[Senate Hearing 108-527]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-527
 
   POSTAL REFORM: THE CHAIRMEN'S PERSPECTIVES ON GOVERNANCE AND RATE-
                                SETTING

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


                                HEARING

                               before the

                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 7, 2004

                               __________

      Printed for the use of the Committee on Governmental Affairs







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4



                   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
    Senator Akaka................................................     3
    Senator Carper...............................................     3
    Senator Lautenberg...........................................    17
Prepared statement:
    Senator Fitzgerald...........................................    33

                               WITNESSES
                        Wednesday, April 7, 2004

Hon. George Omas, Chairman, U.S. Postal Rate Commission; 
  accompanied by Stephen L. Sharfman, General Counsel, U.S. 
  Postal Rate Commission.........................................     6
S. David Fineman, Chairman, U.S. Postal Service Board of 
  Governors......................................................     8

                     Alphabetical List of Witnesses

Omas, Hon. George:
    Testimony....................................................     6
    Prepared Statement...........................................    34
Fineman, S. David:
    Testimony....................................................     8
    Prepared Statement...........................................    72

                                APPENDIX

CRS memorandum entitled ``Governance of the U.S. Postal 
  Service,'' dated December 18, 2003.............................    78
CRS memorandum entitled ``Proposed Governance of the U.S. Postal 
  Service,'' dated February 19, 2004.............................    92
CRS memorandum entitled ``Present and Proposed U.S. Postal 
  Service Governance Boards,'' dated March 31, 2004..............   105













                     POSTAL REFORM: THE CHAIRMEN'S
                     PERSPECTIVES ON GOVERNANCE AND
                              RATE-SETTING

                              ----------                              


                        WEDNESDAY, APRIL 7, 2004

                                       U.S. Senate,
                         Committee on Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:03 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Susan M. 
Collins, Chairman of the Committee, presiding.
    Present: Senators Collins, Akaka, Carper, and Lautenberg.

             OPENING STATEMENT OF CHAIRMAN COLLINS

    Chairman Collins. The Committee will come to order. Good 
morning.
    I would like to welcome everyone to the Committee's final 
hearing on Postal reform. Many of you thought we would never 
get to this point. Today marks the eighth in a series of 
hearings that the Committee began last September. Our Senate 
hearings have focused on the 35 legislative and administrative 
recommendations of the President's Commission on the U.S. 
Postal Service, recommendations that 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 730,000 
career employees. But less well known is the fact that it is 
the linchpin of a $900 billion mailing industry that employs 
nine million Americans in fields as diverse as direct mailing, 
printing, catalog production, paper manufacturing, and 
financial services. The health of the Postal Service is 
essential to thousands of companies and the millions that they 
employ.
    At our first hearing in September, the Committee heard from 
the Commission's Co-Chair, Jim Johnson. Commissioner Johnson 
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.
    At the Committee's second hearing last November, we heard 
from Postmaster General, Jack Potter, and Comptroller General, 
David Walker. In his testimony, Mr. Walker of the General 
Accounting Office shared the Commission's concerns about the 
Postal Service's more than $90 billion in unfunded liabilities 
and other obligations. He pointed to the need for fundamental 
reforms to minimize the risk of a significant taxpayer bailout 
or dramatic Postal rate increases.
    In February, the Commission heard from representatives of 
the four largest Postal unions, along with postmaster and 
supervisor associations. The Commission's controversial 
workforce-related recommendations were discussed at great 
length during that hearing.
    In March, the Committee held 2 days of hearings in which we 
heard from members of the mailing community and Postal 
competitors. We focused not only on the workforce and financial 
recommendations, but also heard testimony on the Postal 
Service's monopoly and mission, the rate-setting process, and 
corporate governance issues.
    Last month, I joined House Chairman Tom Davis to conduct a 
joint Senate-House hearing at which we took testimony from 
Treasury Secretary Snow, Postmaster General Potter, and the 
Postal Service Board of Governors Chairman David Fineman, who 
is with us today, as well. A focal point of the hearing was the 
administration's strong opposition to returning the military 
pension obligation to the Treasury. I urged Secretary Snow to 
work with Congress to resolve not only the military pension 
obligation issue, but also to solve the escrow fund issue, 
which I consider to be key to reform.
    Today, we will focus on the recommendations pertaining to 
the reform of the rate-making process and changes recommended 
by the Commission in the structure of both the Postal Rate 
Commission and the Postal Service Board of Governors.
    As a Senator representing a largely rural State whose 
citizens depend heavily 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 the citizens of my State, 
whether they live near our northern or western borders, or on 
islands, or in our many small rural towns, have the same access 
to Postal services as the people living in our large cities.
    We must save and strengthen this vital institution upon 
which so many Americans rely for communication and for their 
jobs. The Postal Service has now reached a critical juncture. 
It is time for action, both by the Postal Service and by the 
Congress.
    Senator Carper, Senator Akaka, Senator Stevens, and others 
on this Committee have committed to working with me to draft a 
bipartisan Postal reform bill. We are also working closely, 
mindful of the short time remaining this year, with House 
leaders on Postal reform, including Chairman Davis and 
Congressman McHugh.
    I am very pleased today to have the benefit of hearing from 
the Postal Rate Commission Chairman and the Postal Service 
Board of Governors Chairman. I am very pleased that you are 
both able to join us today along with the General Counsel of 
the Postal Rate Commission and I look forward to your 
testimony.
    Before we proceed to our witnesses, I would like to call on 
my colleagues, who have been very active in Postal reform, 
starting with Senator Akaka.

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka. Thank you very much, Madam Chairman. It has 
been my pleasure to sit next to you and to work with you on the 
many issues that have come before our Committee. I want to 
thank you for giving so much of your personal attention to 
ensuring the fair and open forum in which we have reviewed the 
recommendations made by the Commission on the Postal Service. 
Your commitment to crafting a bipartisan Postal reform bill is 
deeply appreciated, and as our hearings come to an end and the 
drafting process begins, I also want to thank your staff, who 
has worked diligently on this.
    I am especially pleased that today's hearing will focus on 
proposed changes to the rate-setting process and governance 
issues. Ensuring the stability and viability of the U.S. Postal 
Service has long been an oversight responsibility of this 
Committee and of great importance to me. We understand the 
consequences of ignoring the challenges facing the Postal 
Service, but we also recognize opportunities that change may 
bring.
    I have repeatedly said that there must be a greater 
financial transparency within the Postal Service. As did the 
General Accounting Office, the Commission found that the Postal 
Service's financial reporting has not always provided a clear 
picture of its fiscal condition. I am pleased that the Postal 
Board of Governors is taking steps to address this issue.
    Financial transparency and accountability is essential if 
the Postal Service is to have greater flexibility over setting 
its rates. I support putting in place mechanisms that will 
allow the Postal Service to respond more quickly to changing 
economic conditions or events that impact the delivery of the 
mail. To do so, however, we must ensure that the financial 
information is current and that it is available in a timely 
manner. I also believe that members of the Board of Governors 
should have additional resources to hire staff, which will 
increase the Board's independence and effectiveness.
    Freedom to set rates will also require greater oversight by 
Congress, especially since the Commission recommends giving the 
proposed Postal Regulatory Board significant authority to set 
broad public policy in the area of rates, compensation, and the 
definition of universal service.
    Chairman Collins, I look forward to this hearing and I 
thank our very distinguished guests and witnesses, Chairman 
Omas, Chairman Fineman, for joining us today, and also Mr. 
Sharfman. Thank you very much.
    Chairman Collins. Thank you very much, Senator. Senator 
Carper.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. Thanks, Madam Chairman. To my colleagues 
and to our witnesses here today, welcome. It is good to see you 
all. I haven't seen Mr. Fineman for a while. Actually, we rode 
down on the train together, same car, just on the other side of 
the aisle. We have already gone through our questions. I 
thought his answers were excellent. [Laughter.]
    We didn't get into a great deal of detail, but thanks for 
coming. Thanks for being a great customer for Amtrak, too. 
[Laughter.]
    Madam Chairman, I think this is the last in a series of 
hearings that have been helpful for me, I hope for our 
Committee and for our staffs, and I just want to express my 
thanks to you, your staff, and to our own staff, my own staff, 
for the work that has been done in arranging these hearings and 
scheduling them.
    I think both the Board of Governors and the Postal Rate 
Commission have performed admirably since their creation, 
especially in recent years, and I want to commend Chairman 
Fineman and a previous Board of Governors Chairman who is not 
here today, Bob Rider, who is one of our constituents in 
Delaware, a good man.
    Chairman Omas and Mr. Sharfman--will you help me pronounce 
your last name? Is it Sharfman?
    Mr. Sharfman. You have it correct.
    Senator Carper. Great, three for three. I am usually not 
that good. I want to commend Postmaster General Potter and the 
Postal Service for having made it through some tough times. If 
you go back and think about it, in recent years, we have had a 
catastrophic terrorist attack, actually a series of them. We 
have been faced with bioterrorism. We have seen a recession. 
The Postal Service has come through it in remarkably good 
shape.
    Through it all, the Postal Service has remained a linchpin 
of a $900 billion mailing industry and continues to reach every 
home on my block, every home in my State, every business in all 
of our States, every home, 6 days of the week.
    Having said that, as we celebrate the Postal Service's 
notable successes, I think it is important that we focus on 
what needs to be done going forward if the Postal Service is 
going to be as successful in the next 30 years as it has in the 
last 30 or so years. In spite of the strong leadership that we 
have seen from Chairman Fineman and his predecessor and 
Chairman Omas and his colleagues, I have come to the conclusion 
that some changes are needed at the Board of Governors and some 
changes are needed at the Postal Rate Commission.
    S. 1285 is the number given to the comprehensive postal 
reform legislation that I introduced last year, and that 
legislation recognizes this truth and so do the recommendations 
of the Presidential Postal Commission.
    My legislation turns the Board of Governors into a body 
more likely to be able to steer the Postal Service through the 
challenging years that lie ahead by requiring that members have 
some experience managing an organization, I am tempted to say 
the size of the Postal Service, but there aren't many 
organizations the size of the Postal Service, but some 
experience in managing large organizations.
    My legislation also improves qualifications for the members 
of the Postal Rate Commission, requiring that Commissioners 
have backgrounds in areas like economics, accounting, and law. 
Those Commissioners are also given more power to demand 
information from the Postal Service, along with new authority 
to regulate something that we call service standards, so that 
the Postal Service cannot try to cut back on service when times 
get tough instead of finding efficiencies.
    I am pleased that the recommendations from the President's 
Commission dealing with governance and oversight are largely 
similar to what we put on the table with S. 1285. The 
President's Commission also recommends improving qualifications 
for governors and commissioners and gives the Postal Rate 
Commission some important new powers. I believe that they may 
go a little too far in some instances, and we will talk a bit 
more about that here later.
    But let me say that I fear that having a--and I mentioned 
this to Mr. Fineman today on the train--that the idea of having 
a majority of the members of the Board of Governors not being 
confirmed by the Senate will weaken Congressional oversight 
over the Postal Service and I think we need to be careful 
before we take that step because the Postal Service is 
important to us every day. It is important that most, I think, 
if not all of the members of the Board of Governors should be 
confirmed by the Senate.
    In addition, to protect against the Board not becoming too 
political, I think it is important that we maintain the notion 
that the Board be bipartisan and the governors only be removed 
for cause, and we will have ample opportunity to explore that 
here in a moment.
    In this vein, I think it is also important the governors 
serve for longer than just the 3 years that the Commission 
suggests.
    Second, let me just say it may not be appropriate to give 
the Postal Rate Commission the authority to unilaterally change 
universal service and the scope of the Postal Service's 
monopoly. I can understand why some would want to leave this 
authority in the hands of Congress. However, I believe we 
should give the Commissioners the authority to interpret the 
definition of universal service in current law as we do in the 
bill that I proposed.
    In closing, Madam Chairman, thanks again very much for 
really helping us to have a very helpful series of hearings. I 
believe that what we need to do with Senator Akaka and others 
on our Committee once we conclude this hearing is to get to 
work--I know we have been to work, but to finish the good work 
that has begun. We look forward to putting together just an 
excellent bill that we can present to our colleagues, hopefully 
later this month. Thank you.
    Chairman Collins. Thank you, Senator.
    I would now like to introduce our two witnesses, our three 
witnesses, I should say, who have joined us today.
    George Omas is the Chairman of the Postal Rate Commission. 
He was appointed to that position in November 2001 and has 
served as a member of the Commission since August 1997. Prior 
to joining the Commission, he worked for more than 20 years in 
the U.S. House of Representatives, nearly 18 of those years for 
the Committee on the Post Office and Civil Service, so I think 
that he has a great understanding of the challenges of putting 
together Postal legislation and we appreciate his expertise.
    He is accompanied today by Stephen Sharfman, the General 
Counsel to the Postal Rate Commission.
    David Fineman is the Chairman of the U.S. Postal Service 
Board of Governors. He was elected Chairman of the Board in 
January 2003 and reelected in January 2004. He has served on 
the Board since May 1995. He is also a long-time managing 
partner of a prestigious Philadelphia law firm, since I notices 
your name is listed first.
    I want to thank you, Chairman Fineman, for your willingness 
to return to Capitol Hill so soon after the joint hearing. I 
felt at the joint hearing that we didn't have an opportunity to 
hear as fully from you as I would have liked and I appreciate 
your willingness to return to Washington for our hearing.
    Mr. Fineman. My pleasure.
    Chairman Collins. Mr. Omas, we will start with you.

    TESTIMONY OF GEORGE OMAS,\1\ CHAIRMAN, U.S. POSTAL RATE 
    COMMISSION, ACCOMPANIED BY STEPHEN L. SHARFMAN, GENERAL 
              COUNSEL, U.S. POSTAL RATE COMMISSION

    Mr. Omas. Chairman Collins, Members of the Committee, thank 
you for providing me with the opportunity to testify on ways to 
achieve meaningful Postal reform. I understand my full 
statement will be incorporated into the record, so I will just 
take a few minutes to focus on some of the most important 
aspects of Postal modernization.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Omas appears in the Appendix on 
page 34.
---------------------------------------------------------------------------
    First, if I may, I would like to recognize Danny Covington 
and Tony Hammond, two of my fellow Commissioners, who have 
accompanied me here today.
    The Postal Reorganization Act of 1970 focused on taking 
politics out of the old Post Office Department and allowing the 
renamed U.S. Postal Service to operate in a more business-like 
fashion. I think that legislation was a success. The 
administration has now presented five principles to guide the 
future evolution of the Postal Service into a more efficient 
and market-responsive organization. I fully support those five 
principles.
    Postal reform will greatly benefit the Nation if it can 
revitalize and modernize the Postal Service. However, I urge 
Congress to keep unchanged the basic character of the Postal 
Service, that is, to bind the Nation together through 
correspondence of the people. The Postal Service should become 
more business-like and it should adopt modern, efficient 
practices, but it must also retain its essential character as a 
service provider to the people by their government.
    The administration seeks reform that provides the Postal 
Service with the flexibility to more easily implement best 
business practices while assuring that the public has 
transparent access to timely and accurate cost and performance 
information to assure total accountability.
    The responsibility for adopting best business practices and 
being self-financing, I feel lies with the Postal Service. The 
responsibility of assuring transparency and accountability lies 
with the regulator. My testimony discusses in some detail, ways 
to assure a successful balance of these two missions.
    During my tenure at the Postal Rate Commission, the Postal 
Service has not been totally transparent. It has opposed 
changes suggested by mailers to make rate cases faster and less 
complex. It has resisted attempts by the Commission, by the 
mailers, and by the neutral third parties, such as the GAO, to 
gain detailed information about Postal Service practices and 
operating results. I sincerely hope this culture of 
confidentiality and resistance to change can be overcome 
through reform legislation.
    With regard to transparency, I fully and totally agree with 
the testimony of Treasury Secretary Snow, that the private 
sector confidentiality concerns should not apply to our 
government-owned Postal Service and that Postal reform requires 
true and exacting transparency. The public should have broad 
access to detailed information on cost and service performances 
that the regulator will analyze in order to assure compliance 
with all applicable public policy.
    The Postal Service and the regulator must work together 
with mailers to develop a modern system for regulating rates. 
That system should allow the Postal Service flexibility to meet 
the needs of all of its customers while establishing a strong 
and efficient incentive to reduce costs and to increase 
efficiencies.
    One aspect of this system should be to eliminate the 
adversarial trial-type rate-setting hearings which we conduct 
presently. If there is a meaningful transparency of Postal 
Service operations, and in financial data, consumers can be 
assured that the new rates are consistent with applicable 
requirements by a brief administrative review. I will elaborate 
on that point.
    Draft reform legislation in the last Congress, Senator 
Carper's S. 1285 and the House bill H.R. 4970, tasks the new 
regulator to work with the Postal Service and the mailers to 
develop a modern rate-making system that meets a number of 
important policy goals. Such a system would encompass both 
standards to guide the Postal Service in its pricing and 
procedures for implementing rate changes.
    However, when the President's Commission on the Postal 
Service provided its thoughts on pricing, it suggested that 
rate changes be allowed to take effect without any public 
review. It left mailers to file after-the-fact complaints to 
correct rates that violate price caps or involve cross-
subsidies. I think that recommendation is misguided and I urge 
that it not be enshrined in legislation.
    Rate changes are not a routine matter. Businesses have to 
purchase and install new programs to compute postage and 
individuals have to purchase new stamps. Every effort should be 
made to avoid the disruption that would be caused by complaints 
leading to rate adjustments.
    A far more efficient and mailer-friendly system would 
involve advance administrative review. This would take 
advantage of enhanced Postal transparencies to ensure that 
planned new rates for market-dominant services are within 
applicable pricing guidelines, such as rate caps, and cross-
subsidy prohibitions. A brief administrative review of planned 
rate changes would not limit management's flexibility.
    Rate predictability is a key aspect of total reform, and 
mailers of market-dominant products must be given ample advance 
notice of rate changes. Review could easily be accomplished 
before mailers have to prepare to implement the new rates.
    Another key safeguard in the modern system of rate 
regulation should be a provision allowing for limited exigent 
rate cases. A reformed rate system should include price caps 
that give incentives to the Postal Service to reduce cost and 
increase efficiencies. It should also allow for exigent rate 
increases in case unforeseeable extraordinary circumstances 
threaten the Postal Service's financial stability.
    It must be understood, however, that exigent increases are 
limited to extraordinary circumstances and are not appropriate 
simply because revenues are mis-estimated or cost reduction 
programs are not as successful as planned. These types of 
events are normal in any business and Postal management must be 
expected to adjust to normal business fluctuations. To assure 
that the system is not abused, all exigent rate increases for 
market-dominant products must be approved in advance by the 
regulator.
    Reform legislation that clearly sets out national goals of 
more modern and more efficient business practices, and 
meaningful oversight to protect consumers and maintain 
universal service, will go a long way toward assuring that our 
Postal Service will thrive in the coming decades. I hope these 
efforts are successful.
    I would be happy to answer any questions you or the 
Committee might have. Thank you.
    Chairman Collins. Thank you for your testimony. Chairman 
Fineman.

TESTIMONY OF S. DAVID FINEMAN,\1\ CHAIRMAN, U.S. POSTAL SERVICE 
                       BOARD OF GOVERNORS

    Mr. Fineman. Thank you. As I have indicated to Senator 
Carper on the Amtrak train coming down and Senator Collins on 
numerous occasions, I leave the Board on December 8 of this 
year, having served probably in excess of 8 years on this 
Board. Actually, Bob Rider and I came to this room and had our 
Senate confirmation hearings together and it has been a 
wonderful experience.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Fineman appears in the Appendix 
on page 72.
---------------------------------------------------------------------------
    But I do think, leave aside everything else, after 8 years, 
I think it is appropriate not to be reappointed. I don't think 
that Board members should serve more then 9 years. That would 
be 17 years on a board of this sort. I would think that would 
be absolutely inappropriate. So I am not seeking to be 
reappointed, and I come here in a forthright kind of way to say 
to you, I only have a few more months left. I want to be as 
forthright as I can and enter into a dialogue with you about 
what my experience has been on the Board.
    Shortly after I got on the Board, it became clear to me 
that there needed to be a change in law, and I think both 
myself and Congressman McHugh at that time were lonely voices 
out there talking about Postal reform and changes to be made.
    What became clear to me, and Chairman Omas referred to it a 
little bit, is that the rate-making process is so cumbersome. I 
have referred to it over and over as the Lawyer's Welfare Act 
of 1970. What it contemplates, to a large degree the way the 
law was enacted, is an adversary system, and in that adversary 
system you have various people who intervene in the case and 
then ask for documents. It becomes very much some sort of an 
adversarial system, and Chairman Omas has stated over and over 
that he looks at himself as a judge in a quasi-judicial role. I 
think it is appropriate, and he has handled everything in an 
extremely efficient manner as a Federal judge might do, tried 
to bring people together over periods of time, entered into 
settlements. But it is a system that doesn't make a lot of 
sense.
    Let's talk about financial transparency. We have received 
the recommendation from the Presidential Commission, which is a 
Commission we asked for. The Board said at some point, we ought 
to have a Presidential Commission appointed. We were happy that 
they were appointed, and we have begun to institute reforms to 
try to comply with SEC requirements as they recommended.
    But when we talk about financial transparency, if you have 
the present system, I would say to you, quite frankly, you are 
not going to get the kind of transparency that everybody seems 
to want, although I can't understand what else they want, 
because what you have is this adversarial system.
    So every time a rate case starts, what I have talked about 
in speeches is we back a truck up, literally back a truck up to 
the Postal Service and put on it tons of documents that then go 
over to the Postal Rate Commission and that is only the first 
truck. Then when, to some degree, our competitors ask for 
different documents, we then back up more trucks and answer 
questions and expend incredible energy, time, and money into 
these rate cases that make little sense as to a way to create 
rates in the present environment that we have.
    Let us step back for a minute and look at the world in 
1970. FedEx, did it exist? Did it exist in the form that it 
exists today? Was the dominant force that it is in the package 
business in 1970 as compared to the Postal Service? When the 
Senator and I came up, he could have seen me sneaking onto my 
Blackberry, looking at my E-mails, answering E-mails today. The 
world didn't exist as it exists today, and that is why Senator 
Carper's bill and other bills you have talked about having a 
price cap regimen, I think are really important.
    It is really important, and when you look at that, where 
you are going to have issues, it seems to me they are going to 
have to be discussed internally. The devil is going to be a 
little bit in the detail. What is the price cap that you use? 
You heard from the Postmaster General. He said to you, well, 
the world didn't exist the same way it existed before. It 
didn't even exist the same way when we had the first set of 
price cap regimens that came into existence in 
telecommunications. There, you used the CPI.
    Could we have predicted, as an example, that inflation 
would be as low today as it is? Probably nobody in this room 
would have predicted that. So if we used a CPI over the last 
few years, would the Postal Service be able to accomplish what 
it accomplishes with that kind of index? I think that is what 
the Postmaster General was saying to you, and I think that is 
an issue. I think that what he has done is to bring some light 
onto that issue and it is an issue that you have to look at.
    I understand that this hearing was called to a large degree 
to talk about governance. I happen to agree with Senator 
Carper, and I have said it before, as Senator Collins has 
heard, and my testimony reflects that the issues for the Board 
of Governors are not Democrat or Republican issues. Quite 
frankly, more than 8 years that I have been on the Board, there 
have not been partisan issues. We have acted--tried to act in a 
very business-like kind of manner and I would think that the 
manner in which the Board is recommended in the Presidential 
Commission could result in a partisan Board, which is something 
I think everybody wants to stay away from.
    I do believe there should be qualifications. I am concerned 
to some degree that the qualifications set forth in the 
Presidential Commission might be a little bit stringent. Many 
of us, including myself, Bob Rider, Ned McWherter, a former 
member of our Board, former Governor of Tennessee, Jim Miller, 
Al Casey, we have sat on public boards. I think that you would 
find that the Board, to a large degree, is constituted of 
extremely qualified people. On the other hand, I think you do 
have to set forth those qualifications.
    And while we are talking about qualifications, if you are 
going to have a Postal Rate Commission which would have the 
kind of powers that are set forth in Senator Carper's bill, and 
Congressman McHugh's bill, you are going to have to have 
stringent qualifications for those people because you are 
really talking about people who will have immense power, which 
raises other questions.
    I don't think you want to give them the kind of power that 
was suggested to a large degree in the report. I don't think 
you want to allow them to make determinations about the 
monopoly. Do you want to allow them to make determinations 
about universal service? I would say about 3 or 4 years ago, 
all I did was recommend that we should study the idea of 5-day 
delivery. When I testified on the House side, I thought I had 
committed a mortal sin. One of my fellow Governors, Alan 
Kessler, sat next to me and said to me--he had just gotten on 
the Board--he said to me, ``David, the Republicans sound like 
Democrats. The Democrats sound like Republicans. I don't quite 
understand what is going on here.'' And all we did was say, 
study it. But I do think that is a major public policy issue 
and it is clear to me that Congress wants to have something to 
do with that.
    So with that, I would say to you I will be more than happy 
to take any questions that you have and I look forward to 
entering into a dialogue.
    I do want to take this opportunity to thank, as well, your 
staff. I know that your staff has worked diligently, all of 
your staffs have worked diligently on this issue and they 
should be--sometimes they are not thanked enough and I think 
they should be thanked, because they really have worked very 
hard, I know, to try to come to grips with what is a very 
complicated issue.
    I want to take this opportunity also to thank publicly 
people from my staff, Bill Johnstone, particularly, the 
Secretary of the Board of Governors, John Reynolds, and Ralph 
Moden from Legislative Affairs, who have also worked very hard 
on this issue and we look forward to continuing to work with 
you. Thank you very much.
    Chairman Collins. Thank you, Mr. Chairman.
    Mr. Omas, I want to discuss with you the issue of the 
after-the-fact review of rates as recommended by the 
Commission. This is an issue that is critical in the whole 
rate-setting process, and I was very interested to hear your 
testimony that you believe an after-the-fact rate review was, I 
think you described it as misguided. I think your real views 
are even stronger than the word ``misguided.''
    The current rate-setting system can take 18 months. It 
costs millions of dollars and it has engendered widespread 
opposition. Almost no one is happy with the current system. 
Part of the recommendations by the Commission were to establish 
the rate cap, but the other part to deal with the expense and 
length and the litigiousness of the current process was this 
after-the-fact review.
    I can understand the concerns that have been expressed by 
you and by members of the mailing community that it could 
create chaos in the system if you after the fact reverse a rate 
increase or change a rate increase that the Postal Service 
under the cap has gone ahead and implemented. But if you have a 
before-the-fact review, which does seem like the logical answer 
to that problem, how can we ensure that it is going to be much 
more rapid, far less litigious, and far less costly than the 
process now. If it is before the fact, if it is before the 
rates go into effect, aren't we going to be trapped in the same 
process, or a process similar to what we have now?
    Mr. Omas. Madam Chairman, I don't think so. I think, as the 
legislation that was introduced by Mr. Carper and Mr. McHugh 
and the recommendations that have come from the President's 
Commission for more transparency and for more data collection 
and with the regulator having the ability to request and ask 
for more transparency and for data to request certain studies, 
I feel very strongly that an administrative review of the rates 
can be prompt. Right now, when the Postal Service issues a new 
rate, there is a time gap in between when it is approved and 
before it is implemented.
    I think within that general time frame, it would be very 
easy to do an administrative review of the rates with the 
proper data. It would just be a matter of getting the proper 
information and plugging it in. If there is any question, we 
would do it. I am not espousing that this would be as long, as 
I said in my statement, as the trial-type hearings we have now. 
This would just be, basically be a paper process.
    Chairman Collins. What kind of time period do you think 
such a review would take?
    Mr. Omas. I think it could be expeditiously done. Within 
less than 90 days.
    Chairman Collins. That would certainly be----
    Mr. Omas. With the proper transparencies, what we are 
talking about is simply looking at the numbers and seeing 
whether their attributable costs are in place and whether or 
not the product is paying its way, as is now required by law.
    Chairman Collins. Mr. Fineman, you talked about the truck 
backing up to the Postal Service and carting off a truckload of 
documents for the rate process. What is your judgment on the 
after-the-fact review versus a pre-implementation review?
    Mr. Fineman. I don't agree with Chairman Omas. Let us try 
to create a new system here. There are two parts to this. There 
is one part where we are saying we are going to try to 
implement a price cap, and as a result of implementing a price 
cap, we are going to give a lot of power to a commission. Now, 
what is the trade here? What is the trade? The trade is that 
management be given a fair amount of flexibility within which 
to manage the Postal Service.
    So imagine what the system is that we are creating now if 
we follow what Chairman Omas has indicated. We are going to 
have this price cap. Some sort of board, the Board of Directors 
or Board of Governors or whatever you want to call them--it 
doesn't really make any difference to me, quite frankly--that 
board from time to time, depending on what economic conditions 
are, will try to adjust rates within that cap, depending on 
what happens.
    We get a spike in the price of gasoline. Right now, what 
happens in the real world when you get a spike in the price of 
gasoline for other people who are in our business, similar 
kinds of business? You get rate adjustments. What happens to us 
if we get a real spike, and it affects us in a real material 
way? We would have to apply for a new rate. I think it is 
unfair, and I use the word ``we'' and I shouldn't use that word 
because I am talking about it in terms of--I won't be on that 
board. I am talking about it in terms of what will exist.
    What you are trying to do here today and you are trying to 
do through the system is give management the flexibility to 
manage within that price cap regimen. If you take it back, I 
think what you are going to have is another system of this 
give-and-take between people and creating some sort of 
adversarial system, which is really what you want to try to get 
away from. Have that adversarial system happen when you create 
the cap, not afterwards.
    Chairman Collins. Thank you, Mr. Fineman.
    My time has expired, but I can see that Mr. Omas is dying 
to do a rebuttal, so I am going to give you just one minute.
    Mr. Omas. I would simply like to say that I am in no way 
suggesting that we go back to a 10-month process. What I stated 
was that if proper transparencies existed, yes, we are going to 
assure--the Postal Service should have total and complete 
flexibilities to set their price caps within the regime. All I 
am saying is I think the public has a right to know whether or 
not the rate increase is consistent with the law, whether it 
was increased for fuel purposes or not. However, I feel that 
fuel should be a part of an overall business practice, as I 
mentioned in my statement.
    If you are going to operate like a business, these are 
things that must be taken into consideration. In the private 
sector, I don't think things always go up and down because fuel 
goes up or electricity goes up. I think it ends up--that is 
good business practices, to take into consideration for those 
variations. But all I am saying is that we just would review. I 
am not asking for mounds of paper or I am not suggesting mounds 
of paper. I am simply stating that a pre-review would save a 
lot of people a lot of problems.
    Let us say, for instance, and I won't take much of your 
time, that a rate does go into effect and then there is a 
complaint that the regulator must review and that review finds 
a defect in that rate structure. That means that all of the 
people who have prepared their computers, their mailing 
structures and everything to accommodate the new rate structure 
will have to go back. I mean, it doesn't make any sense. Thank 
you.
    Chairman Collins. Thank you. I have many additional 
questions, but I am going to yield to my colleagues. We will do 
a second round of questions, just so that you all know, and 
perhaps even a third.
    Senator Akaka.
    Senator Akaka. Thank you very much. I want to thank both of 
you for your statements.
    Chairman Omas, your detailed written testimony certainly 
will assist us in drafting the Postal reform legislation and I 
want to thank you personally and your staff, who have always 
been available to help this Committee. I appreciate that 
dedication.
    Mr. Omas. Thank you, Senator.
    Senator Akaka. Chairman Fineman, I appreciate your 
guidance, as well, and I want to thank you for your nearly 10 
years of service as a member and now Chairman of the Postal 
Service Board of Governors.
    My first question is to Chairman Omas and is one that I 
have asked of several witnesses. Concern has been expressed 
that a price cap on Postal rates could become a cap on Postal 
compensation. Would you please share your views with us on this 
matter?
    Mr. Omas. Yes, sir. A major goal of Postal reform is to 
provide, I think, meaningful incentives that will encourage the 
Postal Service to be more economical and more efficient. Price 
caps, I feel, would achieve that goal.
    I think as productivity increases under this more 
economical and efficient system, productivity would be rewarded 
with higher wages over a period of time. I think that they go 
hand in hand, and if the efficiency and the productivity come 
together, the employees will be rewarded for their 
productivity.
    Senator Akaka. Chairman Fineman, I was pleased that you 
raised the concern over the Commission's proposal that the 
President would appoint the first three members of the new 
board, who in turn will select other members with concurrence 
of the Secretary of the Treasury. I strongly believe that a 
modernized Postal Service needs more, not less, Congressional 
oversight, and removing the Senate's advice and consent role, I 
believe is wrong.
    I also believe that the selection method raises serious 
constitutional questions and I asked the American Law Division 
of the Congressional Research Service to review this issue. 
Chairman Collins, if there is no objection, I would like to 
include in the record three CRS memos dated December 18, 2003, 
February 19, 2004, and March 31, 2004, that discuss this 
matter.\1\
---------------------------------------------------------------------------
    \1\ The memos appear in the Appendix on page 78.
---------------------------------------------------------------------------
    Chairman Collins. Without objection, they will be included. 
I think that will be very helpful for all of us to read.
    Senator Akaka. Thank you very much.
    Chairman Fineman, I believe the ideal governance design for 
a newly constituted Postal Board of Directors should ensure 
that decisions concerning the Postal Service can be made in an 
independent and transparent manner. This has been alluded to in 
your testimony.
    My question to you is, do you believe the current structure 
provides independence, and what changes would you recommend?
    Mr. Fineman. Let me begin by making a real personal comment 
and then I will, if I can, answer your question in some detail. 
All of us sitting here today, could we all agree, and I think 
we would, that the Federal judiciary, in essence, is extremely 
competent. I mean, we would all agree to a large degree that 
the people who are sitting on the District Courts, and Court of 
Appeals are, and while there might be from time to time those 
issues that the U.S. Senate has with any individual nominee, 
but we would all agree to that.
    I was nominated by President Clinton to be a Federal judge. 
It was near the end of his administration. I am one of those 60 
people or so who didn't get confirmed at the end of President 
Clinton's administration. Having gone through that process, and 
I went through this process, I was qualified by the American 
Bar Association, met with the Department of Justice, met with 
the General Counsel's office in the White House, so I have had 
two FBI background checks, this one for this position and later 
for the Federal judiciary.
    Was there any difference, and I have talked a lot about 
this with people in the mailing community, other people who are 
lawyers. Some of them have come to me and said, well, there is 
a vested interest in the Federal judiciary with the Justice 
Department, no matter who the administration is, to make sure 
that there are qualified people here.
    I think that what you have to do is to set forth that those 
qualifications are for our Board so that you do get top-quality 
people, and then also have a review by the Senate. It is 
appropriate. It is a good check. It is appropriate, and I don't 
see that there should be any problem with that. We have to 
continue to have a bipartisan Board, as you have said, Senator, 
and we have spoken about this before. We can't make this into a 
politicized organization.
    As to terms, we now sit for 9 years. The Presidential 
Commission recommended 3 years. I probably would say to you, 
having had experience, 3 years is on the low side because it is 
a complicated organization. Nine years is probably a little bit 
on the high side. I would say someplace in between would 
probably be appropriate.
    There are recommendations in the Commission about age 
requirements. Most public boards today do have age 
requirements, and even the Federal judiciary, to become a 
senior judge at a certain period of time. They talk about 70 
years of age. I think 70 is a little bit on the light side. I 
just saw, I mean, I always speak about the manager for the 
Florida Marlins. He took that team to the World Series and he 
was in excess of 70 years of age. So I think that probably you 
are talking about something, not 70 years of age, a little bit 
in excess of 70 years of age. That would be appropriate.
    Those kinds of reforms, I think are appropriate for our 
Board.
    Senator Akaka. Thank you, Madam Chairman.
    Chairman Collins. Thank you. Senator Carper.
    Senator Carper. Thanks, Madam Chairman.
    You know, it is really very fortunate to have before us 
today people who served in these roles, and with Chairman 
Fineman, someone who has been around almost 8 years, or over 8 
years, and is going to be stepping down and is sort of 
unencumbered because of that fact and can really share from his 
heart what he thinks we should do.
    Let us back up just for a moment. Just explain to us, if 
you will, how the Board is currently constituted. Just run 
before us who nominates, how many people on the Board, ages 
that they can serve, qualifications. Just take a moment and 
just give us that, please.
    Mr. Fineman. Presently, the Board is constituted of nine 
outside directors, outside governors, and two who are 
management, the Postmaster General and the Deputy Postmaster 
General, no more than five of one party. There are no real 
qualifications that are set forth as a matter of statute other 
than there shouldn't be a conflict between ourselves and the 
mailing community.
    I think that the prime things that the Board does, just to 
go a little bit further, is our selection of the Postmaster 
General, which is done by the appointed governors, and the 
Deputy Postmaster General is selected by the Board with the 
Postmaster General, and our ability to--and we, as a matter of 
statute, set rates.
    Senator Carper. Talk to us about the qualifications that we 
should put in the law.
    Mr. Fineman. I think you have to have people who have sat, 
or have qualifications to be on a board of a major business. I 
mean, we would rank, I think, I don't know, if we were a 
business, I think No. 2 or 3. Wal-Mart has now surpassed us in 
the number of employees that they have. I think we are now 
second to Wal-Mart, and we keep decreasing the amount of 
employees, which is an admirable thing. Through the efforts, I 
think, of the Board and the Postmaster General, we are now a 
bit more than 700,000 or so employees.
    You can't have people who have no business acumen 
whatsoever. But it is a public board. It is different from a 
private board. So people have to come to this Board with a 
little bit more than, I think, just basic business 
qualifications.
    Senator Carper. Talk to us, if you will, about the size of 
the Board. Should nine members, five of either party----
    Mr. Fineman. My personal feelings, and they represent my 
personal feelings here, so I want to make that perfectly clear, 
I think that a board operates a little bit better with a 
smaller group of people, but not too much smaller, seven or so, 
because what we are talking here is different from a corporate 
board.
    One of the things that you have done, all of you, in going 
through what have been the most recent scandals in corporate 
America, is you talked about having, making sure there are 
outside directors who are independent and creating the Board 
with more outside directors. Just think about this for a 
minute. We have a Board of almost all outside directors plus 
the Postmaster General, who we hire.
    So it strikes me that kind of thinking isn't necessarily 
needed because we have all outside Directors. But I do believe 
that if we had a little bit of a smaller Board, it might be a 
little bit more manageable.
    Senator Carper. You talked about the length of the term 
that an appointee would serve on the Board, and I think the 
Commission's recommendation was a 3-year term?
    Mr. Fineman. Correct.
    Senator Carper. A single 3-year term?
    Mr. Fineman. I think you can be renominated. I don't have 
that in front of me.
    Senator Carper. I just don't recall.
    Mr. Fineman. I believe you can be renominated. You can be 
renominated.
    Senator Carper. All right, thank you. We thank the 
audience. [Laughter.]
    You are suggesting 3 years is a little short. I would be 
inclined to agree. The current term is what, 9 years?
    Mr. Fineman. Correct.
    Senator Carper. That is a little bit long. I wonder, Madam 
Chairman, if there is some number that works between three 
and----
    Chairman Collins. Five or seven might just be the answer. 
[Laughter.]
    Senator Carper. You never know. Maybe even six, I don't 
know.
    Talk to us a little bit about the age restrictions. I think 
the Commission suggested 70. Is the Commission saying at age 
70, the person would have to step down or they could not be 
nominated for another term beyond the age of 70?
    Mr. Fineman. I am not sure about that. I think they have to 
step down at 70, which is not an unusual situation. I know that 
on some public boards--I see my good friend Senator Lautenberg 
has a smile on his face at this point. But I think that is----
    Senator Lautenberg. I'm so interested in this subject. 
[Laughter.]
    Mr. Fineman. I think that they have copied, to some degree, 
what occurs on some outside corporate, well, in corporate 
boards throughout America.
    Senator Carper. Mr. Omas, I want to ask you a question 
about the qualifications of the Board of Governors. I asked 
Chairman Fineman what he thought were qualifications that would 
be helpful and he gave us some ideas. I am going to ask you 
about the Commission, as well. But with respect to the Board of 
Governors, what kind of qualifications would you suggest we 
keep in mind?
    Mr. Omas. Well, I would----
    Senator Carper. To write into law?
    Mr. Omas. I agree with Chairman Fineman. I think that the 
Postal Service is so complex and it is, as Chairman Fineman 
said, next to Wal-Mart as far as a big business is concerned 
and it is multi-disciplined. I think you need people--I don't 
think you can actually say that someone should come in with an 
accounting background or with a statistics background. I think 
you have to find someone who has a good across-the-board 
knowledge of business, of government public service.
    I think it needs a little bit of everything and I think I 
would go with Chairman Fineman in that I think it would be very 
difficult to specifically say exactly what qualifications one 
must have, and Mr. Carper, as we all know, the sad thing about 
some of the positions on the Board of Governors as well as the 
Rate Commission, it is not the most sought after of positions. 
So it would make it even more difficult to find people. If you 
started putting regulations, you might find that you are doing 
more harm than good. Again, that is my personal opinion.
    Senator Carper. On our next round, Madam Chairman, I would 
like to come back and with Mr. Omas ask really some questions 
about the structure of the Commission. Not now that my time is 
expired, but I look forward to having a chance to ask you that 
in a few minutes. Thank you.
    Chairman Collins. Thank you. Senator Lautenberg.

            OPENING STATEMENT OF SENATOR LAUTENBERG

    Senator Lautenberg. Thank you very much, Madam Chairman. I 
am so tempted to get into a defense of aging---- [Laughter.]
    But I realize it is probably not the single most important 
subject for 95 percent of you in the audience.
    Thanks very much to all of you, and you, Madam Chairman, 
for conducing this hearing. I think it is really important and 
I ask unanimous consent that my full opening statement be 
included in the record.
    Chairman Collins. Without objection.
    Senator Lautenberg. Thank you.
    [The prepared statement of Senator Lautenberg follows:]

                PREPARED STATEMENT OF SENATOR LAUTENBERG
    Madam Chairman: 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 an example: A 2-year delay in postal rate increases 
has the potential to save publication companies like Time Warner 
approximately 200 million dollars 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, mail is ``migrating'' 
to cheaper Internet-based alternatives even as the Postal Service's 
delivery network expands at a rate of 1.7 million new addresses per 
year.
    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.
    Accordingly, it is clear that the Postal Service needs to become 
more efficient and more effective in fulfilling its universal service 
goal.
    Having said that, I'm at a loss to explain how we expect the USPS 
to become solvent by making it responsible for picking up its workers' 
and retirees' pension benefits that are attributable to their military 
service. It is patently unfair to shift 27 billion dollars of pension 
costs associated to military service from the Department of Treasury to 
the Postal Service.
    As the Presidential Commission on Postal Reform recommended, the 
administration and Congress should return responsibility for paying 
these benefits to the Treasury Department which, until recently, paid 
these obligations through annual appropriations.
    With regard to other matters, I support the Commission's 
recommendation to make the rate-setting process less cumbersome and 
more efficient. Today, the process can take upwards of 10 months; the 
Commission's recommendations would reduce the rate-making process to 60 
days.
    I am also intrigued by the notion of increasing work-sharing and 
private sector partnerships. I would hope, however, that such 
partnerships are not at the expense of the hardworking men and women of 
the Postal Service. Improving the Postal Service should not mean 
gutting its workforce.
    Today, I look forward to hearing from Chairman Omas of the Postal 
Rate Commission and Chairman Fineman of the Postal Board of Governors--
the two ranking Postal Service officials who will be tasked with the 
responsibility of implementing the postal reform measures that we pass.
    I am interested to hear our witnesses' views on the Presidential 
Commission's recommendations and any other postal reform ideas they 
wish to share with us.
    Thank you, Madam Chairman.

    Senator Lautenberg. Some of the questions I raise, I 
understand have been or are in the process of review, and that 
is how military retirees get treated and so forth. We will 
leave that to the review that is underway.
    I can't help be somewhat amused by the discussion about how 
many sit on the Board and the members' particular 
qualifications because if we want to act like a board of 
directors of a regular business, that is the environment I came 
from. I ran a pretty large company, was the creator of the 
company, that today employs over 40,000 people. When I look at 
regulations regarding age and so forth, I wish that we could 
have an electronic competency test, although I am afraid that 
we might have problems within the institution here---- 
[Laughter.]
    And then we could push a button and see, well, say this guy 
is older, having just passed my blank birthday, but the people 
of New Jersey decided that despite the fact that I was in my 
senior status by a large measure, that they wanted me to come 
back here and represent them, and I was very much pleased to be 
able to do that.
    So as you look at the composition of a board and say, what 
should it look like, I agree that there ought to be some 
consideration for limiting age. Mr. Fineman, what happens in 
the Federal courts when someone reaches, is it 70?
    Mr. Fineman. They reach a senior status----
    Senator Lautenberg. Senior status, which means they 
continue to function.
    Mr. Fineman. They continue to function----
    Senator Lautenberg. And their opinions continue to be 
respected and implemented. So perhaps we can drop that one. 
Maybe the ones who ought to be age limited are those who have 
the heavy pack on their backs and are worn to a frazzle by the 
heavy load.
    I hope, Madam Chairman, that one of the things that can be 
done with a degree of expediency is to examine what the mission 
is. What should the Postal Service be like? Seven-hundred-and-
fifty-thousand or so people employed, good, loyal employees, 
work hard every day, go out in the most miserable weather 
imaginable, and it is getting more miserable by the day. What 
do we want to provide? When I think of the expression commonly 
used that it should look more like a business, well, which 
business? Like Enron or one of those, or should it be like a 
business that has more impact on how the process works?
    Like the time that we chose to move 28,000 employees out of 
baggage screening at the airports because we needed a higher 
degree of comfort about the efficiency and the manner in which 
they work, so we said, we are going to take them right out of 
that business world and we are going to put them in the world 
of government where that can be regulated and understood and 
make sure that they are trained properly.
    So it is kind of the obverse, if I can use that term, to 
that which we hold out as a model, Mr. Omas, and I know how 
hard you have had to work to weave your way through the 
network.
    There is a question about whether or not the Congress ought 
to be more involved. Well, the Congress has been very much 
involved for one heck of a long period. There isn't a person 
who serves here or in the House that doesn't have a Postal 
concern. You want to arouse the ire of your constituents, tell 
them you want to close the post office that has two employees 
and you know Jack and Mary. Well, heck, they have been here a 
long time. You have to decide, I think, a set of conditions 
that describe exactly what we want the Post Office to do.
    You are right, gasoline prices go up. Everybody is getting 
a boost, the airlines, etc. The Post Office must swallow hard 
and keep walking and it can't be that way.
    Can we do something, I ask you, by way of establishing a 
review--it has probably been attempted a dozen times--that 
really details what we ought to do? Is there such a thing, a 
combination with the private sector and the Post Office?
    We ran into a problem in New Jersey. Mine is that I am 
running out of time. I will be brief with this. But the problem 
was that we had bus routes, a lot of them that were run by 
private companies. They didn't like those routes, and then 
automatically the State inherited or the community inherited 
those bus routes. It is not different than the Post Office. It 
is a government service that people rely on that has helped 
build this great country of ours by knowing that there was a 
reliability of communications.
    Well, that world has changed and now how do we adapt? Does 
the Post Office get a chance to pick up part of that business? 
Are we involved in the electronic side of the communications 
arena in any way? I think those things all have to be 
considered.
    I have used my time, Madam Chairman, but I hope that if 
anyone wanted to respond, that you would allow them to do it. 
Is there another approach that we ought to be taking altogether 
instead of simply, and I don't demean it, instead of simply 
saying, well, here is the number of directors and here is what 
they ought to look like. What is it that the mantra ought to 
be, the mantra for the Postal Service in this country?
    Chairman Collins. You may answer. Go ahead.
    Mr. Omas. Senator, that is a tough one. I think the 
Presidential Commission tried to address some of those things. 
I think one of the things inherent whenever you look at an 
existing government entity, you sort of tend to look at what 
the structure is and how you can improve the existing 
structure. I see exactly what you mean. I don't know that 
anyone has ever gone out of the ballpark to see if there is any 
other meaningful way to reform the system.
    I guess no one has ever given it really any consideration. 
I think you have brought something to light here that we never 
looked at. I think we have always looked at improving what we 
had, and I think that is what we are attempting to do here with 
this reform. But I think it is thinking like that that will 
contribute to the people making the decisions doing the right 
thing for the Postal Service when we get to that end.
    Mr. Fineman. Senator, what I think that you were saying is 
that when we talk about the Postal Service, there are great 
public policy issues here, and it seems to me that those public 
policy issues, to a large degree, rest with you, the elected 
officials in this country.
    So if I can take a step back a little bit where we have 
talked about creating a Postal Rate Commission, what I would 
not want to see happen is that a group of people appointed and 
confirmed by the Senate then make decisions which are public 
policy decisions. I think that is what you were elected to do 
and I would hope that when you consider a statute, consider 
enacting new law, that you will understand that your 
responsibilities include the responsibility of determining what 
is universal service and whether we should continue to have 
uniform prices. That is your responsibility, not the 
responsibility, I would suggest, of what might be the Postal 
Rate Commission.
    Senator Lautenberg. Thank you.
    Chairman Collins. Thank you, Senator.
    Mr. Omas, many of our previous witnesses, including 
Treasury Secretary Snow, members of the mailing community, 
Postal competitors, the GAO, have testified that the Postal 
Service's system for allocating costs is not transparent and at 
times that it is based on faulty or obsolete data. One 
advantage of the old too adversarial rate-setting system is 
that those issues tended to surface.
    For example, I am told that there was a rate increase that 
was once proposed for in-county newspapers. There was going to 
be a 34 percent rate increase. During the rate proceeding, it 
came out that it was based on inaccurate data. Now, that error 
was uncovered during the rate case, but under the new system we 
are talking about, we are not going to have these lengthy 
adversarial proceedings and that is why the review issue 
becomes an important one.
    But putting the issue of whether you do the review before 
the fact or after the fact aside, what steps do you think the 
Postal Service can take to increase the transparency of its 
financial data and to ensure that the cost allocations are more 
accurate than many observers believe them to be at present?
    Mr. Omas. Madam Chairman, as you probably know, right now, 
that is one of the things that becomes very important in a rate 
case. We look at attributable costs and we look at causality, 
and whatever causes costs can be attributed to that particular 
piece of mail, we attribute that.
    I feel that with better transparencies, and if the Postal 
Service focused more on the causality of what the various 
classes go through, I think we can have a better sense of and 
focus more on what should be attributed to what class of mail.
    Chairman Collins. The Presidential Commission said that it 
declined to prescribe a specific target for cost attribution, 
but it criticized the Postal Service's attribution level as 
being far too low. Right now, I believe the Postal Service 
attributes 40 percent of the costs to institutional costs. 
Secretary Snow at our hearing also said that he thought that 
was not an appropriate level.
    Can the Postal Service do a better job at this, since it is 
such a critical issue, and if we can't count on the Postal 
Service to attribute costs in a more precise way, who should 
make those decisions? I mean, is that something that you see 
the Regulatory Board being responsible for?
    Mr. Omas. Yes, I do see the Regulatory Board being 
responsible for that, and here again--I hate to sound like a 
broken record--we just go back to transparency, transparency, 
transparency. If the figures and data studies are there, we 
know how to attribute it, we have ways of, I mean the Postal 
Service and the staff at the Rate Commission, research staff, 
have found ways of attributing the costs of the mail, of what 
causes mail costs. I feel with the proper data that can 
continue and we can do a better job.
    Chairman Collins. There is widespread interest in putting 
into this legislation a price cap. What do you think is the 
proper role of the new Regulatory Board versus the Congress in 
establishing the cap, the inflation component, and the 
productivity index?
    Mr. Omas. I strongly feel that the Postal Service should 
have the flexibility to set its prices, and I think the 
legislation allows 24 months, which would be a super rate case. 
I think at that time, we would be able to work out with the 
mailers, with the stakeholders, with the Postal Service and the 
regulator exactly how that would be addressed.
    Chairman Collins. Mr. Fineman, do you have any observations 
on the appropriateness of a cap, how much we should specify in 
the law, how much we should leave up to the Postal Service, and 
what should be the responsibility of the Regulatory Board?
    Mr. Fineman. I believe that your legislation should 
identify what that cap is. I strongly believe that. I think 
there is too much risk here in having what I would call real 
soft cap language which would allow the Postal Rate Commission 
to set what would be the cap. I think that in a system like 
this, what you would end up having is a considerable amount of 
lobbying back and forth in this most important issue.
    I think you are going to have to come to grips with--there 
is a fair amount of literature that is written already about 
cap regimen and the real issue here, I think, becomes that most 
people have identified the cap using some sort of CPI index 
over many years. And why have they done it? If you go back, it 
kind of has a little bit of a historical bent to the 
telecommunications industry. That is basically where this CPI 
comes from.
    And the real question now that I think the Postmaster 
General put out at the last hearing is that with the labor-
intensive business that we have, can we, if we look at just the 
last 3 or 4 years--obviously, if you looked over the last 20 
years and you used the CPI as the number, you would come to the 
conclusion that we can manage within a CPI environment plus a 
total factor productivity index.
    You could probably manage within that, because if you 
looked over the last 20 years, what you saw was inflation went 
way up during periods in the 1980's, as an example, and now we 
have these very low inflationary numbers. So the real question 
is, if the country continues to operate under its present 
economic environment, can business run with a cap that is set 
under CPI, and I think that is something that you all are going 
to have to come to grips with.
    Chairman Collins. Thank you. Senator Akaka.
    Senator Akaka. Thank you. I want to ask for more specific 
responses. The Chairman has alluded to outdated and inaccurate 
data that has been used. Chairman Omas, in the most recent rate 
case, the 2001 case, some delivery costs were still being 
attributed to data from the 1980's, which had long been 
recognized as obsolete by all parties, including the Postal 
Service.
    Specifically, what expanded authority do you need to ask 
for cost studies on an ongoing basis to ensure that accurate 
and up-to-date information is used to attribute to Postal 
costs?
    Mr. Omas. Yes, Senator, I do support giving the regulator 
that authority. I think that authority--it should be essential 
that the regulator be able to direct the Postal Service to 
collect and analyze data. As I said before, a lot of times, and 
this case is a prime example, everyone knew that it was 
obsolete but we still had to use it. Had we had the authority 
to ask the Postal Service or to direct the Postal Service to 
redo a study, then that information would have been 
forthcoming.
    And to expand a little bit further, I think that not only 
should the regulator have the ability to ask for these studies 
and to request other analyzed data, it should also have the 
ability to subpoena the Postal Service in instances where we 
have found that the data that was presented to us was not 
sufficient.
    Senator Akaka. Chairman Omas, in your comments you have 
used the words ``unchanged'' and that the Postal Service is 
very complex, which adds to the difficult task before us. 
Transparency seems to be something that we need to focus on.
    Current Postal reform efforts are focusing on giving the 
Postal Service management greater flexibility while increasing 
its transparency. And again, specifically, what authority would 
a regulator need to ensure there is sufficient transparency to 
guarantee that the Postal Service does not abuse its new 
authority and to assure that all classes of mailers are 
protected from discriminatory or unjustified rate increases?
    Mr. Omas. Again, Senator Akaka, I think that both the 
Senate bill and the House bill address that issue by giving the 
regulator the authority to ask for studies and direct the 
Postal Service to collect data and analyze various data that 
the regulator would request. They also gave the regulator the 
subpoena authority.
    Senator Akaka. Chairman Fineman, I have long worked on the 
need for greater financial transparency within the Postal 
Service. As I noted in my statement, the Commission found that 
financial reporting has not always provided a clear picture of 
the Postal Service's fiscal condition. I was pleased, however, 
when the Postmaster General and the Board announced that the 
Postal Service will transition its financial reporting to 
standards set by the Securities and Exchange Commission for 
publicly traded non-stockholder-owned companies.
    Could you update us on this transition, especially with 
regard to developing financial statements and disclosures 
comparable to those provided by publicly traded companies?
    Mr. Fineman. I would say about 6 months ago or so, maybe a 
little bit less, we began to work closely to try to do exactly 
what you stated in your question, and we have to date begun to 
post on our website information on a monthly basis and we have 
recently entered into dialogue with the SEC, appropriate staff 
people of the SEC, so that we can determine exactly how we can 
file whatever has to be filed. We have worked with outside 
counsel, securities counsel, and with our outside auditors at 
Ernst and Young to determine exactly how we can transform, in 
essence, our reporting that we presently do so that it complies 
with SEC requirements.
    I do want to add one other thing about this transparency 
issue, and I alluded to it in either a question I answered or 
the opening statement that I made. The present system that you 
have, and I think that if there is concern about transparency, 
the present system you have creates, in my opinion, what is an 
adversary system as to how we set rates. You, in essence, have 
a trial before the Chairman and the other Commissioners.
    So let us step back for a minute and say, what is that 
trial? What happens there? What usually happens? Why are we 
taking all of this time? Who are these people who are 
intervening?
    In my experience, what I have seen in the industry, quite 
frankly, is that there are two sets of people. There is a large 
part of the mailing industry who are trying to get rates as low 
as possible. We all would do that, right, if we were in their 
business? You want to keep the rates as low as possible because 
that is a cost that they have.
    Then there are a bunch of other people who are somehow 
identified to some degree as competitors, and sometimes they 
like to get the rates as high as they can be. Why do they want 
the rates high? Because then for their competitive product, 
they probably can charge a higher rate.
    Now, that is reality. I don't know if anybody has come here 
before to talk about that and say that is what happens, but I 
can say to you that is the reality of what occurs. And you go 
through this long adversarial system and we are asked to come 
forth with all kinds of studies. The Chairman and I have done 
something which has been extremely innovative. We have, for the 
first time, over a series of meetings, brought together our 
staffs and our Boards to have joint meetings in which we ask 
our staffs to supply us with certain information and studies 
that are done.
    These issues about attributable costs are extremely 
complicated. People at the Postal Service could have one view. 
Outside people could have another view about what are 
attributable costs, so could people at the Postal Rate 
Commission. Professors spend their lives writing papers about 
attributable costs. It is not an issue that is just real easy 
to come to grips with. There are vast studies about it.
    The last thing I wanted to comment about is this idea of 
cross-subsidization. I mean, the Postmaster General at the last 
hearing stated in no unequivocal terms that there is not cross-
subsidization. I believe there is not. Quite frankly, that is 
an issue that is litigated for 10 months or so before the 
Postal Rate Commission. That is a major issue that is litigated 
over and over again before the Postal Rate Commission, and 
there is an appellate process. In other words, there are a long 
series of cases that we could go to in these courts of appeals 
where various people take the appeals about this kind of issue.
    I would say to you that I don't believe that there is 
cross-subsidization. Are there institutional costs that are 
spread across various classes of mail? Sure.
    Chairman Collins. Thank you. Senator Carper.
    Senator Carper. In my first round of questioning, I asked 
principally Chairman Fineman to help us with respect to the 
structure of the Board of Governors of the Postal Service from 
the Board side. Mr. Omas, I want to do a similar kind of thing 
with you with respect to the Commission. Just take a moment, if 
you will, just lay out for us currently how the Commission is 
created.
    Mr. Omas. Well, currently, the Postal Rate Commission 
consists of five Commissioners, three of which are of one 
party. We at present only have four Commissioners. We are 
waiting for a fifth to come. We serve a term--each of the terms 
are staggered so that there is never complete, total vacancy at 
one time. We serve a 6-year term with what we call a follow-up 
year, which is 7 years. In other words, that means if the White 
House or the Senate decides that they want to appoint someone 
at the end of my term, they would appoint--as my term expires, 
I would have a year to stay while you are deciding who the new 
person would be or whatever.
    Senator Carper. And if during the course of that year, a 
successor were confirmed, then that person would----
    Mr. Omas. I would step down, absolutely. That is the 
present system. There are five of us.
    As you know, the President's Commission recommended that 
there be a Postal Regulatory Board composed of three members. I 
personally--and here again, this is personally me--I think that 
would be a mistake and I will say the reasons why I think it 
should be at least five members is, as Chairman Fineman stated, 
we are a totally bipartisan Commission and I don't think 
politics comes into play there.
    But with a three-member Board, it could become very 
politicized. You could end up with two Democrats or two 
Republicans. There could be a vacancy opened where that is a 
Democratic vacancy and the Republicans would have control. 
Someone could get sick. There could be a major complaint that 
needs to be considered and you have one vacancy, you have one 
person out sick, you don't have a quorum to meet.
    So I think I will probably be out of the picture, so I am 
not looking for myself. Like Chairman Fineman, I am coming to, 
in a couple of years, the end of the road for the Commission. 
But I strongly believe that it--and your bill and the McHugh 
bill leaves the Commission with five members. I strongly 
believe it should continue to be five members because of those 
reasons.
    Senator Carper. Does current law provide for political 
balance among the five members?
    Mr. Omas. Yes.
    Senator Carper. Do you recall what the Commission's 
recommendations are with respect to political balance. I think 
they retain it, don't they?
    Mr. Omas. The Chairman of the Commission, of the Board, 
would serve at the pleasure of the White House. It is similar 
to what it is right now.
    Senator Carper. That was not my question. My question is, 
with respect to political balance, what are the Commission's 
recommendations?
    Mr. Omas. I don't recall. It would still be balanced as it 
is now with----
    Senator Carper. It is interesting, because in the Board of 
Governors, there is no similar recommendation. We can end up 
with a Board of Governors that would be entirely of one party 
or the other.
    Mr. Omas. Absolutely.
    Senator Carper. And in a three-member panel like that--the 
comments of Chairman Omas are helpful here. In a panel of three 
members, two of one party and a vacancy in the third member, we 
would end up with a situation I don't think would be very 
helpful.
    In the legislation that I have introduced, and similar to 
what Congressman McHugh is going to introduce, we called for 
investing in this new Postal Rate Commission, we make it a 
Regulatory Commission, the authority to formulate service 
standards, such as frequency of delivery, speed of delivery, 
that kind of thing.
    If you will take just a moment and talk about the 
Presidential Commission's recommendations vis-a-vis the role, 
the powers of your Commission going forward and compare them 
with what we have included in our legislation and just take a 
moment to, if you had to sort of pick and choose between the 
two different approaches, they are broader than we are with 
respect to investment of power. What is the right balance here?
    Mr. Omas. Well, one of the things that I feel very strongly 
about is the President's Commission recommended post-rate 
review. I would recommend at least an administrative review 
before rates are implemented.
    Senator Carper. Say that one more time, please.
    Mr. Omas. The President's Commission recommended a post-
rate review. In other words, the Postal Service could implement 
rates and it would only be after the fact that if a complaint 
came from a mailer, a utility mailer or whatever, that we would 
be able to entertain that complaint. But as I told Mrs. Collins 
earlier, I oppose that because of what it can do--having to go 
back after the fact, after they have been implemented. The 
President's Commission recommended that it be a post-rate 
review. Your bill did not address that subject.
    Your bill kept the Commission, the Regulatory Commission, 
as a five-member board. I would support that. I support the 
subpoena power and the ability to direct the Postal Service to 
conduct studies and analyze data. Your bill gives us some 
ability, whereas the President's Commission gives the Rate 
Commission total and complete review over the monopoly and the 
universal service.
    I feel that, basically, your bill, it strikes a better--
yours and the House bill strikes a better balance in that you 
would still control some oversight but yet we would determine 
periodically what the service standards are. And I think the 
big thing here is, is the Postal Service meeting service 
standards. One thing is that most operators do not define their 
monopoly or have decision power over their monopolies. 
Therefore, that is why I think some of the public policy issues 
involved in the monopoly and the USO should be kept by Congress 
with a review by the regulator.
    Senator Carper. Mr. Sharfman, do you agree?
    Mr. Sharfman. Absolutely. The key issue that we see, 
though, is in who interprets the laws passed by Congress. 
Currently, the Postal Service interprets what is consistent 
with the private express statutes and it claims the authority 
to determine what the extent of the monopoly is. We believe it 
would be better if a neutral third party, in this case the 
regulator, would consider complaints as to whether the monopoly 
is being violated.
    Senator Carper. Thanks, Madam Chairman.
    Chairman Collins. Thank you. Senator Lautenberg.
    Senator Lautenberg. Thank you, Madam Chairman.
    I am curious about a couple of things and perhaps I can get 
a better understanding here. The question was raised by Senator 
Akaka about the SEC requirements. Now, the replications of the 
corporate world's requirement, the 10-K and the 10-Q, they are 
the same requirements?
    Mr. Fineman. That is exactly what we are trying to come to 
grips with right now. There is no statutory requirement that we 
do this. We are trying to voluntarily comply with exactly your 
issues, the 10-Qs and the 10-Ks. The question becomes what are 
significant events that we are going to have to report on a 
regular basis?. What are those monetary thresholds as to what 
might be a significant event?
    Those issues are issues that the Board, and we are going to 
confer with the SEC, might be appropriate for us to report on a 
regular basis. They are the hardest issues that a publicly-
traded company has, as well, to try to figure out what is an 
appropriate 8-K requirement. So we are going to try to come to 
grips with that, and I suspect we will have that fully 
completed within the next few months. At least before I leave 
this Board, which is in December.
    Senator Lautenberg. That could be your legacy, get your 
picture on the front cover. Would it constitute an annual 
report? I mean, there is no constituency body as we know as 
shareholders.
    Mr. Fineman. We do issue an annual report, and I would say 
that annual report is extremely comprehensive. I mean, from 
time to time, there might be criticism from some outside people 
of that. I think that the real criticism that I have seen deals 
with how we report about costs and cost allocations. Some 
people have criticized that we are not adequate in our 
reporting of cost allocations, but we do issue a pretty 
comprehensive annual report that I think has won all kinds of 
awards vis-a-vis government, at least. I think to a large 
degree we are trying to be as transparent as we can.
    Senator Lautenberg. What is the distribution of the annual 
report after FedEx and UPS?
    Mr. Fineman. We distribute it to thousands of people who 
get a hold of it, I can assure you of that, and I think your 
office, as well as every other office on Capitol Hill.
    Senator Lautenberg. It is a limited distribution. Does the 
Post Office, and I obviously have not looked through this--as a 
matter of fact, I have not seen it, very frankly, before--are 
there capital costs in the--significant capital costs? What 
kinds of things? Are we talking about property, buildings, 
etc.?
    Mr. Fineman. Capital expenditures are significant. The 
Board presently reviews every capital expenditure in excess of 
$10 million. The Commission was a little bit critical, saying 
that was on the low side. We have been having our Capital 
Projects Committee review that presently. I don't think that 
anybody at the management level would indicate that by having 
that level of review, we are in any way hampering their ability 
to go forward with capital projects.
    I mean, in our area, Senator Carper and myself and Senator 
Lautenberg--I am from Philadelphia, so now we are building 
probably one of the most significant plants that exists now 
outside of Philadelphia at a juncture between I-76 and I-95. 
The Postal Service is going to have to revamp its network over 
the next few years.
    One of the reasons we have to do it is places like 
Philadelphia are indicative, where you have an old WPA plant 
that was built next to the railroad tracks in Philadelphia. The 
same thing exists in Chicago, L.A., all over, because we 
carried mail on the railroad trains. Now, we do it mostly on 
interstate highways and by----
    Senator Lautenberg. How do they account for the 
expenditures for these capital projects? Are they on a cash 
basis or----
    Mr. Fineman. There is a capital budget, a 5-year capital 
budget, and everything is basically on a--everything is really 
on a cash basis here.
    Senator Lautenberg. Right.
    Mr. Fineman. One of the issues I think that you might be 
alluding to here is one of our real problems over the years, as 
I have seen it, is that there is no reserve--we can only have 
debt. We have a $15 billion ceiling on debt. We borrow from the 
Treasury, exclusively from the Treasury. But there is no 
capital here. We can't go to the public sector and go get 
capital to go do things of this sort.
    Senator Lautenberg. Why wouldn't it make sense--do we try 
to substitute leases and call on the private sector to pick up 
some of the capital obligations that we have, because as I 
understand it, and again, correct me if I am wrong, overall, 
there is a pretty good, I won't call it profit, but there is a 
pretty good revenue return from normal operations and that it 
is only when it gets to the capital side or to the fixed cost 
side, let us say for the pension liability that we talked 
about, that is what creates the biggest problem for the Post 
Office. Borrowing is, in fact, a subsidy in a way, and I don't 
know why we differentiate there.
    Mr. Fineman. I think this Board particularly, and I take my 
hat off to former Governor McWherter who worked very hard to 
keep our debt as low as possible. Actually, I think last month, 
for the first time in the history of the Postal Service for 
some period of time, we were actually debt-free for about a day 
or so. Then obviously we had to borrow to make payroll and 
things of that sort, just like any normal business would be 
run.
    We are probably one of the largest leaseholders, tenants, 
in the United States. Many of our facilities are leased and we 
have looked at opportunities where that provides a good return 
for us.
    Senator Lautenberg. One last question, if I may. Mr. Omas, 
do you know there is a wonderful pen made in Italy called the 
Omas?
    Mr. Omas. Yes, sir.
    Senator Lautenberg. It is very expensive, too.
    Mr. Omas. Very expensive, and my family is from the 
Dalmatian Coast and I have been trying for years to figure out 
whether I am kin to them.
    Senator Lautenberg. That is very interesting. Do you 
believe that the Postal Regulatory Board will be in a decent 
position, or in the appropriate position to determine Postal 
employees' pay comparability?
    Mr. Omas. No, sir, I don't think we have the expertise. I 
mean, obviously, if Congress decides that the Regulatory Board 
should take that on, I am sure that we would have the ability 
to find the proper people and staff it in the proper way. But 
if you were to ask me that with the present staffing we have, I 
would say no.
    Senator Lautenberg. Thanks, Madam Chairman.
    Chairman Collins. Thank you, Senator. You just asked the 
question I was planning to ask Chairman Omas.
    Senator Lautenberg. About the pen? [Laughter.]
    Chairman Collins. Not about the pen, though I would like 
one of those pens, I hasten to say. [Laughter.]
    I think that the Presidential Commission's recommendation 
on having the Board look at the wages is not one that we should 
incorporate in our legislation, but I am glad to get you on 
record on that. I already knew Chairman Fineman's opposition to 
that proposal and I appreciate your asking the question.
    I do want to clarify, however, on the exchange between 
Senator Lautenberg and Chairman Fineman that the Postal 
Service's debt and liability picture is anything but rosy. The 
unfunded liabilities for retiree health benefits, for workers' 
compensation, are literally in the tens of billions of dollars. 
I don't want to leave this hearing record with the impression 
that the Postal Service is ``debt-free.'' In fact, it is----
    Mr. Fineman. The real question--I mean, obviously, the 
unfunded liability is a real problem. That is why we are here.
    Chairman Collins. Right. Exactly.
    Mr. Fineman. As a practical matter, that is why we are 
here. We can't--under the present system, we are not going to 
be able to fund those liabilities as we see a decline in First-
Class Mail and an increase in delivery points.
    Chairman Collins. I just wanted to make that clear for the 
record, because I believe that if we do not act to pass 
comprehensive reform, that the GAO is right in predicting a 
death spiral for the Postal Service and we cannot allow that to 
occur. It is too vital to our country and to the nine million 
people whose jobs depend directly and indirectly on the Postal 
Service.
    Mr. Fineman, let me end my questioning with one final 
question to you, and that is part of our challenge in drafting 
this bill is going to be to figure out what is appropriately 
the duty of Congress, and I agree with your comments earlier 
that defining the monopoly and universal service are public 
policy questions that should be answered by Congress. But 
defining the responsibilities and the authority of the 
authorizing law set by Congress versus the Postal Regulator 
versus the Postal Service is going to be a very challenging and 
important task.
    Could you give us any guiding principles in this area to 
establish the appropriate balance between the authority and the 
responsibilities, particularly of the regulator and the Postal 
Service?
    Mr. Fineman. One of the concerns that I had a little bit 
with my friend Chairman Omas's comments is that what you do not 
want to have happen is when you have this new legislation, and 
I think I have made reference to this before--I consider it a 
trade, and the trade becomes there is going to be more 
oversight from a Postal Regulatory Board, or the PRC, whatever 
you want to call it--there is going to be more oversight and 
the trade will be that management will have more flexibility.
    That is the deal here, and you have got to make sure--
because if you saddle management, it seems to me, with less 
flexibility and you continue to have more oversight, then we 
haven't accomplished anything. What we are trying to do is, and 
I think that is the struggle here, is to create the appropriate 
balance, to make sure, because there is a monopoly. If there 
wasn't a monopoly, I am not sure we would be talking about all 
of this.
    But because there is a monopoly, we want to make sure that 
there is the kind of oversight that the American public is 
entitled to have. At the same time, you want to allow 
management and the Board to be able to run the business as a 
business and not be saddled with a bunch of bureaucratic 
regulations.
    Chairman Collins. Mr. Omas, do you want to add anything to 
that?
    Mr. Omas. Well, I think that because the Postal Service is 
a public entity that there should be some type of oversight. I 
don't think that Senator Carper's bill, or any of the things 
that have been in the McHugh bills, the Carper bill, or even 
the Presidential Commission's recommendations, say that we are 
taking away existing flexibility.
    But the one thing--I come from the point that the Postal 
Service is a public entity. It should run like a business and 
should be self-financing. But I also think, because public 
policy does become involved, because they do have a monopoly 
and there are competitive products out there that they compete 
with, that there should be a certain amount of oversight.
    I am not intimating that there should be--that we should go 
back to the 10-month hearings or this or that or the other. 
What I am saying is that, or what I feel very strongly, that 
because of the monopoly and the USO regulation, the charter for 
universal service, that Congress, along with the regulator, 
should set the guidelines. As to what they feel that the Postal 
Service should accomplish or should not accomplish on service 
levels.
    And all I am saying is that there should be an ability to 
review and to ask for studies. I am saying ask for a study that 
will help evaluate, are they producing? Are they delivering 
universal service? Are they abusing the monopoly and cross-
subsidization? That is the only thing that I am suggesting--
that is where I am coming from.
    Chairman Collins. Thank you. Senator Carper.
    Senator Carper. Whether we would adopt the approach 
suggested in the McHugh bill, my legislation, the President's 
Commission, the regulatory body--now we call it the PRC--your 
job is going to change. The nature of your job is going to 
change, whichever those approaches or combinations that we 
choose.
    I am not, frankly, familiar with the kinds of resources 
that you have now, what the five Commissioners have now to rely 
upon to enable you to do your job. I would say, Madam Chairman, 
that regardless of which of these approaches we take or some 
combination thereof, your job is not going to be easier. It is 
not going to be diminished. If anything, it is going to be 
enhanced.
    I guess my question is, how can we make sure that you have 
the resources that are necessary to enable you to do your new 
job well?
    Mr. Omas. I think one of the determining, or one of the 
things that the bill allows us--both your bill and the McHugh 
bill allows us 24 months within which to make various 
decisions, to develop regulations, rules, practices, how we 
approach whatever we are told to do. Once we have made those 
decisions, I think at that time, we would need the ability to 
hire consultants and have extra expenditures to bring in the 
staff, and it would be after we go through that and we set up 
how we would approach issues, and how we would regulate, and 
what we would do that we could determine what resources we will 
need.
    But yes, sir, we would definitely need to expand the staff. 
I don't know that the commissioners would need additional 
staff. I think we would need additional research economists, in 
some instances attorneys, to get the job done.
    Senator Carper. Do I understand that the President's 
Commission has recommended that the new rate system go into 
effect after using the current system one more time?
    Mr. Omas. That is correct. That is the 24 months I just 
referred to--that is when the parameters for the rate caps, 
etc., would be set, and one of the things that I will address 
that Chairman Fineman said earlier about the rate caps, we 
would set an original rate cap, but that does not prevent us 
from going back periodically to review that rate cap and either 
increase it or whatever.
    Senator Carper. Chairman Fineman.
    Mr. Fineman. Yes, I just wanted to comment. It seems to me 
that--we are not here to hold a hearing about the military 
pension and the escrow matter, but I think to a large degree 
that is going to have an impact upon this whole calendar. The 
real question is going to be, for how long are we going to be 
able to hold rates stable? And the issue is going to be, to 
some degree, what happens with the escrow provisions in the 
military pension. Then if you pass a piece of legislation, how 
long will it be until there really is a necessity to do 
something?
    You are going to have some period of time where we are 
going to have these discussions with a new--I am assuming we 
pass legislation--with a new Commission as to the setting of 
the appropriate rate. But I think if we are going to look at a 
calendar, some impact is going to happen as a result of what 
happens here with the escrow provisions and the military 
pension.
    One further comment, if I can, because you talked about 
this. It is one of the reasons that I tend to believe that if 
you are going to have qualifications--and we are looking way 
out into the future now--of the Rate Commissioners or whatever 
you might call them, is if we don't have, with the kind of 
power that you have in your bill and Congressman McHugh's bill, 
if we don't have those kind of qualifications of economists, 
lawyers, statisticians, accountants, and people who have had 
experience in dealing with this kind of environment, people 
maybe from the FTC, FCC, places like that, what you are going 
to have is a Commission that is going to be very staff-driven, 
totally dependent on staff, because we are talking about a very 
complicated system here. So it is a reason why I both think 
there are qualifications for Board members as well as 
qualifications for the members of what might be the Postal 
Regulatory Board.
    Senator Carper. Madam Chairman, It looks like my time has 
expired. It seemed to go so quickly, more quickly than usual.
    Chairman Collins. That is because your questions were 
unusually good, or---- [Laughter.]
    Are they always that good?
    Senator Carper. Unusually vague, perhaps. I don't know. 
[Laughter.]
    I have a couple other questions I might submit in writing. 
I just want to say to our witnesses today, especially Mr. 
Sharfman over there, I could just barely see your lips move 
when the other witnesses spoke. [Laughter.]
    We appreciate your being here today. This has been a very 
helpful back-and-forth. To Chairman Fineman, thank you for your 
extended service. Chairman Omas, thank you very much, as well.
    Mr. Omas. Thank you.
    Chairman Collins. Thank you.
    I want to join Senator Carper in thanking our witnesses not 
only for their testimony today, but also for the advice and the 
insights that they have shared with me and with the Committee 
staff.
    I do want to thank Ann Fisher on my staff. She has worked 
very hard in putting together these eight hearings that we have 
held to make sure that we did an in-depth review of the 
Commission's recommendations and heard from a wide variety of 
stakeholders.
    Now the hard part begins. Senator Carper and I seek to 
draft a bill and get it introduced at the end of this month. We 
are trying to keep on an aggressive time table because we are 
committed to getting Postal reform legislation enacted this 
year. I think the Commission's recommendations and the Postal 
Service's financial straits demand that we take advantage of 
this opportunity to act this year.
    This hearing record will be held open for 15 days for the 
submission of any additional materials.
    I again thank you very much for your testimony. This 
hearing is now adjourned.
    [Whereupon, at 12:03 p.m., the Committee was adjourned.]
                            A P P E N D I X

                              ----------                              


                PREPARED STATEMENT OF SENATOR FITZGERALD
    Good morning. I am pleased to join my colleagues today as we 
consider proposed reforms to the U.S. Postal Service regarding its 
rate-setting process and governance structure. Chairman Collins, 
Senator Carper, Senator Akaka, and other Members of this Committee have 
worked tirelessly on the important issue of postal reform, which 
affects each and every individual residing in the United States. With 
their leadership and concerted efforts, we may achieve substantial 
reforms that will help the U.S. Postal Service meet its current and 
future challenges while continuing to serve as a vital link in the 
Nation's communication network.
    The U.S. Postal Service (USPS) is a unique institution that has 
provided an invaluable service since its inception. Its size and impact 
throughout the Nation is tremendous. The Postal Service has over 
830,000 employees nationwide, over 43,000 of whom are in my home State 
of Illinois. The Postal Service also operates 2,079 postal facilities 
in my State. It is a $67 billion enterprise--making it the Nation's 
second largest employer and the 11th largest by revenue--and it 
supports the $900 billion mailing industry.
    While the Postal Service faces the challenges of demographic change 
and increased market competition, its rate-setting process and 
governance structure have been in place since the 1970's and are too 
cumbersome to meet today's needs. The two aspects of reform we are 
considering today will play important roles in the ability of the 
Postal Service to adapt to the changing marketplace.
    Strong financial management and good governance have long been 
interests of mine. I believe that good business practices, strong 
financial accounting, and independent oversight are important to the 
overall success of any institution, and these are key areas to address 
in the transformational process at the U.S. Postal Service.
    I look forward to discussing with our witnesses their views on 
improving the financial transparency of the Postal Service's operations 
so that it may better allocate its costs for rate-setting purposes. I 
also look forward to hearing the views of our witnesses regarding how 
to ensure that independent oversight of the Postal Service is both 
effective and efficient.
    Again, I would like to commend Chairman Collins for her sustained 
and strong leadership on this important issue. I look forward to 
today's testimony.
    Thank you, Chairman Collins.




                                 
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