[Senate Hearing 111-409]
[From the U.S. Government Publishing Office]
S. Hrg. 111-409
THE U.S. POSTAL SERVICE IN CRISIS
=======================================================================
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
__________
AUGUST 6, 2009
__________
Available via http://www.gpoaccess.gov/congress/index.html
Printed for the use of the
Committee on Homeland Security and Governmental Affairs
U.S. GOVERNMENT PRINTING OFFICE
53-836 PDF WASHINGTON : 2010
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC
area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC
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 ROBERT F. BENNETT, Utah
ROLAND W. BURRIS, Illinois
PAUL G. KIRK, JR., Massachusetts
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
Velvet Johnson, Professional Staff Member
Bryan Parker, Staff Director and General Counsel to the Minority
Deirdre G. Armstrong, Chief Clerk
C O N T E N T S
------
Opening statements:
Page
Senator Carper............................................... 1
Senator McCain............................................... 4
Senator Lieberman (ex officio)............................... 5
Senator Collins (ex officio)................................. 7
Senator Burris............................................... 8
Senator Coburn............................................... 31
Senator Akaka................................................ 34
WITNESSES
Thursday, August 6, 2009
Hon. John E. Potter, Postmaster General, U.S. Postal Service..... 9
Ruth Y. Goldway, Chairman, Postal Regulatory Commission.......... 11
David C. Williams, Inspector General, U.S. Postal Service........ 13
Nancy H. Kichak, Associate Director for Strategic Human Resources
Policy, U.S. Office of Personnel Management.................... 15
Phillip R. Herr, Director, Physical Infrastructure Issues, U.S.
Government Accountability Office............................... 17
Fredric V. Rolando, President, National Association of Letter
Carriers, AFL-CIO.............................................. 39
William Burrus, President, American Postal Workers Union, AFL-CIO 41
Dale Goff, President, National Association of Postmasters of the
United States.................................................. 43
James E. West, Director, Postal and Government Affairs, Williams-
Sonoma, Inc.................................................... 45
Mark Suwyn, Executive Chairman, NewPage Corporation.............. 47
Alphabetical List of Witnesses
Burrus, William:
Testimony.................................................... 41
Prepared statement........................................... 107
Goff, Dale:
Testimony.................................................... 43
Prepared statement........................................... 110
Goldway, Ruth Y.:
Testimony.................................................... 11
Prepared statement........................................... 76
Herr, Phillip R.:
Testimony.................................................... 17
Prepared statement........................................... 92
Kichak, Nancy:
Testimony.................................................... 15
Prepared statement........................................... 88
Potter, Hon. John E.:
Testimony.................................................... 9
Prepared statement........................................... 61
Rolando, Fredric:
Testimony.................................................... 39
Prepared statement........................................... 101
Suwyn, Mark:
Testimony.................................................... 47
Prepared statement........................................... 128
West, James E.:
Testimony.................................................... 45
Prepared statement........................................... 119
Williams, David:
Testimony.................................................... 13
Prepared statement........................................... 83
APPENDIX
The U.S. Postal Service and Six-Day Delivery: Issues for
Congress, July 29, 2009, CRS submitted for the Record by
Senator Carper................................................. 132
Post Office and Retail Postal Facility Closures: Overview and
Issues for Congress, August 7, 2009, CRS submitted for the
Record by Senator Carper....................................... 161
Observations by the Board, submitted for the Record by Senator
Carper......................................................... 184
Letter from Ruth Y. Goldway, dated August 20, 2009, in response
to Senator Lieberman's query................................... 194
Questions and responses for the Record from:
Mr. Potter................................................... 197
Mr. Herr..................................................... 206
Mr. Rolando.................................................. 211
Mr. Burrus................................................... 214
THE U.S. POSTAL SERVICE IN CRISIS
----------
THURSDAY, AUGUST 6, 2009
U.S. Senate,
Subcommittee on Federal Financial Management,
Government Information, Federal Services,
and International Security,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:02 a.m., in
room SD-342, Dirksen Senate Office Building, Hon. Thomas R.
Carper, Chairman of the Subcommittee, presiding.
Present: Senators Carper, Akaka, Burris, Lieberman (ex
officio), McCain, Coburn, and Collins (ex officio).
OPENING STATEMENT OF SENATOR CARPER
Senator Carper. Good morning. Our hearing will come to
order. Our thanks to our witnesses and to our guests for
joining us today.
This hearing is the latest in a series of hearings over the
past half-dozen or so years that this Subcommittee and full
Committee have held on the Postal Service's struggle to adapt
to a changing mail and communications industry and now to a
deeply troubled economy.
As we all know, the economic crisis that our country is
currently battling has had an impact on just about every family
and just about every business. This downturn has impacted the
Postal Service and some of its biggest customers far more than
most.
Financial data that the Postal Service released yesterday
for the third quarter of the current fiscal year bears this
out. This data also tells me that the title of this hearing is
accurate. Our Postal Service is, indeed, in crisis.
According to the Postal Service, mail volume was down last
quarter more than 14 percent when compared to the third quarter
of last year. This led to a loss of some $2.4 billion, an
amount that nearly equals the Postal Service's total losses for
all of last fiscal year. This latest quarterly loss brings the
Postal Service's year-to-date loss to some $4.7 billion, and
current projections point to a record loss of more than $7
billion by the end of this fiscal year, and this projected loss
takes into account some $6 billion in cost savings that the
Postal Service and its employees are expected to achieve by the
end of next month. These numbers are, indeed, sobering. Some
would say they are also alarming.
But I would point out that our postmaster general has said,
and I am sure he will say again here today, that the mail will
continue to be delivered as it has always been delivered and
postal employees will continue to be paid. I would also add
that the path out of this situation that we find ourselves in
is, at least in my estimation, clear.
First, it is imperative that the Postal Service next month
be given some measure of financial relief, not a bailout, not
lip service, not berating, instead, a prudent measure of fiscal
relief and perhaps even a little bit of tough love.
I mentioned earlier, the postmaster general's assurances
that the mail will continue despite the dire financial
projections we will be discussing today. Having said that,
absent some action from Congress and the President in the very
near term, however, we cannot promise that will always be the
case.
In recent months, a number of us have come to the
conclusion that the most appropriate way to give the Postal
Service a measure of relief in the throes of this deep
recession is to restructure the aggressive retiree health
prefunding schedule that was imposed on it in 2006. That
schedule has the Postal Service making enormous payments of
more than $5 billion per year through 2016 to prefund its
future health obligations to its retirees. This is on top of
regular payments of $2 billion or more for current retirees'
premiums. The combination will be enough to sink many
businesses in this economic downturn that has buffeted our
Nation and our world over the past year.
Senator Lieberman and I have introduced legislation, S.
1507, the Postal Service Retiree Health Funding Reform Act, to
restructure the Postal Service's retiree health payment
schedule to give it the financial breathing room to get through
the next several years. Our proposal works much like a mortgage
renegotiation would for a family in which someone has lost a
job and needs to find a way to keep their family home.
The example that I use to explain this to some of my
colleagues is to take an example of a young couple that get
married, no children, both employed, good jobs, buy a home.
They have a choice to take a mortgage of 10 years, 15, 20, 25,
30 years, but they say, we will go with the 10-year mortgage
and that is what they start to take and it is what they start
to pay. Life goes on. Kids come along. Somebody loses a job.
The economy is tough.
And they go back to their mortgage company and say, we
would like to restructure that mortgage. We feel that we need
to restructure that mortgage. We can't meet the payments on a
10-year mortgage. It is too aggressive given the financial
reality that we face today and we would like to have a 20-year
mortgage, or a 25, or 30--not a 50, not a 100, but something
more reasonable than a 10 in the current economic condition
that family would face.
Our bill or something very similar to it must pass and be
signed into law before the current fiscal year ends in
September. That said, our bill is not a silver bullet. It does
not solve all of the Postal Service's problems. It merely sets
the stage for the work that needs to be done in a number of
areas to streamline postal operations further and to bring back
at least some of the business that has been lost.
Much of the cost-cutting discussion since our last hearing
in January has focused on the Postal Service's proposal to move
from 6-day to 5-day delivery, perhaps by eliminating Saturday
service. The Postal Service estimates that making this change
would save it upwards to $3 billion per year or more. And based
on recent polling, a clear majority--not all, but a clear
majority of the American people would not oppose the
elimination of Saturday service.
And Congress unanimously endorsed language, included in our
postal reform bill in 2006, that gave the Postal Service the
authority to make the business decision to reduce frequency of
delivery if it felt like it needed to do so. But every year
since then, Congress through language included in the annual
appropriations bill has decided to prevent the Postal Service
from exercising that new authority. With the situation that the
Postal Service is facing now, I believe it is time for us to
reevaluate this prohibition.
Congress also needs to reevaluate the position it often
takes on facility closures. The Postal Service currently
maintains more than 35,000 retail outlets and more than 400
processing plants around the country. This network was
developed for a time before e-mail, before electronic bill pay,
and before any number of communications revolutions in our
society. We simply don't need all these facilities in this day
and age.
But all too often, we in Congress put up roadblocks
whenever the Postal Service even mentions that it might be time
to close or consolidate some of those facilities. We just can't
afford to do that anymore.
The Postal Service itself needs to continue to find new
ways over time to make the products and services it offers more
relevant and to increase demand for them. We did give the
Postal Service some new commercial flexibility back in the 2006
Postal Service law. They have been able to take advantage of
that flexibility in some instances, and one example is the
Flat-Rate Priority Box promotion that I am sure a lot of us
have seen on television in recent months. I think that has been
successful and very well received.
There is a great partnership, I think, between the Postal
Service and UPS and FedEx, where the Postal Service delivers
packages the last mile or the last five miles. I understand you
share their aircraft and there is a variety of things that you
are doing to be more entrepreneurial, and we need to see more
of that.
I understand the response has also been good for a so-
called summer sale that the Postal Service hopes will bring
additional advertising and other commercial mail back into the
system in the coming weeks.
But I am also certain that more can be done in kindling a
new entrepreneurial spirit at the Postal Service and we are
going to explore that today.
And finally, I would be remiss if I didn't mention labor
costs. All four major Postal Service's union contracts are set
to expire in 2010 and 2011. It is my hope that these unions
will continue to work constructively with the Postal Service
through these negotiations to adjust pay, benefits, and work
rules to reflect the reality that the Postal Service faces in
the mailing and communications market today.
And in conclusion, let me just say, there are many services
that the Federal Government provides to the people of this
country. Few of them are appreciated as much as the work of the
Postal Service. I have seen approval ratings of a lot of us who
serve in the Senate. I have seen customer satisfaction ratings
for the Postal Service that most of the American people hold.
The Postal Service numbers are better than most of ours, and we
applaud the efforts, the years of efforts, that have led to
that achievement and we want to make sure that the level of
service and level of satisfaction is continued to be held by
the American people, the customers of the Postal Service, and
the folks who work at the Postal Service will continue to be
proud of the work that they are doing.
With that, let me turn to my colleague, Senator McCain.
Welcome.
OPENING STATEMENT OF SENATOR MCCAIN
Senator McCain. Thank you, Mr. Chairman, and thank you for
that very comprehensive statement. I want to thank you and
Senator Collins for the very hard work that you and other
Members of the full Committee have done on this issue over the
years.
I would point out, in 2006, I believe the legislation was
passed overwhelmingly, if not by voice vote, and we had
addressed the problem. Three years later, here we are with a
bigger problem. So we didn't address the problem in 2006.
Obviously, as we all know, this morning, the Postal Service
loses $2.4 billion in one quarter. I read your statement, Mr.
Potter. I see no specific proposals you have except that
perhaps maybe we should close some post offices. In other
words, Mr. Potter would not commit to an exact number of post
office closures, but said some urban facilities are likely to
consolidate certain operations while others will vacate
expensive locations. Mr. Potter, it is about time we got some
absolutely specific proposals to get the post office back onto
at least a zero-loss basis.
Now, we have had lots of hearings. We passed legislation.
So far this year, I guess the estimate is a $7 billion loss. We
can't do that to the taxpayers of America. We have every right
to expect some specific recommendations both from Mr. Potter
and the Administration, so that we can enact them into law, and
obviously, a lot of this is due to the fact that America has
changed. Just as we went from horses and buggies to
automobiles, we have gone from hand-delivered mail to the
Internet, text messaging, e-mails, Twitter, and all of the
other new means of communications. The Postal Service has to
adjust to it or they will go the way of the horse and buggy and
bridles. And so far, we have not seen either from the
Administration or from you, Mr. Potter, who I understand is
well compensated for your work, a specific, concrete proposal
to bring the situation under control.
The 2006 bill was advertised as solving the Postal
Service's problems. It didn't. And also, Mr. Chairman, I
recommend in the future that we have some consumer advocates
come and testify before this Subcommittee and full Committee as
to their ideas as to how we can solve this problem, because
clearly we are not getting them from the Administration.
Senator Carper. Thanks very much.
Let me turn now to our Chairman, Senator Lieberman. I want
to thank you for being an original cosponsor of our
legislation.
OPENING STATEMENT OF CHAIRMAN LIEBERMAN
Chairman Lieberman. Thanks, Senator Carper. I want to thank
you and Senator Collins for the extraordinary work you have
done over the last several years at the request of the full
Committee. Normally, I don't come to the Subcommittee meetings,
but I think we are at such a moment of crisis that I felt it
was my responsibility to be here, first to thank you for what
you have done.
The Postal Reform Act of 2006 represented quite a
remarkable accomplishment in terms of the variety of different
stakeholders that were brought together on its behalf and I
think it was a constructive and progressive piece of
legislation. But as we know now, the problems confronting the
Postal Service of the United States went beyond what the Postal
Reform Act of 2006 could do, in one way that we were already
well familiar with at that time, which was the extraordinary
revolution that has occurred in communication in our time as a
result of digital technology and electronic mail, e-mail. That
is just a new reality of our life. The second painful reality
that we didn't foresee at that time, of course, was the great
recession that we have gone through in the last couple of
years.
In my own view, the Postal Service, its workers, its
employees have made some very great efforts to try to put the
boat back on an even keel. I mean, I cite these numbers again.
USPS has reduced costs by more than $6.1 billion this year by
reducing 87 million work hours, realigning carrier routes,
halting construction of new postal facilities, freezing postal
officer and executive salaries at 2008 levels, reducing travel
budgets, and the like. Also, trying to reduce the costs of more
than 500 existing contracts that will result in short- and
long-term savings.
But the obvious reality is, notwithstanding all those
efforts, as most graphically demonstrated by the quarterly
report yesterday, loss of $2.4 billion, that the Postal Service
is in a dizzying downward spiral, and unless we act forcefully,
this great American institution created in our Constitution--
that is how serious the Founders of our country believed the
responsibility was to provide for, as they said, post offices
and post roads--created in our Constitution--unless we apply
some tough medicine here and we do it working together, this
dizzying downward spiral for the U.S. Postal Service could
become a death spiral and none of us obviously want that to
happen.
Last week, the full Committee voted to report out S. 1507,
which I was proud to cosponsor with Senator Carper. It is the
U.S. Postal Service Retiree Health Benefits Funding Reform Act.
I think it is a good first response to the current crisis. I
think without it, the Postal Service effectively doesn't have
enough money to pay its bills as of October 1 of this year. The
Postal Service has made clear that they will continue to
deliver the mail and pay salaries, but there is a lot else it
is not going to be able to do.
So to me, one might change what we propose this way or that
way, but I think it is critically necessary to do this
rescheduling of payments into the Retiree Health Benefits Fund,
payments that are now being done at a level that is way above
any other governmental program of its kind and any private
sector program of its kind, as well.
The reality is, though, that is not going to be enough.
That is a short-term step to enable the Postal Service
essentially to keep going after October 1. We have got to agree
on a broader strategy that will save the Postal Service,
because it is not going to stay alive if we continue to do
business as we have been doing business, notwithstanding what
has been happening.
And when I say that, I speak not just to the Postal
Service, its workers, and management, I speak of us here in
Congress, because none of the measures that we have talked
about is going to be enough to make this work. All of us have
to think about doing things that we never would have thought
about for the Postal Service.
I know in S. 1507, an amendment was introduced by one of
our colleagues in the Committee that requires the binding
arbitrator in a labor-management dispute to consider the
financial condition of the Postal Service. I know that our
friends in the unions who represent workers for the Postal
Service are very upset about this. Frankly, I didn't see how I
could justify voting against that amendment. It is a statement
of reality.
That same reality has to now be adopted by those of us who
are privileged to serve and have responsibility here in
Congress. That is why I know that there are discussions of
consolidating more branch offices of the Postal Service, of
going to 5-day-a-week mail delivery. These are onerous
responses. We would never have considered them at an earlier
time, but I don't see how we can keep this venerable American
institution, which so much of America and American commerce
still depend on, going without taking steps exactly like that.
And our constituents are not going to be happy, but every
time they express their unhappiness to us, I think we have got
to say, if we don't take some of these tough moves, what it
means is that we are going to either have to raise your taxes
to make payments, greater payments to the Postal Service from
the U.S. Treasury or we are going to have to put it on the
government credit card, which is an act of irresponsibility
because we are turning the burden of repayment over to our
children and grandchildren and those who follow. Those are the
choices we are going to have to make.
I remember some years ago, there was a little post office
in Connecticut that the Postal Service wanted to stop. People
were furious. They loved that little post office. It wasn't
very busy, but they loved it. All of our Congressional
delegation went to bat. The post office was kept open. But
those were different times and we simply cannot do that
anymore.
This great Postal Service of ours is an iconic American
institution that has always delivered for the American people.
Now it is time for the management, workers, and Congress to
deliver for the Postal Service. If we don't apply the kinds of
tough measures--call it tough love if you want--this
institution which we depend on is simply not going to be there.
Thank you, Mr. Chairman.
Senator Carper. Thank you very much for that statement, and
again for your strong support of this legislation.
No one on this Committee has worked harder than Senator
Collins to enact the postal reform legislation in 2006. I was
proud to be her partner in doing that and thank her for her
work then and now on these issues.
OPENING STATEMENT OF SENATOR COLLINS
Senator Collins. Thank you, Mr. Chairman. First, let me
commend the Chairman for holding this important hearing this
morning. I appreciate the opportunity to join you.
I must say, however, that it is most disappointing to once
again be discussing the dire financial condition of the U.S.
Postal Service. Just 2\1/2\ years ago, Congress passed crucial
reforms that Senator Carper and I authored that rescued the
Postal Service from the GAO's High-Risk List. Today, the Postal
Service is once again in a financial crisis and once again it
has landed on the High-Risk List. In 2008, the agency lost $2.8
billion, and this year, as my colleagues have indicated, it is
projected to have a net loss of a staggering $7 billion.
The Postal Service matters to our economy. It is the
linchpin of a $900 billion mailing industry that employs nine
million Americans. So what we are talking about affects far
more than the employees who are working in the local post
office or distribution centers. It affects nine million
Americans working in fields as diverse as paper manufacturing,
printing, publishing, direct mail, and financial services.
Indicative of that is one of our witnesses today. It is the
Chairman of NewPage, which is a paper company that has a large
plant in Rumford, Maine. NewPage is representing many other
businesses, nonprofits, and organizations whose operations are
inextricably linked to the Postal Service.
If the Postal Service, for example, were to resort to
excessive rate hikes or decrease delivery service, it has
ramifications for all of these companies. They may have to
respond with layoffs, increased prices to consumers, or reduced
services. Any of these adjustments would contribute to an even
more perilous condition for the Postal Service. Why? Because
when businesses cut their costs, they reduce mailing costs, and
that leads to a further erosion of the Postal Service's
shrinking mail volume, which in turn will prompt more proposals
for rate increases and renewed calls for truncated delivery
services.
As Senator Lieberman has indicated, this is a vicious cycle
that has no good outcome. We must prevent this death spiral. We
all must put our shoulders to the wheel and accomplish the
difficult task of transforming the Postal Service.
The postmaster general has offered three major proposals
for Congress to consider. First, adjusting the payments to the
Retiree Health Benefits Fund. Now, I would note that while I
support an adjustment in this area, the bill approved by this
Committee would result in an increase in the unfunded liability
of $4 billion, and I think that is a problem.
Second, the postmaster general has proposed to eliminate 6-
day-a-week mail delivery. Third, he has proposed closing or
consolidating postal facilities. The Postal Service is
reviewing 677 of its 3,200 stations and branches nationwide for
closure or consolidation. This proposal, like the Postal
Service's plan to reduce delivery from 6 to 5 days a week,
would result in reduced service to its customers. Is that
really the right response to this crisis?
Will it make a real difference in the cost structure of the
Postal Service? If it will, we obviously should consider those
moves. But when you look at where the costs are in the Postal
Service, it raises a lot of questions in my mind. The Postal
Service also cannot expect to gain more business, which it
desperately needs, if it is reducing service.
Now, let us look at just the proposal for closing or
consolidating the 677 branches and stations. The non-personnel
costs of these facilities on the list account for about six-
tenths of 1 percent of overall Postal Service operating costs.
That is right. If the Postal Service were to close all of the
branches and stations that are on the list--and that is not the
plan, but let us say they closed every one of them--it would
reduce the operating costs, when you exclude personnel, by less
than 1 percent. So we need to look at whether that is worth it
or whether there are better, more effective means of reducing
costs.
Last week, before this Committee approved the bill to
provide some relief to the Postal Service from the required
payments to the Retiree Health Benefits Fund--a bill that I
voted to report from this Committee--our Committee adopted
several amendments to address some of the cost drivers and to
make the bill more fiscally responsible. I believe that
additional changes need to be made on the Senate floor, but
there is no question that we do have to act. We simply must
rescue an institution dating to the earliest days of our
Nation. We cannot allow the Postal Service to fail because it
is too fundamental to our economy.
But it is going to take an honest assessment of where the
costs are, and it is going to take everyone working together--
Postal Service management, employees, members of the mailing
community, this Congress, and the Administration--to contribute
to the solution. We must work together to find a real, lasting,
and fiscally responsible solution.
Thank you, Mr. Chairman.
Senator Carper. Senator Collins, thank you. Thanks for your
statement. Again, thanks for your hard work on this, literally
for years, and for your staff, as well.
Senator Collins has said that our bill increases the Postal
Service's unfunded liability by $4 billion. It does. But any
bill that reduces the Postal Service's payments this year and
for the next several years would do that. It would happen
because the fund that we created in the Treasury to prefund
Postal Service Retiree Health Benefits will have less money in
it and thus earn less interest. It is a drawback of extending
relief, really, at all, so I just want to note that for the
record.
Senator Burris from Illinois has joined us. We are
delighted you are here and you are recognized for your
statement. Thank you for coming.
OPENING STATEMENT OF SENATOR BURRIS
Senator Burris. Thank you, Mr. Chairman, Ranking Member
McCain, Senator Lieberman, and Senator Collins. I am pleased to
be here today as we consider the challenges facing the U.S.
Postal Service and its employees.
I know that we have a large group of witnesses here today,
so Mr. Chairman, I will withhold giving a major opening
statement, but I certainly will have some questions during the
question and answer session.
Senator Carper. We are delighted you are here. Thank you
for your attendance and your faithful participation.
Our first witness today will be John Potter, the 72nd
Postmaster General of the United States. Mr Potter began his
career in the Postal Service in 1978 and held a number of
senior management positions there before being named postmaster
general in 2001.
Our next witness is Ruth Goldway. Ms. Goldway was
reappointed Commissioner of the U.S. Postal Regulatory
Commission by President Bush, I believe in 2008, and is
scheduled to serve until at least 2014. She previously was
appointed to this position by President Clinton to the Postal
Rate Commission, which is the predecessor to the Postal
Regulatory Commission. Welcome. Thanks for coming, and thank
you for your service.
Our third witness today is David Williams, Inspector
General of the U.S. Postal Service. Mr. Williams has a breadth
of experience in the Federal Government, serving as Inspector
General for a total of five Federal agencies during his career.
Our next witness is Nancy Kichak, Associate Director of the
Human Resources Policy Division at the Office of Personnel
Management. In her position, Ms. Kichak leads the design,
development, and implementation of new merit-based human
resources policies. Thank you for that work and for coming
today.
Our final witness is Phillip Herr. Mr. Herr is Director of
Infrastructure Issues at the Government Accountability Office
and no stranger to this Subcommittee. Mr. Herr has been with
GAO since 1989, managing reviews for a variety of domestic and
international government programs since that time.
Each of you will be recognized for roughly 5 minutes. I
will ask you to try to stay as close to that as you can. Your
entire statements will be made a part of the record.
Mr. Potter, please proceed. Thank you for joining us.
TESTIMONY OF HON. JOHN E. POTTER,\1\ POSTMASTER GENERAL, U.S.
POSTAL SERVICE
Mr. Potter. Good morning, Mr. Chairman and Members of the
Subcommittee. I appreciate the opportunity to speak to you
today.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Potter appears in the Appendix on
page 61.
---------------------------------------------------------------------------
First, I want to express my sincere thanks to you, Chairman
Carper, to the Members of the Subcommittee and the Committee on
Homeland Security and Governmental Affairs for your tremendous
progress in moving S. 1507 forward for consideration by the
full Senate. In making this legislation a priority, you have
shown the American people that you support a strong and
efficient national postal system.
By providing immediate relief from a crushing prepayment
schedule for retiree health benefits, enactment of this bill
will enhance our liquidity at a time when it is urgently
needed. It will reduce our projected losses by over one-third
in 2009 and 2010.
We support this bill's amendments, in particular, one that
improves our arbitration process by requiring an arbitrator to
consider not just pay comparability, but the Postal Service's
financial health, as well, and another that accelerates the
GAO's report on our business model. This will initiate a
necessary and broader debate about the manner in which the
Postal Service can continue to serve the American public. On
behalf of the Postal Board of Governors, management, and the
entire Postal Service, I offer you my full support and
cooperation as we work toward these goals.
In the longer term, we believe that fundamental
restructuring of the legislative and regulatory framework for
the Postal Service is required. At stake is the future of what
has been since this Nation's founding the right of every
American to send and receive mail. The Postal Service exists as
a governmental entity whose mission is universal service to
all. That mission is a direct reflection of the values on which
this country was founded. It is those values of equality of
opportunity that continue to drive the Postal Service today, as
they have for more than 234 years.
To address the challenges we face, we must push business
effectiveness and operational efficiency to the limits
permitted by current postal laws. We must foster growth by
increasing the value of postal products and services to our
entire spectrum of customers. These achievements are possible
only by enhancing our performance-based culture. Our ultimate
success will require an extraordinary level of commitment from
postal stakeholders. There will be inevitable tradeoffs between
financial self-sufficiency and affordability, and the costs of
underwriting an ever-expanding universal service network and
other governmental obligations.
We believe that a modern, self-sufficient postal system can
be structured to continue providing universal service to all at
affordable prices. To do so, however, requires new flexibility
to adjust networks and services to modern conditions and to
minimize entrenched governmental and work rules and
expectations that carry with them costs and inefficiencies. If
the postal community is not able to achieve this break with the
past, then it appears to us that the remaining options will be
more unpalatable to most stakeholders. This would force the
Postal Service to operate under its present, increasingly
outmoded business model until enough customers abandon the
system to make financial failure unavoidable.
Mr. Chairman, the thoughts I have just expressed are not
new. They are taken almost verbatim from the transformation
plan that we developed and implemented in 2002 at the direction
of Congress. We achieved and exceeded many of the goals of the
plan. Service and customer satisfaction continue to set new
records. We have removed more than $40 billion in cumulative
costs, increasing efficiency as our delivery base and its costs
have grown by the addition of 11 million new addresses.
Innovative new pricing and product initiatives are producing
results, and our employees are more engaged than ever.
Yet even with the success of these efforts and new levels
of flexibility provided by the Postal Accountability and
Enhancement Act of 2006 (PAEA), our situation is more tenuous
than ever. This does not reflect a change in will, a change in
priorities, or a change in commitment. Rather, it reflects
changes in the economy and changes in mail use patterns. It
reflects an infrastructure that exceeds customer needs and
costs that are beyond our authority to control.
The issue is not the value of the mail. Despite the vast
technological changes over the last decade, the mail still is a
vital channel for financial, business, and personal
communications. It is a conduit for trillions of dollars in
transactions each year. It is one of the most trusted services
in America and one of the most effective. It offers unsurpassed
value, and we are working to increase that value each and every
day.
At the end of the day, though, through focused and
complementary efforts, we can protect a vital and vibrant
national postal system. The Postal Service must and will
continue to bring efficiency and service to even higher levels.
Together, we must identify a new business model, one that
supports success in a new business environment, and we must
close the huge gap between our revenues and our costs.
S. 1507 will offset part of that gap. Increased efficiency
will narrow the gap even further. And with the ability to
change from 6-day to 5-day mail delivery, we can not only
eliminate that gap, but return to profitability without placing
any financial burdens on the American taxpayer.
It will take hard work. It will take creativity. It will
take cooperation and good faith on the part of everyone with a
stake in the mail. Individual interests can be served only by
advancing the common interest because the Nation's mail system
was created to serve everyone equally. This must be our only
goal as we work to preserve and strengthen the U.S. Postal
Service, the finest in the world.
Mr. Chairman and Members of the Subcommittee, that
concludes my statement. Again, I want to thank you for your
support of legislation that will reduce our costs, and I would
be pleased to answer any questions you may have. Thank you very
much.
Senator Carper. Thank you, Mr. Potter. Ms. Goldway, you are
recognized. Please proceed.
TESTIMONY OF RUTH Y. GOLDWAY,\1\ CHAIRMAN, POSTAL REGULATORY
COMMISSION
Ms. Goldway. Thank you. Chairman Carper, Ranking Member
McCain, Ranking Member Collins, Chairman Lieberman, and other
Members of the Subcommittee, thank you for the opportunity to
testify on the financial crisis facing the U.S. Postal Service
today.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Goldway appears in the Appendix
on page 76.
---------------------------------------------------------------------------
I am honored to be participating at this hearing. As many
of you know, I have served on the Commission for 11 years with
many opportunities to support and second-guess chairmans. This
is my first opportunity to speak in front of you myself. The
testimony we have submitted has been prepared in consultation
with Chairman Blair. All of the Commissioners are in general
agreement with these matters. However, there are somewhat
different emphases that each one of us bring to these matters.
I think your comments and those of Postmaster General
Potter have fully described the financial situation in which
the Postal Service finds itself. Suffice it to say that their
revenues are down at least $6 billion so far this year, and at
the end of the year, they may well need additional
Congressional action in order to meet all of their payments.
To put it in perspective, however, UPS and FedEx have had
revenue declines of 11 percent and 21 percent, respectively.
This is a difficult time for the industry as a whole.
The Postal Service has responded to the revenue loss with
the most aggressive cost cutting in its history. In fact, under
the postmaster general, the Postal Service has cut costs for
several years. From 1999, over 160,000 career workforce
positions have been taken out and they are expecting another
100 million work hours this year.
Whatever the concerns of those of us who have evaluated the
Postal Service and its financial activities in the 1990s or in
the early part of this century, management and labor have
worked remarkably cooperatively and effectively to streamline
the system. I think we can be confident that they are going to
be responsible about cost control in the future.
At the request of the House Subcommittee on the Federal
Workforce and Postal Service and District of Columbia, the
Commission recently examined the underlying assumptions and
methodologies used by the Office of Personnel Management and
the Postal Inspector General to determine the Postal Service's
unfunded liabilities for its retiree health care benefits. You
received full copies of those reports, I believe, and they are
also available online. Hopefully, our analysis will prove
helpful to you in informing the debate should this Committee
consider long-term measures to address funding for the Retiree
Health Care Benefit Fund.
The Commission developed an alternative calculation to
those provided by the other two agencies utilizing current
industry and government best practices, and this produced a
long-term liability that could result in over $2 billion in
lower payments per year than current law requires, and the
chart on page 4 that we submitted in my testimony describes
that in greater detail.
The Postal Regulatory Commission is also in the process of
reviewing the Postal Service's request for reduction in post
offices, postal branches and stations. We have initiated a
docket to review that matter. Since some media reports have
been inaccurate about the process, let me be very clear. The
law gives the Postal Regulatory Commission the authority to
review the process the Postal Service proposes, not to decide
on the merits of closing individual facilities.
The review does require us to look at the potential impact
that such closings would have on the communities, the adequacy
of financial analysis that the Postal Service has developed in
planning for these closures, and the adequacy of public notice
and participation in the process.
The law requires the Postal Service to seek an advisory
opinion from the Commission when it proposes operational
changes that could substantially affect service nationwide.
Therefore, the Postal Service would also have to submit to the
Commission any proposal to reduce days of delivery. We
recognize, of course, that Congress must act to allow such a
change.
Whether it is 5-day delivery, collection box removal, which
has been substantial, or closure of facilities, as the Postal
Service proposes, the Postal Service seems intent on reducing
its physical presence. No proposals have been put forward to
find new sources of revenues at post offices, such as
partnering with other public agencies or reinvigorating its
brand. These plans bring into question long-held concepts of
how the Postal Service fits into the framework of American
society.
The Commission is well aware from its proceedings of the
impact the Postal Service has on our Nation's charities,
educational institutions, political processes, and the overall
flow of information. Voting by mail is increasing exponentially
in the country, and it was not long ago that the Postal Service
demonstrated its ability to bind the Nation together when it
allowed residents of New Orleans to elect a mayor even though
they themselves had been dislocated from the city by Hurricane
Katrina.
In a recent Gallup Poll, 95 percent of those indicated
supported the Postal Service and felt that post offices were
personally important to them.
While cost savings are important, I believe that the Postal
Regulatory Commission has a role in determining whether those
cost savings are beneficial in the long term or whether they
may, in fact, be counterproductive in terms of providing
ongoing support for and interest in the Postal Service from the
community and the Nation as a whole.
The Postal Accountability and Efficiency Act have provided
considerable room for innovation. Postal products continue to
be shaped by historic class differences, largely in place by
the 1920s, but potential new markets could be developed around
hybrid products that combine characteristics between classes,
for example, a standard mail product with a guaranteed date of
delivery. Opportunities to better use its existing facilities
have yet to be explored.
The American public continues to demand effective,
reliable, and affordable nationwide Postal Service----
Senator Carper. I am just going to ask you to wrap it up in
just a moment, if you would.
Ms. Goldway. OK. The Postal Regulatory Commission stands
with the rest of the postal industry, with the Committee and
Congress to work towards any changes that will be required of
us in the future.
Senator Carper. All right. Thanks so much. Mr. Williams,
welcome.
TESTIMONY OF DAVID WILLIAMS,\1\ INSPECTOR GENERAL, U.S. POSTAL
SERVICE
Mr. Williams. Thank you, Mr. Chairman and Senator McCain,
Members of the Committee and the Subcommittee. I appreciate the
opportunity to discuss the Postal Service's retiree health care
liabilities.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Williams appears in the Appendix
on page 83.
---------------------------------------------------------------------------
The Postal Service's financial stability is currently
threatened by disruptive effects of new communications
technologies and the massive and sudden economic downturn. This
situation has turned into an immediate crisis because of the
significant diversion of cash to pay for future retiree health
care benefits. For example, the first 6 months of this year's
payment to the benefit funds was $2.7 billion. If not for this
payment, the Postal Service would have made $400 million
instead of losing $2.3 billion in the first half of 2009.
The Postal Accountability and Enhancement Act of 2006
requires the Postal Service to make 10 annual payments of $5
billion each in addition to the $20 billion already set aside
for prefunding its retiree health benefits. The size of the $5
billion payments has little foundation, and the current payment
method is damaging to the financial viability of the Postal
Service, even in profitable times.
The payment amounts were not actuarially based. Instead,
the required payments were built to ensure that the Postal Act
did not affect the Federal budget deficit. This seems
inexplicable, since the Postal Service is not part of the
Federal budget, does not receive an appropriation for
operations, and makes its money from the sale of postal
services.
The payment amounts are fixed through 2016 and do not
reflect the fund's earnings, estimates of the Postal Service
liability as a result of changing economic circumstances,
declining staff size, or developments in the health care and
pharmaceutical industries. The payments do not take into
account the Postal Service's ability to pay and are too
challenging even in normal times.
In the current economic climate, the Postal Service is
forced to borrow and place its solvency at risk. Borrowing to
pay a debt that will be incurred in the future is a
controversial practice not seen in business or government.
Beyond the problems with the payments, we believe it is
important to know if the Postal Service's obligation is
reasonably estimated. My office asked an actuarial consulting
firm, the Hay Group, to benchmark OPM's assumptions against
those commonly used in the public and private sector, review
OPM's estimates of the Postal Service's liabilities, estimate
how well the Postal Service will have funded its retiree health
obligations when the mandated payments end, and estimate the
proper funding levels, given adjustments to the assumptions.
In brief, the actuaries found OPM's assumption of health
care inflation will average 7 percent indefinitely, is
unreasonably high when compared to the 5 percent inflation rate
commonly used by Fortune 100 companies, State and local
governments, and public utilities. The payments are aggressive,
reducing the Postal Service's unfunded liabilities more quickly
than typical prefunding plans.
When the broadly-applied 5 percent for growth in health
care costs is used, the estimates show that the Postal Service
will have overfunded its obligations by $13 billion by the end
of 2016. By the end of 2016, the current payments will have
essentially created an accidental annuity. At 5 percent
interest, the $104 billion fund will earn more than $5 billion
a year. This is a significant amount of money to cover retiree
premiums, which are predicted to be $2 billion this year.
The punishing payments threaten the Postal Service's
solvency and the current crisis. Because the Postal Service has
been forced to borrow during profitable years, borrowing levels
are now stressed during times of need.
Resetting the annual payments from $5 billion to $1.57
billion will leave only $26 billion unfunded by the end of
2016. Resetting payment levels will provide a more achievable
financial goal. New payments will take into account the
substantial annual earnings of the fund. Last year, the fund
earned $1.3 billion. Payments should be reset periodically to
recognize factors such as medical and technological innovations
and breakthroughs, current efforts to reduce inflation within
the medical sector, and changing interest rates for the fund.
The Postal Service must meet its retiree benefit
obligations while acting like a business and paying its
expenses from the sale of postal services. As a result, the
retiree health benefit obligations and all other postal
liabilities should be derived mathematically and not
politically.
I am aware that there were voices on your Committee and in
the House that called for the proper payment level to be set at
the time that the payments were distorted. I am hopeful that
these voices will now be heard to correct this debilitating
problem. If the distortion is corrected, the Postal Service can
more realistically address the remaining serious challenges and
opportunities before it. Thank you.
Senator Carper. Mr. Williams, thank you for that
illuminating testimony. Thank you.
Ms. Kichak, you are recognized. Please proceed.
TESTIMONY OF NANCY KICHAK,\1\ ASSOCIATE DIRECTOR, STRATEGIC
HUMAN RESOURCES POLICY, U.S. OFFICE OF PERSONNEL MANAGEMENT
Ms. Kichak. Chairman Carper, Senator McCain, and Members of
the Subcommittee, I appreciate the invitation to provide the
Office of Personnel Management's views regarding the funding of
the Federal employees health benefits for retired employees of
the Postal Service. We welcomed the introduction of S. 1507,
which is intended to provide short-term relief to the Postal
Service in meeting its obligations to fund its share of retiree
health benefits costs.
---------------------------------------------------------------------------
\1\ The prepared statement of Ms. Kichak appears in the Appendix on
page 88.
---------------------------------------------------------------------------
In 2006, Congress enacted the Postal Accountability and
Enhancement Act, which requires the Postal Service to pay the
employer's share of post-retirement FEHBP premiums for its
employees in a similar manner to how Federal agencies fund
employee retirement costs under the Federal Employees
Retirement System. Under FERS, employing agencies pay the cost
of future retirement benefits while individuals are employed.
Prefunding retirement benefits assures there is sufficient
money set aside to pay benefits without further agency
contributions.
In the same way, the purpose of prefunding post-retirement
FEHBP premiums by the Postal Service is to ensure postal
employees will have employer funding available for their health
insurance after retirement. The law created a new fund and
provided for initial deposits of certain surpluses related to
the Civil Service Retirement System, plus an amount held in
escrow as a result of prior legislation.
P.L. 109-435 also provided that through 2016, the Postal
Service will make the annual pay-as-you-go costs for current
postal retirees plus annual payments in specified amounts that
range from $5.4 to $5.8 billion per year. Prior to this 2006
change in the postal law, the Postal Service obligations to
CSRS, the retirement fund, which they no longer pay, totaled
about $5 billion a year.
Beginning with 2017, the pay-as-you-go costs will be paid
from the fund and the Postal Service's annual payments will
equal accruing costs for active employees plus amortization of
the unfunded liability actuarially determined by OPM.
As requested, we have reviewed the Postal Service's OIG
report and disagree with its conclusions. The Postal OIG
position is based upon a study by the Hay Group which used
different assumptions from those used by OPM. Although the
private sector plans reviewed in the Hay study used trends
starting at a higher rate and decreasing to an ultimate average
rate of 5 percent, the Hay report applied the 5 percent
throughout the projection. Hay also did not study FEHB
experience that covers the Postal Service.
We believe OPM's 7 percent trend assumption is appropriate.
The assumption is based on careful consideration of historical
trends of the FEHB program. The program differs from other
retiree medical programs in several respects. Retirees and
employees are covered under a single program and participation
in Medicare is not required. Both of these program features
drive premiums upward.
Last week, the Postal Regulatory Commission released a
report which included a Mercer review of the OPM assumptions.
Mercer applied a variable select and ultimate trend rate with
increases higher than 7 percent until 2016 and lower
thereafter. Use of the Mercer select and ultimate trend
assumptions produces results that are similar to the level 7
percent trend used by OPM. The Mercer report states that a 7
percent trend rate or higher would be a reasonable trend
assumption and is indeed consistent with the historical results
achieved.
Both OPM and Hay employ an assumed discount of 6.25
percent. However, had Hay applied the same methodology in
selecting a discount rate for their analysis as they did for
their trend assumption, they should have used something
substantially less than 6.25 percent. A lower discount rate
would have resulted in a larger liability. We believe it is
extremely important to make and apply assumptions consistently.
OPM has no objections to legislative changes that do not
jeopardize the funding for employee and retiree benefits. S.
1507 meets that requirement. We believe the bill would provide
temporary relief to the Postal Service in a financially
responsible manner. It provides that the Postal Service would
begin paying the normal cost for its employees today along with
a stream of payments that represents the amortization of
existing unfunded liability.
Thank you for the opportunity to discuss this issue. I
would be happy to answer any questions.
Senator Carper. Ms. Kichak, thank you very much for that
testimony, too. Mr. Herr.
TESTIMONY OF PHILLIP R. HERR,\1\ DIRECTOR, PHYSICAL
INFRASTRUCTURE ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Herr. Thank you. Chairman Carper, Ranking Member
McCain, Members of the Subcommittee and full Committee, I am
pleased to appear again before this Subcommittee to discuss
issues facing the U.S. Postal Service. Today, I will first
provide updated information on the Postal Service's financial
condition and outlook; second, explain GAO's recent decision to
place the Postal Service's financial condition on our High-Risk
List; and third, discuss options and actions to address its
current and long-term challenges.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Herr appears in the Appendix on
page 92.
---------------------------------------------------------------------------
It is widely recognized that the Postal Service's financial
condition has deteriorated sharply over the past year. Mail
volume is projected to decline 28 billion pieces this fiscal
year, leading to some sobering statistics. A net loss of $7
billion, which has been mentioned previously, an increase in
outstanding debt by the annual statutory limit of $3 billion to
a total of $10.2 billion, and an unprecedented $1 billion cash
shortfall that will threaten the Postal Service's ability to
make its mandated annual payment of $5.4 billion for future
retiree health benefits.
The outlook for fiscal year 2010 is even more challenging,
as the Postal Service is projecting its outstanding debt to
increase to $13.2 billion, just under its $15 billion statutory
limit. These figures reflect the impact of the current economic
recession as well as how mail use has changed as businesses and
consumers have moved to electronic communication and payments.
Further, the Postal Service does not expect mail volume to
return to its former levels. In fact, the postmaster general's
statement today projects volume declines of another 8 to 15
billion pieces next year.
Last week, GAO added the Postal Service's financial
condition to our list of high-risk areas because we believe
that restructuring is urgently needed. Simply put, no single
change will be sufficient to address the Postal Service's
challenges.
The short-term challenge is cutting costs quickly enough to
offset the unprecedented volume and revenue declines. The long-
term challenge is to restructure its operations, networks, and
workforce to reflect changes in mail volume and use.
We have called for the Postal Service to develop and
implement a broad restructuring plan, with input from key
stakeholders and approval by Congress and the Administration
that includes time frames for actions. The plan should address:
Realigning the Postal Service to reflect changes in the use of
the mail; better aligning costs with revenues; optimizing its
operations, network, and workforce; increasing mail volumes and
revenues where possible; and retaining earnings to finance
needed investments and repay debt.
Turning to restructuring options in three key areas,
compensation and benefits, postal operational networks and
revenue enhancement. Compensation and benefits, as most here
know, represent about 80 percent of the Postal Service's costs.
Reducing these costs by taking advantage of looming retirements
is crucial. About 162,000 employees are eligible to retire this
year, and this number will increase to almost 300,000 within
the next 4 years. In addition, benefit costs could be contained
by paying a lower percentage of health and life insurance
premiums, in line with those of other Federal employees.
There are also savings opportunities in postal operational
networks and facilities. There is excess capacity in the 400
mail processing facilities nationwide. For example, processing
capacity for First-Class Mail exceeds needs by 50 percent.
About 30 percent of the Postal Service's retail revenue
comes from stamps sold by mail, on the Internet, and at grocery
stores. Accordingly, the network of 37,000 retail facilities,
where maintenance has been underfunded, also offer
consolidation opportunities, we believe.
And because cutting costs cannot be the only solution, it
is important to look for ways to generate revenue through new
or enhanced postal products.
In closing, GAO has begun work on the PAEA-mandated study
of the Postal Service's business model that will examine these
and other options that lead to structural and operational
reforms at the Postal Service. We look forward to working with
your offices and other stakeholders here today on this effort.
Mr. Chairman, this concludes my statement and I would be
happy to answer any questions. Thank you.
Senator Carper. Thank you, Mr. Herr, and we are very
grateful to the GAO for the good partnership and the input you
have provided for us over the years as we have wrestled with
these issues. Thank you, and thank you for your testimony
today.
We will have 7 minutes for questions. I will ask our
colleagues to try to remain within that time frame and I will,
too. We will have time for a second round if that is necessary.
I am told we are not going to have any votes scheduled on the
floor until maybe 3 o'clock, so hopefully we will conclude here
well before that. That is not going to be a problem.
I would like to start by asking the panel, if you will, to
weigh in on--first of all, I thought that was very good
testimony. It was very helpful testimony for me. I learned some
things, and I suspect my colleagues did, as well. I thought it
was, as they say at Fox, fair and balanced. It was interesting
to hear a little bit of disagreement here between Mr. Williams
and Ms. Kichak and we will have an opportunity to explore that
and some of the assumptions.
I would just note that if we are successful at passing
health care reform, almost everybody, whether you are a
Democrat or a Republican or the Administration or not, one of
the things everybody agrees on is we have got to bend the cost
curve. We have got to bend it down, find ways to rein in the
growth of health care costs, so we may provide some additional
business for Hay or Mercer or these other consultants after we
pass legislation, I hope this year, on reining in the growth of
health care costs and improving its quality and extending
coverage to those who don't have it.
But let me start the questioning of our panel today by
asking you to weigh in on a debate that we had in the Committee
last week, about the best way to restructure the Postal
Service's retiree health prefunding payments. A bill that
Senator Lieberman and I introduced reduced the Postal Service's
payments this year and for the next several years in an effort
to give the postmaster general and his team the breathing room
that we think they need to get through this tough time they
have ahead of them, and we think this legislation should buy
them the time that they need to find additional savings and
hopefully attract more business.
An alternative approach put forward by our colleague,
Senator Collins, would have provided some relief this year and
next, but would have reduced the amount of that relief in order
to reduce the Postal Service's payments later in this decade.
I would just like to get the panel's thoughts on these two
approaches. Mr. Potter, if we could just start with you,
please.
Mr. Potter. Mr. Chairman, in terms of the two approaches,
obviously, I support what came out of Committee because it
provides short-term relief. I understand the point that was
made by Senator Collins earlier about the fact that, at the
end, there would be some underfunding by about $4 billion, and
her proposal sought to address that. I believe that the needs
of the Postal Service in the immediate couple of years are very
urgent and therefore I would support the proposal as it came
out of Committee because it provides more short-term relief. It
gives us an opportunity for further discussion about the public
policy issues around the Postal Service, 6-day to 5-day
delivery and other things that need to be done to address our
situation.
Senator Carper. All right, thank you.
Ms. Goldway, I would ask you to keep your responses fairly
brief, if you would.
Ms. Goldway. The Commission recognizes that the Postal
Service needs some immediate assistance. Your bill S. 1507 does
provide relief that is, I think, financially responsible. I
would say that the Commission's review of the issue of long-
term health care retiree benefit liability differs from the OPM
in the number of employees that we forecast in the future and
that forecast underlies my earlier comment in my confidence
that the Postal Service is going to continue to cut. And
therefore, in any future review of the postal liability issues,
the understanding of the lower number of employees may help to
resolve the long-term liability issues.
Senator Carper. Before I turn to Mr. Williams, Mr. Potter,
recall for us, if you will, the level of postal employees, say,
6 years ago compared with what we have today.
Mr. Potter. We hit our maximum number of career employees
in late 1999. We had 803,000 career employees. We have been
addressing the diversion of mail to electronics and have been
managing our workforce very aggressively. Today, we have
630,000 career employees, so we have managed to reduce that,
working with the unions and within the contracts, by over
170,000 people, the number of current employees we have. If you
look at where we are today versus where we are the same day
last year, we are down 37,000 career employees. We are down
over 40,000 if you included non-career.
Senator Carper. Thank you. Mr. Williams.
Mr. Williams. We are very supportive of S. 1507. We like a
lot of things about it. It pays the current retirees out of the
fund. That was the purpose for the fund's construction. It is
actuarially based, which is very powerful and useful. It
addresses the period of time from the date of employment all
the way through the projected retirement and that is a very
good feature, too.
As we look, we do not believe 7 percent is a sustainable
inflation rate and we think--and apparently we will get into
that later, but we think 5 percent is much better. There isn't
anybody paying 7 percent. There are a lot of people prefunding
and they are all paying 5 percent.
The last thing is, we think it would be useful in the
future if we revisited this occasionally and if we used Postal
Service's specific employee data instead of large data, and we
would want to focus on a more recent period. OPM went back to
1983 and the medical industry is almost unrecognizable from
that period of time.
Senator Carper. All right. Thank you, Mr. Williams. Ms.
Kichak.
Ms. Kichak. Well, he said a lot of things I would like to
address----
Senator Carper. Don't address all of them, just one or two.
Ms. Kichak. OK. Let me just say that with S. 1507, one of
the things that is very powerful in that legislation the way it
is addressed is that the Postal Service is going to pay the
accruing costs every year for its employees. So if it is able
to bring down its employment numbers of active employees, it
can control that part of its costing, which makes projecting
what the loss is immaterial. Those payments will be based on
the actual number of employees.
Senator Carper. Thank you, ma'am. Mr. Herr.
Mr. Herr. Yes. As I testified in January at the hearing you
held earlier this year, we support short-term relief from these
payments. We understand the Postal Service is in a very
difficult financial situation. We believe that this is one way
to help give them some breathing room so that they can come out
from underneath this. We also believe, though, that it should
be tied to a broader restructuring so that there is a quid pro
quo, if you will, so that there is something that is given in
return.
Senator Carper. All right. Thank you.
This question is probably to you, at least initially, Mr.
Potter, and I will ask you to be very brief in responding to
it. But the options that face the Postal Service, one, rein in
your costs, and you have endeavored to do that by trying to
right-size your payroll, your number of employees with the
amount of mail that you are delivering. You can try to close
some facilities, post offices, some of the stations, satellite
stations. You can try to close processing centers, there are
over 400 of those.
You can try to find new business, create new business
opportunities, and what I want to do is to go there. Just talk
to us very briefly about some of the things that you are doing
now to be more entrepreneurial under the language in the bill
that we passed 3 years ago. What are you doing to be more
entrepreneurial? What can you do to be more entrepreneurial
going forward?
Mr. Potter. Thank you for that question, Mr. Chairman. What
are we doing? We are taking advantage of pricing opportunities
and flexibility that is in the PAEA. We now have, for example,
our package services. We are out contracting with different
companies to get their business. We didn't have that ability in
the past. We now have different pricing based on how you access
postal products. We have pricing if you go online, pricing if
you have some volume. So we are offering some volume discounts.
A different price is offered if you come in and use our lobby
services. We have a summer sale for the first time ever in the
Postal Service to encourage people to advertise with us. Our
intent is to keep going with this type of flexibility. We have
increased the number of different sizes and shapes for our
Flat-Rate Priority Box that have really been doing very well in
the marketplace.
I think longer term, though, Senator, we have to think
about the fact that we have a network of 37,000 retail outlets.
America loves them and we want to keep as many of those open as
we possibly can, but we cannot just sell stamps in those
outlets because of the substitution factor going on with stamps
and mail. And when I look around the world, I see lots of
examples of what other posts are doing. If you are in Australia
and you want to update your driver's license, renew it, you go
to the post office. If you are in Italy and you go into a bank,
more than likely, you are going to the post office. If you are
in Japan and you want to buy insurance, more than likely, you
are going to the post office. If you are in France and you have
a cell phone issue, more than likely, you are going to the post
office.
I think we have done a good job of trying to sell mail and
do what can be done there. I think we have just begun to
scratch the surface with the PAEA and we are aggressively
pursuing that.
Senator Carper. Thank you. Thank you for that response.
Senator McCain.
Senator McCain. Mr. Potter, do you believe that we should
implement many of the recommendations of the GAO, in their
report that Mr. Herr just mentioned?
Mr. Potter. Yes, I do, Senator. And if I could, we have
been working very diligently to implement much of what he
talked about. If you look back at the year 2000, we had 446
mail processing plants. Today, we have 355. So we have taken
out over 20 percent of our mail processing plants.
Senator McCain. You have taken out over 20 percent, and how
much has your volume dropped in that period of time?
Mr. Potter. Our volume has dropped a similar amount. What
we have here, and the reason I asked for 6-day to 5-day
delivery, if you look at where we were--if you look at where we
are this year versus last year, our volume is down 12.6
percent. Eighty percent of our cost is labor. Our cost in post
office operations and in mail processing operations is down
over 13 percent. The one area that we cannot control our costs
and match our costs to the workload is delivery, because moving
from door to door 6 days a week is a fixed cost. And if the
volume declines, that portion of a letter carrier's day that is
fixed cannot be adjusted by the fact that mail volume has
declined.
We have gone from 5.9 pieces of mail, on average, for every
door, since 2000, down to 4.1 pieces. We have managed very
aggressively to take costs out to offset that loss. But the
fact of the matter is, I think we have reached a breaking point
with the recession and that is why we are seeking to go from 6-
day to 5-day delivery.
Senator McCain. So we are now presented with a situation
where in October, you would not be able to make payroll or not
make the $5.4 billion payment, is that correct?
Mr. Potter. Yes, sir. We will experience a shortfall of
approximately $700 million.
Senator McCain. Short.
Mr. Potter. Yes.
Senator McCain. So obviously, we are going to make payroll.
Mr. Potter. Yes, sir.
Senator McCain. So what adjustments need to be made?
Mr. Potter. Well, Senator, in January, we recognized that
this was an upcoming issue.
Senator McCain. Although you certainly didn't predict the
size of the losses. I think we can go back----
Mr. Potter. That is true.
Senator McCain [continuing]. Through the Congressional
Record to clearly indicate that.
Mr. Potter. They have been accelerating.
Senator McCain. Dramatically.
Mr. Potter. And if I could just clarify, the $2.4 billion
loss in this quarter, there is some bright news in the sense
that if you look at quarter three versus quarter two, although
we are reporting a $2.4 billion loss, $800 million of that loss
is a workers' compensation adjustment, a non-cash adjustment,
because interest rates are projected to be low, and because of
that, we have had to make a non-cash adjustment because the net
present value of what we had there obviously has declined
because it will not earn as much because of lower interest
rates.
Senator McCain. I have only 7 minutes----
Mr. Potter. I am sorry. So our net loss actually went down
without that one-time adjustment from quarter two to quarter
three.
Senator McCain. So clearly, your temporary short-term fix
is not to make the full $5.4 billion payment.
Mr. Potter. My preference would be that we get legislation
passed that would address the retiree health benefit issue and
then we would be able to meet all of our obligations.
Senator McCain. But if that legislation is not passed----
Mr. Potter. Yes, sir. Then we will not pay the full $5.4
billion payment.
Senator McCain. Mr. Herr, what is your assessment of the
measures that the Postal Service has taken so far in keeping
with your previous reports and your previous recommendations as
to what actions need to be taken in previous GAO reports to
Congress?
Mr. Herr. Senator McCain, as we looked at the Postal
Service's situation this year and we considered the step to go
to the High-Risk List, we felt that given the importance of the
service provided to the American people, the challenging
condition in terms of the financial situation the Postal
Service faces, coupled with the real paradigm change in how
people communicate, using the Internet, making electronic
payments, we felt that we needed to put them on the High-Risk
List to help bring a sense of urgency to this matter.
Senator McCain. I understand. How have the actions of the
Postal Service been in sync or complying with or agreeing to
the proposals you have made, the GAO has made, to improve the
situation, which is obviously very serious?
Mr. Herr. Well, we have seen some steps. For example, on
the delivery side, there was a very big agreement between the
Postal Service and one of its union to do readjustments of
routes, and that has resulted in some savings this year.
Senator McCain. What haven't they done?
Mr. Herr. Processing is one area, although there is
reference to some changes there. There are some studies
underway. The other area----
Senator McCain. Processing, meaning what?
Mr. Herr. Having the opportunity to do some more
consolidations there. I mentioned, for example, in my oral
statement that the First-Class Mail processing capacity exceeds
the need.
Senator McCain. But, Mr. Herr, isn't the fundamental
problem the benefits?
Mr. Herr. Well, 80 percent of their costs are salary and
benefits. I mentioned also the need to take advantage of the
looming retirements, so through attrition, you would be able to
cut those costs, as well.
Senator McCain. It is my understanding that USPS pays a
higher percentage of employee health benefits premiums than
other Federal agencies, 80 percent versus 72 percent, and USPS
pays 100 percent of employee life insurance premiums while
other Federal agencies pay about 33 percent. And I am cognizant
that the Postal Service is not a Federal agency, but there is
certainly a significant difference there.
Mr. Herr. Yes. That is a point that we have been making
both in our High-Risk designation and also in prior reports and
testimonies. And the differential there, my understanding is
that if you costed that out, would be in the $600 to $700
million range.
Senator McCain. Six to seven-hundred million dollars?
Mr. Herr. Correct.
Senator McCain. Per annum?
Mr. Herr. That is my understanding, yes, sir.
Senator McCain. That still doesn't get----
Mr. Herr. No, it doesn't.
Senator McCain. What does?
Mr. Herr. I think you are going to have to look more
broadly at the infrastructure, but then at the other piece
being the salary and benefits, I think you are going to have to
look at ways to streamline the workforce.
Senator McCain. Thank you, Mr. Chairman, and I thank the
witnesses. Could I just ask one more question of Mr. Herr?
Senator Carper. Sure.
Senator McCain. Are you aware of the pending legislation
before Congress that was passed through the Committee?
Mr. Herr. Yes, sir.
Senator McCain. How do you view it? Short-term fix? Long-
term fix? No fix at all?
Mr. Herr. It is a short-term fix. As I mentioned earlier, I
would think it should be coupled with a restructuring effort so
that there is a sense of urgency to start this moving forward,
getting them through this short-term difficulty, but then
laying groundwork to help the institution get out ahead of what
is a real looming financial problem.
Senator McCain. Thank you, Mr. Chairman. I thank the
witnesses.
Senator Carper. Thank you, Senator McCain. Senator
Lieberman.
Chairman Lieberman. Thanks, Mr. Chairman.
Thanks to all of you. I think your testimony highlights
what we all are coming to understand, which is that we don't
have any easy choices here. None of us--and I am speaking from
the point of view of Congress--none of us want to close any
postal facilities. None of us want to go to 5-day-a-week
delivery as opposed to 6 days. The only reason we are thinking
about those, and I fear we will probably have to do both of
those, is that the alternative is increasing fiscal desperation
for the U.S. Postal Service, and the alternative to that--
because it all comes back to us.
You can't just keep doing what you are doing. The money
doesn't come out of the air. Either we are going to have to
raise taxes, which none of us want to do, to pay the growing,
surging deficits of the Postal Service, or we are going to end
up doing what is easy but very wrong, which is to put it on the
government credit card and delaying payment for coming
generations, and that is going to have terrible consequences on
our children, grandchildren, and on our country's long-term
fiscal viability. I just can't say that enough, which is why we
are talking about what we are talking about.
In that regard, I think all of us, Mr. Potter, the Postal
Service, we in Congress, really have an obligation to bring the
public up to where we are about this crisis. They don't want
the 5-day-a-week delivery. They don't want any postal facility
to close. But if the alternative is higher taxes or putting it
off so their kids have to pay, I think it is going to make it
easier for them.
Some of this goes to definition, Mr. Potter. I want you to
take just a moment to explain what the difference is between a
post office and a branch or station, because as I understand
it--correct me if I am wrong--you are not talking about closing
post offices, is that right?
Mr. Potter. That is correct. The difference between the two
is that a post office is generally a zip code that has one
postal facility within its boundaries.
Chairman Lieberman. Right.
Mr. Potter. A station is part of a larger post office
located in our bigger cities, so, for example, Chicago, L.A.,
New York. The geography within that city is broken up by
different postal facilities. In some cases, it is a station,
which has delivery and retail units, a branch or a finance
unit. It could just be a storefront where we sell postal
services.
And so what we are talking about here is a review of our
big city post offices. We spend $16.9 billion on those
operations, $2 billion of which are for non-personnel costs.
And so it is a matter of reviewing what is a quarter of the
expenses that are incurred by the post office in these 3,200
facilities.
Chairman Lieberman. OK. I hope that is helpful to people.
It is to me.
Second, am I right, you have said that the workforce is
down 170,000?
Mr. Potter. Over 170,000 since our peak in 1999.
Chairman Lieberman. Right. And am I right that there is a
no-layoff clause in the agreement between the post office and
the workers?
Mr. Potter. There are no lay-off clauses in each of the
contracts. There are different levels of protection depending
on the contract. So there are employees that could be laid off,
but our contracts are very complex. If you were to lay off
career employees, that would mean that you would have to
eliminate all use of non-career employees. The biggest body of
people that could be laid off are in the carrier craft----
Chairman Lieberman. Right.
Mr. Potter [continuing]. But we have some 15,000 non-career
employees there, and we have to deliver 6 days a week. So we
have competing obligations. I mean, you would like to lower
your costs, but you still have to perform that delivery 6 days
a week. And so therein lies the dilemma.
Chairman Lieberman. OK. So the way you have reduced
170,000, which is almost 20 percent, I think, by what you said,
the number, is by attrition, I presume?
Mr. Potter. Yes, it is, so we capture all attrition that we
can, and obviously we have been very aggressive about doing
that in the last couple of years because of the downturn. As I
said earlier, we have reduced some 37,000 career jobs in the
last year. That is actually higher than the normal attrition.
We have voluntary early retirement options for our employees to
increase the amount of people who might consider leaving.
Chairman Lieberman. As you know, and we will hear from the
second panel, the groups representing employees and others are
unhappy about the amendment added in the Committee bill that
said that binding arbitrators could consider the fiscal
condition of the Postal Service. You said in your opening
statement that you support that. I wonder if you could indicate
why.
Mr. Potter. Well, right now, there is direction to the
arbitrator in the law that says that the arbitrator should
consider paying wages comparable to the private sector.
Chairman Lieberman. Right.
Mr. Potter. That is a very broad direction. In the past,
arbitrators have assumed that the language meant that our
employees were comparable to policemen, and there is, if you
just take verbatim what that directive is, it does not in any
way, shape, or form link to what the financial position of the
institution is, and I think that by adding that phrase, you are
bringing balance to what an arbitrator would consider when it
comes to the Postal Service and how you would view each of
these agreements and how critical they are to the health of the
business when 80 percent of the costs that we incur are labor.
Chairman Lieberman. Do any of the four other witnesses
oppose that amendment to allow the binding arbitrator to
consider the fiscal condition of the Postal Service?
Mr. Herr. No, sir.
Ms. Goldway. Chairman Lieberman, if I might just add to the
record with regard to your question of the definition of post
offices----
Chairman Lieberman. Yes.
Ms. Goldway. The Postal Regulatory Commission has a
different interpretation. The Postal Service is defining post
office in terms of its administrative organization, in other
words, who reports to whom, whereas the Postal Regulatory
Commission defines it in terms of the service actually provided
in the community. So to the extent to which branches and
stations function like post offices, the way you and I imagine
a post office, we define those as post offices and expect and
anticipate that all of the laws regarding closing post offices
cover those stations and branches.
Chairman Lieberman. I appreciate that. I am over my time,
but I would ask you to submit to the Subcommittee what that
definition is. In other words, where do you draw the line?
Ms. Goldway. Right. Thank you.
Chairman Lieberman. The Postal Service's definition is
quite clear in terms of administrative functions, but when does
a branch become a post office in the definition of the
Commission?
Ms. Goldway. Thank you. We will do that.
Chairman Lieberman. Thanks, Mr. Chairman.
Senator Carper. Thank you, Senator Lieberman. Senator
Collins.
Senator Collins. Thank you, Mr. Chairman.
Mr. Herr, I support changing the payment schedule for the
Postal Service to give it some relief to get through this
difficult time. Where Senator Carper and I disagree is in our
assessment of what the increase in the unfunded liability ought
to be and also in our valuation of the Postal Service's ability
to pay far greater amounts into the fund in the second 5 years
of the 10-year period.
I worked very closely with the GAO to come up with the
amortization schedule that I proposed. As I indicated, under
Senator Carper's proposal, the unfunded liability would
increase by $4 billion. Under my proposal, it would still
increase, but the increase would be $500 million as opposed to
$4 billion--big difference.
I want to turn to the second issue, however, and that is
whether it is realistic to expect the Postal Service to be able
to pay far more between 2015 and 2019--the second 5 years--than
is the case under current law. Under Senator Carper's proposal,
the Postal Service would have to pay $6.3 billion more into the
Retiree Health Benefits Fund than is required under current law
in the second 5 years. In other words, under the bill the
Committee reported, it lowers substantially the payments for
the next 5 years, but then ramps them up for the second 5 years
to the tune of $6.3 billion over the current law's schedule.
How optimistic are you that the Postal Service's financial
situation is going to improve so greatly that it will be able
to pay $6.3 billion in payments above what would be required by
current law?
Mr. Herr. Senator Collins, I think looking at the situation
the Postal Service is in now, if dramatic and rapid change is
not embraced and enacted, it would be difficult for them to
make those larger payments. So that is why we believe this
restructuring plan is very important going forward. So however
the Committee decides to move forward in terms of its
legislation, we believe that this should be linked to a plan
that will help the Postal Service move forward and
expeditiously deal with some of these structural problems that
it faces.
Senator Collins. Again, I support providing some relief to
the Postal Service because we truly are in a crisis, but I do
not want to be back here in 2015 having the Postal Service say
to us, ``there is no way that we can pay these ramped-up
amounts,'' and that is exactly what is going to happen. And
that is why I think that the proposed amortization schedule
that my staff and I worked out with the GAO is a far more
realistic assessment. It still provides relief, but the
difference is an increase in payment in those out years of $0.5
billion to $6.3 billion. We have to be realistic.
Mr. Potter, the postmasters have suggested that one source
of savings out of retail operations is to negotiate with the
unions about cross-craft training, in other words, to have more
flexibility in the work rules. Are you pursuing what seems to
me to be an excellent suggestion by the Postmasters
Association?
Mr. Potter. Yes, we are, Senator. We have had those similar
discussions in the past.
Senator Collins. Are you optimistic that you are going to
be able to implement some changes in the work rules that will
save money?
Mr. Potter. I wish I could be optimistic, but having
discussed these issues in the past, we were not successful. So
hopefully the conditions that we are in today would have people
be more open to that level of flexibility.
Senator Collins. Let me return to the question that I
raised with the GAO witness. What are your grounds for
believing that the Postal Service will be able to pay $6.3
billion more in the second 5-year period than would be required
under the current amortization schedule?
Mr. Potter. Senator, I have two reasons to believe that
$6.3 billion would not have to be paid. The first reason is
that there is an assumption in the modeling that was done about
the number of employees that the Postal Service will have going
forward. The number that was in the initial analysis assumed
that there would be a growing number of employees. Today, we
have 630,000 people, a number that has dropped from some
800,000 employees in 1999.
I also believe that the country cannot survive with an
inflation rate on health benefit costs of 7 percent, and I
believe that the Senate and the House are having significant
debates about that very issue. So as the second-largest
employer in America, I can tell you that the issue needs to be
successfully addressed because I think the burden is on every
business for those costs going forward.
So it is those two things that make me optimistic, and I
believe that we will reach our target of ultimately being about
550,000 employees. So again, I am optimistic that you are going
to see the type of changes in our system that will lower that
cost, and I am hopeful--and I don't control it--that health
benefit cost growth will be mitigated.
Senator Collins. Mr. Chairman, I am going to have to leave
for a while for an important meeting that I cannot miss, and I
will return, but I realize this panel will have finished. I do
want to point out another issue as I am leaving, and that is
the postmaster general's testimony today, which requests that
Congress lift restrictions on the ability of the Postal Service
to get into new non-postal lines of business. The postmaster
general has indicated that he is interested in getting into
banking, cell phones, logistics, all sorts of non-postal lines
of business.
I want to point out for everyone, and I wish I could get to
a question for Mr. Herr about this, that the Postal Service's
past forays into non-postal services have had very little
success. In fact, GAO did a study in December 2001 that
concluded that none of the earlier initiatives were profitable.
I would also point out that there are real competitive
issues here if we are allowing the Postal Service to compete
with the private sector on non-postal areas. So this is an
issue that has not come up today and I will be submitting some
questions for the record. Thank you.
Senator Carper. And I hope you will come back and join us
as soon as you----
Senator Collins. Do you really hope I will come back?
[Laughter.]
Senator Carper. No, I really do. [Laughter.]
Mr. Potter, take just a few seconds. I didn't understand
you to say that you wanted the Postal Service to get into all
those businesses. Is that what you said?
Mr. Potter. No. I did say that, Senator, but let me just
respond to Senator Collins, and let me assure her, we are not
spending a nickel on exploring any of these ideas. I was simply
using that to illustrate that other countries, when faced with
the same dilemma that we are faced with, have provided, again,
more flexibility in that regard.
Senator Collins. Aren't you asking for that authority? It
was my understanding you were asking us to repeal the
prohibition in the 2006 Act.
Mr. Potter. Yes, I am, Senator, and I would assume that
will come with a regulatory framework so that any proposals
that we would make would have to go through the Postal
Regulatory Commission. But I do think there is a real issue
about how we generate revenue out of these over 30,000 retail
outlets that we have. Whether that is providing other
government services or broadening what we can do there, I think
it is something that needs to be addressed. Again, it is this
juxtaposition, do we have them or do we not have them, and how
can we finance them? That is all it is.
Senator Carper. Well, I am sure we will return to this
issue again and maybe again. Thanks very much.
Let me turn to Senator Burris. Thank you.
Senator Burris. Thank you, Mr. Chairman.
This has been a very enlightening discussion and
information and I really have empathy and sympathy as we deal
with this major crisis in our postal system.
As a new member of the U.S. Senate and, of course, a person
who receives a great deal of mail delivered to my home, I find
a lot of this information a little disconcerting in terms of
what we are going to do. I even see the number of post offices
or branches that has been recommended to be closed in Chicago
and the State of Illinois that even concern me a little bit
more.
Mr. Potter, in terms of the 677 postal branches and
stations that are being considered for closure or
consolidation, how is the Postal Service conducting its study
and what are the criteria being considered, and how many
possible layoffs would be involved?
Mr. Potter. First of all, let me describe the study.
Basically, as I described earlier, we have 3,200 locations in
major cities around the country. It is an almost $17 billion
cost base. What we have asked in the initial round is for our
local facilities to determine and do an analysis of what
facilities they have, look at space that is available in those
facilities and surrounding facilities, to look at what traffic
we have in terms of people coming into those retail outlets,
and to look at backroom operations to view whether or not those
could be consolidated.
There is, again, an initial review that is being conducted
to identify candidates. There will be a further review with in-
depth analysis around whether or not there are cost benefits to
the Postal Service. There could be even real estate
opportunities to the Postal Service. That will be done at the
local level, fed up to the area level, further review at the
national level. There is a pending issue in front of the Postal
Regulatory Commission and we look forward to their opinion.
And then decisions will be made with, obviously, input from
the Postal Regulatory Commission about what actions would be
taken. There will be community outreach to get feedback from
the community as part of that process. And then before any
actions would be taken, there will be a 60-day notification
period for the general public. And that is, again, in general
what is going to happen.
Senator Burris. Well, how did you then arrive at 677 postal
branches and stations at this point if all that still has to be
done? You said these are proposals or----
Mr. Potter. Well, my understanding of how this whole thing
transpired was that we began a nationwide effort to conduct
this review. At one point, we were asked to provide an update.
Where all 3,200 was going to close or where do you stand, and
there was an interim list provided, that is very fluid and it
got published, and I wish it hadn't.
Senator Burris. My time is short and I have so many
questions----
Mr. Potter. Sure.
Senator Burris. How many people are we talking about in
terms of layoffs? Do we have a number on that?
Mr. Potter. There is no intent to lay anyone off.
Senator Burris. So you are going to do all this by
attrition?
Mr. Potter. Yes.
Senator Burris. So if my station, which I see on this
list--I guess it is a station because evidently it is not a
post office, which I use at my home, it is on the Chicago list,
and I see it is scheduled for some reason--it is Grand
Crossing--to be closed. That would be a little concerning----
Mr. Potter. Well, it is not scheduled to be closed. It is
still under consideration, which is probably the best way to
say it. And those employees, the people who work in that unit
in these big cities, they have bidding rights to move anywhere
else in the city.
Senator Burris. Based on union seniority, I would assume?
Mr. Potter. Yes. And so they would move to other facilities
within that city.
Senator Burris. Now, has any study been made of what it
would take, and this is just an inquiry, or speculation of the
cost of a First-Class stamp to cover our costs? What would it
cost? We are now paying 44 cents for a First-Class stamp.
Mr. Potter. Right.
Senator Burris. Would it have to go up to 75 cents? To a
dollar per stamp?
Mr. Potter. To cover the current costs.
Senator Burris. Yes.
Mr. Potter. Well, some prognosticators have said that it
would have to go up about 15 percent.
Senator Burris. Fifteen percent of 24----
Mr. Potter. All of our rates would have to go up 15
percent. But I caution you to say what was earlier stated:
Given our financial situation and given the fact that
substitution is a reality, each and every one of our products
could move through a different channel, raising rates when you
are in the type of situation that we are in now which is just
going to drive mail away from the system. I think there is a
misnomer here that the bulk of our revenues come from the
citizens buying stamps. The fact of the matter is, over 75
percent of postal revenues comes from commercial entities.
Senator Burris. Those are the catalogs and all the other--
--
Mr. Potter. That is catalogs, that is banks, that is--think
about what you get in the mail. It is those folks that make
decisions about what channel----
Senator Burris. And wouldn't your rate increases also apply
to those items?
Mr. Potter. It has, and there are elasticities for every
one of our rates. So anytime we raise rates, we always
calculate the fact that a rate increase is going to drive
people further away from the mail. So we are very cautious
about raising rates.
Senator Burris. I am not advocating that.
Mr. Potter. No. I just want to make----
Senator Burris. Mr. Williams, you looked at that because
you are nodding your head.
Mr. Williams. I am aware of the ongoing effort. We try not
to do it simultaneously. We will come in behind the effort to
try to validate it and will certainly work with your office to
assure that you are made aware of----
Senator Burris. Another question I have, Mr. Potter, in
terms of the use of technology, and I heard Mr. Herr say that
there is an excess capacity in processing, and the use of
technology. Has the Postal Service really kept pace with the
processing technology in order to deliver the various items to
the public? Is that also something that would cost additional
monies?
Mr. Potter. Senator, we have the best mail processing
system in the world. You put a letter in a collection box. It
literally is not touched by a human being until it is put into
a mailbox as an individual piece. It is read by machines. It is
sorted by machines----
Senator Burris. Is there sorting to the light?
Mr. Potter. To the light?
Senator Burris. Yes. Technology.
Mr. Potter. Well, again, I invite you to come and visit a
post office----
Senator Burris. I have. We will talk about that.
Mr. Potter. OK.
Senator Burris. OK. Mr. Chairman, my time has run out. I
was trying to push the postmaster to get some more answers. I
don't know if you will have a second round of questions with
this panel----
Senator Carper. I am inclined not to because we are coming
up on 12 o'clock and we have another panel to go----
Senator Burris. Thank you, Mr. Chairman.
Senator Carper [continuing]. But I am not going to be
taking a second round and I would urge my colleagues not to,
but we will certainly be submitting questions to our witnesses.
This has been a very good back-and-forth, I think.
Our next Senator is Senator Coburn. Good to see you,
Doctor.
OPENING STATEMENT OF SENATOR COBURN
Senator Coburn. Thank you, Senator Carper. I will try not
to use my 7 minutes. I know we have another panel.
In your estimates, Mr. Potter, you show a continuing
decline in mail volume, First-Class Mail volume, until 2011, is
that correct?
Mr. Potter. Yes, Senator.
Senator Coburn. Do you still think you are going to see a
resurgence in First-Class Mail in 2011?
Mr. Potter. Senator, it is not a resurgence in the sense
that there are----
Senator Coburn. Do you still think you are going to see an
increase in First-Class Mail?
Mr. Potter. Yes, I do, because the number of transactions
has declined because of economic activity. When economic
activity picks up, the number of transactions through the mail
will pick up. People have stopped using credit cards. They
don't get a credit card bill at the end of the month. Once they
start using them again, as an example, that would drive----
Senator Coburn. You and I will have a dinner bet on whether
or not that happens.
Mr. Potter. OK. We will.
Senator Coburn. I think that the electronic mail is
accelerating, not decelerating. Everything that I see in my
personal life, my kids' life, people who used to mail the
church bulletin send it by e-mail. People who used to mail a
statement of what is happening somewhere send it by e-mail. I
think that is going to continue. I think you are entirely too
optimistic in terms of what you think is going to happen in
First-Class Mail.
Mr. Potter. Well, we could see a precipitous drop in John
Q. Public putting stamps on mail. What that reflects is
commercial use of First-Class Mail and it is basically bill
presentment.
Senator Coburn. Well, that is what I am talking about. I am
getting all my bills now not through the mail.
Mr. Potter. I wish you were a better customer of ours, but
that is OK. [Laughter.]
Senator Coburn. I appreciate your service in the rain,
snow, and sleet. Thank you. [Laughter.]
I am still very worried about the projections that you have
in terms of return of revenue, and that is just one side of the
equation. Does either the IG or Mr. Herr, the GAO, have any
comments about their projections on revenue?
Mr. Williams. We have not. What the information we have
indicates is that it is not going to be as bad as it is now,
but it is unlikely to return for the reasons that you said. It
is unlikely to return to the levels that existed before we went
into the crisis.
Mr. Herr. Senator Coburn, I want to point out a figure in
my statement on page four. We show the percentage of household
bill payments made by mail and electronically from fiscal years
2000 to 2008, and the mail payments were down to 56 percent in
2008 and the electronic were up to 38 percent. So you can see
that trend fairly obviously there.
Senator Coburn. And that rate of change hasn't changed, has
it?
Mr. Herr. Well, it appears the lines are converging pretty
quickly.
Senator Coburn. Right. But they are on a straight line, so
that the rate of change is, in fact--the slope of the curve is
it is staying steady, so you are going to continue to see that
type of increase and that type of decline.
Mr. Herr. I think that is consistent with broadband
penetration. People begin to move to these kind of payments.
Senator Coburn. All right.
Ms. Goldway. I simply wanted to add that the Postal
Regulatory Commission used to get from the Postal Service
volume estimates on a quarterly basis, prior to 2006. They
shared their volume forecasting with us, and it might be
beneficial for them to resume that practice in light of the
recent experiences and expectations in volatility. We would
have a better----
Senator Coburn. The problem is their forecasts aren't
accurate. That has been the problem.
Ms. Goldway. Well, we would have a better opportunity to
examine what they are and be able to give an opinion as to
their accuracy if we had them.
Senator Coburn. I don't disagree, but the point is, they
are highly inaccurate, as we have seen. We have had these
hearings for 3 years and we have been talking about this issue,
and quite frankly, those of us that have been pessimistic have
been much more accurate than what the Postal Service has been,
as well as the Postal Board of Governors.
You have 630,000 employees at this time?
Mr. Potter. Yes, sir.
Senator Coburn. And what is your total fully absorbed labor
and benefit costs?
Mr. Potter. It is $57 billion.
Senator Coburn. Fifty-seven billion dollars?
Mr. Potter. Yes, sir.
Senator Coburn. So that comes out around $80,358 per
employee. That is fully absorbed in terms of benefits?
Mr. Potter. Yes, sir.
Senator Coburn. Would there be any benefit of having postal
employees have the same health benefits that the rest of the
Federal workforce has?
Mr. Potter. Obviously, there would be about a $600 million
reduction in costs.
Senator Coburn. All right. That is just if they had that.
Now, let me ask you another question. If, in fact, you
could achieve--Safeway has 200,000 unionized employees. They
have had a 0.5 percent increase in the cost of health care the
last 4 years. They have had a marked increase in satisfaction
by their employees of the health care they do have. They have a
healthier workforce with less time off because they are
actually intervening in chronic disease and cash payments
incentivizing people for weight loss, bad risk. Why is it that
we would not want to sit down with your unions and say, here is
a unionized workforce that has helped their country, but also
have gotten better, had less out-of-pocket costs. Why would you
not want to model health care after what Safeway has done?
Mr. Potter. I personally would. We are part of the Federal
Employee Health Benefit Program. In years past, under a
different Administration, we went down the path of seeking to
determine whether or not we could withdraw from FEHBP and we
were strongly advised that was not a path to seek.
Senator Coburn. But your average cost is higher than the
average FEHBP, is that correct?
Mr. Potter. I don't believe so. I would have to check that.
Senator Coburn. I believe it is. You check it and I will
check it.
Mr. Potter. Yes. I am not sure, Senator.
Senator Coburn. So if--we are obviously going to solve your
problem in the short term. The question for the American people
is, what is the long term? How are we going to solve it? I
believe we ought to give you the flexibility to go to 5 days,
just based on mail volume alone. I believe we ought to give you
the flexibility to do what you want in terms of your core
business and trying to make it fit into what the real world
market looks like today.
But what I don't believe we should do is continue to just
get out of the one crisis and move to the next. My hope is,
with hearings like this that I know Senator Carper and Senator
McCain are going to continue to have, that we will look at the
real hard issues and be realistic to the American public,
because ultimately, if, in fact, future health care benefits
aren't paid for, somebody is going to pay for them, aren't
they?
Mr. Potter. Exactly.
Senator Coburn. Somebody is, and that somebody is either
going to be a rate payer or the U.S. taxpayer.
Mr. Potter. I wholeheartedly agree with your sentiment, and
the quicker we do it, the better off I believe we will all be.
Senator Coburn. All right. Just so you would note, there is
a difference in terms of your cost on FEHBP. You subsidize 85
percent of the premium risk. The Federal Government is 72
percent.
Mr. Potter. Oh, no. I understood that.
Senator Coburn. So your costs per employee for the same
insurance is higher.
Mr. Potter. I agree. I thought you were talking about
within FEHBP for an employee, if you looked at the 100 percent,
I believe our employees take lesser plans. Blue collar people
tend to be healthier.
Senator Coburn. Well, they are walking. They are getting
exercise.
Mr. Potter. I know. It is great. But I am just saying that
is what was in my head, not the contribution level.
Senator Carper. Thank you, Dr. Coburn.
Senator Akaka, good to see you. Welcome. Please proceed.
OPENING STATEMENT OF SENATOR AKAKA
Senator Akaka. Thank you very much, Mr. Chairman, and I
thank you for having this hearing. I want to also thank the
witnesses for participating today.
The Postal Service has shown signs of financial distress,
as has been expressed here, for some time, and still faces
that. The Government Accountability Office recently placed the
Postal Service back on its High-Risk List. I am very much in
favor of extending needed assistance to the Postal Service to
get them through this difficult time. Most recently, this
proposed fix came in the form of S. 1507, which the Committee
passed last week. This bill would provide flexibility in
prefunding future retiree health benefits in order to close
budget gaps over the next several years.
However, I am disappointed that at the mark-up of S. 1507,
an amendment was added that affects the bargaining process and
arbitration, giving unnecessary deference to management in
negotiation by requiring that an arbitrator consider the
financial health of the Postal Service. I understand that the
Postal Service's financial condition already is a key
consideration in arbitration, so this amendment has no
practical effect other than to maybe insult and disgust the
postal workers.
I believe that we should not have included this additional
substantive policy change on this must-pass legislation,
especially with the strong objection from so many postal
workers. I believe that there is still time to find a
compromise to address the concerns by recognizing the current
economy and the fiscal crisis at the Postal Service without
injecting ourselves once again into the bargaining process.
Mr. Potter, in the first quarter of this year, packet
service in Hawaii met the established service standard less
than 7 percent of the time. Most were well over the service
standard. Only a quarter of packages were delivered within 3
days of the service standard. While I am very concerned about
these Hawaii numbers in particular, which are the worst in the
country, I am also concerned about the negative image of the
Postal Service that such issues can lead to. At this hearing,
we have heard suggestions about closing post offices and
reducing delivery days. I am concerned that the point may be
reached when USPS is no longer the carrier of choice due to
lagging service and cuts.
What is the Postal Service doing to ensure that, despite
these problems, it continues to provide world class and
universal service?
Mr. Potter. Senator, let me first address the Hawaii issue.
Simply stated, we lost the shipping. When we pay ground rates,
we put mail on boats and move it to Hawaii. We have had trouble
finding a supplier that would operate at a frequency that would
provide a higher level of service. So we are continuing to work
on that issue and it is one we know we have to address.
Senator Akaka. Commissioner Goldway, the PRC released a
report outlining the current state of the Postal Service's
universal service obligation that found USPS is generally
fulfilling the obligation. It seems to me that some of the
cost-cutting options, service reductions and closings, could
have serious effects on the USO.
Do you think that the options discussed for cost cutting
could cause the Postal Rate Commission (PRC) to reevaluate the
Postal Service's fulfillment of the universal service
obligation?
Ms. Goldway. Thank you, Senator. I think the Commission is,
in fact, concerned about the proposals to reduce the footprint
of the Postal Service throughout the Nation and we will be in
the end case looking at these proposals in terms of their
impact on universal service. We hope to have public hearings in
the context of this end case, and we may, in fact, review the
universal service obligation study that we did 2 years ago to
look at what ought to be universal service in this dramatically
different time that we are in, or how universal service could
be provided.
I am very concerned that the cuts proposed by the Postal
Service may, in fact, be counterproductive, and by reducing
access to the community in these options that they propose,
that there will be simply less opportunity for the Postal
Service to respond or to grow in any way in the future.
Senator Akaka. Thank you very much for your response.
General Potter, I believe that any service cut from 6 days
a week to five days cannot be taken lightly. In addition,
determining which day would have the least impact on the use of
Postal Service as the carrier of choice is a very important
decision. Reducing to a 5-day week would most likely save money
by reducing staff hours processing and delivering mail. Likely,
some of this would be through layoffs in addition to attrition.
In the past, you mentioned that a weekday likely could be
cut, so I would like you to address why and what changed this
to Saturday. And second, how long would it take after the
announcement of a 5-day week until any cost savings were
realized?
Mr. Potter. Senator, the reason we moved to Saturday was
because of further analysis around volume. Only 11 percent of
mail is delivered on Saturday. In addition, many businesses--
and one of the reasons it is low on Saturday is because many
businesses are closed on Saturday and we don't provide delivery
on Saturday today, and so if we were to pick a day during the
middle of the week, what would happen is we would only have 4
days of delivery to businesses and we thought that and think
that doing that would be harmful to our position from a
competitive standpoint. We know that the competitors do not
deliver on Saturday without a surcharge, and so we are
positioned well in that regard.
I forgot the second part of your question.
Senator Akaka. Yes, the cost savings from this.
Mr. Potter. We estimate the cost savings to be $3.3
billion, and in terms of how quickly we could get it,
literally, the day that we start, we can capture that savings.
And so right now, our thinking is once it is approved, reviewed
by the Postal Regulatory Commission and approved in the sense
that we have the legal authority to do it, we would provide no
less than 6 months' notice to our customers so they can make
adjustments to their operation and we begin saving money the
day that we did it.
Senator Akaka. Thank you very much. My time has expired.
Senator Carper. Senator Akaka, thanks.
Let me just follow up very briefly on Senator Akaka's
question. You may have said it and I missed it in the back and
forth between the two of you, but other countries which have 5-
day service, I understand that they don't all simply get rid of
Saturday service. They may get rid of Wednesday service. They
may keep their postal windows open and their post offices, so
folks who come to the post office can still get some kind of
service. I think there may be one country, I don't know if it
is Canada, where when it is holiday seasons or different times
of the year, they go back to 6-day-a-week service. Is there a
fair amount of variety in the way countries approach this?
Mr. Potter. To the best of my knowledge, most have
eliminated Saturday when they go to 5-day delivery. I think our
concept has evolved, and if I could just take a minute to
describe what it is. We would continue to open post offices on
Saturdays. So we are strictly talking about delivery. We would
provide box mail service on Saturdays, and part of the reason
for that is there is a lot of money that moves through the mail
and those recipients of money have said that they need access
to the remittances that come through the mail. So we would
continue to provide delivery to post office boxes.
We would continue to allow big customers to come and pick
up their mail at plants as it is generated. A lot of the banks
do that and some of the utilities. And the American public has
told us in surveys that we have done that they want to continue
to have access to postal personnel on weekends. Maybe they work
during the week and they come on Saturday to pick up a package
that may not have been able to get delivered because no one was
home. And so we would continue to operate our post offices on
Saturday.
What we are talking about here in the $3.3 billion in
savings is strictly from elimination of that sixth day of
delivery.
Senator Carper. Thanks very much.
Senator Burris. Mr. Chairman, just one quick question.
Senator Carper. Yes, real quick if you would, please.
Senator Burris. Mr. Potter, that 11 percent that is not
delivered on Saturday, will it be delivered on Monday?
Mr. Potter. That is true. Yes, sir.
Senator Burris. Which means that is an extra load on the
carrier who has to deliver that mail. Has that been taken into
consideration?
Mr. Potter. Yes, sir, because we do have holidays. And so
we have experience today with holidays and we have, when we
estimated our costs going forward and our savings, that was a
key part of the calculation. It turns out that because the
machines sort the mail and put it in walk sequence, the bulk of
that workload is absorbed by the carrier and our systems and
there really is no additional cost as a result of moving that
work, or limited additional cost as a result of moving that
workload from Saturday to Monday.
Senator Carper. Thanks. Before we excuse this panel, I want
to, on behalf of all of us, thank you for being here, for
helping us wrestle with a tough issue, and for those of you who
work on this on a daily basis, to say thank you for your
leadership.
We still have to hear from our second panel. I very much
look forward to their testimony, as well. But I would just
conclude before this panel leaves that, as several people said,
there are no silver bullets, and I don't know that there are,
but there are a lot of ways that we can address the challenge
that we face, and the post office working with their employees
and their employee unions have wrung a lot of costs out of the
system, reduced payroll by almost 200,000 people over the last
decade, and we will see some additional reduction through
attrition.
We need to, as Members of Congress, we need to get out of
the way. I don't welcome a wholesale closing of post offices or
stations around the country, but where it makes the most sense
and where people have other opportunities for service, that is
something that needs to be done. I am not anxious to see
wholesale closing of processing facilities around the country,
but to the extent that there are some that make sense, we need
to get out of the way.
You have difficult labor negotiations coming up in the next
couple of years and we commend the approach that management
takes to those negotiations, and frankly, the approach that our
union representatives have taken, as well. Those will not be
easy negotiations. We realize that.
The issue of days of delivery, and how it might be 6 or 5
days, I think that is something that needs to be on the table,
and there are different ways, as we said, that can be crafted
in order to meet most concerns. One of the concerns that I have
not heard addressed is if we don't have service on Saturday, we
don't have service on Sunday, and Monday is a holiday, that
would be 3 days without service and that might be a concern, a
real concern, a legitimate concern for a number of folks.
Having gone through potential ways to save some money, and
I know that you have done a number of those and are looking at
a number of those, the issue of generating new revenues, of
being innovative, as you hire new people, and I realize you are
not hiring a lot of people, but as you hire people, just hire
some really outside-the-box thinkers, people who are
entrepreneurial and will think of ways of generating business
that maybe the rest of us wouldn't have come up with. We were
sitting back here brainstorming a little bit on how to think
outside the box in terms of maybe co-locating some other
business that we do, maybe government kinds of business, co-
locating them in postal facilities around the country.
And the last point, I had a sidebar conversation during the
testimony with Senator McCain, and I spoke earlier about the
need to rein in the growth of health care costs. Every
Democrat, every Republican in the Senate that I have talked to
has said, as we move through health care reform legislation, as
important as it is to extend coverage to people who don't have
it, it is incredibly important that we not raise the deficit
and it is also incredibly important that we reduce the growth
of health care costs. We call it lowering the cost curve.
Someone said that if we are still at 7 percent rate of
inflation for health care costs, not just the Postal Service,
our country will be in dire straits, very dire straits. And we
were talking about putting our Federal Government further in a
hole, threatening to bankrupt not just Medicare but our
government, putting State and local governments, especially
Medicaid burdens that the States carry, in an unsustainable
way, and we further make our businesses uncompetitive with the
rest of the world. So this is one we have got to come to grips
with, and when we do, whether it is 5 percent or 4 percent or 3
percent, we will be back to those consultants and asking them
to help clarify this situation.
In the meantime, while we work on that legislation, we need
to work on the rest of this agenda and we look forward to
working with you. Thank you.
[Pause.]
Senator Carper. I am going to ask our second panel to find
their seats, and I would like to take this opportunity to--I am
just going to ask those in our audience that are still visiting
with one another, I am going to ask you to do that outside, if
you would.
Let me welcome our second panel. Thank you for your
patience for the last 2 hours, and we are delighted to welcome
each of you.
Our first witness will be Fred Rolando. He is the new
President of the National Association of Letter Carriers. It is
good to welcome you here today. Mr. Rolando began his career as
a letter carrier over 20 years ago and was sworn in as
President of the National Association of Letter Carriers, I
believe just last month, taking the reins of leadership at, I
am sure, a challenging time, and we applaud you for your
willingness to serve in these challenging times and we look
forward to working with you to get us through this, not just
for your employees, but for our country.
Mr. Rolando. Likewise.
Senator Carper. But congratulations on your election.
Next, I watched Bill Burrus shake hands with Senator Burris
and I thought, I wonder how one of them misspells their name?
Senator Burris. Mr. Chairman. The Burrus with the ``u'' did
not know how to spell. [Laughter.]
Senator Carper. Well, I am sure the witness with the ``u,''
will have an opportunity to rebut that. But Bill Burrus, we are
delighted to welcome you back to this Committee and
Subcommittee, as the President of the American Postal Workers
Union. Mr. Burrus began his career with the Postal Service in
1958--I like to kid him, I say at the tender age of 12--and was
elected President of the Postal Workers Union in 2001.
Our third witness is Dale Goff. It is good to see you,
thank you for joining us. He is President of the National
Association of Postmasters of the United States. He has been
with the Postal Service for 39 years, 29 of those as postmaster
in Covington, Louisiana.
Our next witness is James West, Director of Postal and
Legislative Affairs for Williams-Sonoma. Mr. West has been with
Williams-Sonoma since they began their catalog business in
1975. During that time, he has seen the company grow from $1
million in sales to over $3 billion in sales.
And our final witness today is Mark Suwyn, Executive
Chairman of NewPage Corporation. Mr. Suwyn has held a variety
of senior executive positions in the private sector, including
25 years, I am told, with a company that my home State is just
a little bit familiar with, and that is the DuPont Company, so
it is a special treat to welcome you here today.
Your statements will all be made part of the record, your
entire statements. I would ask you to summarize, and if you
could keep it to about 5 minutes, we would be most grateful.
Mr. Rolando, you are up first. Thank you.
TESTIMONY OF FREDRIC ROLANDO,\1\ PRESIDENT, NATIONAL
ASSOCIATION OF LETTER CARRIERS
Mr. Rolando. Good morning, Chairman Carper, Senator Akaka,
Senator Burris. Thank you for inviting me to testify.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Rolando appears in the Appendix
on page 101.
---------------------------------------------------------------------------
The Postal Accountability Enhancement Act was designed to
help the Postal Service deal with the public's increased
Internet use by giving it more flexibility to compete in
competitive services that continue to grow. I believe that more
and more innovative ways of using the mail and the network are
within our reach.
However, when this Committee led the charge for postal
reform and successfully passed it, one of the key components
was to prefund retiree health benefits. Your intent to shore up
unfunded liability for our retirees was indeed commendable.
Nevertheless, the crippling economy has forced us to restudy
the unfunded liability a little closer, and it is now even more
clear that the aggressive schedule of payments is only part of
the problem.
I will focus first on the short-term issues that we are
faced with and then move into the long-term strategy.
The requirement for the Postal Service to prefund the
massive 75-year liability over just a 10-year period is just no
longer feasible. No other company in America is required to
prefund future retirement benefits at all, much less at such an
accelerated pace. The exorbitant cost of prefunding, $5.4
billion this year, accounts for most of the $6 to $7 billion
that the Postal Service has indicated that it will lose this
year.
As the reaction to a possible 15 percent drop in mail
volume this year and in view of a potential year-end cash flow
crisis due to the excessive cost of the prefunding schedule,
the Postal Service has put forth a blueprint for dismantling
its core business, with service cuts and downsizing. Its branch
and station optimization program and the 5-day delivery study
are part of that response.
As Congress reviews these developments, it should ensure
the public that the Postal Service does not make structural
decisions that will do more harm than good over the long run.
Downsizing to meet depression-level demand without considering
the long-term impacts on the ability of the Postal Service to
meet new demands when the economy recovers would be short-
sighted. Short-term savings that undermine the Postal Service's
capacity to offer new services and to take advantage of future
growth opportunities would be self-defeating.
There are endless opportunities for the Postal Service, but
it will never be able to take advantage of them if we begin
closing our doors and limiting our services to our customers as
a knee-jerk reaction to a temporary and fixable problem.
I would like to commend this Subcommittee for the attention
and dedication it has given to the Postal Service and your
obvious commitment to see it survive this downturn in the
economy. I believe there has to be a two-tiered legislative
approach.
The first, as I mentioned earlier, must address the cash
flow problems associated with the prefunding payment. I believe
that H.R. 22 and the OMB proposal both do this effectively.
However, using the short-term emergency relief legislation
as a last-minute vehicle during a mark-up session to address
long-term labor practices is short-sighted, is unbalanced in
its nature, and is an inappropriate vehicle for such an
important and labor-specific issue. I sincerely wish I had this
opportunity to testify before this Committee took such an
amendment under consideration. At the very least, I would have
liked to discuss the factual information behind it that was
discussed inaccurately at the Committee's mark-up, as well as
some of the testimony from the first panel.
I believe S. 1507 was intended to responsibly address the
Postal Service's financial challenges, but the National
Association of Letter Carriers (NALC) is completely opposed to
the amendment offered by Senator Coburn. Inclusion of this
amendment serves only to upset the balanced collective
bargaining procedure that was established by President Nixon
nearly 40 years ago which is incorporated into the Postal
Reorganization Act of 1970. During those 40 years, numerous
interest arbitrations have been conducted in accordance with
the existing provisions of the Act. I can assure you that in
resolving critical collective bargaining impasses, the
arbitrators and the parties have consistently examined and
taken into account the financial condition of the Postal
Service along with the many other relevant factors.
Once this amendment issue is resolved and the immediate
short-term relief is passed, it will be crucial for Congress to
begin looking at ways to strengthen the Postal Service for the
long run. Long-term reforms will be critical to not only the
survival of the Postal Service, but to the continued growth of
the broad industry that relies on its network.
Congress can take the first step by reforming the retiree
health prefunding provisions in the law. The current schedule
of prefunding payments, again, designed to fund 80 percent of a
75-year liability by 2016, is unaffordable and has become
unreasonable. Moreover, the actuarial methods adopted by OPM to
implement the prefunding policy discriminate against the Postal
Service and significantly increase its cost.
As the OIG confirmed in a study released July 22, 2009, OPM
has inflated the cost of future postal retiree health benefits
by tens of billions of dollars by using an unreasonable
assumption about the long-term growth rate.
Additionally, the OPM has severely shortchanged the Postal
Service when it set up the Postal Retiree Health Benefit Fund
by grossly underestimating the postal surplus that was in the
Civil Service Retirement System Pension Plan, the surplus that
was transferred to the Retiree Fund in 2007. In other words, to
use the analogy of the Chairman, not only do we need to
refinance, but we need to revisit the formulas that are used in
the rate and the downpayment that was used for that fund.
Congress should resist radical reforms to the Postal
Service, like 5-day delivery, massive closures and
consolidations, and interference in the carefully-balanced and
successful collective bargaining process, in favor of practical
reforms that will stabilize the Postal Service's finances and
give it time to take advantage of the new commercial freedoms
provided by the Postal Accountability and Enhancement Act when
the economy recovers. I urge you to look at the overall
methodology of the prefunding payments as well as the network
opportunities sitting before the Postal Service. We do not need
to destroy the Postal Service in order to save it.
Thank you for this opportunity to testify today. I will be
happy to answer any questions you may have.
Senator Carper. You are quite welcome, and thank you for
that testimony and for joining us, and again, congratulations.
Mr. Rolando. Thank you.
Senator Carper. Mr. Burrus, please proceed.
TESTIMONY OF WILLIAM BURRUS,\1\ PRESIDENT, AMERICAN POSTAL
WORKERS UNION AFL-CIO
Mr. Burrus. Thank you, Mr. Chairman. Mr. Chairman, Members
of the Committee, particularly Senators Akaka and Senator
Burris, with whom I share the same name, I will summarize my
written remarks, but I ask that the full text be submitted for
the record.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Burrus appears in the Appendix on
page 107.
---------------------------------------------------------------------------
Senator Carper. They will be, for all of our witnesses.
Mr. Burrus. Mr. Chairman and Members of the Subcommittee,
thank you for providing my union, the American Postal Workers
Union, the opportunity to testify on behalf of the members that
we are privileged to represent.
As you know, the Postal Service is in the midst of a severe
financial crisis, caused in large part by the Nation's economic
difficulties and the resulting decline in mail volume, which is
compounded by the oppressive burden of prefunding retiree
health costs. The interest of the Chairman and this
Subcommittee in drafting legislation that would mitigate the
prefunding requirement was welcomed by the postal community. We
were aware of the concerns associated with scoring such
legislation and looked to the Administration and the Chairman
for their assistance in achieving a reasonable solution.
The introduction of S. 1507 gave us hope that legislation
would soon be enacted that would provide substantial short-term
relief to the cash-strapped agency, and progress was well
underway until the full Committee voted to amend the bill. One
amendment, which requires arbitrators in negotiation of postal
labor agreement, to take the financial health of the Postal
Service into account drastically changed the focus of the
Committee's efforts from assisting a troubled industry to an
assault on postal workers. It is a mean-spirited amendment that
is intended to shift the payment of the employer's share of
retiree health care liabilities from the employer to employees.
The Committee did not consider imposing a surtax on postage
rates to pay the unfunded liability, but adopted an amendment
that would, in effect, assess a tax on postal workers.
Let us be clear. The Postal Service obligation to pay $68
billion over an 8-year period was the product of the PAEA,
which was endorsed by this Subcommittee. The offers did not
anticipate the recession that would soon grip the Nation and
failed to appreciate the impact it would have on mail volume
and postal revenue.
One goal of the PAEA was to force postal management to
reduce its network and labor force. It sought to achieve this
objective by squeezing postal finances to such an extent that
management was left with no other options. It imposed on the
Postal Service the burden of prefunding retiree health care
payments, exacerbating the crisis. By requiring payments of $14
billion over the last 2 years, with more to come, the
supporters of PAEA share the blame for the Postal Service's
inability to ride out the economic crisis.
S. 1507 would have alleviated the problem, but the
amendment, which is not at all germane to the subject of the
main legislation, would subvert the collective bargaining
process, and by endorsing the amendment, the Committee has
declared war on postal workers.
When I began my career 55 years ago, postal employees
labored under the absolute control of the Congress and suffered
from serious neglect. After years of struggle, in 1971, the
Postal Service was converted to an independent agency of the
Federal Government and postal workers were granted the right to
organize and engage in collective bargaining. Negotiations over
the following 38 years have resulted in postal wages that have
tracked the Consumer Price Index.
Arbitrator Clark Kerr, a renowned economist, issued a
similar decision in 1984 that interpreted comparability, the
standard for postal wages, and since then, the parties have
been guided by his decision. The recent action of the Committee
would jettison this history and require the unions and
management to embark on a contentious journey aimed at applying
competing standards.
In the abstract, supporters can make the case that
requiring arbitrators to consider the financial health of the
Postal Service is a reasonable standard that should be applied
universally. But one only has to look at recent history to see
that such application has been selective. Wall Street
executives who nearly bankrupted the financial institutions of
our country awarded themselves indecent bonuses from the
Treasury to the very companies that they nearly destroyed, and
massive bailouts were funded by the taxpayer. If there was ever
a time to consider financial health, one would think the Wall
Street debacle would have been it.
The financial health of the USPS has been a consideration
in the arbitration of every contract, but the amendment is
intended to elevate this factor above all others. One does not
have to be a rocket scientist to understand the purpose.
Clearly, the authors of the amendment hope it will constrain
wages and benefits. The amendment to S. 1507 is not an effort
to be fair and reasonable. It is an attempt to turn back the
clock and penalize postal employees, and penalize them for
what? For abiding by the rules and managing to attain a middle-
class wage?
I repeat, this is a mean-spirited amendment that undermines
the collective bargaining process and the American Postal
Workers Union, my union, will oppose S. 1507 because we believe
its enactment would be disastrous for the American public and
disastrous for postal employees.
Mr. Chairman, that concludes my testimony and I would be
pleased to respond to any questions.
Senator Carper. Thank you so much for being here and for
your testimony, and we will look forward to that exchange of
questions.
Mr. Goff, welcome to you.
TESTIMONY OF DALE GOFF,\1\ PRESIDENT, NATIONAL ASSOCIATION OF
POSTMASTERS OF THE UNITED STATES
Mr. Goff. Mr. Chairman, Members of the Subcommittee, I am
honored to share with you the thoughts of the National
Association of Postmasters of the United States (NAPUS)
regarding the fiscal and operational challenges confronting the
U.S. Postal Service.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Goff appears in the Appendix on
page 110.
---------------------------------------------------------------------------
Today's inquiry is not new for this Subcommittee. It has
consistently promoted a healthy Postal Service, conducting
constructive oversight and approving vital legislation. The
2006 Postal Reform Act is a prime example. However, the
conditions facing the Postal Service today are more daunting
than those preceding enactment of postal reform.
The economy is only now beginning its deep climb out of
recession, and sectors that use mail were impacted greatly,
resulting in a dramatic fall in mail volume. In 2006,
prefunding retiree health benefits was challenging, but in
2009, it is suicidal.
The Postal Service must engage its workers to craft a
coherent and responsible plan for the future and transmit the
plan sensibly. I strongly urge the Postal Service and its Board
of Governors to commit to biweekly high-level meetings with
their employee associations to help mark a path for the future.
In the meantime, it is crucial that Congress enact
emergency postal relief legislation rapidly. Without a
refinancing plan, the next crucial steps may be moot.
The subsequent legislative phase should be a review of the
Postal Service's retiree health liability. Two recent reviews
of the liability, by the Postal IG and by the PRC, concluded
that OPM's original estimate is overstated. The disparity could
be up to $4 billion per year in fiscally harmful payments.
NAPUS urges the Subcommittee to reevaluate the postal
prefunding schedule in light of this new analysis.
Beyond this reexamination, I caution the Subcommittee
against impulsive acts that yield artificial solutions. At this
point, the climate to reduce the frequency of mail delivery is
misguided. The 2003 President's Commission Report warned that
diminishing delivery frequency may save money, but the Postal
Service's value to the Nation would suffer.
The Postal Service is presently considering closing a
significant number of stations and branches. The USPS has yet
to reveal the final number of locations that it plans to close,
nor how much money will be saved through these actions.
Community and employee involvement is essential. Postmasters
will have to respond to community outrage should their facility
be targeted for closure. Therefore, the realignment process
must be transparent and cannot be an after-the-fact defense.
Although this facility review does not appear to jeopardize
post offices, NAPUS is attentive to a possible wayward gaze at
post offices serving rural and small communities. The Postal
Service would save only $586 million if small and rural post
offices were closed. This would deny vast areas of this Nation
accessible and affordable postal services, yet make no more
than a dimple in the Postal Service's financial health.
As we move further along the legislative decision tree,
changing customer preferences and mailer behavior should not be
ignored. We should not mimic Chicken Little. But also, we
should not emulate an ostrich. Ossifying on the sidelines
renders the Postal Service archaic and irrelevant.
Demand for a universal, accessible Postal Service is
steadfast. Its employees are trusted public employees and the
agency is one of the most valued public institutions. However,
the Postal Service has yet to exploit its wide national retail
footprint to partner with other governmental entities and
associates with complementary private sector endeavors.
Postal employees play a fundamental role, promoting changes
and making sacrifices. We have contributed substantial sums and
reduced compensation through increased health benefit premiums
over the past few years. In addition, many postmasters have
worked beyond the normal work day without additional
compensation to ensure that mail is accepted, processed, and
delivered. And postmasters were forced, just recently, to
relinquish an 80-year-old leave program to shave postal costs.
For its part, the Postal Service must scrutinize the
benefit package of its most highly compensated employees and it
must aggressively streamline its bureaucracy to increase
efficiency and effectiveness and success.
In order to achieve more savings out of operations, I
encourage the postmaster general to negotiate with our unions
regarding cross-craft training. An accord in this area would
boost the skills of individual postal employees and enable
postmasters to more effectively utilize the talents of their
employees.
Legislative and operational solutions will not happen
overnight. Nevertheless, Congress must act quickly to reconcile
the differences between S. 1507 and H.R. 22. Admittedly, the
legislation provides only a temporary repair. However, failure
to enact legislation will result in the agency's default of the
required liability payment and calls into question
Congressional commitment to the Postal Service.
Mr. Chairman, thank you.
Senator Carper. You bet. Thank you very much, Mr. Goff.
Mr. West, welcome. Please proceed.
TESTIMONY OF JAMES E. WEST,\1\ DIRECTOR, POSTAL AND LEGISLATIVE
AFFAIRS, WILLIAMS-SONOMA, INC.
Mr. West. Thank you, Mr. Chairman, Members of the
Subcommittee, and I thank you for the opportunity to testify
with regard to the actions necessary to preserve the U.S.
Postal Service as a viable and healthy business entity. I have
submitted written testimony that you will put in the record, as
you said.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. West appears in the Appendix on
page 119.
---------------------------------------------------------------------------
Thank you very much for the introduction to Williams-Sonoma
and its growth. When I started with the company in 1972, we
were just mailing one catalog and we had annual sales of less
than $1 million and we had only one store, in San Francisco. We
have since achieved growth of sales exceeding $3 billion across
six brands, seven direct-mail catalogs, six e-commerce
websites, and 630 retail stores. These stores are located in 45
States, Puerto Rico, and Canada, and we employ up to 30,000
associates.
We have achieved this growth in large part by using
catalogs as our primary advertising vehicle and our strategic
partnership with the Postal Service is an essential part of our
execution strategy. We will mail approximately 250 million
catalogs this year, making us one of the largest catalog
mailers in the United States. Our ability to recover from the
current economic recession and ensure our future success
depends to a significant degree on the continued ability of the
U.S. Postal Service to provide us with effective and
increasingly cost-efficient mail delivery.
To this end, we see the following as essential for recovery
to the U.S. Postal Service: Maintaining pricing levels to
mitigate further mail volume decline. Develop sound business
plans based on realistic volume and revenue expectations. Seek
prudent Congressional support and oversight. And transform the
USPS business model and operations to meet customer needs in
the future.
It is imperative that mail volume be stabilized. Without a
doubt, increased postage costs on consumers or commercial
mailers will only serve to drive more volume out of the system.
Any increase, especially an exigent increase to cover expected
losses, must be avoided.
Financial savings are available from many sources: Relief
from current financial obligations, additional operational cost
savings, retention and expansion of the current cost avoidance
practices, and the right-sizing of the Postal Service
infrastructure to fill the demands of lower mail volume.
The legislation currently under consideration, S. 1507,
provides modification to Postal Service financial obligations
which, at the minimum, are needed to relieve the USPS of
excessive financial burdens. My company, along with the Direct
Marketing Association, the Association of Postal Commerce, and
the American Catalog Mailers Association, to name a few,
supports the passage of this legislation.
The Postal Service must be commended for its success in
reducing operating expenses. Arguably, the most significant
contribution--the next most significant contribution would come
from a modification of the universal service obligation.
Reduction in the number of delivery days is a very difficult
decision and it will require the compromise in which all share,
but the unfortunate reality is that mail volume simply no
longer supports 6 days of delivery.
Processing facilities and retail services, likewise, must
be brought in line with mail volume. Prudent business practices
dictate that a company must continually modify its
infrastructure to match the volume of its business and the USPS
can no longer be an exception.
The Postal Service must become more aggressive in
developing realistic business plans and forecasts. The volume
and revenue expectations in the near term as well as for the
next 2 to 3 years must reflect the most conservative forecasts
for mail volume. The USPS should be encouraged to actively
engage with its largest commercial partners in developing
business plans that will reflect the expectations of those who
produce the largest portion of its mail volume.
Completing the transformation of the USPS into a modern
business enterprise will require more and sometimes difficult
support from Congress. We encourage continued oversight, but
this oversight must not overly scrutinize or inhibit changes,
nor should it burden the Postal Service with such obligations
that a typical enterprise would find untenable. Flexibility,
adaptability, and competitive positioning must be goals of the
transformation that the Congress will be called on to support,
but not micromanage.
We are now aware that over three-quarters of mail volume
and revenues come from commercial mailers, and commercial
mailers, such as my own company, are operating in an
increasingly multi-channel environment. Service expectations
from our customers and the need for economic performance is
forcing us to be increasingly demanding of our business
partners and to utilize new and efficient ways to reach out and
serve our customers. We have more choice and effective ways to
communicate with our customers than we have ever had before.
Williams-Sonoma, as well as most other companies, is
evolving to meet the new economy that is driven by new and
innovative methods of communicating with and serving our
customers. The only way that the Postal Service can retain its
role in our own marketing strategy will rest on its ability to
operate competitively and with the same flexibility that is
required of the companies that it serves.
In closing, I would like to reiterate our recommendations.
Mitigate further mail volume decline by maintaining current
postage rates. Develop business plans in partnership with the
Postal Service's largest customers. Provide prudent
Congressional oversight and support of the USPS. And transform
the Postal Service into an efficient business organization that
will remain viable for the years ahead.
Thank you, Mr. Chairman and Members of the Subcommittee,
for your time and consideration.
Senator Carper. You bet. Thank you for those
recommendations and for your entire testimony.
And finally, Mr. Suwyn, you are recognized. Please proceed.
Thank you for joining us.
TESTIMONY OF MARK SUWYN,\1\ EXECUTIVE CHAIRMAN, NEWPAGE
CORPORATION
Mr. Suwyn. Thank you, Mr. Chairman, other Members of the
Committee. I am the Executive Chairman of NewPage Corporation,
which is the Nation's largest producer of coated paper. That is
the shiny paper that shows up in his catalogs and magazines and
other point-of-purchase display materials. In fact, Williams-
Sonoma is one of our most important customers.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Suwyn appears in the Appendix on
page 128.
---------------------------------------------------------------------------
We have nine paper manufacturing facilities in the United
States plus one in Canada. We are also a major supplier to
magazine publishers and an industry that is a vital source of
news and information important to our country socially and
economically. In fact, more than 80 percent of the paper that
we produce is used in magazines, catalogs, and advertising, and
with that, you can imagine the viability of the U.S. Postal
Service is critical to the future of our company.
As Senator Collins pointed out earlier, there are about
nine million employees whose livelihood depends on an
effective, efficient, and low-cost Postal Service. Certainly
our company, with most of the paper that we produce ultimately
going through a system that shows up in your mailbox, it is
critical that be a viable economic system.
The thing we want to keep in mind is that the studies
continue to show that the lowest cost, the most effective way
to get a response from advertising is via print advertising to
your home. Now, that is a need that is going to be there for
advertisers. The key concern, I think, has to be can the Postal
Service become efficient enough to hold costs down so that they
are the preferred route to that home.
Meanwhile, you have newspapers that are waning and in some
cases disappearing and they have always been a source of
delivery of a lot of inserts and coupons and other kinds of
advertising materials. So there is going to be a vacuum created
here with newspapers waning, and if costs in the Postal Service
continue to go up, some other entrepreneur is going to find a
way to get in there and begin to deliver some of those
materials. If that were to occur, that would just accelerate
this downturn that we are looking at as other people begin to
find ways to deliver that material to your home, and there are
some experiments going on underway right now around the
country.
I think one of the real issues looking forward near term is
what is the shape of the curve? Are we going to continue to go
down at 10 percent per year? Are we going to flatten out? Are
we going to come back? I think if the Postal Service costs, the
postal rates do not go up, I personally believe there is going
to be a modest rebound, certainly on the industrial side. I
can't comment on the First-Class letters. But there is going to
be a rebound because a lot of what is going on now is a
downturn because of the economy, and there will be a rebound in
number of catalogs and direct mail, etc., as the economy
rebounds. The question for the longer term is, who is going to
end up delivering this to the home?
Certainly, costs have to be taken out. We are all having to
do that. We have had to downsize our company because we have
experienced about a 20 percent downturn in terms of total
demand and so we have had to take costs out. We have had to
shut some facilities down to match the ability to produce with
the demand.
But we think there are also ways to look for revenue growth
for the Postal Service. As I indicated, there are inserts and
coupons that are very important to be delivered to the home
that newspapers are going to be delivering less and less.
We are doing a little experimentation with the concept of
backhauls. Those same inserts and catalogs, etc., that are
delivered by the Postal Service could be put in a pouch and
brought back and then collected and put through recycling going
forward. I think the summer sale, where you are determining
what kind of level of volume can you get depending on what
price or postal rate you are charging is also an important one
to understand what is the flexibility and elasticity of
pricing.
Our company is running some specials where we have made 500
tons of paper available to catalogers to try to reach new
prospects, and that is 500,000 new mailings this year.
So in summary, costs are going to have to be reined in, and
there is a lot of discussion here in terms of how one can do
that. I believe that can be done, that the Postal Service will,
in fact, be increasingly viable going forward as the route to
deliver, in our part of the business, advertising to the home,
which is very important for the overall economy of the country.
Thank you.
Senator Carper. Mr. Suwyn, thank you, really all of you,
for excellent testimony. Well delivered, well prepared.
We are going to be voting at 3 o'clock this afternoon on
the nomination of Judge Sotomayor to become a Justice of the
Supreme Court. I am scheduled to speak on her behalf in support
of her nomination at 1:15. I was scheduled to speak at 12:10
and we have moved it once. We can't move it again. So I am
going to have to leave here at about 1:05. I am going to ask
one of my colleagues--I spoke with Senator Lieberman, who needs
to leave, as well, but I would ask if one of my colleagues, if
Senator Akaka or Senator Burris, would consider, if I do have
to leave before we conclude, closing out the hearing. If one of
you could do that, I would be most grateful. Thank you.
Let me just go back in time. When I got out of the Navy in
1973 and moved from California to Delaware to enroll with the
G.I. Bill in a MBA program at the University of Delaware. I had
a lot of wonderful professors. One of my labor professors was a
fellow named Art Sloane, who is still alive, still doing well.
I saw him not long ago and he gave me the 13th edition of his
labor economics book that he had written. I learned a whole lot
from him, not just during the semester that he was my
professor, our professor, but in the time since then. He has
been good to give me advice on a wide range of issues, many of
them pertaining to business and labor.
One of the things that he taught me is about the difficult
role, and actually the similar role that those who are elected
to lead labor unions, the similar role that you have to us. We
have constituents whose concerns are addressed and you have, as
well. And we have found, as we know from personal experience,
it is impossible to please everybody. We have to do what we
think is right and push as hard as we can for their well-being.
I appreciate the difficult situations that Mr. Rolando, Mr.
Burrus, and Mr. Goff find themselves in, and others, as well.
And I want to thank you and your predecessors, for the way
you have worked with the Postal Service to try to find
efficiencies and to bring down costs and to be able to do more
with less in terms of personnel.
A member of the Senate who is not here today asked me to
explain to him the amendment that was adopted that said that an
arbitrator in the labor negotiation, the contract negotiation,
shall consider, along with wage comparability, shall consider
the financial condition of the Postal Service, and he said to
me, ``Let me see if I have got this right. The Postal Service
already has a line of credit with the Treasury, is that
right?'' I said, ``Yes.'' He said, ``How much is it?'' I said,
``It is capped at $15 billion. I think right now, they have
used about $10.5 billion. It can be increased by an additional
$3 billion per year to a maximum of $15 billion.''
And my friend said, ``Let me see if I have got this right.
We just came off of 8 years of the largest growth in our
Nation's debt in history.'' He said, ``We actually accumulated
more new debt in the last 8 years than we did in the first 208
years of our country's history.'' I said, ``Yes, that is
right.'' And he said, ``Let me see if I have this right, as
well. We are on course to run up this year the biggest budget
deficit that we have run up ever in the history of our country.
It will be over $1 trillion.'' I said, ``That is right.''
And he said, ``So we have the taxpayers of this country on
line for whatever has already been extended in that line of
credit up to a maximum of $15 billion.'' And I said, ``That is
correct.'' And he said, ``When the arbitrators are considering,
or they are involved in labor negotiations under current law,
what do they have to consider? Are there any things that they
have to consider?'' And I said, ``Well, as I understand it,
there is a directive in the law that says the arbitrator must
consider wage comparability, and whether it is to UPS, FedEx,
whether it is to police or fire, whoever it might be to. But
there is a direction to consider that.''
He said, ``Do they consider the matter of the financial
well-being of the Postal Service?'' And I said, ``Well, my
understanding is that they do, although that is not something
that they are directed to do by law.'' And he said to me,
``What is the big deal? If they already do it and you are
asking that we just make sure they do it, what is the big deal
about that? I just don't get it, especially given the fact that
our taxpayers in this country are on the hook for so much
money, huge debt, huge national debt, growing enormously, and
on the hook for maybe another $15 billion here? I just don't
get it.''
And I would just ask for people, my colleagues like the one
I just described who just don't get it, just explain for him
and for us what we don't see, please.
Mr. Rolando. I think it is important to consider that the
premise that you just described is based on some inaccurate
information. First of all, I understand during the mark-up that
Senator Coburn suggested that the current law prevents
arbitration boards from considering postal finances. On the
last panel, Postmaster General Potter indicated that the law
offers direction to the arbitrators, and neither of those are
true. The law with regard to the term ``comparability'' offers
direction to the company only, not to arbitrators. The only
language that offers any direction to the arbitrator is to
consider the evidence offered by the parties, which as I stated
in my testimony historically has included the finances of the
Postal Service and many other important--equally important
factors.
With regard to the law preventing arbitrators from
considering postal finances, there is no such language. So the
very premise that all that was based on, both of those are
incorrect. I think that is very important to reconsider that
the law, the way it stands now, allows the arbitrator to
consider all the evidence and offer a fair decision, including
all those things, and to offer anything other than everything
that should be considered is going to tip the scales in an
unfair balance.
Senator Carper. Mr. Burrus.
Mr. Burrus. Yes. I was present in 1970 and 1971 when the
first postal reorganization was under consideration and we were
discussing with Congress the right to strike and collective
bargaining rights, binding arbitration. And as was expected,
the final analysis was we were Federal employees and should
not, did not, and would not have the right to strike. So we
elected instead and Congress drafted the language--we had input
into it--that we would have free collective bargaining with
binding arbitration.
Free collective bargaining is either free or it is not. It
is like pregnancy. There is no little bit of free collective
bargaining. There is not qualified free collective bargaining.
We either have the right to bargain collectively with our
employer without restrictions, without obligations, without
either side putting their thumb on the scale and tilting the
outcome favorable to his or her side, and we elected, and
Congress embraced it, that we would engage in free collective
bargaining and we would forego the inherent right in the laws
of our country, which is natural, the right to strike. That
bargain was struck 39 years ago.
Now, 39 years later, Congress seeks to impose a qualifier,
a condition of free collective bargaining, and that is unfair.
We have 39 years of history of arguing the financial health of
the employer, the U.S. Postal Service. That has been a factor
in every arbitration, and we have had since 1983, the last 26
years, we have had three arbitrations and three negotiated
contracts. And each of those negotiated contracts before us at
the bargaining table was on the health of the U.S. Postal
Service.
One negotiation, the Postal Service reprinted the stamp in
honor of my predecessor, Moe Biller, that many of you knew, and
presented a 50-cent stamp if the Postal Service were to accept
the union's proposals. That is what the impact it would have on
the financial health of the Postal Service. That has been a
factor in every negotiation inserted into the law, and as Mr.
Rolando said, presently, there is reference that a standard
exists today of comparability. That is not the standard for
arbitration. That is the Postal Service's obligation, but it is
not a standard for the arbitrator. This would be the first
insertion in the law where the arbitrator was required to
comply with the standard in rendering the decision.
The expectation, the intent is to cut postal workers'
salary, and the underlying purpose is to adjust the salaries to
pay for the unfunded health care liability. Postal employees
should not be put under that restriction. They should not be.
This would almost guarantee it.
The Postal Service coming off of a year where they are
suffering, all of us--my union goes to negotiations in 2010,
Mr. Rolando's and others in 2011. Next year, I will be at the
bargaining table representing the 250,000, 300,000 employees
that I represent on the heels of the Postal Service suffering a
$7 billion deficit, $5.4 billion of the $7 billion caused by
the PAEA. Only $1.6 billion is for other purposes. I would be
entering negotiations facing that debt and newly-inserted
language saying that they must consider the financial health of
the Postal Service.
What would we end up with? No matter what the outcome would
be in 2009 rolling into 2010, the next three, four, or five
negotiations will be embroiled in further defining what it
meant. Comparability was enacted in 1970. We went to
arbitration in 1978 and 1983, and then for the next 9 years, we
re-litigated that issue seeking from the arbitrators clarity.
What did it mean? It is not just inserting the language, but
the parties--my attorneys come forward with their arguments.
The Postal Service attorneys come forward with
counterarguments. And it is the arbitrator that makes the final
decision. But this would put postal bargaining in the
uncertainty of no finality to how does it apply to the
bargaining process for many years. \1\
---------------------------------------------------------------------------
\1\ Copy of ``Observations by the Board,'' submitted for the Record
by Senator Carper appears in the Appendix on page 184.
---------------------------------------------------------------------------
Senator Carper. Mr. Burrus, I don't mean to be rude, but my
time has expired and we have not given Mr. Goff a chance to say
anything. Would you just go ahead and conclude your sentence
and then I want to give him----
Mr. Burrus. Sir, I have concluded it.
Senator Carper. OK.
Mr. Burrus. That is my response.
Senator Carper. Thank you very much.
Mr. Goff, could I ask you to just be brief in your
response, please? Thank you.
Mr. Goff. I will be very brief, Mr. Chairman. As managers
in the Postal Service, we don't have arbitration rights. So
with that, I will refrain from making comments on the issue. I
think my two esteemed colleagues have handled the subject well.
Senator Carper. All right. Thanks very much.
I apologize. I am going to stay for a few more minutes. I
would just say in closing, I appreciate your sharing those
thoughts with us very much.
A different subject, but I want to go back to it. Dr.
Coburn mentioned the Safeway Supermarket. They have 200,000
employees. They have literally spent as much money for health
care in 2008 as they spent in 2004. I think the United Food and
Commercial Workers represent many of their employees. I visited
their corporate headquarters before. I have spoken to a number
of the folks there and will coincidentally talk to one of their
top people later today on an issue relating to health care
coverage and health care reform.
I think it was Albert Einstein who said in adversity lies
opportunity, and my hope is that maybe in some of the adversity
that we face here that we are discussing with respect to the
Postal Service, we will also find some opportunity, and the
opportunity, we need to look at other employers, major
employers like Safeway who have a unionized workforce and to
see what they are doing and to see if there is something we can
learn from the way that they are providing health care in a way
that seems to be well accepted, well received by their
employees and actually being able to do it for the same amount
of money. And I am going to explore that opportunity and I
would just encourage all of us to do the same.
In closing, and I am going to pass it off to Senator
Lieberman and then I think to Senator Burris and then to
Senator Akaka, and if Senator Akaka or Senator Burris could
conclude, that would be great, this has been, I think, just an
excellent hearing. It has been an excellent hearing and I am
grateful to everyone who has prepared for it and participated
in it. Excellent testimony, good questions, and I think very
helpful responses.
Senator Lieberman.
Chairman Lieberman. Thanks, Senator Carper.
Mr. Rolando and Mr. Burrus, I apologize that I didn't get
to hear your full testimony because I had to go back to my
office for a meeting.
Mr. Rolando. It will only take 5 minutes. [Laughter.]
Chairman Lieberman. I will read it. But it was very
interesting and helpful, actually, to hear you respond to
Senator Carper's question because on the face of it, as Senator
Coburn introduced this amendment and the mythical or real
conversation that Senator Carper cited, I think the response of
most Members of the Committee was not hostile to postal
employees--I have my whole career been very proud to be an
advocate--but, well, how could you not allow them to consider
the fiscal condition of the Postal Service, the binding
arbitrator.
Now, you have taken us inside the world that you live in in
terms of these negotiations and informed at least me of two
things. One is, which is reassuring, I suppose, that in every
arbitration you have been through, in fact, the arbitrators do
consider the financial condition of the Postal Service. In
fact, it is relevant and it is discussed and it is argued and
all the rest.
So I will tell you that one reaction, the first reaction to
that I had is, well, if they do it already, what is wrong with
putting it in the statute? But then you went to your second
point, and I am going to go back and look at this because I
think it perhaps takes us to a way to reach common ground here,
that this would be the only factor so stated in the law, if
Senator Coburn's amendment is adopted. Am I right?
Mr. Burrus. Yes.
Chairman Lieberman. So I want to ask you to think about
whether you would submit to the Committee a broader rewrite
which would list a series of factors that the arbitrator should
consider. Do you know what I am saying? In other words, I know
that you are worried about this one. You are worried that this
is going to be used as a premise, that is, the fiscal condition
of the Postal Service, for cutting back on wages or benefits or
conditions of labor.
From the point of view of the Members of the Committee who
voted for it, and I would say probably most people in the
American public, they would say, well, of course, any
arbitrator would have to consider the fiscal condition of the
employer, but you are concerned that this is the only factor so
outlined. I don't need a particular response now unless you
want to give one. I want to ask you whether one way to reach
common ground here is for us to list a series of factors that
the arbitrator would consider as part of a binding arbitration,
including others that are more acceptable, shall I say, to you.
Mr. Rolando. It certainly has possibilities. We will be
happy to submit such a list.
Chairman Lieberman. All right. And I will think, also,
about what you had to say.
I take it that both of you, were this amendment not in our
legislation, would support the legislation. Am I right?
Mr. Burrus. Yes.
Mr. Rolando. Yes, sir.
Chairman Lieberman. And not only would you support it, you
think it is important----
Mr. Burrus. Yes.
Chairman Lieberman [continuing]. And very constructive. So
you feel so strongly about the amendment that you would oppose
something you think is actually good for the Postal Service and
for your members, I presume, just because of the amendment,
correct?
Mr. Burrus. Correct.
Chairman Lieberman. Did you want to say something, Mr.
Rolando?
Mr. Rolando. Yes. With all due respect, I have every
confidence that this Congress won't pass legislation that
includes an anti-union amendment.
Chairman Lieberman. OK, but I hope we can come to a point,
because it is not only critical to the Postal Service, to
everybody who pays for it, gets mail, but to your workers that
we get this passed so we can figure out a way to find common
ground.
I thank you all very much. I think it is very important to
say that this probably will go to the floor of the Senate in
September. I know the leadership--no opinion that I have heard
from Senator Reid and others about this amendment, but a very
strong concern about the fiscal condition of the Postal Service
and wanting very much to deal with this in September. So we
should reason together during the weeks between now and then.
Mr. Burrus. Thank you.
Mr. Rolando. Thank you.
Senator Carper. I think, Senator Lieberman, you may have
stumbled across a very constructive proposal and we look
forward to exploring that and we welcome your willingness to
provide us with some other ideas. Thank you.
Mr. Burrus. Well, before you leave Senator and while this
issue is still fresh in our minds, qualifying free and open
rights under our Constitution, it is very dangerous, difficult,
and fraught with all sorts of problems to try to include--for
everything you include, you are excluding something else. That
is the beauty of free collective bargaining, that there are no
parameters. It is the parties, back and forth. In one specific
set of negotiations, one thing might be important to either
side. That may disappear before the next round.
So trying to qualify that, giving my best effort at it is
fraught with danger and I would be very hesitant to put pen to
paper to try to identify what the parties should or should not
consider.
Chairman Lieberman. All right. Well, I just want to say,
and I will do it real briefly, that the hope here is not to
interfere with free collective bargaining. But as you have
said, and you were there--and, of course, it is typical of
public employees generally--as part of the right to freely
bargain collectively, people accept binding arbitration. So the
question now is do you want to give any standards to the
binding arbitrator, not to interfere with the free collective
bargaining? Because right now, the arbitrator presumably could
do whatever they think is fair. They don't have anything. OK.
We will continue the dialogue.
Senator Carper. Senator Burris, thanks.
Senator Burris. Thank you, Mr. Chairman.
To the Committee, to Mr. Rolando and Mr. Burrus, this is an
eye-opener for me because I was looking at it as Senator
Lieberman just said, that certainly it is a natural process for
the arbitrator to look at the financial condition or the
circumstances of the Postal Service, to not have knowledge of
the history of the collective bargaining situation. I
understand that you just said that would really cause your
union--and I assume, Mr. Rolando, your union, also--to oppose
the amendment to S. 1507. And that is very interesting.
Could you all just back up then and answer some specific
questions for me, because I have some limited knowledge of the
Postal Service. I asked the postmaster general about the
processing and technology. Would any of you say that you have
been exposed to the best available technology on the market?
What comments could you all make about the technology that has
been brought in and to what extent that technology--now,
naturally, it is going to hopefully improve the processing,
perhaps eliminate some positions, but I understand, Mr. Burrus,
your union even supported a project that was proposed out of
Chicago a few years back, the American Postal Workers did, and
I am just wondering, to your and Mr. Rolando's knowledge, has
the Postal Service really kept up with technology?
Mr. Burrus. Yes. We have the most advanced technology in
the mail processing environment anywhere in the world. My
members are the most productive processors anywhere in our
society or any foreign countries, and as a result of that, we
have the lowest postage in the world. We have the most
efficient service, the most highly recognized and accepted by
the general public, and the lowest postage in the world. So it
is not a question of whether or not we have become more
productive.
My criticism of our productivity, we have the capacity in
this country to handle the world's volume of mail. We are that
efficient. We could take all the mail that is processed
throughout the world and process it in the American Postal
Workers' system. That is how efficient we are. And it causes a
major issue that I have been fighting for a number of years,
championed by Senator Lieberman in the 2006 legislation,
because we are so efficient, I can't accept or understand why
we pay others to reduce postage to perform our activities
through discounts.
We are paying private companies that perform the same work
that we perform for four times our wages. We are paying over
$200 an hour for people to do the same thing that we do so that
when the mail gets to us, it has already been processed.
Senator Burris. Explain that. I don't understand that. Do
you mean the----
Mr. Burrus. The Postal Rate System has a----
Senator Burris. Would they be the catalogs and----
Mr. Burrus. They have discounts attached to their rate
system. So if the private company, the mailers, are performing
some of the postal functions, they get a reduction in their
rate based upon the value of the function they perform.
Senator Burris. Yes.
Mr. Burrus. They are avoiding our processing system. Our
processing system, as I said, is the most efficient in the
world, the most cost effective in the world. We are paying
private processors four times our salary through rate
reductions to perform the exact same work that we perform.
Unbeknown to the Senators, I am sure, we have a companion mail
processing system in this country that is operated by private
companies--Pitney Bowes, Siemens, Lockheed----
Senator Burris. Lockheed Martin?
Mr. Burrus. Lockheed. They have a private system out there
that is located within blocks or miles of the postal processing
systems and workers are performing the same work with the same
equipment under the same conditions that my members perform.
But their rates are adjusted four times our salaries in order
for them to perform that activity.
Senator Burris. But doesn't Lockheed Martin sell some of
this equipment to the Postal Service?
Mr. Burrus. Yes, they do. They sell the equipment to the
Postal Service and they use it themselves in their processing
plants.
Senator Burris. Are any of you familiar with the process
called sorting to the lights? Has that been implemented in the
Postal Service, where you have the reader--because I heard the
postmaster general say that mail is not even touched by the
human hand until it is delivered by the----
Mr. Burrus. That was an exaggeration, but I heard it, too.
Senator Burris. And what I am trying to get at is there is
a process called sort to the light where it would not be--or
mail in some of these local----
Mr. Burrus. We called it lights out facilities.
Senator Burris. Yes. Is some of the mail still being thrown
by the schemes into the slots to----
Mr. Burrus. We piloted that in Florida and it has not been
expanded nationwide. We still have workers hands-on interfacing
with mail through the processing----
Senator Burris. We are sorting to the zip codes?
Mr. Burrus. Yes. They don't do it one at a time.
Mr. West. Senator Burris, if I can comment on this----
Senator Burris. Yes, Mr. West?
Mr. West. A lot of what Mr. Burrus is talking about is a
process in our mailing--in the process of producing and mailing
our catalogues whereby what we do is we decide who is going to
be receiving our catalogs. It is all done electronically and
within computers.
And we are pulling and processing our customers' names and
addresses, and part of the most efficient way of deciding who
is going to get those catalogues involves what we call sorting
the mail and sorting it into sequence that verifies the
addresses, verifies that everything is correct, and
subsequently puts the mail into the sequence, ultimately,
within which it is going to be delivered. We are doing that,
but we are doing it in computers far before it ever even
touches a catalog. And we produce basically the customers'
names and addresses that are going to get the catalog before it
is even printed.
And I would like to comment a little bit further on one
other thing you are talking about, technology, and just one
thing that hasn't been mentioned is in the world of standard
mail and standard flats. We are at the beginning of
introducing--the Postal Service is introducing new technology
and new equipment throughout their system called Flat System
Sorting, or Flat Sequencing System (FSS), that is going to sort
catalogs in the same system in the same process similar to the
way that Mr. Potter described First-Class Mail.
Mr. Goff. Senator Burris, we do have the technology. Our
concern, especially as the managers that run the units that
process mail, is that we can have all the technology in the
world. If we don't have the volume, the technology is useless.
With the flat sorter machines, if we don't have the volume,
there is nothing to run on the machines. We have the best
technology, but we also need some people to run the machines,
so inadequate staffing comes into play. So when you have the
best technology, if you don't have the manpower to go with it,
too, it hurts us.
Senator Burris. Very good. My time is up, Mr. Akaka, so I
am going to defer to you. Please.
Senator Akaka [presiding]. Thank you very much, Senator
Burris.
My question is to Mr. Rolando and Mr. Burrus. As you both
know well, many of your private sector brothers and sisters
have been forced to accept wage and benefit cuts as a result of
the economy. Proponents of Senator Coburn's arbitration
amendment argue that public sector employee groups likewise
need to tighten their belts in order to meet our economic
challenges.
Over the last few years, how has a difficult financial
climate affected negotiating benefits through the regular
arbitration process?
Mr. Rolando. Well, the last contract we have, 2006 to 2011,
did not involve interest arbitration. It was negotiated between
the parties and I think both sides felt they have a fair
contract and we look forward to doing the same in 2011.
Senator Akaka. Mr. Burrus.
Mr. Burrus. And the last contract changed the contribution
rate between the employer and the employees on health benefits,
and all the unions agreed to shift--my union, 4 percentage
points from the employer to the employees, the other unions 5
percentage points from the employer to the employee. A major
shift. As you know, most unions over the years have resisted
very heavily in having employees pay a greater share of health
benefit costs. In bargaining the last round, we voluntarily
negotiated. Understanding the escalating costs of health care,
we voluntarily agreed to shift that cost.
We are constantly in discussions with the Postal Service,
in and out of negotiations with postal management. How can we
be of assistance? What can we do together? How can we make
changes in this time where there is significant volume loss and
financial difficulties? I am in discussions currently on a
proposal that could save the Postal Service over $1 billion. It
has not been finalized, so I am not free to share any details
of it, but we are always in that mode with postal management,
to find some way that we can jointly come up with a way to make
them more efficient to respond to the crisis that we find
ourselves in today.
Mr. Goff. Senator, I know you asked that question to my two
labor colleagues, but as part of our consultative process,
postmasters have absorbed the 1 percent increase over the
years, shifted from the employer to the employee. I think we
have started the shift even before the recession hit.
As I said in my testimony, I think there is another sector
of the Postal Service that needs to be looked at. There is a
sector, senior management, that has free health insurance and
free life insurance and I think that needs to be addressed.
Mr. Rolando. Yes, it is important, Senator, working between
contracts on issues together, and NALC has been working with
the Postal Service to adjust routes jointly. We are doing all
routes in the country twice this year to adapt to the current
fluctuations that we have in the volume. That is an important
part of the process. It saved the company quite a bit of money.
Just a comment on Senator Coburn's somewhat negative
reference to the 80 percent labor cost in the Postal Service,
speaking for my members, if you look at the dedication and the
productivity of those employees, I believe the Postal Service
and the ratepayers are getting a great return for that cost.
Senator Akaka. Mr. Rolando, I want to follow up on a
question that I asked Mr. Potter on the first panel about a 5-
day delivery week. As I said, reducing a 6-day week would most
likely save money by reducing staff hours on the street
delivering mail. Do you believe that buy-outs or regular
attrition alone is enough to reshape and reduce the mail
delivery workforce to a 5-day rotation?
Mr. Rolando. Well, the Postal Service is doing a study on
that now and we have asked for the data that they are looking
at that led them to that conclusion, and to date, we haven't
received that data, so it is difficult for me to comment on
that.
I will say that, yes, certainly reducing from 6-day to 5-
day on its surface would save costs. So would reducing to 4
days, 3 days, 2 days, and 1 day to eliminate costs. But until
you look at the overall effect of your ability to generate new
revenue using the network as we know it today, I think it is
kind of silly to make any type of structural changes like that.
Senator Akaka. Mr. Burrus and Mr. Goff, can you tell me
more about the impacts you would expect on post office workers
and postmasters if the delivery week were shortened?
Mr. Burrus. I think it would be the demise of the U.S.
Postal Service, and the impact would be there would be no more
postal employment. If you go from 6 days to 5 days, what
follows is the relaxation of monopoly. American citizens will
demand receipt of important items--or routine items--on that
day, and if the Postal Service doesn't deliver it, somebody
else will. And you will have entrepreneurs that will start in
your major cities, where it is cheaper. You will have
entrepreneurs that will see an opportunity to have home
delivery, access to the mailbox, access to people's homes with
items that individuals, American citizens, are expecting and
wanting.
I think it will be the demise of the Postal Service. It
will be the first step down a road that says, if someone else
can do it on the Saturday, why can't they do it on Friday and
Thursday and Tuesday? I think it takes us down that road and
the Postal Service will become irrelevant.
Senator Akaka. Mr. Goff.
Mr. Goff. Senator, in the remarks that Mr. Rolando made
about the study, there is a study going on and we responded to
some inquiries from the Postal Service and our first comment
was that we oppose 5-day delivery for several reasons. The
first reason being that in the last three hearings, we have
heard three different figures as to what the savings would be
with 5-day delivery. Whose figures are correct? Which ones? We
heard a different figure today on the savings on 5-day
delivery. So, just on that point, convince me that we all have
the same figure and maybe we will be in favor of this.
What concerns the constituents that I represent is that we
have problems now in smaller offices, especially in the rural
areas. We are having difficulty hiring people to replace the
postmaster, so he or she can have their day off and not break
the FLSA law. What happens is that nobody comes in and replaces
them. We have tasks right now, we cannot hire people. This
would just prolong it and it would do something that would be
even more drastic.
I agree with Mr. Burrus. I think 5-day delivery is a demise
of the Postal Service. After 39 years, I don't want to see this
institution go away. I am convinced that it will be here 200
years from now.
But some of the things that we need to look at are those
that Mr. Potter mentioned today. I think Senator Carper asked
about what would happen after the third day. The postmaster
general said, we have experience after holidays now, and I kind
of laugh. I said in my statement, let us not take the approach
of being an ostrich. Let us not bury our head in the sand. Come
out to a post office and see what happens to us on the day
after a holiday, and when we are trying to make up for the
overload from the weekend. It is a different story if you are
actually out there doing it.
Senator Akaka. Thank you. Mr. Burris, any questions?
Senator Burris. Yes. Mr. Goff just hit on--that is where I
was going with the postmaster on that reduction, on that 11
percent increase and he says, well, we have holidays, but this
would be a regular process every day and I am wondering what
impact would that have on the processing and the letter
carriers having to carry that 11 percent every Monday----
Mr. Goff. The concern that we have is that the savings
realized by not delivering on Saturday would be offset by
Monday and Tuesday, trying to catch up from the weekend.
Senator Burris. Do you all pay overtime, by the way?
Mr. Goff. Yes, there is. After 8 hours a day, 40 hours in a
week.
Senator Burris. And is it double or time-and-a-half?
Mr. Burrus. We have a sliding scale.
Senator Burris. A sliding scale?
Mr. Burrus. We have penalty pay, that if you violate
certain limitations, then it is double-time, twice the salary,
that we have time-and-a-half and then double-time.
Senator Burris. So I am wondering how they are calculating
this $3.2 billion savings by going to 5 days a week and cutting
out 677 stations and units. I don't even know how that is going
to take place because he said they are just studying it.
Mr. Goff. Yes. As Mr. Rolando said, I think it would be
incumbent upon us to see the final product of the study----
Senator Burris. That is correct.
Ms. Goldway [continuing]. To give us the correct figure.
Maybe all the parties that came up with the different figure
will come close then. But until we have that study, until it is
completed, and until the stakeholders are included in that
study, then we are not going to get a good figure out of it
anyway.
Mr. Rolando. It is interesting that the Postal Regulatory
Commission, I believe, put the savings at closer to $1.9
billion, I believe. Whichever figure you pick, in light of
cutting out one-sixth of your service of a $75 billion
operating budget, again, it seems kind of a silly road to go
down.
Senator Burris. In terms of the cost of the First-Class
Mail--I don't mean the catalogs--I would assume that if you go
up, as the postmaster general said, from 44 cents to a 15
percent increase, that would cover the cost. That would mean
that a First-Class stamp would be 50 cents. And I heard you,
Mr. Burrus, make mention about a 50-cent stamp, or someone
mentioned a 50-cent stamp.
Mr. Burrus. I did, but that was printed in jest. They were
having a joke with my predecessor, the president of our union.
Senator Burris. Well, do you think the American public
would pay 50 cents? We get an increase every year now.
Mr. Burrus. But we don't get an increase every year, but--
--
Senator Burris. We had two in----
Mr. Burrus. The law permits an increase every year up to
CPI.
Senator Burris. Yes.
Mr. Burrus. But prior to 2006, the law provided the Postal
Service to break even over time and we were on a 3-year cycle,
so we didn't raise rates--from 1971 to 2006, we raised rates
every 3 years. The first year, they would make money. The
second year, they would break even. The third year, they would
lose money. And the law said they had an obligation to break
even over time, but it was unrelated to the CPI. It was based
upon Postal Service expenses.
Senator Burris. OK. I just have too many questions. I will
turn this over. Thank you, Mr. Chairman.
Senator Akaka. Thank you very much, Senator Burris.
I want to thank all of our witnesses today for your
testimonies, and your responses to our questions have been
helpful.
The hearing record will remain open for 2 weeks for
additional statements and questions from the Members of the
Committee for our witnesses.
Again, thank you very much. This hearing is adjourned.
[Whereupon, at 1:25 p.m., the Subcommittee was adjourned.]
A P P E N D I X
----------
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]