[Senate Hearing 111-131]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 111-131
 
      THE IMPACT OF THE ECONOMIC CRISIS ON THE U.S. POSTAL SERVICE

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


                                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


                                 of the

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                            JANUARY 28, 2009

                               __________

       Available via http://www.gpoaccess.gov/congress/index.html

                       Printed for the use of the

        Committee on Homeland Security and Governmental Affairs




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20402-0001



        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           JOHN McCAIN, Arizona
MARK PRYOR, Arkansas                 GEORGE V. VOINOVICH, Ohio
MARY L. LANDRIEU, Louisiana          JOHN ENSIGN, Nevada
CLAIRE McCASKILL, Missouri           LINDSEY GRAHAM, South Carolina
JON TESTER, Montana
ROLAND W. BURRIS, Illinois
MICHAEL F. BENNET, Colorado

                  Michael L. Alexander, Staff Director
     Brandon L. Milhorn, Minority Staff Director and Chief Counsel
                  Trina Driessnack Tyrer, Chief Clerk
                                 ------                                

 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
                       Monisha Smith, Chief Clerk


                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Carper...............................................     1
    Senator McCain...............................................     4
    Senator Akaka................................................     4
    Senator Collins..............................................     6
    Senator Coburn...............................................     7

                               WITNESSES
                      Wednesday, January 28, 2009

Hon. John E. Potter, Postmaster General and Chief Executive 
  Officer, U.S. Postal Service...................................     9
Hon. Dan G. Blair, Chairman, Postal Regulatory Commission........    11
Phillip R. Herr, Director, Physical Infrastructure Issues, U.S. 
  Government Accountability Office...............................    12

                     Alphabetical List of Witnesses

Blair, Hon. Dan G.;
    Testimony....................................................    11
    Prepared statement...........................................    57
Herr, Phillip R.:
    Testimony....................................................    12
    Prepared statement...........................................    62
Potter, Hon. John E.:
    Testimony....................................................     9
    Prepared statement...........................................    47

                                APPENDIX

Questions and responses for the Record from:
    Mr. Potter...................................................    77
    Mr. Blair....................................................    88
    Mr. Herr.....................................................    91


      THE IMPACT OF THE ECONOMIC CRISIS ON THE U.S. POSTAL SERVICE

                              ----------                              


                      WEDNESDAY, JANUARY 28, 2009

                                 U.S. Senate,      
        Subcommittee on Federal Financial Management,      
               Government Information, Federal Service,    
                              and International Security,  
                          of the Committee on Homeland Security    
                                        and Governmental Affairs,  
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:58 p.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Thomas R. 
Carper, Chairman of the Subcommittee, presiding.
    Present: Senators Carper, Akaka, McCain, Coburn, and 
Collins (ex officio).

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. The hearing will come to order.
    Normally, we start off these hearings by my welcoming the 
witnesses and their family members and others that have joined 
us. Today, I want to just start off by welcoming our new 
Ranking Member, with whom I have worked for 26 years, known him 
for 26 years, and we spent some time together in the Navy. He 
was on the ground there in Hanoi for a long time while the rest 
of us were trying to fly around and stay off the ground. And he 
has been a friend and a personal hero of mine for a long time. 
The idea that he is sitting here next to me is probably not 
what he had in mind a couple of months ago for the next 2 
years, but personally speaking, I am just delighted to be able 
to lead a Subcommittee with him. And I am going to say a few 
things, but then I would be delighted if Senator McCain would 
like to add some comments as well.
    Thanks for joining us. We have been joined by Senator 
Collins who has forgotten more about these postal issues than 
most of us know and has an enduring interest in these issues.
    The troubles that have hit our economy in recent months 
also hit the Postal Service and its biggest customers early and 
hard. As we will hear today, the Postal Service expected to 
suffer significant losses in the current fiscal year, and I am 
told that those losses could go as high as $7 billion or more. 
Volume and revenue projections for next year are troubling as 
well.
    In response to a recent request that I made along with 
Senator Coburn, Senator Lieberman, and Senator Collins, the 
Postal Service has laid out a plan to try to cut around $5 
billion in fiscal year 2009 and next year as well. Most of 
those cuts will come from continuing efforts to cut hours and 
streamline operations, and they come on the heels of previous 
efforts by the Postal Service to find ways to trim their 
expenses--successful efforts.
    I am sure that Mr. Potter will give us more detail on those 
prospective cuts in his remarks. I am also sure that he and his 
team will pursue this plan as professionally and as 
aggressively as they have pursued similar plans in the past. 
But I want to point out, though, that even if you are 
successful, the Postal Service's losses for fiscal year 2009 
may still exceed the $3 billion annual borrowing limit that 
Congress has put in place. I think it is $15 billion total from 
the Treasury, $3 billion per year, is the cap that we have in 
place.
    Absent some action from the Congress, then, we may well be 
faced with a situation later this year in which the Postal 
Service asks the Congress to raise its borrowing limit or 
extend to it direct Federal financial assistance. Those are 
steps that I do not believe we should take, and hopefully we 
will not take them.
    In addition, postal management is likely to pursue dramatic 
cuts in service if we do nothing. They may also be forced to 
consider a larger than expected rate increase this spring. The 
mailing community tells us that a large rate increase this year 
could drive even more business away from the Postal Service. It 
could also lead to the failure of magazines and catalogues 
themselves and a loss of jobs in the mailing and the printing 
industry at a time when we certainly do not need any more job 
losses.
    This situation has naturally caused many of us to question 
the Postal Service's future viability and the viability of the 
business model created just over 2 years ago in the Postal 
Accountability and Enhancement Act (PAEA).
    While many Americans still depend on the Postal Service on 
a daily basis, including those of us up here, the products that 
have historically been at the core of its business model 
continue to lose ground to electronic forms of communication 
which were not around all that many years ago. As a result, 
there is some question about the extent to which the Postal 
Service's current difficulties can be attributed to our 
national economy or if they are a sign that the electronic 
diversion of the mail is occurring even more quickly than we 
had originally anticipated.
    These are not questions that we can find the answers to 
today so, in my opinion, it will be necessary for Congress to 
take action soon to help the Postal Service get through the 
next year or so.
    The Postal Service has approached us, a number of us, with 
a creative financial assistance proposal that should give them 
some breathing room in the current fiscal year, and depending 
on how far we want to go, for several more years as well. It 
accomplishes this by having the Postal Service's annual payment 
related to its retirees' health care premiums come out of a 
fund in Treasury, established under the Postal Accountability 
and Enhancement Act in 2006 so that the Postal Service could 
begin pre-funding its health-related obligations to future 
retirees.
    Some concerns have been raised about this proposal, and 
some of those concerns are valid ones. First, what the Postal 
Service has suggested we do would reverse a deal made in the 
Postal Accountability and Enhancement Act. The deal recognized 
that the Postal Service was on track to overfund its pension 
obligations to its employees in the old Civil Service 
Retirement System. It also recognized that the obligation that 
was placed on the Postal Service to pay the additional pension 
benefits owed to postal military veterans was a unique 
obligation in the Federal Government and also an unfair one--
unfair to the Postal Service.
    Senator Collins and I argued that should be changed, and we 
argued that some definitive calculations needed to be made of 
what was the Postal Service's obligation for employee 
participation in the old Civil Service Retirement System were--
not just someone's guess as to what it should be, what they 
thought it might be, but actually to say this is what it ought 
to be.
    In exchange for a reduction in the Postal Service's Civil 
Service Retirement System payments and a reversal of the 
military pension language, postal officials agreed to language 
included in the Act that put the Postal Service on a payment 
schedule aimed at addressing its long-term retiree health 
obligations, something that other Federal agencies and most 
larger businesses in this country do not now address. And I 
have said to my colleagues, when I was State Treasurer of 
Delaware, Pete Dupont was our governor. Back in the mid-1970s, 
we realized that we had an entirely unfunded State pension 
program, and it was not amortized. It was just pay as you go. 
And we decided to amortize it over 40 years, set out to do 
that, actually amortized it within 10 years. I am very proud of 
that. But until just recently, we never addressed the other 
part of the problem, and that is the health benefits of the 
potential future retirees of our State. As it turns out, most 
States have not addressed that potential liability. As it turns 
out, most corporations have not addressed that. So this is one 
that is not peculiar to the Postal Service.
    In addition, if enacted, the Postal Service's proposal 
would spend money that those of us who worked so hard on postal 
reform were hoping would be used to pay down, if not all of the 
Postal Service's health obligation, at least most of it. Every 
dollar that we spend, then, is a dollar that the Postal Service 
will need to pay back in the future when it will face even 
stiffer competition from electronic mail, electronic bill pay, 
and the like.
    That said, I fear that enactment of some version of the 
Postal Service's proposal may be the only thing that could 
prevent a significant weakening of the Postal Service's 
financial and competitive condition in the near term. It is my 
understanding that the GAO analysts that have been working with 
us on this issue, including Mr. Herr, have said that 
temporarily allowing payments related to current retirees to 
come out of the Postal Service's pre-funding account in the 
Treasury Department would be a reasonable step to take, and 
today we will hear more from him about that.
    Let me add in closing that I have no interest in 
temporarily propping up the Postal Service and waiting for 
another request for assistance a few years down the road. We 
need a Postal Service business model that works in the 21st 
Century and that preserves the vital service that the Postal 
Service provides for all of us. That business model may be the 
one we crafted in the Postal Accountability and Enhancement Act 
a couple of years ago, and I hope that it is. We cannot know 
for certain, however, because a number of key provisions in the 
Act are still being implemented, and the state of our economy 
is making it difficult for the Postal Service to make use of 
its new commercial freedoms that were granted under that 
legislation.
    I look forward to working with our colleagues, old and new, 
and with our witnesses here to do what needs to be done to help 
the Postal Service get through the very difficult situation 
that it faces today, and then we can turn our attention to 
what, if any, structural or other changes may need to be made 
to make the Postal Service successful in the years to come, or 
at least to make it viable enough so that it is no longer 
limping from crisis to crisis.
    Another thing I would say in yielding to Senator McCain is 
that one of the things that Senator Collins, Senator Akaka, and 
I have been most interested in is given the fact that we have 
all this diversion to electronic mail and electronic bill 
paying, what kind of business model works for the Postal 
Service? What business opportunities are out there that they 
can seize and that they can use? So that is part of what I am 
hopeful that we can do and have some discussion of that even 
today.
    Senator McCain.

              OPENING STATEMENT OF SENATOR McCAIN

    Senator McCain. Well, thank you, Mr. Chairman. It is a 
great honor and pleasure to continue to serve with you, and 
thank you for your outstanding service for many years to this 
Nation and to the State of Delaware. I am glad to have the 
opportunity to also be with Senator Akaka and the person who 
probably has worked harder than anyone on this--Senator 
Collins. So I will be extremely brief to say that I am pleased 
to be joining the Subcommittee. I am grateful for the 
opportunity. There are many challenges ahead in light of--I am 
sure that our witnesses' comments today will be couched in the 
economic crisis--in the parameters of the economic crisis that 
this Nation faces. I did notice with some interest that it has 
been 2 years since we enacted the Postal Accountability and 
Enhancement Act that Senator Collins, and Senator Lieberman, 
and others worked so hard on. And yet we find that mail volume 
has been in a steady decline. The loss of volume, I am told, 
will result in a $7 billion loss in fiscal year 2009. 
Obviously, that is not sustainable, or anything like it. So we 
have to be cognizant of our responsibility to the taxpayers, 
but we understand the public service role of the U.S. Postal 
Service.
    I notice our witness from the GAO is here today, and he is 
going to provide us with some options, none of them very 
pleasant, I might add, and yet obviously this is an issue that 
cries out to be addressed by the Congress and the 
Administration.
    So thank you for holding the hearing, and I am pleased to 
be a Member of this Subcommittee as well as a Member of this 
Committee.
    Senator Carper. Thank you, Senator McCain. Senator Akaka.

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka. Thank you very much, Mr. Chairman. I want to 
thank you for holding this timely hearing, and I also want to 
add my welcome to Postmaster General John E. Potter, also CEO 
of the U.S. Postal Service; and also the Hon. Dan Blair, who is 
Chairman of the Postal Regulatory Commission; and it is good to 
have Director Herr here of Physical Infrastructure Issues at 
GAO. Welcome to all of you.
    The Postal Service over the past 2 years has undergone a 
major transformation which has resulted in a fundamentally new 
approach to its business model. More than ever, the Postal 
Accountability and Enhancement Act that we passed in 2006 
requires that the Postal Service act more like a business, 
closely linking postal rates to incurred costs. However, in 
functioning more like a business, the Postal Service has begun 
to feel the same pinch as the private sector due to the 
economic crisis now occurring. Unfortunately, consumers in the 
United States are making less and buying less. This holiday 
season saw record lows in purchases, and lower packages and 
deliveries as a result.
    The Postal Service now faces a deficit of several billion 
dollars. There are some policies that could be enacted to put a 
Band-Aid on the situation, but it is no secret that much more 
is needed. The Postal Service's rates are strictly constrained 
by the Consumer Price Index cap, which only allows a modest 
increase in rates. One of the few ways around the cap would be 
using the exigency clause in the PAEA which is reserved for 
emergencies.
    The problems with the economy will soon push the Postal 
Service to make some very tough decisions. We face a real 
possibility of reducing deliveries, cutting staff, or a number 
of other options that would degrade Postal Service and likely 
damage customer satisfaction. I fear that dissatisfaction could 
lead to less use of the Postal Service and drive revenues down 
even further.
    The Postal Service has been innovative, but the current 
economy calls for more innovation. The Postal Service needs to 
find new business opportunities and expand on existing 
relationships. It must also be cautious in entering into 
negotiated service agreements to ensure that the agreements 
financially benefit rather than harm the Postal Service's 
bottom line.
    I am pleased that the financial reporting provisions that I 
pressed for in the PAEA now allow for increased transparency 
and accountability in the Postal Service's budgeting process. 
That along with the oversight of the Postal Regulatory 
Commission will help ensure that the Postal Service and 
Congress have the information needed to make informed and 
sometimes difficult choices.
    So I look forward to this afternoon's testimony and hope 
that we can all work together to ensure that the Postal Service 
continues to provide world-class universal service to all 
Americans.
    Thank you very much, Mr. Chairman.
    Senator Carper. Senator Akaka, thank you. And thank you for 
being just a great partner on postal issues and a whole lot of 
other issues that are part of this Subcommittee. But it is 
great to be your wing man. Thank you.
    And we have been joined by somebody else. You are in your 
old seat, Dr. Coburn, and I am glad you are still here with us.
    Senator Coburn. Thank you.
    Senator Carper. Some new blood on this Subcommittee. I 
think it is a good thing. We will see. We will find out.
    Senator Coburn. He has got Muskogee roots. [Laughter.]
    Senator Carper. I would note, again, Senator Collins has 
really been such a key player in postal issues. I was 
privileged to work with her a couple of years ago on this 
legislation, and I never thought at the time that we would 
continue to work on it as much as we have. But I am glad we are 
both here to do it.
    Senator Collins.

              OPENING STATEMENT OF SENATOR COLLINS

    Senator Collins. Thank you, Mr. Chairman.
    Let me start by joining you in welcoming Senator McCain to 
our Committee and to this Subcommittee. I was very pleased to 
be able to appoint him as your Acting Ranking Member yesterday. 
Senator Coburn is going to be the Acting Ranking Member on the 
Permanent Subcommittee on Investigations. Both will be great 
assets to the Subcommittees.
    I do very much appreciate your holding this hearing today. 
As the Chairman has mentioned, a little more than 2 years ago 
the postal reform legislation that we co-authored was signed 
into law. The President's signature was the culmination of an 
arduous process that began in 2002. It included nine hearings 
that I chaired in close consultation with the experts and 
stakeholders, many of whom I see in the audience today and at 
the table to my right as well. We worked closely with the 
Postal Service, GAO, OMB, employee unions, printers, 
publishers, nonprofit organizations, and other members of the 
mailing community.
    Although the issues that we confronted were many and 
complex, our purpose was straightforward. We wanted to help 
ensure the continuation of affordable universal service. We 
wanted to strengthen a crucial service that is the linchpin of 
a $900 billion mailing industry that employs 9 million people. 
It employs Americans indirectly in fields as diverse as direct 
mailing, printing, catalogue production, paper manufacturing, 
and financial services. We worked to strengthen the funding for 
health insurance for postal workers and retirees. Above all, we 
worked to position the Postal Service for the challenges of a 
rapidly changing 21st Century economy to avoid what the GAO had 
warned would otherwise be a death spiral for the Postal 
Service.
    We are in the midst of a deep recession that has put these 
issues once again before us, and I must say it is somewhat 
disheartening that we are back discussing these issues so soon. 
The Postal Service's response to the current economic crisis 
has not been to fully deploy the powerful tools provided by our 
legislation but, rather, to use the crisis as an argument to 
unravel the intricate compromise of provisions, accommodations, 
and protections that made up our landmark postal reform act.
    Specifically, the Postal Service is seeking relief from 
fully funding its retiree health benefits obligations. The 2006 
law requires the Postal Service to pre-fund its retiree health 
care obligations by making annual payments over a 10-year 
period. Two payments have been made to date, and the next is 
due on September 30. The law also requires the USPS to make a 
separate annual payment to OPM to cover current retiree health 
care premiums. When this payment schedule was enacted in 2006, 
the Postal Service believed it was achievable. These payments, 
I have to point out, were crucial components of a compromise 
that led to the postal reform bill becoming law because they 
secured the support of the Bush Administration.
    Now, with the Postal Service recording a $2.8 billion loss 
for 2008, and with hard economic times for the entire mailing 
industry greatly reducing volume, the Postal Service contends 
that this requirement is unsustainable. The Postmaster General 
has requested 8 years of relief from the obligation to pay 
these payments from operating funds. Instead, the Postal 
Service has proposed to tap the reserve established to fund the 
future retiree health care benefits.
    I have joined Senator Carper in supporting a 2-year 
reprieve from this requirement to help the Postal Service 
weather the current economic crisis. But I am very concerned 
about going beyond 2 years because I believe that it causes the 
Postal Service to not be proactive in addressing its long-term 
fiscal challenges.
    Mr. Chairman, in November, I joined you, Senator Lieberman, 
and Senator Coburn in requesting that the Postal Service 
provide detailed information regarding the steps that it plans 
to take in the near term to stabilize its financial situation. 
The GAO was disappointed with the Postal Service's responses 
and believes that the Postal Service has yet to make a case for 
urgent relief while charting a course forward to fiscal 
viability. The GAO also expressed frustration with the Postal 
Service's lack of transparency, and that is of great concern to 
me as well.
    Our postal reform law was crafted with great care and with 
the assessment of enormous amounts of information and 
viewpoints from a wide variety of sources. Its fundamental 
purpose was to look beyond the short-term fixes and to 
implement the long-term solutions that are absolutely essential 
for the Postal Service's future. Any measures taken now to 
address the Postal Service's current economic crisis must be 
crafted with those same goals in mind.
    Thank you, Mr. Chairman.
    Senator Carper. Senator Collins, thank you.
    Senator Coburn, I am not used to looking at you so far 
away. I am glad you are here.

              OPENING STATEMENT OF SENATOR COBURN

    Senator Coburn. Thank you, Mr. Chairman. Let me welcome our 
guests. I have raised some serious concerns on where we are for 
a couple of reasons. It is not a lack of confidence. I have 
confidence in the Postal Board of Governors. I have confidence 
in Postmaster General Potter. What I do not have confidence in 
is that he has the management tools he needs to make sure the 
U.S. Postal Service is on a steady footing. We are having this 
hearing today because the Postal Service outlined their 
financial outlook for the next 2 years, which I think are 
amazingly positive assumptions on revenues given what we see in 
terms of the economy. I do not believe that even if we allow 8 
years for the retiree health benefit fund we are going to be in 
the positive in the near term, or in the next 8 years.
    What I want to get answered today is how are we going to 
fix the problem? Fixing the problem is not transferring in to 
the Postal Service retiree health benefits back in for cash 
flow. The problem is we do not have the flexibility within 
Postal management to make the changes that we need to ensure 
that we can have a lean, fighting, effective competitor out 
there based on what we know is going to happen in terms of 
reduced mail volume.
    I am thankful, Mr. Chairman, for the hearing. I think it is 
important. However, I am worried that the next headline is 
going to be ``Auto bailout followed by post office bailout.'' 
It does not have to be that way. What we need to do is come 
together to make sure employees are protected, the history of 
the post office is protected. We need to make the changes that 
are necessary and flexibility in management so we can respond 
to the economic realities that actually face you.
    I believe the answer to the letter that was sent, as well 
as the assumptions in it, do not come up to the mark of what is 
needed to make decisions by this body in terms of trying to 
support your efforts. Thank you.
    Senator Carper. Thank you, Dr. Coburn.
    Let me provide just a very brief introduction for our 
witnesses, who need little introduction. You are all familiar 
with the Subcommittee. You have been before us, at least 
several of you, on many occasions. I just want to take a moment 
and briefly introduce each of them.
    John Potter is the 72nd Postmaster General of the United 
States--is that right?
    Mr. Potter. Yes.
    Senator Carper. And he took that position in 2001. He has 
more than 30 years of experience at the Postal Service and has 
served in a number of key leadership positions over the years. 
We thank you for your service and your leadership.
    Next we have Dan Blair, no stranger to this Subcommittee, 
the Chairman of the Postal Regulatory Commission. Mr. Blair is 
the first Chairman of the Postal Regulatory Commission. He was 
confirmed as a Commissioner in 2006 and designated as its 
chairman by former President George W. Bush.
    Finally, we have Phillip Herr, Director in GAO's Physical 
Infrastructure team. He joined GAO in 1989 and since then has 
reviewed a wide range of domestic and international programs. 
His current responsibilities and areas of expertise include the 
Department of Transportation and the U.S. Postal Service.
    Mr. Postmaster General, we will start with you. We are 
suggesting you try to go for about 5 minutes for your opening 
statement and stay as close to that as you can. But if you go 
over a little, that is all right. We are going to have some 
more votes. I checked on the floor when we just finished voting 
about 2:45 p.m., and they said we are going to have more votes 
probably within the hour or so. So we will hopefully get 
through all the opening statements and get started on 
questions, and then we will take it from there.
    Welcome. Please proceed. Your entire statement will be made 
part of the record.

  TESTIMONY OF HON. JOHN E. POTTER,\1\ POSTMASTER GENERAL AND 
          CHIEF EXECUTIVE OFFICER, U.S. POSTAL SERVICE

    Mr. Potter. Good afternoon, Mr. Chairman and Members of the 
Subcommittee, Senator Akaka, Senator Collins, and Senator 
Coburn. I appreciate this opportunity to discuss with you the 
extraordinary challenges facing the U.S. Postal Service today.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Potter appears in the Appendix on 
page 47.
---------------------------------------------------------------------------
    The Postal Service, like the rest of the economy, is 
experiencing a severe financial crisis, and I am here today to 
ask for your help to protect America's mail system. We need two 
things: A change in the funding of our retiree health benefit 
premiums, and flexibility in the number of days per week that 
we deliver.
    My first priority is changing the law to allow the Postal 
Service to pay its retiree health benefit premiums from our 
Retiree Health Benefit Trust Fund. This will not require 
appropriated dollars and will save the Postal Service $2 
billion in fiscal year 2009.
    My second priority is to provide the Postal Service greater 
flexibility in managing its way through our current crisis by 
allowing us to curtail delivery on our lightest-volume days, no 
more than one day per week. These efforts are vital because, as 
you know, the Postal Service is important to America. We are 
the second largest employer in the Nation. The mailing industry 
employs some 8 million people, and we are the conduit for 
roughly $1 trillion in commerce annually.
    Given these facts, it is fair to ask how did we reach the 
point where we are compelled to ask for your assistance. The 
answer is twofold: First, as America and its economy has 
evolved over the past 230 years, moving from agricultural to 
industrial to information based, the Postal Service has evolved 
with it. We have grown as America grew. We became the largest 
post in the world, with 46 percent of the world's mail--truly a 
success. However, in the Information Age, like other posts, we 
have seen a slow but steady migration of First-Class mail and a 
growth in standard mail, a medium which is extremely sensitive 
to the economy. The revenue loss from the decline in First-
Class mail is not offset by the growth of lower-priced standard 
mail.
    Second, the entire Nation is experiencing a significant 
recession and a reduction in economic activity. Mail volume is 
a production of economic activity. When the economy is weak, 
mailers do not mail, which has led to percentage mail volume 
declines not seen by the Postal Service since the Great 
Depression.
    The Postal Service was well aware of the first issue, and 
since 1999, we have been taking actions to position the Postal 
Service to address the challenge of diversion. We have reduced 
120,000 jobs through attrition. We modernized our products and 
services to meet the changing needs of the public. Productivity 
grew for 8 years for a growth of 12.7 percent, more than double 
what had been accomplished in the two previous decades 
combined. We worked with our unions and employees to develop a 
safer workplace. We have embraced sustainability efforts in all 
aspects of our organization, and a result, customer and 
employee satisfaction have increased, and we have reached 
record levels of service.
    However, unlike electronic diversion, few foresaw the 
economic tidal wave that has engulfed the Nation. The Postal 
Service first began to see the effects in December 2007, 
particularly in the finance, credit, and housing sectors, all 
of whom are heavy mailers. We immediately began responding. In 
fact, we doubled our cost-cutting to $2 billion last year, but 
it simply was not enough.
    In addition to the volume decline, other factors kicked in: 
Record fuel prices, which increased energy costs and drove up 
the Consumer Price Index; the largest employee cost-of-living 
adjustments in our history, as our union employees got raises 
driven by this extraordinarily high CPI; and then, of course, 
we were pre-funding our retiree health benefit obligations--I 
agree with Senator Collins--one that we had anticipated, but 
not in the circumstances that we found ourselves in.
    In the end, our cost-cutting could not overtake our growth 
in costs. Without the requirement to pay the $5.6 billion to 
pre-fund our retiree health benefits, we would have had a 
positive income last year, even with the obstacles I described. 
However, with the pre-funding requirement, we posted a $2.8 
billion loss. We began this fiscal year with a projected volume 
loss of 8 billion additional pieces of mail, and we projected a 
net loss this year of $3 billion. In the few short months since 
that forecast was developed, we are now projecting a 12- to 15-
billion-piece loss in volume.
    We have already taken actions to address the shortfall. We 
set a target of $5.9 billion in cost savings. However, they 
cannot be accomplished overnight without labor agreements. We 
have cut 26.9 million work hours in the first quarter alone, 
and we are on track and plan to cut well over 100 million work 
hours this year. We froze executive salaries, and we are 
reducing complement by 10 percent at headquarters and 19 
percent in our area offices. We have frozen our facility 
budget, and we are only building and leasing post offices that 
are needed for health and safety reasons. We have instituted a 
hiring freeze that has already resulted, since October 1, in a 
reduction of 14,800 employees, obviously all through attrition.
    I am sorry to tell you that even our revised forecast may 
be too optimistic. If current trends continue, we could 
experience a net loss of $6 billion or more this fiscal year, 
despite the most aggressive effort in our history to take costs 
out of our system. The maximum loss we can absorb, while 
allowing us to meet all our obligations under the current law 
and close this year with a positive cash balance, is $5 
billion. The gap between where our net income is trending and 
our projected cash position is a cause obviously for 
considerable alarm, and it is making us make some very 
difficult choices.
    That is why I am urgently requesting that Congress 
accelerate an existing provision in the Postal Act of 2006 and 
allow the Postal Service to pay its retiree health benefit 
premiums from our Retiree Health Benefit Trust Fund rather than 
make a separate payment for the premiums. The Postal Service 
would continue to make the scheduled annual payment to the 
trust fund, which will be $5.4 billion in fiscal year 2009. The 
Postal Service's contribution to the trust fund over the next 8 
years would always be greater than the premiums flowing out of 
the trust fund. That means that the trust fund balance, 
currently $32 billion, will continue to grow over this period 
of time.
    I am also asking that the Congress remove the 
appropriations rider that requires the Postal Service to 
deliver mail 6 days a week. As I have mentioned, the Postal 
Service is taking aggressive action to address our budget 
shortfall; however, given the severity and uncertainty of the 
drop in volume, we will need new tools with which to manage. 
The ability to suspend delivery on the lighted delivery days 
will save dollars in both our delivery and processing and 
distribution networks. And I have to tell you, I do not make 
this request lightly, but I am forced to consider every option 
due to the severity of the challenge at hand.
    The urgency of these requests and the reason I am asking 
for 8 years of relief is a result of our need to plan both 
short and long term, and we do have some experience with the 
impact of congressional action in the past. We are very 
grateful to get Public Law 108-18 that required the Postal 
Service to create an escrow fund beginning in 2006, which we 
put $3 billion into and held as reserve cash. The Postal Act 
then created the retiree health benefit pre-funding requirement 
which transferred the escrow to the trust fund, and it was 
reflected as an expense, so we had a loss in 2007 of over $5 
billion.
    All of these changes, largely driven by the budgetary 
scoring processes rather than public policy, have a roller-
coaster effect on the Postal Service's bottom line. Both of 
these proposals are designed to allow the Postal Service to 
plan and manage its way through this crisis. Our request falls 
squarely within what the Congress and I believe the 
Administration have defined as job preservation and economic 
growth.
    We strongly believe our request is right for inclusion in 
the pending stimulus package. If Congress does not grant these 
requests, then we will be forced to risk service and make other 
changes that may not be in our interest, our best interests, or 
the country's best interest in the long term.
    In the absence of these changes, we will make the cuts we 
need to make, but our ability to do them in a systematic way 
will be hampered. The Postal Service is and has always been the 
link that connects every American to the rest of the Nation for 
only the price of a stamp. We collectively cannot put this at 
risk, and I ask for your help, your action, and your support of 
the Postal Service as we address this financial crisis.
    Senator Carper. Thank you for that statement, and we look 
forward to hearing now from Mr. Blair.

TESTIMONY OF HON. DAN G. BLAIR,\1\ CHAIRMAN, POSTAL REGULATORY 
                           COMMISSION

    Mr. Blair. Chairman Carper, Senator Collins, Senator Akaka, 
and Dr. Coburn, thank you for this opportunity to represent the 
Commission today in testifying. I would also like to 
acknowledge in today's audience two of my fellow Commissioners: 
Commissioner Nanci Langley, who is in back of me, and 
Commissioner Ruth Goldway as well. I am happy to summarize my 
statement.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Blair appears in the Appendix on 
page 57.
---------------------------------------------------------------------------
    Today, the Postal Service is facing troubling financial 
difficulties that stand to worsen before they improve. The 
current economic crisis has substantially impacted the Postal 
Service's volumes and revenues. For example, the financial 
sector, which has seen an implosion, accounts for approximately 
15 percent of the Postal Service operating revenues, according 
to the Postal Service's 2008 Annual Report. The economic 
downturn comes on the heels of continued diversion of single-
piece First-Class mail to E-mail and electronic bill payments. 
The cumulative result of these events has been the most severe 
volume declines since the Great Depression and significant 
financial losses for the Postal Service. The Postal Service's 
own data show volume declines for every domestic class of mail 
in fiscal year 2008, with First-Class mail volume declining 
almost 5 percent.
    To address this crisis in the short term, the Postal 
Service has only a limited number of options available for 
financial relief.
    Given its limited choices, a temporary adjustment to the 
Postal Service's retiree health benefit payment schedule would 
appear to be the most pragmatic approach for the short term. 
However, Congress should carefully consider the impact of 
allowing the Postal Service early access to the Retiree Health 
Benefits Fund to meet current needs without a plan for ensuring 
the sustainability of the fund to address the long-term health 
benefit liabilities.
    In addition, the effective and robust oversight of the 
Postal Service requires transparency of financial information. 
The Commission recommends that Congress require the Postal 
Service to provide Congress, the Commission, and the GAO with a 
comprehensive, forward-looking financial plan. Such a plan 
would provide more detail than the current Strategic Plan on 
how the Postal Service intends to regain long-term financial 
stability in light of the real possibility of continually 
declining mail volumes.
    To support this effort, we recommend the Postal Service 
provide Congress, the public, and stakeholders with monthly 
reports of financial operations along the lines of the 
information contained in the accounting period reports the 
Postal Service formerly made available. We also recommend that 
the Postal Service make available to the Commission its 
integrated financial plan in order to assess the Postal 
Service's current performance against that plan. Given the 
tenuousness of the Postal Service's financial situation, more--
not less--transparency is necessary.
    Again, I thank you for this invitation to testify, and I 
welcome the opportunity to answer any questions you might have. 
Thank you.
    Senator Carper. Thank you, sir. Mr. Herr, welcome.

      TESTIMONY OF PHILLIP R. HERR,\1\ DIRECTOR, PHYSICAL 
  INFRASTRUCTURE ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Herr. Thank you. Chairman Carper, Senators Akaka, 
Collins, and Dr. Coburn, thank you for the opportunity to 
discuss GAO's work regarding the financial condition of the 
U.S. Postal Service. My statement addresses two topics: First, 
the Postal Service's current financial condition and outlook; 
and, second, options and actions for the Postal Service to 
remain financially viable in the short and long term.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Herr appears in the Appendix on 
page 62.
---------------------------------------------------------------------------
    As has been commented here today in the hearing, the Postal 
Service's financial condition deteriorated in fiscal year 2009. 
Mail volume fell by 9.5 billion pieces. The Postal Service's 
$2.8 billion loss was its second largest since 1971. Its 
outstanding debt increased to $7.2 billion, nearly half of the 
$15 billion statutory debt limit. As recently as 3 years ago, 
the Postal Service had no outstanding debt.
    While the Postal Service has stepped up its cost-cutting 
efforts, it has not fully offset revenue declines associated 
with reduced mail volumes. The Postal Service has large 
overhead costs, including providing 6-day delivery and service 
at about 37,000 post offices spread across the Nation. 
Compensation and benefits for its 663,000 career employees and 
over 100,000 non-career employees accounted for close to 80 
percent of its costs.
    Preliminary results for the first quarter of fiscal year 
2009 indicate mail volume may decline in the range of 10 to 15 
billion pieces, with revenues falling below targets developed 
last summer. We agree with the PRC that unfavorable volume 
trends continue and could impair all the Postal Service's 
financial viability.
    Communication patterns have begun to change, and people are 
becoming more likely to obtain information and conduct 
financial transactions using the Internet, a trend particularly 
evident among young people.
    Looking to 2010, the Postal Service provided information 
last month that indicated that its financial situation should 
improve that year. In light of this situation, we recognize the 
need to provide the Postal Service with short-term financial 
relief, but such relief is not a substitute for aggressive 
action to preserve its long-term viability.
    Key options that have been discussed include reducing the 
Postal Service payments for its retiree health benefits for 8 
years. As shown in Table 1 of my statement, which is on page 7, 
the Postal Service has proposed that Congress give it immediate 
financial relief by reducing its payments for retiree health 
benefits by an estimated $25 billion from 2009 to 2016. This 
would decrease the available balance in the fund by 
approximately $32 billion, including interest charges, in 2017.
    A second option would be to reduce the Postal Service 
payments for retiree health benefits for 2 years. Congress 
could provide the Postal Service with 2-year relief for its 
retiree health benefit payments totaling $4.3 billion, which 
would provide immediate financial relief while having much less 
long-term impact on the fund. We believe this option is 
preferable. This would allow Congress to revisit the Postal 
Service's financial condition in 2 years while assessing 
actions taken in the interim to assure its long-term viability. 
In other words, this approach would keep the pressure on the 
Postal Service to make needed changes.
    Another option that would not require Congressional action 
would be for the Postal Service to work with its unions to 
modify work rules to reduce costs. For example, the Postal 
Service and the National Association of Letter Carriers agreed 
to expedite adjusting city delivery routes, a move expected to 
achieve some cost savings.
    When Congress passed the Postal Reform Act in 2006, it 
recognized the need to streamline postal operations. Aside from 
short-term fixes, the Postal Service urgently needs to take 
action that move it beyond its current cost-cutting efforts. 
Short-term relief for retiree health care payments is not a 
substitute for action. Compensation of benefits account for 
nearly 80 percent of its costs and is one area to consider.
    Another area we have previously reported on is reducing 
excess capacity in the Postal Service's mail processing 
infrastructure. In 2005, we recommended actions needed to 
enhance transparency and accountability of its realignment 
efforts, and we reported in 2008 that it has made improvements 
in this area. To date, however, it has taken only limited 
action, closing only one of over 400 large processing 
facilities, and is considering outsourcing operations in its 21 
bulk mail facilities. Another area where costs can be reduced 
is its network of about 37 retail facilities, a move that could 
also help reduce its large maintenance backlog.
    In conclusion, Mr. Chairman, we recognize it has been 
difficult and at times controversial for the Postal Service to 
take action in these areas. Accelerated mail volume declines 
and changes in the public's use of the mail indicate that the 
Postal Service needs to move beyond incremental efforts and 
take aggressive action that will help assure its long-term 
viability.
    Mr. Chairman, this concludes my prepared statement, and I 
would be happy to answer any questions you or other Members 
have. Thank you.
    Senator Carper. Mr. Herr, thank you for the statement, and 
thanks even more for the oversight that you and GAO provide for 
us, really as a partner in our oversight efforts.
    I want to start off with a question for Mr. Potter and then 
maybe a couple for our other panelists as well. Everybody is 
going to work with about 7 or 8 minutes. Seven minutes, and I 
would ask you to try to stay close to that, and then we will 
come back for a second round.
    Mr. Potter, you request in your testimony that Congress for 
the first time allow the Postal Service--not mandate, but allow 
the Postal Service to offer less than 5 days of delivery if our 
current economic situation and a continued decline in mail 
volume suggest to you and the Board of Governors that doing so 
would be necessary. I am certain that going from 6 days to 5 
would save some money. I also suspect that in some cases it 
might make the Postal Service a somewhat less attractive option 
for some of your customers.
    Just give us your thoughts on this, and if you would, I 
would like to hear maybe from Mr. Blair and from Mr. Herr on 
this point as well.
    Mr. Potter. Senator, as I said in my testimony, I did not 
take that lightly in terms of making that request. My 
preference would have been to continue on with 6-day delivery; 
however, in light of the fact that in a couple years we will 
have a drop of over 20 billion pieces of mail we needed to move 
forward with this request.
    Senator Carper. That is 20 billion out of how many, out of 
the base?
    Mr. Potter. Well, we hit our peak at around 212 billion.
    Senator Carper. And between the 212 billion--excuse me. Of 
the 212 billion, roughly what percentage of that is First-Class 
and what is not? Just roughly.
    Mr. Potter. We have about 95 billion pieces of First-Class 
mail, which is about 47 percent of our total volume.
    Senator Carper. OK.
    Mr. Potter. And, a little over 50 percent is standard mail, 
which is advertising mail.
    Senator Carper. And out of the drop, what did you say the 
decrease was?
    Mr. Potter. Right now--and, again, it could go lower, we 
think we are going to go down to about 189 billion pieces.
    Senator Carper. And roughly what percent--is the loss 
greater in First-Class? Where is it the greatest?
    Mr. Potter. For the first quarter, we saw a decline of 
First-Class mail of about 6 percent. Standard mail was down 
about 11 percent.
    Senator Carper. OK. Thank you.
    Mr. Potter. So in terms of 6-day delivery, we look at the 
year and we look at how many pieces of mail we actually deliver 
on average. In 2000 we were delivering 5.9 pieces of mail to 
every stop. We are projecting that in 2009 that will drop to 
about 4.8 pieces per stop. Obviously, that is challenging. This 
precipitous drop was not expected. And so as we look at our 
lightest volume periods--June, July, and August--it is hard to 
justify going to every door 6 days a week.
    One of the options we are looking at is a reduction in 
service, and looking at it for that period of time, we would 
obviously have to work through our plans. I have discussed this 
with mailers. The mailers I have talked to recognize the 
situation we are in. They are very concerned that we not raise 
rates above the rate cap, and if the alternative for them is to 
have some diminution in terms of days of delivery for the 
period of time I described, they said that they would work with 
us and adjust their operations to meet our reduced delivery 
schedule.
    Senator Carper. Let me just interrupt for a second. You 
have been acting commendably with respect to partnering, in 
some cases I think with UPS or FedEx, and using the idea that 
you go 6 days a week to every door. You go the last mile; you 
also go the first mile. But you have used that part of your 
business model as an attractive feature in order to build those 
partnerships.
    I would just lay out a question and a concern. If you go 
from 6 to 5 days, some of your customers, including your 
competitors, might be less inclined to use you as a partner for 
going that last mile. Any thoughts about how that might affect 
your business? I don't know if that is a growing part of your 
business or not. I suspect it is.
    Mr. Potter. It is a growing part of our business, but 
overall, packages are in a state of decline because of the 
economy, so it is down somewhat. But the competition, the 
competition does not deliver on a sixth day. So in terms of 
what is the alternative to us--and we are very reasonably 
priced, and for that period of time, I do not think it would 
cause a diminution.
    However, in the fall, people are looking to get advertising 
mail and packages. So as we approach the holiday season, I 
think that would be detrimental to our volume, but we could 
work our way through it.
    Senator Carper. Could you see a period of time where on the 
lightest days you would have 5 days of service and then maybe 
getting into the fall, closer to the holiday shopping season, 
bump it back up to 6 days for a period of time?
    Mr. Potter. That is what we are proposing.
    Senator Carper. All right.
    Mr. Potter. We are proposing only for this summer and 
probably 2010 because I do not see a sharp mail recovery in 
2010. What I am asking for is that the Board be given the 
latitude to evaluate our mail volumes and to make decisions, in 
concert with our mailers, on when it would be prudent to roll 
back or eliminate six day delivery.
    Now, if we did that, we would have to work with our unions, 
and we will, to make the necessary scheduling changes. We would 
advise our customers of any change so that we do not have 
anyone walking out to the mailbox on a nondelivery day. We do 
not want anyone having to guess if there is going to be a mail 
delivery today. But I believe that we could work through it.
    And, again, the alternative is to not comply with the law 
and hit our borrowing limit, as well as keep our rates below 
the rate of inflation.
    Senator Carper. Fair enough.
    Let me hear from Mr. Blair and Mr. Herr, please. And each 
take about a minute apiece, please.
    Mr. Blair. Chairman Carper, I appreciate Mr. Potter's 
comments, the deliberateness with which he approaches this 
issue. We have to be very careful when we go into this area.
    The Commission recently issued its Universal Service 
Obligation Study, and we looked at this. We found possible 
savings for the Postal Service of almost $2 billion if they 
reduced the days of delivery, but it is a double-edged sword. 
And more information----
    Senator Carper. So about $2 billion a year?
    Mr. Blair. Two billion a year, correct.
    Senator Carper. And that assumes year-round, 12 months, 5 
days' service?
    Mr. Blair. Correct.
    Senator Carper. Thank you.
    Mr. Blair. But we need to know more. Is this going to be a 
permanent change, a temporary change? For a few months a year? 
We need to know more about the plan.
    Senator Carper. I think what we just heard, it could cycle 
on and off. Part of the year, busier times.
    Mr. Blair. And is it a permanent change? Is it something 
the Postal Service would revisit? There is just more that needs 
to be fleshed out.
    Senator Carper. Mr. Potter, are you asking for maybe a test 
drive, a year or so, see how it works out, do you have enough 
flexibility?
    Mr. Potter. My preference would be that the Board be given 
the latitude and the authority to make that decision. That is 
probably where we are headed in the long term, anyway, because 
of the diversion of mail from hard copy to electronic.
    Senator Carper. Right.
    Mr. Potter. I would say we would like the authority long 
term. We would exercise discretion around how to use it. In all 
likelihood, we would use it in a limited way in the short run. 
But I would venture to say that we will probably evolve based 
on pieces per delivery to a less than 6-day-a-week delivery at 
some time in the future.
    Senator Carper. Fair enough. Mr. Blair, finish your comment 
and we will come back to you, Mr. Herr.
    Mr. Blair. Given those potential savings that I identified, 
the other issues that we need to address are will this 
exacerbate the already declining mail volumes even more than we 
are already going to see. Those are questions we do not have 
answered.
    Mr. Potter was right in saying, what are the alternatives? 
Is it an exigent rate case? Is it bumping up against the 
borrowing limits? Those are questions that need to be fleshed 
out.
    Current law requires that the Postal Service come before 
the Commission when there is a proposed change--for an advisory 
opinion anytime that there is a change in nationwide delivery 
or service. We would anticipate the Postal Service coming 
before the Commission with their proposal, and we would want 
the public to weigh in.
    Mr. Potter. If I could just add to that. It is my 
understanding that the language I am talking about changing is 
in the annual Appropriations bill rider. So even if we went to 
the Commission, they would not have the latitude to tell us 
that we could deliver less than 6 days a week. That is why we 
are here and asking relief from the Senate, the Congress.
    Senator Carper. Do you think the Appropriations Committee 
could trump the PRC?
    Mr. Potter. You created them. You probably could.
    Senator Carper. Fair enough. Senator Collins.
    Senator Collins. Thank you very much, Mr. Chairman.
    Mr. Potter, you will probably be sad to hear that I am now 
a member of the Appropriations Committee. [Laughter.]
    And I am rather fond of the universal service language.
    In all seriousness, I am very disappointed to hear you come 
before us today and advocate as a potential solution to this 
economic crisis the elimination of the requirement for 6-day-a-
week delivery. In 2002, when this Subcommittee first began 
tackling the problems of the Postal Service, the GAO warned 
that the Postal Service was at risk of a death spiral because 
you were raising your rates unpredictably, often through a very 
litigious process--through no fault of your own. We have 
changed that. But every time the rates would go up, 
particularly when they would go up by a substantial amount, 
your volume would fall.
    Well, now you are proposing service cutbacks that I believe 
will have exactly the same impact on your volume. If 
businesses, newspapers, and others that have time-sensitive 
mail can no longer rely on 6-day-a-week delivery, they are 
going to find other means of delivering their information, 
whether it is via the Internet or using hand delivery in some 
cases.
    I am already receiving many complaints from newspaper 
publishers and other businesses about changes you are making in 
my State, where you are shipping mail in some cases hundreds of 
miles to processing plants that are further away in an attempt 
to achieve some efficiencies while compromising service. How 
shipping mail from Madawaska, Maine, to Scarborough, which is 
500 miles away, achieves efficiency is beyond me.
    I do not know how you can ask for relief from your 
financial obligations and at the same time propose cutbacks in 
service. I believe that will cause you to lose even more 
customers, so that is the issue that I need for you to address.
    Mr. Potter. Well, Senator, I think we are in an 
unprecedented situation. When we were working together on the 
postal law that was passed in 2006--and I am very grateful to 
the leadership on that bill that you and Senator Carper 
provided on that bill--no one envisioned that we would have 
what looks to be a 23-billion-piece drop in volume in less than 
2 years. That is the kind of loss that we anticipated having 
over a decade or more. We already had plans in place to reduce 
our workforce and make the Postal Service leaner, more 
efficient, and smaller over a period of time, to allow us to 
evolve into that system.
    Now, what has happened is a very dramatic drop in volume. I 
wish I knew we were at bottom, but I cannot predict that. We 
looked back in history to learn what the Post Office Department 
did during the Depression to respond to declining mail volume. 
We learned a lot from that. There were things they did that we 
cannot do. During the Depression, they did things like furlough 
their craft employees. We cannot do that because we are bound 
by collective bargaining. I believe in collective bargaining 
and I want to live up to those contracts. But at the same time, 
these contracts limit what we can do. There are no-layoff 
provisions in most of our contracts. As an alternative, we are 
basically exploring everything that we possibly can do to draw 
down our costs and maintain service. We finished last year with 
the highest service levels we have ever had in our history. I 
believe in service. And I can tell you that our Board of 
Governors believes in service. But given our current situation, 
there are things that have to change.
    What is more detrimental: Raising rates above the rate of 
inflation--because we can not furlough people. We are bound by 
our employee agreements, and I want to live up to them. Or do 
we turn around and lower service by incrementally cutting 
things like lobby hours and telling customers we cannot hire 
additional help? Or do we let people go who we need to move the 
mail? Or is it better to go to the America public and say, 
because of this financial situation, there is going to be one 
day a week during the summer months when we are not going to 
deliver your mail. This would allow us to not exceed our legal 
borrowing limit and let us to live up to our labor agreements, 
with the promise that we are going to be right back in business 
in the fall.
    Now, I am speaking for myself in terms of where I think we 
have to go. There are other options on the table. The other 
option is to look at our retiree health benefit payment 
schedule, and that is the first thing that I am asking for. One 
of the things we are asked to do is act like a business. And so 
I think of businesses, and I say, what are businesses doing in 
this situation?
    Senator Collins. I would say that a business would not cut 
back on service and, thus, jeopardize retaining its customers. 
I think that is the last thing that a business would do. 
Businesses still have to have bills delivered and catalogues 
delivered and newspapers delivered, whether it is July or 
whether it is December. That does not take a hiatus in the 
summer months.
    Mr. Potter. But businesses close stores that are 
unproductive. Businesses in some cases roll back or say they 
are not going to make contributions to 401(k) plans. Businesses 
say they are not going to give employees raises. I mean, 
businesses do things that might not be in terms of service the 
way you think about it, but if a store that is near me closes, 
my access to that store is now miles away. Service is hampered.
    But, again, I am saying basically that we are boxed in. My 
preference would be to get the relaxation--and I thank you for 
the support that you mentioned earlier for a couple of years of 
relief for the payment of our retiree health benefits. That 
would be very much appreciated. That could get us over the 
hump, and that is our first priority. If we get that and if we 
are successful at the cost reduction programs that I talked 
about, the $5.9 billion that we are shooting for, then we will 
not have to roll back delivery from 6 to 5 days. But if we are 
boxed in, that is our only choice.
    Senator Collins. Well, it is not your only choice. My time 
has expired, but, Mr. Chairman, let me just say very quickly I 
am also very concerned about the lack of financial 
transparency, which was a key goal of the 2006 legislation that 
we authored. It was a key goal of Senator Akaka's. Here we find 
out from the GAO, from Mr. Blair, that you are coming to us for 
relief from a financial obligation, and yet you are not 
providing transparency, not allowing us to really understand 
your financial situation.
    For years, from 1972 through 2006, the Postal Service had 
monthly accounting period statements that were submitted to 
Congress and to the Commission. They were put on the website. 
That information is not being provided. It is absolutely 
unacceptable for you to come to Congress and say that you need 
relief from financial obligations, and then we hear from the 
GAO and from the Commission, from our own experience, that you 
are going backwards when it comes to transparency, which is 
completely contrary to the requirements of the 2006 Postal 
Reform Act.
    Thank you, Mr. Chairman. I know I am over my time.
    Mr. Potter. Could I just make a comment, please?
    Senator Carper. Go ahead, and then we will recognize Dr. 
Coburn.
    Mr. Potter. We have an auditor that advised us not to 
provide the information that you are talking about. In the 
past, Postal management provided that information on a monthly 
basis, basically open books. We had done that for years. To 
become Sarbanes-Oxley compliant meant that we should only 
provide audited data in a public environment. We are simply 
trying to come into compliance with the law. That is our 
position. We are trying to be compliant with Sarbanes-Oxley. 
Our auditor advises us that we cannot release unaudited data 
that might be misleading.
    Senator Collins. Well, we want accurate data, not 
misleading data.
    Mr. Potter. Exactly.
    Senator Collins. That is certainly true.
    Mr. Potter. And that is the problem. We have offered to 
share the data with the PRC, provided they do not publish it so 
we can be in compliance. This is the dilemma we are in. I am 
being very candid with you. That is exactly the position we are 
in.
    Senator Carper. All right. Thank you. Dr. Coburn.
    Senator Coburn. Do you make financial decision off that 
data? Do you make management decisions off that data, your 
monthly financial statements?
    Mr. Potter. Yes, we make budgetary decisions. We make 
decisions off data around volume, around work hours on a daily 
basis.
    Senator Coburn. But as an executive, you get the financial 
statements every month.
    Mr. Potter. Right.
    Senator Coburn. You know what your workforce is. You know 
what your rules are. You make decisions on that.
    Mr. Potter. Yes, I do.
    Senator Coburn. Why can it not be shared with Members of 
this Subcommittee on a monthly basis?
    Mr. Potter. It can be.
    Senator Coburn. All right. There is part of the answer.
    Mr. Potter. All we are asking----
    Senator Coburn. But the point is it has not been.
    Senator Collins. Right.
    Senator Coburn. It has not been made available.
    You have a failed business model. Until you answer what the 
new business model is going to be, everything we are doing and 
everything you are doing is not going to fix it. What do you 
need, both you and the PRC Chairman, Mr. Blair? What is it that 
you need as a CEO to make the decisions to create a future 
profitable business model and give you the capability of being 
flexible to handle downturns? You and I have had this 
discussion. I do not think you are in an economic downturn. I 
know some of the mail portion of that is, but I think you are 
going to see--I think electronic diverted mail is going to take 
away 90 percent of your First-Class mail, because even somebody 
like me is now paying their bills online. Even me. I would have 
never thought that. All the younger generation is.
    The chart you originally shared with me, you are worried is 
not quite accurate. If I understand you correctly, you think 
the volume decline is going to be greater than what you gave me 
earlier?
    What is it that you all need, what does the Commission 
need, what do we need to give you so that you can make it where 
the Postal Service is not in a negative cash flow position and 
you have secured the future for your employees? Taking away the 
future from your employees now to someday put it back later is 
the same thing we are guilty of, which never works. That is why 
we have a $10.8 trillion debt, which is going to go to $13 
trillion in the next 2 years.
    So what is it that you need? Tell us what we need to do to 
give you the flexibility to change your business model, and 
give you the flexibility to manage that business model in a way 
that does not generate a loss.
    Mr. Potter. That is a big question.
    Senator Coburn. Well, but that is the question that has to 
be answered----
    Mr. Potter. Right.
    Senator Coburn [continuing]. Because we cannot react. You 
are asking us to loosen up $5 billion worth of money, and you 
are not giving us the plan. You are not telling us what you 
need. You need to bring and develop and deliver to us here are 
the changes that need to be if we are going to have a 
successful model.
    Mr. Potter. Right.
    Senator Coburn. Because if 50--I think you said 50 percent 
of your volume comes from First-Class mail, or did?
    Mr. Potter. It did. It is slightly less. But from a revenue 
standpoint, it is above 50 percent.
    Senator Coburn. OK, so 50 percent. And if that is going to 
be cut in half in the next 2, 3 years, that means you are going 
to have a 25-percent decline in volume.
    Mr. Potter. Right.
    Senator Coburn. So where is the business plan? Where is the 
model? What do we need to do to enable you to be successful? We 
do not know how to run the post office. We do not even know how 
to run the Congress. So we cannot give you the answers. What 
you have to do is tell us what you need.
    Mr. Potter. Right. On a broad basis, because obviously we 
do not have time to go through an elaborate plan, to get out of 
the current predicament we would like to reschedule the payment 
of our retiree health benefits. We are not intending to walk 
away from this responsibility. We are asking to reschedule the 
payments and, given our financial situation, make them more 
reasonable in the coming years.
    In addition, we are reacting to the volume downturn in 
terms of reducing our infrastructure. As discussed earlier, 
with the National Association of Letter Carriers, we are 
reducing the number of routes we have. That takes time and we 
have to work through a process to do that. We are going to 
count every rural route in America. But we do not need your 
help on those day-to-day things.
    When it comes to structural things, we do need your support 
to enable us to complete consolidations of facilities.
    Senator Coburn. Like the mail processing facilities that 
GAO talked about?
    Mr. Potter. Right. Last year, we eliminated 58 air mail 
centers. That was not spoken of, but we closed 58 facilities, 
and we no longer have them.
    In some cases, we are not closing facilities. What we are 
doing is moving mail from one location to the other. If there 
is a delivery function in a building, we do not close the 
building. We just change what they do to make the operation 
more effective. But we need support from Congress.
    When we go to do some of these things, a lot of times 
Congress encourages us to do it. But later an individual 
Senator or Representive steps in and says, ``not in my back 
yard.'' If there is a way for us to figure out how to navigate 
these situations, we would appreciate it.
    Senator Coburn. Are you saying you need the flexibility to 
do it without political interference?
    Mr. Potter. Yes.
    Senator Coburn. OK. Mr. Blair.
    Mr. Blair. Dr. Coburn, in response to your question, I want 
more information. I want more information about the reduction 
in frequency of delivery. I want to know how that is going to 
impact on volumes, as Senator Collins said. Is it going to 
exacerbate this tailspin? And if it is, by how much?
    In our study, we identified a 2-percent loss, but, frankly, 
that 2 percent was an estimate, at best. I want to know more. I 
am also troubled by the fact that Mr. Potter just said that if 
the appropriations rider--and maybe I heard him wrong--is 
dropped, the Postal Service would not have to come before the 
Commission for an advisory opinion. That was my impression. 
Unless the Appropriations Committee says, ``go to 5-day-a-week 
delivery,'' I thought the current law required an advisory 
opinion by the Commission. We can work this out. Will it take 
us forever to issue an opinion? No. We would be very sensitive 
to the Postal Service's request for expedition, but the public 
has a right to know. And I am very concerned about this lack of 
transparency as far as monthly reporting.
    When I was a staffer on this Committee and in the House, I 
looked at those reports. Those reports were helpful. And 
Sarbanes-Oxley application to the Postal Service was enacted 
not to take away transparency, but to add to it. The Postal 
Service relies on these, as you pointed out, Dr. Coburn, to 
make management decisions. They receive daily if not weekly 
financial data. I understand it is not audited. I understand it 
is not perfect. But do not let the perfect be the enemy of the 
good in this case. The public has a right to know. As far as 
the Commission posting this? This is a public agency, and I am 
very concerned about not making this data public.
    I have a little secret to tell everyone. The sum total of 
postal knowledge does not rest among the three of us at this 
panel. People actually read these when we post it on our 
website. There are people who understand these things and they 
are interested. And I know that more transparency is oftentimes 
burdensome for a public agency, but that is the price we pay. 
And I think, my personal feeling is if you are going to come to 
Congress seeking relief along these lines, this is a small 
price to pay for additional transparency.
    Senator Coburn. I just want to make one comment. You know, 
I love my mother-in-law. I will say that publicly.
    Senator Carper. Would you say that again? [Laughter.]
    Senator Coburn. I said I love my mother-in-law.
    Mr. Blair. Is she from Muskogee?
    Senator Coburn. Yes, she is.
    Mr. Blair. So was my mother-in-law.
    Senator Coburn. But running the post office is like having 
two mother-in-laws. You have got a Board of Governors, and you 
have got a Postal Rate Commission. And then we are going to 
tell Mr. Potter you cannot manage this without somebody else 
telling you what you can do on your rates, here is what you can 
do in terms of your agreements, and you cannot do this unless 
the Board of Governors approves.
    I am not against a Postal Rate Commission. Do not get me 
wrong. I am just saying we need to recognize the position we 
put somebody in in a management position who has to do these 
things. So what we need--and I will say it again--we need a 
comprehensive plan and business model put forward to us to say 
here is what we think we need to be in the future to be viable.
    I will tell you, I will bet 1,000-1 in the non-viability of 
the business model today, with the wind-down and the loss 
through electronic mail and the competition as it is going to 
heat back up once the economy turns around in terms of the 
package business. It is going to be tough, and in spite of the 
fact we have all these other things, like the Postal Service 
pays 15 percent more than any other government agency in terms 
of health benefits and other benefits. The postal contribution 
is higher than any other Federal employees. So we have all 
these other hard things, and I just think we need to be honest.
    Senator Carper. Dr. Coburn, you will be recognized here in 
just a second. I skipped over Senator Akaka and yielded to you. 
So I owe him an apology, and, Senator Akaka, let us get you in 
the game here. Thanks very much.
    Senator Akaka. Thank you very much, Mr. Chairman.
    I look upon what is happening as something that will affect 
our entire country, including Hawaii. Mr. Potter, I am very 
concerned about what has been raised today, and that is, 
service and deliveries may need to be cut back in order to 
balance the books of the Postal Service. And we have been 
talking about transparency and getting to know more about the 
program. States like Hawaii rely on the Postal Service which 
could be especially affected if service levels were reduced, 
without question. How would delivery reductions affect areas 
like Hawaii? And how would you engage those communities to 
inform them of service cuts? And another part to that is when 
you say reduce it to 5 days, which days would be cut?
    Mr. Potter. Well, Senator, the last thing we would like to 
do is cut service. I am asking for the flexibility only because 
of the dire circumstances that we are in.
    Regarding the day that would be cut, that would be 
something that would be studied. In the past, we looked at 
perhaps cutting Saturday delivery, which is our lightest day, 
and/or Wednesday delivery so that customers could have the 
ability to speak to their carrier on Saturday. The day to be 
cut would be under review, and it is something that we might 
test if we were to suspend delivery on an interim basis.
    Regarding the customers, obviously we would keep them 
informed. Over the years, we have done surveys of customers 
and, quite frankly, a very high percentages of people said that 
5-day delivery would be fine for them versus 6.
    Yes, it is extremely sensitive. It is the last thing we 
would like to do. We propose it only in response to the dire 
circumstances we find ourselves in.
    Senator Akaka. Mr. Blair, in December 2008, the Postal 
Regulatory Commission, released a report required by the PAEA 
which discussed the current state of the Universal Service 
Obligation, which is the USO, of the Postal Service. The report 
generally found that the USPS was fulfilling the USO. They 
found that the USO has seven attributes, and I would like to 
ask you whether delivery cuts would fundamentally change the 
Commission's view of the Postal Service's fulfilling the 
Universal Service Obligation, and, in particular, to focus on 
the geographic aspect of the obligation.
    Mr. Blair. I think the Universal Service Obligation would 
be impacted by a reduction in the frequency of delivery, but as 
the Postmaster General has pointed out, we are in extraordinary 
times, and sometimes extraordinary action is taken. What we 
need is some good information to provide to Congress and 
policymakers as they contemplate and grapple with this 
situation.
    Is it a trade-off between an exigent rate case or a 
degradation in service delivery? These are things that need to 
be aired in the public and discussed before we move forward. I 
understand the urgency of the situation, and as we undertook 
this study last spring and last summer, we went around the 
country and had field hearings and heard from mailers. I do not 
recall any of the mailers saying let us go ahead and move to 5-
day-a-week delivery. We heard from mailers who were saying how 
important it was that they be able to get to their customers 6 
days a week. But we are in extraordinary times, and we need to 
think differently than we have in the past. But in order to 
make well-informed decisions, the Congress needs good 
information, and that is what the Commission is obligated to 
provide you, and that is why I call for additional 
transparency.
    Senator Akaka. Mr. Potter, would the Postal Service 
consider producing more financial data for the PRC and other 
stakeholders? Or would this be unnecessarily burdensome for 
you?
    Mr. Potter. We have had discussions with the PRC, and we 
are working out arrangements to provide them the information 
that they feel is necessary. Obviously, if we have it, it will 
be made available. However, we do not want to generate new 
information that management would not require. I am not saying 
that we have been asked for it. Whatever is available we will 
make available. We just have had discussions and talked about 
not making it public until the data is cleared by our auditors.
    Senator Akaka. The postal reform bill we passed in 2006 
intended to make the Postal Service operate even more like a 
business, as we have said, and be independent of any Federal 
funding. However, in this economic downturn, we have seen many 
private corporations and businesses fail and falter as well.
    Given the severity of the situation, would government 
intervention either through a loan or appropriation, be a wise 
course of action? Or could it undermine the principles of the 
PAEA?
    Mr. Potter. Well, Senator, again, we are asking for a 
rescheduling of our retiree health benefit payments. We would 
prefer not to be in a position to ask for an appropriation. We 
reserve the right to do that in the future should it be 
necessary, but, again our focus is getting that payment 
schedule redone and, again, in the process of doing that 
enabling us to adjust to the lower volumes that we are 
experiencing. And at this stage of the game, that is basically 
the first step.
    I think a year from now, 2 years from now, I would be in a 
better position to respond to what you are asking.
    Senator Akaka. Mr. Blair.
    Mr. Blair. Well, since 1970, the premise of the Postal 
Reorganization Act of 1970, and the PAEA built on top of that 
was that, we would have a self-sustaining Postal Service. It 
was in the early 1980s that the Postal Service first started 
turning an operating surplus, and that is what led to the 
appropriations rider that we have under discussion today 
regarding 6-day-a-week delivery and closing of small post 
offices.
    When the Congress saw a net surplus in the Postal Service's 
operating revenues, it decided not to move forward in giving it 
an appropriation for the public service aspects of the Postal 
Service. But they wanted to make sure that those public service 
aspects--providing 6-day-a-week delivery and not closing small 
post offices--were maintained, hence the purpose behind this 
rider that has been in effect and varied a little bit over the 
years, but for basically the last 25 or 26 years.
    We identified in our USO study, however, that the Postal 
Service provides a number of really non-postal services or 
societal services apart from its postal activities. And those 
are important for a community. In many rural areas, it is the 
one face of the Federal Government. And I think that these are 
public policy issues which the Congress will have to grapple 
with as it comes to grips with what we want of our Postal 
Service today, in the next year, and into the future.
    Senator Akaka. Thank you. Mr. Herr.
    Mr. Herr. Yes, thank you. I concur with Mr. Blair. I think 
one of the bedrock principles of the Postal Service since 1970 
has been the idea that it is self-sustaining, so to go to 
direct appropriations would be a divergence from that history.
    I also think as one considers dramatic changes such as are 
being discussed, that it is incumbent upon the Postal Service 
to provide the kind of transparency--the plan Mr. Blair 
mentioned in his statement--that helps Congress understand 
exactly what is going on, what trade-offs are being made as 
some of these big decisions are being considered. So I think 
that would help. It is the transparency, but it is also helping 
to understand the logic of where the institution sees itself 
and the niche that it would play in the American economy going 
forward. Thank you.
    Senator Akaka. Thank you. Thank you, Mr. Chairman.
    Senator Carper. Not at all. Thank you, Senator Akaka.
    I am going to stick with you if I can, Mr. Herr. If you 
will go back with me in time, the first question I asked Mr. 
Potter, and then Mr. Blair had an opportunity to respond, too, 
was our discussion about going from 6 days delivery to allowing 
the option of going at least for part of a year down to 5 days. 
You said that you think that might save some money, but I also 
suspect that in some cases it might make the Postal Service a 
less attractive option for some customers. And I asked the 
Postmaster General and I asked Mr. Blair to give us some of 
their thoughts on how they felt about that. Let me just ask you 
to go back to the same question, please.
    Mr. Herr. Certainly. I think part of this--I think I will 
reflect a bit on the last response I had--is as one thinks of 
something like that, I think it is incumbent to lay it out in a 
strategy that would talk about not only 6-day-a-week delivery 
but what other options are being considered. One thing I 
mentioned in my statement is looking at the large processing 
plants. I also did mention there the air mail centers that have 
been closed.
    Senator Carper. How many, 57?
    Mr. Herr. Fifty-eight of those have been closed. But there 
are different configurations that go into some of the--there is 
a broader operational scheme that they have. There has also 
been a number of efficiency improvements over the years in 
terms of processing.
    So the sense that I have from visiting postal plants, 
talking to people who have been working these issues for a 
number of years at GAO, is that there are efficiencies that 
have taken place that do not require as much processing 
capacity within some of those plants.
    So there are a number of different ways to get at those 
kinds of savings, and I think to see a broad, integrated plan 
that would help people understand how these pieces fit together 
would help one see what the trade-off is. So as Congress would 
consider policy decisions such as a reduction in service from 6 
to 5 days, you could go back to your constituents and explain 
to them how this is all going to work and hopefully result in a 
Postal Service that will be sustainable over the long term.
    Senator Carper. OK. Let me ask you, just sort of lay out 
for us what you believe to be the options that the Postal 
Service has. And, again, one of the first options that they 
would ask us to go to would be to look at, if you will, some 
change in the funding formula, allow for a couple years of 
grace in meeting that agreed-to obligation, up to as much as 8 
years. And I think there is some agreement, at least among 
Senator Collins, Senator Lieberman, and myself, that if we are 
not comfortable going with 8 years, we may be comfortable going 
with 2 years. Some people are uncomfortable with that, as you 
know. But just kind of lay out for us what you believe the 
options are for the Postal Service to try to close this gap, 
and maybe just share with us from your perspective, from GAO's 
perspective, which might be preferable. If you were giving us 
advice and counsel, what would you ask or suggest that we 
consider most favorably?
    Mr. Herr. Well, one of the things, on page 7 in my 
statement we have a table that lays out how this would play 
out. One of the things I think to bear in mind, if you are 
considering, say, a 2-year period of relief versus an 8-year 
period, is if this gets kicked down the road----
    Senator Carper. I said it correctly. You do not favor the 
8-year period, do you?
    Mr. Herr. No, we do not.
    Senator Carper. But 2 years was more acceptable to GAO. Is 
that correct?
    Mr. Herr. We think that in the long term will be better, 
will better position the Postal Service to pay for these----
    Senator Carper. I think you are going to tell us, but why?
    Mr. Herr. Well, if you look at the numbers there--and I do 
not want to go through a lot of the numbers. But if you look at 
kicking this down the road for 8 years, you will be looking at 
$75 billion to reamortize in 2017. And I think based on some of 
the conversation we had today, one question I think we should 
ask ourselves is: Will the Postal Service be better positioned 
to take on that type of responsibility at that time versus 
making incremental--paying it down as it goes along? It is a 
bit like saving money for college or a big expense that one has 
and one knows it is coming. As we talked about, there are large 
numbers of postal employees, nearly 750,000, including part-
time folks. So those are big numbers, and those are big 
responsibilities.
    But going beyond that side----
    Senator Carper. Let me just interrupt. There are 750,000 
employees. Roughly how many retirees right now?
    Mr. Potter. There are about half a million retirees.
    Senator Carper. Thank you.
    Mr. Potter. And we are down to 659,000 career employees.
    Senator Carper. All right. Thanks very much. Back to you, 
Mr. Herr.
    Mr. Herr. So when you look at the processing capacity in 
terms of what some of those capabilities are--and I think also 
to look at the retail network, we are not saying the small post 
offices in rural communities, but there are post offices in 
large urban areas. Some work we did for this Subcommittee that 
came out about a year ago suggests that one can look at the 
revenues taken in versus the cost of maintaining those 
facilities, proximity of other post offices, and make some 
decisions, management decisions, about whether those are 
needed.
    I think as something like this rolls out, it is incumbent 
upon the Postal Service to work with folks on the Hill, but 
also in communities to explain what is going on, what options 
there are. Stamps can be purchased at supermarkets. They can be 
purchased in pharmacies. They can be purchased on line or 
through the mail.
    So there are ways to continue to receive some of those 
services.
    Senator Carper. How widely known are those options, Mr. 
Potter? Have you done any surveying on that to find out just 
how many people actually realize what their options are?
    Mr. Potter. Senator, I do not know if we have done a 
survey, but I think it is commonly known, particularly in 
grocery stores, that you can buy stamps. I am familiar with a 
very large retailer who was surprised to find out that they 
were selling $100 million worth of stamps. At their corporate 
headquarters, they had no clue because their local managers, to 
compete with their competitors, had to offer that service. So I 
think that the public has tremendous access to stamps in over 
40,000 locations beyond the Postal Service.
    We are looking at how we can grow the business, and one way 
that we do that is by bringing the post office to every home. 
We are upgrading our website to make it easier for people to 
buy stamps online, access our services, pay for postage online, 
and to print out prepaid labels to put on packages.
    The retail is something that I am glad was brought up by 
Mr. Herr.
    Senator Carper. I am going to stop you right there. I want 
him to finish, but we will come back to you and you will have 
an opportunity to make----
    Mr. Potter. Right.
    Senator Carper. Those are important points. Thank you.
    Mr. Herr, go ahead.
    Mr. Herr. The other thing you have to put on the table, 
given that 78 to 80 percent of the costs are associated with 
compensation and benefits, I think I was pleased to see in the 
Postmaster General's statement that he is looking to talk 
immediately with unions about what options there are there. One 
thing we point out in our statement is the proportion of costs 
for current employees that are paid for health care benefits is 
higher for the Postal Service than for the rest of the 
government. So that would be one area.
    Senator Carper. The 78 or 80 percent of costs that are 
represented by personnel, I am not going to ask how that 
compares with other service industries, but let me just ask: Is 
that a stable number? Has it generally been in that area for an 
extended period of time?
    Mr. Herr. That is my understanding
    Senator Carper. Everybody is nodding their head yes. Thank 
you. OK. Go ahead.
    Mr. Herr. So given the proportion of the cost that 
represents, I think that would also be a place to begin having 
discussions. We talked a little bit in our statement and here 
today about route adjustments. But as some of these routes have 
been in place for a number of years, no one has looked at 
those, and what kind of efficiencies there could be and 
consolidation. So as you take a broad, hard look--and I think 
this could be part of this broader plan that was discussed--you 
would say, well, where could you get some of the fat out of the 
system? And tours--some of the plants--every postal plant that 
I visited over the past 7, 8 months, people say volume is down. 
People know it on the factory floor. Overtime opportunities are 
decreasing. So do you need three shifts when two could do the 
work to handle the volume that is there? Those are other 
opportunities as well.
    Senator Carper. All right. Thanks. I think Mr. Potter 
would--and he has argued here before--to point out, I think 
with some pride, the amount of costs that they have taken out 
of the system in this decade alone. So we will come back, and I 
will have some questions to ask you. Thanks very much for this 
exchange.
    Senator Akaka, you are on, my friend.
    Senator Akaka. Yes, thank you very much, Mr. Chairman.
    Mr. Potter, GAO and others have stated that it is important 
for the Postal Service to work with the unions in much the same 
way to realign labor needs with the needs of the postal 
workforce. I know that you work very closely with the employee 
unions on these issues.
    How has the Postal Service engaged the unions on these 
recommendations at this critical time?
    Mr. Potter. Senator, I have been meeting on a regular basis 
with the presidents of both the unions and the management 
associations and, as a matter of fact, we met yesterday to talk 
about this hearing and other issues that are going on in the 
Postal Service. And I shared with them, as best I can, the 
outlook for where we are and gave them the latest numbers on 
volume and the impact declining volume has on the Postal 
Service.
    I also share such things as those Mr. Herr mentioned, like 
looking at how we can become more efficient. Other topics 
included working with the NALC on route structures, our 
attempts to try and reduce the number of machines we use, and 
minimizing the amount of tours that our facilities run. All of 
that information is shared with our unions.
    They understand the situation, and they are engaged, and we 
are working together to try and determine how we can get 
through this situation.
    Senator Akaka. Mr. Potter, in 2007, Congress started 
hearing concerns that the Postal Service was contracting out 
more delivery services. The number of jobs that are being 
contracted out was low, though there are contractual 
protections in place with the unions.
    Do you anticipate the Postal Service contracting out 
additional jobs, possibly additional non-carrier type of jobs? 
Or should we be bracing for a large reduction in force this 
year?
    Mr. Potter. Senator, the first priority is to reduce our 
use of manpower. As has been said, we had a precipitous drop in 
volume, and we believe we have opportunities to become more 
efficient within the Postal Service. I cannot speak to 
contracting out long term, but that is certainly an option that 
is part of our collective bargaining agreement.
    Senator Akaka. Mr. Potter, during the Great Depression, the 
Federal Government spent public works money on building up the 
Nation's infrastructure, notably on building hundreds of new 
postal facilities at that time. However, today the Postal 
Service has halted all non-essential building and repair 
projects due to the financial situation.
    Could a public works program like that be useful in the 
economic situation we find the country in today?
    Mr. Potter. Senator, if I had those types of funds 
available to me, I think what I would do is direct them toward 
making our buildings much more energy efficient, and in so 
doing, that would be very helpful to Postal Service costs and 
the use of biofuels in the country. I certainly would welcome 
something along those lines, but I do not think I would direct 
it toward construction of new facilities. I would direct those 
funds toward making our facilities more energy efficient.
    Senator Akaka. Thank you for those specific answers. Thank 
you, Mr. Chairman.
    Senator Carper. Thank you, Senator Akaka.
    Mr. Herr, I am going to come back to you in just a minute. 
I want to follow up on the point just made. We have been 
marking up legislation, as you know, the so-called economic 
recovery, economic stimulus package. One of the things that we 
are trying to do is to push money toward putting people to 
work, trying to put them to work sooner, but also putting them 
to work in a way that serves a public policy good. In some 
cases, it is reducing our dependence on oil, fossil fuels, 
reducing our trade deficit, helping homes to be more energy 
efficient, helping schools and helping government buildings be 
more energy efficient.
    Do you know if there has been any discussion as we have 
considered, drafted, and marked up the economic stabilization 
plan, has there been any discussion of allowing the Postal 
Service to participate or to encourage the Postal Service to 
participate and benefit somehow from these actions?
    Mr. Potter. There have been some informal discussions in 
addition to what we just talked about with making buildings 
energy efficient. I know there are some funds being considered 
for more fuel-efficient government vehicles, and, again, that 
would be helpful to the Postal Service as well.
    Senator Carper. One of the pieces of legislation that I 
worked on--we have discussed it before, you may recall--dealt 
with the Congress trying to be a better, I guess, customer for 
the auto industry to try to say we want the auto industry to 
build more energy-efficient vehicles, flexible-fuel vehicles, 
plug-in hybrid vehicles and so forth. And one of the concerns 
that the auto industry has is it is one thing to build vehicles 
that are highly efficient, develop vehicles that are highly 
energy efficient, when the price of gas is $4 at the pump. What 
happens when it is $1.50? And will people continue to buy those 
vehicles when the price drops to more than half of what it was 
just a few months ago?
    And so we just said, well, what we will do is try to make 
sure that the Federal Government through thick and thin, 
regardless of what happens at the pump, the Federal Government 
is going to be there to purchase vehicles, and we put in 
legislation some requirements that Federal agencies buy 
largely, without specifying the technology, energy-efficient 
vehicles. I think the Postal Service was part of that.
    I do not know if you are prepared to share with us a little 
bit of what you may be doing at the Postal Service to comply 
with that law. Your vehicles, I think they last for a long 
time, so you do not have a lot of turnover in your vehicles. I 
think you get, what, 15 years or something out of them?
    Mr. Potter. We have gotten 17 years out of the current 
fleet, and so it is time for us to look at it. I want to thank 
you because I do recall the conversation we had. At the time, 
the types of vehicles that were considered to be fuel efficient 
under the energy law were not as broad as the technologies are 
today. I want to thank you for your help in expanding that 
definition to give us a broader range of vehicles that would be 
considered environmentally friendly.
    We are pursuing numerous technologies. Right now, we have a 
hydrogen fuel cell vehicle. We have gas, and natural gas 
vehicles. We have electric vehicles. We are looking at them 
all. But as you just said, the price of a gallon of gas is a 
key element of the economic analysis that is done to justify 
the purchase of those vehicles.
    And so given our financial condition, we are not planning 
to go out and buy vehicles, but we are working with the 
Department of Energy and Transportation and others to make sure 
that we are keeping abreast of what the latest technologies 
are. We are testing numerous alternatives--in fact, you could 
come out and look at them, at our Merrifield, Virginia, 
facility.
    We do have the largest fleet of alternate-fuel vehicles in 
America. Access to fueling stations is an issue, and we could 
supply the demand should there be a rollout.
    Senator Carper. Let me just throw out an idea here. I am 
trying to be entrepreneurial and trying to think of ways that 
you could be more entrepreneurial.
    We talked earlier about the fact that you deliver 6 days a 
week, you deliver the last mile right to people's doors, and 
how you have used that as an economic opportunity for business 
and for partnerships with folks that traditionally have been 
your competitors.
    In working with Ford, Chrysler, and GM to figure out how 
can we have a hydrogen economy, put together a hydrogen 
infrastructure for our country to encourage people to buy 
certain kinds of vehicles, has there been any discussion of 
somehow the Postal Service being a part of the hydrogen 
infrastructure, given the fact that you have facilities all 
over the country? Could that be a business opportunity? I don't 
know if it could be, but we are looking for opportunities 
especially in densely populated corridors like the Northeast 
corridor. How do we deploy, make it available for cars that 
need hydrogen to fuel? Has that business option been given any 
thought?
    Mr. Potter. It has been given thought, but the problem is 
that I do not know that there is enough maturity in terms of 
the analysis and the ongoing competition for what is the right 
long-term energy solution for vehicles. If we invested in 
hydrogen and then electric wins out, therein lies the problem.
    So is it natural gas? Is it traditional gasoline, diesel? 
Is it hydrogen? Until there is some kind of better maturity and 
decisions are made, I do not think that we would be in a 
position to make an investment to become perhaps a hydrogen 
fueling station down the road. But it is being given thought. 
We would obviously have to work with the Postal Regulatory 
Commission because I do believe it is outside the scope of what 
the law allows right now.
    Senator Carper. I have heard from the car companies who 
have said we have the technology literally to put vehicles that 
use hydrogen out on the road--cars, trucks, vans--but we do not 
have the infrastructure in order to make it successful. I do 
not know if there is an opportunity for another kind of 
partnership that we had not thought of. I would just ask that 
the people you have work on this stuff, put that in their 
calculations.
    Mr. Potter. Thank you.
    Senator Carper. Sure. You bet.
    Back to you, Mr. Herr. I know you and your folks have been 
working closely to examine the Postal Service's cost-cutting 
plans for the coming months, and Mr. Potter has outlined those 
for us here today. And I would just ask when you look at it in 
your own view, where do you think they will succeed in their 
goals, and where are they maybe not as likely to succeed?
    Mr. Herr. One of the things we have seen as we have looked 
at those projections that they have is that there are 
aggressive goals in terms of cost savings. We heard figures, 
$5, $6 billion.
    Senator Carper. That was over, what, a couple of years?
    Mr. Potter. Well, it is $5.9 billion that we have put into 
the budget this year. However, we are realistic enough to know 
that in all likelihood it is a very difficult stretch to make 
that happen in one year. So in all likelihood, it would be 
accomplished over multiple years.
    Senator Carper. OK. So what are your costs? What are your 
costs in a year, just roughly?
    Mr. Potter. Costs for labor?
    Senator Carper. All in. You squeeze--let's say $6 billion 
out of what?
    Mr. Potter. Out of about $75 billion.
    Senator Carper. OK. Thank you.
    Mr. Herr. So as we look at that, I mean, obviously it will 
be challenging depending what happens with mail volumes and the 
success in working with unions to achieve cost savings. The 
thing that is hard to understand when you parse that number is 
what exactly it entails. And so what we do not see are 
specifics that would say this is how we plan to get there. Does 
this include closing facilities? Does this include one proposal 
that has been discussed is outsourcing bulk mail facilities.
    So it is a little hard to understand at the end of the day 
how you got to a number like that, and then I think along the 
way, the benchmarks that someone like yourself would be 
interested in knowing, how close are we to achieving that? At 
the beginning of the year, the goal was to look at closures of 
X number of retail facilities. Has that happened? It is hard to 
know looking at that kind of figure.
    So I think it kind of goes a little bit back to the 
transparency issue that we were discussing earlier.
    Senator Carper. OK.
    Mr. Potter. We would be happy to share that. We have 
detailed budgets that go right down to the post office level.
    Senator Carper. And have you had an opportunity at GAO to 
actually look at that stuff?
    Mr. Herr. No, we have not.
    Senator Carper. All right. Do you want to?
    Mr. Herr. I think it could be useful, yes.
    Senator Carper. All right. Good.
    Mr. Blair. And I would hope that it would be shared with us 
as well, and I would anticipate that, too.
    Senator Carper. What do you think, Mr. Postmaster General?
    Mr. Potter. We will have a ballroom, and we will have 
everyone in there.
    Senator Carper. All right. Good enough. [Laughter.]
    Mr. Blair. Your dance card is going to be full.
    Senator Carper. All right. Mr. Herr, back to you. You spend 
a fair amount of time in your statement discussing the need for 
the Postal Service to be more aggressive in closing and 
consolidating processing facilities. You have sort of alluded 
to that again in your last response. I want to ask you to come 
back to this a little bit more. Where do you think that the 
Postal Service has made progress in this area? And with some 
specificity, where do you think there is some opportunity to do 
more? I know you have talked about this a little bit. Just come 
back to it a little bit more.
    Mr. Herr. I mean, certainly we have mentioned the air mail 
centers. They have closed about 58 of those, and----
    Senator Carper. Out of how many, 58 out of----
    Mr. Potter. Out of 58.
    Senator Carper. Fifty-eight out of 58.
    Mr. Potter. No, 58 out of 59.
    Senator Carper. Who escaped?
    Mr. Potter. John F. Kennedy Center up in New York, because 
they do a lot of international mail.
    Senator Carper. All right. Thank you.
    Mr. Herr. So that would be one area where certainly there 
have been some inroads made.
    Senator Carper. After Kennedy, do you want to shut down 
that one down, too? What do you think?
    Mr. Herr. I have not seen that facility. But the other 
thing that we mentioned in the statement was that only one out 
of the over 400 processing facilities have not--only one of 
those has been closed, so we think----
    Senator Carper. It is interesting. You closed 58 out of 59 
air mail facilities and one out of, what, 400 processing 
facilities?
    Mr. Herr. Four hundred, yes.
    Senator Carper. Why do you suppose that is?
    Mr. Herr. They are larger. My understanding from talking to 
folks there at the Postal Service is the air mail facilities 
were relatively expensive real estate for them given their 
proximity to airports. And also my understanding is the volumes 
that were being handled in those facilities has gone down 
considerably over the years because of different arrangements 
that are being made.
    Senator Carper. The 400 processing facilities we have, I 
understand that the nature of the work that goes on in those 
facilities has changed a good deal.
    Mr. Herr. Yes.
    Senator Carper. Certain operations that were done in one 
facility are now done someplace else in ways to try to provide 
greater efficiencies.
    Mr. Potter, you are trying to say something there.
    Mr. Potter. Well, basically our facilities are kind of the 
channel for mail to be sorted for delivery in local areas, so 
they have to be proximate to where mail is delivered. And so if 
we were to turn around tomorrow and get super-aggressive on 
facilities, we might close two as opposed to one, because the 
facilities have multiple functions. In some cases, they have 
administrative folks in there, like our Inspection Service, our 
Inspector General. They have retail operations. In many cases 
they have carriers who deliver mail out of those facilities.
    So the facility would not close, but functions in that 
facility would move. For example, outgoing processing could 
move from one location to another location. The facility would 
not close.
    It is a misnomer to think that we would just stop employing 
people in a certain location because, again, these facilities 
are multifunctional. I do not want anyone to think that somehow 
we are going to turn around tomorrow, flip a switch, and there 
will be 100 less facilities. That is simply not the case. The 
function of what they do in those facilities may change and the 
amount of facilities that we have doing outgoing processing and 
canceling of mail might shift. So it is just a misnomer to 
think that we are going to close those places.
    Senator Carper. All right. I understand.
    Mr. Blair, I am tempted to throw the next one at you.
    Mr. Blair. I will catch it.
    Senator Carper. But you have to wait just one more 
question.
    Mr. Potter, I think you know better than anybody in this 
room that Congress has not always been quick to address the 
problems that the Postal Service faces. It took, as you know, 
Senator Collins and me some 5 years or so to get postal reform 
legislation enacted, and we thank you and a lot of other folks 
in this room--and some who are not--for enabling us to get it 
adopted and signed into law.
    But Congress has been known in the past to put up road 
blocks that prevent you from operating in the most efficient 
manner possible. I think Dr. Coburn alluded to that when he was 
with us here a bit ago. What exactly, again, does Congress need 
to do, just reiterate for us again, what do we need to do and 
need maybe not to do in the coming weeks and months to help the 
Postal Service get through the current economic crisis?
    Mr. Potter. Well, I would say what you need to do is 
continue what you are doing now, encouraging us to become more 
efficient, encourage us to take advantage of every opportunity 
we have within the current law. And I would say that you are 
doing a very good job of that, so keep it up.
    In addition to that, though, I think that there are times 
when it is great for folks to encourage us to do things, but 
not do it in their back yard. Oftentimes when we make a 
proposal to consolidate work between facilities or move work 
from one to another, there is a mechanism to stop us. First, by 
complaining; second, by asking for an IG study; third, by 
asking for a GAO study; then asking for the GAO to redo their 
study; and asking the GAO to redo the study because the 
information that we started with 2 years ago is likely no 
longer valid.
    You know, we can get into circles in terms of review. I 
think what we basically need is a general understanding that 
the Postal Service is challenged and is going to have to make 
these changes in order to stay viable going forward. I guess we 
need oversight, but we need to make sure that we have the 
latitude to make changes.
    Senator Carper. All right. Mr. Blair, as promised, Mr. 
Potter spent a fair amount of time in his testimony, as you 
heard, talking about what the Postal Service has done since the 
enactment of our postal reform legislation to bring in more 
business and to make themselves more competitive. Do you 
believe that his team has done enough? And after you have said 
yes or no to that, let me just ask you to help us identify 
other opportunities that could be taken advantage of even now 
with the economy in the state that we find it.
    Mr. Blair. Well, I do not think that there is an 
expectation that with the enactment of the PAEA that the Postal 
Service would transform itself into this lean, mean competitor 
overnight. It is a transformational process, and they are 
undergoing that as we speak. The commissioners meet with Mr. 
Potter and the Deputy Postmaster General, Mr. Donahoe, and his 
team once a month to discuss issues that are relevant to the 
statutory consultation. We appreciate that. You have heard my 
thoughts on the need for additional transparency.
    But I think the overarching need right now is to make sure 
that we have a better understanding of the operations for the 
public, and if the public has a better understanding, then 
Congress will have a better understanding. And with a better 
understanding by the Congress, it will allow the Postal Service 
to maybe do what is best for the country and best for the 
Postal Service and best for mailers and employees and other 
stakeholders.
    It is a basic conundrum, I believe, that we put all these 
burdens on the Postal Service to act like a business, but it is 
fundamentally an agency, and it is neither fish nor fowl when 
you look at its structure and its operations. But it is a part 
of the Executive Branch. It is a Federal branch agency. It is 
clearly governmental. And that is the environment in which we 
find ourselves operating. And like it or not, Dr. Coburn said 
it is like having two mother-in-laws. I think it is almost like 
having 525 members of your board of directors. But Congress 
wanted it that way because of the fundamental responsibilities 
that the Postal Service carries, the fundamental authorities of 
providing universal service, the policing power, and the 
monopoly authorities. Congress wanted to make sure that we have 
sufficient oversight. So you have these checks and balances. 
That is the system of the government, and that is the system in 
which we find the Postal Service operating.
    Can the Postal Service do more? Of course it can do more. 
Any organization can do more. But I do know that it is focused 
on addressing the issues involved with the declining mail. We 
hear about that. And the Commission wants to be helpful. I find 
that consultations over the course of the last 2 years have 
provided additional means of conversation between the Postal 
Service and the Commission, and I think that has proven very 
helpful as well.
    Senator Carper. Let me just interrupt. What I really would 
like to hear from you on this question is what are some 
economic opportunities that the Commission has recognized, 
identified, that maybe should be pursued, or should be pursued 
somehow differently. I would really welcome that.
    Mr. Blair. Well, one of the areas which I think----
    Senator Carper. Put on your entrepreneurial hat, if you 
will.
    Mr. Blair. Well, the Commission has worked with the Postal 
Service in approving 40 negotiated service agreements in the 
competitive service area. So I think those are areas in which 
the Postal Service is accessing new flexibilities. We are 
anticipating a rate filing under the new system of a cap-based 
rate increase. I think that is much--that is a big improvement 
over the old cost-of-service system as well.
    So I think that there are flexibilities, there are areas, 
and I think that we are going to have to identify them over the 
course of the next few years. They are working aggressively in 
the package delivery area, but they are coming up against a 
fundamental question of declining mail and what kind of 
footprint is the Postal Service going to have in the next few 
years.
    We have seen a reduction in the number of career employees 
down to what Mr. Potter just cited, 659,000. If you looked at 
the number of employees 5 years ago or even 10 years ago, it 
was in the 800,000 to 900,000 range.
    Senator Carper. I just want to say if you look in the auto 
industry, domestic auto industry, I think they actually have 
now more retirees than active employees. I was reading the 
other day where maybe General Motors has seen their employment 
rate literally cut in half over the last half dozen years. So 
these reductions, while they are significant--and I think they 
have all been through attrition--if you look at what has 
happened in some other major industries in our country, there 
is even more decline in those.
    Go ahead. I am sorry. What are some economic opportunities 
for increasing revenues that you are aware of, that the 
Commission is aware of, that you would like to see pursued? You 
have mentioned a few where they are pursuing them. What are 
some others?
    Mr. Blair. Well, we pursued the negotiated service 
agreements----
    Senator Carper. Yes, you mentioned that.
    Mr. Blair [continuing]. In the competitive service area. We 
have struggled with NSAs in the market dominant area because 
the statutory requirements are more stringent than they are in 
the competitive area. We have a complaint pending in that area 
as well. I think that the drafters of the legislation had 
intended that that be accessed more, but those are things that 
we have been working on with the Postal Service to see what the 
areas are where they can have a greater flexibility. I think 
the fundamental line in that area has been an agreement that 
makes money for the Postal Service. The Postal Service wants 
that as well. We will continue to talk in those areas.
    The next few years, I think the situation is going to be 
rough, though, and keeping their head above water is going to 
be a tough struggle for them.
    The PAEA allowed them some flexibility in terms of pricing. 
I will be anxious to see their new price filings when they come 
forward with the rate adjustments for May, what kind of 
flexibilities they are using in this area. They have already 
submitted their rate increases in the competitive products 
area, and they have raised prices in that area. We did that in 
December.
    So I think that the legislation is working, and I think 
that it is evolving, and I will be anxious to see what areas 
the Postal Service will access in this new rate filing next 
month.
    Senator Carper. All right. Back to you, Mr. Potter. One 
product that--no, maybe you and Mr. Blair, and we will let Mr. 
Herr jump in if he wants. But one product that the Commission 
has permitted the Postal Service, I think, to continue offering 
is its electronic postmark, and this product involves the 
Postal Service, and I think it does so through outside vendors, 
as I understand it, authenticating documents sent 
electronically. Delaware is among the States that treat 
electronic postmarks the same as standard physical property--
the same as standard physical postmarks.
    There are private businesses, as I think you know, that 
offer electronic postmarks, but there is some value to the 
Postal Service being involved in this line of business because 
of its status as an arm of the government. There is also the 
benefit of the Postal Inspection Service and the Postal 
Service's enforcement powers.
    I would just ask Mr. Potter, what do you see as the future 
of this product?
    Mr. Potter. Senator, we have made a number of attempts to 
try and grow that product over the years, and there simply has 
not been a market. Our best opportunity appears to be with 
State governments who are attempting to validate documents, as 
you describe.
    Senator Carper. And in Delaware, we have a big 
incorporation business. There are a lot of companies around the 
world that incorporated in Delaware, and there are in other 
States as well. I think that is one of the areas where we use 
it.
    Mr. Potter. Over the years, we have engaged numerous 
commercial entities, including some of the big-name Internet 
service providers to determine whether or not that product was 
viable for them. And we will continue to do that.
    Unfortunately, there are a limited number of folks who are 
using it, and our intent is to use those folks as role models 
to share with others how that service can be valuable to them. 
But we have never been able to get that product to gain 
traction.
    Senator Carper. All right. Thank you. Mr. Blair, any 
comment there?
    Mr. Blair. Well, just to build on what Mr. Potter said. It 
has not gained traction. It has been around for about 10 years, 
if not longer, and the Commission in reviewing this as a non-
Postal Service and intends to go forward to the community and 
ask them how do we regulate this non-Postal Service. So we will 
get a little bit more clarity of what the expectations may be 
and what kind of public disclosures will be centered around it.
    Senator Carper. All right. Mr. Potter and Mr. Herr, each of 
you reference in your testimony the possibility of revisiting 
existing union contracts and working with the unions to revise 
work rules in an effort to find additional cost savings. And I 
would just say publicly that in our private conversations, the 
Postmaster General has been, I think, very complimentary of his 
partners, the Postal Service's partners and the labor unions 
that represent postal employees and working in a real 
partnership to try to identify ways to save money and provide 
service more efficiently, and we applaud that and welcome that 
continued spirit.
    But I would like to get a sense from both the Postmaster 
General and maybe Mr. Herr, from both of you, what you think is 
possible in this area. And then, Mr. Potter, have you reached 
out to any of the unions to gauge their interest in working 
with you in this regard?
    Mr. Potter. Senator, we have reached out to all the unions 
in that regard, and the one that is most prominent in terms of 
a success story is the agreement with the NALC to expedite the 
adjustment to our city delivery routes. These adjustments cut 
down the time that it would take if we were to follow the 
normal handbook procedures.
    We are always seeking ways to make changes in a cooperative 
manner. At the same time, we have to recognize the unions' 
positions. They do have contracts that were negotiated a couple 
of years ago--in fact, they were negotiated just prior to the 
PAEA being approved. And so there is an opportunity today to 
work on work rules. But I think the greater opportunity for 
change will come when the collective bargaining agreements 
expire, and we will have one expiring in 2010 and another in 
2011.
    But in the interim, we are going to continue to have 
discussions, continue to talk with the unions, continue to find 
win-win situations and solutions to today's problems.
    Senator Carper. Mr. Herr.
    Mr. Herr. A couple of things we mentioned in our statement: 
Health care, the employee share--the employer share of the 
health care premium that is paid on behalf of its employees. 
There has been some movement there to lower that expenditure on 
the part of the Postal Service, and that would certainly be an 
area to look at as those negotiations begin again for 
collective bargaining.
    Senator Carper. Would you just start that sentence over 
again, please?
    Mr. Herr. Sure. The area that we identified in the 
statement is looking at the employer share of the employee--
what the employer pays, the Postal Service, on behalf of its 
employees for their health care premiums, for current 
employees. So relative to other Federal agencies and folks who 
work on the Hill, the Postal Service pays about 13 percent 
more. So that seems to us to be an area that could be looked at 
and be considered going forward in terms of cost savings.
    Senator Carper. Let me just stop you there. You say it pays 
on average 13 percent more than the Federal Government pays, 
provides for most of its employees?
    Mr. Herr. That is correct.
    Senator Carper. They are sort of a quasi-public-private 
corporation, but in terms of their health care costs they bear 
for postal employees, how does that compare with, say--this is 
a very big corporation--other large corporations?
    Mr. Herr. I have not looked specifically into that 
question.
    Senator Carper. Until very recently, I think the UAW 
employees of the domestic Big Three enjoy, I think, first 
dollar coverage, just really Cadillac coverage.
    Yes, Mr. Potter?
    Mr. Potter. You are right, there are other industries that 
pay full coverage for their employees.
    Senator Carper. At least until recently.
    Mr. Potter. At least until recently is right. The one thing 
I would like to point out is that we did negotiate in the last 
round of contract negotiations with our unions that the 
employer contribution would be lowered by 1 percent per year 
with all of our four major unions. So every year the employer 
contribution goes down one percent and the employee 
contribution goes up. It was recognized that we were paying 
more than the rest of the Federal Government, and we have a 
plan to change that percentage going forward. Now it is built 
into our collective bargaining agreement.
    Senator Carper. And those agreements, did you say, expire 
in 2010 and 2011?
    Mr. Potter. Right.
    Senator Carper. So the next 2 or 3 years you will continue 
that reduction.
    Mr. Potter. Yes.
    Senator Carper. OK. Mr. Herr, go ahead.
    Mr. Herr. Another area that could be looked at going down 
the road is as they deploy, there is something called the 
``Flat Sequencing System'' that will better process through 
automation the large packages and magazines. And our 
understanding is that as those roll out, there are going to be 
opportunities as well to--that means less time for carriers to 
sort mail in the post offices and spend more time on the 
street. To do that, to get all those efficiency gains, though, 
they are going to have to redo routes to be sure that the route 
is an 8-hour route because there will be a different time split 
required for those folks.
    So as that rolls out, and those will be capital 
investments, but hopefully there will be efficiencies coming 
from that, we actually have some ongoing work for your 
counterparts in the House looking at the status of those 
initiatives, too.
    Senator Carper. Good. Mr. Potter, do you want to jump in 
here?
    Mr. Potter. Can I just comment on that? That is another 
instance of successful collective bargaining. In the last round 
of negotiations, the National Association of Letter Carriers 
agreed with us that those opportunities existed, and we agreed 
to an expedited adjustment of routes when those machines were 
deployed, and in anticipation of downsizing that would occur 
with that deployment, we agreed to use transitional employees, 
non-career employees, to cover routes in anticipation of 
downsizing.
    So we are well positioned to get the savings that Mr. Herr 
referred to. Again, this is another area where cooperatively we 
have--and for the good of business and the sake of prices and 
service, we have made an arrangement with our unions that will 
enable us to capture those savings immediately. In fact, today, 
I think we are authorized to have up to 13,000 employees in 
non-career status in anticipation of that deployment.
    Senator Carper. All right. I think I would like to maybe 
ask one last question. Before I do, do any of you have anything 
else you would like to add just very briefly, or take away?
    Mr. Potter. I would just like to reiterate the need for 
action as quickly as possible on the retiree health benefits.
    Senator Carper. All right. Mr. Blair.
    Mr. Blair. Not at this time.
    Senator Carper. Mr. Herr.
    Mr. Herr. No, sir. Thank you.
    Senator Carper. I would ask the Postmaster General to sort 
of lead off on this, but just go with us through a list of 
options that are before you, and us as well, to try to get 
through this difficult period, and maybe give us your top three 
or four. I think I know what No. 1 is. I am not sure I know 
what all the others are. But before you do that, let me just 
acknowledge, you talked about flats, Mr. Herr.
    Mr. Herr. Yes.
    Senator Carper. I noticed the magazines that we get at our 
home are a lot flatter than they used to be. Catalogues are 
flatter. The newspapers that are delivered to our homes and to 
our offices are a lot flatter than they used to be, and it is 
because the advertising is less. It is always strange to me 
that in an economic downturn, rather than retailers and others, 
manufacturers, advertising more, they advertise less. It seems 
sort of counterintuitive, but it happens again and again. It 
has happened this time as well. Mr. Herr.
    Mr. Herr. I think the other thing that we are seeing along 
with that is that a lot of magazines are now going to online 
content, and magazines that I receive are now encouraging me to 
sign up for free trials so that I can get that access Monday 
morning first thing on my computer. So that is a real change, 
too.
    Senator Carper. Yes, it is.
    Mr. Blair. Magazines and newspapers as well.
    Senator Carper. All right. Mr. Potter, would you lead us 
off and share with us several options--I do not know, three, 
four, or five.
    Mr. Potter. OK. Let me just begin by saying that on a 
broad-picture basis, volume obviously is on a downturn. We will 
hit bottom and it will begin to come up. When we are in the 
throes of moving and migrating the mail down, we are playing 
catch-up in a sense. We are trying to adjust our operations to 
lower volumes. All the mechanisms that we have in place for 
adjusting staffing levels and the like are lookback type of 
systems. They are not anticipatory systems. And so we will be 
chasing volume down until it hits bottom. When that turns, we 
will have staffed our facilities at a productive level, and as 
volume grows, we will be able to absorb that volume.
    Now, the question is can we get down low enough, and 
therein lies the challenge, so that we can break even. Then as 
growth occurs, can we become profitable?
    Senator Carper. Didn't you do this in the earlier part of 
this decade as we were coming out of a recession, 6, 7, or 8 
years ago?
    Mr. Potter. Yes, we did.
    Senator Carper. Because my recollection is you had borrowed 
against the Treasury over $10 billion.
    Mr. Potter. Right.
    Senator Carper. And were bumping up against the $15 billion 
limit not that many years ago.
    Mr. Potter. We were up over $11 billion, Senator, and we 
got down to zero. But there was some help from you and others 
up here when it came to adjusting our Civil Service Retirement, 
as well as the staffing reductions that we have put in place 
enabled us to rebound. As mail grew back after the September 
11, 2001 recession, we became more productive. So in terms of 
the big picture, that is where we are.
    Now, what do we have to do to make that happen? Obviously, 
we are looking for help from the Congress on our long-term 
payments and some rescheduling of retiree health benefits.
    Senator Carper. So that would be your first option.
    Mr. Potter. Since I am asking you for help, I will put that 
on your table. But internally, obviously we are working very 
hard on cost, and we are working as best we can to match our 
use of the resources that we have to the workload that we have 
in front of us. We do want to grow that workload, so our third 
option is really to get out there and make sure that we grow. 
And we are investing money in growth, and we are redoing our 
website to make it easier for people to access information 
about the Postal Service, to buy postage. In addition to that, 
we are upgrading the mail because we are going to begin putting 
intelligent barcodes on mail.
    Senator Carper. When will that happen?
    Mr. Potter. That is going to happen this May.
    Senator Carper. Are you going to make a big deal out of 
that in terms of letting the world know?
    Mr. Potter. We are going to make a big deal about that, and 
we are planning to offer a rate incentive for people to begin 
using it. And I think it is going to upgrade the information 
that people have about the mail. It will add value to the mail 
and make our products more competitive in the marketplace.
    We are going to continue to work on our package services.
    Senator Carper. Let me just say, we think around here about 
echo effect. If you are the President and you have a message 
you are trying to get out, you have all your Cabinet and the 
folks who work for you in the Executive Branch out there. They 
can be your echo so you have a theme for the day or the week. 
Then you have your team out there doing it for you.
    Sometimes here in the Senate we want to get a point across, 
and it will not just be one Senator, a leader of maybe one of 
our caucuses, but they will have the whole echo of the rest of 
the caucus, and not just here in the Senate but as we go back 
to our States across America. So just be thinking about that 
echo effect.
    Mr. Potter. Right.
    Senator Carper. Actually, there might even be an 
opportunity to partner with Members of Congress. In our own 
districts, we all have postal facilities, and the idea that 
this is a service that is going to be, I think, maybe of value 
to our constituents. There might be an option to use us as part 
of the rollout. It is just a thought.
    Mr. Potter. We have seen good growth in our global sector. 
We are going to continue that growth. We are working in 
partnership with posts around the world, in the Pacific Rim, in 
Europe, to grow the package business. We are working with our 
competitors--UPS, FedEx--to provide last-mile delivery which 
allows them to take advantage of our very reasonably priced 
delivery. We are at every door every day. The incremental cost 
to provide delivery when it is brought to our post office is 
minimal, and we are able to grow that segment of the business. 
And I think we have work to do in terms of continuing to make 
our package business more efficient, and even more reliable 
than it is today. Our package business is going to become more 
and more competitive, and we are going to use the flexibilities 
that you have provided in the law to work with customers when 
it comes to pricing.
    We do have areas of opportunity. In terms of advertising 
mail, I believe that if you think of the marketplace, direct 
advertising is going to be the leader when it comes to the 
future and how people communicate with potential customers. And 
I think hard copy through the mail, the use of our very robust 
network, is going to be a vital tool for anyone in the 
marketing business or retail business to use to get their 
messages out.
    And so I am excited about the fact that we have 
opportunities for growth. When it comes to our game plan, I 
think it is rather comprehensive. I think that there are limits 
to what we can do, and certainly we need to talk about the 
boundaries that exist today and how we might use this network 
to generate revenue and maintain service. This is not within 
the law today, but as we think about that longer-term picture 
and look at other countries around the world, they take 
advantage of the networks they have and do what I will call 
flanking measures. They use their retail network for other 
things other than mail, such as banking. They use their 
logistics network and open them up and provide trucking 
services for other folks.
    In terms of where we are today, it is a basic blocking and 
tackling. Let us get it done, but let us make sure that we do 
not lose sight of growth opportunities as we are cutting costs. 
And longer term, I think we need to put everything on the table 
and have discussions about that going forward.
    So we will keep you busy, I think, on this Subcommittee. 
Thank you.
    Senator Carper. You bet. Mr. Blair.
    Mr. Blair. Senator Carper, you mentioned earlier, you were 
talking about what the opportunities are that exist, and in 
giving some thought to this, one area is to grow the revenues. 
Mr. Potter mentioned the use of the intelligent mail bar code. 
This is an example of giving more value to the mail. PAEA gave 
additional flexibilities on experimental and new products, and 
those are areas that really have not been tested yet. That is 
something the Commission would be receptive to. So some 
imagination, some new marketing products, those areas in which 
the mail is given more value is a potential growth area.
    You can grow revenues or cut costs, and we have seen that. 
One area to cut costs is reducing the frequency of delivery or 
reducing the number of your retail outlets. Those do not come 
without a cost themselves, though. Are you going to gain short-
term value but lose long-term customers? And those are things 
that I do not think we have an answer for yet. I think that is 
a public policy question that further needs to be explored.
    One area that we have not talked about today is the debt 
limit. It is $15 billion. They are at $7 billion right now. The 
Postal Service has indicated that is not an area that they 
would want to go in. But it is an alternative for Congress to 
consider if you want to raise the debt limit or raise your 
annual borrowing limits. But that comes with a price as well 
because debt carries interest payments on it. And at some 
point, you reach that limit and then it hampers your ability to 
operate.
    So, again, no recommendations, but these are options for 
Congress to consider.
    Senator Carper. Mr. Blair, on the issue of the interest 
costs that the Postal Service is paying--is it $7 billion right 
now? Do you pay whatever the cost of capital is for Treasury? 
If they are borrowing money at--do you use the overnight cost, 
or do you use their 90-day cost? What do you use?
    Mr. Potter. We use their short-term 90-day cost.
    Senator Carper. And what are those right now?
    Mr. Potter. I think they are 25 basis points.
    Senator Carper. Pretty good deal.
    Mr. Potter. It is an extremely good deal, but the problem 
for us is that long-term interest rates are also at their 
lowest. So we have a decision we have to make. Do we take and 
convert some of the short-term borrowing that we have to long 
term? We do not appear to have any reasonable chance of paying 
our debt down in the next couple of years given the state of 
the economy. So we may step out from behind that short-term 
debt to lock in lower rates on long term. But it is a burden to 
the organization going forward to have this debt.
    Senator Carper. All right. Thank you. Mr. Blair.
    Mr. Blair. Another alternative--and, again, these are not 
recommendations, but an appropriation, Congress could always 
appropriate, return to the days of subsidizing their 
operations. That seems to run counter to the idea of a self-
sustaining Postal Service, but those are options that could--we 
have limited options, and there are some tough issues out 
there. That is why I agree with the approach that you are 
taking that at least in the short term address the issue of the 
retiree health benefits. But I also want to underscore the fact 
that those long-term liabilities are not going to change, and 
you do not want to short-change the future funding of those 
liabilities.
    So I would just urge the Subcommittee to keep those in 
mind.
    Senator Carper. I do not know that I heard you say--does 
the 8-year structure make more sense than the 2-year?
    Mr. Blair. To me, the 2-year makes more sense because it 
gives you an additional oversight capacity that you otherwise 
would not have.
    Senator Carper. All right.
    Mr. Blair. I am sure that 8 years would be more simple and 
easy to administer. There is certainly more certainty to it. 
But much like the escrow account which was much hated, but it 
is what drove postal reform. The idea of having an additional 
2-year review on something like this gives you additional 
oversight opportunities as well.
    Senator Carper. Mr. Herr, you get the closing word.
    Mr. Herr. Closing with the last word.
    Senator Carper. Almost. Then I will give the benediction.
    Mr. Herr. OK. I think as we reiterate, just mentioning the 
short term, the 2-year financial relief, I think coming--
something that should accompany that would be a plan, something 
that can be shared, explained, and can be used as an oversight 
tool to help you, can help build consensus with Congress, 
business, citizens, to understand exactly what some of the 
ramifications of this are for individuals and for businesses 
and users of the mail.
    I would also think a real option is working with the unions 
to see what is on the table and what can be achieved there. 
Things are locked in for several years, and given these 
circumstances and what has been described, it seems like times 
like this call for some honest, hard discussions to see what 
can be achieved in that area, too.
    And then I think also, work with businesses to better 
understand what their needs are and what new products they 
desire out of the Postal Service. Some of their competitive 
products that we looked at, the priority mail and express mail, 
represent about 10 percent of revenue. So even if those grow at 
a very high rate, it still represents a relatively small 
portion of what their overall revenue stream is.
    And then, last, we have some ongoing work looking at 
intelligent mail, revenue generation issues and route 
estimates, and as that work is completed, we will be sure to 
share it with you and your staff on the Subcommittee as well.
    Senator Carper. All right. Well, this has been a timely 
hearing and I think for me a most informative hearing. I think 
I walk away from this hearing with a better understanding of 
how we find ourselves in this situation, maybe a little bit 
better understanding of the options to get us through these 
difficult times.
    It is not just the Postal Service that is struggling. 
Delaware is the only State on the Eastern seaboard that has any 
auto assembly operations, and at the beginning of this month, 
we closed the Chrysler plant, which has been in business for 
almost 60 years. Very painful for us.
    We see today the number of people that are working at our 
General Motors plant, which used to employ over 3,000 
employees, is down to under 1,000, and that plant is--it is not 
shuttered, but closed for a couple more weeks, and they will 
begin assembly operation again.
    I was driving up the road the other day to the YMCA where I 
work out, not far from my house, and I drove by Circuit City, a 
big, full parking lot, but not for long because that store and 
a lot of others are closing all over the country.
    Those are just some of the things we see in my own State, 
and they are mirrored and reflected in other States. We should 
not be surprised that the Postal Service is struggling as well.
    We have several options before us, and we appreciate the 
discussion of those options. I think rather than us criticizing 
the Postal Service, while we have to through our oversight 
function hold the Postal Service accountable--and I certainly 
want to encourage you, to the extent that you can, to be 
transparent, more transparent and accountable in trying to 
comply with Sarbanes-Oxley and balancing both of those 
demands--we would encourage you to do that.
    We would encourage you to continue to work with your labor 
partners as you find efficiencies, and I am struck, most times 
when I go into a post office--and I go in fairly regularly just 
to sort of test the waters--by how often the people who sell me 
stamps or whatever other service that they are providing will 
ask, actually promote another service and say, ``Have you 
thought about this?'' Or if you are going to ship a package, do 
you want to make--not just insurance, but ``Do you want to have 
reporting dates?'' and that sort of thing, the tracking numbers 
and so forth. A little shout out to some folks who work for the 
Postal Service.
    In San Diego, our oldest son is in his third year in 
college, and he and one of his compadres from school have 
decided to not hang out in Boston or in Delaware, but to find a 
1-month gig in San Diego. Not bad. And they are working there 
on a research project at the University of California, San 
Diego, which is good business if you can find it if you are in 
college--really in any business, I think. But they are big 
bicyclists. They are on the triathlon team at their college, 
and they shipped their bikes out to be at their positions so 
they could continue their training while they are working. And 
they shipped by Postal Service three boxes of equipment to 
support their bicycling.
    We thought we would save some money and not do the 
insurance. We thought we would save some money and not provide 
the tracking ability. And we got out there, and the days that 
we expected the packages to be delivered, they were not 
delivered. Actually, two were on the day it was expected; one 
was not. And it was not delivered the second day. And it 
finally showed up on the third day. The postal employees at one 
of your shops out in San Diego, one of your facilities, could 
not have been more helpful, and we just want to say in terms of 
customer service, they were first-rate. And we are grateful for 
that.
    I will leave here thinking that, in addition to all the 
things you are trying to do to save money, in addition to all 
the things you are trying to do to build revenues, as I said--
and some of you have heard me say this before--if it is not 
perfect, make it better. Everything you do, everything I do, we 
can do better. We just have to really push the envelope and 
keep pushing it.
    I almost liken your financial proposal, Mr. Potter, to a 
renegotiation of a mortgage on a house in terms of the 
amortization schedule, the payment schedule. We are looking at 
not going to one of those exotic adjustable rate mortgages with 
a big balloon payment at the end, but we are talking about 
renegotiating the terms of the mortgage, and we are doing a lot 
of that in families and communities and homes across America. 
And I think that is what you are asking for here. And given 
some of the other options that are before us, it is probably a 
better option than most. To the extent that we can get that 
done, we will push hard to do that.
    And, Mr. Potter, to the extent that you have been talking 
to our colleagues, particularly those in positions of some 
authority on other committees, those I think have been well 
received, and hearing from you has been helpful in moving the 
ball.
    With that having been said, we have got our work cut out 
for us. I think we are going to have another hearing, maybe a 
little before March 1, and we are going to revisit some of 
these issues, but mostly I think we want to focus on 
opportunities that are out there for growth, for growing 
revenues, and some that are going well and maybe some others 
that are not--maybe a couple that we touched on here today as 
possibilities that we could identify, too.
    With that having been said, thank you very much for your 
preparation and for your testimony, and we will probably follow 
up with some more questions and would ask that you respond to 
those very promptly.
    With that, this hearing is adjourned. Thank you so much.
    [Whereupon, at 5:26 p.m., the Subcommittee was adjourned.]


                            A P P E N D I X

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