[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

                              ----------                              


                        THURSDAY, APRIL 22, 2010

                                 U.S. Senate,      
        Subcommittee on Federal Financial Management,      
              Government Information, Federal Services,    
                              and International Security,  
                      of the Committee on Homeland Security
                                        and Governmental Affairs,  
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 3:32 p.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Thomas R. 
Carper, Chairman of the Subcommittee, presiding.
    Present: Senators Carper, Akaka, and Coburn.

              OPENING STATEMENT OF SENATOR CARPER

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

            OPENING STATEMENT OF SENATOR COBURN \1\

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

               OPENING STATEMENT OF SENATOR AKAKA

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

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

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

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

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

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

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


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