[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
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WASHINGTON : 2003
____________________________________________________________________________
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COMMITTEE ON GOVERNMENTAL AFFAIRS
SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan
NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii
ARLEN SPECTER, Pennsylvania RICHARD J. DURBIN, Illinois
ROBERT F. BENNETT, Utah THOMAS R. CARPER, Delaware
PETER G. FITZGERALD, Illinois MARK DAYTON, Minnesota
JOHN E. SUNUNU, New Hampshire FRANK LAUTENBERG, New Jersey
RICHARD C. SHELBY, Alabama MARK PRYOR, Arkansas
Michael D. Bopp, Staff Director and Chief Counsel
Ann C. Fisher, Deputy Staff Director
Joyce A. Rechtschaffen, Minority Staff Director and Chief Counsel
Susan E. Propper, Minority Counsel
Amy B. Newhouse, Chief Clerk
C O N T E N T S
------
Opening statements:
Page
Senator Collins.............................................. 1
Senator 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.
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\1\ The prepared statement of Mr. Potter appears in the Appendix on
page 27.
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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.
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\1\ The prepared statement of Mr. Walker appears in the Appendix on
page 44.
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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
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