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




 
 THE THREE R'S OF THE POSTAL NETWORK PLAN: REALIGNMENT, RIGHT-SIZING, 
                           AND RESPONSIVENESS

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

                                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

                             SECOND SESSION

                               __________

                             JULY 24, 2008

                               __________

                           Serial No. 110-146

                               __________

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




                   U.S. GOVERNMENT PRINTING OFFICE
48-658 PDF                  WASHINGTON : 2009
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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

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

                      Phil Barnett, Staff Director
                       Earley Green, Chief Clerk
               Lawrence Halloran, 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   JIM JORDAN, Ohio
WM. LACY CLAY, Missouri
STEPHEN F. LYNCH, Massachusetts
                      Tania Shand, Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on July 24, 2008....................................     1
Statement of:
    Donahoe, Patrick, Deputy Postmaster General, U.S. Postal 
      Service; and John Waller, director, Office of 
      Accountability and Compliance, Postal Regulatory Commission    42
        Donahoe, Patrick.........................................    42
        Waller, John.............................................    52
    Herr, Phillip, Director, Physical Infrastructure Issues, U.S. 
      Government Accountability Office; and David Williams, 
      Inspector General, Office of Inspector General, U.S. Postal 
      Service....................................................     8
        Herr, Phillip............................................     8
        Williams, David..........................................    31
    Reid, Myke, legislative and political director, American 
      Postal Workers Union, AFL-CIO; and John Hegarty, president, 
      National Postal Mail Handlers Union........................   105
        Hegarty, John............................................   112
        Reid, Myke...............................................   105
    Winn, Michael, director of postal operations, Association of 
      Postal Commerce, accompanied by Gian-Carlo Peressutti, vice 
      president for government relations at RR Donnelly; Robert 
      E. McLean, executive director, Mailers Council; Jerry 
      Cerasale, senior vice president, government affairs, Direct 
      Marketing Association, Inc.; and Anthony Conway, executive 
      director, Alliance of Non-Profit Mailers...................    70
        Cerasale, Jerry..........................................    93
        Conway, Anthony..........................................    99
        McLean, Robert E.........................................    85
        Winn, Michael............................................    70
Letters, statements, etc., submitted for the record by:
    Cerasale, Jerry, senior vice president, government affairs, 
      Direct Marketing Association, Inc., prepared statement of..    94
    Conway, Anthony, executive director, Alliance of Non-Profit 
      Mailers, prepared statement of.............................   100
    Donahoe, Patrick, Deputy Postmaster General, U.S. Postal 
      Service, prepared statement of.............................    44
    Hegarty, John, president, National Postal Mail Handlers 
      Union, prepared statement of...............................   114
    Herr, Phillip, Director, Physical Infrastructure Issues, U.S. 
      Government Accountability Office, prepared statement of....    10
    Marchant, Hon. Kenny, a Representative in Congress from the 
      State of Texas, prepared statement of......................     4
    McLean, Robert E., executive director, Mailers Council, 
      prepared statement of......................................    87
    Reid, Myke, legislative and political director, American 
      Postal Workers Union, AFL-CIO, prepared statement of Mr. 
      Burrus.....................................................   108
    Waller, John, director, Office of Accountability and 
      Compliance, Postal Regulatory Commission, prepared 
      statement of...............................................    54
    Williams, David, Inspector General, Office of Inspector 
      General, U.S. Postal Service, prepared statement of........    33
    Winn, Michael, director of postal operations, Association of 
      Postal Commerce, prepared statement of.....................    76


 THE THREE R'S OF THE POSTAL NETWORK PLAN: REALIGNMENT, RIGHT-SIZING, 
                           AND RESPONSIVENESS

                              ----------                              


                        THURSDAY, JULY 24, 2008

                  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 3:55 p.m., in 
room 2154, Rayburn House Office Building, Hon. Danny K. Davis 
(chairman of the subcommittee) presiding.
    Present: Representatives Davis, Kucinich, and Marchant.
    Staff present: Lori Hayman, counsel; Marcus A. Williams, 
clerk/press secretary; Alex Cooper, minority professional staff 
member; and Janice Spector, minority senior professional staff 
member.
    Mr. Davis. I have just been informed that the ranking 
member is on his way, so given the fact that we have been 
waiting and waiting and waiting, we are going to go ahead and 
proceed.
    The subcommittee will now come to order.
    Welcome, Ranking Member Marchant, members of the 
subcommittee, hearing witnesses, and all of those in 
attendance, to the Subcommittee on the Federal Workforce, 
Postal Service, and the District of Columbia's oversight 
hearing, ``The Three R's of the Postal Network Plan: 
Realignment, Right-Sizing and Responsiveness.''
    The Chair, ranking member and subcommittee members will 
each have 5 minutes to make opening statements. And all Members 
will have 3 days to submit statements for the record. Hearing 
no objection, such is the order.
    Let me, first of all, thank all of you for your patience 
and indulgence. Of course, we always take the position that 
democracy requires a great deal of time, effort and 
involvement. That is sort of the price that we pay for the 
opportunity to participate, be engaged, be involved and have a 
democratic form of government.
    Today's hearing will examine the network's plans and 
potential impact on the public, the postal work force, the 
mailing industry and the future economic health of the Postal 
Service.
    The Postal Service accepts and processes over 200 billion 
pieces of mail annually and delivers to nearly 148 million 
addresses 6 days per week. In order to provide this universal 
service throughout the United States and its territories, the 
Postal Service utilizes a vast network of more than 400 mail 
processing plants and 37,000 post offices.
    Much of this complex network was developed in the 1970's 
and 1980's when our Nation was experiencing significant 
increases in mail volume. Today, however, we face declining 
mail volume, a new price cap restriction on rate increases, and 
the mailing industry conducting more of the mail processing 
operation.
    These structured changes require the Postal Service to 
revise its distribution network to meet these changing 
conditions, while at the same time addressing its operational 
needs. All this must be done in a way that maintains and 
improves service.
    The Postal Accountability and Enhancement Act of 2006 
required the Postal Service, in consultation with the Postal 
Regulatory Commission, to submit a plan for meeting modern 
service standards. As required, the Postal Service submitted 
this Network Plan to Congress last month, in which they laid 
out a long-term vision for rationalizing the infrastructure and 
work force and how they intend to implement this vision.
    The Postal Service has identified excess capacity in its 
retail systems and mail processing and distribution facilities 
as an area of potential savings. The Service plans to reduce 
excess capacity, increase efficiency and reduce expenses by 
consolidating operations and facilities.
    For this effort to be successful, the Postal Service must 
do a better job of realigning its processing and transportation 
networks, improve the data used in its computerized and 
statistical modeling, and minimize service disruptions. Failure 
to prevent and predict service problems will result in poor 
mail delivery, which in turn will anger the public and trigger 
political considerations.
    We all want a Postal Service that continues to be a world 
leader in the mail industry and one that provides universal 
access and high-quality service at affordable prices. 
Therefore, I think it is critical that we in Congress consider 
implementing the changes in the Network Plan as quickly as 
possible. After all, Congress made it clear in the Postal Act 
that the Postal Service has continued authority to change its 
network.
    I look forward to hearing your views on the Network Plan. 
And I want to thank all of the witnesses for your testimony.
    Before we begin, I will just indicate, should our ranking 
member have opening comments to make once he arrives, we will 
suspend with the witnesses and give him the opportunity to do 
so, and we will return.
    With that in mind, let me welcome panel one.
    Mr. Phillip Herr, who is the Director of Physical 
Infrastructure Issues at the Government Accountability Office. 
Mr. Herr currently focuses on programs at the U.S. Postal 
Service and the Department of Transportation.
    Thank you very much, Mr. Herr.
    Mr. David Williams was sworn in as the second independent 
inspector general for the U.S. Postal Service on August 30, 
2003. Mr. Williams is responsible for a staff of more than 
1,100 employees that conducts independent audits and 
investigations of a work force of about 700,000 career 
employees and nearly 37,000 retail facilities.
    Gentlemen, thank you so much.
    Of course, you know that it is our tradition that witnesses 
be sworn in before this committee. Will you raise your right 
hands?
    [Witnesses sworn.]
    Mr. Davis. The record will show that the witnesses answered 
in the affirmative.
    Gentlemen, before you start, let me welcome our ranking 
member, Mr. Marchant. We have been all doing a lot of different 
things today and trying to get ready to leave sometime before 
the end of tomorrow and also hoping we are going to be in a 
position to recess at the end of the next week.
    Let me just ask Mr. Marchant if you have some opening 
comments.
    Mr. Marchant. In the interest of time, Mr. Chairman, I am 
going to submit my statement for the record. Thank you.
    [The prepared statement of Hon. Kenny Marchant follows:]

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    Mr. Davis. Well, thank you very much. Then we will begin 
with our witnesses.
    Mr. Herr, we will start with you.

 STATEMENTS OF PHILLIP HERR, DIRECTOR, PHYSICAL INFRASTRUCTURE 
   ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE; AND DAVID 
WILLIAMS, INSPECTOR GENERAL, OFFICE OF INSPECTOR GENERAL, U.S. 
                         POSTAL SERVICE

                   STATEMENT OF PHILLIP HERR

    Mr. Herr. Thank you, Chairman Davis, for your invitation to 
appear today at this hearing on the Postal Service's June 2008 
Network Plan.
    There is broad agreement on the Service's need to realign 
its processing network going back to the 2003 President's 
Commission and the Postal Reform Act. GAO has also issued 
several reports on the importance of realigning the Postal 
Service's processing network. As we previously discussed, 
several trends have created excess network capacity and impeded 
potential efficiency gains.
    As most of you know, mail volume is declining, especially 
first-class mail. Further, much of the commercial mail now 
bypasses the Postal Service's mail processing and 
transportation to qualify for discounts. Likewise, the 
Service's processing facilities may not be optimally located, 
due to population shifts. Finally, these trends, along with the 
projected financial deficit, lead to the conclusion that the 
Postal Service needs to effectively realign its network.
    My remarks focus on the Postal Service's actions to address 
prior GAO recommendations in three areas: first, strengthening 
network realignment planning and accountability; second, 
improving delivery performance information; and, third, 
improving community indication with stakeholders.
    Turning first to network realignment planning and 
accountability, the Postal Service has taken steps to address 
GAO's prior recommendations. One key step is developing the 
Network Plan, being discussed today, that lays out an overall 
vision, goals and major strategies.
    Our view of the plan found that it generally addresses 
topics required by the Postal Reform Act and included in our 
recommendations. However, the Network Plan contains limited 
specific information on performance targets or the resulting 
costs and savings related to realignment. Additionally, the 
plan provides little contextual information about its future 
network configuration and how its realignment goals will be 
met.
    Two upcoming reports due at the end of the year offer 
opportunities for the Postal Service to provide additional 
information on realignment costs and savings. The Postal 
Service's annual reports to Congress and the PRC are 
opportunities to make its goals and results more transparent 
and provide additional information about the effectiveness of 
its realignment efforts.
    With regard to my second objective, improving delivery 
performance information, the Postal Service has partially 
responded to GAO's prior recommendations and legislative 
requirements. The Service has established performance standards 
and committed to developing targets against these standards by 
fiscal year 2009. The Service has also submitted a proposal to 
the PRC for measuring service performance, but full 
implementation is not yet complete.
    Delivery service performance is a critical area that may be 
affected by realignment initiatives. Mail delivery standards 
are essential to allow the Postal Service and mailers to 
effectively plan their activities. Delivery performance 
information is also critical to understanding how well the 
Service is providing prompt and reliable mail delivery.
    Turning to my third and last objective, improved 
communication with stakeholders, the Postal Service has taken 
steps to address our recommendations to improve communication 
as it consolidates its area mail processing operations.
    It modified its communication plan to improve public 
notification, engagement and transparency. Notably, the Postal 
Service has moved to keep public meeting to an earlier point, 
and plans to post related information on its Web site 1 week 
before the public meeting. To increase transparency, the 
Service has clarified its processes for addressing public 
comments and plans to make additional information available on 
its Web site as well.
    Going forward, the Service will have the opportunity to 
assess the effectiveness of these changes to its communication 
plan.
    Mr. Chairman, in conclusion, GAO has previously discussed 
the difficulties the Postal Service has faced when it tries to 
close facilities and how delays may affect its ability to 
achieve further cost reductions and improve efficiency. Part of 
the problems stem from the Postal Service's limited 
communication with the public about these activities.
    Since 2005, we believe the Service has made progress toward 
improving the communications process linked to area mail 
processing realignment. Going forwarded with needed realignment 
efforts, it will be crucial for the Postal Service to establish 
and maintain open and ongoing dialog with its various 
stakeholders, as well as congressional oversight committees and 
Members of Congress.
    Mr. Chairman, this concludes my statement. I am happy to 
answer questions.
    [The prepared statement of Mr. Herr follows:]

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    Mr. Davis. Thank you very much, Mr. Herr.
    We will proceed to Mr. Williams.

                  STATEMENT OF DAVID WILLIAMS

    Mr. Williams. Thank you, Mr. Chairman and Mr. Merchant. I 
appreciate the opportunity to discuss the Postal Service's 
network realignment plans.
    The Postal Act of 2006 mandated that the Postal Service 
continue streamlining its network to eliminate costs and 
required a facilities plan for rationalizing it. Planning and 
implementing changes to one of the world's largest networks has 
been challenging.
    Planning strategies for such large-scale projects can vary 
from long-range, detailed plans with elaborately sequenced 
steps to short-range, incremental approaches. The Postal 
Service has chosen the incremental approach, which uses an 
order-of-battle-type strategy that incorporates flexibility and 
anticipates frequent change throughout the process.
    The Postal Service has used several strategies in its 
network realignment, and each has had its challenges. For 
example, the Postal Service had success with local facility 
consolidations. In the last 5 years, they have closed 
approximately 50 airport mail centers and remote encoding 
centers and consolidated mail at 12 processing and distribution 
centers, and they have outsourced 13 airport mail centers.
    While some of these changes involve communications with 
external stakeholders, many involve smaller facilities and 
internal operations that had no impact on communities. Still, 
concerns from stakeholders did delay larger proposed changes, 
such as those at Mansfield, OH, and Pasadena, CA.
    Our audits have assisted with the network realignment 
initiative. Our work has shown that the Postal Service could 
improve the accuracy of data used to support these initiatives, 
improve communications with stakeholders, and enhance guidance 
for measuring results. The Postal Service has now improved its 
processes and guidance.
    Looking to the future, the recently issued Network Plan 
describes the Postal Service's vision for rationalizing its 
infrastructure and work force. It focuses on a number of major 
areas, including the need to continuously improve Service 
performance measurement, software initiatives to improve the 
consistency of mail flow and machine efficiency, plans for 
network downsizing, and work force rationalization and support 
for employees, and plans to expand customer access to products 
and services.
    The Network Plan is more of a strategy document than a 
tactical plan. Consequently, implementation plans that detail 
the locations and times and final network integration and cost 
savings are going to be critical.
    Some important steps have already been successfully 
undertaken, while, for others, risks remain to be addressed. 
For example, management established a rigorous and 
comprehensive process of monitoring mail flows and machine 
utilization across the entire network. The process, which 
includes weekly calls to local managers to discuss performance, 
has contributed to the increased productivity and record 
service scores.
    The Postal Service is considering improving efficiency and 
service in the bulk mail center network through outsourcing, 
and issued a draft request for proposal on July 1st. Risks that 
must be addressed in this approach include reporting 
requirements of misconduct by the contractors, work stoppages, 
and conflicts of interest from contracting with parent or 
subsidiary companies of mailers.
    Some Postal Service network realignment plans depend on a 
specific sequence of events. For example, the BMC outsourcing 
initiative may provide the space needed for future Flats 
Sequencing System equipment deployments. However, if the BMC 
facilities are not vacated timely, plans for this equipment 
placement may be negatively impacted.
    The Postal Act of 2006 was designed to force dramatic cost 
reforms and streamlining actions. If the reforms undertaken are 
not timely and substantial, there will be serious and rapid 
financial and operational consequences for the Nation's mail 
system. Imbalances may be created, resulting in a protracted, 
anemic staffing of an oversized network, mail processing 
efficiency gains and cost savings may be deferred, and mailers 
and other stakeholders may be confused by stops and starts in 
the process. Finally, the Postal Service may have to borrow 
substantial funds if they cannot generate sufficient savings.
    Postal Service management, the Postal Regulatory 
Commission, Congress and stakeholders must work together during 
this period of substantial and rapid change to ensure that 
network realignment has the energy needed to propel it forward 
in spite of resistance and other obstacles. We continue to 
support the Postal Service's efforts and keep Congress fully 
and currently informed.
    I am pleased to answer any questions that you have.
    [The prepared statement of Mr. Williams follows:]

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    Mr. Davis. Thank you very much, Mr. Williams.
    Let me thank both of you gentleman.
    Why don't I just begin? And I will start with you, Mr. 
Herr. You made a number of recommendations in 2007 for the 
Postal Service to improve planning, accountability and 
communications. Would you say that your expectations were met 
in those areas?
    Mr. Herr. I think generally the answer is yes. One of the 
areas I highlighted in my testimony today is that we think 
there could be further specificity with regard to targets and 
goals going forward. But we also identified the opportunity in 
the report to Congress due at the end of the year as a place 
where that could happen.
    But in the area of communication, the communication manual 
that was released this spring, we saw some substantial changes 
there in terms of transparency, putting some meetings at a 
better time so people can have public input. So we see some 
good movement there.
    Mr. Davis. You talked about the need to realign the 
networks. How urgent do you see that, or how critical do you 
see that function?
    Mr. Herr. I think, in concurring with my colleague, the IG, 
I think it is a matter of urgency.
    One of the things I mentioned in my opening statement, mail 
volume has declined, and, as such, revenues from that mail has 
declined as well. We all are very much aware of the 
unprecedented rise in gas prices this year, and with an 
organization with a fleet of 200,000 vehicles, there is a 
number of challenges there in terms of those operating 
expenses.
    The other thing we are seeing is the pace of technological 
change. As the Postal Service begins to roll out new equipment, 
their processing facilities are able to do a better job of 
processing mail, flats, equipment of that type. So there are 
also efficiencies possible there.
    Mr. Davis. If you were to give additional recommendations 
to the Postal Service relative to what you think it needs to do 
in order to be as much in compliance with the recommendations 
that have already been made, what would you suggest that they 
do?
    Mr. Herr. Rather than suggesting going back to doing 
another version of the plan, we think there is a good 
opportunity coming in December in the report to the Congress 
and also the report to the PRC to lay out additional progress 
that has been made with regard to the Network Plan, what some 
of the goals are for the coming year, what may have been 
accomplished in this intervening period. That seems like a good 
opportunity, and that is also what was required in the Postal 
Reform Act.
    Mr. Davis. Thank you very much.
    Mr. Williams, let me ask you, your office has done 
significant audit work concerning network realignment and 
initiatives, and you have done a good job of detailing the cost 
savings or potential savings associated with consolidations.
    What do you feel are the most significant challenges facing 
the Service as it attempts to consolidate, in some instances, 
or make greater use of facilities and, at the same time, be 
able to meet levels of efficiency and customer satisfaction?
    Mr. Williams. Probably the things I worry about most going 
forward, and there is a lot to feel good about, but the things 
that concern me the most are, well, first of all, on a general 
level, there has been a dismal record in Government for 
successfully executing this kind of very large-scale planning. 
Before this, I was at the IRS, and I saw their modernization 
effort stall and collapse under its own weight. So I worry 
about that in general.
    As I said in my testimony, they have selected a kind of 
incremental approach, which is sort of area by area, and they 
certainly have expertise in that. The vulnerability there is 
that the broad architecture, the highways that mail moves on, 
will somehow be diverted because the plan has been 
fractionalized. I don't think that will happen, and it doesn't 
look like it, but it is worth a very close watch. And I know 
that kind of watch is being made, and I will do the best I can.
    We did see some failures in the area of early detection of 
service degradation and decline. We certainly felt bad about 
Chicago and how that went. During this kind of a massive 
initiative, we needed to detect very early service declines, 
and we need to mitigate those as quickly as we can, more 
quickly than we have in the past.
    Another area would be savings. This is all about trying to 
pull costs down. We need to watch those very closely, and we 
need to pull those out the moment the savings has occurred. It 
is a sort of force in Government that those savings are 
reinvested if they are not watched closely by the local 
managers. That is an area. Actually, you have Pat Donahoe 
coming up later. That is an area where the Postal Service has 
been very effective and very good, and Pat is much of the 
reason.
    Probably the greatest worry is working with the 
stakeholders. There is a little chance that something that is 
going to save this much money is going to make everybody happy 
and we are going to have a broad agreement that everyone has 
won, coming out of this. Stakeholders can either hold the 
Postal Service's feet to the fire, or they can tie the Postal 
Service's hands. My fear is that if they try to do both, we 
won't have much beyond just a burn victim. We are not going to 
save anything.
    And those are the concerns, those are the things I am 
watching as closely as I can, and I know my colleague is.
    Mr. Davis. Well, let me ask you, to make sure I understood. 
Did I understand you to indicate that there might be the need 
for the Postal Service to look for or find a way to generate 
additional resources?
    Mr. Williams. No, I did not mean to say that. I think we 
probably, because of all the points that you raised in your 
opening statement, we probably have a surplus of resources, 
given the conditions today. We are more concerned about debt, 
on the one side, and saving costs. And, on the other side, this 
new reorganization is all about marketing and focusing on 
customer needs and expanding the base.
    Mr. Davis. Did I hear you mention borrowing in any kind of 
way?
    Mr. Williams. Yes. I think that has been a concern. We 
recently were able to remove the borrowing, and then we 
immediately headed back into it, borrowing from the Treasury, 
of course.
    I think that there is probably going to be borrowing this 
year, and if conditions don't improve, there will be borrowing 
in the future. And as I said the last time I was before you, we 
have that rain-or-shine debt of $5 billion a year, and it is 
likely to require borrowing as well.
    Mr. Davis. And I guess the reason I raised that is because 
when I think of borrowing, I also think of paying back. If 
somebody says, give me whatever, and I say OK. But if they say, 
let me borrow whatever, I expect at some point a payback.
    So if there is some borrowing, how do we get to the point, 
or do we get to the point through these efficiencies and 
consolidations, that would put us in a position to repay the 
Treasury?
    Mr. Williams. Recently, the Postal Service was able to 
completely pay back the Treasury. And I think that the plan is 
a good one, and that could certainly prevent us from going into 
debt and allow the repayment again.
    Also, I am very hopeful of the new reorganization that was 
just made. We brought in some top-flight professionals that are 
very good at marketing and sales and studying customer segments 
that are out there building on the base.
    Those are the two tools we have. We have this one, and then 
we have the new initiative to expand marketing and sales.
    Mr. Davis. Thank you very much.
    Mr. Marchant.
    Mr. Marchant. Thank you, Mr. Chairman.
    The intent of the Postal Accountability and Enhancement Act 
was to ensure the post office functioned more efficiently. 
Which one of the conceptual plans has posed the most real-world 
application problems? Which one of the concepts has been the 
most difficult to implement in the field?
    I would like an answer from both of you.
    Mr. Williams. In my mind, the ones that have collapsed 
under their own weight have been the same ones that the other 
departments of Government have attempted and failed. We see the 
FBI, the FAA, and the IRS. Usually the ones that are very long-
term and very elaborately sequenced are impossible to turn. It 
is like trying to turn a battleship in a river. It is very, 
very difficult. Where it becomes more hopeful is where you have 
a general idea of where you are headed and the near-term 
planning is very specific.
    I also mentioned savings. I have seen a lot of savings lost 
because, after the reform, no one goes in to take those savings 
and send them to the bottom line. That happens to be a strength 
of the Postal Service. Since my arrival, that is one thing I 
feel they excel at.
    Mr. Herr. Mr. Marchant, one of the things I observed is 
that GAO has done some prior work on organizational 
transformation. One of the things that we emphasized in this 
statement today is the importance of setting some of these 
targets and goals. They can help provide a sense of momentum. 
They can provide a sense of progress. They can help 
stakeholders know that something is being accomplished.
    I think that is important, when you are looking at 
something this large. If you think it is going to last forever 
or it is going to last for 4 or 5 years, one would like to have 
some sense of where they are after a year or two or where they 
hope to be.
    So we think those annual reports to Congress would be a 
place to provide some of that transparency and clarity for 
folks in your position.
    Mr. Marchant. The Postal Service's plan to reduce work 
force by attrition, is that working?
    Mr. Williams. Just before my arrival, there was a very 
successful effort to downsize. That has continued. I think the 
current numbers are 785,000.
    The career number is 684,000, which is the one that is very 
difficult and very stable to suddenly reduce, has reduced 
greatly since my arrival. That has been a very successful part 
of what has gone on. As a matter of fact, it has been so 
successful, that trailing behind it has been the network 
downsizing, and it has left some of our plants understaffed. 
And I think this staff has suffered as a result of a slow start 
in the build-down.
    As you know, there has been stakeholder resistance to some 
of the initiatives, and that has left some of the employees 
working very hard, very, very long hours, and in a very intense 
environment.
    Mr. Herr. My understanding is, I think, in the last 8 
years, through attrition, they have gone down about 100,000 
employees. So that would suggest that they have made some very 
significant efforts in that regard.
    Mr. Marchant. Thank you, Mr. Chairman.
    Mr. Davis. Well, thank you very much, gentleman. I don't 
have any additional questions. We appreciate your patience, and 
thank you very much. You are excused.
    We will transition to our second panel. While we are 
setting up for them, I will just go ahead and introduce them.
    Our second panel will consist of Mr. Patrick Donahoe. Mr. 
Donahoe was named Deputy Postmaster General and chief operating 
officer in April 2005. Mr. Donahoe is the second-highest-
ranking postal executive and the 19th Deputy Postmaster 
General. He is a 33-year Postal System veteran.
    And we welcome you, Mr. Donahoe.
    We also have Dr. John Waller, who has been director of the 
Office of Rates Analysis and Planning of the Postal Regulatory 
Commission since February 2005. His primary responsibilities 
are directing the technical advisory staff of the Commission 
and supporting the commissioners in all proceedings and the 
development of reports.
    Gentlemen, if you would stand and raise your right hands 
and be sworn in.
    [Witnesses sworn.]
    Mr. Davis. The record will show that the witnesses answered 
in the affirmative.
    Gentlemen, thank you so very much.
    We will begin with you, Mr. Donahoe.

STATEMENTS OF PATRICK DONAHOE, DEPUTY POSTMASTER GENERAL, U.S. 
     POSTAL SERVICE; AND JOHN WALLER, DIRECTOR, OFFICE OF 
  ACCOUNTABILITY AND COMPLIANCE, POSTAL REGULATORY COMMISSION

                  STATEMENT OF PATRICK DONAHOE

    Mr. Donahoe. Good afternoon, Chairman Davis, Ranking Member 
Marchant and members of the subcommittee. I am Patrick Donahoe, 
Deputy Postmaster General and chief operating officer for the 
U.S. Postal Service. It my pleasure to be here today to discuss 
the Postal Service's Network Plan.
    The Postal Service manages one of the world's most complex 
distribution and transportation networks. Today's mail 
processing network consists of more than 400 processing plants 
and features 37,000 post offices. We handle 200 billion pieces 
of mail annually and deliver to nearly 148 million addresses on 
a daily basis.
    Congress recognized that we need flexibility in order to 
continue developing an effective and efficient network. 
Moreover, current economic conditions highlighting the 
importance of the Postal Service utilizing such flexibility, 
such as a weak economy, continues to put a strain on our 
finances.
    Through the first two quarters of this fiscal year 2008, 
total mail volume has declined 3.4 billion pieces compared to 
last year, resulting in a loss of over $700 million. This trend 
is worsening. Under such conditions, flexibility to manage the 
network is even more vital in meeting the challenges facing the 
U.S. Postal Service.
    The Postal Accountability and Enhancement Act of 2006 has 
changed the way the Postal Service is regulated. However, it 
does not change our basic mission, which is to bind the Nation 
together through the correspondence of the people and provide 
prompt, reliable and efficient mail service.
    The postal law of 2006 charts a new course for us as we 
continue to fulfill this commitment in relation to service 
standards for our market-dominant products. The first objective 
was to establish a set of modern service standards for the 
market-dominant products. In December 2007, the Postal Service 
published our new standards.
    The second objective was to provide a system of objective 
performance measurements for each market-dominant product. 
Measurement systems for many products, such as single-piece 
first-class mail, have been in existence for a long time. We 
are now in the process of implementing expanded systems and/or 
introducing new measurement systems.
    The third objective required by the law was to establish 
goals and submit a plan to Congress for meeting our modern 
service standards. Since February 2008, I, along with other 
senior postal officials, have met monthly with Chairman Dan 
Blair, the PRC Commissioners and the PRC staff to discuss 
postal network rationalization. As you know, the Postal Service 
submitted its Network Plan to Congress on June 19, 2008. The 
Postal Service is grateful to the commissioners and to their 
staff for their valuable insights.
    The Network Plan establishes continuous improvements as the 
overarching performance goal, and it describes timetables to 
establish baselines for 2009 fiscal year performance targets 
for various market-dominant products. We embrace this enhanced 
transparency and accountability, and look forward to sharing 
our performance targets, successes and targets with Members of 
Congress and all of our postal stakeholders.
    The key element to the Postal Service moving forward on the 
service standards was to ensure that the voice of the customer 
was heard. Numerous meetings with commercial groups, large and 
small, have been held, and some of these work groups continue 
today. Incorporating concerns of our customers was critical.
    I would now like to highlight three elements of the network 
rationalization which all support our bottom line of either 
meeting or exceeding our existing service standards and 
maintaining efficiency. They are: the continued consolidation 
of our postal airport centers; a review of the mail processing 
network to identify facilities where outgoing or incoming 
operations could be consolidated; and the transportation of our 
postal bulk mail network.
    On July 1, 2008, we issued a draft request for proposal for 
the BMC network. We are now in the process of receiving 
comments from various vendors able to provide the type of 
network reach and capacity necessary. We expect to consolidate 
mail processing operations at some locations, but we are always 
reluctant to implement network changes that could result in 
diminished service. Accordingly, the Postal Service will 
implement changes that promote efficiency but that also 
aggressively minimize any diminution of service.
    Our dedicated employees do a great job on a daily basis, 
providing excellent service at the best prices in the world. We 
are sensitive to the impact that network rationalization could 
have on our employees, and we have held numerous consultations 
with our unions. We are proud of the fact that we have relied 
on employee attrition to reduce well over 100,000 people over 
the last 7 years. By using attrition, we have minimized adverse 
impact on our employees.
    We are also pleased to announce that we have requested 
authority from the OPM to offer certain crafts voluntary early 
retirement options. This action helps our bottom line in these 
times of tight finances and, just as importantly, benefits our 
employees by giving them the option to retire early without 
facing undue financial penalties.
    The Postal Service Accountability Enhancement Act 
acknowledged the need for the Postal Service to streamline its 
distribution network. To achieve this vision, the Postal 
Service will need the support of this subcommittee and of the 
Congress.
    We ask you to understand that the consolidations or 
closures are a part of a strategy designed to serve the overall 
needs of the Postal System and our customers nationwide. We 
will also to continue to work very closely with our employee 
unions and our associations.
    The Network Plan that we have submitted to Congress is not 
the last word on these programs. In accordance with the new law 
and in keeping with our goal of continuous improvement, the 
Postal Service will submit annual progress reports to Congress.
    I will now be pleased to discuss the elements of the plan 
in more detail or answer any other questions you might have. 
Thank you.
    [The prepared statement of Mr. Donahoe follows:]

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    Mr. Davis. Thank you very much, Mr. Donahoe.
    We will go to you, Mr. Waller.

                    STATEMENT OF JOHN WALLER

    Mr. Waller. Good afternoon, Chairman Davis and Ranking 
Member Marchant. Thank you for the opportunity to testify.
    The Postal Accountability and Enhancement Act requires that 
the Postal Service consult with the Commission in the 
development of a modern system of delivery performance 
standards, the establishment of a system that measures 
achievement of those standards, the adoption of performance 
goals, and the realignment of the postal network to meet those 
goals.
    This consultive process started in 2007 with monthly 
meetings of the commissioners and a Postal Service team headed 
by the Deputy Postmaster General. The Service has provided 
presentations to the Commission on the key elements of the 
Network Plan that has been submitted to the Congress.
    Through this consultation process, the Commission has had 
the opportunity to provide independent review and feedback on 
many of the Service's proposals. Conversely, the process has 
also allowed the Postal Service to understand the Commission's 
requirements as a regulator.
    On June 9th, the Service presented to the Commission for 
comment its final draft of the Network Plan. On June 16th, the 
Commission submitted its comments in a letter to the Deputy 
Postmaster General. At the request of the Commission, the 
letter was submitted to Congress, along with a final version of 
the Network Plan.
    As background, the PAEA requires the Postal Service's June 
plan to establish performance goals, describe network changes 
necessary to meet those goals, describe how the new performance 
goals change previous submissions to Congress, and describe the 
Postal Service's long-term vision for its infrastructure and 
work force. Additionally, the Postal Service plan is to include 
detailed information on the cost savings, impacts, timeframes 
and processes for rationalizing its facilities network.
    In its letter to the Postal Service, the Commission noted 
that the draft of the Network Plan lacked specific performance 
goals for individual postal products and the vision of how 
those activities described in the plan would contribute 
specifically to meeting those goals. During the consultive 
meetings with the Service, the Commission made known its view 
that the goals expressed as specific percentages of on-time 
delivery should be part of the June plan. Corporate goals 
already exist for first-class single-piece mail, such as 95 
percent on-time delivery for such mail, subject to overnight 
delivery standards. The Commission has consistently urged the 
Service to expand such explicit goal statements to all classes 
of mail and include them in the Network Plan submitted to 
Congress.
    The draft plan given to the Commission 10 days before 
delivery to Congress stated that such specific goals would not 
appear until early 2009, and these would be targets to be 
improved annually. The Commission is pleased to see, however, 
that the final version of the plan presented to you adopts a 
more aggressive schedule, and the Commission now expects to see 
proposed percentage goals for all services before the end of 
the fiscal year. Such changes exemplify the progress and 
results that can be achieved via the consultive process that is 
now a major attribute of the new regulatory environment, as 
envisioned by the PAEA.
    The plan presented to Congress does describe many of the 
processes by which the postal network will change: for example, 
the improved guidelines for area mail processing consolidations 
that several of the witnesses have identified. These guidelines 
address many of the concerns raised in the past by the 
Commission and discussed in my testimony before this 
subcommittee last year. These process descriptions are useful 
statements of how the Service will implement realignment.
    Once performance goals are established, the Commission 
expects more details on the Service's vision for its network, 
what the new facility configuration and transportation links 
will involve, and a quantification of the cost and performance 
benefit.
    The Commission will carefully review the impact that 
network changes have on delivery service, using data from the 
Service's proposed hybrid measurement system currently under 
Commission review. Of course, this presumes broad adoption of 
the intelligent mail barcode in 2009.
    In addition, network realignments that can have significant 
nationwide impact on delivery performance must be subject to 
review by the Commission through a request for an advisory 
opinion, as required by the both the new and former postal 
laws. Service impacts will also be included in the annual 
reports of the Commission.
    The Commission takes very seriously the consultation role 
tasked to it by Congress. It does understand that the Postal 
Service faced a tight deadline for the development of the 
performance goal and Network Plan this June. Thus, the 
Commission looks forward to continuing the consultation with 
the Service on both these issues as additional specificity 
develops.
    Thank you. And I welcome the opportunity to answer any 
questions members of the subcommittee may have.
    [The prepared statement of Mr. Waller follows:]

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    Mr. Davis. Thank you very much, gentlemen. We appreciate, 
again, your being here.
    Mr. Donahoe, let me begin with you. Recently I talked with 
panel one about the urgency of realignment. How urgent would 
you say that the need for realignment is with the networks? And 
if that alignment is not taking place perhaps as envisioned or 
scheduled, what would be the cost to the Postal Service? And 
what safeguards do you have in place, as you make the 
realignments, to give assurance that it is going to work?
    Mr. Donahoe. Thank you, Mr. Chairman. Let me address that 
in a number of ways.
    First of all, our major concern today in the very short 
term, as I outlined in my statement, is our finances. We have 
lost $700 million to plan this year. Things do not look any 
better in quarter three, which we are just finishing up. There 
is a chance we could lose over $1.5 billion this year.
    The problem with that, of course, is, the way the law is 
structured, our prices need to remain at or below the rate of 
inflation. So making up that difference, short of cutting 
costs, is left to the other side of the ledger, the balance 
sheet, to increase revenues.
    Now, we have some great people in the organization doing a 
wonderful job, but in these tight economic times, you can see 
what has happened with FedEx, UPS, other people in that whole 
area, be it package delivery or advertising. So the upside on 
revenue generation probably isn't going to be here for the next 
couple of years. That presses us to move on with this network 
realignment plan.
    As you know, we recently put out a request for proposal on 
our BMC network, and that is one of the three areas we are 
looking at. We think there are large benefits there to be able 
to move, hear what the industry says from a standpoint of being 
able to give us some idea of the savings through a competitive 
process and allow us to start transforming the network.
    The other thing that we plan to do with the BMC network, is 
not just walking away from that network and walking away from 
the employees. What we were planning to do with the BMC, as we 
move the work that is being done out of there presently and 
into an outsource network, we are going to move quickly to use 
those BMCs for our second phase of the flat sequencing. That 
allows us to be more efficient in delivering mail and also 
gives us that opportunity to keep the cost lines down on that 
side of the ledger.
    Every month that we wait on these opportunities to work on 
our network, that delays us and puts us in great peril going 
forward.
    Mr. Davis. You talked about your early retirement program. 
Who are the employees who are eligible for it? And how 
effective would you suggest that it has been?
    Mr. Donahoe. We have used the VERA retirement approach a 
couple of times already. We used it in 2005, and we are going 
to use it this year in 2008.
    The employees that will be offered that VERA would be our 
clerks, our mail handlers, our city carriers, our rural 
carriers, supervisors, postmasters, and a number of other 
people within the organization, including headquarters and our 
area offices.
    Now, we will restrict it at this point: We are not going to 
offer that to our, what we call, ETs, electronic technicians. 
They are the top-notch maintenance people we have in the 
organization. The reason we are not is that they are very hard 
to recruit and train, so it would be irresponsible on our part 
to let somebody with that kind of training walk out the door.
    The idea behind that is to give people the option to take 
that early retirement. We think it is a wonderful benefit. So 
if a person is close to retirement, they might lose a couple 
percent but they can move on with life, either to take up a new 
career or stay at home and take care of family members.
    Mr. Davis. I know that any time a consolidation occurs, 
there has to be a great deal of hue and cry from any number of 
sources. What are the collective bargaining issues that come 
into play with the work force representatives in a 
consolidation?
    Mr. Donahoe. First of all, we have an outstanding 
collective bargaining process. It is probably the best you 
could see from a standpoint of any industry. Our unions work 
very well with us. I am very proud to say that if you look at 
some of the things we have been able to accomplish as a team 
over the last few years, it has really gone a long way to help 
the Postal Service stay strong in a time when we could already 
be under great stress.
    If you go back to, say, 2000-2001, Mr. Chairman, our 
revenue and our volume at that point pretty much leveled out. 
Our ability to work with the unions to continue to increase 
productivity, to be able to shed a number of employees, has 
given us the opportunity to keep our head above that financial 
water.
    Now, looking forward, like I say, we have some excellent 
processes in place. We have sat down and talked with the unions 
about some of the plans with the BMCs. The BMC is not a done 
deal at this point, one way or another. Concurrent with the 
request for proposal to look at the network, at the same time 
we have what is called Article 32, which is part of the 
collective bargaining process where we still continue to talk 
with the unions, listen to their concerns and listen to their 
recommendations. We value that. We think it has been a good 
thing for the Postal Service, it has been a great thing for the 
employees.
    You know, as we look around this United States, there are a 
lot of people who have lost jobs, and lost jobs because of 
responsibility that was not taken up with the leadership in 
management and the leadership in the union. We think we have 
great leaders. Everybody understands the importance of a strong 
Postal Service, because it is not just helping employees, it is 
also keeping the entire industry strong.
    Mr. Davis. Your mail processing staff has actually been 
significantly reduced since 2000 without consolidation. Can 
that trend continue and not necessarily get into as much 
consolidation as might be necessitated otherwise? I mean, why 
do we have to consolidate if we are able to reduce the work 
force through attrition?
    Mr. Donahoe. The attrition has worked great, and what that 
has allowed us to do, to a large extent, is take out operations 
and improve productivity across the country. We have done some 
consolidations, as you heard Dave Williams mention a little bit 
earlier.
    As we look forward, the major problem that we face is a 
slow-declining first-class mail volume. It has been running at 
about 3 to 4 percent. This year it is about 5 percent. Single-
piece mail volume pays a lot of bills in the Postal Service.
    So, as that declines, a couple things happen. First of all, 
it hits the revenue line. The second thing, it leaves 
substantial capacity in the rest of our system. So when you 
start to look around, you see facilities that are somewhat 
close that you can do these consolidations and not affect 
service negatively. In fact, in many cases, it improves service 
because you might have better reach to two and three areas. So 
we are looking at those types of consolidations.
    The technology that is out there today, within our mail 
processing plants, has allowed us to make some consolidations 
around airport mail facilities and, at the same time, improve 
service. So, looking out at a network that we have, the 
overhead to run these buildings, heat, light--everybody knows 
what is happening with costs that way, too--taking a look 
across the entire cost structure, it is very responsible on our 
part to continue to take a look at everything, looking at those 
consolidations, to help bottom-line finances in the 
organization.
    Mr. Davis. What has been the stakeholder's response with 
some of these--especially coming from elected officials in the 
areas where the consolidations have taken place?
    Mr. Donahoe. Well, as the GAO mentioned earlier, in the 
past we had a process that we have definitely improved and that 
is that communication process. And we've worked through the 
communication process with the local stakeholders, and that is 
political and employees and customers. We have seen some 
success. We have had some situations, as you know--and there 
are some bills right now that are pretty much holding us up 
from doing some consolidations that we know would be the right 
thing to do. It would not have a detrimental effect on our 
employees nor would it hurt our customers.
    So what we're looking for, as we said earlier, the law was 
passed, we think it is a great law. It gives us flexibility to 
manage our systems, and our networks. It also keeps postage 
rates affordable, which of course keeps a strong industry. But 
what we're asking for is that you let us have that flexibility 
to act on what we know is the right thing to do.
    Mr. Davis. Thank you very much. And let me go to Mr. 
Marchant. I will be back to you, Dr. Waller.
    Mr. Marchant. Thank you, Mr. Chairman. I have a large bulk 
mail facility in my district. So I think I will ask some 
questions about the bulk mail, the Network Plan as it discusses 
the network and the concept of consolidation and outsourcing of 
the bulk mail. That is the question I'll ask both of you to 
respond to.
    Mr. Donahoe. Sure. In the Fort Worth--Dallas/Fort Worth 
area, we've got a number of facilities. We have a facility--a 
plant----
    Mr. Marchant. This is the one out by the airport?
    Mr. Donahoe. In that network we have a large facility in 
Fort Worth, two in Dallas and of course one out at the airport. 
What has happened, Congressman, over the years is this. If you 
go back 25, 30 years ago when we opened the bulk mail 
facilities, at the time they were great facilities that really 
met the needs of the Postal Service because the way the mail 
flowed, mailer behavior, you had substantial volume in your 
mail that started in facilities, say, like Dallas and was 
transported across the country and our network say to San 
Francisco for delivery. Over the course of these last 25 to 30 
years, there has been a substantial change in mailer behavior. 
Mailers today--and you'll hear from some of the mailers coming 
up later on--drop a substantially larger portion of mail at 
destinations. So rather than have mail go from Dallas to San 
Francisco, let's say 100 percent, today standard mail or 
advertising mail, over 80 percent of it is dropped at the 
destination.
    So what that has done over the years is left us with a big 
network with great big buildings and a lot of equipment but 
nothing in them. Our plan is to look at who can provide what is 
left of that network end to end in a network, transport the 
mail between Point A and Point B, give it back to us for our 
employees to work and deliver and at the same time take 
advantage of these facilities, great facilities, great 
locations, to go in, clean them out, take out all the 
antiquated equipment and put state-of-the-art flat sequencing 
equipment in there which will improve service and at the same 
time reduce our costs.
    Mr. Marchant. We do have some industry people that are 
coming up later. But, you know, the first time I heard about 
it, was from the people that are doing the mailing in my area. 
And I guess in my instance, there is a lot of it dropped 
directly in Dallas, like you said, and in San Francisco. So 
what you are saying is that those facilities will be used, they 
will just be retooled and made more efficient for another kind 
of service?
    Mr. Donahoe. Yes, sir. That's our plan. The way mail is 
entered into our system today, mailers have the choice of 
either dropping it at origin, it goes through our network, or 
they can drop it at a destination facility, say, like the 
Dallas main post office or even deeper in like a newspaper. A 
newspaper chooses a lot of times to deliver mail right to the 
local post office where the letter carriers are that morning so 
that they can make sure that they have the latest news getting 
in the letter carrier's hand and we get that delivered that 
same day. They get the best rates, the postage rates to do that 
and that allows them too within their own network to stay with 
the latest news getting out there for delivery on that same 
day.
    Mr. Marchant. Tell me what time definite surface network 
means.
    Mr. Donahoe. Time definite surface networks would say that 
if you were taking mail from Dallas to San Francisco, it should 
take you 3 days or 4 days, whatever the service standard is. 
Now, the way we built the service standards is right off of the 
time definite surface network. First-class mail, standard mail, 
periodical mail, first-class advertisement and newspapers 
travel on a lot of similar networks. They have different 
service standards. We fly mail--if you were taking mail from 
Dallas to San Francisco, we'd fly that mail if it was first 
class. If it is standard or periodical, we run that across a 
network. Our network today, the way it is set up, we run our 
trucks at substantially less capacity and in a lot of the cases 
we move mail across the country and consolidated points in 
order to be more efficient. We're not as timely as we would 
like to be. We know that there are providers in the network out 
there that have systems that move mail around the country much 
quicker. We're looking to take advantage of a system like that 
to cut costs and improve service at the same time.
    Mr. Marchant. So these 18-wheelers that have--I think there 
is a major contractor north of Dallas, Ritchie, that has----
    Mr. Donahoe. Al Ritchie.
    Mr. Marchant. I pass by his facility every Sunday afternoon 
when I drive up to the ranch. And he goes from Dallas--I mean, 
on the back of each trailer has Point A to Point B. This mail 
comes from the bulk mail center to another bulk mail center?
    Mr. Donahoe. Yes, sir. Or to another processing facility. 
Nationally, we have about 17,000 of these highway contract 
drivers that haul mail between plants. We call them processing 
plants or bulk mail centers. And even a handful of them deliver 
mail at mailboxes across generally the more rural areas.
    Mr. Marchant. Yeah, Mr. Chairman, I'll stop with that 
question. But these guys are--have to be hurting right now.
    Mr. Donahoe. I tell you, gasoline is expensive.
    Mr. Marchant. So at some point, and I'm sure that somebody 
will answer that question, at some point this has to have a 
high impact on the cost to get that mail from Point A to Point 
B.
    Mr. Donahoe. Yes.
    Mr. Marchant. Thank you.
    Mr. Davis. Thank you very much, Mr. Marchant. And maybe the 
Postal Service will help us figure out how to get gas prices 
down.
    Mr. Donahoe. We're trying to buy a couple of hydrogen cell 
vehicles. We'll give those a try.
    Mr. Davis. But, Mr. Kucinich, thank you for joining us. Do 
you have some questions?
    Mr. Kucinich. Yes, Mr. Chairman. Thank you for holding this 
hearing. As always, you're the person who the people can count 
on to protect the Postal Service as an ongoing service to the 
people of this country. So I appreciate it.
    For Mr. Donahoe, welcome and thank you for being here. And 
as well as Mr. Waller, thank you.
    The U.S. Postal Service is one of the most heavily utilized 
and underappreciated branches of the Federal Government as a 
service. And as a major supporter of the U.S. Postal Service, I 
understand the difficult financial constraints under which 
you're currently operating. The Postal Service Network Plan 
uses all the right buzzwords like right sizing, optimization 
and euphemisms for closing facilities and laying off workers in 
order to make the case for closing various facilities in the 
Nation, including airport facilities and processing facilities. 
But you're going to have to forgive me if I'm skeptical of any 
nationwide plans for facility closings. There are questions 
about the accuracy of the information that drives these 
closings. In the past, the amount that was supposed to be saved 
by a closing was not achieved. Predictions of the effects on 
service have also been erroneous.
    I have already made clear to you and to the Postal Service 
in letters that I oppose the privatization of U.S. postal 
services, not just in Cleveland, but around the country. It is 
my concern about the long-term financial well-being of the U.S. 
Postal Service that drives my concern about privatization. And 
with me, it is not just about the Postal Service, it is any 
public services, whether they are mail delivery, water or 
electricity. It has been my experience they really don't yield 
the gains that are hoped for.
    For example, concluding, Mr. Chairman, we had an A-76 on 
DFAS, Defense Finance Administration, and it has turned out to 
be a fiasco over a period of years. Service goes down, price of 
operating goes up.
    So I want to start with questions about the Cleveland 
facility that might be partially closed. On July 8, 2008, I 
wrote to the Postmaster General, John Potter, with my concerns 
about the proposed shutdown of the Cleveland Airport Mail 
Center [AMC]. Yesterday I received a response that made a 
distinction between the AMC operations and AMC retail facility. 
The letter says retail services will continue to be provided at 
this facility for the foreseeable future. That is a quote. And 
retail is a concern. And for my constituents and me, this is in 
my district. The AMC is the only place a mail customer can go 
if they need to get a date stamp on a letter or package if it 
is later than usual business hours. I can tell you having been 
to this facility hundreds of times over a period of a many 
years, because I live nearby, there are always lines here.
    So will the Cleveland AMC under the current planning retain 
its late hours and what services will definitely remain at the 
facility? That's the first question I have. And the second 
question--you can probably address these at once. I want to 
know how this is playing out nationwide.
    Of the 54 AMCs the U.S. Postal Service has already shut 
down, how many facilities have retained retail services like 
late hours that were unique to the facilities and would you be 
willing to furnish that information to the committee?
    Mr. Donahoe. Sure. Let me answer that in a couple of 
different ways. First of all, Congressman, we have never laid 
anyone off. I take that very personally.
    Mr. Kucinich. I know there is a ban.
    Mr. Donahoe. There is a contractual agreement, but it 
doesn't cover everyone. But nonetheless, as leader of the 
organization, it is my responsibility to make sure we make the 
right decisions so that when somebody comes to work for the 
Postal Service, we never have to tap them on the shoulder like 
somebody from General Motors, Ford or U.S. Steel and say you 
don't have a job here anymore. So we take that very seriously.
    In terms of Cleveland, at the airport mail facility, we 
have no plans of shutting that down. As a matter of fact, we 
own the building. What we would like to do is take that airport 
mail facility retail unit, keep that going and outlease the 
space in there to make some money to put against some of the 
operating costs that we have in the organization.
    At our airport mail facilities, we have great employees 
working there. What has happened with those to a large extent 
is they become obsolete with the way we transport mail. I was a 
manager at an airport mail facility many years ago in 
Pittsburgh, PA. The way we transport mail today is on the 
ground predominantly and what we fly goes to either FedEx, UPS 
or one of seven airlines. It used to be 55 airlines. And the 
work done at the airport mail center was to sort through the 
mail for 55 airlines. We no longer have to do that any more. So 
we're able to move the mail back up into our facility in 
Cleveland, assign it to the air carriers from there and the 
service has gone nowhere but up.
    So we're going to keep that facility open from a retail 
perspective. We're looking to outlease the rest of it because 
we do own that building.
    Mr. Kucinich. You're saying the retail facility. You made 
that clear. But there are two functions here: One is kind of a 
general operation as a mail center. Now is that going to be 
maintained? I just want to make sure I understand that clearly? 
At the Cleveland Hopkins Airport, that AMC is that going to be 
retained as a mail center or a retail center and do you make a 
distinction in that or is any of its status going to be 
changed?
    Mr. Donahoe. The retail facility will remain. The mail 
processing that we can move back into the Cleveland's main 
processing plant, we are going to do that.
    Mr. Kucinich. You're going to move the mail processing back 
to where?
    Mr. Donahoe. Cleveland, OH and to the main post office down 
not too far from Jacobs Field.
    Mr. Kucinich. See, one of the things, Mr. Chairman, that 
I'm concerned about and to my friend, Mr. Marchant, here is, 
you have these facilities by these airports that are really 
convenient to the public and in Cleveland, right down the 
street, less than 100 yards, just a few minutes walk, if a 
minute walk, from the post office is a FedEx. So if the people 
are used to coming out there, you know, late at night to get 
things processed, there might be more of a tendency to want to 
go to choose FedEx. And I don't want to lose customers here. I 
want to make sure that the money that is being invested here 
and that Congress makes sure that, you know, we want to see 
this post office fortified, we don't want to lose any business.
    And I'd like, Mr. Chairman, I would really appreciate it if 
this subcommittee, could work together--I'm chairman of 
Domestic Policy, and I'd look forward to working with you to 
see if this change in the status of mail centers, which are at 
airports, are in any way aimed at facilitating a kind of 
privatization. You know, this is something that I think this 
committee ought to look at. You know, this is what our 
responsibility is. Mr. Donahoe, you have your responsibility. 
I'm very concerned that this could be a way to try to 
facilitate privatization which would result in greater costs 
for a service for our constituents, and frankly I don't think 
there are many areas where you can beat the U.S. Postal 
Service.
    So I'm a fan of yours, but at the same time, I don't want 
to see any change in that Hopkins airport facility. I'm not 
interested in running the post office, but I am interested in 
saving that facility. So we'll have further discussion on this, 
but I appreciate your cooperation with this subcommittee 
because we'll be talking some more.
    Mr. Chairman.
    Mr. Davis. Thank you. Yes. We'll work with you without a 
doubt.
    Mr. Kucinich. That would be kind.
    Mr. Donahoe. Could I clarify? Maybe I'm not explaining the 
retail facility. The retail facility, that is the post office. 
That will not close. In fact, if that is the one you're 
talking, I'm thinking we probably should keep it opened later 
to compete with FedEx. That will not close. All we're doing in 
the rest of the building is moving some equipment that we can 
get better utilization that delivers and sorts mail for the 
entire Cleveland area back up to the Cleveland facility.
    Mr. Kucinich. Mr. Chairman, I thank the gentleman. Mr. 
Chairman, thank you for your indulgence here. I would look 
forward to perhaps looking at what it is you're talking about 
moving. I don't live too far away, so maybe we can work out 
something with your staff.
    Mr. Donahoe. I'd come up and visit you myself.
    Mr. Kucinich. Let's do it. Let's chat. I thank the 
gentleman.
    Mr. Chairman, thank you so much.
    Mr. Davis. Thank you very much, Mr. Kucinich. And Dr. 
Waller, let me get back for a minute. Are you satisfied that 
the Postal Service has made sufficient progress to address the 
recommendations that the PRC has made?
    Mr. Waller. Of the ones that we made last year and then the 
end case that we had specific ones on? I think we are much like 
the GAO, we're very pleased at what has happened with the AMP 
guidelines, which were a series of improvements there, both in 
their public interactions and the getting of information out to 
the community. We also are hopeful that the descriptions that 
are in the handbook of the changes and actually the worksheets 
where the devil is in the detail of actually calculating the 
expected savings because you do as much as you can to get an 
accurate picture of how the change will be after the 
consolidation. But when we looked at the AMPs from the previous 
set, the ones that a lot of them are still pending, they were 
all over the place. There was a lot of inconsistency. Now, the 
new worksheets are there to do it, but we are going to have to 
see actually how when new AMPs are done, that they'll actually 
reflect real productivities, because you can't just make 
assumptions about how machines are going to operate because 
they vary so much between facilities. Now, that aspect is one 
that we are very pleased with.
    Mr. Davis. OK. The Postal Service recently submitted a 
proposal for measuring and reporting on delivery service 
performance. What is your general assessment of this proposal 
at this time? And when do you expect to complete the 
regulations related to the Postal Service's annual compliance 
report to the PRC?
    Mr. Waller. A very good question. The first on the 
measurement plan. I'm a big fan of data, the more data the 
better and the fact that we can get a lot of this through 
machine reads and then complement it with external measurements 
like the XFC thing for the final mile of delivery, I think 
holds great promise. I think we would have liked to have seen 
more progress there moving quicker, but we recognize that it is 
a big task and that the future does hold a lot of hope. The 
Commission there has to make an actual decision if this is OK 
to use this internal or hybrid type system instead of an 
external measurement system to get accurate measurements of 
what the performance service is on delivery.
    The Commission put the plan out for public comment because 
that's the way we operate when we have to make some decision 
and have gotten back a lot of interesting criticisms, but also 
general endorsement of it. I think the industry is in favor of 
it. But there is a lot of tweaking they want to do. I must say 
that through this consultation process, that measurement system 
has evolved a lot from when we first started talking about it. 
It has gotten much more granular in reporting and giving 
greater transparency. So that has been very good, I think, part 
of the consultative process, probably where most effect has 
been had.
    Mailers would like a few more things in it. We're looking 
at that and we hope to make a decision on that in a month or so 
as the Commission really considers it. And we'll issue an order 
to make a formal assessment of what the performance measurement 
system is.
    Now, to your second question. When do we get out those data 
rules? I want to say soon, very soon and certainly I think 
before the end of the fiscal year when they have to start 
processing the data to put out the reports for next year. Now, 
again there is where we've had the, I think, value of a 
consultative process that is a two-way street, where we've been 
able to work with the technical staff over there and refine 
what can be done very quickly in this coming year, what is a 
longer term thing.
    So I hope to say this year and that the chairman wants them 
out very much, too. But we don't want to put something out that 
is just going to cause extra expense and somebody starts 
yelling, ``hey, too much data'' because it does cost money. So 
that is why we are carefully crafting them.
    Mr. Davis. Thank you very much. And let me just ask you one 
last question, Mr. Donahoe. If mail volume continued to decline 
at the current rates, if these rates should accelerate, how do 
you see that affecting the Network Plan?
    Mr. Donahoe. One of the things that we are very concerned 
about is this decline in volume, Mr. Chairman. This year we 
knew it would probably be a bad year from an economic 
standpoint and the fact that the Postal Service today has a lot 
more exposure to the economy because 10, 15 years ago with a 
large percentage of our mail first class, people paying bills, 
the economy went up and down, it didn't affect us that much. 
With over 50 percent of our mail being advertising mail today, 
that is definitely a concern. One of the changes we made 
recently, our Postmaster General has made some operational 
changes within the organization to focus on the growth side. We 
know that the law has given us opportunities to compete in the 
package business. We plan in competing in the package business. 
We also know that there are a lot of small businesses, home 
businesses that are out there that are growing today even in a 
slow economy that don't use the mail. So we're going to focus 
on the revenue generation side. We're not ready to throw the 
towel in yet and say we can't improve that side.
    With the continued financial pressures, you know, we're 
asking just to let us please work through, be flexible. Let's 
work with the union, let us work without any additional 
constraints so we can figure out as a team what we need to do 
to continue to watch the cost side of this organization. You 
know, we've got an excellent working relationship in this room 
with the Commission, with the unions, with our employees, and 
with the mailers. We're asking for the flexibility to continue 
that and we'll be successful in the long run.
    Thank you.
    Mr. Davis. Thank you very much. Mr. Marchant, do you have 
any other questions? Well, gentlemen, thank you very much. We 
appreciate your testimony. And you're excused.
    We will transition to our next panel, which will be Panel 
III. And while we're doing so, we'll move ahead with the 
introductions. Panel III will consist of Mr. Michael Winn, who 
has served as the Director of Postal Operations for RR 
Donnelly, who is a member of the Association for Postal 
Commerce. Mr. Winn has been a member of the graphic arts 
industry for over 30 years and has been very active in many 
other print and industry associations. Mr. Winn, thank you very 
much for being here.
    Mr. Robert E. McLean has been the executive director of the 
Mailers Council since 1996. He furnishes management service for 
the nonprofit advocacy organizations, serves as its public 
spokesman and represents the Council on Capital Hill. Thank you 
very much, Mr. Mclean.
    And Mr. Jerry Cerasale has been the senior vice president 
of Government Affairs at the Direct Marketing Association since 
1995. He is in charge of the DMA's contact with Congress, all 
Federal agencies and State and local governments. Thank you 
very much, Mr. Cerasale.
    And rounding out the group, Mr. Anthony Conway. Mr. Conway 
was named the executive director of the Alliance of Non-Profit 
Mailers in July 2007. In leaving the Alliance, he represents 
nonprofit mailer interests before Congress, the Postal 
Regulatory Commission and the Postal Service.
    Gentlemen, as you know, it is our tradition that witnesses 
be sworn in. So if you'd stand and raise your right hands.
    [Witnesses sworn.]
    Mr. Davis. Thank you very much. And we'll begin with Mr. 
Winn. And let me just say, Mr. Winn, that we're always proud to 
say to people that one of the corporate headquarters that 
exists in the congressional district that I represent in the 
great downtown area of Chicago is RR Donnelly and Sons, and 
we're delighted that you're here. You may proceed.

  STATEMENTS OF MICHAEL WINN, DIRECTOR OF POSTAL OPERATIONS, 
   ASSOCIATION OF POSTAL COMMERCE ACCOMPANIED BY GIAN-CARLO 
   PERESSUTTI, VICE PRESIDENT FOR GOVERNMENT RELATIONS AT RR 
    DONNELLY; ROBERT E. McLEAN, EXECUTIVE DIRECTOR, MAILERS 
  COUNCIL; JERRY CERASALE, SENIOR VICE PRESIDENT, GOVERNMENT 
   AFFAIRS, DIRECT MARKETING ASSOCIATION, INC.; AND ANTHONY 
   CONWAY, EXECUTIVE DIRECTOR, ALLIANCE OF NON-PROFIT MAILERS

                   STATEMENT OF MICHAEL WINN

    Mr. Winn. Thank you, Mr. Chairman. Chairman Davis, members 
of the subcommittee, my name is Michael Winn, and I----
    Mr. Davis. You may need to pull it a little closer or hit 
the button.
    Mr. Winn. There. That is it. Got it.
    I'm here before you today in my capacity as a member of the 
Board of Directors of the Association for Postal Commerce and 
as director of Postal Operations for RR Donnelly. I am 
accompanied today by Gian-Carlo Peressutti, who has recently 
assumed the position of vice president for Government Relations 
at RR Donnelly.
    Neither the Association for Postal Commerce, PostCom nor RR 
Donnelly are strangers to this committee. However, for the 
record, I'd briefly like to summarize who we are and why we 
appreciate the opportunity to testify at this oversight hearing 
concerning the three Rs of the Postal Network Plan, 
realignment, right sizing and responsiveness.
    PostCom is the leading trade association in the United 
States devoted exclusively to the interests of commercial 
businesses and nonprofit organizations who depend upon the U.S. 
Postal Service to communicate with the public. Our membership, 
comprised of more than 300 companies and not-for-profit 
organizations, has a particular interest in mailers, in matters 
affecting standard mail subclasses. But our membership uses all 
classes of mail, and PostCom represents their interests in 
virtually all matters affecting the Postal Service.
    As a result, PostCom has been actively involved in the 
development and enhancement of the Postal Accountability 
Enhancement Act of 2006 And in the work both of the Postal 
Service and the Postal Regulatory Commission implementing that 
statute. The Network Plan is a key element of the postal 
statute and vital to the economic viability not only of the 
Postal Service, but also of PostCom's members.
    RR Donnelly, headquartered in Chicago, is one of the 
leading integrated print and logistic solution providers to 
companies and government organizations throughout the United 
States and abroad. Our network of consolidation facilities is 
designed to aggregate mail and to deliver it to points in the 
Postal Service's network, providing our customers with the 
greatest efficiency and lowest cost.
    We, and I speak for all of the PostCom membership, endorse 
the goals and objectives of the Network Plan that the Postal 
Service has submitted to this committee pursuant to section 302 
of the Postal Accountability and Enhancement Act.
    There is a compelling need for the rationalization, 
integration and coordination of the Postal Service's processing 
and distribution facilities. That need was recognized in the 
2003 report of the President's Commission on the Postal Service 
which lays the foundation for the postal statute. Indeed, many 
of the goals and purposes embodied in the Network Plan were 
anticipated by the Postal Service transformation plan which was 
submitted to Congress in April 2002 and updated last year.
    The Postal Service began its 2002 report to Congress with 
this sentence: We live in challenging times. And that is doubly 
true today. Overall mail volume is at best stagnant or 
declining for a number of reasons, including the volatility of 
the American economy. The unprecedented increase in the cost of 
diesel fuel particularly affects the Postal Service and 
companies like RR Donnelly that support and serve the Postal 
Service's commercial and nonprofit customers. This is because 
the Postal Service network as it exists today and in the future 
is critically dependent on work sharing. A key component of 
work sharing, as the plan itself recognizes, involves the 
destination entry of mail as deep into the postal system as is 
economically feasible. However, given the combined costs of 
diesel fuel and postage, we are rapidly approaching the point 
at which the incentives in the form of discounts that the 
Postal Service provides for drop entry and other forms of work 
sharing are no longer adequate to the task.
    We are at or very perilously close to the point at which 
catalog companies, magazine publishers and other mailers are 
seeking alternate, usually electronic means of communicating 
with their customers or they are electing to forego the 
discounts provided for work sharing in order to shift mail 
preparation and transportation costs back to the Postal 
Service. The Postal Service can ill afford either outcome.
    Indeed, we do live in challenging times. The goals of the 
Network Plan looking toward realignment and right sizing of the 
Postal Service facilities are not only merely important, they 
are indispensable to the preservation of universal service.
    In its report, the Postal Service has laid out its 
performance goals in terms of continuous improvement in both 
service and in efficiency. It has described the purposes of the 
three integrated elements of its network rationalization plans. 
They are elimination of redundant airport mail centers, 
realignment of the mail processing network as a whole, and the 
transformation of the bulk mail network.
    In our view, these objectives are fundamentally sound. At 
the same time, the establishment of these goals serves to 
underscore the central importance of the role of the mailing 
industry. Mailers and mail service providers must play a 
significant role in the development of the specific measures 
that are needed to successfully achieve these objectives.
    For example, in explaining the rationale for transformation 
of the bulk mail centers the plan points out quite correctly 
that the increase in destination entry of periodical standard 
mail and packages over the past several decades has resulted in 
underutilization of the existing BMC network. That will remain 
true only so long as the price incentives are made adequate to 
induce mailer behavior in ways that serve both the mailer and 
the Postal Service.
    The overriding objective of the Postal Service 
Accountability and Enhancement Act is, of course, to maintain a 
commercially and financially viable Postal Service which is 
capable of providing universal service throughout the country. 
That objective can only be achieved if the plan yields the 
lowest combined cost to the Postal Service and the industry.
    The Postal Service states in its plan that it values the 
ongoing cooperation of the mailing community in implementing 
the service performance standards it has developed, but the 
need for the mailing community involvement in rationalization 
and alignment goes far beyond service. If the only outcome or 
the principal result of the plan is to shift more costs from 
the Postal Service to the private sector, the plan will quite 
frankly fail.
    Put another way, we believe that when the postal statute 
speaks of affordable rates based on efficient network 
operations, that means the entire production and delivery 
train, including the work sharing, address hygiene and 
undertakings of the private sector.
    Efficiency and cost shifting are not the same thing. Now 
that the goals and objectives of the modernization plan have 
been defined, the need for the mailing community involvement 
with the Postal Service in the refinement of the steps outlined 
in the plan and in its implementation is more critical than 
ever. Realignment and right sizing cannot be accomplished 
overnight, especially in a system as large and complex as that 
operated by the U.S. Postal Service. Still there are 
incremental changes that can be made as the Postal Service 
advances its goals of continuous improvement service, both in 
terms of quality and cost.
    The report, for example, specifically notes that the Postal 
Service is committed to establishing full year 2009 service 
standard targets, although the measurement systems necessary to 
produce the baselines are still in development. While we are 
pleased to see the Postal Service move forward with service 
performance measurement, this is an example of the need for the 
Postal Service to understand and to respond to the needs of its 
customers.
    As PostCom has pointed out to both the Postal Service and 
to the Regulatory Commission, the availability to the industry 
of realtime, reliable service performance data is imperative to 
the industry's ability to make the most efficient possible use 
of the system and to thereby achieve the lowest combined cost 
of service. With performance service data available to mailers 
and service providers on a realtime bases, the industry will be 
able to react to specific problems and maintain efficiency 
throughout the value chain and therefore achieve the lowest 
combined cost.
    The Postal Service is to be commended with respect to its 
commitment to--concerning service performance standards and the 
measurement of actual performance under those standards. But it 
also must recognize that this data must be available to 
industry in a timely and meaningful fashion. PostCom looks 
forward to working with the Postal Service as it proceeds to 
operationwise its service standards and service performance 
measurements. But there is more that can be done by the Postal 
Service and industry, working together toward the common goal 
of maintaining and enhancing the value of mail as a 
communication system.
    In its opening address at this year's National Postal 
Forum, Postmaster General Potter specifically pointed out that 
the Postal Service cannot be timid in the implementation of 
change. It must also learn to share risk with the industries 
that it serves if it is to remain commercially and financially 
viable. These steps cannot be taken by the Postal Service alone 
in a silo or in a series of unconnected silos. The view, 
concerns and interests of industry must be factored into the 
plan at each step during the process of implementation, and it 
is equally critical that industry interests be included in the 
development and refinement of the broad and general objectives 
that the Postal Service has laid out in the plan that it has 
submitted to Congress.
    The devil is in the details in how the objectives and 
principles set forth in the 2008 plan and its precursors are 
refined and put into actual practice. It is in this respect 
that, in our view, the Postal Service's performance to date 
needs to be improved at the strategic level. The development 
and implementation of the intelligent mail bar code is an 
example of this issue of inadequate responsiveness to the 
industry needs and input.
    The IMB is generally recognized by industry to be of value 
to both industry and the Postal Service. It is the long-term 
basis for service performance measurement, increased 
operational efficiency and right sizing within the postal 
system. However, until recently, the Postal Service's service 
communications concerning this major objective have been at 
best confusing and incomplete and at worst entirely in conflict 
with the needs and capacity of industry. The result is an 
enormous cost to the industry, costs that could have been 
better devoted to the actual production, printing and 
preparation of mail.
    I am happy to report that in recent weeks the senior 
management of the Postal Service has come to recognize that 
there is a need for a high level coordination of all the 
elements that go into IMB. This includes the creation of 
mechanisms through which industry can express its views and 
concerns regarding consistent, reliable and meaningful 
information about the IMB plan, its pricing and its 
requirements. There are, however, other aspects of the plan 
where the Postal Service's responsiveness to the needs and 
interests of the industry must be improved. This is especially 
true at the tactical level.
    We in the industry understand the incremental changes in 
operations and the use of facilities will result in changes of 
the routing of mail. This may occur with more frequency as the 
Postal Service moves to a network redesign and redeployment. 
However, too often mailers and the logistics companies that 
they employ do not learn of operational changes in a particular 
region or at a particular facility until a truck carrying the 
mail actually arrives at the facility only to be told by local 
officials that routing has been changed. This occurs when 
processing equipment has been moved and a truck has to be 
routed to the newly designated acceptance site. Whether or not 
these unannounced changes in operations produce savings to the 
Postal Service, it misses the point. The added cost to 
industry, especially in times of high fuel costs, defeat the 
goal of the lowest combined cost and therefore the objectives 
which underlie the Postal Accountability Act.
    Accordingly, as to the tactical and strategic matters in 
the Postal--the Postal Service's communication of information 
and responsiveness to input from the industry can be and must 
be improved.
    In conclusion, PostCom and RR Donnelly believe that the 
basic objectives and purposes in the Network Plan which the 
Postal Service has submitted to Congress are sound. There are 
aspects of the plan that need to be worked through, developed 
more fully and perhaps modified. That task must not be left to 
the Postal Service. That task must be left to the Postal 
Service working closely with the associations that represent 
the industry and with companies like RR Donnelly that are in 
the trenches every day. Only through direct interaction between 
the Postal Service and the mailing community, which speaks in 
this context for your constituents, can realignment and right 
sizing take place in a rational and orderly fashion. The mutual 
effort is to produce results that are responsive to and serve 
the needs and best interests of all the Postal Service's 
stakeholders. The Network Plan advanced by the Postal Service 
lays the foundation for the realization of these goals.
    We thank the subcommittee for this opportunity to present 
our views on this critically important Postal Service 
initiative. Thank you, Mr. Chairman.
    [The prepared statement of Mr. Winn follows:]

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    Mr. Davis. Thank you very much. And we'll go to Mr. McLean.

                 STATEMENT OF ROBERT E. McLEAN

    Mr. McLean. Good afternoon, Mr. Chairman, Mr. Marchant. My 
name is Bob McLean, and for the past 12 years I have been the 
Mailers Council's executive director. The Mailers Council is 
the largest group of mailers and mailing associations in the 
country. Collectively, the Council accounts for approximately 
70 percent of the Nation's mail volume. We welcome this 
opportunity to testify on the Postal Service's operational 
network and the need to realign it.
    This reduction is a difficult but necessary response to the 
unprecedented changes in mail volume the Postal Service is 
experiencing and will continue to experience for years to come. 
Reducing the network size is essential if the Postal Service is 
to provide affordable, reliable and universal Postal Service to 
your constituents.
    As we testified 1 year ago this month, the Postal Service 
is working diligently to implement the many changes required by 
the reform bill signed into law in December 2006. Working with 
the support of and direction of the Postal Regulatory 
Commission, the Postal Service has made tremendous progress in 
such important areas as modernizing the ratemaking system and 
developing new delivery standards.
    Despite these successes, however, the Postal Service faces 
many unprecedented changes in how the Nation communicates and 
conducts commerce. Collectively, these changes are largely 
irreversible and include no worthy statistics. Overall mail 
volume is declining. Revenue from first-class mail, the most 
profitable class delivered, continues to decline as does first-
class mail volume. Revenue from standard mail continues to 
increase but at a much slower pace than in the past decade. 
Higher fuel costs are adding millions in unprecedented costs 
every day, a problem that is likely to increase for the 
foreseeable future. Higher inflation will also mean 
significantly higher cost of living allowances for postal 
employees. That along with higher health insurance costs will 
add millions in costs in fiscal year 2009.
    Because of these challenges, it will become increasingly 
important for the Postal Service to operate as efficiently as 
possible. Starting now, to avoid significant annual postage 
increases that will only accelerate the decline in total mail 
volume or if such increases are precluded by the PAEA's price 
cap provisions to avoid serious service declines that will have 
the same effect.
    In its efforts to improve delivery performance and in 
response to ongoing and future changes in mail volume and 
composition, the Postal Service must be allowed to reduce the 
size of its operations network, much of which was designed 40 
or more years ago when there was more mail that was processed 
quite differently and less competition from delivery and 
communication alternatives. More specifically, the Postal 
Service must move now to realign and reduce its delivery 
network which will lead eventually to the closing and 
consolidating of some mail processing facilities, especially in 
cities where there are multiple plants.
    There are several reasons why we encourage you to allow the 
Postal Service to move forward with realignment. First, the 
Postal Service has more capacity for processing mail than it 
needs because technology has allowed more mail to be processed 
faster, with fewer employees and in less time than was in the 
case years before. Also, the Postal Service has used the utmost 
care regarding its employees during the transition toward 
automation. It has reduced its work force, as you heard earlier 
today, by more than 100,000 employees without layoffs, which I 
think is a remarkable achievement.
    Second, mail volume is expected to continue to decline, but 
mail delivery points will increase. The Postal Service adds 
from 1.2 to 1.8 million new delivery points every year. That 
means they have to add more facilities for letter carriers, 
hire more carriers and buy more vehicles that have more 
expensive fuels in it. All of this will add billions to the 
cost of processing the mail.
    Third, unless the Postal Service is allowed to control its 
cost, the Postal Service will be unable to live within the 
price gap imposed by the reform law. This inability will in 
turn lead to either a relaxation of the cap followed by 
extraordinary rate increases or major service reductions. 
Either way, more customers will be driven from the mail, 
further reducing mail volume and leading to even higher prices. 
And we're back to the much discussed death spiral that, Mr. 
Chairman, we discussed often in 2006 before passage of the 
postal reform bill.
    We recognize that any decision to close a postal facility 
is a difficult one. It affects the lives of many individuals, 
including employees in your districts. However, the right 
sizing of the postal network as the mail stream changes is 
essential to keeping postage affordable for all of your 
constituents. Higher postage affects everyone and could 
eventually hasten the demise of the Postal Service, which the 
Mailers Council seeks to avoid. We depend on a reliable postal 
system that is affordable. Higher postage and a bloated network 
will in the long run be devastating to more than just postal 
employees. And unless Congress allows the Postal Service to 
consolidate these facilities, we could be talking about a lot 
of employee layoffs. This is a dire prediction, but one that we 
can state without equivocation because the Postal Service's 
potential financial losses are so large and so unavoidable 
given the current overhead.
    Congress has given the Postal Service a mandate to deliver 
excellent service to every person in every State without 
government financial support, which it has done for the past 
several decades. We want this situation to continue.
    Let's avoid layoffs, let's avoid having the Postal Service 
become a burden on the taxpayer and allow the postal managers 
to manage the agency. Give the Postal Service the opportunity 
to respond without encumbrances to these profound changes that 
it faces now and will face in the coming years. Please let 
postal management reduce the size of the postal operational 
network because it is essential to improving the efficiency of 
the Postal Service.
    Congress has demanded that the Post Office operate more 
like a successful business than in the past. It should not 
simultaneously prevent it from doing so.
    Mr. Chairman, thank you again. I would welcome your 
questions.
    [The prepared statement of Mr. McLean follows:]

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    Mr. Davis. Thank you very much, and we'll go to Mr. 
Cerasale.

                  STATEMENT OF JERRY CERASALE

    Mr. Cerasale. Chairman Davis, Ranking Member Marchant, 
thank you very much for giving us the opportunity to be here. 
I'm Jerry Cerasale, senior VP for the Direct Marketing 
Association, which is an association of 4,000 companies 
reaching--using all channels of marketing, all channels of 
communication to try and reach citizens in this country and 
throughout the world. The.
    Postal Accountability and Enhancement Act maintains the 
focus of the old Postal Reorganization Act that the Postal 
Service run as a business. And just as any legislation we have 
seen, it has compromise in it. There are CPI limited rates. At 
the same time, the Postal Service is given the opportunity and 
the flexibility to run itself as a business. Both the Postal 
Service and its customer, the mailers, face a changing 
marketplace right at the moment. And to survive, the Postal 
Service must constantly adjust to meet that marketplace. Just 
as my members are constantly adjusting how they try to reach 
customers and potential customers, changing their advertising 
dollar mix between the many channels that are available to them 
and the number of channels are only going to grow as time goes 
on.
    Change itself, however, can be very difficult for both the 
Postal Service, for the mailers and their employees, for postal 
employees and for your constituents and the constituents of 
your colleagues, as we change facilities, change processing, as 
things move across geopolitical lines. But we have to allow the 
Postal Service to adjust. We cannot simply oppose change for 
change's sake.
    And we applaud the Postal Service for establishing a 
framework to implement changes in network and a design that can 
be used as we go forward into the future.
    In the same light, however, change for change sake is not 
what we are seeking. It is here where the PRC, the GAO, the IG 
and, most importantly, this Congress has to hold the Postal 
Service accountable for any change that it implements. Is that 
change working financially? Has it improved productivity? Has 
it improved service? Has it destroyed employee morale? 
Oversight is what we need; oversight very often is what we 
need.
    DMA simply asks, allow the Postal Service to adjust its 
network within the framework it has provided you, but hold it 
accountable that those adjustments are working. And if they are 
not, have them adjusted again and make that adjustment swiftly. 
DMA and I'm sure all Postal Service customers stand ready to 
assist you, the Postal Service, the PRC, the GAO and the IG in 
getting that done.
    Thank you and I am ready for any questions.
    [The prepared statement of Mr. Cerasale follows:]

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    Mr. Davis. Thank you very much, Mr. Cerasale. And we'll go 
to Mr. Conway.

                  STATEMENT OF ANTHONY CONWAY

    Mr. Conway. Mr. Chairman, Congressman Marchant, my name is 
Anthony Conway. I'm the executive director of the Alliance of 
Non-Profit Mailers, a coalition of over 300 nonprofit 
organizations and commercial service providers that have an 
interest in nonprofit mailing interests. Thank you for inviting 
me to testify here today.
    The U.S. Postal Service provides a vital service that is 
critical to the American economy and society. It provides 
universal service to all through a network of postal facilities 
and mail delivery routes that has grown as America has grown. 
The Postal Service's monopoly product, first-class mail, has 
provided much of the funding for this infrastructure growth. 
Year after year, first-class mail volume would increase and 
provide more revenue needed to help pay for the Nation's 
growing postal system.
    Unfortunately, first-class mail stopped growing about 5 
years ago and growth appears unlikely to resume. That means the 
Postal Service must find other services of revenue growth and 
at the same time must pursue unprecedented cost control 
measures to keep costs and revenue in balance.
    The days of business as usual are over. The Postal 
Service's mail processing delivery network provides a 
tremendous opportunity for streamlining and cost saving. 
Designed largely since the Postal Reorganization Act of 1970, 
the network has remained fairly constant while mail flows have 
radically changed. The result is a network in need of major 
overhaul to reduce excess capacity and enhance operational 
efficiencies. Rationalizing the Postal Service network is no 
easy chore, but it must go forward. Without the financial and 
operational benefits a redesigned network offers, the Postal 
Service will be hard pressed to meet the business challenges it 
faces.
    We agree that an open dialog should occur among 
stakeholders to ensure that all voices are heard as a needed 
network realignment plan is designed and implemented. At the 
same time, however, it is crucial that process not become an 
obstacle to progress and that stakeholder input not be used to 
create paralysis by analysis.
    Thank you for your attention and time, and I'll be pleased 
to answer your questions.
    [The prepared statement of Mr. Conway follows:]

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    Mr. Davis. Thank you very much, gentlemen. And let me just 
ask one question. The Postal Service officials have stated that 
they want to help mailers reduce their costs, that they do not 
want to simply pass their costs on to mailers when undertaking 
the realignment efforts.
    Do you have any suggestions as to how the Postal Service 
and the mailers can better interact to accomplish this mutual 
goal? Anybody.
    Mr. Cerasale. Well, the first thing that has to happen is 
dialog and communication, which I think we have heard before 
with GAO and the IG discussing that and Deputy Postmaster Mr. 
Donahoe said the same. We need to have input. I also think, 
however, that the Postal Service and mailers have to both be 
willing, and the onus is on both of us, willing to accept 
change, to change our process, and there may be some difficulty 
and even some costs in initially starting that change. But the 
answer is going to be simple. If the Postal Service doesn't cut 
costs or if they only cut costs by throwing more costs onto the 
mailers, my members are going to look to other channels. And so 
this cooperation has to happen constantly, immediately and 
change has to start.
    I like the idea that the Postal Service is going step by 
step in this change process because that gives you an 
opportunity to adjust and potentially adjust rapidly without 
having established a huge amount of investment by both the 
mailers and the Postal Service in it. But it only comes through 
discussions.
    Now, we clearly have MTAC and I think that we have to 
strengthen MTAC. I think we need more input from the Postal 
Service into MTAC to listen to what mailers are saying and to 
make changes, and I think that's where I would start.
    Mr. Davis. Anyone else?
    Mr. McLean. I think that clearly the biggest opportunity 
right now is for the consolidation of facilities. The Postal 
Service has more capacity than it needs and that situation is 
going to continue. It will continue to have more capacity than 
it needs. So consolidating facilities allows the Postal Service 
to reduce its costs in the largest most substantial way 
possible. As Jerry mentioned, however, this is not going to be 
a painless process. It can be less painful when the Postal 
Service talks with its mailers about which facilities it will 
close because if closing of one facility means that mailers 
have to truck mail another 60 miles, that creates a problem, 
not just savings in terms of consolidating the facilities, but 
we believe that is the single biggest opportunity they should 
address immediately.
    Mr. Winn. The Postal Service was a monopoly. The rules of a 
monopoly are very simple. The monopoly sets the rules and you 
conform. Under the Postal Accountability Enhancement Act we're 
changing that. We're changing that to be a model that is to be 
run like a business. To run a business you have to understand 
your customer's business. So the Postal Service must take into 
consideration total combined costs and understand the business 
of the mailers and the mail service providers.
    This is an integrated system all the way from creative to 
actual delivery to a customer. Compliments to the Postal 
Service on this one. They have been reaching out and actually 
have been coming to our plants and trying to learn how our 
business runs and our customers' business runs. Mr. Bill 
Galligan, senior vice president of operations, has actually 
come to our plants and has been a student of our business, and 
it has helped a great deal. That's how they are going to do it.
    Mr. Conway. Yes, sir. We are concerned about the prospect 
of costs being passed along to mailers, nonprofit mailers, 
particularly since the establishment of a CPI price cap which 
limits the Postal Service's ability to raise prices. To protect 
against that, another provision that was established in the 
Postal Accountability and Enhancement Act I think will help 
guard against that, and that is the creation of a postal 
regulatory body that has beefed up ability to observe and to 
take input and to get into that kind of thing, to help protect 
mailers against that prospect.
    But ultimately, I agree with Jerry Cerasale. Ultimately, it 
is the benefit to the Postal Service and to all of us if there 
is greater dialog, greater transparency, greater openness 
because there is going to have to be some compromise probably 
on both sides. And I think an even greater openness will help 
enhance that and make it happen in a positive way.
    Mr. Davis. Thank you very much.
    Mr. Marchant.
    Mr. Marchant. Thank you, Mr. Chairman. This is for Mr. 
Winn. You discussed the intelligent mail bar code as one area 
which the industry and Postal Service collaborated with very 
good results. Can you tell me a little bit about that?
    Mr. Winn. Yes, I can. The intelligent mail bar code, as I 
said in my testimony, is the foundation of the entire concept 
of service measurement and reporting and tracking of the mail. 
It is something that we of industry see as great value and I 
know the Postal Service sees as great value to their compliance 
with the new statute. The intelligent mail bar code has been 
worked on for 4 years, mostly starting with the technical 
folks, just trying to be able to reproduce it and develop 
specifications. Now we're moving into areas of content of the 
bar code and procedures and service levels and all of that. We 
have recognized, both the Postal Service and industry, that 
this is a major, major undertaking. When I talk of technology, 
sometimes I talk about evolutionary technology and sometimes I 
talk about revolutionary technologies. This is a revolutionary 
technology. It will fundamentally change the way we do 
business.
    We have had our challenges, both on the industry side and 
the Postal Service side. We are working through them. There 
have been periods where communications were not all that well 
organized, nor understandable. The senior management team has 
recognized that and has reaffirmed their commitment to industry 
to listen to our needs, and understand our capabilities as we 
go forward.
    So we have had some challenges, but there is a new day in 
town. There are definitely mountains to be climbed with this 
one and we're going to have to do it together. RPTS COCHRAN 
DCMN HOFSTAD [5:50 p.m.]
    Mr. Marchant. Mr. McLean, is there a regular apparatus set 
up where, instead of when a problem develops, the industry 
contacts the Postal Service and then you try to work it out, is 
there another structure that is in place where, on a regular 
basis, you talk about proactive cooperation and try to identify 
areas that are not problems yet or that you can be working on?
    Mr. McLean. There are actually a number of ways that the 
Postal Service works with its customers. Let's start at the 
district level where you live.
    There are a number of businesses in your district that 
belong to PCCs, Postal Customer Councils, business owners and 
mailers that meet with postal officials on a regular basis; 
oftentimes it is as frequently as monthly. In Washington, there 
is MTAC, the Mailers Technical Advisory Committee, that deals 
with very technical, very detailed operational issues. And then 
there are the Mailers Council and our member organizations that 
meet with postal officials frequently; typically, meetings are 
issue-based. We have an excellent rapport with Postmaster 
General Potter, who meets with us at anytime we need to, as 
well as with his senior officials, whether they are 
policymakers or operational managers, on postal issues.
    I would tell you also the level of communication, not just 
the frequency, is much better than it was 10-15 years ago with 
mailers. I think there are much better lines of communications 
with us. The Postal Service understands it faces difficult 
times and that it needs to talk with its mailers on issues.
    The Intelligent Mail Project is a good example of that. It 
has been an up-and-down process over the last 4 years, but I 
think that the Postal Service is to be commended, not only for 
adopting a technology that is very progressive, but also 
working with its customers when it realized there were problems 
with the project and delaying it by several months to ensure 
that it would be taking off in the right direction and it would 
be a successful program.
    Mr. Marchant. Postal officials have stated that they want 
to help mailers reduce their costs and do not want to simply 
pass their cost to the mailers. Do you have suggestions as to 
how the Postal Service and mailers can better accomplish this, 
Mr. Cerasale?
    Mr. Cerasale. The first thing is efficiencies. I think that 
is one of the things the network realignment is looking to try, 
to make the Postal Service more efficient within its own 
operations. If they improve efficiency and improve 
productivity, that is a win-win for the Postal Service and for 
the mailers in holding down costs and going forward.
    However, another suggestion is--and it has started, as Mr. 
McLean has said--if the Postal Service talks with its customers 
on how they are looking at trying to create a realignment or to 
adjust costs or adjust processing, and then we work together to 
get a new system, a processing system, with our input into it, 
then you have something where the mailers have the ability to 
enter into this new system without picking up a significant 
amount of costs.
    You can't have it where you have zero costs going to the 
mailer. You can still get the plus, of when you look at total 
costs, if the Postal Service can do something efficiently and 
it shifts some costs over to the mailer, but the overall cost, 
the savings to the Postal Service is far greater than the cost 
shifted to the mailers, then in fact we do have a lower-cost 
system. And the rates would hopefully then reflect that, so 
that the cost to the mailer, a little bit more before it goes 
into the Postal Service but less once it is in the Postal 
Service, comes out to a plus for them.
    So I think as we look at this, we can't think no change and 
no increase in cost to the mailers. We have to look at the 
overall costs in the long run. We are looking at postage and 
what is happening to what I have to do to prepare the mail.
    Mr. Marchant. Thank you very much, Mr. Chairman.
    Mr. Davis. Gentlemen, thank you very much. We appreciate 
your testimony and your replies to our questions. And you are 
dismissed.
    We will move to our last panel, and while we are 
transitioning, I will introduce them.
    Our witnesses for panel four are Mr. Myke Reid. Mr. Reid is 
the legislative and political director for the American Postal 
Workers Union, the largest postal union in the world, with over 
300,000 members. Mr. Reid works as a lobbyist for APWU, as well 
as a member of the union's political action committee.
    We have also Mr. John Hegarty. Mr. Hegarty was sworn into 
office as the National Postal Mail Handlers Union national 
president on July 1, 2002, and was re-elected to that position 
in 2004. For the 10 years prior to becoming national president, 
Mr. Hegarty served as president of Local 301 in New England.
    And, gentlemen, we thank you very much.
    If you would stand and be sworn in.
    [Witnesses sworn.]
    Mr. Davis. The record will show that the witnesses answered 
in the affirmative.
    Gentlemen, we are delighted you are here with us, and we 
thank you for your patience.
    Of course, you have done this any number of times, so you 
know the process. We would hope that you would summarize your 
testimony in 5 minutes, and we will then have some questions.
    We will begin with you, Mr. Reid.

 STATEMENTS OF MYKE REID, LEGISLATIVE AND POLITICAL DIRECTOR, 
   AMERICAN POSTAL WORKERS UNION, AFL-CIO; AND JOHN HEGARTY, 
         PRESIDENT, NATIONAL POSTAL MAIL HANDLERS UNION

                     STATEMENT OF MYKE REID

    Mr. Reid. Thank you, Mr. Chairman.
    Good evening, Mr. Chairman and Mr. Marchant. My name is 
Myke Reid. I am the legislative director for the American 
Postal Workers Union.
    I apologize. President Burrus notified me while I was in 
the room waiting for the hearing to begin and waiting for his 
arrival that he couldn't be here. So I appreciate the 
indulgence of the Chair and the ranking member giving me this 
opportunity to testify on behalf of APW members.
    Network realignment is a subject of critical importance to 
the American people, who are entitled to reasonably priced 
access to postal services, and to postal workers, whose lives 
are affected when postal facilities are consolidated or closed.
    Unfortunately, the USPS plan for realignment is based upon 
a faulty premise. The stated objective of the USPS network plan 
is to promote efficiency by eliminating redundancy. But the 
fallacy of this plan is that it artificially limits the 
definition of the postal network.
    By design, the plan considers only the 400-plus USPS mail 
processing facilities to be the network, while in reality the 
network consists of both public and private facilities that 
prepare mail for delivery by USPS employees. Facilities owned 
and operated by Pitney Bowes and RR Donnelley, as well as many 
other private entities, perform many of the same functions as 
those performed at USPS facilities.
    The most significant distinction between the two systems is 
that the postal processing system must accept single pieces of 
mail, while the private system processes only commercial 
mailings. These two systems are inseparable, and any effort to 
redesign the location of processing activities must include a 
review of the entire mail processing network.
    In a fundamental way, the USPS financed the creation of the 
private network and continues to subsidize it to this day. The 
research and development costs of the technology used to 
modernize processing have been borne almost entirely by the 
Postal Service, in amounts totaling billions of dollars. But 
once the technology has been proven to be effective, it has 
been adopted by the private system.
    The work-share discounts that are applied to the private 
system represent a transfer of funds from the Postal Service to 
a private processor. Each dollar in work-share discounts that 
is granted to private processors represents a direct loss in 
postal revenue.
    To make matters worse, an increase in the share of volume 
in the private system has an adverse effect on the postal 
network. The cost of processing mail in the Postal Service 
increases as mail is diverted to the private system. Equipment 
is not used to capacity, and, as a result, the USPS per-piece 
cost increases.
    By encouraging the growth of the private-sector network, 
the Postal Service is creating redundancy, rather than 
eliminating it. Any effort to review the network and improve 
efficiency must examine both the public and private systems.
    The Postal Service's plan for network realignment has 
passed through many stages. Each of the previous proposals 
lacked transparency, and the current plan continues that 
unfortunate tradition.
    One glaring example is that the USPS fails to consider 
later delivery times or earlier pick-up times as degradations 
in service. But to businesses or individuals who depend on 
timely mail delivery, time of delivery and time of pickup can 
be of substantial consequence.
    As further evidence of the lack of transparency, I ask 
members of the subcommittee a simple question: After reading 
the plan, do you have a clear idea of which facilities will be 
consolidated and what criteria will be used to make the 
decisions?
    In recent years, the APW has developed its own plan to 
address previous attempts at network realignment. And whenever 
we alerted citizens that their postal facilities were 
threatened with closure or their postal services would be 
degraded, they and their elected representatives have responded 
vigorously.
    The Postal Service has expressed frustration at the efforts 
of elected officials to protect the postal services of their 
constituents. But that advocacy by legislators is as it should 
be. Members of Congress and State and local leaders are elected 
to serve their constituents by advocating their interests.
    Pretending that the postal network consists solely of USPS 
facilities does not make it true. The fact is that public and 
private, for-profit networks comprise the postal processing 
system. Any review of the network must consider the combined 
system. The logistics of the network demand that it be 
coordinated into a national network, which only the USPS, a 
public service, is willing and able to provide.
    Mr. Chairman, I thank you for the opportunity and your 
indulgence. I would be happy to answer any questions and even 
happier if you would refer them to President Burrus for an 
answer at some later time. [Laughter.]
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Burrus follows:]

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    Mr. Davis. Thank you very much, Mr. Reid. And perhaps we 
will do both.
    Mr. Hegarty.

                   STATEMENT OF JOHN HEGARTY

    Mr. Hegarty. Good afternoon. And thank you, Chairman Davis 
and Ranking Member Marchant, for inviting me to testify.
    My name is John Hegarty. I am the national president of the 
National Postal Mail Handlers Union, which serves as the 
exclusive bargaining representative for nearly 60,000 mail 
handlers employed by the U.S. Postal Service.
    I will summarize my testimony. I ask that the entire 
statement be submitted for the record.
    I would like to talk about the Postal Service's most recent 
ill-advised foray into subcontracting, which involves the 
recently issued draft request for proposals to outsource work 
from the bulk mail centers. For many years, the Mail Handlers 
Union has tried to work with the Postal Service toward a 
better, more efficient and more economic operation. However, we 
have several problems with this latest draft RFP.
    The premise of the subcontracting proposal, according to 
the Postal Service, is that they will be moving the machines 
used by the Flats Sequencing System [FSS], into the bulk mail 
centers. This decision about the FSS is based primarily on 
space available, not on the current workload. As a consequence, 
the Postal Service has a choice: what to do with the work that 
is being displaced, which is primarily the sorting of parcels, 
trays and tubs now performed at the bulk mail centers. The work 
can be shifted to other available nearby facilities based on 
capacity, or the work can be outsourced. And the draft RFP 
suggests that the Postal Service is leaning toward outsourcing. 
In other words, the FSS is being used as an excuse to outsource 
current mail processing.
    It makes absolutely no sense to this union to give away 
mail volume to the private sector, when the nearby postal 
plants are suffering from a major loss of mail volume 
themselves. If the FSS is going to cause work to be moved out 
of the bulk mail centers, it would make perfect business sense 
to relocate that work to nearby plants. There simply is no need 
to outsource this work.
    On a related issue, the Postal Service is talking about 
realigning its plants through closings and consolidations based 
on the assumption that the current loss of mail volume 
nationwide is permanent and that this mail volume will never 
return. Although the network plan does not specifically 
identify any facilities, it appears that the Postal Service is 
intending to make permanent changes based on a temporary 
condition.
    It bears noting that their own report references a lack of 
available data. It seems that much of it is premature. And we 
have gone down this road before. Both the Postal Rate 
Commission and the General Accountability Office found the 
Postal Service's previous report on realignment to be sorely 
lacking. This time, however, I must agree with the Postal 
Service that it lacks both the historical data and the accurate 
future projections that are necessary to finalize any 
realignment plans.
    Despite that shortcoming in this report, my union and our 
union members have been working with the Postmaster General to 
make the system more streamlined, resulting in the increased 
productivity and the higher service standards referenced in the 
report. Where we see an achievable goal that is based on a 
concrete analysis of on-the-ground conditions, we have been 
able to achieve the results that best serve the American 
public.
    Both service and productivity are at an all-time high. 
Career mail handlers and other postal employees are doing a 
fantastic job under difficult conditions. When postal plants 
are closed or consolidated into other facilities, there are a 
lot of dislocations and much inconvenience to the local 
communities and postal employees. From a union perspective, any 
movement of employees must be accomplished in accordance with 
the collective bargaining agreement and should make good 
business sense. Improving the postal system includes preserving 
the skilled work force.
    Finally, the process followed by the Postal Service prior 
to realignment is critical. By not analyzing each situation in 
advance with employee and community input, prior area mail 
processing studies have been seriously flawed.
    As has been proven numerous times, the career craft 
employees often have valuable input and insights to share. 
While the Postal Service can boast about saving billions of 
dollars based on productivity gains and improved efficiency--I 
am going to modify my testimony briefly here. I was happy to 
hear Pat Donahoe speak of the good working relationship with 
the unions and with the craft employees and give them credit 
for some of the savings that has been realized by the Postal 
Service, including reducing 100,000 postal employees over the 
last 7 or 8 years.
    Finally, I must mention the most recent development which 
has the Postal Service offering voluntarily early retirements 
to thousands of career employees. Obviously, this is a 
volunteer program, and early retirement may not make sense for 
most eligible employees. But, again, the Postal Service is 
thinking about making permanent changes based on temporary 
economic conditions.
    Ultimately, some mail handlers may opt for this early 
retirement option, and I do not wish to prevent them from doing 
so. But as a policy matter, we do not believe it makes business 
sense to ask employees to retire voluntarily while also 
proposing to outsource postal work to private contractors. 
Should not someone in postal management be trying to realign 
the work, so that career employees who otherwise might retire 
before they are ready to can continue to perform the work that 
otherwise might be subcontracted?
    Thank you for allowing me to testify. I would be happy to 
answer any questions.
    [The prepared statement of Mr. Hegarty follows:]

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    Mr. Davis. Gentlemen, thank you very much. We certainly 
appreciate your patience.
    Let me just ask you, you have been here all afternoon and 
you have heard the testimony of representatives from the Postal 
Service, the PRC and the Government Accountability Office.
    You just mentioned, Mr. Hegarty, the attrition early 
retirement plans. Are you suggesting that these are somehow 
tied in with a privatization scheme or plan and they are just 
all working, kind of, hand-in-hand together?
    Mr. Hegarty. I believe they are related. I don't subscribe 
to conspiracy theories. But I think, yes, I think you have to 
look at what the Postal Service is asking. I have some figures 
here, just for the mail handlers and the clerk craft and 
supervisory, they are looking at approximately 70,000 employees 
who are eligible for voluntary early retirement. They only 
expect 10,000 of those 70,000 to accept it, but if we lose 
10,000 more employees nationwide, someone has to do that work. 
And my thinking is, certainly, the outsourcing of the bulk mail 
center work is a component of that plan.
    Again, I don't want to stop the mail handlers from retiring 
early, if that is their choice. And I believe President Burrus 
has put this message out to his craft as well. People are going 
to have to take a real close look at how that is going to 
impact them financially. If you are a Civil Service employee, 
you already have approximately 25 years of Postal Service, 
because the Civil Service Retirement System, as you know, was 
capped in 1983 and all employees hired in 1984 and later are 
under FERS. You will take a penalty if you retire under certain 
conditions under Civil Service.
    Now, they say there is no penalty under FERS, but the 
penalty under FERS is that you lose your ability to contribute 
to the Thrift Savings Plan, lose the employer's matching 
contributions for the Thrift Savings Plan, and you certainly 
will take a hit on your Social Security. If you retire at the 
age of 52 or 53, you are not going to be able to collect your 
Social Security.
    So I just want my folks to go into it with their eyes wide 
open. And I am not, again, saying that I would stop any mail 
handlers from taking the volunteer early retirement. But I just 
think the plan that the Postal Service has put forth is part of 
a key part of their program to reduce career employees and, in 
fact, outsource work to the private sector.
    Mr. Davis. Let me ask both you and Mr. Reid: When there 
have been consolidations, would you say that there has been 
adequate communication relative to preparation and planning for 
this activity that would give affected employees enough time 
and opportunity to pretty much know what is coming down the 
pike and to plan adequately for it?
    Mr. Reid. Mr. Chairman, I would think the answer to that 
would have to be no. There have been cases where our members 
have not found out about what was going on until they were 
contacted by reporters from local newspapers. We have argued 
for years that there must be more community involvement and 
input into the system. And the Senate qualified in 
appropriations language a couple of years ago that could 
include the input of postal workers as well.
    But just off the top of my head, without giving you any 
specific examples, I would argue that they have not given us 
adequate input and notice before consolidation decisions are 
made.
    Mr. Davis. So you would argue for greater communication 
between the collective bargaining units and the Postal Service?
    Mr. Reid. Absolutely, Mr. Chairman.
    Mr. Hegarty. I would echo that sentiment. I think, in some 
instances, they have given adequate notice. There are 
protections built into the collective bargaining agreement 
where the employees have to be given specific notice before 
they can be relocated, and you have to factor in all the 
different types of facilities that may be consolidated.
    For instance, we had a consolidation from Bridgeport, CT, 
down to Stanford, CT. I am going to guess that is probably 18 
miles away. You would have to say that the impact on most of 
those employees was minimal. They had to commute an extra 18 
miles. I am not saying it is easy, especially knowing some of 
the traffic down in that area, being from New England myself. 
So there was inconvenience to the employees.
    The collective bargaining agreements, in many instances, 
will raise some complications that need to be dealt with by 
postal headquarters and with the headquarters people from the 
union as well, because we have an Article 12 which allows jobs 
to be withheld for other craft employees. So, for instance, if 
employees in the American Postal Workers Union are expected to 
be impacted by upcoming automation, the Postal Service can 
withhold jobs in the mail handler craft for those excess 
employees.
    We have a current situation occurring right now in 
Westborough, MA, where the facility is being closed completely 
and approximately 75 mail handlers are impacted. We have a 
dispute, and I am working on that dispute with postal 
headquarters right now. They have told all of those employees 
that they have to travel 65 miles to Springfield, MA, to 
continue their employment with the Postal Service, and they 
have no option to get postal jobs in nearby facilities.
    In fact, there are postal jobs, mail handler jobs, 
currently under withholding in Boston, which is only 29 miles 
from Westborough. We have other closer facilities. It is 12 
miles to Worcester. It is 47 miles to Brockton, MA. There are 
probably six or eight facilities that are closer than 
Springfield.
    And we are asking postal headquarters to get involved in 
this, because the impact on these employees is going to be 
severe. Especially if they worked 20 miles outside of 
Westborough, now they have an 85-mile commute instead of a 20-
mile commute. And I am afraid we may lose some of those 
dedicated postal employees due to the unreasonableness of local 
management to work with us and find closer positions for them.
    Mr. Davis. Thank you very much, gentlemen.
    Mr. Marchant.
    Mr. Marchant. Thank you.
    What we have found in our district office--and I am from 
the Dallas-Fort Worth area--most of the calls that we get in 
our district office are not about the mail service, lack 
thereof or otherwise, but most of the calls that we get 
concerning the Postal Service are employee-employer conflict 
calls.
    I don't know, Mr. Davis, if that sounds familiar to you.
    Mr. Davis. I thought they didn't have that in Texas. 
[Laughter.]
    Mr. Marchant. And, to me, in my district office, this is 
the face of the post office. And there seems to be so much 
conflict between the Postal Service itself and its employees in 
its grievance system and the way that it is resolved.
    We have heard some testimony just recently that process has 
been stepped up, redone, streamlined, etc. And, frankly, it is 
that worker that is in my age group, it is that worker that is 
in that low-50 to upper-50 age group that seems to have the 
conflict and the disagreement and the grievance. That just is a 
sense of frustration to me, because we seem to get that call, 
you know, either sometime in the middle of the process or after 
the process.
    Do you feel like there is any progress being made there? 
Because, I can tell you, that is what we deal with a lot.
    Mr. Hegarty. I think we have made some progress. I think 
the contract interpretation manual that we put out several 
years ago--and I have mentioned this in prior testimony--was an 
understanding reached between postal headquarters and the mail 
handlers' headquarters, and I know the other crafts have those 
as well. It kind of clarifies a lot of the gray areas in the 
contract.
    That used to be a problem. I will go back to my experience 
on the workroom floor, dealing with management. I would show 
them a contract violation, and they would say, ``Well, I don't 
agree with your interpretation of the contract.'' So a lot of 
that was put to rest with the parties putting many of those 
interpretations down in black and white.
    But you are always going to have personality conflicts. You 
are always going to have some managers--and it is not just a 
one-way street--who still act in an authoritarian manner and 
just boss people around or tell them what to do and don't 
adequately explain themselves.
    So, I am hoping those are isolated incidents. I am sure 
those are the calls you get. Nobody is going to call you and 
say, ``Gee, I just want to let you know the post office does a 
great job, and it is a good employer, and I like working 
there.'' You won't get those calls. You will get the calls when 
someone has an issue with their supervisor or an employment 
issue like that. But I think we have made some progress over 
the years.
    Mr. Marchant. I would encourage both sides to keep working 
on that. My point is that, of all the branches of the quasi-
U.S. Government, I rarely get a call from the Air Traffic 
Controllers or the Justice Department employees or the GAO or 
Social Security Administration--I mean, never, frankly. But 
somehow or another, local Congressmen seem to be drawn into 
this web quickly.
    In my office, we are reluctant to become involved, because 
there seems to be a pretty established structure on how to get 
grievances addressed on both sides. I know this isn't the 
subject of this testimony.
    Mr. Reid. I would just like to add, Mr. Marchant, I would 
certainly associate myself with the comments of President 
Hegarty, but I would also point out a lot of the problems we 
have arise because of a complaint of the employee, rather than 
a grievance of the employee. It is something that doesn't rise 
to a grievable nature, but it is something they don't like. 
They don't like their supervisor's hair, they don't like the 
way they act, they don't like their friends.
    So, a lot of times, I think what I have heard from 
congressional offices is that they get calls from their 
constituents about complaints which aren't necessarily 
grievable actions under the collective bargaining procedure.
    But I also agree with John. I think the procedure has 
gotten better. The number of cases pending arbitration has 
reduced considerably. Certainly on the national level I think 
the working relationship is a lot better than it is on the 
local level, most often because of just differing 
personalities.
    But if there is something we can do to help you with that--
--
    Mr. Marchant. Thank you. It is just that we are a little 
unsure at what point to intervene on behalf of a constituent. 
We have a constituent here, as well as an employee. So I just 
wanted to express that to you. Thanks.
    Mr. Reid. We often work with congressional offices to try 
to sort that out. If there is something you would like us to 
help you with, we would be more than happy to do it.
    Mr. Marchant. We may take advantage of that. Thank you.
    Mr. Davis. Well, it seems as though this has ended with 
perfection. I don't know if it was designed to be that way or 
not.
    Let me just agree with Mr. Marchant in terms of the whole 
business of conflict. That does continue to exist. I would also 
agree that there seems to be some success in helping to reduce 
it. But if there is an office that does not get a lot of those 
calls, I would like to find it. That seems to be one of the big 
issues. But, certainly, all of the other issues, I think, are 
pronounced and are before us.
    So I want to thank you gentlemen for your patience, for 
your testimony, and all of those who have been patient all 
afternoon.
    If you have no further questions, Mr. Marchant, I certainly 
don't, we can both run over and vote and end the day.
    So, gentlemen, thank you very much.
    The hearing is adjourned.
    [Whereupon, at 6:20 p.m., the subcommittee was adjourned.]
    [Additional information submitted for the hearing record 
follows:]

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