[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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                   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.]


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