[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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