[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


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                      http://www.house.gov/reform


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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:]

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    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.]

                                 
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