[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

                       Printed for the use of the
        Committee on Homeland Security and Governmental Affairs




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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.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Cigno appears in the appendix on 
page 81.
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    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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    \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.]


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