    [Senate Hearing 112-250]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 112-250

             ADDRESSING THE U.S. POSTAL SERVICE'S FINANCIAL CRISIS

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

                                    HEARING

                                   before the

                    FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT

                       INFORMATION, FEDERAL SERVICES, AND

                      INTERNATIONAL SECURITY SUBCOMMITTEE

                                     of the

                                  COMMITTEE ON

                   HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

                              UNITED STATES SENATE

                          ONE HUNDRED TWELFTH CONGRESS

                                 FIRST SESSION

                                   __________

                                  MAY 17, 2011

                                   __________

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

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            COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

                   JOSEPH I. LIEBERMAN, Connecticut, Chairman
    CARL LEVIN, Michigan                 SUSAN M. COLLINS, Maine
    DANIEL K. AKAKA, Hawaii              TOM COBURN, Oklahoma
    THOMAS R. CARPER, Delaware           SCOTT P. BROWN, Massachusetts
    MARK L. PRYOR, Arkansas              JOHN McCAIN, Arizona
    MARY L. LANDRIEU, Louisiana          RON JOHNSON, Wisconsin
    CLAIRE McCASKILL, Missouri           ROB PORTMAN, Ohio
    JON TESTER, Montana                  RAND PAUL, Kentucky
    MARK BEGICH, Alaska                  JERRY MORAN, Kansas

                      Michael L. Alexander, Staff Director
                   Nicholas A. Rossi, Minority Staff Director
                      Trina Driessnack Tyrer, Chief Clerk
                Joyce Ward, Publications Clerk and GPO Detailee
                                     ------

     SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION,
                  FEDERAL SERVICES, AND INTERNATIONAL SECURITY

                      THOMAS R. CARPER, Delaware, Chairman
    CARL LEVIN, Michigan                 SCOTT P. BROWN, Massachusetts
    DANIEL K. AKAKA, Hawaii              TOM COBURN, Oklahoma
    MARK L. PRYOR, Arkansas              JOHN McCAIN, Arizona
    CLAIRE McCASKILL, Missouri           RON JOHNSON, Wisconsin
    MARK BEGICH, Alaska                  ROB PORTMAN, Ohio

                        John Kilvington, Staff Director
                    William Wright, Minority Staff Director
                       Deirdre G. Armstrong, Chief Clerk

                                C O N T E N T S

                                     ------
    Opening statements:
                                                                       Page
        Senator Carper...............................................     1
        Senator Brown................................................     4
        Senator Akaka................................................     5
    Prepared statements:
        Senator Carper...............................................    41
        Senator Brown................................................    45
        Senator Akaka................................................    47

                                   WITNESSES
                             TUESDAY, MAY 17, 2011

    Patrick Donahoe, Postmaster General and Chief Executive Officer,
      U.S. Postal Service............................................     6
    Phillip R. Herr, Director, Physical Infrastructure Issues, U.S.
      Government Accountability Office...............................     8
    Margaret Cigno, Director of Accountability and Compliance, U.S.
      Postal Regulatory Commission...................................    28
    David Williams, Inspector General, U.S. Postal Service...........    29
    Cliff Guffey, President, American Postal Workers Union...........    31
    Mark Strong, President, National League of Postmasters...........    33
    Jerry Cerasale, Senior Vice President, Government Affairs, Direct
      Marketing Association..........................................    34

                         Alphabetical List of Witnesses

    Cerasale, Jerry:
        Testimony....................................................    34
        Prepared statement...........................................   117
    Cigno, Margaret:
        Testimony....................................................    28
        Prepared statement...........................................    81
    Donahoe, Patrick:
        Testimony....................................................     6
        Prepared statement...........................................    48
    Guffey, Cliff:
        Testimony....................................................    31
        Prepared statement...........................................    90
    Herr, Phillip R.:
        Testimony....................................................     8
        Prepared statement...........................................    62
    Strong, Mark:
        Testimony....................................................    33
        Prepared statement...........................................   103
    Williams, David:
        Testimony....................................................    29
        Prepared statement...........................................    85

                                    APPENDIX

    The statement of Ms. Goldway referenced by Ms. Cigno.............    76
    The chart referenced by Mr. Guffey...............................    92
    Questions and responses for the Record from:
        Mr. Donahoe..................................................   125
        Mr. Herr.....................................................   145
        Ms. Cigno....................................................   155
        Mr. Williams.................................................   162
        Mr. Strong...................................................   169
        Mr. Cerasale.................................................   176
    Prepared statement submitted by Robert Rapoza, National
      Association of Postmasters of the United States................   179

              ADDRESSING THE U.S POSTAL SERVICE'S FINANCIAL CRISIS

                                  ----------

                             TUESDAY, MAY 17, 2011

                                     U.S. Senate,
            Subcommittee on Federal Financial Management,
                  Government Information, Federal Services,
                                  and International Security,
                          of the Committee on Homeland Security
                                            and Governmental Affairs,
                                                        Washington, DC.
        The Subcommittee met, pursuant to notice, at 10:35 a.m., in
    room 342, Dirksen Senate Office Building, Hon. Thomas R.
    Carper, Chairman of the Subcommittee, presiding.
        Present: Senators Carper, Akaka, Pryor, McCaskill, Begich,
    and Brown.

                  OPENING STATEMENT OF SENATOR CARPER

        Senator Carper. The hearing will come to order.
        Welcome. We welcome our guests, our witnesses, the first
    panel as well as our second panel. I especially want to welcome
    back Senator Danny Akaka, who has been on the DL for a week or
    two, but he is back, tan, fit, and rested. We need him at his
    best and that is what we are going to get. We are happy to be
    here with Senator Akaka, and with Senator Scott Brown, and with
    all of you.
        This is not the first hearing that we have held with regard
    to the Postal Service's financial challenge, but it is an
    important one. It is an important one. And while the witness
    list at this hearing is full of familiar names and
    organizations, the hearing today is likely to be somewhat
    different from those we have held in the past. It needs to be
    different because the crisis the Postal Service faces is more
    urgent now than it has been in the past.
        Absent prompt and dramatic action on the part of Congress,
    our next Postal hearing may well be about how we pick up the
    pieces from a shutdown in operations. It is my hope that this
    hearing will jump-start the process of developing a bipartisan,
    bicameral consensus around the changes needed to restructure
    the Postal Service's finances and transform its operations to
    reflect the uncertain future that it now faces.
        Just last week, the Postal Service Board of Governors
    released some sobering data on the Postal Service's financial
    performance in the second quarter of this fiscal year, which
    ended on March 31. The Board also released numbers summarizing
    mail volume and revenues for the fiscal year to date. These
    data show that, as those of us who follow Postal issues feared
    may happen, the Postal Service is not recovering along with the
    economy as a whole. Rather, the continued electronic diversion
    of the mail has likely permanently reduced mail volume, despite
    the Postal Service's best efforts to bring in new customers and
    preserve those that it has today.
        In the period between the beginning of January and the end
    of this March, mail volume declined by just more than 2 percent
    versus the same period last year. This follows two quarters of
    modest growth. At the same time, the Postal Service's most
    important product, first class mail, actually lost 6 percent of
    its volume, continuing its pattern of years of steady decline.
        These developments are contributing to losses by the Postal
    Service. Midway through the current fiscal year, the Postal
    Service booked losses totaling some $2.8 billion. Its projected
    losses for the year now stand at $8.3 billion, nearly matching
    the record $8.5 billion in losses experienced last year. These
    volume and revenue numbers are all worse than the Postal
    Service initially projected, and if the losses at the end of
    the year are truly as bad as we are now being told they will
    be, I understand that the Postal Service will have exhausted
    all of its $15 billion line of credit from the Treasury by the
    end of September and will limp into Fiscal Year 2012 with just
    enough cash on hand to get by.
        And it does not get a lot better from there. Getting by in
    2012 will likely mean that the Postal Service will not be able
    to make its $5.6 billion retiree health prefunding payment and
    could even have difficulty making other normally routine
    pension and workers' compensation related payments.
        On top of that, a major crisis that occurs over the next
    year or so, such as further economic slowdown or a terrorist
    attack, could well push the Postal Service over the edge into
    insolvency and result in a shutdown of its operations,
    something that none of us want or need.
        If the Postal Service were to shut down, the impact on our
    economy would be dramatic. As Postmaster General Donahoe will
    testify to us today, the Postal Service operates at the center
    of an industry that employs some seven million people and
    generates more than $1 trillion in sales and revenue each year.
    At such a difficult time for our country, we cannot afford to
    put those jobs and that kind of productivity in jeopardy.
        In recent years, the Postal Service has done its share to
    respond to the declining demand for hard copy mail and to
    better align its costs with its revenues. Total costs have been
    reduced by $12 billion in recent years. A big contributor to
    that success has been the elimination of more than 113,000
    Postal Service jobs since 2007 through attrition and more than
    200,000 over the past decade. I think that represents a
    reduction in the workforce by a little bit over 25 percent.
    These savings are continuing with the Postal Service's new
    contract with the American Postal Workers Union (APWU), which
    includes wage and benefit concessions and significant new
    workforce flexibilities.
        In addition, the Postal Service has introduced and
    successfully promoted a number of new products--a number of
    them. One of those, maybe the best known, is the flat rate
    Priority Mailbox.
        We are rapidly reaching the point, however, at which the
    Postal Service will no longer have the authority under current
    law to do what it needs to do in order to survive and prosper.
    That is why I am introducing today legislation that aims to
    clean up the Postal Service's finances and help it implement
    the ambitious reorganization plan that it announced last
    spring. The main provision in my bill, the Postal Operations
    Sustainability and Transformation Act (POST Act), aims to
    permanently address the various pension and retiree health-
    related issues that have plagued the Postal Service for years
    now.
        The Postal Service, the Postal Service's Inspector General,
    the Postal Regulatory Commission (PRC), and two independent
    actuaries have all come to the conclusion that the Postal
    Service has overfunded its obligation to the Civil Service
    Retirement System (CSRS) by between $50 billion and $75
    billion. In addition, numerous observers and even the Office of
    Personnel Management (OPM) have pointed out that the Postal
    Service has paid $7 billion more than it owes into the Federal
    Employees Retirement System (FERS).
        My bill would give the Postal Service access to the funds
    it has overpaid. It would be able to use them to make its
    required retiree health prefunding payments, taking upwards of
    $5 billion off its books each year for the next several years.
    Once those payments are satisfied, the funds that this bill
    would free up could be used to pay workers' compensation
    obligations and to retire debt owed to the Treasury. These
    changes, or something very similar to them, will need to be a
    vital part of any effort to improve the Postal Service's
    financial condition in both the short and the long term.
        But stopping with these reforms and avoiding further
    potentially more difficult changes simply will not be enough.
    The Postal Service is projecting cumulative losses of more than
    $230 billion between now and 2020--$230 billion. The savings
    generated by the pension and retiree health reforms in my bill
    and in others that have been introduced, including a bill
    introduced by Senator Collins and bills introduced in the
    House, would only address about a third of these losses. In
    addition, the Postal Service's latest financial data shows that
    even if the retiree health prefunding payment is not made this
    year, the Postal Service would still face the risk of
    insolvency and shutdown in 2012. And even if the 2012 retiree
    health payment is also not made, the Postal Service would enter
    2013 with no cash and no borrowing room at all.
        More will clearly need to be done. That is why my bill
    takes important steps toward truly giving the Postal Service
    the flexibility that those of us in Congress always say we want
    to give them to adapt to new realities and operate more like a
    business. No business facing the kind of difficulties and
    challenges that the Postal Service faces today would survive
    for very long if it were told how many retail outlets it should
    have and where they should be located, or if it were prevented
    from making operational changes or taking full advantage of the
    resources and expertise that it has at its disposal. Yet that
    is what the Congress does to the Postal Service.
        My bill aims to address these problems and to take Congress
    out of the day-to-day management of the Postal Service.
    Assuming that the Postal Service can continue to build on its
    recent cost cutting efforts--and I commend them and the labor
    unions that represent most of the workers for those efforts--
    these changes could help set the Postal Service on more solid
    footing in the years to come.
        The report that the Government Accountability Office (GAO)
    is releasing today on the state of the Postal Service's vehicle
    fleet provides, I believe, a valuable case study. The report
    clearly details the negative impact that financial uncertainty
    and well-meaning but sometimes harmful dictates from Congress
    have on Postal operations. GAO found, for example, that due at
    least in part to the Postal Service's dire financial situation,
    Postal management currently has no plan in place to replace its
    very large fleet of delivery vehicles, some of which were first
    put on the streets a generation ago or more. The cost of
    operating and maintaining these vehicles are increasing, and in
    at least some cases, it is having a negative impact on
    operations.
        I believe it is unacceptable that the Postal Service has no
    plans to date to begin replacing its aging fleet, perhaps with
    more fuel-efficient vehicles, the purchase of which in large
    numbers could help commercialize important new technologies.
    But it is also unacceptable that the Postal Service has been
    placed in this position financially, in part due to the acts of
    Congress, or to the inaction of Congress.
        I look forward to hearing from our witnesses today about
    these and other pressing issues facing the Postal Service.
        I would also note that Senator Collins, with whom I have
    worked on a lot of issues in the past, including Postal issues,
    has introduced her own bill, and there is a fair amount of
    overlap between what she has proposed and what you will find in
    the legislation I am introducing today. My hope at the end of
    the day is that Senator Collins and I, who have worked on these
    issues and others in the past, will find common ground. That is
    what we need. And we need to, as I said earlier, we need to
    develop a bipartisan, bicameral approach to address these
    challenges, and my hope is that many of the Members, Democrat
    and Republican, of the Subcommittee and this Committee will be
    a part of that solution.
        With that having been said, let me recognize Senator Brown
    for any comments that he would like to make, and then we will
    turn to Senator Akaka. Senator Brown.

                   OPENING STATEMENT OF SENATOR BROWN

        Senator Brown. Thank you, Mr. Chairman. I am not going to
    repeat a lot of what you said, but I do want to point out that
    I agree with you and that we need to allow, or give the Postal
    Service the tools and resources they will need to move forward.
    We need to remove some of the roadblocks so they can provide
    the universal service and have it be guaranteed so the
    communities are not adversely affected.
        You have already addressed, obviously, the pension fund
    overpayment. I think there is general agreement with that. It
    is just a question of giving them the flexibility to work in a
    responsible manner to solve their own problems, because,
    clearly, the path that they are going down is not sustainable,
    as you pointed out, and I look forward to working, obviously,
    with you and Senator Collins, in working on these very real
    issues.
        So I appreciate the opportunity and look forward to the
    testimony. I will submit my balance for the record.
        Senator Carper. All right. Thanks so much, and your entire
    statement will be made part of the record.
        Senator Akaka, welcome.

                   OPENING STATEMENT OF SENATOR AKAKA

        Senator Akaka. Thank you very much, Chairman Carper. I want
    to thank you very much for holding this important hearing about
    the future of the U.S. Postal Service (USPS).
        I also want to welcome our Postmaster General and Chief
    Executive Officer (CEO) of our U.S. Postal Service and also
    Phil Herr from GAO to our hearing.
        As we have heard time and again over the last 3 years, the
    Postal Service faces a devastating financial crisis. By the end
    of this fiscal year, the Postal Service may not be able to
    fully pay its $5 billion retiree health benefits prefunding
    obligation. The Government Accountability Office report
    released last year examines several options to help the Postal
    Service.
        So I want to commend Senator Carper and Senator Collins,
    who have both introduced legislation that aims to help the
    Postal Service meet its obligations by addressing overpayments
    to the retirement funds. Additionally, Senator Carper's POST
    Act offers several provisions which would allow the Postal
    Service to innovate and expand its business. However, both of
    these bills still contain a provision introduced in the last
    Congress which would bias the collective bargaining process to
    favor the Postal Service during arbitration. The fact that the
    Postal Service and the APWU ratified a new 4-year contract just
    last week demonstrates that the Postal Service and employees
    can work together to reach an agreement that meets everyone's
    needs. Congress does not need to inject itself in the
    collective bargaining process.
        I also want to mention the issue of 5-day delivery. As I
    expected, the Postal Regulatory Commission's estimated savings
    for cutting a day of service is lower than the Postal
    Service's. The PRC also points out that the Postal Service did
    not examine thoroughly the impact on rural areas. I am
    concerned about the impact of cutting service on Hawaii, which
    already has slower mail delivery due to its location and
    challenges moving mail between islands. Ultimately, I do not
    believe this change would help the Postal Service attract new
    business or revenue. Instead, it could harm those who rely on
    the Postal Service.
        Again, I want to thank my colleagues for their hard work on
    these issues and thank all of our witnesses for their
    contributions to the entire process. These hearings will help
    us to move forward with legislation to finally ensure a long-
    term fix for the Postal Service.
        Thank you very much, Mr. Chairman.
        Senator Carper. Senator Akaka, thanks. It is great to have
    you back again.
        Our first witness today is our Postmaster General, Pat
    Donahoe. Oh, Senator Begich, you slipped in on me. Thanks for
    joining us. Good to see you. Again, we start our day together
    and we will spend most of our day together, I suspect.
        Senator Begich. It is looking that way.
        Senator Carper. Our first witness today is the Postmaster
    General, Pat Donahoe. This is Mr. Donahoe's first time
    testifying before this Subcommittee as Postmaster. Is that
    true? Is this your first time?
        Mr. Donahoe. It is true.
        Senator Carper. First time as Postmaster General. Before
    assuming that position last year, Mr. Donahoe served as Deputy
    Postmaster General and Chief Operating Officer (COO) at the
    Postal Service. Mr. Donahoe has spent his entire career at the
    Postal Service, beginning as a clerk in his home town of
    Pittsburgh.
        Next, we have Phillip Herr, Director for Physical
    Infrastructure Issues at the Government Accountability Office.
    Mr. Herr has been with GAO since 1980 and manages a broad range
    of issues there, including Postal issues. We appreciate his
    previous help and we look forward to your testimony here today.
        Both of your statements will be admitted in their entirety
    for the record and you are free to summarize as you see fit. If
    you exceed 5 minutes, I will not say much. But if you exceed 7
    or 8 minutes, I will say something.
        So please proceed, Mr. Postmaster General.

     STATEMENT OF PATRICK DONAHOE,\1\ POSTMASTER GENERAL AND CHIEF
                 EXECUTIVE OFFICER, U.S. POSTAL SERVICE

        Mr. Donahoe. Thank you, Mr. Chairman. Do not worry. I will
    not exceed that 5 minutes.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Donahoe appears in the appendix
    on page 48.
    ---------------------------------------------------------------------------
        Good morning, Mr. Chairman and Members of the Subcommittee.
    I appreciate the opportunity to testify today on behalf of the
    U.S. Postal Service. Thank you for the invitation, and thank
    you, Mr. Chairman, for calling this hearing.
        The Postal Service plays a vital role in American society
    and the American economy. The Postal Service will deliver more
    than 165 billion pieces of mail this year and ship more than
    two billion packages. We are the backbone of a $1 trillion
    mailing industry. The Postal Service is a self-funding entity
    that innovates and competes for customers. We provide a
    reliable, secure, and affordable delivery platform for American
    business. Therefore, it is in the national interest to keep the
    Postal Service financially strong.
        Like any business, the Postal Service is subject to
    marketplace trends, and unfortunately, we have seen a
    significant long-term decline in our most profitable product
    category, first class mail, which accounts for approximately 50
    percent of our revenue. People and businesses are electing to
    send and receive statements and pay bills electronically. This
    reduces mail volume.
        We have aggressively cut costs in response to economic
    conditions and customer trends and reduced the size of our
    workforce by more than 113,000 employees over the last 4 years,
    and we are consolidating both mail processing and retail
    facilities. Our total cost reduction during this 4-year period
    is in excess of $12 billion. We have responded to volume
    declines by working with corporate partners, improving our
    customer experience, and creating innovative products to spur
    demand.
        It is important to recognize that our employees have done
    an outstanding job during some turbulent times in the
    marketplace. In fact, absent the retiree health benefit
    prepayment mandate, the Postal Service would have recorded a
    cumulative profit over the last 4 years.
        Mr. Chairman, despite our significant role in the American
    economy and our aggressive cost cutting and revenue generating
    efforts, I regret to say that we are in a serious financial
    predicament today. As things stand, we do not have the cash to
    make the $5.5 billion prepayment for future retiree health
    benefits due on September 30, and we may be forced to default
    on other payments. This could extend to operational expenses.
        The costs of potential delivery disruptions to the economy
    and to the country cannot be overestimated. Even the threat of
    such disruption would have a significant impact on America's
    business and do irreparable harm to America's faith in the
    mail.
        Mr. Chairman, we need legislation this fiscal year, and I
    am grateful, indeed, that both you and Senator Collins have
    introduced bills that address some of our most serious
    constraints. We especially support provisions that would
    eliminate the retiree health benefit prepayments by
    reallocating our Civil Service Retirement overpayments, that
    would return the Federal Employees' Retirement System
    overpayments to the Postal Service, and provide the Postal
    Service with the flexibility to determine its own delivery
    schedule.
        I would also urge the Subcommittee to start the legislative
    process with a long-term approach to our business model. We
    have sustained financial losses over the past several years
    that have created negative perceptions about the mail and
    Postal Service, and to some extent has had a negative impact on
    our business. The fact is, with the right legislation, the
    Postal Service can return to profitability. If given the
    flexibility to do so, the Postal Service can continue to serve
    the American public very effectively and continue to sustain
    and propel American commerce.
        Mr. Chairman and Members of the Subcommittee, I look
    forward to working with you in support of these goals and thank
    you for your leadership on these important issues. Thank you,
    and this concludes my remarks.
        Senator Carper. Thanks very much. You are a lot shorter
    than Jack Potter. [Laughter.]
        Mr. Donahoe. We have a motto, 5 minutes or less, so I
    wanted to make sure we did that.
        Senator Carper. He was always good, too. Thanks.
        Mr. Herr, please proceed.

          STATEMENT OF PHILLIP R. HERR,\1\ DIRECTOR, PHYSICAL
      INFRASTRUCTURE ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

        Mr. Herr. Chairman Carper, Senator Brown, and Members of
    the Subcommittee, I am pleased to be here to discuss GAO's work
    on the Postal Service. I will briefly discuss the Postal
    Service's financial condition, key issues in our report on the
    Postal delivery fleet that is being released today, and options
    for addressing its fleet and broader challenges.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Herr appears in the appendix on
    page 62.
    ---------------------------------------------------------------------------
        The Postal Service is on GAO's list of high-risk agencies
    because it needs to realign its business model in the face of
    declining mail volume. Total mail volume decreased 3 percent in
    the second quarter of this fiscal year, with first class mail
    declining by 7.6 percent compared with the same period last
    year. Halfway through this fiscal year, the Postal Service is
    reporting a net loss of $2.6 billion. As acknowledged today,
    the Postal Service projects it will reach its $15 billion debt
    limit this year and default on a $5.5 billion prefunding
    payment for retiree health benefits.
        Against this decidedly grim backdrop, the Postal Service
    needs to modernize its operations, including preparing to
    upgrade its delivery fleet. The Postal delivery fleet has about
    192,000 vehicles, most of which are custom-built right-hand-
    drive vehicles about 16 to 23 years old that are approaching
    the end of their expected 24-year operational lives. The fleet
    includes about 22,000 commercially available minivans, ranging
    in age from 2 to 13 years, with an expected operational life of
    10 years.
        Maintaining and fueling the delivery fleet cost about a
    billion dollars in Fiscal Year 2010, or about $18 per day per
    vehicle. Our analysis of repair data found that direct
    maintenance costs averaged about $2,600 per vehicle, which is a
    bit understated because some contractor costs were not
    included. About 5,300 vehicles required more than $7,000 in
    direct costs, and 700 vehicles required more than $10,500 in
    direct costs, over one-third the estimated replacement cost of
    the vehicle. And at least 31 percent of delivery maintenance
    costs were for unscheduled maintenance, 11 percentage points
    over the Postal Service's goal.
        While Postal employees we interviewed believe the delivery
    vehicles can continue to operate without major interruptions
    for at least several more years, we identified maintenance
    problems during our site visits. In Minnesota, agency
    requirements for replacing rusted frames were not being
    followed at the Postal maintenance facility we visited. Frames
    were only replaced when one or more holes perforated the metal.
    We also found frames with severe rust problems in New York
    State. Each frame replacement costs about $5,000, and private
    fleet managers we interviewed said that replacing frames is a
    key indication that it is time to replace, not repair,
    vehicles.
        However, upgrading the fleet will be costly. Purchasing
    185,000 delivery vehicles is estimated to cost about $5.8
    billion, about $31,000 for vehicles with a gasoline engine.
    Fully refurbishing the fleet would cost less, about $3.5
    billion, or about $20,000 per vehicle, although the current
    course of replacing frames, motors, and transmissions is
    effectively refurbishment at a slower pace.
        EPACT acquisition requirements will need to be factored
    into replacing delivery vehicles, as well, namely that 75
    percent of its acquisitions be capable of using alternative
    fuel. Another complicating factor in considering alternative
    fuel vehicles is that higher acquisition costs may not be
    recouped over the vehicles' operating lives, given that
    delivery vehicles currently travel about 17 miles a day and use
    about two gallons of gasoline.
        While the Postal Service has been able to maintain its
    current fleet, the time will soon come when the cost of this
    approach will not allow further delays. We have recommended the
    Postal Service develop a strategy and time line for addressing
    this need. More broadly, agreement is needed on a package of
    actions to stabilize the Postal Service and align its costs
    with revenues and generate sufficient funding for capital
    investments.
        As we previously reported, Congress should consider
    modifying the funding requirements for retiree health payments
    in a fiscally responsible manner to provide short-term relief,
    and addressing constraints and legal restrictions that hamper
    closing facilities so that more aggressive action can be taken
    to control costs. Proposed legislation discussed today provides
    an important starting point for action.
        Chairman Carper, Senator Brown, and Members of the
    Subcommittee, this concludes my prepared statement and I am
    pleased to answer any questions.
        Senator Carper. Thanks. Our thanks to both of you for that
    testimony.
        I want to just drill down, if you will, on the GAO's report
    released today, dealing with the vehicles. As I understand it,
    the number of vehicles that the Postal Service has is roughly
    185,000, close to 200,000. It sounds like the average age is
    about 20 years. They do not go very far on a day, an average of
    about 17 miles. And the cost of fuel--would you just go back
    and clarify it for me, Mr. Herr. What are we talking about, the
    cost of fuel for these vehicles?
        At a billion dollars, is that what I heard?
        Mr. Herr. We said a billion dollars, but that was for
    maintenance and fuel, so the direct maintenance costs were
    about $750 million and then fuel costs last fiscal year were
    about $300 million, although with prices going up, it would
    have increased this year, obviously.
        Senator Carper. Yes. One of the things I have encouraged
    the previous Postmaster General, the Board of Governors, the
    labor unions that represent many of the Postal employees, is to
    just be as creative as possible and think outside the box. And
    I have even suggested, as the Postmaster General may recall, I
    almost suggested that you create, if you do not have it
    already, within the Postal Service an entity whose job is to
    think outside the box and to come up with clever ways to create
    revenues and equally clever ways to reduce costs.
        I want us to just think about energy costs and just talk
    with you about what you are doing already to bring down energy
    costs within buildings--there are a lot of Postal buildings--
    and whether or not there is any potential for a similar
    approach with reducing the energy costs, maybe the maintenance
    costs that flow from 185,000 vehicles. Can you just start with
    that, please?
        Mr. Donahoe. Sure. Well, first of all, let me thank you for
    your positive comments about our energy program. We are very
    proud of that. We embarked on an energy program probably about
    4 or 5 years ago now to look at anything and everything we do,
    mainly focused on buildings, and a lot of the costs or a lot of
    the focus was on electrical costs. And when you look at
    electricity, it comes down basically to how much it costs to
    keep the lights on in a facility. So we have done a lot of
    investment around special systems that help us in our large
    facilities to manage that, but we have done a lot of simple
    things, just like replacing light bulbs for a more cost-
    efficient bulb, fixtures, and very simple things like keeping
    the lights off. So we have been able to cut electric usage by
    about 30 percent over the last 4 years and that is something we
    are very proud of.
        We have also looked at a number of other facility
    innovations and upgrades. We have invested in things like green
    roofs to help us not only sustain buildings for a long time,
    but that helps from an energy conservation standpoint, too.
        From a vehicle standpoint, we are looking at all the
    options right now. We have been experimenting with hydrogen
    vehicles, natural gas, diesel, electric, and hybrid. We are
    trying to make sure that we look at everything and anything out
    there, and we have two considerations. No. 1, the daily cost to
    operate the vehicle, but more importantly, the long-term costs,
    and that is why as we look at electric we have to maintain in
    mind, at least, the idea that you have to replace batteries and
    that has to be considered as part of the long-term investment,
    too.
        Right now, we are at a place where we will have to buy some
    vehicles in the next few years, but in order to do that, we
    have to get our finances in order. So, again, I appreciate your
    bill, because that is going to help us get the short-term
    finances in order so that we can address some of these long-
    term investments.
        Senator Carper. All right. Mr. Herr, do you want to make
    any comments just in response to that, please?
        Mr. Herr. We did ask a few folks in the industry about the
    idea of the energy sharing contracts, and one of the points
    that they made to us is because the vehicles travel relatively
    short routes and use relatively small amounts of fuel, that
    configuration may not--it may work very well in buildings, but
    it may be a tougher thing to use in terms of the vehicles.
        Senator Carper. And under the energy sharing contracts, as
    I understand it, what you have, folks will come in and will
    actually do work to reduce energy consumption for buildings and
    their payment stream will flow from the energy savings that are
    created by the retrofit. And that just does not work, though,
    for vehicles, does it?
        Mr. Herr. Well, it is apparently a more--it would be a new
    idea for that field, but I think given the configuration of the
    fleet and also, I think, the long--they are hoping to do
    another buy for another 25-year vehicle--that would raise some
    other questions, I guess, in terms of the long-term commitment
    for the industry.
        Senator Carper. Yes. One other thing I would ask you to
    keep in mind is this huge reliance we have on oil in this
    country. Most of it is from foreign sources. A lot of it is
    from places that are undemocratic, frankly, unreliable, and we
    need to reduce that. We all know we need to reduce that.
        Among the initiatives that we are pushing in my State is
    offshore wind. We hope within a couple of years to have
    deployed maybe the first offshore windmill farm off of Rehoboth
    Beach, about 12 miles out, and to be able to fuel vital
    electricity for at least 100,000 homes a day.
        But we know the wind does not always blow and the sun does
    not always shine. One of the things I would like for us to keep
    in mind, and I do not expect you to comment on this today, but
    as we think outside the box and we are looking at trying to
    reduce not just our building costs for energy but also our
    vehicle costs for energy, to see if there is some other way we
    can use that as an opportunity to make money or to save money,
    and I will just throw out an idea.
        We are moving toward hybrid vehicles. Chevrolet Volt,
    initially, they were going to build 10,000. This year, they are
    going to build 50,000. Next year, they were originally going to
    build 50,000 and they are going to build 200,000. We are going
    to launch the Fisker, which will get about 80 miles per gallon,
    in the old GM plant in Delaware at the end of next year--80
    miles per gallon. They have to be fueled someplace, and we are
    going to be looking for fueling stations for electricity. And
    to the extent that the Postal Service were in the business of
    using electricity to power its vehicles, there might be the
    opportunity to also sell electricity to customers, or if we are
    looking at compressed natural gas, we are looking for fueling
    stations there. The Postal Service could be literally a go-to
    place for that energy.
        One of the thing is if you have a fleet of--one of the
    things we have a hard time doing is storing electricity that is
    generated from unpredictable sources of electricity, wind and
    solar, because they are not always there. But if we had somehow
    a fleet of vehicles, maybe 185,000 vehicles, that could almost
    be a reservoir, if you will, of electricity, so that when the
    sun is shining, the wind is blowing, we actually charge the
    batteries of those vehicles and then sell it back onto the
    grid, that might be the opportunity to make some money for the
    Postal Service.
        I do not know if any of those ideas in the end will
    actually work out but this is the way we have to be thinking.
    We just have to be thinking outside of the box, being more
    entrepreneurial than we have ever been in the past, and part of
    that responsibility is for us on this side. Part is yours. And
    the other is maybe working with the folks in the auto industry,
    the folks in the auto industry on what might be possible.
        Let me just stop there. I have another round of questions
    and I will come back to that. Let me go to Senator Brown.
    Thanks.
        Senator Brown. Thank you, Mr. Chairman.
        So, Mr. Donahoe, so what do you need Congress to do so you
    can get your fiscal and financial house in order? I mean, what
    recommendations do you want to give us so we can solve the
    problems? I mean, it is great--I appreciate the hearing,
    certainly. It is a great opportunity. So I would like to hear
    exactly, specifically what you need from us in order to become
    financially viable.
        Mr. Donahoe. Well, we need this bill passed this year. That
    is critical.
        Senator Brown. Well, OK. What bill? There are two competing
    bills. What bill do you recommend be passed?
        Mr. Donahoe. I think that the POST bill as recommended by
    Senator Carper answers the needs for the Postal Service, both
    in the short term and the long term. There are some very good
    portions of the bill that has been introduced by Senator
    Collins, and hopefully everybody can get together and get those
    parts into the POST bill. What the POST bill does for us is it
    provides immediate resolution on the retiree health benefits.
    That has to be----
        Senator Brown. So that is the No. 1 thing, is----
        Mr. Donahoe. That is the No. 1 thing. But here----
        Senator Brown. So you need the ability to shift that over
    and then you----
        Mr. Donahoe. That has to be addressed. But the critical
    thing, and that is the reason I say the entire bill, is because
    that only gets us to break even now. It does not help us in the
    future in terms of paying off debt, and even when you get out
    2, 3 years down the line, we will be back in the same boat.
        Senator Brown. Right. So if we allow for that shifting, it
    will basically bring you even and give you, what, about a year
    window to kind of----
        Mr. Donahoe. That gives us a year window. That is why it is
    critical we have that----
        Senator Brown. That is No. 1. What is No. 2?
        Mr. Donahoe. No. 2 is to resolve and return our FERS
    overpayment, Federal Employees' Retirement System. We are
    overpaid $6.9 billion into that system. Using the provisions of
    the POST bill to use that to pay against the retiree health
    benefits would be great, and also to pay debt going forward,
    that----
        Senator Brown. So assume that happens. What does that get
    you? How far out does that get you?
        Mr. Donahoe. It is worth--it is worth, we think, $6.9
    billion, that would pay half of our debt off.
        Senator Brown. OK, and then what? No. 3?
        Mr. Donahoe. And then delivery flexibility. One of the big
    issues that we are faced with going forward is the problem of
    declining First-Class revenue. I mentioned, First-Class mail is
    half of our revenue. It is two-thirds of our contribution in
    terms of paying for the overhead, so it pays for keeping the
    routes fully staffed on a daily basis, 200,000 routes, plus
    35,000 Post Offices. That is all paid by First-Class mail.
        Senator Brown. Well, and if the price of the first class
    keeps going up, I mean, the biggest complaint I have is that I
    will just get online and work it out. Why would I spend another
    44, 50 cents, whatever the number ultimately is going to be----
        Mr. Donahoe. Right.
        Senator Brown. So what if the volume goes down to----
        Mr. Donahoe. That is what we are facing. This year, we are
    going to face a 7-percent loss----
        Senator Brown. OK----
        Mr. Donahoe [continuing]. In First-Class. In the last 4
    years, first class mail has dropped 25 percent. It puts
    unreasonable pressure on the organization. So what we are
    proposing is flexibility for delivery, which would be the
    elimination----
        Senator Brown. So you are talking about routes and
    elimination of potential services and just the ability to get
    in there and kind of get right at it and figure out what is
    cost effective and what is not----
        Mr. Donahoe. Well, here is the thing. There are two things.
    We have worked very well with the unions, the Letter Carriers
    Union, Rural Carriers Union, to consolidate routes. We have
    taken 15,000 routes out in the last 4 years, which is well over
    a billion dollars in cost there alone. What we need is the
    flexibility to eliminate Saturday delivery as required and
    mandated by Congress. So we need that bill to----
        Senator Brown. Just Saturday everywhere, or just Saturday
    somewhere?
        Mr. Donahoe. What we are proposing is this. Keep the Post
    Offices open. Allow customers to receive mail through Post
    Office boxes on Saturday. But we would eliminate regular
    delivery on Saturday and regular collections. We would deliver
    Express Mail on Saturday. So there would still be service----
        Senator Brown. Yes.
        Mr. Donahoe [continuing]. But we would take $3 billion in
    costs out of our network.
        Senator Brown. OK. And then what is next?
        Mr. Donahoe. What is next after that is continue to be able
    to be very flexible as far as what we do with product offerings
    and additional revenues generated in the organization. Senator
    Carper mentioned innovation. We are very pleased with a lot of
    the innovation that we have taken on, listening to our
    customers. You have heard about Flat Rate Boxes. I have brought
    one along.
        Senator Brown. Yes.
        Mr. Donahoe. If it fits, it ships. This is great, because
    customers can use this, many different sizes, different prices.
    All you do is put what you want in. You can even ship it from
    your home with a free carrier pick-up. We have some other
    products. We have a new sample box coming out. This is great,
    samples in there. We think there is a lot of growth in there.
        Here is something that is really interesting. We have been
    talking to the mailers about this. It is called QR codes. This
    ties in some of the latest technology with hard copy mail, and
    here is how it works. You as a mailer would send this to
    somebody's house. They take this out of their mailbox and the
    message says, for more information, take your phone and scan
    this little bar code. What that does is that hooks you up to a
    Web site, and you could not only find out more about the
    product, you can actually buy the product online. So you can
    conduct the whole transaction within about 5 minutes.
        Senator Brown. And you are going to get a piece of that?
        Mr. Donahoe. What is that?
        Senator Brown. You are going to start using QR codes?
        Mr. Donahoe. Oh, yes. We get the postage, and we have even
    talked to people about click charges going with that. So
    freedom to do those things, and continue working with the
    Postal Regulatory Commission. We think there are a lot of
    options in there, too.
        Senator Brown. And, Mr. Herr, thank you. When you were
    talking about the fleet vehicles and updating, obviously,
    whereas they travel such a short amount, I have a hybrid
    conversion bill that will allow conversion, a pretty simple
    process, and save 25 percent of fuel consumed. I am interested
    in kind of dissecting your report a little bit and
    understanding it. So if there is a mandate to do X amount, does
    it come into play that it may not be cost effective to do that?
        Mr. Herr. In terms of the alternative fuels?
        Senator Brown. Yes.
        Mr. Herr. Right now, there is a price differential of
    $8,000 to $10,000 for a hybrid vehicle compared to a non-hybrid
    version of the same vehicle.
        Senator Brown. A substantial price difference.
        Mr. Herr [continuing]. Over a fleet of that size, this
    would raise some challenges. Now, there have also been
    improvements in technology. There are more fuel-efficient gas
    engines that are being developed, as well. Some of those have
    been certified by EPA as low emission. So, the market has been
    evolving, and I think that over the next few years, I think, as
    Senator Carper said, watching how that industry changes will be
    important to see what makes the most sense.
        Senator Brown. OK. I'm all set, Mr. Chairman, for now.
    Thank you.
        Senator Carper. Thanks very much.
        Senator, part of the Mark caucus here today. There are more
    Marks in the U.S. Senate than any other name. How many are
    there, four or five? Are there five?
        Senator Begich. Four, and if you include Marco, it would
    be----
        Senator Carper. All right. Well, we are glad that the Mark
    Caucus is well represented here today. Mark Begich of Alaska.
        Senator Begich. Thank you, Mr. Chairman.
        Let me, if I can do a quick followup on the vehicle issue
    on a couple fronts, I agree with you, I think, on the short
    term, or short distance. It is hard to get economics out of
    fuel efficiency. But on your long-haul trucks, are you looking
    on those, because some of the Postal Service, the large semi
    truck movements, I mean, that is where the real money is in
    energy savings on vehicles. Vehicles, not necessarily until
    they get into mass production and go down a big long path
    there. But trucks, in the sense of long haul, are you looking
    at that piece of the equation?
        Mr. Donahoe. Yes, Senator, we are. We do two things with
    what we call the heavy fleet. We have our own fleet of
    vehicles, two-ton all the way up to, like you say, tractor
    trailers. We are working with the industry to have the latest
    as far as technology. As a matter of fact, in New York City, we
    operate 30 electric two-ton vehicles right now, like a big
    bread truck, and we have been very successful, we think, with
    using that technology.
        The majority of our long-haul heavy fleet is done by
    contract, and we work with our contractors on that, too. There
    are incentives in their contract to make their vehicles more
    energy efficient. If you see when you are driving along the
    roads today these skirts that they have been putting on the
    trailers----
        Senator Begich. Right.
        Mr. Donahoe [continuing]. All of our contractors are moving
    in that direction, because we found just a simple addition like
    that helps fuel economy. So we incent people and we work
    closely with them.
        Senator Begich. Have you thought of, on the vehicle end of
    it, and I forget the number, you said 185,000, 200,000
    vehicles, just going out to the market and saying, look, here
    is what we need. We need to replace this vehicle fleet. We are
    open to lease, purchase, like when we got heavy into updating
    all our computer systems, for example, when I was Mayor, the
    departments came and said, buy all this stuff, and we said, we
    are not buying this stuff because the changeover that occurs.
    But also, we figured we could get a better deal with the
    companies because they would use us to bulk up their
    production, and therefore cut their costs and do other product
    sales off the same frame. In this case, it would be the same
    frame. In ours, it was the same computer technology.
        Have you looked into saying to the private sector, rather
    than you all trying to--I sometimes worry, to be very frank
    with you, with government and quasi-government trying to always
    analyze what is the best result rather than just going out to
    the private sector and saying, OK, this is what we have. We
    have 185,000 vehicles we need to purchase. Here are the
    parameters. Give us your best deal on what you can do to bring
    us in. Even though your hesitation will be, well, we do not
    have the money, well, you do not know what they can offer until
    you ask that question. And they are hungry out there, so have
    you approached it that way?
        Mr. Donahoe. Here is the way we have been doing it. We have
    been working through the technologies just to get an idea of
    how well it works within our organization. One of the things we
    learned from the vehicles we have now--we call them long life,
    and the original intent was to try to keep them for 25 years--
    was when we bought them, we tested them in Arizona. Arizona is
    not a real good place to test vehicles----
        Senator Begich. Come up to Alaska.
        Mr. Donahoe [continuing]. If you need them to be in the
    snow. Well, hey, I am from Pittsburgh. We are not as snowy as
    you, but we have our obstacles going up and down hills in the
    wintertime. But at any rate, what we are doing is this. We are
    looking to figure out what the best technology is.
        Now, we are working with private industry. We have had
    General Motors (GM) working with us on the hydrogen fuel. We
    have had a number of different companies in on electric--Ford,
    Chrysler, and a couple other companies. So we are trying to
    figure out the best thing.
        The key for us right now is this. We have to get a good
    idea going forward, to the Chairman's point, about what the
    technologies look like 4, 5, 6, and 10 years down the road. We
    have done some lease-back work in the past. It has not been the
    most effective for us from a financial standpoint because I
    cannot write any of that off from a tax perspective. So we are
    looking ahead. We have been talking with private industry. We
    will make some decisions, probably 2 or 3 years down the line,
    because, again, I have to get the short-term finances
    straightened out in this organization first. But rest assured,
    we are working with private industry on this.
        Senator Begich. OK. Let me ask you, and again, I thank you
    for when you came to my office a couple months ago. First, I
    want to say thank you for recognizing Alaska is unique, and we
    had a conversation about universal service, or service for all
    areas. And as you know, we have written you a letter regarding
    the 5-day service. I recognize you need flexibility, but my big
    concern is how do you deal with areas very remote that may have
    flights coming in, that have certain kind of supplies that come
    in on certain days in rural Alaska. It may be Saturday is the
    day because the weather is good and some other issues.
        Can you give me, first, your thought on universal service
    and bypass mail, the combination of the two, and then how you
    will address rural communities, and obviously in Alaska, with
    5-day versus what it is today? But first, on the universal and
    bypass mail comments.
        Mr. Donahoe. Well, we are fully in support of our mission
    to provide universal service to the American public. Any
    changes that we would make, that still comes first and
    foremost. Service is in our name and that is our mission.
        From a standpoint of how that ties into bypass, we realize
    how important the Postal Service is to not just the economy in
    Alaska like it is to the rest of the United States, but
    people's livelihood and ability to get food and medicine, and
    we also take that very seriously, and I think our people up
    there do a really good job making sure that the mail gets
    through every day.
        Your point about the delivery and the discussion around
    Saturday is something that we have been looking at. We have had
    some comments from a number of people from different parts of
    the country about what do you do going forward. Our proposals
    are for delivery flexibility and it is just that. We think, for
    the most part, that we would make the changes and Saturday
    would be the day, but there are some weeks during the year that
    we do not deliver mail on Monday. We are thinking of maybe
    delivering on Monday in some of those cases. And in the case of
    Alaska and in the case of Hawaii, if there are some provisions
    that we have to work with, you just, like you said, if there
    are no clouds on a Saturday, the mail has to get through that
    day. We have to be flexible with that, too. That is why we have
    used the term ``delivery flexibility''----
        Senator Begich. Got you.
        Mr. Donahoe [continuing]. And not just elimination, OK. We
    want it to work, because we realize it is our responsibility to
    provide that service.
        Senator Begich. And last, because my time is about to
    expire, what is your--or how will you be engaging stakeholders,
    and again, like in the case of rural Alaska versus Anchorage or
    Fairbanks or going out to rural--how will you engage them on
    this schedule flexibility?
        Mr. Donahoe. Well, one of the things we did, last year, we
    spent some time, and, of course, we could do that again as we
    move toward changes that we would be getting out of the passage
    of the POST Act, we would engage customers the same way we do
    as we change Post Office access points. We are going through a
    process right now where we are looking at small Post Offices.
    We are actually mailing out letters and inviting people in to
    talk to us. We would do the same thing. We would listen to the
    customers who receive the mail and the customers who send the
    mail.
        Senator Begich. Very good. Thank you, Mr. Chairman. I just
    want to agree with you on the pension issue. I think that is a
    critical No. 1 issue, and I am very supportive, as you and I
    have had this conversation about----
        Mr. Donahoe. Thank you.
        Senator Begich [continuing]. So I think you are doing a
    good job there. Thanks.
        Senator Carper. Thanks, Senator Begich. Senator Pryor.
        Senator Pryor. Thank you, Mr. Chairman.
        Mr. Donahoe, let me start with you, if I may. The Postal
    Regulatory Commission made some recommendations, I believe it
    was last year, about some things you should do as you are
    closing Post Offices. One of the recommendations is that the
    people in the area should receive actual notice, which I assume
    would be like a postcard type notice, but actual notice. And
    apparently your current practice is just to notify your P.O.
    box customers and carrier delivery customers about the affected
    facility.
        And the second recommendation would be that the Postal
    Service would expand the methods available for providing and
    receiving customer input.
        And the third recommendation they made is that they would
    expand the contents of the public notice and include better
    information about alternatives for customers.
        My understanding is you did not implement those
    recommendations. Do you know why you did not? We are having
    some Post Offices close in our State and the people in our
    State, at least, feel like they are not notified of this
    adequately. They do not have opportunities for input. When
    there are opportunities for input, it seems like the decision
    has been made, and maybe you are going through the motions,
    checking the box, but you are really not taking input. So if
    you want to comment on that----
        Mr. Donahoe. We do not go through the motions, OK. Let me
    say this to you. We agree with all the recommendations and we
    have made some changes that we have posted in the Federal
    Register just recently. It has just closed, as a matter of
    fact, the comment period to implement those changes.
        Here is what we are looking at--and we like to call it
    access change versus just closing Post Offices, because the
    intent is to provide better access to the American public. We
    are going through a process right now and we have had a process
    that has been in place for 30 years where we have examined
    small offices and we agree that it could be much more customer
    friendly. Mailing notices out to customers, having community
    meetings, and also listening to and providing them with--
    listening to their recommendations and providing what they are
    asking for.
        We are looking at this across the country. Today, 35
    percent of all Postal services and products are bought outside
    the Post Office, so whether it is online or at the Costco or
    Office Depot and places like that, you can buy stamps, ship
    packages, and that is going to continue to evolve in that
    direction.
        What we want to do is make sure we are where the American
    public needs us to be. Now, that is the case of large downtown
    offices, like you see in Washington, D.C., or in rural
    Arkansas. What we want to do is take a good look at how to
    provide that access in the best way, both financially as well
    as the number of hours a day, and I will give you an example of
    some of the things we are looking at.
        In some small offices, we are looking at consolidation
    because what we are finding is many of these offices do not
    even have an hours worth of work in a day. People do not do
    that much business with us. And if it is close, to another
    postal facility a mile or so, we can consolidate.
        In other cases, what we are looking at is many towns have
    three businesses, the gas station, a general store, and a Post
    Office, and what we are looking for is talking to the general
    store or the gas station to take a contract to provide service.
    That keeps them in business. That keeps the cash-flow. That
    allows people to have access to those businesses and at the
    same time get their Postal services that way.
        There are so many options. We are willing and we want to
    hear from people, but we have to move on these things.
        Senator Pryor. All right. Well, let me ask you this
    followup, then. You say you are listening and you want to hear
    from people.
        Mr. Donahoe. Yes.
        Senator Pryor. How many facilities have been on the list
    for closure, and then you went through the public comment
    process and you decided not to close those?
        Mr. Donahoe. I will have to get back to you on that. I
    cannot tell you off the top of my head. What we have been
    focusing on most recently are places that were already what is
    called suspended, so they were already closed and we have just
    cleaned the paperwork up and finished them off. There is a
    number that we are looking at right now, about 1,000, but I
    would have to get back to you as far as specifics, and I will
    be more than happy to do that.
        Senator Pryor. Yes. I would like to know those numbers, and
    Mr. Chairman, I have other questions for the record along those
    lines, as well, but I would like to ask about Senator Carper's
    bill. It sounds like you have already said that you support the
    financial parts of his legislation. You think that is very
    important for the financial viability of the Postal Service.
    But what about, if you go to 5-day delivery, how much will that
    save the Postal Service?
        Mr. Donahoe. That will save us about $3.1 billion.
        Senator Pryor. A year?
        Mr. Donahoe. A year.
        Senator Pryor. OK. And on the criteria, and this is another
    part of the Chairman's bill here, but on the criteria for
    closing Post Offices and Postal facilities, you mentioned today
    small facilities or maybe, I do not know if you said this, but
    low-volume facilities. What is your criteria there? What
    criteria does the Postal Service use?
        Mr. Donahoe. What we are looking at right now, the first
    look was just places that did less than an hours worth of
    business in a day, and that is generally 10 or less
    transactions.
        Senator Pryor. So does that mean that the Post Office will
    close there?
        Mr. Donahoe. No.
        Senator Pryor. What does that mean?
        Mr. Donahoe. That means we are looking at it to either
    consolidate it or potentially contract the work out or leave it
    alone. We are trying to keep as wide--as much of an open mind
    on these things, but again, from a financial perspective, we
    have to put everything on the table as far as taking costs out
    of the organization.
        Senator Pryor. To me, it seems like if it is just numbers-
    driven, I can think of some areas in Senator Begich's State
    where, naturally, it is going to be low volume----
        Mr. Donahoe. Yes.
        Senator Pryor [continuing]. Because of the very sparse
    population.
        Mr. Donahoe. Yes.
        Senator Pryor. So would you consider that as a factor, as
    well?
        Mr. Donahoe. Well, what we have to do, again to my comments
    with Senator Begich, is balance the requirement for universal
    service. In many cases, and this is something we definitely
    look at, if you have a small office that does not generate much
    revenue but there is nothing within 30 miles of it, we
    certainly would not close it. But if it is something that
    generates low revenue and there is a potential for better
    access within a half-mile or a mile, then that is a different
    story.
        Senator Pryor. One of the provisions in Senator Carper's
    bill talks about the shipping of alcoholic beverages, which
    right now you are prohibited from doing.
        Mr. Donahoe. Yes.
        Senator Pryor. Do you know how much revenue it would
    generate for you if you were allowed to ship alcoholic
    beverages?
        Mr. Donahoe. We do not know, but we think it is an
    excellent idea because what the Postal Service brings is
    convenience in that whole industry. We have seen other posts,
    Australia Post, for an example, has done that, and that is one
    of their biggest growth products. And we have the network to
    provide that service, along with the ability to have it held.
    Our proposal is to hold packages for pick-up, so an adult would
    have to come in and pick that alcoholic beverage up. But we
    think it is a very interesting proposal.
        Senator Pryor. OK. And one last question on Senator
    Carper's bill, and that is there is a provision in there about
    when you are in arbitration with your employees, that the
    arbitrator could consider the financial condition of the Postal
    Service. Is that the rule today, or would that be a change?
        Mr. Donahoe. That would be a change. We support that. We
    think it is important, anytime you go to arbitration, and
    especially in today's world, where if you look at the future of
    the Postal Service, the arbitrator should consider that. We
    have recently conducted a negotiation with the American Postal
    Workers Union. I think it was a very good, responsible contract
    by both sides. That is a great thing. But we also think it is
    responsible for the industry that protection is in there in
    case a union decided to go to arbitration and did not want to
    sit down and work with us.
        Senator Pryor. All right. Thank you, Mr. Chairman.
        Senator Carper. Thanks. Those were great questions.
        Senator Pryor. The ones about your bill, were----
        Senator Carper. Especially the ones about my bill.
        Senator Pryor. Were those the best questions?
        Senator Carper. As a matter of fact, I would yield you more
    time if you want to ask more questions about my bill.
    [Laughter.]
        Senator Pryor. Thank you.
        Senator Carper. Thank you.
        I just want to followup on the shipping of wine and beer.
    That is a little bit like thinking outside the box. The idea of
    on Mother's Day, my son who was living at the time in New
    Delhi, India, sent his mom a greeting card, and I think it was
    a partnership between Hallmark. He used pictures that he had
    taken when she was over there visiting a month or two earlier
    and made just a beautiful Mother's Day card and it was
    delivered by the Postal Service. That is very smart. Our next-
    door neighbors get Netflix, and that is a pretty good piece of
    business. I am not sure how long-lived that business will be
    when people move into streaming, but it is a nice piece of
    business and it is the kind of thing that we just want you to
    do more and more of.
        I want to ask a question about how important is it that the
    Postal financial relief bill that we consider here in Congress
    go beyond pension and retiree health issues. How important is
    that?
        Mr. Donahoe. It is critical. As I mentioned to Senator
    Brown, what happens is if we just address the retiree health
    benefits, that just gets us through this year from a cash
    standpoint and a net income standpoint. If you recall, last
    year, we lost $8.5 billion. Unfortunately, this year, we are
    predicting losses around $8 billion. So you can see, even if we
    got the relief, $5.5 or $5.6 billion going forward. That will
    not be enough.
        It is critical that we address the FERS issue, the
    overpayment, and that we can get that money back. That will go
    against the debt. We will not spend that anywhere else. It will
    either be on retiree health benefits or against the debt. The
    delivery flexibility, the flexibility going forward on the
    products that we have talked about, anything and everything in
    that bill is critical. We have to get the whole thing done, and
    then from an industry standpoint, we have to make sure that we
    make all those things happen.
        Senator Carper. And it seems to me that there is a fair
    amount of agreement that we ought to try to redirect the
    overpayments in the Civil Service Retirement System, the
    overpayments into the Federal Employee Retirement System, and
    to use those to pay down the obligation for employee retiree
    health and also for debt and maybe for workers' compensation.
    But as I understand it, that is only about maybe a third of the
    problem in terms of going forward. The flow of moneys from the
    Civil Service Retirement System and stopping the overpayments
    to FERS, I think that is only about a third of the problem, is
    that correct?
        Mr. Donahoe. This is what would happen. Right now, we have
    an outstanding responsibility of $91 billion for the prepayment
    of the health benefits. We have paid $43 billion so far through
    ratepayer money. So that is--we have about 47 percent of the
    way paid. If we were able to access the funds, $50 to $75
    billion, that would clear that side of the ledger.
        The volume loss that we are experiencing in first class
    mail keeps the pressure on our organization and the industry as
    a whole to continue to reduce costs and at the same time figure
    out how to use the mail in more creative ways, like I had shown
    here before, with standard ad mail, with packages, and even
    trying to slow down the drop-off from first class.
        One of the things that our customers told us, is that if
    you can figure out a way to make First-Class more appealing
    from a bill presentment standpoint, we will stay--we will try
    to work with our companies to stay in the mail.
        The first recommendation was what was called Reply Rides
    Free, where we were going to give--charge the same postage for
    1.2 ounces as we do for one ounce. The customers said, too
    complicated, so what we are proposing now is to give two ounces
    for the price of one. This way, the customer can use better
    paper, can put messages in there with their first class
    correspondence, because in many cases, that is the only way
    that a customer--a bill sender gets in front of their
    customer's eyes. So our proposal is we want to keep our foot on
    the gas pedal on the cost side, like we have been talking
    about, but that revenue, the top line is just as important.
        Senator Carper. All right. Mr. Herr, do you want to just
    comment very briefly on the question, really the first question
    I asked here in this exchange, and that is how important is it
    that the Postal financial relief bill that we consider here in
    Congress go beyond simply pensions and retiree health issues.
        Mr. Herr. I think that if you take care of one side without
    addressing overcapacity in the processing network and also
    looking at alternative ways to provide retail access, in a few
    years, you will come back and you will find that some of these
    structural problems will not have been addressed and you will
    be facing a similar set of challenges. Net mail volume is down
    20 percent since 2006. The projections are that it is going to
    continue to decline. Addressing excess capacity and making sure
    that the systems align with the needs for the mail coming in is
    critical.
        Senator Carper. All right. Thanks very much.
        You have concluded a round of negotiations. There will be
    people who always criticize what you do and the contract you
    negotiated with the APWU, but I think maybe most fair-minded
    people say it seems like a fair contract and it certainly heads
    in the right direction. You have three other unions that you
    deal with. Give us the status on negotiations with those,
    please.
        Mr. Donahoe. Well, we are still in negotiations with the
    Rural Carriers. We would like to conclude a successful
    negotiation with the same outcome that we did with the APWU. I
    think the APWU is a very responsible contract, not just for the
    Postal Service and the employees, but also for the industry. So
    we would like to conclude with the Rural Carriers the same way.
        This November, we begin discussions--or I should say
    August, because the contract ends in November--with the Mail
    Handlers and the National Association of Letter Carriers, so we
    expect to see the same type of framework in those contracts
    that we have been able to negotiate with the APWU.
        Senator Carper. All right. I want to go back, and this will
    be the last question I ask. We have been joined by Senator
    McCaskill. Welcome. But the other question I want to ask, I
    want to talk about business opportunity. People ask me how I
    feel about 6-day delivery and I say I am agnostic on that. And
    if a way could be found to save substantial amounts of money,
    maybe not as much as $3 billion, but substantial amounts of
    money through negotiations, then I think we ought to consider
    that.
        If we cannot find substantial savings, then we are not
    going to consider that as much, but talk to us about the
    opportunity costs of not having 6-day delivery. I have always
    said, and we have talked about this before, some day, somebody
    will look back at the Postal Service and say we had a Post
    Office in every community in America and we went to every door
    6 days a week. Why did we not think of X, Y, or Z in being able
    to more fully exploit that business model? Just talk to us,
    just very, very briefly, about the opportunity cost of
    eliminating Saturday mail delivery, whether it is Express or
    whether it is actually doing the work of FedEx and UPS. Just
    talk about that a little bit, if you would.
        Mr. Donahoe. We would rather not eliminate Saturday
    delivery. It is something we feel very proud of, the fact that
    we do go to homes and businesses every day, 6 days a week, to
    every home and business across America. The critical issue is
    the continued pressure that we have on First-Class mail and the
    fact that the contribution, as that drops, continues to put
    financial pressure on the organization.
        We think that it is important to provide that service. Even
    at 5 days a week, we will still be the--we will have the
    greatest network reach of everyone because we will continue to
    go to every home and business 5 days a week. We also think it
    is important to continue to work with our customers to sustain
    first class as long as we can, as well as add new opportunities
    from a revenue standpoint.
        I think it would be--I do not know of any one specific cost
    area that we could achieve that would be able to offset the
    benefits of the reduction of that day of delivery. Our goal is
    to get the organization from an expense standpoint down to $60
    billion as soon as possible, and that is a combination of
    reducing costs and eliminating the retiree health benefits, and
    delivery flexibility. That takes us from $73.5 down to $65
    billion. And between administrative cuts, work hour cuts,
    successful union negotiations, I would like to get us down to
    $60 billion.
        What that does is that gives us about a $5 billion cushion
    from the revenues right now, $65 billion that we will have this
    year. That gives us the ability to pay down the debt. That
    keeps us strong going into the future. And then that addresses
    some of the capital issues that we have been talking about
    today.
        Senator Carper. Thanks so much.
        Senator McCaskill, welcome.
        Senator McCaskill. I would like to followup on the
    Chairman's question he just asked. We have a difference between
    two different agencies that say that the 5-day delivery--you
    all say, Mr. Donahoe, that it is going to save $3 billion, and
    the Regulatory Commission said it would generate $1.7 billion.
    I do not know how much of that difference is attributable to
    the loss of business that inevitably is going to occur when you
    cannot do 6-day delivery. I mean, you guys have an advantage
    right now with 6-day delivery. If you were looking at this
    through the very cold lens of just a pure business model, you
    are giving away the major advantage you have when you give away
    that sixth day.
        Can you speak to why there is such a wide disparity between
    the savings that these two agencies came up with, and what
    keeps us from going to four? And are we not really, if we are
    not careful, if we go to five, are we not really talking about
    the beginning of a death spiral here?
        Mr. Donahoe. Yes. Let me address a number of your
    questions, Senator. First of all, just to repeat what I said to
    the Chairman, we do not want to go from the six to five, but
    financially, we are in a situation where we have to take that
    as an option going forward. It is tied directly to the loss of
    the contribution on First-Class mail. If I had an answer to
    stop that, we would get that in place right now, but America is
    changing. People are paying bills online. Every bill that is
    paid online, that is 18 cents that comes out of our coffers to
    cover 6-day delivery and a number of the small Post Offices out
    there.
        The difference between our estimate and what the PRC
    estimates boils down to two things. Their estimate of revenue
    loss is $600 million. Ours is $200 million. We have talked to a
    lot of customers. We have done a lot of opinion polls. Many
    customers in the past used to make sure that we delivered mail
    on Saturday. They have moved away from Saturday. It is by far
    our lightest day of volume for two reasons. No. 1, many
    businesses are closed on Saturday. And No. 2, what we have been
    told is people, to a large extent, do not look at their mail on
    Saturday as much as they do the rest of the week because they
    are busy with many other things. So the $200 versus the $600
    million, that is one part of the difference.
        The other part of the difference is our estimates of being
    able to save and to capture the costs. We think that we can
    capture a substantial portion of the cost of Saturday delivery
    by absorbing it into Monday. The reason we say that is 95
    percent of the letter mail that we deliver today is sorted by
    automated machines in our processing facilities. So that
    variable cost in the morning that a carrier would have
    experienced years ago, they do not experience today.
        We also know that once you are out on a route and you
    deliver to a number of houses, our average coverage factor is
    around 90 percent today. A letter carrier absorbs a lot of that
    time in their daily work. Saturday business today costs us $3.8
    billion. We think we can save $3.1 billion. We know we will
    have to add some costs in there that we cannot absorb, but we
    think, based on our history of taking costs out of this
    organization, we will be able to do that.
        The other thing is, I have committed everybody to do it. It
    is going to get done.
        Senator McCaskill. Let me also ask you about the potential
    impact on 5-day delivery on rural residents. I was disappointed
    when I realized that the Postal Service's survey that you did
    in this regard were not really in rural communities. I mean,
    one was in suburban Atlanta and the other was suburban Seattle.
    Would it be possible to take a real look at a rural community,
    not one that is within a commuting distance of a major city? It
    is those folks that, in terms of getting their medicine, which,
    of course, we all know that Saturday delivery is very important
    for, in terms of their ability to receive mail on Saturdays. Is
    there a reason why what I would call a true rural community was
    not included in the survey?
        Mr. Donahoe. Well, we can go back and take a look at that.
    There have also been a number of surveys done across the
    country by Rasmussen and the Gallup Poll that have looked at
    many different communities across the country, and consistently
    what comes back is this. When asked the question, if you made a
    choice between no delivery Saturday, closing Post Offices, or
    substantial increases in postage rates, 70 percent of Americans
    have come back and said, eliminate Saturday delivery.
        Our proposal is to eliminate delivery but to keep the Post
    Offices open. So from a rural perspective, people would still
    have access to Postal services, and if they wanted, they could
    rent a box, too, and get their mail that way.
        Senator McCaskill. The rural Post Office closings, I am a
    little worried about what I have learned, that there may be a
    situation where you call something other than a Post Office so
    that you get around some of the requirements in terms of notice
    to the community. Could you illuminate that situation for me,
    because changing the name of a Post Office to a substation or
    to some other name and then not having to go to the community
    and get the kind of input that is needed, I mean, I am not--I
    get it that we have a huge problem here. I get it that the
    money coming in does not match the money going out. And I am
    not trying to throw tacks in front of the bus, except I do
    think it is important that these rural communities feel like
    that they have an opportunity to weigh in and I want to make
    sure that there is not some ability that you may have to get
    around the regulations for notice and public hearing by just
    renaming it something different.
        Mr. Donahoe. We agree 100 percent. We have a process in
    place right now--as a matter of fact, we just finished up a
    Federal Register notice where we will provide public notice and
    gather public input on any changes to access that we make out
    there. We know that the Postal Service, especially in rural
    areas, is very important. And to your point, we have to balance
    the cost and the benefits to those.
        We will not do anything to hoodwink the American public
    that way. We have what we are proposing in the Federal Register
    is a top-down approach. That assures fairness, so you do not
    have one State that is going gung-ho and another that does not
    take a look at it. It also assures that we make the right
    decisions. With Senator Begich, we were talking earlier about
    the importance of what we do in Alaska, and I appreciate in
    Missouri and in Arkansas, we have a lot of rural areas, too.
        So you have my assurances that we will make it a very fair
    process. People will have plenty of input. We will make the
    right decisions. We will make sure that we reach out. We are
    going to send--anybody that is going to be affected, postcards
    will go out to customers. We will have a public hearing. We
    will discuss it. We will take their input.
        Senator McCaskill. Mr. Chairman, I want to compliment you
    on so many pieces, so many parts of your legislation. I think a
    lot of it is very, very strong, and I know how hard you have
    worked on this. And I do want to compliment Mr. Donahoe. I
    think you are trying very hard in very difficult circumstances
    to figure out how to put this puzzle together.
        I do feel very strongly that if we can save 6 days, it is
    very important to the integrity of the product we have, which
    is the U.S. Postal Service, rain, snow, or sleet, 6 days a
    week, it is going to happen, and I worry that we are going to
    diminish the ability of that business model to really survive
    if we start cannibalizing it by going to 5 days. So if there is
    any way I can work with you to save the 6-day delivery, I sure
    would like to do that.
        Senator Carper. Good. Well, let us give it a shot. I am
    going to go back to the negotiations that will take place
    between the Postal Service and one or two of the unions going
    forward. That is a part of it, as well. And our ability to help
    them in other ways----
        Mr. Donahoe. Yes.
        Senator Carper [continuing]. To compensate for the--savings
    which are anywhere between $1.7 billion and roughly $3.1
    billion. It is somewhere between there. That is real money.
        Mr. Donahoe. It is a lot----
        Senator Carper. That is real money.
        I want to come back, and before I yield to Senator Begich
    for his closing questions, just for clarification, your view of
    what would still be provided in a Postal world where there is
    no Saturday delivery. Would it include access to post office
    boxes?
        Mr. Donahoe. Sure.
        Senator Carper. Post Offices would be open?
        Mr. Donahoe. Yes.
        Senator Carper. What did you say about Express Mail?
        Mr. Donahoe. Here is what we would do. We would keep the
    Post Offices open. We would have Post Office box accessibility.
    We would deliver Express Mail. We would also run the network,
    so mail coming through the network, payments and remittance for
    credit card companies and what not, that would all still run,
    so Monday that would be delivered, or in some cases, if people
    have what is called caller service, they would have access 24
    hours a day at our large facilities for that mail.
        Senator Carper. All right. Thanks very much. Senator
    Begich.
        Senator Begich. Mine is just a clarification and then just
    a statement. I caught what you had said to Senator Pryor in
    regards to 30 miles or within. As you know, in Alaska, 80
    percent of our area is non-road access, so I am assuming that
    is part of the equation.
        Mr. Donahoe. Sure.
        Senator Begich. OK, because when we did Essential Air
    Service (EAS), there was a great debate that we would cutoff
    Essential Air Service because you can get to a hub, to the next
    town. In many cases, it is hundreds and hundreds of miles away,
    and no road to get there.
        Mr. Donahoe. Right.
        Senator Begich. So you recognize that as----
        Mr. Donahoe. Absolutely. Again, Alaska presents a situation
    with universal service similar to Hawaii.
        Senator Begich. Right.
        Mr. Donahoe. Those are the two States that, really, we have
    to take a different look as we work through that.
        Senator Begich. Great. And just a statement. As you send
    out notifications to folks, I know everyone gets mail. They get
    material in the mail and they do not really pay attention to it
    until something bad happens, and then they go, I did not
    realize that was happening. In more of just jest, I would send
    out your postcard and it would say, ``Closing your Post
    Office,'' and I guarantee you, you will get 100 percent
    engagement. Otherwise, if it is just a regular, ``We are
    notifying you of the Post Office situation and change in
    operation,'' here is what will happen. They will look. They
    will set it aside. They will pull the catalog and sit down and
    read their catalog for the day.
        Mr. Donahoe. Maybe we will use the QR code, click here to
    find out what is going on with your Post Office.
        Senator Begich. I will tell you, Mr. Chairman----
        Mr. Donahoe. If anybody complains, though, I am going to
    tell them that you gave me the idea.
        Senator Begich. Well, I will tell you what happened. I will
    just give you one quick example. I was invited to a meeting
    when I was Mayor and it was about a land use issue. Of course,
    no one was going to come out, probably, for it, because it was
    so many months away. So the flier they sent out to the
    neighborhood was, ``Come learn about how your taxes are going
    up.'' The room had full capacity, and the two local city
    council members came in and said, ``You are up front. We are
    not.'' And then we talked about land issues and people were a
    little confused, but they got fully engaged.
        Mr. Donahoe. Thank you for using the mail, too. We
    appreciate that.
        Senator Begich. They did, and they hand-delivered it on top
    of that.
        Mr. Donahoe. There you go.
        Senator Begich. Thank you.
        Senator Carper. Senator Begich, thanks so much. Thanks for
    being here today and for being a very active participant on
    this issue. We need your full participation, so thanks.
        All right. I think that is going to do it for our first
    panel. Thank you very much for joining us. Thanks for your
    testimony.
        Mr. Donahoe. Thank you, Mr. Chairman.
        Senator Carper. There will be some followup questions, I am
    sure, and we would appreciate your prompt response to those.
    Thank you.
        Senator Begich. Mr. Chairman, as the panel is coming up, do
    we have a vote at noon?
        Senator Carper. Initially, we were going to have it at
    noon. It has been moved to, I am told, 12:17.
        Senator Begich. Twelve-seventeen.
        Senator Carper. Twelve-seventeen, so we have the
    opportunity to hear our panel, the second panel, and will
    probably have to break it off around 12:30.
        Senator Begich. OK. Thank you.
        Senator Carper. Sure. Thank you.
        If you would all go ahead and find your seats, please, and
    I will ask those who are planning to leave to go ahead and make
    your way to the door. [Pause.]
        I am going to briefly introduce the witnesses for our
    second panel. As I said earlier, if you did not catch it, our
    vote has been moved from noon to about 12:15 and I want to
    complete the testimony for this panel before we have to break.
    We have a vote followed immediately by our respective weekly
    caucus meetings. But I want to finish this panel, have a chance
    to ask you a couple of questions, and then we will move on.
        Our first witness on panel two today is Margaret Cigno,
    pinch hitting today for Ruth Goldway, and we welcome you, the
    Director of Accountability and Compliance at the Postal
    Regulatory Commission. Ms. Cigno has also worked as a
    Specialist on rates and classification at the Commission and
    served as the lead Postal Auditor at GAO.
        Next, David Williams. Welcome. Nice to see you again. He is
    the Postal Service's Inspector General. Mr. Williams is the
    second independent Inspector General at the Postal Service in
    its history, is that correct?
        Mr. Williams. Yes, Senator.
        Senator Carper. All right. Before taking on the job, he
    worked as a Deputy Assistant Administrator for the Aviation
    Operation at the Transportation Security Administration. He has
    also served as Inspector General at five other agencies. Time
    allowed, I would ask you to tell us which ones, but we will
    find out another day.
        Next is Cliff Guffey, President of the American Postal
    Workers Union. How long have you been in office now?
        Mr. Guffey. Less than a year.
        Senator Carper. All right. Does it seem longer? [Laughter.]
        Mr. Guffey. It has the propensity to be difficult.
        Senator Carper. You have had a full year. Well,
    congratulations so far. I know it is not easy.
        Before becoming President, Mr. Guffey served for 9 years as
    the APWU's Executive Vice President. He has served in top
    leadership positions in the union since 1986, and he started
    his career with the Postal Service in 1971.
        Next is Mark Strong, President of the National League of
    Postmasters, where he has held leadership positions in the
    League since 2006, I am told. Mr. Strong is currently the
    Postmaster in Sun City, Arizona. We could use some sun around
    this city. Maybe in a couple of days, we will get it.
        Finally, we have Jerry Cerasale, Senior Vice President for
    Government Affairs at the Direct Marketing Association (DMA).
    Mr. Cerasale has a long history working on Postal issues,
    including stints at the House Committee on Post Office and
    Civil Service and on the legal staffs at both the Postal
    Service and the Postal Regulatory Commission.
        It is great to see you. Thanks for coming today. Your full
    testimony will be a part of the record. Please proceed.

    STATEMENT OF MARGARET CIGNO,\1\ DIRECTOR OF ACCOUNTABILITY AND
             COMPLIANCE, U.S. POSTAL REGULATORY COMMISSION

        Ms. Cigno. Good morning, Chairman Carper, Senator Brown,
    Members of the Subcommittee. I thank you for the opportunity to
    present the views of the Postal Regulatory Commission on
    addressing the U.S. Postal Service's financial crisis.
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        \1\ The prepared statement of Ms. Cigno appears in the appendix on
    page 81.
    ---------------------------------------------------------------------------
        Commission Chairman Ruth Goldway regrets being unable to
    testify personally today.\2\ She has prepared written comments
    highlighting her concerns with the rapid pace of Post Office
    closings. I ask that Chairman Goldway's comments be made part
    of the official hearing record.
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        \2\ The prepared statement of Ms. Goldway appears in the appendix
    on page 76.
    ---------------------------------------------------------------------------
        Senator Carper. Without objection.
        Ms. Cigno. In 4 months, the U.S. Postal Service will
    conclude its fiscal year and it will not have sufficient cash
    or borrowing authority to pay all of its bills. Commission
    analysis during review of the Postal Service's request for an
    exigent rate increase found that the Postal Service's cash-flow
    problem is related to an overly ambitious requirement for the
    Postal Service to prefund its future retiree health benefit
    premiums.
        Over the past 4 years, the Postal Service has paid $21.9
    billion to prefund these benefits. All other things being
    equal, without the prefunding requirement, the Postal Service
    would have achieved a small net profit over that time. Instead,
    over the last 4 years, it has accumulated losses exceeding $20
    billion. This year, it will exhaust its borrowing authority and
    anticipates another multi-billion-dollar loss that will leave
    the agency insolvent.
        Chairman Carper, you have proposed legislation to address
    this immediate crisis and to build on the Postal operating
    model of the Postal Accountability Enhancement Act (PAEA). The
    Commission supports the fundamental approach of your bill in
    addressing the financial crisis as well as longstanding issues
    related to Postal Service funding of its employee pensions and
    its future retiree health benefits. The strategy is grounded on
    objective, expert analysis that incorporates the best modern
    practices of business and government, as identified by the
    Commission in previous studies.
        The Commission appreciates that your bill also provides for
    regulatory oversight of non-Postal products and services that
    may be proposed under new flexibilities to be provided to the
    Postal Service. This will promote Postal growth and innovation
    while protecting the public interest, as is currently the case
    with Postal products and services.
        The Commission also supports modernization of its advisory
    opinion process to make it quicker and more robust. The
    requirement for the Postal Service to respond to the issues and
    recommendations in the advisory opinion is an important
    improvement which may be further strengthened by requiring its
    response prior to implementation of the proposed changes.
        The bill would alter the advisory opinion process to
    produce decisions within 90 days from the date of the Postal
    Service's request to the Commission. Under current law, the
    Commission evaluates national service changes in formal
    hearings on the record that are subject to the Administrative
    Procedures Act protections. This type of proceeding can be time
    consuming.
        The proposed legislation would diminish the opportunity for
    citizens, mailers, competitors, and other interested parties to
    obtain information from the Postal Service and fully test
    Postal Service presumptions. As a result, the Commission would
    be able to produce its opinions more promptly. However, the
    detailed analysis and extensive outreach of the Commission's
    recent advisory opinion on 5-day delivery would not have been
    possible in a 90-day case. The Commission has not yet concluded
    whether it supports the 90-day limit.
        The Postal Service has also advised that in the near
    future, it plans to request an advisory opinion related to the
    closing of a large number of Post Offices nationwide. The
    Commission understands the Postal Service's need to adjust its
    retail network to reflect changing customer demand and its own
    evolving capabilities. However, the PAEA requires that affected
    Postal customers be properly notified and involved when the
    Postal Service considers closing the retail office on which
    they depend.
        The Postal Service has proposed revisions to its rules for
    closing and consolidating retail facilities. The Commission has
    provided its comments to the Postal Service, including
    recommendations to better ensure customers' ability to offer
    input, improve the evaluation of affected facilities, and
    coordinate discontinuances with the availability of replacement
    retail services.
        In closing, I would like to reiterate the Commission's
    support for addressing the Postal Service's financial crisis as
    outlined in your bill. Timely congressional action to address
    the pension and retiree health benefit issues remain a key
    element of any reform effort.
        Effective oversight is vital when the entire mail system is
    under such great stress. The Commission will ensure Postal
    transparency and accountability and promote positive change and
    adequate service levels needed to keep the Postal Service vital
    and relevant.
        That concludes my oral statement. I would be happy to
    answer any questions.
        Senator Carper. Well, I do not think you anticipated being
    here today, but since Chairwoman Goldway could not be here, you
    did a nice job and thank you very much for your participation.
    Give her our best. Thank you.
        Mr. Williams, please proceed.

    STATEMENT OF DAVID WILLIAMS,\1\ INSPECTOR GENERAL, U.S. POSTAL
                                SERVICE

        Mr. Williams. Mr. Chairman and Members of the Subcommittee,
    I appreciate the opportunity to discuss the serious financial
    condition of the Postal Service, whose leadership anticipates
    being unable to meet its financial obligations in the fall.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Williams appears in the appendix
    on page 85.
    ---------------------------------------------------------------------------
        The Postal Accountability and Enhancement Act was crafted
    to incentivize the Postal Service to adopt a volume-driven
    infrastructure. PAEA also required prefunding of benefit plans,
    but the framers were unaware that the benefit funds had been
    subject to wrongful overcharges. Consequently, the resulting
    payments have caused almost 90 percent of the $20 billion loss
    in the past 4 years. This causes inflated infrastructure costs
    and burdensome debt.
        In the near term, cost containment and infrastructure
    optimization are underway. It will take time, unless numerous
    large-scale actions are undertaken simultaneously, which could
    outstrip management's ability to control optimization and to
    avoid unintended consequences, including service disruptions.
        So what is needed? In addition to benefit reform, Postal
    Service optimization of plants, Post Offices, and
    administrative infrastructure, my office has recommended
    conversion to evaluated letter carrier routes for effective
    management, flexible work rules matching the ebb and flow of
    mail, a comprehensive delivery point strategy maximizing
    curbside delivery and cluster boxes, evaluating the number of
    area and district offices, simplification of mail acceptance
    and pricing, growing the value of mail, and finding the Postal
    Service's role in the digital age.
        The digital age is continuing to disrupt many communication
    industries. The technologies provide Americans low-cost instant
    communications, sophisticated data organization, search
    engines, hyperlinks, and impressive mobility. However,
    Americans need stronger infrastructures to cope with serious
    collateral issues. I believe citizens would benefit if the
    Postal Service could support Americans in addressing the
    emerging confidentiality, security, dependability, and privacy
    problems of digital communications; partner with Federal,
    State, and local government agencies to provide e-government
    services and Post Office window services for more complex
    business and provide a safety net for those being left behind
    by the digital revolution.
        Senator Carper's bill proposes allowing the Postal Service
    to provide non-Postal services utilizing Postal physical and
    digital infrastructure in a manner consistent with public
    interest. The bill would provide the Postal Service an
    opportunity to find its digital role in America.
        The Postal Service has set aside more than $300 billion in
    cash to meet its future benefit fund obligations. Additional
    contributions of $55 billion will result in a 100 percent
    prefunding level. The $300 billion does not include the
    overcharges of $82 billion documented by my office and others.
    If the overcharges are returned, the prefunding levels will
    exceed 100 percent.
        While the benefit funds are reexamined and awaiting action,
    Congress and the Postal Service could explore an option of
    clarifying prefunding requirements to be inclusive of Postal
    Service assets. The purchase price of Postal Service real
    estate is $27 billion, but the fair market value is far
    greater. The Postal Service owns real estate in premium
    locations. For example, the nearby National Postal Museum has a
    purchase price of $47 million, but a tax assessed value of $304
    million. If this example is any indication of the fair market
    value, taxpayers are well protected and a surplus of assets
    would likely be given over to the Treasury if the Postal
    Service were suddenly shut down, a very unlikely event.
        Alternatively, there are statutory provisions that may
    allow the Postal Service to work with OPM to fashion an
    appropriate arrangement to recognize the assets and meet the
    obligation.
        Against this backdrop of overfunding, the Postal Service
    continues to be billed $11 billion every year for retiree
    obligations instead of taking the annual costs out of the funds
    created for that purpose. As I have testified before, I agree
    with Senator Collins's call in September 2010 for OPM to change
    its calculation of Postal Service pension fund payments.
    Failing action by OPM, Senator Carper's bill to require an OPM
    recalculation to correct the mistakes and balance the accounts
    is desperately needed to stop the crippling payments.
        As I outlined, there is an overwhelming need for a
    substantial and objective review of the benefit plans and
    payments. This will allow construction of a clear, fair, and
    accurate financial map for the Postal Service's future course.
    Otherwise, the Postal Service will be billed into insolvency
    while overfunding its benefit funds.
        Thank you, sir.
        Senator Carper. Thanks for your testimony. Not only thanks
    for your testimony, thanks for the work that you have done and
    continue to do on these areas.
        Mr. Guffey, please proceed. Thank you so much for joining
    us.

       STATEMENT OF CLIFF GUFFEY,\1\ PRESIDENT, AMERICAN POSTAL
                             WORKERS UNION

        Mr. Guffey. Mr. Chairman and Members of the Subcommittee, I
    am Cliff Guffey, President of the American Postal Workers
    Union. I am pleased to participate in this hearing today with
    PRC Representative Margaret Cigno and Inspector General
    Williams, who have through their hard work, dedication, and
    leadership done much to help preserve and protect the U.S.
    Postal Service.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Guffey appears in the appendix on
    page 90.
    ---------------------------------------------------------------------------
        As the Chairman and this Subcommittee know, legislative
    relief is necessary to restore the financial stability of the
    Postal Service. The APWU very much appreciates the leadership
    shown by the Chairman in proposing legislation that will meet
    the Postal Service's critical need for immediate financial
    relief. We strongly support and the entire Postal community
    strongly supports the proposal to permit the Postal Service to
    use more than $5 billion each year from its overpayments in the
    civil service and FERS retirement accounts to meet its
    obligations to prefund Postal retiree health benefits and pay
    workers' compensation obligations.
        It bears emphasis that this is not a request for a subsidy
    or a bailout of the Postal Service. The Postal Service has been
    dealing effectively with the challenge it is facing because of
    declining mail volumes. We are confident that under the
    leadership of Postmaster General Donahoe, it will continue to
    do so.
        Exhibit A to this testimony is a chart\2\ that shows that
    the Postal Service's net income for Fiscal Years 2007 through
    2010--as this chart shows, during this period that included the
    most severe recession since the Great Depression, the Postal
    Service had a net income excluding retiree health benefits
    prefunding payments of more than $600 million, and only in a
    government agency could they refer to that as a little amount
    of profit. That is profit.
    ---------------------------------------------------------------------------
        \1\ The chart referenced by Mr. Guffey appears in the appendix on
    page 92.
    ---------------------------------------------------------------------------
        This was achieved by the Postal Service through very
    aggressive cost cutting measures. Over the past 3\1/2\ years,
    the Postal Service has reduced work hours by 245 million hours
    and cut costs by $12 billion. It will cut another 30 to 40
    million work hours this year. The historic collective
    bargaining agreement just concluded by the APWU and the Postal
    Service will save the Postal Service billions of dollars and
    will provide necessary workforce and work hour flexibility.
        Thus, the Postal Service has shown the capacity to sustain
    itself during difficult times of declining mail volumes. What
    it cannot sustain is the burden of the unique and unreasonable
    requirement that it prefund its retiree health benefits over a
    10-year period without access to the billions of dollars by
    which it already has overfunded CSRS and FERS.
        During the 4-year period of 2007 through 2010, when the
    Postal Service otherwise would have had a financial surplus,
    the statutorily required payments to prefund retiree health
    benefits totaled nearly $21 billion. In Fiscal Year 2010, the
    payment for retiree health benefits consumed 8.2 percent of
    Postal revenue. With the additional payment of $2.2 billion to
    fund retiree health benefits for current employees, that meant
    that the Postal Service was required to pay 11.5 percent of
    revenue for retiree health benefits. These payments deprived
    the Postal Service of capital needed to improve and maintain
    its distribution networks and develop and launch new products,
    and they resulted in a $12 billion debt.
        Mr. Chairman, I want to emphasize that we very much
    appreciate the leadership of the Chairman in addressing the
    issues of CSRS and FERS overfunding and retiree health benefits
    prefunding. We also appreciate the fact that Senator Collins
    has introduced legislation that would address the issues of
    CSRS and FERS overfunding and provide relief from retiree
    health benefits funding requirements, and we are encouraged by
    the fact that the members of the House also have introduced
    bills that would deal with these problems.
        There is a broad and strong consensus in the Postal
    community to support these measures. There is also a broad
    consensus to support the proposals to revise the prohibition on
    offering non-Postal products to permit the Postal Service to
    partner with State and local governments to offer additional
    government services in Postal facilities and accept beer and
    wine for shipment. We also support efforts to help the Postal
    Service adapt to changes in communications while continuing to
    fulfill the essential mission. These measures will help bolster
    Postal revenues and help maintain a Postal network that can
    deliver Postal services to every part of the country.
        I think that everyone should remember that Postal Service
    Post Offices are where the American flag flies in every
    community in this country, and to take those flags down and
    replace them with grocery stores or gas stations should be the
    last alternative and we should be putting government services,
    more government services, into those Postal facilities. We will
    help in any way we can to support sensible legislation that
    does not seek to address Postal financial problems at the
    expense of Postal employees.
        I will be happy to answer any questions the Subcommittee
    may have. Thank you.
        Senator Carper. Thanks, Mr. Guffey.
        Mr. Strong, you are recognized. Please proceed.

      STATEMENT OF MARK STRONG,\1\ PRESIDENT, NATIONAL LEAGUE OF
                              POSTMASTERS

        Mr. Strong. Mr. Chairman, Members of the Subcommittee,
    thank you for inviting the National League of Postmasters to
    testify here before you today. It is a pleasure to be here and
    I commend you for holding this hearing.
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        \1\ The prepared statement of Mr. Strong appears in the appendix on
    page 103.
    ---------------------------------------------------------------------------
        My name is Mark Strong and I am the Postmaster of Sun City,
    Arizona, a very large urban Post Office. I am the President of
    the League. I am originally from Montana and served in many
    small, rural Post Offices. Founded in the 19th century, the
    League is a national trade association that represents
    Postmasters throughout the United States.
        In examining how to address the Postal Service financial
    crisis, it is critical to understand why the Postal Service
    finds itself in the position it does today. It is not because
    of electronic diversion of mail. True, electronic diversion is
    slowly pulling some mail out of the system, but that has been
    with us for decades. Electronic diversion was a factor 30 years
    ago, was a factor present during the recession, and will be a
    factor for years to come. Electronic diversion has been and is
    a fundamental factor of Postal life and has not changed much in
    recent years.
        The two largest factors that caused the current crisis were
    the recession and the fact that the Postal Service has to make
    annual payments to prefund its retiree health benefit
    obligation, even though there are surplus funds in this pension
    plan. Today, the Postal Service is still running a deficit, but
    mostly because of the retiree health benefit payments that we
    are making. We would not be running a deficit if we were not
    paying $5 billion-plus into our Retiree Health Benefit Fund,
    despite the fact that there is $50 to $75 billion surplus
    sitting in our pension fund.
        Both Senator Carper's bill and Senator Collins's bill would
    fix this problem, and we strongly support those efforts. In
    fact, the League was one of the original supporters of Senator
    Collins's bill.
        Without substantial relief in this area, the Postal Service
    cannot continue as a viable entity for the long term. No
    business of any type in any part of the country could afford to
    pay a $5 billion supplemental annual income tax that its
    competitors do not pay and remain viable.
        One thing the Postal Service should not do is close small
    Post Offices. As Senator Collins will tell anyone, small rural
    Post Offices are the keystone of many rural communities, and
    keeping them open costs the Postal Service very little money.
    According to the PRC data, and we recently checked this, the
    total net cost of the 10,000 smallest Post Offices, more than
    one-third of all Post Offices in the United States, is less
    than seven-tenths of one percent of the total cost for the U.S.
    Postal Service. This is nothing, a rounding error in Postal
    Service spreadsheets. Closing small Post Offices does not save
    the Postal Service any significant amount of money, but it is
    one of those cost-saving measures that is popular with some
    mid-level Postal officials because they can look good and give
    the impression that they are driving large costs out of the
    system.
        Closing Post Offices is not popular with the American
    public. As indicated in my testimony, according to the 2010
    Gallup Poll, 86 percent of Americans oppose closing Post
    Offices. This is overwhelming nationwide endorsement of Post
    Offices, consistent with a 2009 Gallup Poll which showed that
    88 percent of the public opposed closing Post Offices.
        As shown in my testimony, few other government services
    rank this high in importance in the public's mind. The reason
    for this is that, as detailed in my testimony, Post Offices and
    Postmasters do much more than sell stamps and deliver mail.
    They perform all sorts of other community functions and are the
    glue that binds rural America together.
        Although it is sometimes difficult for urbanites to
    understand this, those words, the glue that binds rural America
    together, are not empty words. These words are not useless
    rhetoric and they are not gross exaggeration. They are the
    truth. If you allow the Postal Service to close substantial
    numbers of rural Post Offices, then you will seriously hurt
    America, even if the Postal Service could provide adequate
    Postal services without them, which it cannot do.
        One way to maintain rural Post Offices is to allow them to
    sell other non-Postal products, such as office supplies, in
    order to offset some of their costs. Senator Carper's bill
    would do this. This poses a minimal problem of competition with
    the private sector, since there would be no local competitors
    in most rural areas.
        Thank you for considering our views, and I will take any
    questions.
        Senator Carper. Thanks, Mr. Strong, for sharing those views
    with us today.
        Mr. Cerasale, please proceed.

        STATEMENT OF JERRY CERASALE,\1\ SENIOR VICE PRESIDENT,
            GOVERNMENT AFFAIRS, DIRECT MARKETING ASSOCIATION

        Mr. Cerasale. Good afternoon, Senator Carper. Thank you for
    having me here----
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Cerasale appears in the appendix
    on page 117.
    ---------------------------------------------------------------------------
        Senator Carper. Our vote has just started, so we have about
    15 minutes and then we will wrap it up.
        Mr. Cerasale. OK. I will be very quick, sir.
        Senator Carper. Go right ahead.
        Mr. Cerasale. Thank you for having me here and thank you
    for all that you have done for the Postal Service and the DMA.
        Senator Carper. It was my pleasure.
        Mr. Cerasale. I am Jerry Cerasale, Senior Vice President
    for DMA. DMA is the leading trade organization for marketers
    and nonprofits, reaching consumers directly. Our members
    represent about 70 to 80 percent of the mail and 85 percent of
    Postal Service revenues. The Postal Service is an important
    communication channel for all our members and those of the
    magazine publishers, Alliance of Nonprofit Mailers, and the
    21st Century Coalition, and it is in financial crisis.
        We agree with you on what you have done on the pensions.
    The pension obligations for every hour worked in the Postal
    Service have been fully funded by postage that we have paid. We
    have also paid between $50 to $75 billion in pension
    obligations for hours worked before the Postal Service was ever
    created, and that is a tax. We have also overpaid in FERS
    payments. And we ask, as you have done, we ask that these
    overpayments be used to offset the retiree health payments that
    are currently harming the cash-flow position of the Postal
    Service. We think that legislation should require the
    government to use any pension overpayment refund for retiree
    health benefits until those legacy costs are completely funded.
        Concerning facilities, we agree with you in the POST Act to
    give the Postal Service more flexibility. We support the use of
    kiosks and others to give retail services to the American
    public. We also support, as Senator Collins has, the
    collocation of Postal facilities in other retail outlets and
    vice-versa. We think the Postal Service should look very hard
    at collocating with Federal, State, and local governments, as
    well.
        We support the provisions on new products in the POST Act.
    We think that the Postal Service should work with and partner
    with the private sector with their expertise on those products,
    however, rather than starting out from scratch. We want to
    commend fully the Postal Service trying to merge and leverage
    mobile and print communications with their summer sale with the
    QR codes. We say to Postmaster General Donahoe, keep it up!
    Bring some more!
        We support the provisions in S. 353 requiring a cost-
    benefit analysis for any new mail preparation requirement, and
    if that cost-benefit analysis shows that there is a shift of
    cost to the mailer, we think that should be considered as a
    rate increase under the cap, as well.
        DMA specifically has two concerns with the POST Act. First,
    we think that powers given specifically to the Governors should
    not be delegated. There is a reason to have Presidential-
    appointed Governors and we think that specific powers of the
    Governors should not be delegated.
        We also believe that the 45-day decision requirement on the
    Postal Regulatory Commission for transfer, just for transfer of
    products, from the market dominant to competitive and vice-
    versa, is too short. Transfer between those provisions can have
    serious consequences for DMA members, and we believe that
    extending the period would not harm the Postal Service because
    that product is still being offered, even though the PRC is
    looking at the transfer.
        And finally, the Postal Service has to right-size to
    deliver 150 billion pieces of mail rather than 250 billion, and
    we cannot afford that excess capacity and it has to be done
    today and not tomorrow.
        Thank you very much.
        Senator Carper. Thanks so much for your testimony. In fact,
    I thank all of you for really valuable testimony.
        I just wanted to share, on the subject of whether or not
    the world has changed with regard to diversion to electronic
    media, I was just back over in Afghanistan and Pakistan.
    Senator Begich and I have been over there together before. I
    know Scott Brown and I were over there a year or so ago.
        And I think about what the world was like when I was a
    Naval flight officer serving in Southeast Asia during the
    Vietnam War and how important to us and our squadron--I was not
    on a ship or a submarine, but our squadron--how important the
    mail was to us, just to hear from our friends and families back
    home, to get letters, cards. I lived in California. We were
    home stationed in California when we were not overseas, and to
    be able to receive like at least a Sunday San Francisco
    Chronicle about 5 days late, to receive Time or Newsweek,
    again, about 4 or 5 days late, but at least to have them.
        When I was over in Afghanistan 2 or 3 weeks ago, I saw a
    lot of our soldiers, sailors, airmen, marines Skyping. They can
    literally access the San Francisco Chronicle or any newspaper
    they want to through the Internet. They can pay their bills
    electronically. I mean, the world has changed just dramatically
    and continues to.
        And for us, we have to have a Postal Service. We have to
    have one that does not add to our budget deficit. The idea
    that, whether or not it is 86 percent of the people that oppose
    closing Post Offices or 76 or 66 percent, at least that many
    people also oppose running huge budget deficits and they want
    us to do something about that, and what we have to do is to
    come up with a way to continue to have a strong, vibrant Postal
    Service, but at the end of the day, not add to our $230 billion
    for our budget deficit over the next 10 years. I think we can
    do that, and the challenge for us is to figure out, working
    together, how to do that, and to think outside the box.
        Let me go to Senator Begich and then I have a question, but
    Mark, I would just ask you, no more than 5 minutes.
        Senator Begich. Yes. No, I am just going to make some
    general comments first, just because we have a vote and we are
    tight on schedule.
        But first, I want to thank all of you, and I think there is
    a recognition between the last panel and this panel, and I
    think I am going to use your words, to right-size the Post
    Office for the times that we are in today, and that is a
    challenge. And I think the bill that Senator Carper has brought
    forward is a good step. There are obviously tweaks that need to
    be done.
        As a matter of fact, Mr. Strong, I was in Healy, Alaska,
    not long ago, meeting with the Postmasters. It was interesting.
    They had no conference room, so they had to do the meeting in a
    restaurant bar, which I thought was very appropriate because we
    had great discussion of a lot of issues at lunchtime. But what
    was good was they talked about, especially in rural Alaska, the
    importance of the Postmaster and how that is a critical piece
    of the puzzle.
        So I just want to really say to all of you that you will
    find me a partner in trying to solve this problem. I can tell
    you, on the pension issue, I have dealt with this when I was
    Mayor. We had three pension programs, police and fire. Two were
    overfunded, one was underfunded, and we restructured it. End
    result, the city no longer had to pay a payment because we
    restructured it. The employees became more satisfied with the
    long-term benefit that they received. It was a win-win all the
    way around and they were highly unionized police and fire
    folks, but we figured it out. It was painful getting there, to
    be very frank with you, but at the end of the day, we figured
    it out and the cash-flow worked out better.
        So I think the approach, again, Mr. Chairman, that you are
    taking is the right approach. I think there is going to be some
    work to do, and that is why this hearing was good, to kind of
    hear from you kind of some of the issues you had on the table.
    So thank you for what you are doing.
        I will just end with this comment. My son and I, I like
    having him collect stamps because there is history behind each
    stamp and we get to read about it at night. Last Thursday, we
    went to the Post Office Web site, ordered some first day
    edition stamps, and they came on Monday. When you think about
    that, that shows the efficiency, that you had to organize it,
    package it, put it in, deliver it, and we got it. That is just
    an amazing thing, or a stamped envelope that I could send from
    here and get it out to a village in Western Alaska is amazing.
    And so I credit the Post Office for great work, but we have
    challenges.
        And so, again, thank you, Mr. Chairman, for allowing me to
    say a few words.
        Senator Carper. Great. We are delighted that you could be
    here and look forward to working with you on these issues.
        Maybe one question in wrapping it up, and this would be for
    maybe Mr. Guffey and Mr. Strong. Your members work directly
    with Postal customers every day, as we all know. What do you
    think the Postal Service needs to do to reach out to customers,
    whether individual customers or small businesses or the biggest
    mailers out there, to attract new business? What do we need to
    do to attract new business?
        Mr. Guffey. Well, one of the problems we have been facing
    for many years is maybe our work rules have gotten in a lot of
    the way to prevent the Post Office from staying open past 5pm.
    There is a Post Office within a block of our offices at 13th
    and L and there is one, I think, at 18th and K, but if they
    close at 5pm, the people who are bringing down the mail
    packages and what have you just miss out. They must go to one
    of our competitors. And we changed our work rules to allow the
    Post Office to stay open longer without the payment of overtime
    and doing certain things.
        We have also lowered some costs of new employees and long-
    term benefits so that the Postal Service can open, and where
    there are clerks working can lower their costs to perhaps keep
    Post Offices open longer in the general community rather than
    shutting them down because of their cost factor. In other
    words, we have tried to help the cost factors.
        We must be--we have also lowered the cost of processing
    inside plants. We have tried very hard to do that so that the
    big mailers could keep their discounts and bring more mail to
    the Post Office as necessary, to try to keep the costs down for
    the Post Office.
        The men and women of the American Postal Workers Union are
    very concerned about the Post Office and they want to help it
    to be a viable institution, and they overwhelmingly voted to do
    those type of things.
        Senator Carper. Good. Congratulations. Thanks. Mr. Strong.
        Mr. Strong. A number of things. I had a privilege of being
    on a panel with Jerry a couple of weeks ago, and I always
    talked about the complexity of the back end of the Post Office,
    the bulk mail units where our customers come in, and it is a
    very complex operation. And I think we have to reduce that
    complexity and make it easier, for especially the occasional
    users to induct mail into our system.
        But one of the things that Jerry brought up was the fact
    that we also had to look at the complexity of our window, our
    retail services. Upselling the products that we currently have
    sometimes can be a struggle, not only for the customer to
    understand, but for our retail associates. So we have to reduce
    the complexity of the retail operation, as well.
        We already have an outreach program where we have carriers
    involved, we have rural carriers involved, we have the
    Postmasters involved, and it is a business connect, customer
    connect, and a rural outreach. We need to expand that and
    continue to grow that and get all of our employees very
    involved.
        Postmasters are great salesmen. We need to continue to get
    them into the field and to sell the products that we have. We
    have to get them the time and away from the desk to get that
    done. I think we can grow our product. I think we have the
    people to do it and I think we have the product lines to
    continue to grow and be a vital part of America and we need to
    continue to work at that.
        Senator Carper. All right. We have about 5 minutes to vote.
    They do not hold the votes open for me, so I am going to run
    over there and vote. Maybe when they let me be the leader, I
    can, but I have about 5 minutes to go, so I am going to roll.
        Thank you so much for joining us today. Thanks for your
    preparation. Thanks for your hard work that you do every day to
    help make sure that we have a strong and vibrant Postal
    Service.
        I would like to quote Albert Einstein, who used to say,
    ``In adversity lies opportunity.'' And I think there is plenty
    of adversity here for the Postal Service, but there is also
    opportunity, and it is incumbent on each and every one of us to
    find that opportunity and to work together in a really creative
    way, thinking outside the box to come up with opportunities we
    had never thought of before.
        And when I see my neighbors getting those Netflix in the
    mail, when I see my wife being delighted to receive a Mother's
    Day card from the other side of the world, when I see the Flat
    Rate Boxes that the Postmaster General was holding up here,
    when I talk to folks who are getting their medicines delivered
    6 days a week to their mailboxes at home or at work, there is a
    lot of good ideas out there. Some of them have been realized. A
    lot of them have not even formed in our minds yet. We need to
    get to work on that. Maybe some of it can be with respect to
    the energy costs as I discussed earlier.
        The last thing I want to mention, we did not touch on this,
    but it is really part of the, what I call the 800-pound gorilla
    in the room in terms of driving Federal budget deficits, the
    cost of health care. It dwarfs almost everything else. And one
    of the major drivers in business today in this country, ever
    more so, is the cost of health care. We are spending today
    something like 18 percent of our GDP for health care costs. In
    Japan, they spend half that, 9 percent. They cover everybody.
    They get better results. They cannot be that smart. We cannot
    be that dumb. But part of our challenge here is to figure out
    how to get better health care results for less money or better
    health care results for the same amount of money. That is an
    issue for another day, but it is an important issue as we deal
    with this one here today.
        I look forward to working with my colleagues that are here
    today and those that were not. I certainly look forward to
    working with Senator Collins. We are going to get this done. We
    are going to figure this out. It is not going to be easy. It is
    not going to be tomorrow or next week, but we are going to
    figure this out, and we will figure it out this year.
        With that having been said, this hearing is adjourned.
    Thank you all.
        [Whereupon, at 12:32 p.m., the Subcommittee was adjourned.]

                                A P P E N D I X

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