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




 
 INQUIRING MINDS WANT TO KNOW: WHAT IS THE POSTAL SERVICE CONTRACTING 
                                  OUT?

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

                                HEARING

                               before the

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

                                 of the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 19, 2007

                               __________

                           Serial No. 110-198

                               __________

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


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


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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

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

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

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

                        DANNY K. DAVIS, Illinois
ELEANOR HOLMES NORTON, District of   KENNY MARCHANT, Texas
    Columbia                         JOHN M. McHUGH, New York
JOHN P. SARBANES, Maryland           JOHN L. MICA, Florida
ELIJAH E. CUMMINGS, Maryland         DARRELL E. ISSA, California
DENNIS J. KUCINICH, Ohio, Chairman   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 19, 2007....................................     1
Statement of:
    Burrus, William, president, American Postal Workers Union, 
      AFL-CIO; William Young, president, National Association of 
      Letter Carriers; Donnie Pitts, president, National Rural 
      Letter Carriers' Association; and John Hegarty, president, 
      National Postal Mail Handlers Union........................    56
        Burrus, William..........................................    56
        Hegarty, John............................................    77
        Pitts, Donnie............................................    72
        Young, William...........................................    61
    Kessler, Alan, vice chairman, U.S. Postal Service Board of 
      Governors; John Potter, Postmaster General/CEO, U.S. Postal 
      Service; and David Williams, inspector general, U.S. Postal 
      Service....................................................    17
        Kessler, Alan............................................    17
        Potter, John.............................................    30
        Williams, David..........................................    36
    Sires, Hon. Albio, a Representative in Congress from the 
      State of New Jersey........................................     9
Letters, statements, etc., submitted for the record by:
    Burrus, William, president, American Postal Workers Union, 
      AFL-CIO, prepared statement of.............................    58
    Davis, Hon. Danny K., a Representative in Congress from the 
      State of Illinois, prepared statement of...................     3
    Hegarty, John, president, National Postal Mail Handlers 
      Union, prepared statement of...............................    79
    Kessler, Alan, vice chairman, U.S. Postal Service Board of 
      Governors, prepared statement of...........................    20
    Pitts, Donnie, president, National Rural Letter Carriers' 
      Association, prepared statement of.........................    74
    Potter, John, Postmaster General/CEO, U.S. Postal Service, 
      prepared statement of......................................    32
    Sires, Hon. Albio, a Representative in Congress from the 
      State of New Jersey, prepared statement of.................    12
    Williams, David, inspector general, U.S. Postal Service, 
      prepared statement of......................................    38
    Young, William, president, National Association of Letter 
      Carriers, prepared statement of............................    64


 INQUIRING MINDS WANT TO KNOW: WHAT IS THE POSTAL SERVICE CONTRACTING 
                                  OUT?

                              ----------                              


                        THURSDAY, JULY 19, 2007

                  House of Representatives,
Subcommittee on Federal Workforce, Postal Service, 
                      and the District of Columbia,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:37 p.m., in 
room 2154, Rayburn House Office Building, Hon. Danny K. Davis 
(chairman of the subcommittee) presiding.
    Present: Representatives Davis, Norton, Sarbanes, Cummings, 
Clay, Lynch, Marchant, and McHugh.
    Staff present: Tania Shand, staff director; Caleb 
Gilchrist, professional staff member; Lori Hayman, counsel; 
Cecelia Morton, clerk; Ashley Buxton, intern; John Brosnan, 
minority senior procurement counsel; Ed Puccerella, minority 
professional staff member; Patrick Lyden, minority 
parliamentarian and Member services coordinator; Brian 
McNicoll, minority communications director; and Benjamin 
Chance, minority clerk.
    Mr. Davis. The committee will come to order.
    Let me, first of all, apologize for the delay. Of course, 
we say that this is one of the most worked rooms in the 
Capitol, the Committee on Oversight and Government Refrom. 
There are a lot of things to oversee. But let me thank you all 
for your patience and for being here.
    Welcome, Ranking Member Marchant, members of the 
subcommittee, hearing witnesses and all of those in attendance. 
Welcome to the Federal Workforce, Postal Service, and the 
District of Columbia Subcommittee hearing entitled, ``Inquiring 
Minds Want to Know: What is the Postal Service contracting 
out?''
    Hearing no objection, 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. I will begin.
    Mr. Marchant, members of the subcommittee and hearing 
witnesses, welcome to the subcommittee's hearing on contracting 
out services within the U.S. Postal Service. Today's hearing 
will examine the Postal Service's use of private contractors to 
deliver and collect mail and the Postal Service's plans to 
contract out future services.
    At the first postal oversight hearing on April 17, 2007, 
many of the labor unions expressed concerns about the 
contracting out of the Postal Services. This hearing is to 
engage the postal community in a discussion about outsourcing 
new mail delivery routes to contractors rather than career 
postal employees.
    It has been long established and accepted that highway 
contract routes are performed by contractors for bulk mail and 
delivery services in rural areas. What is less established is 
the Postal Service's use of contractors to deliver the mail to 
suburban and rural areas and whether or not this practice is 
good public policy. In addition, the subcommittee would like to 
know generally what current and future services the Postal 
Service intends to contract out.
    In discussions with the Postal Service, I have been assured 
that only new postal routes will be considered for outsourcing 
and that established routes would be given to postal employees. 
The Postal Service and the National Association of Letter 
Carriers, as part of the collective bargaining process, have 
agreed that existing city routes will no longer be contracted 
out. For example, an abandoned building in the middle of the 
Bronx, New York, was renovated and converted into apartments. 
It was classified as a new route by the Postal Service, and a 
contractor was assigned to deliver the mail, even though this 
building had been within an established route that could have 
been divided among current letter carriers.
    Postal unions were concerned that the practice of 
contracting out is being extended into what, up until a year 
ago, would have been city routes serviced by career, uniformed, 
unionized letter carriers. Due to the new collective bargaining 
agreement, the Bronx and similarly awarded contracts have been 
canceled and are now being divided amongst the existing city 
carriers.
    The President, as part of his management agenda, championed 
the idea of privatization and contracting out government 
services, but at what cost? Currently, contractors are only 2.6 
percent of all city and rural routes, but that number is 
increasing, especially in the Midwest where neighborhoods are 
growing the fastest.
    Where does it stop? Is a 50 percent contractor rate 
acceptable? Do we want all letter carriers to be contractors in 
order to save on mail delivery? What other services would be 
contracted out and what assurances do we have that contract 
staff would be held accountable for their actions and that the 
mail is secure?
    As part of its mission, the Postal Service states that it 
shall provide prompt, reliable and efficient services to 
patrons in all areas and shall render postal services to all 
communities. Mail delivery in the United States is, for the 
most part, affordable and reliable. Outsourcing postal services 
is a tool among many that could be used to keep postal costs 
down while maintaining efficient and reliable mail delivery.
    I am pleased that the Postal Service and the National 
Association of Letter Carriers have reached an agreement on how 
existing city routes will be serviced. However, this 
subcommittee intends to engage the postal communities in 
discussions to answer the broader question policy of what 
postal services are ``inherently postal'' and whether or not 
they should be contracted out.
    I thank you very much for coming and look forward to the 
testimony of the witnesses.
    [The prepared statement of Hon. Danny K. Davis follows:]

    [GRAPHIC] [TIFF OMITTED] T2715.001
    
    [GRAPHIC] [TIFF OMITTED] T2715.002
    
    Mr. Davis. Now I would like to yield to the ranking member, 
Mr. Marchant.
    Mr. Marchant. Thank you, Chairman Davis, and good 
afternoon. I would like to commend Chairman Davis for holding 
this hearing on the Postal Service's ongoing ability to 
contract out certain postal functions. The operations of the 
Postal Service and its ability to contract cost and be more 
efficient are important oversight issues for this committee.
    First, I was pleased to hear that the Postal Service and 
the National Association of Letter Carriers reached a tentative 
labor agreement on July 12th for the 222,000 city delivery 
letter carriers. The Postal Service performs a national 
service, and its workers are among the hardest working of all 
working employees in this country.
    As we begin to review the use of contractors by the Postal 
Service today, I remind my colleagues that the Postal Service 
has been using contractors to deliver the mail since the late 
1700's. The Postal Service gains roughly 1.8 million new 
deliveries each year, with the vast majority of these 
deliveries being assigned to Postal Service employees.
    This should be an informative hearing today, and I look 
forward to hearing from our colleague from New Jersey and as 
well as our two panels of witnesses. Thank you, Mr. Chairman.
    Mr. Davis. Thank you very much, Mr. Marchant.
    I will ask if any of the Members have any opening remarks 
they would like to make, and beginning with Mr. Lynch.
    Mr. Lynch. Thank you, Mr. Chairman. I want to thank you for 
holding this very important hearing. I also want to thank all 
of the panelists who have come here, including Mr. Sires, to 
help us with our work.
    I usually begin my statement in this committee with a 
little disclosure. As most people know by now, my mom was a 30-
year employee of the Post Office. My 2 sisters are currently 
employed at the general mail facility in Boston; and I have a 
brother-in-law, 4 aunts and 12 members of my extended family, 
my cousins, all employed at the Postal Service either with the 
mail handlers, the clerks or the letter carriers. None are 
supervisors yet. But I have to make that general disclosure, 
because if people think that somehow makes me biased, they are 
probably correct.
    Mr. Chairman, I would like to thank you for holding this 
hearing. As a former union president, I afford the greatest 
deference to the collective bargaining process as the primary 
avenue through which workplace concerns should be resolved. 
Accordingly, I am greatly encouraged that the main issue before 
us today, the outsourcing of postal delivery work, has been I 
think meaningfully addressed via the tentative 5-year 
collective bargaining agreement between the U.S. Postal Service 
and the National Association of Letter Carriers; and I assume 
that will also be addressed in agreements with the letter--not 
only the letter carriers but the mail handlers and the clerks 
as well.
    However, as a Member of Congress and a member of the 
Oversight Committee, in particular, I also believe that the 
contracting out of basic postal service functions bears much 
broader policy implications than just the allocation of that 
work; and from speaking to a lot of the postal workers, mail 
handlers and others in my district, there is general agreement 
from those workers who actually work at the Post Office. Many 
postal workers, mail handlers, city and rural letter carriers 
serving in my congressional district have great concerns about 
the contracting out of their work.
    Albert Einstein defined insanity as doing the same thing 
over and over and expecting different results. And as this 
administration has learned time and time again, whether it be 
from the outsourcing of patient care at Walter Reed Army 
Medical Center or the outsourcing of what was normally 
considered public work to private entities during the Katrina 
recovery effort or the outsourcing to private industry or 
logistical operations in Iraq, such as to Halliburton, or the 
outsourcing of core governmental functions in general, it 
simply has had a very poor record, at least for very core 
functions.
    And make no mistake about it, it is a responsibility of our 
government to ensure the free flow of information, 
communication and commerce through the U.S. Postal Service. 
This was never more evident I think to all of us than in the 
weeks following September 11th during which a series of anthrax 
attacks--this was my first week in Congress. I was elected in 
the primary on September 11th; and when I arrived here, a 
number of the buildings had been contaminated by anthrax, 
including one of our mail facilities. Tragically, two employees 
of the Brentwood mail sorting facility here in Washington, DC, 
Mr. Joseph Curseen, Jr., and Thomas Morris, Jr., were among the 
victims of those attacks.
    At that time, I know that every one of our postal workers, 
every clerk, every carrier, every mail handler, was faced with 
a very difficult choice between continuing to come to work in 
contaminated environments every day under very difficult and 
dangerous conditions, not only for themselves but for their 
families, or the choice of staying home, thereby risking the 
stability of our own economy in stopping the flow of mail and 
upsetting the flow of commerce and probably shaking the 
confidence of the American people.
    The burden heavily fell upon the shoulders of the union 
leaders of those unions that I mentioned, the mail handlers, 
the letter carriers and the clerks. And, as we all know, in the 
end, America's postal union leaders and their workers chose to 
come to work because they considered their--they considered it 
their patriotic duty to do so.
    Accordingly, the continued prospect of contracting out our 
postal delivery work and other work to private employees who 
possess significantly less experience, significantly less 
training and very likely considerably less dedication and 
commitment and responsibility in a governmental sense greatly 
concerns me.
    Mr. Chairman, I thank you for holding this hearing. I 
welcome our panelists and their testimony regarding this very 
important issue, and I yield back the balance of my time.
    Mr. Davis. Thank you very much, Mr. Lynch.
    Mr. McHugh.
    Mr. McHugh. Thank you, Mr. Chairman. I don't have a 
prepared statement, but that never got in my way before, and it 
won't now. Let me just say a few words.
    First of all, I want to add words of welcome to my 
colleague from New Jersey. We look forward to his comments and 
appreciate the leadership that he has shown on this issue in 
the introduction of the bill that I am sure he will go into 
depth about. But I want to thank you as well, Mr. Chairman, and 
to the distinguished ranking member.
    As you noted, Mr. Chairman, this is an issue that has 
importance still. As we learned in our inaugural oversight 
hearing this year, there is far from unanimity of agreement of 
how to approach the issue, even amongst the workers, 
representative organizations. There is some disagreement. But 
that, if anything, argues at our continued attention.
    I want to give a tip of the hat to the Postmaster General 
and to the NALC president, Bill Young, for reaching out, 
working together, bringing the two sides together and I think 
coming up with a contract agreement that establishes a 6-month 
moratorium that is going to have a joint union/management task 
force to look at a way to develop an approach to this in the 
future. And that truly is the definition of leadership.
    But it seems to me, Mr. Chairman, it also argues for our 
continued oversight; and I know we will be working with you and 
the ranking member to try to ensure that when that joint task 
force comes out with its recommendations we have the 
opportunity to review those as well in our continuing 
oversight. So thank you for calling this hearing.
    I welcome so many friends that I have had the opportunity 
of knowing them, most of them pretty happily--not all, but most 
of them--pretty happily over the past 15 years or so and yield 
back, Mr. Chairman.
    Mr. Davis. Thank you very much, Mr. McHugh.
    Delegate Norton.
    Ms. Norton. Thank you, Mr. Chairman.
    I want to, first, commend the postal unions and postal 
management for trying to deal with this very important issue 
through the collective bargaining process. The very grown-up 
way in which the promise they have already made, it seems to 
me, is itself an indication of the wisdom of congressional 
decision to make sure that collective bargaining remains in 
place.
    When the Post Office turned over in the early 1970's, the 
joint committee tried to deal with this problem, the problem of 
the existing practices of contracting out. Their 6-month 
moratorium, that is how grown-up labor management relationships 
occur and how problem solving through collective bargaining 
occurs.
    This hearing, however, is appropriate, consistent with 
collective bargaining; and the reason is is that there is a 
mandate from this Congress that the Postal Service better 
deliver to every little place in the United States of America 
and it better do it cheaply. So here they are put in an almost 
impossible position unless we make it clear that we support 
their efforts and that we do not intend to see the Postal 
Service privatized or outsourced through the back door.
    The challenge of the Post Office is to some time, some how 
assure a healthy Postal Service, fully competitive with all of 
the private actors, most of whom, by the way, have a much freer 
hand, no mandate from us, be competitive with these private 
sector folks, and deliver the mail cheaply everywhere in the 
United States. Now hearing, for example, complaints to 
publications because they don't want their fees raised.
    This is a unique entity. It is the only private entity I 
know that has an ironclad public mandate while being forced to 
operate precisely as if it were 100 percent private business.
    Understanding that, if we simply allow privatization of 
much of the Postal Service business and the outsourcing of 
business as our country expands, we will wake up 1 day and find 
that the mandate to deliver the mail is completely inconsistent 
with the mandate we have given the Postal Service to operate 
like a private business. That means that everybody has to pull 
this ore, and I must say that I think management and labor and 
the Postal Service are pulling us in the right direction. And 
if they are able, beginning with their 6-month moratorium, to 
figure this out, I think you will find the U.S. Congress 
pulling back.
    But one thing we will never pull back from is the 
universality of the Post Office's mandate, and we will never 
leave the Post Office with its business so shriveled that it 
cannot meet that mandate. Thank you very much, Mr. Chairman.
    Mr. Davis. Thank you very much, Delegate Norton.
    Mr. Clay.
    Mr. Clay. Thank you, Mr. Chairman. Thank you for calling 
the hearing today. I also want to thank my colleague from New 
Jersey for coming forward and giving testimony today.
    The topic of the hearing, ``Inquiring Minds Want to Know: 
What is the Postal Service Contracting Out,'' is very fitting 
because I am very inquisitive about the testimony that will 
come today as far as what the benefits are to contracting out 
and what the drawbacks are to postal customers.
    I am also pleased to hear that our colleague's family has 
full employment because of the Postal Service, the gentleman 
from Massachusetts. We are glad to know that, Mr. Lynch.
    But what will be the differences in comparison to the 
hourly postal workers serving the postal customers as compared 
to the contracted employee? As the chairman mentioned in his 
opening statement, the Midwest is expanding rapidly into the 
suburbs. I think about an area around St. Louis, Belleville, 
IL, to be exact, right around Scott Air Force Base, new 
subdivisions are popping up; and I had a conversation recently 
with the gateway district director of the Postal Service who 
explained to me that, after several members from that area had 
complained to me, as well as people who live there or are going 
to move there and had complained about the fact that their 
postal services will be done by contracted employees, and they 
complained that they wanted the same services that their 
neighbors were getting from the hourly postal worker. So I am 
interested to hear that explanation. The gateway district 
director told us that it was a cost savings, and I would like 
to hear more about what the cost savings are and how effective 
those savings would be.
    So, Mr. Chairman, I will yield back the balance of my time 
and await the testimony.
    Mr. Davis. Thank you very much, Mr. Clay.
    Mr. Sarbanes.
    Mr. Sarbanes. Thank you very much, Mr. Chairman, for 
calling the hearing.
    I also want to congratulate the parties on reaching an 
agreement but agree that the continued oversight on this issue 
from the committee makes a lot of sense. To me, it is very 
easily put, which is that if it is not broken, don't fix it. 
And the history of the Postal Service working hand in hand with 
a work force by which they are doing the right thing is one of 
an organization that works and works well, and I think there is 
a certain arbitrary nature or there has been in this move to 
contract services out, and we are right to push back against 
that and ask tough questions.
    The Postal Service, again, working in combination with its 
incredible work force, is really a unique infrastructure and a 
unique distribution system, because it is built fundamentally 
on a set of relationships, human relationships, and that is 
what makes it so different. And I think we tamper with that 
when we move aggressively or arguably at all into the area of 
contracting these services out. So I think the hearing is 
certainly warranted.
    I want to salute Congressman Sires for gathering up the 
sense of the House as he is trying to do on this issue and 
exercising leadership. Thank you.
    Mr. Davis. Thank you very much.
    We are very pleased that our first witness is seated. He is 
Representative Albio Sires, who is elected to serve the 13th 
Congressional District of New Jersey in the United States of 
America, served two terms as New Jersey's speaker of the 
general assembly. Mr. Sires was serving his fourth term as an 
assemblyman from the 33rd District in New Jersey when he was 
elected to Congress. Albio Sires is the first legislator of 
Hispanic origin to be named assembly speaker and the first 
Cuban to be named assembly speaker in the Nation. We welcome 
you, Representative Sires.
    It is the custom of this committee to swear all witnesses. 
So even though you were sworn in as a Member of Congress, if 
you would stand and raise your right hand.
    [Witness sworn.]
    Mr. Davis. The record will show that the witness answered 
in the affirmative. Representative, you know the drill for 
these in terms of the 5 minutes. If you would proceed, and we 
would be delighted to hear your testimony.

  STATEMENT OF HON. ALBIO SIRES, A REPRESENTATIVE IN CONGRESS 
                  FROM THE STATE OF NEW JERSEY

    Mr. Sires. Mr. Chairman, ranking member, members of the 
subcommittee, I would like to thank you for allowing me to 
testify before you today regarding a resolution I introduced, 
H. Res. 282, conveying the sense of Congress that the U.S. 
Postal Service should discontinue its practice of contracting 
out mail delivery services. This resolution has been 
cosponsored by 225 Members of the House of Representatives. It 
has been endorsed by the National Association of Letter 
Carriers.
    Today, the U.S. Postal Service provides mail delivery 
services to over 144 million homes and businesses across the 
Nation and adds about 1.8 million new delivery addresses each 
year. With this unfettered access, the U.S. Postal Service has 
been shifting away from allowing letter carriers to deliver and 
collect the mail to contracting with private individuals or 
firms.
    Traditionally, the U.S. Postal Service has used contractors 
along highway contract routes to transport mail in bulk and to 
deliver along sparsely populated rural areas. These are well 
accepted and legitimate uses of contractors. This past year, 
however, the Postal Service has expanded its use of contractors 
to establish contract routes in areas where there is new 
development in both urban and suburban communities. This 
practice is endangering the quality and security of our 
Nation's mail.
    By contracting out mail delivery services, the U.S. Postal 
Service is bypassing the hiring processes that ensure only 
qualified individuals handle the mail. The checks performed by 
the Postal Service for career employees include criminal 
history and outstanding warrant checks, fingerprinting, 
application reviews, driving record reviews and drug 
screenings. Most of these checks are performed for contractors, 
but according to the U.S. Postal Service the drug screening 
were not conducted on all of its contractors. According to the 
Postal Service, they will begin to perform drug screenings on 
all its contractors beginning July 31, 2007.
    Performing background checks on contractors is one thing, 
but we encounter a real problem when contractors subcontract. 
Postal Service contractors often subcontract the delivery work 
to individuals who go through minimal or no background 
screening procedures. Independent contractors do not use the 
same extensive recruiting and screening process that the U.S. 
Postal Service uses when it hires and trains its mail carriers. 
This practice can open the door to felons, identity thieves and 
terrorists to gain access to the mail and mailboxes of millions 
of Americans.
    Our Nation's mail workers handle bills, credit card 
statements, medical records, personal correspondence and other 
secure and vital information. Our letter carriers also have 
access to almost every home and business 6 days a week. 
Granting this type of access to low-paid contract workers who 
receive no benefits, no potential for career advancement and 
who have no incentive to provide first-class service comprises 
the security of our mail system.
    I was pleased to have learned this last weekend that the 
Postal Service and Letter Carriers Union had reached an 
agreement during their contract negotiations not to assign new 
urban routes to contractors for at least the next 6 months. 
This agreement would ensure that the new residential and 
business developments in my district and districts across the 
country would not be assigned to contractors but would remain 
in the hands of our trusted letter carriers. This is an 
initiative, however, that must be addressed by Congress. We 
must permanently stop this practice.
    The contracting out by the Postal Service of its functions 
is a broad issue that has been gaining momentum. It was 
recently brought to my attention that the Postal Service has 
contracted out the processing of military mail at the New 
Jersey International and Bulk Mail Center located in Jersey 
City, NJ, which is my district. It is my understanding that the 
Postal Service has moved all the processing of military mail 
from a site that already had adequate personnel and 
infrastructure to conduct these services to a completely 
different location. This action not only pose national security 
questions but also a concern of why the Postal Service would 
remove the processing of military mail from its career 
employees, many of whom are veterans that have a personal 
interest in seeing that this mail is properly and efficiently 
processed.
    I understand that others on this panel will be going into 
greater details concerning this particular issue, and I thank 
the subcommittee for looking into what I consider to be a major 
problem.
    The protecting of our mail delivery service is a vital 
component of our national security. At a time when our country 
wages a war against terror and security precautions at an all-
time high, we must not allow the U.S. Postal Service to 
jeopardize the safety and security of mail delivery to our 
homes and our business. The issue of contracting out mail 
delivery services is a legitimate public policy and a national 
security issue that we as Members of Congress shall decide.
    I want to take this time and thank the chairman for 
allowing me 5 minutes.
    Mr. Davis. Thank you very much, Representative Sires.
    [The prepared statement of Hon. Albio Sires follows:]

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    [GRAPHIC] [TIFF OMITTED] T2715.006
    
    Mr. Davis. Let me just ask you one question. I was 
impressed with the more than 200 signatures that you collected. 
In the process of doing so, are there any comments that you 
recall from any of the Members that would give one a greater 
sense of how the Members of Congress expressed a feeling about 
your resolution?
    Mr. Sires. Well, chairman, the comment that I received or 
went over again is the concern for security and the concern 
that this is something that has worked for many years, why are 
we looking to change it? And many Members expressed that.
    Mr. Davis. Thank you very much. I have no further 
questions.
    Mr. Marchant.
    Mr. Marchant. Thank you very much for your testimony. I 
admire your hard work on this subject. I don't have any 
questions at this time, though. Thank you.
    Mr. Davis. Are there other Members with questions of the 
witness?
    Mr. Lynch. Mr. Chairman, thank you. No questions. Just a 
comment.
    I noted that my name was not on that resolution; and I 
would just ask you if I could please, with all due respect, be 
added to that resolution.
    Mr. Sires. If I may enter a comment, I was a mayor before I 
was speaker, and I represented a town that was 9/10 of a square 
mile and had 50,000 people according to the census. In my 12 
years as mayor, I never received a complaint regarding the 
mail. I received a lot of complaints about something else, but 
I think that says something about the Postal Service of this 
country.
    Thank you.
    Mr. Davis. Any other questions of the witness?
    Thank you very much. We appreciate you coming and certainly 
appreciate your having introduced the resolution.
    We would ask our second panel if they would be seated: Mr. 
Alan Kessler and Mr. John Potter and Mr. David C. Williams.
    Mr. Alan Kessler, vice chairman of the Board of Governors, 
is a Philadelphia attorney and partner in the firm of Wolf, 
Block, Schorr and Solis-Cohen, LLP, with substantial experience 
in the defense of class-action litigation, including 
securities, antitrust, tort and civil rights cases. He was 
appointed the Governor of the U.S. Postal Service in November 
2000 for a term that expires in December 2008. Governor Kessler 
also serves as chairman of the Board of Governors and Strategic 
Planning Committee.
    Mr. John Potter was named the 72nd Postmaster General of 
the United States of America on June 1, 2001. He has led the 
Postal Service to record levels of service, efficiency and 
financial performance. He has served as chief operating 
officer, vice president of labor relations and in a number of 
other senior operational positions both at postal headquarters 
and in the field.
    Mr. David C. Williams was sworn in as the second 
independent Inspector General for the U.S. Postal Service on 
August 20, 2003. Mr. Williams is responsible for a staff of 
more than 1,100 employees located in major offices nationwide 
that conducts independent audits and investigations for a work 
force of about 700,000 career employees and nearly 37,000 
retail facilities.
    Gentlemen, let me thank you so much for coming; and, as is 
the custom of this subcommittee, we swear in the witnesses. If 
you would stand, raise your right hands.
    [Witnesses sworn.]
    Mr. Davis. The record will show that each of the witnesses 
answered in the affirmative.
    We will begin with you, Mr. Kessler. All of you have done 
this a number of times. You know the 5-minute rule as well as 
the meaning of the signal lights, and of course we try and 
observe these sometimes.

STATEMENTS OF ALAN KESSLER, VICE CHAIRMAN, U.S. POSTAL SERVICE 
 BOARD OF GOVERNORS; JOHN POTTER, POSTMASTER GENERAL/CEO, U.S. 
  POSTAL SERVICE; AND DAVID WILLIAMS, INSPECTOR GENERAL, U.S. 
                         POSTAL SERVICE

                   STATEMENT OF ALAN KESSLER

    Mr. Kessler. Good afternoon, Chairman Davis and members of 
the subcommittee. I appreciate the opportunity to testify today 
on behalf of the Board of Governors and the U.S. Postal Service 
about the use of contract delivery services. I have to say that 
while I'm here representing all of the Governors, by way of 
background, I'm an active resident from a city steeped in the 
tradition of labor, Philadelphia, with many good friends in and 
of the organized labor movement, including my good friend who 
did some introductions at the outset, Congressman Brady from 
Philadelphia. On a personal level, I recognize therefore the 
importance and the impact that contracting has on employees, 
and I believe that I understand the concerns that has been have 
been expressed.
    But while the issue being discussed here today is 
contracting, the real issue for the Governors and the Postal 
Service is broader and more fundamental. That is, we 
respectfully submit that the Postal Service must retain its 
ability to collectively bargain on a level playing field and 
know that the agreements that are reached in good faith after 
good-faith negotiations, and the subject of those negotiations 
and agreements, will not be altered as a result of legislative 
action.
    I thank Congresswoman Norton for understanding our 
challenges and for the fundamental role of the collective 
bargaining process. I've had the honor of serving on the board 
for almost 7 years, and I've seen firsthand the financial, 
operational and human capital challenges confronting the Postal 
Service continue to mount. I've lived through competition from 
the Internet, as was referred to earlier, the Internet, the 9/
11 anthrax in the mail and escalating gas prices.
    The business model for the Postal Service, where steady 
growth in first-class mail finances the expansion of our 
delivery network, adding almost 2 million new delivery points a 
year to allow for affordable universal service, and with the 
utmost respect to Congressman Sarbanes's comments, simply is no 
longer working.
    The trend is clear: First-class mail, particularly single-
piece first-class mail, is no longer growing steadily. Standard 
mail, which contributes significantly less than first-class 
mail to the Postal Service institutional cost, now comprises 
the majority of our volume. The Postal Service is seeing a 
decline as a result of this per delivery point from $469 in 
2003--this is per delivery point--to $433 in 2006, a $36 drop 
per delivery point in just 6 years; and this drop has occurred 
notwithstanding or despite a 21 percent increase in postal 
rates over the same period.
    I do want to applaud postal employees who have made this 
possible. By increasing--with the efforts of our management, 
senior management--productivity, our employees have allowed the 
Postal Service to remain financially sound.
    Governors are also aware of the new responsibility placed 
upon the Postal Service by the Postal Act of 2006 which 
mandated that the Postal Service accelerate the funding of its 
retiree health benefits. Because of this, the Postal Service 
reported a $3.8 billion loss at the end of the second quarter 
of fiscal year 2007, with a projected loss of $5.7 billion by 
the end of the fiscal year.
    That same act also broke the link between cost and prices 
by imposing a Consumer Price Index price cap on 90 percent of 
postal revenues. Now we know this change was intended to 
encourage further cost reductions and efficiencies. However, in 
mandating a price gap, the new law did not provide the Board of 
Governors with any new cost controls. Consequently, 
productivity improvements, automation investments and cost 
control measures remain critical elements in controlling 
rapidly escalating delivery costs.
    We would stress that the Postal Service is not considering 
taking work away from career carriers who perform such an 
outstanding job. Nor is what is being discussed contracting out 
all new deliveries. Ninety-two percent of all new deliveries 
continue to be assigned to Postal Service employees represented 
by unions.
    The Postal Service is facing significant growing cost 
pressures. If Congress were to completely eliminate the ability 
of the Postal Service to even consider the option of 
selectively using contract delivery service, its ability to 
effectively manage its vast delivery operations and associated 
costs would be significantly restricted.
    I was on the Board when the Postal Service had more than 
$11 billion in debt. That was a huge burden to carry. I think 
currently our debt is a fraction of that, $1.5 billion.
    As Governors again, respectfully, we have to be very 
concerned about the precedent of legislative action in 
collective bargaining agreements. It is not hard to imagine a 
future Congress with a different composition tilting the 
playing field dramatically in a different direction.
    Since the mid-1970's, the collective bargaining agreements 
with the four major postal unions have contained provisions 
that govern contracting out, including the adjustment in 
contracting out of delivery routes. I would like to emphasize 
that these same collective bargaining agreements protect the 
vast majority of union-represented postal employees from 
layoffs. No career carrier is being laid off or will be laid 
off so that we can contract out his or her job.
    Now, I should just add quickly that the Governors provide 
policy guidance to senior management of the Postal Service but 
do not engage in negotiations. That's the responsibility of our 
management.
    Just last week, after a positive briefing on the subject, 
however, with the Board, the Postal Service reached an 
agreement with the National Association of Letter Carriers 
that, among other things, included a provision dealing with 
contract delivery services.
    In short, our responsibility as Governors is to ensure the 
Postal Service provides universal service at a reasonable rate. 
We must balance the provision of that service with the cost of 
providing the service. We, as a group, are committed to 
providing a high level of service to the American people. Our 
mandate is to achieve this goal under the requirements of the 
new law and our collective bargaining agreements.
    Mr. Chairman, I would again like to thank you for holding 
this hearing on a very important topic and would be happy to 
answer any questions that you or any others may have.
    Mr. Davis. Thank you very much, Mr. Kessler.
    [The prepared statement of Mr. Kessler follows:]

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    Mr. Davis. We will proceed to Mr. Potter.

                    STATEMENT OF JOHN POTTER

    Mr. Potter. Good afternoon, Mr. Chairman and members of the 
subcommittee. I'm pleased to be with you this afternoon to 
discuss one of the most difficult challenges faced by the U.S. 
Postal Service today, the need to balance rising costs with a 
rate structure defined by a rate cap.
    By law, we are required to keep price adjustments at or 
below the rate of inflation for market-dominant products, which 
is over 90 percent of our revenue base. Unfortunately, our 
costs are not governed by the same standard, and many have been 
rising faster than the consumer price index.
    Like other employers, we have been affected by sharp 
increases in the costs of energy and health benefits; and, for 
the Postal Service, costs per work hour for our career 
employees have been growing at a rate above inflation. At the 
same time, first-class mail volume, which represents over 50 
percent of our revenue base, is declining. The number of 
addresses we serve is increasing by almost 2 million new 
households and businesses each year. This means on average, 
even with the recent rate change, we are delivering fewer 
pieces of mail to each address and average revenue per delivery 
is decreasing.
    This is not a formula for long-term success. The challenge 
is to close the gap between prices and costs while maintaining 
and rather improving quality service. The question is, how do 
you do that? As I see it, management can proceed along any of 
three paths.
    First, we can continue to operate as we've been operating 
for more than three decades. After all, that brought us a level 
of success that no one could have imagined when the modern 
Postal Service was created in 1970. Service rose to record 
heights. We achieved our statutory ``break-even'' mandate, and 
we reached unprecedented levels of efficiency.
    But the environment in which we operated and achieved this 
success has changed and is continuing to change. The business 
model that was created in 1970 is broken. We can no longer 
depend on mail volume growth to produce the revenue needed to 
cover the costs of a growing delivery network. That model 
helped us to limit increases in postage to the rate of 
inflation since 1970. But the mail volume growth necessary to 
do this going forward is no longer there.
    To proceed along the path of business as usual would be 
inconsistent with our obligations under the Postal 
Accountability and Enhancement Act of 2006. With the statutory 
rate cap imposed by the act, we no longer have the option of 
adjusting rates to balance costs. We are experiencing 
competition in all product categories, including first-class 
mail. We have to do more, much more if we are going to keep our 
costs in check with overall growth and prices no higher than 
the rate of inflation and continue to provide universal service 
to the American public.
    A second path to choose to closing the gap between rates 
and cost would be the absolute expansion of the outsourcing 
work now performed by Postal Service employees, whenever and 
wherever it would help the bottom line. But I believe there's 
more at stake than simply reducing costs. Pursuing the strategy 
would undermine the strong relationship we have with our craft 
employees who were on the front line doing a great job serving 
America day in and day out. We do not want to affect this 
relationship by breaking that bond. In addition, this could 
potentially affect service that we provide and damage our 
brand.
    That is why I prefer a third path, working directly with 
our unions to confront the critical issues that we are facing 
as an organization to address the demands of growing our 
business, the needs of our customers to better serve America 
and to protect universal service for the next generation.
    I'm personally committed to the process of collective 
bargaining as an important tool in achieving these goals, and I 
have seen time and again that it works. The latest example is a 
tentative collective bargaining agreement we reached last week 
with the National Association of Letter Carriers. It keeps the 
most important focus where it must be, on our customers, by 
helping us to improve service and operational efficiency; and 
it provides our employees with a fair wage. This is more 
important than ever as we operate in a competitive environment 
in which customers vote with their feet, no longer bound by a 
monopoly that is meaningless in today's world.
    We were successful in reaching negotiated agreements with 
each of our major unions in this year's round of bargaining. We 
do not expect that we can agree on every issue every time, but 
we have demonstrated our ability to overcome our differences, 
confront our shared challenges and negotiate working agreements 
that benefit the Postal Service, our employees and the people 
we serve. I strongly believe that we should continue to rely on 
the collective bargaining process to do this and that the 
parties should be challenged to make the collective bargaining 
process work.
    I appreciate the opportunity to share the Postal Service's 
views on this very important subject, and I would be pleased to 
respond to any questions that you might have.
    Mr. Davis. Thank you very much, Mr. Potter.
    [The prepared statement of Mr. Potter follows:]

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    Mr. Davis. Mr. Williams.

                  STATEMENT OF DAVID WILLIAMS

    Mr. Williams. Mr. Chairman and Mr. Marchant and members of 
the subcommittee, I appreciate the opportunity to appear today 
to discuss the Postal Service's contracting out of services. As 
you know, the Postal Accountability and Enhancement Act directs 
the Postal Service to adopt an optimization plan to increase 
the efficiency and effectiveness of its mail delivery systems 
and facilities, while doing business in the new postage rate 
environment constrained by the Consumer Price Index. With key 
elements of current labor costs rising much faster than the 
CPI, the Postal Service has no alternative than to consider 
lower labor costs in order to comply with the new law.
    The Clinton and Bush administrations have favored public 
sector outsourcing. It was previously part of the Reinventing 
Government Initiative and is now one of the four Presidential 
Management Initiatives, to move functions not inherently 
governmental to the private sector where possible. The 
President's Commission on the Postal Service also recommended 
outsourcing functions, believing that the private sector can 
perform services better on a lower cost. It's an idea less 
aggressive than the White House.
    Historically, the Postal Service has relied heavily on 
contractors, outsourcing most long-haul mail transportation to 
commercial airlines and package shippers and trucking companies 
and contracting out most research and development and major 
automation development projects. The Postal Service has more 
than 3,000 contract post offices operated and staffed by 
contractors. In sparsely populated areas of the country, 
contractors have traditionally performed some of the delivery 
functions.
    By offering mailers discounts to perform postal processing 
and transportation functions, the Postal Service is engaging in 
a form of outsourcing through work sharing. Today, 75 percent 
of all mail has a work share discount, savings resulting to the 
Post Office in over $11 billion.
    The Postal Service is not required to comply with OMB 
circular A-76 regarding outsourcing requirements. Negotiations 
between the Postal Service and its unions traditionally 
determine outsourcing decisions as anticipated in the Postal 
Reorganization Act of 1970. Today, the policy question before 
Congress is whether to take outsourcing of delivery off the 
bargaining table.
    Annually, the Postal Service manages a contract portfolio 
valued in excess of $40 billion. The integrity of contract 
awards and contract management are essential for such a major 
portfolio. The Postal Service uses commercial purchasing 
procedures rather than the government's Federal Accusation 
Regulation. As a result, the Postal Service and its 
stakeholders are unusually dependent on the OIG for assuring 
the integrity of contract awards, since court challenges are 
more restricted. Misconduct by contractors also represents a 
significant area of concern.
    My office dedicates considerable resources to reviewing and 
investigating contractual activities. Audits of contract 
administration over the past several years have allowed for 
increased management action to reduce costs and recoup funds. 
Our audit work in 2007 identified more than $300 million in 
questionable costs for management's action. Contract 
investigations resulted in cost recoveries as large as $10 
million. We've also investigated individual contractors, such 
as contract postal units and highway contract routes. In the 
last 12 months, we've conducted 47 contract postal unit 
embezzlement cases, resulting in the termination of contracts 
and arrests. In one case, OIG agents arrested a contract Post 
Office operator for embezzling over $100,000 in postal money 
orders to finance a gambling habit.
    To present a balanced picture, the OIG has also apprehended 
substantial numbers of letter carriers, postmasters and clerks 
for theft, embezzlement and misconduct. The process of contract 
worker and postal employee investigations is virtually the same 
by my office.
    To conclude, Congress is demanding a leaner and more 
efficient Postal Service. The Postal Service will need to 
employ all the tools at its disposal to meet this demand. There 
are opportunities to find efficiencies through additional 
outsourcing. However, the Postal Service is faced with powerful 
and contradictory imperatives from its stakeholders regarding 
such cost control measures.
    There are compelling calls for lean networks for mail 
processing and delivery to keep postage as inexpensive as 
possible. Conversely, stakeholders also exert pressure for 
legislation to maintain a large public work force and unneeded 
facilities. The challenge of the Postal Service is to find a 
way to navigate through this difficult environment of 
contradicting imperatives while fulfilling the requirements of 
the new postal law.
    Thank you.
    [The prepared statement of Mr. Williams follows:]

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    Mr. Davis. Thank you, gentlemen, very much. We all 
appreciate your testimony.
    Mr. Kessler, perhaps I would begin with you. Does the Board 
of Governors view contracting out as a cost-containment policy 
or a management tool to promote efficiency. Or is there some 
other something maybe in between that it looks at in terms of a 
policy for its contracting out?
    Mr. Kessler. Thank you, Mr. Chairman. I think I can speak 
on behalf of the Board of Governors. And this is an issue that 
I would suggest or submit recently has been one that we have 
spent a little more time on simply because it was an issue that 
came up in the most recent round of negotiations.
    I would submit that the Board probably use it both ways, 
but more importantly it uses it as a--I don't mean to not 
answer your question, but more importantly, it sees it as a 
fundamental issue of collective bargaining. And we understand 
the issues that have been created fiscally for us. We 
understand what the new act has done, and all we have tried to 
do is give management where possible the most flexibility in 
dealing with that issue in a responsible way. And I think we 
did that when we briefed the Postmaster General a few weeks ago 
on the status of negotiations. We were concerned about the 
issue. But we have also been satisfied that it still represents 
a relatively minor, small number of--even on new routes. So we 
do see it as one of those tools. If we told management that you 
have to find ways of being more productive, this is part of the 
charge to you in terms of finding that productivity, but at 
least preserving it as one of the issues for collective 
bargaining.
    Mr. Davis. In your testimony you talked a great deal about 
the economic climate, about the environment in which the Postal 
Service has to operate. Some changes which have occurred during 
the last decade and the decade before that have actually 
impacted greatly on the Service and how the Service does 
service. Do you see anything on the horizon that will perhaps 
lighten in any kind of way the economic pressures that 
currently exist on the Postal Service or any changes in 
competition that might alter the way the Service operates?
    Mr. Kessler. Mr. Chairman, let me say as probably, I guess, 
the member of our Board that has been on the Board the longest, 
I do remember my first Board meeting, and I was almost blown 
out of my seat by hearing that the Postal Service at that time 
was facing, I guess, a $2 billion deficit a year. It has been 
one of the greatest challenges that I have ever encountered 
because of the competition from the Internet, competition from 
other competitors who don't play--or don't have to play by the 
same rules that the Postal Service has to play by, and, you 
know, very circumscribed, the process on rates that has been 
approved by the act last year. But until that time, you know, 
gas prices went through the roof. We had to go through a 10-
month, 11-month rate process to try to catch up where our 
competitors didn't.
    I wish I could say that, you know, the sun is shining over 
the horizon. Postmaster General, senior management and our 
great employees have worked hard through productivity savings 
to help keep this a viable and healthy organization. And I 
guess the greatest sense I have as I approach almost the end of 
my term on the Board is an absolute commitment by senior 
management, by all of our 700,000 employees to do what is 
necessary to make a mandate for universal service one that 
continues on for the future.
    So I am optimistic, but at the same time I will say the 
challenges will continue. And we meet almost monthly. From 
month to month and year to year, the challenges are daunting. I 
am just very appreciative that we have people that are willing 
to put the effort into it that they have.
    Mr. Davis. Thank you, very much.
    And we will go to you, Mr. Marchant.
    Mr. Marchant. Thank you, Mr. Chairman.
    Mr. Potter, what are the biggest hurdles that remain in the 
2006 through 2010----
    Mr. Potter. I think the biggest hurdle that this 
organization has in general is what are our sources of revenue 
going forward. And I am excited about the fact that the new 
law, the Postal Enhancement Accountability Act of 2006, gives 
us greater flexibility when it comes to pricing of products 
just as a company, but we have the latitude to use the room 
under the cap to make the right room and behavior to make mail 
more efficient.
    I am excited about the opportunity to compete with others 
when it comes to package services and the flexibility that is 
inherent in that bill, but the only way that we are going to be 
successful in overcoming the challenges to the revenue base for 
first class mail is to have all 700,000 people in the Postal 
Service begin to focus on revenue and begin to--not that we 
haven't been, but rising them higher than we have to meet the 
demanding and changing needs of our customers going forward.
    So I am excited about the NALC agreement as an agreement if 
it includes an agreement that we are going to work together to 
have the carriers through the Customer Connect Program continue 
to grow revenue for the Postal Service, because I view that as 
the No. 1 challenge. Cutting costs is not the way to ultimate 
success here. We have to be relevant to the American public. We 
have to have products and services that they want to use and 
will use so that we can remain viable going forward. And I am 
happy with the fact that we have some new freedoms. We have to 
test those freedoms, push those freedoms, but collectively we 
have to work together to take advantage as best we can of the 
changes we are making.
    Mr. Marchant. What consequences could you foresee that 
would be a result of the passing of this resolution?
    Mr. Potter. Well, I think that there are some consequences 
in terms of if the Senate bill were to pass and said we have to 
roll back the seven or so thousand routes that we currently 
have and bring them and make them be delivered by contract 
employees, the cost to us over a 10-year period would be over 
$1 billion. So there is a direct economic hit if that were to 
come into play.
    Mr. Marchant. I am talking about the gentleman's resolution 
presented today.
    Mr. Potter. The resolution would be sent to the House, and 
I think we responded to the Senate. To the House we would be 
able to reach agreement on with the National Association of----
    Mr. Marchant. If we adopted this resolution, it would have 
no impact whatsoever on what you already decided to do?
    Mr. Potter. Again, I think what we have decided to do 
speaks for itself. The fact that we have made a commitment for 
the life of this agreement not to contract out any city 
delivery in big cities and to work on those suburban and rural 
areas through a task force over the next 6 months, I think that 
speaks for itself. It says that we are aware of the issue. We 
are trying to respond to the issue, but our focus is more on 
how we are going to run the business, and how can we do that in 
a cooperative manner that addresses our need for efficiency, 
and built into the contract our mutual agreement on how we are 
going to handle the deployment of a future piece of equipment 
called the flat sequencer to make sure we get the efficiencies 
out of it that we can that gives people the confidence about 
their jobs through a no-contracting-out provision. And that 
helps the Postal Service grow the business through an agreement 
to work on revenue generation.
    So, you know, I think that we have already reacted to the 
sense of the House. We don't have to wait for something to be 
passed. But I think we have responded already, and I would hope 
that the Members would view it as not necessary, given the fact 
that we have responded already, and we are committed to working 
with our unions to again make sure that the Postal Service is 
around for a long time to come delivering high levels of 
service to everyone, regardless of where they are in America.
    Mr. Marchant. Thank you, Mr. Potter.
    Mr. Lynch. Again, I want to thank you, Mr. Kessler, Mr. 
Potter and Mr. Williams, for coming before us and trying to 
help us with the work. I appreciate the complexity of what you 
are doing. There are some real challenges here. And even 
though, obviously, my sympathies lie with the workers here, I 
do appreciate that you have to induce change.
    Sometimes when folks have been at the job a long time, 
there is a resistance to change, but I want to point out 
sometimes we rush into ideas, like privatization. And as we 
have seen at Walter Reed and the contract there, they went from 
400 government employees doing a great job to 130 contract 
privatized employees doing a horrible job. They have a horror 
show over there because of that.
    We had some examples right in the Post Office. For example, 
the largest subcontract on mail handler work ever signed by the 
Postal Service was implemented 10 years ago. I think you recall 
at the time the Postal Service decided to contract with Emery 
Worldwide Airlines to process priority mail at a network of 10 
facilities along the eastern seaboard. Nearly 1,000 mail 
handler jobs were privatized. Today the work of those 
facilities in terms of mail handers and other career--but not 
before the Postal Service suffered severe losses in the 
hundreds of millions of dollars.
    At a meeting of the USPS Board of Governors, one Governor 
stated publicly that the Emery subcontract was one of the worst 
decisions that the Board ever made, and this was not just idle 
speculation, because in September 1999, the Postal Service 
Office of the Inspector General audited the priority processing 
work, and they reached a conclusion--and I quote this--we 
disclosed that priority mail processed through the network, 
Emery using private workers cost 23 percent more than priority 
mail processed by career employees. In the Postal Service, 
without--in addition, we found that priority mail processing 
network was, ``not meeting overall delivery rate goals 
referenced in contract.''
    Now, to its credit, the postal management eventually 
recognized the mistake and concluded that--again I am quoting 
from the report--an early end to the Emery private contract 
would limit the Postal Service's financial exposure. As noted, 
the work of processing priority mail was returned to mail 
handlers and other career postal employees, but not before 
postal consumers suffered a significant loss.
    So I am just asking--you know, I negotiated a number of 
collective bargaining agreements as the chairman of the union 
collective bargaining side with the ironworkers. I was there 
for 18 years. I was their president, and I know a whole lot 
about prospective agreements, and I know the one you have right 
now is somewhat prospective in terms of this task force in the 
next 6 months trying to work something out for the rural folks. 
But I just ask you, try to use some innovation. Don't just be 
lockstep with this privatization idea.
    I think you have some very, very talented folks over there 
in the Post Office. You know, you have a great reputation in my 
district and the communities. Folks love their clerks, they 
love their letter carriers, they love their mail handlers. You 
have a good branding out there. You know, for a little bit, you 
are closing down some local post offices during noon hour when 
everyone was going to their mail. I don't know who came up with 
that idea. But I think you have a lot of positive things.
    What was that, Mr. Potter?
    Mr. Potter. He is no longer with us.
    Mr. Lynch. As long as it wasn't one of my family.
    I just urge you--look, again, I go back to the fact I 
appreciate the complexity. I appreciate the way you are working 
on this problem. I really do. I think it is positive, and I 
think it has been reflected a lot in the workers who are, you 
know, working under you, and just saying anything we can do 
here--we understand about the collective bargaining process, 
although I have to say that given that the employees don't have 
the right to strike, I don't really think that it is genuine to 
say that it is a somehow tilted playing field because the 
employees can come to their congressional representatives to 
try to get grievances addressed and to petition their 
government. I think that is their constitutional right to come 
before Congress and have me and other Members of this Congress 
address their problems because we have taken away their right 
to strike. So that is why they have the petitions.
    And I know you are going to say something about the binding 
arbitration, the wonderful binding arbitration process they 
have. They have to keep working while they complain. That is 
not such a great argument when you are working and in some 
cases throwing mail and delivering sacks of mail, and you are 
carrying around big packages.
    But anyway, I appreciate your good effort. It is in good 
faith, and I just want to see it continue. Thank you.
    Mr. Potter. If I can comment just on the Emery contracting 
out. I was the one who went to the Board and said we had to 
pull the plug on it. I am not the one that contracted it out. I 
am the one that brought it back in house.
    But I do want to say that when it came to why it failed--
because we created a separate network, not because the cost per 
hour or different fact that it was much less expensive to 
process the mail, but the network would not work the way it had 
been set up, and there was no incentive for the contractor to 
become more productive. We are incentivized collectively, 
management and labor, to be more productive to keep costs under 
control. With my commitment, we will work together to try to do 
the best we can. We do have challenges. You know, if you want 
to help us, use the mail. That is the best way one can help the 
Postal Service. Use the mail and provide an opportunity for us 
to show you how good we can do.
    Mr. Davis. Thank you very much, Mr. Lynch.
    Mr. McHugh.
    Mr. McHugh. Thank you, Mr. Chairman.
    Gentlemen, welcome, and thank you for your continued 
efforts.
    Mr. Williams, in your testimony you said in the last 12 
months, it conducted 47 contract postal embezzlement cases 
resulting in termination of contracts and arrests. Then you 
went on to say they also presented a substantial number of 
letter carriers, postmasters, etc. We have a definitive number 
on the contracts, 47 in 12 months. What is the balance of the 
picture in terms of the employees? How many cases?
    Mr. Williams. There are 992 of those investigations.
    Mr. McHugh. How many contract employees versus how many 
postal employees?
    Mr. Williams. There were 47 contract employees that were 
investigated for embezzlement, which represent about 8 
percent--I am sorry, 5 percent of the total. And so 95 percent 
of the total were represented in the nearly 1,000 
investigations. It is about the same. It is a little lower, but 
it is not significantly lower.
    Mr. McHugh. Which is lower?
    Mr. Williams. The contract of the investigations are a 
little lower pound for pound, but it is not that significant. 
It is about the same.
    Mr. McHugh. Mr. Postmaster General, can you--I assume we go 
through this because you are trying to save money. I mean, is 
that your theory?
    Mr. Potter. The theory is you are always trying to test 
things to see if there is a better way to do it to save money 
and improve service.
    Mr. McHugh. So there is an assumption here?
    Mr. Potter. It is more than an assumption.
    Mr. McHugh. Back to my previous statement. You are saving 
money?
    Mr. Potter. We are.
    Mr. McHugh. Can you tell us how much?
    Mr. Potter. It depends on the contract, but it depends on 
the cost of dealing with a career employee.
    Mr. McHugh. Let us talk about these so-called new numbers 
instead of under contracts that have been up and running for a 
while. Is that a 50 percent savings?
    Mr. Potter. Congressman, it depends on the individual 
contract and the productivity of the local unit. But in terms 
of how high can it go, it can be as high as that, and I would 
say it is a minimum of a 25 percent savings.
    Mr. McHugh. So you have a real incentive.
    Mr. Potter. We have a real incentive to change the way we 
are doing business and focus on doing things a better way.
    Mr. McHugh. Mr. Williams, back to you. You made a comment 
in your testimony again that the Postal Service is not required 
to comply with the 76 and also some of the contracting 
requirements that are in the normal Federal contracting 
program. This conduct by contractors also represents a 
significant area of concern. Do you think there is any efficacy 
in imposing those Federal standards of contract negotiation?
    Mr. Williams. I would not recommend it. If there is an 
advantage, I will address that in a moment. The concerns I 
would have is that it would be the only--it would be the only 
instance in which the Postal Service aligned itself to offset 
management and budget directives. That would be problematic. We 
sort of have a mixed relationship with them.
    Second, the entire budget directive refers and aligns 
itself to the Federal acquisition regulation, and we no longer 
have that regulation, so we would need to somehow think how we 
would adapt it to ourselves.
    Mr. McHugh. So apples and oranges kind of?
    Mr. Williams. It wouldn't, now that we introduced the more 
modern acquisition----
    Mr. McHugh. I am running out of time here. I just want to 
throw out one more to the Postmaster General. Mr. Potter, you 
have heard, I think understandably, a lot of concern about the 
sanctity of the mail and the consideration of new contractors 
to provide the same kind of sanctity. I would certainly have 
that concern. I think it is a very real one in the issues about 
drug testing, etc. Do you want to talk a little bit about what 
you do to screen these so-called contractors in a way that you 
feel ensures the sanctity of the mail? As I would argue 
clearly----
    Mr. Potter. As Congressman Sires pointed out in his 
testimony, with the exception of drug testing, the contractors 
go through the same screening that our postal employees go 
through and by law are held to the same accountability through 
the OIG, and the same Federal laws that apply to our employees 
apply to contractors as well. So granted, with the exception of 
drug screening, you know, we have in effect and will have 
beginning next month the same rules in effect for both 
contractors as well as for employees.
    Mr. McHugh. Mr. Chairman, if I may, with the exception of 
drug screening, it reminds me of, ``Well, other than that, Mrs. 
Lincoln, how did you like the play?''
    Mr. Potter. Let me just say this. If you think about our 
experience with contractors and our experience with our career 
employees, the way I look at it, we have human beings. Human 
beings make mistakes on both sides of the aisle. There is no 
evidence that I have that suggests that a human being who is a 
contractor is any worse than a human being who is a career 
employee.
    Mr. McHugh. My question that my rather flippant remark was 
intended to say, why didn't we do drug screening from the get-
go?
    Mr. Potter. I have no idea.
    Mr. McHugh. Could you maybe find out for us and get that?
    Mr. Potter. Sure.
    Mr. Davis. Thank you very much, Mr. McHugh.
    Ms. Norton.
    Ms. Norton. Thank you, Mr. Chairman.
    I wanted to be sure I understand something first in Mr. 
Kessler's testimony. I had a set-to with Mr. Potter last time 
on some difference in the information I had about the 
contracting out and what he had testified to, so I want to make 
sure I am understanding.
    Now, you say, Mr. Kessler, Postal Service is not 
considering taking work away from career carriers. You go on to 
say it is important to note that 92 percent of all new 
deliveries in 2007 continue to be assigned to Postal Service 
employees represented by--let me--are you referring to new 
people on the same routes that career employees already serve, 
or are you referring to in this 92 percent--to entirely new 
routes when you say there was a----
    Mr. Kessler. Referring to entirely new routes, new 
deliveries.
    Ms. Norton. So you are here testifying that new routes and 
new deliveries are being given to career postal workers, and 
that is the policy of the Postal Service?
    Mr. Kessler. What I am saying is that 92 percent of those 
go to career postal employees, that----
    Ms. Norton. Ninety-two percent of all new deliveries--I am 
trying to find the definition of the words ``new deliveries,'' 
whether we are talking about people or routes.
    Mr. Kessler. Routes.
    Ms. Norton. Mr. Potter.
    Mr. Potter. We have deliveries of some 140 million. Every 
year there are 2 million new deliveries. That is construction 
of a new building, of a new home or residence. We consider a 
physical address to be a new delivery. So it is new physical 
addresses that we are talking about. If we have some--I believe 
it is somewhere around 1\1/2\ percent of Americans move every 
month, so you have over 20 million people move every year. And 
so we are not talking about those people that move. We are 
talking about the physical address and who performs delivery at 
a physical address.
    Ms. Norton. At an entirely new location that wasn't there 
before, right? A new suburb? Like a new condo in the District 
of Columbia?
    Mr. Potter. Exactly. Last year we were saying there were 2 
million, and 92 percent--or 1.8 billion or so were delivered by 
career employees.
    Ms. Norton. Before if you were a business and you didn't 
have the right--or in this case denied the right to yourself, 
not the new business, not someone on a block before a house 
that may have been in the delivery room before abandoning it 
and it comes back--I am talking about where the growth in 
America is, Mr. Potter and Mr. Kessler. The growth in America 
is not replacement houses on delivery routes. The growth in 
America are new suburbs, new parts of the District of Columbia 
altogether. Are you saying for those new parts of America, the 
growth parts of America, new deliveries, 92 percent of those 
new deliveries are going to career--to career Postal Service 
employees?
    Mr. Potter. Unfortunately I don't have a way of 
differentiating.
    Ms. Norton. That is a problem. That is why the statistics 
are misleading, because all this does is probably replace a 
delivery that a postal worker may have had last year or 10 
years ago and is not where the growth of new business is. So 
essentially what you are saying is new business is for 
contracted employees, and our regular employees are lucky 
enough to have somebody revive a building on the delivery 
route, well, of course, we are not going to bring somebody in 
to put into the middle of that block, which, of course, would 
be inefficient in the first place. So you are doing nobody any 
favors.
    Mr. Potter. Let me say this. We have never contracted out 
delivery in Washington, DC.
    Ms. Norton. Mr. Potter, you are going to have to aggregate 
this figure to be credible with this committee. We are 
interested in only one issue, and that is whether the new parts 
of America that spring up every day--there are new towns, new 
subdivisions--whether those parts of America are closed off to 
career Postal Service employees.
    Mr. Potter. And the answer is no.
    Ms. Norton. Well, in fact----
    Mr. Potter. We have an agreement with the NALC that says 
for the next 5 years we won't consider it in offices that are 
served by city delivery. So we have a commitment from----
    Ms. Norton. Not city delivery. I wish I could say the 
growth in America was in Chicago and the District of Columbia. 
But the fact is the growth is outside of the cities, and that 
is where we got into trouble last time, Mr. Potter. You were 
sworn. That is why I am telling you this time I am doing my 
cross examination more carefully.
    Mr. Kessler, for example, says something that is more 
hopeful. We are prudently evaluating and debating--this is page 
4 again, Mr. Kessler--whether it makes sense to assign distinct 
new work. By that I think you mean subdivisions. You are going 
to correct me if I am wrong. He says you are considering that. 
And then you say, Mr. Kessler, it is a valid and responsible 
business consideration.
    Would you explain the considerations of that goal in 
deciding whether some new work should be assigned to career 
employees?
    Mr. Kessler. Congresswoman, let me, if I can, try to answer 
your question by first stepping back. And I certainly don't 
mean to lecture anybody, but we are the Board of Governors. We 
are there to, you know, discuss broad policy, not that this 
might not be a broad decision. We don't get into micromanaging. 
We don't get into day-to-day operations.
    Ms. Norton. You consider whether new work goes to new parts 
of America micromanagement?
    Mr. Kessler. No.
    Ms. Norton. Micromanaging would be whether on my block a 
contractor gets it or a Postal Service worker gets it. This is 
about whole new definitions and new towns that come up in 
America every day, new towns, whole new towns that are revived. 
Is that under your jurisdiction, or is that left to Mr. Potter 
to decide on a case-by-case basis?
    Mr. Kessler. In terms of the broad issue as you presented 
it, yes, that would be inappropriate for obviously this issue 
to discuss. In terms of specifics and how it applies, no, I 
don't think it is a Board decision. But in all honesty, 
Congresswoman----
    Ms. Norton. What are the relevant considerations you 
decided? That seems to be the rational way to look at it. We 
are going to at least look at this, see if it is efficient, see 
if it makes sense. All I am trying to get is some sense of 
consideration that might make you say this new business is 
going to go to career employees, because what I am otherwise 
divining is that no new business is going to go to career 
employees, in contradiction to what it seems to say on page 4, 
which is the policy of the Postal Service, not the folks who 
carry it out, but the folks who make the policy.
    Mr. Kessler. I appreciate the way you have looked at what 
exactly constitutes a new delivery, and I think, quite frankly, 
it is something that I can take back to the Board and we can 
discuss.
    I do want to be careful in saying that this is a new 
subject for us as a Board as well. It is not a new subject in 
terms of--you probably know this Board is, you know, 
Presidentially appointed, five members of one party, four 
members of another party. And over the last few years, the 
party that occupies the White House is the party that 
represents the majority on that Board.
    Ms. Norton. What does that have to do with this?
    Mr. Kessler. What I am trying to tell the Congresswoman, we 
have looked at this broadly, should there be contracting out or 
no contracting out, should it be an issue.
    Ms. Norton. You are considering whether new work should be 
assigned to humanize postal employees or not is what you say on 
page 4, correct or not? Are you at least considering it?
    Mr. Kessler. We at this point have not reached a decision 
on the Board, our consensus as to what constitutes, ``new 
delivery.''
    Ms. Norton. It says we are evaluating. I am only trying to 
understand whether the policy is under consideration, sir.
    Mr. Kessler. Congresswoman, I can't tell you any more than 
what I just said.
    Ms. Norton. That is why you see me engaging in cross 
examination. The words say, we are prudently evaluating and 
debating. Something is happening right now whether it makes 
sense to assign distinct new work to career employees or to 
contractors. I can read the English language. You wrote it. I 
am trying to clarify whether it means what it says in black and 
white here. That would help this committee.
    Mr. Kessler. Let me try to clarify beyond that. ``We'' is 
the Postal Service, Congresswoman. It has not reached the Board 
at the level of Governors as a body. I can't be clearer than 
that.
    Ms. Norton. Don't come before this committee again saying 
you are evaluating and that is not what you are doing. I have 
to say to you here before this committee, we do not need to be 
hoodwinked here. You say you are evaluating and debating in 
good faith. That would mean at least, well, we are deciding it. 
You just said you are not.
    Here is what I want you to report to the chairman. He will 
tell you within what period of time. Should some new work, 
depending on the circumstances--you can set any criteria you 
want to--should some new work be assigned to career employees, 
would it be efficient, would it be prudent? On page 4 you said 
you are doing it. Would you get that information to the 
chairman?
    Mr. Kessler. Madame Congresswoman, I can assure you we will 
take back your comments and address this issue.
    Ms. Norton. Thank you very much.
    Where the future lies here--I am very much into the issues 
you face. I am not sitting here saying why don't you just make 
due and act as if you are an old-fashioned government union. I 
regard your bottom-line problem as one of the most challenging, 
if not the most challenging, in the United States. So if we 
look out and say, well, where is the future of the Postal 
Service--to the credit of Mr. Kessler, he notes and gives 
credit to unions the increase in productivity that you 
yourselves have achieved for which you deserve congratulations 
of this subcommittee service. Are not productivity increases 
rather than outsourcing the future of the Postal Service just 
as important? Don't you simply have to continue through 
collective bargaining to find ways to increase productivity in 
order to compete rather than outsourcing little by little of 
the Postal Service and cutting yourself off at one end in order 
to make yourself competitive at the other?
    Mr. Potter. Is that addressed to me?
    Ms. Norton. Yeah. I guess you will be the man in charge of 
increasing productivity, but Mr. Kessler gave credit to the 
unions in----
    Mr. Potter. That is the preferred path, as I said in my 
testimony. We would like to work with the unions that do 
produce revenue because it is not just productivity; where is 
the source of revenue going to be going forward as well as the 
efficiency. I think it is incumbent upon the entire mail 
community to do, including the mailers who produce mail. The 
better quality we get for mail, the more efficient we can be. I 
think it is a combination of all of that.
    Ms. Norton. Mr. Potter, traditionally in collective 
bargaining with sufficient tradeoffs, you can get workers to do 
things.
    Mr. Potter. That is what I believe in the contracts we 
have----
    Ms. Norton. The people aren't going to make you more 
productive if you don't make them more productive. That is why 
bargaining is such a beautiful market-based system. Everybody 
has to get something for it to work.
    Mr. Potter. Congresswoman, as you just said, the Postal 
Service has a very difficult challenge going forward, and I 
believe that we need to work together to meet that challenge. 
And so, yes, you do have to work together, but there has to be 
a reality about what the challenges are, and there has to be a 
meeting of the minds.
    In my opinion, all of our futures are at stake. I don't 
really worry about the people who are, you know, in my age 
category, 50 years old. I think about the people that are 20, 
30 years old with the expectation that they will have and enjoy 
a career in the Postal Service much like my father and I did. I 
can guarantee you that if we don't change--and the best way to 
do it is to do it collectively and to do it the right way. If 
we don't change, we will not be able to assure those people a 
future and assure their careers.
    Mr. Davis. We need to----
    Ms. Norton. Yes, sir. Could I ask one question of Mr. 
Williams?
    Mr. Davis. Yes.
    Ms. Norton. Just one question. But he does say that on page 
2 of our contract, it represents a significant area of concern. 
And I would just like to know--I would like to elaborate. 
Couldn't the self-screening process that we require for Postal 
Service workers be required for contractors? And should there 
not be some--shouldn't the Postal Service be held accountable 
to stop the outsourcing of outsourcing so that we have some 
guarantee that the same rigorous process a Postal Service 
worker has to go through is the exact same process--in terms of 
screening, there may be other ways to cut corners--but the 
exact same process that a privately hired postal worker has to 
go through?
    Mr. Williams. The plan is that on July 31st, those two 
background programs will become identical. They have not been 
in the past as far as drug testing, as we were talking about 
earlier, and that has been added into the line.
    Ms. Norton. If that is the only difference, I congratulate 
the Postal Service, but we can be looking to see that they line 
up identically and that--understand my concern. My concern is 
the contractor then outsources himself. That means somebody at 
home has to make sure that those things are lining up not only 
as a policy, but who--thank you, Mr. Chairman.
    Mr. Davis. Thank you very much, Ms. Norton.
    Mr. Clay.
    Mr. Clay. Mr. Chairman, can I get 5 minutes?
    Mr. Davis. Yes; 4\1/2\.
    Mr. Clay. Thank you.
    Mr. Potter, I have heard in opening statements that the 
Postal Service has been contracting out since its creation and 
in more recent times. Tell me what positive improvements have 
been reported by the U.S. Postal Service as a result of the 
contracting out.
    Mr. Potter. Well, let me point to one. We have contracted 
out to transportation of mail across the country. Our largest 
supplier is Federal Express, who flies our mail across the 
country and throughout our great Nation. As a result of our 
movement to that in 2001, the service that we have provided and 
do provide on a day-to-day basis has reached record levels for 
2- and 3-day performance. So there is a situation where we 
contract out.
    We contract out $14 billion worth of goods and services in 
terms of, you know, your institution. So there are many people 
performing all types of work for the U.S. Postal Service. The 
building of machines has helped us to become more productive, 
so we use contractors to supply those machines, to update 
software. So we use contract personnel, mostly on a limited-
term basis. But we use contract personnel to provide, you know, 
some very basic services to America.
    Mr. Clay. As far as daily delivery, do you get any 
complaints about the contract worker versus the regular hourly 
wage?
    Mr. Potter. We hear about contract workers, but I would say 
on balance it is about equal.
    Mr. Clay. You say it is equal?
    Mr. Potter. In my opinion. I don't have data to support it. 
It is not something I have statistics on.
    Mr. Clay. Thank you for that response.
    Mr. Kessler, besides contracting out mail delivery service, 
what other steps is the Postal Service taking to address your 
financial situation?
    Mr. Kessler. Congressman Clay, would you mind if I refer 
that to the Postmaster General and give you more detail 
concerning the actions we have taken?
    Mr. Potter. First of all, we have worked hard to improve 
productivity in different operations by standardizing the 
operations. We continue to invest in equipment to drive more 
productive processing of mail. We are constantly looking at the 
quality of the sort that is done by our mailers, again with the 
notion, you know, that we don't want to handle it multiple 
times, and the quality sort of our machines. We are constantly 
looking at our manual operations to look around the country to 
see what processes are the best. When we find people who have 
innovated and done things correctly, we document and share it 
with folks throughout the country.
    If you look back since 1999, what has been remarkable is 
the way our people--and I am talking about all of the people 
who have responded to the challenges that we face. Today we are 
doing more work than ever, delivering to more addresses than 
ever. We have added about 12 million addresses since 2001, and 
we are doing that with 100,000 fewer employees than we did in 
1999.
    Now, the question becomes how far can you go? At some point 
in time, you are running out of room when it comes to that 
productivity. So we don't want to be in a position where we are 
placing, you know, irrational demands on people. So we are 
constantly looking to innovate on better processes and do 
things again in a different way that enables people to be more 
productive.
    Mr. Clay. Let me ask you about your health care and benefit 
costs and retirement costs. How has that gone since 1999?
    Mr. Potter. I don't know the exact data, but it is up 
dramatically. We had numerous years of double-digit increase 
since 2002. I am lucky to have the inspector general next to 
me. Our costs have risen by 27 percent for health care. The 
growth there is similar to the Federal Government. We are part 
of the FEBP, Federal Employee Benefit Program. So our costs 
have gone up. I would like to commend our unions, though, 
because part of the collective bargaining process, the 
contracts that we have reflect the fact that our employees 
understand the concern of the business for health benefit 
costs, and there is actually a reduction in employer 
contribution to health benefits in each of these contracts. 
Another example where we put an issue on the table, and we 
bargain in good faith, we can get agreements that will help the 
bottom line.
    Mr. Clay. Thank you all for the responses. I appreciate it.
    Mr. Chairman, I yield back.
    Mr. Davis. Thank you very much.
    Mr. Marchant, do you have a question?
    Mr. Marchant. No, thank you.
    Mr. Davis. Thank you all very much. Let me just say it has 
always been my experience that if you have to spend more than 
you are taking in, somehow or another you have to figure out a 
way to do something. You have either got to cut something or 
find some way to reduce the cost, or you have to produce more, 
or you have to do some of both. And while I don't think there 
is any simple solution to the very complex scenario that we 
face, I, too, trust the collective bargaining process. And I 
actually hope that management and the unions will be able to 
come to an agreement that will keep our system intact, that 
will continue to provide universal service, that will continue 
to allow individuals to receive first class mail.
    Hopefully we can continue the delivery rates, but I am 
afraid that something is going to have to give in some way at 
some point and at some time. I am not an expert on the postal 
operations. I am just an individual who knows a little bit 
about collecting and spending. And if you spend any more than 
you collect, you have a problem somewhat, somehow.
    Thank you very much. I really appreciate it.
    Mr. Davis. Let me thank our last group again for your 
patience and the fact that you have stayed the course with it.
    I am going to go ahead and give the introductions of our 
witnesses while we are being seated.
    Panel III. Mr. William Burrus is president of the American 
Postal Workers Union. The American Postal Workers represents 
the largest single bargaining union in the United States, which 
consists of more than 330,000 clerks, maintenance and motor 
vehicle employees working in 38,000 facilities of the U.S. 
Postal Service.
    Mr. William Young is the 17th national president of the 
National Association of Letter Carriers.
    Mr. Donnie Pitts is president of the National Rural Letter 
Carriers' Association. He has 37 years of experience with the 
Postal Service in both the State and national levels.
    And Mr. John Hegarty, who was sworn into office on July 1, 
2002, for the National Postal Mail Handlers Union and was 
reelected to that position in 2004. For the 10 years prior to 
becoming national president, Mr. Hegarty served as president of 
the second largest union affiliated with the National Postal 
Mail Handlers Union.
    Thank you, gentlemen, so much for being here. It is our 
custom to swear in witnesses.
    [Witnesses sworn.]
    Mr. Davis. The record will show that the witnesses each 
answered in the affirmative.
    Thank you very much, Mr. Burrus. We begin with you.

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

                  STATEMENT OF WILLIAM BURRUS

    Mr. Burrus. Thank you, Mr. Chairman. Thank you for 
providing me this opportunity to testify on behalf of the 
dedicated postal employees our union represents. I commend the 
committee through your leadership, Mr. Chairman, for convening 
this hearing on the important subject of subcontracting in the 
U.S. Postal Service. This hearing is being called at a time 
that the American postal workers are here for our hearing-
impaired members, and I am pleased to have the leaders of the 
task force representing those employees joining me here today. 
I'd like to put their names in the record: Marshall, Mike 
Clifton, Patsy, and Marie Adams.
    This hearing is convened at the appropriate time, given the 
events of the past several months. Recently the U.S. Postal 
Service made significant changes to its subcontracting 
initiatives, including some which were vigorously opposed by 
the national association, who sought your intervention. This 
resulted in legislative proposals by Members of Congress and 
the subsequent announcement that a tentative agreement had been 
reached within the collective bargaining arena on the subject 
in dispute. While that dispute has been addressed, the 
fundamental USPS policy that seeks to subcontract postal 
activities at every opportunity remains, and it must be 
addressed.
    I previously testified before this committee on April 17th 
and offered the following, ``In this new world of postal 
reform, each institution must now find its rightful place. When 
these responsibilities overlap, and they do, the system can 
break, and more often than not service and workers suffer. As 
vital as it may seem when you are asked to intervene with 
legislative action in areas best left to the parties, I request 
that you resist the temptation to do so. To borrow a phase, we 
ask that you stick to your knitting.''
    I asked that Congress avoid substituting its judgment for 
the judgment of the parties who are directly involved. The 
Postal Service and its unions have a long history of addressing 
thorny issues affecting every aspect of the mail service. We 
write the words of our agreements; we interpret their intent, 
and submit our disputes and agree on arbitration.
    In light of the recent agreement between NALC and the U.S. 
Postal Service, my words seem prophetic. When given the 
opportunity and the appropriate forum, the collective 
bargaining process works. The letter carriers union is to be 
commended for finding a creative approach to a major problem.
    The question must be asked why did the dispute reach the 
point where bargaining did not work and legislative relief 
appeared necessary? I submit that the reason is that no real 
bargaining began on this important subject until you, the 
Congress of the United States, became involved. That is because 
under current procedures, the Postal Service will not bargain 
over subcontractors. We have been successful in negotiating 
requirements that the Postal Service notify and consult with 
the union and civil contractor that is contemplated, but we 
have been unable to achieve real bargaining over whether or not 
specific activities will be subcontracted.
    I am certain that the Congress of the United States does 
not wish to be called upon each time subcontracting is 
threatened. But to prevent the continuous participation of your 
involvement, a clear provision must be enacted requiring the 
USPS and its labor unions to bargain when subcontracting is 
proposed. Congress has previously enacted provisions requiring 
bargaining, so this would not represent a significant departure 
from your current policy.
    As we enter this new world where management continually 
seeks to reduce costs through the use of nonunion, noncareer 
cheap labor, we will repeatedly seek your involvement unless 
you adopt legislation requiring the parties to negotiate.
    We will return again and again asking for your help as the 
Postal Service embarks on this journey for privatization one 
piece at a time.
    I thank you, Mr. Chairman, for your leadership, and the 
members of this committee. Thank you for your efforts. And I 
will be pleased to respond to any questions that you may have.
    Mr. Davis. Thank you very much, Mr. Young.
    [The prepared statement of Mr. Burrus follows:]

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                 STATEMENT OF WILLIAM H. YOUNG

    Mr. Young. Good morning. I'd like to ask a question if I 
could. Could I get an agreement just to have my remarks 
submitted in the record? Because I'd like not to use the 
remarks at all.
    Mr. Davis. You can do that.
    Mr. Young. I have never tried that before. Is it 
acceptable?
    Mr. Davis. It is certainly acceptable.
    Mr. Young. In the last area, we were in total disagreement. 
This afternoon we are in total agreement.
    I agree with Mr. Burrus that the only reason they were able 
to negotiate a contract with the Postal Service that included 
protections in subcontracting was because of the interest of 
the Congress that the United States took in the issue. And I 
also agree with him that a mandate to require collective 
bargaining is a good approach. I hadn't thought about it before 
coming up with it.
    I want to address a few issues that came out here this 
morning because I want this Congress, if they are going to 
consider this in this committee, to reflect on a few of these 
matters that were brought up here by the panel that received 
this.
    Let me just talk for a few minutes about the contract 
employees. I want to make sure that the Congress understands 
the difference between a contract employee who delivers bulk 
quantities of mail going between post offices--say, post office 
A and B--and maybe delivers one or two addresses on the way 
from A to B. This person is delivering mail that is locked up 
in sacks. He is not individually going through people's 
personal mail like letter carriers and rural carriers do when 
they make the final delivery of mail at the door. The mail that 
they are delivering, the mail that FedEx is delivering that the 
Postmaster General is talking about is all locked and secured. 
Nobody can go in there. If they did, we would know it.
    So I think there is a little attempt here to confuse the 
Congress as to the fact that--yes, we have always used 
contractors. There are no grievances over the use of bulk 
drivers that deliver the bulk mail. I don't know if any of the 
other unions have that or not. They can speak for themselves. 
But to make the clear distinction, I don't know if the American 
public worries so much whether it is FedEx or American Airlines 
that flies their mail. They might have a different scenario if 
it is somebody that has been drug-screened or somebody who 
hasn't.
    The second point, I think Congresswoman Holmes brought this 
out and I want to remind you about, it is the subcontracting 
that scares me. They can screen the private contractors the 
same as us. What are they doing about the subcontractors--and 
it is my understanding, and I hope I am not wrong about this--
in some cases they don't even know who these people are. In 
other words, they give the contract to me, and maybe I have my 
10-year-old kid delivering the mail. I don't know if that is 
known or not. But it is the secondary part of this that poses 
in my mind the greatest concern.
    I also want the Congress to look at a couple of other 
things that they care to examine. Look at nepotism. Do the 
nepotism laws apply to private contractors? I don't think so. I 
think if you look at this, you will find out that a lot of 
these private contractors are relatives of postal officials 
around the country. And I think that is worth looking at.
    The other thing that you should consider when you are 
thinking about private contractors, in my judgment, is--I know 
that nobody gets preference when they hire a private 
contractor. It is all based on the bottom line, and the 
Congress wanted the Postal Service to give a preference to 
America's veterans. This is a way that will reduce the number 
of positions that are available to these veterans as they 
return from these places that we sent them to fight these wars 
that we got them in.
    The big debate last time was this public policy or 
collective bargaining. I said it was public policy; others said 
it was collective bargaining. It turns out everybody was right. 
It was collective bargaining once the Congress gave the sense 
to the Postal Service and got them into a position to sit down 
and discuss the matter rationally with me and the 
representatives on the union, but they acknowledged it is 
public policy. And I ask you to read the memo, and I will make 
sure the committee has it. It has words right in there 
acknowledging that the parties understand there is a public 
policy consideration to the use of private contractors.
    I am encouraged. I told the Congress I wasn't being 
arrogant. I didn't need your help to negotiate a contract, I 
just needed somebody to negotiate with. You, the Members of 
Congress, in your infinite wisdom have the Postal Service to 
perform for the members of my union and now have a contract. I 
am very hopeful that the person that speaks right after me--he 
is the one person without a contract yet, and I hope that he 
and the Postal Service get together and he includes one for him 
and his members as soon as possible.
    A couple of other things I wanted to mention. Potter's 
scenario is that he has only got three choices. He acknowledged 
the fourth choice. I know you didn't miss it when he talked 
about revenue. We have already $300 million of additional 
revenue in the U.S. Postal Service in the last 2 years through 
a program. We upped this program for another 5 years. And 
remember, the first 2 years was just the infancy of it. We have 
less than 10 percent of our members involved in this. I hope 
they have a substantially greater number, and that should 
translate into a substantially greater revenue increase for the 
U.S. Postal Service.
    I use the checkbook because I am a simple man. When your 
checkbook runs out, you have only got two choices. If you don't 
want to go to jail, either stop writing checks or put more 
money in the check fund. There is a third choice, and we won't 
talk about that because we're honorable people here, and we 
don't want to spend the rest of our lives behind bars. They can 
increase their revenue, too.
    One last point that won't hurt the Postal Service--but I 
won't listen to what is going on without responding to this. 
They have already built into the rate increases--somebody 
asked, I think, Mr. Kessler, is there any reason for optimism 
down the road? And he gave me, no, there will always be 
problems.
    I am not saying there always won't be problems. Let me be 
the optimist here. The Congress put a hit on the Postal Service 
for 10 years to pay down the expected future retiree health 
benefits. That is the issue of $60 billion when we first 
started. I don't know what it is now because these numbers grow 
like wildfires. Whatever that number was, that is what caused 
the GAO to put the Postal Service on the end when it was 
passed. One of the things that the Congress insisted upon--and 
it is included in the law they have--to pay this down, and it 
must be down in 10 years. They raised the rates once last year 
or maybe twice. I have lost track. But the point is they raised 
the rates. At the end of the 10 years, if we can get through 
the next 10 years, there ought to be a substantial amount, $3.8 
billion a year. There ought to be that hanging around for us to 
deal with some of the other issues that plague the Postal 
Service.
    On the very last issue, health benefits, both the inspector 
general--and the health benefits went up 27 percent since 2002. 
I don't know about that, but here is what I do know. It went up 
1.8 percent last year, 2007, and 6.6 percent the year before in 
2005. That's 6 and 5 I have given you--7 and 6, I am sorry. I 
don't know where you get this 27 percent. But for some reason, 
the program's experiencing--knock on wood--has had 3 or 4 good 
years because we had at least 10 years of double-digit 
inflation. Like I said, 6.6 one year, 1.8 last year, and there 
is a lot of people who think it will be good this year, too. So 
there is hope on the horizon.
    I thank the committee for allowing me to testify, and I 
thank you for my presentation.
    Mr. Davis. Thank you, Mr. Young.
    [The prepared statement of Mr. Young follows:]

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    Mr. Davis. Mr. Pitts.

                   STATEMENT OF DONNIE PITTS

    Mr. Pitts. Mr. Chairman and members of the committee, my 
name is Donnie Pitts. I am president of the National Rural 
Letter Carriers' Association, and I want to thank you, Mr. 
Chairman, for holding these hearings on contracting out.
    As of February 2007, there are more than, 75,000 rural 
routes and they drive more than 3.3 million miles a day. We 
sell stamps and money orders, priority mail, certified mail in 
rural and suburban areas, too.
    Mr. Chairman, I am pleased to report that as of July 18th, 
there are 225 bipartisan cosponsors of House Resolution 282, a 
resolution that is introduced by the Honorable Albio Sires, 
expressing the sense of the House of Representatives that the 
U.S. Postal Service should discontinue the practices of 
contracting out delivery services.
    What I have a hard time understanding is why all 435 
Representatives are not cosponsors of this important 
resolution. Is it because the Postal Service has suggested that 
contract delivery is a matter of collective bargaining and not 
a policy question? I hope not, because contracting out most 
certainly raises significant policy questions, particularly 
when the safety and security of the mail is at stake.
    Mr. Chairman, I am sure by now that everyone knows that the 
NRLCAs that I represent in the Postal Service did not reach an 
agreement between our recent contract negotiations, and we are 
headed toward interest arbitration. What is less well known is 
that unlike our friends in the civic aircraft, contract 
delivery services were never brought forward during our union 
talks with the Postal Service. We don't see what the Postal 
Service is doing now as a collective bargaining issue. We see 
it as a policy issue.
    There are a number of different policies already in place 
with the Postal Service to limit what can and cannot be 
contracted out. Our national agreement with the Postal Service 
contains an article which addresses subcontracting, article 32. 
Article 32 sets the standards and policies under which routes 
can be subcontracted.
    The Postal Service's P-5 handbook, which establishes a 
national policy and procedures for the operation and 
administration of highway contract routes, that handbook 
language states that the route that serves less than one family 
per mile may be converted to contract delivery service.
    Additionally, we have grievances at the national level that 
challenge the improper contract and out-of-mail delivery.
    Mr. Chairman, we as a union have done everything within our 
power utilizing policies and agreements with the Postal Service 
to stop the Postal Service from contracting out the delivery of 
mail. Despite this, the Postal Service continues to ignore all 
these policies and agreements and continues to contract out 
routes. I am asking that the House introduce legislation to 
stop the contract delivery services.
    Mr. Chairman, in May, you held a side hearing in Chicago, 
IL, regarding the slow delivery of mail. Congressmen in New 
Mexico are scheduling meetings with officials from the Postal 
Service to discuss schedule concerns throughout New Mexico. 
When the Postal Service announces the consolidation or closing 
of a facility within a congressional district, that Congressman 
gets involved.
    During the passage of postal reform, even the initial work 
sharing was made into a policy issue. Every time the Postal 
Service enters into a work-sharing agreement with a mailer, the 
end result is a postal employee not performing the work.
    What I am trying to point out, using these examples, is 
that when there is a problem with the mail service closing the 
facilities, security or other problems, Congress gets involved 
to correct that problem. My question is, why isn't Congress 
getting involved in stopping contracting out? Do they not see 
this as an issue just as important as service problems or 
consolidations of facilities?
    I have no problem telling you, this is an issue that is 
just as important as the others.
    Letter carriers are the face of the Postal Service. We are 
the ones the American public sees out on the streets every day 
delivering mail. They get to know us. They become our friends, 
and they trust us. This honor, for the third year in a row, has 
earned the Postal Service the distinction of being named the 
most trusted government agency by the Ponemon Institute.
    I reference this survey because the public's perception of 
the Postal Service is delivery. If the Postal Service fails to 
deliver because of here-today, gone-tomorrow contractors, the 
mail will find another--the mailers will find another way to 
get their message to the public.
    I care about the future of the Postal Service. I want the 
Postal Service to succeed. Hiring nonloyal and unreliable 
contractors is not the way to ensure the success of the Postal 
Service.
    Mr. Chairman, you and Mr. McHugh, Mr. Waxman and Mr. Davis 
spent 15 years passing postal reform to make the Postal Service 
more viable for the 21st century. I don't believe the Postal 
Service of the future you all envisioned while working on 
postal reform was going to be made up of contracting employees. 
Instead, I think you envisioned the Postal Service of the 
future as a good-paying, middle-class job with a decent health 
and retirement benefits.
    Delivering the mail for the Postal Service of the future 
should be properly trained professionals and dependable 
employees.
    I thank you for allowing me to testify here today, and if 
you have any questions of me, I will be glad to answer those.
    [The prepared statement of Mr. Pitts follows:]

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                   STATEMENT OF JOHN HEGARTY

    Mr. Hegarty. Thank you very much. My name is John Hegarty. 
I am the president of the National Postal Mail Handlers Union, 
which serves as the exclusive bargaining unit for approximately 
57,000 mail handlers employed by the U.S. Postal Service.
    During the subcommittee and oversight hearing, I testified 
on the question of whether the Postal Service should be 
outsourcing some of its core functions, including the 
processing of mail normally handled at government centers or 
the processing of military mail headed to our troops in Iraq 
and Afghanistan.
    I will not repeat that testimony here today, but rather 
would ask that my written testimony from April 17, 2007, be 
incorporated into the record of these proceedings.
    What I would like to focus on today is the following issue: 
What is the real cost of this privatization? As this 
subcommittee knows, subcontracting allows core functions of the 
Postal Service to be performed by low-paid, no-benefit, 
noncareer and often transient workers. We believe that you get 
what you pay for.
    We believe that the processing and delivery of mail in the 
postal system should be a core function of the professional 
work force employed by the Postal Service and should not be 
subject to the low-bid ideology. Surely the American people do 
not want some contract employee reaching into their 
neighborhood mailbox or handling and processing their package 
to a loved one either here or in the military overseas.
    The public has a trust level that is breached when 
privateers are hired. Thus, the Mail Handlers Union believes 
that the use of low-paid, private workers to perform core 
postal functions and the resulting reduction in career postal 
jobs is sufficient reason for the Postal Service to stop that 
subcontracting.
    But we also live in the 21st century and therefore we know 
that some will argue that getting the work performed more 
cheaply is the same as getting the work performed efficiently, 
safely and securely.
    The Board of Governors, some members of the Board of 
Governors like to point out that under the recently adopted 
Postal Accountability and Enhancement Act of 2006, the Postal 
Service has to live within the CPI for the rate of inflation, 
because it will be allowed to raise rates only by increases in 
the Consumer Price Index starting next year. Thus, their 
argument goes that the Postal Service has to subcontract in 
order to save the higher cost of performing the work in-house.
    The premise of their argument, however, that the Postal 
Service will save money by allowing private contractors to 
perform the work currently performed by mail handlers and other 
career postal employees is totally false. Recent experience has 
shown that the subcontracting of mail handler jobs has not 
worked. In fact, it has had the opposite effect of leading to 
expensive inefficiencies that have cost postal customers much 
more than the Postal Service expected.
    I won't reiterate in detail, but Congressman Lynch 
referenced earlier to the Emery subcontract, and I would like 
to point that out as an example.
    The Mail Handlers Union wishes to ensure that the ongoing 
debate over subcontracting is promptly focused. It is both 
superficial and incorrect to assume that the wages and benefits 
paid to career postal employees, which admittedly are higher 
than the amounts that contractors will agree to, may, to 
privatized workers, automatically mean that the Postal Service 
is saving money when it subcontracts. It is clear from prior 
OIG audits that a simple financial comparison based on wage 
rates is misleading and does not accurately reflect the actual 
costs that are borne by the Postal Service when it decides to 
subcontract work to the private sector.
    For many years, the Mail Handlers Union has been trying to 
convince postal management to analyze its proposed subcontracts 
more carefully with an eye on all of the actual costs that 
subcontracting imposes on the Postal Service, above and beyond 
the savings projected by lowering hourly employment costs. That 
is why I focused on these issues today.
    I request that the subcommittee include in the record of 
this hearing the OIG audits that I have mentioned during my 
testimony.
    When all is said and done, each and every proposal to 
subcontract postal work needs to be analyzed carefully.
    We certainly understand that the Board of Governors is 
chaired by someone who has advocated for decades that 
privatization of the Postal Service is best for America. We do 
not share that view. We do not believe that the American public 
or many Members of Congress share the view that dismantling the 
Postal Service and dividing its parts into private components 
is a wise investment of our Nation's resources.
    There has been some discussion about the earlier Postal 
Reorganization Act and the mandate that the Postal Service 
deliver to each and every address every delivery day. There is 
also something else in the Postal Reorganization Act that 
continues in the current statute, and that is that the Postal 
Service is mandated, ``As an employer, the Postal Service shall 
place particular emphasis upon opportunities for career 
advancement of all officers and employees and the achievement 
of worthwhile and satisfying careers in the U.S. Postal 
Service.''
    And I believe that should be adhered to as well and should 
be factored into the current debate regarding subcontracting.
    Again, thank you for this opportunity to testify.
    If you have any questions, I would be glad to answer them.
    [The prepared statement of Mr. Hegarty follows:]

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    Mr. Davis. Well, let me thank the gentlemen for your 
testimony. Unfortunately, we have 15 votes, some of which are 
antilabor, and so I think I am going to have to go and cast 
mine.
    But let me thank you for appearing. We would not dare ask 
you to wait until we finish with all of those.
    I am sure that the subcommittee appreciates the positions 
expressed by all of those who have come and testified this 
afternoon. I think it has been a very worthwhile hearing that 
is going to help us move ahead as we continue to develop 
policy; but more importantly, as we continue to try and wrestle 
with the role of collective bargaining and the role that we 
hope it will continue to play in the making of decisions 
relative to the operation of our Federal work force.
    So we thank you very much. And this hearing is adjourned.
    [Whereupon, at 4:45 p.m., the subcommittee was adjourned.]

                                 
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