[Senate Hearing 111-567]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 111-567

                   NOMINATION OF HON. ALAN C. KESSLER

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

                                HEARING

                               before the

                              COMMITTEE ON
               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                                 of the

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

   NOMINATION OF HON. ALAN C. KESSLER TO BE A GOVERNOR, U.S. POSTAL 
                                SERVICE

                           NOVEMBER 19, 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 L. 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
               Kristine V. Lam, Professional Staff Member
 John P. Kilvington, Staff Director, Subcommittee on Federal Financial 
Management, Government Information, Federal Services, and International 
                                Security
     Brandon L. Milhorn, Minority Staff Director and Chief Counsel
                   Jennifer L. Tarr, Minority Counsel
                  Trina Driessnack Tyrer, Chief Clerk
         Patricia R. Hogan, Publications Clerk and GPO Detailee
                    Laura W. Kilbride, Hearing Clerk











                            C O N T E N T S

                                 ------                                
Opening statement:
                                                                   Page
    Senator Carper...............................................     1
Prepared statement:
    Senator Carper...............................................    15

                               WITNESSES
                      Thursday, November 19, 2009

Hon. Robert P. Casey, Jr., a U.S. Senator from the State of 
  Pennsylvania...................................................     3
Hon. Alan C. Kessler to be a Governor, U.S. Postal Service.......     5

                     Alphabetical List of Witnesses

Casey, Hon. Robert P., Jr.:
    Testimony....................................................     3
Kessler, Hon. Alan C.:
    Testimony....................................................     5
    Prepared statement...........................................    17
    Biographical and financial information.......................    19
    Responses to pre-hearing questions...........................    37
    Letter from the Office of Government Ethics..................    53
    Responses to post-hearing questions..........................    54

 
                   NOMINATION OF HON. ALAN C. KESSLER

                              ----------                              


                      THURSDAY, NOVEMBER 19, 2009

                                     U.S. Senate,  
                           Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:32 p.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Thomas R. 
Carper, presiding.
    Present: Senator Carper.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. The Committee will come to order. Today, we 
are going to be considering the nomination of Alan Kessler to 
remain a member of the Postal Service Board of Governors. 
Normally, I would say before I give my opening statement that I 
would like to recognize the junior Senator from the 
Commonwealth of Pennsylvania to introduce our witness, and when 
Senator Casey arrives to introduce our witness, I will yield to 
him.
    The clock tells us a vote has just begun, the first of 
three, so what I would like for us to do is go ahead and go as 
far as we can on an opening statement from me, an introduction 
from Senator Casey, and maybe get into Mr. Kessler's comments, 
and then we will break when we have to for three votes in a 
row, recess, and come right back.
    But Mr. Kessler is no stranger to this Committee nor to the 
State of Delaware. He was confirmed by the Senate to serve on 
the Board of Governors in 2000, and over the course of his term 
on the Board, he has served as Vice Chair and Chair and has 
been an active, dedicated leader at the U.S. Postal Service 
(USPS) during a number of difficult years.
    Mr. Kessler is no stranger to me personally. Mr. Kessler 
grew up in Delaware. He is now our neighbor to the north. 
Actually, his parents were a neighbor to my family in the 
northern part of the City of Wilmington. He grew up in 
Delaware, graduated from the University of Delaware. He is a 
Blue Hen, not a Mud Hen, and now lives in Pennsylvania. He 
serves as an attorney in Philadelphia and serves as a longtime 
leader in a number of ways in his community.
    I would just say to Senator Casey, I have never seen a 
nominee with a list of references and activities and so forth 
as long as this one. It is amazing.
    I am delighted that the President has decided to renominate 
Mr. Kessler at a time when we know it is very tough sledding 
for the Postal Service. The Postal Service recently filed its 
financial statements for fiscal year 2009, and the data 
included in that filing showed a decline in mail volume of 
nearly 13 percent, and that resulted in a year-end loss of some 
$3.8 billion, up from $2.8 billion in the previous fiscal year.
    This loss came despite the fact that the Postmaster General 
and his team, including the Board of Governors, were able to 
achieve more than $6 billion in cost savings over the course of 
a single year, and it would have been significantly higher, 
about $7.8 billion, to be exact, if Congress and the President 
had not acted at the end of September to reduce the size of the 
Postal Service's overly large retiree health prefunding 
payment.
    The projections for the current fiscal year, frankly, do 
not look a whole lot better than the results for fiscal year 
2009. Despite an expected recovery in at least some areas of 
our economy, the Postal Service is anticipating a further 
decline in mail volume. This is not as steep as what we have 
seen in the last 12 or 13 months, but a decline nonetheless. 
That decline is coupled with the fact that savings are going to 
be harder to come by this year. The low-hanging fruit, such as 
it is, has been plucked. But it is going to result in the kind 
of massive $7 or $8 billion loss that we were expecting right 
up until the end of fiscal year 2009.
    Congress must address this problem by finishing the work 
that we began in the Continuing Resolution and permanently 
restructuring the Postal Service's retiree health obligation in 
a more rational way. The payments the Postal Service is 
required to make under the current law are simply unaffordable, 
especially during such difficult economic times when the Postal 
Service is already losing customers to electronic forms of 
communication.
    And I will also note that those payments are not related at 
all to what the Postal Service owes to its future retirees. I 
have introduced legislation, along with some of my colleagues, 
to address this problem. It has been reported out of this 
Committee, and I hope it can be considered in the full Senate, 
if not this year, then early next year.
    Another thing Congress can do is leave the day-to-day 
management of the Postal Service to the Postal Service. Too 
often, those of us here in the Senate and the House stand in 
the way of the Postal Service's efforts to streamline 
operations and remove excess capacity, especially when it comes 
to closing or consolidating retail and processing facilities.
    We also, unfortunately, prevent the Postal Service from 
changing delivery frequency to adjust to the changing mailing 
economy. Studies have shown that the elimination of Saturday 
delivery alone could save the Postal Service upward of $3 
billion per year, and I would note that is not an idea without 
controversy, so let the record show that. But in many ways, I 
think we need to let Postal Service management do what it needs 
to do to manage its way through the crisis it currently faces.
    Mr. Kessler, you have about a decade's worth of experience 
in making these kinds of decisions as a member of the Board. 
Your tenure started with the financial crisis and coincided 
with the September 11, 2001, attacks, anthrax in the mail, and 
now another financial crisis, perhaps the worst we have seen in 
decades. Some might say that you just are plain bad luck. 
[Laughter.]
    I would not say that, but some might say that. [Laughter.]
    So I am pleased nonetheless that you are willing to take 
that experience and apply it to yet another term, 7 years this 
time, on the Board. I look forward to spending some time with 
you this afternoon exploring how you would use your experience 
and knowledge of postal issues to continue the Postal Service's 
streamlining efforts and, perhaps more importantly, help lead 
the way in efforts to attract new business and retain what is 
already there.
    And Senator Casey, you have been great to join us, and I 
would love it if you would introduce your friend and mine, Mr. 
Kessler.

TESTIMONY OF HON. ROBERT P. CASEY, JR., A U.S. SENATOR FROM THE 
                     STATE OF PENNSYLVANIA

    Senator Casey. Mr. Chairman, thank you very much for this 
opportunity. I am honored to be here today. I know that a vote 
has just started, so I will be brief--as you know, when a 
Senator can be brief like you and I are trying to do, that is 
hard to do sometimes in the Senate, but we are going to do it.
    Senator Carper. But we are better at it than most.
    Senator Casey. Let me say first, Mr. Chairman, thank you 
for your leadership on so many issues. I never had a chance to 
talk to Mr. Kessler about this particular topic, meaning your 
leadership when I started here 3 years ago. Senator Carper has 
been a great mentor to those of us who are new, and now we have 
two new classes here. We are grateful for that.
    Senator Carper. Let the record show, Senator Casey and I 
mentor each other. [Laughter.]
    We are support groups for one another.
    Senator Casey. Thank you very much. I am honored to be here 
to introduce or in large measure to reintroduce Mr. Kessler to 
this Committee and to this continuation of his public service.
    I have known him a long time, and I have to admit up front 
that I do not sit here infused with objectivity because I have 
known him and I have strong feelings for him as a friend, but 
probably more importantly, I know his commitment to public 
service at a time when we need more people who are willing to 
dedicate a portion of their life to service to our country.
    In the case of Mr. Kessler, he served the United States of 
America, the Commonwealth of Pennsylvania, and the City of 
Philadelphia, as well as other assignments. I do not want to 
get into every detail of his life, but I do want to highlight a 
couple of his professional achievements and associations.
    As a partner at the Duane Morris Law Firm, Mr. Kessler has 
handled complex litigation and worked on behalf of a wide range 
of clients, including not only Fortune 100 companies, but also 
the Commonwealth of Pennsylvania, the City of Philadelphia, the 
Philadelphia Housing Authority--that is one I didn't mention--
as well as other governmental agencies. He has served as a 
Township Commissioner, that alone merits commendation. Anyone 
who serves in local government is committed and brave at the 
same time. But he has been a member of the Philadelphia 
Planning Commission, a member of the Board of Directors of the 
Greater Philadelphia Chamber of Commerce, the Philadelphia 
Industrial Development Corporation, and the Central 
Philadelphia Development Corporation.
    He has had a strong commitment, I believe, over all these 
years to the U.S. Postal Service, which is now, over the last 
decade, as the Chairman noted, serving as Governor since 
November of 2000, Vice Chairman of the Board from January 2005 
to January 2008, and Chairman from January 2008 to January 
2009.
    His interest in and experience with the Postal Service, as 
well as his years of service in economic development efforts, 
serve the agency well as it continues to face challenges in a 
turbulent economy.
    Chairman Carper mentioned those challenges, and I know that 
Mr. Kessler has already demonstrated that he is up to the job. 
We are grateful that he is willing to continue to serve, and I 
strongly and unreservedly am here to commend his work and also 
to urge his prompt, speedy, and expeditious confirmation.
    Thank you, Mr. Chairman.
    Senator Carper. Senator Casey, that means a lot to me, as I 
know it does to Mr. Kessler, that you are here, by his side, 
and you have these wonderful things to say about him. We thank 
you very much.
    Senator Casey. Thank you.
    Senator Carper. I am told by my staff here that we have 
about 6 minutes to go on this first vote, so feel free to head 
for the floor. I am going to have Mr. Kessler raise his right 
hand in just a minute. We are going to swear him in and then 
take a break and come back and hold our hearing. But thank you 
so very much. It is great to see you.
    Mr. Kessler has filed responses to a biographical and 
financial questionnaire. He has also answered pre-hearing 
questions submitted by the Committee. In addition, his 
financial statements have been reviewed by the Office of 
Government Ethics.
    Without objection, this information will be made part of 
the hearing record. The financial data, however, will remain on 
file and available for public inspection in the Committee 
offices.
    The Committee rules require that all witnesses at 
nomination hearings give their testimony under oath, as Mr. 
Kessler knows. I am going to ask you to remain standing and to 
raise your right hand as I administer this oath.
    Do you swear that the testimony you will give before this 
Committee will be the truth, the whole truth, and nothing but 
the truth, so help you, God?
    Mr. Kessler. I do.
    Senator Carper. Please be seated.
    At this time, I had hoped we would have time for you to go 
ahead and give your opening statement and then I would run and 
vote, but I think I will miss my vote if we do that. So I am 
going to recess the Committee for probably the next 30 minutes. 
We have three votes right in a row. I should be back in about 
30 minutes. I apologize for that, but sometimes my day job gets 
in the way of these hearings.
    Mr. Kessler. Thank you, Mr. Chairman.
    Senator Carper. I will be back shortly. Thanks.
    In the meantime, the Committee stands in recess.
    [Recess.]
    Senator Carper. All right. Enough fun. Now back to a hard 
day's night.
    Well, so far, I have been able to give an opening 
statement. Senator Casey came by and gave really an uplifting 
introduction of our nominee. We have asked Mr. Kessler to take 
an oath, and he has done so. I think the next thing to do is to 
call on him to make his statement.
    Please proceed and then I will ask some questions.
    Mr. Kessler. Well, thank you, Mr. Chairman.
    Senator Carper. Thank you all for your patience.
    Mr. Kessler. Our staff from the Postal Service says I have 
done a great job so far saying, ``I do,'' so I am going to try 
to follow that up.

  TESTIMONY OF HON. ALAN C. KESSLER\1\ TO BE A GOVERNOR, U.S. 
                         POSTAL SERVICE

    Thank you, Mr. Chairman, and I do want to thank you and 
Members of the Committee for holding this hearing this 
afternoon. I am grateful to President Obama for nominating me 
to a second term as a Governor of the U.S. Postal Service. I 
appreciate the Committee's actions in taking up my nomination 
so quickly.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Kessler appears in the Appendix 
on page 17.
---------------------------------------------------------------------------
    I do want to add, on a personal basis, that I would like to 
thank the Chairman for your continued accessibility and your 
very genuine interest and concern for Postal matters. I have 
enjoyed working with you to address Postal issues and certainly 
hope to be able to continue those efforts over the next several 
years, so thank you very much, Senator Carper.
    I would also like to thank my other longtime friend from 
Pennsylvania and a great public servant, Senator Bob Casey, for 
taking the time out of his schedule. I know how busy things are 
these days. So although he has gone on to better things, thank 
you very much, Senator Casey, for doing this.
    Mr. Chairman, I have been asked why, given the rather dire 
financial condition of the Postal Service, I would want to 
serve a second term, and to that I have a simple answer. In my 
9 years of service on this Board, I have had experience with 
challenges, the likes of which I never would have anticipated 
when I was first nominated. As you alluded to, at my very first 
Board meeting, the governors were discussing the impending loss 
of a half-a-billion dollars. Now, I thought they said a half-a-
million dollars, and at that point I wondered what I had gotten 
myself into.
    But shortly thereafter, it was the September 11, 2001, 
terrorist attacks and the anthrax attacks, which shook the 
Nation, the mailing industry, and the Postal Service. A number 
of challenges have followed since then, and those challenges 
have been significant, but none more so than the current fiscal 
crisis. Quite frankly, I would not want to leave the Board in 
the middle of those efforts, and if confirmed, I hope to have a 
hand in returning the Postal Service to solid fiscal health.
    Since 2003, I have served as a member or chair of the 
Strategic Planning Committee of the Board, and I served as vice 
chairman of the Board from 2005 to 2007. I was greatly honored 
to serve as chairman of the Board in 2008. During my tenure, I 
instituted regular meetings between the Board as a whole and 
various stakeholders. I reorganized the Board's committees to 
have a full standing committee dedicated to government 
relations to allow for a more robust interaction between the 
Board and Congress. I was also the first chairman of the Board 
to address a convention of one of the Postal Service's major 
labor organizations.
    As an individual member of the Board, I have spoken 
regularly with individual stakeholders one-on-one to hear their 
unique perspectives on the many challenges facing the Postal 
Service and their ideas for addressing those challenges.
    The role of the Board of Governors is to set policies and 
goals for Postal management and to provide oversight to 
management in the achievement of those goals and policies. I 
have used my background as a business lawyer and as a former 
elected official in reviewing Postal issues and solutions. I 
have applied my legal experience to analyze the issues, and I 
have used my government experience to interact with the general 
public and elected officials and to ensure that our 
stakeholders are fully engaged.
    I believe my 9 years of experience as a governor will be 
useful in guiding the Postal Service forward during this very 
troubling financial crisis. I am hopeful of having the honor 
and privilege of continuing my commitment to the Postal Service 
and of helping to restore the Postal Service to fiscal 
stability. In short, I am dedicated to the goals we all share, 
protecting the immediate and long-term viability of America's 
Postal system and the American public's need for universal mail 
service.
    Again, I thank you very much for holding this hearing, and 
at this point, I will be happy to answer any questions that you 
have, Mr. Chairman.
    Senator Carper. Thank you very much, Mr. Kessler.
    I will start off by asking you three questions that you 
have been asked before, and they are ones that we ask of all of 
our nominees who come before us.
    Is there anything you are aware of in your background that 
might present a conflict of interest with the duties of the 
office to which you have been nominated?
    Mr. Kessler. No.
    Senator Carper. That is the best answer.
    Mr. Kessler. Thank you.
    Senator Carper. Do you know of anything, personal or 
otherwise, that would in any way prevent you from fully and 
honorably discharging the responsibilities of the office to 
which you have been nominated?
    Mr. Kessler. No.
    Senator Carper. Do you agree without reservation to respond 
to any reasonable summons to appear and testify before any duly 
constituted committee of Congress if you are confirmed?
    Mr. Kessler. Yes, I do, Mr. Chairman.
    Senator Carper. Thank you.
    I have a number of policy questions. As I think I noted in 
my opening statement, the Postal Service suffered, as you know, 
very substantial losses in fiscal year 2009 and is projected to 
lose, I think, an even greater amount of money this year. If 
confirmed, would you explain for us how you would work with 
your colleagues on the Board of Governors and with senior 
Postal management, and I would add to that labor organizations, 
organizations representing the Postal employees, to attempt to 
minimize the financial impact of the loss in revenue that the 
Postal Service is currently experiencing?
    Mr. Kessler. Thank you, Mr. Chairman. Let me say that since 
I have been on the Board, we have worked on cost issues, never 
more so than over the last few years. The Postal Service faces 
three main challenges: The continued diversion of mail by 
electronic means; the impact of the worst recession in 70 
years; and as the Chairman noted at the outset, the impact of 
the requirement to prefund retiree health benefits.
    We have continued to address those problems as well as to 
work with management to find new ways to increase volume, new 
customers, and retain our customers. We are also looking to 
identify, if necessary, Mr. Chairman, legislative alternatives 
or remedies to this.
    Since I have been on the Board, over the last 8 years, 
senior management has worked well with the Board to identify 
costs. As you know, we have taken $13 billion in costs out of 
our structure. That includes $6 billion this past year alone. 
We have worked hard on the cost side of the ledger.
    And at the same time, Mr. Chairman, it is important that we 
have worked to maintain service levels. You talked about labor 
and our workforce. Because of the great job done by our Postal 
family workforce, we had our highest service levels ever. So at 
the same time we have taken $6 billion out this past year, 
service levels have been high.
    The trick is to continue to cut costs. Our Postmaster 
General has identified over $2 billion in additional costs that 
we will take out over our fiscal year 2010. But we cannot, 
unfortunately, do it alone.
    Congress was great in helping us through this crisis this 
past year with respect to prefunding our retiree health 
benefits. That was a one-year help. I do not want to go too far 
afield, and I will be happy to talk more about the retiree 
health benefit issue, but in addition to that, we also need to 
confront and ask Congress for authority to move from 6 to 5-day 
delivery. That is not something that any of us, myself included 
in the 9 years, have gotten to summarily. We have addressed 
that issue. We have debated it in the past. And that is 
something we are also going to need help on.
    I do not know if that answers your question or if you would 
like me to discuss the labor issue.
    Senator Carper. Again, the question was focused more on how 
to grow revenues. The Postal Service had a couple of, I think, 
interesting and successful campaigns, the flat rate box 
campaign, the summer sale and fall sale. I understand that the 
Postal Service may start selling greeting cards in its retail 
outlets--maybe you have already started doing that, I am not 
sure--which seems to me to be a logical extension of what is 
already part of the business strategy of the Postal Service, 
not inconsistent.
    I understand that the Postal Service may have some interest 
in looking at other commercial ventures which could have the 
effect of raising revenues. I am not sure what they are. I 
understand they may need legislative approval. I am not 
positive, though. If you could cast any light on that----
    Mr. Kessler. Sure.
    Senator Carper [continuing] Without breaking any secrets or 
confidences, I would appreciate it.
    Mr. Kessler. Well, Mr. Chairman, the reality is that in 
addition to spending a tremendous amount of time on the cost 
side of the ledger, we have also done the same thing on the 
revenue side. I chaired the Postal Service Strategic Planning 
Committee for a number of years, and we have heard on a 
continuing basis from our new President of Mailing and Shipping 
Sources, Bob Bernstock, on ideas, some of which you have 
already mentioned, that they have come up with to help increase 
sales and volume. It has not, therefore, just been about cuts. 
It has also been a significant amount of time on the revenue 
side.
    Some of what you have mentioned, the summer sale, and I 
would expect, without divulging secrets or confidences, you 
will probably see the same type of sale on the winter side----
    Senator Carper. I would be surprised if we did not.
    Mr. Kessler. Hopefully, we do. The advertising that you 
have talked about, it seems that everyone in America is talking 
about it. The flat boxes have caught hold. They have been a 
great jolt. The Board's role is to set broad policies and 
goals. We are not a Board that micromanages. On the other hand, 
we are a Board that wants to know how management attempts to 
achieve those goals and policies and then talks to us about it. 
We do not meet four times a year. We meet almost monthly, and 
we meet in committees, and we go over these things. We do not 
micromanage, but we do provide oversight, and we want to know 
what is working and what is not working. That includes the 
Postal revenue side.
    The issue about what other products or services we should 
offer, it is true, we are not going to be able to go forward in 
the future simply on what some might call traditional Postal 
products. We do understand we have to run some of these by the 
Postal Regulatory Commission, and with the greatest respect to 
the Postal Regulatory Commission, it would be helpful if we had 
a little flexibility there. We have talked about a product like 
stored value gift cards. The Postal Regulatory Commission has 
said, no, that is not a traditional Postal product. If we are 
not given the flexibility there, then I suspect we are going to 
have to come back to Congress and get that flexibility to do 
those kinds of things.
    I wish I could be a little more specific in terms of the 
kinds of products and services that might be out there in the 
future. Senior management has assured the Board that they are 
working on a study on additional products and services. They 
will come back to us. Hopefully to the extent we can proceed 
with those without Congressional approval, we will. As I said, 
I wish I could tell you more, but we don't have that full study 
at this point. But I can assure you that the Board is very 
interested and diligent in pushing the revenue and new product 
side as much as the cost side.
    Senator Carper. It is not enough for the Congress to 
criticize the Postal Service for rolling up ever-larger 
deficits, and to the extent that there are reasonable ideas 
that will help on the revenue side or reasonable ideas that 
will help on the expense side, we need to be more open to those 
than we have been in the past.
    We have already touched a little bit on my next question, 
which deals with the prefunding of future health obligations. I 
will come back to you just briefly and ask you to reiterate for 
us, in your view, how important is it for those of us in 
Congress to find some way to permanently restructure the Postal 
Service retiree health obligation?
    Mr. Kessler. Well, first of all, Mr. Chairman, let me say 
that when this arose in the 2006 reform discussions and then as 
law, I do not think anybody at that point could have foreseen 
the recession, the size and the impact that it has had on the 
Postal Service. So now we roll forward a couple of years, and 
again, we have taken $13 billion in costs out, $6 billion in 
one year alone, and yet in that one year that we already took 
$6 billion in costs, we would not have been able to make the 
payment to the Treasury in September if we had not received 
relief from Congress.
    That is going to continue. I note that I do not know that 
there is another Federal agency, or for that matter a private 
employer, that has such a prefunding obligation. And we are 
being told now, Mr. Chairman, that we expect to lose $7 billion 
in 2010, possibly $11 billion in 2011. It is imperative that 
everyone know that September will roll around and we will not 
be able to make that payment unless we get relief. What is 
envisioned by the Senate bill, it is hoped, is not another one-
year relief.
    This is going to continue to be something that we are going 
to have to face, and it is imperative that we get this relief. 
In terms of the short-term relief we need and then long-term 
relief, this is No. 1 on the list.
    Senator Carper. Is it also No. 2 and 3? [Laughter.]
    Mr. Kessler. It is No. 2 and 3.
    Senator Carper. All right. A different topic. As you know, 
the Postal Service receives criticism whenever it attempts to 
close or to consolidate facilities. What do you think the 
Postal Service needs to do to address this criticism and, where 
necessary, eliminate excess retail and processing capacity?
    Mr. Kessler. Well, these are tough times, Mr. Chairman. 
Anything that the Postal Service does to address those tough 
times is going to impact somebody. And we can talk about 5-day 
delivery. Whatever we talk about is going to impact 
stakeholders, and that is true with consolidations.
    Again, it is important to note the distinction and the 
roles. The Board sets policies and goals. We do not tell senior 
management, well, you should close this facility or consolidate 
this facility but not that facility. We do get a full briefing. 
What we do ask for is that our stakeholders and our elected 
officials--Senate, Congress--be fully advised and informed and 
engaged. Engaged means that there be a discussion and not a 
decision and it is a done deal.
    The reality is that our volume has shrunk considerably, and 
we have talked about ways to get that volume up. But our volume 
has dropped 27 billion pieces of mail, from 202 billion to 175 
billion. I think it would be irresponsible as that volume 
shrinks to not also look for ways to shrink the network, to ask 
the questions whether a facility is absolutely necessary in 
this economy with that volume, and if not, for ways to look to 
consolidate.
    But there are two questions or two issues there. Is there a 
need to consolidate, and then how are those consolidations 
carried out? Is there a process set up by which there is 
communication with stakeholders and an opportunity to be heard? 
And I believe there is that for most consolidations.
    I should say that, in addition to those discussions 
involving senior management, our Board is also very much 
engaged, both in general and in individual decisions. I have 
told the story often, but one of the first consolidations we 
did was in Western Pennsylvania. I do not know how the decision 
got out, but our Governor of Pennsylvania, Ed Rendell, and 
Senator Arlen Specter had me on the phone within hours. I am 
one Board member, but I spoke to our Deputy Postmaster General. 
We set up a discussion, not with Senator Specter and Governor 
Rendell, but with three county commissioners that were impacted 
in Western Pennsylvania by this decision. And it turned out 
there was a lot of, not surprisingly, misinformation. We went 
through it, and there was a good discussion. At the end of the 
day, that consolidation took place. But I think everybody was 
pleased with the information they received.
    It just highlights the importance of good communications, 
not just making decisions and having folks like you find out 
about it when it is too late, but having a process in place to 
engage the stakeholders.
    Senator Carper. Good points. In the past, I have spoken 
about the need for the Postal Service not just to focus on 
closing facilities, but also on expanding access to the 
services that it offers. This does not necessarily mean 
building new post offices, as you know, but, where appropriate, 
expanding access to alternative retail, such as Automated 
Postal Centers, centers located in places where people go 
everyday, such as our pharmacies or grocery stores.
    I do not know why, but I am always surprised when I am in a 
supermarket and the person in line in front of me not only buys 
their groceries, but also buys their postage stamps there. I 
should get over that surprise, but it occurs fairly regularly. 
I have not seen anybody order and buy stamps in pharmacies, but 
I am sure they do, but certainly in grocery stores.
    What do you think the Postal Service can do? What more can 
the Postal Service do in this area, and you may also use this 
as an opportunity to talk about purchases online.
    Mr. Kessler. Well, let me just say that I am right there 
with you. When you are in a supermarket, which I hate to say I 
do not get to that often, we need to make postage more 
accessible, in more places, as long as we are doing it 
appropriately and under our collective bargaining agreements.
    It is important to note, Mr. Chairman, that what you have 
seen and what you talk about did not just happen by accident. 
Thirty percent of our sales, give or take, is from these 
alternate retail channels.
    Senator Carper. Let me just interrupt you, if I could. 
Thirty percent? I am surprised that it is that high. Can you 
give us some idea if it is 30 percent and flat, 30 percent and 
growing, 30 percent and coming down?
    Mr. Kessler. I believe it is 30 percent and growing.
    Senator Carper. I see heads in the audience nodding yes.
    Mr. Kessler. Thank you. Thank you for that support. The 
important thing to note, Mr. Chairman, is that it did not just 
happen by accident. These are strategic decisions, and again, 
doing so within the framework of our collective bargaining 
agreements. And it is something that will continue.
    We, as I said before, are looking for a report from staff 
in terms of new products and services that kind of plays into 
this, but we expect that what you saw and what you are looking 
for are going to continue. Hopefully when I come back the next 
time, the 30 percent will be more like 40 or 45 percent.
    Senator Carper. Would you comment for us a little bit about 
how the Postal Service uses the Internet to provide services? I 
should know that. I just do not know.
    Mr. Kessler. I should know that, too. The Postal Service 
has spent a lot of time and thought on the Internet. We had a 
great exhibit a couple of months ago about a new Website 
design, and it is absolutely incredible--the interactive way 
that the designers have engaged those who go online to the 
Website, by not only making our products available, but by 
showing the benefit of using USPS.
    So I do not know that we have tried out the new Web design 
yet, but it will be great. You can have John show you, or 
somebody else, when we are ready to unveil it----
    Senator Carper. You mean John Kilvington, who is sitting 
right behind me?
    Mr. Kessler. That same John--even for those of us who are 
not, let us say, technical geniuses, we have given it a great 
deal of thought. Obviously, where we are losing most is with 
the younger generations who are not using the mail the way we 
did. I think through this Web design and our focus on the 
Internet, hopefully, we will bring those generations back into 
the mail.
    Senator Carper. I am going to ask you to just respond 
further on this point for the record. Can you talk a little bit 
about what is being done now and what is being contemplated in 
the near future----
    Mr. Kessler. I would be happy to do so.
    Senator Carper [continued] To use that as part of the 
growth engine for the Postal Service?
    We have talked about this a little bit already, but I want 
to come back to it. One of the biggest issues, in some cases a 
fairly controversial issue, the Congress and the Postal Service 
may face in the coming years is the question of whether 
delivery frequency should be 6 days a week or whether it should 
be 5 days a week, perhaps by eliminating Saturday delivery. How 
important do you think it is that Congress allow the Postal 
Service to make the business decision to eliminate a day of 
delivery if doing so is deemed necessary?
    Mr. Kessler. Mr. Chairman, let me say that I know this is 
an issue that does affect stakeholders, some more than others. 
We have had a number of discussions. When I was chair, one of 
the things that I instituted was regular meetings with our 
stakeholders, that is, our mailers and labor. We had a meeting 
with a number of our major mailers just 2 months ago during a 
retreat that we had, and probably the No. 1 topic, other than 
whether we were going to have another price increase, was 5-day 
delivery.
    It is a challenging issue and it is one that I have 
struggled with. As I may have mentioned earlier, since I have 
been on the Board, we have discussed 5-day delivery, in 
addition to the most recent discussion, twice in the past. We 
decided because of the impact on stakeholders and for other 
reasons not to go down that road.
    That was before we took $13 billion of costs out and 
another $2 billion this year. I don't want to say we are at the 
end of the road on taking costs out and further cuts in our 
workforce, but that alone is not going to do the trick. We have 
to look for different alternatives, whether it is, as we 
discussed, consolidating facilities.
    In our opinion at this time, 5-day delivery is the only 
pragmatic structural change that will generate the kinds of 
savings we are talking about, $3.4 billion according to our 
studies.
    Senator Carper. Say that amount again.
    Mr. Kessler. Three-point-four billion dollars. Senator, you 
may have seen opinion surveys. USA Today did one. Rasmussen, 
which does surveys, did one. They show that the American public 
is OK with it, at least when compared to other alternatives 
like price increases, and that the public can live with 5-day 
deliveries in this new economic reality.
    As I said, we did have discussions with mailers. We know 
some it will impact more than others. I am hopeful that we find 
a way to do 6-day delivery for those who absolutely need it, 
even if there is an additional fee or charge involved.
    We know we will lose volume, or we are told we will lose 
some volume. It is possibly up to a half-a-billion dollars, 
$500 million of lost volume. I am not even sure about that, but 
what I am sure about is when you net that out, you come away 
with $3.4 billion in savings.
    We would not be so decided that this is a way to go if it 
was not such a dire financial situation.
    Senator Carper. Thank you. I may ask you for the record to 
let us know what some other countries are doing in this regard, 
5 days a week. I will probably ask you for the record whether 
or not there are some countries that may normally do 5-day-a-
week delivery, but during certain times of the year, they may 
offer service more frequently, maybe six times a week, and if 
you could respond for the record on that, that would be great.
    Mr. Kessler. Mr. Chairman, I think it is a great question. 
I am unable today to respond, but I think it is a question that 
I am not sure we asked. If we did ask it, I am not sure what 
the answer was. So if we can supplement the record and get back 
to you with our answer----
    Senator Carper. That would be great.
    Mr. Kessler. Thank you.
    Senator Carper. The last question that I have is the 
following one. The Postal Service receives a fair amount of 
criticism due to the fact that its labor costs are such a large 
percentage of total costs, maybe as much as 80 percent. Where 
do you think the Postal Service and its employees have been 
successful over time in controlling labor costs and where do 
you think there might be opportunities for future savings?
    Mr. Kessler. Mr. Chairman, first, I want to use this 
opportunity to say that in an extraordinarily difficult year 
where, as I said before, we made $6 billion in cuts, most of 
those workforce related, we had historically our highest 
service levels ever. That is due in no small part to the great 
job that our workforce has done.
    In looking at labor, 80 percent of our costs, it is 
important to note that, again, we have already taken $13 
billion in cuts, and much of that has been in workforce and 
labor. When I went onto this Board, the Postal Service had 
somewhere in the neighborhood of almost 800,000 employees, some 
780,000 employees. It is now down to 620,000 or thereabouts. In 
this last year alone, we took 114 work hours out of our----
    Senator Carper. A hundred-and-fourteen?
    Mr. Kessler. A hundred-and-fourteen-million work hours, I 
am sorry. And we have done this while following our collective 
bargaining agreements.
    We have in place a great mechanism for labor to communicate 
with senior management, and for that matter, for labor to talk 
to the Board. I mentioned the fact that we have regular 
meetings with our stakeholders, including labor. I addressed a 
major labor convention. Our future depends, as we have 
discussed a number of times, not only on cutting costs, but on 
increasing volume, and to that, we have to look to continued 
good service by our workforce.
    So in the final analysis, labor and management must come 
together and address these issues in a collaborative fashion in 
our next round of collective bargaining. One of the things that 
has to be discussed--you asked me what other alternatives in 
addition to continuing cuts--we have to continue to address our 
network realignment, streamlining our network. I am hopeful 
that both sides, the parties will get together and do this as 
they have in the past. I should mention that they have done 
this; the National Association of Letter Carriers (NALC) has 
gotten together with management, and they have been able to 
work out route reduction agreements.
    So our hope is that we can brief you on these kinds of 
issues and do so in a positive way. There are continuing 
grounds to do this and to do it internally between senior 
management and our great unions. As I said, we would want to do 
this in the way of reporting to the Senate and not asking for 
anything legislatively.
    Senator Carper. I think that concludes my questions.
    Any brief closing statement you would like to make?
    Mr. Kessler. No. Again, Mr. Chairman, I----
    Senator Carper. I would really like your closing argument. 
[Laughter.]
    Mr. Kessler. Well, all I can say is that, as I hearken back 
to my opening, when people ask, given the great challenges that 
the Postal Service faces now, why do you want 7 more years, I 
appreciate what our friend, Senator Casey, said about public 
service. It has been a great opportunity to continue what I do 
in my day job and also do some public service.
    I really did not want to leave this Board in the middle of 
its greatest challenge. I have been engaged. I take it very 
seriously. My great hope is to leave this Board at a time when 
the Postal Service is returned to a sound financial footing and 
we can look at other issues, not financial ones.
    Thank you very much, Mr. Chairman, and I truly appreciate 
the kind things that you have said, your warm friendship over 
the years, and the fact that the Committee, John Kilvington and 
others, have moved this along as quickly as they have. It will 
be good to have a full complement of Board members, and I thank 
you very much for all the time you spend on Postal issues.
    Senator Carper. It has been our pleasure. It is important 
to our country and certainly important, I know, to us.
    I think I speak on behalf of all my colleagues, none of 
whom are here, and that is a good thing because if they were 
all here, you would be in trouble---- [Laughter.]
    As would your nomination. But I think I speak for all of us 
to say our heartfelt thanks to you for your service in this 
vein as well in a number of others over the years.
    And thank you for your willingness to continue that 
service, again, as a governor within the Board of Governors. My 
staff and I and others here look forward to working with you.
    We are going to leave the hearing record open until 12 noon 
tomorrow for the submission of additional questions, and I 
would ask as you receive those questions, including the couple 
that we have talked about here today, that you respond to them 
promptly.
    I do not know when we will be able to get your nomination 
reported out of Committee. Looking back at John Kilvington, he 
said he thought in about 2 years. [Laughter.]
    Mr. Kessler. That is not what he told me earlier, but----
    Senator Carper. No, excuse me, he said less than 2 weeks. 
Sometimes we can get bottled up around here over minor things, 
but hopefully that will not be a problem in this instance, and 
the idea is to move it as expeditiously as we can.
    When does your term end? I think you are a one-year 
carryover.
    Mr. Kessler. That is right.
    Senator Carper. But when does that end?
    Mr. Kessler. December 8.
    Senator Carper. The day after Delaware Day. The day after 
December 7, the day that Delaware in 1787 became the first 
State to ratify the Constitution.
    Mr. Kessler. I know that.
    Senator Carper. Well, again, we appreciate your being 
before us. Our thanks to your family, as well, for their 
willingness to share you with the people of our country.
    With that having been said, this hearing is adjourned. 
Thanks very much.
    [Whereupon, at 4:14 p.m., the Committee was adjourned.]




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