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


 
  NIP AND TUCK: THE IMPACT OF CURRENT COST CUTTING EFFORTS ON POSTAL 
                     SERVICE OPERATIONS AND NETWORK 

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

                                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

                               __________

                              MAY 20, 2009

                               __________

                            Serial No. 111-6

                               __________

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


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

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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                   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
MIKE QUIGLEY, Illinois               BRIAN P. BILBRAY, California
MARCY KAPTUR, Ohio                   JIM JORDAN, Ohio
ELEANOR HOLMES NORTON, District of   JEFF FLAKE, Arizona
    Columbia                         JEFF FORTENBERRY, Nebraska
PATRICK J. KENNEDY, Rhode Island     JASON CHAFFETZ, Utah
DANNY K. DAVIS, Illinois             AARON SCHOCK, Illinois
CHRIS VAN HOLLEN, Maryland
HENRY CUELLAR, Texas
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 May 20, 2009.....................................     1
Statement of:
    Burrus, William, president, American Postal Workers Union, 
      AFL-CIO; John Hegarty, president, National Postal Mail 
      Handlers Union; and Dale Goff, president, National 
      Association of Postmasters of the United States............    67
        Burrus, William..........................................    67
        Goff, Dale...............................................    94
        Hegarty, John............................................    78
    Conway, Anthony W., executive director, Alliance of Nonprofit 
      Mailers; Robert E. McLean, executive director, Mailers 
      Council; and James O'Brien, chairman, Association of Postal 
      Commerce...................................................   113
        Conway, Anthony W........................................   113
        McLean, Robert E.........................................   118
        O'Brien, James...........................................   124
    Galligan, William P., senior vice president, Operations, U.S. 
      Postal Service; John Waller, Director, Office of 
      Accountability and Compliance, Postal Regulatory 
      Commission; and Phillip Herr, Director, Physical 
      Infrastructure Issues, U.S. Government Accountability 
      Office.....................................................    12
        Galligan, William P......................................    12
        Herr, Phillip............................................    33
        Waller, John.............................................    22
Letters, statements, etc., submitted for the record by:
    Burrus, William, president, American Postal Workers Union, 
      AFL-CIO, prepared statement of.............................    70
    Chaffetz, Hon. Jason, a Representative in Congress from the 
      State of Utah, prepared statement of.......................     7
    Conway, Anthony W., executive director, Alliance of Nonprofit 
      Mailers, prepared statement of.............................   115
    Galligan, William P., senior vice president, Operations, U.S. 
      Postal Service, prepared statement of......................    14
    Goff, Dale, president, National Association of Postmasters of 
      the United States, prepared statement of...................    96
    Hegarty, John, president, National Postal Mail Handlers 
      Union, prepared statement of...............................    80
    Herr, Phillip, Director, Physical Infrastructure Issues, U.S. 
      Government Accountability Office, prepared statement of....    35
    Lynch, Hon. Stephen F., a Representative in Congress from the 
      State of Massachusetts, prepared statement of..............     4
    McLean, Robert E., executive director, Mailers Council, 
      prepared statement of......................................   120
    O'Brien, James, chairman, Association of Postal Commerce, 
      prepared statement of......................................   126
    Waller, John, Director, Office of Accountability and 
      Compliance, Postal Regulatory Commission, prepared 
      statement of...............................................    24


  NIP AND TUCK: THE IMPACT OF CURRENT COST CUTTING EFFORTS ON POSTAL 
                     SERVICE OPERATIONS AND NETWORK

                              ----------                              


                        WEDNESDAY, MAY 20, 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 a.m., in 
room 2154, Rayburn House Office Building, Hon. Stephen F. Lynch 
(chairman of the subcommittee) presiding.
    Present: Representatives Lynch, Chaffetz, Norton, Clay, 
Connolly, and Bilbray.
    Staff present: William Miles, staff director; Marcus A. 
Williams, clerk/press secretary; Margaret McDavid, detailee; 
Aisha Elkheshin, intern; Dan Blankenburg, minority director of 
outreach and senior advisor; Adam Fromm, minority chief clerk 
and Member liaison; Howard Denis, minority senior counsel; and 
Alex Cooper, minority professional staff member.
    Mr. Lynch. Good morning. The Subcommittee on the Federal 
Workforce, Postal Service, and the District of Columbia hearing 
will now come to order. I want to welcome Ranking Member 
Chaffetz and members of the subcommittee, hearing witnesses, 
and all those in attendance.
    This is the second of what will be a series of hearings to 
examine the status of the Postal Service's cuts in operations 
and services, as well as short- and long-term plans to reduce 
network costs and improve efficiency.
    The Chair, the ranking member, and the subcommittee members 
will each have 5 minutes to make opening statements, and all 
Members will have 3 days to submit statements for the record.
    Hearing no objections, that is so ordered.
    Let me make a brief opening statement. I recognize myself 
for 5 minutes.
    Less than 2 months ago, this subcommittee held a hearing on 
the financial condition of the Postal Service, and the news at 
that time was less than encouraging. In fiscal year 2008, the 
Postal Service lost $2.8 billion as it confronted record drops 
in mail volume and demand for services. Since our last hearing, 
the Postal Service's financial picture has gone from bad to 
worse. Just halfway through this current fiscal year, the 
Postal Service has already experienced a loss of $2.3 billion, 
which is just shy of its total losses from last year.
    Despite plans to cut costs this year by $5.9 billion, which 
is ambitious, the Postal Service officials still anticipate 
losing a total of $6.4 billion by year's end, primarily due to 
the current economic recession and its negative impact on mail 
volume. Electronic diversion of the mail has also contributed 
greatly to mail volume declines as well, with more and more 
folks paying bills online and using emails instead of sending 
letters.
    The contraction of economic activity, particularly in the 
housing and financial sectors, has resulted in a sizable 
reduction in the volume of standard mail and has even caused 
some of our Nation's foremost newspapers and periodicals to 
move entirely to an online format.
    To help close the gap between costs and revenue, we all 
realize that the Postal Service will have to make some very, 
very difficult decisions in order to improve the organization's 
financial condition. With the reduction in mail volume, the 
Postal Service no longer needs much of its existing 
infrastructure and is therefore in the process of examining its 
network of facilities, as well as other processing and delivery 
capacities. For instance, the Postal Service recently announced 
facility consolidations, district office closures, and 
realignment of letter carrier routes as part of an ongoing 
effort to reduce costs and achieve savings.
    I have asked this morning's witnesses to address the impact 
of these and other measures on employees and customers, and to 
discuss whether these actions go far enough, and also to 
explore additional options that the Postal Service has at its 
disposal to lower expenses, to increase productivity, and 
ultimately achieve some level of savings.
    Today's hearing is intended to help us learn from our 
witnesses how many of these recent cuts employed by the Postal 
Service have impacted overall operations, as well as customer 
service and the future viability of the Postal Service. The 
subcommittee is also interested in hearing from our witnesses 
any additional opportunities or ideas they may have to further 
reduce the Postal Service's overhead and costs.
    The news we are faced with at this hearing is dire, and 
these cuts alone may not be enough to help return the Postal 
Service to financial solvency. The Postmaster General has 
discussed the possibility of moving to a 5-day mail delivery 
schedule, and we may be at a point where we need to seriously 
consider what that option would require by researching possible 
associated savings, making sure we have the right assessment as 
to what that move might involve. We also need to consider the 
service impacts by such a decision, and I understand that many 
of the members of this committee and members of the public do 
not believe that this is a decision that should be reached 
lightly.
    As we look toward the future after the possible enactment 
of some measure of financial relief for the Postal Service and 
beyond the current economic recession, the Postal Service finds 
itself having to evolve and realign its business model in order 
to meet the needs and service requirements of the 21st century 
service. As Postal Service officials continue to make difficult 
decisions to cut costs, there will be, of course, consequences. 
It is the job of this subcommittee to ensure that these 
decisions are well thought out and designed, since many of the 
good men and women at the Postal Service, as well as postal 
customers, are being asked to sacrifice in these tough economic 
times.
    I am looking forward to a fruitful discussion on this 
timely topic. Once again, I want to thank all of our witnesses 
for their attendance and willingness to help this subcommittee 
with its work, and we look forward to your input this morning.
    [The prepared statement of Hon. Stephen F. Lynch follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Mr. Lynch. I now want to extend 5 minutes for an opening 
statement from our ranking member, Mr. Chaffetz, from Utah.
    Mr. Chaffetz. Thank you, Mr. Chairman.
    And thank you all for being here. We do appreciate your 
dedication and commitment, and taking time to be here.
    Rather than read this opening statement, I would ask 
unanimous consent to simply submit my comments into the record, 
if that is OK with you, Mr. Chairman.
    Mr. Lynch. Without objection, so ordered.
    Mr. Chaffetz. Again, thank you, and I look forward to 
listening to your testimony and having some interaction with 
some questions.
    Thank you, Mr. Chairman.
    [The prepared statement of Hon. Jason Chaffetz follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Lynch. Thank you.
    The Chair now recognizes Ms. Holmes Norton, the delegate 
from the District of Columbia, for 5 minutes for an opening 
statement.
    Ms. Norton. Thank you very much, Mr. Chairman. Mr. 
Chairman, you have done the public an important service by 
holding this hearing. We don't want the Post Office to 
disintegrate before our very eyes, and this may happen. The 
last thing the Postal Service needed was even a mild recession. 
This is a structural event and I believe we all have to wake up 
and realize it. Institutions will not be as they were when this 
recession is over; some institutions will not exist.
    Mr. Chairman, you said we have to look at whether or not 
the nip and tuck--I congratulate the committee for the use of 
really germane language--whether the nip and tuck, fun 
language, of course, but it does drive home what the Postal 
Service has been forced into. Everybody is doing it, but not 
every institution was nearly experiencing the winds from all 
sides. This institution has been experiencing a hurricane, and 
it has long been in this hurricane, and much of it not of its 
own making; it has to do with huge changes in our society.
    But the current recession did occur and once again, I 
think, calls into question the very business model that we have 
before us. The only analogy I can think of that is experiencing 
this kind of disintegration before our very eyes are 
newspapers. Nobody thinks that they are going to survive in the 
form that they exist. Everybody knows they are essential. 
Imagine getting your news from blogs and the Internet and kind 
of picking it all up and trying to put it together. They serve 
an important function. Well, they have to find another way to 
do it because the economy, long before the recession, was 
bidding them goodbye.
    No institution has had a deeper long-term decline. No 
institution that I can think of has had a deeper long-term 
decline than the Postal Service. So, Mr. Chairman, I would like 
to hear from the Postal Service this morning something other 
than nips and tucks. I would like to know whether there is any 
new thinking going on at the Postal Service. For example,--I 
don't even think this is a huge change, but it is a real 
change--I am willing to look at something that I would not have 
thought about when I first came to Congress, a 5-day delivery.
    I don't think we can say to the Postal Service, hey, make 
sure you deliver the mail the way you did--and I am a third 
generation Washingtonian. You all have done a fine job when my 
great-grandfather came to Washington, walked off of a slave 
plantation in Virginia, and the Postal Service was doing just 
fine then, and it continued to do just fine for generations. 
What has happened to the Postal Service is not the fault of the 
Postal Service, but the Postal Service has to find a new way to 
do the business of guaranteeing the delivery of essential mail 
to the people of this country and the world.
    Thank you very much, Mr. Chairman.
    Mr. Lynch. Thank you.
    The Chair now recognizes the gentleman from Virginia, Mr. 
Connolly, for 5 minutes.
    Mr. Connolly. Thank you, Mr. Chairman. I want to thank you 
for holding these hearings. I am going to have to go to a 
markup of the State Department authorization legislation all 
day in the Foreign Affairs Committee, but I thought this was so 
important, I wanted to come briefly for the beginning.
    The future of the Post Office is at stake. The future of 
how Postal Service is delivered to our constituents is at 
stake, and this Congress needs to listen carefully and we are 
going to have to work together on creative solutions. I agree 
with Ms. Norton that it may mean that the Post Office of our 
grandparents may not look like the Post Office for our 
grandchildren as we move out to the future. We have to create a 
business model for the Post Office that is viable as we look to 
changes in technology, we look to changes in the communication 
media, we look to changes in the marketplace.
    So I am going to be very interested in getting a report on 
the testimony today and again, Mr. Chairman, I want to thank 
you for taking so much time to be so thorough. We have three 
great panels today and I know it is going to be very 
informative. I think if the public really understood what was 
at stake, we would have to have this hearing in the Cannon 
Caucus Room, because, as Ms. Norton said, the future is not 
going to look like the past with respect to postal services.
    Thank you, Mr. Chairman.
    Mr. Lynch. I thank the gentleman.
    Just to explain the process here, there are a number of 
hearings going on at the same time. I know that Ms. Holmes 
Norton, Mr. Connolly, and our ranking member are all due in 
other hearings as well, so they will come in and out as others 
arrive as well. But that is just the nature of things.
    We do have a custom here in this committee to swear all 
witnesses before they provide testimony, so may I please ask 
you to rise and raise your right hands?
    [Witnesses sworn.]
    Mr. Lynch. Let the record indicate that all of the 
witnesses have signaled or answered in the affirmative.
    As always, your entire written statement will be entered 
into the record. Just as a matter of protocol, the green light 
on that little box before you will indicate the beginning of a 
5-minute period to summarize your statement. It will turn 
yellow with about a minute to go, and then the red light 
indicates your time for statements has expired.
    I will do a brief introduction of the first panel before we 
hear testimony.
    On our first panel, Mr. William Galligan is the senior vice 
president for operations for the U.S. Postal Service. He is 
responsible for the organization's engineering facilities, 
delivery, network operations management, and post office 
operations. Earlier in his career, Mr. Galligan served as vice 
president of the retail and delivery operations and oversaw the 
retail and delivery function of the Nation's post offices.
    Mr. John Waller is director of the Office of Accountability 
and Compliance at the Postal Regulatory Commission. Mr. Waller 
leads the Commission's analysis of Postal Service price 
proposals and oversees technical support for studies, including 
measurement of the Postal Service's performance and impact 
assessments of major Postal Service network reorganizations.
    Mr. Phillip Herr 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 concerns. His current 
portfolio focuses on programs at the Postal Service and the 
Department of Transportation.
    Welcome, gentlemen.
    Mr. Galligan, you may begin with an opening 5 minute 
statement. Thank you.

   STATEMENTS OF WILLIAM P. GALLIGAN, SENIOR VICE PRESIDENT, 
OPERATIONS, U.S. POSTAL SERVICE; JOHN WALLER, DIRECTOR, OFFICE 
OF ACCOUNTABILITY AND COMPLIANCE, POSTAL REGULATORY COMMISSION; 
  AND PHILLIP HERR, DIRECTOR, PHYSICAL INFRASTRUCTURE ISSUES, 
             U.S. GOVERNMENT ACCOUNTABILITY OFFICE

                STATEMENT OF WILLIAM P. GALLIGAN

    Mr. Galligan. Thank you, Mr. Chairman. Good morning, 
Chairman Lynch, Ranking Member Chaffetz, and members of the 
subcommittee. As you know, the Postal Service is experiencing 
one of the most severe economic challenges in its 234 year 
history. Due primarily to the downturn in the economy, we have 
seen mail volume fall by 32 billion pieces, or 15 percent, 
since 2007. That represents a revenue decline of $12 billion.
    At the same time, we have experienced a continuing 
expansion of our delivery network, which will have grown to 
serve 2 million new addresses by the end of 2009. Our 
projections call for a loss of $6.5 billion this fiscal year, 
with a likely cash shortfall of $1.5 billion. And we not expect 
any improvement next year.
    As the total mail volume falls, we are also experiencing a 
long-term shift in mail use patterns. Over the last decade, 
mailers have been reducing their use of higher revenue first 
class mail, and as more mail is entered closer to its delivery 
point, the demand for end-to-end service has decreased.
    The combination of these factors have a profound effect on 
our business model. In 2000, we delivered an average of 5.9 
pieces of mail to every address. Today, that has fallen to 4.7 
pieces, a decline of 20 percent. Revenue per delivery obviously 
tracks this trend. We have been extremely focused on narrowing 
the gap by cutting costs without affecting service, and at the 
midpoint of our fiscal year, we are on track to achieve our 
goal of eliminating $5.9 billion in base costs.
    However, we face limits on our ability to reduce some 
costs. The enactment of the 2006 postal law requires us to pre-
fund retiree health benefits, increasing our annual costs by 
more than $5 billion. Only new legislation can reduce this 
obligation, which is unsustainable in today's economy. That is 
why we strongly support the passage of H.R. 22, which would 
result in annual savings of about $2 billion.
    But the fact remains that all of these steps would be 
insufficient to return us to solvency. They will not fully 
close our budget gap of $12 billion. We are experiencing a 
long-term economic problem that requires a structural solution.
    Over the past several years, we have taken significant 
steps in this direction, streamlining our network to 
accommodate changing needs and new technology, consistent with 
the expectations of the law. Throughout each of these efforts, 
service has continued to improve, reaching today's high level 
of performance. We have closed 58 airport mail centers and 50 
remote encoding centers. We have begun an initiative to 
transform our 21 bulk mail centers into more efficient network 
distribution centers.
    While we have made some progress in consolidating 
operations to reduce excess capacity at our central mail 
processing plants, this has generally been met by strong local 
resistance, one of the chief barriers we face in the critical 
rightsizing of our network. Your understanding and support of 
our efforts would help to reduce these barriers.
    We are also examining the operational needs at many retail 
and delivery facilities. Delivery volumes continue to decline, 
sales and revenue are down, and almost 30 percent of our retail 
transactions have moved from our lobbies to our Web site or to 
alternate access locations. There is the potential for 
substantial savings through consolidation at some of our over 
3,100 stations and branches in cities of all sizes.
    Beyond the actions we have taken and those we plan to take, 
there is a need to make additional hard choices and tradeoffs 
to adjust the sharply declining mail volume so that we can 
finance universal service in the long-term. In considering our 
options, everything should be on the table. With the diminished 
demand for mail services, today's network requirements are 
beyond our financial means, but the law does not permit us to 
change the frequency of mail delivery. Providing the Postal 
Service with the ability to reduce delivery from 6 days to 5 
days is an appropriate response to the sobering reality of our 
fiscal challenges, and one we only consider reluctantly.
    We have engaged our customers on this issue. Because this 
change would have an effect on service, it is important to 
understand the needs as we analyze operating in a different 
delivery environment. Looking ahead, the Postal Service will 
continue to implement the cost reduction and efficiency 
programs I have highlighted, while we stay focused on improving 
service.
    Mr. Chairman, members of the subcommittee, I appreciate 
your interest in creating a stronger, yet leaner, Postal 
Service and look forward to working with you to achieve this 
goal. I would be pleased to answer any questions you have. 
Thank you.
    [The prepared statement of Mr. Galligan follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Lynch. Thank you, Mr. Galligan.
    Mr. Waller, you are now recognized for 5 minutes.

                    STATEMENT OF JOHN WALLER

    Mr. Waller. Thank you. Chairman Lynch, Ranking Member 
Chaffetz, and members of the subcommittee, thank you for the 
opportunity to testify. The Postal Service, as we have heard, 
is in a precarious financial position due to historic declines 
in mail volume. In response, the Postal Service----
    Mr. Lynch. Mr. Waller.
    Mr. Waller. Yes.
    Mr. Lynch. May I ask you to please pull that mic a little 
closer to you?
    Mr. Waller. Oh, yes. There we go. Better?
    Mr. Lynch. Thank you, sir, much better. Thank you.
    Mr. Waller. OK.
    In response, the Postal Service is continuing to make 
unprecedented work hour reductions and systemic changes. 
Solvency is contingent on the Postal Service achieving nearly 
$6 billion in cost savings this year and utilizing its maximum 
$3 billion borrowing authority. Even then the Postal Service is 
likely to run out of cash by year end unless it receives 
legislative relief that would amount to $2 billion this year.
    Now, the Postal Service is trying to find new revenue to 
offset its volume losses. For example, since the passage of the 
PAEA, this Commission has approved 49 negotiated service 
agreements between the Service and its customers, aimed at 
increasing revenue. Also, the Commission has recently received 
two Postal proposals for innovative marketing efforts, one of 
which is commonly known as the summer sale.
    While the Commission continues to encourage the agency to 
use the pricing flexibility granted under the PAEA, the Postal 
Service must rely on cost cutting and efficiency measures to 
deal with this current financial difficulties. To this end, the 
Postal Service has significant changes underway within its 
network. For example, as noted by Mr. Galligan, it is adjusting 
its delivery networks; it is employing more ground 
transportation, less airlift; it is adjusting post office hours 
and reducing the number of neighborhood collection boxes; it is 
once again consolidating processing facilities; and it has just 
begun making significant changes in how mail flows between its 
network of some 400 plants as part of the long-promised surface 
transportation and bulk mail center reorganization.
    At the same time, it is launching new technologies to 
expand automation for sorting flats to carrier delivery 
sequence and to revolutionize management of the mail stream 
from collection to delivery through the use of Intelligent Mail 
Barcodes.
    As I testified last year before the subcommittee about 
Postal Service efforts to realign its mail processing network, 
the Commission is concerned about the lack of a comprehensive 
plan with specific performance targets and goals, as required 
by the PAEA. The Commission continues to push for the Postal 
Service to expand the specificity and overall vision of its 
plans.
    The Postal Service is dealing with considerable uncertainty 
while implementing significant changes. This places a premium 
on the need for timely reporting on finances and service 
performance. The Commission is committed to enhancing the 
quality and utility of such reports. The Commission is once 
again, now, receiving monthly financial statements from the 
Postal Service to provide quick financial transparency. Also, 
the Commission expects to see a robust service measurement 
system come to fruition this year based on the Intelligent Mail 
Barcode, which will extend measurement to nearly 95 percent of 
the mail. For example, starting this fiscal year, the 
Commission is receiving the first-ever quarterly reports on 
speed of delivery of presorted, first class, and standard mail 
by district and area office. This will be an important element 
in tracking whether service is or is not impacted by the 
various changes that are being made.
    Even if all the cost-cutting and modernization efforts are 
successful, the Postal Service states its need for legislative 
relief in two areas. First, it has requested an adjustment in 
the method of paying current retiree health benefit premiums 
and has endorsed H.R. 22 as a means of accomplishing this. Now, 
to clarify my written statement, the Commission has not taken a 
formal position on H.R. 22, but Commission Chairman Blair did, 
in his March appearance before this subcommittee, state his 
support of relief on health benefit premiums.
    The Postal Service has also requested the removal of 
legislative restrictions on the frequency of mail delivery. In 
its study of Universal Postal Service and the Postal Monopoly, 
the Commission found the net savings from switching to 5 day 
delivery to be about $1.9 billion. But before implementing any 
such change in service, the PAEA requires that the Postal 
Service obtain an advisory opinion from the Commission that 
would involve a public proceeding on any such proposal.
    This concludes my statement. I appreciate the opportunity 
to be here and I am willing to answer any questions you may 
have. Thank you.
    [The prepared statement of Mr. Waller follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Lynch. Thank you, Mr. Waller.
    Mr. Herr, you now have 5 minutes for an opening statement.

                   STATEMENT OF PHILLIP HERR

    Mr. Herr. Chairman Lynch, Ranking Member Chaffetz, and 
members of the subcommittee----
    Mr. Lynch. Mr. Herr, I am not sure if your mic is on.
    Mr. Herr. I have a green. Is that----
    Mr. Lynch. Can you move it a little closer to you?
    Mr. Herr. OK. Now?
    Mr. Lynch. Sure.
    Mr. Herr. OK.
    Mr. Lynch. Thank you.
    Mr. Herr. I am pleased to participate in this hearing on 
the Postal Service's operations and network. My statement 
addresses three topics: first, challenges to the Postal 
Service's financial viability given current economic 
conditions; second, opportunities to rightsize Postal Service 
retail and mail processing networks; and, third, options and 
tradeoffs to consider.
    First, I would like to highlight the dramatic declines in 
the Postal Service's financial condition, as noted earlier. 
Mail volume is projected to decline 10 to 12 percent for fiscal 
year 2009, the largest annual decline since the Great 
Depression, with serious implications; a potential net loss of 
over $6 billion if the Service achieves an unprecedented $6 
billion in cost savings; borrowing $3 billion, which is 
projected to still leave a $1.5 billion cash shortfall. And 
fiscal year 2010 is also going to be very challenging, with a 
projected decline of an additional 10 billion mail pieces.
    We are closely monitoring the Postal Service's financial 
viability at GAO. Depending on how effectively the Postal 
Service removes costs and manages its cash-flow, we may 
consider adding it to our high risk list.
    Turning to opportunities to rightsize the Postal Service's 
retail and mail processing networks, network rightsizing is 
needed to reduce excess capacity, improve efficiency, and 
facilitate streamlining. There is a window of opportunity for 
Postal work force rightsizing through attrition rather than 
layoffs. About 160,000 Postal employees are eligible for 
retirement this fiscal year, and nearly 130,000 employees are 
expected to become eligible to retire by fiscal year 2013.
    The Postal Service has made progress in expanding 
alternatives to its traditional retail network. Customers can 
now buy stamps at drugstores and supermarkets or over the 
Internet. Accordingly, the Postal Service can streamline its 
network of close to 37,000 post offices, branches, and 
stations, which has remained largely static, despite expanding 
alternatives.
    There is wide variation in the number of postal retail 
facilities among comparable counties, and opportunities to 
reduce them are particularly evident in urban and suburban 
areas. In addition, there is a maintenance backlog for these 
facilities.
    Turning to processing capacity, the Postal Service has made 
some limited progress in streamlining its processing network. 
Three long-term trends have increased excess capacity: first, 
automated equipment enables faster and more efficient mail 
sorting; second, single piece first class mail volume has 
declined from about 60 billion pieces in fiscal year 1990 to a 
projected 35 billion pieces in fiscal year 2009, meaning there 
is less mail to move through the network; third, destination 
entry of standard mail has increased from 26 percent in 1991 to 
80 percent in 2008.
    The Postal Service understands that it has excess 
processing capacity and has initiated studies of area mail 
processing consolidations. The status of recent proposals is 
listed in Appendix 2 of my statement. In passing the Postal 
Reform Act in 2006, Congress strongly encouraged streamlining 
the processing network. We recognize that the Postal Service 
faces resistance because of concerns about the effects on 
service, employees, and local communities. Senior postal 
management will need to explain its plans, engage with its 
unions, management associations, and the mailing industry, as 
well as political leaders, and then demonstrate results. In 
turn, stakeholders need to recognize that major change is 
urgently needed for the Postal Service to remain financially 
viable.
    Other options to address the Postal Service's financial 
challenges involve tradeoffs. Deferring payments for retiree 
healthcare benefits would increase unfunded retiree health 
benefit obligations. Reducing delivery frequency could further 
accelerate mail volume decline. Downgrading delivery standards 
could affect time-sensitive mail. Raising statutory debt limits 
could exacerbate the Postal Service's financial difficulties in 
the future. And providing direct appropriations would be 
contrary to the principle that the Postal Service be 
financially self-supporting.
    In closing, the Postal Service and its employees plan an 
important role in the American economy. However, the 
environment in which it operates has changed dramatically, and 
so too must the Service as it takes actions needed to be self-
sustaining.
    Mr. Chairman, thank you for the opportunity to testify 
before the subcommittee. I would be pleased to answer any 
questions you or members of the subcommittee have. Thank you.
    [The prepared statement of Mr. Herr follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Lynch. Thank you.
    I now yield myself 5 minutes for questioning.
    Admittedly, there have been some significant cost 
reductions already with the closing of some of these air mail 
facilities and other jurisdictions, but let me ask Mr. 
Galligan, the initial projection for the Post Office was that 
you were going to be able to save or reduce costs by about $5.9 
billion in the first year. Rather ambitious. As I understand 
it, at least the numbers that I have been getting in, that you 
are about 40 percent there, toward that number, but what I am 
concerned about is the effect of diminishing returns as we go 
forward. Are we still going to make the number, $5.9 billion? 
Are we going to be able to achieve those savings? And, if you 
could--and I realize I only have 5 minutes--could you sort of 
itemize in broad strokes where we are going to achieve these 
savings and what the impact of those savings will be on the 
customers and the employees?
    Mr. Galligan. Yes, Mr. Chairman. The $5.9 billion is 
predicated on our success in meeting the cost reduction levels 
that we have set out through the year, and we have had to 
adjust in terms of the negative revenue situation we have 
experienced.
    Mr. Lynch. Mr. Galligan, could you just pull that mic a 
little bit forward?
    Mr. Galligan. OK.
    Mr. Lynch. There you go. Thank you.
    Mr. Galligan. I would like to recap, we have significant 
savings in our mail processing plants, not so much in terms of 
the physical infrastructure, but in the work force environment. 
We have attrited about 33,000 positions versus the same period 
last year, which about 9,000 of those positions came through 
employees opting to take an early out with our voluntary 
authority from OPM. So that labor savings constitutes the 
principal achievement of the levels you see year-to-date.
    As it relates to our mail processing environment, we have 
gone through with our existing facilities an extensive 
compression exercise opportunity to react to the fact that ad 
mail has declined so precipitously. Just last quarter, for 
instance, our standard flat volume, catalog volume, dropped 29 
percent versus the same period last year. So that mail 
historically has been worked on what we call tour 2, our day 
shift. Because that volume is no longer there, we have 
compressed and changed work shifts so that our critical 
operating times are met; outgoing mail is completed by 
midnight, the destinating mail that reaches our delivery units 
is completed by 6, 7 a.m. So that compression of people has 
constituted significant savings.
    In the delivery arena, two major initiatives, the NALC, our 
National Association of Letter Carriers, has been very 
supportive and proactive working with us on adjusting our work 
rules around route inspections and have really had a 
breakthrough earlier this year, a more recent breakthrough 
whereby we use passive data, we work with our local unions, and 
we actually are able to quickly adjust routes due to this 
agreement. We have taken out over 2,500 routes related to that 
agreement starting up, and we see many thousands of additional 
routes ongoing. As the volume has essentially vaporized, we 
will expand the street portion of routes and limit the office 
time.
    In our post offices, likewise, we have benefited from 
rescheduling in the downsizing and capturing attrition, all the 
while we have reduced overtime significantly in our plants and 
post offices. Some levels are down in the zero to 1 percent 
range.
    So those are the principal areas that we have been able to 
achieve those savings.
    Mr. Lynch. While I still have a minute left, the idea 
connected to H.R. 22, that we have some forbearance in terms of 
the contributions currently required for retiree health 
benefits, if you are going to move 150,000 employees into 
retirement at the same time that you are reducing contributions 
you are reducing direct contributions and taking out of the 
Trust Fund, what does that do to the equation where you have a 
higher utilization rate? Now you have 150,000 people that used 
to be working; some of them at a more urgent timeframe than we 
had before, how does that work out for H.R. 22, that whole 
phenomenon?
    Mr. Galligan. Well, the H.R. 22, the $2 billion relief, is 
in effect a short-term cash crunch issue, and absent the $2 
billion relief this fiscal year, our CFO basically, if 
everything is perfect on our cost reduction and volume doesn't 
slide any worse than the projections at this point, absent the 
H.R. 22 relief, we would run out of cash to the tune of $1.5 
billion by the end of this fiscal year. So that is the need for 
the short-term immediate relief around cash.
    In terms of the longer aspects, Mr. Chairman, I think I 
would have to go back to our finance folks and look at the 
actuarial tables, because certainly the pool of 150,000 
eligible people is a good news story from our ability to adjust 
things like our network, our downsizing, our delivery 
frequency, and that would give us the chance to move in a more 
painless environment through an attrition model. But I wouldn't 
hazard a guess on what actuarial burdens that might place on 
the long-term----
    Mr. Lynch. OK. That is fair enough. Thank you, Mr. 
Galligan.
    I now yield 5 minutes to the ranking member, Mr. Chaffetz, 
from Utah for 5 minutes.
    Mr. Chaffetz. Thank you, Mr. Chairman.
    Following up on the H.R. 22 question, Mr. Galligan, what 
happens if it does pass? What happens if it doesn't pass? We 
have to deal with both realities. What are the plans to deal 
with those scenarios?
    Mr. Galligan. I guess, Congressman, let's start at the if 
it does not pass provision. Based on our forecast, we would run 
out of cash, even borrowing $3 billion, as our statutory 
requirements are allowing for this year, we would come upon, 
the last day of the fiscal year, $1.5 billion short of paying 
our obligation to the health benefits. There becomes a choice 
when you are the brink of insolvency. Do you pay employees? Do 
you pay supplies? Or do you not pay this $5.4 billion or $5.5 
billion? By law, essentially, we break the law by not paying 
that. Not a place we want to be.
    Mr. Chaffetz. And when do we cross that threshold?
    Mr. Galligan. September 30, 2009, last day of our fiscal 
year. That is my understanding.
    Mr. Chaffetz. If it were to pass, what kind of assurances 
can you give us that you will continue to make the types of 
operational efficiencies come to reality that--and, by the way, 
I have to tell you, from my personal vantage point, I think the 
Postal Service has done a quite remarkable and dramatic job of 
cutting costs along the way. I think in many ways you should be 
commended and patted on the back. There is certainly criticism 
along the way, but the progress that has been made--and hats 
off to Postmaster General Potter, along with the staff and 
whatnot, but what assurances can you give us that type of 
commitment to efficiency would continue to propel above and 
beyond what would happen with H.R. 22, should it pass?
    Mr. Galligan. Well, I think this fiscal year and this cash 
situation, I do see some risks. I mean, we are projecting the 
ability to cost cut $5.9 billion. We are on track to do that, 
but there are presumptions in that based on the cost of energy, 
for instance.
    Mr. Chaffetz. What is your biggest worry?
    Mr. Galligan. Well, my biggest worry right now is the gas 
pumps in the last couple weeks have ratcheted up, and we know, 
I believe, it costs us about $9 million a year per penny of 
increase, so our ability to cost cut in the calculations on 
that savings include some presumptions on how fuel prices will 
run for the remainder of the year. We have some significant 
savings that we believe are occurring based on the same period 
last year, but if fuel gas prices cause us a problem, that 
could put a little imbalance there. If volume falls greater 
than the 180 billion piece level we forecasted, that puts more 
pressure to break even. Even with the $2 billion, essentially, 
if we miss those cost cuts and/or revenue falls below the 180 
billion piece volume level--and we have not seen any light at 
the end of the tunnel on volume turnarounds, if those two 
elements mistarget, we are still at that cash position at 
September 30th.
    Mr. Chaffetz. Let me ask the last question, Mr. Chairman. I 
have just a moment.
    Mr. Galligan, it is one thing to just keep continuing to 
cut costs, but what are you doing to actually market and grow 
the services and expand the market share and actually market 
the Postal Service as a viable alternative to some of the 
competitors that may be out there? What are we doing 
proactively to make the Post Office more useful and more 
relevant in people's lives?
    Mr. Galligan. Postmaster General Potter has restructured 
our marketing organization to a products group, we have a 
president of products, and he is working on all opportunities 
of where we can grow and rebound; and I think if you step back 
and look at the megatrend, as was highlighted in opening 
comments, there is a megatrend in first class mail away from 
mail correspondence and mail transactions. That has moved and 
will continue to move to electronic diversion, the first class 
correspondence to email----
    Mr. Chaffetz. I know the challenge, but we need a little 
bit more than Homer Simpson to get us out of the challenges we 
are facing.
    Mr. Galligan. Homer is not the cure, obviously.
    Mr. Chaffetz. Exactly.
    Mr. Galligan. But there are some positive things. We 
believe, going forward, the future in mail is a rebound in 
advertising dollars. One of the curious things is we have 
actually seen a glimmer of hope that despite the fact that ad 
dollars spent has declined probably 30 percent nationally, we 
have actually grown our share of the pie, but a dramatically 
reduced pie, essentially. So we see some percentage growth to 
about 22 percent of ad dollars. So our product people are going 
after ad mail.
    Mr. Chaffetz. We are out of time here. Let me just say, Mr. 
Chairman, I appreciate that. I would personally love to see, 
and would challenge and hope, that we would get much more 
creative, and I would love to see and be engaged in what type 
of ideas, big ideas that we could have to move us in the right 
direction.
    Thank you, Mr. Chairman.
    Mr. Lynch. Thank you.
    Mr. Galligan, just a followup on the gas price. Do we not 
make long-term fuel contracts on behalf of the Postal Service? 
That is one just on this fuel issue. And is the Post Office, in 
absence of any of those long-term contracts, are we impacted by 
the State increases that are being considered on the gas tax?
    Mr. Galligan. Yes, Mr. Chairman. We are impacted at the 
State level because much of our fuel purchases are from local 
fueling stations, so there are implications around the total 
cost of gasoline. We strategically have not, in the past, and 
we have shied away from it, we have not gone into options 
around fuel. I know some airlines have done that strategically 
well for years. We have not gone out there in futures and 
purchased long-term contracts to basically hedge on that, so we 
pay as we go, essentially.
    Mr. Lynch. OK, thank you.
    The Chair recognizes Ms. Holmes Norton for 5 minutes.
    Ms. Norton. Thank you, Mr. Chairman. What I am trying to do 
is, as the title of the hearing implies, whether or not savings 
can make a difference, in terms of saving the institution. We 
just had, Mr. Waller, Mr. Galligan, an increase in the price of 
the first class stamp, isn't that true? Can we look forward to 
annual increases in the price of stamps for first class mail, 
and what effect has that had or is expected to have?
    Mr. Galligan. Yes, Congresswoman. We have, under the new 
law, the ability to link annual price increases, smaller, 
incremental price increases on our mailing products.
    Ms. Norton. Do you anticipate that the increase in revenue 
will offset or be more than the loss in business?
    Mr. Galligan. Absolutely not in this case. The projection 
coming off of this recent price increase is that it will bring 
us over $600 million of new revenue from now until the end of 
the fiscal year, and in the full cycle, it is worth about $1.5 
billion.
    Ms. Norton. The increases were?
    Mr. Galligan. The increase that just went in, right.
    Ms. Norton. So it contributes, then, or it is a desperation 
move that you are going to have--is this the first time you 
have been able to engage in annual increases?
    Mr. Galligan. No, it is not. This is actually--from the law 
in 2006, we had one adjustment under the old rate regime. In 
2007, 2008, and 2009 have been the first. And they are linked--
--
    Ms. Norton. Seven, eight, and nine?
    Mr. Galligan. Eight and nine are actually under the new 
law, and they are linked, they are essentially capped at the 
CPI level under the law. So we will raise rates at the CPI 
level annually.
    Ms. Norton. That is just the rate. But do you anticipate 
that, given the problems you are having, that these annual 
rates are going to continue?
    Mr. Galligan. Well, the annual rate is allowed to continue 
at the CPI level. If CPI, for instance, through the next number 
of months, is almost at zero, that means we would not be able 
to file any kind of price increase next May.
    Ms. Norton. You testified, Mr. Galligan, that there was a 
15 percent decline. I would like you to compare that with prior 
years. We are looking here at a very unusual period. How does 
that compare with the fall-off and the deficits in the Post 
Office?
    Mr. Galligan. Actually, if we look back last year, I 
believe we were down about 4 percent to the previous year. 2007 
we were almost down the same period last year. As a matter of 
fact, in early 2007, we were still seeing some very positive 
growth in the package business and in the ad mail business. 
First class has been on a 5 percent erosion for many years.
    Ms. Norton. So we have gone from 4 or 5 percent to 15 
percent in this single period that we are looking at. Again, we 
hope that this is a very irregular period, but it does give 
some indication by comparison with what you are going through 
now. Have you engaged in any layoffs, or have you been able to 
do all of your downsizing in personnel by early retirements, 
reassignments, and the like? Do you anticipate that there will 
be a need for layoffs in the future?
    Mr. Galligan. Well, we have not resorted to layoffs in 
terms of any of our network changes or consolidation efforts; 
they have all been done through attrition and employee 
repositioning. Supplemental work for us, temporary employees--
--
    Ms. Norton. Are you hiring people?
    Mr. Galligan. No, Congresswoman, we have been in a pretty 
hard freeze for some period of time, with the exception of 
certain skills we need what are called electronic technicians, 
high tech jobs to maintain our equipment. We have done some 
hiring in specialized skills just to keep the basic----
    Ms. Norton. So you have an aging work force, essentially.
    Mr. Galligan. Right. Very much.
    Ms. Norton. If, somehow--and obviously there would be lots 
of howls up here, because not everyone is sitting on this 
subcommittee and hearing what the Postal Service is going 
through, but if you are reduced to a 5-day delivery schedule, 
would that be another nip and tuck or would that have a 
structural effect on your decline?
    Mr. Galligan. That was a question that Chairman Davis asked 
me last time I testified, in 2007, and at that point in time 
volume was very strong and stable. I would have to say, quite 
honestly, it goes a little beyond the nip and tuck because it 
is Congress's authority to decide what our universal service 
obligation is.
    Ms. Norton. No, I am talking about the effect on your 
revenue, on your business. I mean, it is very serious, we 
understand, because it is a huge change from what people 
expect. I am not sure it as large a change from what people 
expect, given the plethora of ways we get information today, 
but it is a change. You have testified, for example, you are 
delivering many more households, even though you are 
experiencing this decline, and that has been the case before. 
The number of households grow and, therefore, you got your 6 
day delivery on even more households. If it was reduced to a 5-
day delivery, what would be the dollar effect, what would be 
the savings effect of that kind of change?
    Mr. Galligan. OK, this is on the table for discussion 
because we believe it the one multi-billion dollar annual 
savings opportunity that----
    Ms. Norton. It is a what, sir?
    Mr. Galligan. Multi-billion dollar.
    Ms. Norton. But you don't know how much?
    Mr. Galligan. We have ranges internally around, without 
loss of revenue, $3.5 billion, depending per year----
    Ms. Norton. Annually?
    Mr. Galligan. Annually. Based on the scope, I think it 
could go as high as $4 billion savings. Now, what needs to be 
estimated is what negative impact that might have on top line 
revenue, and the PRC has done some analysis on that. We 
currently have a cross-functional team working on all the 
aspects and kind of all the moving parts if we went to a 5-day 
operating model, and we will have probably a plan within the 
next 3 to 4 weeks to scope out all the costs. But they are 
interchangeable. We essentially have looked at this future 
model in the respect that we would still want to maintain 
Saturday service at retail; we would still maintain PO box 
service----
    Ms. Norton. You would still maintain it at retail?
    Mr. Galligan. At retail.
    Ms. Norton. Because?
    Mr. Galligan. Because the American public depends on the 
Saturday morning visit to the post office to pick up packages--
--
    Ms. Norton. Because many of them are able to come only on 
Saturday.
    Mr. Galligan. Right. That is a high traffic point. So we 
would want to maintain that. We would maintain 7 day a week 
service for remittance volumes moving into the banking system, 
because we know what that means to their cash float. We would 
have to make those considerations. We would maintain--if 
someone purchases PO box service, we would maintain that 6 days 
a week. And I think the PO box service goes to the fundamental, 
at least operational, structure problem, because what we have 
is sharply falling demand by the senders of mail. That is the 
$12 billion fall.
    At the same point in time, the recipient demand is fixed, 
essentially based on Congress's authority, universal service; 
and that recipient demand is not paid for, and I would venture 
to guess the American public would not want to pay for that 
through appropriations or a delivery fee of any sort. So I 
think your policy debate around that value of multi-billion 
savings and impact really cuts to that big piece. We have cost 
reduction efforts in the hundreds of millions around network 
rightsizing and station branch closing, but the one big ticket 
structural operational change relates to that Saturday delivery 
frequency and who pays.
    Ms. Norton. Thank you, Mr. Chairman.
    Mr. Lynch. Thank you.
    The Chair now recognizes the gentleman from California, Mr. 
Bilbray, for 5 minutes.
    Mr. Bilbray. Mr. Chairman, I, for the record, want to state 
I have a family member who is part of the Commission. I have 
not had extensive discussion with him, just casual holiday 
conversation about the challenges that the Postal Service 
makes. So I just want to clarify that. I guess there are not 
too many of us who spell our name this way, so it is a dead 
giveaway.
    Mr. Chairman, let me just say to the panel members, you 
know, for 30 years I have been in government one way or 
another. I was a 27-year-old mayor facing Proposition 13 and 
saw some real tough decisions have to be made, down to the 
abolition of the police department. You talk about taking some 
heat, you try that. But, boy, I tell you I wouldn't want to be 
in your seat no matter what. The Postal Service is facing one 
of the toughest challenges I have seen anybody in government 
service ever have to face, and I would just like to say that 
you guys are going to have to be given the benefit of the doubt 
for a whole lot of things.
    I think the challenge here is that we have a constitutional 
obligation. I am not so sure that constitutional obligation 
requires that it be a government employee who delivers mail, 
but it does require that we provide some kind of service.
    A good example, Mr. Chairman, that we don't talk about is 
that the same section that requires we hold a postal system 
also requires we maintain postal roads, and we don't 
physically--the postal system and the Federal Government 
doesn't physically own those roads, but we make sure the 
service is there; and I think that is one of those things we 
have to be open-minded about.
    The gas tax issue, those of us in local government don't 
have to pay it, but it is a year retention of your assets 
before you are reimbursed for gas taxes?
    Mr. Galligan. I don't believe we are reimbursed.
    Mr. Bilbray. You are not reimbursed?
    Mr. Galligan. No.
    Mr. Bilbray. Well, I will tell you, first of all, Mr. 
Chairman, that one really sticks out, because why we have our 
military and local government exempt, when the postal system 
ends up looking like the deep pockets? So I think that is one 
of those things that we need to seriously look at.
    The other thing I would ask us just to be aware of is the 
ethanol mandate, the 10 percent by volume constitutes a $6 a 
gallon impact on the consumer. This is something that maybe we 
can raise through this committee, that when you look at the 
postal system, this is not just something that affects other 
people, it is affecting us and our obligations under the 
Constitution.
    When you get around to, hopefully, some day, being able to 
hire on new hirees, are you looking to split role?
    Mr. Galligan. Congressman, could you explain that, split 
role?
    Mr. Bilbray. Split role basically is that you have a whole 
separate compensation package for new hirees, so you basically 
separate the traditional employee from the new employee, so you 
are entering into a different contract with new hirees as of a 
certain date than the one you committed to with the older ones.
    Mr. Galligan. OK. We kind of refer to that as a two-tier 
structure.
    Mr. Bilbray. Two-tier.
    Mr. Galligan. Essentially, that is part of our collective 
bargaining agreement. We are a year and a half away from that 
point with our unions, but certainly our labor relations folks 
and human resource folks who deal with that could consider 
that.
    Mr. Bilbray. It is funny, on my notes I have split roll/
two-tier. It is this argument that goes around.
    We are really at a situation where it is sort of 
interesting that the advertisement segment of the service was 
really an addendum that took advantage of the opportunity that 
we were delivering letters 6 days a week to the public, and 
that why not have them carry advertisements at the same time. 
That whole world has kind of turned topsy-turvy, right?
    Mr. Galligan. Right.
    Mr. Bilbray. So now the primary obligation/responsibility 
has almost evaporated because of government action working with 
the private sector at creating alternatives, and now we are 
looking at maintaining status. Do you really think there is 
some way, a practical way within the next couple years to 
maintain 6 day delivery?
    Mr. Galligan. Personally, Congressman, as I said in my 
written testimony, I believe the 6-day frequency, which is 
essentially the Saturday delivery day, it is not a question of 
if, but when. There is just simply not enough demand for mail. 
If you look at how it is paid and ask all stakeholders, I don't 
believe the mailing industry would be willing to take a double-
digit price increase to preserve it. I don't believe our unions 
would take a double-digit wage concession reduction to the 
payroll to preserve it. And in terms of your seat on this 
committee, I think you represent the American public, and I 
don't think the American public would want to pay out of their 
tax dollars a direct appropriation to preserve that.
    Mr. Bilbray. So we are just saying the complications that 
going to the five will create things like the fact that our 
relief carriers now are not going to have that niche of market 
to be able to go in there. We basically better plan on how to 
address the problems created going to a 5-day delivery, rather 
than trying to stave off the inevitable down the line.
    Mr. Galligan. And I would just like to point out that I 
believe the point in time from a labor relations position is 
probably at no better time than right now, and the reason I say 
that is contractually, with our NALC, we have temporary 
employees to the tune of 14,500. We still have some overtime 
levels that are able to be reduced in the delivery world 
because of the frequency, and the other piece of that is we 
have about 50,000 part-time flexible schedule carriers that 
would have reduced hours until such time that attrition caught 
up in the carrier world and those hours could come back.
    Mr. Bilbray. Well, thank you very much.
    Mr. Chairman, all I have to say to the panel is the only 
thing worse than having to be on the management side of this is 
being the men and women who are actually working out there in 
the field and actually got into a profession with the 
assumption that what could be more secure than being in the 
mail service; and history had proven this was the best, one of 
the most secure points of employment possible, and, sadly, 
history has proven us wrong on this and there are some real 
challenges out there.
    I appreciate it and I yield back.
    Mr. Galligan. Thank you, Congressman. I think we are the 
best middle-class employer in the country, and we want to stay 
that way. My father came out of World War II and became a clerk 
in New Haven, CT, and I came out of high school and became a 
carrier in New Haven, CT, and that is where we sought our 
careers and we want to keep it that way.
    Mr. Lynch. I thank the gentleman. Following the disclosure 
of Mr. Bilbray, I must also disclose, as I have on multiple 
occasions, that I currently have about 17 members of my 
extended family who work for the U.S. Postal Service. A number 
of those are retired, God bless them, but a number of those, 
two of my sisters currently are working for the Post Office, a 
bunch of my cousins, my brother-in-law is a carrier. The upside 
of that, I have been hearing these issues discussed at the 
dinner table for many, many years. On the downside, management 
has not been at the table. [Laughter.]
    Mr. Galligan. Is that an invitation, Mr. Chairman?
    Mr. Lynch. Until now, until now.
    The Chair recognizes the gentleman from Missouri for 5 
minutes, Mr. Clay.
    Mr. Clay. Thank you, Mr. Chairman. I find it fascinating 
that you have so many members that depend on the U.S. Postal 
Service in your family. That is probably a good thing.
    Let me start with Mr. Galligan. In your testimony, you 
allude to significant limits on your authority to develop new 
products. Give us some examples of new products that would be 
created if these limits were lifted.
    Mr. Galligan. Congressman, I am the operations guy, so I 
get this secondhand from our product group, but I think the law 
has provided new opportunities. As I was highlighting before, 
we are pursuing a summer sale at this point in time on ad mail. 
If we can get new ad dollars on new mail, we can do those 
things. I think the fact that--and it is more of a governance 
issue--our need to bring products to market do have to go 
through a regulatory commission--I mean, we are modeled 
somewhat as a regulated monopoly, that we have a postal 
regulatory commission--that really governs what we can do in 
our retail space, for instance, what products can we put on our 
retail counter, so we do have to go through those kinds of 
processes to bring new products to market.
    But within the scope of the law there are new 
opportunities. The sale issue will be an interesting one to see 
if we can drive new revenue; ad decisions to maybe move ad 
dollars, scarce ad dollars from TV or radio or newspapers into 
the mail and get some business here in the back end of the 
year, where our fixed costs are high and our volume is very 
low. But it is a process that is typically in the private 
sector; you are not going through the rigors that we would have 
to go through.
    Mr. Clay. Thank you for that answer. How many employees do 
you estimate will need to be terminated due to an end to 
Saturday deliveries?
    Mr. Galligan. Congressman, that goes to my previous point. 
The fact that our collective bargaining situation currently is 
set up with about 14,500 employees, temporary employees, these 
are not career employees, those would immediately be shed, and 
we could quickly move to that if we are granted the authority. 
The overtime reductions and about 50,000 employees are what we 
call part-time flexibles, their hours would be reduced and we 
could avoid layoffs completely with the carrier crop.
    I am concerned that if we move out in the future and hit 
this wall after our authority to use those 14,500 temporary 
employees is gone, after overtime is down to zero, we would 
then only be able to achieve savings in those out-years with 
layoff.
    Mr. Clay. The more than 1,400 supervisors and management 
positions are being eliminated to reduce costs. How does the 
USPS determine which employees will have their positions 
eliminated?
    Mr. Galligan. Congressman, the burden is not all carried on 
our rank and file, our bargaining unit member; we went after, 
in a very aggressive way, white collar jobs. We set targets at 
15 percent reduction in white collar jobs in our districts; we 
have consolidated six districts completely around the country 
to save X hundreds of positions; and in our plant environment, 
because, interestingly enough, in our plants, since the year 
2000, we have cut our work force by one-half. That is the 
amount of attrition with technology, volume declines, etc. In 
that same time we needed to play catch-up around how many 
supervisors are needed for that lesser work force. I mentioned 
earlier that our day shift environment, because there is 
limited ad mail, has a bear minimum, so what we did is we 
calculated what we call a 22:1 ratio on white collar jobs in 
our plants and we reset our base of managers on that 
calculation.
    Mr. Clay. OK, thank you for that. Why hasn't the Postal 
Service offered any incentives to employees for taking early 
retirement? And are you working with the unions to evaluate the 
types of incentives that the Postal Service would consider?
    Mr. Galligan. That is probably going to be the easiest 
question I get this year. When we are facing potentially a $1.5 
billion cash position, we do not have the liberties right now 
to make those kinds of decisions to even consider and offer any 
sweeteners or incentives this fiscal year.
    Mr. Clay. So you just think they are going to walk away 
from their jobs?
    Mr. Galligan. Well, we actually have a projection based on 
a year-to-date in this pool of 150,000 people that, by end of 
year, we should be down 43,000 management and craft positions 
nationally. That is the track we are on projecting. And that is 
a sizable reduction in work force. Even for an employer as huge 
as the Postal Service it is significant.
    Mr. Clay. So those 43,000 will be voluntary.
    Mr. Galligan. Right.
    Mr. Clay. Through attrition and retirement.
    Mr. Galligan. Right.
    Mr. Clay. Thank you.
    Thank you, Mr. Chairman.
    Mr. Lynch. I thank the gentleman.
    Rather than do another round of questions, I do recognize 
that our questioning doesn't necessarily hit on all the 
pertinent points that you would like to share with the 
committee, so at this point, even though, Mr. Galligan, you 
have had plenty of exercise this morning, I am going to ask you 
if you have 5 minutes where you would like to inform the 
committee of any topics that we did not raise or simply amplify 
a point that you might have touched upon earlier in your 
discussion, and then I will follow to Mr. Waller, so you have 5 
minutes to think about.
    I notice there may have been questions to Mr. Galligan, but 
Mr. Herr and Mr. Waller, I saw you writing, so you might have 
your own ideas about questions that were asked to Mr. Galligan. 
So I am going to give you each 5 minutes just to further 
elucidate certain points.
    Mr. Galligan. Well, Mr. Chairman, certainly, the key points 
are immediate cash crunch. The $2 billion relief from H.R. 22 
we desperately need and support that bill.
    From my jurisdictional point of view, I think understanding 
from Congress around our need to pull back this infrastructure, 
whether it is a plant closing or a consolidation, those are 
necessary choices that we have to take because of the decline 
in demand for mail.
    In our station and branch environments, and I know from the 
last hearing you mentioned it, we need to closely look at where 
we have brick and mortar facilities within very few miles or 
even walking distance of each other, to be able to go and 
analyze and do the right thing for our urban customer base. 
They are well equipped to take their services through alternate 
access, Web site, USPS.com, other avenues. We need Congress's 
support and understanding on that.
    And foremost is if there is one big lever that needs to be 
pulled, it is around the 5-day service, it is around 
understanding what we would not do on Saturday, how that would 
change the service standards and how much savings would come 
out of that effort with also some very reasonable estimates to 
what that might do in terms of mail volume.
    And I think that kind of summarizes my views operationally. 
Thank you, Mr. Chairman.
    Mr. Lynch. Thank you, Mr. Galligan.
    Mr. Waller, you are now recognized for 5 minutes.
    Mr. Waller. In regard to, first, the questions, I think Ms. 
Norton was asking about the estimated cost savings and what it 
would do the revenue or the volume reduction, maybe, because 
people stop using the mail. The Commission, in its estimate of 
the $1.9 billion annual savings from going to 5 days, did 
assume a reduction in volume, a minor one, 2 percent, given 
what we are seeing lately. Maybe that is a little bit too 
small, but a 2 percent reduction at least built in, and the 
models can do what-if analyses to do more. That accounted for 
about $600 million of the difference between the Postal 
Service's larger estimate, because they didn't include that.
    The other point I think around the carrier issue that is 
very important is that mail processing is about the costs 
there, the labor costs, at least, vary with volume, almost 100 
percent up and down. It can be done that way, and the Postal 
Service has been very remarkable in maintaining that. The 
carriers, on the other hand, it is about 50 percent variable, 
so that, as volume drops, you can't automatically lose as much 
mail by just being more efficient in your delivery, because you 
have that great fixed cost of going around the route every day, 
whether there is a lot of volume or a little volume; and that 
is why it makes it so attractive to do a reduction in a day of 
delivery, because you eliminate that fixed cost.
    The other issue that was raised by committee members here 
is the finding new forms of revenue. The PAEA did restrict the 
Postal Service to postal activities, related to handling mail, 
did not want them going into a lot of new initiatives not 
related to postal; and the Commission has had to go through all 
their related services and say is it a postal or non-postal, is 
it grandfathered, etc. But we have really been working very 
hard, the commissioners, with the Postal Service to make sure, 
as they come up with new initiatives--and the new initiatives 
are like the summer sale or the new logistics thing that was 
just approved to allow special loading of less than full 
trucks, a new type of service, and all these negotiated service 
agreements. One of the things that we do is turn it around very 
quickly, do not make it a long, lengthy hearing, so that if 
they reach an agreement with a mailer for a particular sales 
season, that the Commission works to meet either 15 day, 30 
days, whatever is the legal requirement for notice, and has 
been very successful in that regard. So in the sense we welcome 
all the more they can have. The Commission is working very hard 
not to be a bottleneck on the approval of any new initiative. 
And in that sense I think that we would like to see, the 
Commission would like to see all sort of new revenue 
opportunities develop. But they are restricted by the law to 
postal activities, they can't go afield.
    Mr. Lynch. Thank you.
    Mr. Herr, you are now recognized for 5 minutes.
    Mr. Herr. Thank you. I think reflecting on some of the 
discussion and questions today, we applaud the Postal Service's 
efforts to achieve cost savings through work hour reductions. 
That is needed and necessary given the volume reductions that 
the Postal Service is facing this year. But that said, that is 
not a shortcut for longer term restructuring of the retail and 
processing networks. We have had discussion today about that 
excess capacity and where it exists. There are opportunities 
there. The Postal Service mentioned today in their statement 
about 3,000 potential facilities there. In some work we did for 
the Senate that came out about a year and a half ago, we had a 
methodology that looked at how counties are served, and that 
methodology might be a useful one in looking at those kinds of 
opportunities that are there.
    I think also efforts to increase efficiency. I believe that 
people say in this kind of operation you can't just cut, they 
also have to look at ways to make things more efficient, and 
the work we have underway for this subcommittee looking at 
delivery efficiency, work with the letter carriers, there are 
opportunities there to make sure the routes are structured in 
the most efficient way possible. That is very important. There 
is also some new technology that is being rolled out with the 
flat sequencing. One of the things that will enable is getting 
the carriers on the street more time, rather than in the office 
sorting mail. Those are things that will ultimately help the 
Postal Service achieve additional efficiencies and be able to 
deal with the reduced volume, but also reduce costs as well, at 
the same time. So we would encourage those kinds of efforts as 
well.
    The last thing, there was some mention today about an 
additional study that is coming out in 2 to 4 weeks, looking at 
the impact of 5 day delivery, and that is something that we 
have called for in the last several hearings we have done this 
year. I think that is very important for transparency. I think 
Ms. Norton mentioned the importance of having an understanding 
of the costs and the benefits of something like that, and I 
applaud the Postal Service in taking those steps to help people 
understand, both the mailing community and individuals, what 
that would mean for them so they can plan for that kind of 
change should it become necessary.
    Mr. Lynch. I just want to ask you about that last point you 
made about the study. There were two numbers out there as to 
what might be saved by this reduction to 5 day delivery, one 
was $1.9 billion, the other was considerably higher. This 
study, what did it reveal, or is it concluded yet?
    Mr. Herr. The analysis, I believe this is what Mr. Galligan 
mentioned that the Postal Service has underway to look at what 
those costs and benefits are.
    Mr. Lynch. All right.
    Mr. Herr. And that is something we have been on the record 
as mentioning is important.
    Mr. Lynch. Well, that number serves as the underpinnings of 
what decision will be made by the committee if it is reached. 
That is a very important number, so we want to make sure we get 
that right.
    In conclusion, I want to thank you each for attending here 
and helping the committee with its work. I am sure there are 
some Members who wished to attend today, but they are in other 
hearings, so I am going to allow them to submit questions to 
you in writing and allow those responses from you as well in 
writing. But I want to thank you again and bid you good day.
    The committee is going to recess for about 3 minutes until 
we get the next panel up, and then we will resume. Thank you.
    [Recess.]
    Mr. Lynch. Again, welcome and thank you. It is the custom 
of this committee to ask those members who are about to give 
testimony to stand and raise their right hands.
    [Witnesses sworn.]
    Mr. Lynch. Let the record show that each of the witnesses 
has indicated in the affirmative.
    Your entire statements have been entered into the record, 
and I will just do a brief introduction of our second panel.
    Mr. William Burrus is president of the American Postal 
Workers Union. Mr. Burrus is also a member of the Executive 
Committee of the Union Network International, which is a global 
federation of unions that represents postal and other service 
workers.
    Mr. John Hegarty is the president of the National Postal 
Mail Handlers Union. Prior to becoming national president, Mr. 
Hegarty served as president of Local 301 in New England, which 
serves my home district, which is the second largest local 
union affiliated with the Mail Handlers Union.
    Mr. Dale Goff is in his 39th year with the U.S. Postal 
Service. He began as a postal assistant in New Orleans. Mr. 
Goff has been a member of the National Association of 
Postmasters for 29 years, where his positions have included 
State president, national vice president, and national 
president.
    Welcome, gentlemen. As you have been frequent fliers to 
this committee in the past, I don't have to explain the rules.
    Mr. Burrus, you are currently recognized for 5 minutes.

   STATEMENTS OF WILLIAM BURRUS, PRESIDENT, AMERICAN POSTAL 
   WORKERS UNION, AFL-CIO; JOHN HEGARTY, PRESIDENT, NATIONAL 
POSTAL MAIL HANDLERS UNION; AND DALE GOFF, PRESIDENT, NATIONAL 
        ASSOCIATION OF POSTMASTERS OF THE UNITED STATES

                  STATEMENT OF WILLIAM BURRUS

    Mr. Burrus. Thank you, Mr. Chairman. Our friend, my friend, 
Bill Young, is not present. Do I get his 5 minutes?
    Mr. Lynch. No, he gets his in the next hearing. But thank 
you.
    Mr. Burrus. Mr. Chairman and members of the subcommittee, 
thank you for affording our Union the opportunity to express 
our views on the important topic of this hearing, especially at 
this time of reduced mail volume and revenue.
    The postal community is unanimous in our conclusion that 
immediate relief from the obligation to fund retirees' 
healthcare benefits from the postal operating budget is 
paramount. We need your help in navigating the legislative 
process to ensure that the Postal Service receives this 
desperately needed change in policy. Without it, the Postal 
Service will be unable to adapt and to survive.
    But adjusting the payment method of retiree healthcare 
benefits is just one option the Postal Service is pursuing, and 
it is only a short-term fix to stave off imminent collapse; it 
will not address the long-term challenges.
    The Postal Service is also engaged in many other efforts to 
reduce costs, even as it overlooks the fundamental continuing 
cause of its financial difficulties. These actions are having a 
detrimental effect on service and often generate little or no 
savings. Postal attempts at network realignment are a case in 
point. The Postal Service first announced it would overhaul the 
mail processing network when it released its original 
Transformation Plan in April 2002, but it ignored demands from 
legislators and workers for details about where, when, and how 
consolidations would take place.
    To date, the Service has refused to provide specifics of 
this Plan or the criteria it relies upon when selecting 
facilities for consolidation. Many of the early announcements 
of consolidation generated strenuous opposition from workers 
and affected communities. In 2006 and 2007, 37 of the 50 
consolidations were terminated, placed on hold, or reversed. 
During this time period, the Postal Service was the subject of 
severe criticism by the GAO for their lack of transparency in 
its planning efforts and for failing to allow for sufficient 
input from workers, citizens, and public officials in affected 
communities.
    The Postal Regulatory Commission also disapproved of the 
Service's consolidation efforts. And to make matters worse, 
there is no conclusive evidence to support Postal claims that 
plant consolidation will lead to greater efficiency or savings. 
And despite management's assurance to the contrary, citizens, 
community leaders, small business leaders, and postal workers 
are concerned that a realigned mail processing network will 
reduce service and delay the delivery of mail.
    The danger is clear: If service to small businesses and 
individual citizens is permitted to decline, it could lead to 
the demise of the institution. Regrettably, the Postal Service 
has consistently failed to share an overview of its network 
realignment plans with the American Postal Workers Union, 
despite repeated requests and a national level grievance. 
Postal officials, however, have given an in-depth presentation 
about the plan to the Mailers Technical Advisory Committee, an 
organization representing the interest of major mailers. 
Management has finally scheduled a union briefing that is 
scheduled to take place next week.
    However, even if we overlook the faults, the Service's 
cost-cutting efforts are subverted by its postal rate strategy, 
which dramatically reduces revenue from major mailers without a 
corresponding reduction in service. And I note the testimony 
that preceded this panel there was not a mention about the 
rates.
    The Postal Service business model is based on the erroneous 
premise that discounts for large mailers increase volume. 
However, review of the effects of three decades of rate 
manipulation reveals that discounts have failed to boost first 
class volume.
    The graph appended to my testimony shows the effect of rate 
changes on volume and demonstrates that despite 
disproportionate increases in postage discounts, volume has 
been unaffected.
    This flawed rate policy subsidized large mailers at the 
expense of American citizens and jeopardizes the viability of 
the U.S. Postal Service. Rates for major mailers have been 
manipulated to the extent that they pay as little as 76 percent 
of the official first class rate for the same level of service.
    A two-tiered rate structure has evolved, and with the 
implementation of the previously mentioned cost-cutting 
initiatives, two levels of services are emerging, one for the 
large mailers and another for private citizens.
    The second appendix to my testimony, Attachment No. 2, 
illustrates the discrepancy. Letter No. 1 is the typical first 
class business letter that qualifies for the work share 
discount. Because the mailer affixed the bar code that appears 
at the bottom of the letter, the Postal Service reduced the 
first class rate from 44 cents to 33.5 cents, a discount of 24 
percent.
    Letter 2 is also prepared by the business mailer with the 
bar code placed at the top of the address window. However, the 
postage is paid by the recipient of letter No. 1, the average 
American citizen. The cost, 44 cents, the full first class 
rate, even though the letter also contains a barcode and is 
prepared identically to the discounted piece and requires the 
same amount of work by the Postal Service.
    The efforts to reduce costs, plant consolidation, massive 
employee reassignments, reduced retail hours, and the reduction 
of neighborhood collection boxes will have a devastating effect 
on service, and faulty rate strategy has drained much needed 
revenue, threatening the viability of the institution.
    Passing H.R. 22 will provide the Postal Service immediate 
relief, but the long-term solution to the crisis is to end the 
policy of subsidizing large mailers at the expense of the 
American citizens and the Postal Service.
    Without congressional intervention, the noble mission of 
the Postal Service ``to bind the Nation together through the 
personal, educational, literary, and business correspondence of 
the people, and to provide prompt, reliable, and efficient 
services to patrons in all communities'' will be no more than 
prose. We can do better than that and we need your leadership, 
Mr. Chairman, to achieve those objectives.
    [The prepared statement of Mr. Burrus follows:]

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    Mr. Lynch. Thank you, Mr. Burrus.
    Mr. Hegarty.

                   STATEMENT OF JOHN HEGARTY

    Mr. Hegarty. Good morning. Thank you, Chairman Lynch, 
Ranking Member Chaffetz, and the other members of the 
subcommittee, for calling this hearing. You have asked for 
testimony today focusing on the impact that the Postal 
Service's cost cutting is having on postal operations and the 
postal network.
    Responses from the Postal Service to the current economic 
crisis include a blanket hiring freeze for virtually all career 
positions, a reduction in overtime hours, and a drastic 
reduction in total career positions. Indeed, in just the last 
18 months, the Postal Service has reduced career positions by 
more than 40,000 employees.
    Another aspect of the Postal Service's cost cutting 
program, and one in which mail handlers are more familiar, are 
efforts to reduce the number of facilities and/or to shift 
operations in the postal network through its Area Mail 
Processing [AMP] Guidelines.
    It has, as I said in my written statement, been a rough 
road, with many starts and stops along the way. The Postal 
Service has received much criticism from many stakeholders. 
Recently, the Postal Service has sent to this point at least 35 
notices in which it announced that it intends to perform a 
feasibility study to determine if the movement of certain mail 
processing would help to eliminate excess capacity and/or would 
allow the Postal Service to make more efficient use of existing 
facilities.
    Mr. Chairman, there is a need to ensure the short-term 
financial viability of the Postal Service and the long-term 
financial viability. It may require the closing and 
consolidation of certain postal facilities. But there is also 
the need to ensure that service does not decline and that the 
future postal network is not cut too severely such that the 
Postal Service will not be prepared to provide universal and 
low-cost service when mail volumes recover.
    Our suggested solution is to approach these issues on a 
case-by-case basis. For example, suppose there are two mail 
processing facilities only a few miles apart and both of those 
facilities are underutilized, and the work at the smaller 
facility simply could be consolidated into the larger 
installation without disruption. Or perhaps one facility is 
much more dilapidated than the other. Or perhaps one facility 
is governed by an expensive lease; whereas, the other building 
is actually owned by the Postal Service.
    Where the proposal makes economic and logistical sense, 
where service standards will not be negatively affected, where 
major mailers in the area will not be inconvenienced, and where 
all negotiated requirements with the unions have been complied 
with, then the Mail Handlers Union will not simply oppose for 
the sake of opposition. Conversely, the Postal Service should 
not be conducting an AMP study just to show that they are doing 
something.
    In those cases where it makes sense, the Mail Handlers 
Union focuses on minimizing the dislocation and inconvenience 
that might be suffered to our employees. We have negotiated 
contractual provisions which require the Postal Service to give 
its unions and its employees advanced notice of any proposed 
closings or consolidations. We also have negotiated provisions 
which obligate the Postal Service to ensure that dislocation 
and inconvenience to its employees in the regular work force 
shall be kept to a minimum, and that is a quote right out of 
our Collective Bargaining Agreement.
    If each of these provisions were properly implemented, we 
would not have as many problems as we are currently facing. 
Unfortunately, the rational and realistic approach does not 
always control the day. First, the Postal Service often 
announces proposals that have no realistic chance of being 
approved, thereby causing panic among postal employees and 
customers, and political upheaval that is sometimes worse than 
the proposal itself. Second, even when the proposed closing or 
consolidation is eventually approved and implemented, the 
Postal Service does not always follow its contractual 
obligation to its employees.
    The best way to minimize hardships is to discuss the matter 
with the unions and management associations even before the 
proposal is announced publicly. The Postal Service consults 
with its major mailers or other customers and considers the 
views of the community leadership, but it also must consult 
with its unions at the local and national levels. The parties 
would be well served to discuss these proposals before a 
feasibility study is publicly announced, and the same message 
should get out to local union representatives and local 
management. This hearing will certainly help us to reach that 
goal.
    Turning back to the financial situation now facing the 
Postal Service, I would like to reiterate my organization's 
wholehearted support for H.R. 22, which would provide the 
Postal Service with some much needed relief by slowing down, 
but not eliminating, the USPS prefunding requirement for 
retiree healthcare benefits without endangering the healthcare 
benefits of current or future retirees.
    Again, thank you for your time and attention. I would be 
happy to answer any questions you may have.
    [The prepared statement of Mr. Hegarty follows:]

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    Mr. Lynch. Thank you, Mr. Hegarty.
    Mr. Goff for 5 minutes, please.

                     STATEMENT OF DALE GOFF

    Mr. Goff. Thank you, Mr. Chairman. I am once again honored 
to speak with this subcommittee about our national postal 
system and the economic climate in which it serves the American 
public. I think it is important to underscore that the 
underlying cause of the USPS's dire financial situation is the 
weakness of the U.S. economy. In addition, if the agency was 
not required to prefund its retiree health costs, its financial 
picture would be infinitely better.
    NAPUS strongly believes that the justification for short-
term legislative help has not abated. Consequently, we urge 
Congress to proceed as expeditiously as possible with such 
relief.
    Today, NAPUS will discuss the postal retail network. 
Postmasters are the managers in charge of post offices. 
Therefore, we are uniquely positioned to provide insight into 
the retail network operations from the ground level.
    First, permit me to state that NAPUS does not believe every 
postal facility in the country should be immune from closure or 
consolidation. If the Postal Service follows the law and 
established regulations, constructively consults with its 
frontline management team, and communicates clearly with the 
affected community, network rightsizing is achievable.
    On the other hand, arbitrary facility closings, 
consolidation for consolidation sake is not a wise strategy. 
Consolidating or closing a postal facility without regard to 
its impact on the overall network is counterproductive and will 
cost the Postal Service revenue in the long run. This 
subcommittee needs to consider, as part of its review of retail 
operations, the USPS's universal service obligation and how a 
closing or consolidation impacts both the impacted community as 
well as the network itself.
    It is important to recognize that not all facilities are 
similar. Of the 36,723 retail and delivery postal facilities, 
27,232 are post offices, 4,851 are branches or stations, 658 
are carrier annexes, 3,148 are contract postal units, and 834 
are community post offices. Contract postal units and community 
post offices are not operated by the U.S. Postal Services and, 
consequently, cannot offer the full menu of postal products and 
services.
    Branches, stations, annexes, contract postal units and 
community post offices are all subordinate to a local post 
office. In many towns and villages, the only access to postal 
services is their post office. Furthermore, only post offices 
are singled out in Title 39 of the U.S. Code for special 
protection against closing for solely economic reasons.
    Far flung, isolated communities throughout the Nation use 
their post office as community centers, banks, pharmacies, and 
as the nexus for vital government services. In addition to 
being a revenue producing origination point, post offices are 
also the destination point of mailed matter. Secure post office 
boxes and distribution points for accountable mail characterize 
post offices. It is important to note that even if you close 
every small and rural post office in the United States, you 
would save only $586 million, a mere eight-tenths of 1 percent 
of the USPS operating budget.
    Mr. Chairman, indeed there are savings to be realized in 
the retail network, through the elimination of senseless 
requirements that add work hours and cost to postal operations. 
For example, the USPS Mystery Shopper Program wastes postal 
revenue. PRC Chairman Dan Blair recently remarked that the 
program is not statistically valid and, as a consequence, the 
Commission does not use the data as part of its annual 
compliance determination. The Mystery Shopper Program squanders 
postal dollars and should be terminated.
    In addition, postal districts contribute significant, non-
necessary costs to retail operations. Many of their make-work 
directives add no value to postal products, nor do the orders 
improve customer service. These pointless initiatives waste 
time and money. For example, some postmasters are required to 
file a tracking report, get this, to track if the postmasters 
are completing the other requested reports. Talk about folly 
and redundancy.
    In order to save costs, I encourage the Postmaster General 
to negotiate with our unions about cross-craft training. An 
agreement in this area would enhance the skills of individual 
postal employees and enable postmasters to more effectively 
utilize their talent.
    On the other side of the ledger, the Postal Service has 
done away with programs that actually could reduce costs. For 
example, the Postal Service suspended managerial training. The 
result is that postmasters are denied necessary instruction and 
tools to more effectively operate their facilities and save 
money for their post office. In addition, the agency has 
eliminated or curtailed revenue generating vending machines in 
automated postal centers.
    Mr. Chairman, understandably, the task that we confront is 
daunting. However, the bottom line is that we must protect 
postal universality. Postmasters remain committed to working 
with Congress toward protecting the Postal Service as a 
national treasure. Thank you, Mr. Chairman.
    [The prepared statement of Mr. Goff follows:]

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    Mr. Lynch. Thank you, Mr. Goff. I thank you all.
    I yield myself 5 minutes.
    As a threshold comment, each of you talked about H.R. 22. 
If all had gone as planned, we would have marked that up at 
today's hearing. However, as part of the markup and the whole 
amendment process, one of the critical pieces of information is 
really the CBO scoring of how much a particular piece of 
legislation will cost, what the cost associated with that would 
be. In fairness to CBO, the Congressional Budget Office, they 
have a lot on their plate right now and they thought it would 
take a bit more time, maybe a week, to get the hard numbers on 
the CBO scoring on this bill, H.R. 22. So as soon as we come 
back after the Memorial break, we will come back in and at the 
first available opportunity we will mark that up.
    We should note, however, that there will be benchmarks in 
that bill. There is relief in that bill, as you have requested, 
but also within that bill there are benchmarks about cost 
savings. For the current year, I think the Postal Service has 
already accomplished what they need to do, if their numbers are 
valid, and I believe that, in a large degree, they are. But 
there are also cost reduction requirements going forward in the 
years described in the bill, and there is also a provision 
where, if the economy does turn around the Post Office starts 
generating sufficient revenues, then there is a pour-over 
provision that money gets diverted back into the trust fund. So 
we don't allow that to go on forever. We understand the relief 
that is needed in the short-term, but in the long-term we think 
we cannot suffer those the unfunded liability that would accrue 
if we just allow this to go on perpetually.
    In any event, we will obviously have a markup on this in a 
couple of weeks and go forward.
    I want to thank you for your testimony. Let me cut to the 
chase. There has been significant reduction in costs already, 
and I commend you on your cooperation in working with the Post 
Office in accomplishing that. None of it could have been done 
without your help. However, we are getting to a situation where 
the cuts go closer to the bone in some cases, where we have to 
look at retail operations.
    I have a district that is two cities, Boston and Brockton, 
and I have 19 towns. The instances where post offices are 
located very close to each other happen to be in the major 
cities. As you know, I was a former iron worker, and it seemed 
like every time we threw up a high-rise of 30 stories or more, 
there was a post office that went right in that building, and 
the volume of mail at that time certainly justified it. So now 
we have situations in some of our major cities where you have 
four or five high-rises in a very close proximity and you have 
four or five postal facilities, a retail shop inside each of 
those high-rises.
    We are going to have to look at some of that and we are 
going to need your cooperation to look at some of these 
facilities where we have redundancy that might have been 
justified in earlier days, when we had higher volume, but now 
we only have a number of options. We have raising rates again? 
That is distasteful. A direct appropriation to the Post Office 
for the first time? A lot of people think that the Post Office 
is run by tax money. It is run by revenue. But we are looking 
at a situation where, if the Post Office runs out of money, as 
Mr. Galligan explained earlier today, they would be looking for 
some type of bailout. They have a statutory limit as to what 
they can borrow, and if they could not make that obligated 
payment on September 30th into the fund, they would be in 
violation of the law.
    And the trend is not good. Every single witness today that 
has opined on the likelihood of recovery in 2010 has basically 
said 2010 looks as bad, if not worse, than 2009. And these are 
historic drops in volume on the order of 1929 and the great 
crash. So what can you tell me about efforts to create some 
efficiencies here, consolidate where we have duplicative 
services? How do we get there, and obviously with 
accommodations to your employees without layoffs? We are 
talking about voluntary attrition meeting the goals of 
reduction in force. How do we work together to get there on 
some of these facilities that need to be closed?
    Mr. Burrus. I will go first. My union stands ready and 
willing to be an active partner with the Postal Service, with 
this committee, with the Congress in finding efficiencies in 
the Postal Service. The previous panel testified about efforts 
that have been underway in the past and those cuts that have 
been made, 70 percent of all those cuts have been in my 
bargaining unit. My bargaining unit is being cut in half, over 
100,000 employees within the bargaining unit. So any suggestion 
by Postal management that the unions may be uncooperative, 
well, they have pulled over 100,000 employees out of the people 
that I represent.
    But I think the basic flaw of the Postal Service in their 
efficiency efforts is that they have viewed the network as the 
postal network, the 400-plus plants, the 37,000 facilities. 
Those facilities are under the direct control of the U.S. 
Postal Service where postal employees are employed. They view 
that as the universe where savings can be achieved. The network 
consists of much broader facilities than just the postal 
service facilities, and they are funded through the rate 
schedule. We provide funding for over 100 facilities scattered 
throughout the country to provide the same services that we 
provide within the Postal Service, processing and 
transportation. They are not being reviewed.
    Our machines, the machines that the employees that I 
represent function on, their efficiency rate is 37,000 pieces 
per hour. Now, if there is an 8 cent discount on every letter 
that goes through there, that is the wage rate that the Postal 
Service is paying for those private corporations to perform the 
exact same functions that the employees I represent are 
performing. So if they are willing to put everybody in the pot, 
everybody that plays a role in the Postal Service processing, 
transportation, collection, and delivery network into the pot 
and say we can all of us find efficiencies, then we are a 
willing partner. We want to participate in that. But don't just 
look at part of that network and impose a disproportionate 
share of the savings on that segment, and that is what is 
happening.
    Mr. Lynch. Fair enough.
    Mr. Hegarty.
    Mr. Hegarty. Yes. I think hard choices have to be made, but 
I think the key is going to be communications and input, and 
have the Postal Service have some meaningful dialog with the 
unions and management associations. I think we started doing 
that. I will give Postmaster General Potter credit for calling 
much more frequent meetings with the organizations. We met 
probably six or seven times in the last 8 months, which is much 
more frequently than we had been meeting. But, the Postal 
Service also needs to be realistic.
    As I said in my testimony, if a consolidation or closing 
makes sense, we are willing to work with the Postal Service. We 
need to reduce the impact on our employees. We signed a 
Memorandum of Understanding back in 2003 that requires the 
Postal Service and the Union to meet at the headquarters level 
to discuss Article 12 impacts and discuss work force 
repositioning issues. We have started those meetings once this 
came to the forefront that the AMP studies were going forward, 
and we are making some progress with that.
    But there are still the horror stories out there. We were 
recently notified that they were going to involuntarily excess 
employees from Memphis, TN to Tulsa, OK. That is 400 miles 
away. A postal employee who made a career decision to work for 
the Postal Service now has a very hard choice: Do they leave 
the place they grew up, where their kids are going to school, 
where their spouse may have a good job, to follow their Postal 
job 400 miles away, uproot their family, try to sell their 
house in this terrible real estate market, or do they just give 
up their job with the Postal Service? So those are the choices 
that some of our employees are facing, and we are really trying 
to minimize those types of choices.
    Other ways that we have tried to save the Postal Service 
money, I mentioned at the last hearing that all the unions and 
management associations have agreed to voluntarily increase the 
healthcare contributions. That total that we estimated last 
time over 5 years, with all employees together, is saving the 
Postal Service $800 million over the 5 years. We have also 
agreed to very reasonable contracts in our contract 
negotiations with the Postal Service in our collective 
bargaining agreements. For instance, most Postal employees, my 
bargaining unit specifically, will receive a 1.2 percent raise 
this year, while Government employees are in line for a 2.9 
percent raise. So not only have we accepted smaller wage 
increases and increased healthcare contributions. So we are 
working with the Postal Service.
    One other thing I would like to point out in this 
particular segment is the fact that the Postal Service still 
has some operations subcontracted. They are paying other people 
to perform work that career Postal employees could be 
performing and, in fact, should be performing. In fact, you 
have clerks, mail handlers and other Postal employees around 
the country sometimes clocked under standby time, which means 
clock onto a specific operation number and go sit in the break 
room until we need you; and they will spend hours in there 
doing nothing, getting paid by the Postal Service, while we 
have contract employees performing empty equipment duties, 
sorting duties at what they used to call the HASP, the hub and 
spoke processing facilities. There are at least three of those 
major facilities that are totally non-Postal, and that is work 
that Postal employees should be doing.
    Thank you.
    Mr. Lynch. Thank you, Mr. Hegarty.
    Mr. Goff.
    Mr. Goff. Mr. Chairman, I would like to say, just like Mr. 
Burros said and Mr. Hegarty, the first thing that comes to mind 
is that we have to communicate with each other. Whether we are 
management or we are craft or we are headquarters or we are the 
people on the front line, we have to communicate; and we have 
done that to some extent, but as I said in my testimony, not 
for the sake of just saying we have communicated, or to let the 
committee know that we have been meeting. We have to 
communicate to the point that if we have viable solutions and 
recommendations that we have brought to these meetings, then we 
need to follow through and talk about them some more and put 
those things on the table. We have had the frequent meetings.
    There is also the provision, as I said in my testimony, 
with the law as far as consolidating facilities and closing 
facilities. If we follow the law, I don't think there is 
anybody who would dispute, if it is done the right way and it 
is proven that facility is not needed, then we can go ahead and 
agree to that situation.
    It is when we go in there and we are arbitrarily suspending 
post offices now and we are doing the different things. Urban 
area, rural area, as you have heard me say before, are two 
different things. If we have the concentration of branches in a 
big city, we also have those rural areas where there is not 
another post office for 200 miles away, so we need to really 
preserve those facilities.
    There are a lot of things that postmasters, the clerks and 
everybody have been involved with. We got into some programs to 
help generate revenue. We have all backed that. Even the mail 
handlers have jumped in to do some of those programs. 
Postmasters have eBay days, they get people that deal in eBay. 
They are in there telling them how to do it and how to use our 
products to generate revenue. We have passport days. It is all 
ways that we can come to that community and can generate 
revenue. So there are many things that we can do. The overall 
thing that I think we all understand is that, yes, we have to 
make some major changes to go forward, and the best way to do 
that is that we all communicate together.
    It is a pleasure for me to sit here with two of the craft 
presidents of the unions, to have a management president 
sitting with them to testify at the same time. That goes a long 
way. We have a great working relationship, all of us. We talk 
back and forth and we support each other on a lot of things. 
Sometimes Mr. Burrus goes the other way with us, but that is 
all right. But we do have a great working relationship and we 
have to keep that communication open, and I think that is the 
biggest thing to move forward.
    Mr. Lynch. Thank you, Mr. Goff.
    The Chair now recognizes the ranking member, Mr. Chaffetz, 
from Utah, for 10 minutes.
    Mr. Chaffetz. Thanks, Mr. Chairman. I appreciate it and I 
appreciate the big group hug that is going on there at the 
table. That is great.
    If you could each maybe take a moment and from your 
perspective, your thoughts on 5 day delivery. And let's mix 
things up and start with Mr. Hegarty this time. We will let Mr. 
Burrus go last here.
    Mr. Hegarty. Thank you. I said at the previous hearing that 
I was concerned that 5 day delivery may drive mail volume down, 
may drive some of our volume to our competitors, it may cause 
people to pay their bills online, to do their banking online; 
and I still think that is the case. I am a little bit worried, 
especially--I think we discussed it at the last hearing--about 
when there is a holiday weekend. You have no Saturday delivery, 
no Sunday delivery, no Monday delivery; now the first time you 
are going to get your mail between Friday and over the weekend 
is going to be Tuesday. So if I am a consumer and my electric 
bill is late and I get assessed a penalty, or my MasterCard 
bill is late, or my bank statement doesn't arrive on time and I 
am unable to reconcile how much I have in the bank and I 
overdraw a check, I am just going to go online and start paying 
my bills online. So I am concerned with that. And that is 
business that will never come back.
    We have a competitive advantage in that we deliver on 
Saturdays with no extra cost to the consumers. We don't have 
fuel charges. Some other competitors do. So I am very concerned 
that 5 day delivery will cause a big drop in volume.
    Mr. Chaffetz. Thank you.
    Mr. Hegarty. On the other hand, I think we need to be 
realistic. If that is the only way for the Postal Service to 
survive and, as Mr. Galligan described, they are still going to 
have retail open on Saturdays, if they were still going to 
deliver packages, instead of cutting out just the letters, and 
it is a substantial savings and it is thoroughly looked at by 
not just the Postal Service, but the other agencies, then we 
may have to accept that down the road.
    Mr. Chaffetz. Mr. Goff.
    Mr. Goff. Previously, I stated that our organization was 
not in favor of the 5-day delivery, and I still say that at 
this point. We have heard this morning some different figures 
from the last hearing that we have had. My concern is that when 
we all come together and agree on one type of figure for a 
savings, then I can possibly agree with this, but when we are 
so far off on the different figures, I still have concerns 
about that. Just as Mr. Hegarty said, my concern is that every 
Monday, if we go with the Saturday as not being the day, would 
be that day after a holiday. Whatever we saved on that 
Saturday, we would be spending on Monday and Tuesday and 
Wednesday catching up for what was there for that weekend. So 
that is my biggest concern with it.
    I am not sure that the cost is there that everybody says, 
and I think that we need to take some time and not overreact 
the way we are doing right now, to say 5 day delivery is our 
savior. I don't think that is going to be the savior. We need 
to take some time to look at this. And if the economy ever 
recovers--and none of know when that is going to happen--people 
are going to come back to ad mail. They are going to come back 
to the mailers out there and say, hey, you are the best bargain 
around and we are going to use you again because we got our 
economy back and we have a budget that we can start spending on 
mail again.
    Mr. Chaffetz. Thank you. This assessment of the dollars, 
Mr. Chairman, I think has been quite varied. I do not feel 
comfortable that we have identified what those potential 
savings could be, what the ultimate costs are. I have heard a 
huge swing in numbers, and I would concur with you that I don't 
think we have fully assessed not only the economic and 
emotional impact and business relationships that we have with 
our big mailers, but what the true savings and costs are.
    Let me also say, as we go to Mr. Burrus here, I really do 
appreciate that I am getting very strong impression the unions 
are doing everything they can to work with all aspects, and I 
appreciate the approach. There have been a significant number 
of people through various reductions and whatnot, and I applaud 
you all for your proactive and positive approach to it.
    I am sorry, Mr. Burrus, your comments on a 5-day.
    Mr. Burrus. I think it is an act of desperation. Perhaps we 
are at the point where the only things left are acts of 
desperation, but I think it would be the beginning of the end. 
I think once you legally permit another carrier to assume the 
responsibility of the Postal Service on any of the 6-days of 
the week--let's assume it is Saturday--that will add to the 
diversion of mail to electronic means, the economic, the shift 
from a debt driven society to one that engages in savings and 
our volume does not follow the request for credit cards and the 
other things that drive the commercial activities. I think that 
going from a 6-day delivery to 5 day delivery may hasten the 
demise of the Postal Service.
    Somebody is going to deliver on that 6th day. If the Postal 
Service abandons it, somebody is going to pick it up gladly. A 
customer mailing an item on Wednesday that, in the normal 3 day 
delivery, would have been delivered on Saturday, would not 
receive delivery until Monday. Somebody is going to fill that 
void. And I think any diversion of 5 percent, 10 percent, 15 
percent of the volume, where another carrier moves into that 
opening I think would just accelerate the demise of the Postal 
Service.
    I don't think Congress would approve it, to begin with, and 
I think discussing it sucks the oxygen out of everything else, 
because it is such an issue that resonates with the American 
public. You tell the public that they may not get delivery 1 
day of the week, they are not paying attention to the H.R. 22 
and the impact of that and other requests for relief the Postal 
Service has made. Those go from the front page to the back page 
and everything the media focuses on is the reduction of 
delivery. I think it is not going to come about, but if it did 
I think it would be a big mistake, a big mistake. I think that 
FedEx, UPS, and delivery carriers that are not in the business 
today would pick up that opportunity; and if they can do it on 
Saturday, they can do it on Thursday at the same time the 
Postal Service is delivering, so you would have dual delivery 
forces out there.
    Mr. Chaffetz. Thank you. In the interest of time and the 
call to votes, I yield back the balance of my time.
    Mr. Lynch. Thank you.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Clay, for 5 minutes.
    Mr. Clay. Thank you, Mr. Chairman. I will be as brief as 
possible.
    Let me start with the entire panel. This is a panel-wide 
question. Can you tell us how your union or management 
association is working with the Postal Service to address its 
current financial difficulties and what specific actions have 
been taken or are being considered by your union or 
association? I will start with Mr. Burrus.
    Mr. Burrus. Yes. Presently, we are not working with them. 
We have offered. They have made their plans in isolation; they 
have gone forward with them. We have applied the provisions of 
our contract and, where appropriate, we would oppose them. But 
there are no joint efforts presently. We are certainly involved 
in some of the efforts to build volume. Those are collective 
efforts in that regard, but in terms of the efforts to 
downsize, consolidations, they just give us notices when they 
think of it. There are often times that we don't get the notice 
timely and we find out from the news reports in the location 
where the consolidation is taking place. But there are no 
collective efforts with my union. We are the largest postal 
union. There are no joint efforts with us to initiate 
efficiencies and come up with a rational plan.
    As I included in my testimony, this consolidation plan that 
has been driven by the large mailing industry, we had a 
contractual language in 2001 that said we would sit down and 
develop a consolidation plan jointly. They have not given us a 
consolidation plan and we are years into that process. So there 
are no joint efforts in that regard. We stand available and 
willing to engage them. We certainly will apply the provisions 
of our contract, because we have secured rights that we have 
negotiated and we expect them to be enforced. But within the 
parameters of those collective bargaining agreements, we 
believe there is a lot of room for us to have some joint 
efforts.
    We are on the cusp of getting into a serious issue. We have 
37,000 post offices; 17,000 of them where I have bargaining 
unit employees, and there is no union representation. Even 
though they are covered by my collective bargaining agreement, 
there are no stewards or officers in those facilities. And what 
management has done is systematically taken the bargaining unit 
work and given it to non-bargaining unit employees. Programs 
take clerk work and give it to an employee who is guaranteed 8 
hours a day to fulfill their daily schedule. And we are going 
to have a national effort to return that work. That is going to 
cost the Postal Service millions of dollars.
    Mr. Clay. Thank you for that response.
    Mr. Hegarty, how is your union, do you have a working 
relationship with the Postal Service?
    Mr. Hegarty. We do have a working relationship. I agree 
with President Burrus, though, that it could be better, and we 
are also willing to work with the Postal Service at the 
headquarters level to do whatever we need to do to cause them 
to save money. There are a couple of things I highlighted in my 
testimony a month ago that we are currently engaged in. One is 
the ergonomic risk reduction process, where we evaluate a 
facility, train people on how to improve the operations, make 
them more ergonomically friendly so that employees aren't 
risking repetitive motion injuries and sustaining injuries that 
would cost the Postal Service a lot of money down the road in 
workers compensation costs. The same thing with the Voluntary 
Protection program, which we partner with the APW, OSHA, and 
the Postal Service to reduce injuries in a building. To 
evaluate a building and to make that facility qualify, they 
have to meet some stringent guidelines established by OSHA to 
reduce injuries and, again, save the Postal Service money. We 
also continue to participate in the Quality of Working Life 
process, which is a cooperative working process where Postal 
employees from the workroom floor meet with their supervisor in 
what is called quality circles, and they brainstorm ways to do 
the job better, more efficiently, and save the Postal Service 
substantial amounts of money as well.
    Mr. Clay. Thank you for your response.
    Mr. Goff, how have the postmasters worked with the Service?
    Mr. Goff. As far as having specific actions right at the 
moment, the only thing that I can say on that is we always 
continuously have off-the-record talks about different ways of 
doing things that we approach each and every day. As John and 
Bill have said, we have sat there, we have worked; a lot of 
times we get told about things that are being done when it is 
already happening out in the field or somebody in the field 
tells us about it, and then we have to go back. Unlike them, we 
don't have a collective bargaining agreement, but we have the 
parts that we should be consulting on, and I think that is 
something that we all have to work on improving a whole lot 
more.
    Mr. Clay. Thank you so much.
    Mr. Chairman, thank you for your indulgence. I yield back.
    Mr. Lynch. Thank you, Mr. Clay.
    Here is how I would like to handle this. We have 5 minutes 
left on this vote, so there will be a little delay. Why don't I 
do this. Mr. Goff, Mr. Hegarty, Mr. Burrus, I am going to give 
you each 3 minutes. Any points that we have not hit upon in our 
questions or points that you would like to amplify for the 
committee, I would like to hear them now. Then I will be able 
to dismiss this panel so you will be free for the day. I will 
go over and vote, and then we will come back and take the next 
panel. But everybody will be able to stretch their legs. How 
about that?
    Mr. Goff, you are recognized for 3 minutes.
    Mr. Goff. Thank you, Mr. Chairman. I would like to sit here 
and say, in the absence of time, I have nothing further to add. 
In my written testimony and what I gave verbally today, I think 
expresses our concerns about the Postal Service. Being a 39-
year veteran of this Service, I want to see this institution 
stay around for another 200 years.
    Mr. Lynch. So do I. Thank you.
    Mr. Hegarty.
    Mr. Hegarty. Thank you, Mr. Chairman. I think we have 
covered pretty much everything that I had thought of for today. 
I would say that the Postal Service needs to be more proactive 
in their communications, not just at the headquarters level, 
but with the craft employees and work with us so that we don't, 
as President Goff has pointed out, find out about something 
after it has already been rolled out, or a program when it is 
99.9 percent completed and they say what do you think about 
this program? We are thinking of rolling it out. Our input at 
that point is really meaningless.
    I think communications is the key. And as I highlighted 
earlier, the situation of the folks in Memphis, TN being 
offered almost an important choice, I think we need to find a 
way around that. We need our regional people sit down with 
their regional people. There has to be a better way.
    Mr. Lynch. Thank you.
    Mr. Burrus.
    Mr. Burrus. Mr. Chairman, thank you. I have been a Postal 
employee within the Postal Service for 55 years now, a long 
time, and I have seen the changes that have occurred over that 
extended period of time, from manual, mechanized, automated, 
electronic. I have seen the rise of UPS and FedEx. I have seen 
a number of Postal Service initiatives to expand beyond hard 
copy communications.
    I understand and appreciate that it is facing significant 
challenges at the present time. There is no guarantee that 10 
years from now representatives from my union and Postal 
officials will follow on a panel representing the U.S. Postal 
Service in its present form. It is a real danger that, if they 
run out of money and can't pay their bills, there is no 
justification for their continued existence.
    So I have that as a serious concern and I am concerned 
about Postal management's effort to make their plans and 
develop all of their strategies with the large mailers. There 
is no input by the average citizen. The only effect to the 
average citizen is the annual increase in postage. There is no 
consultation with the citizens, there is no input by those 
people that have their medicines delivered by mail, they send 
their birthday cards, Christmas cards. It is only 4 percent of 
volume today, so it is not a sizable number. But they are the 
purpose for the U.S. Postal Service, and the Postal Service 
really has no program designed to improve conditions for those 
employees.
    And as I testified, my bargaining unit has suffered 
significant erosions in the number of employees. Over 100,000 
fewer jobs exist today than did 10 years. Last year, as 
testified, some 30,000 fewer jobs. That is understandable in 
the context of the entire system. I have had several meetings 
with the Postmaster General, and I pointed out to him it has to 
be spread more evenly.
    We are not the only bargaining unit in the Postal Service. 
Let's see it spread to other elements within the Postal system. 
To date, there is no indication that they are moving in that 
direction. As I said, there are people doing the same work, 
workers doing the same work that my members are performing and 
the Postal Service compensates not the individual, but the 
company, over $300 an hour.
    Now, if you are willing to pay $300 an hour to have the 
same work performed by the employees I represent and you say 
you have too many of those, you have to reduce their numbers, 
there is something wrong there, and my members will react, as 
well as my union.
    Mr. Lynch. Thank you. In conclusion, I just want to say, 
and I know we have some of the Postal Service managers still in 
the audience and watching, No. 1, people hate change. That goes 
for the American mail customer as well as employees. And when 
there is big change, you have to bring them along and explain 
it, and we in Congress hate surprises. And if we are going to 
make the changes necessary at the Post Office in a way that 
maintains respect for our employees and maintains superior 
service to our customers of the Post Office, then it needs to 
be a process that is collaborative.
    So a message to the Post Office: I hate these stories where 
the Post Office just marches along on its own direction, 
without talking to its employee representatives. That cannot 
happen. If there is any obstruction to this whole deal on H.R. 
22 and going forward, it will be a lack of consultation with 
the employees who are affected and the mailing customers who 
are affected, as well as the relevant Members of Congress who 
are dealing at the front lines with this issue.
    So that needs to happen. I hope Mr. Potter is listening. We 
need to work with folks, especially when there are relocations 
involved, like the Memphis situation. That is a disaster and 
they need to take a good second look at that, as well as some 
other stories that I am hearing around the country.
    I want to thank you for your testimony. I appreciate your 
coming here and helping us with our work. I am going to run 
over and vote, and I will be back, but this panel is dismissed. 
Thank you. Have a good day.
    [Recess.]
    Mr. Lynch. Welcome, and, again, good afternoon. Thank you 
very much for your patience while we attended those votes. As 
always, I want to welcome our third panel. As is the custom at 
this committee, could I ask you to please rise and raise your 
right hands?
    [Witnesses sworn.]
    Mr. Lynch. OK, let the record indicate that each of the 
witnesses has answered in the affirmative.
    We have already ordered that your written testimony shall 
be entered into the record as written. I will give a brief 
introduction and then each of the witnesses will have 5 minutes 
within which to offer opening remarks.
    Mr. Anthony W. Conway is the executive director of the 
Alliance of Nonprofit Mailers. Over the years, he has managed 
legislative and public policy relations with the U.S. Senate, 
House of Representatives, trade associations, Postal unions, 
and management associations.
    Mr. Robert E. McLean has been executive director of the 
Mailers Council since 1996. From 1998 to 1996, Mr. McLean 
represented the National Association of Postal Supervisors on 
Capitol Hill. Additionally, he has been an adjunct professor at 
George Mason University.
    Mr. Jim O'Brien is the chairman of the Association for 
Postal Commerce, also called PostCom. He is also the vice 
president of distribution and postal affairs for Time Inc. 
Prior to joining Time Inc. in 1978, he has held positions with 
RR Donnelley, United Parcel Service, and U.S. News & World 
Report.
    Welcome, gentlemen.
    Mr. Conway, you may begin. You have 5 minutes for an 
opening statement.

 STATEMENTS OF ANTHONY W. CONWAY, EXECUTIVE DIRECTOR, ALLIANCE 
  OF NONPROFIT MAILERS; ROBERT E. McLEAN, EXECUTIVE DIRECTOR, 
 MAILERS COUNCIL; AND JAMES O'BRIEN, CHAIRMAN, ASSOCIATION OF 
                        POSTAL COMMERCE

                 STATEMENT OF ANTHONY W. CONWAY

    Mr. Conway. Thank you, Chairman Lynch. Thank you for 
inviting me to testify here on behalf of the Alliance of 
Nonprofit Mailers. The Alliance is a coalition of nonprofit 
organizations dedicated to the preservation of affordable 
postage rates and dependable mail service. Established in 1980, 
the Alliance includes over 300 nonprofit organizations and 
commercial service providers with an interest in nonprofit 
mailing issues. Our members include many of the Nation's best 
known charitable, religious, educational, scientific, and other 
nonprofit organizations. These members rely heavily on 
nonprofit standard mail and nonprofit periodicals mail to 
generate necessary support and communicate with existing and 
potential members, beneficiaries, and other stakeholders.
    The causes of the Postal Service crisis are well known. The 
decline in mail volume caused by the current economic downturn 
has merely accelerated the long-term decline in hard copy 
correspondence and the diversion of bill payments and other 
transactions to electronic media. When the economy stabilizes, 
some mail volume will return to the system, but not enough to 
fund the Postal Service network cost structure. The result is 
that even aggressive cost-cutting efforts have not enabled the 
Postal Service to shrink its costs fast enough to keep pace 
with declining mail volume.
    The Postal Service's stakeholders have proposed a number of 
solutions to these problems, and perhaps the most urgently 
needed as a short-run remedy is passage of H.R. 22. Other 
worthwhile short-term and medium-term remedies include, first, 
increasing work sharing to allow mailers and third-party 
vendors to perform functions when they can do at a lower cost; 
two, expanding the use of automation when this is cost-
effective; and, three, more innovative pricing such as the 
current summer sale discount proposal.
    And, Mr. Chairman, it is time to seriously consider the end 
of Saturday mail delivery. Should you decide such a move is 
necessary, nonprofit mailers will work with you to ensure its 
successful adoption.
    One option that would be devastatingly counterproductive 
would be an emergency rate increase. As the Postal Service has 
recognized, this strategy would accelerate the flight of mail 
volume from the Postal Service and hurt society as a whole. It 
certainly would hurt the beneficiaries of nonprofit 
organizations. The current economic crisis has forced layoffs 
and program cuts throughout the nonprofit community. Revenues 
have dried up just when society needs most urgently the good 
work of nonprofit organizations. Further postal rate increases 
would only mean further reductions in mission-related programs 
and greater burdens on national, State, and local governments.
    None of the remedies discussed above, however, is likely to 
succeed without a thorough pruning of the Postal Service's 
massive cost structure. The Postal Service's infrastructure and 
capacity, built over many years with the assumption of ever 
increasing mail volume, far exceed the needs of today's postal 
customers. Comprehensive streamlining of this excess capacity 
is desperately needed. Unless this painful course is taken, the 
remedies suggested above will only offer a brief detour from 
the road to insolvency.
    The U.S. Postal Service is the greatest postal system in 
the world. It handles over 40 percent of the world's mail and 
maintains a delivery network that is second to none. It has 
been the Cadillac of postal systems for many years, but, 
unfortunately, the Nation's needs have changed. Instead of the 
big V8, the Nation now needs a midsize model with greater 
efficiency. If it cannot attain such an affordable size, the 
Postal Service could end up like some of the auto makers in 
Detroit. We don't want that to happen and we hope that 
necessary change comes quickly for an organization that means 
so much to American society.
    Thank you.
    [The prepared statement of Mr. Conway follows:]

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    Mr. Lynch. Thank you.
    Mr. McLean for 5 minutes.

                 STATEMENT OF ROBERT E. McLEAN

    Mr. McLean. Thank you, Mr. Chairman. We appreciate this 
opportunity to present the views of the Mailers Council, a 
coalition of mailers and mailing associations. My members 
collectively represent 70 percent of all mail in the United 
States. We are especially appreciative of you focusing on the 
Postal Service's financial problems, which are of great concern 
to our members, who rely on an affordable, consistent, and high 
quality postal system.
    Right now, the Postal Service's operations are operating 
quite well, but the word crisis seems very appropriate here. It 
is often overused in hearings like this, but when the Postal 
Service says that it may not be able to pay its employees, its 
retirees, or its bills on October 1st, the word crisis seems 
very appropriate.
    We think there are two reasons why the Postal Service's 
short-term problems exist in terms of their finances. One is 
the recession, which is responsible for the decline of billions 
of pieces of mail. The other is the aggressive schedule that 
the Postal Service has had to hue to under the PAEA concerning 
the prefunding of retiree healthcare costs. Therefore, we 
greatly appreciate the support that you and this subcommittee 
will offer to ensure the passage of H.R. 22. That is an 
important first step to offering the Postal Service some short-
term relief, but clearly the system needs more long-term 
measures. Mailers firmly understand this, agree on the need to 
it, but have had some difficulty coming to agreement on what 
terms should be appropriate.
    When it comes to 5 day delivery, my members are open to 
this possibility, recognizing that it will create problems for 
many of them. We have opposed it officially at this point 
because the Postal Service has yet to offer the level of detail 
that we would like. Which day of the week will it be? Will this 
be only a summer program, as initially proposed, or will this 
be permanent? Will it be offered as a pilot program first? And 
how much will mailers be involved in any establishment of a 
pilot program? All questions to which we would like to have 
answers quickly so that we can determine whether or not this is 
an idea we can fully support.
    There are other ways that the Postal Service can reduce its 
expenses, and you have asked us to focus on one, which is 
rightsizing the delivery network. It is clear to us that the 
Postal Service has excess capacity in the system. It simply 
does not need the number of mail processing facilities that it 
has, nor can it afford the size of the network that it has 
today, given the amount of mail volume that has left the 
system.
    One of the measures that we hope the Postal Service will 
avoid, however, is something that Mr. Conway mentioned, and 
that is an exigent rate case. Any additional increase in 
postage rates at this point would be incredibly 
counterproductive and would discourage the return of mail 
volume to the system, which we hope will occur as the economic 
situation in this country rebounds.
    Congress has given the Postal Service a mandate to deliver 
excellent service to every American in every State without 
government financial support, which it has done for the past 
several decades. Right now, my members report that service is 
very good and the Postal Service is meeting its delivery 
standards, which we believe is a tribute to both good 
management and the support of the postal employees.
    We want quality service to continue, but that cannot happen 
unless Congress, the Postal Service, and the mailing industry 
all recognize that, as early as September 30th, the agency may 
be unable to meet its financial obligations. So we ask for your 
help in avoiding that so that the Postal Service does not 
become a burden on taxpayers.
    Mr. Chairman, thank you again for this opportunity to 
testify. I would gladly answer any questions.
    [The prepared statement of Mr. McLean follows:]

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    Mr. Lynch. Thank you, Mr. McLean.
    Mr. O'Brien, you are recognized for 5 minutes.

                   STATEMENT OF JAMES O'BRIEN

    Mr. O'Brien. Thank you, Mr. Chairman. PostCom would like to 
thank you for this opportunity to provide testimony on the 
Postal Service's cost cutting efforts. All PostCom member 
companies need a healthy Postal Service to ensure the viability 
of our businesses.
    In 2008, the Postal Service delivered 202 billion pieces of 
mail, approximately the same volume that was delivered in 1999. 
However, in 2008, the Postal Service delivered to 15 million 
more delivery points than it did in 1999. These sobering facts 
indicate that the Postal Service cannot remain financial self-
sustaining for much longer under its current model, unless it 
is given the freedom to make changes in other areas.
    The Postal Service is much too important to the economy and 
to the American public to be allowed to atrophy and fail. 
Saving the Postal Service will require the commitment of USPS 
management, the postal unions, the mailing industry, the Postal 
Regulatory Commission, and Congress. Some of the choices facing 
us will not be without pain. We are all going to have to make 
some sacrifices. To that end, PostCom has several 
recommendations, beginning with network adjustments.
    Mailers feel very strongly that the Postal Service must 
adjust its network to match today's volume and service 
requirements. Such a network adjustment could have a negative 
impact on service. PostCom members are willing to accept 
service adjustments if the net result is an overall reduction 
in USPS costs and increased consistency. As long as service 
remains predictable and reliable, mailers can adjust their 
printing and mailing schedules to compensate for any network 
changes. Given the Postal Service's perilous financial 
condition, we hope that the Postal Service will not be thwarted 
in its efforts to streamline the network and reduce costs.
    The frequency of mail delivery is another issue where the 
mailing industry is willing to put skin in the game. PostCom 
understands that the Postal Service does not have many 
opportunities that can result in a savings of $3.5 billion. And 
I know you think that number is a little bit fuzzy, and we 
would agree. We also accept the fact that volume is declining 
and may never return to prior levels.
    Many PostCom mailers have business plans that depend on 6 
day delivery. However, given the dire straits that the Postal 
Service is now in, PostCom is willing to work with the Postal 
Service on developing a delivery day solution. The end result 
will damage some mailers' businesses, but may be required to 
ensure the survival of the Postal Service. We also realize that 
reducing delivery by 1 day per week is a decision that cannot 
be made by the mailing industry or the Postal Service, but 
requires the approval of Congress. We urge you to give the need 
for this measure serious consideration.
    Work sharing is another very important tool for making 
appropriate adjustments to the scope and scale of the Postal 
Service's mail processing system. This process is based upon 
the concept of operating at the lowest combined cost between 
the mailer and the Postal Service. In work sharing, rates are 
set at a level that reflects improved Postal efficiencies and 
marketplace realities. This type of sensible businesslike 
behavior is needed now more than ever, and PostCom strongly 
recommends the continuation and expansion of work sharing 
incentives.
    The Postal Service is also pursuing an automation strategy 
to improve the processing of flat shape mail. PostCom applauds 
these efforts so long as they are aimed at achieving the lowest 
combined cost across the entire mail supply chain and are not 
merely shifting costs upstream to mailers and/or mail service 
providers.
    On May 7, 2009, the Postal Regulatory Commission granted 
the Postal Service permission to sell unutilized capacity on 
its trucks. The Commission has also opened a docket on summer 
sale prices that are designed to generate more mail volume 
during the USPS's lowest volume period. PostCom supports both 
these concepts and notes that these creative ideas represent 
fresh thinking that has long been absent in the Postal 
Service's revenue generation efforts. The Postal Service must 
not be afraid to fail in these tests and the Postal Regulatory 
Commission, Congress, and the mailing industry must provide the 
latitude that allows either success or failure.
    PostCom would be remiss if we did not mention the need for 
a restructuring of retiree healthcare funding. PostCom 
appreciates the efforts of Congressman John McHugh and the 309 
cosponsors of H.R. 22. It is critical that this legislation 
gets signed into law prior to September 30, 2009, and we urge 
Congress to take immediate action.
    In summary, PostCom members depend on a reliable and 
affordable Postal Service. Given the perilous state of USPS 
finances, neither Congress, the Postal Service, the Postal 
unions, nor mailers can avoid these issues any longer. 
Substantive changes must happen very quickly or the Postal 
Service as we know it may not survive. Thank you.
    [The prepared statement of Mr. O'Brien follows:]

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    Mr. Lynch. Thank you.
    Earlier today we had an opportunity to hear from the Postal 
Service, the Postal Regulatory Commission, we had a couple of 
the unions in--the American Postal Workers Union and the Mail 
Handlers--and also we had Mr. Goff testify from the Postal 
Supervisors. You are the first today who will actually testify 
as customers of the Postal Service, and I would like you--I 
know you were all present during the previous testimony and you 
have handled this issue for quite a while. Let me ask you to 
provide the committee with testimony regarding what you think 
the priorities should be. We are looking at, reducing costs to 
the Postal Service and trying to restructure the Postal Service 
so that its viability is assured.
    So if you have any thoughts on the order of priority where 
you think we should look for those savings, obviously in a way 
that minimizes its impact on your constituency businesses, but 
also if you think there are services that could be offered that 
could generate revenues that might alleviate some of the 
pressure we are feeling right now from a decrease in volume, I 
would like to hear your thoughts on where do you think Congress 
should look as areas of priority in trying to accomplish our 
goal here, which is to save the Postal Service.
    Mr. Conway.
    Mr. Conway. Thank you. In terms of the cost structure and 
the reduction of the costs, as I said in my written statement, 
the infrastructure of the Postal Service was built for a 
massive mail volume that no longer exists. At its peak in 2006, 
the Postal Service handled 213 billion pieces of mail. Few 
doubt the total volume will ever top 200 billion again.
    The excess capacity of the network has been built over 
many, many years, and if you recall, Mr. Chairman, prior to 
1970, the Postal Service was under the control of the U.S. 
Congress, and during those years a lot of decisions about where 
to place facilities and so on were made by the Congress. As a 
result, you look at the total picture of the Postal Service 
imprint and you can see the political influence on the system. 
Not to say that is necessarily bad, but you can see it. It also 
reflects the importance of the post office and the postal 
system to America and to the Congress.
    Going forward, the need for people like ourselves and the 
people with a stake in the postal system to help inform the 
American public and the U.S. Congress about this severe problem 
to get an understanding and get perhaps a little more 
flexibility that is needed to make these changes I think would 
be extremely helpful.
    As far as new products and services, the summer sale--most 
in the mailing community have applauded this initiative. I 
think most have felt it was long overdue. But it is just the 
start, and I think there needs to be a whole lot more 
creativity within the Postal Service, and it can't come fast 
enough. I also think the Congress might want to consider the 
absolute restrictions that now exist on what the Postal Service 
can do. As a necessary government function, the Postal Service 
is everywhere in this country. It has a delivery network that 
is superb. I think the Congress might want to consider what 
kinds of things the Postal Service is well suited for that it 
could provide the American people that perhaps is not being 
provided by the private sector or perhaps could be done more 
efficiently by the Postal Service than is being done now by 
other government agencies.
    Mr. Lynch. Thank you.
    Mr. McLean.
    Mr. McLean. I would like to make three points, Mr. 
Chairman. First of all, in terms of long-term solutions, 
assuming that H.R. 22 is approved--and that is a large 
assumption at this point, I recognize, but, long-term 
everything has to be on the table, from operations to 
compensation. Mailers recognize that and we are willing to make 
concessions that would ensure the future vitality of the Postal 
Service.
    Once the recession begins to subside and the economy 
rebounds, issues such as work sharing will become much more 
important. It is very important that we try to find more ways 
to bring more mail into the system. The Postal Service has 
fixed costs that are going to require to spend a certain amount 
of money making a delivery to your home, whether they deliver 
one piece of mail or 10. Work sharing can ensure that more mail 
is delivered to every household. That will help reduce the cost 
of delivery per piece, and that will help ensure that the 
Postal Service can return to a more positive financial 
situation.
    Third, I would suggest that we find ways of making postal 
products more available to folks. In Mr. Galligan's testimony, 
he noted the fact that you can now buy postage stamps in 
thousands of supermarkets around the country. Stamps are one 
thing; postal products are another. If you go into most post 
offices today, there is no longer a vending machine where you 
can buy more than just stamps or more than just a first class 
postage stamp. Wouldn't it be great if you could go to the 
grocery store and there would be a kiosk where you could mail a 
package, weigh it, get the postage that you need, and wouldn't 
involve the salary of a single postal employee?
    Greater use of technology and other ideas that would help 
make it more accessible to get to the Postal Service, reducing 
lines on Saturday, which are very long at the post office where 
I live in Arlington, VA, would be a positive way of ensuring 
that people continue to use the post office and perhaps of 
increasing revenue in ways that are unavailable today.
    Mr. Lynch. Thank you.
    Mr. O'Brien.
    Mr. O'Brien. Mr. Chairman, I think if you are looking for a 
game plan for moving forward, I would like to suggest first 
considering the short-term relief on H.R. 22, and whether the 
scope of that is 2 years or 8 years, or whatever Congress 
elects to pursue, that is really up to you and scoring here. 
But we as mailers don't want to see the Postal Service default 
on its payment to Treasury, and we are very concerned about 
what happens if they make a withdrawal of $3 billion on 
September 30th and then another $3 billion on October 1st. 
Where is that going to put us mid-2010? We are in a world of 
hurt. So I think we ought to put that issue aside and try and 
resolve that as step No. 1.
    Step No. 2, networks. The Postal Service, we should give 
them the flexibility to modify their networks right now. Let 
them run with that. I will give you an example of what happened 
when they messed it up. They pursued a closing of a facility 
out in Long Beach, CA, and that facility went awry. The service 
fell off the table and mailers screamed, and we went to the 
Postal Regulatory Commission, we went to the Postal Service. 
This system will self-monitor. The Postal Regulatory Commission 
is watching service like a hawk right now, so I don't think we 
need to worry too much about them going down the wrong path if 
we give them the flexibility to adjust their network. So I 
would say that should be the second step.
    The third step is, as you pointed out earlier, a 5-day a 
week delivery, and 5 day a week delivery is a big ticket item 
for the Postal Service. They can save a lot of money, but it is 
going to affect people's businesses, and I will give you an 
example. Our business, Time magazine, gets affected more than 
anybody else. We deliver 77 percent of Time magazine on 
Saturday today. So I have met with----
    Mr. Lynch. I am sorry, say that last part again. I am 
sorry, Mr. O'Brien.
    Mr. O'Brien. Seventy-seven percent of Time magazine gets 
delivered on Saturday.
    Mr. Lynch. Really?
    Mr. O'Brien. Yes. We built our whole business around 
getting magazines to people so that they have them on the 
weekends, because they sit on your nightstand Monday through 
Friday, and then on the weekend is when you have the time to 
read the magazines. So we have kind of built our business that 
way. We actually changed the schedule for Time magazine a 
number of years ago.
    So we are going to get hurt worse than anybody, to be 
honest with you, with the loss of Saturday delivery. But I 
think those are the kinds of sacrifices that we all are going 
to have to make. We ask the unions to make sacrifices. We are 
asking you to swallow a bitter pill here with your 
constituencies to say we are allowing facilities to close, we 
are allowing Saturday delivery to go away.
    We also look around the world and we also recognize it is 
not the end of the world. Canada Post does 5 day a week 
delivery. I believe we are the only postal service in the world 
that does 6 day a week delivery. So we may not be that 
different from everybody else in the future. We still do 
business in Canada with 5 day a week delivery; people adjust, 
consumers adjust. So I think we can get there, but as you 
pointed out earlier, we need to understand the numbers, we need 
to understand the impact, and once we have that information, 
mailers and the Postal Service and the American public will get 
behind that.
    You pointed out your family here, letter carriers are in 
your family. I think letter carriers will appreciate having 
Saturday and Sunday off in the long-term. So it is not the end 
of the world here, we just have to make sure we do it right. So 
if I had to prioritize the three issues going forward, relief 
on the finance, mail facility closings, adjusting the network 
to match the volume, and then finally looking at the delivery 
days.
    Mr. Lynch. Thank you. Since you all mentioned the issue of 
5 day delivery, there were some concerns raised at the earlier 
panels. Again, the savings estimates are greatly varied. I 
think one report came in at $1.9 billion, another one at 3.4 or 
something like that. So there is a pretty wide variance, and I 
think the committee needs to get a good accurate picture. As a 
matter of fact, we may look at H.R. 22, if that gets marked up 
in a couple of weeks, commissioning a study to see what the 
real savings might be.
    I thought Mr. Hegarty of the Mail Handlers Union raised a 
great point about the fact that there are 10 Federal holidays, 
the majority of which end up on a Monday. If you have no 
service on Saturday, Sunday, Monday for those seven or eight 
holidays that end up falling on a Monday, you have a pretty 
good block of time there where folks don't get their mail. That 
is a problem, so we need to figure that out. And I don't know 
if we actually build a calendar of certain Saturdays that 
continue to be delivered. We have to look at that more closely.
    This all just points out the need for a little deeper 
thought on this. Mr. Conway had the opportunity to come into 
the office yesterday and speak to me about some of the needs 
that he foresaw or that others raised, the issue for those who 
absolutely have to have delivery on Saturday. Time may not be 
in that category, but there may be a priority option for some 
of those folks, I don't know, hospitals. I am just trying to 
think of those constituencies that we have not heard from might 
be offered that option. It would have to be paid for, but under 
those terms we could probably find that acceptable.
    The other issue that was raised is the ability to retain 
business. If you leave that gap, as each of you has signified, 
of now you are going to have a couple days, Saturday and 
Sunday, somebody is going to fill that void, it may be UPS, it 
may be FedEx, but it may cause further deterioration in postal 
business, and I am concerned about that. I guess that will all 
be built into that number when they tell us what our savings 
will be, because there will be some spoilage by losing the 
business that might have been done on Saturday, but that will 
go away if we discontinue this practice.
    Talk to me about that, specifically about the issue of 5 
day delivery and what it would mean to some of your 
constituency businesses; none of the other stuff, just the 5-
day delivery.
    Mr. Conway.
    Mr. Conway. Yes, sir. Well, nonprofits in this country 
range from very, very large to very, very small; they are all 
over the lot. Their function vary, all certain worthy ideals, 
and their business models vary greatly throughout the country. 
That said, there most certainly are many nonprofits that will 
tell me that Saturday is extremely valuable, perhaps the most 
valuable day of mail delivery for them, and that may well be 
the case.
    There was a recent survey done by the Nonprofit Times, 
which is one of the leading nonprofit publications in the 
country, about mail delivery, and the question posed to 
nonprofits was if there had to be the reduction of a day, which 
day would be less impactful on nonprofits. The overwhelming 
selection by nonprofits in that survey was Saturday. Saturday 
was the least impactful.
    The most impactful day, interestingly, that folks said they 
couldn't do without was Monday; and that is owing to a lot of 
things, partially because nonprofits tend to operate like most 
organizations, with a 5-day work week. So if, say, Tuesday were 
deleted, you would have your staff in on Tuesday, but they 
would have no mail delivery, they would have nothing to work 
on; it would create a problem. With Saturday, most nonprofits, 
not all, but most, their business plan now is not modeled 
there.
    I think, of nonprofits at large, that Saturday would be the 
least harmful to our community.
    Mr. Lynch. Mr. McLean.
    Mr. McLean. For my members, because of the size and breadth 
of our organization, I have members for whom Saturday delivery 
is extremely important, including magazine publishers. I have 
others for whom Saturday is something that they could live 
without. So I have members that fit into everything. Some 
prefer that it would be Monday as the day off, some would 
prefer it be the middle of the week when the Postal Service 
would not deliver. So I am not going to be able to offer you 
consensus on that.
    For my members, what would be important is that any change 
like this would reduce the Postal Service's fixed costs. If it 
does that, it is going to help keep down postage. If it keeps 
down the price of postage, everybody is going to be in support 
of it. Also, it is very important how this is done. We have not 
had detailed discussions with the Postal Service about exactly 
how they would design such a program, and I don't think the 
Postal Service has done that because they are looking for a 
lead from you, Mr. Chairman, in terms of what Congress's 
approach to this is going to be, because without your support, 
this discussion doesn't go anywhere.
    As long as we are part of the discussion in terms of 
planning it, as long as there is an opportunity to participate 
in the design of it, I think a lot of my members would 
eventually get behind it, but we would like to know more 
details. That is only going to happen if we can get a sign from 
you that this is something that you would seriously consider, 
because, we have to go after the fixed costs. When more than 80 
percent of your expenses are from labor and you can eliminate a 
lot of labor costs by eliminating a day of delivery, it is 
something we seriously have to consider.
    Mr. Lynch. OK.
    Mr. O'Brien.
    Mr. O'Brien. Mr. Chairman, as Bob indicated, everyone has a 
different preferred day to eliminate, and within PostCom, we 
have members such as large banks. Bank of America is a member 
of PostCom, and they would like to keep cash-flow moving. They 
don't want to allow any day to go by the wayside, and that is 
understandable. Weekly magazine publishers don't want Saturday 
to go away. But I think what we can do going forward is find 
solutions to that problem. There may be alternatives.
    Medco, the pharmaceutical company that distributes drugs, 
is a PostCom member. Medco doesn't want their consumers to wait 
3 days to get Medco delivered. So I think we have to look at 
alternatives to just no Saturday. I think there are 
alternatives. If you look at United Parcel Service today, they 
do offer Saturday delivery at a premium. There are ways to work 
around these things, so I don't think it has to be as ice cold 
as people may think.
    Mr. Lynch. I get the impression from all the testimony 
today that there needs to be much more discussion about this. 
This needs to be very thoughtful. And I am not entirely 
convinced at this point that the savings are there or that the 
blanket elimination of Saturday delivery would produce the 
desired effect.
    Let me ask you, for some of this mail volume that we are 
seeing a decline in, obviously it is as a result of the 
recession, if you follow first class mail--I know this is not 
necessarily your forte--we have seen decline for a number of 
years, and it is the same trend, and that is a big money maker 
for the Post Office.
    We are trying to match the structure and organization of 
the Post Office to respond to demand. What do you see over the 
next 2, 3 years? I am hearing that 2010 could be just as bad, 
if not worse, as 2009, which would be dreadful. But going 
forward, what do you see in terms of the trend for mail volumes 
and how do we match up with that? Because we have this crisis 
we are dealing with now, but I see some issues down the road a 
little bit.
    Why don't we start with Mr. O'Brien?
    Mr. O'Brien. Sure. I have to tell you, no one has a crystal 
ball on this, unfortunately. I mean, if you pick up a copy of 
Time magazine today, it is pretty thin, and we don't know when 
our advertising is going to come back, and no one knows. So 
what we do have a feeling of is that some of this volume that 
has gone away, companies are gone. Conde Nast recently shut 
down Portfolio magazine. It is gone. So we know that is not 
coming down. Will other businesses pop up in the future? Sure. 
But I think we have a situation here where neither the Postal 
Service nor the mailers know what is going to happen down the 
road, and I really wish we did.
    So I can't give you a solid answer on when is the volume 
going to come back. What I can tell you is I give a lot of 
presentations on the Postal Service to industry associations 
and groups, and things like that, and I always survey the 
members of the audience, and I ask them how many of you pay 
your bills electronically. Invariably, nowadays, about 70 
percent of the people in the room say I pay my bills 
electronically.
    And I ask them how many of you receive your bills 
electronically, and maybe 10 percent put their hand up. I think 
there is a big difference right now. People still want the hard 
copy, so I don't think that first class volume is going to go 
away as fast as you think. I think the big chunk is gone right 
now in the payment part of it, but I think the outgoing bills 
are still going to stick around for a while.
    I also have to tell you the Postal Service is really trying 
to do something about volume. Last year they hired someone by 
the name of Bob Burnstock. I don't know if you have met him or 
heard about him, but he came from private industry, and 
Burnstock used to be the CEO of Scott's Miracle Grow. So he 
came from private industry; he knows how business operates and 
he is very creative. He and his team were the ones who came up 
with the summer sale. I think there is going to be a lot more 
creativity down the road with that kind of person onboard.
    Mr. Lynch. OK.
    Mr. McLean.
    Mr. McLean. In terms of the Postal Service's future, I 
think it is important to remember there are two categories of 
customers in general, there are those who have to use the 
Postal Service and there are those who choose to use the Postal 
Service. The number who have to use the Postal Service is 
declining, and that may continue to be the case as documents 
are now permitted legally to be transmitted by email, by fax 
and other means. And as Mr. O'Brien noted, there are an 
increasing number of people who pay their bills online.
    But in terms of the group that choose to use the Postal 
Service, I always like to talk about my brother. My brother ran 
a restaurant in Memphis, my hometown, for a number of years. My 
brother did not need and could not afford television 
advertising, radio advertising, Internet advertising, because 
it reached the wrong people, it reached too many people, and it 
was too expensive. But the Postal Service was a terrific 
marketing alternative for him because it could be narrowed down 
not just to the zip code, but to the few blocks around his 
neighborhood restaurant. It was the perfect marketing tool.
    For many businesses in this country, the Postal Service is 
something they choose to use because it offers that 
affordability, that limited reach, and as long as we can keep 
postage prices down, as long as we can keep them affordable, 
along with the cost of printing and the cost of paper, many 
people are going to continue to use the Postal Service.
    In the association that I manage, the Mailers Council, we 
have once again returned to sending invoices for membership by 
mail. One of the reasons why is because many people look at 
emails, they don't necessarily read them intently, they don't 
necessarily act on them. And for a number of businesses, not 
just my association, mail continues to be the device that 
ensures that people act the way you want them to; buying your 
product, buying your service, voting, whatever it might be. It 
continues to be an incredibly effective communication tool.
    If we can keep it affordable, we will keep the mail in 
there. That will help ensure that there is sufficient volume to 
keep those fixed costs spread out over enough pieces of mail 
that the Postal Service can continue to operate. But without 
keeping postage affordable--and that means reducing the fixed 
costs, which is operations, the size of the network, and what 
we pay to employees--the Postal Service will no longer be an 
effective and affordable communications tool, and it will go by 
the wayside.
    Mr. Lynch. Mr. Conway.
    Mr. Conway. Yes, sir. Mail volume is an interesting 
phenomena. It is now, obviously, in major decline, but the 
decline of the most crucial part of mail volume, first class 
mail, started long before this economic downturn. First class 
mail has funded the basic growth of the Postal Service 
infrastructure forever. It makes the most contribution to the 
overhead costs of the Postal Service, which are extensive. It 
has basically paid the bills for the last couple hundred years.
    With that mail volume declining, I don't see it coming 
back. I think the decline that has started gradually in the 
last 5 or so years will continue. Some say it will accelerate, 
some say it may taper off, but I think it will continue.
    And that leaves you with how do you grow the necessary 
volume to make up for that loss. The rule of thumb for many 
years has been that standard mail, which is the highest growth 
volume product now in the Postal Service, you need almost three 
pieces of standard mail to make up for the loss of one piece of 
first class mail. Standard mail is not growing that fast; I 
doubt it can grow that fast in the future. So there lies the 
financial dilemma.
    Once the economy does stabilize, mail volume most certainly 
will come back to a certain degree, but it is the mix of mail 
volume that is the real critical problem. How do you replace 
that very lucrative product, the revenue that is lost there? I 
don't know that anyone in the postal community has found an 
answer to that. Unless someone does, we just can't afford to 
fund this massive structure anymore as we have, unfortunately.
    Mr. Lynch. Earlier today we did hear from the earlier 
witnesses that there has been a freeze on constructing new post 
offices and a freeze on hiring, so I think they get the 
message. But for many, many years, as you have stated, we just 
went on a building spree in this country of post offices, to 
the point where we have 36,000 of them now. And as chairman of 
this committee, it seems like every week I am naming a new post 
office. I honestly believe we will run out of names before we 
run out of post offices. [Laughter.]
    But this is a paradigm shift. We are changing the model of 
this to allow it to survive. I think the flexibility is 
important, it is just that the Postal Service is one of those 
constants in our life that, when it changes, as it looks like 
it needs to change, it upsets a lot of people. So we have to 
sort of bring people along, let them know what the problem is 
and let them be reassured that this is to preserve that 
universal service that they enjoy so much.
    I am sure that I did not exhaust all of the important areas 
of inquiry with my questions, so what I would like to do is 
give you each an opportunity, say 3 minutes. If there are 
certain points that you think I have missed or that need to be 
emphasized, please take that opportunity. Anything that you 
think may not have been raised at today's hearing in your panel 
or a question that might not have been properly addressed in 
one of the other panels, please feel free to raise it now.
    In fairness to my colleagues who are in markups in other 
committees, I am going to allow them to ask any questions of 
you in writing and welcome your responses as well.
    Mr. Conway.
    Mr. Conway. Well, Mr. Chairman, I would like to first just 
thank you for taking on this very, very tough task. Your 
leadership on what is an incredibly difficult political issue 
is needed going forward, and I think it is going to be 
incumbent on my organization and everybody with a stake in the 
Postal Service to support your efforts.
    I know what you face. I have been around the postal 
political scene for nearly 40 years, and you are going to hear 
it from both sides of the aisle. But you are doing the right 
thing. You are taking on this issue, I think, in a very fair 
manner, and we will pledge to continue to support you as 
necessary changes are made.
    Mr. Lynch. Thank you, Mr. Conway.
    Mr. McLean.
    Mr. McLean. Mr. Chairman, my mother comes from Lucy, TN. I 
have a sister in Poteau, OK, another sister in Lexington, VA, 
and one in Louis, DE, and there is not a UPS, FedEx, Kinkos, 
Minuteman Copier, or other place where you can ship things; you 
have to go to the U.S. Postal Service. And there are Members of 
Congress that represent each one of those communities, and I am 
sure they are going to howl when they hear, because I don't 
think many of them have heard yet, what we are considering at 
this hearing today.
    But what they need to understand and what we need your help 
explaining is that the Postal Service is an essential tool of 
business, not an optional one. For those businesses to reach 
the people who live in those communities in the future, the 
Postal Service has to be allowed to change, and H.R. 22 is a 
great first step in that direction, but additional legislation 
is going to been necessary.
    So if we are going to keep the Postal Service in these 
communities where they are the only way of doing hard copy 
communication, we have to allow the Postal Service to remain 
affordable, and that is where we need your help, and we 
appreciate your having this hearing today as a first step in 
that direction.
    Mr. Lynch. Thank you, sir.
    Mr. O'Brien.
    Mr. O'Brien. Mr. Chairman, a couple things that we didn't 
talk about. Before 2003, a Presidential commission was created 
to study the Postal Service, and in 2003 they issued this 
report, ``Enhancing the Future: Making the Tough Choices to 
Preserve Universal Mail Service.'' We haven't really discussed 
that at all. There are a lot of good thoughts in here. I would 
encourage the staff of this committee to review this document 
and see what they had to say, so that we don't have to reinvent 
the wheel.
    I would like to reiterate both what Tony and Bob had to 
say, in that we appreciate your efforts here. I am incredibly 
impressed with the level of engagement of this subcommittee and 
your knowledge of the issues, as well as Minority Leader 
Chaffetz. It is very impressive.
    We also want you to know that the Postal Service is not 
just a supplier to us; they are business partners. If they go 
under, all of our companies are gone, and we can't afford that 
to happen; and that is really at the crux of the matter here. 
We have all built our businesses on postal, and, as was 
mentioned earlier, one of the members of PostCom is the 
Alliance of Independent Storeowners and Professionals, very, 
very small people, your local hardware store and people like 
that; and they do exactly what Bob said, they saturate the mail 
delivery around their stores and that is how they stay in 
business. So we all need a healthy Postal Service and we 
commend you for taking action to help us achieve that.
    Mr. Lynch. Thank you. I appreciate your attendance here 
today. I do want to note I misidentified Mr. Goff. I said he 
was part of NAPS, the National Association of Postal 
Supervisors. He is actually with NAPUS, which is the National 
Association of Postmasters of the United States. So I apologize 
to Mr. Goff for that error.
    Thank you very much for your willingness to help the 
committee with its work. As I said before, I am going to leave 
the record open in case my colleagues have questions further on 
on some of your comments. But thank you very much for your 
willingness to help us today. Thank you. Have a good day now.
    [Whereupon, at 1:40 p.m., the subcommittee was adjourned.]
    [Additional information submitted for the hearing record 
follows:]

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