[Senate Hearing 111-1060]
[From the U.S. Government Publishing Office]



                                                       S. Hrg. 111-1060
 
   FINDING SOLUTIONS TO THE CHALLENGES FACING 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

                               __________

                            DECEMBER 2, 2010

                               __________

        Available via the World Wide Web: http://www.fdsys.gov/

                       Printed for the use of the
        Committee on Homeland Security and Governmental Affairs



                  U.S. GOVERNMENT PRINTING OFFICE
63-870                    WASHINGTON : 2011
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing Office, 
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202ï¿½09512ï¿½091800, or 866ï¿½09512ï¿½091800 (toll-free). E-mail, [email protected].  

        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           SCOTT P. BROWN, Massachusetts
MARK L. PRYOR, Arkansas              JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana          GEORGE V. VOINOVICH, Ohio
CLAIRE McCASKILL, Missouri           JOHN ENSIGN, Nevada
JON TESTER, Montana                  LINDSEY GRAHAM, South Carolina
ROLAND W. BURRIS, Illinois
CHRISTOPHER A. COONS, Delaware

                  Michael L. Alexander, Staff Director
     Brandon L. Milhorn, Minority Staff Director and Chief Counsel
                  Trina Driessnack Tyrer, Chief Clerk
            Joyce Ward, Publications Clerk and GPO Detailee
                                 ------                                

 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 Collins..............................................     4
    Senator Coburn...............................................     7
Prepared statements:
    Senator Carper...............................................    39
    Senator Collins..............................................    43
    Senator McCain...............................................    51
    Senator Akaka................................................    53

                               WITNESSES
                       Thursday, December 2, 2010

Patrick R. Donahoe, Deputy Postmaster General and Chief Operating 
  Officer, U.S. Postal Service...................................     9
The Honorable Ruth Y. Goldway, Chairman, Postal Regulatory 
  Commission.....................................................    22
Jonathan Foley, Director of Planning and Policy Analysis, U.S. 
  Office of Personnel Management.................................    24
Phillip Herr, Director, Physical Infrastructure Issues, U.S. 
  Government Accountability Office...............................    26
Frederic Rolando, President, National Association of Letter 
  Carriers, AFL-CIO..............................................    30
Robert J. Rapoza, National President, National Association of 
  Postmasters of the United States...............................    32
Jerry Cerasale, Senior Vice President Government Affairs, Direct 
  Marketing Association, Inc., on behalf of Affordable Mail 
  Alliance.......................................................    34

                     Alphabetical List of Witnesses

Cerasale, Jerry:
    Testimony....................................................    34
    Prepared statement...........................................   116
Donahoe, Patrick R.:
    Testimony....................................................     9
    Prepared statement...........................................    57
Foley, Jonathan:
    Testimony....................................................    24
    Prepared statement...........................................    71
Goldway, Hon. Ruth Y.:
    Testimony....................................................    22
    Prepared statement...........................................    66
Herr, Phillip:
    Testimony....................................................    26
    Prepared statement...........................................    74
Rapoza, Robert J.:
    Testimony....................................................    32
    Prepared statement...........................................   102
Rolando, Frederic:
    Testimony....................................................    30
    Prepared statement...........................................    89

                                APPENDIX

Questions and responses for the Record from:
    Mr. Donahoe..................................................   122
    Ms. Goldway..................................................   147
    Mr. Foley....................................................   155
    Mr. Herr.....................................................   160
Statement submitted by Mark Strong, President of the National 
  League of Postmasters..........................................   166


   FINDING SOLUTIONS TO THE CHALLENGES FACING THE U.S. POSTAL SERVICE

                              ----------                              


                       THURSDAY, DECEMBER 2, 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 10:02 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Thomas R. 
Carper, Chairman of the Subcommittee, presiding.
    Present: Senators Carper, Collins, and Coburn.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. I am pleased to call our hearing to order 
and to be here with Senator Collins and, I suspect, a couple of 
our other colleagues as the morning goes on. We want to thank 
our witnesses, welcome our witnesses and our other guests, for 
what I think is an important hearing.
    We have held, a number of hearings over the years in this 
Subcommittee, as well as over in the House, to highlight the 
numerous challenges facing the Postal Service. It is my hope 
that with this hearing we will soon get down to the hard work 
of actually addressing those challenges and clearing the way to 
enable the Postal Service to emerge from the toughest time that 
it has faced since it was created four decades ago.
    At many of these hearings, members and witnesses talk about 
how, despite hard times, the Postal Service is achieving its 
mission and will continue to achieve its mission. The Postal 
Service has done an admirable job in cutting costs and 
streamlining operations and reducing its workforce through 
attrition. They have managed to do all of these things while 
maintaining and, in some cases, improving service, at least by 
some measure. And we commend the Postal Service employees, the 
managers, and soon-to-be former Postmaster General Jack Potter. 
But the truth is that we are rapidly approaching a time when we 
may no longer be able to depend on the Postal Service, and that 
time may come less than a year from now.
    The Postal Service, I am told, has lost a record $8.5 
billion in fiscal year 2010. Postal management is projecting 
the loss of a further $6.4 billion in the current fiscal year. 
As a result, by this time next year the Postal Service will 
likely have exhausted all of the $15 billion line of credit 
that it has with Treasury and will not have sufficient cash to 
meet its obligations. In practical terms, this could mean that, 
during the next year's holiday shopping and mailing season, the 
Postal Service may not have the resources necessary to keep its 
doors open.
    So much for the bad news. How about the good news? Well, 
there is some good news, and I take some comfort in the fact 
that the vast majority of the Postal Service's losses in recent 
years are attributable to the very aggressive retiree health 
care pre-funding schedule that was put in place in 2006. In 
fiscal year 2010, $5.5 billion out of the Postal Service's $8.5 
billion loss could be attributed to the retiree health payment 
it was required to make in September. Only $500 million of the 
$8.5 billion is actually an operating loss. Only $500 million. 
That is still a lot of money.
    I take some comfort from the fact that there is a level of 
consensus here in Congress and amongst postal stakeholders that 
something must be done about the Postal Service's retiree 
health prepayments, or at least the level of them. But even if 
we were to completely eliminate the remaining payments, we 
would only be dealing with a portion of the Postal Service's 
projected long-term deficit. This is where the bad news comes 
back in.
    This past spring, the Postal Service and a group of highly 
regarded outside consultants conducted a study showing that if 
nothing changes, the Postal Service would run up more than $230 
billion in cumulative deficits between now and the year 2020. 
Some of these losses could be stemmed by the Postal Service 
today without Congress taking any action at all. I am sure that 
some steps have already been taken since the $230 billion 
number was first announced. But the enormity of the projected 
losses tells me that we need to go beyond just addressing the 
retiree health payments by enabling the Postal Service to make 
several fundamental changes to the way it does business.
    We live in a time when the Postal Service is competing not 
just with the United Parcel Service (UPS), not just with 
Federal Express (FedEx), but with the Internet, with email, 
with electronic bill pay, with cell phones, and other advances 
in communication and commerce. Simply put, many businesses that 
in the past had to turn to the Postal Service to reach 
customers or ship their products have far more choices today. 
To make the Postal Service a viable choice, we need to give 
postal employees the tools that they need in order to thrive in 
the coming years.
    Coming together at the last minute a few months down the 
road and doing just enough to get the Postal Service through 
Christmas 2011 is not a viable option. I am reminded today, 
reading the headlines in the papers and watching the news on 
television, that our Federal Government faces a sea of red ink 
as far as the eye can see. Adding another $230 billion to our 
Nation's debt is not a viable option as we seek to replace what 
I call a culture of spendthrift in Washington with a culture of 
thrift.
    Going forward, the Postal Service cannot remain a part of 
the problem. It must become part of the solution, and if we 
work together--and that is something that Senator Collins and I 
and Senator Coburn are pretty good at doing. But if we work 
together and think outside the box, along with a bunch of you, 
that can happen, and it needs to.
    In September, I introduced legislation, the Postal 
Operations Sustainment and Transformation Act (POST), P-O-S-T, 
as we call it, that I believe may be the only proposal out 
there now that deals comprehensively with the problems facing 
the Postal Service in both the short term and the long term. It 
is not a perfect proposal, but we think it is a comprehensive 
proposal and a bold proposal that has elicited a lot of 
comments--some positive, some not so positive, but it has 
elicited a lot of discussion, and I think that is positive.
    The key part of our bill aims to permanently fix the postal 
pension and retiree health issues that have been debated for 
quite some time now. The legislation does this by requiring the 
Office of Personnel Management (OPM) to revise the dated 
methodology used to determine how much the Postal Service pays 
into the Civil Service Retirement System (CSRS). That change 
would likely show that the Postal Service has overpaid that 
system by as much as $50 billion, some would say even more.
    The POST Act would allow the Postal Service to use that 
money over the years, in the next 6 or 7 or 8 years, to satisfy 
the Postal Service's retiree health prepayment obligation. This 
would take roughly $5.5 billion or more off the Postal 
Service's books each year and prevent a catastrophic shutdown 
in the coming months.
    My bill would also empower postal management to take some 
additional steps to cut costs over time. The Postal Service has 
been talking for several months now about eliminating $3 
billion a year out in costs by reducing a day of delivery. I 
think that $3 billion is a net number. They have submitted a 
proposal to the Postal Regulatory Commission, and the 
Commission is preparing a report on the advisability of this 
change.
    Unfortunately, each year Congress prevents the Postal 
Service from exercising the authority to change delivery 
frequency when it believes that doing so is necessary, and we 
do this despite the fact that the 2006 postal reform 
legislation explicitly gave the Postal Service the authority to 
change delivery frequency and other service standards to adjust 
to customers' changing needs.
    Now, let me just make it clear. I am not an advocate of 
eliminating Saturday delivery. I think there are good arguments 
both for and against what the Postal Service would like to do. 
But I am an advocate of giving the Postal Service the freedom 
to manage, especially when our interfering in management 
decisions could prevent the achievement of so much in savings 
at such a critical time. The POST Act would ensure that, on 
this issue, the Postal Service, working with its regulator and 
its customers, will make the critical decisions on Saturday 
delivery without political interference.
    The POST Act also seeks to simplify the postal management 
decisionmaking process when it comes to transforming its retail 
network. As many in this room know, the Postal Service has tens 
of thousands of retail locations. Some of these locations are 
ideally located; some are not. Others operate with significant 
losses. My bill would remove several legislative restrictions 
that tie the Postal Service to an outdated retail network and 
free them to begin to expand to more cost-effective and more 
convenient retail outlets that I believe could and should 
ultimately enable the Postal Service to better serve its 
customers.
    But the bill I have introduced is not just about cutting. 
It also recognizes that, while customers may be moving away 
from hard-copy mail, the Postal Service's retail and delivery 
network remains extremely valuable. I propose in my legislation 
that the Postal Service be freed to better capitalize on the 
value of this network by experimenting with products and 
experimenting with services not directly related to the mail.
    Among the things the Postal Service could do with this 
authority would be to partner not just with the Federal 
Government to deliver services to citizens but with State and 
local governments to provide government services such as 
license renewals or voter registrations in postal facilities.
    And, finally, my bill addresses a flaw in postal labor law 
by requiring arbitrators to take the Postal Service's financial 
condition into account when rendering decisions during labor 
disputes, a proposal embraced by Senator Collins, by Senator 
Coburn, and other Members of our Subcommittee already.
    Let me just close, if I could, by reiterating how critical 
it is that Congress begin to move on a comprehensive postal 
bill in the near future. I do not want us to be sitting here 8 
months from now, 9 months from now, 10 months from now trying 
to figure out what we are going to do. The Postal Service 
operates at the center of a massive mailing industry--Senator 
Collins probably knows that as well as anybody here in this 
Senate. The Postal Service operates at the center of a massive 
mailing industry that employs millions of men and women in 
every State and congressional district across the country, 
including ours. These people do not just work at the Postal 
Service itself. They work at banks. They work at retail 
operations. They work at newspapers and in countless different 
sectors of our economy.
    With all the challenges we face as a country today, it 
would be a tragedy to add the loss of these jobs to the list of 
hardships we need to overcome just because we did not allow 
ourselves to come together around some additional common-sense 
reforms of the Postal Service. We are long past the time of 
fighting the old battles that have hindered work on postal 
issues for so long, including during 2006 when we finished the 
most recent postal reform efforts, in no small part because of 
the good work that my colleague Senator Collins and her staff 
and my staff--John Kilvington especially--have done. We are 
also beyond the point at which we should be satisfied with more 
reports, with more studies, or more reforms that create 
millions in savings when we really need billions.
    I look forward to working with our witnesses, with my 
colleagues, and with others to enact that meaningful and needed 
legislation. Senator Collins.

              OPENING STATEMENT OF SENATOR COLLINS

    Senator Collins. Thank you, Mr. Chairman. Let me just start 
my comments this morning by making three points.
    First, I want to welcome our Nation's incoming Postmaster 
General, Pat Donahoe, who will take over the reins soon.
    Second, I am a strong supporter of the Postal Service. It 
plays an absolutely vital role in our economy. It is the 
linchpin of a $1 trillion mailing industry that employs 
approximately 7.5 million Americans in fields as diverse as 
direct mail, printing, paper manufacturing, catalogue 
companies, and financial services. So that is an important 
premise to keep in mind as we proceed with this hearing.
    And, third, the Postal Service is in an abysmal financial 
crisis. It lost $8.5 billion during the past fiscal year, and 
significant reductions in mail and revenue over the past 
several years underscore the urgency of re-engineering the 
Postal Service business model so that it can adapt to the 
Information Age. Those who think that we can somehow ignore the 
problems of the Postal Service are woefully mistaken. It is 
absolutely essential to our economy and to our American 
society.
    At this defining moment in its history, the Postal Service 
must embrace change and take aggressive steps towards a 
structural reinvention. It must enhance its service and value 
to its customers rather than looking to drastic cuts in service 
and sharp increases in price that will only further drive away 
and shrink its customer base. At the same time, it needs to 
continue to scrutinize its internal operations and redouble its 
efforts to be leaner and more cost-effective.
    The Postal Accountability and Enhancement Act (PAEA) of 
2006, which I co-authored with my colleague Senator Carper, 
provides the foundation for many of those changes. The Postal 
Service, in my view, has been slow to take advantage of the 
flexibilities afforded by that law. But to be fair, other 
problems not of the Service's making, including problems with 
OPM and the severe recession, have also intruded.
    That is why today I am introducing the U.S. Postal Service 
Improvements Act of 2010. This bill would help the Postal 
Service achieve financial stability, produce additional cost 
savings and improve customer services. These are strong 
fundamentals from which the Postal Service must rebuild. Let me 
describe my bill.
    First, the bill would direct the Office of Personnel 
Management to use its existing authority to allow the Postal 
Service to access the more than $50 billion that independent 
actuaries hired by the Postal Regulatory Commission (PRC) have 
estimated that the Postal Service has overpaid into the Civil 
Service Retirement System.
    The bill would also provide OPM the authority to allow the 
Postal Service to access nearly $3 billion that is overpaid 
into the Federal Employees Retirement System (FERS) pension 
fund system. It is simply unfair both to the Postal Service and 
to its customers not to refund these overpayments. I would also 
note that it is not just the Postal Service's Inspector General 
(IG) that has these overpayments, but also the independent 
actuary the Postal Regulatory Commission hired that identified 
an overpayment, which was a figure lower than the Postal 
Service IG's estimate.
    Second, the bill would improve the Postal Service's 
contracting practices and help to prevent the kind of waste and 
ethical violations recently uncovered by the Postal Service 
Inspector General in a report that I requested. Several months 
ago, I asked the IG to review the Postal Service's contracting 
policies, and, frankly, the findings of this audit were 
shocking. The IG found stunning evidence of ethical lapses and 
costly contract mismanagement. So my bill includes a number of 
contracting reforms which are in my full statement. They 
include the establishment of a Competition Advocate, who would 
improve contract competition, transparency, and accountability. 
The bill would also require the Postal Service to post 
justifications of non-competitive contracts above $150,000 on 
its website. Additionally, the bill would limit procurement 
officials from contracting with closely associated entities. 
There is a whole group of contracting reforms.
    Third, the legislation would require the Postal Service to 
create a comprehensive strategic plan to guide the 
consolidation of its regional and district offices. The IG has 
estimated that more than $1 billion could be saved through 
consolidation.
    Fourth--and Senator Carper has this provision in his bill 
as well--it would allow the arbitrator, when rendering 
decisions about collective bargaining agreements, to consider 
the financial health of the Postal Service.
    Fifth, it would require the Postal Service and the Postal 
Regulatory Commission to work together to increase the use of 
Negotiated Service Agreements (NSA), which reduce costs to 
mailers who agree to help the Postal Service process their 
mail. There are advantages to both sides if those are properly 
implemented.
    Sixth, it would reduce governmentwide workforce costs by 
reforming the workers' compensation system. I tried to do this 
in 2006 but was only able to get one of the reforms through. 
This reform would require that an individual who is on workers' 
compensation be shifted to the retirement system upon reaching 
retirement age. Let me just give you a couple of astonishing 
facts about what is going on now.
    Right now, there are 132 postal employees age 90 or over 
who are receiving workers' compensation benefits. These 
individuals are not out on workers' comp for a period of time 
to recover from their injuries and then returning to work. 
These individuals should be switched to the retirement system. 
They are never going to return to work at over age 90. There 
are, in fact, 8,632 postal employees age 55 or older who are 
still on the workers' comp system. In most States, that could 
not happen. They would be switched to the retirement system 
upon reaching retirement age. This is a reform we should 
implement governmentwide, as it would bring real savings for 
the Federal Government and for the Postal Service.
    In fact, the Department of Labor (DOL) indicated that it 
regularly pays worker's compensation benefits to employees in 
their 70's, 80's, 90's and even 100's. I first tried to get 
this change through a few years ago. This reform is well 
overdue.
    Seventh, the bill would require the Postal Service to 
develop a plan to increase its presence in retail facilities, 
or collocate, to better serve customers. The plan must take 
into account the impact on the community, particularly in rural 
areas.
    I want the Postal Service to prosper, thrive, and survive. 
This valuable American institution with roots in our 
Constitution must be put back on a steady course. I look 
forward to working with all the stakeholders. I am very pleased 
that my bill has been endorsed by the National Newspaper 
Association (NNA), the Affordable Mail Alliance (AMA), PostCom, 
the Alliance of Nonprofit Mailers, the Association of Magazine 
Media, the Coalition of the 21st Century Postal Service, Conde 
Nast Publication, the American Catalogue Mailers Association, 
the Direct Marketing Association (DMA). In addition, we have 
worked very closely with the National Association of 
Postmasters and other stakeholders, as well as the National 
League of Postmasters, the National Postal Policy Council 
(NPPC), and a host of other groups. So I hope that we can get 
this done, Mr. Chairman.
    Mr. Chairman, you have been generous with the time, and I 
appreciate that. I have to return to an Armed Services 
Committee hearing on ``Don't Ask, Don't Tell'' that Secretary 
Gates and Admiral Mullen are testifying on, so I am not going 
to be able to stay, which I very much regret. But I hope it is 
an indication of how much I care about this issue that I left 
that hearing to come to this hearing to describe my bill, and I 
look forward to working with you, Senator Coburn, and all the 
people who are here today, many familiar faces--the Chairman of 
the Postal Regulatory Commission and many others--to put the 
Postal Service back on a sound financial footing.
    Thank you, Mr. Chairman.
    Senator Carper. Thanks, and we are delighted that you are 
here and look forward to continuing working with you on these 
important issues.
    Somebody who has been working on the overall deficit issue 
facing our country is our Senator from Oklahoma, and I just 
want to say publicly thank you for the time and energy. And I 
have talked to others who serve on that Commission with you and 
have given you good reviews, good reports in terms of the 
serious nature and the really productive approach that you have 
taken to addressing the overall challenge, of which this is 
one. Welcome and thanks for joining us.
    Senator Coburn. Thank you, Mr. Chairman.
    I have a meeting at 10:45, and I would like, after I finish 
my short statement, to ask the first questions, if you would 
permit me.
    Senator Carper. That would be fine.

              OPENING STATEMENT OF SENATOR COBURN

    Senator Coburn. You will be glad to know I do not have a 
bill. [Laughter.]
    I think it is important--while Senator Collins is here and 
Senator Carper is here, to point out, there is a difference 
between cash flow and profit and loss. The things we are 
addressing in terms of prepayments have nothing to do with 
profit and loss. They have to do with cash flow. I am 
supportive of what both of you are wanting to do in that 
regard, but it is important in the long term, if the post 
office is to be successful, it has to run a profit. It cannot 
just run a positive cash flow. While we help the cash flow in 
the short term, we cannot take our eyes off the objective of 
the long term.
    The Postal Service is in a difficult position because the 
country has changed in terms of electronic mail. Everybody 
recognizes that. My hopes would be that we get realistic 
forecasting rather than desirous forecasting in the future of 
revenue estimates. You and I had a conversation yesterday. It 
was a very frank, very open, very straightforward. I asked you 
why in the world you would want this job. [Laughter.]
    It is kind of like wanting to go in and get four root 
canals all at the same time with no anesthesia. You have big 
problems in front of you, and I know your background, and I 
know you have vast experience throughout the entire field of 
the postal organization. I will commit to work with both 
Senator Collins and Senator Carper in trying to solve this 
problem. I do not want us however, to have another postal bill. 
We ought to fix it. The first question I am going to ask our 
Postmaster General is: How do you fix it now? Because he knows 
how to fix it now. Actually, he has the authority to do most of 
it to fix it now.
    When you look at what the biggest problem is with the 
operations side, it is that their labor costs as a component of 
their total revenues is too high. With revenues shrinking, the 
tendency, unless the labor costs change, is that will grow. You 
either have to increase revenues or you have to decrease costs. 
The largest cost, 80 percent, is labor. So either we have to 
become more efficient, more effective, or we have to markedly 
expand revenues.
    I have in my home town Economy Pharmacy. Economy Pharmacy 
has a post office. It costs the post office 5 percent of what 
it would cost if they had a free-standing post office. It is 
one-twentieth. That is because the labor is shared. You have a 
better utilization of labor, better time constraints with the 
labor, but you also have the overhead shared in terms of 
creating that post office. It also will fall very good into the 
idea of creating new products which the post office could 
potentially market. The Postmaster has that authority now. He 
can do a lot of that.
    Will we politically allow him to do what he knows he has to 
do and has the authority to do now to put the post office not 
in terms of the cash flow position but in terms of profit and 
loss, because we can fix the cash flow over the next 10 years, 
5 years. Actually, it will be about 5 if we do it. But if we do 
not fix the profit and loss, we come right back here in 5 years 
with the same problem.
    So we have to have both positive cash flow and no losses. I 
am OK if you do not make a profit. I am not OK if you lose 
money. There is a difference between a balance sheet and a 
profit and loss statement and a cash flow statement, and we 
have to keep that in mind as we try to reform the post office; 
otherwise, we will miss our goal of fixing it and making it 
viable for the future for all the people in this country that 
depend on it.
    That ends my opening statement, Mr. Chairman.
    Senator Carper. All right. Thank you for that statement. We 
very much look forward to working with you, Tom.
    I am pleased to welcome Mr. Donahoe. Have you testified 
before----
    Mr. Donahoe. Yes, sir. Mr. Chairman.
    Senator Carper. Before any Committee other than this one?
    Mr. Donahoe. I testified back in the 1990's in front of a 
couple House committees back when we had less than stellar 
service in Washington, D.C., and in the early 2000's with a 
couple committees around what we were doing after the anthrax 
attacks.
    Senator Carper. OK. Good enough. Well, we are happy that 
you are here today.
    Mr. Donahoe. Thank you.
    Senator Carper. And we congratulate you on being named as 
the successor to Jack Potter.
    Mr. Donahoe. Thank you.
    Senator Carper. Big shoes to fill, but we----
    Mr. Donahoe. He did a great job. Thank you.
    Senator Carper. And we are looking forward to your 
leadership and to working with you.
    I understand that you are currently, at least for another 
day or so, the Deputy Postmaster General and the Chief 
Operating Officer (COO) of the Postal Service, and you have 
been in that position, a dual position, I think for--what?--5 
years or so.
    Mr. Donahoe. Yes, sir.
    Senator Carper. And in a few hours--when do you actually 
assume the leadership mantle? Is it tomorrow?
    Mr. Donahoe. It will be Saturday, but Jack said when he 
walks out the door, I am in charge, so it might be Friday. We 
will let him go home early. [Laughter.]
    Senator Carper. All right. As I understand it, I think--I 
had the pleasure of meeting with him recently, but I understand 
you spent pretty much your entire career, entire working 
career, at the Postal Service. You began as a clerk in your 
home town of Pittsburgh, and I think you also told me that you 
had gone to school at the University of Pittsburgh and are a 
big Panther fan but also an Eagles fan.
    Mr. Donahoe. Oh, Steelers fan. [Laughter.]
    Senator Carper. Well, we will have a good time with that.
    In your current capacity, you are responsible for the day-
to-day operations at the Postal Service, and those operations, 
as daunting as they are, will be growing significantly, I 
think, very, very soon. I understand you and your wife, Janet, 
have been married for quite a while. How many years did you 
say?
    Mr. Donahoe. It will be 34 years this year.
    Senator Carper. Thirty-four years. And you are blessed with 
two sons, Bobby and Terry, and they are in their 20's, as are 
my boys. We look forward to getting a chance to meet them 
somewhere along the line as well.
    Your entire testimony will be made a part of the record, 
and you are welcome to proceed.

 TESTIMONY OF PATRICK R. DONAHOE,\1\ DEPUTY POSTMASTER GENERAL 
        AND CHIEF OPERATING OFFICER, U.S. POSTAL SERVICE

    Mr. Donahoe. Thank you. Good morning, Mr. Chairman, and 
Members of the Subcommittee. It is an honor to testify for the 
first time as Postmaster General-designate for the U.S. Postal 
Service (USPS), and I thank you for this opportunity.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Donahoe appears in the appendix 
on page 57.
---------------------------------------------------------------------------
    I would like to discuss briefly the current state of the 
Postal Service and our plans for returning to profitability and 
providing even better service and value for the American 
people.
    I would also like to comment on the legislation under 
discussion here today, which I support wholeheartedly.
    Despite recent headlines, the Postal Service does remain a 
strong and motivated organization. The past several years have 
certainly been challenging, but there has also been a great 
amount of accomplishment. I would like to publicly thank the 
employees of the Postal Service for their hard work and their 
accomplishment.
    We have achieved spending reductions of $3 billion in 
fiscal year 2010, bringing our total savings over the last 3 
years to over $10 billion. We now have the smallest career 
complement since the Postal Service was reorganized in 1970. 
During the past 3 years, I am pleased to say service, customer 
satisfaction, and trust in the Postal Service has never been 
higher. However, we have a lot of work to do to get to where we 
need to be financially and adapt in a very changing 
marketplace.
    Mr. Chairman, we recently issued our fiscal year 2010 
financial results. Our total losses for the year were $8.5 
billion. This is a stunning number in many aspects, and it is 
unsustainable. That $8.5 billion figure reflects two payments 
that we made. One was the $5.5 billion payment for 
legislatively mandated prepayment for retiree health benefits 
(RHB). Another was $2.5 billion for a non-cash adjustment for 
workers' compensation future accounting adjustments. If you set 
aside these two payments, you are left with our operating 
results, results that we control. Although first-class mail 
volume had declined last year 6.6 percent, we lost 
approximately $500 million on our operations, so it was a 
significant accomplishment to catch that up.
    If you look at the aspects of the business within our 
control, we have done well in responding to the economic 
conditions. We have an opportunity to turn a corner, though, in 
the future and to produce regular operating profits.
    As Postmaster General, I plan to ensure that we get the 
most out of what we can control. My personal vision is that of 
a profitable, nimble Postal Service that competes for customers 
and has a well-defined, valued role in an ever increasing 
digital world. Part of that vision is to ensure the Postal 
Service will always be a resource to every American business 
and we will be valued and trusted in every American residence.
    The way people in businesses are using the mail is 
changing, and we are adapting to those changes in some fairly 
significant ways. We will continue to adapt and improve the 
core business and our core offering to the American public.
    Everything we do relates to delivering for our customers. 
That is a powerful platform which drives commerce and 
complements the evolving nature of the way that people 
communicate and conduct business in America today, one that 
ensures the Postal Service will remain at the heart of an 
industry which employs millions of people and generates 
hundreds of billions of dollars in revenue.
    Even as technology has changed, the Postal Service will 
remain a powerful conduit for businesses to reach residential 
customers. The mail is going to remain the most effective way 
of reaching customers, and we need to continue to build our 
business around that concept. New investments in tracking 
technologies and offerings for small businesses will also help 
keep us strong.
    One of my highest priorities is to improve our customer 
experience. Every interaction with us, whether it is a carrier, 
a clerk, at a kiosk, on the telephone, online, must be a great 
experience. We are looking at all aspects of the way that we 
interact with our customer and will make big improvements. Part 
of that strategy is expanding points of access and moving away 
from some traditional post offices in some locations. We think 
that there are significant opportunities to grow our package 
business. We have been very successful with our Flat Rate 
Campaign, and there is major growth in this area which nicely 
complements the rise in e-commerce. More than anything we do, 
however, we need to continue to be leaner, faster, and smarter 
as an organization. We must be very aggressive in realigning 
the operations of the Postal Service to match the declining 
mail volumes which are projected in this coming decade.
    We need to continue to optimize our network, realign our 
workforce, reduce energy use and our physical footprint, and 
drive costs out of every aspect of the Postal Service. We will 
do all of this with motivated and knowledgeable employees and 
with the support and collaboration of our customers in the 
mailing industry.
    I very much appreciate the efforts of you, Mr. Chairman, 
and the introduction of Senate bill 3831, the POST Act. 
Enactment of this measure would provide the Postal Service the 
flexibility to implement these business strategies faster and 
more effectively. The current retiree health benefit provision 
is especially crucial because we will not have sufficient funds 
by the end of the year to make that prepayment.
    I also see the POST Act as an important improvement----
    Senator Carper. Excuse me. You said by the end of the year.
    Mr. Donahoe. By the end of next year.
    Senator Carper. Next year? End of the current fiscal year?
    Mr. Donahoe. The end of this current fiscal year. I will 
not be able to make that payment on September 30th.
    Senator Carper. All right. Thank you.
    Mr. Donahoe. With an inflexible business model, our 
challenges are significant. We do not want to be a burden to 
the American taxpayers, and the POST Act helps ensure that will 
not happen. Our goal is to remain viable for the long term, and 
with your help and a more flexible business model, we will be 
able to do just that.
    Thank you for your continued engagement on postal issues, 
and I would be more than happy to answer any questions that you 
might have.
    Senator Carper. Good. Thank you for that testimony.
    I am going to yield to Dr. Coburn for the first questions. 
Tom.
    Senator Coburn. Mr. Chairman, thank you for that 
consideration.
    Mr. Donahoe, we had a visit yesterday, and one of the 
things that you advised me is that you have not come to a 
contract agreement with the rural letter carriers? Is that 
correct?
    Mr. Donahoe. Yes, Doctor.
    Senator Coburn. Is it not true that you have the ability 
right now to contract that business out?
    Mr. Donahoe. We can contract routes that are vacant. That 
is part of our contracting abilities within our contracts with 
the rural carriers.
    Senator Coburn. If they do not come to an agreement, can 
you contract other routes?
    Mr. Donahoe. That is something we would have to work 
through. I would have to double-check as far as how we would be 
able to work that process. But the contracting provision if 
there.
    Senator Coburn. Can you, without violating your 
negotiations, tell us what the hang-up is with the rural 
carriers?
    Mr. Donahoe. Right now, we have reached impasse. We have 
been talking to the rural carriers about work rules, 
flexibility, and pay. When I say impasse, we have run to the 
end of the contracting time frame. We have the door open still. 
We would like to still work with them. We think there are some 
opportunities to sit down and come up with some creative 
aspects going forward. We think that we need the flexibility in 
the workforce. We need flexibility around how we employ people 
and the pay associated, and I think that the rural carriers, if 
they do the responsible thing, step up, come back, and we can 
sit down and talk.
    Senator Coburn. All right. I just have one other question. 
With your labor costs now at--80 percent?
    Mr. Donahoe. 80 percent.
    Senator Coburn. Where do you have to be right now for 2011 
to break even at the Postal Service?
    Mr. Donahoe. Well, let us take a look at the finances. As I 
mentioned before, we had the $8.5 billion loss this year. The 
way our finances look right now, we are projecting an operating 
loss of $900 million. That is strictly our revenues less the 
operating expense. We have to add on to that the $5.5 billion 
payment. That is more than cash flow. That is part of our 
bottom line.
    Senator Coburn. A portion of that, because--does that truly 
reflect your level of employment today?
    Mr. Donahoe. The $5.5 billion?
    Senator Coburn. The $5.5 billion.
    Mr. Donahoe. No.
    Senator Coburn. It actually overstates----
    Mr. Donahoe. The $5.5 billion overstates the number of 
employees. When the law was written in 2006, it was written 
with the provision that we were funding for 757,000 employees. 
We have 580,000 today.
    Senator Coburn. Yes, so that is a big difference in the----
    Mr. Donahoe. It is a big difference, and one of the things 
that we would definitely look for some help on is restating 
that part of the law.
    Senator Coburn. Yes, and I think that is something that 
needs to be considered in your bill, Mr. Chairman.
    So at what level of labor costs would you be at break-even 
today?
    Mr. Donahoe. Well, if you take a look at it from a 
percentage standpoint, we would have to reduce the percentage 
through driving down costs.
    Senator Coburn. Well, I mean, would you have to have labor 
costs at 70 percent, 72 percent, 74 percent, 68 percent, to be 
at break-even?
    Mr. Donahoe. Well, it is a function of total cost. If you 
take a look at our business today, in the service business that 
we are in you are going to have a substantial portion of your 
costs in labor.
    Senator Coburn. I understand that. All I am saying is----
    Mr. Donahoe. It is the total cost that has to be 
considered.
    Senator Coburn. Let me ask you this, then. Since 80 percent 
of your cost is labor cost, how much of the savings do you, 
having somebody that has been experienced in every aspect of 
the post office, what percentage savings can you get out of 
that other 20 percent?
    Mr. Donahoe. Not a whole lot.
    Senator Coburn. All right.
    Mr. Donahoe. We have transportation costs and real estate 
costs that we can get some savings from.
    Senator Coburn. Yes, so but how much?
    Mr. Donahoe. Probably, a couple percentage points.
    Senator Coburn. Nothing to hold you to, but----
    Mr. Donahoe. I can probably get a percent or two out of 
there.
    Senator Coburn. OK. So you can get 2 percent there.
    Mr. Donahoe. Yes.
    Senator Coburn. So the one thing we can all know here, 
unless revenues increase, for you to get to break-even, labor 
costs have to go down, either through efficiency, attrition, or 
better contracts.
    Mr. Donahoe. That is exactly correct.
    Senator Coburn. There are only three ways.
    Mr. Donahoe. You are still going to have the same 
percentage of cost to a large extent because of the nature of 
the service. It is how much that percent actually costs. So 
what we are looking for is--to put it in context, if you have 
$60 billion in labor costs, we would be looking for closer to, 
say, $55 billion in labor costs. You are still going to have 
the same percent.
    Senator Coburn. No, I understand that, but I am----
    Mr. Donahoe. It is a smaller pot.
    Senator Coburn [continuing]. Saying if you had the numbers 
today, what would you have to take off?
    Mr. Donahoe. It is a smaller number.
    Senator Coburn. I understand----
    Mr. Donahoe. We are on the same page.
    Senator Coburn. But also, as those labor costs go down----
    Mr. Donahoe. Yes.
    Senator Coburn [continuing]. Your forward-funded pension 
costs go down.
    Mr. Donahoe. Yes.
    Senator Coburn. Your health care costs go down. They all go 
down.
    Mr. Donahoe. Yes.
    Senator Coburn. So the fact is we know the numbers, we know 
where we have to get, he knows where he has to get, and we have 
to have the bargaining units recognize this is where it is 
going to go. Because I will tell you, as a member sitting on 
the Deficit Commission, this short-term change in the cash flow 
will help you do that. After that, it is over.
    Mr. Donahoe. Yes, we realize that.
    Senator Coburn. Well, I know you realize it. The bargaining 
groups have to realize it as well. The very fact that we have a 
different health care costs for postal workers than the rest of 
Federal employees is something that has to be changed in the 
contracts.
    Mr. Donahoe. We are addressing that with the unions right 
now. They have taken steps in the last contracts to change 
that, and that is something we will be working with them going 
forward.
    Senator Coburn. Mr. Chairman, I appreciate it so much. And 
I welcome you to this toothache.
    Mr. Donahoe. Thank you. [Laughter.]
    It is much appreciated.
    Senator Carper. It is too bad Dr. Coburn is not a dentist. 
He could serve in other ways. [Laughter.]
    Senator Coburn. You just pull them out, don't you? That is 
all you do.
    Senator Carper. All right. Let me just start off, Mr. 
Donahoe, by asking you just to make it clear for the record 
what will happen at the Postal Service if Congress does not act 
on a financial relief proposal in the coming months? The Postal 
Service, as we have heard, lost $8.5 billion in the fiscal year 
that has just ended, and I understand that you are projecting 
more than $6 billion in losses in the current fiscal year. I 
believe that if these projections do bear out, the Postal 
Service will be out of cash and out of borrowing authority--I 
call it ``out of running room''--by this time next year, if not 
sooner. What will happen if this occurs? And will the Postal 
Service have to cease--or will the Postal Service have to cease 
operations at some point?
    Mr. Donahoe. Let me answer that in a number of ways. First 
of all, let us set up what the finances look like. This year, 
we are predicting a loss of $900 million in our operating 
funds. That is revenue less expense. In September, we will have 
to write a check for $5.5 billion for the retiree health 
benefits. We cannot write that check because we will put 
ourselves in a negative cash balance of $2.7 billion at that 
point. The budget we have set up this year is like the budgets 
we have had the past few years. We are planning on taking 49 
million work hours out again this year, and that is on top of 
over 200 million hours the last 2 years. So people are 
stretched. We are doing everything we can to get the 
efficiencies and savings in the organization.
    Of course, looking at revenue, we want to try to grow the 
top line, but with the situation in the economy today, you 
cannot take that to the bank.
    What we would do September 30th is this: We would decide 
what payment not to make. As the Postmaster General, as a 
member of our Board of Governors, we know we have a 
responsibility for service to the American public. We would 
continue with our service. We would have to make a decision 
either to not pay the fund or stop paying some of our FERS 
funds early on because in that situation that does give us the 
cash and the breathing room at the end of the year.
    Senator Carper. All right. Thank you. Talk to us a little 
bit about productivity gains and some gains that you have 
realized by virtue of negotiations with the labor unions which 
represent your employees. Talk to us about some of those 
productivity gains, because they have to be rather 
considerable.
    Mr. Donahoe. They are. We are very, very proud of the fact 
that over the last 10 years we have doubled productivity in the 
U.S. Postal Service, and that includes all of the volume loss 
that we have experienced. So people have not only been 
productive as we grew volume in the middle of this decade, but 
as volume dropped, our managers and our craft employees came 
together very well and took substantial costs out of this 
organization. We have done it through process improvement in 
our processing plants. We have reduced our network. And we have 
also worked with the unions. I will give you an example.
    The National Association of Letter Carriers (NALC) has 
worked very closely with us over the last couple years. We have 
taken 13,000 letter carrier routes out, and it has been a very 
good process, voluntary, working hand in hand.
    What we are most proud of in that time is the fact that we 
have improved our service, measured service on mailbox to 
mailbox, measured service with commercial mail, whether it is 
first class, standard, or the periodicals, and our package 
business. I would put our package service up against anybody, 
our scanning performance, and that has all been done by the 
great work of our people during a pretty trying time.
    Senator Carper. OK. I probably should have asked this 
question earlier, but you had a number of years to develop your 
approach to management and your approach to managing people in 
a large operation. Why don't you just take a minute or two and 
just talk to us about how you manage, how you see yourself 
serving in this job. What strengths do you bring to it? And 
what are some things that you will have to learn on the job?
    Mr. Donahoe. Thank you. I have 35 years in the Postal 
Service. I have been blessed with a great career, nice 
opportunities. The Postal Service is a great place to work 
because almost anything that you want to get involved in you 
can, and I have had that opportunity. I have been able to move 
up from a clerk--I was a clerk on the work floor in Pittsburgh, 
Pennsylvania, in 1975 while attending school during the day, 
and I have had the opportunity to come up through the ranks in 
many different positions, and it has really given me a great 
appreciation for the organization, for our customers, and for 
the entire industry, which I value.
    From a standpoint of my management style, I will tell you I 
try to be as open and engaging as possible. I am very direct. 
You are always going to get a straight direct answer from me. I 
am, I think, a good listener, and that has always helped me to 
be able to work with people to try to resolve problems. I look 
for win-win situations, and I think even in these trying times 
that we have right now there are win-win situations. And 
between your help with your bill and the work with a lot of 
people that are in this room today, customers and stakeholders, 
there are some win-wins here.
    Senator Carper. I like to quote Albert Einstein, who used 
to say a long time ago, ``In adversity lies opportunity.''
    Mr. Donahoe. That is true.
    Senator Carper. And he was not talking about the Postal 
Service, but I think it applies here, too.
    This past spring, Postmaster General Potter put forward a 
plan that includes strategies and legislative recommendations 
for addressing the challenges that the Postal Service faces. 
What are some of the goals, your goals? And how are they 
similar and maybe in some cases different to those laid out by 
General Potter?
    Mr. Donahoe. Well, one of the things that I think is 
critical, and I cannot say this enough: The Postal Service is 
still a very viable and important part of the American economy 
and American society. We will deliver 171 billion pieces of 
mail this year, so it is not something that is going to go away 
tomorrow or the next day. We still present more bills than 
anyone, including the Internet, and more people still pay bills 
through the mail than they pay on the Internet. So even though 
there have been some changes, the American economy still 
depends on the Postal Service.
    We also do a great job in that same vein from a package 
perspective. People can come to us, mail packages, and have 
access to 37,000 locations across the country. So we are still 
viable, we are still important.
    That said, we did put a plan out last March. I think it was 
a very good plan. It was a balanced plan. And what that plan 
did, it was two things. It said there are some things that we 
are going to be responsible for in the Postal Service. It is 
growing revenue, and at the same time improving the process and 
taking cost out. And we are committed to those, and we are not 
only on track, we are ahead of that last year and this year. 
And we will stay focused on that.
    The other side of that plan, of course, is the help that we 
need--the help that we need from Congress and the stakeholders 
around some of these issues, like the retiree health benefit, 
delivery flexibility, and also some retail flexibility. And 
your bill addresses those, and again I want to say thank you 
for that.
    My own management style ties in very directly with the 
plan. My focus is going to be on four things.
    First, improving the business to customer channel, that is, 
growing mail. We have to grow revenue. We have to grow the top 
line in this organization. It is critically important. Like Dr. 
Coburn said, when you get involved in taking a look ahead, you 
either can cut costs or grow the revenue. We know we need to 
grow that revenue. So the focus will be there. We think big 
business, there are opportunities with NSAs and contracts. We 
will be working closely with the Commission on that. We think 
from a small business perspective there are plenty of 
opportunities out there. When I look at TV, I look at newspaper 
ads, I will see small businesses advertising there on the 
Internet, and the Postal Service is still the most direct way 
to get in front of a customer's eyes. So working with small 
business, giving them opportunities for products and services 
to grow their business is one of my focuses.
    The second focus is growing the package business. We have 
some great products out there with the Flat Rate box, and we 
are introducing some new offers. We have been working with the 
Commission on that. We are rolling these out.
    The other thing that we are focusing on is scanning 
visibility that will be second to none in the industry. At the 
end of this calendar year 2011 coming up, we will be there, and 
that will really enhance our package business. We also think 
that we should be in the prime position to handle return 
packages. With e-commerce today, a lot of people buy two things 
and send one back because they are not sure of the size that 
they have. So we are in right in that position because we are 
going to people's houses every day to pick that mail up.
    The third thing you will see a lot more focus on for me is 
improving the customer experience. I said that in my opening 
testimony, and I strongly believe that. We do a great job. Our 
people do a great job every day delivering mail. You asked 
whether I testified here before. In 1994, I testified with 
then-Postmaster General Marvin Runyon. Our service in 
Washington, D.C., was about 50 percent on time. Service in 
Washington, D.C., today is 97 percent on time. They have done a 
great job, and we keep our eye on that service.
    Now, there are other areas of service than what you see in 
the post office. Is every experience good? No. But we want to 
get to the point where every experience is good, and the same 
with when you pick up the phone or go online with us, every 
experience has to be great, because we know satisfied customers 
bring us revenue and also refer us to other people from a 
revenue standpoint.
    Finally, the fourth area, ``Leaner, Smarter, Faster.'' I 
mentioned that in my testimony. We have done a great job from a 
productivity standpoint. There are still opportunities looking 
at what we do in our networks, what we do with our retail. We 
can continue to take costs out by improving our process.
    Smarter, being able to listen to the customers and deliver 
what they need is critical, and that is critical for us to be 
able to grow. And faster means being able to deliver on what we 
promise. I would like to be in a situation, and we are working 
with our people internally and working with the Commission that 
if one of our people goes out for a package sale, they have a 
computer. Right there they negotiate a price, push a button, 
sign the contract, done. That fast. The process takes way too 
long now, but moving forward with some of the work we can do 
with the Commission, we want to shrink that team and be leaner, 
smarter, and faster.
    Senator Carper. Good. When you say ``leaner, smarter, 
faster,'' do you know what it reminds me of?
    Mr. Donahoe. What?
    Senator Carper. What our brand in Delaware has been for 
some years. We are the First State, the first State that 
ratified the Constitution. In fact, Pennsylvania used to be 
part of Delaware. [Laughter.]
    But our brand is not leaner, smarter, faster, but for years 
it has been smaller, faster, smarter.
    Mr. Donahoe. Aha. There you go. We are just like Delaware. 
[Laughter.]
    That will be our second line.
    Senator Carper. You could not pick a better State to 
emulate. It is actually a State that works.
    The bill that I have introduced and described earlier 
removes the legislative restrictions that prevent the Postal 
Service from exercising its authority to reduce delivery 
frequency, an authority that we provided you in the 2006 
legislation. This would allow the Postal Service to carry out 
its proposal, when deemed necessary, to eliminate or modify 
delivery of mail on Saturdays. This proposal has been greeted 
with some skepticism. What has the Postal Service done to 
address the concerns that have been raised in recent months by 
those who want to maintain Saturday delivery just as it is? 
What would you say to those out there who argue that the 
enactment of my language that would give the Postal Service the 
authority to go beyond its current proposal and move to 4- or 
3- or 2-day delivery?
    Mr. Donahoe. Well, first of all, let me echo your comments 
from the statement you made at the beginning of the hearing. We 
do not really want to go to anything less than 6 days. We are, 
to a large extent, forced into that from what we find 
economically. We have lost 20 percent of our volume, and as I 
said, people have done a real nice job picking up the cost. But 
what you have and what we are faced with is a declining revenue 
per delivery. Every year we add a million deliveries on, and if 
our revenue continues to go down, as we have projected, based 
on a relatively flat mail volume but a much more problematic 
mix, more standard, less first class, each year that happens it 
becomes more and more burdensome to deliver 6 days a week to 
all addresses in America. So we realize it is a financial issue 
that we have to take a look at.
    Now, from a standpoint of the work that we have done around 
6-day to 5-day, I think that we have been very, very thorough. 
We have tried to vet this issue with customers, at all levels, 
large business, small business, residential. We have done a lot 
of focus work. We have done a lot of survey work. What has come 
back to us is this: 6-day to 5-day delivery is more appealing 
when you compare it to a couple choices. The choices are 
substantial raises in postage rates, 10, 15 percent, when you 
give a customer those choices. The other is closing post 
offices.
    So what we did, we went back, took all that survey 
information, and we have a proposal out there right now, and 
our proposal is this: We would like to move from 6-day to 5-day 
in terms of delivering mail, collecting mail, and processing 
outgoing mail. We would maintain a 7-day-a-week network so that 
remittance volume and the rest of the mail that comes through 
our channels maintains service standards. We would also keep 
post offices open and deliver to post office boxes on Saturday 
so that if you needed to get mail on Saturday, you could get a 
post office box. We would continue to deliver Express Mail so 
if there was something critical, it would get delivered.
    Now, as we work through that, there has been a lot of 
discussion. We have talked to the Government Accountability 
Office (GAO) about that and asked them to go through and work 
with us. And we are also open, again, to talking with any other 
customers going forward with concerns that they have.
    We want to make sure that we keep the Postal Service strong 
and that we keep our networks strong and that we are meeting 
customers' needs. We do not want to do something that would 
hinder business nor hurt those customers.
    Now, as far as looking ahead, revenue per delivery is an 
issue. We think that 6-day to 5-day along with other issues or 
other remedies that you propose in your bill--the retiree 
health benefit and also giving us some other flexibilities in 
some cost areas--I think that we would be OK with that for a 
number of years. Eventually, if we had to cross the line and go 
to, say, 3-day delivery, I do not think, just looking at our 
future volumes and what we think we can do financially going 
forward, I do not think we would have to cross that threshold 
for a number of years. But the one thing that I do appreciate 
in your bill, I think it is important that you would give the 
Postal Service, our Board of Governors, the ability to make 
those decisions.
    Senator Carper. All right.
    Mr. Donahoe. Thank you.
    Senator Carper. You mentioned post offices themselves. The 
next question I have may be my last one, but the bill that I 
have introduced would give the Postal Service more freedom to 
close post offices, including post offices that are operating 
at a deficit. It is my goal with this language to give you the 
ability to close outdated facilities that may not be in the 
best locations and replace them with retail outlets that might 
be less expensive but more convenient for your customers. I 
think Senator Coburn referred to one of those back in Oklahoma, 
I think in his home town.
    You talked about win-win situations. I look for a lot of 
those as well. The ideal outcome, in my view, would be more not 
less access to postal retail outlets. There is some concern, 
however, that this language could lead to the Postal Service 
completely abandoning some communities, especially rural 
communities. I just want to ask you to take a minute or two to 
discuss how the Postal Service would use the post office 
language in the POST Act that I have introduced and dispel, if 
you can, some or most of those concerns that have been raised 
about particularly rural access and other potential problems.
    Mr. Donahoe. Thank you. We think access to our customers is 
paramount, and that is exactly what we would be focused on. The 
interesting thing about what has happened in the last few years 
from a Postal Service perspective with the introduction of 
things like Click-N-Ship and, of course, more access to stamps 
and postal services in stores like Costco, right now about 35 
percent of revenues, retail revenues--stamp sales and postage 
services--are available and are conducted outside the door of 
the Postal Service. So America is already changing. What we are 
trying to do is make sure that we not only catch up but are 
also ahead of what their needs are.
    I understand your concerns and I understand the concerns 
that we have had from constituents around the country about how 
do you deal with small post offices in rural areas. One of the 
things we are looking at is this: You have to look at where 
your locations are, the viability, and the need. Then also from 
a standpoint of access you have to come up with some creative 
solutions going forward, I think, in order to keep us healthy 
financially.
    I am from western Pennsylvania. In western Pennsylvania, 
there are a lot of small towns and in a lot of these small 
towns you have a post office, a store, and a gasoline station. 
And one of the things we are looking at is should we take some 
of the postal services and contract some of that work out to 
the local stores that are open in many cases almost double the 
hours we are, and do that at a fraction of the cost that it 
takes for us to provide those services today. It does two 
things: It provides access to customers; it in some cases may 
keep that store open just because the contract cash flow, as 
Dr. Coburn mentioned, keeps the doors open, and at the same 
time it gives us the opportunity to move away from some 
expensive real estate and some additional costs. We have always 
worked with our employees and I have assured our postmasters as 
we work through this that we would find landing spots for 
people. We are pretty proud of the fact that over the years we 
have eliminated 200,000 people in this organization. We have 
not laid people off. We always find landing spots, and we will 
continue to do that as we shrink these networks down.
    Senator Carper. The last question I want to ask, and I am 
not going to ask you to respond, but I will ask you to respond 
for the record. This Deficit Commission that Senator Coburn and 
some of our other colleagues, other people, a Commission led by 
Erskine Bowles and former Senator Alan Simpson, have submitted 
a proposal that has caused a fair amount of gnashing of teeth 
from a lot of different sectors. Some people say it has too 
much taxes. Some people say it has way too much cuts in 
spending. And I think the theme that pervades, permeates their 
proposal is actually a sharing of sacrifice that is being 
asked. And to the extent they are asking Federal employees to 
forgo increases in pay, we need to make sure that all of us are 
being asked to do something, to give up a little bit.
    On the issue of benefits, you are going to be looking at 
the level of benefits that postal employees have and what they 
pay and what is provided for them. I would just ask that we 
keep in mind as leaders that we have to lead by example. And 
that is true for me here and for my colleagues, and it is also 
true for you and our senior management. I will have a question 
for the record for you to respond to in that regard. I would 
just ask you to keep that in mind.
    Mr. Donahoe. I can respond to this point right now, if you 
would like.
    Senator Carper. Go ahead.
    Mr. Donahoe. We have already frozen executive levels going 
forward this year. Officer pay for 2011 is frozen at 2010 
levels. For executives in the organization, we have frozen what 
is called the pay band, so you might have somebody that can 
make a little bit, but they cannot make any higher than the pay 
bands that existed in 2010. We agree 100 percent. If you take a 
look at the Postal Service, we are a reflection of what is 
going on in the U.S. today from a cost standpoint. You have to 
make some decisions, and choices have to get made. Your bill 
puts the opportunity out there for the Postal Service and the 
stakeholders in this organization to sit down and make some 
tough choices.
    The key thing is a healthy Postal Service, a financially 
healthy Postal Service for this industry. We have all got to 
sit down, management, our Board of Governors, our leaders, 
postmasters and managers, our craft employees, all the 
customers and all the stakeholders, along with Congress, and 
make this happen.
    Again, I appreciate your support. We think the bill is 
great. We are looking forward to working with you in the 
future.
    Senator Carper. Thanks, Mr. Donahoe. I will close with this 
thought: I mentioned earlier the need for us as a country to 
move away from a culture of spendthrift in the Federal 
Government to a culture of thrift. And we are endeavoring to 
try to do that, and I think it is clear that you are as well.
    One of the things we are trying to endeavor to do in the 
Federal Government is to collect several hundreds of billions 
of dollars of taxes that are owed but are not being collected. 
We call it the tax gap, and the last time we counted, it was 
about $300 billion a year. And so we need to grow our Federal 
revenues in part by collecting taxes that are owed but in some 
cases not being paid.
    One of the real challenges for the Postal Service--and I 
think you all have done a very good job in raising 
productivity--working with your unions and your employees, a 
real good job in raising productivity and reducing the 
workforce through attrition, trying to be humane about it. The 
real challenge is to grow revenues, especially in a down 
economy, which I think is actually starting to get better.
    I do not know who you have at the Postal Service whose job 
or jobs it is to think outside of the box, to come up with ways 
for raising revenues. And we have an obligation to give you a 
reasonable amount of flexibility to do that. But you need to 
have really, really good people on your payroll, and in some 
cases not on your payroll, who can help you think through all 
the advantages that are out there.
    I know that somewhere along the line somebody is going to 
say, ``Gosh, why didn't we think of that years ago? That is 
such a good idea.'' And I know there are ideas like that, and 
we just need people out there generating them and, when they 
are generated, to make sure that you can separate out the good 
from the bad and then implement the ones that are most 
promising, and to talk to us if we need to do something to 
allow you to move forward.
    Well, we have enjoyed this visit. We appreciate your being 
here, and we hope that you will give Jack Potter our best and 
our thanks.
    Mr. Donahoe. I will.
    Senator Carper. I will use this in closing. I am a baseball 
fan. I know you are a big fan of the Pittsburgh Panthers. I am 
a big Ohio State Buckeye fan and a Delaware Fighting Blue Hens 
fan. But my favorite baseball team is the Tigers. Ever since I 
was about 8 years old. One of the best players who played for 
the Tigers for the last 20, 30 years is a guy named Kirk 
Gibson, some of you will recall. He played for the Tigers for a 
number of years. He also played for several years with the Los 
Angeles Dodgers. He was a guy who played hurt, and one 
particular season he was badly injured. He was playing with the 
Dodgers at the time. He suited up to play, but he could not 
play. But he played anyway. And they put him in the game. It 
was the first game in the series, and he came up with runners 
on base, and literally he could barely walk up to the plate. 
And he hit a home run. He could then barely walk around the 
base paths, but he did. And they took him out of the game after 
that. The Dodgers went on to win the World Series, I think in 
four games. And he was the spark that helped them do that.
    A couple years later, he went back to the Tigers. Several 
years after that he retired--not at the beginning of the season 
and not at the end of the season, but in the middle of the 
season. In the middle of the season. Kind of unusual. And he 
held a press conference in the dugout, invited all the press to 
come in, and he announced to them, he said, ``I have been 
traded''--and then he said ``traded back to my family.'' So you 
can tell Jack Potter that he is being traded back to his 
family.
    Mr. Donahoe. I will do that.
    Senator Carper. With our thanks. All right. Thank you so 
much.
    Mr. Donahoe. Thank you.
    Senator Carper. And we will ask our witnesses to come 
forward for our second panel: Ms. Goldway, Mr. Foley, and Mr. 
Herr. [Pause.]
    Welcome one and all. Our next panel is Ruth Goldway, 
Chairperson of the Postal Regulatory Commission. Ms. Goldway 
was elevated to her position in August 2009. She has been a 
member of the Commission since 1998. Welcome. Nice to see you.
    Next we have Jonathan Foley. Mr. Foley is the Director of 
Policy and Planning at the Office of Personnel Management. He 
has over 55 years of experience--no, I am just kidding. Twenty-
five. Twenty-five years of experience in health policy and 
management. Mr. Foley, very nice of you to come.
    And, finally, we have Phillip Herr, also known as Phil 
Herr. It is interesting. Your name is spelled P-H-I-L-L. Is 
that the way you spell it?
    Mr. Herr. No, sir. But it is close enough.
    Senator Carper. Well, you can never have too many ``L's'' 
in your name, I suppose. But, Mr. Herr, we are delighted you 
are back, and you serve still as, I think, Director of Physical 
Infrastructure Issues at the Government Accountability Office. 
We are trying to get you guys a new permanent Comptroller 
General over there. We had a hearing, I think in this room.
    Mr. Herr. Yes.
    Senator Carper. With Gene Dodaro a couple days ago. He did 
a nice job. He never uses notes. He has testified any number of 
times. I have never seen him use a note either for his 
testimony or for responding to questions. The only other person 
I have ever seen do that was Chief Justice John Roberts who in 
his hearings never used a note. You are all welcome to use 
notes, by the way.
    Mr. Herr has been with GAO since 1989 and manages a broad 
range of issues there, including postal issues. So you have 
plenty to do.
    We are grateful to all of you for being here. Your entire 
testimonies will be made part of the record, and, Ms. Goldway, 
why don't you proceed first.

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

    Ms. Goldway. Thank you, Senator Carper. Good morning, 
Chairman Carper, and I want to acknowledge the Subcommittee 
Members who have attended but had to leave. Thank you for the 
opportunity to present the Commission's comments on the POST 
Act. We also want to gratefully acknowledge Postmaster General 
Potter's long record of service and warmly welcome Postmaster 
General designee Pat Donahoe.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Goldway appears in the appendix 
on page 66.
---------------------------------------------------------------------------
    The 2006 PAEA's price cap and service standard provisions 
successfully forced cost reductions and quality improvements. 
The Act also wisely included the opportunity for future reform. 
In fact, a key provision of the POST Act is based on a pension 
cost study authorized by the PAEA and completed by the 
Commission. Using the best actuarial practices identified in 
our study, the POST Act directs OPM to recalculate the 
allocation of postal pension costs. The actuarial analysis we 
conducted indicates that this could benefit the Postal Service 
by as much as $55 billion. Further, the POST Act would allow 
these funds to be used to defray the Postal Service's liability 
for future retiree health benefits.
    In the Commission's recent exigent rate decision, we 
identified the $5.5 billion annual payment to this fund as the 
single biggest cause of the Postal Service's financial 
difficulty. In an earlier PAEA-directed study, the Commission 
determination that the Postal Service's Retiree Health Benefit 
Fund Liability might be reduced by nearly $35 billion is 
calculated on its current workforce using dynamic, long-term 
medical inflation rates. The Postal Service's annual payments 
could then be reduced by $2 billion while meeting the 
obligations of the original law. Continuing postal workforce 
reductions seem inevitable. Therefore, it may be prudent to 
require adjustments of this liability in new legislation.
    The POST Act proposes to provide the Postal Service with 
increased operational and competitive flexibilities. The 
Commission supports further reform. However, we have questions 
about how provisions in this bill might negatively affect 
service, access, and the competitive marketplace. We believe 
that appropriate safeguards and oversight are needed where new 
flexibilities are authorized.
    The bill would allow the Postal Service to furnish property 
and services for compensation to state and local governments, 
as it now does successfully with Federal agencies. 
Appropriately applied, this promises to be beneficial to both 
the State and local level and for the Postal Service. The 
Commission is less sure of language in the bill to allow 
unregulated use of Postal Service mail networks and 
technologies to provide new non-postal services. The authority 
is very broadly defined, and it is difficult to assess how it 
will be used.
    In reviewing non-postal services under the PAEA, the 
Commission is directed to consider ``the public need for the 
service and the ability of the private sector to meet the 
public need for that service.'' Would this kind of public 
interest standard apply to non-postal services authorized by 
the POST Act?
    Current law also authorizes the Commission to oversee and 
regulate Postal Service market tests, both to protect the 
public interest and to promote positive outcomes for the Postal 
Service. Would this be affected as well? The Commission 
strongly believes that prior regulatory review has been 
effective under the PAEA and should be required if the Postal 
Service's competitive flexibility is expanded.
    The POST Act would also allow the Postal Service to reduce 
the frequency of mail delivery service and to more easily close 
post offices. The Commission expects to issue its advisory 
opinion later this month on the Postal Service's 5-day delivery 
plan. We have held a dozen public hearings on this issue and 
developed a substantive evidentiary record that we are now 
reviewing. I will reserve comment until the opinion is issued 
later this month. However, I would ask whether the POST Act 
would allow the Postal Service to reduce delivery service to 4 
days or 3 days without prior review. This possibility was not a 
focus of our hearings.
    Earlier this year, the Commission issued an advisory 
opinion on a Postal Service proposal for station and branch 
closings. We acknowledged the Postal Service's discretion in 
adjusting its retail access as long as universal service is 
maintained. However, in the decision we recommended that a 
standardized review process be developed and consistently 
applied to all post offices, stations and branches if closures 
are to occur. The 10-day notice now given to stations and 
branches is inadequate.
    Since 1976, the Postal Service has been required to give 
post office customers at least a 60-day notice of its intention 
to close a post office, and affected customers have 30 days to 
appeal to the Commission. We found that such notice and due 
process should be available to all customers. To customers, a 
post office by any name is a post office. The Commission's 
longstanding practice does not recognize the difference either. 
A legislative clarification on this issue would assist the 
Commission and, more importantly, assist citizens in addressing 
their concerns.
    In closing, I would like to thank Senator Carper and 
Senator Collins for putting forward possible reforms to the 
PAEA and thank all the Subcommittee Members for their 
thoughtful oversight and support of the Postal Service. I must 
emphasize that a resolution of the pension and retiree health 
benefit issues is the key to real reform. The Postal Service 
must have manageable financial obligations if it is going to 
effectively manage its operations, serve its customers, and 
improve for the future.
    Thank you.
    Senator Carper. Thank you, Madam Chairman.
    Mr. Foley, please proceed.

TESTIMONY OF JONATHAN FOLEY,\1\ DIRECTOR OF PLANNING AND POLICY 
         ANALYSIS, U.S. OFFICE OF PERSONNEL MANAGEMENT

    Mr. Foley. Chairman Carper, I am pleased to be here today 
on behalf of Office of Personnel Management Director John 
Berry. OPM commends you in your efforts to help the Postal 
Service stay financially viable, and we share in your 
commitment to do so while maintaining our fiduciary 
responsibility to the Civil Service Retirement and Disability 
Trust Fund.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Foley appears in the appendix on 
page 71.
---------------------------------------------------------------------------
    Senate bill 3831 readdresses the issue of how 
responsibility for the retirement costs of pre-1971 postal 
employment should be apportioned. The underlying question is 
whether the Treasury or the Postal Service should be 
responsible for the effects of postal pay increases on the 
value of that service in computing CSRS annuities. Given prior 
discussions, I will only provide a brief outline of relevant 
history.
    In 1973, Congress enacted Public Law 93-349 which 
established the policy, then supported by the Postal Service, 
that it would accept responsibility for the effects of pay 
increases on annuities. In 2003, the Postal Service first 
suggested that OPM transfer responsibility for the effects of 
postal pay increases to the Treasury. After careful 
consideration by OPM and it's Board of Actuaries, OPM 
determined that the original apportionment method complied with 
the law. This past January, the Postal Inspector General issued 
a report again raising the apportionment issue and asserting a 
$75 billion overpayment.
    In June, the Postal Regulatory Commission issued the 
results of a Segal Company study on the apportionment 
methodology. The Segal report only addressed one aspect of the 
complicated funding arrangement and did not discuss the 
historical context of the issue. Segal acknowledges this by 
stating that its ``recommendation is, in essence, a 2010 fresh 
look, and does not attempt to deal with the history accumulated 
over [40] years since the [Postal Reform Act] was enacted.''
    The Segal-proposed methodology was a slight variation on 
the Postal IG's proposal and suggested a $50 to $55 billion 
overfunding. The PRC also suggested that the PAEA gave OPM 
authority to reapportion responsibility for pre-1971 service as 
part of the redetermination process. Enacted in 2006, the 
PAEA's primary purpose was for the Treasury to take 
responsibility for the cost of military service credit in the 
computation of Postal Service annuities, leading to a savings 
of $28 billion to the Postal Service.
    The law further provided for a review process initiated at 
the request of the PRC for OPM to reconsider any determination 
or redetermination made by the Office of Personnel Management 
under this section. The PRC asserted that this reconsideration 
authority permitted OPM to make the reallocation. We believe 
the assertion that OPM has the discretion to make basic changes 
in the allocation method between the Postal Service and the 
Treasury goes beyond the intent of and the authority provided 
to OPM in PAEA.
    The reconsideration process provided for in section 802(c) 
of the PAEA allows for the appeal and review of OPM's specific 
calculations of the annual supplemental liability determination 
according to the established fund allocation methodology. For 
example, 802(c) allows reconsideration of the population or 
accounting data underlying the annual liability determination 
but not of the allocation methodology. Thus, the question of 
whether there should be a change in the apportionment of 
responsibility is one that is appropriate for consideration by 
Congress.
    Our comments on Senate bill 3831 are limited to section 2, 
which would transfer responsibility to the Treasury for the 
effects of postal pay increases on the value of pre-1971 Postal 
employment in computing CSRS annuities, a change estimated to 
be $50 to $55 billion. It would also permit the resulting 
Postal Service surplus to be used at the discretion of the 
Postal Board of Governors to satisfy the $5.5 to $5.8 billion 
annual payments to the Postal Retiree Health Benefits Fund 
(RHBF) for fiscal years 2010 through 2016.
    OPM's principal roles in this matter are those of program 
administrator and trust fund fiduciary. As such, our primary 
concerns are with the efficient operation and reliable funding 
of the retirement and insurance programs. As a fiduciary, our 
main concern is with the adequate funding of the program and 
not with the source of that funding. Since Senate bill 3831 
will not change funding levels for CSRS but only the source of 
those funds, OPM takes no position at this time as to the 
substance of section 2. However, we do have concerns regarding 
certain technical aspects of that section. We previously 
provided technical assistance on the draft bill and would be 
pleased to work further with the Subcommittee on this matter.
    I appreciate the opportunity to appear before you today and 
would be pleased to answer any questions you may have.
    Senator Carper. Thank you. Thank you very much for that 
testimony, sir. We look forward to continuing to work with you.
    Mr. Herr, you are on. Thanks.

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

    Mr. Herr. Chairman Carper, I am pleased to be here today to 
participate in this hearing on proposed legislation to address 
the Postal Service's challenges.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Herr appears in the appendix on 
page 74.
---------------------------------------------------------------------------
    Just 4 years after postal reform legislation was passed, 
Congress is again faced with an array of pressing issues that 
must be addressed to put the Postal Service on sound financial 
footing. Today I will first discuss the Postal Service's 
financial condition and outlook; second, why the Postal Service 
needs to continue to modernize and restructure; and, third, key 
issues that need to be addressed by postal legislation.
    In fiscal year 2010, mail volume decreased about 6 billion 
pieces from the previous fiscal year to 171 billion pieces, 
about 20 percent below the peak in 2006. Most of the volume 
declines were in profitable first-class mail. Revenue declined 
$1 billion to $67 billion. Total expenses, as has been 
discussed, increased to nearly $76 billion, resulting in a loss 
of $8.5 billion. Outstanding debt also increased to $12 
billion. Projections for the current fiscal year call for 
outstanding debt to reach $15 billion, the statutory limit, 
with a $2.7 billion cash shortfall.
    Given this financial picture, the Postal Service must 
continue to modernize and restructure to become more efficient 
and control costs. Key challenges include declining mail 
volume, stagnating revenues, realigning processing and retail 
facilities, and addressing compensation and benefit costs of 
about $60 billion, close to 80 percent of total costs.
    Proposed postal legislation provides a starting point for 
decisions that will involve difficult trade-offs. S. 3831 would 
require OPM to recalculate the Postal Service's pension 
obligation and authorize its transfers to the Retiree Health 
Benefits Fund. These changes could increase the government's 
pension obligations by the amount transferred and raise the 
deficit.
    With regard to postal retiree health care, we agree that 
Congress should consider modifying the cost structure of this 
program in a fiscally responsible manner, with the Postal 
Service funding its obligations to the maximum extent possible. 
In addition, we also continue to favor a requirement that 
arbitrators consider the Postal Service's financial condition 
if the Service and its unions go to binding arbitration. Action 
is also needed to right-size postal networks and its workforce, 
as S. 3831 recognizes. In this area, we agree that Congress 
needs to address the constraints and legal requirements that 
have limited progress in this area. The Postal Service 
continues to move its retail services to more convenient 
locations which facilitates both improving service and right-
sizing its retail network.
    S. 3831 would also loosen current law to permit the Postal 
Service to introduce new non-postal products. This raises 
several questions. In what areas should the Postal Service be 
allowed to compete with the private sector and how would fair 
competition be assured? Would the Postal Service be subject to 
the same regulatory entities as its competitors? And would 
losses, if any, be borne by postal ratepayers or taxpayers?
    Just this past March, the Postal Service reported that if 
it entered banking or sold consumer goods, its opportunities 
would be limited by its high cost structure and relatively 
light customer traffic. Only about 600 customers obtained 
window service at a post office in an average week. The Postal 
Service also said that entering a number of non-postal areas 
would not be viable because of its net losses and limited 
access to cash to support investment.
    In closing, the need for additional postal reform has 
arrived as the use of mail continues to change. Congress and 
the Postal Service need to reach agreement on a comprehensive 
package of actions to enable such changes, and GAO is happy to 
work with your Committee going forward on this.
    This concludes my statement, and I would be happy to answer 
any questions.
    Senator Carper. Good. Again, thanks for working with us and 
for all the good that you do. We appreciate very much your 
willingness to help us as we move forward from this day.
    Let me ask a question of--this is not a question I 
anticipated asking, but it has, I think, become an important 
question to ask in light of some comments that Pat Donahoe made 
and maybe one or two of you have in your testimony.
    Earlier in the hearing, you may recall Mr. Donahoe 
suggested that the retiree health payment or prepayment 
schedule in law today may be even more aggressive than we 
thought if you take into account the significant reductions in 
the postal service's employees head count over the last 7, 8 
years. And I think he indicated that some further reductions 
are likely give improvements in productivity and just doing 
things smarter, but some further reductions are planned in that 
regard.
    Let me just ask, what are your thoughts--I think at least 
one of you mentioned this in your testimony, but what are your 
thoughts on the size of the payments or prepayments for health 
benefits for retirees in light of these developments? ``These 
developments'' being specifically reductions of several hundred 
thousand people in head count in anticipation of some further 
reductions going forward.
    I do not care who goes first. Mr. Herr, do you want to go 
first?
    Mr. Herr. Senator Carper, last spring we completed a report 
looking at the Postal Service's business model, and as part of 
that, we worked with OPM's actuaries and the Postal Service to 
get updated staffing projections. We did two things in that 
report: One, we talked about what the pay-as-you-go cost might 
be, and then also looked at an actuarial estimate of 
reamortizing those costs. So in a sense, we did try to provide 
some updated figures in that report, and we lay out some of the 
context for that.
    Ms. Goldway. And I would add that the work that we did on 
this in 2009, which included both a reduction in employees, and 
an adjustment in the actuarial process, estimated that at the 
end of the payment period you would have paid 80 percent of the 
liability by paying $2 billion less per year. If you then, 
after 2016 factor in further employee reductions, you might be 
able to justify an even lower annual payment that would get to 
the goal of assuring that the Postal Service has paid at least 
80 percent of its health care retiree benefit liability.
    Senator Carper. OK. Thank you.
    Mr. Foley, your thoughts, please? You have probably thought 
more about this than anybody.
    Mr. Foley. Well, we would be happy to continue to provide 
technical assistance, as Mr. Herr referenced, on this matter. 
We do not have a specific level or recommendation for you, but 
we would be pleased to continue to provide assistance to the 
Postal Service and GAO and the Congress on the exact level.
    Senator Carper. OK. Thanks.
    A question, if I could, for Mr. Herr and Ms. Goldway. 
Another provision in the bill that I introduced would loosen 
the restrictions and allow the Postal Service to engage in 
certain non-postal activities that might take advantage of the 
Postal Service's retail, processing and transportation network. 
There is some fear, however, that this might lead to the kinds 
of failure that were seen in years past when the Postal Service 
dabbled in e-commerce activities, and there is also some 
concern about the impact this might have on private businesses.
    How might we modify the language in the POST Act on non-
postal products to address the concerns that you and others 
might have? Ms. Goldway, do you want to go first on that? And 
then Mr. Herr.
    Ms. Goldway. Well, I think in my testimony I suggested that 
some of the language that is in the PAEA now that gives 
standards or benchmarks for what a non-postal product should be 
might be included in new legislation so that it is better 
defined. And then I do think that some sort of prior review, at 
least on broad categories of non-postal services, would be 
necessary.
    We have seen examples of where non-postal activities have 
lost ratepayers money, and we had some issues in which it 
appeared that the Postal Service was engaged in a contract for 
a non-postal product in direct competition with the private 
sector, and the private sector was very concerned about that. 
The Postal Service's vast network, its monopoly status, gives 
it, in some ways, a preferred status to work with non-postal 
products. So I think some form of regulation in your bill is 
necessary.
    But I would agree that diversification is essential if the 
Postal Service is going to survive into the future. In 
principle, I certainly support that effort.
    Senator Carper. OK. Thanks. Mr. Herr.
    Mr. Herr. As Chairman Goldway referenced, there is a 
provision in PAEA that would permit a review at the PRC. I 
think given the uncertainty about what some of these changes 
are, continuing to have that oversight mechanism in place to 
ensure that there is not cross-subsidization occurring is 
important. I also think it would be an important venue for the 
public and for Congress to understand the kinds of things the 
Postal Service is interested in entering into. It is hard now 
to get a firm idea on what that is, what niche of the market is 
underserved now, where might they be able to move in and add 
value, what is the potential for profitability and really 
adding to the bottom line, which has been discussed here today, 
but to help people understand and work through what some of 
those issues are. I think that venue would be a potential place 
to do that.
    Senator Carper. I will close this part of the hearing with 
this comment. I am reminded--there are no silver bullets when 
it comes to helping meet the fiscal challenges of the Postal 
Service. But there are a lot of BBs, big BBs, that can be 
helpful. I am reminded, as we heard first from Mr. Donahoe and 
now from each of you, that collocation can work both ways. It 
can be locating a post office in an existing retail outlet 
which would actually provide better service, could provide 
better service if we are smart about it, and collocation where 
other services that might reasonably be provided in a post 
office could be provided and, again, serve as a benefit to the 
folks in that community. So hopefully we can, if we are looking 
for ways to think outside the box, we can do that.
    Ms. Goldway. That is a great idea.
    Senator Carper. All right. At 11:30, another meeting has 
begun, and it is a meeting, a briefing on the report, the 
recommendations of this Deficit Reduction Commission that 
Erskine Bowles and Alan Simpson have led. I want to go to that 
meeting, but I am going to excuse this panel, and I want to 
invite our next panel to come forward to present their 
testimony. I have other questions for this panel that I would 
like to submit for the record, and I would just appreciate it 
if you would respond to those.
    Ms. Goldway. Thank you.
    Senator Carper. Yes, thank you all.
    All right. As our second panel takes their leave, I will 
ask our guests to lower their voices please, and I will now 
have the pleasure of introducing our third and final panel.
    The first witness on panel three is no stranger. We are 
happy to see you again and thank you for your leadership and 
thank you for your thoughtful leadership. Thank you for being 
here with us today. It is Fred Rolando, who is the President of 
the National Association of Letter Carriers. Being president 
today is a tough job, whether it happens to be President of the 
United States or President of the National Association of 
Letter Carriers. But we are happy that you are and that you are 
here today. We look forward to your testimony.
    Another president, Bob Rapoza, President of the National 
Association of Postmasters of the United States. Bob, welcome. 
We are delighted you could be with us today.
    Finally, Jerry--I will probably butcher your name. Is it 
Cerasale?
    Mr. Cerasale. Close.
    Senator Carper. Cerasale. I am sorry. Jerry Cerasale is the 
Senior Vice President for government affairs at the Direct 
Marketing Association and is testifying today on behalf of the 
Affordable Mail Alliance. It is nice to see you. Thank you so 
much for coming.
    Again, as I said with previous witnesses, your entire 
testimony will be made part of the record, and you are welcome 
to summarize that. I would ask you to try to keep it to about 5 
minutes so I will have time to ask you some questions. Again, 
thank you.
    Mr. Rolando, please proceed.

     TESTIMONY OF FREDRIC ROLANDO,\1\ PRESIDENT, NATIONAL 
            ASSOCIATION OF LETTER CARRIERS, AFL-CIO

    Mr. Rolando. Thank you. Good morning, Chairman Carper. On 
behalf of the nearly 290,000 members of the National 
Association of Letter Carriers, I thank you for allowing me the 
opportunity to summarize my written testimony on the Chairman's 
proposed POST Act of 2010.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Rolando appears in the appendix 
on page 89.
---------------------------------------------------------------------------
    The past 4 years of recession have been the most difficult 
in postal history with the Postal Service reporting losses of 
more than $20 billion. But these figures are misleading, and I 
will explain why.
    The three main causes for the Postal Service's losses are, 
by importance, the $20.9 billion cost since 2007 of pre-funding 
future retiree health benefits, declining mail volume caused by 
the recession, and the Internet diversion. Conventional wisdom 
often flips the order of these factors, but absent the pre-
funding congressional mandate of 2006, which no other 
institution in America faces, the Postal Service would have had 
a net surplus of $611 million in the past 4 years despite the 
worst recession in 80 years and despite the Internet.
    Pre-funding is optional in the private sector. No other 
company comes close to allocating 8 percent of its operating 
revenues to pre-fund future retiree health as the post did in 
the year 2010. For example, AT&T allocated just 2 percent of 
its revenues to pre-funding.
    I want to thank Senator Carper for taking the lead by 
introducing S. 3831. Though we cannot support all of its 
provisions as drafted, we believe it gets the two most 
important policy issues exactly right.
    First, to help stabilize the Postal Service's finances, the 
POST Act would relieve the burden of pre-funding future retiree 
health benefits by letting the Postal Service use the $50 to 
$75 billion surplus in its civil service pension account to 
cover the pre-funding payments. This is a responsible approach 
supported by the entire postal industry--management, labor, and 
the mailers. I would also like to thank Senator Collins for her 
tireless work on OPM's authority to transfer our surplus 
pension funds.
    Second, we think section 3(b) of S. 3831 will spur 
innovation that is needed to preserve universal mail service by 
permitting the Postal Service to partner with companies, 
nonprofits, and State and local governments to use its retail, 
its processing, and its delivery networks to offer new 
services. NALC believes that such innovation can help spur 
economic growth and it can create jobs inside and outside the 
Postal Service. In May, we will sponsor an international 
conference on postal innovation in Washington, D.C., in an era 
of rapid change where communications are a key for economic and 
national security purposes. We should strengthen, not weaken, 
our universal communications networks.
    However, we strongly oppose both section 3(e) regarding the 
arbitration of labor disputes and section 3(g) on the frequency 
of mail delivery, and I will address each in turn.
    Under the current interest arbitration process, an 
arbitration board must give labor and management a full and 
fair hearing, and arbitrators are bound to consider all the 
evidence presented by the parties when rendering their 
decisions. This is in section 1207(c)(2) of Title 39. The 
proposed changes to this section of the law would prioritize 
three managerial objectives. That would needlessly disrupt the 
balance and fairness of the existing process for resolving 
collective bargaining impasses in the Postal Service, a process 
which has assured peace for four decades and served the parties 
and the public very well.
    The Postal Service's so-called fact sheet on arbitration 
says that arbitrators are not required to take the fiscal 
health of the Postal Service into account. This is flatly 
untrue. Arbitrators must consider all evidence that is given to 
them by the parties, and in reality, evidence and testimony on 
the financial condition of the Postal Service has been provided 
to every arbitration board that has been established. 
Therefore, giving this issue special status along with the 
other managerial objectives such as the comparability standard 
in compliance with rate-setting rules is unwarranted. Sadly, we 
believe that this misleading information has been accepted as 
fact by this Subcommittee.
    At the markup of S. 1507 in July 2009, Senator Coburn 
introduced the language requiring arbitration boards to 
consider the Postal Service's financial condition when 
rendering a decision. He argued that current law prohibits 
arbitrators from considering the financial impact of the 
competing contract proposals. This is, as noted, completely 
inaccurate. Let us not fix what is not broken.
    The other major provision we oppose would give the Postal 
Service, free of congressional oversight, the power to reduce 
the frequency of delivery from the current mandated 6 days per 
week. Doing away with Saturday delivery would save little money 
while risking the loss of much more revenue over time by 
driving customers away, and it would eliminate 80,000 decent 
jobs during a recession. Congress would essentially be 
outsourcing a key public policy decision to whoever occupies 
the position of Postmaster General at any given time. There 
would be no way to prevent the Postal Service from dropping 2 
or even 3 days of delivery per week to meet short-term cost-
cutting targets. This would destroy the Postal Service.
    Both the Obama administration and a bipartisan majority of 
the House of Representatives that has cosponsored House 
Resolution 173 oppose eliminating Saturday delivery, and we 
urge you to reject this proposal as well.
    Let me conclude by thanking Senator Carper and Senator 
Collins for your years of diligent work on postal issues. 
Fortunately, the challenges that are facing the Postal Service 
are not partisan in nature, and we are convinced that, working 
together, we can resolve them. NALC has demonstrated repeatedly 
in recent years it is willing to do its part to help preserve 
the long-term viability of the Postal Service. We are prepared 
to work with this Subcommittee to craft legislation that will 
maintain the integrity of the Postal Service while serving the 
American people and helping businesses that rely on universal 
service prosper.
    Thanks again for inviting me to testify, and I am ready for 
any questions. Thank you.
    Senator Carper. Thank you, President Rolando, and thank you 
not just for your testimony but for the spirit in which it was 
prepared and delivered. Mr. Donahoe already spoke to the 
terrific cooperation and sense of team that has existed for 
years, and I think he specifically mentioned the NALC. So we 
appreciate the fact that is there and it is going to continue. 
We need that. Thank you.
    Mr. Rolando. Thank you.
    Senator Carper. Mr. Rapoza, please proceed. Your whole 
testimony will be made part of the record.

TESTIMONY OF ROBERT J. RAPOZA,\1\ NATIONAL PRESIDENT, NATIONAL 
        ASSOCIATION OF POSTMASTERS OF THE UNITED STATES

    Mr. Rapoza. Thank you, Chairman Carper and Members of the 
Subcommittee. I am Robert Rapoza, President of the 38,000-
member National Association of Postmasters of the United States 
(NAPUS). NAPUS represents the managers in charge of post 
offices. Postmasters guarantee your constituents accessibility 
to essential postal services.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Rapoza appears in the appendix on 
page 102.
---------------------------------------------------------------------------
    The Constitution established post offices as a Government 
responsibility. Aggressive congressional oversight acknowledges 
this congressional obligation, and postmasters thank you for 
the attention that this Committee provides.
    NAPUS strongly supports legislative efforts to revitalize 
the Postal Service through accurately recalculating the 
agency's CSRS pension obligations. The present formula is 
inequitable and unfairly saddles the Postal Service with at 
least $50 billion more than is justified.
    NAPUS commends the Chairman and Senator Collins for their 
bills which seek to legislatively shoehorn the PRC-recommended 
methodology into law. These provisions would determine the 
Postal Service's true pension obligation. Moreover, NAPUS 
supports the provisions that enable the Postal Service to use 
its pension surplus to reduce its retiree health care 
liability.
    In addition, NAPUS supports efforts to provide the Postal 
Service with access to surplus pension payments to FERS. We 
believe that Congress should enact these provisions as soon as 
possible. Furthermore, NAPUS urges Congress to enact a pension 
liability recalculation provision independently of any other 
postal legislation. We believe inclusion of controversial 
provisions may delay essential postal relief.
    NAPUS acknowledges and has actively participated in the 
past, and are currently participating in the development of 
strategies to streamline operations and reduce costs. However, 
we are deeply concerned about the elimination of the 
prohibition against the closing of post offices solely for 
being unprofitable.
    We are also concerned about striking the requirement that 
the Postal Service provide a ``maximum degree of service'' to 
rural areas. We consider these two provisions essential to 
universal service.
    Just yesterday, the so-called Deficit Reduction Commission 
performed a terrible disservice by incorrectly suggesting that 
closing post offices or reducing delivery frequency has an 
impact on the Federal deficit, and that the 1-year deferral of 
the USPS transferring a sum of its own postage revenue from one 
account to another as a bailout. Quite to the contrary. In 
fact, the Postal Service has unfairly subsidizing the Federal 
budget for years. However, having said that, NAPUS strongly 
believes that the Postal Service should cut expenses that do 
not impact postal services.
    For example, the postal IG identified postal area and 
district offices as ripe for aggressive pruning, and NAPUS 
agrees. According to the IG, the cost of maintaining area and 
district infrastructure totals $1.5 billion. That is about 
three times greater than the cost of providing convenient 
postal access to small-town and rural communities through the 
post offices.
    My 44 years of postal experience convinces me that trimming 
the postal bureaucracy would advance postal efficiency. NAPUS 
recognizes that the proper deployment of convenient access 
points may generate new revenue. However, we are concerned that 
the Postal Service may exploit this effort as a pretext to 
close post offices.
    Postal contractors are not accountable to the community. 
They do not offer the full menu of postal products and 
services, and can be closed for no reason whatsoever, thereby 
denying the communities access to essential postal products and 
a postal facility. Consequently, NAPUS supports the 
preservation of current law relating to post office closings, 
which do not place unreasonable obstacles before the Postal 
Service.
    It is crucial to note that the post office is the 
community's ``touchpoint'' to the Federal Government and to 
universal service. Rural and small-town post offices provide 
the essential access point for citizen mailers who are the 
customers most reliant on a universal service. NAPUS feels that 
the Postal Service is not fully maximizing its retail network. 
Consequently, NAPUS supports the provision in S. 3831 to 
provide expanded opportunities for the agency to raise revenue.
    As I testified in June, NAPUS believes that the wide 
distribution of post offices is an asset, not a liability. It 
offers tremendous opportunities to partner with State and local 
governments as well as commercial interests to provide identity 
verification and licensing and permitting services.
    Mr. Chairman, the Postal Service has entered a new phase in 
its evolution. The only way that it will remain viable is to be 
treated equitably and to offer the American public and business 
community accessibility and the products they desire. We must 
be careful of using Band-aid fixes as we search for lifelong 
changes that will enhance our postal assets. NAPUS looks 
forward to working with you, and we continue this journey 
together. Thank you.
    Senator Carper. Yes, we do. Thank you, Mr. President. Mr. 
Cerasale. Cerasale, is that correct?
    Mr. Cerasale. That is correct.
    Senator Carper. Has your name ever been mispronounced?
    Mr. Cerasale. No. [Laughter.]
    Senator Carper. I bet it has.
    Mr. Cerasale. You are the first.
    Senator Carper. I bet it has.
    Mr. Cerasale. I answer to anything close usually.
    Senator Carper. Mr. Cerasale, please proceed. Thank you.

    TESTIMONY OF JERRY CERASALE,\1\ SENIOR VICE PRESIDENT, 
  GOVERNMENT AFFAIRS, DIRECT MARKETING ASSOCIATION, INC., ON 
               BEHALF OF AFFORDABLE MAIL ALLIANCE

    Mr. Cerasale. Thank you very much, Senator Carper. I am 
testifying today on behalf of the Affordable Mail Alliance, and 
I am happy to report that I am also authorized to say that the 
Coalition for a 21st Century Postal Service also endorses this 
testimony as we mailers work together to present one voice to 
Congress for you.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Cerasale appears in the appendix 
on page 116.
---------------------------------------------------------------------------
    We want to particularly thank this Subcommittee for all it 
has done on behalf of the Postal Service and, therefore, on 
behalf of our postal customers. But we want to particularly 
thank you and Senator Collins for all your efforts in the past, 
in the present, and we know in the future to help create a 
strong, viable postal system and postal community.
    It is interesting and it is great that both the POST Act 
and the Postal Service Improvement Act of 2010 of Senator 
Collins begin with postal pensions and retiree health benefits. 
As mailers, through postage we have been paying for retiree 
benefits of postal employees since July 1971, and the IG and 
the PRC have come up with a $50 to $75 billion overpayment from 
the postage that we have been paying to the Postal Service. 
Those payments increased postage; they reduced mail volume; 
they reduced the number of jobs that we had within our 
community, within our membership.
    We also have to contribute to the unfunded retiree health 
benefits, and there is an aggressive payment schedule in the 
2006 act.
    We approve of your legislation and that of Senator Collins 
to use the customer overpayment for postal pensions to fund 
retiree health benefits. We do ask, however, that you should 
require the Board of Governors to so use and transfer those 
funds to get rid of the legacy costs of the Postal Service and 
not give them the opportunity to use those funds elsewhere. If 
we can get rid of these legacy costs and put us on a better 
footing, that is just so much better.
    Senator Collins has also included in her act a review of 
FERS payments. We understand that it is a potential $6.8 
billion overpayment as well to the FERS account. Now, I am not 
sure--I am not the actuary on that and how it works, but we 
would ask that you take a look and add that in any legislation 
or review of that so that we do not create a new overpayment 
for postal pensions.
    As we look to collective bargaining, we are not at the 
table. We do not want to be at the table. But we want to just 
point out that on July 1, 1971, 80 percent of postal costs were 
employee compensation. Today it remains 80 percent of postal 
costs. After great improvement in productivity, billions of 
dollars in capital investments, work sharing, a significant 
drop in worker complement, all of that compensation still 
remains at 80 percent. We urge Congress to look at every single 
idea to try and improve the collective bargaining process which 
does not allow for strikes, to try and create--help the Postal 
Service survive in the 21st Century.
    Looking at facilities, the Postal Service could probably 
deliver 300 billion pieces of mail a year. They are looking to 
deliver in 2020 150 billion pieces of mail a year. It has to 
downsize, and we have to downsize relatively quickly. And so we 
cannot afford that excess capacity.
    Looking at co-location, however, we think that is 
phenomenal idea, both from working with local and State 
governments within postal facilities and having retail 
facilities within communities provide postal services. That 
would even potentially expand hours, so that is a good--we 
support that.
    Looking at delivery days, the Postal Service has to provide 
services that customers need. A Saturday delivery drop would 
cause all mailers to adjust. Some can adjust more readily than 
others. But the Postal Service has to ensure that they meet the 
needs of customers; otherwise, a 17-percent drop in service 
could dramatically hurt mail volume.
    Looking at new products, I think the onus is on us, the 
mailers, as well as the Postal Service to come in and look at 
what do we need, what new products can we offer. But with an 
$8.5 billion loss this past year, you cannot revenue your way 
out of this problem. It is not the silver bullet, as you say.
    The one thing that we really want to be careful of, 
however, is we do not want to have expertise of the Postal 
Service pulled out to offer new products and ignore the core 
functions of transporting and delivering the mail. So that is 
important for us.
    The Postal Service should also re-evaluate its requirements 
that it has placed on mailers, increasing costs to enter the 
mail stream which is driving mail away. I think that is 
something that should be totally re-examined. And Senator 
Collins also has in her bill that she mentioned looking at 
NSAs, and we think that the Postal Service should more 
aggressively use Negotiated Service Agreements in market-
dominant products, but also should look at doing it in 
combination of market-dominant and competitive products.
    Thank you very much for this opportunity.
    Senator Carper. Thank you, Mr. Cerasale.
    I have a couple of questions, and let me direct the first 
one to President Rapoza. In talking about collocation, my 
preference--and I suspect your preference, too--would be as we 
want to maintain a postal presence in communities across the 
country that we think outside the box and we are really smart 
and diligent about identifying other kinds of activities that 
could be collocated in a post office. And today in a number of 
post offices across the country, folks can get help with 
passports. We allow the Federal Government to collocate 
services in the Postal Service, not State and local 
governments. And we suggest in our legislation we ought to 
change that.
    But I would ask you, if you want to say for the record 
here, what are some ideas that the postmasters have of the 
kinds of services that could be offered in post offices so that 
they would not have to close.
    Mr. Rapoza. Thank you, Chairman. First of all, we should 
look at what the needs of the community should be considered 
and what types of services we render to them. But it could be 
potential services. It could be hunting and fishing licenses, 
motor vehicle transactions, public utility transactions, State 
and local applications for service that require identity 
verification, other things that would assist Government 
agencies. And certainly we would like to get a return on our 
investment.
    Just for the record, NAPUS does not object to the Postal 
Service expanding retail services, and we heard here today from 
you, Senator Carper, was that the Postal Service should better 
serve our customers. In addition, the incoming Postmaster 
General says it should improve customer experience. But he also 
said our customer satisfaction is already at 97 percent, so we 
are looking to improve that other 3 percent, it makes more 
sense to bring the businesses to the facilities we have than to 
take it somewhere else.
    Senator Carper. And I think this is pretty self-evident, 
but to the extent that we can better identify services that 
logically could be provided at post offices in order to add to 
the bottom line at the Postal Service, that would be our 
preference. And so I would just ask you to work with us to 
help--not just you but postmasters across the country and 
others, help us to identify those opportunities, and to not 
just identify them but to seize them. As we say in Delaware, 
carpe diem. Seize the day.
    If I could, for President Rolando, you and I have had this 
conversation before, but I want to revisit it because I think 
it may be even more timely today. In previous labor 
negotiations, as I recall, there has been significant 
discussion between labor and management, particularly with the 
letter carriers, to try to come up with a way to continue to 
have 6-day service, to continue to have Saturday service, but 
in a way that actually saves money, and not just millions of 
dollars but a lot more. If the Postal Service would go to 5-day 
service, they expect after a loss of revenue they would save 
about $3 billion a year, which is not small. And in your 
negotiations with the Postal Service on behalf of your members, 
to the extent that you can identify ways to achieve not $3 
billion in savings but a considerable amount of that, I would 
urge you to do that. I would urge you to do that. I know you 
have tried to do that before, you and your predecessors have 
tried to do that before. And I would just urge you to take 
another run at it. I have certainly had that discussion before 
with Postmaster General Potter, and I will have that 
conversation with his successor.
    But any reaction to that comment?
    Mr. Rolando. Well, the $3 billion projected savings is no 
small amount, but I doubt if it is accurate either. But we are 
certainly looking forward to the negotiations and resuming 
those talks. We have informally had those discussions, but we 
are totally open to what we tried to do before.
    Senator Carper. Good. OK. I think I am going to close it up 
today. If I leave now, I might be able to get to the tail end 
of this other meeting that I am missing.
    We very much appreciate your being here. We appreciate the 
chance to have worked with you in the past, and we just need to 
continue to do that, use our best thinking or best thoughts, 
and I think we can figure this out. Actually, I come out of 
this hearing encouraged rather than discouraged. And every now 
and then when I am trying to address or help address a big 
problem, I reach a point in time where the path ahead becomes a 
little more clear. And for me, some of the fog has gone away, 
and I am able to start seeing the pieces come together and give 
us a path forward that comes pretty close to doing the job for 
all of us. So I am encouraged by that, and I appreciate each of 
you for being here to help provide some of that additional 
clarity.
    With that, this hearing is over, and those who were not 
here have an opportunity, my colleagues have an opportunity to 
submit questions for, I think, another 2 weeks, and if you 
could respond promptly to them, we would be most grateful.
    Thank you so much. With that, this hearing is adjourned.
    [Whereupon, at 12:05 p.m., the Subcommittee was adjourned.]


                            A P P E N D I X

                              ----------                              

[GRAPHIC] [TIFF OMITTED] T3870.001

[GRAPHIC] [TIFF OMITTED] T3870.002

[GRAPHIC] [TIFF OMITTED] T3870.003

[GRAPHIC] [TIFF OMITTED] T3870.004

[GRAPHIC] [TIFF OMITTED] T3870.005

[GRAPHIC] [TIFF OMITTED] T3870.006

[GRAPHIC] [TIFF OMITTED] T3870.007

[GRAPHIC] [TIFF OMITTED] T3870.008

[GRAPHIC] [TIFF OMITTED] T3870.009

[GRAPHIC] [TIFF OMITTED] T3870.010

[GRAPHIC] [TIFF OMITTED] T3870.011

[GRAPHIC] [TIFF OMITTED] T3870.012

[GRAPHIC] [TIFF OMITTED] T3870.013

[GRAPHIC] [TIFF OMITTED] T3870.014

[GRAPHIC] [TIFF OMITTED] T3870.015

[GRAPHIC] [TIFF OMITTED] T3870.016

[GRAPHIC] [TIFF OMITTED] T3870.017

[GRAPHIC] [TIFF OMITTED] T3870.018

[GRAPHIC] [TIFF OMITTED] T3870.019

[GRAPHIC] [TIFF OMITTED] T3870.020

[GRAPHIC] [TIFF OMITTED] T3870.021

[GRAPHIC] [TIFF OMITTED] T3870.022

[GRAPHIC] [TIFF OMITTED] T3870.023

[GRAPHIC] [TIFF OMITTED] T3870.024

[GRAPHIC] [TIFF OMITTED] T3870.025

[GRAPHIC] [TIFF OMITTED] T3870.026

[GRAPHIC] [TIFF OMITTED] T3870.027

[GRAPHIC] [TIFF OMITTED] T3870.028

[GRAPHIC] [TIFF OMITTED] T3870.029

[GRAPHIC] [TIFF OMITTED] T3870.030

[GRAPHIC] [TIFF OMITTED] T3870.031

[GRAPHIC] [TIFF OMITTED] T3870.032

[GRAPHIC] [TIFF OMITTED] T3870.033

[GRAPHIC] [TIFF OMITTED] T3870.034

[GRAPHIC] [TIFF OMITTED] T3870.035

[GRAPHIC] [TIFF OMITTED] T3870.036

[GRAPHIC] [TIFF OMITTED] T3870.037

[GRAPHIC] [TIFF OMITTED] T3870.038

[GRAPHIC] [TIFF OMITTED] T3870.039

[GRAPHIC] [TIFF OMITTED] T3870.040

[GRAPHIC] [TIFF OMITTED] T3870.041

[GRAPHIC] [TIFF OMITTED] T3870.042

[GRAPHIC] [TIFF OMITTED] T3870.043

[GRAPHIC] [TIFF OMITTED] T3870.044

[GRAPHIC] [TIFF OMITTED] T3870.045

[GRAPHIC] [TIFF OMITTED] T3870.046

[GRAPHIC] [TIFF OMITTED] T3870.047

[GRAPHIC] [TIFF OMITTED] T3870.048

[GRAPHIC] [TIFF OMITTED] T3870.049

[GRAPHIC] [TIFF OMITTED] T3870.050

[GRAPHIC] [TIFF OMITTED] T3870.051

[GRAPHIC] [TIFF OMITTED] T3870.052

[GRAPHIC] [TIFF OMITTED] T3870.053

[GRAPHIC] [TIFF OMITTED] T3870.054

[GRAPHIC] [TIFF OMITTED] T3870.055

[GRAPHIC] [TIFF OMITTED] T3870.056

[GRAPHIC] [TIFF OMITTED] T3870.057

[GRAPHIC] [TIFF OMITTED] T3870.058

[GRAPHIC] [TIFF OMITTED] T3870.059

[GRAPHIC] [TIFF OMITTED] T3870.060

[GRAPHIC] [TIFF OMITTED] T3870.061

[GRAPHIC] [TIFF OMITTED] T3870.062

[GRAPHIC] [TIFF OMITTED] T3870.063

[GRAPHIC] [TIFF OMITTED] T3870.064

[GRAPHIC] [TIFF OMITTED] T3870.065

[GRAPHIC] [TIFF OMITTED] T3870.066

[GRAPHIC] [TIFF OMITTED] T3870.067

[GRAPHIC] [TIFF OMITTED] T3870.068

[GRAPHIC] [TIFF OMITTED] T3870.069

[GRAPHIC] [TIFF OMITTED] T3870.070

[GRAPHIC] [TIFF OMITTED] T3870.071

[GRAPHIC] [TIFF OMITTED] T3870.072

[GRAPHIC] [TIFF OMITTED] T3870.073

[GRAPHIC] [TIFF OMITTED] T3870.074

[GRAPHIC] [TIFF OMITTED] T3870.075

[GRAPHIC] [TIFF OMITTED] T3870.076

[GRAPHIC] [TIFF OMITTED] T3870.077

[GRAPHIC] [TIFF OMITTED] T3870.078

[GRAPHIC] [TIFF OMITTED] T3870.079

[GRAPHIC] [TIFF OMITTED] T3870.080

[GRAPHIC] [TIFF OMITTED] T3870.081

[GRAPHIC] [TIFF OMITTED] T3870.082

[GRAPHIC] [TIFF OMITTED] T3870.083

[GRAPHIC] [TIFF OMITTED] T3870.084

[GRAPHIC] [TIFF OMITTED] T3870.085

[GRAPHIC] [TIFF OMITTED] T3870.086

[GRAPHIC] [TIFF OMITTED] T3870.087

[GRAPHIC] [TIFF OMITTED] T3870.088

[GRAPHIC] [TIFF OMITTED] T3870.089

[GRAPHIC] [TIFF OMITTED] T3870.090

[GRAPHIC] [TIFF OMITTED] T3870.091

[GRAPHIC] [TIFF OMITTED] T3870.092

[GRAPHIC] [TIFF OMITTED] T3870.093

[GRAPHIC] [TIFF OMITTED] T3870.094

[GRAPHIC] [TIFF OMITTED] T3870.095

[GRAPHIC] [TIFF OMITTED] T3870.096

[GRAPHIC] [TIFF OMITTED] T3870.097

[GRAPHIC] [TIFF OMITTED] T3870.098

[GRAPHIC] [TIFF OMITTED] T3870.099

[GRAPHIC] [TIFF OMITTED] T3870.100

[GRAPHIC] [TIFF OMITTED] T3870.101

[GRAPHIC] [TIFF OMITTED] T3870.102

[GRAPHIC] [TIFF OMITTED] T3870.103

[GRAPHIC] [TIFF OMITTED] T3870.104

[GRAPHIC] [TIFF OMITTED] T3870.105

[GRAPHIC] [TIFF OMITTED] T3870.106

[GRAPHIC] [TIFF OMITTED] T3870.107

[GRAPHIC] [TIFF OMITTED] T3870.108

[GRAPHIC] [TIFF OMITTED] T3870.109

[GRAPHIC] [TIFF OMITTED] T3870.110

[GRAPHIC] [TIFF OMITTED] T3870.111

[GRAPHIC] [TIFF OMITTED] T3870.112

[GRAPHIC] [TIFF OMITTED] T3870.113

[GRAPHIC] [TIFF OMITTED] T3870.114

[GRAPHIC] [TIFF OMITTED] T3870.115

[GRAPHIC] [TIFF OMITTED] T3870.116

[GRAPHIC] [TIFF OMITTED] T3870.117

[GRAPHIC] [TIFF OMITTED] T3870.118

[GRAPHIC] [TIFF OMITTED] T3870.119

[GRAPHIC] [TIFF OMITTED] T3870.120

[GRAPHIC] [TIFF OMITTED] T3870.121

[GRAPHIC] [TIFF OMITTED] T3870.122

[GRAPHIC] [TIFF OMITTED] T3870.123

[GRAPHIC] [TIFF OMITTED] T3870.124

[GRAPHIC] [TIFF OMITTED] T3870.125

[GRAPHIC] [TIFF OMITTED] T3870.126

[GRAPHIC] [TIFF OMITTED] T3870.127

[GRAPHIC] [TIFF OMITTED] T3870.128

[GRAPHIC] [TIFF OMITTED] T3870.129

[GRAPHIC] [TIFF OMITTED] T3870.130

[GRAPHIC] [TIFF OMITTED] T3870.131

[GRAPHIC] [TIFF OMITTED] T3870.132

[GRAPHIC] [TIFF OMITTED] T3870.133

[GRAPHIC] [TIFF OMITTED] T3870.134

[GRAPHIC] [TIFF OMITTED] T3870.135

[GRAPHIC] [TIFF OMITTED] T3870.136

                                 
