[Senate Hearing 112-271]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 112-271
 
 U.S. POSTAL SERVICE IN CRISIS: PROPOSALS TO PREVENT A POSTAL SHUTDOWN

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



                                HEARING

                               before the

                              COMMITTEE ON

               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

                          UNITED STATES SENATE


                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 6, 2011

                               __________

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

                       Printed for the use of the

        Committee on Homeland Security and Governmental Affairs




                  U.S. GOVERNMENT PRINTING OFFICE
72-477                    WASHINGTON : 2012
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001




        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
   Lawrence B. Novey, Associate Staff Director and Chief Counsel for 
                          Governmental Affairs
                        Kenya N. Wiley, Counsel
               Nicholas A. Rossi, Minority Staff Director
     J. Kathryn French, Minority Director for Governmental Affairs
          Scott R. Slusher, Minority Professional Staff Member
                  Trina Driessnack Tyrer, Chief Clerk
                 Patricia R. Hogan, Publications Clerk
                    Laura W. Kilbride, Hearing Clerk



                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Lieberman............................................     1
    Senator Collins..............................................     3
    Senator Carper...............................................     5
    Senator Begich...............................................    19
    Senator Pryor................................................    21
    Senator Coburn...............................................    24
    Senator McCaskill............................................    28
    Senator Brown................................................    30
    Senator Akaka................................................    33
    Senator Moran................................................    36
Prepared statements:
    Senator Lieberman............................................    57
    Senator Collins..............................................    59
    Senator Levin................................................    62
    Senator Akaka................................................    63
    Senator Carper...............................................    65
    Senator Brown................................................    68
    Senator Moran................................................    70

                               WITNESSES
                       Tuesday, September 6, 2011

Hon. Patrick R. Donahoe, Postmaster General and Chief Executive 
  Officer, U.S. Postal Service...................................     8
Hon. John Berry, Director, U.S. Office of Personnel Management...    10
Phillip R. Herr, Director, Physical Infrastructure Issues, U.S. 
  Government Accountability Office...............................    12
Thomas D. Levy, Senior Vice President and Chief Actuary, The 
  Segal Company..................................................    14
Cliff Guffey, President, American Postal Workers Union, AFL-CIO..    39
Louis M. Atkins, President, National Association of Postal 
  Supervisors....................................................    41
Ellen Levine, Editorial Director, Hearst Magazines, Hearst 
  Corporation....................................................    43
Tonda F. Rush, Chief Executive Officer and General Counsel, 
  National Newspaper Association.................................    44

                     Alphabetical List of Witnesses

Atkins, Louis M.:
    Testimony....................................................    41
    Prepared statement...........................................   133
Berry, Hon. John;
    Testimony....................................................    10
    Prepared statement...........................................    87
Donahoe, Hon. Patrick R.:
    Testimony....................................................     8
    Prepared statement...........................................    71
Guffey, Cliff:
    Testimony....................................................    39
    Prepared statement...........................................   115
Herr, Phillip R.:
    Testimony....................................................    12
    Prepared statement...........................................    94
Levine, Ellen:
    Testimony....................................................    43
    Prepared statement...........................................   138
Levy, Thomas D.:
    Testimony....................................................    14
    Prepared statement...........................................   113
Rush, Tonda F.:
    Testimony....................................................    44
    Prepared statement...........................................   143

                                APPENDIX

Prepared statements for the Record from:
    Donna Harman, President and CEO, American Forest & Paper 
      Association................................................   157
    Fredric V. Rolando, President, National Association of Letter 
      Carriers, AFL-CIO..........................................   160
    Robert Rapoza, National President, National Association of 
      Postmasters of the United States...........................   174
    National Postal Mail Handlers Union..........................   179
    Jeanette Dwyer, President, National Rural Letter Carriers' 
      Association................................................   185
    National League of Postmasters with an attachment............   189
Responses to post-hearing questions for the Record from:
    Mr. Donahoe..................................................   197
    Mr. Berry....................................................   212
    Mr. Guffey...................................................   222
    Mr. Atkins...................................................   228


 U.S. POSTAL SERVICE IN CRISIS: PROPOSALS TO PREVENT A POSTAL SHUTDOWN

                              ----------                              


                       TUESDAY, SEPTEMBER 6, 2011

                                     U.S. Senate,  
                           Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:02 p.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Joseph I. 
Lieberman, Chairman of the Committee, presiding.
    Present: Senators Lieberman, Akaka, Carper, Pryor, 
McCaskill, Begich, Collins, Coburn, Brown, and Moran.

            OPENING STATEMENT OF CHAIRMAN LIEBERMAN

    Chairman Lieberman. The hearing will come to order. I thank 
everyone for being here, and I wish you a good afternoon. We 
are here to consider a very serious question, which is whether 
the U.S. Postal Service (USPS), an iconic American institution 
since the 18th Century, can survive in the 21st Century.
    It is hard to believe that it has come to this, but it has. 
So much of our Nation's progress is interwoven with the history 
of the Postal Service. If you look at some old maps of America, 
you see that a lot of the roads that we use today started out 
as colonial-era Post Roads. As our Nation pushed west before 
the railroads were built, the Post Office created the Pony 
Express to keep America connected with its frontiers. And the 
Post Office's subsidies for air mail in the early days of 
aviation helped jump start that fledgling airline industry.
    Through parts of four centuries now, the Postal Service has 
actually helped make us a Nation, connecting the American 
people to one another, moving commerce and culture coast-to-
coast and to all points in between.
    The Postal Service has also bound individual towns and 
neighborhoods together, with the local post office often 
serving as a center of civic life.
    Over the years, the Postal Service has grown very large. 
Today the U.S. Postal Service is the second largest employer in 
the United States, second only to Wal-Mart. And with 32,000 
post offices, it has more domestic retail outlets than Wal-
Mart, Starbucks, and McDonald's combined.
    Sadly, these impressive statistics belie a troubled 
business on the verge of bankruptcy.
    Business lost to the Internet and more recently, of course, 
to America's economic troubles have led to a 22-percent drop in 
mail handled by the Postal Service and a gross revenue decline 
of more than $10 billion over the past 5 years.
    This year the Postal Service is expected to have a deficit 
of approximately $8 billion, maybe more, for the second year in 
a row.
    The Postal Service will also soon bump up against its $15 
billion credit line with the U.S. Treasury, which could force 
it to default on a $5.5 billion payment into the health care 
fund for its retirees, which would normally be due at the end 
of this month.
    The bottom line here is that if nothing is done, the Postal 
Service will run out of money and be forced to severely slash 
service and employees. And that is the last thing our 
struggling economy and our country need right now.
    Despite its shrinking business, the Postal Service still 
remains a powerful force in America's economy and American 
life. It still delivers 563 million pieces of mail a day. Even 
with the rise of e-commerce, most businesses do not send bills 
and most families do not pay those bills, except through the 
U.S. Postal Service.
    While magazine deliveries are down, also because of 
competition with the Internet and the recession, 90 percent of 
all periodicals--that is about 300 million paid subscriptions a 
year worth billions of dollars to the publishing and 
advertising industries, and bringing about the employment of 
millions of people--are still delivered by the Postal Service. 
And only the post office will go that ``last mile'' to ensure 
delivery throughout the country, to everyone's address, even 
using burros in the Grand Canyon and snowshoes in Alaska.
    Last year, just to show the diversity--and the American 
people know this--the Postal Service processed 6.7 million 
passport applications. Right now, there is no other Federal 
agency with the national presence that is really ready or able 
to take on that task.
    Now, why are we here today? Before the Governmental Affairs 
Committee became the Homeland Security and Governmental Affairs 
Committee, it was called the Government Operations Committee 
and in that capacity has long had jurisdiction over the U.S. 
Postal Service, and that is why we are convening this hearing 
here today.
    We are going to hear several proposals this afternoon about 
what can be done to create greater efficiency, close the Postal 
Service deficit, and give it the flexibility and tools it needs 
to survive and thrive in America's future.
    Postmaster General Patrick Donahoe recently offered a plan 
he believes would save $20 billion and return the Postal 
Service to solvency by 2015, and that plan is the immediate 
impetus of this hearing--to both give him the opportunity to 
explain, describe it, argue for it, and to give others the 
opportunity to comment on it and, indeed, to oppose it, which 
some will do. The proposal includes: Eliminating Saturday 
delivery; closing approximately 3,700 post offices; shrinking 
the workforce by as much as 220,000; pulling out of the Federal 
Employee health care plan to create a separate Postal Service 
employees health plan; doing away with a defined benefit 
retirement plan for new employees and transitioning to a 
defined contribution plan; and asking that $6.9 billion in 
overpayments to the Federal Employees Retirement System (FERS) 
be returned to the Postal Service.
    These are self-evidently bold, tough, and controversial 
proposals. As for myself, I do not feel I know enough about 
them yet to reach a conclusion, and that is why I look forward 
to the testimony of the witnesses today. But I do know enough 
about the real crisis the Postal Service is in to appreciate 
Postmaster General Donahoe's courage in making these proposals.
    I am also grateful that Senators Collins and Carper have 
been leaders on behalf of this Committee in dealing with Postal 
Service problems and indeed were the architects of a postal 
reform bill that passed a few years ago. Each of my colleagues, 
Senator Collins and Senator Carper, has now introduced 
legislation to deal with the current postal crisis, and I am 
encouraged to learn that President Obama will soon offer an 
Administration plan to respond to the Postal Service's fiscal 
crisis.
    So I have an open mind on the various proposals that have 
been made, but to me the bottom line is that we must act 
quickly to prevent a Postal Service collapse and enact a bold 
plan to secure its future.
    The U.S. Postal Service is not an 18th Century relic. It is 
a great 21st Century national asset. But times are changing 
rapidly now, and so too must the Postal Service if it is to 
survive.
    Senator Collins.

              OPENING STATEMENT OF SENATOR COLLINS

    Senator Collins. Thank you, Mr. Chairman.
    First, Mr. Chairman, let me thank you for holding what is 
truly an urgent hearing to examine possible remedies for the 
Postal Service's dire and rapidly deteriorating financial 
condition. The drumbeat of news about the accelerating losses 
at the Postal Service underscores the need for fundamental 
changes.
    The Postal Service is seeking far-reaching legislation to 
allow the Postal Service to establish its own health benefits 
program, administer its own retirement system, and lay off its 
employees. This is a remarkable turnabout from its previous 
proposals. I appreciate that the Postal Service has now come 
forth with several ``big picture'' ideas, although many of the 
details remain unclear.
    As we search for remedies, we must keep in mind a critical 
fact: The Postal Service plays an essential role in our 
national economy.
    If the Postal Service were a private corporation, its 
revenue would rank just behind Boeing and just ahead of Home 
Depot on the Fortune 500 list. But even that comparison, or the 
one used by the Chairman, understates the economic importance 
of the Postal Service. The Postal Service directly supports a 
$1.1 trillion mailing industry that employs approximately 8.7 
million Americans in fields as diverse as direct mail, 
printing, catalog companies, paper manufacturing, and financial 
services. Many of these businesses cannot return to readily 
available alternatives. They depend on a healthy, efficient 
Postal Service.
    But as vital as a stable Postal Service is to our economy, 
its current financial status is abysmal. The most recent 
projections are that the Postal Service will lose some $9 
billion this year. That is $700 million more than the deficit 
that the Postal Service was projecting just at the beginning of 
this year. This hemorrhaging comes on top of $8.5 billion in 
red ink last year and $3.8 billion lost in 2009.
    Unfortunately, there is little cause to believe that an 
improvement in the overall economy will stop this slide. The 
fact is that Americans are unlikely to abandon email and text 
messaging and return to First-Class Mail. The Postal Service's 
own projections now assume declining revenue all the way out to 
the year 2020.
    The losses in mail volume are even more dramatic. Last 
year, the Postal Service handled 78 billion pieces of First-
Class Mail. That number is now projected to fall to 39 billion 
pieces in 2020. This represents a 50-percent decline in First-
Class Mail volume over 10 years.
    I want to give the new Postmaster General great credit for 
coming forth with more creative proposals to stem this crisis. 
At times, however, the Postal Service's responses in the past 
have been inadequate and even counterproductive. Some would cut 
directly into the revenue that the Postal Service so 
desperately needs, while leaving customers with diminished and 
insufficient service. Consider, for example, the debate over 
post office closings. Now, let me be very clear. There are 
undoubtedly some post offices in Maine and elsewhere that can 
be consolidated or moved into nearby retail stores. But this 
simply is not an option for many rural or remote areas. In some 
communities, closing the post office would leave customers 
without feasible alternatives and access to postal services. 
That would violate the universal service mandate that is the 
justification for the Postal Service's monopoly on the delivery 
of First-Class Mail.
    Let me give you a couple of examples from my home State of 
Maine. The Matinicus Island and Cliff Island post offices in 
Maine are good examples. Matinicus Island is 20 miles off the 
coast of Maine. It receives mail 5 rather than 6 days a week, 
and only in good weather. Closing this post office or moving it 
into a large retail facility is simply not realistic.
    For the residents of Cliff Island, closing their post 
office would mean more than a 2-hour round trip by ferry in 
order to send parcels or conduct all but the most simple of 
postal transactions. The fact is that maintaining all of our 
Nation's rural post offices costs the Postal Service less than 
1 percent of its total budget. That is not where the problems 
lie. That does not mean that there should not be 
consolidations, and, indeed, I believe that closing some post 
offices and moving them into the local grocery store or 
pharmacy would work very well.
    Similarly, the Postal Service's plan to move to 5-day 
delivery is not without significant downsides. It would harm 
many businesses unless the Postal Service can mitigate the 
impact. It would force industries ranging from home-delivery 
medication companies to weekly newspapers to seriously consider 
other options. And once these private firms leave the Postal 
Service behind, they will not be coming back, and the Postal 
Service will suffer yet another blow to its finances.
    The major solution to the financial crisis should be found 
in tackling more significant expenses that do not drive 
customers away and lead to further reductions in volume.
    Two actuarial studies have found that tens of billions of 
dollars have been made in overpayments by the Postal Service to 
the Federal retirement plans. Regrettably, to date the 
Administration has blocked the bulk of this repayment. I 
proposed last year a new, more gradual amortization for the 
Postal Service's annual payments to reduce the unfunded 
liability for retiree health benefits, but that too is no 
longer adequate.
    More than 80 percent of the Postal Service's expenses are 
workforce-related. The failure to rein in these costs threatens 
not only the viability of the Postal Service, but also the 
livelihoods of the Postal Service workers themselves. The worst 
possible outcome for these workers would be for the Postal 
Service to be unable to meet its payroll--and that is a very 
real possibility next year if we do not all act together to 
achieve reforms. In my judgment, the most recent contract 
agreement with the Postal Service's largest union, by and 
large, represents a missed opportunity to negotiate a contract 
that reflects the financial realities facing the Postal 
Service.
    The Postal Service has to preserve the value and the 
service it provides to its customers while significantly 
cutting costs and streamlining its operations, and that is no 
easy task. Senator Carper and I have each introduced our own 
bills to try to avert this crisis, but I am the first to admit 
that worsening conditions clearly require far more significant 
reforms.
    So, again, Mr. Chairman, thank you for calling this 
hearing. We do face an urgent task and that is to save this 
icon of American society and this absolute pillar of America's 
economy.
    Chairman Lieberman. Thanks very much, Senator Collins.
    Senator Carper, because you have done such extraordinary 
work on behalf of this Committee regarding the Postal Service, 
I wanted to invite you to make an opening statement if you 
would like at this time.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. Thanks very much, Mr. Chairman. To our 
witnesses, welcome. Thank you for joining us. And, Mr. 
Chairman, thanks for holding this hearing and breaking from 
protocol to allow me to deliver an opening statement. I am 
appreciative to you and to Senator Collins for the attention 
that you and your staffs have paid to this vitally important 
economic issue.
    For some time now, my Subcommittee and I have been sounding 
the alarm about the dire financial situation facing the Postal 
Service. Unfortunately, while a number of bills have been put 
forward, Congress--including this Committee--has been unable to 
reach consensus on the kind of dramatic and likely painful 
reforms that will be needed to avert a looming Postal Service 
shutdown. In addition, the proposals put forward by the 
Administration to date have been insufficient.
    Today, just a few weeks after narrowly avoiding the first-
ever default of the Federal Government, we may be just a few 
weeks away from the first-ever default of the Postal Service. 
That default, if permitted to happen, would be embarrassing and 
dangerous. In fact, it would pave the way for postal insolvency 
by this time next year, if not sooner.
    While the Office of Management and Budget (OMB) 
unfortunately declined to testify at this hearing to discuss 
the Administration's plans for preventing the Postal Service 
from failing, it is my hope that the discussion we have here 
today will jump-start the process of developing a bipartisan, 
bicameral consensus around the reforms necessary to restructure 
the Postal Service's finances and transform its operations to 
reflect the uncertain future that it faces.
    Postmaster General Donahoe will testify today that the 
Postal Service's finances continue to deteriorate. He is 
projecting a year-end loss for the Postal Service of some $10 
billion--nearly $2 billion more than he projected when our 
Subcommittee last held a postal oversight hearing, I think, in 
May. It will not be able to make the $5.5 billion retiree 
health payment due on September 30. Come October, it will have 
exhausted its line of credit with the Treasury and will only 
have enough cash on hand to get by. Then, under what is likely 
the best-case scenario, cash will be completely exhausted by 
next summer, and the Postal Service--absent any lifeline from a 
Congress and Administration that are short on lifelines these 
days--will likely be forced to close its doors.
    If the Postal Service were to fail, the impact on our 
economy would be dramatic. As Postmaster General Donahoe and 
others have pointed out time and time again, the Postal Service 
operates at the center of an industry that employs millions of 
people. These men and women do not just work at the Postal 
Service. They work at magazines, at banks, at printing 
companies, and in businesses large and small across America. 
They work in every State and congressional district in the 
country, and as Senator Collins has said, they generate more 
than $1 trillion in sales and revenue each year.
    Given the challenging economy facing our country, we cannot 
afford to put those jobs and that kind of productivity in 
jeopardy. In fact, it is our job to do what needs to be done to 
save this industry, even if doing so involves making decisions 
that might be difficult politically.
    Like it or not--and in a number of ways I do not like it 
very much myself--the Postal Service needs to re-size to 
reflect the decreasing demand for the products and services it 
offers. It needs to shed employees. It needs to downsize its 
network of processing facilities to reflect the fact that there 
is less mail to process and that technology has made getting 
mail to its destination easier to do. And the Postal Service 
needs to be able to close, relocate, or collocate some of the 
post offices that are provided in communities across America.
    The Postal Service has put forward a plan to eliminate a 
further 120,000 positions on top of some 100,000 that will be 
lost through attrition. They have also begun studying some 
3,000 post offices out of about 33,000 across the country, for 
closure or for collocation with other businesses. The Postal 
Service is expected to propose similarly dramatic changes to 
its processing network in the next week or so.
    We are rapidly reaching the point, however, at which the 
Postal Service no longer has the authority under current law to 
do what it needs to do to get by. That is why I have introduced 
legislation that aims to clean up the Postal Service's finances 
and help it implement the ambitious reorganization plan it 
announced last spring. The main provision in my bill--the 
Postal Operations Sustainment and Transformation Act--aims to 
permanently address the various pension and retiree health-
related issues that have plagued the Postal Service for years.
    The Postal Service, the Postal Service's Inspector General 
(IG), the Postal Regulatory Commission (PRC), and two 
independent actuaries--one of whom is actually represented here 
today--have all come to the conclusion that the Postal Service 
has overfunded its obligations to the Civil Service Retirement 
System (CSRS) by some $50 billion to $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 newer Federal Employees 
Retirement System.
    My bill, and I think the bill that Senator Collins has 
introduced, 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 pre-funding payments, taking upwards of 
$5 billion off its books each year for the next several years. 
And once those payments are satisfied, the funds this bill 
would free up could be used to pay workers' compensation 
obligations and to retire debt owed to the Treasury.
    These reforms, or something very similar to them, can be a 
vital part of any effort to improve the Postal Service's 
financial condition in both the short and long term. But 
stopping with these reforms and avoiding further, potentially 
more difficult changes will simply not be enough. To anyone 
taking an honest look at the numbers, it should be clear that 
more will need to be done. That is why my bill takes important 
steps towards giving the Postal Service the flexibility that 
those of us in Congress always say we want to give the Postal 
Service to adapt to the new realities and operate more like a 
business.
    No business facing the kinds of difficulties 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 was prevented from making operational changes 
or taking full advantage of the resources and expertise it has 
at its disposal. Yet that is what 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, these changes could help set the 
Postal Service on a more solid footing in the years to come.
    But I do not just focus in my bill on cost cutting. The 
bill also aims to give the Postal Service new authority to 
leverage for its nationwide retail, logistics, transportation, 
and delivery network to attract new business. In addition, it 
gives the Postal Service more flexibility to work with existing 
customers to keep them in the mail and to partner with State 
and local governments to find new, potentially profitable uses 
for the retail facilities that it needs to keep.
    I mentioned at the beginning of my statement that there 
have been a number of bills introduced this Congress to address 
the Postal Service's financial condition. Susan Collins has 
one. She and I have worked on these issues for years, and my 
hope and prayer is that we will do it again, this time to good 
effect. Congressman Darrell Issa has another approach. And 
there are parts of both bills that I do not agree with, but 
also parts of the bills that I support or that overlap with 
some of the provisions in my own bill. Starting with this 
hearing, we need to focus on the areas of agreement and from 
there, with input from the Administration, from the key 
stakeholders, build a package that can prevent postal default 
and insolvency and set the Postal Service on the road towards 
stability and profitability.
    In conclusion, Mr. Chairman, and Senator Collins, 
especially, let me just say this: The Postal Service is an 
enterprise. It is a business enterprise. It is an enterprise 
that has more people than it needs. It needs to reduce its head 
count. They have tried to do that humanely, and they would like 
to continue to do it humanely. We need to let them. We have 
more post offices than we need, and the key is not just closing 
post offices. The key is to try to provide better service to 
postal customers in communities across America by collocating 
the services in drug stores, supermarkets, department stores, 
and the like.
    And, finally, they have more processing centers, probably 
twice the number of processing centers that they need around 
the country. They need to reduce the number of processing 
centers. And as they do those things, we need to get out of the 
way. There is not a bailout that is needed here, but in large 
part, what we need is to let the Postal Service act more like a 
business and then to come up with even more great ideas like 
flat-rate boxes and last-mile delivery, that kind of stuff. And 
if you do that, and if we do our job, I think the Postal 
Service is going to be here for a lot longer.
    Thanks so much.
    Chairman Lieberman. Thanks, Senator Carper.
    Postmaster General Donahoe, we will go to you first. I 
thank you for being here. It probably does not need to be said, 
but the fact is that you have made some tough proposals here, 
but I think everybody listening or in the room should know that 
you are not some sort of executive that was brought in from 
outside to coldly go through the post office. You have spent 
your whole career in the Postal Service, beginning as a clerk 
35 years ago in Pittsburgh. Having had that experience, from my 
perspective, you remain remarkably youthful. Whether I can say 
that at the end of the next year or so remains to be seen. 
[Laughter.]
    Anyway, thank you for being here, and we welcome your 
testimony now.

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

    Mr. Donahoe. Mr. Chairman and Members of the Committee, 
good afternoon and thank you for scheduling this important 
hearing. I appreciate the opportunity to testify about the 
financial state of the Postal Service and about the proposals 
to improve its business model.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Donahoe appears in the Appendix 
on page 71.
---------------------------------------------------------------------------
    America depends on a financially strong Postal Service. The 
Postal Service provides a vital national delivery platform that 
is part of the bedrock infrastructure of the American economy. 
It supports a $1 trillion mailing industry that employs over 8 
million people. Every American residence and business depends 
on regular, secure, and available delivery of mail and 
packages. This will always be so, even in an increasingly 
digital age.
    Nevertheless, the Postal Service is at the brink of 
default. Without the enactment of comprehensive legislation by 
September 30, the Postal Service will default on a mandated 
$5.5 billion payment to the Treasury to pre-fund retiree health 
benefits. Our situation is urgent. The congressional action is 
needed immediately to avoid this default.
    Mr. Chairman, the Postal Service requires radical changes 
to its business model if it is to remain viable into the 
future. The Postal Service is in a crisis today because it 
operates with a restrictive business model. As a self-financing 
entity that depends on the sale of postage for its revenues, 
the Postal Service requires the ability to operate more as a 
business does. This applies to the way it provides products and 
services; allocates resources; configures its retail, delivery, 
and mail processing networks; and the way it manages its 
workforce. Unfortunately, the Postal Service today has a 
limited flexibility to respond to the changing marketplace.
    Since 2008, the combination of weak economic conditions and 
divergence to electronic forms of communication have resulted 
in unprecedented declines in the use of First-Class Mail and a 
weakness in the use of standard mail. In response, we have 
reduced our annual costs by more than $12 billion and our 
workforce by 110,000 career employees in just the last 4 years. 
As impressive as these cost reductions have been, we must 
accelerate the pace of cost reduction over the next few years.
    Based on current revenue estimates, the Postal Service must 
reduce its annual cost by $20 billion by the year 2015 to 
become profitable and to return to financial stability. Mr. 
Chairman, we do not have the flexibility in our business model 
to achieve these cost reductions. To do so requires the 
enactment of comprehensive, long-term legislation to provide us 
with needed flexibility. Short-term stop-gap measures will not 
help. Our long-term revenue picture dictates developing a long-
term comprehensive approach. The health of the Postal Service 
and the mailing industry that we serve depends on it.
    The Postal Service has made a number of policy proposals 
that merit consideration. These include: Giving the Postal 
Service the authority to determine its delivery frequency and 
transition to a national 5-day-a-week delivery schedule; 
allowing the Postal Service to restructure its health care 
system and make it independent of Federal programs and 
eliminate the mandatory annual $5.5 billion retiree health 
benefits payment with this action.
    We need to accelerate workforce reduction by as many as 
220,000 employees, and we are asking Congress to consider that 
reductions in bargaining unit employees be governed under the 
reduction-in-force provisions that are applicable to the 
Federal competitive service employees.
    We are also seeking the authority to provide a defined 
contribution plan for new hires rather than today's defined 
benefit plan. We are seeking the return of $6.9 billion in 
Federal Employees Retirement System overpayments. That will 
help our cash situation. And we are also seeking to streamline 
postal governance models to speed pricing and product 
decisions.
    We have advanced these and other proposals to provide the 
Congress with a range of legislative options, and we are also 
aggressively doing things that we can do within our own 
business model. Indeed, by 2015 we intend to capture more than 
$11 billion in additional cost reductions by optimizing our 
delivery network, our retail networks, reducing our mail 
processing footprint by more than 300 processing facilities, 
and by taking advantage of negotiated workforce flexibility. 
These are aggressive steps and they are necessary.
    America deserves a financially strong and independent 
Postal Service that can meet the evolving mailing and shipping 
needs for generations to come. We require the flexibility to 
operate more as a private sector business would. This would 
enable the Postal Service to return to profitability and sound 
financial footing. This would also enable the Postal Service to 
properly fulfill its mission since the 1970s, which is to 
operate on a profit-and-loss basis and to function 
independently of all taxpayer support.
    Let me conclude by acknowledging the great commitment and 
dedication of our employees. During these very difficult times, 
even as we have consolidated facilities and made substantial 
workforce reductions, they have delivered at record-high 
service performance levels.
    Mr. Chairman, thank you again for giving us the opportunity 
to testify here today. I look forward to answering any 
questions that you might have of me. Thank you.
    Chairman Lieberman. Thank you, sir, for your testimony. We 
appreciate it.
    We will go now to John Berry, who is the Director of the 
U.S. Office of Personnel Management, directly to testify to 
this subject matter as it relates to OPM, but insofar as he is 
able, to speak on behalf of the Administration as well.

   TESTIMONY OF HON. JOHN BERRY,\1\ DIRECTOR, U.S. OFFICE OF 
                      PERSONNEL MANAGEMENT

    Mr. Berry. Thank you, Mr. Chairman, for the opportunity to 
testify regarding the financial challenges facing the U.S. 
Postal Service.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Berry appears in the Appendix on 
page 87.
---------------------------------------------------------------------------
    I have met with the Postmaster General several times 
recently, and the Administration is committed to exploring ways 
that can be helpful to the Postal Service. Both the President 
and I know of the critical importance to our Nation's economy 
that the Postal Service provides, and we are grateful to the 
men and women of the Postal Service for the important work that 
they do for our country.
    The President's fiscal year 2012 budget proposed ways to 
provide Postal Service financial relief, but since those 
proposals were offered, the financial situation of the Postal 
Service has deteriorated further. In response to this 
situation, the Administration plans to release a proposal in a 
few weeks that will ensure a sustainable future for the Postal 
Service. This proposal will be included as part of the broader 
$1.5 trillion deficit reduction package that the President has 
promised to submit to the Congress.
    In the interim, the Administration supports delaying for 90 
days the Postal Service's $5.5 billion pre-funding retirement 
health payment that is due on September 30. This will allow the 
Congress, the Postal Service, and the Administration the time 
to carefully work through the details of a proposal.
    We believe that the Postal Service and its employees and 
retirees are well served by the existing health benefits 
program and the retirement system. The Postal Service proposes 
reducing costs by discontinuing participation in Federal health 
and retirement benefits. This is a very complex proposal, and 
it will require further study and analysis to determine if the 
Postal Service can achieve significant cost savings from these 
proposals. As such, the Administration does not have a formal 
position on this proposal at this time.
    OPM expects that a withdrawal of the postal population 
would not have a significant impact on the Federal Employee 
Health Benefits Program (FEHBP) as a whole. In addition, the 
overall cost of the FEHBP program would be minimal and would 
not impact the integrity of our FEHBP program. However, it 
would have a significant impact on health plans with a large 
postal population such as Rural Letter Carriers or the American 
Postal Workers Union plans. If these plans chose not to 
participate in the FEHBP any longer, it could have a 
significant impact on the number of choices that are available 
to our enrollees and overall competition in the program.
    The Postal Service's proposal to withdraw its annuitants 
and employees from CSRS and FERS would pose very significant 
challenges because Postal and non-Postal Service are integrated 
in the same retirement system. As such, many employees have 
creditable CSRS and/or FERS service both in Postal and non-
Postal employment, and the Federal Government will have a legal 
obligation to pay those benefits. Any proposal to remove the 
postal population from Federal employment health and retirement 
systems, again, would be complex, and more analysis is 
required.
    As I mentioned earlier, the President's budget proposes 
improving the Postal Service's financial condition by 
approximately $5 billion in both 2011 and 2012.
    First, we do propose returning to the U.S. Postal Service 
its surplus in the FERS retirement fund, estimated by OPM now 
at $6.9 billion. The budget also proposes restructuring the 
specified retiree health benefits at an estimated cost savings 
of $4 billion in temporary relief in 2011. Additionally, the 
President's budget proposes streamlining FEHBP pharmacy 
purchasing benefits, and we believe this could save the Postal 
Service an additional $300 million over the next 5 years.
    Last, I would like to address a number of reports 
questioning whether the Postal Service has overpaid its 
obligations into CSRS. Moreover, I would like to clarify that 
the term ``overpayment'' has been used by those who implied 
that there should be a change to the current allocation that is 
mandated in the law. OPM applies the method established in the 
current law for apportioning responsibility for CSRS costs 
between the Postal Service and the Treasury. After careful 
review by the Office of Personnel Management's General Counsel, 
our Inspector General, and our Board of Actuaries, they have 
all concluded that OPM does not have the administrative 
authority to make a reallocation of these CSRS costs based on 
the 2006 Postal Accountability and Enforcement Act. However, if 
Congress determines that another methodology is more 
appropriate and explicitly establishes another allocation 
method, I pledge that OPM will quickly and fully implement 
those changes.
    We look forward to working with the Committee and the 
Postal Service to develop a solution to this problem and in 
addressing these fiscal challenges. Thank you for your time, 
and I will be glad to answer any questions.
    Chairman Lieberman. Thanks very much, Mr. Berry. I think 
you made some significant statements on behalf of the 
Administration, both in terms of a plan regarding the Postal 
Service coming forward in the next few weeks which will be 
submitted simultaneous with the recommendations of the 
President to the super committee, the Joint Special Committee 
of 12, and that if we give you the authority to return the 
money that the Postal Service believes is an overpayment to the 
CSRS fund, OPM will implement that rapidly. I appreciate that.
    Next we are going to hear from Phillip Herr, who is the 
Director of Physical Infrastructure Issues at the Government 
Accountability Office (GAO), our independent watchdog/oversight 
group, but specifically here because under that general title 
he is GAO's expert on the Postal Service. Thank you for your 
testimony.

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

    Mr. Herr. Chairman Lieberman, Ranking Member Collins, and 
Members of the Committee, thank you for the opportunity to 
discuss the serious financial crisis facing the Postal Service.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Herr appears in the Appendix on 
page 94.
---------------------------------------------------------------------------
    As mail volume has declined, the Postal Service simply has 
not generated sufficient revenue to cover many of its 
obligations. Critical decisions by Congress, the 
Administration, and the Postal Service are needed to help put 
it on a path to financial solvency.
    First, by most measures the Postal Service's financial 
condition is grim, as noted earlier, with a cumulative net loss 
of nearly $20 billion over the last 5 fiscal years, a projected 
net loss of about $9 billion this fiscal year, and reaching its 
$15 billion borrowing limit, while not making its mandated $5.5 
billion retiree health benefits payment this year.
    The Postal Service has released several proposals to 
address its problems. One proposal is to withdraw from the 
Federal Employee Health Benefits Program and create its own 
program using the $42.5 billion fund that has been set aside 
for future retirees' health benefits. This proposal should be 
carefully reviewed as it is not clear whether the Postal 
Service can achieve its planned cost savings or what the 
implications are for employees, future retirees, and the 
Federal budget.
    Currently, about 1.1 million postal employees and 
annuitants participate in the Federal Health Benefits Program, 
and 300,000 employees are eligible to retire over the next 
decade. This is a significant obligation. Several legislative 
proposals would defer pre-funding Postal Retiree Health 
Benefits Fund as a way of providing financial relief, as seen 
in Table 1 of my statement.\1\ However, deferring payments 
increases the consequences should the Postal Service not be 
able to make future payments if its core business continues to 
decline as expected. This increases risk to the Federal 
Government, taxpayers, and possibly future retirees.
---------------------------------------------------------------------------
    \1\ The table referenced by Mr. Herr appears in the Appendix on 
page 102.
---------------------------------------------------------------------------
    GAO believes it is important that the Postal Service 
continue to pre-fund its retiree health benefit obligations to 
the maximum extent that its finances permit. We acknowledge 
that this will be difficult until its business model is updated 
to reflect current realities, however.
    Some key questions to consider regarding the proposal to 
create a separate Postal Health Benefits Program include: How 
will the Postal Service acquire the expertise needed to manage 
health benefit programs? What would be the budgetary impact of 
transferring $42.5 billion from the Treasury-held fund to a 
postal-administered program that, as proposed, could seek 
higher returns in the market with potential risks? Can savings 
realistically be expected from restructuring its health 
benefits program? Would such a change lower fees compared with 
those available through OPM? And if it defaults on funding or 
benefit payments to employees or retirees, or changes them 
significantly, as is possible, what would be the Federal 
Government's obligation to 1 million-plus beneficiaries?
    The Postal Service has asked for legislation to access its 
FERS annuity surplus, estimated to be about $7 billion. What is 
discussed less often is that the Postal Service also has an 
unfunded CSRS liability estimated by OPM to be about $7 
billion. In June 2011, the Postal Service stopped making its 
payments for the defined benefit portion of FERS, meaning that 
the FERS surplus has already been reduced by about $800 
million.
    The Postal Service has also proposed making new employees 
ineligible for a FERS annuity, raising the question of whether 
other options have been considered. For example, flexibilities 
within FERS now accommodate different accrual rates for certain 
employees.
    The Postal Service also seeks to accelerate network and 
workforce downsizing. We agree that postal networks need to be 
realigned in light of decreased demand. Frankly, network 
realignment is overdue and necessary, whether or not actions 
are taken on the pension and health proposals. When fully 
implemented, the Postal Service estimates savings from the 
proposed changes could total $11 billion. Several key areas 
where savings are expected include: Saving $3 billion by 
reducing processing plants from 500 to under 200; $3 billion by 
reducing delivery from 6 to 5 days; reducing delivery costs by 
$2 billion through route consolidation; and saving $1.5 billion 
by selling postal services through private businesses and 
closing up to 12,000 post offices.
    Realigning the vast postal network will require tradeoffs, 
and the Postal Service has asked for legislation to eliminate 
the layoff provisions it has negotiated in collective 
bargaining so it can reduce its workforce by an additional 
125,000 career positions. As Congress considers possible 
changes, some questions include: Is 6-day delivery still 
appropriate given the changed use of mail? What changes to 
delivery standards are needed to realize the cost savings 
derived from network optimization? Are statutory or regulatory 
changes needed to permit quickly restructuring postal 
operations while assuring appropriate oversight?
    In closing, the stark reality is the Postal Service's 
business model, which until 2006 relied on continued growth in 
mail volume, is broken. The gap between its revenues and the 
expense of maintaining its network has become unsustainable. 
Difficult choices must now be made, and it is time to decide 
its future.
    Chairman Lieberman, Ranking Member Collins, and Members of 
the Committee, this concludes my statement, and I am happy to 
answer questions. Thank you.
    Chairman Lieberman. Thanks, Mr. Herr. Unfortunately, I 
think you have summed up reality pretty well, that the business 
model which worked for a long, long time for the Postal Service 
is now broken, and we have to help the Postal Service fix it.
    Mr. Levy, thanks for being here.
    Mr. Levy is the Senior Vice President and Chief Actuary at 
The Segal Company, which has done some work that is relevant to 
our hearing today. Please proceed.

TESTIMONY OF THOMAS D. LEVY,\1\ SENIOR VICE PRESIDENT AND CHIEF 
                   ACTUARY, THE SEGAL COMPANY

    Mr. Levy. Thank you, Mr. Lieberman. I was the principal 
author of Segal's 2010 ``Report to the Postal Regulatory 
Commission on Civil Service Retirement System Cost and Benefit 
Allocation Principles,'' and I am here today with the 
encouragement of the Postal Regulatory Commission to discuss 
Segal's recommendations with respect to this important issue. 
And apropos of Mr. Berry's comment, let us make it clear. Our 
assignment was to look from the current point of view at what 
is fair and equitable, not whether OPM, in fact, implemented 
the 1974 legislation correctly. I have not heard anything in 
our studies to suggest that they have done otherwise. So we do 
not suggest overpayment in the sense of not following Congress' 
direction. To the extent that I may use that word or our report 
may, it is using a standard of ``fair and equitable'' in 2010-
2011.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Levy appears in the Appendix on 
page 113.
---------------------------------------------------------------------------
    When the U.S. Postal Service was established as an 
autonomous Federal entity effective in 1971, an important issue 
was the allocation of Civil Service Retirement System costs 
between the Federal Government--for workers' service in the 
Post Office Department (POD)--and the USPS. OPM has 
consistently done this allocation in accordance with Public Law 
93-349 in 1974. Essentially, that allocates to the Federal 
Government the cost of a frozen pension benefit for each worker 
as of June 30, 1971, based on service, rate of compensation, 
and the CSRS benefit formula at that time. The entire balance 
of that worker's pension, over and above that frozen amount, 
has been charged to USPS. Because the benefit design of CSRS 
has more generous benefits in the later years of a worker's 
career, and since the USPS was always the second employer, the 
benefit accrual charged to USPS for a year of service was 
usually higher than for POD service. Because the CSRS benefit 
is based on the high 3-year average salary for all years of 
service, POD or USPS, USPS was, in fact, paying for the impact 
of post-1971 salary increases on pre-1971 POD pension accruals. 
In a report for the USPS Office of the Inspector General dated 
January 11, 2010, actuaries for The Hay Group concluded that 
this allocation was inequitable in both respects. They 
estimated that an equitable allocation, accumulated with 
interest, would have resulted in the USPS' share of the CSRS 
assets being lower by $75 billion for past payments, with about 
$10 billion of savings anticipated in future years. USPS 
requested PRC's opinion on the fairness and equity of the OPM 
method. And, after taking competitive bids, The Segal Company 
was selected by PRC to analyze and make recommendations.
    We met with the stakeholders and reviewed the actuarial and 
accounting standards, and we concluded that the most relevant 
benchmark was the accounting standard applicable to private 
companies. This was the only one that had as a primary 
objective the matching of revenues--in the Postal Service's 
case, selling postage--with the labor costs to produce those 
revenues. That was our assessment of the appropriate basis for 
evaluating the fairness of the CSRS cost allocation. The 
accounting standard provides clear and nondiscretionary 
direction. With regard to plans such as CSRS that provide non-
uniform benefit accruals--in this case, higher accruals in the 
later years of employment--the expense charge requires 
following the plan's accrual formula, as OPM was doing. But it 
also requires that the cost allocation to a time period for a 
final average salary plan like CSRS must reflect the 
anticipated future salary at termination or retirement and may 
not be limited to the cost based on the compensation at the 
time the work is done. Reflecting future compensation increases 
in the POD allocation was not part of the OPM methodology.
    Based on this analysis, we concluded that the preferred 
method to allocate CSRS benefits to the Federal Government was 
to reflect post-1971 salary increases with respect to pre-1971 
service, but otherwise to follow OPM's methodology. We 
indicated that we did not believe that the omission of future 
salary increases with respect to POD service was fair and 
equitable. In effect, what that did was that gave the Federal 
Government a lower cost because of the establishment of USPS 
than it would have had had the POD continued to operate 
unchanged. And we did not see anything to suggest that one of 
the objectives of establishing the USPS was to reduce past 
postal pension costs. But that is, in fact, what the law, as 
OPM has applied it, has done.
    We also noted that a pro rata reduction of benefit accruals 
that did not follow the CSRS accrual formula was within the 
range of fair and equitable alternatives, but it was not our 
preferred methodology. We did not do any calculations of our 
own, but roughly estimated that our recommended allocation 
would result in accumulated savings of $50 to $55 billion for 
past allocations compared to the OPM methodology, with an 
additional savings with respect to future payments of $6 to $8 
billion.
    Mr. Chairman, that completes my prepared testimony. I would 
be pleased to answer any questions.
    Chairman Lieberman. Thanks, Mr. Levy.
    We will now go to questions, and let us do 6 minutes since 
there are a number of Senators here, and I want to give 
everybody a chance to question the witnesses.
    Postmaster General Donahoe, you mentioned in your testimony 
that without some change, by the end of this month the Postal 
Service would have to default on that $5.5 billion payment to 
the health fund. Mr. Berry indicated that the Administration 
will seek legislation to delay that by 90 days. But assuming 
that is taken care of--well, let me ask the question another 
way. What I am really wondering is, if nothing happens, if you 
receive none of the relief that we are talking about providing, 
by what date do you think the Postal Service will not just have 
to default on that health payment but will begin to find it 
impossible to carry out its normal responsibilities, such as 
delivering the mail?
    Mr. Donahoe. Here is what we think, Mr. Chairman: Probably 
next August-September time frame. What we are looking at is 
even if we push the payment off for the 3-month time period, we 
have a payment for the Department of Labor (DOL) of $1.2 
billion due in October.
    Chairman Lieberman. What is that?
    Mr. Donahoe. That is for workers' compensation.
    Chairman Lieberman. Workers' compensation, Department of 
Labor, right?
    Mr. Donahoe. We pay the Department of Labor $1.2 billion. 
Then we have a couple of payrolls in October, too. So we will 
be very close, even not paying the pre-payment of the $5.5 
billion.
    Now, over the course of the winter, if mail volume picks 
up, we will be able to pick up a little revenue there. But we 
think that by the August-September time frame next year, given 
no action, we will be out of cash to pay employees and to pay 
contractors.
    Chairman Lieberman. And if for some reason you do not get 
the 90-day delay on that $5.5 billion, what is the consequence 
of that?
    Mr. Donahoe. We are not going to be making that payment. If 
they delay it, it makes October a little bit more bearable.
    Chairman Lieberman. Right. So you are saying here--and I 
know you have said this before--that there is no way you will 
have the capacity to make the payment that is due by the end of 
this month.
    Mr. Donahoe. I will not.
    Chairman Lieberman. You have made what we have described as 
controversial proposals, reducing the deliveries to 5 days a 
week, closing over 3,000 post offices, reducing the number of 
distribution centers, and ultimately asking for authority for 
reductions in force comparable to what exists for other Federal 
employees up to 120,000, or you would probably use it for that. 
Help us understand the basis of those requests in this sense: 
Why are you confident that the result of those cutbacks will 
not lead to a further drop in business for the post office? In 
other words, why do you think those changes will not only save 
money but will really put the post office back on the road to 
being balanced fiscally or even slightly in surplus?
    Mr. Donahoe. Here is the way we look at this: There are two 
major things happening right now. One is the decline of First-
Class Mail, and I think that we could cut the price in half and 
not be able to slow it down all that much.
    Chairman Lieberman. Well, that is really important. It is 
all the Internet, right? It is email?
    Mr. Donahoe. It is the technology. Sixty percent of 
Americans pay bills online today. That is not going to change. 
That will continue to move in that direction. As a matter of 
fact, what we are seeing now are a number of companies 
requesting payments to have a hard-copy statement mailed to 
one's house.
    Chairman Lieberman. That is right.
    Mr. Donahoe. And banks are now starting to charge for 
checks. You get five checks for free. After that you have to 
pay. So all of these things will continue to push the First-
Class Mail volume down. So we think that is something that we 
will try to slow, but it is going to continue.
    Where we see our business strength going forward is in two 
direct areas. One is standard mail. We had the drop-off with 
the economy, but standard mail has leveled off pretty well. And 
I will tell you, standard mail for the most part is an 
excellent investment----
    Chairman Lieberman. Define standard mail for us.
    Mr. Donahoe. Advertising mail.
    Chairman Lieberman. Right.
    Mr. Donahoe. What happens is companies tell us over and 
over again that they get the best return on investment because 
it gets in front of a customer's eyes, unlike the Internet, 
unlike even radio or TV. When it gets in your mailbox, a 
customer sees it. So we think there is strength in there, as 
long as we can keep the price relevant. We cannot let the price 
get too high.
    The second thing we know we have strength in is the package 
business. With e-commerce, we are seeing in our Parcel Select--
which is the offering that we make along with FedEx and the 
United Parcel Service (UPS). We are like the final mile for 
them.
    Chairman Lieberman. You are doing the last mile for FedEx 
and UPS.
    Mr. Donahoe. We see double-digit increases over the last 
few years, and we will continue to see that. Our infrastructure 
is great. Our people do a great job. It is very affordable. So 
we will see nice growth there.
    The third area that we think we will see some growth is 
potentially in the digital area, and that whole area is open 
for the Postal Service. We are not talking so much about bill 
payment as you see being done for free today, but we think 
there are some opportunities to provide secure digital 
messaging. It is not going to make up for the First-Class 
difference, but those are three areas.
    So given that, we have plotted out volumes and revenues 
over the next 10 years. We are using that revenue line as a 
governor of our business. We do not want taxpayer money. We 
have to get our finances in order to provide good, dependable 
service. I think if we provide good, dependable service, which 
we have an excellent history of doing, on standard mail, on 
remaining First-Class Mail, and on packages, our business will 
be fine. We will not have people moving away from us just on 
account of these changes that we are making.
    Chairman Lieberman. Thanks. My time is up. Senator Collins.
    Senator Collins. Thank you, Mr. Chairman.
    Mr. Berry, the failure of the Postal Service would be 
devastating to our economy. I see you are nodding in agreement. 
It would pose a threat to the jobs of millions of Americans. 
Today you have heard the Postmaster General describe a crisis. 
He says that the Postal Service is on the brink of default, a 
year from now will not be able to meet its payroll and carry 
out its operations. Yet this afternoon, you come to us and tell 
us that the Administration does not yet have a plan. You have 
opposed several of the fundamental reforms that the Postmaster 
General has put forth as far as a separate retirement system 
and changing to a defined contribution system. You have asked 
for more time to study it. You have asked for a 90-day delay in 
the $5.5 billion. You have not mentioned your position on 
relief from the no-layoff provisions that are in the union 
contracts. You really have not come forth with a plan other 
than to take a position in opposition to the repayment of the 
$55 billion to the CSRS system that our actuary here has 
described.
    I just do not understand why the Administration does not 
have a concrete plan to put before us today given the dire 
straits that we are in. Senator Carper and I have had bills out 
there for many months. They are not perfect, and, frankly, I 
think they have been overtaken by the rapidly deteriorating 
crisis that we face. But why doesn't the Administration have a 
plan for us today?
    Mr. Berry. Senator, first, there will be a plan, as I 
testified. The White House will have that submitted with the 
deficit reduction package within the next few weeks, and the 
President will meet his promise to give that to the Congress.
    Also, I just want to correct--the Administration has not 
taken a position on the Postal Service's proposal on withdrawal 
from FEHBP or the retirement systems. So I am not here in 
opposition to those.
    Senator Collins. But you are not supporting it either.
    Mr. Berry. Well, all I did was explain that it will require 
further study, but there is no formal Administration position 
of opposition, so I want to be clear on that point.
    The other is something we are supporting, and it is in the 
President's budget, and I think it is reflected in a number of 
the pieces of legislation, and that is the surplus payment in 
the FERS retirement fund of what we estimate to be the $6.9 
billion. And the Administration does support returning that to 
the Postal Service. It will require legislation to do that, but 
we are supportive of that relief. And I think that will go a 
long way in terms of helping some of the challenge that I know 
you all are wrestling with that we want to help.
    Senator Collins. But, Mr. Berry, that $6.9 billion pales in 
comparison to the $55 billion that Mr. Levy described, and you 
said that you do not have the authority. I have gone back and 
forth with OPM on this. I wrote the provision of the 2006 act 
that gives you the authority in Section 802(c)(2). It says that 
the Postal Regulatory Commission can hire an actuary--that is 
what they did--to take a look at it, and it gives you complete 
authority to then change the formula.
    So I just do not understand why the Administration 
continues to say that it does not have the authority.
    Mr. Berry. Senator, I am not an attorney, and I have to 
defer to my General Counsel, my Inspector General, and my Board 
of Actuaries. And in their reading of the law--and I know there 
is a disagreement in this. But with due respect, they advise me 
I do not have the authority to determine fair and equitable, as 
Mr. Levy testified. That authority rests with you and you 
alone, with the Congress.
    I am not here testifying against the Segal report. In fact, 
we find a lot of value in the Segal report and believe it might 
be a good basis for the Committee, for the Postal Service, and 
for us to have our actuaries and staff to work with you to help 
determine what is fair and equitable. But the Congress needs to 
set that in the law, and that is where I am stuck.
    Senator Collins. Mr. Postmaster General, my time is 
expiring rapidly, but you did not mention the need for reforms 
in the workers' compensation program. This is an enormous 
expense. It is supposed to be a safety net for workers who are 
temporarily out of work, and yet the Postal Service, as the IG 
has pointed out, has something like 2,000 individuals over age 
70 who are receiving workers' comp. Mr. Postmaster General, 
those people are not coming back to work.
    Mr. Donahoe. We agree with you 100 percent. We need reform 
with workers' compensation. The proposals that you put forth 
make a tremendous amount of sense to us. We would like to have 
that included in comprehensive legislation going forward.
    Senator Collins. Thank you.
    Chairman Lieberman. Thanks, Senator Collins.
    For the information of Members, according to our normal 
custom of calling on Members who arrived before the gavel in 
order of seniority and after the gavel in order of appearance, 
if they are here, we will call on Senators Akaka, Moran, 
Begich, Pryor, Carper, Coburn, Brown, and McCaskill.
    Senator Akaka is not here, Senator Moran is not here, so we 
go to Senator Begich.

              OPENING STATEMENT OF SENATOR BEGICH

    Senator Begich. Thank you very much, Mr. Chairman.
    If I can follow up, Mr. Berry, I understand the $6.9 
billion, you do not question that. You want to give it to the 
post office, sooner than later. We all agree on that. The $50 
billion, give or take, do you agree on that number? Because I 
understand you have the process all convoluted between both 
sides here. So do you agree on the number?
    Mr. Berry. We would need to get the actuaries of all of the 
parties in a room together to narrow down the exact number.
    Senator Begich. But you said you had actuarials do the 
work.
    Mr. Berry. We are following the law because that is what 
has driven our interpretation, applying the standard of the 
law. The law has us do this on an annual basis and not look 
forward in terms of the issues that you heard Mr. Levy discuss 
on fair and equitable.
    Senator Begich. So let me try it again. The work that your 
actuaries did, did they indicate any overage payment, any 
payment above--$1 million, $10 million, $30 billion, $50 
billion, any number?
    Mr. Berry. We would agree there are many ways to accomplish 
the goal of a fair and equitable----
    Senator Begich. That is not the question I asked you. Let 
me ask you this. Can you provide to us the study that your 
actuaries did in regards to this issue?
    Mr. Berry. Absolutely.
    Senator Begich. I know we received a letter from you about 
your legal interpretation, from your counsel to you to then us, 
but I would like the legal analysis that was given to you.
    Mr. Berry. Absolutely.
    Senator Begich. So we will get the actuary's documentation 
which will show how they did their analysis on this question of 
the money--not the process, on do they believe or not. Are we 
clear on that?
    Mr. Berry. Yes. And, Senator, if I could, because I am not 
trying to avoid your question--when you look into the future, 
you have to make certain assumptions.
    Senator Begich. I understand.
    Mr. Berry. On inflation rates, on morality rates, on the 
difference between genders--all of these other things that need 
to be accounted by actuarial, and that is where----
    Senator Begich. I understand that part. I will tell you, as 
a former mayor I had to revamp several retirement programs--
police, fire, our whole system, all of it. So I just want to 
make sure I understand you will have a basis of assumptions 
that will differ from the union's assumptions, everybody's 
assumptions. But I want to see if there is a number and how you 
got there.
    Mr. Berry. Absolutely.
    Senator Begich. Then we can argue over assumptions--
inflation rates, return on investment, all that stuff.
    Mr. Berry. And knowing of the importance of this--and with 
Senator Collins, the Chairman, and the whole Committee--and 
appreciating the criticality of this issue, I can pledge to you 
our actuaries stand ready to be here to help inform your 
judgment on what is fair and equitable.
    Senator Begich. Great. I will tell you, in all my years of 
having to deal with this issue from a smaller perspective, 
still in the hundreds of millions of dollars, it took many 
years to resolve these issues between the unions and the 
individuals as well as the retirees who were out of the system 
because there was no group representing them. The list goes on 
and on. So I am very familiar with how this works. I just want 
to see your assumptions.
    Mr. Levy, were you about to say something in regards to 
this, also?
    Mr. Levy. Yes, I just wanted to make a quick comment. The 
$50 billion to $55 billion relates entirely to past payments. 
It has no actuarial assumptions. It is the $6 billion to $8 
billion for the future that has actuarial assumptions involved.
    Senator Begich. Well, do you want to respond to that? 
Because what I care about, the $6.9 billion, no one disagrees 
with that. Right? You are just going to pay it at some point if 
we give authorization. What I am interested in is the $50 
billion.
    Mr. Berry. The $50 billion number, in 2003 you all 
determined on past behavior----
    Senator Begich. I was not here. [Laughter.]
    Mr. Berry. But there was a determination by the Congress--
Senator Collins was here then--that there was an overpayment of 
$73 billion. You directed us to pay it, and we paid it back.
    In 2006, you did the exact same with military service 
credit, a $28 billion credit, and it was a determination of the 
Congress that it would be fair and equitable to have that paid 
by the Treasury, not the Postal Service. It is reasonable that 
the Congress might decide in this circumstance that a fair and 
equitable solution would require a new determination of that 
number, and if it determines it, we will quickly implement it 
and pay it.
    Senator Begich. Mr. Donahoe, let me ask you, if I can, in 
regard to eliminating Saturday service, as you know, we have 
sent you a letter. We are concerned about this for a variety of 
reasons, the rural component but also as a small business 
person, how it will impact a small business owner who really 
depends on as much delivery time as possible. They are not 
corporate. They do not have mail runners to go package up their 
stuff and ship it over to the post office. The owner has to do 
it, and they have to go do it, and small businesses depend on 
delivery as well as making sure that they get their mail coming 
in for supplies and what-not.
    How do you respond to that small business owner--and I am 
talking small, 15 and under employees, not 200 employees, not 
as the Small Business Administration (SBA) defines it.
    Mr. Donahoe. Again, as we have looked at what would be the 
best day, if any, to eliminate delivery, Saturday is it. 
Generally the volume is about 10, 15 percent lower on Saturday 
than the rest of the week. We will keep post offices open on 
Saturday so people would have access to our 30,000-plus post 
offices.
    Senator Begich. For shipping packages and so forth.
    Mr. Donahoe. Bring them in and ship them, right. And we 
would be able to provide that service.
    Now, we will not be running what we call outgoing mail that 
night, so that mail would go out on Monday. But they would have 
the access to our services.
    Senator Begich. My time has expired, but I have several 
other questions. I will just submit them for the record and 
then go from there. Thank you very much.
    Chairman Lieberman. Thanks, Senator Begich.
    Previously, somebody mentioned a $3 billion figure of 
savings annually for eliminating Saturday delivery. Is that 
your number also?
    Mr. Donahoe. That is our number, Mr. Chairman, yes.
    Chairman Lieberman. Next, Senator Pryor.

               OPENING STATEMENT OF SENATOR PRYOR

    Senator Pryor. Thank you, Mr. Chairman.
    Mr. Donahoe, let me start with you, if I may, with some 
questions about the Federal Employee Health Benefit Plan. I am 
curious about what you think you could save if you left the 
FEHBP and went to something else. You probably covered some of 
this in your opening statement, but tell the Committee once 
again about how much you think you could save.
    Mr. Donahoe. Here is what we did, Senator: We have been 
frustrated at the inability to resolve this retiree health 
benefit payment going forward. Truthfully, like I said in my 
opening statement, any other company would have been bankrupt. 
So what we have done is we have gone back and taken a different 
look. What we did was we sat down and thought, well, rather 
than arguing about whether or not we can get the money back 
from the OPM, we will present a different approach. That 
approach was: How do you eliminate the need for pre-payment by 
changing the costs in your health benefit program? So we looked 
at what any other company would do, and this is the way it 
breaks down.
    First, we think with 1 million people in that plan we could 
pull costs down, our experts have told us, somewhere between 8 
and 10 percent. I will write a check this year for $7.2 billion 
for health care without the pre-funding money. With the pre-
funding money, it is almost $13 billion. So you pull the cost 
down 8 to 10 percent.
    The second thing is Medicare. We are one of the largest 
contributors to Medicare in this country. We do not require our 
people to use Medicare A nor B. We have about an 80-percent 
usage for Medicare A, about 75 percent for B. We know that 
current retirees and future retirees using Medicare will pull 
those numbers down to the tune of around $20 billion over the 
course of time.
    The third part of our proposal is changing the way that we 
provide health benefits to current retirees. We would not take 
anything away from current retirees, but we would freeze them 
at a certain level, and we would increase the money going to 
them to pay retiree health benefits based on the costs for our 
plan. So we would have very good control over it.
    The fourth thing would be for people like me, capped 
payments going forward, so when I retire I will not have that 
same percentage that you see in the Federal Government, the 72 
percent. It might be 60 percent, it might be 55 percent. The 
way we have worked through this, we have been able to 
completely eliminate the need for pre-funding--it is about $46 
billion--and at the same time pull our overall cost down.
    Senator Pryor. But as I understand your proposal, you would 
actually leave the FEHBP?
    Mr. Donahoe. That is our proposal.
    Senator Pryor. And do you know what impact that would have 
on the rest of the FEHBP?
    Mr. Donahoe. I would have to leave that up to Mr. Berry.
    Senator Pryor. Do you know, Mr. Berry?
    Mr. Berry. Yes, Senator. I testified that in terms of 
dollar impact it would not be significant.
    Senator Pryor. And what about on Medicare? Tell me, Mr. 
Donahoe, again about the impact you think you would have on 
Medicare.
    Mr. Donahoe. We will add about $1.1 billion to the Medicare 
fund this year. We have spent, since 1985, about $24 billion. 
We know it will increase Medicare, but it is our feeling that 
we are paying into Medicare now and we should have full 
benefits of it.
    Senator Pryor. OK. And let me ask about workers' 
compensation. I think that is an important issue that sometimes 
gets overlooked. Do you have some ideas on workers' 
compensation reform?
    Mr. Donahoe. We are in agreement with what is being 
proposed by Senator Collins. We would also like to explore what 
a lot of the States do. If you compare us to FedEx or UPS, we 
are very proud of the fact that over the last 10 years we have 
improved our safety rates. We are the No. 1 voluntary 
protection plan by the Occupational Safety and Health 
Administration (OSHA) as far as we have had more of our 
facilities certified, and our accident rates have gone down. 
The problem is our costs have continued to go up. So we need 
some way to control those costs. But Senator Collins' proposal 
would be very helpful. We would like to be able to take a wide 
look, just like we have been looking at the health care. How 
does the private sector do it? That is the way we would like to 
do it.
    Senator Pryor. My one bit of warning there would be that 
you have to always remember when you are doing workers' 
compensation reform, which States and the Federal Government 
should do from time to time, that the goal of workers' 
compensation is to compensate injured workers.
    Mr. Donahoe. Absolutely.
    Senator Pryor. And sometimes in an effort to try to find a 
lot of savings, the workers can get left out.
    Mr. Donahoe. Key for us is safety. Improve the accident 
rates, improve the ergonomics, do the right thing. That reduces 
the accidents, and then hopefully we will have fewer people 
that would ever have to go on workers' compensation.
    Senator Pryor. And it sounds like you have had a fair 
amount of success in reducing your accident rate.
    Mr. Donahoe. Yes, I think we have done a great job, we have 
a lot of good programs, and we are very proud of that fact. And 
I think from an employee standpoint, it is a great thing. When 
you have a person come to work every day, you want them to go 
home to their family healthy every day.
    Senator Pryor. Mr. Donahoe, I know that we have been going 
through this in Congress, looking at how to find savings and 
how to cut our spending, and part of this is to make sure that 
every single thing is on the table, that there are no sacred 
cows. Senator Coburn has been very adamant about this, as well 
as Senator McCaskill.
    Mr. Donahoe. Yes, sir.
    Senator Pryor. And from your standpoint, is everything on 
the table?
    Mr. Donahoe. Everything is on the table.
    Senator Pryor. Including executive items as well as 
facilities, vehicles, and so forth?
    Mr. Donahoe. We are going to be implementing reductions in 
health care contributions for our executives. We will be at the 
Federal rate in 3 years, 10 percent a year, and that was one of 
the recommendations made where we could cut executive pay.
    Senator Pryor. And I know that there was a news story about 
relocation expenses for employees. Have you taken care of that?
    Mr. Donahoe. Yes, sir.
    Senator Pryor. Thank you, Mr. Chairman.
    Chairman Lieberman. Thank you, Senator Pryor.
    Now we will go to Senator Carper and then Senator Coburn--
unless Senator Carper would like to yield.
    Senator Carper. I would be happy to yield. We are probably 
going to ask some of the same questions. Do you want to go 
ahead?
    Senator Coburn. That is all right. I will submit my----
    Senator Carper. No, go ahead, Senator Coburn.
    Chairman Lieberman. Please, go ahead. I know Senator Carper 
is in this for the long haul. [Laughter.]

              OPENING STATEMENT OF SENATOR COBURN

    Senator Coburn. ``Haul'' is the operative word.
    Some things that I have heard today I just want to put 
back: Restricted business model. I sit here and think about we 
are talking about actuarial changes of $55 billion over 40 
years. How did it take us 40 years to figure out we were $55 
billion off in terms of what was compensated? The absolute 
stupidity of Congress and what we have done to the Postal 
Service is just totally amazing to me.
    The other thing that I have heard today--and I have had 
this discussion with every Postmaster General since I have been 
in Congress--is the revenue estimates. The revenue estimates we 
have for 2020 are absolutely an exaggeration. That means 400 
First-Class pieces of mail 9 years from now will go to every 
household in this country. I do not believe it. I do not 
believe it is half that. So unless you are going to double the 
rate on First-Class Mail, the revenue estimates are totally 
bogus. And every revenue estimate that I have heard over the 
last 12 years has been bogus coming from the Postal Service.
    And so we are sitting here working with numbers of 39 
billion pieces of First-Class Mail and I would bet you $1,000 
right now, Mr. Postmaster General, that it will not be half 
that 9 years from now with the technological changes that are 
coming. And unless we anticipate, we are going to be here 6 
years from now doing the same thing again.
    The third point that I would raise is standard mail and 
parcel service is important to your business, and I know you 
are worried about the impact of pricing on that business. But 
the realization is First-Class Mail is going away. And unless 
the business model adapts to that, it does not matter what we 
do in either Senator Collins' or Senator Carper's bills, it is 
going to be a short-term fix, it is going to be short-lived. 
And so I would just caution us to challenge the assumptions 
that are being made, like Mr. Herr did, and when we think we 
have figured it out, then go two or three measurements again 
before we cut to make sure that we are not like we were in 
2006.
    And I will remind my colleagues, in 2006 I predicted we 
would be back here. I actually voted against the postal reform 
bill because we did not fix what we knew were the problems. As 
a matter of fact, GAO said we did not at the time. And so here 
we sit 5 years later not having fixed the problem because we 
did not measure three times and then cut.
    I am not blaming anybody for that. It is because the 
assumptions changed, because the scenarios that we laid out 
were too rosy. We fixed a lot of things, and things would have 
been much worse had we not done it, but now we find ourselves 
here again. And so just as you said, taking the economy out of 
the equation, First-Class Mail is going to go away, anyway, 
regardless of the recession. It is the technological changes.
    So I would just caution us. I think we are going to come 
together with great bipartisan agreement on how we offer the 
things that are needed. I do not see a partisan issue in front 
of us. But I think we certainly need to think way down the 
road, and we certainly need to provide the Postal Service with 
the effective means of running a business that allows them to 
make changes based on dynamic changes that they are going to 
experience in their business. And if we do not do that, we will 
not have fixed the problem.
    With that, I will yield and will submit questions for the 
record.
    Chairman Lieberman. Thank you, Senator Coburn. Senator 
Carper.
    Senator Carper. One of the great inhibitors to economic 
growth in our country today is the lack of certainty and 
predictability. A great deal of uncertainty.
    A couple of years ago, when a lot of folks thought the auto 
companies--Ford, Chrysler, and General Motors (GM)--were going 
to go out of business, people stopped buying cars. At least 
they stopped buying their cars. And the first question I would 
ask, Mr. Postmaster General, is: Given the kind of uncertainty 
and unpredictability about whether the Postal Service is going 
to be around a year from now or even 3 or 4 months from now, 
what kind of impact do you think that lack of certainty and 
predictability is having on your business and the ability to 
book more business or new business?
    Mr. Donahoe. I think that uncertainty has a tremendous 
impact. Just this weekend I got an email from my chief 
marketing officer, and he was asking about a couple of 
customers who were worried about doing business with us in the 
small package area. And I told him, ``I will call these two 
companies and reassure them myself that we will be OK.'' Your 
point is absolutely critical. We have to get stability in our 
systems, and we have to address these issues long term.
    To Senator Coburn's point, I agree 100 percent. This cannot 
be a short-term fix. We have to not only look at revenue 
through 2020; we have to look at revenue out beyond that and 
make sure that from a Postal Service standpoint we resolve this 
issue now and give the Postal Service the business flexibility 
to manage going out into the future.
    Senator Carper. I would just say to my colleagues, what we 
need here is not more process; what we need here is not to deal 
just with the symptoms of the problem. What we need to do is 
solve the problem. And as dire as this situation is, I 
certainly believe that this is not a hopeless situation. This 
is a problem that can be fixed, and there is certainty that can 
be provided, to some extent by you and the folks who work with 
you at the Postal Service, but maybe to a great extent by the 
Congress and the Administration, and working with you and with 
the other stakeholders.
    I am going to go back and talk about the auto industry just 
for a moment and maybe use some comparisons. It is not a 
perfect comparison, but there are some points that are 
relevant.
    One, the auto industry 2 or 3 years ago had more workers 
than they needed given the demand for their product.
    Two, the wage/benefit structure for the folks that were 
working for them was really too rich, too high.
    And, three, they had more plants than were needed.
    You know, a lot of people think we gave a Federal bailout 
to the auto industry. Actually, as taxpayers, we are getting 
back just about every dime that we invested in Chrysler and GM, 
maybe even with a profit. We are not talking about a bailout 
here of the Postal Service. What we are talking about is 
whether or not the Postal Service is going to have access to 
$50 billion or $60 billion that it appears to have overpaid 
into the Civil Service Retirement System and into the Federal 
Employees Retirement System. It is not a bailout.
    Should the Postal Service have access to that money? This 
is money which a lot of people, including some very smart 
people from Segal and the Hay Group, believe, arguably, could 
be drawn back and returned to the Postal Service, allowing the 
Postal Service to pay down their very conservative retirement 
schedule for retiree benefits. Very conservative approach.
    I have said this before. Just like there are three things 
the auto industry needed to do, there are three things that the 
Postal Service needs to do. Are we going to let them? And I am 
not interested in laying off tens of thousands or 100,000-plus 
postal employees. But you have reduced your workforce, your 
head count, by about a quarter over the last 6 or 7 years. That 
is a lot of people. It is 200,000 or so people, roughly. You 
have about another 100,000 folks that will probably leave 
through attrition, for the most part people who retire and just 
say, ``That is enough. I am ready to go on with my life.'' And 
you have about 120,000 or so people who, if incentivized, if 
encouraged to retire, would actually retire.
    Are we going to make sure that you have the resources that 
you need? You do not have the cash right now to incentivize 
those people. But if you just run the numbers, think about 
this, for what it would cost to incentivize 120,000 people to 
retire, we could probably look at the auto industry, and they 
actually had a lot more people who took early retirement than 
they expected. They met their quotas a lot more easily than was 
expected. But if you offer retirees $20,000--maybe $10,000 over 
a 2-year, 3-year period of time--to take early retirement, if 
they are eligible for retirement, how much would that cost? If 
you are trying to get 120,000 people to take early retirement, 
that works out to about $2.4 billion. The overpayment to FERS 
is about $7 billion. So what we are talking about is using one-
third of the overpayment to the Federal Employees Retirement 
System that would enable you, arguably, to reduce your head 
count by another 120,000 people beyond the 100,000 that are 
going to attrition. And that would bring your head count down 
to--if I am not mistaken here, closer to 400,000 people. And my 
sense is that would probably enable you to be an ongoing 
enterprise, much as the auto industry is going forward.
    The other thing the auto industry has done is put on their 
thinking caps. They figured out how to innovate, how to come up 
with great-looking vehicles, energy efficient vehicles, and 
electronically just much smarter vehicles. One of your points, 
your last point, I think, in your testimony, where you talked 
about how to use digital approach. You were talking about 
digital and things that would enable you to actually capture 
some new business.
    My friend, Senator Coburn, who is gone, talks about First-
Class Mail going away, and it is, and it will probably continue 
to do so. Are we smart enough at the Postal Service to come up 
with new products or innovations? And are we smart enough in 
the Congress to let them market those and use them when they 
come to work?
    Let me ask our friends from GAO, if I can. The people from 
The Segal Company also have been drawn into this, and, Mr. 
Levy, thank you very much for coming today. I am glad you were 
able to come on very short notice. When I was governor and 
treasurer of Delaware, we used The Segal Company a lot. Great 
outfit, and thank you for that service, and for this service as 
well.
    Mr. Levy. Thank you. I was actually in charge of it at that 
time for the State.
    Senator Carper. Thank you. We used the Hay Group a lot in 
helping us with a lot of our personnel issues in the State of 
Delaware, too, and obviously they are one of the other 
companies along with Segal.
    So here we have two independent sources, I think both 
highly regarded, Segal and Hay Group, and we have the Inspector 
General, I think, from within OPM who has a different view of 
has there been this overpayment. Senator Collins and 
colleagues, we have not asked GAO. Would you take a look at 
this? Or would you take a look at the work that Segal and the 
Hay Group has done, or the work that has been done by the 
auditors from within OPM? Is that the kind of thing that you 
would be willing to do?
    Mr. Herr. We would be happy to work with the Committee and 
the staff on that question.
    Senator Carper. That is an offer we might want to take 
advantage of.
    Mr. Berry, have you had any opportunity to meet with the 
folks from Segal and the folks from Hay Group to understand 
what their assumptions are?
    Mr. Berry. I know our staff has, and there has been a lot 
of great communication not only with them but the other studies 
that have been done. But, again, we would welcome GAO's 
participation in this and with the Committee staff in helping 
the Committee to decide what that fair and equitable standard 
should be.
    Senator Carper. All right. Mr. Postmaster General--how am I 
doing on time? I am over. Let me stop and say thanks so much 
for giving me a few extra seconds here. Thank you. And thanks 
for your responses.
    Chairman Lieberman. Thank you, Senator Carper. Senator 
McCaskill.

             OPENING STATEMENT OF SENATOR MCCASKILL

    Senator McCaskill. Thank you.
    Mr. Donahoe, we are in the middle of hearings in Missouri 
on the 167 post office closings that are being proposed in my 
State. Eighty-five percent of those are in counties of less 
than 50,000 residents. I spent a lot of time in my State going 
around outside of the urban areas over the last month, and I 
guess I am most worried about the transparency of the process. 
The last time that you testified before us, Senator Pryor asked 
a question. To my knowledge, that question has not yet been 
fully answered. Have there been times that places have been 
removed from the list following public hearing and comment? Has 
the public hearing and the comment process ever had any impact 
on the decisions, the initial decisions to close?
    Mr. Donahoe. I am sure that there have been cases, but I 
will double-check and get back to you.
    Senator McCaskill. If you would, get back to us on that.
    Mr. Donahoe. Absolutely.
    Senator McCaskill. I want to make sure that this is not 
just a dog-and-pony show for these folks. Some of their hearts 
are breaking over this, that their post offices are going away, 
and I want to make sure this process is fair and transparent.
    The other thing I want to talk about is 5-day delivery. 
First of all, we have received several numbers about the 
savings. As you know, there has not been a consistent number. 
You quote one number, but the Postal Regulatory Commission said 
it was half that. And I am somebody who is worried about the 
death spiral of a 5-day delivery. It is a marketing advantage 
that the Postal Service has, 6-day delivery, and it seems to me 
that we ought to be focusing on how to take better advantage of 
that marketing advantage, that niche we have in the market that 
no one else has. That Saturday delivery is something that 
nobody else can offer up.
    Have you consulted with the newspaper and magazine folks 
about the impact that 5-day delivery will have on their 
business models?
    Mr. Donahoe. Yes, we have spoken to both newspaper and 
magazine industry representatives. There is some concern on 
their part, especially smaller-town newspapers that have 
Saturday delivery, generally one day a week.
    Senator McCaskill. The other thing is--and I know this may 
sound corny and naive and Pollyanna-ish and all of that, but I 
had the opportunity not too long ago to go through a box of 
letters that my mother had from my grandmother's house that 
were my letters I sent to her in college. And as we went 
through these letters, I remembered how many times in history 
courses I had taken that gaps in history were filled in with 
letters. We have a lot of best-selling books out there that are 
just letters between everything from our Founding Fathers to 
soldiers on the battlefield. And I am not sure that there has 
been a marketing campaign about the value of a written letter 
and what it means, how it is preserved, and what it means to 
families. My kids are in college now. I do not have a box like 
that. In fact, I had to impose a rule: You cannot get money by 
text message. [Laughter.]
    Mr. Donahoe. Make sure they write for that.
    Senator McCaskill. We were not even having conversations. I 
was getting like this gibberish spelling, ``Need money 2day.'' 
You know, it is ridiculous. So I really think that there is a 
longing out there right now, especially in these uncertain 
times, for some of the things that have provided stability over 
the years. And just as we have this place in our hearts about 
the reliability of the Postal Service, there is also something 
special about that piece of First-Class Mail, knowing that it 
has come from somebody you care about, knowing that it is 
bringing you news. And I think that while you guys have done a 
great job with your flat-rate delivery--I mean, I am sick of 
that guy. [Laughter.]
    Mr. Donahoe. We like him.
    Senator McCaskill. ``One price, one price, one price.'' I 
think it has worked.
    Mr. Donahoe. ``If it fits, it ships.''
    Senator McCaskill. And has your business model shown that 
it has worked?
    Mr. Donahoe. Absolutely.
    Senator McCaskill. And have you not really increased the 
amount of packages that you guys are handling on that one 
price?
    Mr. Donahoe. Absolutely.
    Senator McCaskill. So I really believe that if somebody 
would begin to market the value of sending a written letter to 
someone you love, you might be surprised what it could do for 
your Christmas season. I know the cards are going to help. 
Christmas cards are still part of our culture in this country 
that we all value. But I really think to give up--I disagree 
with Dr. Coburn. I do not think we should give up on the notion 
that we are going to sit down, write a letter, and put in it 
thoughts, prayers, and hopes for somebody we care about and 
that we are going to just be electronic from here on out. I 
just refuse to let go of that, and I do not want you to let go 
of it. And I think if you do that, you might be surprised by 
how you could stabilize some First-Class Mail. It is more than 
bill paying.
    Mr. Donahoe. Absolutely. We agree 100 percent. Let me just 
say, moving away from any of the traditions that we have, the 
6-day delivery, the small post office, these are all terribly 
hard decisions because we do, we touch American lives every 
day, 6 days a week. We have programs. ``We Deliver'' is one 
that we run in schools where we try to teach the kids how to 
write letters. It has been successful, but it is something we 
have to keep pushing on because a lot of times schools are 
interested in teaching kids computer skills versus writing 
skills. But I will take that under advisement and continue to 
push on that.
    One other thing, we will be advertising mail this fall. We 
are going to put some advertisements on TV talking about the 
value of mail, the physical connection, the fact that somebody 
comes to see you every day and there is a lot of value in that.
    The unfortunate thing we do face, though, is just the 
technology behind the bill payment and bill presentment. First-
Class Mail pays so much of our overhead. It pays so much of 
what we do every day. And I think if we do not look at all 
these changes, we will never be able to recover financially.
    Senator McCaskill. And I get that, and I know we have to 
make some painful decisions here, and I understand that. I just 
think it is very important that we continue to look at the 
processing network and maybe moving to the curbside or cluster 
box delivery. I mean, that is a huge amount of savings that has 
been estimated also.
    Mr. Donahoe. We agree.
    Senator McCaskill. I would rather eliminate everything we 
can that is realistic before we get at the essence of the 6-day 
delivery, and I feel strongly about that. I know others 
disagree, but I wanted to go on record that I feel strongly 
about 6-day delivery.
    Mr. Donahoe. Thank you.
    Senator McCaskill. Thank you, Mr. Postmaster .
    Chairman Lieberman. Thanks, Senator McCaskill. We are open 
to all suggestions, and yours is wonderful. We should be 
writing more passionate letters to those we love.
    Senator McCaskill. Maybe we could get them done around 
here. Speaker John Boehner---- [Laughter.]
    Chairman Lieberman. I was going to suggest you should take 
a first step and send one to Senator Brown. Then you could move 
to Speaker Boehner.
    Senator McCaskill. I think Speaker Boehner knows how I feel 
about---- [Laughter.]
    Chairman Lieberman. I think he probably does. Senator 
Brown.

               OPENING STATEMENT OF SENATOR BROWN

    Senator Brown. Well, thank you, Mr. Chairman, and I do have 
great respect for Senator McCaskill. [Laughter.]
    Just so you know, that was meant to be positive, actually. 
We had a great time last Congress in our Subcommittee. The 
Arlington National Cemetery bill was something we worked on and 
I have great admiration for your efforts there.
    I do not know if it was mentioned--I have been wrapping up 
some meetings in my office, but I think it is important to 
thank the dedicated postal employees for the work that they do 
every day. They seem to be getting a little bit lost in this 
whole mess. I think it is important to note that we have a lot 
of hard-working people. In my home town of Wrentham, 
Massachusetts, I know every person there. I have known them for 
22 or 23 years. I have been to many retirements. I have been to 
other communities and seen new postmasters coming in. They are 
so thrilled to go up through the chain and ultimately be the 
head of something very special. I do not want that lost in 
everything we are trying to do.
    I understand the challenges. Everybody here that is 
involved in this, we have met in my office about the very real 
fiscal challenges, and it is unfortunate. It is kind of sad, 
and I feel a little bit melancholy in that we have an 
institution like the Postal Service going through these 
changes. But here we are.
    And that being said, I am wondering, Mr. Donahoe, if the 
2015 deadline that you have given yourself to make a lot of 
these changes is too ambitious or you feel it is just about 
right. And what type of pushback do you think you will be 
getting along the way?
    Mr. Donahoe. Well, first of all, let me just comment on 
your statements about our employees. They do a great job. If 
people would have looked just in the past couple of weeks with 
Hurricane Irene--Irene came through and we had people the next 
day in offices with no power making sure the mail got delivered 
and processed. They did it through the winter in a bad winter 
this year. So I appreciate your comments, and it is something 
we take very seriously.
    From a standpoint of our plan, we have laid out a plan that 
includes changes, both operational changes as well as some 
changes in compensation and benefits. It is an aggressive plan. 
What we are looking at, Senator, is trying to get profitable by 
2013. When I say ``profitable,'' it may be by $1 billion, maybe 
by $2 billion, but what that does is that allows us to start 
paying debt down and allows us to eventually get in a position 
where we'll be able to make some very important investments. I 
need to do something about vehicles. The last time I was here I 
told you that, and there are some other investments we need to 
make.
    But probably more importantly than that is the fact that we 
want to stabilize our finances. A good, stable Postal Service, 
as I testified earlier, is critical for the American economy. 
It is critical for the way people feel about the Postal 
Service. Every quarter I have to report losses, and every 
quarter I go through the same discussion. They cannot get their 
head above water; they are antiquated; they have bad 
management; the employees do not do a good job. None of that 
helps because it potentially scares business away.
    So I am very focused on getting profitable, getting these 
changes made in our networks, getting changes made in our 
flexibility with employees. It is critical that we get to that 
point as quick as we can because the revenue line will continue 
to go down. So it is important we get to a point where we get 
stabilized and then continue to work going forward from that 
point.
    Senator Brown. I have only been here about a year and a 
half now, and I have appreciated the thoughtful approach--I 
have asked a lot of tough questions privately in our offices 
with folks that have come in and gotten some very direct 
answers--and it is really important to have those tools to 
understand the problem and really get up to speed so we can 
make a proper decision here.
    Do you think a lot of these changes such as eliminating 
Saturday service will prevent a death spiral or just such a 
reduction in consumer usage that it will kind of get out of 
control and you will not get to that profitability point or 
that break-even point?
    Mr. Donahoe. I think that failure to act on a number of 
these issues to get stable will result in a death spiral. I 
think that if we continue to just try to make incremental 
changes without going in with one fell swoop and making some 
big changes, we will cause, again, every year we will be in a 
situation where we are reporting losses. So you have to make 
those cuts and move on from there.
    Senator Brown. And, Mr. Herr, if I could, thank you for 
coming today. How do you view the Postal Service's proposed 
plans? Are they in line with getting its workforce right-sized 
and competitive, do you think, based on the volume of mail, 
etc.?
    Mr. Herr. Right, we have been talking about the need for 
network realignment for several years now, and I think that is 
an important step. The proposal to cut plants from 500 to 200 
is a very noteworthy step.
    Senator Brown. Is the time frame appropriate in terms of 
aggressiveness that you wanted?
    Mr. Herr. It is going to be tough, I think, by 2015. You 
have a lot of stakeholders involved. You have a lot of plants. 
It will take a plan. It will take everybody coming together and 
saying we think this is important and we are all going to get 
behind it.
    Senator Brown. What type of time frame--and anyone can chip 
in on this--do you think we need to move? I mean, no offense. I 
have been here, as I said, a year and a half. I am kind of 
disgusted at the way things are done here, the lack of 
bipartisanship and camaraderie. It has gotten better with 
certain people, but all in all we should be doing a lot better. 
What is the time frame? Because I do not see us moving too 
quickly lately on a whole host of things, and I am hoping it 
does not come down to, ``You know what? Tomorrow the Postal 
Service is shutting down.'' And we are going to be then, at the 
11th hour, trying to ram something through that does not make 
sense. Do you have any indication, either Mr. Chairman or the 
Ranking Member or anyone here? What is your time frame that you 
need to get this done?
    Mr. Donahoe. As we have proposed, we would love to see 
long-term, comprehensive legislation by the end of September. 
We have asked for the ability to let us take over those health 
care benefits. We can resolve the pre-funding issue that way. 
Let us move from 6-day to 5-day. It is a tough decision, but it 
has to be made. Let us move to get the FERS money back. It will 
stabilize our finances. I am operating right now with a week's 
worth of cash in a business that is a $65 billion business. 
Nobody would be doing something like that. That is what we 
need, action now.
    Senator Brown. So you need Congress to move by the end of 
this month.
    Mr. Donahoe. Yes.
    Senator Brown. So, Mr. Chairman, whatever we can do, I 
mean, we have to figure this out. I am tired of waiting until 
the very last second to get everything done. I am hoping we can 
work in a bipartisan, bicameral manner and in a manner that the 
President will sign the bill to get this done. I mean, come on, 
this is a no-brainer, folks. Thank you.
    Chairman Lieberman. Thanks, Senator Brown. Of course, I 
agree with you. I do not know that we can meet the schedule 
that the Postmaster General has given us, that is, to have that 
comprehensive legislation by the end of September. I do not 
think we can. And I am interested what Mr. Berry has said in 
his testimony that the President will submit a plan to meet the 
Postal Service's fiscal crisis along with his recommendation to 
the Joint Select Committee on Defecit Reduction. I still would 
like our Committee to mark up a bill that responds to both what 
the Postmaster General has proposed and other proposals because 
I think we have, particularly with Senator Collins and Senator 
Carper, as much or more expertise than most people in the 
Congress do, and I know you are the Ranking Member on Senator 
Carper's Subcommittee. So I am committed to moving this along. 
I mean, the Postmaster General has been very clear that even 
assuming that he defaults on his $5.5 billion to the health 
fund--and assume nothing else happens, by next summer, 2012--he 
is not going to be able to deliver the mail. What I am saying 
is I agree with you. This fall we should get together on 
legislation, pass it, and give you the tools in plenty of time 
before that so you are not at the point where we are saying 
tomorrow the mail is not going to be delivered.
    Senator Brown. Mr. Chairman, are we going to fight about 
the post office, too?
    Chairman Lieberman. I hope not.
    Senator Brown. I know that you agree. You are one of the 
guys I was talking about who is trying to work together, as 
well as the gentleman and lady to my left. There are others 
here that feel that way. So we need to push our colleagues and 
leaders to make this a priority. Thank you.
    Chairman Lieberman. Thank you.
    Senator Akaka, I know you had another hearing, and I 
appreciate that you have been able to return to ask some 
questions of this panel.

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka. Thank you very much, Mr. Chairman, and I 
will say a few words before going to questions.
    In 2006 Congress passed bipartisan legislation to modernize 
the Postal Service. Now, as the entire economy faces continued 
financial challenges, a nearly $5 billion per year pre-funding 
payment required by the 2006 law threatens the Postal Service 
with insolvency.
    The core of any proposal to save the Postal Service must 
address the pre-funding issue by eliminating or offsetting the 
payment. Other reforms likely will be needed, some of which are 
under the Postal Service's control and some which we may need 
to enact through legislation.
    I have expressed my concerns over some past proposals, 
including delivery reductions, arbitration changes, and 
facility closings. As Chairman of the Subcommittee on Oversight 
of Government Management, the Federal Workforce, and the 
District of Columbia, I also have concerns over new proposals 
released by the Postal Service on health and retirement 
programs and layoffs. Congress must be cautious with any 
proposal affecting contracts negotiated in good faith.
    The House Oversight and Government Reform Committee has 
also released legislation. However, I do not believe it is a 
responsible way forward. Placing one of our Nation's largest 
employers into receivership by stripping postal management of 
its authority will not address the fundamental problems. The 
Postal Service needs more flexibility, not more bureaucracy.
    The Postal Service is now operating on borrowed time 
because Congress has not yet acted on any proposals. A failure 
on our part to enact meaningful legislation could have negative 
consequences for the larger mailing industry, affecting our 
Nation's economic recovery.
    I remain committed to ensuring a viable future for the 
Postal Service and look forward to continuing to work with my 
colleagues to craft legislation to achieve those goals.
    I have a longer statement, Mr. Chairman, which I will 
submit for the record.
    Director Berry, in 1980, six Federal agencies had their own 
health insurance plan available to employees in addition to 
FEHBP. At least four of these agencies eliminated their plans, 
most notably the Federal Deposit Insurance Corporation (FDIC) 
in 1998. The FDIC had to pay millions of dollars to OPM to 
bring employees back into FEHBP after they found the 
independent plan was more costly.
    How feasible is breaking postal employees off from FEHBP? 
And what would be the consequences if they ever wanted to come 
back?
    Mr. Berry. Mr. Chairman, thank you for your questions, and 
it is always good to be with you, sir. The FDIC was one of the 
agencies that you described that broke away from FEHBP and then 
came back and found that, in fact, the savings that they had 
projected were not to be had. This is one of the reasons why 
the Administration is proposing we move extremely cautiously 
and carefully in this area.
    The administrative overhead costs for FEHBP are 0.08 
percent. We provide choices and plans in all 50 States and 
including urban and rural areas to provide health care, and 
currently the co-payment cost share for the Postal Service is 
less than provided by Federal employees for the exact same 
plan. So that is negotiated, but it is a 10-percent 
differential. In other words, the Postal Service pays 10 
percent more than the Federal Government pays. The employees in 
the Federal plans pay a higher co-pay percentage.
    And so when you look at all of those choices, I think we 
need to move very carefully before we would remove--we have 
over 9 million employees in our market pool now in the Federal 
plan. Each year we consistently deliver a rate increase that is 
below the market rate increase in the country, and we will do 
that again this year.
    I do not see how with 600,000 to 1 million employees going 
off on their own with an age that is higher than the FEHBP pool 
they are going to achieve the savings that the Postmaster 
General, with all due respect, has projected. And so I think we 
need to move extremely carefully here and be very cautious and 
study this extremely carefully before we would recommend moving 
forward.
    Senator Akaka. General Donahoe, the Postal Service also 
considered leaving FEHBP in the 1990s but never left. Why 
didn't the Postal Service leave at that time? And would those 
reasons apply today?
    Mr. Donahoe. Thank you, Senator. In the 1990s we looked at 
leaving, but there was a decision not to leave. I think it was 
pretty much the same situation that happened to the Financial 
Accounting Standards Board No. 106 accounting rules would have 
required us to put the health care costs on our books. Since 
then, the fact that we are pre-funding, that issue is no longer 
the issue that it was back then, and what we have decided to do 
with exploring the options would be to see if we would be able 
to take costs down through our own plan.
    I do not disagree at all with Director Berry. This is 
something we have to study carefully, but I also think that we 
have to study it fairly quickly because what we are proposing 
is not unlike what any other large corporation does when you go 
out into the open market and get the best price for a health 
care plan.
    Let me assure you of this: I certainly do not want to do 
anything that would have a negative effect on either our 
employees or our retirees. We want to do the right thing, and 
we are trying to figure out how to manage costs going forward, 
and this is one of the ideas that we had.
    Senator Akaka. Thank you. I know, Mr. Chairman, my time has 
expired. I have one more question, if it is----
    Chairman Lieberman. How could I say no to you, Senator 
Akaka? [Laughter.]
    Senator Akaka. Thank you.
    Mr. Herr, your testimony once again brought up the issue of 
modifying the collective bargaining process to require that 
arbitrators consider the financial health of the Postal 
Service. The Congressional Budget Office's analysis of S. 1507, 
a bill in the last Congress containing this provision, did not 
project any savings on this issue. My understanding is that 
arbitrators routinely consider the Postal Service's finances.
    Has GAO done any analysis suggesting there would be cost 
savings from this change to the arbitration process?
    Mr. Herr. Actually, I did not refer to it in my statement 
today, but in our business model report issued a year ago, we 
said that would be an issue for Congress to consider as it 
thinks about collective bargaining agreements, what is 
affordable for the Postal Service, and situations where 
contracts go to arbitration, to ensure that would be put on the 
table, because, clearly, the precedent in the past has been 
that there has been mail volume and revenue to pay for cost 
increases and things of that nature.
    We are looking at a very different scenario now, and as the 
Postmaster General testified and as has been discussed here 
today, the look forward is not a bright one. It is possible 
that there will be a letter-writing campaign and people will 
begin to write more letters. But the fact is many bills are 
being prepared and distributed electronically, and that has 
been really the life blood of the Postal Service, and a lot of 
the financial literature as well, the checks and things of that 
nature from the banks, those are all moving digitally. So it 
was in that spirit that we made that suggestion for Congress to 
consider.
    Senator Akaka. Thank you very much.
    Thank you, Mr. Chairman.
    Chairman Lieberman. Thanks, Senator Akaka. Finally, Senator 
Moran.
    Senator Moran. Mr. Chairman, thank you. I know that you are 
disappointed I returned to the Committee. [Laughter.]
    Chairman Lieberman. It is always a pleasure to see you.
    Senator Moran. You are so kind.
    Chairman Lieberman. I cannot speak on behalf of the 
witnesses in the second panel who have been waiting 2 hours, 
but we are glad you came back.

               OPENING STATEMENT OF SENATOR MORAN

    Senator Moran. Mr. Chairman, I have been to an 
Appropriations Subcommittee hearing on homeland security, and I 
do want to ask the Postmaster General a couple of questions.
    First of all, I would like to commend him for his efforts 
to find solvency in the U.S. Postal Service. I want to be an 
ally in working with him to do so. I hope that he is asking his 
staff at all levels of the Postal Service for their suggestions 
about efficiency. Many times I think the best and brightest 
ideas come from the people who will work at the Postal Service 
for their suggestions about how to improve the bottom line.
    Thirty-seven hundred post offices is certainly something 
that caught my attention. One hundred thirty-four of them are 
in Kansas, and I do not want to be overly provincial here, but 
I always want to make certain that rural America does not get 
forgotten in decisions that are made in our Nation's capital.
    My concern, among others, is that while there are lots of 
community meetings going on--and I have Senate staff at almost 
every one of those 134 meetings in our communities--I am still 
unclear as to the criteria. My experience in these community 
meetings is the Postal Service comes in, explains the plan, and 
in many instances encourages the audience to contact their 
congressional delegation to encourage us to vote for some of 
the things that you have outlined in your proposal today, 
particularly related to the refunding of the insurance and 
health benefits. Not that I mind that, but what I would love to 
know is if there are things that community members can say, 
evidence that can be garnered, facts that can be told that 
would then alter the decision made by the Postal Service as to 
whether or not this particular community's post office is going 
to continue to be in existence. And my impression in visiting 
with many people who have attended those meetings is almost 
without exception that the Postal Service has already made up 
their mind. They are going through the motions. They are in our 
town to pretend to listen to us, but we never get any 
indication that there is anything we can do that would cause 
them to reach a different conclusion than closing the post 
office.
    What are they missing or what am I missing?
    Mr. Donahoe. I think the key thing is to make sure that our 
people understand exactly what the community would face with 
change. I think that when you look at what we have proposed, 
our criteria for these studies is offices that have less than 2 
hours of work on a daily basis, and generally it is under 
$20,000 in revenue.
    One of the things that we have to keep our eye out and make 
sure that we do not do is make access impossible for people in 
States like Kansas because you do not want to have two or three 
post offices within a certain area that get changed, become a 
village post office or get consolidated, and then have people 
having to drive, say, 20 or 30 miles to get postal services. So 
that is a key thing.
    I think your constituents need to make sure that whatever 
we are proposing is reasonable for them, and reasonable meaning 
a couple miles, a 3, 4, or 5-mile drive to a post office. We 
take universal service very seriously and want to make sure 
that we are not shutting our customers off.
    The other thing I would encourage is that if customers have 
ideas, we are all ears. We have been encouraging businesses to 
step up and say, we will write a contract with you to provide 
service. What we found with the village post office concept is 
a lot of times we can provide access 7 days a week where they 
may only get a couple hours a day in a regular post office. So 
those are a couple of things I would encourage.
    Senator Moran. Well, if there are written criteria, a 
checklist that when your postal employees come back from the 
community meeting, that this community met this criteria but 
not this criteria, I would love to see what that criteria is so 
that there is an opportunity for the communities to make the 
case that matters to the Postal Service. And as you and I 
visited before this hearing started, I am an ally of yours in 
finding that win-win combination in which there is a village 
post office sharing space and personnel with a community 
grocery store, a drug store, or pharmacy. Those things matter a 
lot to the community.
    I wrote you a letter, Postmaster General, on August 10. You 
have responded and I thank you for that. But one of the things 
that I wanted to again raise that I did not understand or did 
not see the answer to is the U.S. Code provision that says, 
``The Postal Service shall provide maximum degree of effective 
and regular Postal Service to rural areas, communities, and 
small towns where post offices are not self-sustaining. No post 
office shall be closed solely for operating at a deficit, it 
being the specific intent of Congress that effective postal 
service be ensured to residents at both urban and rural 
communities.''
    When you are out having these hearings on the list of 3,700 
post offices, my experience in 14 years as a Member of the 
House and just 8 months as a Member of the Senate has been that 
the post offices that I worry the most about is when I walk in 
and discover the postmaster is about to retire in a small town 
or the building has deteriorated.
    What is the criteria now? What do you expect to be able to 
do with this legislative language? And I guess one of the 
things you might be asking for us is to eliminate that 
legislative language. But in the absence of that elimination, 
how do you still see that you can close 3,700 post offices?
    Mr. Donahoe. Well, one of the things we do not want to do 
is ask you to make changes in that language just because there 
are post offices out there that lose money that are very large 
post offices and serve thousands and thousands of people. Most 
of our offices do lose money. But what we are looking to do 
from a standpoint of reviewing offices is to come up with a 
very fair and standard criteria. That was the idea of post 
offices that have less than 2 hours' worth of business, that 
have less than $20,000 worth of business coming across the 
counter. When you have that criteria, then you can look at it 
very objectively, and then you can look at it like we mentioned 
earlier. What is the geography? Is there a place we can 
consolidate? Is there a store out there that we could contract 
with? And that is the way we want to approach it.
    What we do not want to do is have a situation where a 
postmaster is afraid to retire because we are going to close 
the post office. I will tell you, in the past we did some 
things like that. We would rather have a much more transparent 
criteria so that anybody out there that is facing these kinds 
of changes knows exactly where we are coming from.
    Senator Moran. I will conclude, Mr. Chairman. I just came, 
as I said, from an Appropriations Homeland Security 
Subcommittee where we are worrying about the relief of people 
who are suffering from disaster. Reading, Kansas, is a town 
that was struck by a tornado. Never on your list of 3,700. Now 
that the building was damaged, they are having a community 
meeting. This to me is the wrong kind of message to tell a town 
that is trying to figure out how it recovers from significant 
damage in a tornado that now because we suffered this natural 
disaster, the Postal Service is now contemplating closing our 
post office. I would appreciate you taking a look at that.
    Mr. Donahoe. Absolutely. I will look into that right away.
    Senator Moran. Thank you, sir. Thank you, Chairman.
    Chairman Lieberman. Thank you, Senator Moran. Thanks for 
returning.
    Senator Collins, do you want to make a brief statement 
before we move on to the next panel?
    Senator Collins. Thank you, Mr. Chairman.
    I know all of us have so many more questions, and we have a 
panel that has been waiting for hours. I just wanted to make a 
comment and also give another assignment to Mr. Herr.
    First, I think it is important for everyone to realize that 
if the Postal Service defaults on the $5.5 billion payment for 
the retiree health benefits fund, that unfunded liability does 
not go away; that, in fact, there is an unfunded liability in 
that fund that I believe is in the neighborhood of $56 billion. 
And I think that is important because even if we restructure--
and I really salute the Postmaster General for his sweeping 
proposals. I think they are very constructive. Whether I agree 
with them all or not, they are very constructive in what they 
need. But the fact is that the Postal Service has huge unfunded 
liabilities, and I can see general agreement with that.
    So my assignment or request to you, Mr. Herr, is: If we 
were reinventing the Postal Service from scratch, a de novo 
approach, how would we structure it? Would we have it joined 
with the Federal Government's retiree health programs, employee 
health programs, and pension programs? Would we give it access 
to borrow up to $15 billion from the Treasury? Which is 
obviously an advantage that private enterprise does not have. 
Would we give it carte blanche in setting rates and deciding 
who it delivers to?
    I would like you to help us figure out what would be the 
ideal while still ensuring that we providing this absolutely 
vital linchpin to our economy--a linchpin that is not only 
important to the 8.7 million people who work in the mailing 
industry, but also helps to bind us together as a country. 
After all, that is why the Constitution mentions the Postal 
Service.
    So I would like your ideas on if we were starting from 
scratch, how we would set forth this vital institution.
    Thank you, Mr. Chairman.
    Chairman Lieberman. Thanks, Senator Collins, and I join in 
that request to GAO.
    Mr. Herr. OK.
    Chairman Lieberman. Thanks to the panel. You have been very 
informative and very stark, and I want to say it again: There 
is a clock ticking. You are going to default on $5.5 billion 
the Postal Service owes to the retiree health benefit fund. You 
are not going to be sued because of who you owe it to. But even 
allowing that, you have told us very clearly today that by next 
summer, if nothing else is done to help the Postal Service, you 
effectively have to stop delivering the mail. And that should 
get us all working, even across party lines. Thank you very 
much.
    The second panel, please come to the table: Cliff Guffey, 
President of the American Postal Workers Union; Louis Atkins 
from the Postal Supervisors; Ellen Levine; and Tonda Rush.
    [Pause.]
    We will ask the room to come to order, and we appreciate 
very much not only the presence, but at this hour, the patience 
of the excellent second panel we have, and we look forward to 
hearing your testimonies now. We will begin with Cliff Guffey, 
who is the President of the American Postal Workers Union 
(APWU). I want to just say for the record that, in the interest 
of not having a marathon hearing, we had to make selections 
among people who represent workers for the Postal Service, 
people who are in management, and mailers, etc. We will invite 
the opinions of others, but have confidence that you will 
generally--though maybe not totally--reflect the points of view 
of people who are in the comparable sector that you are, 
comparable stakeholders in the postal sector of our economy.
    So, Mr. Guffey, thank you for being here, and we welcome 
your testimony now.

   TESTIMONY OF CLIFF GUFFEY,\1\ PRESIDENT, AMERICAN POSTAL 
                     WORKERS UNION, AFL-CIO

    Mr. Guffey. Mr. Chairman, there are very good reasons to 
support legislation that will provide financial relief to the 
Postal Service. Senator Carper and Senator Collins have both 
introduced legislation that would do that. Representative 
Stephen Lynch has introduced similar legislation in the House 
that also has bipartisan support. We strongly support that 
approach for reasons we have explained in our written 
testimony.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Guffey appears in the Appendix on 
page 115.
---------------------------------------------------------------------------
    The mailing industry is vital to our economy. It continued 
to grow even during the recession. From 2008 to 2010, sales 
revenue grew 10 percent to $1.1 trillion and jobs grew by 16 
percent, an astonishing 1.2 million new jobs to a total of 8.7 
million jobs. The mailing industry now accounts for 7 percent 
of the gross national product and 6 percent of all U.S. jobs. 
Ninety-one percent of mailing industry jobs are in the private 
sector.
    Most important to this hearing is the fact that 75 percent 
of the 8.7 million jobs in the mailing industry are in firms 
dependent upon the Postal Service infrastructure. The Postal 
Service is the critical heart of this industry. The Postal 
Service needs access to the overpayments it has made to the 
retirement programs in order to pre-fund future retiree health 
benefits and pay other liabilities to the Federal Government. 
This will provide the Postal Service the capital it desperately 
needs.
    It is counterproductive for the Postal Service to cut its 
infrastructure to the point where it has to eliminate services 
and decrease service standards. Newspapers that depend on the 
Postal Service for delivery will have to radically change their 
mission or go under. Medicines that are now mailed will have to 
rely upon more expensive delivery alternatives, raising the 
prices we pay for drugs. E-retailers may not be able to satisfy 
their customers with a decrease in service standards.
    The Postal Service needs a presence in communities. The 
poor and other disadvantaged groups will be the most hurt by 
many of the proposed retail closures because they have the 
least access to alternatives. Entire communities will be hurt 
by the loss of jobs, the loss of the community focal point and 
identity, and the loss of service caused by post office 
closings.
    For many communities, the post office is where the flag 
flies. It is the face of the government to the people. Senator 
Carper's bill wisely authorizes and encourages the Postal 
Service to expand services. None of the bad things that are 
happening to the Postal Service and its customers are 
necessary. With access to its excess retirement fund 
contributions, the Postal Service will be better able to 
redesign its retail and delivery networks, modernize and 
optimize its mail processing networks, and offer new services 
to increase revenues.
    Postal networks are an important part of the infrastructure 
of our country. They should be supported and improved. Proposed 
service cuts would be self-defeating. If they go forward as 
planned, more cuts will have to follow as business is lost.
    We were asked today to testify about the recent Postal 
Service proposals to abrogate our collective bargaining 
agreement by withdrawing from Federal health insurance and 
retirement programs and eliminating no-layoff protections for 
postal employees. These proposals are outrageous, illegal, and 
despicable.
    On May 23, the Postmaster General and I signed a new 
national agreement. The Postal Service estimates the agreement 
will save the Postal Service $3.7 billion. We worked very hard 
with the Postal Service to take care of the needs that they 
asked us about. Our people are not getting raises for 3 years--
no raises whatsoever for 3 years. We gave lower entry costs. We 
provided new entry levels and flexibility in that even our 
full-time employees could be scheduled in a different manner. 
If they only need 6 hours a day, we allowed them to post jobs 
that are 6 hours. We worked very hard to allow the post office 
to adapt as quickly as they can, and we did that in exchange 
for certain things, including keeping our health benefits the 
way they are, even though we are going to pay more for it. We 
also wanted to stay in the Federal retirement system. The no-
layoff clause, all these things were talked about, and we 
achieved this collective bargaining agreement by giving up 
certain things, and now they want to come to the Congress and 
say, ``Oh, we got this part of the deal. Give us this part 
back.'' We think that is totally improper.
    The attempt by the Postal Service to keep what it gained 
from our bargaining and to unilaterally abrogate what the APWU 
gained is in utter disregard for the legal requirement to 
bargain in good faith. Imagine the thoughts of the letter 
carriers, the mail handlers, and rural carriers as they sit 
across the bargaining table now from the Postal Service. It is 
impossible to negotiate if you know the party you are dealing 
with will feel free to accept your compromises and then attempt 
to abrogate their own.
    The Postal Service claims its proposal to lay off 120,000 
employees would not impact veterans because veterans would 
still have the protections of the Veterans Preference Act. This 
is misleading. The closing of the facility could result in a 
layoff of everyone in that facility. The veterans are the last 
to go, but if everyone goes, the veterans are laid off. More 
than 25,000 veterans could be among the 120,000 laid off.
    The future of the Postal Service is in Congress' hands. We 
support proposals by Senator Carper and Senator Collins to give 
the Postal Service access to its excess retirement funds, and 
we oppose the proposals of the Postal Service that would permit 
them to withdraw from the Federal health insurance and 
retirement programs and lay off 120,000 workers. Thank you.
    Chairman Lieberman. Thanks, Mr. Guffey. We look forward to 
continuing the conversation.
    Mr. Atkins, we appreciate your presence here, and we invite 
your testimony now.

     TESTIMONY OF LOUIS M. ATKINS,\1\ PRESIDENT, NATIONAL 
               ASSOCIATION OF POSTAL SUPERVISORS

    Mr. Atkins. Chairman Lieberman, Ranking Member Collins, and 
Members of the Committee, thank you for the opportunity to 
appear before you today. My testimony represents the views of 
the three management associations that represent the 75,000 
managers, postmasters, supervisors, and other non-bargaining 
unit employees of the U.S. Postal Service.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Atkins appears in the Appendix on 
page 133.
---------------------------------------------------------------------------
    Without question, the U.S. Postal Service is in a desperate 
financial situation. It has never reached this state of affairs 
since its creation as a self-supporting government 
establishment in 1991. It is only weeks away from not being 
able to meet the 2006 financial obligations that Congress and 
the Administration imposed on it.
    How did the Postal Service reach such dire straits? A weak 
economy since 2008 has prompted businesses to send less mail 
through the postal system, causing revenues to rapidly decline. 
But undoubtedly, the most important cause has been the 
statutory mandate established by Congress in 2006 requiring the 
Postal Service over 10 years to set aside $55 billion to 
satisfy its future retiree health care obligations beginning in 
2016 and continuing over the next 75 years.
    Meanwhile, the Postal Service over the course of four 
decades has overpaid as much as $75 billion into the Federal 
retirement system for its employee pensions.
    Remarkably, those in Washington who oppose a refund of its 
pension overpayment and a fair approach towards its retirement 
obligations to the Postal Service label it as a ``bailout.'' 
Our response to this characterization is simply this: In the 
real world, when you overpay a bill or overpay your taxes, you 
deserve a refund. Why should it be any different for the Postal 
Service?
    There is overwhelming support throughout the postal 
community for a fresh review of how much the Postal Service has 
really paid into the Federal retirement system, and if a 
surplus is found to exist, to apply that surplus to the Postal 
Service's retiree health pre-funding obligations. We applaud 
the legislative proposals of Senator Carper, Senator Collins, 
and Congressman Lynch that would require OPM to initiate such a 
review process, using modern, well-accepted principles of 
accounting and to require the Postal Service to use any surplus 
to satisfy its remaining health pre-funding obligations under 
the 2006 law.
    In the longer term, the Postal Service will need to 
continue to reduce costs and innovate to better serve America's 
communication and logistics needs. Over the past 4 years, the 
Postal Service has achieved over $12 billion in cost savings. 
During that time three workforce restructurings have trimmed 
over 5,000 management positions. These were difficult steps 
that have streamlined the organization.
    Recently, the Postal Service has announced sweeping 
proposals designed to dramatically cut costs. These have 
included reducing delivery frequency, closing thousands of post 
offices, consolidating hundreds of mail processing facilities, 
and curtailing next-day delivery of mail. The Postal Service 
also has proposed withdrawing from the Federal employee 
retirement and health benefit programs, presumably to cut costs 
through the reduction of employee benefits. The three 
management employee organizations oppose many of these 
proposals primarily because they are self-destructive and 
premature.
    We also are deeply concerned by the Postal Service 
proposals to withdraw from the Federal employees' retirement 
and health benefit programs. The Postal Service's expectation 
that a postal-only health plan will have greater leverage on 
the health care market than FEHBP is highly speculative.
    Congress and the President should respond to the crisis by 
dealing with the root causes. The USPS pension overpayment 
should be returned for its use to satisfy its retiree health 
obligations. And to the extent necessary, Congress should 
realign the Postal Service retiree health pre-funding schedule 
to a larger time period consistent with what the Postal Service 
can afford.
    In addition, we urge the Committee to intensively 
scrutinize Postal Service plans to reduce access to 
comprehensive postal services through the planned reduction of 
its retail network, including the closing of post offices 
serving small towns and rural communities.
    Thank you for the opportunity to present these thoughts. I 
will be happy to take any questions from the Committee.
    Chairman Lieberman. Thanks very much, Mr. Atkins.
    Next is Ellen Levin, who is the Editorial Director of 
Hearst Magazines, Hearst Corporation, and a legendary figure in 
the business--at least that is what my staff says. [Laughter.]
    And really quite remarkable, being involved in conceiving 
and launching a series of magazines, including O: The Oprah 
Magazine. So we welcome your testimony. Nice to have you here.

   TESTIMONY OF ELLEN LEVINE,\1\ EDITORIAL DIRECTOR, HEARST 
                 MAGAZINES, HEARST CORPORATION

    Ms. Levine. Thank you very much, and thanks to your staff. 
As you said, I am Editorial Director of Hearst Magazines, one 
of the world's largest publishers of monthly magazines, and in 
this role my job is to help strengthen current titles, develop 
new titles, and evaluate opportunities for brand extensions.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Levine appears in the Appendix on 
page 138.
---------------------------------------------------------------------------
    In 1994, as remarkable as this may sound, I became the 
first woman to be named editor-in-chief of Good Housekeeping 
since its first edition in 1885. And as you mentioned, I 
develop new titles such as O: The Oprah Magazine, and actually 
in the depths of the first recession in 2008, we launched a 
magazine called Food Network, which has proven that, in fact, 
magazines really can do well even in tough times. Both O and 
Food Network magazines are doing very nicely. I have also 
served two terms as President of the American Society of 
Magazine Editors.
    While membership of the Association of Magazine Media (MPA) 
is diverse, we share one common objective: Ensuring that we 
have an affordable and reliable universal postal system.
    I am happy to report that magazines and their titles and 
readership have actually grown over the last decade. While most 
consumer magazines are also on newsstands, subscription copies, 
more than 5 billion each year, account for about 90 percent of 
our circulation, and almost all of these are delivered by the 
U.S. Postal Service. Magazine publishers need the Postal 
Service and the Postal Service needs magazines.
    The economic bond connecting the Postal Service, magazine 
publishers, and retail commerce is strong and broad, not only 
affecting the subscriptions we sell and the advertising dollars 
we get, but the sales of goods and services promoted on the 
pages of our brands. For this reason, the MPA has worked with 
the Postal Service, this Committee, and your House colleagues 
for many years.
    As my fellow witnesses have detailed, the Postal Service is 
now in a precarious situation. Mail volumes have plummeted and 
losses are projected to grow. But these volume declines need 
not be a doomsday scenario. The Postal Service must adapt, as 
mentioned before, to the reality of lower volume and quickly 
become smaller, more efficient, and less costly to operate. 
Incremental improvement is simply not enough.
    The Postal Service has made several proposals to adjust and 
reduce its workforce, which I understand represent most of the 
postal costs. Although I am not an expert on Postal Service 
operations, taking advantage of technology to produce cost 
savings should be supported.
    The MPA reaction to the USPS proposals is colored, again, 
by our dual needs from the Postal Service: Affordability and 
reliability. Postage is a large expense, and it can account for 
20 percent or more of the cost of producing a magazine. Service 
levels are also crucial. Weekly magazines aim for a consistent 
delivery day. For monthlies, our subscription business model 
depends on being able to deliver a new issue to mailboxes 
before those issues hit the newsstand.
    Two of the proposed operational changes could affect us: 
One, shrinking the mail processing network; and, two, 5-day 
delivery. We encourage the post office and Postal Service to 
match its processing and delivery capacity to current and 
future volume levels, but to avoid hurting current mail volume, 
the USPS should work closely with the mailing industry to 
guarantee that acceptable services are maintained.
    The magazine industry has yet to take a formal position on 
5-day delivery, but because we know that the Postal Service 
must reduce costs--our industry will make the necessary changes 
should this happen to adjust to 5-day delivery if it is part of 
a comprehensive plan to promote financial vitality.
    The Postal Service suggests it may need to lay off 
employees. I do not know if this will be needed, but I do know 
that, like all industries, the Postal Service will have to do 
more with less. They have to retool, re-engineer, and find a 
way to stay viable with a smaller network and, yes, fewer 
employees.
    I also understand that the Postal Service is considering 
ways to reduce benefits. Again, many industries, including 
ours, have had to do this in recent years. I do think the 
Postal Service and Congress should evaluate various proposals 
to lower these costs.
    Finally, many experts believe that the Postal Service has 
overfunded its pension obligations. If true, they should be 
allowed to use this excess contribution to pay off debts and 
obligations, but this remedy alone is not enough. The Postal 
Service must make additional measures to reduce costs and 
infrastructure.
    Thank you for allowing me to speak today, and I am very 
happy to answer any questions that you might have.
    Chairman Lieberman. Thanks very much, Ms. Levine, for that 
testimony.
    And, finally, we go to Tonda Rush, Chief Executive Officer 
and General Counsel at the National Newspaper Association, 
which is an organization of community newspapers. You have a 
great dual background in both law and journalism. I note most 
significantly on your biography that you owned and managed 
community newspapers in Kansas from 2004 to 2009 during which 
time, I presume, those papers were kind and gentle to our own 
beloved Senator Moran. [Laughter.]
    Ms. Rush. Thank you, Chairman Lieberman. Unfortunately, we 
were not in Senator Moran's district at the time. We would have 
been kind and gentle.
    Chairman Lieberman. OK, good. Please proceed.

  TESTIMONY OF TONDA F. RUSH,\1\ CHIEF EXECUTIVE OFFICER AND 
        GENERAL COUNSEL, NATIONAL NEWSPAPER ASSOCIATION

    Ms. Rush. Thank you. I am Chief Executive Officer and 
General Counsel of the National Newspaper Association (NNA) 
now, having come back into that role from a period of time of 
being out of that service. We are in our 125th year. We serve 
2,300 newspapers--weeklies, small dailies, mostly family-owned. 
They serve small communities, urban neighborhoods, and the 
suburbs.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Rush appears in the Appendix on 
page 143.
---------------------------------------------------------------------------
    Our industry and our communities will be gravely injured if 
these changes ahead are not carried out without customers in 
mind. NNA's newspapers use the mail for their primary 
distribution. Our mail is entered at a local post office. It is 
presorted for delivery the next day, sometimes even the same 
day if the bundles are dropped at a dock overnight. We believe 
our periodicals and standard mail are profitable for the Postal 
Service.
    As you know, a delayed newspaper is useless. Newspapers use 
their Web sites to update breaking news, but there is no viable 
economic model for a digital newspaper, so we need the mail.
    I have provided in my testimony some examples of newspapers 
that have already lost subscribers because the copies destined 
for small towns near the entry point are being delayed because 
mail now travels so many miles for sorting.
    We have the deepest respect for Postmaster General Donahoe 
and the challenges he faces. The need for a cost-efficient, 
customer-oriented Postal Service is compelling and urgent. We 
share the views of many that the Postal Service has been 
unfairly burdened with the way the benefit structures have been 
created. And we do not inflexibly oppose the direction of 
restructuring. We have not yet opposed any post office closing. 
We agree the mail processing network carries excess capacity. 
But the Postal Service's solution cannot be to push mail out of 
the system.
    We part company with the Postal Service where an 
inflexible, one-size-fits-all solution leans heavily into 
serving very competitive urban areas and fails to take into 
account the smaller communities and small businesses and others 
who rely upon universal service. Often, smaller, flexible, and 
low-cost solutions are needed instead of large industrial ones.
    For example, we believe closing smaller and efficiently 
managed sectional center facilities so that the larger 
metropolitan facilities can be stacked up with mail to run on a 
22-hour basis may not make sense. If the sole purpose is to 
eliminate jobs and run the machines longer, it does make sense. 
But if it causes diminished service standards and undependable 
service, then this change becomes an expense and not a savings.
    It makes no sense to transport newspaper bundles from a 
small town into an urban flat sorting center only to bring them 
back sorted pretty much the way they were sorted in the first 
place. It just makes our service completely fall apart.
    Closing some small post offices is necessary, although the 
transparency and the community involvement needed are still 
inadequate. But when looking at post offices with revenues even 
under $100,000, it is not clear how the Postal Service is 
taking into account newspapers that are entered in those post 
offices, even if the newspaper postage might be enough to carry 
that office's revenue over a threshold.
    When the local offices do close, village post offices or 
whatever takes their place should be required to receive 
newspaper bundles for the customers they cover because that is 
part of the community's need. If the Postal Service plans to 
close an office where a newspaper is entered, we need an 
alternative entry option in that community.
    Finally, Senators, it is well known that NNA opposes the 
end of Saturday residential mail delivery. In addition to 
losing delivery of our newspapers, we believe that the loss of 
First-Class remittance mail will create cash flow disruptions 
for our businesses and other small businesses in the 
communities, and that it will cost the Postal Service a 
profitable mail stream that will go away and will never return. 
Many of our small daily newspapers would happily abandon their 
own carrier force for the mail, but they will not do it in a 5-
day mail environment.
    I have also made it clear if the Postal Service will not 
deliver our newspapers on Saturdays, we need the help of 
Congress to make sure we can do it ourselves.
    NNA understands that the need for change is urgent. We seek 
the assistance of Congress in making our Nation's postal system 
sustainable. A successful Postal Service must, like all 
businesses, put its first emphasis on the needs of customers, 
and it must not abandon small-town America. In the years ahead, 
the Postal Service is going to need the support of citizens, 
including those in small towns, to adapt to a new economy. We 
would urge Congress not to let the Postal Service abandon those 
who need it the most.
    Thank you very much.
    Chairman Lieberman. Thank you very much for that testimony. 
Let us go to the questions, and, again, we will do 6-minute 
rounds.
    Mr. Guffey, you made a point which I wish we had asked the 
Postmaster General--and I will ask him in writing and have him 
submit an answer for the record--which is: Why was the 
agreement signed in May and then the request for this action is 
being made now which seems certainly to be inconsistent with 
the agreement? I am curious--since he has made these proposals, 
particularly about the layoffs--whether you have asked him that 
question and what his answer is.
    Mr. Guffey. We have regular meetings based on what is going 
on in Congress. All of us recognize that we want to save the 
Postal Service. It has been a good livelihood for all of our 
members for years and what have you, and we try to work 
together as close as we can. We feel a little betrayed. I can 
understand the pressure the Postmaster General is under. I wish 
he had stayed with the original actions in supporting Senator 
Collins', Senator Carper's, and Congressman Lynch's approach to 
this.
    I have no idea. I feel, like I said, betrayed. To think 
that he did not think that this might happen before we signed 
the agreement, I cannot address that and I will not address 
that.
    Chairman Lieberman. OK.
    Mr. Guffey. I do know that since then, though, we have been 
working together on other things to help reduce the number of 
employees. We are still working and will continue to work 
together.
    Chairman Lieberman. Well, I admire that. In other words, 
notwithstanding how upset you are about at least one of these 
proposals you continue to work on other issues.
    Mr. Guffey. We are definitely going to, and I think the 
other unions want to, too. I think it always seems like union 
and management are not always considered a family affair, but I 
think in the postal realm it almost is a family affair. We are 
trying to work together to save the Postal Service.
    Chairman Lieberman. I want to go for a moment to the 
question of the repayment from the retirement system to the 
Postal Service. I support that and I will support legislation 
to do that. But I do want to say a word of caution here that 
troubles me, which is that the position of the Administration 
is not quite clear yet, and the extent to which they are going 
to be prepared to fight for that legislation, I do not know. I 
can see opposition, some in the Senate and certainly a 
significant amount in the House, on the theory that somehow 
that is a bailout.
    If we cannot pass that authorization, we are going to have 
a really tough time and really have to pull together on it.
    Mr. Guffey. I agree.
    Chairman Lieberman. But let me ask you, what is your 
response to the allegation that is a bailout?
    Mr. Guffey. Well, my response to that is all these funds 
came from the postal patrons, the people who use the Postal 
Service. The employees earned the money. They have processed 
the mail. They did everything right, and there was enough money 
created to put that money off to the side for their retirements 
and for their health insurance. Now, if you lay 120,000 off, 
who gets that money? It is there for them. It was earned by 
them. It was put there by the Postal Service on their behalf. 
Now, if you lay off 120,000 people who will not be eligible for 
these future retiree benefits, who gets that money? Does it 
just become part of the general fund?
    I understand if you take our funds out of the health 
insurance, they are left with 20 percent funded. They are 
grossly underfunded, the rest of the government. That is why 
they do not want to take the postal patrons' money out and give 
it back to the Postal Service, because it will show how 
underfunded the rest of the Federal Government is.
    Chairman Lieberman. Ms. Levine, you said in your testimony 
that if the Postal Service does implement 5-day delivery, the 
magazine industry would really need an adequate period of time 
to prepare for the change. So give us a little more detail 
about what is an adequate amount of time and what other 
information you would need to prepare if that happened.
    Ms. Levine. In general, this shift would need to be rolled 
out over a period of time, a base minimum of 6 months, perhaps 
longer in certain instances, to avoid negatively impacting both 
our industry and the rest of the mailing industry in the United 
States. For example, baseline magazine publishers would need to 
change printing contracts. We would need to encourage the 
advertisers to buy on a different time schedule. Editorial 
deadlines would have to be shifted as well as all kinds of 
reporting schedules.
    For a colorful illustration, we would have to ensure that 
Super Bowl winning photos could get on press magazine much 
quicker than it might have in the past; otherwise, it will not 
make the mailbox. So at a very baseline, those are examples of 
time management changes that would be needed.
    In addition, these changes come at a significant increased 
cost so we will be financially invested, and would probably 
need time to be able to figure out what the increased costs are 
and how to pay it and perhaps off-lay some of it.
    The Postal Service needs to engage the mailers to work out 
the time and the details, and for this there would also need to 
be flexibility. As both you, Mr. Chairman, and Senator Collins 
have mentioned, flexibility needs to be built into the schedule 
so certain products that come by mail are not slow to be 
delivered to people who really need them.
    Chairman Lieberman. Thank you. That is helpful. My time is 
up. Senator Collins.
    Senator Collins. Thank you, Mr. Chairman.
    Ms. Rush, it is my understanding that the Postal Service 
intends to reduce its service standards, moving deliveries out 
by a day or two. Wouldn't that impose even more pressures on 
newspapers? You made a comment that a daily newspaper delivered 
late is really of no value. If the Postal Service is going to 
loosen or lower its delivery standards, what would be the 
impact on the newspaper business?
    Ms. Rush. I think the impact would be devastating, and it 
is true for weekly newspapers as well. A typical weekly 
newspaper would be printed on a Thursday night, deposited 
Friday morning for a Friday delivery, and into some communities 
on Saturdays. So we are already in jeopardy if we lose Saturday 
mail delivery. If we lose one-day delivery, I do not know how 
most newspapers would stay in the system. It would be 
impossible for them to get out the news and the advertising 
information. It is coupons, it is small businesses' promotions. 
There is a lot at stake in a timely delivery, and we are hoping 
very much to work with the Postal Service to see to it that 
overnight and even same-day delivery is still possible if we 
can drop in the local post office.
    What we are more concerned about, frankly, is that we lose 
that local post office where our mail is entered, and then we 
are really just in a world of hurt.
    Senator Collins. Well, I am very concerned about what the 
impact would be on weekly newspapers in particular. A lot of 
daily newspapers use carriers for their delivery, but most 
weekly newspapers are delivered through the mail. If you do 
away with Saturday delivery and you have a Monday holiday on 
top of that where there is no delivery, then it seems to me 
that the newspaper is completely out of date by the time that 
it arrives, and advertisers are going to stop using it because 
if they are doing a sale that weekend, they have lost the 
opportunity to reach their customers.
    What does the Postal Service management say in response to 
concerns like that to your organization?
    Ms. Rush. Senator, you have the instincts of a newspaper 
publisher. That is exactly what we are concerned about. We have 
not had a good response from the Postal Service on the Saturday 
mail delivery issue. In 2009, when the Postmaster General 
announced that they wanted to make this change, it was admitted 
at the time that a lot of small newspapers would be damaged, 
and I would say that the response has been, ``Well, it is too 
bad, but we cannot help it.''
    We have more daily newspapers in the mail than many may 
realize in smaller communities. One of the witnesses that 
testified before the PRC is, in fact, a 6-day paper in 
Michigan, and it is not a question for him of shifting off 
Saturday mail. He loses his most profitable issue if he does 
not have Saturday mail delivery. And many that do have Saturday 
editions cannot shift to Fridays because they may not be able 
to get printing time. Printing press capacity has been 
dramatically reduced in this country during the recession.
    So it is just an impossibility. I think that the reality is 
that some of them would go out of business. Some would have to 
convert to a carrier delivery if they could, although it is 
very difficult for a weekly newspaper to find a carrier force 
for one day a week.
    We have tried to work with the Postal Service to explore 
some alternatives. We have asked about other days besides 
Saturday, and we have asked whether there could be a boutique 
carrier force that would deliver those newspapers, and we have 
really gotten nowhere.
    Senator Collins. In my State, where we have a large summer 
population that subscribes to the weekly newspaper year-round, 
a carrier system just does not work. It is not as if it is just 
a local community that you are serving. So I think your points 
are very well taken.
    Mr. Atkins, I want to ask your opinion about an issue 
involving smaller post offices. It is my understanding that 
bulk business mail revenues are not considered as part of the 
revenue stream in the screening process for determining which 
post offices should be considered for closure, that the line is 
drawn at post offices with revenues of less than $100,000. So, 
for instance, the business coming to a post office from a local 
community newspaper or a local grocer advertiser would not 
count toward the revenue stream for that post office.
    First of all, am I correct about that, if you know the 
answer to that? And, second, if I am correct, would it provide 
a more accurate assessment of the revenues of a post office, 
the value to the Postal Service's bottom line, if those 
revenues were, in fact, included?
    Mr. Atkins. Senator, from my understanding you are correct, 
and it would be a better engaged financial judgment if we used 
both the destinating and originating value. Granted, the 
originating value is basically walk-in revenue that they use. 
But coming from Baton Rouge, Louisiana, we never determined the 
value of the mail that we got from New Orleans. And I use that 
example because I am a Louisianan. But that value was never 
determined and has never been used to my knowledge of 
determining the post office revenues.
    Senator Collins. Thank you.
    Chairman Lieberman. Thanks, Senator Collins. Senator Akaka.
    Senator Akaka. Thank you very much, Mr. Chairman.
    President Guffey, I am concerned over the negative 
consequences to the collective bargaining process if Congress 
were to legislate changes to existing contracts by altering 
your layoff provision and health and retirement benefits. If 
any of these proposals were implemented, could unions and the 
Postal Service go back to the collective bargaining table to 
renegotiate these contracts immediately?
    Mr. Guffey. I do not believe so, and I believe the Postal 
Service would say, ``We got what we got. Your name is on this 
thing. Congress changed the rules for us over here.'' Unless 
Congress changed the other rules.
    One of the examples I would like to elaborate on, we gave 
them 20 percent non-career workforce, which means 20 percent of 
the people will not have a retirement. If you give them the 
right to pull out the retirement funds and they say they will 
have matching funds, will that include these non-career people? 
They are not going to come back and say, ``We are going to give 
these things to this other group of people that we agreed to 
give them,'' unless you all tell them they have to. We do not 
believe the Congress should be in the middle of the negotiating 
process. When the Postal Service has problems, they talk to us. 
We work through those problems as best we can. And I am sure 
the other unions will do the same thing, as well as the 
management organizations.
    Senator Akaka. Thank you.
    President Atkins, to follow up on my question to Mr. 
Guffey, as a non-bargaining employee group, how would these 
proposed changes impact your consultations with the Postal 
Service? Should a new consultation process happen if any of 
these proposals are implemented?
    Mr. Atkins. Aloha.
    Senator Akaka. Aloha.
    Mr. Atkins. Senator, we are presently in consultations with 
the Postal Service on our pay agreement, and the thought 
process that our members are going through right now is the 
integrity of the agreement that we would sign. And, in fact, we 
presently represent 31,000 National Association of Postal 
Supervisors members. A total of 75,000 non-bargaining members 
are in consultation right now. And in view of what just 
happened, there is a lot of skepticism about what we need to do 
and how fair is it that they get what they want and get to go 
back and change the rules. We experienced that back in 2009. We 
had a pay consultation agreement about how we would go through 
the process of receiving our increase in salary, work pay for 
performance, and about 4,500 of our members--and I do not know 
the exact numbers of the postmasters--their rating was changed. 
It was supposed to have been very objective ratings dealing 
with hard-core numbers and then those numbers were there saying 
that you had a rating that, for instance, you got a 4-percent 
raise. Well, they said, no, you are only going to get a 1- or 
2-percent raise. And right now we still have not settled that, 
or they have not given us a good reason why they do not go back 
and pay us because that was our agreement, and hard-core 
numbers were there to dictate to our members that they deserve 
a better raise than what they got, and that was for fiscal year 
2009.
    Senator Akaka. Thank you.
    Mr. Guffey, as I am sure you know, I have been a critic of 
the arbitration language inserted into several versions of 
various postal bills. While I do not believe this language is 
appropriate, it seems there is disagreement over the current 
arbitration guidelines. Do you believe that arbitration favors 
either unions or management under current law?
    Mr. Guffey. I do not believe so, and if everyone understood 
the nature of arbitration--a lot of the arbitrators are 
conservative because they are certain occupations, let me put 
it that way. I have been involved in about five of our interest 
arbitrations over the last 30 years. I guarantee you there is 
no one in here that would want to sit through the painful 2 or 
3 days when Harvard Law economists from the Brookings 
Institution talked to Harvard Law economists from the Cato 
Institute and debate the finances of the union. That happens in 
every arbitration that has ever occurred, whether or not there 
is money there to do certain things and whether it should 
happen or it should not happen.
    Now, since 2006, the limitations that were put on us in 
2006 is the Postal Service cannot raise their rates beyond 
inflation. Even though we started out with a rate for postage 
that was well below the rate of inflation from 1970, we could 
not go above the rate of inflation. That in itself is a huge 
block in negotiating our contracts because the USPS does not 
have the money--we cannot project beyond the rate of inflation, 
and if gas prices go up or anything goes up in the general 
economy, that limits what the postal workers can get because 
the Postal Service by law now is restricted from raising the 
rates yearly beyond inflation.
    Senator Akaka. Thank you, Mr. Guffey. Thank you, Mr. 
Chairman.
    Chairman Lieberman. Thank you, Senator Akaka. Senator 
Carper.
    Senator Carper. Thank you, Mr. Chairman.
    To our panelists, thank you all very much for joining us 
and sticking in here. You are worth the wait, and we appreciate 
very much your testimony and your responses to our questions.
    I want to come back to the issue of 6-day delivery. The 
Postal Service tells us they need to go from 6-day to 5-day 
delivery in order to save what they think is about $3 billion a 
year. We have had other estimates that are a bit less than 
that, maybe as low as $2 billion a year. I think the Postal 
Regulatory Commission said, no, it is more like $2 billion a 
year. But it is somewhere between $2 and $3 billion a year.
    One of the things I have discussed with the current 
Postmaster General, the past Postmaster General, and the heads 
of some of the postal unions is whether or not there is a way 
to continue to provide 6-day-a-week delivery similar to the 
auto industry, where the United Auto Workers agreed to change 
the mix of wages and benefits for folks, some of the new hires. 
And I am not sure if there is a way to structure through 
negotiations, not mandated by the Congress but through 
negotiations between the Postal Service and organized labor to 
find a way to continue 6-day-a-week delivery and at the same 
time save real money. And it will not be $3 billion a year, but 
it could be somewhere between $1 and $2 billion a year.
    And I am not smart enough here on the fly to figure out if 
the folks that would be delivering the mail on Saturday would 
be like how we use our interns that come to us and work 
throughout the year. We track them. The ones that do a really 
good job, when we have an opening, we hire them. We bring them 
in at entry-level positions. I do not know if there is a 
possibility for the Postal Service to say to the folks that 
work on Saturday, maybe work for a little bit less money, a 
little less generous benefits, then they are part of, if you 
will, the team that we go to recruit for full-time jobs later 
on.
    Mr. Guffey. I really hesitate to answer for the letter 
carriers and rural letter carriers.
    Senator Carper. Who are the unions for the letter carriers 
and----
    Mr. Guffey. And the rural letter carriers. The rural letter 
carriers have that now. They have reliefs who are non-career, 
and they work on Saturday. The carriers have career employees 
who rotate through the different various days of the week, and 
so that is a negotiable item with the letter carriers.
    The people that we represent--and I am sure the postmasters 
do, too--we deliver to 20 million post office boxes, and that 
will continue on Saturdays, according to the Postmaster 
General. So there is that opportunity for more people to get 
post office boxes, which is not convenient for everybody. Do 
not get me wrong. We also have a job description, and we have 
new lower levels and stuff like this that they could reinstate 
special delivery for things like priority mail, express mail, 
parcels, and drugs and medicines that have to be delivered on 
Saturday. We can do that at a lower rate. I am sure by the time 
the USPS gets through negotiating with the letter carriers, 
they will attempt to do the same thing.
    I am just saying within the postal community we can discuss 
and take care of a lot of the problems ourselves. The post 
office does need its freedom to take care of its pricing 
problems and immediately to be able to compete.
    Senator Carper. Let me interrupt you, because I am going to 
run out of time, but thank you very much for what you just 
said.
    In talking with the Postmaster General, one of the points 
he makes--and I made this before and I will make it again--
three things that the Postal Service needs to be able to do in 
order to be a viable ongoing enterprise in the future: First, 
they just have more people than they need on active duty, if 
you will; second, they have more post offices than they need, 
and they would like to be able to collocate services in a 
number of communities to provide better service, not less 
service; and, third, they want to be able to close some of 
their distribution sites.
    In talking with the Postmaster General, I do not hear any 
great appetite for laying folks off. I do not hear him say, 
``We are asking for that as an authority.'' I think that would 
be their last choice. And the relationship between management 
and the postal unions actually has been pretty good over the 
years. You all have been very constructive partners in trying 
to find ways to do more with less.
    But let me just ask you all to comment on incentivizing 
early retirements. We have a bunch of people who are at 
retirement age not retiring, folks who are close to retirement 
age and do not give any indication they are going to retire 
anytime soon. Tell us about the attractiveness of using that 
approach as compared to some other approach, including the 
layoff approach. Mr. Atkins, Mr. Guffey, I would be pleased to 
hear from either of you.
    Mr. Atkins. Yes, my understanding, Senator, is that we have 
about 150,000 employees right now that are eligible to walk out 
the door. Within the next 5 years, we have another 153,000, so 
there is a great opportunity to reduce the workforce by 
offering an incentive. The economic times are against that. I 
have kids that are coming back to live with me because they 
lost their jobs. So we need to make sure that the job situation 
becomes more of a strengthening factor in our daily lives, and 
that is going to be difficult to do. That is what Congress 
needs to focus in on a lot. But incentives are there, and there 
will be some people to take the incentive. There are various 
types. Years of creditable service can be added, there is 
always the monetary incentives, and then there are other 
incentives, like we can offer a retiree the chance to come back 
and work a certain amount of time, maybe 8 hours a week or 16 
hours a week, to reduce the effect on their lower income. So 
there are different ways that we can do it.
    Senator Carper. Thanks for that.
    Mr. Chairman, can I just proceed just a little bit longer? 
What Mr. Atkins is saying reminds me of something that we did 
in State government. We had a tough time getting people to come 
in and be substitute teachers, and the quality of our teachers 
as substitutes was just way below the quality of full-time 
teachers. And we talked to a lot of retired teachers and said, 
``Why don't you come back and be a substitute?'' And they would 
say, ``Well, we do not want to come back and be a substitute. 
We would like to, but if we come back to substitute, then you 
take off dollar for dollar and reduce our pensions.''
    So what we did was we said, ``All right. Come back and 
substitute. We will pay you to be a substitute''--not a lot but 
a reasonable amount of money--``and it does not affect your 
pension.'' So there might be a germ of an idea there that----
    Mr. Guffey. I believe, Senator, that the law has already 
been changed that we can do that.
    Mr. Atkins. It has been changed to do that. They are able 
to do that now.
    Senator Carper. All right. Well, we might want to make 
greater use of that.
    Mr. Chairman, I would just add this in closing, if I could 
just close out with this thought. Eighty percent of the costs 
of the Postal Service is people. Eighty percent is people. I 
think everybody on this Committee and certainly folks on the 
panel, we would subscribe to the Golden Rule: Treat other 
people the way that we would want to be treated. And as we seek 
to reduce the head count, to right-size the Postal Service in 
line with the demands for their product in the 21st Century, I 
think we need to be humane. We need to put ourselves in the 
shoes of the folks that would be affected and their families. 
And I want to do that. I think I speak for all of us in saying 
that we want to do that.
    There is a way to do this that is, I think, humane and is 
fair and just, and at the end of the day, to actually take to 
heart what they were able to accomplish in the auto industry. 
We had a GM and a Chrysler plant in my State. I never thought 
they would be able to offer incentives and get people to take 
early retirement and step down, but they did. And I think maybe 
the same thing could happen here if we would give it a shot.
    And the last point that I would make is this: I am pleased 
today that we have learned that the Administration is going to 
come to us with their proposal. At least they said here today 
that the Administration believes that we ought to at least make 
sure that this $5.5 billion, $6 billion obligation due on 
September 30, 2011, should be delayed until the end of the 
year.
    What I do not want to do is for us to sort of surrender the 
responsibility for dealing with this issue to--I call them the 
12 apostles--the Joint Select Committee on Deficit Reduction 
that has been agreed to come back to us around Thanksgiving 
with their proposals for further deficit reduction. I hope we 
go well before that.
    I asked the Postmaster General, Mr. Chairman, ``How is this 
uncertainty and lack of predictability affecting your 
business?'' And he said, ``It is not very good because a lot of 
customers are basically saying, `We are not sure you are going 
to be around a year from now.' '' They need certainty, they 
need predictability, and we need to try to provide that for all 
of them.
    And the last thing I would just say is the situation is 
dire. I think a number of people have used that word. The 
situation is ``dire.'' But I would just add it is not hopeless. 
There is a way not just to get through this--again, a couple of 
years ago, people would say, ``We are not going to have a 
domestic auto industry in this country. We are not going to 
have a Ford, Chrysler, and GM, the Big Three.'' And you know 
what? They are back. Not as strong as ever, but they are back 
strong, making great vehicles a lot of people want to buy.
    There is a way to do this that makes sense, and we can 
learn lessons from that industry as well as from others. And my 
hope is that we will, I guess as they say at Nike, ``Just do 
it,'' that we will seize this opportunity that is before us. 
And I have spoken to Senator Collins today in a sidebar 
conversation just before she left and asked if we might get 
together and start thinking and talking at the staff level and 
the Member level to find common ground.
    Our friends, Senators Ted Kennedy and Mike Enzi, served for 
years as the Ranking Democrat and Ranking Republican on the 
Health, Education, Labor, and Pension Committee--a very 
productive Committee for many years. And I once asked Senator 
Enzi, one of the most conservative Republicans in the Senate, 
``How have you and Ted Kennedy been able to reach agreement on 
so many issues?'' And he said, ``Ted Kennedy and I agree on 80 
percent of the stuff. Maybe 20 percent we do not agree on. And 
what we focus on is the 80 percent on which we agree.''
    My hope is that in today's hearing we maybe have expanded 
the 50 percent or so that we agree on to maybe closer to 70 or 
80 percent, and what we need to do is to focus on that and get 
this show on the road. Thanks, Mr. Chairman.
    Chairman Lieberman. Thank you, Senator Carper. I share your 
view that though the situation is dire, it is not hopeless. It 
is actually full of hope, and it is full of necessity, because 
as the testimonies of Ms. Levine and Ms. Rush indicate, there 
are a lot of people who are really important in our economy and 
our culture who depend on the Postal Service. And there are a 
lot, millions of jobs, really, that are dependent on the 
businesses that are dependent on the Postal Service. So we have 
to find a way out of this. It is not going to be easy, and I 
repeat what I said before, that although I support legislation 
authorizing and mandating a return of the so-called overpayment 
from the Postal Service to the retirement fund, that is not 
going to be a slam-dunk here in this Congress. So we have some 
work to do, and if that does not happen, then we really have to 
put our heads together in the spirit that we have been speaking 
about today.
    I know, Mr. Guffey, you said in your testimony that you 
thought that the Postmaster General--to put it this way--was 
focusing too much on service cuts and not enough on efficiency. 
And I think that is going to be the challenge to us because 
even if we could pass the authorize to compel the return of the 
billions of dollars from the retirement fund to the Postal 
Service, that is not going to solve the problem for the long 
run because we have these enormous changes occurring around us, 
particularly with email.
    On the other hand, I go back to what I said at the 
beginning. The Postal Service is a great national asset. It has 
an irreplaceable national network that you have already found 
creative ways to make money from by covering the last mile for 
FedEx and UPS, for instance. We have a lot of hard work to do 
together because the status quo is not going to work, and the 
loss is going to be our country and our economy, which we 
cannot afford now.
    So I am very committed to having this Committee play a 
leadership role on this. We have a good tradition, a history of 
involvement in this subject matter, and we have a healthy 
tradition of bipartisanship. And I would like to give the 
Administration a couple of weeks anyway to tell us where they 
are on this before we go to markup, but sooner than later, I 
would like this Committee to go to markup to try to bring out a 
bill that has some bipartisan support to take it to the floor 
of the Senate, and hopefully to have it receive a fate other 
than death in the House of Representatives.
    I thank the four of you for your testimony, for your 
concern about our Postal Service. We are going to leave the 
record of this hearing open for 15 days for any additional 
statements or questions that you or Members of the Committee 
would like to add.
    With that, I thank you very much. The hearing is adjourned. 
[Whereupon, at 5:12 p.m., the Committee was adjourned.]
                            A P P E N D I X

                              ----------                              

[GRAPHIC] [TIFF OMITTED] T2477.001

[GRAPHIC] [TIFF OMITTED] T2477.002

[GRAPHIC] [TIFF OMITTED] T2477.009

[GRAPHIC] [TIFF OMITTED] T2477.010

[GRAPHIC] [TIFF OMITTED] T2477.011

[GRAPHIC] [TIFF OMITTED] T2477.003

[GRAPHIC] [TIFF OMITTED] T2477.004

[GRAPHIC] [TIFF OMITTED] T2477.005

[GRAPHIC] [TIFF OMITTED] T2477.006

[GRAPHIC] [TIFF OMITTED] T2477.007

[GRAPHIC] [TIFF OMITTED] T2477.008

[GRAPHIC] [TIFF OMITTED] T2477.012

[GRAPHIC] [TIFF OMITTED] T2477.013

[GRAPHIC] [TIFF OMITTED] T2477.014

[GRAPHIC] [TIFF OMITTED] T2477.015

[GRAPHIC] [TIFF OMITTED] T2477.016

[GRAPHIC] [TIFF OMITTED] T2477.017

[GRAPHIC] [TIFF OMITTED] T2477.018

[GRAPHIC] [TIFF OMITTED] T2477.019

[GRAPHIC] [TIFF OMITTED] T2477.020

[GRAPHIC] [TIFF OMITTED] T2477.021

[GRAPHIC] [TIFF OMITTED] T2477.022

[GRAPHIC] [TIFF OMITTED] T2477.023

[GRAPHIC] [TIFF OMITTED] T2477.024

[GRAPHIC] [TIFF OMITTED] T2477.025

[GRAPHIC] [TIFF OMITTED] T2477.026

[GRAPHIC] [TIFF OMITTED] T2477.027

[GRAPHIC] [TIFF OMITTED] T2477.028

[GRAPHIC] [TIFF OMITTED] T2477.029

[GRAPHIC] [TIFF OMITTED] T2477.030

[GRAPHIC] [TIFF OMITTED] T2477.031

[GRAPHIC] [TIFF OMITTED] T2477.032

[GRAPHIC] [TIFF OMITTED] T2477.033

[GRAPHIC] [TIFF OMITTED] T2477.034

[GRAPHIC] [TIFF OMITTED] T2477.035

[GRAPHIC] [TIFF OMITTED] T2477.036

[GRAPHIC] [TIFF OMITTED] T2477.037

[GRAPHIC] [TIFF OMITTED] T2477.038

[GRAPHIC] [TIFF OMITTED] T2477.039

[GRAPHIC] [TIFF OMITTED] T2477.040

[GRAPHIC] [TIFF OMITTED] T2477.041

[GRAPHIC] [TIFF OMITTED] T2477.042

[GRAPHIC] [TIFF OMITTED] T2477.043

[GRAPHIC] [TIFF OMITTED] T2477.044

[GRAPHIC] [TIFF OMITTED] T2477.045

[GRAPHIC] [TIFF OMITTED] T2477.046

[GRAPHIC] [TIFF OMITTED] T2477.047

[GRAPHIC] [TIFF OMITTED] T2477.048

[GRAPHIC] [TIFF OMITTED] T2477.049

[GRAPHIC] [TIFF OMITTED] T2477.050

[GRAPHIC] [TIFF OMITTED] T2477.051

[GRAPHIC] [TIFF OMITTED] T2477.052

[GRAPHIC] [TIFF OMITTED] T2477.053

[GRAPHIC] [TIFF OMITTED] T2477.054

[GRAPHIC] [TIFF OMITTED] T2477.055

[GRAPHIC] [TIFF OMITTED] T2477.056

[GRAPHIC] [TIFF OMITTED] T2477.057

[GRAPHIC] [TIFF OMITTED] T2477.058

[GRAPHIC] [TIFF OMITTED] T2477.059

[GRAPHIC] [TIFF OMITTED] T2477.060

[GRAPHIC] [TIFF OMITTED] T2477.061

[GRAPHIC] [TIFF OMITTED] T2477.062

[GRAPHIC] [TIFF OMITTED] T2477.063

[GRAPHIC] [TIFF OMITTED] T2477.064

[GRAPHIC] [TIFF OMITTED] T2477.065

[GRAPHIC] [TIFF OMITTED] T2477.066

[GRAPHIC] [TIFF OMITTED] T2477.067

[GRAPHIC] [TIFF OMITTED] T2477.068

[GRAPHIC] [TIFF OMITTED] T2477.069

[GRAPHIC] [TIFF OMITTED] T2477.070

[GRAPHIC] [TIFF OMITTED] T2477.071

[GRAPHIC] [TIFF OMITTED] T2477.072

[GRAPHIC] [TIFF OMITTED] T2477.073

[GRAPHIC] [TIFF OMITTED] T2477.074

[GRAPHIC] [TIFF OMITTED] T2477.075

[GRAPHIC] [TIFF OMITTED] T2477.076

[GRAPHIC] [TIFF OMITTED] T2477.077

[GRAPHIC] [TIFF OMITTED] T2477.078

[GRAPHIC] [TIFF OMITTED] T2477.079

[GRAPHIC] [TIFF OMITTED] T2477.080

[GRAPHIC] [TIFF OMITTED] T2477.081

[GRAPHIC] [TIFF OMITTED] T2477.082

[GRAPHIC] [TIFF OMITTED] T2477.083

[GRAPHIC] [TIFF OMITTED] T2477.084

[GRAPHIC] [TIFF OMITTED] T2477.085

[GRAPHIC] [TIFF OMITTED] T2477.086

[GRAPHIC] [TIFF OMITTED] T2477.087

[GRAPHIC] [TIFF OMITTED] T2477.088

[GRAPHIC] [TIFF OMITTED] T2477.089

[GRAPHIC] [TIFF OMITTED] T2477.090

[GRAPHIC] [TIFF OMITTED] T2477.091

[GRAPHIC] [TIFF OMITTED] T2477.092

[GRAPHIC] [TIFF OMITTED] T2477.093

[GRAPHIC] [TIFF OMITTED] T2477.094

[GRAPHIC] [TIFF OMITTED] T2477.095

[GRAPHIC] [TIFF OMITTED] T2477.096

[GRAPHIC] [TIFF OMITTED] T2477.097

[GRAPHIC] [TIFF OMITTED] T2477.098

[GRAPHIC] [TIFF OMITTED] T2477.099

[GRAPHIC] [TIFF OMITTED] T2477.100

[GRAPHIC] [TIFF OMITTED] T2477.103

[GRAPHIC] [TIFF OMITTED] T2477.104

[GRAPHIC] [TIFF OMITTED] T2477.105

[GRAPHIC] [TIFF OMITTED] T2477.106

[GRAPHIC] [TIFF OMITTED] T2477.107

[GRAPHIC] [TIFF OMITTED] T2477.108

[GRAPHIC] [TIFF OMITTED] T2477.109

[GRAPHIC] [TIFF OMITTED] T2477.110

[GRAPHIC] [TIFF OMITTED] T2477.111

[GRAPHIC] [TIFF OMITTED] T2477.112

[GRAPHIC] [TIFF OMITTED] T2477.113

[GRAPHIC] [TIFF OMITTED] T2477.114

[GRAPHIC] [TIFF OMITTED] T2477.115

[GRAPHIC] [TIFF OMITTED] T2477.116

[GRAPHIC] [TIFF OMITTED] T2477.117

[GRAPHIC] [TIFF OMITTED] T2477.118

[GRAPHIC] [TIFF OMITTED] T2477.119

[GRAPHIC] [TIFF OMITTED] T2477.120

[GRAPHIC] [TIFF OMITTED] T2477.121

[GRAPHIC] [TIFF OMITTED] T2477.122

[GRAPHIC] [TIFF OMITTED] T2477.123

[GRAPHIC] [TIFF OMITTED] T2477.124

[GRAPHIC] [TIFF OMITTED] T2477.125

[GRAPHIC] [TIFF OMITTED] T2477.126

[GRAPHIC] [TIFF OMITTED] T2477.127

[GRAPHIC] [TIFF OMITTED] T2477.128

[GRAPHIC] [TIFF OMITTED] T2477.129

[GRAPHIC] [TIFF OMITTED] T2477.130

[GRAPHIC] [TIFF OMITTED] T2477.131

[GRAPHIC] [TIFF OMITTED] T2477.132

[GRAPHIC] [TIFF OMITTED] T2477.133

[GRAPHIC] [TIFF OMITTED] T2477.134

[GRAPHIC] [TIFF OMITTED] T2477.135

[GRAPHIC] [TIFF OMITTED] T2477.136

[GRAPHIC] [TIFF OMITTED] T2477.137

[GRAPHIC] [TIFF OMITTED] T2477.138

[GRAPHIC] [TIFF OMITTED] T2477.139

[GRAPHIC] [TIFF OMITTED] T2477.140

[GRAPHIC] [TIFF OMITTED] T2477.101

[GRAPHIC] [TIFF OMITTED] T2477.102

[GRAPHIC] [TIFF OMITTED] T2477.141

[GRAPHIC] [TIFF OMITTED] T2477.142

[GRAPHIC] [TIFF OMITTED] T2477.143

[GRAPHIC] [TIFF OMITTED] T2477.144

[GRAPHIC] [TIFF OMITTED] T2477.145

[GRAPHIC] [TIFF OMITTED] T2477.146

[GRAPHIC] [TIFF OMITTED] T2477.147

[GRAPHIC] [TIFF OMITTED] T2477.148

[GRAPHIC] [TIFF OMITTED] T2477.149

[GRAPHIC] [TIFF OMITTED] T2477.150

[GRAPHIC] [TIFF OMITTED] T2477.151

[GRAPHIC] [TIFF OMITTED] T2477.152

[GRAPHIC] [TIFF OMITTED] T2477.153

[GRAPHIC] [TIFF OMITTED] T2477.154

[GRAPHIC] [TIFF OMITTED] T2477.155

[GRAPHIC] [TIFF OMITTED] T2477.156

[GRAPHIC] [TIFF OMITTED] T2477.157

[GRAPHIC] [TIFF OMITTED] T2477.158

[GRAPHIC] [TIFF OMITTED] T2477.159

[GRAPHIC] [TIFF OMITTED] T2477.160

[GRAPHIC] [TIFF OMITTED] T2477.161

[GRAPHIC] [TIFF OMITTED] T2477.162

[GRAPHIC] [TIFF OMITTED] T2477.163

[GRAPHIC] [TIFF OMITTED] T2477.164

[GRAPHIC] [TIFF OMITTED] T2477.165

[GRAPHIC] [TIFF OMITTED] T2477.166

[GRAPHIC] [TIFF OMITTED] T2477.167

[GRAPHIC] [TIFF OMITTED] T2477.168

[GRAPHIC] [TIFF OMITTED] T2477.169

[GRAPHIC] [TIFF OMITTED] T2477.170

[GRAPHIC] [TIFF OMITTED] T2477.171

[GRAPHIC] [TIFF OMITTED] T2477.172

                                 
