[Joint House and Senate Hearing, 108 Congress]
[From the U.S. Government Publishing Office]





     THE POSTAL SERVICE IN CRISIS: A JOINT SENATE-HOUSE HEARING ON 
                    PRINCIPLES FOR MEANINGFUL REFORM

=======================================================================

                             JOINT HEARING

                               before the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                                and the

                   COMMITTEE ON GOVERNMENTAL AFFAIRS

                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 23, 2004

                               __________

                           Serial No. 108-171

                               __________

    Printed for the use of the Committees on Government Reform and 
                          Governmental Affairs


  Available via the World Wide Web: http://www.gpo.gov/congress/house
                      http://www.house.gov/reform


                                 ______

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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
NATHAN DEAL, Georgia                 C.A. ``DUTCH'' RUPPERSBERGER, 
CANDICE S. MILLER, Michigan              Maryland
TIM MURPHY, Pennsylvania             ELEANOR HOLMES NORTON, District of 
MICHAEL R. TURNER, Ohio                  Columbia
JOHN R. CARTER, Texas                JIM COOPER, Tennessee
MARSHA BLACKBURN, Tennessee          ------ ------
PATRICK J. TIBERI, Ohio                          ------
KATHERINE HARRIS, Florida            BERNARD SANDERS, Vermont 
                                         (Independent)

                    Melissa Wojciak, Staff Director
       David Marin, Deputy Staff Director/Communications Director
                      Rob Borden, Parliamentarian
                       Teresa Austin, Chief Clerk
          Phil Barnett, Minority Chief of Staff/Chief Counsel
                   COMMITTEE ON GOVERNMENTAL AFFAIRS

                   SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska                  JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio            CARL LEVIN, Michigan
NORM COLEMAN, Minnesota              DANIEL K. AKAKA, Hawaii
ARLEN SPECTER, Pennsylvania          RICHARD J. DURBIN, Illinois
ROBERT F. BENNETT, Utah              THOMAS R. CARPER, Deleware
PETER G. FITZGERALD, Illinois        MARK DAYTON, Minnesota
JOHN E. SUNUNU, New Hampshire        FRANK LAUTENBERG, New Jersey
RICHARD C. SHELBY, Alabama           MARK PRYOR, Arkansas
           Michael D. Bopp, Staff Director and Chief Counsel
                  Ann C. Fisher, Deputy Staff Director
      Joyce A. Rechtschaffen, Minority Staff Director and Counsel
                   Susan E. Propper, Minority Counsel
                      Amy B. Newhouse, Chief Clerk



                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on March 23, 2004...................................     1
Statement of:
    Fineman, David, chairman, Board of Governors, U.S. Postal 
      Service....................................................    47
    Potter, John E., Postmaster General of the United States, 
      U.S. Postal Service........................................    62
    Snow, John W., Secretary, U.S. Department of the Treasury, 
      accompanied by Brian C. Roseboro, Acting Under Secretary 
      for Domestic Finance, U.S. Department of the Treasury......    24
Letters, statements, etc., submitted for the record by:
    Blackburn, Hon. Marsha, a Representative in Congress from the 
      State of Tennessee, prepared statement of..................    40
    Burton, Hon. Dan, a Representative in Congress from the State 
      of Indiana, prepared statement of..........................    21
    Clay, Hon. Wm. Lacy, a Representative in Congress from the 
      State of Missouri, prepared statement of...................    45
    Collins, Hon. Susan, a Representative in Congress from the 
      State of Maine, prepared statement of......................     9
    Cummings, Hon. Elijah E., a Representative in Congress from 
      the State of Maryland, prepared statement of...............    98
    Davis, Chairman Tom, a Representative in Congress from the 
      State of Virginia:
        Letter dated February 23, 2004...........................    92
        Prepared statement of....................................     4
    Fineman, David, chairman, Board of Governors, U.S. Postal 
      Service, prepared statement of.............................    50
    Harris, Hon. Katherine, a Representative in Congress from the 
      State of Florida, prepared statement of....................    94
    Kanjorski, Hon. Paul E., a Representative in Congress from 
      the State of Pennsylvania, prepared statement of...........   101
    Maloney, Hon. Carolyn B., a Representative in Congress from 
      the State of New York, prepared statement of...............    90
    McHugh, Hon. John M., a Representative in Congress from the 
      State of New York, prepared statement of...................    14
    Potter, John E., Postmaster General of the United States, 
      U.S. Postal Service, prepared statement of.................    65
    Ruppersberger, Hon. C.A. Dutch, a Representative in Congress 
      from the State of Maryland, prepared statement of..........    36
    Snow, John W., Secretary, U.S. Department of the Treasury, 
      prepared statement of......................................    27
    Van Hollen, Hon. Chris, a Representative in Congress from the 
      State of Maryland, prepared statement of...................    96

 
     THE POSTAL SERVICE IN CRISIS: A JOINT SENATE-HOUSE HEARING ON 
                    PRINCIPLES FOR MEANINGFUL REFORM

                              ----------                              


                        TUESDAY, MARCH 23, 2004

        House of Representatives, Committee on Government 
            Reform, joint with the Committee on 
            Governmental Affairs, U.S. Senate,
                                                    Washington, DC.
    The committees met, pursuant to notice, at 2:40 p.m., in 
room 2154, Rayburn House Office Building, Hon. Tom Davis 
(chairman of the Committee on Government Reform) presiding.
    Present: Representatives Tom Davis of Virginia, Burton, 
McHugh, Schrock, Duncan, Miller, Murphy, Turner, Carter, 
Blackburn, Tiberi, Towns, Maloney, Cummings, Davis of Illinois, 
Clay, Van Hollen, Ruppersberger and Norton.
    Also present: Senators Collins and Carper.
    Staff present for the Committee on Government Reform: 
Melissa Wojciak, staff director; Keith Ausbrook, chief counsel; 
Ellen Brown, legislative director and senior policy counsel; 
Jack Callender, counsel; Robert Borden, counsel/
parliamentarian; Drew Crockett, deputy director of 
communications; Teresa Austin, chief clerk; Brien Beattie, 
deputy clerk; Corinne Zaccagnini, chief information officer; 
Althea Gregory, minority counsel; Denise Wilson, minority 
professional staff member; Earley Green, minority chief clerk; 
and Jean Gosa, minority assistant clerk.
    Chairman Tom Davis. The committee will come to order. I 
want to begin by welcoming the Members of the Senate 
Governmental Affairs Committee to our hearing room, and 
especially thank Chairman Collins and Senator Carper for their 
tireless work on this important issue.
    This joint hearing caps off a series of six hearings 
conducted by the Senate Governmental Affairs Committee and 
three hearings conducted by this committee's Special Panel on 
Postal Reform and Oversight since the report of the President's 
Commission on the U.S. Postal Service was released last July. I 
think that one thing we have learned from all of these hearings 
and from the work of the President's Commission is that the 
current legal framework under which the post office operates is 
outdated and unsuited for today's economy. It's putting the 
jobs of millions of Americans at risk.
    Let me explain. Under current law, the only response 
available to the Postal Service that they have to declining 
volumes and revenues is to raise rates even further. As rates 
go up, even more volume leaves the system, contributing to what 
Comptroller General David Walker has called a death spiral. 
First class mail volumes have been in decline for several 
years, even as the number of addresses that the Postal Service 
serve increases.
    I believe that without comprehensive postal reform this 
year, we face a time in the near future when the Postal Service 
will no longer be able to sustain itself with higher and higher 
rate increases. And many of the 9 million Americans whose jobs 
rely on a stable, healthy postal system will be out of work.
    The postal reform is not only a job issue, it's a consumer 
issue. Everyone gets mail, and everyone buys stamps. If we 
allow the Postal Service to continue its death spiral, it will 
hit every American in the pocketbook.
    Last year this committee and the Senate Governmental 
Affairs Committee worked together along with the administration 
to solve a potential overfunding of the Civil Service 
Retirement System by postal taxpayers--ratepayers. That reform 
delayed the next rate increase until 2006, providing much 
needed relief for the Postal Services customers, but it left 
several unresolved issues which we must deal with as the 
legislation moves forward.
    First, the legislation transferred responsibility for 
funding the military portion of retiree benefits to the Postal 
Service for CSRS. I realize there are differences of opinion on 
whether that change should be revisited or left in place, and I 
look forward to the witnesses' perspectives on that.
    Second, the legislation required the Postal Service to 
calculate, collect and place into escrow the post-2005 savings 
caused by the legislation. We wanted to get a clear sense of 
the Postal Service's plans for cost reduction and productivity-
enhancing capital improvements before releasing all the 
savings. I believe that the Postal Service has fulfilled its 
requirements in this regard, and I think it's now time to 
release the escrow.
    Let me take a moment to explain the budget effects in the 
CSRS escrow because there seems to be a great deal of confusion 
about it. When we took up the administration's proposed Postal 
CSRS Reform Act last year, the bill, as it was written by the 
administration and introduced with budget-neutral changes in 
the Senate as S. 380, it had a CBO-estimated cost of $17 
billion between 2003 and 2008 and $42 billion between 2003 and 
2013. In the House, H.R. 1169 as introduced placed the savings 
to ratepayers, which counts as a cost in the unified budget, in 
escrow by requiring the Postal Service to collect the savings 
from its customers beginning in 2006 and not spend it without 
prior congressional approval. This bill and the bill which 
eventually was enacted had a CBO-estimated cost of only $7.2 
billion between 2003 and 2013. Compare that to the 42 billion 
cost without the escrow. All we did was put off, temporarily, 
the majority of the budget hit from the Postal CSRS Reform Act 
as proposed by the administration.
    This year the chickens are coming home to roost. Sometime 
in the late fall, shortly after the beginning of fiscal year 
2005, the Postal Service will be filing a rate increase to take 
effect at the beginning of fiscal year 2006. If we have not 
released the escrow, that rate increase will likely include an 
extra 2-cent surcharge on the rate of a first class stamp as 
part of an extra 5.4 percent rate increase across the board 
solely to fund the escrow amount.
    Releasing the escrow will be a crucial component of 
comprehensive postal reform legislation, but the 
administration, according to Secretary Snow's testimony today, 
says they are, ``willing to work toward a proposed modification 
of the Postal CSRS Funding Reform Act abolishing that escrow 
that will not increase the deficit.'' Therefore, we expect the 
administration to find the necessary offsets to accomplish this 
goal so that the comprehensive postal reform legislation can 
move forward, and we won't be faced with the largest rate 
increase, really tax increase, in postal history.
    If we are going to prevent a postal melt-down from 
happening, this is the year. For the first time since the Nixon 
administration, the White House has called for comprehensive 
postal reform. We are very fortunate to have Treasury Secretary 
Snow here today to present the administration's case for postal 
reform. 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. We can also build on the 9 years of hard 
work that Chairman McHugh and Chairman Burton devoted to this 
issue.
    And last but not least, our colleagues in the Senate who 
join us today are as committed as we are to preventing the 
Postal Service from melting down.
    I look forward to working with everyone in this room as we 
move toward comprehensive postal reform legislation. I want to 
thank all of our witnesses for appearing before the committee, 
and I look forward to their testimony.
    [The prepared statement of Chairman Tom Davis follows:]

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    Chairman Tom Davis. I now call on my Senate counterpart, 
Senator Collins, for any opening statement.
    Senator Collins. Thank you, Mr. Chairman.
    I am very pleased to join Chairman Davis and my House 
colleagues in conducting a joint hearing on postal reform. For 
the Senate Committee on Governmental Affairs, this represents 
the seventh in a series of hearings that began last September. 
Our Senate hearings have focused on the 35 legislative and 
administrative recommendations of the President's Commission on 
the Postal Service, recommendations that are designed to help 
this 225-year-old service remain viable over the long term.
    So much depends upon the Postal Service's continued 
viability. The Postal Service itself has more than 730,000 
employees. Less well known is the fact that it is also the 
linchpin of a $900 billion mailing industry that employs 9 
million Americans in fields as diverse as direct mailing, 
printing, catalog production, paper manufacturing and financial 
services. The health of the Postal Service is essential to 
thousands of companies and the millions that they employ.
    At our first hearing last September, the committee heard 
from Commission Cochair Jim Johnson. Commissioner Johnson made 
the very important point that the Postal Service's short-term 
fiscal health will not last, and that Congress must not ignore 
the fundamental reality that the Postal Service as an 
institution is in serious jeopardy. At the committee's second 
hearing, we heard from the Postmaster General and Comptroller 
General David Walker. Mr. Walker, of the General Accounting 
Office, warned us about the Postal Service's $92 billion in 
unfunded liabilities and other obligations as set forth in the 
Commission's report. He pointed to a need for fundamental 
reforms to minimize the risk of either a significant taxpayer 
bailout or dramatic postal rate increases such as the chairman 
has described.
    In February, the committee heard from representatives of 
the four largest postal unions, along with the postmaster and 
supervisor associations. Earlier this month at our fifth and 
sixth hearings, we heard from members of the mailing community 
and from postal competitors. We focused not only on the work 
force and financial recommendations, but also heard testimony 
on the Postal Service's monopoly, mission, the rate-setting 
process and corporate governance issues.
    As a Senator representing a largely rural State whose 
citizens depend heavily on the Postal Service, I appreciate and 
endorse the Postal Commission's strong endorsement of the basic 
features of universal service, affordable rates, frequent 
delivery and convenient community access to retail postal 
services. It's important to me that the people of my State, 
whether they are living near our western or northern borders, 
or on islands, or in our many small rural communities, have the 
same convenient access to postal services as the people of our 
cities. We must save and strengthen this vital institution upon 
which so many Americans rely for communication and for their 
jobs.
    The Postal Service has reached a critical juncture. It's 
time for action, both by the Postal Service and by the 
Congress. Senator Tom Carper and I have committed to work 
together with the other members of the Senate Governmental 
Affairs Committee to draft a bipartisan postal reform bill. As 
this hearing is evidence of, we are also working very closely 
with House leaders on postal reform, including Chairman Davis 
and Congressman McHugh. I am very pleased to participate in 
this historic joint committee hearing today. I think it shows 
how serious we are about accomplishing this critical task this 
year.
    Thank you, Mr. Chairman.
    Chairman Tom Davis. Thank you very much.
    [The prepared statement of Hon. Susan Collins follows:]

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    Chairman Tom Davis. Gentleman from Illinois Mr. Davis.
    Mr. Davis of Illinois. Thank you very much, Mr. Chairman. I 
am pleased to join with you in convening the first joint House 
and Senate hearing on the U.S. Postal Service. I would 
especially like to applaud the hard work and dedication of 
Senators Susan Collins, Joseph Lieberman, Ted Stevens, Daniel 
Akaka and Tom Carper, leaders in the effort to reform and 
modernize the Postal Service. I am proud to work with you in 
this effort and prouder still of the momentum we have created, 
momentum which will surely lead to successful efforts to 
rewrite the Postal Reorganization Act of 1970.
    Today is an important date not just because of the historic 
nature of a joint hearing on the Postal Service, but because 
this marks the end of hearings and signals the beginning of 
Members and staff coming together to draft postal reform 
legislation. Thankfully we have a very solid foundation upon 
which to build, H.R. 4970, the Postal Accountability and 
Enhancement Act.
    Since the introduction of H.R. 4970 in the last Congress, 
much has taken place in the postal world. Beginning in the 
108th Congress, we created a new postal panel. The Presidential 
Commission on the Postal Service was created and issued a 
report containing 35 recommendations. Those recommendations 
were followed by the administration's issuance of five 
principles of comprehensive postal legislation.
    Beginning this year our postal panel held a series of 
hearings addressing various aspects of recommendations 
submitted by the Presidential Commission and the 
administration's principles for reform, and as the ranking 
member of the postal panel, I recently convened the Chicago 
Advisory Postal Group in which a number of postal-reliant 
businesses in the Chicago area attended. The message from this 
group and others was that postal reform must go forward.
    I was pleased to note that we agreed on many important 
issues. Protection of universal service is a universally 
accepted principle. We need and must protect universal service. 
The Postal Service must have the flexibility to set rates and 
provide rate stability. The Postal Service cannot and must not 
bear the military service payment obligation; and finally, that 
we need to get rid of the escrow account.
    As we continue to work together to craft responsible postal 
reform legislation, I would like to commend you, Chairman Davis 
and Mr. McHugh, for taking the time to be engaged and provide 
direction and input into this valuable process. Your support 
and that of the mailing community is critical if we are to be 
successful in passing postal reform legislation. I also want to 
commend Mr. Waxman, who is the ranking member on our side, for 
the leadership he has displayed throughout this process. And if 
we are to be successful in passing this reform legislation, 
then that spirit of cooperation must, and I am sure will, 
continue.
    With that, I extend a warm welcome to our panelists and 
look forward to the participation.
    Chairman Tom Davis. Thank you very much.
    Is Mr. McHugh here, chairman of our postal panel?
    Mr. McHugh. Thank you very much, Mr. Chairman. I note you 
and Senator Collins and, of course, Mr. Davis covered more than 
adequately the full range of issues. So what I would prefer to 
do, with your forbearance, is to submit my written statement in 
its entirety for the record and just make a couple of comments.
    First of all, I want to add my words of welcome to Senate 
colleagues, particularly to Senator Collins, who has done such 
a terrific job as she detailed to some extent in her opening 
statement with respect to this issue. I admire her courage, her 
commitment and her dedication to the issue. We don't expect 
anything less from an esteemed graduate of a great institution 
of higher learning like St. Lawrence University in Canton, NY, 
which happens to be in my district, and we are very proud of 
that fact. But she's been a real leader, as has Senator Carper. 
And I have had a chance to work with Senator Carper as well for 
a number of years now, and we are very appreciative of their 
concern and their efforts.
    Chairman Davis mentioned 9 years. It dawned upon me that 
there are individuals who actually murder people who are 
sentenced to less time. But it's been an interesting journey, 
and I want to thank former Chairman Burton for his role in my 
sentencing and for allowing me to participate. And I make jest 
of it, but it has been one of the more fascinating stories of 
my life. And I was thrilled when the President, probably 
against a lot of political advisers' better judgment, decided 
that this was important enough for him to assign a President's 
Commission to not just receive those reports and findings and 
put them on the shelf, but to followup with the call of reform 
as he did in December. And I certainly want to thank the 
administration for understanding, as has been stated here, how 
important this so-called industry, if it is an industry, but it 
is so massive, is to our economy; nearly 9 percent of the gross 
domestic products of this Nation, and that's incredible.
    We can go through the details as to how the canary in the 
mine shaft is not doing well. We have seen the signs. We have 
had the cooperation from leaders on the Postal Service side 
like the Postmaster General, like chairman of the Board of 
Governors David Fineman, like the Treasury, and others, so many 
others who have detailed that. But suffice it to say that 
unlike our tendencies in Washington to react only in times of 
crisis, this is an instance when I don't think we can afford to 
wait, because by the time the crisis is upon us in its full-
blown dimensions, our Nation, our economy will have suffered 
greatly.
    So with the cooperation of leaders like the gentleman from 
Chicago, IL, Danny Davis, like the ranking member, Mr. Waxman, 
and others, we have tried to take this down a bipartisan path, 
which is what it should be, and all of their cooperation and 
understanding; and certainly Chairman Tom Davis for being 
gracious enough to figure out a way in which I could still stay 
involved in this and for taking the issue on full square has 
been a real demonstration of how Congress can work effectively 
and on a bipartisan basis.
    So I look forward and certainly welcome our panelists here 
today, and I would just note for the record that today in Roll 
Call there is a full-page ad taken out calling upon this 
Congress to enact reform now because it's necessary. And 
although there is a lot of great names and associations here, I 
would like to just name a couple of the smaller ones: The 
American Bankers Association; American Express; Capital One; 
FedEx Corp., someone who provides a lot of competition to the 
Postal Service; and an interest who understands the importance 
of the USPS to the Nation, International Paper; Magazine 
Publishers of America; National Federation of Independent 
Businesses; National Retail Federation; Time Warner, and on and 
on and on.
    Those folks who understand that the economy of this Nation 
and the well-being and the way of life that the Postal Service 
has become for, as Senator Collins so accurately noted, well 
over two centuries is at risk if we fail to do the right thing, 
and that's why I am thrilled we are here for this historic 
meeting and look forward to the testimony of the witnesses. And 
with that, I'd yield back and thank the chairman.
    [The prepared statement of Hon. John M. McHugh follows:]

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    Chairman Tom Davis. Thank you very much.
    Ms. Norton, followed by Mr. Burton.
    Let me just note for the record Members will have 7 
legislative days in which they can submit any written 
statement, so you don't have to feel obligated, but we've had a 
lot of Members who have put a lot of work into this, and I want 
to give them the opportunity to make statements if they so 
desire.
    Ms. Norton.
    Ms. Norton. Mr. Chairman, just let me briefly say that I 
think you are doing a public service to the Nation, you and 
Chairwoman Collins, in calling this hearing. In my judgment, 
this hearing may already be too late. Reading about the Postal 
Service is like reading about a failing business or shall I say 
a failed business, and that may be because it is not a business 
at all in the normal sense of the word. It is some kind of 
unique hybrid that Congress kind of pieced together, and we are 
paying the price for the kind of hybrid we put together. I 
mean, we act as though the Postal Service does not have tough 
competitors in the private sector, like FedEx and UPS. We act 
as though they don't have to provide universal service.
    Yes, Ms. Collins will talk about the far reaches of Maine, 
because if you try closing a post office up in some sparsely 
populated part of Maine, they will be on her back saying, don't 
close my post office. That's the difference between the very 
successful private competitors and the Postal Service, and the 
Congress has acted as if there is no difference. And the 
results are here in the figures we see and in the prospects we 
have.
    And what we see in some of these proposals, some of these 
proposals are indeed good, but some of these proposals read 
like what every failed business does. It tries to take it out 
on consumers and take it out on employees, and then, of course, 
you get completely torn-up labor relations. You try that in the 
post office, and I think it's not a very pretty picture.
    And yes, you close post offices left and right. Let me tell 
you about my colleagues. They will all be calling Chairman 
Davis saying, not my post office.
    I don't know what the answer is, but I know we have blinked 
this crisis, and we can't blink it anymore. We need a more 
radical vision than I see even in the proposals before us. The 
fact is that there is no self-respecting nation in the world 
that does not provide affordable postal service. We are coming 
to be that Nation, and we have to wake up, smell something. I'm 
not sure it's the coffee. And I'm not sure what we've been 
smoking, but we are very late to try to do something about the 
oldest Federal agency in the United States.
    Thank you, Mr. Chairman.
    Chairman Tom Davis. Thank you very much.
    Mr. Burton.
    Mr. Burton. Thank you, Mr. Chairman.
    Mr. Chairman, I have been on the Post Office and Civil 
Service Committee, I know I look a lot younger, but for 20 
years, and--don't I look a lot younger? I thought I did. But 
anyhow, when I first became a member of the committee, we 
didn't have this kind of a crisis, but with electronic messages 
being sent, with the faxes being sent, we've seen a 
deterioration of the revenues coming in to the Postal Service, 
and they are really suffering on difficult times. And we are 
looking at unfunded obligations now of about $90 billion.
    And I'd like to have my whole statement submitted for the 
record.
    [The prepared statement of Hon. Dan Burton follows:]

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    Chairman Tom Davis. Without objection.
    Mr. Burton. And something has to be done. You know, last 
year Congressman McHugh and I and others worked very hard to 
get a postal reform bill passed, and we ran into a few 
impediments, not the least of which was members of the private 
sector in this country who want to take over a large part of 
the Postal Service's business doing everything they could to 
stop postal reform.
    We are at a point now, in my opinion, where we have to do 
something. We should have done it last year. We should have 
done it before that. But it's getting so bad now that I think 
that the Postal Service is in danger of going belly up, or the 
taxpayers are going to have to pay a huge amount of money to 
bail out the Postal Service. And so something has to be done.
    I know there's going to be a lot of political pressure, Mr. 
Chairman, from various entities in the private sector saying, 
you know, we don't want postal reform, and the main reason is 
because they want to--they want more market share. And I 
understand it's competition, they want to get more business, 
but we can't let that be the reason that we see the postal 
system in this country be altered into a situation where it's 
irreparably damaged and the American people suffer. So we have 
to do something.
    Congressman McHugh has done yeoman's service on this, as 
you know. I applaud you and Senator Collins and her colleagues 
in the Senate for making this a top priority, and I really am 
happy that the administration is making this one of their main 
objectives this time. We have to do something. If we don't, 
there's going to be major postal rate increases. The deficit in 
the Postal Service is going to continue, and the Postal Service 
as we know it is going to be in peril. Something has to be 
done, and I am glad, Mr. Chairman, you're taking on this mantle 
of leadership right now along with Senator Collins to make sure 
we get that job done.
    Chairman Tom Davis. Thank you.
    I'm glad to have you working with us, Chairman Burton. I 
think if we'd been able to get assurances in moving this to the 
floor in the last Congress, we would have gotten it out of 
committee. This time I think we have that with the impetus from 
the administration if we can move it through the committee.
    Secretary Snow has a limited period of time with us, so 
what I'd like to do right now is swear all of the panel in, 
hear from Secretary Snow, have him take questions from each 
side briefly before he has to go, and I understand that Mr. 
Roseboro will be here to answer questions after we address the 
panel, and then we will go on with opening statements and try 
to fit them in appropriately, if there's no objection to that.
    Would the panel please rise with me as I swear you in.
    [Witnesses sworn.]
    Chairman Tom Davis. Mr. Secretary, thank you very much for 
your service to the country, and thank you for taking the time 
to be with us this afternoon.

 STATEMENT OF JOHN W. SNOW, SECRETARY, U.S. DEPARTMENT OF THE 
   TREASURY, ACCOMPANIED BY BRIAN C. ROSEBORO, ACTING UNDER 
SECRETARY FOR DOMESTIC FINANCE, U.S. DEPARTMENT OF THE TREASURY

    Secretary Snow. Thank you very much, Chairman Davis, and 
Chairman Collins and distinguished members of the panel. I am 
delighted to have the opportunity to be with you today to 
address this overdue subject and this critically important 
subject.
    Let me say I thank you for your flexibility in 
accommodating me. I wanted to be here, and appreciate your 
allowing me to come in light of the fact that I may not be able 
to stay the whole time. But as you said, Under Secretary Brian 
Roseboro, who is very knowledgeable on this subject, can speak 
well in my absence.
    I am here because I want to underscore the Bush 
administration's commitment to the objective of a strong, 
comprehensive postal reform. As you said, Congressman Burton, 
we can't wait 20 years to get this done. We really need to get 
it done now. It's widely acknowledged by everybody who looks at 
the question that the business model of the Postal Service just 
doesn't work anymore. It's not sustainable in light of all the 
technological changes and changes in the marketplace and 
substitutes that have come along. We need a new model.
    The President recognized that and sought to help the debate 
by establishing a commission, which--a bipartisan commission to 
look into the question of what could be done to put the Postal 
Service on a sound financial footing so it could operate well 
into the 21st century and serve those important objectives that 
were mentioned in your comments. That commission issued its 
report in July, and it's, as we think about it at the Treasury 
Department, the most important document on the Postal Service 
in 30 years. And I certainly take my hat off to the members of 
that Commission, who did really first-rate work in producing 
their recommendations.
    I wouldn't say that we endorse every 1 of the 35 
recommendations, but we believe the report as a whole is a 
critical building block for the reform effort. And, of course, 
the leadership of these two committees is critical in making 
that happen.
    We would suggest that comprehensive postal reform ought to 
be what we are seeking, and it ought to be guided by five broad 
precepts or principles implementing best practices, and 
enhancing transparency of operations, providing for greater 
operational flexibility, fostering greater accountability and 
ensuring self-financing. And encompassed within these larger 
principles, there are three specific issues of great interest 
to the administration and, I know, to members of the 
committees, because I have spoken to some of you about this.
    The first is the appropriate allocation of the Civil 
Service Retirement System military costs, a second is meeting 
the break-even mandate, and a third is making sure there's 
accurate cost accounting.
    Congress called on the Postal Service to achieve self-
financing when it passed the Postal Reorganization Act in 1970, 
and this principle must be a cornerstone of any postal reform 
that's pursued today. In order to meet the self-financing 
mandate, we think that the postal--that the pension cost for 
military service of Postal Service employees should be 
attributed to the Postal Service rather than to the U.S. 
taxpayers. Congress demonstrated that it shared this belief 
when it passed the Postal Service--Postal Civil Service 
retirement legislation in 2003.
    We would oppose any effort to shift the roughly $27 billion 
of pension costs connected with military service back to the 
taxpayers. This position, in our view, represents a fair and 
equitable allocation of those pension costs. It represents good 
government, good practice, and is financially prudent.
    With respect to another issue that I know is on the mind of 
many of you, the act's provision establishing the escrow 
account, it is important, I think, to start by noting that the 
administration never advocated including that provision in the 
final bill. And I'd say that we are prepared to work with you 
toward a modification of the Postal CSRS Funding Reform Act, 
abolishing the escrow in a way that will not have a serious 
adverse effected on the deficit, as long as it's part of a good 
overall postal reform bill. So we would look forward to working 
with you on that.
    Second, an accurate assessment of the Postal Service's 
financial performance must reflect all of its liabilities, not 
just some of them, including any unfunded liabilities not 
currently reflected on the balance sheet as well as all 
taxpayer-funded appropriations.
    Finally, we suggest that comprehensive postal reform must 
require the Postal Service to present more accurate revenue and 
cost allocations. Currently the Postal Service attributes 42 
percent of its total costs to general overhead, only allocating 
58 percent of its costs across product lines. That makes it 
tough to run the business well if you can't allocate your cost 
to the specific services for which those costs are generated. 
And while we recognize that cost attribution can be complicated 
for any company, particularly a company of the size and 
complexity of the Postal Service, we think that a more accurate 
cost attribution is possible, and that by getting it, we could 
get costs and prices and profitability into better alignment.
    In our view, the Congress has a unique opportunity to take 
decisive action here, to craft a comprehensive postal reform 
bill that can lead to a more successful operation of the Postal 
Service. We continue to appreciate and endorse the effort and 
dedication of the Postal Service employees, its management, the 
Board of Governors, all of whom have made tremendous 
contributions to this organization, and Postmaster General in 
particular. I understand, and I want to compliment the 
Postmaster General for this, that the Postal Service is 
implementing all 16 recommendations of the President's 
Commission that don't require prior congressional action. 
That's much to be commended.
    Let me close by saying that the administration is anxious 
to work with you to craft a reform bill framed in accordance 
with these principles that I outlined. We recognize that it 
will require shared sacrifice from everybody, from all the 
shareholders, but we have an opportunity here to put in place 
something that will stand the test of time in this enormously 
dynamic market.
    So I regret that I won't be able to be with you for the 
full length of the hearing, but I do look forward to being part 
of the effort to bring about significant, far-reaching, 
comprehensive postal reform. Thank you.
    Chairman Tom Davis. Thank you, Mr. Secretary.
    [The prepared statement of Secretary Snow follows:]

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    Chairman Tom Davis. I know you need to leave in a couple of 
minutes. I wonder if you could just try to stay for a couple of 
minutes and answer some questions, or if you can deflect them 
to Secretary Roseboro if you think that's more appropriate. But 
I wanted to recognize Senator Collins.
    Senator Collins. Thank you, Mr. Chairman.
    Secretary Snow, over the past several months that we have 
been holding hearings, we have heard from many different 
parties expressing many different views. We've heard from the 
Postal Service unions, the associations, the CEOs of major 
companies such as Time, Inc., and RR Donnelly. We have heard 
from representatives of the newspaper and direct marketing 
associations, and they have very different views in some cases 
on what should be done. But there were two issues that united 
every single witness who has testified before our committee at 
these six previous hearings, and that is the two issues that 
they all have in common are a desire to see the escrow account 
repealed and the return of the military pension obligation to 
the Treasury Department.
    This morning, or this afternoon, rather, you have praised 
and justifiably so, the fine work of the President's 
Commission, and as you're well aware, those recommendations 
were part of the Commission's recommendations as well. So the 
administration's is a pretty lonely voice on those two issues.
    I do recognize that the bill that the administration 
proposed to correct the overfunding of the pension system did 
not include an escrow account, because I introduced the 
administration's bill. I don't understand why today you have 
said that removing the escrow account, which was not part of 
administration's original bill, must be done so in a deficit-
neutral position. This is an overfunding that the OPM and OMB 
identified and which we have corrected. It doesn't make sense 
to lock up that money and prevent the Postal Service from using 
it.
    That's my first concern, and then if there's time, I'd like 
to turn to the military pension issue.
    Secretary Snow. Well, as I understand it, that's roughly $3 
billion in the escrow account today. And----
    Senator Collins. Well, the escrow account grows in future 
years if we don't remedy this problem.
    Secretary Snow. I would agree. Right. Right. But that is 
money that, as we keep score on the Federal deficit, goes into 
the plus column today. And if the moneys are allowed to flow 
out of the escrow account, they would be charged against the 
deficit and add $3 billion to the deficit. That's the basic 
issue we have with the escrow account. And as I say, I'd be 
willing to work to find an offset for the $3 billion, but we'd 
be much happier about the prospect of the escrow account 
solution you want if there were an offset.
    Senator Collins. Secretary Roseboro, did you want to add to 
that?
    Mr. Roseboro. Oh, yes. Just consistent with the Secretary's 
remarks, anything that increases the budget deficit increases 
the burden on taxpayers, and that is just fundamentally 
inconsistent with the principle the President has laid down in 
terms of the Postal Service being self-financing, as well as 
the original principle of postal reform from the early 1970's 
of Postal Service being self-financing. So as indicated, while 
we recognize the difficult accounting nature of dealing with 
this particular aspect, we would prefer to focus on economic 
exposure and how that could be adversely effective on the 
taxpayer. But we will be more than willing and anxious to work 
with the committee to find some type of resolution to the 
problem.
    Senator Collins. Well, I'm eager to work with you to 
resolve this issue, because I think it's absolutely critical, 
but it really is not relevant to the break-even mandate of the 
Postal Service. This was legislation that corrected an 
overfunding by the Postal Service to the retirement system. So 
to say that we have corrected that, but then we are locking up 
the money and not allowing it to be spent to fund retiree 
health care benefits, pay down the debt to the Treasury, or to 
remove the need for a dramatic increase in postal rates, for 
example, just doesn't make sense to me. It contradicts the 
entire purpose of the legislation that we passed at the 
administration's request last year.
    Secretary Snow. Senator, we don't disagree in principle. We 
do have that issue of a $3 billion hit to the accounts of the 
United States, and, as I said, we're prepared to work to try 
and find some offsets for that. But in principle we're not 
disagreeing with you.
    Senator Collins. I see that I have 3 seconds left, so I 
will yield back the balance of my time and hope that the 
military pension issue will be addressed by others. Thank you, 
Mr. Chairman.
    Chairman Tom Davis. Mr. Davis.
    Mr. Davis of Illinois. Thank you very much, Secretary. I'll 
just ask one question in terms of along the same lines. If we 
should shift the military retirement cost to the ratepayers, 
and if we can't shift it to the taxpayers, then more than 
likely it gets shifted to the ratepayers. Would that not put 
the Postal Service in the worst shape in terms of perhaps 
negating the possibility of some business that could be done 
that would not be done?
    Secretary Snow. Congressman, you raise a good point. How 
would the $27 billion be amortized or dealt with? This is 
something that Under Secretary Roseboro has looked at. In broad 
outline it would have to come through greater efficiencies, 
perhaps some phasing in of some pricing increases over time. 
But as we look at the situation, there are considerable 
opportunities, and I think the Postmaster General would agree, 
considerable opportunities for further efficiencies within the 
organization itself that would absorb some considerable part of 
those costs. But my learned colleague can give you a better 
answer than I can on that, and I very much apologize.
    Chairman Tom Davis. Thank you. We know you've got to run, 
and we appreciate very much. Thank you for your time.
    And, Mr. Davis, I think what I want to do, if it's OK with 
you, is go on before we proceed; everybody's sworn, see if any 
other Members, want to make opening statements, and let's move 
that out of the way, and then we can get to the testimony of 
the rest of the panel.
    And, Mr. Roseboro, I'll just have some cleanup work to do 
following that, some questions from some of the panel members.
    OK. Mr. Ruppersberger.
    Mr. Ruppersberger. Mr. Chairman. Thank you, Mr. Chairman 
and Senator. It's great to have you here and join together in 
this bipartisan issue.
    We're here today to explore what legislative changes are 
necessary to ensure the U.S. Postal Service continues to serve 
the best interests of the American public, but because the 
Postal Service is a $900 billion industry, it employs more than 
9 million people, we can all agree our objective is to 
stabilize the Postal Service and secure its future.
    As we consider options for reforming the U.S. Postal 
Service, it is crucial to recognize our Nation's shifting 
economic, commercial and technological conditions. Hard-copy 
communications have been affected by the use of fax machines 
and a variety of electronic communications including the 
Internet. The U.S. Postal Service faces increased competition, 
as we know, from private delivery companies and also the 
challenges of operating during an economic slump. Mail volume 
has declined during each of the fiscal years 2001, 2002, 2003, 
and the Service has lost $2.3 billion in the last 3 years.
    The financial problems of the postal industry, however, 
must not be imposed on the backs of the men and women who have 
made the U.S. Postal Service the best postal service in the 
world. As our national unemployment rate continues to decline, 
we must protect the job security of postal employees, including 
the retirement, health benefits and Workers' Compensation.
    In addition, we must consider the impact of the postal 
reform on individuals and small businesses. Cutbacks on 
services, charges and delivery, and post office closures could 
unfairly burden our communities both rural, suburban and urban.
    Last we must not overlook the U.S. Postal Service's 
uncertain funding for emergency preparedness. It has been more 
than 2 years since our country was brutally attacked by the 
terrorists on September 11, 2003, and other issues involving 
anthrax. We live in an era of uncertain threat levels and must 
ensure the U.S. Postal Service has the resources to keep their 
employees, our families and our communities safe.
    Chairman Tom Davis. Thank you very much.
    [The prepared statement of Hon. C.A. Dutch Ruppersberger 
follows:]

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    Chairman Tom Davis. Any other Members? Ms. Miller, you want 
to make an opening statement?
    Mrs. Miller. Thank you, Mr. Chairman. I'll be brief. I 
certainly appreciate your commitment to reforming the postal 
system.
    I'd like to thank my esteemed colleague from New York. I 
saw Mr. McHugh; didn't realize he had a 9-year sentence to 
postal reform here. So we're looking forward to a successful 
conclusion of all of that, and I certainly would like to extend 
my thanks to Senator Collins for joining us today, and 
certainly her commitment as well as the President's. I am 
certain with all of us, we can get reform--a reform initiative 
signed into law before the end of the year.
    You know, the Postal Service is such an important element 
of our society, as everybody has said here. It's actually over 
8 percent of the Nation's gross national product, which is a 
startling number, and certainly individuals and businesses rely 
on it each and every day. And for this reason, any 
consideration of reform certainly has to be sensitive to the 
needs of consumers, both individuals and businesses.
    In addition, I think that the reform needs to be sensitive 
as well to all of our postal workers, and I don't think that 
can be stressed enough. These are the people who make sure that 
your magazines are arriving in your home or your apartment or 
what have you every single day, that they show up every week. 
They make sure your bills are paid on time. These are the 
people that really make it work. And sometimes I think that we 
take our postal workers and our service for granted there, but 
I certainly want to thank the men and women who work every day 
to make it so reliable.
    And I do think sometimes we have a tendency to want to say 
that the Postal Service is a very large and inefficient 
government bureaucracy, but I think when you think for 37 cents 
I can put something in the mail in Macomb County, MI, where I 
live, and in several days it'll arrive anywhere in the 
continental United States, I think that's really remarkable.
    So I think it's important to note that the Postal Service 
is not broken, but it needs to be improved. And I think the 
largest room no matter what business you're involved is 
certainly the room for improvement.
    So I want to thank all the witnesses who are testifying 
today. I look forward to working with all of you.
    Thank you, Mr. Chairman.
    Chairman Tom Davis. Thank you very much.
    Mrs. Blackburn.
    Mrs. Blackburn. Thank you, Mr. Chairman. And thank you to 
Senator Collins for coming to join us today.
    I have a statement that I will give for the record, but 
just very briefly to touch on a couple of things. I do want to 
thank our witnesses. And I want to thank the members of the 
Postal Service, the employees of the Postal Service from my 
district who care deeply about reform and have come to join us 
today.
    We are all concerned with what we have seen happen with the 
Postal Service's financial health over the past decade and the 
deterioration that has taken place there, and I think as we 
have held the hearings in the House and the Senate, there are 
three areas where we have looked at that are in need of crucial 
reform.
    First, the Postal Service must develop a 21st century 
business model. And the Service is operating in 2004 as it did 
in the 1970's, and we know that is very difficult for the 
Postal Service and for the taxpayers.
    Second, the Postal Service must have financial 
transparency. And proper financial management enables executive 
officers to make sound financial decisions, and it allows new 
reforms to take hold, and that is something that is essential. 
And also, we think that it is essential that an extensive 
independent audit must be taken as soon as possible so the 
Postal Service can be held accountable for its operations, and 
the waste and inefficiencies can be identified and targeted for 
elimination.
    And third, the Postal Service must contain its labor costs. 
Eighty percent of its total expenses for last year were for 
labor, and this stands in stark contrast to some of the 
commercial mailing enterprises which we have heard from during 
the course of our hearings.
    Again, I want to thank the chairman for his leadership, and 
I want to thank our witnesses for being here today, and we look 
forward to working with you and hearing your testimony.
    Thank you, Mr. Chairman.
    Chairman Tom Davis. Thank you.
    [The prepared statement of Hon. Marsha Blackburn follows:]

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    Chairman Tom Davis. Senator Carper and then Mr. Clay.
    Senator Carper. To our colleagues here in the House of 
Representatives, to my Chairman Susan Collins, it's great to 
see all of you. To our witnesses, especially our General, thank 
you for being here today. I remember walking in this building, 
gosh, how long ago was it? 1965. 1965, when I was a freshman at 
Ohio State University, Navy ROTC, midshipman, and we were--
spring break. I didn't have enough money to go to Florida for 
spring break, and I ended up taking a free, all-expenses-paid 
trip to Quantico, VA.
    To see if I wanted to grow up and be a Marine officer. I 
ended up--I enjoyed the trip. I have great respect for the 
Marines and still do. But I enjoyed the trip. I just wanted to 
have a chance to maybe get out of Quantico one afternoon to 
come to Washington, DC, and, lo and behold, I did.
    And a bunch of my buddies and I got on a train in Quantico 
and came on up here to D.C. They went up to Georgetown to get 
in to trouble, and I came to Capitol Hill and ended up 
wandering into this building, in spring break of 1965.
    And there was a hearing going on. Everything else was shut 
down around the Capitol. There was a hearing going on in this 
building, I think on this floor, just down the hall. It was a 
Judiciary Committee hearing, and I think the chairman was a guy 
name Emmanuel Celler, I think he was the chairman. And they 
were having hearings on the Voting Rights Act of 1965. That was 
my introduction. I said, when I left, to my colleague, Ed 
Towns, with whom I came here in Congress, I said, when I left 
that day to go back to Quantico with my buddies, I said, did 
you guys have a good time? They had a great time in Georgetown. 
They wanted to know if I did too, and I said yep. But some day 
I would like to come back and work in this town, and it is 
great to be back in this building where we all started several 
decades ago.
    Well, to my colleagues, especially to my old colleague Ed 
Towns, it is an honor to be here. This postal reform issue has 
been one that has been with us for a while, as you know, and I 
hope that we can do work that is as good as that done by Ted 
Stevens almost 3\1/2\ decades ago.
    In fact, he did his work just shortly after I was here as a 
Navy ROTC midshipman, and we want to be able to build on good 
work that has been done by Congressman McHugh and those who 
helped him shape his legislation.
    As my colleagues are aware, this will likely be the final 
hearing I think we are going to hold following the declarations 
from the President's Postal Commission. I think it is a good 
sign that we are here, Democrats and Republicans, House and 
Senate, united in the belief that we need to make some 
fundamental changes to the way our Postal Service does business 
in the 21st century.
    By all accounts the Postal Service has been a success since 
it was created. I think even its detractors would admit that. 
It receives virtually no taxpayer support, and it services 
hundreds of thousands of employees, to provide to nearly every 
American, nearly every day, that service is second to none.
    And more than 30 years after its birth, the Postal Service 
is a key part of our Nation's economy, delivering to more than 
100 million addresses and supporting a massive mailing 
industry. And even a casual observer, however, can see that the 
past few years haven't been easy ones for the Postal Service.
    As we learned in our hearings in Governmental Affairs on 
the other side of the Capitol, they have been difficult for 
private firms, large and small, and for millions of mailing 
industry employees who depend on stable postal rates. I am 
pleased that we have this once in a generation opportunity, 
maybe once in a two generation opportunity now to work in a 
bipartisan way to modernize the Postal Service, to update its 
business model for the 21st century.
    At the end of last year, as we all know, President Bush 
issued a set of postal reform principles focused on those 
recommendations from his Postal Commission aimed at improving 
transparency and accountability at the Postal Service and 
giving management the increased flexibility that they need to 
streamline operations and seek out new mail volumes.
    And his principles touch on the main themes addressed in S. 
1285 and in Congressman McHugh's latest bill. I think it is 
safe to say, my friends, that as I have said before, that we 
probably have agreement on 90 percent of what ought to be in 
the new postal reform bill.
    And now that our hearing work is just about complete, I 
look forward to sitting down with you, Madam Chairwoman, with 
our friends here in the House, Congressman McHugh, and our 
other interested colleagues to put together a bill that is a 
worthy successor to that hammered out 40 years ago by a junior 
Senator, Ted Stevens. Thank you.
    Chairman Tom Davis. Thank you, Senator. Mr. Clay.
    Mr. Clay. Thank you for allowing me to claim my time. I 
appreciate that. It is an honor to participate in today's 
hearing on developing principles for meaningful postal reform 
with our Senate colleagues. I would also like to extend thanks 
to today's witnesses. This historic meeting leaves no 
uncertainty about the willingness of Congress to address the 
important issue of postal reform.
    Postal reform has presented us with a unique opportunity to 
craft legislation that would modernize our postal system to 
become more customer friendly and efficient in the 21st 
century. Still, there are many components of postal reform that 
have yet to be resolved, such as the Civil Service Retirement 
System, military obligation, and the fair and equitable 
treatment of postal workers, to name a few.
    The U.S. Postal Service is no ordinary business enterprise. 
It is a government entity with no shareholders that provides a 
commercial service which operates under a break-even mandate 
and pays no Federal, State or local taxes. It is truly unique.
    Fundamental reform is sorely needed to bring the service 
into the information age. We must examine further efforts to 
cut costs while maintaining service and preserving universal 
delivery. I trust that as a body we will take the time to 
resolve our differences on the issue of postal reform. Simply 
put, we owe that commitment to both the ratepayers and 
taxpayers.
    And, Mr. Chairman, I look forward to hearing from today's 
witnesses, and ask unanimous consent to enter my statement in 
to the record.
    [The prepared statement of Hon. Wm. Lacy Clay follows:]

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    Chairman Tom Davis. Without objection, so ordered. Any 
other Members wish to make opening statements at this point? 
Again we have--I am sorry, Mr. Towns.
    Mr. Towns. Mr. Chairman, let me thank you for holding this 
joint hearing today on the very important issue of postal 
reform. This has been a thorough and informative process, and I 
feel confident that both sides are well prepared to fashion a 
bill that will put the Postal Service on firm ground for years 
to come.
    The Postal Service is truly at a precipitous point, as it 
is quickly heading down a path which is economically 
unsustainable. Each year the Postal Service adds nearly 2 
million new homes, businesses or other new delivery points. 
However, at the same time, mail volume has been declining for 3 
straight years. While some of that decrease is due to the 
recent economic recession, a significant portion of the decline 
is due to structural changes that are only going to become more 
pronounced.
    Overall, the Postal Service has lost $2.3 billion, that is 
B as in ``boy'' in the last 3 years. We have bought some time 
by passing the Civil Service Retirement System Funding Act. We 
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. Our constituents are depending on us as well 
as the Postal Service and the mailing industry.
    Together this enterprise comprises a nearly $900 billion 
industry, employing 9 million workers nationwide, and 
representing more than 8 percent of the gross domestic product. 
So a failure to act will have wide ranging consequences.
    As I have said before, there is significant room for 
agreement on a vast majority of issues, such as the escrow 
account and the military pension issues. In areas of limited 
disagreement, I strongly believe that a compromise can be 
forged that increases the efficiency and effectiveness of the 
Postal Service, accommodates the needs of the mailing industry, 
and at the same time protects our postal workers.
    I look forward to hearing from our witnesses today about 
their views on what principles should guide our committees in 
writing a final postal reform bill.
    Thank you very much, Mr. Chairman, and I yield back the 
balance of my time, and I am glad to see that Senator Carper 
made his way over. It shows you that this is an important 
issue.
    Chairman Tom Davis. Thank you very much. Members will have 
7 legislative days to put statements in. We will proceed to the 
panel now. And I think, Mr. Fineman, we will start with you, 
and then, Mr. Potter, to you. Mr. Roseboro, do you want to make 
any remarks or are you just here to be the flycatcher for the 
Secretary?
    Mr. Roseboro. It is a privilege to have the best job in the 
world right now, sir. I will report back.
    Chairman Tom Davis. Go ahead.

STATEMENT OF DAVID FINEMAN, CHAIRMAN, BOARD OF GOVERNORS, U.S. 
                         POSTAL SERVICE

    Mr. Fineman. Thank you, Chairman Davis. As most of you 
know, I am the chairman of the Board of Governors of the U.S. 
Postal Service, and I have served a sentence with Congressman 
McHugh. For the last 8 or 9 years we have been together. My 
term expires on December 8th of this year. And this will, as I 
said to Congressman McHugh a little bit earlier, probably be 
the last time that I have an opportunity to testify before the 
committee, because I look forward to this committee going into 
the hard work to get a bill out and probably won't need too 
much more testimony.
    I want to take this opportunity just to thank Congressman 
Davis, Senator Collins, Senator Carper, Congressman Danny Davis 
also, and the people who have worked so hard on this 
legislation.
    Congressman McHugh and I were lonely voices, I think, about 
8 years ago or so saying that we thought that there was going 
to be a problem. And the last time I testified, Senator Carper, 
I said that you and I both take the train. As you know, I come 
from Philadelphia. We both take that train coming in on that 
Northeast extension.
    And the last time I said that there was a train wreck about 
ready to happen. I thought that the train was probably in 
Baltimore and coming down to Union Station. And I guess it 
might be at BWI now as it keeps going down. It is not ready to 
come into Union Station, but it is pretty close.
    As I listened to Secretary Snow's remarks, I thought back 
upon the 8 years or so that I have been on the board. And I 
think the remarks about the pension and the funding of it 
reflect what is such a tough job here, understanding what the 
Board does.
    You know, at one point the legislation that you presently 
have says that, well, we have to run this like a business. And 
we do try our hardest to run this like a large business would 
be run. Many of us have sat on public boards before.
    But at the same time, you take an issue like the pension. I 
think it is just a good example. Other businesses, you know, 
you don't fund what are your military obligations by the 
business itself. It just doesn't work that way. You want us to 
act like a business and be independent; at the same time you 
say we have certain obligations. We understand the obligation 
of universal service.
    But at the same time, if we are going to be self-
sustaining, we should be really self-sustaining. I am a lawyer 
by trade. The $3 billion was put into an escrow fund. That 
means, the way I practice law, that it is sitting there just 
waiting for something to happen. That something was that 
Congress wanted a report from us as to how we were going to use 
that money. We gave that report.
    Chairman Davis reported back to us, at least today, that 
they were satisfied with what the report was that we gave. It 
seems to me that the escrow then gets broken, similar to the 
way you do a real estate deal. You put some money in escrow, 
the escrow gets broken, and it goes to one of the parties. This 
is no different. You asked us for something. We set it aside. 
It is obvious to us, and obvious I think to this panel, that 
money should be given to us.
    And while we talk about the escrow fund, we are coming to a 
point in time where Congressman McHugh, the main issue that he 
and I spoke about for the last 8 years was the ratemaking 
process. And the ratemaking process is broken. It doesn't work. 
I am a lawyer. And I was interested in 1965--I graduated from 
George Washington Law School in 1970, the same year that this 
act came into existence.
    I kind of wish I knew about it. I have called it the 
Lawyers Welfare Act of 1970. You know, to a large degree that 
is what happens. It churns litigation. It churns the ability to 
set rates. And there is another process that can happen, you 
have all heard me talk about it before. And you have all had 
proposals, and I think it will happen.
    But you take this and the escrow fund, look at the position 
we are in today. As the chairman of the Board, I have a 
fiduciary obligation to the American public, to the Postal 
Service, to the ratepayers. We are going to have to act on 
rates probably sometime in November. If we don't know whether 
or not this $3 billion is coming back into our coffers, we are 
going to have to do something.
    I mean, it is not a threat, it is not a promise, it is just 
reality. It is just the way the system works. The system 
shouldn't work this way. There should be another rate making 
process. And I would hope that you would attack it.
    Last thing I would like to comment upon, and I think I have 
the right to do it as the chairman of the Board, is about 
governance issues. I do want to thank the President for putting 
together this Presidential Commission and the people over at 
Treasury who worked so hard on that within a short period of 
time. I was amazed that they could come out with their report 
within the short period of time that they worked. However, the 
one issue where I do disagree with the President's Commission 
deals with governance issues. And the reason that I disagree is 
the manner in which the directors are chosen, and as 
Congressman McHugh knows, I couldn't care less whether you call 
us Governors, directors or whatever. The manner in which they 
are chosen could cause a partisan board to come into existence 
under the formula selected by the Presidential Commission. My 
experience has been that these are not Democratic nor 
Republican issues. It is reflected in the bipartisan nature of 
whom I am testifying before today. It is reflected in the 
bipartisan nature of our Board.
    Congressman Carper is a good friend of a Republican, Bob 
Rider from Delaware, the former chairman of this Board, and he 
and I were confirmed on the same day. There are no issues 
between us that are Republican and Democrat, and I would hate 
to see this Board formulated in a manner in which there could 
be either a Republican board or a Democratic board depending on 
who the President is, and I ask you very much to give that a 
little bit of your attention.
    And with that, I know that we--there are many of you here 
today, and many of you might have questions. So I want to cut 
my remarks short. And thank you again, thank Chairman Davis and 
the two Senators, for calling this meeting. You know, as a kid 
from Philadelphia in a row house, I kind of pinch myself a 
little bit that I am in some ways helping to make history. So, 
Mr. Chairman, thank you very much.
    [The prepared statement of Mr. Fineman follows:]

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    Chairman Tom Davis. Thank you. Thank you, General Potter, 
thanks for being with us.

 STATEMENT OF JOHN E. POTTER, POSTMASTER GENERAL OF THE UNITED 
                  STATES, U.S. POSTAL SERVICE

    Mr. Potter. Good afternoon, Chairman Davis, Chairman 
Collins and members of the committee. I am pleased to come 
before you today as we continue to discuss the critical need 
for comprehensive reform of the legislative framework governing 
the Postal Service.
    I am especially grateful to Chairman Collins and Chairman 
Davis for your active leadership on postal legislative reform 
and for providing the opportunity for all stakeholders in the 
mailing community to voice their needs, preferences, and common 
commitment to postal reform. And while I am at it, I want to 
thank everyone on the committee. A lot of accolades have 
already been said, I want to echo them.
    Let me begin by saying first of all how proud I am of 
postal employees. All of the men and women who work for the 
Postal Service, they are doing a great job, and I am very proud 
of what they are doing. We have seen service performance rise 
to record levels. Customer satisfaction is at an all time high.
    We have had an unprecedented 4 straight years of 
productivity improvement. Our employees are delivering for 
America. And speaking of delivering for America, the Postal 
Service is most grateful to the administration and Congress for 
the Civil Service retirement legislation passed last year. The 
legislation enabled us to reduce our outstanding debt by one-
third and will help us hold rates stable until 2006. That 
legislation left two open issues to be addressed this year; 
namely, the obligation for military benefits and the escrow.
    As we have previously testified, the Postal Service 
believes it should not be responsible for funding Civil Service 
Retirement benefits earned by postal employees while they 
served in the military. This $27 billion obligation includes a 
$7 billion reimbursement to the Treasury for payments made to 
retirees since 1971, as well as $10 billion interest on those 
payments.
    There is also an additional $10 billion in cost to cover 
future benefits for existing employees' military service. We 
disagree with the shift in the obligation from the taxpayer to 
the ratepayer. The legislation also requires the Postal Service 
to create an escrow account from savings resulting from the 
legislation.
    The simple fact is that under present postage rates there 
will be no funds available after 2005 to place in an escrow 
account. The moneys needed for the escrow fund equate to a 5.4 
percent rate increase. I don't believe a rate increase is good 
for the recovering economy or for the mailing industry or for 
the long-term future of universal service as we know it today. 
Therefore, I strongly urge the elimination of the escrow 
requirement.
    Let me now turn to key priorities we believe should be 
addressed in your deliberations on postal legislation. First 
and foremost, we believe that we must have the flexibility to 
adjust rates to meet the varying demands of customers. Mailers 
have long told us that small annual price increases are 
preferred to price shock every couple of years. Annual 
increases could be more easily absorbed in their business 
plans.
    Conversely, the public prefers a uniform rate for a single 
piece of first class mail that would change less frequently. 
The current ratemaking system does not allow us to accommodate 
those varying preferences. We recommend that a model that gives 
the Governors of the Postal Service the authority to set prices 
with an after the fact review process that addresses issues 
such as cost coverage, consumer interest, and impact on 
competition would be beneficial.
    In a related area of price caps, my concern is that given 
the volatility of today's marketplace an imperfectly crafted 
price cap could be harmful. To guard against that concern, we 
propose that the price cap be constructed to recognize the many 
cost factors which enter into the ratemaking process, many of 
which are beyond our control.
    Specifically, we propose that in addition to a metric for 
wage growth, a realistic price cap would also account for 
delivering network expansion, fuel price volatility and, most 
importantly, legislatively mandated employee benefits.
    Second, it is essential that we have flexibility to adjust 
our national infrastructure--our retail and processing 
networks--to meet changing customer preferences and market 
conditions. Many postal retail services are now conveniently 
available on line, in grocery stores and in other private 
sector retail outlets and through the mail. We should not be 
expected to retain all of our post offices simply because they 
have always been there.
    Likewise, sorting capability continues to be increasingly 
more efficient. This, combined with the potential loss of mail 
volume, requires an evolving processing network to minimize 
costs.
    Third, it is essential that the Postal Service be given 
greater latitude to manage and control costs. Despite our 
success in reducing costs over the past 4 years, the fact 
remains that a significant portion of our costs are imposed on 
us by legislation. For us to succeed, those costs must be 
addressed.
    For example, Federal statute gives the Department of 
Transportation authority to set the rate we pay airlines for 
international mail transportation. International mail is a 
highly competitive area. We should be able to negotiate 
directly with airlines in the same way we do in contracting for 
domestic air transportation costs. It is more businesslike and 
provides us an opportunity to reduce costs which ultimately 
benefit the marketplace.
    When you will look at postal expenses as a whole, employee 
benefits are the single largest cost category that today is 
beyond our control. Benefits, such as retirement contributions, 
health benefits, life insurance, retiree health benefits and 
workers compensation are mandated by statute.
    Collectively last year they amounted to more than $13 
billion in costs. We propose that a collective bargaining 
process which covers almost 90 percent of our career work force 
be expanded to include the negotiation of benefits in addition 
to wages, hours and conditions of employment. In short, 
everything should be on the table.
    Finally, I would like to comment on a statement to the 
Committee on Governmental Affairs earlier this month by UPS 
Chairman and CEO Mike Eskew. ``The Postal Service's mail 
monopoly allows it to subsidize competitive products and 
inappropriately compete with the private sector.'' His 
statement misses the mark on both counts.
    First, the Postal Service's monopoly on letter mail does 
not subsidize competitive products. Cross-subsidization is 
against the law, and in a nation of laws we are not in the 
business of breaking the law.
    Second, a principal duty of the independent Postal Rate 
Commission is to ensure that cross-subsidization doesn't occur. 
During our arduous ratemaking process, if there were cross-
subsidization, one or more of the rate intervenors would point 
that out to the PRC.
    I would add that in 2003 our competitive products, Express 
Mail, Priority Mail and package services, earned $2.5 billion 
over and above their direct costs. The funds were made from 
Express Mail, Priority Mail and package services and they were 
used to finance universal service. Terms like inappropriate 
competition are easy to toss around, but they often ignore an 
important lesson of history.
    At the turn of the century by law the Postal Service, the 
Post Office Department at the time, could not carry parcels 
weighing more than 4 pounds. Only private express companies 
delivered larger packages. But then more than half of the 
American public lived in rural areas and received little or no 
parcel delivery from private carriers. Those who did had to pay 
exorbitant rates for their service.
    When the Parcel Post Act of 1912 was enacted, all of that 
changed. For the first time in history all Americans, from 
those living in major urban centers to residents in remote 
rural areas, were able to use the mail to receive the goods 
they needed at affordable prices. Today the Postal Service 
continues to deliver to every address in the country without 
residential or rural surcharges that are increasingly common by 
other companies.
    In fact, recently the elected public officials of Pasco, WA 
protested such surcharges of $1 for business delivery and $1.75 
for residential delivery.
    Pasco has a metropolitan area of more than 150,000 people. 
The lesson is clear. We have an opportunity and obligation to 
preserve and protect universal mail service in this country, 
the right and privilege of every American to receive reliable, 
efficient, affordable mail service, regardless of where they 
live or do business.
    I believe that this is the legacy we must preserve for our 
future generations, a legacy that will be preserved only if we 
have the courage, determination and vision to enact legislation 
that will truly help us build a stronger Postal Service in the 
future.
    Thank you, Chairman Collins, thank you, Chairman Davis, and 
the rest of the committees for your interest in the Postal 
Service.
    [The prepared statement of Mr. Potter follows:]

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    Chairman Tom Davis. Thank you very much. Let me ask Mr. 
Roseboro. I heard the Secretary's testimony about the escrow 
money and the deficit, but this really isn't deficit money, 
this is postal ratepayer's money that they paid into the fund, 
right?
    Mr. Roseboro. Yes, it is.
    Chairman Tom Davis. Why would you use it for other--I mean, 
I don't think we ought to be under the illusion this money is 
going to be paid for the Defense Department or the Education 
Department. These are postal dollars paid by ratepayers under a 
fund that is akin to an enterprise fund.
    And under State law in Virginia, if I had taken money from 
an enterprise fund and used it or amassed it for anything else, 
I would go to jail. But at the Federal level, we don't have 
those rules. So you can sit here and use this to, ``mask a 
deficit when it is to phoney baloney.'' These are postal 
dollars that ought to ultimately be used for the Post Office.
    I am trying to understand for $3 billion this year, which 
is what is in there now, why don't we just call it what it is, 
and postal dollars, and release it?
    Mr. Roseboro. You are absolutely correct from the 
perspective that you would look at this $3 billion which would 
grow in terms of the escrow structure. While I would say, 
however, I disagree that it is attempting to mask any 
deterioration in the deficit.
    What our concern is, from a budget scoring proposition, a 
budget scoring proposition that was built into last year's 
legislation, is that it remain a strong preference that it 
remain budget neutral. And to accomplish that from a budget 
scoring perspective, that is where we think we need to aid the 
committee, aid the Congress in trying to determine what makes 
sense, what, if anything, can work, and we are willing to lend 
a hand.
    Chairman Tom Davis. Well, isn't it budget neutral simply 
because of the way that the scorers look at these things? They 
had counted this money as basically general fund money. If you 
shift it to the Post Office, then it shows up as a deficit on 
the general fund side, and it is used for postal--am I 
understanding it correctly?
    Mr. Roseboro. It is an accounting budget scoring issue, 
absolutely, sir.
    Chairman Tom Davis. So the alternative, if you keep it 
neutral, is that ratepayers would have to pay an additional $3 
to $4 billion a year, not for any purpose that has anything to 
do with the Postal Service or its employees, but basically to 
reduce the deficit. And the alternative is that you raise 
postal rates, which has--you talk about a tax increase, that is 
what postal rates are. You talk about trying to get jobs in 
this country, that is a job killer in my opinion.
    Now, what am I missing here?
    Mr. Roseboro. We would look at it as that isn't necessarily 
the only alternative that could be structured, and again we 
would work to explore other reasonable alternatives that do not 
have that outcome which you just outlined.
    Chairman Tom Davis. I am just--I hear you. I really 
appreciate the Secretary's remarks about how he wants to look 
at finding offsets with this, and we have--I guess if we have 
to do that, that is what we have to do. But it just seems so 
much cleaner and straighter and more honest to just say these 
are postal dollars, we are going to release them and let the 
chips fall where they may on the budget, because ultimately 
those are dollars that shouldn't be put in the same fund as 
taxpayer dollars. These are ratepayer dollars. The way the 
Postal Act is set up is so the Post Office could pay for 
itself.
    Now you are saying dollars that they generate, we are going 
to take these dollars away and put them over here, so at least 
for accounting purposes these look like dollars that are raised 
from income tax.
    Mr. Roseboro. Well, again, we think there may be other 
alternatives. Again in terms of exploring those options, in 
terms of those dollars being directed toward other postal 
obligations, the frequently mentioned here unfunded obligations 
of substantial nature.
    Chairman Tom Davis. Let me ask you. What would a 5.4 
percent across the board postal rate increase do to the 
economy?
    Mr. Roseboro. We think that any increase would not be a 
good thing. However, recognizing the reality of other options 
being available, other leverage to push in a structure, in a 
business, of 42 percent unallocated costs, that there could not 
be explored, could not be found other cost saving measures, as 
we push for the Postal Service to have flexibility with regard 
to technology, with regard to work force issues where it has a 
great opportunity in the coming years with regard to natural 
attrition, eligibility for retirement increasing.
    We think it is not just a binary issue of raising rates or 
pushing the expense onto the taxpayers, we think there are some 
other options that could be practically explored.
    Chairman Tom Davis. I am encouraged by the fact that you 
want to work with us and recognize the problem at the end of 
the day if we just leave those dollars over there without 
finding some--and we look--I like the straight up way of doing 
it, that is kind of--but we look forward to working with you on 
that, and appreciate your commitment.
    Mr. Davis.
    Mr. Davis of Illinois. Thank you very much, Mr. Chairman. 
Mr. Potter, Secretary Snow indicated that there were still 
efficiencies to be found in the Postal Service. Would you 
comment on where some of those might be?
    Mr. Potter. Well, over the past 3 years we have worked very 
hard to find productivity improvements throughout our system. 
Some of the cost saving opportunities are in the supplies and 
services, the transportation that we procure, some of the 
services that we buy such as leases on buildings.
    In the past 3 years, we have managed to reduce our spending 
on that by over $1 billion. In addition to that, we have taken 
out over $1.7 billion worth of labor cost simply by managing 
our business better. We have done an internal benchmarking 
program that has our employees focused on productivity.
    And our employees are stepping up to the plate. So I see 
productivity improvement opportunities in every operation that 
we have. I think our employees are engaged in that, and the 
product is what you see. You see a reduced work force that is 
taking on additional work, and productivity that is growing.
    So I see opportunities in delivery. I see opportunities in 
mail processing operations. I see opportunities in all of the 
supplies and services that we buy, and we have a very broad 
program. As the Secretary said, there are 16 areas that were 
recommended to us by the President's Commission, and we are 
exploring each and every one of those opportunities.
    Mr. Davis of Illinois. If we were to try to make up the $27 
billion in military retirement costs, do you have any idea how 
long that might take using these efficiencies?
    Mr. Potter. Being extremely aggressive, we are able to take 
about $1 billion cost out in a year without disrupting the 
service to the American public, and service is the No. 1 goal 
in our organization. We don't want to do anything dramatic that 
would cause us to disrupt service.
    I think the horizon is decades in terms of getting at the 
$27 billion on top of what we have already planned to do 
because our plan calls for $1 billion in savings over each of 
the next 3 years in order to try and mitigate increases in 
postage.
    Mr. Davis of Illinois. Mr. Roseboro, do you think that 
those are the kinds of efficiencies that the Secretary had in 
mind?
    Mr. Roseboro. Yes, sir. As was indicated, the Postal 
Service has made a great start. There is still room for 
considerable improvement looking forward. With regard to your 
specific concern, Postmaster General Potter spoke to the 
Secretary before he left about the $27 billion being shifted 
over to the Post Office.
    If I may sort of put that into a context, which will 
hopefully help make clearer our position on that, why we think 
that is reasonable. First, we look at in the context of the 
legislation that was passed last year, last April, a package of 
reform, a package of reform that was quite unique in that the 
Postal Service was the beneficiary of a dynamic analysis with 
regard to its pension funding, that effectively resulted in, 
even with the obligation as the legislation passed last year 
required, for the Postal Service to pay the $27 billion in 
military funding, it still received a net gain of $78 billion.
    And even with that $27 billion, I would like to just note 
this has also got lost, that there is still an obligation by 
the Treasury taxpayer to pay close to $21 billion of military 
obligations. So as a package, it was fair, reasonable, as well 
as consistent with establishing the Postal Service system, 
consistent with the Federal Employees Retirement System [FERS], 
where that is a requirement to pick up the military obligations 
by agencies, and the Postal Service now has, correct me if I'm 
wrong, Postmaster Potter, over 500,000 of its employees are now 
under the FERS system.
    So from our perspective, that was very important. But with 
regard to looking forward and in managing the $27 billion 
liability, I would say actually the challenge is greater than 
that. There is the additional $60 billion in unfunded health 
care liabilities, $7 billion in unfunded worker's compensation 
liabilities, a little under $6 billion in unfunded pension 
liabilities still.
    All of those we feel needs to be addressed, as practically 
speaking made part of a rate case, recognizing the 
impracticality of looking to do anything dramatic soon and 
cause any type of spike in rates.
    We think we can work with the Postal Service through the 
Office of Personnel Management, for example, to devise a 
prudent amortization plan over the long term, because these are 
long-term liabilities, to minimize any shock as well as also 
being able to gain some of the cost savings opportunities that 
the Postal Service is now and in the future will be pursuing.
    Mr. Davis of Illinois. Thank you very much. It sounds like 
we are saying no matter what we are able to do we are still 
going to be woefully short and are going to have to come up 
with something else.
    Chairman Tom Davis. Thank you. Senator Collins.
    Senator Collins. Thank you, Mr. Chairman.
    Postmaster General, one of the troubling developments that 
you have had to deal with is the decline in the volume of first 
class mail in each of the last 3 years.
    Can you tell the committee what your forecast is for the 
next year or so as far as the volume of first class mail? Are 
you projecting further declines?
    Mr. Potter. We are projecting that next year, and we are 
working very hard to do this, we are projecting that volume 
basicaly will be flat, although it may grow a little. And the 
reason we do, and that is only in the next year, is because of 
the recovering economy and the efforts that our employees have 
made to improve service and to reach out to customers.
    However, when you will look further, beyond that, the 
structural change, the movement of what is a hard copy 
communication today, it could be a bill or a payment that is 
done via the mail, we see the structural change of that 
migrating to the Internet continuing.
    And so in the short term, given the fact that the economy 
is rebounding, we are not as hard pressed as we might be in 
future years. We are preparing ourselves for the future, and 
that is why we are counting on postal reform to give us the 
flexibility to react to what we anticipate will be some 
significant changes in our mail mix.
    Senator Collins. And if in fact you had to file for a 5.4 
percent increase in postal rates because reform was not 
forthcoming and the escrow account remained in place, wouldn't 
that likely drive down the volume of mail still further and 
create what the GAO has warned about, of this death spiral of 
increasing rates and then plunging volume?
    Mr. Potter. Yes, it would. Each of our products is subject 
to marketplace elasticities. The higher we raise rates the less 
mail we have. People have alternatives for every one of the 
products that we have.
    Senator Collins. I want to turn now to one of the specific 
recommendations of the Commission. I believe that the Postal 
Service has something in the neighborhood of $7.2 billion in 
liabilities for worker's compensation. Is that in the 
neighborhood?
    Mr. Potter. Yes, it is.
    Senator Collins. Right now, as a result of reforms that 
were passed in the 1970's, it is my understanding that a postal 
employee who is receiving worker's compensation can remain on 
worker's compensation, assuming no return to work, forever, 
that there is not a conversion to retirement at a certain age.
    And, in fact, I read one study that indicated the Postal 
Service was paying worker's comp benefits to an employee who 
was age 102.
    Mr. Potter. That is correct.
    Senator Collins. Are you supporting the changes that the 
Commission recommended to have a conversion at some reasonable 
retirement age? Obviously our hope would be that we could get 
any injured worker back to work and that we can avoid injuries 
in the first place.
    But for those workers who do receive worker's comp, do you 
support, first of all, the conversion at a normal retirement 
age and, second, the reinstatement of the 3-day waiting period?
    Mr. Potter. On both counts we do. We feel that it is 
reasonable that at some point in time, and I'm not going to 
tell you what the age is, in fact right now we would make money 
if it was 80 years old, at some point in time people should be 
forced to retire. It is unreasonable to pay those escalating 
costs. We estimate that on an annual basis it costs us about 
$9,500 per employee who stays on worker's comp rolls versus 
them converting to a retirement pay at some reasonable point. 
So that is a big cost to us.
    In addition, the 3-day waiting period was converted in the 
past, and as a result we saw a rise in claims. If I could, the 
Postal Service is working very hard on the worker's comp area, 
and we believe that it starts with injuries and illnesses of 
our employees, and we have gone very aggressively on a safety 
campaign to make sure that our employees don't get harmed. Our 
injury-illness rate over the last 3 years is down 28 percent.
    And despite that, our worker's compensation costs have 
grown. We are also working hard to find other employment if 
people can't work in the Postal Service, find other employment 
for those people on worker's comp rolls. Today we have over 200 
folks who don't work for the Postal Service but are on our 
worker's comp program, work for private sector employers, and 
we make up the difference between what the private sector 
employer pays them and what they would get on worker's comp.
    So we are very interested in this area, and I think that 
the Treasury and the President's Commission was right to point 
it out as an opportunity, and we are working hard to fix it.
    Senator Collins. Thank you, Mr. Chairman.
    Chairman Tom Davis. Thank you.
    Senator Carper.
    Senator Carper. Thanks, Mr. Chairman. Since the tragedy of 
September 11 and the anthrax attack, something has actually 
come out of something awful, and I think that something good is 
improved performance within the Postal Service.
    I think the saying ``success has many fathers'' has been 
offered. In this case, success has many fathers and mothers, I 
might add, and maybe one or two of the fathers are sitting at 
this table before us and some are represented here in the 
audience of the hearing room.
    We have seen remarkably improved relations, working 
relations between our labor unions which represent postal 
employees, the Board, the Board of Governors and postal 
management. And I would ask you, the fruits of those labors, 
those improved relations, aren't something that we mandated. We 
didn't pass a law that said you got to do this. But you have 
done it.
    And just take a moment and just talk about some of the 
positive steps that have been taken to provide maybe better 
service at a more reasonable cost. The General and also for 
Governor Fineman.
    Mr. Potter. I am very proud of the improved labor relations 
that we have in the Postal Service. I think one of the keys to 
that is we are focused on the customer, and we put the customer 
first, and we as an organization have put that as our No. 1 
priority. Service is No. 1.
    And we do things as efficiently as we possibly can. When 
you talk about the success in the Postal Service, you talked 
about the mothers and fathers of it over the last several 
years, I think there are over 700,000 mothers and fathers of 
the success. It is each and every employee who comes to work 
every day, dedicated to serving their customers and who have 
focused--again, we are in tough times. People recognize that we 
have to change, and we engaged, long before the President's 
Commission, we were engaged in the business of trying to 
improve service to our customers because we recognized we are 
in a competitive environment, looking at opportunities that we 
had based on the changing mail mix and changing demographics, 
to improve the efficiency of the mail that we--of moving the 
mail flow out of our system.
    And I think it has just been an entire organization working 
together to make that happen. We have seen improvements in our 
relationship with the unions. And I think that if there is a 
key to success, is that we communicated, and we have stressed a 
need to communicate up and down our organization on everything, 
and we are trying to treat each and every individual in our 
work force as we would want to be treated ourselves.
    It is not to say that it is a perfect system. With over 
700,000 people it can't be perfect, but we are working hard to 
try and achieve that.
    Senator Carper. Governor Fineman, before you respond, 
General Potter mentioned communicate, better communications, 
and that solves a lot of problems in many forums. We have had 
recommendations from the Commission that on the issue of 
collective bargaining that we mandate through law that you 
collectively bargain benefits, not just wages but benefits as 
well.
    And I don't know, there is probably some in the House and 
some in the Senate who are inclined to do that, some who are 
maybe reluctant. And I would ask for you to, maybe both, be 
thinking about whether there might be an opportunity, as you 
communicate and have this dialog between management, Governors 
and organized labor, maybe an opportunity to dialog on the 
issue, rather than mandate, us mandating benefits on the 
collective bargaining, maybe you just voluntarily try that, and 
particularly before we step in and legislate something.
    Mr. Potter. If I could, let me just tell you that dialog is 
taking place and will continue.
    Senator Carper. Is there anything that we can do to push 
that forward?
    Mr. Fineman. I would just say that I congratulate 
management. When I came onto the Board, there was not the same 
tone that was set between management and labor.
    Senator Carper. When did you come on the Board?
    Mr. Fineman. 1995 or so. There was not the same tone. There 
was this big backlog of grievances. And slowly, and I think 
through the previous Postmaster General particularly, and 
Postmaster General Potter, there is a different tone that is 
set.
    The tone is set that--we understand that at certain times 
we are going to be adversarial, but at the same time we have to 
keep talking to each other.
    In regard to your second question, I have said publicly 
before, and in my written statement that I have submitted, that 
I am a long believer in the collective bargaining system. And I 
would believe that--I would hope that this committee in 
drafting legislation will not in any way usurp that collective 
bargaining system through some other kind of system, some of 
which is recommended by the Presidential Commission.
    I think it has to say--and the reason the collective 
bargaining works and the reason it is working today is exactly 
what you said, Senator. It is the question, do you have open 
communication with people to talk about what your problems are. 
And if you can have a collective bargaining system in which you 
set wages, you are going to be talking to each other. You set 
up a process to keep talking with each other.
    Senator Carper. Well, keep talking. Thanks very much.
    Chairman Tom Davis. Thanks.
    Mr. McHugh.
    Mr. McHugh. Thank you, Mr. Chairman. To editorialize a bit, 
Postmaster General Potter mentioned the testimony of UPS with 
respect to the question of cross-subsidies. It is a very hotly 
contested issue, one of the very first I heard about some 9 
years ago.
    And we have tried to come to the resolution, I know that 
the Postmaster General and others know this, but just for the 
record come to a resolution that while the debate is 
interesting and important, it probably can't be decided given 
today's state of realities.
    So what we have done in our bill, as you know, Mr. Chairman 
and Senator Collins, is to try to create a circumstance where 
the issue cannot happen in the future if it has happened in the 
past. And we all heard the Postmaster General's strong denials, 
which I respect, and we do that by creating a regulatory body, 
now the Postal Rate Commission, that is given all of the 
authority it would need to have to make those determinations 
unquestionably, subpoena power on data, powers it does not now 
have.
    So it certainly--we have suggested to UPS, for whatever 
faults they may have in the bill, that is something that they 
should be very, very supportive of.
    I also want to associate myself with the comments of just 
about everyone who has spoken so far with respect to the 
frustration regarding the escrow.
    Senator Collins knows far better than anyone, as she noted, 
that the interesting dilemma here is that the administration's 
original bill would actually be more costly to the budget than 
the ultimate resolution.
    And it certainly--this is no fault of the Treasury 
Department. I think it dramatically underscores the folly of 
budget scoring as it currently is constructed. And to suggest, 
and again this isn't Treasury's fault, it is the way the game 
is played right now, to suggest that a $3 billion hit on the 
Treasury is better than a 6 percent increase in postal rates to 
the overall economy and budget situation of the United States 
of America is lunacy.
    And I am just curious again, that this is no responsibility 
of yours, Mr. Secretary Roseboro. But I am wondering, did the 
Treasury ever have a chance to determine what the overall 
impact of the economy of the United States would be, or 
ultimately to the Treasury, if we had to do a 6 percent 
increase, 2-cent increase on first class?
    Mr. Roseboro. No specific analysis was done on that, sir. 
But again, I think we can generalize and say it would not be 
good in terms of the economy, without question. But second, 
again, I emphasize that we think that it is not a binary 
decision of raising rates or take this course. We think there 
are some other options that could be explored, and we are 
eagerly looking forward to working with you.
    Mr. McHugh. I understand that. Again, you are playing by 
the rules that were handed to you. That is not a direct 
criticism. Let's get to something that may be.
    You had mentioned, and Secretary Snow mentioned the 
allocation of costs are over at 42 percent. Although it is not 
said directly in the Secretary's testimony, and although you 
didn't say it directly, I am certainly getting the impression 
that somehow you feel that is wrong, it ought to be higher.
    And you may or may not be right. Maybe it should be 50. 
Maybe it should be 55. But I am just curious, has the Treasury 
taken a position that 42 percent is by definition too low, and 
if so, how did you come to that conclusion?
    Mr. Roseboro. No, sir, just the opposite. We feel 42 
percent is too high. We think from a business perspective an 
allocated cost should run south of 10 percent as a generality.
    Mr. McHugh. You are right. I misspoke. I spoke the other 
way around. But the unallocated costs are too high.
    Mr. Roseboro. Yes, sir. Absolutely.
    Mr. McHugh. How, given--I could understand how, and 
Secretary Snow is certainly a very astute businessman, you 
could do that in the private sector, but how do you make that 
determination in the Postal Service? Has a study been done or 
some kind of data?
    Mr. Roseboro. From a business perspective, there is no 
comparison for commercial enterprise not being able to allocate 
a higher percentage of a cost along product lines. And we think 
that number could be improved as the Postal Service works to 
improve systems, whether technical on the MIS side through 
overall organization. But----
    Mr. McHugh. I don't mean to interrupt you, but my time is 
running out. But there is no study, and by the way the Postal 
Service, I think you would agree, hardly fits the traditional 
business model. It is a totally different organization.
    But be that as it may, you feel--I am interested in how you 
feel, and that--I am compassionate to your feelings, Mr. 
Secretary, but that doesn't mean that it is right or wrong.
    What I think, and let me ask my final question, if I may 
indulge the forbearance of the chairman and the other 
distinguished members, would I be correct in saying, and I 
would fully support this if it is your view, that the Treasury 
position is we need to more finely hone the allocation of those 
costs to ensure that it is distributed accurately. Would that 
be a fair statement?
    Mr. Roseboro. Yes, sir.
    Mr. McHugh. Without prejudging what it ought to be?
    Mr. Roseboro. Yes, sir. Based on the principle of self-
financing, if there going to be adequate self-financing, if 
that is going to be successful, it goes without saying that 
proper cost allocation is key to setting appropriate rates.
    Mr. McHugh. I thank you very much. I fully agree with that. 
I am glad we were able to clear it up. Thank you, Mr. Chairman.
    Chairman Tom Davis. Thank you. Ms. Norton.
    Ms. Norton. There is kind of a fictional quality to this 
hearing, if I may say so. For example, on the veterans 
benefits, weren't many of those benefits accrued before there 
was any Postal Service as we know it?
    You know, Mr. Roseboro, the notion of holding the Postal 
Service accountable, with the administration not holding itself 
accountable, is very interesting to me. So you are offloading 
veterans benefits, which of course no private corporation would 
have to pay, but even veteran benefits predating the 1970 
formation of the Postal Service, and you think that is a fair 
way to go at postal reform?
    Mr. Roseboro. Yes, Congresswoman. Again, in the context of 
the postal legislation that was passed last year. And again it 
is very important to look at this as the package and what the 
package attempted to do. One, it attempted to make the FERS 
pension funding in the postal equivalent, if you will, to the 
FERS system, which requires this.
    Additionally, again I will emphasize, the dynamic analysis 
given to the Postal Service has never been done before, and 
again resulted in, even with the $27 billion obligation to the 
Postal Service on the military funding, still leaving $21 
billion for Treasury taxpayers, a net plus $78 billion. That is 
not done either in the private sector.
    So we think in terms of a package that was more than fair 
and reflected in the legislation that was passed as a package, 
and we think in terms of postal reform and moving forward to go 
back and undo that particular cherry-pick aspect of it is a 
step backward in postal reform.
    Ms. Norton. Just like you think the escrow is. In other 
words, accountability all works against the Post Office and in 
your favor. Let me--I served on, before I came to Congress I 
served on the Board of three Fortune 500 companies. So when you 
look at your list of recommendations, they read like the list 
that any corporation would have, not any corporation about to--
that would be in bankruptcy or be out of business if it were in 
the private sector.
    For example, and this is the kind of criticism I have, and 
why I can't accept the administration's recommendations with a 
straight face? I could if you said, for example, in 
implementing best practices, ensure that the Postal Service's 
governing body is equipped to meet the responsibilities and 
objectives of a private enterprise. I take it you mean--of 
course that is left out--of its size and scope. And it seems to 
me you should add right there, under best practice, of its size 
and scope with the obligation to give universal service. 
Instead you put universal service under accountability, because 
you are going to make sure that the Postal Service, under the 
accountability section, has the appropriate oversight to 
protect consumer welfare and universal mail service.
    I just think, you know, you need to sit down with some 
people in the private sector to figure out how to set your own 
goals in a more realistic way, and I think you will find, Mr. 
Roseboro, over here, that whatever was said last year or even 
this year, Members here in the final context tend to regard 
ratepayers and taxpayers as interchangeable.
    And I have a hard time believing that some of what is 
proposed here will pass the laugh test here in the Congress if 
it gets to the floor. For example, just let me--to ask a 
question about some of the doublespeak that I find in these 
recommendations.
    On top of everything else, about the last thing the Postal 
Service needs is a complete blow-up or explosion of its labor 
relations; they are already bad enough. You apparently support 
collective bargaining, but would establish a three-member board 
appointed by the President to set compensation. Well, the last 
time I heard, wages were considered by most employees a central 
feature to compensation. Are you saying that the Postal Service 
should have a collective bargaining regimen like that of 
Federal workers who we do not pretend are a part of the private 
sector?
    Mr. Roseboro. Actually, referring to the 35 recommendations 
from the Commission, as we indicated in the beginning, while we 
the Commission did a great, admirable job in laying out some 
prescriptions to perform, we did not support all of the 
recommendations.
    Ms. Norton. Do you support that recommendation?
    Mr. Roseboro. We support collective bargaining. We do not 
support a board to determine compensation.
    Ms. Norton. Do you support continuing bargaining for wages 
as you do--as the Postal Service does today?
    Mr. Roseboro. Absolutely.
    Chairman Tom Davis. Thank you very much, Ms. Norton. Mr. 
Clay.
    Mr. Clay. Thank you, Mr. Chairman. I appreciate it.
    Mr. Potter, let me ask you about--the Postal Service 
requested $350 million for emergency preparedness for fiscal 
year 2004, which it did not receive, and $779 million for 
fiscal year 2005.
    I understand the money would help you, the Postal Service, 
buy and install systems to detect biological agents and poisons 
and new ventilation and filtration systems in 282 mail handling 
centers nationwide.
    If money is not appropriated for emergency preparedness, 
will funding for this purpose have to be built into postal 
rates?
    Mr. Potter. Yes, it will.
    Mr. Clay. Are there any other options other than postal 
rates?
    Mr. Potter. No. It is either an appropriation or a rate 
increase.
    Mr. Clay. So again we get back to a tax increase, as the 
chairman stated.
    OK. The President's Commission has recommended rescinding 
existing regulations that require citizen input before closing 
plants and small post offices. Rural and urban post offices 
deemed unprofitable would be closed and future services will be 
provided on an-ability-to-pay model.
    Does this undermine the Service's mission to provide 
service and access to all communities at uniform rates?
    Mr. Potter. The issue of post offices is one that is very 
complex. Right now, as you said, there is rules and a comment 
period. Certainly we would want to have the comment of 
communities as we look to change our infrastructure. We are not 
proposing abandoning communities. We are proposing that we 
deliver services in a different way. For example, we have some 
post offices in America where people actually have to come and 
pick up their mail. We might, alternatively, have those folks 
have their mail delivered closer to their door to a rural 
mailbox. Those rural carriers are post offices on wheels.
    The issue of post offices is very complex. When I think of 
post offices and post office closings, there are people who are 
trying to intimate that we would have to close 20,000 of our 
38,000 outlets. That is not the case. On one end of the 
spectrum we have over 2,500 post offices that have less than 
200 people living in the area that they serve. We have over 
4,500 that have less than 200 deliveries. Now, I certainly 
think that any good organization should have the ability or the 
option of exploring how they can deliver services to those 
communities. But the post office that we all think about, that, 
you know, serves populations of several thousand people, they 
are not going to close. We need those facilities to provide 
delivery services, post office box services, as well as counter 
services, and I don't envision those closing in my lifetime. 
But there are those issues out there where we should be able to 
explore how we can better economically serve communities.
    Mr. Clay. You are absolutely right. It is about efficiency 
and streamlining of the service. I appreciate your answer.
    Mr. Roseboro, perhaps you can answer for Secretary Snow, 
who stated that the recalculation of postal retirement costs 
provided the Postal Service with a properly calculated enormous 
gain of $78 billion at the expense of other CSRS participants. 
We understood that the Postal Service was on track to overfund 
its obligations by $78 billion.
    Wouldn't that suggest that the Postal Service was in 
essence supporting the rest of the CSRS participants with its 
contributions?
    Mr. Roseboro. The Postal Service was the only CSRS 
participant that received the benefit of this dynamic analysis. 
So, in that sense, they benefited.
    Mr. Clay. OK. Well, then--OK, this takes me to the next 
question then. How can correcting a considerable overpayment be 
considered a gain for the Postal Service?
    Mr. Roseboro. I wouldn't characterize it as correcting an 
overpayment. Again, it was putting it on equal footing with the 
FERS, the Federal employment retirees system pension setup. 
That was--would be a more accurate characterization. And doing 
that resulted in the $78 billion gain for the Postal Service as 
well as the obligation to pay the $27 billion portion of the 
military pension cost.
    Mr. Clay. Well, isn't it true that the $27.9 billion that 
represents the military cost obligation that has been 
transferred from Treasury to the Postal Service, $17 billion of 
this amount is retroactive to 1971 and has already been paid to 
retirees?
    Mr. Roseboro. I understand that to be correct, yes.
    Mr. Clay. That is true.
    Mr. Roseboro. Yes, sir.
    Mr. Clay. OK. Then when they set up in FERS in 1983 wasn't 
it applied prospectively to individual new hires employed after 
1983?
    Mr. Roseboro. I'm not sure, sir.
    Mr. Clay. You're not sure about it? I believe it was.
    Chairman Tom Davis. You can get back to us on that. Thank 
you very much.
    Mrs. Maloney.
    Mrs. Maloney. Thank you. I thank the chairman and woman of 
the respective bodies for holding this important hearing, and I 
thank all of the panelists for all of your hard work in these 
difficult times, and I'm very pleased that a New Yorker is at 
the helm of the postal department, Mr. Potter. We're all very 
proud of your hard work.
    I, first of all, would like to be associated with the 
comments of my colleague, Mr. Clay, on the need for the Federal 
Government to fund adequately the Post Office's need for 
preparedness and Homeland Security concerns that have been 
piled on with the anthrax threat and, also, the comments of my 
colleague, Eleanor Holmes Norton, that any reform not weaken 
collective bargaining or jeopardize the health benefits of our 
hard-working employees.
    I would like to ask Mr. Potter, we now have a freeze on 
postal rates until 2006; and for the first time, according to 
GAO, the volume of postal mail has dropped; and some recommend 
that it may continue to drop. My question is, do you believe 
that an extension of the current rate freeze would benefit the 
U.S. Postal Service after 2006?
    Mr. Potter. I believe that the longer we can hold rates 
stable, the more opportunity we have to grow volume.
    Mrs. Maloney. Well, as you know, in 2006, we will be 
reviewing the escrow account and how it should be used. What 
reforms have you put in place to make services available so 
that the mail can get out at a reasonable rate that benefits 
all of our residents and all of our businesses?
    In addition to representing actually the postal workers who 
were in the anthrax scare in New York City, I also represent 
many magazines and publishers; and in the past several years, 
several have gone out of business--Mademoiselle, Mode, Brill, 
Business Weekly, a number of very significant magazines. The 
reason that they state that they went out of business was the 
increased cost of postal rates. This has the ramification of 
many workers losing their jobs at a time when over 3 million 
private sector jobs have been lost in our economy recently. 
This is very serious.
    So what steps are you taking to really run the Post Office 
more like a business so that our workers are employed with 
their benefits and that the businesses can afford to employ 
people, pay taxes and contribute their aspect to the American 
economy?
    Mr. Potter. First of all, we're working very hard to 
improve service; and we've done that in every measured category 
and nonmeasured category as we see complaints down. Customer 
satisfaction nationally is at an all-times high. Our cost--we 
have taken $2.7 billion of cost out of our system in the last 2 
years. When we put the transformation plan together, we said 
that we would achieve $5 billion of cost savings out of our 
bottom line. That's above and beyond the savings that we've had 
as a result of reduction in volume. So we are very focused on 
becoming more efficient.
    Now, unfortunately, that's meant that we have had fewer 
employees. So if you talk about unemployment, since I have been 
Postmaster General--that's less than 3 years--we've reduced our 
career work force by almost 70,000 people; and I'm not proud of 
that. I'm proud of the productive improvement, but I wish we 
had volume so that we could keep everyone gainfully employed. 
Now we've done that through attrition, and we've worked with 
our unions and our management associations on that, but we are 
very, very focused on improving service, reducing costs.
    You speak of periodical mailers. We've in the last 3 years 
introduced automated flat sorters to handle periodical mails; 
and we've seen our productivity of what we call flat mail--our 
oversized letters, catalogs, periodicals, magazines--we've seen 
our productivity double. So we are very much concentrated and 
working closely with those folks in the periodical industry to 
improve our productivity and to do the best we can to flatten 
their rates out.
    Mrs. Maloney. Well, how can the Post Office better adapt to 
the technological advances that have contributed to the decline 
in first-class mail?
    Mr. Potter. Well, the best way we can do it is by employing 
them. We have the most automated postal system in the world. 
That has helped enable us to reduce our work force and improve 
our productivity.
    We're also reaching out to customers over the Web. We 
recognize that's a place where people are doing business, and 
we're working very hard to reach people where they are. We 
believe that we need to bring our services to the door of every 
American. After all, we're there every day. We want to bring 
our services to them at their door, whether it's stamps by mail 
or other issues. We're focused on growth, and we believe a 
combination of high levels of service, improved productivity 
and a focus on growing the business and being customer friendly 
are the ingredients that will help us be successful in going 
forward.
    Chairman Tom Davis. Thank you. Time's up. The gentlelady's 
time has expired. Thank you very much. If you want to do any 
followups, I'm sure if you submit them to the panel--be happy 
to.
    [The prepared statement of Hon. Carolyn B. Maloney 
follows:]
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    Chairman Tom Davis. We have one more member, Mr. Duncan, 
who has joined us. Recognize him for 5 minutes.
    But before I do, I want to insert in the record a letter 
from Grover Norquist, Americans for Tax Reform, to John McHugh; 
and it notes at the end--it says, ``As Congress prepares to 
address postal reform this year, it seems pension reform might 
be a good place to start. I urge you to support transferring 
the military service pension obligation from the USPS back to 
the Treasury and to allow the USPS to stop overfunding the 
Civil Service Retirement System.''
    Without objection, this will be placed in the record.
    [The information referred to follows:]

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    Chairman Tom Davis. Gentleman from Tennessee.
    Mr. Duncan. Thank you, Mr. Chairman. I was here for a few 
minutes earlier but then had to leave because of some 
appointments, and I apologize.
    But I read this article that--an article that ran a few 
months ago in the New York Daily News about the Office of the 
Inspector General of the Postal Service holding conferences 
where, at one conference in 2001, some staffers wrapped each 
other from head to toe in toilet paper, aluminum foil, straws 
and pipe cleaners. At an annual conference in Washington in 
December 2003, 725 employees went on a treasure hunt to seek 
clues from costumed actors playing a wizard, magician, dragon, 
princess and mad scientist. At another annual conference in 
2002, employees built tents out of newspapers, hop-scotched 
across the ballroom on squares, learned scat singing, all these 
ridiculous things.
    They spent millions of dollars doing this. I could--one of 
the conferences was $1.2 million, one was $1.3 million, one was 
$1.1 million.
    I'm assuming that this type of thing has been cut out or 
eliminated. But I would like for you to assure me on the record 
that it has been eliminated and that we're not having 
conferences of top management at the Postal Service that are 
going in for these really--they talked about conferences where 
people--where the employees were asked to hiss like snakes, 
quack like ducks. I mean, it's just crazy; and they spent 
millions of dollars doing these things.
    Mr. Fineman. Congressman, I want to assure you that is not 
occurring any longer. I want to assure you that when the Board 
of Governors received complaints about things of this sort, and 
those articles particularly, we took what were appropriate 
steps, referred those complaints to the President's Council on 
Integrity and Efficiency, who did their own investigation--
separate investigation on these matters. We were working very 
closely on the Senate side with Senator Grassley, who had an 
interest in these matters.
    The Inspector General, who was then in charge of these 
matters, has since resigned; and a new Inspector General has 
been hired, someone who comes with vast experience in the area. 
I can assure you that office is being revamped and is now 
acting in an efficient and appropriate fashion.
    Mr. Duncan. All right. Thank you very much.
    Thank you, Mr. Chairman.
    Chairman Tom Davis. Thank you very much.
    Let me again, Senator Collins, thank you very much for 
cohosting this with me and Mr. Davis and other Members for 
being present with us today.
    I want to thank our witnesses for taking time from their 
busy schedules to appear before us.
    Committee stands adjourned.
    [Whereupon, at 4:43 p.m., the joint committee hearing was 
adjourned.]
    [The prepared statements of Hon. Katherine Harris, Hon. 
Chris Van Hollen, Hon. Elijah E. Cummings, Hon. Paul E. 
Kanjorski, and additional information submitted for the hearing 
record follow:]

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