[Senate Hearing 108-439]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-439

   PRESERVING A STRONG UNITED STATES POSTAL SERVICE: WORKFORCE ISSUES

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

                                HEARINGS

                               before the

                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                        FEBRUARY 4 AND 24, 2004

                               __________

      Printed for the use of the Committee on Governmental Affairs


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                   COMMITTEE ON GOVERNMENTAL AFFAIRS

                   SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska                  JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio            CARL LEVIN, Michigan
NORM COLEMAN, Minnesota              DANIEL K. AKAKA, Hawaii
ARLEN SPECTER, Pennsylvania          RICHARD J. DURBIN, Illinois
ROBERT F. BENNETT, Utah              THOMAS R. CARPER, 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 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, 41
    Senator Akaka................................................ 3, 43
    Senator Sununu...............................................     4
    Senator Carper............................................... 5, 74
    Senator Coleman..............................................     8
    Senator Durbin...............................................    25
    Senator Stevens..............................................    73
Prepared statement:
    Senator Lautenberg...........................................    83

                               WITNESSES
                      Wednesday, February 4, 2004

Walter M. Olihovik, National President, National Association of 
  Postmasters of the United States...............................     9
Steve LeNoir, President, National League of Postmasters..........    12
Ted Keating, Executive Vice President, National Association of 
  Postal Supervisors.............................................    15
John Calhoun Wells, Private Consultant, former Director of 
  Federal Mediation and Counciliation Service (FMCS).............    28
James L. Medoff, Ph.D., Meyer Kestnbaum Professor of Labor and 
  Industry, Faculty of Science and Arts, Harvard University......    32
Michael L. Wachter, Ph.D., Co-Director, Institute of Law and 
  Economics, and the William B. Johnson Professor of Law and 
  Economics, University of Pennsylvania Law School...............    35

                       Tuesday, February 24, 2004

Dan G. Blair, Deputy Director, Office of Personnel Management, 
  accompanied by Nancy Kichak, Chief Actuary, Office of Personnel 
  Management.....................................................    45
William Young, President, National Association of Letter Carriers    52
Dale Holton, National President, National Rural Letter Carriers..    56
William Burrus, President, American Postal Workers Union, AFL-CIO    58
John F. Hegarty, President, National Postal Mail Handlers Union..    63

                    Alphabetical List of Wistnesses

Blair, Dan G.:
    Testimony....................................................    45
    Prepared statement...........................................   179
Burrus, William:
    Testimony....................................................    58
    Prepared statement...........................................   199
Hegarty, John F.:
    Testimony....................................................    63
    Prepared statement...........................................   216
Holton, Dale:
    Testimony....................................................    56
    Prepared statement...........................................   192
Keating, Ted:
    Testimony....................................................    15
    Prepared statement...........................................   128
LeNoir, Steve:
    Testimony....................................................    12
    Prepared statement...........................................   111
Medoff, James L., Ph.D.:
    Testimony....................................................    32
    Prepared statement...........................................   148
Olihovik, Walter M.:
    Testimony....................................................     9
    Prepared statement with an attachment........................    84
Wachter, Michael L., Ph.D.:
    Testimony....................................................    35
    Prepared statement...........................................   157
Wells, John Calhoun:
    Testimony....................................................    28
    Prepared statement...........................................   135
Young, William:
    Testimony....................................................    52
    Prepared statement...........................................   186

                                APPENDIX

Letter from James L. Medoff, dated February 17, 2004, in response 
  to Senator Carper's question with attachments..................   232
Letter from Victoria A. Lipnic, Assistant Secretary for 
  Employment Standards, U.S. Department of Labor, dated Feb. 24, 
  2004...........................................................   239
Questions and Responses for the Record submitted from:
    Mr. Olihovik.................................................   240
    Mr. LeNoir...................................................   241
    Mr. Keating..................................................   244
    Mr. Wells....................................................   247
    Mr. Wachter..................................................   252
    Mr. Medoff...................................................   260
    Mr. Blair with an attachment.................................   264
    Mr. Young....................................................   325
    Mr. Holton...................................................   333
    Mr. Burrus...................................................   338
    Mr. Hegarty..................................................   349

 
   PRESERVING A STRONG UNITED STATES POSTAL SERVICE: WORKFORCE ISSUES

                              ----------                              


                      WEDNESDAY, FEBRUARY 4, 2004

                                               U.S. Senate,
                         Committee on Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:03 p.m., in 
room 2154, in the Rayburn House Office Building, Hon. Susan M. 
Collins, Chairman of the Committee, presiding.
    Present: Senators Collins, Coleman, Sununu, Akaka, Durbin, 
and Carper.

             OPENING STATEMENT OF CHAIRMAN COLLINS

    Chairman Collins. The Committee will come to order. I want 
to begin today's hearing by thanking Chairman Tom Davis of the 
House Government Operations Committee for allowing us to use 
his hearing room. The Senate Governmental Affairs Committee, 
like all of the committees in the Senate is precluded from 
using its normal hearing room today which is located in the 
Dirksen Building. So we were very thankful that we were able to 
reschedule this morning's hearing for this afternoon with the 
good graces of Chairman Davis.
    I also want to thank my staff for their extraordinary 
efforts in getting the word out about the hearing, and also in 
trying to recreate some of the hearing materials, given the 
fact that we are still denied access to our offices. They 
really made heroic efforts. They were working yesterday out of 
offices at GAO, at OPM, and virtually all over the city, and in 
some cases out of their homes. But it just shows what can 
happen when everybody works together.
    Today marks the third in a series of hearings that the 
Committee is holding to review the reforms recommended by the 
Presidential Commission on the Postal Service. Under the 
effective leadership of Co-Chairmen Harry Pierce and James 
Johnson the Commission put together a comprehensive report on 
an extremely complex issue identifying the operational, 
structural, and financial challenges facing the U.S. Postal 
Service. The Commission's recommendations are designed to help 
this 225-year-old Postal Service remain viable over the long 
term.
    So much depends upon the Postal Service's continued 
viability. The Postal Service itself employs more than 730,000 
career employees. Less well known is the fact that the Postal 
Service is also the linchpin of a $900 billion dollar 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 thousands of companies in these fields and the millions 
that they employ.
    One of the greatest challenges for the U.S. Postal Service 
is the decrease in mail volume as business communication, 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 the fact 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 cost.
    At our first hearing to review the Commission's 
recommendations in September, the Committee heard from 
Commission Co-Chairman James Johnson. His testimony provided 
Committee Members with the rationale behind the Commission's 
recommendations. Commissioner Johnson also made the very 
important point that the Postal Service's short-term fiscal 
health is illusory and that Congress must not ignore the 
fundamental reality that the Postal Service as an institution 
is in serious jeopardy.
    This Committee is very familiar with the Postal Service's 
short and long term financial outlooks, having reported out 
just last year a pension bill that forestalled the financial 
crisis that awaits the Postal Service if we do not act. The 
Presidential Commission presented its assessment of the fiscal 
crisis in frank terms concluding, ``an incremental approach to 
Postal Service reform will yield too little, too late given the 
enterprise's bleak fiscal outlook, the depth of its 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 it is one that 
challenges both the Postal Service and Congress to embrace far-
reaching reforms.
    At the Committee's second hearing in November we heard from 
the Postmaster General and the Comptroller General of the 
General Accounting Office. The Postmaster General described 
transformation efforts already underway at the Postal Service, 
many of which are consistent with the Commission's 
recommendations. In his testimony the Comptroller General of 
the General Accounting Office shared the Commission's concerns 
about the Postal Service's $92 billion in unfunded liabilities 
and obligations. He pointed to the need for fundamental reforms 
to minimize the risks of a significant taxpayer bailout or 
dramatic postal rate increases.
    I would note that since April 2001, the Postal Service has 
been included on the GAO's high-risk list.
    Today we will focus on the various recommendations 
affecting the Postal Service's workforce comprised of more than 
700,000 dedicated letter carriers, clerks, mail handlers, 
postmasters, and others. The Committee will have the 
opportunity to more fully explore the workforce-related 
recommendations of the Commission which include some of its 
more controversial proposals. Among them are recommendations to 
reform the collective bargaining process, to give management 
and employee unions the authority to negotiate not only wages 
but also all benefits, to establish a performance-based pay 
system for all employees, and to authorize the new Postal 
Service Regulatory Board to develop a mechanism for ensuring 
that total compensation for postal employees is comparable to 
the private sector.
    The Postal Service faces the difficult task of trying to 
rightsize its workforce to meet the decline in mail volume, 
technological competition, and other operational challenges. 
With some 47 percent of the current employees eligible for 
retirement by the year 2010, rightsizing does not, however, 
have to mean widespread layoffs and it should not. With careful 
management, much can be done to minimize any negative impact on 
employees and to create a more positive working environment.
    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 whether my constituents are living in the 
northern or western stretches of Maine, or on islands, or in 
our many small communities that dot the State that they have 
the same access to postal services as the people who live in 
our large cities. If the Postal Service were no longer to 
provide universal service and deliver mail to every customer, 
the affordable communications link upon which many Americans 
rely would be jeopardized.
    I would note that most commercial enterprises would find it 
uneconomical, if not impossible, to deliver mail and packages 
to rural Americans at the rates that the Postal Service has 
been offering.
    The preservation of universal service and many more issues 
must be examined in depth if we are to save and strengthen this 
vital service upon which millions of Americans rely, not only 
for communication, but also for their livelihoods. The Postal 
Service has reached a critical juncture. It is time for a 
thorough evaluation of its operations and requirements, and it 
is also time for Congress to act to pass reform legislation.
    Senator Carper and I have committed to working together 
with Senator Stevens, Senator Akaka, Senator Lieberman, Senator 
Sununu, and Senator Fitzgerald who have expressed great 
interest in this area. I know given the history of previous 
attempts at legislative reforms that we are taking on a 
daunting challenge, but it is essential that we seize the 
opportunity provided by the Commission's excellent work. 
Successful reform will hinge on the cooperation and the support 
of the Postal Service's workforce. I very much look forward to 
hearing the testimony of our witnesses today.
    I would now like to call on Senator Akaka for his comments.

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka. Thank you very much, Madam Chairman. I 
really want to thank you for going forward with this hearing, 
even on the House side. And I wish to thank our House 
colleagues for offering their hearing room to us. And of 
course, I want to extend my sincere appreciation to our 
witnesses who rearranged their schedules to be with us this 
afternoon. We are indeed privileged to hear your views on the 
workforce recommendations of the Commission on the U.S. Postal 
Service. So welcome to our panelists who represent the 
postmasters and supervisors, and to our second panelists as 
well.
    For the second time in a little over 2 years, first with 
anthrax and now with ricin, we find ourselves facing the 
aftermath of a bioterrorist attack through the mail. The threat 
of bioterrorism is something I have long been concerned with, 
held hearings on, and have introduced legislation. The 
President's fiscal year 2005 budget released on Monday failed 
to include the Postal Service's request of $779 million to help 
secure the mail. We can ill afford threats to the Postal 
Service which is the cornerstone of a $9 billion dollar mailing 
industry.
    Our first witnesses, representing the Nation's postmasters 
and postal supervisors, are uniquely qualified to discuss 
postal operations and management. I also look forward to the 
testimony of our expert witnesses on pay comparability and 
arbitration; issues that will certainly be discussed again once 
we reschedule yesterday's hearing with the postal unions.
    The Postal Service is currently enjoying a period of stable 
labor-management relations, but I fear this unfavorable 
environment could change if portions of the workforce 
recommendations suggested by the Postal Commission are adopted. 
The Commission would implement a pay-for-performance system for 
all postal employees, impose a rigid collective bargaining 
procedure, task a new postal regulatory board with determining 
total compensation, and require negotiations over benefits.
    One in three Federal workers is employed by the U.S. Postal 
Service. I urge caution in embracing any proposal that would 
cut out postal workers from the government's pension plans and 
the Federal Employee Health Benefit Plan, especially postal 
retirees. We should do no harm to retired postal workers who 
have already earned their benefits and planned their 
retirements under the Federal pension and health plans.
    I thank the Chairman and Senator Carper for seeking a 
review of whether postal-only pension and health plans would 
undermine the stability of the existing Federal system. Nor 
should postal reform legislation result in postal workers 
bearing the brunt of any reorganization. We should remember 
that the future of the Postal Service is dependent not only on 
how well and how effectively it manages its capital assets and 
services, but on how well its labor force is managed.
    I want to thank you, Madam Chairman, for conducting these 
postal hearings in an open and bipartisan manner. I am pleased 
to work with you, as I have always said, and with our colleague 
from Delaware and others to examine how to best position the 
Postal Service to serve the public in the 21st Century and be a 
model employer. Thank you very much, Madam Chairman.
    Chairman Collins. Thank you, Senator. Senator Sununu.

              OPENING STATEMENT OF SENATOR SUNUNU

    Senator Sununu. Thank you very much, Madam Chairman. It is 
a pleasure to be here and I very much appreciate you having 
this hearing. I must say it is a pleasure to be back in this 
room. It is also nice to see that my Senate colleagues who 
never served in the House had no trouble finding this side of 
the Capitol.
    I first began my work in Congress on this committee, the 
Government Reform and Oversight Committee, and 6 years ago 
began watching John McHugh's efforts at postal reform. That was 
a very difficult task for John and for other committee members, 
so I think it is a great effort on your behalf to try to pick 
up this process, try to build on the Commission's work, knowing 
full well how many obstacles will be placed in front of you, 
and trying to work through a balanced, thoughtful approach to 
reform.
    You noted in your opening statement the trends, the changes 
in technology, the competitive forces that are out there, the 
importance of the mail industry to so many in the private 
sector who are trying to communicate with customers or friends, 
whatever that may be. But at the same time there are changes 
that are very much necessary.
    So I salute and appreciate your work, and I am especially 
pleased to be here today with Wally Olihovik, the President of 
the National Association of Postmasters and would be happy to 
provide a flowery introduction at the appropriate time. Thank 
you again.
    Chairman Collins. Thank you very much, Senator. In the 
interest of full disclosure, it took two staff people and a 
trail of bread crumbs for me to find my way over to the House 
side. I tried to follow you from lunch but you were too quick 
for me.
    Senator Carper.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. Thank you, Madam Chairman. To my friend 
from New Hampshire, let me just say, I served over here for 10 
years. I served on the House Banking Committee for 10 years, 
just down the hall and it is nice to be back. I could have used 
the bread crumbs this afternoon just to make sure I found it 
quickly. But it is great to be here and we appreciate very much 
our host for letting us come.
    Senator Akaka served over here for a spell as well and I 
know that the former Governor from Minnesota did not serve in 
the House. But did you work with Bill Cohen when he was a House 
member?
    Chairman Collins. I did indeed. But only in the Cannon 
Building.
    Senator Carper. Fair enough. I am delighted that we're all 
here and encouraged by being in this room where our House 
colleagues have been working on these issues, especially 
Congressman McHugh and Congressman Waxman, a good deal longer 
than others of us.
    Madam Chairman, I am delighted that our Committee is going 
to be taking a day or two to study the workforce 
recommendations that were made by the President's Postal 
Commission last summer. These recommendations that we are going 
to be discussing today have received quite a bit of attention, 
as we all know, over the last few months. Whether one supports 
them or not, to my colleagues I would just say that we can 
agree that they are among the most controversial made by this 
Commission.
    The Postal Service employs over 800,000 people, I think 
about 825,000, but the key workforce recommendations made by 
the Commission affected roughly 725,000 employees that are 
represented by the four major postal unions. Those are the 
recommendations that I am going to focus on today in my opening 
statement, if I may.
    When the Commission first announced them I was, to be 
honest with you, a bit skeptical. The collective bargaining 
process used at the Postal Service today has, I think, worked 
well for the most part. It forces the parties into arbitration 
less than half the time. In recent years that process has 
allowed the Postal Service and three of its four unions to 
negotiate modest contract extensions. It has also created a 
Postal Service that has provided millions of hard-working men 
and women over the years with stable middle-class jobs that, I 
guess now for more than three decades. After taking a couple of 
months to study the Commission's recommendations more closely I 
have to admit that I continue to be a bit skeptical, at least 
with respect to the issues before us today.
    First there are the recommended changes to the collective 
bargaining process. The Commission's recommendations aim to 
make the process quicker and more efficient through the use of 
strict timeliness, mandatory mediation, and the last best final 
offer model of interest arbitration. I must say as a baseball 
fan it is an approach that I am used to, at least with respect 
to negotiating contracts in baseball and one that frankly I 
find some favor with.
    Having said that, these suggestions appear to ignore the 
fact that the current process, while admittedly not perfect, 
should take no longer than 135 days if followed to the absolute 
letter. These suggestions also appear to ignore the fact that 
the current process gives the unions and management significant 
flexibility that has allowed both sides to be creative and work 
to avoid arbitration. It is not clear to me just yet how the 
Commission-recommended process would work any better. As you 
know, some skeptics have raised concerns that this new process 
could actually force more disputes into arbitration where one 
side is likely to lose big in the risky last best final offer 
stage. Again as I said, while I am one who favors the last best 
final offer approach, I think we have to proceed cautiously 
here.
    Then there are recommendations dealing with employee pay 
and benefits. The Commission appears to have come to the 
conclusion that postal employees are overpaid, at least when 
benefits are taken into account. To remedy this they call on a 
new postal regulatory body to develop an updated definition of 
comparability and to use it to set a cap on total compensation 
for postal employees. They also recommend allowing postal 
benefits to be negotiated during collective bargaining. Like 
with the Commission's recommendations on collective bargaining, 
I am not yet convinced of the need for these changes either.
    As I have mentioned in the past, I do not believe that 
postal employees are overpaid, and to the extent that there is 
a pay premium, arbitration panels in postal labor disputes have 
the authority, I believe, to look at the extent of the premium 
and to moderate employee pay accordingly. Before we make any 
changes to the Federal Employee Health Benefits Plan that could 
have a dramatic impact on other Federal employees we should 
recognize that the Postal Service already has the ability to 
use the collective bargaining process to press its employees to 
pay a greater share of their health-care costs.
    I am pleased then that the postal reform principles 
announced by President Bush last month ignore the Commission's 
workforce recommendations. The wages and benefits paid out to 
the Postal Service's bargaining unit employees do account for 
more than 50 percent of the Postal Service's total costs. The 
Postal Service performs labor intensive work, however, and this 
will not change even if we were to adopt the Commission's 
recommendations wholesale. The President recognizes this and 
has called on us to focus on those fundamental reforms that are 
necessary to update the Postal Service for the 21st Century.
    The challenges the Postal Service faces today were laid out 
in stark detail just last week when Postmaster General Potter 
and the Postal Board of Governors Chairman David Fineman 
testified before the House Government Reform Committee's 
special panel on postal reform. I presume that happened here in 
this room. Chairman Fineman pointed out, I believe, that the 
total volume of mail delivered by the Postal Service has 
actually declined by more than 5 billion pieces since 2000. 
Over the same period the number of homes and businesses that 
the Postal Service must deliver to has increased by some 5 
million. First-class mail, the largest contributor to the 
Postal Service's bottom line, is leading the decline in volume. 
Some of those disappearing First-Class letters are being 
replaced by advertising mail, which I am sure finds its way to 
all of our mailboxes, and which earns significantly less. Many 
First-Class letters are being lost for good, the First-Class 
Mail business, to E-mails and to electronic bill paying.
    Let me just say, we should certainly be talking about 
whether any changes need to be made to the Postal Service's 
workforce. I actually look forward to learning more about the 
Commission's recommendations and how they would work. As the 
President points out, however, we do need to focus our reform 
efforts on initiatives that will improve transparency, will 
improve accountability at the Postal Service and give 
management the increased flexibility that they need to 
streamline operations and to seek out new mail volumes.
    In closing, I would like to urge the Postal Service and its 
unions to sit down with each other and find out if there are 
any changes that should be made to the collective bargaining 
process or to the laws governing pay and benefits for postal 
employees. I am not convinced today that the Commission's 
recommendations are the right approach but I am certain that 
there are changes out there that would make a decent system 
even better. The best reforms in this area will be the ones 
that management and labor can agree to jointly.
    Thanks again, Madam Chairman, for letting me give what I 
know is a fairly long statement. I really do appreciate the 
opportunity to work with you, Senator Akaka, Senator Sununu, 
Senator Stevens, and our other colleagues on these issues. This 
is important legislation and this is a great opportunity for us 
and we look forward to making it happen.
    Chairman Collins. Thank you. Senator Coleman.

              OPENING STATEMENT OF SENATOR COLEMAN

    Senator Coleman. Thank you, Madam Chairman. I want to thank 
you for your trademark bipartisan leadership in taking on very 
tough issues, and this is a tough issue. I respect the concerns 
raised by my colleague from Delaware. The reality though is 
that I think we take for granted universal service, we take for 
granted affordability. I think in these tough economic times 
there are not going to be taxpayer bailouts of institutions 
that do not meet the challenge of improvements in productivity. 
So we have got some challenges.
    I will also look at the recommendations in a reflective 
way. I do not come to this with a prejudgment but I do come to 
this with a sense that we have to do what you, Madam Chairman, 
articulated in your opening statement, preserve universal 
service, preserve affordability. The Post Office, it is a 
personal thing for so many of us, the service that we get.
    It is also a key in my State. We have a tremendous printing 
industry. When I was mayor of St. Paul that was one of the 
strongest industries in the city. Their lifeblood depends on 
the efficiency and affordability of the service. So let us go 
about the task of doing what must be done to preserve universal 
service, preserve affordability, and approach it with an open 
mind to the type of changes that will be required for us to get 
there.
    Thank you, Madam Chairman.
    Chairman Collins. Thank you very much.
    I would now like to welcome our first panel of witnesses, 
and I would like to turn to Senator Sununu for purposes of 
introducing our first witness.
    Senator Sununu. Thank you, Madam Chairman. I am very 
pleased to be here as a Member of this Committee to participate 
in this hearing, until I am asked to preside over the Senate, 
which will come at 3 o'clock. I am especially proud to 
introduce Wally Olihovik, the President of the National 
Association of Postmasters and one of New Hampshire's finest 
experts, I suppose, to the rest of the country.
    Mr. Olihovik has served the National Association of 
Postmasters and the Postal Service with tremendous distinction. 
He is a great voice and provides a great perspective on the 
value of the Postal Service, the importance of some of the 
things that were spoken about in our opening statements, 
universal service and being a competitive force, or a 
competitive engine for so many businesses that rely on the 
Postal Service. But also a great perspective on what can be 
done to improve the organization and the employment structure 
of the Postal Service, the security issues that we have all 
been so conscious of since September 11, and of course, the 
reputation for service that is just outstanding. If you ask 
customers across the country about their perspective of the 
service that the USPS provides, it is very high indeed, and 
especially due in no small part to the work of Mr. Olihovik in 
New Hampshire.
    New Hampshire's Postal Service has received some of the 
highest quality ratings of any postal organization in the 
country because of the attributes that Wally and his 
counterparts have brought to it. He has been a great resource 
as a legislator. I am an engineer. What do I know about public 
employment or the Postal Service or civil service rules or 
collective bargaining or these issues that I did not have to 
deal with necessarily in the private sector. So to have the 
postmasters and other postal workers in New Hampshire to be 
able to draw on as a resource have been invaluable to me.
    While his professional service has been outstanding, as the 
Chairman pointed out to me, Wally is a three-time recipient of 
the Benjamin Award, which is given to those Postal Service 
employees that make an extraordinary effort in the area of 
community service. Just underscoring the degree to which Wally 
understands that lifetime commitment that he has made to the 
Postal Service and the postmasters extends to much more than 
just that 8 o'clock to 6 o'clock timeframe where you might be 
on the job.
    I have been proud to work with the postmasters nationally 
and in New Hampshire on a number of issues. They have been 
outstanding to work with and, again, that is due in no small 
part to the perspective and leadership that Wally Olihovik has 
brought to the organization. It is a pleasure to welcome all of 
our panelists and to introduce Wally today.
    Chairman Collins. Thank you, Senator. After we hear from 
Mr. Olihovik we will hear from Steve LeNoir, who is the 
National President of the National League of Postmasters. He 
also serves on the Postmaster General's leadership team, 
workplace advisory committee and mail security task force. 
Prior to becoming the national president of the league he 
served two terms as the South Carolina State president for the 
league.
    Our final witness on this panel will be Ted Keating who is 
the Executive Vice President of the National Association of 
Postal Supervisors. He has been with the Postal Service for 
more than 40 years and has held numerous managerial positions 
during that time. Prior to becoming the executive vice 
president he served as the association's New England area vice 
president. So we have New England well-represented on our panel 
today.
    Mr. Olihovik, we will start with you.

    TESTIMONY OF WALTER M. OLIHOVIK,\1\ NATIONAL PRESIDENT, 
    NATIONAL ASSOCIATION OF POSTMASTERS OF THE UNITED STATES

    Mr. Olihovik. Thank you, Madam Chairman and Members of the 
Committee. On behalf of the 42,000 NAPUS members, thank you for 
inviting me to share my views with the Committee.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Olihovik appears in the Appendix 
on page 84.
---------------------------------------------------------------------------
    For well over 100 years NAPUS has advanced the quality of 
postal service to our customers, whether they reside and work 
in our largest cities or our smallest towns. NAPUS looks upon 
the Members of this Committee as loyal allies in the effort to 
ensure the success of the Postal Service. The long-term 
financial outlook for the Postal Service has not changed for 
the better. Growing electronic diversion, keen competition and 
lingering economic uncertainty continue to chip away at postal 
revenue.
    Last year NAPUS applauded the Chairman's legislation that 
called for a Presidential Commission on the future of the 
Postal Service. Moreover, NAPUS was encouraged by many, though 
not every one of its recommendations. NAPUS was honored to 
participate actively in the Commission process. Madam Chairman, 
there are those in the Postal community who believe incorrectly 
that postal reform is unnecessary. NAPUS disagrees with that 
view.
    As you know, this Committee assisted the Postal Service, if 
only temporarily, by passing Public Law 108-18. The Civil 
Service Retirement System recalculation legislation provided a 
short reprieve. As part of your efforts to reform the Postal 
Service, Congress needs to revisit the pension issue in order 
to reverse the decision to shift the military retirement 
liability onto the Postal Service.
    In addition, remedial legislation is warranted to permit 
the Postal Service to use the escrow that will accrue as the 
result of the CSRS calculation. The military retirement 
modification shifted a $27 billion obligation from the Federal 
Government to the Postal Service. The President's Postal 
Commission recommended that this obligation return to the 
government. The Postal Service could use these much-needed 
funds to pre-fund retiree health obligations. Eliminating the 
escrow account would reduce the need for a postage rate 
increase in 2006.
    NAPUS also believes that such funds could be invested in 
postal infrastructure that has been ignored for some time.
    Over the last 2 years, the Postal Service has successfully 
reduced costs to balance shrinking revenue. However, the Postal 
Service cannot continue to chip away at costs without 
influencing the quality of mail services that Americans expect 
and demand. Rather, we need the tools and flexibility that are 
essential to grow revenue. A more comprehensive approach is 
necessary which addresses the operational, regulatory, and 
financial needs of the Postal Service.
    This Committee is familiar with the alarm sounded by many 
in the Postal community as well as the General Accounting 
Office about the fiscal condition of the Postal Service. Just 2 
months ago President Bush urged Congress to enact postal reform 
legislation. The basic and uncontested mission of the U.S. 
Postal Service is that every mailer and mail recipient in this 
country has access to an affordable and universal postal 
network. President Bush prefaced his announced principles for 
postal reform by stating that comprehensive postal reform must 
ensure that the U.S. Postal Service can continue to provide 
affordable and reliable universal service. For NAPUS, 
universality and reliability are paramount as this Committee 
pursues its much-needed reform of the Postal Service.
    It is immaterial whether the postal customer resides or 
works in a rural, urban or suburban setting. All communities 
are entitled to high-quality mail services. Congress emphasized 
its strong interest in protecting universal postal access 
through the Postal Reorganization Act of 1970 stating, no small 
post office shall be closed solely for operating at a deficit. 
Last July the President's Commission on the Postal Service made 
a number of recommendations relevant to postal infrastructure.
    One of the noteworthy Commission conclusions was that any 
post office necessary for the furtherance of universal service 
should not be closed solely because it is unprofitable. Closing 
small post offices would be a dreadful and misguided strategy. 
Such actions would have a devastating effect on many 
communities yet have little impact on postal finances. As 
Robert Cohen of the Postal Rate Commission testified before the 
Presidential Commission, closing the 10,000 smallest post 
offices would only net a savings of about $567 million, 
considerably less than 1 percent of the Postal Service's 
operating budget. The postal network is not merely the sum of 
its parts. It is an integrated system which relies even on its 
smallest components.
    Americans expect access to a full-service post office. The 
Postal Service's own transformation plan recognized this 
reality. Despite the fact that 70 percent of postal customers 
were aware that postal products may have been available 
elsewhere, 80 percent of stamp sales continue to take place at 
the post office. NAPUS has worked with communities in 
safeguarding their legal rights to protect their post office. 
As part of this effort NAPUS publishes and circulates the red 
book, a NAPUS action guide for preventing the closing and 
consolidation of your post office. In addition, NAPUS has 
worked closely with the Congressional rural caucus to safeguard 
a community's due process rights.
    Madam Chairman, I request permission that the Committee 
include the NAPUS action guide in the official hearing record.
    Chairman Collins. Without objection.
    Mr. Olihovik. Post offices provide exceptional value to 
mail products, including essential mail security through secure 
post office boxes at convenient locations staffed by quality, 
trustworthy, knowledgeable, reliable and accountable postal 
personnel. Postmasters fully recognize and embrace the 
principle that a postmaster must be accountable. However, daily 
teleconferencing with middle postal management is not 
accountability. Unfortunately, all too often this is used as a 
form of micromanagement. Postmasters cannot be accountable to 
everyone at every level of the postal bureaucracy. Therefore, 
NAPUS was pleased that the President's Commission embraced our 
recommendation that the Postal Service must focus on removing 
layers of managerial bureaucracy with an eye toward simplicity 
and downward delegation. We hope that postal headquarters will 
apply this suggestion.
    Indeed, the ability to reach postal excellence relies on 
the availability of appropriate and fair incentives. The Postal 
Service recently implemented a new pay-for-performance system 
to replace the controversial EVA program. The key ingredients 
to its success are upfront, well-planned incentives and 
performance goals and good communications. Three components 
comprise the performance aspect of the new pay system. The 
combination of reaching corporate and unit goals make up 80 
percent of the performance incentive, meeting the core 
requirements of the job covers the remaining 20 percent of the 
incentive. The link between performance incentives and 
achieving corporate goals reflects a strategy employed by the 
private sector.
    Although I am cautiously optimistic about the success for 
the new pay system, I strongly feel that the Postal Service 
must do a better job defining the core requirements. Many 
postmasters throughout the country have communicated to me 
their concerns about the implementation of the pay system. Make 
no doubt about it, NAPUS fully supports a fair pay-for-
performance system. However, what looks good on paper may be 
challenging in practice. There is no substitute for 
communication and collaboration. The agency's difficulty in 
communicating the system to its own managers, however, concerns 
me.
    It is important to note that it is difficult to manage a 
postal facility when performance incentives are inconsistent. 
The managerial force is compensated using a system that rewards 
performance. The current salary structure for craft employees 
does not reward excellent performance. Unless we are somehow 
able through collective bargaining to create a pay plan that 
rewards individual or unit achievement, we will miss a crucial 
opportunity to optimize efficiencies and encourage exemplary 
performance. In sum, the present pay system compromises the 
workplace by rewarding one set of employees yet influencing 
another. This practice adversely affects morale and 
performance.
    We must do a better job with our unions to train employees 
to perform different tasks within the post office. We should 
work with the crafts to lower or eliminate barriers that 
preclude postmasters from assigning personnel different duties 
within a post office. Postal employees should have the 
flexibility and training to cross over and perform a variety of 
tasks. I would also suggest that cross-training improves job 
security for those employees whose skills could become 
obsolete.
    Finally, NAPUS remains extremely concerned about the 
Presidential Commission's suggestion to sunset FEHBP and FERS 
coverage of postal employees. The proposal would subject health 
and retiree benefits to collective bargaining. My two primary 
concerns with the proposal is that it does not address the 
impact upon current and future postal retirees, and it ignores 
the effect that separating out postal employees would have on 
the entire Federal benefits program.
    Madam Chairman, this concludes my remarks. I look forward 
to working with you and the other Members of the Committee as 
we strive to ensure the Postal Service will thrive for many 
years to come.
    Chairman Collins. Thank you. Mr. LeNoir.

  TESTIMONY OF STEVE LeNOIR,\1\ PRESIDENT, NATIONAL LEAGUE OF 
                          POSTMASTERS

    Mr. LeNoir. Madam Chairman, Members of the Committee, thank 
you for inviting me to appear before you today. My name is 
Steve LeNoir and I am President of the National League of 
Postmasters. I welcome this opportunity to discuss with you the 
important issue of postal reform. With your permission, I would 
like to enter my written testimony into the record and then 
proceed to give a short summary.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. LeNoir appears in the Appendix on 
page 111.
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    Chairman Collins. Without objection, all statements will be 
submitted in full for the record.
    Mr. LeNoir. Starting in 1887 to represent rural postmasters 
and formally organized in 1904, the National League of 
Postmasters is a management association representing the 
interest of all postmasters. Although we represent postmasters 
from all across the country, from the very smallest to the very 
largest, rural postmasters are a sizable portion of our 
membership. The league speaks for thousands of retired 
postmasters as well.
    Madam Chairman, we would like to thank you and your 
colleagues on the Governmental Affairs Committee for your 
dedication to the issue of postal reform. Postal reform is 
critical to the long-term ability of the Postal Service to 
provide for affordable, universal mail service to every 
individual, home, and business in America.
    There is no doubt that the Postal Service needs fundamental 
change. We know that our jobs and those of the people we manage 
are ultimately at stake. While we know that the Postal 
Service's transformation plan takes us in the right direction, 
we also know that legislative reform is necessary to finish the 
process. We commit ourselves to work with you to make this a 
reality.
    Madam Chairman, the most critical issue facing the Postal 
Service now is the Civil Service Retirement System issue. Last 
year's legislation corrected an overpayment to CSRS that saved 
the Postal Service billions of dollars but put those savings--
from 2006 on--into an escrow account. The Postal Service has 
suggested using the savings to pre-fund its retiree benefits, 
thus funding one of the biggest unfunded liabilities the Postal 
Service will face in the future. We think that is an excellent 
idea.
    Also last year, CSRS legislation forced the Postal Service 
to assume the responsibility for $27 billion of military 
retirement benefits that were earned by postal employees before 
joining the Postal Service. That responsibility is not one the 
Postal Service should bear and it deserves to be transferred 
back to the general Treasury. We strongly urge Congress and the 
Committee to make both of these issues a top priority.
    This past year postal headquarters, the National League of 
Postmasters, NAPUS and NAPS worked for 11 months to develop a 
new pay-for-performance system. In the past, compensation 
systems for postal managers were an all or nothing system. You 
either met the goal or you missed it. Now we have created a new 
compensation system for postmasters and other managers that we 
believe will be a good driver of productivity. It recognizes 
individuals not only for their contribution to the corporate 
goals but also for their individual performance. It drives the 
right behavior by constantly encouraging individuals to strive 
for stretch and breakthrough productivity. Even small measures 
of improvements will be rewarded.
    The new pay-for-performance system takes three factors into 
account: How we perform nationally as a Postal Service, how our 
post offices performed, and how we performed as an individual. 
Everyone is aligned with their performance goal. It is a 
concept of recognizing both team and individual performance 
that we have never had before. I believe we have developed a 
fair system and the Postal Service has committed to review the 
process after the first year to see if any adjustments are 
needed.
    The compensation system for rural carriers is also a good 
driver of productivity in that it provides for an evaluation 
system that is paid by the workload. It includes a combination 
of mail volume, the number of deliveries, mileage, and stops. 
This process provides a win-win situation for both the rural 
carriers and the Postal Service.
    While the league is pleased so far with the new pay-for-
performance system we do believe there are too many layers of 
management between postmasters and postal headquarters and some 
of that should be removed. We strongly feel that postmasters 
should have the authority to manage their post offices without 
being micromanaged.
    Another problem that we see is that promotions in craft 
positions are determined by seniority. In many cases the most 
senior person is not the best qualified for the job. It is not 
that he or she may be a bad employee, but just not the right 
person for a particular spot.
    Moreover, we need much more flexibility in how we are able 
to use our craft employees. Current rules prohibit craft 
employees from doing work in other crafts. We could greatly 
improve efficiency if we had more flexibility.
    We also need to address the issue of sick leave for FERS 
employees. Currently they get no credit for unused leave at 
retirement. We need to change this rule so they could sell back 
sick leave or get credit at retirement.
    One area in which we have made considerable progress is 
that we have reduced the number of grievances filed by 
employees. We need to continue to make progress in this area 
and work with the unions to revise outdated work rules.
    An issue that does cause us concern is the possibility of 
closing rural post offices. I appreciate your comments earlier 
and strongly agree with your sentiments. The National League of 
Postmasters is concerned that access to a post office in a 
rural community could dramatically change if postal reform is 
not implemented properly. We are particularly concerned that 
overzealous individuals could develop a mistaken belief that 
closing small post offices would net meaningful savings for the 
Postal Service. As my counterpart pointed out, the facts do not 
support that. The record shows that the cost of the 10,000 
smallest post offices is less than 1 percent of the Postal 
Service's total budget.
    We believe there is great value in our network of over 
26,000 post offices and we have not yet fully maximized that 
value. We are suggesting that in rural areas where the private 
sector does not provide adequate services, the Postal Service 
could fill that gap. For instance, in my community of Horatio, 
South Carolina, I added a fax and copy machine to my post 
office because the closest business that offered that service 
was over 20 miles away. That served our citizens well, had no 
effect on the private sector, and has paid for itself many 
times over.
    Also, the Postal Service could partner with State and 
Federal Governments. For instance, we could offer voter 
registration in our offices, making it easier for our citizens 
to participate in the democratic process. We could also assist 
in gathering census data in rural areas and play a role in 
homeland security. The league believes that providing universal 
service means not only providing universal mail delivery to all 
citizens but also providing equal access to postal services 
including a post office.
    The Postal Service has an obligation to provide quality 
postal service and access to post offices on a universal bases 
regardless of whether a post office is considered profitable. 
We urge this Committee to see that a definition of universal 
service in any reform bill makes it clear that post offices are 
necessary to fulfill the universal service mandate, 
particularly in rural areas where post offices play such a 
critical role.
    Madam Chairman, rural post offices are key to a healthy 
rural economy and are necessary to provide universal service in 
America. As supported by our written testimony, the local post 
office is an American institution that literally binds rural 
America together politically, socially, and economically. It is 
the lifeblood of rural communities and it should not be harmed.
    No less important are smaller post offices in inner-city 
areas. They provide a vital link to the Postal Service and the 
country and they should also not be harmed. While we understand 
there may be legitimate reasons to close a post office, we do 
not believe that existing rules pertaining to the closing of a 
post office should be changed. These rules are fair to 
customers, local communities, and the Postal Service. Let us 
work to make post offices not only a lifeline to customers but 
also a positive link to government at all levels.
    We think there is great value in our network of post 
offices. The American flag is raised at post offices every day 
all across this country. The tradition of postmaster, starting 
with Ben Franklin in colonial times is connected to the many 
freedoms enjoyed through the Constitution of the United States 
and the Bill of Rights. It supports and enables many of the 
rights given to us. Universal service is important to all 
Americans in the equal opportunity it provides.
    I would be happy to answer any questions the Committee may 
have.
    Chairman Collins. Thank you. Mr. Keating.

TESTIMONY OF TED KEATING,\1\ EXECUTIVE VICE PRESIDENT, NATIONAL 
               ASSOCIATION OF POSTAL SUPERVISORS

    Mr. Keating. Thank you, Chairman Collins, for the 
opportunity to appear on behalf of the 36,000 postal 
supervisors, managers and postmasters who belong to the 
National Association of Postal Supervisors. I, too, will 
abbreviate some of my testimony since you have the complete 
written record, and I will go right to our testimony.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Keating appears in the Appendix 
on page 128.
---------------------------------------------------------------------------
    We agree with the Postal Commission that the current 
network of post offices and plants requires streamlining, 
leading to the closure of unneeded facilities to ensure that 
universal service is delivered in the most effective and cost-
efficient manner possible. Indeed, many of the Nation's post 
offices are probably no longer necessary to fulfill the 
universal service obligation. Streamlining or rationalizing of 
the postal network should be carried out on a comprehensive 
basis under the authority and control of the Postal Service in 
consultation with Congress and its stakeholders. The ultimate 
aim should be to arrive at cost savings while preserving 
affordable, universal service.
    We see no need for the establishment of a postal network 
optimization committee as recommended by the President's 
Commission applying a base closing approach towards unneeded 
postal facilities. A base closing approach with P-Noc 
preparation of recommendations to Congress to consolidate and 
rationalize the service's processing and distribution 
infrastructure will only delay and diffuse the decisionmaking 
that should remain in the hands of the Postal Service. The 
Postal Service is the best equipped entity to arrive at the 
optimal number of locations and functions for mail processing 
and distribution functions just as the Postal Service is 
similarly equipped to arrive at the number of locations and 
functions for post offices.
    Under current law, the Postal Service is not allowed to 
close post offices for economic reasons alone. The Commission 
recommended that such statutory restrictions be repealed and 
that the service be allowed to close post offices that are no 
longer necessary for the fulfillment of universal service. We 
agree and urge the Congress to grant to the Postal Service the 
flexibility and necessary accountability in a fair and rational 
way to fulfill its universal service obligation in a cost-
efficient and effective manner.
    Adversarial labor-management relations have been a 
persistent cause of problems in operational efficiency as well 
as the culture and work-life of the Postal Service. The General 
Accounting Office and others have repeatedly documented the 
degree to which poor communication, persistent confrontation 
and conflict, excessive number of grievances, and difficult 
labor contract negotiations have persisted within the Postal 
Service. From my perspective as executive vice president of one 
of the foremost management organizations within the service, 
progress is being achieved in fostering better communications 
at the national level between the Postal Service and the 
leadership of the craft unions and management associations.
    However, progress at lower levels and other areas continues 
to remain uneven, especially in the resolution of grievances. 
The Postal Commission noted that encouraging progress is being 
made by the Postal Service and one of its unions in resolving 
grievances through the use of a streamlined process involving a 
dispute resolution team comprised of representatives of 
management and craft. We believe the dispute resolution team 
approach is best directed to the resolution of contract related 
disputes in the field where they began while workplace or 
environment disputes are best resolved by mediation.
    We also are concerned by the growing reliance by dispute 
resolution teams of non-binding arbitration decisions as 
precedent. We encourage the Committee to continue its oversight 
on this particular endeavor.
    Over the past decade the Postal Service has led the Federal 
Government in efforts to build incentive-based, performance-
driven compensation systems. It has followed the lead of 
cutting edge organizations in the private sector in using 
performance management systems to accelerate change and improve 
individual and organizational performance. Incentive-based 
systems within he Postal Service currently apply only to the 
performance of executive managers, postmasters, supervisors and 
other non-bargaining management employees covered under the EAS 
salary schedule.
    More recently the National Association of Postal 
Supervisors and the postmaster organizations have collaborated 
with the Postal Service in establishing a new pay-for-
performance system, reshaping the EVA system first established 
in 1995 that better rewards teamwork, efficiency and service 
quality in a fair manner. Measurable and realistic goals are 
now being established at the unit, district, and area levels as 
part of the new system. Progress in this area is being made.
    We agree with the Commission that it is time to expand 
merit-based pay to the entirety of the postal workforce, 
including bargaining unit employees. The establishment of an 
incentive-based culture of excellence in any organization 
relies upon performance management systems that reach across 
the entire organization and cover all employees, not only those 
in the management ranks. The Commission urged the Postal 
Service to undertake a study of performance-based compensation 
programs for both management and union employees and work with 
the unions and management organizations to design and implement 
a performance-based compensation system. We are counting on the 
Postmaster General and the craft unions to negotiate some form 
of pay-for-performance at the bargaining table.
    We also urge Congress to repeal the current statutory 
salary cap as it applies to the Postal Service and authorize 
the Postal Service to establish rates of pay for top Postal 
Service officers and employees that are competitive with the 
private sector. Pay compression of salaries at the top, leaving 
little financial incentive for top mid-level employees to take 
on new levels of responsibilities, are hindering the Postal 
Service from recruiting the best and brightest to top 
leadership positions. The cap should be lifted and the Postal 
Service should have the discretion to set compensation to 
attract and retain qualified individuals in the upper 
management ranks. Many Federal entities that require a capable, 
experienced CEO and other top officers already have pay-setting 
authority. They include the Tennessee Valley Authority, the 
Federal Reserve Board, the Public Company Accounting Board, and 
the Federal Home Loan Bank Board.
    Additionally, we encourage the Committee to take a critical 
view toward the necessity of establishing a new regulatory body 
such as a postal regulatory board to assume authority over 
total compensation, scope of the monopoly, and definition of 
universal service as well as other important policy and 
regulatory powers exercised by Congress, the Postal Rate 
Commission and the Postal Service itself. Similarly, we 
question the wisdom of subjecting the Postal Service pension 
and post-retirement benefits to collective bargaining. This 
could significantly impact the vitality of the entire Federal 
pension and retiree health benefit programs and we caution the 
Congress to move very carefully in full consultation with the 
postal stakeholder community before proceeding in these areas.
    We support the Postal Service's proposal to eliminate the 
escrow requirement so the service will not have to include the 
$3 billion as mandated incremental operating expense in fiscal 
year 2006. The service cannot use the escrow funds unless 
Congress eliminates the escrow requirement or specifies by law 
how these funds may be used. If no action is taken, the 
unavoidable necessity to raise rates higher than necessary will 
come about. This can and should be avoided.
    We believe that improved and continued communication by the 
Postal Service with Congress over how it will address its long 
term challenges and fund its retiree obligation should provide 
Congress the information it needs and assurances to eliminate 
the escrow requirement.
    We also support relieving the Postal Service of the burden 
of funding retirement benefits attributable to military service 
and returning that responsibility to the Department of the 
Treasury. We support the use of these savings to pre-fund 
retiree health benefits, obligations for current and former 
employees estimated at approximately $50 billion dollars. Under 
this proposal the funds would stay in the Civil Service 
Retirement System and therefore would not impact the Federal 
deficit.
    Finally, we have recently been apprised of a difference in 
methodology used by the Office of Personal Management and the 
Postal Service in determining the Postal Service's CSRS 
obligation. We were quite surprised to learn that according to 
the Postal Service's calculations its obligation is $86 billion 
less.
    Chairman Collins, thank you for the opportunity to present 
these views. We look forward to working with you to secure 
postal reform and I am available to answer any questions that 
you have. Thank you very much.
    Chairman Collins. Thank you very much. I want to thank you 
all for sharing your experience with us. We are now going to 
begin a round of questions of 7 minutes for each of us.
    All of you have considerable experience in the Postal 
Service. Each of us is committed to universal service, to 
making sure that we strengthen and preserve the Postal Service. 
You have all stressed the need for us to act on the military 
pension issue and the escrow account issue. I cannot help but 
point out, even though I am on the House side, that the 
original Collins-Carper bill did not have an escrow account in 
it and it is something, on those two points, where I am very 
sympathetic to the opinions that you have expressed.
    But putting aside those two issues which are clearly among 
your top priorities, if you were going to advise the Committee 
on what two reforms you think should be included in our 
legislation and are absolutely imperative for the future of the 
Postal Service, what would they be? I would ask you to give us 
the benefit of your many years of experience here as opposed to 
just representing your members in replying to us. We will start 
with Mr. Olihovik.
    Mr. Olihovik. I think the thing that is absolutely critical 
to NAPUS is the universal service aspect. But the two reforms I 
think that the Postal Service needs is really the flexibility 
and price-setting because in today's world, the archaic 
structure of the way we do things now, it just does not make 
sense. It does not allow this organization to react in any kind 
of a timely manner. It is approximately 12 to 14 months before 
the Postal Service realizes it has a problem, has to put in a 
new rate structure, and has the ability to get the new rate 
approved. So, we need some more flexibility.
    I think the flexibility aspect is as far as where we want 
to go. I am very supportive of the new pay-for-performance 
program. I absolutely live by my remarks. I think we need to 
extend that even further into the system. It is a well-thought 
out program. I did preface some of my remarks that I still have 
a little bit of concern. But I am still very cautiously 
optimistic that at the end of the day this is going to turn out 
to be right for the Postal Service. And I am proud that the 
Postal Service brought us in early on to listen to our points 
of view.
    But I think as we are looking down the road, any healthy 
organization needs all its parts pulling in the same direction. 
This program as we have developed it is geared for excellence, 
and I think that if we can somehow get the crafts to come to 
the table and be part of the process I think that will go a 
long way into turning this whole organization in the right 
direction.
    Chairman Collins. Thank you, Mr. Olihovik. Mr. LeNoir, same 
question for you.
    Mr. LeNoir. I would think, give us flexibility in our rate-
making process. I understand that we have monopoly products 
like First-Class Mail, but there are other products that I 
think we need more flexibility and not as much oversight where 
we have competition. Currently it takes us--our competitors can 
change rates overnight where we have to go through a very long 
process and lay everything out on the table. Then our 
competitors set their rates according to how that process works 
out. So I do believe we need more flexibility in the rate-
making process for non-monopoly products.
    Also I think we need more flexibility in the way that we 
can use our employees. In the larger post offices, sometimes 
you cannot cross crafts, like a clerk could not do carrier 
work. We have a number of employees but we cannot necessarily 
use them like we should if we had more flexibility to use those 
employees.
    Chairman Collins. Thank you. Mr. Keating.
    Mr. Keating. I agree with my two colleagues. I think 
pricing and flexibility is the key most important issue being 
addressed and that the Postal Service needs to continue. The 
other issue I think would be to convince Congress to allow the 
Postal Service to make those decisions necessary. I believe 
they are the best qualified people to move ahead with a 
transformation plan and allow them to make the decisions 
necessary and not have to answer to any further regulatory 
boards than they already have. Thank you.
    Chairman Collins. As I was preparing for this hearing I 
reviewed the worker's compensation program of the Postal 
Service. I was surprised to learn that in the Postal Service, 
if you are on worker's compensation you can choose to stay on 
worker's compensation even after the normal retirement age. 
There is in fact a 102-year-old postal employee who is still 
receiving worker's compensation benefits. I also found that 
there were hundreds of cases where individuals have been 
receiving worker's compensation for longer than 30 years, and 
that there were over 1,000 cases where the individual had 
qualified for worker's comp benefits between 20 and 29 years 
ago.
    It seems to me that this is an area that we need to take a 
close look at given the enormous unfunded liability for 
worker's comp in the Postal Service. Could you share any views 
with the Committee based on your experience on whether you 
think this is an area that reforms need to be undertaken? Mr. 
Olihovik.
    Mr. Olihovik. Senator Collins, I would not by any means 
classify myself as a compensation expert. It is a very 
confusing process. I know as a postmaster some of the greatest 
frustration that I have experienced was going through the 
worker's compensation merry-go-round. I think outside of the 
job of postmaster, one of the most challenging jobs you can 
have in the Postal Service is in injury compensation. Worker's 
compensation is probably equally challenging.
    It is clear to me talking to some of the experts back in 
the district, whether it be in Massachusetts or New Hampshire, 
that there is clearly a level of frustration out there with the 
system. It needs to really be drastically looked at and in some 
cases probably overhauled. We cannot make it comfortable where 
people are sitting home. We have got to do the right thing for 
people that are injured. There is no doubt about that. But we 
cannot create a situation where our hands are tied.
    That is about the only thing I can share. I know that from 
a district level there is a tremendous amount of frustration 
with the system as it presently exists.
    Chairman Collins. Your point is a very good one. We do need 
to make sure we have a system that is fair and compassionate to 
injured employees. I was, however, alarmed at some of those 
statistics, particularly when you look at the unfunded 
liability.
    Mr. LeNoir.
    Mr. LeNoir. Madam Chairman, you point out a very legitimate 
issue and I think we need to work to get it corrected. That 
would be the short answer.
    Chairman Collins. Thank you. Mr. Keating.
    Mr. Keating. Chairman Collins, I read that same report that 
you referred to and I was amazed at what the report entailed. I 
worked in finance for most of my career before coming to 
Washington and I can tell you that it has been a system out of 
control for a long time and it needs an overhaul and complete 
look at.
    Chairman Collins. Thank you. Senator Akaka.
    Senator Akaka. Thank you very much, Madam Chairman. I wish 
to thank all of you for your excellent testimonies. As the 
elected leaders of the Postal Service's management associations 
you know firsthand that modernization of your agency is 
critical for its survival. Your counsel and your guidance is 
greatly appreciated.
    My first question is directed to Mr. Olihovik, who like Mr. 
LeNoir and Mr. Keating, collaborated with the Postal Service on 
its new pay performance system for non-bargaining employees. I 
believe Mr. Olihovik appropriately raised several valid 
concerns over the success of the new pay system, including the 
need for managers to be trained in implementing the system. I 
agree that without a credible, transparent, and accountable 
management plan in place putting a pay-for-performance system 
in place is risky.
    My question is, how would you strengthen the new pay-for-
performance system for postal managers and what would need to 
be done to bring all employees, including union workers, under 
a pay-for-performance system? I would like to have both Mr. 
LeNoir and Mr. Keating respond to this as well.
    Mr. Olihovik.
    Mr. Olihovik. Senator Akaka, before I respond to that I 
would be remiss if I once again did not thank you for your 
support and leadership in promoting the Postmasters Equity Act. 
You have been a strong friend to postmasters for many years and 
I do thank you for that.
    Your question is a good one. I will go back to some of the 
things that I said in my prepared remarks. I think the most 
important thing that you can do in any new program that you 
have is good communication. I think the Postal Service is 
trying to do that. I am trying to be as patient as I can with 
this. I accept my responsibility as a management association 
head as far as helping the Postal Service build this program, 
and I am going to do everything I possibly can to make sure 
that it is successful.
    Like any program there are some difficulties, some stops 
and starts. Convincing people of a whole new way of doing 
things is hard. As I referred to the core goals, we are having 
some issues there. That is 20 percent of a postmaster's 
performance compensation. It is not that the Postal Service, 
from the headquarters viewpoint, has not been trying. They had 
a major seminar just a couple of months ago. They invited the 
management associations to be a part of that seminar, and spoke 
to a large group of human resources people throughout the 
country. So everybody was in attendance. They were all hearing 
a very clear, consistent message.
    It is a whole new way of doing things, and as I said, it is 
the right way to do things. But I still think we need a little 
bit more clarification and communication on specific aspects of 
it. Having done that, I think that this program is going to 
work and I think it is going to be one of the best things that 
has happened to all people and management.
    Getting to the second part of your question, Senator, as 
far as extending it to the crafts, quite honestly it goes to 
one question and it is bedrock in everything that we do, in all 
our relations. It comes down to the word trust. They have to 
trust in the system. They have to believe in the system. So as 
managers we have to lead the way and show that it is a good 
system, it benefits and rewards excellence. I think if we allow 
them the input through the collective bargaining process I 
think that they will work to craft it--intelligent people 
usually do intelligent things. I think that they will buy into 
the process, and once they do that, having everyone as a total 
group striving for excellence together is the right way for any 
successful organizations to go.
    Senator Akaka. Thank you. Mr. LeNoir, would you like to 
comment on the Postal Service's pay-for-performance system?
    Mr. LeNoir. Yes, Senator Akaka. I also thank you for your 
help with the Postmasters Equity Act. All three of us at this 
table helped design that system and I think that, like I said, 
it is not perfect and we realized it would not be perfect the 
first year we rolled it out. But I certainly think it is a 
stride in the right direction.
    The Postal Service has committed in April to sit back down 
with us and revisit the system and look at where we may have 
some shortcomings. So we look forward to that opportunity. As 
my friends stated, the core goals are a concern to us and we 
have to make certain we get that process right. But I really 
think we have made a lot of progress in this new system, and 
like I said we look forward--we realized there would be 
problems rolling it out. We were late getting the goals out to 
the employees because it was the first year rolling it out. But 
I believe next year things will smooth out and it will continue 
to improve and lead us in the right direction.
    The second part of your question is about incentives for 
other workers. I believe we have different systems in place. As 
I said, the rural carrier system seems to work very well in 
that they have an evaluated system and it goes by the amount of 
mail they get, the number of stops they get. If they finish 
their route early, they are able to go home. So that gives them 
incentive to work as efficiently as possible and complete their 
route so that they can go home.
    But on the other hand, a city carrier, he is there for 8 
hours and if he works very fast he is given additional work to 
do when he gets back to the office. And if he works very slow 
he is given overtime. So I just think the two systems, as you 
can see they are like night and day, and I think we need to 
work to try to get everybody on some type of incentive-type 
system.
    Senator Akaka. Thank you. Mr. Keating.
    Mr. Keating. Yes, Senator. Wally in his testimony expressed 
some reservations about this, and I think we all have 
reservations. The system is so brand new. We are still in the 
process of rolling out to the field. I think if you took a 
census of my membership they would probably say we are crazy 
for doing this, but the leadership decided that this was the 
way to go. As far as, the Postmaster General is on record 
numerous times, even last night at the league's dinner, saying 
that this is a work in progress. We will continue to work out 
the problems as it goes. It is an experimental type year. I am 
convinced that we can make it work.
    And to the second part of your question, quite honestly, 
the only way that this is going to be ever sold to the unions 
is that it does work. It has to work in order to convince the 
unions to buy into the process.
    Senator Akaka. Thank you very much for your responses. My 
time has expired.
    Chairman Collins. Thank you. Senator Carper.
    Senator Carper. Thank you, Madam Chairman. As I said to you 
in our earlier conversation, I may have to slip out to get on a 
teleconference call. If I do, I ask your indulgence.
    I want to stick with this issue of pay-for-performance for 
a moment. In the past some pay-for-performance systems have 
been criticized for being wasteful, even ineffective. Do you 
agree with that? If so, how is the new approach better?
    Mr. Olihovik. I am sorry, I did not hear the first part of 
what you said.
    Senator Carper. I said in the past some of the pay-for-
performance systems that were espoused by the Postal Service 
have been criticized for a variety of reasons, for being 
wasteful, for not being very effective. I do not know if you 
agree with that or not. If you do or do not, just tell me. And 
if you could, just let me know how this new system, this work 
in progress, is better.
    Mr. Olihovik. Under the system that we had before, the EVA 
program, (economic value added) the main problem we had was 
that it was not well explained and to my understanding not too 
well understood by too many people. I think with the new 
program there is a clearer definition.
    I think especially with 80 percent of the performance pay 
being objective. It is very objective. Twenty percent with the 
core requirements are subjective. That is what we are trying to 
convince people of. With the objective part, you hit the number 
or you do not hit the number. But it is not a finish line 
mentality. You can come close to the number and be rewarded. 
And if you go significantly past the number you are rewarded to 
a greater extent.
    So I think people understand that concept. I certainly 
understand that concept and I certainly support it. I would not 
characterize the old system as being really wasteful but I 
would probably classify them more as not being well understood.
    Senator Carper. Thank you. Mr. LeNoir.
    Mr. LeNoir. Senator Carper, under the old EVA system you 
were connected to your district's goals. Say, for example, you 
are in a area, like Columbia, South Carolina, if they had a bad 
year and my little town of Horatio had a good year, I was in a 
geographic region and we were all hooked together.
    Now we have designed a system that measures how we perform 
nationally, how your post office did, and how you did as an 
individual. So we feel like it is a lot more--we are 
accountable for what we do now and it is a system that drives 
us to do better in our offices instead of being grouped with a 
large number of people.
    Senator Carper. Thanks. What town was it, Horatio?
    Mr. LeNoir. Horatio, South Carolina.
    Senator Carper. Where is that located?
    Mr. LeNoir. It is near Sumter. I tell everybody it is 
between Pixley and Hooterville. But it is a very small town. 
[Laughter.]
    Senator Carper. That clears it up for me. Thank you. Mr. 
Keating.
    Mr. Keating. Senator, what we had before was really not a 
pay-for-performance system. It was a team bonus system where if 
the team did well and the team was a large group, everybody 
benefited. But I do not think that can compare to the pay-for-
performance system that we are putting in now. This is 
individual versus a team effort.
    Senator Carper. For us as Members of this Committee who are 
interested in postal reform, what do we need to be mindful of 
with respect to pay-for-performance system proposals and 
implementation?
    Mr. Olihovik. I think you should really take a close 
observation of it during this first year. As Steve said, we 
have a commitment from the Postal Service that if anything 
needs to be tweaked, that we will go back and we will make the 
necessary adjustments. We are fully supportive. This is a team 
effort. This is a group effort to do our level best to make 
this work, and I commend the Postal Service for leading with 
that attitude, and I am convinced that with some minor 
modifications that I anticipate we will make it work.
    Mr. LeNoir. I think this new pay-for-performances, system, 
we were able to do it because we are managers and we are not 
bound by union contracts. That gave us the flexibility to 
develop this system. I think the challenge is going to be how 
we roll that down to the craft, to the lower levels.
    Senator Carper. Thank you. Again my question is, what are 
the implications for us as Members of this Committee, the 
Committee of jurisdiction, as we approach postal reform? Do we 
have an interest in this? Is this something that we ought to be 
mindful of? That is my question.
    Mr. LeNoir. I do think and the Postmaster General said that 
we do support collective bargaining and I do not think that 
that is necessarily a fight that we need to take on.
    Senator Carper. Mr. Keating.
    Mr. Keating. Basically the same thing, I think there are 
some issues in communications that are not being addressed 
properly. It is going to take a lot of work on headquarters 
management organizations in the field. There has always been a 
problem between the Postal Service headquarters and the field 
in listening to and understanding communications sent out. We 
struggle with this all the time. We sit down at a bargaining 
table and agree to an issue and it gets misinterpreted, or 
misinterpreted by the time it gets down to the field level. I 
think it is ironic that we are in the communications business 
but we do not communicate with our employees and managers that 
well. We need to do better.
    Senator Carper. Thanks. Let me change gears, if I could, 
and talk about the accessing of retail postal services in 
places other than post offices themselves. Any of you have an 
idea of what percentage of the volume of mail services that 
provided like in a retail type setting, what percentage 
actually take place in a post office itself versus some other 
location? I have heard 80 percent in a post office. Does that 
sound about right?
    Mr. Olihovik. Right, that was in my prepared remarks with 
the stamp sales itself. I made the comment that even though 70 
percent of Americans were well aware that retail services were 
available elsewhere outside of a traditional post office 
setting, that 80 percent of Americans continue to vote every 
single day to purchase those stamp sales at a traditional post 
office.
    Mr. LeNoir. Senator, I think it is important to note that 
in large communities where lines are an issue it may be a good 
idea to have stamps available in Wal-Marts and other places 
such as that. But in our medium to smaller communities I think 
we would be making a big mistake to take the stamps and retail 
things out of their lobbies. Over 7 million people visit our 
lobbies each business day and we can use that as an opportunity 
to up-sell and sell additional products, and I think we would 
be making a mistake to try to drive them to grocery stores 
instead of the post offices where lines are not an issue in the 
smaller communities.
    Senator Carper. What are some examples of retail operations 
where people can avail themselves and buy postal services 
outside of a post office where it actually is a good value for 
the customer? Can you give us some examples of where it works 
well?
    Mr. LeNoir. I am sorry, are you referring to something like 
stamp sales?
    Senator Carper. Basically.
    Mr. LeNoir. Obviously like I said, in the larger markets it 
makes perfect business sense to make access more available, as 
the Commission suggested, and we totally agree with that. But 
in a small town where you might have three or four businesses 
and a post office we do not think it makes good business sense 
to all of a sudden have stamps available at the gas station 
which is a mile down the road from the post office. We just 
think that would be shortsighted.
    Mr. Olihovik. Senator, in many of the larger cities we have 
what they call contract postal units and depending on which 
unit you look at they can work very effectively. I myself have 
one in Nashua, New Hampshire.
    Senator Carper. I was just in Nashua last Saturday. I was 
just there in the town hall up on the third floor introducing 
Joe Lieberman to a packed house. Boy, it was hot. That was the 
only time all day I was hot.
    Mr. Olihovik. I am sure you noticed what a friendly city it 
was.
    Senator Carper. It was great. People were wonderful.
    Mr. Olihovik. That is good to hear. In Nashua we have a 
contract postal unit. We pay a private contractor approximately 
$100,000 a year to run this facility. They in turn generate $1 
million. That is pretty good value that the Postal Service is 
getting for its money. Many times when they work, you have got 
good people operating them. I do not have any problem with 
that. Sometimes you get other people operating them and they 
are not so good. But I can give you examples both ways.
    By and large my experience with contract postal units, as 
they exist in large city settings, usually work pretty well. 
The Postal Service, even in its transformation plan, determined 
that basically for every dollar that they spend they are taking 
in $10 in return so that is a pretty good margin.
    Senator Carper. I would say it is. Madam Chairman, I have a 
couple more questions I would like to submit in writing for our 
panel. Thank you very much for being here today and I am going 
to go jump on this call and be right back.
    Chairman Collins. Thank you. The hearing record will remain 
open for 14 days for the submission of additional material.
    Senator Durbin.

              OPENING STATEMENT OF SENATOR DURBIN

    Senator Durbin. Thanks, Madam Chairman, and thank you for 
your courage and determination that this hearing would go on. 
Neither rain nor snow nor sleet nor ricin will stop this 
Committee from its appointed tasks, and I am happy to be here 
with you.
    I have been to several of these hearings before and I am 
looking for recurring themes and I think I have found one. When 
we have postal labor witnesses they tell us the problem is 
management and the politicians. When we have postal management 
witnesses they tell us the problem is labor and the 
politicians. So I am beginning to find that there is one 
recurring theme here that perhaps we need to visit and that is 
what we need to do to try to resolve differences between labor 
and management and make the Postal Service more efficient and 
more modern in the 21st Century. This Commission is a good 
starting point but it is not the ultimate answer. It will 
undoubtedly be changed during the course of considering 
legislative options.
    Mr. Olihovik, you testified before the Commission last 
April about the red tape and micromanagement the postmasters 
have to deal with, and I would like to read part of your 
testimony. ``Over the past three decades the Postal Service has 
mutated into a costly, multi-layered bureaucracy that has 
distanced postmasters from postal headquarters. Consequently, 
mid-level postal managers positioned at area and district 
positions often interfere with successful post office 
management and can undermine a postmaster's authority. It can 
be as petty as requiring a local postmaster to file triplicate 
requisition forms to purchase a role of toilet paper.'' Was 
that hyperbole?
    Mr. Olihovik. No, it was not. That statement, and to the 
extent that it is happening today we still, I feel, have too 
many layers of bureaucracy. As I said in my prepared remarks, 
for the position of postmaster, we select people based on their 
background, their skill level, and the trust that we have in 
them to do the job. However in too many locations, not all 
locations, but in too many locations we do not give them the 
authority that they need to effectively do that job in the 
local community that they serve. They are micromanaged to some 
extent. They are answering to everybody and anybody at a 
district level. It is the type of situation when everything 
becomes a priority, then nothing becomes a priority. It makes 
it very difficult. I like to refer to it as the conflict of 
imperatives, who do I please first?
    In the exact scheme of things, really a postmaster should 
report to a postal operations manager who in turn reports to 
the district manager. But too many times, in too many settings, 
you have got people in multi-departments, delivery departments, 
address management departments all interfering in the daily 
operation of a postmaster. It makes it next to impossible to 
manage the operation at times.
    Senator Durbin. It seems that you and postal labor agree on 
that point, that there is a lot of money and time wasted in 
bureaucracy. But you raise a point too that is closer to home 
to your personal interest, where you would suggest that the 
employees ought to give when it comes to their collective 
bargaining rights and benefits they currently receive. Most of 
you, though there have been some qualifications to this remark, 
are careful to guard the existence of post offices themselves, 
to try to find new ways to utilize buildings that currently 
provide postal services. Some of them are creative and 
interesting and I salute you for that.
    But is that not part of our challenge here? From the labor 
side, they do not want to give us benefits. From your point, 
you do not want to give up the building that needs a 
postmaster. Are we going to have to ask both sides to be more 
accommodating to reach our goal?
    Mr. Olihovik. I think with the situation that we face in 
the Postal Service certainly everybody should be called upon to 
sacrifice. That goes across the board. As far as my 
relationship with the unions, I have a lot of respect for the 
unions. I have a good working relationship with the people. I 
think one of the benefits that we have now with Jack Potter is 
some of the people that he is dealing with on a national level, 
the presidents of the unions, I think have come around to a 
21st Century viewpoint on just what is best for the 
organization. We all have to be smart and realize that if there 
is no Postal Service, there are no postmasters, there are no 
letter carriers, there are no mail handlers. So we have to do 
what is right for the Postal Service.
    As far as the question regarding small post offices, there 
are some that make the argument that there are too many out 
there, that we do not need every one that we have, that you 
cannot close small post offices. Senator, I would say that is 
not the case. There is nothing right now that prevents Postal 
Service headquarters from closing a small post office. If you 
look in the last 30 years itself----
    Senator Durbin. Except for elected officials.
    Mr. Olihovik. We have a process in place. It is a 
recognized process. When the process has been followed to close 
a small post office, we have in fact closed 14,000 small post 
offices over the last 30 years.
    Senator Durbin. It is devastating, as most people know, to 
small towns to lose a post office. Sometimes they just 
disappear at that point. That is all that is left. I saw one up 
in Alaska, and frankly it was in the middle of Arctic Village, 
Alaska and it was one of the few things there that appeared to 
have any connection, direct connection with the outside world.
    Mr. LeNoir, you talked about things we could do with post 
offices, some of them very imaginative, creative things that we 
might accomplish there. But are we postponing the inevitable if 
we try to find new ways to use post offices that go way beyond 
their original purpose?
    Mr. LeNoir. Senator, absolutely not. I come from a rural 
town, I have been postmaster in the town for 23 years and they 
have less than 5,000 people in that town. That post office is 
so much more than just a building to them. A rural carrier 
going in front of somebody's house does not give you the same 
service that a post office does. I have people in my community 
that did not have the educational opportunities and I help them 
fill out money orders, answer and read mail. Those people are 
not second-class citizens. I have a gentleman that comes up on 
a riding lawnmower every day. That is his mode of 
transportation. To those people, this is essential for them to 
have a post office there, not just a carrier going by their 
house.
    I feel very strongly that if we are going to have those 
offices out there, we need to figure out the best way that we 
can utilize that network. As I have stated in my written 
testimony, that network of post offices, 26,000 all across this 
country, no private industry can touch that. I do not think 
that we have fully utilized those post offices. In rural areas 
like mine where there is no competition with the private 
sector, I think there is a lot of things we could do that would 
not step on the toes of the private sector and would bring 
those offices closer to profitability.
    Senator Durbin. Can I ask a question that is only somewhat 
related to an issue that has been before us but I am curious, 
do any of you have postal employees who have been activated in 
the Guard and Reserve for Iraq or Afghanistan or any other 
theater at this point?
    Mr. LeNoir. We are not at our offices now but we know of 
plenty of postmasters that have been.
    Senator Durbin. Those postal employees that are activated, 
is there a policy in the post office to protect their income, 
to hold them harmless while they are activated Guard and 
Reserve?
    Mr. LeNoir. I would have to get back with you on that. I am 
not certain.
    Senator Durbin. I think the answer is no. I only raise 
that, not in criticism of you but in criticism of the fact that 
here we are in the Federal Government not doing what States and 
local units of government and private corporations do, which is 
stand behind the men and women who are activated. We passed an 
amendment which I offered on the floor in the last omnibus 
appropriation bill to say we would hold Federal employees 
harmless who are activated, and 10 percent of all Guard and 
Reserve are Federal employees. Unfortunately, when it went to 
conference it was stripped out, not by the House but by the 
same Senate that had put it in the bill. I hope we can return 
to that this year.
    Thank you, Madam Chairman.
    Chairman Collins. Thank you. I would like to thank our 
panel of witnesses for your excellent testimony today. We want 
to work very closely with you as we proceed from here and take 
advantage of the many years of experience that you have. So 
thank you so much for being here today.
    I would now like to call forward our second panel of 
witnesses. We are very fortunate today to have three very 
distinguished experts in the area of labor relations. John 
Wells is a labor relations consultant and a commercial 
arbitrator. He also served as the director of the Federal 
Mediation and Conciliation Service during President Clinton's 
Administration. Both his current and previous work have 
provided him with extensive public and private sector 
experience with the collective bargaining process.
    Dr. James Medoff is a professor of labor and industry at 
Harvard University. He is considered to be one of the foremost 
experts on matters pertaining to labor unions and the role that 
they play in our economy. He has also served as a consultant to 
the National Association of Letter Carriers.
    Dr. Michael Wachter is the William B. Johnson Professor of 
Law and Economics at the University of Pennsylvania. He has 
conducted extensive research on the topic of postal wage 
compatibility and comparability with the private sector. He has 
also served as a consultant for the Postal Service.
    Gentlemen, we are very pleased to have you here today. You 
do represent a great deal of expertise that the Committee is 
going to need the help of people like you, your help as we seek 
to tackle these very difficult issues.
    Mr. Wells, we will begin with you.

TESTIMONY OF JOHN CALHOUN WELLS,\1\ PRIVATE CONSULTANT, FORMER 
     DIRECTOR OF FEDERAL MEDIATION AND CONCILIATION SERVICE

    Mr. Wells. Thank you, Madam Chairman. My name is John 
Calhoun Wells and I am proud for the gracious invitation to 
appear before you and this Committee today.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Wells appears in the Appendix on 
page 135.
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    If I may be permitted a personal note, I was looking 
forward to testifying at the Dirksen Building because as a 
young pup right out of graduate school I went to work for a 
former colleague of yours, former U.S. Senator Wendell Ford, in 
1975 to 1978 and served in the Dirksen Building. Then when we 
came here I was disappointed except I looked and realized that 
this is a room in which I had testified before Chairman Jack 
Brooks several years ago. And I moved from Kentucky to 
Beaumont, Texas where I found my bride and became a good friend 
of Chairman Brooks and shot ducks with him. So I feel reassured 
looking here to testify before this August body with this 
picture of Jack in front of me.
    I am going to summarize the opening part of my remarks for 
you and then focus more principally on the latter part which 
deals with the issues you have before you. I did in fact serve 
from 1993 to 1998 as President Bill Clinton's Director of the 
Federal Mediation and Conciliation Service. I really came to 
that job with a lifetime of experience in collective bargaining 
and labor relations. Every member of my family has been a 
member of a labor union, including myself. I was Kentucky's 
first for secretary of labor.
    As FMCS director I handled an unusual number of difficult 
situations and strikes, the most infamous of which was the UPS 
strike with the Teamsters. I see Senator Durbin there and I am 
reminded of the Caterpillar strike that I personally handled 
for 4 years, 3 months, and about 7 or 8 days. I would have left 
earlier. Your dear colleague and my friend, the late Senator 
Paul Simon, was extraordinary helpful, always behind the 
scenes. Never wanted any publicity. And without him that strike 
may have still been going on.
    So I have had the experience of very difficult and 
unpleasant labor situations. As a native of eastern Kentucky, 
we had a good number of them in the coal fields as well.
    But I have also served to help build labor-management 
partnerships between organizations like GTE and the CWA and 
IBEW unions, and also Kaiser Permanente and AFL-CIO. I guess I 
want to suggest I have been active in both the public and the 
private sectors during my career. I have worked with all the 
major unions, AFL-CIO and many of our Nation's major employers.
    Now let me focus a bit more on my experience with the 
Postal Service. Since 1993 I have both observed and 
participated in postal labor relations. As director of the 
Federal Mediation Service my staff made me aware of a study by 
the General Accounting Office which was exceedingly critical of 
the state of labor relations in the Postal Service. Shortly 
thereafter Congressman John McHugh personally asked if I would 
intervene and try to bring the parties together, and from that 
we organized a series of labor-management summits that occurred 
on approximately a quarterly basis once we got them going, and 
it included the Postmaster General, his direct reports, and 
also the top union officers as well. I chaired a series of 
these summits for 4 or 5 years and continued when I left the 
government in 1998, and I was asked by the parties to continue 
to facilitate those sessions.
    Now a second way in which I have been involved in postal 
labor relations, I served as the mediator and the interest 
arbitrator for the impasse that resulted from the unsuccessful 
collective bargaining negotiations between the National Rural 
Letter Carriers and the Postal Service. Those proceedings 
resulted in a unanimous award being issued February 2, 2002. As 
a result, I would say, of this participation in these matters I 
have been involved in postal labor relations for the past 
decade, both from trying to facilitate and improve what was 
often a contentious relationship at that time, much improved 
today I would note, but also then serving as a neutral in a 
labor negotiations impasse.
    I therefore appreciate the chance to address this Committee 
and share some insights I have developed as a result of these 
10-odd years of experience and how this in fact relates to the 
recommendations, or some of the recommendations at least, of 
the President's Commission on Postal Reform that I understand 
this Committee is considering.
    I want to focus on my experience as a mediator and interest 
neutral in the collective bargaining impasse between the Postal 
Service of the National Rural Letter Carriers because I think 
this experience gives me particular insight to share with you 
concerning these recommendations from the President's 
Commission. I am referring specifically to those 
recommendations called collective bargaining process 
improvements.
    With regard to the collective bargaining and interest 
arbitration process, it is my personal opinion and professional 
judgment that the current process suffers from three basic 
problems. Madam Chairman, this is the heart of my testimony. It 
is too formal, it is too adversarial, and it takes too long. In 
my judgment changes to the process are needed to address these 
counterproductive characteristics.
    First, the current process is too formal because it relies 
so heavily upon litigation with all of the formality of 
judicial proceedings--witnesses, numerous witnesses, hundreds 
of exhibits, thousands of pages of testimony before a court 
reporter, rebuttal, surrebuttal, and so forth and so on. Such 
formalistic procedures by their very nature tend to skew the 
practical in favor of the technical and often lead to time and 
resources being devoted to issues of forms instead of 
substance, and to matters of what I would consider too often 
marginal relevance rather than those of fundamental 
significance. Litigation processes are no substitute for 
practical, real-world decisionmaking.
    Second, the current process is too adversarial because the 
arbitrator in this judicial capacity does not get the 
opportunity to meet with the parties informally and to really 
mediate the issues which are at the heart of the dispute. 
Instead of engaging in mediation where the neutral can really 
engage and encourage the parties to focus on the core issues at 
dispute, these overly adversarial proceedings are characterized 
by each party responding tit for tat and full litigation 
regalia in force, regardless of the merit or the significance 
at issue. The us versus them mentality is difficult to contain 
in a hearing room and too often spills over to impact the 
entire relationship. In fact I believe if you will speak with 
the leadership of the unions and the Postal Service they will 
tell you that after a difficult, tough interest arbitration 
that the relationship too often is damaged and harmed and it 
takes a good bit of time to get it back on track again.
    Third, the protracted length of these specifics is well-
documented and exacerbates the remaining underlying problems. 
As noted in the commission's report, the last three impasse 
proceedings took between 13 months and 17 months to finish. In 
fact the interest arbitration at which I was a neutral 
chairman, it took 14\1/2\ months from the contract expiration 
date to the issuance of an award. This is certainly not a 
definition of efficiency and it is a problem. The current 
process seems to encourage the parties to negotiate for 90 days 
in good faith, attempting to reach a conclusion to the 
collective bargaining negotiation, and then upon the failure to 
do so they start from square one in the dispute resolution 
process.
    In reviewing the section of the Commission's report on 
proposed changes to the collective bargaining I was impressed 
with their express goal to have a process where each step 
builds on the progress already made and emphasizes mediation 
and problem solving. In other words, even when negotiations 
have not successfully reached a complete agreement, the impasse 
procedures should be designed to build on the progress made to 
date and to discourage the parties from trying to revert to 
hard-line positions previously abandoned.
    Interest arbitration, if it must have happened, need not 
have gone far from scratch with the parties posturing on issues 
and advancing positions that previously were the subject of 
compromise. I believe that the primary recommendations of the 
Commission in this respect represent a considerable improvement 
over the current process.
    The primary recommendations of the Commission that I would 
like to address are the inclusion of a mediation stage, 
essentially a lieu of fact-finding and the use of the mediator 
as the interest arbitrator neutral in the med-arb format. I 
speak to these issues with personal experience. I served as 
both the mediator and then the interest arbitration neutral 
chairman in my role with the Postal Service and the rural 
carriers. As such I think that I have some experience and 
insight to share with you. I might note that my understanding 
is that I was only the second person in the history of 
collective bargaining in the Postal Service who had served both 
as a mediator and the interest arbitrator, the one immediately 
preceding me back in the late 1970's.
    In my judgment, there was great value to the mediation that 
preceded the interest arbitration with the Postal Service and 
rural carriers union because the parties engaged in very frank, 
very serious discussions during the mediation with me. As a 
result, while the mediation did not resolve the dispute, it did 
resolve some of the issues of the dispute and it focused the 
parties on the principal points of contention. In fact there 
were signed agreements on several issues which enabled those 
matters to avoid the arbitration entirely. Further, the 
mediation had the effect of introducing realistic expectations 
to both sides.
    Also, the mediation better prepared me to serve as the 
interest arbitrator. I was more familiar with the parties, with 
the individuals, more knowledgeable of their issues and had a 
better understanding of what was most important to each. I 
think it would be an error to start all over again by bringing 
in a new neutral for interest arbitration.
    My service in both roles allowed for a continuity that 
permitted each step in the process to build upon the previous 
one rather than to start anew. I note that even though there 
were significant changes in the contract affecting both parties 
as a result of that arbitration which I chaired, the interest 
arbitration award was a unanimous decision among all three 
arbitrators, myself as the neutral chairman, the Postal Service 
partisan arbitrator and the rural letter carriers' partisan 
arbitrator. We worked very hard to achieve that unanimous 
decision and are very proud of it.
    I would suggest that based on my considerable labor 
relations background, and more importantly the 10 years that I 
have spent in postal labor relations, med-arb would be a 
valuable tool for resolving collective bargaining disputes in 
the Postal Service.
    I would like to conclude, Madam Chairman, by this personal 
observation. I think that you and your colleagues have an 
unusual opportunity to strengthen and to improve an 
institution, the Postal Service, that is a national treasure. I 
know you come from a rural area. I was raised five miles down a 
gravel road in the mountains of eastern Kentucky in the late 
Carl Perkins' district, so I understand the value of the Postal 
Service for rural people. I hope that you and your colleagues 
can fashion a bipartisan--very important, a bipartisan reform 
that makes sense, that helps the Postal Service, its employees, 
its union, its management to survive and to prosper. And most 
importantly, to help this institution continue to serve the 
best interest of our Nation and our people.
    I think you are taking on an awesome task and it is really 
in line with your national reputation of fashioning bipartisan 
solutions to vexing problems, that you are willing to do this, 
and I commend you for it, ma'am.
    Chairman Collins. Thank you very much. Thank you for your 
excellent testimony. As I heard you talk about all your 
experience I thought that you may be the key person for us to 
bring in as we try to reach agreement on this legislation upon 
which there are going to be so many disparate views.
    Mr. Wells. You are most gracious.
    Chairman Collins. Thank you. Professor Medoff, welcome.

    TESTIMONY OF JAMES L. MEDOFF, PH.D.,\1\ MEYER KESTNBAUM 
 PROFESSOR OF LABOR AND INDUSTRY, FACULTY OF SCIENCE AND ARTS, 
                       HARVARD UNIVERSITY

    Mr. Medoff. Thank you very much. It was a pleasure to hear 
from someone who is really a neutral, given that myself in 
representing NALC for the past 5 years and Michael Wachter in 
representing the Postal Service for, I think it was the past 
25. So we have both had parties and he is the neutral, who I 
think is very good for you to have brought here.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Medoff appears in the Appendix on 
page 148.
---------------------------------------------------------------------------
    Now if I remember what the questions were for me to 
address, one was the Presidential Commission's recommendations, 
and the second was the issue of postal pay comparability. Now I 
have four main points to say about both of these.
    First, I am pleased that the Commission recognized the 
value of collective bargaining and recommended its retention. 
Personally, I am a very strong supporter of collective 
bargaining and, for whatever it is worth, I would also 
recommend its retention.
    Second, urge the Committee to be very cautious about making 
radical changes in the existing collective bargaining process 
unless both labor and management support them. So consistent 
with the remarks that came before me, you really do not want to 
change anything too dramatically in this area unless both labor 
and management agree to those changes, because it is not going 
to work if they do not.
    My third point, which to my left here will be criticized I 
am sure, but I do not believe that there is a postal pay 
premium. I should say that it is also the case that Mr. 
Fleischli does not seem to really believe there is a premium 
either. So I am going to argue later on that if you measure the 
wage differential between postal pay workers, in particular 
letter carriers, and comparable workers in the private sector, 
which I think the law says is what we should be doing, you are 
going to find out that the letter carriers are paid, if 
anything they are underpaid. So there is not a premium. There 
is an underpayment.
    I tried to tell you who I was working for in the very 
beginning. I think now you know for sure, but the data do 
support that position.
    Then fourth, we want to keep regulators out of the 
collective bargaining process. Pay comparability is best left 
to the parties, because the parties will work out really what 
jobs are comparable. That is not something that really anyone 
can just dictate from up here, what is comparable. You have 
seen, women have seen the whole problem with the issue of 
comparable work. Who is going to dictate what jobs are exactly 
comparable? It is very difficult. So I think people like me 
would say, why don't you just enforce the hell out of Title VII 
of the Civil Rights Act, then the whole issue of comparable pay 
will not be an issue?
    So I am saying, coming up with comparable jobs, comparable 
female versus comparable male jobs, for example, it is a very 
difficult thing to do. So people who write laws, in fact the 
people who passed the civil rights law passed this thing called 
Title VII because it would be much easier to say that no woman 
should be denied a job because she is a woman. No woman should 
be paid less than a man because she is a woman.
    Any questions on that at this point?
    Chairman Collins. We will hear all of the testimony, then I 
will do some questions. Thanks.
    Mr. Medoff. Collective bargaining. To have unions and 
collective bargaining are good for society in my opinion. 
Unions provide voice. It is also my opinion they provide voice 
in two ways. One, they provide this thing called a grievance 
procedure, which on a day-to-day basis lots of workers complain 
about being mistreated in the workplace. So that is a form of 
voice. And every 3 years or so they have this collective 
bargaining process which is another way that voice will be 
provided.
    Now my feeling is that voice is very good. Now the main 
thing that voice does is it reduces the amount of attrition, 
the amount of quitting, the amount of leaving your job. If you 
do not like your job, you do not have to tell your boss, what 
is the expression, to shove it. You just can stay on the job 
and you can file a grievance, you can go to collective 
bargaining, and everything you have to say about the job will 
be said without your having to leave it. So ultimately, having 
a union structure in place reduces the amount of attrition, the 
amount of quitting of jobs by a whole lot.
    And the main reason why I argue that unions increase 
productivity is that attrition is very expensive in terms of 
productivity. So we estimated a direct route between quits and 
attrition and productivity. We see by lowering the amount of 
attrition, unions increase the amount of productivity. Some of 
you will say, what, is he crazy? Has he not heard of feather-
bedding? I go, yeah, I have heard of feather-bedding.
    But I imagine there are few people in this room who have 
been to places where they have orchestras recently. Now let me 
ask you, how often has anybody seen a standby orchestra? Or how 
many of you have been recently on diesel trains where you have 
a fireman? So I think the whole thing of feather-bedding is 
really way overblown as an important issue.
    So ultimately that is an issue that has to be studied. 
There are a lot of things that unions do, some of which have 
been just talked about, that ultimately increase productivity. 
One is by reducing attrition. One is by providing voice to 
management where they cause productivity to be higher, not 
lower.
    Now let me turn here to the next page. I have down here, be 
careful about having a rigid timetable, because in the same way 
it does not work, and people who are involved in collective 
bargaining know that it does not work to come up with some 
solution which forces everybody to wear a size seven shoe. I 
have a certain sense in reading these recommendations, in terms 
of the last best offers and things like that, that really we 
are forcing all of the people, all of the parties involved into 
wearing size seven shoes, and that does not work. I think 
people have to state really what would be a comfortable shoe 
size for them to wear.
    Let me just move on. Now the last thing I said that I would 
talk about was pay comparability. When we talk about pay 
comparability, in labor economics there is a big issue of what 
are you talking about, jobs or people? Because when you talk 
about comparability you could be talking about either 
comparable jobs or comparable workers.
    I think I am talking about both. To me, what I think the 
law says and what a comparable job is for our discussion is 
really the type of job that is similar. If you went to a 
company they would say, this is a similar job and in most cases 
they would be looking at another company that had this job and 
they would come up with a list of jobs that were 
``comparable.'' Now they would not do anything like what my 
friend Dr. Wachter does here like run a regression where he 
defines comparable jobs in terms of jobs which have people who 
have the same human capital, who have the same experience and 
education and therefore are comparable. Now that just would not 
be done in business. So I cannot believe that we should be 
asked here to adopt a definition of comparability which is not 
one that would be adopted anywhere else in our society.
    Am I within my 10 minutes?
    Chairman Collins. You are a little over your 10 minutes but 
we very much appreciate it.
    Mr. Medoff. I apologize for that.
    Chairman Collins. No, that was absolutely fine and thank 
you.
    Dr. Wachter.

    TESTIMONY OF MICHAEL L. WACHTER, PH.D.,\1\ CO-DIRECTOR, 
  INSTITUTE OF LAW AND ECONOMICS, AND THE WILLIAM B. JOHNSON 
PROFESSOR OF LAW AND ECONOMICS, UNIVERSITY OF PENNSYLVANIA LAW 
                             SCHOOL

    Mr. Wachter. Thank you, Madam Chairman, and Members of the 
Committee. My name is Michael Wachter and I am currently 
employed by the University of Pennsylvania as the William B. 
Johnson Professor of Law and Economics. I served as the 
university's deputy provost from 1995 through 1997 and was the 
university's interim provost in the year 1998. I have been 
employed at the University of Pennsylvania since 1969.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Wachter appears in the Appendix 
on page 157.
---------------------------------------------------------------------------
    I have published extensively in the areas of labor 
economics, labor law, corporate law and finance. Virtually all 
the work that I have done for the Postal Service over the years 
has been published in academic journals and books. My 
consulting work and testimony on behalf of the Postal Service 
has focused on the issues of postal wages and benefits and how 
they compare to private sector wages and benefits.
    I first consulted for the Postal Service in 1981. At that 
time it was not tied to an interest arbitration but simply 
assisting them in wage-setting and their own approach to wage-
setting and collective bargaining. Since that time I have 
testified in numerous interest arbitration proceedings. My most 
recent testimony was before the Goldberg interest arbitration 
panel in 2001 to resolve the dispute between the Postal Service 
and the APWU. On April 29, 2003 I also appeared before the 
President's Commission on the U.S. Postal Service.
    The starting point for my analysis of postal wages and 
benefits is and always has been the Postal Reorganization Act, 
which states that the U.S. Postal Service shall ``maintain 
compensation and benefits for all officers and employees on a 
standard of comparability to the compensation and benefits paid 
for comparable levels of work in the private sector of the 
economy.'' The Postal Service is unusual compared to many 
regulated firms since it is so highly labor-intensive. 
Currently, nearly 80 percent of its costs are for compensation, 
which makes labor cost issues critical to the financial health 
of the Postal Service.
    The President's Commission has recommended that the Postal 
Service's pension and post-retirement health care plans should 
be subject to collective bargaining. Based on my research on 
postal labor issues dating back 25 years, I believe the 
Commission's recommendation on this count is both appropriate 
and necessary. My conclusion is based on four fundamental 
points.
    First, my work on postal comparability shows that there is 
a sizable postal compensation premium with respect to the 
private sector. This violates the basic tenets of the Postal 
Reorganization Act and renders the Postal Service vulnerable to 
competitive product market pressures.
    Second, the finding of a postal compensation premium has 
been supported by postal arbitrators who have addressed the 
issue since 1984. As a consequence of their findings, the 
Postal Service and its unions have operated in an environment 
of moderate restraint with respect to wages since 1984.
    Third, while there has been some significant moderate 
restraint in postal wage growth, there has been no such 
moderation with respect to the growth in postal benefits.
    Finally, in today's increasingly competitive environment, 
the Postal Service needs both compensation restraint and 
flexibility to meet its mandate of providing universal mail 
service. Let me add that even if there were not a premium, the 
need for flexibility would stand simply because of the 
competitive environment in which the Postal Service operates.
    Indeed, the Postal Service finds itself today operating in 
increasingly competitive product markets across the board. 
There has been a fundamental shift in postal volume growth that 
reflects not only economic trends but also technological 
innovations such as the Internet. Technology poses a threat of 
a significant diversion of mail from the Postal Service. Total 
postal volume peaked in 2000 at nearly 2,008 billion pieces. 
Since that time total mail volume declined in each of the past 
3 years while the economy has been growing, sometimes 
moderately, more recently quite strongly.
    Particularly troubling to the Postal Service is the trend 
in First-Class Mail since this helps pay for the expanding 
delivery network. In the first 30 years following postal 
reorganization First-Class Mail grew rapidly and appeared to be 
immune from competition and pricing. This is no longer the 
case. First-class mail has now declined for 2 years. Moreover, 
except for standard mail most Postal Service classes of mail 
will experience negligible volume growth or even volume 
declines in the coming years.
    The competitive pressures put enormous pressure on the 
Postal Service to bring its wages and benefits into conformity 
with private sector comparability.
    As I mentioned, I have testified in many postal interest 
arbitrations, most recently before the Goldberg arbitration 
panel involving the Postal Service and the APWU. I also have 
published numerous academic articles on this topic with my 
colleagues Dr. Jim Gillula, who is behind me here today, and 
Barry Hirsch. We have concluded that a substantial wage and 
benefits premium exists. I have also provided for the record a 
copy of my report to the APWU interest arbitration panel.\1\ In 
this report we found a wage premium of 21 percent and a total 
compensation premium of 34 percent.
---------------------------------------------------------------------------
    \1\ The report entitled ``Wage and Benefit Comparability of U.S. 
Postal Service Clerks to the Private Sector,'' by Michael L. Wachter, 
Barry T. Hirsch and James W. Gillula, October 2001, is retained in the 
files of the Committee.
---------------------------------------------------------------------------
    My compensation premium findings have been corroborated by 
internal Postal Service data that reveal that new postal hires 
are paid much more than they are paid in the private sector, 
that at any one time there are literally hundreds of thousands 
of individuals seeking to become postal employees and that very 
few existing postal employees voluntarily leave their jobs.
    Since 1984, postal arbitration panels have consistently, 
and I say consistently without exception, found the existence 
of a premium when they have addressed that issue, and the need 
for moderate restraint as a way of decreasing the premium. I 
have provided a listing of quotations on this point in my 
written testimony beginning with Clark Kerr's conclusion in 
1984 that discrepancies in comparability existed and that an 
extended period of moderate restraint would be needed to close 
the gap.
    In the most recent arbitration, the 2001 postal APWU 
arbitration, Arbitrator Steven Goldberg stated, ``in concluding 
that there exists a Postal Service wage premium, I join a long 
list of arbitrators in prior USPS interest arbitrations who 
have reached the same conclusion.''
    As a way of tracking the principle of moderate restraint 
instituted by Arbitrator Kerr, my colleagues and I have tracked 
the growth rates for postal wages and compensation compared to 
private sector growth rates. The results of these tracking 
analyses are particularly relevant considering the Commission's 
recommendation that retirement and retiree health benefits 
should be subject to collective bargaining.
    During the 20 years from 1984 through the end of 2003 
postal wages operating in an environment of moderate restraint, 
have grown at an average annual rate of 3 percent. This 
compares to the private sector annual growth rate of 3.5 
percent. Thus, there has been a modest but notable annual 
closing of the wage gap by one-half percent per year over a 
prolonged period of time.
    Unfortunately, although there has been moderation of postal 
wage growth, there has been no such moderation on the benefit 
side. As a consequence, over these past 20 years postal 
compensation cost growth has actually slightly exceeded private 
sector compensation growth. The effects of moderate restraint 
on the wage side introduced by Arbitrator Kerr and agreed to by 
a whole list of postal arbitrators has been entirely erased by 
the growth in postal benefit costs.
    Some postal benefits are subject to collective bargaining. 
However, over $7 billion of retirement and retiree health 
benefits expenses are outside the collective bargaining 
process. The President's Commission would allow the parties to 
negotiate over these benefits which have proved critical to the 
problems of bringing the postal premium under control.
    In summary, in operating in increasingly competitive 
markets the Postal Service must ensure that its wages and 
benefits meet the comparability mandate as provided for under 
the Postal Reorganization Act. This requires that the Postal 
Service and its unions be able to address all labor cost 
components, including benefits, in future negotiations.
    My experience in observing moderate postal wage growth 
during the past 20 years shows me that the collective 
bargaining process can make progress in allowing the Postal 
Service to conform to the comparability standard. Consequently, 
I support the Commission's recommendation that retirement and 
health benefits for retirees should be part of the collective 
bargaining process. In principle, all postal benefits should be 
part of the collective bargaining process and open to 
resolution through interest arbitration if necessary.
    This concludes my testimony. Thank you for providing me 
with the opportunity to testify before the Committee.
    Chairman Collins. Thank you very much, Professor, for your 
excellent testimony as well. I want to apologize to the experts 
on this panel. I have just been notified that Senator Carper 
and I have a vote underway on the Senate floor. It is a long 
ways from where we are to the Senate floor and the vote is 
underway, so I am going to just ask one very quick question of 
Mr. Wells rather than getting into a lot of the pay 
comparability issues. But what I would like to do is to submit 
some questions to all three of you for the record and continue 
this dialogue over the next few months. But I very much 
appreciate all of you being here today.
    Mr. Wells, the postal unions have generally opposed pay-
for-performance systems for employees that are under collective 
bargaining. I wonder, given your very broad experience whether 
you have any examples of large companies that have successfully 
implemented pay-for-performance systems with a unionized 
workforce.
    Mr. Wells. It is not easy to do, Madam Chairman, but yes in 
fact there are a number of models out there. There is a 
gentleman by the name of Joe Scanlon who was a steelworker and 
then went on to become a professor at MIT and he, working with 
the steelworkers, instituted a number of pay-for-performance 
processes in the steel industry in the 1940's and 1950's. 
Kaiser Steel, likewise in the 1960s instituted something called 
the Kaiser long-term sharing plan in which productivity 
improvements were translated into pay-for-performance. That was 
done with the steelworkers.
    More recently, I mentioned Kaiser Permanente and the AFL-
CIO unions. There are seven or eight unions and like 60,000 
employees involved that I was involved in helping shape a 
partnership. This Kaiser is the huge HMO. They have a 
performance sharing plan and their collective bargaining 
agreement is part of their partnership. And the Saturn plant of 
GM, also which has UAW represented, I know they spent at least 
10 years with pay-for-performance. I do not know about the 
current contract.
    So there are a number of models out there. Professor Tom 
Coken at MIT, a very distinguished industrial relations 
professor, has done a paper recently on this and that may be 
something that the staff may want to take a look at.
    Chairman Collins. Thank you.
    Mr. Wells. Could I say one thing though, Madam Chairman?
    Chairman Collins. Yes.
    Mr. Wells. I was supportive of a number of these 
recommendations, and I am. I do not support all of them. I want 
to make sure that I am on the record though, I have real 
questions about the notion of having a three-member panel of 
neutrals. Having partisan arbitrators helps sharpen the debate, 
it educates the neutral chairman about what is important about 
the issues. They keep you from making a serious mistake, and I 
think the current system really is one that ought to be looked 
at very hard before you replace it in terms of the composition 
of the arbitration panel.
    Chairman Collins. You just answered one of the unasked 
questions that I had been planning to ask, so I am very glad 
that you did. It does seem like the current system encourages 
more buy-in for the ultimate decision.
    Senator Carper, if you could very quickly ask a question so 
we do not miss our vote.
    Senator Carper. You bet. Again, thank you for your really 
excellent testimony, most helpful testimony. Dr. Wachter was 
suggesting that, just as the Postal Service and the union 
management bargain for wages, they ought to also bargain for 
benefits.
    Let me just ask the other witnesses, if you will, to 
address that assertion and tell me to what extent you agree or 
disagree, and maybe if you do not agree, why.
    Mr. Wells. In terms of bargaining for benefits?
    Senator Carper. Yes.
    Mr. Wells. I do an awful lot of work in the private sector. 
That is really my background, and everything is on the table in 
the private sector including benefits. On the other hand, I 
think the answer to that question, Senator Carper, is what kind 
of a Postal Service do you want? Do you want it to be a Postal 
Service that can compete with FedEx and UPS and really be a 
private sector model? Or do you want a Postal Service that is 
going to provide universal service, that is going to be more 
closely akin to a Federal agency?
    If you want it to be a Postal Service that is like a UPS or 
a FedEx or the private sector, then you need to put things on 
the table that are not there. On the other hand, if you are 
committed to universal service and a Postal Service such as we 
have grown use to, then I think you need to protect it.
    So the answer is, what kind of a Postal Service? Once you 
decide what your vision of the future of the Postal Service is, 
then you can decide about what you put on the table and what 
you do not put on the table.
    Senator Carper. Thanks.
    Dr. Medoff, your comments in response to Dr. Wachter's 
suggestion that not only wages but also benefits be 
collectively bargained?
    Mr. Medoff. That makes sense to me. I think it should be 
total compensation that is collectively bargained over, not 
just wages but wages plus fringe benefits. So I think it is the 
whole compensation package that should be bargained for by 
labor and management.\1\
---------------------------------------------------------------------------
    \1\ Letter from Mr. Medoff, dated February 17, 2004, with a 
response to the question from Senator Carper above appears in the 
Appendix on page 00.
---------------------------------------------------------------------------
    Senator Carper. Good. Thank you. Was that short enough?
    Chairman Collins. That was very good. Thank you.
    Senator Carper. Better than usual.
    Chairman Collins. Again, my apologies to our expert 
witnesses. We very much appreciate your testimony as we tackle 
these very difficult issues.
    The hearing record will remain open for 14 days for 
additional materials. This hearing is now adjourned. I thank 
all of our witnesses today. Thank you.
    [Whereupon, at 4:18 p.m., the Committee was adjourned.]


   PRESERVING A STRONG UNITED STATES POSTAL SERVICE: WORKFORCE ISSUES

                              ----------                              


                       TUESDAY, FEBRUARY 24, 2004

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

             OPENING STATEMENT OF CHAIRMAN COLLINS

    Chairman Collins. The Committee will come to order.
    Good morning. Today marks the fourth in a series of 
hearings the Committee on Governmental Affairs is holding to 
review the reforms recommended by the Presidential Commission 
on the Postal Service.
    Under the effective leadership of Co-Chairmen Harry Pierce 
and James Johnson the Commission put together a comprehensive 
report on an extremely complex issue identifying the 
operational, structural, and financial challenges facing the 
U.S. Postal Service. The Commission's recommendations are 
designed to help this 225-year-old service remain viable over 
the long-term.
    So much depends upon the Postal Service's continued 
viability. The Postal Service itself has more than 735,000 
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 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 volume of First-Class Mail for the 
past 4 years. This is highly significant given the fact 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.
    At our first hearing last September the Committee heard 
from the Commission Co-Chairman Jim Johnson. His testimony 
provided us with the rationale behind the Commission's 
recommendations. Commissioner Johnson also made the very 
important point that the Postal Service's short-term fiscal 
health is illusory and that Congress must not ignore the 
fundamental reality that the Postal Service is an institution 
in serious jeopardy.
    This Committee is very familiar with the Postal Service's 
short and long-term financial health having reported out the 
pension bill last year that forestalled the financial crisis 
that awaits the service if we do not act and enact further 
reforms.
    The Presidential Postal Commission presented its assessment 
of this fiscal crisis in frank terms concluding, ``that an 
incremental approach to Postal Service reform will yield too 
little too late given the enterprise's bleak fiscal outlook, 
the depth of the current debt in unfunded obligations, the 
downward trend of 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 an assessment 
that challenges both the Postal Service and Congress to embrace 
far-reaching, comprehensive reform.
    At the Committee's second hearing last Fall we heard from 
the Postmaster General Jack Potter and the Comptroller General 
David Walker. The Postmaster General described the 
transformation efforts already underway at the Postal Service, 
many of which are consistent with the Commission's 
recommendations. In his testimony Mr. Walker of the General 
Accounting Office shared the Commission's concerns about the 
Postal Service's $92 billion in unfunded liabilities and other 
obligations. The Comptroller General pointed to the need for 
fundamental reforms to minimize the risk of a significant 
taxpayer bailout or dramatic postal rate increases. I would 
note that since April 2001 the Postal Service has been included 
on the GAO's high-risk list.
    Most recently the Committee heard from representatives of 
the postmaster and supervisor associations along with the 
former director of the Federal Mediation and Conciliation 
Service plus two experts on the issue of postal pay 
comparability. The issues of pay-for-performance and potential 
changes to the bargaining process were discussed at length.
    Today we will again focus on the various recommendations 
affecting the Postal Service's workforce comprised of more than 
700,000 dedicated letter carriers, clerks, mail handlers, 
postmasters and others. The Committee will have the opportunity 
to more fully explore the workforce-related recommendations of 
the Commission which include some of its more controversial 
proposals. Among them are recommendations to reform the 
collective bargaining process, to give management and employee 
unions the authority to negotiate not only wages but also all 
benefits, to establish a performance-based pay system for all 
employees, and to authorize a new postal regulatory board to 
develop a mechanism for ensuring that the total compensation 
for postal employees is comparable to the private sector.
    The Postal Service faces the difficult task of trying to 
right-size the workforce to meet the decline in mail volume, 
technological competition, and other operational challenges. 
With some 47 percent of the current workforce eligible for 
retirement by the year 2010 right-sizing does not, however, 
have to mean widespread layoffs. Indeed, it should not. With 
careful management much can be done to minimize any negative 
impact on employees and to create a more positive working 
environment.
    As a Senator representing a large rural State whose 
citizens depend on the Postal Service I appreciate the 
Presidential 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 on 
or near our northern or western borders, or on our islands, or 
in our many small rural communities 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 the rates that 
the Postal Service charges.
    The preservation of universal service is critical to 
reforming the Postal Service. That and many other issues must 
be examined in depth if we are to save and strengthen this 
vital service upon which so many Americans rely for 
communication and for their jobs. The Postal Service has 
reached a critical juncture. It is time for a thorough 
evaluation of its operations and requirements. It is also time 
for legislative reforms.
    Senator Carper and I have committed to working together 
with Senators Stevens, Akaka, Lieberman, Fitzgerald, and many 
other Members of this Committee who care deeply about the 
future of the Postal Service. We want to draft a bipartisan 
postal reform bill.
    Now given the history of previous attempts at legislative 
reforms I know that this will not be an easy task, but it is 
essential this year that we seize the opportunity provided by 
the Commission's excellent work. Successful reform will hinge 
on the cooperation and the support of the Postal Service's 
workforce. But reform is necessary if we are going to preserve 
and strengthen the Postal Service.
    I welcome our witnesses today and look forward to hearing 
their insights and views on the recommendations of the 
Presidential Commission on the Postal Service.
    Now I would like to recognize Senator Akaka, who had 
perfect timing this morning. He did not have to hear my speech 
but he does get to present his.

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka. Thank you very much, Madam Chairman. I thank 
you for your leadership here and I want you to know that your 
opening remarks affirm my feelings too. It is important that we 
deal with this.
    I am pleased to join you this morning as we continue our 
review of the recommendations made by the Commission on the 
U.S. Postal Service, and to reaffirm I am here to join you in 
our commitment to all who rely on the U.S. Mail.
    I look forward to hearing from today's witnesses who are 
uniquely qualified to discuss the Commission's workforce 
recommendations. We are indeed fortunate to have as our first 
panelist Dan Blair, the Deputy Director of the Office of 
Personnel Management who for many years served as a senior 
congressional counsel on postal and civil service matters. I 
also look forward to hearing from our second panel, the elected 
presidents of the four largest postal unions. Together you 
represent nearly a half-million postal employees and your input 
is central to any successful modernization of the Postal 
Service.
    The achievements of the Postal Service in recent years, 
highlighted by ever-increasing record levels of productivity 
and an improving financial outlook, are shared by postal 
employees. In fiscal year 2003, the Postal Service's net income 
reached $3.92 billion, approximately $3 billion of that figure 
can be attributed to our Chairman's CSRS legislation which I 
was proud to co-sponsor.
    This positive financial turnaround comes at a time when the 
Postal Service is rationalizing its workforce. Since 1999, the 
workforce was downsized by 88,000 employees and yet customer 
satisfaction and on-time First-Class Mail delivery are at all-
time highs. In concert with this good news is a stable labor-
management climate that has resulted in a series of 
voluntarily-negotiated labor contracts.
    I attribute this favorable labor environment to the 
leadership of our second panel, to the Postmaster General, and 
to the flexibility built into the existing collective 
bargaining law governing those who provide this essential 
public service. That is why I am concerned that certain 
workforce recommendations suggested by the Postal Commission 
could adversely impact today's sound labor environment and 
undermine existing conditions.
    The Commission would implement a pay-for-performance system 
for all employees, impose collective bargaining procedures with 
rigid timelines and no flexibility to waive those timelines, 
empower a new postal regulatory board with determining total 
compensation and defining universal service, and require 
negotiations over any benefits in addition to wages.
    This Committee, more than any other Senate committee, 
understands the impact that bargaining over benefits could have 
on the stability and financial integrity of the government's 
two pension plans and its employee health insurance program. As 
I noted, Madam Chairman, at our hearing 2 weeks ago, postal 
workers make up one-third of the Federal workforce and I urge 
caution when considering splitting postal employees from these 
Federal programs without knowing the effect on active and 
future employees.
    Moreover, subjecting benefits to collective bargaining 
could have a serious effect on retirees. We should do no harm 
to retired postal workers who have already earned their 
benefits and planned their retirements under the Federal 
pension and health plans. Rationalizing Postal Service requires 
leadership from the top down and I believe that leadership is 
now in place.
    I look forward to working in a bipartisan manner on a 
process that is transparent and accountable to the postal 
workforce and, of course, the public. I thank our distinguished 
panelists for being with us and I again want to thank Madam 
Chairman Collins very much for her able and good leadership. 
Thank you very much.
    Chairman Collins. Thank you very much, Senator. It has been 
a pleasure to work with you, not only on postal issues but many 
others as well.
    I would now like to welcome our first witness who is no 
stranger to this Committee as Senator Akaka points out. He is 
Dan Blair, who is the Deputy Director of the Office of 
Personnel Management. Mr. Blair has extensive experience in the 
civil service sector having served for almost 17 years on the 
staffs of both this Committee and the House Government Reform 
and Oversight Committee. We are very pleased to have you back. 
I know that the Director of OPM, Kay Coles James relies very 
heavily on you and we appreciate your being here today. You may 
proceed with your statement.

   TESTIMONY OF DAN G. BLAIR,\1\ DEPUTY DIRECTOR, OFFICE OF 
   PERSONNEL MANAGEMENT, ACCOMPANIED BY NANCY KICHAK, CHIEF 
            ACTUARY, OFFICE OF PERSONNEL MANAGEMENT

    Mr. Blair. Thank you, Madam Chairman, Senator Akaka. I 
appreciate that warm welcome. Thank you for inviting me to 
testify here this morning. I have a longer statement that I 
would ask that you include for the record.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Blair appears in the Appendix on 
page 179.
---------------------------------------------------------------------------
    Chairman Collins. Without objection.
    Mr. Blair. But I am happy to summarize.
    Nancy Kichak, to my right, is OPM's chief actuary and she 
accompanies me here today. Should you have any technical 
questions, with your permission, I may ask Ms. Kichak to assist 
in answering your or the Committee Member's questions.
    Chairman Collins. That would be fine.
    Mr. Blair. Thank you.
    First, I want to commend you and this Committee for the 
thoughtful, studied way in which you approach the complex 
issues affecting postal reform. A well-managed, fiscally 
healthy Postal Service is essential for our national and 
economic well-being. You said that in both your statements and 
I am glad that we find that common ground because it is 
extremely important.
    The President's Commission on Postal Reform made many good 
recommendations on which a postal reform measure could move 
forward. Postmaster General Jack Potter has also done a 
commendable job by working hard to move his organization 
forward as well. Further, the President has endorsed the need 
for modernizing postal operations and layed out five guiding 
principles for postal reform last year, so there appears to be 
the critical mass necessary to propel legislative reform and 
anyone interested in the health of our economy and our Nation 
wishes this Committee success as you move forward in enacting 
needed reforms.
    In your invitation to testify you asked for our comments in 
three specific areas, pay-for-performance, negotiability of 
retirement and health benefits, and the proper assessment of 
pension liabilities.
    First, thanks to this Committee's efforts we have made 
progress on introducing pay-for-performance systems into the 
Federal Government. As you know, our pay systems did little to 
offer managers the ability to use their most strategic 
management tool, pay, in ways to incentivize and recognize 
outstanding performance. Hopefully we are taking steps to 
change this.
    Your efforts to enact needed pay reforms for the Senior 
Executive Service and authorize creation of the Human Capital 
Performance Fund are most appreciated. We are in the process of 
implementing the new system for the SES and have issued 
guidance over the past few months to the agencies. We are also 
working to draft regulations to implement the new system as 
well. This year's budget also asked Congress to fund the Human 
Capital Performance Fund in the amount of $300 million. So 
thanks to your good work and good efforts of this Committee, 
Madam Chairman, we are making much-needed progress.
    Second, you asked us about the potential impact on the 
Federal systems in making the Postal Service's pension and 
post-retirement health benefits subject to collective 
bargaining. We understand this is based on the Commission's 
recommendations that reflected its efforts to give the Postal 
Service additional flexibility when it came to collective 
bargaining. You asked us to prepare a detailed report on the 
impact of this recommendation on the retirement and Federal 
health benefits programs, and we are currently preparing that 
report. So I am not prepared to go into detail or present 
conclusions at this point. However, I would bring to the 
Committee's attention a few of the issues raised in considering 
such a proposal.
    First, keep in mind that retirement funding is based upon 
predictability and continuity. Hence, bargaining over 
retirement benefits could be adopted to the extent it does not 
destabilize retirement funding. While our pending report will 
address in detail our thoughts on this, I would note that the 
postal benefit structure is currently fully integrated with the 
non-Postal Service structure.
    Further, I would bring to the Committee's attention that 
there has never been a major group severed from either one of 
the two primary Federal retirement systems.
    Regarding the recommendation to make eligibility and 
retiree contributions under the post-retirement component of 
the Federal Employees Health Benefits Program negotiable we 
would note that currently FEHBP benefits are offered to all 
enrollees regardless of work or retirement status. We do not 
distinguish what benefits are offered to active employees, 
retirees or by specific agency employer. Should postal retiree 
benefits be subject to bargaining we would want to ensure that 
the mechanism employed would not lead to unintended 
consequences, such as increasing adverse selection and thereby 
increasing cost and complicating the administration of the 
FEHBP.
    Also, many of the current carriers in the FEHBP are postal 
related, such as the plans offered by the Mail Handlers, the 
Letter Carriers, the Postal Workers Union, the Rural Letter 
Carriers, and the Postmasters. The impact on the FEHBP could be 
substantial should the Postal Service cover its retirees or 
retirees under a separate health insurance program and should 
these plans then drop out of the FEHBP.
    I would also point out that experience has shown that when 
agencies have offered their employees alternative health 
insurance plans, such as the FIRREA agencies did in the mid-
1980's and 1990's, they sought legislative relief through this 
Committee to bring their retirees back into the FEHBP due to 
increasing costs.
    Of great interest to the administration is the Commission's 
recommendation to shift responsibility for military service 
credit in the Civil Service Retirement System from the Postal 
Service to the taxpayers. Last year this Committee did the 
right thing when it promptly considered and moved legislation 
addressing Postal Service overfunding of its pension 
obligations. That legislation placed the Postal Service on 
sound actuarial footing, including correctly assessing the 
Postal Service with the full cost of covering its CSRS 
employees, including those with military service. The 
administration stands firm in opposing any efforts to shift 
these costs to the taxpayer.
    Some have said there is no direct relationship between an 
employee's prior military service and the Postal Service 
operations. We wholeheartedly disagree. Granting credit for 
military service enables the Postal Service to better recruit 
and retain veterans as part of its team. Providing these 
benefits gives the Postal Service an advantage in hiring 
employees of recognized professionalism, level of experience, 
dedication to service, and commitment to excellence. Such 
military service does indeed provide a direct benefit to the 
operations of the Postal Service.
    In addition, such a proposal runs counter to the long-
standing principle which has stood as the cornerstone of the 
1970 Postal Reorganization Act that the Postal Service should 
cover all the costs of its operations. The President set the 
administration's policy when he established as one of the 
guiding principles for postal reform that the legislation 
ensure that the Postal Service is self-funding.
    Last year's legislation rightly granted the Postal Service 
needed pension funding relief; $78 billion in pension relief to 
be precise. Under this methodology the taxpayers still fund the 
cost of providing military service credit for postal employees 
under CSRS in the amount of $21 billion. Shifting further 
liabilities that essentially fund postal operations to the 
taxpayer would be wrong and the administration is on record as 
opposing it.
    There is common ground on which this Committee can proceed 
in working towards a postal reform measure. However, there are 
other areas about which the administration has voiced its 
objections and I hope that I have provided you with a clear 
understanding of where we stand on these issues.
    This concludes my oral presentation and, Madam Chairman, I 
am happy to answer your or Senator Akaka's or any Member's 
questions at this point. Thank you very much.
    Chairman Collins. Thank you for your statement. I know that 
OPM in response to a letter that Senator Carper and I sent is 
still evaluating what the impact would be of potentially taking 
the Postal Service out of the Federal retirement system and the 
Federal Employees Health Benefit Plan. But do you or Ms. Kichak 
have any preliminary judgments that you could share with the 
Committee on this issue?
    My concern is that we are not talking about a small number 
of people. We are talking about taking a huge number of 
employees and retirees out of the Federal plans. I wonder if 
you could elaborate on what the impact would be on the 
stability and the financial health of both the retirement and 
the employee health benefits plan if you were to separate out 
the Postal Service employees and retirees.
    Mr. Blair. I think you hit the nail on the head, that you 
are talking about potentially taking a huge portion of both 
retirement and the FEHBP populations out from under these 
systems. It is an extraordinarily complex matter, but there are 
some aspects of the benefits which could be amenable to 
negotiation. Changing one part, however, can have profound 
effects on the rest and to achieve full negotiability, 
especially in the pension area, and might require the Postal 
Service to sever its association with both the retirement 
plans. We will go into detail in our report but it is an 
extraordinarily complex subject. The keys to pension funding 
are predictability and stability. And if you take that away 
because benefits are being negotiated you undercut the 
foundation of what our plans have been built on.
    With regard to the health benefits issue, again, the Postal 
Service has flexibility in that area to negotiate the premium 
costs. Let me correct myself, to negotiate the employer's share 
of the premium cost, and it has done so. At this point in time 
they pay approximately 84 percent of the premium costs as 
opposed to approximately 72 percent for the rest of the Federal 
Government. So it does pay more than the rest of the Federal 
Government where it has exercised that flexibility. In the life 
insurance area it currently plays 100 percent of the life 
insurance costs. So again, where it has flexibility it has 
shown that it has actually paid more and not less of the total 
share.
    That said, changing the composition of the enrollment group 
has a direct impact on cost. Cleaving off approximately one-
third of the enrollees in the FEHBP population would not only 
reduce the risk pool that we have, but would perhaps have 
unintended consequences such as leading to adverse selection.
    In addition, as I said earlier, five of the plans are 
postal related, and we have had trouble keeping plans in the 
system recently. One of the underpinnings of the FEHBP has been 
competition among plans. We not only want to keep plans in, we 
want to draw more plans to it. So those are concerns that we 
have raised.
    Now I do want to underscore, however, that there may be 
aspects of this that may be amenable to the collective 
bargaining process and we will point those out in further 
detail in the report. But these are some of the concerns that 
we have raised and I think that it is important for the 
Committee to understand them.
    Chairman Collins. Do the Federal employees unions also 
negotiate the employee-employer split when it comes to health 
insurance premiums?
    Mr. Blair. No, they do not. That is set by statute.
    Chairman Collins. So that is a different treatment then.
    The second issue I want to explore with you is the 
difficult issue of what is the appropriate entity to bear the 
cost of the military service of postal employees. I am not 
inclined to agree with the administration's position that the 
Postal Service should continue to bear this cost. It is my 
understanding that the Postal Service bears the cost of the old 
Civil Service Retirement System, the pre-1984 system, but that 
other agencies do not bear that cost. Is that correct? Is the 
Postal Service treated differently from Federal agencies when 
it comes to the old Civil Service Retirement System?
    Mr. Blair. Generally speaking that is the case. What 
happened last year when we caught the overfunding problem is 
that we set the Postal Service's CSRS funding on sound 
actuarial footing by placing it in the same category or 
treating it in the same way that we fund the Federal Employee 
Retirement System. That means it is fully funded. It does not 
have any unfunded liabilities.
    You are correct in pointing out that there are just a 
handful of other Federal entities out there that may be paying 
the full cost of their retirement system. The ones that come to 
mind are the Metropolitan Washington Airports Authority, and 
the United States Enrichment Corporation, which was a part of 
the Department of Energy. But nothing on the scale or rank or 
size of the Postal Service.
    But I would urge you to consider what would happen if you 
would shift these responsibilities back to the Treasury. 
Funding of a retirement system is really not done on an a la 
carte basis by taking and picking which portions should be 
borne by the employer. Rather everything should be borne by the 
employer. All those costs should be borne by the entity 
providing those benefits. The Postal Service has the benefit of 
offering a retirement system which has great recruitment and 
retention value. Giving veterans that military service credit 
is an incentive for veterans to come into the Postal Service. 
If you are going to provide Federal retirement you should be 
fully funding those costs.
    We recognize that other Federal agencies and other Federal 
entities out there have not been mandated by Congress to fully 
fund their share of the CSRS system. We do not think that is 
right. The President's Managerial Flexibility Act would have 
had all agencies fully funding the CSRS system in the same as 
they would for FERS. But giving a break to other agencies does 
not mean we should give the break to the Postal Service. We did 
the right thing last year by placing it on sound actuarial 
footing and I would urge you not to backslide and go in the 
opposite direction.
    Ms. Kichak, did you want to add anything to that?
    Ms. Kichak. Only that the fact that the Postal Service 
being treated differently applies to a broad range of items. 
Congress mandated in 1974 that they would start to fund their 
Civil Service Retirement System through postal rates. So they 
have always been treated differently and this is just one more 
piece of making them cover these costs through stamp prices.
    Chairman Collins. You could make a case that since the 
pension costs for military service have nothing to do with 
postal operations, you could almost make the case that whether 
you are talking about the FERS system or the CSRS system that 
postal ratepayers should not be bearing that cost. But I am not 
trying to change it for FERS. I am trying to have equity in the 
treatment of the Postal Service vis-a-vis other Federal 
agencies in how those costs are treated for the pre-1984 
employees who are veterans. It has a huge economic impact on 
the Postal Service, as you know, which is obviously of concern 
to the administration as well because whoever bears that cost 
is going to be presented with a pretty hefty bill.
    Senator Akaka.
    Senator Akaka. Thank you very much, Madam Chairman.
    Mr. Blair, as you know the Department of Homeland Security 
and Department of Defense have been authorized to establish new 
human resource systems which include performance-based pay. The 
Postal Service also recommends that the Postal Service 
implement a pay-for-performance system for all employees rather 
than just its managers. However, many experts agree that there 
is, at a minimum, a 5-year learning curve when creating a new 
personnel system. There are also substantial costs associated 
with this as well.
    My question to you is, what would be gained if the Postal 
Service extended pay-for-performance to all its employees? And 
do you believe that the adoption of a pay-for-performance 
system should be part of collective bargaining agreements?
    Mr. Blair. In answer to your first question, the 
administration is on record as generally supporting pay-for-
performance systems. We think that pay-for-performance properly 
rewards people by properly recognizing outstanding performance, 
and it is a strategic management tool.
    In answer to your second question, we have limited 
experience in the rest of the Federal Government, the non-
postal side, in dealing with collective bargaining over pay. So 
this is almost an area of first impression. Not totally first 
impression, but it is a newer area for us. So we would really 
be starting from scratch in looking at how something like that 
would be done.
    Generally speaking, to make a performance-based system 
successful the agency would need to establish the expectations 
up front, deal with demonstrable results, and make sure that 
the agency's strategic plan and annual performance plans are 
linked as well. But it is a difficult process in applying it 
across the board. In the rest of the Federal Government we are 
implementing it for the Senior Executive Service as we stand 
right now. We have the new Human Capital Performance Fund.
    But we are changing the culture in government. No longer do 
we want to see most of the money being siphoned off for large 
across-the-board pay increases. Rather, we would prefer to see 
the money available to reward outstanding performers. I think 
that is a general good government principle and I think that 
those general good government principles could also be applied 
in the Postal Service, recognizing that they have a different 
environment in which they operate.
    Senator Akaka. Thank you. I am also concerned, like the 
Chairman, of the cost of military service. You mentioned OPM's 
position that the Postal Service should fund the cost of 
military service even though other Federal agencies do not have 
this obligation. Do you know if other government entities that 
generate revenue like the SEC and other FIRREA agencies fund 
the cost of their workers who have military service?
    Mr. Blair. At this point it is my understanding that 
Treasury picks up the difference, any of the normal cost 
differences above the 7 percent contribution that the agency 
makes. So in other words, not only with the military service 
but also with cost-of-living adjustments and any costs over the 
7 percent contribution that an agency makes on behalf of its 
employees, Treasury picks up. But sound pension policy would 
require that those agencies pick up the full difference in the 
normal cost. That is why CSRS should be on the same actuarial 
and funding footing as the Federal Employees' Retirement 
System.
    Senator Akaka. Mr. Blair, I am sure you would agree with me 
that any changes in funding obligations for retirement-related 
obligation could impact postal ratepayers, taxpayers, and the 
Federal budget. How would you assign the responsibility, and 
how would you structure a mechanism for covering the cost of 
providing retirement related benefits?
    Mr. Blair. I think that we have done that in a sound manner 
with the legislation that was enacted last year. We need to 
remember where we came from with this legislation. That over 
the course of the last 30 years we have attempted to have the 
Postal Service pay for its pension obligations in a random, 
piecemeal fashion. First, with covering the cost of salary 
increases and then with covering the cost-of-living adjustments 
and then making that retroactive. But it was all done on what 
we call a static basis, meaning that we projected what the cost 
would be, put the payments in legislation, and never had to 
revisit them.
    But at the urging of this Committee, GAO came to OPM, 18 
months ago I believe it was, and said, why don't you look at 
this? For the first time we looked at the Postal Service's 
pension obligations apart from the rest of the Federal 
Government and said, what would it look like if we took their 
system and applied a dynamic funding process to that from 1971? 
What we came up with was the fact that by continuing those 
revenue streams that they had into the Federal Government for 
pieces and parts of the retirement component, they would have 
overfunded their entire pension obligation by over $78 billion.
    So that is why the administration recommended, and this 
Committee did the right thing, in moving quickly with 
legislation changing the methodology under which we determine 
funding for the Postal Service. We think that that is the right 
thing. We have put the Postal Service's pension funding on 
sound actuarial funding. But we are concerned that efforts to 
shift back to the taxpayers bits and pieces and components of 
that funding do not move us in the right direction. Rather it 
moves us in the wrong direction. Because we would like to see 
the rest of the government moved in the same direction as we 
have done for the Postal Service.
    Senator Akaka. Thank you very much for your responses, Mr. 
Blair. Thank you, Madam Chairman.
    Chairman Collins. Thank you.
    Thank you very much for your testimony today. We look 
forward to working with both of you very closely as we continue 
to examine these important issues. Thank you.
    I would now like to call forth our second panel of 
witnesses. William Young is the President of the National 
Association----
    Senator Akaka. Madam Chairman, may I?
    Chairman Collins. Yes.
    Senator Akaka. Madam Chairman, I want to take a moment to 
wish our witness well, and also note that he celebrated a 
birthday yesterday.
    Chairman Collins. Are you going to tell us which one?
    Senator Akaka. No.
    Chairman Collins. He is a good friend to you, Mr. Blair. I 
join in wishing you happy birthday as well.
    Senator Akaka. Thank you, Madam Chairman.
    Chairman Collins. Thank you.
    William Young is the Pesident of the National Association 
of Letter Carriers. He began his postal career almost 40 years 
ago.
    Dale Holton is the National President of the National Rural 
Letter Carriers of America. He began his postal career in 1976 
as a substitute letter carrier.
    William Burrus is the President of the American Postal 
Workers Union. Prior to being elected president he served for 
21 years as the APWU's executive vice president and he began 
his career as a distribution clerk in 1958.
    John Hegarty is the President of the National Postal Mail 
Handlers Union. He previously served as President of Local 301 
in New England, which is the second largest local union 
affiliated with the mail handlers union. This is his 20th year 
with the Postal Service.
    So we are very pleased to welcome you gentlemen here today, 
not only as the elected presidents of your respective unions 
but also because you have a wealth of experience in the Postal 
Service that I think will be very helpful to this Committee as 
we continue to work through these issues.
    Mr. Young, we will start with you.

TESTIMONY OF WILLIAM YOUNG,\1\ PRESIDENT, NATIONAL ASSOCIATION 
                       OF LETTER CARRIERS

    Mr. Young. Good morning. On behalf of the 300,000 active 
and retired city letter carriers across the Nation, thank you 
for this opportunity to share our views on the crucial issue of 
postal reform. NALC is the exclusive collective bargaining 
agent representative of approximately 220,000 city letter 
carriers who work in every State and Territory in the Nation. 
City letter carriers have a tremendous stake in the future of 
the Postal Service. For them postal reform is not simply a 
policy matter or even a political issue. It is a matter of 
great personal importance for themselves and their families. So 
I wish to thank Chairman Collins, Senator Carper, and all the 
Members of this Committee for taking up this vitally important 
issue.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Young appears in the Appendix on 
page 186.
---------------------------------------------------------------------------
    Over the past decade my union has been urging Congress to 
pursue comprehensive postal reform. We have long recognized the 
need for a new business model for the Postal Service in the age 
of the Internet. Until recently the debate on postal reform has 
been largely confined to the House of Representatives. Thanks 
to the new leadership of this Committee and the work of the 
recent Presidential Commission, both ends of Pennsylvania 
Avenue, we finally have a real chance for progress on postal 
reform.
    NALC supports the general principles for reform recently 
outlined by President Bush and we look forward to working with 
the leaders of both houses of Congress to achieve bipartisan 
support. Today I would like to briefly address the big picture 
of postal reform before turning to the key workforce issues 
that are the main topic of the panel's testimony.
    NALC believes that the Postal Service's unmatched ability 
to reach every household and business in America 6 days a week 
is a vital part of the Nation's infrastructure. Universal 
service of letters, direct mail, periodicals, and parcels by 
the USPS is absolutely essential for the economic health of the 
United States. As such, it is important to take steps now to 
strengthen the Postal Service's ability to function in the face 
of technological change.
    We urge Congress to reject a pure downsizing strategy and 
to embrace an empowerment strategy for the Postal Service. The 
USPS should be given the commercial freedom it needs to 
maximize the value of its universal service network by adding 
services and working with its customers to find new uses of the 
mail to replace those uses that are now migrating to electronic 
alternatives. Greater commercial freedom, which involves 
flexibility over pricing and the ability to strike partnerships 
to optimize the value of its network would allow the Postal 
Service to maximize revenues and control costs while retaining 
the value of universal service.
    We recognize this approach poses a difficult challenge of 
balancing the commercial concerns and public service 
considerations, but we believe it is possible to give the 
Postal Service the flexibility it needs while protecting the 
legitimate concerns of competitors, customers and the public at 
large.
    Let me now turn to the main topic of the hearing, postal 
workforce issues. Our starting point is simple: Collective 
bargaining is a fundamental right of all, and the Postal 
Reorganization Act rightly established collective bargaining in 
the Postal Service under the auspices of the National Labor 
Relations Act. I would like to make a couple of general 
observations before suggesting some guiding principles for 
workforce reforms.
    First, I would like to point out that collective bargaining 
in the Postal Service has been a resounding success. Since the 
Postal Reorganization Act was enacted there has not been a 
single work stoppage or significant disruption in service as a 
result of labor relations. Given that the Postal Reorganization 
Act was enacted in part as a result of a national strike in 
1970, this 34-year record of peaceful labor relations should 
not be minimized. The fact is that postal collective bargaining 
has been a win-win-win proposition. Postal workers have 
achieved decent pay and benefits, taxpayers have saved billions 
through the elimination of direct and indirect taxpayer 
subsidies, and the mailers have enjoyed affordable postage 
rates.
    Second, it is important to note that neither the postal 
unions nor postal management favor radical changes to the 
existing collective bargaining system. Given that all sides 
agree that mail delivery is an essential public service, that 
we should not be disrupted by lockouts or strikes, a workable 
system for resolving collective bargaining impasses is 
essential. NALC believes the existing system of interest 
arbitration has worked extremely well.
    Third, it is important to note that postal labor relations 
have improved dramatically in recent years. Three of the four 
unions now have labor contracts in place that were voluntarily 
negotiated, and all four have made progress in reducing the 
number of workplace grievances using various mechanisms. These 
improvements occurred not because Congress or the GAO or any 
other outside party mandated them. They happened because the 
parties themselves worked very hard to find common ground and 
to seek ways to resolve mutual problems. Postmaster General 
Jack Potter and his team deserve credit for working with us to 
achieve this transformation.
    With these general points in mind, NALC urges you to abide 
by four principles when you consider the reform of the 
collective bargaining system. One, I urge you to follow the 
Hippocratic oath, first, do no harm. The system we have is not 
perfect. Indeed, no system is perfect. But the parties have 
learned how to work together within the current framework, and 
as I outlined above, the process has worked well for all 
concerned. At a time of great change for the Postal Service in 
almost all other areas, labor stability is crucial.
    Two, maintain the flexibility that is currently built into 
the PRA. The PRA contains specific but flexible timetables for 
negotiating contracts and resolving collective bargaining 
impasses. It also provides a menu of options for impasse 
resolution and it gives the parties the flexibility to shape 
these options for use when appropriate as conditions change. 
Indeed, the unions at this table have used at various times 
mediation, fact-finding, mediation-arbitration, mediation-fact-
finding in combination, and last best offer arbitration. In the 
fact of constant change, the flexibility of the current law is 
a virtue.
    Three, avoid politicizing the collective bargaining 
process. Congressional or White House intervention in the 
process would be highly destructive. This would inevitably 
happen if a politically appointed regulatory body were injected 
into the negotiations process.
    Four, avoid exposing the process to outside litigation. 
Subjecting the results of collective bargaining to litigation 
before a postal regulatory board as proposed by the President's 
Commission would be disastrous to the process. Depending on the 
prevailing political winds of the day and the makeup of the 
regulatory board at any particular moment, either side might be 
tempted to try to obtain from the regulators what they could 
not expect to achieve through good-faith bargaining.
    Finally I wish to address a couple of specific issues that 
have arisen in the wake of the report of the President's 
Commission on the Postal Service, those being the direct 
negotiations of pension and health benefits and the changes in 
the system of interest arbitration.
    I am not sure that this Committee understands, perhaps they 
do, that in the current law we subject a lot of this to 
collective bargaining. Not the benefits, but the pay, the cost 
of the premiums that employees pay is subject to collective 
bargaining. In the area of health benefits, postal management 
and its unions already negotiate the share of premiums to be 
paid by the workers and the Postal Service. When it comes to 
negotiating wage increases, the rising costs of pensions is 
explicitly discussed by the parties. The so-called roll-up 
factor for employee fringe benefits, the added cost of benefits 
when postal wages are increased, is never far from the 
negotiator's mind. You can be sure that no interest arbitration 
panel employed over the past 20 years has been spared evidence 
from both sides on the cost of health and benefit pension 
benefits.
    My point is this. Although the parties do not directly 
negotiate over all aspects of postal benefit costs, these costs 
are not ignored, and invariably they affect the results of our 
wage negotiations. Indeed, a close examination of postal wage 
trends over the past 25 years reveals that postal wages have 
increased nearly 15 percent less than wages in the private 
sector as measured by the employment cost index. This wage 
restraint is a direct reflection of the efforts of negotiators, 
and in some instances arbitrators, to restrain wage costs in 
the face of rising health and pension cost for the Postal 
Service, a trend that has affected all American employers.
    Given this context, we simply believe it is not necessary 
to formally place health and pension programs on the collective 
bargaining table. The parties already effectively take these 
costs into account under the existing system.
    I would like to end with a couple of points about the 
reforms suggested in the Commission's report to the interest 
arbitration procedure. We believe these changes are unnecessary 
and counterproductive for a couple of very practical reasons.
    First, the Commission's proposal would discard 30 years of 
experience by the parties and require us to start all over 
again under a radically different process, a prospect that 
would inevitably impose significant costs on both sides.
    Second, we believe the only workable changes to the system 
of collective bargaining must be developed and negotiated by 
the parties themselves, not externally legislated or mandated. 
Both parties must see this process as their process for the 
results to be legitimate. The existing system gives us the 
flexibility to shape the dispute resolution process without 
outside intervention.
    Allow me to add one last note on interest arbitration. We 
believe the existing dispute resolution system is a fair and 
acceptable alternative to the right to strike. I say this not 
because we always prevail when we go to interest arbitration. 
Indeed, on more than one occasion we have lost. In the 1990's, 
an interest arbitration panel chaired by Richard Mittenthal 
adopted a USPS proposal to create a lower paid temporary 
workforce to handle the transition to full automation. And 
another panel chaired by Rolf Valtin increased the employee's 
share of health benefits premiums.
    But I say it is fair because win or lose my members know 
that the existing system gives us a fair shot on the merits and 
therefore they accept the results as legitimate. The 
Commission's proposed changes in the area of interest 
arbitration fail this basic test of the fairness.
    I want to conclude my testimony by repeating something I 
told the members of the President's Commission at its first 
public hearing in February 2003. Good labor relations must be 
built on trust and on good faith between the parties. No amount 
of tinkering with the mechanics of the collective bargaining 
process will change that basic fact. At this moment of great 
challenges for the Postal Service we have worked hard with the 
Postmaster General to build trust between us and to improve the 
workplace culture in the Postal Service. Please tread lightly 
in these areas so as not to risk the progress we made.
    I offer this Committee the full cooperation of the men and 
women who deliver the Nation's mail every day. Working together 
we can ensure that every American household and business will 
continue to enjoy the best postal service in the world for 
decades to come. Thank you very much.
    Chairman Collins. Thank you. Mr. Holton.

TESTIMONY OF DALE HOLTON,\1\ NATIONAL PRESIDENT, NATIONAL RURAL 
                        LETTER CARRIERS

    Mr. Holton. Good morning, Chairman Collins and Senator 
Akaka. My name is Dale Holton and I am President of the 
103,000-member National Rural Letter Carriers Association.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Holton appears in the Appendix on 
page 192.
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    Once again we thank President Bush for creating the 
Commission on the future of the Postal Service. We think the 
commissioners did a very good job in a very short window of 
time, being 6 months instead of maybe a year or more. Given 
their deadline we believe their intents were laudable. However, 
their governance recommendations are puzzling, their collective 
bargaining recommendations are problematic, and their pension 
and health benefit recommendations are perilous.
    Under the issue of governance, the proposed new regulator 
is assigned a study of pay comparability. In our opinion, pay 
comparability is a management-labor issue, not a regulatory 
issue. No other regulatory agency in Washington conducts wage 
comparability studies of workers in industries it regulates; 
not the FAA, the SEC, FTC, or FDIC. We believe that any 
discrepancies in comparability that are perceived to exist can 
be addressed through collective bargaining between management 
and labor. If the Postal Service goes in a downward revenue 
spiral we anticipate that through collective bargaining and 
ultimately interest arbitration if it becomes necessary, the 
case will be made by the Postal Service to hold the line on 
wages or provide for increased productivity in order to balance 
those economic factors. I speak from experience because after 
all, this is what happened to us in our last round of 
negotiations.
    With regard to the changes proposed to collective 
bargaining, we find them to be problematic. The system of 
collective bargaining that Congress designed 30 years ago 
continues to work well today. This Commission proposes changes 
in the law that would remove flexibility. We believe that the 
optional system works best.
    In binding arbitration there is no guarantee that either 
side will prevail. The National Rural Letter Carriers 
Association and the Postal Service 2000 contract negotiations 
went to binding arbitration. Both parties opted to utilize a 
single arbitrator all the way through from mediation to binding 
arbitration. You could say we utilized the med-arb process. We 
opted for it. We mutually agreed to do it.
    Now I would have to say that one of your previous witnesses 
talked about what a great success that process was. I would 
dare say if you questioned any one of 103,000 members that we 
represent they would disagree. But I would like to explain that 
rural letter carriers are paid on an evaluated system. We have 
to multiply the amount of our route mileage, the number of 
deliveries, and an actual count of the mail in order to get a 
result in total hours per week, which is the route's 
evaluation. This evaluation is the basis of the rural carrier's 
compensation.
    Arbitrator John Calhoun Wells, listening to all the 
testimony, awarded the Postal Service an increase in the work 
pace of rural carriers as they case their mail. The Wells award 
decreased the time value of each piece of mail in the annual 
mail count. The award decreased the pay of the average rural 
carrier 3.1 hours per week. Each hour is worth $1,500 a year. 
Arbitrator Wells granted a pay raise of $2,600 which did not 
compensate for the $4,600 loss. Senators, you do the math and 
you tell me who won the arbitration.
    The point is, binding arbitration does not guarantee that 
the union is going to win every time. The savings to the Postal 
Service by their own figures was approximately 12 million less 
paid hours annually due to this arbitration award. The award 
savings to the Postal Service for rural carrier compensation is 
$324 million annually.
    During those arbitration proceedings it took the NRLCA and 
the Postal Service 7 months to schedule 21 days of hearings. 
The expedited timetables proposed by the Commission are 
laudable but we feel they are unattainable. The most impossible 
proposal is to schedule three independent arbitrators and wrap 
it up in 60 days. Again, it took us 7 months to get 21 days out 
of one arbitrator. We cannot imagine scheduling three in a 60-
day window. That is unless you only count the days that we 
actually hold hearings.
    My points being that binding arbitration does not always 
favor the union, the existing procedures allow for flexibility 
to do the things that the Commission proposes, and the 
proposals to change the collective bargaining procedures and 
timetables are not workable. All of these points make the 
proposal by the Commission to change collective bargaining 
problematic.
    The Commission's idea that pension and health benefits 
should be subject to collective bargaining are perilous. 
Currently the Postal Service has no responsibility to manage a 
pension or a health benefits system. The Office of Personnel 
Management performs that task quite capably. Postal workers are 
one of every three civilian Federal employees. Removing one-
third of the participants out of the current retirement system 
and health benefit program could have a serious adverse impact 
on the existing FERS and FEHB programs.
    In order to separate the pension system, the Postal Service 
would need three critical items. They would need investment 
experts, elaborate recordkeeping, and creation of a pension 
trust fund. The National Rural Letter Carriers' Association and 
probably the other unions would demand some kind of joint 
trusteeship of any such pension fund.
    In the health benefit area we already negotiate. The NRLCA 
health plan negotiates with our insurance underwriter of 40 
years, the Mutual of Omaha Insurance Company. We then negotiate 
with OPM. For example, the rural carrier health benefit plan 
could decide next year to pay 100 percent of annual 
mammographies, since our workforce is 55 percent female. Mutual 
of Omaha's actuaries would estimate how many enrollees would 
utilize this benefit. Mutual would estimate the amount of 
premium dollars to reserve for this increased benefit. We 
negotiate how that fits in with allocation of all other premium 
dollars. OPM would then ask NRLCA how it proposes to pay for 
that benefit. Are we going to raise premiums, raise the copay, 
or lower an existing benefit?
    Finally, the percentage of the Postal Service's 
contribution to each employee's health benefit premium is 
currently subject to collective bargaining. Any changes to the 
current status of pension and health benefits are perilous to 
the programs, the Postal Service and the employee. I believe it 
was the first PMG in Poor Richard's Almanac who said, haste 
makes waste. In their haste, the Commission made 
recommendations that to us are puzzling, problematic, and 
perilous.
    I want to thank you for the opportunity to appear here 
today and ask that my full remarks that were submitted earlier 
be entered into the record.
    Chairman Collins. Without objection, all statements will be 
printed in the record. Thank you for your testimony.
    Mr. Burrus.

  TESTIMONY OF WILLIAM BURRUS,\1\ PRESIDENT, AMERICAN POSTAL 
                     WORKERS UNION, AFL-CIO

    Mr. Burrus. Good morning, Chairman Collins, and Senator 
Akaka. Thank you for the opportunity to testify on behalf of 
the more than 300,000 members of the American Postal Workers 
Union, AFL-CIO. We are the largest single bargaining union in 
our country.
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    \1\ The prepared statement of Mr. Burrus appears in the Appendix on 
page 199.
---------------------------------------------------------------------------
    We appreciate the opportunity to share with you the views 
of our members on a most important issue, postal reform. Thank 
you for your continuing interest in this vital subject. In 
compliance to your request to limit my testimony to 10 minutes 
I will summarize my oral statement and will submit my printed 
text for the record.
    This Committee has a historic opportunity to protect and 
preserve the U.S. Postal Service. But we must be careful to 
ensure that our efforts in fact preserve the Postal Service for 
the American public. Too often in this rush for reform, special 
interests have been considered without balancing the broader 
needs of our Nation and its individual citizens. The debate has 
been driven by the mailing industry as it seeks to shape the 
Postal Service in a way that best serves its interest. This is 
neither suprising or bad, but it is very important that the 
Committee distinguish between the public interest and universal 
mail service and uniform rates and the interest of major 
mailers in maximizing their profits.
    The Committee has requested that testimony be limited to an 
analysis of the Presidential Commission's workforce related 
recommendations and I appreciate the flexibility that you 
afford the witnesses to expand beyond the official request. As 
president of the union, foremost among my concerns in this 
review are the interest of our members. But the long-term 
health of the Postal Service is also a concern, and we promise 
to join with those who seek positive change.
    Before I discuss the specific workforce recommendations in 
the Commission's report, I urge that primary attention be 
focused on the Commission recommendation that the Postal 
Service be relieved of the military retiree costs and that the 
escrow of the CSRS contribution be resolved.
    A third consideration that is also important is resolution 
of the OPM decision to shift to the Postal Service $86 billion 
in cost for services attributed to previous Federal Government 
employment. These would be enormous burdens to the Postal 
Service, to consumers, and to the mailing industry, and the 
correction of these problems may be the most important actions 
that Congress could take to preserve and protect the Postal 
Service.
    The Commission's deliberations. In considering the 
recommendations of the Commission report I want to emphasize 
that the Presidential Commission did not give sufficient 
consideration to the needs of individual Americans and small 
businesses. As a result there were no recommendations in the 
report addressing concerns of the public. The commissioners 
hearings and private meetings were dominated by large mailers. 
While their interests should be considered, it should not be to 
the exclusion of all others. It is now up to the Members of 
Congress to examine the public interest.
    The widespread support for postal reform is based on the 
premise that the Postal Service is a failing institution, one 
that is at risk of entering a death spiral. But I believe it is 
premature to make a final determination on this matter. We must 
remember that postal volume continues to recover from the 
effects of several events, the terrorist attacks of September 
11, followed by the anthrax attack that took the lives of two 
of our members. These two events were superimposed over the 
recession that began in early 2001 from which we are only now 
beginning to recover, a relatively weak and inconsistent 
recovery. If one were to extract the impact of technological 
diversion, these events standing alone would have had a serious 
impact on postal volume.
    But there are positive signs. The Postal Service recently 
reported that mail volume during the 2003 Christmas mailing 
season increased sharply over the previous year, resulting in 
the highest volume period in the history of the Postal Service. 
Are we to believe that technological impact took a holiday this 
Christmas, or are other factors at work?
    Throughout this period of technological upheaval the Postal 
Service has shown a remarkable capacity to provide excellent 
service. Despite declining mail volume, productivity increased 
and service standards were maintained. A recent privacy trust 
survey ranked the Postal Service No. 1 in trust. These are 
remarkable achievements.
    Because of the unprecedented productivity increases and 
efficiency there is strong reason to believe that the Postal 
Service revenues could be sufficient to support universal 
service far into the future if rates are properly set. My 
union, the APWU, has been a vocal critic of unfair rate setting 
that benefits some very large mailers at the expense of 
consumers and small businesses. The Postal Service's own data 
shows that work-sharing discounts provided to major mailers 
exceed the cost avoided by the Postal Service. These excessive 
discounts cost the Postal Service hundreds of millions of 
dollars in lost revenue every year.
    A recent personal experience highlights the inequities of 
excessive postage discounts. Several weeks ago I received two 
First-Class letters, one bearing a 37-cent stamp and one which 
paid 27 cents. Both letters were bar-coded to be processed 
efficiently by the postal mail stream. The letter with 27 cents 
postage was deposited in the mail stream in Charlotte, North 
Carolina to be processed and transported to southern Maryland 
where I live. The one with 37 cents was deposited in 
Washington, DC, some 400 miles closer to its destination. The 
27-cent letter required manual distribution by the Postal 
Service itself once it was received in the delivery unit. The 
postage rate for the most costly letter including 
transportation and processing was in fact 10 cents less.
    The suggestion that mail volume will suffer if discounts 
are adjusted to represent accurate costs avoided is ludicrous 
on its face. This argument taken to its logical conclusion is 
that unless the Postal Service loses money on discounted mail, 
mailers will find other alternatives. If this were true, it 
would not make sense--to discharge the notion that logic--that 
there must be a connection between postal costs and discounts. 
Certainly free postage would guarantee increased volume.
    The problem of discounts was acknowledged by the 
Presidential Commission's recommendations that all future 
discounts be limited to the cost avoided. This is simply not 
good enough. That horse has left the barn and we need to get it 
back to preserve universal service in the public interest.
    Some interested parties have responded by calling for 
bottom-up pricing or bottom-up costing. These concepts would 
establish a system whereby mailers pay a pro rated share for 
the services they use. I would urge the Congress or the rate 
Commission to be extremely careful in pursuing this rate 
strategy. The primary consideration must be adequate funding 
for universal service at uniform rates. Lurking on the horizon 
would be exceptions that would result in surcharges for 
services.
    I believe that we will all agree that postal reform will 
have marginal impact on future mail volume. And if not, 
adjusting to the current business model must focus on future 
rates. Overlooked on this analysis is the fact that the current 
business model does not determine the relative contribution to 
the institutional cost by First-Class Mail as compared to 
standard mail. If First-Class Mail grows or declines, the 
question of dividing institutional cost among all classes of 
mail will remain. At present it takes approximately three 
pieces of standard mail to make up for one piece of First-Class 
Mail. This distribution of cost is a rate-setting decision that 
will be unresolved by postal reform. The elimination of 
excessive discounts along with more appropriate pricing would 
bolster postal revenues and preserve universal service.
    Now I will discuss the specific workforce related 
Commission recommendations. As the Committee specifically 
requested I will now state our views on the workforce related 
recommendations of the commission, and I begin with our 
conclusion that the workforce recommendations are outrageous 
and totally unacceptable to me and to the workers I represent.
    As I have previously said, on the subject of workforce 
issues the report is fundamentally dishonest. The report 
repeatedly states that the Commission supports the rights of 
workers to engage in collective bargaining. Nevertheless, it 
recommends the establishment of a regulatory board appointed by 
the President with the authority to set compensation of postal 
employees. It is completely inconsistent and totally 
unacceptable for the Commission to espouse a commitment to 
collective bargaining while simultaneously recommending that 
postal compensation be dictated by an appointed board.
    Testifying before this Committee on September 17, 2003, Co-
Chairman James Johnson testified that any employee compensation 
change would be prospective and that current employees would 
not be impacted. While in fact Commission recommendations would 
authorize the board to impose a cap on the compensation of new 
employees and to reduce the compensation of current employees. 
While the Commission recommends pay-for-performance it fails to 
note that there is nothing in the current law that prohibits or 
inhibits pay-for-performance. In fact we have negotiated on 
several occasions at the bargaining table on the subject of 
pay-for-performance.
    The Commission seems to believe that postal workers are 
fools. The following disingenuous platitudes appear in the 
report. One, plans for modernizing the Nation's postal network 
must effectively utilize the Postal Service's most valuable 
asset, its employees. Two, essential to this process is the 
ability of management and labor to work together. Three, first 
and foremost, Postal Service management must repair its 
strained relationship with its employees.
    In contrast to these statements, the Commission's specific 
recommendations are an invitation to open conflict with its 
postal employees. The report paid lip service to the importance 
of good labor relations, while making recommendations that 
would guarantee labor conflict.
    The Commission's recommendations to change the collective 
bargaining process are unwise and would be counterproductive. 
Current law permits the parties maximum flexibility in 
resolving contractual impasse and over the years the parties 
have negotiated every subject identified by the commission: 
Health benefits, flexibility, retirement, no layoff protection, 
wages, a two-tier workforce, and many others including pay-for-
performance. When the parties have disagreed they have used 
last best final offer, fact-finding, mediation, and at least 
once the parties' mediator became the neutral interest 
arbitrator. But more importantly, most often we have agreed at 
the bargaining table and concluded negotiations without outside 
interference.
    The Commission is wrong to say that any one of these 
methods is the best way of helping the parties reach agreement. 
Each negotiation brings its own challenges, and the best way to 
meet these challenges is to permit the parties to adjust to the 
conditions at hand rather than to impose a fixed statutory 
process. We know how to reach agreement and we have done so 65 
times over the 32-year period of collective bargaining.
    Benefits. The Commission urged Congress to consider 
removing postal employees from Federal retirement and retiree 
health care plans. This would be a diametric departure from 
appropriate public policy. We categorically reject the 
contention that it would be appropriate for postal employees 
now or in the future to be paid fringe benefits that are less 
than those provided to other Federal employees.
    In recent years postal workers have repeatedly stood on the 
front lines of homeland security. When hired, they submit to 
background checks and fingerprinting, and they are administered 
a Federal oath of office. The anthrax attack that resulted in 
the death of two of our members and the recent ricin attacks 
expose the perils of postal employment and our role in the 
Nation's defense. In the anthrax attacks we rationalized the 
disparate treatment of postal employees as compared to the 
occupants of Senate office buildings. But the ricin attacks 
exposed the fact that there is a double standard. Senate office 
buildings are vacated and tested for a period as long as it 
takes while postal employees are not even informed that they 
have been exposed.
    The administration has been quoted as saying that those who 
needed to know and needed to act upon it were aware of it. And 
the administration budget now includes a complete elimination 
of homeland security building decontamination research. The 
message is no warning, no cleanup. This is unacceptable. Postal 
workers will not be treated like the canaries in the mining 
industry in years gone by.
    Health benefits, whether for active workers and the 
families, for people who have been injured on the job, or for 
retirees and their families are very powerful and emotional 
issues. It would be a callous act to reduce the benefits of 
postal workers injured by anthrax or exposed to ricin. How 
would this be explained to the widows of Brothers Curseen or 
Morris?
    The collective bargaining provisions in existing law have 
worked well. They have resulted in labor costs that have 
tracked the increase in the CPI and the ECI. In comparison, we 
believe that the wages and fringe benefits paid by UPS and 
FedEx provide an appropriate and useful yardstick for postal 
compensation. These are the largest American companies whose 
workers perform some of the same tasks that we perform. They 
are, of course, direct competitors to the Postal Service. These 
companies pay their career employees wages and benefits that 
compare very favorably to the wages and benefits our members 
receive.
    The American Postal Workers Union finds the Commission 
report unacceptable in its recommendations on collective 
bargaining.
    Chairman Collins. Excuse me, Mr. Burrus, you are now almost 
7 minutes over your allotted time, so if I could ask you to try 
to summarize. Thank you.
    Mr. Burrus. I will conclude.
    In conclusion, I want to return to the most urgent needs of 
the Postal Service, military retirement costs at $27 billion, 
the escrow cost at $10 billion, and that the position of my 
union not be misunderstood on the broad issue of postal reform. 
Because of our outspoken positions on the Presidential 
Commission work-sharing discounts, it is convenient to report 
that APW opposes reform. This is not true, and for the record, 
we could support structural change to the Postal Reorganization 
Act that would improve the Postal Service beyond relief from 
the financial burdens. We support rate flexibility, the ability 
to add new products and better utilization of the network, the 
right to borrow, invest, and retain earnings, and the 
limitation of work-sharing discounts. These changes would 
ensure the continued effectiveness of the Postal Service far 
into the future.
    Thank you for your patience. Thank you again for your 
continuing interest in the Postal Service and I would be 
pleased to answer any questions you may have.
    Chairman Collins. Thank you, Mr. Burrus. Mr. Hegarty.

  TESTIMONY OF JOHN F. HEGARTY,\1\ PRESIDENT, NATIONAL POSTAL 
                      MAIL HANDLERS UNION

    Mr. Hegarty. Good morning, Madam Chairman, Senator Carper. 
Thank you for the opportunity to testify, and also thank you to 
the rest of the Committee. My name is John Hegarty. I am the 
President of the National Postal Mail Handlers Union, which 
serves as the exclusive bargaining agent for 57,000 mail 
handlers.
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    \1\ The prepared statement of Mr. Hegarty appears in the Appendix 
on page 216.
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    The Mail Handlers Union hopes to remain an active 
participant in the process of postal reform. The recently 
released White House principles show that the White House has 
considerable confidence in the expertise and legislative 
initiative of your Committee and that of your House 
counterparts. I would like to congratulate each of you who have 
provided leadership on this issue.
    I would like to take a few moments to comment on the latest 
terrorist homeland security issue affecting both Congress and 
the U.S. Postal Service. I am talking, of course, about the 
ricin incident in Senator Frist's mailroom earlier this month. 
It is perhaps ironic that this threat occurred on the evening 
before we were scheduled to testify before this Committee on 
the future of the Postal Service and its employees. The advance 
National Postal Mail Handlers Union written testimony raised 
the danger of substances such as ricin and anthrax and noted 
why career mail handlers are so crucial to the safety and 
security of our country. That hearing, obviously, was postponed 
but the need for safety and security goes on.
    As a mail handler from a large processing plant in 
Springfield, Massachusetts let me briefly explain how these 
types of terrorist threats could impact mail handlers. Mail 
handlers are generally the first to handle mail when it enters 
a processing plant. Raw or unprocessed mail which could be 
letter-sized envelopes or larger flat-sized envelopes, and in 
some operations parcels and packages are dumped typically on a 
conveyor belt and sorted or culled by mail handlers. Letters 
and flats would then be run through a cancellation machine to 
cancel the stamps and would then be forwarded to other mail 
processing machinery throughout the building, which is 
typically manned by either mail handlers or clerks.
    After all the processing is completed mail handlers load 
the processed mail into the outbound transportation for smaller 
post offices to be sorted where the letter carriers will then, 
and the rural carriers will deliver to the addresses.
    As you can see, this is a labor-intensive, hands-on type of 
mail processing. Mail handlers, and indeed all craft employees 
are therefore on the front lines when it comes to possible 
exposure to biological agents or other terrorist threats 
through the mail.
    As always, the safety of mail handlers and other postal 
employees is the first concern of the National Postal Mail 
Handlers Union. We are working with the Postal Service through 
the Task Force on Mail Security on dangerous incidents such as 
this. We appreciate the funding that Congress has already 
appropriated for biodetection systems to keep our employees 
safe and we look forward to working with Congress in the future 
on these issues.
    The Mail Handlers Union also appreciates the swiftness of 
your reaction to the CSRS funding problem and the financial 
strain caused by the deadly anthrax attacks. Similar financial 
issues remain, however, and congressional resolution of both 
the escrow issue and the military service issue are of 
immediate and paramount importance to the financial future of 
the Postal Service. Not releasing the postal escrow account or 
forcing the Postal Service to pick up more than $27 billion in 
military costs that no other Federal agency has to pay 
certainly will result in a severe crisis to the Postal Service 
and ultimately a hike in the cost of postage to all ratepayers. 
We are prepared to do whatever it takes to get both of these 
matters resolved swiftly.
    My union also counts itself as a strong supporter of 
legislative change that would grant the Postal Service 
additional flexibility in pricing, borrowing and the design of 
postal products. Such changes must allow the Postal Service to 
establish postal rates that remain affordable both to the major 
business mailers and the average American consumer while 
providing sufficient revenue to protect and support the 
infrastructure that universal service requires, and to provide 
postal employees with a decent and fair standard of living.
    Let me turn directly to collective bargaining in the Postal 
Service. I truly believe that the term ``best practices'' can 
be applied to Postal Service labor relations. In general our 
collective bargaining process is seen by others as a model of 
flexibility and labor peace. In recent years, moreover, all 
parties have been working on these matters diligently and our 
efforts have resulted in some dramatic progress. The Mail 
Handlers Union strongly endorses the current process for 
collective bargaining under the Postal Reorganization Act. Our 
current national agreement covers the period from November 2000 
through November 2006. Although it originally was scheduled to 
terminate later this year, we recently reached an agreement 
with the Postal Service on a two-year extension that was 
overwhelmingly ratified by our membership.
    Nor is productive collective bargaining a recent 
phenomenon. Since the Postal Reorganization Act was enacted in 
1970 we have engaged in 13 rounds of full collective bargaining 
with the Postal Service, 8 of which, including the last three, 
have resulted in voluntary agreements that were endorsed by 
postal management and ratified by the union membership. The 
other five were resolved through arbitration with the results 
willingly accepted by both parties. On at least three of the 
five occasions when the parties used arbitration, however, the 
parties actually settled most open issues and arbitrated only 
one or two issues that could not be resolved without an 
arbitrator's decision.
    Even when arbitration does occur, there are no guarantees. 
For example, arbitration in the 1984 round of bargaining 
created a lower entry rate for new mail handlers. An 
arbitration in the 1990 round of bargaining produced 3 years 
without any general wage increases for mail handlers. Because 
both parties accepted the process, however, even these clear 
management victories were implemented peacefully.
    The key advantage of the current bargaining process is its 
flexibility. Under the current statute, the parties to any 
bargaining dispute are allowed to devise their own procedural 
system for resolving their dispute. Thus, under the PRA, fact-
finding followed by arbitration is the default position, but 
the parties in prior years have used fact-finding, mediation, 
arbitration, and a multiple combination of these processes to 
resolve their disputes. If the procedural changes recommended 
by the Presidential Commission were adopted, this flexibility 
would be eliminated and instead the parties would be 
constrained by rigid procedural rules that in our view would 
not improve the collective bargaining process one iota.
    The Commission said that the core ingredient of its revised 
procedure is a mediation-arbitration approach to resolve 
bargaining impasses. Under a med-arb approach, the fact-finding 
phase now set forth in the PRA would be replaced with a 
mandatory mediation phase of 30 days, and if the mediation were 
unsuccessful, the appointed mediator would become one of the 
final arbitrators. We believe, however, that requiring this 
med-arb approach would be counterproductive to the successful 
resolution of many bargaining disputes. The flexibility now 
part and parcel of the PRA permits the use of med-arb and it 
has been utilized in prior rounds of bargaining when the 
parties deemed it advisable.
    But compelling the use of med-arb would corrupt any 
attempts at mediation by destroying the usual confidentiality 
of the mediation process and making it impossible for either 
party to actually share its priorities with the appointed 
mediator. To quote a noted expert, ``Parties to a combined 
mediation-arbitration procedure are often reluctant to retreat 
from extreme positions or to reveal how they prioritize their 
interests.'' It also reduces the likelihood that the arbitrator 
will have an accurate view of the parties' priorities.
    Also part of the Presidential Commission's recommendations 
is a proposal that would replace the parties' current practice 
which uses a three-member arbitration panel in which each party 
chooses one arbitrator and then the parties jointly select one 
neutral arbitrator with three outside arbitrators. In our view, 
this change would have extremely negative consequences for the 
arbitration process as it would completely remove the parties' 
respective representatives and their unique expertise from the 
decisionmaking process. It makes it much more likely that the 
eventual arbitration decision will be contrary to the desires 
of either or both parties. It also severely reduces the 
likelihood that the parties might be able to mediate and settle 
or narrow their dispute during the arbitration process.
    There are also proposals for a 10-day review period after 
arbitration and a last best final offer, both of which 
eliminate the current flexibility, which is one of the 
administration's guiding principles that were recently released 
by the White House. Frankly, I believe the Nation is better off 
with bargaining and binding interest arbitration under the PRA 
than with any other models. The testimony before the 
Presidential Commission from postal management, from the postal 
unions and even from a panel of highly respected neutral 
arbitrators was consistent, that the current collective 
bargaining process is working well: For 33 years the parties 
have avoided the labor strife and economic warfare that often 
characterizes private sector labor-management relations. 
Arbitrators and all participants agree that the process has 
improved dramatically over the years.
    There is, in short, no reason whatsoever to amend the 
statutory provision governing collective bargaining or to 
otherwise adopt provisions that would allow outside entities to 
interfere in the collective bargaining process.
    The Presidential Commission has also proposed bargaining 
over health insurance, pensions, and other benefit programs. In 
fact the current employee contribution rates for health 
insurance already are bargained, and the health benefits 
themselves established through the Federal Employee Health 
Benefit Program, are universally acknowledged to be well-
maintained and well-negotiated by OPM. The Mail Handlers Union 
happens to be the sponsor of one of the largest Federal health 
plans, and I can assure you that if the Postal Service were 
ever to withdraw from the Federal Employees Health Benefits 
System chaos would be the result.
    As for annuity benefits, with the passage last year of the 
``CSRS fix'' legislation, all annuity benefits for postal 
employees are now fully funded. The recommendation on 
bargaining benefits, therefore, is clearly aimed at guaranteed 
health insurance for postal retirees. We see absolutely no 
reason why promises of lifetime health insurance to postal 
employees should be subject to bargaining, especially when the 
Federal Government provides these benefits to Federal employees 
through legislation, and many other large employers also 
provide similar benefits.
    In any event, recent proposals from postal management would 
allow the Postal Service to ensure funding of these retiree 
health costs by using the escrow account now available because 
of pension overfunding. That is an appropriate use for those 
funds and should be a part of any postal reform.
    Thank you for allowing my to testify. I would be glad to 
answer any questions you may have.
    Chairman Collins. Thank you, Mr. Hegarty.
    Each of you this morning has made very clear the 
recommendations of the Presidential Commission that trouble you 
or that you outright oppose. It is understandable that you 
would focus your testimony on the recommendations that give you 
the most heartburn.
    I would like to ask each of you to now tell me which are 
the one or two, or two or three recommendations of the 
Commission that you believe are on point and should be 
incorporated into the reform bill, assuming that there are any. 
With Mr. Holton's comments I was reminded of the old story 
about, aside from that, Mrs. Lincoln, how did you enjoy the 
play? [Laughter.]
    But if there are recommendations that you believe are 
worthy of inclusion in legislation we would like to hear that 
as well.
    Mr. Young.
    Mr. Young. Thank you, Senator. I believe the Commission's 
recommendations in the area of pricing, flexibility and 
transparency should be incorporated. I think they are very 
good. I also like the Commission's recommendation on retention 
of universal service, but I would tweak it a little bit because 
I think that is a public policy matter and I think if I was a 
member, and I am not, of Congress, I would want to retain the 
jurisdiction over that myself, because it is awful clear to me 
that when the people up in Maine do not get the kind of service 
that they have been accustomed to, they are not going to be 
calling any regulatory board. They will be calling Senator 
Collins and asking why that is the case.
    I also like the idea that the Postal Service can retain 
earnings. I think that is an important concept that ought to be 
adopted.
    Chairman Collins. Thank you. Mr. Holton.
    Mr. Holton. I concur with what my colleague has already 
said. I also believe that the CSRS military pension portion of 
it should be adopted also.
    Chairman Collins. Thank you. Mr. Burrus.
    Mr. Burrus. I agree with the Committee's recommendation 
regarding the CSRS pension liability issue as well as the three 
issues mentioned by my two colleagues. In addition, the 
opportunity to add new products. I think for growth into the 
future the Postal Service needs to have the opportunity to be 
able to add products, so I would add that as a fourth item.
    Chairman Collins. Mr. Hegarty.
    Mr. Hegarty. I would also concur with the pricing 
flexibility. I think the recent hike in gas prices would point 
out the need or the disadvantage that the Postal Service faces 
when it comes to dealing with issues such as a gas increase, 
where UPS and FedEX and some of the competitors immediately 
establish a surcharge for their deliveries. The Postal Service 
is prohibited by law from doing so.
    The other thing that I think the Postal Service should be 
able to do is to negotiate discounts with their larger 
customers. One thing that caught my eye in talking with Peter 
Fisher of the Treasury Department last year is that the United 
States Mint, which mails out probably millions and millions of 
coins each year to collectors, uses UPS or FedEx. They do not 
use the U.S. Postal Service. The reason they do not is they can 
get a better rate because of volume discounts. I think if a 
company such as Amazon.com or the United States Mint approaches 
the Postal Service and says, ``I will give you three million 
pieces per month, what can you give me for a discount?'' Right 
now the Postal Service says, ``I cannot give you any 
discount.'' I think that should be corrected.
    Chairman Collins. Thank you. Each of you has considerable 
experience in collective bargaining and you have made clear 
your opposition to many of the changes recommended by the 
commission. But I would like to walk you through a few of them 
just to make sure that I understand where you are because these 
issues are so complicated and you do bring a great deal of 
experience in collective bargaining to the Committee today.
    The Commission recommended that the current fact-finding 
period be replaced by 30 days of mandatory mediation. I would 
like to know whether you find the fact-finding process to be 
useful, and how frequently it is waived by the parties. Mr. 
Young.
    Mr. Young. So far we have used it, Senator. I do not find 
it particularly useful, and I will be candid and open in 
telling you why. Because neither party wants to litigate the 
issue twice. If we are not able to strike an agreement, the 
1998 historic agreement for letter carriers that elevated my 
members from level five to level six, we bargained hard with 
the Postal Service and we almost go there. The differences 
really were not that great. We then engaged in a mediation 
process. Neither party really was candid or open with the 
mediator because they did not want to put their case on twice. 
We knew that the parties ultimately were not going to agree. 
That it was going to have to go to an arbitrator.
    I think the panel of arbitrators that testified before the 
Commission could add some clarity to your inquiry here, 
Senator, if you are interested because they have even more 
experience than I do and they were saying similar things about 
their experiences, which are greater than mine, broader than 
mine. Mine are related only to the post office. Theirs, of 
course, to other industries. But that is the real problem with 
trying to do that.
    Chairman Collins. Thank you. Mr. Holton.
    Mr. Holton. I tend to agree. We have only, in 33 years, 
been through fact-finding and arbitration twice. All other 
times we have come to agreement on our contract. But in those 
times, fact-finding, you put on your case once, for the most 
part. You may not go into as much detail or depth with it, but 
you still put it on. You have someone that issues a fact-
finding report and, as in our example, the first time, the 
fact-finding report was in our favor which would tend to lead 
you back to the bargaining table and say, OK, if we go to 
arbitration these things will be in our favor so we need to 
bargain more on it. And then turn right around and you go to 
arbitration and then you get a second bite of the apple, so to 
speak, and find an arbitrator that rules the other way.
    So the point is, you are putting on your case twice. 
Everybody knows what the issues are as far as the parties go. 
They know what the issues are. They know what we are going to 
be up against, and regardless of what the fact-finding panel 
returns as a suggestion there is still nothing that tells you 
you have to go through with that, so it may not be a necessary 
step.
    Chairman Collins. Mr. Burrus.
    Mr. Burrus. Our union finds fact-finding to have no value 
whatsoever. We had one very bad experience many years ago that 
after completing the fact-finding process, very laborious, put 
on a full-blown case, the fact-finder concluded that the 
parties had a disagreement. That was his decision. He concluded 
we had a disagreement, which we knew when we began the process.
    The current statutory language requires fact-finding, but 
the parties, the Postal Service and the unions find it in their 
mutual best interest not to invoke the statute. At the 
conclusion of every negotiation session, and I have had more 
experience than my colleagues here in terms of negotiating 
national agreements, the chief negotiator. But at the 
conclusion of every national negotiation I am terribly nervous 
about the Postal Service invoking the law, of requiring us to 
go to fact-finding. They have found that is not in their 
interest either. So we have avoided--mutual agreement to avoid 
fact-finding because we just do not find it in our interest for 
the very reasons stated, that we are required to put the same 
case on twice. They do not want to expose their case. We 
certainly do not want to expose ours.
    Chairman Collins. Thank you. Mr. Hegarty.
    Mr. Hegarty. I think whether you are talking about fact-
finding or mediation or any other dispute resolution mechanism, 
it depends on the nature of the impasse. As I said in my 
testimony, in many of our arbitration decisions we really only 
had one or two items in front of the arbitrator that we had to 
negotiate. The parties knew where they stood on most of the 
items, but there may have been one or two items such as pay 
raises, and cost-of-living adjustments that might have been in 
dispute. I think the parties need the flexibility at the end of 
the process to determine, based on the nature of the impasse, 
what dispute resolution mechanism they wish to utilize.
    Chairman Collins. Thank you. Since we have had other 
Members join us I am going to yield back the remainder of my 
time and we will have 8-minute rounds rather than longer ones 
that I had originally intended before we were joined by our 
distinguished colleagues on both sides.
    Senator Akaka.
    Senator Akaka. Thank you very much, Madam Chairman. I would 
again thank all of you for being here. I appreciate the 
thoroughness with which each of you discussed your union's view 
of the collective bargaining as well as other workforce 
recommendations. If I am not mistaken, and since the Chairman 
has mentioned your experience, I believe the four of you 
represent 130 years of service to the Postal Service. That 
tells us something and is quite an accomplishment.
    The Commission proposes that the Postal Service negotiate 
over benefits and implement a pay-for-performance system, yet 
the Postal Service already negotiates over employee health 
insurance contribution levels and could negotiate for a pay-
for-performance system now. As was indicated by the Chairman, 
there are differences in your statements so let me ask each of 
you the same question. Why do you believe that there are such 
misunderstandings and misrepresentations about Postal Service 
workforce issues? I would like to start with Mr. Young.
    Mr. Young. I have got to be honest with you, Senator, one 
of the reasons we have to share the responsibility for. My 
thrust here today is in essence asking the distinguished 
Senators to consider a hands-off policy in the area of 
collective bargaining. I am telling you that it has taken us 30 
years to figure out what we are doing and I think we are on the 
right track now. We have developed these relationships and I am 
totally convinced that the parties themselves have to negotiate 
these kinds of agreement among themselves and they do not need 
it forced on them from outside.
    But I must admit that my members, and maybe even myself on 
occasions, have been too willing to come to you all with our 
problems. I think it was a lack of maturity, and I am going to 
apologize for the members of my union that still engage in that 
today. What I mean by that is, some letter carrier perceives 
that he is mistreated at the workplace. He finds it very easy 
if he hails from the State of Hawaii to call on his good 
Senator from Hawaii to come to his rescue, when in essence that 
is not what your responsibilities are. You have got much more 
important things to worry about than those issues. Those issues 
should be dealt with in the internal dispute resolution 
procedure that has been established.
    So I think one of the reasons that there is some confusion 
here is we have led to that confusion because we are too 
willing to reach out to our perceived friends for help when we 
maybe should be going in a different direction. I think that 
has contributed a lot to some of the misunderstanding.
    I think some of the other misunderstanding is just a lack 
of experience. I was a little taken back by Mr. Blair's 
testimony when he acknowledged that the administration does not 
have much experience when it comes to labor unions, when you 
were talking about pay-for-performance with him. I was thinking 
about that, and I had not thought of it in that vein, to be 
honest with you. But I will tell you all that my union in 
convention, 8,000 people strong, voted not to accept a pay-for-
performance type of a proposal, because we have, as these other 
presidents indicated, had those kind of proposals advanced in 
the past.
    My members are concerned about the fact that they cannot 
measure that performance. That is not cut and dried like if you 
get a step increase after a year's creditable service, everyone 
understands what that is. They know how to apply that.
    I do not mean any disparaging of my colleagues and friends 
in management in the Postal Service, but they did not have such 
a great experience with that. They took a pay-for-performance 
system and most of them people, especially on the lower-graded 
supervisors, they ended up making less money than letter 
carriers, and they sacrificed more than they ever got in 
return.
    So that is about as much as I can add as far as to the 
confusion and I hope that Senators here will pass on to their 
colleagues what I have said about trying, because I am trying 
to rein in now the members of my union, to get them to 
understand that they should only come to you with public policy 
issues and not with individual personal grievances. I think we 
can handle those ourselves.
    Senator Akaka. Thank you. Mr. Holton.
    Mr. Holton. I think the misunderstanding--are you talking 
about of the Commission itself or the Senators, or are you 
talking about the public in general? Regardless of which group 
you are talking about, I think a lot of times when people say 
Postal Service you only hear horror stories. When you listen to 
David Letterman, you read the newspaper, you hear about the 
letter that was 30 years late that was lost somewhere, you hear 
about an employee who did whatever that was egregious in the 
workplace. But yet you never hear the fact that the employees 
that we represent are out there performing a service every day 
in all kinds of weather, all kinds of circumstances.
    I get letters from the Postmaster General daily sometimes 
about rural carriers who have gone above and beyond the call of 
duty in putting out fires or saving people that have been hurt. 
NALC does a great job with their Heroes Awards every year and 
they cite these things. Those kind of things, we do not get 
that published out there so when people form a perception of 
the Postal Service and it's employees they only draw from the 
David Letterman or whoever, or the Washington Post or whatever, 
that shows that this was what was bad in the Postal Service so 
immediately they paint everybody with one brush. So that may be 
part of it.
    To follow along with what he was saying about pay-for-
performance, or would you rather I just wait and get a question 
on that later? Pay-for-performance, we have participated in 
that. We had striving for excellence together. We still have an 
MOU in our contract, memorandum of understanding, which 
recognizes the benefits of pay-for-performance. The MOU tells 
us that we should work together to try to find something that 
mutually promotes the goals of the Postal Service and the 
employees so that we can use something like that.
    There are so many diverse ways to look at it systemwide, 
specifically rural carrier duties, that we have not been able 
to come up with a plan that everybody can agree to. So we have 
just sat here with this MOU in our contract since 1995. But it 
is something that effects each individual but is to be applied 
systemwide.
    The other thing is, a lot of times when you have pay-for-
performance if you are going to make it systemwide you can only 
look at what the overall system goals are, and as a result 
those are pushed forward or achieved by everybody involved and 
not just what the individual rural carrier employee can do. So 
we have not been able to agree on any of that.
    Senator Akaka. Mr. Burrus.
    Mr. Burrus. Senator, I think that there is a 
misunderstanding, I think, because we are a government entity 
and government entities should be transparent and should be 
responsible to the people. I think that the Postal Service is 
held accountable for that, and the employees who work for the 
Postal Service are held accountable equally.
    I think it is so very apparent what you say is correct 
because 94 percent of our mail is provided by the major 
mailers. They are our major users. Not the average citizen 
writing to a son or daughter, or to one another within the 
family. Their micromanagement of the Postal Service is 
different than their reaction to their other vendors. UPS, 
FedEx are likewise providers of service, performing very 
similar service to the Postal Service, but no one questions the 
wages and the bargaining strategies and the procedures used by 
UPS or FedEx, while the procedures, the strategies, and the 
results of the postal negotiations are opened up to the 
microscope.
    So it is because we are a government agency, and it can be 
micromanaged. You cannot micromanage UPS. You can go to another 
company. You can take your business to a competitor. There is 
nobody quite as large as UPS. They have a monopoly just like we 
do.
    But because you can do it to a government agency and we 
have all of the benefits of both private and public. We have 
public protection. We have some private rights. We have right 
of negotiations. Other Federal employees do not have those 
rights. So we have the right of negotiations but we are still 
Federal employees, so it opens us up to misunderstandings, deep 
involvement into our internal process that one would not find 
if we were a private corporation, purely private. And if we 
were some other government agency they would not be making the 
demands on us because we do not have the same connection with 
our ratepayers.
    Senator Akaka. Mr. Hegarty.
    Mr. Hegarty. Thank you, Senator. I would say that the 
misunderstanding about Postal Service issues, a lot of the good 
things that we do, have been under the radar screen. I agree 
with Dale, we get a bad rap for the letter that is delivered 
late or some other negative news about the Postal Service. I am 
hoping that with the Presidential Commission and with postal 
reform that some of these good things that we do will come to 
light. I will just give you a few examples.
    I have spoken with the Office of the Inspector General, I 
have spoken with the GAO over the last year and-a-half and 
tried to highlight some of the good things we are doing. They 
have made it into their reports. I did not invent it but we 
developed a Contract Interpretation Manual. I believe the other 
crafts, I know the letter carriers have it and the other crafts 
are looking at it, where we took our national bargaining 
agreement and took all the gray areas, went back 30 years in 
postal history and found every agreement that we have ever come 
to at the national level that says, this is what that means. We 
put all of that into a big book so now you can use the 
collective bargaining agreement side by side with the Contract 
Interpretation Manual and resolve a lot of the pending disputes 
in our grievance arbitration procedure.
    We rolled that out nationwide last fall. We did a joint 
training with postal headquarters and mail handlers union 
headquarters on the same stage with a mixed audience. We had 
the area managers of labor relations, we had our union 
presidents, we had our union vice presidents and their 
counterparts in management all in one audience and they heard 
the same message from both parties: This is the Contract 
Interpretation Manual. This is what it means. It will be 
adhered to.
    We do not have any concrete results on that yet, because as 
I said, we just implemented it last fall, but we are in the 
process of setting up a meeting with postal headquarters to 
crunch the numbers and see how we did as far as whether the 
Contract Interpretation Manual is helping us resolve disputes. 
I believe that it will.
    The other thing that we have in the mail handler craft is 
the quality of work life, which is an interactive process where 
mail handlers and managers work together in postal facilities 
to better the quality of their working life. It is outside of 
the collective bargaining agreement. It has to do with whatever 
ideas the craft employees and the managers come up with to 
better process the mail. That has been very successful. We have 
an annual conference and every year it has grown tremendously 
in size. That has the full support of the Postmaster General 
and myself, and both he and I attend the national conference.
    The other thing we have developed over the last few years 
is an intervention protocol, where if we are having a problem 
facility--and let us be realistic, in an organization of 
730,000 people, you are going to have some problems. We have an 
intervention protocol where if a building or a plant seems to 
be a problem area, the parties can request intervention and the 
national parties will send a team in to evaluate the climate 
and make recommendations on how to resolve that. We have used 
that successfully in the past.
    So I would say that the reason the misperceptions or 
miscommunications are out there is they just have not 
publicized enough of the good things that we are doing.
    Briefly on pay-for-performance, under the current 
collective bargaining agreement pay-for-performance is an 
option. It is bargainable and I think it should remain that 
way. I do not think legislating pay-for-performance helps 
anybody. The problem with pay-for-performance for craft 
employees is it is very hard to individualize it. I will give 
you an example.
    I mentioned conveyor belts earlier. If this is a conveyor 
belt and the four of us are processing mail on that conveyor 
belt, how do you say that John did so many pieces of mail and 
Bill did so many pieces of mail and Dale did so many pieces of 
mail? How do you individualize which of the four should get the 
better performance award? Say you want to just do it by a 
building, then you are losing the whole essence of pay-for-
performance. If you are going to give the plant over in 
Detroit, Michigan, for instance, a $200 award because their 
performance was that good, you are really saying, who within 
the plant did the job over and above to make that performance 
that good? Some people in the plant may do an average job. 
Other people may do an exceptional job.
    The other problem with my craft is you get moved around 
constantly in a plant. I might work on this belt for 2 hours. I 
might be moved over there due to the needs of the service, so 
it is very hard to individualize my performance.
    Senator Akaka. Thank you very much, Madam Chairman.
    Chairman Collins. Thank you, Senator.
    We are very pleased to be joined by Senator Stevens, who is 
not only the chairman of the powerful Appropriations Committee 
but also a long-time Member of this Committee. He has had a 
longstanding interest in the Postal Service and in preserving 
universal service. So we are very pleased that he was able to 
join us today.
    Senator Stevens.

              OPENING STATEMENT OF SENATOR STEVENS

    Senator Stevens. Thank you, Madam Chairman. I sort of am 
the last of the Mohicans, the last one around that was here at 
the time of the Postal Reorganization Act. I am pleased to be 
here with you. I thank you for these hearings. I have gone over 
the testimony that you all have filed. I am delighted that the 
Commission recommended that the universal concept be 
maintained. I think that is the backbone for rural America, and 
it certainly is for my State.
    But I have got to say, I think we have to find some middle 
ground here with the Commission because I would invite you to 
come up to my State and go out to dogsled country and go with 
the people who are out on the ice and see them pick up a 
Blackberry and send a message to New York. The concepts of 
broadband, the concepts of wireless are on us as far as basic 
communications, and the Postal Service seems to now be heading 
for the time when we are dealing primarily with third-class or 
parcel post. You may not agree with that but we have got some 
changes coming, and I do hope that all of you will work with us 
to make sure that we can find some common ground here in the 
Congress with regard to these recommendations from the 
commission.
    As with every commission, Madam Chairman, they have gone 
beyond the point of achievability. They reach out too far. But 
I think we have got to admit that they have got some 
recommendations that we must adopt, and they have got others we 
are going to have to see if we can modify, and others we are 
going to reject. We have a difficult job and I am delighted you 
have got that duty rather than me. I was chair of this 
Committee.
    I do think that within the suggestions of the Commission 
are suggestions that will reduce the cost of operation that we 
ought to look at, because clearly we have got to find better 
ways to assure the cash flow for the Postal Service than 
maintaining those things which are not efficient. On the other 
hand, there are some things, like the Senator from Hawaii's 
mail, parcel post and mail that comes to Alaska that there is 
no way to make them cost-efficient. So there has to be some 
basic system that takes into account the cost of universal 
service.
    I look forward to working with you, Madam Chairman. I 
really do not have any questions for you. I appreciate the fact 
that you have come here with statements that, as I understand 
it, indicate a real willingness to go forward and reach a 
conclusion where we adopt those things in the Commission's 
report that can be achieved now and put some off for the 
future. But we all have to look to the future. We have to look 
at how we maintain the postal system despite the advent of 
these new means of telecommunications and basic communications 
by wireless and broadband.
    Again, I thank you. I hope we can move forward because I 
think action by the Senate is necessary now. The House has 
acted previously, but we have to take this one and look at it 
real hard and try to achieve something this year if it is at 
all possible. So I look forward to working with you, Madam 
Chairman. Thank you very much. Thank you all.
    Chairman Collins. Thank you.
    Senator Carper, it is a pleasure to welcome you to the 
Committee as well. You have demonstrated a longstanding 
interest in postal issues and I was pleased to partner with you 
last year on the legislation dealing with the retirement 
contributions.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. Thank you, Madam Chairman. It is a 
privilege to work with you on these issues.
    I do not know that we can come close to improving on the 
great work that Senator Stevens did over three decades ago, but 
I mentioned in an earlier hearing the old adage of, if it ain't 
broke, do not fix it. I do not know that that applies here. Not 
that the postal system is broken, but if it is not perfect, 
make it better. I think we can make it better. We appreciate 
really the attitude that you brought to the table today. I 
regret having missed the earlier panel of witnesses. I expect I 
will have a chance to talk with my staff and find out in more 
detail what I did miss.
    I would like to ask a couple of questions, if I could. A 
bunch of the questions that I wanted to ask have been asked. 
But one of them, however, I want to go back to and ask it 
again. I ask you to forgive me if I am being redundant, but one 
the questions I think you asked, Madam Chairman, when you said, 
it is all well and good that there are things that you are 
against, but there are also things that you are for with 
respect to the Commission's recommendations. I do not want you 
to go into any great detail but I would like for each of you to 
really break it into two categories: The things recommended by 
the Commission that you agree with, just flat-out agree with, 
and some things that the Commission has recommended that you 
could perhaps agree with if they were modified. If you could 
just take it up there.
    Mr. Young, we always pick on you first.
    Mr. Young. That is all right. The thing that I can agree to 
and accept is transparency. I think every organization that has 
a public service should have transparency.
    The thing that I would be willing to look at, that is a 
little bit tougher, Senator. There are a lot of things that are 
on the edge there. There are things that we could probably take 
a look at and maybe make a little bit better. But I would 
answer this question in a kind of a unique way, if you would 
allow me to. When I first appeared before the commission, and 
look, I realize my union believes that the Internet has had a 
serious detrimental effect on First-Class Mail, and my union 
believes that is going to continue and probably escalate in the 
years to come. So that makes cost a very important function of 
this Committee. I understand that and I would not be naive 
enough to suggest to you that you should ignore that.
    But I want to beg that you go beyond just the cost. I am 
going to give an example, a very recent event. Just last week 
Brother Holton and I went over to the Postal Service and we 
witnessed the signing of an agreement between Homeland Security 
and the Postal Service whereby, God forbid, there would be a 
biological attack somewhere in this country, voluntarily letter 
carriers and rural carriers would deliver the medicine to the 
patrons they represent.
    I think the unique kinds of things that we do because of 
the attachments that we make with those patrons that we deliver 
to every day are far too often ignored. I told the Commission 
when I testified before them in their first hearing, think of 
what would have happened with anthrax if, God forbid, this was 
a privatized Postal Service and you had all these different 
companies and you could not contain the threat. I do not mean 
to demean private workers, but it is not clear to me that these 
people would be willing to go the extra mile that the men and 
women that I represent and the rest of these presidents at this 
table represent, have already demonstrated a willingness to do. 
These are very courageous public-oriented, public service-
oriented employees.
    Senator Carper. Mr. Young, I agree with everything you have 
just said. But my question was--and it is important that you 
answer my question. My question was, among the universe of 
recommendations that this Commission has made, what are several 
that you agree with? You have mentioned one, transparency.
    Mr. Young. You want several?
    Senator Carper. Yes.
    Second, cite for us some examples of those areas that you 
think there might be room for negotiations to find consensus.
    Mr. Young. I think there is room for negotiations on the 
board of governor issue. I think there is room for negotiations 
on the pay cap, the executive salary pay cap. I think there is 
room for negotiations on the cost of the military. I think 
there is room for negotiation on service agreements with the 
mailers. I think there is room for negotiation on pricing 
flexibility.
    Senator Carper. That is great. That is exactly what I was 
looking for. Thanks.
    You mentioned the effect that E-mail has had on First-Class 
Mail delivery. I took a bunch of Boy Scouts from Wilmington, 
Delaware to Norfolk Naval Station this past week. I am an old 
Navy guy. We take them about every 3 years. We visited ships 
and submarines and saw a carrier as well. Met with seamen 
recruits and chief petty officers and even admirals, and had a 
chance to--really a real interesting session with a fellow who 
is the commander of the U.S. submarine forces around the world. 
He and his wife hosted us for a little reception at, of all 
places, the Delaware House, where they live on Norfolk Naval 
Station.
    They shared with us what it had been like to have been in 
the Navy on submarines and with a spouse at home and family and 
all, and what it is like today. E-mail has come to the Navy in 
the big way. We have seen a little bit through the Iraqi war 
how our troops are able to communicate better. Aboard ships the 
same is true, and whenever sailors have a minute to spare they 
try to E-mail their families back home and to communicate. You 
could not do that in the past.
    The admiral that we visited with, he and his wife told us 
how in the early days they were lucky to get two or three 
messages during a 3-month deployment from their families. The 
people on the submarines could not send anything out. They 
could only receive maybe two or three messages in. The message 
was limited to 20 words. Today they can E-mail their families 
from the submarines deployed around the world, hundreds of feet 
below the surface, and communicate with their families 
throughout the course of the day and the night. So it is a 
remarkable revolution that we witnessed.
    Mr. Holton.
    Mr. Holton. I believe that the pricing flexibility part is 
something that is vital and we would be in full support of 
that. As far as those things that maybe could be supported if 
it was tweaked or negotiated--and that is the power of the 
regulator, the way they have set the regulator up. There are a 
lot of things in there that we do not like, but it could be 
something that could be worked on and tweaked.
    Also, the way the board of governors operates. All of this, 
the Postal Service in everything that is proposed, needs to 
have an ability to work as a business even though it is still a 
government entity. In order to meet some of these things that 
we are faced with, such as wireless communications, E-mail, 
those kind of things, we have to be able to operate like a 
business. Yet managers at Postal Service headquarters, I think, 
are pretty much micromanaged from those people that are over 
them, to the point where they are not able to concentrate on 
the business as much--now this is just my opinion--but as much 
as they may need to concentrate on running a $70 billion 
industry.
    So those two things I think could be addressed if they were 
tweaked, fine-tuned, negotiated in such a way.
    Senator Carper. Thank you, sir. Mr. Burrus, you can repeat 
any of the ones that have already been mentioned. In fact that 
would be helpful. Or you can strike out on some new ground.
    Mr. Burrus. The military retirement would be at the top of 
my list because it is such a large number. But I will repeat 
some of what has already been said, the rate flexibility, the 
opportunity to offer volume discounts so they can get away from 
this charade regarding work-sharing discounts, the ability to 
add new products and better utilize the network, to borrow, 
invest, and retain earnings. I think that is important.
    The work-sharing discount issue has to be addressed. The 
Postal Service cannot be successful if it is giving away money. 
Even if you adopt a good model for the future, and let us 
assume everything that everybody believes is correct, that 
technology is going to erode First-Class volume. I dispute that 
at this point but let us just take that as factual. Even if you 
adopt a good model, you cannot give money away and be 
successful in the future. No company can be successful that I 
am aware of, by giving money away. Those are charities. Those 
are not businesses.
    So I think something has to be done in terms of the cost 
avoidance. There has to be a standard. The government has 
adopted a very good standard in terms of contracting, 
subcontracting. They say, here is the standard, the process 
that will be applied if you are going to have someone else 
perform the activity.
    The Postal Service has been separate and apart from all 
those processes, and time after time again they have given 
money away, hundreds of millions of dollars, and a year later, 
2 years later, 5 years later, we made a mistake. Let us 
recover. Bring it back inside and let postal employees--we can 
compete very well. We have very experienced, dedicated workers 
in the Postal Service.
    When the private sector can do it better and cheaper than 
postal employees, I think it is fair game. That the ratepayer 
is entitled to the best and cheapest service they can receive. 
But in those circumstances where they are not doing it cheaper, 
it becomes political cronyism where someone that has promised a 
future job for someone gets a service, then I think that is 
wrong to the ratepayer, it is wrong for the Postal Service. So 
I think that is one of the most important things.
    As I said in my testimony, the question of the allocation 
of the rates is a looming problem for the Postal Service into 
the future. I think the Senator from Alaska made significant 
reference to it, the fact that a lot of the volume today--more 
important than the loss of First-Class Mail is the diversion to 
standard. The contribution to the institutional cost by the 
different classes of mail is an issue that is going to be out 
there for a long time until it is dealt with, with or without 
reform, because standard mail is a growing volume of the Postal 
Service, projected to grow by billions of pieces far into the 
future. That is going to have to be addressed very 
significantly and seriously. That is not a question of reform. 
It is a question of how are you going to set your rates.
    Senator Carper. Thank you, Mr. Burrus. Mr. Hegarty.
    Mr. Hegarty. We agree with the Commission to maintain 
universal service at uniform prices, and oppose privatization. 
We agree with the Commission that the outmoded and cumbersome 
ratemaking process needs to be changed. We agree that we want 
to maintain 7-day mail processing and 7-day delivery to every 
address in the country. Maintain equity with Federal employees 
on the funding for military retirees and the CSRS. And also, as 
I mentioned earlier, to allow the Postal Service to offer 
discounts to its bigger mailers.
    As far as negotiating or what we would agree should be 
talked about, I think within the collective bargaining process 
we have achieved a very delicate balance with the Postal 
Service. It has taken 33 years. I think we have seen the 
progress made over the years, especially in recent years, and 
that anything that is negotiable now should stay negotiable. I 
think we have, as I said, been able to negotiate fair contracts 
that were fair not only for the Postal Service and to our 
workers but for the American people.
    I think locking us into any set of rigid rules, whether it 
is on collective bargaining, mediation, arbitration, what we 
can bargain over, what we cannot bargain over I think is a big 
mistake. I think that is just change for the sake of change and 
I would caution against that.
    Senator Carper. Good. That was very helpful. Thank you.
    One last quick question. I appreciate your willingness to 
let me have a few extra minutes, Madam Chairman. I am supposed 
to be co-chairing another meeting in about 2 minutes so I am 
going to ask you to be real brief and direct in responding to 
this next question.
    As you know, the President's Commission made a number of 
recommendations dealing with workers compensation costs, and 
when you look at the number of injuries, the type of injuries 
and repetition of the injuries, and the costs that grow out of 
those injuries for the Postal Service and for those of us who 
use the Postal Service, there is a lot of cost that is tied up 
there. I was struck in one of our hearings when we heard that a 
number of people who are hurt on the job and begin drawing 
workers compensation continue to do that not only through their 
normal working life but well beyond that into their seventies, 
eighties, even nineties, which seemed peculiar to me. I am 
going to ask you to be real short in responding to this 
question, but are we doing enough to curtail injuries? If you 
can give me maybe one real good idea for what further we can do 
to reduce the incidence of injuries.
    And maybe a second idea as to what we can do beyond 
curtailing the incidents to hold down the cost that grow out of 
workers comp. Mr. Hegarty, do you want to go first? Again, I 
would ask you to be brief.
    Mr. Hegarty. Sure. I appreciate you bringing this up. 
President Bush has sent a memo to Secretary Elaine Chao to ask 
her to reduce workplace injuries in the Federal sector and I 
definitely agree that prevention is the first key to reducing 
cost. I do not think we should be penalizing employees who 
through no fault of their own are hurt on the job and then 
suffer a loss of income as a result, because they are not 
getting their full salary, they are not allowed to work 
overtime. Under FERS they are not allowed to make contributions 
to the Thrift Savings Plan, which is a serious detriment to 
their future income.
    But as far as are we doing enough, I think we are making 
progress. The American Postal Workers Union, the National 
Postal Mail Handlers Union, OSHA and the Postal Service 
partnered last April on an ergonomic risk reduction project 
which we have rolled out nationwide. We are training site by 
site now to reduce musculoskeletal injuries and repetitive 
motion injuries of our people in the field. I think ergonomics 
is probably one of the best fixes that we could put in place to 
eliminate workplace injuries.
    The other thing that the Postal Service has done is 
partnering with OSHA in getting special status on sites for 
safe workplaces and we are working with them on that as well.
    Senator Carper. Thanks. Mr. Burrus, again, briefly.
    Mr. Burrus. We are not doing enough. We have had several 
directions towards reducing workplace injuries for a 20-year 
period. It was attempted to discipline their way out of 
injuries. That every employee that reported an injury was faced 
with disciplinary action, and that was the wrong approach. We 
are now coming back to the other side of trying to find a 
cooperative approach. Our union stands willing at every 
opportunity to do all that we can in concert with the employer 
to ensure that employees do not become injured.
    The approach of looking at employees that are already 
injured and say, are they costing the service money? Do 
employees continue on injury compensation because it is in 
their own interest up to the age of 100 and 105, and how much 
it is costing the system, I think that is the wrong approach. I 
think we ought to look at what is causing the injuries. Are 
employees knowledgeable of how to prevent them as best they 
can. And in those circumstances where they cannot avoid the 
injury or something occurs that no matter our best effort 
employees are injured, then we ought to have a joint approach 
of making sure the employee gets the benefit of all of the 
rights and privileges available to them without being 
personally penalized.
    Senator Carper. Thank you. Mr. Holton, a brief comment, 
please.
    Mr. Holton. I think we are working toward doing as much as 
we can to improve safety and job-related injuries. I think 
sometimes though it boils down to money and I will give you an 
example.
    John just told you about the OSHA ergonomic study that 
these two and the Postal Service have partnered in. Then when 
it came time, I believe they were talking with NALC as well as 
myself about expanding the program to include our delivery 
people, it got to a point where there were no resources left to 
expand it. So in that sense we kind of got left out and it is 
on hold.
    But then again, we are also working--we have established a 
national task force, safety task force with the Postal Service 
and our union in which we are looking for ways to reduce auto 
accidents, because rural carriers drive three million miles a 
day. We are exposed out there on the highways in bad weather 
and a lot of places. And one of the biggest problems we have is 
pulling out and not knowing that something is in a blind spot. 
So the Postal Service has contracted with MIT to look at 
finding some type of sensor that we can mount on our car so 
that as we get ready to pull away from a mailbox, it looks 
behind for us and alerts the driver if something is there. Now 
whether that can work or not and can be made into a device that 
is affordable, but still it is something that we are working 
toward.
    Also John talked about quality of work life. We have a 
quality of work life process also and we continuously address 
safety issues through that process to come up with things that 
would reduce potential for injury. But it is still, I mean, 
when you have one employee death or the number of injuries that 
we have, it is still too many. So I am sure that there always 
can be a case made to do more.
    Senator Carper. Good.
    Mr. Young, I am going to ask you to just maybe in 30 
seconds, if you could finish.
    Mr. Young. I will try very hard.
    Senator Carper. Then you can expand on that in writing.
    Mr. Young. It may not be necessary. The job of delivering 
mail in the weather, in the neighborhoods that we deliver is a 
dangerous job. We do what we can to see that the injuries are 
reduced. I do not know if there is any way you can help us 
there, which is probably going to drive us to look at the 
costs, even though we do not want to, that you are talking 
about.
    I think, Senator, the idea of the workers comp cost and 
what happens when somebody retires should be discussed and 
debated. There are issues on both sides. I am willing to 
address that dialogue at the appropriate time.
    Senator Carper. Thanks.
    Madam Chairman, I appreciate very much your generous 
allocation of time here for these questions. Gentlemen, thank 
you all for coming here and for the spirit that you bring to 
today's hearing. Looking out in the audience, Madam Chairman, I 
see an old colleague that I served with in the House of 
Representative, Congressman Bill Clay. It is always good to see 
you, Bill.
    Madam Chairman, I would ask unanimous consent to have my 
statement entered into the record at the appropriate place. 
Thank you so much.
    [The prepared opening statement of Senator Carper follows:]
              PREPARED OPENING STATEMENT OF SENATOR CARPER
    Thank you, Madam Chairman.
    I'm pleased that we will be hearing testimony today from OPM and 
the four major postal unions on the workforce recommendations made by 
the President's Postal Commission last summer.
    As I mentioned at our last hearing, these recommendations have 
received quite a bit of attention since their release. They are 
probably among the most controversial made by the commission. I won't 
go into detail again about my concerns with them, but I will briefly 
touch on one subject I addressed last time.
    I've said in the past that I don't think the evidence is there to 
prove that postal employees are overpaid. I'm also reluctant to tinker 
with a collective bargaining process at the Postal Service that has 
worked well, especially in recent years. However, I wouldn't say that 
the current system is perfect. There is certainly always room for 
improvement.
    I get the impression, Madam Chair, that the Postal Service has a 
pretty good relationship with its employees right now. It's something I 
know they've worked hard on in recent years. That good relationship is 
in large part the reason why we've had three out of four major postal 
unions recently agree to modest contract extensions.
    That said, the current leadership at the unions and the Postal 
Service will not be around forever. I think it is important, then, that 
the Postal Service take full advantage of the once-in-a-generation 
opportunity that postal reform offers. I believe it is important that 
they sit down with their employees to see if there are any changes that 
need to be made to the current system to ensure that the labor peace we 
have seen in recent years lasts for as long as possible.
    I'm not sure that the Commission's workforce recommendations are 
the right approach, but I am certain that there are reforms out there 
that could make a decent system better. The best reforms, however, will 
be the ones that management and labor can agree to jointly.

    Chairman Collins. Without objection. Thank you, Senator.
    I want to thank all of our witnesses today, both from OPM 
and the distinguished presidents of the four major postal 
unions. We very much appreciate your being with us today. Each 
of us shares a common goal, and that is we each want to make 
sure that the Postal Service continues to provide universal 
service to all Americans at affordable rates.
    We also are grateful for the work that your union members 
do each and every day. Mr. Young, I am pleased that you 
reminded us, and Mr. Holton reminded us not only of the service 
provided and the Heroes Awards, but also of the recent 
agreement between the Postal Service and the Department of 
Homeland Security. I think that agreement is indicative of the 
service commitment, the willingness to go the extra mile of 
your members.
    So I very much appreciate your contributions to this 
debate. I hope we can work very closely in drafting 
legislation. I realize these issues are difficult. We may not 
see eye to eye on all of them but I want you to know that your 
contributions and input are always valued here. So thank you 
for your testimony today and for being with us.
    Today's hearing was the fourth in a series of hearings. I 
am committed to making sure that we hear a wide variety of 
views as we go forward and that we have the benefit of as much 
expertise as possible as we tackle this very complex issue. I 
will keep the record open for 15 days for the submission of any 
additional materials that our witnesses or our Members may 
have.
    This hearing is now adjourned.
    [Whereupon, at 12:22 p.m., the Committee was adjourned.]


                            A P P E N D I X

                              ----------                              


                PREPARED STATEMENT OF SENATOR LAUTENBERG

    Postal reform is an important national issue, but most Americans 
spend little time thinking about it because they take postal service 
and the employees who provide it for granted.
    The importance of the U.S. Postal Service (USPS) to our national 
economy cannot be overstated. I'll give you one example: A 2-year delay 
in postal rate increases has the potential to save publication 
companies like AOL-Time Warner approximately $200 million in mailing 
costs.
    Last year alone, the USPS delivered more than 200 billion pieces of 
mail. So the important role the Postal Service plays in our economy and 
the contribution of its 843,000 dedicated employees should not be 
overlooked or taken for granted.
    Having said that, this is indeed a time of great change for the 
Postal Service. As the President's Commission has observed, 
``traditional mail streams will likely continue to migrate to cheaper 
Internet-based alternatives.'' And given the existing regulatory 
structure, the Postal Service's debt is likely to increase every year, 
making it tougher for the Postal Service to achieve its fundamental 
mission of universal service.
    I support the Commission's recommendation to make the rate-setting 
process less cumbersome and more efficient.
    But I must take issue with many of the Commission's labor reform 
proposals.
    As a former businessman, I understand the need to make a workforce 
as lean and efficient as possible. But limiting employees' collective 
bargaining rights and attempting to depress workers' wages while 
increasing executive compensation will not solve the Postal Service's 
organizational and workplace problems. Such ``solutions'' are likely to 
make things worse.
    Instead, I think we should take full advantage of the opportunity 
that work force attrition will present to us in the years ahead. Forty-
seven percent of existing Postal Service employees--about 347,000 
individuals--will be eligible for retirement by 2010.
    I look forward to hearing from our witnesses about this idea and 
other postal reforms.
    Thank you, Madam Chairman.

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