    [House Hearing, 112 Congress]
    [From the U.S. Government Publishing Office]

                PUSHING THE ENVELOPE: THE LOOMING CRISIS AT USPS

    =======================================================================

                                    HEARING

                                   before the

                       SUBCOMMITTEE ON FEDERAL WORKFORCE,
                      U.S. POSTAL SERVICE AND LABOR POLICY

                                     of the

                             COMMITTEE ON OVERSIGHT
                             AND GOVERNMENT REFORM

                            HOUSE OF REPRESENTATIVES

                          ONE HUNDRED TWELFTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 MARCH 2, 2011

                                   __________

                                Serial No. 112-9

                                   __________

    Printed for the use of the Committee on Oversight and Government Reform

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

                                   ----------
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    67-366 PDF                       WASHINGTON : 2011

    For sale by the Superintendent of Documents, U.S. Government Printing
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                  COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                     DARRELL E. ISSA, California, Chairman
    DAN BURTON, Indiana                  ELIJAH E. CUMMINGS, Maryland,
    JOHN L. MICA, Florida                    Ranking Minority Member
    TODD RUSSELL PLATTS, Pennsylvania    EDOLPHUS TOWNS, New York
    MICHAEL R. TURNER, Ohio              CAROLYN B. MALONEY, New York
    PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of
    JIM JORDAN, Ohio                         Columbia
    JASON CHAFFETZ, Utah                 DENNIS J. KUCINICH, Ohio
    CONNIE MACK, Florida                 JOHN F. TIERNEY, Massachusetts
    TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
    JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
    JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
    ANN MARIE BUERKLE, New York          GERALD E. CONNOLLY, Virginia
    PAUL A. GOSAR, Arizona               MIKE QUIGLEY, Illinois
    RAUL R. LABRADOR, Idaho              DANNY K. DAVIS, Illinois
    PATRICK MEEHAN, Pennsylvania         BRUCE L. BRALEY, Iowa
    SCOTT DesJARLAIS, Tennessee          PETER WELCH, Vermont
    JOE WALSH, Illinois                  JOHN A. YARMUTH, Kentucky
    TREY GOWDY, South Carolina           CHRISTOPHER S. MURPHY, Connecticut
    DENNIS A. ROSS, Florida              JACKIE SPEIER, California
    FRANK C. GUINTA, New Hampshire
    BLAKE FARENTHOLD, Texas
    MIKE KELLY, Pennsylvania

                       Lawrence J. Brady, Staff Director
                    John D. Cuaderes, Deputy Staff Director
                         Robert Borden, General Counsel
                           Linda A. Good, Chief Clerk
                     David Rapallo, Minority Staff Director

    Subcommittee on Federal Workforce, U.S. Postal Service and Labor Policy

                       DENNIS A. ROSS, Florida, Chairman
    JUSTIN AMASH, Michigan, Vice         STEPHEN F. LYNCH, Massachusetts,
        Chairman                             Ranking Minority Member
    JIM JORDAN, Ohio                     ELEANOR HOLMES NORTON, District of
    JASON CHAFFETZ, Utah                     Columbia
    CONNIE MACK, Florida                 GERALD E. CONNOLLY, Virginia
    TIM WALBERG, Michigan                DANNY K. DAVIS, Illinois
    TREY GOWDY, South Carolina

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on March 2, 2011....................................     1
    Statement of:
        Donahoe, Patrick, postmaster general, U.S. Postal Service;
          Ruth Goldway, chairman, Postal Regulatory Commission; and
          Phil Herr, Director, Physical Infrastructure Issues,
          Government Accountability Office...........................    21
            Donahoe, Patrick.........................................    21
            Goldway, Ruth............................................    40
            Herr, Phil...............................................    51
        Sampey, Jim, executive vice president and chief, operation
          officer, Valpak; Arthor Sackler, coordinator, Coalition for
          a 21st Century Postal Service, Sackler Policy Services,
          LLC; and Frederic Rolando, director of legislative and
          political affairs, National Association of Letter Carriers
          (AFL-CIO)..................................................    85
            Rolando, Frederic........................................   126
            Sackler, Arthor..........................................   112
            Sampey, Jim..............................................    85
    Letters, statements, etc., submitted for the record by:
        Connolly, Hon. Gerald E., a Representative in Congress from
          the State of Virginia, prepared statement of...............    16
        Donahoe, Patrick, postmaster general, U.S. Postal Service,
          prepared statement of......................................    24
        Goldway, Ruth, chairman, Postal Regulatory Commission:
            Letter dated September 16, 2004..........................    76
            Prepared statement of....................................    42
        Herr, Phil, Director, Physical Infrastructure Issues,
          Government Accountability Office, prepared statement of....    53
        Issa, Hon. Darrell E., a Representative in Congress from the
          State of California:
            Prepared statement of....................................    12
            Washington Times op-ed...................................     9
        Rolando, Frederic, director of legislative and political
          affairs, National Association of Letter Carriers (AFL-CIO),
          prepared statement of......................................   129
        Ross, Hon. Dennis A., a Representative in Congress from the
          State of Florida, prepared statement of....................     4
        Sackler, Arthor, coordinator, Coalition for a 21st Century
          Postal Service, Sackler Policy Services, LLC, prepared
          statement of...............................................   114
        Sampey, Jim, executive vice president and chief, operation
          officer, Valpak, prepared statement of.....................    87

                PUSHING THE ENVELOPE: THE LOOMING CRISIS AT USPS

                                  ----------

                            WEDNESDAY, MARCH 2, 2011

                      House of Representatives,
        Subcommittee on Federal Workforce, U.S. Postal
                              Service and Labor Policy,
                  Committee on Oversight and Government Reform,
                                                        Washington, DC.
        The subcommittee met, pursuant to notice, at 1:33 p.m., in
    room 2154, Rayburn House Office Building, Hon. Dennis A. Ross
    (chairman of the subcommittee) presiding.
        Present: Representatives Ross, Amash, Jordan, Chaffetz,
    Mack, Walberg, Gowdy, Lynch, Norton, Connolly, and Davis.
        Also present: Representatives Issa and Cummings.
        Staff present: Ali Ahmad, deputy press secretary; Robert
    Borden, general counsel; Molly Boyl, parliamentarian; Lawrence
    J. Brady, staff director; Benjamin Stroud Cole, policy advisor
    and investigative analyst; Howard A. Denis, senior counsel;
    Gwen D'Luzansky, assistant clerk; Adam P. Fromm, director of
    Member liaison and floor operations; Linda Good, chief clerk;
    Ryan Little, manager of floor operations; Justin LoFranco,
    press assistant; Jeffrey Post and James Robertson, professional
    staff members; Laura L. Rush, deputy chief clerk; Peter Warren,
    policy director; Kevin Corbin, minority staff assistant; Jill
    Crissman and William Miles, minority professional staff
    members; Carla Hultberg, minority chief clerk; and Mark
    Stephenson, minority senior policy advisor/legislative
    director.
        Mr. Ross. Good afternoon. I would like to welcome everybody
    to the inaugural subcommittee meeting of the Federal Workforce,
    U.S. Postal Service and Labor Policy.
        I will ask the committee to come to order and, as we have
    done in the Oversight Committee and its subcommittees, I will
    start by reading our mission statement. We exist to secure two
    fundamental principles: first, Americans have a right to know
    that the money Washington takes from them is well spent; and
    second, Americans deserve an efficient and effective government
    that works for them. Our duty on the Oversight and Government
    Reform Committee is to protect these. Our solemn responsibility
    is to hold government responsible to taxpayers, because
    taxpayers have a right to know what they get from their
    government. We will work tirelessly in partnership with citizen
    watchdogs to deliver the facts to the American people and bring
    genuine reform to the Federal bureaucracy. This is the mission
    of the Oversight and Government Reform Committee.
        I will start off. We will do opening statements from the
    chair, from the ranking member, then the chair of the whole
    committee and the ranking member of the whole committee I think
    may be here. We may have to adjourn for votes in the middle. If
    we do, I just ask for your patience. It will take about a half
    hour or so, and then we will be back and continue on.
        With that, I will start off with my opening statement.
        We are here today to discuss the looming crisis at the U.S.
    Postal Service. Today, the demand for traditional first class
    mail continues to decline. Postal Service deficits continue to
    rise, and competition and benefit costs continue to account for
    approximately 80 percent of the Postal Service's operating
    expenses.
        The Postal Service has said it will lack the necessary
    funds to make a required payment to pre-fund its retiree health
    care benefits that is due at the end of September. The
    continued imbalance between revenues and expenses means the
    taxpayers could ultimately be asked to bail out the Postal
    Service.
        This hearing presents an opportunity for lawmakers to hear
    important testimony from the front lines of the postal industry
    on how best to strengthen the Postal Service.
        For many years the Postal Service has delivered mail 6 days
    a week to virtually every home in America, including over 170
    billion pieces of mail in 2010 alone. But the Postal Service
    suffered from an operating deficit of $8\1/2\ billion in 2010
    and projects further losses into the future.
        The ever-increasing reach of the Internet and digital
    media, and the deep economic recession are the primary drivers
    of a rapid recent decline in mail volume. It is now clear that
    the need for work force reductions and other cost-cutting
    measures must be the primary focus of the Postal Service, its
    labor unions, and this Congress in order to improve the
    financial stability of this venerable institution.
        Everyone that has a stake in the viability of the Postal
    Service must work together to find solutions. Postmaster
    General Patrick Donahoe recently outlined the Postal Service
    vision for a return to profitability. I commend you, sir, on
    that report and your commitment to reducing costs by
    undertaking major organizational restructuring, reviewing how
    best to provide retail postal services and implementing
    automation to improve delivery efficiency.
        Today, the Postal Service is negotiating labor contracts
    with two union groups representing postal employees. While some
    postal employee unions have cooperated on efforts to reduce the
    work force through attrition and incentives for early
    retirement, those efforts simply have not resulted in the
    changes necessary to maintain a self-funding Postal Service.
    Realigning the postal work force by reexamining labor
    agreements must be part of the strategy to improve the Postal
    Service fiscal foundation.
        Congress has an obligation to make statutory changes, if
    necessary, which will allow the Postal Service to address its
    own budget imbalance. We need to empower you. However,
    proposals for providing short-term fiscal relief, such as
    modifying retiree health benefits, pre-funding payments, or
    refunding so-called overpayments over the Civil Service
    Retirement System and the Federal Employee Retirement System do
    not address the long-term systemic problem and solvency issues
    that must be tackled in order to address the Postal Service
    will achieve long-term financial stability.
        Without a thorough reform of all aspects of the Postal
    Service's business model, there could be little hope that it
    will return to profitability in the near- or long-term future.
    The looming fiscal crisis of the Postal Service can no longer
    be ignored; we have kicked that can far enough. I have the
    responsibility, no, we have the responsibility to change course
    and must consider all possible solutions.
        I thank the witnesses for appearing here today and I look
    forward to their testimony.
        I now would like to recognize the distinguished ranking
    member from Massachusetts, Congressman Lynch, for his opening
    statement.
        [The prepared statement of Hon. Dennis A. Ross follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Lynch. Thank you, Mr. Chairman. Let me begin by
    congratulating you, Chairman Ross, on your selection as the
    chairman of this important subcommittee, and I want to thank
    you for holding today's hearing, which shows your keen
    awareness of the critical state of affairs currently
    confronting the U.S. Postal Service.
        While we have recently seen a moderate uptick in the
    economy and there are some indicators that suggest that
    standard mail or advertising mail is rebounding, our Nation's
    most trusted and prominent public institution continues to fall
    upon very difficult times. It is no secret that as more
    Americans use the Internet and email to conduct business and
    communicate, the less they use hard copy mail.
        Yet, even in light of declining mail volume, I am sure
    there are scores of people that would agree with me that there
    is still great value in the traditional mail system. The Postal
    Service generated over $67 billion in annual revenue in fiscal
    year 2010 and employed roughly 58,000 workers in the delivery
    of 170.6 billion pieces of mail to some 150 million residences,
    businesses, and post boxes 6 days a week. Overall, the Postal
    Service is the cornerstone of a trillion dollar industry and
    supports over 7\1/2\ million private sector American jobs,
    which highlights the vital role that the Postal Service plays
    in our overall economy.
        Given the extraordinary financial challenges the Postal
    Service presently faces, it is absolutely necessary, and I
    agree, that we collectively, and by collectively I am referring
    to postal management, workers, mailers, as well as the
    administration and this Congress, come to the realization that
    there will have to be some difficult decisions made rather
    quickly in order to address the Postal Service's current
    financial situation.
        However, before we tackle issues such as changing delivery
    frequency and cutting services, laying off hardworking
    Americans, there are certainly some more palatable actions we
    should consider first. For example, we need to revisit the
    Postal Service's arbitrary and fixed retiree health benefit
    payment schedule, which prevents the organization from
    accounting for the dramatic shifts in demand of work force size
    that it has experienced in recent years. Simply requiring the
    Postal Service to tackle the obligations at such an aggressive
    pace is unheard of in the private sector and continues to be a
    driving force behind the Postal Service's dismal fiscal
    performance.
        Additionally, questions continue to remain regarding both
    the Postal Service's actual Civil Service Retirement System and
    its Federal Employee Retirement System obligations. For this
    reason, I intend to reintroduce legislation in the coming days
    similar to what I offered last Congress on these issues, as
    well as on a couple of other substantive postal-related policy
    matters. However, in the meantime, I expect the Postal Service
    to continue to use its existing authorities to lower
    expenditures, raise revenues, and put forth fresh innovation in
    terms of both its competitive and its market dominant products
    and services.
        Further, the Government Accountability Office has recently
    competed work on a report that I had requested last Congress on
    the modernization of foreign posts and lessons learned, which I
    hope will also provide some useful information and novel ideas
    as we work on the Postal Service's long-term viability.
        Mr. Chairman, I look forward to hearing from today's
    witnesses about their tangible and pragmatic suggestions or
    solutions for how best to return the Postal Service to
    financial solvency. After 4 years of operating deficits
    amounting to a cumulative loss in its 4 years of $20 billion
    and a nearly tapped out borrowing authority, we can no longer
    afford to kick this can down the road on this issue. Again, I
    thank you for holding this hearing and I again congratulate you
    on your chairmanship, and I look forward to hearing from our
    witnesses and I yield back the balance of my time.
        Mr. Ross. Thank you, Mr. Lynch, and I too look forward to
    working with you in this regard.
        Now I would like to recognize the distinguished gentleman
    from California, Chairman of the Oversight and Government
    Reform Committee, Mr. Issa.
        Mr. Issa. Thank you, Chairman. Thank you for holding this
    important hearing.
        Above all else, the Government Oversight and Reform
    Committee is in fact the legacy committee of the Postal
    Committee. We take that seriously, that it is a primary piece
    of legislative authority and responsibility.
        Since 1970, this committee has overseen an independent
    agency responsible for its own balance sheet and profitability.
    There have been good years and bad years in that time, but no
    decade has been harder on the Post Office than the last decade.
    There has been a 20 percent drop in postal volume over that
    period. The Post Office has lost $20 billion, going from having
    a relatively handsome surplus to being up against its borrowing
    limit.
        We are here today to begin a process with the postmaster
    and other stakeholders in finding a way to maintain certain
    prerequisites that this committee and the American people have
    counted on for over 200 years. First of all, the delivery of
    mail to every point in America. Second of all, the delivery of
    a level of service that Americans have come to expect. If at
    all possible, we want that to include all categories of mail,
    all types, and all delivery dates, meaning 6 days a week is a
    goal if we can achieve it.
        We also have an obligation to the American people to
    deliver value. The cost of mail is a cost to American commerce
    and to the American people, so every time there is an increase
    in postal rates, it is to the detriment of American efficiency
    and disposable income to the American people.
        Last, and most importantly, this committee is dedicated to
    sustainability. The Post Office is not an organization you can
    have 1 day, not have the next, and put back up again. It has
    been there since our founding. It is a mandate of Congress, in
    my opinion, since our founding, and it is memorialized in the
    Constitution. No Congress has ever suggested that we don't need
    a Post Office, and this will not ever be one in this committee.
        Postmaster general, I appreciate the fact that you have
    come in and re-looked anew at your predecessor's initial ideas,
    and I have seen some innovative and, I think, very worthwhile
    suggestions you have made, and some of them are tough. As we
    were talking before we came out here, the good news is there
    are at least two post offices that need to be closed in every
    congressional district in America. Let's hope there is not one
    or three in mine. [Laughter.]
        I want to commend the Post Office legacy of finding ways to
    pare down over 200,000 positions through attrition and buyouts.
    I might note, though, that today there are examples the
    American people, if aware of, would be surprised. There are
    over 15,000 postal workers 65 years old who are on disability
    and not expected to return, and yet they are paid a full
    salary. That is an area that we expect will be addressed during
    our negotiations.
        It is an area in which we want to be fair to these long-
    working and longstanding employees, but at the same time, if
    you can no longer do the job and you are over 65, there is a
    reasonable expectation that your status will change and you
    will not be counted among the active members of the postal
    system. I think this is particularly good in union negotiations
    because, in fact, what we want are workers who can be
    productively put to work, and those who cannot we want to be
    fair to in any transition, whether they are over or under 65.
        Mr. Chairman, I would ask unanimous consent that my
    Washington Times op-ed of last year be included in the record.
        Mr. Ross. No objection.
        [The information referred to follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Issa. I thank you.
        In closing, this is not easy. Most of government needs are
    growing; yours is not. Most of government has found new places
    in order to find authority and services; your has not and has
    not been offered the opportunity. This committee is willing to
    hear, though, about new services that create a value for the
    American people, opportunities for the Post Office to have
    further authority to find nexus in savings with other agencies
    or even the private sector. I believe that we can be
    entrepreneurial on both sides of the aisle for the betterment
    of the American people.
        I look forward to your testimony. I appreciate all of you
    here testifying and the many stakeholders that are also in the
    audience today.
        Mr. Chairman, I yield back.
        [The prepared statement of Hon. Darrell E. Issa follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Ross. Thank you, Mr. Chairman.
        I would now like to recognize the gentlewoman from the
    District of Columbia, Congresswoman Norton, for her opening
    statement.
        Ms. Norton. Thank you very much, Mr. Chairman. I will be
    pleased to be working with you as a member of the committee,
    and I am particularly pleased to welcome our new postmaster,
    Postmaster Donahoe.
        Mr. Chairman, it was interesting to hear you, I know you
    read this, the mission, and that mission applies most of the
    time, but it was really interesting to hear you say that you
    wanted to make sure that the money that comes from Washington
    is well spent. Well, of course, the Post Office hasn't gotten
    any money from Washington for decades now, and won't get any.
    Indeed, we told the Post Office that it should run like a
    business, but the problem is that they report right here to the
    Congress, and they have never been given the kinds of latitude
    that a business indeed has, and probably doesn't feel that it
    could do what a business could do.
        For example, let's take something that under Chairman Lynch
    we discussed over and over again, and that was whether or not
    to reduce the 6-day week to a 5-day. Now, that would cause some
    hardship in some parts of the country, of course. Of course, if
    it is a private business, they have to take that into account
    and do what they have to do. I know in large parts of the
    country people, according to the polls, no longer say that they
    need a 6-day delivery and appear to be ready to give that up.
    We haven't even discussed whether or not, OK, at least for the
    parts of the country that are willing, that don't need it,
    which looks like most of the country, why not at least then
    have a 5-day work week.
        What is really frustrating to me as a member of this
    committee is that the steps, even the baby steps, which
    wouldn't solve the problem, seem to be very difficult to take,
    and the case of the 6-day work week is difficult to take for no
    reason except one reason, and that is the Members of the
    Congress of the United States. No business would have to bother
    with that.
        I will be very interested in this testimony and what you
    expect to be doing, Postmaster Donahoe, because this notion of
    a looming crisis, which is what this hearing is called, is also
    an interesting title. Ever since I have been on this committee,
    and I have been here since I have been a Member of Congress, it
    has been a looming crisis. I am not sure what we are waiting
    for. If the Post Office truly collapses, you will have people
    rushing to the floor to say let's pick up the Post Office one
    way or the other; I can't go home and tell people that there is
    going to be no postal delivery. I don't know whether excess
    payments to the trust funds, even if used for operational
    purposes, and we know that is very unlikely to occur, would be
    anything but a stopgap measure. I have always felt that somehow
    one has to pull back altogether and redesign entirely what we
    mean by Postal Service of the United States of America.
        Thank you very much, Mr. Chairman.
        Mr. Ross. Thank you very much.
        Congressman Connolly.
        Mr. Connolly. Thank you, Mr. Chairman. And I also want to
    welcome you as chairman of the committee.
        Mr. Ross. Thank you.
        Mr. Connolly. I would ask at this point unanimous consent
    to insert in the record my opening statement describing a new
    business model legislation I will be introducing in this
    Congress, an excerpt from the April 15, 2010 hearings we had
    last year, and a copy of the testimony of the National Rural
    Letter Carriers Association.
        Mr. Ross. Well, without objection, it is so ordered.
        [The prepared statement of Hon. Gerald E. Connolly
    follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Connolly. I thank the Chair.
        Mr. Ross. Also, Members will have 7 days from today to
    submit opening statements and extraneous material for the
    record.
        Now I would like to get into our hearing for today. We do
    have two panels. For those of you who are following spring
    training, I like to refer to it as a double header today. So,
    without further ado, I would like to introduce our first panel.
        To my immediate right is Mr. Patrick Donahoe, the
    postmaster general and chief executive officer of the U.S.
    Postal Service. In the middle is Ms. Ruth Goldway, the chairman
    of the Postal Regulatory Commission. Welcome. And Mr. Herr, to
    my left, is the Director of Physical Infrastructure Issues at
    the U.S. Government Accountability Office.
        We have your written statements before us, but what I would
    like to do first is to swear everyone in, and if I could ask
    you all to rise and raise your right hands.
        [Witnesses sworn.]
        Mr. Ross. Thank you.
        Let the record reflect that all witnesses answered in the
    affirmative.
        Please be seated.
        In order to allow time for discussion and questions, please
    limit your testimony to 5 minutes. As you know, your entire
    written testimony will be made part of the record.
        Now I will recognize, first, Mr. Donahoe. Thank you for
    being here.

    STATEMENTS OF PATRICK DONAHOE, POSTMASTER GENERAL, U.S. POSTAL
    SERVICE; RUTH GOLDWAY, CHAIRMAN, POSTAL REGULATORY COMMISSION;
       AND PHIL HERR, DIRECTOR, PHYSICAL INFRASTRUCTURE ISSUES,
                    GOVERNMENT ACCOUNTABILITY OFFICE

                      STATEMENT OF PATRICK DONAHOE

        Mr. Donahoe. Good afternoon, Mr. Chairman and members of
    the subcommittee. I am honored to be testifying before you for
    the first time as the postmaster general and chief executive
    office of the U.S. Postal Service. I appreciate the opportunity
    to testify and thank you for the invitation. Today I would like
    to discuss our financial challenges, steps we are taking to
    improve our competitive position, and improvements to our
    business model that require changes in the law. My view is that
    many of our challenges today can be recast as opportunities to
    create a profitable and more market responsive Postal Service
    that competes for and wins customers, and that propels American
    commerce.
        The Postal Service remains at the heart of a crucial
    segment of our economy. If the Postal Service was a private
    sector company, it would rank 29th in the Fortune 500. We
    provide the platform for a mailing industry that pumps $1
    trillion into the economy every year and employs 7\1/2\ million
    Americans. We are not taxpayer funded; we generate our revenue
    through the sale of postage. And so, if we are to be successful
    at our core function of delivering to the American public, we
    must operate by having a strong business model and effective
    business strategies.
        For its part, the Postal Service is focused on managing
    what it controls. In 2010, we trimmed $3 billion in costs, on
    top of $6 billion in savings in 2009, and our plan this year is
    to take another $2 billion out, further reducing work hours by
    40 million. Our achievements in the work force reduction have
    been accomplished through attrition. We are unsurpassed in
    public and private sectors in that manner. We have reduced our
    work force by almost 230,000 employees since the year 2000, and
    have dramatically increased total productivity.
        We have accomplished this all without sacrificing service.
    Performance levels are at the highest level ever, and those
    results lie squarely with our dedicated, knowledgeable, and
    committed employees, and I could not be any more proud of them.
        We are aligning every aspect of the Postal Service around
    four key strategies: one, strengthening the business consumer
    channel; two, improving the customer experience by making every
    transaction a positive transaction; three, competing for the
    package business; and, four, continuing to become leaner,
    faster, and smarter. We are committed to ensuring that we will
    be successful in these business strategies and that we will be
    able to serve the American public better as a result.
        While we are being very aggressive within the constraints
    of our current business model, the fact is without some
    important changes to the law that shape our business model, we
    cannot survive as a self-financing entity. Mr. Chairman, the
    losses experienced by the Postal Service last year alone are a
    staggering $8\1/2\ billion. This year we are projected to lose
    another $6.4 billion. Certainly, these results reflect the
    migration to electronic communication and shifting customer
    habits. But upon closer examinations, our losses are a result
    of an inflexible business model due to the laws that govern the
    Postal Service.
        The most serious challenge is to our unique obligation to
    pre-fund retiree health benefits. This pre-funding requirement,
    borne by no other entity, public or private, places an
    incredible burden on Postal Service. To understand the full
    effects, you just have to look at the last few years before and
    after the enactment of the Postal Accountability and
    Enhancement Act. In the 4-years before, the PAEA, the Postal
    Service showed a positive net income every year.
        In the 4-years since, we have seen billion dollars in
    losses every year. Even during the two worst years of the
    recession, 2007 and 2008, had it not been for the pre-funding
    requirement, the Postal Service would have realized a net
    profit of $3.3 billion and $2.8 billion, respectively. The
    effects of the retiree health benefit pre-funding are profound.
    This trend continues into 2011. Our first quarter results
    showed a loss of $329 million. Excluding retiree health
    benefits, pre-funding costs, and along with worker's
    compensation adjustments, we would have a net income of $226
    million.
        In addition to the retiree health benefit obligations,
    overpayments into the Civil Service Retirement System and
    Federal Employee Retirement System have taken a significant
    toll on our finances. Restoring these funds to the Postal
    Service would obviously benefit our financial position. This
    year, the Postal Service will reach statutory debt limit.
    Liquidity concerns are looming because of a $5\1/2\ billion
    payment for retiree health benefits due on September 30th of
    this year. The Postal Service will not have the cash available
    to make these payments. We need legislation this year to
    address that fact.
        I also encourage the subcommittee to provide greater
    flexibility to the Postal Service regarding our proposed
    transition to a 5-day delivery schedule, enabling greater
    latitude in the way that we provide access to postal products
    and services. Several bills were introduced in the 111th
    Congress that did just that. We would appreciate those efforts
    and are looking forward to working with each of you in the
    112th Congress.
        I believe strongly that the path forward requires that we
    embrace fundamental change and that our employees, our labor
    unions, management associations, the mailing industry, all of
    our customers and business partners play a constructive role in
    shaping our future. I am committed to this approach.
        The next few years will bring significant change, but I am
    confident that we will be able to look back and say that,
    working together, we took advantage of a challenging time to
    create a stronger organization and a stronger industry,
    developing a true 21st century Postal Service.
        Thank you for your continued efforts on behalf of the
    Postal Service. I look forward to working with each of you and
    will be happy to answer your questions today. Thank you, Mr.
    Chairman.
        [The prepared statement of Mr. Donahoe follows:]

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        Mr. Ross. Thank you, Mr. Donahoe.
        Ms. Goldway, you are recognized.

                       STATEMENT OF RUTH GOLDWAY

        Ms. Goldway. Thank you Chairman Ross and Ranking Member
    Lynch and members of the subcommittee. Thank you for inviting
    me to testify on the record of the PAEA and Postal Service
    finances. I look forward to your views and your leadership on
    postal issues.
        On the whole, we can say that the PAEA has been a positive
    force for changing, keeping postage rates low and service at
    acceptable levels, while providing stakeholders with
    information and the opportunity to participate in the process.
    The price cap serves as a powerful incentive for the Postal
    Service to add efficiency and reduce costs, including $11
    billion in the last 3 years.
        At the same time, the requirement to measure service and
    report the results publicly ensured that the Postal Service
    improved service quality. Seasonal pricing incentives for
    standard and first class mail, five experimental product market
    tests, and the expanding use of NSAs, 127 in 2010 and 56 to
    date in 2011, show that the Service is taking advantage of the
    law's pricing flexibilities.
        Along with some others, I have been concerned that there
    are some potentially irreconcilable legislative requirements in
    the law, such as that all products must cover attributable
    costs, but no class of mail can have rate increases greater
    than the CPI cap. But, to date, the Commission has been able to
    justify reasonable exceptions and to encourage the Postal
    Service to address others.
        In the recent exigency case, the Commission carefully
    reviewed the Postal Service's current financial predicament and
    found it to be structural, related to the pre-funding of health
    benefit premiums for future retirees. In the past 4 years, the
    Postal Service has paid nearly $21 billion into the Retiree
    Health Benefit Fund, while incurring a cumulative net loss of
    $20 billion. Bottom line: without the RHBF, the Postal Service
    would have broken even, despite the impact of the recession and
    declining mail volume.
        Of course, when the PAEA was enacted in 2006, the economy
    was strong and the Postal Service had record profits. It was in
    this climate that the Congress mandated the Postal Service to
    make an ambitious fixed 10-year series of payments at about
    $5\1/2\ billion. But, in retrospect, the RHBF payments have
    brought the Postal Service deep into debt and close to
    insolvency. Now, even with a brightening economy and continued
    cost cutting, the Postal Service cannot surmount its financial
    crisis without congressional action.
        In 2009, at the request of Congress, our expert review of
    the OPM's computation of the RHBF liability found that a
    recalculation could lower the Postal Service's liability by
    nearly $35 billion, still meet the funding goals of the act,
    and allow the required annual payments to be lowered. This
    could significantly address the Postal Service's financial
    shortfall.
        Last year, at the request of the Postal Service, we
    undertook expert actuarial studies to review whether the Postal
    Service CSRS pension obligations had been properly calculated
    in relation to wages of employees of the Post Office Department
    who later retired from the Postal Service. We found that the
    Postal Service had been overcharged by an estimated $50 to $55
    billion. The surplus, which came from postal revenues, not
    taxes, should be made available in some fashion for the benefit
    of the postal ratepayers and customers, perhaps to fund the
    RHBF.
        The Commission believes that given the Postal Service's
    record of cost cutting over the last decade, and recognizing
    the price cap restrictions and competition from electronic
    alternatives, significant cost cuttings will continue. The
    Commission will serve to guard against any ill-considered cuts,
    because any reduction in service could be viewed as an
    equivalent of a defacto rate increase.
        Last year, the Commission issued its advisory opinion on
    Postal Service's proposals to shutter up to 3,200 stations and
    branches. We affirmed the Postal Service's authority to adjust
    its retail network, but we made several recommendations to
    ensure consistency and enhance due process for every citizen.
        Over the last year the Commission has conducted an
    extensive review of another Postal Service proposal, that to go
    from 6- to 5-day delivery. In my 13 years serving on the
    Commission, this has been the most difficult and multifaceted
    issue I have been asked to address. The Postal Service proposal
    to end Saturday delivery is a serious effort to improve its
    bottom line, but cutting 17 percent of service in order to save
    what the Postal Service estimates to be $3 billion must be
    carefully considered within our obligation to hold prices down,
    maintain service standards, and ensure efficient postal
    operations.
        We are working overtime to resolve the complex and
    technical policy aspects of this case, and expect to complete
    our opinion shortly. We hope the opinion provides the Congress
    with the information you need to decide whether or not to lift
    the current 6-day delivery directive.
        The Commission is now conducting its first 5-year review of
    the PAEA, required under Section 701 of the act, to provide
    recommendations to improve the effectiveness of current postal
    laws. Certainly, the historic view that the postal system
    itself is of enduring value to the Nation still stands strong.
        We look forward to working with Congress, the Postal
    Service, and all who depend on the mail to chart a course that
    keeps the mail affordable, efficient, and relevant for
    generations to come.
        Thank you. That concludes my testimony. I would like to ask
    that the statement I made with regard to the exigency rate
    case, which further defines the finances of the Postal Service,
    be included in the record as well.
        Mr. Ross. Without objection, it is so ordered.
        Ms. Goldway. Thank you.
        [The prepared statement of Ms. Goldway follows:]

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        Mr. Ross. Thank you, Ms. Goldway.
        Mr. Herr, you are recognized.

                         STATEMENT OF PHIL HERR

        Mr. Herr. Thank you. Chairman Ross, Chairman Issa, Ranking
    Member Lynch, and members of the committee, I am pleased to be
    here today to participate in this hearing. Today I will discuss
    the Postal Service's financial condition and outlook, and the
    actions needed to modernize and restructure it.
        The Postal Service's financial condition has declined
    significantly since fiscal year 2006 and it remains on GAO's
    high risk list. As discussed, the challenges facing the Postal
    Service are linked to decreases in mail volumes as customers
    have shifted to electronic communications and payment
    alternatives. More specifically, profitable first class mail
    has been declining relatively quickly.
        While mail use has been declining, the Postal Service has
    large fixed costs associated with delivering to 150 million
    addresses. It also has a large physical network spanning over
    500 mail processing facilities and more than 32,000 post
    offices. It has 670,000 employees, about 80 percent of whom
    work full-time. And compensation benefits, as you noted,
    comprise 80 percent of its costs. The Postal Service expects to
    reach its $15 billion statutory debt limit this year, while
    still facing a cash shortfall. Unfunded obligations and
    liabilities, detailed in a table in my statement, for such
    things as worker's compensation and expenses in retiree health
    care are now estimated to total $105 billion.
        These figures strongly suggest the Postal Service's
    financial condition has reached a tipping point, and key
    stakeholders need to reach agreement on actions to address its
    structural problems. We believe that action is needed in five
    areas.
        First, realign service with customers' changing use of the
    mail. The Postal Service has sought to reduce delivery by 1 day
    and provide retail services outside of post offices. It
    estimates that dropping a day of delivery could reduce its
    costs by about $3 billion annually. This raises questions about
    what aspects of universal's Postal Service are appropriate
    given declines in mail use.
        Second, postal operations, networks, and its work force
    need to be realigned to reduce excess capacity. Key questions
    include: How quickly can these networks be realigned? The pace
    of change has simply been too slow. And should some post
    offices move to alternate locations to better serve customers
    and reduce costs?
        Third, compensation and benefit costs need to be addressed.
    Wages and benefits represent 80 percent of postal costs, about
    $60 billion in fiscal year 2010. Congress may wish to consider
    revisiting the statutory framework for collective bargaining to
    ensure that binding arbitration takes the Postal Service's
    financial condition into account. Other options include
    implementing a two-tier pay system, outsourcing if it results
    in cost savings, or revising employees' share of health and
    life insurance premiums.
        Fourth, generating revenue through new or enhanced products
    and services. The Postal Service has asked Congress to allow it
    to diversity into non-postal areas and sought additional
    pricing flexibility. Questions about this include: Are there
    opportunities to introduce profitable new postal products and
    enhance existing ones? Should it be allowed to enter non-postal
    areas to compete with private sector providers?
        Finally, the funding structure for postal retiree health
    benefits needs to be addressed. The roughly $5 billion-plus
    payments through 2016 are steep, and we believe that Congress
    should consider modifying them in a fiscally responsible
    manner. However, we also believe the Postal Service should pre-
    fund these obligations to the maximum extent its finances
    permit because thousands of individuals rely on and expect this
    benefit.
        Making changes to the Postal Service will not be easy. In a
    recent report requested by Ranking Member Lynch, we discussed
    how foreign posts have modernized their operations. Key aspects
    of these changes included strategic outreach and coordination
    with stakeholders about the nature, scope, and need for
    changes. An employee transition strategy was also crucial.
    Foreign posts experience suggests the Postal Service needs to
    clarify its modernization plans, including over what period it
    will implement them, and explain improvements in customer
    service and cost savings it expects, while ensuring that
    alternatives are available.
        In conclusion, Mr. Chairman, modernizing and restructuring
    the Postal Service so that it can be viable is imperative given
    its financial condition. This will not be easy and changes,
    some difficult, are needed to ensure that postal services
    remain available.
        I am pleased to answer any questions. Thank you.
        [The prepared statement of Mr. Herr follows:]

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        Mr. Ross. Thank you, Mr. Herr.
        We will now move into the questions and I will recognize
    myself for 5 minutes.
        I want to jump right into what I think is really the heart
    of the first issue that we are facing, and that is the PAEA and
    its aftermath today.
        Ms. Goldway, I know you have acknowledged that the
    Commission is doing a study on that. Specifically, at the time
    the PAEA was passed in 2006, we had certain assumptions that I
    think may have been taken into consideration to go ad
    infinitum. For example, 800,000 employees at the time. Now we
    are down to 575,000. A decline in first class mail.
        My question, and I will go to Mr. Donahoe first, is with
    this pre-funding of the pension benefit, are there not
    assumptions that today may not exist, or have changed
    dramatically, that in and of itself, if actuarially identified,
    could reduce the obligation of the Postal Service that is being
    imposed by the PAEA?
        Mr. Donahoe. We believe so, Mr. Chairman. We think that if
    you take a look at the intentions behind the law that was
    passed in 2006, they were very good intentions. The expectation
    was that the Postal Service, having a base volume of 213
    billion pieces of mail, along with no debt at the time, could
    carry that burden of the health benefits going forward. It was
    a responsible idea. We still think it is a responsible idea to
    account for our retiring health benefits going forward, but we
    think there are a number of things we have to take into
    consideration.
        No. 1, we have had a substantial drop in volume. That has
    to be considered. No. 2, to your point, we have reduced
    headcount. I think back in 2006, when the law was passed, it
    was based on the assumption of 757,000 employees. Today we have
    about 570,000 employees, and we think that, moving forward, we
    will eventually break into the 400,000 range. We know, going
    forward, we will not have those same burdens, so we would ask
    that Congress take a look, ask the GAO to examine what the
    actual liability is going forward.
        We also think there are some solutions as far as how to
    fund that. We think that the funds that are existing in the
    Civil Service Retirement funds that we have overpaid, by our
    estimates, $75 billion, the Postal Regulatory Commission's
    estimate is $55 billion, could be used to make that payment.
        If that is not available, we think that we can also look at
    some other options. Our own IG has suggested that we take a
    look forward around the option of taking a private sector model
    or you fund at 30 percent versus the 100 percent that we are
    required to now. So there are many options on the table, and we
    would be more than happy to explore any of those with you.
        Mr. Ross. Thank you.
        Ms. Goldway, would you have any estimate based on new
    assumptions as to what the reduction could be or potentially
    be?
        Ms. Goldway. What we did in 2009, working with consultants,
    the Mercer and the Hay Group, is to look at the OPM projections
    and factor in lower levels of employees and to adjust the
    expectations of health care cost increases that the OPM had in
    their formula, and we estimated that in order to fund 100
    percent of what would be the health care retiree benefit
    problem, you could do it with $35 billion less money than the
    OPM had estimated in 2006. I would suspect that number might
    even be lower today than it was in 2009 when we did it and
    that, therefore, the target for what the Postal Service needs
    to pay into a health care retiree benefit fund is lower and the
    annual payments that they make into it could be adjusted
    downward and reduce their burden.
        Mr. Ross. Any idea how much?
        Ms. Goldway. Well, we have estimated about $2 billion a
    year.
        Mr. Ross. Reduction?
        Ms. Goldway. Reduction.
        Mr. Ross. OK.
        Ms. Goldway. So instead of $5 billion, it would be $2
    billion. But that was an estimate and, again, it would need the
    assistance of OPM and perhaps GAO to clarify those numbers.
        Mr. Ross. Thank you.
        Mr. Donahoe, of course, one side of the issue is the
    ongoing liability for the pre-funding. But the other side is a
    systemic change. And what we have to do, and this is what I
    would ask your opinion on, is how do we go about competing in
    the 21st century? How do we go about now adapting to the
    digital age? And I think that if we are able to do something
    and empower the Postal Service to take care of the immediate
    need, but how does it go on from hereafter so that it is
    existing for another 235 years without any subsidies?
        Mr. Donahoe. Well, first of all, Mr. Chairman, we think
    that there is a tremendous upside on the top line on our
    revenue in the Postal Service and the entire industry. We think
    there is plenty of growth available in the area of standard
    mail. Standard mail is the most direct way to get in front of a
    customer's eyes; better than the Internet, better than TV,
    better than radio. So we know there is growth there.
        We also know there is growth in the package market, and we
    have been exploring that. We have been working with a number of
    new products. You have seen our flat rate products come out. We
    have introduced a number of others coming forward. Matter of
    fact, Ms. Goldway showed me, we brought along a copy of our
    free sample box they have just approved over at the Regulatory
    Commission. We think there is a ton of value in that. We think
    that this is an opportunity on a monthly basis for people to
    get in to the sample business in a very affordable way. So we
    know there is an upside.
        Now, on the first class mail, as you mentioned, it is
    declining, but we think that by using NSAs contracts with many
    of our customers, we can actually slow down the pace of change
    with the drop-off in first class.
        Congressman Lynch mentioned some opportunities in digital,
    and we are exploring that too. We have had some really good
    ideas come back from an innovation summit, along with a number
    of other ideas that we have been exploring with partners;
    digital to hard copy, hard copy to digital, and even digital to
    digital. We know that the Postal Service provides tremendous
    opportunities and security in that entire market, and we think
    there is plenty of opportunity for growth there too.
        Mr. Ross. Thank you, Mr. Donahoe. My time is up.
        I now recognize the distinguished gentleman--are we going
    in for a vote? Have they called us? If no objection, the
    ranking member, Mr. Lynch, for questions.
        Mr. Lynch. Thank you, Mr. Chairman.
        I want to thank the witnesses for your help.
        Mr. Donahoe, let me push back on that a little bit. I know
    I have spoken with Pitney Bowes and a number of other firms
    that operate in Europe as well, and they have some systems
    where you can actually pull up on your laptop or on your iPad
    and actually click on your mail before it is delivered, and you
    can click off the stuff that you don't want to have delivered
    and click on the stuff you would like to have delivered. But
    that tells me that, with technology, there will be a further
    reduction in volume as people are given that option. So I am
    not so sure I buy into the idea that we are actually going to
    be able to increase volume.
        But that much being said, let's go back to where the
    chairman was considering PAEA. What does it look like right
    now? And, Mr. Herr, you might be able to jump; actually, Ms.
    Goldway as well. If we are overfunding future retiree health
    benefits, what is the measurement of that overpayment? Do we
    have a sense of that? I know they are making you full fund it
    in advance, and no one else is required to operate under that
    standard, but I am just wondering what the overpayment is in
    there right now.
        Ms. Goldway. Well, I don't think there is--there is no
    overpayment in the health care retiree benefit fund at the
    moment; there is about $42 billion----
        Mr. Lynch. But it is pre-funded. I mean if--what I am
    trying to----
        Ms. Goldway. In the Civil Service Retirement Benefit Fund,
    there is. In the Civil Service Retirement Fund----
        Mr. Lynch. No, no, I know that. I know that. OK, look, you
    have ordinary health benefit plans----
        Ms. Goldway. Right.
        Mr. Lynch [continuing]. That are required to pay in
    annually. They are not required to pre-fund, OK?
        Ms. Goldway. Right.
        Mr. Lynch. So if you compare the pre-funding requirement to
    a ``normal'' health care benefit requirement, what excess do we
    have in there that if we were required to meet normal health
    care fund obligations, what would be in there that would not be
    required under a standard system?
        Ms. Goldway. I am not sure I understand, but I think what
    you are talking about is that the Postal Service currently pays
    out of its existing revenues the money it needs to pay for
    retirees' health care benefits, and that is about $2\1/2\
    billion a year. And there are $42 billion in a fund. So one
    could either take some of that money to pay the existing health
    care retiree benefit retirees' funds or at least take some
    income from that to help pay that off. I think that is what you
    are referring to.
        Mr. Donahoe. Another way to look at it is potentially,
    Congressman, the estimate for the prepayment that was needed
    back in 2006 was $90 billion. Our IG has done a study looking
    at regular businesses, private firms and what their
    requirements are to pay. The average prepays is at about 30
    percent. So their recommendation has been you would owe
    somewhere around $30 billion. We have paid $42 billion to it
    already, so theoretically we are overfunded at that rate.
        Mr. Lynch. OK. That probably answers the question.
        Mr. Herr. Mr. Lynch, if I may?
        Mr. Lynch. Yes, Mr. Herr, go ahead.
        Mr. Herr. In my statement we actually report the data that
    the Postal Service had in its annual financial report, and
    there is, as was stated, there is about $42 billion in that
    fund. But the unfunded liability is $48.6 billion, as
    calculated by OPM using Postal Service numbers, and as reported
    in the annual financial report.
        Ms. Goldway. And that is the part that our consultants
    thought could be lowered.
        Mr. Lynch. And that is for all future employees who are not
    necessarily going to tap into the fund in 1 year, right?
        Mr. Herr. Correct.
        Ms. Goldway. At some point.
        Mr. Lynch. Let me ask you this, then. I know you are
    running out of money, Mr. Donahoe, this year. With the
    obligations you have for the health benefit and other
    obligations, you have a workmen's compensation payment for $1.3
    billion, I think. When does that happen and what do you do when
    you run out of money?
        Mr. Donahoe. Here is the thing. September 30th we finish
    the fiscal year. I will owe the Federal Government $5\1/2\
    billion for the pre-funding. In November I will owe another
    $1.3 billion for worker's comp. At the end of the fiscal year I
    am out of cash.
        Mr. Lynch. You are also up against your debt limit.
        Mr. Donahoe. I am up against the debt limit, so there is no
    breathing room. We will deliver mail. We will pay the employees
    and deliver mail. We will make sure that we pay our suppliers.
    They are providing contract transportation, etc. The thing we
    will not do is be able to pay the Federal Government. That will
    have to be negotiated. We will talk with the Board of
    Governors, come back to the Treasury and figure out what we
    will have to do. That is why it is so important that we address
    this.
        Mr. Lynch. OK. Thank you. My time has expired. I yield
    back.
        Mr. Ross. Thank you, Mr. Lynch.
        The subcommittee will now stand in recess until probably 5
    minutes after the last vote. I expect it will probably be about
    30 minutes. Thank you.
        [Recess.]
        Mr. Ross. Good afternoon. I will call the subcommittee back
    to order and will recognize the gentleman from Florida, Mr.
    Mack, for questions.
        Mr. Mack. Thank you, Mr. Chairman. Before I begin, I want
    to congratulate you for being the chair of this subcommittee
    and for being here in Washington.
        Mr. Ross. Thank you.
        Mr. Mack. For people who don't know, we served in the
    legislature together in Florida, and he is a great friend and
    the committee is lucky to have you as the chair, so thank you.
        Mr. Ross. Thank you.
        Mr. Mack. Before we left, something kind of struck me. We
    keep asking, well, how can we kind of help get the Postal
    Service in the right direction, and part of me is thinking
    government just doesn't know how to run a business. So, first
    of all, the idea that the government is going to fix a business
    model I think has been proven over and over and over again it
    can't do it.
        So I think what we are really talking about here is time.
    At some point some drastic changes are going to have to be made
    to the Postal Service. If this committee is going to--and no
    disrespect to anybody on this committee, but the idea that
    somehow government is going to fix this, I am not sure that
    government has a great track record when it comes to business.
    So I just thought I would put that out there.
        The Office of the Inspector General recently released a
    study in which it looked at shifting costs from ratepayers to
    taxpayers, and I think the study was pretty clear about that
    may be a way that it has to go to be solvent. Mr. Donahoe, are
    you ready to admit that the only way to stay afloat is through
    a bailout by the taxpayers?
        Mr. Donahoe. Thank you, Congressman. First of all, I think
    I would take umbrage with the fact that we can't get our
    finances together and right the ship in the Postal Service. We,
    as a government entity providing universal service to the
    American public, have done a pretty good job especially over
    the last 10 years, from a standpoint of cost improvement,
    service improvement. Granted, we have some constraints around
    some of the revenue generation that we see, but we also think
    we have a good plan going forward, and with a little freedom
    and flexibility we think we can get there. The major issue that
    we've got, again, is the issue with the prepayment of the
    retiree health benefits.
        Mr. Mack. I understand.
        Mr. Donahoe. And I think there is an opportunity to resolve
    that.
        Now, I have to ask you a question On your statement, is
    that from our IG or is that from a different IG? I am not 100
    percent sure.
        Mr. Mack. It is a recent released study from the Office of
    Inspector General.
        Mr. Donahoe. That is probably the OPM. That is the OPM's
    IG.
        Mr. Mack. OK, you are right. But let me just ask you this.
        Mr. Donahoe. OK.
        Mr. Mack. OK? Forget about the study.
        Mr. Donahoe. OK.
        Mr. Mack. I mean, you have already admitted that there are
    big problems, right?
        Mr. Donahoe. Absolutely.
        Mr. Mack. So are you prepared to admit that you are going
    to need a bailout to stay afloat?
        Mr. Donahoe. We will not need a bailout. Here is the way we
    look at this. There are a couple solutions. No. 1, we have an
    overpayment into the retirement systems, whether the Civil
    Service or----
        Mr. Mack. OK, I only have a few minutes, so----
        Mr. Donahoe. OK.
        Mr. Mack. So the answer is, you think, no.
        Mr. Donahoe. I think no.
        Mr. Mack. Are there any modifications to a postal
    employee's pay or benefit schedule that would help insolvency?
        Mr. Donahoe. Absolutely. We are working with our unions
    right now. We have a union contract discussion going on with
    the American Postal Workers Union Rural Carriers. We are having
    some very good discussions about flexibility.
        Mr. Mack. And what are they offering right now?
        Mr. Donahoe. We are talking about changes in flexibility
    and compensation going forward.
        Mr. Mack. Now, is there talk about coming down to the rest
    of the Federal work force, the pay schedule and benefits?
        Mr. Donahoe. The only pay that the Postal Service has that
    is in excess of the rest of the Federal Government is in terms
    of the health care contribution. That is a very small portion
    of what we pay our people. We are, through negotiations,
    working to come to the same level. That is minimal. The big
    opportunities are work----
        Mr. Mack. Do you think that can be achieved? Do you think
    the unions will agree to come to----
        Mr. Donahoe. Absolutely.
        Mr. Mack [continuing]. The rest of the Federal work force?
        Mr. Donahoe. The unions are already coming to that level.
    We have seen progress in the last contract. We have moved 1
    percent per year in the last contract, and what is being
    discussed right now will get us to that level in the next 4
    years.
        Mr. Mack. In the next 4 years.
        Mr. Donahoe. Yes.
        Mr. Mack. So of the rest of the Federal work force.
        Mr. Donahoe. That is a small----
        Mr. Mack. The pay and the benefit?
        Mr. Donahoe. No, no, no, no. That is a small portion. That
    is the compensation that we give our people in terms of health
    benefit contribution. Our people pay, right now, about 81
    percent toward their--we pay 81 percent toward their health
    benefits.
        Mr. Mack. I have 25 seconds, so let me just ask one more
    question.
        Mr. Donahoe. OK.
        Mr. Mack. Do you believe the U.S. Postal Service is too big
    to fail?
        Mr. Donahoe. We are too big to fail. We are an important
    part of the American economy, important part of American
    society. We will deliver 171 billion pieces of mail this year.
        Mr. Mack. And you are going to do that without a bailout?
        Mr. Donahoe. We are not going to have a bailout. There is a
    solution to this. There are a number of things that we can do
    working with Congress to get a resolution, and it is not a
    bailout.
        Mr. Mack. Thank you, Mr. Chairman.
        Mr. Donahoe. Thank you.
        Mr. Ross. Thank you, Mr. Mack.
        I now recognize the gentlewoman from the District of
    Columbia, Ms. Norton, for 5 minutes.
        Ms. Norton. Thank you very much, Mr. Chairman.
        I want to thank you again, Mr. Postmaster, for the
    improvements in delivery that you have personally made in this
    region some years ago. I love that. You did something good then
    and look where you are now.
        Mr. Donahoe. Thank you, ma'am.
        Ms. Norton. I would like to know where we are headed. We
    have been talking about the Postal Service model for some time,
    yet we have seen no alteration in the model, and many of us, I
    think on both sides, can't believe that this model is meant for
    all time. If you look at the assumptions of the statute when
    the U.S. Congress set up the Postal Service, essentially it was
    that you would be a profit-making business, is that not true?
        Mr. Donahoe. At least to break even.
        Ms. Norton. So a profitable business at least.
        Mr. Donahoe. Yes, ma'am.
        Ms. Norton. On page 1 of your testimony you say ``Our core
    business will always be delivery. There is one customer need
    that will not change and it is the very essence of what we do,
    day in and day out.''
        Now, I must ask you if we make the kinds of assumptions
    that we are making at this hearing, that perhaps you will pay,
    but not overpay, into the trust fund; and you have calculated
    that to be 55 or 75 million, give or take however millions you
    want to. Let's say you pay or not overpay. Let's assume that
    you are delivering mail 5 days a week.
        Can you say to us this afternoon that this model, which
    requires you to be a profitable enterprise, delivering the mail
    as you are delivering it now, is a model, the model in the
    statute is a model, the model of a profitable enterprise, is a
    model we can expect to survive; that you will be a profitable
    enterprise under the assumptions of the statute that you are
    now held to now? And remember I am saying you would not overpay
    into the trust fund.
        Mr. Donahoe. Yes, ma'am. I think that we can be profitable.
    I think that there are a number of things that have to happen.
    No. 1, the Postal Service has undertaken a number of issues,
    revenue generation, cost reductions on our own that we feel
    responsible toward and will work toward that point. As I
    mentioned before, we are also working with the unions going
    forward. We have very responsible leadership there; they
    understand what we have to do for a strong Postal Service. So
    we will take care of what we need to take care of.
        The key for us is this: we are being required to prepay a
    health benefit rate $5\1/2\ billion. This year we will lose
    $6.4 billion.
        Ms. Norton. And that is why I say if we assume that is no
    longer a problem----
        Mr. Donahoe. Yes.
        Ms. Norton [continuing]. Then we will be back to a
    profitable enterprise under the assumptions of the statute in
    1970.
        Mr. Donahoe. This year, if we were not required to make
    that payment, we would break even, and that is with a volume
    loss----
        Ms. Norton. If you were required not to overpay.
        Mr. Donahoe. Right. And that is with a volume loss of 22
    percent. So our people have done a great job taking substantial
    cost----
        Ms. Norton. Well, that is very important to know, if you
    say that but for this overpayment. Normally if you overpay
    something, you are due a refund, so I am hearing you.
        I would like to ask one more question, and I don't want
    false hopes here, but I noted on page 2 of your testimony
    something I have not heard before in a very long time. I don't
    think I have heard it before, period. The first quarter showed
    a modest increase of 1\1/2\ percent. Is that because people
    quit writing their tax forms? To what do you attribute an
    increase? In your testimony you say that the Christmas season
    was not very good. Why is this first quarter showing a modest
    increase in first class mail?
        Mr. Donahoe. Well, the increase is total volume, and we
    have seen a 9.6 percent increase in standard mail, advertising
    mail; an increase in our package business. But we have had a
    decrease of 5.9 percent in first class. First class pays the
    freight, and that is why we have been asking, also, for the
    consideration before Congress to go from 6 to 5 days.
        Ms. Norton. And you think that, then, would have what
    effect?
        Mr. Donahoe. I will tell you this. If we can get a
    resolution around the health benefits, if we can get a
    resolution around the first payment--the President has made
    that recommendation in his budget--if we can get a resolution
    around the 6 to 5 day--these are things that are not in our
    control--I know that we can get this organization profitable
    and strong going into the future.
        Ms. Norton. We are marking that down, Mr. Postmaster.
        Mr. Donahoe. Yes, ma'am, you can. Thank you.
        Ms. Norton. Thank you, Mr. Chairman.
        Mr. Ross. Thank you.
        I would now like to recognize the gentleman from Michigan
    and our subcommittee vice chairman, Mr. Amash, for 5 minutes.
        Mr. Amash. Thank you, Mr. Chair, and thank you to the panel
    for being here.
        Mr. Donahoe, I really enjoyed meeting you the other day and
    chatting with you.
        Mr. Donahoe. Thank you.
        Mr. Amash. You just said, I think, that you guys would
    break even if you didn't have to make the pre-funding.
        Mr. Donahoe. This year, yes.
        Mr. Amash. But I think your own plans shows that you would
    have an operating income loss.
        Mr. Donahoe. Our plan shows an operating income loss of
    about $900 million, but we will continue to cut. We have a plan
    in place right now where we are addressing administrative cost
    reductions, $750 million. We will get some of that this year.
    We have some other changes going. Our goal would be to make
    $100 million this year if we were able to be forgiven from the
    prepayment plan this year.
        Mr. Amash. OK. I have a copy of the letter from the Office
    of Personnel Management to former Postmaster General John
    Potter. It is from September 2004 and it rejects the claim that
    USPS has overpaid the Civil Service Retirement System. OPM
    explains that the Postal Service's request for a return of $75
    billion in overpayment to the CSRS is unfounded and should not
    be granted by the Congress. Furthermore, the letter includes a
    statement from the CSRS Board of Actuaries, in which it
    declares that OPM has appropriately and accurately determined
    the financial obligations for the Postal Service.
        Mr. Chair, I ask unanimous consent to submit this letter
    for the record.
        Mr. Donahoe, what is your response to the letter?
        Mr. Donahoe. Here is my response: we have differing
    opinions here. Our IG in the Postal Service has estimated with
    external actuaries that we have overpaid $75 billion. The
    Postal Regulatory Commission has looked at the same information
    and their outside actuaries have estimated that we have paid
    somewhere between 50 and 55. So there is a meeting of the minds
    necessary to sit down and get this resolved once and for all.
        Mr. Amash. So you do disagree with the letter.
        Mr. Donahoe. I disagree with the letter.
        Ms. Goldway. If I could add that the PAEA actually has a
    provision so that the Postal Service can ask us to review the
    OPM analysis, and the Postal Regulatory Commission did what we
    believe is an objective analysis, bringing in a highly
    respected third-party expert to review the situation. So one
    could say you have the self-interest of the Postal Service and
    the self-interest of the Office of Personnel Management, each
    one wanting to protect its funds, but I want to assure you that
    the Postal Regulatory Commission had no preconceptions, gave
    this study no prior directions, and we came up with what we
    believe is a fair and objective assessment that there is in
    fact a $50 billion overpayment there.
        Mr. Ross. And, without objection, the letter so referenced
    is entered into the record.
        [The information referred to follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Amash. I have a question for Mr. Herr as well. In your
    testimony you recognize that a significant financial issue for
    the Postal Service is the fact that 80 percent of its costs go
    toward employees' salaries and benefits. Do you believe that
    the USPS should be able to renegotiate collective bargaining
    agreements?
        Mr. Herr. One area that we suggested the Congress
    reconsider is whether contracts that go to binding arbitration,
    if there is an impasse, that there be a consideration given to
    the Postal Service's ability to pay, given its financial
    situation. So that is an area that we have highlighted in prior
    work and I highlighted again today in my statement.
        Mr. Amash. And the President has suggested giving USPS some
    breathing room. Will that actually make the problem worse by
    delaying it?
        Mr. Herr. I would say that one of the things that we have
    been on the record as saying the Postal Service needed some
    short-term relief for this retiree health care benefit payment.
    We have been saying that for 2 years; this would be a third
    year. I think this is really the time, we are the statutory
    debt limit, to make some hard decisions about what this
    organization is going to look like going forward. The overall
    liabilities and obligations outlined in my statement are over
    $100 billion now, so it is time to take into consideration the
    changing use of the mail, what kind of footprint the Postal
    Service needs, and to really think about how that is all going
    to be paid for, including retiree benefits, which employees are
    expecting too.
        Mr. Amash. Thank you all for your testimony. I yield back.
        Mr. Ross. Thank you.
        The distinguished gentleman from Virginia, Mr. Connolly,
    you are recognized for 5 minutes.
        Mr. Connolly. Thank you again, Mr. Chairman, and, again,
    congratulations on your elevation as chairman of the
    subcommittee. And I thank my good friend and colleague, Mr.
    Lynch, for his leadership in the past on these issues and some
    very thoughtful and groundbreaking hearings we have had in the
    past, this being another contribution. And welcome to the
    panelists.
        Mr. Herr, let's start with that last point, the issue of
    whether the President brought some breathing room. I believe in
    his budget he recommended, was it, $4 billion of relief?
        Mr. Herr. That is my understanding, yes, sir.
        Mr. Connolly. And that $4 billion, is it not predicated on
    the same assumption Ms. Goldway makes and, for that matter, the
    postmaster general makes, that in fact there have been
    overpayments?
        Mr. Herr. I think that is actually predicated on the fact
    that there would be other efforts underway to restructure as
    well.
        Mr. Connolly. Right.
        Mr. Herr. This would be a deferment, it is not a--my
    understanding of the proposal the President made----
        Mr. Connolly. I understand that, Mr. Herr, but is it not,
    by implication, a recognition that in fact this is an issue,
    that there have been overpayments in the past?
        Mr. Herr. I guess you would have to--I would have to look
    at the fine print.
        Mr. Connolly. All right. Well, certainly the President,
    hopefully, in his budget wasn't trying to add to the
    postmaster's woes fiscally. He wasn't trying to add to that
    debt.
        Mr. Herr. Well----
        Mr. Connolly. He was trying to provide relief.
        Mr. Herr. Right. It is a short-term relief----
        Mr. Connolly. Does the GAO have an opinion about this issue
    of whether there is $50 to $75 billion of overpayments?
        Mr. Herr. We have not looked at----
        Mr. Connolly. You have not looked at it.
        Mr. Herr. I can assure you we have read the reports,
    though.
        Mr. Connolly. You would agree, however, that if anywhere
    between $50 and $75 billion were verified, that alone,
    amortized over some period of time, could provide significant
    relief to what is currently a significant imbalance in the
    operational revenues of the Postal Service?
        Mr. Herr. Given the numbers that are being discussed, yes,
    that would be a significant----
        Mr. Connolly. You would agree. OK, as the GAO, do you have
    any plans to look at this?
        Mr. Herr. If requested by Congress, we would certainly--
    both today----
        Mr. Connolly. Well, Mr. Chairman, I would hope that this
    subcommittee would in fact make such a request. That is not a
    trivial number. And if we are going to talk about dire futures
    for the Postal Service, surely we want to look into a $50 to
    $75 billion item that could provide relief fairly quickly over
    an amortized basis. And I know, Mr. Chairman, you share my
    concern about the options in front of us, and I would urge the
    subcommittee to consider making a formal request to GAO for
    just such a study.
        Let me ask you another question, Mr. Herr, and maybe Ms.
    Goldway or Mr. Postmaster General Donahoe, you as well. Between
    1990 and 2007, did overall mail volume for the Postal Service
    go up or down?
        Ms. Goldway. It went up.
        Mr. Connolly. It went up. At precisely the time the
    Internet was coming in full play in the United States, is that
    correct?
        Ms. Goldway. Yes.
        Mr. Connolly. So the relationship between the Internet and
    mail volume is not necessarily always inevitably a negative
    one. Might one conclude that, given that statistic, Ms.
    Goldway?
        Ms. Goldway. Oh, I think--my theory is that human beings
    have an insatiable appetite for communication and everything
    will grow, but it grows in different stages, just like radio
    has adjusted----
        Mr. Connolly. My time is limited, but----
        Ms. Goldway. Oh.
        Mr. Connolly. That is all right.
        Ms. Goldway. But I do think that----
        Mr. Connolly. But it went up?
        Ms. Goldway. It went up.
        Mr. Connolly. Did it go up last year? Did mail volume go up
    or down last year?
        Mr. Donahoe. Mail volume went down.
        Mr. Connolly. It went down over the previous year?
        Mr. Donahoe. Yes. Slightly.
        Mr. Connolly. Slightly. When we look at--because you talked
    a little bit, I think you made reference, Mr. Donahoe, to the
    impact of the Internet on your business. But the Internet can
    also generate business, can it not? For example, if I order a
    book from Amazon, not only is that business for the Postal
    Service, but it is actually lucrative business for the Postal
    Service, is that not correct?
        Mr. Donahoe. Absolutely.
        Mr. Connolly. Ms. Goldway, because my time is limited, have
    you had a chance to look at the draft legislation we have been
    working on and do you, by and large, find that it is consistent
    with many of the findings the Postal Regulatory Commission has
    brought before this subcommittee over the years?
        Ms. Goldway. I certainly think that many of the suggestions
    that have been discussed by other legislators to address the
    financial issues are included, and I am very pleased. In
    addition, there are some specific items that you and I have
    addressed that we think will really improve the revenues for
    the Postal Service in the future and position it as a more
    modern agency with the rest of the government. So I certainly
    appreciate your efforts there and I am sure it will be a
    valuable contribution to the conversations for legislation.
        Mr. Connolly. We can only hope. And I am going to run out
    of time; I have 20 seconds. But real quickly, don't we have a
    problem, on top of everything else, with the aging and costly
    vehicular fleet of the Postal Service?
        Mr. Donahoe. I will take that one. Yes, we do. We have a
    fleet of 185,000 delivery vehicles that are about 22 years old,
    on average.
        Mr. Connolly. Mr. Chairman, I have run out of time, but if
    I had a lot of time we would talk about this issue, because I
    think it is another burden they have to face. Thank you very
    much.
        Mr. Ross. Thank you. And just for the record, as part of
    that conversation, we did invite the Office of Management and
    Budget to attend here that I think could have addressed some of
    these questions; they declined the invitation, but I think it
    would have been healthy to have them here as well.
        I would now like to recognize the distinguished gentleman
    from Illinois, Mr. Davis, for 5 minutes.
        Mr. Davis. Thank you very much, Mr. Chairman, and let me
    congratulate you on your elevation. As a matter of fact, we had
    a young fellow here yesterday testifying, and he mentioned the
    colleges that he wanted to attend, and he railed off about 10,
    and all of them were in Florida, so there must be something
    good about Florida.
        Mr. Ross. Well, as an Auburn graduate, I have to take some
    difference with that.
        Mr. Davis. Let me welcome the witnesses. It is a pleasure
    to see you and to have you here with us, Mr. Donahoe.
        Mr. Donahoe. Thank you.
        Mr. Davis. Ms. Goldway, Mr. Herr, it is good to see you
    again.
        I have listened to the testimony and I have listened to the
    questioning, and, of course, I am not one of these individuals
    who believe that government cannot get it right. I don't
    subscribe to that school of thought. I think that government
    can in fact get it right. And I guess as one of the persons who
    helped put together the Postal Enhancement and Accountability
    Act, we thought we were getting it right, or at least moving in
    the direction of getting it right. We thought that we were
    providing the kind of flexibilities that the Postal Service
    needed; we thought we were providing opportunities for new
    products and new approaches; and we thought we were providing
    opportunity to make use of all the resources that the Postal
    Service should have at its disposal.
        You attempted a moment ago to talk about your vision in
    terms of how we can get it right and how we can have the Postal
    Service be self-sufficient; how we can make sure that we
    interact a certain way with our stakeholders and our unions.
    Could you share that direction for us again?
        Mr. Donahoe. Sure. Thank you very much. I do believe the
    Postal Service is and will be a very viable part of the
    American economy and American society. There are definitely
    changes going on, but we do provide that kind of contact that
    people are looking for. If you look at what we offer from a
    standpoint of the ability of a person to get in front of a
    customer's eyes, we are the most direct way, the most direct;
    and there is plenty of opportunity there. You talk about the
    Internet. There are oftentimes no way you will find a Web site
    unless you get a postcard in the mail that says come to my Web
    site; and we know we provide value there.
        We know we provide value for small business in the package
    shipping business. When they can go down to the local post
    office and put three or four or five packages in at a flat rate
    of a fish and chips with guaranteed delivery within 2 to 3
    days, there is tremendous value there. And we know that people
    will continue to mail packages. We know we have some very
    valuable partnerships; UPS and FedEx. We deliver the last mile
    for a lot of their packages. This holiday season we delivered
    16 percent more than we did last year, so we know there is
    definitely opportunity in that area.
        We also realize that there are costs that we need to
    address. I think, as I said before, we have very responsible
    leadership from our unions. They understand this. They can hear
    the waterfall. They understand that we have to make some
    changes. We are having very good discussions with the APWU. The
    Rural Carriers have kept the contracts open, so we think there
    are some opportunities to move in the right direction there.
        With our management associations we have seen progress in a
    lot of the changes we have made there. They have been very
    supportive in big changes that we have had to make within the
    administrative staff to reduce costs due to the mail volume
    drop.
        Congressman, I am 100 percent positive that there is a ton
    of value in the Postal Service. I think from a government
    perspective the Postal Service is pretty proud of the fact that
    we do a good job. Excellent service. We have taken more costs
    out of this organization than any private firm, and we know we
    can continue to do that in the future. We need the aid of
    Congress on a couple issues.
        Mr. Davis. Let me just ask you. I know that we have been
    talking about loss projections, and we hear $900 million. Have
    we ever had any projections that were higher than that?
        Mr. Donahoe. Higher in terms of losses?
        Mr. Davis. Yes.
        Mr. Donahoe. Oh yes, absolutely.
        Mr. Davis. So that means that we are actually making some
    progress.
        Mr. Donahoe. Sure. If we can get some resolution on a
    couple of these fixed costs, we definitely can. And the other
    thing that is important is with the uncertainty of all this
    discussion about year after year the Postal Service loses
    money, that starts to make customers fearful of doing business
    with us. We need to get that behind us. We are the lynchpin of
    a $1 trillion industry. That needs to be resolved.
        Mr. Davis. Well, I was always told that wherever there was
    a will, there was a way.
        Mr. Donahoe. That is right.
        Mr. Davis. It seems to me that you have both the will and
    you are searching for the way, and I think you are refreshing,
    and I look forward to working with you.
        Mr. Donahoe. Thank you, sir.
        Mr. Ross. Thank you, Mr. Davis.
        At this time I want to thank our panel for taking the time
    and now take just a brief recess while we get ready for our
    second panel. We are probably going to have another vote series
    a little bit after 4, so hopefully we can accomplish all we
    need to accomplish before that vote series.
        Again, thank you all for being here and we will let the
    clerk set up for the next panel.
        [Recess.]
        Mr. Ross. We will call the subcommittee back to order.
        I now recognize our second panel. Mr. Sampey, seated to my
    left, is the executive vice president and chief operating
    officer of Valpak; Mr. Sackler is the coordinator of the
    Coalition for a 21st Century Postal Service; and Mr. Frederick
    Rolando is the president of the National Association of Letter
    Carriers.
        Gentlemen, I will ask you to stand to be sworn in. Please
    raise your right hands.
        [Witnesses sworn.]
        Mr. Ross. Let the record reflect that all witnesses
    answered in the affirmative.
        Please be seated.
        Again, in order to allow time for discussion and questions,
    please limit your testimony to 5 minutes. Of course, your
    written testimony has been submitted and entered into the
    record.
        With that, I will start with Mr. Sampey. You are
    recognized.

     STATEMENTS OF JIM SAMPEY, EXECUTIVE VICE PRESIDENT AND CHIEF,
        OPERATION OFFICER, VALPAK; ARTHOR SACKLER, COORDINATOR,
      COALITION FOR A 21ST CENTURY POSTAL SERVICE, SACKLER POLICY
     SERVICES, LLC; AND FREDERIC ROLANDO, DIRECTOR OF LEGISLATIVE
    AND POLITICAL AFFAIRS, NATIONAL ASSOCIATION OF LETTER CARRIERS
                               (AFL-CIO)

                        STATEMENT OF JIM SAMPEY

        Mr. Sampey. Chairman Ross, Ranking Member Lynch, and
    members of the subcommittee, my name is Jim Sampey. I am the
    executive vice president and chief operating officer for Cox
    Target Media, headquarters in Largo, FL. We own Valpak Direct
    Marketing Systems and we are one of the largest direct mail
    firms in North America. Thank you for this opportunity to
    testify on what we agree is a looming crisis for the USPS.
        Valpak has been in the business for over 42 years. We
    pioneered the concept of local cooperative direct mail in the
    United States. Valpak is owned by Cox Enterprises, based in
    Atlanta, which is one of the largest media conglomerates in the
    United States.
        Valpak is a franchise organization, with locations in every
    State. Valpak represents more than 2,000 direct and franchised
    employees. Each year we assist more than 54,000 small
    businesses, from local mom and pops to large national
    companies. Today Valpak delivers savings and values to about 40
    million households each month, and each year our familiar blue
    envelope carries some 20 billion money-saving offers in 500
    million envelopes.
        Just 3 years ago we opened a $220 million facility in St.
    Petersburg, Florida to accommodate our growth for the future.
    Our company is also aggressively entering the digital space in
    the online and mobile couponing business. This will allow us to
    reach new customers with our products and continue to serve as
    a leader in our industry. Our digital strategies will continue
    to complement our mail volume.
        The nature of our business means that we watch the USPS and
    its issues very closely. We believe that the Post Office, under
    Jack Potter and now Pat Donahoe, have done a remarkable job in
    downsizing the Post Office to adjust for plummeting mail
    volumes, while maintaining high service levels. If you were to
    set aside the $5\1/2\ billion artificial financial burden to
    prepay future retiring health costs, which Congress imposed in
    the PAEA, the Post Office actually had an operating profit of
    $601 million over the last 4 years. We believe the Post
    Office's March 2, 2010 Action Plan: Envisioning America's
    Future Postal Service, was well designed, and except for its
    proposal to reduce the role of the Postal Regulatory
    Commission, we support it in all respects.
        It seems to us that the Post Office is constantly getting
    caught up in the political machinations of Congress. It may not
    be popular to tell Congress that the bill was ill conceived,
    but look at what the PAEA did. It imposed a CPI-based cap on
    prices; it gave the Post Office virtually no new powers to cut
    costs; and at the last minute we were told that it was
    necessary to get the bill scored properly, Congress needed to
    impose a $5\1/2\ billion annual financial burden to prepay
    future retiring health costs, a burden imposed on no other
    agency or company.
        Valpak, along with all mailers, urges Congress and the
    Commission to address the financial issue by removing the $5\1/
    2\ million artificial annual burdens on mailers to pre-fund the
    postal retirement health benefits and require the Office of
    Personnel Management to recalculate the CSRS and FERS
    obligations using overpayments made by mailers toward these
    retirement expenses to help pay ordinary health benefit
    expenses.
        On the cost-cutting items, we urge Congress and the
    Commission to allow the USPS to move to 5 day delivery. By
    recent polls, at least two-thirds of the people don't care that
    much about Saturday delivery, and it would allow the Post
    Office to save what should be about $3 billion annually and,
    second, allow the Post Office to close standalone money-losing
    post offices and replace them with retail facilities in place
    with high foot traffic.
        This is not to say that we support all the Postal Service
    does. We are deeply frustrated with some of the pricing
    policies which have allowed it to lose $5 billion over the last
    4 years on underwater products. As a prosperous company would
    not choose to offer products which lose money, and it is
    completely unacceptable that one that is on the brink of
    insolvency would continue to do so.
        Last, we do oppose the Post Office's efforts to go into
    competition with existing customers. One example of this is the
    recently passed market test called Marketing Mail Made Easy.
    Easy for that to say. This proposal has generated a lot of
    opposition from the mail community. We don't think that
    cannibalizing the mail that is already in the system is the
    right strategy for growth.
        I look forward to answering any of your questions you may
    have. Thank you.
        [The prepared statement of Mr. Sampey follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Ross. Thank you, Mr. Sampey.
        Mr. Sackler, you are recognized for 5 minutes.

                      STATEMENT OF ARTHOR SACKLER

        Mr. Sackler. Thank you, Mr. Chairman, and good afternoon to
    you, to Ranking Member Lynch, and the members of the
    subcommittee.
        The Coalition for a 21st Century Postal Service is pleased
    to present our views on what we also agree is a looming crisis
    for USPS. The Coalition's 33 trade associations and companies
    represent a major swath of a nearly $1 trillion industry that
    employs more than 7\1/2\ million people. It runs the gamut of
    paper communications; from forestry and paper companies,
    printers and technology providers to companies which create
    every type of mail.
        There is far more at stake in how the Postal Service fares
    than the Postal Service itself: the future of an industry
    roughly 15 times the size of postal revenues, the huge number
    of jobs it supports, and the substantial impact that industry
    has on the economy. And we believe postal insolvency, which
    could happen by the end of this fiscal year without action,
    will have consequences not only for the Postal Service, but
    quite possibly for the Nation.
        Given the state of the industry and potential postal
    insolvency, the Coalition believes it imperative for Congress
    this year to correct a core element of the financial imbalance,
    by eliminating a hidden tax assessed on postal ratepayers that
    was used to reduce the deficit and effectively subsidize
    retirements of non-postal Federal retirees, and repatriating
    that money over time to underwrite the pre-funding of retiree
    health benefits required by Congress. The $50 billion or more
    in overpayments to CSRS and the nearly $7 billion more to FERS
    constitute a vast hidden tax that would, if redirected,
    dramatically improve the position of the Service and,
    consequently, the industry and the public generally which it
    serves.
        Some believe repatriating this money would constitute a
    bailout. With great respect, we strongly disagree. While these
    overpayments were caused by a good faith actuarial
    misinterpretation, they were nonetheless paid not by the
    American taxpayer, but by postal ratepayers. As the postmaster
    general pointed out, USPS's money comes almost exclusively from
    user fees, postage, and 90 percent of that comes from
    businesses. Having collectively funded the bulk of these
    overpayments, we believe the right outcome is to use the money
    to benefit the Postal Service and thereby those who depend upon
    it.
        The alternative is insolvency. On September 30th, facing
    the choice of paying $5\1/2\ billion to pre-fund retirees'
    health benefits or paying its employees and keeping the lights
    on, as the postmaster general put it before, they will sensibly
    opt for the latter. There will be no legal or other
    consequences for the Postal Service or its managers, but it
    will be in default of an obligation.
        Questions about its reliability will arise for those who do
    business with it. And will overseas holders of U.S. securities
    treat this as the first loose thread in unraveling the Nation's
    financial ball of yarn? What would that do to interest rates
    and yields for treasuries? After all, it remains the U.S.
    Postal Service. Insolvency must be avoided.
        And if it isn't, the obligations won't simply go away. To
    the extent that the financial shortfalls for USPS overtake it,
    those obligations will fall to Congress. Then there will be the
    need for an actual taxpayer-funded bailout.
        In our written statement we offer other recommendations we
    believe would help the Service and the industry grapple with
    the interrelated financial, structural, and innovative elements
    of this looming crisis. These include addressing the high cost
    of compliance with mailing rules, giving the Postal Service
    more flexibility to close facilities or offer certain non-
    postal products, more flexibility on negotiated service
    agreements, and more.
        Without structural changes as well, financial transfers
    will only kick the proverbial can down the road, as has been
    noted several times during this hearing.
        Mail remains an important communications channel. Even in
    its current fragile state, the postal system remains pervasive
    and effective. Yet, despite these attributes, challenged by
    disruptive technology and retrenching resulting from the
    recession, our system is struggling. Mailers and suppliers have
    undergone dramatic changes the past 2 years, collectively
    enduring hundreds of thousands of layoffs, the shuttering of
    numerous businesses, and other dislocations. The result has
    been unprecedented budgetary pressure on mailers to reduce
    their costs of distribution.
        No one can force anyone to mail. Mailers have choices.
    Because of the Internet, first class, the cash cow of the
    system, is effectively no longer a monopoly and continues to
    sink like a stone. Each account going online is costing a dozen
    bills, a dozen payments, and several promotional pieces each
    year. The decline in first class threatens the system's
    financial stability.
        Similarly, when prices rise, there is more pressure on
    catalogers, other advertisers, and periodicals to use
    alternatives, decrease the weight and size of their mailing,
    otherwise reduce their mail exposure. Like first class mailers,
    they have choices via the Internet and other marketing
    channels. The concomitant effect on suppliers is just as
    significant. Less mail means less paper, printing, and
    technology business.
        Thank you, Mr. Chairman. We believe that all of this
    financial pressure on mailers puts a premium on holding prices
    down while maintaining service. The Coalition is prepared to
    work with you and your colleagues to stave off a decline of the
    Postal Service. It need not be inevitable. I would be happy to
    respond to any questions you may have.
        [The prepared statement of Mr. Sackler follows:]

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        Mr. Ross. Thank you, Mr. Sackler.
        Mr. Rolando, you are recognized for 5 minutes.

                     STATEMENT OF FREDERIC ROLANDO

        Mr. Rolando. Good afternoon, Chairman Ross. Congratulations
    again on your chairmanship. And good afternoon, Ranking Member
    Lynch. Welcome back from Afghanistan. And greetings to the
    other members of the subcommittee.
        I am pleased to be here today on behalf of the nearly
    290,000 members of the National Association of Letter Carriers.
    We are honored to be the public face of the U.S. Postal
    Service, an agency mandated by the U.S. Constitution and one of
    America's oldest, proudest, and most essential institutions.
        I have submitted a written statement, but in my few minutes
    here I would like to leave you with five points to consider,
    some of which counter the conventional wisdom.
        It is worth nothing that the figures I will cite are from
    official sources. We can all form our own opinions about public
    policy, but we should start from shared facts.
        First, the Postal Service remains a vital part of our
    society and our economy; it provides the only truly universal
    delivery and communications network in the United States,
    serving every corner of this country, from the most rural areas
    of Montana to every city block of Manhattan, 6 days a week. For
    several years in a row the public has named the Postal Service
    the most trusted Federal agency in America, in large part
    because of its dedicated and professional work force.
        The Postal Service is a vital infrastructure service that
    is not only an essential element of the country's financial
    payment system, but also a key facilitator of business and
    communications for the 150 million homes and businesses it
    serves. According to a 2009 study by the Postal Service, the
    annual value of transactions moving through the mail exceeds
    $30 trillion, underlining its importance to the health of our
    Nation's economy.
        Second, there is indeed a financial crisis at the Postal
    Service, one we must address for the sake of the economy and
    the millions of workers employed by the mailing industry. But
    it isn't the crisis you might think it is. Let me explain.
        With the Nation still suffering from the worst recession
    since The Great Depression, mail volume has fallen, a trend
    exacerbated by Internet diversion. And yet the Postal Service
    has been running an operational profit. You heard that
    correctly, postal and profit in the same sentence.
        In the most recent quarter alone, postal operations had a
    profit of $226 million, taking in more than a quarter billion
    dollars over operating expenses. That brings to $837 billion
    the net operational profits over the past 4 years. And this has
    been achieved by increased productivity, labor-management
    partnership, fair and flexible work adjustments, and
    performance and quality that have lifted customer satisfaction,
    all while maintaining the most affordable postal rates in the
    world.
        But while the Postal Service is operating more smartly than
    ever, it faces a huge burden unrelated to its daily work. The
    2006 congressional mandate to pre-fund future retiree health
    benefits for the next 75 years, and to do so within 10 years,
    and obligation faced by no public agency or private firm in
    America, imperils the Postal Service. In the past 4 years, the
    Postal Service has made $20.9 billion in pre-funding payments.
    It is that unique obligation during a recession that has
    plunged the Postal Service into a financial crisis.
        Point three, fortunately, there is a good solution. The
    Postal Service has a surplus of between $50 and $75 billion in
    its pension funds, according to two independent audits, because
    of overpayments made since 1971. Congressional approval to let
    the Postal Service make an internal transfer of its own money
    derived from the sale of products and services would leave both
    the pension and retiree funds in far better shape than
    virtually all such accounts in this country.
        Why? Because not only have daily Postal Service operations
    been carried out efficiently, the agency has been highly
    responsible with future obligations, all this, let me
    emphasize, without using any taxpayer money for over a quarter
    century. We are simply asking that the Postal Service be
    allowed to use its own money, as any responsible business
    would.
        Bipartisan agreement is forming on this crucial reform.
    Senators Tom Carper and Susan Collins have endorsed this
    solution and drafted legislation to implement. I am happy to
    learn that Representative Connolly of this subcommittee has
    prepared a bill addressing this issue, one that builds on prior
    work by Ranking Member Lynch.
        Chairman Ross, we hope you and your colleagues will embrace
    this bipartisan consensus on pre-funding reform.
        Fourth, while this proposal, backed by the Postal Service,
    has no downside, that is not the case with some of the other
    USPS ideas. Eliminating Saturday service, for example, would be
    disastrous. It would save about 5 percent of the postal budget
    by sacrificing 17 percent of service; it would inconvenience
    millions of small business owners who transact business on
    Saturdays and Americans who need medicines on the weekend; it
    would add 80,000 postal employees to the jobless rolls; it
    would imperil the Postal Service's future by forcing customers
    to turn elsewhere. And as competitors fill the vacuum, future
    revenue would decline. All this to save an amount barely half
    the annual pre-funding payments. No business would choose this
    option over an internal transfer of its own funds, and neither
    should we.
        Finally, the Postal Service has a bright future. The
    current challenges aren't the first since Benjamin Franklin
    served as the first postmaster general, nor will they be the
    last. As realists, we know we must adapt to society's evolving
    needs. The mail mix, for example, is shifting, with too little
    first class mail these days. As the economy improves, we have
    to watch the mail flow and adapt as needed. Even as we speak,
    the overall mail volume is rising for the first time in 4
    years.
        We have lots of ideas on new services to offer the growing
    number of home-based businesses, on expanding our work with UPS
    and FedEx as their most economical option for last mile
    delivery, and on adding to what letter carriers already do to
    protect community and national security.
        I would like to conclude by congratulating all the new
    members of the subcommittee. We believe these are nonpartisan
    issues in the tradition of bipartisan cooperation that has
    characterized this subcommittee as worth nurturing. We look
    forward to working with all of you on postal issues and to find
    bipartisan solutions to the challenge before us. NELC has
    demonstrated repeatedly in recent years that it is prepared to
    do its part to help preserve the long-time viability of the
    Postal Service by serving the American people and helping the
    businesses that rely on universal service to grow and prosper,
    and we remain every bit as committed to that goal today.
        Thank you.
        [The prepared statement of Mr. Rolando follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Ross. Thank you, Mr. Rolando.
        We have been called for votes. We have about 11\1/2\
    minutes to go. Mr. Lynch and I have agreed that we are going to
    try to do 5 minutes each, and then we will recess and come back
    right afterwards and finish then. So those who need to go, go
    ahead and go. I will start with a series of questions.
        Mr. Rolando, one of the things that was pointed out in the
    GAO report, Mr. Herr who was here in the first panel, indicated
    that, USPS now has costly excess capacity. Is that something
    that you can comment on? Are you aware of excess capacity,
    whether it be in distribution or wherever?
        Mr. Rolando. I don't know what he was referring to, no.
        Mr. Ross. OK. With regard to also another recommendation
    the GAO had in terms of collective bargaining and binding
    arbitration, his recommendation was that the financial
    condition of the U.S. Postal Service should be taken into
    consideration in the binding arbitration procedures. How do you
    feel about that?
        Mr. Rolando. His wish is granted because the financial
    condition of the Postal Service has been considered in every
    arbitration that we have had. The arbitrators are required to
    consider the arguments of both parties, and in every interest
    arbitration we have had that issue has come up and been
    considered by the arbitrators.
        Mr. Ross. I appreciate that perspective.
        To all three of you, you all recognize, I think, that the
    recession has had an impact on mail. I mean, there was an
    increase in volume from 1990 to 2007, when we have seen a
    decrease. I will start with you, Mr. Rolando. Do you think that
    the U.S. Postal Service has done enough aggressively to cut
    costs? And, if not, what would you recommend that they further
    do?
        Mr. Rolando. I think they should continue what they are
    doing, to work with the unions on win-win solutions. I know my
    union has worked with them aggressively for the last few years
    on adjusting routes to the change in volumes, which, by their
    own numbers, has saved them over $1 billion, and I think we
    need to continue to work together through negotiations and in
    between those negotiations on these win-win solutions.
        Mr. Ross. Mr. Sackler.
        Mr. Sackler. Well, Mr. Chairman, the Postal Service and its
    employees have indeed cut a lot of costs out of the system, but
    by definition, looking at the situation that it is in, it
    hasn't been enough. We think that, to get to your previous
    question, our understanding is that the system is overbuilt by
    almost a factor of two and that there needs to be a drastic
    realignment and restructuring, closing and consolidation of
    facilities, and for that there will need to be some change in
    the law and there will have to be support from Congress
    because----
        Mr. Ross. So you agree that there is excess capacity.
        Mr. Sackler. Yes, we do.
        Mr. Ross. OK.
        And Mr. Sampey, with regard to costs.
        Mr. Sampey. Yes, I would say that they have done a great
    job between the unions and the administration in the Post
    Office. They have done a fantastic job to manage the costs. And
    I think there is more that they can do if some legislative
    activities are taken to give them a little more room to work on
    the cost side of the house. We are very supportive of the
    Postal Regulatory Commission, especially on the pricing side,
    to give some oversight, but I think the management and the
    union have a lot of opportunities to take additional dollars
    out of the business if we give them a little bit of latitude
    with legislative activities.
        Mr. Ross. Mr. Sackler, back to you. You touched on this in
    your opening remarks, about if the Postal Service defaulted on
    its obligation to the Treasury. Could you expound on what
    impact you think that would have? I mean, assuming we did
    nothing and they couldn't meet their obligation, they have
    exceeded their $15 billion borrowing limit, or met it at least,
    what is the outcome?
        Mr. Sackler. As we understand it, there are no legal
    operational or practical consequences for USPS or its managers.
    But the implications in terms of how people look at the Service
    and the fact that whether or not it is functioning largely
    independently, it is still an arm of the U.S. Government. And
    to have an arm of the U.S. Government default on an obligation,
    even if the actual impact is only technical, you have to think,
    well, what are those who are holding our bonds and have the
    future of our finances in their hands thinking? It is all a
    psychological game.
        Mr. Ross. It could affect our credit rating.
        Mr. Sackler. Exactly.
        Mr. Ross. OK.
        Last, Mr. Sampey, you want to comment on that?
        Mr. Sampey. Just one comment on that. I think Pat brought
    it up in his statement. I think the industry confidence in the
    Post Office, and some of the challenges that they are having
    right now, you know, there are a lot of folks out in the
    industry that are saying should we move to digital, should we
    move to something else, for fear of where the Post Office is
    going to end up. I think whatever we do, we need to do it
    quickly. I think we need to move on this as a cohesive group
    and work together and figure out how do we get the confidence
    back. The Post Office has done a great job and the quality of
    service has been fantastic.
        Mr. Ross. Thank you.
        Mr. Lynch, you are recognized for 5 minutes.
        Mr. Lynch. Thank you, Mr. Chairman. I just want to make a
    couple of clarifications. I know that my dear friend from
    Florida, Mr. Mack, commented that government doesn't have the
    ability to help business make the necessary reforms.
        I just want to remind the gentleman that the U.S. Postal
    Service is a unique business; it was actually created by the
    U.S. Congress and it is one of the few institutions that is
    explicitly provided for in the U.S. Constitution. Government
    has done a pretty good job over the past 236 years in guiding
    the Post Office in providing universal service 6 days a week
    and has done a pretty good job, as some of the polling out
    there has indicated, that our postal employees are the most
    trusted public employees in the United States today.
        I would also like to point out with respect to the
    suggestion that OPM is correct in their assertion that the
    overpayment does not exist, for the benefit of the new Members
    especially, I just want to sort of lay out the history here of
    OPM denying obligations and what the results have been.
        Going back to 2002, the Postal Service pension fund was
    found to be overfunded by OPM by $78 billion, and we in
    Congress had to go back in 2003 and tell OPM you have to
    straighten this out. So there was an overpayment there of $78
    billion.
        Then in 2003 OPM attempted to make the Postal Service pick
    up the responsibilities for military service pensions,
    obligations for Postal Service employees. So if they are in the
    service, they wanted the Post Office to pick up their pension
    credits that were due because of the military service, and we
    said that would not be right. So Congress rejected that
    attempt.
        In 2009 we found that OPM used an exaggerated 7 percent
    health care appreciation inflation forecast instead of the 5
    percent that is the industry standard, and that resulted in an
    overpayment of $13.2 by 2016. So we had to go back and we
    ordered OPM cut that out, use the industry standard. So OPM
    then went back and changed it.
        Now the Postal Service has been overcharged by $75 billion
    for its share of CSRS pensions for folks for their pension
    credits before they became USPS employees. People have to
    understand that. These are pension credits for folks before
    they went to work for the Post Office, but they have been
    overcharged and the Post Office is picking up the inflation for
    those costs.
        So there is a whole history here of the OPM. And, look,
    anybody can make a mistake, but in every single case OPM
    overcharged the Post Office by tens of billions of dollars. So
    that is the record we have here. Those are the facts, and there
    does seem to be a--oh, and by the way, OPM wrote a rather
    gratuitous letter that they thought, by God, the Post Office
    should have to pre-fund their health care obligations 100
    percent, pre-fund it by 100 percent. But if you look at what
    OPM is doing, they pre-fund their obligations at 40 percent. So
    you would think what is good for the goose is good for the
    gander, but that is not the case.
        So I just wanted to make those clarifications just for some
    of the newer Members that are onboard here.
        Mr. Rolando, in my remaining time, before I run up the
    Hill, I want to ask with respect to going from 6-day delivery
    to 5-day delivery, that affects your membership, the letter
    carriers, and the mail handlers dramatically. Is there any
    information that you would like Congress to have before, or do
    you think the Post Office should provide to Congress before we
    make that decision?
        Mr. Rolando. Well, I think it is important that it not only
    affects my members, it affects thousands and thousands of
    businesses across America who have contacted the NALC directly
    have responded to the NALC in terms of their objections to 5-
    day delivery and how it would affect them, and we----
        Mr. Lynch. I don't mean to interrupt you, but, in fairness,
    I have to tell you I heard loud and clear from the folks that
    have catalogs and magazines that apparently they use Saturday
    as their delivery day because they want folks to, on their day
    off, actually read the product that they deliver. So you are
    right, it is not solely in your interest. But go ahead.
        Mr. Rolando. That was what I wanted to say, the effect on
    the businesses, not to mention the public and the customers.
        Mr. Lynch. All right, thank you.
        Mr. Ross. We are going to recess to go take our votes, and
    we will return after this first vote, and then we should be
    able to finish up. Thank you for your patience. We will be
    back.
        [Recess.]
        Mr. Ross. I would like to call us back into order and I
    would now like to recognize the gentlewoman from the District
    of Columbia, Ms. Norton, for 5 minutes of questions.
        Ms. Norton. Thank you, particularly, Mr. Chairman, for
    rushing back, because I know you have to go to the floor again.
    I wish I did.
        Let me say how helpful all of your testimony has been. You
    have reinforced a lot of what the Postal Service itself has
    said. And I want to say to you, Mr. Rolando, I have walked with
    my letter carrier. He is an indispensable party to the American
    people, far beyond delivering the mail. There are people who
    have nobody but a letter carrier to speak to every day,
    particularly the elderly. They greet him at the door even if
    they've got a walker. Thank you for all you do. You are
    wonderful. Your letter carriers are the best.
        I want to just straighten two things out for my own
    thinking, certainly. I am well aware of what collective
    bargaining does for those in trouble. There is nothing more
    valuable than to have the cooperation of level-headed unions
    when you have to manage a downsizing of any kind. Everybody
    ought to know that the reason the Postal Service has been able
    to do what it does is because its collective bargaining
    partners understand the business as well as the business with
    whom they are dealing, so I congratulate you. I know the
    sacrifices you have made. And you don't see the postal workers
    out here screaming and hollering because they believe fairness
    has been accorded because it has been bargained. So I agree
    with your testimony; don't tamper with collective bargaining.
    If you really want to mess up this situation, just mess with
    collective bargaining.
        Now, Saturday delivery. I read your testimony on Saturday
    delivery. I want to know is it subject to collective
    bargaining.
        Mr. Rolando. Saturday delivery?
        Ms. Norton. Is that bargained over?
        Mr. Rolando. No, it is not.
        Ms. Norton. Now, you make a pretty compelling case that
    there would be very little savings. The thing that has made me
    interested in Saturday delivery is this overwhelming number of
    Americans, 75, 80 percent say, OK, if that is what you have to
    do, that is what you can do. But you make a pretty compelling
    case not simply about inconvenience to people. I understand
    that; people, of course, in hard times, have to take that. But
    loss of business, that bothers me. What do you mean about the
    loss of business? Who will get that business if Saturday
    delivery in those locations--and let's assume we had, in my
    hypothetical, no Saturday delivery in just some locations, but
    some you did have it. In any case, where would the business go
    to and what would that mean for future business for the Postal
    Service?
        Mr. Rolando. First, if I could, I would like to just
    comment on the 75 to 80 percent that you just alluded to.
        Ms. Norton. Yes.
        Mr. Rolando. You have to understand it really depends on
    what you ask people as to how they are going to respond. If you
    ask people if they would rather have an increase in postal
    rates or lose a day of delivery, you are going to get one set
    of answers. If you are truthful with people and give them the
    real options, would you rather the Postal Service be allowed to
    transfer their own money from a surplus in their pension fund
    or lose a day of delivery, I think you get a completely
    different answer.
        Ms. Norton. And, of course, Mr. Sampey's testimony, and I
    think the testimony of the first panel, was that it did not
    include Saturday delivery; they just said if you dealt with
    these overpayments that you would have a profitable enterprise.
    So go ahead. So that takes care of the question.
        Now, what about the loss of business? Who would get the
    business?
        Mr. Rolando. Well, there is always going to be a need for
    delivery on Saturday. We talked about prescription drugs and
    other things that the American people are going to need.
    Somebody is going to fill that vacuum.
        Ms. Norton. And you think that would have an effect on
    future business for the Post Office or that would carry over
    into your Monday through Friday business?
        Mr. Rolando. Absolutely. It would affect the current
    business; it would affect the growing part of the business,
    which is people shopping online and parcel delivery when people
    are home on Saturday. It is just not a good idea where there
    are a lot of innovative things.
        Ms. Norton. Let me ask you one more question, then, because
    you have made me understand that. We had some testimony here
    about thousands of postal workers that are on worker's
    compensation that could be on retirement. Would you clarify
    that? Why don't they just retire?
        Mr. Rolando. I am not real sure what the gentleman was
    referring to, but I know there have been proposals with regard
    to worker's compensation which we certainly are willing to look
    at. The important thing is that we don't punish our employees
    who are injured on the job and that we treat them fairly.
        Ms. Norton. And there was some concern that these workers
    had no intention of coming back to work. Now, I know the
    retirement age is 55, but somebody 55 these days better come
    back to work if you possibly can.
        Mr. Rolando. Sure.
        Ms. Norton. I wonder if the union will take a close look at
    that, because it will not sound good to the American people if
    you are carrying people who could then be carried on their
    earned retirement benefits.
        Mr. Rolando. Again, it is all how it is characterized. That
    is why I would have to take issue with the comment that was
    made. We would have to look behind it, because we certainly
    want to look for a way to treat these people and not punish
    them.
        Ms. Norton. Thank you very much.
        Mr. Ross. Thank you, Ms. Norton.
        In light of no other Members here to inquire and us about
    ready to go in for another vote here, we are going to adjourn.
    I want to thank the gentlemen of our second panel and
    appreciate you all being here, taking time out of your
    schedule. We have just scratched the surface and look forward
    to working with you all on this issue. Thank you all very much
    and have a good day.
        [Whereupon, at 4:20 p.m., the subcommittee was adjourned.]