[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]


 
             THE FINANCIAL STATE OF THE U.S. POSTAL SERVICE 

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

                                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 ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 25, 2009

                               __________

                            Serial No. 111-1

                               __________

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






















             THE FINANCIAL STATE OF THE U.S. POSTAL SERVICE






















             THE FINANCIAL STATE OF THE U.S. POSTAL SERVICE

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

                                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 ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 25, 2009

                               __________

                            Serial No. 111-1

                               __________

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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50-649 PDF                       WASHINGTON : 2009 

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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                   EDOLPHUS TOWNS, New York, Chairman
PAUL E. KANJORSKI, Pennsylvania      DARRELL E. ISSA, California
CAROLYN B. MALONEY, New York         DAN BURTON, Indiana
ELIJAH E. CUMMINGS, Maryland         JOHN M. McHUGH, New York
DENNIS J. KUCINICH, Ohio             JOHN L. MICA, Florida
JOHN F. TIERNEY, Massachusetts       MARK E. SOUDER, Indiana
WM. LACY CLAY, Missouri              TODD RUSSELL PLATTS, Pennsylvania
DIANE E. WATSON, California          JOHN J. DUNCAN, Jr., Tennessee
STEPHEN F. LYNCH, Massachusetts      MICHAEL R. TURNER, Ohio
JIM COOPER, Tennessee                LYNN A. WESTMORELAND, Georgia
GERRY E. CONNOLLY, Virginia          PATRICK T. McHENRY, North Carolina
ELEANOR HOLMES NORTON, District of   BRIAN P. BILBRAY, California
    Columbia                         JIM JORDAN, Ohio
PATRICK J. KENNEDY, Rhode Island     JEFF FLAKE, Arizona
DANNY K. DAVIS, Illinois             JEFF FORTENBERRY, Nebraska
CHRIS VAN HOLLEN, Maryland           JASON CHAFFETZ, Utah
HENRY CUELLAR, Texas                 AARON SCHOCK, Illinois
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
PETER WELCH, Vermont
BILL FOSTER, Illinois
JACKIE SPEIER, California
STEVE DRIEHAUS, Ohio
------ ------
------ ------
------ ------

                      Ron Stroman, Staff Director
                Michael McCarthy, Deputy Staff Director
                      Carla Hultberg, Chief Clerk
                  Larry Brady, Minority Staff Director

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

                    STEPHEN F. LYNCH, Massachusetts
ELEANOR HOLMES NORTON, District of   JASON CHAFFETZ, Utah
    Columbia                         JOHN M. McHUGH, New York
DANNY K. DAVIS, Illinois             JOHN L. MICA, Florida
ELIJAH E. CUMMINGS, Maryland         MARK E. SOUDER, Indiana
DENNIS J. KUCINICH, Ohio, Chairman   BRIAN P. BILBRAY, California
WM. LACY CLAY, Missouri
GERRY CONNOLLY, Virginia
                     William Miles, Staff Director


























                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on March 25, 2009...................................     1
Statement of:
    Burrus, William, president, American Postal Workers Union, 
      AFL-CIO; William H. Young, president, National Association 
      of Letter Carriers, AFL-CIO; John F. Hegarty, National 
      president, National Postal Mail Handlers Union; and Don 
      Cantriel, president, National Rural Letter Carriers' 
      Association................................................   144
        Burrus, William..........................................   144
        Cantriel, Don............................................   190
        Hegarty, John F..........................................   162
        Young, William H.........................................   154
    Gallagher, Carolyn, chairman, Board of Governors, U.S. Postal 
      Service; and Dan G. Blair, chairman, Postal Regulatory 
      Commission.................................................    44
        Blair, Dan G.............................................    52
        Gallagher, Carolyn.......................................    44
    Goff, Dale, president, National Association of Postmasters of 
      the United States and Postmaster of Covington, LA; Charles 
      W. Mapa, president, National League of Postmasters; and Ted 
      Keating, president, National Association of Postal 
      Supervisors................................................   108
        Goff, Dale...............................................   108
        Keating, Ted.............................................   133
        Mapa, Charles W..........................................   116
    Potter, John E., Postmaster General and CEO, U.S. Postal 
      Service....................................................     9
    Williams, David C., Inspector General, U.S. Postal Service; 
      and Phillip Herr, Director, Physical Infrastructure Issues, 
      U.S. Government Accountability Office......................    71
        Herr, Phillip............................................    79
        Williams, David C........................................    71
Letters, statements, etc., submitted for the record by:
    Blair, Dan G., chairman, Postal Regulatory Commission, 
      prepared statement of......................................    54
    Burrus, William, president, American Postal Workers Union, 
      AFL-CIO, prepared statement of.............................   147
    Cantriel, Don, president, National Rural Letter Carriers' 
      Association, prepared statement of.........................   192
    Gallagher, Carolyn, chairman, Board of Governors, U.S. Postal 
      Service, prepared statement of.............................    47
    Goff, Dale, president, National Association of Postmasters of 
      the United States and Postmaster of Covington, LA, prepared 
      statement of...............................................   111
    Hegarty, John F., National president, National Postal Mail 
      Handlers Union, prepared statement of......................   164
    Herr, Phillip, Director, Physical Infrastructure Issues, U.S. 
      Government Accountability Office, prepared statement of....    81
    Keating, Ted, president, National Association of Postal 
      Supervisors, prepared statement of.........................   135
    Lynch, Hon. Stephen F., a Representative in Congress from the 
      State of Massachusetts:
        Prepared statement of....................................     3
        Questions for the record.................................    24
    Mapa, Charles W., president, National League of Postmasters, 
      prepared statement of......................................   118
    McHugh, Hon. John M., a Representative in Congress from the 
      State of New York, prepared statement of...................   206
    Potter, John E., Postmaster General and CEO, U.S. Postal 
      Service, prepared statement of.............................    12
    Williams, David C., Inspector General, U.S. Postal Service, 
      prepared statement of......................................    74
    Young, William H., president, National Association of Letter 
      Carriers, AFL-CIO, prepared statement of...................   157


             THE FINANCIAL STATE OF THE U.S. POSTAL SERVICE

                              ----------                              


                       WEDNESDAY, MARCH 25, 2009

                  House of Representatives,
Subcommittee on Federal Workforce, Postal Service, 
                      and the District of Columbia,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:17 a.m., in 
room 2154, Rayburn House Office Building, Hon. Stephen F. Lynch 
(chairman of the subcommittee) presiding.
    Present: Representatives Lynch, Chaffetz, Norton, Davis, 
Souder, Cummings, Bilbray, Kucinich, Turner, Clay, Connolly, 
Towns, and Maloney.
    Staff present: Tania Shand, staff director; Marcus A. 
Williams, clerk/press secretary; Margaret McDavid and Jill 
Henderson, detailees; Tyler Pride, intern; Lawrence Brady, 
minority staff director; Charles Phillips, chief counsel for 
policy; Dan Blankenburg, minority director of outreach and 
senior advisor; Adam Fromm, minority chief clerk and Member 
liaison; Howard Denis, minority senior counsel; Jonathan 
Skladany, minority counsel; and Alex Cooper, minority 
professional staff member.
    Mr. Lynch. Good morning. The Subcommittee on Federal 
Workforce, Postal Service, and the District of Columbia's first 
hearing in the 111th Congress will now come to order.
    I want to welcome Ranking Member Chaffetz, and members of 
the subcommittee, hearing witnesses and all those in 
attendance. Today's hearing will examine the financial 
stability of the U.S. Postal Service. The Chair and the ranking 
member and the subcommittee members will each have 5 minutes to 
make an opening statement, and all Members will have 3 days to 
submit statements for the record.
    Hearing no objection, so ordered.
    I also want to note that Mr. Turner, not a member of the 
subcommittee, without objection and with unanimous consent, it 
will be agreed that he will participate fully in the hearing, 
without objection.
    Mr. Connolly, you had a point of order?
    Mr. Connolly. Not a point of order, Mr. Chairman, I just 
want to make sure that on the previous vote, although it was 
not a recorded vote, that my statement was entered into the 
record.
    Mr. Lynch. Yes, you had submitted your statement and I made 
a motion to enter your submission into the record.
    Mr. Connolly. I am happy to support the previous motion. 
Thank you, Mr. Chairman.
    Mr. Lynch. OK, thank you, Mr. Connolly.
    Welcome, Ranking Member Chaffetz and members and staff of 
the subcommittee and today's witnesses, as we hold the first 
subcommittee hearing of the 111th Congress. I would like to 
give a special welcome to the Oversight Committee chairman, Mr. 
Towns, who is with us this morning, and the ranking member, Mr. 
Issa, for joining us this morning.
    This hearing on the financial stability of the U.S. Postal 
Service is not only timely but critical to the American 
expectation of affordable 6-day mail delivery. The subcommittee 
will now examine the nationwide economic downturn and 
technological advancements have produced declining volumes and 
revenues for the Postal Service.
    With the Postal Service facing unprecedented budget 
shortfalls, the subcommittee will consider a number of options 
to restore financial stability to the Postal Service. We will 
also examine ways for the Postal Service to continue to operate 
without cutting services.
    On March 20, 2009, the Postal Service announced new efforts 
to cut costs. Among these plans are, to close 6 of its 80 
district offices; eliminate 15 percent of administrative staff 
positions across all districts; eliminate more than 1,400 mail 
processing supervisor and management positions; and offer 
voluntary early retirement opportunities to nearly 150,000 
employees. These recent announcements and new reports of the 
Postal Service's dire financial condition are of concern to 
myself, the members of this committee and the American public.
    I expect that today's witnesses will offer effective short 
and long term strategies to reduce costs and improve efficiency 
in order to help ensure financial viability of the Postal 
Service. In addition, to better understand compensation at the 
Postal Service, I will question the Board of Governors on 
executives' compensation packages.
    Thank you and I look forward to a very informative hearing 
this morning.
    At this point, I will yield to our ranking member, Mr. 
Chaffetz of Utah.
    [The prepared statement of Hon. Stephen F. Lynch follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Chaffetz. Thank you, Mr. Chairman and thank you for 
holding this hearing. It is critical in this time.
    This is the first of our oversight hearings on the Postal 
Service and our first hearing overall. We are hear today to 
review the life blood issues involving the U.S. Postal Service. 
The U.S. Postal Service touches everyone. There are hundreds of 
thousands of employees and the postal industry generates 
hundreds of billions of dollars as the postal system and 
personnel process literally hundreds of billions of letters and 
packages. We all need the postal system to thrive. The task at 
hand is enormous.
    In 2006, the Congress passed the Postal Accountability 
Enhancement Act marked up in this committee as H.R. 22. There 
is now another H.R. 22 before us which would change the way the 
Postal Service pre-funds retiree health care. The requirement 
that U.S. Postal Service pre-fund the employer's portion of its 
future retirees' health benefits while paying premiums for 
current retirees is seen as an unnecessary cost burden.
    One thing is for sure: the U.S. Postal Service is in 
serious financial trouble. On January 28, 2009, the Government 
Accountability Office issued a significant study regarding the 
deteriorating postal finances requiring aggressive actions to 
reduce costs. We must continue to do our utmost to ensure that 
the Postal Service is managed responsibly, effectively and with 
the greatest integrity and that we are constantly looking for 
savings and other ways to be creative within the Postal Service 
to provide maximum service to the American people as it is 
articulated within the U.S. Constitution and making sure that 
we are providing a service that will allow our businesses, our 
friendships, the personal notes that will go through the Postal 
Service, and that system continues to thrive.
    With that in mind, we must also inquire into the Postmaster 
General's compensation package, possible consolidation policies 
within the system itself and the relocation policy in force and 
other issues that will come before us.
    With that, I look forward to the testimony, Mr. Chairman, 
and appreciate being able to participate today.
    Mr. Lynch. Thank you.
    At this point, the Chair would like to recognize the full 
committee chairman, the gentleman from Brooklyn, Mr. Towns, for 
5 minutes.
    Chairman Towns. Thank you very much, Chairman Lynch.
    Before starting my opening statement, I would like to 
congratulate you on becoming chairman of this important 
subcommittee, and thank you for your leadership and insight in 
holding today's hearing on the Postal Service.
    I also would like to congratulate the gentleman from Utah, 
Mr. Chaffetz, who as a freshman has already taken on an 
important leadership role in the House by serving as ranking 
member of this subcommittee. Congratulations.
    Today's hearing is fittingly entitled, ``The Financial 
State of the U.S. Postal Service.'' What needs to be done? 
Charged with the awesome task of providing prompt, reliable and 
efficient universal mailing service to all communities, 
businesses and households throughout the United States in 
territorial areas. The U.S. Postal Service has certainly 
withstood the test of time. But the massive operational and 
financial challenges confronting the Postal Service are unlike 
any we have ever seen before. Having ended the last fiscal year 
with a net loss of nearly $3 billion, and that is B as in boy, 
the deteriorating economic condition of the U.S. Postal Service 
can no longer be ignored or deferred.
    With electronic communications taking more and more 
customers out of the lobby of the post office, coupled with the 
enormous contraction of the U.S. economy, the Postal Service is 
struggling to remain a financially solvent and viable entity 
for both now as well as in the future.
    Yet the question remains how exactly will such stability be 
regained and more importantly maintained in the new and 
evolving 21st century economy. As mail volume declines and 
costs from labor, energy and expansion in the delivery network 
continues to increase, the Postal Service, its union 
affiliates, the Congress and the country must make some 
difficult decisions to get us through difficult times.
    So Mr. Chairman, it is my hope that today's witnesses will 
allow us to get at some of those answers and to help us 
determine what may have already been done to curtail costs, 
what innovations are currently in the works to reinvent and 
revive the Postal Service, and last what we in Congress may 
need to do to restore the Postal Service's financial standings 
and to ensure the Postal Service's extraordinary reliability 
and service.
    Again, I thank you, Mr. Chairman, for holding such a timely 
hearing and I look forward to hearing from the witnesses. Thank 
you and I yield back.
    Mr. Lynch. Thank you, Mr. Chairman. It is an honor to have 
you here with us.
    The Chair now recognizes the gentleman from Indiana, Mr. 
Souder, for 5 minutes.
    Mr. Souder. I pass, thank you, Mr. Chairman.
    Mr. Lynch. The gentleman passes.
    The Chair recognizes the gentleman from Ohio, Mr. Turner, 
for 5 minutes.
    Mr. Turner. Thank you, Mr. Chairman.
    I would like to thank Chairman Lynch and the Ranking Member 
Chaffetz for allowing me to participate in today's hearing on 
the financial state of the U.S. Postal Service. I look forward 
to reviewing the testimony from all of today's witnesses. 
General Potter, I want to thank you for participating in 
today's hearing.
    In the materials we have received in preparation for 
today's hearing, the Postal Service has increased their long-
term debt from zero dollars in fiscal year 2005 to over $7 
billion in fiscal year 2008. I, along with other members of 
this committee, am concerned about these figures and want to 
work with the Postal Service to find cost savings and measures 
that will help maintain the viability of the Post Office in the 
future.
    With that said, as some of you know, DHL, which operated 
their North American operations within my congressional 
district, recently ceased their domestic express shipping 
business, leaving essentially UPS and Federal Express as 
private shippers in the U.S. domestic shipping market. I am 
concerned that this market consolidation will have an impact on 
costs in domestic shipping. I was hoping that during this 
hearing you could comment on how this development in the 
private shipping markets could impact the Postal Service's 
ability to remain competitive.
    Given that the U.S. Postal Service actually contracts with 
private shippers for some of its delivery services, how might 
this consolidation in the market affect these contracts and how 
might these costs result in increases overall to the Postal 
Service?
    Again, I look forward to working with you to find effective 
ways to helping the Postal Service remain competitive and am 
interested in your comments concerning the consolidations in 
the market. Thank you.
    Mr. Lynch. The chairman neglected to note at the beginning 
of the hearing that because we have five panels today in this 
committee, we will be here very late unless we adhere very 
strictly to the 5-minute rule. So Members will have 5 minutes 
to ask a question and have it answered. And when the time runs 
out at the end of the 5-minutes, when that light turns red, 
whoever is speaking may have the opportunity to complete their 
thought, but we are going to maintain a fairly strict 5-minute 
limit, otherwise we would be here, again, very, very late.
    At this point, the Chair recognizes the gentleman from 
Illinois, Mr. Davis, for 5 minutes.
    Mr. Davis. Thank you very much, Mr. Chairman. I want to 
commend you on your leadership and also thank you for this very 
timely hearing.
    Last week, the Postal Service announced that it was closing 
offices and offering early retirement to nearly 150,000 
employees, almost a quarter of its work force. The agency 
indicated this action was necessary because of sharply lower 
mail volumes due to the recession. Supported solely by mailing 
and shipping revenues, not taxpayers, the Postal Service is 
experiencing a short-term financial crisis. I believe that 
Congress can act to provide some immediate breathing room at no 
cost to taxpayers by supporting the bill that I have co-
sponsored with Representative John McHugh of New York. Our 
bill, H.R. 22, removes an outdated retiree health benefit 
mandate designed for much happier times.
    When we passed the PAEA, the Postal Accountability and 
Enhancement Act, the climate was a bit different then than what 
it is now. Times have changed. The national economy is in a 
recession and there is no place more reflective of that than 
the economic reality of the Postal Service, which has seen a 
steep decline in mail volume and revenue since December 2007. 
Despite declines in mail volume and revenue, the Postal 
Service, nevertheless, is obligated to cover the cost of 
operating an extensive network of facilities, delivery vehicles 
and personnel necessary to serve the Nation 6 days a week. Even 
with continuing extraordinary steps to cut costs, the enormous 
fixed cost of operating the national mail service threatens to 
overwhelm the ability of the Postal Service to operate.
    The aggressive approach to pre-funding future retiree 
health benefits that appeared doable 2 short years ago is now 
untenable, in my estimation. I hope that this hearing will give 
us an opportunity to thoroughly explore the problems and 
difficulties being faced by what I considered to be one of our 
great national treasures, that is the Postal Service.
    Actually, this time has been coming for quite some time. We 
have been putting off, delaying, deferring, not dealing with 
it, hoping that somehow or another the inevitable we would not 
have to face up to. But I think the time has now come. There is 
unequivocally no doubt in my mind that some serious 
reevaluation of our Postal Service must take place. I believe 
that evaluation will begin this morning. So I want to thank you 
for this hearing and certainly welcome Mr. Potter.
    Mr. Lynch. Thank you.
    The Chair recognizes the gentleman from Maryland, Mr. 
Cummings, for 5 minutes for an opening statement.
    Mr. Cummings. Thank you very much, Mr. Chairman. I thank 
you too, I join my colleagues in expressing our appreciation 
for this hearing.
    We hold this hearing today at a time when our national 
economy is struggling and the U.S. Postal Service is not immune 
to that trend. Postmaster General John Potter, who will testify 
before us today, recently testified before the Senate Committee 
on Homeland Security and Governmental Affairs that the Postal 
Service operated at a $2.8 billion loss for fiscal year 2008. 
He said the loss can be attributed largely to two factors: the 
unprecedented decline in mail volume due to increased use of 
electronic communications and others factors; and the economic 
recession that is affecting all sectors.
    Mr. Potter further outlined his plan for action to achieve 
fiscal solvency. In addition to raising postal rates, the 
Postal Service has been able to identify over $2 billion in 
cost reductions ranging from consolidation and modernization of 
plant operations and cuts in the city delivery options. Many 
tough decisions have had to be made, not the least of which is 
a cutback of 15 million work hours in the first 2 months of 
this year, in addition to the 50 million work hours saved in 
2008 and the 36 million work hours saved in 2007.
    The Postal Service's 600,000 career employees have had to 
face serious cutbacks to ensure the agency's viability and we 
commend them for their sacrifice. Still, this may not be 
enough. Mr. Potter indicated in his testimony before the Senate 
panel that the Postal Service may have to reduce delivery 
service to 5 days a week, rather than the current 6-day 
schedule. The headline-grabbing reality served as a wakeup call 
to the American public and to those of us in Congress who 
represent them.
    The U.S. Postal Service is currently the most dependable, 
expansive mail delivery system in the world. Ours is the only 
system that guarantees timely delivery to every address in the 
country 6 days a week without fail. That is why we must do all 
in our power to ensure that it continues to thrive.
    Some tough choices will have to be made, including both 
short-term solutions like that proposed by H.R. 22, which would 
allow the Postal Service to use its reserve to pay employee 
health benefits to more long-term decisions such as cutting 
back work hours and service delivery. I expect that the 
leadership of the Postal Service will have to make some 
sacrifices as well, including Mr. Potter himself.
    I want to thank you, Mr. Chairman, and I yield back.
    Mr. Lynch. Thank you.
    The Chair now recognizes the gentlelady from the District 
of Columbia, Ms. Norton, for 5 minutes.
    Ms. Norton. I thank you, Mr. Chairman.
    This is perhaps the real moment of truth for the Postal 
Service and for the Congress of the United States. We have sat 
with you, Mr. Chairman, before you became Chair, in hearing 
after hearing where we noted the decline of the Postal Service 
through, frankly, no fault of its own. Even if it were the most 
efficient corporation in the United States, it could not have 
been the same Postal Service it was when all of us were 
children, given competition from private carriers, and 
particularly, and perhaps most importantly, competition from 
other forms of communication.
    The decline in the so-called volume of postal volume now 
during what we are politely calling a recession which has taken 
out jobs in 50 States, has to be seen on top of what the Postal 
Service was already experiencing. The Postal Service had been 
driven into many economic efficiency moves by the factors I 
have named. Today, I will be interested in what further can be 
done in efficiency. It is very hard to believe that the Postal 
Service, given what it was already up against, hadn't exhausted 
efficiencies.
    I do note that the Postal Service is like other large 
American corporations, having to deal with health care. And I 
also note that health care was a major element in the take-down 
of the American industry that literally created the American 
middle class, the automobile industry. I think that somehow 
everybody has to look at that when it comes to this particular 
corporation. There is no question in my mind it could take it 
down. The question becomes what do we do to keep that from 
happening. There may be some temporary things we can do. We 
have to watch out for what we do. Something has to give.
    I don't blame the Postmaster for talking about 5 days a 
week service. I know he doesn't want to do more layoffs. But if 
something has to give, we have to find out what it is if we 
want to remain a country that has a national postal service.
    I thank you, Mr. Chairman.
    Mr. Lynch. I thank the gentlelady. The Chair now recognizes 
the gentleman from Virginia, Mr. Connolly, for 5 minutes for an 
opening statement.
    Mr. Connolly. Thank you, Mr. Chairman. I am delighted to be 
here today, and welcome, Mr. Potter.
    I just want to note that obviously the Postal Service is 
struggling in this economy like everybody else and is 
struggling to try to make itself a more solvent organization. I 
am pleased to be a co-sponsor of H.R. 22, which if enacted we 
believe would save as much as $2 billion in retirement payments 
this year for the Postal Service.
    I do want to stress, however, Mr. Chairman, that just as we 
have seen concern about issues like bonuses in non-performing 
companies or companies that can't meet their financial goals, I 
think the Postal Service has to look to itself in that regard 
as well. I would hope this hearing will examine that.
    I also, as somebody who until 9 weeks ago was the head of a 
very large local government, I think about my own jurisdiction. 
The Merrifield Post Office, which serves all of northern 
Virginia, or most of northern Virginia, hours got changed with 
almost no communication to local governments. So I would hope 
that as we explore in this hearing the operations of the Postal 
Service we can also talk about improving communication with our 
local officials, so that if there are changes contemplated, 
there is an advance notification and the opportunity for some 
kind of dialog before those changes are effectuated and having 
to be absorbed and explained by local officials who had nothing 
to do with those changes.
    So I look forward to this hearing, Mr. Chairman. I may be 
in and out because we are marking up the budget today in the 
Budget Committee. But I want to thank you, Mr. Chairman, for 
hosting this hearing.
    Mr. Lynch. Thank you. The Chair now recognizes the 
gentlelady from New York, Mrs. Maloney, for 5 minutes for an 
opening statement.
    Mrs. Maloney. Thank you. I just want to welcome the 
Postmaster General and express my support for the Postal 
Service and H.R. 22. Likewise I am in a markup in another 
committee, but I wanted to note their bravery through the 
anthrax attacks and their efforts to get the job done in rural 
areas and all across our country, and my support for working 
with you in this hearing and for more solutions to make the 
Postal Service more efficient and to be supportive of the 
workers and their important contribution to our country.
    Thank you.
    Mr. Lynch. Thank you.
    The committee will now hear testimony from today's 
witnesses. It is the committee policy that all witnesses are 
sworn in. I invite Mr. Potter to please rise and raise your 
right hand.
    [Witness sworn.]
    Mr. Lynch. Let the record show that the witness has 
responded in the affirmative.
    Welcome, Mr. Potter. Mr. John E. Potter, Postmaster General 
and CEO of the U.S. Postal Service was named 72nd Postmaster 
General of the United States of America on June 1, 2001. He 
currently sits on the Postal Service Board of Governors and is 
vice chairman of the International Post Corp., an association 
of 23 national posts in Europe, North America and the Asian 
Pacific.
    Welcome, Mr. Potter.

 STATEMENT OF JOHN E. POTTER, POSTMASTER GENERAL AND CEO, U.S. 
                         POSTAL SERVICE

    Mr. Potter. Thank you, Mr. Chairman, and good morning, 
Congressman Chaffetz and members of the committee.
    It is an honor to be here representing the hard-working men 
and women of the U.S. Postal Service to discuss the financial 
challenges facing our great institution. We are working hard to 
serve America and we are proud of our accomplishments.
    For example, in 2008, service and customer satisfaction 
reached record levels. Employee satisfaction hit an all-time 
high, as workplace accidents were at an all-time low. For the 
5th straight year, the Postal Service was rated the most 
trusted Federal agency and 1 of the 10 most trusted 
organizations in America. We reduced our costs by over $2 
billion.
    Let me assure you that we are concerned about the future 
and we are investing in the future. We are modernizing our Web 
site, adding new automated equipment, introducing next 
generation bar codes to improve efficiency. And we are using 
the pricing flexibility from the Postal Act of 2006 to grow 
mail volume.
    But despite these positive efforts, a diversion of mail to 
electronic communications and a severe contraction of the 
economy have left the Postal Service in a very precarious 
position. Over the years, first class mail volume has declined 
due to the diversion to the Internet. This has been somewhat 
offset by the growth in advertising and other mail. However, ad 
mail produces less revenue per piece than first class mail. 
This, combined with a growing number of delivery addresses, has 
caused our entire organization to focus on productivity to 
close the revenue gap. We have taken billions in dollars of 
costs out of our base and we have done that for the past 8 
years.
    None of us, though, anticipated the dramatic downturn in 
the economy. By the end of this fiscal year, mail volume is 
projected to fall by more than 30 billion pieces from 2007 
levels, the equivalent of $12 billion of lost revenue. Our 
people have responded heroically. We are working together with 
our unions and management associations. We plan to reduce costs 
by $5.9 billion this year alone.
    To make this happen, we have instituted a nationwide hiring 
freeze. We are consolidating operations, using fewer machines 
on fewer work shifts and fewer facilities with fewer mail 
carriers. We are eliminating thousands of administrative and 
supervisor positions and we are offering voluntary early 
retirement to 150,000 employees.
    Despite these unprecedented efforts and based on current 
volume projections, we will come up approximately $6 billion 
short of breaking even this year. Even with a cash carryover of 
$1.4 billion, and an ability to borrow $3 billion from the 
Treasury, we will still run out of cash with approximately $1.6 
billion in obligations that we cannot meet this year.
    I know that the House cares very much about the Postal 
Service. That is why I am urgently requesting that you enact 
H.R. 22, introduced by Representatives John McHugh and Danny 
Davis of this subcommittee, and co-sponsored by over 200 
Members of Congress.
    H.R. 22 would permit the Postal Service to pay its share of 
health benefit costs for current retirees from our retiree 
health benefit trust fund, which today has a balance of $32 
billion. The Postal Service contributes more than $5 billion to 
that fund each year. H.R. 22 addresses our critical cash-flow.
    But we also need to be prudent and look ahead. Mail has 
helped build this great Nation, but even with the decline in 
mail volume, we remain a conduit for a trillion dollars in 
commerce. And a strong Postal Service, we cannot put our Postal 
Service at risk. But our law limits our ability to act and 
adjust to changes in mail use when it comes to pricing, 
delivery frequency, the number of post offices and the types of 
products we can offer. These restrictions will put our post at 
risk if we don't step up and change them.
    The time for change is now. That is why I am engaging all 
our stakeholders, consumers, mailers, industry and employee 
groups, the Congress, the PRC and others, in a dialog about how 
we can keep the Postal Service strong. It will require 
structural changes to match our service levels with the 
changing demand. The demand for mail delivery reached a peak of 
5.9 pieces of mail delivered to each address in 2000. Today we 
are delivering 4.7 pieces of mail.
    Given this trend, I believe the Postal Service Board of 
Governors needs the flexibility to change delivery frequency 
from 6 to 5 days. This would help us reconfigure our operation 
in line with today's demand, keeping rates affordable. We 
cannot lose sight of the fact that our customers pay the costs 
of our services. We are not funded by congressional 
appropriations. We have to find the right balance between 
service and affordability and we have to do all we can to avoid 
having the burden of long-term retiree costs fall on taxpayers.
    By taking the necessary actions today, I believe we can 
accomplish both. There is a path to success. I remain bullish 
on the mail. I am convinced that mail volume will grow as the 
economy grows. The mail is important to America. I am convinced 
it is a key to helping the economy grow. A viable Postal 
Service requires change. We are pushing the boundaries of 
change within the Postal Service and with your support, we can 
modify the law to assure a strong and bright future.
    Thank you, Mr. Chairman. That concludes my remarks.
    [The prepared statement of Mr. Potter follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Mr. Lynch. Thank you, Mr. Potter.
    Let me begin the questioning. Before I do, we have invited 
Members to submit their questions in writing, for those who are 
unable to attend. I would like to enter into the record the 
questions for the record on behalf of Representative Jose 
Serrano before this committee. With unanimous consent, I will 
enter those into the record.
    [The information referred to follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Lynch. Mr. Potter, let me get right to one issue that 
is probably uncomfortable for you and for myself as well, and 
that is the matter of your salary and compensation, let me 
broaden that out. There have been some reports in the press 
that when you dig into the facts, that there is not necessarily 
reflective of an accurate assessment of your compensation. But 
we in our districts, myself with a heavy postal population in 
my district, have been confronted with this, well, I will tell 
you exactly.
    I was at the Stop and Shop the other night and an older 
gentleman, a retiree of the Post Office, confronted me, as my 
constituents are sometimes known to do, and said, let me get 
this straight, Congressman. You paid CEO Potter $800,000 to 
lose $3 billion last year. Couldn't we get somebody to do that 
job for less? That was basically how they laid it on me.
    I tried to explain our position and yours, but I want to 
give you a full opportunity to do that. Given today's 
environment, and I am sure you are aware of the whole situation 
with AIG and bonuses and going to Merrill Lynch. In this 
environment, in these difficult financial times, can we 
justify, can the Postal Service justify your compensation 
package, which I would like you to clarify? I am sure it has 
been exaggerated, I have already looked at the numbers here. 
But I want you to basically tell us what your compensation 
package represents and how it is broken down. I want you to 
inform the committee of at least your side of the story.
    Mr. Potter. Thank you, Mr. Chairman.
    First, let me talk about elements of this $800,000 plus 
number. The first element that I believe probably shouldn't be 
there in terms of compensation is the fact that I have a 
security detail, which is attributed as a revenue to me, or a 
pay to me, of some $66,000. That service is performed by the 
U.S. Postal Inspection Service. So that is an element of my 
pay.
    My base pay as prescribed by law is up to 120 percent of 
the Vice President's salary. Prior to the Postal Accountability 
and Enhancement Act, it was much less.
    Mr. Lynch. Postmaster General, is there an historic reason 
why your pay was tied to the Vice President of the United 
States. I don't see any similarity in responsibilities. Not to 
reflect poorly on either one of you.
    Mr. Potter. I am just describing what it is. The rationale 
was the Congress's, not mine. I was not imploring people for a 
pay raise. The Board of Governors had asked the Congress for 
additional flexibility to hire and retain talent in the Postal 
Service. So again, by law my pay is $263,575.
    Since, and as a result of me being a career employee at my 
age, every year that I stay I get 2 percent additional credit 
in the Civil Service Retirement System.
    Mr. Lynch. How long have you been in that system?
    Mr. Potter. I have been in that system since 1978. So 
almost 31 years. So each year that I stay, I get an extra 2 
percent in my pay. In addition to that, since I am not 55 yet, 
every year I stay that is 2 percent of a penalty that would 
incur if I were to leave early. So automatically every year 
that I stay, there is a 4 percent growth in terms of my 
pension.
    And the other thing that drives the pension is a 3-year 
high for employees. They take an average of your top 3 years' 
pay. And since I got such a steep increase in pay as a result 
of the law, it produces in terms of pension over the course of 
my life a value of some $300,000 plus.
    Mr. Lynch. I only have about 30 seconds left, and I have to 
hold myself to the same rule. The bonus. You have a statute 
that I reviewed that says your pay is basically equal to, your 
salary is equal to the Vice President's, $263,000 or something 
like that, and then I see you get $130,000 something in a 
bonus. Quite frankly, last year, the Post Office lost $3 
billion.
    Mr. Potter. That was an incentive payment. It was tied to 
goals agreed to between myself and the Board of Governors. The 
things that drove the incentive pay were service performance 
was a major element. And obviously we set record levels. 
Employee satisfaction, accidents at record low, employee 
satisfaction at record high, customer satisfaction at record 
levels. And I think there was a recognition by the Board of 
Governors that I wasn't in control of the economy and that we 
did eliminate 50 million work hours.
    Mr. Lynch. All right. I am going hold myself to the same 
rule and I am going to yield and recognize the ranking member, 
Mr. Chaffetz, for 5 minutes for questioning.
    Mr. Chaffetz. Thank you, Mr. Chairman, and thank you, Mr. 
Potter, for being here. My congratulations and hats off to the 
entire postal community for the great savings and efficiency 
that were accomplished under your watch and with the great work 
of literally thousands and thousand of others. So 
congratulations for that.
    Obviously this Committee is Oversight and Government 
Reform. While we need to talk about some of the huge massive 
changes that need to happen in order to put the Postal Service 
back into the black, I do feel compelled to ask you about a 
report that was brought to my attention just a very short time 
ago. I need to ask you about this. On March 19, 2009, there was 
a report done by the Republican committee here that said, 
Friends of Angelo is the name of this report, ``Friends of 
Angelo, Countrywide's Systemic and Successful Effort to Buy 
Influence and Block Reform.'' On page 38, paragraph 3 it says, 
``Fees were also waived for Postmaster General John Potter. 
Potter benefited from an encounter with Mozilo in 2003. Potter 
was in the process of arranging a `complicated' bridge loan 
when he `coincidentally' ran into Mozilo. Mozilo instructed 
Countrywide's Kay Gerfen to `let Potter know that we/CW,' which 
I take to be Countrywide, `will take care of it.' Mozilo 
instructed Perry to `take one point off' Potter's rate and to 
charge `no extra fees.' Potter was referred to Mozilo and/or 
the VIP program by former Fannie Mae Chief Executive Jim 
Johnson.''
    In an email that was written on May 21, 2003, sent by Kay 
Gerfen of Countrywide, it says ``Coincidentally, Angelo just 
into Mr. Jack Potter (Postmaster General) and Mr. Potter will 
be calling on Friday. Angelo wanted to make sure you were given 
a heads-up to `let Mr. Potter know we/CW will take care of it.' 
Also per Angelo, `take one point and no extra fees, deal a 
little complicated, bridge loan . . .' Please let Angelo know 
as soon as you hear from Mr. Potter. Thank you.''
    In light of this, I need to ask if you knew about this, did 
you accept the loan and do you feel like you were given favor 
by Countrywide through this encounter?
    Mr. Potter. First, I do have a loan from Countrywide. I 
believe that the terms of my loan were the result of a good 
credit history and of my financial position and the fact that I 
was buying and purchasing a home and putting over half of the 
money down in cash. And the discussions were strictly between 
myself and Countrywide, they were all about the loan. There was 
no linkage to any expectations of official acts or anything to 
do with a relationship with any elected officials.
    Mr. Chaffetz. My understanding is the Inspector General has 
started an investigation. Are you willing to cooperate with the 
investigation as completely as possible by turning over all 
documents, consent to an interview or deposition with the 
Inspector General's investigators, and are you willing to help 
and assist with making other people with knowledge of the terms 
of the loan available to the Inspector General's office?
    Mr. Potter. Yes.
    Mr. Chaffetz. How much did you save by taking a discounted 
loan?
    Mr. Potter. Again, I think the terms of my loan were 
consistent with my credit history.
    Mr. Chaffetz. What was the nature of your actually coming 
in contact, in fact, you were referred to Countrywide's VIP 
program by former Fannie Mae CEO Jim Johnson, correct? How did 
that come about?
    Mr. Potter. Well, at the time, Jim Johnson was the co-chair 
of the President's Commission on the U.S. Postal Service. So 
Jim Johnson was working with us as chairman of that committee 
during that period of time.
    Mr. Chaffetz. And did Johnson indicate to you that you 
should expected preferential treatment and discounts from 
Countrywide?
    Mr. Potter. No. Johnson indicated to me that because I had, 
he and I had a discussion, he had overheard me having a 
discussion with somebody and he basically came up to me and 
said, congratulations, you are buying a house. I had told him 
at the time of the discussion that I hadn't closed yet, that I 
had made an offer. He told me that, we had a long discussion 
about how long I was going to work as Postmaster General, how 
long I anticipated being in the home. He suggested to me that I 
consider a 7/23 loan. He also suggested to me that I consider 
using Countrywide, which is a group that provided him with a 
loan.
    Mr. Chaffetz. And you will cooperate fully, then, with the 
Inspector General's investigation?
    Mr. Potter. Yes.
    Mr. Chaffetz. Thanks, Mr. Chairman.
    Mr. Lynch. The Chair now recognizes the gentleman from 
Illinois, Mr. Davis, for 5 minutes.
    Mr. Davis. Thank you very much, Mr. Chairman.
    While I appreciate your purchasing a new house, let me try 
to get down to the Post Office and what we might be able to do 
about it. We know that we have serious problems. And we have 
gone over and over those. I appreciate the cost cutting 
approaches that you have developed within the system. I 
appreciate the proposals that have been made. I appreciate the 
approaches to streamlining the operations.
    Of course, I still get people who complain that they don't 
get what they would hope that they could get, which leads me to 
the point of recognizing that whatever it is that we get, we 
have to pay for it one way or another. I am reminded of 
Frederick Douglass, who said he knew one thing if he didn't 
know anything else, and that is that in this world, we may not 
get everything that we pay for, but we most certainly will pay 
for everything that we get.
    I am trying to, some of us believe that H.R. 22 is one way 
of effectuating some short-term fix for some of the problems 
that currently exist. Let's say if we for some reason were not 
as successful in passing this legislation, within the next 2 
years what would you predict the Postal Service would be forced 
into or would have to do to try and make ends meet?
    Mr. Potter. Congressman, that is a very difficult question. 
The key for us right now is volume. I believe that we have to 
pull out all the stops when it comes to growing volume. I think 
that we have lost, for example, 20 percent of our advertising 
now in each of the last 2 months. I believe that is going to 
come back, because if you look at advertising in general, it is 
down.
    So what we need to do is we need to get past this downturn 
in the economy, we need to understand how much of mail volume 
will come back. There is no doubt that some of the mail lost 
will not come back. We will have to step up our efforts to save 
money. We plan to save $5.9 billion this year. We have a plan 
to save another almost $4 billion next year. The reason that we 
can't do it all at once is because of the fact that it does 
take time to make adjustments in staffing.
    I do think that we face, the most critical thing we face 
this year is we are going to run out of money. So we are going 
to have to decide which bill not to pay. I intend to pay the 
salaries of our employees. We may have to forego paying the 
Treasury part of what we owe for the retiree health benefit 
trust fund. We would then be faced with, again, the thing that 
we have put on the table is the notion that we can only cost 
cut but so much. Moving from 6-day to 5-day delivery is because 
our costs are, there is a variability in costs that we can 
manage. Fixed costs we cannot.
    So this year we have volume that is down some 12 percent 
year to date. We have taken out 15 percent in our mail 
processing costs because of the variability in that operation. 
We have taken out 12 percent in our post office costs to match 
the decline in volume. But we cannot and have not been able to 
take it out of delivery costs. Because if you have the cost of 
going to every door every day, it is in a sense fixed. The only 
variable is how much time the carrier spends casing mail.
    So that is the dilemma. And that is why we proposed and 
think we need to explore how do you take and make structural 
changes that will have minimal impact on the American public 
and the users of the mail but at the same time, enable us to 
lower our costs.
    Mr. Davis. Let me just say that I appreciate your optimism, 
relative to the ability to grow volume. I just don't see how 
you are going to be able to do it. As a matter of fact, we are 
increasing the use of electronic communication as opposed to 
decreasing it. I wish you well.
    Mr. Lynch. I am sorry, the gentleman's time is expired.
    The Chair now recognizes the gentleman from Indiana, Mr. 
Souder, for 5 minutes.
    Mr. Souder. Thank you, Mr. Chairman.
    Let me first ask a quick question on the, separate from the 
structural problems, isn't it, as far as the deficit that you 
are running in the relationship to income and so one, hasn't it 
always been true in the Post Office that the money is made 
right after a postal rate increase and you show profits and 
then toward the point where you are going to do a next postal 
rate increase you tend to show losses? Isn't that the historic 
pattern?
    Mr. Potter. That was the historic pattern. It was addressed 
in the Postal Act of 2006. The change that was made was we went 
to annual price increases, smaller annual price increases 
versus we were on a 3-year cycle of very large increases. So 
the law addressed that. A lot of customers are very concerned 
about what you just described, the fact that we had these peaks 
and valleys and there was major impact on the use of the mail 
in a year when we had double-digit price increases.
    Mr. Souder. So, you are saying that the loss that you 
currently have is predominantly somewhat structural, but also 
the reason it is more severe is because you couldn't annually 
adjust because business dropped so fast?
    Mr. Potter. Well, exactly. And if you think about us as a 
service institution, versus manufacturing, in manufacturing, 
when demand goes down, what you end up with is a lot more 
inventory, a lot of cars in lots that were produced in the same 
productivity. In the service sector, you can't adjust service 
because the demand changes on any given day. And so we have 
been trying to chase the decline and demand and adjust service 
to those lower levels of demand. And so it created a gap. It is 
a productivity gap. We are constantly trying to bring that in 
line.
    Where we have not been able to do it, as I said, is 
delivery.
    Mr. Souder. I just wanted to make sure that the record 
understands that the correlation between income and loss is not 
exactly the same as it is in the financial institutions or in 
others because of what you just described, which is somewhat of 
a change. Right?
    But there is a structural problem that Mr. Davis just 
referred to, and that is the whole change in the way people 
communicate and so on. I have two specific things I want to 
quickly run by you. One, probably the most, other than limiting 
a day of delivery, closing smaller post offices. It seems to 
me, which is also a jobs question, window access, but also a 
prestige question, coming from a small town myself. It seems to 
me, in the age of computer technology, as we look at the 
centers like in Fort Wayne, IN, where I am from, they are very 
automated, that we ought to be able to program to keep people's 
identity. Small towns are losing their schools, they are losing 
everything else. And this is just unbelievably political 
pressure, at least for the identity of smaller communities who 
get absorbed. I just would like your comment on that.
    The second question is that as we watch daily newspapers 
collapse at an amazing rate right now, and as a former retailer 
myself, if you pull Saturday delivery and we lose daily 
newspapers, for example, R.R. Donnelly has a huge facility in 
my district. How do they get things to people in a timely 
fashion when weekends are the biggest sales period? It seems to 
me that as you structurally look at this, somehow merging some 
delivery systems, communications systems, if that means you 
have to deliver in the morning rather than later in the day, do 
newspapers have to adjust from a Sunday to a Saturday? Habits 
are nice and patterns are nice, but the technology is changing 
so much we could watch you getting hammered and restricted 
tremendously at the same time newspapers are going out. How we 
communicate and keep our structure moving is how we move goods 
in the United States.
    Mr. Potter. First let me address the question of community. 
Our systems, our zip code based code systems are strictly 
geography based. It is usually a five-digit zip code, geography 
based. But we have changed our systems to allow numerous names 
for cities, towns or geography within zip codes. So there is 
flexibility within our system to allow that. It is more rigid 
when it comes to zip codes, because of, we don't have an 
infinite amount of zip codes. We have to be careful when it 
comes to that.
    Mr. Souder. Seven-digit wouldn't allow you to expand that?
    Mr. Potter. Well, there is the discussion. Right now we 
have nine-digit zip codes.
    Mr. Souder. That is what I was thinking about.
    Mr. Potter. We could literally carve pieces of that out. As 
a result of that, we have enabled communities to use their 
community name as an alternate to what might be the name of the 
formal town. So we allow multiple names within a geographic 
area. But there are segments of the country where we are out of 
zip codes.
    Now, regarding delivery, as I said earlier, we are reaching 
out to everybody, all the stakeholders. It is not a fact that 
we would eliminate Saturday. But we do need to have 
flexibility.
    Mr. Lynch. The gentleman's time is expired. The Chair 
recognizes the gentleman from Maryland, Mr. Cummings, for 5 
minutes.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    Mr. Potter, we recognized that there were certain delivery 
routes, such as those in more rural areas, we realize those 
apparently had to be contracted out. We are concerned with the 
more widespread implementation of that practice. Has the Postal 
Service expanded its contracting out of letter carriers, and if 
so, can you prove that it has resulted in cost savings?
    Mr. Potter. Congressman, we can prove that contracting out 
of delivery is less expensive than using Postal employees. We 
do have and have stopped contracting out delivery in city areas 
and in most rural areas. The reason is not because it is less 
expensive, but because of this downturn in the economy and the 
lack of volume. The bottom line is, right now we are in a 
position where we have too many folks.
    Mr. Cummings. In other words, you had too many folks that 
you were contracting out to?
    Mr. Potter. No, we have too many Postal employees. So 
today, we still have, despite the fact that we have a downturn 
in the economy, we have a growth of about a million addresses a 
year, over a million addresses a year. Those new addresses are 
largely being delivered to by career employees. We have an 
excess number of employees that we are downsizing. So it would 
make no sense in this time to begin contract out or expand 
contracting out.
    Mr. Cummings. Talk to me about this whole doing away of, we 
have talked about this before, doing away with delivering on 
Saturday. Is that something that is real? I have heard it 
before. Then it seems like everybody gets upset, and then you 
are going to hear about it for a while. Talk to me about that. 
I know before the Senate you again advocated for that change.
    To be frank with you, and you know this, the public wants 
Saturday delivery, and what can we do to maintain it?
    Mr. Potter. First of all, let me assure you that being a 
career employee and coming from a Postal family, I did not make 
that request lightly. I took it very seriously. I am very 
concerned about the future health of the Postal Service. We are 
working very hard with our unions and management associations 
to try and streamline our operations. The real key here going 
forward is, do we have enough source of revenue to support the 
post. And we are looking at all options. We have been looking 
around the world to see how they are doing it.
    Some places, posts are banks, and that is how posts are 
earning money to help pay for the services that are provided in 
terms of hard copy delivery. But we are precluded by law from 
exploring other forms of revenue. So I think if we put 
everything on the table, everything there is, including product 
choices, how we run our plants, that we might find a way to get 
there.
    But the key, the overall key is that there is a decline in 
mail volume. If that continues, whether it is next year or 5 
years from now, we are going to have to face the need to 
structurally change something. And the most obvious place, 
unfortunately, is in delivery.
    Mr. Cummings. What have you done to try to increase 
revenue? Anything?
    Mr. Potter. We have a number of things. One is, we have 
offered rates, and we have opened up our system to others to 
use our system for delivery. So our biggest, believe it or not, 
package customers are UPS and FedEx. Basically we will give 
them access to our system. We have click and ship, where people 
can get online at home, pay for postage, print out a label, put 
it on their package, we pick it up. We are offering pickup now 
service with FedEx, we have an experiment to do that.
    In the ad category, ad mail area, we are offering and 
working with customers to come up with new pricing schemes to 
incent volume growth. Bottom line is we are making our products 
much more effective than they have been. We are adding a bar 
code, we are introducing a new bar code on mail.
    Mr. Cummings. Let me ask you this last question, because I 
want to obey the chairman's orders. This H.R. 22, do you 
consider that to be a solution? Is it a long-term solution? And 
what do you like so much about it?
    Mr. Potter. It is a short-term solution.
    Mr. Cummings. H.R. 22?
    Mr. Potter. H.R. 22. It is a short-term solution for us. It 
won't overcome the longer term issue that I just described. I 
like the fact that it is an 8-year bill and that we can plan 
for 8 years what our costs are going to be for retiree health 
benefits.
    Mr. Cummings. Thank you, Mr. Chairman.
    Mr. Lynch. The Chair recognizes the gentlelady from the 
District of Columbia, Ms. Norton, for 5 minutes.
    Ms. Norton. Thank you, Mr. Chairman.
    Mr. Potter, the GAO, and I am going to read to you what it 
said, noted that you had made, you and the Postal Service had 
made unprecedented cost cuts over the years. But then it went 
on to say, given the growing gap between revenues and expenses, 
the USPS's business model and its ability to remain self-
financing may be in jeopardy. I want to ask you now rather than 
later, because this creeping problem could creep the Postal 
Service out of existence, do you believe that the Postal 
Service should totally rethink its business model? Have you 
given any thought to that and the form it would take? And do 
you believe the Postal Service can sustain itself as a self-
financing entity as the 1970 statute made the Service?
    Mr. Potter. Congresswoman, I believe that we can do that, 
that we can be a self-sustaining organization for a long time 
to come.
    Ms. Norton. On the present business model?
    Mr. Potter. Not on the present business model. I believe 
that we are going to have to make changes, whether that is the 
frequency of delivery, whether that is the type of products 
that we can offer. I think that everything has to be on the 
table, including the mix of our work force. We are not in a 
position today looking forward where we can sit still. The 
sooner we act, the better off we will be and the more viable we 
will be.
    The biggest trap I think we have is that we don't act 
quickly enough and we create a financial burden----
    Ms. Norton. If I might ask, Mr. Potter, that is my problem 
about quickly enough. So you suggested we may have to go from 6 
days to 5 days. It sounds like an incremental approach rather 
than a business model approach. If one looked at the entire 
business model, it might be that you came out not with, for 
example, going from 6 to 5 days. Who knows. But if everything 
is on the table, my question is, is it on the table, who is 
doing the rethinking of the business model? When can this 
subcommittee expect to get some evidence of thinking on a new 
business model?
    Mr. Potter. If that is an invitation we will gladly fill 
it.
    Ms. Norton. If not you, you surely wouldn't want people who 
are not ensconced in the business of the Postal Service like 
ourselves to be the first to come forward and take a hack at 
it. I use the word hack very advisedly. Because the moment 
anything gets cut, every Member of Congress, including those 
who most don't want to spend money on anything, will say, you 
sure can't do that in my community.
    I looked at your press release. I asked you about 6 to 5 
days, because again, that seems to me to be more of the same. 
Thinking it through in that way it seems to me dismembers parts 
of the body piece by piece rather than looking at the body and 
its core and seeing what can be left standing. In your press 
release of March 20th, you talk about aggressive steps to cut 
costs. You talked about offering another round of early 
retirement.
    And then you spoke about positions that you expect to save 
funds from. Now, staff positions at the district level 
nationwide, 1,400 processing supervisor and management 
positions. Are these positions, are these layoffs? Will layoffs 
occur? Have they occurred?
    Mr. Potter. There will be a reduction in force, according 
to OPM.
    Ms. Norton. So there will be layoffs?
    Mr. Potter. At the end, there could be. But we hope to be 
able to offer everyone a job.
    Ms. Norton. Let me ask you about early retirement. Have 
Postal employees been quick to take early retirement when they 
see the condition of the Postal Service?
    Mr. Potter. We have had, I believe, some 9,000 people take 
advantage of the early retirement.
    Ms. Norton. How many were offered or expected to take early 
retirement?
    Mr. Potter. That was a little bit above what was expected. 
It was well over 100,000 people who were offered.
    Ms. Norton. It does seem to me if one is talking about big 
reductions that could come given the business model, let me 
just ask you, is there another round of early retirement that 
might be offered? If so, what kind of cost does that entail 
relative to keeping these people onboard?
    Mr. Potter. We have just opened up voluntary early 
retirement to all Postal employees through the end of this 
year. So when people are being told that their positions are 
eliminated, they have an opportunity to either seek a different 
position and/or they have the option of retiring if they are 
eligible.
    Ms. Norton. I think that is a very important thing you are 
doing in that way. I do think people know how to take care of 
themselves and they can see the business model just like we can 
and they know that you have been trying. If it is not done one 
way, it may do another way that really hurts the Postal 
Service. We have to keep as many people employed as we must 
have in order to deliver the mail.
    Thank you, Mr. Chairman.
    Mr. Lynch. Thank you.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Clay, for 5 minutes.
    Mr. Clay. Thank you, Mr. Chairman, and thank you for 
conducting this hearing.
    Mr. Potter, thank you for being here today. I understand 
that you are looking at a huge deficit within the Postal 
Service in the coming years. I understand the proposal to 
reduce service from 6 days to 5. What would be the savings to 
go from 6 days to 5? How much would that save?
    Mr. Potter. $3.5 billion.
    Mr. Clay. Annually?
    Mr. Potter. Annually.
    Mr. Clay. Annually. Is that right? OK.
    How have your, in industries like the auto industry, labor 
and management have found a new-found friendship or 
relationship. How is that relationship with the management and 
labor in the Postal Service? Does everybody, has everyone come 
to the table and said, OK, we know we are going to have to do 
some belt-tightening? Is that a pretty healthy relationship?
    Mr. Potter. I have always had a healthy relationship with 
our unions and management associations. We have been meeting on 
a regular basis now that we face this crisis. Everything is 
being discussed. It is on the table. We have made a number of 
changes. Probably the most prominent example is in delivery. We 
worked with the NALC to expedite changes in routes with the 
rural carriers. We have a count that is going on right now.
    We have talked, at our last meeting, which was last Friday, 
we had a discussion and we were talking about enabling people 
to move from job to job more easily, because we have some 
pockets of need and some places were over-staffed. So we are 
working through to try and get at both efficiency as well as 
making sure we are accommodating employees.
    Mr. Clay. So the labor community understands what the 
Postal Service is confronted with and they are willing to work 
with you?
    Mr. Potter. Without a doubt.
    Mr. Clay. Wonderful. Are there any advances in technology 
on the horizon for the Postal Service to help reduce costs, and 
are there any new ideas to grow the business?
    Mr. Potter. We are deploying, as we speak, the next 
generation of flat-sorting equipment, which will enable us to 
put mail into walk sequence, flat mail, catalogs, magazines and 
over-sized envelopes into walk sequence for delivery. That will 
make that operation much more efficient. We are also 
introducing a next generation of bar code, which will enable us 
to actually count mail as it is sorted as opposed to accepting 
it. And again, it eliminates some steps and makes the mail more 
efficient for us to handle. And it will be more transparent to 
customers, so they will have a window into how we are 
processing the mail.
    So there are a lot of innovations in terms of, that are on 
the table that are being implemented to get the Postal Service 
into the 21st century.
    Mr. Clay. Let me hear what you, if you could, is your wish 
list for a long-term fix to the retiree health benefit? What 
would that be?
    Mr. Potter. Well, if it was my wish list, I would like to 
just revisit this whole notion of the pace at which we pay into 
the retiree health benefit trust fund. There is no other 
organization I am aware of in America that has the requirement 
that we have. If we were under GAAP principles we would not be 
paying into this trust fund.
    I understand the need to do it. But at a time when we are 
financially strapped, if this was the private sector, we would 
not make that contribution this year, we would pass on it. The 
payments that we are making on that fund are not tied into an 
actuarial kind of analysis. It was really kind of a holdover 
from payments that we were making into the Civil Service 
Retirement Fund.
    So I would much prefer, I love H.R. 22, and I want it to 
pass. But if you had to step back, I think we should re-think 
the way we are paying into this and there would be more of a 
benefit for the Postal Service in the short run if we did.
    Mr. Clay. And your costs are higher than other Federal 
employees, about 10 percent higher?
    Mr. Potter. No, they are about the same, but we are the 
only ones that have that pre-funding mechanism.
    Mr. Clay. I see. Now, just as an informal survey that I 
conducted among Postal Service employees, they indicate to me 
that they would prefer to have the day that you eliminate the 
service would be Saturday and not Monday. I have to share that 
with you.
    Mr. Potter. I like my weekends off, too. [Laughter.]
    Mr. Clay. Thank you, Mr. Chairman.
    Mr. Lynch. I thank the gentleman.
    Mr. Potter, because of the interest in all of the issues 
here, we are going to ask you to stay for one more round of 
questioning. Let me begin that by asking you, we are hearing 
your plan, which is, we are going to slash service possibly 
from 6 to 5 days at a significant burden to the customer. We 
are going to close post offices, we have already closed six 
administrative facilities. We are going to get rid of 150,000 
employees. And then after all that, you are projecting we are 
going to lose $6 billion.
    If that is the future here, if that is the future next 
year, do you think you deserve a bonus for that performance?
    Mr. Potter. My incentive is based on performance parameters 
that are agreed to with the Board of Governors at the beginning 
of the year. Based on where I stand year to date in terms of 
our financial position, I would not get a performance bonus 
this year or incentive payment this year.
    Mr. Lynch. OK.
    Mr. Potter. And I am working very hard, because I would 
just like to mention that all of our administrative employees, 
our managers, our supervisors, are tied into a national 
performance assessment program. Their pay, whether they get a 
raise or any kind of an incentive pay in any year is tied to 
the bottom line of the Postal Service. So I don't want to be 
cavalier about this, it is extremely important that we work 
hard to do well so that not that I can earn a performance 
incentive, but that those folks on the front line actually get 
a pay increase. I think that is a great motivating tool for our 
institution.
    Mr. Lynch. I understand. Just wanted to be clear on that.
    Mr. Potter. Thank you.
    Mr. Lynch. H.R. 22, I mean, the fact that it is sponsored 
by Mr. Davis of Illinois and Mr. McHugh of New York, two guys 
who I admire greatly and respect their opinion, I am inclined 
to be receptive of that. But I also looked at numbers that said 
if we do that, if we pay the premiums out of the trust fund 
rather than putting $5 billion a year into the trust fund, that 
down the line, not very long, 2017, we end up with $75 billion 
in unfunded liability for health benefits for my postal 
employees. I don't want to face that.
    So are we on the same impression, that is what is going to 
happen under this scenario?
    Mr. Potter. H.R. 22 will have us continue to pay $5.4 
billion to $5.4 billion into the trust fund each of the next 8 
years. It relieves us of the burden of paying for retiree 
health benefits directly in each of those 8 years. The moneys 
come out of the trust fund. The trust fund will grow in each of 
those years.
    After that point in time, there will be a determination 
around the requirements, the future requirements of the fund 
are. And those costs will be amortized, I believe, over a 40-
year period of time. So I believe that the mechanism that is 
laid out in the current law and the proposal that is put forth 
by H.R. 22 has the double benefit of protecting our people as 
well as giving us short-term relief.
    Mr. Lynch. All right. Let me just say for the record, I am 
not there yet. I am open to it. I have seen some numbers that 
concern me about what is going to happen to my postal employees 
in 2017. And I don't want to be holding the bag to the tune of 
$75 billion for the health benefits stone cold, in 2017, 
looking at that problem.
    Mr. Potter. I would appreciate the opportunity to come back 
and talk about that.
    Mr. Lynch. Let's do that. The last thing is, I do have some 
familiarity with the Postal Service. I recognize that in your 
last early retirement incentive, it had no incentive, it was 
just an early out, voluntary early retirement. And you are 
looking to get rid of 150,000 people. That is not going to 
happen if you have the same plan you had the last time. You 
almost added employees in your early retirement program with no 
incentive.
    Is there going to be any incentive for--look a the economy. 
Look at the economy. Do you think people are going to go out 
the door when everything is so precarious? I am just wondering, 
are you going to offer any type of incentive to any of these 
employees? I realize you have some employees who would not be 
eligible because of the importance of their positions. But will 
there be any attempt to offer any incentive to get people out 
the door?
    Mr. Potter. It is under consideration. But we have over 
120,000 people who are currently eligible to retire. We also 
have 150,000 who will be offered voluntary early retirement. 
When we say that we are going to reduce 150,000 people, it is 
the equivalent of 150,000 people. That includes overtime. We 
have employees, non-career employees who we can let go. Today, 
as we speak, we are 30,000 fewer career employees than we were 
this time last year, 10,000 non-career. So we have the 
flexibility to do that. We have the flexibility to take our 
part-time flexible employees and only work them 4 hours every 2 
weeks.
    Believe me, there is enough flexibility in our system to 
accomplish what you describe. But that is not to say that every 
option isn't on the table and we wouldn't consider bonuses, 
incentives to go some time in the future. But we don't know 
that today.
    Mr. Lynch. OK, I am violating my own rule. The Chair 
recognizes the gentleman, Mr. Chaffetz, for 5 minutes.
    Mr. Chaffetz. Thank you, Mr. Chairman.
    A few years ago, the President's Commission on the U.S. 
Postal Service made a number of recommendations. One of those 
recommendations was to a postal network optimization 
commission, somewhat similar to a sort of a BRAC commission 
that was done on military bases. Is this something you are 
supportive of, something you want to see done? Why wasn't it 
done? With 34,000 postal facilities, is this something we 
should be doing and where is it on your list of priorities?
    Mr. Potter. The BRAC commission concept, as I understood it 
back then, was focused on our mail processing plant network. 
And it also probably could apply to our post office network.
    The thing that makes us a little different than the 
approach in the BRAC Commission is that we have to serve every 
community in America. So we have to be in every location. Our 
plants have to be within a reasonable reach of each of our post 
offices. So there is, by its very nature, a network that 
exists. And it doesn't lend itself, in my opinion at the time, 
did not lend itself to some analysis at a national level.
    So in effect, you could have it at the State and local 
level with State and local politicians. But not necessarily 
something that really made sense to me at the time.
    Mr. Chaffetz. So do you think we are at the optimal level 
now or do you see----
    Mr. Potter. I think we are going to continue to evolve. I 
think there are a number of discussions that were talked about 
here today when it comes to the future of delivery. Well, to 
me, delivery is tied to demand. So if the demand today means 
that we go to every house 6 days a week, fine. Or if it is 
lowered, it goes to 5, at some point it might go to 3. I do 
think we need to evolve. I think our plant network has evolved 
and will continue to evolve. And we do and have been 
consolidating operations.
    I am open to, if it is a BRAC commission or some other 
group coming in, taking a look at the data and making 
recommendations. We would look at them.
    Mr. Chaffetz. So you are not doing anything internally 
right now to look at the consolidation?
    Mr. Potter. We are constantly looking at that.
    Mr. Chaffetz. Constantly looking at that?
    Mr. Potter. Constantly looking at that. We are constantly 
closing facilities. As I said earlier, we are consolidating, 
moving mail from one facility to another facility where it 
makes sense. For example, less mail is put into mail boxes 
every day. So we have fewer facilities today that cancel mail 
and sort mail for the world than we did 10 years ago.
    Mr. Chaffetz. Time is short here. You mentioned there are 
150,000 employees nationwide that were given the opportunity to 
take early retirement. How many do you expect would actually 
take advantage of that opportunity?
    Mr. Potter. I would expect maybe in the neighborhood of 
10,000 to 15,000.
    Mr. Chaffetz. 10,000 to 15,000.
    Mr. Potter. But you also have 120,000 people who are 
eligible to retire and who will retire over time.
    Mr. Chaffetz. Are you suggesting, are you taking a firm 
commitment to say, we are making a recommendation to move to 5-
day service or are you just saying that is on the table at this 
point?
    Mr. Potter. What I am saying is that given what I know 
today that we have to make a structural change. The one that 
makes the most sense to me is to give the Board of Governors 
the flexibility to move from 6-day to 5-day delivery. I think 
that they will exercise their judgment on whether or not we 
need to move to that in its entirety, whether we would do 
that--as I said at the Senate, I had proposed to do that during 
our light volume periods. And that is where this whole thing 
began. One of the Senators asked me, does that mean that you 
are only asking for the summer period? I said, no, we want to 
have the flexibility given to the Board of Governors, people 
who are Presidentially appointed, Senate-approved, to make that 
change as necessary to assure the financial stability of the 
Postal Service.
    Mr. Chaffetz. Do you believe that will be a permanent 
change?
    Mr. Potter. I think once made it would be, yes.
    Mr. Chaffetz. Thank you, Mr. Chairman.
    Mr. Lynch. Thank you.
    The Chair recognizes the gentleman from Illinois, Mr. 
Davis, for 5 minutes.
    Mr. Davis. Thank you, Mr. Chairman. I won't take 5 minutes, 
because I don't believe that you can actually get blood out of 
a turnip.
    Mr. Potter. Am I a turnip? [Laughter.]
    Mr. Davis. I think that you can slice it, you can dice it, 
you can puree it, you can saute it, you can squeeze it and you 
can tease it and you still end up with turnip juice.
    But we were about to explore for a moment your optimism 
relative to the ability to grow volume. And I was saying that 
it was difficult for me to see any room or any possibility.
    Mr. Potter. Let me just say that the Postal Service is in a 
number of markets. One of the products that we have is an 
advertising product. When I say grow, I am talking about 
growing from where we are today. If 20 percent of advertising 
mail went away, which it has, and by the way, it is reflective 
of what is going on in the marketplace for advertising, if 
people now want to make investments in advertising, I think 
that mail is going to be a channel that they are going to 
consider. Prior to this downturn in the economy, our market 
share of advertising dollars, total advertising dollars that 
was spent on mail, had been growing. Why? Because people were 
looking to have the ability to target different customers. And 
they wanted measurability. And mail is very measurable.
    So my belief is that as the economy comes back, advertising 
mail will grow again. Will it get back to the levels it was 
before the economy went down? I hope so. But I know it is going 
to grow beyond where it is today.
    Likewise packages. Our package business is down. When I do 
a comparison of where we are versus the competition and look at 
the impact of the downturn in the economy on their revenues, we 
are very comparable. I don't think there is anyone in this room 
who doesn't think that as the economy comes back, our 
competition's packages and their volume won't grow. So I have 
faith that our market share will be maintained as volume grows.
    The one area that we have a real problem is first class 
mail. It is transactional in nature, it is bill presentment, 
bill payment. Once someone goes online and begins to pay bills 
online, they are not going to come back to the Postal Service, 
because of the very nature of, once you have that happen, you 
are not going to do it. So when I talk about growth, that is 
what I am talking about, I am talking about those categories of 
mail where we have a natural strength in the marketplace. I 
believe that we will bounce back in those areas. Even first 
class mail, we were declining in first class mail about 3 to 5 
percent per year in terms of volume. But we are down over 10 
percent. And I believe that the difference between 3 and 5 and 
10 is largely driven by the economy. When the economy comes 
back, we may seen an uptick in first class mail. So that is 
what I am talking about, growth. And I am talking about 
competing in certain sectors and growing our market share.
    Mr. Cummings. Well, let me thank you very much, because I, 
like Chairman Lynch, don't want to be left holding the bag in 
2017, even if it is a mail bag. So I hope that we are indeed 
able to make these ideas work. I thank you very much, Mr. 
Potter, for your testimony.
    Mr. Lynch. I thank the gentleman.
    The Chair recognizes the gentleman from Maryland, Mr. 
Cummings, for 5 minutes.
    Mr. Cummings. I am sitting here, I am thinking, I am just 
listening to you. And I am trying to make sure I am making 
heads or tails of this. Let's go to your salary. I am not going 
to beat you up on your salary, you don't have to worry about 
that. But the 66, you are telling me that $66,000 of your, what 
they say is your compensation, it is security, is that right?
    Mr. Potter. Yes.
    Mr. Cummings. What are they securing you from? Do they 
worry about you? Is that mandated?
    Mr. Potter. I can tell you when it started. It started when 
we were, after we came under attack from anthrax. And I was 
somewhere and my chief inspector got a call from someone and I 
think it might have been the Secret Service.
    Mr. Cummings. But certainly you don't pay taxes on that?
    Mr. Potter. No, but it is considered, for some reason, 
compensation.
    Mr. Cummings. And give me the other pieces of your 
compensation.
    Mr. Potter. The other piece is the salary, and then the 
other piece is I am a 31-year postal employee, and my 3-year 
high is going up because I got a salary increase. That is 
almost half of the money they are talking about, because they 
are projecting at my age I will live to 80 something, and here 
is how much money you will get over those years.
    Mr. Cummings. Let me go back to this. When we look at all 
the methods of communicating today, over the Internet and what 
have you, clearly, and you testified to this, that has cut a 
substantial amount of your business. Are we using, Mr. Potter, 
are we taking full advantage of our advances in technology 
within the Postal System? Are there things that we could do to 
cut our costs further? That is No. 1.
    And No. 2, when we look at the whole idea of this Saturday 
service, and I can tell you, I would bet everything I have that 
is not going to happen, this cutting the Saturday service. So 
you might want to take that off the table.
    But let me ask you this. Have we figured out which part of 
that is, I mean, how do you figure out your savings? In other 
words, is most of your savings from people actually going, our 
delivery people delivering the mail? I am thinking if the 
volume is still the same, I am trying to figure out, while they 
may be delivering Monday through Friday, if the volume is still 
the same, there is certain manpower that goes into preparing 
the mail to be delivered. I am just trying to figure out, how 
do you make that divide? What percentage? Do you follow my 
question?
    Mr. Potter. I understand exactly what you are saying. 
Today, over 90 percent of the mail that a carrier brings on the 
street, letter mail, is sorted by a machine into walk sequence. 
So they don't come into the office any more and case every 
letter. So we are down to the point where less than 2 hours of 
a carrier's day is spent in the office preparing mail to go out 
on the street. So that is the letter side.
    We are automating the flat side. That is coming next. So 
when you look at the savings associated with not delivering 
mail on any day of the week, it is having over 200,000 people 
leave an office and go out on the street, driving to their 
delivery and then spending the day on their route.
    We do recognize that some sorting that would have gone on 
the morning of the day that we eliminate will have to move to 
the next day. So we account for the fact that occurs. We also 
account for the fact in our cost savings that rural carriers, 
on the 6th day, the rural routes, excuse me, are covered by 
rural carrier relief folks, who make less money than our career 
people. So we recognize that the career people are the ones 
working 5 days a week.
    Now, part of what drives us is what does the American 
public think. And there have been a number of surveys of the 
American public. When it comes to the future in mail, really we 
should be responding to the American public. What they are 
saying by the Rasmussen Poll and the Gallup Poll is that they 
would much prefer to have lesser frequency of delivery than 
they would pay additional postage, pay for the fact that our 
costs are going up because we are so labor-intensive.
    Ultimately, that is who I think we have to respond to. So 
believe me, I don't take that step lightly at all. Again, I 
grew up in a postal family. I am not popular these days because 
I am out there talking about it. But if the choice is mail 
delivery in the future or no mail delivery, I think you have to 
say, let's make the changes so we can assure that we reach 
every home in America.
    Mr. Cummings. Thank you, Mr. Chairman.
    Mr. Lynch. The gentleman's time is expired. The Chair now 
recognizes the gentlelady from the District of Columbia, Ms. 
Eleanor Holmes Norton.
    Ms. Norton. Mr. Potter, I am particularly interested in the 
health care costs. I note again that you have proposed that 
over an 8-year period the statutory mandate that we imposed a 
few years back to pre-fund annuitants' health care should be 
relieved. Now, the GAO says that it would prefer 2 years but 
that either option, neither option may do much for the Postal 
Service. In what way do you think this would fix the problem, 
the overall problem of the Postal Service? And if not pre-fund 
it, how would you make up for the funding of the annuitants?
    Mr. Potter. Let me clarify again. This year, right now we 
are prepared to pay $7.4 billion into retiree health benefits. 
That is well over 10 percent of the revenue that we take in. So 
the relief that we are seeking is the $2 billion. We will 
continue to pay, according to that, and that is more money 
going into the trust fund that would come out to pay for the $2 
billion that would come out.
    Ms. Norton. So you don't think it would have any effect 
then?
    Mr. Potter. I think the effect would be that the obligation 
for the Postal Service in future years, beyond 2016, will be 
greater for contributory retiree health benefits, than it is 
today. But I would say that we are paying too much today, that 
we are not paying a fair share, that we are paying much too 
much. So I think what is offered is----
    Ms. Norton. The GAO says 2 years so that we can rethink 
this notion. This goes back to my business model question. Do 
you think that we all need to sit down and think the entire 
model before jumping to one big cut like that, one big change 
like that?
    Mr. Potter. Personally, I believe that H.R. 22 has the 
short-term benefit of getting us through the year and enabling 
us to pay our bills. And it helps us in subsequent years to do 
that. I do think that you are on a parallel path, though, that 
we need that as well as the discussion that you just described 
about, we need to look at all our options, we need to come up 
with a plan and we need to execute it. Again, I think in 
timing, the timing of when we execute it is based on the 
anticipated demand for postal services.
    Ms. Norton. And I know we can't predict the future, and 
incremental death is a pretty terrible death. So again, I am 
looking for a way to deal with the problem, that is to say, 
short-term, yes. But then to look at its consequences. I hear 
what you are saying and understand it.
    How green is the Postal Service? You do a lot of, perhaps 
as much as anyone in the country, traveling by motor. Would you 
tell us how you are conserving, if you are conserving fuel and 
how you are conserving it?
    Mr. Potter. First, when it comes to fuel, right-hand drive, 
we have changed our delivery routes to make sure that we have 
as many right-hand turns in there as possible.
    Ms. Norton. How often do you buy new vehicles?
    Mr. Potter. Well, we haven't bought vehicles in some 17 
years.
    Ms. Norton. You haven't what?
    Mr. Potter. We haven't bought, we have a fleet, our fleet 
of vehicles is some 17 years old. We are very anxious to take 
that fleet, modernize that fleet and----
    Ms. Norton. So if one goes down, it is just down and you 
don't replace it?
    Mr. Potter. We have aluminum-body vehicles. We have added 
some vans to that fleet as deliveries have grown. But we bought 
a special vehicle----
    Ms. Norton. What fuel are those?
    Mr. Potter. Right now they are gasoline?
    Ms. Norton. Why?
    Mr. Potter. Because of the fact that, well, there are a 
number of reasons. But one of the reasons is that up until last 
year, we were limited in terms of alternate fuel vehicles that 
we could consider. Hybrids and the like we were not given 
credit for from the Federal Government. That law has since been 
changed.
    Ms. Norton. We are not giving credit for--what do you mean 
by not giving credit for?
    Mr. Potter. We were required to have a certain percentage 
of our fleet be alternate fuel vehicles. The definition of what 
is an alternate fuel vehicle was very narrow. We worked with 
the Department of Energy and with the folks up here on the 
Hill, Congressman Davis and others, to get that definition 
expanded so that we could consider other types of vehicles.
    Right now we are testing, as we speak, hydrogen-fueled 
vehicles, gas-powered vehicles, natural gas vehicles. We are 
testing a number of different alternatives.
    Ms. Norton. Mr. Chairman, could I ask you if you would 
allow this witness to submit to you an inventory of the 
complement of vehicles they have now, based on precisely what 
form of fuel they use, so we can get a sense of that?
    Mr. Potter. I would also be proud to submit with that, 
Congresswoman, all of our activities in terms of going green. 
Because we have a very good racket, and I would like to do it 
justice by submitting that as well.
    Ms. Norton. Thank you very much.
    Mr. Lynch. I think we can work that out. I know that you 
did present a vehicle count inventory, but I don't think it was 
broken down as Ms. Norton would like. So perhaps you can jus 
look through that and get the information to the committee as 
soon as possible.
    Mr. Potter. We will be happy to do that.
    Mr. Lynch. OK, Mr. Potter, I have no further questions. I 
want to thank you for your attendance here and I wish you good 
day.
    Mr. Potter. Thank you.
    Mr. Lynch. As you probably heard, we have some votes 
currently on the floor. I understand there are at least three 
in this series. Which probably means we will not be back for 
about, at a minimum, a half hour, probably a little bit longer. 
Everybody is welcome to stretch your legs, and we will be back 
in about 30 to 40 minutes.
    [Recess.]
    Mr. Lynch. This subcommittee hearing will now come to 
order. I want to welcome Ms. Gallagher and the Honorable Dan 
Blair as witnesses. It is the committee policy that all 
witnesses are to be sworn in. Could you please rise and raise 
your right hands?
    [Witnesses sworn.]
    Mr. Lynch. Let the record show that the witnesses have 
responded in the affirmative.
    The committee is pleased to welcome Ms. Carolyn Gallagher, 
chairman of the Board of Governors for the U.S. Postal Service. 
Carolyn Gallagher was named Governor of the U.S. Postal Service 
by President George W. Bush in November 2004. She currently 
serves as chairman of the Compensation and Management Resources 
Committee, and is vice chair of the Audit and Finance 
Committee.
    The Honorable Dan Blair is chairman of the Postal 
Regulatory Commission. Mr. Blair serves as the first chairman 
of the Postal Regulatory Commission, the successor agency to 
the former Postal Rate Commission. He was unanimously confirmed 
as a Commissioner of the former Postal Rate Commission in 
December 2006 by the U.S. Senate and was designated chairman by 
President George W. Bush during the same year.
    The committee would now welcome opening statements. Ms. 
Gallagher.

STATEMENTS OF CAROLYN GALLAGHER, CHAIRMAN, BOARD OF GOVERNORS, 
    U.S. POSTAL SERVICE; AND DAN G. BLAIR, CHAIRMAN, POSTAL 
                     REGULATORY COMMISSION

                 STATEMENT OF CAROLYN GALLAGHER

    Ms. Gallagher. Good afternoon, Chairman Lynch, Ranking 
Member Chaffetz and members of the subcommittee. Thank you for 
inviting me. It is an honor to be here.
    The current economic downturn has hit our country with a 
speed and a depth that the Postal Service, like most other 
businesses, could not anticipate. The dramatic decline in mail 
volume over the past 18 months is simply outpacing the rate at 
which we can reduce our costs, given the tools available to us.
    Adding to this unprecedented financial challenge is the 
requirement passed in the Postal Law of 2006 that the Postal 
Service make payments of $5.4 billion or more per year to fund 
future retiree health care obligations. If not for this 
payment, the Postal Service would have earned a profit of $2.8 
billion in 2008, an exceptionally challenging year.
    The Postmaster General and his team are responding quickly 
and decisively to these challenges. They are undertaking a 
range of efforts, including the elimination of work hours, 
major reductions in administrative overhead, and aggressive 
network consolidations that will eliminate almost $10 billion 
in the next 2 fiscal years.
    Yet even with our best efforts, we will still come up 
short. Under current law, we cannot close the widening gap 
between revenue and costs and still finance today's service 
levels for this fiscal year. Despite our aggressive plan to 
reduce costs over the next 2 years, our projections show that 
we will still lose another $13 billion over that period.
    The Postal Service has been a self-funded Government entity 
for more than 30 years, and we plan to remain so. Today, we 
respectfully request your urgent attention in providing the 
Postal Service, not with financial assistance, but with the 
flexibility needed to better align our resources and our 
responsibilities. Our first request is for a change to fund our 
retiree health benefit premiums from the retirement health 
benefits fund rather than from operating revenue. The Postal 
Act of 2006 requires an extraordinary obligation that no other 
Federal agency or private sector company has to meet. 
Maintaining the current accelerated payment schedule for future 
obligations and having to borrow money to do so when we cannot 
make ends meet today puts the Postal Service in an 
unnecessarily perilous position. It is like planning to add a 
new room to your home when the house is on fire.
    We greatly appreciate the efforts of Representatives John 
McHugh and Danny Davis, who introduced H.R. 22, which would 
allow this funding change and save at least $2 billion per year 
for 8 years. We ask all members of this subcommittee to support 
this legislation. But even if H.R. 22 is enacted, we still 
forecast a loss of $9 billion over the next 2 fiscal years.
    Therefore, additional and immediate action is needed. The 
Board agrees with management and believes that going to 5 day 
per week delivery is the best option for restoring our 
financial health and ensuring our long-term future. The volume 
of mail we are delivering no longer produces enough revenue to 
cover the costs of 6-day delivery to 150 million households and 
businesses. We need to adapt our network to reflect the 
changing demand for our products and services. Going to 5-day 
delivery, once fully implemented, could reduce costs by $3.5 
billion per year and can be achieved without substantial impact 
on our customers and our employees. In fact, two recent public 
opinion polls show that the American people prefer the option 
of 5-day delivery over a significant increase in stamp prices.
    Another critical element ensuring the long-term financial 
health of the Postal Service is strong and effective 
leadership. On this matter, the Governors are certain that the 
Postal Service has the right leader in Jack Potter. I welcome 
your request to address the issue of the Postmaster General's 
compensation package.
    Our board formed a compensation and management resources 
committee 3 years ago, because we know how important it is to 
attract, retain and develop outstanding leadership for the 
Postal Service. Congress recognized this when it enacted a law 
requiring that executive pay at the Postal Service be 
comparable to jobs with similar responsibilities in the private 
sector.
    In 2008, the Postmaster General's salary was $263,575, the 
amount permitted by Congress. In addition, based on his 
outstanding leadership in a very difficult time, the Governors 
awarded Mr. Potter a performance incentive of $135,041, which 
is deferred and will be paid in 10 annual installments after he 
leaves Postal Service employment. The balance of his 
compensation package includes the cost of Mr. Potter's security 
detail provided by the Postal Inspection Service and the 
estimated change in the future value of his Federal pension 
through the Civil Service Retirement System, based on his 31 
years of service.
    Mr. Potter has earned the compensation he received. The 
Governors believe his achievements in 2008 were both remarkable 
and unprecedented. Last year, the Postmaster General and his 
team reduced costs by over $2 billion, more than double what 
was planned, while still providing record levels of service to 
the American people.
    The Governors have complete confidence in Mr. Potter. We 
need his leadership now more than ever to lead us through the 
crisis we face.
    In conclusion, Mr. Chairman, I want to emphasize that our 
current financial situation is dire. The legislative changes we 
are requesting will not cost the Federal Government anything or 
require an appropriation by Congress. But they will allow us 
much-needed flexibility to meet our obligations and to adapt 
the Postal Service to a changing business environment.
    Thank you, Mr. Chairman and members of the subcommittee. I 
would be happy to answer any questions.
    [The prepared statement of Ms. Gallagher follows:]

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    Mr. Lynch. Mr. Blair, please proceed.

                   STATEMENT OF DAN G. BLAIR

    Mr. Blair. Chairman Lynch, Ranking Member Chaffetz, Mr. 
Davis, thank you for this chance to testify this afternoon.
    Today the Postal Service is facing dire financial 
difficulties. They are likely to worsen before they improve. 
The current economic crisis has substantially impacted Postal 
Service volumes and revenues.
    The first quarter of fiscal year 2009 showed volume 
declines for all classes. First class mail declined an 
additional 7.3 percent and standard mail declined 11 percent. 
In all, total volume in the first quarter declined 9.3 percent.
    This trend is continuing in to calendar year 2009 at an 
accelerated rate. Total mail volume in January 2009 is 16 
percent below levels reported in January 2008. The Service 
reported it lost almost three quarters of a billion dollars in 
January as well.
    We expect it to report a further deteriorating condition 
for February, with continued dramatic volume decreases as well 
as a significant decrease in revenues. Should double digit 
volume and revenue declines continue, Commission analysis shows 
a cash shortfall could be expected by the end of the fiscal 
year. Based on information given the Commission, the Postal 
Service projects a $12.4 billion net operating deficit for the 
fiscal year.
    To address this situation, the Postal Service has 
identified internal cost savings, reductions of $5.9 billion 
for fiscal year 2009. However, further reductions are needed if 
the Service is to meet its payroll and other expenses.
    To address this, the Postal Service has asked Congress for 
authority to reduce delivery days from 6 days a week to 5. 
Based on the Commission's universal service study, we estimate 
potential annual savings of almost $2 billion. However, this 
action carries the risk that customers may be harmed and some 
mailers may choose to mail loess or leave the mail stream 
altogether.
    The Service has also sought relief in seeking suspension of 
its retiree health premium payments. This is the approach taken 
in H.R. 22. For fiscal year 2009, those payments would be 
almost $2 billion. However, more relief may be required to meet 
the Service's cash-flow needs this year, should current trends 
continue.
    Determining the amount of needed relief begins in viewing 
the Service's debt ceiling and borrowing authority. Over the 
last 3 years, the Postal Service has increased its long-term 
debt from zero dollars in fiscal year 2005 to $6.5 billion 
through the first quarter of fiscal year 2009. The Postal 
Service has a $15 billion debt ceiling and may increase their 
debt load no more than $3 billion in any 1 year.
    Borrowing against its debt ceiling and suspension of the 
retiree health benefit premium will likely prove insufficient 
to make up for the cash shortfall. Congress should review the 
required $5.4 billion payment required to pre-fund retiree 
health benefits. This payment could be suspended in part or 
adjusted in an effort to the Service remains financially 
viable.
    The Postal Service can raise additional revenues from rate 
adjustments. Last week the Commission approved the Service's 
rate increase request to adjust postal rates by 3.8 percent. 
These adjustments will take effect May 11th. This amount is an 
inflation-based increase as intended by the Postal 
Accountability and Enhancement Act. Should current inflation 
trends continue, the price adjustment for 2010 will likely be 
less than 1 percent.
    Other cost reduction measures must be considered as well, 
but these impact difficult policy areas where Congress has 
expressed, at least in years past, a desire for the maintenance 
of the status quo.
    The Commission's role is to provide transparency in the 
postal financial operations. I hope today's testimony sheds 
some light on the tough choices in helping the subcommittee 
evaluate the Service's financial situation.
    [The prepared statement of Mr. Blair follows:]

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    Mr. Lynch. Thank you very much for your testimony.
    Let me begin, I am going to recognize myself for 5 minutes.
    Ms. Gallagher, let's start off with Mr. Potter's 
compensation. I understand you are the chair of the 
compensation committee, is that correct?
    Ms. Gallagher. I was chair of that committee until I became 
chair of the board.
    Mr. Lynch. When did that happen?
    Ms. Gallagher. In February, early February.
    Mr. Lynch. OK, so with respect to Mr. Potter's previous 
salary, the 2008 salary, you were?
    Ms. Gallagher. I was chair of the compensation and 
management resources.
    Mr. Lynch. I have been reviewing Mr. Potter's record. He 
has had some good years. I just want to point out, in 2007, the 
Post Office lost $5 billion. In 2008, they lost $2.8 billion. 
And now, based on testimony here, in 2009, we should expect 
losses somewhere in the range of $9 billion to $10 billion 
unless we do something drastic and bite into those losses with 
significant cuts in service.
    Now, there are a couple of statutes that bear on the 
compensation of the Postmaster General. One is an earlier 
statute that ties his compensation to the salary of the Vice 
President of the United States. He is to earn no more than 120 
percent of what Joe Biden earns.
    There is another statute that you referred to passed in 
2006 that indicates that the salary should be comparable in 
some way with those in the private sector. Can you tell me how 
we ended up paying all this money to Mr. Potter in 2008 when, 
what was the thinking of the compensation committee when we 
lost $3 billion and we gave Mr. Potter an entire package, now, 
I understand some of that is his pension, of about $800,000?
    Ms. Gallagher. I would be happy to, Mr. Chairman. First, 
Mr. Potter's salary, the amount that he actually was paid in 
2008, was $263,000. That was the limit that was set by Congress 
in the Postal Accountability Act of 2006.
    In addition, the board did award Mr. Potter a performance 
incentive award of $135,000, based on what we believed was 
remarkable and unprecedented achievement. In the face of a very 
difficult year, falling volumes because of the recession, Mr. 
Potter reacted quickly and decisively. He and his team reduced 
work hours by 50 million work hours. They saved the Postal 
Service over $2 billion, more than double what was originally 
planned.
    While doing those changes, they also were able to provide 
record levels of service to the American people. We believe 
that is a remarkable accomplishment.
    I also believe that when you look at Mr. Potter's 
compensation, you have to consider the size of the job. The 
Postmaster General is running one of the largest organizations 
in the country; indeed, the world. The Postal Service has 
650,000 employees, about the amount of Federal Express and UPS 
combined, with $75 billion in revenues. We would be in the top 
tier of Fortune 100 companies if we were on that list. We have 
37,000 facilities and retail outlets.
    We do have a statute that says we should pay the executives 
comparable to their peers in the private sector. Yet based on 
an outside consultant, who specializes in executive 
compensation, Mr. Potter and his team make a small fraction, 
only 15 percent, of what people running similarly sized 
organizations are making. We believe we are lucky to have a 
Postmaster General the caliber of Mr. Potter. And we believe 
that he earned every penny that he was paid.
    Mr. Lynch. Understand the frustration in the public, 
though, when they take the whole picture here. They are looking 
at the prospect of 5-day delivery, they are looking at the 
prospect of the post office closing, they are looking at the 
prospect of 150,000 employees retiring or going away from the 
post office, regional centers closing down and their rates 
going up, I might add. And we are giving the gentleman a 
$135,000 bonus. And I understand the idea of comparable salary.
    However, I don't agree with the premise that just because 
AIG or Merrill Lynch is giving people bonuses for driving the 
company into the ground that we should emulate that. That is 
certainly not the idea here, right? We are trying to reward 
positive performance. Like I said, 2007, we lose $5 billion, 
2008, $2.8 billion we lose. Then now we have the prospect of 
losing somewhere in the area of $10 billion in 2009 with all of 
this pain. It just defies logic to me.
    And we are not talking about a 10 percent or 20 percent 
bonus. We are talking about 50 percent of the gentleman's 
salary. I know it is not taxpayer-funded, this is from revenues 
generated by the Postal Service. But still, given the need in 
the system, I question the wisdom of this. I don't know, when 
exactly did you determine his salary?
    Ms. Gallagher. Well, first, Mr. Chairman, I have to take 
exception at the comparison of the U.S. Postal Service to AIG. 
The Postal Service is the most trusted Government agency and 
has been for the past 5 years. It is one of the most trusted 
organizations in the country. Mr. Potter and his team saved 
billions of dollars, $8 billion over the last 7 years, $2 
billion last year for the Postal Service. He has been a 
dedicated public servant for 31 years. He has been one of the 
most successful Postmaster Generals in the history of the 
Postal Service.
    Mr. Lynch. Well, you know, what I would say is this, I 
compared the practice of giving bonuses in the financial 
services industry to people who were losing money to the 
practice of giving bonuses to executives at the Post Office at 
a time when they are losing money. I think that is the 
comparison. I am not comparing the U.S. Postal Service to AIG. 
However, there is this comparability language in the statute, 
and I just want to make sure that we are comparing apples to 
apples and that the practice that we are trying to emulate in 
the private sector is, when they do a good job and get a bonus, 
we will use that example at the Post Office and not reward 
performance that is less than satisfactory.
    I am violating my own rule here, so I am going to allow Mr. 
Chaffetz from Utah, the ranking member, to ask questions for 5 
minutes.
    Mr. Chaffetz. Thank you, Mr. Chairman, and thank you both 
for being here. I appreciate your dedication and commitment to 
public service.
    I also appreciate what Mr. Potter and the whole 
organization. I wouldn't give Mr. Potter all the credit, 
certainly he has a talented team and men and women at all 
levels who are performing great work and have accomplished many 
things, the reduction in overtime hours and such. It really is, 
no doubt, a team effort.
    Nevertheless, I have some deep concerns. You may have a 
football team that is fighting and doing everything they can 
and you want to pat some people on the back, but if you are 
losing the game and you come up in the red, I just don't see 
any room to at some point say, we just can't be handing out 
bonuses to the coach. And so my question is, and I also hear 
you talk and express a concern that he is under-compensated, in 
your view, in many ways, for his base salary. To try to compare 
it to a $10 million salary for a comparable private sector job, 
and maybe we should revisit that whole scenario.
    But is this $135,000 bonus just a way to run around the 
statute and give him extra compensation that you feel is 
deserved? At what point do you actually cut it off and say, we 
lost money? And we are either going to have to go to the 
taxpayers or we are going to have to continue to suck it up 
until we get into the black.
    Ms. Gallagher. Congressman Chaffetz, I think there is a 
very important distinction here, and that is that the Postal 
Service would have made a profit of $2.8 billion in 2008 if it 
were not for the requirement passed by Congress that we pre-
fund our retiree health care obligation. We had to make a 
payment of $5.6 billion in 2008. If not for that payment, the 
Postal Service would have made a profit of $2.6 billion, 
despite the fact that our volume had the biggest loss in the 
history of the Postal Service.
    The fact that Mr. Potter and his team were able to offset 
that volume loss and reduce head count or work force by 50 
million work hours and save the Postal Service $2 billion while 
maintaining the best service levels we have ever had is truly 
remarkable. And I do believe that he earned more than we are 
able to pay him as a public servant.
    Mr. Chaffetz. So you would have actually compensated him 
more than what you did?
    Ms. Gallagher. No, I believe that he was paid fairly as a 
public servant. But I think the work that he did and the 
accomplishments that he made for the Postal Service were worth 
more.
    Mr. Chaffetz. Just my own personal belief, I do think there 
is a difference in the rank and file and them accomplishing the 
goals set forward by executive management. But in this case, I 
am so concerned that we are taking a special effect on somebody 
who has to deal with everything by the ifs. You can't just say 
if, if. The reality is it lost money. And now we are coming to 
the point where we have to make some dramatic changes. Dramatic 
changes. And this is somewhat symbolic of the challenges that 
we face.
    If we adjust Mr. Potter's compensation package, that is not 
going to have a material effect on the overall. But he is the 
leadership. He is the CEO. He is the leader there. Do you have 
any plans or inclination or anything in the works to actually 
change the way executives are bonused out?
    Ms. Gallagher. Absolutely not. We believe that the 
achievements of the Postmaster General and his team have been 
remarkable, given the challenges they are facing, that we are 
lucky to have a team the caliber that we have who are willing 
to work at a small fraction, only 15 percent of what their 
peers or what they could make in the private sector.
    We believe that they have saved billions of dollars while 
providing record levels of service and that they are earning 
every penny that they are paid.
    Mr. Chaffetz. He certainly wasn't the only person to get a 
bonus, correct? What is the total amount, the total dollars 
that were paid out in bonuses to the executive level in the 
Postal Service overall?
    Ms. Gallagher. Congressman Chaffetz, that was fully 
disclosed in our 10K.
    Mr. Chaffetz. I just don't know what the answer is, then.
    Ms. Gallagher. I don't have those facts and figures but I 
certainly will get them to you.
    Mr. Chaffetz. Is it in the millions of dollars?
    Ms. Gallagher. No, sir. The incentive payment for Mr. 
Potter was $135,000.
    Mr. Chaffetz. No, I meant for the executive level Postal 
Service employees, what is the total?
    Ms. Gallagher. I am sorry, I jus don't have that. But I 
would be happy to get it to you. It was fully disclosed, I just 
don't have the facts and figures in my hands.
    Mr. Chaffetz. Yes, I would appreciate it if you would 
submit that in a somewhat timely fashion.
    Last question in this round here, you expressed ``complete 
confidence'' in Mr. Potter. In light of this investigation that 
is now going to move forward, does that taint or have any 
bearing on how your concerns about Mr. Potter?
    Ms. Gallagher. No, sir, not at all. Jack Potter is one of 
the most successful Postmaster Generals in the history of the 
Postal Service. Soon after taking office in 2001, he was hit 
with the events of 9/11 and then the anthrax tragedies that 
followed soon after. He restored the public's confidence in the 
U.S. mail, returned us to financial health. He has saved the 
Postal Service billions of dollars, he and his team, while 
providing record levels of service. We are very lucky to have a 
Postmaster General the caliber of Mr. Potter. And the board has 
complete confidence in him. He is uniquely and singularly 
qualified to lead us forward through the situations we face 
today.
    Mr. Chaffetz. Thank you, Mr. Chairman.
    Mr. Lynch. Thank you.
    The Chair recognizes the gentleman from Illinois, Mr. 
Davis, for 5 minutes.
    Mr. Davis. Thank you very much, Mr. Chairman, and Ms. 
Gallagher, Mr. Blair, it is good to see you both.
    Let me begin with you, Mr. Blair, and ask you, the Postal 
Service is not a private corporation, or is it? It is not a 
Government agency. Or is it? What is it?
    Mr. Blair. It is an independent establishment within the 
executive branch. It is wholly owned by the Federal Government. 
Employees of the Postal Service receive benefits just like any 
other Federal employee does. So in many respects it is treated 
like a Federal agency.
    I think the two overriding distinctions is its governance 
structure. The Postmaster General is appointed by the Governors 
as opposed to being a Cabinet level member, such as he was in 
1970. And the revenues that pay their operating expenses are 
generated through the sale of goods and services, unlike most 
Federal agencies.
    Mr. Davis. So it is not exactly a Government agency but it 
functions in many ways like a Government agency?
    Mr. Blair. I think generally, yes.
    Mr. Davis. It is not exactly a private corporation but it 
functions in many ways like a private corporation. So I guess I 
am wondering whether or not there is any possibility that 
sometimes there could be mixed signals, for example, if 
Congress directs the Board of Governors to compensate postal 
executives in a comparable way similar to what takes place in 
private corporations or private industry, would that appear to 
be what the Board of Governors may have been intending?
    Mr. Blair. I think oftentimes legislation sends some mixed 
signals. I think that is just part of the balancing factor that 
public servants have to undergo and evaluation. It is told to 
operate and act like a business, but it has substantial public 
service mandates. We outlined a number of those mandates in our 
universal service study. One of the most significant of those 
mandates is providing 6-day a week delivery.
    Mr. Davis. There is a culture in corporate America in 
relationship to executive compensation that many people now are 
taking a hard look at, and not just the Postal Service, not 
just pseudo-governmental agencies. But people are taking a real 
hard look at the culture that has developed relative to 
executive compensation in corporate America. And Ms. Gallagher, 
my question is, given this look that is taking place, has the 
Postal Board of Governors had discussions reviewing any of its 
policies in relationship to response to the public outcry that 
we are currently experiencing relative to this issue?
    Ms. Gallagher. Well, first, let me say, Congressman Davis, 
that the board did struggle greatly to try to balance two 
competing statutes and come up with a compensation that we felt 
like was the best balance between the two. However, we still 
believe firmly that the compensation for Postmaster General and 
his team is more than fair, given the achievements and the 
challenges that they are facing and the actions they are taking 
to try to keep the Postal Service financially sound in this 
crisis.
    So we have full confidence in what they are doing and we 
believe they are paid fairly.
    Mr. Davis. So the Board of Governors is in fact cognizant 
and displays sensitivity to the increasing concern about the 
issue?
    Ms. Gallagher. Of course.
    Mr. Davis. We have heard Mr. Potter talk about his optimism 
in relationship to the ability of the Postal Service to grow 
volume. And of course, I am trying to rationalize in my own 
mind the ability to do that. How does the Board of Governors 
feel in relationship to that?
    Ms. Gallagher. We certainly share the Postmaster General's 
confidence in the future viability of the Postal Service, with 
help, obviously, from Congress as we have requested. There are 
opportunities for us to grow this business. We do have new 
flexibility that was given to us under the Postal 
Accountability Act, especially in terms of pricing our shipping 
products. And we want to take full advantage of it. We are 
trying to take full advantage of it, and in fact, we are 
growing market share in our expedited mail products. And we are 
very proud of that.
    As the Postmaster General discussed this morning, we are 
making technological investments that we think will add value 
to the mail, intelligent mail bar code being the best example 
of that.
    So we think there are opportunities. That being said, there 
is a structural change in the way Americans are communicating, 
and the Postal Service needs to change with it. We need to make 
sure we match our resources and adjust our resources with the 
changing demand for our products and services.
    Mr. Davis. Thank you very much. Thank you, Mr. Chairman.
    Mr. Lynch. Thank you.
    Ms. Gallagher, we have sort of a parade of horribles that 
are rolling out here in 2009. We are looking at the possibility 
of losing $10 billion unless we do something drastic. We are 
looking at post office closings and cuts in service, perhaps, 
major cuts in service. Not only that, but we are looking at the 
possibility of bumping up against the debt limit, the statutory 
debt limit for the post office as well, depending on how things 
go.
    In that environment, looking at 2009, when I asked 
Postmaster General Potter about the possibility of him getting 
a bonus in 2009, he said, based on where we are, I am 
paraphrasing here, this is not a quote, but words to the 
effect, I don't expect a bonus in 2009. I am just asking you, 
is that in line, as someone who sat at one point on the 
compensation committee, what are your views on that in 2009?
    Ms. Gallagher. Mr. Chairman, it is too early to know what 
his compensation will be. It is a decision for the full board. 
Mr. Potter was right, it is a very difficult year for us and he 
has very difficult and challenging goals. But the full board 
has not discussed that yet. And it is a decision for the full 
board.
    Mr. Lynch. Well, I think something you should chew on is 
that if you do end up bumping up against your statutory debt 
limit, you are going to have to come to Congress to have that 
increased. And it would be very difficult for Members of 
Congress to approve a system or provide support to a system 
that they thought was not being fair in terms of leading by 
example. If you are going to ask the American people to absorb 
pain and closings and increased debt, there needs to be some 
type of reflection in the management team that acknowledges we 
are in some tough times. It cannot be business as usual or 
business as we hoped it to be. We need to be in this together.
    Ms. Gallagher. Mr. Chairman, I would like to say that I 
believe increasing our debt limit was the last thing we should 
do. By the end of this year, we will have $10 billion in debt. 
Any additional debt will just put further financial pressure on 
the Postal Service. It will increase our current costs, because 
we will have more interest costs.
    I think it will make it very difficult for the Postal 
Service to return to financial health, perhaps even impossible 
for the Postal Service to return to financial health. We have 
laid out a plan, a very aggressive action plan, that we are 
taking to reduce costs while maintaining service. We have asked 
for your assistance in two areas, one to help us restructure 
our retiree health care payment and one to give us the 
flexibility to go to 5-day delivery, which we believe will help 
us match our resources to our changing demand for our products. 
With those two changes, we are firmly in belief that the Postal 
Service will return to financial health and be viable for the 
future.
    Mr. Lynch. I understand the prospects of H.R. 22, and 
again, I have great respect for both of the sponsors, both Mr. 
Davis who is here and Mr. McHugh, who is not. I regard them 
very, very highly on this as well as other matters. We are 
going to have to look at that. In the out years, I have already 
expressed, about 2017, about having $75 billion in unfunded 
liability. That is problematic. But let's go forward. I am open 
to it, I am just not completely convinced at this point.
    Ms. Gallagher. And we are happy to share more information, 
because we don't believe that will happen. And we are happy to 
share that.
    Mr. Lynch. The other concern I have with respect to going 
to a 5-day delivery is that you are in a competitive work out 
there. If you are saying now we are going to have a 2-day 
market for your competitors, people are going to rely less on 
the Post Office, I think there is a downside as well as an 
upside. I think there is a certain loss of market share when 
you become a 5-day delivery post office instead of a 7-day 
delivery post office. I recognize that might be the reality of 
the situation, that may be what we have to do.
    It is not my first option, though, and I frankly think that 
we have some other things we have to look at. That might 
involve looking at some of these areas that have high density 
placement for our post offices. I am not talking about our 
rural areas, but we have some of our big cities in America who 
have a post office in every high rise. They had the volume at 
one time to justify all those, but we may have to look at some 
of those things.
    I would like to look at the least disruptive measures to 
reduce costs than simply leaping to 5-day delivery. But you are 
right, I think time is growing short, we have to fish or cut 
bait. We are going to be limited in our options with the 
passage of time. So I certainly agree with you that we are at a 
critical point here.
    Again, obviously we have gone to a second round of 
questioning. I yield 5 minutes to the gentleman from Utah, Mr. 
Chaffetz, for 5 minutes.
    Mr. Chaffetz. Thank you, Mr. Chairman, I appreciate it. And 
Governor, I guess I am still mystified, and perhaps we will 
have to clarify this later, but I recognize the series of 
indicators along the way of the remarkable progress that has 
been made within the Postal Service. But to try to categorize 
as one of those goals the financial health, that was the quote 
that I wrote down, financial health, while it may be better, I 
don't think it is healthy. I think it is very difficult, when 
you have a reduction in overtime, when you have the good men 
and women, rank and file, the person who is out there 
delivering the mail, brunting the bulk of what has to happen in 
order to make these adjustments, to see somebody at the very 
top take a bonus.
    In my opinion, it gets strikingly close, if not over the 
line, of just trying to run around the basic compensation 
package and trying to say, we are going to subvert this because 
we think it is too low, we are going to get a performance bonus 
and that is how we are going to get it. You can make the case, 
I think, to say that the overall compensation for someone who 
is running the second largest employer in the United States of 
America, $260,000 some odd dollars is too low. I think that is 
another discussion that perhaps we have to have.
    But I worry that bonus is so striking and so offensive to a 
lot of people that I would hope and encourage you to revisit 
that. Because at the end of the day, it was in the red. And we 
are going to have to make some much more dramatic challenges, 
and we are asking people to potentially go back to 5-day 
service as opposed to 6, and yet we are handing out bonuses. It 
just doesn't add up. That is my concern.
    My question to you, Governor, and then I actually do have 
one for Mr. Blair, if we can get to it, the relocation 
assistance policy is something I have seen some reports on that 
seems to be troubling. The huge, massive dollars and numbers of 
homes that are going through this process, what kind of 
trajectory, what kind of numbers are behind this? What is your 
sense of where this program is?
    Ms. Gallagher. Well, first of all, the Board of Governors 
was concerned when we heard the same stories that you did. 
Management is reviewing the policy. We will look at it, the 
board will look at it when he has completed that review, or 
they have completed that review.
    Mr. Chaffetz. When do you think we will have that back?
    Ms. Gallagher. I know they are in consultation with the 
management associations. I am not sure how long that process 
is. But we don't just buy these homes, we also sell these 
homes.
    Mr. Chaffetz. Do you know how much money the Government or 
the Postal Service put in? There was a real cost to this, was 
there not? It wasn't something operating in the black.
    Ms. Gallagher. Congressman, I actually don't know.
    Mr. Chaffetz. I guess I would ask that at some point, that 
the report be given back to us specific to that program, how 
much it costs to actually execute on that program. And in the 
essence o time, Mr. Blair, I do have just a quick question. It 
is more of a clarification.
    I thought I heard, and maybe I am wrong here, I thought I 
heard Mr. Potter talk about a $3.5 billion savings by going to 
a 5-day week. You had talked about a $2 billion savings. What 
is the actual number? Maybe I just heard something wrong here, 
so my apologies.
    Mr. Blair. Our projections at the Commission would be that 
there would be a $2 billion savings. I believe the Service's 
projections did not take into account any volume declines that 
would result from reducing 1 day a week of delivery. Ours 
projected a 2 percent volume decline. So that is how we 
determined our cost savings.
    Mr. Chaffetz. OK, so I did hear Mr. Potter correctly at 
$3.5 billion, but you are saying you think it will actually be 
close to $2 billion?
    Mr. Blair. We projected it at $2 billion. The Service did 
acknowledge that there would be volume reductions, it just 
didn't factor them in because they didn't know what they would 
be at that point.
    Mr. Chaffetz. Is there any sort of blended analysis? There 
was some discussion about maybe limiting service on some of the 
days in the summer when it is the middle of July and there is 
not much mail delivered, as opposed to, say, the end of 
December when you have huge surges in the amount of mail that 
has to be dealt with?
    Mr. Blair. I think that is a good point and that is a 
question I wanted to raise as well, is that I would strongly 
recommend that Congress, should it grant the Postal Service 
that ability to reduce 1 day a week delivery that it ask the 
Service for a more detailed plan on what this exactly looks 
like. We heard today from the Postmaster General that it would 
likely be Saturday but I have heard other days being touted 
like possibly Tuesday or Wednesday. I think a more concrete 
plan, is this going to be nationwide or is it just going to be 
for selected areas of the country or even selected zip codes? I 
am under the impression it would be nationwide, but again, I 
don't want to presume anything.
    There are just a lot of unanswered questions. Given the 
reduction of the scope has such an impact on the brand of the 
U.S. Postal Service, I would hope that Congress would ask the 
Service for a more detailed plan along these lines.
    I think one missing question is what is going to be the 
impact on volume, what is going to be the impact on major 
mailers. We would hope the Postal Service could produce for us 
what would be seen as a, what their best estimate would be on 
the reduction in volume and the impact on mailers.
    Mr. Chaffetz. Thank you.
    Mr. Chairman, I hope this is something that we continue to 
explore, that we look at the differences between urban areas 
and rural areas, that we look at potentially a sliding scale 
where there are certain times of the year. And as you said, 
look at the reduction in volume as well, because obviously that 
will play a major impact. The number between $2 billion and 
$3.5 billion is a big enough number that it meets that 
threshold. Usually a billion dollars is just a rounding error 
in this body, but it meets that threshold. So let's dive into 
it, and thank you, Mr. Chairman.
    Mr. Lynch. Thank you.
    The Chair recognizes the gentleman from Illinois, Mr. 
Davis, for 5 minutes.
    Mr. Davis. Thank you very much, Mr. Chairman.
    Mr. Blair, let me ask you, let's assume that we do all of 
the things that Mr. Potter talked about earlier in terms of 
streamlining, staff reductions, but let's also assume that we 
do not pass H.R. 22. How long do you think it would be before 
we would be back talking about another rate increase?
    Mr. Blair. Well, the Postal Service, the Commission last 
week gave its approval of the Postal Service's request for an 
inflation-based adjustments. Those rates are going to come into 
effect in May, provide annually, from what we understand, 
probably about a billion and a half dollars in additional 
revenue.
    The other option open to them at this point would be an 
exigency rate case, in which the Postal Service would propose 
to go above the inflation-based cap based on extraordinary and 
exceptional circumstances. That proposal lies in the hands of 
the Postal Service. Whether or not that would generate 
sufficient revenues to offset the potential cash-flow problem 
is a good question. But I think that this committee would be 
back, we would be convened back before this committee before 
that would happen, because Postal Service's finances would 
continue to go south.
    Mr. Davis. Do you think there is ever any danger that we 
could price ourselves out of the market?
    Mr. Blair. I think in some marketplaces you definitely 
could. I think that was the intention behind the Postal Act of 
2006, that keeping generally within the class, or generally 
inflation-based rates would be a good thing, it would add to 
the predictability and stability for mailers to stay in the 
system.
    Mr. Davis. Ms. Gallagher, let me ask you, one of the 
criticisms that I have heard of the Postal Service in 
relationship to its efforts to grow volume has been sort of an 
internal isolation relative to the community of ideas that the 
Postal Service sort of does its thinking internally, and that 
external entities that come with ideas that these generally are 
not received too well or viewed too positively.
    How open do you think the Postal Service is to listening to 
other market experts and individuals who think they have ideas? 
As elected officials, everybody comes to us with everything. 
And sometimes these things can get vetted, sometimes they 
don't. Sometimes they get looked at sometimes they are given 
short shrift. How open is the Board of Governors in 
relationship, and the Postal Service to looking at these kinds 
of options and ideas that people come with?
    Ms. Gallagher. Congressman Davis, I don't think we can 
afford not to listen to any option, given the situation that we 
are in. I think the Postal Service has a long history of 
communicating with stakeholders, all our stakeholders. The 
board is of course very open to hearing ideas. In fact, we are 
having lunch with the mailing community next week.
    So we are very open to hearing ideas. And certainly given 
the situation we are in, any ideas would be helpful.
    Mr. Davis. Well, let me just say, I don't envy the position 
that you are in, in actuality, because I do realize that there 
are no simple solutions to very complex problems and very 
complex issues. I do appreciate the efforts that the Postal 
Service is making. I appreciate the leadership that Mr. Potter 
has been providing and the efforts of the Board of Governors.
    I thank you very much and I yield back, Mr. Chairman.
    Mr. Lynch. Thank you.
    Let me ask, I want to go over the area of housing 
relocation within the Postal Service. There was a story a few 
weeks back, I think it was CNN, that ran a story about the 
excessive costs that were being incurred by the Postal Service 
for relocating their employees. There were some homes there 
that were excessive, well, the employees were excessively 
reimbursed for relocation expenses. I know I have some 
information that the Post Office provided to the committee that 
indicated that the relocation program costs at the U.S. Postal 
Service in 2007 was $72 million for the relocation and then 
expenditures specific to homeowners were $34 million. So it was 
a total of $106 million in 2007. And then similarly, in 2008, 
it was $71 million for the relocation program in 2008, with a 
reimbursement to the homeowners of $108 million.
    So these are sizable programs. Ms. Gallagher, I know you 
mentioned that there is a Board of Governors review going on 
here. Has the Inspector General for either the Post Office or 
the Postal Regulatory Commission, have they been invited in or 
asked to conduct an investigation yet?
    Ms. Gallagher. Mr. Chairman, the board is not reviewing the 
policy, management is reviewing the policy.
    Mr. Lynch. Just management?
    Ms. Gallagher. Yes. The board is waiting to see how the 
policy is revised. We have full confidence in Mr. Potter that 
he will address it appropriately.
    I do think the fact that we have a relocation assistance 
policy is standard among Federal agencies and certainly the 
private sector. We do have a policy that you hire the best 
person for every job, so that is going to require moving people 
around. And with 650,000 employees, sometimes those are going 
to be big numbers.
    So we have confidence that Mr. Potter is reviewing the 
policy, that he and his team will show the board a policy that 
is appropriate.
    Mr. Lynch. Yes, well, there are a lot of opportunities, and 
sometimes the differentiation between employees, when you are 
talking about a pool of 650,000 people, sometimes all things 
being equal, they can be very similar. Very talented employees 
at the Post Office. So I am just concerned about this. It is a 
pretty large expense, over $100 million.
    I am aware that management is considering adopting a new 
rule where they don't reimburse for a house over $1 million. 
Which leads me to believe the policy before allowed them to go 
above $1 million. I am not sure how much above. And even though 
CNN has pointed out some, I would call them egregious examples, 
I want to know, is this the rule or what have we here? I have a 
bulk number of $71 million for housing relocation in 2007 and 
then a little bit more than that in 2008. I really need the 
numbers. I need the breakdown on home by home what region they 
were moved from and to. I need all that information. Could you 
make sure that is available to the committee?
    Ms. Gallagher. We will certainly supply that. The policy 
that we are reviewing is looking at taking it down to $800,000, 
not $1 million. But management is reviewing it and we will get 
you that information for the record.
    Mr. Lynch. That would be great. And I do intend to ask, we 
have the Inspectors General coming up and I will ask them about 
that as well.
    I am told that we are about to have votes on the floor. Why 
don't we swap out? I want to thank you both for your 
willingness to come before the committee and to testify. You 
have been very helpful and we thank you for your testimony, we 
wish you a good day.
    And why don't we, if we have the next panel, please take 
their seats, that would be great.
    Mr. Williams and Mr. Herr, we appreciate your appearing 
before the committee. It is the committee policy that all 
witnesses are sworn in. Could I ask you to please rise and 
raise your right hands?
    [Witnesses sworn.]
    Mr. Lynch. Let the record show that the witnesses answered 
in the affirmative.
    Welcome, gentlemen. Mr. David Williams, Inspector General, 
the Office of the Inspector General for the U.S. Postal 
Service, was sworn in as the second independent Inspector 
General for the U.S. Postal Service in August 2003. Mr. 
Williams has served as IG for five Federal agencies. He was 
first appointed by President George H.W. Bush to serve as IG 
for the U.S. Nuclear Regulatory Commission from 1989 to 1996. 
President William Clinton next appointed Mr. Williams Inspector 
General for the Social Security Administration from 1996 to 
1998 and then as Inspector General for the Department of the 
Treasury in 1998.
    Mr. Phillip Herr is Director of Physical Infrastructure 
Issues, U.S. Government Accountability Office. He is the 
Director of the Physical Infrastructure team at the Government 
Accountability Office. Since joining GAO in 1989, Mr. Herr has 
managed reviews of a broad range of domestic and international 
programs. His current portfolio focuses on programs at the 
Department of Transportation and the U.S. Postal Service.
    Welcome, gentlemen, and the committee invites opening 
statements. Mr. Williams.

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

                 STATEMENT OF DAVID C. WILLIAMS

    Mr. Williams. Thank you. Mr. Chairman, Mr. Chaffetz and Mr. 
Davis, the Postal Service's current financial condition is 
fragile and the future is uncertain. The Postal Service lost 
$2.8 billion in 2008 and may lose $6 billion this year. Yet 
these losses should be placed in context. Without payments to 
pre-fund retiree health benefits, the Postal Service would have 
earned $2.8 billion in 2008, and its anticipated net loss for 
2009 would have been $1 billion.
    Mail volume has declined for the last eight quarters and 
the rate of the decline is accelerating. Single piece first 
class mail volume continues to give way to the Internet, as 
expected. New declines in business and advertising mail are 
closely connected to the condition of the hardest hit sectors 
in this historic economic crisis. The Postal Service must make 
eight more annual payments, averaging $5.6 billion each to pre-
fund retiree health benefits. The Postal Service's annual 
borrowing of $3 billion may not be enough to cover the gap 
between revenue declines and cost-cutting measures. This could 
cause the Postal Service to run short of cash to pay all of its 
bills.
    As a near-term strategy, the Postal Service is chasing 
revenue declines with cost costs to limit losses. For example, 
even before the recent volume losses, the Postal Service had 
reduced its work force through attrition by more than 134,000 
career employees since 1999. This year, the Postal Service has 
set a challenge of reducing the equivalent of 48,000 full-time 
employees. The Postal Service has streamlined its network 
operations, closing airport centers, annexes and remote 
encoding centers. It is increasing its effort to consolidate 
processing facilities. However, if staff reductions are not 
coordinated with facility reductions, the Postal Service runs 
the risk of having protracted anemic staffing within an 
oversized network.
    Working with city and rural carriers, the Postal Service 
has started restructuring the delivery routes to reflect 
declining mail volume. The Postal Service has reduced 
authorized staffing at headquarters and at area and district 
administrative offices. Through a new rapid negotiation 
program, the Postal Service plans to work with its contractors 
to cut $1 billion from its existing contracts.
    But cost reductions must be done carefully. One concern is 
that the Postal Service may cut costs so rapidly and broadly 
that it will be difficult to monitor the changes and guard 
against unintended consequences. Aggressive cost reduction in 
the short term could adversely affect service, productivity and 
the Postal Service's ability to offer innovative products, and, 
paradoxically, reduce its profits in the long term.
    Even if the Postal Service achieves its desired cuts, there 
will still be a gap between costs and revenues of as much as $6 
billion if the current estimates hold. Action beyond the Postal 
Service's authority may be needed. The Postal Service has 
requested limited pre-funding relief. I support its requests. 
Moreover, in this current economic climate, it may be 
appropriate to skip the mandated pre-funding payment for 1 year 
or to restructure the payments. The large pre-payments greater 
than the Postal Service's annual net income in its very best 
years.
    The Postal Service is forced to borrow to meet this 
aggressive payment schedule and borrowing today to set aside 
money for a debt that will not be due until the future is an 
unusual practice. Removing the annual $3 billion debt limit 
should be considered. The current limit of $3 billion per year 
may encourage unnecessary borrowing to retain cash as a hedge 
against future needs.
    Beyond the current crisis, the larger issue that must be 
explored from an elevated vantage point is the unfolding 
information revolution. New social dynamics and technological 
innovations such as the Internet are bringing great changes to 
the use of shipping and mailing services. Other sectors, such 
as newspapers and periodicals and telecommunications are also 
being transformed. Close monitoring and in-depth analysis are 
needed to ensure that the essential roles of these industries 
are fulfilled, and that the needs of all Americans, including 
those in rural and poor urban areas continue to be met.
    The Postal Service, along with its stakeholders, must focus 
strategically on its future to discover viable options and find 
its place with other information age industries. Change, 
however, beneficial, is disruptive, and my office is very 
cognizant of the fact that more than 700,000 families directly 
depend on the Postal Service for their livelihoods. However, 
these families are at risk of becoming the first casualties if 
the Postal Service is unable to adapt rapidly to this new and 
changing environment.
    Thank you, sir.
    [The prepared statement of Mr. Williams follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Lynch. Thank you.
    Mr. Herr.

                   STATEMENT OF PHILLIP HERR

    Mr. Herr. Thank you, Chairman Lynch, Ranking Member 
Chaffetz, Congressman Davis.
    I am pleased to be here today to participate in this 
oversight hearing on the financial condition of the U.S. Postal 
Service. As requested, my statement addresses the Postal 
Service's financial condition and outlook and options to help 
it remain financially viable in the short and long term.
    First, regarding the Postal Service's financial condition. 
Updated projections for this fiscal year suggest the magnitude 
of the challenges ahead. Mail volume could decline by 22 
billion pieces, a record 11 percent over fiscal year 2008. 
While much of this decline is related to the housing market 
downturn, the credit crisis and lower retail sales, mail volume 
is expected to decrease for the foreseeable future as 
businesses, non-profits, governments and households continue to 
move to electronic alternatives. Its net loss is projected to 
be $6.4 billion, if it cuts almost $6 billion in costs, which 
would be unprecedented. Further, it faces a cash shortage of 
about a billion and a half dollars.
    Mr. Chairman, turning now to short and long-term options, 
no single action will assure the Postal Service's short and 
long-term financial viability. The Service has high overhead 
costs that cannot be changed quickly, including 6-day delivery 
and retail services at 37,000 facilities. Compensation and 
benefits for almost 650,000 employees and about 100,000 non-
career employees generate close to 80 percent of its costs.
    Several options have been discussed to assist the Postal 
Service through its short-term difficulties, some of which 
would require congressional action. The Postal Service has 
proposed that Congress give it an immediate financial relief by 
reducing payments to the Postal Service retiree health benefits 
fund by an estimated $25 billion over the next 8 years. This 
would decrease the available balance in the fund by 
approximately $32 billion, including interest charges, in 2017.
    Another option would be for Congress to provide the Postal 
Service with 2-year relief for its fund payments, totaling $4.3 
billion, which would provide immediate financial relief and 
have much less long-term impact on the fund. We believe this 
option is preferable. This would allow Congress to revisit the 
Postal Service's financial condition in 2 years, while 
assessing actions taken in the interim to improve its financial 
viability. In other words, this approach would keep pressure on 
the Postal Service to make needed changes. However, it is no 
clear that either of these options will be sufficient to 
prevent a cash shortfall from developing this year or next.
    Looking to the longer term, progress will be needed in many 
areas to reverse the growing gap between Postal Service 
revenues and expenses. In January 2009, the Postal Service 
asked Congress to eliminate the longstanding statutory 
provision mandating 6-day delivery. In doing so, it provided 
little information on where it would reduce delivery frequency 
and the potential impact on costs, mail volumes, revenues, 
mailers and the public. Stakeholder input could be provided 
through an advisory input from the Postal Regulatory 
Commission. Major changes in universal service should also be 
done in close consultation with and approval from congressional 
stakeholders.
    Controlling wage and benefit costs will also be critical. 
One option will be for the Service and its unions to agree on 
changes during upcoming negotiations in 2010 and 2011. The 
Postal Service has alternatives to provide lower cost retail 
services at places other than traditional post offices, such as 
selling stamps at supermarkets, drug stores, by telephone and 
over the Internet. In the mail processing area, the Postal 
Service has closed most of its airport mail centers in recent 
years, but only one of over 400 major mail processing 
facilities. Closing facilities would be controversial, but it 
is necessary to streamline costs. Options also exist to reduce 
postal transportation and delivery costs.
    In closing, Mr. Chairman, accelerating declines in mail 
volume means that the Postal Service could run out of cash this 
fiscal year, thus short-term relief is urgently needed as well 
as comprehensive action to maintain the service's financial 
viability.
    This concludes my prepared statement. I would be pleased to 
answer any questions you or other Members have.
    [The prepared statement of Mr. Herr follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Lynch. Thank you very much, both of you.
    As you may have heard, we have a couple of votes, just two 
votes on the floor. I expect we should be back here in about 25 
minutes. Again, I apologize to all of you. Thank you.
    [Recess.]
    Mr. Lynch. Again, I apologize for the slight delay there 
and being called there for votes. That is the nature of the 
best, I guess. And again, thank you for your testimony, Mr. 
Williams and Mr. Herr.
    Let me ask, you touched on earlier on, Mr. Williams, an 
issue that we have been discussing with previous panels 
regarding the request in H.R. 22 for relief from the current 
contribution plan into the trust. And I am interested in this 
idea that you have proposed about, instead of going with the 8-
year plan as had been envisioned by Mr. Potter and others, 
looking at a 2-year window and then I believe reassessing at 
that point.
    Could you expand on that a little bit? I think it has some 
value. I haven't heard the other argument about why we 
shouldn't do that, but if you could.
    Mr. Williams. Actually, we are fortunate enough to have 
GAO, and that was their proposal, that it either stopped or 
paused after the 2-years. So I am going to ask Mr. Herr to----
    Mr. Lynch. Mr. Williams, you did mention it though, right?
    Mr. Williams. We did not.
    Mr. Lynch. No, you did not. OK, Mr. Herr, I am sorry.
    Mr. Herr. That is fine, no problem.
    Mr. Lynch. I give you great credit, then, I am sorry. 
[Laughter.]
    Mr. Herr. The reason that we think that it is important to 
do the 2-years is one, we recognize that immediate financial 
relief is warranted. We think given the financial situation the 
Postal Service is in, the amount that would be covered would be 
$2 billion and $2.3 billion next year. So we think that would 
help them overcome the cash shortfall that they are 
anticipating for this year.
    But we also think over the longer term it is important to 
ensure the sustainability of the fund, to ensure that those 
retirees and their families are covered, to have some certainty 
that benefit will be there for them.
    The thought behind the 2-year idea that we are sympathetic 
to is that it provides also the Congress with the opportunity 
to come back, take a look at this in 2 years, to see whether or 
not the Postal Service has made the kinds of changes that are 
needed to help it become, really thinking about its business 
model, becoming more financially sustainable. So that keeps 
your option open to come back, see whether or not you would 
want to do this again, to provide two more or you would go 
after the additional 8. It doesn't forego that, it just simply 
gives you more options in terms of policy.
    Mr. Lynch. OK. Well, I am going to go back and forth a 
couple of times with that idea, back to the proponents and see 
where we come out here.
    Let me jump to another issue which is the housing 
relocations. Mr. Williams, we did have a couple of stories in 
the press, I know one by CNN, about somewhat exorbitant prices 
being paid for relocation of Postal Service employees. A fairly 
large amount, it looked like over $100 million in 2007, 2008 
for relocation purposes and for employee reimbursements, I 
guess. Have you looked at this issue in particular?
    Mr. Williams. We have just received, actually, when CNN 
first broke the story, we began, Senator Grassley called us and 
we worked out a request for an audit of the area. We have 
commenced the audit. Then Senator Collins joined the request 
and expanded on its parameters a bit. So we have just begun 
looking at that specific issue. We were very pleased to work 
with your staff as well and have at least had discussions about 
it.
    We are trying to look at the instant case and we are trying 
to find other cases like it, and then we are trying to look at 
best practices employed by others. We hope to in a timely 
fashion provide light on it in time for this look that Chairman 
Gallagher referred to in hopes that we can affect its outcome 
and make sure that we have informed the debate on both sides 
and allowed enough information to be present to alter the 
policies.
    Mr. Lynch. OK. If it helps, we would make a formal request 
to join with Senators Grassley and Collins as a House entity 
interested in that issue. So whatever is required of us to get 
involved and included in that loop on information, the 
committee would greatly appreciate it.
    At this point, I would like to yield to my colleague, Mr. 
Chaffetz, of Utah for 5 minutes.
    Mr. Chaffetz. Thank you, Mr. Chairman. I too had questions 
about the relocation assistance policy, so it is good to know 
that you are moving forward on that.
    Mr. Williams, can you give us any insight and confirmation 
that there is indeed an investigation regarding Mr. Potter 
specifically as it relates to this possible sweetheart deal 
that he got from Countrywide?
    Mr. Williams. There is a very broad-based investigation 
going on involving Countrywide being conducted by the U.S. 
Attorneys Office. It is in early stages and we are cooperating 
because of the incident that you explored and reported on 
earlier.
    We have done as much work as we can until records begin to 
arrive in response to a subpoena that was issued by the 
Department of Justice. They are mostly concerned with instances 
where there was a clear quid pro quo on their end. But there 
are going to be, there are other loans, including the one that 
you brought up and discussed with the Postmaster General, that 
also need to be examined. A light needs to be shed on those.
    Mr. Chaffetz. Is that something you will specifically be 
looking into?
    Mr. Williams. We are. It is under the direction of the 
larger investigation and that also is going to dictate a bit of 
the pace of it. But knowing of your interest, of course, we are 
going to make you aware of that.
    Mr. Chaffetz. Thank you. I appreciate that.
    My understanding is, and I want to see if you are aware of 
the two postal employees in Elkridge that were recently 
arrested for stealing more than $600,000 in stamps and selling 
them on eBay. Do you have any reason to believe that this is a 
widespread problem and do you have an other light on this 
specific instance?
    Mr. Williams. That is a very large instance. There have 
been other instances of both the theft and diversion of 
postage. It is postage and cash are of course are commonly 
dealt with. They can also be concealed. They can be moved from 
machine to machine and the Postal Service has a very good 
policy of how to keep track of that and close out timely. But 
policies aren't always followed. And in this instance, that is 
precisely what happened. It had been a long time since those 
had been audited. When they were audited we confirmed that the 
losses were quite large.
    Mr. Chaffetz. Are there mechanisms being put in place to 
deal with it so that it doesn't happen even on a small scale?
    Mr. Williams. They are doing their best to assure that the 
policies that are in place for accountability and rapid 
closeouts are being conformed with.
    Mr. Chaffetz. Thank you.
    Mr. Herr, this idea of 2 years versus 8 years, I just want 
to explore that. Would that give them sufficient time in order 
to maybe develop a more long-term plan?
    Mr. Herr. I think that would be one of the benefits you 
could see. As I mentioned in my oral statement, we think that 
would also allow Congress to keep an eye on how things are 
evolving in terms of the financial situation. One thing I would 
like to point out about how the payments are structured over 
the 8 years, they start off at $2 billion, but then by 2016 
they actually go up to $4.2 billion. So much of the relief is 
front-loaded, if you will. So that 2-year period would allow 
Congress to look for a plan, look for what some of the options 
would be going forward. We outline some of those in my 
testimony as well.
    Mr. Chaffetz. Very good. Last thing, Mr. Chairman.
    Again, going back to the President's Commission that was 
executed a couple of years ago, this idea of a postal network 
optimization committee to look at the closing of facilities, is 
that something you have taken an opinion on or want to state an 
opinion on?
    Mr. Herr. It is something I think in the past that has come 
up previously . I think part of it would be a question of how 
something like that were to be structured. Obviously, closing 
postal facilities anywhere is an issue that is difficult for 
the Service, I think partly because of interest from a number 
of different parties. So it may be important to provide----
    Mr. Chaffetz. Do you see anything formally underway at all?
    Mr. Herr. Not that I am aware of, no, sir.
    Mr. Williams. There is a great deal of activity with regard 
to examining the possible combinations and reduction of this 
oversized network that we have. But it is not a national 
effort. There is a great deal happening at the local level. And 
then the job of the national effort is to make sure that big 
highways that the mail moves on and so forth are not disrupted 
by local decisions.
    But there have been a lot of closures already. There have 
been 60 air mail centers and 52 annexes, 10 remote encoding 
centers. There have been 10 of these successful local efforts, 
there are 16 on the horizon now and deeper into the process 
there are the beginnings of as many as 40 more. That is another 
way of engaging in this without a BRAC-type of effort. But the 
BRAC-type of effort does have merit.
    Mr. Chaffetz. Thank you, Mr. Chairman.
    Mr. Lynch. Thank you.
    Mr. Williams, I don't know if you were here for the 
testimony of Postmaster General Potter and Ms. Gallagher, who 
was formerly on the compensation committee. In looking at the 
framework that the compensation committee uses to determine the 
CEO's salary here for the Postmaster General, there seem to be 
a couple of balancing statutes. One is a statute that I believe 
in 2006 requires the salary to sort of be pegged to the Vice 
President's salary, 120 percent of that as a maximum.
    Then there is another part of the statute I believe, it 
might have been PAEA, that says the salaries to the degree 
possible, should be comparable to private sector. Those seem to 
be, at least in this case, at odds. In terms of the process 
they used in arriving at the salary and then applying the bonus 
and the whole package, did the compensation committee operate 
within the legitimate framework? I know they had the same 
struggle in terms of the testimony of Ms. Gallagher, she said 
they sort of struggled with the two statutes and perhaps it is 
Congress' fault for entering into an area of considerable 
ambiguity in the statute, trying to get people to follow two 
directions that are not necessarily going in the same 
direction.
    But your own opinion of the job they did?
    Mr. Williams. Some clarity with regard to the two 
references and the two directions would be useful. I know that 
what we tried to do when we became aware that deferred 
compensation had been paid, we tried to work with both your 
staff and then we also worked on the Senate side to try to draw 
together all of the legal references and assure that there was 
a legal basis for both the bonuses and then for the usage of 
deferred compensation, which I was not familiar with.
    We worked with OPM as well, and they are telling us that 
this situation that occurred here was the one for which their 
opinions had been formulated, that if a salary and a bonus goes 
over the cap, whatever that cap is, that it may be paid in 
deferred payments. Then we asked them had it ever been done. In 
my knowledge, we had driven off the map at that point. They 
said 23 departments had done it and there were 81 individuals 
that had been given deferred payments for this.
    There does seem to be a legal basis for both of those, for 
the bonuses and you gave some of the citations. They are a bit 
fragmented and there are a number of them. And then for the 
deferred payment, we rely upon Title V in OPM. Actually, GAO 
has done some legal opinions with regard to abuses of deferred 
compensation, and it does not appear that what happened here--
--
    Mr. Lynch. Let me just sort of refine my question a little 
bit, then. The deferred compensation aspect of this, you have a 
current year cap and it seems to me that they exceeded that cap 
by putting the money into the next year, or not necessarily the 
next year, but future years. It looked to me, as someone who 
worked for 20 years for a fixed wage, per hour, it seemed to be 
a way of getting around the cap by putting the money in other 
years, which I thought at least at first blush contravened the 
intent of Congress in putting in a yearly cap. Am I wrong on 
this, or how usual is this? Is it a function of, Mr. Potter, 
using his example, has been an employee for 31 years. And so 
obviously, over those years, and these are his latest years, 
going into year 31, obviously he has built up some value in his 
pension fund.
    I guess what I am asking, is it a function of that, that he 
is in the latter years of a long, long length of service in the 
post office and now what he has there, the corpus of his 
retirement is compounding rapidly now because he is at the end 
of his career, is that it or was there a conscious decision by 
the compensation committee to inject something, make a 
contribution into something that actually exceeded the 
statutory cap?
    Mr. Williams. The deferred payments were not a result of 
the accrual and increasing in value of his pension, as far as 
we could determine. It looked as though that they arrived at 
his salary and they did use consultants to do that, as Chairman 
Gallagher said, and then they had the two bonuses, the one for 
the PFP and the one for the contract that Governor Gallagher 
was describing. Those went over the cap and so it defaulted to 
this OPM decision and process for when that happens, then that 
is to pay it in the next year for which you are eligible and 
have not reached the cap.
    So in most instances what that means is after retirement, 
and in all likelihood, that is what is going to occur with 
regard to the Postmaster General. So it was the bonus.
    Mr. Lynch. Yes, a windfall, then.
    Mr. Williams. I am sorry, sir?
    Mr. Lynch. It was a windfall.
    Mr. Williams. I am not sure if that is precisely the word I 
would have used. They knew that they had gone over the cap. And 
then they defaulted to the direction of OPM and that was the 
applicable statute.
    Mr. Lynch. All right, I am sure I have exceeded my time 
limit. Are you OK?
    Well, let me ask you, what would you suggest as a remedy? 
We can't have this situation where you have a cap, I mean, do 
you think it would be worthwhile for Congress to consider 
clarification of the statute and then cap everything, plug 
these holes and address that whole year to year deferment 
situation?
    Mr. Williams. Because my jurisdiction sort of ends at the 
Postal boundary, I have not found out what caused OPM to 
develop this system of deferred payments. That would be a good 
thing to learn and to discover. We have some idea, but I would 
like to have a much better understanding of that. The only 
reason that we are having this committee examine this is 
because it was disclosed by the Postal Service. Apparently it 
has happened in 81 instances in 23 departments. This is a very 
large issue and I don't understand why it was created. It could 
have some merit, but I just don't know its origins.
    Mr. Lynch. All right, that is a fair answer. If you are the 
Inspector General and you don't know, then we all have a 
problem. And I am sure you are being very diligent on the 
issue. Maybe it is something the committee needs to look at 
separately and apart from this one instance that might be 
clouded because we keep referring to Mr. Potter. Maybe it is 
better to look at it as sort of a statutory issue, take the 
personal politics out of it.
    Mr. Potter indicated that he thought the only way back to 
viability is really through mail volume, increase in mail 
volume. Technology does not support that trend, however, with 
the use of emails and folks paying their bills online. It is 
becoming, as the computer-savvy generation gets a little bit 
older, it is usually old folks like me that use the mail for 
paying their bills. So I don't see that situation getting any 
better.
    Do you think the facts out there and the trends support Mr. 
Potter's assumption that things could get better on that end 
and that we can balance, we can get this system back into 
viability on volume?
    Mr. Williams. I am not sure all the mail is going to come 
back when the good times return. I do believe that the end of 
this crisis is going to come and that some of the mail will 
return. I think a better option are the ones that Mr. Davis and 
Ms. Norton were talking about, a new model and a new plan. 
There are a lot of options for viability out there for us. I 
think it is going to be a very different type of Postal Service 
when we come out of this.
    Actually, shipping probably has a brighter future, and 
certain kinds of mail are going to be become very important. 
And we can probably migrate into things such as saturation or 
neighborhood mail in a way that we have not in the past. As I 
imagine the future, very powerful, sort of first mile, last 
mile alliances with the competition would have all kinds of 
benefits. It would be financially rewarding.
    And then at the same time, it would allow a single large 
truck to go through a neighborhood instead of all of these 
trucks bumping into one another and moving through all these 
crowded neighborhoods, from UPS and FedEx and no longer DHL but 
the Postal Service. I think coming together would be a very 
green solution and it would be financially very viable, too.
    I think we can incentivize employees in a better way and we 
can deploy them against the operational model in a more 
flexible, agile fashion. I like what we are doing with seamless 
acceptance and the intelligent mail bar code that is going to 
allow all kinds of benefits for the customers and for internal 
operations. The Postal Service has gotten much better in the 
last few years on using information and gathering information. 
Bill Galligan is sort of a national treasure with regard to the 
development and understanding of operations that helped us 
immensely tighten the efficiency of the operation.
    I am pretty hopeful. Maybe not for the same reason. But we 
have a lot of options. The other thing I loved about 
Congressman Davis' comment is we do need to listen more. Our 
customers are very, very bright, and sometimes I think we are 
very guilty of not having listened to them. The people who make 
the equipment are smart as they can be. They live by their wits 
and I think a lot of times we turn them away with wonderful 
ideas.
    Mr. Lynch. OK. Mr. Herr, in your testimony, you suggested 
that beyond the Postal Service's aggressive plan here that they 
say is urgently needed for viability, you suggest that may not 
indeed be enough, what they have on the table right now. What 
action do you think is needed here if that is not enough?
    Mr. Herr. Well, at this point they are looking to take $5.9 
billion out in costs and as I mentioned earlier that would be 
unprecedented. They have made good progress on it so far this 
year. But to make sure that happens without any additional 
shocks that could come, say, from a fuel increase or something 
like that, so as we mentioned in the statement, they need to be 
sure to think about that. Looking at retail facilities, if 
there are opportunities to do that, and we specifically 
mentioned facilities in urban areas rather than small rural 
post offices, we think that may be an area, places that have 
multiple options.
    Other things, work with the unions to find ways to, there 
have been some real efforts to reduce costs for delivery 
services. That has been a real breakthrough agreement that they 
had with one of their unions on that. So there are ways there 
to move forward, too.
    And I think more broadly, because 80 percent of their costs 
are compensation and benefits, they need to take a look at what 
options are there. That is certainly the largest cost center.
    Mr. Lynch. Yes. And given the transportation costs 
associated with the post office, we have caught a real break 
here in the past 8 months with the price of fuel. That has been 
somewhat of a stimulus. We have dodged that bullet while we are 
facing some others.
    I am not sure if the gentleman from Illinois has any 
questions.
    Mr. Davis. Mr. Chairman, I do.
    Mr. Lynch. The Chair recognizes the gentleman from 
Illinois, Mr. Davis, for 5 minutes.
    Mr. Davis. Thank you very much, Mr. Chairman.
    Mr. Williams, Mr. Herr, it is good to see you both.
    Mr. Herr, let me ask you, the Postal Service is required to 
pre-fund 80 percent of its future liability for retiree health 
benefits by 2016. Do you know of any company in the country 
that is required or chooses to pre-fund on such an accelerated 
schedule?
    Mr. Herr. I am not familiar with companies, but I do know 
in the Federal Government, other agencies, including GAO, pre-
fund retiree health care benefits. My understanding from 
talking with our financial folks at GAO is that the Postal 
Service was behind in terms of making these payments. So in a 
sense, this represents an effort to catch up. That is why, 
well, one, their number of employees is large, and for that 
reason the size of the payment is large as well, sir.
    Mr. Davis. Also under H.R. 22, the Postal Service would 
still be pre-funding on the order of some $2 billion a year by 
2016, a little more than 4 percent of the unfunded liability 
per year. Although most private companies do not pre-fund at 
all, do you know any percentage of companies or what percentage 
of companies in the private sector that might fund at that 
level?
    Mr. Herr. I am not aware, we did not look specifically at 
the private sector. We took a hard look at the numbers the 
Postal Service had provided to us.
    Mr. Davis. Thank you very much.
    Mr. Williams, let me ask you, we are obviously looking for 
all the cost savings possibilities that we can possibly find, 
hope to find, look to find, if there is anything to find. When 
you look at the Postal Service's utilization of fuel, do you 
have any comments that you could make relative to what their 
utilization seems to be?
    Mr. Williams. We have recommended to them in the past that 
they engage in the purchase of futures of fuel. And of course, 
that definitely faded into the background when the price of 
gasoline spiked. As it lowers again, it might be tempting to 
reconsider the purchase of that. I think as the network is 
right-sized, there will be fewer places to drive between and 
among. And that is going to result in some conservation. The 
possibilities for alternative fuel is very exciting. I would 
love to get more involved in it and I believe we are going to 
be meeting with Congressman Serrano on exploring some of those 
possibilities. Those would be great solutions if the technology 
is mature enough.
    We have taken a false step in the past with ethanol. We 
bought ethanol, 1,300 trucks and we don't use ethanol fuel in 
them, we use regular gasoline because of the availability. So 
it does pay to look before we leap. But there are some exciting 
possibilities out there on that front.
    Mr. Davis. We have all been excited and delighted recently, 
at least in the last 3, 4 months, but we never quite know what 
might happen in the future. And just as we have experienced 
some price reductions, it is also possible that we might be in 
a situation again where the prices escalate. That is a 
possibility.
    Mr. Williams. I agree.
    Mr. Davis. Thank you very much. I have no further 
questions, Mr. Chairman.
    Mr. Lynch. Thank you.
    I want to thank both of you for your great testimony here. 
Thank you for helping the committee with its work. We will 
continue to work on a couple of these issues outside of 
committee, outside of hearing. But we really appreciate your 
willingness to come here and testify today. You are free to go 
and have a good day.
    I would like to invite the next panel up, just to get you 
seated.
    Welcome, gentlemen, Mr. Goff, Mr. Mapa, Mr. Keating. We 
appreciate your willingness to come before the committee to 
help us with its work.
    It is the committee policy that all witnesses are sworn in, 
so I would like to ask you to rise and please raise your right 
hands.
    [Witnesses sworn.]
    Mr. Lynch. Let the record reflect that the witnesses have 
answered in the affirmative.
    Mr. Dale Goff is the president of the National Association 
of Postmasters of the United States. Dale Goff is in his 39th 
year with the U.S. Postal Service, and began as a postal 
assistant in New Orleans. He has been a member of the National 
Association of Postmasters for 29 years. His NAPUS positions 
have included State president, national vice president, 
national president, among others. He was also postmaster of the 
year in 1994.
    Mr. Charles Mapa is president of the National League of 
Postmasters of the United States. Charles Mapa is a postal and 
military veteran with 35 years of service. Mr. Mapa has been a 
member of the National League of Postmasters for 24 years. He 
has also served as the California branch vice president, 
executive vice president and president. Mr. Mapa was elected 
national president in 2006 and re-elected in 2008.
    Mr. Ted Keating is president of the National Association of 
Postal Supervisors. Mr. Keating worked for the U.S. Postal 
Service for 40 years, following 4 years with the Air Force. Mr. 
Keating began his membership in the National Association of 
Postal Supervisors as a member of the Northeastern Branch 498. 
For 15 years, Mr. Keating served on the Massachusetts State 
Executive Board, including 9 years in which he held the 
position of secretary-treasurer. Mr. Keating was elected to the 
position of executive vice president of the National 
Association of Postal Supervisors in August 1998. Mr. Keating 
retired from the Postal Service in October 2004, and has 
assumed the presidency of the Association in December 2004.
    Welcome, gentlemen and Mr. Goff, if you could, we will 
welcome your opening statement.

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

                     STATEMENT OF DALE GOFF

    Mr. Goff. Mr. Chairman, my name is Dale Goff. I am 
president of the 40,000-member National Association of 
Postmasters of the United States [NAPUS]. I am also postmaster 
of Covington, LA.
    I represent the managers in charge of the 27,000 
independent post offices in this Nation. These post offices 
serve urban, suburban and rural communities. Some of these post 
offices support a network of postal stations, community postal 
units and contracted postal stations. Other offices are so 
small that they define the community, employ just the 
postmaster and have limited hours of operation.
    For customers living in isolated towns, the post office is 
their lifeline to the outside world. During this past summer, a 
New England postmaster illustrated this point at a PRC hearing 
on the universal service obligation. The postmaster serves a 
remote offshore town and is the commercial hub of the island. 
The post office is the town's pharmacy, since mail order drug 
companies are the primary means of dispensing medications, and 
the town's bank, since money orders are used for commerce.
    The picture being painted today is not very pretty. Mail 
volume is crashing and so is its associated revenue. Service 
cuts and work hour reductions are deep and wide. Residential 
and business customers feel the squeeze as postmasters are 
being directed to cut window hours, close on Saturdays, 
consolidate delivery routes, defer necessary repairs and 
restrict access to mail supplies. Service and safety are being 
compromised. These actions are the result of factors that are 
beyond the control of the agency. The economic contraction has 
swallowed up mail volume and revenue.
    My fear is that too short a financial lifeline is fools 
gold. As front line managers, postmasters are highly qualified 
to offer input with regard to the financial instability of the 
Postal Service and long-term strategies for streamlining its 
operations. First and foremost, it is crucial that the 
committee report favorably H.R. 22, bipartisan legislation to 
provide the Postal Service and its customers a temporary 
financial lifeline. This measure permits the Postal Service to 
accelerate the effective date of using the Postal Retirees 
Health Benefit Trust Fund to pay current retiree premiums. It 
amortizes the remaining fund liability to a more attainable 
period of time. This proposal is neither a bailout, nor does it 
cost U.S. taxpayers a dime. H.R. 22 is fair, responsible and 
helps protect the universal postal service.
    It is imperative to note that the crisis plaguing the 
Postal Service is beyond its control and a fiscal climate 
exists that Congress did not envision when the postal reform 
law was enacted. Now the tools with which Congress equipped the 
Postal Service and the associated fiscal requirements are 
problematic. Postmasters are troubled by budget analysis which 
theorizes that temporary postal relief would undermine 
efficient business practices and aggressive cost-cutting.
    Mr. Chairman, extinction of universal postal service would 
be the product without passage of postal relief legislation. In 
the absence of such legislation, postal doomsday falls on 
Wednesday September 30, 2009. On that date, the Postal Service 
will no longer be able to perform its constitutional duties on 
behalf of our country. Eight percent of this Nation's gross 
domestic product is tied to the Postal Service. So failing to 
respond to this crisis is not an option.
    The administration can help to alleviate this crisis. The 
Office of Personnel Management has the authority to more 
accurately recompute the 2002 estimate of the USPS projected 
overpayment into the Civil Service Retirement Trust Fund. The 
calculation made by the previous administration significantly 
understated the overpayment.
    The Postal Service can help itself. Clearly, the immense 
postal bureaucracy contributes to inefficiencies in costs. In 
2003, NAPUS testified before the President's Commission on the 
U.S. Postal Service about the necessity to de-layer the 
bureaucracy. Last Friday, the Postal Service took a step in the 
right direction but fell short of this mark.
    Fortuitously, last week I glanced through the manuscript of 
a 1951 hearing before the House Post Office and Civil Service 
Committee. The hearing record relates that the Hoover Report on 
Government Reorganization provided for the decentralization of 
the Postal Service into 15 regions, enabling closer supervision 
of the more than 40,000 post offices. Mr. Chairman, today we 
have 13,000 fewer offices than in 1951. Yet the Postal Service 
finances about six times as many districts as proposed in the 
Hoover report.
    Mr. Lynch. Mr. Goff, you have exceeded the time limit. What 
I am going to do is this. I am going to let you finish your 
statement when I come back. I know you have a few more pages 
there, I am reading along with you. But I have a vote on the 
floor and I cannot miss it. Actually, I have two or three 
votes. These will be the last votes for the day so we will be 
able to finish up when I come back. Thank you, and again I 
apologize.
    [Recess.]
    Mr. Lynch. Again, my apologies for the delay.
    Mr. Goff, If you could just sum up that would be great, and 
then we will continue with the testimony.
    Mr. Goff. I will be glad to, Mr. Chairman.
    Mr. Lynch. Thank you, sir.
    Mr. Goff. The recommendation that was made back in 1951 
said that instead of saving money and bringing about more 
efficient operations, the cost for money for the post office 
and the amount of bureaucracy that would be there that would 
have little districts out there where we would have just all 
different types of postmaster generals. What we are asking for, 
Mr. Chairman, is that the future of the Postal Service is in 
the hands of this committee and H.R. 22 is the only means right 
now for the salvation that we could get.
    Mr. Chairman, I do apologize, I am from the south so I talk 
a little slow.
    [The prepared statement of Mr. Goff follows:]

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    Mr. Lynch. You talk just fine. Thank you, sir.
    Mr. Mapa.

                  STATEMENT OF CHARLES W. MAPA

    Mr. Mapa. Chairman Lynch, Ranking Member Chaffetz, members 
of the subcommittee, good afternoon, wherever you are. With 
your permission I would like to briefly summarize my testimony 
and ask that my full statement be accepted and entered into the 
record.
    Mr. Lynch. Without objection.
    Mr. Mapa. My name is Charlie Mapa and I am president of the 
National League of Postmasters. We have been representing 
postmasters since the late 1800's. I am pleased to appear 
before you here today. Thank you for inviting all of us to 
testify.
    Before summarizing my statement, I would like to 
congratulate Chairman Lynch on being named chairman of this 
subcommittee. It is comforting to the League to know that the 
Chair comes with a very strong postal background.
    In my written testimony I address three topics: No. 1, the 
overall state of the Postal Service and the need to allow the 
Postal Service to refinance its obligation to fund our 
retirees' health benefits as H.R. 22 would do. No. 2, the 
importance of small post offices to rural America and the 
minuscule amount of money that closing substantial numbers of 
them would save. No. 3, the manner in which the Postal Service 
has controlled costs over the last several years, the 
diminishing returns of that approach and the means to better 
increase efficiency and reduce costs.
    Clearly, the Nation is in extremely troubled times. The 
economy is at its lowest point since the Great Depression. The 
Postal Service is in trouble and needs relief. H.R. 22 would 
give some relief. The consequences of not acting are 
disastrous. There are $8.4 million postal-related jobs and more 
than $1 trillion in revenue attributed to the mailing industry. 
That I believe is even larger than the auto industry.
    If the mailing sector were to crash, it would shake the 
American economy to the core and given its fragile condition, 
it could bring the entire economy to a standstill. That must be 
avoided at all costs.
    Let me also emphasize that relief must exist beyond 2 
years. Anything else would create a system that will appear to 
be on the edge of disaster, held together by spit, glue and 
rubber bands. That is exactly the image that will drive mailers 
to aggressively seek alternatives to the Postal Service, 
electronic and otherwise, that will result in a loss of volume 
that otherwise should not have been lost and otherwise would 
not have been lost.
    H.R. 22 will save the Postal Service and it will do so 
without spending a dime of the taxpayers' money. My written 
testimony goes into much greater detail about how H.R. 22 
works.
    In terms of small post offices, when one comes to the world 
of postal and public policy concerns, one often assumes that 
many small offices could be closed, resulting in little harm 
and significant savings. Usually that point of view is 
predicated upon a misunderstanding of the role of the small 
post office in rural America, and the mistaken belief that the 
cost of maintaining these post offices is much greater than it 
actually is.
    My testimony shows that small post offices are vital to the 
continued existence of rural America and that they truly bind 
rural America together. When a small, rural post office closes 
in a rural community, often the community ends up becoming a 
ghost town.
    Mr. Chairman, closing small post offices savings no 
significant money. If one were to close the smallest 10,000 
post offices, more than one-third of all post offices in the 
country, the savings to the Postal Service would be minimal, 
less than 1 percent of the Postal Service's budget. The bottom 
line is that if the Postal Service wants to close a small, 
rural post office and the community doesn't care, so be it. But 
if the Postal Service wants to close a small, rural post office 
and the community does care because it doesn't want to 
disappear, then the Postal Service shouldn't close that office.
    Finally, my testimony looks at the way the Postal Service 
has reduced costs over the last decade and argues that a better 
way to gain efficiency is to flatten the management structure 
and eliminate unnecessary bureaucracy. One way the Postal 
Service has saved costs is by reducing carrier and clerk hours 
and shifting these hours onto the postmaster for the postmaster 
to work instead of the clerk or carrier. Today, many 
postmasters are working 60 and 70 hours a week, some even more. 
Mr. Chairman, massive burnout is close. A disaster is looming 
on the horizon and I would be remiss in my duties if I did not 
make that perfectly clear.
    Finally, instead of becoming more efficient, we are 
becoming more and more bureaucratic, more telecons, more forms, 
more reports. It needs to stop. One way is to eliminate 
management layers. The Postal Service recently cut the number 
of districts down to 74. It needs to do more and reduce these 
down to something more like 40. The idea is not that cost 
savings come from the positions cut, but from the streamlining 
and removal of layers of management making decisions easier and 
cheaper to make and easier and cheaper to implement. The thing 
to do in these challenging times is to flatten the bureaucracy 
and trust that postmasters will rise to meet the challenge. We 
would do that if the Postal Service would let us.
    Thank you for considering our views.
    [The prepared statement of Mr. Mapa follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Lynch. Thank you.
    Mr. Keating.

                    STATEMENT OF TED KEATING

    Mr. Keating. Good afternoon, Chairman Lynch. It is 
comforting to NAPS, as Charlie indicated, that my Boston accent 
will not be a problem for this committee. [Laughter.]
    Mr. Lynch. No, you will not need a translator with me. 
[Laughter.]
    Mr. Keating. The Postal Service continues to suffer from 
the steady erosion of mail volume. Last month USPS reported the 
eighth consecutive quarter of lower mail volume, volume down 
more than 15 percent from where it was this time last year. 
Even greater losses are predicted through the remainder of this 
year. The last time mail volume fell by this much was in 1937, 
in the midst of the Depression.
    The Postal Service has not been passive in response to the 
worsening financial condition. Over the past year, as mail 
volume has continued to steadily decline, the Postal Service 
has initiated aggressive cost-cutting actions that have reduced 
the financial loss. The Postal Service has cut 50 million work 
hours, stopped construction of new post offices and facilities, 
instituted a nationwide hiring freeze, consolidated mail 
processing operations, and reduced hours in many post offices.
    Last Friday, it announced the closure of 6 of its 80 
districts, the elimination of more than 1,400 mail processing 
supervisor and management positions at nearly 400 facilities 
around the country and the offering of another early retirement 
opportunity to nearly 150,000 postal employees. These actions 
are expected to save the Postal Service more than $100 million 
annually. More job cuts are likely to come as downsizing 
continues, operations are streamlined and processing and 
delivery networks are made more efficient.
    Indeed, much more remains to be done to restore the 
financial health of the Postal Service. Congress needs to do 
its part, Mr. Chairman. We urge the committee to move ahead and 
promptly report out H.R. 22.
    Even when H.R. 22 passes, however, we will not be out of 
the swamp. Additional steps will be necessary. Let me take a 
moment to comment on these additional steps the post office 
should take. First and foremost, the Postal Service needs to 
rethink its organizational structure and reorganize itself. Its 
nationwide management framework, currently built around 10 
geographic areas, is far too large and bureaucratic and costly 
to be allowed to continue. The Postal Service should return to 
an organizational structure based on five geographic regions.
    It is time that the Postal Service applies the same cost-
cutting scrutiny to the members of its executive ranks as it is 
applying to middle and lower management. Let me repeat that: it 
is time the Postal Service applies the same cost-cutting 
scrutiny to its executive ranks as it applies to middle and 
lower management.
    Second, the Postal Service should promptly withdraw from 
the practice of buying homes for its employees ostensibly in 
support of relocation needs. This policy has caused the Postal 
Service to rack up significant losses. The downsides of this 
policy are now becoming more and more evident as the Postal 
Service faces an inventory of homes it must continue to pay to 
maintain until it can sell them.
    Third, the Postal Service should stop tolerating the 
practice of detailing supervisors and managers to positions 
that don't officially exist in the organizational structure. 
Currently there are hundreds of supervisors detailed to these 
ad hoc positions, created at the discretion of district 
managers to address issues that personally concern them.
    It is unfortunate, Mr. Chairman, that I need to raise an 
internal management matter like this to your attention. It is 
only one of the numerous problems that NAPS and the postmaster 
organizations have raised with the Postal Service. Like so many 
of the recommendations, they have been ignored by top USPS 
management.
    In conclusion, Mr. Chairman, the Postal Service faces grave 
challenges brought about by the deep recession and aggravated 
further by continuing electronic diversion. These challenges, 
however, are not unconquerable. Through the three initiatives I 
touched upon, including the swift passage of H.R. 22, the 
finances of the Postal Service could eventually be stabilized. 
Postal supervisors look forward to working with you and the 
Congress to make sure that happens.
    Thank you for the consideration of my testimony. I look 
forward to continuing the dialog with you as time allows.
    [The prepared statement of Mr. Keating follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Lynch. Thank you.
    Let me begin by asking each of you, in terms of the 
proposal by the post office presently to reduce delivery days 
from 6 to 5, it seems from your own testimony that there is 
more that can be gained from getting rid of some of the 
bureaucracy here and perhaps even consolidating some of the 
post offices and areas, other than the rural areas. I 
understand the situation where the post office is the only game 
in town. As Mr. Goff indicated in New England, you have post 
offices that operate as a pharmacy, a bank, and in a lot of 
small towns, the post office and the health center and a gas 
station, that is pretty much your hub of some of these towns.
    But in areas where you have a high density of post offices, 
have we leapt over that phase instead and are looking to cut a 
delivery day already? Are we going too quickly in this 
suggested solution? Or should we be dropping back to look at 
some of these ways of reducing costs?
    Mr. Goff. Mr. Chairman, I know the 6 to 5-day delivery 
thing, I can tell you as an organization, as the president of 
NAPUS, that I am totally against reducing down to 5-day 
delivery. And I say that for several reasons. Coming from one 
of the largest cities and the operational side of this, just 
think of the holidays that we have now, the 10 or 12 that we 
have during the year. That day after the holiday, we are 
constantly making up for the day that we just missed. So if we 
had a savings on that 1 day of reducing down to 5 days, my idea 
is that we are going to just play holiday every time after that 
5th day, that we are going to catch up.
    So, if there is a savings on that 1 day, we are going to 
lose it on that following day.
    Now, as far as the amount that would be saved from that, I 
am not sure if the figures are all totally accurate. We have 
heard three or four different figures today on just what that 
savings would be. But from an operational side, how do we keep 
the mail flowing? We flow it now. Are the retail areas still 
going to work? Are the clerks still going to work to process 
mail? So I am not sure that the big savings is there.
    And when you talk about the consolidation of the postal 
network or the stores that we have out there, I think there is 
some room that we can do it as far as stations within the big 
cities, the big urban areas. As you said, the rural areas, that 
cannot be done. That is the life line of those communities. But 
I would think that we could look at some type of area there 
where we could take a station in downtown New York City and 
maybe put some consolidation there. As was said earlier, do we 
need to have one in every high rise building. I don't think we 
do, because the volume is not there any more.
    I still say that even though, and you heard Mr. Mapa say 
that, we went down to 74 districts, there is still a lot of 
room. Mr. Chairman, we have 50 States. We could go with 50 
districts. Or better yet, we could eliminate all of the 
districts and just stay with our areas we have out there. As 
Mr. Davis said this morning about the communication age that we 
are in now, and believe me, there are postmasters sitting in 
this room right now that will tell you, Big Brother is there. 
Big Brother watches us on the computer all the time. They know 
everything that we are doing. I think that can still streamline 
that way.
    And it is incumbent upon us, whether it is management or 
union or the upper executives in the Postal Service, that we 
have to work together to change this structure.
    Mr. Lynch. My time is just about expired. I would like to 
give 5 minutes to the ranking member, Mr. Chaffetz.
    Mr. Chaffetz. Thank you, Mr. Chairman. I would like to 
further explore this idea of 5-day delivery, I would like to 
get the other gentlemens' input on that. Is there some sort of 
sliding scale or maybe it is not for every single week, or 10 
days a year? Is there somewhere in between that you find 
acceptable?
    Mr. Mapa. Five-day delivery, it sounds good, on the outset. 
But then if you examine it like Mr. Goff has done, he is there 
in the post office on a Tuesday after 3 days off. The mail 
accumulates. You are delivering Saturday, Sunday and Monday 
mail. And that holiday mail. So if we are going to take another 
delivery day out of the week, then that means you are going to, 
every week, be delivering 3 days of mail on, let's say, a 
Monday. It is a real challenge. Your carriers have to carry a 
lot more mail. You have a lot more mail to put in the boxes. 
You have up times that you are punished for if you don't make 
it in time for that. So that is one aspect that we have to 
examine.
    The other aspect is even though they say that 85 percent of 
Americans don't care if we deliver mail to them on Saturday, 
what about the 15 percent that do? Who are those 15 percent? 
Are those the businesses out there that actually pay a lot of 
money into the postal system that help keep us going? I don't 
think we need to be too cavalier when we say we want to go to 
5-day delivery. I think there are a lot of aspects that we 
really have to examine before we jump on that.
    Mr. Chaffetz. Do you have other suggestions? I don't think 
anybody necessarily wants to do this. The question is, what are 
we are going to have to do and what is most palatable, what is 
not? So in its place, I guess a challenge to all three of you 
is, in its place, what other options are there to come up with 
literally a couple billion dollars?
    Mr. Mapa. Before we came here today, we did not sit down 
and compare notes about what kind of testimony we would do. But 
I saw in all three of our testimonies we called to attention 
the immense bureaucracy in the Postal Service and the need to 
reduce that. I know that Ted would love to have his supervisors 
be able to supervise, Dale and I would love to have our 
postmasters be able to run their post offices. We are 
responsible people, we have been trained to manage. If you gave 
us half a chance, I think the Postal Service would be 
surprised. But we are so into micromanaging every breath, I 
just think it is unhealthy the way we do things in the Postal 
Service.
    Mr. Chaffetz. I want to give a little time to Mr. Keating, 
please.
    Mr. Keating. Sure. I too have previously testified against 
the 5-day delivery. I think that it would be the beginning of 
the end of the Postal Service as we know it as a service to the 
American people. I think that the layers of management are one 
thing, but there is a lot of, the Postal Service came to us 
last year, the three organizations, probably the unions too, 
and asked for givebacks because of the financial situation. We 
thought about it, and in the end we eventually said no, because 
we see daily the waste that goes on in the Postal Service. We 
give them ideas about how they can save money and they totally 
ignore it.
    So until we see postal headquarters addressing some of the 
issues that we have given to them, we are not going to be 
thinking about giving givebacks to the Postal Service. There 
are a lot of things we can do internally still to get the 
Postal Service back in shape. I believe we can do that.
    Mr. Chaffetz. Mr. Goff.
    Mr. Goff. I agree with Mr. Keating. That was my thought, 
when you asked that question. There are so many things that we 
have brought forward, and just to be told no, that we are not 
going to do that. We heard several times today that you are 
consulting with the management associations on some issues. And 
I think you saw me a couple of times just go like that, and I 
am going, well, I don't remember talking about that. Maybe they 
are going to consult with us in the future on it.
    But there are some issues that we have brought forward, the 
details that are out there, the money that we spent on people 
per diem staying in hotels as they work on the details 
somewhere. And some of these districts, and I can speak back 
for home, you may have 15, 20, 30, 50 people working on 
details. There is cost involved there. We have other areas we 
can tighten up with.
    Mr. Chaffetz. I guess one of the challenges that I would 
ask you all long-term and short-term as well to work toward and 
to think about that I would be particularly interested in 
seeing is, the idea of consolidating distribution facilities, 
post offices, I think there is a distinct difference between a 
rural post office, which could be the center of town, I can 
think of several in my district. I have a very urban component, 
I have a very rural component. I think of Oak City. Oak City in 
my district is a very, very small town, but the post office is 
the center of town. It is where people gather, they do a lot 
more than just pick up the mail.
    I think it is a very different equation than how you deal 
with maybe an urban center or downtown where there may be post 
offices that are literally two or three blocks apart from each 
other. How to tackle that issue I think is something that needs 
to be addressed long term. My time is out now, the light is 
red, but maybe we can explore this more in the future.
    Thank you, all three of you, for being here. Thanks, Mr. 
Chairman.
    Mr. Lynch. Thank you.
    Also, I would like to point out that we are going through a 
process right now about how to deal with the instability in the 
Postal Service right now. We do have your testimony. Some of 
these parts of solutions are loosely developed and others are 
more detailed, such as H.R. 22. But we would want to hear from 
you. I think it is very important that the postmasters, folks 
that are on the front lines and trying to manage this system, 
have an opportunity to try to contribute to the solution. I 
think that is a very important piece there.
    So just as the Chair of the committee, and I am sure I 
speak for the other Members on both sides, we welcome your 
input. I think you have pointed out some things that we haven't 
heard from the other panels. And I think they are well-founded.
    Let me ask you, Mr. Goff, you also mentioned in your 
testimony about the possible projected over-payment by the U.S. 
Postal Service into the Civil Service Retirement Trust Fund and 
the fact that OPM could go back and more accurately calculate 
that. That is something that interests me, because this H.R. 22 
issue and how we solve that or provide some relief to that 
funding requirement is a very important piece here. Everybody 
has talked about that. If we don't have accurate numbers in 
terms of what is required in the first place, we need to have a 
solid base that we are operating from. I need that number to be 
as hard as possible, the number that we need and the amount of 
relief, obviously, that is required.
    Could you expand on that a little bit, amplify that point?
    Mr. Goff. Just as we have been talking, we are trying to 
look at ways that we can go back in and help the Postal 
Service. Just as you were saying, too, we feel under the 
previous administration that when we got this situation taken 
care of, the figure that came about, it was one that was OK for 
everybody, yes, we were overpaying. But we still feel after 
looking at it for a while now that the overpayments, we are 
still overpaying into that fund. I think that needs to be 
looked at. It is just another area that we think we can go in 
and find some additional funds that the Postal Service would 
have.
    Mr. Lynch. OK. Just so you know, I have asked my staff, 
committee staff to send a letter to John Barry, who is the new 
Director of OPM, and ask him to give me a good hard number, 
look at these numbers again and obviously, in this environment, 
we can't have the Postal Service overpaying. Then we have to 
figure out a way to provide some relief that there that doesn't 
put the whole health benefit system in jeopardy. We are trying 
to find a way forward here on that point, much as H.R. 22 has 
suggested.
    But I want to have, you sort of, you need to have the right 
numbers to work from before you throw a projection out there, 
otherwise we are acting on bad information. We can't have that, 
because there is so much at risk here. But just so you know, I 
understand what you said, and we are going to try to get a 
better number on that going forward.
    We appreciate your coming before us. We appreciate the 
testimony that you have rendered here. This is an ongoing 
process. So we want you to be involved here. We think you have 
a lot that you can contribute in your years of service and your 
perspective. And you are welcome partners in this, I just want 
you to know that. Your insight has been very valuable to the 
committee. Thank you very much.
    We have the final panel, welcome, gentlemen. It is the 
committee policy that all witnesses are sworn in. May I ask you 
to rise, please, and raise your right hands.
    [Witnesses sworn.]
    Mr. Lynch. Let the record show that the witnesses have 
responded in the affirmative.
    I will give a brief introduction and then we will have your 
testimony. Mr. William Burrus, president of the American Postal 
Workers Union, AFL-CIO, represents the largest single 
bargaining unit in the United States, which consists of more 
than 330,000 clerk, maintenance and motor vehicle employees 
working in 38,000 facilities in the U.S. Postal Service.
    Mr. William Young is president of the National Association 
of Letter Carriers. He is the 17th president of that 
association. Its 300,000-member union represents city letter 
carriers employed in the U.S. Postal Service.
    Mr. John Hegarty is president of the National Postal Mail 
Handlers Union. Mr. Hegarty was sworn into office as National 
Postal Mail Handlers Union president effective July 1, 2002. 
For the 10-years prior to becoming the national president, Mr. 
Hegarty served as the president of Local 301 in New England, 
the second largest local union affiliated with the Mail 
Handlers Union.
    Mr. Don Cantriel is president of the National Rural Letter 
Carriers' Association. He began his postal career in Bland, MO, 
where he was a member of the National Rural Letter Carriers' 
Association. Mr. Cantriel has served at all levels of the 
association, beginning with the president of his local unit.
    Welcome, gentlemen, and if I could, I would invite Mr. 
Burrus for his opening statement.

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

                  STATEMENT OF WILLIAM BURRUS

    Mr. Burrus. Mr. Chairman and members of the subcommittee, 
thank you for convening this hearing on the financial stability 
of the U.S. Postal Service and for providing me the opportunity 
to testify on behalf of the dedicated employees that our union 
represents.
    I commend the committee through your leadership, Mr. 
Chairman, for convening today's hearing on this critical topic 
at a pivotal time in the history of the U.S. Postal Service. 
Mr. Chairman, I will summarize my remarks, but I ask that the 
complete written testimony be admitted into the record. It has 
been a long day and I will try to be as brief as I can.
    The Nation and the world are experiencing a financial 
collapse that is unparalleled in modern history and the Postal 
Service, like most institutions in our society, has been 
adversely affected. Mail volume has declined, leading to 
deficits that threaten the very foundation of the Postal 
Service.
    The Postal Service can take steps on its own to respond to 
the crisis, but Congress must also play its part. The most 
important thing that Congress can do is to pass H.R. 22, which 
will provide temporary relief from the crippling obligation to 
pre-fund future retiree health care costs. Absent this relief, 
it is unlikely that the Postal Service can survive in its 
present form.
    Over the past 10 years, as the mailing industry engaged in 
debate over postal reform, the overriding focus was the impact 
of email, the Internet, and the cost burden associated with 
serving an additional 1.8 million delivery addresses each year. 
With all the emphasis on a new form of communication, there was 
no focus on the real driving factor of hard copy 
communications, the economy. And as the country slid toward the 
recession that now engulfs us, no attention was paid to 
declining mail volume due to economic stagnation.
    Advocates of postal reform ignored the burden that pre-
funding retiree health care liabilities would pose on a service 
that would soon suffer double digit volume reductions as a 
result of the Nation's economic decline. The postal community 
identified the wrong threats and was totally unprepared for the 
challenges we now face. Email, the Internet and other forms of 
instant communications are viewed as direct challenges to hard 
copy communications. But we have known about them for years. 
And looking backward is of little value when we need a vision 
for the future.
    The numbers speak for themselves. Annual deficits are 
expected far into the future. Yet the only solutions postal 
management has offered are reductions in work hours, 
consolidation of facilities and 5-day delivery. It is expected 
at some point management will suggest modifications to 
employees' wages and benefits in order to stem the tide of red 
ink. But I defer to that time any public comment on that 
possibility.
    I would like to inform Congress that of the group 
representing postal employees, the crafts represented by the 
APWU have been reduced disproportionately, 110,000 employees 
over a 10-year period. We would expect that reductions and 
other sacrifices would be shared equally among the entire 
postal community. But no business can exist for long with a 
strategy based on cost reduction alone. Eventually it will 
become impossible to maintain an acceptable level of service 
and there will be nothing left to cut.
    However, there are steps management can initiate to address 
the issue of financial stability. They could begin with a 
fundamental shift in the relationship between the Postal 
Service and commercial mailers. And I quote an observation by 
Joy Leong, a contributor to the newsletter Mailing Systems 
Technology, ``Mailers are customers of the Postal Service, not 
shareholders. Printers, mail fulfillment services and other 
vendors are contractors of the Postal Service, not 
shareholders.'' In recent years, these lines have been blurred 
and major mailers have assumed the role of shareholders. They 
have formed organizations that have been granted unfettered 
access to the inner working of the Postal Service and to the 
decisionmaking process.
    One umbrella organization has even been afforded office 
space in postal headquarters. This cozy relationship between 
postal executives and major business mailers is unhealthy and 
counter-productive. One of the byproducts of this relationship 
is the preservation of work share discounts that benefit the 
mailers at the expense of Postal Service stability. I have 
repeatedly shared with Members of Congress the views of my 
Union on excessive work share discounts and their corrosive 
effect on postal finances. Because over time, work share 
discounts have morphed into a disgraceful policy that rewards 
large mailers with rate reductions so extreme as to be absurd.
    Mr. Lynch. [Remarks off microphone.]
    Mr. Burrus. Yes. Let me make this one point, Mr. Chairman. 
After investing $20 billion in automation designed to affix bar 
codes on handwritten and other non-bar coded mail, the Postal 
Service has converted a 1 cent per piece cost into what amounts 
to a 10.5 cent bonus to work shares. This practice, policy and 
ratemaking process is detrimental to the health of the U.S. 
Postal Service.
    But I have sung this song before, Mr. Chairman. Throughout 
the debate on postal reform, I have said that postal management 
has chosen a path that would lead to insolvency, and let me 
close with this, Mr. Chairman. The USPS' current predicament is 
the result of a flawed business strategy and a lack of vision 
of how hard copy communications can be relevant into the 
future. Management has failed to find a meaningful role for the 
world's best delivery force, a system that reaches every 
American home 6 days per week, has a network of 40,000 
facilities, enjoys stellar name recognition and boasts a 
dedicated work force. Until the Postal Service finds a way to 
morph that proud tradition and work force into a meaningful 
role, far into the future of the Nation's communications 
systems, even with H.R. 22, the Postal Service will not be long 
for the future.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Burrus follows:]

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    Mr. Lynch. Thank you, President Burrus.
    President Young.

                 STATEMENT OF WILLIAM H. YOUNG

    Mr. Young. Good afternoon, Chairman Lynch and Ranking 
Member Chaffetz.
    My written submission describes in some detail how and why 
we have come to this critical point in history of this 
extraordinary institution. It provides background on the 
retiree health issue, its funding, and it outlines specific 
recommendations. Primary among them is H.R. 22. I am pleased to 
note that 9 of the 11 members of this subcommittee are now co-
sponsors. You join the 208 other co-sponsors in the House of 
Representatives. That is very encouraging to all of us here.
    When the American public reacts with outrage and disgust at 
the travesty of AIG, and when they fume about bailouts for 
banks, brokers and insurance companies that often reward 
wheeler dealers who got us into these unprecedented financial 
messes, you listen and you act. And you should. But I hope the 
innocent victims of this greed, the corruption and incompetence 
of Wall Street, don't get lost in the midst of all this anger. 
And believe me, my members are angry too. The financial elite 
of this country, aided and abetted by misguided deregulation, 
have trashed our economy. And the historic recession we face 
threatens the jobs and well-being of 700,000 postal families 
across the country.
    Nothing we did, nothing the Postal Service did and nothing 
the postal industry did caused this crisis. So we hope that 
Congress will listen and act to help us overcome it. I want you 
to know that all of us are doing everything that we can do. The 
Postmaster General outlined that in his testimony, I won't 
repeat it here.
    I would suggest to you that letter carriers know a little 
something about helping out in a crisis, about steadiness when 
there is panic in the air, about sharing and about sacrifice. 
When anthrax appeared in the mail stream, the chances of public 
panic were significant. Letter carriers didn't panic. They 
continued to do their jobs in a very frightening environment. 
There was no public panic, and eventually things returned to 
normalcy.
    When Katrina devastated the Gulf Coast, many letter 
carriers lost their homes and all of their possessions. It was 
not until letter carriers appeared on the streets of New 
Orleans that the public panic began to subside and that 
normalcy returned.
    When officials from the Homeland Security Department needed 
a way to distribute vaccinations in our country if it came 
under a biological attack, the Nation's letter carriers stepped 
up to the plate and volunteered to make those distributions 
under the City Readiness Initiative. Every year we volunteer 
our services, we conduct the Nation's largest food drive on the 
second Saturday in May. We replenish all the local food banks 
across America, delivering over 70 million pounds of food.
    We do these things because we accept our role in society. 
We are the men and women trusted by America to deliver their 
mail. We come to you now because the Postal Service is in 
trouble, and we need your help.
    We contend that before you consider any drastic and 
counter-productive measures, such as the move to 5-day 
delivery, or redefining universal service, Congress can and 
should take several other steps to strengthen the Postal 
Service, starting with the passage of H.R. 22. I outlined those 
other things, by the way, in my testimony, and I won't bore you 
with it here this afternoon.
    With all due respect to Chairman Gallagher and Postmaster 
General Potter, this is not the time to undercut public and 
mailer respect for and reliance on the Postal Service by 
reducing postal services drastically and counterproductively to 
5 days a week. The Nation's mailers have diverse needs and 
business is conducted 6 days week in America. In general, they 
want 6-day delivery, need 6-day delivery and expect 6-day 
delivery. If the Postal Service doesn't provide it, some one 
else will demand the right to do it, and that will only add to 
the woes of the Postal Service.
    Now, we are here not to ask for a bailout. We are simply 
asking to use money that we have already put aside, our own 
money, the Postal Service's own money, to get us through this 
crisis. I am not going to get into a debate with you all about 
scoring rules, which we all know can mean what we want them to 
mean when it suits our political purposes. But I am confident 
that the same American public that is quite sure something is 
very wrong about bailing out AIG believes very strongly that 
something is right about the Postal Service. They may not 
appreciate AIG's traders scurrying off with multi-million 
dollar bonuses, using taxpayers' hard-earned dollars, but they 
do appreciate their letter carrier earning his middle class 
salary, paying their taxes, raising their children in the 
community and faithfully delivering their mail each day.
    And they will thank you for helping the Postal Service to 
use its own rainy day fund to do that with a binding obligation 
to restore that rainy day fund when this crisis is past. Not a 
bailout, not a subsidy, not a loan. Our own money. How do you 
score that? Well, I will tell you how I score it, I score it a 
home run for everyone, the Postal Service, postal employees, 
mailers, postal customers, and oh, by the way, the Congress of 
the United States.
    Before I conclude, I would like to address one further last 
issue. Earlier today, Chairman Lynch, you said that your 
concern about H.R. 22 was that it would leave a $75 billion 
unfunded liability in 2016 for future retiree health benefits. 
First, I share your concern. These benefits are my members' 
benefits, and I would never support legislation that would 
endanger their payment.
    Second, you should note, sir, that the $75 billion estimate 
is highly uncertain, if not suspect. It assumes that retiree 
health benefit premiums will increase 7 percent a year forever. 
If there is anybody in that country who can survive that, I 
would like to know who it is. Seven percent a year, every 
single year, forever. I am going to submit a report from Watson 
Wyatt that shows that Medicare and Medicaid don't even believe 
that. Their more realistic, long-term trend rate is 5 percent 
annually. That ought to be instructive.
    Third, I would like you to know, sir, that under H.R. 22, 
the balance in the retiree health fund will continue to grow 
from $32 billion today to $71.5 billion in 2016. Do you know 
how much the typical private sector company has pre-funded for 
its employees today? Zero. Do you know how much the Treasury, 
the Commerce, the Labor Departments have pre-funded? Zero. Do 
you know how much the Congress of the United States has pre-
funded for you and your employees? Zero.
    So please, let's not kill the Postal Service out of an 
understandable yet tenuous concern about unfunded liabilities 
in 2016. The reality is, we need to re-examine the whole issue. 
I am delighted to hear you said that you were going to look 
into that, sir. The current funding schedule was set by the 
prior administration to meet short-term budget scoring rules. 
It wasn't set on the basis of any sound public policy or any 
sound accounting principles. In fact, and this is the part I 
think you would be most interested in, sir, in fact, a fair 
accounting of the Postal Service----
    Mr. Lynch. You really have to wrap up, sir.
    Mr. Young. This is it.
    Mr. Lynch. I appreciate that you have been here all day and 
I am cutting you some slack. I get your message.
    Mr. Young. Can I finish one sentence?
    Mr. Lynch. Please do, yes.
    Mr. Young. In fact, a fair accounting of the Postal 
Service's surplus and Civil Service Retirement Fund, which the 
OPM calculated and the PAEA allocated to the retiree health 
benefit fund, would most likely offset any unfunded liability. 
Zero. Thank you, sir.
    [The prepared statement of Mr. Young follows:]

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    Mr. Lynch. I thank you.
    President Hegarty.

                  STATEMENT OF JOHN F. HEGARTY

    Mr. Hegarty. Good afternoon, and thank you, Chairman Lynch, 
Ranking Member Chaffetz. I appreciate the opportunity to 
testify and I would ask that my entire written testimony be 
submitted for the record.
    Mr. Lynch. Without objection, so ordered.
    Mr. Hegarty. As with your predecessor, it is an honor to 
have someone as Chair of this subcommittee who has such a rich 
background in labor and postal issues, Mr. Chairman. I wish to 
focus my comments today on what Congress and the executive 
branch can do, as well as what we, the Mail Handlers Union, are 
doing to help the Postal Service through its current financial 
crisis. The first step is to simply enact H.R. 22.
    How often does Congress see a bill that would rectify a 
multi-billion dollar debt situation, keep a vital function of 
Government alive, yet cost the taxpayer not 1 cent? That is 
what H.R. 22 does.
    How often are the Postal Service, the mailers, the unions, 
the management associations and the $900 billion industry 
associated with the mail all on the same page? This is it, and 
it has bipartisan support.
    Aside from not costing the public the public a penny, H.R. 
22 has the added benefit of continuing to increase the amount 
of money in the trust fund for future retirees' health care, 
and it does not reduce any health care benefits. Furthermore, 
it gives the Postal Service some flexibility for the 
foreseeable future. And I fully support keeping the trust fund 
healthy.
    All of us at this table are in agreement. There is one 
aspect of this process, however, that I would like to address, 
the imposition of the CBO scoring on this bill. If CBO scores 
an obstacle, then Congress needs to take a close look at the 
problem created by the rules under which CBO operates. The 
scoring issue may be singular to the Postal Service. It is a 
quasi-governmental agency, which receives no Federal 
appropriation for its operations. It is off budget for some 
purposes and on budget for others. Why should an 
intergovernmental transfer of U.S. Postal Service funds that in 
the long term will not change the finances of the Treasury by 1 
cent and will not change the Postal Service's total obligation 
or the total amount of their retiree health care benefit fund, 
be construed as adding to the deficit? Why should a fix that 
does not cost the taxpayers or the users of the Postal Service 
one penny be scored? While it may make some sense in an 
academic accounting ledger world, it does not make common sense 
in the real world.
    If legislation similar to H.R. 22 is not passed, the Postal 
Service may not be able to meet all its financial obligations 
as soon as September 30th of this year. That inaction would 
lead to a much bigger debt, the debt incurred by American 
society if we allow the Postal Service and the $900 billion 
industry which depends on it to fail. I obviously think 
Congress should figure out a way to pass H.R. 22. It is, in the 
words of President Obama's Reinvestment Act, temporary, 
targeted and job-saving. It is similar to the stimulus aid sent 
to the States to prevent layoffs and cuts in services. I hope 
the subcommittee will look closely at this issue.
    I am often asked, what are we, the Mail Handlers Union, 
doing to help the Postal Service cut costs. There is a complex 
story to be told here. First, during the past 10 years, 
thousands of mail handler jobs and more than 100,000 total 
postal jobs have been eliminated, mostly through attrition, 
while the mail continues to be processed and delivered 
professionally and on time. That is why postal employee 
productivity is at an all-time high.
    We have also aggressively pursued labor management programs 
to reduce overhead. Let me give you just a few examples. The 
ergonomic risk reduction process has succeeded in reducing 
repetitive motion injuries by as much as 35 percent. Because of 
the forceful backing of the Postmaster General and his 
headquarters staff, plant managers have embraced this effort. 
It has been estimated that the ergonomic risk reduction process 
saves on average 20 injuries per facility per year where the 
process is used, about a fivefold return on the dollar. These 
reductions account for approximately $77.8 million in cost 
avoidance.
    Then there is the voluntary protection program which is 
driven by employees and is OSHA-related. It looks at the cause 
of a specific, often traumatic injury, and seeks to prevent a 
recurrence. There are measurable differences in the injury 
rates in facilities that use this program versus those that do 
not.
    Starting in 1999, the Postal Service and our union 
developed a joint contract interpretation manual to encourage 
union and management representatives at all levels to resolve 
and reach consistent results on pending issues. It has saved 
many millions of dollars and added a level of predictability 
and responsibility to our craft.
    The parties also have a quality of working life program, 
which provides opportunities for mail handlers and supervisors 
working together to identify and resolve work problems in the 
work place. The Postal Service reports that the savings are 
substantial, in the millions of dollars.
    Finally, as a former labor leader, Mr. Chairman, you know 
how complicated a give and take process collective bargaining 
can be. Yet in our current contract, which was negotiated in 
2006, ratified by our members and expires in 2011, we are 
reducing by 1 percent each year the amount the Postal Service 
pays toward our health care. The other unions and management 
associations are also on board with these reductions. The 
Postal Service's cost eventually will be reduced by more than 
$250 million per year when all unions and postal employees are 
taken into account. In these 5 years alone, the Postal Service 
is saving over $800 million, just from this one contract 
provision.
    So in my view, the unions have stepped up to the plate. We 
ask that Congress do the same by passing H.R. 22.
    Thank you for your time and attention. I will be happy to 
answer any questions you may have.
    [The prepared statement of Mr. Hegarty follows:]

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    Mr. Lynch. Thank you, sir.
    President Cantriel.

                   STATEMENT OF DON CANTRIEL

    Mr. Cantriel. Thank you, Chairman Lynch, members of the 
subcommittee. I would like to extend my thanks to the committee 
for scheduling a hearing on restoring the financial stability 
of the Postal Service.
    I would ask that my full testimony be submitted for the 
record.
    Mr. Lynch. Without objection.
    Mr. Cantriel. I will give a brief summary of my statement.
    Mr. Chairman, as the NRLCA's national president, it is in 
our members' best interest to work toward the creation of a 
financially stable Postal Service. Toward this end, our union 
has been working together with the Postal Service to establish 
revenue-generating programs along with ways to reduce costs for 
the Postal Service.
    One revenue-generating program we use is called Rural 
Reach. To date, the rural carrier craft has generated $26 
million for the Postal Service and we fully expect by the end 
of the first full year of existence to exceed $30 million in 
revenue for the Postal Service.
    Our union is the only union that can claim that actual 
employee wages, what our employees take home in his or her 
paycheck every 2 weeks, is in large measure based on mail 
volume. Every year, rural routes are evaluated and rural 
carrier salaries are established based on the work performed 
each day during the evaluation. Mail volume is a critical 
factor in the salary-setting process. During boom times for the 
Postal Service, rural carriers can see an increase in the route 
evaluations. Until recently route evaluations generally went up 
due to increased mail volume and an expanding customer base.
    Unfortunately, our last two mail counts resulted in 
significant reduction in rural route evaluation, impacting tens 
of thousands of rural letter carriers and causing their 
salaries to be lower. Last year, in a 2-week mail count, rural 
routes served by our members lost anywhere from 2 to 12 hours 
of pay each week. Each evaluated hour is worth more than $1,500 
per year. So you can see how declining mail volume dramatically 
affects the men and women we represent.
    This year, the NRLCA had a 4-week mail count during the 
last 2 weeks in February, the first 2 weeks in March. Official 
results from this recently completed mail count are not 
available. We are once again expecting rural route evaluations 
to go down, not up.
    The point I am making is quite simple: our people are 
hurting. They are making less money or in some cases opting to 
work an additional day to make the same amount of money. It is 
pretty simple: reduction in rural route evaluations translates 
into direct savings to the Postal Service. If mail volumes 
decline, chances are very good that the Postal Service will be 
paying our members less because there will be less mail to 
deliver and collect each day.
    Never let it be said that rural carriers are not doing 
their part to help the company. We have been doing it for 
decades with our evaluated compensation system. If the business 
falters, labor costs, at least rural letter carriers' labor 
costs are adjusted downward. Every postal employee we represent 
knows in the pocketbook what it means for the company to be 
challenged by declining mail volume.
    The Postal Service can save literally hundreds of millions 
of dollars if routes are evaluated when mail volume is low. But 
this annual adjustment mechanism does not stop with salaries. 
Most rural letter carriers still provide their own delivery 
vehicles, from which they are paid an equipment maintenance 
allowance. EMA is adjusted quarterly by measuring fluctuations 
in CPI-W, transportation index. In other words, EMA payments to 
rural carriers go down when costs, including the costs of fuel, 
go down. These regular adjustments have recently resulted in 
significant cost savings for the Postal Service, as gasoline 
and automobile prices have dropped sharply.
    Our union, like the other postal unions during the last 
contract negotiations cycle, lost some ground on health benefit 
costs and now pays a large percentage of health insurance 
premiums. Our members now pay more while the employer 
contribution to Federal employee health benefit premiums, as a 
percentage of total cost, is lower. As health care costs for 
businesses and corporations continue to rise, our union members 
will pay an additional 4 percent of the Federal employees 
health benefit programs over the life of the current collective 
bargaining agreement. It is another example of how our 
bargaining unit has provided additional savings to the Postal 
Service.
    The most important piece of legislation Congress should 
enact is H.R. 22, introduced by Representatives John McHugh and 
Danny Davis. The Postal Service is saddled with an ambitious 
payment schedule to pre-fund its retirees' health benefits. 
This is an obligation no other corporation or Government agency 
is required to pre-fund. The last administration required this 
provision to be included for one simple purpose, to make the 
PAEA budget neutral.
    There are several other savings opportunities that the 
Postal Service would have based on the actions of Congress, 
including helping them with the Medicare Part D, recalculation, 
looking at the way that the FERS retirement system is set up, 
and the payment that is made for military retirees.
    Mr. Chairman, members of the subcommittee, thank you for 
allowing me to testify before you today. I would be happy to 
answer any additional questions you may have.
    [The prepared statement of Mr. Cantriel follows:]

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    Mr. Lynch. Thank you. Thank you all. We appreciate your 
testimony.
    Let me ask, there has been a menu of options that the 
Postmaster General laid out and reinforced by the Board of 
Governors, Ms. Gallagher. They talked about a voluntary 
separation program, voluntary retirement program. To my 
knowledge, at least the way they described it, it was not 
incentivized in any manner. I can't remember the last time they 
did an incentivized retirement program. It might have been 
1982, I think, when my mom retired. That is the last one I 
remember.
    But there hasn't been a great groundswell, they are not 
beating the door down to get out of there. I question the 
efficacy of a program like that when the economy is so weak. Do 
you actually think people are going to go into retirement when 
they see their 401(k) and their investments cut in half? What 
are your thoughts on this effort to get 150,000 postal 
employees to take an early retirement?
    Mr. Burrus. Speaking for the members of the American Postal 
Workers Union, they are not fools, they are not going to 
relinquish a job paying in excess of $50,000 a year to the 
uncertainty of a bad economic situation. It is an act of 
desperation. They are not going to have many takers, I predict. 
Our union maintains that our collective bargaining agreement 
requires an incentive. We will resolve that through the 
grievance arbitration process.
    But it is similar to the threat of 5-day delivery. It is a 
diversion. There is no intent, there is no desire, and it is 
certainly over Congress' congressional dead body that they will 
get a 5-day delivery.
    Mentioning those things sucks all the oxygen out of the 
discussion, while we are collectively fighting as hard as we 
can to get H.R. 22 passed. We really don't need these 
sideshows. So I am very critical of them even bringing these 
things up. They are not the answer to the USPS problem.
    There are some long-term solutions, but the initial hurdle 
is the avoidance of that $5-plus billion obligation they have 
to the future retiree health benefits.
    Mr. Lynch. Understood. That is loud and clear.
    Mr. Young, on the early retirement piece here, if I am 
missing something.
    Mr. Young. Excuse me, I couldn't hear you, sir.
    Mr. Lynch. On the early retirement piece here, do you think 
that is going to be successful the way they have it framed 
right now?
    Mr. Young. No, sir, I don't. In the last early retirement 
that was just offered to my members, less than 3,000 of them 
took it. It is the uncertainty. You said it exactly right. When 
people lost all their retirement savings, when the stock market 
plunged, they don't know what they are facing, what the future 
is going to look like. There is a lot of people out there that 
are scared.
    I want to get back to this idea of these things that Potter 
and Gallagher brought to you this morning, and I just want to 
question in a general way, Mr. Lynch, whether it makes sense to 
try to make these kinds of decisions when the Postal Service is 
at the bottom. This would be like restructuring the Postal 
Service during the Great Depression. Nobody that I have talked 
to in this country believes we are going to be mired forever in 
the current economic state that we are. At least we all pray to 
God we are not.
    So I think it makes a lot more sense to look at this when 
normalcy returns. I would just say one thing, a lot of people 
are starting to believe now that all of a sudden the Internet 
and these other alternatives jumped into this. During the last 
6 years, the Postal Service made all the right moves to protect 
themselves from that. And as one of the earlier panels 
testified, we would have actually made $2.8 billion last year 
if it hadn't been for this future retiree health benefit 
payment. So I think the real key is what you said, let's find 
out what that real number is. What is the real number, what is 
that obligation, and then let's go from there in trying to 
decide how we make this the best Postal Service with the funds 
that we have available.
    Mr. Lynch. Mr. Hegarty.
    Mr. Hegarty. On the voluntary early retirement, I have a 
couple of concerns. Something for the committee to consider too 
is, employees hired since 1984 under the Federal Employees 
Retirement System, if they take an early retirement, they lose 
the ability to contribute to the thrift savings plan, they lose 
the matching contributions, they don't qualify for social 
security right away, they really can't live on it. A typical 
voluntary early retirement offer in the last round for an 
employee hired in mid-1984 is $900 a month. So I don't know any 
postal employee who, as President Burrus said, would go from a 
good-paying middle class job could live on $900 a month.
    For the Civil Service Retirement employees, the picture is 
a little bit better for them. They were all hired in 1983 or 
before, some of them are approaching normal retirement age. But 
I would love to see incentives, I just don't know where the 
money would come from for that, either.
    Mr. Lynch. Right.
    Mr. Hegarty. And the last time they did an incentive was 
1992, and they lost so many employees in so many wrong places 
they had to hire to replace a lot of the employees that they 
took the voluntary retirement.
    Mr. Lynch. I know I am over my time. But I am going to ask, 
President Cantriel, could you also hit that same question?
    Mr. Cantriel. Because we are the last mile of delivery, 
this is the first time we have ever been offered the voluntary 
early retirement. Like the NALC, we had 606 carriers who took 
advantage of voluntary early retirement. The comments that I 
heard throughout the country was, if I am going to have to 
work, I would just as well work for the Postal Service, because 
I cannot live on what I would be getting from my retirement 
without some sort of an incentive to do it. That was the 
general feeling from ours.
    I don't expect a large portion of our membership to take 
advantage of it this time. And in positions other than the 
declining mail volume, which may result in the loss of some 
routes, if one of our people retires, someone has to replace 
them, because we are that last mile, similar to the NALC. 
Someone is going to have to actually deliver that mail.
    Mr. Lynch. Yes. Thank you.
    Mr. Chaffetz for 5 minutes.
    Mr. Chaffetz. Thank you, Mr. Chairman, and thanks to those 
of you who have been here since 9:30 a.m. The chairman slipped 
me a note and said, don't worry, we are halfway there. So hang 
in there with us. [Laughter.]
    We have heard various testimony and the chorus has been 
fairly united on the idea for support of H.R. 22. I personally 
support H.R. 22, now that I have been able to dive in and look 
at it. Obviously I think it has the numbers and the support, in 
a broad way, bipartisan way, and hopefully we can get to that 
sooner rather than later.
    We need revenues to go up, we need expenses to go down to 
get to that magical point. We have to deal with the fact, the 
realities of where things are today. So I guess I would like to 
lead with a sense of what are the top three things we could do 
to affect either revenues going up and/or expenses going down? 
H.R. 22 plays a critical and important role and gets us a long 
way toward that direction.
    Taking maybe 30 seconds each, knowing that you will each 
take a minute--[laughter]--maybe we could start with President 
Cantriel there and give me a sense of what you would add to 
that list. We need big things that are going to make big 
differences. What are No.s 2 and 3 on that list that you would 
add?
    Mr. Cantriel. I guess I would have to piggyback a little 
bit on what you heard from the managers. We see so many levels 
out there. I am going to use my postmaster I just talked to 
within the last week when he told me what my evaluation was. He 
said, I am so tired of filling out a report verifying that I 
filled out the reports that had to be reported, and not given 
the opportunity to run my office. One of his comments was, I 
know less about running my office now than I did 15 years ago 
when I got the position.
    So I think there has to be some streamlining in middle 
management and put some responsibility back on those 
postmasters to make those decisions. I think Charlie and Dale 
both said it very well, they are very capable of making the 
decisions that need to be made there. They don't need three 
levels of middle management to tell them what they need to do.
    I think we are top heavy in a lot of areas. I don't see 
that we need 80 or 74 districts. I don't think we need 10 areas 
to tell our members how to deliver the mail. We have too many 
people that are not actually handling the mail telling people 
that are handling the mail what they need to do and how they 
need to do it.
    Mr. Chaffetz. Thank you.
    President Hegarty.
    Mr. Hegarty. Thank you. The first thing I think we need to 
do is continue the revenue generation that the unions are 
participating in. The carriers and rural carriers have done it 
for a number of years. We just started last year talking to 
vendors, people we do business with, that don't use the U.S. 
mail. We now have the opportunity to fill out a form or go on 
the computer and a professional Postal Service sales associate 
will call on that business and explain to them the benefits of 
the mail, how they can get better service, how they can save 
money.
    So that is just taking off from my craft's perspective. But 
as I said, the letter carriers and the rurals have been doing 
it for quite a while.
    One thing I would caution that you should do is not go to 
5-day delivery. That would be in the top three for me. One of 
the reasons, we have talked about driving people to our 
competitors. The other thing I think that would do is drive 
people to the Internet. Because the first time their bank 
statement doesn't come on time or the first time their credit 
card bill goes late, they are going to say the heck with this, 
I can go online, do all that stuff and save myself some 
postage.
    Mr. Chaffetz. Thank you.
    President Young.
    Mr. Young. Yes, I am just going to give you the list. First 
and foremost, restore the economy. When that is done, the 
Postal Service is fine.
    Mr. Chaffetz. If you can give me until Thursday--
[laughter.]
    Mr. Young. That is what I was just going to say, you are 
from Utah, you can do that by Thursday. [Laughter.]
    Second, the Medicare subsidy Part D, that was designed for 
companies to provide a drug benefit equal to Medicare. We do 
and just with the stroke of a pen the previous President said, 
we are not going to give it to you, notwithstanding the fact 
that is about $8 billion right there, $8 billion is what I am 
told the number is there.
    Management restructuring would be No. 3. And here is No. 4 
for you. We are still paying for FERS employees for the time 
they spent in military service. In the Postal Reorganization 
Act that we just passed in 2006, we took care of the CSRS 
employees, their previous military service. That was $17 
billion, that was the cost of that. We are still asking mailers 
and the people who pay postage to pay for the time that anybody 
who is a FERS employee after 1984, any time they spent in the 
military. That would be significant as well.
    Mr. Chaffetz. Thank you. Great, I appreciate it, thank you.
    Mr. Burrus. No. 1 is H.R. 22, No. 2 is restoring the 
economy, No. 3, to infinity, is similar to jumping off a five-
story building and flapping your arms. It doesn't cushion the 
fall, but it gives you something to do on the way down. 
[Laughter.]
    Mr. Chaffetz. Thank you.
    Thank you, Mr. Chairman.
    Mr. Lynch. Let me ask, one of the other legs of the stool 
that Postmaster General Potter had thrown out there was 
consolidation of some of these post offices. They have already 
gone with six facilities, six area facilities which I guess are 
largely for administrative purposes. But there is a sense that 
there could be some consolidation of more of the urban post 
offices and while that might not necessarily affect the number 
of people out there in terms of your workers, we may gain some 
efficiencies by discontinuing the leases that we have out there 
or closing down some facilities out there that are obsolete or 
not being utilized to full extent.
    What are your thoughts on that idea about closing those 
facilities?
    Mr. Burrus. In general, we oppose consolidations. We 
support efficiencies, if the Postal Service can prove to the 
community that a consolidation is in the interest of saving the 
Postal Service money while providing the same level of service 
to the citizens of that community, then we stand aside and will 
support such an effort.
    But what we see in the current plan is deny the single 
user, my grandmother, my cousin, the student in college, to 
deny them the level of service they provide for the major 
mailers. Major mailers follow the Postal Service, and it is 
actually beneficial to them, because it reduces the number of 
drop points where they take their mail to. So consolidation 
saves money for your major printers and major mailers.
    But it is creating a two-tier U.S. Postal Service, one 
system for the major mailers, a totally different system for 
the person who drops the letter in the collection box at the 
end of the corner. That is the danger of this consolidation 
plan. It is not just efficiency. It is separating the Postal 
Service into one Postal Service for the haves, another Postal 
Service for the have-nots. And we oppose that.
    Mr. Lynch. OK. Mr. Young.
    Mr. Young. I think it is worth a look, but I caution, and I 
think you know this, so I know you do, sir, because of your 
background, but it is going to be real heavy on all of you. 
Every time we try to close any facility in your areas, you are 
going to hear from all of the people that live in that area the 
millions of reasons as to why it shouldn't happen.
    I would just make this one remark, and you just take it for 
what it is worth. I believe this is the right number, if it is 
not, I apologize, but it is close. Long Island has 80 
postmasters. Ask yourself the question, do you think that is 
necessary? It is not that big of an island.
    Mr. Lynch. President Hegarty.
    Mr. Hegarty. Well, again, if it makes sense, if it is going 
to save the Postal Service money. But the key is, if it is not 
going to hurt service, then we are not opposed to it, provided 
it is done in accordance with our collective bargaining 
agreement and the Postal Service's own handbooks and manuals. 
They have a handbook called the Handbook PO 408, it governs 
their area mail processing service, where they are supposed to 
do a survey. And under the PAEA, they have to have community 
input, stakeholder input and hold a public hearing.
    One quick example, they are doing an A and P study right 
now in my home facility of Springfield, MA, and they want to 
truck all of the cancellation mail, the letters that come in 
that need to be run on the cancellation machines, down to 
Hartford, CT, to be canceled, and then truck them back up to 
Springfield to be delivered. I know you are familiar with the 
State of Massachusetts, Springfield to Hartford is about 35 
miles, it is down I-91. They would be going down there in rush 
hour traffic, all kinds of weather. It doesn't make a lot of 
sense to me.
    So those are the types of consolidations that we are 
opposed to.
    Mr. Lynch. Mr. Cantriel, I know that you represent the 
rural carriers. So you are probably outside of the possibility 
of consolidation in many cases. But your thoughts?
    Mr. Cantriel. Well, we do have some in urban areas, but 
yes, I do deal mostly with the rural areas. There is a real 
identity problem there. They do not like losing that. There are 
solutions that can be there, there are things that can be done 
to look at to make sure that the communities are provided the 
same service that they have. In my area, there are three or 
four small offices, in one post office, three or four clerks 
could provide the same amount of hours at the window and do the 
same amount of service without having a manager there all day 
long and still provide the service that we need in those rural 
communities.
    I don't look much toward closing a lot of those down 
because of the identity for that community and what goes on 
there. So it is a little more difficult for me to jump on board 
with closing down very many offices.
    Mr. Lynch. OK, thank you.
    I don't believe we have any more questions, but I do have a 
comment, and that is that the Postal Service is one of the most 
respected Government institutions in this country because of 
what the people you represent every day do in our communities, 
whether they are rural communities, folks have a great deal of 
respect for their local letter carrier in the cities as well as 
the suburbs. Their local clerk is a very familiar face around 
town.
    But it is really, that reputation of reliability and of 
great service is largely due to the people that you represent. 
So we thank you for that.
    Just as I spoke earlier with the supervisor and postmasters 
that we have an open process here on how to proceed, I do want 
to caution that time is wasting and we don't have a lot of 
options here. We don't have a lot of time, let me put it that 
way. So we are going to have to decide on a course of action 
and we are going to have to get to it. Sounds like H.R. 22 in 
some iteration will be part of that approach and that response.
    But we would like to do more than just that, and we would 
welcome your input and your ideas. You see it at a ground 
level, and you have seen it for a good while. And so we would 
be enriched by having your input in this whole process. We 
welcome it.
    I thank you for your testimony here, and have a good day.
    [Whereupon, at 4:52 p.m., the subcommittee was adjourned.]
    [The prepared statement of Hon. John M. McHugh and 
additional information submitted for the hearing record 
follow:]

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