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



                                                        S. Hrg. 111-950
 
                HAVING THEIR SAY: CUSTOMER AND EMPLOYEE
                       VIEWS ON THE FUTURE OF THE
                          U.S. POSTAL SERVICE

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

                             JOINT HEARING

                               before the

                FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT
                   INFORMATION, FEDERAL SERVICES, AND
                  INTERNATIONAL SECURITY SUBCOMMITTEE

                                 of the

                     COMMITTEE ON HOMELAND SECURITY
                        AND GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                                and the

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

                                 of the

              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
                        HOUSE OF REPRESENTATIVES

                                 of the

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                             JUNE 23, 2010

                           Serial No. 111-141

         Available via the World Wide Web: http://www.fdsys.gov

     Printed for the use of the Committees on Homeland Security and
        Governmental Affairs and Oversight and Government Reform



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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii              TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware           SCOTT P. BROWN, Massachusetts
MARK L. PRYOR, Arkansas              JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana          GEORGE V. VOINOVICH, Ohio
CLAIRE McCASKILL, Missouri           JOHN ENSIGN, Nevada
JON TESTER, Montana                  LINDSEY GRAHAM, South Carolina
ROLAND W. BURRIS, Illinois
EDWARD E. KAUFMAN, Delaware

                  Michael L. Alexander, Staff Director
     Brandon L. Milhorn, Minority Staff Director and Chief Counsel
                  Trina Driessnack Tyrer, Chief Clerk
         Patricia R. Hogan, Publications Clerk and GPO Detailee
                                 ------                                

 SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, 
              FEDERAL SERVICES, AND INTERNATIONAL SECURITY

                  THOMAS R. CARPER, Delaware, Chairman
CARL LEVIN, Michigan                 JOHN McCAIN, Arizona
DANIEL K. AKAKA, Hawaii              TOM COBURN, Oklahoma
MARK L. PRYOR, Arkansas              GEORGE V. VOINOVICH, Ohio
CLAIRE McCASKILL, Missouri           JOHN ENSIGN, Nevada
ROLAND W. BURRIS, Illinois

                    John Kilvington, Staff Director
    Bryan Parker, Staff Director and General Counsel to the Minority
                   Deirdre G. Armstrong, Chief Clerk


              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             JOHN J. DUNCAN, Jr., Tennessee
JOHN F. TIERNEY, Massachusetts       MICHAEL R. TURNER, Ohio
WM. LACY CLAY, Missouri              LYNN A. WESTMORELAND, Georgia
DIANE E. WATSON, California          PATRICK T. McHENRY, North Carolina
STEPHEN F. LYNCH, Massachusetts      BRIAN P. BILBRAY, California
JIM COOPER, Tennessee                JIM JORDAN, Ohio
GERALD E. CONNOLLY, Virginia         JEFF FLAKE, Arizona
MIKE QUIGLEY, Illinois               JEFF FORTENBERRY, Nebraska
MARCY KAPTUR, Ohio                   JASON CHAFFETZ, Utah
ELEANOR HOLMES NORTON, District of   AARON SCHOCK, Illinois
    Columbia                         BLAINE LEUTKEMEYER, Missouri
PATRICK J. KENNEDY, Rhode Island     ANH ``JOSEPH'' CAO, Louisiana
DANNY K. DAVIS, Illinois             BILL SHUSTER, Pennsylvania
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                         BRIAN P. BILBRAY, California
DANNY K. DAVIS, Illinois             ANH ``JOSEPH'' CAO, Louisiana
ELIJAH E. CUMMINGS, Maryland         ------ ------
DENNIS J. KUCINICH, Ohio
WM. LACY CLAY, Missouri
GERALD E. CONNOLLY, Virginia
                     William Miles, Staff Director


                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Carper...............................................     1
    Representative Lynch.........................................     4
    Representative Chaffetz......................................     5
    Senator McCaskill............................................     7
    Senator Coburn...............................................    28
    Representative Holmes Norton.................................    35
    Senator Akaka................................................    55
Prepared statements:
    Senator Carper...............................................    67
    Senator Akaka................................................    70
    Senator McCain...............................................    72
    Representative Lynch.........................................    74
    Representative Chaffetz......................................    76

                               WITNESSES
                        Wednesday, June 23, 2010

H. James Gooden, Chairman, Board of Directors, American Lung 
  Association, on behalf of the Alliance of Nonprofit Mailers....     8
Donald J. Hall, Jr., President and Chief Executive Officer, 
  Hallmark Cards, Inc............................................    10
Allen Abbott, Executive Vice President and Chief Operating 
  Officer, Paul Fredrick MenStyle, Inc., and Chairman, American 
  Catalog Mailers Association....................................    12
Keith McFalls, Vice President of Operations, PrimeMail and 
  Triessant, Prime Therapeutics, on behalf of the Pharmaceutical 
  Care Management Association....................................    14
Paul Misener, Vice President of Global Public Policy, Amazon.com.    15
Andrew Rendich, Chief Service and DVD Operations Officer, 
  Netflix, Inc...................................................    17
Don Cantriel, President, National Rural Letter Cariers 
  Association....................................................    38
Frederic V. Rolando, President, National Association of Letter 
  Carriers, AFL-CIO..............................................    40
William Burrus, President, American Postal Workers Union, AFL-CIO    42
Richard Collins, Assistant to the Presdient, National Postal Mail 
  Handlers Union.................................................    44
Louis Atkins, Executive Vice President, National Association of 
  Postal Supervisors.............................................    46
Charles Mapa, President, National League of Postmasters..........    47
Robert J. Rapoza, President, National Association of Postmasters 
  of the United States...........................................    49

                     Alphabetical List of Witnesses

Abbott, Allen :
    Testimony....................................................    12
    Prepared statement...........................................    89
Atkins, Louis:
    Testimony....................................................    46
    Prepared statement...........................................   132
Burrus, William:
    Testimony....................................................    42
    Prepared statement...........................................   121
Cantriel, Don:
    Testimony....................................................    38
    Prepared statement...........................................   109
Collins, Richard:
    Testimony....................................................    44
    Prepared statement...........................................   124
Gooden, H. James:
    Testimony....................................................     8
    Prepared statement...........................................    78
Hall, Donald J. Jr.:
    Testimony....................................................    10
    Prepared statement...........................................    81
Mapa, Charles:
    Testimony....................................................    47
    Prepared statement...........................................   137
McFalls, Keith:
    Testimony....................................................    14
    Prepared statement...........................................    94
Misener, Paul:
    Testimony....................................................    15
    Prepared statement...........................................    97
Rapoza, Robert J.:
    Testimony....................................................    49
    Prepared statement...........................................   152
Rendich, Andrew:
    Testimony....................................................    17
    Prepared statement...........................................   101
Rolando, Frederic V.:
    Testimony....................................................    40
    Prepared statement...........................................   113

                                APPENDIX

Vincent P. Giuliano, Senior Vice President, Government Relations, 
  on behalf of Valassis Direct Mail, Inc., prepared statement....   161
Questions and responses for the Record from:
    Mr. Hall with an attachment..................................   168
    Mr. Burrus...................................................   172


                     HAVING THEIR SAY: CUSTOMER AND
                      EMPLOYEE VIEWS ON THE FUTURE
                       OF THE U.S. POSTAL SERVICE

                              ----------                              


                        WEDNESDAY, JUNE 23, 2010

          Joint Hearing With the U.S. Senate,      
                    Subcommittee on Federal Financial      
            Management, Government Information, Federal    
                    Services, and International Security,  
                      of the Committee on Homeland Security
                                        and Governmental Affairs,  
             and the U.S. House of Representatives,        
              Subcommittee on Federal Workforce, Postal    
            Service, and the District of Columbia, of the  
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The Subcommittees met, pursuant to notice, at 2:41 p.m., in 
room G-50, Dirksen Senate Office Building, Hon. Thomas R. 
Carper, Chairman of the Subcommittee on Federal Financial 
Management, Government Information, Federal Services, and 
International Security, presiding.
    Present: Senators Carper, Akaka, McCaskill, Burris, and 
Coburn. Representatives Lynch, Holmes-Norton, Kucinich, Clay, 
Connolly, and Chaffetz.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. The hearing will come to order. Welcome, 
one and all. I especially want to welcome our witnesses, the 
first panel and our second panel of witnesses. Thank you for 
joining us. And a warm welcome to our House colleagues. We 
don't get to do this every day, so this is a real treat for us 
over here and thank you all for joining us.
    I am going to make an opening statement, and then if 
anybody would like to--when I look at the names right here, I 
look at Akaka--it says ``Akaka''--but I know that this is 
Senator Akaka. Representative Lynch, we are glad to have you 
here.
    Mr. Lynch. No offense to Mr. Akaka, either.
    Senator Carper. No. We are glad you guys are here, and if 
Senator John McCain is not here, we will just come to you and 
we will bounce back and forth.
    I am going to ask Senator McCaskill to introduce one of her 
constituents from Missouri, so I am glad that you could join 
us.
    I think this is the second hearing that I have chaired this 
year on the financial crisis currently facing the Postal 
Service, and we are going to talk about that and the proposals 
that Postal management and the Government Accountability Office 
(GAO) have made to address that crisis.
    We are joined at this hearing by our colleagues, as I 
mentioned, from the House Oversight and Government Reform 
Committee's Subcommittee on the Federal Workforce, Postal 
Service, and the District of Columbia. That is almost as long a 
name as the name of our Subcommittee. So if we put our names 
together, we could have a book, probably. But to our Chairman 
from the House, to our Ranking Member and your colleagues, we 
welcome you warmly and we look forward to working with all of 
you as we try to come to some consensus on the changes that are 
needed to help the Postal Service respond both in the short run 
and to the long-term challenges that they face.
    Senator Coburn, welcome. Good to see you. You might know a 
couple of these fellows and gals from the House.
    As we all know, the economic crisis that our country 
continues to face has impacted just about every family and just 
about every business in our Nation. It has been especially 
traumatic, I would argue, for the Postal Service, for the folks 
who work there, and for their key customers.
    The Postal Service ended fiscal year 2009 with a 13-percent 
decline in mail volume compared to fiscal year 2008. This 
resulted in a year-end loss of some $3.8 billion, up from $2.8 
billion a year before. And this loss came despite heroic 
efforts on the part of the Postmaster General, his team, and a 
lot of folks who work at the Postal Service to achieve more 
than $6 billion in cost savings over a very short period of 
time. And the loss would have been significantly higher, a 
total, I think, of about $7.8 billion, to be exact, if Congress 
and the President had not acted at the last minute to reduce 
the size of the Postal Service's overly large retiree health 
prefunding payment.
    Unfortunately, the projections for the current fiscal year 
look no better than these results for fiscal year 2009. And 
despite an expected recovery in at least some areas of the 
economy, the Postal Service is anticipating a further decline 
in mail volumes. This, coupled with the fact that savings will 
likely be harder to come by this year, will result in the kind 
of massive $7 or $8 billion loss that we were expecting right 
up until the end of fiscal year 2009.
    On top of this news, the Postal Service recently hired a 
group of three outside consultants, well respected, to look at 
the business model and to look at future prospects. The 
consultants came back with findings showing that the Postal 
Service will continue to lose mail volume, even when the 
economy recovers. They even pointed out that the Postal Service 
can be expected to lose more than, I think, $230 billion over 
the next decade--$230 billion over the next decade--if major 
changes are not made.
    So in short, we have our work cut out for us. At the Postal 
Service, it is imperative that Postal management not let up on 
their efforts to streamline operations and find ways to save 
money. The processing, delivery, and retail networks that the 
Postal Service uses today were built, for the most part, with 
the thought that mail volume would continue to grow forever.
    Based on the work that I have seen over the years from GAO, 
the Postal Service's Inspector General (IG), and others, we 
likely have some overcapacity and too large a workforce, and 
this must be confronted head-on. Postal customers, including 
those we will hear from today, still depend on the Postal 
Service, but at a time when the pace of electronic diversion is 
likely going to continue to pick up, we are aware that we can't 
rely forever on customers' willingness to continue paying more 
for a Postal system that seems in many ways to be larger than 
the one that we need.
    Congress also has a role to play. All too often, we 
criticize the Postal Service for various management and service 
problems, but then we stand in the way when the Postmaster 
General puts painful but necessary changes on the table.
    We have also failed recently to address the financial 
constraints that have worsened the Postal Service's problems. 
There is growing evidence that the formula created in the 1970s 
to determine how much the Postal Service must pay into the old 
Civil Service Retirement System has resulted in significant 
overpayments. In addition, it has become evident that in the 
2006 Postal Reform legislation, we saddled the Postal Service 
with an overly aggressive retiree health prefunding schedule 
that has pushed Postal finances into the red for many years to 
come. These two issues need to be resolved sooner rather than 
later and in a comprehensive manner so that Postal management 
can be free to address the long-term structural problems that 
threaten the Postal Service's survival in the coming years.
    Following this hearing, I plan to work with my colleagues 
here in the Senate, and I hope in the House, to begin the 
process of putting together legislation to help the Postal 
Service to execute the reform plans that Postmaster General 
John E. Potter put forth at our last hearing. This bill will 
not be another attempt at Postal reform. It is my hope, 
however, that it will remove the obstacles that prevent Postal 
management and the folks who work for the Postal Service from 
cutting costs while dealing once and for all with the pension 
and retiree health issues that we spent so much time discussing 
of late.
    The Committee reported out legislation last summer to 
address the 2006 retiree health payment schedule. It also 
touched on labor costs through a provision requiring 
arbitrators to take the Postal Service's financial condition 
into account during labor disputes. Following the Postal 
Service's announcement this spring regarding its long-term 
deficit projections, however, it has become clear to me that 
this legislation does not go far enough.
    So I look forward to working with all Postal stakeholders, 
including those in the room today, to put together a meaningful 
and effective bill. In doing so, I plan to urge everyone to put 
aside the biases and the political battles that made Postal 
reform so difficult in 2006 and that has prevented us from 
making progress on the pension and retiree health issues, at 
least so far.
    It is long past time that those interested in the Postal 
Service, whether they be unions, mailers, or Members of the 
House or Senate, recognize that we all need to make some 
sacrifices in order to preserve the vital service that our 
Postal Service provides.
    And what I am going to do now, in the absence of Senator 
McCain, we are going to come right to Representative Lynch and 
ask him to make his opening statement, and then if Senator 
McCain is here, we will yield to him, and then to 
Representative Chaffetz. Thank you. Welcome.

            OPENING STATEMENT OF HON. STEPHEN LYNCH

    Mr. Lynch. Thank you, Senator Carper. I want to thank you 
and your staff for your great kindness in hosting this 
important hearing.
    I don't know if I am going to be able to get my Members to 
go back to the House after they enjoy this air conditioning 
over here. I do believe you could hang sides of beef in this 
room and keep them fresh. [Laughter.]
    This is great. This is a real treat.
    Senator Carper. Actually, that is what we normally use this 
room for. [Laughter.]
    Mr. Lynch. I heard that.
    Senator Carper. The question they ask over here a lot is, 
where is the beef, and we say----
    Senator McCaskill. Also known as Senators. [Laughter.]
    Mr. Lynch. Well, thank you. I also want to thank the 
Members of the Senate Subcommittee on Federal Financial 
Management, Government Information, Federal Services, and 
International Security for agreeing to hold this House and 
Senate joint hearing, which goes to show that both Houses of 
Congress recognize the critical state of affairs currently 
confronting the U.S. Postal Service (USPS).
    As Chairman of the House Subcommittee with oversight of the 
Postal Service, I remain quite concerned about the financial 
and operational challenges that have caused our Nation's most 
trusted and prominent public institution to fall upon such 
difficult times. With new technology and the rise of electronic 
communications, the landscape for the way Americans communicate 
and transact business has been altered forever. Mail volume is 
declining dramatically as the cost of delivering mail to an 
expanding number of addresses continues to grow. The recent 
economic downturn has accelerated this trend and businesses 
have cut expenses and reduced their investment in the mail.
    Statutorily imposed benefit obligations, such as prefunding 
of future retiree health benefits, as the Senator mentioned, 
have made the Postal Service's financial situation even worse. 
This perfect storm has resulted in the Postal Service's 
experiencing an unprecedented cumulative loss of nearly $12 
billion over the past three consecutive fiscal years.
    While the Postal Service has recently revealed some 
relatively good news, that it is doing better this year than 
previously anticipated by approximately $1.3 billion, if 
current projections come true, the Postal Service could stand 
to lose another $7 billion by the end of this year.
    Given these extraordinary financial challenges, I am 
encouraged in some parts by the efforts of the Postal Service's 
action plan for the future, as well as GAO's report entitled, 
``Strategies and Options to Facilitate Progress Towards 
Financial Viability at the Post Office.'' The Postal Service's 
plan and the GAO's report have spurred a meaningful dialog 
about how best to return the Postal Service to sound financial 
footing, a dialog upon which all interested stakeholders can 
participate.
    While my Subcommittee and its Full Committee received some 
initial testimony on the Postal Service's plan and GAO's report 
in April of this year, constraints at the hearing did not allow 
for us to receive the testimony from other interested 
stakeholders such as the employees and customers who are here 
today. Customers and employees are the lifeblood of the U.S. 
Postal Service. Without them, there would be no U.S. Postal 
Service. It is essential that we hear the ideas, thoughts, and 
concerns of those most closely affected by the Postal Service 
before moving forward with any potential reforms. Only after 
hearing from the members of the Postal community can we fully 
explore and consider the ramifications of all viable options 
for ensuring a robust and vibrant Postal Service for decades to 
come.
    I appreciate today's witnesses for being here with us this 
afternoon to offer their feedback on the Postal Service's plan 
and GAO's recent report, as well as other suggested strategies 
on how to best increase revenue, reduce costs, and improve 
efficiency in order to help ensure the future sustainability of 
the Postal Service.
    Again, I would like to thank you, Senator Carper, for 
agreeing to hold this House and Senate joint hearing and I look 
forward to an informative discussion this afternoon. Thank you.
    Senator Carper. Good. Mr. Chairman, thank you so much, and 
thanks also for coming over here and chilling out with us for a 
little bit.
    I am pleased now to introduce from Utah, Representative 
Chaffetz. Has anyone ever mispronounced your name?
    Mr. Chaffetz. Oh, never. Not here in the Senate, I guess 
not. [Laughter.]
    Senator Carper. We will try to do a good job here today. We 
are glad you are here and we welcome your testimony.

            OPENING STATEMENT OF HON. JASON CHAFFETZ

    Mr. Chaffetz. Thank you, and thanks to all of the witnesses 
who are coming today and testifying. I do appreciate the 
bipartisan way in which Chairman Lynch has approached this and 
I thank him and his staff. I think we work fairly 
collaboratively.
    The issues before us are huge. We obviously need to talk 
about cutting costs and becoming more effective and efficient. 
What I think is often absent in this discussion along the way, 
though, is how is the Postal Service going to become more 
relevant in people's lives?
    And so while we do need to continue to discuss and examine 
and hear from the customers and the Postal Service and the 
unions and all of those folks who are involved in how to cut 
costs, let us also talk about the relevancy in the future. That 
discussion does not get enough out there. We have some of the 
great customers of the Postal Service and we look forward to 
hearing from you, but it is going to be the collective 
creativity, the collective genius of the users that are 
ultimately, I think, going to come up with the best solutions 
on how to make the Postal Service more relevant and more useful 
in people's lives.
    The community includes a $1.2 trillion mailing industry. 
The Postal Service delivers nearly half of all of the world's 
mail. The numbers are absolutely unbelievable in what happens. 
The U.S. Postal Service still has more retail locations than 
McDonald's, Starbucks, Walgreen's, and Wal-Mart combined. I 
think it is something that we need to address in a very serious 
manner. But there is no blinking from the fact that the Postal 
Service continues to suffer a major economic crisis.
    Now, I do think we should give recognition to the Postal 
Service for the cuts that they have made along the way. If only 
the rest of the Federal Government would follow the lead of the 
Postal Service--again, I still think there needs to be more, 
but as a whole you can look at the Postal community and say 
they have made difficult decisions. They have been bringing 
down costs. You can't say that about any other part of the 
Federal Government. And they don't get enough credit for that 
along the way and I think we should note that as we do that.
    I do appreciate the bipartisan way in the House that we 
dealt with H.R. 22. It was a significant stride and I would 
make note of that.
    The Postal Service continues to advocate cutting to a 5-day 
delivery. I personally am opposed to that. I am going to need 
to be convinced that we should move away from the 6-day 
delivery that we enjoy now. I, for one, believe that there is 
some sort of hybrid. I am going to introduce legislation that 
would give authorization to the Postal Service to allow up to 
12 days of delivery. There are probably some Saturdays or 
Tuesdays in August or July where not many people are going to 
miss getting their mail that day. Maybe that is the balance 
between cutting 52 days. I don't think we are going to cut a 
Saturday before Mother's Day and satisfy the customers, but I 
do think there is some sort of hybrid in between, and maybe 12 
days, allowing them to find 12 Postal holidays would be the 
right type of balance that would allow them to cut costs.
    There are creative things that I think we can do in this. 
We are obviously going to have to deal with the Civil Service 
Retirement System. It is a key issue. I do think we need to 
look at a BRAC type of system, a PRAC, if you will, where we 
look at how to cut back the Postal issues. We are going to have 
to deal with the reality of the postmaster, who every time we 
say we are going to cut a physical facility, the Member of 
Congress in that district calls him up and says, oh, anywhere 
else but my district. We have to create a way where we can 
objectively look at how to cut the number of physical 
facilities and still meet the needs of the customers along the 
way. Somehow, creatively, we are going to have to do that and 
bypass the politics that are normally instilled there.
    Again, I think for all the witnesses, I appreciate doing 
this in a bicameral way, and my colleagues who do pay attention 
to this issue. I thank the witnesses for being here today and 
look forward to the dialog.
    I yield back. Thank you.
    Senator Carper. Congressman Chaffetz, thank you for the 
very thoughtful comments, from both you and the Chairman.
    I am going to just give very brief introductions of our 
witnesses. I am going to call on Senator McCaskill to give a 
little bit longer introduction of Mr. Hall from Missouri.
    But on the first panel, we have a number of witnesses who 
are here representing some of the major customers of the Postal 
Service and Postal groups.
    First, we have James Gooden, and he serves as the Chairman 
of the Board of Directors of the American Lung Association, 
which is a major nonprofit mailer. Welcome. It is nice to see 
you.
    Mr. Gooden. Thank you.
    Senator Carper. Donald Hall is next, and he will be 
introduced in greater detail by Senator McCaskill.
    Next is Allen Abbott, the Executive Vice President and 
Chief Operating Officer at Paul Fredrick MenStyle, representing 
the catalog industry. Mr. Abbott, nice to see you.
    Following him is Keith McFalls from Prime Therapeutics, a 
major pharmaceutical mailer. Good afternoon.
    Next, Paul Misener, who is the Vice President of Global 
Public Policy at Amazon.com. A pleasure. Welcome.
    And finally, we have Andrew Rendich, the Chief Service and 
DVD Operations Officer for Netflix. Five years ago, if we had 
been having this hearing, would you have been here? Would 
Netflix have been here?
    Mr. Rendich. I would hope we would have been viewed as an 
up and comer, but I probably would not have been here.
    Senator Carper. All right. Fair enough. We are glad you are 
here.
    Senator McCaskill.

             OPENING STATEMENT OF SENATOR MCCASKILL

    Senator McCaskill. Thank you, Mr. Chairman. It is an honor 
today for me to take just a couple of minutes to introduce one 
of the witnesses. Kansas City is fortunate for many reasons, 
but among them is the fact that we have the finest greeting 
card company in the world that has a home base in Kansas City.
    A hundred years ago, our witness's grandfather founded 
Hallmark Cards, I think with a couple of shoeboxes of cards, 
and has built it into one of the most widely respected 
companies in the world, with international reach and with the 
kind of civic responsibility that is uniquely American. This is 
a company--both Donald Hall, Junior, his father, and his 
grandfather not only built an incredible company that everyone 
in Missouri is very proud of, they also built a culture around 
civic commitment, around giving back to the community, about 
participating in everything from the arts to the education of 
our citizens to the streets to our parks, you name it. Hallmark 
and the great employees at the Hallmark Company shape the civic 
community in Kansas City in all the right ways.
    I know that Donald Hall is here today representing a 
company, but he is really here representing hundreds of 
artists, professionals, managers, salesmen and thousands of 
small businesses across this country that depend on the mail 
service and depend on the fine business culture of Hallmark for 
their livelihood and for, in fact, looking forward to getting 
out of bed in the morning.
    I have many friends that have worked for Hallmark, and it 
is almost like there is something in the water at this company. 
You walk in, everybody is so damn happy, you want to know what 
the heck is going on because the people who work there are so 
proud.
    So it is great to have you here today, Mr. Hall. Great that 
Hallmark is being represented today on this panel, and we look 
forward to your testimony.
    And thank you so much for the courtesy of the introduction, 
Mr. Chairman.
    Senator Carper. You are quite welcome. Thanks a lot for 
providing the introduction.
    The entire statements of our witnesses will be made a part 
of the record. I would just ask that you each proceed. Mr. 
Gooden, I am going to call on you to go first. I would ask you 
to try to stick to 5 minutes. If you go much beyond that, we 
will have to intervene.
    We are going to have a series of votes here, in fact, I 
expected them to start by now, but they have not, so let us go 
ahead and go as far as we can. Thank you very much. Mr. Gooden, 
please proceed.

TESTIMONY OF H. JAMES GOODEN,\1\ CHAIRMAN, BOARD OF DIRECTORS, 
    AMERICAN LUNG ASSOCIATION, ON BEHALF OF THE ALLIANCE OF 
                       NONPROFIT MAILERS

    Mr. Gooden. Thank you, Mr. Chairman and Members of the 
Subcommittees, my name is Jim Gooden and I am the Chairman of 
the Board of Directors for the American Lung Association.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Gooden appears in the Appendix on 
page 78.
---------------------------------------------------------------------------
    The American Lung Association was founded in 1904 to fight 
tuberculosis, and today, our mission is to save lives by 
improving lung health and preventing lung disease. We 
accomplish this through research, advocacy, and education.
    I am honored today to testify on behalf of members of the 
Alliance of Nonprofit Mailers, of which the American Lung 
Association is a charter member. The Alliance of Nonprofit 
Mailers was established in 1980 as a national coalition of 
nonprofit organizations sharing a vested interest in nonprofit 
Postal policy. The Alliance is the primary representative of 
nonprofit mailers before the U.S. Postal Service, Postal 
Regulatory Commission (PRC), and on Capitol Hill. Our 
membership is a cross-section of America and it includes public 
health and medical groups, colleges and universities, consumer 
organizations, Farm Bureaus, and religious organizations.
    In 1907, the American Lung Association invented direct mail 
fundraising in the United States through our Christmas Seals 
program. A volunteer named Emily Bissell came up with a plan 
based on one that had worked in Denmark. She designed and 
printed special holiday seals and sold them at the Post Office 
for a penny each. By the end of her holiday campaign, she and a 
large group of committed volunteers had raised 10 times her 
initial goal, and with it, the American Lung Association 
Christmas Seals was born. We have a sample over to my left.
    The American Lung Association, like many other members of 
the Alliance, uses mail primarily to communicate with 
volunteers and to raise money. However, unlike many other 
organizations, we are also responsible for driving additional 
mail volume across the country as our Christmas Seals encourage 
Americans to send Christmas and other holiday cards, thereby 
boosting First Class mail. But an oversize, over-budget Postal 
Service threatens the members of the Alliance of Nonprofit 
Mailers and all other nonprofits, as the Postal Service will 
inevitably fall back on raising postage rates, in part to make 
up for its projected deficit.
    Our organizations are greatly troubled that the Postal 
Service has announced that it will raise postage rates by early 
2011. The increase is expected to be 5 to 10 times the rate of 
inflation. Nonprofits will be forced to not only cut back on 
the number of pieces we mail, but it will also greatly impact 
nonprofit organizations' abilities to deliver key programs and 
services across the Nation.
    For the Lung Association, it will impact our funding 
research to provide and improve treatments and to find cures 
for more than 35 million Americans with chronic lung disease, 
giving children the tools they need to manage their asthma so 
that they can stay healthy in school and be ready to learn, 
also for fighting for healthy air and fighting against tobacco. 
We, like other nonprofits, would also be forced to reduce mail 
volume, which will just reinforce the Postal Service's downward 
spiral.
    The American Lung Association and all nonprofit 
organizations are heavily dependent on a fiscally sound U.S. 
Postal Service, a cost effective, efficient Postal System. We 
believe the only solution is for the Postal Service to finally 
bring its infrastructure and its capacity in line with actual 
demand. That is why the Alliance of Nonprofit Mailers has taken 
the difficult step to support the Postal Service's 
recommendation to eliminate Saturday delivery.
    In addition to the threat of a general postage increase in 
early 2011, nonprofits are also concerned that preferred 
nonprofit postal rates could also be eliminated. This move 
would be a terrible mistake. Congress has authorized special 
nonprofit rates for more than 50 years and has repeatedly 
reaffirmed that policy because it still makes good sense. 
Reduced postage rates enable the American Lung Association and 
other nonprofit organizations, including churches and faith 
organizations, to provide a critical role in our society, one 
that is even more crucial today, when cash-strapped State and 
local governments are struggling to meet the basic needs of its 
citizens.
    Thank you for this opportunity to testify before you today. 
Nonprofit organizations can be found in every State and every 
Congressional district in this Nation and they provide a unique 
and necessary role in America. On behalf of all nonprofits, we 
ask for your continued support moving forward to ensure that we 
can continue to rely on an affordable and fiscally sound U.S. 
Postal Service. Thank you.
    Senator Carper. Thank you very much. Were you ever in the 
Army?
    Mr. Gooden. No, sir. I play one on television. [Laughter.]
    Senator Carper. I thought so. It is not every day we have 
someone who has a distinguished career like you, and also--what 
was the name of the show, on Lifeline?
    Mr. Gooden. On Lifetime.
    Senator Carper. There you go. All right. Well, good to see 
you.
    Mr. Gooden. Thank you, sir.
    Senator Carper. You look younger in person. [Laughter.]
    Mr. Lynch. That is what they say about you, Mr. Chairman.
    Senator Carper. I wish they did. They say other things 
about me. [Laughter.]
    All right. Mr. Hall, you are on. Welcome. Please proceed.

   TESTIMONY OF DONALD J. HALL, JR.,\1\ PRESIDENT AND CHIEF 
            EXECUTIVE OFFICER, HALLMARK CARDS, INC.

    Mr. Hall. Good afternoon, and thank you very much, Chairman 
Carper, Chairman Lynch, Ranking Member Chaffetz, and other 
distinguished Members of this Committee. I also want to thank 
Senator McCaskill for the warm Missouri welcome.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Hall appears in the Appendix on 
page 81.
---------------------------------------------------------------------------
    I appreciate the opportunity to speak with you about a 
critical situation, the sustainability of the U.S. Postal 
Service. It is a subject I care deeply about. I care because 
for much of Hallmark's 100-year history, the Postal Service has 
been a vital partner to us. We participate with others in our 
industry through the Greeting Card Association, and I am a 
member of the CEO Council of the Mailing Industry Task Force.
    We all share a common goal for a robust and stable Postal 
Service, one that I believe is vitally important to the people 
of this country. Yet the Postal Service is facing the most 
severe crisis in its history. We have all heard the dire volume 
and revenue forecasts signaling potential losses of as much as 
$238 billion by 2020. I compliment the Postmaster General for 
actions to date to bring Postal costs in line, but it is not 
enough if we are to sustain this institution.
    Over the past 30 years, it has never been easy to manage 
the Postal budget. Often, shortfalls have been solved by 
raising Postal rates, which consumers have accepted. However, 
given this economic contraction, consumers' unwillingness to 
now accept price increases in every aspect of their lives, and 
the number of alternatives available to users of the mail 
system, solving budget shortfalls through price increases and 
reduction of service not only won't work, it will make matters 
worse. We are at a tipping point. We must find a sustainable 
solution now. No one knows better than you that that will not 
be easy. But we can no longer avoid this reality.
    When the Postal Service was reorganized in the 1970s, it 
was charged with operating more like a business, less dependent 
on Federal subsidies. Operating like a business today means 
facing intensified pressures on volumes, costs, and pricing. 
Most businesses today are addressing the new realities of 
substitution and declining demand. I know of no business that 
is trying to compete by raising prices and degrading service.
    And yet that is precisely what the Postal Service seems 
determined to do with its proposal to end Saturday delivery and 
to increase rates far in excess of inflation. The advisability 
of such a move is questionable. Some debate the projected 
savings. Others worry that this is just the first step toward 
4- or 3-day delivery. I encourage you to reject the notion of 
reduced service as the path to sustainability.
    I believe there are a number of things Congress can do. The 
manner in which the 2006 law requires the Postal Service to 
prefund future retiree health care costs is untenable. No other 
branch of the Federal Government is required to prefund at such 
an aggressive rate. I am not recommending that Congress 
eliminate this requirement, just extend its timeframe for 
meeting this obligation, thus lowering the annual costs.
    Also, it should be determined immediately whether the Civil 
Service Retirement System obligation has been over-funded. If 
so, the $75 billion could be reapplied toward funding the 
retiree health care obligation.
    I encourage Congress to allow the Postal Service to close 
excess facilities by establishing a base closing-type 
commission, to eliminate the prohibition on closing Post 
Offices for economic reasons, and to allow arbitrators to 
consider the financial health of the Postal Service.
    None of these actions alone is sufficient to solve the 
projected losses. With more than 80 percent of their costs 
allocated to wages and benefits, Postal management, union 
leaders, and stakeholders must work together to find solutions 
that reflect the current financial situation.
    Over the next 2 years, labor and management will be 
renegotiating contracts. Both parties will raise legitimate 
issues. The only way to preserve the institution and maximize 
the number of quality jobs will be to take actions consistent 
with the long-term view.
    And it is not just Postal jobs that I am worried about. The 
mailing industry has lost 1.5 million jobs since 2006. The 
remaining 7.5 million jobs rely on a robust Postal Service. 
Those jobs have to be considered, as well.
    You have an opportunity to take bold action on behalf of 
the citizens and Postal stakeholders. You can make changes that 
will address undue financial burdens, allow the Postal Service 
to manage its facilities in light of required capacities, and 
continue to provide service at competitive pricing that will 
retain people in the Postal System.
    I am here because we are a partner with the Postal Service 
and care deeply about its future. We value the people who work 
at the Postal Service, the people whose businesses depend on 
the mail, and the American public that is connected by it. 
Absent a long-term view, prices will continue to increase 
greater than inflation, more mail will be driven out of the 
system, and more jobs will be lost. The future of the Postal 
Service hangs in the balance. Thank you.
    Senator Carper. Thank you for an excellent statement. Very 
nice to see you. Mr. Abbott, please proceed.

 TESTIMONY OF ALLEN ABBOTT,\1\ EXECUTIVE VICE PRESIDENT, CHIEF 
OPERATING OFFICER, PAUL FREDRICK MENSTYLE, INC., AND CHAIRMAN, 
              AMERICAN CATALOG MAILERS ASSOCIATION

    Mr. Abbott. Good afternoon. I want to thank the 
Subcommittee Chairmen, the Ranking Members, and the other 
distinguished Subcommittee Members for hearing my testimony 
today. My name is Allen Abbott and I am the Executive Vice 
President and Chief Operating Operator of Paul Fredrick 
MenStyle, a direct marketer of men's apparel located in 
Fleetwood, PA.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Abbott appears in the Appendix on 
page 89.
---------------------------------------------------------------------------
    Senator Carper. Where is Fleetwood?
    Mr. Abbott. Fleetwood is between Allentown and Reading.
    Senator Carper. OK. Thanks.
    Mr. Abbott. Paul Fredrick originates about nine million 
pieces of mail each year and our Berks County employees are 
highly dependent on an efficient and affordable U.S. Postal 
Service.
    I also serve as the Chairman of the American Catalog 
Mailers Association, an advocacy group that was formed on 
behalf of the catalog industry after the punishing rate hikes 
that our businesses experienced as a result of the 2006 Postal 
Rate Case.
    Paul Fredrick operates no retail stores. We are 100 percent 
dependent on direct response marketing. Ten years ago, the vast 
majority of our marketing strategy was built around mailing 
catalogs. Since the increase that we experienced in 2007, 
however, while our sales have increased by 34 percent, our 
catalog circulation has dropped by 29 percent. So why is this?
    Why, in a situation where we know a customer achieved and 
gained through catalog prospecting is actually the best 
customer in the long term, have we cut our spending? Because 
catalog postage rates have increased 58 percent between 1997 
and 2008, while the general rate of inflation was just 34 
percent during that period. This has skewed the economics of 
mailing catalogs versus other marketing options, especially in 
the area of new customer acquisition.
    Paul Fredrick loses money when we acquire a new customer, 
assuming a fair return on investment downstream. When our 
postage rates went up 20 percent in 2007, with little prior 
notification, we were forced to reallocate much of our catalog 
prospecting budget to other channels. We now distribute only 
half the number of prospecting catalogs we distributed just 3 
years ago.
    The 2007 postal rate increase and the recession of 2008-
2009 also required us to look carefully at mailings to our own 
customers. And now we are facing an exigent rate case that will 
further exacerbate the situation. Increasing catalog postage 
rates beyond the consumer price index (CPI) will further erode 
mail quantity in the years to come. This will put the jobs at 
Paul Fredrick in jeopardy, along with tens of thousands of 
other catalog-related jobs at other companies across the 
country.
    The GAO has stated that the current USPS model is not 
sustainable, and they are right. The current situation is not 
sustainable and everyone involved in the system needs to face 
this fact, doing what is necessary to change the model. As a 
business leader, trade organization chair, and U.S. taxpayer, I 
am asking that the following steps be taken to address this 
dire situation.
    In the Postal reform legislation passed in 2006, Congress 
empowered the USPS to function more like a business. Please 
reinforce that mandate and encourage the USPS to aggressively 
move forward with both cost reduction and revenue enhancement 
activities.
    Also, please encourage the USPS to start pricing products 
and services to maximize the individual customer variable 
marketing contribution, something every successful business 
model does. Many of the costs in the USPS pricing models are 
sunk. They will remain no matter what mail volumes are 
generated. The agency must understand those pricing strategies 
that will generate incremental customer contribution and go 
after them. Meaningful reduction in catalog prospecting postage 
rates will generate a great deal of incremental mail from Paul 
Fredrick.
    Also, please aggressively challenge those who oppose the 
closing of non-productive Postal facilities or the amendment of 
archaic work rules that drive up costs. I am sympathetic that 
local changes can have a painful impact on those directly 
affected, but the efficiency it creates is good for the 
majority over the long term. If we don't do this, costs will 
continue to grow and mail volumes will continue to shrink, 
ultimately costing more jobs in both the public and private 
sector.
    Also, please allow the USPS to shift to a 5-day-per-week 
delivery schedule. It is not optimal, but we can live with 5-
day delivery if it generates the savings indicated by the 
Postmaster-General's Department (PMG).
    Please adjust the inequities in the pension plan funding 
requirements for employees who have worked in both Civil 
Service and the Postal Service, ensuring a fair apportionment 
of costs between the USPS and the Federal Government, and also, 
please adjust the funding requirements for USPS retiree health 
care benefits to be aligned with actuarial need. The dramatic 
prefunding obligation, adding $5 to $6 billion in annual 
funding requirement, is a recipe for disaster for the long-term 
health of the USPS given where we are today.
    The Postal Service has historically contributed a great 
service to the citizens of our country at no cost to the U.S. 
taxpayer. This won't last much longer if we do not all act to 
restore the fiscal health of this fine institution. I 
respectfully implore you to do so now. Thank you.
    Senator Carper. Thank you very much for that testimony.
    Mr. Abbott. You are welcome.
    Senator Carper. Before I turn to Mr. McFalls, Chairman 
Lynch tells me he thinks the House might start voting again 
around 3:30 p.m. We have learned now the Senate is going to 
remain in what we call Morning Business until 4:30 p.m., which 
means we will have no recorded votes until at least that time. 
We have an opportunity maybe to actually complete this hearing 
without any interruptions, and we will just keep going while 
the House is in session. After Mr. Rendich has given his 
testimony, I am going to ask our Chairman from the House and 
our Ranking Member to go ahead and ask your questions before 
you have to go vote, and then we will ask some questions while 
you are away, and when you come back you will have your turn.
    Please proceed, Mr. McFalls.

 TESTIMONY OF KEITH MCFALLS,\1\ VICE PRESIDENT OF OPERATIONS, 
 PRIMEMAIL AND TRIESSANT, PRIME THERAPEUTICS, ON BEHALF OF THE 
           PHARMACEUTICAL CARE MANAGEMENT ASSOCIATION

    Mr. McFalls. Thank you, Chairman Lynch, Chairman Carper, 
Ranking Member Chaffetz, and Members of the Subcommittees. My 
name is Keith McFalls and I am a pharmacist and the Vice 
President of Mail and Specialty Pharmacy Operations for Prime 
Therapeutics. Prime is a pharmacy benefit management company 
collectively owned by 12 nonprofit Blue Cross-Blue Shield 
plans. We manage the prescription drug benefits for enrollees 
in Blue's plans, employer groups, and union groups, covering 
approximately 17 million people.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. McFalls appears in the Appendix 
on page 94.
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    While here representing Prime, I am also speaking on behalf 
of the Pharmaceutical Care Management Association (PCMA). PCMA 
is the national trade association for pharmacy benefit 
managers, which administers prescription drug plans for more 
than 210 million Americans. Pharmacy Benefit Managers (PBMs) 
such as Prime aggregate the purchasing clout of enrollees 
through their client health plans by negotiating price 
discounts from retail pharmacies, rebates from pharmaceutical 
manufacturers, and by running highly efficient mail service 
pharmacies. Last year, PBM mail service pharmacies collectively 
filled more than 238 million prescriptions nationwide, growing 
this year to over 250 million, nearly 90 percent of which were 
shipped via the U.S. Postal Service, which brings us here 
today.
    Mail service pharmacies are not only a growing and reliable 
customer to the U.S. Postal Service, but increasingly are an 
essential point of treatment access for patients suffering from 
chronic conditions and relying on maintenance medications. Mail 
service represents the fastest growing distribution channel for 
prescription drugs. We expect continued growth in the coming 
years as mail service provides a means for controlling costs 
and increasing savings. This will be particularly important as 
health care reform implementation increases access to the 
health system overall.
    A growing number of patients, including the elderly, 
disabled, and people living far from both Post Offices and 
pharmacies, prefer having regularly needed medications 
delivered to their home. In fact, 50 percent of the members 
serviced by Prime are rural patients. Prescriptions are filled 
and mailed to the customers, usually within a 3- to 5-day 
timeframe. Some mail service pharmacies offer delivery within 
24 to 48 hours, depending on patient need and type of 
medication required. Mail service pharmacies also retain 
pharmacists on staff who are available to counsel patients and 
consult with physicians.
    Prime Therapeutics has significant concerns with the 
Postmaster General's proposed elimination of a Saturday mail 
delivery. A reduction in service delivery days would mean a 
reduction in individuals' ability to obtain their drugs easily 
and conveniently. Eliminating Saturday delivery would result in 
a prescription processing delay of at least one, but 
potentially multiple days in the case of Federal holidays.
    Moreover, it is my understanding that Postmaster General 
Potter has suggested that additional counter service delays 
could also be considered. The U.S. Postal Service proposes that 
Saturday counter service would allow people needing a critical 
package or piece of mail to come to the Post Office to retrieve 
it. We would counter that the very reason some people use mail 
delivery of drugs is because they are unable to travel to a 
drug store or the Post Office to get their medication. For 
others, having to go to the drug store simply discourages them 
from getting their prescriptions filled at all.
    About 25 percent of all prescriptions are never filled, in 
part because having to go to the drug store or the Post Office 
is an impediment for some people. Mail service pharmacies have 
helped improve drug adherence by delivering drugs to people's 
doorsteps. Research shows that poor adherence adds 
approximately $290 billion in additional costs to our health 
system. Thus, our member companies would likely look for other 
ways to ensure timely deliveries. Indeed, PCMA has already 
received inquiries from organizations seeking to assure our 
member companies that they could fill in the delivery gap 
should mail delivery be reduced to 5 days.
    PBMs rely heavily on the U.S. Postal Service for our mail 
service pharmacies and we are a growing business partner of the 
Postal Service. Ensuring continued Saturday delivery is not 
only in our interest, but also of critical importance to the 
millions of Americans who rely on mail service pharmacy to 
obtain their prescription drugs.
    We look forward to working with this Committee to ensure 
the continued vitality of the U.S. Postal Service. We urge you 
to explore all possible options to expand the Postal Service's 
ability to remain competitive in this marketplace, including 
pricing and product flexibility.
    Thank you for your time and I am happy to answer any 
questions that you may have.
    Senator Carper. You bet. Thanks very much for sharing your 
thoughts with us today.
    And now we will turn to Mr. Misener. Welcome.

 TESTIMONY OF PAUL MISENER,\1\ VICE PRESIDENT OF GLOBAL PUBLIC 
                       POLICY, AMAZON.COM

    Mr. Misener. Thank you very much, Mr. Chairman. Chairman 
Carper, Ranking Member McCain, Ranking Member Chaffetz and 
Chairman Lynch and Members of the Subcommittees, my name is 
Paul Misener and I am Amazon.com's Vice President for Global 
Public Policy. On behalf of my company and our millions of 
American customers, thank you very much for inviting me to 
testify at this important hearing on the future of the U.S. 
Postal Service.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Misener appears in the Appendix 
on page 97.
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    Amazon.com Inc.'s subsidiaries fulfill customer orders from 
our retail business and increasingly through Fulfillment by 
Amazon sales by third parties, including many of the nearly 2 
million sellers who offer products on Amazon Web sites. Thus, 
Amazon's perspective is from that of a customer-focused company 
that ships parcels, not other types of mail, and I hope that 
our views will be helpful to the Subcommittees.
    Amazon enjoys a strong and extensive relationship with the 
Postal Service. The USPS is an integral part of the service we 
provide our customers. Globally, we spent well over $1 billion 
last year on outbound shipping, an increase of over 20 percent 
since 2008. In dollars, we spend nine figures annually on USPS, 
with over 2 million shipments per week using the Postal 
Service. And on behalf of our customers, we are talking with 
the USPS about ways to increase the number of these shipments.
    We cooperate with the Service as efficiently as possible. 
For example, we worked closely with the USPS to begin using a 
postal consolidator to shift a large portion of our downstream 
injection shipments from bulk mail centers to further 
downstream to local Post Offices. For years, we have supported 
the Postal Service's efforts to make itself more competitive, 
such as by introducing new products, including downstream 
injection, and entering negotiated service agreements.
    Our customers have come to appreciate and expect a Saturday 
delivery, and this is an instance where the USPS currently 
maintains a decided advantage over other carriers. And in some 
urban/suburban areas, we have even begun to use USPS for Sunday 
delivery via Express Mail.
    Amazon was very interested to review the recent USPS report 
entitled, ``Ensuring a Viable Postal Service for America,'' 
which confirms that parcel delivery is a bright spot for the 
service. While First Class and standard mail volumes are 
decreasing, parcel volume is increasing. This makes perfect 
sense, for although there are online or virtual substitutes for 
letters, bills, and advertising that decrease use of the mail, 
online shopping actually increases the need for physical 
shipments.
    Oh behalf of our buyer and seller customers, the issue that 
I want to focus on today is the USPS proposal to cease Saturday 
delivery service, except for Express Mail. We believe this is a 
bad idea. Not only would it be bad for parcel shippers, who 
would face higher costs to reach their urban and suburban 
customers on Saturday, it would be even worse for rural 
consumers and for the USPS itself.
    As I mentioned before, Amazon's customers have come to 
appreciate and expect Saturday delivery. While they may be 
willing to wait until Monday or Tuesday for a bill they don't 
really want, an advertisement they didn't ask for, or a 
magazine to which they subscribed long ago, they expect the 
items they purchased this week to be delivered as soon as 
possible. In addition to the United States, Amazon subsidiaries 
utilize Saturday delivery services in the United Kingdom, 
Germany, Japan, France, and China.
    Ceasing Saturday street delivery service would be much 
worse for our rural customers who simply would not be able to 
receive parcels on Saturday because there are no delivery 
alternatives to the USPS. Maintaining Saturday Express Mail 
delivery would not address this serious problem because Express 
Mail has an even less extensive rural coverage area than 
Saturday service from other carriers.
    Moving to 5-day delivery service would even be bad for the 
Postal Service, which would abandon its competitive advantage 
on Saturdays. As I mentioned before, we are looking for ways to 
increase our business with the USPS, but eliminating Saturday 
delivery would cause us to significantly decrease spending and 
package count. This is a key point. Elimination of Saturday 
street delivery will cause us to shift a significant fraction, 
approximately a sixth, of our current USPS business to other 
carriers.
    Unlike mailers that send other classes of mail, we have 
Saturday package delivery options for most of our urban and 
suburban customers who will not wait for Monday or Tuesday 
delivery if Saturday delivery is possible via other carriers. 
We likely would even shift some of the deliveries that 
otherwise would occur on Friday if we believe there is too much 
risk that delivery would miss Friday and then be held until 
Monday or Tuesday. That is, where we have a 2-day window in 
which our customer expects delivery, we may decide that some of 
the parcels that would be delivered by the USPS on Friday 
should now be shifted to other carriers to ensure Friday or 
Saturday delivery.
    So ceasing Saturday delivery would make the USPS less 
competitive, significantly reduce the parcel volume the Postal 
Service carries in urban-suburban areas, and worst of all, 
would deny consumers in rural areas a service they currently 
appreciate and expect.
    On behalf of Amazon's customers, particularly those living 
in rural America, we hope the USPS will withdraw this proposal. 
If the 5-day delivery proposal is not withdrawn, however, we 
ask that Congress ensure that Saturday delivery be maintained.
    So thank you very much and I look forward to your 
questions.
    Senator Carper. Well, you are right on the money. Way to 
go.
    Mr. Rendich, please proceed.

     TESTIMONY OF ANDREW RENDICH,\1\ CHIEF SERVICE AND DVD 
               OPERATIONS OFFICER, NETFLIX, INC.

    Mr. Rendich. Good afternoon. My name is Andrew Rendich. I 
am the Chief Service and DVD Operations Officer for Netflix. I 
am pleased to be here today and to discuss the issues related 
to the future of the Postal Service. I oversee all aspects of 
DVD operations, including shipping and receiving as well as our 
relationship with the Post Office.
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    \1\ The prepared statement of Mr. Rendich appears in the Appendix 
on page 101.
---------------------------------------------------------------------------
    Netflix is an online movie subscription company. We deliver 
movies and TV episodes to more than 14 million subscribers in 
two ways. First, we stream directly over the Internet. And 
second, we ship DVDs through the U.S. Postal System.
    On average, we ship 2 million disks daily from our 
nationwide network of more than 50 distribution centers. These 
centers have been strategically located to optimize our 
fulfillment operations with that of the Postal Service, thus 
helping to provide 97 percent of our subscribers of DVD to 
getting their DVDs in one business day.
    For 2010, we anticipate spending about $600 million in 
First Class postage, making us the largest growing First Class 
mailer in the United States. While Netflix delivers movies and 
TV episodes in two ways, my comments today will only be about 
the DVD side of our business.
    At the macro level, Netflix believes the Postal Service 
should have the ability to adjust and change technologies as 
customer demand shifts. The Postal Service is operating in a 
time of significant change and is facing many challenges. These 
challenges have been outlined by the Postal Service and 
confirmed by the GAO. We believe that multiple proposals put 
forward by the Postal Service in the Action Plan for the Future 
will help secure the vitality of the Post Office for many years 
to come and help assure that our Nation continues to enjoy a 
reliable, trusted, and affordable mail service.
    With my limited time today, I would like to focus on three 
of the Postal Service's important proposals. First, we believe 
a well-functioning Postal Service positioned over the long haul 
to meet the changing customer demand is more important than 
maintaining the current delivery frequency. The Postal Service 
has proposed eliminating Saturday operations. While this change 
would affect our subscribers, we believe the overall impact 
would be fairly small. We support the proposal, but to be 
clear, Netflix does not favor ending Saturday delivery in a 
vacuum. Rather, it is a reasonable part of a comprehensive 
reform package that in totality will address the very difficult 
challenges facing the Postal Service in the future.
    Second, with respect to the Postal Service's obligation to 
fund retiree health benefits, we are all concerned that 
additional rate increases might be used to cover this 
obligation and will unnecessarily impact businesses and 
consumers that use the Postal Service. Companies like Netflix 
would either have to bear the impact of these increases or pass 
that cost along to its customers. In either case, we believe 
that these additional costs will only further worsen the 
challenges faced by the Postal Service, making the products 
more expensive and further negatively impacting mail volumes.
    Third, the Postal Service has announced its intention to 
seek a rate increase due to exceptional and extraordinary 
circumstances. Netflix believes the economic turmoil of the 
past few years, coupled with rapidly changing technology 
issues, constitute exceptional or extraordinary circumstances. 
Nonetheless, we hope that Congress will provide relief to the 
Postal Service on many of the issues it is facing, thereby 
minimizing any necessity to raise rates.
    Finally, as noted in my written testimony, we also support 
the Postal Service's other proposals as a comprehensive 
approach to deal with the challenges that they face.
    I would like to thank the Subcommittees for their time and 
the opportunity to be here today.
    Senator Carper. Mr. Rendich, thanks very much.
    I am going to go ahead and start off with 5 minutes of 
questions and we will turn to Chairman Lynch and then to 
Congressman Chaffetz.
    The first question I would ask is for Mr. Abbott. You tell 
a distressing story in your testimony about how the value of 
the mail has eroded in recent years for you, for your firm, and 
for at least some of your colleagues in the catalog industry. 
It sounds, though, like you would like to remain in the mail, 
working with the Postal Service, and maybe even expand your use 
of it. What are some of the things that the folks at the Postal 
Service can do in order to make that happen?
    Mr. Abbott. Certainly. I want to make clear that we are a 
big fan of the U.S. Postal Service for many reasons. I 
appreciate their cooperation over the last several years in my 
capacity with the American Catalog Mailers Association. And at 
the same time, a catalog customer acquired through a catalog 
mailing is our best customer downstream. We get a lot more 
value out of that customer than we do out of a customer 
acquired either online or through magazine advertising.
    But it comes down to a simple question of economics. There 
is a value of a catalog-acquired customer, which is higher than 
any other customer, but the investment to acquire that customer 
has just gotten higher and higher as the cost of postage has 
outraced inflation, certainly. And what I ask is that the 
Postal Service look at us as a customer and speak with us and 
sit down and ask the question, OK, is there a price at which we 
will mail so much more mail than we are currently mailing that 
you will get more marketing contribution from us as a customer? 
That is what we do when we are talking strategy within our 
company. So we want to have that dialog.
    Obviously, we are not asking for a reduction in rates just 
so that we can pocket the money. We are asking for a rate to be 
considered that would allow us to dramatically increase the 
amount of mail we send, which should be a win for everybody.
    Senator Carper. Thank you.
    A question for the whole panel, if I could, and Mr. 
Rendich, if you will just start us off, please. One thing that 
hasn't received a whole lot of attention since the Postal 
Service issued its plan is the need for the Postal management 
to seek out new sources of revenue. Let me just ask, what has 
been your assessment of the Postal Service's recent efforts in 
this area and what else can they do?
    Mr. Rendich. Well, I think in the Post Office's case, 
seeking out new sources of revenue is obviously one of the key 
things that is going to help provide us with a stable, reliable 
Post Office. I know that many of the automated kiosks have been 
well received. They have been put in areas where consumers 
typically are, not unlike DVD kiosks, for example. They are out 
there and they are convenient and they get a lot of us.
    So I think the efforts that the Post Office have made so 
far are great. I think they need to continue to invest in this, 
and invest diligently. It shouldn't just be a part-time thing.
    I wish I had the solution for, where do we find the next 
Netflix? Where is there another big revenue stream that is 
coming? Unfortunately, I don't have that answer.
    Senator Carper. All right, thanks. Mr. Misener.
    Mr. Misener. Mr. Chairman, we have long advocated Postal 
Service flexibility to enter negotiated service agreements, and 
these would be one-off deals that they could do like any other 
business is able to do, and we would like to see expanded use 
of that. It seems to make a lot of sense for them to operate 
more like a business and have that additional flexibility, 
which, for example, led to our cooperation to use a mail 
consolidator to move traffic further downstream. We have the 
volume to do that. Perhaps other mailers do, as well.
    Senator Carper. OK, thanks. Mr. McFalls.
    Mr. McFalls. I am in agreement with my colleague here in 
that we are a new revenue source. We are a growing business 
that is starting to use the Postal Service more and more 
frequently. Ninety percent of everything we ship today goes 
through the Post Office. And our industry is continuing to grow 
at 4 to 5 percent every year as an industry. That is going to 
be new revenue for the Postal Service, and by impacting the 
number of days' delivery, we can potentially impact the 
patients' care. We need that additional service to be able to 
drive and grow this industry faster.
    Senator Carper. Thanks very much. I guess by virtue of the 
baby boomers coming online for retirement and Medicare Part D.
    Mr. McFalls. It is a very big part of our growing business.
    Senator Carper. It has got to be. OK, thanks. Mr. Abbott.
    Mr. Abbott. It was mentioned earlier that the Postal 
Service has more retail outlets than McDonald's, Wal-Mart, a 
couple others combined. I would love to see them use some of 
that space to introduce consumers to some of their mail 
customers like Paul Fredrick. We are not a household name like 
some of the bigger catalogers, but we could work with them to 
generate some introductory offers or just get acquainted with 
Paul Fredrick and others like us. I think it would be a 
terrific partnership opportunity.
    Senator Carper. OK. Thanks. Mr. Hall.
    Mr. Hall. I think that innovation is terribly critical for 
every business today and I think there are some things the 
Postal Service is doing that can be amplified. For instance, 
one of the things we are taking advantage of is the intelligent 
bar code, which is making it more convenient for consumers to 
send mail. We are putting our advertising behind it so that we 
can promote it with the consumer. And I think those kinds of 
things, enjoin business to help promote the use of the mail is 
very important right now.
    The summer sale that they had last year was very helpful in 
promoting the usage of mail and bringing people back into the 
mail stream. I think those kinds of efforts need to be 
sustained, and I think there was an opportunity this year to 
have gone further with that kind of promotional approach to get 
people back into the mail stream.
    I think, apart from price, which we have all talked about, 
I think one of the things that will limit creativity will be 
adding slowness to the mail stream.
    Senator Carper. Say that again. Adding what?
    Mr. Hall. Adding greater delay to the mail stream. 
Consumers today are looking for more and more immediacy in 
their lives, and I think immediacy has to be part of the total 
product bundle. I think the more time we add to the mail 
stream, the more of a perception we create around ``snail 
mail'' and the less likely we will be able to find carrying on 
opportunities that actually increase the relevancy and usage of 
the mail. So I think speed and price are very critical to help 
drive innovation.
    Senator Carper. All right. Thanks. Mr. Gooden.
    Mr. Gooden. Yes. The American Lung Association and all 
other nonprofit organizations are very heavily dependent upon a 
very fiscally sound U.S. Postal Service, and this is an ideal 
opportunity for the U.S. Postal Service to be more innovative, 
as Mr. Hall has said, in order to find better ways to reach the 
American people that we serve through the American Lung 
Association.
    Senator Carper. OK. Thanks. I am going to stop right there. 
I have gone about 6 minutes and 45 seconds, and we will just 
ask our other Members to keep their comments or questions 
within 7 minutes. I may slip out of the room for a moment, Mr. 
Chairman. If I do, you are in charge. Take it away.
    Mr. Lynch. Thank you, sir.
    I was sort of keeping score here on the 5-day delivery 
question and I noticed that Mr. Gooden and Mr. Abbott, you came 
down in favor of the elimination of 6-day delivery, and Mr. 
Hall and Mr. Misener--and all of the testimony is good. I am 
not critical of your approach to this, but I thought it did 
come out in a counterintuitive way. Mr. Misener, I thought your 
remarks were very thoughtful on that, and I tend to agree with 
you. Mr. Rendich, you sort of hedged, reluctantly conceding 
that if something has to happen, you wouldn't want to just see 
Saturday go away, but some type of management of that 
transition.
    But I was surprised that, Mr. Gooden, a nonprofit mailer 
that gets a discount from the U.S. Postal Service, and Mr. 
Abbott, the catalogs are probably one of the more costly items 
actually to mail and they get a substantial discount, you two 
folks are getting a discount from the Post Office and you want 
to see Saturday go away. And I am just curious, are UPS and 
FedEx giving you a discount for nonprofit?
    Mr. Gooden. To my knowledge, the other services do not 
provide discounts to nonprofit organizations. If there is a 
discount, it may be based on bulk volume, which goes to all 
consumers, not necessarily nonprofits only.
    Mr. Lynch. Mr. Abbott, are you getting a better rate from 
FedEx and UPS on catalogs?
    Mr. Abbott. We don't distribute catalogs through FedEx and 
UPS.
    Mr. Lynch. Why is that? Too expensive?
    Mr. Abbott. They don't offer that service. I mean, you 
could use their services. It would cost a lot more than it 
costs in the Postal Service.
    Mr. Lynch. Yes.
    Mr. Abbott. But specifically to Saturday delivery, it is 
not optimal in my mind that it be eliminated. I think I am in 
agreement with Mr. Rendich that as part of a comprehensive cost 
reduction program that Postmaster General Potter has put 
forward, we can live with it.
    Mr. Lynch. Yes.
    Mr. Abbott. Again, it is not optimal, but we are willing to 
make that concession for the overall good of the Postal 
Service's health.
    Mr. Lynch. I am glad you qualified and refined your 
statement.
    Mr. Misener, I thought you were spot on in terms of, look, 
if we stop Saturday delivery, and if I am a customer and I know 
the Post Office is going to be closed on Saturday and Sunday 
and maybe it is a holiday on Monday, I don't go to the Post 
Office. Just to make sure my stuff gets delivered, I pull my 
business over to FedEx or UPS just to be sure that it gets 
delivered within the next 3 days. And I think that is what Mr. 
McFalls was raising in his concern with folks' prescription 
drugs.
    Mr. Misener said if you close on Saturday, one-sixth of my 
business goes from the Post Office to FedEx, UPS, or to 
somebody else. And if that happens across all industries and 
across all customers, and then on top of that, the halo effect 
of the Post Office being closed for Saturday and Sunday, I 
think you lose even more business. And so it is sort of like--
there is water in the boat and it is sinking, so let us drill 
holes in the bottom of the boat, and then you just sink even 
faster. So I don't buy into the analysis.
    I had a chance at a previous hearing to talk to Mr. Potter, 
who is a good man and I think he is really trying to find some 
ways to find some solutions and we are lucky to have him. But 
he did say that if we went to 5-day delivery now, he said he 
wouldn't lay off any career employees. He would have to cut all 
part-timers, but that he wouldn't have to lay off right now. I 
am just very concerned about the downward spiral that this--we 
have a lot of part-time workers, so unemployment is going to go 
up if we go to 5-day delivery because we will lose all those 
part-time employees that we have out there. I understand the 
need for efficiency, but I am very concerned about the long-
term viability.
    And also, think about this. If you stop Saturday delivery, 
FedEx and UPS will do the most profitable routes. They will 
pick that up. That is how capitalism is. But they will not 
adopt the standard of universal service. So if we go to 5-day 
delivery, that is the end of universal service because these 
locations that we are adding every year, and I think about my 
rural colleagues, how they are served, they will suffer the 
greatest, I think, those folks that are out in the boonies and 
don't have immediate access. So I worry about that aspect of 
it, as well.
    Mr. Abbott, could you talk about those concerns?
    Mr. Gooden. With the American Lung Association, we would 
have to make some modifications in our delivery. We would have 
to change our drop dates to ensure that we would fall within 
that window of opportunity for mail delivery so that it would 
not fall on a traditional Saturday or a holiday. We take those 
things into consideration now, and it would require some more 
work on our end, but we would do that if it were necessary to 
save the Postal Service.
    Mr. Lynch. OK. Mr. Abbott, anything to add?
    Mr. Abbott. I think we are in a similar situation. We would 
have to adjust delivery schedules of catalogs, but again, it is 
just something we are willing to do if it helps the overall 
situation.
    Mr. Lynch. OK. I have a minute left, so does anybody else 
have anything they would like to add? All right. Yes, Mr. Hall?
    Mr. Hall. I would be willing to offer a contrary opinion 
from my colleagues on either side of me.
    Mr. Lynch. God bless you. [Laughter.]
    Mr. Hall. I think, although we view it very differently, I 
think everybody who voiced support for the idea of 5-day have 
couched that very carefully around a commensurate reduction in 
cost. The concern I have with that approach is I think it is a 
slippery slope. We would be giving up 16 percent of our total 
service commitment for what is purported to be a 4 percent 
decrease in cost. I think that when we really tie into those 
numbers, we will find that the cost is probably not that large, 
and I would suggest that what we will see in terms of trade-off 
in volume, people leaving the mail stream or people moving 
their choices to alternatives would very quickly start to erode 
whatever savings we were able to garner from a 5-day schedule.
    Mr. Lynch. Thank you. Any closing comments? My time has 
expired, but I am just looking at technology down the road. I 
know that in a couple of Scandinavian countries, they have this 
on the Internet now so that you can see your mail on the 
Internet and you can click whether you want that mail delivered 
or not, and I just think that technology is coming down the 
road and that technology will even further reduce the volume of 
mail that is out there. It will make us more efficient, no 
question about it, but it will reduce the volume, too, so I am 
fearful of that.
    But I really appreciate all your testimony, regardless of 
whether necessarily I agreed with it all, but I think it is 
very thoughtful and it certainly helps us in making our 
decision. I yield back.
    Senator Carper. Mr. Chaffetz, before you start, we have a 
group of exemplary educators who are here today from my State 
and they are waiting to meet with me at 4 p.m. in the Visitors 
Center. I am going to slip out for a little bit to go spend 
some time with them and then come back and forth. It sounds 
like the House might reconvene and may start voting around 4:15 
p.m.
    Maybe we can get some extra time for our House colleagues 
so that they can get their questions in, and the Senate goes 
into session, I think, maybe a little bit later than that.
    Mr. Chaffetz, you are on, and then after that, I think 
according to our list here, Ms. Norton and Senator Coburn, 
Representative Connolly, Senator McCaskill, Senator Burris, and 
we have maybe one more down there. I don't know. OK. Thank you.
    Mr. Chaffetz. Thank you. I appreciate it. The time is 
short, so I want to just try to touch on a few things if I 
could.
    I want to talk about price elasticity, because one of the 
things that you hear is we should have this postal rate 
increase in order to drive revenue. But when you raise prices, 
I have a hard time believing that the volume is going to start 
going in the right direction. Can you tell me what kind of 
effect that is going to have on something like Hallmark, and 
then perhaps if we could also talk about Netflix and what a 
rate increase does to your business and what you anticipate 
would happen in volume?
    Mr. Hall. Yes, I would be happy to address that, and I 
think that the comments would be not only in terms of greeting 
card volume, but I think would affect all classes of mail.
    I think there was a time when the Postal System enjoyed a 
monopoly, where there were price increases, they were readily 
accepted by the consumer and volumes were increasing. And I 
think we lived in that world for many years, until very 
recently. But I think that whole world has dramatically changed 
and why I think this is a tipping point.
    The consumer today has many alternatives. They can move 
their mail many different directions, whether it is greeting 
cards or whether it is magazines or whether it is any of the 
types of mail that we are talking about. People can use 
different points of the mail stream.
    The economy, I think, has changed that pricing elasticity 
dramatically, and I think we can look at it in terms of 
greeting card price elasticities, but I think we see it in 
virtually every consumer good today. There is the consumer 
speaking to that with their actions and choices, and we see it 
reflected in the CPI. We see it reflected by wholesalers and 
retailers having to constantly reduce their prices to engage 
the consumer again and----
    Mr. Chaffetz. Thank you. The time is so short. Mr. Rendich.
    Mr. Rendich. In general, obviously, increasing postal rates 
is not going to be good for our business. Netflix does 
understand that periodically the Post Office does need to make 
a slight adjustment to the postal rates to cover its cost, and 
that is understandable. But if we are talking about big postal 
rates, in other words, trying to deal with the retiree issue or 
some of the other major issues that are going on with the Post 
Office, that would be prohibitive.
    Netflix is growing its DVD shipment by 18 percent year over 
year. You hear a lot about streaming in the press about 
Netflix, but let me tell you, DVD is a big growth business for 
us. We are going to be shipping DVDs for 20 more years. DVDs 
has a whole new life in terms of BlueRay and HD-DVD. Anyone 
that has seen that knows that is a wonderful experience and it 
is going to give DVD a lot of legs. We have not yet peaked on 
our DVD shipments.
    So what I am getting to is, as I said before, we need a 
reliable, trustworthy, affordable U.S. Postal Service. We all 
benefit from it, whether it is the folks at this table here or 
the American consumer in general. And I think slight price 
increments in terms of having to deal with what it actually 
costs to get mail delivered can be appropriate. But big rate 
increases will absolutely squash business. It will absolutely 
slow growth for a company like Netflix.
    Mr. Chaffetz. Thank you. And for those of you that didn't 
have a chance to answer some of these questions, if you care to 
comment after the fact, to insert something in the record, we 
would certainly appreciate it. I know we are kind of hand 
picking and we have to go very briefly. If you want to expand 
on these, I would invite you to please do so.
    Maybe, Mr. Abbott and Mr. McFalls and Mr. Misener, if you 
could very quickly, it was brought up earlier, under the model 
of a FedEx or one of the other models out there, there is a 
surcharge for Saturday delivery. Is that something you are open 
to? Would you be open to paying a premium for a Saturday type 
of delivery? Mr. Abbott.
    Mr. Abbott. I would offer that option to our customers, if 
they are willing to pay for that delivery, which is the way we 
work it now with UPS and FedEx on our parcels. You know, we do 
have an option for Saturday delivery. It is an up-charge on the 
shipping charge to the customer. It is not something that we 
would want to absorb as part of our operating expenses.
    Mr. Chaffetz. Mr. McFalls.
    Mr. McFalls. We absolutely would pay that surcharge to 
ensure that the patient got their medications in a timely 
manner and that we didn't impact any patient care. It is just a 
very prudent approach within our industry to ensure that. We 
currently pay those surcharges now for all those expedited 
packages that we need to get there on a Saturday or at a 
member's request or because of the medication type that we 
have.
    Mr. Misener. Mr. Chaffetz, I think we would have to 
recognize, dependent on how much the surcharge would be, 
whether we would stay with the Postal Service or go elsewhere. 
But certainly maintaining Saturday delivery is so critical, 
especially, as I say, in rural areas of the country where there 
aren't those competitive alternatives. So perhaps in those 
areas, it makes sense to have a surcharge for the Postal 
Service, where you don't have the opportunity to go to another 
carrier.
    Mr. Chaffetz. OK. Mr. Gooden, you mentioned the need and 
concern for a viable Postal Service. The one area in which the 
American taxpayers have a supplemental appropriation is with 
the nonprofit mailers. Certainly, the American Lung Association 
is the most worthy of causes that we could probably come up 
with as an example of nonprofit mailers. There are some others 
that, well, may be pushing the limits a little bit. How would 
you react--how do you think the industry, the nonprofit mailers 
would react to a rate increase to cover the very basic costs, 
because right now, it looks like, financially, they are upside 
down and the American people are supplementing the expenses of 
nonprofit mailers. How does that strike you?
    Mr. Gooden. I wouldn't be able to speak for all 
nonprofits----
    Mr. Chaffetz. Sure. I understand.
    Mr. Gooden [continuing]. Especially those that fall into 
that dubious category that you mentioned, but for the American 
Lung Association, we depend on the preferred rates that 
Congress established for us 50 years ago, and has reaffirmed 
over those past 50 years, that nonprofits such as the American 
Lung Association serve a critical role in American society. We 
provide education, health care, information, and research, and 
we do this in part through our mailings. So it would directly 
impact our ability to serve those people in the United States 
who suffer from asthma and other lung diseases. So it is very 
critical for us to be able to maintain this preferred status.
    Mr. Chaffetz. Thank you. And Mr. Rendich, I have just 30 
seconds here. I have a hard time understanding or believing 
that somebody who goes online on a Thursday night and places an 
order and wants to get their DVDs, or pops it back in the mail 
so it starts to go back through the process, if that process 
starts on a Thursday and gets back on a Friday, that the next 
delivery possibility is on a Tuesday.
    If you look at, for instance, a 5-day delivery, where we 
are eliminating a Saturday delivery, and Monday is a holiday, 
you have quite a gap here between that Friday and the Tuesday. 
I still am a little mystified, a little surprised in your 
testimony that, oh, yes, we will be OK with that.
    Mr. Rendich. OK. Well, to clear up the misunderstanding, 
not all days are actually consistent at Netflix. In fact, 
Tuesday happens to be twice as many shipments and deliveries as 
any other day of the week. As it turns out, you go further in 
the week, a smaller number of DVDs come in.
    And what ends up happening is most of our customers watch 
their DVDs over the weekend. They put them in the mail on 
Monday. We receive them on Tuesday, send them another shipment. 
They get it on Wednesday and they are set for the weekend.
    I am sure there are some customers that might fall into 
your Tuesday example, but the fact of the matter is, it is 
actually a small number of customers in our customer base.
    Mr. Chaffetz. Thank you, Mr. Chairman. I yield back.
    Mr. Lynch [presiding]. I thank the gentleman.
    The Chairman recognizes the gentleman from Virginia, Mr. 
Connolly, for 5 minutes.
    Mr. Connolly. I thank the Chairman and thank the panel for 
being here.
    Let me first begin, Mr. Chairman--I am sorry Senator Carper 
just left the room, but we have heard this figure of $238 
billion over 10 years bandied about. I will recall for my 
colleagues on the House side that at our Subcommittee hearing 
which you chaired, Mr. Chairman, in direct questioning--and I 
am passing this out now so all of my colleagues on the Senate 
and House side have a copy--in direct questioning to the 
Postmaster General about the validity of this $238 billion 
figure, he admitted, ``it was a theoretical number.'' And when 
pressed, he admitted that he already has the authority and the 
plans to cut half of that number right now.
    So we are not talking about $238 billion over 10 years. We 
are talking about something quite less, and that assumed that 
the Congress would do absolutely nothing for the next 10 years. 
It assumed that economic performance would have no appreciable 
effect on performance, even though history tells us otherwise. 
We have actually had the debate about going from 6 to 5 days 
many times in the history of the Postal Service, always to be 
proved to be premature. Cassandra-like statements are followed 
by record profits. So a little word of caution.
    But I just want my colleagues to have a copy of this 
exchange. It is a matter of public record that the $238 billion 
number is a scare tactic to get us to make some decisions and 
maybe in some ways to substitute for a viable business model, 
which is really what we need to be talking about. What is the 
business model of the future for the Postal Service? And simply 
coming up with a list of cuts that may very well, as Mr. Hall 
was indicating, put us in a death spiral with the best of 
intentions.
    But at some point, it is self-defeating for a business to 
cut core services in that business and then to expect to 
actually stay viable and make a profit. That is an odd way to 
run a business, and if we want to actually look at the model 
for how that is working, the newspaper business is a great 
example. That is exactly what they have done, and what has 
happened is they have fewer and fewer readers, fewer and fewer 
subscribers, and fewer and fewer advertisers because the 
product is no longer viable, and we have to be very careful 
about that with the Postal Service.
    Mr. Gooden and Mr. Abbott, in response to the questioning 
of Chairman Lynch, you said that, well, if it was required to 
save the Postal Service or to make sure it was viable, you 
could live with going from 6 to 5 days a week. But if I 
understood your earlier testimony, what you also said was we 
are willing to sacrifice that for the public so long as our 
discounts aren't touched. Isn't that really true?
    Mr. Gooden. I don't know if it is an either/or.
    Mr. Connolly. So you would be willing to sacrifice your 
current discount rate if that is what it took to save the 
Postal Service?
    Mr. Gooden. I would not be able to speak on that right now.
    Mr. Connolly. No, I didn't think so. But you are able to 
speak about going from 6 to 5 days?
    Mr. Gooden. That, I am.
    Mr. Connolly. Yes. Well, that affects the whole public, not 
just you, and they might have something to say about that.
    Mr. McFalls, I am a little concerned about the issue of 
prescriptions. There are prescriptions and there are 
prescriptions. There are some pills that maybe it wouldn't 
matter whether there was a 2- or 3-day hiatus, as Mr. Chaffetz 
suggested, depending on the weekend. But there are other drugs 
that need to be delivered fairly fresh. What are some of the 
consequences, potentially, in terms of medication on patients 
if we go to 5-day delivery?
    Mr. McFalls. I think you will impact patient therapy, and 
there are some critical diseases that are affected. Diabetes is 
the first one that comes to mind. You can't go for a very long 
period of time without your diabetic medication, whether that 
be insulin or an oral medication. It is going to put you into 
some type of a medical crisis which could then end up in the 
emergency room or physicians or hospitalizations. So it is 
actually going to drive up health care costs.
    That is one of the ways that we see this particular 
problem, is it is not really a budgetary issue, it is a health 
care issue from our side. Hypertension is the same way. I take 
high blood pressure medicine, as many Americans do, one day 
here or there, I don't worry about it too much. But if I know I 
am going to have to go 3 or 4 days without medication, that 
starts to concern me. Is it going to throw me into a crisis 
that ends up into the emergency room? Probably not, but is it 
going to create anxiety and change me a little bit? Absolutely, 
and I am going to make sure that I don't run out of that and 
have to figure out how to hoard, which then creates a whole 
other issue of medication use and waste.
    Mr. Connolly. And, Mr. McFalls, if I start to get worried 
about the reliability of the mail service for my medication, 
are there other alternatives available to me in terms of 
getting my medication?
    Mr. McFalls. There absolutely are. We are going to go to 
other alternative delivery systems, whether that be a FedEx, a 
UPS, or some other business that is going to fill into that 
niche, whether it be a consolidator, and injecting further down 
into the Post Office, but being able to expedite through.
    We also are going to come back and look at what it takes us 
within our own operations to improve or to shorten that length 
of time. Right now, we talk about that it takes 3 to 5 days to 
deliver a prescription. Well, out of that 3 to 5 days, 
typically 1, 1\1/2\ days of it is only spent in our facility. 
The rest of it is delivery time, incoming and outgoing through 
the Post Office. So we would increase our operating 
capabilities, even shorten that more, which then again is going 
to drive different economic impacts.
    Mr. Connolly. Mr. Misener has pointed out that in his 
business, in his line of business, it could affect maybe more 
rural areas especially in terms of delivery of goods. Mr. Hall, 
you were in sort of the midst of a pretty thoughtful statement 
when your time ran out, but I wonder if you want to continue 
that statement.
    But, obviously, greeting cards, if we go, as Mr. Chaffetz 
suggested, with a whole 3-day period of no mail delivery 
because Monday is a holiday, and that holiday is a greeting 
card holiday, you are going to have to look at some 
alternatives to the Postal Service.
    Mr. Hall. There is no question that the consumer is looking 
for more and more immediacy. We see it with every one of our 
seasons, that the purchase of greeting cards gets later and 
later in the season. That happened for Father's Day. It 
happened for Mother's Day. It happened last Mother's Day, last 
Father's Day, last holiday. People are waiting longer because 
they are used to greater immediacy.
    The more we add to the time dimension, the less the Postal 
Service will be a viable opportunity for people to connect with 
others, and I think that will be true in many other industries 
beyond greeting cards.
    Mr. Connolly. And again, I have alternatives.
    Mr. Hall. Yes.
    Mr. Connolly. In the old days, I didn't have alternatives. 
Now, I have alternatives.
    Mr. Hall. Yes.
    Mr. Connolly. Mr. Chairman, my time is running out. I just 
want to quote H.L. Mencken, who once said that ``for every 
human problem, there is a solution that is simple, neat, and 
wrong.'' Going from 6 to 5 days is one of those solutions. I 
yield back.
    Mr. Lynch. Thank you, Mr. Mencken.
    The Chairman recognizes the distinguished gentleman from 
Oklahoma, Senator Coburn, for 7 minutes.

              OPENING STATEMENT OF SENATOR COBURN

    Senator Coburn. Thank you, Mr. Chairman.
    All of you, with the exception of Mr. Gooden, run 
businesses or are involved with businesses. How many of you all 
would negotiate a labor contract not considering the financial 
state of your business? Anybody? And yet we do that every year 
with the Postal Service when we negotiate contracts, that we 
are forbidden to consider the financial condition of the Postal 
Service. How many of you all think it is a wise idea? How many 
of you think it is unwise?
    [Show of hands.]
    Senator Coburn. Yes. Nobody would do that. In the Postal 
Reform bill that mandate was removed, that we would start 
considering the financial condition of the Post Office in 
negotiating labor contracts. That is idiocy at its best.
    Mr. McFalls, do you have data that shows the length of 
overlap on prescriptions that you repeatedly send to your 
customers? In other words, how many of them are out of medicine 
at the time the medicine arrives?
    Mr. McFalls. We can provide that data. I do not have it 
with me. One of the things that we have built into place, 
though, is that there is a window of opportunity that we allow 
a refill to occur so that we have adequate time to get that 
prescription to a person before they run out.
    Senator Coburn. Right. So Saturday delivery really wouldn't 
make any difference on that unless it is insulin or some other 
medicine that is an injectable, right?
    Mr. McFalls. I disagree with that, because I do think it 
would, because it comes back to human behavior, and right now, 
we have challenges. People don't use that window to its full 
effect.
    Senator Coburn. Well, they are not using it now. Why would 
it be any different if we had 5- or 6-day delivery. I am not 
advocating either way but you all have to have data that shows 
that.
    Mr. McFalls. We do have the data and we can provide that.
    Senator Coburn. You are doing these critical medicines not 
through the Postal Service anyway. You are doing a lot of the 
Saturday stuff through other shipping mechanisms, as well, are 
you not?
    Mr. McFalls. No, sir. Ninety percent of everything we ship 
right now goes through USPS.
    Senator Coburn. OK. What is the other 10 percent?
    Mr. McFalls. The other 10 percent is products that are 
typically temperature sensitive and need to have some high 
handling.
    Senator Coburn. Right.
    Mr. McFalls. Those are going overnight, next day. It may be 
Saturday----
    Senator Coburn. So you are not shipping insulin through the 
mail. You are doing overnight----
    Mr. McFalls. We are doing that under an overnight----
    Senator Coburn. That is right, and so critical drugs like 
insulin, which is one of the most critical, you are already 
handling a different way.
    Mr. McFalls. We are.
    Senator Coburn. As a physician, there aren't many other 
drugs other than injectables that have to maintain a 
temperature range that fall into that category.
    Mr. McFalls. That is correct.
    Senator Coburn. That is correct.
    You have all premised an opinion. I would like for you to 
restate your opinions, if you would, on what you think the 
Postal Service should do in terms of maintaining, or 
eliminating some of the cost factors that you know are there 
that could be changed. Do you have any ideas to offer this 
bicameral panel that we could give the Postal Service? We have 
heard several of you mention the fact that closing things that 
are not efficient, yet we can't close them because a politician 
gets in front of that. Any suggestions? Mr. Hall.
    Mr. Hall. The GAO has estimated that we are 50 percent over 
capacity in the system. The Inspector General has noted in a 
recent report that since 2005, we have only reduced the costs 
in our bulk mailing centers by 2 percent and our processing and 
distribution centers by 1 percent. I think bringing capacities 
in line is something that any business has to do to be able to 
be vital, and as Mr. Abbott mentioned, a lot of costs are 
fixed.
    Senator Coburn. Yes. You would agree that you have probably 
had more productivity increase in your organization during that 
period of time than what the Postal Service has had?
    Mr. Hall. Well, I think every business has to drive more, 
and to be viable, you have to drive at higher rates than this.
    Senator Coburn. Would anybody disagree with the fact that 
they ought to fix those things before they ever consider a rate 
increase? Does anybody disagree with that? So that is true.
    Mr. Rendich, I seem to recall a statement by your company 
talking about this fast conversion from mailing to digital. Am 
I in error on that, or did I hear that in the last month as a 
press release from your company, that the expected growth on 
digital transmission of your service was going phenomenally, 
and they made some comment about how the postal side of that 
would be declining?
    Mr. Rendich. I believe----
    Senator Coburn. Did I make that up? Did I dream that, or is 
that----
    Mr. Rendich. It is true that our digital delivery is 
growing quite nicely. However, as I stated here and we have 
stated publicly other times, our DVD business--in other words, 
the number of shipments, the number of times we are making 
First Class mailings each and every day--is growing by 18 
percent year over year. Most businesses would love to have that 
type of growth. And so for us, the U.S. Post Office is a long-
term partner.
    We have been on the record of saying we will be shipping 
DVDs for the next 20 years. We have not yet hit the peak for 
DVD's. With a business that is growing like that and has such 
other alternatives, like the high-definition BlueRay, we 
believe DVD has a lot of legs to it.
    The reason that I am here is because the Post Office is a 
long-term partner for us. It is very serious, and we want to 
make sure that we have a sound, resilient, affordable U.S. 
Postal Service to best serve our business as well as the 
American consumer.
    Senator Coburn. I don't think I have any further questions, 
Mr. Chairman. Thank you.
    Mr. Lynch. I thank the gentleman.
    The Chairman recognizes the gentleman from Missouri, Mr. 
Clay, for 7 minutes.
    Mr. Clay. Thank you, Mr. Chairman.
    Let me start with Mr. Hall. Mr. Hall, what motivated 
Hallmark to start a product initiative utilizing the Postal 
Service's intelligent mail bar code technology?
    Mr. Hall. I thank you. The technology was being developed 
by the USPS and we were very interested in it. We partnered 
with them. They developed this new technology and we saw that 
it could be applied and would address the convenience that is 
important to consumers, and we thought that by helping to 
market it and bring it to life in a product, it would utilize 
the technology and help introduce it to people.
    Mr. Clay. And how successful has this initiative been?
    Mr. Hall. The working relationship with the USPS has been 
very good on this, and we have been very appreciative of the 
focus and attention they put around innovation. We will be 
launching it the first of next year.
    Mr. Clay. And was it difficult to undertake? Did you have 
to change out personnel or hire new personnel or make 
technological changes?
    Mr. Hall. I don't know how much technological change was 
needed within the Postal System, but I think from the other 
standpoint, it is purely about product and innovation and 
promotion. So it has been all additive and good for everybody.
    Mr. Clay. And do you think other mailers can work with the 
Postal Service to create innovative solutions to help alleviate 
future postal issues?
    Mr. Hall. I think that is a really good point, because I 
think we all have to look for innovative ways to get people to 
use the mail more, and we all have a vested interested in 
helping to drive more to the mail stream.
    Mr. Clay. Thank you for your response.
    Mr. Gooden, in your role as a member of the Alliance of 
Nonprofit Mailers, do you believe that a rise in postal costs 
will disproportionately affect nonprofits?
    Mr. Gooden. Yes, I do. We depend greatly upon return mail 
to be sent to the national office and to other offices around 
the country, and an increase in postage would also take away 
the money that they would be donating to the American Lung 
Association and other nonprofits for us to do our important 
work.
    Mr. Clay. Are there any other proposed changes that, in 
your opinion, would disproportionately affect nonprofit 
mailers?
    Mr. Gooden. I wouldn't be able to answer that off the top 
of my head, no.
    Mr. Clay. Can you explain how the Alliance of Nonprofit 
Mailers came to support the elimination of 6-day service?
    Mr. Gooden. Those details, I would be glad to submit for 
the record, to be put into the record.
    Mr. Clay. To be put----
    Mr. Gooden. Put into the record, yes. I don't have that 
information on hand.
    Mr. Clay. So you took a vote, or did your Association take 
a vote on it, discuss it?
    Mr. Gooden. The details on how we came to this conclusion?
    Mr. Clay. Yes.
    Mr. Gooden. That, I am not sure of.
    Mr. Clay. You don't want to discuss it in open hearing?
    Mr. Gooden. I will be glad to get you the information.
    Mr. Clay. What does that mean?
    Mr. Gooden. I don't have the information with me.
    Mr. Clay. OK. So you were----
    Mr. Gooden. I would have to confer with those others who 
put together this package and be able to give the information 
necessary.
    Mr. Clay. I see.
    And Mr. Misener, do you have any suggestion of how your 
Association could work with the Postal Service to come up with 
strategies and utilize the Service?
    Mr. Misener. Thank you, Mr. Clay. As I mentioned before, 
the delivery of parcels sent by companies like Amazon.com to 
our customers is growing at a terrific rate and USPS is 
benefiting from this. Our global shipping expenditures are 
growing at the pace of about 20 percent a year. And so this is 
a bright spot for the Service.
    My points simply were that if the Postal Service were to 
drop Saturday delivery, there would be a disproportionate 
impact on rural communities for which there is no competitive 
alternative, and in the places like urban/suburban areas where 
there is a competitive alternative, we would simply shift 
carriers, taking business away from the USPS and giving it to 
the alternative carriers.
    Mr. Clay. Yes, but also, I have witnessed that on Sundays 
and some holidays, the Postal Service making deliveries. I 
mean, could you still utilize those services with the USPS?
    Mr. Misener. Yes, sir. In fact, we do use Express Mail in 
some limited markets for delivery on Sunday, and that certainly 
is an alternative on Saturday, except that the geographic 
coverage of Express Mail is even smaller than that of other 
carriers. And so rural areas still would have no alternative on 
Saturday.
    Mr. Clay. I see. OK. So it is about populations and 
sparsity.
    Mr. Chairman, those are the questions I have and I yield 
back.
    Mr. Lynch. I thank the gentleman.
    The Chairman recognizes the gentlelady from Missouri, 
Senator McCaskill, for 7 minutes.
    Senator McCaskill. Thank you. Let me start, Mr. Hall, I 
assume that you have had an opportunity to look at the recent 
GAO report about the efforts on excess capacity, and I know 
that the previous report that you referenced in your testimony 
was that the capacity was at 50 percent. That certainly catches 
my eye as an auditor. It certainly catches my eye as someone 
who realizes that we have the U.S. Postal Service in direct 
head-to-head competition with businesses that have much more 
flexibility and many times much more nimble about their ability 
to adapt to the marketplace. What is your reaction to what was 
deemed satisfactory progress by the GAO in terms of the excess 
capacity issue?
    Mr. Hall. Yes. I think you are referring to the June 16 
report, which indicated that--and acknowledged the fact that 
the USPS has made progress and reduced costs by about $140 
million. And while that is progress and a step in the right 
direction, it is not a big enough step to have a meaningful 
difference. And I think to look over the timeframe and to see 
that we have had such little impact at reducing those 
capacities and introducing flexibility, that the mountain has 
only gotten bigger. And I think as Representative Chaffetz said 
in his opening remarks, the mail volume isn't expected to come 
bounding back, and I think some decline is something that we 
have to continue to envision. So those capacities, if not 
addressed, will only become more burdensome.
    Senator McCaskill. Now, it seems to me that as we look at 
the labor issues and if we look at the 6-day delivery issues 
and we look at the cost of mailing things issue and then we 
look at the excess capacity, it seems to me the excess capacity 
is the least painful. I certainly agree with the points you 
made in your testimony.
    To what extent have Hallmark's customers, and to what 
extent have Americans gravitated toward the Internet when it 
comes to personal greetings? I hate to say this to my friends 
who have sent them to me--I get emailed Christmas cards, and my 
emailed birthday wishes, and emailed ``hope you are having a 
nice day,'' and, I don't know, they feel spammy to me compared 
to opening an envelope, seeing the signature or reading the 
personal note. Now, I know it sounds like I am making a 
commercial for you, but I am curious. Am I the only one? I 
mean, is this happening? Are Americans gravitating towards the 
Internet for personal greetings?
    Mr. Hall. Well, I am really glad to hear you feel that way. 
A lot of people feel that way. The e-cards have been around 
almost 15 years. We do offer e-cards. But they have been 
incremental. They have not been substitutes. And we have seen 
that greeting card volumes have not varied greatly over that 
period of time. So they have not had an impact on the usage of 
this part of the mail stream. In fact, it has been one of the 
more stable parts of the mail stream.
    The thing that will make it unstable, and I think the 
reason why I feel such a great sense of urgency about this 
moment in time, is that people are making important economic 
choices, and while they would prefer to send a greeting card, 
postage will become a factor, and we are seeing that 
dramatically in box Christmas cards, where postage is actually 
now more expensive than the greeting card. I have heard members 
of the magazine industry indicate similar kinds of experiences.
    I think at this point in time, consumers have an elasticity 
that is very different, and I think that if they make those 
choices to stop because of price, we will see the volume 
declines accelerate dramatically.
    Senator McCaskill. Mr. Abbott, I get lots of catalogs and 
they are my reading of choice in that period of time before I 
can turn on my electronic device while I am sitting on the 
runway and they won't let me do anything electronic, but you 
need to let some of your fellow members know that I don't need 
four Pottery Barn catalogs. Maybe this is a signal of how much 
I shop over the Internet, but there is an awful lot of 
duplication that is going on that I think could help with the 
cost structure.
    Let me get to Mr. Misener. I am a huge customer of yours. I 
am Prime. I can't figure out how you make that work. I pay very 
little and get free shipping all year long. I am curious why 
you ever use anyone other than USPS. Why are the competitors, 
other than the rural component, why is it that--because I kind 
of watch to see if it is a brown truck or a white truck or a 
red, white, and blue truck that pulls up my driveway, and I am 
curious who makes that decision and why can't we get more of 
your business? Why can't we get 90 percent of your business 
like we are getting 90 percent of Mr. McFalls' business?
    Mr. Misener. Thank you, Senator, very much. There are a 
variety of reasons that go into which carrier we choose. If you 
count all of our carriers in the United States, there are 
probably 15 or so that specialize in different areas. The 
Postal Service is obviously one of the very biggest ones. A lot 
of it has to do with the guarantee, how certain are we that it 
will land within the promise that we make to our customers. 
Which day that it will land on is very important to us, and 
this is why I mentioned in my testimony that we would likely 
move a lot of our Friday delivery service from the Postal 
Service to competitive carriers----
    Senator McCaskill. Right.
    Mr. Misener [continuing]. For fear of missing the Friday-
Saturday window, or actually missing the Friday window when we 
gave them Friday-Saturday as the possibility.
    So it has to do with a lot of factors. Cost is one of them, 
of course. We are always trying to drive down our cost for our 
customers. But the USPS is vital to us in rural areas. It 
really is, especially, for example, on Saturday deliveries, and 
it would just be a very unfortunate disproportionate impact on 
our rural customers if Saturday delivery were dropped.
    Senator McCaskill. I am not talking about the people that 
sell on your side, but for Amazon, what percentage of your 
business is going to the U.S. Postal Service now?
    Mr. Misener. It is a very large percentage. We don't 
release the number, Senator----
    Senator McCaskill. I am looking for a number.
    Mr. Misener. It is nine figures business, and----
    Senator McCaskill. But what percentage? Like, let us assume 
that--is it 50 percent? Is it 70 percent? Is it 80 percent?
    Mr. Misener. It is tens of percents, Senator. I am sorry. 
We just don't release that number, and it changes all the time. 
But we do rely on the service. We have recognized that they 
have these unique abilities in particular in rural areas, but 
in other areas, particularly on Saturday, we do have 
alternatives and we simply will switch to those alternatives if 
necessary. We just can't wait to ship our products until next 
week. As I say, a bill, a customer, consumer can wait for. 
Perhaps a catalog, a couple of days, it doesn't make a 
difference. But a parcel that has been ordered just a few days 
earlier makes a huge difference----
    Senator McCaskill. No, I know. It is free, 2-day--one 
click, free, 2-day. I pay extra if I want it in 1 day.
    Mr. Misener. Right.
    Senator McCaskill. But is it a majority? If you can't give 
me a percentage, is it more than 50? I am a prosecutor. I won't 
give up. [Laughter.]
    Mr. Misener. It is a large percentage, Senator.
    Senator McCaskill. OK. So you are not going to tell me.
    Can you tell me why? Let us just say I order from Amazon 
and it is something relatively small. A book is probably not a 
good example, because I would probably order the book 
electronically, but let us assume I was ordering a hard-cover 
book I can't get on Kindle. So is that something--let us assume 
it is a book. Why would you choose FedEx or UPS as opposed to 
the Postal Service to ship a book?
    Mr. Misener. To meet our promise to our customers.
    Senator McCaskill. OK.
    Mr. Misener. Especially a Prime customer, as yourself--we 
want to ensure that delivery occurs as quickly as possible, and 
that is often not possible or is not predictable through the 
Postal Service.
    Senator McCaskill. Well, the reason I am trying to pin you 
down is I am trying to figure out what the competitive 
advantages and disadvantages are for the Postal Service. There 
is a reason for this line of questioning. So I am going to go 
to work trying to figure out a way to ask this question of all 
of you for the record so that I can try to figure out what are 
the competitive advantages for the Postal Service and what are 
the competitive disadvantages so we can begin in our oversight 
capacity to really hone in on making the Postal Service as good 
as they can possibly be when they have a competitive advantage, 
and that might very well be 6-day delivery.
    Mr. Misener. It is----
    Senator McCaskill. Maybe we need to focus on 6-day delivery 
as the lead of why we can compete as opposed to abandoning it 
first. Since I don't think I am going to get you to answer the 
question the way I want you to today, I am going to work on 
trying to figure out a way to get you to answer it a different 
way in writing and maybe we can get to the nub of the matter, 
what is the business advantage the Postal Service has and are 
they exercising it to the best of their ability.
    Thank you, Mr. Chairman.
    Mr. Lynch. I thank the gentlelady. And to the gentlelady's 
point, we are going to leave the record open. I know that a lot 
of other hearings are going on today, so we will leave the 
record open for 5 legislative days for Members who are 
otherwise occupied to ask you further questions which you would 
be required to respond to in writing.
    With that, I will recognize the gentlelady from the 
District of Columbia, Ms. Eleanor Holmes Norton, for 7 minutes.

  OPENING STATEMENT OF HON. ELEANOR HOLMES NORTON, DELEGATE, 
                      DISTRICT OF COLUMBIA

    Ms. Holmes Norton [presiding]. Thank you very much, Mr. 
Chairman. I have been on this Subcommittee ever since I have 
been a Member of Congress and I have gotten to the point of 
fear and trepidation about the loss of the only agency that is 
in the Constitution, where the Framers intended there to be a 
universal Postal Service. And frankly, I have heard so much 
nickeling and diming of the Postal Service, including by the 
Postal Service, that I am rather much past that. I believe the 
Postal Service is in such danger that if we cannot find larger 
trunks, that we are just fooling ourselves. It is going to go 
down the drain while we find smaller and smaller trunks.
    I have seen some reference, minor references, in some 
testimony you have offered. This whole hearing has discussed 
eliminating Saturday delivery as if it were the centerpiece 
because there is so much money there. Do you realize how much 
money? Have any of you any notion of how much money you would 
save on an annual basis? Does anyone know that figure, 
because----
    Mr. Abbott. If I may, I think the Postmaster General 
indicated about $3 billion----
    Ms. Holmes Norton. That is about right.
    Mr. Abbott. And the PRC is saying maybe $2.3 or $2.4 
billion.
    Ms. Holmes Norton. That is about right. And if we look at 
the shortfall, whether Mr. Connolly is right or not, it is plus 
or minus--mostly right--and given the condition of the Postal 
Service, I don't want them to lowball it, frankly. So the 
Postal Service says, 10 years, 2010 to 2020, $238 billion 
shortfall. See, I am through with Saturday service as a lead, 
even a lead, as my good friend from Missouri says, because you 
are leading with a very weak leg. And then you are going to be 
back here doing the same thing.
    I just think we are all being very irresponsible, not you, 
but the Congress knows good and well that if we go after 6-day 
service, that Congresswoman Norton, a big city girl, won't mind 
much, but her good friends from smaller communities will be up 
in arms, and it is probably going to be impossible. So let me 
look at something that has been mentioned in the testimony of 
at least two of you, and it may have been in others, but I 
picked it up in two testimonies.
    How many of you are required to prepay your health benefit 
premiums? Any of you?
    [Heads shaking.]
    Ms. Holmes Norton. How many of you on an accelerated basis 
prepay your retirement benefits? Gentlemen, you are from the 
private sector. Do you realize that we are requiring the Postal 
Service to do something that none of you in the private sector 
do, and the Federal Government looks very hypocritical because 
it is the last entity to do that.
    But this Congress hasn't moved off that and yet you want to 
talk about 6-day delivery knowing full well that that doesn't 
crack this nut. Why wouldn't the private sector, which is in 
the business of staying in business, look beyond the low-
hanging fruit and get up in the trees where the big money is 
and where nobody can say that the Postal Service somehow would 
be reneging on something to use what we always use the private 
sector understands should be done?
    So I want to know, and I will refer to two pieces of 
testimony from Mr. Hall. Mr. Hall, there was certainly some 
mention of what you called the need for a sustainable cost 
structure, and you recognize, without saying so, that $3 
billion annually is not going to get you there. I was 
particularly intrigued, Mr. Rendich, by what you had to say, 
because you not only discussed these retiree health benefits, 
but you indicate that at the rate that the Postal Service is 
required to pay them, that the Postal Service will have no 
alternative but to raise the costs on entities like your own.
    I would just like to devote my time here to hearing your 
discussion of this accelerated prepayment for the retiree 
benefits and the prepayment for the health benefits, which no 
entity in the United States does, and whether you would 
recommend that the Congress look for some real money first, at 
which time I think we would all have a lot more credibility to 
even talk about a lousy $3 billion.
    So I want to go right across--you don't have to do it--and 
ask you whether you would recommend that we engage in some 
greater equitable policy with respect to retirement and health 
benefits for the Postal Service, perhaps modeling it on what 
others do, like the Federal Government or even the private 
sector, and I would like an answer from everyone here, since 
none of you, you tell me, has to prepay the way the Postal 
Service does, and yet few of you even mentioned this as a 
possible way to break through this and finally get at this 
deficit--I should say, at least two of you did. But I want to 
hear from all of you and whether you would recommend that 
Congress, in fact, look into--consider as a priority making 
what the--or allowing the Post Office to do what apparently 
every other entity, public and private in the United States, 
does in some form or fashion. Mr. Gooden.
    Mr. Gooden. I would hope that the Congress would look at 
the higher fruit in the tree and find the greatest cost savings 
that could be found.
    Ms. Holmes Norton. I am asking you about the cost savings, 
Mr. Gooden, that I indicated, and the reason I asked you about 
them is I asked what yours were first. So compare it to 
yourself and your entity and tell me whether you would 
recommend something similar for the Postal Service, which is in 
far greater trouble, as I understand it, than you are, sir. So 
please try to answer my question directly. This is a very 
serious situation here.
    Mr. Gooden. I agree. It is very serious. I am with the 
American Lung Association and I can only speak for the American 
Lung Association in that capacity today at this point with your 
question. And we do not, as far as I know, participate in the 
plan that you are talking about that the Postal Service does.
    Ms. Holmes Norton. If you did, would your business be 
harder to conduct from a cost-benefit point of view?
    Mr. Gooden. I would imagine so, yes.
    Ms. Holmes Norton. Thank you. Mr. Hall.
    Mr. Hall. Yes, Representative Norton. I think that you are 
putting your finger right on one of the most important issues 
in front of Congress right now as you address this question. I 
think that the funding formula should be addressed, at least in 
the short term. It is untenable to expect that kind of 
prefunding of the retiree medical plan.
    I think, also, the Civil Service Retirement System 
obligation has perhaps been over-funded, and I think that one 
of the things that you could do is determine whether it has, 
and if so, that money could be reapplied to the benefit.
    Ms. Holmes Norton. Thank you very much, Mr. Hall. Mr. 
Abbott.
    Mr. Abbott. Congresswoman Norton, I absolutely agree with 
you. It is included in my testimony that both the prefunding of 
the health care benefits for retirees and the pension issue 
must be addressed.
    Ms. Holmes Norton. Thank you very much, Mr. Abbott. I am 
sorry if I overlooked you. I was trying to get this by 
listening to who mentioned it, so I appreciate that you had 
done so. Mr. McFalls.
    Mr. McFalls. Yes, ma'am. I would absolutely agree with you 
on this point.
    Ms. Holmes Norton. Thank you. Mr. Misener.
    Mr. Misener. Yes, ma'am, I also agree. I didn't include it 
in my testimony. We are not experts in the pension funding 
issue. But certainly, it seems to be the low-hanging fruit, and 
as you point out, there is at least the order of several orders 
of magnitude difference between that and eliminating Saturday 
delivery as a savings for the Post Office.
    Ms. Holmes Norton. Thank you, Mr. Misener. Mr. Rendich.
    Mr. Rendich. Yes, Representative Norton. You have hit the 
nail on the head. It is the single biggest financial issue that 
the U.S. Post Office faces. Five to $6 billion a year is a lot 
of money to come up with. No wonder that the Post Office has 
been unable to do it successfully so far. So the answer is, I 
would wholeheartedly agree that this is an area that needs to 
be adjusted, and as such, I devoted a large part of my oral 
testimony and written testimony to the subject.
    Ms. Holmes Norton. Your advice on this point is extremely 
valuable to us. We really do look to the private sector to try 
to compare what we in the government do and what the private 
sector does, and sometimes those comparisons are not apropos. 
But it does seem to me that they are apropos here because the 
Postal Service is treated as a private business and it is 
forced to compete against other private businesses, and yet 
they are hamstrung with something that would put us out of 
business. And so it makes the Federal Government look--shall I 
be kind about it--a bit hypocritical to continue to do so, and 
your opinion on this important point of where money is that, 
with even some delay, some greater sense of how to apportion 
what was due when they could help the Postal Service out of a 
burden that is certainly not all its to bear.
    Thank you very much for this testimony. My colleagues will 
return soon and the respective Chairmen has asked me to dismiss 
this panel with the appreciation of both the Members of the 
Senate and the House and to ask for the second panel to come 
forward at this time.
    Will the second panel please take their seats.
    The organizations represented on our second panel play a 
key role in our Subcommittee's oversight efforts, so I am going 
to identify you as I call upon you.
    First, Don Cantriel, President of the National Rural Letter 
Carriers Association. You may begin.

TESTIMONY OF DON CANTRIEL,\1\ PRESIDENT, NATIONAL RURAL LETTER 
                      CARRIERS ASSOCIATION

    Mr. Cantriel. Our country is experiencing numerous economic 
challenges and the Postal Service has not been immune to these 
difficult financial times. Unusually low mail volumes have 
caused the Postal Service to consider drastic steps to change 
its business model and its operations. The cornerstone of the 
Postal Service plan is to do away with Saturday mail delivery 
to the millions of homes and businesses that receive mail. This 
idea is terribly misguided and will hurt, not help, the Postal 
Service's business and the customers it serves.
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    \1\ The prepared statement of Mr. Cantriel appears in the Appendix 
on page 109.
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    Chairman Carper, Chairman Lynch, and Members of the Senate 
and House Subcommittees, I urge you in the strongest and most 
forceful way, do not support the Postal Service's proposal to 
eliminate the congressionally mandated 6-day delivery of mail. 
The Postal Service cannot expect that by working less, it will 
achieve more. Consumers and businesses will not use a Postal 
Service that reduces services by 17 percent.
    Once consumers and businesses find an alternative, and they 
surely will, they likely will stay away from the Postal Service 
for good. The vacuum that would be left by shutting down 
delivery operations on Saturday is sure to be filled by a 
competitor, and once we lose that business, we will forever be 
fighting at even greater expense to get it back. If Saturday 
delivery is eliminated, customers and businesses that rely on 
the mail will see an increase in the delivery time for their 
product. Failure to meet Postal customers' delivery 
expectations could negatively impact the Postal Service's 
business model and the public's expectation that mail will be 
delivered in a timely manner.
    If we go to 5-day delivery, there will be no need for most 
of our relief carriers. Tens of thousands of rural carrier 
relief employees will be without a job, without a livelihood.
    If there is no Saturday delivery, the intangible functions 
our carriers perform at no cost to the American public will be 
missed. The report of a house fire, an accident, or assistance 
to the elderly that our carriers routinely provide will be 
diminished. These byproducts of the work we do and the fact 
that we are out and visible, working with the public in 
communities large and small, will be curtailed on the weekend.
    Our public health and safety function will also be 
curtailed if rural carriers are not working on Saturdays. Back 
in 2002 in the wake of September 11, 2001, and the anthrax 
attacks that terrorized the Nation and killed private citizens 
and Postal workers alike, the Postal Service prepared itself to 
serve as a public health army. In the event of biological 
terrorism, the Postal Service will play an important role in 
the delivery of medicines. We continue to play that role still 
today, but we cannot fulfill that mission completely if our 
employees are not working on Saturdays.
    Customers want the contact with their rural carrier and 
many absolutely depend on it. Whether it is prescription drugs, 
public assistance, vital legal documents, or important business 
mailings, our customers and mailers want and need Saturday 
delivery.
    There is an easier way to put the Postal Service on firm 
financial footing that does not involve eliminating Saturday 
delivery. First, something must be done about the prefunding of 
the Future Retirees Health Benefit Plan. No other government 
agency or corporation is required to prefund their retiree 
health benefits, let alone required to almost fully prefund 
them at an accelerated pace. Reducing the amount of money the 
Postal Service is required to pay into the Retiree Health 
Benefits Fund has the potential to save the Postal Service 
billions of dollars and still not put employees' pensions at 
risk.
    The Inspector General reported that the Postal Service has 
been overcharged $75 billion on its CSRS Pension Fund 
responsibility. The report continues to say that if the 
overcharge was used to prepay the Retiree Health Benefits Fund, 
it would fully meet the retiree health care liabilities and 
eliminate the need for the Postal Service to continue paying $5 
billion annually, as mandated by the Postal Accountability and 
Enhancement Act (PAEA). The Postal Service should be permitted 
to have the money it was overcharged returned.
    Additionally, the Postal Service can initiate internal cost 
cutting measures right now to reduce its operating expenses. If 
a Postal employee is not involved in processing, collecting, or 
delivering the mail, their job should be under the microscope. 
We have managers that do nothing but manage other managers.
    The Postal Service can also reduce its operating expenses 
by consolidating many of its current districts and areas. The 
consolidation of districts and areas with the repetitive 
position in each of those districts and areas would save the 
Postal Service millions, if not billions, and in my opinion 
would make for a more consistent policy and better provide, 
more consistent service.
    Thank you for inviting me to testify today on behalf of the 
National Rural Letter Carriers. I would be happy to answer any 
additional questions you may have.
    Senator Carper [presiding]. Mr. Cantriel, thank you so much 
for your testimony, and later on when we do some questions, I 
am going to come back and ask you, of those items you mentioned 
right there at the end, to what extent have you heard from the 
management side about their willingness to take up some of 
those ideas, OK.
    Frederic Rolando, President of the National Association of 
Letter Carriers, we are happy that you are here. It is nice to 
see you. Please proceed.

   TESTIMONY OF FREDERIC V. ROLANDO,\1\ PRESIDENT, NATIONAL 
            ASSOCIATION OF LETTER CARRIERS, AFL-CIO

    Mr. Rolando. Likewise. Good afternoon, Chairman Carper and 
Representative Norton. I am pleased to be here on behalf of the 
National Association of Letter Carriers (NALC).
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    \1\ The prepared statement of Mr. Rolando appears in the Appendix 
on page 113.
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    Senator Carper. And before you start, I just want to say a 
special thanks to our Delegate Eleanor Holmes Norton. Thank you 
so much for being here to run this ship. You were the captain 
and, I am told, a very good one. Thanks so much. Go ahead, Mr. 
Rolando.
    Mr. Rolando. Although the economy has begun to recover from 
the 2007-2009 economic meltdown and the Postal Service has 
recorded a profit of nearly a billion dollars so far this year 
before accounting for the massive retiree health prefunding 
payment that no other company or agency in the country is 
required to make, we are not out of the woods yet.
    To help the Postal Service survive and adapt to an 
uncertain post-crash economy, Postal employees and their unions 
have to embrace innovation and seek win-win solutions with the 
Postal Service at the bargaining table. NALC has recently 
negotiated a route adjustment process that has saved the Postal 
Service hundreds of millions of dollars. Going forward, we are 
committed to doing what is necessary to promote new, innovative 
uses of the Postal Service's networks, even as we lose some 
traditional mail to electronic alternatives.
    But for us to be successful, we need Congress to act, as 
well. Although we have never objected to the principle of 
prefunding of future retiree health benefits, it is now clear 
that the policy adopted in 2006 was deeply flawed. Even if the 
economy had not crashed, hard-wiring a 10-year schedule to 
prefund 80 percent of a 75-year liability was, in hindsight, a 
mistake. This decision by Congress, not the recession and not 
the impact of the Internet, is primarily responsible for the 
financial crisis faced by the Postal Service in recent years.
    The fact is, if not for these payments, the Postal Service 
would have been profitable in 3 of the last 4 years, despite 
the deepest downturn since the Great Depression. No private 
company would have borrowed billions to prefund future retiree 
health benefits in the middle of a recession. The Postal 
Service has been forced to use most of its borrowing authority 
to make $12.4 billion in payments to prefund retiree health 
benefits rather than to invest for the long term or to 
restructure its operations. There is no way to sugar coat this. 
Congress must undo the unintentional error of 2006.
    Fortunately, there is a way to do this without retreating 
from the laudable goal of prefunding retiree health benefits. 
The IG's January report now being reviewed by the PRC provides 
a road map to Congress for reform. Indeed, the Postal Service 
has recently proposed legislation based on that report that the 
NALC fully endorses. It calls for Congress to direct the Office 
of Personnel Management (OPM) to recalculate the allocation of 
pre-1971 pension costs on a years-of-service basis and then to 
transfer the resulting surplus in the Postal subaccount of the 
Civil Service Retirement System to the Postal Service Retiree 
Health Benefits Fund. This would correct a grossly unfair 
allocation of costs made by OPM in 2007 and allow the Congress 
to repeal the hard-wired and crushing prefunded schedule in the 
PAEA.
    Of course, we understand that the budget rules make this a 
lot easier said than done. Nevertheless, it is regrettable that 
good policy often takes a back seat to the peculiar world of 
budget scoring and the arcane rules of pay go. Every time 
Congress has made changes in this area of the law, allocating 
pension costs between taxpayers and rate payers, compromises 
have been made to deal with scoring issues. These compromises 
have often backfired.
    We understand that the years-of-service approach adopted by 
the IG has its critics, and we acknowledge that there are 
compromise positions being discussed between the approaches 
taken by OPM and the USPS IG. Had the Postal Service given away 
grossly excessive wage increases after 1971, the critics would 
have a legitimate dispute with the years-of-service allocation 
of costs. Pre-1971 pension costs would soar and taxpayers would 
be punished by these wage decisions.
    However, that was not the case. The inflation-adjusted 
wages of Postal employees are roughly the same as they were in 
1972. We therefore believe that the Postal Service and the IG 
approach is reasonable. However, if a fair compromise is 
needed, OPM should hold the Postal Service accountable for 
pension costs associated with wage increases above and beyond 
what other Federal employees received from Congress. Reforming 
the pension retiree pre-funding provisions of the law is the 
essential first step to giving the Postal Service a fighting 
chance to adapt and survive in the post-crash Internet age.
    Let me finish by briefly addressing a major issue between 
the House and Senate Appropriations Committee. As you know, the 
Postal Service has proposed the elimination of Saturday 
collection and delivery services. We think this would be a 
blunder of the first order, saving very little money and 
risking the loss of much more revenue over time. Cutting 
service is not a way to strengthen the Postal Service. In 
America, business is conducted 24 hours a day, 7 days a week. 
Many businesses, especially small businesses such as eBay 
retailers, rely on Saturday delivery, and reducing the speed 
and quality of service will simply drive customers away. At a 
time when the Nation is suffering an acute job crisis, throwing 
another 80,000 decent jobs away in a moment of panic does not 
make sense.
    Both the Obama Administration and a bipartisan majority of 
the House of Representatives who have cosponsored House 
Resolution 173 oppose the elimination of Saturday delivery. We 
urge all of you to reject this proposal, as well.
    Thanks again for inviting me to testify.
    Senator Carper. You bet. Thanks so much for being here and 
for your testimony and for your leadership, as well.
    Mr. Burrus, it is great to see you. Thank you so much for 
coming, and we welcome your testimony.

  TESTIMONY OF WILLIAM BURRUS,\1\ PRESIDENT, AMERICAN POSTAL 
                     WORKERS UNION, AFL-CIO

    Mr. Burrus. Chairman Carper and Congresswoman Norton, thank 
you for providing this opportunity to share the views of our 
union, the American Postal Workers Union, on the difficulties 
currently facing the Postal Service and on Postal management's 
plans to address them.
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    \1\ The prepared statement of Mr. Burrus appears in the Appendix on 
page 121.
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    The request that oral presentation be limited to 5 minutes 
restricts my remarks to a summary of our positions on a wide 
range of issues, but we welcome the opportunity to speak on the 
subject of concern.
    My union has analyzed the current state of hard copy 
communication and we reject the projection that is currently in 
vogue, that mail is destined to perpetually decline. Our 
evaluation signals that, in fact, mail volume will experience 
growth in fiscal year 2012, and I ask that you make note of our 
prediction. When we revisit this issue in 2013, let us see if 
mail volume actually increased or declined. Virtually every 
other study of mailing trends has concluded that mail volume 
will continue to decline and this projection has served as the 
basis for the recommendations for radical changes to the Postal 
structure and to the services that we offer. If we are right in 
our prediction that volume will, in fact, grow in the relative 
near future, these dire predictions must be discarded as the 
alarmist projections that they are.
    After much soul searching, the Postal community has 
concluded that the payment schedule for prefunding future 
retiree health care liabilities is driving the Postal Service 
to the brink of insolvency and must be modified. Correction of 
this overpayment of the Civil Service Retirement and Disability 
Trust Fund would more than satisfy this obligation, and there 
seems to be unanimous agreement within the Postal community 
that the prefunding obligation is the primary source of the 
Postal financial difficulties and that it must be corrected. I 
urge lawmakers to find the appropriate methods to do so.
    I would be remiss in my testimony if I did not include in 
this summary what not to do. Drastic reduction in service must 
be removed from consideration. This includes the poster child 
for service reductions, the elimination of Saturday delivery. 
We should not even seriously engage in discussion of this 
proposal. The reason is simple. No service-oriented business 
can grow by reducing service. The very concept must be 
abandoned. To the contrary, we believe the Postal Service can 
and must expand the services it offers.
    In addition, we believe the Postal Service must eliminate 
excessive work share discounts. These discounts, to the tune of 
over $1 billion a year, deprive the Postal Service of 
desperately needed revenue and subsidize major mailers at the 
expense of small business and individual citizens. They are 
illegal and self-defeating. I want to digress for a moment to 
commend Chairman Lynch for holding the first ever hearing on 
this crucial topic last month.
    Finally, I cannot miss the opportunity to remind policy 
makers that the business model that governs the Postal Service 
was a creation of the Postal Accountability and Enhancement Act 
of 2006. Now, less than 4 years after its adoption, many of the 
groups that supported the PAEA are again denouncing the 
business model as severely flawed. Those who advocated the 
passage of PAEA must take responsibility for the results, and 
their recommendation must be evaluated in light of the 
miscalculation of the effect of the law.
    The GAO, the Office of the Inspector General, Congressional 
Committees, mailers associations, and others drank the Kool-Aid 
of Postal reform and now we are offering solutions to the very 
problems that were created by that reform. Included in that is 
payment for future health care liability. Ironically, it seems 
that hardly a week goes by without these same agencies issuing 
reports to substitute their judgment for those of Postal 
management. Frankly, their attempts to micromanage the Postal 
Service are counterproductive.
    I have submitted for the record some of the written 
testimony that the American Postal Workers Union (APWU) has 
provided at recent hearings and forums, which expand our views 
on these and other important topics, and I would be pleased to 
respond to any questions that you may have.
    Senator Carper. Mr. Burrus, thank you very much for that 
testimony.
    Mr. Collins, have you testified before us before?
    Mr. Collins. Not at this level. I testified back at the 
congressional hearings on the anthrax situation.
    Senator Carper. OK, good. Well, we are glad you are here 
today. Are you the Assistant to John Hegarty?
    Mr. Collins. I am.
    Senator Carper. OK, Mr. Collins from the National Postal 
Mail Handlers Union. We are delighted to see you. Thanks.

 TESTIMONY OF RICHARD COLLINS,\1\ ASSISTANT TO THE PRESIDENT, 
              NATIONAL POSTAL MAIL HANDLERS UNION

    Mr. Collins. Thank you, Congressman Lynch and Senator 
Carper, for holding this important joint hearing.
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    \1\ The prepared statement of Mr. Collins appears in the Appendix 
on page 124.
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    Senator Carper. Are you from Mississippi?
    Mr. Collins. I am, yes. [Laughter.]
    Senator Carper. You are not. [Laughter.]
    Mr. Collins. No, sir. I am from Dorchester, Massachusetts.
    Senator Carper. I thought you might be.
    Mr. Collins. Thank you. [Laughter.]
    Mail Handler National President John Hegarty sends his 
regrets that he couldn't be here to testify today. My name is 
Richard Collins and I have served since 1994 as the Assistant 
to the National President. I was also a mail handler with the 
Postal Service for almost 30 years. My current duties include 
working on a daily basis with the U.S. Postal Service on a vast 
array of issues, including mail security, ergonomics, and 
labor-management relations.
    The Mail Handlers Union represents nearly 50,000 craft 
employees, the overwhelming majority of whom work in the large 
processing plants. Our members often perform the most dangerous 
jobs in the Postal system. We staff large machines. We drive 
the forklifts and other heavy machinery. And our members are 
the first and last to touch the mail when it arrives and leaves 
for processing.
    Mail processing is time sensitive. Any reduction in 
processing hours or days will have a dire impact on the timely 
delivery of both standard and First Class mail. This is 
especially true for mail items that need prompt processing and 
delivery, such as medicines from various pharmacy companies, 
newspapers and magazines, and a host of other mail items. That 
is why the Mail Handlers Union is opposed to the Postal 
Service's proposal to eliminate residential delivery on most 
Saturdays.
    We are in the worst recession since the Great Depression. 
The Postal Service has been losing significant amounts of 
money, even with drastic cuts in the number of employees. But 
in reality, looking at Postal operations, the Postal Service 
has been a break-even or even profitable enterprise for 2 of 
the past 3 fiscal years. There has been tremendous downsizing 
of the Postal Service, including over 100,000 career jobs 
eliminated, producing billions of dollars in savings in each of 
the past few years.
    These changes have not been accomplished easily or without 
friction, but they have shown that without extraneous factors, 
the Postal Service remains a viable and vibrant institution. By 
extraneous factors, my union is referring to mandates placed on 
the Postal Service to fully fund the Retiree Health Benefits 
Fund during the next 7 or 8 years. And, Senator Carper, we 
agree with your characterization of these payments as overly 
aggressive. That is why Congress needs to focus on and fix the 
Retiree Health Benefits Fund. That fix is needed before the end 
of this fiscal year, on September 30.
    We understand that relying on a fix for the Retiree Health 
Benefits Fund and stating that the Postal Service is a viable 
institution runs directly counter to the narrative coming from 
Postal headquarters. The Postal Service's dominant message is, 
we are broke and swimming in a sea of red ink. We have a debt-
ridden institution whose survival is dim, but we can be saved 
by cutting service and becoming less reliable. To us, that is 
not very reassuring and not very realistic.
    We disagree with the Postal Service's basic analysis. As 
already noted, despite a recession since 2008, the Postal 
Service has been a break-even or profitable enterprise for 2 of 
the past 3 fiscal years. To be sure, there has been diversion 
of a significant amount of mail to the Internet and other 
electronic means of communication. But the Postal Service has 
reduced its workforce and is reducing its network to address 
those issues.
    Congress should deal immediately with the funding of the 
Retiree Health Benefits Fund, which already contains more than 
$35 billion. In addition, it would be worthwhile for Congress 
to require recalculation of the Postal Pension surplus in the 
Civil Service Retirement System. The bottom line is that simply 
suspending the mandated payments in the Retiree Health Benefits 
Fund for several years will provide the necessary space needed 
for the Postal Service to ascertain its real needs in a 
realigned economy. Significantly, it also makes good business 
sense and is consistent with common sense bookkeeping and the 
actions taken by private enterprise.
    The Retiree Health Benefits Fund currently is healthy and 
growing, which is a good position to hold during good economic 
times. But in the current economic climate, mandated payments 
into the fund have become both an unacceptable burden and an 
unjustified luxury required of no other Federal agency or 
private sector employer.
    The calculation of the Civil Service Retirement System 
pension costs is also an internal matter that deserves 
resolution. If, as the Inspector General and others have 
concluded, the numbers are wrong to the tune of $75 billion, 
then they need to be fixed in order to accurately assess the 
future of the Postal Service. The Postal Service should not 
take an action of emergency proportions that may be based on 
faulty bookkeeping.
    In short, the Mail Handlers Union believes that we need 
legislation focusing on two issues, the Retiree Health Benefits 
Fund and the over-funding of the Civil Service Retirement 
System, possibly even to use the over-funded pension 
obligations as a substitute for payments to the Retiree Health 
Benefits Fund.
    Thank you, Chairmen Lynch and Carper, for holding these 
hearings, for allowing me to testify, and for making the future 
of the Postal Service an important front-burner issue. I look 
forward to answering any questions you may have.
    Senator Carper. Good. Thank you for that testimony, Mr. 
Collins.
    Mr. Atkins is Executive Vice President of the National 
Association of Postal Supervisors. Great to see you. Welcome. 
Please proceed.

    TESTIMONY OF LOUIS ATKINS,\1\ EXECUTIVE VICE PRESIDENT, 
           NATIONAL ASSOCIATION OF POSTAL SUPERVISORS

    Mr. Atkins. Good afternoon, Chairman Carper and 
Representative Norton. My name is Louis Atkins. I am the 
Executive Vice President for our organization. Thank you for 
inviting me to testify on behalf of the National Association of 
Postal Supervisors (NAPS).
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    \1\ The prepared statement of Mr. Atkins appears in the Appendix on 
page 132.
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    Organized in 1908, NAPS exists to improve the Postal 
Service and the pay, the benefits, and working conditions of 
its members. Its members include first-line supervisors, 
managers, and postmasters working in mail processing and mail 
delivery. But NAPS also represents men and women working in 
virtually every other functional unit in the Postal Service, 
including sales, marketing, human resources, training, law 
enforcement, health and safety. NAPS takes seriously its 
responsibility to work with the Postal Service to preserve the 
health and vitality of the Nation's Postal System.
    Postal supervisors are doing more than their share to help 
the Postal Service modernize and change. We collaborate with 
the Postal Service because there is no other responsible 
option, given how much revenue and mail volume are projected to 
drastically fall in the next few years.
    The revenue shortfall that the Postal Service once again 
faced this year is the result of three factors. The first 
factor, the deep recession, the worst in 80 years, and its 
downturn impact on mail volume, particularly advertising mail. 
We believe that the poor economy will be mitigated, though not 
entirely, as economic conditions improve. The consensus by many 
Postal experts is that much mail, though not all, will return 
to the system as the economy slowly rebounds.
    The second factor, the Internet migration, will continue to 
erode mail volume going forward and represent a long-term 
concern.
    The third factor is the burdensome and accelerated 
statutory requirement established by Congress that forced the 
Postal Service to set aside funds for future retiree health 
benefits at a cost of $5.5 billion per year, or nearly $40 
billion during the next 7 years. The overly aggressive 
prefunding schedule for retirement health benefits presents a 
viable area to pursue that could have a significant bottom-line 
impact upon the Postal Service.
    While benefit prefunding as a Postal policy can assure that 
assets will be available to satisfy obligations down the road, 
no other Federal entity or private sector enterprise other than 
the Postal Service has been required to or voluntarily 
committed itself to retiree health benefits prefunding at such 
an aggressive schedule. The Postal Service is bearing this 
burden now during the recession. In fact, in 2 out of the last 
3 years, the Postal Service would have been in the black were 
it not for the aggressive prefunding schedule that Congress 
established. The sooner that Congress deals with this problem 
and realigns the prefunding schedule, the better it will be for 
the Postal Service and the mailing community.
    Recalculating the Postal pension surplus in the Civil 
Service Retirement System, using the so-called service ratio 
method to allocate pension costs related to the pre-1971, would 
provide a significant amount to cover the entire cost of the 
future retiree health benefits. This would permit the Congress 
to transfer the Postal CSRS surplus to the Postal Service 
Retiree Health Benefits Fund, either now or at some future 
point, and repeal the current prefunding schedule. It will 
place the Postal Service on a more certain financial footing 
and restore confidence by large volume mailers in the future of 
the Postal Service.
    During the past several years, NAPS has collaborated with 
the Postal Service on major organizational changes to cut costs 
and find efficiencies. Some of those changes eliminated 
management and supervisory jobs. In 2009 alone, nearly 3,600 
management and supervisory positions were eliminated in the 
Postal Service. These changes have dramatically impacted the 
lives of and supervisors and managers represented by NAPS.
    We also support changes in the laws, infrastructure, and 
operation of the Postal Service that modernize and sustain 
Postal Service operations, production, and services. The first 
change in the law should revolve around the restructuring of 
the retiree health benefits prefunding schedule and the 
resolution of the past pension overpayment by the Postal 
Service for pre-1971 Post Office Department employees. This 
would help put the Postal Service on a more certain financial 
footing. As those actions and other continuous USPS cost 
cutting efforts take place, Congress and the Postal Service 
will be better situated to discern what needs to come next, 
including 5-day delivery and other significant cuts.
    The steep decline in mail volume over the past 2 years 
means that all Postal operations, including processing, 
transportation, and delivery, are operating at less than full 
capacity. A letter carrier that used to deliver six pieces of 
mail to a house is now delivering four. A business that used to 
get two trays of mail may be getting less than those two today. 
But nonetheless, we are still delivering to that address and 
every other business in the country. Consolidation of some 
processing and retail Postal facilities may need to occur based 
on facts and circumstances of best business judgment and the 
level of service that customers expect.
    Our organization will continue to work with the Postal 
Service to solve the current crisis and ensure that individuals 
who we represent can manage the operations that they have been 
entrusted to manage.
    Thank you again for the opportunity to express these views. 
I will be happy to answer any questions you may have.
    Senator Carper. Good. Thank you so much for that testimony. 
We appreciate it very much.
    Our next witness is Charles Mapa, President of the National 
League of Postmasters. It is very good of you to come. Thank 
you. Please proceed.

  TESTIMONY OF CHARLES MAPA,\1\ PRESIDENT, NATIONAL LEAGUE OF 
                          POSTMASTERS

    Mr. Mapa. Chairman Carper, Chairman Lynch, and 
Representative Norton, my name is Charles Mapa and I am 
President of the National League of Postmasters. The National 
League of Postmasters represents thousands of postmasters from 
around the country, particularly in rural areas. Thank you for 
inviting us here today for this very important hearing on this 
vital issue.
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    \1\ The prepared statement of Mr. Mapa appears in the Appendix on 
page 137.
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    Mr. Chairman, the League would like to stress the critical 
importance of fixing the overpayment of the Postal Service's 
Civil Service Retiree Pension obligations by allowing the 
pension surplus to go to prefund the Postal Service's retiree 
health obligation. This is absolutely essential to any long-
term financial solution for the Postal Service. Mr. Potter has 
said several times to me, taking care of this problem would 
allow other problems to be handled more slowly, in a measured 
fashion over the next 10 years. This, to me, makes sense, for 
much of the mail volume will come back when the economy comes 
back. Even the doom and gloom predictions of the Postal 
Service's consultants said that volume would go down by only 
1.5 percent per year. If those doom and gloom predictions are 
off by only two points, volume will increase.
    Much has been said about Post Offices today. Let me turn to 
Post Offices. First of all, Mr. Chairman, let me remind 
everyone that the American public wants its Post Offices. In a 
survey published in the Washington Post earlier this year, 80 
percent of those surveyed did not want the Postal Service to 
start closing Post Offices. We have heard time and again over 
the last several months that the Postal Service has 37,000 
retail facilities, more than Starbucks, McDonald's, Sears, and 
Wal-Mart combined. The suggestion is then made that if we get 
rid of the retail function of the Postal Service by moving it 
online, then all this brick and mortar, the Post Offices, and 
all the costs associated with them could be eliminated. 
Chairman Carper, Chairman Lynch, Representative Norton, this is 
patent nonsense.
    First, the primary function of a Post Office is not a 
retail function but a delivery function. Indeed, Post Offices 
are the final processing and distribution nodes in the Postal 
delivery system, and online buying of stamps does not replace 
that function. True, stamps are sold in Post Offices, but Post 
Offices are located where they are for delivery reasons, not 
for retail reasons. They are the units out of which the carrier 
function works and is managed, and you need a brick and mortar 
establishment for that. Eliminate Post Offices, then, and you 
eliminate delivery.
    Second, Post Offices boxes are very important delivery 
points. They are very valuable because the businesses of this 
country use them to get their remittance mail. Without them, 
Postal business patrons would lose millions of dollars of 
float. Critically, Post Office boxes work and work well because 
they are located next to the delivery function, where the 
distance between the boxes and the carrier is measured in feet, 
not in miles. For this reason, they work. Closing significant 
numbers of Post Offices will hurt this efficiency and the value 
of Post Office boxes.
    We do believe, however, that our Post Office network is 
greatly underutilized by the Postal Service and that they could 
be used for a variety of other purposes. For instance, we could 
partner up with various Federal, State, and government 
agencies, as well as companies in the private sector to provide 
a variety of services and products. We could also sell 
advertisement in our Post Offices. The revenue from these 
projects would not be enormous, but they would be enough to 
offset much of the cost of the retail function of the Post 
Office.
    Thank you for considering our views.
    Senator Carper. Thanks very much for those ideas, 
especially at the end of your testimony.
    Our final witness, Robert Rapoza. Good to see you. 
President of the National Association of Postmasters of the 
United States. Once you conclude your testimony, we are going 
to be turning to Congresswoman Holmes Norton for the first 
round of questions for our witnesses. Thanks. Please proceed.

     TESTIMONY OF ROBERT J. RAPOZA,\1\ PRESIDENT, NATIONAL 
        ASSOCIATION OF POSTMASTERS OF THE UNITED STATES

    Mr. Rapoza. I want to thank Chairman Carper, Chairman 
Lynch, Congresswoman Norton, and my favorite Senator, Senator 
Akaka, and Subcommittee Members for allowing me to share the 
views of the----
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    \1\ The prepared statement of Mr. Rapoza appears in the Appendix on 
page 152.
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    Senator Carper. Now, wait a minute. There is another 
Senator here. [Laughter.]
    No, actually, he is our favorite Senator, too, so you have 
good judgment.
    Mr. Rapoza. Thank you for allowing me to share the views of 
the National Association of Postmasters of the United States 
(NAPUS) regarding the future of the Postal Service.
    NAPUS is a management association of 39,000 dues-paying 
members. We are the managers in charge of Post Offices who care 
deeply about a universal mail system. Postmasters are proud of 
the work we do for our Nation and the service we provide to our 
communities.
    My testimony has four themes. First, the financial 
challenges facing our Postal Service. Second, liberating the 
Postal Service from unfair, unnecessary, harmful funding 
obligations. Third, exploiting our national scope and consumer 
support. And fourth, safeguarding our universal Postal System.
    Immediately following the enactment of the Postal Reform 
Act of 2006, a deep and broad recession inundated our country. 
The economic downturn devastated Postal reliant industries, 
resulting in less mail. It may be too early to tell how much of 
this volume drop is permanent. Nevertheless, over the past 2 
years, the Postal Service has shed approximately $10 billion in 
expenses and slashed its workforce by 84,000 employees. 
Regrettably, these actions do not come without consequences. 
Postmaster positions remain vacant. Post Offices have been 
suspended and hours curtailed. In addition, there is 
considerable understaffing that has led to late mail deliveries 
and a stressed workforce.
    Unfortunately, two pieces of legislation that were crafted 
to promote Postal self-sufficiency and viability have 
inadvertently undermined both goals. Congress must correct the 
flawed 36-year-old statute that has compelled the Postal 
Service to over-fund its retirement obligations by $75 billion. 
And Congress should revisit a 4-year-old provision that embeds 
an inaccurate Postal charge of prefunding retiree health care 
costs.
    We understand that the Subcommittees have under 
consideration a proposal that strives to address the overly 
burdensome prefunding requirement and more accurately calculate 
the Postal Service's true pension obligations. NAPUS believes 
that legislation to address these dual issues must be passed 
expeditiously and should exclude controversial provisions that 
would obstruct passage.
    The Postal Service is well positioned to develop new and 
innovative revenue streams to help support universal service. 
According to a recent Pew Research Center survey, 83 percent of 
Americans view the Postal Service favorably. The Postal Service 
needs to make good use of this good will to generate revenue 
and partner with others, such as Federal agencies, local 
governments, and even the private sector. Post Offices can be 
used for credentialing, licensing, and permitting services. The 
high trust value of Post Offices and Postal personnel provides 
assurance of privacy and accountability.
    We must be careful not to undermine the lofty trust and 
strong support of the agency by ending community due process 
rights in Post Office closings. I understand that there are two 
proposals under consideration that could jeopardize small and 
rural Post Offices. The first proposal would delete the 
statutory prohibition against closing a Post Office solely for 
having expenses that exceed revenue. The second proposal would 
establish a commission to close Post Offices. Both of these 
ideas garner meager Postal savings. According to the Postal 
Regulatory Commission, closing every small and rural Post 
Office would yield only about 0.07 of 1 percent of the Postal 
budget.
    Compounding that small number with the overwhelming public 
support of Post Offices and there is little reason to 
accelerate the rate of Post Office closures. A recent Gallup 
poll reported that 86 percent of Americans oppose Post Office 
closings. Moreover, Post Offices provide a key economic anchor 
for towns and rural communities that support small businesses. 
It is also important to remember that the Postal Service can 
and does close Post Offices under current law.
    I know that Postal Service headquarters has suggested that 
Post Office operations be moved into big box stores because of 
traffic. However, this plan assumes that the Postal Service 
products are impulse purchases, which they are not. NAPUS 
believes that a viable Postal Service needs to offer the 
American public more products and services, not less.
    In addition, despite consistent characterizations of the 
agency as a business, it is not a business. The Postal Service 
is a constitutionally established federally operated public 
service.
    NAPUS looks forward to working with Congress and the Postal 
Service to continue to provide the American public with the 
universal service that our citizens deserve and to which they 
are entitled to. Thank you very much.
    Senator Carper. Mr. Rapoza, thank you very much.
    I am going to withhold and ask my questions last. It has 
been a very good panel, very excellent testimony, in fact, from 
both panels, and we are grateful for that, a lot of ideas and 
some thinking outside the box here which we certainly welcome.
    Since Congresswoman Holmes Norton was good enough to stay 
here through thick and thin when everyone else bailed to go 
vote and meet with their outstanding educators from States like 
Delaware, I am going to ask you to lead off the questioning. 
Thanks again.
    Ms. Holmes Norton. Well, thank you, Mr. Chairman.
    I was intrigued as we look for ways to get the Postal 
Service in some kind of permanent state of reform, as opposed 
to nibbling at the edges, and I agree with what all of you had 
to say about prefunding. It is so obvious. We know there are 
scoring problems. We also know that it was a huge mistake, an 
error made in 2006. It was not--the formula used was in error 
and it does seem to me that we have to--there is no way to get 
around that large tranche of money being used in a way no other 
entity uses it.
    But, Mr. Burrus, I was intrigued by, leaving that aside, 
and apparently with that on the table, I am not sure, but you 
in your testimony speak of volume, and you predict, indeed, you 
even doubly-dare us to invite you back to check on this, that 
mail volume will experience a growth in fiscal year 2012. I 
would like to know on what you base that, what is your basis 
for saying it and whether any of your colleagues agree with 
you.
    Mr. Burrus. I have challenged my economists to prepare for 
me a model of Postal volume over the last 40 years, determining 
its rise and when it stalled and when it declined most notably 
in recent years and graph out for me exactly what were the 
influencing factors. Now, this is not the first occasion in the 
civilization of the human race that we have had diversions of 
communications. The highest volume period for the U.S. Postal 
Service in its history was 2006. That is not close to the 
invention of the Internet or the other forms of diversion that 
we are now claiming are causing the decline.
    Ms. Holmes Norton. Why did it increase then?
    Mr. Burrus. Economic activity. That was when we created the 
economic bubble in this country, and economic activity went up. 
Mail volume followed.
    Ms. Holmes Norton. And you think that is going to happen in 
2012?
    Mr. Burrus. Our economy is going to recover, as certainly 
as night follows day that the economy will recover, and as the 
economy recovers, mail volume will follow, and----
    Ms. Holmes Norton. So you are basing that on the recovery 
that we all anticipate?
    Mr. Burrus. Yes, that we anticipate, and the history----
    Ms. Holmes Norton. Of the recovery.
    Mr. Burrus [continuing]. Of what volume did under a 
recovered economy, yes.
    Ms. Holmes Norton. I wonder if all of you could--one of our 
colleagues from the Senate on the other side puzzled me when he 
indicated that--and I literally ask this question out of total 
ignorance--that despite the fact that the Postal Service and 
its unions have free collective bargaining the way other 
entities in the private sector do, that there was some kind of 
mandate that the state of the business not be taken into 
consideration apparently in whatever result was reached in 
collective bargaining. Could you enlighten me on what--I am 
sorry he isn't here, but I don't think we can leave that 
question on the record without expanding on it and indicating 
what it could mean or if that was, in fact, the case.
    Mr. Rolando. Yes. I am sorry he is not here, also. I would 
like to expand on that a little bit. We talked a little bit 
about that at the hearing that I was invited to last year, and 
it appeared what we learned at that hearing is much of the 
support for that particular provision to require an arbitrator 
to consider the financial condition of the Postal Service was 
based on an understanding that the arbitrator was currently 
prohibited from doing that, which was totally inaccurate and 
that was pointed out at the last hearing. In fact, not only are 
they not prohibited, in every interest arbitration that we have 
had since Postal reorganization, the arbitrator has clearly 
considered the financial status of the Postal Service because 
it is an issue in every one of those interest arbitrations.
    Ms. Holmes Norton. Now, when you say it had to be indicated 
because there had been some notion that perhaps he couldn't 
take into account----
    Mr. Rolando. There was some notion at the time last year, 
from our understanding of the discussions in the Senate, from 
what we learned, is that there was a thought that the 
arbitrator was currently prohibited from considering----
    Ms. Holmes Norton. But nothing in writing to show that?
    Mr. Rolando. Absolutely nothing, no.
    Ms. Holmes Norton. The reason I----
    Mr. Rolando. It is contrary.
    Ms. Holmes Norton. I just think it is very important to 
clarify that. That is an almost incendiary statement, because 
in our country where we have free collective bargaining, and we 
have that with the Postal Service, even the Congress, with all 
of the thumping that we do up here, always say that collective 
bargaining is part and parcel of the free enterprise system, 
and we can't put our thumb on the scale, either, even though as 
Members of Congress and as citizens we can express our strong 
view.
    If, for example, you were to bargain--I am not even sure 
this is subject to bargaining--let us say the 6-day week, 
whatever things are subject to bargaining, if you were to make 
some concession that Members of Congress disagreed with, we 
would be in hot water if we then said, well, collective 
bargaining doesn't work when some of us don't like the outcome 
of collective bargaining.
    So, Mr. Chairman, I just thought it was important so that 
wasn't put on us in the Congress and wasn't put on any of our 
colleagues who in the past, even in 2006, where we made this 
terrible error, that none of that was a matter of public record 
that the Congress had, indeed, mandated anything with respect 
to collective bargaining. Thank you very much.
    Senator Carper. I am going to reserve my comments for later 
on. I was not in the room when the Senator that apparently 
raised this issue spoke, so I am not sure what exactly was said 
in exchange. My recollection is that there is language in the 
Federal law, that says that arbitrators must consider pay 
comparability, and the idea is to try to provide some 
comparability to the wages that we pay to Postal employees with 
other people who do, I don't know if it is similar kind of 
work, but we will say similar kind of work. I don't know that 
there is anything in the law that says while they are doing 
that, trying to make sure there is pay comparability, that the 
arbitrators have to consider the condition of the economy, the 
financial state of the Postal Service. So we will have a chance 
to expand on this further.
    One other point I would like to clarify. Several of our 
witnesses, this panel and the earlier panel, I think, suggested 
that the Congress made a mistake. We make mistakes all the 
time. The only people that don't make mistakes are people that 
don't do anything, and in our jobs, we do a lot of stuff. And 
hopefully, when we make mistakes, we don't repeat those 
mistakes.
    But the issue of the 2006 legislation, and the adoption of 
a very conservative approach to the prefunding of health 
benefits for retirees and future retirees, was a compromise. It 
was a demand by the previous Administration, in order for them 
to go along with, for example, ending the policy whereby the 
Postal Service had to assume the Military Retirement Service 
obligation for those who later on come to work, after serving 
in the military, come to work for the Postal Service. The 
Postal Service was the only, you may recall, the only Federal 
entity that had to assume and pay for those military service 
obligations. That wasn't fair. That wasn't equitable. In order 
to get the Administration to agree to back off of that, to stop 
that policy, one of the things we had to give on was this very 
conservative approach for prefunding health benefits. So I just 
want the record to be clear on that.
    All right, my friend, Mr. Chairman, do you want to jump 
right in here?
    Mr. Lynch. Sure.
    Senator Carper. Thanks.
    Mr. Lynch. Thank you, Mr. Chairman.
    Let me see. Mr. Rapoza, I just want to push back a little 
bit. I don't believe when we talk about closing Post Offices--
and to be honest with you, that is one area that I think the 
Postal Service has fallen down on. We have 37,000 Post Office 
stations and we asked them to go out and look, because the 
volume of mail has dropped so low, we said, go out and look and 
try to find surplus locations that could be closed without 
impacting universal service and without harming the delivery 
process, but allowing consolidation.
    I know as an iron worker--I was an iron worker for 18 
years--it seemed like every time we put up a high rise, whether 
it was in Boston or New York City, every time we would throw up 
a 30, 40, 50, or 60-story building, we would put a Post Office 
on the bottom floor, and just because of the volume in that 
building, it would justify the location of that Post Office.
    Now, I don't believe if we had closures it would happen in 
rural areas, and I know you cited the meager savings that would 
be obtained by closing rural Post Offices. And I don't want Mr. 
Cantriel to get upset. That would not be our idea. As a matter 
of fact, to preserve that universal service, we would have to 
maintain the rural Post Offices, because you close down a Post 
Office out there in Nebraska or Oklahoma, someone has to drive 
for 400 miles to the next Post Office.
    However, in some of the heavily urban areas, you have 
situations like we have in the major cities, where you have in 
a downtown area, a Post Office directly across the street from 
another Post Office. And you have also got the fact that the 
Post Office is paying downtown office space lease agreements, 
which are very high in Manhattan and Boston and San Francisco 
and Houston and Los Angeles and Chicago, all across this 
country. Those aren't neighborhoods. Those are downtown 
commercial areas. So the mailroom from one place would have to 
shift their mail over across the street, and it would save 
probably hundreds of millions of dollars at a minimum by doing 
that consolidation.
    So at the end of the day, we asked the Post Office to look 
at those 37,000 Postal facilities and they came back with 140 
locations. And when I looked down the list of locations, they 
were at airports, they were at shopping malls, they were indeed 
low traffic locations, but it wasn't nearly what we were 
looking for.
    Now, there has been a suggestion put out there about a BRAC 
process--instead of a Base Relocation and Consolidation, it is 
going to be a Post Office Consolidation and Relocation and 
Closure. The difference between the two is that I have one 
military base, one military facility in my congressional 
district, but 37,000 Post Offices in 435 congressional 
districts, that is 85 Post Offices in the average member's 
district. I probably have more than most. And if you asked me 
if I could find a Post Office in my district or a couple, I bet 
you I could find a couple that could be consolidated, like the 
ones I mentioned downtown.
    And I just think that there is an opportunity to do that 
and take some pressure off of our bottom line, and I am 
disappointed that the Postal Service didn't do a better job. 
They came up with 140 out of 37,000, and I think we have to 
revisit that. I think we can do it without causing layoffs at 
the Postal Service. I think we can do it without great 
inconvenience to the customers, including those mailers who are 
up here and the average person, the individual mailer, the 
individual Postal customer. I think we can do it without 
threatening universal service. I think there are savings out 
there. But I think we are just stuck in doing things we have 
done in the past when we could afford to do it that way.
    So that is one area I am going to push on, and you tell me 
why I shouldn't.
    Mr. Rapoza. Chairman Lynch, you mentioned the rural 
offices, and we are not against closing Post Offices. We are 
against closing Post Offices for solely economic reasons. The 
retail facilities that you mentioned are in downtown areas, 
these are stations and branches. They are not Post Offices 
where a postmaster is the manager, they come under a 
postmaster. I will give you an example of what we have in 
Hawaii.
    The Honolulu Post Office, and surrounding the downtown area 
have about four, five, or six different stations, and those 
stations are being consolidated. They are not Post Offices.
    Mr. Lynch. Right. But out of Post Offices, stations, and--
--
    Mr. Rapoza. Branches.
    Mr. Lynch [continuing]. Branches, they came back with 140 
locations out of 37,000. That was it. Out of 37,000, 140. So 
that is one area that I think Postmaster General Potter does a 
wonderful job. He is a good man and he is trying. But he didn't 
try hard enough in this one particular area. And if I have to 
go to Plan B, that is going to lay off carriers or mail 
handlers or clerks when we shouldn't have to consider that if 
they had done the closure piece of this correctly, so I think 
there is an answer out there where we can institute a BRAC-like 
process.
    But I think there is an opportunity to give the consumers 
out there--if I went to people in my district and said, we have 
to close a couple of Post Offices in my district, 640,000 
people, 19 towns and two cities, and we have to close a couple, 
I bet we could find a couple. And if every congressional 
district did that, I think we could save a lot of money. And in 
this environment, we have to save a lot of money.
    I am just saying, we can do this more efficiently without 
negatively impacting the quality of service, and it won't fall 
on the backs of the Postal employees, who, by the way, I think 
it was the Pew Foundation did a poll of public servants and 
they rated public servants. And when they rated customer 
satisfaction among public servants, the Postal employees, the 
clerks and carriers and mail handlers, came in at the very top. 
Congress did not come in at the very top. [Laughter.]
    We came down around swine flu and the Taliban, down at that 
level.
    Senator Carper. No, let the record show. The Taliban are at 
6 percent. We are many times that. [Laughter.]
    Mr. Lynch. OK. I stand corrected. But we did not do as 
well.
    So it would be counterintuitive to punish employees who are 
getting the highest rating in government service, and I am 
trying to avoid a bad situation. We have to look at every 
opportunity. I know you don't like to do that. People don't 
like change. However, we have no alternatives. We have either 
got to grapple with this or I think the system will collapse 
and then we won't like the changes that are absolutely 
necessary at that point.
    I will yield back.
    Senator Carper. Thanks, Mr. Chairman.
    From the Aloha State, every Senator's favorite Senator, 
Senator Akaka. Please proceed with whatever questions you want 
to ask.

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka. Thank you. Thank you very much, Mr. 
Chairman. I want to thank you for holding this hearing. I want 
to add my welcome to this panel and I would also welcome with 
much aloha, our friend, Bob Rapoza from Hawaii, who is 
presently the President of the National Association of 
Postmasters of the United States. We are proud of you, Mr. 
Rapoza, and what you are doing.
    We have had a tough 4 years here. There have been dramatic 
changes in our communities and the economy of our country and 
there has been a lot of loss of jobs and restructuring of 
programs, as well. The Postal Service has been very successful, 
however, during this period in finding efficiencies wherever it 
can. However, there are some changes that require action by 
Congress, including modifying the burdensome payment schedule 
for prefunding retiree benefits, and health benefits.
    The Inspector General, as you know, also recently found the 
Postal Service may have overpaid its retirement obligations by 
up to $75 billion. If true, the Postal Service should be 
allowed access to those funds.
    Perhaps the most controversial recommendation by the Postal 
Service is moving to a 5-day delivery. The Postal Service 
claims this would save over $3 billion, a 5 percent overall 
savings, by eliminating 17 percent of delivery service. I know 
that many of my constituents in Hawaii rely on the Postal 
Service for delivery of basic necessities. I also understand 
that some customers would sacrifice a day of service in order 
to keep rates low and make it also predictable.
    However, a Postal Service survey showed that consumers 
prefer the service cut to a 10 percent rate increase. However, 
an across-the-board increase of 10 percent would raise far more 
than the $3 billion saved by reducing delivery. I look forward 
to the PRC's full review of this particular issue.
    Many of you here today have also called for more 
concessions by Postal unions in the coming negotiations. As 
Chairman of the Senate Oversight of Government Management, the 
Federal Workforce, and the District of Columbia Subcommittee, 
and a strong believer in the established collective bargaining 
process, I hope that management and the unions will negotiate 
in good faith, recognizing the circumstances that we are all 
faced with. This will require tough sacrifices by both labor 
and management and may require arbitration. However, 
negotiations free from precondition are the cornerstone of the 
collective bargaining process.
    I would like to ask a question of Mr. Cantriel, Mr. 
Rolando, Mr. Burrus, and as well of Mr. Collins. As you know, 
economic conditions across the country have harmed many 
businesses in addition to the Postal Service, leading to high 
unemployment and wage cuts. I know you have worked hard with 
the Postal Service to reduce costs and improve efficiency. 
Would you discuss those efforts as well as how you expect the 
current economic crisis will affect the upcoming contract 
negotiations? Mr. Burrus.
    Mr. Burrus. My union is the largest Postal union and we are 
the first up in negotiations in 2010. The other unions follow. 
I certainly trust that you will appreciate my reluctance to 
negotiate in public and to lay out my demands or my 
expectations of the bargaining process in an open forum. The 
worst a negotiator can do is negotiate with one's self. I look 
forward to going to the bargaining table where the Postal 
Service will come and voice their demands on behalf of the 
American public, the Postal ratepayer. I will speak on behalf 
of the members of the American Postal Workers Union. And 
hopefully, we will come to an agreement.
    I enter negotiations with no preconditions, with no prior 
demands of what I expect the outcome to be. I expect free and 
open collective bargaining and I expect, truly expect to 
negotiate a contract. That means that the Postal Service will 
agree and the union will agree to the conditions of employment. 
Certainly, if we fail to reach agreement, the law requires 
binding arbitration. But I am not even considering arbitration 
at this point.
    I believe we can reach agreement, understanding the gravity 
of the situation that we are operating in today, the pressures, 
the external pressures, the internal pressures, the demand of 
the PAEA. All those factors will be taken into consideration at 
the bargaining table, and I will speak on behalf of the 260,000 
Postal employees who I represent and I expect Postal management 
to speak on behalf of the Postal consumer.
    Senator Akaka. Thank you. Mr. Rolando.
    Mr. Rolando. Yes. Thank you. The NALC, we are going to 
continue to seek win-win solutions with creative and 
responsible bargaining with the Postal Service, as well as 
trying to engage the Postal Service's efforts in innovative 
revenue generation that we can work on together in the future. 
We will continue a lot of the projects that we are working on 
now. I mentioned in my testimony that we saved hundreds of 
millions of dollars through the route adjustment process, and 
as long as we have a willing partner, we will certainly 
continue down that road. This year, we will reach a billion 
dollars in revenue to the Postal Service generated solely by 
the efforts of letter carriers with the businesses on their 
routes. So we are going to continue to just seek win-win 
solutions through bargaining, as we have.
    Senator Akaka. Thank you. Mr. Cantriel.
    Mr. Cantriel. We are going to approach negotiations with a 
completely open mind and listen to proposals from the Postal 
Service. We have ideas of our own. I actually am going to meet 
tomorrow with the Postal Service to discuss some ideas that we 
have to cut costs on the adjustment procedures that we have and 
the way we count our mail and our ability to utilize some of 
the data that the Postal Service has without doing a physical 
count, which could account to millions of dollars of savings 
for the Postal Service.
    So we will approach it similar to President Burrus, that we 
will try to get the best for our people and keep in mind that 
the Postal Service has to survive. That is where we work. That 
is where our checks come from. But we will approach it with a 
very open mind and look to continue to generate revenue for the 
Postal Service in any way we can and try to work with them the 
best we can to make sure that they survive and we survive.
    Senator Akaka. Thank you, Mr. Cantriel. Mr. Collins.
    Mr. Collins. Thank you, Senator Akaka. One of the reasons 
that I am pinch hitting here, in fact, the only reason I am 
pinch hitting today is that National President Hegarty is in a 
meeting with the National Executive Board of the Mail Handlers 
Union this week and they are the highest governing body of this 
union. And one of the things that they are discussing this week 
is the upcoming contract negotiations.
    So I can't speak for them except to tell you that we are 
confident that we will enter those negotiations and conduct 
those negotiations with good faith and with due diligence and 
that we are hopeful that the result of those negotiations will 
be a contract and solutions that will be good for our members, 
for the Postal Service, and for the American public.
    Senator Akaka. Thank you very much, Mr. Collins.
    I have a question for supervisors and postmasters, Mr. 
Atkins, Mr. Mapa, and Mr. Rapoza. I understand that there has 
been concern that as craft positions have been reduced, your 
working hours have grown and many managers are covering craft 
positions or additional management responsibilities. Can more 
be done to ensure reasonable working conditions for managers? 
Mr. Atkins.
    Mr. Atkins. Thank you, Senator Akaka. To address that 
issue, we as an employee group, supervisors, we do everything 
viable and efficiently as possible to make sure we have one 
core process that we think about every day. That is delivery of 
the mail. And we take that option very seriously.
    Many of the budget cuts that the Postal Service 
headquarters have employed have been placed on the back of our 
first-line supervisors, managers, and postmasters. They have 
applied real diligence to the effort of delivering the mail, 
they have worked many hours that they are not being paid for, 
which technically if they are special exempt they shouldn't be. 
And some of the budget that their office is given each year 
does not fully and actually calculate the number of work hours 
that are given there.
    But to answer your question directly. Now, how much more 
can be employed? I am not a techie advisor to go back and 
psychologically examine workers and see how much more they can 
do, but they are doing more than their fair share right now. I 
guess the honor of being a Postal employee is the dignity that 
they go to work with every day, and the ability to get the mail 
to our American public is foremost in their mind, and they have 
endured a lot and it is coming to a breaking point. But they 
are going to take whatever they can bear and get the mail 
delivered.
    Senator Akaka. Thank you very much, Mr. Atkins. Mr. Mapa.
    Mr. Mapa. Senator Akaka, thank you for that question. As we 
have cut back on our workforce clerks, our carriers, both rural 
and city carriers--the load has shifted to postmasters. Also, 
we have cut back even on our supervisor workforce. So somebody 
has to get the work done, and these days, it is the postmaster. 
Postmasters have never shied from the responsibility, as my 
brother, Mr. Atkins, has said, to get the mail home.
    However, this has caused many work hours to be added to the 
backs of postmasters, and as Mr. Atkins said, generally 
speaking, they don't get paid extra money to do that. So we 
have postmasters working 50, 60, 70 hours a week. Can we put 
some more on them? I think it would be the wrong thing to do, 
to expect them to work more. I think we have to look at more 
creative ways to enable our existing workforce to fill in where 
they are needed and maybe even to look at filling clerk-carrier 
positions so that we can allow the postmasters to work a more 
reasonable work day.
    Senator Akaka. Thank you. Mr. Rapoza.
    Mr. Rapoza. Senator Akaka, it is good to see you again. 
Thank you.
    Senator Akaka. It is good to see you, too.
    Mr. Rapoza. First of all, I want to thank you for 
introducing legislation to strengthen Title 39 to ensure 
reasonable and sustainable managerial workloads and schedules, 
and also to protect the integrity of management pay talks. We 
appreciate that very much.
    Postmasters are loyal. They are loyal to their communities. 
They are loyal to the Postal Service. We will do whatever is 
needed to get the job done.
    One of the areas that are really affecting us now is by 
having postmaster vacancies. Normally, these vacancies are 
filled with craft employees, so the vacancy ends up in another 
office. This is an area that is hurting us and causing 
postmasters to perform more craft duties.
    Senator Akaka. Thank you very much. I look forward to 
continuing to work with all of you and look forward to trying 
to resolve the present problems that we have. Thank you very 
much.
    Senator Carper. Senator Akaka, thank you. Thanks so much, 
and thanks for your questions and for all that you do here. As 
you know, it is just a joy to be your colleague.
    I am going to yield back again to Chairman Lynch to ask 
some more questions he wants to ask, and then I want to wrap it 
up with about 2 hours of questions. [Laughter.]
    No, it won't be that long. Chairman Lynch, jump in here, 
please.
    Mr. Lynch. Thank you, Mr. Chairman.
    I want to talk for a bit about the CSRS dispute. You all 
are alleging, and I think you have a good case, with the 
support of the Inspector General for the U.S. Postal Service 
that you have overpaid into the pension plan to the tune of, I 
guess, approximately $75 billion. Let us call it $75 billion.
    I recently received a proposal from your group to try to 
reset that and to restore the overpayment to the U.S. Postal 
Service, and that would greatly improve your financial 
standing, more so if we put the Postal Service on a normal 
payment schedule instead of the prefunding requirement that you 
are under now, which is--it is extraordinary and I think it is 
unwarranted.
    However, this proposal, it is $75 billion, there is a 
dispute with OPM. They are saying it is something less or that 
the payment schedule is not abusive. So we have an active 
dispute going on. You have put forward a proposal that would 
artfully reconcile the amount that you believe and that by 
some, including the Inspector General, is supported. However, 
for us to reduce an amount from OPM's column and put it in the 
Postal Service column, it triggers a scoring factor for us and 
that, in this environment, is--I won't say insurmountable, but 
nearly so.
    And so we need to figure out a way that we can address the 
scoring issue, providing that your position is substantiated. 
And again, I think you have a case. And I don't know if it is 
the $75 billion or $68 billion or whatever that number might 
be, but I think there is a fair case that you have made for a 
substantial overpayment, and as you have pointed out, that 
number is desperately needed and it could cure, at least in the 
short term and medium term, some of the requirements and some 
of the pressures that you are under now.
    Would you object if we came to some agreement as to the 
amount that you are owed, and it has to be in that range that 
you have suggested, but I don't want to tie anybody else to a 
specific dollar amount, if there were legislation as you have 
offered to correct that situation? There is some dispute as to 
whether or not the scoring would be required. But I can't find 
that out, I can't get that answer without filing the bill.
    So what I would like to do is perhaps proceed, file the 
proposal that you have offered, but hold it until we get a CBO 
scoring decision. Either they are going to decide that it 
doesn't have to be scored or they are going to decide from a 
budgetary standpoint that it needs to be scored. I think before 
we can actively discuss that, we need to know that answer. So 
that is sort of the dilemma we have with settling out this 
negotiation about the amounts due for overpayment to CSRS.
    Is that something that you would entertain, or are you just 
hell bent on trying to push that legislation come hell or high 
water?
    Mr. Rolando. I guess we would need to clarify, Mr. 
Chairman. I think it is two-part legislation. I think the first 
part is, as OPM has said, they are not against the accounting 
method. They just said it would require a change in the law to 
use the other accounting method. So I think the first stage is 
to have it recalculated based on whatever methodology is agreed 
to and acknowledge the surplus. And once we have the surplus 
acknowledged, whatever that might be, like you said, then 
possibly to move forward with some legislation, like you said, 
to see how it scores.
    But I think that first step of acknowledging a surplus is 
there or whatever legislation is necessary to recognize the 
surplus, I think is what we would have to do first. I don't 
know if that is what you meant, legislation to establish the 
surplus, and then legislation for some type of movement to see 
how that would score.
    Mr. Lynch. Well, I think we need to do the two-step, then. 
We need to offer both suggestions and get that to the CBO and 
say, assuming that we approve this new accounting method, is 
this a solution that will require us to score because that is a 
lot of time and a lot of energy for a solution that no one will 
vote for, and I just don't want to occupy the Members' time and 
Congress's time and the President's time with that type of 
approach if ultimately it is not going to succeed. It is just a 
colossal waste of time.
    So I guess what I want to know is if we could try that 
method to get the decision by CBO, and they will only score it 
if it is live legislation. They won't score it if it is 
hypothetical, or at least that is what they are telling me.
    Mr. Rolando. Right.
    Mr. Burrus. I concur that I believe it would be a two-step 
process, that first get the decision that what the Postal 
Service's obligation is in terms of funding. And then deal with 
the transfer of the money, which may or may not be scored, 
secondary. Deal with that later. We might choose to score it 
over a period of time, just as they imposed the payment over a 
period of time. You know, there are a lot of options in terms 
of the scoring process. But score what? You have to change the 
law before you know what has or does not have to be scored.
    So I would prefer a two-step process, and we will work in 
tandem, all the Postal community will work in tandem, because 
we are joined at the hip on this issue, Postal management, all 
of the unions, management associations. We will be moving in 
lock step on this issue. I believe it--I think it would be a 
better approach through a two-step process, one just to set the 
record straight first what the Postal Service's obligation is.
    Mr. Lynch. Right. I see my time has expired. My concern is 
that Congress is not locked at the hip, but I appreciate your 
input. Thank you. I yield back.
    Senator Carper. Mr. Chairman, thanks for all your 
questions. Thanks so much for letting us be your partner and 
your teammate, your wingman or your wingwoman as we approach 
again these important but challenging issues.
    I learned during the course of our discussion here today 
and the questioning and during an aside with our Chairman from 
the House that he is the father of two daughters and he 
represents an area in the greater Boston area, well beyond 
Boston, but in Massachusetts. One of my sons just graduated 
from school, and I am the father of two boys, a little bit 
older than his girls.
    Part of my goal, one of my goals in life is to pass on to 
my kids, and hopefully someday to their kids, just a better 
country, a better place in which to live and work and raise 
their families. I suspect that is one of the goals for all of 
us who are fortunate enough to be parents or grandparents or 
aunts or uncles, for that matter.
    Delaware is the last State on the East Coast where there 
was any auto assembly operation. From Maine to Florida, it is 
the last State where any autos were assembled. We had a General 
Motors (GM) plant. We had a Chrysler plant. And we lost our 
Chrysler plant December 31, 2008. We lost our GM plant about a 
year ago. Very painful. I worked for 30 years to help keep that 
Chrysler plant going and almost 20 years on the GM plant. We 
lost them both. Ron Gettelfinger is a fellow that some of you 
all know, a UAW leader. He came out of Ford UAW and led the UAW 
through one of the toughest times I can imagine any union 
president leading an organization, and he presided during the 
leadership of the UAW at a time when their membership dropped 
by more than half, probably by as much as two-thirds, and in 
the end agreed to make concessions and changes that resulted in 
the UAW taking over ownership of the Employee Health Fund and 
using that as a way to help save the industry, but to provide 
some up-side, I think as the industry comes back, some up-side 
benefit for the union.
    But I have real high regard for him, and for those of you 
who know him, you probably share that regard. During the course 
of the give and take, as GM and Chrysler went into bankruptcy 
and then out of bankruptcy, the UAW did some remarkable things 
in terms of what they were willing to sacrifice and put on the 
line in order to save not all the jobs, but to save the 
industry and give the folks who work there, maybe their sons 
and daughters, the hope that some day they could have a good 
job.
    Really, I think of the Postal Service, I think of the auto 
industry as really opportunities for employment that help 
people move into the middle class and stay in the middle class. 
I want to ask you to kind of reflect on what the UAW has gone 
through in this country, some of the, I think, rather 
remarkable changes they were willing to accept in terms of, 
first of all, the wage benefit structure maybe for some of the 
new people that are coming in. They won't be able to 
participate at the same level of pay and benefits. Their 
willingness to do more of multiple training of employees who 
can do a variety of different tasks on the job.
    But just reflect, if you will for me, on what they have 
done to save the industry. Ford is coming back strongly. I 
think GM is going to make a profit this year, and I think, God 
willing, Chrysler will do that next year. We, as taxpayers, own 
60 percent of GM and about 10 percent of Chrysler. Not many 
people know that. Most people think we threw our money away. 
But those of us who voted, and I know the Chairman here did, as 
well, who voted to save the industry, we didn't do it just out 
of the goodness of our heart. Later this year, GM is going to 
hold the first of a series of IPOs, stock offerings. The monies 
that will be raised, 60 percent of it will come back to the 
Treasury, the taxpayers. Next year, Chrysler will do a similar 
kind of thing. So people, I think, will be pleasantly surprised 
when that happens.
    But just reflect for us on what the UAW was willing to do 
and what lessons there might be for us with respect to the 
Postal Service, and for you.
    Mr. Rolando. I think it is somewhat of an unusual 
comparison because, of course, the UAW was dealing with 
companies that were involved in a taxpayer bailout, whereas the 
Postal Service is just trying to get access to what would be 
their own money.
    But certainly when we enter into collective bargaining, 
like I said, we want to be completely creative and innovative 
and adjust to what has to be done. Any particular thing the UAW 
did, of course, it is difficult to discuss without looking at 
the total package involved and the situations the Postal 
Service is in.
    Senator Carper. You once mentioned to me in a conversation 
we had, Mr. Rolando, we were talking about how do we save 6-day 
service, and one of the ways I think you all had actually 
discussed at the bargaining table with Postal management was 
the possibility of folks who worked on Saturdays, maybe deliver 
the mail on Saturdays, would work under a different pay-benefit 
structure. Would you just mention that for us?
    Mr. Rolando. Yes. That was one of the proposals that we 
discussed in the last negotiations, where it would actually 
make Saturday delivery a little bit less expensive for the 
Postal Service by using a different workforce that would be 
primarily made up of possibly retirees, family, and so forth. 
But it never went anywhere, but it was an interesting proposal 
that we discussed last time.
    Senator Carper. Thank you. Others, please. Mr. Burrus or 
Mr. Collins?
    Mr. Burrus. Yes. As I said, we begin negotiations in August 
of this year, the first of the Postal unions that will be 
engaged in the process with Postal management during the period 
of this massive loss of volume as well as revenue. Everything 
is on the table. We will consider everything. However, there 
are some demands at the outset.
    I don't expect the membership of the American Postal 
Workers Union, the people that I represent, to save the Postal 
Service. The Postal Service is a huge community. There are a 
lot of factors that have to be considered, many of them that 
were discussed here today. But among those are if the Postal 
Service is going to set the cost of the work that my members 
perform at the rate of 10.5 cents a letter in discounts, that 
has to be on the table. It has to be.
    If you are going to determine the value that is given to 
that activity, then that has to be on the table as we consider 
what is the value for my members to do the exact same work. So 
everything has to be on the table. Supervisors, managers, the 
structure, the employees, the hourly wage, all of that is on 
the table and we will work our way through it. If there is good 
faith on both sides, I expect that we will reach an agreement.
    But one of the key factors is going to be--because the 
Postal management has a right to arbitrarily determine what the 
value of the work that my members perform is with the people 
that perform it. Those are the consolidators and others that 
perform that activity that set that rate. I certainly can't go 
there in good faith and say, you determined if X does this 
work, it has value at 10.5 cents a letter, but if your members 
perform this work, half-a-cent per letter. That doesn't lead to 
an agreement.
    Senator Carper. OK, thanks. A vote has just started and we 
have between 5 and 10 minutes to go and vote.
    Let me just make a comment. Mr. Rolando said it seemed like 
an unlikely comparison, the situation that the UAW was in and 
the situation that we have in the Postal Service. One of the 
things to keep in mind, and I think I mentioned this in my 
opening statement, there are a number of stakeholders with 
respect to the Postal Service and this obviously includes 
customers, business, and otherwise, nonprofits and residents 
and so forth. But there are a number of stakeholders who 
include the folks who work at the Postal Service, retirees. 
They include the taxpayers.
    And when it came to the U.S. auto industry, there are a lot 
of stakeholders there, too, bond holders, those that owned 
shares, common stock, preferred stock, the folks who worked 
there, the retirees, their families, taxpayers. And what we 
tried to work out with the auto industry was a fair, equitable 
sharing of the sacrifice and everybody did a little bit, and I 
think at the end of the day, people said, they did good. So 
hopefully we can figure out something like that in this regard, 
too.
    Mr. Cantriel.
    Mr. Cantriel. I am a little bit in a unique situation 
because I worked for 8 years for Chrysler, from 1972 to 1980, 
during the period of time where gas prices did some weird 
things and jobs came and went overnight. So I experienced a lot 
of what the UAW went through during that period of time.
    Senator Carper. Where did you work?
    Mr. Cantriel. I was at the Fenton, MO, assembly plant.
    Senator Carper. OK.
    Mr. Cantriel. And I am familiar with some of our workers 
from that area went up to the Newark plant.
    Senator Carper. Yes.
    Mr. Cantriel. So I am somewhat familiar with what you have 
and what you are talking about. I am not sure that I make the 
complete connection you do because of the universal service 
obligation that we have and so many things that are mandated to 
the Postal Service that Chrysler and GM are dependent on, the 
whims of the customers that they have, whether they like one 
product or another. If they move to another, the pricing is 
different.
    So it is significantly different on several aspects of it, 
and whenever you look at what makes this country great, the 
stronger the middle class, the stronger the country is going to 
be. And I don't think that we want to erode the middle class 
any more, and I view the Postal Service jobs as good, strong 
middle class jobs. I think we have to be very careful when we 
look at eroding that and taking away from the value of our 
country.
    There are a lot of things the Postal Service can do and 
look at before they start two-tiering the workers that do 
exactly the same job, because that tends to make it difficult 
to draw the class of people that you need in the Postal 
Service, where they look across the hall at someone doing 
exactly the same job they are doing for a third of the salary 
or a fourth or a fifth or half the salary. So I think we have 
to be very careful how we approach that.
    There are a lot of things in collective bargaining that we 
can open up and look at and both sides can benefit from. I am 
more interested in revenue generation and putting the Postal 
Service back on a solid base rather than eroding the middle 
class any more than it already has been.
    Senator Carper. I think there might be room for both 
approaches. We will see. I focus a lot on revenue generation, 
as well, and I think that is important. And you and the folks 
that you represent probably have better ideas on revenue 
generation than most of us who sit on this side of the dais. We 
need those ideas and welcome them.
    Does anybody else want to make a comment on this issue? 
Please.
    Mr. Atkins. Yes. Like the representative of the National 
Association of Postal Supervisors, I would like to make one 
comment. I agree with the gentlemen over here and my cohorts 
over here to my left as far as negotiations, but we have to 
negotiate, you have to have fairness on both sides, and that is 
somewhat disturbing. Being through a couple negotiations, there 
has been little give and take on the Postal Service 
headquarters side and we have to have--to obtain anything, we 
need to be fair, and I know workers that belong to the National 
Association of Postal Service will be willing to give and do 
everything to make the Postal Service survive. But the thing 
that they have to employ, that they are getting fair treatment 
and a fair break and have honest figures and have an honest 
day's work before them before they sit down and actually can 
entertain and trust the other side. And it is trust that we 
build upon that leads to a relationship, and that is somewhat 
hard to--I would say that is somewhat hard to believe at this 
period in time.
    But we do want to look forward and make sure that the next 
negotiation period is one built on trust relationship and what 
is good for the American people, what is good for the Postal 
Service, and what is good for the National Association of 
Postal Supervisors' members.
    Senator Carper. All right. Thank you.
    I have a number of questions I am going to submit for the 
record. I may try to work one question in. In terms of what we 
need to do here, a lot of people have done a lot of work. You 
all have done a lot of work in the organizations that you lead. 
You have done a lot of work in trying to identify ways to raise 
revenues, increase the revenue stream, trying to find ways to 
provide better service for maybe less money, at least equal 
service for less money.
    And the three consulting firms that the Postal Service 
hired to do the work, I thought for the most part did good 
work. It is not to suggest that we should buy everything they 
said lock, stock, and barrel, but there is a lot of good work 
that has been done and a lot of good ideas, and if we are 
really smart, we will synthesize those and try to figure out a 
comprehensive path forward. Some work has been done already to 
do that.
    Among the things I think we agree on, one, this formula by 
which we are required in the 2006 law to prepay retiree health 
benefits, the most conservative approach I have ever seen for 
any State or local government, any company in this country, is 
something that needs to be modified.
    I think another thing we can agree on, if the Inspector 
General for the Postal Service is right and the Postal Service 
has overpaid its Civil Service obligation, we need to try to 
use that money to meet, I think, the health care benefit 
obligation and try to pay that down. I think that will help in 
the near term and the long term, as well.
    I think part of the solution, as some of you suggested, is 
just to be very creative, very thoughtful in terms of 
identifying revenue generating opportunities. We don't do a lot 
of voting by mail. They do in a couple of States. Oregon is one 
of those, and some of us, Senator Wyden and myself and others 
have been pushing that. For all I know, the Chairman over here 
to my left, Chairman Lynch, has been an advocate of that, as 
well. That could be a pretty good revenue stream for the Postal 
Service. It could also increase voter turnout and save money in 
terms of reducing the cost of having elections.
    There are ideas out there that if we just be smart and 
think outside the box and identify them, we can identify those.
    I want to say in terms of the collective bargaining work 
that is upcoming that is before all of you, you have a tough 
challenge ahead of you. We get elected and reelected if our 
people think that we are fairly representing their interests. 
We can't continue with trillion-dollar deficits and we 
certainly can't continue with the Postal Service running a 
deficit of $200 billion or whatever it is over the next 10 
years.
    But we need as elected officials to ask people to, in some 
cases, get less in terms of benefits for programs or whatever 
from the Federal Government, and in some cases, if they are not 
paying their fair share of taxes, to ask them to pay a little 
bit more. That is not a combination for getting reelected.
    And for those of you who have to be elected and to run for 
office in many cases, to ask your folks to be willing to work 
maybe a little more, maybe a little smarter, a little bit 
harder for maybe not much more money, or maybe even the same, 
that is not an easy thing to do and to get reelected, as well. 
As one sort of political animal to another, we understand and 
we appreciate the challenges that provides for all of you.
    The other issue we have had some discussion back and forth 
on is facilities, whether they happen to be Post Offices, they 
happen to be like substations or branches or whatever, or the 
processing centers. We have to find a way. There have been a 
bunch of good ideas on how to do that in a fair and humane way 
and a smart way, and we need to identify those. I don't know if 
the idea is a BRAC-like process. I am not sure what the answer 
is, but that has got to be part of the solution.
    And in that mix there, there is a pretty good strategy, and 
it includes some of the things that you have mentioned. I tried 
to summarize some other ideas. There is a pretty good strategy 
there that asks a little bit of sharing and sacrifice from 
almost everybody with the potential for having a Postal Service 
that will be there when your daughters are 110 and 115 and my 
sons are 120 and 121.
    Mr. Lynch. There you go.
    Senator Carper. So our job is to figure that out and to 
work in that direction together, and that is what we pledge to 
do.
    Again, you all have been very good to spend this much time 
with us today to share your thoughts. Thank you for your 
leadership in this tough time. It is a real privilege to spend 
this time with you and I am grateful for all that you are doing 
in the House. Obviously, we don't solve these issues in the 
Senate by ourselves, nor in the House by yourselves, nor 
without the Executive Branch, nor without your help and input, 
as well. So together, we will see if we can't get this done.
    Thank you all very much, and with that, we are adjourned 
and we are going to go start voting. Thank you.
    [Whereupon, at 6:16 p.m., the Subcommittees were 
adjourned.]
                            A P P E N D I X

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