[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
U.S. GOVERNMENT PRINTING OFFICE
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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.
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\1\ The prepared statement of Mr. Hall appears in the Appendix on
page 81.
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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.
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\1\ The prepared statement of Mr. Abbott appears in the Appendix on
page 89.
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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.
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\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.
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\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.
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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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