[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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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
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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.
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\1\ The prepared statement of Senator Coburn appears in the
Appendix on page 42.
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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.
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\1\ The prepared statement of Mr. Herr appears in the Appendix on
page 44.
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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.
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\1\ The prepared statement of Mr. Potter appears in the Appendix on
page 54.
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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.
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\1\ The prepared statement of Mr. Williams appears in the Appendix
on page 65.
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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.
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\1\ The prepared statement of Ms. Goldway appears in the Appendix
on page 76.
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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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