[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
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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/
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Committee on Homeland Security and Governmental Affairs
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware 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
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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.
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\1\ The prepared statement of Mr. Donahoe appears in the appendix
on page 57.
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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.
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\1\ The prepared statement of Ms. Goldway appears in the appendix
on page 66.
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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.
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\1\ The prepared statement of Mr. Foley appears in the appendix on
page 71.
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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.
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\1\ The prepared statement of Mr. Herr appears in the appendix on
page 74.
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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.
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\1\ The prepared statement of Mr. Rolando appears in the appendix
on page 89.
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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.
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\1\ The prepared statement of Mr. Rapoza appears in the appendix on
page 102.
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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.
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\1\ The prepared statement of Mr. Cerasale appears in the appendix
on page 116.
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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
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