[Senate Hearing 108-369]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-369

 THE REPORT OF THE PRESIDENTIAL COMMISSION ON THE U.S. POSTAL SERVICE: 
                  PRESERVING ACCESS AND AFFORDABILITY

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

                                HEARING

                               before the

                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                            NOVEMBER 5, 2003

                               __________

      Printed for the use of the Committee on Governmental Affairs



91-039              U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001

                   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 Akaka................................................     4
    Senator Stevens..............................................     5
    Senator Carper...............................................     7
    Senator Pryor................................................     9

                               WITNESSES
                      Wednesday, November 5, 2003

Hon. John E. Potter, Postmaster General, U.S. Postal Service.....    10
Hon. David M. Walker, Comptroller General, U.S. General 
  Accounting Office (GAO)........................................    17

                    Alphabetical List of Wistnesses

Potter, Hon. John E.:
    Testimony....................................................    10
    Prepared Statement...........................................    27
Walker, Hon. David M.:
    Testimony....................................................    17
    Prepared Statement...........................................    44

                                APPENDIX

Post-Hearing Questions and Responses for the Record from:
    Hon. John Potter.............................................   103
    Hon. David Walker............................................   117

             ADDITIONAL MATERIALS SUBMITTED FOR THE RECORD

American Business Media..........................................   137
ADVO, Inc........................................................   138
Alliance of Nonprofit Mailers....................................   142
American Forest & Paper Association (AF&PA)......................   144
Americans for Tax Reform.........................................   147
Amercian Postal Workers Union, AFL-CIO (APWU)....................   148
Association of American Publishers, Inc. (AAP)...................   153
Association for Postal Commerce (PostComm).......................   158
Association of Priority Mail Users, Inc. (APMU)..................   180
Association of United States Postal Lessors (AUSPL)..............   188
Consumer Action..................................................   191
Cox Target Media, Inc. and Valpak Direct Marketing Systems, Inc. 
  (Valpak).......................................................   193
Direct Marketing Association (The DMA)...........................   203
Envelope Manufacturers Association (EMA).........................   208
Financial Services Roundtable....................................   213
Free Speech Coalition, Inc. (FSC)................................   218
Greeting Card Association (GCA)..................................   226
Institute for Research on the Economics of Taxation (IRET).......   229
International Paper (IP).........................................   234
Lexington Institute..............................................   235
Magazine Publishers of America (MPA).............................   238
Mail Order Association of America (MOAA).........................   250
McGraw-Hill Companies, The.......................................   253
National Association of Presort Mailers (NAPM)...................   259
National Farmers Union...........................................   263
National League of Postmasters...................................   265
National Star Route Mail Contractors Association.................   276
National Taxpayers Union (NTU)...................................   280
Parcel Shippers Association (PSA)................................   282
Pitney Bowes.....................................................   290
Postal Rate Commission (PRC).....................................   298
Printing Industries of America, Inc. (PIA).......................   313
Publishers Clearing House........................................   315
Small Business Survival Committee (SBSC).........................   317
Spencer Press Inc................................................   326
Time Warner, Inc.................................................   327

 
 THE REPORT OF THE PRESIDENTIAL COMMISSION ON THE U.S. POSTAL SERVICE: 
                  PRESERVING ACCESS AND AFFORDABILITY

                              ----------                              


                      WEDNESDAY, NOVEMBER 5, 2003

                                       U.S. Senate,
                         Committee on Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2 p.m., in room 
SD-342, Dirksen Senate Office Building, Hon. Susan M. Collins, 
Chairman of the Committee, presiding.
    Present: Senators Collins, Stevens, Akaka, Carper, and 
Pryor.

              OPENING STATEMENT OF SENATOR COLLINS

    Chairman Collins. The Committee will come to order.
    Good afternoon. Today marks the second in a series of 
hearings that the Governmental Affairs Committee will hold to 
review the reforms recommended by the Presidential Commission 
on the Postal Service.
    At our first hearing in September the Committee heard from 
the Commission's Co-Chair Jim Johnson, who outlined the 
rationale behind the Committee's recommendations.
    Commissioner Johnson also made the very important point 
that although the Postal Service will end this fiscal year with 
a net income of more than $4 billion, reduced debt, and a 
smaller workforce, Congress cannot ignore the fundamental 
reality that the Postal Service is an institution in serious 
jeopardy.
    The Commission presented its assessment in stark terms. It 
said, ``an incremental approach to Postal Service reform will 
yield too little, too late given the enterprise's bleak fiscal 
outlook, the depth of 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 conclusion and one that challenges 
both the Postal Service itself and the Congress to embrace far-
reaching reforms.
    I have long been a supporter of having an independent 
commission take a look at the Postal Service, and I want to 
commend the Commission for its very thorough review.
    The financial and operational problems confronting the 
Postal Service are indeed serious. At present, the Postal 
Service is paying down $7 billion in debt to the 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.
    Last year, when the Office of Personnel Management 
discovered that the Postal Service was paying too much into the 
Civil Service Retirement System fund, I joined with my 
colleague, Senator Carper, in introducing legislation, which 
was also co-sponsored by Senator Akaka and others on this 
Committee, to correct the funding problem. This means that the 
Postal Service was able to delay its next rate increase until 
2006 and move aggressively to pay down billions of dollars in 
debt owed to the U.S. Treasury.
    There are other issues with that legislation, however, 
involving an escrow account which we will discuss today.
    Despite the reprieve afforded the Postal Service by the 
Collins-Carper bill, many problems remain and they have a 
significant economic impact. The Postal Service itself has more 
than 750,000 career employees. But 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 continued 
vitality of thousands of companies and the millions of 
Americans they employ.
    One of the greatest challenges for the Postal Service is 
the decrease in First-Class mail volume as business 
communications, bills, and payments move more and more to the 
Internet. 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 at a time when carriers must still 
deliver 6 days a week and the number of addresses served has 
only continued to grow.
    In many ways the work of the Commission builds upon actions 
already undertaken by the Postal Service. The Senate took the 
advice of the Comptroller General and requested that the 
Postmaster General deliver to Congress in April 2002 a 
comprehensive transformation plan. The Postal Service, in its 
plan, determined what changes could be made within existing 
constraints that would result in improved operations, 
performances and finances.
    The transformation plan has been recognized as a very 
positive 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 cannot happen.
    As a Senator representing a largely rural State whose 
citizens depend heavily on the Postal Service, I 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 live in the 
Northern Woods or on the islands off our coast, or in our many 
small rural communities have the same access to quality postal 
services as the people of our cities. 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 offers. So the preservation of universal 
service is my top priority.
    Nevertheless, the Postal Service has reached a critical 
juncture. It is time for a thorough evaluation of its 
operations and requirements. It is time for action.
    Senator Carper and I have committed to working together 
with other interested Members of this Committee to draft a 
bipartisan postal reform bill. Now, given the history of 
previous attempts to pass postal reform legislation, I 
recognize that this is a daunting challenge. But it is 
essential that we seize the opportunity presented by the 
Commission's report, supplemented by the transformation plan, 
to build on the excellent work already underway and to complete 
the job.
    I am going to submit the rest of my statement and my full 
statement in the record. We are expecting, unfortunately, to 
have three back-to-back votes at 2:30. So I am eager to hear 
Senator Akaka's remarks and then hear from our two excellent 
witnesses today, Postmaster General Jack Potter, and 
Comptroller General David Walker. Both of them have 
considerable insights that will be very helpful to the 
Committee.
    [The prepared opening statement of Senator Collins 
follows:]
             PREPARED OPENING STATEMENT OF SENATOR COLLINS
    Today marks the second in a series of hearings the Committee will 
hold to review the reforms recommended by the Presidential Commission 
on the Postal Service. At our first hearing in September, the Committee 
heard from Commission Co-Chair Jim Johnson. His testimony provided 
Committee members with the rationale behind the recommendations. 
Commissioner Johnson also made the very important point that although 
the Postal Service will end this fiscal year with net income of more 
than $4 billion, reduced debt, and a smaller workforce, Congress cannot 
ignore the fundamental reality that the Postal Service is an 
institution in serious jeopardy. The Commission presented its 
assessment in stark terms, and I quote, ``an incremental approach to 
Postal Service reform will yield too little, too late, given the 
enterprise's bleak fiscal outlook, the depth of 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.
    From the outset, I have been a strong proponent of the Commission. 
In the Summer of 2002, I introduced my own bill to establish a 
Presidential Postal Commission charged with examining the problems the 
Postal Service faces, and with developing specific legislative and 
administrative proposals that Congress and the Postal Service could 
implement. Naturally, I was pleased to have such a Commission issue 
this type of report just one year later. Under the effective leadership 
of Co-Chairs Harry Pearce and James Johnson, the Commission put 
together a highly comprehensive report on an extremely complex issue--
identifying the operational, structural, and financial challenges 
facing the U.S. Postal Service.
    To the relief of many, including myself, 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 this 225-year-old Service remain viable through at least the 
next two decades.
    The financial and operational problems confronting the Postal 
Service are serious. At present, the Postal Service is paying down $7 
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 over-fund its estimated 
retirement liability by approximately $71 billion dollars over a period 
of 60 years. In February, Senator Carper and I introduced legislation 
to correct this funding problem. That bill's enactment this past April 
enabled the Postal Service to delay its next rate increase until 2006 
and to more aggressively pay down billions in debt owed to the U.S. 
Treasury. The bill also required the Postal Service to submit to 
Congress a proposal regarding the use of the ``savings'' resulting from 
the Act, beginning in 2006. Those ``savings'' would be placed in an 
escrow account and may not be spent until a pending plan is approved 
and authorized by Congress. It is my intention to address this issue as 
part of an overall postal reform bill.
    Despite the reprieve afforded the Postal Service by the Collins-
Carper bill, many problems remain, and they have a significant economic 
impact. The Postal Service itself has 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 of thousands of companies and the millions 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 cut. Even though volumes may be 
decreasing, carriers must still deliver 6 days a week to more than 139 
million addresses.
    In many ways, the work of the Commission builds upon work already 
started by the Postal Service. In late 2001, the Senate took the advice 
of Comptroller General David Walker and requested that Postmaster 
General Jack Potter deliver to Congress, in April of 2002, a 
comprehensive Transformation Plan designed, and again I quote, ``to 
ensure the continuation of affordable universal service and to prepare 
the organization for the challenges of change in a dynamic 
marketplace.''
    In the Transformation Plan, the Postal Service determined what 
changes could be made, within existing constraints, that would result 
in improved operations, performance and finances. This plan has been 
widely recognized as a good ``first step,'' but that's exactly what it 
is--a first step. Without legislation, many of the necessary reforms 
highlighted in the Commission's report simply will not happen.
    As a Senator representing a largely rural State whose citizens 
depend on the Postal Service, I 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 living in 
the northern woods, or on islands, or in our many rural small towns, 
have the same access to postal services as the people of our cities. If 
the Postal Service were no longer to provide universal service and 
deliver mail to every customer, the affordable communication 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 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 their 
livelihoods. The Postal Service has reached a critical juncture. It is 
time for a thorough evaluation of the Postal Service's operations and 
requirements. It is time for action.
    Senator Carper and I have committed to work together with other 
interested members to draft a bi-partisan postal reform bill. Given the 
history of previous attempts at legislative reforms, I know this will 
be a challenging goal, but it is essential that we seize the 
opportunity provided by the Commission' excellent work.
    I welcome our witnesses today, Postmaster General Jack Potter and 
Comptroller General David Walker, and look forward to hearing their 
views and insights on the recommendations of the Presidential 
Commission on the Postal Service.

    Chairman Collins. Senator Akaka.

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka. Thank you, very much, Chairman Collins.
    I want you to know, it is indeed an honor and a pleasure 
and privilege to serve as your Ranking Member today. And I want 
to add my welcome to our two distinguished witnesses. I also 
want to commend our panelists for their focused attention, 
determination, and passion on what I consider a key public 
policy issue, which is how to modernize and sustain the U.S. 
Postal Service.
    And I want to add that both of you are such pleasant people 
to work with and I look forward to working with you in the 
future.
    Even before the Presidential Postal Commission was 
convened, GAO warned that the long-term financial outlook of 
the Postal Service was at risk without significant changes. At 
this Committee's request, the Service developed a 
transformation plan that offered its vision for the future. The 
U.S. economy depends on a strong and viable Postal Service, 
which anchors a $900 billion mailing industry that generates 8 
percent of our gross domestic product.
    Nor can we ignore that, for many Americans, the Postal 
Service is their only contact with the Federal Government. The 
delivery of mail 6 days a week at an affordable rate is an 
essential service and a critical lifeline for many citizens 
living in the rural areas or States like Hawaii and Alaska. The 
good news is that productivity is up, overnight performance is 
at its highest level, and over 93 percent of consumers are 
satisfied with their service.
    However, the continued decline in First-Class mail is just 
one reminder that the long-term stability of the Postal Service 
remains at risk.
    This Committee understands and appreciates the challenges 
facing the Postal Service. It is in this spirit that I look 
forward to discussing the Commission's recommendations with 
both Postmaster General Potter and Comptroller General Walker. 
Although we may disagree on some of the recommendations, I am 
hopeful that our common goal of guaranteeing the future of the 
Postal Service will bridge any chasm.
    I will work with our Chairman on bipartisan legislation 
that will preserve universal service at an affordable price and 
honor the Postal Service's commitments to its employees and 
retirees.
    Thank you very much, Chairman Collins.
    Chairman Collins. Thank you, Senator Akaka, it is always a 
great pleasure to have you serve as the Ranking Member of the 
Committee. Senator Stevens.

              OPENING STATEMENT OF SENATOR STEVENS

    Senator Stevens. Thank you very much. I just came in in 
time. It is nice to see you, Mr. Postmaster General. We are 
working on a few matters around here, non-controversial of 
course.
    Madam Chairman, I am here today to commend Postmaster 
General Jack Potter for his efforts which have guided the 
Postal Service now since June 1, 2001. He took on great 
responsibility when he agreed to become the 72nd Postmaster 
General of United States and has helped us develop and 
institute a transformation plan for the Postal Service. His 
leadership has facilitated increased productivity and has 
improved customer satisfaction.
    I understand the purpose of this hearing is to comment on 
and evaluate the recommendations made by the President's 
Commission on the U.S. Postal Service. The Commission also took 
on great responsibility when they agreed to study the Postal 
Service and provide these recommendations to improve it.
    Although I believe further reform of the Postal Service is 
necessary, it is my belief that many aspects of the existing 
Postal Service should be preserved. I was pleased to hear and 
read that the Commission and the Postmaster General have 
pledged their commitment to preserve universal mail service 
throughout the United States.
    For my State of Alaska, the concept of universal service is 
absolutely essential. Alaska does not have access to the 
infrastructure found in what we call the lower Forty-Eight. For 
many Alaskans the mail service is a lifeline. We do not use 
roads. We only travel by air primarily. We have one railroad 
that goes north to south. But each day it is the Postal Service 
that delivers 2 million pieces of mail to Alaskan homes and 
businesses, including vital products that would otherwise not 
be available in the bush of Alaska.
    I remember one time, John, when one of my constituents 
figured out how to get hay. He just mailed it and put a postage 
stamp on it. And he just had to fly planes for each 1,000 
pounds, that is all.
    The services you provide through the Postal Service reach 
every home and business in America and are essential to 
American commerce and society.
    The Commission's report also provided a comprehensive 
evaluation of the Postal Service's workforce, operation, 
leadership, and financial outlook. The President's Commission 
made several recommendations to reduce the Postal Service's 
outstanding debt. One recommendation suggests that the Treasury 
Department should be obligated to fund the cost of CSRS 
benefits that current and former Postal Service employees have 
earned through military service. I also believe that the Postal 
Service should not be responsible for financing military 
pension benefits. If the Postal Service was required to pay the 
military portion of CSRS benefits, the Postal Service would be 
the only Federal Agency required to pay such costs.
    In the early 1970's I, along with several other Senators, 
joined together to create the Postal Service out of the old 
Post Office Department. And in 1971, President Nixon signed 
into law the Postal Reorganization Act. In the years which have 
gone by since the Postal Reorganization Act was originally 
adopted, technological advances coupled with the financial 
state of the Postal Service have demonstrated the need for more 
postal modernization. All recommendations made by the 
President's Commission should be closely scrutinized and 
assessed, I think, by every Member of this Committee to ensure 
the future vitality of the Postal Service.
    I am committed to working with you, Madam Chairman, on the 
Postal Service. I think labor unions, other Members of 
Congress, and all who helped create this legislation to reform 
the Postal Service and ensure the core of the mission of the 
Postal Service is preserved, need to work together.
    I thank you, Madam Chairman, for holding this hearing. I do 
have some questions I would like to leave behind. We are in the 
middle of a conference. But as I said in the beginning, the 
Postal Service is in good hands. And I am most pleased to be 
able to work with you, John. He is a fishing buddy now, so it 
is a first name. Once you are a fishing buddy you are on a 
first-name basis up my way.
    I am very serious. I have now served on this Committee 
longer than any member in history and I am very proud of my 
relationship with the Postal Service and with those who have 
held your position. It is a very vital necessity in rural 
America in particular. Be assured that we will maintain what 
the Constitution dreamed of, which was a universal service of 
mail delivery to all Americans as long as it is needed.
    I congratulate you and thank you very much for your help, 
my friend. Thank you, I have to go back to my conference.
    Chairman Collins. Thank you, Senator Stevens. We are very 
honored to have your insights, given your long association with 
the Postal Service. Thank you.
    Senator Carper, now during my opening statement, I pledged 
that we are going to solve this problem. So do not say anything 
that undercuts that, since you were not here to hear what I 
pledged that you were going to do.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. I always try to live up to your pledges for 
me and will continue to do that.
    My family and I went up on vacation to Alaska in August and 
went fishing on the Kenai River. I do not know, General Potter, 
if you went fishing there with Chairman Stevens, but that is a 
great place to fish. We spent a night in a lodge. They had 
pictures of all kinds of people up on the wall who had been 
fishing there on the Kenai and had done pretty well. I think 
they had more pictures of him than anyone else--there were 
hundreds of pictures of him, a lot of pictures of him. He is a 
fellow who knows how to catch fish.
    He also knew 32 years ago how to create the Postal Service 
out of the old Post Office Department. The Postal Service has 
endured for a long, long time and has served our country well.
    Senator Akaka and Senator Collins, the idea that any of us 
could create a legacy, something as important as the Postal 
Service, that would stand for over three decades, with 
relatively little change is, I think, remarkable.
    In 1971, though, a lot was different than it is now. In 
1971, I was over in Southeast Asia in the Navy and we did not 
have E-mail. We did not have the ability to pick up a cell 
phone and talk to people on the other side of the world. We 
wrote letters, sent them first class. We did not have direct 
deposit for our checks. There is just a whole lot that is 
different today than it was then and it impacts on the Postal 
Service.
    What is incumbent on us, I think, is to build on the legacy 
really that Senator Stevens has provided for us, to stand on 
the shoulders of those who came before. And they are, as it 
turns out, pretty broad shoulders.
    I think we are fortunate, as we try to figure what kind of 
Postal Service we want to have in the first half of the 21st 
Century, to have a Chairman of this Committee who understands 
the issues as well as she does and is interested in working 
with folks on her side and our side. I am delighted to have a 
chance to work with my friend, Senator Akaka.
    I think the sun, the moon, and the stars may be in 
alignment here. There is a realization on the part of the 
people in this country, certainly the people who are served by 
the Postal Service, that maybe it is time to change some things 
and to modify the way we operate.
    There is also a realization that coming out of the 
legislation I introduced last year, what Congressman McHugh and 
others have introduced in the House, out of the recommendations 
of the Postal Commission itself, there is a fair amount of 
convergence of opinion in what we should do. And that gives us, 
I think, another reason to be hopeful that maybe in 2004 we 
will be able to make great progress and end up with a Postal 
Service that not only stands the test in 2004 and 2005 but for 
a whole lot longer.
    Madam Chairman, I have a statement I would like to enter 
into the record, if I could.
    Chairman Collins. Without objection.
    [The prepared statement of Senator Carper follows:]
              PREPARED OPENING STATEMENT OF SENATOR CARPER
    Thank you, Madam Chairman, for holding this important series of 
hearings on the report from the President's Commission on the United 
States Postal Service.
    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 years after its birth, the Postal Service is a key 
part of the nation's economy, delivering to more than 100 million 
addresses and supporting a massive mailing industry.
    Thirty years of success, however, does not mean postal reform will 
be easy. Now is not the time to tinker with the current system in hopes 
that mail volume will recover or that cost-cutting will buy the Postal 
Service a few more years.
    As my colleagues are aware, mail volume has not been what we'd like 
it to be in recent years. In fact, many observers believe that First 
Class Mail, the Postal Service's largest and most important product, 
has been in decline since the 1980's. The Postal Service itself 
estimates that advertising mail could overtake First Class Mail as the 
Postal Service's leading product less than 2 years from now.
    At the same time that First Class Mail is on the decline, the 
Postal Service continues to add nearly two million new delivery points 
each year. This creates the need for new routes, more letter carriers 
and new postal facilities. As more and more customers turn to 
electronic forms of communication, however, letter carriers will likely 
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. Now is the time 
for Congress to step in.
    In order to ensure that the Postal Service is as successful in the 
21st Century as it was in the final years of the 20th, we will need to 
make fundamental changes to the way it operates. Fortunately, there is 
probably general agreement on about what 90 percent of those changes 
should be.
    Congress has been at work on postal reform for nearly a decade now, 
mostly in the House. The work done in the House influenced the postal 
reform legislation I introduced earlier this year--S. 1285, the Postal 
Accountability and Enhancement Act. I was pleased to learn this summer 
that the final recommendations from the President's commission on the 
Postal Service were very similar to that bill in a number of respects.
    Like my bill, the commission's final 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.
    We began the process of postal reform at the beginning of this year 
with the successful passage of the Postal Civil Service Retirement 
System Funding Reform Act, which I joined Senator Collins in 
introducing. That bill has given mailers a break from rate increases. 
It has also allowed the Postal Service to run a surplus this year. The 
facts show, however, that this situation will not last. We have a brief 
window now to get real postal reform done. I hope that these hearings 
we are holding begin the process of working out bipartisan postal 
reform legislation that we can pass in the first few months of next 
year.

    Senator Carper. I really look forward to working with you 
and Senator Akaka and other colleagues. And General Potter, you 
and your team on the management side, the labor side, the rank 
and file, we are proud of the work that you are doing, and 
grateful for the work that you are doing.
    I do not know if there is anybody here representing the 
Commission today, I suspect there is, and we are grateful for 
the fine work that you have done, your willingness to talk with 
us, and to receive broad input and we look forward to hearing 
from our Comptroller General, as well, and others who are going 
to be testifying.
    Thanks very much.
    Chairman Collins. Thank you very much. It is now my 
pleasure to call on Senator Pryor.

               OPENING STATEMENT OF SENATOR PRYOR

    Senator Pryor. Thank you, Madam Chairman.
    I want to thank you for your leadership and Senator Carper 
and others for your leadership. I know recently you guided us 
to the successful passage of the Postal Civil Service 
Retirement System Funding Act of 2003 and I think that was an 
important step for the Postal Service.
    Also, I think now, as we look at what we are talking about 
today, we understand there are lots of challenges that the Post 
Office is facing. I think that most Senators I have talked to 
want to make sure that we keep the word service in mind with 
Postal Service, that we are serving the people of this country 
in the ways that we feel like it was designed to do.
    But also, we need to look at possible administrative 
changes and we need to certainly consider postal workers, but 
other factors in how we modernize our postal system and make it 
more efficient, but also to meet the challenges that lay ahead.
    So Senator Collins, Senator Akaka, and Senator Carper, I 
really look forward to working with you on this and look 
forward to today's hearing. Thanks for having it.
    Chairman Collins. Thank you, Senator.
    I would now like to call upon our first witness for the 
day. It is Postmaster General John Potter. I want to join my 
colleagues in commending you for your outstanding leadership of 
the Postal Service during very challenging times.
    Since taking the helm as Postmaster General in 2001 you 
have made great strides in reducing inefficiencies, improving 
service and productivity, strengthening labor relations, and 
cutting costs. And I think that is a tribute to how well you 
know the Postal Service as a 24-year veteran of the Postal 
Service. You know it inside out. So we are very pleased to have 
you with us today.
    You may proceed.

 TESTIMONY OF HON. JOHN E. POTTER,\1\ POSTMASTER GENERAL, U.S. 
                         POSTAL SERVICE

    Mr. Potter. Good afternoon, Chairman Collins, and thank you 
for those kind remarks and good afternoon to the Members of the 
Committee.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Potter appears in the Appendix on 
page 27.
---------------------------------------------------------------------------
    I welcome this opportunity to discuss postal legislative 
reform. My complete prepared testimony has been submitted for 
the record, so I will keep my remarks brief.
    I want to thank the Committee for advancing the notion last 
year that a President's Commission on the Postal Service might 
enable legislative change to move forward. The Commission was 
one of the most important developments during 2003. As 
Postmaster General, I am grateful for the Commission's efforts. 
They took on a complex assignment over a short period of time 
and they did an outstanding job of learning about our business 
through input from a variety of industry stakeholders. They 
made difficult decisions in arriving at their final report. We 
all owe each of the members of the Commission our sincere 
thanks.
    I am pleased that the Commission acknowledged that the 
Postal Service, through implementation of the transformation 
plan, is making substantial progress in adapting to an 
uncertain future. The plan is taking us in the right direction 
and I appreciate the support of this Committee as we work to 
create and now execute the plan.
    The transformation plan is all about delivering for our 
customers. To that point, we have brought service and customer 
satisfaction to historic performance levels. The year 2000 
marked the first of a record four straight years of increased 
total factor productivity. We have reduced our career employee 
complement by 70,000 from its peak level in 1999. We have 
delivered $5 billion in cost savings since then. We have 
established pay for performance systems for managers and 
executives.
    We have also seen, I might add, increases in employee 
satisfaction as well as a reduction in the backlog of employee 
grievances awaiting arbitration. In sum, we are aggressively 
managing the business.
    In addition, the recent legislation adjusting our payments 
to the Civil Service Retirement System, combined with our cost 
control efforts, will enable us to hold rates steady until 
2006. We are particularly grateful for the understanding and 
cooperation of the Chairman and this Committee for your prompt 
action in addressing the potential overpayment of the Postal 
Service pension funds.
    The Civil Service Retirement System legislation has 
contributed to the reduction of outstanding USPS debt by more 
than one-third from $11.1 billion to $7.3 billion this year. At 
the same time, the legislation presents very definite 
challenges. First it shifts the responsibility for funding CSRS 
retirement benefits earned by postal employees for time served 
in the military from the Treasury to the Postal Service. GAO 
estimates this transferred an obligation of more than $27 
billion from taxpayers to postal ratepayers. These costs for 
other Federal departments and agencies continue to be paid by 
the Treasury. The Postal Service is the only exception.
    We agree with the recommendation of the President's 
Commission that the Postal Service should not be responsible 
for military service cost. The CSRS legislation also asks the 
Postal Service for proposals regarding the use of savings 
resulting from the Act beginning in 2006. Those savings are to 
be placed in an escrow account pending Congressional 
authorization of how they will be used. For 2003 and 2004 there 
are actual funds available, savings, to use for other purposes 
and we will use those funds to pay down debt. In 2005 those 
funds will be used for operating expenses and capital 
investments, allowing us to extend the rate cycle.
    We are doing everything we can to extend the rate cycle 
beyond 2005, but we expect that we will have to raise rates in 
2006 due to inflationary cost increases.
    Should the escrow account or escrow funds not be 
eliminated, postage rates will have to rise even more than is 
necessary. Thus, without further legislation, postal customers 
will find themselves back where they started, reinstating the 
overfunding the legislation was designed to correct. We have 
provided our comments on these issues to Congress, the 
administration, and the GAO, and we hope that you will act on 
our recommendations.
    Many in the Postal Service and the mailing community and 
Congress have long recognized that our basic business model is 
outdated and lacks flexibility. The stellar service performance 
and $3.9 billion net income projected for fiscal year 2003 
should not deter us from moving forward with legislative 
reforms. Besides, about $3 billion of the $3.9 billion positive 
net income is due to the CSRS legislation. The reality is that 
mail volume declined in each of the last 3 fiscal years, 
dropping nearly 6 billion pieces overall. During the same 3-
year period, the number of addresses we serve increased by 5.2 
million.
    The President's Commission recognized that electronic media 
threatens First-Class mail and the Postal Service's long-term 
success. The Commission also understood the need to act before 
a crisis imposes hardships on the American public, American 
businesses, or on postal employees.
    We accept most of the Commission's views and are working to 
implement those where we can. For example, we are enhancing our 
financial reporting, transitioning to Securities and Exchange 
Commission requirements where those requirements make sense 
when applied to a non-stockholder owned company. We support the 
Commission's recommendation that the Postal Service requires 
additional flexibility to manage, especially when it comes to 
rate-making.
    Let me assure you that the Postal Service is committed to 
the collective bargaining process and continually seeks to 
enhance its relationship with our employees. We have 
demonstrated our preference for negotiated settlements and seek 
to avoid the use of arbitrators to settle our disputes. In the 
event the parties reach impasse, we agree with the Commission 
that the collective bargaining process could be enhanced with a 
mandatory mediation step providing another opportunity for 
settlement prior to arbitration.
    It is our intention to negotiate with each of our unions to 
add mediation to the current process. In addition, collective 
bargaining should give all parties the ability to negotiate for 
benefits as well as wages.
    And let me assure you again though, it is not our intention 
to reduce the benefits already enjoyed by current and retired 
employees.
    In short, on many key issues, the Commission and management 
have a basic level of agreement. There are, however, some areas 
where we have reservations.
    As an example, in the area of governance, the Commission 
recommends significant changes to our governing board. The 
Governors of the Postal Service are today appointed by the 
President with the advice and consent of the Senate. The law 
requires that no more than five may belong to the same 
political party. This has allowed the Postal Service to enjoy 
bipartisan oversight for the last three decades. The 
Commission's proposed new board of directors could change this. 
In addition, the Commission proposes a Postal Regulatory Board 
with discretionary policy authority in a wide range of areas to 
replace the current Postal Rate Commission which has a more 
limited mandate.
    For instance, the Postal Regulatory Board can revisit the 
vital national issue of postal monopoly and universal service. 
From the perspective of the Postal Service, these are clearly 
issues of broad public policy. They are not regulatory issues. 
Without the fine limits or guidelines, the regulator could 
conceivably limit the monopoly in such a way as to jeopardize 
universal service or even redefine the scope of the Nation's 
mail service itself.
    The powers of the proposed regulatory board could also 
affect the outcome of the collective bargaining process. They 
could define the range within which wages may be negotiated. 
They would also be charged with making a wage comparability 
determination. This, too, is something that should be part of 
the collective bargaining process. Under the proposals of the 
Commission, the powers given to a regulatory board would 
essentially destroy meaningful collective bargaining. We do not 
think that it is in the Nation's best interests.
    When considering the role of a regulator, there should be a 
clear line between what is appropriately a management function 
with board oversight, regulatory function, and that which is 
public policy reserved for the Nation's lawmakers.
    I am encouraged by the interest of this Committee and the 
interest that you have demonstrated by holding a series of 
hearings to explore the recommendations of the President's 
Commission on the Postal Service. The Commission has added a 
new voice to the important conversation about the future of 
America's mail system.
    Chairman Collins, I have been asked on many occasions for 
my vision of the Postal Service's future. In my opinion, 
America needs a Postal Service that has an incentive to improve 
service and productivity, a Postal Service that is given the 
flexibility to reduce costs, a Postal Service that can 
implement rates that are responsive to the market and that will 
mitigate large counterproductive rate increases.
    America also needs a Postal Service that has the ability to 
work with and treat customers as individuals with individual 
needs, where our products, services, and systems are available 
to those customers where they are located, not just where post 
offices are.
    And finally and most importantly, America needs a Postal 
Service that can retain a motivated and informed workforce to 
provide universal service to every home and business in the 
Nation.
    Thank you, Madam Chairman and I will be happy to answer any 
questions.
    Chairman Collins. Thank you very much, Mr. Potter.
    You outlined some areas where you believe the Commission's 
recommendations should be altered. Could you tell us what you 
view to be the most important recommendation of the Commission 
as far as ensuring the long-term viability and strength of the 
Postal Service?
    Mr. Potter. I think there are two areas that the Commission 
focused on that I think are helpful to the Postal Service. The 
first is the area of rates and the need to change the rate 
system so that we can manage that process better than we have 
in the past.
    In addition to that, I think the other area of focus is the 
notion that management has the ability to control its costs 
through the network of post offices and processing centers 
throughout the country, through which we deliver service to 
America.
    Chairman Collins. Thank you.
    The Postal Service has recently reported, and you said in 
your testimony today, that it has reduced the workforce by some 
70,000 over the past 5 years. I want to commend you for the way 
in which you have done this. I think that it has been done in a 
way that has avoided disruption to service and to the lives of 
the individual employees involved by placing a great reliance 
on attrition or early retirement programs, even those without 
particular financial incentives.
    At the Committee's hearing in September, Commissioner 
Johnson noted that by the year 2010 approximately 47 percent of 
the Postal Service's workforce, the career workforce, will be 
eligible for retirement. Does this offer an opportunity for you 
to right-size the organization without resorting to widespread 
layoffs that would obviously be painful for the employees 
involved?
    Mr. Potter. We have committed to our unions that we would 
not lay people off. In fact, we have signed contracts with two 
of our unions a year in advance of their expiring. The reason 
we did that was to address the concerns of our employees that 
we had plans to lay people off.
    I believe that the level of attrition that we anticipate 
happening over the next decade is sufficient to handle any 
restructuring that might occur within the Postal Service. And I 
do not believe we are going to have to resort to layoffs.
    Chairman Collins. One of the recommendations made by the 
Commission was that the pension and other benefits of postal 
employees should be made a matter of collective bargaining. I 
believe you endorsed that recommendation today but I just 
wanted to clarify that for the record.
    Mr. Potter. I endorsed that recommendation, particularly 
for new hires. But I believe that we have a contract with our 
current employees and those who have retired from the Postal 
Service and I do not believe that those changes should occur 
other than through collective bargaining.
    Chairman Collins. The Commission made some controversial 
recommendations, in terms of creating an independent commission 
that would look at the capacity of the Postal Service, 
particularly your mail processing centers. It would be modeled 
on a base closure commission. Some of us who have experience 
with base closure commissions do not have positive feelings 
about that process.
    I wondered if you could share with us whether you think 
that we need to create a base closure-like commission to review 
the structure of the Postal Service, the infrastructure of the 
Postal Service, or whether you think that there is a better way 
to identify excess capacity to the extent it exists?
    Mr. Potter. The Postal Service has been evolving for over 
200 years. In the past 2 years alone we have modified our 
network. We have closed over 50 facilities. I think that 
evolution will continue to take place. I personally think that 
the expertise to make decisions about which facilities are 
necessary and which are not rests within the Postal Service. I 
think we are the best experts in the world when it comes to 
mail and we know what opportunities exist.
    The other thing about the Postal Service is we are 
everywhere and we intend to stay everywhere. When it comes to 
making decisions about networks and facilities, these really 
are local issues, in a sense they are metropolitan issues. And 
I believe they need to be dealt with by postal management at 
the local level and the communities, politicians, employees in 
that local area.
    So I think that the value of a national commission is 
questionable. It may help but I think we would have to see 
further details about how they might approach this issue which 
I believe for the most part are local in the sense that they 
deal with metropolitan issues and not national issues.
    Chairman Collins. Thank you. Senator Akaka.
    Senator Akaka. Thank you very much, Madam Chairman.
    Thank you for your testimony, Mr. Potter. I want to add to 
what I said earlier in my statement. You have been the right 
man in the right place at the right time since you were named 
the Nation's 72nd Postmaster General. Again, it is a pleasure 
to work with you and I look forward to that.
    Mr. Potter, you spoke of the need to shift the obligation 
to cover military retirement costs of postal employees back to 
the Treasury from the Postal Service. This shift is supported 
by the President's Commission. I understand that the resulting 
savings would be used to fund future retiree health benefits.
    I am curious why the Postal Service did not oppose the 
requirement that it cover military service payments when 
Congress was considering the CSRS legislation. Would you please 
comment on that?
    Mr. Potter. At the time that the legislation was drafted, 
it had a clause that asked for later comment. So we chose to 
follow that path, get the benefits that we could, and deal with 
that issue as outlined in the legislation at future hearings 
like this and in future legislation that dealt with the escrow 
account.
    Senator Akaka. Thank you. The Commission recommends 
providing the proposed Postal Regulatory Board with a number of 
new authorities including defining universal service and the 
mail monopoly, setting revenue requirements, and studying wage 
comparability. A great deal of this tracks legislation 
considered by the House of Representatives last year which the 
Postal Service supported.
    My question to you is will you support similar provisions 
in the future?
    Mr. Potter. What we did last year, we supported a 
comprehensive legislative bill. We did not necessarily support 
every item in that bill. And I think we are pretty clear on our 
feelings about the role of the regulator, the role that 
management should play, and we feel that we should have the 
ability to manage our networks, our systems, our people. And we 
believe that the Congress should have a role when it comes to 
defining universal service and outlining for the Postal Service 
what our obligations are to the American public.
    Senator Akaka. My final question, and I appreciate your 
responses to my other questions, Mr. Potter.
    The Commission recommends using the Postal Service's core 
strength, the first mile and the last mile. United Parcel 
Service recently announced a test program utilizing the Postal 
Service for deliveries to homes in some rural areas. Does this 
relationship require any special contractual arrangement with 
UPS governing the handling of items that UPS gives to the 
Postal Service for delivery?
    Mr. Potter. No, UPS is accessing a rate, a parcel select 
rate, where they deposit mail at a delivery unit and we carry 
it the last leg to the customer's door. So they are simply 
accessing an existing postal rate. It is not an exclusive rate. 
Anybody in America can access that rate and we hope that all 
package companies use us for the last mile.
    Senator Akaka. Thank you, Madam Chairman.
    Chairman Collins. Thank you very much, Senator. I would 
inform everyone that there are about 6 minutes left in this 
vote. My hope is we could get through some questions--
unfortunately we have three votes back to back--and then take a 
20-minute recess, and then go on to our second witness. Senator 
Carper.
    Senator Carper. Mr. Postmaster General, Senator Collins 
asked a question relating to a BRAC-like procedure to address 
the issue of identifying post offices that might be candidates 
for realignment, for closure, or whatever. Let me ask a 
variation of that question, but one that focuses more on 
processing centers, distribution centers, that kind of thing.
    I know that the Postal Service is taking steps to close or 
make other changes in its processing centers across the 
country. I think it was announced in September that three--I 
think you call them remote encoding centers--I think one was in 
Kentucky and maybe another in New York--but three centers would 
be closed by early next year.
    In Delaware, as you know, there are a number of changes 
that have been made. We only have one processing/distribution 
center, just south of Wilmington. Those changes have resulted 
in some work moving up to Philadelphia where I am told they are 
planning to build a very large new processing center close to 
the Philadelphia airport, which as it turns out is closer to my 
home than it is to the home of the mayor of Philadelphia.
    I am sure that similar changes have been reported across 
the country. I guess my question is is there some strategy 
behind what the Postal Service is doing with its processing 
facilities? And if there is, could you share that with us 
today?
    Mr. Potter. As I said earlier, the Postal Service has 
evolved over the years. At one point in our history we had 
74,000 post offices and over 1,000 places that processed 
originating mail and acted as plants. Over the course of time, 
deployment of equipment, first mechanized equipment and now 
automated equipment, has enabled the Postal Service to 
consolidate the processing of that mail. As I said earlier, we 
are constantly looking at our networks to determine where and 
how we can efficiently process mail.
    So the examination or the discussion of the network and 
what alternatives might exist to make the network more 
efficient, while delivering better service, has been something 
that we have been participating in for 25 years. So I consider 
it to be again part of the evolution of the Postal Service.
    Senator Carper. Do I gather from that that there is no 
strategy behind what you are doing in this area?
    Mr. Potter. The strategy is to become efficient, provide 
high levels of service, to accommodate employees as best we can 
through the contract to make this network more and more 
efficient. That is the basic concept of what we are doing and 
it is something that is part and parcel with the Postal Service 
and it has been part and parcel at the Postal Service for at 
least the 25 years I have been at it.
    Senator Carper. When you look at what the Commission is 
recommending, and maybe consider the legislation that I 
introduced earlier this year, and what you are trying to do in 
terms of bringing the Postal Service into the 21st Century, the 
discussions you had with organized labor and your customers, 
what would you pick out as just a handful of the toughest 
issues that we face as we take up early next year the issues of 
postal reform?
    Mr. Potter. I think one of the toughest issues that any 
postal administration has faced throughout the world is this 
notion of how you provide access to postal services. And 
whether that is a brick and mortar post office versus a rural 
carrier, which we have, a post office on wheels. People like 
their post office and the notion that there are other ways of 
providing that service other than through brick and mortar is 
something that all postal administration's around the world 
struggle with. So that is something that I believe we will 
struggle with as well.
    The notion of the role of a regulator, we recognize that 
there will be a regulator. The question is what is appropriate 
for the regulator to do, what is appropriate to allow 
management to do with oversight by the presidentially appointed 
board. That is a tough decision. What should you be keeping, in 
terms of your oversight when it comes to universal service and 
the monopoly, issues which are very important to your 
communities. Those are the issues that I think you will 
probably hear the most debate about and be concerned about.
    In addition to that, anytime you deal with labor and labor 
issues, they are very sensitive and everybody is concerned 
about the way they are treated as an individual, including me, 
what your pay, what your benefits are, and what your working 
conditions are. So anything that would affect that is 
sensitive.
    And those, I think, are the key issues that you will face 
as you work through legislation. You have done it before. I 
hope I hit the ones that people have been commenting to you on.
    Senator Carper. Thanks. Madam Chairman, my time has 
expired, and I think our time has almost expired.
    Chairman Collins. It has indeed. I want to thank Senator 
Carper for his questions.
    Postmaster General Potter, you are a lucky individual today 
because this series of votes is going to spare you a second 
round of questions. So we will excuse you but we will look 
forward to working closely with you.
    The Committee will be in recess for approximately 20 
minutes and then we will turn to the Comptroller General. Thank 
you for being here today.
    [Recess.]
    Chairman Collins. The Committee will come to order.
    First of all, let me apologize to our witness and to the 
members of our audience for the delay. We did have three back 
to back votes this afternoon, something that was neither 
anticipated nor scheduled at the time we scheduled this 
hearing.
    I am now pleased to welcome our second witness, U.S. 
Comptroller General David M. Walker.
    As Comptroller General, Mr. Walker is the Nation's chief 
accountability officer and the head of the U.S. General 
Accounting Office. Mr. Walker has also been a leader in the 
effort to review and transform the U.S. Postal Service.
    We are very pleased to have you with us today and we 
appreciate your patience and your insights. You may proceed.

TESTIMONY OF HON. DAVID M. WALKER,\1\ COMPTROLLER GENERAL, U.S. 
                GENERAL ACCOUNTING OFFICE (GAO)

    Mr. Walker. Madam Chairman, thank you very much. Senator 
Carper, it's good to see you again.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Walker appears in the Appendix on 
page 44.
---------------------------------------------------------------------------
    I am pleased to be here to participate in this hearing on 
the President's Commission on the U.S. Postal Service. I would 
like for my entire statement to be entered into the record, if 
that is possible, Madam Chairman.
    Chairman Collins. Without objection.
    Mr. Walker. Thank you. I will move to summarize the key 
points for your consideration.
    I think it is important to note that the U.S. Postal 
Service has gained some financial breathing room recently as a 
result of the pension legislation that both of you sponsored 
and pushed. That legislation resulted in a significant benefit 
to the Postal Service and its stakeholders within the last 
year.
    At the same point in time, I think it is important to 
recognize that the Service's long-term financial challenges 
remain. And accordingly, the Service's long-term outlook and 
transformation effort remains on our high-risk list.
    Since we placed the Service on our high-risk list in April 
2001, the Service has developed its 2002 transformation plan, 
cut various costs, and improved its productivity. These are all 
positive, important steps which Postmaster General Potter ought 
to be commended for.
    At the same point in time, these modest incremental steps 
cannot resolve the fundamental and systemic issues associated 
with the Postal Service's current business model. And as you 
said, Madam Chairman, this is a positive first step but much 
more needs to be done in order to get us to where we need to 
be.
    With regard to the Commission's report, we believe that the 
Commission's report provides a valuable contribution to assist 
the Congress, the Service, the Executive Branch, and the 
stakeholders in considering the actions needed to transform the 
Postal Service to a more high performing, results oriented, 
transparent, sustainable, and accountable organization.
    The Commission's recommendations echo many of GAO's prior 
reports, and address concerns that we have raised in the past. 
We agree with the Commission that an incremental approach to 
Postal Service reform will likely yield too little, too late.
    We believe that the time has come for Congress to enact 
comprehensive postal reform legislation that would clarify the 
Service's mission and role, including defining universal postal 
service in a 21st Century world, enhance its governance 
structure, accountability, oversight, and transparency 
mechanisms, improve regulation of postal rates, and make 
important human capital reforms.
    As noted in my statement, we agree with many of the 
Commission's recommendations, but have some concerns with 
regard to certain recommendations. For example, with regard to 
the basis for appointing certain members of the Board of 
Governors, the role and responsibilities of the new Postal 
Regulatory Board, and certain other issues such as negotiated 
service agreements.
    In addition to statutory reform, we agree with the 
Commission that the Service has many opportunities to become 
more efficient, notably by standardizing its operations and 
reducing excess capacity in connection with its network and 
otherwise. This vision is achievable if approached in a 
comprehensive, integrated fashion, based upon a strategy and a 
formal plan. And it is also something that has to be done in 
conjunction with the various postal stakeholders, both 
internally and externally, in order to maximize the chance for 
success.
    The impending retirement of much of the Service's workforce 
provides an opportunity to right-size the organization with 
minimal disruption. However, the Service has not provided 
adequate transparency, in our opinion, of its plans to 
rationalize its infrastructure and workforce, as well as on the 
status of the initiatives that are outlined in its 
transformation plan. While incremental progress has been made, 
more needs to be done. There needs to be more specificity and 
there needs to be more transparency with regard to these 
important initiatives, in our view.
    To facilitate the Service's progress in implementing 
actions under the existing system, we recommend that the 
Postmaster General develop a comprehensive and integrated plan 
to optimize its infrastructure and workforce in collaboration 
with its key stakeholders and to make that plan available to 
the Congress and the general public.
    In addition, the Postmaster General should provide periodic 
updates to Congress and the public on the status of 
implementing its transformation initiatives and other 
Commission recommendations--and also GAO recommendations I 
might add--that fall within the scope of its existing 
authority. We believe it is important to have a strategy, to 
have a plan with key milestones with appropriate transparency 
and accountability mechanisms.
    We also share the Commission's concerns that the Service's 
funding of its approximate $92 billion in liabilities and other 
obligations should be a matter of serious concern. Although 
recent legislation has addressed how the Service will cover its 
CSRS pension obligations over the next 4 years, the Service 
continues to make minimum payments for its substantial 
obligations which are currently financed on a pay-as-you-go 
basis.
    In this regard, in our view, given the legal nature and the 
economic substance of the Service's retiree health obligations, 
these costs and related obligations should be accounted for on 
an accrual basis, not a cash basis. This is an important matter 
that demands timely attention. This issue also involves $48 
billion in discounted present value terms.
    We recognize that building accrual base measures for 
retiree health costs into the current rate base, either through 
a change in accounting or otherwise, may be difficult 
considering the pressure to hold down rate and defer rate 
increases. However, in our view, we believe it is more prudent, 
appropriate and equitable to address the unfunded obligations 
in a manner that is fair and balanced to both current and 
future ratepayers.
    At the same time, in our view, consideration should be 
given to possible transition adjustments for rate setting 
purposes in connection with any related change in accounting or 
funding for retiree health benefits.
    Basically what is happening right now is they are 
accounting and building these costs into rates on a pay-as-you-
go basis which backloads the cost and puts additional pressure 
on rate increases in the future, which is a matter of concern 
given the demographics of the workforce and the competitive 
posture that the Postal Service faces.
    In summary, we and the Commission agree that the Service 
faces an uncertain future. We also agree that both 
Congressional action on comprehensive postal reform legislation 
and additional actions by the Postal Service to make 
improvements under its existing authority are necessary to 
ensure the future viability of the Postal Service.
    The simple truth is that the Service's current business 
model is not sustainable in today's competitive environment. 
Progress has been made, there is no question about it. But in 
our view, the time has come for both comprehensive postal 
legislative reform as well as additional administrative actions 
by the Postal Service to help assure that it can meet the needs 
of its customers and our country in the 21st Century. The 
status quo is not only unsustainable, it is arguably 
unacceptable.
    We look forward to working with the Congress, with both of 
you, the Postal Service and other stakeholders to address these 
challenges.
    Thank you, Madam Chairman and I would be happy to answer 
any questions that either one of you might have.
    Chairman Collins. Thank you very much, Mr. Walker.
    I am going to give Senator Carper the opportunity to 
question first, because I know he has a commitment over on the 
House side.
    Senator Carper. Thank you so much, Madam Chairman.
    General Walker, how are you? Good to see you.
    Mr. Walker. Well, Senator. How are you?
    Senator Carper. I am doing fine.
    Thanks so much for being here, and for your help on this 
and a lot of other things.
    It is reported, I think in the Postal Service's last 5-year 
strategic plan, that the Postal Service will begin delivering 
more advertising mail than First-Class mail sometime, I want to 
say before the end of 2005. I just wondered, in your own 
thoughts, what might this mean for the future of the Postal 
Service? Will its financial health be even more dependent on 
the health of the overall economy? Will customers no longer see 
as much value in the Postal Service if, when they open their 
mailboxes--as I did last night--and find mostly items that were 
not First-Class mail but were largely solicitations?
    Mr. Walker. Well, there are a number of issues here, 
Senator Carper. As you know, First-Class mail covers about 70 
percent of the institutional cost of the Postal Service. So to 
the extent that you have a decline in the volume of First-Class 
mail, which has occurred in the last couple of years, it is a 
matter of real concern.
    Second, to the extent that volume is increasing in other 
areas, it can help to offset that concern. However, it depends 
upon what the nature of the volume is and what alternative 
delivery mechanisms might be available other than through the 
mail to deliver that type of advertising, whether it be through 
the newspaper, whether it be through the Internet, on 
television, or otherwise, if you will.
    It is hard to say what the ultimate impact is going to be. 
I will tell you this, if I look in my home mailbox, I sort 
between personal correspondence which is not very frequent in 
today's world, advertisements, which are of growing volume, and 
bills which I am not happy to receive but nonetheless I do 
receive and I must pay on a timely basis.
    I think that is one of the issues that is also relevant in 
defining what is an appropriate definition for universal postal 
service in the 21st Century. I think it might be different in 
rural Alaska and rural Maine than it is in urban New York City.
    What kinds of things are being delivered? And what is the 
sense of urgency and the need for frequency with regard to some 
of these types of things. I think these factors need to be 
considered as well.
    Senator Carper. Thanks. The President's Commission 
suggests, I believe, that the new rate system that they call 
for goes into effect after the completion of one final rate 
case under the old rules. Since the outcome of this rate case 
will serve as really the baseline for all future rate changes 
under the new system, I am just wondering how can we ensure 
that the process is not bogged down with the usual 
disagreements? What steps should we in Congress or the Postal 
Service or among the regulators, take in order to ensure that 
the case goes a little bit more smoothly than some of our other 
rate cases have gone in the past?
    Mr. Walker. Senator, there is no question that there have 
been concerns expressed by a variety of parties with regard to 
how long it takes in order to move a rate case, and therefore 
how far in advance the Postal Service has to begin putting 
together the necessary filings in order to provide reasonable 
assurance that they will have the revenues when they need them. 
I will talk with my very capable staff and see if I can come up 
with some specific thoughts to provide you for the record, but 
there is nothing that comes to the forefront of my mind at the 
present point in time.
    Senator Carper. Thanks very much.
    Madam Chairman, you have been mighty gracious to let me go 
first. I very much appreciate it and look forward to working 
with you on these issues as we go forward and certainly to 
working with GAO and John. Thank you.
    Chairman Collins. Thank you, Senator.
    Mr. Walker, the preservation of universal service at 
affordable rates is my key goal when I look at the Commission's 
report. One surprising recommendation to me that the Commission 
made was to allow an independent regulatory body to shape the 
private express statutes or to make recommendations on whether 
or not the monopoly on First-Class mail that the Postal Service 
has, which is so linked to universal service, should be 
changed.
    What is your judgment on that? Do you think that an 
independent regulatory commission should be making those 
decisions? Or are those decisions that are more appropriately 
continued to be vested in the Congress?
    Mr. Walker. As I mentioned before, we had some concerns 
about the role and responsibilities that the Commission 
proposed for the Postal Regulatory Board. I think you have to 
divide these roles and responsibilities into three possible 
categories. One would be public policy. Another would be 
regulatory in nature. And a third would be oversight.
    I think to the extent that you are dealing with a public 
policy issue, such as the definition of universal postal 
service and some of those issues, I think they are properly 
reserved to the Congress. In this regard, there may be 
recommendations coming forth by postal management, endorsed 
hopefully by the Board of Governors, and possibly commented on 
by this new regulatory body.
    But when you are dealing with a major public policy issue, 
I think those types of decisions need to be made by the 
Congress.
    The real question is, on some of these issues, how do you 
ensure timely action by the Congress? But when you are dealing 
with universal service, I think the Congress has to play a 
role.
    Chairman Collins. The Commission's report makes many 
recommendations affecting the postal workforce. One of those is 
to move toward a pay for performance system. You have had a 
great deal of experience at GAO in modernizing your personnel 
system, including, I believe, incorporating elements of a pay 
for performance system.
    I want to compliment you on how you have proceeded, because 
you have really involved the employees in designing the system. 
You have ensured that they are well-trained. And thus, a lot of 
the changes that you have made have been well regarded and well 
accepted.
    Could you share with us any thoughts based on your 
experience in transforming the GAO workforce that might apply 
to the challenges facing the Postal Service?
    Mr. Walker. First, philosophically I am a believer in pay 
for performance where it makes sense. I might note that at the 
present point in time about 80 percent of GAO's workforce is on 
a pay for performance system. It is our objective that 95 
percent plus of our workforce will be on a pay for performance 
system within the next couple of years.
    There are certain occupations, however, that we do not 
propose to put on pay for performance based upon the nature of 
what their roles and responsibilities are. These are priority 
wage grade personnel.
    So from a philosophical standpoint, I am a believer in pay 
for performance, where you can end up trying to link 
institutional goals and objectives with individual performance 
and to recognize and reward people who can help to contribute 
towards desired institutional outcomes.
    I do, however, believe it is not for everybody. I also 
believe that you have to be very careful as to how you go about 
designing any type of pay for performance approach. You have to 
involve unions. You have to involve employees to the extent 
that they do not have union representatives. And you have to 
have their involvement in the very early stages of the process.
    You also have to have a modern, effective, and credible, 
and preferably validated performance appraisal system because 
the performance appraisal system would be the basis under which 
a lot of the decisions would be made under a pay for 
performance approach. You need to have adequate safeguards such 
as independent reviews, in our case by our Human Capital Office 
and our Office of Opportunity Inclusiveness, to maximize the 
chance that it is fairly and consistently applied, and minimize 
the possibility of abuse or discrimination. You need to have 
appeal rights that exist, both informally, and through a more 
formal internal grievance process and independent mechanisms, 
as appropriate.
    You need to recognize that it will take time to design and 
effectively implement an effective and credible pay for 
performance system. Frankly, you will need to modify it and 
continuously improve it over time, based upon actual 
experience.
    So I believe philosophically it has great merit, but I 
think one has to be very careful about how you approach it.
    Chairman Collins. Another of the Commission's 
recommendations was that the Postal Service pension and post 
retirement health-care plans should be subject to collective 
bargaining. What is your opinion of that recommendation and 
what impact do you believe separating out the postal retirement 
benefits from the rest of the Federal workforce would have on 
the overall financial stability and health of the Federal 
retirement plans?
    Mr. Walker. From a philosophical standpoint, I am a general 
believer in collective bargaining. And therefore, to the extent 
that you can subject compensation, all forms of compensation to 
bargaining, then philosophically I think that is a good thing 
to do.
    Obviously, we do however have to recognize that the Postal 
Service is a major Federal employer. It is also a major element 
of the Civil Service Retirement System. You just had 
legislation to deal with that. It is also a major player in the 
FEHBP, the Federal Employees Health Benefits Program.
    Now candidly, and it is my understanding that a separate 
accounting and reporting has already been done with regard to 
the Postal Service on the pension issue, which was the subject 
of the legislation that you recently passed.
    Furthermore, there is a separate accounting that is being 
done right now at our request and also the Congress' request to 
look at the retiree health obligations to try to find out 
whether or not that $48 billion number is a reasonable number 
or whether or not there are problems associated with it.
    It is also my understanding that the Postal Service has the 
authority right now if they want to pull out of the FEHBP and 
to have their own plan for active employees as long as they 
provide a comparable plan.
    So I think philosophically it makes sense to consider 
subjecting this to collective bargaining. I think that there 
would be clearly similar issues associated with the balance of 
the Federal Government, but those are not insurmountable 
obstacles and I think those could be worked through.
    Chairman Collins. Senator Akaka told me that he was going 
to be returning to ask questions. I am going to ask his staff 
to see if they can check on that, so that we can see whether I 
should continue to question you in order to buy some time for 
him to return or whether the end is almost in sight for you.
    Mr. Walker. Do I have a vote, Senator?
    Chairman Collins. Right.
    Mr. Walker, you were the leader who first suggested to this 
Committee that the Postal Service come up with a transformation 
plan. And the Postal Service did so in April 2002 and has been 
implementing it. How would you grade the success of the Postal 
Service in following its own transformation plan at this point?
    Mr. Walker. I would not want to give them a grade. I will, 
however, say the following. I believe that they have taken it 
seriously. I believe that they have taken a number of positive 
steps to begin to implement some of the critical elements of 
the plan. I believe that the plan needs to provide for more 
specificity than it does right now. I also believe that there 
needs to be more transparency with regard to what they are 
doing and what they have accomplished, and also what they plan 
to do going forward with regard to the transformation plan, 
especially in the area of rationalizing infrastructure and 
workforce modernization.
    Chairman Collins. The Postal Service has been criticized, 
despite recent progress that has been made, for having opaque 
and difficult to follow financial statements. Could you comment 
on the issue of the need for more transparency in that area and 
give us your evaluation of the financial reporting systems that 
the Postal Service has in place?
    Mr. Walker. First, I think we have to keep in mind that the 
Postal Service is one of the largest employers in the United 
States. If it was a Fortune company, it would be a Fortune 10 
company. So it is a very large and important enterprise. It is 
also one that is important not only to its customers but also 
to our country.
    I do not believe that the current amount of financial 
transparency is adequate. I do believe that the recommendation 
that the Commission made, and that frankly we have made before, 
whereby the Postal Service should consider voluntarily 
complying with the substance--not necessarily the detail--but 
the substance of the major reporting requirements that apply to 
large public companies, would be a step in the right direction.
    You might note that there is a difference between the 
number that the Postal Service reported for their preliminary 
net income estimate for this fiscal year, namely what is in 
their testimony versus ours. We said $4.2 billion, they said 
$3.9 billion. That changed within the last 24 hours and we did 
not find out about it until after we had sent our testimony up 
to the Hill.
    So I think they need to be more transparent and I think 
that following some of the principles that apply to public 
companies that relate to SEC reporting would be a step in the 
right direction.
    Chairman Collins. You notice that in my statement I picked 
a number between your two numbers, but you are right. When we 
are talking about billions of dollars and such a large 
enterprise, there is a lot more, in my judgment, that I think 
could be done. And complying with some of the standard SEC-type 
of reporting requirements, I think, would be a step in the 
right direction.
    Finally, let me ask you is there any recommendation of the 
Commission that you think is particularly important if we are 
to ensure the long-term viability of the Postal Service?
    Mr. Walker. There are a number of recommendations that I 
believe are important, but there are ones that I think are 
particularly important that are also going to be particularly 
controversial and difficult. Looking at their mission, what 
should their scope be, including the issue of universal postal 
service in the 21st Century. Second, rationalizing their 
infrastructure. And third, modernizing their workforce policies 
and practices.
    Those, I think, are the three probably most important. They 
arguably are also the three most complicated and controversial. 
But I hope that we are going to be able to make progress on 
these because I think it is essential that we do so in order to 
achieve an effective transformation.
    Chairman Collins. I thank you very much not only for your 
testimony today but for the excellent work that the GAO has 
done on postal transformation. We look forward to continuing to 
work very closely with you and your staff as we begin the 
process of drafting postal reform legislation.
    My approach to Senator Akaka's absence, since I know he is 
delayed on the Floor, is to ask for your cooperation in 
answering any questions that he might have for the record.
    And the hearing record will remain open for 15 days.
    I want to thank you very much for being here today. It has 
been very helpful for the Committee to hear firsthand the views 
of the Postmaster General and the Comptroller General as we 
continue with what will be a series of hearings evaluating the 
Commission's report and other ideas for postal reform. These 
hearings will continue early next year and we look forward to 
working with all interested parties.
    I also want to thank Ann Fisher on my staff who has spent a 
great deal of time working on these issues and will continue to 
do so next year.
    Thank you and this hearing is now adjourned.
    [Whereupon, at 4:02 p.m., the Committee adjourned.]


                            A P P E N D I X

                              ----------                              

[GRAPHIC] [TIFF OMITTED] T1039.001

[GRAPHIC] [TIFF OMITTED] T1039.002

[GRAPHIC] [TIFF OMITTED] T1039.003

[GRAPHIC] [TIFF OMITTED] T1039.004

[GRAPHIC] [TIFF OMITTED] T1039.005

[GRAPHIC] [TIFF OMITTED] T1039.006

[GRAPHIC] [TIFF OMITTED] T1039.007

[GRAPHIC] [TIFF OMITTED] T1039.008

[GRAPHIC] [TIFF OMITTED] T1039.009

[GRAPHIC] [TIFF OMITTED] T1039.010

[GRAPHIC] [TIFF OMITTED] T1039.011

[GRAPHIC] [TIFF OMITTED] T1039.012

[GRAPHIC] [TIFF OMITTED] T1039.013

[GRAPHIC] [TIFF OMITTED] T1039.014

[GRAPHIC] [TIFF OMITTED] T1039.015

[GRAPHIC] [TIFF OMITTED] T1039.016

[GRAPHIC] [TIFF OMITTED] T1039.017

[GRAPHIC] [TIFF OMITTED] T1039.018

[GRAPHIC] [TIFF OMITTED] T1039.019

[GRAPHIC] [TIFF OMITTED] T1039.020

[GRAPHIC] [TIFF OMITTED] T1039.021

[GRAPHIC] [TIFF OMITTED] T1039.022

[GRAPHIC] [TIFF OMITTED] T1039.023

[GRAPHIC] [TIFF OMITTED] T1039.024

[GRAPHIC] [TIFF OMITTED] T1039.025

[GRAPHIC] [TIFF OMITTED] T1039.026

[GRAPHIC] [TIFF OMITTED] T1039.027

[GRAPHIC] [TIFF OMITTED] T1039.028

[GRAPHIC] [TIFF OMITTED] T1039.029

[GRAPHIC] [TIFF OMITTED] T1039.030

[GRAPHIC] [TIFF OMITTED] T1039.031

[GRAPHIC] [TIFF OMITTED] T1039.032

[GRAPHIC] [TIFF OMITTED] T1039.033

[GRAPHIC] [TIFF OMITTED] T1039.034

[GRAPHIC] [TIFF OMITTED] T1039.035

[GRAPHIC] [TIFF OMITTED] T1039.036

[GRAPHIC] [TIFF OMITTED] T1039.037

[GRAPHIC] [TIFF OMITTED] T1039.038

[GRAPHIC] [TIFF OMITTED] T1039.039

[GRAPHIC] [TIFF OMITTED] T1039.040

[GRAPHIC] [TIFF OMITTED] T1039.041

[GRAPHIC] [TIFF OMITTED] T1039.042

[GRAPHIC] [TIFF OMITTED] T1039.043

[GRAPHIC] [TIFF OMITTED] T1039.044

[GRAPHIC] [TIFF OMITTED] T1039.045

[GRAPHIC] [TIFF OMITTED] T1039.046

[GRAPHIC] [TIFF OMITTED] T1039.047

[GRAPHIC] [TIFF OMITTED] T1039.048

[GRAPHIC] [TIFF OMITTED] T1039.049

[GRAPHIC] [TIFF OMITTED] T1039.050

[GRAPHIC] [TIFF OMITTED] T1039.051

[GRAPHIC] [TIFF OMITTED] T1039.052

[GRAPHIC] [TIFF OMITTED] T1039.053

[GRAPHIC] [TIFF OMITTED] T1039.054

[GRAPHIC] [TIFF OMITTED] T1039.055

[GRAPHIC] [TIFF OMITTED] T1039.056

[GRAPHIC] [TIFF OMITTED] T1039.057

[GRAPHIC] [TIFF OMITTED] T1039.058

[GRAPHIC] [TIFF OMITTED] T1039.059

[GRAPHIC] [TIFF OMITTED] T1039.060

[GRAPHIC] [TIFF OMITTED] T1039.061

[GRAPHIC] [TIFF OMITTED] T1039.062

[GRAPHIC] [TIFF OMITTED] T1039.063

[GRAPHIC] [TIFF OMITTED] T1039.064

[GRAPHIC] [TIFF OMITTED] T1039.065

[GRAPHIC] [TIFF OMITTED] T1039.066

[GRAPHIC] [TIFF OMITTED] T1039.067

[GRAPHIC] [TIFF OMITTED] T1039.068

[GRAPHIC] [TIFF OMITTED] T1039.069

[GRAPHIC] [TIFF OMITTED] T1039.070

[GRAPHIC] [TIFF OMITTED] T1039.071

[GRAPHIC] [TIFF OMITTED] T1039.072

[GRAPHIC] [TIFF OMITTED] T1039.073

[GRAPHIC] [TIFF OMITTED] T1039.074

[GRAPHIC] [TIFF OMITTED] T1039.075

[GRAPHIC] [TIFF OMITTED] T1039.076

[GRAPHIC] [TIFF OMITTED] T1039.077

[GRAPHIC] [TIFF OMITTED] T1039.078

[GRAPHIC] [TIFF OMITTED] T1039.079

[GRAPHIC] [TIFF OMITTED] T1039.080

[GRAPHIC] [TIFF OMITTED] T1039.081

[GRAPHIC] [TIFF OMITTED] T1039.082

[GRAPHIC] [TIFF OMITTED] T1039.083

[GRAPHIC] [TIFF OMITTED] T1039.084

[GRAPHIC] [TIFF OMITTED] T1039.085

[GRAPHIC] [TIFF OMITTED] T1039.086

[GRAPHIC] [TIFF OMITTED] T1039.087

[GRAPHIC] [TIFF OMITTED] T1039.088

[GRAPHIC] [TIFF OMITTED] T1039.089

[GRAPHIC] [TIFF OMITTED] T1039.090

[GRAPHIC] [TIFF OMITTED] T1039.091

[GRAPHIC] [TIFF OMITTED] T1039.092

[GRAPHIC] [TIFF OMITTED] T1039.093

[GRAPHIC] [TIFF OMITTED] T1039.094

[GRAPHIC] [TIFF OMITTED] T1039.095

[GRAPHIC] [TIFF OMITTED] T1039.096

[GRAPHIC] [TIFF OMITTED] T1039.097

[GRAPHIC] [TIFF OMITTED] T1039.098

[GRAPHIC] [TIFF OMITTED] T1039.099

[GRAPHIC] [TIFF OMITTED] T1039.100

[GRAPHIC] [TIFF OMITTED] T1039.101

[GRAPHIC] [TIFF OMITTED] T1039.102

[GRAPHIC] [TIFF OMITTED] T1039.103

[GRAPHIC] [TIFF OMITTED] T1039.104

[GRAPHIC] [TIFF OMITTED] T1039.105

[GRAPHIC] [TIFF OMITTED] T1039.106

[GRAPHIC] [TIFF OMITTED] T1039.107

[GRAPHIC] [TIFF OMITTED] T1039.108

[GRAPHIC] [TIFF OMITTED] T1039.109

[GRAPHIC] [TIFF OMITTED] T1039.110

[GRAPHIC] [TIFF OMITTED] T1039.267

[GRAPHIC] [TIFF OMITTED] T1039.268

[GRAPHIC] [TIFF OMITTED] T1039.269

[GRAPHIC] [TIFF OMITTED] T1039.270

[GRAPHIC] [TIFF OMITTED] T1039.271

[GRAPHIC] [TIFF OMITTED] T1039.116

[GRAPHIC] [TIFF OMITTED] T1039.117

[GRAPHIC] [TIFF OMITTED] T1039.272

[GRAPHIC] [TIFF OMITTED] T1039.273

[GRAPHIC] [TIFF OMITTED] T1039.274

[GRAPHIC] [TIFF OMITTED] T1039.275

[GRAPHIC] [TIFF OMITTED] T1039.118

[GRAPHIC] [TIFF OMITTED] T1039.119

[GRAPHIC] [TIFF OMITTED] T1039.120

[GRAPHIC] [TIFF OMITTED] T1039.121

[GRAPHIC] [TIFF OMITTED] T1039.122

[GRAPHIC] [TIFF OMITTED] T1039.111

[GRAPHIC] [TIFF OMITTED] T1039.112

[GRAPHIC] [TIFF OMITTED] T1039.113

[GRAPHIC] [TIFF OMITTED] T1039.114

[GRAPHIC] [TIFF OMITTED] T1039.115

[GRAPHIC] [TIFF OMITTED] T1039.242

[GRAPHIC] [TIFF OMITTED] T1039.243

[GRAPHIC] [TIFF OMITTED] T1039.244

[GRAPHIC] [TIFF OMITTED] T1039.245

[GRAPHIC] [TIFF OMITTED] T1039.246

[GRAPHIC] [TIFF OMITTED] T1039.247

[GRAPHIC] [TIFF OMITTED] T1039.248

[GRAPHIC] [TIFF OMITTED] T1039.249

[GRAPHIC] [TIFF OMITTED] T1039.250

[GRAPHIC] [TIFF OMITTED] T1039.251

[GRAPHIC] [TIFF OMITTED] T1039.252

[GRAPHIC] [TIFF OMITTED] T1039.253

[GRAPHIC] [TIFF OMITTED] T1039.254

[GRAPHIC] [TIFF OMITTED] T1039.255

[GRAPHIC] [TIFF OMITTED] T1039.256

[GRAPHIC] [TIFF OMITTED] T1039.257

[GRAPHIC] [TIFF OMITTED] T1039.258

[GRAPHIC] [TIFF OMITTED] T1039.259

[GRAPHIC] [TIFF OMITTED] T1039.260

[GRAPHIC] [TIFF OMITTED] T1039.261

[GRAPHIC] [TIFF OMITTED] T1039.262

[GRAPHIC] [TIFF OMITTED] T1039.263

[GRAPHIC] [TIFF OMITTED] T1039.123

[GRAPHIC] [TIFF OMITTED] T1039.124

[GRAPHIC] [TIFF OMITTED] T1039.125

[GRAPHIC] [TIFF OMITTED] T1039.126

[GRAPHIC] [TIFF OMITTED] T1039.127

[GRAPHIC] [TIFF OMITTED] T1039.128

[GRAPHIC] [TIFF OMITTED] T1039.129

[GRAPHIC] [TIFF OMITTED] T1039.130

[GRAPHIC] [TIFF OMITTED] T1039.131

[GRAPHIC] [TIFF OMITTED] T1039.132

[GRAPHIC] [TIFF OMITTED] T1039.133

[GRAPHIC] [TIFF OMITTED] T1039.134

[GRAPHIC] [TIFF OMITTED] T1039.135

[GRAPHIC] [TIFF OMITTED] T1039.136

[GRAPHIC] [TIFF OMITTED] T1039.137

[GRAPHIC] [TIFF OMITTED] T1039.138

[GRAPHIC] [TIFF OMITTED] T1039.139

[GRAPHIC] [TIFF OMITTED] T1039.140

[GRAPHIC] [TIFF OMITTED] T1039.141

[GRAPHIC] [TIFF OMITTED] T1039.142

[GRAPHIC] [TIFF OMITTED] T1039.143

[GRAPHIC] [TIFF OMITTED] T1039.144

[GRAPHIC] [TIFF OMITTED] T1039.145

[GRAPHIC] [TIFF OMITTED] T1039.146

[GRAPHIC] [TIFF OMITTED] T1039.147

[GRAPHIC] [TIFF OMITTED] T1039.148

[GRAPHIC] [TIFF OMITTED] T1039.149

[GRAPHIC] [TIFF OMITTED] T1039.150

[GRAPHIC] [TIFF OMITTED] T1039.151

[GRAPHIC] [TIFF OMITTED] T1039.152

[GRAPHIC] [TIFF OMITTED] T1039.153

[GRAPHIC] [TIFF OMITTED] T1039.154

[GRAPHIC] [TIFF OMITTED] T1039.155

[GRAPHIC] [TIFF OMITTED] T1039.276

[GRAPHIC] [TIFF OMITTED] T1039.277

[GRAPHIC] [TIFF OMITTED] T1039.278

[GRAPHIC] [TIFF OMITTED] T1039.279

[GRAPHIC] [TIFF OMITTED] T1039.280

[GRAPHIC] [TIFF OMITTED] T1039.156

[GRAPHIC] [TIFF OMITTED] T1039.157

[GRAPHIC] [TIFF OMITTED] T1039.158

[GRAPHIC] [TIFF OMITTED] T1039.159

[GRAPHIC] [TIFF OMITTED] T1039.160

[GRAPHIC] [TIFF OMITTED] T1039.161

[GRAPHIC] [TIFF OMITTED] T1039.162

[GRAPHIC] [TIFF OMITTED] T1039.163

[GRAPHIC] [TIFF OMITTED] T1039.281

[GRAPHIC] [TIFF OMITTED] T1039.282

[GRAPHIC] [TIFF OMITTED] T1039.283

[GRAPHIC] [TIFF OMITTED] T1039.164

[GRAPHIC] [TIFF OMITTED] T1039.165

[GRAPHIC] [TIFF OMITTED] T1039.166

[GRAPHIC] [TIFF OMITTED] T1039.167

[GRAPHIC] [TIFF OMITTED] T1039.168

[GRAPHIC] [TIFF OMITTED] T1039.169

[GRAPHIC] [TIFF OMITTED] T1039.170

[GRAPHIC] [TIFF OMITTED] T1039.171

[GRAPHIC] [TIFF OMITTED] T1039.172

[GRAPHIC] [TIFF OMITTED] T1039.173

[GRAPHIC] [TIFF OMITTED] T1039.174

[GRAPHIC] [TIFF OMITTED] T1039.175

[GRAPHIC] [TIFF OMITTED] T1039.176

[GRAPHIC] [TIFF OMITTED] T1039.177

[GRAPHIC] [TIFF OMITTED] T1039.178

[GRAPHIC] [TIFF OMITTED] T1039.179

[GRAPHIC] [TIFF OMITTED] T1039.180

[GRAPHIC] [TIFF OMITTED] T1039.181

[GRAPHIC] [TIFF OMITTED] T1039.182

[GRAPHIC] [TIFF OMITTED] T1039.183

[GRAPHIC] [TIFF OMITTED] T1039.184

[GRAPHIC] [TIFF OMITTED] T1039.185

[GRAPHIC] [TIFF OMITTED] T1039.186

[GRAPHIC] [TIFF OMITTED] T1039.187

[GRAPHIC] [TIFF OMITTED] T1039.188

[GRAPHIC] [TIFF OMITTED] T1039.189

[GRAPHIC] [TIFF OMITTED] T1039.190

[GRAPHIC] [TIFF OMITTED] T1039.191

[GRAPHIC] [TIFF OMITTED] T1039.192

[GRAPHIC] [TIFF OMITTED] T1039.193

[GRAPHIC] [TIFF OMITTED] T1039.284

[GRAPHIC] [TIFF OMITTED] T1039.285

[GRAPHIC] [TIFF OMITTED] T1039.286

[GRAPHIC] [TIFF OMITTED] T1039.287

[GRAPHIC] [TIFF OMITTED] T1039.194

[GRAPHIC] [TIFF OMITTED] T1039.195

[GRAPHIC] [TIFF OMITTED] T1039.196

[GRAPHIC] [TIFF OMITTED] T1039.197

[GRAPHIC] [TIFF OMITTED] T1039.198

[GRAPHIC] [TIFF OMITTED] T1039.199

[GRAPHIC] [TIFF OMITTED] T1039.200

[GRAPHIC] [TIFF OMITTED] T1039.201

[GRAPHIC] [TIFF OMITTED] T1039.202

[GRAPHIC] [TIFF OMITTED] T1039.203

[GRAPHIC] [TIFF OMITTED] T1039.204

[GRAPHIC] [TIFF OMITTED] T1039.205

[GRAPHIC] [TIFF OMITTED] T1039.206

[GRAPHIC] [TIFF OMITTED] T1039.207

[GRAPHIC] [TIFF OMITTED] T1039.208

[GRAPHIC] [TIFF OMITTED] T1039.209

[GRAPHIC] [TIFF OMITTED] T1039.210

[GRAPHIC] [TIFF OMITTED] T1039.288

[GRAPHIC] [TIFF OMITTED] T1039.289

[GRAPHIC] [TIFF OMITTED] T1039.211

[GRAPHIC] [TIFF OMITTED] T1039.212

[GRAPHIC] [TIFF OMITTED] T1039.213

[GRAPHIC] [TIFF OMITTED] T1039.214

[GRAPHIC] [TIFF OMITTED] T1039.215

[GRAPHIC] [TIFF OMITTED] T1039.216

[GRAPHIC] [TIFF OMITTED] T1039.217

[GRAPHIC] [TIFF OMITTED] T1039.218

[GRAPHIC] [TIFF OMITTED] T1039.219

[GRAPHIC] [TIFF OMITTED] T1039.220

[GRAPHIC] [TIFF OMITTED] T1039.221

[GRAPHIC] [TIFF OMITTED] T1039.222

[GRAPHIC] [TIFF OMITTED] T1039.223

[GRAPHIC] [TIFF OMITTED] T1039.224

[GRAPHIC] [TIFF OMITTED] T1039.225

[GRAPHIC] [TIFF OMITTED] T1039.226

[GRAPHIC] [TIFF OMITTED] T1039.227

[GRAPHIC] [TIFF OMITTED] T1039.228

[GRAPHIC] [TIFF OMITTED] T1039.229

[GRAPHIC] [TIFF OMITTED] T1039.230

[GRAPHIC] [TIFF OMITTED] T1039.231

[GRAPHIC] [TIFF OMITTED] T1039.232

[GRAPHIC] [TIFF OMITTED] T1039.233

[GRAPHIC] [TIFF OMITTED] T1039.234

[GRAPHIC] [TIFF OMITTED] T1039.235

[GRAPHIC] [TIFF OMITTED] T1039.236

[GRAPHIC] [TIFF OMITTED] T1039.237

[GRAPHIC] [TIFF OMITTED] T1039.238

[GRAPHIC] [TIFF OMITTED] T1039.239

[GRAPHIC] [TIFF OMITTED] T1039.240

[GRAPHIC] [TIFF OMITTED] T1039.241

[GRAPHIC] [TIFF OMITTED] T1039.290

[GRAPHIC] [TIFF OMITTED] T1039.291

[GRAPHIC] [TIFF OMITTED] T1039.264

[GRAPHIC] [TIFF OMITTED] T1039.265

[GRAPHIC] [TIFF OMITTED] T1039.292

[GRAPHIC] [TIFF OMITTED] T1039.293

[GRAPHIC] [TIFF OMITTED] T1039.294

[GRAPHIC] [TIFF OMITTED] T1039.295

[GRAPHIC] [TIFF OMITTED] T1039.296

[GRAPHIC] [TIFF OMITTED] T1039.297

[GRAPHIC] [TIFF OMITTED] T1039.298

[GRAPHIC] [TIFF OMITTED] T1039.299

[GRAPHIC] [TIFF OMITTED] T1039.300

[GRAPHIC] [TIFF OMITTED] T1039.266

[GRAPHIC] [TIFF OMITTED] T1039.301

[GRAPHIC] [TIFF OMITTED] T1039.302

[GRAPHIC] [TIFF OMITTED] T1039.303

[GRAPHIC] [TIFF OMITTED] T1039.304

[GRAPHIC] [TIFF OMITTED] T1039.305

[GRAPHIC] [TIFF OMITTED] T1039.306

