    [Senate Hearing 109-63]
    [From the U.S. Government Publishing Office]

                                                             S. Hrg. 109-63

      NOMINATIONS OF CAROLYN LEWIS GALLAGHER, LOUIS J. GIULIANO, AND TONY
                                    HAMMOND

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

                                    HEARING

                                   before the

                                  COMMITTEE ON
                   HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                              UNITED STATES SENATE

                           ONE HUNDRED NINTH CONGRESS

                                 FIRST SESSION

                                     ON THE

      NOMINATIONS OF CAROLYN LEWIS GALLAGHER, TO BE GOVERNOR, U.S. POSTAL
     SERVICE; LOUIS J. GIULIANO, TO BE GOVERNOR, U.S. POSTAL SERVICE; AND
            TONY HAMMOND TO BE COMMISSIONER, POSTAL RATE COMMISSION

                                   __________

                                  MAY 19, 2005

                                   __________

                           Printed for the use of the
            Committee on Homeland Security and Governmental Affairs

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            COMMITTEE ON HOMELAND SECURITY AND 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
    TOM COBURN, Oklahoma                 THOMAS R. CARPER, Delaware
    LINCOLN D. CHAFEE, Rhode Island      MARK DAYTON, Minnesota
    ROBERT F. BENNETT, Utah              FRANK LAUTENBERG, New Jersey
    PETE V. DOMENICI, New Mexico         MARK PRYOR, Arkansas
    JOHN W. WARNER, Virginia

               Michael D. Bopp, Staff Director and Chief Counsel
                Jennifer A. Hemingway, Professional Staff Member
          Joyce A. Rechtschaffen, Minority Staff Director and Counsel
             Adam R. Sedgewick, Minority Professional Staff Member
                          Trina D. Tyrer, Chief Clerk

                                C O N T E N T S

                                     ------
    Opening statements:
                                                                       Page
        Senator Collins..............................................     1
        Senator Warner...............................................     3

                                   WITNESSES
                             Thursday, May 19, 2005

    Hon. John Cornyn, a U.S. Senator from the State of Texas.........     4
    Carolyn Lewis Gallagher, to be Governor, U.S. Postal Service.....     7
    Louis J. Giuliano, to be Governor, U.S. Postal Service...........     6
    Tony Hammond, to be Commissioner, Postal Rate Commission.........     7
    Hon. Christopher S. Bond, a U.S. Senator from the State of
      Missouri.......................................................    12

                         Alphabetical List of Witnesses

    Bond, Hon. Christopher S.:
        Testimony....................................................    12
        Prepared statement...........................................    13
    Cornyn, Hon. John:
        Testimony....................................................     4
        Prepared statement...........................................     5
    Gallagher, Carolyn Lewis:
        Testimony....................................................     6
        Biographical and financial information.......................    17
        Pre-hearing Questions and Responses for the Record...........    31
        Responses to post-hearing questions for Ms. Gallagher from:
          Senator Lautenberg.........................................    42
          Senator Akaka..............................................    43
          Senator Lieberman..........................................    46
    Giuliano, Louis J.:
        Testimony....................................................     7
        Biographical and financial information.......................    48
        Pre-hearing Questions and Responses for the Record...........    57
        Responses to post-hearing questions for Mr. Giuliano from:
          Senator Akaka..............................................    67
          Senator Lieberman..........................................    69
    Hammond, Tony:
        Testimony....................................................     7
        Prepared statement...........................................     8
        Biographical and financial information.......................    71
        Pre-hearing Questions and Responses for the Record...........    78
        Responses to post-hearing questions for Mr. Hammond from:
          Senator Akaka..............................................    89

      NOMINATIONS OF CAROLYN LEWIS GALLAGHER, LOUIS J. GIULIANO, AND TONY
                                    HAMMOND

                                  ----------

                             THURSDAY, MAY 19, 2005

                                           U.S. Senate,
                               Committee on Homeland Security
                                      and Governmental Affairs,
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 10:18 a.m. in
    room SD-562, Dirksen Senate Office Building, Hon. Susan M.
    Collins, Chairman of the Committee, presiding.
        Present: Senators Collins and Warner.

                 OPENING STATEMENT OF CHAIRMAN COLLINS

        Chairman Collins. The Committee will come to order.
        The Committee will now consider the nominations of Carolyn
    Lewis Gallagher and Louis Giuliano to be Governors of the U.S.
    Postal Service and Tony Hammond to be a Commissioner of the
    Postal Rate Commission.
        This Committee is very familiar with the many serious
    issues facing the Postal Service and has spent a great deal of
    time developing postal reform legislation.
        The Board of Governors of the U.S. Postal Service is
    comparable to the Board of Governors of a corporation. The
    Board selects the CEO, in this case the Postmaster General, who
    then becomes the Board's tenth member.
        The Board directs the exercise of powers of the Postal
    Service. It controls its expenditures, conducts long-range
    planning, and sets policy. The most important duty of the Board
    is to represent the public interest.
        Carolyn Lewis Gallagher is an Austin, Texas business
    executive with an impressive record. She was named governor by
    the President through a recess appointment on November 3, 2004.
    Without confirmation, the appointment will expire at the end of
    this year.
        She serves as a member of the Strategic Planning Committee
    and the Board's Governance Committee. Ms. Gallagher has strong
    private sector experience. She is currently an investor and
    adviser to several businesses and has some 20 years of
    experience in acquiring and growing companies.
        In addition to her business background, she has a
    commitment to public service. President Bush also appointed her
    in 2003 to serve on the President's Commission on the U.S.
    Postal Service.
        The Commission's report has been the foundation for the
    legislation that this Committee has drafted. It is very helpful
    to have someone who actually served on the Commission now be a
    member of the Board of Governors.
        Louis Giuliano is Chairman of the Board of Directors of ITT
    Industries. He also was named a governor by President Bush
    through a recess appointment last November. He serves as
    Chairman of the Capital Projects Committee and is a member of
    the Audit and Finance Committee.
        Mr. Giuliano has a strong private sector background also.
    As ITT Board Chairman, he is responsible for managing all
    aspects of Board activities and helping to set the strategic
    and operational direction of this Fortune 500 global industrial
    company.
        Before becoming chairman, he served as President and Chief
    Executive Officer at IT&T and played a key role in improving
    the company's operating performance. He also has a number of
    charitable causes with which he is involved.
        The Postal Rate Commission is an independent regulatory
    agency. The five commissioners review Postal Service requests
    for new domestic mail rates, fees, and classification. The
    Commission reviews these requests and then makes
    recommendations to the governors of the Postal Service.
        In addition, the Commission may propose changes in mail
    classifications. It also investigates complaints of postal
    customers that are of national significance and it issues
    advisory opinions in response to Postal Service requests to
    substantially change postal services.
        The Postal Rate Commission also hears from postal customers
    regarding decisions to close or consolidate post offices. For
    any of us who represent rural States, that is always a big
    issue.
        Tony Hammond first became the Commissioner of the Postal
    Rate Commission by a recess appointment in 2002. Later that
    year, the Senate confirmed his appointment to a term expiring
    on October 14, 2004. So I do want to point out that Mr. Hammond
    has been previously confirmed.
        Before being named to the Commission, Commissioner Hammond
    was owner and managing member of T. Hammond Company, a private
    consulting firm based in Arlington, Virginia. He has also
    served as senior vice president of a direct marketing firm and
    as senior consultant to Forbes 2000, Incorporated.
        As Members of this Committee well know, the U.S. Postal
    Service is an essential part of our society and our economy. It
    is the linchpin of a $900 billion mailing industry that employs
    more than nine million people.
        We also know the fiscal challenges facing the Postal
    Service could threaten the future of affordable service. Each
    of these nominees appears to possess, without prejudging their
    responses, the knowledge, the experience, and the talents and
    commitment needed to strengthen the Postal Service.
        I welcome them to the Committee today and I look forward to
    hearing their views.
        We are very pleased today to be joined by distinguished
    members of the U.S. Senate who are going to introduce the
    nominees and we will start with Senator Warner.

                  OPENING STATEMENT OF SENATOR WARNER

        Senator Warner. Thank you very much, Madam Chairman. To
    expedite things here, you have given a very comprehensive
    biographical sketch of the nominees. I am privileged to be here
    on behalf of Mr. Giuliano of Virginia today who has been
    nominated to serve on the Board of Governors of the U.S. Postal
    Service.
        As you said, Madam Chairman, the Board is responsible for
    directing the overall operation and developing a long-range
    plan to ensure the viability of the U.S. Postal Service, an
    institution that dates back to 1775.
        And I cannot resist saying that during World War II, 1943,
    before I went in the Navy, I worked as a postal worker. There
    was a tremendous shortage. Postal workers by and large were in
    uniform and gone, so they had to hire a bunch of 16-year-olds
    to drive the trucks and deliver the mail which I was happy to
    do, particularly during Christmastime.
        So it is a very special privilege for me to introduce this
    distinguished gentleman and I hope that you find the Postal
    Service in good hands that we left it in 60 years ago.
    [Laughter.]
        We might go back and check it out.
        You have outlined his background, but clearly his
    extraordinary accomplishments eminently qualify him to take on
    the managerial positions and the Board's functions for the
    Postal Service as the Postal Service has been under a lot of
    tough challenges here recently, particularly in what I think is
    a good, healthy, competitive world.
        So I will not review all of his accomplishments because the
    record is now containing the Chairman's observations.
        His lovely wife is here. I wonder if you might take a
    moment to introduce your wife.
        Mr. Giuliano. Certainly. I would like to introduce my wife,
    Barbara, who I am very pleased could join us this morning.
        Senator Warner. Thank you. Madam Chairman, I will put the
    balance of my remarks in the record.
        Chairman Collins. Without objection. And thank you for
    being here. Senator Warner, I know you have a number of other
    commitments, so we will excuse you to be on your way. Thank
    you.
        Senator Warner. Good luck to you.
        Mr. Giuliano. Thank you.
        [The prepared statement of Senator Warner follows:]

                      PREPARED STATEMENT OF SENATOR WARNER

        Madam Chairman Collins, Senator Lieberman, and my other
    distinguished colleagues on the Senate Homeland Security and
    Governmental Affairs Committee. I thank you for holding this
    confirmation hearing.
        Today, I am pleased to introduce to you Louis Giuliano of Virginia,
    who has been nominated to serve on the Board of Governors of the U.S.
    Postal Service. This Board is responsible for directing the overall
    operation and developing a long-range plan to ensure the viability of
    the U.S. Postal Service, an institution that dates back to 1775.
        Mr. Giuliano's background makes him highly qualified for this
    position. He received his Bachelor of Science in chemistry and Masters
    of Business Administration (MBA) from Syracuse University.
        Subsequent to earning his MBA, Mr. Giuliano joined Allied Signal,
    where he ultimately served as president of the company's Avionics
    Systems Group and was responsible for overseeing seven principal
    operating units across the nation.
        Following his 19-year career at Allied-Signal, Mr. Giuliano joined
    ITT Industries, a Fortune 500 global engineering and manufacturing
    company. While at ITT Industries, Mr. Giuliano served in a number of
    key leadership positions including chairman, president, chief operating
    officer, senior vice president, and vice president.
        Mr. Giuliano played an instrumental role in growing the company's
    revenues and performance, leading to significantly stronger margins and
    higher cash flow. He led ITT through strategies designed to streamline
    processes and increase competitiveness throughout the company.
        Madam Chairman, Louis Giuliano is obviously a very accomplished
    businessman. His extensive experience and accomplishments of increasing
    performance in such a competitive industry make him well qualified to
    serve as a Governor of the U.S. Postal Service. I support his
    nomination, and look forward to the Committee reporting out his
    nomination favorably.

        Chairman Collins. We are also very pleased to be joined
    today by another of our colleagues, Senator John Cornyn of
    Texas. Welcome.

      STATEMENT OF THE HON. JOHN CORNYN, A U.S. SENATOR FROM THE
                             STATE OF TEXAS

        Senator Cornyn. Thank you very much, Chairman Collins. It
    is nice to be here before the Committee, especially to
    introduce another Texan, Carolyn Gallagher, the President's
    nominee to serve on the U.S. Postal Service Board of Governors.
        I believe you always find this Austin, Texan well-qualified
    or you will find this Austin, Texan well-qualified for the
    position and deserving of the Committee's unanimous support.
        I assured her that the fact that the seats were not filled
    on the Committee was actually a good thing and that hopefully
    her nomination as the other nominations represented here today
    will go through smoothly and without any unexpected speed
    bumps.
        As this Committee well knows, the U.S. Postal Service must
    modernize its operations and adapt its business model and
    practices to conform to a new environment.
        We live in a world of instantaneous communications, cell
    phones, the Internet, e-mail, blogs, faxes, and the rest. And
    that does not make the U.S. Postal Service irrelevant. It just
    means that the status quo cannot continue and it must
    modernize.
        Clearly Ms. Gallagher understands this and has the skills
    and qualifications critical to helping the U.S. Postal Service
    do just exactly that.
        You were generous in your introduction, but let me just
    sort of expand a little bit on what you said, Madam Chairman.
        Her education and private sector background speaks for
    itself, an undergraduate degree from Duke University and a
    Master's in Business Administration from the Harvard Business
    School.
        She knows what it takes to succeed in a competitive
    environment. She served as the President and CEO of Texwood
    Furniture which posted annual profits for 12 years under her
    leadership.
        And she has been deeply involved in the community of
    Austin, Texas for many years serving on numerous nonprofit
    boards.
        She has direct experience in the issues confronting the
    U.S. Postal Service today making her even more qualified. These
    include, as you noted, a 2003 appointment by President Bush to
    serve on the Commission on the U.S. Postal Service and then, of
    course, her November 2004 recess appointment which further
    demonstrates President Bush's commitment to ensuring that good
    people serve on the U.S. Postal Service Board of Governors.
        In closing, let me just stay that Carolyn Gallagher is a
    nominee uniquely qualified to meet the 21st Century challenges
    of the U.S. Postal Service. I support her nomination and I
    encourage the Committee to do so as well and to unanimously
    report her nomination to the floor so she can be quickly
    confirmed.
        Thank you very much.
        [The prepared statement of Senator Cornyn follows:]

                      PREPARED STATEMENT OF SENATOR CORNYN

        Chairman Collins and Ranking Member Lieberman, I appreciate the
    Committee allowing me to come before it and introduce Carolyn
    Gallagher, the President's nominee to serve on the United States Postal
    Service Board of Governors.
        I believe you will find this Austin, Texan well qualified for the
    position and deserving of the Committee's unanimous support.
        As this Committee knows the U.S. Postal Service must modernize its
    operations and adapt its business model and practices to conform to the
    21st Century.
        We live in a world of instantaneous communication: Cell phones, the
    Internet, e-mail, blogs, faxes and the rest. This doesn't make the U.S.
    Postal Service irrelevant, just that the status quo can't continue.
        Clearly Ms. Gallagher understands this and has the skills and
    qualifications critical to helping the U.S. Postal Service modernize.
        Briefly, let me touch on those:
        Her education and private sector background speaks for itself:

          an undergraduate degree from Duke University and a
    Masters in Business Administration from the Harvard Business School

          She knows what it takes to succeed in a competitive
    environment--she served as the President and CEO of Texwood Furniture
    which posted annual profits for 12 years under her leadership

          and she has been deeply involved in the Austin, Texas
    community over the years, serving on numerous non-profit boards.

        Moreover, she has direct experience in the issues confronting the
    U.S. Postal Service today, making her uniquely qualified. These
    include:
        In 2003 President Bush appointed her to serve on the President's
    Commission on the United States Postal Service.
        This Commission was charged with exploring ways to modernize the
    U.S. Postal Service, which it did when it submitted its report in July
    of 2003. This report has proven a critical road map to reforming the
    U.S. Postal Service.
        In addition, Ms. Gallagher has been serving as a Postal Service
    Governor as a result of a November 2004 recess appointment,
    demonstrating President Bush's commitment to ensuring good people
    continue to serve on the U.S. Postal Service Board of Governors.
        In closing, just let me say that Carolyn Gallagher is a nominee
    uniquely qualified to meet the 21st Century challenges the U.S. Postal
    Service faces.
        I support her nomination and I encourage the Committee to do so as
    well and to unanimously report her nomination.

        Chairman Collins. Thank you very much, Senator. Your
    endorsement carries great weight with this Committee and you
    are right to assure the witness that the absence of senators is
    actually a good sign, not a bad one.
        So thank you. I know your schedule also is very crowded
    today, so you are welcome to depart if you would like.
        Senator Cornyn. Thank you, Madam Chairman. I neglected to
    extend the same courtesy to Ms. Gallagher that Senator Warner
    did to Mr. Giuliano and that is I would like for her to
    introduce her husband who I know is with her here today
    supporting her nomination.
        Ms. Gallagher. Yes. I am pleased to introduce my husband,
    Tom, who is with me today. Thank you.
        Chairman Collins. Thank you. We welcome all the family
    members who are here today.
        Mr. Hammond, it is my understanding that Senator Bond is on
    the way and I do not want you to feel left out. We will have
    your introduction as soon as he arrives.
        If you have any family members that you would like to
    introduce, I would invite you to do so at this time.
        Mr. Hammond. No one.
        Chairman Collins. OK. Thank you.
        All three of the nominees have filed responses to a
    biographical and financial questionnaire, answered pre-hearing
    questions submitted by the Committee, and had their financial
    statements reviewed by the Office of Government Ethics.
        Without objection, this information will be made part of
    the hearing record with the exception of the financial data
    which are on file and available for public inspection in the
    Committee offices.
        Our Committee rules do require that all witnesses at
    nomination hearings give their testimony under oath. So I would
    ask that you all stand and raise your right hand.
        Do you swear that the testimony you are about to give to
    the Committee will be the truth, the whole truth, and nothing
    but the truth, so help you, God?
        Ms. Gallagher. I do.
        Mr. Giuliano. I do.
        Mr. Hammond. I do.
        Chairman Collins. Ms. Gallagher, I am going to ask you to
    lead off and proceed with any opening comments that you might
    have at this time.

        TESTIMONY OF CAROLYN LEWIS GALLAGHER,\1\ NOMINEE TO BE
                     GOVERNOR, U.S. POSTAL SERVICE

        Ms. Gallagher. Thank you, Madam Chairman.
    ---------------------------------------------------------------------------
        \1\ The biographical and financial information of Ms. Gallagher
    appears in the Appendix on page 17.
         Pre-hearing questions and responses for the Record for Ms.
    Gallagher appears in the Appendix on page 31.
         Post-hearing questions and responses for Ms. Gallagher appears in
    the Appendix on page 42.
    ---------------------------------------------------------------------------
        First, I would like to thank Senator Cornyn for his
    gracious introduction. It is both a great honor and a humbling
    experience to appear before you today.
        I would like to thank President Bush for having the
    confidence in me to appoint me to the Board of Governors and I
    would like to thank you and the distinguished Members of your
    Committee for considering my nomination.
        Thank you.
        Chairman Collins. Thank you. Mr. Giuliano.

    TESTIMONY OF LOUIS J. GIULIANO,\1\ NOMINEE TO BE GOVERNOR, U.S.
                             POSTAL SERVICE

        Mr. Giuliano. Good morning, Chairman.
    ---------------------------------------------------------------------------
        \1\ The biographical and financial information of Mr. Giuliano
    appears in the Appendix on page 48.
         Pre-hearing questions and responses for the Record for Mr.
    Giuliano appears in the Appendix on page 57.
         Post-hearing questions and responses for Mr. Giuliano appears in
    the Appendix on page 67.
    ---------------------------------------------------------------------------
        Chairman Collins. Good morning.
        Mr. Giuliano. It is my pleasure to be here this morning. I
    am honored to have been nominated and to be considered by your
    Committee. It certainly is a new departure for me in my
    activities.
        I would like to say that one of the major surprises to me
    as I evaluated whether or not to even be considered for this
    position was getting to know the management of the Postal
    Service.
        Through that process, I became convinced that there was a
    team of people there that had energy and a commitment to change
    and a capability that would be very important for the future.
        I decided that I would like to do anything I could to help
    that team take on the challenges for the future and to continue
    that progress, a significant record of accomplishment that they
    have achieved over the last several years and continue to
    improve that going forward.
        So I am very glad to be here today and thank you for your
    consideration.
        Chairman Collins. Thank you. Mr. Hammond.

       TESTIMONY OF TONY HAMMOND,\2\ NOMINEE TO BE COMMISSIONER,
                         POSTAL RATE COMMISSION

        Mr. Hammond. Thank you, Chairman Collins, for inviting me
    to be here today and I especially appreciate the serious
    consideration that you have given to postal issues during the
    time that I have served on the Postal Rate Commission.
    ---------------------------------------------------------------------------
        \2\ The biographical and financial information of Mr. Hammond
    appears in the Appendix on page 71.
         Pre-hearing questions and responses for the Record for Mr. Hammond
    appears in the Appendix on page 78.
         Post-hearing questions and responses for Mr. Hammond appears in
    the Appendix on page 89.
    ---------------------------------------------------------------------------
        And I would in advance like to thank Senator Bond when he
    arrives for being willing to introduce me again to this
    Committee.
        And I would also like to congratulate Governors Gallagher
    and Giuliano on their appointments. I know that they are
    joining a committed team at the U.S. Postal Service.
        And if I could take one moment, my fellow commissioner,
    Ruth Goldway, has been able to join us and I am pleased to have
    her here today also.
        Since the time I was originally before this Committee
    almost 3 years ago up until the past month, the Postal Rate
    Commission did not have an omnibus postal rate case before us.
    And that stability in postal rates for over 3 years has been
    very beneficial to the American public.
        I know it was largely the result of congressional action
    and it has made a big difference in the mailing industry in
    this country.
        However, during the time I have been on the Commission and
    serving as vice chairman, we have had a number of issues
    dealing with postal rates and efficiencies and been active in
    them. And if I could mention just briefly a few of them.
        We have adopted initiatives designed to improve flexibility
    in the ratemaking process through negotiated service agreements
    between the Postal Service and mailers.
        We have adopted rules of practice that now require the
    Postal Service to provide road-map testimony in omnibus rate
    case filings. This is so that rate payers can more quickly
    identify changes that would affect them.
        We have attempted to increase the Postal Service's
    financial transparency by adopting rules that direct the Postal
    Service to provide relevant financial and operating reports.
    Our goal has been to reduce the need for legal discovery and to
    shorten the rate hearing process.
        We have also recommended approval of a number of
    experimental products which allow the Postal Service to
    increase services in its core mission which is, of course,
    delivery of the mail.
        These are just some of the activities that the Commission
    has been active in since the Senate confirmed me to the
    unexpired term in 2002 and I am grateful for that opportunity
    to serve.
        If confirmed for a full term at the Postal Rate Commission,
    I will continue to handle all the cases and issues that come
    before us in a fair and responsible manner.
        And, again, thank you for giving me this opportunity today.
    I will be happy to answer any questions that you might have.
        [The prepared statement of Mr. Hammond follows:]

                       PREPARED STATEMENT OF TONY HAMMOND

        Thank you, Madam Chairman and Members of the Committee, for
    inviting me to appear this morning. I especially appreciate the serious
    consideration that you have given to postal issues during the time I
    have served on the Postal Rate Commission.
        I would like to thank Senator Bond for taking time to be here today
    to introduce me again to this Committee. As a native Missourian, I know
    we feel honored that he has devoted almost 30 years to public service
    on our behalf.
        I also want to congratulate Governor's Gallagher and Giuliano on
    their appointments. I know they are joining a committed team at the
    U.S. Postal Service.
        Since the time I was originally before this Committee almost three
    years ago, until this past month, the Postal Rate Commission did not
    have an Omnibus Postal Rate case come before us.
        The stability in postage rates for over three years has been very
    beneficial to the American public. I know it was largely the result of
    congressional action and has made a major difference in the mailing
    industry in this country.
        However, during the time I have served as Commissioner and Vice
    Chairman, we have been active on a number of issues dealing with postal
    rates and efficiencies.
        The Postal Rate Commission has adopted initiatives designed to
    improve flexibility in the rate-making process through Negotiated
    Service Agreements (NSA's) between the Postal Service and mailers.
        We have adopted rules of practice requiring the Postal Service
    provide ``roadmap'' testimony in Omnibus Rate Case filings so
    ratepayers can more quickly identify changes that affect them.
        We have attempted to increase the Postal Services' financial
    transparency by adopting rules directing the Postal Service to provide
    relevant financial and operating reports, in order to reduce the need
    for discovery and to shorten rate hearings.
        The Postal Rate Commission has also recommended approval of a
    number of experimental products which allow the Postal Service to
    increase services in its core mission, which is the delivery of the
    mail.
        These are just some of the activities that the Commission has been
    active in since the Senate confirmed me to the unexpired term in 2002.
    I am grateful for that opportunity to serve.
        If confirmed for a full term at the Postal Rate Commission, I will
    continue to handle all cases and issues before us in a fair and
    responsible manner and, again, thank you for giving me this opportunity
    today. I would be pleased to answer any questions you might have.

        Chairman Collins. Thank you very much for your service and
    your testimony.
        Ms. Gallagher, you are in the unique position of having
    served on the President's Commission of the Postal Service as
    well as serving as the Governor of the Postal Service Board
    since last November.
        Now that you have seen the Postal Service up close as a
    governor, have you changed your mind on any of the
    recommendations made by the Commission?
        Ms. Gallagher. Not that I can think of, Senator. I have
    been impressed with the management, even more so than we were
    on the Commission. They are doing a terrific job. And I think
    for the most part our recommendations, I will still support.
        Chairman Collins. That is very helpful to know. I was very
    impressed with the work done by the Presidential Commission,
    but obviously seeing the Postal Service more from the inside
    perspective might cause you to alter your judgment. It is good
    to know that you think those recommendations are still valid
    and should be pursued.
        Ms. Gallagher, in response to the prehearing questionnaire
    on the use of the Postal Service's $32 billion pension
    liability and its annual pension related payments, you stated
    that the use of the savings should be balanced between
    mitigating rate increases and pre-funding retiree health
    benefits.
        The Postal Bill that Senator Carper and I have introduced
    would return roughly 25 percent of these savings to the Postal
    Service to mitigate future rate increases and the remaining 75
    percent would be used to pre-fund retiree health benefits.
        Ms. Gallagher. I do agree with it, Senator. I think both
    are critical to the long-term health of the Postal Service. It
    is hard to be sure of what the right thing is. But I think it
    is a good balance and addresses both.
        Chairman Collins. Mr. Giuliano, do you support that general
    approach?
        Mr. Giuliano. Well, I think it is consistent with my
    statement and it is hard for me to in my perspective argue with
    specific percentages or ratios. But I think generally it is
    consistent with what I think would be the right thing to do.
        I think you also have to put it in context of the total
    bill and whatever other restraints and limitations are in the
    bill, what happens with military liabilities and be mindful of
    the total issue.
        Chairman Collins. Ms. Gallagher, the Treasury Department
    has suggested that none of the money should be used to mitigate
    rate increases and instead should be used entirely for pre-
    funding retiree health benefits and other obligations.
        Could you give the Committee a sense of what kind of impact
    that would have on future rate increases if none of the money
    could be used to mitigate rate increases?
        Ms. Gallagher. Clearly we are in a situation where our
    costs are going up. I do not think that will change in the
    future. I think if it was all used toward the retirement
    unfunded liability that we would clearly have to raise rates
    under the cap more often than we would otherwise and certainly
    more, although obviously limited by the cap in your bill. So I
    do think there would be more and bigger rate requests.
        Chairman Collins. Mr. Giuliano, would you like to comment
    on that also?
        Mr. Giuliano. Yes. Clearly it would have a negative impact,
    if you will, on the rate structure and require larger rate
    increases than we anticipate now. I think it is important to
    recognize that the Postal Service has an opportunity to grow
    this business, to actually provide greater service and greater
    performance to the American taxpayer with the introduction of
    additional capabilities, but better service.
        Even though their track record is much better than it has
    been in the past, there are still ways to improve. And what you
    want to be able to do is make this a more attractive service,
    one that actually helps American enterprise in a more positive
    way going forward.
        I also think that you have to remember how this money was
    generated to begin with. This was already money supplied by the
    rate payers and it would be kind of a double bill not to be
    able to get any of that benefit.
        Chairman Collins. I think that is an excellent point.
        Mr. Giuliano, you raise the question of growing the Postal
    Service's business and one reason that I am very excited about
    both yours and Ms. Gallagher's involvement is you have so much
    private sector experience in doing just that. I think it is
    going to be very helpful and already has been very helpful to
    the Postal Service to have the benefit of your experience.
        One real challenge for the Postal Service is declining
    First Class Mail volumes. As you know, this raises questions
    about the long-term future for the Postal Service since First
    Class Mail revenues cover more than two-thirds of the Postal
    Service's institutional costs, many of which are related to
    maintaining the delivery and retail networks that are
    fundamental to universal service, there is a lot of concern
    about what can be done to reverse the decline in First Class
    Mail.
        Mr. Giuliano and Ms. Gallagher, could you give us any
    insights on how you think the Postal Service could begin to
    reverse this troubling trend and what steps have been taken so
    far in this regard.
        Mr. Giuliano. Well, I think the Postal Service and the
    management team has already demonstrated the beginnings of
    that. And, actually, I think we had about a 3- or 4-month
    period here where First Class Mail actually went up. Now, that
    may have been a confluence of positive factors that may not be
    repeating all the time.
        Chairman Collins. An election year, I think, was a major
    factor.
        Mr. Giuliano. The election helped, but it was compounded by
    the financial services businesses and some of these negotiated
    agreements. These have changed people's perspective as to how
    big a role First Class Mail played in their advertising and
    their promotional activities.
        I think that is a key indicator. I think improving
    services, adding things like the automated postal machines,
    Click 'n Ship, extending hours. I know we are talking about
    extending the hours that the post offices are open. Relatively
    simple things that make it more convenient and easier to do
    business.
        We are thinking about this from the customer's perspective.
    What do they need to do their job. What do they need to grow
    their businesses and how can the mail process help that. I
    think if we continue to look at things like that, improved
    could be significant mitigation of volume decline.
        Most businesses face issues like this in one form or
    another. It may not be the same drivers, but most businesses
    are faced with issues where either different technology or
    different competitors come in and create this type of problem.
    There has to be creative thinking as how to overcome it.
        That is why I think that it is so important that in the
    Postal Reform Bill, we review the impact the total legislative
    package has on the ability of the Postal Service to have some
    flexibility in how it addresses customer needs.
        Chairman Collins. Ms. Gallagher.
        Ms. Gallagher. I agree with Governor Giuliano. I think
    clearly there is opportunity to find more ways to make the
    products and services at the Postal Services useful to its
    customer. I do think that has been a strong initiative of the
    Postal Service. He mentions Click 'n Ship and the automated
    postal centers which I think both have made a big difference in
    the use of the postal services.
        We are also working on intelligent mail which I think will
    be a tremendous new service that can bring in volume and
    enhance the way people use the Postal Service.
        I do think the Postal Service should be limited to its core
    business of delivering the mail, but it has the obligation to
    continually look for better ways to do that.
        Chairman Collins. Thank you.
        The Collins-Carper Postal Reform Bill is designed to foster
    more efficient postal operations by giving the Postal Service
    much more flexibility than it has now to set its own rates and
    implement revised operating procedures.
        The bill includes, however, a strict rate cap that is
    intended to ensure that rates will not rise faster than
    inflation.
        A key assumption is that the level of services provided by
    the Postal Service will remain sufficient to meet the personal
    and business needs of this Nation.
        A major concern that mailers have brought to my attention
    is that if the Postal Service projects that its costs are
    likely to rise faster than inflation during some period, it
    might decide to cut services instead of implementing more
    efficient operating practices.
        We tried to avoid that in our bill by requiring the Postal
    Service, in consultation with the Postal Rate Commission, to
    develop and define standards of service. I assume that you all
    support the overall goal of developing service standards and
    providing performance data against which those standards can be
    measured.
        But do you agree with the suggestion that these standards,
    performance goals, and other measures should be included on the
    Postal Service's Web site so that the public would have easy
    access?
        One of my concerns is to make the Postal Service more
    transparent to its customers. Having more information available
    is one way to do that.
        Ms. Gallagher. Senator, I certainly agree that more
    transparency is better and I think the Postal Service is moving
    in that direction voluntarily as well.
        And I do agree with setting performance standards and
    making the performance on those standards public. In terms of
    what specific standards those should be. I do not know at this
    time, but I do agree with the overall goal.
        Chairman Collins. Mr. Giuliano.
        Mr. Giuliano. First of all, I think the Postal Service is
    very transparent compared to most businesses. I mean, they even
    publish their financial statements monthly. There is no
    business that I know that does that. So I think that there is a
    fair amount of transparency already.
        I would like to come at this from the customer's
    perspective. Certainly a customer ought to know what it is
    contracting for in terms of service performance. The idea of
    setting strict service standards and having them published is
    fine.
        But in my view, if you are really going to satisfy
    customers, it may actually restrict the opportunities that a
    customer might have to modify service in a way that is more
    important to them. There may be large mailers or certain
    classes of customers that want a different type of performance.
    And that would be very meaningful to their business.
        And so I am concerned about just restricting service to a
    specific set that is difficult to change and certainly may be
    legislated or monitored by a regulatory agency.
        I think that the best opportunity for the postal customers
    is to be able to work out service standards within the cost and
    the bounds, the other bounds of that total package that might
    be best for them.
        Chairman Collins. I would now like to recognize the
    distinguished Senator from Missouri who has joined us. We thank
    you very much for being here today, Senator Bond. I understand
    you are going to introduce Mr. Hammond.

    STATEMENT OF THE HON. CHRISTOPHER S. BOND, A U.S. SENATOR FROM
                         THE STATE OF MISSOURI

        Senator Bond. Thank you very much, Madam Chairman. I may be
    known as the late Senator from Missouri, but we were trying to
    work out the schedule, a number of commitments I had today. And
    I apologize for being late.
        But I did want to take an opportunity to tell you a little
    bit about a fellow Missourian and a good friend, Commissioner
    Hammond, a graduate of Southwest Missouri State University,
    soon to be known as Missouri State University.
        He is an owner of the family farm in Hickory County,
    Missouri. He served on Capitol Hill from 1979 to 1989 on the
    official staff of Congressman Gene Taylor. And anybody who does
    not remember Gene Taylor, I have many stories to tell about the
    way he assisted me when I arrived here as a rookie in 1987.
        Working on Congressman Taylor's staff, Tony dealt with many
    things in serving the congressman on the Post Office and Civil
    Service Committee. He had many legislative experiences with
    Postal Service rates and operations.
        He has been Executive Director as well as Finance Director
    of the Missouri Republican party. He was Director in 1998 of
    the campaign operations at the Republican National Committee
    and previously served as a field representative.
        Before being named to the Postal Rate Commission,
    Commissioner Hammond was owner and managing member of Hammond
    Company, a private consulting firm, and he served as senior
    vice president of a direct marketing firm and a senior
    consultant to Forbes 2000, Inc.
        For the past several years, Commissioner Hammond has worked
    hard to assure that postal rates are set openly and that they
    are fair. He has been responsible for making sure that an
    adequate level of affordable mail service is available
    throughout the country as the cost of mail service has
    generally tracked the rate of inflation.
        It is my prediction that he will continue to provide the
    highest level of care and service that this country needs as he
    continues another term with the Postal Rate Commission. It is
    with great pride that I support his nomination. I trust the
    Committee will as well. And if you need any help on the floor,
    I will be more than happy to provide it.
        But, Madam Chairman, thank you for the hearing and I thank
    you for giving me the opportunity to say just a few words about
    a good friend for whom I have the highest respect.
        [The prepared statement of Senator Bond follows:]

                       PREPARED STATEMENT OF SENATOR BOND

        Thank you, Madam Chairman, for allowing me to join you today to
    introduce a fellow Missourian, Mr. Tony Hammond, who has been serving
    as Commissioner of the United States Postal Rate Commission since the
    Fall of 2002.
        Commissioner Hammond is a graduate of Southwest Missouri State
    University in Springfield and remains an owner of the Hammond family
    farm in his native Hickory County Missouri.
        He served on Capitol Hill from 1979 to 1989 on the official staff
    of Missouri Congressman Gene Taylor as Legislative Director. During
    Taylor's tenure as Ranking Member of the Post Office and Civil Service
    Committee, Hammond dealt with the diverse issues and interests
    concerning U.S. Postal Service rates and operations.
        From 1989 to 1994, Mr. Hammond was Executive Director, as well as
    Finance Director, of the Missouri Republican Party.
        During the 1998 election cycle, Hammond was Director of Campaign
    Operations at the Republican National Committee where he was
    responsible for political programs nationwide. He was previously RNC
    Regional Field Representative in the Great Lakes Region and the
    Southern Region where he assisted campaigns and state party
    organizations in implementing RNC programs.
        Before being named to the PRC, Commissioner Hammond was owner and
    managing member of T. Hammond Company, a private consulting firm based
    in Arlington, Virginia. He also served as Senior Vice President of the
    direct marketing firm, Feather , Larson& Synhorst, and Senior
    Consultant to Forbes 2000, Inc.
        For the past several years, Commissioner Hammond has worked hard to
    assure that postal rates are set openly, and that they are fair. He has
    been responsible for making sure that an adequate level of affordable
    mail service is available throughout this country as the cost of mail
    service has generally tracked the rate of inflation. It is my
    prediction that he will continue to provide the highest level of care
    and service that this country needs as he continues another term with
    the Postal Rate Commission.
        It is with great pride that I introduce Mr. Hammond before this
    Committee today.

        Chairman Collins. Thank you very much, Senator Bond. Your
    endorsement means a great deal to this Committee and we
    appreciate your taking the time out of your busy schedule to be
    here.
        I know that you have other demands on your schedule, so we
    are happy to excuse you at this time if you would like.
        Senator Bond. I appreciate that. Thank you.
        Chairman Collins. Thank you.
        I am now going to turn to some substantive questions for
    Mr. Hammond. Before I do that, there are three standard
    questions that I need to ask all of you for the record.
        First, is there anything you are aware of in your
    background which might present a conflict of interest with the
    duties of the office to which you have been nominated?
        Ms. Gallagher. No, there is not.
        Mr. Giuliano. No.
        Mr. Hammond. No.
        Chairman Collins. Second, do you know of anything personal
    or otherwise that would in any way prevent you from fully and
    honorably discharging the responsibilities of the office to
    which you have been nominated?
        Ms. Gallagher. No.
        Mr. Giuliano. No.
        Mr. Hammond. No.
        Chairman Collins. And, finally, do you agree without
    reservation to respond to any reasonable summons to appear and
    testify before any duly constituted Committee of Congress if
    you are confirmed?
        Ms. Gallagher. Yes, I do.
        Mr. Giuliano. Yes.
        Mr. Hammond. Yes.
        Chairman Collins. Thank you. It shows you were listening to
    the questions. Two nos and a yes. That is exactly what we were
    seeking.
        Mr. Hammond, in your answers to written questions, you
    expressed the importance of the Postal Service providing high-
    quality, timely data to the Postal Rate Commission.
        In the legislation that Senator Carper and I have
    introduced, we increase the data reporting requirements that
    the Postal Service would have to provide, including requiring
    annual cost, revenue, rates, and service reports requiring SEC
    type reporting and giving the Postal Rate Commission subpoena
    power.
        Do you support these changes?
        Mr. Hammond. Yes, I totally support those changes. I think
    that increased financial transparency at the Postal Service is
    necessary for everyone.
        New periodic reporting requirements would also specifically
    assist us during consideration of rate cases, and in between
    consideration of rate cases because, as you know, currently,
    between omnibus rate cases, we get very little updated
    information.
        And since we were fortunate to go for over 3 years without
    a rate case before us, the data that we had used before was
    really close to being outdated. So that would be very
    beneficial to us if indeed we were to have that. And I hope
    that you will include that in the legislation, yes.
        Chairman Collins. Are there other changes beyond what are
    included in our legislation that you feel would help the Postal
    Rate Commission do its job?
        Mr. Hammond. I think that from what I have seen in your
    draft bill that would cover it very well.
        Chairman Collins. In answers to written questions, you also
    stated that you believe that a rate cap mechanism could help
    shorten the rate making process.
        The complaints that I hear all the time is that the rate-
    making process is too lengthy, too expensive, and too
    litigious. On the other hand, the rate cap must be established
    to provide the Postal Service with incentives to continue its
    work to become more efficient.
        The legislation that I have introduced establishes the
    Consumer Price Index, the CPI, as the rate cap on each class
    and only allows for rate changes for exigency, rate changes in
    extraordinary circumstances.
        First, do you support the rate cap?
        Mr. Hammond. Yes.
        Chairman Collins. Do you think the CPI is the correct
    index?
        Mr. Hammond. I think that it is a good index to use, yes.
        Chairman Collins. Is there anything that you would
    recommend with regard to the rate cap mechanism in the bill?
        Mr. Hammond. Well, I believe you have taken care of this in
    the legislation as it gets to markup; we'll see--but making it
    very difficult for the Postal Service to go beyond this except
    in exigent circumstances, to go outside the rate cap would--it
    needs to have strict limits on it.
        I think those circumstances should be emergency
    circumstances such as something as drastic as when the deadly
    anthrax mailings, for instance, came through rather than just
    the Postal Service finding that it is not raising enough
    revenue.
        You have to force efficiencies on any government monopoly
    and I appreciate the management of the Postal Service recently
    doing a very good job. But still it remains a government
    monopoly and I think you have to have the safeguards that you
    have put in place in that legislation to make sure it stays
    that way.
        Chairman Collins. Our legislation allows the Postal Service
    to change rates for market dominant products, but requires a
    prior review by the Postal Regulatory Commission. The Postal
    Service has expressed a desire for an after-the-fact review.
        In your opinion which approach best meets the needs of both
    the Postal Service, its customers, the competitors, the general
    public? We obviously have a lot of different interests to
    balance.
        Mr. Hammond. Right. Well, certainly the U.S. Postal Service
    if it is to survive well into the 21st Century is going to have
    to have more rate flexibility.
        But on the other hand, especially if you are going to go
    into market dominant products, it remains a government monopoly
    and you have to have somewhere such as a postal regulatory
    commission so that rate payers, the stakeholders, have a place
    to go rather than the Postal Service having ultimate
    flexibility of just charging whatever they want to.
        So you do need to have review by, in this instance because
    it is a monopoly, a regulatory agency to protect the interest
    of the public. That is what it is there for.
        Chairman Collins. Thank you.
        I would like to thank all of the nominees for appearing
    today and for your willingness to serve the public.
        I believe the Postal Service is so important to this
    country and making sure that we have the very best people
    involved on the Board of Governors, and the Postal Rate
    Commission is truly vital.
        We need to make sure we are strengthening the Postal
    Service for the 21st Century and make sure that this
    institution, which has endured for over 200 years, continues to
    serve us for another 200 years.
        I want to thank you all for your commitment, for your
    willingness to serve what I think is a very important cause.
        Without objection, the hearing record will be kept open
    until 5 p.m. today for the submission of any additional
    questions or statements for the record.
        Again, my thanks to all of you, and this hearing is now
    adjourned.
        [Whereupon, at 11 a.m., the Committee was adjourned.]

                                A P P E N D I X

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