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




 
 CONTINUING TO DELIVER: AN EXAMINATION OF THE POSTAL SERVICE'S CURRENT 
               FINANCIAL CRISIS AND ITS FUTURE VIABILITY

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

                             JOINT HEARING

                               before the

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

                                and the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 15, 2010

                               __________

                           Serial No. 111-74

                               __________

Printed for the use of the Committee on Oversight and Government 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 L. MICA, Florida
DENNIS J. KUCINICH, Ohio             MARK E. SOUDER, Indiana
JOHN F. TIERNEY, Massachusetts       JOHN J. DUNCAN, Jr., Tennessee
WM. LACY CLAY, Missouri              MICHAEL R. TURNER, Ohio
DIANE E. WATSON, California          LYNN A. WESTMORELAND, Georgia
STEPHEN F. LYNCH, Massachusetts      PATRICK T. McHENRY, North Carolina
JIM COOPER, Tennessee                BRIAN P. BILBRAY, California
GERALD E. CONNOLLY, Virginia         JIM JORDAN, Ohio
MIKE QUIGLEY, Illinois               JEFF FLAKE, Arizona
MARCY KAPTUR, Ohio                   JEFF FORTENBERRY, Nebraska
ELEANOR HOLMES NORTON, District of   JASON CHAFFETZ, Utah
    Columbia                         AARON SCHOCK, Illinois
PATRICK J. KENNEDY, Rhode Island     BLAINE LUETKEMEYER, Missouri
DANNY K. DAVIS, Illinois             ANH ``JOSEPH'' CAO, Louisiana
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
JUDY CHU, California

                      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, Chairman
ELEANOR HOLMES NORTON, District of   JASON CHAFFETZ, Utah
    Columbia                         MARK E. SOUDER, Indiana
DANNY K. DAVIS, Illinois             BRIAN P. BILBRAY, California
ELIJAH E. CUMMINGS, Maryland         ANH ``JOSEPH'' CAO, Louisiana
DENNIS J. KUCINICH, Ohio
WM. LACY CLAY, Missouri
GERALD E. CONNOLLY, Virginia
                     William Miles, Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on April 15, 2010...................................     1
Statement of:
    Goldway, Ruth, chairman, Postal Regulatory Commission; David 
      Williams, Inspector General, Office of Inspector General, 
      U.S. Postal Service; John O'Brien, Senior Advisor to the 
      Director, U.S. Office of Personnel Management; and Kevin 
      Kosar, Analyst in American National Government, 
      Congressional Research Service.............................   159
        Goldway, Ruth............................................   159
        Kosar, Kevin.............................................   183
        O'Brien, John............................................   175
        Williams, David..........................................   168
    Potter, John E., Postmaster General and CEO, U.S. Postal 
      Service; and Phillip Herr, Director, Physical 
      Infrastructure Issues, U.S. Government Accountability 
      Office.....................................................    12
        Herr, Phillip............................................    23
        Potter, John E...........................................    12
Letters, statements, etc., submitted for the record by:
    Burton, Hon. Dan, a Representative in Congress from the State 
      of Indiana, followup question and response.................   136
    Connolly, Hon. Gerald E., a Representative in Congress from 
      the State of Virginia, prepared statement of...............   212
    Goldway, Ruth, chairman, Postal Regulatory Commission, 
      prepared statement of......................................   162
    Herr, Phillip, Director, Physical Infrastructure Issues, U.S. 
      Government Accountability Office, prepared statement of....    25
    Issa, Hon. Darrell E., a Representative in Congress from the 
      State of California, prepared statement of.................     7
    Kosar, Kevin, Analyst in American National Government, 
      Congressional Research Service, prepared statement of......   185
    Lynch, Hon. Stephen F., a Representative in Congress from the 
      State of Massachusetts, prepared statement of..............     3
    Maloney, Hon. Carolyn B., a Representative in Congress from 
      the State of New York, followup question and response......   124
    National Association of Retired Federal Employees, prepared 
      statement of...............................................   155
    O'Brien, John, Senior Advisor to the Director, U.S. Office of 
      Personnel Management, prepared statement of................   177
    Potter, John E., Postmaster General and CEO, U.S. Postal 
      Service, prepared statement of.............................    14
    Speier, Hon. Jackie, a Representative in Congress from the 
      State of California, followup question and response........   142
    Tierney, Hon. John F., a Representative in Congress from the 
      State of Massachusetts, followup question and response.....   148
    Towns, Hon. Edolphus, a Representative in Congress from the 
      State of New York, prepared statement of...................   153
    Watson, Hon. Diane E., a Representative in Congress from the 
      State of California, prepared statement of.................   214
    Williams, David, Inspector General, Office of Inspector 
      General, U.S. Postal Service, prepared statement of........   170


 CONTINUING TO DELIVER: AN EXAMINATION OF THE POSTAL SERVICE'S CURRENT 
               FINANCIAL CRISIS AND ITS FUTURE VIABILITY

                              ----------                              


                        THURSDAY, APRIL 15, 2010

        House of Representatives, Committee on Oversight 
            and Government Reform, joint with the 
            Subcommittee on Federal Workforce, Postal 
            Service, and the District of Columbia,
                                                    Washington, DC.
    The committee and 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, Maloney, Cummings, 
Kucinich, Tierney, Clay, Watson, Connolly, Quigley, Davis, 
Foster, Speier, Driehaus, Chu, Issa, Burton, Duncan, Jordan, 
and Luetkemeyer.
    Staff present: Peter Fise, staff assistant; Adam Hodge, 
deputy press secretary; Carla Hultberg, chief clerk; Marc 
Johnson and Ophelia Rivas, assistant clerks; Michael Kubayabda, 
counsel; Mark Stephenson, senior policy advisor; Ron Stroman, 
staff director; William S. Miles, staff director, Subcommittee 
on Federal Workforce, Postal Service, and the District of 
Columbia; Larry Brady, minority staff director; John Cuaderes, 
minority deputy staff director; Rob Borden, minority general 
counsel; Adam Fromm, minority chief clerk and Member liaison; 
Stephanie Genco, minority deputy press secretary; Howie Denis, 
minority senior counsel; and Alex Cooper, minority professional 
staff member.
    Mr. Lynch. Good morning and welcome.
    What is encouraging about today's hearing is that it is 
being convened to specifically discuss suggested solutions for 
addressing what many have called an unsustainable business 
model in need of urgent attention and reform. I have had a 
chance to review both the Postal Service's action plan for the 
future as well as the recently released GAO report on 
strategies and options to facilitate progress toward financial 
viability, and I commend both of those entities for your 
thorough analysis.
    And, given the Postal Service's currently dire situation, 
both of these reports rightfully touch on some critical and 
highly controversial issues such as calling for major changes 
in the frequency of mail delivery, statutory pricing, facility 
and network optimization and employee compensation and 
benefits.
    I think we all get the fact that the difficult times will 
require some difficult decisions to be made, and the impact of 
some of these decisions will more than likely fall heavily 
across the board, affecting the Postal Service, its customers, 
employees, stakeholders, and others.
    While at the moment there may not be exactly a consensus on 
what needs to be done to bring about the financial recovery of 
the Postal Service. The one thing we believe we are all in 
agreement on is that doing nothing is no longer a viable 
option.
    The keystone of a $1.2 trillion mailing industry and the 
employer of nearly 700,000 Americans, the solvency and long-
term operation of the U.S. Postal Service is essential to our 
national economy and to our way of life, which is why I am glad 
that today's hearing gives us an opportunity to lay everything 
from the value of mail nowadays to the debate over the Postal 
Service's civil service retirement system out on the table for 
deliberation and consideration.
    I appreciate today's witnesses for being here with us this 
morning to offer their suggested strategies on how best to 
increase revenue, reduce cost, and improve efficiency going 
forward in order to help ensure the future financial viability 
of the Postal Service.
    Again, I would like to thank the chairman, Mr. Towns, for 
agreeing to hold this joint hearing, and I look forward to an 
informative discussion this morning.
    On our first panel we will hear from the Postal Service and 
GAO on their reports, while our second panel will discuss the 
impact of these recommendations and the CSRS pension issues.
    Again, I thank all of our witnesses for appearing today, 
and I look forward to their testimony.
    [The prepared statement of Hon. Stephen F. Lynch follows:]

    [GRAPHIC] [TIFF OMITTED] T8338.001
    
    [GRAPHIC] [TIFF OMITTED] T8338.002
    
    Mr. Lynch. I now yield 5 minutes to our ranking member, Mr. 
Darrell Issa from California, for his opening statement.
    Mr. Issa. Thank you, Mr. Chairman.
    Mr. Chairman, last year we worked together on a bipartisan 
basis to provide a temporary fix. This committee had hoped that 
fix would be slightly longer; however, at the end of the day it 
was a 1-year kick the can down the road fix. Today, it is clear 
that before any fix of any sort is considered by this 
committee, we must have a plan that will bring right-sizing, 
solvency, and a continued level of high service by the Post 
Office.
    Without that level of high service, we do not meet our 
Constitutional responsibility, which this committee has direct 
oversight on. Without right-sizing, the services versus the 
people versus the equipment versus--and I am going to cross the 
line that we never want to cross--versus the number of physical 
locations around the country manned by postal personnel, we 
cannot get even.
    For more than 30 years I have been either an executive or 
member of the board of a company. I still sit on a public 
company. We are the fiduciaries of your enterprise. As 
fiduciaries of your enterprise, we must tell you, you have at 
the current time more or less a third more people than you are 
properly using. If you were to use the minimum amount of 
people, highly motivated, properly compensated, you would 
clearly have a dramatic amount of less people.
    Having said that, we have been remiss from the dais in 
meeting our responsibility. During the last year since we began 
dealing specifically under this chairmanship with this problem, 
the Federal work force has grown by nearly as many, if not 
more, than the amount of people at your surplus. Postal workers 
are Federal workers. Postal workers are vested in an equivalent 
system and a transferrable system to that which we here on the 
dias and all Federal workers are in.
    Although there are some slight differences, it is very 
clear that we have not recognized that if the postal system has 
more workers than it needs, the Federal work force in general 
has less than it needs, postal workers represent what is or has 
been a highly motivated, fairly compensated group of 
individuals at all levels, entry, managerial, supervisal, and 
executive.
    I hope today, in addition to prepared statements that we 
have read and we will hear capsulated, that we will hear about 
the kind of synergies the Federal Government needs to achieve 
in duties, and from the dias many have suggested that the 
census should have been done all or in part by those Federal 
workers presently working for the post office, and other 
innovative ideas that could be done to make better use of 
postal facilities.
    But more importantly, you must leave here today 
understanding that Congress needs a plan, like any other Board 
of Directors, that passes the sniff test, that will, in fact, 
be reasonable for us to say to the American people the post 
office will be self-sufficient and solvent, which is a 
requirement of Congress, but, more importantly, that we are not 
wasting the time and energies of so many people who have in the 
past been well-motivated, loyal workers to the postal system by 
simply saying, sit in the green room, blue room, any color room 
you have, but today many of them sit in waiting rooms. Nothing 
is more demoralizing to a worker than to be excess with no plan 
to deal with that in the future. No postal worker should be 
given a route that is less than a full day's work. No postal 
worker should be on the ready if, in fact, that ready bell is 
not likely to ring.
    So, Mr. Chairman, I have been supportive of the postal 
workers. I intend to continue to be, but I want to make sure 
that we are doing the best thing we can for those people, and 
if the American people are watching us hire throughout the 
Federal work force people who, with transition funds that we 
could authorize and appropriate, could find themselves in 
permanent positions, I do not want to wait until it is time to 
put people on the street who otherwise would be gainfully 
employed in the Federal service that they signed up for 1, 2, 
5, 20, or 30 years ago.
    Mr. Chairman, I look forward to the comments and I look 
forward to working together on a bipartisan basis to fix this 
troubling problem.
    I yield back.
    [The prepared statement of Hon. Darrell E. Issa follows:]

    [GRAPHIC] [TIFF OMITTED] T8338.003
    
    [GRAPHIC] [TIFF OMITTED] T8338.004
    
    Mr. Lynch. I thank the gentleman. By prior agreement, the 
Chair recognizes Mr. Kucinich for 5 minutes.
    Mr. Kucinich. I thank the chairman for holding the hearing 
on this matter of great significance to the American people.
    I want to begin by thanking the men and women who have 
dedicated their lives to making sure that the commerce of this 
Nation moves through the mail. Many of you made a life 
commitment to that work, and it ought to be received with great 
appreciation by this Congress and by the American people.
    The financial issues that are facing the Postal Service 
will be dealt with, and I am hopeful that this committee will 
have the opportunity to deal with it in a way that preserves 
the good faith which the people who serve the U.S. Postal 
Service have a right to expect from this Congress, and will 
preserve the appreciation which the American people have for 
those who are involved in the delivery of the mail.
    I understand the importance to local communities of the 
Postal Service, and I am committed to working with all 
stakeholders to ensure its financial viability.
    In November of last year, this subcommittee held a hearing 
to examine possible methods of revenue generation, and we know 
that since then we have seen a great amount of money continue 
to be lost and the postal consolidation campaigns persist. I am 
concerned that some of the proposals being considered could 
lead to the privatization of essential services.
    As someone who has had to deal with privatization issues 
many years ago as a mayor of a city, I can promise you that 
this is one Member who is not going to sit by and let you use 
the excuse of financial difficulties as a path to privatize a 
service that first and foremost ought to be a commitment to the 
American people of regular delivery of the mail at a fair and 
reasonable price.
    I strongly believe there are ways to generate revenue 
without cutting jobs and essential services. The GAO report 
makes the observation that 300,000 postal employees are 
expected to retire through 2020. It points out that in a 3-year 
period over 84,000 employees were reduced from the career work 
force. So it is not as though people aren't looking for ways to 
operate more efficiently with less people. We have to be 
careful that we don't, through the desire to try to make this 
system work more efficiently, harm its ability to deliver the 
mail.
    My constituents continue to express their concern over post 
office closing, especially in low-income communities with 
little or no access to transportation or technology. 
Ultimately, it is going to be up to the Congress to give the 
Postal Service the flexibility it needs to implement vital 
revenue generation methods. At the same time, it is our 
responsibility to ensure that methods of revenue generation do 
not come at the cost of universal access and the jobs that have 
been vital to the communities we represent, because universal 
access is something that is important to the people of this 
country and it is a major economic issue in communities across 
America, and it should not be denied to people because they 
happen to be on a lower end of the economic ladder.
    The Postal Service has a very powerful infrastructure 
already in place, and that should be utilized in any future 
plan. Instead of consolidating branches and its work force, the 
Postal Service should examine ways it can provide services and 
training for its employees that will allow it to complete with 
some of the other entities that are already out there.
    Chairwoman Goldway and National Postal Worker Unions have 
provided excellent ideas that warrant further examination, such 
as providing Government services at local post offices and 
providing retailers a space to sell their services or products.
    As the economy moves toward recovery, we must ensure that 
local post offices are there to serve the local community.
    I thank the chairman.
    Mr. Lynch. I thank the gentleman.
    The Chair now recognizes the ranking member of the Postal 
Subcommittee for 5 minutes.
    Mr. Chaffetz. Thank you, Mr. Chairman. I do appreciate the 
bipartisan approach in working on these issues, and I do 
appreciate the efforts that the Postal Service has made.
    I am new to this as a freshman here, and I have actually 
got to tell you that I was pleasantly surprised and 
appreciative of the fact of how the Postal Service has been 
addressing the financial needs in a very proactive way and a 
very difficult way, but being financially responsible and 
having that at the top of their agenda.
    There are difficult decisions to be made. They are going to 
be painful any way you slice it. But I only wish every other 
agency within the Federal Government would be as responsive to 
the financial needs within their agency and their department as 
the Postal Service has been.
    Again, they are upside down financially and struggling, 
but, again, I wish other departments and agencies would have 
the same type of approach in being responsible, making 
difficult decisions, and making the cuts that need to be there.
    I also do believe that we need to continue the discussion 
on the relevancy of the Postal Service and making it more 
relevant in the business community, making it more relevant in 
people's lives, and how to drive revenue. We have had good 
discussions and will continue to have good, hard discussions 
about where to cut costs, but we also need to continue that 
discussion about how to become more innovative and how do we 
service the American people in a better way that will actually 
drive revenue forward.
    Personally, I have deep concerns about the move from a 6-
day delivery down to a 5-day delivery. I think there should be 
a blend. My personal approach to this is that we should give 
you some flexibility to find ``postal holidays'' so that you 
can have the flexibility to take the least, the days that we 
know that there is less demand and less need in the marketplace 
to actually deliver, but to say that we are going to eliminate 
52 days of service is not going to necessarily drive volume 
forward.
    I don't think eliminating Saturday delivery before the 
Christmas holiday is necessarily wise. When you look at the 
fact that we have Mother's Day on a Sunday, I don't think the 
marketplace is going to be very happy about not being able to 
deliver mail on Saturday.
    Also, if you look at it in a given year, we will have eight 
or nine holidays where you will not have service on a Monday or 
a Friday because there is a national holiday, so there are 8 or 
9 weeks out of the year where we would go for 3 days with no 
postal delivery services, and there are many unintended 
consequences where credit card bills and medicine that may be 
delivered through the mail and those types of things that I 
think they need to be more thoroughly explained.
    Again, I would hope that we would explore a blend where we 
give you some flexibility to find that Saturday in August 
nobody is going to miss it so you can trim costs.
    The other thing, Mr. Chairman, that I hope we look at is I 
still believe that this country lacks in energy policy. If you 
look at the fuel prices, in January 2009 they were less than $2 
a gallon. Now, at least in Utah, I am paying more than $3 a 
gallon. This country does not have an energy policy, and when 
we have rising energy costs one of the consequences is a 
tremendous expense to the Postal Service in the delivery of its 
goods and services.
    Obviously, the biggest thing out there that we have to talk 
about that is difficult is labor. When you have 80 percent of 
your expenses tied up in the labor pool, there are going to 
have to be some very difficult decisions and discussions. I 
know we have some tough labor negotiations that are coming up. 
We need to talk about right-sizing the Postal Service and 
dealing with that. As Congressman Issa talked about, it would 
be better, best if we could make some of the transition in the 
astronomical growth we have in the other departments and 
agencies and being able to transition some of the good Federal 
workers there at the Postal Service into other applicable jobs. 
I would hope that we would do a better job of making those 
transitions.
    And then certainly one of the big things that I want to 
more thoroughly understand, Mr. Chairman, is the CSRS pension 
issues that we have out there because that over-funding issue 
is something that we can't just deal with on a Band-aid on a 
year-by-year basis. But, as Ranking Member Issa said, we have 
to deal with it in a long-term fashion.
    So those are some of my thoughts and perspectives. I look 
forward to this discussion and ongoing discussion and 
appreciate the bipartisan way in which we are doing this.
    With that I yield back, Mr. Chairman.
    Mr. Lynch. I thank the gentleman.
    We will now turn to our first panel of witnesses. It is the 
committee's policy that all witnesses to offer testimony have 
to be sworn. Will the witnesses please stand and raise your 
right hands as I administer the oath?
    [Witnesses sworn.]
    Mr. Lynch. Thank you. Let the record show that the 
witnesses have each answered in the affirmative.
    I am going to ask you to bear with me while I do two brief 
introductions.
    Mr. John E. Potter serves as the Postmaster General and CEO 
of the U.S. Postal Service. Mr. Potter was named the 72nd 
Postmaster General of the United States of America on June 1, 
2001. He currently sits on the Postal Service Board of 
Governors and is vice chairman of the International Postal 
Corp., an association of 23 national posts in Europe, North 
America, and the Asia Pacific.
    Mr. Phillip Herr is currently the Director of Physical 
Infrastructure Issues at the U.S. Government Accountability 
Office. Since joining GAO in 1989, he has managed reviews of a 
broad range of domestic and international programs. His current 
portfolio focuses on programs at the Department of 
Transportation and the U.S. Postal Service.
    Mr. Potter, you are now welcome to offer a 5-minute 
statement. Thank you.

STATEMENTS OF JOHN E. POTTER, POSTMASTER GENERAL AND CEO, U.S. 
     POSTAL SERVICE; AND PHILLIP HERR, DIRECTOR, PHYSICAL 
  INFRASTRUCTURE ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

                  STATEMENT OF JOHN E. POTTER

    Mr. Potter. Good morning, Mr. Chairman and members of the 
committee.
    For the past 2 years I have testified about the dire 
financial situation facing the U.S. Postal Service. Today we 
stand on the brink of financial insolvency, and our cumulative 
losses could exceed $238 billion by 2020.
    I am pleased to report that the Postal Service does have a 
plan for action to close the growing gap between revenues and 
expenses; however, before discussing our plan, I would like to 
comment on a recent audit by our Inspector General concerning 
the Postal Service over-payments to the Civil Service 
Retirement System pension fund.
    The IG's report is of such significance that it could have 
an enormous bearing on the speed with which we need to make 
changes outlined in our plan. The IG found that an inequitable 
and unreasonable cost sharing methodology was used when the 
former Post Office Department was reorganized into the Postal 
Service. That methodology caused the Postal Service to 
contribute a disproportionate share of CSRS pension costs, 
resulting in a $75 billion overpayment. We support the IG's 
recommendation for dividing the responsibility of funding CSRS 
retirements for our employees by splitting the total pension 
obligation between pre- and post-1971 employment.
    Refunding the $75 billion to the Postal Service would not 
eliminate the need for us to take additional actions, but it 
would lessen the immediate financial crisis we are facing. I 
urge you to take a close look at this critical issue as the 
first step in resolving the Postal Service financial challenge.
    The way Americans communicate has changed dramatically, and 
the Postal Service has to change. Our management team, with the 
support and approval of our Board of Governors, has developed a 
responsive, ambitious, and balanced plan that offers a way 
forward for a fiscally sound Postal Service. To help close the 
forecasted $238 billion gap by 2020, our action plan has 
identified $123 billion of cost savings that are within postal 
control, and we are implementing those actions today.
    We are also focused on growth and we are introducing new 
products and pricing incentives consistent with our mission, 
and we are expanding and modernizing our retail access. I am 
confident that these strategies and other steps from our action 
plan will allow the Postal Service to remain a viable and 
valuable entity into the future, allowing us to continue to 
maintain and finance universal service nationwide; however, we 
do need congressional help in some key areas to provide 
management with the flexibility to deal with our financial 
situation.
    Specifically, we request your assistance in restructuring 
the pre-funding of retiree health benefits, adjusting the 
frequency of mail delivery, providing the freedom to offer 
access to postal services in places other than traditional post 
offices, requiring arbitrators to consider the financial 
condition of the Postal Service, applying the Consumer Price 
Index price cap to all market-dominant products as opposed to 
on a class-by-class application, introducing new products 
consistent with our mission, and, finally, helping us to 
acquire more streamlined oversight.
    The first two of these proposed changes will generate the 
largest and most immediate financial benefits and move us 
toward narrowing our financial gap. If Congress is unable to 
act this fiscal year on broader legislation, our projections 
show that we will risk running out of cash early in fiscal year 
2011; therefore, should there be insufficient time this year to 
pass comprehensive legislation, the Postal Service will require 
a reduction in our retiree health benefit trust fund payment 
this year similar to 2009.
    We recognize that our agenda is ambitious and that the 
challenge will be finding the right balance between taking 
actions necessary to mitigate our financial crisis, while at 
the same time implementing a smooth transition for our 
customers and our employees.
    The GAO recognizes the challenge facing us, too. In their 
recently released report on the Postal Service, they do a 
thorough job of reviewing a series of complex issues and 
strategies for long-term structural and operational reform. I 
am pleased that many of the GAO's findings are consistent with 
the analysis and the Postal Service action plan, and that the 
GAO agrees with us that we need congressional action on 
removing some of our current legal and regulatory constraints.
    One area where we disagree with the GAO is their 
recommendation that additional panels of experts or commissions 
be established to develop legislative options or proposals for 
change. Due to the urgency of our finances, we cannot support 
this. We believe that a sufficient body of evidence exists to 
help guide the Congress on the changes needed for the future. 
Our action plan provides us a solid path to ensure that the 
Postal Service remains strong, healthy, and viable into the 
future.
    Our challenges are urgent, and I look forward to working 
with the Congress, the GAO, the PRC, and the entire postal 
community in implementing the best choices for success.
    Thank you for your support of our ongoing efforts to ensure 
a sound Postal Service, and I will be happy to answer any 
questions you may have.
    [The prepared statement of Mr. Potter follows:]

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    [GRAPHIC] [TIFF OMITTED] T8338.012
    
    [GRAPHIC] [TIFF OMITTED] T8338.013
    
    Mr. Lynch. Thank you, Mr. Potter.
    Mr. Herr, you are now recognized for 5 minutes.

                   STATEMENT OF PHILLIP HERR

    Mr. Herr. Thank you. Chairman Lynch, Ranking Members Issa 
and Chaffetz, and members of the committee, I am pleased to 
participate in this hearing and discuss GAO's report that was 
released this week. Today I will focus my remarks on the Postal 
Service's financial condition and forecast and strategies and 
options to facilitate progress toward its financial viability.
    Turning first to the Postal Service's financial condition, 
as mail volume declined by 36 billion pieces in fiscal years 
2007 through 2009, the Postal Service's financial viability has 
deteriorated, leading to $12 billion in losses. Current 
forecasts for the mail volume will decline to 167 billion 
pieces this fiscal year, the lowest level since 1992.
    The Postal Service projects a record loss of over $7 
billion this fiscal year, while adding $3 billion in debt. Its 
outstanding debt will increase to $13.2 billion, close to its 
$15 billion statutory limit.
    The Postal Service does not expect mail volume to return to 
its former levels when the economy recovers. The continuing 
shift to electronic communications and payments has 
fundamentally changed how mail is used. By fiscal year 2020 the 
Postal Service projects further volume declines to 150 billion 
pieces, the lowest level since 1986. First class mail volume is 
projected to decline by another 37 percent over the next 
decade, and less profitable standard mail, primarily 
advertising that is subject to economic fluctuations, is 
projected to remain roughly flat over the next decade.
    Turning to actions needed to facilitate the Postal 
Service's financial viability, in July 2009 GAO added the 
Postal Service's financial condition to our high-risk list and 
reported that action is needed in multiple areas for the Postal 
Service to make progress toward financial viability. We 
identified strategies and options that fall into three major 
categories.
    First, compensation and benefits currently represent 80 
percent of Postal Service cost, presenting cost savings 
opportunities. In terms of retirements, about 162,000 postal 
employees are eligible to retire this fiscal year, and about 
300,000 are expected to retire over the next decade. In terms 
of benefit costs, postal employees have about 80 percent of 
their health benefit premiums paid, 8 percent more than most 
Federal employees.
    Second, cost savings can be achieved by consolidating 
processing and retail networks, given mail volume declines. 
Removing excess capacity is necessary in the 600 processing 
facilities where first-class mail processing capacity exceeds 
needs by 50 percent. The network of 36,500 retail facilities 
can also be reduced. Maintenance has been under-funded for 
years, resulting in deteriorating facilities and a maintenance 
backlog. Approximately 30 percent of postal revenue currently 
comes from stamps purchased at non-postal locations such as 
grocery stores, indicating the customer has begun shifting to 
alternatives.
    Another opportunity is consolidating the field 
administrative structure by reviewing the need for 74 district 
offices and an additional 8 area offices. And, because cost-
cutting alone will not ensure a viable Postal Service, 
generating revenue through pricing and product flexibility is 
needed. The new flat rate priority mail boxes are an example of 
how the Postal Service has successfully generated new revenues.
    Turning to our report's matters for congressional 
consideration, to facilitate progress in difficult areas such 
as realigning postal operations and its work force, Congress 
may wish to consider an approach similar to a BRAC-like 
commission used by the Department of Defense. Congress has 
previously turned to panels of independent experts to 
restructure organizations and establish consensus. We believe 
the commission could also help to ensure that Congress and 
stakeholders have confidence in resulting actions.
    We also suggested Congress consider change in two other 
areas. One would be to revise the statutory framework for 
collected bargaining to ensure that binding arbitration takes 
the Postal Service's financial condition into account. Another 
change to consider is modifying the Postal Service's retiree 
health benefit cost structure. We believe it is important that 
the Postal Service fund its retiree health benefit obligations 
to the maximum extent its finances permit.
    Currently, about 460,000 retirees and their survivors 
receive this benefit and another 300,000 postal employees are 
expected to use it by 2020. In considering revisions, it will 
be important to assess what the Postal Service can afford, 
strike a fair balance of payments between current and future 
rate payers, and determine how changes would affect the Federal 
budget.
    Mr. Chairman, in conclusion, no single change will be 
sufficient to address the Postal Service's pressing challenges. 
The longer it takes to realign the Postal Service to the 
changing use of the mail, the more difficult change will be.
    This concludes my prepared statement, and I am pleased to 
answer any questions that you or members of the committee have.
    Thank you.
    [The prepared statement of Mr. Herr follows:]

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    Mr. Lynch. Thank you, Mr. Herr.
    I now yield myself 5 minutes for questions.
    Mr. Potter, one of the central considerations here is to 
shift to a 5-day delivery model, and that concerns me greatly, 
both with respect to the idea of universal service and also the 
impact on employees within the Postal Service and how we are 
going to manage this if that is the direction that we go in 
eventually.
    Now, I know that, I think, during your tenure, if I am not 
mistaken, the post office has already reduced the size of your 
work force by about 200,000 employees since 2001, which I 
believe is when you came in. And no one can argue that you 
haven't done a significant job here in terms of reducing the 
size of the work force. I think it was 900,000. Now it is about 
700,000, maybe a little less, so there has been significant 
down-sizing already, or right-sizing, as some people have 
described it. But this shift from 6-day to 5-day, if it were to 
be embraced, can you lay that out for me?
    Look, I come from a postal family, letter carriers, mail 
handlers, clerks. What is the shake-out on that, and what do 
you see as the impact of that change?
    Mr. Potter. Well, first of all let me say that I am very 
sensitive to some of the comments that Congressman Chaffetz 
said in his opening remarks, but I think the Postal Service is 
positioned today, best positioned today to make the change in 
frequency of delivery, and the reason I say that is because I 
believe that today we could accomplish that without laying off 
a career employee.
    We have flexibility in our system right now. We have a lot 
of folks who are eligible to retire today. From the National 
Association of Letter Carrier's side of the aisle, the city 
carriers, we have some 13,000 non-career employees who were 
hired knowing that their jobs would be eliminated at some point 
in time, so that transition for those 13,000 can happen 
immediately.
    We have use of overtime today to the tune of some 9,000 
full-time equivalent employees. We can tighten up on that. We 
have a high number of people who are eligible to retire who 
could be incented to go.
    On the rural carriers' side, the way most rural carrier 
routes are constructed, the 6th day of delivery is provided by 
a non-career employee.
    So I think that the time for change on frequency of 
delivery is now, because it can be accomplished without laying 
people off. If we wait too long in the future, a lot of those 
non-career employees that I just described on the city side, 
the flexibility to use them is limited and it will go away, and 
so we would position ourselves to have to hire career employees 
in the interim. I think we are about a year away from having to 
hire to keep our routes staffed. And the time to change is now. 
And if we did hire within a year, those folks would obviously 
be people who would have to be laid off later on in the 
process.
    So my opinion, there is a need to address the fact that we 
are delivering less mail per day. We delivered five pieces on 
average when I first came into the business; we are down to 
four pieces of mail per day being delivered, and it is on its 
way to three, based on a Boston consulting group's forecast.
    If you look at using 2009 dollars, we were delivering $1.80 
per day per delivery in 2001. That $1.80 per day per delivery 
is down to $1.40. We have been able to mask that change by the 
reduction in work force, focused with our unions on 
productivity. Going forward, it appears that we will have about 
$1 per day in 2020 being delivered.
    That is really the challenge that we all have to face. 
Granted, there are options here, but one of the solutions has 
to be to adjust the frequency of delivery. It has to make a 
contribution to closing the gap that we have now and projected 
into the future.
    Mr. Lynch. Thank you. My time has just about expired. I 
will now yield to the ranking member, Mr. Issa, for 5 minutes.
    Mr. Issa. Thank you very much, Mr. Chairman.
    I heard something that concerns me. All the reports that I 
have seen show that you have excess personnel today with 6-day 
delivery. Is that true?
    Mr. Potter. We have excess--well, let me just describe.
    Mr. Issa. If it isn't Christmas, do you have people sitting 
in ready rooms and do you believe that you are fully utilizing 
at the most efficient, effective, and highest utilization based 
on best practices all of your people at all levels of executive 
supervisor and all the way down to letter carriers?
    Mr. Potter. The answer is no. Are we operating in an 
optimum world? The answer is no. You spoke about the fact that 
we have people who are taken off the workroom floor, and you 
call it a ready room. It is called whatever it is all over the 
country.
    Mr. Issa. The articles generally have a term like that.
    Mr. Potter. But the fact of the matter is one of the 
concerns we have if we leave people on the workroom floor with 
nothing to do they are going to find something to do and make 
ourselves less productive.
    Mr. Issa. I am completely supportive that we piddle around, 
as they used to call WPA. You have to find gainful work.
    Mr. Potter. Right.
    Mr. Issa. No matter how much you are willing to be 
compassionate, you are not doing anyone a favor.
    Mr. Potter. Right.
    Mr. Issa. Having said that, why is it you are not here 
today showing us a plan and hopefully, if you have the 
authority, and if not, ask us for authority, an execution on 
right-sizing the force? How many billions of dollars would have 
been saved if you had already aggressively right-sized the 
force before you came to say I want to go from 6 days to 5? Is 
it $12 billion? Is it $10 billion? Is it $6 billion? How much 
of that $12 billion would we have seen if--and I am assuming 
you have the authority, but if you don't, that is part of what 
we are here for. How much would have been saved?
    Mr. Potter. Well, I don't have an exact number. It is a 
couple----
    Mr. Issa. Would it surprise you that the articles indicated 
it would be about $7 billion that they guess you would have 
saved had you had an optimized work force with or without the 
help of Congress? And we are not talking about the one-time 
cost of transitioning people. We are talking about on a go-
forward basis.
    Mr. Potter. I think that is a very high estimate, but let 
me just talk about the fact that we have down-sized. If you 
look at how many people we have today versus the same period 
last year, you are talking about the Federal Government 
growing, we are down 60,000 employees year over year.
    Mr. Issa. Look, I appreciate that. During the break I went 
to Kodak. We all know who Kodak is. Kodak had a similar problem 
a decade ago.
    Mr. Potter. Right.
    Mr. Issa. Film was going away faster than any projected 
retirement. Now, today there are--they produce state-of-the-art 
ink-jet printers, they are first in digital. They are making a 
comeback by reinventing themselves. It is a great thing in 
America when you are carrying less paper. It is part of 
America's efficiency. We should not be fighting to try to have 
people move paper unless it is productive to the American 
economy. So we have to expect that as e-mail replaces and 
videoconferencing and all kinds of other techniques replace 
conventional letters and documents being moved around, that is 
actually good for the economy.
    If the economy is moving away from your essential service 
in part, at least, is faster than attrition, why haven't you 
been aggressively here saying you have a growing Federal work 
force, we have a shrinking need, how do we make this work? Do 
you need funding to do it? Do you need education? Do you need 
transition? Do you need an additional preference over and above 
what you have? Do you need us to absorb the 72 percent versus 
80 percent for a period of time on the health care? What is it 
you need to be able to tell me you do not have one person 
unnecessarily in a ready room?
    Mr. Potter. What we need is contractual flexibility. If I 
could just describe, in 2001 we had $11 billion in debt. We 
went from $11 billion in debt until 2006 we had $2 billion in 
equity. It was all focused on growing the business, and we 
reached a peak of volume in 2006 of $213 billion. So when you 
are managing a business under that environment, we could live 
with contracts that literally were developed over a 200-year 
period of time that the Postal Service has been in existence 
where we had probably too many full-time jobs. But in a world 
where you could set your watch by how much volume we were 
getting year to year, in a year where you had 1 percent 
movement high or low was a lot, that was doable. You could 
create 8-hour jobs.
    What has happened is, as the volume has declined we no 
longer have 8-hour jobs in all locations, and we have 
constraints on us that are keeping us from optimizing our work 
force. Some are built into our union agreements, and we are 
going to fight vigorously in negotiations this year and, if 
necessary, arbitration to get those work rules fixed so that we 
have more flexibility in terms of the work force, more part-
time workers.
    We are going to go after issues that are constraining us 
from closing that gap and making the most efficient use of our 
employees.
    I could go on forever, but we do have a very aggressive 
plan that has been laid out and has been shared. It does talk 
about eliminating a lot of unnecessary facilities, as referred 
to by the GAO. It is all part of the plan. That is how we are 
going to close a gap of $123 billion.
    Some cases when we go to do that, although we have the 
legal authority to do that, we are often constrained by folks 
betting involved and suggesting to us that we don't do it, 
including some of the folks in the Congress, and what we need 
is a clear path to make that happen.
    Mr. Issa. We want to help you with that. I would just close 
by saying that whether you are on this side of the dias or that 
side of the dias, taking career jobs that pay real salaries, 
that allow people to support homes and families, and simply 
saying you are going to part-time jobs is not really acceptable 
from the dias. We would like to see a plan that maximizes the 
amount of people who can afford families to be supported on 
their salaries, and to the extent that you have alternate 
plans, part-time and so on, they are certainly going to have to 
be supported with explaining to us how those people don't need 
a full-time job, are not looking for a full-time job, or 
transitioning in your system to a full-time job. That is the 
reason I opened up with talking about getting people into work 
force, because I don't think you are going to find on either 
side of the dias a willingness to simply convert to full-time, 
home-supporting jobs to part-time jobs.
    I yield back.
    Mr. Potter. If I could----
    Mr. Issa. No.
    Mr. Lynch. The Chair now recognizes the gentlelady from New 
York, Mrs. Maloney, for 5 minutes.
    Mrs. Maloney. Mr. Potter is from New York, I believe, 
correct?
    Mr. Potter. Excuse me?
    Mrs. Maloney. Aren't you originally from New York?
    Mr. Potter. Yes, I grew up in the Bronx.
    Mrs. Maloney. Yes. So welcome.
    First of all, I would like to ask you about this payment 
that went into the pension fund that was so costly, that if we 
could address that in some way it would help with the budget 
concerns that you have. Mr. Potter, on March 18th, just 4 weeks 
ago, you testified in response to questions from Senator Durbin 
about the CSRS over-payments, that if the $75 billion were 
found you would not have to cut the frequency of service, and 
you testified and I got it out of the testimony, ``it would 
take a lot of pressure off. If that were to happen, we would 
not have to go to the 5-day delivery.'' Is that still your 
testimony, if we could get that situation with the $75 billion 
taken care of?
    Mr. Potter. If we got $75 billion, we would not have to go 
from 6-day to 5-day delivery in the short run. Long term, I 
believe we are going to have to change the frequency of 
delivery, given the fact that volume has been going away and 
will continue to decline.
    Mrs. Maloney. And, Mr. Herr, how much should the Postal 
Service be paying into the retiree health benefits trust fund 
each year on an actuarial basis, and how does that compare with 
the current payments? Do you have that, or if you could get it 
to us in writing later.
    Mr. Herr. I would be happy to provide that in writing.
    Mrs. Maloney. OK.
    [The information referred to follows:]

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    Mrs. Maloney. And also, Mr. Herr, companies cut back on 
pension payments temporarily during the recession and are 
starting to increase such payments now as the companies start 
making money. Doesn't that approach make sense for the Postal 
Service, in addition to the actuarial consideration?
    Mr. Herr. I think in this case one of the things that we 
pointed out in our report for consideration is looking at the 
health benefits fund, and one of the things we suggest Congress 
consider there is looking at the law, looking at that payment 
stream, and opportunities to make that more affordable.
    Mrs. Maloney. And on page 4 of your testimony, you ask 
Congress to permit funding of retiree health benefits in a 
manner comparable to what is used by the rest of the Federal 
Government and the private sector, and is there any agency in 
the U.S. Government that pre-funds health care, the retiree 
health benefits obligations? Is there any other one that does 
that?
    Mr. Herr. Not that I am aware of.
    Mrs. Maloney. Are there any States or municipal governments 
or agencies that pre-fund retiree health benefit obligations?
    Mr. Herr. I am not aware of any, ma'am.
    Mrs. Maloney. OK. And what portion of Fortune 100 companies 
refund [sic] retiree health benefit obligations?
    Mr. Herr. I have not done any sort of survey to determine 
that?
    Mrs. Maloney. Can you find out? I don't think any of them 
do.
    Mr. Herr. I am not aware of any.
    Mrs. Maloney. And what percentage of Fortune 1,000 
companies pre-fund retiree health benefit obligations on the 
accelerated schedule required of the U.S. Postal Service?
    Mr. Herr. Again, I would say I am not aware of any.
    Mrs. Maloney. Well, my basic question is: why is the Postal 
Service treated differently from any other agency and any other 
company in the private sector? And with respect, Mr. Herr, to 
funding retiree health benefit obligations, you submit two 
broad approaches in your report. First, pay-as-you-go approach 
where the premiums are paid as they are billed, and second an 
actuarial approach where obligations are starting in 2010 
instead of 2017 as current law provides. Is GAO advocating a 
particular approach as being better than the other?
    Mr. Herr. No. In this case, the pay-as-you-go table that we 
included was illustrative. This is actually a proposal the 
Postal Service made in its plan.
    Mrs. Maloney. So you prefer the pay as you go?
    Mr. Herr. Well, we are not taking the position as to which 
one. We know that the payments under current law are too steep. 
We provided the actuarial funding approach so Congress has a 
sense of what the parameters are to consider, because we 
realize there are many things that would factor into that kind 
of decision.
    Mrs. Maloney. And, Mr. Herr, going back to your report, 
your report discusses the Postal Service's IG's report, which 
alleges that the Postal Service overpaid $75 billion in CSRS 
pension obligations. Do you have a position on the merits of 
the IG's report?
    Mr. Herr. We have taken a close look at this, and we 
believe that OPM acted within its authority and the direction 
it was given by the law. That law directed OPM to determine, 
within its discretion, the actuarial funding methods and 
assumptions by which the Postal Service would make future 
payments.
    The OPM statement today for this hearing has a nice 
overview of the history of that.
    Mrs. Maloney. And I fail to understand why the Postal 
Service, which is vital to our economy and in many ways, is 
treated differently than any other agency and any other private 
sector. I would venture and like to see a study on cutting the 
Saturday delivery. I think that would hurt the economy of the 
postal office. People would go to independent deliveries and 
their other options, and it could undermine the ability and the 
finances of the post office which we are trying to protect.
    My time is up, but that is a conversation I would like to 
continue.
    I have questions, if you could get them back to the 
chairman in writing so as we look at this we can look at these 
other alternatives, too.
    And I would like an explanation why is the Postal Service 
treated differently than any other Federal agency.
    Mr. Lynch. Would the gentleman like to answer that very 
briefly?
    Mr. Herr. I think it goes back to the 2006 legislation. Mr. 
Potter could certainly amplify these comments, but at that time 
there was ``found money.'' The Postal Service had an 
opportunity to repay debt and also to get ahead.
    It is important to understand that the obligation for 
retiree health care as estimated by OPM on this retiree health 
care issue is $87.5 billion. There is currently $35 billion in 
the retiree health benefits fund. That leaves a difference of 
about $50 billion. So part of this is pre-funding benefits that 
workers and their families will look to draw on.
    Mr. Lynch. We need to move on. I thank the gentlelady.
    Mrs. Maloney. Thank you.
    Mr. Lynch. The Chair now recognizes the gentleman from 
Utah, Mr. Chaffetz, for 5 minutes.
    Mr. Chaffetz. Thank you, Mr. Chairman.
    In rough numbers, my understanding is you are looking at a 
$238 billion shortfall that by moving from 6-day to 5-day 
delivery the estimated savings would be somewhere between $30 
and $36 billion; is that correct?
    Mr. Potter. Yes, that is correct.
    Mr. Chaffetz. We are talking about roughly 15 percent, 
which is a significant number but it is not the panacea to fix 
all problems. You said something earlier that I want to make 
sure I heard correctly. You said that by moving from 6-day to 
5-day you would not anticipate laying off anybody who is a 
career Postal Service worker. Did I hear that right?
    Mr. Potter. Yes, if we did it today. If we wait 5 years, I 
think it would involve layoffs.
    Mr. Chaffetz. Where is the savings then? Where are these 
billions upon billions of dollars that you save by doing that? 
I mean, if labor cost is 80 percent----
    Mr. Potter. Well, it is the equivalent of 40,000 full-time 
equivalent employees that we are talking about eliminating the 
work.
    Mr. Chaffetz. Right.
    Mr. Potter. And we are talking about saving on fuel----
    Mr. Chaffetz. But you said you are not going to lay any of 
those career people off. I understand the part-time folk.
    Mr. Potter. Right. Part time would go, but then, again, it 
is overtime, which you are not laying anyone off.
    Mr. Chaffetz. Right.
    Mr. Potter. Eliminating non-career jobs. That is not 
laying--again, not affecting career employees. And incenting 
current career employees to retire. A combination of all three 
I believe would put us in a position where we would not have to 
lay anybody off to capture the savings.
    Mr. Chaffetz. As this meeting concludes, if you can help 
flesh that out so I can understand the math and understand how 
you get to that number, I would appreciate it, further 
clarification.
    Mr. Potter. We would be very pleased to bring the report--
--
    Mr. Chaffetz. That would be great.
    Mr. Potter [continuing]. To your office and share it with 
you.
    Mr. Chaffetz. That would be great.
    One of the other things I think has to obviously happen is 
the closing of physical facilities. One of the challenges you 
obviously face is that every Member of Congress has postal 
facilities in their Districts, and I recognize the difficulty 
you have in trying to close a facility and then having a Member 
of Congress trying to lobby to keep it open. I, for one, plan 
to introduce some legislation to give you that ability to 
create a BRAC-type commission, for lack of a better word, in 
order to take a third-party, objective point of view so that we 
can try to get rid of the politics that may occur from the 
people that serve in these halls here.
    Give me a sense, an idea, of how many or how big a scope 
this is in terms of what you would like to do in terms of 
closing physical facilities.
    Mr. Potter. Well, in terms of mail processing centers, we 
believe we can move from the approximate 300 that we have today 
to somewhere in the order of 150. Now, that is not to say 
facilities will all close, because they serve different 
functions.
    Mr. Chaffetz. Right.
    Mr. Potter. But for outgoing mail or mail that originates 
in a locale, we believe we can consolidate somewhere on the 
order of down to about 150 facilities from slightly over 300 
today.
    Mr. Chaffetz. What about good, old-fashioned post offices?
    Mr. Potter. Good, old-fashioned post offices, what we are 
talking about there is we are not going to eliminate the 
physical facility where we have delivery. I mean, we have folks 
who come and deliver the mail.
    Mr. Chaffetz. Right.
    Mr. Potter. The real challenge there is how do we best 
provide retail going forward, because if you look at the 
projections in the future of how many folks are going to buy 
stamps, it is going to go down as people pay their bills 
online. We think that the stamp revenue in postal facilities is 
going to be down 50 percent. So our concern is: how do you 
maintain those retail assets when literally they are there to 
sell stamps, and stamp sales are potentially going to go down 
by 50 percent? So, what we were looking at there is, if the 
migration continues with folks buying stamps at grocery stores 
and other locations, or buying online, there will be less 
demand in the postal lobby.
    Today, 30 percent of all retail sales occur outside of a 
post office, with 50 percent of those sales expected to go away 
because stamp sales are going away and more people are 
migrating out of those lobbies. We think thousands of post 
offices might be candidates to be closed, but maintaining 
access to people by selling stamps at their door.
    Ideally, we would like to think of any computer in America 
as a post office, and we would like to think of the letter 
carriers that come to every door every day as servicing those 
accounts.
    Mr. Chaffetz. If we could just address in the final seconds 
that I have here the effect energy prices has on your cost 
structure----
    Mr. Potter. It is $8 million per penny, so you just 
described $8 million per penny growth in gasoline prices, so 
you described that it was $2, it went to $3--$800 million.
    Mr. Chaffetz. Thank you. Thank you, Mr. Chairman.
    Mr. Lynch. I thank the gentleman.
    The Chair now recognizes the gentleman from Ohio, Mr. 
Kucinich, for 5 minutes.
    Mr. Kucinich. Mr. Chairman, members of the committee, in 
the analysis that GAO did, they talk about the declines in 
revenue due to economic downturn, changing use of mail, link to 
continuing shift to electronic communications, and payments. 
One of the things that I think the Postal Service has not been 
mindful of, and certainly GAO doesn't seem to have a fluency 
with is the problem of people who are on the other side of the 
digital divide, people who don't have access to the Internet, 
people who aren't skilled in using electronic payments over the 
Internet, people who don't do electronic banking, because we 
have constituencies. I would think that they would tend to be 
people in lower socio-economic scale, but they also might be 
people who are elderly, who don't have the fluency with the 
Internet.
    The whole idea of universal service means universal without 
respect to age, to income, to race, or to any other indices 
that you might use as a society. Members of this committee, we 
are actually looking at dismantling universal access.
    I want to give you some ideas of how they are doing it. 
Look in your neighborhoods. Taking mailboxes out of a 
neighborhood, now for some people that might not seem like a 
big deal, but suppose you are used to moving the mail from your 
house to the post office by walking, walking to a mailbox. 
Mailboxes by the thousands have been removed from communities. 
Nobody talked to any Members of Congress, I can promise you 
that. They didn't ask for any of our opinions whether you move 
a mailbox out.
    So then you go to closing post offices. That is the next 
part of the infrastructure. Then the next step after that is 
want to talk about doing away with Saturday delivery.
    There are FedEx boxes outside of some U.S. Postal Service 
facilities. The post office, one of their recommendations that 
I see being made here, is to move to grocery stores and other 
retail locations, post office operations.
    Mr. Potter, have you ever had any discussions, you or 
members of your staff, or did you have any communications or 
memoranda or e-mails with respect to talks that you have had 
with individuals regarding subsequent privatization of post 
office services, any communication of any kind whatsoever?
    Mr. Potter. As part of our analysis that was done by 
McKenzie and Co., they did an analysis of whether or not 
privatization made sense. Their conclusion was that it did not. 
It is part of the report. Basically, the reason that they said 
that was that if somebody were to come in and want to take over 
the Postal Service, that they would want to have a pathway to 
profit, and the only pathway to profit would be to deal with 
legacy costs, allow freedom regarding frequency of delivery, 
and retail outlets. And they concluded that they would even 
have to go further than what we are proposing in terms of the 
changes that are out there.
    Mr. Kucinich. That is the McKenzie study.
    Mr. Potter. Yes, sir.
    Mr. Kucinich. But it wouldn't be unusual to have legacy 
costs dumped on the Government and then have the private sector 
cherry pick the profits.
    Mr. Potter. Sir, I am not a proponent of that at all. I am 
saying that we are not proposing privatization. What we are 
trying to do is preserve----
    Mr. Kucinich. You didn't answer my question. Aside from 
McKenzie, have you had any meetings with anyone saying, Oh, you 
are going to let go of Saturday delivery, well, we will fill 
the gap?
    Mr. Potter. No.
    Mr. Kucinich. Really?
    Mr. Potter. Really.
    Mr. Kucinich. No one on your staff at all?
    Mr. Potter. I don't know. I can only speak for myself. I am 
not aware of any.
    Mr. Kucinich. And that means that you are really not 
anticipating then anyone else picking up the slack if you do 
away with Saturday delivery?
    Mr. Potter. I don't believe the economics are there to do 
it, and I look at the competition in the package arena and I 
look at what they charge for Saturday delivery, and they put a 
premium on Saturday delivery. The lowest price I saw is an 
additional $12.50 per piece.
    Mr. Kucinich. I will submit some followup questions in 
writing. I thank you.
    Mr. Lynch. I thank the gentleman.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Luetkemeyer, for 5 minutes.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    Gentlemen, as we were going through this this morning and 
we are talking about reducing service, have you had any sort of 
cost/benefit analysis done, or have you looked into what it is 
going to cost individuals and businesses if you cut back on 
your delivery service at all?
    Mr. Potter. We have made inquiries of our customers and we 
have been talking on a regular basis with our customers. The 
bulk of our major customers have said that they can make this 
change and make adjustments to the way their businesses operate 
and adjust to a 5-day delivery. There are some customers who 
simply will not be able to make a change, and probably the most 
obvious example is newspaper delivery, generally in rural areas 
where they have 6-day newspaper. Obviously, if we are not 
delivering on Saturday, we don't have a business solution for 
them. But there have been ongoing dialog with businesses. We 
probably would have saved well over $3.5 billion had it not 
been for adjustments that were made in our plan to accommodate 
businesses in terms of frequency of delivery.
    Mr. Luetkemeyer. OK. I am just curious about that, because 
I know we may be cutting our nose off to spite our face here if 
we wind up incurring more costs as a society as a result of 
what you are proposing here. I mean, there is another cost that 
is going to be passed along to the consumer if the businesses 
have to absorb additional costs as a result of the lack of mail 
service for an additional day.
    Mr. Potter. Well, one of the reasons--I mean, there is a 
fine balance here between service and cost.
    Mr. Luetkemeyer. Right.
    Mr. Potter. And so the pathway to addressing cost, 
unfortunately will affect service.
    Mr. Luetkemeyer. Right.
    Mr. Potter. We do want to preserve universal service for 
all of America, and one way to do it is to reduce the 
frequency----
    Mr. Luetkemeyer. Right.
    Mr. Potter [continuing]. And keep rates affordable. And so 
trying to find that balance is very difficult.
    Mr. Luetkemeyer. To followup on a comment of the gentleman, 
Mr. Kucinich, my concern also is along the lines that if you do 
away with the 6th day somebody else will step in, provide that 
service, or cherry pick those areas that they can provide 
service and make money on that service delivery and then, at 
the end of the day, by allowing them to sort of get their nose 
into the business, suddenly whittle away at the rest of the 
Postal Service business. Is that a possibility?
    Mr. Potter. I don't believe so, sir, but, again, the 
competition, the main competition, charges a $12.50 premium per 
piece that is delivered on Saturday. We have a declining 
business. The fact that we still have a 5-day network, I think 
makes us extremely strong, and we are very efficient when it 
comes to the handling of mail.
    Mr. Luetkemeyer. Well, you use the FedEx and UPS folks, and 
they provide a similar delivery service of packages, so 
therefore they have already cherry picked out part of your 
business. It would seem to me that it would make sense that if 
you gave up part of the business somebody would fill a void 
there on part of it that can actually make money, and before 
long they wind up expanding that service to all 5 days rather 
than just the 6th day.
    Mr. Potter. I am not going to say----
    Mr. Luetkemeyer. I just point that out as a concern.
    Mr. Potter. I am not going to say there is no risk, but I 
think the risk is minimal.
    Mr. Luetkemeyer. Yes. In your testimony here both of you, 
Mr. Herr and Mr. Potter, both talked about expanded products 
and services, and you mentioned one, I think, Mr. Herr, with 
regards to the new box that whatever fits in, one price and off 
it goes. That is a neat concept and it works very well, 
apparently.
    What other products and services do you have in the 
pipeline or considering or things that may be on the horizon 
for us here?
    Mr. Potter. Well, I will give you one example that we just 
shared with a convention that we had down in Nashville this 
week. We are entering into an agreement with Hallmark that they 
will sell prepaid envelopes for their greeting cards, so it 
will be one-stop shop. You buy the card, you are buying the 
prepaid envelope at the same time. We are using an intelligent 
mail bar code, which is a new code that we have been deploying 
to help us with the accounting of that process. So that is an 
example of just trying to bring added convenience to the 
customer base.
    Mr. Luetkemeyer. That is interesting.
    Thank you, Mr. Chairman. I yield back the balance of my 
time.
    Mr. Lynch. I thank the gentleman.
    The Chair now recognizes the gentleman from Virginia, Mr. 
Connolly, for 5 minutes.
    Mr. Connolly. I thank the Chair and I thank both of our 
panelists for being here this morning.
    Mr. Chairman, I will, with your permission, enter my full 
statement into the record, but I must say, I continue to be 
bothered by the fact that the approach to trying to deal with 
the issues of solvency and long-term viability of the Postal 
Service continue to be ad hoc. I must confess to some 
disappointment in the GAO report, in particular, that we are 
not looking at a more comprehensive new business model 
approach. Ad hoc cuts to delivery service may save money in the 
short run, at long-term cost in terms of customer base. I think 
Mr. Chaffetz raised some very legitimate concerns about going 
from 6 to 5 days a week.
    I would note with historical interest that this discussion 
occurred in 1976, where a similar situation was faced and the 
Postal Service again said if we don't go from 6 to 5 we will 
never make it, and subsequently, of course, the Postal Service 
actually experienced some record profits without cutting 
service from 6 to 5 days.
    I would like to ask the GAO rep, we keep on talking about 
this $238 billion in cumulative losses, and I bring to your 
attention the thoughtful testimony of CRS which says you have 
to look behind that number. First, there are certain 
assumptions made about what will or will not happen in terms of 
economic growth and customer base for $238 billion. Second, you 
would have to ignore the statute that says there is a statutory 
debt limit actually in USPS, and then you would have to assume 
Congress does absolutely nothing for 10 years and that you 
would borrow $231 billion from the U.S. Treasury.
    That is a little hard to believe, so I am a little 
concerned that in bandying about this $238 billion number we 
are ignoring some obvious things that are going to happen, and 
it looks, frankly, a little bit like a scare tactic to get us 
to make some decision that may or may not be popular. And they 
may, in fact, be viable decisions, but how real really is that 
$238 billion number? And would you care to respond directly to 
the Congressional Research Service report, page 11, that lays 
out the flaws in this $238 billion?
    Mr. Herr. I appreciate the question. In looking at that 
number, we realize that is the number that says if nothing else 
changes. I agree, things will change. There is attrition that 
is expected. Given the drop in volume and revenue, the idea 
that the Postal Service would be self-financing, one would 
expect that number was probably by far the worst-case scenario.
    It is the number that is put out there to provide some 
context for what happens if nothing were to change, but it is 
understood that things would have to change in the interim.
    Mr. Connolly. And we would do nothing for 10 years.
    Mr. Herr. I would assume that would not be the case.
    Mr. Connolly. Right. So how real then is the $238 billion 
number that has been bandied about in testimony here and in the 
press and--I mean, one begins to conclude it has no basis in 
fact at all, other than to scare people.
    Mr. Herr. Well, I think that it is a starting point. I 
mean, again, this is a number that the Postal Service came up 
with, but it is, I think, to provide an illustrative case of 
not doing anything. And if nothing is done, then you will face 
those kind of challenges.
    Mr. Connolly. Could I ask Postmaster General Potter to 
respond to that?
    Mr. Potter. Well, I agree with what he just said. It is 
what happens if nothing is done. We did lay out a way of 
closing $123 billion of that gap, and, again, through 
aggressive management, focus on productivity. There is an 
element of growth that is built into that $123 billion. 
However, there is a sizable gap beyond that.
    Mr. Connolly. Can I interrupt you for just 1 second there, 
Mr. Postmaster General, because you make a very good point. You 
would have to assume, for $238 billion to be real, we do 
nothing, including you. You already said you are going to use 
the authority you have to make reductions totaling $123 
billion; is that correct?
    Mr. Potter. That is correct.
    Mr. Connolly. So the $238 billion number is already not 
real.
    Mr. Potter. It is a theoretical number.
    Mr. Connolly. A theoretical number. Except that you have 
already announced here you are taking steps to make sure that 
theoretical number is never real.
    Mr. Potter. Exactly.
    Mr. Connolly. Thank you.
    Mr. Lynch. I thank the gentleman.
    The Chair now recognizes the gentleman from Indiana, Mr. 
Burton, for 5 minutes.
    Mr. Burton. General Potter, it is good seeing you again.
    Mr. Potter. Good to see you, Mr. Burton.
    Mr. Burton. You have been there for a while and you have 
done a good job, and I really don't envy the position that you 
guys are in right now, because with the Internet and everything 
it has to be a real problem.
    Mr. Potter. Well, I don't envy the Federal Government, 
either, so you have a tough job, yourself.
    Mr. Burton. Neither do I.
    According to Congressional Research Service testimony, the 
Postal Service has reduced its post office inventory by 
slightly over 15 percent since 1970, and I assume that these 
facilities were closed for reasons other than or in addition to 
profitability. Last year, you began to review stations and 
branches which the Postal Service maintains that is not subject 
to the same legal hurdles that post offices. In the absence of 
these legal hurdles, how many branches have you shuttered, how 
many will you close, or are you still in study mode? And this 
is the question: it is my understanding that the Postal 
Regulatory Commission estimates that closing all small and 
rural post offices will yield savings of about 7/10 of 1 
percent of your operating budget. That doesn't sound like very 
much. Is that going to make a big impact?
    Mr. Potter. Let me try to answer all those questions.
    First, from stations and branches, we did have a national 
review of stations and branches. Our local offices have made 
recommendations for changes. Subsequent to that, we received 
the advisory opinion of the Postal Regulatory Commission and we 
also completed our analysis on the plan that we submitted to 
you as part of my testimony. We are in the process of reviewing 
those recommendations in light of the Postal Regulatory 
Commission's suggestions, as well as to make sure that we are 
aligned with our plan to assure that there is access, that we 
don't close anything without assuring that the community has 
access. So far we have closed none. OK?
    Regarding post offices, I think there is an assumption that 
if, post offices were under review nationwide, that somehow 
small post office would be the target of the change, and I will 
just tell you that Canada embarked on a review of their post 
offices to determine where they had alternate access in light 
of some of the challenges that we similarly face. They would 
close offices where there was no access. Much to their own 
surprise, what they found out was that many of the rural post 
offices ended up having to remain open because of the fact that 
there was no alternative access in many of those communities.
    So it is a matter of we don't have a plan to abandon any 
community. We recognize universal service. The question is: how 
can that best be provided? And if finding a location that is 
open 7 days a week and 14 hours a day or more, if that provides 
better access to a community than a post office that has more 
restricted hours, then that is the choice that will be made.
    So, again, I think that a lot of people rush to judgment 
about what the outcome of the process will be, and we have not 
embarked on it. But no, there is no one back in postal 
headquarters saying this is the community and we are going to 
wipe these out; it is going to be a matter of a process and it 
is going to take a lot of time.
    Mr. Burton. So I presume we will see you back here after 
you go through your study and make your decisions?
    Mr. Potter. Right. And I think it will evolve over time, 
and it will be on a community-by-community basis.
    Mr. Burton. OK.
    Mr. Potter. It is not going to be made at a national level. 
We don't know what is going on in the State of Washington or in 
Florida. Our local managers know best what is down there.
    Mr. Burton. OK. I think Mrs. Maloney asked this question. I 
don't think she is here now. But I think you said a 1-year fix 
was supposed to fix the problem that we might be facing as far 
as going to 5-day delivery service from 6 days. What happened?
    Mr. Potter. Well, just let me see if I can clarify. one of 
the things that we believe was that we over-funded the Civil 
Service Retirement System pension fund. We believed that back 
in 2003 when the law was changed that declared that we were 
over-funded by $17 billion. At the time, the Postal Service 
felt that it was over-funded by over $100 billion, and we 
appealed to the Board of Actuaries at OPM, and they said no, 
that the way OPM did their analysis was correct.
    The 2006 law, Congress added a provision that enabled the 
Postal Service to appeal to the Postal Regulatory Commission to 
have an actuary review that decision. We have made that appeal, 
and I believe the Postal Regulatory Commission is reviewing 
that.
    Should a decision be made that would benefit us in terms of 
that split that occurred back in 1971 over who paid for what, 
then we would use some of those funds to delay moving from 6 to 
5-day delivery.
    Mr. Burton. Mr. Chairman, could I one more real quick 
question?
    I would like to ask this question of Mr. Herr. I think GAO 
has recommended that the pre-funding be continued at the Postal 
Service. I would just like to know, if GAO had to do pre-
funding, how much would that cost?
    Mr. Herr. What it would cost GAO as an agency?
    Mr. Burton. Yes.
    Mr. Herr. I haven't done that analysis.
    Mr. Burton. Well, I am just curious, because you have 
recommended that the Postal Service be pre-funded, and a lot of 
people agree with that, but we don't do that with any other 
agency of Government. I would like to know how much it would 
cost. If you could give us that for the record, I really would 
appreciate it.
    Mr. Herr. I can ask our financial office to see if they can 
put that number together.
    Mr. Burton. Thank you, sir.
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    [GRAPHIC] [TIFF OMITTED] T8338.110
    
    [GRAPHIC] [TIFF OMITTED] T8338.111
    
    Mr. Lynch. I thank the gentleman.
    The Chair now recognizes the distinguished gentleman from 
Illinois, Mr. Davis, for 5 minutes.
    Mr. Davis. Thank you very much, Mr. Chairman. I want to 
thank you for calling the hearing. I certainly want to thank 
the witnesses for appearing.
    Actually, I want to commend Mr. Potter and his management 
team, along with the stakeholders and unions, for holding 
together a system that I think we have sort of been asleep a 
little bit with. I noticed that Mr. Connolly is not here, the 
gentleman from Virginia, but I think he makes a very astute 
observation, and that is that there has been some negligence in 
terms of planning for this day, and sort of knowing that it was 
going to come. Someone reminded me when I was in undergraduate 
school and my advisor had me take 10 hours of German, and I 
should have been taking 10 hours of Spanish, and I am sure that 
he meant well. I mean, he had his rationale and he had his 
motivation for doing it. And I am sure that some of the 
approaches that we have taken, we have meant well, but I think 
we had to kind of know that we were moving in the direction 
just with the change in environment, the change in economies, 
and the changing of time, that we would be at this juncture.
    Mr. Potter, let me ask you, if we were to refund or 
transfer the overpayment, and I guess the idea is that this 
would give us some breathing room to try and search for more 
long-term solutions, how much time, or do you have any 
projection relative to how much time that might provide us 
with?
    Mr. Potter. Depending on what was done with the money, we 
have kind of examined what we would do. I think it gives us a 
5-year window, assuming that we could take the moneys, pay down 
our debt, the debt that we have now, assure that we fully fund 
CSRS, because there is a potential $10 billion there that there 
might be a gap, and then use the funds to pre-pay the retiree 
health benefit trust fund payments that are due in the next 5 
years. I think it could cover that gap, but I think at that 
point in time we would be sitting down again talking about how 
we effect the changes that we have laid out in our plan.
    Mr. Davis. Well, let me just say that for this one Member, 
that sounds like a very rational approach to me, that there are 
no simple solutions to very complex problems and circumstances, 
and obviously it is going to take a tremendous amount of 
understanding, negotiation. I think we have all of the 
stakeholders that we want to try and keep in business. We 
certainly want to recognize the problems and workplace concerns 
of the men and women who actually process and deliver the mail. 
And so I think that this is an approach that we certainly need 
to be pursuing.
    Mr. Herr, let me ask you: what does high risk mean to the 
Government Accountability Office?
    Mr. Herr. Congressman Davis, GAO has a list of about 30 
agencies that are high risk in different areas. In the case of 
the Postal Service, we refer to the high risk in the sense of 
the financial condition of the Postal Service, and by that we 
are referring to the idea that Congress suggested the Postal 
Service be self-sufficient; that is, to have revenues to cover 
its cost.
    It became clear last summer that was very much at risk, 
given the decline in mail volume, the decline in revenues, and 
then what that meant for their business model in terms of their 
operations.
    Mr. Davis. And so, if I were to translate that into layman 
terminology, it would mean that something has to be done.
    Mr. Herr. Yes.
    Mr. Davis. Otherwise, things are going to get worse.
    Mr. Herr. Well, yes. You could say that is a good way to 
put it.
    Mr. Davis. And, finally, let me just ask you, you did 
mention that we need to re-examine our structure for collective 
bargaining----
    Mr. Herr. Right.
    Mr. Davis [continuing]. With the management of the Postal 
Service and the unions. Could you kind of amplify that a bit?
    Mr. Herr. Yes. Part of that is the thinking that--they go 
into union negotiations this year--if something goes to binding 
arbitration, simply that the financial condition of the Postal 
Service is taken into consideration so that there is the 
possibility that whatever agreement is reached through that 
process, that it is going to be one that can be sustained going 
forward.
    Mr. Davis. Thank you very much, gentlemen.
    Mr. Chairman, thank you. I yield back the balance of my 
time.
    Mr. Lynch. I thank the gentleman.
    The Chair now recognizes the gentlelady from California, 
Ms. Chu, for 5 minutes.
    Ms. Chu. Mr. Potter, on the 5-day delivery question, my 
issue is: once we go down this road where does it all end? It 
is my understanding that once the language requiring 6-day 
delivery is repealed, there would be no legal barrier to 
prevent the Postal Service from reducing delivery days further 
from 5 days to 4 days or a 3-day delivery. Certainly, we have 
seen postage stamps increase with alarming frequency, more and 
more so. For me it is even hard to remember what the last 
postage stamp rate was.
    On delivery issues, Business Week Magazine called on the 
Postal Service to shift immediately to 3-day delivery within 
days of the Postal Service's announcement of its action plan. 
Of course, that would be really alarming. It would destroy half 
our jobs, but also likely lead to a death spiral for the Postal 
Service, with less service leading to less mail volume leading 
to less service and so on.
    So, Mr. Potter, what guarantees, if any, would postal 
workers and the American people receive that there would not be 
further reductions in delivery days?
    Mr. Potter. Let me just say, Congresswoman, that we did 
look and try to look out into the future, and what we did do 
was build a 10-year plan, and so our plan is suggesting that, 
assuming that there were a broad array of opportunities to 
close the financial gap, that is all we would have to do in the 
next 10 years is move from 6 to 5. However, we haven't looked 
beyond that. In fact, there are many folks who are saying that 
our estimate of 150 billion pieces of mail in 2020 is 
optimistic. I hope it is not. We are going to work hard to try 
and beat that plan, that forecast, but there are no assurances 
beyond the next decade. I think it is going to be a function of 
America's use of the mail.
    When you think about that, I look at the Postal Service. We 
are mailing less than we had in the past. The Federal 
Government is mailing less than they have in the past. Most 
businesses in America are mailing less mail, and most Americans 
are mailing less.
    Going forward, we think that trend is going to continue, so 
it does create a very complex situation for us and for 
everybody. How do you match our use of resources with the 
revenues that we are going to take in?
    Ms. Chu. My other question is whether switching to a 5-day 
delivery week would actually accelerate the loss of customers, 
because letters mailed on Friday night would not be picked up 
until Monday morning or Monday afternoon. Less frequent 
delivery is going to accelerate the shift to electronic 
invoicing. Booming businesses like mail order prescriptions 
would be threatened because they count on Saturday delivery. 
They might go over to FedEx or UPS. And as they open accounts 
and become more comfortable with these other services, they 
would start to use the Postal Services less. So it seems that 
Saturday delivery is the Postal Service's key strategic 
advantage over its private competitors over UPS and FedEx and 
gives away one of the more important comparative advantages in 
the one area of the postal market that is likely to grow when 
the economy recovers.
    So over time the loss of revenues could outweigh the short-
term savings, so how is the Postal Service going to make up for 
those lost customers?
    Mr. Potter. What is very interesting, I went around the 
country and talked to a lot of CEOs and others who are in 
business. When you sit down and you talk to them and you say--
for example, you mentioned DVD rentals. You sit down and you 
talk to those folks, what is your ideal business model for in 
the next decade? And their business model would be out of the 
mail. They would do downloads to a box that people have in 
their home. So their long-term business model is to move away 
from the mail.
    Likewise, when you look at bill presentment and bill 
payment, the ideal model for these folks is to have 100 percent 
of bills presented online and 100 percent of bills paid, 
through online. They recognize that America is in a state of 
transition, that they are never going to get to 100 percent, 
and so they need the Postal Service to support their transition 
into a future state.
    The real challenge for all of us is how does the Postal 
Service change as America changes, and that is what our plan 
presented, was the fact that we have to be realistic about what 
is happening going forward, and a lot of folks, Congressman 
Davis and Congressman Chaffetz, have talked about the fact that 
we really need to be thinking about the future and designing a 
plan to move in that direction, and that is what we attempted 
to do with our plan. It is balanced. Literally everybody is 
affected by what we did. Nothing in it is easy. It is all hard 
decisions that had to be made, and so it is best that we could 
do in terms of trying to come up with something that we think 
was fair and affects people in a moderate way.
    Ms. Chu. Thank you. I yield back.
    Mr. Lynch. I thank the gentlelady.
    The Chair now recognizes the gentlelady from California, 
Ms. Speier, for 5 minutes.
    Ms. Speier. Thank you, Mr. Chairman.
    Thank you, gentlemen, for your participation this morning.
    To you, Postmaster General, let me ask you, in your opening 
comments you referenced that one of the things you could do was 
create incentives for early retirement. Are you seriously 
thinking about that? And if so, what would that look like?
    Mr. Potter. We have already done that for the two unions 
where we had excess employees, and we incented with folks who 
are eligible to retire, we provided an early out for those who 
were within 5 years of retirement as part of that effort, and 
two $7,500 payments, one the day they retired and then one a 
year later.
    For other unions we haven't offered it because we actually 
are in a position where we need the employees that we currently 
have, and so down-sizing makes no sense when you need the folks 
that you have. Why pay people to go just----
    Ms. Speier. So even with management now you are not looking 
at any incentives for early retirement?
    Mr. Potter. There is no economic justification to do that 
right now.
    Ms. Speier. OK. Let me move on to another line of 
questioning. Of the 150 billion pieces of mail, how much is 
direct mail?
    Mr. Potter. How much will be?
    Ms. Speier. Or how much will be, if that is a future 
figure.
    Mr. Potter. I believe it is 57 percent.
    Ms. Speier. So 57 percent is direct mail. Are you losing 
money on catalog delivery now?
    Mr. Potter. We are not covering our costs on some catalog 
delivery.
    Ms. Speier. So wouldn't that suggest that you have to 
increase the cost?
    Mr. Potter. The price?
    Ms. Speier. Yes.
    Mr. Potter. Yes.
    Ms. Speier. The cost to the catalog company?
    Mr. Potter. Well, there is two ways of addressing it. One 
is to try and take cost out of our system to try and bring our 
cost in line with what people pay, as well as raise the price 
to bring it in line.
    Ms. Speier. So how much are you losing money? Is it $100 
million? Is it $10 million?
    Mr. Potter. It depends on what category of mail it is, but 
there are several types of mail that are not covering their 
cost.
    Ms. Speier. I am talking about catalog mail in particular.
    Mr. Potter. I can provide that for the record.
    Ms. Speier. All right.
    Mr. Potter. I don't know it off the top of my head.
    Ms. Speier. Would you do that, then?
    [The information referred to follows:]

    [GRAPHIC] [TIFF OMITTED] T8338.112
    
    Ms. Speier. Have you looked at other countries and how they 
are dealing with what have to be similar issues around their 
Postal Service?
    Mr. Potter. Yes. In Germany they charge 80 cents for a 
stamp. In Canada they have gone from 6-day delivery to 5-day 
delivery. The same in Australia. But generally if you look 
around the world, we have the lowest price stamp, lowest price 
postage in the world for developed countries.
    In addition to that, they are starting to look at things 
that we have done to grow volume, so they are looking at 
advertising mail, they are looking at things like opening up 
their network to allow people to bring mail into their system 
at different levels. We are the largest post in the world. We 
deliver over 40 percent of the world's mail. We are the most 
open post in the world in terms of providing users of the mail 
access at all levels, not just at origin, but you can bring 
mail to destination and pay a rate, you can bring mail to the 
delivery unit and pay an even lower rate.
    The key to our business model has been volume. We have a 
business model that was built on volume. It worked tremendously 
for----
    Ms. Speier. But that is not what our business model is 
going to be moving forward.
    Mr. Potter. It can't be moving forward because volume is 
going away because of electronic----
    Ms. Speier. All right. I have one major question. I 
apologize to Chairwoman Goldway for stealing her thunder a 
little bit, but in her testimony that she will be making later, 
she says: in the Postal Service plan, regrettably there is no 
growth, no rejuvenation, and little innovation. It sounds to me 
that if we are going to continue to have a Postal Service that 
is viable, there are lots of changes that have to take place. 
Probably the most important change is one around innovation, 
whether it is electrifying your vehicles or looking at 
derivatives in terms of protecting yourself against the 
increased cost of gasoline.
    Mr. Potter. [Laughing.]
    Ms. Speier. No, I am serious. I mean, you are an end user, 
just like the airlines are an end user for gasoline. They use 
derivatives to protect themselves against the cost of gasoline 
or petroleum from going up. I mean, I think we have to look at 
the entity differently. Whether or not you should be able to 
actually contract with catalog companies to provide better 
rates for the volume of shipping that is going on, because if 
online purchasing is going to be a thing of the future, then 
your shipping function is going to be far greater than the 
envelope.
    I think the innovation is where we are lacking right now, 
and I would encourage you in the future to look at that.
    My time has expired.
    Mr. Potter. Well, regarding derivatives, we will follow the 
lead of the Federal Government. You buy a lot of gasoline, as 
well.
    Mr. Lynch. As I understand, the post office is also paying 
State gas tax; is that correct?
    Mr. Potter. No.
    Mr. Lynch. You are not?
    Mr. Potter. No.
    Mr. Lynch. OK. The Chair recognizes Mr. Clay from Missouri 
for 5 minutes.
    Mr. Clay. Thank you, Mr. Chairman. Let me thank you for 
holding this important hearing to address the essential issue 
of securing the future of the U.S. Postal Service.
    We have all watched the Service suffer under the strain of 
unprecedented financial loss, and it is clear that a myriad of 
solutions are necessary.
    I want to take this opportunity to urge all of my 
colleagues to continue to assess this matter and challenge us 
to move past controversy to find real and helpful solutions.
    With that, let me ask Mr. Potter, according to a summary of 
your report, the Postal Service rejected cost-cutting 
alternatives like centralized boxes. Can you tell us about the 
customer polling and other research that was used to reach this 
conclusion?
    Mr. Potter. Yes. We went out and surveyed customers. 
McKenzie and Co. surveyed a broad array, a statistically 
representative sample of America, and asked them a number of 
questions around alternatives that the Postal Service has to 
reduce cost. One of them was to take the mailbox from your door 
and move it to a street corner cluster box which exists in many 
communities around the country. Newer communities are serviced 
that way. Over 90 percent of those surveyed said that would be 
the worst thing that the Postal Service could do in terms of 
the array of options that was in front of them. They said that 
would be, in their minds, the biggest degradation to service.
    For example, they looked at 6 to 5-day delivery. Every 
survey I have seen, two-thirds of the respondents say that they 
would be OK with that. But on the other side, in this case 90 
percent said absolutely not. That would be a big diminution of 
service. That is why we pulled that option off the table. It is 
worth a couple of billion dollars in savings, but if the 
American people don't want it, we don't want to go down that 
path.
    Mr. Clay. OK. Another of these rejected proposals was to 
offer services besides mail at offices and branch locations. It 
seems to me that expanding your product and services would make 
the post office a kind of one-stop shop for customers that 
would increase revenue. Do you agree with that assessment?
    Mr. Potter. Congressman, we want as much freedom as we 
possibly can get in the law to look at options to do things 
outside of what the current law says. In 2006, the PAEA was 
passed, and it was extremely and is extremely restrictive 
regarding what the Postal Service can do. Basically, it sells 
stamps, delivers mail, and engages in the package business. We 
think there are other opportunities for us to generate revenue, 
and we would like to have the ability to study that.
    Mr. Clay. And so if you were to change to expand your 
products and services, what short- and long-term effect would 
this change have on the Service?
    Mr. Potter. Short term, probably none because one of the 
things that we did as part of our study was look at whether or 
not we should be asking to specifically get into other types of 
businesses that posts around the world are in, like banking, 
and some folks sell cell phones and other things. What we 
concluded was that any business you might want to get into has 
a certain amount of risk and would require capital investment. 
Given our financial situation, we are not in a position to take 
risk, nor do we have the capital to invest. But we would like 
to have the freedom to study these and perhaps, when we are in 
better shape, to begin to explore these other options.
    In the meantime, we certainly would like to consider 
anything we could do at a post office to serve the Federal 
Government, because we are--if you think about it, 37,000 
outlets for the Federal Government, and we today do passports. 
If there are other things that we could do, we would certainly 
want to get engaged to do so.
    Mr. Clay. OK. On the 6-day versus 5-day, can you give me a 
quick breakdown, basic breakdown on how much this would save?
    Mr. Potter. It will save $3 billion per year, and that will 
grow, obviously, as inflation in terms of some fuel costs and 
employee costs go on. So I think if you looked at it 10 years 
from now, it would be worth over $4 billion.
    Mr. Clay. OK. Final question. Mrs. Maloney noted that you 
were from the Bronx. Does that make you a Yankee fan or a Mets 
fan? [Laughter.]
    Mr. Potter. Yankees, of course.
    Mr. Lynch. Very good. The Chair recognizes the gentleman 
from Massachusetts, Mr. Tierney, for 5 minutes.
    Mr. Tierney. Thank you, Mr. Chairman.
    I thank our witnesses for being here today with us.
    Can you tell me how much of the U.S. taxpayers' money now 
goes in annually to the Postal Service?
    Mr. Potter. We do get about $100 million for services that 
are provided, but other than that there is no subsidy. Zero.
    Mr. Tierney. The customer. You get money for them being a 
customer?
    Mr. Potter. Excuse me?
    Mr. Tierney. You get the $100 million because they are a 
customer? You get it for services that you provide to the 
Government?
    Mr. Potter. Yes. For example, we have to provide free 
matter for the blind that moves through the mail, and we 
provide free overseas voting. Those are the two things, the 
services we provide where we are compensated for them.
    Mr. Tierney. And other than that, not a dime of taxpayer 
money?
    Mr. Potter. Exactly.
    Mr. Tierney. So I don't want to pick a nit with you here or 
anything like that, but you generally refer to the American 
people and you survey the American people. You are really 
surveying your customer base on that?
    Mr. Potter. Exactly.
    Mr. Tierney. Can you tell me, from your studies, your work 
on it, do you think there is a social value to what the Postal 
Service does to the public, in general, in any sense of the 
way?
    Mr. Potter. Without a doubt. Every week I probably sign 
five or six letters to employees who do things that we never 
get any recognition for in terms of being the eyes and ears of 
a Government entity in local communities, whether that is 
saving people in a burning building or alerting people, the 
local police, that there is a crime being committed. It is 
amazing what we can do there.
    Mr. Tierney. I agree with you. Even aside from that, just 
in the every day delivery and performance of your mail, do you 
think there is a social benefit to the general public to the 
service that you provide?
    Mr. Potter. Yes.
    Mr. Tierney. Could you give me a couple examples of what 
you think those are?
    Mr. Potter. Well, I think just the fact that there are a 
lot of people who are shut-ins, and the fact that they get mail 
every day is their connection to the outside world. I also know 
that we carry a lot of mail for our nonprofit organizations and 
that we are the main conduit to raise moneys for charitable 
organizations throughout the country. So if that conduit gets 
shut off, I think a lot of people are negatively harmed.
    Mr. Tierney. Mr. Herr, do you agree with that? Do you have 
any additional thoughts on that?
    Mr. Herr. I would agree. I think that your question gets in 
part to the issue raised by Congressman Kucinich about the 
social value of the mail and providing services to folks who 
are on the other side of that digital divide.
    Mr. Tierney. So let me ask you: if we don't make these 
changes and things keep going downhill, what we are really 
looking at at some point is some privatization of this? And if 
a private company were to take over this responsibility, would 
it be fair to say that we could expect that you wouldn't get 
mail, necessarily delivered to your doorstep?
    Mr. Potter. That is an option that they would pursue, yes.
    Mr. Tierney. You can bet that the prices would go up 
significantly?
    Mr. Potter. I would think so, other than in some local--in 
rural areas and suburban areas, without a doubt.
    Mr. Tierney. And you could bet that some areas wouldn't get 
served at all, correct?
    Mr. Potter. Yes.
    Mr. Tierney. As a business decision, you may not bring it 
out to the person that is living in an area that is difficult.
    Mr. Potter. Certainly that is an option that would exist, 
so universal service would be threatened.
    Mr. Tierney. OK. So in all of your business planning and 
your assessments on that, did anybody take into account some 
contribution from the taxpayer for the return of all the 
benefits that they get from having universal service through 
the Postal Service?
    Mr. Potter. No, we did not. We are not proposing that, but 
that is certainly an option that you folks, folks in the 
Congress, could consider.
    Mr. Tierney. Well, it would have been nice if somebody had 
studied that. You had all these fancy people, Boston, whatever, 
I forget the names of the firms, proposing ways to privatize 
and otherwise do things. It would have been nice if somebody 
could have taken that aspect and put a value to that and then 
talk about that. Is that something you might consider doing?
    Mr. Potter. Well, we have put a value on universal service, 
which is something that was built into the additional law. 
There was a provision in the original law back in 1971 for the 
Postal Service to receive compensation because of the fact that 
we provide universals service at a loss in some cases to 
different locales in the country. We put a price tag on that of 
about $4 billion, and it was done recently. We could share that 
data with you.
    Mr. Tierney. And do you ever get the $4 billion?
    Mr. Potter. No.
    Mr. Tierney. And if you updated what the value is in 
today's present cost----
    Mr. Potter. That is what it is. It had been----
    Mr. Tierney. A smaller amount?
    Mr. Potter [continuing]. A smaller amount. And now, in 
today's dollars, it is, like, $4.5 billion, but I will get the 
exact number for you.
    Mr. Tierney. Is that an annual value?
    Mr. Potter. Annual. Annual number.
    [The information referred to follows:]

    [GRAPHIC] [TIFF OMITTED] T8338.113
    
    [GRAPHIC] [TIFF OMITTED] T8338.114
    
    Mr. Potter. If I could just go back a little bit 
historically, prior to 1970 the Postal Service, 20 percent of 
the Postal Service was provided for by appropriations, and 
every year coming up and asking for money became problematic.
    Mr. Tierney. I know.
    Mr. Potter. And the Postal Service ended up in a very poor 
condition in the late 1960's because of the difficulty in 
getting appropriations. That is why we have been reluctant to 
ask for it.
    Mr. Tierney. I remember reading it in Washington. And I 
know sometimes people don't appreciate the value until they 
lose it, but 80 cents delivery of an envelope might get 
people's attention.
    Mr. Potter. I think we would lose a lot of mail, though, 
and a lot of jobs.
    Mr. Tierney. I think you would.
    Thank you, Mr. Chairman. Thank you for your comments.
    Mr. Lynch. I thank the gentleman.
    The Chair now recognizes the gentlelady from California, 
Ms. Watson, for 5 minutes.
    Ms. Watson. I would like to thank the Chair for this 
hearing and the witnesses for your time and patience. I will 
direct this to Postmaster Potter.
    One of the changes mentioned in the Postal Service's action 
plan for the future is to create a more flexible work force. 
While the report states that a leaner organization can be 
achieved through attrition, as a large number of your employees 
are expected to retire in the coming years, the report 
advocates replacing retirees with part-time workers. This 
concerns me, because part-time work often results in under-
employment, where people do not have the opportunity to make a 
living wage or to receive certain benefits. The Postal Service 
has a very personal appeal to me because my mother worked there 
for 34 years, and I worked in the post office in Los Angeles 
for 7 years, myself, and got through college because of it, and 
the rest is evident in the successes I have had.
    But what percentage of the work force do you envision 
employing part time, and how will the Postal Service ensure 
that these workers are fairly compensated for their work? And 
will part-time workers still be able to participate in 
collective bargaining processes?
    Mr. Potter. First of all, I share your experience, because 
I was a clerk and worked my way through the Postal Service, so 
we share that background.
    Regarding part-time, we would want to maximize to the 
fullest extent possible the number of full-time employees that 
we have. That is No. 1. We are not talking about abandoning 
that. We want to maximize full-time employees. However, when 
you look at our processing centers, we now have machines that 
process mail at 30,000 pieces an hour. When you look at those 
jobs, they are not 8-hour jobs. They might be 6-hour jobs. And, 
by the way, when we say part-time, that is not a euphemism for 
non-career employees. We are talking about people who might 
have career jobs but might work 6 days a week, 6 hours a day, 
as opposed to working 8-hour days, not because we have a 
preference for 6 over 8, but the work would drive you to have a 
person working 6.
    One of the things that we have done is consolidated tours. 
I don't know if you worked in the plant, but we have 
consolidated tours now to try to maximize 8-hour jobs, and will 
continue to do that. But when you look at the competition that 
does some similar work to us on the package side and you look 
at the folks who work in plants, they have a much higher 
percentage of part-time employees than we do. Ours is less than 
10. Theirs is upwards of 40. And we believe that, again, it is 
a matter of aligning the work and picking and hiring the people 
to fit the work, again maximizing full-time jobs. We are not 
abandoning that.
    I grew up. I was a member of the union. But we do have a 
fiscal responsibility here and we have to balance the two and 
we have to keep rates affordable.
    Ms. Watson. Is the real issue the fact that people are 
using the Postal Services less and doing more on computers and 
so on?
    Mr. Potter. Yes.
    Ms. Watson. What is the bottom line, and why are we in this 
position?
    Mr. Potter. The answer to your question is yes, that is the 
main cause of the challenge. I think when we hit the recession 
we kind of hit a tipping point. There were a number of things 
that happened all at the same time. Businesses went back and 
had invested in doing business online. They wanted to maximize 
the benefit from that investment, and the way they did that was 
to try and drive, as much as possible, transactions online.
    By the way, it is not just business. Even the Federal 
Government--next year there is a law that is going into effect 
that would have anyone who does tax preparation, if you do more 
than 20 tax returns you have to file online. It is a good way 
of doing business. We are not trying to stop progress. But we, 
in effect, are somewhat the victim of changes that are taking 
place.
    So this is not a matter of our employees not working hard. 
They are working very hard. They are providing the best service 
that I have ever seen in the history of the Postal Service to 
our customers. It is a matter of the American public and the 
businesses' behavior changing and the tools that they use to 
conduct business is changing, and we have to change with it.
    Ms. Watson. I am very sympathetic to that issue, having 
been in that system, as I just described. If you go to part 
time, will you continue the kinds of benefits that you have now 
for your workers? Way back in the day, in another era, this was 
a perfect job for single mothers to take care, because all the 
benefits were part of the package.
    Mr. Potter. It still is. It still is a great job.
    Ms. Watson. And you could adjust your hours and all.
    Mr. Potter. Right.
    Ms. Watson. So I am very, very concerned if you change 
that, that we don't put people in a lower category.
    Mr. Potter. Right. If they are career employees, as I 
described--there will be a mix of some non-career and career, 
but the career employees would get the full benefits that we 
provide under our contract. In fact, the non-career employees, 
based on the health care plan that was just passed, we are 
going to have to work through the rules around that, and they 
will be provided health care as required by law.
    Ms. Watson. I see that my time is up, Mr. Chairman, but I 
just have to make this statement. In some ways I don't see it 
getting any better, because more and more and more people are 
online, and it is impacting a lot of different kinds of 
services and industries, too. You are waiting for 
recommendations from this commission; is that correct?
    Mr. Potter. No. We have laid out a plan.
    Ms. Watson. You laid out a plan already?
    Mr. Potter. And we are executing what we are in control of 
under that plan, and we are asking Congress for some 
flexibilities that don't exist in the current law so that we 
can embark on different things to bring our costs in line with 
the revenues we expect.
    Ms. Watson. Well, I think I heard when I came in to the 
meeting--I have been late--that you are not going to get rid of 
Saturday deliveries; is that correct?
    Mr. Potter. No, we are proposing that we do. There were a 
number of panel members who you heard suggesting we not 
consider it, but I think it is something--what we have put 
together, Congresswoman, is a series of solutions and ideas on 
how we can close the gap, and I think what we have to--we 
suggest to everyone that we have to have very serious dialog 
about all of those solutions and make tough choices on what we 
need to do going forward.
    Ms. Watson. Well, I want to go on record as opposing any 
curtailment of services on Saturday, because many of us who 
have to travel from here all the way across country, the only 
day we can get our mail in our hand is Saturday and act on it, 
because we turn right around and come back here. I live on the 
West Coast. So please, please, please--I am asking my 
colleagues, too--I would strongly suggest that you continue 
Saturday deliveries.
    With that, I yield back. Thank you, Mr. Chairman.
    Mr. Lynch. I thank the gentlelady for her thoughtful 
comments.
    I believe this panel has suffered enough, but before 
proceeding to the second panel I would like to ask unanimous 
consent from my colleagues that the statement of the full 
committee chairman, Mr. Towns, and a statement from the 
National Association of Retired Federal Employees be entered 
into the record.
    Hearing no objection, so ordered.
    [The prepared statement of Hon. Edolphus Towns and the 
statement from the National Association of Retired Federal 
Employees follow:]

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[GRAPHIC] [TIFF OMITTED] T8338.117

[GRAPHIC] [TIFF OMITTED] T8338.118

[GRAPHIC] [TIFF OMITTED] T8338.119

    Mr. Lynch. I want to thank both of you for your testimony, 
your help. As Mr. Issa and Mr. Chaffetz have commented, and Mr. 
Burton, you don't have an easy job. We have some tough 
decisions to make. But I appreciate the work that you have put 
into this. I look forward to working with you on these problems 
as we move forward.
    I bid you both have a good day. Thank you.
    I would welcome our second panel to take their places.
    Let me welcome our distinguished witnesses for the second 
panel.
    As with the first panel, it is the committee's policy that 
all witnesses are sworn in. May I please ask you to rise and 
raise your right hands.
    [Witnesses sworn.]
    Mr. Lynch. Let the record show that the witnesses responded 
in the affirmative.
    Please be seated.
    I am going to offer a brief introduction of each of our 
witnesses.
    I believe each of you have been here previously. You know 
the deal with the lights and the testimony. When it turns red, 
you should probably sum up your testimony.
    First of all, the Honorable Ruth Goldway was designated 
chairman of the U.S. Postal Regulatory Commission by President 
Barack Obama on August 6, 2009, and she has served with the 
agency since 1998. She is an experienced regulatory and public 
affairs professional, with expertise in citizen participation, 
consumer issues, urban planning issues, as well as the mailing 
industry.
    Mr. David Williams was sworn in as the second independent 
Inspector General for the U.S. Postal Service in August 2003. 
Mr. Williams has served as the Inspector General for five 
Federal agencies. He was first appointed by President George 
H.W. Bush to serve as the Inspector General for the U.S. 
Nuclear Regulatory Commission from 1989 to 1996. President 
William Clinton next appointed him Inspector General for the 
Social Security Administration from 1996 to 1998 and then as 
Inspector General for the Department of the Treasury in 1998. 
In 2001 President George W. Bush named Mr. Williams the acting 
Inspector General for the Department of Housing and Urban 
Development, while he was also serving at the Department of the 
Treasury.
    Mr. John O'Brien is Director of Planning and Policy 
Analysis at the Office of Personnel Management. He joined OPM 
in April 2009. Prior to that, Mr. O'Brien was the Deputy 
Director for Research and Methodology at the Maryland Health 
Services Cost Review Commission. He has a master's degree in 
public administration from Syracuse University.
    Mr. Kevin Kosar has been an analyst at the Congressional 
Research Service since 2003. He is the author of many CRS 
reports on the U.S. Postal Service, and he is the contributing 
editor at Public Administration Review Journal. He received his 
Ph.D. in politics from New York University.
    Welcome all. Chairwoman Goldway, you have the right for a 
5-minute opening statement. Welcome.

    STATEMENTS OF RUTH GOLDWAY, CHAIRMAN, POSTAL REGULATORY 
   COMMISSION; DAVID WILLIAMS, INSPECTOR GENERAL, OFFICE OF 
 INSPECTOR GENERAL, U.S. POSTAL SERVICE; JOHN O'BRIEN, SENIOR 
 ADVISOR TO THE DIRECTOR, U.S. OFFICE OF PERSONNEL MANAGEMENT; 
   AND KEVIN KOSAR, ANALYST IN AMERICAN NATIONAL GOVERNMENT, 
                 CONGRESSIONAL RESEARCH SERVICE

                   STATEMENT OF RUTH GOLDWAY

    Ms. Goldway. Thank you, Chairman Lynch, Ranking Member 
Chaffetz, Congresswoman Watson, and Congressman Connolly, and 
other members of the committee and subcommittee. Thank you for 
the opportunity to testify at this hearing today.
    First, I would like to assure the public that changing from 
6 to 5 days is not a done deal. It requires the consideration 
of both my Commission and the Congress, and no decision has yet 
been made.
    The Postal Service presented today its litany of problems 
and worst-case scenarios, but what do they propose? In two 
words, reduce service. Fewer employees to serve the public, 
fewer plans and fewer retail facilities, and fewer collection 
boxes. The plan also eliminates Saturday mail delivery, always 
considered a competitive advantage for the Postal Service.
    Ultimately, the Postal Service would become a shadow of 
itself, and those who rely exclusively on the mail, the 
elderly, the poor, rural America, and those who cannot or will 
not connect to the Internet, may suffer the most.
    Even more troubling, its plan stops at 2020, with nothing 
to arrest mail declines after that. On the contrary, the plan 
will spur more declines, a downward trajectory that further 
shrinks the system, with mail and this fundamental 
communications infrastructure disappearing in tandem.
    This vision of the future is not inevitable. Neither the 
$238 billion deficit nor the double-digit volume declines seem 
credible to me. Even in the Internet age, mail has a unique 
power to touch readers and deliver results for senders. It can 
drive sales, provide privacy, deliver votes, and shape 
important personal decisions that affect life and country.
    America's mail system can be reinvented and re-energized 
for a new century of customers; the Postal Service plan, 
however, has no growth and little innovation, only straight, 
downward-sloping trend lines.
    In my 12 years on the Commission, I can recall times when 
the Postal Service predicted billion dollar losses and ended 
the year with billion dollar gains. This year the Postal 
Service reports through February indicate that it is $1.2 
billion ahead of forecast. Mail volume is down by 8 percent, 
but standard mail and shipping service volumes are up. And both 
of these products are sensitive to economic conditions and are 
positive indicators of the economic turn-around.
    Given this level of variability in only 6 months, 
projections that lie 6 years or more ahead are simply 
unreliable. Rather than beginning with the premise that cuts in 
size and scope are the only way to solve deficit problems, 
address these fundamental questions first: what does the law 
require? What is best for the Nation? How can the Postal 
Service maintain and improve its universal service obligation? 
These are the questions that the PAEA requires our Commission 
to ask. GAO and the Postal Service offer recommendations 
without this context.
    An axiom in the business community is a company can't cut 
its way to success. You need something new. And the consensus 
in the mailing community is that there is not much new in these 
two reports.
    The reports should have first looked at how to keep open as 
many post offices as possible, what new products the public 
needs that the Postal Service is uniquely positioned to 
provide, and how to keep delivery at 6 days, and then how to 
determine the products and service levels that are most 
advantageous to its future success.
    The Postal Service efforts to expand customer access 
through Internet use and sales of stamps at supermarkets are 
commendable, but ask the small towns of America if they think 
Government business should be conducted in Wal-Marts. 
Envisioning the future calls for a transformative process, not 
a capitulation to big box retailing.
    My written testimony includes many ideas I would have 
proposed for the Postal Service to accomplish by 2020 and 
others now being studied by my Commission staff. Among them, 
develop mail products based on value to the customers, not to 
rely on volume. This is the fundamental tenet needed to fix the 
Postal Service's broken business model. Provide a one-stop shop 
for Government services. Participate as a full partner in the 
Nation's Census in 2020. Commit to having a network of post 
offices in key locations open longer hours, even on Sundays. 
And guarantee at least one 24/7 post office in every big city 
in America. Convert the vehicle fleet to run on electricity, 
reducing annual fuel and maintenance expenses by more than $400 
million.
    Incremental improvements compound and beget real growth.
    Nevertheless, I am not a Pollyanna. The Postal Service is 
facing serious financial difficulties. It may run out of cash 
at the end of this fiscal year. Over the past 3 years, the 
Postal Service paid $15 billion or more to the Treasury, while 
borrowing more than $8 billion from the Treasury. Borrowing 
these payments does not make sense. Only borrowing for 
investment in the future does.
    The question of whether the Postal Service has been 
overcharged by $75 billion for its pension liability will be 
reviewed by the Commission using an independent actuary, and we 
plan to issue our report about this this summer.
    And the Commission is now evaluating the Postal Service's 
plan for eliminating Saturday mail delivery. In addition to our 
docketed, on-the-record hearing at the Commission, we will hold 
a half dozen hearings across the Nation, and have so far 
received more than 1,500 comments. Our findings and the public 
record we develop will be available for your consideration 
within 6 to 9 months.
    Before Congress agrees to major service cuts, it should 
resolve the pension and retiree benefit issues, and the 
Commission should be allowed to complete its analysis of the 5-
day delivery proposal and then present it to you.
    As the economy rises, it will carry the mail with it. We 
must use the up-swing to change the Postal Service into a 
vibrant communications network, providing universal service and 
meeting changing customer needs and demands.
    That concludes my testimony. Thank you.
    [The prepared statement of Ms. Goldway follows:]

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    Mr. Lynch. Thank you.
    Mr. Williams, you are now recognized for 5 minutes.

                  STATEMENT OF DAVID WILLIAMS

    Mr. Williams. Mr. Chairman and members of the committee, 
thank you for asking for our testimony today. The Postal 
Service's financial condition is serious. The situation is a 
product of the economic downturn and the chaos of the digital 
age that has sent shock waves through the communications sector 
of the economy. Further, the Postal Service entered this storm 
with some chronic problems that had been masked by its success 
in earlier years.
    Two pathways lie before the Postal Service. The most 
obvious is the serious financial crisis with temporary patches 
that will consume the energy for change and will leave mounting 
debts with little chance of repayment. The other pathway is 
much more hopeful. The current crisis is an opportunity to 
migrate toward a lean and successful enterprise that is well 
positioned for a highly adaptive future and that thrives within 
the model envisioned by the Postal Accountability and 
Enhancement Act. This pathway will require long-term solutions 
effectively executed to address a few critically important 
issues.
    First, the optimization of the Postal Service's costly 
network of plants, post offices, and administrative apparatus 
must be accomplished as rapidly as possible while balancing 
commitment to service. Since 2003, the Postal Service has 
streamlined its network by reducing over 130,000 employees and 
in 2009 alone cutting $6 billion in costs. These are credible 
actions, but more is needed to match the declining mail volume 
projected through 2020.
    Next, the rigid work rules do not match the ebb and flow of 
mail and customer demand in plants and post offices. As the 
mail continues to decline, the need for more flexible staff to 
perform a wider range of duties becomes more evident. Also, the 
greater use of evaluated letter carrier routes would provide 
better incentives to allow for more effective management.
    Third, we in the Postal Service recognize the need for a 
simplified pricing structure to replace the over 10,000 prices 
contained in their 1,700-page customer manual. A simpler 
pricing structure would be easier to use, would encourage new 
customers, and improve revenue accountability.
    Finally, this year Congress directed the Postal Service, 
OPM, and OMB to develop a fiscally responsible legislative 
proposal for the Postal Service benefit payments. Our office 
found three areas where over-payments are occurring: an 
exaggerated 7 percent health care inflation forecast instead of 
the 5 percent industry standard, resulting in an overpayment of 
$13.2 billion by 2016; an excessive 100 percent benefit plan 
pre-funding requirement compared to OPM's pre-funding level of 
41 percent and the S&P 500's 80 percent rate. Even using the 
higher 80 percent rate funding goal would result in a $52 
billion surplus.
    Last, the Postal Service fund was over-charged $75 billion 
so that employees could retire at promised levels. When the 
Post Office Department became the Postal Service, employees 
that belonged to the Federal pension fund now contributed to 
the Postal Service. Retirement costs were divided according to 
the number of years employees had worked for each fund. 
However, the Federal pension fund paid for retirements based on 
1971 salaries, not final salaries. The Federal pension fund 
collected full contributions, but paid only partial benefits.
    OMB has explained that these mis-charges were in response 
to what they believed to be the will of Congress expressed in 
1974; however, the 1974 language was repealed by Congress in 
2003 when large over-payments were discovered. At that time, 
OPM inexplicably had not detected a 41 percent over-funding 
error in this $190 billion pension fund. Congress directed OPM 
to use its authority to oversee the reforms, using accepted 
dynamic assumptions, to include pay increases and inflation. 
Fixing the last issue, alone, would fully fund the pension and 
health care retiree funds. The Postal Service's $7 billion 
annual payments would no longer be needed since the plans would 
be fully funded and interest income could pay the annual 
premiums.
    The Postal Service is being bled white with erroneous 
payments before they open their doors. The $7 billion mis-
charge accounts for 66 percent of the Postal Service's 
projected $11 billion loss this year.
    This is also serious because the Postal Service fund is not 
made up of tax dollars. The two funding streams are employees' 
own money and money collected from postage sales inflated as a 
result of the mis-charge.
    The mis-charges should be backed out and fund balances 
reset to proper levels to achieve the retirement reforms 
Congress enacted in 2003. This would give the Postal Service a 
good chance of adapting to the efficient market forces 
envisioned in PAEA.
    Thank you.
    [The prepared statement of Mr. Williams follows:]

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

                   STATEMENT OF JOHN O'BRIEN

    Mr. O'Brien. Thank you, Chairman Lynch, Ranking Member 
Chaffetz, and members of the committee. I am pleased to be here 
today on behalf of John Berry of the Office of Personnel 
Management to discuss the U.S. Postal Service's contribution to 
the Civil Service Retirement System [CSRS].
    OPM commends Chairman Lynch and the committee's efforts to 
review retirement obligations and other associated matter 
related to the financial viability of the Postal Service. In 
particular, we appreciate the opportunity to explain our 
position on the recent report by the Postal Service's Inspector 
General, which questioned the calculation of postal 
contributions to the retirement fund.
    The key question that was raised by that report is whether 
the allocation of costs between the Treasury and the Postal 
Service to fund postal retirees with service to the Post Office 
Department prior to the establishment of the Postal Service in 
1971 is fair. That is an issue about which is open to debate.
    The primary concern of OPM is that the trust funds 
necessary to provide those benefits are properly funded, and it 
is important to remember that the level of funding to provide 
benefits to Postal retirees is not in dispute. The Postal IG's 
report suggests a new, different way to allocate costs 
necessary to fund Postal Service retiree benefits. The 
allocation formula used by OPM is that which is directed under 
current law and is not, nor should it be, characterized as an 
overcharge. Furthermore, the allocation methodology is 
consistent with sound actuarial practice and has been reviewed 
by outside, independent experts.
    A change to current law could reduce the share of 
retirement costs allocated to the Postal Service and allow the 
Postal Service to use the resulting funds for other purposes, 
but it would be a change to current law and a shift from 
previous legislation and congressional intent.
    I would like to give a brief overview of the events that 
bring us here today.
    In 1971, the former Post Office Department was converted to 
the U.S. Postal Service, an independent entity. Not long after, 
Congress considered who should be responsible for the increases 
in retirement obligations for individuals who were employed by 
the Post Office Department before 1971 that were the results of 
increases in pay. This resulted in the enactment of Public Law 
93-349 in July 1974. The law was clear that the Postal Service 
assumed the obligation to the retirement fund for increases in 
pay upon which benefits would be computed. Congress 
subsequently enacted a number of other laws dealing with other 
aspects of Postal Service funding, including legislation making 
the Postal Service responsible for funding the cost of living 
increases [COLAs] applicable to postal annuities.
    More than one of these bills included requirements that the 
Postal Service make payments to fund under schedules set by 
Congress. During the period from 1974 to 2002, it was generally 
assumed that postal payments required by legislation 
approximately slightly less than the full funding of the Postal 
CRS obligation; however, this was inaccurate. In 2002, OPM 
determined that if the Postal Service continued to make 
payments as it had been, its liability would be significantly 
over-funded.
    To address the issue, OPM sent a legislative proposal to 
Congress, which was subsequently enacted, to convert the 
funding mechanism to one applicable to the Federal Employees 
Retirement System [FERS], which lowered the contributions that 
were required of the Postal Service. That change did not affect 
the Postal Service's obligations for cost increases due to 
increases in pay, because Congress understood that the 
inclusion of those costs was an inherent aspect of retirement 
funding, which is evidence from the committee report.
    OPM's methodology was considered in a January 2003 GAO 
report. In that report, the GAO ``evaluated the reasonableness 
of OPM's methodologies for allocating estimated benefit 
payments and other expenses between service rendered before and 
after July 1, 1971, the effective date of the Postal 
Reorganization Act.'' In that report the GAO suggested no major 
changes to the methodology used by OPM, although it did 
recommend a consideration for military years of service, a 
modification that was made in 2006.
    In 2003 the Postal Service sought a new funding policy that 
would reduce its obligations. Their proposal was that the pre-
1971 service be calculated on the basis of a simple years of 
service approach, essentially the same methodology that has 
been proposed by the Postal Inspector General in its report 
this past January.
    The matter was carefully considered by OPM and by OPM's 
Board of Actuaries at that time and declined. The Board of 
Actuaries concluded that the methodology OPM used was valid and 
it had followed the intent of the act.
    The issue that is before Congress in the past has made 
changes to postal retiree fundings. We believe it is clear that 
OPM's actions have been fully consistent with the letter of the 
law and in accordance with sound actuarial practice.
    Finally, funding postal retiree benefits is a separate 
matter from the issue of retirement funding. The two subjects 
are intertwined because the Postal Service wishes to use the 
savings from a recalculation of retirement obligations to 
satisfy its obligation to fund retiree health benefits. Such a 
proposal reinforces OPM's testimony. The action suggested by 
the IG report, transfer funds to the Postal Service for retiree 
health benefits fund, are impossible without congressional 
action.
    We appreciate the opportunity to appear before you and to 
explain the basis for calculating postal retirement 
obligations.
    I am pleased to answer any questions you may have.
    [The prepared statement of Mr. O'Brien follows:]

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

                    STATEMENT OF KEVIN KOSAR

    Mr. Kosar. Chairman Lynch, Ranking Member Issa, and members 
of the committee, the Congressional Research Service thanks you 
for the opportunity to participate in today's hearing. The 
committee and subcommittee requested CRS to submit written 
testimony that discusses a range of postal reform issues 
relating to the Postal Service's financial condition. CRS has 
done this.
    Here my time will be used to offer some observations on the 
Postal Service's short-term and long-term financial challenges. 
These observations are drawn largely from the concluding 
section of my written testimony.
    The short term: in the short term, the Postal Service may 
face a liquidity problem, possibly as early as this autumn. At 
the end of the first quarter of fiscal year 2010, the Postal 
Service had $0.8 billion in cash, which is a low level for an 
agency with an average weekly operating expense of over $1 
billion. Unless the Postal Service runs a profit over the 
remainder of fiscal year 2010, it will have to borrow money to 
continue operations. By borrowing from the Federal Financing 
Bank, the Postal Service can bolster its cash in hand to about 
$6.5 billion. The $6.5 billion, however, may not be enough to 
get the Postal Service through the autumn. The agency must pay 
$5.5 billion into their retiree health benefits fund on 
September 30th, and it must pay $1.1 billion to the Department 
of Labor for workers compensation in October. This amounts to 
$6.6 billion and doesn't exclude any other costs that may come 
up.
    Congress may wish to ask the Postal Service to provide it 
with a time line that clarifies just how long the agency can 
continue operations absent legislative action. This would help 
address any public concerns about the possibility of a Postal 
Service shut-down occurring in November, when election ballots 
are being mailed, or in December, when retailers are shipping 
billions of dollars of goods through the mail.
    The long term: while the Postal Service's short-term 
financial condition is clearly problematic, its long-term 
financial condition is less obvious. In its report, Ensuring a 
Viable Postal Service for America, the Postal Service described 
its plight as a rapidly worsening crisis. The report projects a 
cumulative debt of $238 billion by fiscal year 2020. It is 
important to understand the nature of this $238 billion figure. 
It is not a prediction of what will happen; rather, it is a 
projection, an estimate of what could happen if certain 
assumptions hold. These assumptions are not certitude.
    First, postal law caps the Postal Service's total debt at 
$15 billion. In order for the Postal Service to reach $238 
billion in debt, Congress would need to abolish this statutory 
debt limit and then do nothing for 10 years. This seems 
improbable.
    Second, this $238 billion figure assumes the Postal Service 
will do nothing to reduce its own expenses. This seems 
unlikely, as the Postal Service and PMG Potter today has stated 
that it intends to use its existing authorities to reduce costs 
by $123 billion.
    Third, the report's 2020 projection heavily rests on the 
assumption that mail volume will fall steadily. This assumption 
appears to be based upon a single study by the Boston 
Consulting Group, which contends that the rise of the Internet 
has created a ``fundamental and permanent change in mail use by 
households and businesses.''
    This forecast about the future demand for hard copy mail is 
striking. As the figures on page 12 of my written testimony 
indicate, since 1930 mail volumes have grown steadily. The 
consultant's forecast declares that this long-lasting trend has 
ended permanently.
    Now, this projected 2020 scenario may be questioned on at 
least two grounds: first, the use of e-mail and the Internet 
has been growing since the mid-1990's; yet, between fiscal year 
1995 and fiscal year 2006, mail volume went up significantly. 
So thus far it does not appear that when the demand for 
electronic communications goes up, the demand for all forms of 
hard copy mail must go down.
    Second, and relatedly, the recent drop in mail volume began 
about 4 months after the U.S. economy had officially entered a 
deep recession, so it seems at least plausible that the 
economic downturn, not the Internet, was the more significant 
factor in instigating the recent sudden mail volume declines of 
the past 2 years. And if that is the case, then the Postal 
Service's mail volumes and hence its revenues might rise again 
as the economy improves.
    So Congress may wish to study further the recent decline in 
mail volume to better determine whether this is a temporary 
change or, as the Postal Service contends, a permanent one.
    I thank you, and I would be happy to answer any questions 
you may have.
    [The prepared statement of Mr. Kosar follows:]

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    Mr. Lynch. Thank you, Mr. Kosar. I actually want to thank 
all of the witnesses. This was a very impressive and credible 
group, very competent group of witnesses, and I appreciate your 
willingness to come before the committee and help us with our 
work.
    Let's get right to it. I will yield myself 5 minutes.
    How do we resolve this difference between OPM and the 
Postal Service regarding what is owed here? I mean, I 
understand it from a basic point of view that there should be 
some type of equity in divided service, that the Postal Service 
should not be asked to pay more than its share in an employee 
who had divided service between the old department and the new. 
This seems to be a basic sense of fairness in that, and I think 
that was more or less Congress' intent, speaking quite over-
simplified.
    How do we resolve this difference? It is a huge number, $75 
billion, and it is made much more important, given the urgency 
of the Postal Service's situation right now.
    Mr. Williams, how do you think we should resolve this?
    Mr. Williams. Congress directed that OPM and OMB and the 
Postal Service go into a room and try to decide and try to 
resolve the differences, and it could be that there are a 
number of solutions to this. The simplest, the easiest would be 
to reset the two funds. There are other alternatives.
    The emergency arises from the $7 billion annual payment. I 
think that needs to be dealt with first, and then I think the 
funds can be reset in a way that doesn't devastate the Federal 
fund, which would be a bad thing, but recognizes that the 
postal employees and the mailers have paid in enough. The funds 
are fully funded, and it is time to stop putting money into 
them.
    The same thing happened back in 2002 when we realized there 
was a mistake and we were about to over-fund by $78 billion. As 
soon as that payment disappeared, OPM showed up and tried to 
introduce a new bill for us to pay military pensions. 
Obviously, we don't have a military, and the Government is 
already financing its military.
    I think the first thing to do is to remove the emergency 
and stop the bleeding, and then sort out, in the fullness of 
time, which of the solutions before us is the right solution.
    Mr. Lynch. Mr. O'Brien.
    Mr. O'Brien. Yes. Just to comment, I mean, one of the 
difficulties in this issue is that we tend to move between two 
funds. The CRS, the funding for the retiree benefits, not your 
health benefits but your retiree benefits, is essentially fully 
funded right now. That is not in question. The $7 billion 
payment to the fund that is referred to is actually the 
payments to the retiree health benefits they are separate 
issues, and they are real easy to conflate the two.
    So part of it is, though, $7 billion payments are in the 
law, $5 billion of them are--last year OPM, with Congress, 
reduced those payments from roughly $5 billion to about $1.5 
billion, and those two issues continue on. The challenge again 
with the retiree benefits as we do this is simply changing the 
scope of the retiree and saying we are going to fund those 
less. This kicks this down the can a bit.
    One of the complicated parts from our end is that these are 
not sort of stand-alone issues. The implications of the 
decisions you make regarding how we fund the retiree service 
will affect how you fund the retiree health benefits, which 
have larger budgetary implications.
    Ms. Goldway. If I might just add that there is an 
opportunity to look solely at the health care retirement 
benefit fund issue and look at how to recalculate what that 
total payment should be. Should it be the 75 percent 
approximately of estimated liability? Is the liability the 
right amount? And what should the payments be over a period of 
years?
    I believe that it certainly is possible to come up with a 
very credible arrangement to significantly reduce the payments 
that the Postal Service is obligated to make on a yearly basis 
by looking solely at the decisions around that health care 
retirement benefit fund, reducing the liability and spreading 
out the payments. I think that is an alternative, as well, that 
needs to be considered.
    Mr. Lynch. Thank you.
    Mr. Kosar, I don't assume you have a horse in this race, 
but----
    Mr. Kosar. Absolutely not. No horse within this race.
    I am not an expert on pensions, and so I won't try to offer 
any solutions.
    Mr. Lynch. Have you looked at this for CRS, though? Have 
you looked at this?
    Mr. Kosar. Yes. I provide an overview in my report.
    Mr. Lynch. What do you think?
    Mr. Kosar. I don't recall any accusation of OPM's current 
approach as being against the law, and in which case, if it is 
not against the law, then it is an equity question, and an 
equity question inevitably is going to involve lots of 
calculations that inevitably, I think, are probably going to be 
political; namely, it will have to go to the judgment of 
Congress to see what it thinks fair.
    I think a key point is that, as best I can tell, this is a 
zero sum gain. If the Postal Service is allowed to, say, claw 
back some of that $75 billion, then somebody else is going to 
have to pony that up, and that somebody else I believe would be 
the U.S. Treasury or the public.
    Mr. Lynch. The problem is, though, it is the work hours of 
the individuals who have earned that, and so they are entitled 
to the full measure of the benefit that they have earned, and 
as well the mailing community has paid in for service for which 
it appears they have over-paid.
    My time has expired and I yield to the gentleman from Utah, 
Mr. Chaffetz, for 5 minutes.
    Mr. Chaffetz. Thank you, Mr. Chairman.
    Thank you all for being here.
    Mr. Chairman, I do agree with you that we do need to come 
to some sort of consensus as to what the accurate numbers are 
so we can all deal from the same playing field. I hope we can 
ferret that out as we go along.
    Chairwoman Goldway, I am quite frankly and directly, deeply 
concerned by your testimony and the perception, perhaps, that 
you have of your role and responsibility. I find your testimony 
to be shocking, quite frankly, that you would inject so much 
subjective analysis, if you can call it that, as opposed to 
participating in my understanding of the Postal Regulatory 
Commission's role and responsibility. You are the regulatory 
body and regulatory head of this type of agency. The statements 
that I read within your testimony are very subjective, and I am 
very curious to understand why and how you think it is within 
your duties and responsibilities to inject that sort of 
personal testimony.
    Let me give you an example here. You say in your testimony, 
``The consultants hired by the Postal Service and the GAO 
analysis should have begun by looking at what it will take to 
keep open as many post offices and stations and branches as 
possible.'' Why would you--you are coming to a conclusion by 
yourself without allowing the process to move forward, and I 
believe, based on your role and responsibility, coming up to a 
conclusion without allowing them to do the analysis. Why and 
how? Where do you think in the Regulatory Commission's 
responsibilities that is the type of statement that you should 
be making?
    Ms. Goldway. I appreciate your concern. I believe that the 
law requires that the Postal Regulatory Commission define and 
enforce the universal service obligation. We have to make a 
report on it. We determine that every year with our compliance 
determination. Is the Postal Service meeting its universal 
service obligation?
    There are two specific areas in which the Postal Regulatory 
Commission doesn't have discretion. One is the law that says 
post offices can't be closed for solely economic reasons, and, 
two, that service has to be provided 6 days. So I feel that the 
responsibility of any agency that is operating under the law is 
to address their problems assuming that they have to meet the 
law before they then provide other alternatives, and I felt----
    Mr. Chaffetz. Thank you. Let me read another statement from 
you.
    Ms. Goldway [continuing]. The consultants didn't do that.
    Mr. Chaffetz. In your written statement here, ``Now is not 
the time for sweeping changes to the Postal Service.'' How can 
you come to that conclusion? You went on to say that we need to 
deal with the--``before the Congress agrees to major cuts in 
service, it should resolve the pension and retiree benefit 
issues to determine manageable payment schedules for the Postal 
Service, and the Commission should be allowed to complete its 
analysis of the 5-day delivery proposal and present it to 
you.''
    Now, the numbers, based on what we hear now, we are dealing 
with a $238 billion shortfall over 10 years. We are talking 
about a $75 billion issue. It is a significant issue, it is a 
big issue, but it won't solve all of the issues. And we talk 
about moving from 6-day delivery to 5-day delivery, based on 
the testimony of Postmaster General Potter, in its best-case 
scenario that is going to be a $30 to $36 billion fix over a 
10-year period, only accounting for about 15 percent of the 
problem.
    So if we have such a significant problem, by the hundreds 
of billions of dollars, how do you, at the beginning of this 
process, come to the conclusion that ``now is not the time for 
sweeping changes at the Postal Service?'' When do you think we 
should get to sweeping changes at the Postal Service?
    Ms. Goldway. What I am proposing, which I don't think is 
very different from some of the colleagues here on the panel 
with me, is that----
    Mr. Chaffetz. Well, they have different jobs. They have 
different jobs, roles, and responsibilities.
    Ms. Goldway. Well, I believe that the Postal Service could 
meet its obligations for the year with an adjustment to the 
health care retiree benefit fund.
    Mr. Chaffetz. You think that would solve the entire 
problem?
    Ms. Goldway. I don't think it will solve the entire 
problem, but I think it will provide us, given that and the 
economic turn-around, an opportunity to come up with proposed 
changes that are of greater acceptance to the country and that 
meet a universal service obligation. You, yourself, are 
concerned about cutting 6 to 5-day----
    Mr. Chaffetz. Yes, I have a different job, role, and 
responsibility than you do as a regulator.
    Ms. Goldway [continuing]. And my written testimony 
includes, in reviewing the 6 to 5-day issue, which the 
Commission will be doing and doing very thoroughly, that we 
would consider such things as a pilot project or alternatives 
and----
    Mr. Chaffetz. Let me move on. Let me read another quote 
from you.
    Ms. Goldway [continuing]. And we would consider that.
    Mr. Chaffetz. I am going to move on, please.
    Quote: ``But ask the small towns of America if they think 
the Government business should be conducted in Wal-Mart. Why 
would any rational person compare the functions of a post 
office to Wal-Mart as the Postal Service consultants did?'' I 
do not understand why or how you are injecting your personal 
opinion. Are you speaking for yourself? Are you speaking for 
the administration? Are you speaking for the Postal Regulatory 
Commission?
    Ms. Goldway. I am certainly using the opportunity to speak 
as the chairman with my own point of view.
    Mr. Chaffetz. So this is your personal point of view? It is 
not from the Postal Regulatory Commission?
    Ms. Goldway. In my testimony I have a specific line in 
terms of the Commission's support for adjusting the health care 
retiree benefit fund, and that is a Commission position.
    Mr. Chaffetz. And you don't think the----
    Ms. Goldway. And I have pointed out that the Commission 
will be reviewing the 6 to 5-day delivery and making a 
considered opinion on it. But I do, quite frankly, feel that 
the Postal Service's response to its universal service 
obligation to provide service through post offices, offering a 
substitute which would allow those services in some fashion or 
another to be provided at a Wal-Mart and close post offices in 
communities is not an acceptable part of the responsibility of 
the universal service obligation, and I don't think that is in 
violation of the law, and I think it is certainly consistent 
with my role as chairman to lead the Commission in evaluating 
what universal service is.
    Mr. Chaffetz. Well, Mr. Chairman, my time has expired. I 
appreciate it. I am deeply concerned by these personal 
conclusions prior to the analysis and the recommendations of 
what has to be a creative process, and I hope we further 
explore this.
    I thank you for the time and yield back. Thanks.
    Mr. Lynch. I thank the gentleman.
    The Chair recognizes the gentleman from Virginia, Mr. 
Connolly, for 5 minutes.
    Mr. Connolly. I thank the Chair, and, gosh, I am surprised 
that my friend who is so concerned about personal conclusions 
would cite a bogus number, $238 billion. We have already 
established in this hearing at best that is a theoretical 
number. GAO admits, and the Postmaster General, himself, 
admitted under questioning by this Member that it assumes they 
are not going to make the $123 billion cuts he announced this 
morning they are going to make, and so it is a made-up number 
designed to scare us into breaking faith with communities 
across the United States, breaking faith with organized labor 
and the work force, breaking faith with consumers in order to 
make decisions they have decided a priori they want to make, 
irrespective of whether there is an empirical basis to justify 
making those decisions or not. That is what that $238 billion 
figure is--it is made up. It assumes nothing will happen. 
Nothing will happen over 10 years.
    Mr. Kosar, you detailed this really well in the CRS report. 
Could you refresh our memories, going to page 11 of the CRS 
report? I assume that is your writing?
    Mr. Kosar. Correct. Are there particular aspects on it, or 
is it the three main points? Are there particular aspects of 
the point I made, or just kind of generally encapsulate what I 
was getting at here?
    Mr. Connolly. Well, if I recall your analysis, it says in 
order to believe $238 billion, you have to believe, A, this 
Congress will lift the statutory debt ceiling limit, right?
    Mr. Kosar. Correct.
    Mr. Connolly. Which right now is $15 billion?
    Mr. Kosar. Correct.
    Mr. Connolly. Second, you have to assume this Congress will 
take no action whatsoever for 10 years with respect to any kind 
of fiscal red ink problem the Postal Service might experience; 
is that correct?
    Mr. Kosar. Correct.
    Mr. Connolly. Absolutely no action?
    Mr. Kosar. Absolutely no action.
    Mr. Connolly. Third, you would have to assume that the $123 
billion of cuts that the Postmaster General announced today and 
said is already within his authority, he doesn't need new 
legislation or legislative authority to make those decisions, 
will, in fact, be rescinded, will not be made; is that correct?
    Mr. Kosar. Absolutely correct.
    Mr. Connolly. And then you would have to assume that 
everything goes to hell in a handbasket. Apparently, there is 
no economic recovery that could influence up or down the volume 
of mail, even though we know from history that, as a matter of 
fact, the opposite is true: economic conditions most certainly 
do influence whether mail goes up or down volume; is that not 
correct?
    Mr. Kosar. That is correct.
    Mr. Connolly. Other than that, the $238 billion number is 
real.
    Mr. Kosar. Depends how you define real, I suppose.
    Mr. Connolly. Would you refresh our memory, Ms. Goldway, in 
terms of the statutory role of the Postal Regulatory 
Commission?
    Ms. Goldway. The Postal Regulatory Commission is a 
regulatory body overseeing the activities of the Postal Service 
to ensure that it does provide universal service at a fair and 
efficient level for all citizens. We provide an annual 
compliance determination every year, and should we determine 
that they don't meet universal service obligations we can 
institute proceedings to require them to change their 
activities to meet universal service obligations.
    Mr. Connolly. Apparently, because we don't like some of 
your testimony, we want to relegate it to the realm of personal 
opinion. Does the statute in any way invite the Postal 
Regulatory Commission to comment on proposals with respect to 
quality of service or fiscal savings? Is that a role under the 
statute for the Postal Regulatory Commission?
    Ms. Goldway. Yes. Our reports do that and we are asked to 
do studies, to report to Congress, to suggest legislation, and 
to make changes in--suggest changes in the universal service 
obligation over a period of up to 10 years.
    Mr. Connolly. Were you invited here today in your capacity 
as chairman of that Commission?
    Ms. Goldway. Yes, I was. Thank you.
    Mr. Connolly. And did the committee ask you to, in fact, 
share your views on the pending proposals, good, bad, and 
indifferent, with respect to savings and cost efficiencies?
    Ms. Goldway. Yes, they were. Thank you.
    Mr. Connolly. Thank you.
    Thank you, Mr. Chairman.
    Mr. Lynch. I thank the gentleman.
    The Chair recognizes the gentleman from Illinois, Mr. 
Davis, for 5 minutes.
    Mr. Davis. Thank you very much, Mr. Chairman.
    I want to thank the witnesses for being here.
    Chairwoman Goldway, let me just kind of followup with you. 
Mr. Potter has made a series of recommendations that he thinks 
would help get us beyond the dilemma that we are in. Has the 
Commission taken any position on any of those? Or let me ask it 
another way----
    Ms. Goldway. I don't think the Commission has been in a 
position to take a formal action on any of these proposals. 
They are not presented to us in a way in which we would act 
upon them formally. But I have consulted with my colleagues, 
and we have agreed that we, all five of us, believe that the 
health care retiree benefit fund should be adjusted, so that I 
can speak on behalf of the whole Commission with regard to that 
position.
    With regard to 6 to 5-day delivery, we are in the process 
of hearing that case and are committed to having a full and 
open discussion where we will hear all points of view and 
consider all of the concerns that were raised here at the 
congressional hearing this morning and many others. In 
particular, we are going to look at the question about how much 
cost savings there really will be. There is a dispute between 
the initial figures we had, and the Postal Service's, about how 
much savings you could have from closing post offices--excuse 
me, from 6 to 5-day delivery.
    So we will thoroughly review that, and I hope we will be 
able to make a considered advisory opinion to the Postal 
Service on what we believe is the right way to go, and we will 
share that opinion with the Congress, and our hope is that you 
will wait to hear our opinion and advice and the expert 
testimony that we can develop in that case before making your 
own decision about whether to change from 6 to 5-day.
    Mr. Davis. It would appear to me that some of these, as I 
look at them, really aren't that difficult to--for example, 
shift in retail sales to some place other than a facility 
doesn't seem to me to create that much angst.
    Ms. Goldway. I don't think anyone is concerned with 
increasing the amount of stamps that are sold at supermarkets 
and expanding as much as possible the access to Postal Services 
on line, but you can't ship a parcel out of a supermarket and 
you can't do it online. The law says anything over 13 ounces 
has to be handed personally to the post office. You can't get 
your passport that way. You can't do a whole range of special 
services that are integral to the universal service of the 
Postal Service at a grocery story unless the Postal Service is 
presenting a plan to open a full retail facility in a 
supermarket. They haven't presented that plan to us, and if 
that is an option to substitute for post offices, I don't think 
the Postal Service would--I don't think the Postal Regulatory 
Commission would feel that was any change at all in universal 
service.
    So the question is the level of service that is currently 
provided that we feel represents universal service for the 
country, and to make sure that is maintained.
    The one other thing I would say is that there are many post 
offices around the country, not just in the smallest rural 
towns but in many areas, that see the post office as a 
neighborhood icon, and as an anchor for other economic 
activities in their community, and for you to close that post 
office and move it into a big box retailer at the suburban 
fringe of the city is not----
    Mr. Davis. Let me just ask Mr. Kosar, though----
    Ms. Goldway [continuing]. Something that most people would 
support.
    Mr. Davis [continuing]. A question before my time runs out. 
I appreciate it.
    Mr. Kosar, how important do you think it is that we 
stabilize the service on a short-term basis as we pursue long-
term solutions?
    Mr. Kosar. Well, my understanding is essentially that once 
the Postal Service runs out of cash that it can't keep 
operating. I don't know of any sort of emergency line that it 
would be able to access. It is possible it exists, but I have 
never heard of it spoken of, and if it doesn't have the cash, 
then I don't know how it could go forward meeting payroll and 
continuing operations.
    Mr. Davis. So it is absolutely essential that we continue 
to operate while we pursue long-range solutions that might take 
much more time?
    Mr. Kosar. Whether Congress decides to choose to pursue a 
short-term solution or a long-term solution or a solution that 
is a hybrid that can do both is not for me to call, but if 
Postal Services are to be continued, as I understand it, the 
liquidity issue will have to be dealt with.
    Thank you.
    Mr. Davis. Thank you very much. Thank you, Mr. Chairman.
    Mr. Lynch. Thank you.
    Let me ask Chairman Goldway, Section 701 of the Postal 
Accountability and Enhancement Act requires that the Postal 
Regulatory Commission present recommendations to Congress and 
the President for legislative changes or improvements to the 
postal law by December 2011.
    Ms. Goldway. Yes.
    Mr. Lynch. Still a ways away, but have you begun that 
process?
    Ms. Goldway. Well, I initiated a study to help us pursue 
the notion of the social value of the mail, and we want to 
flesh that concept further.
    Mr. Lynch. So you are not very far along the road then?
    Ms. Goldway. And then we will combine that with our next 
universal service obligation study, which we probably will do 
within the next year.
    Mr. Lynch. Yes. Well, time's a-wastin'.
    Ms. Goldway. I appreciate your interest.
    Mr. Lynch. We are going to have some changes.
    Ms. Goldway. I will try to get a----
    Mr. Lynch. Yes. You might want to ramp up that part. It 
says you need to make it by December 2011. That is the drop-
dead date. But you can certainly make it before, and I think 
the circumstances would probably dictate that you would 
probably want to make those recommendations sooner rather than 
later.
    Mr. Williams, you indicated that Congress had directed you 
and OMB and OPM to go in a room and hash this thing out. Have 
you gone into that room?
    Mr. Williams. We would not represent the Postal Service. 
There has been an initial----
    Mr. Lynch. Well, yes. OK.
    Mr. Williams [continuing]. Meeting, and it involved the 
principals and some staff, and I think they are now preparing 
for a second round of talks to try to come to agreement on 
which of the solutions would be the proper solution for the 
issues.
    Mr. Lynch. Yes. This $75 billion question, we have to fish 
or cut bait here.
    Mr. O'Brien, what would happen if the post office didn't 
make the payment to OPM?
    Mr. O'Brien. Again, for the retirement services the 
payments have already been made. The retirement fund is fully 
funded, or virtually fully funded at this time. What the IG 
report suggested was that if you change the allocation 
methodology that has been used, funds would be freed up from 
the retirement pension system that could go to other purposes 
specifically to address the health retirement fund. So, again, 
the two funds are somewhat----
    Mr. Lynch. Are you talking about the annual payments?
    Mr. O'Brien. The annual payment is for the retirement 
health fund. If those payments are not made, specifically what 
would be the issue in terms of the retirement payment. I need 
to get back to you on the health fund. But, again, I want to 
stress that the retiree fund and the benefits to retirees for 
their retirement payment, those are funded, or virtually fully 
funded right now, and there is no threat to a retiree getting 
their retiree pension.
    Mr. Lynch. Right. Right. We are talking about the imbalance 
of payments relative to service here. I must confess I sort of 
come down on the side of the Postal Service on this argument, 
at least the way it has been argued thus far. I would just 
encourage you to reconcile. We will just be following you on 
that line of progress, OK?
    I will yield to the ranking member.
    Mr. Chaffetz. Thank you, Mr. Chairman.
    Mr. Kosar, I want to make sure I understood you properly. I 
mean, part of the challenge that is before the Postal Service 
is the economic downturn that is happening in this country, but 
to what percentage or to what degree do you also acknowledge 
the move to e-commerce and electronic communications and those 
types of things? Is that part of what you have looked at along 
the way? I just notice that you kind of didn't mention that 
portion of it, and it just raised some curiosity, that is all.
    Mr. Kosar. Sure. And I apologize for any omission. It, I 
think, is pretty clear that the most lucrative postal product 
amongst the mail classes, first class mail, is being eroded by 
e-commerce. People are switching to electronic bill paying, and 
so your high-margin product--and first class mail is a high 
margin product because it is sealed against inspection, you 
need a warrant to open it, not like lower classes of mail.
    Mr. Chaffetz. Right.
    Mr. Kosar. So that is being eroded, and that is a long-term 
trend, and I think it is perfectly believable that trend will 
continue, and that creates an interesting revenue situation.
    At the very end of my written testimony, I note that 
there--I mention this because there is a changing composition 
to the mail volume. More and more of it is becoming advertising 
mail, which is a lower margin product, and so that has revenue 
implications, and it also has policy implications because the 
Congress created the Postal Service to deliver mail for a 
number of purposes--literary, binding up the Nation, etc.--and 
if it is only delivering mail in 2020 for business purposes, 
well, it is a different scenario.
    Mr. Chaffetz. OK. So Chairwoman Goldway said, ``Now is not 
the time for sweeping changes to the Postal Service.'' If we 
don't have any changes, what is the effect?
    Mr. Kosar. I don't know, because everything is so 
contingent upon the mail volume question. Mail volume equals 
revenue, and revenue versus cost is----
    Mr. Chaffetz. Do you see e-commerce declining over the 
course of time? Do you see us moving less? I mean, do you see 
us doing less e-commerce and less electronic communication?
    Mr. Kosar. No, I don't see us doing less e-commerce. I 
would presume we would do more and more absent some sort of 
peculiar incident.
    Mr. Chaffetz. Right.
    Mr. Kosar. An attack on our cyber system. But the 
relationship between the growth in e-commerce versus hard copy 
mail demand strikes me as rather complex. I don't know if the 
PRC has studied and tried to figure out how the elasticities 
work, but, just based upon the historical data, I don't see a 
clear relationship.
    Mr. Chaffetz. But if we don't do anything, based on 
historical data that we have now, the trajectory is not very 
pretty, is it?
    Mr. Kosar. The trajectory of mail volume or the trajectory 
based upon a financial----
    Mr. Chaffetz. The trajectory of financial situation, 
financial viability of the Postal Service.
    Mr. Kosar. Yes. I would be--realizing the large payments 
going forward that are required under the Postal Accountability 
and Enhancement Act, these are very significant payments, and I 
know that the Postal Regulatory Commission has suggested that 
instead of $5.5 billion a year the Postal Service should be 
paying $3.4 billion, and the Inspector General has suggested 
$1.9 billion. This has large cumulative effects over the long 
run, and so yes, I think it is an issue to be addressed.
    Mr. Chaffetz. Interestingly enough, as the mail volume has 
decreased, we see this 80 percent labor cost is not necessarily 
diminished. It is such a huge portion of what is going on. My 
understanding is that this 80 percent number, even though the 
volume has gone down, has not certainly been adjusted. Can you 
give further insight or things that you found in terms of the 
labor cost as a ratio to the overall expenses, and the 
implications of that, because you are going to have to deal 
somehow, some way, with these massive labor costs, are they 
not?
    Mr. Kosar. If the Postal Service must either control or 
lower its costs over the long term, then obviously the large 
target is the labor cost, because, as you noted, and as GAO has 
noted, it is about 80 percent. And the Postal Service has had 
some success in contending with this. I know since fiscal year 
1999 they have reduced the size of their work force from over 
900,000 to just under 600,000. Of course, many of these people 
are moving into being retirees, and so there is that 
obligation.
    Mr. Chaffetz. Right.
    Mr. Kosar. But at least in terms of salaries, that is 
lowering it.
    Mr. Chaffetz. Right.
    Mr. Kosar. But their options are rather limited because 
they have collective bargaining agreements with the vast 
majority of these groups, and I believe at least two if not 
three of the contracts forbid layoffs. Of course, they have 
other provisions in there which curtail the Postal Service's 
ability to excise what they consider to be extra persons.
    Mr. Chaffetz. OK. Thanks, Mr. Chairman. I am right near the 
end of my time. Thanks.
    Mr. Lynch. Thank you.
    Let me ask, we had asked the Postal Service, as part of 
their presentation, part of their report that was delivered 
today, to actually look at comparable mail systems and what 
other countries are doing, and that part has not been included. 
They are going to do that a little bit later, although Mr. 
Potter did offer a few suggestions anecdotally.
    I know that one of the Scandinavian countries, I think it 
might be Sweden or Finland, has a system in place now where you 
can actually, it is like a virtual mailbox. Your computer 
screen, whether it is a laptop or even a BlackBerry or desktop, 
you can actually click on your mail that is at the post office 
and you can actually click on the stuff you want delivered. I 
don't like the term junk mail, but you can also flag stuff for 
non-delivery; in other words, you don't want it delivered.
    It just seems a matter of time until that type of 
technology software is going to be available to the American 
public. If mail volume has dropped already, I can imagine what 
is going to happen when we have that type of technology 
available to us. It is certainly not going to go up.
    Have you thought about the implications, Ms. Goldway 
especially. You seem to have an optimistic view of what the 
future might hold for normal mail.
    Ms. Goldway. Well, since I spent 4 years in Finland, I will 
just comment that this experiment that the Finns are doing is 
in one of what they call their big cities, which is about 200 
people. It is a small experiment that they are trying on this 
product. But the Finns are way ahead in terms of technology, 
and it certainly may catch on there.
    I was speaking with the head of Deutsche Post yesterday and 
they still provide 6-day delivery, and what they were valuing 
most about their mail was the privacy of the mail. E-mail does 
not provide privacy.
    Mr. Lynch. What is the cost for a----
    Ms. Goldway. It is 80 cents.
    Mr. Lynch. Eighty cents.
    Ms. Goldway. They pay 80 cents, and it is a smaller 
country. The delivery costs are less. I am sure that they are 
making more profit on their mail than we do.
    They haven't had billing in their mail for 20 years, so the 
declines they have had are much smaller, the European declines. 
Every country is quite different. But what struck me was his 
argument that the letter carried against inspection is of such 
value in a country that has experienced the political regimes 
that they had in the 20th century, the Nazis and then the 
eastern Germany regimes, and you cannot have a system, at least 
not yet, and it doesn't look likely, an e-mail system where 
person to person you have the same privacy. We now have systems 
where you can bank with fairly good security systems. There are 
walls and protections. But person to person correspondence is 
simply very risky on the Internet.
    So I think there are still great values for the mail we 
have, and in my testimony the first thing that I suggested the 
Postal Service do--I certainly don't want them to stand still--
is to change the focus from volume to value, and if they create 
a series of products that are of great value to people in the 
mail, they are more likely to get the high margins they need to 
keep the mail system and the other services that are part of 
the universal service available to people.
    Mr. Lynch. I understand what you are saying, but----
    Ms. Goldway. And, by the way, in regard to European 
comparisons----
    Mr. Lynch. Let me----
    Ms. Goldway [continuing]. We are intimately involved with 
those.
    Mr. Lynch. Will you just let me speak?
    Ms. Goldway. I am sorry.
    Mr. Lynch. The person to person mail, though, is 
microscopic in the current mail system, people sending letters 
to each other. It is really a microscopic part of the----
    Ms. Goldway. It is about 5 to 6 percent of the mail, and 
when you consider what the potential is for growth in small 
businesses, which are quite comparable in terms of the 
transactions that are happening--and everyone agrees that there 
is a great deal of growth potential in small businesses.
    Mr. Lynch. I think business has remittances and commercial 
activity.
    Ms. Goldway. No. Think of all the people who are setting up 
businesses in their homes, and in addition to the electronic 
communications that they have there, there is personal 
correspondence, individual pieces of material.
    Mr. Lynch. I know. Yes. Businesses can be located in a 
home. That is still a business, though.
    Ms. Goldway. It is still a business, and----
    Mr. Lynch. It is just a different driver than----
    Ms. Goldway [continuing]. And it can----
    Mr. Lynch [continuing]. Social interaction.
    Ms. Goldway. Yes. And it can create volume, but I think it 
would be volume--if the Postal Service focuses it right, it is 
volume that is of high enough value that you can charge more 
for it and keep your margins up so you don't have to rely on 
advertising mail.
    Mr. Lynch. OK. My time has expired.
    As I understand, we are about to have votes. I want to 
thank you all for your willingness to come before this 
committee and help us with our work. We, I am sure, are going 
to have more hearings on this and more discussions. Thank you 
for your cooperation and your assistance. Have a good day.
    [Whereupon, at 1 p.m., the subcommittee was adjourned.]
    [The prepared statements of Hon. Gerald E. Connolly and 
Hon. Diane E. Watson, and additional information submitted for 
the hearing record follow:]

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