    [Senate Hearing 111-731]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 111-731

                     THE FUTURE OF THE U.S. POSTAL SERVICE

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

                                    HEARING

                                   before the

                    FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT
                       INFORMATION, FEDERAL SERVICES, AND
                      INTERNATIONAL SECURITY SUBCOMMITTEE

                                     of the

                                  COMMITTEE ON
                   HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                              UNITED STATES SENATE

                                     of the

                         ONE HUNDRED ELEVENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                 APRIL 22, 2010

                                   __________

           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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    57-329                    WASHINGTON : 2010
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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
         Brandon L. Milhorn, Minority Staff Director and Chief Counsel
                      Trina Driessnack Tyrer, Chief Clerk
                                     ------

     SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION,
                  FEDERAL SERVICES, AND INTERNATIONAL SECURITY

                      THOMAS R. CARPER, Delaware, Chairman
    CARL LEVIN, Michigan                 JOHN McCAIN, Arizona
    DANIEL K. AKAKA, Hawaii              TOM COBURN, Oklahoma
    MARK L. PRYOR, Arkansas              GEORGE V. VOINOVICH, Ohio
    CLAIRE McCASKILL, Missouri           JOHN ENSIGN, Nevada
    ROLAND W. BURRIS, Illinois

                        John Kilvington, Staff Director
        Bryan Parker, Staff Director and General Counsel to the Minority
                       Deirdre G. Armstrong, Chief Clerk

                                C O N T E N T S

                                     ------
    Opening statements:
                                                                       Page
        Senator Carper...............................................     1
        Senator Coburn...............................................     4
        Senator Akaka................................................     5
    Prepared statements:
        Senator Carper...............................................    37
        Senator McCain...............................................    40
        Senator Coburn...............................................    42

                                   WITNESSES
                            Thursday, April 22 2010

    Phillip Herr, Director, Physical Infrastructure Issues, U.S.
      Government Accountability Office...............................     7
    Hon. John E. Potter, Postmaster General and Chief Executive
      Officer, U.S. Postal Service...................................     9
    Hon. David C. Williams, Inspector General, U.S. Postal Service...    11
    Hon. Ruth Y. Goldway, Commissioner, Postal Regulatory Commission.    12

                         Alphabetical List of Witnesses

    Goldway, Hon. Ruth Y.:
        Testimony....................................................    12
        Prepared statement...........................................    76
    Herr, Phillip:
        Testimony....................................................     7
        Prepared statement...........................................    44
    Potter, Hon. John E.:
        Testimony....................................................     9
        Prepared statement...........................................    54
    Williams, Hon. David C.:
        Testimony....................................................    11
        Prepared statement...........................................    65

                                    APPENDIX

    Vincent Giuliano, on behalf of the Association for Postal
      Commerce (PostCom), prepared statement with an attachment......    84
    Questions and Responses for the Record:
        Mr. Potter...................................................    95
        Mr. Herr.....................................................   107
        Mr. Williams.................................................   131
        Ms. Goldway..................................................   137

                     THE FUTURE OF THE U.S. POSTAL SERVICE

                                  ----------

                            THURSDAY, APRIL 22, 2010

                                     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 3:32 p.m., in
    room SD-342, Dirksen Senate Office Building, Hon. Thomas R.
    Carper, Chairman of the Subcommittee, presiding.
        Present: Senators Carper, Akaka, and Coburn.

                  OPENING STATEMENT OF SENATOR CARPER

        Senator Carper. The Subcommittee will come to order.
    Welcome to each of our witnesses. Welcome to the folks who have
    shown up and who are sitting in the audience today.
        We have some good news. There are not going to be any more
    votes today, so we are not going to be interrupted, and we will
    have a chance to have a full discussion, and you will have a
    chance to give all of your testimonies, and we will have a
    chance to ask questions. That is the good news. The bad news is
    sometimes when we have no more votes today, some of my
    colleagues like to head for the airport, and they head back to
    their own States. So I would not look for a full house here on
    our side. But these are very important issues, as you know, and
    a couple of my compadres will come in and join in the
    questions.
        But we are grateful that you are all here. This hearing is
    the latest in a series that this Subcommittee has held over the
    past several years as the Postal Service struggles to adapt to
    an evolving mailing and communications industry and more
    recently to a deeply troubled economy--an economy which I am
    pleased to report, at least from my own perception, is coming
    back. Go back a year ago, our economy was shedding 600,000 jobs
    a month, and last month I think we added about 150,000 jobs. A
    year ago, our GDP was down by 6 percent. The last quarter we
    reported on, it was up by 6 percent. And big companies
    especially are making money, investing in capital investments,
    so I think better days lie ahead. And it may not be fast, but I
    think better days are coming back. Even the Troubled Asset
    Relief Program (TARP) money, all the TARP money that we gave
    away to the banks and to GM and all this, is actually being
    repaid. And things are just actually more encouraging on a
    beautiful day here in April, Earth Day, so welcome to this
    hearing on Earth Day.
        As we all know, our economic crisis that our country has
    faced over the past 18 months has impacted just about every
    family and just about every business in our country. I would
    argue, however, that it has damaged the Postal Service and some
    of its customers more, maybe far more than most.
        The Postal Service releases its financial data I believe
    every quarter, and I have grown used to reading disappointing
    news in those reports, as have many of you. Not always. You can
    go back a couple years ago, and it was not that long ago that
    the Postal Service actually paid down its line of credit to the
    Treasury and had right-sized the organization and found a lot
    of ways to trim costs. But the last year and a half has been
    very challenging.
        The latest report is for the first quarter of fiscal year
    2010. The latest report is largely more of the same, at least
    more of the same we've seen over the last couple of years. And
    in a period that coincides with the holiday season, usually the
    Postal Service's most successful quarter, mail volume was down
    compared to the previous year, resulting in a loss of just
    under $300 million, and that is in a quarter where the Postal
    Service usually makes money. It is sort of like a lot of our
    retailers in this country make money. That is where they make
    their money in that quarter, as we know. And even those dismal
    results are unfortunately slightly better than many observers
    had feared.
        The Postal Service tells me that while some sectors of our
    economy have shown signs of recovery--and I spoke to that
    earlier--businesses and the public at large are not yet rushing
    back to hard-copy mail, at least not yet. During the depths of
    the recession, the Postal Service hired three highly respected
    consultants to look at its business model and the future of the
    mail. Their findings make it clear, at least to me, that we
    should not count on growing mail volume in the coming years to
    fix the Postal Service's financial difficulties.
        According to data released in early March by the Postal
    Service, even after our economy has begun to pick up steam--and
    it is--mail volume is expected to increase only slightly from
    where it is today. However, electronic diversion of the mail is
    expected to continue to increase over the next decade or so. By
    2020, I am told that mail volume could be as low as 118 billion
    pieces. That is nearly 60 billion fewer pieces than the Postal
    Service handled in 2009 and 95 billion pieces fewer than the
    Postal Service saw and handled in 2006, which I believe was the
    busiest mailing year that you all had experienced to date. This
    trend, according to the Postal Service, will lead to more than
    $230 billion in cumulative deficits between now and 2020.
        Now, I know this is just one group of consultants'
    estimates, I think very highly regarded consultants, but it is
    one group of consultants' estimate of where things are headed
    for the Postal Service or could be headed for the Postal
    Service. In many ways, it is a worst-case scenario because it
    assumes that the Postal Service will not be able to attract
    significant new revenues through innovation or new products or
    new services. It also assumes that Congress will not act to
    address certain key issues such as the Postal Service's retiree
    health obligations.
        These dire predictions, of course, must be analyzed before
    we take dramatic action to fundamentally change the nature of
    the Postal Service. That said, we would be foolish if we were
    to hesitate and hope for a return to the golden years, if you
    will, of the 1990s and the early 2000s.
        We need, I believe, to face the reality of today. As
    technology advances, more and more Americans will take
    advantage of e-mail, of electronic bill pay, and other
    innovations to communicate, conduct business, and even read
    periodicals that once arrived in their mailboxes.
        In addition, we need to realize that the day of reckoning
    for the Postal Service may not come in 2020 or some other
    distant date. It could come next year. I understand that if the
    Postal Service does not receive some sort of assistance from
    the Congress in the very near future, the Postal Service could
    run out of cash and borrowing room at some point in 2011 as
    they bump against their line of credit with the Treasury. This
    would put the Postal Service's ability to meet payroll and
    deliver the mail our Nation counts on in great danger.
        So I believe it is imperative that the Congress, the
    Administration, the Postal Service, and other stakeholders work
    together in the coming weeks and months to develop a package of
    reforms and adjustments that can get the Postal Service through
    its immediate crisis while setting the stage for longer-term
    changes. In doing this, we must set aside the old biases and
    parochial interests that influenced and in some cases hindered
    previous postal reform efforts. Instead, we must concentrate on
    preserving the service that postal employees provide to the
    American people.
        Some of the changes we would make or we should make are, I
    think, plain common sense. For starters, we should restructure
    the aggressive front-loaded retiree health pre-funding schedule
    that was included in the 2006 postal reform bill. That payment
    schedule was developed when mail volume was high, and it was
    written into the law long before the current recession began
    and at a time when electronic diversion of the mail was
    expected to progress more slowly than appears to be occurring
    today.
        We should also carefully examine the Postal Service
    Inspector General's contention that the Postal Service has
    significantly overpaid its obligation to the old Civil Service
    Retirement System. If his findings are accurate, fixing this
    error alone could go a long way toward addressing the Postal
    Service's current and future challenges.
        I must point out, however, that addressing these retiree
    health and pension issues will not end our work. The savings
    that would be generated by those fixes would cover only a
    portion of the Postal Service's long-term deficits. It would be
    irresponsible for them to ignore or significantly delay the
    more difficult changes that will need to occur.
        One of these changes could be the elimination of Saturday
    delivery, which the Postal Service formally proposed at the end
    of last month. According to the Postal Service, moving to 5-day
    delivery could save the Postal Service more than $3 billion a
    year. We need to spend some time examining the details of what
    the Postal Service has put forward, but I am not aware of any
    changes, structural or otherwise, that would save this much
    money and help the Postal Service preserve the quality of
    service it does provide throughout the rest of the week.
        The other difficult change that could come in the future is
    the transformation of the Postal Service's network of retail
    facilities. The Postal Service currently maintains more than
    36,000 post offices and other retail units. Postal management
    envisions replacing a number of these facilities with alternate
    retail options. This could involve increased Internet sales and
    the use of unmanned postal kiosks. It could also involve
    providing postal retail access in grocery stores or other
    businesses that are open longer hours and are more likely to be
    located in areas where postal customers and potential postal
    customers conduct their business and live their lives.
        I think that is an interesting proposal which, if executed
    well, has the potential to actually expand retail access while
    maybe saving some money, too.
        Both of these efforts--the move to 5-day delivery and the
    restructuring of the Postal Service's retail network--will be
    hampered, unfortunately, by a roadblock that the Congress
    places in the Postal Service's way. I have stated any number of
    times that Congress does not always do a good job behaving like
    a 535-member board of directors for the Postal Service. In the
    2006 postal reform bill, we tried to give the Postal Service,
    if you will recall, the ability to operate more like a
    business, including allowing the Postal Service to adjust
    delivery speed and frequency over time in response to changes
    in the market.
        We on this side of the dais need to do our oversight and be
    certain that the Postal Service is on the right path, or at
    least be as certain as we can. But it is long past time for us
    on our side, on the legislative side, to largely get out of the
    way and allow postal management to take the steps that it needs
    to take in order to adjust to the new realities that the Postal
    Service faces.
        We have been joined today by a couple of my colleagues,
    including a fellow with whom I have discussed these issues, and
    from whom I have learned a lot from over the last 6 or 7 years,
    as we tried to figure out a path forward, and I am happy to
    yield to Senator Coburn and then to Senator Akaka. Welcome.

                OPENING STATEMENT OF SENATOR COBURN \1\

        Senator Coburn. Thank you. I would ask that my opening
    statement be made a part of the record.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Senator Coburn appears in the
    Appendix on page 42.
    ---------------------------------------------------------------------------
        Senator Carper. Without objection.
        Senator Coburn. I agree with a lot of what Senator Carper
    said, but we cannot just fix the pension and we cannot just fix
    the health care payments. The business model is broken. The
    generation below me does not want you, does not use you, does
    not need you. Until we figure out a way to create a revenue
    stream for the Postal Service, everything we are going to do is
    going to be futile.
        So what I would propose is that we rethink things: How do
    you allow the Postal Service to contract with the State of
    Oklahoma to do driver's licenses or to do car tags or to do
    voter registration? In other words, give them the ability to
    create a revenue stream with the great employees that they have
    so that their skills are utilized as the volume goes down.
        I think the Postal Service has done a great job on parcel.
    I think we have seen good change there. I think they are very
    competitive. But until we figure out a way to increase the
    revenue stream--and the others are false. I mean, they are
    going to come, but they are going to come out of other areas of
    the Federal Government. So the net savings to the Federal
    Government is zero, even though we transfer that back to you
    all. It is still a cost to the American taxpayers. And it is
    probably a fair cost.
        The point is we have got to have some creative thinking as
    you downsize to meet the demands of First-Class Mail, and that
    means you, the workforce, us, and your customers, especially
    your bulk mailing customers. There has to be a business plan. I
    have looked at the one that has been presented. It does get you
    out of the hole because it does not change the revenue. I still
    think the projections are low. I told General Potter last year
    at this time that his projections were too rosy, and my
    projections were better than your projections on First-Class
    Mail. You cannot keep hoping that it is going to improve,
    because it is not. It is going to continue to decline because
    we have had a cultural shift in the usage of First-Class Mail.
        I have grown daughters from 40 to 32, and none of them mail
    anything.
        Finally, I would say to you--and, Senator Carper, help me
    on this--as we go into labor negotiations, the financial health
    of the Post Office has to be a consideration as you move
    forward. It cannot be ignored even though it was stripped out
    by the House in the conference. It is ludicrous--it is like
    shooting yourself in the foot by saying, well, we are not going
    to think about what the long-term viability of this
    organization is as we negotiate labor agreements.
        With that, I have said enough, and I look forward to the
    testimony. Thank you all for being here.
        Senator Carper. Thank you very much, Senator Coburn. Now
    for Senator Akaka, from the Aloha State.
        Senator Akaka. Thank you, Mr. Chairman.
        Senator Carper. You are welcome. Thanks so much for being
    here.

                   OPENING STATEMENT OF SENATOR AKAKA

        Senator Akaka. Great to be here with you, and I would tell
    you that what your and our Ranking Member's statements have
    mentioned are certainly things that we need to consider. I
    think these are future endeavors that we need to work on.
        We find ourselves today in a very different situation than
    we did after enactment of postal reform in 2006. What looked
    like a successful new era for the Postal Service has become one
    of deep financial uncertainty. Mail volumes have steadily
    declined in the wake of the worst economic crisis this country
    has faced since the Great Depression. Americans are not using
    the mail today as they did just a few years ago. The Internet
    has replaced the post office for many consumers' communications
    and business needs. The decline in demand for some postal
    services is permanent.
        However, as traditional lines of business decline, there
    are real opportunities for the Postal Service to translate new
    ideas into revenue. I would like to work with the Postal
    Service and my colleagues to remove any barriers that may be
    discouraging profitable innovation.
        Reducing expenses is equally important. Working closely
    with employees and unions, the Postal Service has made progress
    on right-sizing its workforce. However, workforce cuts can and
    should only go so deep. The Postal Service has requested that
    Congress modify the burdensome payment schedule for pre-funding
    retiree health benefits. Now may not be the time to
    aggressively pursue pre-funding benefits. I support the Postal
    Service's request and I supported Senator Carper's bill to
    adjust these payments.
        Unfortunately, a provision affecting collective bargaining
    rights was added during the committee process which caused me
    to vote against the bill in committee. In the interests of
    moving forward with immediate payment relief, this
    controversial debate should take place apart from this
    otherwise good legislation.
        The Postal Service has taken the initiative to find other
    cost reductions to close this budget gap. Its 10-year plan
    outlines many ideas, some more controversial than others. The
    Postal Service has since asked for action on the entire
    package. However, I am convinced that some of these ideas
    demand more analysis and debate.
        Five-day delivery, of course, is one of the Postal
    Service's most controversial recommendations. This would
    especially impact postal customers in more remote areas and
    could bring about a substantial change in the universal service
    obligation. While I understand that the Postal Service believes
    this could save $3 billion per year, there are differing
    estimates. I am not convinced that enough sound analysis has
    been done to determine the real savings. Also, cutting one day
    of delivery would eliminate 17 percent of delivery service for
    a projected 5-percent savings. This is a heavy trade-off and
    one that could further reduce customer demand for postal
    services.
        Recently, the Postal Inspector General raised concerns to
    the Postal Service about potentially overpaid contributions to
    the Civil Retirement System. How this issue is resolved could
    alter the Postal Service's finances substantially, and we need
    to see what happens in that case.
        It is important that we have begun the process of openly
    discussing financial issues at the Postal Service. Others,
    including the Postal Regulatory Commission, will continue to
    contribute to our understanding of these proposals and their
    implications. I urge patience and restraint as we undertake
    this process, while recognizing the urgency for finding relief.
    It is important to gather information and identify the options
    that will best serve the interests of the Postal Service, its
    employees, its customers, and the Nation.
        Thank you very much, Mr. Chairman.
        Senator Carper. Thank you, Senator Akaka. It is great to be
    with you again.
        I am going to go ahead and introduce our witnesses,
    starting with Phillip Herr. We had a little poll up here to see
    how you really do pronounce your name, and you are the only one
    who has pronounced it ``Her.'' But since that is the way you
    pronounce it, that is the way we will pronounce it. Mr. Herr,
    we are glad to see you again, Director of Infrastructure Issues
    at the Government Accountability Office (GAO). I understand you
    have been with GAO since 1989, managing reviews for a variety
    of domestic and international governmental programs since that
    time. Welcome. Nice of you to join us.
        Our next witness is John Potter, the 72nd Postmaster
    General of the United States. And how long have you been our
    Postmaster General? About 6 years?
        Mr. Potter. Nine years.
        Senator Carper. Nine years. Does it seem like six?
    [Laughter.]
        Mr. Potter began his career at the Postal Service in 1978,
    held a number of senior management positions there before being
    named Postmaster General in 2001.
        Next we have 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. What other ones?
        Mr. Williams. It involved the Treasury and the IRS, which
    is the Treasury's second IG; Social Security; the Nuclear
    Regulatory Commission; and while I was at one of those, I
    simultaneously ran the HUD IG for about 8 months.
        Senator Carper. All right. Thank you for all that.
        Finally, we have Ruth Goldway, who is the Chair of the
    Postal Regulatory Commission. Nice to see you. Thank you for
    joining us. Ms. Goldway is currently serving her third term on
    the Commission. Before beginning her time there, she had
    served, among other roles, as mayor and city council member in
    Santa Monica, California, in the State of California's
    Department of Consumer Affairs. Welcome.
        Ms. Goldway. Thank you.
        Senator Carper. Good to see you. We would ask that you
    limit your comments to about 5 minutes, and after that, if we
    get a little too far, I will rein you in, but your entire
    statements will be made part of the record. Once you have
    completed your statements, we will start asking some questions.
        Mr. Herr, welcome. Please proceed.

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

        Mr. Herr. Chairman Carper and Dr. Coburn, thank you for the
    opportunity to participate in this hearing and discuss GAO's
    report that was released last week. Today I will focus my
    remarks on the Postal Service's financial condition and
    forecast and strategies and options to facilitate progress
    toward its financial viability.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Herr appears in the Appendix on
    page 44.
    ---------------------------------------------------------------------------
        Turning first to the Postal Service's financial condition,
    as mail volume declined 36 billion pieces in fiscal years 2007
    through 2009, the Postal Service's financial viability has
    deteriorated, leading to $12 billion in losses. Current
    forecasts are that mail volume will decline to 167 billion
    pieces this fiscal year, the lowest level since 1992. The
    Postal Service projects a record loss of over $7 billion this
    fiscal year while adding $3 billion in debt. Its outstanding
    debt will increase to $13.2 billion, close to its $15 billion
    statutory limit.
        The Postal Service does not expect mail volume to return to
    its former levels when the economy recovers. The continuing
    shift to electronic communications and payments has
    fundamentally changed how mail is used. By fiscal year 2020,
    the Postal Service projects further volume declines to at least
    150 billion pieces, the lowest level since 1986. First-Class
    Mail volume is projected to decline by another 37 percent over
    the next decade, and less profitable standard mail, primarily
    advertising that is subject to economic fluctuations, is
    projected to remain roughly flat over the next decade.
        Turning to actions needed to facilitate the Postal
    Service's financial viability, in July 2009, GAO added the
    Postal Service's financial condition to our high-risk list and
    reported that action is needed in multiple areas for the Postal
    Service to make progress toward financial viability. We
    identified strategies and options that fall into three major
    categories:
        First, compensation and benefits currently represent 80
    percent of Postal Service costs, presenting opportunities for
    cost savings. In terms of retirements, about 162,000 postal
    employees are eligible to retire this fiscal year and about
    300,000 are expected to retire over the next decade. In terms
    of benefit costs, postal employees have about 80 percent of
    their health benefit premiums paid, 8 percent more than most
    Federal employees.
        Second, cost savings can be achieved by consolidating
    processing and retail networks given volume declines. Removing
    excess capacity is necessary in the 600 processing facilities
    where First-Class Mail processing capacity exceeds needs by 50
    percent. The network of 36,500 retail facilities can also be
    reduced. Maintenance has been underfunded for years, resulting
    in deteriorating facilities and a maintenance backlog.
    Approximately 30 percent of postal revenue currently comes from
    stamps purchased at non-postal locations such as grocery
    stores, indicating that customers have already begun shifting
    to alternatives.
        Another opportunity is consolidating the field
    administrative structure by reviewing the need for 74 district
    offices and an additional eight area offices. And because cost
    cutting alone will not ensure a viable Postal Service,
    generating revenue through pricing and product flexibility is
    needed. The new Flat Rate Priority Mail boxes are an example of
    how the Postal Service has successfully generated new revenues.
        Turning to our report, ``Matters for Congressional
    Consideration,'' to facilitate progress in difficult areas such
    as realigning postal operations and its workforce, Congress may
    wish to consider an approach similar to a BRAC-like commission
    used by the Department of Defense. Congress has previously
    turned to a panel of independent experts to restructure
    organizations and establish consensus. We believe a commission
    could also help ensure that Congress and stakeholders have
    confidence in resulting actions.
        We also suggest that Congress consider changes in two other
    areas. One would be to revise the statutory framework for
    collective bargaining to ensure that binding arbitration takes
    the Postal Service's financial condition into account.
        Another change to consider would be modifying the Postal
    Service's retiree health benefit cost structure. We believe it
    is important that the Postal Service fund its retiree health
    benefit obligations to the maximum extent its finances permit.
    Currently, about 460,000 retirees and their survivors receive
    this benefit, and another 300,000 postal employees are expected
    to use it by 2020.
        In considering revisions, it will be important to assess
    what the Postal Service can afford, strike a fair balance of
    payments between current and future ratepayers, and determine
    how changes would affect the Federal budget.
        Mr. Chairman, in conclusion, no single change will be
    sufficient to address the Postal Service's pressing challenges.
    The longer it takes to realign the Postal Service to the
    changing use of the mail, the more difficult change will be.
        This concludes my prepared statement, and I am pleased to
    answer any questions.
        Senator Carper. Mr. Herr, thanks for that testimony.
        Mr. Potter, Postmaster General, please proceed.

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

        Mr. Potter. Good afternoon, Mr. Chairman and Senator
    Coburn. For the past 2 years, I have testified about the dire
    financial situation facing the U.S. Postal Service. I am
    pleased to report that the Postal Service has a plan of action
    to close the growing gap between revenue and expenses. But
    before discussing our plan, however, I would like to say a few
    words about our Inspector General's recent audit concerning $75
    billion worth of Postal Service overpayments to the Civil
    Service Retirement System pension fund. This is a significant
    finding and one that could have an enormous bearing on the
    speed with which we need to make changes. We support the IG's
    conclusion and urge you to take action on his recommendation.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Potter appears in the Appendix on
    page 54.
    ---------------------------------------------------------------------------
        Refunding the $75 billion to the Postal Service, however,
    would not eliminate the need for us to take additional actions,
    but it would lessen our immediate financial crisis.
        The Postal Service has to change in light of the recent
    downturn in mail volume and the forecast of additional decline
    due to diversion of hard-copy mail to the Internet. Our
    management team, with the support and approval of our Board of
    Governors, has developed a responsive, ambitious, and balanced
    plan that offers a way forward.
        To help close our forecasted $238 billion gap by 2020, our
    action plan has identified $123 billion worth of cost savings
    that are within postal control. Our actions include lowering
    costs through continuous improvement and effective working
    management, adopting standardized procedures within our
    network, and consolidating plants and delivery routes. We are
    also saving costs by renegotiating transportation contracts and
    engaging in new ways to purchase supplies.
        We recognize the need to grow revenue. We are embracing
    innovation through efforts like a product test with Hallmark
    for postage paid greetings, Priority Mail contract pricing, and
    Priority Mail cubic pricing, and our successful 2009 Summer
    Sale for advertising mail which we plan to offer again in 2010.
        We are also pursuing growth in areas where we already have
    a presence, like increasing the number of post office boxes
    available for rent and expanding sites where we provide
    passport transactions. Our goal is to introduce new products
    consistent with our mission and to expand and modernize our
    retail access.
        Our actions alone, though, will not close the financial
    gap. We do need congressional help in some key areas.
    Specifically, we request your assistance in restructuring the
    pre-funding of retiree health benefits, adjusting the frequency
    of mail delivery, providing the freedom to offer access to the
    Postal Service in places other than traditional post offices,
    requiring arbitrators to consider the financial condition of
    the Postal Service, applying the Consumer Price Index cap to
    all market-dominant products as opposed to on a class-by-class
    basis, introducing new products consistent with our mission,
    and, finally, helping us to acquire more streamlined oversight.
        The first two proposed changes will generate the largest
    and most immediate financial benefits and move us toward
    narrowing our financial gap. If Congress is unable to act this
    fiscal year on broader legislation, our projections show that
    we will run the risk of running out of cash early in 2011.
    Therefore, should there be insufficient time this year to pass
    comprehensive legislation, the Postal Service will request a
    reduction in our retiree health benefit trust fund payment this
    year similar to 2009.
        We recognize that our agenda is ambitious, and the
    challenge will be finding the right balance between taking
    actions necessary to mitigate our financial crisis while at the
    same time implementing a smooth transition for our customers
    and our employees. The GAO recognizes the challenges facing us,
    too. In their recently released report on the Postal Service,
    they do a thorough job of reviewing strategies for long-term
    structural and operational reform. I am pleased that many of
    the GAO's findings are consistent with the Postal Service's
    action plan. The GAO agrees with us that we need congressional
    action to remove some of our current legal and regulatory
    constraints.
        One area where we take exception with the GAO report is
    their recommendation that additional panels of experts or
    commissions be established to develop legislative options. We
    believe that a sufficient body of evidence exists to help guide
    the Congress on the changes needed for the future, and the time
    for action is now.
        Our action plan provides us a solid path to ensure that the
    Postal Service remains strong, healthy, and viable into the
    future. Our challenges are urgent, and I look forward to
    working with Congress, GAO, the Postal Regulatory Commission
    (PRC), and the entire postal community in implementing the best
    choices for success.
        Thank you for your support, and I will be happy to answer
    questions at the appropriate time.
        Senator Carper. Thank you, General Potter. Mr. Williams,
    please proceed.

    TESTIMONY OF HON. DAVID C. WILLIAMS,\1\ INSPECTOR GENERAL, U.S.
                             POSTAL SERVICE

        Mr. Williams. Mr. Chairman and Senator Coburn, I appreciate
    the opportunity to appear today to discuss the financial
    situation facing the Postal Service. The fiscal condition is
    serious, and the Postal Service has an ongoing aggressive plan
    to address it.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Williams appears in the Appendix
    on page 65.
    ---------------------------------------------------------------------------
        A concern of my office is that the plan calls for huge
    simultaneous actions across a very broad and fast-moving front.
    These will produce significant project management challenges as
    well as unintended consequences among the initiatives that now
    include the Flats Sequencing System, Intelligent Mail barcode,
    plant network and post office optimization, 6- to 5-day mail
    delivery, and a major transformation of its sales and marketing
    effort.
        A second concern is that a large portion of the Postal
    Service financial loss is not a result of the Postal Service
    business model or the Postal Accountability Enhancement Act
    (PAEA) of 2006. We believe that $7 billion of the expected $11
    billion loss this year is a mischarge by the Federal Government
    against the Postal Service. In earlier years, the mischarge
    accounted for all of the losses and the absence of
    profitability anticipated in PAEA. Until the Postal Service is
    no longer bled white by the Federal Government before it opens
    its doors for business, identifying challenges and constructing
    solutions are highly prone to error. We may be fixing the wrong
    things and learning the wrong lessons. For instance, is the
    Postal Service facing a $4 billion or an $11 billion loss this
    year? Does the Postal Service have a debt to the Treasury or
    owe nothing? These issues are not difficult to grasp or to
    correct. While the solutions are being found, I do not believe
    that contributing to benefit funds that appear to be overfunded
    is prudent during a financial crisis.
        This year, Congress directed the Postal Service, OPM, and
    OMB to develop a fiscally responsible legislative proposal for
    Postal Service benefit payments. My office has identified three
    areas for resolution:
        An exaggerated 7-percent health care inflation forecast
    instead of the 5-percent industry standard, resulting in an
    overpayment of $13.2 billion by 2016.
        An excessive 100-percent pension benefit plan pre-funding
    requirement compared to OPM's own pre-funding level of 41
    percent and the S&P 500's 80-percent rate. Even using the
    higher 80-percent funding goal would result in a $52 billion
    surplus.
        Last, the Postal Service pension fund was overcharged $75
    billion so that employees could retire at promised levels. When
    the Post Office Department became the Postal Service, employees
    that belonged to the Federal pension fund now contributed to
    the Postal Service. Retirement costs were divided according to
    the number of years employees have belonged to each fund.
    However, the Federal pension fund paid retirements based on
    1971 salaries, not final salaries. The Federal pension fund
    collected full contributions, but paid only partial benefits.
        OPM has explained that these mischarges were in response to
    what they believed to be the will of Congress expressed in 1974
    legislation. However, the 1974 language was repealed by
    Congress in 2003 when large overpayments were discovered. At
    the time, OPM inexplicably had not detected a 41-percent
    overfunding error in this $190 billion pension fund. Congress
    directed OPM to use its authority to oversee the reforms using
    accepted dynamic assumptions that include pay increases and
    inflation. OPM switched to dynamic funding for the Postal
    Service portion, but did not for their share. The Postal
    Service was forced to pay the $75 billion difference.
        Resolving these issues would provide an accurate map of
    financial challenges that require resolution. The resolution
    would also allow the Postal Service to execute its plan at a
    safer velocity less prone to error and at a pace where
    unintended consequences can be identified and resolved.
        My office does believe that long-term solutions are needed
    to effectively address a few critical areas. These include the
    optimization of the network of plants and post offices and
    changing its rigid work rules to match the ebb and flow of
    customers and mail. In addition, simplified pricing is needed
    to replace the over 10,000 prices contained in the 1,700-page
    customer manual to encourage new customers and improve revenue
    accountability. This will allow Postal Service operations to
    closely fit business opportunities.
        A significant success factor for leadership through the
    journey to 2020 will be fairness and transparency and a single
    focus on reform. Postal stakeholders have demonstrated they are
    responsible and dedicated, but they deserve assurance that
    everyone is lifting and sharing responsibilities for needed
    action. It is important to understand that the accommodations
    made outside the interests of the Nation can easily become the
    pebbles that cause a crippling avalanche, halting actions that
    the Postal Service must take.
        Thank you.
        Senator Carper. Thank you, sir. And for our final witness,
    Ms. Goldway, please proceed.

      TESTIMONY OF HON. RUTH Y. GOLDWAY,\1\ COMMISSIONER, POSTAL
                         REGULATORY COMMISSION

        Ms. Goldway. Thank you, Chairman Carper and Senator Coburn.
    Thank you for the opportunity to testify on the future of the
    U.S. Postal Service.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Ms. Goldway appears in the Appendix
    on page 76.
    ---------------------------------------------------------------------------
        I am pleased to share with you today the Commission's work
    in matters that are before the Congress as you deliberate on
    solutions for the Postal Service's future.
        On March 30, we initiated a docket to review the Postal
    Service's proposal to eliminate Saturday mail service. I want
    to personally assure this Subcommittee that I and each of my
    colleagues have an open mind on this proposal. There is some
    confusion among the press and the public. No decision has yet
    been made. We look forward to hearing both the evidence offered
    by the Postal Service and any views presented by interested
    members of the public. The Commission will hold public hearings
    so that the Postal Service, mailers, stakeholders, and the
    public offer their perspectives and insights. Nearly 2,000
    public comments have been received thus far. We are also
    scheduling seven field hearings to engage citizens across the
    country.
        On March 29, the Commission released its Annual Compliance
    Determination (ACD) which carefully reviewed the Postal
    Service's financial problems. I have printed copies with me
    here today. You received e-mail copies earlier.
        As detailed in the ACD, on September 30, 2010, the Postal
    Service must make a $5.5 billion payment to fund future health
    benefits, then make payments for worker's compensation
    obligations and meet payroll. It could run out of cash.
        Two major unresolved issues impact the Postal Service's
    finances and affect the 5-day delivery issue. The first is
    whether the Postal Service has overfunded its employee pensions
    by $75 billion, as the Postal Service's Inspector General says.
    The Postal Service has appealed its current CSRS liability to
    our Commission, a process established by the PAEA. The
    Commission will retain an independent actuary to review the
    pension calculations performed by the OPM, by the Postal
    Service's OIG, and by any alternative industry best practices.
    The review will also examine the relevant underlying laws. We
    hope to report to Congress, OPM, and the Postal Service in
    early July.
        The second issue involves the calculation and financing of
    future postal retiree health benefits funds. A recent
    Commission study found that a recalculation could lower the
    Postal Service's total liability by $35 billion and reduce
    payments by more than $2 billion yearly, while meeting the
    original funding goals of the PAEA.
        The Postal Service's Office of Inspector General suggests
    that even greater reductions are possible. My colleagues and I
    support readjusting the payments to an affordable level,
    perhaps over a longer period of time, and/or tied to the Postal
    Service's ability to pay. We see this as an essential part of
    any plan to help the Postal Service in the coming decades.
        The Postal Service's 10-year plan contemplates substantial
    financial losses. But in response to these potential losses,
    the Postal Service proposes to reduce service to cut costs. Its
    plan promises fewer employees to serve the public, fewer
    processing plants and postal-operated retail facilities,
    reduced mail collections, fewer collection boxes, as well as
    eliminating Saturday mail delivery service. Those who rely most
    on the mail--the elderly, the poor, rural America, and those
    who cannot or will not connect to the Internet--will suffer. I
    do not believe that this vision is the inevitable future of the
    Postal Service. Even in the Internet age, mail has a unique
    power to touch readers and deliver results for senders. It can
    drive sales, touch emotions, deliver votes, and shape important
    personal decisions that affect life and country.
        Despite economic volatility, terrorism, and digital
    diversion, mail has been remarkably resilient. Between 2000 and
    2008, First-Class Mail declined about 1.2 percent a year, while
    standard mail actually increased by 1.6 percent. This gradual
    shift toward a lower-margin mail mix was addressed to some
    extent in the PAEA which allows the Postal Service to compete
    and earn higher incomes in its shifting services. The recession
    has cut into the success of these ventures.
        On a somewhat positive note, it appears likely that the
    Postal Service will far exceed its own forecast this year. The
    latest financial report received by the Commission reveals that
    through the end of February, it is nearly $1.2 billion ahead of
    forecast. The turnaround in the economy may finally be
    impacting the mailing industry.
        The Postal Service's sustained efforts to increase
    productivity, improve processes, and lower its costs are
    commendable and should continue unabated. However, focusing on
    cost cutting to solve deficits is simply not enough. The PAEA
    requires the Postal Service to continue to provide universal
    service at fair and efficient rates and requires the Commission
    to carefully monitor both the rates the Postal Service charges
    its customers and the quality of the service provided.
    Reductions in service that affect the value of the service to
    customers and rate increases are really in reality two sides of
    the same coin. It would be helpful if the discussions on postal
    issues also focus on a positive and constructive approach to
    the future.
        In other words, what does the American public need for its
    constitutionally mandated communications system? How can we
    make the Postal Service more valuable to the American people?
    What new products does the public need that the Postal Service
    is uniquely positioned to provide?
        The Postal Service is capable of new ideas. I commend the
    Postal Service's efforts to build upon its Website, expand
    customer access via the Internet, and increase sales of stamps
    at supermarkets. The Service has expanded its competitive Flat
    Rate Priority Mail program, has begun offering Hallmark cards,
    and has launched volume-incentivizing sales and advertising
    initiatives. The Commission approved the Postal Service's only
    experimental product filed under the PAEA. More innovation
    should be developed by the Postal Service as soon as possible
    and, where appropriate, submitted to the Commission for review.
        In my written statement, I have outlined a number of ideas
    that emphasize value to the customer and revenues rather than
    volume losses, and that I believe could be transformative,
    positioning the Postal Service to survive and thrive in the
    coming decades.
        Thank you. That concludes my testimony.
        Senator Carper. Thank you very much for that testimony.
        Senator Coburn has to be out the door around 4:30, and I am
    just going to yield to him for however long he would like to
    question the panel.
        Senator Coburn. Thank you. I will try not to abuse that
    privilege.
        Senator Carper. Go ahead. Abuse all you want until 4:30
    p.m.
        Senator Coburn. I have to comment on Senator Akaka's
    remarks. Eighty percent of the cost in the post office is
    labor. You cannot fix this problem without looking at all the
    costs. To say that we should not consider in terms of the labor
    input in solving this problem means we will never solve it. So
    I want to move that off the table right away. I say this with
    no disrespect to our postal employees. But to say that the post
    office, as an independent service, does not have the right to
    not pay if it is supposed to pay based on what it can afford to
    pay. It is either a private company or it is not. We need to
    figure out which way we are going to go.
        Postmaster Potter, what is the status of the Flats
    Sequencing system (FSS) system and the Intelligent Mail barcode
    (IMb) system? Because, really, a good question has been raised
    here. If you cannot implement those two systems, how can you
    implement all the other things you want to do to reform the
    post office?
        Mr. Potter. The Intelligent Mail barcode system is being--
    it has been deployed. The number of mailers that are using it
    is growing by leaps and bounds every day. We have had billions
    of pieces of mail deposited using the full Intelligent Mail
    barcode. So that is well on the track to achieving what we
    expected.
        When it comes to the Flats Sequencing System, we have had
    some issues regarding the quality of the equipment. They have
    not passed muster. We are working with the vendor. We believe
    that within a couple of months we will be back on schedule. But
    we are not going to pay for a piece of equipment that is not
    performing. Where we do have the equipment running, we are
    capturing the savings that we expected to get out of that
    machine.
        Senator Coburn. OK. In GAO's report in April and in their
    testimony today, they make several recommendations regarding
    actions that Congress and the Postal Service must take to
    ensure the long-term viability of the Postal Service. Do you
    agree with their recommendations?
        Mr. Potter. I agree with all of them but one, and the one I
    have a concern about is that if we continue to study, we are
    just going to dig a deeper hole. I am of the opinion that we
    need to take action and do it as quickly as possible.
        Senator Coburn. Part of those recommendations is that any
    binding arbitration include the financial health of the Postal
    Service as a determining factor in the outcomes of labor
    contracts. Do you agree with that?
        Mr. Potter. I fully support that. It is built into my
    testimony, both oral and written.
        Senator Coburn. Mr. Williams.
        Mr. Williams. I do, sir.
        Senator Coburn. Ms. Goldway.
        Ms. Goldway. I do not think I can speak for the Commission
    on this.
        Senator Coburn. Well, then, speak for you, if you would.
        Ms. Goldway. What I believe is that there certainly should
    be more flexibility built into union work rules in the future.
        Senator Coburn. No, that is a different question. Should
    the financial health of the postal system be part of the
    consideration as we set the labor contracts for the Postal
    Service?
        Ms. Goldway. I do not think that I really know enough about
    that to answer that question.
        Senator Coburn. OK. Eighty percent of the costs of the post
    office are labor or associated with labor costs. And the fact
    that it is running a deficit, a projected deficit, even in
    spite of the recommendations we have from the IG here, it is
    still going to have a deficit. How do you run an organization
    if you are going to ignore the financial consequences of what
    is getting ready to happen to the organization?
        Ms. Goldway. I am not sure that it is the financial
    arbiter's role to make that decision. I would like to see the
    Postal Service and its employees really focus on creating a
    flexible workforce that I believe will save the Postal Service
    a great deal of money in its future labor costs.
        Senator Coburn. Well, that is one of the considerations, is
    their financial condition is one of the reasons that they want
    to have a flexible workforce. They become more efficient.
        Ms. Goldway. I think they should have a flexible workforce
    in addition to provide better service to the American public. I
    think that is part of it as well.
        Senator Coburn. Ms. Goldway, you say it is unfair for
    somebody not to get mail on Saturday?
        Ms. Goldway. No, I do not think that is what I said.
        Senator Coburn. But you said there will be harm generated
    by somebody not getting mail on Saturday. Please explain to me
    why somebody is going to get harmed by not getting their mail
    on Saturday.
        Ms. Goldway. Well, we have had testimony from small
    newspapers in rural parts of the country that deliver mail on
    Saturday. Their major strategic advantage in having a newspaper
    and a business in the community when they report on the Friday
    evening football scores of all the high schools, and if they
    cannot get that newspaper to their subscribers on Saturday,
    they are either going to fold their newspapers or they are
    going to go to their Walkman, and the money will be lost----
        Senator Coburn. The same thing is happening to the
    newspapers that is happening to the Postal Department.
        Ms. Goldway. In some cases, yes, it is true. But
    interestingly, in the rural areas----
        Senator Coburn. And we also have this Marconi device called
    the radio where you can get the scores, which was invented some
    time after the Guttenberg press. So the fact is there is
    absolutely no net long-term damage for us delivering something
    on Saturday that we, first of all, cannot afford to do. I guess
    the other way to ask the question, I would argue, is: What is
    the net benefit economically to the country and economically to
    the post office of delivering Saturday mail? When you look at
    that, I think you are going to get a different picture. The
    economic benefit is most of the businesses are not operating on
    Saturday. If you look at activity other than retail activity,
    everything else drops down in this country except retail
    activity. I just think when you are looking at the kind of
    losses the Postal Service is facing, I think there is a
    legitimate question to ask, why, when you reduce the service by
    17 percent, you only get 5 percent savings. That is a much more
    important question for us to be asking, and I think that is one
    you ought to have to answer.
        Ms. Goldway. Let me assure you that the Commission's
    process will be to ask all of the questions that you point out.
    We will look at the harm that is caused to some people and the
    great benefit that may be provided in other areas. And it is
    exactly the cost/benefit analysis that we will try to provide
    to get all the information and all the costs and make it----
        Senator Coburn. Well, I would love for you to send me how
    you calculate those football scores into that cost/benefit
    analysis.
        Let me ask one other question of General Potter. In your
    10-year plan, you describe numerous actions that are needed to
    address the financial problems that you see facing the business
    and an estimated cost savings associated with them. One of
    those actions includes a more flexible workforce. But you do
    not associate any savings from that in your plan. Why not?
        Mr. Potter. Because what we build into the plan is reduced
    work hours, and those reduced work hours are a result of
    maximizing the flexible workforce that we anticipate.
        Senator Coburn. How many work hours are you paying for now
    that you are not getting benefit from?
        Mr. Potter. We have, we will call it, standby folks, folks
    who are not productive. We are down to about 1,000 people who
    are in that status. We identify people because of the fact that
    we do not want them to just kind of gravitate into the woodwork
    and find things to do. We have reduced that number from 16,000
    down to 1,000 in the last 6 months. And so it is a matter of,
    again, identifying people and then using our contracts to move
    them to productive work. But we do have 1,000 folks who are not
    gainfully employed right now.
        Senator Coburn. OK. What about some of Senator Carper's
    recommendations about the flexibility of more areas, greater
    penetration in nontraditional postal reception and service?
        Mr. Potter. We have asked for that freedom as part of our
    plan. What we have not done, though, is we have not identified
    any specific area where we would make an investment. We worked
    with Accenture, and we looked at activities that are being done
    by posts around the world, for example, banking, selling cell
    phones, a number of other businesses, logistics that other
    posts have gotten into. And Accenture's response to us was,
    yes, there is a potential profit, but it requires risk because
    not every post that makes investments has a return, and we do
    not have the capital right now to make those investments.
        And so their suggestion to us was that we should pursue the
    freedoms, at some point in the future pursue those.
        Senator Coburn. So if you could contract with the State of
    Oklahoma where the Postal Service, would manage all the tags,
    would you support that?
        Mr. Potter. We would embrace that. We think that any
    identity card in America, whether it is a license or a passport
    or anything that has to do with identification--there is even
    discussion of future cards for health benefits. We believe that
    as the Federal Government, with our footprint, that we would be
    an ideal agency to provide that resource to the Federal
    Government.
        Senator Coburn. You could contract voter registration, for
    example.
        Mr. Potter. Exactly.
        Senator Coburn. All these things that are being done, you
    could contract with States on a per State basis to do those
    facilities.
        Mr. Potter. Yes.
        Senator Coburn. Can you do it cheaper than they are doing
    it now?
        Mr. Potter. That is a good question, and it is one that
    with our current labor rates might be challenging.
        Senator Coburn. Yes, OK. The other question goes back to
    Senator Akaka's statement. Why isn't there more than 5-percent
    savings with a 17-percent reduction in service?
        Mr. Potter. That is a good question. I will explain it on a
    very high level. First of all, we do not deliver to every
    address on Saturday that we do the rest of the week. So
    businesses that are closed Saturday, we do not deliver to those
    addresses. Our routes reflect that. We have stations in New
    York City, for example, that are literally closed on Saturday
    because there is no delivery.
        Second, one of the big differences is that we use non-
    career employees on rural routes on Saturdays, and so there are
    no savings associated with that.
        Senator Coburn. Why are there no savings with a non-career
    employee who is not going to deliver on Saturday?
        Mr. Potter. There are savings, but they are about half of
    what they would be during the rest of the week because they do
    not get benefits.
        Senator Coburn. All right. They are contracted employees?
        Mr. Potter. Well, they are part of our workforce. They are
    called non-career, but they are represented by the union. So
    when you look at those, there is an explanation for why you do
    not get the full savings out of them.
        Senator Coburn. We would be very interested in seeing your
    analysis to explain why you have a 17-percent reduction in
    service but yet only a 5-percent savings. You have given
    several excellent reasons.
        Mr. Potter. The third thing that is major is that we are
    assuming that there will be some reduction in revenue, and we
    do offset the savings with a reduction of revenue. So the
    savings are actually higher than that, and we dropped them down
    as a result of the revenue.
        Senator Coburn. I live on a rural route or almost a rural
    route, and the mail I would have mailed on Saturday, am I not
    going to mail it on Monday?
        Mr. Potter. You are going to mail it on Monday.
        Senator Coburn. So why is there a reduction in the revenue?
        Mr. Potter. Because of examples of folks like Ms. Goldway
    just described, newspapers that mail on Friday for Saturday
    delivery will not mail that Saturday paper for Monday delivery.
    And there are advertisers who target mail for Saturday delivery
    have told us that they would draw down.
        Senator Coburn. So is there a better day?
        Mr. Potter. No, there is not because we have analyzed that.
    That is our lightest-volume day of the week, and it is much
    easier to explain to the American public that we are not
    delivering on Saturday. We have businesses that are closed so
    it makes the most sense. If we pick a Wednesday, then we would
    not be delivering to businesses, and 90 percent of our revenues
    come from commercial entities. We want to continue to deliver
    to those businesses.
        Senator Coburn. Ms. Goldway, in your most recent release,
    Postal Regulatory Commission's Annual Compliance Determination
    Report, you note that 14 postal market-dominant products do not
    cover their attributable costs to the tune of an annual cost of
    $1.7 billion. Does the PRC have the authority to raise these
    rates to cover these costs? And if yes, why wouldn't you raise
    those rates?
        Ms. Goldway. That is a very important question. It is $1.7
    billion when you include the market-dominant rates and the
    contributions from periodicals, etc. They are all included in
    that.
        The difficulty is there is a real contradiction in the
    PAEA. On the one hand, it says that all rates must cover its
    costs, and the Postal Regulatory Commission should assure that
    the Postal Service does that. On the other hand, it says that
    all rates cannot go up more than the rate of inflation, the
    CPI, and especially in the last 2 years, the Consumer Price
    Index (CPI) has, in fact, been a deflation. So if you direct
    the Postal Service to do one thing, you are violating the law
    in the other relationship.
        What we have been trying to do over the years is to direct
    the Postal Service to improve that ratio so that the costs and
    the actual rates are closer together than they have been.
    Unfortunately, in some areas, like periodicals, that gap has
    gotten bigger, and what we have directed the Postal Service to
    do is to provide us a specific plan no later than next year--
    and hopefully in the context of any rate case they might file--
    to address that problem and to see how we can improve that and
    reduce that gap.
        Senator Coburn. There is no allowance for your Commission
    to--if they have not had a rate increase for a period of time,
    even though there was inflation, you do not get an opportunity
    to look at what the price was the last time they raised it and
    the cumulative inflation rate over that period of time?
        Ms. Goldway. There is an opportunity for the Postal Service
    to use its unused Consumer Price Index cap if it has not used
    it all and allocate it to a next year to raise rates more than
    the CPI. But since we are in a period of deflation, that is not
    possible.
        Senator Coburn. So even though we had 3, 4, and 5 percent
    inflation 3 years ago, they cannot utilize that if they did
    not?
        Ms. Goldway. They used almost all of the Consumer Price
    inflation rate increase that they were allowed to in their last
    rate----
        Senator Coburn. Let me ask the question another way, and I
    would love to hear Senator Carper's take on this. So, by law,
    we have said you cannot raise rates. Your volume is going down,
    and, by law, we do not allow the financial health of the Postal
    Department to be determined in any labor contracts. Maybe we
    ought to allow them to raise rates to meet the needs of their
    revenue stream. Why would we not change--and I will yield back,
    and thank you for allowing me to go first.
        Senator Carper. No. I am glad you are here. I appreciate
    very much all of your questions.
        Let me just follow up on that, General Potter, in terms of
    your ability under the 2006 legislation to raise rates above
    the rate of inflation. Do you want to just take a minute and
    tell us what your flexibility is under the law?
        Mr. Potter. Under the law we have a provision that allows
    the Postal Service to ask for an exigent rate case, and we are
    looking at that, and that would enable us to raise rates above
    the rate of inflation.
        In addressing some of the concerns that Senator Coburn just
    raised, one of the issues that we do have is that we can only
    raise rates up to the rate of inflation by class of mail. And
    so with as many classes as we have, there is an imbalance over
    time, so that constraints us.
        Senator Coburn. But my point is that is what we need to
    change for you.
        Mr. Potter. Exactly.
        Senator Coburn. You need the flexibility to make the
    revenues that you can get.
        Mr. Potter. And that is what we are requesting, Senator.
        Senator Carper. OK. I want to go back to the testimony of
    Mr. Williams. I am going to read a paragraph out of his
    testimony, and then, General Potter, I am going to ask you a
    question or two on it, if I could. It says, ``Last, in January
    2010, my office''--this is the IG--``released a report that
    illustrates how the current method of determining the Postal
    Service's CSRS pension responsibility is inequitable and
    violates accepted accounting practices. These accepted
    accounting practices require that pension funding calculations
    include inflationary adjustments. As a result, the Postal
    Service has been overcharged $75 billion.''
        Since what year would that be? Since 1970----
        Mr. Williams. Well, it would begin in 1974. And 2003 was--
    --
        Senator Carper. Overcharged $75 billion since roughly 1974.
    ``Also, the 100-percent pension pre-funding target being
    excessive when compared to the Standard & Poor's 500 and the
    OPM's achieved funding levels.''
        Let us assume, General Potter, that the IG is correct in
    saying that the Postal Service has been overcharged by $75
    billion in the way that you have been funding the CSRS pension
    responsibility. Let us say that is correct. Let us say that the
    second point here is correct also with respect to the 100-
    percent pension pre-funding target is excessive when compared
    to the S&P 500 and OPM's achieved funding levels. Let us say
    they are both correct.
        If both of those assertions are correct, how does that
    change what you need to do at the Postal Service and what we
    need to do?
        Mr. Potter. Well, we are talking about $120 billion being
    given to the Postal Service.
        Senator Carper. Those are some big if's.
        Mr. Potter. Yes, well, you are talking about $120 billion
    that, let us say in theory, was given to the Postal Service.
    What would we do with that money? Well, first, I think we would
    pay down our debt. We would make sure that Civil Service----
        Senator Carper. Debt to the Treasury?
        Mr. Potter. Debt to the Treasury, which is now at $10
    billion. We would fund our retiree health benefit system up to
    the required level, the trust fund, which would probably be
    about----
        Senator Carper. Under the 2006 law?
        Mr. Potter. Under the 2006 law. We would fund that. We
    would have plenty of money to fully fund that. And I think we
    would be in a very solid financial position for at least 5 to 7
    years.
        Senator Carper. OK. Thank you.
        I want to ask a couple more questions, if I could, of you,
    General Potter. My recollection is this is not the first time
    that a Postmaster General has raised the possibility of
    shifting to 5-day delivery, and I am not sure--who was your
    predecessor?
        Mr. Potter. Bill Henderson.
        Senator Carper. OK. One of your predecessors, I think back
    in 1980, was a fellow by the name of William Bolger. Did you
    know him?
        Mr. Potter. I was in the Service when he was the Postmaster
    General, but I cannot say I knew him.
        Senator Carper. All right.
        Mr. Potter. I was a clerk at the time.
        Senator Carper. Fair enough. From a clerk to a king.
    [Laughter.]
        To the General. But, anyway, I understand that he first
    formally suggested 5-day delivery to the predecessor committee
    for this Committee. It used to be the Governmental Affairs
    Committee, and now it is the Homeland Security and Governmental
    Affairs Committee. But I am told that in 1980 he raised the
    possibility, maybe even suggested that the Postal Service
    consider going from 6- to 5-day service. At the time he said
    other ways to save this money are not readily apparent, and 30
    years later we are hearing pretty much--well, it is not exactly
    the same argument, but we are hearing a similar kind of
    argument.
        I do not know if he is still alive, but we have gone 30
    years and the Postal Service is alive, kicking a little bit,
    but we have heard this idea before, and there turned out to be
    other things we could do to keep the Postal Service alive than
    going from 6- to 5-day service. So how is this different--I
    think I know what you are going to say, but how is this
    different from 1980?
        Mr. Potter. Well, if you look back at 1980, it was pre-
    automation, and so the Postal Service has increased efficiency
    significantly by automating mail, having machines that can read
    barcode and sort mail. In addition to that, we have seen
    significant growth in our advertising product, another hard-
    copy product. We went from a very small volume of mail in
    1980--I think it was actually in the 1970s when he was talking
    about it--to today where it actually peaked at over 100 billion
    pieces of mail, and it is 50 percent of the mail. So there was
    an opportunity to grow revenue.
        What we have facing us right now, Senator, is the fact that
    hard copy is being substituted with electronic communication,
    and so the opportunities to pursue products in the hard-copy
    arena just are not there given the fact that society is moving
    to do as much as it can electronically. And so therein lies the
    big difference.
        I think that there is some misnomer about, what we could do
    if we kept our retail operations open. At the end of the day,
    delivery still has to be paid for by the mail that we are
    delivering, and the sobering thing for me when I looked at this
    was that in the year 2000 we were delivering five pieces of
    mail per delivery per day. Today we are down to four pieces per
    delivery per day, and our anticipation is that we are on our
    way to three in the year 2020. And the mix has changed from
    First-Class Mail, and there is going to be more advertising. In
    2000, we were delivering on average in 2009 dollars, we were
    delivering $1.80 to every door every day. Today that number is
    down to $1.40, and in 2020 it is going to be down to $1. And
    while we can have other sources of revenue generated, the fact
    of the matter is delivery is not going to pay for itself going
    forward. And that is why the Postal Service Board of Governors
    proposed going from 6- to 5-day delivery, because we believe
    that delivery has to be able to pay for the amount--the
    frequency that we provide.
        Senator Carper. All right. Thank you.
        Again, a follow-up question, if I could, for you, General.
    Part of your plan for the coming year that has received the
    most attention is, as you know, the idea of maybe going from 6-
    to 5-day-a-week delivery. While polling consistently shows that
    the public at large would be supportive of such a move, at
    least when given a choice between it and other maybe less
    popular cost-cutting efforts, the proposal continues to meet
    some resistance.
        Would you take a minute or so to talk about how the
    proposal you made to the Postal Regulatory Commission on
    Saturday delivery addresses some of those concerns that have
    been raised by groups like credit card companies, like
    pharmaceutical companies, like post office box owners, and
    others who have expressed concerns to date?
        Mr. Potter. Senator, in the last 6 months, we spent a lot
    of time talking to as many stakeholders as we possibly could.
    When we originally drafted our plan for 6- to 5-day delivery,
    our savings was actually above $3.5 billion. But as we heard
    from constituencies and heard their concerns, what we have done
    is we have made adjustments to that plan, including keeping our
    network facilities open around the clock throughout the
    country, enabling folks who receive payments through the mail
    to continue to receive those payments on weekends and 24 hours
    a day, because as mail is processed, we make it available to
    them.
        When it comes to people who have post office boxes, many of
    whom are remittance type mailers, people who receive monies, we
    have decided that we are going to keep post offices open on
    Saturday. We are going to continue to sort mail to those post
    office boxes. And so folks who want to receive their mail on
    Saturday can open a post office box, and those folks who
    currently receive checks at those post office boxes will get
    their mail on Saturday.
        And so, again, wherever we could, we made accommodations to
    assure that people had access, where necessary, to the mail.
        Senator Carper. OK. Thanks. I would just say as an aside my
    next question is going to be for Ms. Goldway, but a couple of
    weeks ago, I led a congressional delegation to Afghanistan and
    to Pakistan, and we spent a fair amount of time with our troops
    up and down the country in Afghanistan. I compare their ability
    to communicate with their families and others back in the
    United States with what we faced in Southeast Asia. I remember
    during the Vietnam War how much we looked forward to receiving
    mail from our families, from home, and from friends. I lived in
    California at the time, and we deployed to Southeast Asia, but
    every week I would get the Sunday San Francisco Chronicle in
    the mail. It would come maybe 3, 4, or 5 days late, but I would
    get it. I would get the Time or Newsweek magazines. I would get
    bills. I received letters from family and friends. And when I
    was over in Afghanistan and I talked with a lot of our troops--
    and I just want to say how proud I am of them, there's high
    morale, people are working hard to do a good job, not just for
    the folks in Afghanistan but for all of us.
        But it is interesting. They still get some mail, but for
    the most part, they had cell phone service. We could not
    communicate by phone during the period of time when I was
    deployed overseas. They can communicate with their BlackBerrys
    or by e-mail. Some of them have Webcams so they can actually do
    video back home to their families. It is just a remarkable
    change in people's abilities to communicate. They can get their
    newspaper subscriptions, their magazine subscriptions, do it
    all electronically. Just a different world in a lot of
    respects.
        Mr. Potter. They cannot get those home-baked cookies other
    than through the mail. [Laughter.]
        Senator Carper. And they still look forward to those.
        Ms. Goldway, I think you have made a number of statements
    recently, including, I think, at a House hearing last week,
    that appear to me and maybe some other observers to take a
    position in opposition to the Postal Service's plans to
    eliminate Saturday delivery and close some post offices. This
    is a concern to me because we expect you as chair of the Postal
    Regulatory Commission to be objective as you consider these
    issues.
        Could you just give our Subcommittee your commitment that
    you will be approaching the hearings that your Commission will
    be holding on Saturday delivery and any future proceedings on
    post office closings and other issues with an open mind?
        Ms. Goldway. Absolutely. I believe entirely in the
    Commission's role to be the objective arbiter on this issue and
    to provide the Postal Service and the Congress with a fair and
    balanced report, to get as much information as we possibly can.
        If I have erred, I think it is because I really did feel
    that the public was concerned that this decision had already
    been made, that the pronouncements made it seem as though it
    was a fait accompli, and I really wanted to make sure that the
    arguments, both pro and con, were surfaced and discussed before
    a decision was made.
        Senator Carper. OK. Thanks very much.
        Let me just follow up with another question, if I could. I
    think you stated in your testimony that the Commission plans to
    take maybe up to 9 months to study the Postal Service's
    proposal related to Saturday delivery. It took a similar amount
    of time, I am told, for the Commission to render an opinion on
    a recent Postal Service proposal related to the closure of
    several dozen post offices. I will be real honest with you.
    That seems to me to be an awful lot of time either to consider
    the closure of a couple dozen post offices or a long period of
    time, frankly, for the Commission to complete its work,
    especially when you consider the fact that the 9/11 Commission
    came out with its report just 7 months after President Bush
    signed the bill that created it into law, and they had a whole
    lot more to say grace over than the Commission does in either
    of these instances.
        So considering the fact that the Postal Service could
    literally run out of money during that 9-month period of time,
    and given the liklihood that it could run out of borrowing room
    some time in 2011, it is important that postal management and
    Congress really hear from the Commission on the advisability of
    finding savings by going from 6- to 5-day-a-week service. Why
    do you think it would take 9 months to consider the Postal
    Service's proposal? And can you present for the record--you do
    not have to do it today, but just present for the record, if
    you would, a detailed timeline of the Commission's plan for
    examining this important issue?
        Ms. Goldway. I really share your concerns about how long
    these processes take. Unfortunately, the due process
    requirements under this provision which require us to hold
    public hearings and take formal testimony make it difficult to
    reduce the timeline very much.
        Next week, we will hold what we call a pre-hearing
    conference where we will hear from the participants and get a
    better sense of how many participants there are, how much
    information they are going to request. We have 11 witnesses
    with significant testimony that the Postal Service has
    presented to us, people who want to cross-examine those
    witnesses, take testimony of their own that they want to
    submit, and then there is time that the public needs to review
    all of those documents that are submitted to us. And when we
    add up the calendar, it seems to add up to a long period of
    time.
        We did the Station and Branch Advisory Opinion in 8 months.
    In part, that took time because there was additional
    information we needed to get from the Postal Service. But in
    all fairness, the original proposal was to close 4,000 post
    offices. By the end of the process, given the public exposure
    that process had, the Postal Service's recommendation went down
    to 137. But it was a process that I think could not be
    shortened given the due process requirements of the law.
        We will try our best, and we certainly will report to you
    after next week when we have developed the full schedule for
    the review, and we will do our best to make it as speedy and as
    efficient as possible given the constraints we have.
        Senator Carper. All right. Thank you. Again, I might be
    wrong in this, but I think the 9/11 Commission came out with
    its report about 7 months after former President Bush, had
    signed the bill that created it into law. This was a bipartisan
    Commission--I want to say about 10 people--chaired by Tom Kean,
    former governor of New Jersey, and the vice chair was Lee
    Hamilton. I think they came up with 70 recommendations to the
    Congress and to the President that they developed in that
    period of time. I think they did it unanimously, and we ended
    up adopting 45 or 50 of them. So if they can do that much and
    do it in that short a period of time on an issue that
    difficult, my guess is you all can beat that 9-month goal, and
    I would sure encourage you to.
        Ms. Goldway. We will try.
        Senator Carper. Thank you. And I look forward to your
    timeline.
        I am going to have a couple questions for everybody, but
    before I do that, I want to go back to General Potter, if I
    can. You mentioned a couple of revenue-generating measures that
    you have already undertaken, and we applaud those. I think you
    said that there are no big revenue-generating initiatives that
    can help the Postal Service make progress in closing its
    projected budget gap, underlining the word ``big.'' You also
    note in your testimony that other lines of business pursued by
    foreign posts, such as banking and selling cell phones and
    actually providing Internet service, will not help very much.
    In fact, I do not think we allow you to provide those kinds of
    services. Those are not generally allowed because they are
    deemed to be competitive with products and service offered by
    the private sector here in this country.
        But let me just ask, how did you come to those conclusions,
    the idea that there are no big revenue-generating ideas that
    are out there?
        Mr. Potter. Well, we came to the conclusion, as I said
    earlier, with the help of the three consultants that we had:
    McKinsey, the Boston Consulting Group, and Accenture. And what
    we asked them to do was explore the marketplace and look at
    opportunities to grow the business. There were over 70
    different ideas that were looked at, and, again, their
    conclusion was that in the short run they are not going to help
    us significantly close the gap, that in the long run we needed
    the flexibility. But, for example, identification cards and
    other things, there is a whole infrastructure that has to be
    put into place with a huge investment so it would take time,
    significant time, to build up that business. We talk internally
    a lot about how does growth help the business and what could we
    do, looking at new products.
        So I think if you think about products in the private
    sector or anywhere in the first year if you could generate $200
    million in revenue from a product, it would be significant. I
    mean, we are talking major products. Profit might be in the
    neighborhood of $100 million. So for us to close the gap, we
    need 70 of those. And they just do not happen. As the IG
    earlier testified, at some point in time these things become as
    much of a distraction as anything, and they do tend to divert
    your attention from what needs to be done. So that is why we
    decided, after hearing from the consultants, we were going to
    concentrate on the mail because both from a revenue standpoint
    that was our biggest opportunity to generate growth in packages
    and advertising mail, and from a cost standpoint that is where
    we have the biggest opportunity to help our financial situation
    by lowering our costs.
        And so it was not hard to conclude that concentrating on
    our core business was the most important thing that we could do
    as a management team in the short run.
        Senator Carper. All right. What percentage of your
    employees are likely to be within retirement age within, say,
    the next 5 years or maybe within the next 10 years?
        Mr. Potter. Well, as was mentioned earlier, about half of
    our employees are eligible to retire.
        Senator Carper. Right now?
        Mr. Potter. Within the next 10 years some 300,000 employees
    will be eligible to retire. We have 600,000, slightly less,
    about 593,000 career employees today. We have over 100,000
    people who are currently eligible, we have another 100,000 who
    could be optionally eligible, and another 100,000 who will
    become eligible over the next 10 years.
        Senator Carper. So you have roughly 600,000 employees
    today.
        Mr. Potter. Right.
        Senator Carper. And if you go back 10 years, 8 to 10 years
    ago, how many full-time employees did you have?
        Mr. Potter. We had over 800,000. About 803,000.
        Senator Carper. All right. So the workforce is down by
    about a quarter.
        Mr. Potter. About a quarter, yes, sir.
        Senator Carper. OK, good. Let us talk about vehicles that
    you use. You have, I am sure, tens of thousands of vehicles,
    maybe more.
        Mr. Potter. Over 200,000.
        Senator Carper. Over 200,000. Some of those are maybe new,
    but most of them are not.
        Mr. Potter. Most of them are old. Most of them are in the
    17- to 22-year-old vehicles.
        Senator Carper. And I presume that some of the older
    vehicles are not especially energy efficient. Maybe they are
    diesel powered or gasoline powered?
        Mr. Potter. They are gas-powered vehicles that you see on
    the street delivering mail. The bulk of our fleet--about
    140,000, 150,000--of those vehicles are gas powered.
        Senator Carper. I think you or someone mentioned earlier
    the percentage of your costs at the post office that are
    attributable to labor costs, personnel costs. Was it 80
    percent?
        Mr. Potter. Eighty percent, yes.
        Senator Carper. Eighty percent. Any idea what percent of
    your total costs could be attributable to the cost of vehicles,
    purchasing, maintaining, and fueling? Any idea what that would
    be?
        Mr. Potter. Transportation in general is $6 billion.
        Senator Carper. And what percentage is that, about 8 or 9
    percent?
        Mr. Potter. Yes, it is up there, right. Out of $70 billion,
    so it is in that neighborhood.
        Senator Carper. I know you all are looking at some
    different options with respect to vehicles in the future, and I
    would just be interested to hear what you are considering
    there, what are some of the opportunities, maybe some of the
    opportunities that might be out there.
        Mr. Potter. Well, the first opportunity is we have 44,000
    alternate-fuel vehicles, and we are working with a couple of
    the big car manufacturers. We found out that they have mapped
    where those alternate fuels are available, and we are
    repositioning our vehicles to take advantage of that today.
        In addition to that, we have a number of tests of electric
    vehicles we just put out for contract with five different
    manufacturers to help us design an electric vehicle that would
    serve the Postal Service. We have a number of tests that are
    being done by our engineering division on hydrogen vehicles,
    electric vehicles, hybrid vehicles. Basically, we are looking
    at them all.
        Right now there is no one technology that appears to be
    stepping out of the pack, so to speak. We are very much
    engaged, though, in looking at what we use our vehicles for and
    what might be appropriate. So certain routes we have determined
    an electric vehicle would be fine, where we would come in and
    recharge it overnight. In other cases, depending on the
    distance that needs to be traveled, we might need a hybrid
    vehicle to satisfy our needs.
        One of the things that we have concluded, though, given our
    history--because we have bought electric vehicles and other
    types of, I will call it, experimental vehicles over time. One
    of the things that we are very cautious about is to make sure
    that when we do make an investment in replacing the current
    fleet, we buy a commercially available vehicle because by
    definition a commercially available vehicle has 10 years' worth
    of parts and support. And we have had a number of situations
    where literally the manufacturer has called us up and said,
    ``Here is your money back. We are out of business.'' And so we
    have to be very careful that when you make an investment, in
    140,000 vehicles, a multi-billion-dollar investment, that it is
    one that will be supported over a significant period of time.
        The last time we made investment in vehicles, we have the
    aluminum vehicles that folks see around the country. We call
    them our ``long-life vehicle.'' They truly are long life. The
    bodies on those vehicles are still holding up. We are replacing
    drive trains, chassis, and the vehicles are fantastic.
    Actually, it was Grumman at the time who built them, and they
    are well designed. We want to make sure that when we do make
    the investment, we make as good an investment as was made 20
    years ago.
        Senator Carper. OK. I want to stay on this for just a
    moment. You mentioned what sounded like a smart idea, and that
    is, moving some of your alternative-fuel vehicles to be located
    at places around the country where they can actually get the
    alternative fuels that power them.
        I think we have talked about this before, but have you
    given any thought in your discussions with the auto companies
    that, given the fact that the Postal Service is everywhere, in
    every community across the country, and we are trying to figure
    out how to do a hydrogen infrastructure for fuel cell-powered
    vehicles, that there might be some way, some intersection there
    between your presence, the Postal Service's presence
    everywhere, and the potential need to be able to built a
    hydrogen infrastructure? Has there been any discussion of that?
        Mr. Potter. There have been discussions, but the major car
    companies I have spoken to think that the hydrogen vehicle
    technology is years away, and it appears to me that the
    technology in the short run that will be more promising is
    electric as battery technology improves.
        Senator Carper. Is there a potential for----
        Mr. Potter. And so there has been discussion with some
    electric utility companies around the country.
        Senator Carper. Talk about that for us, about the idea of
    vehicle to grid and just maybe give us a primer on that and how
    it might pertain to the Postal Service.
        Mr. Potter. Well, we do have a large fleet, and once--I
    really believe, after having discussed this--this is my
    personal opinion at some point some technology is going to win.
    And right now part of the challenge for someone who is a buyer
    of the technology is the fact that you are not sure which is
    going to come out. But at some point in time, every commercial
    van in America is going to use whatever it is, electric or
    whatnot. And at that point in time, then I think the market
    will have hydrogen fueling stations. Some of the discussions
    with the power companies were along the lines of when would you
    charge that vehicle. Could we set it up and time it such that
    they do not ratchet down their generation overnight, that we
    would be able to use it overnight?
        We have even gone so far as to have discussions with people
    about using the batteries in our vehicles to store wind power,
    wind-generated electricity, and it would be able to not only
    take energy from the grid but also return it.
        Senator Carper. Sure. Provide the storage.
        Mr. Potter. Right, and so----
        Senator Carper. The wind does not always blow. We are
    looking off the shore of Delaware to deploy a windmill farm in
    about 2 years, and hopefully when we gather here maybe 4, 5, 6
    years from now, we will have windmill farms from North Carolina
    up to Maine. The wind will not always blow every place up along
    the coast, but the idea is to link them all together. And when
    the wind is blowing we need the ability to store the
    electricity when we have more than we can use. So there might
    be some economic opportunity there.
        Mr. Potter. I am really excited about what I am hearing. It
    is a very dynamic time, and I believe that we are going to make
    a tremendous amount of progress in the next couple of years. I
    wish it were a little further along so we can make some
    decisions, but I think right now the best tack is to be patient
    and to just stay abreast of everything that is going on.
        Senator Carper. Well, I am glad to hear you are doing sort
    of like the five project deals. That is good.
        Let me ask a question of Mr. Herr and Mr. Williams, if I
    can. We have let you off pretty easy here, so I will not let
    you slip out the door without asking you a couple questions.
        The Postal Service is depending on, as we know, some very
    dire volume and revenue projections to aid in its planning over
    the coming years. I understand that these numbers came out of
    the work of a group of consultants, whom we have talked about
    already, that the Postal Service hired in the last year.
        In your view, are the projections--and, that is, the loss
    of about 65 billion additional pieces of mail and a cumulative
    deficit of more than $230 billion, is that valid? And is
    further study needed, in your view, before we begin to act on
    them? Do you want to go first, Mr. Herr?
        Mr. Herr. Yes, in doing the work, for our report that was
    released last week, we met with those consultants. We also did
    our own outreach with folks from the private sector, very broad
    outreach in terms of leading mailers and groups of that nature.
    And what we heard from the Boston Consulting Group in terms of
    their analysis was consistent with what we had heard from what
    other people are projecting.
        One thing I would note is that their worst-case scenario is
    about 118 billion pieces of mail, and their most optimistic
    scenario is about 150 billion. So there is a range, and the
    lower number would reflect a more aggressive adoption of
    broadband technology and the Internet.
        Senator Carper. OK. Mr. Williams.
        Mr. Williams. We looked at the Boston Consulting Group.
    They have a great reputation, and the report was impressive to
    us, but it was a forecast. There is tremendous background noise
    going on, too, because of the economic downturn and then the
    sort of surprising recovery. So that is tough work trying to
    peer into the future through that.
        Senator Carper. What did Yogi Berra say? ``Never make
    forecasts, especially about the future.'' [Laughter.]
        Mr. Potter. I think he might have been right about that.
    But electronic diversion is real. A number of our great
    partners are also being devastated by the digital age that
    normally provide mail to us. Books and music are being
    downloaded and many other examples. We feel good about the
    accuracy of that projection. Having said that, we tried it
    ourselves in the context of some other work. We thought it
    would be about 159 and ranging on either side of that. So they
    tended in our minds to prop up against one another, and we
    think, unfortunately, that is good.
        With regard to the projected losses, over $230 billion, I
    guess my thought there is that was an attempt to identify the
    universe or the boundaries of the space in which the action has
    to occur in order to prevent that from happening. And I think
    it is everyone's hope that we prevent all the losses from
    occurring. But if there is success, it will be inside the space
    of that $230 billion.
        Senator Carper. OK. One more quick question for General
    Potter, and then I would like to come back to you, Ms. Goldway.
        We were talking with--I do not know if it was folks from
    the Letter Carriers--maybe it was--about continuing Saturday
    service, and to continue it with folks who would be working
    maybe as something other than full-time employees, maybe as
    part-time employees, maybe people who just work on Saturdays,
    maybe even retirees, different approaches to bring down the
    cost to the Postal Service of offering service on a Saturday.
    My recollection is somewhere we may have had a conversation
    where you all actually looked at that several years ago, that
    option. Is that a live option? Is there anything to it? Yes or
    no, what do you think?
        Mr. Potter. It is an option that was looked at several
    years ago in negotiations, and it did provide savings to the
    Postal Service.
        Senator Carper. I presume it would not be close to $3
    billion, but would it be $1 or $2 billion? Any idea?
        Mr. Potter. It would be less than $1 billion a year, so in
    terms of contributions it could make, it would not close the
    gap as significantly as eliminating Saturday. Now, that in
    concert with some of the suggestions that have been made by
    Dave Williams and his Inspector General group that would make a
    contribution to help close the gap, but it is not as
    significant as elimination of Saturday delivery.
        Senator Carper. OK. Fair enough. Thank you.
        Ms. Goldway, I think you clearly stated in your testimony,
    your view that the Postal Service should not base its efforts
    in the coming years solely on the forecasts that its
    consultants have provided. You also point to other studies that
    have shown a continued demand for hard-copy mail, which would
    be encouraging.
        Tell us, if you will, for the record--or just tell us now,
    if you can, what are these studies that you cited? Can you give
    us a little more details on how the authors of those studies
    arrived at their findings?
        Ms. Goldway. Well, I am not sure my testimony pointed to
    any other studies about the continuing demand for hard-copy
    mail. In fact, Boston Consulting and McKinsey indicate that
    there is a continuing demand for hard-copy mail--not at the
    same levels that there is now, but they certainly do that. I
    have certainly spoken to American Greeting Cards and other
    greeting card manufacturers whose volumes declined only about 2
    percent in the last couple of years, and they certainly think
    in their category of mail that there is ongoing strong demand
    for mail.
        My point was that while demand for mail may be diminishing,
    there is still a very strong need to have a communications
    network that provides mail delivery, and that in order to
    support that delivery network, the kind of mail that is in the
    system has to be mail that pays its own way or, in fact, pays a
    great deal more, that the focus is too much on volume and not
    enough on value, and that we could probably talk about fewer
    pieces of mail as long as that mail contributed more to the
    system. So packages contribute more to the system, and perhaps
    there is more opportunity to raise prices on mail that includes
    the IMb and additional track-and-trace capabilities. And then
    there are other revenues that could support the post offices or
    the transportation network separate from the volume of mail
    itself.
        I think what I really wanted to point out was that I felt
    that the worst-case scenario presentation that the Postal
    Service is basing its argument on provides a kind of negative
    tone, and that if we were to focus more on some of the positive
    things that the Postal Service can do--and they are doing
    many--to create a network for the 21st Century, we would be
    better off. And those customers who want to stay in the mail or
    who use the mail would think better of it than simply focusing
    on the doom and gloom that has gotten so much attention in the
    last month.
        Senator Carper. Well, we all know that the media loves to
    report good news. [Laughter.]
        Actually, there are some good-news stories in what the
    Postal Service has been doing. I think managing through this
    diversion to electronic media, managing through the economic
    recession, the biggest recession since the Great Depression,
    and doing it in a way that they did not give anybody a pink
    slip, basically just did it, managed it through attrition, and
    flat-rate boxes and your partnerships with FedEx and UPS, those
    are good stories. They do not always get the attention that
    they deserve.
        I have maybe one more for Ms. Goldway, and then maybe one
    or two for the entire panel, then we will break for dinner.
    [Laughter.]
        Ms. Goldway, you said at one point, I think, in your
    testimony that, ``We believe that the cost-cutting efforts
    outlined in the Postal Service's plans would result in a
    decrease in mail volume.'' Could you just go ahead and
    elaborate? You have spoken a little bit about this already, but
    just elaborate a little, if you could, your concerns in this
    regard.
        Ms. Goldway. Well, if you try to mail a package and you go
    to the Postal Service on a Saturday and the post office is only
    open from 10:00 to 12 Noon and you want to do it at 2 p.m.,
    what are you going to do? You are going to go to FedEx, or you
    are going to figure out some other way to mail your package.
    You may not wait until Monday to do it. And the Postal Service
    has been reducing hours at some post offices. If you cut mail
    delivery, as they are proposing, 17 percent, there is bound to
    be some decrease in volume.
        I think the biggest picture is to think of it this way: A
    decrease in volume for a customer--a decrease in service is
    kind of the equivalent of raising the price. You get less for
    the money. So what are you going to do? Are you going to make a
    decision to go ahead and use that service, or are you going to
    find an alternative?
        So I think there is a general assumption that there is some
    decrease in volume and usage when you decrease delivery or
    decrease access. The question is the balance, and that is one
    of the things that the Commission does all the time when it
    looks at rate increases. We say, Well, there is going to be a
    rate increase, how is that going to affect volume? Some amount
    of volume is going to go out of the system when you raise the
    prices.
        So we do that sort of evaluation now, and the point is that
    we have to because the Postal Service is looking at service
    cuts, begin to look at that evaluation with regard to service
    as opposed to volume in terms of these issues. Does that make
    sense?
        Senator Carper. Yes, I think so.
        Mr. Potter. If I could just respond to that.
        Senator Carper. Please.
        Mr. Potter. I think one of the things that is misunderstood
    is this whole notion of access and the fact that we are talking
    about increased access in our plan. People choose to focus on
    one aspect of access. It is when a post office is open. Well,
    when you look going forward at the projections for mail volume,
    what we are projecting is that mail volume--and, by the way, we
    use the best-case scenario of $150 billion in our plan, not the
    worst case. We are projecting that First-Class Mail volume will
    drop by 30 billion pieces over the next decade. The bulk of
    that mail is single-piece mail, so it is people who buy stamps
    and pay bills. We believe that much of that is going to move
    online. And when you think about a post office, 50 percent of
    what they sell today is stamps. If those stamp sales are going
    away, how do we maintain access to the American public and
    balance the cost problem that we have of keeping those places
    open? Well, the way to do it is sell postage and sell packages
    and other services in other locations that are open, sometimes
    24 hours a day.
        Senator Carper. Like my supermarket?
        Mr. Potter. Like your supermarket. You know, is it 14 hours
    a day, 7 days a week? Provide that access in other locations,
    because we believe that is the way of saving revenue. Short of
    that, Dr. Coburn earlier talked about alternate sources of
    revenue, and we would like to embrace that so we could keep
    post offices open.
        But if those avenues do not work out and if we are not
    allowed to pursue them legally because of competition,
    potentially unfair competition, with the private sector, then
    we have to look at ways to provide access to the American
    public. And we are doing that with a robust effort online--we
    are improving our Website--kiosks, as well as alternate
    locations that sell--contract postal units that sell everything
    that we do in the lobby with the exception of registered mail.
        That is the kind of thing that we are talking about. We are
    talking about expanding access to grow revenue. That is part of
    our plan.
        Senator Carper. OK.
        Mr. Potter. Now, the 6- to 5-day delivery, obviously,
    people will perceive that as perhaps less service. But when 70
    percent of the American public consistently in surveys that are
    done by USA Today, by the Washington Post, by Rasmussen--when
    they all say that that makes sense as a way to go to change a
    service to keep rates affordable and to keep the service going,
    I think we have to listen to the American public.
        Ms. Goldway. If I could just add that the public polls also
    show that even in larger numbers people support wanting to
    maintain their post offices. So it may well be that we need to
    shift a lot of access and expand access in different kinds of
    services in supermarkets and through the Web. But the American
    public has a longstanding attachment to its post offices, and I
    think it would be a mistake to ignore the value and the
    potential they have for maintaining and building a system.
        Mr. Potter. If I could just add one last thing.
        Senator Carper. Please.
        Mr. Potter. Of the 36,000 post offices we have today, 5,000
    are contract postal units. The people who use those units have
    no idea that they are not in a post office, but they have
    access, greater access than they do at the current post office.
    And that is the concept we are looking to pursue.
        So I think as the American public learns more about what
    the plan is, I do not think they are wedded to the building;
    they are wedded to be able to go to a location, pick up their
    mail, visit their post office boxes, pay for postage. We just
    have to change that concept in recognition of the cost factor
    in terms of our retail costs. When you put our presence in
    other locations, you now have people who can share duties. They
    can do postal work sometimes, and at other times of the day
    they can do other work, whatever that retail outlet is, where
    today in a post office by law we can do one thing: We can sell
    stamps, sell postage.
        So, when you look at retail in general, when I walk into my
    grocery store, I see a bank, I see a Starbucks, I see the fact
    that there is traffic there and other folks are taking
    advantage of that traffic. Today only 600 people walk into the
    average post office in America, 600 people over the course of a
    week. That is 100 a day. When you start to think about the low
    end of that average, we have a lot of time where we have folks
    that are not that gainfully employed.
        Senator Carper. OK. Thank you. A couple more questions, and
    these will be for, I think, the entire panel, so Mr. Herr and
    Mr. Williams, put on your seat belts, here we go.
        Perhaps the biggest issue on the table now, as we consider
    how to address the Postal Service's financial difficulties, is
    the Postal Service's retiree health and pension obligations. We
    talked a little bit about this, but I want to come back before
    we close and return to it.
        I think Mr. Williams makes a good case in his testimony
    that Congress and OPM have done the Postal Service and its
    customers a disservice over the years in miscalculating what
    the Postal Service owes the Federal Government to care for
    postal retirees. I do not know that the Congress actually has
    done that. I do not think we actually calculated or
    miscalculated what the Postal Service owes, but somebody has,
    and maybe it is OPM. But it is clear that on the retiree health
    side I think we are way too aggressive in asking the Postal
    Service to pre-fund its retiree health obligations. It's maybe
    the most conservative approach I have ever seen, pre-funding
    the health obligations of an employer in this country, private
    sector or public sector.
        I will start with you, General Potter, but let me just ask
    each of you if you agree that further changes, even some
    painful ones, will still be necessary even if we are able to
    address retiree health and pension issues?
        Mr. Potter. Senator, as I said earlier, depending on what
    the changes are, I believe that ultimately what we have put
    together in our package makes sense for America. If changes are
    made, significant changes, along the lines of what our OIG has
    proposed--and I have to tell you, I do not always agree with
    the IG, but in this case, I am 100 percent behind him.
        Senator Carper. I am not surprised. [Laughter.]
        Mr. Potter. But we could delay some of the changes,
    frequency of delivery and, again, depending on the magnitude of
    the change that is made with CSRS and retiree health benefits.
    But when you look out long term, the type of changes that we
    have been described in our plan will need to be made by the
    U.S. Postal Service in order to continue to be financially
    stable going forward.
        Senator Carper. OK. Thank you. Mr. Williams.
        Mr. Williams. I think even going into the storm, for a
    number of reasons, some of them were just the fact that the
    world was moving faster and we were becoming more agile--we
    were way too large, even before we entered this economic
    downturn and the rest of the storm.
        Senator Carper. You think we were way too large, ``we''
    being?
        Mr. Williams. The Postal Service. My office is just about
    right, by the way. [Laughter.]
        Mr. Potter. That is an example, Senator, of where we
    disagree. [Laughter.]
        Senator Carper. We live in a country where about a third of
    us are overweight or obese. Is that where you are going with
    that?
        Mr. Williams. I do think we owe it to our customers to have
    an organization that is the proper size, not larger than demand
    requires, and we certainly owe it to the employees to try to be
    as faithful to them as they have been to us. And I think that
    if we have time to right-size--we definitely have to right-
    size. And if we have time to, we certainly want to make sure
    that we can rely on attrition and shrinkage of things such as
    overtime to ride out that right-sizing exercise, which I am
    sure is essential.
        We want to be agile. We want to be able to take on the
    future. For every reason in the world, we want to right-size,
    and we want our work rules to look forward into the future.
        Senator Carper. OK. Mr. Herr.
        Mr. Herr. To me the basic premise has been that the Postal
    Service is supposed to be self-financing. And so if you think
    about the decrease in revenues, you have to realign how much
    Postal Service there is going to be with the revenues that are
    coming in.
        Reflecting for a minute on your comment on retiree health
    care, I think Congress made that decision in 2006 which, when
    we look back, was the peak of mail volume. It may be the all-
    time peak, when there was a lot of mail, there were a lot of
    solicitations. I think most of us got multiple credit card
    solicitations on a daily basis.
        Senator Carper. From Delaware.
        Mr. Herr. Well, from many places. I am not sure.
        Senator Carper. Some from South Dakota.
        Mr. Herr. I cannot say I recall reading all the return
    addresses. But I think the point was, it was a good idea to
    pre-fund. It is important. As I mentioned earlier, there are
    close to 500,000 people getting those benefits. So pre-funding
    made sense, but I think it was aggressive. But it was also a
    time when people thought there was some surplus funding
    available to do that. So we believe it is important now to look
    at what that is, make it more affordable, but to continue, as
    the Postal Service can, to make those payments so that those
    individuals and their families and their survivors will have
    that benefit.
        Senator Carper. Good. Thank you. Ms. Goldway, I am going to
    ask you to briefly respond, if you will, and then I have at
    least one more question.
        Ms. Goldway. I think we all agree, the whole mailing
    community is unanimous in that the burden of the health care
    retiree benefit funding is overly ambitious and should be
    adjusted. And I think what my testimony last week and this week
    is trying to present is that the situation requires--for major
    changes, requires more time and thought than the immediate
    concerns of this immediate financial issue, and that in order
    to make the changes that the Nation wants and will accept and
    that really are suitable for the 21st Century, we need more
    time.
        You mentioned that the PAEA limited the amount of
    opportunity the Postal Service had to provide non-postal
    services because there had been a record that they really had
    not done it very well. The introduction of new services had not
    gone very well in the previous 10 years. So if they are going
    to introduce new services, I think they need to be carefully
    reviewed. To the extent they need to be reviewed by the
    Commission, they should be. If they are going to reduce
    service, we have to balance what those impacts are.
        I think all of us want to see a vital Postal Service,
    recognizing that there is lower volume, but given the ability
    we have to adjust the health care retiree benefit fund, I think
    there is a little more time. The economy should be going up, at
    least for the next 2 years. Even the Postal Service sees an
    uptick in volume, and we should take that time to make the
    right decisions.
        Senator Carper. I have a few more questions to ask. I am
    not going to ask them today, but I am going to submit them in
    writing and just ask you to respond to them, if you will.
        You have been very good with your time today, and we thank
    you for sharing this much of it with us.
        I want to say again to the folks who work at the Postal
    Service and the folks that you lead, General Potter, our
    appreciation to all of you for serving us, and our appreciation
    to all of you for serving us through difficult and trying
    times.
        We appreciate, Mr. Williams, the work that your folks are
    doing and maybe pointing to an area where there may be a way to
    enable us to better manage right-sizing this operation and
    meeting financial challenges, the economic challenges that lie
    ahead. I hope that is true, and we will find out in the weeks
    ahead as we drill down on what you have proposed.
        As always, to the folks at GAO, we appreciate your helping
    us in a whole lot of ways, including this way, providing advice
    and counsel to us.
        And, Ms. Goldway, it is always good to be with you and to
    hear from you. We appreciate your commitment to service and
    your willingness to chair the entity that you lead.
        I would just close by asking you to please do your dead
    level best, you and those you lead, to beat that 9-month target
    by a whole lot, and we would appreciate it if you could very
    much.
        Ms. Goldway. As my son says, ``Got it.''
        Senator Carper. All right, everybody. That is it for Earth
    Day 2010, and hopefully our Good Earth will be around 10 years
    from now and so will the Postal Service and we will all be in
    better shape.
        Thank you very much. This hearing is concluded.
        [Whereupon, at 5:26 p.m., the Subcommittee was adjourned.]

                                A P P E N D I X

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