[Senate Hearing 108-213]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-213

 U.S. POSTAL SERVICE: WHAT CAN BE DONE TO ENSURE ITS FUTURE VIABILITY?

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

                                HEARING

                               before the

                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 17, 2003

                               __________

      Printed for the use of the Committee on Governmental Affairs



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                            WASHINGTON : 2003
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                   COMMITTEE ON GOVERNMENTAL AFFAIRS

                   SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska                  JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio            CARL LEVIN, Michigan
NORM COLEMAN, Minnesota              DANIEL K. AKAKA, Hawaii
ARLEN SPECTER, Pennsylvania          RICHARD J. DURBIN, Illinois
ROBERT F. BENNETT, Utah              THOMAS R. CARPER, Delaware
PETER G. FITZGERALD, Illinois        MARK DAYTON, Minnesota
JOHN E. SUNUNU, New Hampshire        FRANK LAUTENBERG, New Jersey
RICHARD C. SHELBY, Alabama           MARK PRYOR, Arkansas

           Michael D. Bopp, Staff Director and Chief Counsel
                  Ann C. Fisher, Deputy Staff Director
   Joyce A. Rechtschaffen, Minority Staff Director and Chief Counsel
                   Susan E. Propper, Minority Counsel
                      Amy B. Newhouse, Chief Clerk


                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Collins..............................................     1
    Senator Lautenberg...........................................     4
    Senator Durbin...............................................     5
    Senator Dayton...............................................     6
    Senator Carper...............................................    14
    Senator Akaka................................................    17
    Senator Fitzgerald...........................................    18
    Senator Pryor................................................    27
Prepared statements:
    Senator Coleman..............................................    39
    Senator Lieberman............................................    39
    Senator Stevens..............................................    41

                                WITNESS
                     Wednesday, September 17, 2003

James A. Johnson, Co-Chair, Presidential Commission on the U.S. 
  Postal Service, and Vice Chairman, Perseus, LLC
    Testimony....................................................     6
    Prepared Statement...........................................    42

                                Appendix

Questions and Responses for the Record for Mr. Johnson from:
    Senator Collins..............................................    58
    Senator Carper...............................................    65
    Senator Stevens..............................................    69

 
 U.S. POSTAL SERVICE: WHAT CAN BE DONE TO ENSURE ITS FUTURE VIABILITY?

                              ----------                              


                     WEDNESDAY, SEPTEMBER 17, 2003

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

             OPENING STATEMENT OF CHAIRMAN COLLINS

    Chairman Collins. The Committee will come to order.
    This past December, President Bush announced the creation 
of a bipartisan Commission charged with identifying the 
operational, structural, and financial challenges facing the 
U.S. Postal Service. The President charged this Commission with 
examining all significant aspects of the Postal Service with 
the goal of recommending legislative and administrative reforms 
to ensure its long-term viability.
    Harry Pearce, the chairman of Hughes Electronics 
Corporation, and James Johnson, the vice chairman of Perseus, 
LLC, were appointed by the President to serve as the 
Commission's co-chairmen. I very much welcome Mr. Johnson here 
today, and I regret to announce that due to illness, Mr. Pearce 
is unable to join us here today as planned. He was an 
invaluable participant in the development of the Commission's 
final report, and I sincerely regret that illness prevents him 
from joining us today. I wish him, and I know that Mr. Johnson 
joins me in wishing him a speedy recovery.
    Mr. Johnson, I want to begin this morning by thanking you 
for your tremendous effort in putting together a highly 
comprehensive report on an extremely complex issue. In a 
limited amount of time, you and Mr. Pearce conducted seven 
public hearings across the country and heard from countless 
witnesses.
    On July 31, the Commission released its final report, 
making 35 legislative and administrative recommendations for 
the reform of the Postal Service. You and the eight other 
members of the Commission committed yourselves fully to a 
daunting task, and I want to congratulate you on your fine 
work.
    As I read through the Commission's report, I was struck by 
what I considered to be the Commission's wakeup call to 
Congress, your statement that ``An incremental approach to 
Postal Service reform will yield too little too late given the 
enterprise's bleak fiscal outlook, the depth of the current 
debt and unfunded obligations, the downward trend in First-
Class mail volumes, and the limited potential of its Legacy 
Postal Network that was built for a bygone era.''
    That is a very strong statement and one that challenges 
both the Postal Service and Congress to embrace far-reaching 
reforms.
    To the relief of many, myself included, the Commission did 
not recommend privatization of the Postal Service. Instead, the 
Commission worked toward finding a way for the Postal Service 
to do, as Mr. Johnson described it to me, ``an overwhelmingly 
better job under the same general structure.''
    The Commission's recommendations are designed to help the 
225-year-old Postal Service remain viable through at least the 
next two decades.
    The financial and operational problems confronting the 
Postal Service are serious indeed. At present, the Postal 
Service is paying down $6.5 billion in debt to the U.S. 
Treasury, and its long-term liabilities are enormous, to the 
tune of nearly $6 billion for workers' compensation claims, $5 
billion for retirement costs, and perhaps as much as $45 
billion to cover retiree health care costs.
    In an unexpected turn of events last year, the Office of 
Personnel Management discovered that if postal payments into 
the Civil Service Retirement System fund were to continue on 
the basis required under existing law, the Postal Service would 
overfund its estimated liability by approximately $71 billion 
over a period of 60 years. To correct this overfunding problem, 
Senator Carper and I introduced bipartisan legislation in 
February. It was enacted and signed into law this past April, 
and thus, the result is that the Postal Service has been able 
to delay its next rate increase until 2006 and has been able to 
pay down more aggressively the billions of dollars in debt owed 
to the U.S. Treasury.
    Despite this reprieve, however, many challenges remain. It 
is important to understand the impact of the Postal Service on 
our economy. The Postal Service itself employs more than 
750,000 career employees. Less well-known is the fact that it 
is also the linchpin of a $900 billion mailing industry that 
employs 9 million Americans in fields as diverse as direct 
mailing, printing, catalog production, and paper manufacturing.
    The health of the Postal Service is essential to the 
vitality and the economic viability of thousands of companies 
and the millions of Americans that they employ. One of the 
greatest challenges for the Postal Service is the decrease in 
mail volume as business communications, bills and payments move 
more and more to the internet. The Postal Service has faced 
declining volumes of First-Class mail for the past 4 years. 
This is highly significant given that First-Class mail accounts 
for 48 percent of total mail volume, and the revenue it 
generates pays for more than two-thirds of the Postal Service's 
institutional costs.
    The Postal Service also faces the difficult task of trying 
to cut costs from its nationwide infrastructure and 
transportation network. These costs are difficult to reduce. 
Even though mail volumes may be decreasing, carriers must still 
deliver 6 days a week to more than 139 million addresses even 
if they are delivering fewer letters.
    Despite much discussion about reforming the Postal Service 
and previous attempts by some of our colleagues in the House of 
Representatives to do so, the diverse views of what shape 
postal reform should take, if any, have only led to stalemates 
in the past. To take a fresh look at these issues, last July, I 
introduced a bill to establish a Presidential Postal Commission 
charged with examining the problems the Postal Service faces 
and developing specific recommendations and legislative 
proposals that Congress and the Postal Service could implement.
    You can imagine my pleasure that the President moved ahead 
with just such a Commission, and today we are hearing the 
results of those efforts. In many ways, the work of the 
Commission builds upon work already started by the Postal 
Service. At the request of the Senate, Postmaster General Jack 
Potter delivered to Congress in April of last year a 
comprehensive Transformation Plan designed to ensure the 
continuation of affordable universal service and to prepare the 
organization for the challenges of change in a dynamic 
marketplace.
    The Postal Service has determined what changes could be 
made within existing constraints that would result in improved 
operations, performance and finances. The Transformation Plan 
has been widely recognized as a good first step, but that is 
exactly what it is--a first step. Without legislation, many of 
the necessary reforms highlighted in the Commission's report 
simply will not happen.
    In closing, I would like to say that as a Senator 
representing a large rural State, I greatly appreciate the 
Commission's strong endorsement of the basic features of 
universal service--affordable rates, frequent delivery, and 
convenient community access to retail postal services.
    It is important to me that my constituents, whether they 
are living in the far reaches of Northern Maine or out on an 
island or in our many rural small towns, have the same access 
to the Postal Service as the people of our large cities. If the 
Postal Service were to no longer provide universal service and 
deliver mail to every customer, the affordable communications 
link upon which many Americans rely would be jeopardized. Most 
commercial enterprises would find it uneconomical if not 
impossible to deliver mail and packages to rural Americans at 
the rates that the Postal Service has been offering.
    The preservation of universal service and many more issues 
must be examined in depth if we are to save and strengthen this 
vital service upon which so many Americans rely for 
communication and for their jobs. The Postal Service has 
reached a critical juncture. It is time for a thorough 
evaluation of the Service's operations and requirements. It is 
time for action.
    This will be the first in a series of hearings that the 
Committee will hold to examine these important issues.
    Again, I want to commend the Commission for preparing this 
important report. We look forward to hearing your testimony, 
Mr. Johnson, and discussing with you the rationale behind some 
of the recommendations and what you recommend as the next steps 
in the effort to reform and preserve the Postal Service.
    Senator Lautenberg.

            OPENING STATEMENT OF SENATOR LAUTENBERG

    Senator Lautenberg. Thank you, Madam Chairman, and welcome, 
Jim Johnson.
    I have known Mr. Johnson for a long time, and when I see 
him, I am not sure whether he is representing the cultural 
concerns of the community, the banking concerns of the 
community, or, in old days, the political concerns, but I think 
he has put those aside for better pursuits. We always know that 
where Jim Johnson lends a hand, things usually come out very 
well. I will have to reserve a little judgment until I have a 
chance to study the proposal a little bit longer, but I am 
certainly glad to see you here, Jim.
    Postal reform is an incredibly important national issue, 
and most Americans do not spend a lot of time thinking about it 
until the mail is not there in the time frame that they expect, 
or there is a request or suggestion that maybe Saturday mail be 
eliminated or curtailment of service in any way, because 
although it is costly and at times cumbersome, the fact is we 
love it, and we like what the Postal Service represents.
    There are a couple of things that have to be of concern as 
we look at reform. One is to be able to guarantee that the 
basic service is available and at the same time, that the 
staff, the loyal employees of the Postal Service, have their 
rights protected. If change is to be made, they have to be 
consulted, and we have to respect their views and ideas. It 
does not mean that we are going to agree with every one of 
them, but certainly we want to hear what they have to say.
    The importance of the U.S. Postal Service to our national 
economy cannot be overstated. An example is that a 2-year delay 
in postal rate increases has the potential to save publication 
companies like AOL-Time Warner--I guess it is now just Time 
Warner--approximately $200 million in mailing costs. Last year 
alone, the U.S. Postal Service delivered more than 200 billion 
pieces of mail. So the important role that the Postal Service 
plays in our economy and the contribution of its 843,000 
dedicated employees, as I said earlier, cannot be overlooked or 
taken for granted.
    Having said that, this is indeed a time of great change for 
the Postal Service. Things that are not directly related to the 
performance of the Postal Service's duties, but are rather 
technology changes, have had a vast impact. As the President's 
Commission has observed, traditional mail streams will likely 
continue to migrate to cheaper, internet-based alternatives. 
And given the existing regulatory structure, the Postal Service 
debt is likely to increase every year, making it tougher for 
the Postal Service to achieve its fundamental mission of 
universal service.
    I support the Commission's recommendation to make the rate-
setting process less cumbersome and more efficient, but I want 
to take a second look at the Commission's labor reform 
proposals--at one of them. As a former businessman, I 
understand the need to make the work force as lean and 
efficient as possible, but restricting employees' collective 
bargaining rights, privatizing jobs, and increasing executive 
compensation, will not solve all of the Postal Service's 
organizational and workplace problems nor improve employee 
morale or efficiency. And I would hope that I could be found to 
improve the process, the collective bargaining process but, as 
I said in my opening comment, encouraging the views and the 
ideas of the people who are on the front line performing; they 
have the best knowledge bank of all.
    So I look forward, Madam Chairman, to hearing from Mr. 
Johnson and to try to resolve in whatever way we can some of 
the tension that exists there but at the same time to make 
certain that the people in this country know that the Postal 
Service is going to be there to provide them with the service 
they need.
    Chairman Collins. Thank you, Senator Lautenberg.
    Senator Durbin.

              OPENING STATEMENT OF SENATOR DURBIN

    Senator Durbin. Thank you very much, Madam Chairman, and 
thank you for this hearing.
    Jim Johnson, thank you for your public service. You 
continue to add to our country with everything that you have 
volunteered to step forward to do, and this is no exception.
    I, for one, believe that we should start this hearing 
keeping two things in mind which I think your Commission began 
with. First, our commitment to universal mail service. It 
distinguishes the United States as a Nation, and I think it is 
something that we need to preserve and work hard to make 
certain that in the 21st Century, it meets modern standards.
    I was encouraged by your recognition of what the Internet 
and email have done to mail volume and what they are likely to 
do in the future. I think that addressing that head-on is 
honest and is an indispensable part of a realistic evaluation 
of the future of the Postal Service, and I thank you for that.
    Second, I want to commend my colleagues and the good work 
of our fellow Senator, George Voinovich of Ohio, who has since 
he has come to this Committee really focused on an element that 
is essential to quality service in the Federal Government. He 
has focused on the people of the Federal Government. Beyond the 
obvious box charts and good thoughts that we might have about 
organization and structure, in the final analysis, the success 
of every agency of the Federal Government, from our great 
military to the men and women who serve in so many different 
agencies, depends on their skills and their morale and their 
commitment to excellence. And I think that as we talk about the 
future of the Postal Service, we should never discount that. So 
long as we have excellent men and women serving our country in 
the Postal Service, I think we have the greatest potential to 
develop it into the 21st Century in a fashion that is 
essential.
    I want to echo what Senator Lautenberg has said. Many of 
the workers of the Postal Service look at this report with a 
lot of concern as to whether or not it is going to recognize 
them as individuals, is going to give them the kind of dignity 
that they deserve in the workplace. And I hope that we can find 
the right balance. We have to say to them that as a team 
approach, we need to find better ways to reach excellence in 
performance, and we need to do it recognizing your worth as an 
individual and your importance to a team effort.
    I think we also have to say to those who are critics of the 
Postal Service--and there are many out there, from late night 
talk shows to people on Capitol Hill--that if they can find 
another place in the world where, for 37 cents, you can get a 
letter delivered 2,000 miles away within a few days, please 
tell me where that is. I just do not think that is something we 
should ever take for granted, and I hope that becomes the 
bottom line of our conversation here.
    Thank you very much.
    Chairman Collins. Senator Dayton.

              OPENING STATEMENT OF SENATOR DAYTON

    Senator Dayton. I think that is true everywhere in America 
except for the mail that comes to the Capitol.
    Senator Durbin. That is true.
    Senator Dayton. Madam Chairman, I want to commend you for 
taking on this subject. After grappling with the Department of 
Defense, I am glad you picked something simple like the Postal 
Service. Most people would not take on both of those in a 
lifetime much less in the same year. So thank you very much for 
your leadership on these and other issues.
    One reason I am in the U.S. Senate from Minnesota is 
because Mr. Johnson decided to stay in Washington rather than 
go back and run for political office in his home State of 
Minnesota. Anybody with a name that ends in ``-son'' in 
Minnesota has a natural advantage of about a quarter million 
votes. But he found opportunities to make even more 
distinguished service and contributions to our country in 
Washington. He is a proud native son of Minnesota, and we are 
proud to have him as a native son, and I look forward to his 
remarks.
    Chairman Collins. Thank you.
    I am now pleased to introduce our witness who clearly is 
well-known to those on the Democratic side of the aisle on this 
Committee--James Johnson, who is vice chairman of Perseus, a 
merchant banking and private equity firm here in Washington.
    He is well-known not only for his political work but for 
his 10 years at Fannie Mae, having served as vice chairman, 
chairman, and CEO and as chairman of the Executive Committee. 
Prior to joining Fannie Mae, Mr. Johnson served as president of 
Public Strategies, a Washington-based consulting firm which 
advised corporations on strategic issues. He has also served as 
an executive assistant to former Vice President Walter Mondale, 
another Minnesota connection, and is the recipient of numerous 
awards and degrees.
    Again, we are very pleased to have you here today, and I 
want to thank you on behalf of all my colleagues for your very 
diligent and impressive work in producing this comprehensive 
report.
    We look forward to hearing from you. Take as much time as 
you need for your statement.

   TESTIMONY OF JAMES A. JOHNSON,\1\ CO-CHAIR, PRESIDENTIAL 
   COMMISSION ON THE U.S. POSTAL SERVICE, AND VICE CHAIRMAN, 
                          PERSEUS, LLC

    Mr. Johnson. Thank you very much, Madam Chairman.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Johnson appears in the Appendix 
on page 42.
---------------------------------------------------------------------------
    I want to compliment you for the extraordinary intelligence 
and discipline with which you have approached this issue. You 
have become a real leader in this area, and I have no doubt 
that by virtue of you chairing this Committee, the end result 
of these recommendations and the reform effort will be 
substantially better.
    To my friends, colleagues, long-time associates, thank you 
so much for your opening remarks. I am delighted that each of 
you are here, and I understand and embrace the spirit of your 
opening remarks. I would like to address many of those concerns 
as directly as possible.
    What I am going to do is not read back through the 
testimony which we presented but rather just highlight a few of 
the recommendations, Madam Chairman, that we think are most 
significant and also try to give a little background to our 
thinking as a Commission.
    I should say that the Commission staff did an excellent 
job. Dennis Shea is here this morning and other members of the 
staff are also here. They did a wonderful job. I also think 
that the eight other members of the Commission deserve a real 
public thank you. These are people who gave hundreds and 
hundreds of hours. All of us came to this very complex 
challenge with no real background in postal issues. A lot of us 
had substantial background in large organizations, in corporate 
issues of various kinds and thinking through logistics 
businesses or service businesses, but we were new to this 
issue. I think all of the people sitting behind me in this room 
certainly knew more when I began and probably know more today. 
But we did make a very substantial, honest effort to take a 
look at these complex issues and offer you our best thoughts.
    We do not consider ourselves to have the last word or the 
final word on any of these issues. We have a perspective which 
is informed by our role in the business world largely, some 
small business, some large business, some in the public policy 
world, so we welcome the dialogue. We were not writing 
legislation; we were writing perspective, and the perspectives 
that we gave are an honest effort by all of us to keep the 
focus on reform, keep the focus on a better Postal Service, and 
to keep appropriate focus on everyone who contributes to that. 
I am very grateful to you for leading this effort in the 
Senate.
    Let me just give a little bit of context at the beginning. 
As you and your colleagues have pointed out, this is tricky 
business. What we have here is a very large enterprise which is 
designed to break even, to deliver hundreds of billions of 
pieces of mail, to not have excessive costs to the ratepayers, 
to have universal service, and above all to not be a threat 
ultimately to the taxpayer.
    We are trying to balance a lot of things at once and do it 
in a very complex organization.
    The very first conclusion that the Commission came to is 
that the work of the Congress more than 30 years ago was very 
good work. In fact, this basic construct was a very sound basic 
construct and we should not be looking at radical privatization 
alternatives, we should not be looking at ways of subsidizing 
this in tax dollars. But we should find a way if we possibly 
can to make the most efficient, most effective postal system 
that could stand on its own two feet, that could break even 
over time, that could manage its responsibilities and its 
obligations along with the rate-setting process so that it 
would have adequate revenues, adequate growth, more than 
adequate service, and in the end be an institution that all 
Americans can respect and value.
    As part of our effort, we did an opinion survey. Peter Hart 
from The Wall Street Journal and Linda Duval led the effort, 
one traditionally on the Republican side, one traditionally on 
the Democratic side. What we found is that the Postal Service 
is among the very most respected institutions in America. This 
is not a broken institution. This is a strong and respected 
institution. And it is very important that everybody keep in 
mind that Americans all over this country very highly value the 
services they receive and have great respect for the people who 
deliver those services.
    That was the broad context in which we began. We felt that 
as part of the future prospects, one of the things that we 
should focus on is making those services of the postal system 
even more easily available. We have a number of recommendations 
about how to extend the service, how to extend through retail 
outlets, more accessibility, how to get more service within 
easy reach of more people on a regular basis. And you will see 
in the report that that is a big part of our thinking.
    We were also concerned about organizational effectiveness 
in terms of the focus of the organization. So many 
organizations that have failed in America in the last 20 
years--Senator Lautenberg certainly knows about this from his 
corporate background--have failed because they have not kept 
the focus on their core mission; they have gotten involved in 
things that were not things they knew how to do.
    Therefore one of the core recommendations here is stick to 
your knitting. Do what you are supposed to be doing. Do not be 
looking for other ways of expanding into businesses where you 
do not have expertise, where you do not have a clear 
preparation and a clear background.
    The second recommendation in the mission and governance 
area--and this is also something that Members of the Committee 
I think will relate to very strongly--is that we all felt that 
there should be the best of corporate governance put in place. 
As part of that best of corporate governance, our strong belief 
was that we should now take advantage of the benchmarking that 
is going on among large organizations and put in place the 
characteristics of the most effective boards of directors in 
America today. We reached out to the Conference Board and to a 
lot of academic institutions, a lot of other institutions that 
are focusing on governance in a corporate setting, and made a 
set of recommendations for a new board of directors for the 
Postal Service, which we think are a sound set of 
recommendations.
    We were also very much aware of the fact that there are 
many public mission responsibilities for the Postal Service. It 
is supposed to operate in a businesslike manner, but it is not 
supposed to be a business that operates without the public 
sector and public mission very much in mind.
    We tried to craft a new regulatory approach with the postal 
regulator, with some broad authority for review but also very 
broad instructions not to be involved in trying to micromanage 
this large enterprise. Whether we got this exactly right or 
not, once again, is part of the dialogue of the next several 
months and longer.
    We said if there are major changes in universal service, 
really major, that should be a subject reviewed by the postal 
regulator. We said if there were extensions of monopoly 
activities, that should be reviewed by the postal regulator.
    We recommended setting up a new rate mechanism, trying to 
figure out a way to have a much speedier, much more efficient, 
but also fair rate-setting mechanism so that you wouldn't have 
this extended 18-month process which is currently part of the 
Postal Rate Commission structure. That is something that is 
going to require a lot of work to get it right. We think we 
have made some very useful suggestions, and as you think about 
legislation, obviously, you will have to decide whether or not 
we have gotten most of the dimensions right or not.
    We were also focused very strongly on the overall 
effectiveness of the postal system--the delivery system, the 
processing system--so that the enormous strides that have been 
made in corporate America in the last 20 years could be put in 
place within the context of the business efficiency and 
logistics requirements of the postal system. Many businesses in 
America today are operating dramatically more efficiently than 
before, with better technology, more modern organization, 
better assessment of the performance characteristics of all of 
the elements.
    Today, gentlemen, Madam Chairman, there are 446 postal 
facilities for processing, distribution, and bulk mail. We had 
a very substantial dialogue with the Postmaster General, Mr. 
Potter, and others about what would be the right sizing of the 
system--how many facilities there should be; how they should be 
integrated into a comprehensive network as opposed to 
facilities that were built at different times with different 
methodologies, with different characteristics, with different 
efficiencies. We came up with an idea which is not original--
and I know that Senator Carper and others have expressed a lot 
of interest in this. After a lot of study of what happened with 
the Base Closing Commission we have created something that we 
chose to call the Postal Network Optimization Commission. This 
Commission would take recommendations from the Postmaster 
General, have an obligation to talk about them very broadly 
with all concerned parties, including the communities that 
would be affected, and come back with a proposal for a network 
modernization which we believe, the Postmaster General 
believes, virtually everybody who testified before our 
Commission believes, would yield a smaller number of 
facilities. I do not want in any way to try to say that is not 
the implication of this Commission. This is a Commission which 
says in its formation that we believe there are more facilities 
than are required for efficient performance, and we believe 
that some of them should be redesigned, many of them should be 
reconnected with each other in a smarter, more effective way, 
and that some of them should be closed.
    I think we have provided a mechanism for an enormous amount 
of public input; we have provided a mechanism for congressional 
review; we have provided a mechanism for the Postal Service to 
take the lead, and I think that is a promising recommendation.
    We also spent a lot of time talking about the enormous real 
estate assets of the Postal Service. There are, as you know, 
38,000 postal facilities--not all of them look like what you 
expect when you see a photo. Some of them are contract 
facilities; not all of them are large, not all of them have 
conceivable alternative uses. But we felt that with that 
enormous real estate holding, $15 billion in book value, very 
substantially more than that in all likelihood in market value, 
that we should be looking for ways to limit the overall cost of 
the leasing, the overall cost of the real estate owned, look 
for an active management of those real estate assets, so that 
as we are pressed to keep rates as low as we can and as we are 
pressed to keep this as a viable enterprise, we do not have 
substantial assets which are being underutilized.
    We also placed an emphasis on a lot of cost-saving 
mechanisms through work-sharing discounts, through outsourcing 
of postal function. Let me stop for just a moment on the 
outsourcing concept. This is something which I know has become 
extraordinarily controversial, something that people have 
talked about at great length.
    The Commission discussed this at great length, and today 
there are already between $10 and $20 billion of cooperative 
efforts between the private sector and the Postal Service. This 
is probably the leader--it is the leader, I am sure--of all 
public entities in terms of joint public-private partnership 
and cooperation and the intertwining of what is being provided 
by the government and by the private sector.
    We reviewed this. Some on the Commission were extremely 
aggressive about the potential of this. In the end, I and a 
couple of other Commission members said let us be absolutely 
clear here, and what guides us through all of this activity is 
best execution. We do not have an ideological preference of 
some kind here that we are putting on the table. What we are 
saying is that at every step of the way, best execution is the 
measure. If the best execution is a public execution through 
the postal employees who are in place today, then that is 
absolutely what should be done. If the best execution happens 
to be through a contracting mechanism where we can lower the 
cost and get greater efficiency and reliability, then we go in 
that direction. But this is not intended to be a wholesale 
reorientation. This is intended, as so many of our other 
recommendations, to be focused primarily on best execution. 
What would the best practices in corporate America tell us 
today about the lowest-cost, most efficient, most reliable 
execution for all of these functions that we are talking about?
    We also talked frankly about ways of enhancing the value of 
the Postal Service as it is designed today. As Senator 
Lautenberg pointed out, this is a huge enterprise and, as you 
pointed out in your opening remarks, $900 billion of activity 
in the United States economy. This Postal Service is a very 
valuable national asset and we should be thinking about how not 
only can we make it run efficiently as it might be threatened 
by electronic activities, but within the core of its mission. 
We should be thinking about ways in which it can be even more 
economically important, where it can be even more socially 
important, where it can interconnect our people even more 
effectively.
    We also had a growth orientation to this service function 
as well as making sure that we were always focused on best 
execution.
    In the financial areas the Commission more than anything 
else, embraced transparency. We believe that everything about 
this public enterprise should be transparent. We also had a 
dialogue with the SEC to talk about the best standards of 
transparency, reporting and visibility of financial reality 
that flows through their processes.
    We think the Postal Service should report quarterly the way 
major companies in America report quarterly to the SEC, meeting 
the highest standard of transparency.
    We also believe as we change this rate-setting mechanism, 
if we do, that we should be very much focused on an ongoing 
transparency about the allocation of costs within the Postal 
Service, that the form, content, and timing requirements of 
mail products and services should be clear for all to see how 
the Postal Service views this, how they allocate the costs. We 
all felt that the cost allocation in the present formulas was 
inadequate. We had some testimony on that point saying that it 
should go up to a dramatically higher level than it is today. 
Not all of us were of the view that that was possible, but 
higher than today in terms of the allocation of costs of the 
various products and services.
    Let me now talk about the more controversial piece of what 
the nine commissioners came to consensus on having to do with 
the work force--and I want to be very frank here and obviously 
will take whatever questions anybody has.
    We believe, the Postmaster General believes, and a number 
of other people believe that there are probably more employees 
today in the Postal Service as a whole than are required in the 
most efficient organization that could be put together. Many of 
the employees are eligible for retirement within a short time 
frame. Our belief is that one of the core responsibilities of 
the newly-constituted board of directors is to have a 
comprehensive human resources plan, not unlike any other major 
corporation in America. As you look at the work to be done, as 
you look at the challenges that you face, we believe that the 
board of directors should have a point of view about the 
optimum size of the work force, and with the retirements that 
are already expected, we believe that this can be done in the 
context of attrition. But we do not believe, with 76 percent of 
the overall expenses of the Postal Service, that this is 
something that should be ignored. It will be difficult. I 
believe the consultation that Senator Lautenberg talked about 
and I know others feel strongly about is essential to this. It 
cannot be done without full cooperation between management and 
the unionized labor force of the postal system. In the end, 
others may have a different point of view. But we nine 
citizens, in looking at this, came to believe that with the 
best technology, the best execution, the best rationalization, 
the best consideration of what was state of the art in terms of 
processing, distribution and all the other bulk challenges of 
the Postal Service, that with proper investment in technology, 
with proper orientation to capital investment over time, the 
postal work force would shrink. So we put that on the table. We 
do not know how much, we do not know over what period of time, 
but we believe that with that being 76 percent of the cost that 
you cannot do a credible report without saying that this is a 
core responsibility to right-size the work force. So we said 
it.
    Let me make another point--and this too is very 
controversial--on pay-for-performance. We had endless 
conversations within the Commission about what was the nature 
of financial incentive that should be part of a structure that 
is seeking to get to the highest level of performance. And we 
came up with a number of ideas. We had a lot of help from 
outside consultants. Let me just start with the bottom line, 
and that is that the Commission members unanimously believe 
that an appropriate, disclosed, broad-based reward for superior 
performance should be part of the incentive structure for the 
Postal Service.
    Many of the unionized representatives, or representatives 
of the unionized workers, did not think that was the right way 
to proceed. We listened to them in a variety of different 
contexts, publicly and privately. There is no doubt that there 
are issues in this area. We had an outside consultant talk to 
us about major companies with unionized work forces that did 
have pay-for-performance systems that they believed worked 
well. But this is not cookie-cutter business. This is something 
that would have to be shaped very carefully. We would have to 
make sure that none of those dimensions of favoritism and 
disruption of the work force that the labor representatives 
talked about came into play. But as a matter of conviction, all 
of the nine members of the Commission said we believe over time 
that we will have higher performance if we tie performance to 
superior work contribution. It is controversial, but it is 
something that we attacked and thought about.
    The next thing in the work force area is something that 
really flows directly from Capitol Hill, and this is something 
we also spent an enormous amount of time on, and that is pay 
comparability. When the Act was passed more than 30 years ago, 
it became the law of the land that there should be 
comparability between the people in the postal work force and 
people in comparable jobs in the private sector. That was 
principally motivated at the time because there was a feeling 
that there was inadequate compensation in the Postal Service, 
that they were not in fact meeting the standard of 
comparability to the private sector.
    We heard a great deal of testimony from people now saying 
that in their opinion, there was a premium on compensation in 
the Postal Service to comparable jobs in the private sector. We 
never came to a conclusion on that. The Commission does not 
have a point of view on that. There are individual members of 
the Commission who have a point of view, but one of the things 
that we worked through was not to have an opinion on pay 
comparability but to say this is the law of the land, this is 
what the Congress has so clearly stated, and we should 
recommend a mechanism to review whether or not in fact the law 
is being complied with.
    Now, obviously, at any time you want to change the law with 
the cooperation of your people in the House, you can change 
that law any way you want. We didn't know how to have a 
comprehensive report without addressing the issue of 
comparability. What we said was that there should be a thorough 
examination of this, that there should be a review of the most 
appropriate comparisons, and then there should be mechanisms 
put in place to assure that if it were not comparable, that 
with new employees hired, there should be a requirement that it 
be comparable. Once again, very controversial and something 
that no doubt you will discuss at great length.
    One of the things to keep in mind about all of the things 
that we said in the work force area is that none of the things 
that we recommended should be retrospective; nothing should 
affect current retirees, nothing should affect current 
bargaining agreements. These are things that should be 
considered for the future as opposed to affecting current 
employees.
    The final recommendation that I know you have talked about 
at great length already has to do with whether or not the 
Postal Service should have responsibility for military pension 
costs. We came down saying no, that this is an unusual burden 
and should not be a burden of the Postal Service. Lifting those 
pension costs obviously will have major economic implications 
and positive implications toward the Postal Service.
    So the core of our message, plain and simple--and I am 
sorry if I have gone on too long--plain and simple is that this 
is a fabulous national asset. The current structure and 
approach is the right structure and approach. We believe that 
there is no immediate crisis, but we believe that Congress 
needs to address many of these challenges that have been on the 
table this morning and have been on the table many times 
before. If we do not address the challenges now of having the 
most efficient, effective possible Postal Service, there will 
be a time when we will either have dramatic, and I think 
destructive, rate increases to keep the requirement of breaking 
even, the potential for a bailout, or dramatic reductions in 
service. We do not want any one of those three things. What we 
are trying to do with our recommendations is to push ahead by 
saying let us embrace universal service in the fullest sense of 
that definition, let us get it right as a large organization in 
terms of best execution, and then let us get the most we can 
possibly get out of this model so that we have the potential 
for the next 10 to 20 years of taking what is already a very 
effective institution, make it even better, and stabilize it 
within the context of its core definition.
    That is what we were trying to do. I have tried to give you 
a little background behind how we thought about a variety of 
these things. I am fully aware that not everyone will agree on 
all these topics, but I and all the other members of the 
Commission very much welcome the dialogue and are completely 
open to discussing our thinking on any one of these topics.
    Chairman Collins. Thank you very much, Mr. Johnson, for an 
excellent statement. Your written statement will be entered in 
the record along with any other materials that you wish to 
provide, but that overview was terrific, and I thank you.
    Senator Carper. Madam Chairman.
    Chairman Collins. Yes, Senator Carper.
    Senator Carper. Could I ask a point of personal privilege? 
We have been dealing with a natural disaster, a flooding 
problem, up in northern Delaware, and I have been engaged on 
that this morning and arrived too late to give an opening 
statement. Rather than give one, I would just ask for 2 minutes 
just to make a brief statement if I could.
    Chairman Collins. Certainly.
    Senator Carper has been very active on postal issues. We 
teamed up earlier this year on the postal bill that I mentioned 
in my opening statement.
    I am pleased to yield to you for some comments.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. And I am pleased to be on your team.
    Chairman Collins. Just stay there. [Laughter.]
    Senator Carper. You can always look for me on your right 
flank.
    I love to tell this story, and I will be very quick. In my 
first year or so in the Senate, I was preparing to offer an 
amendment on the energy bill, something that was important at 
the time and is still an important issue. And Senator Collins 
was good enough to join me as a sponsor of the amendment, and 
we offered it. A lot of people thought we would lose, but we 
ended up winning by a lot, despite the opposition of the 
Chairman of the Committee and the Ranking Member.
    When it was all over, I went over to Senator Collins on the 
Senate floor, and I said, ``You know, I have not been here for 
that long, but this is the first time I have ever won a fight 
on a major amendment.'' And she looked at me and smiled and 
said, ``I have never lost.'' And I said, ``I am going to stick 
with you, sister.'' And I have.
    My hope is that we will be able to work closely together 
with our colleagues across the aisle here.
    Thirty-two years ago, another junior Senator, a fellow 
named Ted Stevens from Alaska, decided to get involved in 
postal issues, and he did, in a remarkably effective way, and 
laid the foundation for an organization which endured not only 
for the rest of the 20th Century but into the 21st Century. In 
1971, I do not know what the rest of you were doing, but I was 
in my second tour in Southeast Asia, and I remember reading 
something about it in Time or Newsweek magazines at the time. 
Thinking back to 1971, unlike our troops today who are deployed 
in Afghanistan, Kuwait, and other places, we did not have the 
ability to email our families, and frankly, we did not have the 
opportunity to talk to them much on the phone. We had a MARS 
system where you could actually talk a little bit on the 
phone--it was sort of like a Hamm radio operator--you could 
talk to them a little bit and say ``Over,'' and then they would 
talk back to you. But we did not have the ability to go into a 
tent or a facility and talk to our families then.
    We wrote a lot of letters. We got a lot of them back. They 
were all handwritten.
    We did not have direct deposit then.
    If you think about the way that our lives were in 1971 and 
the way we work today with direct deposit, email, and can call 
anybody with a cellphone almost around the world at any time, 
the world has changed dramatically, and our postal system needs 
to change and evolve as well.
    I am really pleased that the Commission--and I want to 
thank you and Harry Pearce for your leadership--and for all in 
the room and a lot of people who are not here who have 
contributed to your deliberations, to come with a very 
thoughtful set of recommendations. Now, obviously, we are not 
going to agree on all of them, and in particular I just want to 
make sure that in the end, we follow the golden rule with 
respect to the way we treat not just our customers but the 
folks who work at the Postal Service, that we treat them as we 
want to be treated.
    But I am pleased that you have said that universal service 
is important and we want to continue it. I am delighted that we 
are not going to try to privatize this operation. I am pleased 
with the importance and the premium that you have placed on 
employees as well.
    I will just conclude with this. Every now and then, 
Presidents send budgets to the Hill, and they are deemed ``dead 
on arrival.'' We see other proposals from Presidents, Democrat 
and Republican, and from other entities, they come to us and 
they are described as ``dead on arrival.''
    I think that the recommendations that you have sent to us 
are ``alive on arrival,'' and we very much look forward to 
working with you and improving some of them, accepting others, 
and going forward. I think this country will be better for it, 
and I think those who work for the Postal Service and their 
customers will be better for it.
    I thank you for the opportunity to make that comment.
    [The prepared opening statement of Senator Carper follows:]

              PREPARED OPENING STATEMENT OF SENATOR CARPER

    Thank you, Madam Chairman. I'd like to begin by thanking Mr. 
Johnson and his colleagues for their willingness to serve on the 
President's postal commission. Postal reform is a difficult issue. It 
is also a vitally important issue for every American who depends on the 
Postal Service everyday. Their willingness to listen to all sides of 
the debate and to attemt to craft a set of balanced reform 
recommendations is admired and appreciated.
    By all accounts, the Postal Service has been a success. It receives 
virtually no taxpayer support and the service its hundreds of thousands 
of employees provide to every American nearly every day is second to 
none. More than 30 eyars after its birth, the Postal Service now 
delivers to more than 140 million addresses each day and is the anchor 
of a $900 billion mailing industry.
    As the commission's final report recognizes, however, the Postal 
Service is clearly in need of modernization. When it started out in 
1971, nobody had access to fax machines, cell phones or pagers and 
nobody imagined that we would ever see innovations like e-mail and 
electronic bill pay. After decades of success, electronic diversion of 
mail volume, coupled with economic recession and terrorism, have made 
for some rough going at the Postal Service in recent years.
    The Postal Service's financial situation has improved in recent 
months. They will have $4 billion surplus in the current fiscal eyar. 
They could be debt-free by the middle of next year. However, I don't 
think volume is yet where we'd like it to be. In addition, the Postal 
Service continues to add nearly two million new delivery points each 
year, creating the need for new routes, more letter carriers and new or 
expanded postal facilities.
    As more and more customers turn to electronic forms of 
communciation, letter carriers will likely begin to bring fewer and 
fewer pieces of mail to each address they serve. The rate increases 
that will be needed to maintain the Postal Service's current 
infrastructure, to finance retirement obligations to its current 
employees, and to pay for new letter carriers and new facilities will 
only further erode mail volume. The Postal Service has been trying to 
improve on its own. They are making progress, but there is only so much 
they can do.
    That is where Congress must step in. Even if the economy recovers 
soon and the Postal Service begins to see volume and revenues improve, 
I believe we will still need to make some fundamental changes in order 
to make the Postal Service as successful in the 21st Century as it has 
been for the past 30 years.
    That is where Congress must step in. Even if the economy recovers 
soon and the Postal Service begins to see volume and revenues improve, 
I believe we will still need to make some fundamental changes in order 
to make the Postal Service as successful in the 21st Century as it has 
been for the past thirty years.
    S. 1285, which I introduced early this past summer, aims to 
modernize the Postal Service without rolling back service. It instead 
explicitly preserves the requirement that the Postal Service ``bind the 
Nation together through the mail'' and serve all parts of the country--
urban, suburban and rural. It also preserves the Postal Service's 
monopoly over the mailbox and maintains the prohibition on closing post 
offices in some rural and inner city communities that often operate at 
a deficit.
    S. 1285 also forces the Postal Service to concentrate solely on 
what it does best--processing and delivering the mail--and provides 
them with much-needed pricing flexibility that they can use to 
encourage increased mail volume. It does this while making the 
ratemaking process less time-consuming, less administratively 
burdensome and more predictable.
    S. 1285 also attempts to strengthen service standards for most 
Postal Service products as a way to make the mail more valuable for 
customers. The bill requires the Postal Rate Commission, re-named the 
Postal Regulatory Commission, to develop standards for the Postal 
Service's Market Dominant products, a category made up mostly of those 
products included in the postal monopoly.
    Finally, S. 1285 makes the new Postal Regulatory Commission the 
strong regulatory body needed to ensure that the Postal Service is 
serving the public interest and competing fairly with private sector 
mailers. Commissioners would be better qualified and would be armed 
with new authority, such as subpoena power, that can be used to demand 
information from postal management. Commissioners would also be 
empowered to punish the Postal Service for failing to abide by rate and 
service regulations or for using revenue from their monopoly products 
to subsidize those products that are also offered by private sector 
mailers.
    S. 1285 is based in large part on legislation introduced last year 
in the House by Congressmen John McHugh. While his bill enjoyed the 
support of much of the mailing community and most Postal Service 
employees and was endorsed by the Postal Service's Board of Governors, 
it failed in the Government Reform Committee. For any piece of postal 
reform legislation to be signed into law during the 108th Congress, it 
will probably need to enjoy near-unanimous support among mailers and 
postal employees and have strong support in Congress and at the White 
House. The president's postal commission was created, in part, to help 
build the consensus that we will need to get something done. For the 
most part, I believe they've done an excellent job.
    Like my bill, the commission's report calls for the preservation of 
universal service and the Postal Service's monopoly over the mailbox. 
The commission also recommends, like I do, turning the Postal Service's 
Board of Governors into a stronger, more independent body that would be 
better able to manage a business the size of the Postal Service. Both 
my bill and the commission's report would also give the Postal Service 
significant pricing flexibility and turn the Postal Rate Commission 
into a stronger regulatory body. They would also streamline the Postal 
Service's physical infrastructure and encourage them to adopt new 
technology that would improve productivity and add value to their 
products.
    I am a little concerned, however, with three items addressed in the 
commission's report. First, there is the call for after-the-fact review 
of rates. I fear this could allow potentially damaging rate changes to 
go into effect without being studied properly and without giving the 
public an opportunity to comment. The commission's recommendations 
would allow rates set by the Postal Service to later be adjusted by the 
regulatory body if a third party challenges them. By the time the 
regulators get an opportunity to act, however, mailers could have 
already suffered significant financial damage. To avoid this, I believe 
we should ensure that the regulators are given enough time before rates 
changes go into effect to study them and, if necessary, stop them from 
happening.
    Second, I am also concerned about the way in which the commission's 
recommendations address facility closings. The commission rightly, I 
believe, acknowledges the need for the Postal Service to rationalize 
its network of post offices and processing centers. While I make 
similar recommendations in S. 1285, my bill ensures that the facility 
closing process is part of a larger overall plan to strengthen service 
standards and give Americans better access to postal services than they 
have today.
    While the Postal Service should certainly study the need to close 
some existing facilities, it is important that they do so in an 
orderly, accountable way that promotes public confidence and does not 
in any way hinder their ability to carry out their mandate to serve all 
Americans. If done haphazardly, facility closings could hurt service in 
some communities, especially rural and inner-city areas.
    Finally, there are the recommended changes to collective bargaining 
and employee pay. I won't dwell on the details of those recommendations 
but I will say that we should think carefully before tinkering with a 
system that I believe has worked well for both the Postal Service and 
its union employees. Since the Postal Service's financial difficulties 
worsened, postal unions have agreed to contract renewals with modest, 
reasonable pay increases without going into arbitration. While labor 
does make up a significant percentage of the Postal Service's costs, 
the Postal Service performs labor-intensive work. Reducing employee pay 
and benefits will not change this.
    In closing, I believe it is important to emphasize that postal 
reform should be about preserving and improving the important service 
that the Postal Service provides. As I've said in the past, we should 
give the Postal Service the ability to operate more like a business. We 
should also recognize, however, that the Postal Service is not a 
business. Whatever new flexibility we give the Postal Service to price 
its products or manage its property and workforce, we should ensure 
that their top goal is to continue serving the public.

    Chairman Collins. Thank you. I want to give the other 
Members who arrived after opening statements were done the 
opportunity to make very brief comments if they would like to.
    Senator Pryor, I think you were next.
    Senator Pryor. No, thank you.
    Chairman Collins. Senator Akaka, if you would like to make 
any brief opening statement, feel free to.

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka. Madam Chairman, I thank you for asking. I 
would like to ask that my opening statement be included in the 
record.
    Chairman Collins. Without objection.
    [The opening prepared statement of Senator Akaka follows:]

              PREPARED OPENING STATEMENT OF SENATOR AKAKA

    Madam Chairman, thank you for holding this hearing today. Your 
attention underscores this Committee's longstanding dedication to the 
men and women of the U.S. Postal Service and our commitment to all who 
rely on the U.S. Mail.
    It is timely that we focus on the Postal Service during these 
difficult economic times. The Postal Service is a core element of the 
American economic engine. The Postal Service and mail-related 
businesses account for nearly $900 billion in job-producing economic 
activity. Mail generates well over $700 billion in direct sales. The 
value of goods transported by the parcel delivery industry, which 
includes the Postal Service, equals 12 and one third percent of all 
goods transported in the United States.
    Two years ago, the leadership of this Committee asked the Postal 
Service for a comprehensive transformation plan to address short- and 
long-term operational and financial goals. The Postal Service presented 
its Transformation Plan to the Senate at a hearing that I chaired in 
May 2003.
    My concern then, as it was in December when the President appointed 
a commission to review the Postal Service, was how do we ensure the 
continuation of the Postal Service's core mission--universal service--
at an affordable price.
    I believe the Commission, within a compressed time frame, tackled 
that question. They grappled with the challenges facing the Postal 
Service and made significant recommendations.
    I was especially pleased that the Commission rejected privatizing 
the Postal Service. To those who say a privately-run mail service is 
the only road to financial stability, I am concerned that it would be a 
one-way street to unequal mail service throughout the nation.
    Despite the technological advances that have transformed our lives, 
I believe a government-owned and government-run mail service remains 
key to the nation's economic and social well being. My state of Hawaii 
is dependent on affordable and timely delivery of goods and services, 
many of which come through the U.S. Mail. Mail is particularly 
important for Hawaii's small businesses as means of sustaining old 
customers and nurturing new ones.
    Although no organization, including the Postal Service, should be 
frozen in time, effective reform is dependent on the support of and 
acceptance by its employees. Whether we are transforming the Department 
of Defense or the Postal Service, labor unions and management must work 
together for the transformation to succeed.
    I do not support proposals that would eliminate protections and 
rights currently enjoyed by postal workers. As Federal employees and 
annuitants, postal workers are entitled to certain statutory benefits, 
including access to the Federal Employee Health Benefit program and the 
government's 401(k)-type retirement plan. As a strong advocate of 
employee rights, I will review carefully any proposal to shift postal 
workers and retirees from existing government-wide benefits and 
protections.
    Postal employees have much to lose if the financial, managerial, 
and operational challenges facing the Postal Service are not addressed. 
Yet, not all the problems facing the Postal Service are labor-related. 
The Postal Service's future may be more dependent on how well and how 
effectively it manages its employees, capital assets, purchased 
transportation services, and consumables such as fuel.
    Like other segments of the transportation industry, the Postal 
Service operates within a quickly changing marketplace. Competition is 
fierce, and rapidly changing economic conditions and rising fuel and 
energy costs can affect the Postal Service's ability to remain 
financially viable. The Commission's recommendations that the Postal 
Service have pricing and management flexibility will allow the Postal 
Service to adapt to this rapidly without the need to penalize its 
workers. I thank Mr. Johnson and his fellow commissioners for their 
effort.
    And Madam Chairman, I thank you again for convening this hearing. 
The collection and delivery of mail is a basic and fundamental public 
service. I look forward to hearing from our distinguished witness.

    Chairman Collins. Senator Fitzgerald, if you have any 
opening comments.

            OPENING STATEMENT OF SENATOR FITZGERALD

    Senator Fitzgerald. I would just ask to include my opening 
statement in the record, too, Madam Chairman. Thank you for 
having this hearing, and Mr. Johnson, thank you very much for 
your service. We appreciate it and appreciate the fine 
recommendations of the Commission.
    We will see what we can do. We operate in a political 
world, so we cannot quite be as efficient, I am afraid, as the 
business world, but we can try around here. Thank you very 
much.
    [The prepared statement of Senator Fitzgerald follows:]

            PREPARED OPENING STATEMENT OF SENATOR FITZGERALD

    Good morning. I'm pleased to join my colleagues in welcoming our 
witness today, Mr. James Johnson, co-chair of the President's Postal 
Commission. Mr. Johnson has played an important leadership role in a 
much-needed effort to preserve and modernize one of the nation's vital 
institutions. I also would like to thank Chairman Collins for holding 
this hearing and applaud her leadership over many years on postal 
issues.
    The U.S. Postal Service (USPS) is a unique institution that has 
provided an invaluable service since its inception. The Postal Service 
has over 830,000 employees nationwide, over 43,000 of whom are in my 
home state of Illinois. The Postal Service also operates 2,079 postal 
facilities in my state.
    The Postal Service now faces the challenges of increased 
competition, however, and a regulatory structure that does not meet 
today's needs. As a $67 billion enterprise, the Postal Service is the 
nation's second largest employer and the 11th largest by revenue. The 
services provided by this multi-billion dollar enterprise are being 
displaced through market competition and greater use of electronic 
forms of communication. Relatively new means of communication such as 
email, threaten the financial health and long-term viability of the 
Postal Service. As fewer and fewer people mail letters, postal volume 
is stagnant or shrinking.
    Due to the Postal Service's debt and the decline in its traditional 
revenue sources, the General Accounting Office placed the 
transformational efforts and long-term outlook of the Postal Service on 
its ``high risk'' list in 2001. As the Commission notes in its report, 
even if the Postal Service were not in financial jeopardy, the 
inefficiency of its operations causes billions of dollars in 
unnecessary costs that should be eliminated.
    Strong financial management and good governance have long been 
interests of mine. I believe that good business practices, strong 
financial accounting, and independent oversight are important to the 
overall success of any institution, and these are key areas to address 
in the transformational process at the U.S. Postal Service.
    To transform the Postal Service the Commission has undertaken a 
comprehensive review of the Postal Service's operations. I was 
especially pleased to read the recommendations to use the ``best 
practices'' of the nation's leading businesses to transform the Postal 
Service organization and improve its efficiency. The Commission report 
emphasizes several aspects of current Postal Service operations that 
would not be required of a business. This is important to take note of, 
as these responsibilities are inconsistent with the Postal Service's 
charter as an independently financed federal entity. It is partly due 
to these requirements that the Postal Service is struggling to maintain 
its operations.
    I look forward to hearing from our witness today regarding how 
Congress can help the Postal Service function more like a business and 
less like a bureaucracy. Additionally, I hope to hear about the 
proposed oversight and regulatory structure of the Postal Service, the 
opportunities to enhance financial transparency, and the management of 
its monopoly powers.
    Thank you, Chairman Collins.

    Chairman Collins. Mr. Johnson, we are now going to turn to 
questions, and we will do rounds of 6 minutes each, back and 
forth.
    Your report makes extensive recommendations, both 
administrative and legislative, on a large variety of issues, 
and it really is a comprehensive look at the problems of the 
Postal Service. If Congress were to do nothing--if we failed to 
enact the legislative reforms that you have recommended, or at 
least some of the legislative reforms--how long would the 
Postal Service, as we know it, be able to continue to operate? 
Would it be sustainable in the long term if we just throw up 
our hands and say these issues are too difficult?
    Mr. Johnson. Let me try to answer that as honestly as I 
can. The Postal Service is in dramatically better shape today 
than it was a year ago for two important reasons. The first 
reason is the bill that you and Senator Carper shepherded 
through on the recognition of the overpayment of retirement 
benefits and now the reversing of that overpayment, which is 
giving the Postal Service an opportunity to pay down debt and 
to have other opportunities to do much needed investment. 
Frankly, that has changed the dynamic of urgency to some 
degree.
    The second thing that has changed the dynamic of urgency is 
the skill of the Postmaster General and the leadership of the 
Postal Service. Their Transformation Plan, their efforts to put 
best practices in place, are bearing substantial dividends. 
They are moving forward on a wide variety of fronts, and I 
tried in every one of our nine public meetings to compliment 
them. I do not want to fail to do that today because I think 
excellence in Federal service should be recognized 
systematically, and I think many of the things that they are 
doing are very impressive.
    The short-term, medium-term, next 3-years answer is that 
things are better than they were. In terms of the longer term, 
we focus a great deal of energy on the diversion question, the 
electronic challenge, elements of inefficiency, and the cost 
structure. I have no doubt that in the somewhat longer time 
horizon, every one of the challenges that was apparent a year 
or two ago will be back front and center. As I said earlier, I 
do not think anyone wants this to be taxpayer-subsidized. No 
one wants to boost rates to the point where mailers do not want 
to mail and where they cut their volumes or boost them again 
and again to the point where you have a downward spiral of 
activity and revenue. My belief is that we do not have a long 
time to get it straight and to take our best effort for the 
long term, but it is not a fire. The full consideration by your 
Committee, the full consideration by your companion committee 
on the House side, the full engagement of the President and the 
administration, the further engagement of the Postmaster 
General--this is an ideal time, it seems to me, where we can 
see the sort of contours of a bad future if we do not act, but 
we have time to get it right. As long as we can maintain 
forward momentum for reform, true engagement, and honest 
dialogue, I would be very hopeful. And thanks to the work that 
you all have done, I am more hopeful now than I was a few 
months ago.
    Chairman Collins. You mentioned in your statement the 
recommendation that the Postal Service should stick to its core 
business. Over the past few years, the Postal Service has 
offered a variety of non-postal products and services which 
actually lost money. In addition, I heard from a lot of gift 
shop owners and printers in Maine who are very unhappy about 
having what they saw as unfair subsidized competition from the 
Postal Service.
    There are a couple of examples of failed ventures in the 
non-core area such as Net Post Mailing Online, the on-line 
payment services, which resulted in fiscal year 2002 losses of 
$10.6 million and $1.15 million respectively.
    You have recommended that the Postal Service focus on its 
core business. Could you define that further for us and what 
exactly you mean by that?
    Mr. Johnson. Once again, we spent a lot of time on this 
subject. We were informed by so many corporate disasters of 
people who had done essentially the same thing, that is, gotten 
involved in businesses that they were not prepared to run well 
because they did not have adequate background and expertise. So 
all of us--and this was all nine--had the strong view that 
there should be a restraint on non-postal services and new 
businesses which were not related to the core.
    The way we defined the core business was ``acceptance, 
collection, sorting, transportation and delivery of letters, 
newspapers, magazines, advertising mail and parcels.'' That is 
pretty restrictive, and people came along and asked, isn't it 
true that people get passport photos done in post offices? Are 
you against that? And we said no; that is an incidental public 
service which we think is completely appropriate and not a 
risky business venture.
    What we were really trying to do here was to get at the 
risky business venture concept as opposed to small auxiliary 
services that in some way might be provided.
    I have the feeling once again that the current management 
of the Postal Service understands this point. I do not think 
they like being overly constrained, and they probably find our 
definition a little bit restrictive. But my own view is that 
the Postal Service as it is defined here is huge, and that is 
in fact the public function that is needed. There are many 
private sector providers who can provide a lot of other 
services, and I see no reason to be taking things where there 
are adequate public sector providers and replacing them with 
public sector activities.
    This is a long and complicated discussion in regard to all 
kinds of different government suppliers, whether they be 
defense contractors or communications companies. It is an 
endless discussion about where these boundaries should be.
    Once again, I think our work should be viewed primarily as 
directional, and that is ``No'' on risk business ventures, 
``Yes'' on core business ventures, where exactly you define 
that. We have given the regulators some power to say that if 
there are things that are challenged to the regulator on the 
basis that this is something that would not be possible without 
cross-subsidy. For example, we have given a lot of latitude for 
the regulator to come in. I know this is a concern of many in 
the mailing community, and that is that things in the end get 
distorted through various kinds of cross-subsidy, and that 
before the Postal Rate Commission, that is an ongoing, huge 
topic.
    We have tried to give a framework without defining it down 
to the last detail, but certainly we come from where you come 
from.
    Chairman Collins. Thank you.
    I am going to call on my colleagues in the order that they 
arrived, and I believe, Senator Dayton, you were next.
    Senator Dayton. Thank you, Madam Chairman.
    Mr. Johnson, if we define the mission of the Postal Service 
as universal service 6 days a week, and if the volume of mail, 
particularly First-Class, is now diminishing, and if that is 
going to be the structural change that is going to persist for 
a while, then, realistically, how does this business model ever 
work other than just to try to compress the revenues, and even 
if you try to get efficiencies, aren't we just trying to extend 
this further and further when it is essentially not a revenue-
balancing possibility?
    Mr. Johnson. A very interesting question, and once again 
something we spent a lot of time on. We had the feeling that if 
we were guided by best execution throughout, very substantial 
savings could be achieved and therefore, with lower revenues, 
there still could be a break-even result. That was very much on 
our minds.
    We also talked extensively with the Postmaster General 
about standards of service, and one of the concepts that he 
talked about--and he will obviously be before you at some 
point, and he can correct the record if I am wrong--but part of 
the point he made to us was that there were reasonably small 
changes in standard of service which would yield quite large 
economic benefit. All 6-day delivery is not created equal; all 
extensions of service are not created equal--and with more 
flexibility in management, he could find some ways, in his 
opinion, of very modestly, very reasonably, cutting back on 
some of those service standards and getting big dollar results.
    We do not know the future of the internet; we do not know 
the future particularly of the bill payment mechanism. The bill 
presentment and bill payment are really the biggest pieces of 
this whole internet point, and if we could see the future on 
that--and we employed some consultants who took us out 20 years 
and longer in terms of looking at the dynamics of how that 
might work. In my own view--I had a good friend and colleague 
who was at Citigroup for 27 years, I hired him, and when he 
came to work at Fannie Mae, I said, ``Tell me about the 
checkless society,'' and he said, ``I am now in the 30th year 
of a prediction of a checkless society, and every one of those 
30 years, there have been more checks than the year before.''
    I do not know quite how this internet usage, bill payment, 
bill presentment works out over time, and obviously, that is a 
very big piece of this dynamic because in terms of, if you 
will, the profitable business of the post office, a lot of that 
comes in the bill-paying, First-Class dynamic. I think if 
things are simply stable, if you are not getting new 
efficiencies, if you are not getting better execution, if you 
are not riding a little slower curve on some of these matters, 
you can certainly run to the point where you will run out of 
efficiencies and cost control, and you will have service 
requirements which will simply give you an imbalance. We think 
that, if everything is done right, that can be many years from 
now. But if we are sitting here 15 or 20 years from now, you 
could get to a point where the electronic diversion and 
alternative executions were such that you not only had a 
smaller post office, but you had one at that point where you 
did not feel you had additional capacity to raise rates, 
because you were simply diverting into other mechanisms by 
further rate increases, where you had expenses which were 
really down to a minimum, and that you had a mismatch.
    I think we are probably a couple of decades away from 
there, and for government work, that is not bad.
    Senator Dayton. It is as good as it gets.
    You recommend what you call a transformation of the nine-
member board of governors to what you call a corporate-style, 
12-member board of directors which does not require Senate 
confirmation--and I am sure that was just an omission in the 
report--but how does this corporate-style board of directors 
distinguish itself from this current nine-member board of 
governors. And then--I will make it a two-part question--you 
also set up this three-member Postal Regulatory Board with 
greater authority for accountability and public oversight of 
the Postal Service. What is the interface, then, between this 
Regulatory Board and the board of directors?
    Mr. Johnson. Let me start at the back end of your question. 
The reason that we put the Postal Regulatory Board in place is 
that we believe that there are major public policy implications 
of how the Postal Service goes about its business. We provided 
for Senate confirmation of that Postal Regulatory Board because 
we believe that is the core for setting the boundaries and 
expectations of this activity.
    In terms of the corporate-style board of directors, the 
qualifications which we would like to see in this new board 
would involve people who had run similarly-sized enterprises, 
who had deep experience in logistics businesses, people who had 
been involved with companies with very large work forces. Our 
feeling was that this was primarily a business-like function as 
opposed to a public policy-like function. While it is hard to 
find the exact contours of what is confirmable and what is not 
confirmable, it seemed to us that a reasonable separation 
between the sort of entre here on public policy issues should 
be Senate-confirmed, and that which was more a strictly 
business background kind of best execution did not seem like a 
confirmation item.
    Just a few examples--if you look at Sallie Mae, Fannie Mae, 
Freddie Mac, Federal Home Loan Bank Board, those being business 
functions, none of those is confirmed. There are Presidential 
appointments there which are simply Presidential appointments, 
and they go to work on what is essentially a business financial 
entity with essentially a business financial function for the 
board. Now, in all of those entities, there are some public 
policy dynamics, obviously--whether or not you do the work you 
should be doing for housing and for student loans--so it is not 
pure. But it seemed to us that confirmation should be focused 
on the people who are setting the public policy ground rules, 
and that the people performing business-type functions should 
probably not be infirmed--but once again, you all will decide 
in the end whether that makes any sense or not.
    Senator Dayton. My time has expired.
    Thank you, Madam Chairman. Thank you for your report.
    Chairman Collins. Thank you. Senator Fitzgerald.
    Senator Fitzgerald. Thank you, Madam Chairman.
    Mr. Johnson, I was wondering what your thoughts were with 
respect to rural post office service. One of the big issues I 
have heard about repeatedly in the State of Illinois is that we 
have a lot of smaller Down State communities, and occasionally, 
the Postal Service recommends closing a facility. Of course, 
everybody in the community is up-in-arms, and it often makes it 
difficult for me as a Senator to figure out what to do. 
Obviously, the community does not want to lose its post office, 
but we know at the same time that there are some post offices 
that are not efficient to keep.
    I was wondering if you could explain to the Committee your 
Commission's findings with respect to underutilized facilities 
and what the Postal Service should do with those.
    Mr. Johnson. This was also a much-discussed topic, and let 
me give you our perspective. Our feeling is that any postal 
facility that is required to fulfill the universal service 
obligation should stay open. So, pure and simple, if this is 
part of getting the job done either on the retail side or on 
the distribution side, and if there are not reasonable 
alternatives, it should stay open--that universal service comes 
first.
    Now, if you have a facility where you have three more post 
offices in a very small area there will be circumstances where 
there will be post offices or postal contract services which it 
will be very hard to argue are essential to providing universal 
service either in terms of retail or other postal functions.
    What we have said in that regard is that we do not like the 
sort of yes-or-no dynamic of open or closed. There should be a 
very broad opportunity for the Postal Service to work with the 
community to either add Federal or other functions to that 
facility which would make it more economically viable, to 
cooperate with State and local government in keeping it open. 
For example, they might put a part of city hall or some other 
dimension of public service in that building. We even went so 
far as to say if there was not a market for that postal 
facility, the Postal Service should have the option of giving 
it to the community even if the Postal Service owned it, giving 
it to a nonprofit organization----
    Senator Fitzgerald. Do they have that option now?
    Mr. Johnson. No, I do not believe so. Since I am relatively 
new to all of this, I can be corrected at any time, but I do 
not believe that is an option under current law.
    Our hope was that if there are facilities that really are 
not economic that you do not just have a yes-or-no for the 
community to be a winner or a loser, and that in fact there 
would be multiple ways for the community, even including giving 
them the facility, that they could put it to good use for 
public functions or for public services. We tried to be as 
broadly responsive as we could to the social function that 
small post offices play.
    We have 38,000 post offices today. I think it is safe to 
say that every single ``expert'' we spoke to thought that was 
far more than what was required to get the job done. It is a 
hot potato. But we tried to think through systematically how we 
might make this a little more viable. I do not know whether we 
have succeeded or not.
    Senator Fitzgerald. I am not sure if the Postal Service is 
in any way organized as a corporation.
    Mr. Johnson. It is.
    Senator Fitzgerald. It is a separate corporation, and it 
has a----
    Mr. Johnson. It is a separate, independent governmental 
entity. It is not a Delaware corporation. It is not subject 
to----
    Senator Fitzgerald. But it has a Federal Government charter 
like a Fannie Mae or a Freddie Mac, although it would be quite 
different?
    Mr. Johnson. It has a Federal Government--it is an 
independent agency within the Federal Government.
    Senator Fitzgerald. I see in the book that you put out, you 
have a brief statement of the liabilities of the postal agency, 
but I cannot find in here a statement of the assets of the 
agency. When an agency is not organized as a corporation, it 
gets very hard to figure it out and compare it, say, to the 
other corporations that you attempt to compare it to in terms 
of revenue and in terms of employees.
    I am wondering if it would not make sense to actually 
incorporate it and have it go through some of the disciplines 
that corporations do, even though it would obviously be owned 
or have some special status as a government-chartered 
corporation.
    Mr. Johnson. It is interesting that you should ask that 
question. We talked about that, and we to some extent had the 
advice of outside experts on that point. The conclusion that we 
came to is that by something that looked more like a 
traditional chartering, we would pick up problems of various 
kinds, including the capacity to be sued for various things and 
other things that are not currently a problem for the Postal 
Service.
    We tried to get at the financial transparency issues in 
other ways, through the SEC filings that we recommend and so 
on. Dick Strasser, the chief financial officer of the Postal 
Service, happens to be sitting right behind me this morning, 
and I am sure he can shed substantially greater light at the 
appropriate time on how to think about the assets.
    Senator Fitzgerald. I just noticed that in your report, in 
order to come up with some of these viabilities, you are 
deriving some of them from, like, a letter that the CBO wrote 
to Jim Nussle. It does not look like they are written down or 
accounted for in certain places.
    Let me ask you one final question. I know my time is up.
    Chairman Collins. I am going to try to hold to the time, so 
if you could wrap up; thank you.
    Senator Fitzgerald. Just a final question. Were there other 
liabilities besides this military pension liability that 
somehow was foisted onto the Postal Service that 
administrations over the years have tried to hide or bury in 
the Postal Service?
    Mr. Johnson. There are major liability areas, but I am not 
aware of those being suddenly or externally introduced.
    Senator Fitzgerald. Thank you.
    Chairman Collins. Senator Durbin.
    Senator Durbin. Thank you, Madam Chairman, and thank you, 
Mr. Johnson and all those who took part in this postal reform 
effort.
    I think there are two elements that are essential if this 
is going to be successful. The first is selling postal reform 
proposals to Congress and the White House, and second is 
selling it to the men and women of the Postal Service so that 
it finally is implemented in a successful fashion.
    I read portions of your report with great interest, and let 
me point out one that you noted in your statement. ``The Postal 
Service employs approximately 843,000 people, making it the 
second-largest work force in the United States. Its jobs are 
highly-coveted. As of July 2001, the Postal Service had a 
backlog of some 400,000 job applicants and virtually no 
turnover.''
    Then I turn to another section, and I read that ``In 2002, 
184,329 grievances were filed by members of the Postal Service 
before the major union reached a second-step appeal; and 
106,834 were pending arbitration.''
    ``Clearly, something is wrong when a unionized work force 
of 746,000 employees generates more than 184,000 second-step 
grievances in 1 year. By comparison with a work force of 
102,000 employees, American Airlines launched a major 
alternative dispute resolution initiative when its backlog of 
employee complaints reached a mere 800.''
    I want to try to explore this for a moment with you. Those 
seem to be two very contradictory statements. The most coveted 
job to the point where 400,000 people are waiting to get an 
opportunity to work there, and of the people who are there, 
grievances are being filed on behalf of about one out of four 
employees every year. It suggests to me that there is a lure to 
the job but a dissatisfaction once they have arrived with 
management and the relationship between labor and management.
    Do you feel that we need to look at this more seriously at 
the outset before we can hope to implement successfully any 
postal reform where a commission or the management is going to 
suggest to a work force which apparently has its differences 
with the management has any chance of success?
    Mr. Johnson. Yes is the answer to your question. I believe 
that the grievances are far too high. Now, there are some 
alternative dispute mechanisms which I think should be more 
broadly applied. The letter carriers have made some very 
substantial progress on some experimental programs that they 
have to reduce grievances and deal with them more 
expeditiously.
    It was absolutely clear to the Commission that this gave 
every evidence of an inadequate level of trust between labor 
and management, that the grievances were unbelievably high, and 
that it was something that had to be very seriously addressed. 
I must say, just to give you a little editorial comment, there 
was no feeling that this was primarily a labor problem. There 
was a feeling that this is an indication of a very substantial 
shortfall on management's part as well as an indication of a 
strong willingness to confront the terms of the contract and 
that, for everybody's better interest, there should be a better 
way.
    Senator Durbin. So how will this management team, which is 
having substantial difficulty with the current law, regulation, 
and procedure of the U.S. Postal Service, lead this team into 
the era of reform, suggesting some substantial and sometimes 
painful changes in the workplace? How can this same management 
team which apparently has such a contentious relationship be 
expected to be successful?
    Mr. Johnson. A good question once again, and this is also a 
subjective reply. Having spent dozens and dozens of hours now 
with the management team--I must say, dozens of hours as well 
with the labor leaders who represent the major employee units--
my feeling is that Jack Potter and the other people on his team 
have a lot better orientation and attitude than they do record. 
That gives me some hope. It does not make me foolishly 
optimistic, but I think we have a great deal of work here to do 
on everybody's part. I think you are absolutely right to be 
focused on this. The grievances are dramatically too high. 
There needs to be an earlier resolution, a quicker resolution. 
And in terms of whether or not this management can provide that 
leadership, I see every evidence that they can, but the record 
at this point is nothing to be proud of.
    Senator Durbin. I do not have enough time to get into this 
next area, but I would like you to consider and perhaps get 
back to me informally or formally--if we are looking for a 
different work force for the Postal Service in the 21st 
Century, in the next 15 or 20 years, to respond to technology 
and challenges to the Postal Service, how can you reconcile the 
need for this type of new Federal employee in the work force 
with your suggestions of compromising or reducing health and 
retirement benefits for new hires?
    It strikes me that United Airlines and others have learned 
in the midst of bankruptcy that you just have to be careful 
that you do not compromise your ability to retain and attract 
the very best personnel because somebody out there is going to 
offer them a better arrangements.
    Mr. Johnson. I think it is an area of great concern. In 
every company that I am involved in, we are constantly 
preoccupied with whether or not our best people are going to be 
stolen.
    In the Washington area, when I was CEO of Fannie Mae in the 
1990's, there was a war underway between IBM, Marriott, Fannie 
Mae, and a few other companies for the best talent in the 
technology area. What you raise is a very real point. That is 
part of the reason why we made another controversial 
recommendation, and that is that we should not have the same 
ceiling we have today on total compensation. The Postmaster 
General and other key leaders should have more flexibility, or 
the board should have more flexibility, in terms of paying them 
competitive market rates.
    I think the Congress has kind of a fundamental choice here. 
What we were dealing with was what we viewed as a black-letter 
law on comparability. We tried to add things to the collective 
bargaining dynamic within the context of our reading of that 
law.
    Now, if this is going to be even more nimble in the future 
to the Postal Service overall, maybe the Congress needs to look 
at some provisions for flexibility. We were dealing with the 
fact that we had witness after witness after witness who said 
it is not comparable; people in the Postal Service are being 
paid more. We never bought into that. We said we hear what you 
are saying, but we do not have the capacity to determine 
whether or not it is comparable.
    What we recommended was a mechanism to work on this 
comparability issue through the Postal Regulatory Board.
    From my point of view, if I were running a comparable 
company, as I was at Fannie Mae, a comparably large company, 
without flexibility in terms of attracting and retaining my 
most valuable employees, I would have been unreasonably 
hamstrung, and we could never have been the company we were if 
we were hamstrung in that way.
    But we viewed it essentially as a precondition of our work, 
the very clear statement in the early 1970's statute saying 
that comparability was the law of the land. If that should not 
be the way it is looked at, then Congress should address that.
    Senator Durbin. Thank you. Thank you, Madam Chairman.
    Chairman Collins. Senator Pryor.

               OPENING STATEMENT OF SENATOR PRYOR

    Senator Pryor. Thank you, Madam Chairman.
    I would like to ask you about some trends at the post 
office and the Postal Service generally in this country--and I 
may be mistaken, but as I understand it, there has been a drop 
in First-Class mail, and some people think that possibly email, 
the internet, etc., maybe the economy have something to do with 
that, and as I understand it, your parcel business remains 
strong.
    So I would just like to hear the trends that you see at the 
post office and what we are dealing with here and where you 
think we are going.
    Mr. Johnson. Thank you, Senator.
    The short answer is we do not know where we are going, and 
that is what makes many of us feel so uncertain. We have had 
this economic downturn, and we now have a consensus of 
economists saying it is over and that third-quarter growth will 
be 5 percent or thereabouts, that we are on our way to a 
substantial recovery.
    We have had this interaction between the rise of the 
internet, the rise of the internet bill-paying dynamic which I 
was talking about just a minute ago, and the downturn in the 
economy. Typically in the past, if the economy is growing, mail 
volumes have grown. So if you look now at the next 12 months--
and I do not know how fast you will be dealing with this 
legislation or possible legislation--but we are going to learn 
a lot in the next 12 months in terms of disentangling the 
electronics from the economy. If we do in fact have the 
recovery which most economists now predict, and we do not see 
volume growth, and we have more and more incentives being 
provided--and this is a very big reality--where credit card 
companies, public utilities and others are incenting----
    Senator Pryor. Your mass mailers.
    Mr. Johnson. Well, no, this is even a little different than 
the mass mailing thing--in many cases, they have very large 
numbers that they are mailing--but if you are paying a bill to 
a telephone company today or to a public utility or to American 
Express, with the cost savings that flow from your being an 
internet bill-payer, they are prepared to give you a gift 
certificate of $100 or $200 or a variety of other incentives to 
move you from somebody who uses the U.S. mails to somebody who 
does not. This is a very big commercial reality.
    We also do not know at this point--to use an economist's 
term--where the indifference points are in the American 
consumer's mind. There are lots of people who still say . . . 
One of the most significant credit card companies came to see 
me not long after I had been named co-chair of this Commission. 
They said that now, up to 32 percent of their bills were being 
paid on line, and they were getting nowhere on people being 
willing to receive their bills on line. Then they went through 
the economics of how much money they would save if they could 
get them to receive their bills on line, and it became clear 
that they could give hundreds of dollars to each person with a 
reasonable perspective about how long that account was going to 
last, and still be better-off if they could convert them to an 
on line customer.
    We have a lot of unknowns, a lot of variables, a lot of 
question marks. My expectation is at least to answer the 
primary question mark and that is, what is the effect of slow 
economic growth versus robust economic growth? I hope we have a 
chance to observe in the next year.
    Senator Pryor. I do, too. You may not know where we are 
going in the future, but what about right now? What are the 
trends right now? Are all of your lines of service lines that 
they have been in the past?
    Mr. Johnson. No. The real point here is First-Class mail.
    Senator Pryor. First-Class mail.
    Mr. Johnson. Yes. There are many other dimensions here that 
are growing or staying relatively flat, and the First-Class 
mail, of course, is where the highest postal rates are, where 
the support for the overhead of the institution flows from, and 
that is really where the focal point should be in terms of the 
threat to the basic balance of revenues and costs.
    Senator Pryor. If you do not know where you are going--and 
it is hard to know with all the variables out there, and like 
you said, we will know a lot in the next 12 months--should we, 
the Congress, go into sort of a holding pattern for the next 12 
months and let you sort this out before we restructure and 
transform and change things at the Postal Service?
    Mr. Johnson. Well, over the next 12 months, I am not going 
to be sorting out much of anything having to do with the mail. 
I think that there are many areas in our recommendations which 
have an orientation to best practice, best execution, better 
organization, better functioning, growth, marketing, 
cooperation with the private sector, where nothing needs to 
wait, where a reform agenda could be pursued starting today.
    I think there are other dimensions where the size of the 
challenge may evolve, but we tried to look at a very broad 
range of possible futures, and even within that broad range of 
possible futures, we came to the view that this was the right 
structure. Starting with universal service, structured as it is 
today, with the balance of revenues and costs, that we could 
achieve in a couple of decades in all likelihood, unless there 
were some radical change, of stability in this model.
    Therefore, you may get more or less political support. For 
example, on the question of whether or not the Postal Service 
should have to pick up this $25 to $30 billion of armed 
services pension obligation, because if you get a mismatch 
sooner rather than later, it may be even more apparent that it 
is a burden that should not be put on the Postal Service 
because it will rock the ship. But in my view over the long 
term, much of the reform agenda, not just from our work but 
from the work of people on this Committee, the Chairman most 
notably, work in the House, much of this agenda of change, 
flexibility, transparency, is an agenda that is ready to go. So 
I would certainly not be in the camp of saying wait if you do 
not have to.
    Senator Pryor. Thank you. Thank you, Madam Chairman.
    Chairman Collins. Senator Carper.
    Senator Carper. Thanks, Madam Chairman.
    I think I said this before, but I want to say it again to 
you and to Harry Pearce and the others who served on this 
Commission--and I know you have day jobs as well--but thank you 
very much for finding the time in your lives to invest as 
heavily as you have. And you have a very small staff. I do not 
know if any of them are with you here today--one or two of them 
look like I have seen them before.
    Mr. Johnson. Yes.
    Senator Carper. I just want to express to them and others 
who work with them our thanks; for a relatively few people, 
they did a lot, and I think they have done a good job.
    I mentioned earlier that I spent some time in the Navy back 
in the sixties and seventies on active duty, and for a long 
time after that, actually, in the reserves. I remember being in 
the military a long time ago, and people used to talk about 
government work. They would do a job, not very well, and they 
would say: ``That is good enough for Government work.'' You 
have probably heard that before. I never liked that, and people 
learned never to say that around me.
    When you are doing government's work, you are doing the 
people's work, and I think that demands our very best effort.
    Later, I was elected to State Treasurer, and at about the 
same time, Jimmy Carter was elected President, and he had a guy 
named Bert Lance, who used to work for me, as his budget 
director for a while. Bert Lance used to like to say, ``If it 
ain't broke, don't fix it.'' I do not know if it originated 
with him, but he was the first person I ever heard say that. I 
used to say that myself. I stopped saying that, though.
    And eventually, when I was Governor of Delaware, we would 
never say, ``If it ain't broke, don't fix it''--we would say, 
``If it isn't perfect, make it better.'' And I think we will 
all agree that our Postal Service is not perfect, and it can be 
made better.
    I wish we had a futurist here. I am glad that you are here, 
and I am delighted that you served on this panel. But I wish we 
had a futurist here who could talk--and this is sort of 
following up on Senator Pryor's question--and tell us what is 
the future, what is the Postal Service going to look like 10 
years from now, 20 years from now, 30 years from now. Back when 
Ted Stevens was a young Senator, I do not know if they had a 
vision of what the Postal Service was going to look like in 30 
or 32 years.
    We were talking here about email and trying to get people 
to use electronic checking and that kind of thing. We do a 
biweekly mail report in my office--I always say that the things 
you measure are the things you do best--to actually measure how 
we are doing on the mail, how many letters we receive on what 
subjects, how long our turnaround time is. I hold everybody on 
my staff accountable, including myself.
    It is interesting that when we did our mail report for this 
week and the last few weeks--do you know what we learned--we 
learned I think for the first time that if you look at the 
folks who are emailing us versus the folks who are writing us 
versus the folks who are calling us by phone, we now get more 
communications by email than either of the other two put 
together. That was not the case even 2\1/2\ years ago when I 
came here, so obviously, things are changing.
    But take just a moment, and realizing that none of us has 
the ability to see the future clearly, but what do you think 10 
or 20 years from now our Postal Service should look like, just 
in general terms?
    Mr. Johnson. The first thing that I would say is that many 
American corporations have found dimensions of productivity 
increase far beyond what they ever imagined. If you read the 
Six Sigma literature coming from General Electric, a lot of 
operational efficiency literature, if you look at the 
integration of networks, if you look at the imaging now that is 
routine in major American companies, and if you now look at 
Alan Greenspan's discussion on an ongoing basis of productivity 
increases, I think we are going to see--and I have great 
respect for public functions as well--I think we are going to 
see a postal system which is dramatically streamlined from what 
it is today. I find that very encouraging because all 
dimensions of being able to do more and better for less need to 
be pursued in the public sector, or you develop the kind of 
cynicism that you are talking about, about how it is not the 
best way to do things.
    I keep getting reminded of the Social Security 
Administration and some other dimensions of government who 
constantly are winning awards for the lowest cost, the best 
execution, doing things better than the private sector in many 
of their functions. I do not necessarily see it as more 
private. A number of my colleagues on the Commission do, and I 
think that should be an ongoing dialogue about what is private 
and what is public.
    But I would be thrilled if we were able to take all of 
those dimensions of logistical, technology, and imaging 
investment and organize those in the context of being a 
government entity and staffed by people who are staffing it 
today.
    I think this will make it better integrated, much more 
efficient from a process and logistics point of view, and I 
would guess even within the context of the narrow function that 
we describe, finding lots of new businesses as they go along. I 
think people want to be connected, and I think they want to be 
connected in tangible physical ways. And yes, you can print an 
email, and yes, you can take things off your screen, and maybe 
I am just so old that I have not gotten it yet, but when 
somebody sends me a thank you note, if it comes on email, I say 
fine, and it goes into my wastebasket reasonably quickly. But 
if somebody takes the time to write me, with some thought, and 
I have it tangibly in front of me, it makes a big difference to 
me. Now, as I said, maybe that is generational.
    Likewise, I happen to be somebody who still works from pink 
slips on my telephone messages, because until I throw away the 
pink slip, it is still in front of me, and I cannot ignore it 
on a list, and I cannot ignore it on a memo. I have the slip, 
and I know that if I have not thrown it away myself, I have not 
dealt with the issue.
    I think there is a tactile, touching, feeling dimension to 
a lot of us that some of the discussion about how we are all 
going to become email people and computer screen people and 
video-cellphone people ignores--yes, we probably will. But as I 
move around and try to get my work done, I have all those 
tangible assets. In the end, if it is important, if it is 
personal, if it is complicated, I really like to see it and 
feel it and touch it, so I tend to be a little bit on the kind 
of slow revolution side. I am a little bit on the side of the 
person who is not surprised that there are more checks every 
year. But I would not bet on it. I would not bet a lot of money 
that that is the way it is going to roll out. But I think 
Americans have shown a lot of flexibility--and this goes back 
to Senator Fitzgerald's question. I come from rural America--I 
grew up in a town of 3,000 people; my father was the acting 
postmaster in our town of 3,000 people--and I know a little bit 
about that rural dynamic. But they are changing, too, and I 
think as long as you have a service orientation from top to 
bottom in the Postal Service, we will probably be doing a lot 
of things in different ways.
    Now, if you do not have a service orientation, and you do 
not have a public mission orientation, you are going to leave 
people behind, and you are going to make bad decisions; but if 
you have the best of technology and that sort of public 
service, service orientation, this could look very different, 
but I think it could be even more of an asset for our country 
than it is today.
    Senator Carper. Madam Chairman, my time has expired. If I 
could just conclude, not with a question but with a comment--
there is a whole range of issues that I wish we had time to 
explore. I do not know if any of my colleagues have had a 
chance to visit a new post office in their States in recent 
months or weeks. I was down in Seaford, Delaware during the 
August recess. If you go to the beaches in Delaware--Rehobeth 
or Dewey or Bethany or any of those places--from Washington, 
you pass very close to Seaford, Delaware, which is where the 
first nylon plant in the world was built by the DuPont Company 
about 50 years ago.
    They recently sold off their post office which was right in 
downtown Seaford, and it is now a museum. It is really exciting 
what they have done with it. But they built a new post office 
not far from there, and it is a post office that is really more 
attuned to the 21st Century in their ability to process mail, 
but also in their ability to act as a retail operation and be 
customer-friendly and so forth.
    So I would just invite my colleagues, if you have a chance 
when you are out, touring around your State, to take a look at 
what the Postal Service is doing to give us a little bit of a 
window into the future, which I think would suggest that maybe 
the best days of the Postal Service are not entirely behind us.
    Thank you, Madam Chairman.
    Chairman Collins. Thank you, Senator. Senator Akaka.
    Senator Akaka. Thank you very much, Madam Chairman.
    Mr. Johnson, about 2 years ago, this Committee asked the 
Postal Service for a comprehensive transformation plan, which 
would address the short- and long-term operational and 
financial goals of the Postal Service, including providing 
universal service at an affordable price.
    I should tell you that I believe the Commission, within a 
compressed time frame, tackled that question. You grappled with 
the challenges facing the Postal Service and made significant 
recommendations.
    You touched on the Commission's recommendation that would 
task the Postal Regulatory Board with the responsibility of 
determining pay and benefit comparability. The Commission also 
recommends clarifying the term ``comparability'' by redefining 
current laws and applying any clarification prospectively. Were 
there other alternatives discussed on the comparability issue, 
and were there concerns that two different pay and benefit 
systems could have a chilling effect on employee morale?
    Mr. Johnson. Yes, there were. There were very substantial 
discussions of both of those concerns, and we could not think 
of a better way to proceed than what we recommended.
    As I said earlier, comparability is the law of the land. 
Partial comparability we did not believe was congressional 
intent. We believed that it was all compensation. This can 
always be reinterpreted by the Congress, but we felt that it 
meant all compensation.
    We were highly sensitive about doing anything that would 
seem to abrogate existing arrangements, existing contracts, 
existing retirees, so we thought the only possible entry point 
was for new employees. We also felt that if you did not 
honestly address it--and I am not prejudging the comparability 
issue; friends of mine in the labor movement have said to me, 
convincingly or very strongly, that if you look at the correct, 
honest comparability measures, you will not find a premium, and 
obviously, that is the kind of data that the regulator would be 
legally required to very carefully evaluate.
    We did not think that this was a fabulous, easy, non-
disruptive way of thinking about it, because just as we 
considered everything else, entering with new employees 
comprehensively seemed to us to be the best alternative. So 
that is where we ended up.
    Senator Akaka. Thank you for your response, Mr. Johnson.
    You mentioned transparency. The lack of financial 
transparency within the Postal Service has long troubled me, so 
I was interested in the Commission's recommendation that the 
Postal Service voluntarily comply with the Securities and 
Exchange Commission's reporting standards. My question to you 
is why should this be voluntary, and what incentive would there 
be for the Postal Service to comply?
    Mr. Johnson. I think the incentive to comply would be to 
end a long simmering discussion. As you said, you have had a 
long concern about whether or not they were reporting 
adequately, comprehensively, to a standard that should be 
expected of such a large, complex financial enterprise.
    The SEC standard is America's standard today; it is the 
gold standard in terms of transparency for large financial 
enterprises, so therefore, it kind of ends the issue.
    Ultimately, there might be a way of making it a little less 
voluntary. On the other hand, these are very complex issues--
and I happen to know that my former company, Fannie Mae, has 
committed to meeting all of the SEC standards in all of their 
reporting. It took them 9 months of very detailed negotiations 
for a company that reports a lot more like a standard company 
than the Postal Service does to get all the agreements and 
standards and arrangements all in place, and it was a very 
complicated effort.
    It did not seem to us to be an easy thing to mandate given 
that level of complexity. Now, maybe we should have been more 
aggressive in terms of saying that over a transition period of 
a couple of years or some reasonable period of time, the SEC 
should be asked to declare that they are in compliance. That 
could be a somewhat more aggressive approach, and if the 
Committee likes this idea at all, maybe the Committee should 
move in that direction. We were just a little lighter, even 
though we all thought it was a good standard.
    Senator Akaka. Madam Chairman, my time has expired. May I 
ask a follow-up to that?
    Chairman Collins. Certainly.
    Senator Akaka. You recommend, Mr. Johnson, that the Postal 
Regulatory Board develop reporting requirements and impose 
sanctions to enforce its reporting requirements. What sanctions 
are envisioned by the Commission?
    Mr. Johnson. Well, there is a sanction that would involve 
simply requiring the Postal Service to stop a function. For 
example, if they thought that there was cross-subsidy involved, 
they would have the authority to say there is cross-subsidy and 
you may not do this any further. If they found a rate-setting 
noncompliance, they could force compliance with the rate-
setting standards which the Regulatory Board had put in place.
    We contemplated the Postal Regulatory Board having subpoena 
power so that if there was a shortfall of information or a 
shortfall of candor, the Regulatory Board would have the legal 
capacity to subpoena records, to subpoena testimony.
    I think we have given this regulator some teeth, some would 
argue too many teeth, and it ultimately, obviously, has to be 
shaped by this Committee. But our idea was that on the areas 
where they were supposed to assume responsibility, they had a 
lot of authority.
    Senator Akaka. Thank you very much for your responses, Mr. 
Johnson. Thank you, Madam Chairman.
    Chairman Collins. Thank you, Senator.
    Mr. Johnson, I have so many more questions I want to ask 
you, but in view of the hour, I am only going to ask you a few 
of them.
    First, all of us are sensitive to making sure that the 
postal work force is fairly compensated, well-treated, and that 
morale is high, and that is why there is sensitivity, I think, 
to some of the recommendations that were made. But to help give 
us a better understanding, I want to ask you just a few 
questions in that area.
    I believe you said that 76 percent of the overall expenses 
of the Postal Service are personnel. I realize the Postal 
Service is truly unique and that it is not comparable to 
Federal Express or United Parcel Service in its mission, but do 
you have any idea what the comparable percentage of personal 
cost is for FedEx or UPS?
    Mr. Johnson. The answer is I do not have enough of an idea 
to give you an answer. It is quite dramatically less. But 
Dennis Shea, who is still working with the Commission for a 
couple more weeks, and I will get back to you.
    Chairman Collins. Thank you. That would be helpful.
    Second, it is my understanding from your report that a 
substantial number of postal employees will be eligible for 
retirement within the next 7 years, and I think if there is 
going to be a need for downsizing, all of us would hope that we 
could do this through retirements or other natural attrition 
rather than making the very painful choice of laying people 
off. Could you give us some idea of how many postal employees 
will be eligible for retirement by the year 2010?
    Mr. Johnson. The number that we used in the report which we 
got from the Postal Service was 47 percent between now and 
2010. I assume that is a generally accurate number.
    We also had an interesting session one night with the 
Postmaster General--and I would urge you to explore these 
topics with him as well. We discussed that there are quite a 
large number of temporary employees in the Postal Service, 
there are quite a large number of special arrangements of 
different kinds within the Postal Service, and if you are 
thinking about the counted employees in that 835,000, if that 
is the correct number for today, and the 47 percent, there is 
also a lot of latitude in terms of building greater 
efficiencies and lowering costs that can be pursued outside of 
that core of professional employees.
    We were convinced that with the scale of attrition, there 
would be very substantial latitude in terms of having a smaller 
work force without doing the kinds of things that you and the 
other Members of the Committee I am sure would not want to be 
doing.
    Chairman Collins. I have great respect for the fine men and 
women who serve for the Postal Service--I know you do as well--
--
    Mr. Johnson. So do we.
    Chairman Collins. [continuing] And we will certainly work 
closely with them and with the Postal Service and with the 
Commission as we pursue these recommendations.
    The pay-for-performance issue is one that interests me 
because I have been involved in a lot of the civil service 
reform issues, and I know it was unanimously agreed on by the 
Commission. It is a principle that I support.
    Would you agree that if you go to a pay-for-performance 
system, however, it is absolutely key that you have a lot of 
training in how it should be used to ensure that there is a 
fair system in place with standards for employee appraisal and 
involvement of the employees in coming up with the system?
    Mr. Johnson. I would certainly strongly agree. We tried to 
make that very clear in the report. We also had some data that 
was provided for us by Watson Wyatt, the human resources 
consulting firm. They do an employer bargaining objectives 
survey each year of establishments with collective bargaining 
agreements. Let me just give you a couple of numbers. They 
found a prevalence of incentive and variable pay plans--these 
are in unionized work forces. They found that 16 percent of 
employers utilize group incentive plans, 10 percent utilize 
gain-sharing plans, 9 percent utilize individual incentive 
plans, and 7 percent utilize profit-sharing plans. The survey 
also found that these percentages are approximately 50 percent 
higher for manufacturing and processing concerns.
    We also went back to Watson Wyatt just in the last few days 
and said there has been a lot of skepticism about whether or 
not these incentive arrangements work in unionized work forces, 
whether they can be done on a fair basis, and asked them for 
some examples of companies that had these kinds of pay-for-
performance incentive plans in place. Dennis can provide you 
with a list of companies where they are in place if there is a 
desire on your part or your staff's to see whether there are 
some of these that, in fact, are following the guidelines that 
we talked about, that you just talked about, and are working 
out well.
    Chairman Collins. That would be very helpful.
    Mr. Johnson. We do not expect anybody to accept anything on 
faith. Obviously, the Committee would want to examine very 
carefully places where this is being tried and see whether or 
not it meets the Committee standards in terms of its 
effectiveness.
    [The information follows.]

          Incentive Plans For Collectively Bargained Employees

        As a follow-up to the September 17th hearing, I wanted to let 
        you know that Commission consultant Watson Wyatt has informed 
        me that they believe the following companies have incentive 
        plans for their represented employees:
            Boeing
            United Parcel Service
            Ford Motor Co.
            Delphi Corp.
            DaimierChrysler
            Nucor Corporation

    Chairman Collins. The Commission noted in its report that 
the Postal Service has excess capacity in its mail processing 
function. I remember being struck by the fact that the 
Brentwood facility could be closed for I think it was 18 months 
in the wake of the anthrax contamination and yet did not seem 
to have a notable impact on this area's ability to process and 
receive mail.
    Did the Commission look at that example and others in 
reaching its determination, and did you come up with any 
percentage, or did you attempt to quantify the excess capacity?
    Mr. Johnson. The answer unfortunately is no and no. We did 
not look at Brentwood in any real detail. We did not attempt to 
quantify with any precision. We asked a lot of people what 
their view was of how much excess capacity and inefficiency 
there was in the current system of processing and distribution. 
And we had a lot of general characterizations saying ``a lot'', 
``a tremendous amount'', ``a lot of work can be done'', ``many, 
many facilities can be closed.'' We pressed the Postmaster 
General one night on how many he thought could be done over a 
3-year period--it was an off-the-record discussion so I will 
not give you his answer, but it was not a trivial number.
    So once again, our work here was really directional. We ask 
the post office to come in with its very best judgment about 
how it can have the most efficient, optimum network, and then 
deal with it--take it to the President, bring it to this 
Committee and the comparable committee in the House, and vote 
it up or down.
    The feeling on the Commission after having visited a lot of 
different facilities, but by no means being experts, was that 
there was a large number of facilities that were duplicative.
    Chairman Collins. Finally, I realize that the Commission's 
report has to be considered as a whole, but are there any 
particular recommendations that you think are absolutely 
imperative and want to highlight for the Committee today--you 
presented an overview, but if you were prioritizing the 
recommendations.
    Mr. Johnson. Perhaps the next time we talk.
    Chairman Collins. OK.
    Mr. Johnson. I would be happy to try to think that through 
in the right way.
    Chairman Collins. That would be fine.
    Mr. Johnson. Thank you.
    Chairman Collins. Again, I want to thank you very much for 
your hard work and for appearing before us today at our initial 
hearing to look at the Commission's report.
    I promise to send you a handwritten thank you note through 
the United States mail. You will not get a curt email thank you 
from me. It will have a 37-cent stamp on it--I will not even 
frank it. [Laughter.]
    Today's hearing is the first in a series. Our next hearing, 
which will probably be in early November, but we will announce 
the time shortly, will feature the Postal Service and the 
General Accounting Office.
    We also look forward to continuing these hearings next year 
and hearing from those more directly affected--the postal union 
representatives, the mailing community representatives. We want 
to get a wide variety of views, and we will indeed be 
soliciting those opinions even after we have adjourned for this 
session.
    I want to thank you, Mr. Johnson, for being our lead-off 
witness. You did a superb job in presenting the Commission's 
report, and I want to join all of my colleagues in thanking not 
only you, but Mr. Pearce and all the members of the Commission 
and its staff for your diligent work. I really think you did a 
superb job.
    Probably no one will agree with every single recommendation 
that you have made, but all of us are grateful for the very 
thorough look and examination that you did. I think it is a 
well-balanced, well-done report, and I salute you for it.
    We are going to keep the record open for 15 days following 
this hearing for the submission of additional statements and 
questions.
    I want to thank everybody for being here today. I think the 
attendance shows that there are many people who recognize how 
critical this report is to ensuring the future viability of the 
Postal Service, an organization, an institution, that has 
served our country so well for more than 200 years.
    This hearing is now adjourned.
    [Whereupon, at 12:01 p.m., the Committee was adjourned.]

                            A P P E N D I X

                              ----------                              

             PREPARED OPENING STATEMENT OF SENATOR COLEMAN

    Thank you Chairman Collins for holding this hearing. I know of your 
long involvement in this issue and look forward to helping you craft 
legislation to help the Postal Service prepare for the future.
    I think there is broad agreement on the challenges faced by the 
Postal Service. Every year the addition of 1.7 new addresses increases 
its operating costs. At the same time, competitive and technological 
changes have reduced both its volume and operating margins. E-mail and 
e-banking will continue to pose a growing challenge to First Class 
mail. While it is true that e-commerce is likely to increase the number 
of packages going to consumers, the Postal Service already faces strong 
competition in these markets.
    The Commission's report details all of this. It also details over 
$90 billion in unfunded future liabilities facing the Postal Service. 
By far the largest part of these liabilities is the health care costs 
promised to current future retirees. Unfortunately, the report does not 
detail how the Postal Service will generate sufficient revenues to pay 
these liabilities. There is a real danger that significantly raising 
postal rates will only increase the competitive threat.
    In the last decade the nation's leading private companies have 
implemented revolutionary changes in their logistics operations. Common 
changes include a significant reduction in the number of warehouses, 
automation, outsourcing of major activities, installation of inventory 
management systems often at enormous cost and difficulty, and better 
metrics. The Postal Service has begun to implement some of these 
changes but institutional resistance and statutory restrictions have 
slowed its progress. If the Postal Service were to undergo a revolution 
equivalent to that in the private sector, I believe it would look like 
a much different organization.
    The question is how do we get from here to there. I believe that if 
we act soon, we can ensure that changes are well thought out and we can 
find the resources to be fair to all the stakeholders. Given the 
challenges facing the Post Office, all parties are going to have to 
accept some portion of the costs of transformation. But I hope that we 
can still meet the priorities of each group. In contrast, significant 
delay only increases that chance that reforms will be imposed upon us 
in an atmosphere of panic at a time when we lack the ability to ensure 
fairness. Like the steel industry a couple of decades ago, the need for 
change is clear. Now we need the will to address these challenges in an 
honest and fair manner.

            PREPARED OPENING STATEMENT OF SENATOR LIEBERMAN

    Thank you, Madam Chairman, for convening this hearing on the 
recommendations of the President's Commission on the U.S. Postal 
Service. The Commission was established in December 2002 and was 
charged with identifying the severe financial and managerial challenges 
facing the Postal Service, examining potential solutions, and 
recommending legislative and administrative steps to ensure the long-
term viability of the Postal Service.
    On July 31, the Commission issued its report, which contains 35 
recommendations to reform the Postal Service on a wide range of topics. 
I commend the Commissioners for their efforts to understand and analyze 
the many challenges the Postal Service faces, and I believe they have 
made a number of valuable recommendations. For example, I have long 
been an advocate for greater financial disclosure by the Postal 
Service, to provide the American people a full accounting of its fiscal 
health, and I am pleased that the Commission has also seen the need for 
such increased financial transparency.
    But before I say more about this and other recommendations that I 
support, I must first express my profound disappointment about parts of 
the Commission's report that seem based on the mistaken belief that the 
problems of Postal Service can be solved by capping and cutting the pay 
and benefits of its workers. It is hard to think of any institution 
with a greater impact on virtually every American than the Postal 
Service, and its effective functioning depends on the continued loyal 
service and hard work of its employees. I believe that Commission 
recommendations which would undermine collective bargaining, threaten 
employees' economic security, and add to morale problems in the 
workplace, are misconceived and counterproductive. Such suggestions 
send the wrong message at the wrong time to postal workers: just when 
their good will and hard work are most needed to improve the Postal 
Service's status, these proposals convey the message that postal 
workers are part of the problem instead of the solution.
    For example, although wages at the Postal Service are now 
established by negotiation between management and employee 
representatives under a system of collective-bargaining, the Commission 
proposes to empower a new presidentially-appointed Postal Regulatory 
Board to determine what it believes are comparable compensation levels 
in the private sector and then to forbid collective bargaining 
agreements to exceed those caps. Collective bargaining, where 
management and labor are supposed to meet and bargain on a level field, 
would become a sham if a presidentially-appointed political board 
suppresses wages by capping or even lowering the compensation levels 
that can be agreed to.
    Another troubling recommendation is the Commission's proposal to 
empower managers at the Postal Service to bargain away the pension and 
post-retirement health-care benefits of workers. These benefits, which 
are now established in statute, are based on longstanding congressional 
initiatives and commitments, keeping Postal Service employees under the 
same health and retirement benefits as federal civil service employees. 
Breaking these commitments and subjecting pension and retiree health-
care rights to negotiation is an unwarranted step that could well 
result in reduced benefits and hardship to postal workers.
    I urge my colleagues on this Committee and in the full Senate to 
recognize the importance of maintaining our commitment to a 
professional and fairly compensated postal workforce, and to oppose 
these and other proposals that try to fix the Postal Service's problems 
on the backs of a workforce that delivers for each and every one of us 
every day.
    Despite my deep opposition to some of the Commission's workforce 
recommendations, I believe other aspects of its report are worthy of 
commendation. For example, as I mentioned earlier, I have long 
supported efforts to improve the transparency of the Postal Service's 
financial reporting. In the last Congress, I joined with other members 
of this Committee to successfully urge the Postal Service to provide 
more and better financial information on its website, but these 
improvements were only a beginning. Greater openness is an important 
first step toward fiscal health and accountability, and I support the 
Commission's recommendation that the Postal Service's financial 
reporting be enhanced. Whether this reporting should take the form of 
SEC-like requirements, as the Commission recommends, is a question that 
needs further study, but it is clear to me that the public and the 
mailing community, as well as the Postal Service itself, will benefit 
from this additional disclosure.
    I also agree with the Commission that we need to set qualifications 
ensuring a breadth of experience and skills on the Postal Board of 
Governors, and that this Board should operate in many ways like 
successful corporate boards now do. However, I am not convinced that 
allowing the Board members to select their own successors, as proposed 
by the Commission, is the right choice for a governmental entity like 
the Postal Service that must still be answerable to Congress and the 
public.
    Another worthwhile recommendation of the Commission urges the 
Postal Service to review its entire management structure to reduce 
unnecessary layers of management and to realign and modernize its 
organization. This review would help the Postal Service to optimize 
communications and efficiency throughout the organization and to 
effectively plan for the future.
    Finally, the Commission wisely reaffirmed certain basic principles 
fundamental to the future of the Postal Service, such as the concept of 
universal service and preserving the postal monopoly on First Class 
letter mail. However, I believe the suggested role of a new Postal 
Regulatory Board in ``refining'' these concepts requires additional 
review.
    Madam Chairman, I know there are many difficult decisions and 
discussions ahead as we consider these recommendations. This hearing is 
a good first step. I hope future hearings will allow us to hear from 
those most affected by the Commission's recommendations.

             PREPARED OPENING STATEMENT OF SENATOR STEVENS

    I commend James Johnson and Harry Pearce for your efforts which 
created the final report of the President's Commission on the U.S. 
Postal Service. Each of you took on a great responsibility when you 
agreed to study the Postal Service and provide recommendations to 
improve it. I was particularly pleased to read that the Commission 
pledged its commitment to preserve universal mail service throughout 
the United States.
    My State of Alaska does not have access to the infrastructure found 
in the lower 48. For many Alaskans the mail service is a lifeline. Each 
day the Postal Service delivers two million pieces of mail to Alaskan 
homes and businesses, including vital products that would not otherwise 
be available in bush Alaska. My thanks to the Commission for 
specifically recognizing Alaska's unique needs and dependence on 
universal service. As the Commission's report notes, the near daily 
appearance of the Postal Service at virtually every home and business 
is essential to American commerce and society.
    I am also pleased the Commission has recognized the Postal Service 
should remain a public entity.
    Although I believe reform of the Postal Service is necessary, it is 
my belief that some aspects of the existing Postal Service should be 
preserved.
    Again, I commend the two co-chairs of the President's Commission on 
the Postal Service for their efforts and I look forward to the 
opportunity to further discuss the recommendations made in their 
report.

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