[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
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HEARING
before the
COMMITTEE ON
HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 6, 2011
__________
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware SCOTT P. BROWN, Massachusetts
MARK L. PRYOR, Arkansas JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana RON JOHNSON, Wisconsin
CLAIRE McCASKILL, Missouri ROB PORTMAN, Ohio
JON TESTER, Montana RAND PAUL, Kentucky
MARK BEGICH, Alaska JERRY MORAN, Kansas
Michael L. Alexander, Staff Director
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
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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
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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.
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\1\ The prepared statement of Mr. Donahoe appears in the Appendix
on page 71.
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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.
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\1\ The prepared statement of Mr. Berry appears in the Appendix on
page 87.
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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.
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\1\ The prepared statement of Mr. Herr appears in the Appendix on
page 94.
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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.
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\1\ The table referenced by Mr. Herr appears in the Appendix on
page 102.
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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.
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\1\ The prepared statement of Mr. Levy appears in the Appendix on
page 113.
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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.
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\1\ The prepared statement of Mr. Guffey appears in the Appendix on
page 115.
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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.
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\1\ The prepared statement of Mr. Atkins appears in the Appendix on
page 133.
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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.
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\1\ The prepared statement of Ms. Levine appears in the Appendix on
page 138.
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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.
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\1\ The prepared statement of Ms. Rush appears in the Appendix on
page 143.
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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
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