[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






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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii              TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware           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.
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    \1\ The prepared statement of Mr. Potter appears in the Appendix on 
page 61.
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    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.
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    \1\ The prepared statement of Mr. Goldway appears in the Appendix 
on page 76.
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    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.
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    \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.
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    \1\ The prepared statement of Ms. Kichak appears in the Appendix on 
page 88.
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    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.
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    \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.
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    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.
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    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.
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    \1\ The prepared statement of Mr. Suwyn appears in the Appendix on 
page 128.
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    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.]


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