. Moore.
Ms. Moore. We would like to see the escrow provision
released and CSRS addressed. I think the only thing in the
Presidential Commission which was just excellent was that we
would like the idea of a CPI cap passed by Congress, rather
than left up to a regulatory board. Then finally, we really do
need service standards so that we have timely news magazines.
We have to ensure that what we pay for really meets minimum
service standards for all classes of mail.
Mr. McHugh. Thank you very much.
Mr. Critelli.
Mr. Critelli. I am going to mention two things. One is on
the broad theme of growing the mail, I think there needs to be
a commitment to growing the mail and I believe pricing
flexibility to enable the Postal Service and the industry to
grow and mailers to grow is very important. I also think that,
consistent with the notion of partnerships, there really needs
to be encouragement of more work with the private sector to
produce the lowest-cost product at the best quality standards.
Mr. McHugh. Thank you, sir.
Mr. Davis.
Mr. William Davis. Yes, I will start off by echoing what
you just heard. Smart partnerships in work-sharing areas are
critical and they offer tremendous potential that is yet
unrealized.
Second, I believe that a comment I made earlier about
optimizing the network on an ongoing basis. We have too many
places in the wrong place. We need some places in other places.
We have to get at that and provide the right kind of service,
the kind of service that Ann and her counterparts demand, by
optimizing our network.
Finally, no business can be sustainable without growth.
Mr. McHugh. Thank you, sir.
Mr. Morris.
Mr. Morris. Chairman McHugh, I think the post office is
under siege today, and I think the forces that are upon it are
likely to worsen than get more benign. As a result of that, I
fear that any kind of one-off or piecemeal activity will not
lead to the kind of long-term sustainable outcome we need. So I
say to you that I think the Postal Service needs to become a
business, and much more businesslike, in that it needs to have
pricing flexibility and it needs to be able to build volume,
and not just volume that is in the traditional first class
area. It needs to focus in a mammoth way on quality and service
delivery. It needs to build a capability around innovative and
new products to different segments. That is a key part of
building volume. It needs to focus on productivity, best
practices, and looking to variablize its fixed cost structure.
And last, it can only do that if it invests in people and
technology.
To me, the one thing that hits me like a hammer is the need
to run the Postal Service like a business. I will add, at the
end, I think that really focusing on the CSRS is necessary to
provide the breathing room to enable this to occur.
Mr. McHugh. Thank you, sir. Thank you all.
Mr. Davis.
Mr. Davis of Illinois. Thank you very much, Mr. Chairman. I
certainly appreciate the testimony from each of you.
I notice that the President's Commission recommended that
the Postal Service should meet the highest standards of
corporate leadership, including a strong board of directors
guided by the best business practices. We have talked about
that a bit in terms of how do we move the Postal Service toward
becoming, as some have described, a business. What are those
best business practices that they may be talking about? Could
we just each comment on that?
Mr. Smith. Well, I think it starts with the corporate
governance structure as you just mentioned, how the board is
going to be appointed and what the criteria are for their
selection. But I think equally important is to give the Postal
Service management the potential to run their operations like
we all run our operations. You have to have incentives for
managers or rank and file employees, for that matter, to
produce certain results against business objectives, to improve
productivity, and to develop new products and services.
I think the Postal Service management has to be given the
flexibility to configure their network to meet the demands of
the marketplace, rather than to meet some arbitrary criteria
that is not market-driven. All of the things that have been
mentioned here about partnerships and incentives and so forth
to be more innovative have to be inherent in the delegated
authorities to the management of the Postal Service.
I think it is just those two things, and then of course you
have the third, an unusual aspect, which is the mandated
universal service from Congress, with the regulator having the
power to set those rates or whatever the case may be. I think
it is just that simple and that straightforward. I do not think
that it is impossible to do that at all.
Mr. Critelli. If I may comment, financial transparency is
one of the key governance practices that the Postal Service,
like all other organizations, needs to follow. I would just
mention a couple of items. One, I referred to mail with
intelligence or intelligent mail. One of the advantages of the
work that has been done by the Mailing Industry Task Force, and
this particular work has been chaired by Charlie Bravo of the
Postal Service, is to get better visibility and auditability of
day-to-day postal operations, first to track the mail and track
activities so we can get better costing.
Second, and I think CSRS legislation can go to help correct
this, what is the real cost of running the postal business? It
is very difficult to do that when you have costs imposed from
outside the Postal Service that really do not relate to the
real day-to-day cost of operating the business. So I think
financial transparency is a theme that would be consistent with
good governance today.
Mr. Davis of Illinois. I think the penultimate answer could
be a broader board of directors, make it more difficult or
hamper best practices, meaning that the broader group of
directors are us, the Congress and the general public in a real
sense.
Mr. William Davis. I would comment on that. Realistically,
the answer is yes. I know who my boss is and it is 10 other
directors and they are all independent outside directors. I
think the thing that makes it work for us is that it is a very
diversified group of people. I mean diversified by experience,
the things they bring to the table that enhance my performance
and capabilities. I do not see that in the postal process to
the same degree. It is not as intimate in the postal process
because of the scale and scope that you are describing. So I
would say that is a problem. But I do believe that if you did
increase the actual financial transparency, if we could look at
a document every quarter for the Postal Service like we do for
all of our companies, it would allow that board to be much more
crisp in their dealings with management because they would be
measured as a board on the performance of that company and the
plans of that company, just like ours are.
Mr. Davis of Virginia. Thank you very much.
Mr. McHugh. I thank the gentleman.
The gentlelady from Michigan?
Ms. Miller. Thank you, Mr. Chairman.
I think this question is to Mr. Critelli from Pitney Bowes.
My family was in the marina business and I remember 35 years
ago when we got our first Pitney Bowes meter and I just thought
that was the coolest thing ever. That was my job to go down to
the post office once a week and get that meter filled up and
give the postmaster a check and you get your little red ink and
fill all that up. Now it seems so unbelievably antiquated, but
it was great at the time. You talk about 35 years and what has
changed. Could you expand a little bit on what kind of
technology is happening in your industry and how it is
positively impacting? It has the potential to positively impact
the postal services. You have talked about intelligent mail.
Who has to do what to make I-mail a reality?
Mr. Critelli. OK, first of all, I think the best benefit
that we have provided in the last 25 years, and we really
started in 1979 when we launched postage-by-phone, was making
postal services and postage purchases available 24/7. We talk a
lot about retail access, but supplementing what needs to be
done at a post office, which is something like mailing of
packages, with giving the people the ability, both businesses
and small home offices and consumers, access to postal services
24/7 is a major benefit. Today, that is available.
Second, in conjunction with this whole move toward tracking
and tracing of mail, being able to put variable data on every
piece of mail. The example I always use is the business that
today can track mail and know whether customers have paid their
bills or whether a marketing piece has hit, so that they can
coordinate other parts of a campaign. All of that is possible
today.
The Postal Service has invested heavily in,under the great
work of Postmaster General Potter and his engineering and
technology team, cameras that capture data and integrated data
servers. They have done a great job in presenting that data
through the ``Confirm'' product to the mailing public so that
people can actually track their mail pretty closely from origin
to destination. That gives it a high degree of value. It is
something that Fred Smith did years and years before the Postal
Service and he really showed the way in the package delivery
industry. Now it is possible to do that in the letter mail
arena.
As I said, in the fight against terror, being able to
narrow the scope of the mail where we have to do the more
sophisticated security screening would be of great help to the
Postal Service and the public. All of us, even in the midst of
the anthrax crisis, in the industry were doing surveys and they
showed that people trusted the mail that they got from an
American Express or from another known mailer. They had
difficulty trusting mail where they either did not recognize
the return address or where there was no return address.
Putting marks on mail helped narrow the scope of that anonymous
mail and makes it easier to provide mail security.
I could go on a lot longer, but I will just focus on those
three benefits.
Ms. Miller. Thank you. One more question to you as well,
sir. You mentioned dynamic pricing.
Mr. Critelli. Yes.
Ms. Miller. And having the flexibility given to the Postal
Service to be able to change pricing at a very quick rate, I
suppose. Many of you have testified about how important it is
as you are doing your business modeling to have a cap, to have
predictability. I am just trying to understand what you are
saying. If we were to give the Postal Service the ability to
change prices very quickly, wouldn't that negatively impact the
private sector's ability to do their modeling?
Mr. Critelli. I think the private sector was talking about
price increases. I think if you went to private sector
companies and said, ``If you can get the mail in in August when
it is a little lighter volume, we will reduce your rates,'' I
think that would be very favorably received.
I would say this would be equally true of consumers, as
well as businesses. I know the greeting card industry has
talked about a different rate for getting the greeting cards in
before mid-December. So the idea of giving the Postal Service
seasonality, as I said, there is a lot of creativity in these
other industries. The phone companies have adopted these
weekend pricing plans and hotels have off-peak pricing. Why
shouldn't the Postal Service have the same ability to do
promotional pricing to increase the volume of mail and increase
the number of jobs in the Postal Service and in the industry.
Ms. Miller. Thank you. Just one final question. Mr. Davis
spoke about some of the worksharing agreements and you gave us
a specific example of an agreement that you have. It took you
18 months, I think you said, to get a 3-year pilot program.
Could you tell us, perhaps give us some specifics on why it was
so hard for you to do so, and specifically what we need to
perhaps include in a piece of legislation to allow flexibility
for the Postal Service to not let that happen?
Mr. William Davis. Thank you for that question. In fact, in
order for us to do this, we had to go through a tremendous
amount of documentation to demonstrate the expected benefits
and costs and impact across a whole cycle of factors. It had to
then be reviewed extensively by the Board of Governors and Rate
Commission and so on and so forth. It is ironic because the net
result of this, the Postal Service hates sacked mail. They love
it if you can bulk stack it and have it bar-coded so that they
can easily handle it when it comes into a bulk mailing center.
What this does is take a bunch of magazines that are now
packaged individually because they are individual titles, into
sacks based upon final zip code sorting. It allows us to take
an inter-mix, different titles of magazines, which of course is
to the benefit of the mailer if they get a discount for this,
on a skid, all bulk mail for certain delivery locations, take
it right to the bulk mail center, and let them just move it
right off-line into wherever they want. What has happened so
far, we have been at this for now about 6 months, we are
reducing the number of mail sacks by over 90 percent, over 90
percent in the test, and it is just a test. I cannot tell you
the immense amount of money that we will save.
The other thing we are doing, if you want to talk about
helping the economy, is the small magazine companies now get to
look like Time Inc. We can consolidate the mailings from 10 or
12 small regional publishers, mail them bulk collectively
together where they go to the same address, and they can get
the same treatment, handling and benefit in the postal system,
and therefore cost production, as a large mailer.
It is very frustrating that it is so hard to make something
happen that makes so much sense throughout the system.
Ms. Miller. Thank you very much. We will certainly take
that into consideration as we do our legislation. Thank you.
Mr. McHugh. I thank the gentlelady.
Mrs. Maloney.
Mrs. Maloney. Thank you very much. We certainly appreciate
all of your testimony. All of you testified in support of
postal reform. What would happen to your business if you did
not get it, say, in the next year? What would be the impact on
your business, if any?
Mr. William Davis. I would say that for our customers who
are large and small catalogers, large and small business
mailers like Capital One, and large and small magazine
companies, it would be another significant rate increase and it
would substantially decrease their efforts to use the U.S. mail
as part of their business model, and that is a fact.
I have been in this printing industry for 7 years. I have
watched the mix between our customers' costs, we break it down,
the paper costs, the printing and buying costs, and the mailing
costs. It used to be a third, a third, a third. Right now, just
in 7 years, I have watched it go to 50 percent postage and 50
percent print, paper and bind. So instead of 33 percent it is
now 50 percent for postage. That is because in this tough
economy and with all the improvements we have been forced to
make in the paper industry and in the printing industry to meet
their needs, we have reduced our prices while the Postal
Service has had, I guess in that period of time, four
increases.
Mrs. Maloney. Since you mentioned Mr. Nigel Morris'
business and Ms. Ann Moore's business, would you like to
comment for yourselves?
Mr. Morris. I would be really happy to. Thanks very much.
We are in the business of measuring the cost to acquire a
new customer. That is where the bulk of our first class mailing
is deployed. In the event the prices go up, a calculus of a
Capital One or any other major credit card issuer or mailer
will say, ``Now, is this a piece of mail that we still need to
spend money on?'' And if we do still need to go after the same
customer, is this the best way to go after that customer?
It is very clear that you can book credit card customers
through three principal channels: over the mail, we talked
about that; the Internet, e-mail; and via the telephone. We
have seen the cost of telephone booking fall significantly as
the cost of telephone time has fallen dramatically over the
last few years. The cost of an e-mail, depending on how you
measure it, is awfully close to nothing. An increase in the
cost of sending out a piece of mail, no matter how well-
targeted, if that goes up, the calculus would be to say, ``Now,
we need to shift some of our business away from mail volume.''
I think this is really an important thing to consider as we
wrestle with how quickly to try to tackle these reforms.
Businesses are in the business to make profit. Their
shareholders demand that of them. We are in the business of
booking customers for the lowest possible price. If the price
of one channel goes up, we will deploy more volume to other
channels. That will mean that a price increase will in the end
mean less volume. I think the impacts of that type of
decisioning on the system that we have articulated is pretty
catastrophic.
Ms. Moore. It is similar.
Mrs. Maloney. I am also concerned about the number of
magazines that folded in the district that I represent. What
were the dynamics involved with the decisions for some that had
been around for 75 years or more?
Ms. Moore. When postage costs rise, it is our single
largest expense item and we run around and examine every aspect
of what else we can trim. A magazine can only shrink so small.
You have probably seen most of your national magazines go down
in size. We have a lot of thanks to give to the paper industry
because they have done a marvelous job of developing
lightweight papers to take the weight of magazines down until
paper is almost transparent. We have cut back on direct mail,
which reduces the mail volume. We encourage subscribers to pay
by credit card so we do not have to bill you ever again and
send out a first class bill. And then when all else fails, we
raise our prices and disappoint most of our readers.
In regard to the number of magazines folding, the economics
of the magazine business has been just tough. In a soft economy
when your advertising revenue stream is soft, these three price
increases over 18 months really broke the back of some of the
great brands in publishing. It prevents me from really giving a
green light to a few new exciting ideas because of the
uncertainty of what it costs to launch a new product and create
new jobs.
Mrs. Maloney. Would you like to comment, Mr. Critelli? What
does your company do in response to the increasing prices of
postage?
Mr. Critelli. It hits us in a lot of different ways. We are
probably less affected immediately than some of the other CEOs
who are here affected. One of our growth areas has been the
small business mailer. We have added 350,000 small businesses
to our customer base in the last few years. We are up to
825,000. Our main pitch to these businesses is using the mail
to grow their business and using our technology to help do
that. When they are moving away from mail because mail prices
have gone up at a double-digit rate, it hurts our ability to
get that small business customer, and that is one of the most
profitable parts of our business. It accounts today for about
16 percent of our total profit, our small business U.S.
customer base. So that is an area that I think would be hit.
Our enterprise customers shut down mail rooms. They shut down
print centers. We lose employees and we lose revenues. Over the
last few years, we have seen that hit harder, since
particularly with the two big postal rate increases we were hit
very hard in our management services billings. That is just
beginning to come back now.
Mrs. Maloney. You all mentioned that if they had an outside
governing board that would give them ideas and work with them.
I am sure they would be open to having ideas, but how would you
make that happen? All of you would be great on it, but you
probably do not have time to do it. So you are recommending
something that is very hard to implement, really.
Mr. William Davis. I am not sure that is fair to say. I
suspect that many of us, if not all of us, including on the
next panel, already do serve on at least one other public
company board and that is exactly the role we play on those. So
I am not sure that it would be any more difficult to get
qualified people with various executive experiences and
marketing and operating experiences to serve on a properly
structured board for the U.S. Postal Service than I have
getting a new director for R.R. Donnelley.
Mrs. Maloney. Would you be willing to serve on a properly
constructed advisory board for the Postal Service?
Mr. William Davis. The answer is that I probably would.
Yes, yes, properly constructed, yes.
Mrs. Maloney. Would you, Mr. Morris? You created a business
that is growing. The Postal Service could use some of your
ideas.
Mr. Morris. I would be more than happy to participate in
any way I could add value.
I think there are two issues going on here. One is an issue
of governance and what is the best way of dealing with that. I
think that is a lot about what you have heard about
transparency, about accountability, and about hiring and firing
capability from an independent, involved board. I think those
are some of the characteristics that I have seen to be really
effective in governance. The issue of ideas and innovation I
think is extremely interesting as well.
Mrs. Maloney. And technology, as you all emphasized.
Mr. Morris. Yes. I think that you have within the Postal
Service a huge asset, a reservoir of ideas, some of which are
coming to the surface; some of which are not. I think there is
a real investment that is necessary in people and training and
people development around the skills that are necessary to
compete. But I think there is no shortage of people in
industry, and we are all here today because we care very much
about the success of the Postal Service. There is no shortage
of people who are willing to support ideas and support the
Postal Service in getting to where it needs to get because we
participate in that success. I am not going to speak for the
other members of the panel here, but I for one would be more
than happy to participate in any way where I could add any
value.
Mrs. Maloney. Thank you. My time has expired. Thank you.
Mr. McHugh. You are welcome.
Mrs. Blackburn.
Mrs. Blackburn. Thank you, Mr. Chairman.
I definitely want to say thank you to each of you for
helping us as we look at the proper way to create a structure
and environment in which the Postal Service can be viable and
competitive and meet the needs that they are there for the
public.
Mr. Morris, one quick question for you, and then I have a
couple of general questions that I would like for each of you
to answer. Your negotiated service agreement, you mentioned the
amount of time and energy that went into that. Last week when
we had our hearing, we talked at length about the lack of an
updated business model for the Postal Service, and the fact
that this has gone 30 years without attention, which is a shock
to many of us that have come from the private sector, and the
opportunities that exist for the Postal Service that we would
like to see them take advantage of in creating a more
businesslike model for their operations.
My question to you is, in establishing your NSA, did you
reach out to the Postal Service and initiate the contact or did
they come to you and suggest?
Mr. Morris. I can't definitively answer that because I was
not there during the early engagements. I can find that out and
I would be more than glad to get back to you on that in
writing.
Mrs. Blackburn. I would love to know that.
Mr. Morris. Let me say this, though, about the NSAs, if I
can. To us, it is a resounding success and I think it is a win
for the Postal Service and it is a win for Capital One. I think
there were a lot of well-meaning people at the post office who
burned a lot of midnight oil making this happen and we are very
grateful to them for that. We were hoping that our NSA would
lead to a clear signal for many other companies to engage and
to be able to pull off similar arrangements, because I think
there are palpable win-wins for everybody.
Sadly, that has not happened. As I attempt to comment on
that, I think one, a clear signal and unequivocal endorsement
from Congress that says, ``Postal Service, we not only would
like you to do this, we need you to do this,'' I think would be
helpful within the ranks and apparatus of the Postal Service.
Second, the post office I think needs to really work hard
to streamline its processes to enable and to encourage these
kinds of actions, and to be out there, as may be embedded in
your question, to be actually out there marketing these kinds
of arrangements, that say let's create win-wins, and I think
that we heard that from other panelists. I think we are a long
way from that, but I think it is entirely possible in this huge
value that could be created if we were able to do that.
Mrs. Blackburn. Thank you, sir.
I would like to have an answer from each of you on this.
Last week, we talked some about the Postal Service expending
over 80 percent of its revenues on its labor costs, and looking
at its labor costs, with the need to bring this down. I would
like to hear from each of you just an estimate, a very quick
estimate, of what your company spends on labor.
Mr. Smith, we will begin with you.
Mr. Smith. I believe that our labor costs as a percentage
of the whole are a little less than half.
Mrs. Blackburn. Thank you, sir.
Ms. Moore.
Ms. Moore. That is a hard question. I would guess it has to
be more than 50 percent, but I would have to check and submit
it on the record. Certainly we are a labor-intensive business
like the post office, because I do not own any equipment. I
print all my magazines on Mr. Davis' presses. So it is a lot of
people. It has to be more than 50 percent, but I would have to
check for you.
Mrs. Blackburn. Thank you.
Mr. Critelli.
Mr. Critelli. We have two lines of business, product
businesses where the number is relatively low, probably it is
well below 50 percent; and our management services business
where it is up in the 55 to 60 percent range. Company-wide, it
is a little bit over 40 percent.
Mrs. Blackburn. Thank you.
Mr. Davis.
Mr. William Davis. Again, we also have two businesses, but
the main commercial printing business, it is about 30 percent;
in our services business, like our graphics, arts, pre-media
development businesses it is north of 50 percent. The total is
in the 30's.
Mr. Morris. Labor is a big component of Capital One's
business, but I think the last time I looked at it, it is a
little less than half of our entire cost structure.
Mrs. Blackburn. OK. Thank you very much.
May I ask one closing question?
Mr. McHugh. You may.
Mrs. Blackburn. Mr. Chairman, that is fine. I will submit
it in writing.
Mr. McHugh. I would only say to the gentlelady we have a
couple more people and we do have another panel.
Mrs. Blackburn. Yes.
Mr. McHugh. If she could submit that in writing, that would
be great. I thank her for her consideration.
Mr. Schrock.
Mr. Schrock. Thank you, Mr. Chairman.
Thank you for being here today. I want to do a followup on
something Mrs. Miller asked, and that is about the price
stability. Virtually everyone is asking for price stability and
pricing flexibility, but how do we give the post office more
ability to change their rates, but give the customers the
predictability they need? And can it be based pretty much on an
inflation-based cap? Let me ask Ms. Moore and Mr. Morris.
Ms. Moore. I absolutely believe it is possible. It sounds
contradictory, but if you are working with a cap, you can work
under that cap. What is interesting about pricing flexibility
that they currently do not have is they do not have the ability
to incent me to behave well. I should pay more if my direct
mail piece cannot be sorted by a machine. I should be incented
to do a lot of pre-palletization as we do at our printing
press. Right now, for a variety of factors, it bothers me that
I, even being the largest publisher, do not always prepare the
mail in the most efficient way because the current pricing
inflexibility does require me to put my magazines in very
inefficient sacks. So that flexibility to incent my behavior
will really drive costs out of the post office. He ought to be
able to do that under some sort of CPI cap. Right now, if he
wants to raise his prices, it takes, like everything, more than
a year and that is too long for a business in this century to
be strong. So it is very doable.
Mr. Schrock. Mr. Morris.
Mr. Morris. Could I start by saying that I think a
methodology that says we are going to raise prices by inflation
is very challengeable as a methodology, and one that in the
business world we would never endorse. I think there is a need
for the Postal Service to really understand its cost structure
at a much more granular level, by product, on a fully allocated
basis, understanding the difference between fixed and variable
costs. I believe there has been a lot of progress made over the
last couple or 3 years in that space, but I think there is a
long way to go. Armed with that, you then can say, ``I
understand what my costs are for this product and I can then
look for this kind of margin on top of that product,'' and you
can test to see if the market is willing to pay that price for
that product. If the market is not willing to pay, it may be a
business that you should not be in. If the market is willing to
pay, then I think you have the chance of building something.
Armed with that basic understanding of costs, you also have the
ability to incentivize your partners, your customers, in ways
to help you reduce that cost and have them have the opportunity
to share in the collective bounty that comes from that. Without
understanding rigorously your cost structure, you may be giving
things away or you maybe not incentivizing enough. So that is I
think a real core.
I think second, there is a need to really embrace this
notion of custom pricing around seasonality, as we heard a
second ago, around promotions, and around the customer that you
are dealing with. Are you dealing with somebody who is mailing
a lot or a little? Are they mailing third class or first class?
Have they been around for 10 years or 2 years? Can you return
the mail by physical means or by electronic means? There are
enormous amounts of flexibility that one needs to embrace
there.
Last, from a governance perspective, I think a 1-year
turnaround or longer through quite a Byzantine process does not
enable one to be able to do those things effectively. So I
think there is a need to embrace some sort of managerially
oriented pricing committee with clear boundaries as to what is
allowable and what is not in the public policy interest, but
giving flexibility at the line of scrimmage to be able to make
those calls.
Mr. Schrock. Mr. Critelli, how can the postal system most
effectively partner with the private mailing companies to lower
costs and improve efficiency?
Mr. Critelli. I will comment on one piece of it, which is
the partnership we have established with the industry to
automate and pre-sort mail. Over half of the mail stream today,
or pretty close to half, I do not have the exact data, is
automated in some way. Activities, in addition to sorting, are
done by that.
As an example, we put the payment evidencing on the mail to
save the Postal Service from doing that. We cleanse and correct
addresses on the fly. We transport the mail so that it is
downstream and it avoids steps in the postal process. But I
think probably one of the bigger partners of the Postal Service
would be in terms of a very effective partnership would be
FedEx, so I would like to defer to Mr. Smith and have his
comments on this issue as well.
Mr. Schrock. Mr. Smith.
Mr. Smith. It is really pretty simple about how you do
these things in the broadest terms. That is, you simply need to
take work out. Wherever that is possible, the management of the
Postal Service ought to have the authority to quickly,
decisively and cooperatively develop win-win pricing for their
business partners, whether it is a customer or a supplier,
which is what we are. I think if you follow that very simple
formula, then there will be all sorts of creative things that
the wonderful people in these organizations and the Postal
Service, I mean, they have a very talented management team over
there if they were given the flexibility to deal with these
issues.
Mr. Schrock. Yes, I agree. Just one final comment, we hear
the term ``universal mail service, universal mail service.'' To
me, ``universal'' means anything the traffic will bear,
including the sale and mailing of used cars if they want to.
Mr. Critelli, you came as close as I think it is, and you said
in your summary here, the functions of the Postal Service are
accepting, collecting, transporting, sorting, and delivering
physical mail and packages, period, end of story. What do you
think ``universal mail service'' is? Each of you?
Mr. Smith. There is a long history on this, of course.
Mr. Schrock. Give me the short answer, then. [Laughter.]
Mr. Smith. I just wanted to preface that because you have
to take the literally centuries-old concept of universal
communications and the postal monopoly which is built around
that, and separate that a bit from moving things. Now, that
battleground as to what is a postal monopoly communication or a
letter, and what is a thing the private sector can compete in
has been the source of a lot of battlegrounds for a long time.
Mr. Schrock. Right. It sure has.
Mr. Smith. The practicality, though, has solved the issue.
When you really look at what the Postal Service can do in its
delivery system, and that is what dictates its capabilities, it
really can handle things a couple of pounds or less. Now, if
you want to stretch that to 4 pounds, 5 pounds, maybe, but
beyond that they simply do not have the infrastructure to do
it. In fact, when you get into vertical urban markets, they
actually separate the smaller items and give those to the
letter carriers, and have a separate delivery force for
anything heavier.
So the private sector is really predominant in above 2 and
4 pounds, that general category, depending on whether it is
urban or not, and below that is where the Postal Service has a
tremendous density of deliveries, access to mail boxes and so
forth. So whatever the universal service obligation, it really
is down in that lighter weight area, publications, magazines,
advertising, credit cards, things of that nature.
Mr. Schrock. Right. Thanks.
Ms. Moore. I thought that the Presidential Commission
defined it well. What it means, the universal service
obligation, what it means to me is very reliable, affordable
delivery to every household of mail and small parcels and small
objects. What I would really like to see is for the post office
management to be relieved of the burden of trying to get into
other businesses. They should stay very focused and do it very
well.
Mr. Schrock. Bingo. Yes.
Mr. Critelli. I would agree with the last comment that Ann
Moore made, which is the comment about focusing on the core
business. What we have seen overseas are post offices getting
into electronic mail, electronic bill presentments, certificate
authority, and a lot of other businesses that they don't really
have the core competencies to excel in, and they have stifled
private sector and other innovation in those businesses in that
process. Focusing on what they do best and giving them the
freedom in the area of the monopoly to experiment for public
benefit is what I believe this is all about, and growing mail
as a vital communications medium.
Mr. William Davis. I concur. I think by ``universal mail
service,'' it means service to everybody on a periodic basis.
Regarding what we deliver through the USPS, it is the stuff we
do deliver today. I agree with Mr. Smith that parcels over 4 or
5 pounds make no sense. As a matter of fact, let the record
show, the USPS only delivers, this is I think 2-year old data,
1\1/2\ year-old data, only delivers to the home 29 percent of
the parcels that are delivered to the home, and in total only
11 percent of the parcels. So there is plenty of competition
out there because of their own limitations.
Mr. Schrock. Thank you.
Mr. Morris.
Mr. Morris. I have nothing to add.
Mr. Schrock. OK. Thank you all.
Thank you, Mr. Chairman.
Mr. McHugh. I thank the gentleman.
We have one more questioner, a very distinguished member of
both the full committee and the panel. I would remind the
panel, you have a very important meeting that began 2 minutes
ago. So with that, I would defer to the gentleman from
Missouri.
Mr. Clay. I thank you for yielding, Mr. Chairman, and I
thank the panel for being here, sharing their time and their
observations on this important subject.
Let me start with Mr. Smith. I like to expedite things, so
let's start with FedEx. The Postal Service is not a government
entity, but it also is not a private entity. Instead, a number
of special laws govern its operations, such as a statutorily
mandated rate-setting process and a requirement that the Postal
Service break even. What are some of the biggest handicaps the
Postal Service faces that we need to change?
Mr. Smith. I think you need to have the regulator dictate
the universal service obligation that you decide is
appropriate, and have then the Postal Service management
delegated the flexibility to manage against that obligation in
whatever way they see fit. And then in those sectors which are
competitive, the regulator should simply ensure that there is
no cross-subsidization and that there is a cap on the pricing
in the competitive arena or an appropriate mechanism to see
that funds do not flow from the monopoly business over to the
competitive business. Those are the two essential features of
whatever you do or ought to be in our opinion.
Mr. Clay. One part of the business subsidizes the other
one, is what you are saying.
Mr. Smith. No, it should not be permitted to subsidize the
other. That is the point. It gets back to this focus, because
at the end of the day, there is no entity that can really
provide universal service for these smaller items other than
the Postal Service, at an affordable price.
Mr. Clay. Thank you, Mr. Smith.
Just out of curiosity, is there any truth to the folklore
that you got the concept of FedEx by trying to overnight a term
paper to a professor?
Mr. Smith. I think where people talk about it, they laugh
about the fact that I got a C grade on that paper, and since I
have taken the oath here, I must inform you that was an
extremely good grade for me, and I was very happy with it.
[Laughter.]
Mr. Clay. Thank you for that comment.
Ms. Moore, you indicated that the current business model of
the Postal Service is not sustainable. Would you explain your
reasoning on that statement?
Ms. Moore. That is just because the volume continues to
plummet downward. I will admit that in the early 1990's, we
could see this coming. We did, you know, form with several
other companies an alternative to the post office. We tested
alternate delivery with a company called Publishers Express,
and we actually delivered magazines and catalogs, starting in
the State of Georgia, to about 32 cities throughout the
country. We proved to ourselves that you could run a business.
We did actually break even in 1 month, I think, but we closed
the business in 1996 because it was clear that the sustainable
business was only to upscale zip codes in America, which
happened to be where most magazines are delivered, and it did
not seem good for the country that we, a big client, would
leave and develop such an exclusive business. But I think that
experiment in the early 1990's proved, at least in my mind,
that this is very doable to stop this volume decline and these
runaway costs, if we just practice good business.
Mr. Clay. Thank you for that answer.
Mr. Critelli, your statement indicated that the Postal
Service mission needs clarification to be accomplished. Do you
feel that there is ambiguity in the current mission statement?
Mr. Critelli. Yes, I do, Congressman Clay. I think the
Postal Service, especially if you go back into the 1990's,
tested the limits of the mission statement by moving into
several, what I think all of us would say, would be non-core
businesses, and did not succeed at those businesses, but felt
it had the freedom to do that, and did not have, I think, a
clear direction that its mission is to make mail as affordable
as possible.
I would agree with Ms. Moore's comment. Again, I would
reiterate her comment about focus. The Postal Service is the
best at delivering magazines. If it came to the conclusion that
it could promote more magazine publications by lowering its
rates, as opposed to being locked into this death spiral that
lower volumes mean higher rates, I think that would be for the
public good. I think the Postal Service needs to get clarity
that it is OK to do that. I don't think it believes today that
it can do that. I think it is very locked into when its costs
go up and its volumes go down, it has to do the counter-
intuitive thing, which is to raise prices to cover the costs,
rather than figuring out how to grow the volumes to cover those
costs.
Mr. Clay. OK. Thank you for that answer.
Mr. Davis, in your testimony you talk about the importance
of service performance standards. One thing about the Postal
Service that somebody said, it is a 200 year-old tradition.
People look forward to receiving their mail on a daily basis.
It is still a pretty good bargain at 37 cents for first class
mail. Would you care to elaborate on the idea of what kind of
performance standards?
Mr. William Davis. My concept on performance standards in
any business in any organization is that, frankly, if you
cannot measure and do not measure something, you will not do
what you should do. I believe that in anything that is
important for the Postal Service, they ought to establish
metrics and they ought to hold themselves accountable for it.
That is one of the roles that my concept that the board would
have.
Mr. Clay. OK. Mr. Morris, please explain why the Postal
Service should only be allowed to focus on its core competency,
which is universal service. Shouldn't the Postal Service look
for additional innovative revenue enhancement opportunities?
Let me just hear your thoughts on that, please.
Mr. Morris. Thank you, Congressman Clay.
I do believe that there is a significant opportunity for
the Postal Service to be much more innovative and ingenious in
terms of its business model. I do, however, on the other hand
believe that there is a need for disciplined focus around where
there is a core competitive advantage, using business-speak. I
think it is perfectly reasonable to recognize that you are good
at some things and you are not good at others. In recognizing
that you are not good at some things, you are willing therefore
to be able to form partnerships with others who can do that
better than you and you manage those vendor relationships.
Everybody on this panel is doing that, and I think the Postal
Service could look at that, too.
In terms of exactly what businesses the Postal Service
should be in and which ones they should not be in, I do not
feel qualified to specifically articulate. I would say that the
Postal Service does have some tremendous core assets. As you
mentioned, it has the universality of delivery, it has the last
mile, and it has an incredible brand. I think those are very
valuable things to build around. It also has relationships with
just about every corporation in America.
So I think that there is an opportunity to take a step back
in a disciplined innovation process to look at what things
might be able to work and which ones might not, and be willing
to experiment, rather than invest everything in big-bang ideas.
I think there is a lot of learning and a lot of development
here, and a long way to go.
Mr. Clay. Thank you for your answer. I thank the entire
panel for their answers.
Thank you, Mr. Chairman.
Mr. McHugh. I thank the gentleman.
Lady and gentlemen, thank you so much for your patience
over 2\1/2\ hours. As I said, I know you have another meeting
to go to. I deeply appreciate your effort to be here and your
contributions. We look forward to working with you. God bless
you.
While they are moving on, let's call the second panel.
If I could call us back to order. It is my honor to
introduce our second panel. Let me start by thanking them for
their patience. I mentioned how the first panel devoted 2\1/2\
hours. The second panel has devoted 2\1/2\ hours and has not
had the opportunity until now to appear and to testify. So
thank you so much for that.
As was the case in the first panel, we are very honored to
have a very distinguished second panel. If I may introduce them
as they are listed here: Mr. Lester Hess, chairman, Grand Lodge
Advisory Committee, Benevolent and Protective Order of Elks, or
as I know it, the Elks Club, thank you so much for being here;
Hamilton Davison, who is chief executive officer of Paramount
Cards, Inc.; Rebecca Jewett, president and chief executive
officer, Norm Thompson Outfitters, Inc.; and Mr. Gary Mulloy,
chairman and chief executive officer of ADVO. Our most
heartfelt thanks and congratulations for your interest and for
being here today.
As I noted on the first panel, we do have your written
statements, and without objection those will be entered into
the record in their entirety. As we did request for the first
panel, to the extent possible if you could summarize those
comments so that we could get right to the dialog, it would be
greatly appreciated.
Welcome, and with that I would ask you to present your
testimony in the order in which we introduced you.
Mr. Hess.
Mr. Hess. Thank you, Mr. Chairman.
Mr. McHugh. You know what? I deeply apologize. It is
absolutely nothing personal, but committee rules provide that
we do have to swear you in. So if you will stand and swear with
me.
[Witnesses sworn.]
Mr. McHugh. It has been a long day. I knew they would tell
the truth anyway, but parliamentarians are sticklers. The
record will show all four panelists responded to the
affirmation in the positive. With that, again my apologies Mr.
Hess, our attention is yours, sir.
STATEMENTS OF LESTER HESS, CHAIRMAN, GRAND LODGE ADVISORY
COMMITTEE, BENEVOLENT AND PROTECTIVE ORDER OF ELKS; HAMILTON
DAVISON, CHIEF EXECUTIVE OFFICER, PARAMOUNT CARDS, INC.;
REBECCA JEWETT, PRESIDENT AND CHIEF EXECUTIVE OFFICER, NORM
THOMPSON OUTFITTERS, INC.; AND GARY MULLOY, CHAIRMAN AND CHIEF
EXECUTIVE OFFICER, ADVO, INC.
Mr. Hess. Thank you, Mr. Chairman.
I am chairman of the past national presidents of the Elks
of America. The Elks are a nonprofit fraternal organization of
slightly more than 1 million men and women. We service more
than 2,200 communities located in every State across the
Nation.
For 136 years, the Elks have promoted charitable and
patriotic programs in all the communities where we are located.
As an example, volunteers from the Elks visit the patients in
every one of this Nation's 163 Veterans' Administration medical
centers every month throughout the year. They hand out phone
cards. They do things like give canteen coupons away, personal
hygiene items. They conduct parties, and from time to time they
invite many of these hospitalized veterans to events such as
Thanksgiving dinners at Elks facilities.
Last year, a national survey showed that more than $200
million were earmarked for Elks charities in terms of both cash
and the value of service contributions. The Elks are only one
of several hundred members of the Direct Marketing Association
nonprofit federation. I wish to thank the committee for giving
me the opportunity to speak on their behalf regarding our views
of the future of the Postal Service in light of the President's
recently announced principles.
The nonprofit community is vital to the well-being of our
Nation. Indeed, these nonprofit organizations are woven into
the very fabric of American life. To a large extent, they
depend upon the U.S. mail, particularly nonprofit standard and
periodical mail, for their existence. The Elks recently used
the U.S. mail to get donations from their members totaling more
than $1 million for the World War II memorial that is going to
be dedicated here in May.
That is why we in the nonprofit world are vitally concerned
with your efforts to shape postal reform. Since 1970, nonprofit
mailers have seen an escalation in rates which at times has
caused us to think about cutbacks in our charitable programs
and our services. Since 1970, postal rates for nonprofits have
increased more than 1,600 percent for periodicals. Commercial
periodicals increased 558 percent during the same period.
The cost for us to mail more than 1 million copies of the
Elks Magazine each month has increased nearly three times the
increase for commercial publishers. Although nonprofit postage
is now fixed at a discount to the commercial rate, and we do
not expect the gap to widen, we do recognize the need for
postal reform that will allow for rate increases, but not a
pure unlimited pass-through of costs to rate-payers. We simply
seek a measure of stability for our rates. We would encourage
you to establish some form of indexing so that, for example, a
rate increase could not exceed the rate of inflation unless
truly extraordinary circumstances existed. Otherwise, the
nonprofits of this country are going to be impacted in their
ability to continue doing their good deeds.
There is the immediate crisis I want to briefly address,
and that is the escrow fund issue. We agree that money could
more properly be used for operational expense and to reduce
debt. That translates into an increase in postal rates for us
if the escrow is left in, that could be in the double-digits by
2006. The Elks and other nonprofits simply cannot absorb
double-digit increases without looking to cut some services.
For the Elks alone, double-digit increases would cause us to
reexamine a number of our charitable programs such as summer
camps for children who are financially disadvantaged or have
physical disabilities, to say nothing of the volunteer work
that we do at the VA facilities.
In addition to the need to revisit the escrow requirement
in the 2003 law, we also agree that the military pension issue
ought to be revisited. If this responsibility is transferred
back to the taxpayers as it was before via the Department of
the Treasury, the impact of postal rates on us is obviously
going to be less severe.
Finally, I want to stress that the Elks, as well as all of
the others like us in the Direct Marketing Association
Nonprofit Federation, will continue our good works in support
of government, regardless of the direction of postal reform. If
you call on us, we will be there. However, you can help us
perpetuate our charitable work by adopting appropriate and fair
postal reform.
Thank you.
[The prepared statement of Mr. Hess follows:]
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Mr. McHugh. I thank the gentleman. I think it is worthy to
note that you represent a broad spectrum of charitable
organizations that do amazingly effective work, as he outlined
with respect to his particular organization. The Elks are so
very important, and rely upon the Postal Service for their very
existence. So your testimony is particularly appreciated.
Next, we are honored to have Mr. Hamilton Davison, who is
chief executive officer of Paramount Cards, Inc. Mr. Davison,
thank you so much for being here, and we look forward to your
testimony, sir.
Mr. Davison. Thank you, Mr. Chairman. Good afternoon,
distinguished members. I appreciate the opportunity to present
to you here today. My company is an industry leader in what we
call value-oriented marketing. I believe value-oriented
thinking needs to be imbued into the Postal Service and
supported by this panel, as well as this Congress.
Our postal system is in danger and needs a systematic
overhaul. You have heard from many interested parties. Because
over half of all cards purchased are mailed, my views represent
both my company and my industry, but I also believe are
reflective of the general wishes of the American public.
Without uniform universal access to the mail at a price that
people value, the postal system is at risk.
For the most part, I agree with the Commission's
recommendations and the President's five principles for reform.
We can tweak elements, but the broad strokes are good. In my
written testimony, you have some specific recommendations for a
postal reform bill. Let me underscore two.
First, a strong, effective regulatory mechanism is vital.
So is a congressional mandate for both fairness and cost
alignment. You heard that earlier. Protection for the captive
postal customer or the average American was a cornerstone of
the Presidential Commission. The approach taken in the most
recent postal legislation by Representatives McHugh and Waxman
certainly accomplishes this.
Second, grant the Postal Service the authority to control
its work force and facility costs just as companies do. This is
a major concern for me on two levels. First, controlling cost
is essential for long-term viability. Second, if the
Commission's comprehensive cost control recommendations were
enacted, I could accept a rate-setting process that lacks prior
review, a position I would not have considered previously.
The Commission also raised the issue of wage comparability,
which in my judgment should be resolved. If we are serious
about placing the Postal Service on a firm financial footing,
this is a seminal question that must be answered before any
work force changes are contemplated. This ties directly with
the President's call for best practices, transparency and
accountability.
I respectfully suggest that the General Accounting Office
promptly be assigned the task of reviewing postal and private
sector pay and benefit levels. Periodical wage and benefit
comparability reviews are consistent with all commercial
enterprises with which I am acquainted. In my company, we
conduct such a review every 2 years.
Another industry best practice is benchmarking the ratio of
supervisors to workers and a periodic restructuring and
rationalization of management and staff levels. In my company,
we work actively to reduce headcount per unit output. We do so,
often without layoff or dislocation, to minimize personal
disruption. With a high number of postal employees soon at
retirement age, this is a great time for this type of work.
Another aspect of the Commission's cost control
recommendations include network optimization. I urge resisting
provisions of law inhibiting the closing of post offices or
processing facilities. In the retail trade, it is accepted
practice to close and relocate a percentage of stores each year
to mirror shifts in population, traffic or shopping patterns.
Businesses also reassess their warehouse and distribution
center placement, making changes when costs justify it. It is
critical that postal management have the authority to
continuously optimize facility utilization and its logistics
network free from outside constraints, so that they can place
postal services where Americans live, work and shop.
Personal correspondence in the mail is what Americans value
most and is among the most profitable. It forms the foundation
of what Americans want from their postal service. It used to be
common wisdom or commonly held at least that household postage
was inelastic. Today, research has shown that the price of
single-piece first class stamps does affect demand. If personal
mail were to disappear, much of the utility of the postal
system for business mailers would disappear with it. We must
look beyond volume and recognize the interdependence between
mail types. If Americans stop going to their post office, it
will kill the system for everyone.
My comments are not criticisms of current postal
management; as a matter of fact, quite the contrary. They have
been aggressively managing the business and taking strong
action indicated by the decline in volume. I both appreciate
this and support the moves that they have made. In my judgment,
that must continue. But congressional reform will set the
ground rules and the tone for future administrations. Without a
mandate and the tools to drive increasing advances in its
competitive position, the Postal Service will not enjoy the
widespread use and brand equity that it has today.
As our high-tech life accelerates, along with the
uncertainties of security alerts, military action and the
everyday stresses felt by families as they are stretching
budgets and meeting obligations, the postal system is a comfort
to Americans who consider it a birthright. Each year, over 240
million Americans exchange greeting cards. This week, 1 billion
Valentines will be sent. You can send a Valentine to all
Americans through the passage of postal reform.
Thank you, Mr. Chairman, for your time. I would be happy to
answer any questions you have.
[The prepared statement of Mr. Davison follows:]
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Mr. McHugh. Thank you, Mr. Davison.
Next, Ms. Rebecca Jewett, who is president and chief
executive officer of Norm Thompson Outfitters, Inc., the great
catalog company. We are thrilled that you are here today,
ma'am.
Ms. Jewett. Thank you very much. And thank you so much for
inviting me to be here today.
My name is Rebecca Jewett and as of 2 weeks ago I am
honored to have a new role at Norm Thompson. I am now vice
chairman of Norm Thompson Outfitters. Norm Thompson is a
catalog company. It was formed 54 years ago in Portland, OR. We
are a mid-tier catalog company, certainly nowhere near the size
of our colleagues on the former panel. We employ 600 full-time
and 2,000 seasonal employees. We sell merchandise to upscale
customers throughout the United States.
A week ago, I asked our accounting department to rank our
vendors based on the amount of money we spend with them. You
would be interested to know that our largest vendor is the
USPS. In fact, we spend with the USPS four times the amount
that we do with our No. 2 vendor. Postage represents 50 percent
of our marketing costs. So needless to say, our employees
depend on the USPS. I like to think as the USPS goes, so goes
Norm Thompson.
In addition, companies who depend on an affordable postal
system employ, as we heard earlier, 9 million people, and
contribute $900 billion to our economy. No business can survive
on a 34 year-old business model. Certainly, the catalog
business has changed significantly since I entered it in 1981.
It is amazing that the USPS can still operate on its model from
the 1970's. The USPS is a cornerstone of our democracy, because
we must be able to communicate on a personal and business level
with every citizen. That is one of the needs of a democracy.
The USPS is also a major contributor to our economy and it
is a creator of jobs. Now, we have the best democracy in the
world and we have the largest economy. We deserve to have a
world-class postal system to provide infrastructure to support
democracy, the economy and job creation. I want to thank each
of you for your work on this issue. It is important and
foundational for all Americans. We support reform.
Now I would like to discuss how postal rate increases
affect my company. We need the USPS to have flexibility to set
rates. I have run catalog companies since 1990. I can tell you
how earth-shattering double-digit rate increases were to
catalogers in the 1990's. In fact, we wondered if we would
survive. We survived for four reasons. First, the printers
innovated and removed significant costs from their structure
and passed those savings on to us as customers. This helped
mitigate postal rate increases. Second, the paper market
softened and we found we could purchase paper for less. This
also helped mitigate postal rate increases. We as mailers knew
that we had to do business differently. So as a mailing
community, we became much more sophisticated in how we deploy
our marketing dollars. This also created cost efficiencies and
helped mitigate the postal rate increases. Last, the USPS was
able to contain costs and implement worksharing, which has
stabilized rates in the early 2000's, and we thank them for
that because it has been very helpful.
The USPS has done a good job so far, but we need Congress
to empower the USPS to build a new business model to provide a
world-class infrastructure. As mailers, we need stability and
predictability for postal rates and rate increases to be held
at or below inflation.
Let me tell you about the impact of increases above
inflation, what impact they would have on our company, if there
were an increase 10 points above the inflation rate, what we
would do. The low-hanging fruit has already been taken. So we
would have to cut circulation in ways that would be
fundamentally detrimental to both the USPS and to Norm
Thompson. What we would do is we would cut our prospecting
circulation in the months between January and September. We
would not cut circulation during the profitable holiday season,
which is I believe the peak volume season for the USPS, and
when they would actually probably prefer us to cut volume. We
would be cutting volume in the low-volume months when the USPS
has excess capacity. This would be very detrimental to the
USPS.
Cutting the circulation has a negative impact on my company
also. We would have to cut labor to match the reduced demand,
and who would we cut? Well, we would cut wonderful full-time
associates who have health benefits. We would not be cutting
our seasonal part-timers, who do not have health benefits. We
would be cutting associates in our customer phone center in
Oregon where there is 7 percent unemployment. It is one of the
highest unemployment rates in the country. As a country, I
would like to say we have lost a lot of telemarketing jobs to
India in the past couple of years. Wouldn't it be an enormous
disappointment if a postal rate increase contributed to the
loss of jobs in this important sector? We would also have to
cut full-time associates who are also covered by health
benefits from our West Virginia distribution center. The State
of West Virginia has done a magnificent job over the past 10 or
15 years creating new jobs in that State. I would also like to
say that as a country, we have lost many manufacturing and
warehousing jobs to overseas production. Again, wouldn't it be
an enormous disappointment if postage rate increases
contributed to more job losses in this sector also?
So how many jobs are we talking about? Well, in the greater
scheme of things, after all, we are a relatively small company,
not much, maybe 20 jobs. But it is significant to the person
who is losing their job that they have lost it. But also I want
you to consider that there are 2,000 catalog companies in this
country, and 20 jobs across 2,000 catalog companies is a
significant number of employees, about 40,000. With a 15
percent increase, it would be another 50 percent, these 60,000
jobs lost. This does not include the ripple effect on our
vendors.
So raising rates above inflation to solve the USPS
financial problem does not work. We need Congress to empower
the USPS to build a new business model so that it can provide
world-class infrastructure to support our democracy, our
economy and our jobs. So how will they do this? I leave
answering this question to others and my written testimony on
the how.
I would like to speak just briefly about universal service.
Norm Thompson needs universal service. It is what the USPS does
best. That last mile is very critical to us. Universal service
for all catalogers includes package delivery. We use USPS for a
majority of our product delivery. But even fellow catalogers
who use other package delivery companies know that USPS
provides competition which holds down costs for all.
So I want to thank you for your important work. You will
have a major impact on preserving what is best about our
democracy, our economy and our jobs. All of us from Norm
Thompson want to thank you for the important work that you are
doing.
[The prepared statement of Ms. Jewett follows:]
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Mr. McHugh. I thank you, Ms. Jewett.
I apologize we have to run. We have two quick votes. Mr.
Mulloy, it is like icing the field goal kicker, but we will
give you a new chance. We will return as quickly as we can.
Please stand in recess until we return.
[Recess.]
Mr. Schrock [assuming Chair]. I apologize for this
seemingly disorganized day, but the fact is that is what it is.
I was talking to one of my colleagues here on the way over, and
I said, ``You know, if these guys did business like we do this,
they would all have been bankrupt decades ago.'' So we need to
use you as role models. Mr. Mulloy, you have the patience of
Job and I really do appreciate that. We are glad you are here
and we look forward to your testimony.
Mr. Mulloy. Thank you.
Mr. Schrock. Excuse me, before that. Ms. Jewett had to
catch a plane, and so the panel will submit questions to her in
writing, just so nobody will think we drove her off. Thank you.
Mr. Mulloy. Thank you, Mr. Schrock. As you said, my name is
Gary Mulloy and I am chairman and CEO of ADVO. ADVO is the
largest in-home print advertising company in the United States.
We touch 8 out of 10 American households weekly or monthly. I
am pleased to be here on behalf of our 3,700 associates and all
of the associates of the 20,000 clients large and small across
America that rely upon us to deliver their advertising messages
via, predominantly, the U.S. mail.
I have submitted extensive written testimony. I am not
going to belabor a lot of what is in those materials. I am
going to focus on several issues today. However, as you have
heard from most of the panelists, both on the first panel as
well as this panel, I would echo that we believe that there is
a tremendous amount of growth potential in the mail. The Postal
Service, if properly focused, can in fact prosper and benefit
from that growth.
Unfortunately, for the last 15 years postal rates have been
higher than I believe truly necessary to fund the operations of
the Postal Service. The result has been that less than
competitive pricing has led existing and potential customers
elsewhere. It has also led to the creation of competitive
alternatives, some of which have been created by people like
ourselves who have been forced to look at private carrier
delivery and other sources because of the fear of rising postal
costs, which in some cases are twice that of running your own
private carrier delivery system. In fact, we have personal
experiences just like the one another panelist talked about,
Ann Moore. We do run our own private carrier delivery service
in several large markets, and the costs are substantially less.
We believe that all in private industry would use the USPS
more and both the Postal Service and industry would experience
growth if prices and rates were established and maintained in a
more market-oriented efficiently run system. Our current
strategy for our own company calls for us to double our
business over the next few years, but much of that growth will
of necessity be outside of the postal system unless changes are
made.
The potential market is big enough to pay for universal
service, and universal service is, we believe, 6 day-a-week
delivery to every household in America. It is big enough to end
discussion, we believe, about 5-day delivery and get the Postal
Service thinking about the opportunities presented by 7-day
mail delivery instead. It is even big enough to relieve
pressure on some of the traditional features of the Postal
Service that the American public has long enjoyed, such as post
offices in the smallest communities in the country.
To tap into this, though, we have to have competitive
prices. We believe such an extended period of stability is not
only desirable, but reasonable and achievable. Stable rates are
not a pipe dream. Since 1971, the Postal Service has been
required, as you know, to break even and to charge mailers its
cost of operations. Contrary to popular perceptions, however,
and to media misrepresentations, the U.S. Postal Service has
not been chronically losing money or breaking even in its
operations. In fact, since it was created, the Postal Service
has generated an operating profit, and a handsome one.
Since 1971, postal revenues have been billions of dollars
more than the cost to fund operations of the U.S. Postal
Service. Even if Congress were to force the Postal Service to
book all 100 percent of its health care liability for retirees
today, the Postal Service would still have generated billions
more in excess revenue through rates charged mailers and
consumers and the rates that are still in place today.
This money has gone to the U.S. Federal Treasury. The USPS
is not subsidized by the taxpayer. It has surprisingly been
subsidizing the taxpayer. Last year, this committee took the
first steps to correct the retirement overpayments made by the
U.S. Postal Service to the U.S. Treasury. This was an important
first step, but it is only a partial and temporary solution,
and included some provisions that, as we have discussed earlier
today, are not in the long-term best interests of the Postal
Service, the consumer or the economy at large.
Part of last year's fix required the Postal Service to pay
military, Peace Corps and other government retiree benefits.
This action transferred $28 billion in additional obligations
to ratepayers. These costs are not rightly the responsibility
of the Postal Service and its customers and consumers. Unlike
other Federal agencies, the U.S. Postal Service does not
receive Federal appropriations, but must charge for the
services it provides. The cost of military service time for
most Federal agencies is paid for by the general treasury, and
thus taxpayers as a whole. Singling out postal ratepayers to
cover this obligation that benefits all taxpayers is thus
unfair.
Customers are able to cover the costs of Postal Service
operations through the rates they pay. However, adding
additional expenses such as retirement benefits earned as a
result of military service pushes postal rates up to
uncompetitive levels. The President's Commission recommendation
to undo last year's damage must be taken care of immediately,
we think, by this body. All of the customers of the Postal
Service, with the exception of nonprofit mailers, are also
taxpayers and our taxes fund these and other programs. To be
required to pay for them again through higher postage rates is
a form of double taxation.
Also, in implementing last year's fix to the CSRS
overfunding, the OPM also quietly made a very large accounting
change with regard to allocating the responsibility to pay for
pensions earned as a result of work performed by postal
employees prior to 1971. The 1970 Postal Reorganization Act
made the Treasury responsible for employee benefits earned
while working for the old Post Office Department, and it made
the Postal Service responsible for benefits earned after it
took over.
For years, the benefit obligation for retirees with
employment both before and after 1971 was allocated between the
Postal Service and the Treasury, based on the number of years
of service employed at each agency, allocating the same dollar
amount to each year of employee service. Last year, when the
factual actuarial error regarding CSRS funding was corrected,
the Office of Personnel Management quietly switched to a new
allocation method that effectively shifted a large portion of
the pre-1971 obligation to the Postal Service to the detriment
of the Postal Service and therefore its customers and the
consumer.
While there can be legitimate disagreement about the proper
method for making judgments about allocation of benefit
obligations, the factual actuarial error is not open to
judgment or opinion. The allocation method used for 32 years
was fair and was recently determined to be consistent with
common practice by Hay Associates, an actuarial firm
commissioned by the Postal Service. Changing it now shifts pre-
1971 Treasury obligations to the Postal Service and its
ratepayers as a sort of penalty for finally correcting the
factual actuarial errors that have been allowed to stand for
years.
The difference between the old allocation method, which had
been in place for years, and the new method imposed by OPM,
changes the Postal Service's balance sheet by tens of billions
of dollars, far more than enough to fully fund both CSRS and
retiree health benefit liabilities. This is an unfair burden
that today's Postal Service and its consumers and customers
should not have to bear. Additionally, the legislation passed
last year required for 2006 and beyond that the Postal Service
must resume making overpayments to the CSRS system in the form
of escrow payments. As you have heard from other people today,
we believe that this should be struck down. Because these funds
are from Postal Service customers and consumers, they could be
more properly used to be invested in better productivity and
efficiencies within the Postal Service, and therefore those
benefits would provide an overall stimulus for the U.S.
economy.
This committee can take steps toward righting these wrongs
and put the Postal Service back on track to growth with better,
expanding service. Congress can and should take strong action
to clean up the misallocation of billions of dollars in paid-in
retirement dollars by the USPS by first, returning the
allocation methodology for retirement benefits earned by USPS
workers before 1971 to the method utilized prior to last year
and that method used by the vast majority of pension fund
calculations, whether that be for private sector or public
sector. The USPS has appealed to the Board of Actuaries as
provided for in last year's legislation, but there is no need
for Congress to await the result of that appeal to apply this
commonsense solution and eliminate the effects of this
arbitrary punitive action. Second transferring responsibility
for military and other government service benefits back to the
general treasury recognizes that the Postal Service is unlike
other Federal agencies that receive Federal appropriations.
Once relieved of both of these unfair burdens, the Postal
Service will be able to fully fund its CSRS and its health
benefits liability. Finally, the Congress should repeal the
escrow provision of last year's law through at least 2008 and
allow the true profitability of the operations of the Postal
Service to be utilized to invest in productivity and efficiency
improvements, and generate the economic stimulus of rate
stability for this critical component of the U.S. economy.
According to some of the most respected economists studying
the industry, if all of these things were addressed in a
comprehensive way at a single time, with the help of other
meaningful reforms that this body can enact to control costs
and grow the business of the Postal Service, that Service
should be able to fund its retiree health care obligation in
total, eliminate debt, and freeze rates for years beyond the
requirement of the current law, at least through 2008 and
probably beyond.
With the retirement funding issues addressed, the
principles for postal reform articulated by the administration
will succeed. In particular, I would note the urgency of
applying the principles of best practices and flexibility to
the areas of pricing and costs. The Postal Service needs to be
able to respond to its marketplace and, as the Presidential
Commission recommends, be given greater ability to enter into
contracts with its customers large and small. The Postal
Service must also be given the tool to control costs and manage
its resources.
These steps will allow the Postal Service to build
substantial volume that covers its costs and contributes
properly to overhead at a time that the Service will be
undergoing major systematic changes that you are championing. I
would again call your attention to the written materials that I
have submitted, which go into greater detail on these and other
issues.
The stakes for the American consumer, our economy and the
business users of the U.S. Postal Service could not be higher.
I think you have heard from every other member of both of these
panels that in various industries and various constituencies,
this is very important to us. The time is now, and we urge you
to act expeditiously.
Thank you very much.
[The prepared statement of Mr. Mulloy follows:]
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Mr. Schrock. Thank you, Mr. Mulloy. As I listened to you
speak, I understand your arguments for pension reform and why
you believe they have been overcharged. I also understand why
an extended rate freeze would be good for mailers. How would
all that be good for the Postal Service?
Mr. Mulloy. I really believe that, as you have heard many
people on the panel say, a normal amount of price increase is
to be expected in relation to inflation is in fact the wrong
way to approach a business. I think it is important that
mailers and the consumer look at the mail channel as having
pricing stability and in fact use price to encourage the kind
of behaviors that are going to drive greater efficiencies and
productivities to better prolong the life of the U.S. Postal
Service. It is a vital part of the communications fabric of our
country and the business fabric of our country. We think that
prolonging that and extending the life of it and making it an
even more vital part of our economy is critical.
Mr. Schrock. Mr. Davison.
Mr. Davison. Congressman, we heard from our customers loud
and clear that they felt the price of our products were too
high. We completely changed our strategy. We completely
reinvented our supply chain and changed everything about our
company, including launching a retail concept where we offer
regularly half-price cards every day. We have been rewarded
with increased volume, increased demand, increased consumer
traffic. There is a factor of elasticity of demand in many
things. I suspect strongly and have actually read some research
that confirms that the amount of consumer mailing, at least, is
strongly dependent on the price paid at certain times of the
year, in particular holiday card times where there are multiple
sending situations.
So I think there is a case to be made in a variety of
industries, certainly within a variety of mail segments, that
getting some cost control and efficiency improvements will
actually improve the amount of mailing. It does not have to be
a zero-sum game. That does not mean that you pay people less.
It just means that you improve the system to get more out of
it.
Mr. Schrock. Mr. Hess, do you have any comments on that?
Mr. Hess. Only that I do not speak of course from a profit
perspective, as everyone else here does. I am speaking for the
nonprofits. But in terms of how it would help the Postal
Service, we believe that some stability in the rate structure
is going to keep the volume of mail from the nonprofits up
higher than it ordinarily would if there is not stability in
the rate structure.
Mr. Schrock. Yes, I understand. There are some who believe
that the U.S. Postal Service will soon be obsolete due to the
high-tech types of things and little machines like this that
all of us seem to carry. Why is there a place for mail in this
economy? By asking that, I am not suggesting there is not. I
believe there is, but I would like to get your spin on it.
Mr. Hess. From the nonprofit perspective, we are unlike
businesses in that so many of us do not have computer terminals
like a business is often equipped to do. We have to rely on the
U.S. mail and we do.
Mr. Davison. When computers were invented, everybody said
we were going to get rid of all sorts of paper in the office. I
do not know about your office, but mine is still filled with
lots of paper. When the video cassette came out, they said that
movie theaters were going to go away. When e-mail came out,
everybody said that people will stop sending greeting cards.
None of those things have happened. There is a place for hard-
copy correspondence, and there is keepsake value of certain
things that come through the mail. There is just intrinsic
value that cannot be harnessed in other ways. So I do not see
the mail system as obsolete. It may go through increases and
decreases in volume and load, but I think through some of the
ideas that you have heard expressed here and elsewhere, there
is an opportunity to continue to stimulate that demand.
Mr. Schrock. I agree. When I finally leave Congress some
day, I want to come back and be the person that sells paper to
this place. [Laughter.]
I can make a fortune.
Mr. Mulloy.
Mr. Mulloy. I would add to that, and probably even
emphasize it more, that if you look at what has happened to
most of the computer-driven business models, they have greatly
enhanced their utilization of the mail to converse with the
customers that they tend to prospect through the computer. It
is an irreplaceable communication device that is important to
the fabric of our country and our economy. For us to underserve
it and underutilize it in the future or today is a crime. I
think what we are really arguing for, all of us here, is that
there are growth opportunities in this channel. It is not an
obsolete channel. It in fact is an incredibly positive
communication device for our economy.
Mr. Schrock. Yes, thank you.
Mr. Davis.
Mr. Davis of Illinois. Thank you very much. I thought for a
moment there that you would come back as the Postmaster
General. [Laughter.]
Mr. Schrock. That wouldn't be all bad either.
Mr. Davis of Illinois. Well, lots of work to do.
Gentlemen, let me thank you so much for your patience and
also for your testimony. During the last discussion, we heard a
great deal about financial transparency. Do you think that
perhaps an outside auditor or some other independent source
should certify that the data we are getting from the Postal
Service in terms of product costs, financial results and other
data are complete and usable to make decisions and
determinations about it?
Mr. Mulloy. I guess I would say, sir, that I believe that
the people of the Postal Service are a very high integrity,
very highly intelligent group of people. I think they have the
ability to fully assess and evaluate the data that exists about
their business. I think what we would encourage you, and I
think from the thrust of the two panels today you have heard us
say that what we are really asking is that they be empowered to
take the actions that such an analysis would in fact lead them
to. That is the biggest single need. They have the access. They
have the ability, and we all I think are very complimentary of
the people of the Postal Service in terms of their capabilities
in that area.
Mr. Davison. I would agree with Mr. Mulloy. In most
respects, I will differ slightly from his comment in one area.
I have the utmost trust and respect for the job that our
current postal officials are doing. I have been very impressed
as I have gotten to see their work and their approach. I
believe they are very serious about improving their system. But
just as we have outside auditors, I do not think it is a bad
thing to have checks and balances. I like the idea of making
sure that reports and figures in particular are free from any
material misstatement; that there hasn't been any incidence of
improper reserves. There are lots of judgments that go behind
putting financial statements together. It is good to have an
outside body, plus consistently applied rules, in our case
general accounting principles, that help guide that.
I also think that we have a regulatory process that has
come under some fire. In some respects, the regulatory process
has worked in protecting the citizen interests quite well. But
what I think everybody would agree with is the process has been
complex and expensive. Part of that is the financial
transparency issue. It takes a lot of time to get information
and get data because the system is set up to be litigious and
confrontational. In a confrontational environment, you do not
want to lay your cards on the table. So I think that is part of
the drive that really gets to your question also, Congressman.
Mr. Davis of Illinois. Let me ask you, we have recently
found a couple of pots of money, like at the end of the rainbow
there is a pot of gold. We found it for the Postal Service. I
mean, what external auditing activity or look-see by others
maybe would have found that money sooner? Could we perhaps have
known about it a little sooner?
Mr. Davison. In a risky statement, I would say that I think
it probably would have, because I think what has happened, as
Mr. Davis is saying here, is that the Postal Service over a
period of time felt unable to challenge some of the numbers
that were being assigned to it by the government, by the
Treasury. The reality was that perhaps some additional ability
to challenge those numbers would have helped unearth the fact
that they were being incorrectly charged over those very many
years.
I think that is the same issue I am raising now with what
they have done in the appeal to the Board of Actuaries, is that
they have an outside party that is saying the prior methodology
is the predominantly used methodology for firms facing the same
issue of two-employer allocations based on years of service. We
need to listen to those people when they bring those kinds of
facts forward, and in fact react to it. That does not mean you
blindly accept it, but you certainly listen to the learned
input from outside bodies.
Mr. Davis of Illinois. I raised the issue earlier relative
to management. I don't know if either one of you would hazard
to make any recommendation to the postal system. As we go
through this process, I do suggest that they have more people
to be accountable to. I suspect that labor issues are going to
become a concern as we reconstitute, reform, do whatever it is
that we do.
Would you have any recommendations as to how the labor
issues may get handled as we look at some transformation?
Mr. Davison. I am not a labor expert. I do not want to
offer myself as such. But I do think that we have to pull
everybody into this effort, and all understand where our
selfish and enlightened best interests lie. It is really not
about paying people as little as we can pay them. It is about
having a viable system that brings value and adds value. I
think the answer to some of the specific labor questions that
were raised in the Commission's report--I am not an expert, I
am not familiar enough to understand the alternatives or
history--but I think it is important that we take a
comprehensive view and work together to get this issue solved.
Mr. Mulloy. I would add to that I think that there should
be a partnership at the table, because what we are trying to
focus on here is the growth that is inherently present, we
believe, in the system. Therefore, that is good for labor, it
is good for management, it is good for the entire institution.
That builds continuity and longevity in employment. It
guarantees pension benefits and health care benefits for
retirees. It is good for all constituencies and all
stakeholders, if you will, in the business.
Mr. Davis of Illinois. I guess finally, universal service
as we have heard it described, I would assume that you all are
in agreement with that. What about the issue of collective
bargaining? There are some people who feel that collective
bargaining puts management at certain kinds of risk, and puts
even an entire operation at certain kinds of risk. Do we have
any feelings about that, or any comments that you would venture
relative to that?
Mr. Mulloy. I think that the experience would say that
there is some role for arbitration in the process of
negotiation. I think that it cannot be an arbitrary
arbitration. It should be in fact supported by both parties and
provide some stability to it. I think that a good dialog
between both parties is the most critical element. I would say
that based on everything that I have seen in the last few years
that a positive relationship has been generated between both
labor and management at the Postal Service. I think there is a
constructive dialog that is going on today, recognizing both
the opportunities and challenges that are present. I think that
if we can put the right sets of reforms in place and your
committee can help us do that, then I think it creates an
environment where both parties can have positive and
constructive dialog, even when there are issues between the
two.
Mr. Davis of Illinois. Thank you.
Mr. Davison. I would concur with that. My goal is to see
the Postal Service become viable in the future, not to
eliminate collective bargaining per se. My experience with
change in an organization is that you have to get everybody on
board, and this is a very large organization, 750,000 employees
or so. Change does not happen just because managers decide
change is going to be occurring. Change happens because the
people that actually do the work embrace that change and move
things forward. I think without bringing people on board and
hearing what they have to say, understanding what their needs
and concerns are, we are not going to have meaningful change.
It is just that simple.
Mr. Davis of Illinois. Gentlemen, I thank you very much for
your patience, and certainly for your participation. Mr.
Chairman, I have no further questions, and yield back my time.
Mr. Schrock. Thank you, Mr. Davis.
As all of us consider the essential components of
comprehensive postal reform legislation, what in your views are
the key areas that we should include in that legislative
package?
Mr. Hess. From the nonprofit perspective, it would be rate
stability. We still prefer some form of indexing, whether it be
pegged to CPI or inflation or whatever. That is important to
us.
Mr. Schrock. Mr. Davison.
Mr. Davison. From a consumer and marketing perspective,
even pegging something to inflation is a bit of a concession.
Lots of product pricing in my industry and others go down
regularly. So I think we should look for some real cost
improvement in the system that will make it a more viable
system and bring more value for the participants.
I would also add some strong consumer protection or citizen
mailer protection; some sort of regulatory checks and balances.
I do not think anybody has been advocating for an unregulated
monopoly. That is essential, and whatever mechanism you choose
to employ, there are a variety of them, but some consumer
protection is absolutely essential.
Mr. Schrock. Mr. Mulloy.
Mr. Mulloy. I would just say that there are two that I
would first and foremost jump on, one of which would be a
comprehensive and total dealing with all of the retirement
issues that are on the table, from health care benefits, CSRS,
the pre-1971/post-1971 issues I raised, and the military. I
think there are four issues there, all of which can be dealt
with and there will still be a surplus of funds which then is
an opportunity for the Postal Service to really embark on a
true system of reform as outlined by this body.
The second thing would be that the Postal Service be
empowered to utilize pricing for what in reality pricing is
within a business environment, which is an opportunity for
growth. The most successful retailer in America, one of our
largest clients, in fact utilizes price reductions as a way of
encouraging growth. They grow revenue through price reductions
because they encourage the kinds of behavior that attracts
market share and performance. We believe that those
opportunities, and I think the panels have all indicated we see
growth opportunities in this channel, that mail is an untapped
potential in terms of growth. Price can become a major
empowerment to attract growth.
Mr. Schrock. I have one final question, and it is a
followup to that question. What do you think we absolutely
should not include in this postal reform legislation, or what
areas might best be addressed outside of legislation?
Mr. Davison. That is a difficult question.
Mr. Schrock. I did not say it would be easy.
Mr. Davison. And there are a lot of things that I could
envision in ways to answer that.
From my perspective, I guess I would say I think this is
something that we are going to do every three decades or so,
and this is going to have lasting import. So I think it is
important to try to put in place a structure that has some
permanence, to not try to legislate too many details. In my own
judgment, to Congressman Davis' question, there is a broader
constituency here that we need to serve, but that is not a lot
different than a business serving its customers. So I think we
have to establish some ground rules and then put some essential
checks and balances in place, and hopefully the wisdom of those
folks and the guidance that you provide will allow us to have a
good, stable, durable system without your having to cover every
detail.
Mr. Mulloy. I would kind of suggest that--and I would hope
that the work of this body would be not looking at the mail
channel that represents about 9 percent, as you have heard, of
our gross national product, employs 9 million people--that in
fact this is not a stressed industry that is going out of
business, and that we are looking at an inevitable spiral; that
we in fact come up with a package of reforms that truly
recognizes there is opportunity for fulfillment in this
business and that we put things in place that allow it to make
better business judgments, that will allow it to recognize the
destiny that is there for the Postal Service and for every one
of its associates.
Mr. Schrock. Mr. Hess.
Mr. Hess. I do not have anything to add to that, Mr.
Chairman.
Mr. Schrock. OK, thank you.
Let me conclude by saying, when I asked to come on this
panel, I came on this panel with preconceived notions about
what I thought the Postal Service was and what needed to be
done. It is kind of interesting, in the three hearings we have
had, and especially the one we had in Chicago and the one we
have had today, those preconceived notions have been destroyed,
because thanks to people like you and the first panel, and the
wonderful folks we had in Chicago, I think I understand this
better. I think the more of these hearings we have, the better
able I am going to be to come to a final conclusion on what is
best for America and of course what is best for the postal
system.
So this has been very, very beneficial to me. I can tell
you, I thank you all very much. I thank all the witnesses for
appearing today, and I want to thank the staff who have done a
magnificent job. These things are not easy to set up,
especially when you go out of town like we did to the Windy
City. I say that with all due respect, by the way. I really
appreciate your efforts as well.
The record from this hearing will be kept open for 2 weeks
to allow witnesses to include other information in the record.
Again, I thank you all and this hearing is now adjourned.
[Whereupon, at 5:05 p.m. the panel was adjourned, to
reconvene at the call of the Chair.]
[Additional information submitted for the hearing record
follows:]
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