    [Senate Hearing 108-50]
    [From the U.S. Government Publishing Office]

                                                             S. Hrg. 108-50

     NOMINATIONS OF CLAY JOHNSON, III, ALBERT CASEY, AND JAMES C. MILLER,
                                      III

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

                                    HEARING

                                   before the

                                  COMMITTEE ON
                              GOVERNMENTAL AFFAIRS
                              UNITED STATES SENATE

                          ONE HUNDRED EIGHTH CONGRESS

                                 FIRST SESSION

                                     ON THE

     NOMINATIONS OF CLAY JOHNSON, III TO BE DEPUTY DIRECTOR FOR MANAGEMENT
     OF THE OFFICE OF MANAGEMENT AND BUDGET; AND ALBERT CASEY AND JAMES C.
    MILLER, III TO BE MEMBERS OF THE BOARD OF GOVERNORS OF THE U.S. POSTAL
                                    SERVICE

                                   __________

                                 APRIL 2, 2003

                                   __________

          Printed for the use of the Committee on Governmental Affairs

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                                WASHINGTON : 2003
    ____________________________________________________________________________
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                       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 Counsel
                        Johanna L. Hardy, Senior Counsel
          Joyce A. Rechtschaffen, Minority Staff Director and Counsel
                       Susan E. Propper, Minority Counsel
               Jennifer E. Hamilton, Minority Research Assistant
                         Darla D. Cassell, Chief Clerk

                                C O N T E N T S

                                     ------
    Opening statements:
                                                                       Page
        Senator Collins..............................................     1
        Senator Carper...............................................     2
        Senator Akaka................................................     3
        Senator Dayton...............................................     4
        Senator Lautenberg...........................................    17
        Senator Levin................................................    19
        Senator Pryor................................................    33

                                   WITNESSES
                            Wednesday, April 2, 2003

    Hon. Kay Bailey Hutchison, a U.S. Senator from the State of Texas     4
    Hon. John Cornyn, a U.S. Senator from the State of Texas.........     5
    Clay Johnson, III to be Deputy Director for Management of the
      Office of Management and Budget................................     7
    Albert Casey to be a member of the Board of Governors of the U.S.
      Postal Service.................................................    22
    James C. Miller, III to be a member of the Board of Governors of
      the U.S. Postal Service........................................    23

                         Alphabetical List of Witnesses

    Casey, Albert:
        Testimony....................................................    22
        Biographical and financial information.......................    69
        Responses to pre-hearing questions...........................    76
    Cornyn, Hon. John:
        Testimony....................................................     5
    Hutchison, Hon. Kay Bailey:
        Testimony....................................................     4
    Johnson, Clay, III:
        Testimony....................................................     7
        Biographical and financial information.......................    37
        Responses to pre-hearing questions...........................    42
    Miller, James C., III:
        Testimony....................................................    23
        Prepared statement...........................................    83
        Biographical and financial information.......................    85
        Responses to pre-hearing questions...........................    99

     NOMINATIONS OF CLAY JOHNSON, III, ALBERT CASEY, AND JAMES C. MILLER,
                                      III

                                  ----------

                            WEDNESDAY, APRIL 2, 2003

                                           U.S. Senate,
                             Committee on Governmental Affairs,
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 10:07 a.m., in
    room SD-342, Dirksen Senate Office Building, Hon. Susan M.
    Collins, Chairman of the Committee, presiding.
        Present: Senators Collins, Akaka, Carper, Dayton, Pryor,
    Lautenberg, and Levin.

                 OPENING STATEMENT OF CHAIRMAN COLLINS

        Chairman Collins. Good morning. The Committee will come to
    order.
        Today the Committee on Governmental Affairs is holding a
    hearing to consider three nominees, the nomination of Clay
    Johnson to be the Deputy Director for Management at the Office
    of Management and Budget, and the nominations of Albert Casey
    and James Miller to be members of the Board of Governors of the
    U.S. Postal Service.
        The Office of Management and Budget has an important dual
    mission. On the one hand it oversees the preparation of the
    Federal Budget and helps formulate the President's spending
    plans. On the other hand, OMB also oversees Federal
    procurement, financial management, information, and regulatory
    policies in all executive agencies. But despite its dual
    responsibilities, the agency has gravitated increasingly toward
    the budget side of the ledger, to the point where some experts
    question whether management has become little more than just a
    silent partner.
        I am pleased, therefore, that this administration has
    placed more emphasis on management issues. The President's
    management agenda, for example, is meant to ensure that
    management issues are appropriately considered. OMB is
    responsible for assessing agencies' performance in five key
    areas: Financial management, human resources, e-government,
    competitive sourcing, and linking budget to performance.
        The Bush Administration is also attempting to link
    management and budget issues through its Program Assessment
    Rating Tool also known as PART, which is intended to help
    identify strengths and weaknesses in Federal programs. This
    will help us make agencies more accountable, and ensure that
    they are performing as intended. OMB is responsible for further
    refining and improving this tool while working with agencies to
    develop better performance measures and to collect accurate and
    timely data. Ensuring good management in an array of areas,
    including information technology, personnel, financial systems
    and procurement, can help to ensure that agencies are carrying
    out their responsibilities in the most effective and efficient
    manner. Thus we can save taxpayers money and lead to more
    accountability.
        I am very pleased that Clay Johnson has agreed to take on
    this challenge. His extensive management background in both the
    public and private sectors would certainly help to provide him
    with the experience and tools that he will need as Deputy
    Director for Management.
        I am also pleased that today we are considering the
    nominations of Albert Casey and James Miller to be members of
    the Board of Governors of the U.S. Postal Service. The Postal
    Service is in the midst of serious financial and operational
    challenges, the effects of which affect the economy as a whole.
    It is the linchpin of a $900 billion mailing industry that
    employs 9 million Americans in fields as diverse as direct
    mailing, printing and paper manufacturing. As members of the
    Board of Governors, Mr. Casey and Mr. Miller will be faced with
    a multitude of challenges that the Postal Service must overcome
    to provide affordable universal service for every American. It
    has been more than 30 years since the Postal Reorganization Act
    was passed. The time has come to reassess how the Postal
    Service should adapt to its customers, competitors and
    technology in order to best fulfill its mission in the 21st
    Century.
        The White House Commission on the Postal Service is now
    examining the financial and operational challenges confronting
    the Postal Service. At the end of July the Commission will
    release a report of its findings, including recommendations for
    legislative change.
        For my part, I believe that privatization of the Postal
    Service is not the answer to the problems the Postal Service
    faces. The need to preserve a strong and universal Postal
    Service is clear, and particularly evident for those of us who
    represent States with large rural areas.
        Mr. Casey and Mr. Miller bring strong credentials and
    experience to the positions to which they have been nominated.
    As Members of the Postal Service Board of Governors they would
    be charged with overseeing the Postal Service and guiding it
    through the approval of all major policies and initiatives.
        I would now like to turn to my colleague from Delaware,
    Senator Carper, who I am pleased to say has been designated by
    Senator Lieberman to act as the Ranking Member for this
    hearing. So we are very pleased to have his participation today
    as well as that of Senator Akaka and Senator Dayton.
        Senator Carper.

                  OPENING STATEMENT OF SENATOR CARPER

        Senator Carper. Thank you, Madam Chairman. Good morning.
        Chairman Collins. Good morning.
        Senator Carper. I only wish that more of our colleagues are
    running for President.
        Senator Dayton. Well, he has just dropped a notch in my
    standing. [Laughter.]
        Senator Carper. You will have your turn soon, I am sure.
        To colleagues Senator Akaka and Senator Dayton, good
    morning as well. And Senator Hutchison and Senator Cornyn,
    welcome. There must be somebody from Texas coming up today.
    [Laughter.]
        Thank you for joining us. We look forward to your
    introductions.
        I am pleased to be here today as the Committee considers
    three important nominees, some of whom we have known for a
    while. Welcome, we value your service and welcome your
    willingness to serve further.
        As we all know, balance sheets in both the Postal Service
    and certainly the Federal Government as a whole have taken
    quite a hit in recent years, and strong effective management
    has been and is going to continue to be one of the keys in
    turning things around.
        I look forward to questioning both Messrs. Casey and Miller
    about the role that they believe the Board of Governors can
    play in the coming months as the Postal Service attempts to
    continue to recover from declining volume, recession, and
    terrorist attacks.
        The Postmaster General predicted that an increase in volume
    was on the horizon the last time that he appeared before this
    Committee, but some fundamental changes need to be made in the
    Postal Service in the coming years if it is to remain viable in
    this 21st Century. If, as I believe it should be, postal reform
    means giving the Postal Service more flexibility in setting
    prices and managing its own affairs, then the Board of
    Governors will need to play an active role.
        I also welcome Clay Johnson to the Committee, and I point
    out that the Federal Government is not only in deficit right
    now but is in the midst of a massive transition. Dozens of
    agencies were all brought together earlier this year as part of
    the Department of Homeland Security. In order for what we have
    put together to work, we are going to need some strong
    leadership from the top, especially since some key agencies
    with Homeland Security missions were not brought over to the
    new Department.
        I look forward to hearing from Mr. Johnson, how OMB can
    help Secretary Ridge and his colleagues to coordinate with
    agencies like the Department of Health and Human Services, the
    FBI, and the CIA, in making our Nation more secure. I also look
    forward to hearing how he will help other agencies manage their
    scarce resources and continue to fulfill their missions at a
    time when budgets are tight and our country is mobilized and at
    war.
        Thank you, Madam Chairman.
        Chairman Collins. Thank you very much. Senator Akaka.

                   OPENING STATEMENT OF SENATOR AKAKA

        Senator Akaka. Thank you very much, Madam Chairman. I join
    you and the Committee in welcoming our distinguished nominees
    this morning. Our nominees know that sound management is vital
    to the government function we rely on every day. I believe that
    effective management demands accountability and transparency.
        This administration has placed great emphasis on
    outsourcing government functions. However, regardless of
    whether work is performed by Federal employees or contractors,
    the Federal Government needs to have the people and the tools
    necessary to identify costs and manage outsourced activities.
    Mr. Johnson, if confirmed, I hope you will help agencies adopt
    appropriate management strategies that promote equity. I also
    hope you will seek the active participation of Federal
    employees, their unions and management associations.
        Mr. Miller and Mr. Casey, there are many challenges facing
    the Postal Service, as we all know, and I hope that the Postal
    Service of today will continue to be competitive tomorrow. I
    look forward to hearing more about your views.
        And also in welcoming you, I want to welcome your family
    members and friends, or I should say supporters of our
    nominees.
        Thank you very much, Madam Chairman.
        Chairman Collins. Thank you very much. Senator Dayton.

                  OPENING STATEMENT OF SENATOR DAYTON

        Senator Dayton. Thank you, Madam Chairman. I think, as you
    said, we have three extremely well qualified individuals here,
    and I look forward to the opportunity to discuss some of the
    issues with them, but I have nothing further to say at this
    time. Thank you.
        Chairman Collins. Thank you very much.
        As Senator Carper keenly detected, we do have two nominees
    today who are from Texas, and thus we are very honored to be
    joined by the two very able Senators who represent that State.
    I will note that the two nominees from Texas are offset by a
    nominee from New England. So it all balances out in the end.
        It is my pleasure to first call on the Senior Senator from
    Texas, Senator Kay Bailey Hutchison, for any comments that she
    would like to make.

     STATEMENT OF SENATOR HUTCHISON, A U.S. SENATOR FROM THE STATE
                                OF TEXAS

        Senator Hutchison. Well, thank you very much, Madam
    Chairman. I am very pleased to be here to talk about two very
    important constituents whom I have known for years and years.
        I will say that Clay Johnson has with him--and he will
    probably introduce them as well--his wife, Anne, and his
    sister, Margaret. His other sister, Liz, and I went to college
    together, so I have certainly known their family for quite a
    long time.
        As many of us know, Clay Johnson has been the Assistant to
    the President for Presidential Personnel since President Bush
    was sworn into office. His organization has been responsible
    for the identification and recruitment of approximately 4,000
    senior officials, middle management personnel and board and
    commission members for President Bush. He had the same very
    important job for then Governor George Bush in Austin, and
    later was Governor Bush's Chief of Staff.
        He also has substantial private sector experience, which I
    think will really help him in the management of this very
    important agency. Before entering public service, he was the
    Chief Operating Officer for the Dallas Museum of Art, and he
    was President of the Horchow Mail Order Company, which became
    the Nieman Marcus Mail Order Company.
        He earned his bachelor's degree from Yale, and a master's
    degree from the MIT Sloan School of Management.
        I know that his experience in the public sector and the
    private sector is going to be very helpful. OMB has a very
    important job, a very tough job, and I think he will be helpful
    in managing that office.
        He is from Fort Worth and his family has been from Fort
    Worth for a long time, for generations actually, as has his
    wife Ann.
        Al Casey is a New Englander, who made his way to Texas as
    soon as he could. [Laughter.]
        He is nominated of course for a governor position for the
    U.S. Postal Service. He was Postmaster General once before
    under President Reagan, and has been an interim member of the
    Postal Service Board since August 2002.
        He is a distinguished Executive in Residence at the Cox
    School of Business at SMU and he has extensive private sector
    experience as well. He was Chairman and Chief Executive Officer
    of First Republic Bank Corporation, Chairman and Chief
    Executive Officer of American Airlines and its umbrella
    organization, AMR Corp. He was President of the Times Mirror
    Company for 8 years.
        He was born in Boston, received an undergraduate degree in
    economics from Harvard and an MBA from Harvard Business School.
    He served our country in the Army for 4 years during World War
    II.
        He has a great record of management experience and I will
    say that from the things that all of you have said this
    morning, you are looking for independent leadership of this
    organization, and I can assure you Al Casey is the perfect
    person for this job.
        Before I leave, Madam Chairwoman, you said there is a New
    Englander nominated. Well, he had experience at Texas A&M, so I
    want to say a word for Jim Miller as well, also known for his
    integrity and independence. Jim Miller would be a fine member
    of the Postal Board.
        And I think you are looking for exactly these two kind of
    people and what they will bring to the table is, I hope, a
    turnaround of the Postal Service that will make it self
    supporting and more competitive. So I thank you for having us
    here today. I am going to leave to go to the floor because we
    are doing our tribute to the troops right now, but I would not
    miss the chance to say a word about my two fellow Texans and
    also Jim Miller, who has great Texas experience.
        Chairman Collins. Thank you very much, Senator. I
    appreciate your being here with us this morning.
        Senator Cornyn, it is a pleasure to also welcome you here
    today, and I would ask that you proceed with your statement.

     STATEMENT OF SENATOR CORNYN, A U.S. SENATOR FROM THE STATE OF
                                 TEXAS

        Senator Cornyn. Thank you, Senator Collins.
        I want to add my voice to that of Senator Hutchison in
    support of all of these nominees, but particularly on behalf of
    Clay Johnson, who I got to know when he served as the
    Appointments Director and the Chief of Staff for then Governor
    Bush in Austin when I was Attorney General of the State of
    Texas.
        To me, Clay Johnson represents the finest example of those
    who do not get the attention, do not get the accolades that
    those of us who run for office and who hold elected office do.
    We get a lot of attention. Some of it is welcome, some of it is
    unwelcome, but the truth is, it is people like Clay Johnson,
    who day in and day out make government work for the benefit of
    the people of my State, and in his job now and in his new job,
    on behalf of the American people.
        In my previous life I served as Attorney General to the
    State of Texas, and in so doing, I had the responsibility to
    oversee the work of 3,700 employees, about two-thirds of whom
    collected child support for about 1.2 million children in our
    State. And in that job I came to appreciate the challenges of
    managing large numbers of people, and I really came to feel,
    and I have not been formally trained in management, as has our
    nominee, Clay Johnson, nor do I have the experience he has, but
    I almost feel like the word ``management'' is a misnomer when
    we talk about the challenges that we have in dealing with
    people.
        Really what it boils down to, I believe, is leadership,
    setting the priorities, providing the resources, and holding
    people accountable for performing. And then finally, in
    essence, being a head cheerleader, to try to encourage them in
    every way that we can to be successful in the jobs that they
    have chosen to perform. I cannot think of anybody who would be
    more prepared, by virtue of his training and experience, than
    Clay Johnson, to perform this important job as we go forward at
    the Office of Management and Budget as Deputy Director for
    Management.
        I wanted to be here today and just take these few moments
    to add my voice of support for this outstanding nominee, and
    really my support for all three of these nominees, but
    particularly for Clay and his wife, Anne Johnson, who are
    friends as well.
        Thank you very much.
        Chairman Collins. Thank you very much. And again, we
    appreciate your taking the time out of your busy schedule to
    introduce these nominees. Thank you very much.
        We will now first consider the nomination of Clay Johnson
    to be the Deputy Director for Management of the Office of
    Management and Budget.
        Mr. Johnson, I would ask that you come forward and remain
    standing so that I can swear you in.
        Do you swear that the testimony you are about to give to
    the Committee will be the truth, the whole truth, and nothing
    but the truth, so help you, God?
        Mr. Johnson. Yes.
        Chairman Collins. Thank you. You may be seated.
        Mr. Johnson has filed responses to the biographical and
    financial questionnaire, answered prehearing questions
    submitted by the Committee, and has had his financial
    statements reviewed by the Office of Government Ethics. Without
    objection, this information will be made part of the hearing
    record with the exception of the financial data, which are on
    file and available for public inspection in the Committee
    offices.
        First, Mr. Johnson, I do want to give you the opportunity
    to introduce any family members that are here with you, if you
    would have them stand.

      TESTIMONY OF CLAY JOHNSON III\1\ TO BE DEPUTY DIRECTOR FOR
           MANAGEMENT OF THE OFFICE OF MANAGEMENT AND BUDGET

        Mr. Johnson. Thank you, Senator. I would like to introduce
    my wife Anne, and my sister Margaret Johnson, who lives here in
    the District, and I am delighted that they are here to support
    me in this.
    ---------------------------------------------------------------------------
        \1\ The biographical and financial information appears in the
    Appendix on page 37.
          Responses to pre-hearing questions appears in the Appendix on
    page 42.
    ---------------------------------------------------------------------------
        Chairman Collins. We welcome both of you. Mr. Johnson, do
    you have a statement you would like to make?
        Mr. Johnson. I only have just a very brief comment to make
    here at the outset.
        I am honored and pleased that the President has asked me to
    take on the challenging and important responsibilities of the
    Deputy Director for Management position at OMB. If confirmed by
    the Senate, I look forward to working with this Committee, the
    Congress, the leaders of the departments and agencies, the
    Federal employees and the unions, Senator Akaka, which you
    mentioned, to ensure that the Federal Government is giving our
    citizens the results they deserve and expect.
        I have met with the majority of the Members of this
    Committee, and I share the Committee's enthusiasm and
    excitement and interest in all the many opportunities we have
    before us to improve how the government is managed, and I look
    forward to working with you in the future.
        Thank you.
        Chairman Collins. Thank you very much. I am going to start
    my questioning today with three standard questions that we ask
    of all nominees.
        First, is there anything that you are aware of in your
    background which might present a conflict of interest with the
    duties of the office to which you have been nominated?
        Mr. Johnson. No, not that I am aware of.
        Chairman Collins. Second, do you know of anything personal
    or otherwise that would in any way prevent you from fully and
    honorably discharging the responsibilities of the office to
    which you have been nominated?
        Mr. Johnson. I do not.
        Chairman Collins. And third, do you agree without
    reservation to respond to any reasonable summons to appear and
    testify before any duly constituted committee of Congress if
    you are confirmed?
        Mr. Johnson. Yes, I do.
        Chairman Collins. We will now start a round of questions
    limited to 6 minutes each.
        Mr. Johnson, as I alluded to in my opening statement and in
    my prior conversations with you, there is a long-held view that
    management issues at OMB have taken a back seat to the budget
    issues, that the budget debates are so all-consuming, that OMB
    tends to slight the management responsibilities. As I have
    remarked and others have said, it is important that we put the
    ``M'' back in OMB.
        Do you agree with the assessment that management issues
    have not received the attention that they have deserved in
    previous administrations, and how would you work to make sure
    that management issues, which have such an impact on the
    delivery of services and the cost of programs, are a high
    priority at OMB?
        Mr. Johnson. Well, I am not a student of what past
    administrations have done, but I do know that management is an
    important priority for this administration and this President.
    I would like to think that he, President Bush, asked me to do
    this because it was important, as opposed to asking me to do it
    because it was unimportant. I noted from the very beginning
    that he has challenged Mitch Daniels, the Director of OMB, to
    think boldly and aggressively about how the Federal Government
    can be managed better. And there are opportunities, there are
    technologies, there are things taking place in the workforce,
    Federal workforce, now that afford this administration, the
    Federal Government now, opportunities to significantly improve
    things that were not available previously.
        And I think great work has been done in the last 2\1/2\
    years, first with Sean O'Keefe, and second with Mark Everson,
    all under Mitch Daniels' directorship, to focus on how the
    Federal Government has managed to make an attempt to
    significantly change how the Federal Government is managed. And
    I hear, albeit mostly anecdotal feedback from long-time career
    employees in different agencies, that this administration is
    doing as much, if not more, than any previous administration in
    terms of trying to significantly change how agencies are really
    managed, how to make the Federal Government more performance
    oriented.
        So I am very confident and comfortable that this is a high
    priority for the President, and I am very confident and
    comfortable that I can continue to make it a high priority for
    this administration and for the Federal Government.
        As I pointed out in my questionnaire answers, I have been
    involved in helping the President identify and appoint most all
    of the senior leadership in the Federal Government. So I know
    them, they know me. I think I have their respect. I respect
    them. And so my ability to communicate and interact with the
    leadership of other departments and agencies is significant,
    and that is the primary challenge now. It is not figuring out
    what to do. I think there is some very good planning that has
    taken place in the last 2 years, and that the primary emphasis
    going forward is to actually go do and implement and execute
    the plans that have been laid out before us.
        Chairman Collins. The General Accounting Office, every
    other year, issues a list of programs that are known as the
    ``High-Risk List''. These are programs that the GAO has
    identified as being particularly vulnerable to mismanagement,
    waste, fraud, and abuse. It is startling to me that there are
    programs that have been on that list since it was originated
    more than a decade ago. Every single year, probably half the
    list is comprised of the same programs that were there 10 years
    ago. What will you do to make sure that programs that have been
    identified as high-risk programs have their deficiencies or
    management flaws remedied, so that we see programs actually
    leaving the list rather than appearing year after year?
        Mr. Johnson. Jim Lockhart, who is the Deputy Administrator
    of Social Security, talked to me and some others a couple of
    weeks ago about how they went about getting one of the items
    that had been on the high-risk list off the high-risk list this
    past year, and it really was pretty straightforward, and I bet
    what applied there would apply to these other items as well,
    which is they made sure that the senior official in the agency,
    the administrator, was very interested in getting off the high-
    risk list, that the rest of the organization knew what a
    priority it was for the administrator, that there was a very
    specific plan developed for getting the item off the high-risk
    list. There were to-do items, and it was a plan that everybody
    felt comfortable with; it assigned was clear responsibility, it
    was clear who was in charge, whose responsibility it was for
    getting this item off the high-risk list, milestones to be hit,
    specific actions on specific dates. And they did it.
        It strikes me that the same approach is called for on these
    other items. And so I have talked to David Walker about this,
    and am making sure that for all the 24 items, I think it is,
    23, on the high-risk list, that the same thing exists, that
    there is an action plan, it is clear who is responsible. Some
    of these things have persisted, as you said, been there for 10,
    12 years. They are not going to be removed in 6 months. But
    there is a plan that everybody is comfortable with, we know
    what we are dealing with, we are not going to get to the end of
    a 2-year effort and say, ``Well, that is really not good
    enough.'' We are going to get agreement up front what we need
    to do to get it off the list, and then we are going to identify
    who is responsible for following through on the plan, and then
    make sure it happens.
        So I see OMB's role, my role in particular, as ensuring
    that there is a specific plan, there is clear accountability,
    and that people meet the milestones they say they are going to
    meet and do the necessary work to get the items off the high-
    risk list.
        Chairman Collins. I am pleased to hear that. This Committee
    is going to hold a series of hearings to look at some of these
    programs and identify exactly what the issues are in the hope
    of assisting in the task that you have outlined.
        Mr. Johnson. Great.
        Senator Collins. Senator Carper.
        Senator Carper. Thank you, Madam Chairman.
        Mr. Johnson, welcome. How are you?
        Mr. Johnson. Fine, thank you.
        Senator Carper. Nice to see you. And welcome to your wife
    and sister. I could just barely see your wife's lips move when
    you spoke. [Laughter.]
        I sometimes say to Bill Frist or Trent Lott beforehand, and
    occasionally to Senator Daschle, that I would not want their
    job for all the tea in China. And I have thought about your
    job. It is not a particularly wonderful position to have----
        Mr. Johnson. Or my previous job.
        Senator Carper. I thank you for doing it. From most
    accounts, I have heard, you're doing it well.
        Part of what you have done for the President is to go out
    and to identify people to serve in leadership positions in this
    administration and previously in the administration in Texas,
    and obviously you have given a lot of thought to trying to
    match the right person with the right set of skills, with the
    jobs that you are trying to fill. What is it about you and your
    set of skills that well equip you for this position?
        Mr. Johnson. I like to bring method to madness, order to
    chaos, structure where there may not be as much structure as
    there can be or should be.
        Senator Carper. You might like serving in the Senate.
    [Laughter.]
        Mr. Johnson. I like getting people around a table and
    figuring, clarifying real succinctly what it is we are trying
    to do, how we are going to get there, who is responsible, and I
    think I am good at it. And that is what is called for in this
    position.
        And I have had firsthand experience with a large Fortune
    500 company and a privately held company, and in all these
    areas that we are dealing with here in the Federal Government,
    with very different, smaller groups of people, smaller budgets,
    but firsthand experience in all these arenas. So I have first
    hand experience. I think what I like doing is tremendously
    applicable here, and I think also the knowledge of the people,
    the key players involved, that I have, makes me well qualified
    to do this.
        Senator Carper. Talk to us a little bit about the nature of
    the job for which you have been nominated. Just describe it for
    us.
        Mr. Johnson. Well, the job in general, in most summary
    form, I see it as trying to bring better management practices
    to how the programs the Federal Government supports are managed
    and how the agencies and departments are managed. We are to
    provide leadership in the management arena. We cannot manage
    the State Department, not supposed to manage the State
    Department, the Interior Department, EPA, but we are to work
    with the secretaries or administrative heads of those
    departments to help identify what the opportunities are to make
    those departments more results oriented, and bring focus to it,
    and then identify what can be done. And if laws need to be
    changed, work with Congress and this Committee, and on the
    House side as well, to identify those legislative actions that
    would allow the Federal Government to be more results oriented.
        So it is as a facilitator. It is not our firsthand
    responsibility to take responsibility, but to provide them with
    a direction and hold them accountable for sound management
    practices, and the President is very interested in this. He
    meets with his Cabinet Secretaries at least once, I think it
    is, every month or two, and during almost every one of those
    meetings he asks them how they are doing. With all else that is
    going on, he asks them how are they doing on the President's
    management agenda? Are they out of the red score category yet?
    Are they at yellow, or are they green in the category? They get
    it. They understand that this is an interest of his and a
    priority of his. And my responsibility, one of my key
    responsibilities is to keep making that point with them, and
    they are involved, and they are engaged, and how to help them
    identify and follow through on those opportunities to better
    manage their agencies.
        Senator Carper. I believe that the administration has
    proposed something called a human capital fund.
        Mr. Johnson. Human capital performance fund.
        Senator Carper. There has been a fair amount of discussion
    about whether or not we can adjust our compensation systems to
    attract some of the key people that we need, to retain those
    who might otherwise leave us, and to reward those who are doing
    a better job. As a former governor of Delaware I was interested
    in being able to attract good people, keep good people, and to
    reward people who really did a terrific job. The legislature in
    my State was always concerned, and understandably so, that we
    would invite favoritism and situations where people would
    receive better treatment better compensation, not just because
    they were more critical, more valuable, and tougher to keep,
    but because of favoritism. Just take a moment and talk with us
    about how we meet the laudable objectives of such a performance
    fund and balance that with the concerns that such a fund could
    create. How do we deal with those concerns?
        Mr. Johnson. I believe it is very important to reward
    performance, identify and recognize performance, and encourage
    better performance and discourage bad performance. Right now
    our pay systems do not do that. They reward longevity. Sixty,
    75 percent of all the Senior Executive Service people are paid
    at the highest level, so high performance, low performance,
    does not make any difference. They cannot make any more money
    if they do exceptionally well, nor are they going to make less
    if they do exceptionally poorly. That is not a good situation
    to have.
        The human capital performance fund is an opportunity to
    start getting into the rewarding of high levels of performance.
    Again, it allows a lot of flexibility from agency to agency but
    it would allow us to start demonstrating creative ways of using
    extra pay to either encourage people to come into the Federal
    Government, that otherwise could not be encouraged to come
    because we do not normally offer enough, or to reward and
    retain superbly performing individuals that you otherwise might
    lose. So that is the primary purpose behind the human capital
    performance fund.
        There is a question, is there bias? If we reward
    performance are we going to open ourselves up to people playing
    favorites and giving their friends higher increases than people
    that are not their friends? I do not believe that there is more
    or less bias in the Federal Government or more or less tendency
    to play favorites in the Federal Government than there is in
    the private sector. There are pay systems in the private sector
    and have been, especially with all the high-performing
    companies, that do this. I do not know why the Federal
    Government would be more apt to engage in bias and playing
    favorites than the private sector. Plus there are things you
    can do to review performance evaluations that were given. If
    somebody gives an exceptional performance to somebody, have a
    supervisor review it to make sure they sign off and agree.
    There are all kinds of checks and balances that can be engaged
    in, but I do not believe there is any problem at all with the
    human capital performance fund, or some vehicle like that,
    leading to people getting bonuses or extra pay for reasons
    other than exceptional performance.
        Senator Carper. Let me say in closing, thank you for that
    response. The concerns about a system like this being misused
    are real and I think are genuinely felt. I would just urge you
    to give some thought to the kinds of checks and balances that
    are appropriate, and that you and your colleagues can use in
    addressing the concerns when they are raised, because they will
    be. Thank you.
        Chairman Collins. Thank you, Senator Carper. Senator Akaka.
        Senator Akaka. Thank you very much, Madam Chairman. It is
    good to have you here before us, Mr. Johnson. OMB has proposed
    revisions to the public-private competition process used to
    determine whether Federal workers or contractors should perform
    government functions. OMB's Office of Federal Procurement
    Policy has emphasized that agencies need to do a better job
    analyzing processes and reviewing internal agency structures
    before conducting a public-private competition. In fact OFPP
    has noted that some Federal agencies may have outsourced too
    many functions and should consider bringing back some of them
    into government.
        As Deputy Director for Management, how would you ensure
    that agencies improve their internal management efficiencies to
    ensure that functions are being outsourced appropriately?
        Mr. Johnson. As you know, the A-76 Circular is being
    rewritten to address the hundreds of concerns expressed and
    expressions of support when it was put out for public comment.
    A lot of the concerns had to do with, is it fair? I have seen
    some of the drafts of the rewritten A-76 Circular and I believe
    those issues are being addressed.
        Is somebody responsible for the overall fairness and
    effectiveness of the system? I believe there is an attempt
    being made to do that that I think will be effective. There was
    concern expressed about it being positioned as an outsourcing
    initiative. We have to be careful that it is not positioned as
    that. It is not an outsourcing initiative. It is a taxpayer
    fairness, or it is a value to the taxpayer, issue. There were
    provisions in the old circular that allowed certain things to
    bid outside without a competition, if the numbers of employees
    were small, which could be viewed as not fair to employees on
    the inside. I think there are some attempts being made to
    address those kind of issues.
        It is important that the procurement people, not only the
    people that are inside to manage the competitions, but if
    something has been bid and now is going out to somebody on the
    outside, that there are acquisition and procurement people in
    place qualified to manage that relationship? I think there have
    been examples, I think at HUD primarily where a lot of things
    were bid out and given to the outside and they, by their own
    admission, would say that they lost control of that and they
    are now trying to bring some of those items in.
        So you have to have the professional competencies at all
    those levels to make sure that the taxpayer is really getting
    what the goal is, which is value. That they are getting the
    highest delivery of service at the best price for these things
    that are inherently commercial. I am confident that the revised
    A-76 Circular and the way it will be implemented will do that.
        Senator Akaka. I have long supported providing adequate
    funds to Federal agencies to pay for recruitment and retention
    incentives and as we look to the future we know that we will
    have a huge problem with this. We have been talking about how
    human capital programs will deal with this.
        Unfortunately, agencies generally lack the funds to utilize
    these management flexibilities. However, the administration has
    proposed creating a $500 million human capital performance fund
    to reward high performance by Federal workers. I have several
    questions. One is, where was this money found to create this
    fund, and were other budgets lowered as a result? What role
    will OMB take to ensure that this funding is administered in a
    fair and equitable manner? And what steps will you take to make
    sure that agencies also have funds for recruitment and
    retention bonuses as well as student loan repayments?
        Mr. Johnson. The Federal Government is involved in doing a
    lot of things that require a lot of money so we have to be very
    careful about how we spend the taxpayer's money. But the notion
    of rewarding employees for performance, having something like a
    human capital performance fund, is so important that the
    President supported Mitch Daniels' recommendation to find $500
    million to support the fund, to get the Federal Government in
    the business of rewarding exceptional performance, or
    attracting exceptional performers, or retaining exceptional
    performers. I am not aware that other budgets were reduced to
    create that $500 million fund. I just do not know the answer to
    your question.
        The second and third parts of your questions were?
        Senator Akaka. I was asking about what steps would you take
    to make sure that agencies will have funds for recruitment and
    retention.
        Mr. Johnson. What we hope to do is, with this fund,
    demonstrate the creative ways it can be used and how effective
    money spent in this fashion can be. And then we would come back
    to Congress for additional funding or to perhaps work with the
    Congress to change the pay system in general that allows this
    kind of flexibility in pay. OPM will be responsible, Office of
    Personnel Management, if it is agreed to by Congress, will be
    responsible for the implementation of the fund and make sure
    that it is used fairly. They will require each agency to submit
    a plan for how they intend to spend their proportional share of
    the monies. If the agencies then do not follow through on that
    they can have the monies taken from them; again if all of this
    is agreed to by Congress.
        So I think there are necessary safeguards in place and I
    think the fair way to think about it is this is a first step in
    a direction that I would bet most all the elected members of
    the House and Senate agree we ought to be going in.
        Senator Akaka. Thank you very much, Madam Chairman. My time
    has expired.
        Chairman Collins. Thank you. Senator Dayton.
        Senator Dayton. Thank you, Madam Chairman. As I said
    earlier, I think the nominee is very well-qualified. My only
    conflict or concern is, he was a year ahead of me in college,
    and it is hard for my classmates and I to follow behind a class
    that produced the President of the United States, and the
    Deputy Secretary of State, and a couple of ambassadors, just
    for starters. I do not think our humility could withstand
    another high-level agency head.
        Mr. Johnson. Your classes did OK.
        Senator Dayton. We are struggling along behind you. In
    between you and the class behind us who got Garry Trudeau and
    Doonesbury, so we are making do as we can. I am glad you are
    taking this position because you are well known for your
    veracity and your integrity and your probity, and I would say--
    we did not have a chance to talk before this hearing but I want
    to put this on the public record anyway. I do not expect you to
    respond because you are new to this situation, but I have found
    with OMB a lack of veracity that I find very disturbing.
        I took the position of chair of the Joint Committee on
    Printing a year ago in January 2002. The then-chairman of the
    Rules Committee, Chris Dodd, offered me that opportunity and
    when you are one-hundredth in seniority the chance to be
    chairman of any committee is just something you leap at, so I
    did. The Joint Committee on Printing is responsible for
    overseeing the Government Printing Office, and has a bicameral,
    bipartisan and not political board of members from both the
    House and the Senate.
        We were going along with a former administration appointee
    who was a 23-year career employee. He was a veteran of the
    Government Printing Office, so this was not somebody with a
    political background. Suddenly, we just got blindsided in the
    summer of last year when Mr. Daniels issued a directive to all
    the Executive Branch agencies to ignore a 100-year long-
    standing Federal law that requires Federal agencies to use the
    Government Printing Office for their printing. Mr. Daniels just
    declared the law was unconstitutional, and with no forewarning,
    no attempt to meet with myself or the head of the Government
    Printing Office. I held a hearing, wrote him a letter asking
    him to come, offered at the hearing and before in the letter to
    try to work things out. No interest whatsoever, no response.
        And I found two things that were disturbing about our
    interaction. First, there was no attempt to make any kind of
    effort to resolve anything. Mr. Daniels just took a
    sledgehammer whack at the institution, and then took no
    responsibility for managing it or trying to make anything
    better come out of it.
        But also Mr. Daniels used at the hearing and has used
    thereafter a figure that scores all this contracting with the
    private sector as saving the government $70 million a year. I
    tried to find out where that number came from. I called OMB. I
    asked, where is the study, where is the analysis that proves or
    that even states that privatizing this function will save $70
    million a year? No one produced it. If you can find one when
    you get over there, I would like to see it. But my view is he
    just pulled a number out of the air, as far as I could tell,
    and asserted that time after time so that became the
    justification for this.
        Then the President made an excellent appointment, or a
    nomination later confirmed by the Senate: Bruce James, a man
    with an extensive printing background. Last fall I worked with
    him to get him expedited through the committee process.
        I want good government. I do not care whether it is a
    Republican Administration or a Democratic Administration, I
    want government to work as well as possible for the citizens.
    Now that Mr. James got on board, there is an agreement to set
    aside all of these matters that Mr. Daniels was absolutely
    determined to proceed with. I give credit to Mr. James and I am
    glad that he was able to be a voice of reason here.
        I have asked Mr. Daniels to walk forward with me as we
    establish the facts about printing and information
    dissemination. I think the facts are exactly what are needed
    here. But there was not any interest in facts during that time.
        Another example that came up just last week. I had the
    police officers come to me from Minnesota. Police officers are
    pretty straightforward individuals. I do not know--it does not
    even matter what their political views are--they want to make
    government work. They get funds to put cops on the street, and
    they were particularly concerned about a Byrne formula grant.
    Again, I do not expect you to know any of this.
        I did not know about it, Madam Chairman, until this came to
    me last week. But the program has been proposed by the
    President to be zeroed out in funding and the justification for
    that in the budget, which I pulled out, that the President
    submitted, OMB submitted on his behalf, says, of particular
    concern are the billions of dollars in State and local law
    enforcement grants that have been awarded through programs that
    lack verifiable performance goals or measures such as the State
    criminal alien assistance program, the Byrne formula grants,
    and some others. Some of these programs were eliminated in the
    2003 budget and others have been assessed using the new PART.
    It goes on to later say, the PART found similar, although less
    severe, problems with other grant programs performance goals
    and measures.
        I read that and I think that any objective reader would
    read that to say that the program which has been proposed to be
    zeroed out in funding, the Byrne formula grant had been
    evaluated by PART and found to be wanting in some way. It turns
    out it was not evaluated by PART. PART did evaluate some other
    programs including the COPS program. It did not evaluate the
    Byrne formula grant program. I just think that again does not
    serve the cause of honest and objective decisionmaking on
    anybody's part when assertions are made or points are implied
    that are not in fact true. I have just seen that over and over.
        My time is running out, but at the macro level of this I
    see this manifested with the budget. When this administration
    took over, the Office of Management and Budget provided a 10-
    year projection of the budget and that seemed to fit. Any
    projections going out 10 years, understandably, get to be in
    the area of speculation. But on the other hand, we are doing
    tax policy for 10 years and the President and others are
    proposing to make tax cuts permanent. So we are going out as
    far as the eye can see, and yet within a year after when
    deficits became more of a concern, the budget now is presented
    with a 5-year projection, even though the tax proposals
    continue to be 10 years.
        I think that, in my mind, evidences a lack of willingness
    to confront the issues head-on. I expect this agency to be
    responsible to the President and to serve the President under
    any administration. But I also expect it to be an honest broker
    in terms of numbers and information.
        That leads me to my last concern and the time for your
    response. Now this talk about dynamic scoring is another one,
    and Mr. Daniels was quoted in an article I read last week as
    saying that he thought that under dynamic scoring, which he
    advocates, the President's tax proposal should be reduced, 35
    percent, in terms of its cost to the Treasury. I do not know
    where that number came from. I assume it came from the same
    study that had the $70 million in savings for GPO. But when OMB
    presents their assessment of tax proposals they do not include
    the additional interest on the debt that is paid over that
    period of time.
        So again I would ask you to make sure that OMB is an honest
    broker and comes forward and advocates the President's
    policies. But on a management level, OMB must be willing to
    work with all of us who would like to make this government work
    better, and like to do so regardless of who happens to be in
    the Executive Branch.
        And second, that when OMB does come forward with things as
    important to the future of this Nation, given the fiscal
    decisions that are being made by both the Executive and
    Legislative Branches, OMB must come forward in an honest,
    straightforward way. If they believe honestly that there is
    going to be a 35 percent boost, then let us talk about that
    head-on, but let us talk about the fact that there is going to
    be additional interest paid on the debt. Let us deal with the
    numbers, and if the administration believes in those numbers,
    believes in those policies, believes they are beneficial, then
    it ought to be willing to put the numbers out straight, and
    explain those, or defend those, or justify them, and take on
    and engage in that debate, not try to hide it or twist it or
    distort it so that it fools us and fools the public unless we
    ferret it out.
        So sorry for the diatribe, but I welcome your going in
    there, sir, and I look forward to seeing the evidence of your
    presence there. Thank you.
        Thank you, Madam Chairman.
        Do you have any comments? On dynamic scoring, you are
    welcome to----
        Mr. Johnson. I have a lot of respect for Mitch Daniels, and
    the President does too, and I think he would be the first to
    say he is about honest debate over dynamic scoring, or the cost
    of this, or why something was zeroed out. I do not know what
    the problems were. I am not familiar with that particular
    situation.
        Senator Dayton. I understand that. I am not looking for an
    answer. I just want to inform you.
        Mr. Johnson. I will make sure that he is aware of the
    concerns that you have raised. On the management side of
    things, I look forward to working with you, and the way you
    like to work which is, everybody is up front, and here are the
    numbers, and here is what the pros and here is what the cons
    are, and let us not hide anything from each other. That is the
    way I like to work and I do not believe there is going to be
    any problems with the way this Committee and the management
    part of OMB is going to work, and I look forward to working
    with you.
        Senator Dayton. I would ask then, when you get there, and I
    mean this, that you find and send to me the study or analysis
    that demonstrates that there is going to be $70 million of
    savings per year in privatizing the Government Printing Office.
    I would also appreciate any backing for the 35 percent dynamic
    scoring figure that I assume is now going to start to be
    computed in these numbers.
        Thank you, Madam Chairman.
        Chairman Collins. Senator Dayton, I apologize for cutting
    you off but Senator Lautenberg is waiting to question as well
    so if we could proceed, unless he wants to yield.

                OPENING STATEMENT OF SENATOR LAUTENBERG

        Senator Lautenberg. I began to tire of Mr. Johnson's
    lengthy answers. [Laughter.]
        Mr. Johnson, you come with a distinguished record, and I am
    sure are well-qualified to do the job. So I would like to get
    on to the area of discussion that we have now heard repeated a
    couple times because it is a concern of ours, and it is a
    concern of mine as well. I come out of the corporate sector
    too, and as Senator Dayton said, that when you get to be
    chairman of anything in your early days it is an astounding and
    marvelous thing to have happen. You are looking at a 19-year
    service person here and I have finally worked my way from the
    last desk.
        So in my experience, and I am sure yours as well--you have
    had considerable business experience as well as government
    experience. I had pretty good fortune with an excellent company
    that three of us founded many years ago and today has over
    40,000 employees. I wonder if your experience was any different
    than mine.
        We had a very productive group of employees in my old
    company ADP, Automatic Data Processing, but when I got to
    government I saw what I thought was a remarkable dedication,
    very skilled, very hard-working, less rewards than almost
    anybody in the private sector would get for overtime and things
    of that nature. I wonder with your experience now both in
    government and in the productivity or the performance of the
    employee groups within each of the bodies, government and the
    private sector?
        Mr. Johnson. No. I think there is a higher calling element
    that motivates somebody to come to work for the Federal
    Government. Because they can make more money, probably work
    fewer hours in the private sector. That is the con. The pro is,
    you can be involved in making this an even better country. So
    there are some different motivations involved I think, but the
    commitment to the calling, commitment to the purpose, the
    commitment to the country is second to none.
        I do still think that there are opportunities to place more
    emphasis on performance. I do not believe that the way we now
    evaluate performance, either program performance or individual
    performance, is satisfactory. I do not belive it is as good as
    it can be, and I do not believe it places the proper emphasis
    on performance. Therefore, I think there are opportunities to
    make our programs and our employees even more performance
    oriented.
        Senator Lautenberg. I regard that comment, your comment as
    a very positive one, trying to find a better way to incentivize
    employees. I think we struggle with that, and it is frustrating
    when you have got someone who is an exceptional performer but
    because they are a particular grade and you do not have much
    budget or you have not got any budget left in most cases, it is
    hard to supply the kind of incentive that might make a
    difference.
        As a result of that, I have been concerned about why it is
    that the administration is so determined to turn the 400,000-
    some jobs at a minimal, maybe 850,000 as a target, over to the
    private sector, and setting things in place that would enable
    that it can be done. One of the things that bothers me is the
    air traffic control group had been identified as inherently
    governmental. That structure now has changed last year, and
    that would set the stage for privatization. That does not make
    a lot of sense to me and I would prefer that my family was not
    flying in the safety on the cheap in the air. Frankly, I cannot
    understand it because to me, the FAA responsibility is in those
    towers and everything, and we saw it manifest time and time
    again, almost makes them the equivalent of a branch of the
    military.
        So what do you think about putting this out to the lowest
    bidder? Because look what has happened with baggage screeners.
    We took them out of private hands, moved them to the
    government, gave them all a bid raise, and picked up 28,000
    Federal employees in the process. Here we want to take the
    people who are not screening the bags, which is an important
    job, but you have got millions of people in the air every week
    and we want to see if we can find the cheapest bidder. That is
    like going in the operating room and checking the price for the
    surgery with the doctor and saying, are you the lowest in the
    area? So what do you think about my statement?
        Mr. Johnson. A couple of things. One, as I mentioned
    earlier, I think there is a tendency to view this as an
    outsourcing initiative, and it is not. It is a best value to
    the taxpayer. What we are working with the agencies to do, and
    the reason we are rewriting the A-76 Circular is to make it
    easier and more straightforward for the agencies to look at a
    particular job function that is inherently commercial and
    determine whether it is best to keep it inside or go outside
    with it. If the decision in all cases is to stay inside, then
    we can say that we have looked at it. We have taken the time,
    paid the attention to look at it and can determine that the
    best way to get this job done for the taxpayer is to keep it
    inside, or to take it outside; whatever the case may be. We do
    not care whether it stays all inside or goes all outside.
        The statistics are, I think that when these competitions
    are done in States and other cities and so forth, is about 60
    percent of the competitions are won by the inside group. I do
    not know what the Federal Government statistics will be. But
    this is not an outsourcing initiative. It is a best value for
    the taxpayer initiative.
        The other thing is, my understanding about the air traffic
    controllers is, the reason it has been labeled an inherently
    governmental activity--excuse me, a commercial activity, is
    because air traffic controllers in some other countries are
    performed by private companies. I think the FAA's determination
    is, even though it is inherently commercial because it is done
    by commercial enterprises in other countries, they do not want
    to subject it to a competition, which is fine with us. What
    they are looking to do is to subject the weather reporting to
    outside competition. So I do not believe there is any move
    afoot to outsource or to consider outsourcing alternatives for
    air traffic controllers.
        Senator Lautenberg. Mr. Johnson, you, by virtue of your
    education and your accomplishments apparently are a very
    thorough man and competent. I would, therefore, in that
    framework ask that you look at the performance of what has
    happened in Canada and the U.K. as a couple of countries have
    gone private and see that in the U.K. the number of near-misses
    has stepped up significantly. I do not like the idea of roller
    derby in the sky. In Canada they have had to bail out the
    system a couple of times because the private contractor could
    not make it. I would hate to see our aviation system tied up in
    a labor dispute with a private contractor who decides that they
    need more money. But anyway, I hope you will keep that in mind
    when you do your study, Mr. Johnson.
        Mr. Johnson. Yes, sir.
        Senator Lautenberg. If you would like to have a chat with
    me about it, I would appreciate it.
        Mr. Johnson. Right.
        Senator Lautenberg. Thanks very much, Madam Chairman.
        Chairman Collins. Thank you, Senator. It is my
    understanding that Senator Levin is on his way with some
    questions for you.
        He has now arrived and I will turn to him.

                   OPENING STATEMENT OF SENATOR LEVIN

        Senator Levin. Great timing.
        Thank you, Madam Chairman. You have my welcome and
    congratulations and thanks for your service and dropping in to
    visit me in my office.
        Some of the questions that I am asking you today I have
    chatted with you about before. The first has to do with the
    Federal outsourcing policy to make sure that it is fair to both
    public and private sectors in allowing comparable appeal rights
    to both. Because I just had to race in here, I do not know
    whether you have been asked this particular question or not. If
    so, you can just indicate that, if you would.
        The GAO Commercial Activities Panel, I think as you
    remember and know, said the following: ``Fairness is critical
    to protecting the integrity of the process and to creating and
    maintaining the trust of those most affected. Fairness requires
    that competing parties, both public and private, receive
    comparable treatment throughout the competition regarding, for
    example, access to relevant information and legal standing to
    challenge the way a competition has been conducted at all
    appropriate forums, including the General Accounting Office and
    the U.S. Court of Federal Claims.''
        Now the administration proposes to amend Title X to allow
    the Department of Defense to implement best value competitions.
    That implements one of the report's recommendations. However,
    there has been no proposal yet from the administration to
    implement the report's recommendations relative to bid
    protests, and that also requires legislation. Do you agree that
    fairness dictates that the public and private sectors receive
    comparable treatment in the bid protest process?
        Mr. Johnson. Yes, there has to be fairness. The demands
    placed on the employee group have to be similar to the demands
    placed on an outside group bidding for the business.
        Senator Levin. Not only demands but would you add to that
    that the rights, and that the opportunity should be similar? In
    other words, if there is a right to appeal on the part of an
    outside group to a particular decision, should a similar right
    to appeal be available to the inside group, the public sector?
    Because that is what the report recommended, what I just read
    to you. It said here, and this is the same panel that is being
    relied on for the recommendation to amend Title X relative to
    best value competitions, the same GAO Commercial Activities
    Panel recommended that when it comes to challenging the way a
    competition has been conducted at all appropriate forums that
    comparable treatment be available, or be received throughout
    that competition. So why should the bid appeal process not be
    comparable?
        Mr. Johnson. I am not familiar with what is being proposed
    for DOD or in Title X. I have worked some with Angela Styles
    and looked at what she is trying to do with the rewrite of the
    A-76 Circular and I feel like the issues about fairness and
    equal footing and accountability for the overall fairness of
    the process are being addressed very effectively with her
    rewrite of the A-76 Circular.
        Senator Levin. Would you, for the record, take a look at
    this very specific issue as to whether or not the bid protest
    procedures should be comparable for both public and private?
    Would you give us that answer for the record?
        Mr. Johnson. I will.
        Senator Levin. The proposed revision of the A-76 OMB
    Circular provides that the time allowed for a public-private
    competition ``shall not exceed 12 months from public
    announcement unless a deviation is granted.'' Now one possible
    consequence of a failure to meet that deadline would be,
    according to administration officials, the privatization of the
    work without competition. In a January 16, 2003 letter to OMB
    Director Mitch Daniels, the Comptroller General David Walker
    stated that those time frames are ``unrealistic'' and urged the
    administration to avoid ``imposing aggressive, fixed
    deadlines'' for public-private competitions. I personally am
    not aware of any circumstance in the procurement system where
    we impose similar deadlines on competitions that impact private
    contractors.
        So if you are confirmed as the deputy director for
    management will you try to avoid enforcing arbitrary deadlines
    for public-private competitions, or are you going to be
    enforcing arbitrary deadlines for public-private competitions?
        Mr. Johnson. I think what is being worked on now is that
    the goal is that they be done within 12 months. But there will
    be some competitions, the complexity of which will be such,
    that it will be unrealistic to get those things assessed within
    a 12-month period of time; so extensions will be granted. But
    there needs to be some process to allow that to happen. A lot
    can happen in 12 months. Right now these competitions take 3
    years. Wars have been begun, fought, and ended in less than 3
    years. The Normandy invasion did not take 3 years to plan and
    execute.
        Senator Levin. Political campaigns take a lot longer than
    12 months. You could add that to the list.
        Mr. Johnson. But anyway, 3 years is way too long to be
    conducting these competitions. So I think it is an admirable
    goal that we are trying to do these competitions in a
    reasonable period of time--reasonable for everybody's benefit.
        This is not a top-down, do it to them versus with them kind
    of a policy. This is supposed to be reflective of what the end
    goal is, which is not outplacement. It is about ensuring best
    value for the taxpayer, but yet to do so in a--we need to get
    on with it. We need to conduct a competition, and we need to
    say that it needs to be inside or it needs to be outside and
    let us get on to the next issue. We do not need to be taking 3
    years to conduct these competitions.
        Senator Levin. I agree with that as a goal. The question
    is, if the goal is not met, which way do you tilt it? Why
    should it tilt one way or another if the goal is not met?
        Mr. Johnson. The expectation is that some of these are
    going to take longer, especially as you take an organization,
    any of these agencies that are used to conducting a competition
    and they are used to taking 3 years, and running in molasses,
    if you will, and now they are being told, you can remove
    yourself from the molasses and you can actually run, it might
    take some while to get used to that. So we are realistic, but
    the goal is to recognize that these competitions can and should
    be conducted in a reasonable period of time and we think a year
    is, for most of these competitions, adequate. But we also
    believe that there will be exceptions to that and exceptions
    will be allowed.
        Senator Levin. I appreciate that, and I am glad it is not
    going to be inflexible. That red light is inflexible. I think
    my time is up.
        Perhaps I could just finish this one question.
        Chairman Collins. Certainly.
        Senator Levin. Because I do not think you answered my last
    question. Assuming that there is going to be a cut-off point,
    for whatever reason in some cases, assuming there is not going
    to be an extension, why should the outcome be tilted more
    towards privatization than towards leaving it public? Why tilt
    the answer?
        Mr. Johnson. You mean if the competition is not complete at
    the end of the 12- or 18-month period?
        Senator Levin. And there is no extension.
        Mr. Johnson. That the outside person wins?
        Senator Levin. Yes, why is that?
        Mr. Johnson. I am not sure that is the way it is being
    written.
        Senator Levin. Good. Glad to hear it. Thank you.
        Chairman Collins. Thank you, Senator.
        Senator Pryor, it is my understanding that you have met
    with the nominee and do not have further questions at this
    time; is that correct?
        Senator Pryor. That is correct.
        Chairman Collins. Thank you, Mr. Johnson, for appearing
    today. I do believe we are very fortunate to have an individual
    of your ability, experience, and background willing to serve in
    this very challenging and difficult post. As Senator Dayton
    indicated, a lot of us have frustrations with OMB from time to
    time so I am sure that you will be hearing from us, and we look
    forward to moving rapidly on your nomination. Thank you.
        Mr. Johnson. Thank you so much. I enjoyed visiting with
    you. Thank you.
        Senator Dayton. Madam Chairman, I just want to say for the
    record, and make it clear, I support the nomination and look
    forward to your presence there.
        Chairman Collins. Thank you, Senator.
        We will now consider the nominations of Albert Casey and
    James Miller to be members of the Board of Governors of the
    U.S. Postal Service. I would ask that you come forward and
    remain standing so that I can swear you in.
        [Witnesses sworn.]
        Chairman Collins. Mr. Casey, we learned something of your
    background from Senator Hutchison when she introduced you. I do
    not think I could do it better than she did. I will give a
    little more background on Mr. Miller for the benefit of the
    Committee record.
        Mr. Miller has a Ph.D. in Economics from the University of
    Virginia, and an undergraduate degree in Economics from the
    University of Georgia. He is currently chairman of CapAnalysis
    Group. He is a distinguished fellow for the Center for Study of
    Public Choice at George Mason University. He is a senior fellow
    at the Hoover Institution at Stanford University.
        He is a member of numerous boards of directors and has
    extensive experience in both the academic world and in the
    private and public sector. We welcome you both here this
    morning.
        Both of the nominees have filed responses to the Committee
    questionnaires, answered pre-hearing questions and had their
    financial statements reviewed by the Office of Government
    Ethics. Without objection, this information will be made part
    of the hearing record, with the exception of the financial
    information which is on file and available for public
    inspection in the Committee offices. As I indicated, we are
    going to see if you have statements that you wish to make, but
    first, if there is anyone you would like to introduce to the
    Committee, I want to give you that opportunity.
        Mr. Casey.
        Mr. Casey. I consider the entire room my family.
        Chairman Collins. They are all nodding in agreement. Mr.
    Miller.
        Mr. Miller. I include Mr. Casey and all the Members on the
    dais.
        Chairman Collins. Mr. Casey, I will ask you to proceed with
    any statement you would like to make.

      TESTIMONY OF ALBERT CASEY\1\ TO BE A MEMBER OF THE BOARD OF
                  GOVERNORS OF THE U.S. POSTAL SERVICE

        Mr. Casey. If I get approved, this will be my fifth Federal
    Government service since I retired from American Airlines. I
    really need the work. [Laughter.]
    ---------------------------------------------------------------------------
        \1\ The biographical and financial information appears in the
    Appendix on page 69.
          Responses to pre-hearing questions appears in the Appendix on
    page 76.
    ---------------------------------------------------------------------------
        I love Washington. I have spent a lot of time with the
    Congress and a lot of time with, you could call it the
    bureaucracy, the various government agencies and I found very
    good, dedicated people and I enjoy their association. I would
    just say that I have already appeared before the Presidential's
    Commission on the Review of the Postal Experience and so forth
    and I left them with four ideas. If it is possible I would like
    to let these four ideas be a part of the record so you would
    know what I told the others.
        [The information refered to follows:]

               PRESIDENT'S COMMISSION ON THE U.S. POSTAL SERVICE
                          AUSTIN, TEXAS--MARCH 17,2003

            1. MORE PRICING FREEDOM
               PRICES SHOULD BE BASED ON ``VALUE'' NOT COSTS--OTHERWISE
            NEVER HAVE EARNINGS.

            2. LABOR
               HAVE MANDATORY MEDIATION--IF NO AGREEMENT THEN ``MEDIATOR''
            BECOMES ``ARBITOR'' NOT NECESSARY TO START ALL OVER AGAIN--THE
            WAY IT IS NOW.

            3. PAY COMPARABILITY
               GIVE WEIGHT TO HEALTH BENEFITS AND PENSIONS.

            4. GOVERNORS WITH MORE BUSINESS EXPERIENCE
               NORMA PACE AND IRA HALL (IBM)--NOT DEPENDENT ON POLITICAL
            INFLUENCE

        I want more pricing freedom, and we can go into the details
    if you want to. As regards to labor, we have got to improve the
    working ansugement. You go to get the labor mediations, forced
    mediation and if they do not agree they have to start all over
    again with an arbiter. I should like the mediator to be the
    arbiter. Just plain speed it up; that is all.
        I want pay comparability reviews in none of the reviews of
    the unions or the others including the health benefits and the
    pensions of the Post Office when they compare pay scales. I
    think the pay scale in the Post Office is pretty good myself.
        Another thing is I should like a few more business-oriented
    governors. I will not belabor that point, but really we have
    got a wonderful group of governors. They are fine; they are
    wonderful, very pleasant and agreeable. But we have only got,
    as far as I know, only one other businessman on the record. And
    we have no representation west of Texas. I think the whole
    subject of the selection of governors should be reviewed.
        I will close with the fact that I told the Presidential
    commission the worst thing they could do is to leave the Post
    Office alone. We need change. Thank you.
        Chairman Collins. Thank you very much, Mr. Casey. Mr.
    Miller.

      TESTIMONY OF JAMES C. MILLER, III\1\ TO BE A MEMBER OF THE
             BOARD OF GOVERNORS OF THE U.S. POSTAL SERVICE

        Mr. Miller. Madam Chairman, Mr. Carper, other Members of
    the Committee, thank you for having me here today. First I want
    to express my appreciation to the President of the United
    States for his confidence in me in nominating me for this
    position.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Miller appears in the Appendix on
    page 83.
          The biographical and financial information appears in the
    Appendix on page 85.
          Responses to pre-hearing questions appears in the Appendix on
    page 99.
    ---------------------------------------------------------------------------
        Second, thank you for holding this hearing today and
    allowing me to come, and to inquire of my qualifications.
        I would like to make three points briefly, if I might. In
    addition, Madam Chairman, I did submit a short statement for
    the record.
        Chairman Collins. Which will be made part of the record.
        Mr. Miller. First, I have had a great deal of experience in
    government, most recently as director of OMB, before that as
    chairman of the Federal Trade Commission, and before that I was
    the first head of the Office of Information and Regulatory
    Affairs at OMB. And I was a senior staffer at the Department of
    Transportation and a senior staff economist at the Council of
    Economic Advisers, where I worked for Alan Greenspan, and I was
    an assistant director of the old Council on Wage and Price
    Stability. So I have had a good deal of experience in
    government and I think this equips me to be able to understand
    and assess the role of the Postal Service, the nexus it has
    with the Federal Government.
        Second, I have had a good deal of experience in business,
    especially since leaving government. As you mentioned, I serve
    on the boards of directors of a number of companies: The board
    of Atlantic Coast Airlines and the board of Washington Mutual
    Investors, Inc., the fourth or fifth largest equity fund in
    America; also, the Tax-Exempt Funds of Virginia and Maryland,
    and the J.P. Morgan Value Opportunities Fund. I have been a
    consultant in the past and now I head this affiliate of Howrey,
    Simon, Arnold and White, known as the CapAnalysis Group. I have
    had a good deal of experience in business and I think this
    equips me to understand and to deal with the Postal Service as
    a commercial enterprise.
        The third thing, as you alluded to, Madam Chairman, is that
    I have had a good deal of experience in the academic world, in
    research, in public policy generally. I have published, just
    since leaving government, three books. I have been a lecturer
    at a number of local universities, including George Mason
    University. I served on the board of visitors of George Mason
    University. I have served on the board of visitors of the Air
    Force Academy. I have taught full-time at Texas A&M University
    and Georgia State University. I am, as you pointed out, a
    senior fellow at the Hoover Institute, and at George Mason
    Center for the Study of Public Choice. I have been associated
    with the American Enterprise Institution, the Brookings
    Institution, and most recently for a number of years with
    Citizens for a Sound Economy Foundation. So I see this
    experience equipping me to understand and deal with the Postal
    Service in its broader context of public policy.
        With all of that, those three points, Madam Chairman, those
    are the reasons I think I am qualified and was selected by the
    President for this post. And I look forward to working with
    you, members of the staff, and of course, my colleagues at the
    Postal Service, and I think also people at the Postal Rate
    Commission, to improve the Postal Service of the United States.
    Thank you.
        Chairman Collins. Thank you. As I explained to the previous
    nominee, there are three standard questions that we ask of all
    nominees and I would like to pose them to you now.
        Is there anything you are aware of in your background which
    might present a conflict of interest with the duties of the
    office to which you have been nominated? Mr. Casey.
        Mr. Casey. No, not at all.
        Chairman Collins. Mr. Miller.
        Mr. Miller. None.
        Chairman Collins. Second, do you know of anything personal
    or otherwise that would in any way prevent you from fully and
    honorably discharging the responsibilities of the office to
    which you have been nominated? Mr. Casey?
        Mr. Casey. Nothing.
        Chairman Collins. Mr. Miller.
        Mr. Miller. None.
        Chairman Collins. Finally, do you agree without reservation
    to respond to any reasonable summons to appear and testify
    before any duly constituted committee of Congress if you are
    confirmed? Mr. Casey?
        Mr. Casey. Indeed.
        Chairman Collins. Mr. Miller.
        Mr. Miller. Absolutely.
        Chairman Collins. You passed that round very well. We will
    now turn to a round of questions limited to 6 minutes each.
        Both of you are well aware of the fact that Postal Service
    is experiencing serious financial challenges. In the year 2000,
    the Postal Service lost nearly $200 million. In 2001, this loss
    ballooned to $1.6 billion, and for 2002 the Postal Service
    posted a net loss of $676 million, which was certainly progress
    over the previous year but still a very substantial deficit.
        The Postal Service is mandated by law to break even. But it
    has simply, for a variety of reasons including a decrease in
    volume, not generated sufficient revenues to cover its
    operating expenses. That has led the Postal Service, for
    example, to put a freeze on capital commitments that is holding
    up a much-needed mail processing plant in Scarborough, Maine
    and elsewhere in the United States. These are all difficult
    issues.
        Mr. Casey, I know that you have already been serving on the
    Postal Board of Governors and that you are a member, or I
    believe the chairman of the audit committee; a difficult task
    indeed, so I would like to start with you. We are all waiting
    for the report of the commission which is looking at the Postal
    Service from top to bottom, but based on your experience and
    perhaps expanding on some of the points you made in your
    initial statements, what actions do you think the Postal
    Service needs to take to tackle the imbalance between its
    expenditures and revenues?
        Mr. Casey. I think it is absolutely impossible for the Post
    Office to ever break even under the current rules. We go to the
    Postal Rate Commission with our cost. That is all we are able
    to go with, and we get the rate adjusted to recover our cost.
    We never get anything over our cost. How can you possibly do
    better than break even? A large number of the postal inspectors
    at the Post Office do government work for which it is not
    repaid. There is no way for the Post Office under the current
    legislation to break even. That is the first thing.
        I do not believe in privatization of the entire system.
    There may be pieces and parts and things like that, that
    possibly could be. I will just give you a specific example as
    to how we are handicapped.
        I have a home on Cape Cod. I hear all of you give these
    personal experiences. Do you know how many post offices there
    are on Cape Cod? Senator, I will ask you first.
        Senator Dayton. If there are more than there are in
    Minnesota, I would be concerned.
        Senator Lautenberg. I know of two.
        Mr. Casey. Two? There are 57 post offices on Cape Cod and
    in the winter there are not 57 people on Cape Cod. So I ask
    you, why can we not have the liberty to work this thing out? It
    is made to order for bringing down the number. We do not have
    that liberty. It is those kind of things that we really should
    pay attention to.
        I could carry on with some of my specific little stuff but
    I will not bother you with it. We need more revenue and we need
    less expenses, and the Board of Governors should spend all its
    time on those two items. End of speech.
        Chairman Collins. Mr. Miller, I know you have done
    considerable work in this area. I realize you are not yet on
    the Board of Governors but do you have any initial thoughts?
        Mr. Miller. Madam Chairman, I have not really looked at
    this issue in detail in a decade. Just like going on the board
    of a company, you want to have access to the information on
    which you would make a decision. So I would reserve judgment. I
    do not know anything about the Cape Cod situation. It is
    unambiguously true that the best way to solve the deficit
    problem is get more revenue and have less cost. That is
    straightforward. But as for particular recommendations, I will
    not voice any until I have had a chance to study the matter.
        Chairman Collins. Mr. Miller, many years ago you expressed
    the view that perhaps the private express statutes of the
    Postal Service, the monopoly, should be repealed. You also
    spoke in favor of deregulating some of the Postal Service and
    allowing private companies to compete in delivery of mail. Is
    that still your view?
        Mr. Miller. If I have the same information, the same
    studies, same data, same analysis that I looked at before, that
    would exactly be my view. I think anytime you take on a new
    responsibility you owe it to yourself or whomever appointed you
    to that or are responsible for putting you there, to give it
    your best shot, to take a new look at things. I will take a new
    look at things and I will give you my best judgment.
        Chairman Collins. So would it be fair to say that you
    recognize that the Postal Service has changed in the years
    since you made those statements and that you are not wedded to
    your previous analysis?
        Mr. Miller. I think the Postal Service has changed. All
    institutions change in a decade or so. I will take a look at
    what changes have been manifest. I will make a fresh assessment
    based on what I find. But without question, if I were faced
    with the same information as I had before, same views and same
    analysis, I would hold the same view as I did then.
        Chairman Collins. Senator Carper.
        Senator Carper. Mr. Casey and Mr. Miller, nice to see you
    both. Thanks for joining us, and for your service to the people
    of this country in a variety of capacities over your lifetime.
    Sitting here listening to you talk about your lives and what
    you have done with them, it is a rich and varied past and I
    think one that prepares you well for this responsibility.
        Senator Collins has talked a bit about privatization. You
    have been very forthcoming in your position there, Mr. Miller,
    and I appreciate your candor. I want to go back to Mr. Casey
    initially, if I could. I think you mentioned that one of the
    needs for the Board of Governors was people with more business
    experience. There is a fellow from Delaware on the board, a
    fellow named Bob Rider who----
        Mr. Casey. He was chairman previously.
        Senator Carper. He is still a member of the board.
        Mr. Casey. Very good man.
        Senator Carper. We think he is as well. I agree with you
    that there needs to be a mix of people and experiences on the
    board and my sense is that both of you bring a good and varied
    background to the board.
        Mr. Casey, you have been the Postmaster General, you have
    held this position on the Board of Governors for a while as a
    recess appointee. Just talk to us a little bit about the nature
    of the board, what the Board of Governors does, maybe how that
    compares to other boards of directors of corporations, and just
    talk to us a bit about the nature of the board. Maybe how it
    acts today compared to how it did when you were Postmaster
    General back in the 1980's.
        Mr. Casey. I will be glad to take a swing at it. Actually,
    the board really does not act like a commercial board. I have
    been on 15 boards of directors. I have taught leadership and
    ethics at SMU for 13 years, part of the role of the board of
    directors has always been a part of my theme. What you must do
    is look at what are the factors, as I expressed revenues and
    expenses, of course, and give more authority down the line. Of
    course you are going to have rules, checks, and balances, but
    it should be delegated, I think, a lot more authority could be
    delegated than there is. I feel that would be the first thing
    that I would recommend.
        When I look at a company and I look at a board of directors
    I generally look almost entirely at just one factor and that is
    the people; how good are the people? I do not know all the
    people down in the loins of the Post Office, but I know four
    top men very well, the postmaster, the deputy postmaster, the
    chief of operations, and the financial officer. You could not
    have better people. I have been with seven corporations. I have
    been the CEO of five. Let me tell you, this team is good and we
    are lucky to have them. The first job and role of a board of
    directors is successorship. There is nothing that comes ahead
    of successorship.
        Fortunately, Jack Potter is about 46-years-old.
    Fortunately, we are going to have him for at least another
    business generation. I hope so. I think it is the best thing
    that could happen to the American public. He is very good. He
    is experienced, and he is fair. If you look for one strength in
    a member of the board--I do not mean board. I mean CEO. The one
    strength that is paramount--it is not education, it is not
    experience. It is fairness. A sense of fairness. You can work
    for any boss as long as you feel he is being fair to everybody.
        I don't want to see the board spend its time like at ``show
    and tell.'' I should like them to spend their focus on just
    revenues, expenses, and capital expenditures.
        I should make one tiny addition, and that is, I think it is
    ridiculous to have the $15 billion cap on capital borrowing. As
    long as any borrowing, and you have a management that you have
    faith in, and it shows a proper rate of return, it should be
    accepted.
        Senator Carper. Thank you. When were you Postmaster
    General, sir?
        Mr. Casey. Nineteen-eighty-six. I remember it well. I came
    in because they had fired the Postmaster and they wanted an
    interim period to make a complete search. August 1, I was going
    to teach at Southern Methodist. So I came in January and went
    to August 1, and before I left the vice chairman of the board
    was put in Federal prison.
        Senator Carper. And you were sent off to SMU.
        Mr. Casey. We had one thing that we really had to do. Do
    you realize how slow it is to get approvals in the Post Office?
    A new post office must take at least 18 months to 2 years. It
    is ridiculous. By the time it is there, the population has
    changed.
        So what I did is I brought in the brightest people in the
    Post Office and I said, I want to get rid of the second and the
    fourth level of bureaucracy. I want to have just the first,
    third, and the fifth; it will speed up things. Put them to
    work. They came back with a ridiculous study. It was mumbo-
    jumbo; it did not mean anything. So I wrote a letter and I
    said, 60 days from now everybody who is in the second or the
    fourth layer of bureaucracy must either go up, go down or go
    out. We lost 40,000 people.
        I think you can do things in the Post Office, and I think
    Jack Potter is doing them. He has had a wonderful record.
        Senator Carper. It has been an impressive first 2 years, I
    agree.
        A follow-up question. When you look at the environment in
    which the Postal Service was competing or operating in your
    tenure, your brief tenure as Postmaster General and you look at
    the environment today----
        Mr. Casey. Very different.
        Senator Carper. Talk about the differences and the
    similarities. And I see my time has expired.
        Mr. Casey. Very different. We have two huge facilities down
    in Dallas. I will not bore you with all the details. They sort
    mail and handle mail and so forth. When I visited those
    facilities in 1986--I had to have an excuse to go home once in
    a while--let me tell you, the place was swarming. It was like a
    beehive. It was human beings all around you. I went there last
    week, you do not see anybody there. It is all mechanized. The
    whole thing is mechanized. So those people that were sorting
    mail are now put out on the streets because of the population
    explosion and we need these fellows. To give you an example,
    1.7 million new slots a year or some statistic like that. It is
    a totally different game. So we need capital investment.
        Senator Carper. My time has expired. I have some folks
    waiting for me out in the anteroom. I am going to slip out but
    I will come back and rejoin you. Hopefully there will be an
    opportunity to ask a question of you, Mr. Miller. Thank you.
        Chairman Collins. Thank you. Senator Dayton.
        Senator Dayton. Madam Chairman, based on what Mr. Casey
    just said, I was struck by a couple of Mr. Miller's writings.
    One is, it is time to free the mails. In the spring and summer
    of 1988 did that apply to the deputy postmaster general? I do
    not know whether, Mr. Casey, to ask you about the condition of
    the Post Office or get some advice on the airline industry in
    which you have background too. You were there for a very brief
    period of time, it seems to me the Postal Service could make a
    profit or could even break even. We might not like what it
    would need to do in order to accomplish that. We set a
    parameter of 6 days a week of service, which I think the
    American public wants, at least my constituents do, and the
    mail gets delivered to Pelican Rapids as well as Minneapolis
    and places even farther north than that.
        I agree with you that we should take many of the shackles
    off and let it operate, but I worry about any replacement that
    the Post Office got to accomplish something in terms of a
    bottom line when what we really also need to include are some
    of the parameters within which we want it to operate for the
    public purpose.
        Mr. Casey. The other day I was exposed to a study by the
    Postal Rate Commission which was very interesting. Now we have
    generally $68 billion in revenue. So they said, what is the
    cost of this universal service, the unprofitable offices? If we
    get rid of all of them what would we literally save? They came
    out with a figure--I recommend this study to the Committee. Go
    to the Postal Rate Commission. About 5 percent of--$3 billion
    could be saved, could be eliminated is their figure, if we
    eliminated the universality of service and tried to make some
    standard of how many things and how much--get rid of the
    unprofitable rural free deliveries. There is not the saving
    there that you would believe, if you can believe their study.
    The way they made the study--Jim, it is up to you to review it.
    You have got to get some facts.
        Senator Dayton. You make my point, sir. Again, if we give
    somebody free rein, eliminate the universality, decide when
    they want to go 6 days, when it is profitable for 6 days, when
    it is profitable to go less we would save money. But I
    guarantee if you eliminate universality, you will be talking to
    a different Senator from Minnesota a couple years later. Now
    maybe that is a reason to pursue it, but----
        Mr. Casey. Minnesota is a pretty good State compared to
    Maine. Let me tell you about Maine.
        Senator Dayton. No, I will leave that one for----
        Senator Lautenberg. How many post offices do they have?
        Senator Dayton. More than Cape Cod.
        Mr. Miller, I was going through last night--I am going to
    go through the archives and get some of your articles here. You
    are a prolific writer. If the President's nominees for judges
    would have this kind of record we could confirm them directly.
    And your titles are intriguing too. One I see, independent
    agencies. Independent from whom? Based on what you are doing
    about the Postal Service, is the Postal Service independent of
    the Board of Governors and everything else? It seems to proceed
    on its own volition without any connection with anybody that I
    can tell.
        Mr. Miller. Of course it has a role. Certain things have to
    be appropriated for it. It has a set of rules from Congress.
    Its rates and services are, to some extent, regulated by the
    Postal Rate Commission. And it does have a Board of Governors.
    I view the Board of Governors very much the same as a board of
    directors of a company. So I would anticipate that the Board of
    Governors would give policy guidance to the Postal Service,
    would not micromanage the Postal Service but give policy
    guidance to the Postal Service and make the larger decisions
    about major investments, major proposals to change rates, major
    changes in services, and so forth.
        It is a hybrid. It is not a government agency in the
    ordinary sense, and it is not a commercial enterprise in the
    ordinary sense. It is something of a hybrid. That is the
    reason, frankly, it is useful to have people who, like Mr.
    Casey, have had the experience in government as well as in
    business these posts.
        Senator Dayton. I think your background qualifies you
    superbly well because it also needs to operate in a fiscally
    efficient manner. The last observation I would make, and if
    either one of you wants to respond please do. You mention the
    need to balance revenues with expenses. The ratemaking process
    I believe is 18 months or so. One of my concerns about
    government, is that we bury ourselves in process and it takes
    so long that they are always catching up. So I would just
    commend you, come back to us as a Board of Governors and the
    Postmaster General, tell us what we can do to take some of
    these shackles off and expedite these matters so it can
    operate, even as it is now, more efficiently than it does.
        Mr. Miller. Can I point out, I think you have hit a very
    important issue, and Al was raising it earlier as well. It
    seems to me that there is a substantial set of constraints that
    slow the process down. I think there are ways, perhaps, of
    cutting through it, and I think you may have to make some
    decisions on that as well. But I think there are ways of making
    sure the Postal Rate Commission gets information in a more
    timely fashion and that they make decisions faster. Frankly, I
    do not want to prejudge but I do get the impression that
    perhaps the postal board and the Postal Service are not as
    responsive to the Postal Rate Commission as they should be, and
    the Postal Rate Commissioners maybe drag their feet. There
    seems to be an adversarial relationship between the two, and
    maybe there is some way of overcoming that.
        Senator Dayton. Madam Chairman, my time is up and I have to
    leave to go on a conference call with all the postmasters of
    Minnesota. [Laughter.]
        As I say, I am happy to support both nominees. I think they
    are outstanding.
        I want to thank both of you for taking on this assignment.
    More power to you.
        Mr. Casey. Thank you very much. I appreciate it.
        Chairman Collins. Thank you for participation today.
    Senator Lautenberg.
        Senator Lautenberg. Thank you very much, Madam Chairman.
        I want to ask Mr. Miller about your early observations. We
    have met before in similarly hallowed halls and you talked
    about the Postal Service as a commercial enterprise. Does your
    experience or your commentary as written include an analysis--I
    have not read it--an analysis of what happens with those
    services that are rendered because it is a committment of our
    government. If you want to pick a place, the chairman of the
    Appropriations Committee, pick Alaska and see how difficult it
    is to service the mail up there. I would not want to be in the
    same room when you propose reducing or changing the service.
    Not to say that the Senator is not of balanced temperament. He
    is, but he also has considerable muscle and it makes a
    difference.
        I know a lot of people in the postal departments of our
    State and I find them diligent, and hard-working, and care
    about their jobs, and worried about their futures, worried
    about whether or not this government is going to be responsive
    to any--I say this government. I am not talking about George W.
    Bush's Administration. I am talking about the government
    generally, because this is not the only time when they have
    been challenged as to whether or not they were going to farm
    out the work that they are doing. If you are willing to pay the
    $9 or whatever it is for overnight mail, you can get pretty
    good service from a couple of people.
        I do not know whether the same conditions are available to
    the Post Office to compete like that. What do we do with the
    decline in traditional message sending as a result of E-mail
    and faxes and all kinds of other technology improvements that
    make it easier? We have this loyal group of workers, hard
    workers out there. When their job is described it is not an
    exaggeration, and they describe the conditions.
        So when I see us in the mood that we seem to be to go ahead
    and privatize, I worry about it. I wonder whether there is not
    some other way--Mr. Casey, you had some ideas there that I
    thought were fairly interesting. You have got revenue and
    expense, and we learned that in our business----
        Mr. Casey. I would like to submit them, and yes, we are
    losing to the E-mail. We are losing--first-class mail is
    dropping. But we are fighting the good fight and I think I
    would let others who knew more about it handle exactly what the
    programs are.
        Senator Lautenberg. What about the Postal Service having
    new opportunities? Is that part of the responsibility of the
    Board of Governors to look at----
        Mr. Casey. Sure, absolutely.
        Senator Lautenberg. Does it happen?
        Mr. Casey. They should force management to come forward
    with those ideas for them to pass favor on, or not favor them.
    But that is one of the demands that the governors must put on
    management of any corporation, but particularly the Post Office
    where it is atrophying right now. We have to have new products.
        Senator Lautenberg. The demands are still made there, and
    we all know that, for exceptional service whether it is a 6-day
    or what have you. I wonder whether there is a fair chance for
    those who are on the job now to be in a competitive spot with
    those others who are--and I have no problem with the Postal
    Service competing, whether it is FedEx or the others. They are
    a wonderful service and I think they have lifted the bar on
    service.
        But I think it is important that the Postal Service be
    given an opportunity to participate if we are going to have a
    department that in any way resembles the kinds of service that
    we presently render.
        Mr. Casey. You mentioned FedEx. We combine very strongly
    with FedEx. You have probably seen the FedEx boxes right
    outside all the post offices. Also, we do not have an airplane
    in the Post Office at all any more. All the line mail by
    airplane, is taken by FedEx except letter mail, which means
    under 16 ounces--if it is 16 ounces or more you can not fly it
    on a commercial aircraft. That is a handicap that is really
    hurting the airlines very badly. We would like a little more
    relief on that. That is only one pound and we are not allowed
    to put those in with the letter mail that go onto commercial
    carriers. They must go FedEx if they are going by air. Of
    course, going by truck they go contract carrier or----
        Senator Lautenberg. I will tell you what happens here, and
    I think everybody knows it, because of the terrorist threat
    that we experienced here--I was not here at the time, but with
    anthrax and so forth, it slows the process, it has duplication
    all over the place. The way a lot of people get around it, I
    know colleagues in the Senate who have mail sent to their homes
    so it does not have to go through the Washington process,
    whatever they do there, before it gets to you. It is an
    inhibitor for revenues from the Post Office.
        Madam Chairman, you have been very gracious in the
    allocation of time and I would just throw out one question. I
    will try to make it brief. That is, the overrage that is in the
    pension fund, it is substantial.
        Mr. Casey. Over $2 billion.
        Senator Lautenberg. The Committee voted to allow the Postal
    Service to reduce that excessive reserve. Now there are
    suggestions made all over the place that these available funds
    should be used for this or that. But we worry a lot around here
    about the Social Security funds and I think it would be a good
    place to put some of these reserves. It would help relieve the
    concerns that the fund will not be solvent at the time of need,
    and it is a substantial amount of money. What do you think
    about the funds being used in that manner?
        Mr. Miller. I have not looked at this issue closely. I
    understand there are some disagreements about it, and I
    understand that OMB basically suggested that the Postal Service
    absorb more than what some believe to be its fair share on an
    actuarial sound basis. I will look at the information and I
    will make an assessment of whether it is the appropriate
    contribution to make on an actuarially sound basis. If it is
    beyond that then I would be in favor of its----
        Senator Lautenberg. You have been hanging around the
    Chairman too long.
        Mr. Casey. I do not want any more studies. I really do not.
    I want the $2 billion returned to the Post Office. We spent the
    money. We gave it to you, and you took it away erroneously. It
    should be returned to the Post Office in the form of reduced
    contributions over the next couple of years. We are
    representing today--there will be no postal rate increase for 2
    years, providing the legislation passes.
        Mr. Miller. Could I just mention something, Senator? My
    understanding is that there are some estoppels on some capital
    expenses and things of this nature. My own personal view, and
    it is a view I had in government, is that these across-the-
    board rules, like freezes and things of that nature, I do not
    think they are appropriate for the Postal Service or for
    government either. So in terms of meeting, as Al pointing out,
    the bottom line, you have got to carefully tailor your
    solution. It does not seem to me that you just automatically
    exclude capital improvements, or labor contracts. You have to
    do it intelligently and in a more sophisticated way than that.
        Senator Lautenberg. Thank you very much, Madam Chairman. I
    thank my colleague also. You are looking at the only Democrat
    junior to me. I take advantage of that.
        Chairman Collins. Senator Pryor.

                   OPENING STATEMENT OF SENATOR PRYOR

        Senator Pryor. He does take advantage of it, every chance
    he gets.
        Let me ask you if I may, Mr. Casey, about--you mentioned
    the Cape Cod example. To what extent do you believe that local
    communities should have a say in it whether a post office is
    opened there, or closed there, or moved within the area? To
    what extent do you think the community should be involved in
    that decisionmaking?
        Mr. Casey. They should be involved from the beginning. But
    what the Post Office should do is develop rules, standards, and
    procedures for determining whether a particular post office
    should be closed and the community itself should participate in
    the evolvement of those rules and standards. There is no
    question about it. Our purpose is to serve the public.
        Senator Pryor. Now a few moments ago Mr. Miller mentioned
    that he, and you may have concurred in this as well, that he
    sees the postal governing body, is that the Board of Governors?
        Mr. Casey. Yes.
        Senator Pryor. As very similar to and working the same as a
    board of directors for a corporation. Are there any differences
    in the two in your mind?
        Mr. Casey. Not in my mind. I agree with him wholeheartedly.
        Senator Pryor. Totally the same, the board of directors?
        Mr. Casey. Absolutely they are the same.
        Senator Pryor. What about you, Mr. Miller, are there any
    differences in your mind?
        Mr. Miller. There is a different environment in which the
    Postal Service operates than an ordinary business firm, and
    board members take that into account. I think Mr. Casey would
    agree with that. But I think the role it plays is very much the
    same. You have different constituents in a sense because
    ordinarily board members of major corporations would not be
    spending as much time with you, your staff, and would not be
    spending time with significant other institutions like the
    Postal Rate Commission as we would expect to do on the Board of
    Governors of the Postal Service. But the principle that Mr.
    Casey was articulating is spot on.
        Mr. Casey. Whether you are in the airline business or any
    other business, you have government regulations, you have
    authorities, you have local commissions and so forth. None of
    us are free day. But I agree with Jim, this is a board of
    directors.
        Senator Pryor. Mr. Miller, in your analogy with the
    corporate world, if the corporation is the Postal Service and
    the Board of Governors is the board of directors, who are the
    shareholders?
        Mr. Miller. The American taxpayer.
        Mr. Casey. That is right.
        Senator Pryor. I think what you were referring to a moment
    ago, Mr. Miller, is that there is a different environment in
    which it operates in. I think that one thing that concerns
    members of the Senate--I have only been here 3 months but in my
    time here I have heard discussion of one thing that does
    concern members of the Senate, both Democrats and Republicans,
    is that if the Postal Service becomes too focused and too
    concentrated on a profit motive then service will naturally
    suffer in rural and more remote areas. We mentioned Alaska a
    few moments ago. You all mentioned some other towns in
    Minnesota and wherever. Every State, almost every State has
    some rural and harder-to-serve areas. I think the mission of
    the Postal Service traditionally has been universal service.
        I would like to hear your comments on, is that a valid
    mission? Should the mission of the Postal Service be a
    universal service?
        Mr. Miller. Let me say first, to the degree that you
    disagree with the bottom line should be covering cost, that is
    your responsibility because that is the law and you would have
    to change the law. We members of the board of the Postal
    Service are governed by the laws that affect and apply to the
    Postal Service. We could disagree, discuss that, but that is in
    fact a requirement that we must face and dutifully try to
    achieve, it seems to me.
        On the question of universal service, I think there should
    be universal postal service in the sense perhaps using a little
    ``p.'' That is to say that people ought not be isolated but
    have opportunities to communicate and to receive and to submit
    packages, etc. I think in terms of trying to meet some of these
    cost concerns, the Postal Service has to consider some
    alternatives. I do not know much about Cape Cod, but 57 post
    offices, that Mr. Casey was saying seems to me like probably
    too many, or that there should be some savings there. It might
    inconvenience someone.
        So the general proposition of universal service is one with
    which I concur. The devil is in the details of just how you
    apply it. But to the extent that there has to be some
    restraints or trade-offs of some sort because of a zero loss
    goal established by Congress, that is really your
    responsibility.
        Senator Pryor. Let me ask this. Is one of your trade-offs--
    --
        Mr. Casey. Give me equal time.
        Senator Pryor. Let me follow up with him because I am about
    to--I will be glad to give you plenty of time to answer.
        Is one of the trade-offs in your mind possibly different
    postal rates for rural and harder-to-serve areas or limited
    delivery schedules? In other words, in a rural area like we
    talked about a lot of them already this morning, I can
    understand how rural Americans would feel punished if they had
    to pay more and if their service was slower or less frequent.
    So I would like to hear your thought on that.
        Mr. Miller. Let me first say that an enterprise, a large
    enterprise such as the Postal Service, would probably be well-
    advised not to discriminate in that sense. Private enterprises
    usually do not discriminate in that sense even though they may
    know internally that there are big cost differences. FedEx and
    UPS do not discriminate in that same sense.
        But picking up on a question Senator Lautenberg had of
    Governor Casey on new services, I was asked this question in
    the set submitted to me, Madam Chairman, whether I agreed with
    the Postal Service's getting into new services. I think the
    Postal Service's thinking of and perhaps configuring new
    services within the Postal Service itself makes a lot of sense,
    within the delivery of mail.
        On the other hand, I would be opposed to the Postal
    Service's going beyond the delivery of mail in terms of
    services. If it wanted to open a McDonald's, I would be opposed
    to it. If it wanted to open some record club or such like, I
    would be opposed to it. Not to say that it would, but I do
    think that the basic principle is that the Postal Service is a
    very special organization. I believe its mission really is the
    delivery of mail. Things that are ancillary to the delivery of
    mail such as selling mugs and commemorative stamps and things
    of this sort are fine. But I do not think it ought to go beyond
    that. Just want to put that on the record.
        Mr. Casey. I would just like to say, the Post Office is
    doing a great deal of adjustment today. We have many of our
    customers and so forth that get 2- and 3-day delivery. In Sun
    Spot, Arizona the Post Office is only open from noon until 3
    p.m. We get all kinds of things.
        You go into a rural area and you make them put all their
    postal boxes on one side of the road so the delivery man does
    not have to go back and forth. You could use cluster boxes. The
    Post Office is working at this. As I said earlier, the Postal
    Rate Commission made its study of the universality of service
    and what expenses they would be relieved of if they were
    relieved of the universality and it is $3 billion, $3 billion
    out of $60 billion. I am not sure--I would like to do it, but
    we can keep up the universality of service.
        Senator Pryor. Thank you.
        Chairman Collins. Thank you, Senator Pryor. Senator Carper.
        Senator Carper. Just one more quick question before we all
    head back to the salt mines. I am struck by how cumbersome it
    is for the Postal Service to adjust its rates, and to be able
    to provide discounts to certain customers. I would just ask
    each of you to share with us your thoughts about how we might
    change that to give the Postal Service the ability to price
    their products more as a private sector company would.
        Mr. Miller. Senator, we did talk briefly about this when
    you were out of the room, but I would just say that it seems
    that it is appropriate for the Postal Rate Commission to be
    somewhat adversarial to the Postal Service. It is the
    regulator, after all. But there does seem to me to be an undue
    amount of adversarial relationship between the two, and that
    slows things down. I think that some changes are due--it may
    even take some legislation by you. I do not know. I will have
    to look at that and I will give you my recommendations. But
    some freeing up of the system I think is in order; some more
    flexibility is in order.
        I would still say that it is important that the rate
    structure be nondiscriminatory and it not be gouging in the
    conventional way of thinking of that term, since the Postal
    Service still has a monopoly on the delivery of first-class
    mail. So I think there are some important goals for the Postal
    Service and for the Postal Rate Commission to pursue in
    maintaining that kind of rate structure. Governor Casey can, I
    am sure, regale us with case after case about how difficult it
    is for this organization, commercial enterprise, to respond
    quickly as opposed to how a commercial organization can respond
    to changing demands, costs, and consumer preferences.
        Senator Carper. I will not ask you for a case by case but
    just a quick thought on this subject, please.
        Mr. Casey. Jim Miller is absolutely right. For today's
    electronic calculation and gathering of data and so forth,
    there is no excuse for having 18 months--if you have an 18-
    month horizon, you have got to have a lot of projections in
    there. Look at the economy today. Nobody projected that it was
    going to go the way it has--so there are things that can be
    done and should be done.
        I am not sure they are so terribly adversarial. They are
    good people at the Postal Rate Commission. Their study on the
    universality of service I think was excellently done. And they
    are committed people. I enjoy them. We had lunch with them all
    yesterday. They are very nice people. I dislike the 18-month
    delay in approving rates.
        Mr. Miller. I do not think, it is a people problem so much
    as it is an institutional and procedural problem that needs to
    be solved.
        Senator Carper. Thank you very much, Madam Chairman.
        Chairman Collins. Thank you, Senator Carper. Any time you
    want to act as the Ranking Member I am sure we would welcome
    that----
        Senator Carper. Thank you.
        Chairman Collins [continuing]. As much as we miss Senator
    Lieberman today.
        I want to thank Mr. Casey and Mr. Miller for appearing
    before the Committee today. I also want to very sincerely thank
    you for your willingness to serve. Both of you have numerous
    demands on your time and are avidly sought after for your
    experience and your ability, and I personally appreciate your
    willingness and your continued commitment to public service.
        Mr. Casey. Thank you very much for your kind words, and to
    all the Senators and the staff.
        Mr. Miller. Thank you, Senator.
        Chairman Collins. Without objection, the hearing record
    will remain open till 5 p.m. today for the submission of any
    additional questions. If there are any, we will get them to you
    very quickly, or any statements for the record. We will submit
    Mr. Miller's statement in the record without objection.
        This hearing is now adjourned.
        [Whereupon, at 12:13 p.m., the Committee was adjourned.]

                                A P P E N D I X

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