[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]



 
                      THE U.S. POSTAL SERVICE: 101

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

                                HEARING

                               before the

                   SUBCOMMITTEE ON FEDERAL WORKFORCE,
                    POSTAL SERVICE, AND THE DISTRICT
                              OF COLUMBIA

                                 of the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 17, 2007

                               __________

                           Serial No. 110-44

                               __________

Printed for the use of the Committee on Oversight and Government Reform


  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html
                      http://www.house.gov/reform




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             COMMITTEE ON OVERSISGHT AND GOVERNMENT REFORM

                 HENRY A. WAXMAN, California, Chairman
TOM LANTOS, California               TOM DAVIS, Virginia
EDOLPHUS TOWNS, New York             DAN BURTON, Indiana
PAUL E. KANJORSKI, Pennsylvania      CHRISTOPHER SHAYS, Connecticut
CAROLYN B. MALONEY, New York         JOHN M. McHUGH, New York
ELIJAH E. CUMMINGS, Maryland         JOHN L. MICA, Florida
DENNIS J. KUCINICH, Ohio             MARK E. SOUDER, Indiana
DANNY K. DAVIS, Illinois             TODD RUSSELL PLATTS, Pennsylvania
JOHN F. TIERNEY, Massachusetts       CHRIS CANNON, Utah
WM. LACY CLAY, Missouri              JOHN J. DUNCAN, Jr., Tennessee
DIANE E. WATSON, California          MICHAEL R. TURNER, Ohio
STEPHEN F. LYNCH, Massachusetts      DARRELL E. ISSA, California
BRIAN HIGGINS, New York              KENNY MARCHANT, Texas
JOHN A. YARMUTH, Kentucky            LYNN A. WESTMORELAND, Georgia
BRUCE L. BRALEY, Iowa                PATRICK T. McHENRY, North Carolina
ELEANOR HOLMES NORTON, District of   VIRGINIA FOXX, North Carolina
    Columbia                         BRIAN P. BILBRAY, California
BETTY McCOLLUM, Minnesota            BILL SALI, Idaho
JIM COOPER, Tennessee                ------ ------
CHRIS VAN HOLLEN, Maryland
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
JOHN P. SARBANES, Maryland
PETER WELCH, Vermont

                     Phil Schiliro, Chief of Staff
                      Phil Barnett, Staff Director
                       Earley Green, Chief Clerk
                  David Marin, Minority Staff Director

Subcommittee on Federal Workforce, Postal Service, and the District of 
                                Columbia

                        DANNY K. DAVIS, Illinois
ELEANOR HOLMES NORTON, District of   KENNY MARCHANT, Texas
    Columbia                         JOHN M. McHUGH, New York
JOHN P. SARBANES, Maryland           JOHN L. MICA, Florida
ELIJAH E. CUMMINGS, Maryland         DARRELL E. ISSA, California
DENNIS J. KUCINICH, Ohio, Chairman   ------ ------
WM. LACY CLAY, Missouri
STEPHEN F. LYNCH, Massachusetts
                      Tania Shand, Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on April 17, 2007...................................     1
Statement of:
    Burrus, William, president, American Postal Workers Union, 
      AFL-CIO; William H. Young, president, National Association 
      of Letter Carriers; Donnie Pitts, president, National Rural 
      Letter Carriers' Association; and John F. Hegarty, national 
      president, National Postal Mail Handlers Union.............   140
        Burrus, William..........................................   140
        Hegarty, John F..........................................   188
        Pitts, Donnie............................................   159
        Young, William H.........................................   148
    Goff, Oscar Dale, Jr., national president, National 
      Association of Postmasters of the United States; Charles W. 
      Mapa, president, National League of Postmasters; and Ted 
      Keating, president, National Association of Postal 
      Supervisors................................................   218
        Goff, Oscar Dale, Jr.....................................   218
        Keating, Ted.............................................   241
        Mapa, Charles W..........................................   229
    Potter, John E., Postmaster General/CEO, U.S. Postal Service; 
      James C. Miller III, chairman, Board of Governors, U.S. 
      Postal Service; and Dan G. Blair, chairman, Postal 
      Regulatory Commission......................................    13
        Blair, Dan G.............................................    34
        Miller, James C., III....................................    25
        Potter, John E...........................................    13
    Williams, David C., Inspector General, U.S. Postal Service; 
      and Katherine A. Siggerud, Director, Physical 
      Infrastructure Issues, U.S. Government Accountability 
      Office.....................................................    61
        Siggerud, Katherine A....................................    89
        Williams, David C........................................    61
Letters, statements, etc., submitted for the record by:
    Blair, Dan G., chairman, Postal Regulatory Commission, 
      prepared statement of......................................    36
    Burrus, William, president, American Postal Workers Union, 
      AFL-CIO, prepared statement of.............................   144
    Clay, Hon. Wm. Lacy, a Representative in Congress from the 
      State of Missouri, prepared statement of...................   253
    Davis, Hon. Danny K., a Representative in Congress from the 
      State of Illinois:
    Followup questions and responses.............................    45
    Prepared statement of........................................     3
    Goff, Oscar Dale, Jr., national president, National 
      Association of Postmasters of the United States, prepared 
      statement of...............................................   220
    Hegarty, John F., national president, National Postal Mail 
      Handlers Union, prepared statement of......................   191
    Keating, Ted, president, National Association of Postal 
      Supervisors, prepared statement of.........................   243
    Lynch, Hon. Stephen F., a Representative in Congress from the 
      State of Massachusetts, prepared statement of..............     7
    Mapa, Charles W., president, National League of Postmasters, 
      prepared statement of......................................   231
    Miller, James C., III, chairman, Board of Governors, U.S. 
      Postal Service, prepared statement of......................    28
    Pitts, Donnie, president, National Rural Letter Carriers' 
      Association, prepared statement of.........................   161
    Potter, John E., Postmaster General/CEO, U.S. Postal Service, 
      prepared statement of......................................    16
    Schakowsky, Hon. Janice D., a Representative in Congress from 
      the State of Illinois, prepared statement of...............   254
    Siggerud, Katherine A., Director, Physical Infrastructure 
      Issues, U.S. Government Accountability Office:
    Prepared statement of........................................    91
    Various GAO reports..........................................   131
    Williams, David C., Inspector General, U.S. Postal Service, 
      prepared statement of......................................    63
    Young, William H., president, National Association of Letter 
      Carriers, prepared statement of............................   151


                      THE U.S. POSTAL SERVICE: 101

                              ----------                              


                        TUESDAY, APRIL 17, 2007

                  House of Representatives,
Subcommittee on Federal Workforce, Postal Service, 
                      and the District of Columbia,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:04 a.m. in 
room 2247, Rayburn House Office Building, Hon. Danny K. Davis 
of Illinois (chairman of the subcommittee) presiding.
    Present: Representatives Davis of Illinois, Norton, 
Sarbanes, Cummings, Kucinich, Clay, Lynch, Maloney, Marchant, 
and McHugh.
    Staff present: Tania Shand, staff director; Lori Hayman, 
counsel; Cecelia Morton, clerk; Alex Cooper, minority 
professional staff member; and Kay Lauren Miller, minority 
staff assistant.
    Mr. Davis of Illinois. The subcommittee will come to order.
    Let me apologize for being a few minutes tardy. I had 45 
young people from the Kip Charter School that I had promised to 
see. They got caught in traffic and were a little late. But 
thank you all for coming.
    Let me welcome Ranking Member Marchant, members of the 
subcommittee, hearing witnesses, and all of those in 
attendance. Welcome to the Federal Workforce, Postal Service, 
and the District of Columbia Subcommittee hearing on the U.S. 
Postal Service: 101.
    Hearing no objection, the Chair, ranking member, and 
subcommittee members will each have 5 minutes to make an 
opening statement, and all Members will have 3 days to submit 
statements for the record.
    Ranking Member Marchant, who is stuck in a storm, members 
of the subcommittee, hearing witnesses, and the entire postal 
community, welcome to the first hearing the subcommittee will 
hold on the U.S. Postal Service in the 110th Congress. As I 
understand it, this hearing is long overdue. There has not been 
an oversight hearing on the Postal Service in close to a 
decade, and this will be the first of many.
    The U.S. Postal Service performs a valuable national 
service. It delivered over 213 billion pieces of mail to over 
146 million delivery points in 2006. Almost $72 billion was s 
pent in providing these and other postal services required as 
part of the meeting of Postal Service needs and the universal 
service mandate.
    To ensure the financial service of the Service and its 
primary function of mail delivery, last year the Congress 
passed the Postal Accountability and Enhancement Act of 2006. 
The act is a direct result of the postal community coming 
together and reaching agreement on work sharing, rate setting, 
pricing, flexibility, diversity, and a number of other 
provisions to ensure that the Service can compete in today's 
marketplace.
    To ensure compliance with the act, the subcommittee is 
going to conduct aggressive postal oversight and monitoring the 
implementation of the Postal Accountability and Enhancement Act 
of 2006.
    In addition to the act, the subcommittee will look into 
mail delivery services in Chicago, diversity in Service's upper 
management, and it will engage the postal community in a 
discussion about out-sourcing the delivery of U.S. mail. 
Highway contract routes, are a long-established and accepted 
postal transportation contracts that are used for bulk mail and 
delivery services in rural areas. What is less established is 
the Service's use of contractors to deliver mail to suburban 
and rural areas and whether or not this practice is good public 
policy. These issues and others raised during this hearing will 
be the basis for future subcommittee hearings.
    Before I thank today's witnesses for taking the time to 
testify before this subcommittee, I also want to announce that 
today Senator Akaka and I will introduce legislation honoring 
public servants during Public Service Recognition Week, May 7th 
through May 13th. The mail does not get delivered and the 
Government cannot function without dedicated public servants. I 
am pleased to make this announcement during this hearing, 
because the Postal Service, through its employees, ensures 
equal access to secure, efficient and affordable mail service, 
and they should be commended for it.
    In closing, I ask unanimous consent to submit for the 
record the statement of Representative Jan Schakowsky, a 
Democrat from Illinois, and other Members wishing to submit 
statements for the record.
    Hearing no objection, those will be submitted.
    [The prepared statement of Hon. Danny K. Davis follows:]
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    Mr. Davis of Illinois. At this time I would like to extend 
5 minutes for an opening statement to members of the 
subcommittee. The gentleman from New York, Mr. McHugh?
    Mr. McHugh. Mr. Chairman, thank you. I will not take 5 
minutes.
    This is deja vu all over again for some of us, Mr. 
Chairman. I do have a statement that I am going to ask 
unanimous consent can be entered in its entirety in the record.
    Mr. Davis of Illinois. Without objection.
    Mr. McHugh. I would say to you, Mr. Chairman, 
congratulations, not just for holding this hearing, although 
certainly that is important, but for taking up this gavel. I 
look forward to working with you as we have in the past on 
these kinds of very critical issues.
    It has been 10 years, as you noted. I think that is why we 
have a lot of pent-up interest here today. Obviously, this is a 
new era based on a new paradigm for the Postal Service. Many, 
many folks in this room joined us in working long and hard in 
helping to construct the first postal reform legislation in 
more than 35 years. I am looking forward to hearing some of the 
perspective held by those individuals in the early days of this 
new reform.
    So, Mr. Chairman, again with my words of appreciation and 
anticipation toward our four panels, I would yield back the 
balance of my time.
    Mr. Davis of Illinois. Thank you so very much. I appreciate 
the comments of the gentleman from New York, who has labored 
long and hard on these issues. We look forward to working with 
you continuously through this session.
    Mr. Lynch.
    Mr. Lynch. Thank you, Mr. Chairman.
    I will take an opportunity to use a brief amount of time. I 
would like to thank you and Ranking Member Marchant for holding 
this hearing. I would also like to thank today's panelists.
    Last year witnessed the enactment of H.R. 6407, the Postal 
Accountability and Enhancement Act. That was the first major 
reform of the U.S. Postal Service in over 35 years and the 
result of a decade-long effort led by the distinguished 
chairman of our subcommittee, Mr. Davis, the chairman and 
ranking member of our full committee, and Mr. Waxman and Mr. 
Davis of Virginia and Mr. McHugh of New York.
    However, while this legislation constitutes an important 
first step toward addressing the financial challenges faced by 
the Postal Service, we must continue to exercise proper 
oversight of this institution to ensure the responsible 
implementation of the act and safeguard the best interests of 
our postal workers, our partners, our greatest asset toward 
effecting a meaningful postal reform.
    The bravery, dedication, and sacrifices made by our Postal 
Service workers was never more evident than in the weeks 
following September 11th, during which a series of anthrax 
attacks were conducted through the U.S. mail system. 
Tragically, two employees of the Brentwood mail sorting 
facility, Joseph Curseen, Jr., and Thomas Morris, Jr., were 
among the victims of these attacks. At the time, every one of 
our postal workers--every clerk, every carrier, every mail 
handler--was faced with the very difficult choice between 
continuing to come to work under very difficult and dangerous 
conditions and staying at home, and thereby risking the 
stability of our own economy. It was a special responsibility 
and dilemma for our Postal union representatives, who had the 
dilemma of sending their members, sending their workers into an 
area where we knew there was anthrax contamination.
    Behind the scenes on the September 11th attacks and 
thereafter, there was much hanging in the balance. At the end 
of the day, the postal unions and the postal workers went to 
work and the mail kept running; however, not without great 
concern.
    As we all know, America's postal workers chose to come to 
work because they considered it their patriotic duty to do so. 
Accordingly, I believe it is our duty to safeguard the best 
interests of America's postal workers as the long process of 
modernization of the U.S. Postal Service moves forward. To this 
end, I welcome the continued input of our postal worker unions, 
the American Postal Workers Union, the National Association of 
Letter Carriers and the National Postal Mail Handlers Union and 
the National Rural Mail Carriers Association in this hearing.
    Thank you, Mr. Chairman. I yield back the balance of my 
time.
    [The prepared statement of Hon. Stephen F. Lynch follows:]
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    Mr. Davis of Illinois. Thank you, Mr. Lynch.
    Delegate Norton.
    Ms. Norton. Thank you, Mr. Chairman. I very much appreciate 
that we are having an early oversight hearing on the Postal 
Service and that our committee has reincorporated the Postal 
Service into this subcommittee. It is very important oversight.
    What your chairmanship and the new committee configuration 
promises is the kind of continuous oversight that this most 
very important service of the United States of America 
deserves.
    The Postal Service and I have gone through a lot together 
because of the trauma at Brentwood and the heroic way in which 
both the employees and management faced that extraordinary and 
unique situation. There were bumps along the way, but if one 
walks into that new facility and to the other facilities here 
in the region, one sees the resiliency of postal workers and of 
the way in which management and workers have worked together, 
not only to recover but to move forward in ways that we believe 
provide far greater safety.
    The new Brentwood is no longer the Brentwood. It has been 
appropriately renamed for the two employees who lost their 
lives. I think that the entire country now has come to grips 
with the importance of safety first, particularly given the way 
in which we all depend upon a vital service like the Postal 
Service. So my congratulations go to employees and to 
management for the way in which they have come to grips with 
this unique and awful crisis.
    Mr. Chairman, I heard the piece on NPR this morning. I 
don't know if you have mentioned it. I was in the shower this 
morning and I heard the melodious voice of our own chairman. It 
is a voice that you could recognize anywhere. He was describing 
the upcoming hearing. What I was surprised to hear about, 
however, was that there had been some slippage since the bad, 
old days.
    I am not sure what the figures show in the District of 
Columbia, but I have very painful recollections of the early 
1990's when this region was at the bottom in delivery time, and 
I must tell you I have never seen anything like what the Postal 
Service in this region did. It went to the very top. So I have 
seen what the Postal Service can do. I have seen what the 
Postal Service can do in the midst of the worst crisis 
imaginable, the anthrax crisis. And I have seen what the Postal 
Service can to when this region, in particular, is in the pits 
and then rises to the top.
    I was concerned that Chicago had not had the same 
experience we had, or perhaps you are having the same 
experience we had, that you are now below the average and you 
yearn to be at least average and perhaps where I suppose we 
still are--and I will have to check that out--but where we were 
was at the very top.
    This hearing comes, I think, in time and with the kind of 
oversight that I can tell you that with oversight, with 
oversight the Postal Service, in fact, corrected the problem in 
this region. With oversight, I have no doubt that the very same 
will happen in the Chicago region.
    I thank you again for this hearing, Mr. Chairman.
    Mr. Davis of Illinois. Thank you very much. I can assure 
you that Chicago shall follow the District of Columbia and in 
the next hearing we will see tremendous improvements.
    Our first panel is seated and I would like to just 
introduce them before they testify.
    Panel one: John Potter was named 72nd Postmaster General of 
the United States of America on June 1, 2001. Jack Potter has 
led the Postal Service to record numbers of service, 
efficiency, and financial performance.
    Our second witness, Mr. James C. Miller III, was elected 
chairman of the Board of Governors of the U.S. Postal Service 
in 2005. In addition to serving on the Board, he is senior 
advisor to the international law firm of Blackwell, Sanders, 
Pepper and Martin. The Postmaster General and Deputy Postmaster 
General serve at the pleasure of the Governors.
    Our third witness, whom we have known in another life, Mr. 
Dan Blair, serves as the first chairman of the Independent 
Postal Regulatory Commission, the successor agency to the 
former Postal Rate Commission. He was unanimously confirmed as 
a commissioner of the former Postal Rate Commission on December 
9, 2006, by the U.S. Senate, and designated chairman by 
President George W. Bush on December 15, 2006.
    Gentlemen, thank you very much.
    It is our policy that all witnesses are sworn in, so if you 
would rise and raise your right hands.
    [Witnesses sworn.]
    Mr. Davis of Illinois. The record will show that each 
witness answered in the affirmative.
    Thank you very much.
    Of course, your entire statements will be placed in the 
record. You have been through this many, many times, so you 
know the drill. The green light indicates that you have 5 
minutes to summarize your statement. The yellow light means 
that time is running down and that you have 1 minute remaining 
to complete the statement. Of course, the red light means that 
time has expired and we would hope that witnesses would stop.
    We will begin with our Postmaster General. Mr. Potter, 
welcome and thank you very much for being here.

  STATEMENTS OF JOHN E. POTTER, POSTMASTER GENERAL/CEO, U.S. 
    POSTAL SERVICE; JAMES C. MILLER III, CHAIRMAN, BOARD OF 
  GOVERNORS, U.S. POSTAL SERVICE; AND DAN G. BLAIR, CHAIRMAN, 
                  POSTAL REGULATORY COMMISSION

                  STATEMENT OF JOHN E. POTTER

    Mr. Potter. Good morning, Mr. Chairman and Ranking Member 
Marchant and all the members of the subcommittee. I am honored 
to be here as America's postal system enters a new era.
    It is appropriate that I am joined by Board of Governors 
Chairman Jim Miller and Postal Regulatory Commission Chairman 
Dan Blair. Our ability to work together as roles are changing 
is critical to the success of the new law. The Postal 
Reorganization Act of 1970 converted a heavily subsidized Post 
Office Department into a self-supporting Postal Service, one 
defined by excellent service, customer satisfaction, and 
productivity improvement. Our people have done an outstanding 
job.
    Unfortunately, significant changes in the communications 
and delivery markets have made continued success under the 
original law problematic. That is why our Nation is fortunate 
that so many have recognized this and acted to preserve 
affordable, universal Postal services.
    I appreciate the efforts of this committee, both houses of 
Congress, Comptroller General David Walker, the administration, 
and the President's Commission on the U.S. Postal Service. It 
is my hope that 30 years from today a future Postmaster General 
will sit at this table and report on the progress made possible 
by the Postal Accountability and Enhancement Act of 2006.
    Unfortunately, our business model remains broken, even with 
the positive pricing and product changes in the new law. With 
the diversion of messages and transactions to the Internet from 
the mail, we can no longer depend on printed volume growing at 
a rate sufficient to produce the revenue needed to cover the 
costs of an ever-expanding delivery network.
    This is not to say that the new law does not offer 
opportunities. We are in a better position than ever to respond 
quickly to market conditions, and we will operate far more 
nimbly in the expedited and packaged product sectors. Growth is 
our greatest challenge, as we shift from a transaction-based 
mail stream to one centered on lower-margin marketing and 
advertising mail.
    People are also finding new uses for their mail. The State 
of Oregon conducts elections through the mail, resulting in 
greater voter participation. This is encouraging and presents a 
unique opportunity for our democracy. We will continue our work 
with all mailers and the use of the latest technology to add 
even more value to the mail.
    One example is the new intelligent mail bar code. It 
improves quality, cuts costs, and increases convenience for 
mailers and for the Postal Service. The good news is that 
marketers have learned that direct mail adds to the value of 
campaigns, and that mail complements other advertising media, 
including the Internet. Overall, direct mail is among the 
fastest-growing and most effective advertising channels in 
America today, and that is why I am bullish on the mail. But I 
am also a realist. Success under the new law will not be easy. 
We have never worked under a fixed rate cap. We have never had 
to manage our costs by class of mail. Both, to me, are 
extremely challenging.
    Because we have little control over some costs such as fuel 
and employee retirement and health benefits, we must maintain 
an intense focus on managing what we spend. Keeping our rates 
under the rate cap, and being able to pay our employees a fair 
wage requires us to find ways to remove an additional $1 
billion in costs each year. Our preferred path to staying under 
the rate cap is to achieve productivity targets consistent with 
the needed billion dollars in savings. Management and the 
unions can and should work together to increase productivity in 
processing, retail, and delivery operations, thus keeping costs 
at or about the rate of inflation.
    If we do not do that, we will have created a situation that 
requires other action such as reducing service or contracting 
out. Since the earliest days of America's Postal system, 
contractors have transported and delivered the mail safely and 
securely. They are screened by the Postal Inspection Service, 
and, like career employees, are subject to legal penalties 
under Title 18 of the United States Code for criminal 
mishandling of the mail.
    Procedures governing contracting out are contained in the 
labor/management agreements with our unions. They are a product 
of complex give-and-take that marks collective bargaining. Let 
me assure you that it is not, it is not our intention to take 
delivery work performed by Postal employees and contract that 
work out. We do contract out new deliveries, but only in those 
locations where it makes sense, and in accordance with our 
national labor agreements. Of new deliveries, those new homes 
and businesses in 2006, 94 percent are currently being served 
by U.S. Postal Service city and rural letter carriers. I do not 
foresee laying off any carriers as a result of out-sourcing. 
That is something I pledge not to do.
    I stand ready to work with our unions to secure the future 
of our organization, its people, and the people we serve.
    In closing, let me reiterate my sincere belief that the 
Postal law offers opportunities for the Postal Service and the 
entire mailing community. We will take full advantage of these 
opportunities in support of our historic mission of providing 
affordable, universal mail service to our Nation.
    Let me just say, since Delegate Norton brought it up, 
Washington, DC, remains the top performer in the country.
    Mr. Chairman, you know that I am committed to Chicago and 
the folks in Chicago to provide similar results and a similar 
turn-around as was seen in Washington, DC.
    I would be pleased to answer any questions you may have 
after the remaining speakers.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Potter follows:]
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    Mr. Davis of Illinois. Thank you very much, Mr. Postmaster 
General.
    Now we will proceed to Chairman Miller.

                  STATEMENT OF JAMES C. MILLER

    Mr. Miller. Thank you, Mr. Chairman, Mr. McHugh, Mr. Lynch, 
Mr. Sarbanes. Thank you for inviting us here today. Thank you 
for holding this hearing. We are always looking for ways and 
opportunities for improving our service.
    I have a statement that I submitted for the record. I ask 
it be included in the record.
    Mr. Davis of Illinois. Without objection.
    Mr. Miller. Thank you very much.
    It is a statement on behalf of the Board of Governors, the 
entire Board of Governors of the Postal Service. Our message to 
you today is that all of us, the Postal Service employees, the 
Postal Regulatory Commission, the customers of the Postal 
Service, and Members of Congress must all pull together if this 
enterprise is to provide the kind of service at reasonable 
prices that the American people have come to expect. Yes, we 
have made substantial progress in the last few years: 
transformation plan, rate increases below inflation, increased 
quality, contraction of the labor force, streamlining the 
network, overcoming challenges of higher fuel costs, paying off 
$11 billion in debt, and 7 years of increased productivity.
    However, the centuries-old social compact that has 
characterized the Postal Service, where you could defray almost 
any level of cost by raising the price on monopoly mail, just 
doesn't work any more. That compact is broken. The reason is 
that we are in a competitive environment. In the economists' 
terms, the demand for monopoly mail is shifting to the left and 
becoming more and more elastic as time goes forward from 
competitive sources. They just simply can't do that any more. 
We have to re-evaluate.
    The business model, as my friend Jack Potter has indicated, 
is broken. By the way, I am delighted and honored to be here 
with Mr. Potter and Mr. Blair and the other panelists that will 
appear before you today.
    We have to be much more consumer oriented. I have in my 
statement an example of where I bought some stamps in Los 
Angeles, and the Postmaster came out and thanked me personally 
for buying so many stamps, and saying if there is anything else 
she could do, she would be glad to do that.
    I also gave an example of a letter carrier who complained 
about a bunch of mail that I had proffered. Now, it could have 
been the other way around. It could have been the mail carrier 
had done the customer work, and we have all had mail carriers 
that have been delightful and been very solicitous of our 
business and postmasters that have not been so solicitous. But 
we have to be more solicitous of our customers. We have also 
got to listen to the needs of our customers, even anticipate 
the needs of our customers. We have also got to be much more 
innovative. We need more win/wins, like the forever stamp. The 
forever stamp is good for us and it is good for customers. 
Automated postal service where you go in and are able to weigh 
something, mail it right there, click and ship, grade 
innovation. Our Web site, which is visited by a lot of people 
every day, very useful. I visit it all the time.
    We need better metrics, as the GAO has pointed out. We need 
to, as my friend Allen Murton over at George Mason University 
said, what gets measured gets better. If we have the right 
measures, things will get better.
    Even more attention to cost is needed. Flats processing 
machines hold potential for substantial savings.
    By the way, on the cost side you need to bear in mind that 
this new law adds cost to the Postal Service, not just in terms 
of the costs that we have had recently announced in February, 
but adds cost, Sarbanes/Oxley and other things.
    We need to make the structure of rates more closely 
approximate the structure of cost. I gave an example in my 
testimony. When I was at the undergraduate University of 
Georgia I worked at a hardware store, and the manager gave me 
the key to reading the little script on there that told me what 
the wholesale price was of any big item and authorized me to 
negotiate down to the wholesale price. And then after a while I 
began to think, if we sold everything at wholesale price there 
wouldn't be anything left over to pay the rent, the building, 
the light bill, and my meager salary. Now, the Postal Service 
can't sell at wholesale rates, either. We have to do better 
than that.
    I think it is really important, and my colleague over here, 
Mr. Blair, and his colleagues at the Postal Rate Commission, 
how they establish the parameters of our competition in our 
monopoly or non-competitive sector and also in our competitive 
sector.
    I remember when I was chairman of the Federal Trade 
Commission, Chairman John Dingle of the Commerce Committee 
emphasized to me, he said, if I am given the choice of writing 
the goals of a bill and writing the process, I will choose the 
process every time and I will beat you ever time. The process 
is really key here.
    Members of Congress can help. To ban contracting out is a 
very bad idea. As Jack has just said, we don't anticipate 
additional contracting out right now. Contracting out is only, 
like, 2 percent of our total deliveries. I mean, this is just a 
small sliver, but to ban it, to put us in a box and say never 
is a very bad idea.
    You also need to give us more running room with respect to 
the streamlining of our logistics system. Constant restraints 
on our ability to streamline is very costly. It costs all of 
the mailers.
    Mr. Chairman, by the way, we would like to have better 
relations with Congress, the Board and the Postal Service 
management both. I think it is only that way we can find out 
what your concerns are, and also you can find out what our 
problems are.
    The Postal Service is the 57th largest enterprise in the 
world measured by annual sales. It is the 20th largest 
domestically. It carries 44 percent of the world's mail. Its 
pickup and delivery goes to 146 million homes six times a week. 
It is in the top 25 most respected companies in America. It is 
the most respected Government agency. All that is a tribute, in 
my judgment, to our distinguished Postmaster General, Jack 
Potter, and his team at the Postal Service, and to postal 
employees. We are proud of the record that we have and we want 
to make it even better.
    At the appropriate time, Mr. Chairman, I would be happy to 
answer and respond to any of your questions.
    [The prepared statement of Mr. Miller follows:]
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    Mr. Davis of Illinois. Thank you very much, Mr. Chairman.
    We now will proceed to Chairman Blair.

                   STATEMENT OF DAN G. BLAIR

    Mr. Blair. Good morning, Chairman Davis, members of the 
subcommittee. Thank you for the chance to testify here this 
morning. I thank you for the opportunity to appear here on the 
panel today with Postmaster General Potter, as well as Chairman 
Miller. I also want to give a brief thank you to you for your 
interest in the Postal Service over the years, and especially 
thank you to John McHugh for your efforts over the last 12 
years in bringing this to fruition. I think that your efforts 
have paid off, so thank you very much.
    I also want to acknowledge my fellow commissioners here 
with me this morning, and Vice Chairman Tisdale, Commissioners 
Goldway, Hammond, and Acton, who are in the audience this 
morning.
    The passage of the Postal Accountability and Enhancement 
Act represents a profound change in our regulatory functions 
and significantly enhances the Commission's authority. As 
noted, the Postal Service will have more autonomy in setting 
rates, particularly for its competitive products. However, the 
ability to increase rates for market dominant products will be 
limited ordinarily by increases in the Consumer Price Index. 
The act assigns continued oversight responsibilities to the 
Commission.
    The law equips the PRC with authority to use new 
enforcement tools, including subpoena authority; the authority 
to direct the USPS to adjust rates and take other remedial 
actions; and the imposition of fines in case of deliberate 
noncompliance with applicable postal laws.
    We will analyze and report on the Service's compliance with 
the new law, consider complaints, and report on a regular basis 
to the President, Congress, and the public.
    The Commission is fully engaged in implementing the 
strength and regulatory responsibilities required by the act, 
as well as completing pending business in the previous law. We 
understand that transforming the Commission into the regulator 
envisioned by the reform legislation will result in changes to 
our organizational structure and work force capacity. The PRC 
is working with an outside expert in this regard.
    Regarding old business, on February 26th the Commission 
rendered its recommended decision on the most recent omnibus 
rate case. This was the first fully litigated case since 2001. 
We audited the Service's projected revenue needs and made 
adjustments to their initial estimates based on subsequent 
Postal Service refinements of these estimates. We also 
recommended improvements in the design of rates for many postal 
products at the Service's request to align rates more closely 
with shape.
    Our decision relied on well-established ratemaking 
principles, including a reaffirmation of the principle that 
work-sharing discounts should be limited to the amount of the 
cost savings accrued to the Postal Service, the approach 
ratified by the act.
    On March 19th the Postal Governors endorsed the 
Commission's rate recommendations with tree limited exceptions, 
including those for standard rates, flats, mail. On March 29th 
the Commission issued an order establishing procedures for 
further consideration of these issues and invited comments from 
interested parties before the end of this month. Because the 
Commission deliberations are ongoing, I hope people will 
understand that it is inappropriate for me to address them 
specifically at this time.
    One of the most critical responsibilities the act assigns 
to the Commission is the establishment of a modern system for 
regulating rates and classes for market-dominant postal 
products. We are moving quickly to develop regulations for the 
new ratemaking system.
    The Commission published an advanced notice of proposed 
rulemaking on January 30th soliciting public comments on how 
the Commission can best fulfill its responsibilities and 
achieve the objectives of the act. The initial round of 
comments was due on April 6th, and reply comments are due May 
7th. To date, 32 parties have submitted comments.
    Creating a regulatory framework for the establishment of a 
more modern rate setting process is only one of the many 
actions facing the Commission. The act directs the Postal 
Service, in consultation with the Commission, to establish 
service standards for market-dominant products and assigns 
regulatory oversight to the Commission. The act also directs 
the Postal Service and the Commission to consult on developing 
a plan for meeting these standards. We look forward to full 
consultation, as envisioned by the act, with the Service later 
this spring and summer.
    A key aspect of the Commission's ongoing efforts is 
outreach, soliciting input from postal stakeholders, especially 
mail users, in consultation with other Government agencies such 
as Treasury, State, the FTC, Customs and Border Protection, the 
Postal Inspector General, and the GAO. Appearing before this 
subcommittee today and hearing your views and concerns is a 
critical part of this process.
    Mr. Chairman, the benchmarks established for the Commission 
pose some daunting challenges, especially in light of the 
Postal Service's opportunity to file one last omnibus rate 
request under prior law. There is no question that this final 
rate case will divert Postal Service and Commission resources 
that, in my view, would be better devoted to developing a new 
system of regulatory oversight. Nevertheless, the Commission is 
committed to timely performance of all its statutory 
obligations, and to doing so in a reasoned and balanced manner.
    Mr. Chairman, members of the subcommittee, thank you for 
this chance to testify today. I ask that my written statement 
be included in the record, and am happy to answer your 
questions.
    [The prepared statement of Mr. Blair follows:]
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    Mr. Davis of Illinois. Thank you very much, Mr. Blair.
    We will now move to the question and answer part of this. I 
will begin.
    Mr. Postmaster General, why don't I begin with you. All of 
us are proud of the Postal Accountability Act, which was signed 
into law on December 20, 2006, which replaced the Federal body 
that regulated the U.S. Postal Service, the Postal Rate 
Commission, with the Postal Regulatory Commission, and gave 
this new entity greater powers.
    My question is: what do you see in the mix of all of this, 
and what do you view as the greatest challenges in 
implementation of the Postal Accountability Act?
    Mr. Potter. Mr. Chairman, probably the initial challenge is 
to develop the regulatory process, and what we are doing is we 
are working as closely as we can with Dan Blair and his fellow 
Commissioners and the Postal Regulatory Commission, as well as 
mailers, to make sure that the product of this regulatory 
process serves the people that it was intended to, and that is 
the mailing community. So we are working very closely to 
develop that process. There are some hurdles in the new law 
that, quite frankly, as my testimony stated, are going to be a 
challenge for us. We have never attempted to manage our cost by 
product line, which is what this is asking us to do. We have 
always taken a tact of we would make investment that would 
produce the biggest return for the Postal Service, not by class 
of mail but by bottom line for the Postal Service, and it is 
going to have us rethink some of our investment strategy so 
that we can meet the tenet of the law, which basically says 
keep your rates below inflation by class of mail.
    Another issue is going to be the transition and the 
establishment of service standards for all classes of mail and 
tracking systems for all classes of mail. We do have standards 
now that we are working with the Mailers Technical Advisory 
Committee on, as well as other mailers, people who use the 
mail, but establishment of those standards and goals at the 
same time to me is problematic. I believe that we should 
establish the standards, we should put measurement systems in 
place, but we shouldn't establish a goal until we have some 
base of performance, and then, again, establish a goal off of 
that base.
    But, in addition to that, the law calls for more 
transparency under Sarbanes-Oxley, and we are going to have to 
work very hard to live up to what the law is asking us to do.
    Let me assure you, though, that we are committed to 
implementing the law and to taking full advantage of the 
flexibility that is built into the law. We understand why 
different provisions are put into the law. We are going to 
live, again, up to the spirit of that, and we hope to take 
advantage of the flexibility for pricing that is built into the 
law, as well as take advantage of the fact that we are going to 
be allowed to compete for package services, expedited services, 
and others as decisions are made along the lines of what is a 
competitive product and what is a market dominant product.
    Mr. Davis of Illinois. Thank you very much.
    On January 23, 2007, the Inspector General's office issued 
an internal report concerning Cintas, which is a service 
contractor that provides a full range of services from uniform 
programs, interest mats, to restroom supplies, and promotional 
products. The investigation centered on Cintas adding a 
randomly calculated additional charge or environmental charge 
to its services. The report ultimately recommended that the 
Postal Service consider suspension and debarment of the Cintas 
Corporation. Have you, since this recommendation, renewed this 
contract? And if so, can you tell the committee why?
    Mr. Potter. I am not familiar with that contract.
    Mr. Davis of Illinois. Thank you.
    [The information referred to follows:]
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    Mr. Davis of Illinois. You recently announced that 100 new 
carriers would be brought on board in Chicago.
    Mr. Potter. 200.
    Mr. Davis of Illinois. 200 new carries would be brought on 
board to shore up delivery capability. Overall, we have seen 
the number of carriers falling by more than 9,000 in the last 5 
years, according to the annual report. We are talking about 
across the board. Is there a connection between these 
reductions in the carrier work force and the delivery problems 
that we are seeing in various parts of the country?
    Mr. Potter. The bulk of the reduction in the city carrier 
work force is the result of increased use of automation on the 
part of--or increased bar coding capability of letter mail for 
those carriers. So mail that we can put a bar code on, we are 
able to put into walk sequence for the letter carriers, and so 
the letter carrier work is more productive.
    In the case of Chicago and in a couple of cases around the 
country, we have had decisions made by local management not to 
hire the authorized carrier levels, and when those come to our 
attention, we basically work with the local management to bring 
those carrier staffing levels up to speed. So we are monitoring 
that from a national level, and Chicago is an example of where 
the national authorized staffing for that local area was 
allowed to be dropped below what our recommendation would be, 
and so that is why we are hiring the carriers.
    We now are in the process of checking around the country to 
see whether or not other situations like that exist. But the 
bulk of the reduction in city letter carriers is a result of 
improved productivity.
    Mr. Davis of Illinois. Thank you very much.
    I see that my time has ended, and so we will go to Mr. 
McHugh.
    Mr. McHugh. Thank you, Mr. Chairman.
    General Potter, you heard Chairman Blair's comments about 
his concerns about your filing another rate case under the old 
system. What can you say to assuage some of Chairman Blair's 
concerns, and I might add some of the concerns I have heard 
amongst the mailing community, if anything?
    Mr. Potter. Well, I the provision in the law allows us to 
file one more time under the old rules, and I think that was a 
good provision of the law because it basically anticipated that 
it would take some time for the new regulatory body to put in 
new regulation, and by law they have to do that by June 2008. 
By law we have to make a decision whether to file under the old 
rules or the new rules by December 2007. So, being pragmatic, 
not knowing what the new rules are, you have to move ahead with 
or anticipate that you have to prepare a case as if you were 
filing under the old rules. We are hoping that over the course 
of the coming months that the Commission will be able to make 
some decisions that will give us some guidance as to what the 
outcome of their decisionmaking process on the new regulations 
is. Certainly that would weigh heavily in terms of how the 
Board of Governors might make a decision on whether to file 
under the old rules or the new rules.
    Mr. McHugh. So it hasn't been a decision made?
    Mr. Potter. No. No decision has been made. No new rules 
have been promulgated. So we are kind of operating in the blind 
right now.
    Mr. McHugh. Of course, 18 months is the outside window. 
Chairman Blair, do you think you have a chance of doing it 
before then?
    Mr. Blair. Well, I think we do. Last month we had the 
opportunity to engage in what was deemed to be a summit at the 
Bolger Center, which we had about 300 folks, and at which the 
Postmaster General and I welcomed and talked about this issue.
    One of the things that I wanted to throw out there was the 
idea that we would get a framework in place by, say, maybe the 
fall--October was the date that I mentioned--in order to allow 
the Postal Service the opportunity to have a rate increase 
under the CPI cap as early as some time next year.
    Now, I agree with the Postmaster General that the law 
clearly envisions the opportunity for a new rate case filing, 
but I think what the law didn't really take into account was 
the fact that we just completed one rate case right as the new 
law was being enacted, and so the question remains is there a 
need for a new base case or can the omnibus rate case that just 
took place serve as that base case.
    I think there are some issues that still need to be sorted 
out, and I think we can sort them out over the next few weeks. 
Initially I was going to say over the next few months, but 
those 18 months have now dwindled down to 14 months and time is 
flying by, and so I think that we really need to make some 
decisions and work this out over the course of the next few 
weeks.
    Mr. Potter. If I could?
    Mr. McHugh. Sure.
    Mr. Potter. Hopefully my remarks have not created an 
impression that we are not working as closely as we can. These 
are very complicated issues that deserve quite a bit of debate 
when it comes to the regulation. And I am not just talking 
about a discussion between the Postal Service and the 
regulator; I am talking about the entire mailing community 
participating in that process. So this wasn't meant to case 
aspersions; it is just, being a good businessman, you have to 
sit back and say, all right, keep your options open.
    Mr. McHugh. No aspersions cast, or certainly none received. 
Trust me, I know a little bit about the complexity of this 
bill. I understand the challenges therein.
    You spoke about it. Your business model is still broken. 
Chairman Miller, you mentioned, underscored that, as well. You 
talked about a need for what I believe I heard you describe as 
running room to streamline your logistics system.
    What kind of broken system are you dealing with? What still 
needs to be fixed? Is this a legislative fix or administrative 
approaches? What kind of parameters?
    Mr. Potter. Well, let me try to clarify what the weakness 
is. The weakness in Postal Service going forward is that our 
core product, first class mail, is in a state of decline, so 
volume is declining. It is a high margin product. It is largely 
transaction based--bill presentment, bill payment--business 
mail. That product is very weak, or is weakening over time with 
competition from the Internet.
    So the challenge, from a Postal Service perspective, is to 
be able to respond to that weakness in volume and revenue 
growth going forward, as well as to change our processes and 
our infrastructure in response to mailer behavior. As time goes 
on, there has been a consolidation of printing industry, list 
processors, logistics companies. They are taking greater 
advantage of discounts that are available through the current 
rate structure, and as they do what we end up with is under-
utilized aspects of our network.
    So our response to that low use of network assets might 
mean consolidation of facilities or some other changes, 
staffing levels, changes that are necessary to keep the Postal 
Service productive and to, again, allow us to operate under the 
rate cap.
    Mr. Davis of Illinois. Thank you, Mr. McHugh.
    Mr. Miller. Could I add, Mr. Chairman, just a moment 
please, sir? On the question of a rate case under the old law 
versus the new law, first let me say I think it is admirable, 
highly admirable, that the Postal Regulatory Commission is 
moving forward with trying to establish these parameters. I 
appreciate, Dan, your working with us on that.
    The Board of Governors has not yet decided what to do. It 
is really their authority would be exercised here. I think the 
next step is for us to decide what we would like to see in 
terms of a rate structure, a new rate structure, and then we 
would look at whether we could do that, accomplish that under 
the new law with the parameters that the Postal Regulatory 
Commission would set forth, or whether we have to do that under 
the old law. That depends on what the PRC comes up with, so we 
haven't made that determination yet.
    I will say to you--I think I am speaking on behalf of the 
other Governors--that it is unlikely that in a new rate case we 
would have an overall rate increase of anything more than the 
CPI. As the new law contemplates, we would anticipate having 
rate increases annually, something no more than the CPI by 
class, but that determination is one that the Governors are 
focusing on, that the staff of the Postal Service is helping us 
evaluate, and some outside people are helping us evaluate, as 
well.
    Mr. Davis of Illinois. Thank you very much.
    We will go now to Mr. Lynch.
    Mr. Lynch. Thank you, Mr. Davis, Mr. Chairman.
    First of all I want to thank Mr. Potter, Mr. Miller, and 
Mr. Blair for coming before the committee and helping with this 
work. At these hearings I am required to do a little bit of 
disclosure. First of all, my Mom was a postal clerk for 30 
years, now retired. My Aunts Sis and Kay, her two sisters, also 
clerks. My sister Linda is a steward with the American Postal 
Workers Union on tour one. My sister Karen is a postal worker 
on tour two. My Aunt Pat and my Cousins Danny, Bill, Jimmy, 
Marie, and Joe--Joe was a business agent for Letter Carriers 
Local 34 in Boston. So when people suggested that fact that so 
many of my family are employed at the Post Office might affect 
my objectivity here, I must say they are problem right. 
[Laughter.]
    It is the family business.
    First of all, I want to say that I am encouraged by the 
statements, Mr. Potter, about trying to work together with your 
unions, as well as with the postal supervisors and others, to 
solve our problems at the Post Office. I must confess that when 
I hear you say that we are all pulling together, I must say 
that I think that the postal workers are pulling harder than 
anyone, the employees of all of our unions here. They are the 
ones that are doing the great work, and they are the ones that 
I think are faced with the greatest challenges.
    I want to say that, while I see some managerial 
improvements, I must also say that in some of my local Post 
Offices they have decided to close the Post Office against the 
will of the employees and the union at noon hour, where most 
people would actually use the Post Office. I scratch my head at 
that development.
    Second, I just want to say that, Mr. Miller, if you are 
truly interested in having a better relationship with Congress, 
I would strongly suggest that you need to have a better 
relationship with your employees. Those are the people who we 
rely on every single day.
    You cite quite rightly that the Post Office is recognized 
as one of the top 25 most respected institutions in America 
today, but I would just disagree that it is due to the great 
work of Mr. Potter. I would suggest that it is due to the fact 
that the postal clerk when I drop my mail off in the morning at 
my local Post Office, because they greet me with a smile and 
total professionalism, that is why the Post Office is so well 
respected. When my letter carrier comes up my doorstep on time 
every day and very reliably and professionally delivers my mail 
every day, that is why the Post Office is so widely respected. 
When my mail handlers work so hard, depending on wet weather in 
the northeast, and does a very professional job, as well, that 
is why the Post Office is so widely respected. As well, the 
supervisors who iron out the problems when they do arise in 
such a big business, those are all the principal reasons why 
the Post Office is so widely respected.
    I just want to say this: in the history of this country, we 
regarded the delivery of the mail as so important to the 
national security and to the economy of our country that we 
made a decision that we would put a special duty upon our 
postal employees that they conduct their business in a 
continuous fashion. In order to ensure that, the Government 
took away the right to strike from our postal employees, the 
very ability to stop work. They cannot stop work. They must 
continue working. That was a precious right that they 
surrendered to us.
    Now I am hearing that this social contract, this agreement 
that we made with our workers, is going to be jettisoned, that 
we are going to go to privatization, we are going to pay some 
employees less. I am wondering, if we are going to tear up that 
agreement, that we are going to take away the right to strike 
from these employees but we are going to treat them with 
respect and dignity, if we are going to tear up that agreement, 
my question to the three of you is: are we also going to 
restore the right to strike to these employees that we strip 
from them when we ask them to submit to their labor? I find it 
troubling, this contracting out business.
    I just came back last night. I flew in last night from Iraq 
and Afghanistan, and I heard continuous concerns from our 
civilian and military departments that the contracting out of 
their services in Iraq and Afghanistan have stripped them of 
capacity, stripped this Government of capacity to perform its 
duties, at great cost.
    I just ask you, is that what you are suggesting? Are we 
going to renege on our agreement with our postal workers? And, 
if so, are we going to restore to them the right to strike?
    Mr. Miller. Mr. Lynch, could I just respond? When I used 
the term ``social contract,'' it was in the context of the 
ability of the Postal Service to cover costs by raising price 
on letter mail. That was what I meant by the term ``social 
contract.'' I didn't imply that we would tear up an agreement 
with respect to employees.
    With respect to employees, let me say that I want to 
congratulate the postal employees because I think there has 
been a change in the attitude of so many postal employees. It 
is a cultural change that has taken place in the last 10 years. 
A member of the U.S. Supreme Court communicated to me his 
delight that the attitude on the part of his local Post Office 
had changed dramatically over the past several years, and he 
attributed this in part to the leadership of Jack Potter, but 
also the recognition that we are in a competitive environment 
now, and that is one reason.
    But I think it is very important, it is essential that 
postal employees be part of this effort to be more consumer 
friendly and more outgoing and outreaching to customers. We 
cannot survive unless we are able to do that.
    Mr. Davis of Illinois. Thank you very much.
    Jack, did you want to respond?
    Mr. Potter. If I could.
    First of all, I would like to say I am from the postal 
family, as well. My father was in the business for 40 years, 
was a letter carrier and then was a member of the unions and 
worked his way up in management, and I was a proud member of 
the APWU under Bill Burress' leadership and Beau Biller's 
leadership, and so let me just say that we cherish our 
employees. But we also have a business challenge, and the 
hurdles actually got higher with the new law in the sense that 
when you look forward you have to keep your rates under 
inflation. I would be happy to share with you some of our cost 
drivers, because it is really problematic. How do you satisfy 
both sides?
    If I could just make one statement, though, when it comes 
to the notion that our employees do not have the ability to 
strike, in exchange for that they got binding arbitration, so 
where the Postal Service management and labor organizations, 
when they can't reach an agreement through the collective 
bargaining process, that disagreement goes to a third party. 
Whether it is the grievance process or if it is a national 
contract, it goes to a third party to decide, so that binding 
arbitration really was the tradeoff for strike.
    As far as contracting out, there is a provision in each of 
the agreements of our unions that was put in place in 1973 that 
was a product of collective bargaining. In exchange for that 
provision, management gave up a lot. We really have to be, in 
my opinion, true to the collective bargaining process. I am 
firmly committed to that. I just wanted to share that 
information.
    Mr. Davis of Illinois. Thank you very much, Mr. Lynch. I am 
pretty sure that both the Postmaster General and the employees 
all will accept as many accolades as they can get, no matter 
which direction they come from. We just hope that they keep 
earning them and that they keep getting them.
    We will move now to Mr. Clay.
    Mr. Clay. Thank you very much, Mr. Chairman. I thank the 
panelists for being here.
    Mr. Blair, you talked about an additional rate increase, I 
guess coming within the next year. I heard Mr. Potter say that 
one of the reasons for that is because of the decline in volume 
of the first class mail. I just wondered, what is the 
justification for an additional rate increase? Can you tell the 
American public while they are watching C-Span if they will 
have to pay an additional? We know that May 14th we will go up 
$0.02 to $0.41 for first class mail. Will they have to expect 
an additional increase? And why?
    Mr. Blair. Well, I think, correctly, that the price of a 
first class stamp will go up on May 14th. For periodicals mail, 
that was delayed until July. But as far as the prospects for a 
new rate increase this year, I wouldn't want to speak for the 
Governors of the Postal Service within whom is vested the 
authority to file a rate increase.
    So one of the things that the Commission had posited was 
whether or not if we could get a new system of ratemaking up 
and running before they would have to raise increases under an 
old system. I think that, from our viewpoint, that would be a 
good idea, but this is part of the ongoing dialog that we are 
having between the Postal Service, the Regulatory Commission, 
and the mailing community.
    I think it is important to note that we have done quite a 
bit of outreach on this issue. I referenced the summit that we 
had a month ago in which we had about 300 participants. We also 
put out this notice of proposed rulemaking back in January. We 
had 32 comments submitted to us early in April on what this new 
system might look like.
    What is interesting about these comments--and I haven't had 
a chance to go through all of them yet--is that there are 32 
unique comments. I think that is important and it shows the 
work and dedication that those commenters put into putting 
forth what their ideas are for this new system down on paper 
and submitting them before the Regulatory Commission.
    We have given any interested party an opportunity to reply 
to those comments. That deadline is in early May. As we sift 
through these, I think we will be able to have a better idea of 
what this new system might look like, and then I think we can 
better engage the Postal Service and help them decide whether 
or not they are going to file a new rate case under the old 
system.
    Mr. Clay. Mr. Potter, give me the additional justification 
for another rate increase.
    Mr. Potter. OK. If you look at Postal Service's costs, they 
go up every year. And the reason that they go up every year is 
because our employees get increases in pay, cost of health 
benefit grows. That is the biggest cost for the Postal Service 
is labor. Labor is 80 percent of our cost. So what I said 
earlier, we have other things that drive cost.
    Mr. Clay. How about the decline in volume?
    Mr. Potter. Well, let's talk about----
    Mr. Clay. How does that play into that?
    Mr. Potter. Here's what we have. We have two things going 
on, Congressman. We have an increase in the number of 
deliveries every year, 1.8 million to 2 million new deliveries 
every year, and volume is relatively flat, so there is a cost 
of $300 million to $400 million to deliver mail to new 
deliveries when volume of first class mail is in decline and 
other mail is relatively flat. So that means that the carrier 
is bringing less dollars to every door every day. That is where 
the challenge lies, because if those costs are growing at a 
greater rate than inflation, and earlier I said that we have to 
save a billion dollars every year, well, it is based on 
calculations that our financial people have done that project 
what our costs are going to grow by, versus what the rate cap 
is.
    So the broken wages and benefits and fuel and other things 
that we have to spend is growing above the rate of inflation. 
The offset to that is to drive productivity up, as well as the 
delivery base is going up without commensurate increase in 
volume.
    Mr. Clay. Thank you for the explanation.
    Mr. Miller.
    Mr. Miller. Mr. Clay, bear in mind that letter mail has a 
markup of something like 200 percent--it depends on the 
particular way it is proffered at center--whereas the fastest-
growing mail has a very small markup. So if you are losing out 
on the mail that has the big markup and you are growing the 
mail that has the little markup, then obviously there is a 
problem then. That said, the postal rates overall have 
increased less than the cost of living since 1970. We want to 
drive productivity even more. There are opportunities that we 
have for increasing our sales, increasing innovations, and then 
reducing costs. We need the flexibility in order to achieve 
those.
    Thank you.
    Mr. Davis of Illinois. Thank you very much.
    Mr. Clay. Thank you.
    Mr. Davis of Illinois. Thank you, Mr. Clay.
    We will move now to Mr. Kucinich.
    Mr. Kucinich. I thank the gentleman.
    Mr. Davis of Illinois. I am sorry, Mr. Kucinich, but you 
are out of line. I know that you are running for President, but 
Mr. Sarbanes is actually next. Mr. Sarbanes.
    Mr. Sarbanes. Thank you, Mr. Chair.
    First I wanted to associate myself with the comments of 
Representative Lynch, which I thought were right on target in 
all respects, although I feel compelled to confess that I have 
no members of my family that are working in the Postal Service 
or have done. Many of my great-uncles and-aunts were in the 
restaurant business, but that is not what this hearing is about 
today.
    I had a visit recently to the main Post Office in 
Baltimore, MD, which was fascinating for me. It was my first 
behind-the-scenes visit to a Post Office. That one is really 
state-of-the-art. It is on the cutting edge in terms of 
technological innovation, and really has served as a model in 
many respects for a lot of the practices, best practices that 
have been brought to bear across the country, from what I 
understand.
    I want to salute the employees of the Postal Service and 
salute, as well, the organizations that represent them so well.
    The employees, and in particular those who staff the Post 
Offices, as it were, at the front desk and the letter carriers, 
are really the face of a service which the American people have 
come to trust almost implicitly. It is a wonderful success 
story, the faith and confidence that the average person has in 
the Postal Service. But in order to preserve that we have to 
make sure that the employees that provide the service on the 
front line are given the support that they needs, because when 
they are under stress that gets communicated and it ends up 
undermining the tremendous reputation the Postal Service has.
    The other thing which I didn't appreciate and I do now 
after the tour that I took is really understanding the Postal 
Service as one of the largest distribution systems in the 
world, and the implications that has for its ability to respond 
and support us in this country in times of crisis. In fact, I 
heard stories of how the first people in to help, the first 
faces that appeared after Hurricane Katrina were the faces of 
the local postal carriers. We need to keep that in mind, 
because this is a system that needs to be state-of-the-art and 
we need to preserve its stellar reputation.
    Two questions. We have discussed a little bit this 
contracting out of services. I would like to hear what the 
basic criteria are that you use to determine when that makes 
sense or not, and we can start with Mr. Potter.
    Mr. Potter. Are we talking about the contracting out of 
delivery services?
    Mr. Sarbanes. Yes.
    Mr. Potter. Let's start with that, because we do contract 
out highway contract services.
    Mr. Sarbanes. Delivery services.
    Mr. Potter. So in delivery services if we have an 
established route, whether that is a city letter carrier route 
or a rural letter carrier route, and there is a new delivery, 
generally 20 deliveries or even 50 deliveries within that 
route, that work goes to the NALC or the rural carriers, 
because we already have a person on that line of travel and 
that work goes to them.
    The only time that we consider contracting out is when we 
have major new developments. So if we have a community that is 
being built that has 600 homes, we will consider contracting 
that out and using contract employees to do that. why would we 
do that? Because of cost. There is definitely a cost benefit to 
using contract employees versus using career employees.
    Mr. Sarbanes. Well, presumably you have had major new 
developments in the past that require new deployment of letter 
carriers before this era of contracting out. The decision was 
made to have the traditional work force handle that.
    Mr. Potter. Well, let me just use data. Today, 2 percent of 
all deliveries in America are made by contract employees, 
generally highway contract route employees. Last year we had 6 
percent of new deliveries went to contractors versus craft 
employees of the U.S. Postal Service. Again, when you look at 
this as a business model--and I grant that we are a service--
but you also look at cost factors, and now a bar that has been 
raised that we have never had, which says that we have to keep 
costs under inflation for all classes of mail, bottom line is 
we are trying to comply with the new law. So, as part of that 
strategy, we have to look at all of our costs, what we pay for 
any product, any service that we get, and we have to consider 
what is reasonable going forward.
    Mr. Sarbanes. I see my time is out, so I just wanted to 
followup real quick on one point you made about what happened 
in Chicago. You said that the staffing levels were not at the 
authorized levels, and that came to your attention. When it 
came to your attention, then you moved to respond. I am just 
curious why the local manager would have been able to depart 
from the authorization mandate on the first instance.
    Mr. Potter. Well, we don't operate with--mail delivery is 
not an exact science, so the fact that somebody would say hey, 
I am going to make an attempt to try to improve productivity, 
and that was a rationale for lack of hiring, that is all well 
and good if they assess the risk and the risk is to maintain 
service, I mean, we will lose service. Once you lose service 
then, we stepped in and said hey, you have to bring your 
staffing levels up. But, believe me, there is much more in play 
in Chicago than just city carrier staffing levels. There are a 
whole host of issues that are contributing to the service 
decline that we saw, and there will be a whole host of issues 
addressed when we turn service around.
    Mr. Sarbanes. Thank you, Mr. Chairman.
    Mr. Davis of Illinois. Thank you very much, Mr. Sarbanes.
    Now, Mr. Kucinich?
    Mr. Kucinich. Thank you very much, Mr. Chairman. Thank you 
to the panelists. I want to thank all those who are involved in 
the Postal Service. I can tell you that in Cleveland, OH, where 
I am from, we are very proud of the service that all of the 
postal workers give, all those who deliver that mail on time. 
The service is excellent, the people appreciate it. I speak not 
only on behalf of the people in my area, but I know all across 
the country people are grateful for the work that the Postal 
Service does.
    One of the concerns that I have had brought to my attention 
in the last few days relates to what you would know as other 
mail and services. According to the GAO testimony that we are 
going to receive a little bit later, other mail in this report 
includes mail such as magazines, newspapers, and parcels. 
According to this chart which has been produced for us by the 
GAO, we are finding that other mail provides 6 percent of mail 
volume, 22 percent of revenues, and makes an 8 percent 
contribution to cover overhead costs.
    Now, I understand--and maybe Mr. Blair could be the one to 
answer this--that the Postal Service is contemplating a 
significant increase in the mailing costs that would affect a 
lot of magazines in this country. I am wondering, first of all, 
is that true?
    Mr. Blair. Well, we recommended a significant rate 
redesigned for periodicals class this past rate case.
    Mr. Kucinich. When you say ``redesigned,'' is that an 
increase?
    Mr. Blair. It was an increase. It was an increase. Some 
mailers saw decreases in their mail, some saw no increases, 
others saw some increases. But it was better reflected to 
represent the way that they actually mail and present their 
mail today. But you are right that periodicals has been 
declining as a part of volume over the last 5 years.
    Mr. Kucinich. Now, when you redesign, as you call it, your 
rate structure, do you take into account the possibility that 
the redesign of that structure could put some of these smaller 
magazines that are very price sensitive out of business?
    Mr. Blair. We take into account that is part of the fair 
and equitable and part of the factors that we consider, so yes, 
we do, sir.
    Mr. Kucinich. So you are saying you consider it. So then 
if, in fact, this could drive people out of business, you have 
considered that?
    Mr. Blair. Well, we considered that along with the others 
that are saying that they can be more efficient. And then if 
you have more efficient rates for more efficient ways of 
mailing and processing, you want to encourage that, as well, so 
we have to balance that against an efficient mail stream, as 
well.
    Mr. Kucinich. Let me provide some encouragement to you, 
sir, as a member of this committee, and that is that part of 
the first amendment debates that we have in this country from 
magazines and publications of all kinds representing great 
diversity of political opinion are enabled and, in effect, 
facilitated by access through the mail. To the extent that you 
raise the rates and take out of the reach of general 
circulation these magazines because of high pricing, you are 
proceeding in a way that is actually contrary, I would think, 
to the spirit of the Postal Service and to the spirit of the 
first amendment which relies on the Postal Service.
    I would like your comment.
    Mr. Blair. I think that you are right that we should and we 
do take into effect the editorial content and the need for 
diversity in the periodicals class, but we also take into 
effect that the law requires that mailers pay their fair share 
cost and that other mailers should not be cross-subsidizing. So 
it is a balance of the equities in this case, but we certainly 
take into account the factors that you mentioned.
    Mr. Kucinich. Well, Mr. Chairman, we well know that there 
are cross-subsidies that always go on with respect to the mail 
service, and the gentleman has recognized that they are aware 
of the effect that their rates would have on some of these 
smaller magazines.
    Mr. Chairman, I am appealing to you as a member of this 
committee to hold a separate hearing on this issue, because 
this does relate to the capacity of a free and open debate that 
takes place in the diversity of magazines that are out there. I 
think it would be interesting to be able to have, as part of 
that discussion, the internal communications of Mr. Blair's 
office so we could see how this philosophy is reflected that he 
has just talked about, is reflected in the workings of their 
office, Mr. Chairman.
    Mr. Davis of Illinois. Thank you very much, Mr. Kucinich. 
Let me assure you that the Chair is, indeed, sensitive to the 
issue that you raised, as well as the issue of special classes 
of mail, such as mail that is prepared by organizations like 
the National Federation of the Blind that is having some 
difficulty now with rates or with having to change the 
configuration of their packaging. So I would agree with you 
that a full hearing on this matter is, indeed, appropriate, and 
the committee would be pleased to accommodate your request.
    Mr. Blair. And, Mr. Chairman, could I just--
    Mr. Kucinich. Excuse me. I am having a colloquy here with 
my Chair, if I may. Mr. Chairman, I want to let you know how 
much your response is appreciated, not only by me but by people 
all across this country who are so concerned that their 
particular relationship that they have with a publication that 
relates to their political philosophy, and understanding this 
could be quite a diverse mix, is going to find an opportunity 
for expression before the Chair's committee and at the Chair's 
grace. I want to thank you very much for indicating a 
willingness to pursue that. Thank you.
    Mr. Davis of Illinois. Thank you very much, Mr. Kucinich, 
and thank you for raising the issue.
    Mr. Blair.
    Mr. Blair. Yes, Mr. Chairman and Mr. Kucinich, I think it 
is important to note that periodicals as a class I think 
receives the lowest markup of any of the classes out there, and 
so the Commission has gone to great pains to make sure that we 
keep rates and rate shock as ameliorated as possible for that 
group.
    Mr. Kucinich. I thank the gentleman. And I want to thank 
the Chair for his response. Thank you.
    Mr. Davis of Illinois. Thank you very much.
    We shall now move to Mr. Cummings.
    Mr. Cummings. Thank you very much, Mr. Chairman. I, too, 
want to thank you for this hearing.
    I want to associate myself, since I didn't hear all of the 
comments of our panel, with the comments of my distinguished 
colleague from Maryland, Mr. Sarbanes. Our main post office 
just so happens to be in my District in Baltimore. So often 
what has happened is that Democrats have been accused, Mr. 
Chairman, of being anti-business, and that nothing upsets us 
more than that. Speaking of business, I just want to pick up 
where Mr. Kucinich left off.
    One of my constituents, who is a businessperson who is 
doing an outstanding job, wrote me a letter. I just want to 
read part of it to Mr. Blair and others that may want to 
respond to this, because I think it brings the issue of 
businesses staying in business to the forefront. I, too, want 
to thank all of our postal employees for the job that they do 
every day. We take it for granted. We take our postal system 
for granted, and we should not do that.
    According to this letter, which is dated back on October 5, 
2006, it says: ``The United States Post Office has proposed 
doubling the rate to deliver our product, a product that we 
have mailed for 20 years. This increase will devastate our 
business and will cause a substantial portion of our 220 
employees and 150 temporary employees to lose their jobs. The 
United States Postal Service is a monopoly and by law has no 
competition. Its business practices are highly questionable. 
The United States Postal Service utilizes a piece of equipment 
that was designed to pass boxes through regular mail streams. 
it allows our box product, boxes holding CDs and others, to be 
priced as regular mail instead of a parcel delivery. In the 
latest rate case, they have called for removing the equipment 
and the favorable rates associated with using it. Our product 
has been in the regular mail stream since the 1980's. This 
raises multiple questions.'' I am just going to point two out.
    ``How is it possible that new equipment for sorting mail 
cannot meet the U.S. Post Office's specifications for 10 years 
ago? Who determined the specs for the equipment? Isn't the Post 
Office the largest purchaser of machines that would sort 
mail?''
    The other question is: ``What other business facing their 
well-known troubles would eliminate a line of business? 
Included with our boxes is the elimination of CDs and DVDs in 
their current packaging. The U.S. Post Office needs more 
business and more mailings to cover their fixed costs, not less 
business.''
    Could you just comment on that, Mr. Blair?
    Mr. Blair. I am not aware of the specific case that you 
mentioned.
    Mr. Cummings. I don't want you to, not necessarily the 
specific case, the general--and I do want to hear your answer--
so often what happens is we make our rules in these lofty 
places, but the people who are really affected are the people 
who have to deal with the rules that we make from day to day. 
We go off to Wonder-Wonder Land, but there are businesses that 
are still struggling, trying to make it, and it is not easy to 
be in business today. So we are trying to figure out how do we 
keep our businesses not only surviving but thriving.
    You can go on.
    Mr. Blair. I think that what you need to realize, and I 
think this underscores the fact for need for postal reform. The 
current cost of service pricing that we do is intended to 
generate revenues that cover the cost for buying that level of 
mail service. So maybe for the writer of that letter that you 
got the Postal Service's costs may have increased that 
dramatically that it costs the Postal Service that much to 
carry those packets of CDs or those parcels of CDs. That would 
just be my idea at this point. But basically under a cost of 
service pricing you ask for the rates that cover those costs. 
But under the Postal reform legislation that was recently 
enacted with attempted to decouple rates from costs and say 
that the Postal Service would be capped at what they can raise 
their rates for that class.
    I think that will go a long way toward addressing these 
problems in the future. While it doesn't do much for your 
constituent today, I think in the future it will say that you, 
as a businessman engaged in the mail stream, a businessperson 
in the mail stream, that you can have usual and predictable 
rate increases in the future.
    I am not sure that really answers your question suitably, 
but it gives you an idea for what the efforts were over the 
last decade and where we are going to be moving forward.
    Mr. Cummings. Always remember that anybody who has been in 
business--I have been in business--a businessperson will tell 
you that the most important thing they need is predictability. 
They need to be able to figure it out because it affects 
everything they do. It affects their budget, how many employees 
they take on, the whole bit. And so one of the interesting 
things, as I see my time has run out, when we contacted the 
Postal Service and said what can we do to help this 
constituent, they told us to just tell him to change the 
packaging. Well, he didn't have enough time to do that. In the 
meantime he sends, and many people, hard-working Americans who 
get up at 5 every day, working hard, may very well lose their 
job.
    Mr. Davis of Illinois. Thank you very much, Mr. Cummings.
    We do want to get to our next panel, but I need to ask at 
least a question, Mr. Potter.
    I mentioned just a moment ago about these categories and 
classes of mail, and of particular concern do I have about the 
Federation of the Blind, that for a number of years has been 
able to get its mail out to its membership and to a category of 
individuals who have a certain kind of need, and we have not 
been able to work out to their satisfaction, I don't believe, 
or to my satisfaction, the ability to assist the continuation 
of a process for them. I think part of the problem has been 
that it is so specialized until some kinds of adjustments have 
to be made.
    Mr. Potter. If I could just comment and maybe put 
Congressman Cummings' issue into perspective, yes, businesses 
need predictability, and that is one of the things I think we 
want to make sure that we work out in the new law is work out a 
schedule of rate adjustments that would enable them to build 
changes in cost, whether up or down, into their budget process.
    What happened with this last round of rates was the Postal 
Service made a proposal to the Postal Rate Commission at the 
time, now Regulatory Commission, and a lot of people budgeted 
against those new rates. Using a strict costing model, the Rate 
Commission increased the rates for a lot of mailers, and I 
believe the nonprofit mailers that the chairman and Congressman 
Cummings are talking about are those where they increased the 
rates beyond the Postal Service's proposal. They were not 
prepared to react. I think they were prepared to mail at our 
proposed rates, but not at the increased rates.
    So our effort has been to try and keep everybody in the 
mail. We don't want people to walk away from the mail, but we 
have limited ability to appeal the rates that were given down, 
and so that is why we are attempting to work with the mailers 
to take what are many times greeting card boxes and convert 
them into a flat rate and put them into the mail stream.
    The other thing that you are referring to I believe, and I 
don't know the specifics, but I will just describe to you what 
is going on. We have two different types of machines that sort 
flat rate mail, and flat rate is an oversized envelope or a 
magazine. We have one that is automated, called an automated 
flat sorter 100, that is very productive, and then we had a 
machine called the flat sorter 1,000, which was less 
productive. Over time, people got a greater discount for making 
their mail compatible with the more effective machine.
    So what has happened is the mail for the other machine, the 
1,000, has dried up. We have gotten our full benefit from that 
machine, but as that mail stream declines we are trying to move 
people into the more efficient mail stream.
    The new equipment that we are planning, the FSS, the one 
that will walk-sequence mail, will accommodate that mail, but 
in the interim it doesn't, and the rates reflect that change. 
So I hope that is a little fuller explanation of what I believe 
is going on.
    I feel like you, that I am very concerned for those mailers 
and I wish we could have known in advance so that they could 
have made the adjustments necessary for this fall mailing 
season. I recognize the fall is their biggest opportunity to 
get vital funds that run a lot of these very, very important 
organizations for our society.
    Mr. Davis of Illinois. Thank you very much.
    Yes, Mr. Cummings?
    Mr. Cummings. Fifteen seconds? One of the things, even with 
all that has been said, this constituent said, you know, I will 
bend over backward, I will lose money, just get them to give me 
some time to make this adjustment. Basically, the answer was 
no. I mean, you just sat there and said how much you all want 
to work with our folks and whatever, and you can bet your 
bottom dollar it is just not my constituents and a constituent 
in Baltimore. There are business people all over this country. 
In some kind of way we have to help these folks, because they 
have employees who have to feed families, got to send kids to 
school. They have to make a dollar. If there is any way you can 
give these folks an incentive, here's a guy who says I feel 
like I am getting screwed, but at the same time I will do what 
I can to try to work with the Postal Service, and he still gets 
a no.
    Mr. Potter. I am in your camp. Let me just say, in the 
discussion about whether or not we could do that and take 
individual classes or people who are most affected by rate 
changes--some people got up to a 300 percent increase in rates. 
I mean, could we discriminate for them? If we didn't have a 
sound reason to delay the rates, I was told it was illegal to 
do so.
    Mr. Blair. The law would prevent it.
    Mr. Potter. So I feel handicapped. Chairman Blair referred 
to the new law. That gives us a lot more flexibility to not be 
bound by some strict cost regimen and to take into account the 
needs of businesses and to transition rates in a graduated form 
and to signal to people that these changes are necessary to 
maintain our efficiency. What the Postal Service proposed was a 
movement to get more money where our costs were greater, but 
not the levels that some people experienced.
    Again, we were advised by counsel that we had no legal 
ability to delay certain rates because of the level of 
increase.
    Mr. Davis of Illinois. Thank you very much, Mr. Cummings.
    Just so I can go home this weekend in peace, Mr. Potter, 
could you just outline those plans for Chicago and 
recommendations that you have made personally?
    Mr. Potter. I have been to Chicago twice, as the chairman 
knows, and I have walked the floor. What we are intending to do 
is, first of all, make sure that our staffing levels are up for 
the requirements so that we can deliver mail in a timely 
fashion. We are overhauling every piece of equipment in Chicago 
because some of it, unfortunately, was not well maintained. We 
are in the process of going station-by-station to look at our 
physical plants. Where they are not up to speed for our 
customers and our employees, we are in the process of doing 
that. In addition to that, we are looking at the exchange of 
mail between the multiple facilities in the Chicago metro that 
exchange mail for Chicago residents. It is largely a busy hub, 
Irving Park Facility at the airport and downtown Curtis Collins 
facility, all new facilities, state-of-the-art, and ones that 
we need to reconfigure in order to serve the people better.
    In addition to that, we are going on the street with 75 
people who are going and checking our address data base to make 
sure that what is in our system will enable us to sort mail 
properly and in the right order for our city letter carriers.
    Those are just kind of the higher-level things we are 
doing, but, bottom line is we are going to reconfigure that 
network, we are going to put fixes in place that will not just 
have a flash in the pan for Chicago. I was asked by a reporter 
when do you think Chicago's service will begin moving up, and I 
said 6 months, but the true test is 2 years from now, not 6 
months from now. We are not going to walk away from Chicago. We 
are going to get it fixed.
    I was the manager of Capital Metro operations when 
Baltimore was fixed, when Washington, DC, was fixed, so I 
believe I know a little bit about how to get this done, and you 
have m you personal commitment that I am going to be there 
until it is fixed.
    Mr. Davis of Illinois. Thank you very much. I have taken 
some time, so, Mr. McHugh, do you have any final questions?
    Mr. McHugh. That is very gracious, Mr. Chairman, but we do 
have three other panels and any other questions I believe we 
can submit for the record.
    Mr. Davis of Illinois. Thank you very much.
    I want to thank all member of the panel. I would just end 
this discussion by indicating that I am somewhat concerned 
about the new concept of contracting out and what that is going 
to really mean and how we defined it and some of the rationale 
that has been explained for it. I am sure that is something we 
will have further discussion about and try and see if we can't 
reach an amicable conclusion to it.
    Thank you, gentlemen, very much. We appreciate your being 
with us.
    And I would like to ask if our second panel will come and 
be seated, Mr. David Williams and Ms. Katherine Siggerud.
    We want to apologize to all of those who have come to 
participate and couldn't find a seat. We will see if we can't 
make absolutely certain that when room assignments are made 
that everybody around here will know that postal issues have 
come front and center, and that we have to make additional 
space.
    Mr. David Williams was sworn in as the second independent 
Inspector General for the U.S. Postal Service on August 20, 
2003. He is responsible for a staff of more than 1,100 
employees located in major offices nationwide that conducts 
independent audits and investigations, a work force of about 
700,000 career employees, and nearly 37,000 retail facilities.
    Ms. Katherine Siggerud is a Director in the Physical 
Infrastructure Issues Team at the Government Accountability 
Office [GAO]. She has directed GAO's work on postal issues for 
several years, including recent reports on delivery standards 
and performance, process and network realignment, contract and 
policies, semi-postal stamps, and biological threats.
    We thank you both. Of course, as the usual custom is, we 
swear all witnesses in.
    [Witnesses sworn.]
    Mr. Davis of Illinois. The answer is in the affirmative, 
yes, and we thank you so much.
    You know the normal approach, and I won't necessarily go 
through that, but we will go right to Inspector General 
Williams and proceed.

STATEMENTS OF DAVID C. WILLIAMS, INSPECTOR GENERAL, U.S. POSTAL 
    SERVICE; AND KATHERINE A. SIGGERUD, DIRECTOR, PHYSICAL 
  INFRASTRUCTURE ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

                 STATEMENT OF DAVID C. WILLIAMS

    Mr. Williams. Thank you, Mr. Chairman and members of the 
subcommittee. I appreciate the opportunity to appear today to 
discuss the work of my office and my assessment of Postal 
Service challenges.
    When I came to the Postal Service in August 2003 the OIG 
lacked the confidence of the Postal Service and Congress and 
the public. The past 3 years have been years of progress and 
accomplishment in restoring confidence by fundamentally 
strengthening planning and engaging stakeholders in clarifying 
our statutory role. We are now a performance-based organization 
aligned to mirror postal functions.
    Our audit resources now focus on network optimization, 
revenue assurance, cost reduction, mail delivery operations, 
and data systems reliability. Our investigative resources focus 
on contracting, false disability claims, internal mail theft, 
and embezzlement. These changes have resulted in substantial 
increases to productivity.
    Since I arrived, the audit staff has increased monetary 
benefits by 500 percent to over $441 million. During the same 
period, our investigators increased arrests from 6 to 277, and 
administrative cases referrals from 8 to over 1,900, with cost 
avoidance and fines of over $110 million. Last, new 
jurisdictional responsibility and resources were transferred 
from the Postal Service to the OIG.
    The Postal Accountability and Enhancement Act represents 
the most significant modernization of postal governance in 35 
years. Much is needed for the successful implementation of the 
act, and I assure you that my office is prepared to fulfill its 
new responsibilities.
    From my comprehensive statement, I would like to focus on 
two areas. The first is the network optimization plan, which is 
going to be challenging, given the ongoing electronic 
communications revolution and the unpredictable ways mail 
volumes and mix are changing. Some mail is declining, some is 
increasing, and some is establishing a symbiotic relationship 
with electronic mail.
    Streamlining efforts are occurring inside an environment of 
significant change. The Postal Service is on the edge of a $600 
million annual savings opportunity with the new flats 
sequencing system, set to repeat the significant advance made 
when letters were first sorted by carrier route.
    The Postal Service is also aggressively seeking cost 
opportunities with mailer discounts to keep large amounts of 
mail outside of upstream processing plants.
    Stricter submission requirements will better align mail 
with postal equipment.
    Last, we must consider enterprise resilience in the event 
of major disruptions. Natural disasters or acts of terrorism 
highlight the value of maintaining some redundancy if 
operations are disrupted or destroyed.
    These variables, working alone or in combination, require 
an agile streamlining effort, classic models for large-scale 
projects that feature elaborate sequencing and require 
thousands of alterations when the model changes may not work 
well. The planning model needed is not that of a static 
blueprint, but what one might expect from an order of battle 
plan. The Postal Service needs to prepare and plan as best it 
is able, while understanding the change will occur the moment 
they step on to the field.
    Once the build-down begins, it is essential that it 
continue its philosophy to avoid protracted, anemic staffing of 
an oversized network.
    Financial viability is the second area I would like to 
focus on. In the last 4 years, Postal Service actions have 
taken it from over a $600 million net loss to a $900 million 
surplus, while retiring $11 billion debt. The success of the 
Postal Service's transformation efforts and savings from 
unnecessary CSRS payments are responsible; however, total labor 
costs are continuing to increase, from over $51 billion in 2001 
to over $56 billion in 2006, despite significant staff 
reductions.
    The Postal Service needs to continuously pull excess work 
hours from its mail processing plant as it introduces more 
automation and more work share discounts. Cross-reduction 
opportunities in delivery are available, also. Most delivery 
work hours are spent on the street without direct supervision. 
Management and control efforts have been expensive and not very 
effective. The Postal Service should seek new work rules that 
incentivize performance and that are self-policing.
    The act imposes some transition costs. In particular, the 
Postal Service must make substantial yearly payments to the 
Retiree Health Benefit Fund. These payments will help secure 
long-term financial viability, but they are large expenses in 
the short term.
    The new law also provides increased pricing flexibility, 
but to keep prices below the new caps aggressive efficiencies 
must address network streamlining and labor costs.
    My office stands ready to support postal efforts and we are 
cognizant of our responsibility to continue to keep Congress 
fully and currently informed.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Williams follows:]
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    Mr. Davis of Illinois. Thank you very much.
    We will go to Ms. Siggerud.

               STATEMENT OF KATHERINE E. SIGGERUD

    Ms. Siggerud. Thank you, Chairman Davis and members of the 
subcommittee. Thank you for your invitation to testify at this 
first oversight hearing for the U.S. Postal Service since the 
postal reform law was passed.
    To begin, I want to recognize the Congress' efforts in 
passing this law that provides tools for establishing an 
efficient, flexible, transparent, and financially sound Postal 
Service, one that can more effectively operate in an 
increasingly competitive environment.
    My remarks today will focus on four areas: first, why GAO 
recently removed the Service's transformation efforts and 
outlook from GAO's high-risk list; second, the Service's 
current financial condition; third, opportunities and 
challenges facing the Service today; and, finally, issues and 
areas for continued congressional oversight.
    First, when we placed the Service on our high-risk list in 
2001, we stated that a structural transformation was needed to 
address the financial, operational, and human capital 
challenges that threatened its ability to deliver on its 
mission. We use this list to bring attention to issues that we 
think need action by the administration and the Congress. We 
decided to remove the Postal Service from the high-risk list 
because of significant changes that occurred. Specifically, the 
Service issued a transformation plan in 2002 and demonstrated a 
commitment to the plan by cutting costs, improving 
productivity, downsizing its work force, and improving its 
financial reporting.
    The 2003 law reduced the Service's payments for pension 
obligations, allowing it to achieve record net income, repay 
debt, and delay rate increases.
    Elements of the 2006 postal reform law that are responsive 
to our concerns include: first, a framework for modernizing the 
ratemaking process; second, an opportunity to preserve 
affordable universal service by reassessing customer needs and 
identifying efficiencies; third, recognition of the Service's 
long-term financial obligations by pre-funding retiree health 
benefit obligations, resulting in short-term costs but long-
term benefits; and, fourth, enhanced transparency and 
accountability.
    The Service's financial condition will be affected by the 
postal reform law and the upcoming rate increase. The law has 
better equipped the Postal Service to control its costs and 
operate on a financially sound, businesslike manner than at any 
time since the Service's inception. It places the Service on 
the path to eliminating multi-billion-dollar retiree health 
obligations, which in turn provides an opportunity to better 
position the Service financially in the long term.
    Changes to Postal Service finances this year, besides the 
pre-funding I have already mentioned and the transferring of 
the military pension, include expending escrow funds and 
eliminating future escrow payments and eliminating certain 
annual pension funding requirements.
    The position expects to lose $5.2 billion this year, 
largely due to a one-time expending of the $3 billion escrowed 
last year and then transferred this year to the Retiree Health 
Benefit Fund, and the additional contribution to this fund the 
Service must make. The Service plans to borrow $1.8 billion, 
$600 million more than it had originally planned for this year.
    Nevertheless, other expenses and revenues have tracked 
closely to projections. Factors that could still affect the 
Service's finances are the impact of the recent rate increase, 
changes in fuel prices, and resolution of certain labor 
agreements.
    Although we removed the Service from our high-risk list, 
there are continuing and new challenges. These include: 
generating sufficient revenues to cover costs as the mail mixes 
changes; controlling costs, particularly for compensation and 
long-term health benefits; and improving productivity while 
operating under a price cap structure; promoting the value of 
mail while providing affordable, quality service; and 
establishing mechanisms to measure and report performance; 
providing useful and reliable financial data; and managing the 
Service's infrastructure and work force to respond to 
operational needs and financial challenges.
    The reform law provides opportunities, tools, and 
flexibilities to address these challenges. A series of new 
regulations, frameworks, and studies over the next few years 
for both the PRC and the Service will be key to implementing 
this law.
    Finally, with regard to potential areas for congressional 
oversight, two particularly important areas are ensuring the 
Service's future financial condition remains sound and ensuring 
that the new legal and regulatory requirements are carried out 
in accordance with the intent of the postal reform law.
    Other areas that warrant continued monitoring include: 
first, the impact of the upcoming rate increases on mail 
volumes, mailers, and the Service's financial condition; 
second, actions to establish the new price-setting framework; 
third, the Service's ability to operate under a price cap, 
while some of its cost segments are increasing above the rate 
of inflation; fourth, actions to establish modern service 
standards, monitor delivery performance, and the Service's plan 
for meeting those standards; and, fifth, the Service's ability 
to provide high-quality delivery service as it takes actions to 
reduce costs and realign its infrastructure and work force.
    The successful transformation of the Postal Service will 
depend heavily upon innovative leadership by the Postmaster 
General and the chairman of the PRC and their ability to work 
effectively with their employee organizations, employees, the 
mail industry, Congress, and the general public.
    Mr. Chairman, this concludes my statement. I am happy to 
answer any questions the subcommittee may have.
    [The prepared statement of Ms. Siggerud follows:]
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    Mr. Davis of Illinois. Thank you very much. I thank both of 
you for your testimony.
    Mr. Williams, you indicated that there had been a 
significant increase in the number of arrests. I believe you 
said from 6 to now more than 200?
    Mr. Williams. Yes, sir.
    Mr. Davis of Illinois. To what do you attribute this 
increase? What is causing it?
    Mr. Williams. We enlarged the emphasis on enforcement upon 
my arrival. As I said, the office, as I took it over, was not 
particularly productive either on the audit side or the 
investigative side, so that was one of the factors. We then 
received a substantial amount of new jurisdiction, and I think 
that is probably the major cause for the enlargement of the 
program from the Postal Service. That was as a result of a 
long-term transition that had been occurring from the 
Inspection Service to the Office of the Inspector General for 
things such as mail theft. Of course, mail theft is probably 
the prime example.
    Mr. Davis of Illinois. So you are saying that one can 
actually expect, when there are allegations of wrongdoings, 
that there is going to be an investigation and a finding and in 
all likelihood something could and most likely will be done?
    Mr. Williams. Yes, sir. We think the level of 
accountability for misconduct has substantially increased, so I 
would agree with that.
    Mr. Davis of Illinois. Thank you.
    On October 20, 2005, I, along with 58 of my colleagues, 
sent a letter to the Director of OPM supporting Medicare 
subsidies for the Postal Service. The Center for Medicare and 
Medicaid Services in December 2005, denied the request of the 
Postal Service for receipt of the Medicare Part D retiree 
prescription drug subsidy authorized under the 2003 Medicare 
prescription drug modernization law. The CMS stated that its 
denial was based upon its belief that OPM, as the administrator 
of the Federal employee health benefits program, was the 
sponsor of the Postal Service's retiree prescription drug plan, 
and that the Postal Service was not entitled to the subsidy.
    The value of the prescription drug subsidy for the Postal 
Service is significant. It is approximately $250 million 
annually. Of course, it would help to reign in operating 
expenses, which are financed through postal rates.
    I give that background information to ask this question: 
what requirements does the Postal Accountability and 
Enhancement Act impose on your office, and how are you prepared 
to meet those requirements?
    Mr. Williams. Thank you, Mr. Chairman.
    First of all, on the background material that you supplied, 
we were very much in agreement with your office and the other 
Congressmen. We think there was a basis, and we think that the 
Postal Service, in many ways, needs to and welcomes being 
thrust into an arena ruled by market forces, but we think that 
if they are not given an opportunity because their arms are 
pinioned at their side by regulation, we really don't have a 
chance. And so we did not feel that was a very positive finding 
on the part of OPM and my office.
    With the coming of the act, we received several new 
responsibilities. Probably the one that is going to take the 
most of our time is auditing data systems that produce figures 
used by the Postal Service and by the postal regulator to 
establish rates. There have been some problems with those in 
the past, and we are trying to focus on the ones that we know 
are problematic first. That is going to require a new body of 
work. There is a single audit on workplace safety and accident 
reduction that comes to us, and we also are looking at some 
reforms that were made to the administration of rate deficiency 
assessments.
    Last, the responsibilities that come to our office are 
significant with regard to Sarbanes-Oxley. We will be joining 
with the external auditor in a substantial additional amount of 
work to bring us into compliance with section 404 of the 
Sarbanes-Oxley Act.
    Mr. Davis of Illinois. Thank you very much.
    I see that it was very timely, because my time has just 
expired.
    Mr. McHugh.
    Mr. McHugh. Thank you, Mr. Chairman.
    Welcome to both of you. Thank you for being here.
    Mr. Williams, just to kind of expand a little bit on what 
the chairman's last inquiry was directed toward that, is your 
new role under the new regulatory system. Do you have any 
concerns or complaints? I understand the challenges, as you 
describe them, both in response to the chairman and also in 
your testimony, but as you have taken your first steps into 
this new process what troubles you, if anything?
    Mr. Williams. I have a high level of confidence. I would 
have been very troubled a couple of years ago. We have had some 
years to get ready. The act has some really beneficial 
provisions. We are anxious to play our part in that. I don't 
have any concerns about resources or the skill levels to 
address our portion, and we are anxious to begin.
    Mr. McHugh. And so far so good. That is great.
    Let me flip over here to your network optimization plan. do 
you have a time table for the implementation of that?
    Mr. Williams. I believe the act requires that the Postal 
Service present a plan within 18 months.
    Mr. McHugh. That is the limit.
    Mr. Williams. Yes, sir.
    Mr. McHugh. Are you configuring yourself within that, or is 
that what you plan to use?
    Mr. Williams. I am uncertain as to what the Postal Service 
intends to do with regard to bringing a plan together. We are 
working daily in advance of that to conduct efficiency reviews, 
to look at one of the enabling studies for the plan is the area 
of mail processing plans. We have begun looking at those to try 
to examine how well they work and to make improvements to those 
as one of the primary tools to right-sizing the network. But I 
have not been advised as to the completion dates for their 
plan.
    Mr. McHugh. OK. Thank you, sir.
    Ms. Siggerud, the GAO has a long and very productive 
relationship with this subcommittee and with the process of 
postal reform, of which I know the chairman and all of us are 
greatly appreciative. When you placed the Service on your watch 
list, that was a big deal.
    Ms. Siggerud. Yes.
    Mr. McHugh. I have no doubt you did not go about that 
easily.
    As I reviewed your testimony, the report at least by my 
reading seems awfully darned positive in that the concerns that 
you had seem for the moment to have been met. Was this a--this 
is not a good phrase to use in this town right now, but was 
this a slam/dunk decision in your view, or was it a position 
that you felt continues to concern you deeply?
    Ms. Siggerud. Mr. McHugh, it certainly was not a slam/dunk. 
We had a lot of in-depth discussions internally in GAO before 
making the decision to take the Postal Service off the high-
risk list.
    Let me just mention a few things that tipped the balance 
for us. As I mentioned in my short statement, really an 
important purpose of the high-risk list is to galvanize action 
by the agency that is put on the list, as well as by the 
Congress, in paying attention to the issue. The fact that the 
transformation plan did happen and the Postal Service stuck to 
it was important action from the agency's point of view. Both 
the 2003 and the 2006 acts, which provided a different 
financial footing for the Postal Service, were also very 
important.
    So the fact that we saw action, both by the Congress and by 
the Postal Service, along with a significant change in the 
financial situation of the Postal Service, for example, with 
regard to cash-flow and with regard to debt levels, along with 
the very important commitment that management made to reducing 
costs and improving productivity, that is what really tipped 
the level for us. However, we think there are a number of 
concerns that the committee needs to continue to provide 
oversight on, as I outlined in my statement. Certainly, if they 
continue or if financial problems do reappear, we would 
reconsider the decision.
    Mr. McHugh. Thank you.
    Maybe I can squeeze one more in here on the yellow light 
here. Your written testimony, on page 3, talks about the 
Service's plan to borrow $1.8 billion this year, which will 
push its outstanding debt to $4 billion. You didn't 
characterize that orally. Is that a concern? I mean, that is a 
lot of money and it is of concern--
    Ms. Siggerud. Yes.
    Mr. McHugh [continuing]. But would you consider that within 
the parameters of normal operating procedures, or is this a 
particularly troubling aspect for you.
    Ms. Siggerud. It is a slightly troubling aspect. We do 
consider it generally within what the Postal Service can afford 
to borrow, but it is an issue to watch going forward as the 
Postal Service continues to, as the PMG so ably explained, face 
both revenue and cost challenges.
    Mr. McHugh. Thank you both.
    Thank you, Mr. Chairman.
    Mr. Davis of Illinois. Thank you very much, Mr. McHugh.
    Mr. Sarbanes.
    Mr. Sarbanes. Thank you, Mr. Chairman.
    This might have been a better question for the last panel 
or the ones to come, but if you were here you heard that I am 
intrigued by the role that the U.S. Postal Service can play in 
times of crisis, in terms of being part of a response effort. I 
mean, if you are the Department of Homeland Security you are 
looking around for a delivery system, a distribution system, a 
people-to-people system that can be there in a time of crisis. 
There it is, I mean, really, in a structure that you can't 
compete with, I mean, there is nothing else out there like 
that. I know that DHS and other departments are working with 
the Postal Service to get that kind of perspective forwarded.
    I would just like to get your perspective on that, and I 
would like to get your perspective on, I mean, we talk a lot 
about how the rate structure needs to cover the cost and the 
Postal Service, but I would imagine that, as this other 
dimension of what the Postal Service can provide is more 
fleshed out, that there ought to be an expectation of resources 
that can be brought to bear. I don't know if that is something 
that you have talked about, thought about, have any reaction 
to, but I would be interested in the response.
    Mr. Williams. There were a number of instances in Hurricane 
Katrina where the mail carriers were just on their own the 
lifeline for a number of residents that were isolated and 
terrified. Those were very all-American stories, and they did 
prove what a powerful set of muscles can be flexed by such a 
large distribution system, and one that is so familiar to the 
American public.
    I know that there have been some discussions. I am unaware 
of whether some of them are classified or not with regard to 
the role that the Postal Service could play in the event of 
further natural disruptions or acts of terrorism, but it is a 
very good point and it is a very powerful recommendation.
    Mr. Sarbanes. Ms. Siggerud.
    Ms. Siggerud. Yes, Mr. Sarbanes. We have looked at this 
issue from a couple of different perspectives. They are sort of 
narrow, but all might add up to an overall picture.
    We did, in the course of preparing the Comptroller General 
for some overall testimony on Hurricane Katrina, look at what 
the Postal Service was able to do, both in preparation for the 
hurricane, and then in response to it, and I think that the 
Postal Service came out looking very good in that particular 
instance.
    We have also looked at the Postal Service's role in 
responding to the bio-threat issues, the response to anthrax, 
as well as a recent attack that occurred. We have made some 
recommendations to the Postal Service in terms of improving 
both its training of employees and managers, as well as its 
response. The Postal Service has acted on those 
recommendations.
    Our most recent work actually looked at a false anthrax 
attack that happened at the Department of Defense in 2005, and 
our report--to some extent the Postal Service was involved in 
that because it was believed that this anthrax had come through 
one of the processing plants right here in the District of 
Columbia. The Postal Service's response, when it did finally 
get that news, was timely, it was exemplary, and it was useful, 
put the Department of Defense to shame in comparison.
    Mr. Sarbanes. Thank you. My question is, in part, a caution 
because if, over time, the Postal Service and the employees of 
the Postal Service are viewed as offering an opportunity to be 
part of a kind of response network, then it is critical that 
not just be lain on top of the existing work force without the 
resources to support it and the training. I am sure that the 
organizations who represent those employees will be quite 
insistent on that point.
    Thank you, Mr. Chairman.
    Mr. Davis of Illinois. Thank you very much, Mr. Sarbanes.
    Mr. Cummings.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    Ms. Siggerud, am I pronouncing that right?
    Ms. Siggerud. Siggerud. Yes.
    Mr. Cummings. Siggerud. Ms. Siggerud, you note in your 
testimony that several unanswered questions remain with regard 
to the growing number of career employees that will be leaving, 
retiring in the next 5 years, 113,000.
    Ms. Siggerud. Yes.
    Mr. Cummings. What do you recommend that the Service do to 
address that issue? That is a major issue?
    Ms. Siggerud. Well, it is a major issue, and it is one that 
I will confess we haven't looked at in great detail, but I 
think it would benefit. I would be glad to work with the 
subcommittee on that issue.
    I think the real opportunity to address it comes in the 
fact that the Postal Service must prepare a plan and provide it 
to the Congress within the next 18 months having to do with 
work force realignment issues. The Postal Service has a 
complement planning approach. It has a succession planning 
approach. I think that the plan will offer the Postal Service 
the opportunity to explain how it will use those tools, and 
perhaps other tools, to respond to the very issue that we raise 
in our testimony.
    Mr. Cummings. One of the things that our overall committee, 
Government Reform, has tried to address over the 11 years that 
I have been on the committee is how do we get young people to 
come into Government. We created a program where we pay back 
some of their student loans and just trying to figure it out. 
We offer those people who are within ridership distance of the 
Capital certain incentives, passes or what have you, to get to 
work, or whatever. But certainly we are talking about the 
entire country here.
    I am just wondering, this is not going to sneak up on us, 
because we know it, but for some reason so often what happens 
in this country is we know so, and it still sneaks up on us, 
and then we are caught in a situation where we are just in bad 
shape. When I think about 113,000 people, that is a lot of 
folk.
    Ms. Siggerud. Yes.
    Mr. Cummings. So I am just hoping that this will be like a 
super-top priority so that we can make sure that people are 
replaced, but there is another piece to that, too, and 
certainly that is retention, trying to make sure we keep folks.
    I remember a few years ago there was a concern about the 
climate in our postal system that perhaps some postal employees 
did not find the climate to be one that made them feel happy. I 
can't think of a better way of saying it. I am just wondering 
if we have looked at those issues at all or if we are going to.
    Ms. Siggerud. Some of my colleagues in the Government 
Accountability Office, specifically those who look at the 
Federal work force issues, have identified the very issue that 
you are talking about, Mr. Cummings. It has, on occasion, taken 
the Federal Government too long to hire young folks. It is 
complicated to hire the kind of young employees that you are 
talking about. I think that some of the glamour perhaps of 
Government service has waned in the last few years, and there 
are a number of efforts underway in agencies across the country 
to try to deal with those issues.
    I will have to admit that I am not familiar with exactly 
how the Postal Service is dealing with those issues, but I 
would certainly be glad to submit some of those other reports 
that I mentioned to you and your staff to see if they are of 
use.
    [The information referred to follows:]
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    Mr. Williams. In addition, Sir, my office does quite a bit 
of work with regard to concerns expressed about hostility in 
the workplace or hostile workplace or harassment occurring 
inside it. We try to evaluate those as best we can and then 
work to assure that management takes action and advises us of 
that action and we evaluate it.
    When it is particularly serious, outside third parties are 
brought in to evaluate and to conduct a get-well plan, and it 
is typically that where it is serious we go in after that has 
had a time to work and assure that it has taken hold.
    Mr. Cummings. Do we ever get to a point where we figured 
out, I mean, was there ever a threat that sort of ran through 
these incidents since you have done some investigating and 
whatever? I guess I am looking more at certain things that you 
can't prevent, but certainly, I mean, did you ever conclude 
that maybe there were certain climates, certain specific work 
conditions, things of that nature that might bring about those 
kinds of incidents?
    Mr. Williams. The ones that come to mind have not had a 
kind of golden thread that run through them. They have been 
personality based, and they have involved a senior manager, a 
set of senior managers that needed to either be removed or 
undergo very serious alterations in their conduct and behavior. 
There are instances in which very strong action was taken in 
response to those, but beyond that I haven't found anything 
thematic as I have heard about that have occurred before my 
arrival. I haven't seen evidence of anything since I have been 
there.
    Mr. Cummings. Mr. Chairman, I see my time has run out, but 
I just have one question.
    My office receives quite a few complaints from woman and 
minorities about moving up.
    Mr. Williams. Yes.
    Mr. Cummings. I am just wondering how we are doing, and how 
do you all monitor that. Just curious.
    Ms. Siggerud. Mr. Cummings, we have done work with this 
committee in the past, but I will tell you that work is old and 
was toward the end of the 1990's, so I don't have updated 
figures for you.
    Mr. Cummings. In other words, you don't have them here 
today or you don't have them?
    Ms. Siggerud. I am sure it is something that we could 
obtain. It is not something that we are doing current work on, 
so I don't have them.
    Mr. Cummings. I would appreciate it if you would get that 
information for me. The reason why I say that is we are in a 
diverse society.
    Ms. Siggerud. Yes.
    Mr. Cummings. I want to make sure that something like the 
Post Office, that we have everybody at the table--women, 
minorities. How soon do you think you could get me something 
updated as to say where we are?
    Ms. Siggerud. I am assuming we could request this 
information from the Postal Service fairly quickly, Mr. 
Cummings. I would want some time to analyze and make sure that 
we can understand it.
    Mr. Cummings. OK. Well, I would appreciate it if you would 
let me know when you can get it to us so that I can hold you to 
it.
    Ms. Siggerud. OK. We will be in communication.
    Mr. Cummings. All right. Thank you.
    Mr. Davis of Illinois. Thank you very much, Mr. Cummings.
    I might just add that our next hearing on May 10th is going 
to be on diversity within the Postal Service, and so we will be 
looking with you for that information.
    Mr. Cummings. Would the gentleman yield?
    Mr. Davis of Illinois. Yes.
    Mr. Cummings. Do you think we could get it by then, May 
10th? That would be wonderful.
    Ms. Siggerud. Mr. Cummings, we will do our very best. I 
believe that, in fact, the staff of the subcommittee has been 
in contact with other GAO staff who are part of this Federal 
work force issue to discuss this very issue, so what I would 
like to do is go back to my office and understand exactly what 
they are doing and what they have agreed to supply for that 
hearing.
    Mr. Cummings. Yes. Mr. Chairman, the only reason why I 
raise that is that when you have been around here for a while, 
what happens is you try to figure out how do you get the most 
out of these hearings.
    Ms. Siggerud. I understand.
    Mr. Cummings. I would hate for that report to come, like, 3 
days after the hearing, when we could have it in our hands. It 
may very well be that the things that are being provided may be 
the very items that we are talking about. I don't know.
    Ms. Siggerud. I see the subcommittee staff nodding back 
here.
    Mr. Cummings. OK.
    Ms. Siggerud. So my colleagues have been in contact with 
them about providing some information in preparation for that 
hearing.
    Mr. Cummings. All right. Thank you.
    Mr. Davis of Illinois. Thank you very much.
    Delegate Norton, did you have questions?
    Ms. Norton. Thank you, Mr. Chairman.
    We have had huge issues that have come to light now that we 
have begun to do oversight as to contractors, huge and horrible 
issues raised apparently because nobody has figured out how to 
hold contractors accountable in the same way that you hold 
agencies accountable. If they could figure that out, maybe 
these controversies wouldn't continue to arise.
    I actually have two questions. One has to do with this 
notion of contracting out letter carrying services. I need to 
know to what degree that is happening, whether we are going to 
get the same kind of complaints that we do about people working 
side by side in Federal agencies without cost accountability 
because they are contracted out and we don't do the same kind 
of oversight, at least no one has ever shown us that they do. 
To what extent is that happening that if it is a ``new delivery 
area'' it can be contracted out? I mean, that way I could see, 
with the way in which we build suburbs, you could contract out 
half the Post Office. What effect would that have on the 
continuing Postal Service that we now have? Is that what we are 
looking at now? Is that the way we are going to save money? 
That is one question.
    The second question would be what I cannot figure out and 
what I hope somebody looks at, and that is what, at bottom, the 
real problem of the Post Office is. Is it the rapid increase in 
technology or does it have anything to do with rate increases 
that, of course, periodically occur?
    First, would you educate us on contracting out? Is it now 
beginning of ordinary letter carrying services? To what extent? 
If it is to save money, how would accountability be built in so 
that this committee isn't faced with what the overall committee 
has been faced with? Where is it occurring? Who is looking at 
it? Who is keeping track of it? And who are the contractors?
    Mr. Williams. The previous panel provided a lot of the 
statistics with regard to the current picture. It sounds as 
though there wasn't much contracting occurring to date with 
regard to letter carriers that delivered mail.
    With regard to their accountability--
    Ms. Norton. Could I ask you, as experts, given the fact 
that we have seen the Federal Government claim that you save 
money by contracting out, all without any accountability on 
where the money is saved, with huge controversies concerning, 
in fact, the savings, I need to know whether or not the Post 
Office is headed toward--after all, it is in trouble. It has to 
find ways to modernize. Is it going the way of Federal agencies 
to do more and more contracting out, in your opinion, and would 
that, in fact, be one way the Postal Service might say it is 
saving money?
    Mr. Williams. I think that is a very large topic. A good 
place to begin might be that I do believe that the cost for the 
small number of delivery contractors has been lower than the 
cost of careerists, but I believe that we are getting a false 
signal on that, because they are in very rural areas. I think 
that if we begin contracting in urban areas we would discover 
that much of that disappears.
    Ms. Norton. Mr. Inspector General, are you or anybody else 
keeping track of the actual cost of contracting out this 
service versus the cost of the in-house service?
    Mr. Williams. We have reviewed the cost data, and it shows 
that, in the area that I just described, we are getting a 
reading that it is less expensive, but I believe most of that 
is accounting for the fact that they are in areas that are very 
rural and the cost of living is very low.
    Ms. Norton. So if, in fact, it were brought, let us say, to 
suburban areas around the District of Columbia where there are 
many new developments, where you could collar new development 
and contract it out, do you expect that there would be any 
differences?
    Mr. Williams. We are operating in unknown territory with 
that regard. A contract has never been offered and responded 
to, but I am of the suspicion that the cost of living is going 
to cause a lot of the savings that we have seen disappear when 
it comes to urban areas.
    Ms. Norton. Do you have any opinion on that?
    Ms. Siggerud. Ms. Norton, I think your first statement was 
exactly right. You said you are seeking facts, and what we have 
heard today from the Postmaster General is that this 
contracting out procedure is a routine business matter that 
provides important flexibility. But I have also seen the press 
from the employee organizations saying that this contracting 
out concept is increasing and that there are certain negative 
consequences from it.
    I think until we get in and actually look at those data and 
understand the extent to which this is happening and what the 
implications are, I can't provide you an overall view on this.
    Ms. Norton. Mr. Chairman, if I may say, this provides us 
with a rare opportunity before contracting out becomes a 
settled cultural matter to, in fact, ask the appropriate 
officials to report to us on the effect of it so that if it is 
to be done, contracting out is the way Government operates more 
and more, so I am certainly not here to say that the Postal 
Service, which already does a fair amount of contracting out, 
shouldn't do it. What I am here to say is that we have seen 
horrendous, horrific, once insight began to be done, 
information of waste of taxpayers' funds. And exactly what you 
said was said to us, it costs less, so what are you worried 
about.
    One of the ways to, in fact, perhaps reform that process as 
it begins is to get regular reports on its accountability.
    Finally, I just want to know. I worry about the Postal 
Service. I know it has to have rate increases in order to keep 
up with what is expected of it. I also see technology, and it 
is hard for me to understand how businesses can somehow stay 
ahead of the technology, and then I see businesses that are 
direct competitors of the Postal Service, and obviously more 
facile because they are private businesses, and wonder whether 
or not we are in a race against time with rate increases 
perhaps turning people in to other forms of communication, or 
if there is some real way to head that off so that they stand 
on at least the kind of parallel footing that the Congress 
would envision. Is technology the problem for the Post Office? 
Is rate increases the problem for the Post Office? Is there any 
way for the Post Office to truly compete with private business, 
which, in fact, rapidly gets a hold of this technology, or 
other people not even in the Postal Service business whose 
technology is then used by the general public while, of course, 
we insist and will always insist that the mail be delivered 
every weekday out there.
    I just want your honest assessment if we are in a holding 
action here or whether this is the kind of service that can 
keep up with the changing technology.
    Mr. Williams. I am fairly optimistic with regard to the 
ability of the Postal Service and the Postal Service working 
with its customers and unions and management associations to 
remain financially viable. I think the Congress has also done 
some to help that.
    The greatest need we have now, in my view, is the right-
sizing of the network. It is much too large. It is going to be 
complex to build down because it is a very changing 
environment, but a lot of promise in savings remain there.
    With regard to technology, I think there is some very 
important technology that has been deployed and that is about 
to be deployed that is going to serve the bottom line in the 
Postal Service very well for the coming years.
    I am not pessimistic, but I do believe that we do need to 
right-size the network, and that has begun. There has been some 
progress and some of it has been impressive, but it needs to 
continue and complete itself.
    Mr. Davis of Illinois. Thank you very much, Delegate 
Norton.
    Mr. McHugh. Mr. Chairman.
    Mr. Davis of Illinois. Mr. McHugh.
    Mr. McHugh. You have been very gracious with your time, and 
I was wondering if I may impose upon that grace.
    Mr. Davis of Illinois. Yes.
    Mr. McHugh. Ms. Siggerud, did I understand you to say that 
you are going to be looking at this issue of contracting out?
    Ms. Siggerud. We do not currently have a request from a 
Member of Congress to do so, but would, of course, respond to 
one if we received one.
    Mr. McHugh. Mr. Chairman, if I may, this is a very complex 
situation. I don't want to suggest I know the answer here, but 
you clearly have established highway contract routes. As 
someone who lives in an area where those are common, they are 
wonderful. Those folks do a great job. And to the extent those 
need to be expanded, I definitely think we should.
    I think the issue here, though, is there is a new 
contracting out process, contract delivery services, and they 
are not always in the traditional less-urban areas. They may be 
fully justified. There are some, or at least one I know in New 
York City in the Bronx. I just think, as we have heard other 
panel members suggest, that it is an important issue. There are 
provisions in the contract, the basic labor agreement, which do 
apply to this and have been around for a long time, but maybe 
times have changed again.
    I just think, if I may suggest respectfully, Mr. Chairman, 
in this subcommittee's oversight capacity it might be helpful 
to bring some clarity and perspective as to what the 
circumstances are, what, if any, new trends are out there, and 
what that means, so that we can conduct a proper oversight and 
so that decisions can be made that are the best for the postal 
customer, the best for the Postal Service, but I would argue, 
as well, serve the men and women that work so hard to make this 
Postal Service work appropriately, as well, if I could just 
suggest that, Mr. Chairman.
    Mr. Davis of Illinois. Let me thank you for your 
recommendations and suggestions, Mr. McHugh. I think all of us 
recognize that this is a contentious issue and it is one that 
the committee will thoroughly explore. We looked at what has 
already been put into agreements relative to collective 
bargaining, relative to areas of work, and any time there is a 
new thrust, then I think that has to be scrutinized very 
carefully.
    I am one of these individuals who believe that we all have 
certain kinds of rights, that labor has certain kind of rights, 
management has certain kind of rights, but I also believe that 
my rights end where the next person's rights begin, and that we 
have to do everything in our power to protect and promote those 
of all aspects of our society. I think that is what we will be 
doing as we wrestle with this issue. So I appreciate your 
comments and recommendations.
    I have no further questions for this group of witnesses. I 
want to thank you very much for coming before us. We appreciate 
your being here. We will move to our next panel.
    Mr. Williams. Thanks, Mr. Chairman.
    Ms. Siggerud. Thank you.
    Mr. Davis of Illinois. Mr. William Burrus, Mr. William 
Young--a lot of William's in this group--Donnie Pitts, and John 
Hegarty.
    As we are switching places, I will proceed with the witness 
introductions.
    Mr. William Burrus is president of the American Postal 
Workers Union [APWU]. The APWU represents the largest single 
bargaining unit in the United States, which consists of more 
than 330,000 clerk, maintenance, and motor vehicle employees 
working in 38,000 facilities of the U.S. Postal Service.
    Mr. William Young is the 17th national president of the 
National Association of Letter Carriers, the 300,000 member 
union representing city letter carriers employed by the U.S. 
Postal Service.
    Mr. Donnie Pitts is president of the National Rural Letter 
Carriers' Association [NRLCA]. He has over 37 years of 
experience with the Postal Service at both the State and 
national levels.
    And Mr. John Hegarty was sworn into office as National 
Postal Mail Handlers Union [NPMHU], national president 
effective July 1, 2002, and was re-elected to that position by 
acclamation of the delegates to the Union's national convention 
in 2004. More than 10 years prior to becoming national 
president, he served as president of Local 301 in New England, 
the second-largest local union affiliated with the NPMHU.
    Gentlemen, as you know, it is the tradition that we always 
swear in witnesses.
    [Witnesses sworn.]
    Mr. Davis of Illinois. The record will show that each 
witness answered in the affirmative.
    Your entire statement will be included in the record. Of 
course, all of you have done this many, many, many times. We 
will begin with Mr. Burrus, and we would expect you to give a 
5-minute statement, after which we will have time for questions 
and responses.
    Mr. Burrus.

   STATEMENTS OF WILLIAM BURRUS, PRESIDENT, AMERICAN POSTAL 
 WORKERS UNION, AFL-CIO; WILLIAM H. YOUNG, PRESIDENT, NATIONAL 
   ASSOCIATION OF LETTER CARRIERS; DONNIE PITTS, PRESIDENT, 
   NATIONAL RURAL LETTER CARRIERS' ASSOCIATION; AND JOHN F. 
  HEGARTY, NATIONAL PRESIDENT, NATIONAL POSTAL MAIL HANDLERS 
                             UNION

                  STATEMENT OF WILLIAM BURRUS

    Mr. Burrus. Thank you, Mr. Chairman.
    Mr. Chairman and members of the committee, on behalf of the 
American Postal Workers Union, thank you for providing me this 
opportunity to testify on behalf of the more than 300,000 
dedicated postal employees that we are privileged to represent.
    I commend the committee, through your leadership, Mr. 
Chairman, fulfilling your responsibility of oversight of this 
important institution. We begin a new era in the long and proud 
history of a Postal Service that predates the founding of our 
country. Over the past 4 years we have debated the future of 
the Postal Service and now the long struggle to achieve reform 
has been concluded. We now turn our attention to its 
implementation.
    As you may recall, our Union opposed postal reform because 
we viewed it as a veiled effort to undermine collective 
bargaining through regulatory restrictions and rate caps. We 
did not prevail, but we now lend our best efforts to making it 
work.
    In this new world of postal reform, each institution must 
now find its rightful place. You legislate, unions represent, 
managers manage. When these responsibilities overlap, and they 
sometimes do, the system can break, and more often than not 
service and workers suffer.
    As inviting as it may be, when you are asked to intervene 
with legislative action in areas best left to the parties, I 
request that you resist the temptation to do so.
    Let me be clear. I welcome your intervention in collective 
bargaining matters if you can assure me that your decision will 
be on the side of the workers in each and every instance. Of 
course, you cannot afford me that assurance. Therefore, to 
borrow a phrase from postal critics, we ask with deep respect 
that you stick to your knitting and leave collective bargaining 
to the parties.
    In debate preceding the passage of postal reform, the 
record was littered with forecasts of gloom and doom for hard 
copy communication. Predictable rate increases within the CBI, 
coupled with regulatory oversight, were declared essential to 
save the U.S. Postal Service. After much legislative give and 
take, we are now proceeding with the implementation of a new 
business plan, but none of the uncertainties that were cited to 
justify postal reform have been resolved.
    The gloom and doom scenarios were never reflective of 
reality, and the uncertainty that prompted these dire 
projections remain unaffected by reform. Although the record is 
closed and the bills are now law, on behalf of the APWU members 
I assert that we will never accept as fair the changes included 
in the legislation that limit compensation for injured postal 
employees. This was an injustice and our Union will not rest 
until it is reversed.
    Your overview of the U.S. Postal Service is occurring at a 
watershed moment in the history of this vital institution. The 
Postal Service is now facing challenges, including working 
within the rate cap and finding a way to support itself by 
managing services that compete directly with private sector 
companies.
    The Postal Service faces these challenges under rules that 
have yet to be written by the Regulatory Commission, a newly 
created body with awesome powers and responsibilities.
    A recent decision by the Commission regarding the USPS 
request for rate adjustments is a positive sign. It indicates 
that the Commission intends to serve as an independent reviewer 
of the postal rate structure. Under the leadership of Chairman 
Blair, Commissioners gave careful consideration to the record, 
and they arrived at fair conclusions. I commend the 
Commissioners for their thoughtful and just decision to 
recommend the first class rate unburdened by excessive work 
share discounts.
    The American Postal Workers Union is proud that we were the 
only intervener to propose a $0.41 first class stamp rather 
than the $0.42 sought by the U.S. Postal Service, and we are 
pleased by the Commission's decisions.
    The Board of Governors and the Commission are also 
commended for conceiving and approving the forever stamp. The 
very concept is a reflection of new and innovative thinking.
    We applaud the Commission for rejecting the radical 
proposal referred to as ``de-linking'' which would separate the 
rate for single first class letters from the rate for first 
class work shared letters. This proposal, if adopted, would 
have set the stage for a continual decline in the uniform rate 
structure.
    The Commission must also be watchful far into the future 
and resist demand to erode the very foundation of our mail 
system, universal service and uniform rates. The British postal 
system has recently announced a plan to begin zone pricing that 
could lead to higher rates for delivery to rural areas. Such a 
disparity would not be tolerated in America.
    Throughout the debate on postal reform, the American Postal 
Workers Union was a vital critic of excessive work share 
discounts, and we applaud the recent recommendation of the 
Commission to initiate change. This is a start, and we hope to 
work with the Commission in the appropriate review to determine 
their relationship to the cost of what is standard.
    My Union has a long history of engagement in the USPS 
effort to consolidate the processing network, and in 
communities throughout the country we have called upon the 
elected public officials to join with us. I am not aware of a 
single congressional representative who has rejected our 
appeals to require the Postal Service to seek meaningful 
immunity input prior to making a final decision.
    The record is clear. With your help we have been successful 
in preserving service, protecting local postmarks, and 
defending community identity.
    The APWU has also been a consistent advocate for postal 
efficiencies. We did not appeal for your assistance when postal 
officials engaged in massive investment in automation designed 
to enhance productivity. More than $20 billion has been 
invested in the automation of mail processing, and as a result 
of this investment the number of craft employees has been 
reduced by more than 80,000 employees. But there is a line 
between deficiencies and service. Highly publicized experiences 
in Chicago, Boston, and New Mexico demonstrate that postal 
management has not yet found the right balance. This chase to 
the bottom for savings cannot justify denying the American 
public a service that is required by law. Our Union and our 
Nation's citizens reject the Circuit City business model as one 
to be copied for mail services. We shall need your oversight to 
hold the Postal Service accountable.
    APWU members are proud to be a part of the most efficient 
Postal Service in the world, and we intend to be a part of a 
team effort to preserve this legacy, including working with 
this committee.
    In closing, Mr. Chairman, I want to take this opportunity 
to speak directly to the committee about a unique matter 
pending before the Postal Service and to seek the committee's 
assistance in its resolution.
    For many years I have been advancing that the Postal 
Service issue a commemorative stamp honoring the millions of 
slaves whose work in bondage contributed so much to building 
this country. I have made some progress in these efforts, and 
the Postal Service has agreed that a stamp will be issued in 
2008 honoring those human beings who suffered so much for so 
little reward.
    Unfortunately, we may be in disagreement over the image to 
be depicted. The Stamp Committee is proposing to depict the 
ship transporting slaves across the ocean, and I simply ask do 
we honor the oppressed or the oppressors. Tens of millions of 
human beings completed their life journey without notice, and 
this stamp presents an opportunity to display their image, to 
tell their story in a stamp. After 400 years, it is the right 
thing to do.
    I thank you, Mr. Chairman, for your leadership and that of 
the members of this committee. As we embark on the future under 
a new business model, we shall need your attention and your 
wisdom. Thank you for your efforts.
    I will be pleased to respond to any questions the committee 
may have.
    [The prepared statement of Mr. Burrus follows:]
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    Mr. Davis of Illinois. Thank you very much, Mr. Burrus.
    We will proceed to Mr. William Young.

                   STATEMENT OF WILLIAM YOUNG

    Mr. Young. Thank you, Chairman Davis.
    Before I begin, I want to thank you, Mr. Chairman, for your 
leadership over the past several years as Congress debated 
postal reform legislation. Thanks to the bipartisan partnership 
you and Chairman Henry Waxman established with Tom Davis and 
John McHugh, Congress enacted a reform bill in December that is 
largely positive and fair to all concerned.
    I have submitted an extended statement for the record that 
touches on the need for additional reforms, but for the moment 
I want to focus on a single issue that I believe is a serious 
threat to the future of the U.S. Postal Service, the 
contracting out of letter carrier jobs.
    In its dealings with the NALC and its management training 
programs, the Postal Service has signaled its intention to 
promote the out-sourcing of mail delivery to new addresses 
whenever and wherever it can. I am here today to sound an alarm 
on this penny-wise but pound-foolish policy and urge Congress 
to put a stop to it.
    Contracting out an inherently governmental function like 
the delivery of mail is misguided and it is wrong. It runs 
counter to the Postal Service's basic business strategy, and it 
violates both the intent and the spirit of the Nation's postal 
laws.
    The Postal Service's key asset is the trust and confidence 
of the Nation's mailers. Employing part-time, low-wage workers 
with no benefits will lead to high turnover and poor service 
over time. This will break the trust that Americans have 
developed with the Postal Service through their long-term 
contact with dedicated career letter carriers.
    Out-sourcing core functions is rarely successful business 
strategy. Uniformed career letter carries and clerks are the 
public face of the U.S. Postal Service. They represent the 
brand, so to speak. Out-sourcing your brand might save you 
money in the short term, but it is sure to backfire over the 
long run. As the quality and trust in the system declines, mail 
volume and mail revenue are bound to fall, wiping away any real 
savings. Beyond that, the Postal Service's strategy to employ 
intelligent mail technologies in the future will require an 
even more dedicated and better skilled letter carrier, a need 
that will not be met through the widespread use of contractors.
    Out-sourcing letter carrier mail also contradicts the basic 
policy outlined in the Nation's postal law, which specifically 
grants collective bargaining rights and calls on the Postal 
Service to place particular emphasis on opportunities for 
career advancement for its employees and to support their 
achievement of worthwhile and satisfying careers in the service 
to the United States.
    Yet, the Postal Service appears to be dead set on a policy 
of out-sourcing new deliveries across the country. Although a 
very small percentage of total deliveries are contracted out 
today, with the addition of 1 to 2 million new deliveries each 
year, it will not be long before a two-tier system of delivery 
begins to undermine the trust and quality of the Postal 
Service.
    Congress should act to stop the cancer of contracting out 
now, before it spreads and undermines the most affordable and 
efficient Post Office in the world. If this is not stopped now, 
in 10 to 15 years there could be tens of thousands of 
contractors out there. When your constituents begin to 
complain, they won't be calling me, they will be calling you.
    Now, the Postal Service would have you believe that 
contracting out the final delivery of mail is nothing new and 
no big deal. I am sure you read the document sent to every 
Member of Congress last week, the paper entitled, ``Contracting 
Out by the U.S. Postal Service, Not New.'' The central claim of 
this misleading document is simply not true. Yes, the Postal 
Service has long used contractors on so-called highway contract 
routes to transport mail between post offices and to do 
occasional deliveries en route in rural areas, but using 
contractors to deliver mail in urban and suburban settings is 
something totally new.
    The fact is the Postal Service has embarked on a radical 
expansion of out-sourcing in the delivery area, following the 
same misguided practice used by many private companies to 
suppress wages and destroy good middle-class jobs, replacing 
them with lower-paid, contingent, and part-time positions.
    In 2004 and 2005 Postal Service headquarters initiated an 
HCR--that is highway contract route--enhancement and expansion 
program. I have provided for the record a copy of the 
presentation used by postal management trainers to explain this 
new program. Its goal was to broaden and transform the use of 
HCRs to include not just the traditional transportation of mail 
but also the delivery of mail, as well.
    Of course, the Postal Service knew that its new policy 
would be controversial. Look at the last slide on its training 
program. The Postal Service saw congressional influence as the 
No. 1 obstacle or barrier to success of that program. They had 
good reason to worry about congressional opposition. In the 
summer of 2005, the House of Representatives voted 379 to 51 to 
oppose an amendment offered by Representative Jeff Flake to the 
postal reform bill which was eventually adopted to experiment 
with the privatization and alternate forms of deliveries in 20 
cities across the country. I note that the current members of 
this subcommittee opposed that amendment by a vote of 10 to 1.
    In 2006, despite the express views of Congress, the Postal 
Service went even further. It began advocating contract 
delivery as a growth management tool and it introduced contract 
delivery service [CDS], routes for new deliveries in urban and 
suburban areas. Such routes are to be considered for all new 
deliveries. That is their training program. Of course, these 
CDS routes bear no relation to the traditional highway contract 
routes. Although the contractors do receive the same low pay 
and no benefits, their main duties involve delivery work, not 
mail transportation.
    Why is the Postal Service doing this? According to another 
management presentation used recently in Seattle, which I have 
also provided for the record. Contract routes are ``the most 
cost efficient, because they provide no health insurance, no 
life insurance, no retirement, and no tie to union 
agreements.'' They call that efficiency. I call it an assault 
on middle class living standards.
    Mr. Chairman, what the Postal Service is doing is not 
business as usual. The CDS routes it has established in recent 
months in urban areas like the Bronx or suburban areas outside 
of Fresno, CA, or Portland, OR, cannot be truthfully described 
as ``nothing new.''
    I urge this subcommittee to consider legislation to block 
the Postal Service from taking the low road that far too many 
employers in this country have adopted. The Postal Service 
should not contribute to wage stagnation and add tens of 
millions of workers without health insurance or adequate 
pension protection. Indeed, the Postal Service has been and 
should remain a model employer. It has combined decent pay and 
wages with ongoing innovation to keep Postal Service rates low 
and affordable. It does not need to join the race to the bottom 
with respect to employment standards, and it should not gamble 
with the trust and support of the American people.
    Before I finish let me address one final issue. You may 
have heard from postal management that subcontracting is a 
bargaining issue and that Congress should stay out of labor 
relations that are currently underway. NALC, like the APWU, 
does not want Congress to get involved in our collective 
bargaining. However, what we do want is for Congress to ensure 
that there is collective bargaining for all postal employees 
who deliver the mail. By assigning new deliveries to contract 
workers, the Postal Service is seeking to avoid collective 
bargaining. Whether they out-source the core function of its 
mandate is a legitimate public policy issue. You can and should 
weigh in on this issue. You can start by enacting H.R. 2978, a 
sense of the House resolution to oppose postal out-sourcing.
    I know that you did not work dozens of years on postal 
reform only to see the Postal Service turn around and throw it 
all away. Neither did I.
    Thank you again, Mr. Chairman, and thanks to all the 
members of this committee for my opportunity to testify.
    [The prepared statement of Mr. Young follows:]
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    Mr. Davis of Illinois. Thank you very much, Mr. Young.
    We will proceed to Mr. Pitts.

                   STATEMENT OF DONNIE PITTS

    Mr. Pitts. Thank you, Mr. Chairman.
    Before I start, I would ask that my remarks be included in 
the record, the written remarks that I have provided.
    Mr. Chairman and members of the committee, my name is 
Donnie Pitts and I am president of the 111,000 member National 
Rural Letter Carriers' Association. I want to thank you, Mr. 
Chairman, for holding this oversight hearing.
    Back in 1985 I had the pleasure of testifying before the 
House Ways and Means Committee as vice president at that time 
of the Alabama Rural Letter Carriers' Association. It is an 
honor to be invited to testify again before Congress, this time 
as president of the National Rural Letter Carriers' 
Association.
    Rural carriers serve more than 75,000 total rural routes. 
We deliver to 37.4 million delivery points, driving a total of 
3.3 million miles per day. We sell stamps, money orders, accept 
express and priority mail, collect signature and/or delivery 
confirmation pieces, and pick up registered, certified mail and 
customer parcels. Our members travel everywhere every day, 
serving America to the last mile.
    Mr. Chairman, the most important issue affecting our craft 
at this moment is the contracting out of delivery service by 
the Postal Service. Delivery is a core function of the Postal 
Service, and out-sourcing this function is contrary to the 
mission of the agency. The practice jeopardizes the security, 
sanctity, and service of the Postal Service. I ask that 
Congress fulfill its duty of oversight and take immediate steps 
to halt the continuation of this practice.
    Delivery managers have been encouraged to favor CDS, or 
contract delivery service, using contract employees over 
delivery by city or rural letter carriers for all new 
deliveries based on cost savings. Contracting out is reported 
to save roughly $0.15 per delivery point, but at what cost. 
When the Postal Service started the contracting out of 
deliveries, they were still tasked with paying billions of 
dollars into an escrow account and covering the cost of postal 
employees' military pension obligation. With the passage of 
postal law 109-435, the Postal Service was relieved of both the 
$27 billion obligation for military pensions and $3 billion 
annual payment into the escrow account, and new laws allow the 
Postal Service to retain a profit, and a banking provision 
allows any unused rate authority to be saved for use at a 
future time.
    There remains an opportunity to file one last rate increase 
under the old law. The Postal Service has not given the new law 
which this committee wrote and passed a chance. If the Postal 
Service had lived under the new law for 5 to 10 years and then 
found they were running huge deficits, perhaps we could 
understand cost cutting measures, but it has only been 4 months 
since the bill became law. Why does the Postal Service see the 
need for even more cost savings?
    Security has become one of the most important concerns 
facing Americans today. Following the terror attacks on 
September 11, 2001, and anthrax attacks that fall, the White 
House, Department of Homeland Security, and Department of 
Health and Human Services, working closely with the Postal 
Service, the NRLCA, and the NALC developed a plan to call upon 
letter carriers to deliver antibiotics to residential addresses 
in the event of a catastrophic incident involving a biological 
attack. Why us? Because citizens trust us. Star route carriers 
aren't even involved in this service, and now CDS carriers.
    Many contractors subcontract their routes. Letter carriers 
are Federal employees who are subject to close scrutiny of 
their character, background, and criminal history, if any. What 
kind of scrutiny are subcontractors subjected to? Does a 
contractor take the same care in screening a subcontractor 
employee as the Postal Service takes?
    Sanctity of the mail stream is one of utmost importance. 
Sensitive materials are mailed every day. Financial documents, 
credit cards, Social Security checks, medicine, passports, and 
ballots must pass through the mail.
    A contract carrier in Benton, AR, stole a person's credit 
card identity, and he was caught by the police. A Bridgeport, 
PA, contract employee threw away 200 pieces of first class 
mail. His postal record indicated he should never have been 
hired. In Appalachia, VA, a contractor pleaded guilty in an 
election rigging scheme where absentee ballots were forged or 
votes were purchased with bribes. Are these the kind of people 
we want delivering the mail?
    Service is the reason that USPS ranks as the most trusted 
agency in the Federal Government. Letter carriers are the most 
trusted part of that equation, according to customer 
satisfaction surveys. All new rural carriers are required to 
attend a 3-day training academy which instructs them on all 
aspects of their job. This training academy, staffed by 
experienced rural carriers, serves as a clearinghouse for the 
rural craft. There is a direct connection between our training 
academies and customer service satisfaction. Contract carriers 
don't have the training academies, and any training they may 
receive is inferior to the training developed by the Postal 
Service and the NRLCA.
    There is a lack of accountability and no clear chain of 
command for supervision. Neither customers nor the Postal 
Service will know who is responsible for service problems or 
delivery concerns. The Postal Service sites as a general rule 
that public interest, cost, efficiency, availability of 
equipment, and qualification of employees must be considered 
when evaluating the need to contract. After evaluating contract 
delivery service, I ask is this cost savings worth the risk. 
The answer is obvious.
    Mr. Chairman and members of the committee, I thank you for 
inviting me to testify today. If you have any questions of me, 
I will be glad to answer them.
    [The prepared statement of Mr. Pitts follows:]
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    Mr. Davis of Illinois. Thank you very much, Mr. Pitts.
    We now will proceed to Mr. Hegarty.

                   STATEMENT OF JOHN HEGARTY

    Mr. Hegarty. Good afternoon, and thank you, Chairman Davis 
and members of the subcommittee, for inviting us to testify.
    The National Postal Mail Handlers Union represents almost 
57,000 mail handler employees employed by the Postal Service. I 
have submitted written testimony and would ask that it be 
included in the official record.
    There is one crucial and overriding point that I want to 
emphasize at this hearing. From all indications there is a 
subcontracting virus pervading Postal Service headquarters, and 
not just in delivery services. I will apologize in advance if 
some of my comments are similar to my colleagues', but I think 
those points need to be re-emphasized. This is extremely 
unfortunate, not only for mail handlers and other career postal 
employees, but also for postal customers and the American 
public.
    From my perspective, contracting our work out to private 
employees who receive low pay and even lower or no benefits is 
effectively destroying any sense of harmonious collective 
bargaining and productive labor relations. The parties have 
freely negotiated wages and benefits for career mail handlers 
for more than 30 years. To subcontract out work solely to 
undermine the results of collective bargaining without any 
justification other than saving money is directly contrary to 
the purpose of those negotiations and to the policies set forth 
in various Federal statutes.
    But subcontracting is even more dangerous and more 
unjustified when it is viewed from the perspective of the 
American public. We believe that privatizing the processing or 
delivery of mail jeopardizes the very core of the postal system 
that is the cornerstone of the American communication system. 
First, using subcontractors to process and deliver the mail 
jeopardizes the sanctity and security of the mail, raising 
important concerns about who is handling the mail and precisely 
what might find its way into the postal system. Especially 
after the terrorist attacks of September 11, 2001, and the 
anthrax attacks of October 2001, postal handlers and other 
career postal employees are better able to deal with the 
Homeland Security issues surrounding terrorism and other issues 
than privately contracted employees.
    Mail handlers are hired after written exams, entry and 
background testing, and often with extensive experience in the 
military under veteran preference laws. Mail handlers are hired 
for a career job, and therefore have a greater stake in 
performing their job well and in the success of their employer.
    Private employees certainly are not trained to protect the 
mail or the American public from the dangers of biohazards or 
mailed explosives, just to name two of many security concerns.
    If maximizing our Homeland security is an important goal, 
then career mail handlers who are properly trained and 
experienced are better able to handle the potentially dangerous 
situations that may arise in and around the Nation's postal 
system.
    Using private employees to process and deliver the mail 
also raises a host of other concerns that should give pause to 
any subcontracting plans by the Postal Service. To pose just a 
few items of concern that deserve the attention of this 
subcommittee, subcontracting will increase the dangers 
associated with identity theft. Subcontracting will defeat the 
very purpose of veteran preference laws and eliminate all of 
the benefits that are meant to accrue both to employees and to 
the Postal Service when the agency is encouraged, if not 
required, to hire our Nation's veterans. This is especially 
important today with our service men and women returning from 
Iraq, Afghanistan, and other duty stations.
    Just to preempt a question that I believe comments that 
Representative Cummings discussed earlier, how do we get more 
young people hired into Government jobs? The first way that you 
do that is to have the jobs for them to go into in the first 
place.
    There are more valid concerns, but there is no reason to 
belabor the point. The Postal Service's continuous attempt to 
subcontract our work to private contractors follows a 
disturbing pattern of privatization for privatization's sake 
and is not based on any enhancement of the product or services 
being provided.
    The dangers of subcontracting have been confirmed by some 
recent examples. Approximately 9 years ago the Postal Service 
decided to contract with Emery Worldwide Airlines to process 
priority mail in a network of ten mail processing sites along 
the eastern seaboard. Today the work at those facilities has 
been returned to mail handlers, but not before the Postal 
Service suffered losses in the hundreds of millions of dollars.
    At a meeting of the Postal Board of Governors, one Governor 
said publicly that the Emery subcontract was one of the worst 
decisions they had ever made as a Board.
    A similar story can be told about the out-sourcing of the 
mail transport and equipment centers [MTECS]. Several years ago 
about 400 mail handlers were displaced from these facilities in 
favor of private sector employees working for contractors who 
passed their costs along to the Postal Service. The Office of 
the Inspector General audited these contracts and concluded 
that the Postal Service had wasted tens of millions of dollars 
in the inefficient use of these contractors, and that the same 
work, if kept inside the Postal Service, would have been 
performed more cheaply.
    More recently, just 6 months ago in November 2006, 
management decided to subcontract the processing of military 
mail that was being performed by mail handlers employed at the 
New Jersey International and Bulk Mail Center. This is military 
parcels and other mail headed to Iraq and Afghanistan, as well 
as mail coming back to the States from our service members. 
Without exaggeration, this is one of the most outrageous 
subcontracting decisions that the Postal Service has ever made.
    In May 2005, the joint military postal activity for the 
Atlantic area representing the U.S. Army, Navy, Air Force, 
Marines, and Coast Guard, issued a formal letter of 
appreciation to the career postal employees handling this 
military mail, stating that their professional work ethic and 
personal contributions from 2000 to 2005 significantly 
contributed to the morale and welfare of all of our service 
members. They stated, ``Your dedication and honorable service 
is appreciated,'' and the letter said, ``May God bless you and 
keep you safe.''
    One year later, in July 2006, representatives of the 
military attended a meeting onsite at the New Jersey postal 
facility and again took the opportunity to thank the mail 
handlers for their continued dedication, hard work, and support 
for the military. But only a few weeks later, in early 
authority, 2006, postal management informed the union that this 
operation would be contracted out and the work subsequently was 
transferred to private employees in November of last year.
    If there is a rationale for this subcontracting, it has not 
been explained to the Mail Handlers Union. Rather, the career 
mail handlers whose dedicated service had ensured that this 
mail was being efficiently and timely handled on its way to our 
troops were slapped in the face by local postal managers who 
decided that saving a few dollars should override the views of 
the U.S. military and the needs of Homeland security.
    Another recent example concerns the Postal Service's 
ongoing consideration of subcontracting for the tender and 
receipt of mail at many air mail centers and facilities. Once 
again, the Postal Service seems incapable of recognizing that 
career mail handlers are part of a permanent and trained work 
force, one that is particularly well suited to the additional 
security concerns that are presented in and near the Nation's 
airports.
    The members of this subcommittee will remember that shortly 
after September 11th Congress insisted that security workers at 
the airports should remain Federal employees. We believe that a 
similar requirement should be imposed on postal employees who 
may be sorting and loading mail for transportation onto 
commercial airlines. In this day and age does the American 
public really want a series of low-bid workers handling 
packages and mail that is being loaded onto airplanes? Does 
Congress really want to allow the Postal Service to contract 
out this work simply to save a few dollars? To the Mail 
Handlers Union the answer should be a resounding no.
    Again, thank you for this opportunity to testify, Mr. 
Chairman. If you have any questions, I would be glad to take 
them.
    [The prepared statement of Mr. Hegarty follows:]
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    Mr. Davis of Illinois. Thank you very much, Mr. Hegarty. I 
want to thank all of you for your testimony.
    I am also pleased to note that we have been joined by our 
ranking member, whose plane had been delayed as a result of the 
severe weather that we have been having in some parts of the 
country. Before we go into the question period, I would like to 
ask Ranking Member Marchant if he has any comments that he 
would like to make.
    Mr. Marchant. Thank you, Mr. Chairman.
    I again apologize to the whole group of you. It has been a 
crazy couple of days on the northeast. They say that if 
anything happens in Dallas, anything that happens in Boston 
happens in Dallas about 5 minutes afterwards. My deepest 
apologies. I am very interested in this subject and share with 
the chairman in appreciation for all of your participation 
today.
    I have some questions, but I will save them for later. 
Thank you, Mr. Chairman.
    Mr. Davis of Illinois. Thank you very much.
    We will begin with the questions.
    Mr. Burrus, the Postal Service has set a goal of reducing 
work hours by 40 million this year. In an effort to improve 
efficiency and productivity, all of these things are really 
important and speak well from an efficiency, effectiveness, and 
cost containment point of view.
    Do you think that this can be accomplished without causing 
real problems in some areas of service and delivery?
    Mr. Burrus. It is possible. With the introduction of 
technology, particularly in the mail processing network, the 
preparation of mail for delivery, that it does not require time 
in the office for preparation. There are a number of methods 
that the postal workers can undertake that they can achieve 
reductions of personnel. There is always friction, though. And 
where there is friction, we apply the provisions of our 
collective bargaining agreement. We don't come to Congress to 
seek your assistance. We apply the collective bargaining 
agreement. We have the option of going to arbitration over its 
provisions if we are not successful in negotiations, but there 
is always tension between the employer and the Union. The 
employer's responsibility is to achieve the maximum 
effectiveness at the reduced cost, and our obligation is the 
absolute reverse, so there is tension there, and the collective 
bargaining process is where we meet and resolve those 
differences, not always to our satisfaction. I don't suggest to 
you that we are always satisfied with the outcome. We have been 
wrestling over article 32 subcontracting issues not just 
recently, not just in the last year. For 35 years we have 
challenged the Postal Service.
    I associate myself totally with all the remarks of my 
colleagues about the negatives of subcontracting, the impact on 
service. But we make those arguments in a different forum. We 
make those arguments in a forum where the Postal Service has 
the opportunity to respond, and if we are dissatisfied with 
that response we go to arbitration.
    But yes, there is always tension between your employer and 
the union in terms of efficiencies, productivity improvements, 
reduction of personnel. We fight those as best we can using the 
tools available to us at the time, but we don't come to 
Congress and seek your assistance when we fail.
    Mr. Davis of Illinois. Thank you very much.
    Mr. Young, we heard Chairman Miller, we heard the 
Postmaster General vigorously and passionately defend this new 
notion of contracting out in a sense. We have also heard about 
the difficulty of maintaining service. We look at decline in 
first class mail as we look at the competitiveness of the mail 
industry in terms of other entities that deliver mail. So they 
pretty much indicated that there is a need to do this as a cost 
saving function. Are there other ways perhaps that the cost 
savings could occur without going to this new service 
contracting out that management is talking about?
    Mr. Young. The answer is yes, Mr. Davis. Look, I don't want 
to get into collective bargaining here, but, just as a for 
instance, I offered them a proposal that would save them $20 
billion, $20 billion over the next 30 years. They rejected that 
proposal because they would rather have the current language in 
article 32 which allows them to contract out than the $20 
billion in real savings in their pocket. So I get a little 
aggravated when they come up here. I listened to Jack Potter 
and I listened to Chairman Miller, and they suggest to you that 
nothing is new, they have done this forever.
    Article 32, as Mr. Burrus said, has been in our contract I 
think from the very beginning. There was a need for it to be in 
the contract. Nobody quarreled with that. Our Union never 
grieved it, never appealed it, never tried to get rid of it 
because in rural America, the way they used it initially with 
highway contract routes, it made good sense. But now they are 
going too far, in our view.
    Why I don't think this is collective bargaining, 
Congressman, I think this is public policy. The Members of 
Congress are going to decide for all of us that work there, all 
these people out here that use the mail, everybody else in 
America, you are going to decide what kind of a Postal Service 
do you want, what kind of services do you want to provide to 
the American public.
    The risk they run with this contracting out itch of theirs 
is if they lose the confidence of the American public to 
deliver the mail they are gone.
    Now, let me just give you one example. I heard what the 
Postmaster said, but he is not being truthful. In Orange, CA, 
right in the middle of one of the city letter carrier routes of 
people that I represent, they built a shopping center. The 
Postal Service decided, rather than letting the regular letter 
carrier absorb that shopping center in his route, that they 
would contract it out to a private delivery. For 6 weeks it 
appears as though the private contractor was performing its 
functions I guess correctly, because no complaints were in. 
Then 1 day he was told that he had to take a mailing, a full 
coverage circular mailing, out on his route. He got nasty with 
the boss on the workroom floor. I can't repeat in Congress what 
he said. If a letter carrier said it, believe me, they would 
have gotten a disciplinary notice, or a clerk said it, or a 
mail handler said it, or a rural carrier, they would have been 
immediately issued a disciplinary notice. But this guy got 
nothing because the boss said look, he's a private contractor, 
what do you want.
    He started taking the mail home and not delivering it. 
Calls started going into the Postmaster in Orange, CA. What do 
you suppose he told the people that called? Nothing I can do 
about it. It is a private contractor.
    What I am saying to Congress is this: when the American 
public loses faith in the ability of the men and women that 
currently are moving that mail from the factories to their 
homes, we will be out of business, Congressman. I think they 
risk that with this path that they now go on, which requires 
every--and I don't know why they won't tell you that. I gave 
you their training programs. They say it. Every new delivery 
must be considered for private contractor, not 2 percent, not 6 
percent, not 1 percent, every single new delivery is being 
given consideration for private contracting.
    I will tell the Congress so there is no mystery. Is it 
cheaper to use private contractor? The answer is yes. It is 
very much cheaper. Why? They don't get health benefits, they 
don't get retirement, they don't get annual leave, they don't 
get sick leave. There is about a 40 percent roll-up in the 
payroll for benefits in most modern companies in America. They 
are achieving the 40 percent savings by hiring private 
contractors.
    Mr. Davis of Illinois. Thank you very much.
    We will now go to Mr. Marchant.
    Mr. Marchant. I think I would like to ask a couple of 
questions about the security issues that arise out of the 
contracting out and open that question to the panel.
    Mr. Young. If I could just put 2 cents in, when somebody 
put anthrax in the mail a number of years ago it was very 
difficult, and some of the Members of Congress have already 
recognized how bravely the postal employees reacted and behaved 
during that process. We still to this day, at least as far as 
Bill Young knows, we still don't know who did that. We still 
haven't gotten the person that put that deadly virus in the 
mail. We haven't brought them to justice.
    Think how difficult that would be trying to contain that 
if--let's fast forward 10 years. Let's say Congress makes the 
decision we are not going to do anything to disrupt this 
current contracting out craze that is going on. Now it is 15 
years from now we have 30,000 individual contractors out there, 
plus the network of whatever is left of us, the four of us that 
are sitting here, and we have to try and contain this virus 
somehow with all of these tentacles out there.
    The members of my Union, Congressman, they volunteered to 
deliver vaccinations if, God forbid, we get a biological 
attack. We and the rural carriers signed an agreement with 
Homeland Security when Tom Ridge was the Director to do that. 
Does anybody in this room think private contractors are going 
to go to that extent? It isn't going to happen.
    Mr. Hegarty. The security issues are quite a few, from our 
perspective, especially with the two examples that I cited, the 
airport mail facilities and also the military mail.
    If you are paying a private contractor who knows what, I 
agree with Bill it certainly saves money if they can hire 
people as cheaply as possible, but what type of commitment do 
they have to the job. And don't you think it would be pretty 
easy for a terrorist group who wanted to harm our military 
members to infiltrate a low-paid private contractor and have 
some people working at that New Jersey bulk mail center and put 
some terrorist bombs or whatever they may decide to use in the 
military mail to be shipped over to Iraq and Afghanistan? It is 
just unconscionable to me that, for the sake of saving money, 
you would do something like that.
    The delivery of mail, how do you know what these private 
contractors are doing once they walk out the door of the Post 
Office? Are they opening mail? Are they taking credit card 
applications and filling them out in someone else's name? That 
is the identity theft aspect of it.
    The airport mail facilities, why would you possibly, with 
Homeland security--and let me just say this: we are not asking 
you to interfere with collective bargaining and we are not 
asking you to get involved in collective bargaining. At least I 
am not, from the mail handlers perspective. But it is a 
different Postal Service after 2001, it is a different world 
after 2001, and we are asking you to look at the ramifications 
of this subcontracting out in light of the security concerns.
    One other point that I want to make. It came up earlier 
about the right to strike. The Postal Service yes, we are not 
allowed to strike. Our members have to perform their duties. 
What do you think would happen if a private company 
subcontracted, big on a network of airport mail facilities, and 
all of the sudden their employees became disgruntled? A strike 
by a private company is not prohibited, and they could shut 
down the Nation's airmail system. It is just ridiculous.
    Mr. Pitts. I echo a lot of what a lot of my predecessors 
have said here. One of the big issues that I see is the 
accountability of who is carrying the mail. In our craft, the 
rural craft, you have a regular carrier, then you have a relief 
employee who backs that person up. On a day-in, day-out basis 
the Postal Service knows who is taking care of the mail. 
Whereas contractors get the contract, they subcontract to any 
and everyone to carry the mail. So I think there is a big risk 
out there with people handling valuable documents, as I said in 
my testimony, that there is no way you can pinpoint who was 
delivering the mail there on a given day, so it is a security 
issue and the sanctity of the mails. It is a big-time problem, 
and it could really get out of hand.
    Mr. Burrus. Security is a major issue with subcontracting, 
but I don't want this committee to misunderstand its scope. It 
is not just what's here today. All of the mail, most of the 
transportation of mail is done by contractors. All the airline 
transportation is by subcontractors, not by postal employees. 
So the mail is interacting with private citizens who are not 
responsible to the U.S. Postal Service every day. So I think it 
raises serious security issues. I agree that they are imbedded 
in the fact that the Postal Service does not control the 
individuals, and they have no allegiance to the system, itself. 
But it doesn't just begin and end with delivery. There is 
subcontracting in transportation, the processing, with the 
equipment, MTEC systems.
    We have for years fought this issue in collective 
bargaining, in other forums where we could join with the Postal 
Service and address them jointly, and we have had some wins. 
Priority mail, they contracted the entire system out to the 
private sector. We convinced the Postal Service to bring it 
back in. Now postal employees perform that function.
    We looked at encoding systems, 25,000 jobs. We didn't come 
to Congress to ask your intervention on remote encoding. We 
went to an arbitrator, convinced the arbitrator that it was not 
consistent with our agreement, they brought the jobs back in.
    There have been a number of hours reaching agreement with 
the U.S. Postal Service in 1996, 1998, somewhere in that 
general timeframe, to ban all contracts for a period of 2 
years. We reached that agreement at the bargaining table. There 
would be no new contractual initiatives. That time has now 
elapsed and they are now contracting even more.
    But my message is this has been done at the bargaining 
table. What I am afraid of, if you get the appetite to decide 
issues entirely in the Postal Service, issues that are 
mandatory subjects of bargaining, where does it end. Does 
another constituency come to you next year on an issue that I 
am opposed to an you entertain it because you have broken the 
egg, you started to get involved in the process, itself.
    I don't want to come before you to defend my no lay-off 
cause, my cost of living adjustment, because somebody came and 
said ask the Congress to intervene for whatever reasons. They 
will dream up their own reasons. But I don't want you to put 
yourself in a position that now you have entertained 
involvement in the process. Where does it end? Does it begin 
and end with subcontracting? Fine. I am onboard if it begins 
and ends. But if you can't give me that assurance, I don't want 
to return here a year or 2 years from now where I am facing 
other issues that I have addressed in collective bargaining and 
you have a different view.
    Mr. Davis of Illinois. Thank you very much.
    Mr. Sarbanes, I believe you are next.
    Mr. Sarbanes. Thank you, Mr. Chairman.
    I appreciate the testimony of all four of you. Thank you. 
And the issues you have raised are ones that are of deep 
concern to me.
    The notion that contracting services out will lead to more 
efficiency is really a philosophy that has been embraced by the 
administration we have in place now and many of their friends. 
There is plenty of evidence that the efficiencies are not 
there. There is even evidence that the cost savings are not 
there, although, as you described, if you are going to hire 
through private contract and people don't have health insurance 
who are low-paid, who are temporary, etc., it is impossible not 
to get some cost savings from it.
    One of the things that drives me crazy is that the failure 
to prove out the notion that private contracting produces more 
efficiency actually proves out or fulfills another prophecy 
that is at work, and that is to demonstrate somehow that good 
government and good government services or quasi-government 
services can exist in this world. There is a group of folks out 
there that want to debunk the notion of quality service coming 
from Government, governmental functions. So even if it doesn't 
work out that they can show that contracting out works better, 
that is OK, because if it works worse then they can say, see, 
Government doesn't function properly, so they get you coming 
and they get you going.
    The issues you have raised about security, training, other 
reasons why it makes sense to have the work force of the Post 
Office, the traditional work force of the Postal Service in 
place I think are compelling.
    As this Congress begins to look across the board at whether 
this compulsion to contract services out makes sense, I think 
it is very fair for you to push for the notion that the push 
back against that ought to start with an organization like the 
Postal Service, because I think it is unique. I think its 
relationship to the public is unique, and I think that there is 
a bond there and a trust, as you say, Mr. Young. Once that is 
eroded, it is very hard to get it back. So we have to be very 
vigilant about it.
    My question is this: can you comment on the impact it has 
on the morale of the remaining work force to have these 
services contracting out, because that is relevant, too.
    Mr. Young. Yes, I can. Before I do that, I would just like 
to make two very brief, quick points.
    Point No. 1, if I was successful in convincing this 
Congress to do what I have asked you to do this morning, put a 
ban against contracting out, I do not pick up a single job for 
the men and women I represent. The jobs would go to Donnie 
Pitts' organization because his craft works somewhat cheaper 
than ours, and when they do the cost analysis he will end up 
with this work. Bill Young will not end up with the work.
    I disagree vehemently with Mr. Burrus. I am not asking you 
to get involved in collective bargaining. We are talking about 
public policy here now. The Postal Service is a Government 
function that is in the Constitution of the United States, and 
we are talking about how it is going to be conducted. In the 
same way as he has the right to go to Congress and say stop 
these big discounts, I don't think they are justified, we have 
the right to say is this the kind of Postal Service you want.
    It has a tremendously negative effect on the men and women 
I represent. Let me show you how, Congressman, and thank you 
for asking.
    Our Union has been a cooperative Union. When Postal Service 
announced that they were going to implement the sortation of 
delivery mail with machinery, we went in there and said let us 
be your partner, let us do it together, let us help you 
together, and we did. We negotiated a series of memos that 
established rules that we could use and we tried to make that 
process roll out just as easy as we could.
    How do I now, knowing what I know in the Postal Service, 
what Jim Miller and Jack Potter is going along with for obvious 
reasons, what they want to do with the Postal Service, how do I 
now go to the men and women I represent and say help the Postal 
Service. They are trying to get rid of you. they want your job. 
They are going to contract out your job, but help them. Help 
them implement this new flat sorter that they have sort of 
over-estimated the savings on. And I will say it right here in 
this Congress, they will never achieve $900 million worth of 
savings with the flat sorter, not because we are going to stop 
them. They do the same thing every time. When they go to the 
Board of Governors to get approval of a large amount of funds--
and it cost a lot of money to implement those flat sorters--
they overestimate the ROI, the return on investment, and then 
we and the managers that sit behind me are stuck trying to 
implement this policy and make it work.
    Speaking of these managers behind me, there is going to be 
an other panel after ours, is there not?
    Mr. Sarbanes. Yes.
    Mr. Young. Please ask them what they think about 
contracting out. If this was an NALC issue, if this was just an 
employee issue, why would all these organizations be supporting 
us? And it is my information that each and every one of them 
support us and think that this path that the Postal Service is 
on for contracting out will not serve the Postal Service well 
in the future. But you get the information from them. I don't 
speak for them.
    Mr. Hegarty. If I could answer that, as well, for the mail 
handlers, I echo Bill's comments. We have several cooperative 
programs that we engage in with the Postal Service. One of the 
oldest is the quality of work life process, where mail handlers 
and managers get together in quality circles and work on 
problems, on the workroom floor to improve service, to 
eliminate redundancies in operations. That has been going on 
for 25 years.
    Most recently, the voluntary protection program, which is a 
cooperative effort through our Union, the APW, OSHA, and the 
Postal Headquarters, we go into facilities, we make sure it is 
a safe place to work. We are saving the Postal Service millions 
of dollars and saving our members the heartache and the 
physical pain of getting injured on duty.
    The same thing with the ergonomic risk reduction program. 
We have committed headquarters employees, and I know some of 
the other unions have, as well, to go out in the field and 
train in the field and put good practices into place in postal 
facilities so that our members are not injuring themselves in 
repetitive motion type injuries through ergonomic improvements 
in the workplace.
    You asked how does it affect morale. This is the 
certificate of appreciation that the mail handlers received at 
the New Jersey International Bulk Mail Center for processing 
that military mail. If I got one of these certificates of 
appreciation back in 2005, I probably would have framed it and 
put it up in my office or in my home and been very proud of it. 
But when the Postal Service told me that they were 
subcontracting that operation, I probably would have taken it 
down and thrown it in the trash. That is how I think it affects 
morale.
    Mr. Davis of Illinois. Thank you very much, Mr. Sarbanes.
    Mr. Pitts. May I add something to it?
    Mr. Davis of Illinois. Yes, go ahead, Mr. Pitts.
    Mr. Pitts. Our craft, the rural craft, is a little unique 
in that we have career employees and relief employees who fill 
in, rural carrier associates, some PTFs. The rural carrier 
associates are not career employees; however, they do have the 
opportunity at some point to become a career employee. You talk 
about morale? That is where the problem is for us in our craft, 
because you have employees who are working diligently, hoping 
some day to become a career employee, and they see these new 
developments coming into play, and then what happens? The 
Postal Service is trying to contract out this work. It is 
territory that under normal circumstances would be added to 
either rural delivery or seated delivery, but it impacts our 
craft in that morale to have some contractor working right 
beside them making a lot less money with no benefits, getting 
territory that would have been a route and a career position 
for those employees.
    So it does have a big impact on morale inside the Post 
Office, as well as service to our patrons out there because, as 
a rural carrier, when you serve a route you have an extended 
family. That is the patrons that you serve out there. They know 
who you are, even the relief employees. They are there. They 
are dedicated. They work just about every week. But you earn a 
trust with those people, because they know you by name. They 
come to your house and visit you when your family is sick or 
when you have a death in the family. They are your extended 
family. So it is a big issue that we need to keep in mind when 
the contracting out arrives, because it is not for the good of 
the Postal Service. It is to the detriment of all of us.
    Thank you.
    Mr. Davis of Illinois. Thank you very much.
    We will shift to Delegate Norton.
    Ms. Norton. Thank you, Mr. Chairman.
    It was most interesting to see that this contracting out 
theme was, indeed, that, a theme in virtually all your 
testimony, when there might have been other things you might 
have spoken about. I think we have to take that seriously.
    I am not sure that this committee has the answer to it, but 
I do want to note for the record, Mr. Chairman, the irony that 
maybe the Federal Government has discovered something about 
contracting out. This is this morning's business page of the 
Washington Post. I couldn't help but notice something that came 
up at me about OPM suggesting retirement reforms and suggesting 
something we certainly don't do in the Federal sector, whereas 
you might have thought that these jobs might have presented 
opportunity to contract out.
    The kinds of things OPM, this administration, is suggesting 
is phasing in retirement rather than having the baby boomers 
desert the Federal Government all at one time because they are 
afraid of finding replacements. I recognize that the Postal 
Service is more like a private business than it is like the 
Federal Government, but understand who is the granddaddy of all 
users of contractors is the Federal Government.
    Instead of saying here's an opportunity now to really go, 
here is OPM saying let's try to keep a Federal work force. And 
60 percent of the Federal workers will be eligible for 
retirement in the next 10 years, and it doesn't say only the 
very skilled scientists, it says Federal employees, period. It 
says that they want to be able to counter job offers and to 
allow people to work on a limited basis and still retain their 
full pension. It is just most progressive and interesting, and 
it comes from an administration where you might think that this 
is an opportunity to do more contracting out.
    Now let me say this: contracting out is not a Republican 
thing. We have seen that in Democratic and Republican 
administrations go full throttle. This is a very difficult 
issue now.
    If it becomes a culture more than what seems to be a 
process already far along, at least in some parts of the postal 
service, then we are seeing another granddaddy of all 
contracting out controversies, because that is what has 
developed.
    Now, first, Mr. Chairman, I am concerned about what I can 
only call the absence of candor in the management witnesses 
here. Did they not know that we would have Union? We always do. 
We always balance. I mean, did they think we wouldn't find out 
by calling it something else? I am very concerned about that, 
and I think we need to call them to account because if they are 
not even telling us about the contracting out that is going on 
we are already off on the wrong foot on the question of 
accountability, which is a primary concern of this committee 
when it comes to contracting out.
    Now, I also would be very concerned, Mr. Chairman, if our 
reform legislation, which ultimately the Unions came to accept, 
was a cover for contracting out. If there is to be contracting 
out, hey, look, we are big boys and girls. We have seen the 
Government do a lot of it. Our major concern with it has been 
accountability. But we don't need people to think we don't know 
about it and then it springs up.
    And when I say springs up, Mr. Chairman, I happen to have 
before me a document that surprises me, in light of the fact 
that we had very little detail from prior witnesses about 
contracting out of the kinds of Postal Services that are 
represented by these employee organizations. I am amazed to see 
that, as of the end of 2004, the number of routes--city, rural, 
all routes--242,342. I would think somebody would tell us about 
that. Number of deliveries, 142,319,788. Doesn't sound like a 
small number to me.
    Apparently, like every important large business, the Postal 
Service is in the process of analyzing and expanding 
contracting, but it had very little to say about that to us, 
even to the point of discussing potential new routes.
    Why do I have to get this document not from the witnesses 
on the first panel, but I will not tell you how I got it, but I 
got it. Why do I have to find out only when I can't cross 
examine them, Mr. Chairman, that current delivery routes in the 
city, for example, 518. Now, here is their document saying 
expected new deliveries in the next 10 years--now, understand 
the number, going from 518 to 4,940,000. That is just city. 
rural goes from 495 to 12,350,000, and it goes on. Very, very 
concerned, this first oversight hearing, Mr. Chairman, to find 
that out through a document that did not come as part of the 
testimony so that we could up front, just like I asked the 
question, hey, look, is this holding operation or is technology 
going to overtake us because no amount of raising the amount of 
stamps or other costs is going to do it. I need to know it so 
that we can think about it.
    Now, I must say to you, gentlemen, I have a problem. The 
chairman raised some of it in the beginning. I talked about 
``right-sizing'' and so forth. I mean, even the IG talked about 
right-sizing. And we know that there are planned retirements, 
and that is one good way, I guess of right-sizing, as long as 
you can keep doing the job, 113,000 or something retirements, 
assuming--and that is always a problem--that they will have 
people in the right place.
    But I understand what Mr. Burrus says about two-tier 
systems, because the private sector is spawning them 
everywhere. The only real answer I see even coming kind of 
online is what some unions and truly large corporations are 
trying to do about health care. I mean, with the manufacturing 
sector of the United States going out of existence largely 
because of health care, people are finally understanding that 
if health care is related only to employment and those who 
happen to have good unions get good health care, to then be 
passed on as a cost of doing because, then that employer is 
disadvantaged, it would seem, with the private sector with whom 
you compete, and, of course, the unions can't be expected to 
say don't do health care. So now you finally have business 
getting together with unions trying to figure out a national 
health care system.
    We need your advice. You have some difference among 
yourselves about how we should go at it, obviously, for 
contracting out as it exists now. That is, I take it, a 
collective bargaining issue. For new services, such as in the 
cities and the suburbs, I take it they have a free hand in 
that.
    How has the Congress gone in this? Well, mostly not, but to 
the extent that we are now getting into it, we are concerned 
about the issue that the ranking member has raised. In a 
particular service are there new issues of security raised 
post-9/11 that we can deal with?
    The second issue is one that we have never gotten a hold 
of, and we saw it boom into a hideous plant after the Iraq war, 
and that is accountability. The larger enterprise, the less the 
accountability that the Government itself is able to bring or 
that even the Congress can bring. Imagine, if you have somebody 
employed by you and you know what he is doing every day, he is 
accountable. But if, in fact, this unit is outside of you 
altogether, unless you are going to be doing the same thing 
that you would be doing if he was your employee, which is 
keeping track of him every day, then huge parts of what he does 
is nothing you are going to know anything about.
    I do all that prefacing to say this: in light of the fact 
that I can only think about two security issues, one which has 
been raised by the ranking member, and I am not sure how they 
would deal with that one. In light of the ``right-sizing 
issues'' that even in the best of services--and Postal Service 
is doing much better now--you face, it does seem to me you have 
a run-away problem here.
    I think we need to be informed of how the postal service 
and perhaps the unions, perhaps the unions by themselves, 
somebody has to think it through before it becomes a bigger 
hippopotamus in the room than it already is, because I do not 
readily see a way for us to control it or for you to control 
it, at least for new businesses, some of which you said is 
really quite terrifying here. After a while you are going to 
find people saying something is new that you never would 
characterize as new, so you are going to get into 
categorization.
    I think the burden on us all is to say if not this, what, 
since the way the Congress is likely to go at it is 
accountability and security. Meanwhile, it continues to grow. 
If not this, if not off-loading benefits, racing to the bottom, 
which obviously has affects on the quality of workers, but who 
cares. The two-tier work force in the Federal Government has 
grown like nothing else. We have people sitting side by side. 
If not that, I think the burden on us all who have seen the 
monster of contracting out is to say then what, because if we 
don't have a then what I believe it is going to continue to 
grow.
    Mr. Davis of Illinois. Thank you very much, Representative 
Norton.
    Ms. Norton. I would like to know if anybody has a then 
what, just before they go.
    Mr. Pitts. I would like to say, Ms. Norton, I feel your 
pain because----
    Ms. Norton. You are going to feel it even more.
    Mr. Pitts. Well, when you are talking about information 
from the Postal Service that keeps us up to date, we, too, 
struggle with that. Also, I think you heard earlier today 
comments made that the CDS routes were put into being because 
of postal reform. I am here to tell you that is not the truth. 
CDS routes have been here prior to postal reform issues, and 
you heard them say that I think the past 5 years the growth in 
highway contracts, CDS, is about 2 percent, but in the same 
sentence saying that in 2006 it grew from 2 percent to 6 
percent, which is 4 percent, so there is a big issue there.
    Also, I meant to say a while ago when I was talking about 
relief employees in our craft, do you know that the Postal 
Service is requiring our RCAs, our relief employees from the 
National Rural Letter Carrier Association, to go out and carry 
some of these contract routes because they don't have 
contractors on them and forcing them to do that, and we have a 
national level grievance on that. So they are saying you don't 
need the work, but we are going to use your employees.
    So it is a big-time issue with us, as well as I know my 
counterparts up here, and we are here today to try to come to 
some kind of reasoning as to what we can do to stop this. It 
was never a problem. The almighty dollar is not the answer to 
everything. Service to our people is the big issue. It is 
appalling to me to have a letter sent from my home State of 
Alabama to Alexandria, VA, to take 10 to 12 days.
    Mr. Davis, the letter that you sent to me about this 
committee meeting and testimony, I received it yesterday. It 
was dated April 5th. I received it on the 16th.
    We have to put service back in the Postal Service. You give 
the people the product they want and the service they want, 
they will pay the price. Give us the service. That is what we 
need to focus on, and CDS is not the answer.
    Mr. Davis of Illinois. Thank you very much.
    We do have a couple of additional panels, and we are going 
to try to get Mr. Lynch in now.
    Mr. Lynch. I will try to be brief, Mr. Chairman. Thank you 
for the opportunity.
    President Burrus, President Young, President Pitts, and 
President Hegarty, I sincerely wish I had as good a 
relationship with every president in Washington as I do with 
you folks. [Laughter.]
    Let me just say an observation and then a quick question. 
One is I think that, as a Postal Service, as a service that 
provides such an important service to so many Americans, I 
think there is a higher standard that we should hold ourselves 
to, and I include the Postal Service in that. It is instructive 
when the officials from the U.S. Postal Service talk about the 
need to have workers not have health care and that in order to 
be competitive they want to pay people as low a wage as is 
humanly possible without any regard for the quality of life of 
those people, and that the ability to avoid paying pensions and 
benefits to those workers is the way to go.
    I see what is happening in the Department of Homeland 
Security with our screeners where they are doing that, and I 
see a continual revolving door in those employees and the 
quality of service going down and down and down, and the morale 
in that area is just deplorable, and I see the pattern 
continuing here in the way the Postal Service is treating its 
employees. I think this country will be far worse off if that 
is allowed to proceed.
    I, for one, will stand in the way and try to defend the 
rights of our workers to have a decent wage and decent 
retirements and decent health care.
    I want to go to the hazmat issue. I was elected on 
September 11, 2001. That was my election day, the Democratic 
primary. After I got elected, we had the whole problem with the 
anthrax in our Post Offices, tragedy here in Brentwood. But I 
agreed to go and visit every single Post Office and every bulk 
mail facility in my District. It took a few months to do it. I 
had no idea how many facilities I had when I said that, but 
with the good help of a lot of my folks, some of whom are here 
today--I know Kathy Manson from the Norfolk and Plymouth Labor 
Council is here. She is a vice president of the AFL-CIO. Lola 
Poor with the Boston branch of the APWU is here. Don Sheehan, a 
great friend of mine from the Brockton--I represent the city of 
Brockton--the Brockton APWU; Bob Losey from the Mail Handlers; 
John Casioano from the National Letter Carriers--they took me 
personally from facility to facility and introduced me to all 
the workers, just trying to get a sense on what changes we 
could make to safeguard our employees.
    So we went in there, and over the next couple of years we 
made some changes at the larger facilities regarding 
protection: safeguards first of all for our employees, 
safeguards that would protect someone in the event of an 
anthrax attack; detection methods at the big postal services, 
the GMF in Boston, where my sisters both work. We went and 
looked at that. There are also issues of quarantine in the 
event that there is an attack, making sure that employees don't 
go home and contaminate their families or other workers. And 
then, of course, decontamination and treatment.
    I just want to know, you have all got workers in these 
facilities, and this is something that you are all, from the 
rural carrier to the city carriers to the mail handlers to the 
postal clerks to our supervisors and our Postmasters, you are 
all affected here, and so are the families that you serve.
    What is the status right now in terms of that whole process 
in our cities and towns?
    Mr. Burrus. The comfort level of the employees is way 
advanced from what it was following 9/11. The Postal Service 
has implemented some safeguards for the employees. The 
employees, themselves, are not aware of the holes in those 
safeguards. The employees really aren't 100 percent protected 
to day, but the comfort level of the employees, themselves, has 
increased dramatically. The employees no longer day to day 
think about poison in the mail.
    Mr. Lynch. Is that because of the passage of time, where 
people haven't had----
    Mr. Burrus. It is the passage of time and the equipment 
that has been installed to provide them some level of 
protection. It is not absolute, by any stretch of the 
imagination. We are still working at the national level trying 
to find ways of providing additional protections, but as far as 
the employees are concerned, they are much more comfortable 
than they were on 9/12.
    Mr. Hegarty. I'd like to thank Congress for approving the 
funding for some of the bioterrorism detection equipment that 
has been installed in the postal canceling machines in most of 
the large and mid-sized facilities so that when the letters 
come through this equipment is very highly able to detect 
chemical or biological agents.
    I also would say that we have worked with the Postal 
Service at the headquarters level on a continuing committee 
called the Mail Security Task Force, and all of the unions and 
management associations have representatives on that task 
force. Some of their work obviously can't be shared with the 
public, because there are some security concerns.
    But I believe the Postal Service has done a pretty good job 
developing protocols, training. We have had a number of stand-
up talks, almost weekly, with employees on the workroom floor 
with the supervisors telling them what to do in case of an 
emergency, not just a biological but also suspicious-looking 
packages, parcels, etc., and have developed some tabletop 
exercises where they actually physically demonstrate what to do 
and what not to do in something like that happening.
    That is a long way from the months or maybe even the first 
year after the anthrax attacks, when some powder would spill 
out on a table and the supervisor--there have been horror 
stories that he tasted it and said, ``Well, that is not 
anthrax, don't worry about it. Go back to work.'' So we have 
come a long way since those days.
    Mr. Young. Mr. Congressman, I explain it just a little bit 
different. The men and women that I represent, Donnie said it, 
they kind of mesh with the community, and they realize that 
they live in the world that we live in. I think everybody's 
world changed on September 11th, maybe not as dramatically as 
yours. I didn't realize that was the day you were elected. 
Congratulations. But outside of that, not too much positive 
happened on that day, I might also say to the Congressman.
    Mr. Lynch. Thank you.
    Mr. Young. But, anyway, my point is simply this: the world 
changed when that event occurred. The men and women that I 
represent, they just take it as their responsibility, because 
they are meshed with those communities, to do their share in 
regard to that. So it is not like I had to talk people into 
going into work. It is not like I had to beg people to go to 
work. They got up and they went to work the next morning 
because they realized that seeing our members out on the 
streets, seeing his members out on the street, seeing the 
clerks at the Post Offices brings a sense of normalcy to the 
American society. We just feel like we were just doing our 
part.
    Are they scared? I am sure they are. Do they recognize it 
as a hazard? I am sure they do. But they are committed, 
dedicated people, which is one of the reasons why I wake up 
every morning and try to do my job, because that is my job, to 
represent them in a manner that shows favorably upon what they 
do for this country.
    Mr. Lynch. Thank you.
    Mr. Pitts. And I think awareness is a lot better today than 
it was prior to 9/11. Even in our craft, especially in the 
rural areas with the pipe bombs that were placed in mailboxes, 
there is another problem, but the carriers are aware of 
situations and they know what to look for today. So I think 
overall awareness is a key to it.
    But I again echo what Bill said: during the 9/11 crisis and 
the anthrax, the people of the Postal Service held this country 
together. They brought unity because they were the connecting 
person. And the Hurricane Katrina areas down there, you saw 
city carriers, you saw clerks, you saw mail handlers, you saw 
rural carriers all coming to the office. They may not have had 
an office, but they were there doing what they could. Did you 
see any contract people there? Probably not.
    Mr. Lynch. Let me just say in closing I don't think that 
the Postal employees have been ever properly thanked for the 
way that they responded to both those crises, and I just want 
to say that we in the Congress appreciate the work that has 
been done.
    I yield back, Mr. Chairman.
    Mr. Davis of Illinois. Thank you very much, Mr. Lynch.
    I don't think I have any further questions. Mr. Marchant, 
do you have any further questions for this panel?
    Mr. Marchant. No, Mr. Chairman.
    Mr. Davis of Illinois. Then let me thank you gentlemen very 
much. We understand. I think we hear you. We hear the passion, 
we hear the concern that you have expressed relative to the 
contracting out. I can assure you that this committee will give 
ample attention to it, very serious attention to it, and we 
hope that we will arrive at a resolution, as I indicated 
earlier, that is, indeed, amicable.
    Let me also just acknowledge, as you are leaving, the 
president of the Chicago APWU. I see my good friend Sam 
Anderson.
    Sam, it is so good to see you.
    Also, Mr. Hegarty, my good friend Hardy Williams asked me 
to say hello to you if I saw you today. I saw him on Sunday.
    Gentlemen, thank you very much.
    We will proceed to our next panel. Gentlemen, let me thank 
you for your patience and the fact that you are still with us.
    Let me just introduce our witnesses. Mr. Dale Goff is in 
his 36th year with the Postal Service. He began as a postal 
assistant in New Orleans and has been a National Association of 
Postmasters of the United States [NAPUS], member and a 
postmaster for 26 years.
    Mr. Charlie Mapa is president of the National League of 
Postmasters. He has been postmaster at Gold Run for 21 years 
and is currently on leave from that position to serve with the 
League.
    And Mr. Ted Keating is the president of the National 
Association of Postal Supervisors [NAPS], which represents the 
interests of 35,000 postal managers, supervisors, and 
postmasters employed by the U.S. Postal Service. Mr. Keating 
assumed the presidency of the association in 2004 upon the 
death of President Vincent Palladino and was elected to 
continue serving NAPS in that capacity in 2006.
    Gentlemen, we are delighted that you are here.
    If you would rise and raise your right hands, we will swear 
you in and we can proceed.
    [Witnesses sworn.]
    Mr. Davis of Illinois. The record will show that each one 
of you answered in the affirmative.
    We will begin with Mr. Goff.

    STATEMENTS OF OSCAR DALE GOFF, JR., NATIONAL PRESIDENT, 
   NATIONAL ASSOCIATION OF POSTMASTERS OF THE UNITED STATES; 
CHARLES W. MAPA, PRESIDENT, NATIONAL LEAGUE OF POSTMASTERS; AND 
    TED KEATING, PRESIDENT, NATIONAL ASSOCIATION OF POSTAL 
                          SUPERVISORS

                     STATEMENT OF DALE GOFF

    Mr. Goff. Good afternoon. I am Dale Goff, president of the 
National Association of Postmasters of the United States. I 
know that the hour is late, and I understand that my more-
detailed statement will be included as part of the official 
hearing record, so on behalf of my 40,500 members I am honored 
to have the opportunity to summarize the key points of my 
submitted testimony.
    I know that we have done so previously, but please include 
our Nation's postmasters among the many groups who have 
congratulated your diligence and success shepherding the new 
postal legislation to enactment.
    The 2006 law will help steer the Postal Service on a new 
course which we believe will benefit the mailing community, the 
9 million individuals who work within the postal industry, 
including our own postal employees, and the Postal Service, 
itself.
    The keystone of our collective efforts will be the 
preservation, if not the enhancement, of universal mail 
services. This goal is predicated upon continued consumer 
confidence, residential and business, and the integrity of our 
national postal system. Postmasters are the linchpin in 
delivering this achievement.
    The community-based Post Office is where the product meets 
the consumer, either through retail window service or through 
management of the countless city and rural routes throughout 
the country. Expected regular and universal postal services 
with appropriate community input have been the hallmark of our 
Post Offices. Failure to meet this criteria is a recipe for 
failure.
    I must digress a little bit from my words here, but I have 
heard many times this morning about Hurricane Katrina. I lived 
Katrina. I know what the Postal Service did the day after 
Katrina passed and what we did for the customers back at home 
and how our employees responded.
    Mr. Chairman and committee members, post offices and the 
vital services they provide will be condemned to mediocrity or 
worse without adequate staffing. Postmasters have been raising 
this issue for years. I must comment that this issue of 
staffing is not a local decision, as we heard this morning. 
Admittedly, in some instances upper level postal management has 
responded, more out of a sense of embarrassment and urgency 
than of responsibility. For example, please note the pressure 
it took for the Postal Service to take remedial actions in 
areas such as Chicago and Albuquerque. It should not be so 
difficult to make necessary staffing accommodations.
    Postmasters with inadequate staffing are left few options: 
send carriers out after dark to deliver the mail or deliver the 
residual mail themselves, again after dark; close window 
service during the hours that may be most convenient for many 
of our customers; or reduce window service, resulting in long 
wait times.
    Moreover, the excessive hours that postmasters dedicate to 
serving their customers adversely affects morale and 
productivity.
    Postmasters believe that Congress has a vital role to play 
in ensuring that the intent of the new law, that quality mail 
service is fulfilled, and safeguarding the historic mission of 
universal, accessible, and affordable mail service.
    The Postal Accountability and Enhancement Act will prove to 
be the success that most of us hope if we exploit the 
opportunities the new law creates, price and product 
flexibility, realized only if the Postal Service and the Postal 
Regulatory Commission, as they collaborate on implementing 
flexible rates and bringing innovative products to market. 
These actions will help generate new postal revenue.
    Mr. Chairman and members of the subcommittee, when history 
renders its grade on Public Law 109-435, it will judge us on 
how well we continue to provide postal services which our 
constituents expect and demand, nothing more, nothing less.
    Thank you. I will welcome some questions afterward.
    [The prepared statement of Mr. Goff follows:]
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    Mr. Davis of Illinois. Thank you very much.
    We will proceed to Mr. Mapa.

                   STATEMENT OF CHARLIE MAPA

    Mr. Mapa. Chairman Davis, Ranking Member Marchant, members 
of the committee, thank you for inviting us to appear before 
you today.
    My name is Charlie Mapa, and I am president of the National 
League of Postmasters. I welcome this opportunity to appear 
before you today at this subcommittee's very first postal 
hearing. With your permission, I would like to submit my 
testimony for the record and then proceed to briefly summarize 
it.
    At the outset, I would like to say how pleased I am that 
Congress has seen fit to reconstitute a Postal Service 
Subcommittee. Your work is very important, as you can see from 
the proceedings before we came onboard.
    Mr. Chairman, the first thing I would like to do is to 
thank you and all the Members of Congress, including 
Congressman John McHugh, for passing the Postal Accountability 
and Enhancement Act of 2007. It will save ratepayers billions 
upon billions of dollars per year over the next decade.
    The League is also pleased that the Postal Accountability 
and Enhancement Act did not negatively affect small, rural, or 
inner city Post Offices. Local Post Offices are icons in rural 
America and not to be tampered with.
    While the long march toward postal reform is over, in some 
respects the most challenging task lies ahead. With the type of 
leadership we have at L'Enfant Plaza today, I am sure we will 
continue to make good progress. To this point, the critical 
issue in the future is going to be how top postal management 
manages its mid-level managers and its mid-level resources, 
including most postmasters.
    As I detailed in my written testimony, I have two issues of 
concern. The first is the negative heavy-handed micro-managing 
climate that we see in many districts. As important as that is, 
I would like to skip, due to expediency and the fact that 
everybody has been here all day long, and talk about another 
issue that is very dear to my heart and I know to my colleague, 
Dale, in terms of the workload of postmasters. Many districts 
ignore the normal work week and expect postmasters to be at 
their Post Office 6 days a week, 8 to 10 and sometimes 12 hours 
a day, day after day, week after week, year after year, working 
45 hours per week constantly is one thing. Working 50 hours a 
week constantly is another. Working 60 hours a week is yet 
another, and it is something that inevitably leads to burnout. 
Seventy-hour work weeks are even beginning to appear.
    Why are postmasters working longer? Much of it is because 
of the critical staffing shortages that have become epidemic 
across our country, and these postmasters are doing the work of 
carriers and clerks, in addition to their own work. In the 
short term the Postal Service saves money; in the long term, 
once the burnout sets in, it does not.
    If the Postal Service is going to reach the heights of 
higher efficiency that the new postal law envisions, this is 
going to have to change.
    This concludes my oral testimony.
    [The prepared statement of Mr. Mapa follows:]
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    Mr. Davis of Illinois. Thank you very much, Mr. Mapa.
    We will go to Mr. Keating.

                    STATEMENT OF TED KEATING

    Mr. Keating. Thank you, Mr. Chairman. It is a pleasure to 
be here with you today and represent the 35,000 postal 
supervisors and managers throughout the country.
    Rather than read a statement, since it is late in the day, 
I want to concentrate on two issues that we already discussed 
here today, the Chicago-type issues of operations and the 
contracting out issue.
    Today it is Chicago that is in the limelight. A year ago it 
was California. Letter carriers in California were delivering 
mail at 9, 10, and 11 at night. The Post Office continued to 
deny there was a problem until Congress got involved. One year 
ago today I attended a convention in California where the vice 
president of the Postal Service at that time--he is now no 
longer with us--said in his opening remarks, ``We are no longer 
going to delay mail in California. We are going to fill 
vacancies and hire where needed.'' Miraculously, when they did 
that all the problems in California went away.
    The issue of staffing, which my colleague has addressed, is 
a major concern. I believe I, too, will be going to Chicago at 
their request. I believe that is part of the problem in 
Chicago, not the only problem, but it is definitely a part of 
it.
    You have to trace it back to the source. Why would a 
manager, as was inferred today, local managers do not hire. Why 
would they do that? Why would they not hire when they have the 
ability? I think you have to look at our pay system. We have a 
pay for performance system in effect, which rewards good 
numbers. So if you don't hire, you carry vacancies, your 
numbers are going to be better. We are chasing numbers in a pay 
for performance system.
    My members have benefited from pay for performance. We have 
gotten good payouts. But I would ask at what price. Service, in 
my opinion, has definitely suffered. What is happening in 
Chicago now is going to be somewhere else next month or 2 
months from now. As I told the Postmaster General recently, 
there are more Chicago's out there; we just don't know about 
them yet.
    I would ask you to look at the root cause of staffing and 
hiring in the Postal Service and relate that back to the pay 
for performance system that is in effect. One is really a 
direct cause of the other.
    The other issue that has been discussed in quite length 
here is the issue of contracting out. Like my Congressman from 
Massachusetts, I, too, come from a postal family--three clerks, 
letter carrier, my father was a railway mail clerk. I am very 
proud of my service to the Postal Service. I am going to retire 
for 2 years now. I continue on as president because I love what 
I do.
    I completely agree with the testimony you heard from the 
unions here today about the contracting out. It will be the 
death knell of the Postal Service.
    The letter carrier is one of the most respected people out 
in the field. That is what the public identifies with. The idea 
of contracting that out to me, as a management person, is of 
heart. We need your oversight into that issue, I believe, 
because it is not going to change through the collective 
bargaining or arbitration process.
    I am glad to see these committees brought back. I hope you 
will continue the process. I spent most of my career in 
finance. When you are in finance you see a lot of things that 
go on behind the scenes in the Postal Service. Believe me, from 
my 40 years experience this is a company that definitely needs 
oversight, and I urge you to continue that role.
    Thank you very much.
    [The prepared statement of Mr. Keating follows:]
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    Mr. Davis of Illinois. Thank you, gentlemen, very much.
    I will begin the questioning.
    Mr. Mapa, as I listened to your testimony, you made it 
sound like the postmasters are working like politicians, 60 or 
70 hours a week. I am sure that they are, indeed. But my 
question to you gentlemen is the same question that I asked Mr. 
Burrus earlier: the Service has set a goal of reducing work 
hours. I mean, they are talking about 40 million. How do they 
do that or how do we get that kind of reduction without 
creating other kinds of problems with service, with delivery? 
What is your take on this reduction?
    Mr. Keating. As far as reducing work hours, we say more 
power to the Postal Service. We want to operate more 
efficiently. However, if you look at what is happening with 
postmasters and supervisors, can you really say that we are 
saving work hours if you are calling a work hour an hour that 
is worked. If you are talking about paid hours, yes, you are 
reducing those, but in the case of the higher-level or medium-
level postmasters and supervisors, what is happening is they 
are taking up the slack. They are stepping into positions where 
they are having to do the work of their rural carriers, their 
city carriers, and their clerks because they don't have the 
staffing. They are working off the clock. At 40 hours and 1 
minute, they are not getting any more pay. Any of the craft 
employees that you listed to this morning, at 40 hours and 1 
minute they are on overtime.
    Postmasters don't mind some of that. What is happening is 
that the Postal Service is now depending on the fact that the 
postmasters are going to be taking up the slack, and so they 
just work it into their budget. And they are assuming that the 
postmaster will be there to make up for 5, 10, 15, 20 hours 
during the week. I know that my friends in the supervisor ranks 
are going through the same sorts of things.
    Mr. Davis of Illinois. Mr. Goff, let me ask you if you 
would respond to that same question.
    Mr. Goff. Yes, Mr. Chairman. We heard a little bit this 
morning, too, in the testimony from Mr. Potter about the 
transformation, and we heard about what we did on the 
transformation. That $40 million equates to, if I remember 
right, 20,000 career positions in the Postal Service. Sir, I 
can tell you now we need those 20,000 positions to day. We are 
already short those 20,000 positions, and we are going to need 
those in the future as the deliveries grow.
    Now, we can do everything we can, and we have for 5, 6, 7 
years now, where we have saved money. We lived up to the 
transformation. We all buckled up our shoes, tightened our 
belts, and we did what we could. But eventually you can't 
transform any more. That transformation is starting to lead to 
mutation, and that is what is happening.
    We can save money in many different ways. Let's look at 
some of the other areas that we could save, instead of cutting 
the positions where we have to serve our constituents back at 
home.
    Mr. Davis of Illinois. Thank you very much.
    Mr. Keating, I think you were very explicit in your 
testimony relative to your feelings about contracting out and 
also about performance based compensation. Do you think that 
performance based compensation can really work the way that 
some proponents say?
    Mr. Keating. My personal opinion is no. The Postal Service 
has proven that.
    Can I expand on what your question to Mr. Goff was, too? 
During my 40 year career in finance it is always is this a 
budget year or is this a service year. That was always the joke 
in finance. You can't continue to reduce and cut and cut year 
after year without affecting service.
    As we sit here this morning, and it is earlier in Oregon, I 
can guarantee you that postal supervisors and postmasters in 
Oregon, because of the contracting out issue, postal 
supervisors and postmasters are sorting mail and delivering 
mail because they will not give that to the NALC or the rural 
organization because if they do they will own it. They are 
holding it for the contractor. But in that lag time between 
when that contractor comes on board there is nobody left to 
deliver the mail other than the postmaster or supervisor.
    Mr. Davis of Illinois. Well, thank you, gentlemen, very 
much.
    I will yield to Mr. Marchant for any questions that he 
might have.
    Mr. Goff. Mr. Chairman, before you move on, on the 
contracting out issue, I have supervised contract routes for 27 
years now, and I can tell you, to sum it up in one short 
phrase, you get what you pay for, and that is just what it is 
with the contract routes. You get what you pay for.
    I have had contractors walk in on their first day and leave 
on the first day. I have had contractors stay 2 days and leave. 
But I have also had some great contractors that worked for me. 
I had one lady that worked 42 years as a contractor. When Aunt 
Mimi calls up and says, can Arlene bring me a gallon of milk, 
that looks favorable on the Postal Service. Fantastic person. 
She should have had a career with the Postal Service and not 
worked all her time carrying her babies until the day that they 
were born that she was delivering mail. But also I can tell you 
I have had some bad, bad experiences with the contracting.
    Mr. Davis of Illinois. Thank you very much.
    Mr. Marchant.
    Mr. Marchant. Thank you.
    I have a couple of questions, but what do you find the 
biggest challenge is in the past year that you have encountered 
since the postal act has been passed, in your day-to-day life?
    Mr. Goff. I guess, since I have been here, not being every 
day back at home in the office, one of the challenges that I 
see is that we are told that everything is changing because of 
the new law that was passed. I was here. I am one of the few 
that was here back in 1970 when the Postal Service was created. 
We survived that. We not only survived it; we got stronger. I 
look for that same vision with the new law that has been 
passed. We will survive this. We will get stronger as an 
organization. But it is just so many things that we are being 
told that, because of the new law, this is what we have to do.
    I know the intent of us working with this bill for the last 
10 or 12 years was not that when it passed that we would have 
this case on us all the time saying the new law says this, you 
have to do it this way, you have to do it that way. We have 
been doing our job, and this new law is supposed to enhance 
that. That has been probably the most troubling part since the 
law has been passed.
    Mr. Mapa. Now that law passed since I came here in August, 
and, like Dale, I have been coming back to Washington with the 
National League of Postmasters for 12 or 13 years trying to 
enact some law that covered postal reform. Everybody at this 
table supported postal reform from one extent to another. We 
are very happy to see that postal reform is here. It will 
supposedly open up and free the way that the Postal Service can 
do business.
    We are looking forward to those sorts of things. Some of 
the restrictions that were on the Postal Service made it very 
difficult for them to compete, very difficult to come up with a 
new product, very difficult to move into the 21st century.
    That being said, I don't know if anybody from this morning 
could have told you or can still tell you what is it going to 
really give us. We are anticipating that good things will come 
of it. We are hoping that we can minimize the things that we 
don't like. But something had to change, and we are very 
hopeful that postal reform is the way that we need to go.
    Mr. Keating. Well, I have been here 9 years, and you can't 
blame postal reform for some of the changes that are taking 
place. I think it is a convenient excuse. The staffing issues 
that we have been talking about have been here for 4 or 5 
years. The issues in California that I talked about, they had 
nothing to do with postal reform. It is management. It is 
postal management throughout the country that needs to be 
changed, and that is what we are trying to do. We are talking 
to the Postal Service about what we see as the issues. I will 
give them credit. They are talking to us. We are trying to make 
some changes. But there is a lot of micro-management going on. 
Again, it is attributed, from my perspective, back to a pay for 
performance system that rewards those that get the numbers in 
this country, regardless of how they get the numbers.
    Mr. Marchant. A question for Mr. Goff. In your testimony 
you mentioned problems with staffing items. Do you think 
complying with section 404 of Sarbanes-Oxley will be a problem?
    Mr. Goff. I would say that the more we get into the 
staffing shortages and the postmasters, as Mr. Mapa said 
earlier, we know they are out there delivering mail, they are 
separating mail in their office, and they are doing different 
things like that. That takes away their time from the 
administrative duties that they are supposed to do. So as they 
are doing more of that, yes, they get involved in the Sarbanes-
Oxley and the things that we are supposed to do in our offices 
to comply with that. And I know that we are a small part of 
that law for the Postal Service, but it will affect us and it 
will affect on how we deal with that.
    Our primary mission is to deliver the mail, and that is 
what we should be doing, and if we are doing that and we don't 
have the employees to take and deliver that mail and we are 
doing that job for them, then we don't have the time to do 
those administrative duties.
    Mr. Marchant. And, just as a last comment, I represent a 
district that is about 15 suburban cities now that were all 
little farming communities before the Dallas-Fort Worth Airport 
was built. Now they are all 50,000 or 60,000 people in these 
towns. Now some of them have hit their peak and are declining. 
As a Congressman, I deal with the issue. Just last Friday I was 
in the little town of Cedar Hill, and the mayor confronted me 
with the complaints that he as the mayor was receiving about 
the service in the Post Office, not the delivery out in the 
neighborhoods but the actual staffing and the workload that was 
taking place in the actual Post Office.
    What we are finding is that, as our parents are getting 
older, they like to physically go to the Post Office. I mean, 
this becomes a part of their routine. It is part of their life, 
depending on when the mail is going to come to the house. So I 
think that even in the most regressive of districts, and I have 
that, I have growing suburban towns, the Post Office is 
something that our cities and communities need. They are 
putting new machines in. Some of the older people are afraid of 
the machines. They don't know how to use the machines. As 
Congressmen, we really are in this as a partnership, because 
when the Post Office is not living up to the expectations of 
the American people, the first thing they do is pick up the 
phone and call their Congressman.
    I have had very good luck in sitting down with postmasters 
and management and letter deliverers and just sitting down and 
working through a couple of specific problems. I appreciate the 
willingness to do that. But as Congress looks at this problem, 
looks at the implementation of all this modernization, this 
Congressman still realizes that the Post Office is a very, very 
important part of the American culture. I don't know that my 
constituent will know what a contract person is or not, and I 
know as postmasters that this issue of a contract person not 
having a career, not being part of the organization, and yet 
his or her behavior begins to reflect on your behavior.
    I am very open to these hearings, Mr. Davis. Mr. Chairman, 
I appreciate being included in them. I appreciate your patience 
today with all of this.
    Thank you.
    Mr. Davis of Illinois. Thank you very much, Mr. Marchant. I 
want to thank you for coming to participate. We all know the 
difficulty that you had getting here, but, nevertheless, you 
were able to make it before we ended.
    I also want to thank not only this panel but all of our 
panelists.
    I also appreciate the audience for your tremendous 
patience. This has been a rather lengthy hearing. We we also 
wanted to get a good overview and a good look at what is taking 
place in our Postal Service and what it is going to take to 
actually implement the new reform legislation that was passed 
last year.
    I want to thank all of the witnesses and Members who 
attended the hearing today. We expect that we are going to have 
the dialog continuing.
    The hearing record will remain open for 7 legislative days 
for any additional statements or comments.
    I want to thank the staff for putting together all of the 
extensive information that we have had gathering all of the 
statements and for their preparation for the hearing, which has 
consumed all of our time up to this point. Now we are ready to 
go and do some other things for the rest of the day.
    With that, the hearing is adjourned. Thank you all so very 
much.
    [Whereupon, at 2:32 p.m., the subcommittee was adjourned.]
    [The prepared statements of Hon. Wm. Lacy Clay and Hon. 
Janice D. Schakowsky, and additional information submitted for 
the hearing record follows:]
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