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



 
                ARE POSTAL WORKFORCE COSTS SUSTAINABLE?

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



                                HEARING

                               before the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 5, 2011

                               __________

                           Serial No. 112-31

                               __________

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


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




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              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



                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on April 5, 2011....................................     1
Statement of:
    Giuliano, Louis J., chairman, U.S. Postal Service Board of 
      Governors; James C. Miller III, governor, U.S. Postal 
      Service; Patrick R. Donahoe, Postmaster General and Chief 
      Executive Officer of the U.S. Postal Service; and Cliff 
      Guffey, president, American Postal Workers Union, AFL-CIO..    11
        Donahoe, Patrick R.......................................    19
        Giuliano, Louis J........................................    11
        Guffey, Cliff............................................    23
        Miller, James C., III,...................................    16
Letters, statements, etc., submitted for the record by:
    Burton, Hon. Dan, a Representative in Congress from the State 
      of Indiana, prepared statement of..........................    85
    Donahoe, Patrick R., Postmaster General and Chief Executive 
      Officer of the U.S. Postal Service, prepared statement of..    21
    Giuliano, Louis J., chairman, U.S. Postal Service Board of 
      Governors, prepared statement of...........................    13
    Guffey, Cliff, president, American Postal Workers Union, AFL-
      CIO, prepared statement of.................................    25
    McMorris Rodgers, Hon. Cathy, a Representative in Congress 
      from the Washington, prepared statement of.................    87
    Miller, James C., III, governor, U.S. Postal Service, 
      prepared statement of......................................    17
    Ross, Hon. Dennis A., a Representative in Congress from the 
      State of Florida, prepared statement of....................     7
    Towns, Hon. Edolphus, a Representative in Congress from the 
      State of New York, prepared statement of...................    52


                ARE POSTAL WORKFORCE COSTS SUSTAINABLE?

                              ----------                              


                         TUESDAY, APRIL 5, 2011

                          House of Representatives,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10 a.m., in room 
2154, Rayburn House Office Building, Hon. Darrell E. Issa 
(chairman of the committee) presiding.
    Present: Representatives Issa, Mica, Jordan, Mack, Walberg, 
Lankford, Amash, Buerkle, Gosar, Labrador, Meehan, DesJarlais, 
Walsh, Ross, Guinta, Farenthold, Kelly, Cummings, Towns, 
Maloney, Norton, Kucinich, Tierney, Clay, Lynch, Cooper, 
Connolly, Quigley, Davis, Braley, Welch, Yarmuth, Murphy, and 
Speier.
    Staff present: Ali Ahmad, deputy press secretary; Robert 
Borden, general counsel; Molly Boyl, parliamentarian; Lawrence 
J. Brady, staff director; Steve Castor, chief counsel, 
investigations; Howard A. Denis, senior counsel; Gwen 
D'Luzansky, assistant clerk; Adam P. Fromm, director of Member 
liaison and floor operations; Linda Good, chief clerk; Justin 
LoFranco, press assistant; Jeffrey Post, professional staff 
member; Laura L. Rush, deputy chief clerk; Kenneth John, 
detailee; Kim Yunsieg and Jordan More, interns; Beverly Britton 
Fraser, minority counsel; Kevin Corbin, minority staff 
assistant; Ashley Etienne, minority director of communications; 
Carla Hultberg, minority chief clerk; Lucinda Lessley, minority 
policy director; Zeita Merchant, minority LCDR, fellow; William 
Miles, minority professional staff member; Dave Rapallo, 
minority staff director; Susanne Sachsman Grooms, minority 
chief counsel; Mark Stephenson, minority senior policy advisor/
legislative director; and Cecelia Thomas, minority counsel/
deputy clerk.
    Chairman Issa. The committee will come to order.
    Mr. Kucinich.
    Mr. Kucinich. I have a point of order, Mr. Chairman.
    Chairman Issa. Please state your point of order.
    Mr. Kucinich. Under rule 11, clause (b), the use of the 
committee broadcast system shall be fair and nonpartisan. My 
point of order is that since the majority has signs up behind 
Mr. Cummings which reflect your point of view and not ours, and 
since this is being broadcast and you can see the signs behind 
Mr. Cummings, that it would be fine--you know, it is fine with 
me, and I'm sure our side, if you want to put all your signs 
over there that reflect your point of view, but by having them 
up behind Mr. Cummings, it is actually taking a partisan--
assigning to him a partisan position since the signs are right 
behind him. And therefore my point of order relates to rule 11, 
clause (b).
    Chairman Issa. OK. Noting your point of order, the chair is 
prepared to rule. Within the committee rules it is--the signs 
and other areas of this room are within the discretion of the 
chair and are not appealable. However, the gentleman's point 
relative to broadcast will be evaluated for broadcast 
appropriateness. The sign is not within the scope of the 
gentleman's point of order and thus is not appealable; however, 
we will evaluate in consultation with the ranking member as to 
broadcast procedures, which this doesn't affect, but which we 
certainly want to make sure that we stay within the point of 
order that you raised, which is again not within the scope of 
that sign. However, we certainly would like to have a review of 
broadcast procedures to see if there are any concerns by the 
chair as to broadcast.
    With that, we would begin based on another discretion----
    Mr. Kucinich. Mr. Chairman, did you sustain my point of 
order then?
    Chairman Issa. No. Actually since it is within the 
discretion of the chair, it is not subject to a point of order, 
and we would be glad to give you the line that shows that it is 
a discretion.
    Mr. Kucinich. I hope you are able to work it out, because, 
you know, it seems to me that we have a violation of that rule. 
Thank you.
    Chairman Issa. Thank you.
    I thank all of you here today for your patience. This is a 
time in which the committee has been preempted by the 
discussion of funding of the government, and nothing ultimately 
can be of more importance to the American people than whether 
or not our troops in harm's way continue to be funded after 
Friday.
    With that, it is the discretion and policy of the chair 
that we begin by reading our oversight committee 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, effective government that works for them.
    Our duty on the Oversight and Government Reform Committee 
is to protect these rights. Our solemn responsibility is to 
hold government accountable 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 
Government Oversight and Reform Committee.
    Today's hearing is on the U.S. Postal Service, where 
publicly traded--oh, sorry, today's hearing is on U.S. Post 
Office and the new contract. Were the post office a publicly 
traded company, it would be among the 30 largest in America, 
having revenues of $70 billion. Its 30-plus thousand post 
offices exceeds that of Starbucks and McDonald's combined.
    Over the years the post office has gone from a growing and 
thriving industry able to sustain positive cash-flow and 
effectively positive profits. That is now in our taillights. 
Today members of the active work force enjoy approximately 
$11,000 worth of legacy burden into their pay, meaning that 
when the post office looks at its cost of doing business, it, 
in fact, has legacy costs that very much resemble General 
Motors' before its bankruptcy.
    The post office cannot and will not renege on its promises 
to those already retired. We cannot and will not renege on the 
obligation that we have to the American people both under the 
Constitution and under hundreds of years of tradition of the 
post office. Every day, 6 days a week, the American people 
expect that a letter will be delivered directly to their box in 
front of their house, down the street or off into a chute in 
their door.
    The contract negotiated, not yet ratified, is intended to 
allow the continuation of a history of collective bargaining, 
but compromises sufficient to allow the post office to emerge 
from what is at best break even and, by some estimations, a 
$5\1/2\-plus billion loss, and to get to a positive position 
able to meet all of its obligations, both present and legacy 
costs, in the foreseeable future. This contract falls short of 
that goal. It is very clear the intention is good. The 
postmaster has worked diligently to get some concessions. 
However, we will hear today that we, in fact, under current law 
may not be able to negotiate the contract that needs to be 
negotiated.
    Additionally, from this position on the dais, we have deep 
concerns that some of the provisions in the contract might, in 
fact, be the wrong direction, toward less flexibility, less 
ability to trim the work force, and less ability to make the 
kind of investments in the future that we need to make. Having 
said that, this committee stands ready to make legislative 
changes that may be needed in order to secure for the post 
office the kind of abilities to reinvent itself it needs.
    Additionally, this committee in the past on a bipartisan 
basis has been willing to delay certain required deposits in 
order to allow the post office time to regroup. At the same 
time, the hundreds of thousands of letter carriers and postal 
workers deserve to--a level of certainty that allows them to 
plan their future, a future in which the post office is able to 
deliver efficiently a product in a reasonable cost and, in 
fact, meet its obligations. To that extent we intend to hear 
from all the participants that we can over a period of time. 
Today we have four, but I assure you, both at the full 
committee and the subcommittee, we will be hearing many, many, 
many more.
    And with that, I recognize the ranking member for his 
opening statement.
    Mr. Cummings. I want to thank the chairman for yielding and 
for this hearing.
    Ladies and gentlemen the U.S. Postal Service is the 
Nation's premier mail delivery service, providing universal 
service to the American people at fair and reasonable rates. 
Last year the Postal Service delivered nearly 40 percent of the 
world's mail, serving 150 million U.S. residences, businesses 
and post office boxes.
    Although the Postal Service generated more than $67 billion 
in revenue last year, it faced serious financial challenges 
recently. Since 2007, its revenues have declined because of 
reductions in mail volume, increasing energy prices and the 
recent downturn in the U.S. economy. The Postal Service 
reported losses of $5.1 billion in 2007, $2.8 billion in 2008, 
$3.8 billion in 2009 and $8\1/2\ billion in 2010.
    I'm encouraged that the Postal Service has taken 
significant and serious steps to address these challenges. Last 
year the Postal Service issued a new 10-year strategic business 
plan that improves productivity, cuts costs in operations, uses 
more cost-effective retail channels, and consolidates 
administrative functions. With new leadership in place, we are 
beginning to witness emergence of a smaller, smarter and more 
nimble organization that is reinventing itself to become more 
competitive in an evolving marketplace.
    With this in mind, there are some key points I would like 
to emphasize. First, the Postal Service pays salaries that are 
comparable to the private sector. A recent review found that 
the Postal Service letter carriers received a standing--
starting salary that was slightly more than FedEx carriers and 
slightly less than UPS drivers, both on an initial per-hour 
basis and after several years of service.
    I might note that behind me is a chart that says that 80 
percent of the Postal Service money goes into employees, and it 
is interesting that this very committee, Mr. Chairman, 87 
percent of our money goes for personnel expenses.
    Second, the Postal Service has been aggressively reducing 
its work force. The current work force is the smallest in 20 
years, employing nearly 100,000 field workers in 2008. Since 
2000, the Postal Service has reduced its work force by nearly 
27 percent. Let me say that again, 27 percent. And it plans to 
continue reductions through attrition and by extending its 
current hiring freeze.
    Third, the Postal Service is actively examining additional 
proposals to further reduce costs. For example, GAO recently 
recommended a host of cost-cutting measures, including a 
legislative proposal to modify the Postal Service's mandated 
requirement to prefund retiree health benefits. Currently the 
Postal Service is the only Federal entity required to prefund 
retiree health benefits, and these costs are expected to 
average, ladies and gentlemen, $5\1/2\ billion annually through 
fiscal year 2016.
    Mr. Chairman, as we discuss these proposals today, I would 
like to offer a note of caution. More than 200,000 members of 
the American Postal Workers Union are in the midst of voting on 
a tentative labor agreement concluded with the Postal Service 
on March 14, 2011. This agreement would institute a 2-year 
freeze, a 2-year freeze on wages and cost-of-living 
adjustments, and it is projected to save approximately $1.7 
billion. It would allow the Postal Service to reduce the 
starting salary of postal clerks even further, from $40,800 to 
$35,300, and it would implement one of the recommendations made 
by GAO by allowing greater use of noncareer and part-time 
employees.
    While it is appropriate for this committee to conduct 
oversight of the Postal Service, we must be very, very 
sensitive to criticism that we are using in today's hearing to 
improperly shape the outcome of the impending vote. Both 
management and the union have negotiated in good faith, and we 
should allow workers to consider this tentative agreement 
without undue congressional intervention.
    Finally, Mr. Chairman, I would like to thank all the postal 
employees for their dedication and for their hard work. For the 
sixth consecutive year, the Postal Service, above all other 
government agencies, continues to be named as the most trusted 
and reliable government agency by the American people. That's a 
hell of a compliment.
    The Postal Service is also one of the largest employers of 
veterans in our country, with approximately 22 percent, or 
about 114,000 employees, veterans, having previously served in 
the U.S. Armed Forces. Moreover, approximately 40,000 of these 
employees are disabled veterans.
    I feel strongly that our committee should focus not only on 
stemming recent losses at the Postal Service, but on pursuing 
options to create a healthy and profitable Postal Service for 
the future. And a key component of this new organization must 
be a reasonable and livable wage for these devoted and 
trustworthy public servants.
    Once again, I say to every single member of the post office 
community, we thank you for what you do every day, rain or 
shine, delivering our mail, dogs biting you, the rain, sleet, 
hail. We thank you over and over again, and may God bless you.
    And with that I yield back.
    Chairman Issa. I thank the ranking member.
    By previous agreement we will now recognize the ranking 
chairman--the ranking subcommittee--the subcommittee chairman 
and the subcommittee ranking member.
    Mr. Ross, you're recognized for 5 minutes.
    Mr. Ross. Thank you, Mr. Chairman. Again, thank you for 
this hearing.
    Today the committee will hear from the Postmaster General 
and two of the Presidentially appointed Board of Governors, who 
will attempt to lay out their vision for a substantial postal 
work--substantive postal work force and describe how the APWU 
contract fits into that vision. This will be the first time in 
a decade that multiple USPS governors will appear together at a 
congressional hearing.
    We know that the Postal Service is one of the largest 
organizations and employers out there. It has more than a half 
million employees, and that exceeds all of U.S. companies 
except for Wal-Mart. It has a phenomenal marketing and delivery 
infrastructure, where it goes to every consumer--or goes to 150 
million consumers every day.
    Unfortunately, due to the ongoing digital revolution, the 
business model of the Postal Service is fundamentally broken. 
It is losing billions of dollars every year and now stands on 
the brink of insolvency. This is not just a short-term problem, 
as the Postal Service projects growing deficits for the 
foreseeable future. It is incumbent upon the USPS to develop 
and implement a new business model as soon as possible.
    I commend Mr. Donahoe for what he was done, his commitment 
to implement strategy that will reduce costs by undertaking 
major organizational restructuring, reviewing post office 
closures, and adjusting delivery frequency. I hope we can 
empower you to do more. At 80 cents on every dollar, work force 
costs make up a disproportionate share of Postal Service costs. 
These costs must be addressed head on as part of any serious 
reform effort. Among these costs are a large postal 
compensation premium that has been estimated at 34 percent. In 
fact, in a 2001 arbitration decision, a neutral arbitrator, 
Stephen Goldberg, stated, ``In concluding that there exists a 
Postal Service wage premium, I join a long list of arbitrators 
in prior USPS interest arbitrations who have reached the same 
conclusion.''
    Regrettably, the tentative the contract USPS recently 
announced with its largest union, which represents over 200,000 
employees, maintains it expands no layoff protections, 
guarantees wage increases, and ensures that USPS employees 
continue to pay a lower portion of health care premiums than do 
other Federal employees.
    USPS claims the contract will save them $3.8 billion over 
its 4\1/2\-year life, but I'm skeptical of that. However, as 
this chart shows, assuming that all these savings are achieved, 
it hardly makes a dent in projected USPS deficits. Given this, 
it is unclear how this deal, which would serve as a template 
for deals with other USPS unions, will give USPS the ability to 
immediately reduce work force costs and maintain solvency.
    One of the Board of Governors testifying today is James 
Miller, who is a former head of OMB. In contrast to other USPS 
executives, Miller has expressed disappointment with the APWU 
contract, and only endorsed it as the best possible under a 
broken arbitration system. In a paper Mr. Miller concluded--
included with his testimony today, he also outlined options for 
reforming postal collective bargaining and noted econometric 
analysis has found USPS employees are paid a significant 
premium relative to their private-sector counterparts.
    I look forward to hearing from Governor Miller and the rest 
of the witnesses.
    I would like to thank the chairman for this hearing, and I 
do yield back.
    Chairman Issa. I thank the chairman.
    [The prepared statement of Hon. Dennis A. Ross follows:]
    [GRAPHIC] [TIFF OMITTED] 68048.001
    
    [GRAPHIC] [TIFF OMITTED] 68048.002
    
    Chairman Issa. And with that, we recognize the ranking 
member of the subcommittee Mr. Lynch for 5 minutes.
    Mr. Lynch. Thank you, Mr. Chairman.
    I want to thank the witnesses for helping the committee 
with its work. A little over a month ago, the Subcommittee on 
the Federal Workforce, Postal Service, and the District of 
Columbia held a hearing on financial condition of the Postal 
Service, and the news at the time, as most of you know, was 
less than encouraging, although it was a bit better than what 
we saw last fiscal year.
    At the conclusion of this year's first quarter, the Postal 
Service had a net loss of $329 million compared to a net loss 
of $297 million for the same period in fiscal year 2010. 
However, if you exclude the cost of prefunding future retiree 
health care benefits, as the ranking member has pointed out a 
burden that no other agency or private business in America is 
required to carry, and you add the noncash adjustment to the 
Postal Service's worker compensation liability, the Postal 
Service would have actually ended the first quarter with a net 
income of $226 million--a gain of $226 million.
    Further, over the past couple of years, we've witnessed the 
Postal Service and its employees work to improve efficiencies 
and reduce costs by over $10 billion. Since 2008, the size of 
the Postal Service work force has decreased by over 100,000 
employees, which is probably why many observers point out that 
the Postal Service actually stands as a model for the rest of 
the Federal Government in terms of lowering costs and right-
sizing its work force and network.
    The tentative agreement recently reached between the Postal 
Service and the American Postal Workers Union is the latest 
example of postal management and its employees working together 
to ensure the future viability of an entity that serves as a 
cornerstone of a trillion-dollar industry and supports over 
7\1/2\ million private-sector American jobs.
    However, let's be clear, there are certain aspects of the 
Postal Service's compensation and benefits costs that are out 
of the organization's control. Specifically I'm referring to 
the hardwired health care benefit payment schedule that forces 
the Postal Service to prefund future liability at an overly 
aggressive rate, again a requirement that no other agency or 
company in America must shoulder.
    On top of its prepayment obligation, the Postal Service is 
also subject to Federal employee pension rules and guidelines, 
which have resulted in a potential overpayment of both its 
Civil Service Retirement System and its Federal Employee 
Retirement System.
    So in answer to the question are postal work force costs 
sustainable, which is the subject of this committee, the 
answer, I guess, is it depends. It depends if we believe in 
universal service. It depends if we believe in a reliable 
manner of delivering the mail. It depends if costs to the 
consumer will be reasonable. And it depends on whether or not 
this country still respects its workers and is willing to treat 
them with basic dignity. For this reason I, along with 
Congressman Cummings and other Democratic members of the 
committee, have introduced H.R. 1351, the U.S. Postal Service 
Pension Obligation Recalculation and Restoration Act of 2011.
    H.R. 1351 directs the Office of Personnel Management to 
update the actuarial methodology to be used in calculating CSRS 
retirement benefit liabilities between the U.S. Postal Service 
and the Federal Government in accordance with modern actuarial 
practices and accounting standards. Any resulting surplus from 
the recalculation would then be transferred over to the Postal 
Service Retiree Health Benefit Fund.
    Last, H.R. 1351 will require that the Postal Service's 
already agreed-upon FERS surplus of nearly $7 billion also will 
be refunded immediately by applying the following: $5\1/2\ 
billion toward the Postal Service's fiscal year 2011 retiree 
health benefit payment, $1.2 billion toward the Postal Service 
upcoming workers' compensation payment, and any remaining 
balance toward paying down the Postal Service debt. Since it is 
the job of this committee to find ways to help ensure the 
Postal Service remains a valued and viable entity well into the 
future, I urge all of my colleagues to consider cosponsoring 
this fiscally responsible legislation.
    With that said, I look forward to a constructive and honest 
discussion on this important topic. And I thank all of the 
witnesses for coming and providing their input in this 
morning's hearing.
    Thank you. I yield back.
    Chairman Issa. I thank the gentleman.
    All Members will have 7 business days to submit opening 
statements and extraneous material for the record. Without 
objection, so ordered.
    We now recognize our distinguished panel of witnesses. The 
honorable Louis J. Giuliano.
    Mr. Giuliano. Giuliano, very good.
    Chairman Issa. I don't want to mess that one up--is the 
chairman of the U.S. Postal Service Board of Governors. The 
honorable James C. Miller, III, is a member of the Board of 
Governors of the U.S. Postal Service. Mr. Patrick Donahoe is 
the Postmaster General and chief executive officer of the U.S. 
Postal Service and a frequent visitor. And Mr. Cliff Guffey is 
president of the American Postal Workers Union and critical to 
today's hearing.
    Pursuant to committee rules, all witnesses are required to 
be sworn. Would you please rise to take the oath. My script 
says to tell you to raise your right hands, but that usually 
goes without saying.
    [Witnesses sworn.]
    Chairman Issa. Would the record reflect that all witnesses 
answered in the affirmative?
    Please be seated.
    Gentlemen, in order to allow time for hopefully everyone on 
the dais to ask you a series of questions, we'd ask that your 
entire statements be placed in the record. In some cases you 
may choose to work off of them, but if you choose to use your 5 
minutes for other material, you'd be well served, because then 
you'll have your cake and submit it, too.
    With that, please try to summarize during the yellow light 
appearing in front of you, and conclude as quickly as you can 
when it goes to red.
    During the question-and-answer session, because we have a 
large gathering today, I will have a fairly quick gavel. What 
that really means is if someone is still answering questions 
until a few seconds before the end of the time, I may say that 
you have to give a very short answer, not anything more than a 
yes or no, or I'll reply for the record.
    On the other hand, if you are in the process of making an 
answer, no matter how long, as long as it is necessary, I will 
allow you to continue until you've completed your answer so 
that incentivizes people up here to quit talking in time for 
you to have a full and complete answer.
    Additionally, if somebody would like to also answer a 
question after the time has expired, it will be the general 
policy to allow one additional person to comment afterwards. I 
hope that allows us to average 6 or 7 minutes on a 5-minute-
per-Member basis, which is about as tight as we can hold it and 
be fair to both you and the Members.
    So with that, chairman, you're recognized for 5 minutes.

STATEMENTS OF LOUIS J. GIULIANO, CHAIRMAN, U.S. POSTAL SERVICE 
BOARD OF GOVERNORS; JAMES C. MILLER III, GOVERNOR, U.S. POSTAL 
    SERVICE; PATRICK DONAHOE, POSTMASTER GENERAL AND CHIEF 
EXECUTIVE OFFICER OF THE U.S. POSTAL SERVICE; AND CLIFF GUFFEY, 
       PRESIDENT, AMERICAN POSTAL WORKERS UNION, AFL-CIO

                 STATEMENT OF LOUIS J. GIULIANO

    Mr. Giuliano. Good morning, Mr. Chairman and members of the 
committee. As we've talked about, my name is Lou Giuliano. I 
serve as chairman of the Board of Governors of the Postal 
Service. This is my first opportunity to testify before you, 
and I thank you for the privilege.
    The Board shares the concerns expressed by members of the 
committee about the financial losses at the Postal Service. We 
also appreciate the fact that some in Congress are concerned 
about our labor costs, and in particular the tentative contract 
that has been negotiated with the American Postal Workers 
Union. For these reasons we feel today's hearing is critically 
important, and the Board of Governors applauds your willingness 
to explore these issues in depth.
    The tentative contract with the APWU is the best that was 
achievable under the existing law. Failure to reach a 
negotiated agreement places us in binding arbitration, an 
outcome that, Mr. Chairman, we believe would not have allowed 
us to realize most of the benefits that we did gain in this 
contract negotiation. This is especially true as it pertains to 
flexibility of the work force.
    The tentative agreement provides the Postal Service with 
three important things: immediate cost control, a flexible work 
force and long-term structural change. The Board unanimously 
supports the tentative agreement, which would produce a cost 
savings of $3.8 billion during its life. We believe that both 
labor and management have demonstrated their determination to 
right this ship in these negotiations.
    We also appreciate the fact that we urge the committee to 
consider other actions that are necessary to protect the 
financial viability of this important American institution. On 
the top of this list is a retiree health care benefit 
prepayment program. First let me be clear, we have been and 
will continue to pay our fair share of health care costs for 
our employees and retirees. But the $5\1/2\ billion of 
accelerated payments for future retirees, many of which who 
have not even been hired, mandated in the 2006 PAEA are an 
extraordinary burden that no other organization, neither public 
nor private, is required to make. They constitute a hidden tax 
that is neither fair nor responsible.
    We have been repeatedly told that our prepayments for 
future retiree health care benefits is a scoring issue. During 
the last 4 years, in 2007 to 2010, we had total net losses of 
$20 billion. This would have been a total profit of $1 billion 
had we not paid in expense $21 billion of retiree health care 
benefits. Instead of owing $12 billion today, we would have $9 
billion in the bank.
    Only Congress can correct this problem, and I believe it's 
in everyone's interest to do so. If action is not taken to 
address this situation immediately, the Postal Service will 
default on our payments on or before September 30th of this 
year.
    Despite the overpayment of almost $7 billion, we continue 
to have to pay $3 billion per year into the FERS system. We are 
told that only a change in the law can fix that.
    The workers' compensation regulations that we work under 
are cumbersome, unfair and costly. We have liabilities that no 
other company that I'm aware of or organization would have. 
Workmen's compensation represents a $12 billion liability for 
the Postal Service and cost us over $1 billion in cash last 
year. We ask you to consider the legislation that has been 
introduced in the Senate to address this issue. It is a 
governmentwide problem.
    We also require action to create a more flexible delivery 
schedule. We would prefer not to have to go to a 5-day delivery 
schedule, but, when considering the alternatives, we consider 
the best. It is the only way and a significant way to help 
offset the decline of first-class mail.
    Management has demonstrated the ability to drive 
significant improvements in its processes and reduce the size 
of the postal work force, while improving service levels and 
adding new delivery points every year. The tentative labor 
agreement negotiated with the APWU is a solid step to reducing 
labor costs. We are hopeful that we will achieve further 
flexibility in our negotiations with our other three unions. We 
are eager to work with Congress to effectively resolve these 
and other major issues. It is my hope by working together we 
can enable this venerable institution to reshape itself to meet 
the future needs of the American public and leave a legacy 
about which we can all be proud.
    Thank you. I look forward to your questions.
    Chairman Issa. Thank you.
    [The prepared statement of Mr. Giuliano follows:]
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    Chairman Issa. Governor Miller.

                STATEMENT OF JAMES C. MILLER III

    Mr. Miller. Thank you, Mr. Chairman.
    Good morning, Mr. Chairman and members of the committee. 
I'm Jim Miller, and I'm responding to your invitation to 
testify today.
    Chairman Giuliano speaks for the Board, he is chairman of 
the Board, and to the extent that my--the views I express 
differ in any way from those that Governor Giuliano expresses 
or expressed by Postmaster General Donahoe, please list those 
as my own personal views and don't--and they shouldn't be 
attributed to any other governor or to the Postal Service 
management.
    While I'm on the subject of Board of Governors, I wish to 
emphasize it works in a very collegial fashion. There are four 
Democrats right now and four Republicans appointed by President 
George W. Bush and--or President Barack Obama, but we work in a 
very nonpartisan way, and we work very, very hard.
    Now, thank you for holding this hearing. As Governor 
Giuliano outlined and other--and Members of the Congress have 
outlined, the U.S. Postal Service is in dire financial shape. 
Without some miracle, as Governor Giuliano pointed out, we will 
default. We will be insolvent and default on September 30th. We 
will default on the debts that we owe the United States at 
that--the U.S. Government at that point. And I respectfully 
submit that only you can avoid that fate.
    I have submitted, as you have mentioned, Mr. Chairman--or 
Mr. Ross of--Chairman Ross mentioned that I have submitted a 
short statement and an attached paper. Let me just say that 
what I--the point I'm making, that paper in my statement, is, 
as Chairman Ross said, the current model for the Postal Service 
is broken, it is inapplicable. You have a demand that is 
shrinking. You have the high-profit mail, first-class mail, 
shrinking. And there just isn't the opportunity to earn those 
kinds of profits on the high-class mail to subsidize all of the 
other things that we have done.
    To survive, the Postal Service needs systemic reform. 
Financial relief, in my judgment, is not enough. We need 
systemic reform. We need freedom to operate as a commercial 
enterprise.
    Now, I realize that there are--some misgivings have been 
expressed about the latest APWU agreement. My response is that 
we did the best we could under existing law. Our current 
system, from all the evidence that we have in times that we 
went to compulsory arbitration, is that the system is biased in 
favor of labor and against management. The unions know this, 
and we know this. And so in our decision to accept the best we 
could get with our negotiations or go to arbitration, we had to 
keep this in mind. And so we accepted this agreement as the 
best deal we could get. I respectfully submit, Congressmen, 
members of the committee, that if you want a better deal, you 
have to change the law.
    Mr. Chairman, thank you for inviting me here today, I look 
forward to responding to your questions.
    Chairman Issa. Thank you, Mr. Miller.
    [The prepared statement of Mr. Miller follows:]
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    Chairman Issa. Mr. Donahoe.

                STATEMENT OF PATRICK R. DONAHOE

    Mr. Donahoe. Good morning, Mr. Chairman and members of the 
committee. It is an honor to be here to today to testify about 
the tentative agreement between the Postal Service and the 
APWU. I appreciate the invitation to testify about such an 
important development for the Postal Service.
    For the past several years, the Postal Service has been 
responding to an unprecedented 20 percent decline in mail 
volume. We have been extremely aggressive in managing costs 
throughout this period. Since 2008, we have reduced 110,000 
employees and $11 billion in costs. We recently announced the 
reduction of an additional 7,500 managerial positions, a 35 
percent reduction in that group since 2008. Our full-time 
career complement today is 572,000 employees. We will continue 
to reduce the number of full-time career employees, thereby 
reducing our legacy costs. By 2020, the Postal Service work 
force will be less than 400,000 people. Through process 
improvement and personnel reductions, we have taken the 
necessary steps to bring costs in line with declining revenue, 
and we will continue to do so.
    More than 8 months ago, the negotiating team began 
bargaining to shape the labor contract for 202,000 career 
employees. The parties negotiated long and hard and dealt 
responsibly with tough issues. We sought, and we were able to 
achieve, greater work force flexibility, immediate financial 
benefit and long-term structural changes.
    One of the most important aspects of the tentative 
agreement is that it provides significant work force 
flexibility. We will be able to schedule our employees in ways 
that makes sense for a variable work flow business and will be 
able to increase the use of noncareer employees.
    I would like to impress upon this committee that neither 
side was willing to take the easy way out or simply roll the 
dice and leave our respective fates to a third-party 
arbitrator. We need the flexibility to properly schedule our 
work force, and we achieved that. Interest arbitration is not 
going to result inflexibility gains of this magnitude.
    This tentative agreement also provides for immediate 
financial benefit by freezing wages for the first 2 years, and 
leads to a wage savings of $1.8 billion over the term of the 
agreement.
    We negotiated structural changes that result in a two-tier 
pay schedule for new employees that is 10.2 percent below 
existing schedules. We also will be able to increase the use of 
noncareer employees from the 5.9 percent today with 
restrictions to a totally unrestricted roughly 20 percent. 
These changes provide a benefit of $1.9 billion. I look forward 
to negotiating with our other three unions to gain similar 
results.
    While it is the nature of negotiations that neither side 
got everything that they want, I will tell you it is the best 
possible outcome that we could have achieved given the legal 
framework of which we operate. This is a responsible agreement.
    America needs a healthy Postal Service and a healthy 
mailing industry, and although we have seen declines in the use 
of mail, the mail and physical delivery are extremely important 
and always will be.
    Mr. Chairman, while this morning we are discussing our 
tentative agreement with the APWU, it is important to recognize 
that our labor agreements are but one element in a larger 
strategy to return the Postal Service to profitability. Let me 
assure you I am doing everything possible to take costs out of 
this system as quickly as possible, and I will continue to do 
so.
    Our business model is inflexible; we need reform in the 
laws that govern us. We must get beyond the mandates that 
require us to prefund retiree health benefits, to overfund our 
Federal Employee Retirement System, and to deliver mail 6 days 
a week. Congress plays an important role in our future. The 
Postal Service is reducing costs, and we want to work with 
Congress to gain the business model flexibility that we need to 
best serve our customers.
    Let me close by stating the Postal Service has achieved 
record service and productivity levels over the past few years, 
while absorbing significant volume loss. The credit belongs to 
our employees. I will never forget for one moment that we are 
able to deliver for America, and that is due to the commitment 
and relentless dedication of our employees.
    We are in the process of changing many things about the 
Postal Service to better serve the American public. This 
contract and your commitment to continued engagement in postal 
issues will help us meet their changing needs.
    I will be more than happy to answer any of your questions. 
Thank you very much.
    Chairman Issa. Thank you.
    [The prepared statement of Mr. Donahoe follows:]
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    Chairman Issa. And the Chair would note that you have added 
one very good member of your team sitting behind you that we 
all recognize as the leader on this issue Mr. Stroman.
    Mr. Donahoe. Yes, and we are pleased to have him. Thank 
you.
    Chairman Issa. Ron, next time you get up and testify, we'll 
get you sworn in.
    Mr. Guffey is recognized for 5 minutes.

                   STATEMENT OF CLIFF GUFFEY

    Mr. Guffey. Mr. Chairman and members of the committee, I am 
Cliff Guffey, president of the American Postal Workers Union. 
Postal workers are very proud of the fact that we provide an 
essential service to the American people.
    We have faced many challenges over the past decade as a 
result of the severe economic recession and a decline of first-
class mail. From 2008 to 2010, the postal work force was cut by 
approximately 110,000 jobs. Thousands of workers represented by 
the APWU were reassigned to jobs far from their homes and 
families. This resulted in severe hardships for these workers 
and their families. Despite all this disruption and all this 
hardship, postal workers' productivity has increased, and on-
time service to the American public has remained at excellent 
levels.
    APWU approached the labor negotiations that prompted these 
hearings with one primary test in mind: What will be right for 
the employees we represent, the Postal Service and American 
people it serves. It is a testament to the value of collective 
bargaining that the APWU and the Postal Service have reached a 
tentative agreement that meets this test. It gives the Postal 
Service an opportunity to return to postal employees work that 
has been contracted out, to save money doing it. Under this 
agreement APWU would compete aggressively to return work to 
bargaining unit employees, work that is being performed at a 
greater cost by contractors and in some instances by higher-
paid, nonbargaining unit employees.
    The tentative agreement also protects the livelihoods of 
the people APWU represents, people who have dedicated their 
working lives to provide postal services to the public. Postal 
employment has been and continues to be an important source of 
middle-class employment opportunities. The Postal Service 
employs more than 129,000 veterans in its career work force. In 
2010, these veterans were 22 percent of the postal career work 
force; 49,000 of these veterans are disabled veterans, and 
13,000 of them, including me, are rated as 30 percent or more 
disabled.
    In 2010, women were approximately 40 percent of our work 
force, and minorities were approximately 40 percent of the work 
force. I am proud of the fact that this tentative agreement 
protects the livelihoods of these and all career postal 
workers.
    In review of these negotiations, the postal history will 
show that since the passage of the Postal Reorganization Act of 
1970, postal wages have closely tracked inflation. Meanwhile, 
Postal Service productivity, including labor productivity, has 
consistently increased. As a result, postal ratepayers have 
benefited from excellent service at low postage rates. Since 
1970, postage rates have not gone up any faster than the prices 
in the economy generally.
    If this committee wants to help the trillion-dollar-per-
year mailing industry, it should relieve the Postal Service of 
the burden of prefunding retiree health benefits and correct 
the overfunding of CRSR and FERS. But for the unique and 
unreasonable and unnecessary requirement to prefund the retiree 
health benefits, the Postal Service would have had a 
substantial financial surplus over the past 4 years instead of 
a substantial deficit.
    No one could expect postal employees or postal ratepayers 
to shoulder the costs of paying billions of dollars into a 
Federal trust fund unnecessarily. That is a problem that 
requires a legislative solution.
    I would like to add the Congress is again holding hearings 
on the symptoms of the problem; holding hearings on Social 
Security, which is a symptom of the problem. Holding hearings 
on unemployed veterans is a symptom of the problem. The problem 
in this country is the economy. The economy. The economy that 
sets up trillions and trillions of dollars to be shipped 
overseas, while in America, on our side of the ledger, we have 
more unemployment, underemployment, lower wages and people 
losing their homes to mortgages. We have problems--our national 
deficit, trillions of dollars for people overseas and trillions 
of dollars of deficit here. You correct the problems in the 
economy, and the Postal Service will take care of itself.
    Thank you.
    Chairman Issa. I thank the gentleman.
    [The prepared statement of Mr. Guffey follows:]
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    Chairman Issa. I now recognize myself for 5 minutes for a 
round of questioning.
    Mr. Giuliano, you said several times things along the line 
in your opening statement of no company would have to bear 
this. Isn't it true that a company would have to, under law, 
fully fund its liabilities in real cash transfers for a defined 
benefits program? Isn't the pension law one in which you must 
pay in advance every day for what you eventually will pay out 
for--in retirement and in health care, if that's part of your 
benefits plan?
    Mr. Giuliano. The big different in this case, Congressman, 
is that we--no company that I'm aware of would be required to 
pay for future retiree health care.
    Chairman Issa. OK. Well, maybe we will go to Governor 
Miller. Isn't it true that every company that has a defined 
benefit plan does have to pay for future retirees? Not future 
employees, which you said, which we'll look into. But General 
Motors I can recall taking a, I think it was, $5\1/2\ billion 
hit one time by a change in the accounting rules that caused 
them to have to recognize more into the defined benefits plan, 
and ultimately by the time they went into bankruptcy, that was 
their greatest cost differential between themselves and the 
Japanese was having to pay into the defined benefit plans. 
Would you like to comment on that?
    Mr. Miller. Yes, Mr. Chairman, to my knowledge your 
characterization is accurate.
    Chairman Issa. So maybe the question here today for this 
committee, which also oversees FERS and so on, is shouldn't 
every government entity have to fully recognize at least on 
paper the legacy costs they are creating today with employees 
who will retire in the future? Is there anyone that disagrees 
with at least accounting for that? I understand your concern is 
paying for it, but does anyone disagree with the accounting of 
knowing what the future costs were going to be? Let me ask----
    Mr. Miller. Mr. Chairman, I think you make an important 
point. We are a commercial enterprise, so we have a bottom 
line. Most government agencies are not, so it would be an 
accounting entry. But to have Congress and everyone else 
recognize that government agencies, other government agencies, 
have these liabilities would be a good idea.
    Chairman Issa. And I think that's something this committee 
needs to look at broadly is the truth in accounting of what our 
legacy costs would be.
    Mr. Donahoe.
    Mr. Donahoe. If I could comment, too, Mr. Chairman. I think 
there are a couple of things we have to look at here. No. 1, 
when you look at the entire retirement liability that the 
Postal Service has, we feel that we are overfunded into the 
Civil Service Retirement Fund. I know Mr. Lynch has a bill 
coming up to ask the GAO and the White House to go back and 
look at those accounts. Somewhere between $50 and $75 billion, 
from our estimates----
    Chairman Issa. Mr. Donahoe, the question for you, since the 
administration, I understand, has already rejected the 
argument, you're asking them to go back and relook at something 
they've already rejected?
    Mr. Donahoe. Yes, sir. Yes, sir.
    Chairman Issa. OK. I think it was Einstein that said that 
if you keep doing the same thing over and over again expecting 
a different result, that's the definition of insanity.
    Let me take my limited time and go on with just a couple 
more things.
    Mr. Giuliano. Mr. Chairman----
    Chairman Issa. No, no, please. There will be plenty of time 
for followups.
    Mr. Donahoe, you said, and Mr. Miller said, and I think Mr. 
Giuliano said that this was the best you could do under 
existing law. Isn't it true that in binding arbitration, two 
provisions could not have happened: the provision for 
insourcing janitorial services that Mr. Guffey referred to as 
outsourced at a greater cost--and I object to it being a 
greater cost. If it is, then we need to address that. But that 
could never have been achieved except through this agreement, 
the insourcing. That was not, in fact, a part of the collective 
bargaining. It became part because it was put on the table.
    Also in the case of a change from a statutory approved 
category of people that were not eligible to be under 
collective bargaining to this new category, who most assuredly 
will become eligible under collective bargaining. As I 
understand it, the provision that you negotiated creates an 
absolute requirement: If you don't join the union, you lose out 
on $3,000 of free benefits. So isn't it effectively that this 
new category of workers that was estimated be 35,000 at the end 
of 1 year immediately costs us at least 3,000 more before you 
do a pay raise, so that by year 3 our estimation is this group 
will cost you more, not less? Mr. Donahoe, do you want to 
comment on that?
    Mr. Donahoe. Yes. A couple things. First of all, we set out 
in this agreement to achieve three basic----
    Chairman Issa. I appreciate all of that, and you'll get 
plenty of time on that. But, one, isn't it true those two times 
could not have been done by mandatory arbitration; they 
couldn't have ordered those two changes?
    Mr. Donahoe. In mandatory arbitration it is roll the dice. 
We maintain----
    Chairman Issa. OK. Mr. Miller, would you disagree with 
that? In arbitration could those have been on the table? They 
weren't part of the collective bargaining agreement. Could they 
have become part, essentially mandating new union employees and 
a new category?
    Mr. Miller. Mr. Chairman, I'm not an attorney, but my 
understanding is that if a provision is part of the package 
that the union was advancing, the arbitrator could take these 
items and include it in the final determination.
    Chairman Issa. Historically arbitration is about the pay 
and benefit of those covered, not those not covered. So the 
likelihood, at least from the advice I'm getting, is that there 
were two things which increased the number of Mr. Guffey's 
union workers, and that is that you're substantially insourcing 
4,000 people who previously were just contract employees to 
clean and do other janitorial work, and this category that now 
will most assuredly be added to the union and undoubtedly be in 
the next bargaining contract asking to be treated fairly and 
equally with their brothers.
    Mr. Donahoe, if you could answer briefly?
    Mr. Donahoe. First off, it's important to note that we 
maintained all outsourcing provisions in the contract going 
forward. What we looked at in the case of the custodial 
employees was the financial benefit to bring the work back into 
the Postal Service with newly negotiated, substantially lower 
wage rates. We did that with everything we looked at from an 
insourcing standpoint. We compared costs, like we do with 
everything. We always keep our eye on the bottom line.
    Chairman Issa. My time has expired. I want to be thoughtful 
of that.
    Mr. Cummings.
    Mr. Cummings. Thank you very much.
    You know, it is very interesting that when you look at the 
fact that since 2008 there have been a reduction of 100,000 
employees, that's a lot of people, that's a lot of families.
    And as I listen to what has been going on this morning, you 
know, sometimes you can begin to cut to the bone. At some point 
you begin to cut through the bone.
    Last year, the Government Accountability Office released a 
detailed report on options and strategies that could 
potentially improve the Postal Service's future financial 
viability. A significant portion of this study focused on 
reducing the Postal Service's compensation and benefits cost. 
For example, the GAO study recommended creating a two-tiered 
system that would pay new hires lower wages, while 
grandfathering current employees under the existing pay system.
    Mr. Donahoe, how does the tentative labor agreement reached 
between the Postal Service and APWU carry out that 
recommendation?
    Mr. Donahoe. Thank you, Mr. Cummings.
    We have two things that we have been able to reach 
agreement with the APWU in terms of flexibility and structural 
change. The first is we have been able to negotiate a 
percentage of each of the crafts represented by the APWU. 
Twenty percent of the clerk craft, which is the largest portion 
of the APWU, will now be noncareer flexible employees. We have 
10 percent in the motor vehicle and 10 percent maintenance. So 
that is one large structural change, as you have noted, with 
the GAO study.
    The second thing we have been able to do is negotiate an 
entry wage rate of 10.2 percent less that never changes. It is 
a two-tier wage rate going on from now until a person retires 
from the Postal Service, again, giving us an opportunity for 
financial relief and flexibility going forward.
    Mr. Cummings. So you mean that new person coming in will 
make 10 percent going through?
    Mr. Donahoe. Forever.
    Mr. Cummings. Forever.
    Mr. Donahoe. Forever.
    Mr. Cummings. And what impact will that have on the postal 
system? I am just curious. With the last piece there.
    Mr. Donahoe. The last piece, what we were concerned about 
was long-term structural change. In the short term, in the next 
3 or 4 years, we will continue to hire very few career 
employees. But when you get out to 2016 through 2020 and out 
beyond that, as you hire career employees, you will be able to 
save that differential.
    Mr. Cummings. GAO also recommended greater use of noncareer 
or part-time employees going forward in order to reduce the 
Postal Service's compensation-related expenses. The Postal 
Service's 10-year strategic plan made similar recommendations. 
What steps has the postal system taken to accomplish this goal? 
And I remind you that this committee itself, this committee, 87 
percent of our money goes to employees. You are at 80 percent. 
Are you trying to reduce that further?
    Mr. Donahoe. What we do, being the labor-intensive 
organization we are, we constantly look to shrink the pie. So 
you will always be higher from a percentage standpoint. The 
idea is you are trying to shrink the total cost. And we have 
accomplished that through a number of ways: the productivity 
improvements that people have noted, head count reductions, as 
well as this negotiation.
    Going forward, from a flexibility perspective, I mentioned 
the percentages before that we have been able to work out with 
the APWU. The other big change is the fact that within our 
regular employment structure, we are working with the APWU to 
provide flexible assignments. Currently you have a number of 
people that will work 5 days a week, 8 hours a day on the same 
schedule. Our needs change daily. We have been able to work out 
an agreement with the APWU that provides flexibility, work 
hours anywhere between 30 to 48 a week, with changing hours 
daily. That meets our customers' needs.
    Mr. Cummings. President Guffey, if ratified, the tentative 
contract you negotiated will bring the new APWU rehires in at a 
much lower pay scale. What does this new pay system say about 
the Postal Service and the APWU's commitment to reducing 
compensation? Because we keep hearing people banging on public 
employees, and it seems to me that this is going a long way. 
People are literally making less money. I know there has been--
there is a freeze, is that right, Mr. Donahoe, for 2 years?
    Mr. Donahoe. Yes, sir.
    Mr. Cummings. So I am just wondering. You are representing 
your union. I just want to know how--you know, what does that 
say about your union?
    Mr. Guffey. First, I would like to correct one thing Mr. 
Issa said. He said that they would have to join the union to 
get this health insurance. Our health insurance plan that we 
are providing to the noncareer people is a nonprofit plan that 
is low-cost, and no one will have to join the APWU to get the 
benefit of that plan. In other words, the parties decided that 
was--I insisted that these new people would have to have 
insurance, and so we would provide it in the lowest cost. But 
we cannot require these employees to join the union to get that 
insurance.
    Having--you know, as part of your followup answer, as a 
labor organization we have no desire to destroy the company 
that we work for. We entered into these negotiations knowing 
that the Postal Service was under dire financial straits by the 
prefunding requirements, and that we would have to work our way 
through it. And in doing so, we wanted to ensure the future.
    Now, some of the other corrections are that--we discussed 
inflexibility. The old work rules that were five within eight, 
that may not allow the Postal Service to keep windows open, 
say, to 6, 7 o'clock, and, by doing so, turning away customers. 
So we allowed them to do this without overtime. A lot of other 
issues.
    Mr. Cummings. I see my time has expired. It is called 
shared sacrificed. Thank you.
    Chairman Issa. I thank the gentleman.
    We now recognize the gentleman from Florida Mr. Mack for 5 
minutes.
    Mr. Mack. Thank you, Mr. Chairman. And I, for one, like the 
placement of your signs and hope that Members on the other 
side, if you don't like the signs, then maybe help us craft 
solutions to changing the signs.
    Last month, Mr. Donahoe, when you were here testifying, you 
acknowledged labor costs as a large contributing factor to the 
Postal Service budget problems, and that your No. 1 priority 
was to address these costs; is that correct?
    Mr. Donahoe. Yes, sir.
    Mr. Mack. So since your last visit, what steps have you 
taken to reduce the amount, 80 cents on every dollar, that the 
USPS spends on labor costs?
    Mr. Donahoe. As we have been talking here today, 
Congressman, one of the things that we have focused on going 
forward is our overall comprehensive plan which addresses labor 
costs, among many other things. We have worked through a very 
good agreement with the APWU to reduce labor costs in a 4\1/2\ 
year period at a minimum of $3.8 billion. Since the last time--
--
    Mr. Mack. Let me ask you a question, and I will let you 
continue on it. So this is the best deal that you could have 
struck under current law?
    Mr. Donahoe. Yes, sir.
    Mr. Mack. But now you are saying that it is a good deal. So 
regardless of the current law, you think this is a good deal?
    Mr. Donahoe. This is the best deal that we could construct 
under the law. We think it allows the Postal Service to 
continue to reduce labor costs, while giving us the opportunity 
to increase flexibility. That was our goal going into these 
negotiations.
    Mr. Mack. If the law was changed, would you consider a 
better deal?
    Mr. Donahoe. I will tell you, if you would change the law, 
I would love to see you address retiree health benefits, my 
FERS overpayments, and our delivery flexibility. That is where 
the big money is.
    Mr. Mack. In your negotiations with the American Postal 
Workers Union, is it true that you extended your policy not to 
lay off workers with 6 years of experience, and also guarantee 
that there wouldn't be any layoffs for an additional 7,000 
workers?
    Mr. Donahoe. Yes, we did. And I will tell you why we did 
that.
    Mr. Mack. That was my next question.
    Mr. Donahoe. I will tell you why we did that. Our goal in 
this negotiation was work force flexibility, immediate cost 
reduction, and structural change. We know that you don't get 
that through an arbitrated decision. So we originally 
approached the APWU at the very beginning and talked about the 
layoff clause. And I will leave Mr. Guffey to provide his end 
of the story, but we got the immediate feedback that was a 
nonstarter. So our feeling was we wanted to go ahead and get a 
negotiated contract that achieved our goals.
    The other thing you have to keep in mind, when you throw 
things into arbitration, you lose time. It could have taken us 
a year and a half. And the money that we were able to negotiate 
out of these labor costs would have been delayed perhaps a year 
and a half, and we would have never got the same kind of a deal 
that we got through negotiation.
    Mr. Mack. So I heard the panel, as all of you in your 
testimony, continue to say the best deal you could get under 
current law. Have you asked the committee for changes to 
current law so you can strike a better deal with the unions?
    Mr. Donahoe. There have been recommendations made in the 
past----
    Mr. Mack. In writing to the committee?
    Mr. Donahoe. No, sir, we have not.
    Mr. Mack. Well, if you are going to come here before the 
committee and say, we need changes to the law so we can strike 
a better deal, then maybe you ought to submit what those are to 
the committee in writing so we can have a discussion about what 
those changes are.
    Mr. Donahoe. We will submit those, along with the other 
recommendations to relieve the Postal Service of the mandates 
that are really causing this problem.
    Mr. Mack. So if you are going to default September 30th, 
why is it taking so long to ask for changes to the law so you 
can strike a better deal?
    Mr. Donahoe. We have been asking for changes to the law for 
the past few years, Congressman, and will continue.
    Mr. Mack. But never in writing to the committee.
    Mr. Donahoe. We will followup in writing to you.
    Mr. Mack. Not to me. To the entire committee.
    Mr. Donahoe. To the chairman. Thank you.
    Mr. Mack. Yes. That would be helpful.
    So the last question is, I guess--so I just got a nice 
little article on my iPhone here talking about a post office 
that is going to be closed on Vanderbilt Beach Road in my 
district. So wouldn't it be better that negotiations with the 
union would take place in such a way that people wouldn't lose 
their jobs, but we were able to get some of the costs under 
control?
    Mr. Donahoe. I would like to answer that question. Here is 
what we are looking at from a Postal Service access and 
convenience standpoint, and that is what we are focusing on. 
There are many different ways that you could provide access to 
the American public. What we have to do as part of our 
financial responsibility as we have laid out in our 
comprehensive plan is to look at how much money we spend to 
provide that access. When you read about closing a post office, 
what we are proposing to do is take a good look at each 
community where we don't have enough revenue coming in and 
perhaps provide that service in another way.
    Mr. Mack. I understand that. But for the unions themselves, 
it sounds like the heads of the union would rather see people 
lose their jobs than to renegotiate contracts.
    Mr. Donahoe. Part of the NCE, the lower-cost employee that 
we have talked about, would help us to maintain post office 
operations. What we are looking at is much smaller places where 
you don't even have any union employees, where you are looking 
at trading off, say, a postmaster for a contract at a local 
store where we can provide better access at a lower cost. Thank 
you.
    Chairman Issa. The gentleman's time has expired.
    With that, we recognize the former chairman of the full 
committee Mr. Towns for 5 minutes.
    Mr. Towns. Thank you very much, Mr. Chairman. And let me 
thank you for having this hearing.
    And also, let me just sort of commend the Postal Service 
for the outstanding job that they have done under these adverse 
conditions. And let me tell you that they are definitely 
adverse. No doubt about it. And to think about the fact that 
you have already eliminated 100,000 positions since 2008, I 
mean, that within itself.
    Let me begin by asking, I guess, you, Mr. Miller, in your 
written testimony, you mentioned that the Postal Service has 
taken steps to strengthen its revenue base by offering more 
services and acquiring more clients. You also mentioned 
providing services in response to customers and entering into 
partnerships with other service providers.
    I am very interested in the concept of offering different 
services other than mail delivery as a means of creating a 
strong revenue source. Like every other large private entity, 
the Postal Service needs to adapt to the changing times in 
order to remain financially viable in the future. We know that 
the Postal Service already takes passport applications. I would 
like to see this expanded to other things. Could you give us 
some examples of additional services that can be provided that 
would result in a reliable income stream for the Postal 
Service?
    Mr. Miller. Mr. Chairman, thank you for raising that. When 
I wrote that, I had in mind the mailing services, the new 
mailing services that we have initiated. For example, the box 
that you see advertised on television a lot; it doesn't matter 
how much it weighs, if it fits, it ships. Things of this--click 
and ship. Things of this nature.
    I think what you are talking about are products that are 
ancillary to our business. I think, my own personal view, as 
long as we have the monopoly on mail, I would be careful about 
going beyond that. And as an economic proposition, I would be 
careful about going too far.
    For example, there have been people that suggest that we 
get in the banking business. I think that is--that would be 
disaster. But on the other hand, some things that you were 
hinting on, like the passports and thinking of this nature, I 
think there are other opportunities that we have that perhaps 
do not fit within the current legislative definition of 
permissible services that might be considered. And I would have 
to discuss that with my colleagues, but I think that there 
might be opportunity for us to consider that and get back to 
you in writing, Mr. Chairman.
    [The prepared statement of Hon. Edolphus Towns follows:]
    [GRAPHIC] [TIFF OMITTED] 68048.005
    
    [GRAPHIC] [TIFF OMITTED] 68048.006
    
    Mr. Towns. And let me just say this, too, in that hearings 
like this is to sort of get information, get ideas, and to see 
how we can work together. It is not about whether you sent us a 
letter already or not. It is about what you need to send to be 
able to move forward from this point on. So I don't want to get 
mixed up here. I want to make certain that we stay focused on 
what we really need to focus on. So on that point, Mr. Donahoe, 
what is it that we can do here on this side that you think that 
needs to be done in order to help you to become viable?
    Mr. Donahoe. The key issue is to address the congressional 
mandates around the retiree health benefits, to address the 
overpayment of FERS, and to allow us the delivery flexibility. 
Those are the key things for us going forward.
    I will say this. We have been very responsible stewards of 
this organization. We take very seriously our requirements for 
the American public for service and our requirements for the 
American public to provide efficient service, just what the 
chairman said, one of the visions of your committee. So we take 
that seriously. What we need is your help on these big issues 
that are beyond our control.
    We have excellent employees, we have excellent working 
relationships with our four unions and our three management 
associations. We know how to get things done. The things that 
we can't control are the mandates, the $5\1/2\ billion in the 
retiree health benefits. Get those things out of the way, and 
you will never see us again. All you will hear about is 
accolades about how good of an organization that the U.S. 
Postal Service is providing service to the American public.
    Mr. Towns. Well, let me say this. I think you are serious 
about it because you hired one of our best in terms of Ron 
Stroman. So I think you are committed.
    On that note, Mr. Chairman, I yield back, unless there is 
somebody that disagrees with the fact that there should be 
additional service, or you should not think about additional 
services. Is there anybody that disagrees with that? I would 
like for you to respond very quickly.
    Mr. Donahoe. I think that, to the chairman's point, he 
mentioned all the facilities we have out there. There are 
plenty of opportunities in our lobbies to provide services for 
other people to come in. We are exploring those. There is 
definitely opportunities. We know there is still is a ton of 
value in the mail, and I guarantee you we'll work on that.
    Mr. Towns. Thank you.
    Chairman Issa. Thank you.
    We now recognize the chairman of the Transportation 
Committee and a long-time member of this committee. No, you are 
too young to be senior. Mr. Mica for 5 minutes.
    Mr. Mica. That is just using a lot of Just for Men.
    I don't know if our witnesses know this, but the group that 
has been feeding dinosaurs from the House of Representatives is 
no longer here. And, unfortunately, it looks like the post 
office is somewhat becoming a dinosaur. It's not your fault. 
Everybody has one of these, and you get most of your messages. 
I didn't send any letters to my nieces and nephews today; I 
sent them an e-mail.
    I notice, from what I read and heard when I was sitting in 
the back, you have 572,000 employees, and it should be down to 
400,000 just to deal with the kind of traffic that you have 
now; is that correct?
    Mr. Donahoe. Yes, sir.
    Mr. Mica. And I didn't see a specific plan on how you get 
rid of 172,000. I saw the average cost is 89,845 per employee 
today. You did mention how you get rid of some of the cost for 
the 572, but that still doesn't help them out.
    The other thing, you're $6 billion in the hole this time, 
right?
    Mr. Donahoe. Yes, sir.
    Mr. Mica. And I understand, I asked, well, how are you 
financing that? And they said you get sort of a line of credit 
with Treasury for $15 billion. That runs out in September. What 
is going to happen in September when we stop feeding the 
dinosaur?
    Mr. Miller. We don't pay the Federal Government all that it 
is due.
    Mr. Mica. So just default?
    Mr. Miller. Yes.
    Mr. Donahoe. We will deliver the mail.
    Mr. Mica. Speaking of delivering the mail, Saturday and 
Tuesday, is that all off the----
    Mr. Donahoe. No. We are still very interested in working 
with Congress.
    Mr. Mica. Which is it going to be?
    Mr. Donahoe. It would be Saturday. That is the best day.
    Mr. Mica. But we have been talking about these things. We 
talk about them. Some years ago I had the opportunity--
actually, I went down to the post office. I think--I forget who 
the Postmaster General was. I mean, we just about had to buy 
him Depends at the time because he had never seen a Member of 
Congress in his office. But I was stunned by the vacant desks. 
And they took me around and showed me how many people they got 
rid of.
    Usually, if you look at some of the overhead--now, you have 
a lot of postal people on the ground, and people do have to do 
a good job, and they do good job in delivering, but sometimes 
you can get rid of the administrative overhead. Do you have a 
specific plan for doing away with that?
    Mr. Donahoe. Yes, sir.
    Mr. Mica. How many have you got in the administrative 
positions?
    Mr. Donahoe. We have been very focused on that. We have 
administratively about 15,000 people, and that includes 
everybody from operations to payroll.
    Mr. Mica. How many have we got in Washington, DC?
    Mr. Donahoe. About 1,100. We just are going through a 
process of reduction here right now, sir.
    Mr. Mica. So I can come down and see a lot more empty 
desks?
    Mr. Donahoe. I will tell you this. You will see empty 
buildings. In the past 2 years, we have taken four buildings, 
eliminated leases, moved them into the building we are in now, 
and we are downsizing again.
    Mr. Mica. That is the big picture. On the local level--and 
you hear from Members. I have tried not to contact you on some 
consolidations or take a position, because you have to do your 
thing. And it's tough. Hundreds of people show up at these 
things. But I don't know if you could sit down with Members or 
others that are close to the subject. I can give you examples.
    I have been trying to--I've got a post office in St. 
Augustine, Florida. I have been trying for 8 years to get you 
out of a congested corridor where you can't move traffic, where 
it is expensive to operate. Just the traffic backup in trying 
to get in and out just doesn't make sense. But I don't have 
time. I used to be a real estate developer. I could put a deal 
together in no time.
    But you ought to have some people--my observation is the 
post office doesn't initiate anything on the local level to 
bring about cost-effective changes. I could put you in a retail 
center. I have tons of vacant space. But somebody has to have 
the brains to put this together. I have tried peripherally, and 
I don't have time to cut these deals. We did one in DeLand, 
Florida, years ago, and that was a huge success. It vitalized 
the whole center and that side of town.
    I have Daytona Beach. Here is another example. I have gone 
from 1,100 bureaucrats in Washington to 15,000 down to smaller 
projects. Daytona Beach, you have a post office that is a 
beautiful site in downtown and has had the second floor vacant. 
I tried to get some folks in there, talked to people about 
doing something with it, and it sits vacant. So we produced in 
our committee a report called ``The Federal Government Must 
Stop Sitting on Its Assets.'' I don't think we had a chapter in 
there for you, but maybe we could write one.
    Mr. Donahoe. I would be more than happy to come over and 
sit down and walk through all the buildings that we have sold, 
vacated, land deals we have. We have a couple great ones going 
on. Mr. Lynch up in Boston, we are talking with some 
opportunities right now. We have a lot of those things done.
    Mr. Mica. I applaud you.
    Mr. Donahoe. And I am open to any other suggestions you 
have.
    Mr. Mica. No, I applaud you. And the big ones, fine. We 
need a better handle of getting rid of excess property, excess 
space, excess employees.
    And the last thing would be buyouts. What is the status of 
buyouts?
    Mr. Donahoe. We do have an option on the table for some of 
the people that we are working through right now with the 
downsizing. And the buyout provision would be $20,000 that 
would be paid over a 2-year period. So that spreads our cash 
out.
    Mr. Mica. For how many?
    Mr. Donahoe. We have the offer up to 8,000 people. We don't 
think anywhere near that will take it.
    Mr. Mica. So you are about 160,000 short. Thank you.
    Chairman Issa. I thank the gentleman. And I might note that 
you probably haven't heard in your committee about their sales, 
because they get to keep the money, unique to the post office, 
that they sell and internally use those dollars.
    With that, we recognize the distinguished gentleman from 
the metropolis of Cleveland Mr. Kucinich.
    Mr. Kucinich. Thank you very much, Mr. Chairman.
    In listening to this discussion, what strikes me is that I 
haven't heard the people in charge of managing the post office 
about the moral obligation that you have to those who delivered 
the mail for 20, 30 years or more with respect to their full 
health benefits and their full retirement benefits. And people 
are retired, and they put all that time in. For the life of me, 
I don't understand why they should have to go begging to the 
government to assure that all the things that they worked a 
lifetime for are going to be there. I keep hearing this theme.
    I had steel workers in my office the other day tell me now 
they have to deal with the Pension Benefit Guaranty 
Corporation; they are going to be lucky if they get 40 percent 
of their retirement benefits.
    See, what is happening here is--by the way, Mr. Donahoe, is 
it your goal to see the Postal Service privatized eventually?
    Mr. Donahoe. No, that is not my goal. My goal is to provide 
excellent----
    Mr. Kucinich. Let me ask you some questions. Have you met 
with people concerning broader privatization of Postal Service 
functions? Have you had any meetings about that?
    Mr. Donahoe. I have not.
    Mr. Kucinich. Have you or any of the governors? Mr. 
Giuliano.
    Mr. Giuliano. Congressman, as part of--approximately 2 
years ago, when we started looking at all the alternatives that 
we put into our comprehensive plan, we looked at all the 
alternatives. One of those was privatization. Another part of 
it was other types of products. The conclusion----
    Mr. Kucinich. That's all I wanted. I just wanted to see if 
somebody had some meetings you talked about privatization, 
because I think what is going on here is that there's actually 
an attack on this very idea of universal service, because once 
you privatize, then you can legitimatize knocking down wages 
and benefits, cutting services.
    Look, it's already started. I don't know about any of you, 
but in my neighborhood you see post boxes taken out of 
neighborhoods, then you see branches closed. I have seen 
private delivery service boxes outside of branches. What is 
that about?
    You're operating with 100,000 less employees, so jobs are 
cut, wages aren't moving up. And the burden here in these 
discussions seems to keep focusing on the workers. I like that 
Mr. Towns raised the question about trying to find ways of 
bringing some income in to assure the Postal Service. But the 
tone of these hearings characterizing this service as something 
that is so much in the past that it is a dinosaur really belies 
the fact that millions of Americans rely on this as a service. 
You might be able to communicate by e-mail, but not everyone 
does.
    We understand there is a huge social divide in America in 
terms of people who use the Internet to communicate and those 
who do not, and we want everyone working together. We have to 
do that. I am glad to see you are negotiating. And from what I 
see, it sounds like it's in good faith, and you are trying to 
solve within the context of the system.
    But, Mr. Guffey, are you concerned that these kind of 
talks, these kind of hearings could be trying to set the stage 
for privatization, broader privatization, of the Postal 
Service?
    Mr. Guffey. I believe it is leading to an attack on the 
labor movement as a whole, just as the workers in Wisconsin, 
the firemen, the teachers, and the police, and the State 
troopers are being attacked in those States.
    Mr. Kucinich. What about the Postal Service?
    Mr. Guffey. The same with the Postal Service. I believe 
that's what's happening.
    I'd like to say there is great opportunity. You know, the 
post office is where the flag flies in every little community 
across this country. Opportunities for putting in other 
government services into the post office is there. Doing the 
TSA work, the verification work that TSA could do could be done 
in the local post offices.
    Mr. Kucinich. Could you give this committee, through the 
chair, of course, the ideas that you presented that can expand 
the revenue of the Postal Service? Could you do that?
    Mr. Guffey. Sure.
    Mr. Kucinich. And I just want to add this in my 15 seconds 
that are left. You're right about this broad attack on workers, 
but it's also an attack in the public sphere. If you look at 
the Michigan bill, it sets the stage for broad privatization of 
everything that's owned by the public. People pay for it once, 
and they'll end up paying for it again through privatization. 
And inevitably cost of the service goes up, quality of the 
service goes down.
    I thank you. I yield back my time.
    Mr. Walberg. The gentleman's time has ended, and I will 
take the opportunity to question now. And I appreciate the 
panel for being here. This is an open hearing with a great 
opportunity.
    I would quickly add that I appreciate the fact of having a 
rural mail carrier that services in my home, and services not 
only with the mail, but in many human ways that add, I think, 
some real special additional effects to what a mail carrier can 
do. And I appreciate the work that is involved there.
    I also have a daughter who lives in a Third World country 
and works there, and I know for a fact that her mother and I 
are unable to send her mail with anything of value in it, 
knowing that it probably won't reach her. We don't worry about 
that in the United States. So I applaud you for that, and I 
thank you for the service that you provide.
    But we also have to understand that we've got to make it 
work for the taxpayer, too. And I appreciate the efforts, and 
that is why these hearings are being undertaken.
    I received a letter just recently from a constituent in my 
district that operates a family owned mail transportation 
business and employs 45 people in doing that business. His 
business performs services at a fraction of the cost of USPS 
employees, and this tentative contract, which insources 600 
highway contract routes, could have negative impact upon his 
small business.
    Mr. Miller, as you rightfully stated in your testimony, 
using contractors helps lower the USPS's costs. Can you 
quantify how much contracting saves USPS overall, and explain 
how the tentative agreement with the APWU that insources at 
least 4,000 jobs will help attain fiscal responsibility?
    Mr. Miller. Mr. Chairman, I will be glad to do that in 
writing. I haven't those numbers on the top of my head.
    [The information referred to follows:]
    [Note.--The information referred to was not provided to the 
committee.]
    Mr. Miller. On the second part of your question, there was 
some give and take in this agreement. We gave a few things the 
APWU wanted. We took some things, and they took some things 
that we asked for.
    As I think the Postmaster General has described this 
morning--and if not, we will send you additional information--
the unions have to compete for this insourced work. They have 
to demonstrate that they will provide it at least the same cost 
that we could go outside and get it. I think it's very 
important that we be----
    Mr. Walberg. That's the same costs at this point in time, 
but not dynamically.
    Mr. Miller. At the same costs it could be contracted for at 
whatever point that it might be.
    Mr. Walberg. But the concern that, as we look at the budget 
dynamically in the future, that indeed can be a low cost put in 
now, taking these jobs away without the incentive in the future 
because of the contracting situation.
    Mr. Miller. Mr. Chairman, you are absolutely right, and we 
have to be very careful the way we execute that provision. But 
you put your finger on something, and that is the importance of 
our being able to continue contracting out, and contracting out 
in some areas where the service is now provided by postal 
employees. This is a way of our lowering costs and keeping a 
restraint on labor wage and benefit demands.
    And I will come back to a point that in response to 
Congressman Mica's raising about the sale of assets and about 
relocation, etc. We have been very troubled, the Postmaster 
General, the previous postmaster General, the Board of 
Governors, by the propensity of Congress to put riders on 
appropriations preventing our doing these things, and that is 
one reason we haven't done as much as we might have. And if 
there could be a moratorium, like a moratorium on earmarks--if 
there could be a moratorium on these riders, I think we could 
move more swiftly and effectively and efficiently in the areas 
that Congressman Mica identified and in the area that you are 
identifying, that's contracting out.
    Mr. Walberg. That's certainly worth looking at in part of 
the process.
    But let me just jump here quickly in the few remaining 
seconds. We've talked about contracts. What would a good 
contract look like to you, Mr. Miller? And then I want to jump 
over to Mr. Donahoe.
    Mr. Miller. A contract would be one in which the service 
provider would be at least as good as what we're accustomed to 
having, and the price would be lower than what we're paying 
now.
    Mr. Walberg. Mr. Donahoe.
    Mr. Donahoe. Thank you, Mr. Chairman.
    We have 30,000 contracts in the U.S. Postal Service. So we 
contract everything from using FedEx's planes--we're their 
largest customer--all the way down to a number of mom-and-pop 
contracts like you talked about. We take every one of those 
contracts very seriously.
    What we looked at in this negotiation with the APWU, as far 
as bringing some work back in, was our ability to absorb work 
into the existing framework. The flexibility that we got in 
truck schedules allows us to schedule people in a much 
different way than we had in the past. We used to schedule 5 
days a week, 8 hours a day. The new schedules give us a lot 
more flexibility. I can absorb in the 8-hour timeframe smaller 
contracts with HCR and save me bottom-line money without adding 
any people at the same time absorbing those costs. That's what 
we've looked at. We have embraced the process management in 
this organization across the board, and we have rooted out 
numerous costs and identified these opportunities, and that's 
what we pursue.
    The other thing that's important, we did not give up any 
ability to outsource. As a matter of fact, the APWU has asked 
that they are able to compete on a same basis with any 
outsourcings going forward. And I welcome Mr. Guffey to come in 
with those proposals.
    Mr. Walberg. Thank you, Mr. Donahoe.
    My time has expired. We'll move on to Mr. Lynch.
    Mr. Lynch. Thank you, Mr. Chairman.
    And again, I thank the witnesses for your help.
    You know, the Postal Service goes into every American 
business and every American home 6 days a week, and I think if 
there was any illustration of the value of having a public 
system, having the current postal system, it occurred on and 
after September 11th.
    As most people know, I have an extraordinary number of 
people in my family that work for the Postal Service, my aunts 
and cousins, my uncles, and my mom, my two sisters who are 
still there. My mom is a retiree. But going back to September 
11th, which is the day I was elected in the primary, and after 
that we had attacks on the Postal Service, anthrax attacks. And 
down here at the Brentwood facility, we lost two brave postal 
workers from inhalation of anthrax. And I remember talking to 
some of the local unions leaders with the American postal 
workers, and letter carriers, and mail handlers, and 
supervisors and the postmasters, and they were very concerned 
about going to work, because in many of these facilities, many 
of these plants, you had the risk of anthrax.
    And so the question was posed to the union leadership at 
the APWU, and National Association of Letter Carriers, and the 
mail handlers; they said: Should we send our people in to work? 
Should we send them in to work when we know that there's--
especially with the Brentwood example--there's lethal danger? 
And it was a very precarious time because we in government were 
afraid that if the mail did not get delivered to every American 
home and business, that the economy would seize up. This is 
when President Bush was saying get out there and try to 
stimulate the economy.
    Well, if the American postal worker had not gone to work, 
it would have seized up our economy. And I think it was a very 
proud moment that the union leaders at the Postal Service asked 
their members to go into work. And I know my sisters--one of my 
sisters had two young kids at the time, and I know that was a 
vexing situation for the union leadership and the workers 
themselves. But God bless them. They went to work, and they 
kept the mail being delivered, and we got through that tough 
spot.
    But with all this talk of privatization, I wonder how that 
would have gone if those were private employees for some 
contractors? Because they make the same commitment to deliver 
the mail in a tough situation. Do they handle the security and 
the special responsibility that they have with respect to our 
Nation as do the postal employees? And I think it's remarkable, 
as one of my colleagues noted, that for the sixth consecutive 
year postal workers are again rated--I think it is the Pew 
poll. The Pew Foundation does a polling on the popularity or 
the reliability of Federal employees, all employees, in regard 
to the American people, and they continue to rate the postal 
workers the highest 6 years in a row.
    But we're talking today at least in one part about going to 
5-day delivery, and I am wondering if that is just one way of 
if the Postal Service isn't going to deliver on Saturday, then 
who is? And I think there will be a private entity that will 
want to take up that space.
    So, Mr. Donahoe, do you have any thoughts on that about 
losing market share for the post office by considering going to 
5-day delivery?
    Mr. Donahoe. Well, thank you first, Congressman Lynch, 
about the excellent comments about our employees. They do a 
great job. We are very proud of them. And even this winter up 
your way, that mail got through every day in really trying 
conditions.
    The Saturday issue is an issue we've wrestled around with, 
and it has been a concern. The big concern we have is that 
there's a changing marketplace, and the first-class volume we 
have lost over the last few years has really pressed us in 
terms of revenue for delivery, and that's why we have looked at 
making these changes.
    The one thing we would do in this process would keep our 
post offices open so you could still come in and buy stamps. If 
you needed to get mail, we'll have post office boxes open. 
We'll be able to do that. And, of course, we would still be 
delivering things like Express Mail.
    As we examine the demand for mail going forward, it does 
press us on some of those choices. We have looked at things 
like asking the American public to move their mailbox. We have 
done some surveys in that area. People say they don't want 
that. We've talked about changing service standards to save us 
some money there. We have some feedback there that wouldn't 
work. And, of course, we hear about the post offices.
    So it's an ongoing process. We continue to look at that. 
But as we have laid out in our comprehensive plan, we think 
that just the nature of the changing demand for mail would 
force us to move to a 5-day delivery schedule.
    Mr. Lynch. Thank you.
    I see my time has expired. I yield back.
    Chairman Issa. I thank the gentleman.
    We now recognize the chairman of the subcommittee Mr. Ross 
of Florida for 5 minutes.
    Mr. Ross. Thank you, Mr. Chairman.
    And, gentlemen, I thank you all for being here.
    You know, I take very seriously, as you all do, the issue 
of the prefunding of the health care and the pension. And 
assuming that we are able to address that, because I believe 
it's something that we need to address, Mr. Donahoe, it doesn't 
necessarily, though, resolve the long-term issues of the U.S. 
Postal Service, does it?
    Mr. Donahoe. No, it doesn't.
    Mr. Ross. I mean, we still have to make some systemic 
changes.
    Mr. Donahoe. Absolutely.
    Mr. Ross. We still have to address workers' compensation.
    Mr. Donahoe. We have to address that. Absolutely.
    Mr. Ross. Overcapacity.
    Mr. Donahoe. And we're doing that.
    Mr. Ross. Underperforming facilities and labor costs.
    Mr. Donahoe. Yes.
    Mr. Ross. So while we're able to identify that there's a 
big issue out there, the bigger issue is really the systemic 
changes we need to make to the Postal Service for the long-term 
viability.
    Mr. Donahoe. That's what we've laid out in our 
comprehensive plan, and this agreement with the APWU, from one 
union, helps us to get in that direction.
    Mr. Ross. Now, you and I have been able to meet several 
times, and I appreciate not only you and your staff for the 
cooperation you have given me and my understanding for my 
subcommittee responsibilities. We discussed a pay-for-
performance plan that has been in existence for about 10 years 
with managers and supervisors, I guess, about 65,000 of them. 
Could you briefly describe how that's worked?
    Mr. Donahoe. We have established a pay-for-performance plan 
in the Postal Service. To your point, we have 65,000 people. 
That's postmasters, that's supervisors, that's administrative 
people, all of the nonbargaining employees in that.
    What we do yearly is set goals. We have national goals on 
service, on finances, and on people, a balanced scorecard. And 
we also have individual goals at the unit level. We have 
constructed a process that all 65,000 people have an individual 
rating, and that's how they are compensated. So it is strictly 
a pay-for-performance system. We have no COLA, we have no step 
increase. All of our managers in this organization are 
compensated on pay for performance.
    Mr. Ross. And what has been your experience with those 
managers? Do they like it?
    Mr. Donahoe. They like it. It is competitive, and they are 
on that Web site all the time seeing how they do. And it has 
produced tremendously good benefits for the Postal Service and, 
more importantly, for our customers.
    Mr. Ross. Now, translating that mindset to the collective 
bargaining negotiations that you have, has this type of pay for 
performance ever been introduced or discussed in a collective 
bargaining situation?
    Mr. Donahoe. Mr. Guffey and I have had some discussions, 
and we talked about what--going forward in that area.
    The changes that we have been able to effect with this 
negotiation are the most we have ever seen. The fact that we 
have been able to change flexibility and long-term pay 
structure indicates that there is a willingness for the APWU to 
really take into effect our customers and our business going 
forward.
    Mr. Ross. But never was it put on the bargaining table, a 
pay-for-performance plan, was there?
    Mr. Donahoe. Well, we had some discussions. But, like some 
of the other things, it's a give and take, and I certainly----
    Mr. Ross. And, Mr. Guffey, you mentioned in your remarks 
that, of course, if the economy were to get better, then that 
would change things. But, in fact, it's much more than the 
economy. I mean, if it were just the economy always being the 
driving force, we may still be riding around in horse-drawn 
carriages or having mail delivered by bicycles. But it really 
has to do with market changes, with technology. And is it not 
true, then, that in order to adapt, the U.S. Postal Service and 
its employees have to adapt to changing trends in the market; 
not only the Internet, but technology as a whole?
    Mr. Guffey. It's true that there are some Americans who 
will never use the Postal Service again, but they're not 
required to pay for it, because the Postal Service does not 
receive one dime of taxpayer money. It's everything, the 
benefits, the wages, the buildings, everything is paid for by 
postage. And while the market, those individuals in the market 
who will use the Postal Service----
    Mr. Ross. But it's more than just the economy. In 2006, we 
had a good economy, and yet the first-class mail started 
declining significantly.
    Mr. Guffey. But we could rebound from the decline in first-
class mail if we didn't have the $5 billion weight put upon the 
Postal Service.
    Mr. Ross. But it's more than that. I mean, let's be honest, 
it's a lot more than that.
    And let me ask you this now. How do you feel about----
    Mr. Guffey. We're both going to be honest?
    Mr. Ross. Sir?
    Mr. Guffey. I'm going to try.
    Mr. Ross. I'll ask the questions.
    Mr. Guffey. OK.
    Mr. Ross. Thank you.
    Now, how do you feel about this agreement?
    Mr. Guffey. I feel like the agreement was a give and take. 
I feel like the agreement--we gave some flexibility in exchange 
for the security of our people for various things. A lot of 
talk has been talked about the no layoff clause.
    Mr. Ross. And you told your employees it's a pretty good 
deal, didn't you?
    Mr. Guffey. I have told my people exactly what it is.
    Mr. Ross. And you think it's an excellent deal so much so 
that you are going to pay your members to vote; are you not?
    Mr. Guffey. I'm not paying anybody to vote.
    Mr. Ross. You're not paying your members? Have you looked 
at your Web site where it says: To encourage participation in 
the contract ratification process, APWU president Cliff Guffey 
is encouraging locals to get out the vote. The national union 
will reward the locals that are most successful in mobilizing 
members to vote, with the top three locals at each of several 
categories receiving monetary compensation to be used on behalf 
of the local members.
    So you are buying their vote; are you not?
    Mr. Guffey. They can vote no. If every one of them votes 
no, they vote no.
    Mr. Ross. In addition to buying their vote, are you not 
also using it as a member drive?
    Mr. Guffey. Sir, that's an affront to say I'm buying 
people's votes. I realize that's a common practice on your side 
of the table, but it's not with mine.
    Mr. Ross. Does your Web site not offer compensation to 
vote?
    Mr. Guffey. It offers people to encourage people to vote. 
It encourages locals to vote, not one way or the other.
    Mr. Ross. I yield back.
    Chairman Issa. The chair would suggest that neither side 
get into rationale behind somebody's intention, and I would 
expect that on both sides of this debate. And I appreciate that 
you are both very interested in getting it right, but I would 
make that caution.
    The chair now recognizes the gentleman Mr. Davis for 5 
minutes.
    Mr. Davis. Thank you very much, Mr. Chairman. And let me 
thank all of the witnesses for being here with us.
    These are obviously difficult and complex issues and 
serious problems. I have always been told that there are no 
simple solutions to complex problems.
    Governor Giuliano, do I understand and did I understand you 
to suggest that if we did not have to prefund the retiree 
benefits for the Postal Service, they did not have to prefund 
those benefits, and although we thought we were putting in some 
good provisions in the Postal Accountability and Enhancement 
Act, that instead of a deficit we would be talking about 
profits in terms of the Postal Service?
    Mr. Giuliano. My statement was, over the last 4 years, that 
would be true, Congressman.
    Mr. Davis. What would be the downsides to not having that 
requirement? If that requirement was not present, what would--
--
    Mr. Giuliano. I don't believe there is any downside. We are 
funding on an annual basis to the excess of $2 billion health 
care benefits for our employees. We commit to--we have been 
paying them; we continue to pay for them.
    Private corporations do not have to prefund retiree health 
care benefits. They have to account for them on their balance 
sheet. It is not a cash output. And, in fact, because that is 
such a burden, in 1992--I may not have the year right, but in 
the early 1990's, there was an accounting rule change that said 
companies had the option, a one-time option, to cap forever 
retiree health care benefits, because if they couldn't do that, 
if they didn't do that, they would have an unbounded liability 
on their balance sheets, and there would be no way to be able 
to tell whether they were a going concern.
    Most corporations in this country took that option and 
capped them in 1992. And whether you retired in 1980, 2000, or 
2040, the company has no more responsibility for those health 
care benefits than what the cap was in 1992.
    Mr. Davis. And while this would obviously not solve the 
problem in terms of our long-range conditions, but it would be 
movement, and we would not be standing still. We would be 
moving.
    Mr. Giuliano. It would be significant progress. We have 
made progress with the $3.8 billion in this union negotiation; 
$5.2 billion--$5.4 billion payment per year would make a 
significant progress. We also need to move forward with 6 to 5. 
We also need to stop overpaying for FERS. These are the 
drivers.
    There's lots of changes that need to be made. They are all 
comprehended in our plan. We've considered all these things. 
We've offered what we believe to be the most rational choices. 
We don't want to have to do 6 to 5, but considering all the 
alternatives, when we polled the American people, when we took 
our surveys, when we had outside experts look at that, they 
said out of all the alternatives, raising prices, changing 
delivery standards and a whole bunch of others, this was the 
least painful. This was the best we could do.
    Mr. Davis. Mr. Donahoe and Mr. Guffey, let me commend both 
of you on the tentative contract that has been negotiated. I 
think that it is one of the most positive labor-management 
movements that I have seen in a long time. And I know that 
there are efforts on the parts of some people in our country to 
diminish the role of unions, who have fear, but it seems to me 
that you struck an accord that suggested that both sides 
understood that it was not a win-lose situation, but it is a 
win-win situation for the American public. And I think that's 
where we have to go.
    So how would both of you come at briefly relative to being 
able to reach that agreement?
    Mr. Guffey. Just real quickly. I think that American labor 
and industry has to come together and work together to bring 
back industry and commerce to this country. And I hope this is 
a step to show other people that it can happen.
    Mr. Donahoe. I would agree with Mr. Guffey. We have great 
employees in this organization, and they want to do a great job 
for the American public, and I think that as we sat down and 
talked through things that we needed from a Postal Service 
perspective for flexibility and cost-benefits going forward, we 
were able to achieve that. And Mr. Guffey was able to achieve 
what he needed for his employees, and it was a win-win. And it 
is a very good thing for the American public and our customers.
    Mr. Davis. I commend you both, and I yield back the balance 
of my time.
    Chairman Issa. I thank the gentleman.
    We now recognize the gentleman from Tennessee Dr. 
DesJarlais.
    Mr. DesJarlais. Thank you, Mr. Chairman.
    I would like to take just a few minutes and maybe put some 
things in perspective. We are facing a tough battle this week 
on the budget, and certainly the country right now is hurting 
in many ways, and people are scrambling to cover themselves and 
make sure that financially they can be as stable as possible. 
We go back to districts with high unemployment, 9 percent 
across the country, several counties in my district are upward 
to 20 percent, and times are certainly tough, and I sympathize 
with everyone.
    According to committee calculations, the average employee 
costs for USPS is $89,845 per year, or close to $45 per hour in 
benefits. Is the total compensation averaging out more than 
$80,000 per postal employee per year including wages and all 
benefits, including retiree health benefits, Mr. Donahoe?
    Mr. Donahoe. Yes. I would have to double-check those 
numbers and get back with you on that. But the way we calculate 
our costs, it is wages and full benefits, including retirement.
    Mr. DesJarlais. So if that is true, then, the average work 
hour for USPS employee that is publicly reported is about $40 
per hour?
    Mr. Donahoe. We consider a fully loaded hour right around 
there, yes.
    Mr. DesJarlais. Do you think that's generally a fair amount 
in terms of trying to keep the Postal Service running when you 
are doing these negotiations, talking to employees? Nobody 
wants to give up anything. It's hard to take things away from 
people once they have them. But is that as low as people are 
willing to go to keep their jobs?
    Mr. Donahoe. I think that, again, to the point we have been 
making, when we went into this negotiation, our goal--three 
goals. We were looking for immediate financial relief, we were 
looking for flexibility, and we were looking for long-term 
structural change. And we achieved those.
    We've got a substantial change in the way that we will be 
compensating noncareer employees, and that pulls that loaded 
factor down significantly, by 53 percent.
    The other thing, of course, is the 10 percent differential 
going forward. That also will pull those down.
    We realize that labor costs are high, and as we worked with 
the APWU, they understand where we were coming from.
    The other thing that's important is we also have real 
opportunity with the flexibility that we have negotiated in 
there, so that if you have a full-time employee, they can now 
work between 30 and 48 hours a week, which is very different 
than we have had in the past.
    So, Doctor, we are looking at every possible way to provide 
great service in an efficient and effective way.
    Mr. DesJarlais. Can you speak just briefly to the graph 
that is behind us here, the private sector versus the Postal 
Service?
    Mr. Donahoe. It would be interesting to see the numbers, 
but it almost looks like the blue line starts going up when we 
began to prefund employee health benefits. That is the first 
thing that I see.
    We have been very--it is critical to understand that the 
Postal Service is focused not only on total labor costs in 
terms of wages, but we have focused on head count. We have 
reduced head count in this organization by 30 percent since the 
year 2000. That is legacy costs.
    Mr. DesJarlais. Mr. Guffey, when I go back home and talk to 
my folks, it has been mentioned that the Postal Service doesn't 
cost the taxpayer a dime. What is going to happen if you 
default on September 30? Who does that burden shift to?
    Mr. Guffey. Well, I believe Mr. Miller stated it would be a 
miracle for these things to happen, and, you know, I think 
Congress can work together and resolve the problems of our 
country and the post office, and I think that's what America 
wants you to do right now. I think they want their post offices 
in rural Tennessee. I think they want to have their mail 
delivered. I think they want this sort of thing.
    Mr. DesJarlais. You had mentioned earlier that you employ 
100,000-plus veterans, which I think is great. That's 
fantastic. What do we say to the Active military personnel 
whose wages are far less than what we're talking about here in 
the $40 per hour?
    Mr. Guffey. Well, I'm not sure if you take the weighted 
average of the military benefits that are involved, their 
retirement and their health benefits, which are all provided by 
the government, too. If you put it all together, I'm not sure 
their package would not be the same.
    I'm just saying that, yes, we would like to have good jobs 
for these people to have when they do come home. Talking about 
the custodial jobs, they were maybe priced a little higher than 
they should be, but they were jobs that were reserved for the 
veterans so the veterans could come home to these good jobs.
    Mr. DesJarlais. Well, when you're talking about concerns 
about your employees losing their pensions and their benefits, 
what do we say to the private sector who faces losing Social 
Security and Medicare benefits?
    Mr. Guffey. Well, I think they only face the losing of 
Social Security and Medicare because of the economy, and that 
our jobs, like, say, hundreds of thousands of jobs are now 
overseas, trillions of trillions of dollars of American money 
is overseas right now as opposed to being working in this 
economy and lifting up this next generation through the pay, 
and you broaden your tax base so you can afford Social Security 
and Medicare for these people. That's the real problem in this 
country right now, not the fact that public workers are making 
too much.
    Mr. DesJarlais. You don't think the government spends too 
much?
    Mr. Guffey. There's a lot of things I think that the 
government spends money that they shouldn't be spending on. 
Like I said, this hearing is costing more right now in tax 
dollars than what the Postal Service is getting in on tax 
dollars.
    Mr. DesJarlais. And that's a big part of the problem, and 
that's what we are here to solve.
    Chairman Issa. I thank the gentleman.
    The chair would note that the graph that was on the screen 
does not include the prefunding. That is a pay-as-you-go cost. 
And I appreciate the gentleman who--by the way, I think we are 
both on salary, so I'm pretty sure that whether we show up here 
for a hearing or not, the cost is substantially the same.
    The chair now recognizes the distinguished gentleman from 
Massachusetts Mr. Tierney for 5 minutes.
    Mr. Tierney. I thank the chair for that. And I thank all 
the members of our panel.
    First, let me say that I think that the way that you have 
collaboratively worked toward a tentative agreement is to be 
commended. I think that's what the collective bargaining 
process is all about. And it seems to me from listening to your 
testimony and reading it here today that everybody made 
concessions, which is, in essence, what the American people 
expect out of public-service employees and employers. When they 
go to these negotiations, they want everybody to be reasonable. 
And I also seem to think there looks to be downsides for both 
of you if you decided to push the button and go on to 
arbitration. And I think that was a trigger to getting things 
done here. So I think that's at least a positive that we can 
take out of this, and knowing that there were constraints seen 
by management under--what they perceived to be some legal 
constraints, and I think the union's under--obviously under 
constraints, not wanting to risk going to arbitration and 
coming down with far less than what you got.
    But I want to talk about--I'll leave to the testimony 
that's already given and the questions asked about the pension 
retirement contributions and how much that would go toward 
solving the issues that you have here. When we had a hearing 
back on April 15, 2010, John Potter, who was then the 
Postmaster General, was one of our witnesses on that. And I 
asked him a little bit about the privatization and what would 
be the cost to the American citizens if the thing was 
privatized, and he talked--and I'm going to just synopsis a 
little bit here. He talked about the fact it would be fair to 
expect that you wouldn't get mail necessarily delivered to your 
doorstep. Prices in all likelihood would significantly go up; 
that not all areas would, in fact, be served. These would all 
be--so universal--the service would be threatened. So these 
would all be decisions that management could make on that.
    I then wondered whether or not there wasn't some price tag, 
that what we got in terms of universal service, and a large 
retail distribution situation, and 6-day mail, and all those 
things that we get for having this type of service as opposed 
to a privatized service, if somebody hadn't put a value to 
that. And Mr. Potter said: We put a price tag on that of about 
$4 billion. And then he said smaller--now, in today's dollars, 
it is like $4\1/2\ billion on that basis.
    Do you gentlemen agree with that?
    Mr. Donahoe. That's the--when the Postal Service was first 
formed back in the early 1970's, there was a universal service 
option that we could have asked for continued appropriations to 
actually cover our universal service. And if you look forward, 
with the value of money going up or through inflation, it would 
turn out to be about that amount.
    Mr. Tierney. Well, you know, I wondered why we hadn't gone 
forward. But Mr. Potter then said that the--they ended up in 
very poor condition in the late 1960's because of difficulty in 
getting appropriations, and they were reluctant to ask for it.
    Mr. Donahoe. Our issue has always been one of a self-
sustaining entity. If the government does not pass the budget 
this week, the mail will still get delivered. We have been 
self-sustaining. What we have been asking for is for Congress 
to act on these mandates around the prefunding requirements, 
the 6 to 5 being the first. As I said before, if we get those 
resolved, we know that we will be a viable, ongoing business. 
We still provide excellent service for the American public. 
That is the help we need from Congress.
    Mr. Tierney. You look at it another way, though. People--I 
think people by and large want the service that they are 
getting, the universal service, the 6-day mail, all those 
things on that basis. So you have a customer out there that 
owes you about $4\1/2\ billion a year that you are not 
collecting. I don't know what kind of business decision, 
management decision that is.
    Mr. Guffey, do you have a comment on that?
    Mr. Guffey. Well, it would be nice and refreshing to see 
that the money was coming from the government to the Postal 
Service instead of just from the Postal Service to the 
government.
    Mr. Tierney. Mr. Donahoe, you are smiling at that. But you 
do have a customer out there that we put a value of $4\1/2\ 
billion in services that you render to them without ever 
collecting a dollar for it.
    Mr. Donahoe. Well, the reason I'm smiling is because we 
have some other bills that have been owed over the years, and 
sometimes they don't get paid. So we would like the Congress to 
feel that the Postal Service can stand on its own and do a 
great job for the American public without any kind of 
appropriation. That's what we are asking for.
    Mr. Tierney. So I guess it's all semantics. You can look at 
it as an appropriation, or you can look at it as paying value 
for what you are getting in return. So you've decided, I guess, 
that it's not worth the political hassle to ask the American 
people to pay $4\1/2\ billion a year for services they're 
getting; it's much easier to try to run starting with $4\1/2\ 
billion in the hole and try to build around that.
    Mr. Donahoe. Here's the thing. We have paid into the 
retiree health benefits $43 billion. What we would love 
Congress to do is to take a look and see that $43 billion, 
along with what the chairman mentioned are ongoing payments--we 
think when you go ahead with a 400,000-person Postal Service 
going forward, we are already covered with that. So we don't 
want any money. We want no taxpayer money. We just want 
Congress to remove that burden that we are being forced to pay. 
FERS, I owe $6.9 billion--or you owe $6.9 billion back to me in 
FERS overpayments. I got a bill last week from the OPM 
increasing my premiums. I mean, I'm already overpaying. Just 
treat us fairly. We will do a good job for you.
    Mr. Tierney. Well, I already cosponsored that bill, so 
let's see what we can do with the rest of them. Thank you.
    Chairman Issa. I thank the gentleman.
    Mr. Braley.
    Mr. Braley. I assume you're referring to Mr. Braley, Mr. 
Chairman?
    Chairman Issa. I'm sorry. I apologize. I know better.
    Mr. Braley. No need to apologize.
    I'm one of those people who thinks that, in order to know 
where you are going, you have to know where you come from. And 
I think it's interesting to note that on July 26, 1775, the 
Second Continental Congress appointed Benjamin Franklin as the 
Postmaster General at an annual salary of a whopping $1,000. 
Mr. Donahoe, I am sure a lot of colonists thought that he was 
grossly overpaid for that work, but we all know how important 
it was in the evolution of this country.
    In 1808, the Select Committee on Post Office and Post Roads 
was established by the House of Representatives, and it was the 
beginning of a surface transportation program that has 
benefited this country ever since.
    One of my wife's grandfathers was a first-generation 
American, whose father came from Germany, and he left to go 
back to fight the Kaiser in World War I, the war to end all 
wars; came back and became a letter carrier in Dubuque, Iowa, 
and became president of his letter carriers local. And when 
they started renovating the White House under the Truman 
administration, the people he worked with thought so much of 
him, they spent the whopping sum of $2 to get some of the 
timber from the White House to make a gavel for him that I'm 
fortunate to have in my possession.
    When my father left the small rural community in Iowa that 
he lived in to go to Iwo Jima at the age of 18, he got letters 
from his mother that I am thrilled to have in my possession 
that only got to him halfway around the world because of the 
hard work and efforts of men and women in the Postal Service 
and postal delivery system. That's why I love letter carriers 
and postal workers.
    My dad came back and became a substitute rural letter 
carrier. And I know from growing up in a small town that postal 
delivery service was often a lifeline that got you much-needed 
services that you needed to do your work and to function in 
society.
    But I am very impressed with the fact, as the ranking 
member of the Veterans' Affairs Economic Development Committee, 
that unlike many Federal agencies, the Postal Service has done 
an extraordinary job of employing veterans. And you brought 
this up in your testimony, Mr. Guffey. And here at a time when 
returning Iraq and Afghanistan veterans have an alarming 
unemployment rate of 22 percent, I am trying to figure out why 
my friends on the other side of the aisle want to add to our 
unemployment problem by firing veterans, by firing women, and 
firing minorities, who make up a large percentage of the Postal 
Service work force. That's a question we all need to be 
concerned about.
    Some of my colleagues have argued that a union would never 
lay off a hardworking veteran postal worker. We know that's not 
true. We know that it happens, because that's the way the 
Postal Service has had to make tough decisions. We also know 
that if we are going to fire middle-class American veterans 
that work for the post office, it's not going to fix our budget 
crisis. And that's why we have to fix this problem with 
prefunding, because we know that it is the low-hanging fruit. 
It is the most clear, obvious opportunity we have to make an 
impact, and that's what we should be focused on.
    According to two independent offices and an OIG report, the 
Civil Service Retirement Service is overfunded by $50 to $75 
billion, and the post office's FERSprogram is overfunded by 
$6.9 billion. We should let the post office transfer that 
budget surplus to fund their future health care obligations, 
and make sure at the same time that we're doing everything to 
promote efficiency.
    And, Mr. Donahoe, I remember when my daughter graduated 
from high school 5 years ago, and I was thrilled to find out 
that I could get customized stamps of her and her friends to 
give them as graduation gifts that they were thrilled to 
receive. So we know there's been a lot of innovation going on 
at the Postal Service to try to address these market pressures 
to modernize and to come up with new revenue streams.
    Can you give us some examples of what other things the 
Postal Service is looking at, like that stamp program?
    Mr. Donahoe. Sir, I would like to. One of the things that 
we have been focusing on from a revenue perspective is 
simplicity and making sure that we can really grow the business 
to consumer channels, especially for small business. So we've 
just introduced a new product out there called Every Door 
Direct, and the idea is that in a very simple way, if you're a 
small business, you can reach within a couple of ZIP codes 
everybody that lives there.
    We are also conducting Grow Your Business Days right now at 
thousands of post offices across the country all summer long, 
teaching people how to use eBay, Amazon to grow their small 
business. Congressman Mica showed me before he got that e-mail 
on his BlackBerry.
    One of the products we're working on right now is the 
opportunity to show you what's coming in your mailbox today. We 
have that technology. We have that as a product going forward.
    So we know that we can do things for small business, we can 
also do things for people who like to have a little bit of 
digital in their products, too.
    Mr. Braley. Thank you.
    My time has expired. I yield back.
    Chairman Issa. Thank you.
    Mr. Mica.
    Mr. Mica. Well, first of all, Mr. Guffey, I have to take 
great exception with you, your comments on this is some sort of 
assault on labor, whether it's in Wisconsin or in--or this 
hearing.
    Mr. Guffey, do you know what the financial differences 
between the States and the Federal Government is?
    Mr. Guffey. Most--the big difference, there is not a whole 
lot of difference. The American taxpayers pay the costs for 
both.
    Mr. Mica. The big----
    Mr. Guffey. You have to have taxpayers employed to pay the 
taxes so the payroll can be done.
    Mr. Mica. That's true. And we spent the last several years 
paying people not to work, rewarding failure and penalizing 
success, and we have been great keeping the unemployment up 
about 10 percent, not to mention other areas that are 20 and 30 
percent.
    The big difference is the Federal Government, we just keep 
printing the money. If we go out the door here and go down the 
end and go out on Independence, you can almost hear those 
presses going day and night printing funny money. We've 
indebted this country $5.3 trillion in, what, 24, 30 months. 
We're borrowing--so the big difference is that the States have 
to have a balanced budget. We're printing the money, OK? So the 
States--you call this an assault on labor, but they're making 
the tough decisions dealing with their biggest cost factor, 
which is their employee base. It's not pleasant for anybody. 
This is not a hearing that's intended to do an assault on 
labor.
    Do you know how much we're borrowing for every dollar we're 
spending, Mr. Guffey?
    Mr. Guffey. Way too much.
    Mr. Mica. It is about 42 to 43 cents per dollar we're 
borrowing, most of it from foreign sources.
    This is not an assault on labor. You know, I've been in the 
transportation area. We used to have--we kept firemen on 
trains. Even though we didn't use coal or anything, we had the 
fire for many years. We had conductors in cabooses even though 
we had adopted electronic means of communicating with the train 
workmen. You're aware that it wasn't an assault on labor when 
we had to eliminate some of those positions. Would you say that 
was an assault on labor?
    Mr. Guffey. Well, when you use 70-year-old examples, I 
don't think that--I can't relate to some of those 70-year-old 
examples.
    Mr. Mica. Again, OK, let's use a modern example. They're 
telling me they can run the post office with 400,000 people, 
and I have 572,000. I've got to make some changes. Is it just 
make work? I mean, more and more is going over this. They're 
even going to this. When they go to this, they'll need fewer 
than the 400,000.
    Mr. Guffey. You can order your medicines over that, but you 
cannot get them delivered to your home.
    Mr. Mica. That's----
    Mr. Guffey. The mail volume is going to change. The type of 
mail is going to change.
    Mr. Mica. That's true, and that's why I usually use FedEx 
or UPS.
    But this is no affront. I love postal people. George 
Coleman was my postman for 17 years. He went on to be the mayor 
of DeBary. My postman who came to our home in upstate New York 
wrote me a birthday card until the year he died. I can't think 
of people I like better than some of the postal people--workers 
we know.
    Mr. Guffey. We try.
    Mr. Mica. But this is not an assault on them. This is a 
change in the whole dynamics of communication and our society. 
We stop--we can't feed dinosaurs; we can't afford to do that. 
So, again--again, Ben Franklin, you know, was a Postmaster in 
1775, appointed by--in 1775, it was interesting, Ben actually 
arranged to have mail delivered from Philadelphia to New York 
and same-day service; did you know that?
    Mr. Guffey. Yes, but he did it as the King's represented 
Postmaster, not as the U.S. Postmaster.
    Mr. Mica. Yes, I know, but he could still do it. And even 
though he had the position, I think his son had the position, 
they could deliver the mail in the same-day service, which we 
still can't do today in the United States.
    But what you have to do is adapt, and the post office is 
becoming a dinosaur and will soon be extinct if it doesn't 
adapt.
    Mr. Guffey. And we're working very hard to adapt with the--
--
    Mr. Mica. The money tree in the back yard died, and we got 
to find a better way to deal with $6 billion and your $15 
billion credit limit, or whatever it is, is about to run out, 
and there's no more coming from here.
    Thank you. I yield back.
    Chairman Issa. I thank the gentleman.
    Mr. Mica. Yield back.
    Chairman Issa. I now go to the gentleman Mr. Yarmuth for 5 
minutes.
    Mr. Yarmuth. Thank you, Mr. Chairman. Thank you all for 
your testimony. And I'm glad that Mr. Mica brought up UPS and 
FedEx.
    I have a very special interest in this hearing because I 
happen to represent the district which is the home of the 
global hub of UPS, and UPS is our largest single employer. And 
I'm also an honorary member of the Letter Carriers Union, and 
very proud of that. So I have multiple interests.
    Mr. Mica said he likes to rely on UPS and FedEx, and I'm 
glad he relies on UPS, but I went back and checked, and the 
least you can spend to mail anything or deliver anything with 
UPS is $5.17. And the lowest price that FedEx will deliver 
anything for is $7.22.
    Mr. Donahoe, what do you think would be the impact on 
American business, charities, local governments, utility 
companies and so forth if for every piece of mail they had to 
send out, it would cost $5.17?
    Mr. Donahoe. We wouldn't be talking about 1 day fewer 
delivery. We would be probably talking 1 day a week. It would 
be very dramatic. We are very proud of the fact that we have 
been able to hold our postage rates down at 44 cents. And we 
are also very proud of the fact that we provide excellent 
package services for businesses, too. We work well with FedEx 
and UPS; we deliver a lot of their packages.
    Mr. Yarmuth. This relates to the question Mr. Tierney asked 
a while back, and he talked about the 4 billion-plus subsidy 
essentially that goes to users of the Postal Service. How would 
you break down the users of the postal service? What percentage 
of them are commercial enterprises? Which percentage of them 
would be private individuals sending individual personal 
correspondence?
    Mr. Donahoe. It's probably close to 95 percent of the mail 
that comes into the system is mail by a commercial entity. The 
customer business--the mail that goes between residences today 
is a lot smaller. You know, let me take that back, it's 
probably 90 percent, because there is about 10 percent of 
customers still use the Postal Service to pay their bills. So 
me paying a bill or me sending you a card, that represents 
about 10 percent of the volume.
    Mr. Yarmuth. So essentially what we're talking about here, 
whether it's $6 billion or $3 billion, or whatever it amounts 
to a year, forgetting the argument about FERS and the 
prepayment of retirement benefits, we're talking about an 
enormous subsidy to American business.
    Mr. Donahoe. I would not say it in those terms because I 
think that the American customers enjoy getting what's in their 
mailbox. It's a great way for people to advertise. It's a great 
way for people to correspond, even if it's just to say, hey, 
check my Web site out. We feel that the Postal Service is very 
important for the American economy, the bill payment side, bill 
presentment. So it's an excellent platform for all users in 
this country.
    Mr. Yarmuth. I don't disagree at all about those 
statements, but the fact remains that if all those businesses 
who were sending advertising--and I was in the advertising 
business as a publisher at one point, also took advantage of--
--
    Mr. Donahoe. Thank you.
    Mr. Yarmuth [continuing]. The rate given to publications. 
But they are sending those advertisements, those solicitations, 
and they're billing mailings as well at a rate that would be--
is far lower than they could get anywhere in the private sector 
in a free-market situation.
    Mr. Donahoe. Yes, but, again, what we've been asking for in 
terms of the mandates that Congress has with us on the retiree 
health benefits, we think that there is a resolution around 
this without having any effect on our customers.
    Mr. Yarmuth. I understand. You continue to offer that very 
low rate, and I'm very proud of that. I don't want my time to 
expire.
    When we talk about the great Republican Lincoln said the 
legitimate role of government is to do for the people what they 
can't do for themselves. And essentially I extend that to mean 
the private sector can't do. And the private sector can't 
deliver a piece of mail for 44 cents across the country or 
around the globe.
    Mr. Donahoe. Probably not.
    Mr. Yarmuth. Probably not.
    One question quickly, Mr. Guffey, on the issue of 
retirement benefits. And this is--disturbed me a great deal in 
light of what's happened in Wisconsin, and Ohio and Indiana.
    The notion that somehow these are overly generous benefits, 
when we are hiring, asking police officers, firefighters, mail 
carriers and the like to embark upon a career which requires a 
great deal of physical exertion, and to have basically a 
shortened career as opposed to something they might otherwise 
do, and part of the tradeoff, part of the way you get people to 
embark upon those jobs, is to guarantee that there is a healthy 
retirement for them. Otherwise you would have police officers--
if it weren't a healthy retirement--police officers at 75 years 
olds chasing criminals, and 75-year-olds delivering the mail, 
and 80-year-olds climbing into buildings. I mean, isn't this 
part of the consideration here in order to get people to do 
some of the public-service jobs, some of these quasi public-
service jobs in your case?
    Mr. Guffey. I think that is the pride--I think that is a 
great consideration, but there is also a pride in knowledge of 
serving America. I'm from that era of John F. Kennedy, you 
know, see what you can do for your country. I went to Vietnam, 
I tried to serve the country in the Postal Service. And 
retirement? My retirement I take home $1,600 a month, and I pay 
my health insurance $300 or about $250, something like that, 
out of my own health insurance, my part of the payment. So it 
is not a huge retirement by any means, but it is a satisfactory 
life of serving your country and your fellow Americans.
    Mr. Yarmuth. I thank you for that answer.
    Thank you, Mr. Chairman.
    Chairman Issa. I thank the gentleman.
    We now recognize the younger of two near identical twins 
here and present today. I tell you apart mostly by your ties, 
both of which are stunning, but your father, I think, won, 
edged you out a little on the ties. Mr. Clay.
    Mr. Clay. Thank you so much. I'll have to catch up with him 
on my haberdashery.
    Let me applaud Mr. Guffey for the comprehensive and 
thoughtful testimony submitted to this committee for today's 
hearing. I think it shows a serious commitment that the APWU 
has to work in partnership with the U.S. Postal Service to 
address the challenges that it currently faces.
    I stand firmly in support with working with our families in 
the postal unions. And I am committed to supporting the Postal 
Service's reorganization to meet the challenges of today and 
tomorrow. However, I am very concerned with some of the 
elements of this hearing.
    This Congress in 1970, through the Postal Reform Act, took 
action, in essence, to take politics out of the Postal Service. 
It also gave workers collective bargaining rights. I'm afraid 
that some here today are seeking to return politics back to the 
Postal Service and perhaps strip those rights.
    This committee certainly has a welcomed responsibility to 
perform oversight duties for the Postal Service, and I don't 
think anyone would question that. I think many here, like you, 
want to see the Postal Service succeed. The service that USPS 
so admirably and consistently provides personifies the best of 
America.
    What's disturbing is that some want to use this hearing to 
attack something else that best personifies America, a worker's 
rights and the freedom that comes with collective bargaining. I 
hope I'm wrong, and I hope that we're here today to help the 
Postal Service and its workers find the right path to 
sustainability and to success. I don't think that involves 
getting in the middle of the collective bargaining process, and 
I don't see how that helps.
    Mr. Guffey, your testimony demonstrates quite clearly that 
the Postal Service labor force has made some remarkable gains 
in productivity in the last few years. In fact, the work force 
has been reduced by close to 120,000 employees since 2008 to 
572,000 employees. This represents a 27 percent reduction since 
2000. Total costs have also been reduced by $11 billion since 
2009, including a reduction of $4 billion in labor costs.
    Mr. Donahoe, you also mentioned in the written statement 
that the post office has achieved record service and 
productivity levels in recent years; is that right?
    Mr. Donahoe. Yes, sir.
    Mr. Clay. And yet on the wage side of the equation, Mr. 
Guffey, you testified that since 1970, there has been only a 
fairly modest increase in straight-time wages in real terms. Do 
you agree that----
    Mr. Guffey. That's correct, that's correct.
    Mr. Clay. Mr. Donahoe, do you agree with that analysis?
    Mr. Donahoe. Yes. Our employees have done a great job from 
a productivity standpoint, and they have enjoyed raises that 
have tracked fairly close to the rate of inflation.
    Mr. Clay. And wouldn't you say the Postal Service has 
gotten a pretty good deal out of their employees over the 
years?
    Mr. Donahoe. I think the American public has gotten a very 
good deal from the Postal Service and the employees. They are 
very dedicated. They've done great job from a standpoint of 
productivity and service.
    Mr. Clay. I thank you. I thank you both for your responses.
    Mr. Chairman, I yield back.
    Chairman Issa. I thank the gentleman, and I certainly think 
that you do have to keep pace on the haberdashery side. You 
have a haberdashery history with President Truman, and that 
alone as a Missourian is critical.
    Mr. Clay. Yeah. We do have something in common. We're from 
the same State.
    Chairman Issa. I thank you.
    We now recognize the gentlemen from Vermont for 5 minutes. 
Mr. Welch.
    Mr. Welch. Thank you very much, Mr. Chairman. I thank the 
witnesses for their excellent testimony.
    My view, this is a practical problem to be solved. I don't 
see that we should be coming at this trying to take away wages 
and benefits, and I don't see that it should be attacked by 
trying to take away delivery services that Americans have 
really come to rely on.
    I'm from a rural State, in Vermont, and I don't know how 
the letters--we a lot of snow this year. I mean, we had a lot 
of snow this year. We had 10 feet of snow. In fact, it is 
snowing now. And somehow, some way on my 8-mile dirt road, you 
managed to deliver the mail. So I don't know who's responsible 
for that, but it wasn't you guys, I can tell that. It was those 
people in these little post offices back in Hartland, Vermont, 
and Norwich, Vermont. It is quite astonishing. So there's been 
a--I don't know, a festive atmosphere here talking about what's 
good and bad, but the bottom line is the mail is getting 
delivered.
    The other thing that's quite amazing is you're doing it on 
these snow days for 44 cents, a first-class piece of mail. 
That's a pretty good deal. And it's business, and it does 
personal letters that we don't get as many of, but we all love 
to receive.
    And the other thing that is amazing, and I think it has 
just got to be acknowledged, it gets sort of swept aside when 
we get in these discussions, is that the things that the 
commercial deliverers don't want to provide--to deliver, you 
guys do. A lot of times it's frustrating when we go to our 
mailbox, and there's more, quote, junk in there than we want, 
but it is a part of commercial life in this country. So I think 
those have to be acknowledged when we're trying to wrestle with 
this problem.
    The other thing, you've pointed out that you've had about a 
30 percent head count, 100,000 fewer employees since 2008. You 
know, Governor Miller, that's an amazing thing. You know, we 
sit up here on the dais and act as though it's time to change 
because it's a new era. And it's true that we have to change, 
but that is hard. I mean, these are livelihoods. People have 
built their lives around a system that we put in place in a way 
that made sense, and not just individual employees, but 
businesses, homeowners. I mean, I think that's a significant 
accomplishment that demonstrates real good faith. I mean, what 
are your views on that?
    Mr. Miller. I agree with you, Congressman. It's a 
remarkable achievement. It's something that has been done in a 
compassionate way. Most of it has been done by attrition. Some 
have been reassigned. But it's a remarkable achievement.
    The unfortunate thing is that the volume of mail has 
contracted faster when you consider the productivity increases 
than we've been able to keep up with.
    Mr. Welch. And that's the new role that we're in, so 
further adjustments have to be made. But my sense here is that 
no one is easing off on the gas pedal in trying to make these 
changes. Would you agree with that?
    Mr. Miller. Yes, sir, I would. And I think Postmaster 
General Donahoe has done a great job. He was in charge of this 
as Deputy Postmaster General, and I'm sure that Governor 
Giuliano or Chairman Giuliano would agree with that and might 
have something to add.
    Mr. Welch. Well, thanks. No, that's all right. Let me go 
into another one.
    You know, one of the issues here is do we go to a 5-day 
delivery to save money? And I understand there is some debate 
about how much money that we would save, but let me ask you 
this question. I'll ask you, Mr. Donahoe. What would be the 
impact on losing market share to your competitors if we went to 
a 5-day week?
    Mr. Donahoe. FedEx and UPS don't deliver on Saturday now, 
so we don't think that there would be much of a change. We 
think that, again, customers have the opportunity, if they'd 
like, for the Postal Service to have a post office box to get 
their mail in, and we still would be offering Express Mail 
service. So Saturdays is our lightest day. It's the day that, 
from an advertising mail standpoint, that's the lightest day of 
the week where advertisers try to hit a mailbox, because 
generally people are out and about on Saturday. Monday through 
Friday they come home, they look at their mail, and then they 
do their shopping on the weekend.
    Mr. Welch. Mr. Guffey, how about you? What's your sense on 
that. I know that on Saturday I have more time on my hands. The 
Saturday delivery is something I like.
    Mr. Guffey. I hate to see any service cut to the American 
people unless it's absolutely necessary. There are other means 
of--it would create a situation where private companies, Mail 
Boxes Etc. and these places that provide their own boxes would 
not receive the mail, which is good for us because then the 
people who have those would have to come get post office boxes 
if they wanted them on Saturday. But I hate to see any services 
cut to the American people when there's opportunities to keep 
providing those services.
    Mr. Welch. Chairman Giuliano, you've been talking, as we 
all have, about the first over--overpayment of contribution, 
right?
    Mr. Giuliano. Correct.
    Mr. Welch. I mean, this is an amazing situation. You can be 
overaggressive or too passive, and it seems like we're making 
you front money beyond what actuarially by any standard should 
be required; is that more or less the case?
    Mr. Giuliano. That's my understanding. Congressman, there's 
a pattern behind this. This is not new. In 2003, it was 
determined that CSRS was overfunded by--I can't remember the 
number, but it was over $50 billion.
    Mr. Welch. So what's the problem of changing that?
    Mr. Giuliano. We're told by OMB and Treasury that it takes 
a change in the law.
    Mr. Welch. And that's it.
    Mr. Giuliano. Well----
    Mr. Welch. Mr. Chairman, we can help solve this problem if 
we change that law. Thank you.
    Chairman Issa. I thank the gentleman, and I trust that in 
the President's budget somewhere hidden, I didn't see it, he 
had considered that, but, like I say, I missed that.
    We'll now see the gentlelady from New York for 5 minutes.
    Mrs. Maloney. Thank you very much.
    And I would like to ask the Postmaster General Mr. Donahoe 
the questions on the wage rates in comparison to competitors. 
And I know that some of your private-sector competitors are 
nonunion, but it is also my understanding that the wage rates 
of the Postal Service are roughly equivalent to the private-
sector competitors. And as the postal magazine study showed, 
that Postal Service letter carriers start at $15.85 an hour, 
while the starting pay for a UPS driver and a FedEx carrier are 
roughly $16.14 respectively.
    And I would like to ask you does the fact that the USPS is 
required by statute to deliver universal service and to do a 6-
day-a-week drive-up, that their compensation costs put them 
possibly at a competitive disadvantage, that actually, compared 
to the postal magazine, you're very competitive; in fact, 
you're lower than one of your major competitors. So I would 
like your comments on that, Mr. Donahoe.
    Mr. Donahoe. Yes, thank you, Congresswoman Maloney.
    We do realize that we have a competitive rate of pay, and 
that's something very important to us. As we've sat down and 
negotiated with the APWU, the key thing for us was to achieve 
some short-term financial benefit from the contract, as well as 
increased flexibility and some work force structure going 
forward, and we were able to do those.
    Labor costs do drive costs in this organization because we 
are such a labor-intensive organization. I think that we work 
very well with this union to come up with some good solutions 
going forward to reduce costs and help keep the Postal Service 
viable for the American public.
    Mrs. Maloney. Thank you.
    And as the majority has pointed out repeatedly, 80 percent 
of the Postal Service's operating costs are related to work 
force compensation. But just so that we are clear on this 
point, I am informed that less than two-thirds of that 80 
percent is for compensation of the Postal Service's unionized 
work force; is that correct?
    Mr. Donahoe. That's true.
    Mrs. Maloney. So the unionized work force of the Postal 
Service accounts for roughly 50 percent of the operating costs, 
not 80 percent, as some would imply; is that correct?
    Mr. Donahoe. In any business you're going to have wages. 
We've got wages that--generally and benefits make up about 70--
70 percent of our costs. We have another 10 percent of our 
costs, roughly 9.1 percent, we prefund retiree health benefits. 
The other 20 percent cover transportation supply services, 
fuel, like any other company.
    Mrs. Maloney. Well, I think that it's important that we are 
clear about the actual labor costs represented by the unionized 
work force, and you have helped us do that. And I would like to 
open it up to the other members of the panel to comment on this 
issue, if you would, please.
    Mr. Guffey. Clearly our bargaining unit only represents 
about 30 percent of the costs, I think about 29 percent of the 
costs.
    Mrs. Maloney. Other comments?
    Mr. Giuliano. Congresswoman Maloney, I would just comment 
that we think that the percentage of costs is not the issue, 
it's how the total cost relates to our financial position. We 
think that today's tentative agreement that we're talking about 
makes good steps to reducing those labor costs in a fair way, 
while out--while maintaining flexibility in using that work 
force.
    Mrs. Maloney. And Governor Miller.
    Mr. Miller. Congresswoman, I think, No. 1, we have to look 
at every opportunity for the Postal Service to reduce costs, 
given our dire financial straits.
    Second, I would think that it would be--frankly, whether we 
were in dire financial straits or not, it would be 
irresponsible for us not to look at costs at every opportunity 
for a contract negotiation.
    Ms. Maloney. Well, my time has expired. Thank you very 
much.
    Chairman Issa. I thank the gentlelady, and we'll now go 
into a second round. Double-check to make sure that no one else 
came in.
    OK. I want to tidy up a few things. The gentlelady from New 
York talked about unionized work force. Mr. Donahoe, it doesn't 
matter whether your labor is unionized or not, does it? If it's 
80 percent, it's 80 percent, right?
    Mr. Donahoe. It's--it is. It represents 70 percent of our 
total costs, yes, sir. The other 10 percent is in the retiree 
health benefit cost.
    Chairman Issa. Right. Well, but she actually said unionized 
work force, which confused me a little, because you have plenty 
of nonunion workers, because they are management, and they are 
represented by associations.
    Mr. Donahoe. Yes, sir.
    Chairman Issa. Second, I think there was a lot of dialog 
back and forth, and I want to set one thing clear from the 
center of the dais. This is not about the hard-working men and 
women of the post office. This hearing is not even about the 
union negotiations per se. Our committee's primary jurisdiction 
in the area of concern is is the post office right sized for 
the future? And one of our concerns, one of my concerns, goes 
to this, and, Governor Miller, maybe you can help me with this. 
In the union negotiation they negotiated a no layoff. Now, the 
problem is if we go from 6 days to 5 days, and you score 
savings of 60,000 workers, and you can't lay off workers, how 
do you get the savings?
    Mr. Miller. Well, Mr. Chairman, first the no layoff 
provision was an extension of the previous contract.
    Chairman Issa. No, I understand. But just narrowly, you 
can't score savings if you can't get rid of the people, 
especially when you already have 100,000 too many today. I've 
asked my staff to look at a lot of areas that we may legislate, 
which would include--and for the Postmaster General, I know 
you're looking for legislation. I have to tell you, what we 
probably need to do is bite the bullet one time and figure out 
how we're going to retire people that are over 55 and have over 
20 years of service to help get your number down. Voluntary 
departures aren't working. The fact is you have less than 1 
percent--slightly more than 1 percent. You have the lowest 
attrition; any private company would love to have the attrition 
you have. Basically, I mean, you still have two people that are 
98 years old on the payroll. I mean, people don't retire, do 
they, Mr. Donahoe?
    Mr. Donahoe. They do retire, Mr. Chairman. We have reduced 
the head count in this organization by about 215,000 since----
    Chairman Issa. But today you're carrying over 100,000, 
almost 200,000 more people than you would need if you started 
the organization--wait a second, hear me out--if you started 
the organization to do the job that you currently need to do, 
you built the facilities you needed, and you hired the work 
force you needed, you would need between 170,000 and 200,000 
less people. You're shaking your head no. Governor Miller, if 
you built from ground up, you'd need a lot less people, 
wouldn't you?
    Mr. Miller. Right. You're right, Mr. Chairman. And you're 
right on the basic principle. But I will defend, as I 
understand it, Pat can correct me if I am wrong, but the $3.8 
billion estimate includes the problems of diminishing the 
number. So under this contract, because business is contracted, 
you don't realize all the flexibility benefits right away. But 
your point is correct if you think about it, and that is if 
you're going to be contracting very fast, how do you bring down 
the number of employees as rapidly as----
    Chairman Issa. OK. But I've got two more things in the 
short time remaining. Mr. Guffey, you said you have a $1,600 
retirement.
    Mr. Guffey. Sixteen, seventeen hundred.
    Chairman Issa. Now, that's your retirement basically from 
your military service, right?
    Mr. Guffey. No.
    Chairman Issa. That is your Postal Service retirement?
    Mr. Guffey. It's my Postal Service retirement.
    Chairman Issa. OK. Do you have any other entitlement coming 
now or in the future from your service at the post office?
    Mr. Guffey. No.
    Chairman Issa. That's it. OK. I just wanted to make sure we 
understood that.
    I've got a chart I want to put up very briefly, because 
this is the crux of one of our challenges. All of you have been 
talking about prefunding and overfunding. When you look at that 
chart through 2016, which is the end of the prefunding period, 
it is higher, and then it drops down. You all see that.
    I want us to understand that every year you don't prefund 
between now and 2017, you have to add it back on in the later 
years. So one of the challenges I'm looking at is if we were to 
abate today all your prefunding from now until 2017, although 
you would drop down, in 2017 we'd be looking for $9 or $10 
billion and every year going up. So one of the challenges is 
even if we were to smooth it out, unless we were to forgive 
essentially what you're going to have to pay, essentially 
you're lowering it now, you will be raising it then. Does 
anyone disagree with that?
    Mr. Miller. Yes. Because that chart includes a track that 
would result in substantial overfunding of the account.
    Chairman Issa. OK. I'm going to ask one exit question here. 
Chairman, you talked in terms of private corporations, and 
you've been very good on it, so I want to hold you to it. Are 
you willing to do what they did in 1992, have Congress 
statutorily tell you that if we're not going to stand behind 
the pensions; whatever you pay in, you pay in? Because if what 
you're asking to do is to not prefund, and you want to sort of 
be there where 1992 made it, those private corporations, and I 
believe including United Airlines who stuck the American people 
in their bankruptcy and others, basically they limited their 
contribution, and a default meant that the retirees got less. 
If you don't, as you call it, prefund, and then the post office 
continues to drop off to where it's not able to pay in the 
amount because it simply would be too big a burden to have 
postal carrying make sense, wouldn't we ultimately end up with 
a Federal responsibility?
    In other words, today you're saying you don't want to--you 
call it prefund, we call it fully fund on our side of the 
aisle--if you don't pay in now, and we were to say, you know 
what, we'll give you the abatement, but we'll tie it to the 
default being a default that doesn't pay out, how would the 
letter carriers and others feel if what we said was, you know, 
because you don't want to pay it in, we'll do that, but then we 
won't stand behind it with full faith of the American people? 
How would they feel there?
    Mr. Giuliano. I don't know how they would feel, but let 
me----
    Chairman Issa. Oh, you know how they'd feel, don't you, 
chairman?
    Mr. Giuliano. Yes, I know.
    Chairman Issa. You'll hear. You'll hear unless you say, I 
know they wouldn't like that.
    Mr. Giuliano. I know they wouldn't like there. But there is 
some confusion, Mr. Chairman, I would like to straighten out, 
in all honesty.
    Chairman Issa. Of course.
    Mr. Giuliano. You're referring to funding pensions, fully 
funding pensions.
    Chairman Issa. But we were talking health care, but you 
used the analysis of the pensions earlier on----
    Mr. Giuliano. No, no, no.
    Chairman Issa [continuing]. In health care.
    Mr. Giuliano. I--1992--it might not be the exact year----
    Chairman Issa. All right.
    Mr. Giuliano [continuing]. But close to that.
    Chairman Issa. That's when General Motors had this huge 
hit----
    Mr. Giuliano. That was--that was--that's right. It was a 
book hit, it was a balance sheet hit, it was not a cash hit. 
They chose to determine what the liability levels were going to 
be for retiree health care benefits, not pensions. Pensions are 
governed by a whole different set of pension accounting rules, 
which for most public companies only require 80 percent funding 
based upon the upon the actuarial needs.
    Chairman Issa. And that's where I came up with what 
happened in the case of United Airlines and others.
    The fundamental question--my time has long expired, but the 
fundamental question, I think, that we're going to leave 
unanswered, but anyone can respond for the record, is isn't it 
true that if we don't fully fund by some way--not overfund, but 
fully fund----
    Mr. Giuliano. That's it.
    Chairman Issa [continuing]. That we leave the taxpayers of 
America on the hook should the post office not be able to pay 
in the future?
    Mr. Giuliano. We are paying. We are fully funding. The 
Postal Service is fully funded for pensions and--overfunded for 
pensions, both FERS and CSRS, and overfunded for retiree health 
care benefits.
    All we're saying is, as I said in my statement, we're more 
than willing to continue paying. Of that $7.9 billion in 2011, 
that's $5\1/2\ plus $2, plus some other billion dollars that we 
are paying to make sure that we're fully funding the retiree 
health care benefits on the actuarial needs.
    What we're concerned about, and what we're asking for 
fairness and a level playing field, is the $5\1/2\ billion that 
came across in the 2006 PAEA that on an accelerated basis 
required to us prefund. That's what nobody else has to do. We 
want to stand behind these responsibilities, we have been, we 
think we can.
    Chairman Issa. And I appreciate that.
    I apologize, but I really have exceeded my time.
    Mr. Cummings.
    Mr. Cummings. Let me ask you this, Mr. Donahoe. You are not 
asking to eliminate prefunding, but to pay your retiree health 
benefits over--on a true-cost basis and spread it over 30 to 40 
years versus tackling the liability in 10 years; is that 
accurate?
    Mr. Donahoe. What we're looking to do is get a true 
accounting of exactly what we owe. We would not shirk our 
responsibility.
    When we talk about 400,000 employees, that would include a 
Postal Service that delivers mail 5 days a week, that has a 
substantial number of noncareer employees that would be not 
adding onto that liability, and we could recalculate everything 
that we've got going forward. That's what we need to do, 
because until we do that, you don't really have an idea of 
exactly what's owed.
    Mr. Cummings. Let me say this to you, Mr. Donahoe. I, too, 
join my colleagues in applauding you for--and I say this very, 
very seriously--for hiring Ron Stroman. He did an outstanding 
job for us. Sorry to see him leave. He helped us through our 
transition. He was absolutely magnificent. And that means a lot 
to us to know that he's there, and we really do appreciate 
that.
    Mr. Donahoe. We agree with you. We're very happy to have 
him.
    Mr. Cummings. One of the things that I wanted--both sides 
of the aisle have said that this is not an attack on postal 
employees, and it's not. I don't want one single postal 
employee--I have some in my family, and I know how hard they 
work. Mr. Guffey, I understand, I really do understand, your 
emotion. You don't have to apologize for that, because you're 
representing some people who have already given a lot. They've 
given a lot.
    I think anybody who looks at the fact that we--that 100,000 
people--100,000 people, that's a lot of people--since 2008 are 
no longer working for the post office, that's 100,000 families. 
I sit, Mr. Guffey, on the Joint Economic Committee, and, you 
know, something interesting that I've noticed is that when the 
employment rate is 8.8 for the Nation, it's 15 point something 
for African Americans, and the Hispanic rate is close behind. 
And then, you know, so when you tell me, Mr. Donahoe, that 
we've got 40 percent minorities, that's very, very significant.
    I want to see the unemployment rate come down also, just 
like all of us do. And when I hear about women, women, many of 
them, I'm sure, single head of households, struggling every 
day, trying to make it, many of them have lost their jobs; you 
know, when we talk about these loss of jobs, I don't want it to 
just be like collateral damage.
    Then we're talking about veterans. Until I got deeply 
involved, I didn't know the post office hired this many 
veterans and took care of the disabled veterans and gave them 
some dignity, instead of having them, as I see them in the 
AMVET center in my district, many times unable to find jobs and 
whatever. All of that is very important. And I--and it would 
be--I cannot walk out of this room without telling you all that 
I'm proud of the negotiations that you've been involved in.
    And, Governor Miller, I thank you for what you've said. I 
know you have some differing opinions here and there. But you 
said several things. You said we are a collegial body. But you 
said something else that is so significant. You said, I think, 
I really believe, that Mr. Donahoe is doing a great job. And 
that's what it's all about.
    What I'm saying to you is that sometimes--one of the things 
I try to do with my kids is I try to be careful that I just 
don't say the negative when they do something wrong; I try to 
make sure I compliment them for doing something right. And 
sometimes I get a little bit upset that we don't root for the 
home team, for the team that is doing it right.
    And you said something to me, Mr. Donahoe, yesterday that I 
hope you don't mind me sharing. You said that if all the unions 
work with you like Mr. Guffey's union worked with you, we could 
solve all kinds of problems. And so I just--again, Mr. Guffey, 
the reason why I'm talking about this is because I know that 
there are people--you have employees who are sitting there 
saying, you know, we're going to get 10 percent; new people 
saying, we're going to get 10 percent less. I know they are 
sitting there saying, we're not going to get a raise for 2 
years. They're sitting there saying, you know, a lot of our 
colleagues have already gone for whatever reasons. But I want 
them to know that a grateful Congress appreciates what they do 
every day.
    When I look at my mailman in the rain and snow, and 
although I was kidding a little bit, I'm serious, seeing dogs 
run after them--I don't know how many Members of this Congress 
would walk up and down steps, up and down steps in the hot sun 
delivering mail, and then many instances going through all 
kinds of difficult circumstances. In my neighborhood, I live in 
the inner city of Baltimore, you may not even find a mailbox to 
put the mail in. But some kind of way they do it over and over 
and over and over again. They get up and they do it. And I 
think that we need to take a time-out and applaud them for what 
they do.
    And I just--I know that public employees are catching hell 
from all levels and being constantly told that they are not 
doing this, not doing that, but the fact is they are doing a 
lot of wonderful great things. And again, I want to thank you, 
Mr. Chairman, for calling this hearing, and may God bless you.
    Chairman Issa. I thank the ranking member.
    I would like to thank the witnesses for their testimony.
    In closing, I would like to echo what the ranking member 
just said. This hearing has said in no uncertain terms hard-
working men and women of the post office, not just this 
particular union that we--contract we talked about, but all of 
the workers--I think on both sides of the aisle we've talked in 
terms of how do we get to a fair pay-in for the various future 
obligations of the post office, and, in fact, how do we get to 
the right number of postal workers.
    I think we can all be proud on both sides of the aisle. 
This has not been about any kind of cheap shots on the post 
office, postal workers, who have dramatically improved their 
productivity, whose rating by the American people continues to 
be high for customer satisfaction, but simply a matter of how 
do we get to the right number and the right recognition of 
obligations now and in the future to meet a mandate that this 
Congress has voted for and reiterated repeatedly when it came 
to the self-sufficiency of the post office. The ranking member 
and I take very seriously our unique obligation to oversee the 
post office and to, in fact, bring such laws as may be 
necessary to incorporate that.
    In closing, we did talk about one particular piece of 
legislation. I believe that both the Republicans and Democrats 
here are going to have to work on a number of pieces of 
legislation in order to help the post office control its own 
destiny, free up the post office to enter markets 
appropriately, and, most importantly, to get to the right 
number. I can't from the dais--and I know the ranking member 
would share this with me--we can't tell you what the right 
number to pay in is. We can't tell you whether the 
administration's refusal to look at FERS is appropriate or not. 
But this committee will hold hearings, we will get--reach out 
to the experts to try to find those right numbers, and if those 
numbers need to be adjusted, you have my assurance, and I 
believe you have the assurance of every member on this 
committee, that we will work for those right numbers regardless 
of the scoring or other technical hurdles, because we do want 
the independence of the post office to be about your taking 
responsibility for your costs and us staying out of your way.
    So once again I thank you. You've had many questions 
unanswered. I would invite you to use the next 7 days to revise 
and extend in any way you see fit, and they will, without 
objection, all be included in the record.
    We stand adjourned.
    [Whereupon, at 12:46 p.m., the committee was adjourned.]
    [The prepared statements of Hon. Dan Burton and Hon. Cathy 
Morris Rodgers, and additional information submitted for the 
hearing record follow:]
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