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



 
  FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL 
                               YEAR 2011

                              ----------                              


                        THURSDAY, MARCH 18, 2010

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 2:40 p.m., in room SD-192, Dirksen 
Senate Office Building, Hon. Richard J. Durbin (chairman) 
presiding.
    Present: Senators Durbin and Collins.

                      UNITED STATES POSTAL SERVICE

STATEMENT OF HON. JOHN E. POTTER, POSTMASTER GENERAL, 
            CHIEF EXECUTIVE OFFICER


             opening statement of senator richard j. durbin


    Senator Durbin. My apologies to those of you who were here 
on time when we weren't. I would like to blame the Senate 
leadership, except I'm part of it.
    And we had a rollcall that went a little bit longer than we 
expected.
    Good afternoon. And I'm pleased to convene this hearing 
before the Senate Appropriations Subcommittee on Financial 
Services and General Government. Our focus today is on the 
financial circumstances facing the United States Postal Service 
(USPS). This is the first in a series of hearings which we're 
planning this spring as we start to develop our fiscal year 
2011 spending bill.
    I'm glad that my friend and fellow member of the 
subcommittee Senator Susan Collins of Maine is here today. And 
other colleagues may join us, as their schedules allow.
    We are all familiar with that famous maxim, ``Neither snow 
nor rain nor heat nor gloom of night stays these couriers from 
the swift completion of their appointed rounds.'' Its origin is 
a reference to the ancient courier service of the Persian 
Empire in Herodotus' ``Histories,'' dating to 450 B.C. It's 
also inscribed over the James Farley Post Office in New York 
City. And it has, over time, been an often-spoken but 
unofficial motto ascribed to the dedicated work of the men and 
women of the United States Postal Service.
    America's Postal Service has enjoyed a vibrant history, 
dating back to the system instituted by Benjamin Franklin, as 
chairman of the committee of the Second Continental Congress in 
1776. This history is rooted in a single, stalwart principle, 
that every person in the United States, no matter who, no 
matter where, has the right to equal access to secure, 
efficient, and affordable mail service.
    Today alone, letter carriers and truckers will drive 4.1 
million miles to deliver 584 million pieces of mail to more 
than 150 million residences, businesses, and post office boxes 
across our Nation. Today alone, 1.1 million customers will go 
online to the Postal Service Web site to conduct $608,000 worth 
of postal business, and another 7 million customers will go 
into a physical post office building. Today alone, $224.4 
million in revenue will be received, 584 million mail pieces 
will be processed and delivered, 115,000 plus address changes 
will be processed, 3,000 plus new addresses will be added to 
the postal network, and 402,000 plus gallons of fuel will be 
consumed. And today alone, like each day of the year, no tax 
dollars will be used to operate the United States Postal 
Service.
    Even amid these captivating day-in-the-life statistics, we 
continue to witness a remarkable, even revolutionary, 
transformation of the modes of personal communication and 
business interchange, from electronic mail and online bill 
paying, to instant messaging and social networking, via the 
Internet. As a result, mail volume has continued to spiral in 
decline, dropping from 213 billion pieces in 2006 to 177 
billion pieces last year. Couple this with an economic 
recession, and you see circumstances that have dramatically 
impacted the ability of the U.S. Postal Service to thrive and 
to meet its goals.
    The Postal Service recently unveiled an action plan of 
proposals to address grim realities that its expenses will 
likely continue to outpace revenues. It is prudent that we 
engage in a thoughtful and open national dialogue on the wisdom 
of the solutions proposed by the Postal Service.
    Monday through Saturday mail delivery dates back to 1863. 
It's been mandated in our annual appropriations bill for over a 
quarter of a century. I didn't know that. I knew it was in 
there, but nobody ever talked about it until there was a 
proposal to go to 5-day service, and then they said, ``Senator 
Durbin, Senator Collins, this is your issue.'' And that's why 
we're here today.
    Serious questions need to be asked and answered before 
Congress simply changes the course and embraces major changes 
in mail delivery. Who will benefit? Who is going to be harmed? 
Can we mitigate the impact? What savings will actually be 
gained? How reliable are the estimates that we're working with? 
What will we sacrifice? Will it drive mailers away or divert 
more commerce to the Internet or postal competitors? Have all 
the options been identified and explored? Will a reduction in 
delivery service enhance, or will it hinder, the long-term 
position of the Postal Service as a vital component of 
America's economy, a $900 billion industry? Even if the 
delivery frequency is changed, is the Postal Service still 
contemplating a rate hike and closing or consolidating 
facilities? What will be the impact on the postal workforce? I 
think these issues are just the tip of the iceberg. We'll start 
talking about them today.
    As the chairman of this subcommittee of jurisdiction, which 
provides a small stream of annual reimbursement payments, known 
as ``revenue foregone,'' and the current author of the bill 
that carries the nearly 30-year-old mandate that 6-day delivery 
and rural delivery of mail shall continue at no less than the 
1983 level, I welcome the opportunity to provide this forum. 
I'm also interested in learning more details about the array of 
proposed reforms. I am going to welcome the Postmaster General, 
after I yield to my colleague, the ranking member of this 
subcommittee, Senator Susan Collins of Maine.


                   STATEMENT OF SENATOR SUSAN COLLINS


    Senator Collins. Thank you, Mr. Chairman.
    Let me begin by expressing my appreciation to you for 
holding this important hearing to discuss the dire and 
declining financial condition of the Postal Service, an 
institution that is critical to our economy and our way of 
life.
    The Postal Service, as the chairman has pointed out, is one 
of our oldest institutions. It is the lynchpin of a $900 
billion mailing industry that employs close to 9 million people 
in businesses as diverse as paper manufacturing, printing, 
catalog companies, publishing, newspapers, and financial 
services.
    I must say, Mr. Chairman, that I'm experiencing a sense of 
deja vu in attending today's hearing on this topic. The 
Homeland Security and Governmental Affairs Committee has held 
14 hearings related to the Postal Service and its financial 
crisis since 2003, and I chaired the vast majority of those 
hearings. I want to commend you, Mr. Chairman, for holding 
another hearing to address this complex and seemingly eternal 
issue.
    Nine years ago, in 2001, the Government Accountability 
Office (GAO) first placed the Postal Service on its high-risk 
list, because it faced formidable financial, operational, and 
human capital challenges that threatened its long-term 
viability. Five years later, as the result of the passage of 
postal reform legislation in 2006, which I authored with 
Senator Carper, the GAO removed the Postal Service from the 
high-risk list. But, last year the Postal Service, losing 
billions, and facing a crisis, once again was added to the 
high-risk list.
    Approximately every 3 years--in 2003, in 2006, and again 
last year, in 2009--the Postal Service has come to Congress 
seeking relief from its financial obligations in exchange for 
promises of future profitability. The Postmaster General's 
request to Congress for relief from its retiree health benefit 
payments and from its obligation to deliver mail 6 days a week 
is just the most recent in a long history of Postal Service 
requests for financial assistance in exchange for the promise 
of becoming financially solvent--someday.
    In 2003, Congress passed postal reform legislation--I 
coauthored--that reduced the Postal Service's pension costs by 
approximately $9 billion. In 2006, the Postal Accountability 
and Enhancement Act that Senator Carper and I authored relieved 
the Postal Service of a $27 billion obligation, primarily by 
transferring the Postal Service's obligation for retirement 
benefits for its employees with prior military service to the 
Treasury Department. In 2009, Congress voted, at the Postal 
Service's request, to reduce by $4 billion a retiree health 
benefits payment that was due on September 30. I reluctantly 
supported this reduction, too--in fact, I cast the deciding 
vote--because the fact is that the Postal Service simply could 
not make the full payment.
    My point is, and my frustration is, that, over and over 
again, the Postmaster General has promised that if only 
Congress would allow the USPS relief from its financial 
obligations and take other actions, it would be on a solid 
financial footing. But, time and time again, I've been 
disappointed in the results after I've agreed to these 
requests; indeed, led the fight on these requests.
    During the past year, the Postmaster General has been 
particularly critical of the payment stream set up in the 2006 
law in exchange for the elimination of the expense of the 
escrow requirement and the transfer of the retirement 
obligations for employees with previous military service to the 
General Treasury. Yet, this very payment obligation from which 
the Postal Service now seeks relief was part of a 
recommendation from the Postal Service to prefund its future 
retiree health benefits. When the law passed in 2006, here's 
what the Postal Service said, and I quote: ``The new law 
directs the Department of the Treasury to resume the funding of 
military pensions for postal employees and abolishes a 
federally mandated escrow requirement, directing those monies 
to prefund retiree health benefits. Over the next decade, these 
changes will free the Postal Service of future legacy costs. We 
are now on firm financial footing for the future.''
    Now, after the Postal Service, in my judgment, has been 
slow to take advantage of the increased flexibilities also 
provided by the 2006 law, the Postmaster General has once again 
returned to Congress seeking billions in relief from its 
liabilities and once again making promises of improvements.
    I will, of course, carefully consider the Postmaster 
General's latest request. I've already proposed stretching out 
the payment schedule to ease the burden. But, we simply cannot 
just wish away these liabilities, or pretend that they do not 
exist.
    I also support allowing the Postal Service more flexibility 
in determining its infrastructure needs. It may well be more 
convenient for customers, as well as less expensive for the 
Postal Service, to locate postal services within a grocery 
store or a pharmacy within some communities.
    With respect to 5-day delivery, the Postal Service will 
have to present a compelling case that reduced delivery will 
not further depress volume, setting off a death spiral. It's 
going to take all the members of the postal community, 
including the postal management, its dedicated employees, 
members of the mailing community, Congress, and the 
administration, to contribute to the solution to this financial 
crisis.
    I look forward to today's dialogue and hope it will not be 
a prelude for a similar discussion 3 years from now.
    And I thank the chairman for his indulgence.
    Senator Durbin. Thank you, Senator Collins.
    Our first witness is Postmaster General John Potter, who's 
served since 2001. He is America's 72d Postmaster General, 
starting as a career postal employee in New York in 1978, and 
he leads the second-largest civilian workforce in the United 
States.
    Postmaster General Potter.


                  SUMMARY STATEMENT OF JOHN E. POTTER


    Mr. Potter. Good afternoon, Chairman Durbin and Ranking 
Member Collins. I appreciate the opportunity to discuss the 
serious financial situation of the United States Postal 
Service.
    Today, we stand at a critical juncture. I see both 
challenges and opportunities ahead for the Postal Service and 
all of our stakeholders.
    In the short term, the Nation's economy has experienced the 
worst decline in decades, a decline that significantly affected 
most every sector of the U.S. economy, especially large mailers 
in the financial and housing sectors, and caused the largest 
reduction in mail volume history.
    The Postal Service faces further reductions in volume due 
to a tremendous revolution in technology, a revolution that has 
fueled a global transformation from an Industrial Age to an 
Information Age, a transformation that was accelerated by the 
downturn in the economy. This situation has resulted in the 
diversion of traditional mail to electronic mail and in the 
rise of online bill paying and other practices. We also face 
severe challenges, some deriving from mandates imposed over 
time through regulation and legislation.
    As a result, the Postal Service finds itself on a fiscal 
course that is unsustainable. This situation could not have 
been avoided, and no one is to blame. No one could have 
envisioned the economic crisis that has rocked this country and 
the mail. At just about halfway through fiscal year 2010, we 
project a loss of approximately $7 billion. In 2006, we reached 
a record level of 213 billion pieces of mail. For fiscal year 
2010, we expect volume to be about 166 billion pieces. That 
means one in five pieces of mail has disappeared. As a result, 
the cost of delivering a piece of mail has risen. Our revenues 
are simply not keeping up with the cost of supporting a system 
designed to serve a much larger volume of mail.
    The declines in mail volume and revenue have caused us to 
rethink everything that we're doing. We've managed aggressively 
and took actions within our control. We took aggressive cost-
cutting measures and reduced costs by $2.8 billion in 2008, by 
more than $6 billion in 2009, and this year we plan to take out 
another $3.8 billion in costs. Postal employment, which was 
over 800,000 10 years ago, is now below 600,000, and with the 
help of our unions and management associations, we did this 
without layoffs. But, we are rapidly reaching the point of 
diminishing returns. Only so much can be cut before service 
suffers. Overcoming our financial challenges will be an 
enormous undertaking. If we are to succeed, rapid, aggressive, 
and fundamental changes are absolutely necessary.
    Accordingly, we have developed a plan for action--a plan of 
action for the next decade that is bold, but is also balanced, 
in that it considers the interest of all stakeholders in the 
mail. To help develop our plan, we engaged three of the world's 
most experienced and respected management consulting firms: 
McKinsey & Co., The Boston Consulting Group, and Accenture, 
LLC. We asked each firm to independently conduct studies, talk 
with stakeholders, and produce ideas that would help close the 
growing gap between our revenues and expenses without undue 
impact on our customers. The consultants projected that there 
will be 150 billion pieces of mail in 2020, and that without 
significant changes, cumulative losses could exceed $238 
billion by that time.
    Drawing from the consultants' recommendations, we crafted a 
balanced and reasonable plan for a financially sound future. 
Our solutions are: to restructure the prefunding of retiree 
health benefit payments; adjust the number of mail delivery 
days; continue to enhance and expand all alternate access to 
our products and services; establish a more flexible workforce; 
apply the consumer price index cap to all market-dominant 
products, as opposed to just by class; introduce more new 
products and services, consistent with our mission; establish 
more clearly defined, appropriate, and agile oversight. Some of 
these solutions could be implemented quickly, while others 
require more time to achieve. And no one solution is the answer 
to reversing our financial condition.
    The financial position--picture for the Postal Service is 
grim, and without changes, will surely worsen. We urgently need 
your help and legislative change. No matter which decisions are 
made, it's absolutely critical that they be made in a timely 
fashion.
    The two most urgent changes which we'd like you to consider 
are a restructuring of the funding payments for retiree health 
benefits and a change in the frequency of mail delivery.
    Regarding the retiree health benefits, the Postal Act of 
2006 requires us to prefund 73 percent of all future retiree 
health benefits, a 75-year liability, in just a 10-year period 
of time. The aggressive annual prefunding payments average $5.6 
billion, along with separate insurance payments that average 
$3.4 billion annually. Although we recognize our obligation to 
prefund retiree health benefits, in this economic environment, 
we no longer have the ability to pay at the accelerated pace. 
The trust fund holding our payments had a balance of more than 
$35 billion at the end of 2009, which is sufficient to pay the 
premiums for all of our roughly 500,000 currently participating 
retirees, through their expected lifetimes.
    Another large financial burden is a statutory requirement 
for 6-day mail delivery. There is no longer sufficient volume 
to sustain the cost of the 6-day delivery network. Reducing 
delivery frequency would substantially reduce our annual costs 
by approximately $3 billion. Recent independent surveys show 
that consumers support this change.
    In anticipation of a possible change, we've developed a 
comprehensive operations plan for 5-day delivery that will 
address all possible impacts. We will seek an advisory opinion 
from the Postal Regulatory Commission at the end of this month. 
Should Congress allow a change, we would provide 6 months' 
notice, prior to putting a change in place, ensuring a smooth 
transition for our customers and our employees.
    Although changes in retiree health benefits and delivery 
frequency will go a long way to helping alleviate our financial 
pressures, they will not be enough to make the Postal Service 
profitable. We also need an improved model of oversight, and 
that provides us with the management flexibility to adjust our 
operations network to reflect the rapid decrease in mail 
volume, expand our products and services, that we may react 
more rapidly and aggressively to market-driven environment, 
base prices for our market-dominant products on demand and cost 
of each individual offering.
    We require and need the help of Congress, because many of 
the solutions that we just described, those with significant 
changes, are not within our control. We do not have the 
unilateral power to change employee wages or benefits, change 
the legacy costs of retiree health benefits, change delivery 
frequency, diversify our products and services, change prices, 
or address Civil Service Retirement System (CSRS) overfunding.
    Our plan is a path to a future in which the Postal Service 
will remain a vital driver of the American economy and an 
integral part of every American community. Even in an 
increasingly digital future, the mail, which is projected to 
total about 150 billion pieces in 2020, will remain a powerful 
delivery and marketing channel, a preferred means of commercial 
and personal communication for many purposes, and a complement 
to e-commerce.


                           PREPARED STATEMENT


    Thank you for your support of our ongoing efforts to ensure 
a solvent and sound Postal Service. I look forward to working 
with you and other Members of Congress to achieve the passage 
of legislation that will address our near-term and future 
challenges, and I would be pleased to respond to any questions 
that you may have.
    [The statement follows:]

                  Prepared Statement of John E. Potter

    Good afternoon, Chairman Durbin, Ranking Member Collins, and 
members of the Subcommittee. I appreciate the opportunity to discuss 
the serious financial situation facing the United States Postal Service 
and to provide details of our plan for reducing the number of mail 
delivery days, should a frequency change be approved by Congress. I 
also would like to share aspects of our new action plan for the next 
decade titled, ``Ensuring a Viable Postal Service for America.''
    For over 235 years, the Postal Service has provided trusted, 
affordable universal service to the nation. Our goal is to continue to 
do so. As the members of this Subcommittee are well aware, the Postal 
Service is in a dire financial situation. The situation has occurred 
despite the efforts of Congress through passage of the Postal 
Accountability and Enhancement Act of 2006 (Postal Act of 2006). Our 
current financial circumstances have come about in spite of the massive 
efforts of Postal Service management and employees who have adopted 
aggressive cost-cutting measures to save over $1 billion each year 
since 2001. For 2009 alone, the savings exceeded $6 billion.
    Our financial situation has many causes: a severe national 
recession that significantly affected the financial and housing 
sectors, which were important users of the mail; the powerful and rapid 
evolution of new technologies that have diverted mail to other 
channels; and the changing use of the mail to communicate and conduct 
business. This situation could not have been avoided and no one is to 
blame. No one could have envisioned the economic crisis that has rocked 
this country.
    Further complicating the fiscal health of the Postal Service are 
limitations under which we operate, including:
  --A statutorily mandated requirement to provide 6-day a week 
        delivery.
  --Accelerated annual payments to pre-fund a significant portion of 
        our retiree health benefit obligation.
  --A restriction to not close Post Offices solely on an economic 
        basis.
  --The requirement to submit to binding arbitration to finalize labor 
        contracts.
  --Constraints on our ability to restructure and streamline our 
        processing and distribution networks.
  --Restrictions on the types of products and services the Postal 
        Service can offer.
  --A lack of clarity between the role of the Governors of the Postal 
        Service and the Postal Regulatory Commission (PRC), and an 
        oversight model that adds unnecessary burden and time to 
        decision-making.
    Without critically needed fundamental changes, the Postal Service 
expects significant losses in fiscal year 2010 and in each year into 
the near future. Our fiscal year 2010 financial plan estimates a 
revenue decline of roughly $2 billion and a net loss of approximately 
$7 billion. These projections assume there will be no changes this year 
in the number of mail delivery days per week or in the current retiree 
health benefits prefunding schedule. If we were not to react and simply 
move forward with business as usual, the Postal Service is likely to 
have a cumulative loss of $238 billion by 2020.
    The Postal Service ended fiscal year 2009 with a net loss of $3.8 
billion, despite cost-cutting efforts that yielded more than $6 billion 
in cost savings and a $4 billion reduction in the required 2009 payment 
to the Postal Service Retiree Health Benefits Fund (PSRHBF) provided by 
the enactment of Public Law 111-68. We are very grateful to Congress 
and the Administration for that legislation. However, Public Law 111-68 
did not restructure the PSRHBF payments beyond 2009, and the Postal 
Service continues to be in financial crisis. We urgently need retiree 
health benefits legislative restructuring from Congress.
    In fiscal year 2009, mail volume continued to drop. At 177 billion 
pieces, volume was down 26 billion pieces or 12.7 percent from the 
previous year--representing the largest volume decline in Postal 
Service history. Our volume losses continue against a backdrop of an 
ever growing mail delivery network that presently has more than 150 
million delivery points.
    The $6 billion in savings we successfully achieved during fiscal 
year 2009 included a reduction of 115 million workhours--the equivalent 
of 65,000 full-time employees. For fiscal year 2010, our plan is to cut 
an additional $3.8 billion of costs, including the elimination of 
approximately 90 million more workhours. In addition to workhour 
reductions, our targeted activities will include maximizing operational 
efficiencies, re-negotiating contracts with major suppliers, continuing 
the freeze on construction of most new facilities, and using our 
pricing flexibility to grow new revenue. We have also worked closely 
with our union representatives to agree on adjustments that reduced 
costs and increased delivery efficiency. We also will continue to 
aggressively pursue initiatives to generate new revenue.
    Given that the mail volume declines and financial pressures will 
continue throughout the next decade, the choices for overcoming this 
serious situation are not easy and there is no single remedy that can 
return the Postal Service to good financial health. But we do have an 
action plan for the next decade--one that is both ambitious and 
aggressive. Through a careful and comprehensive effort, we have 
identified a set of the most reasonable business choices for the Postal 
Service and the customers we serve.
    To help develop our plan we engaged three of the world's most 
experienced and respected management consulting firms: McKinsey & 
Company, The Boston Consulting Group, and Accenture, LLC. We asked each 
of these firms to act independently and to conduct studies and have 
conversations with postal customers, mailers, labor associations, 
regulators, and mailing industry stakeholders. We wanted them to gather 
information to help us determine the likely state of the mailing 
industry and the Postal Service over the next decade. Our expectation 
was for the consultants to produce ideas that would allow the Postal 
Service to close the growing gap between our revenues and expenses 
without undue impact on our stakeholders.
    The consultant's key findings included the following:
  --Without fundamental changes, the Postal Service's losses will 
        continue. By 2020, cumulative losses will exceed $238 billion.
  --Mail volume will decline by roughly 15 percent to about 150 billion 
        pieces in 2020, from a 177 billion pieces in fiscal year 2009.
  --The mix of mail received by the Postal Service will change; First-
        Class Mail will fall sharply and Standard Mail will stay fairly 
        flat. First-Class Mail contributes more toward covering 
        institutional costs, which supports the processing and delivery 
        network.
  --The Postal Service could close the gap by as much as $123 billion, 
        without statutory or regulatory changes, by taking product and 
        service actions, by continuing to improve processes and 
        productivity, by adopting workforce flexibility improvements, 
        and by pursuing purchasing savings. Achieving this level of 
        savings will be extremely challenging.
  --Key areas were identified and options provided to close the 
        remaining $115 billion gap. However, legislative and regulatory 
        changes are needed to achieve them.
  --The best way to address the financial challenges and preserve the 
        strength of the Postal Service and the entire mailing industry 
        is through a comprehensive approach that balances the needs of 
        all key stakeholders.
    The Postal Service created its plan--Ensuring a Viable Postal 
Service for America--upon thorough review and consideration of the 
consultant's recommendations. The plan provides options to address the 
challenges we face and is a balanced and reasonable approach to 
creating a financially sound future. No single option will be able to 
close the whole $115 gap; if it came to pass that only one option were 
used to close the gap, it would likely cause severe disruptions that 
would have significant adverse impacts. To implement the plan, a number 
of fundamental changes are necessary, some of which would require 
legislative changes from Congress. Our solutions are as follows:
  --Restructure the Prefunding of Retiree Health Benefits.--We request 
        that Congress permit these payments to be deferred and shifted 
        to a ``pay-as-you-go'' system comparable to what is used by the 
        rest of the Federal government and the private sector. This 
        would provide the Postal Service with an average of $5.6 
        billion in cash flow per year through 2016. In addition, 
        overpayments to the CSRS pension fund by the Postal Service 
        also need to be resolved.
  --Delivery Frequency.--We request that we be permitted to adjust the 
        number of mail delivery days to better reflect current mail 
        volumes and customer usage.
  --Expand Access.--We will continue to modernize our channels for 
        alternate access by providing services where our customers are. 
        We also will continue to increase and enhance customer access 
        through private sector retail partnerships, kiosks, and 
        improved online offerings. However, the Postal Service needs to 
        be relieved of the statutory prohibition against closing a Post 
        Office for solely economic reasons.
  --Workforce.--We will work during our upcoming collective bargaining 
        negotiations to establish a more flexible workforce that is 
        better positioned to respond to changing needs of our customers 
        and take advantage of the over 300,000 voluntary separations 
        projected to occur over the next decade. We would also ask that 
        Congress pass legislation that requires an arbitrator to take 
        the financial health of the Postal Service into consideration 
        in making an arbitration determination.
  --Pricing.--We request that Congress apply the Consumer Price Index 
        price cap to the entire basket of Market-Dominant products, 
        rather than the current restriction which caps prices for every 
        class at the rate of inflation. This will allow pricing to 
        respond to the demand for each individual product and its 
        costs. In addition, we will use our existing flexibility to 
        pursue an exigent price increase. Assuming other parts of our 
        plan can be implemented, the exigent price increase will be 
        moderate and not occur before 2011.
  --Expand Products and Services.--We ask that Congress permit us to 
        evaluate and introduce more new products and services 
        consistent with our mission. This will allow us to better 
        respond to changing customer needs.
  --Oversight.--We ask that Congress provide us with more clearly 
        defined, appropriate, and agile oversight and more streamlined 
        processes. This will help to achieve the solutions in our 
        action plan.
    As you can see, some of these solutions could be implemented 
relatively quickly within the short-term, while others would require 
much more time to achieve. No one solution is the answer to reversing 
our financial condition. And doing nothing--the status quo--is not an 
option. We believe a balanced approach that provides the Postal Service 
with the flexibility to respond to market dynamics and the speed to 
bring products to the market quickly, and that incorporates initiatives 
focused on cost, service, price, new product, and changes in the law 
would be the best approach. It is also the one that is most likely to 
perpetuate a financially sound Postal Service, able to meet the needs 
of the American people.
    We are ready to proceed with our plan. But we need Congress to 
provide the legislative reform necessary for us to begin our recovery 
and move forward.
    Now, I would like to discuss in greater detail the financial burden 
the Postal Service faces with respect to retiree health benefits. A 
provision established in the Postal Act of 2006 requires the Postal 
Service to prefund 73 percent of all future retiree health benefits--a 
75-year liability--in just a 10-year period ending in 2016. This 
prefunding mandate is not shared by other Federal agencies or private 
sector companies. The aggressive schedule, a product of budget scoring 
rules, requires the Postal Service to make annual prefunding payments 
averaging $5.6 billion into the PSRHBF. In addition, the law requires 
the Postal Service to make separate insurance premium payments for 
retirees that average $3.4 billion annually through 2016.
    When the prefunding payment schedule was being considered in 2006, 
the Postal Service envisioned that it would be able to make the 
payments, while knowing it was a challenging goal. Since then, however, 
circumstances have changed dramatically. Between 2006 and 2009, mail 
volume fell by 17 percent and revenue fell by 6 percent. We no longer 
have the ability to meet this unique statutory requirement to prefund 
retiree health benefits at the accelerated pace. The enormous 
obligation costs the Postal Service and its customers--not taxpayers--
$55 billion in prefunding over the 10 year period. The Postal Service 
recognizes its obligations to fund its retiree health benefits; 
however, our financial circumstances must be recognized. I would note 
that the trust fund holding the Postal Service's payments had a balance 
of more than $35 billion at the end of fiscal year 2009. Thirty-five 
billion dollars is sufficient to pay the premiums for all of our 
roughly 500,000 currently participating retirees through their expected 
life times.
    The Postal Service greatly appreciates the action taken by Congress 
last year to enact legislation that restructured the payment for 2009. 
However, for 2010 and beyond, there is no assurance that similar 
adjustments will be granted. A restructuring of the payment obligation 
is urgently needed to allow the Postal Service to continue to fulfill 
its mission now and in the future. Legislative change would also reduce 
the need for the Postal Service to borrow funds from the U.S. Treasury 
for the sole purpose of depositing the money into the PSRHBF. We 
recognize there are a number of options, ranging from making no changes 
to the statutory payments schedule to adopting the Postal Service's 
Inspector General (IG) recommendation that Congress remedy a Postal 
Service over-funding of its Civil Service Retirement System obligation. 
The Postal Service supports the IG's recommendation. However, what the 
Postal Service needs is a relatively quick decision by Congress on how 
this issue will be addressed to provide the Postal Service clarity as 
we consider other options to close the gap.
    Next, I would like to provide greater details on our request to 
change the frequency of the number of mail delivery days each week. The 
statutorily mandated requirement for 6-day mail delivery has been in 
existence since 1983 and it places a very large financial burden on the 
Postal Service. Due to the unprecedented decline in mail volume, there 
no longer is sufficient volume to sustain the cost of the current 6-day 
delivery network. The number of pieces of mail per delivery has 
declined from an average of 5 pieces in 2000 to 4 pieces in 2009, which 
represents a 20 percent reduction. Assuming a scenario of 5-day 
delivery and fiscal year 2009 mail volume, the amount of mail per 
delivery would increase to more than 5 pieces. Revenue per delivery 
point dropped by 24 percent between 2000 and 2009, because our largest 
volume declines occurred in profitable First-Class Mail.
    Moving to 5-day delivery is absolutely necessary to ensure 
financial viability, both now and into the future. Reducing the 
frequency of delivery is the single most effective way for the Postal 
Service to substantially reduce operational costs--allowing us to 
reduce annual net costs by approximately $3 billion. It would greatly 
assist us with regaining a portion of our financial footing and help to 
ensure that affordable universal service is maintained nationwide.
    Market surveys conducted independently and on behalf of the Postal 
Service show that customers want to see the Postal Service survive and 
flourish. Most are willing to accept the elimination of Saturday 
delivery to reduce the Postal Service's losses. And, most would rather 
have Saturday delivery eliminated than have stamp prices increased 
significantly, as would be needed to ensure the Postal Service's 
financial stability. I would also like to cite the results of a Gallup 
survey conducted in June of 2009. The survey showed that 66 percent of 
those polled favored a change to 5-day delivery ``as a way to help the 
Postal Service solve its financial problems'' over other alternatives 
such as increasing postage prices or closing local Post Offices. This 
result was echoed by studies conducted by Rasmussen in 2009 and 2010.
    In anticipation of a possible change, we have conducted extensive 
stakeholder outreach through dozens of meetings with customers. We 
identified mailer issues and ensured their consideration in our 
planning. These exchanges helped us to understand and address the needs 
of the mailing industry and the public concerning a potential change in 
the frequency of mail delivery. The Postal Service has developed a 
comprehensive operations plan for 5-day delivery that addresses all 
possible impacts from required software programming modifications to 
workforce adjustments and that addresses issues raised by our 
customers, to the extent possible. Two major assumptions guided the 
development of the concept: existing service standards would be 
maintained and any changes would comply with existing collective 
bargaining agreements.
    Our plan for 5-day delivery, which we will file with the PRC later 
this month, will present an overview of our 5-day delivery concept and 
include cost and revenue impacts. As currently envisioned, our concept 
for 5-day mail delivery service would include the following:
  --Residential and business delivery and collections would be 
        discontinued on Saturday.
  --Post Offices that are usually open on Saturdays would remain open.
  --Post Office Boxes would receive mail delivery on Saturday.
  --Express Mail would continue to be delivered 7 days a week, 
        including Saturday and Sunday.
  --Remittance mail (bill payments) addressed to Post Office Box and 
        Caller Service customers would be made available to recipients 
        7 days per week.
  --Firm hold outs (mail that a business picks up at the Post Office) 
        would be available for Post Office Box addressed mail Monday 
        through Saturday, nationwide.
  --No mail pick-up from blue collection boxes on Saturdays except for 
        dedicated Express Mail collection boxes.
  --Acceptance and drop-shipping of destinating bulk mail would 
        continue on Saturday and Sunday.
  --Alternate contract locations would remain open 7 days a week on 
        their normal schedules.
  --Access to all of our online services via usps.com would continue to 
        be available 24/7.
    The Postal Service is fully aware that before a change in the 
number of delivery days could be adopted, legislative action would be 
required by Congress to amend the appropriations language that mandates 
6-day a week delivery. Should Congress approve a change that grants us 
the latitude to change the frequency of mail delivery, know that we are 
committed to implementing an in-depth communications plan for our 
customers and our employees to make the transition as smooth as 
possible. Upon approval, we intend to provide our customers with 6 
months notice prior to implementing a change which we estimate would be 
no earlier than mid-2011. The impact on our employees would be minimal 
and it would occur through attrition, not layoffs.
    Another issue for the Postal Service involves limitations that 
delay or prevent adjustments to our network operations and workforce. 
Despite these constraints, we are continuing to identify, pursue, and 
implement various solutions and strategies to make operational 
activities more efficient and reduce costs to help mitigate the impact 
of our financial difficulties. Some of the efforts we have adopted to 
improve efficiency and produce cost savings include consolidating 
functions, adjusting delivery routes, and restructuring administrative 
and processing operations--all while continuing to maintain excellent 
service levels.
    The Postal Service needs more flexibility to respond quickly to a 
changing business environment. We need legislative and regulatory 
changes to allow us to modernize our network of facilities to meet 
changes in customer needs and mail volume. We are completing a process 
of reviewing retail facilities located in larger urban and suburban 
areas to identify sites where we have a number of facilities in close 
proximity. This process will help us determine where consolidations are 
possible so that we may conserve our resources and adapt our customer 
access to current needs. Related to these efforts, on March 10, 2010, 
the PRC issued an Advisory Opinion to the Postal Service concerning our 
Station and Branch Optimization and Consolidation Initiative. In its 
opinion, the PRC agreed with our approach and made a number of 
recommendations which we are in the process of reviewing.
    Business processes that involve evaluating and relocating or 
consolidating retail outlets are reasonable and warranted practices 
used by many companies to streamline their operations and reduce costs. 
Often when a business is losing money, they resort to selling a portion 
of their assets, closing locations, or other options such as laying off 
employees. Here are just a few examples of business actions taken by 
private companies to improve their financial condition:
  --In 2009, Sears closed 62 underperforming stores and initiated an 
        aggressive global digital strategy.
  --In November 2009, L.L. Bean announced it would be closing an outlet 
        store in Portland, ME.
  --In September 2009, a news item reported that Citigroup was 
        considering shutting or selling some of its 1,001 branches in 
        North America following a $45 billion Federal bailout. In 2008, 
        Citigroup announced it was cutting its workforce, worldwide, by 
        14 percent, through the sale of some units or through layoffs.
  --In 2008, Starbucks announced it was closing 5 percent--more than 
        600--of its stores. In 2009, it announced it would close an 
        additional 300 stores.
  --In 2009, GM told 1,100 dealerships that it would drop them from its 
        retail network effective October 2010; GM also discontinued the 
        Saturn, Pontiac and Hummer lines of cars.
  --A January 2010 news item reported a 10 percent cutback in the 
        number of available airline seats, caused by airlines using 
        smaller planes or reducing the number of flights.
    If the Postal Service were provided with the flexibilities used by 
businesses in the marketplace to streamline their operations and reduce 
costs, we would become a more efficient and effective organization. 
Such a change would also allow us to more quickly adapt to meet the 
evolving needs, demands, and activities of our customers, now and in 
the future.
    The Postal Service is committed to continuing to fulfill the needs 
of customers. To help alleviate the concerns of our customers and to 
better match their changing retail needs, we have been emphasizing the 
easy and convenient availability of our expanded alternate access 
points. Today, 30 percent of retail revenue is generated by means other 
than a Post Office counter. Increasingly, customers are paying for 
postage stamps and conducting business at thousands of supermarkets, 
drug stores, and other postal retail partners, and by using our 
automated kiosks, and our website, usps.com. Our world class web site 
is available 24/7 to everyone with online access. The Postal Service 
continues to be committed to fulfilling the needs of customers. Postal 
customers now can access the services they need using a variety of 
readily available options including free carrier pick up of outgoing 
mail at every address. For many customers, these alternatives are 
simply more convenient and more suited to their lifestyles. Largely as 
a result of changing customer preferences, Post Offices had 117 million 
fewer transactions in 2009 than in 2008.
    Throughout this difficult period, our employees continue to deliver 
very high levels of service.
    As just one example, during quarter one of fiscal year 2010--and 
for the fifth straight quarter--our employees attained a score of 96 
percent for the on-time delivery of single-piece overnight First-Class 
Mail. Our dedicated and hard working employees deserve tremendous 
credit for their successful efforts to provide excellent service under 
very challenging conditions.
    Even so, the financial picture for the Postal Service is grim and 
without changes the situation will surely worsen. Mail volume has 
sharply declined from a peak of 213 billion pieces in 2006 to 177 
billion pieces in 2009. Despite extraordinary efforts to cut costs, the 
Postal Service incurred multibillion dollar net losses in the last 3 
years. With many fixed operational costs that cannot be eliminated 
without diminishing service levels, we are running out of ways to cut 
more costs.
    Nonetheless, the Postal Service is continuing to pursue available 
options to grow revenue during these challenging economic times. We 
understand that to best serve the American people in 2020 and beyond, 
we must be able to quickly offer products and services that meet the 
mailing and shipping needs of our customers. However, at present we 
must work within the framework provided in the Postal Act of 2006.
    One excellent example of how we employed the full range of 
strategies available to us to successfully compete and generate revenue 
was our popular Priority Mail Flat Rate Box promotional campaign during 
2009. The campaign offered customers a simple, economic way to ship 
their goods. We used a highly integrated media plan that incorporated 
TV, direct mail, print and digital advertising and we encouraged our 
retail clerks, letter carriers, and other employees to actively 
participate in and support the campaign. By being aggressive, we 
managed to avoid the double-digit revenue declines in the expedited 
market. We attribute this success to the pricing freedoms provided to 
us under the Postal Act of 2006, proven advertising, and outstanding 
customer service.
    In 2009, we also introduced our first Summer Sale. Working with the 
PRC, we developed the Summer Sale concept that provided a 30 percent 
price discount on incremental volume of advertising mail available for 
3 months during the summer. Over 400 of our largest customers 
participated in the sale and mailed a significant number of incremental 
pieces of Standard Mail.
    The success of the Summer Sale led to the design and launch of a 
similar stimulus program for First-Class Mail. This program offered a 
20 percent credit on the volume of presorted and automation First-Class 
Mail cards, letters and flats exceeding an established threshold. We 
know that mail is a powerful tool to help businesses grow. These sale 
programs help to ensure our customers know that they matter to us and 
we want to help them grow their business.
    Another positive aspect of the Postal Act of 2006 has provided the 
Postal Service the ability to offer contract pricing to commercial 
customers. Prior to this time, everyone paid the same price no matter 
how much volume they shipped. With contract pricing, we can now compete 
somewhat more effectively with private carriers on price, which has 
allowed us to grow our profitable package business. Contract pricing 
has become a key strategy to grow our commercial business with large 
and medium sized customers. However, these pricing freedoms fall short 
of the freedoms our competitors enjoy, since each postal contract must 
be approved by both by our Board and our regulator, the PRC, in advance 
of implementation. Streamlining these requirements would enable us to 
capture more revenue opportunities with sufficient oversight to limit 
risk.
    By 2020, the Postal Service plans to expand products and services 
across targeted mail and package segments to increase profits by $2 
billion. We will continue to work to increase direct mail use among 
small and medium-sized businesses, and to increase volumes in both 
First-Class Mail and advertising mail through targeted promotions. We 
also will continue to leverage our last-mile network to deliver 
packages to all households, forming partnerships with others serving 
the growing e-commerce industry. We also will continue to grow other 
retail services, such as passports and Post Office Box rentals to 
increase revenue. However, if we had the authority to offer a wider 
range of products and services consistent with our business, we could 
bring in more new revenue.
    We urgently need legislative change from Congress. Without it, the 
Postal Service may have difficulty paying all of the obligations due 
this year. At present, our financial situation raises significant 
uncertainty about our ability to generate sufficient cash flows to fund 
the large cash obligations due in September. In addition, we believe 
the liquidity of the Postal Service will be seriously threatened 
beginning in early fiscal year 2011, to the point where it will impact 
our ability to meet payroll and other financial obligations, as we will 
come dangerously close to running out of cash.
    At present, the two most immediate changes the Postal Service 
urgently needs from Congress involve legislation that provides a 
restructuring of the prefunding payments for retiree health benefits 
and allows the Postal Service to reduce the frequency of mail delivery. 
Although these two changes will go a long way in helping to alleviate 
the financial pressures facing the Postal Service, by themselves they 
will not be enough to make the Postal Service profitable. The Postal 
Service must address the fact that mail volume is declining, especially 
First-Class Mail volume which has historically made a substantial 
contribution to support the overall network. Therefore, we need the 
flexibility to adjust our operations network to reflect this rapid 
decrease in today's mail volume, which will continue to decline for 
sometime into the future. We also need the ability to expand our 
products and services, and ensure prices for our Market-Dominant 
products are based on the demand and cost of each individual product. 
And finally, all of these changes need to be reinforced with more 
clearly defined and appropriate oversight roles for our many regulators 
and with more streamlined processes.
    We understand that to best serve the American people now and in 
2020 and beyond, the Postal Service must be leaner and have the ability 
to quickly respond to customer mailing needs.
    Our action plan is a path to a future in which the Postal Service 
will remain a vital driver of the American economy and an integral part 
of every American community, and will continue to deliver the greatest 
value of any comparable post in the world. If given the flexibility to 
respond to an evolving marketplace, the Postal Service will continue to 
be an integral part of the fabric of American life for a long time to 
come.
    The mail and the Postal Service will continue to play a vital role 
in the personal and commercial lives of all Americans over the next 10 
years and beyond. Even in an increasingly digital 2020, the mail will 
remain a powerful delivery and marketing channel; a preferred means of 
commercial and personal communication for many purposes; and a 
complement to e-commerce. In order for this to happen, today's 
constraints must be removed so that over the next decade the Postal 
Service can become as dynamic and adaptive as the marketplace and 
customers we serve.
    Thank you for your support of our ongoing efforts to ensure a 
solvent and sound Postal Service.
    I look forward to working with you and other members of Congress to 
achieve the passage of legislation that will address our near-term and 
future challenges.
    I would be pleased to respond to any questions you may have.

                     POSTAL SERVICE BUSINESS MODEL

    Senator Durbin. Thank you, Mr. Postmaster.
    Let me just ask a few questions. First, I'm trying to step 
back and look at your brand, what the American consumer sees 
when you say ``The U.S. Postal Service.'' And I'm sure there 
are a lot of things they can point to. First, the fact that I 
can take that Mother's Day card, put it in an envelope, put an 
address on it, and, for 44 cents, expect it to be delivered in 
a timely fashion to virtually any place in the United States of 
America. Forty-four cents. That is still an amazing bargain, by 
any modern standards. Second, that you do reach every corner of 
this country. Third, that there's reliable service. Now, 
occasionally there will be people who will complain, and I've 
complained about service in parts of my State, but, by and 
large, our Postal Service is as reliable, if not more reliable, 
than most any in the world. It is a system which people trust. 
They develop an ongoing working and social relationship with 
the men and women who work for the Postal Service.
    I know David Lasley, my personal mailman in Springfield. 
I've known David since he was in college, and he's a friend of 
our family. He's done little favors for us that go way beyond 
his responsibilities in the Postal Service. That helps a lot, 
in terms of explaining who you are and what you mean to so many 
people.
    Your competitors--the Internet--it's going to be up 24/7 no 
matter what you do. Those e-mails are going to be there Sunday 
at midnight, delivered back and forth. The people who deliver 
packages will deliver on Saturdays, and may charge a premium 
for it, which I think you're suggesting, too, as part of 5-day 
service.
    But, I guess what I'm getting to is, tell me what your 
business model looks like. When you start reducing your contact 
with postal customers and consumers, when you decide that 
you'll only be there 5 days instead of 6, tell me what it looks 
like to them, in terms of your long-term goal and your economic 
model, what your brand's going to be as you cut back on the 
service that's available to the people of this country.
    Mr. Potter. Well, we are very concerned about that, and 
that's why there were a number of surveys done of the American 
public to talk about the Postal Service and options that were 
facing the Postal Service. And, there was, for example, one of 
the things we surveyed was, we could save money by changing the 
location of your mailbox from your door or your curb to a 
street corner. That could save us almost $3 billion. But, over 
90 percent of Americans said, ``Absolutely not.'' That would be 
considered a major diminution in service. When they were asked 
about the frequency of delivery and the fact that we were 
considering going from 6-day to 5-day delivery, every survey 
I've seen--and there have been many done around the country--
people look at that as a favorable option, versus either 
raising rates or doing something on the order of what I just 
described to you.
    They also recognize that they use and receive less mail. 
Today, the average address in America gets four pieces of mail 
a day.
    Senator Durbin. Boy, we're above average.
    Mr. Potter. And it's true. But, I think that oftentimes 
people look at their own mailbox and don't think about the 
averages. But, back in 2000, it was five pieces of mail per 
delivery per day. Today it's four, and we project that in 2020, 
it will be three.
    And the other thing that's interesting is you have the 
volume of mail that's going to every address. In addition to 
that, it's the mix of mail. In 2000, more of what was delivered 
to your home was first class than today; today, there's more 
advertising. So in 2000 dollars, we delivered $1.80 to every 
door, every day in 2000. Today, we're delivering $1.40 to every 
door, every day. And in 2020, the projection is, because the 
mail mix will continue to move in the direction of more 
advertising mail and less first-class mail, that we will be 
delivering $1 to every door every day.

                           FIVE-DAY DELIVERY

    Now, when you look at that, the question becomes, How can 
you improve the efficiency of delivery to make up for the fact 
that the revenue that you're bringing to every door, every day, 
changes? And working with our unions, we have done that. But, 
we have not been able to close the entire gap. And that's 
what's led us to the conclusion that one way to make delivery 
more efficient is to eliminate that one day of delivery. And 
again, surveys were done of the American people, and that were 
positive, not in the sense that everyone would prefer that we 
not change, but I think people understand that, given their use 
of the mail and the fact that it's declining, that a change has 
to occur, and this is one that was acceptable to them.
    Senator Durbin. So, let me ask you about specifics you must 
have taken into consideration. If there's a 3-day gap in 
delivery from Friday to Monday--in regular mail delivery--have 
you considered the impact on the delivery of pharmaceuticals 
and medicines, perishables, live animals, government checks 
such as Social Security checks and disability checks, holiday 
season issues? Some times of year, I know I'm flooded with 
Christmas cards and other cards that come in, where you're 
going to have a larger volume, where you're cutting down, for 3 
straight days, that delivery. And will public desire for 
Saturday delivery migrate to post office boxes? And will that 
mean that you'll have to have a larger volume of those? Are you 
anticipating that possibility?
    Mr. Potter. Let me just say that we have been doing a lot 
of research around 6- to 5-day delivery. We've reached out to 
40 stakeholder groups, major users of the mail, to determine 
how the elimination of a 6-day delivery might impact their 
businesses. The vast majority of people have told us that they 
will make arrangements.
    So, for example, pharmaceuticals: If you have an immediate 
need for prescription drugs, you go to your local pharmacy and 
get that filled. You're not relying on the mail. People who are 
in the mail are the ones who are getting their regular 
prescriptions on 90-day fulfillment, and so, there's time there 
for delivery. When it comes to other things, like advertising, 
magazines, Time has just moved their magazine delivery from 
Monday to Saturday, because they thought there was an advantage 
in the marketplace. We've worked with Time magazine, and they 
have said yes, they can make an accommodation and make a 
change.
    Now, what we've done in this process of reaching out to 
stakeholders is, we've changed our plan around 6- to 5-day 
delivery to make sure that we minimize the impact. So, 
initially, we just said we were going to close--not deliver on 
Saturday at all, including to P.O. boxes. Well, we heard back 
from people who receive remittances, and we're going to 
continue to process the mail and deliver it to P.O. boxes on 
Saturday.
    Senator Durbin. What do you anticipate would be the 
increase in volume to post office boxes if you went to 5-day 
delivery?
    Mr. Potter. We don't have a specific increase, because most 
of the folks who do receive bill payments in large quantity 
already have some kind of an arrangement where they have to 
pick up mail at a plant before it even gets to the post office, 
or they pick mail up at a post office, so they can get it early 
in the morning, as opposed to receiving it later. But what 
we're embarking on now--we will file, with the Postal 
Regulatory Commission (PRC), our complete plan for 6- to 5-day 
delivery. They will review that plan. I know that they are 
planning to have an outreach to customers, maybe those that we 
have not reached out to, and they will give us an advisory 
opinion on our plan. So, there will be a public forum for 
consideration.
    Over the last 6 months, we have modified our original plan 
to try and accommodate as many of the concerns that were raised 
by mailers, and I think we've truly narrowed the gap somewhat.
    Now I don't want to mislead anyone to think that we could 
satisfy everybody. There are certain people, for example, 
newspapers that have 6-day delivery, if we're not delivering on 
Saturday, we won't be able to accommodate. Some customers were 
concerned about, you know, would they be able to pick up their 
packages on Saturday. The post offices that are open Saturday 
today will be open Saturday in the future.
    So, again, where accommodations could be made, they have 
been made. It wasn't perfect. We do think that we will lose 
revenue. That is part of the plan that will be submitted, and 
it will be validated by the Postal Regulatory Commission. So, 
we do know there will be a revenue impact, but the net impact 
will be $3 billion in savings.
    Senator Durbin. So, that represents a little over 4 percent 
of your annual budget?
    Mr. Potter. Yes.
    Senator Durbin. And I assume you've taken a look at some 
other options to save money, other than cutting that 6-day 
service.
    Mr. Potter. Without a doubt. We have built into our plan 
$123 billion in savings over the next decade. So, this is--
after we cut as aggressively as we could. And part of that plan 
includes consolidation of our processing facilities. We are 
concerned that there may be some oversight that would attempt 
to slow those processes down. But, you know, we know those 
opportunities exist, and we're ready to go after them.
    Senator Durbin. Let me go into another area here. You 
mentioned in your opening testimony the impact of changing mail 
delivery frequency, ``The impact on our employees would be 
minimal, and it would occur through attrition, not layoffs.'' 
On what basis do you believe the impact would be minimal? Can 
you quantify the number of people working for the Postal 
Service, either as rural letter carriers, city letter carriers, 
other postal employees--all of the people that make up the 
Postal Service today--can you quantify the number of jobs that 
will be lost to save the $3 billion that you're talking about?
    Mr. Potter. Yes, that's part of the plan that will be 
submitted. Let me just make sure that I'm 100 percent clear on 
how we would achieve that. When I talk about employees, I'm 
talking about postal career employees. And so the way we would 
address the downsizing as a result of going from 6- to 5-day 
delivery will be first to eliminate overtime where it exists in 
the letter carrier craft. Second, it will be to eliminate some 
noncareer jobs that exist in the two crafts that are--rural 
letter carriers, as well as the city letter carriers.
    Senator Durbin. How many jobs would be lost in those areas?
    Mr. Potter. There are 13,000 rural--city letter carrier 
noncareer employees today--somewhere around 13,300, in that 
neighborhood. In the rural carrier area, we have some 40,000 
people who work 1 day a week. We would have to sit down with 
the union and work through what role they would play after we 
move from 6-day to 5-day delivery. And that's the reason we get 
the advisory opinion from the Postal Regulatory Commission, and 
after the law changed, there would be a 6-month period where we 
work through the issues around employment, as well as giving 
our customers the opportunity to change their operations to 
accommodate the 6- to 5-day delivery.
    Senator Durbin. But, I want to make sure I understand. When 
you use the word ``minimal,'' do you have a number in mind, or 
a percentage in mind, when it comes to any of these employee 
groups?
    Mr. Potter. In terms of noncareer? In terms of career----
    Senator Durbin. Do both.
    Mr. Potter. In terms of career employees, I don't 
anticipate we'd have to lay anybody off.
    Senator Durbin. And noncareer?
    Mr. Potter. And noncareer, we would eliminate jobs.
    Senator Durbin. Do you have a number in mind?
    Mr. Potter. Thirteen thousand noncareer jobs for----
    Senator Durbin. Oh, I see what you're saying.
    Mr. Potter [continuing]. City carriers and 45,000 people 
who work 1 day a week in the rural area.
    Senator Durbin. Okay.
    Mr. Potter. Okay.
    Senator Durbin. Senator Collins.
    Senator Collins. Thank you, Mr. Chairman.
    Let me pick up on the issue of 5-day delivery. One of the 
major problems that the Postal Service is facing is a reduction 
in volume. Would you agree with that?
    Mr. Potter. Yes.
    Senator Collins. And I believe your testimony indicates 
that there was a 12-percent reduction in volume last year. Is 
that accurate?
    Mr. Potter. Yes.
    Senator Collins. The--what is your estimate for the further 
volume reduction that would be the result of going to 5-day 
delivery?
    Mr. Potter. I don't have a specific volume number. I do 
know that we would lose $200 million in profit. But, there is a 
detailed plan that lays that out by class of mail.
    Senator Collins. It's my understanding that the Postal 
Regulatory Commission hired some consultants to look at the 
reduction in revenue which reflected a 2-percent reduction in 
volume. Are you familiar with those studies?
    Mr. Potter. Yes, I am.
    Senator Collins. Do you disagree with that estimate?
    Mr. Potter. I think there's a slight difference between the 
Postal Service estimate and the Postal Regulatory Commission 
estimate.
    Senator Collins. There's a considerable difference in the 
estimates of savings. You have estimated that the Postal 
Service would save more than $3 billion annually by going to 5-
day delivery. Is that correct?
    Mr. Potter. Yes.
    Senator Collins. And it's my understanding that in 2008, 
when the Postal Regulatory Commission looked at this issue, it 
estimated that savings under the plan would only be $1.9 
billion and that the Postal Regulatory Commission is now 
estimating savings of approximately $2 billion. That's a big 
difference; $3 billion to $2 billion. Why is your estimate of 
savings significantly higher than the PRC's?
    Mr. Potter. Ours is significantly higher because of the 
estimate for how much of the work that moves from Saturday to 
either Friday or Monday could be absorbed by operations. Our 
experience--because we have holidays today--when that occurs, 
90 percent of the workload is absorbed. The number that the 
Postal Regulatory Commission used was somewhere, I believe, in 
the neighborhood of 67 percent. We based our analysis on our 
actual experience. We have that experience today with holidays. 
And so, we are going to present, by the way, that information, 
as part of our plan, to the Postal Regulatory Commission. We 
hope that they'll review that information and that I anticipate 
that the data will prove our assumptions to be correct.
    Senator Collins. Well, that remains to be seen.
    Mr. Potter. It does.
    Senator Collins. But, it is----
    Mr. Potter. There's a process, and we'll follow it.
    Senator Collins. And I appreciate that, but that is a 
notable difference. You mentioned when you have holidays--one 
of the problems with eliminating Saturday delivery is we have, 
what, 10, 11 Monday holidays each year, on which there is no 
mail delivery. So, we're really talking about, in many months, 
there being a time where there would be delivery on Thursday 
and the next delivery would not be until Tuesday. You have 
talked about reaching out to the stakeholders, and that you 
were confident that you could mitigate the impacts. I'm 
confident that you're going to lose volume. And, I think all of 
us would agree on that. The question is how much, and whether 
the tradeoff is worth it.
    I've talked to weekly newspaper publishers in my State that 
put their newspapers in the mail on Thursday. It's delivered on 
Saturday. They're only publishing once a week, and what they 
tell me is, if the news doesn't get to their customers until 
Tuesday, in the case of a week where there's a Monday holiday, 
their customers are not going to subscribe to the paper. It's 
also a problem for daily newspapers, for obvious reasons. But, 
I think it's an even bigger problem for the weekly newspapers. 
And I've had the publishers say to me, they don't know what 
they're going to do, but they're going to explore alternatives 
to using the Postal Service. That's a real problem for you.
    Similarly, there's a lot of advertising mail that's time-
sensitive. The sale is that weekend. Netflix. I've got to 
believe that Netflix, which relies on daily delivery of its 
movies, although I know you're talking to them, and I know that 
they're looking at being able to stream their movies, is 
concerned about what this would mean for their business model. 
And, by the way, isn't the result going to be that a company 
whose business model relies on daily delivery, like Netflix, is 
going to start streaming those movies and no use--no longer 
using the Postal Service at all? Those are the issues that 
concern me.
    So, let me ask you what is the bottom-line question, and 
this was one that the GAO is asking, as well. And that is, How 
would eliminating Saturday delivery affect the Postal Service's 
efforts to grow mail volume and encourage commercial mailers to 
expand their use of the mail?
    Mr. Potter. Well, first of all, I agree with every question 
that you had, and I am as concerned as you are about those 
issues. The local newspaper that mails and, right now, expects 
to have delivery on Saturday--obviously they have a choice on 
whether or not they want to deposit a day sooner and get the 
mail into the home on Friday. One of the things, when we talked 
last year about this--one thing I didn't realize, when we first 
had our discussion about this, was how many of the advertisers 
have actually moved to try and get mail delivered by Friday, 
because of what you just described. People shop on Saturday. 
Bill presenters want the bill in people's hands by Friday, so 
that they can pay over the course of the weekend. So, to be 
truthful, mail was moving in the direction away from Saturday 
anyway, because of the fact that they want--folks want the mail 
in people's hands so they can act on it over the course of the 
weekend.
    Now, one of the things that we have to consider is--and one 
of the things that we responded--because there was very fair 
criticism, by yourself and others last year, that we did not 
present a broad-based plan and that we were focused on one or 
two things. And that's why we hired the consultants, so that we 
could come and look at this from a broad-based perspective. And 
when you look at the future, a lot of the people that--you 
know, you just described Netflix--their business model is to 
move away from the mail today anyway.
    Senator Collins. Well, I can tell you, you're encouraging 
them to move faster.
    Mr. Potter. They might accelerate that pace. On the other 
hand, the people who do intend to be with the mail--and this is 
the key point--we have to keep mail affordable. So, price is 
very, very important to a lot of the advertisers who use the 
mail; in particular, cataloguers and others who use us for 
advertising. Price is extremely important. And when it comes to 
looking at advertising channels, you know, we're competing with 
the Internet. We're competing with mobile apps. We're competing 
with newspapers, television. And so, we have to keep our price 
competitive.
    And so, yes, something will be lost as a result of moving 
from 6- to 5-day delivery, but I look at what's being 
protected. What's being protected is the 150 billion pieces of 
mail that we anticipate being in the system. And it's a 
balancing act. I'm not going to say that it's not judgmental 
and it's not without its share of risk, but, given what we have 
going forward, I think it's a risk we have to take.
    Senator Collins. Well, when I look at financially troubled 
businesses--and there are, unfortunately, many in today's 
economy--they're trying to grow their business. They're trying 
to expand their service. They're trying to entice more 
customers. And it seems like you're choosing a route that goes 
in the opposite direction.
    Go ahead.
    Mr. Potter. Let me assure you, we're very much focused on 
growth. You know, we've had our first sale ever. We're out 
aggressively advertising priority mail. And I know that you 
would like us to do more, and we do intend to do more.
    Senator Collins. And the summer sale worked; it increased--
--
    Mr. Potter. Right.
    Senator Collins [continuing]. Your volume----
    Mr. Potter. And we're going to----
    Senator Collins [continuing]. Which should tell you 
something.
    Mr. Potter [continuing]. Which we're going to do again this 
year. We're also working with the cataloguers who want year-
over-year sales, not just specific seasonal sales, and we're 
going to do that, Senator. But, the real challenge here is a $7 
billion gap.
    Senator Collins. I know, but let me switch----
    Mr. Potter. Sure.
    Senator Collins [continuing]. Because I know I don't have 
much time left.
    One of the best sources of cost-saving ideas are from your 
employees; they're the ones on the front lines. And as you 
know, the President of the National Association of Postmasters, 
last year, made a very specific suggestion to you. He said, ``I 
encourage the Postmaster General to negotiate with our unions 
about cross-craft training. An agreement in this area would 
augment the skills of individual postal employees, and enable 
postmasters to more effectively utilize the talents of their 
employees.'' He argues that this would save you money, enhance 
skills. What have you done to implement that proposal?
    Mr. Potter. First of all, I 100 percent agree with him. We 
have our negotiations with our unions--two of our unions, the 
Rural Letter Carriers and the American Postal Worker's Union 
(APWU), begin this summer. The other two unions, the Mail 
Handler Union and the National Association of Letter Carriers, 
is the following year. And we intend to work on those issues 
during the course of those negotiations. They're a nonstarter, 
outside of negotiations.

                         EMPLOYEE-RELATED COSTS

    Senator Collins. And I guess that brings me to my final 
question. The GAO says that 80 percent of the Postal Service's 
costs are employee related. Is that accurate?
    Mr. Potter. Yes.
    Senator Collins. The GAO also says that the Postal Service 
pays a considerably higher percentage of the employees' health 
insurance and life insurance, compared to the average Federal 
agency. I realize you're not a Federal agency, but you're 
participating in the same programs. It's a--the exact same 
programs. I believe, in the case of health insurance, although 
it's declining by 1 percent, it's about 83 percent versus 72 
percent. In the case of life insurance, the Postal Service, I 
am told by the GAO, pays 100 percent of the premium, and I 
believe for Federal employees it's about one-third of the 
premium. Are--is your cost structure in line for what it should 
be, given where the money's being spent?
    Mr. Potter. Well, Senator, thank you for recognizing that 
we did negotiate, in the last round of negotiations, with all 
four of our unions. That--on an annual basis each year, the 
percentage that's paid by the employer would be reduced by 1 
percent.
    Senator Collins. For health insurance.
    Mr. Potter. For health insurance. And that, again, is 
recognition of the--of what you just described, the fact that 
we are out of line with what's paid for, in terms of the 
Federal Government--what they pay for an employee's healthcare. 
Our unions and management recognized this problem, and we 
negotiated the change into our contracts. What we agreed was 
fair was that we'd make this change over time, as opposed to 
doing it in one move. And so, that's why we went the 1 percent 
per year.
    Now, some people have said we should have been more 
aggressive and gone the 3 percent a year or 2 percent a year. 
Well, the fact of the matter is, we got that through collective 
bargaining. If we didn't reach agreement with the unions--and 
we were very happy that they worked with us to make that 
change--that issue would have gone to binding arbitration. And 
so, the decision wouldn't have been made by either party; it 
would have been made by an arbitrator.
    So, again, we recognize what you just described as a 
difference between the Federal Government and the Postal 
Service, and we're working to move in that direction. It will 
be the subject of negotiations once again this summer and the 
following summer.
    Senator Collins. Thank you, Mr. Chairman.
    Senator Durbin. Mr. Postmaster, if I can ask you just a 
series of quick questions.
    Have you considered doing pilot tests on 5-day delivery, to 
see what the reaction would be, what the impact would be on 
volume?
    Mr. Potter. We could, but by law, we can't.
    Senator Durbin. Well, we make laws.
    Mr. Potter. Okay. We would be willing to test it.
    Senator Durbin. Okay. I think that might be an interesting 
thing, to see if some of the surveys and opinion polls actually 
end up in consumer satisfaction, with the approach on 5-day 
service, and we'll talk about that possibility.
    In 6 months, the next annual statutory installment payment 
of $5.5 billion is due to the Postal Service retiree health 
benefit funds. Are you going to make that payment?
    Mr. Potter. We're going to ask for relief from that 
payment. Not because we don't have enough cash to pay it this 
year, but we're very concerned about cash flow in October and 
November of next year, because of payrolls and because of 
workers' comp costs. So, we are going to ask for an adjustment. 
We will have enough cash, if we had to pay it, but we'd run the 
risk, just similar to last year, of running out of cash in the 
fall 2010.

                       CIVIL SERVICE OVERPAYMENT

    Senator Durbin. Well, the inspector general says you've 
overpaid $75 billion into the Civil Service Retirement System. 
If this is accurate, could you use this as a source for retiree 
health benefits and some of the other economic issues you're 
facing?
    Mr. Potter. Yes, sir.
    Senator Durbin. Are you trying?
    Mr. Potter. Are we trying?
    Senator Durbin. Are you trying to recover the $75 billion?
    Mr. Potter. Well, back in 2000--now, I can't remember, 
Senator, whether it was 2003 or 2006--the Senator, in her 
legislation, provided an opportunity for us to appeal a 
decision--that was made by the Office of Personnel Management 
(OPM); and back then, the board of actuaries determined that 
the conclusion was that we would have $17 billion in 
overpayment, rather than the $92 billion outlined by the 
inspector general, was the right number. We are working, and 
have appealed to OPM and the Office of Management and Budget 
(OMB), to reopen this very matter. If it were to happen, it 
would literally, I think -- we would almost be in a fully 
funded mode on our Retiree Health Benefit Trust Fund, because 
the $75 billion that would--would be, probably, directed there. 
It would take a lot of pressure off. If that were to happen, we 
wouldn't have to go to 6- to 5-day delivery.
    Senator Durbin. What's the timeframe for that to be 
decided?
    Mr. Potter. It's beyond me. There's no schedule.
    Senator Durbin. But, you're saying if the $75 billion is 
found, you wouldn't have to cut the frequency of service?
    Mr. Potter. Right.
    Senator Durbin. We might look into that.
    Let me ask you about the way you market your products and 
services. Postal Service has 36,500 retail branches; more than 
McDonald's, Starbucks, Walgreens, and Wal-Mart combined. An 
average postal branch sees 600 customers each week; an average 
grocery store, 20,000 weekly customers. I know that more people 
are doing things over the Internet, in their homes and at 
desks, but I wonder if the Postal Service is providing its 
products and services where people are, and whether or not 
there's good reason for you to start building your facilities 
as part of other places that draw much larger crowds of people.
    Mr. Potter. Sir, that's our proposal. Today, we cannot 
close a post office for economic reasons. So, as other 
businesses--if you go into a large grocery store, you see 
banks, coffee shops, other things that are housed along with 
those grocery stores. That's where we would like to be. We 
would like people to have access 7 days a week. We would like 
them to have access 24 hours a day, in some cases. However, 
we're precluded from closing post offices.
    And let me just say this, that when it comes to post 
offices, part of the 600 folks who walk in on a weekly basis--
part of the reason it's only 600 is because over 30 percent of 
people today buy what they had come to a post office for--they 
either buy it online or they buy it at grocery stores----
    Senator Durbin. Thirty percent?
    Mr. Potter [continuing]. Over 50,000 grocery stores sell 
stamps today. And our anticipation is, in the next decade, that 
that 30 percent will probably move to 60 percent, because we're 
working very hard to improve our Internet, our Web site.
    We have put up--just to show the interest in the Postal 
Service--we created a postal mobile app, and within 3 weeks, it 
went to the top of the charts, in terms of the most-used mobile 
app. That was to look up locations of post offices, ZIP Codes, 
and the like. So, we know there's a big interest in the Postal 
Service. We'd like to be where people are; online or in 
locations where they're already conducting their business.
    Senator Durbin. Taking the downtown Chicago Post Office out 
of this conversation--the old one--do you have excess property 
and real estate that is in a valuable location that you could 
consider selling to try to come up with some of the revenue the 
Postal Service needs?
    Mr. Potter. Yes, and we are aggressively pursuing that. In 
some cases, what we're doing--for example, in San Francisco, 
we're consolidating delivery units and selling our buildings 
and moving our retail into a location in a very proximate area 
to where our current location is. We have done that, 
historically. It's been a slow-moving process, for a whole host 
of reasons. As you know, in big cities, transactions tend to 
take a lot longer, even though they're much more lucrative--
but, they do take a long time. We worked very close on that 
Chicago Main Post Office, as you know, but if opportunities----
    Senator Durbin. You offered me----
    Mr. Potter [continuing]. Exist, we do pursue them.
    Senator Durbin. I don't know if it was in jest, but you 
offered me the Chicago Main Post Office for a dollar once. I 
don't know----
    Mr. Potter. Only because it was costing us $14 million a 
year to maintain it, even though we no longer had a presence 
there.
    Senator Durbin. Thank you.
    Senator Collins.
    Senator Collins. Thank you, Mr. Chairman.
    Mr. Chairman, I want to follow up on the issue you raised 
about the inspector general's report, which indicates an 
overfunding to the Civil Service Retirement System, because it 
is such an important issue.
    Mr. Potter, it's my understanding that the OPM and the GAO 
both strenuously disagree with the inspector general's 
conclusion. Is there a change that's happened since those 
disagreements?
    Mr. Potter. To the best of my knowledge, no.
    Senator Collins. Okay. So, the administration has stuck to 
its belief that there is not the kind of overpayment that the 
inspector general has found.
    Mr. Potter. To the best of my knowledge, no. But, I would 
prefer that they respond----
    Senator Collins. Right.
    Mr. Potter [continuing]. Obviously. But----
    Senator Collins. I just wanted to bring that----
    Mr. Potter. Right.
    Senator Collins [continuing]. To the chairman's----
    Mr. Potter. Right.
    Senator Collins [continuing]. Attention.

                        RETIREE HEALTH BENEFITS

    I personally don't know who's right. This is a case where 
different actuaries have come to different conclusions. But, I 
do know that OPM considers itself to be expert in how you fund 
retirement programs.
    On that point, and switching to your retiree healthcare 
benefits, you talk about that the money that's currently in the 
fund--the $35 billion--is sufficient to pay the premiums for 
all of our roughly 500,000 currently participating retirees, 
through their expected lifetimes. Doesn't that ignore the fact 
that you're going to have a huge wave of retirees coming? I--
the reason I know this is the chairman and I fly back and 
forth, and people sit next to us on the plane and take 
advantage of that opportunity to educate us on issues.
    And I sat next to the postal district manager, who I 
believe told me that something like one-half of your workforce 
is eligible to retire in the next decade.
    Mr. Potter. Right. No, what that was meant to say--that 
there's a sizable amount of money there. And so, when you're 
looking at funding obligations going forward, there's a thing, 
I learned about in the last couple years, called ``normal 
cost.'' In fact, I was educated by OPM on this, which is--
basically, you begin to pay into the Retiree Health Benefit 
Trust Fund, based on how many employees you have, against what 
their anticipated cost is in the future, versus--as we both 
know, the payment schedule that we're on now, was more linked 
to a scoring issue than the normalization. And so, that's what 
that was meant to imply, that there was a way of looking at 
this a little differently.
    Senator Collins. I just don't want to lead what--leave what 
would be a misleading----
    Mr. Potter. Oh, no.
    Senator Collins [continuing]. Impression. The fact is, 
you've got billions of dollars of future liabilities that 
they----
    Mr. Potter. There's still a $50 billion gap. I'm not trying 
to----
    Senator Collins. That's correct----
    Mr. Potter. Okay. Yes.
    Senator Collins [continuing]. And I think that's a really--
--
    Mr. Potter. Okay.
    Senator Collins [continuing]. Important point.
    Mr. Potter. I didn't mean to mislead anyone, but just to 
say that there is a sizable amount of money there.
    Senator Collins. Right.
    Mr. Potter. Because, when we started on this process, years 
ago, the concern was that, at some point in time, the Postal 
Service might not be an ongoing concern, and the liability 
would fall back on the Federal Government.
    Senator Collins. Correct.
    Mr. Potter. When you look at normalization, what you look 
at--in addition to just how many employees you have, you look 
at what would happen if the business were to go under. And the 
fact is, if it were, not all of our employees would be eligible 
for retiree health benefits. Only those who are eligible to 
retire could do that. And so, you know, again, it was just 
because I've become educated, in the last couple years, on 
other approaches that could be taken.
    Senator Collins. I just wanted to make sure that was very 
clear for the----
    Mr. Potter. Right.
    Senator Collins [continuing]. Record. I would also note 
that, back in 2006, when Senator Carper and I authored our 
bill, we initially had a 40-year amortization schedule. And it 
was only in the final negotiations with OMB where the 
amortization schedule was truncated considerably.
    What I don't want to see is another year like this past 
year--and I voted to allow you to do it--where the payment is 
significantly reduced. That is not a good situation. That is 
just wishing away liabilities. But, I do think that we should 
stretch out and smooth out the amortization schedule for this 
unfunded liability.
    I'm tempted to ask whether you'd agree with that, but I'm 
not sure what you would say.
    Mr. Potter. No----
    Senator Collins. I'll ask anyway.
    Mr. Potter. First of all, let me assure you that we're not 
walking away from the obligation for retiree health benefits 
for our employees. I hope to get that benefit in the future. 
So, I--we want to make sure that that's fully funded. I would 
agree that the timing, in terms of the pace at which you pay 
for that, obviously the current situation has to be taken into 
consideration. The amortization over a longer period of time 
does give us welcome relief. And we all know that, although we 
were in agreement about a 40-year amortization back in 2006, 
that option was taken off the table----
    Senator Collins. Correct.
    Mr. Potter [continuing]. Not by either party, but by a 
third party.
    Senator Collins. Right.
    Mr. Chairman, just one final comment for this witness, and 
that is, whatever plan we adopt, we have to make sure that it 
truly positions the Postal Service for the future and that 
we're not back here, 3 years from now, once again facing 
billions of dollars in annual losses, huge unfunded 
liabilities, declining volume, and being in no different a 
place. And that means that there needs to be a new business 
model and some very tough decisions made.
    I vowed, in 2006, that I would never do a major postal bill 
again, because it was so difficult to get all of the 
stakeholders. And we thought that we had put the Postal Service 
on track for viability. And that was your testimony. I read 
part of it at the time. GAO removed you from the high-risk 
list. And I just don't want to see this movie again.
    Thank you, Mr. Chairman.
    Senator Durbin. I'd say to my colleague that I agree with 
her completely.
    Mr. Potter. Well, I would, too.
    So, I'll second what she just said. But, the only thing----
    Senator Durbin. But, I'd just add----
    Mr. Potter. The only thing we didn't anticipate was this 
recession----
    Senator Durbin. I was going to say----
    Mr. Potter [continuing]. Of the magnitude that we had, and 
a tipping point that it affected--how it affected the mail.
    Senator Durbin. As a precautionary note, I don't think any 
of us could have predicted the depth and seriousness of the 
current recession on every aspect of our lives. And, second, 
you are in a field that is being affected by this galloping 
change in technology and the change in habits by the American 
people. Who would have guessed, 10 years ago, American 
newspapers would be flat on their back at this point and 
struggling to survive. And it's a reality. And so, there's this 
change in technology. You are right in the middle of this 
competition, and I understand that part. But, we're going to 
try to make some decisions, or help you make some decisions, 
which will give us a breather--maybe 4 years before we see you 
again.
    Mr. Potter. Let's hope it's a little longer than that.
    Senator Durbin. Then maybe even a little longer.
    Mr. Potter, very much for your testimony.
    Mr. Potter. Thank you.
    Senator Durbin. I'm going to welcome the second panel to 
take their place at the table.

                    ADDITIONAL SUBMITTED STATEMENTS

    And while they do, I note that the subcommittee has 
received prepared statements from a number of postal labor 
organizations: the National Association of Letter Carriers; the 
National Rural Letter Carriers Association; the National Postal 
Mail Handlers Union; the American Postal Workers Union; the 
National Association of Postmasters of the United States; and 
the National Association of Postal Supervisors. And, without 
objection, their statements will be made a part of this record 
and reviewed carefully by us and our staff.
    [The statements follow:]
   Prepared Statement of the National Association of Letter Carriers
    Thank you, Chairman Durbin, for holding this important hearing on 
the financial situation facing the United States Postal Service. On 
behalf of the 295,000 members of the National Association of Letter 
Carriers, I submit this statement for the subcommittee's consideration.
Overview
    There is no doubt that the Postal Service faces the worst crisis 
since the Great Depression of the 1930s. The collapse of the housing 
bubble and the financial meltdown of 2008-2009 affected the most mail-
intensive sectors of the economy. This occurred at a time when the 
impact of electronic diversion of traditional letter mail caused mail 
volume to stagnate after peaking in 2006. Yet the deep recession and 
the negative impact of the Internet on postal volumes are not the most 
important causes of the Postal Service's large deficits in recent 
years. Unfortunately, the main driver of the USPS's current financial 
distress stems from a policy decision, albeit well-intentioned, adopted 
by the U.S. Congress in 2006 to require the Postal Service to massively 
prefund decades of future retiree health benefit obligations in just 10 
years. This requirement has cost, and will continue to cost, the Postal 
Service some $5.6 billion per year until the year 2016.
    That's right. This immediate crisis was initiated in 2006 when 
Congress, in cooperation with the Bush administration, included the 
prefunding requirement in the Postal Accountability and Enhancement Act 
(PAEA). What appeared to be affordable in 2006 is clearly unaffordable 
today. Over the past 3 years, as the economy slipped into the worst 
recession in 80 years, the Postal Service has had to pony up $12.4 
billion to prefund future retiree health benefits--on top of some $6 
billion for current retiree health benefits.
    No other agency--including the United States Congress--or private 
company faces such a legal obligation to prefund. Indeed, such 
prefunding is not even required by the Financial Accounting Standards 
Board (FASB), which establishes accounting rules for both private and 
public organizations. And as an annual survey conducted by Watson Wyatt 
found in 2009, only about a third of Fortune 1000 companies voluntarily 
prefund retiree health obligations at all--and those that do have set 
aside much less than the Postal Service has already.\1\
---------------------------------------------------------------------------
    \1\ See Figures 29 and 30 in ``Accounting for Pensions and other 
Postretirement Benefits 2009, Reporting Under FAS 87 and FAS 106 Among 
the Fortune 1000, A Watson Wyatt Survey Report,'' pages 21-22.
---------------------------------------------------------------------------
    What makes this situation worse is that the size of the prefunding 
payments is grossly inflated due to actuarial methods adopted by the 
Office of Personnel Management (OPM). These methods, which have been 
exposed by a series of reports by the Office of Inspector General of 
the USPS, not only shortchanged the Postal Service Retiree Health 
Benefits Fund (PSRHBF) by tens of billions of dollars when it was 
established in 2007, but also greatly exaggerated the USPS's future 
liability for retiree health benefits--which prompted the Congress to 
establish a completely unrealistic schedule of prefunding payments in 
the PAEA.
    The USPS has responded with tremendous resilience to the challenges 
of the recession, which began in 2006 for our industry when the credit 
crunch hit. And my union, the NALC, has been a responsible and reliable 
partner in helping it react to the steep decline in mail volume. 
Working together at the bargaining table, we strove to negotiate 
flexible and fair means for adjusting all 160,000 city carrier routes 
to ensure 8-hour assignments, boosting efficiency and saving hundreds 
of millions of dollars. In fact, we adjusted every city carrier route 
in the country not once, not twice, but three times over the past 18 
months. Using the traditional method of route evaluation would have 
taken more than 5 years to adjust every route.
    In fact, the Postal Service has been so successful in cutting costs 
to align work hours with recession-level volumes that it would have 
earned a net surplus of $1.6 billion over the past 4 years in the 
absence of the onerous prefunding burden. This burden is directly 
responsible for the dramatic rise in the Postal Service's outstanding 
debt. See the chart below.

                       PREFUNDING PAYMENTS, NET INCOME AND DEBT OF THE U.S. POSTAL SERVICE
                                            [In billions of dollars]
----------------------------------------------------------------------------------------------------------------
                                                                    Payments to
                                                                    the Postal
                              Year                                    Service       Net Income     Debt Increase
                                                                  Retiree Health
                                                                   Benefits Fund
----------------------------------------------------------------------------------------------------------------
2006............................................................  ..............             0.9             2.1
2007............................................................             5.4            -5.1             2.1
2008............................................................             5.6            -2.8             3.0
2009............................................................             1.4            -3.8             3.0
                                                                 -----------------------------------------------
      Totals....................................................            12.4           -10.8            10.2
----------------------------------------------------------------------------------------------------------------
Notes: (1) A modified version of H.R. 22 was enacted in 2009, slashing the prepayment from $5.4 to $1.4 billion;
  (2) In 2005 the Postal Service had no debt at all.

Congress Should Fix the Prefunding Policy First
    Today your subcommittee is going to hear a lot about 10 and 20-year 
predictions about future mail volume and the mega-sized postal deficits 
that will occur if we do nothing. You will no doubt also be asked to 
embrace draconian suggestions developed by the Postal Service's 
consultants and perhaps other witnesses. The 200,000 men and women who 
deliver the mail on city carrier routes today urge you exercise great 
caution and to stop and consider the real cause of the immediate 
crisis: The unworkable and unreasonable pre-funding policy adopted in 
2006.
    Congress should correct the retiree health prefunding policy 
first--it is the single most effective step you can take to stabilize 
the Postal Service's finances. We urge you to fully implement the 
recommendations contained in the two OIG reports on this issue.\2\ (See 
the attached fact sheets prepared by the NALC's Department of 
Legislative and Political Affairs.) While we appreciate the efforts 
undertaken last year by the Obama administration and other Senate 
leaders to offer limited relief from the pre-funding burden in S. 1507, 
that bill does not go far enough and its adoption by the Senate 
Committee on Homeland Security and Governmental Affairs was marred by 
an antiunion amendment that would permanently and unfairly tilt the 
interest arbitration process in favor of postal management. NALC urges 
the Senate to start over with a fresh approach suggested by the USPS 
OIG.
---------------------------------------------------------------------------
    \2\ USPS Office of Inspector General study: ``The Postal Service's 
Share of CSRS Pension Responsibility,'' January 22, 2010, see http://
www.uspsoig.gov/foia_files/RARC-WP-10-001.pdf; and USPS Office of 
Inspector General report: ``Estimates of Postal Service Liability for 
Retiree Health Benefits (Report Number ESS-MA-09-001(R)), July 22, 
2009, see http://www.uspsoig.gov/foia_files/ESS-MA-09-001R.pdf.
---------------------------------------------------------------------------
Congress Should Retain 6-Day Delivery
    The Postal Service is too important to the country to make rash 
decisions in an environment of financial distress. NALC believes it 
would be unwise to downsize to meet recessionary levels of demand 
before we know how soon and how well the economy and the postal market 
will recover. Specifically, we believe that eliminating Saturday 
collection and delivery services would be penny-wise and pound-foolish. 
No business has ever restored itself to health by offering slower 
service and turning customers away--too many businesses (including mail 
order merchants, online pharmacies, DVD and game rental companies and 
newsmagazines) rely on 6-day delivery to simply leave them in the 
lurch. Rather than saving the Postal Service money, 5-day delivery 
could worsen its bottom line over time as a result of further volume 
and revenue losses. And it would needlessly destroy 50,000 good jobs at 
a time of extremely high unemployment. (See the attached fact sheet on 
Saturday delivery prepared by the NALC's Department of Legislative and 
Political Affairs.)
    Eliminating Saturday collections and delivery should be a last 
resort policy, not a first resort policy. It certainly should not be 
considered until we see the impact on demand for postal services when 
the economy recovers--as well as the results of the next round of 
postal collective bargaining. Nor should it be considered before 
Congress corrects the deeply flawed prefunding policy adopted in 2006. 
In any event, the Postal Service has not yet presented its 5-day 
collection and delivery proposal to the PRC for review, as mandated by 
law. Congress and this subcommittee should await the results of that 
review and conduct extensive hearings to ensure it understands the full 
implications of eliminating Saturday delivery before debating changes 
to the annual appropriation legislation that mandates 6-day services. 
The data and assumptions in the Postal Service's plan yet to be 
scrutinized and special attention must be given to the impact of 
service cutbacks on tens of millions of small businesses, including 
those in rural communities and economically distressed neighborhoods.

Conclusion
    We know that prefunding reform may not be enough to secure the 
long-term viability of the USPS. We know the Postal Service's business 
model deserves a serious and comprehensive debate. However, NALC and 
the other postal unions are prepared to deal with the lingering effects 
of the recession and the negative impact of the Internet at the 
negotiating table, just as we have adapted to varying business 
conditions for some 40 years of successful collective bargaining. And 
we believe that it is only in the context of financial stability that a 
serious and careful legislative debate can take place. That will 
require us to do our part at the bargaining table and for Congress to 
do its part on retiree health prefunding reform.
    NALC is committed to preserving a strong and viable Postal Service 
that can meet the evolving needs of the American people and American 
businesses. We look forward to working with this subcommittee and the 
entire United States Senate to find a sensible and realistic way 
forward. Thank you for inviting us to submit this statement.

 NALC FACT SHEET--STRENGTHENING THE POSTAL SERVICE: REFORM ITS RETIREE 
                      HEALTH PRE-FUNDING SCHEDULE

    The Postal Service is facing a financial crisis in the midst of the 
worst recession in 80 years. Congress spent much of 2009 debating 
short-term financial relief for USPS in the form of reduced prefunding 
payments for future retiree health benefits. On September 30, 2009, 
Congress adopted a measure which reduced the level of USPS prefunding 
in 2009 from $5.4 billion to $1.4 billion and reduced the Postal 
Service's operating loss from $7.7 billion to $3.7 billion. While it 
was helpful last year, this type of last-minute relief will not 
adequately address the larger problems caused by the prefunding 
requirements. In 2010, Congress must reform the prefunding schedule 
adopted by Public Law 109-435 to provide for long-term financial 
stability. The current schedule is unaffordable and unfair:
  --The USPS is the only enterprise in the country required by law to 
        prefund retiree health benefits while most Fortune 1000 
        companies (two-thirds) don't prefund at all.
  --The annual payments required are extremely onerous, requiring the 
        USPS to effectively prefund 80 percent of a 75-year liability 
        in just 10 years, and are based on flawed calculations by the 
        Office of Personnel Management (OPM).
  --The actuarial methods used to determine the retiree health benefit 
        liability are deeply flawed and inequitably overstate the 
        Postal Service's liability. Congress should mandate a new 
        prefunding schedule based on fair and accurate actuarial 
        calculations.

Background on Prefunding
    The Postal Accountability and Enhancement Act of 2006 established 
the Postal Service Retirees Health Benefit Fund (PSRHBF) by calling on 
OPM to calculate the ``postal'' surplus in the Civil Service Retirement 
System and to transfer it to the PSRHBF in 2007. The law also dictated 
10 annual payments into the Fund averaging $5.5 billion each between 
2007 and 2016, also based on OPM calculations.
    In establishing the Fund and setting the payment schedule, Congress 
sought to minimize the ``budget score'' of the legislation and relied 
on the OPM estimates of the value of the CSRS surplus and the cost of 
future retiree health benefit liabilities. A study conducted by the 
USPS Office of Inspector General shows that OPM underestimated the size 
of the postal CSRS pension surplus by roughly $75 billion.\1\ 
Furthermore, the Postal Regulatory Commission has found that OPM's 
healthcare inflation assumptions are overstated.\2\ As a result of 
these calculations, the Postal Service has been saddled with an 
unaffordable prefunding schedule that threatens its future viability.
---------------------------------------------------------------------------
    \1\ Postal OIG study, ``The Postal Service's Share of CSRS Pension 
Responsibility''. Jan. 20, 2010. http://www.uspsoig.gov/foia_files/
RARC-WP-10-001.pdf.
    \2\ Postal Regulatory Commission study, July 30, 2009. http://
www.prc.gov/Docs/63/63987/Retiree%20Health%20Fund%20Study_109.pdf.
---------------------------------------------------------------------------
A Fair Calculation of the Postal CSRS Surplus
    In 2003, OPM made the initial determination of the postal pension 
surplus in order to implement a CSRS funding reform law (Public Law 
108-18). This process, which was repeated in 2007 under the PAEA (with 
the Treasury taking responsibility for CSRS military benefits), 
required the OPM to allocate the cost of CSRS benefits earned by postal 
employees between the Treasury (taxpayers) and the Postal Service 
(ratepayers) for all workers who performed service before and after 
July 1, 1971. That was the day the Post Office Department (POD) was 
reorganized and became the U.S. Postal Service, an independent agency 
of the government separate from other cabinet agencies. Unfortunately, 
OPM shifted much of the cost of CSRS benefits earned by POD employees 
to the Postal Service by making the USPS responsible for any and all 
increases in the value of benefits accrued for POD service due to wage 
increases after July 1, 1971. Any fair calculation of benefits accrued 
before postal reorganization in 1971 should have included some 
recognition of normal wage increases in the future, since CSRS benefits 
are based on end-of-career earnings. Instead, OPM froze the value of 
accrued benefits at July 1, 1971, pay levels--effectively shifting much 
of the cost of pre-reorganization service to the Postal Service. The 
OPM also failed to recognize that the CSRS benefit formula is 
backloaded and unfairly assigned the low-cost early years to the POD 
and the high cost later years to the Postal Service.
    By overstating the Postal Service's liability for CSRS benefits, 
the OPM understated the value of the postal surplus in the CSRS by as 
much as $75 billion, according to a review by the OIG. As a result, the 
Postal Service was short-changed when the surplus was transferred to 
the PSRHBF in 2007. Under OPM's method, the fund was credited $17 
billion. Using the more fair and accurate method advanced by the OIG, 
however, the postal surplus may have exceeded $80 billion, more than 
enough to cover all of the Postal Service's future retiree health 
liability.

Adjusting the OPM's Health Inflation Rate
    The OPM has also inflated the cost of the Postal Service's 
prefunding payments by assuming an extremely high rate of long-term 
healthcare inflation--some 7 percent annually for 75 years. Most 
Fortune 1000 companies use a 5 percent long-term rate, while Medicare 
and Medicaid assume costs will rise by 6.25 percent annually. Both the 
Inspector General and the PRC have concluded that more accurate 
inflation assumptions could reduce or eliminate the Postal Service's 
PAEA-required payments. The OIG's report concluded that ``[t]he Postal 
Service could pay an average of $4 billion less each year from fiscal 
years 2009-2016 to prefund its retiree health benefits and still 
achieve the same level of prefunding [80 percent] anticipated under OPM 
assumptions.''
    The current long-term cost assumption is inaccurate and places an 
unfair burden on the Postal Service, its employees and ratepayers. It 
must be adjusted to more accurately reflect the reality of the Postal 
Service's future obligations.

Eliminating Saturday Delivery Not the Answer
    Correcting OPM's actuarial calculations involving the CSRS postal 
surplus and the long-term cost inflation rate would significantly 
reduce the $5.5 billion prefunding payments mandated by the Postal 
Accountability and Enhancement Act of 2006. It would also strengthen 
the financial stability and future viability of the Postal Service.
    Adopting a more accurate and affordable prefunding schedule should 
be given the highest priority in any postal reform legislation 
considered during the remainder of the 111th Congress. This step should 
certainly be taken before Congress considers more radical measures such 
as the elimination of Saturday delivery.

   NALC FACT SHEET--SAVE THE POSTAL SERVICE: DEMAND FAIRNESS IN USPS 
                   PENSION AND RETIREE HEALTH FUNDING

    As the economy struggles to recover from the worst recession in 80 
years, the Postal Service continues to face a financial crisis. The 
loss of revenue resulting from declining mail volume is compounded by a 
provision in the 2006 postal reform that requires the Postal Service to 
massively prefund its future retiree health benefits at a cost of $5.6 
billion annually. The requirement has resulted in mounting losses, 
rising debt and destructive job and service cuts.
    The unprecedented prefunding provision--no other agency or private 
enterprise is required to prefund by law or by widely accepted 
accounting standards--was made worse by how it was implemented by the 
Office of Personnel Management. The OPM's calculations to determine the 
initial balance in the Postal Service Retiree Health Benefit Fund 
(PSRHBF) and the size of the Postal Service's future retiree health 
liability were deeply flawed. Studies conducted by the Office of the 
Inspector General of the Postal Service (OIG) \1\ and the Postal 
Regulatory Commission \2\ have shown that the ``postal surplus'' in the 
CSRS pension fund, which was transferred to the retiree health fund in 
2007, was grossly undervalued by OPM. As a result, USPS was 
shortchanged by as much as $75 billion when the PSRHBF was created.
---------------------------------------------------------------------------
    \1\ USPS Office of Inspector General report: Estimates of Postal 
Service Liability for Retiree Health Benefits (Report Number ESS-MA-09-
001(R)). See http://www.uspsoig.gov/foia_files/ESS-MA-09-001R.pdf.
    \2\ Postal Regulatory Commission Review of Retiree Health Benefit 
Fund Liability as Calculated by the Office of Personnel Management and 
the U.S. Postal Service Office of Inspector General, July 30, 2009. See 
www.prc.gov/Docs/63/63987/Retiree%20Health%20Fund%20Study_109.pdf.
---------------------------------------------------------------------------
    Returning these surplus funds to the postal retiree health fund 
would greatly alleviate the Postal Service's financial stress. In fact, 
doing so would fully fund the Postal Service's 75-year liability for 
future retiree health benefits and the current prefunding requirements 
would be unnecessary.
    In 2010, in order to rectify the unfair, inequitable and 
financially destructive impact of the prefunding policies resulting 
from the OPM's methods, Congress must:
  --Demand that OPM recalculate the postal pension surplus using 
        actuarial methods that are fair to the Postal Service and its 
        ratepayers, as proposed by the OIG;
  --Require that OPM transfer the corrected surplus fund to the Postal 
        Service Retiree Health Benefits Fund; and
  --Repeal the prefunding requirement found in Section 8909a of Public 
        Law 109-435.
    The long-term viability of the USPS will require all stakeholders 
to adapt and innovate and may require Congress to adopt further 
legislative changes to allow the Postal Service to provide new services 
and to generate new revenue. But reform of the prefunding provisions 
cannot wait until a consensus forms on a new business model. Congress 
must act this year.

    NALC FACT SHEET--ELIMINATING SATURDAY DELIVERY IS NOT THE ANSWER

    The U.S. Postal Service faces the worst crisis in its history. It 
expects to lose $6-$7 billion in 2009. Although the collapse of the 
housing and financial sectors in late 2008 is responsible for the 
largest decline in mail volume since the Great Depression in the 1930s, 
the main cause of the financial crisis is the decision advanced by the 
Bush administration in the postal reform law of 2006 to require the 
USPS to prefund its future retiree health benefits, a 75-year 
liability, in just 10 years. The cost of this unaffordable prefunding 
payment, $5.4 billion in 2009, accounts for most of the projected loss 
this year. The annual cost will rise to $5.8 billion by 2016. While the 
NALC is working with postal management to address the crisis with the 
Interim Route Adjustment Process, Congress must take action to relieve 
this prefunding burden to preserve affordable, universal service. See 
the NALC Fact Sheets on H.R. 22 and S. 1507.

Postal management's proposal to deal with the crisis-eliminating 
        Saturday mail delivery--is not a sensible solution to the 
        USPS's financial crisis
    The Postal Service estimates that by eliminating one-sixth of its 
delivery service, it can cut operating expenses by $3.4 billion or 4.6 
percent--not the 16.6 percent you might expect. The model it used to 
estimate potential savings is based on many unproven assumptions and 
did not specifically study the elimination of Saturday delivery, the 
day most Americans are home to receive packages.
    To date, no study has been conducted to estimate how a reduction in 
delivery days would affect mail volume and delivery costs in the 
remaining 5 days or how different types of mailers would be affected.
    A study conducted on behalf of the Postal Regulatory Commission 
suggests that total cost savings by eliminating one of delivery could 
be as low as $1.9 billion or just 2.5 percent of total postal expenses.

The Postal Service is rushing to judgment
    In letters to employee groups dated June 11, 2009, USPS management 
requested input on a study of the feasibility of weekday-only delivery 
with replies due back by June 19, 2009. In July it informed the unions 
that it planned to finish its review in 3 weeks. The USPS appeared to 
be recycling an old IBM study it used for the PRC Universal Service 
investigation. A more thoughtful and serious study is needed.
    The proposed reduction in delivery services would be the most 
radical change to postal operations in the 230-plus year history of the 
U.S. Mail. No such policy decision should be made after just a few 
weeks consideration, much less without a comprehensive study of its 
effects.

Six-day delivery makes the Postal Service unique
    One of the defining characteristics of the U.S. Postal Service is 
its policy of nationwide uniform pricing with 6-day delivery. 
Competitors charge don't deliver or charge high premiums for Saturday 
delivery while the USPS provides affordable universal as mandated by 
the Constitution.

American businesses value 6-day delivery
    Business in the United States is conducted 6 days--and in many 
sectors 7 days--per week. Small and large businesses alike, from 
individual entrepreneurs to large-scale financial firms, rely on the 
delivery of the mail 6 days per week to operate successfully. Saturday 
delivery is especially important to growing companies like eBay, 
Netflix and Caremark, and has long been vital for news magazines. The 
elimination of Saturday delivery will make the USPS less valuable to 
business and accelerate electronic substitution.

American citizens value Saturday delivery too
    Billions of prescriptions are delivered through the mail each 
year--a 2-day delay in their delivery would seriously inconvenience 
senior citizens and others. Delayed delivery of payments, subscriptions 
and food products would adversely affect millions of households.

Rural communities would be disproportionately affected
    Americans living in rural areas where the Postal Service's 
competitors do not deliver or where broadband connectivity is not 
available rely especially on 6-day USPS delivery and would be adversely 
affected by any service cuts. Farmers rely on the delivery of seeds and 
other products through the mail and citizens who live far from retail 
outlets need the USPS for mail-order delivery.

Broad coalition of stakeholders favors 6-day delivery
    According to the PRC's 2008 study of universal service, parcel 
shippers, direct marketer, magazine publishers and other major mailers 
along with consumer advocacy groups and the seven postal employee 
groups agreed: The elimination of 6-day delivery would hurt business 
and consumer interests while costing thousands of jobs.
                                 ______
                                 
  Prepared Statement of the National Association of Postal Supervisors

    Chairman Durbin, Ranking Member Collins and Members of the 
Subcommittee: Thank you for holding this hearing on the financial 
crisis afflicting the United States Postal Service and the current 
proposal to eliminate 6-day mail delivery to American households and 
businesses. The current mandate upon the Postal Service to deliver 6-
days-a-week, as you know, is contained in the annual appropriation law 
covering the Postal Service.
    The National Association of Postal Supervisors, which represents 
the interests of the 33,000 supervisors, managers and postmasters who 
are responsible for mail operations throughout the Postal Service, 
wants to express our deep concern about the merit of introducing 5-day 
delivery.
    I should note at the outset that our association represents Postal 
Service supervisors who are doing their share to help the Postal 
Service modernize and change. We support changes in the law, 
infrastructure and operations of the Postal Service that make sense and 
will modernize and sustain Postal Service operations, products and 
services.
    However, we believe that the elimination of 6-day delivery will be 
devastatingly counter-productive to the Postal Service and its 
customers. It will pose problems for thousands of business mailers who 
depend upon Saturday delivery, who likely will adopt alternative 
delivery measures that only accelerate the migration of business mail 
to the Internet. Elimination of Saturday delivery will be harmful to 
the millions of household customers of the Postal Service, including 
the elderly who rely upon the timely receipt of their Social Security 
checks and the sick who rely upon the timely receipt of medicine and 
other medical products.
    More fundamentally, elimination of 6-day delivery will damage the 
Postal Service brand, the competitive position of the Postal Service 
and cyclically draw down volume faster. Business competitors will fill 
the vacuum and offer Saturday delivery at premium prices, thereby 
gaining overall market share against the Postal Service.
    Congress should refrain from changing current law and granting 
approval to 5-day delivery, at least for the time being. Five-day 
delivery should be the last resort, not the first. Better options are 
available now to preserve the health and vitality of the nation's 
postal system.
    Foremost among them is Congressional passage of legislation that 
mandates the re-calculation of the Postal Service's pension obligation 
to the Civil Service Retirement System pension fund, using more 
equitable, reasonable and financially-stable calculation methods and 
assumptions; and credits to the Postal Service $75 billion for an 
overcharge in its payments into the CSRS pension fund and transfers 
that credit to satisfy the Postal Service's obligation to the Postal 
Retiree Health Benefit Fund, which will fully fund all mandated 
payments through 2016.
    In addition, Congress and the Postal Service should adopt new ways 
to increase revenues and cut costs. Congress should confer greater 
authority to the Postal Service to introduce and sell new products and 
services that expand the definition of ``mail,'' as well as provide 
wider pricing flexibility. This should involve re-examination of the 
Postal Service business model and its underlying legal and regulatory 
framework.
    The Postal Service also needs to continue to cut costs, reduce 
excess postal facility capacity, and eliminate wasteful programs--
continuing the steps taken thus far that already have generated 
billions of dollars in savings.
    During the past several years, our organization has collaborated 
with the Postal Service on major organizational changes to cut costs 
and increase efficiencies. Some of these changes have eliminated 
management and supervisory jobs. In 2009 alone, nearly 3,600 management 
positions were eliminated in the Postal Service. These changes have 
dramatically impacted the lives of management employees represented by 
our organization. Nonetheless, we acknowledged the necessity for these 
changes because of their underlying merits.
    In contrast, the elimination of 6-day delivery lacks business sense 
and is counterproductive. Reducing delivery days now, when other steps 
are available, will only degrade the value of mail services for 
households and the mailing industry that use and rely upon the Postal 
Service.
    Thank you for your leadership and your consideration these 
comments.
                                 ______
                                 
 Prepared Statement of the National Association of Postmasters of the 
                             United States

    Chairman Durbin, Ranking Member Collins, and Subcommittee members, 
my name is Robert Rapoza. I am President of the National Association of 
Postmasters of the United States (NAPUS). My organization represents 
the managers-in-charge of Post Offices throughout the United States. I 
am pleased to share with you NAPUS' thoughts regarding the finances of 
the United States Postal Service, with specific attention to necessity 
of maintaining a universal Postal Service.
    Presently, there are about 27,000 Post Offices in the country; at 
the turn of the 20th century approximately 77,000 Post Offices dotted 
our cities and heartland. Although the numbers of surviving Post 
Offices are a mere fraction of their past magnitude, they continue to 
serve as the sole threshold to government services for millions of 
citizens and businesses situated in rural areas, small towns, and 
isolated communities. Simply stated, these treasured public facilities 
have been, currently are, and will continue to be an essential 
communications and commercial lifeline for America. Eight percent of 
this nation's Gross Domestic Product is postal-related, employing 
approximately 800 million Americans. The Post Office and its influence 
will reach far into the future, in spite of the digital juggernaut and 
the cataclysmic impact that the recent recession has had, and continues 
to have, on the U.S. Postal Service and its customers. As Postmasters, 
we interact on a daily basis with citizen mailers, destination point 
postal customers, and small businesses. While these customers may not 
be the so-called ``major mailers'', they are the foundation of the 
American postal system, and the reason why the Postal Service remains 
the most trusted, respected and valued governmental institution. It is 
important that Congress work to strengthen and not weaken the Postal 
Service's ability to continue to perform its historic and vital 
mission.
    NAPUS recognizes the financial challenge confronting the Postal 
Service, but closing Post Offices, as being suggested by the Postmaster 
General and others within the agency should be one of last options. In 
recent speeches and visits to editorial boards, the Postmaster General 
has advocated the deletion of the statutory prohibition against closing 
a Post Office ``solely for economic reasons.'' On behalf of the many 
communities for which a self-sustaining Post Office is beyond the means 
of a community, NAPUS strongly opposes the Postmaster General's pitch. 
There are reasons, other than financial, in which a Post Office may be 
closed. In fact, the Postal Regulatory Commission is presently 
reviewing a Postal pattern of circumventing the rules under which a 
Post Office may be ``temporarily suspended.'' Impacted communities are 
sharing their insight with the PRC, within the context of a case 
initiated by Hacker Valley, West Virginia.
    In the report accompanying the fiscal year 2010 Financial Service 
and General Government Appropriations Bill, this Subcommittee 
reaffirmed Congress' strong commitment to rural America in stating that 
``none of the funds provided [in the Act] be used to consolidate or 
close small rural and other small post offices.'' The subcommittee went 
on to say ``These are services that must be maintained in fiscal year 
2010 and beyond.'' Postmasters and Americans fervently believe that 
Post Offices are key linchpins that bind our nation together. America 
agrees with this view. A June 2009 Gallup Poll illustrated that 55 
percent of Americans oppose the closing of Post Offices; that number 
escalates to 88 percent if the target is their Post Office.
    NAPUS believes that the Subcommittee should consider appropriating 
the statutorily authorized postal public service subsidy; it amounts to 
a modest $460 million. The authorization dates back to 1971, yet the 
Postal Service has not requested it since 1982. The motivation for the 
provision is obvious, and it highlights the value that Congress bestows 
on Post Offices. Section 2401(b)(1) of Title 39 states that the 
appropriation is to provide ``a maximum degree of effective and regular 
postal service nationwide, in communities where post offices may not be 
deemed self-sustaining . . .'' [Emphasis added] Congress cannot be more 
succinct in setting aside funds to assist small and rural Post Offices. 
The PRC estimated that closing all small and rural Post Offices would 
have shed only $549 million in postal operating costs, in fiscal year 
2008.
    One of the most vexing quandaries is how to accurately and fairly 
evaluate the Postal Service's retiree health and Federal annuity 
obligations. The Committee Report that accompanied the fiscal year 2010 
Financial Services and General Government Appropriations Bill 
acknowledged the problem. This Subcommittee documented that Office of 
Postal Inspector General projected the Postal Service to be on a 
schedule which would ``result in a 6 percent overpayment to the [Postal 
Retiree Health Benefits] Fund by the end of 2016.'' Consequently, the 
Report directed the Postal Service, in conjunction with the Office of 
Personnel Management and Office of Management and Budget, to develop 
legislation to address the prefunding issue. It does not appear that 
there was a meeting of minds between the Postal Service and the 
Administration. We urge the Committee to direct the Office of Personnel 
Management to calculate the FEHBP inflation rate consistent with the 
methodology used by other large employers and by Medicare. This would 
reduce the FEHBP index by 2 percent and provide much-needed breathing 
room for the Postal Service.
    Compounding the healthcare pre-funding inequity suffered by the 
Postal Service is the Postal IG conclusion that the Postal Service has 
overpaid $75 billion into the Civil Service Retirement and Disability 
Trust Fund. This is the result of not correctly allocating the pension 
costs of pre-1971 postal employees. Ironically, if this pension 
overpayment were to be applied to pre-funding the Postal Retiree Health 
Fund, the health liability would be wiped away.
    NAPUS understands that remedial legislation may have budget 
implications. This byproduct of postal relief impact stems from 
entanglement of postal operations, the unified budget and budget score-
keeping. We believe that it should be made clear, through legislation 
and through credible representations, that postal funds paid into the 
Retiree Health Fund and the CSRS Fund are not taxpayer-generated, and, 
as a consequence, should not impact the Federal budget. The only reason 
the transactions ``score'' is because the Postal Fund is an ``off-
budget'' account, while the health and retirement funds are ``on-
budget'', and CBO incorrectly asserts that relief increases postal 
spending. We believe that congressional budget rules should not 
penalize the Postal Service for overpaying into the funds, and should 
not exploit the Postal Service as a cash-cow for the government--
particularly since the agency has no milk to give.
    Thank you.
                                 ______
                                 
 Prepared Statement of the National Rural Letter Carriers' Association

    Chairman Durbin, and members of the Senate Appropriations 
Subcommittee on Financial Services and General Government, my name is 
Don Cantriel, and I am President of the National Rural Letter Carriers' 
Association (NRLCA), which represents 123,000 bargaining unit rural 
letter carriers. Our members work in rural, suburban, and urban areas 
throughout the United States and function as a ``post office on 
wheels'' because rural letter carriers offer Postal customers all of 
the services performed over the counter at a post office. We sell 
stamps and money orders, accept express and priority mail, offer 
signature and delivery confirmation, registered and certified mail, 
and, of course, collect our customers' parcels.
    Mr. Chairman, first and foremost, I would like to thank you for 
allowing me to submit a written statement for the record. Our country 
is experiencing a myriad of economic challenges, and the Postal Service 
has not been immune to these difficult financial times. The typical 
mailers who represent a large portion of the mailing business--the 
financial, mortgage, and credit card industries--have all scaled back 
their mailings as a direct result in cost cutting measures by 
businesses and the American consumer, resulting in unusually low mail 
volumes. This unusually low mail volume has caused the Postal Service 
to take drastic steps to change its business model and its operations.
    One drastic step the Postal Service proposes is to eliminate 
Saturday mail delivery. Mr. Chairman and members of the Financial 
Services and General Government Subcommittee, I urge you in the 
strongest and most forceful way not to eliminate the congressionally-
mandated 6-day delivery language provision. The provision stating 
``That 6-day delivery and rural delivery of mail shall continue at not 
less than the 1983 level'' must be included once again in the 2011 
Financial Services and General Government Appropriations bill.
    The Administration's Budget Proposal recommends the inclusion of 
the mandated 6-day delivery provision. The Administration recognizes 
that the Postal Service, through no fault of its own, is facing real 
financial challenges. The Administration has pledged to work with the 
Postal Service, the employee unions, Congress, and other stakeholders 
to make sure that the Postal Service remains viable and a pillar of the 
economy. I encourage you to follow the Administration's lead by 
including the mandated 6-day delivery language in the 2011 bill and 
allow the Postal Service to do what it does best--serve the American 
public.
    The Postal Service cannot expect that by working less it will 
achieve more. There is a dispute between the Postal Service and the 
Postal Regulatory Commission (PRC), which has regulatory oversight of 
the Postal Service, over how much money may actually be saved by 
eliminating a day of delivery. The Postal Service claims it will save 
$3.5 billion if it were to eliminate Saturday delivery. The PRC 
disagrees, reporting the savings will be only $1.9-$2.1 billion. Either 
number represents a very small savings compared to the amount of 
revenue the Postal Service will lose as businesses or consumers find 
other methods of delivery to have their mail, packages, and products 
delivered. Recent history supports my contention that there will be a 
major loss of revenue if the Postal Service is given the green light to 
stop Saturday delivery. After passage of the Postal Reorganization Act 
of 1970, the Postmaster General essentially gave away the parcel 
business, because the Postal Service believed that its future was going 
to be in the collection and delivery of letters--not parcels. The 
Postal Service thereafter created an Express Mail product, only to give 
that business away--once again--to private delivery companies. The 
Postal Service has been fighting ever since to regain a share of each 
of those markets.
    The point I am trying to make Mr. Chairman, is that consumers and 
businesses will not use a Postal Service that reduces service by 1 day 
a week or 17 percent. Once consumers and businesses find an 
alternative--and they surely will--they likely will stay away from the 
Postal Service for good. The vacuum that would be left by shutting down 
delivery operations on Saturdays is sure to be filled by a competitor 
and once we lose that business, we will forever be fighting--at even 
greater expense--to get it back. This is why I urge you to include the 
mandated 6-day delivery provision in the 2011 Financial Services and 
General Government Appropriations bill.
    There is an easier way to put the Postal Service on firm financial 
footing that does not involve eliminating Saturday delivery. First, 
something must be done about the pre-funding of the Future Retirees 
Health Benefits Fund (FRHBF). When the 2006 Postal Accountability and 
Enhancement Act (PAEA) was passed, the Postal Service was experiencing 
high mail volumes and record revenues. Much has changed since then. 
Under the PAEA, the Postal Service's statutorily-required payment 
schedule is too much to bear and is patently unfair during these trying 
times. No other government agency or corporation is required to pre-
fund their retiree health benefits--let alone required to almost fully 
pre-fund them at an accelerated pace. Reducing the amount of money the 
Postal Service is required to pay into the FRHBF has the potential to 
save the Postal Service billions of dollars and still not put employee 
pensions at risk.
    Moreover, the Inspector General reported that the Postal Service 
has been overcharged $75 billion on its CSRS Pension Fund 
responsibility. According to the OIG report, this overcharge has been 
used to pay the retirement costs of Federal employees, not just postal 
employees. The report continues to say that if the overcharge was used 
to prepay the FRHBF; it would fully meet the retiree healthcare 
liabilities and eliminate the need to continue for the Postal Service 
to continue paying $5 billion annually as mandated by the PAEA. The 
Postal Service should be permitted to have the monies it was 
overcharged returned.
    Finally Mr. Chairman, I ask that the Postal Service receive its 
limited appropriation reimbursement as mandated by the Revenue Forgone 
Reform Act of 1993. Revenue is considered forgone when Congress 
mandates the Postal Service provides mail services for designated 
mailers at free or reduced rates; such as free mail for the blind and 
overseas absentee balloting materials. Congress typically then 
appropriates money to reimburse the Postal Service for that revenue. 
While this amount will vary from year to year depending on actual 
usage, the Postal Service is still owed this revenue and I ask that 
Congress appropriate the proper amount the Postal Service is owed in 
forgone revenue.
    Once again, I thank you for allowing me to submit a statement for 
today's Subcommittee hearing. If you have any questions, please do not 
hesitate to contact me at your convenience.
                                 ______
                                 
     Prepared Statement of the National Postal Mail Handlers Union

    Thank you, Chairman Durbin, for holding this timely oversight 
hearing. The Postal Service's financial situation has been garnering 
lots of headlines and editorials recently, but not all of them have 
been accurate or fair. These hearings certainly are an important part 
of gathering the facts, and starting the process necessary to provide 
financial and other relief to the nation's postal system.
    The National Postal Mail Handlers Union (NPMHU) represents 50,000 
mail handlers. Our members are located in all of the major mail 
processing facilities. Mail handlers load and unload the trucks; 
cancel, prepare, sort, and dispatch the mail; and perform most of the 
allied duties necessary to the processing of mail. It is difficult and 
sometimes dangerous work.
    In recent years, the NPMHU has worked diligently with Postal 
Service management on a variety of cost-saving initiatives. We have 
been meeting on a regular basis, at every level where results can be 
achieved, from the workroom floor to USPS headquarters at L'Enfant 
Plaza. We have adopted voluntary programs to improve safety, prevent 
accidents, and cut ergonomic injuries; we have produced joint 
interpretation manuals to reduce labor-management disputes and the 
overall number of grievances and arbitrations; we have agreed to early 
retirement programs, both with and without incentives; and we have 
cooperated with USPS efforts to automate and save costs while 
processing the mail more quickly. Mail handlers also have experienced 
substantial decreases in the number of career employees, as well as 
cuts in hours and overtime; and we have had thousands of our members 
involuntarily reassigned or excessed into other hours, onto other tours 
or days of work, or into other facilities, sometimes in far off 
locations.
    The NPMHU recognizes that the current economic environment may 
require additional responses. We do not believe, however, that 
eliminating Saturday delivery is change for the better. Saturday 
delivery anywhere in the United States is a hallmark of the Postal 
Service, and weekend processing and delivery of mail is vital to 
maintaining the postal network.
    The Postal Service acknowledges, as it must, that the elimination 
of Saturday delivery will adversely affect some of its current 
business. There are numerous examples: Netflix is one of the Postal 
Service's largest customers. Many of your constituents look forward to 
that Saturday delivery of a DVD, as it provides entertainment for the 
weekend. What about the delivery of VA or Social Security checks, 
particularly if there is a Monday holiday? Businesses, particularly 
small businesses, often rely on Saturday delivery and weekend 
processing for their financial well-being. There are just too many ways 
that this proposal is wrong for the Postal Service to allow it to go 
forward. The NPMHU simply cannot agree that artificially accelerating 
the loss of volume is a good idea.
    Thus, eliminating Saturday delivery is a last resort that should 
not be seriously considered when there are better solutions available 
that will not degrade the Postal Service. Several alternatives are 
obvious, and require action by Congress:
    First and foremost, Congress must fix the wholly unrealistic, but 
statutorily required, schedule for the pre-payment of retiree 
healthcare benefits. The provisions of the 2006 Postal Accountability 
and Enhancement Act (PAEA) that established the Retiree Health Benefit 
Fund (RHBF) may have made sense in 2006 when the economy was healthy 
and the USPS was growing, but today they need to be modified. Congress 
and the White House need to step up to the plate and make changes to 
the RHBF. No Federal agency or significant private entity has any 
yearly liability remotely resembling the $5 billion burden now imposed 
on the Postal Service. Those who want the Postal Service to run more 
like a private business should allow the USPS to do what businesses are 
allowed to do: let the Service postpone and adjust its payments to 
reflect the economic realities currently presented.
    Furthermore, the size of the future liability for retiree health 
was calculated improperly. Gross errors were made on the number of 
retirees and the annual rate of inflation for healthcare, to name the 
two most prominent examples. These should be fixed, as the adjustments 
will provide an important lifeline to the Postal Service.
    In short, protestations to the contrary, whether in the halls of 
Congress or publicly, do not change the actual facts: the calculations 
underlying the Retiree Health Benefit Fund, and the repayment schedules 
established by the PAEA, are to blame for a large part of the Postal 
Service's current financial woes.
    Second, the USPS portion of the CSRS pension fund also was 
improperly calculated. The Office of Personnel Management must be 
directed to recalculate the USPS liabilities using actuarial methods 
that are accurate and fair, and then must initiate an inter-
governmental transfer of the resulting surplus to the USPS and its 
ratepayers.
    The NPMHU also urges support for the ``vote-by-mail'' legislation 
currently before the Senate.
    We also urge Congress to grant the Postal Service more flexibility 
in developing new, innovative ways of conducting its business and 
increasing its customer base.
    With regard to specific legislation, the NPMHU supported the 
original version of S. 1507, which had a realistic approach to the RHBF 
funding schedule. Had that legislation passed as introduced, this 
entire proceeding would have a different character to it. The original 
version of S. 1507 was legislation that most parties agreed was 
acceptable. However, the bill was amended into a vehicle to tilt the 
collective bargaining process in favor of management, despite the fact 
that the process for four decades has functioned as it was intended, 
without any labor stoppages, lock-outs, or similar labor-management 
strife since its inception. The changes added to S. 1507 about the 
financial condition of the Postal Service were an unnecessary block to 
constructive resolution of these serious funding issues.
    As noted, the financial situation facing the Postal Service calls 
for immediate resolution, and that resolution rests with Congress and 
the Executive Branch. Congress must act to ensure that changes to the 
Retiree Health Benefit Fund and the calculation of the CSRS 
overpayments are made, so that the Postal Service is able to follow 
rational accounting methods and commonsense budgeting while it 
struggles to remain solvent during these tough economic times.
    Thank you, again, for holding this oversight hearing.
                                 ______
                                 
    Prepared Statement of the American Postal Workers Union, AFL-CIO

    Mr. Chairman and members of the Subcommittee, my name is William 
Burrus, President of the American Postal Workers Union, AFL-CIO. On 
behalf of the 260,000 members of my union, I thank you for holding this 
hearing today to examine the financial condition of the United States 
Postal Service (USPS), and for providing the APWU an opportunity to 
submit testimony.
    Since 1775, the Postal Service has sorted, transported and 
delivered mail throughout the nation. The Service began as a conduit 
for communication between the Continental Congress and our armies 
during the Revolutionary War. In 1863, pursuant to statute, the USPS 
began delivering mail to certain addresses if postage was enough to 
``pay for all expenses of the service.'' By 1896, the Postal Service 
was making deliveries to certain rural and urban homes 6 days a week. 
In some cities, in fact, delivery occurred more than once per day until 
1950. In other more remote rural areas, deliveries continued to occur 
fewer than 6 days per week. Today, the USPS delivers to 146 million 
homes and businesses, 6 days a week. Throughout the Service's history, 
however, there have been discussions about reducing the number of 
delivery days to conserve fuel and reduce costs.\1\
---------------------------------------------------------------------------
    \1\ Congressional Research Service, The U.S. Postal Service and 
Six-Day Delivery: Issue for Congress, July 29, 2009, p. 1.
---------------------------------------------------------------------------
    The Postal Service's mission is to provide the nation with 
affordable and universal mail service. However, the USPS' authority was 
revised on December 20, 2006, with the enactment of the Postal 
Accountability and Enhancement Act (PAEA). Through this legislation, 
Congress sought to provide the USPS with tools and mechanisms to help 
ensure that the USPS is efficient, flexible, and financially sound, but 
the law has had the opposite effect.
USPS Financial Condition
    The PAEA has forced the Postal Service virtually into insolvency. 
It imposed on the Postal Service a $75 billion obligation to pre-fund 
retiree health benefits, a liability that is not borne by any other 
Federal agency.
    This requirement, more than any other single factor, has created a 
USPS deficit of alarming size. A 2008 GAO report found the USPS's $5.3 
billion shortfall in fiscal year 2007 was caused primarily by this 
provision of the PAEA.\2\
---------------------------------------------------------------------------
    \2\ U.S. Government Accountability Office, U.S. Postal Service: 
Mail-Related Recycling Initiatives and Possible Opportunities for 
Improvement, GAO Report GAO-08-599, June 2008, p.1.
---------------------------------------------------------------------------
    If the USPS were to release financial records showing liabilities 
minus this obligation, such documents would clearly demonstrate the 
disastrous effect the legislation has had. Absent this pre-funding 
burden, the Postal Service would have experienced a cumulative surplus 
of $3.7 billion over the last 3 fiscal years, despite declining mail 
volume, an economy in chaos, and electronic diversion.
    The APWU is compelled to ask: If funding future healthcare 
liabilities meets sound accounting standards, why isn't this 
requirement applied to all Federal and private enterprises? Why doesn't 
every branch of government, including Congress, pre-fund future 
healthcare liabilities?
    The PAEA was a mistake, a gross miscalculation, which provided no 
new revenue stream for the Postal Service while imposing massive, 
artificial new costs. The pre-funding provision is the central cause of 
USPS financial difficulties, and we urge Congress to correct it. If 
this single requirement were rescinded, the elimination of Saturday 
mail delivery would be unnecessary.
USPS Share of CSRS Pension Responsibility
    We also strongly urge Congress to give serious consideration to the 
USPS Office of Inspector General's findings that the methodology for 
determining the Postal Service's contribution to the Civil Service 
Retirement and Disability Trust Fund is flawed.
    For employees who began their career before the Postal 
Reorganization Act of 1970, pension responsibility is shared between 
the Federal government and the USPS. The Office of Personnel Management 
(OPM) established the methodology to be used in determining the 
contribution of both entities. The USPS OIG commissioned the Hay Group, 
a well-known actuarial firm, to review the allocation of liabilities 
for postal pensions between the Federal government and the USPS. The 
Hay Group's findings, ``Evaluation of the USPS Postal CSRS Fund for 
Employees Enrolled in the Civil Service Retirement System,'' describes 
the results of its analysis.
    Among the findings in the report is that if ``the more equitable 
years-of-service allocation methodology had been used to determine the 
value of the Postal CSRS Fund, the OIG estimates its value on September 
30, 2009, would have been approximately $273 billion rather than $198 
billion--a difference of $75 billion.'' The $75 billion overpayment 
would allow the Postal Service to pay a $10 billion unfunded liability, 
pay off its remaining debt, and add approximately $55 billion into the 
Retiree Health Benefits Fund, which already has an approximately $35 
billion balance. With $90 billion, the Postal Service would be 
positioned to fully fund the PAEA obligation.
    There is no dispute that the USPS faces a serious financial 
challenge as a result of the requirement to pre-fund retiree healthcare 
liabilities and the flawed pension allocation methodology. A more 
equitable allocation of pension liabilities would offer the USPS 
stability, which could delay any reduction in the number of mail 
delivery days and other policies that would undermine its ability to 
provide universal service at uniform rates to American citizens.
    The APWU urges Congress to develop a legislative solution to 
correct the formula which so unfairly requires postal customers to 
subsidize pension obligations that should be covered by the Federal 
government.
    Recently, Postal Service announcements have included projections of 
a $238 billion deficit over the next 10 years. Frankly, these 
predictions are outlandish and unsupported. The USPS has offered no 
justification for these wild claims, and, unfortunately, the media has 
failed to challenge them.

Six-Day Delivery
    Following the USPS briefing on March 2, 2010, I was critical of 
USPS proposals to reduce mail delivery to 5 days per week, writing to 
APWU members, ``It would be the beginning of the demise of the Postal 
Service.''
    In 2008, both the PRC and the USPS conducted studies of mail 
delivery. The USPS study concluded that the elimination of one delivery 
day could save the Service $3.5 billion per year, while the PRC finding 
was savings of $1.93 billion.
    Congress considered the reduction in service delivery days more 
than 30 years ago in response to an earlier study by the USPS. After 
holding a dozen hearings with hundreds of witnesses, the House of 
Representatives approved a resolution opposing the service reduction by 
a vote of 377-9.
    Then, as now, the key question was: Is the USPS a profit-driven 
organization, or a public service?
    In 1980, Postmaster General William F. Bolger appeared before 
Congress insisting that reducing the number of delivery days was 
necessary to ensure the Postal Service's economic stability. He 
estimated that the switch to 5-day delivery would result in the loss of 
15,000 to 20,000 Postal Service jobs. Based on statements reported by 
participants in a 2010 meeting of the Mailers Technical Advisory 
Council, the 2010 version could result in the loss of as many as 
199,000 good-paying, middle-class USPS jobs.
    However, the APWU's opposition to eliminating Saturday delivery is 
not based on a concern about losing jobs. (Approximately 2,500 jobs in 
positions represented by the APWU would be affected.) We are concerned 
about protecting the vitality of the USPS for the future, and we 
support the right of every citizen--including those without Internet 
access and the disabled--to receive high-quality mail service.
    Former Postal Regulatory Commission Chairman Dan G. Blair addressed 
some of the dangers of the proposal in testimony before the Senate 
Subcommittee on Federal Financial Management, Government Information, 
Federal Services, and International Security on January 28, 2009. 
Senator Susan Collins stated that the decision to further reduce postal 
services would cause ``an even bigger drop'' in mail volume that could 
lead to a ``death spiral'' for the USPS.

New Services
    It is easy to suggest that the Postal Service should offer new 
services in order to remain financially sound while ignoring free-
market obstacles. However, it is unlikely that a single new service or 
product would be accepted without challenge by private-sector 
competitors; furthermore, it is unlikely that such services would 
result in short-term profits for the USPS.
    In testimony before the House Subcommittee on Federal Workforce, 
Postal Service, and the District of Columbia on November 5, 2009, GAO 
officials said, ``Allowing USPS to compete more broadly with the 
private sector would raise risks and concerns. As with USPS's non-
postal ventures before PAEA was enacted, new non-postal ventures could 
lose money; and even if they were to make money, issues related to 
unfair competition would need to be considered.''
    How can the USPS be expected to fund new enterprises that would 
require significant start-up costs while it is saddled with a $75 
billion debt? The reality is that requiring a payment averaging $5.6 
billion annually for 10 years would bankrupt any American corporation.

Savings and Collective Bargaining
    In recent years, the USPS has achieved unprecedented savings 
through productivity increases, a series of cost-cutting initiatives, 
and sacrifices by workers. More than 100,000 jobs have been eliminated 
through attrition over the last 2\1/2\ years, and workers have begun 
paying an increased share of health insurance premiums.
    In addition to 5-day mail delivery, the USPS has proposed numerous 
changes that relate directly to workers' rights and benefits and are 
governed by collective bargaining. We reject any effort to influence 
the process with threats of severe work-rule changes. Contract 
negotiations for both the American Postal Workers Union and the 
National Rural Letter Carriers Association begin in the fall.
    We believe it is unreasonable to single out a handful of provisions 
achieved through bargaining that benefit workers (such as protection 
against layoffs) from the host of negotiated stipulations that are 
contrary to workers' objectives.

Conclusion
    Mr. Chairman, we believe the rush to 5-day mail delivery is an ill-
conceived reaction to declining mail volume during an economic 
slowdown. While volume may never return to 2006 levels, even a modest 
return, coupled with repeal of the requirement to pre-fund retiree 
health benefits, would go a long way toward sustaining the Postal 
Service for many years into the future.

STATEMENT OF HON. RUTH Y. GOLDWAY, CHAIRMAN, POSTAL 
            REGULATORY COMMISSION
    Senator Durbin. I might also say to those in attendance 
that our next panel includes Ruth Goldway, Chairman of the 
Postal Regulatory Commission.
    We're glad you're here.
    She's the longest-serving full-time Senate-confirmed 
Presidential appointee within the executive branch of the 
United States Government.
    Congratulations.
    Also appearing is David Williams, independent inspector 
general for the U.S. Postal Service since 2003. He's served as 
inspector general for a number of agencies: the Nuclear 
Regulatory Commission, Social Security Administration, 
Department of the Treasury, and the Department of Housing and 
Urban Development, held top posts at Labor and Transportation 
Security agencies, former special agent with the Secret 
Service, and a decorated veteran, and, I'm proud to note, a 
native of Illinois, graduate of Southern Illinois University in 
Edwardsville, where my wife attended, and holds a master's in 
education as a graduate of the University of Illinois, 
Champaign.
    Phillip Herr joins us from the U.S. Government 
Accountability Office. He's Director in the Physical 
Infrastructure Team of the GAO. Since joining GAO in 1989, he's 
managed reviews of a broad range of domestic and international 
programs. His current portfolio focuses on programs at the U.S. 
Postal Service and the Department of Transportation. And prior 
to joining the GAO, he worked in management consulting, and 
holds a Ph.D. from Columbia University.
    Thanks, to each of you, for being here.
    I'm going to allow each of you an opportunity to make an 
opening statement. Your entire statement will be made part of 
the record.
    Ms. Goldway, why don't you proceed.

               SUMMARY STATEMENT OF HON. RUTH Y. GOLDWAY

    Ms. Goldway. Thank you. Thank you, Chairman Durbin and 
Ranking Member Collins. Thank you for the opportunity to 
testify today.
    I'm pleased to represent the Postal Regulatory Commission 
and to explain our role in whether or not the Postal Service 
should reduce mail delivery to 5 days.
    Under the Postal Accountability and Enhancement Act, 
whenever the Postal Service considers a nationwide change in 
the nature of postal services, it must submit a proposal to the 
Commission requesting an advisory opinion on the change. Under 
Commission rules, such a request must be filed no fewer than 90 
days before the date the Postal Service proposes to make the 
change effective.
    The Commission provides a public, on-the-record hearing 
process so that mail users and the public can test the Postal 
Service's proposals and offer supporting or opposing views. 
Then the Commission issues an opinion that balances all 
applicable public policies, especially the need to maintain 
adequate and effective universal service and the need to 
provide services in an economic and efficient manner.
    In this specific instance involving a plan to eliminate 
Saturday delivery, the Postal Service must also seek 
congressional approval, because, for over 25 years, since 1983, 
the delivery levels of that year have been specified as the 
minimum annual appropriations legislation.
    For comparison, just last week the Commission issued and 
distributed another advisory committee--commission--another 
advisory opinion in which we reviewed a proposal regarding the 
process for closing the more than 4,000 retail facilities it 
denominates as classified stations and branches. There was an 
overwhelming public support for the maintenance of post offices 
from all of our participants in the hearing process. The 
Commission advised the Service to make significant improvements 
in the process, which would result in a more accurate, 
comprehensive, and balanced financial projection and would 
ensure the rights of affected customers who should have a 
meaningful opportunity to provide input before a decision to 
cut service is made. Congressional review in this matter could 
be helpful, but is not required.
    When the Postal Service requests our opinion on elimination 
of Saturday delivery, it will have to provide comprehensive 
evidence to justify this change. The Commission will follow 
well-established administrative procedures to analyze the 
evidence. This includes an opportunity for us to question the 
Postal Service and an opportunity for the public to provide its 
views. The Postal Service and participants will have the 
opportunity to file briefs and issue briefs and submit reply 
briefs.
    The Commission expects to hear from a wide variety of 
businesses and associations that are dependent on, or make 
significant use of, the Postal Service. We will build a 
comprehensive record on the potential cost savings, on volume 
declines, and on impacts on maintenance of timely and reliable 
service.
    On this important matter, the Commission will also expand 
participation to include both individuals and groups 
representing average citizens. As we have done before, we will 
hold field hearings in cities around the country to learn about 
specific experience that give meaning to the broad national 
trend data that we generally rely on.
    The Postmaster General's testimony, filed here today, 
describes a complex plan for 5-day delivery. It is difficult to 
say precisely how much time will be necessary to develop a 
thorough advisory opinion. Depending on the completeness of the 
information presented by the Postal Service, and the issues and 
the motions raised by individual business participants, a rough 
estimate would be 6 to 9 months.
    The Commission studied the cost savings associated with 5-
day mail delivery in 2008 as a part of our ``Universal Postal 
Service and Postal Monopoly'' report to Congress. In that 
report, the Commission presented an estimate that cutting 
Saturday delivery would have saved the Postal Service $1.9 
billion in 2007, about $1.6 billion less than the Postal 
Service calculation at that time. About one-third of the 
difference was because the Postal Service didn't figure in any 
volume losses. We estimated a 2-percent reduction in volume, 
caused by a reduction in service. The Service also didn't 
account for the added costs of delivering pieces that otherwise 
would have been delivered on Saturday.
    But, neither the Postal Service nor the Commission was 
quantifying a fully developed change of the type outlined 
today. We will carefully analyze the Postal Service's filing 
that should include, when it's filed, a sophisticated and 
comprehensive presentation of potential cost, volume, and 
revenue changes to support its estimates of net savings. 
Hopefully, it will also explore the impacts of 5-day delivery 
on the Postal Service and on the economic and social interests 
of its customers. I believe our conclusions will be of help to 
you and inform your deliberations on legislation.
    Today, you also asked witnesses to comment on the current 
financial situation facing the Postal Service. We hope to 
discuss our Commission's annual compliance determination with 
you when it is issued late this month. It will provide a solid 
analysis of the Postal Service's precarious finances, and in 
the context of the rate and service performance of fiscal 2009. 
Suffice it to say that the situation is serious and we are 
unanimous on the--in the Commission in our hope that Congress 
will address the retiree healthcare benefit issue promptly.

                           PREPARED STATEMENT

    Thank you again for providing me the opportunity to 
testify. I would be pleased to respond to any questions that 
you have today.
    Senator Durbin. Thanks, Ms. Goldway.
    [The statement follows:]

                 Prepared Statement of Ruth Y. Goldway

    Chairman Durbin, Ranking Member Collins and members of the 
Subcommittee, thank you for the opportunity to testify. I am pleased to 
represent the Commission today, and to explain its role in the process 
of reviewing the coming Postal Service proposal for a reduction in the 
mandated mail delivery frequency. This proposal impacts virtually every 
citizen in the Nation, and this Subcommittee is wise to turn its 
attention so quickly to this issue. Today, I hope to provide you with a 
clear understanding of the Postal Regulatory Commission's statutory 
obligation and how we intend to fulfill it.
    When the Postal Service determines that there should be a change in 
the nature of postal services which will generally affect service on a 
nationwide, or substantially nationwide basis, it must submit a 
proposal to the Commission requesting an advisory opinion on the 
change. This requirement was established by the Postal Reorganization 
Act of 1970, and was retained by the Postal Accountability and 
Enhancement Act of 2006. Our rules provide that such a request must be 
filed with the Commission no less than 90 days in advance of the date 
on which the Postal Service proposes to make the change effective.
    The Commission is responsible for providing a public, on-the-
record, hearing process so that mail users and other interested members 
of the public can test the Postal Service's proposal and offer 
supporting or opposing views. The Commission will then provide an 
opinion that takes into account all applicable public policies, such as 
the need to maintain adequate and effective universal service, and the 
need to provide services in an economic and efficient manner.
    While we have not yet received a formal proposal from the Postal 
Service to eliminate Saturday delivery, we have been told to expect one 
this month. In this specific instance, the Postal Service must also 
seek approval from Congress, since for over 25 years, 1983 delivery 
levels have been specified as a minimum in annual appropriations 
legislation, thereby requiring maintenance of 6-days-a-week city and 
rural delivery.
    Last week, on March 10, the Commission submitted an advisory 
opinion on another service change proposal. The Postal Service 
requested a review of its process for closing the more than 4,000 
retail facilities it denominates as classified stations and branches. 
The Commission found that significant improvements should be made to 
this process. These improvements would result in more accurate, 
comprehensive, and balanced financial projections as a basis for Postal 
Service decisions, and would ensure the rights of affected customers 
who should have a meaningful opportunity to provide input before a 
decision to cut service is made. Copies of that opinion have been 
provided to members of this Committee. I believe this case is 
representative of the thorough review and constructive advice the 
Commission provides in response to Postal Service requests.
    When the Postal Service submits the request for an advisory opinion 
on elimination of Saturday delivery, it will provide evidence 
explaining why it believes this change is justified. The Commission 
will follow established procedures and create a schedule to analyze 
that evidence. The schedule will include an opportunity to question the 
Postal Service, and an opportunity for the public to provide its views, 
both informally and as part of more formal, technical presentations. 
The Postal Service and interested members of the public will have the 
opportunity to brief issues and submit reply briefs.
    Based on recent experience, I expect the Commission will receive 
detailed and thoughtful comments from a wide variety of businesses and 
associations that are dependent upon, or make significant use of, the 
Postal Service. To the extent necessary, the Commission will issue 
information requests so that a comprehensive record exists to support 
conclusions on potential cost savings, volume declines, and impacts on 
the maintenance of timely and reliable service.
    Additionally, the Commission will expand its outreach efforts to 
encourage participation by both individuals and groups representing 
businesses and average citizens affected by the proposal. In recent 
cases, the Commission has found that going outside of Washington, DC, 
and holding field hearings in such places as The Bronx, New York, 
Independence, Ohio, St. Paul, Minnesota and Flagstaff, Arizona has 
proven extremely helpful. During these hearings, we learn about 
specific experiences that give meaning to the broad national trend data 
we generally rely on.
    As we have not yet seen the actual Postal Service proposal, it is 
difficult to estimate precisely the amount of time that will be 
necessary to develop a thorough advisory opinion. Depending on the 
complexity of the issues raised both by the Postal Service and by 
individual and business participants, a rough estimate would be 6 to 9 
months.
    The invitation to testify today also sought witness comments on the 
current financial situation facing the Postal Service. Suffice it to 
say that we are all well aware of the seriousness of the Postal 
Service's current situation, and hopeful that Congress may see fit to 
address the retiree healthcare benefit issue promptly. The Commission 
will issue its Annual Compliance Determination later this month that 
will provide a full analysis of the Postal Service finances in the 
context of its rate and service performance in fiscal year 2009. I will 
make certain that each member of this Committee is immediately provided 
with a copy of the Annual Compliance Determination.
    As a point of reference, the Commission recently had occasion to 
approximate the cost savings associated with 5-days-a-week mail 
delivery. In December 2008, the Commission submitted a report to 
Congress entitled ``Universal Postal Service and the Postal Monopoly'', 
as required by the Postal Accountability and Enhancement Act of 2006. 
Specifically, the Act required the Commission to estimate the costs of 
the Universal Service Obligation and the value of the existing 
monopoly.
    The Commission accepted as reasonable an estimate developed by a 
team of outside consultants that reducing the frequency of delivery 
from 6 to 5 days would have increased the Postal Service's fiscal year 
2007 profits by $1.9 billion. This was about $1.6 billion less than a 
Postal Service calculation at that time. About one-third of the 
difference was due to the fact that the Postal Service assumed no mail 
volume would be lost as a result of the reduction in service. The 
consultants' estimates reflected a 2 percent reduction in volume due to 
the reduction in service. The other major difference related to the 
costs of delivering pieces that otherwise would be delivered on 
Saturday.
    However, neither the Postal Service nor the Commission were 
quantifying a fully developed change proposal of the type the Postal 
Service has said it will be providing later this month. I look forward 
to carefully analyzing a Postal Service proposal that includes a 
sophisticated presentation of potential cost and revenue changes to 
support its estimates of the impact of elimination of Saturday delivery 
both on the Postal Service and on the economic and social interests of 
its customers.
    Thank you again for providing me the opportunity to testify today. 
I would be pleased to respond to any questions Subcommittee members may 
have.

    Senator Durbin. Mr. Williams.

STATEMENT OF HON. DAVID C. WILLIAMS, INSPECTOR GENERAL, 
            OFFICE OF INSPECTOR GENERAL, UNITED STATES 
            POSTAL SERVICE
    Mr. Williams. Thank you, Mr. Chairman and Senator Collins. 
I appreciate the opportunity to discuss the Postal Service's 
current financial condition.
    The Postal Accountability and Enhancement Act of 2006 set 
the Postal Service on a visionary, imaginative course to behave 
with the agility and customer responsiveness found in the 
private sector. However, the act's incentives and pressures 
served to illuminate chronic business-model problems that 
required rapid correction. Also, the recent economic downturn 
hit the postal community very hard. Last, the Digital Age has 
entered a creative-destructive phase, disrupting numerous 
industries, including the Postal Service.
    The Postal Service is moving in the right direction, but 
its velocity is insufficient to avoid an economic catastrophe 
that will severely challenge its viability. Actions are needed 
now in several key areas.
    Each year, the Postal Service pays $7 billion more than is 
warranted for its benefit funds. This overcharge is the result 
of exaggerated healthcare inflation percentages, a transfer of 
Federal pension responsibilities to the Postal Service, and 
excessive prefunding targets for retiree healthcare and pension 
funds. Addressing this overcharge could allow needed time to 
plan and integrate large-scale cost-reduction initiatives. The 
large network of post offices, plants, and administrative 
apparatus is financially burdensome. To its credit, the Postal 
Service has streamlined some of its network, reducing over 
130,000 employee positions since 2003 and cutting $6 billion in 
costs for 2009 alone.
    The Postal Service must accelerate its infrastructure 
optimization plan while balancing its commitment to service. 
The Postal Service's complex workforce rules do not always 
match mission requirements. The ebb and flow of mail in the 
processing plants suggest the need for a more flexible staff 
willing to perform a wider range of duties. The current method 
of paying carriers by the hour requires closer management than 
is possible and disincentivizes optimal performance.
    We, along with the Postal Service, have recognized the need 
for a simplified, modernized pricing structure. The Postal 
Service has three primary product lines: letters, flat 
mailings, such as magazines, and packages. Yet, it has 
thousands of price variations for them. Additionally, 24 of the 
135 work-share discounts exceed costs avoided, and other 
discounts may no longer be of value. A simple pricing structure 
could be easier to use and allow more accurate charges to 
customers.
    A recent poll indicated that reducing 6-day delivery to 5 
days has the support of mail recipients, though mailers have 
expressed concerns. Mail pieces per mailbox have declined 
significantly, from six pieces per day to four. And reducing 
delivery days would seem to balance cost by restoring the 
number of pieces being delivered. Additionally, with the 
Nation's 40-hour workweek--managing resources for a 5-day 
business cycle is much simpler than for 6 days. The Postal 
Service needs to weigh potential savings against possible 
decreases in revenue and loss of its competitive advantage, 
since other companies charge premiums for Saturday delivery.
    Last, my office is concerned that the Postal Service 
builddown could be so rapid that the dynamics within and among 
the large initiatives are not fully understood. Adding 5-day 
delivery changes to infrastructure optimization, management of 
the FSS investment, and intelligent mail barcode implementation 
is daunting. Perhaps a test, beginning in the quieter summer 
months, would provide a great deal of useful information.
    To conclude, I'm not aware of a business in the world that 
could forfeit $7 billion annually before its doors open, and 
survive. Benefit prefunding overcharges should be fixed. 
Additionally, the Postal Service should aggressively right-size 
it's infrastructure without delay. The clock is ticking, and 
this may be their last shot. Work rules should be better 
aligned with mission requirements. A simplified pricing 
structure should be implemented to bring in new business and 
enable accurate calculation of revenues due.
    The world is in the midst of a digital revolution, and it's 
a wild ride for the Nation's entire communications 
infrastructure. Globalization and the Digital Age are providing 
exciting opportunities, but only for some. Tech centers in 
India and China are tightly surrounded by people pulling 
ploughs with water buffalo, people who have been completely 
left behind.
    America has taken many actions in the past, such as land-
grant universities, TVA, rural mail delivery, and interstate 
highways, to ensure that people are not left behind. The 
powerful and unpredictable events facing the communications 
industry may require such action, to assure that all Americans 
have universal access and the opportunity to take part in this 
exciting new world.
    Our communications infrastructures have to recover from the 
shock and trauma of a changed world to assure their readiness 
to play both traditional and emerging roles in support of our 
citizens.
    Thank you.
    Senator Durbin. Thanks a lot.
    Mr. Herr, your turn.

STATEMENT OF PHILLIP HERR, DIRECTOR, PHYSICAL 
            INFRASTRUCTURE ISSUES, GOVERNMENT 
            ACCOUNTABILITY OFFICE
    Mr. Herr. Thank you, Chairman.
    Chairman Durbin and Ranking Member Collins, I'm pleased to 
participate in this hearing on the U.S. Postal Service.
    Today, I will briefly discuss its financial condition and 
forecast. I will also provide GAO's perspective on the Postal 
Service's need for restructuring, as well as highlight 
questions for Congress to consider regarding changing delivery 
from 6 to 5 days.
    Turning first to the Postal Service's financial condition. 
As mail volume declined by 35 billion pieces in fiscal years 
2007 through 2009, the Postal Service's financial viability has 
deteriorated, leading to $12 billion in losses. Current 
forecasts, discussed earlier, are that mail volume will decline 
to 167 billion pieces this fiscal year, the lowest levels since 
1992. The Postal Service projects a record loss of over $7 
billion this fiscal year, while taking on $3 billion in debt. 
Its outstanding debt will increase to $13.2 billion, close to 
its $15 billion statutory limit.
    The Postal Service does not expect total mail volume to 
return to its former levels when the economy recovers. Simply 
put, the economic downturn and continuing shift to electronic 
communications and payments has changed how mail is used. By 
fiscal year 2020, the Postal Service projects further volume 
declines of about 16 percent, to 150 billion pieces, the lowest 
level since 1986. First-class mail volume is projected to 
decline by another 37 percent over the next decade, as seen in 
figure 3 of my written statement. And less-profitable standard 
mail, primarily advertising that's subject to economic 
fluctuations, is projected to remain roughly flat over the next 
decade.
    Turning to restructuring and 5-day delivery. As Senator 
Collins noted, in July 2009 GAO added the Postal Service's 
financial condition to our high-risk list again and reported 
that action is urgently needed in multiple areas so that the 
Postal Service can achieve financial viability. Such actions 
should include restructuring its operations, networks, and 
workforce to reflect changes in mail volume and revenue. The 
longer it takes for the Postal Service and Congress to address 
these challenges, the more difficult they will be to overcome.
    We believe that no single change will be sufficient to 
address the Postal Service's pressing challenges, and have 
identified key actions the Postal Service and/or Congress could 
take. Compensation and benefits costs represent 80 percent of 
the Postal Service's costs, as Senator Durbin mentioned 
earlier. Cost-savings opportunities are possible with regard to 
personnel and benefits.
    In terms of retirements, annually through 2020, about 5 
percent of Postal Service employees will be eligible and are 
expected to retire. That represents approximately 300,000 
employees, about one-half the current workforce. In terms of 
benefit costs, postal employees have 80 percent of their health 
benefit premiums covered, 8 percent more than most Federal 
employees.
    Consolidating processing and retail networks is also 
needed, given mail volume declines. Removing excess capacity is 
necessary in the 600 processing facilities, where first-class 
mail processing capacity exceeds needs by 50 percent.
    In the retail area, approximately 30 percent of revenue 
currently comes from purchases at nonpostal locations, such as 
grocery stores, indicating that consumers have begun shifting 
to alternatives. The network of 36,500 retail facilities can 
also be reduced. Maintenance has been underfunded for years, 
resulting in deteriorating facilities and a backlog.
    Another opportunity for savings is consolidating the postal 
field administrative structure by reviewing the need for 74 
district offices and eight area offices. And because cost-
cutting alone will not ensure a viable Postal Service, 
generating revenue through new or enhanced products is needed 
to maximize profitable mail volume.
    Two additional options that would require congressional 
approval involve, first, the funding requirements of retiree 
health benefits. As mentioned today, last-minute congressional 
action was needed this past September to reduce the Postal 
Service's required payments from $5.4 billion to $1.4 billion. 
And, second, reducing delivery from 6 to 5 days.
    Questions we have raised that Congress might wish to 
consider regarding changing delivery from 6 to 5 days include: 
How would eliminating Saturday delivery affect efforts to 
increase volume? How would delivery service standards be 
affected? How will consumers and business customers be affected 
in their operations? And how much leadtime would be needed to 
modify postal operations and financial systems for this 
actually to take place?
    Such issues must be addressed so that stakeholders fully 
understand the potential ramifications of these changes. GAO 
also expects to analyze this proposal when it becomes 
available.
    Mr. Chairman, in conclusion, the longer it takes for the 
Postal Service and Congress to realign the Postal Service to 
the changing use of the mail, the more difficult change will 
be. Toward that end, GAO has an ongoing review to evaluate 
options for long-term structural and operational reforms and we 
plan to issue our report in April.

                           PREPARED STATEMENT

    This concludes my prepared statement, and I'm pleased to 
answer any questions.
    Thank you.
    [The statement follows:]

                   Prepared Statement of Phillip Herr

                               HIGHLIGHTS

Why GAO Did this Study
    The U.S. Postal Service's (USPS) financial condition and outlook 
deteriorated significantly during fiscal year 2009. USPS was not able 
to cut costs fast enough to offset declining mail volume and revenues 
resulting from the economic recession and changes in the use of mail, 
such as electronic bill payment.
    In July 2009, GAO added USPS's financial condition and outlook to 
its High-Risk List and reported that USPS urgently needed to 
restructure to improve its financial viability. Declines in mail volume 
and revenue, large financial losses, increasing debt, and financial 
obligations will continue to challenge USPS.
    This testimony provides (1) information on USPS's financial 
condition and forecast and (2) GAO's perspective on the need for USPS 
restructuring. In addition, questions and issues are included for 
Congress to consider regarding USPS's proposal to reduce delivery from 
6 to 5 days. This testimony is based on GAO's past and ongoing work, 
including its work on postal reform issues, its report adding USPS's 
financial condition and outlook to its High-Risk List, and updated 
information on USPS's financial condition and outlook.

               FINANCIAL CRISIS DEMANDS AGGRESSIVE ACTION

What GAO Found
    As mail volume declined by 35 billion pieces (about 17 percent) in 
fiscal years 2007 through 2009, USPS's financial viability 
deteriorated, with close to $12 billion in losses, and it does not 
expect total mail volume to return to its former level when the economy 
recovers. USPS forecasts that total mail volume will decline to 167 
billion pieces in fiscal year 2010--the lowest level since fiscal year 
1992, and 22 percent less than its fiscal year 2006 peak. It also 
projects a record loss of over $7 billion. Further, USPS has halted 
construction of most new facilities and expects to borrow $3 billion in 
fiscal year 2010, which would bring its total outstanding debt to $13.2 
billion, close to its $15 billion statutory limit. Looking forward, 
USPS projects that by fiscal year 2020, total mail volume will further 
decline by 16 percent, to the lowest level since 1986. Absent 
additional actions to cut costs and increase revenues, USPS expects 
financial losses will escalate over the next decade.




    Action is urgently needed in multiple areas by USPS and Congress to 
address USPS's pressing challenges so that it can achieve financial 
viability, including restructuring USPS operations, networks, and 
workforce to reflect changes in mail volume, revenue, and use of mail. 
The longer it takes for USPS and Congress to address USPS's challenges, 
the more difficult they will be to overcome. When GAO placed USPS's 
financial condition and outlook on its High-Risk List, it identified 
the following key actions USPS and/or Congress could take: reduce 
employee compensation and benefits; consolidate retail and processing 
networks; consolidate administrative field structure; generate revenue 
through new or enhanced products; change funding requirements for 
retiree health benefits; and realign delivery services. GAO will 
analyze USPS's proposal to reduce delivery from 6 to 5 days when it 
becomes available. Included in this testimony are questions and issues 
for Congress to consider regarding delivery changes. GAO will also be 
issuing its report later this spring that provides its perspective on 
USPS's financial crisis, as well as additional options for 
restructuring.
    Mr. Chairman and Members of the Subcommittee: I am pleased to 
participate in this hearing on the U.S. Postal Service's (USPS) 
financial condition, a topic we have been continually monitoring given 
USPS's deteriorating financial condition during fiscal year 2009. My 
statement will provide (1) information on USPS's financial condition 
and forecast and (2) our perspective on the need for USPS 
restructuring. In addition, we provide questions and issues for 
Congress to consider regarding USPS's proposal to reduce delivery from 
6 to 5 days.
    My statement is based upon our past and ongoing work, including our 
work on postal reform issues, our report adding USPS's financial 
condition and outlook to our High-Risk List, and updated information on 
USPS's financial condition and outlook. We conducted this performance 
audit in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives.

  USPS'S FINANCIAL CONDITION HAS DETERIORATED AND ITS OUTLOOK IS POOR

    As mail volume declined by 35 billion pieces (about 17 percent) in 
fiscal years 2007 through 2009, USPS's financial condition 
deteriorated, with close to $12 billion in losses, and it does not 
expect total mail volume to return to its former level when the economy 
recovers. This volume decline was largely due to the economic downturn 
and changing use of the mail, with mail continuing to shift to 
electronic communications and payments. In July 2009, we added USPS's 
financial condition and outlook to our High-Risk List and reported that 
USPS urgently needed to restructure to address its financial 
viability.\1\ Despite $6.1 billion in cost savings in fiscal year 2009 
as well as congressional action that relieved USPS of $4 billion in 
mandated payments to prefund postal retiree health benefits,\2\ USPS 
still reported a loss of $3.8 billion for the year. Also, USPS debt 
increased by the annual statutory limit of $3 billion, bringing 
outstanding debt to $10.2 billion at the end of fiscal year 2009.
---------------------------------------------------------------------------
    \1\ GAO, High-Risk Series, Restructuring the U.S. Postal Service to 
Achieve Sustainable Financial Viability, GAO-09-937SP (Washington, 
D.C.: July 28, 2009).
    \2\ A looming cash shortfall in 2009 necessitated last-minute 
congressional action to reduce USPS's mandated payments to prefund 
retiree health benefits from $5.4 billion to $1.4 billion. Pub. L. No. 
111-68, Sec. 164, 123 Stat. 2023 (Oct. 1, 2009).
---------------------------------------------------------------------------
    These declines along with large financial losses, increasing debt 
and financial obligations, are projected to continue to challenge USPS. 
Most recently, total mail volume for the first quarter of fiscal year 
2010 was down almost 4.5 billion pieces, a decrease of almost 9 percent 
over last year. For fiscal years 2010 and 2011, USPS is projecting 
annual deficits exceeding $7 billion and additional pressures to 
generate sufficient cash to meet its obligations. Further, USPS has 
halted construction of most new facilities and has budgeted $1.5 
billion in capital cash outlays (mostly for prior commitments), which 
is down from the average of $2.2 billion in the previous 5 fiscal 
years. USPS also expects to borrow $3 billion in fiscal year 2010, 
which would bring its total outstanding debt to $13.2 billion, close to 
its $15 billion statutory limit, which it could reach as early as 
fiscal year 2011. USPS projects that financial losses will escalate 
over the next decade, with cumulative losses of over $230 billion by 
fiscal year 2020 if its planned cost reduction and revenue generation 
initiatives are not implemented. (see fig.1).



    Further, USPS does not expect total mail volume to return to its 
former levels when the economy recovers. It projects that total mail 
volume will decline to 167 billion pieces in fiscal year 2010--a level 
not seen since fiscal year 1992, and 22 percent less than its fiscal 
year 2006 peak. By fiscal year 2020, USPS projects, at best, further 
volume declines of about 16 percent, to about 150 billion pieces, the 
lowest level since 1986 (see fig. 2).




  --First-Class Mail volume has declined 19 percent since it peaked in 
        fiscal year 2001 and USPS projects that it will decline by 
        another 37 percent over the next decade. (see fig. 3). This 
        mail is highly profitable and generates over 70 percent of the 
        revenues used to cover USPS overhead costs.
  --Standard Mail (primarily advertising) volume has declined 20 
        percent since it peaked in fiscal year 2007, and is projected 
        to remain roughly flat over the next decade. This class of mail 
        is profitable overall but lower priced, so it takes 2.5 pieces 
        of Standard Mail, on average, to equal the profit from the 
        average piece of First-Class Mail. Standard Mail volume was 
        affected by large rate increases in 2007 for flat-sized mail, 
        such as catalogs, and the recession that affected advertising 
        such as mortgage, home equity, and credit card solicitations. 
        These solicitations appear unlikely to return to former levels. 
        Standard Mail also faces growing competition from electronic 
        alternatives, increasing the possibility that its volume may 
        decline in the long-term.

        
        

    In addition to the projected losses caused by declining mail 
volume, USPS believes that stagnant revenue, costs of providing 
universal service, and rising workforce costs will also lead to losses.

 USPS AND CONGRESS NEED TO ACT AGGRESSIVELY TO ADDRESS FINANCIAL CRISIS

    USPS urgently needs to restructure to improve its current and long-
term financial viability. On March 2, 2010, USPS addressed these issues 
in its plan, entitled ``Ensuring a Viable Postal Service for America: 
An Action Plan for the Future,'' \3\ which identified seven key areas 
where-in it would need legislative changes or congressional support. 
Improving its financial viability is critical because USPS plays a 
vital role in the U.S. economy, and is at the core of a mailing 
industry valued at about a trillion dollars, according to USPS. 
Moreover, it is the largest civilian Federal agency, employing 
approximately 599,000 career employees as of December 31, 2009 and 
operating a total of about 38,000 facilities nationwide as of September 
30, 2009.
---------------------------------------------------------------------------
    \3\ USPS's plan and related material are available at http://
www.usps.com/strategicplanning/futurepostalservice.htm.
---------------------------------------------------------------------------
    We have previously concluded that restructuring is needed in 
multiple areas, including action and support by Congress, since no 
single change will be sufficient to address USPS's pressing challenges. 
According to USPS, even if it took all of the actions it could under 
existing law, it would still face unsustainable losses of at least $115 
billion by 2020. A major challenge for USPS is to cut costs and 
restructure quickly enough to offset unprecedented volume and revenue 
declines--particularly costs related to its workforce, retail and 
processing networks, and delivery services--so that it can cover its 
operating expenses. We have an ongoing review, as mandated by the 
Postal Accountability and Enhancement Act of 2006,\4\ to evaluate 
options and actions for the long-term structural and operational 
reforms of USPS. Due to the urgency of the USPS financial crisis, we 
plan to issue our study in April 2010, ahead of the December 2011 
statutory deadline.
---------------------------------------------------------------------------
    \4\ Pub. L. No. 109-435, Sec. 710 (Dec. 20, 2006).
---------------------------------------------------------------------------
    When we placed USPS's financial condition and outlook on our High-
Risk List, we identified the following key actions USPS and/or Congress 
could take: \5\
---------------------------------------------------------------------------
    \5\ GAO-09-937SP.
---------------------------------------------------------------------------
  --Reduce compensation and benefit costs through
    --retirements: Annually through 2020, about 5 percent of USPS 
            employees will be eligible and expected to retire, 
            according to USPS. That represents approximately 300,000 
            employees, about half of the workforce as of March 2, 2010.
    --lower benefit costs: USPS pays a higher percentage of employee 
            health benefit premiums than other Federal agencies (80 
            percent versus 72 percent, respectively). In addition, USPS 
            pays 100 percent of employee life insurance premiums, while 
            other Federal agencies pay about 33 percent.
  --Consolidate retail and processing networks
    --Remove excess capacity in the 600 mail processing facilities 
            nationwide, where processing capacity for First-Class Mail 
            exceeds processing needs by 50 percent.
    --Maximize use of lower-cost retail alternatives: Approximately 30 
            percent of USPS retail revenue currently comes through 
            alternate channels, such as stamps bought by mail, on the 
            Internet, and at grocery stores, indicating that customers 
            have begun shifting to such alternatives.
    --Reduce the network of 36,500 retail facilities, where maintenance 
            has been underfunded for years, resulting in deteriorating 
            facilities and a maintenance backlog. USPS recently 
            reported that it has more retail facilities than McDonalds, 
            Starbucks, and Walgreens combined. Further, it stated that 
            its post offices average about 600 visits per week, 
            representing only 10 percent of average weekly visits to 
            Walgreens.
  --Consolidate field administrative structure: Review the need for 74 
        district offices and 8 area offices.
  --Generate revenue through new or enhanced products: Use its pricing 
        and product flexibility to maximize profitable mail volume.
    In the past, we have also discussed, and the Postal Service has 
recently proposed, additional options for restructuring that would 
require congressional approval:
  --Change funding requirements for retiree health benefits.--USPS 
        asked Congress to revise the funding requirements for its 
        retiree health benefit obligation. USPS had difficulty making 
        its required payment to prefund retiree health benefits in 
        fiscal year 2009 and has warned that it may have similar 
        difficulty for fiscal year 2010. As noted, in fiscal year 2009, 
        a looming cash shortfall led to last-minute congressional 
        action to reduce USPS's required payments to prefund retiree 
        health benefits from $5.4 billion to $1.4 billion.
  --Realign delivery services with changing use of mail.--USPS has 
        asked Congress to allow it to reduce delivery from 6 days to 5 
        days per week, stating that eliminating Saturday delivery would 
        provide annual savings of about $3 billion.\6\ The Postal 
        Regulatory Commission (PRC) estimated in 2008 that eliminating 
        Saturday delivery would result in savings of about $1.9 
        billion, based on somewhat different assumptions regarding the 
        likely effects on mail volume and costs.
---------------------------------------------------------------------------
    \6\ USPS plans call for continuing providing window retail service 
and delivery to post office boxes on Saturday, as well as remittance 
mail service for business mailers.
---------------------------------------------------------------------------
    The Postmaster General stated in March 2010 that USPS plans to 
request a PRC advisory opinion on this change, which would lead to a 
public proceeding that would include input by interested parties. 
Before this plan could be implemented, Congress would need to stop 
including statutory restrictions contained in USPS annual 
appropriations that mandate 6-day delivery. Congress might wish to 
consider several questions regarding such a change:
  --How would eliminating Saturday delivery impact USPS's efforts to 
        grow mail volume and encourage commercial mailers to continue 
        using the mail?
  --How would eliminating Saturday delivery affect mail processing 
        costs? Salary and benefits for mail processing employees and 
        carriers?
  --What will be the expected effects on delivery service standards?
  --How will consumers and business customers be affected by a move to 
        5-day delivery? How does USPS plan to mitigate these effects?
  --How does USPS plan to communicate eliminating Saturday delivery and 
        other related changes to mailers and the public?
  --Will there be sufficient P.O. boxes to handle a potential spike in 
        demand for those customers wishing to pick up mail on 
        Saturdays?
  --How much lead time would be needed for USPS to modify its 
        operations and financial systems before eliminating Saturday 
        delivery?
  --What other options has USPS considered that could significantly 
        reduce costs without reducing delivery service?
    These issues need to be addressed in the expected USPS 5-day 
delivery proposal so that stakeholders fully understand the potential 
ramifications of these changes. More broadly, USPS faces larger issues 
with regard to restructuring and its financial viability. The longer it 
takes for USPS and Congress to address USPS's challenges, the more 
difficult they will be to overcome.
    Mr. Chairman, this concludes my prepared statement. I would be 
pleased to answer any questions that you or other Members of the 
Subcommittee may have.

    Senator Durbin. Thanks a lot, to the panel.
    Now, we all understand what's happened to the Postal 
Service--the loss of volume, the loss of revenue and such--but, 
Mr. Williams thinks he's found a winning lottery ticket here, 
for $75 billion. And before we start talking about the pain of 
cutting, I've got to ask Ms. Goldway what the Postal Regulatory 
Commission is doing about this opinion of Mr. Williams and the 
$75 billion.
    Ms. Goldway. The Postal Service has asked, under a 
provision in the Postal Accountability Act, to--asked the 
Commission to hire an independent actuarial firm to review this 
issue and to provide a report to the Commission and to the 
public on the reliability of the inspector general's estimate. 
And we have issued a statement of work and expect to get a 
contract with an independent actuary in place in a little more 
than 30 days, perhaps 45 days, and we'll determine, then, just 
how long it takes, but we certainly want to be part of the 
discussion about the financial reliability of that proposal 
before it moves forward.
    I should also mention that, as part of a request that was 
made by Chairman Lynch of the House subcommittee last year, we 
were asked to look at the Healthcare Retiree Benefit Fund, and 
our actuarial review of that issue pointed to a position where 
the Postal Service, under assumptions that were somewhat 
different from the OPM's assumptions, but more in line with 
general actuarial assumptions, could be paying at least $2 
billion less each year, and still have the same amount of 
funding for the retiree health payments at the end of the 10-
year period that was required under the law. So, I think that, 
in both cases, the research that we provide can give you 
options in the decisions that you might make about how to 
proceed.
    Senator Durbin. So, can you tell me the timetable there on 
the $75 billion issue?
    Ms. Goldway. Well, unfortunately, we don't have a response 
from the actuarial yet as to how much time it will take. We 
think we can do it within 45 days. We're certainly going to 
work with our bidders to see who can provide us that 
information as quickly as possible.
    Senator Durbin. And what is the next step after PRC has 
made its judgment on this estimate?
    Ms. Goldway. We report the--our findings to the Postal 
Service and share it with the public. And then, it's really up 
to the other players, the--in the administration or in 
Congress, to determine what information they feel is most 
reliable to act on.
    Senator Durbin. So, let's assume, for the sake of 
discussion, that you find it's true, they've overpaid----
    Ms. Goldway. Right.
    Senator Durbin [continuing]. $75 billion. Can the Postal 
Service recapture that money?
    Ms. Goldway. I think if we find that, we will certainly 
present an argument that it would be fair for the Postal 
Service to recapture that money. Just how it's done, in terms 
of transferring funds from year to year or all at once, would 
be something that I think the Congress and OPM and OMB would 
have to participate in.
    Senator Durbin. Mr. Williams, you didn't mention the $75 
billion in your testimony. Are you having second thoughts?
    Mr. Williams. We are not having second thoughts, sir. The--
I--actually, I did try to allude to it, but I was trying to 
cover as much ground as the hearing title suggested.
    Senator Durbin. And so, I won't go into a great deal of 
detail on that, but I assume that that is what's being debated 
currently, with the independent actuaries and such, at the 
Postal Regulatory Commission.
    Mr. Williams. It is. After our finding on the healthcare 
overpayment, Congress asked that OPM and OMB and the Postal 
Service get together to try to come up with a fiscally 
responsive--responsible proposal for legislation. I believe 
this issue has been added to that issue so that there'll be a 
comprehensive solution that's to be developed by the three of 
them and presented to Congress.
    Senator Durbin. One of the things you talked about is a--
and I underlined it--``exaggerated healthcare inflation 
percentage.'' It was--which Senator Collins is more aware of 
than I am.
    Mr. Williams. Yes.
    Senator Durbin. But, are you suggesting that the 
anticipated cost of the healthcare system of the Postal Service 
should be lower, that they have anticipated more expenses than 
you believe are warranted?
    Mr. Williams. OPM has set a growth rate for the--for future 
costs, of 7 percent a year. We benchmarked that against the 
private sector, and we discovered that it was the general 
consensus--the overwhelming general consensus--that 5 percent 
was a more realistic growth rate. That's also what the 
Department of Health and Human Services (HHS) uses for Medicare 
growth rate. That--the delta there was $13.2 billion. OPM set 
about downgrading its estimates much more closely to that 
growth rate, and then they've gone into these three-party talks 
to try to understand what to do.
    Senator Durbin. And if it is decided to take a lower growth 
rate, then, of course, the annual payment is going to be 
reduced accordingly.
    Mr. Williams. Yes, sir.
    Senator Durbin. And what's the timetable on that decision?
    Mr. Williams. There was not a timetable set. I believe the 
meetings have begun. There have been one involving the 
principals, and I believe there'll be some followup meetings--
--
    Senator Durbin. Well, it sounds to me like we have two or 
three major issues outstanding here that will determine whether 
or not we have to make this decision about reducing service.
    Mr. Williams. These are very large, very serious----
    Senator Durbin. Seventy-five billion dollars overpayment--
question mark--Postal Regulatory Commission. Two billion 
dollars that you mentioned, Ms. Goldway, that may be an 
overpayment. Perhaps an exaggeration on the anticipated 
healthcare benefits down the line. So, it seems to me that 
before we start making dramatic changes in the Postal Service, 
some of these questions need to be answered. I would think that 
would be reasonable.
    But, Mr. Herr, I think what you're saying is, ``But, if you 
look at the economics of Postal Service''----
    Mr. Herr. Right.
    Senator Durbin [continuing]. ``Let's get real.''
    Mr. Herr. Well, I think part of it, looking at the long-
term analysis--that was part of the study the Postal Service 
just released in March, they had some consulting firms make a 
projection out to 2020, and one of the things that we noted 
there is that they're expecting a long-term decline, in terms 
of the more profitable mail and how mail is used. So, as we 
stand back and look at it, we think that it's a good 
opportunity to take that footprint into consideration, in terms 
of the network and workforce.
    Senator Durbin. I'm going to violate every law--or every 
rule that I learned in law school and ask you a question 
anyway. How big a problem is Congress, when it comes to this 
issue about the future of the Postal Service?
    Mr. Herr. Well, as you know, there's often instances where 
there are prohibitions put in place, in terms of closures and 
things of that nature.
    Senator Durbin. Guilty, as charged.
    And it's a tough issue. And we realize that it's a 
difficult issue, but it's also one that--I think, as you look 
at these broader, longer-term trends, it's important to look at 
the Postal Service and then think about what the Service is, 
and how that could be realigned with the demand for mail.
    I tried to pose this question to the Postmaster General, 
about the business model for the Postal Service in this 
changing world. And I know that's a challenge. I don't know 
that many executives with his responsibility could really 
envision how to reinvent, to keep up with it. And you kind of 
see some elements here that are obvious, in terms of 
infrastructure and the future.
    Mr. Herr. Well, and I think--in the hearing today, there's 
been some good discussion about retail alternatives, in terms 
of moving some of those into places like supermarkets or 
pharmacies, where people are already going, that would be an 
opportunity to save. Also, on the processing side, just looking 
at what's needed to handle the mail volumes now, and then 
what's projected.
    Senator Durbin. Thanks a lot.
    Senator Collins, we have two votes starting at 4:15, so----
    Senator Collins. I'll be fast.
    Senator Durbin [continuing]. Proceed.
    Senator Collins. The witnesses will be happy about that.
    Ms. Goldway, just for clarification, the process that you 
go through, which may take as long as 6 months or 9 months--
assuming Congress changed the law to allow the Postal Service 
to make its own decision on delivery, would the Postal Service 
be precluded from going ahead with that decision until the PRC 
has given its judgment?
    Ms. Goldway. It's my understanding that the Postal Service 
has to seek our advisory opinion. It doesn't have to follow 
that opinion, but it has to seek our opinion. And the process 
of public input becomes really valuable.
    So, for instance, in this recent case, where the Postal 
Service wanted to close what they call ``stations'' and 
``branches,'' the level of public participation and concern 
that was raised about the fact that customers weren't getting 
the input that they wanted, and that they wanted postal 
services maintained in the offices, slowed down the Postal 
Service's decisionmaking, and they began to rethink just how 
they were going to realign their postal network, and the public 
process was helpful.
    We believe the public process will be helpful regardless of 
what the Congress does. But, we do think that the public 
process will probably help you, because this is a very serious 
issue. And as you had said earlier, the brand of the Postal 
Service, its commitment to having people on the street 6 days a 
week, its notion of what it is in the future, is really 
threatened by the reduction from 6 to 5 day.
    One of the interesting figures we heard was that young 
people value 6--the 6th day more than older people, even though 
they don't use the mail as much, that's the day they want it. 
So, if you want young people to keep going into the mail, this 
process may not be the right business model.
    Those of the kinds of issues we are going to explore when 
we have our hearings.
    Senator Collins. Thank you.
    Mr. Williams, I am troubled, obviously, by the prospect of 
the Postal Service laying off 13,000 people in this terrible 
economy, letter carriers all across the United States. And I'm 
particularly troubled by that because there are reports--and 
you have done, I believe, one of the reports--concluding that 
what is out of whack in the personnel costs of the Postal 
Service are the benefit levels for health insurance and life 
insurance. I mentioned the 100-percent payment for premiums for 
life insurance, versus 3--33 percent for the Federal employees.
    Has there been any analysis done of relative savings? For 
example, if you cap the 6-day delivery and didn't have to lay 
off 13,000 people who are going to have a hard time finding 
work, but instead, you brought the benefit structure into line 
with the benefits that Federal employees receive who are 
participating in the same kinds of programs. Has there been any 
sort of relative analysis?
    Mr. Williams. To my knowledge, there has not been. We're--
the actual proposal is 2 months away, and it may contain 
something like that. We're unaware of its contents that will go 
to the PRC.
    We did do that body of work, and that was our finding. We 
would be pleased to work with your staff to try to make a--that 
sort of determination. That would certainly be an interesting 
discovery.
    Now, those agreements are contained in the labor----
    Senator Collins. Yes.
    Mr. Williams [continuing]. Agreements, and would have to be 
shifted. But, at this point, I know that the leadership of the 
unions is certainly looking out for the well-being of their 
people, and they might well be interested in that, as well, 
and--when they go into negotiations.
    Senator Collins. I think that would be helpful information 
for us to have.
    Mr. Herr, have you looked at that issue, by chance? The----
    Mr. Herr. We have not looked at it. I remember at the 
Senate hearing last January, you and Senator Carper were 
there--I think the Postmaster General offered an estimate of a 
$700 million annual savings if something like that were to be 
adjusted. But, we've not done any specific analysis on that.
    Senator Collins. Okay. Thank you.

                              OVERPAYMENT

    I want to clarify two issues, just to make sure that I 
personally understand the issues before us. Mr. Williams, when 
you came up with your $75 billion estimate of an overpayment, 
is that an overpayment for the pensions of retired postal 
workers, not to be confused with the money that goes into the 
Retiree Health Benefits Fund?
    Mr. Williams. It is, Senator; that regards--there was an 
earlier report that had to do with the inflationary growth and 
the overpayment into the Healthcare Fund. This most recent 
report, regarding the $75 billion, regards the Pension Fund.
    Senator Collins. I think that's very important for us----
    Mr. Williams. Yes.
    Senator Collins [continuing]. To understand, that we're 
talking about two different pots of money here.
    And, Mr. Herr, what is your analysis on both of these 
issues, on whether or not there is an overpayment of such a 
staggering amount to the Pension Fund for retirees? Let's deal 
with that issue first.
    Mr. Herr. On that particular issue, I've asked our 
financial folks and our chief actuary to look at this, and they 
noted--and it's also noted in the back of the inspector 
general's report--that the board of actuaries reviewed that, 
and we believe that their assessment is correct, that OPM's 
methodology was valid and was consistent with the law.
    Senator Collins. And so, you would disagree with OPM's 
assessment, in----
    Mr. Herr. No, we believe that OPM's assessment is correct.
    Senator Collins. I'm sorry. So, you agree with OPM, and you 
do not agree with Mr. Williams' assessment, that his study--I'm 
not trying to create conflict here, I'm just trying to get an 
understanding. I'm really not.
    Mr. Herr. Yes.
    Senator Collins. Is that accurate? Okay.
    And it's my understanding, though--we'll go back to OPM--
that OPM has stuck to that decision, as has OMB.
    I would note, Mr. Chairman, that in our conference report 
last year, we asked the Postal Service to work with OPM and OMB 
to come to us with a proposal and an answer to this, and I 
think we need to push them and follow up on that.
    Mr. Herr, the second issue is the payment to the Retiree 
Health Benefits Fund----
    Mr. Herr. Right.
    Senator Collins [continuing]. And that is the stream of 
payments established by the 2006----
    Mr. Herr. Yes.
    Senator Collins [continuing]. Act. And I would like your 
best judgment on, what should we do about that issue? I won't 
go on with my opinion, but I'd like your best judgment.
    Mr. Herr. Yes.
    Senator Collins. What's the best way for us to handle that 
issue?
    Mr. Herr. Senator Collins, we have a report--I mentioned 
our business model report--that we're expecting to release in 
about 3 weeks, that has a discussion of that. We talk about 
several approaches for Congress to consider. One, we take a 
look at what the Postal Service has proposed, which is a pay-
as-you-go model. We also looked at a reamortization and we lay 
out in a table what that would mean, in terms of the costs. We 
provide, I think, a clear explanation, so Congress has a sense 
of what's involved here, what the magnitude of the funding is, 
to help you make some really tough policy decisions about where 
things are now, where they stand, and then where you might want 
to go, going forward.
    Senator Collins. And we'll get that study shortly, then?
    Mr. Herr. Yes, you will.
    Senator Collins. Great. I think that's going to be very 
helpful.
    My final question, since I know our time is short. Mr. 
Herr, isn't it a problem if we come up with an amortization 
schedule that suspends payments for several years and then 
ramps them up? Is there any reason to believe that the Postal 
Service, given what you've described about the projections for 
its volume and the pressure, would be able to better afford a 
greater payment, say, beginning 4 or 5 years from now, than 
would be the case under the current law?
    Mr. Herr. Everything we've seen suggests that they're going 
to have difficulty, now or in the future, with some of these 
payments. They're large numbers, but they're also very large 
obligations--500,000 current retirees; we talked about 300,000 
people going into retirement in the next 10 years. So, it's 
really important to assess what they're able to do and then try 
to find the amount that will be a reasonable payment toward 
those obligations.
    Senator Collins. Thank you very much.
    Thank you very much, Mr. Chairman.
    Senator Durbin. So, Ms. Goldway, as I understand it, the 
Postal Service asked the Postal Regulatory Commission to study 
the 5-day service model.
    Ms. Goldway. Yes.
    Senator Durbin. And I think you concluded by saying, ``But, 
they don't have to pay much attention to what you conclude.''
    Ms. Goldway. The Postal Regulatory Act--the Postal 
Regulatory Commission, under the act, gives us some very clear, 
specific responsibilities and some advisory responsibilities. 
And in this case, with regard to the nature of service, we have 
an advisory responsibility.
    On the other hand, every year we have to make a report on 
whether the Postal Service has complied with the law, and that 
means whether it's met its obligations to provide an efficient 
and fair level of universal service.
    So, if they don't take our advice on this, and, at the end 
of the year, they've entered into an activity that we deem 
has--is less than universal service, we could find them out of 
compliance and require them to start up some new activity 
again. But, we could not tell them, at the time of our advisory 
opinion, what to do.
    So, it's--our--we--just as the Postal Service is trying to 
learn how to operate under this new law, which has given them 
price flexibility and product flexibility, but at the time of 
the--of a recession, we are learning, as well, how to regulate 
the Postal Service with both new law--new responsibilities and 
power, but less power than we had in certain areas with regard 
to rates, before. It's a balancing act that we will have to 
implement.
    Senator Durbin. I'd ask who wrote the law, but I know. So, 
if the Postal Service ignores your advice, they may have a day 
of reckoning ahead of them, when you make your annual report 
and have the power to order them to do certain things.
    Ms. Goldway. That's right.
    Senator Durbin. And I guess I'd have to say, bluntly, that 
Congress can ignore both of you. And for 27 years, we've been 
including a sentence, which no one has noticed, in this 
appropriation bill, which is, ``Maintain 6-day service and 
rural service across America at 1983 standards.'' I don't think 
it was ever brought to my attention until a few weeks ago, 
because it became so routine. But, it is within the power of 
Congress in general, perhaps this subcommittee, to make that 
decision, regardless of what the PRC, Postal Regulatory 
Commission, or the Postal Service decides. I don't want to 
speak for----
    Ms. Goldway. Right.
    Senator Durbin [continuing]. Anyone else on the 
subcommittee. I certainly would like to hear an evaluation of 
this proposal from those who look at it seriously. You talked 
about facing this in the past and asking some hard questions 
about what it meant and whether it saved as much money as 
proposed, and so forth. That is all reasonable, and I think 
we're dutybound to try to reach that.
    Now, what about this idea--and I think Mr. Herr referred to 
it, about the quiet summer months--what about this idea of a 
pilot project on 5-day delivery. Can this be done? Does the 
Postal Regulatory Commission have to be part of that decision?
    Ms. Goldway. I would venture to say, if the pilot program 
is envisioned as something that would potentially be 
implemented nationwide, then it would be something that would 
have to come to us for prior approval, as well. If----
    Senator Durbin. Well, it's the nature of----
    Ms. Goldway [continuing]. It's just an experiment----
    Senator Durbin. It's the nature of a pilot----
    Ms. Goldway [continuing]. Under the law, there's a certain 
level of experiment that they can undertake without our direct 
review.
    Senator Durbin. That's the nature of a pilot program, or a 
demonstration project, is to see what the impact will be in the 
real world. I don't know if it's even realistic to decide that, 
you know, a few counties in the----
    Ms. Goldway. I'm reluctant----
    Senator Durbin [continuing]. United States will try this.
    Ms. Goldway. Yeah. I'm reluctant, without advice of 
counsel, to be specific, but it does seem, to me, smaller, 
discrete experiments with service certainly would be possible. 
After all, while the Postal Service does provide 6-day delivery 
pretty much uniformly across the country, there are areas where 
it does not now provide 6-day delivery--either it's a business 
area, or it's an extremely rural area--so that its opportunity 
to provide 5-day delivery in some experimental fashion, I 
think, would be possible without the kind of comprehensive 
review that we require, or that you would require.
    Senator Durbin. Well, here's the way I'd see it, at this 
point. And I defer to my colleague to close here, as we hustle 
off to vote.
    As I see it, there are two or three big questions out there 
about the current economic status of the Postal Service: the 
$75 billion question, the $2 billion question, which you've 
raised, questions about healthcare benefits that could have a 
direct impact on the immediacy of this decision.
    Long term, I think Mr. Herr is right, we have to look at 
the Postal Service evolving into a different agency as it faces 
new challenges that cost money and create more competition.
    I'd like to know what the Postal Regulatory Commission 
concludes, on the issue of 5-day service, before making a final 
decision. I am not against the idea of a pilot project, if that 
appears to be feasible or necessary, to see what the actual 
reaction of postal consumers would be if you tried it in a 
given area, and to try to measure from that whether this makes 
good public policy.
    We're kind of stuck. It's kind of go or no-go, when it 
comes to the appropriation bill, in whether we include the 
language or we don't include it. And, thank goodness, I have 
the wise counsel of the Senator from Maine to help me reach 
that conclusion.
    And I'll let her have the last word.
    Senator Collins. Thank you, Mr. Chairman. Those are my last 
words.

                          SUBCOMMITTEE RECESS

    Senator Durbin. Thanks, everybody. Appreciate your 
attending this hearing.
    [Whereupon, at 4:25 p.m., Thursday, March 18, the 
subcommittee was recessed, to reconvene subject to the call of 
the Chair.]
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