[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]




 
                    A PATH FORWARD ON POSTAL REFORM

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

                                HEARING

                               before the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 17, 2013

                               __________

                           Serial No. 113-49

                               __________

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


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



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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 DARRELL E. ISSA, California, Chairman
JOHN L. MICA, Florida                ELIJAH E. CUMMINGS, Maryland, 
MICHAEL R. TURNER, Ohio                  Ranking Minority Member
JOHN J. DUNCAN, JR., Tennessee       CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of 
JIM JORDAN, Ohio                         Columbia
JASON CHAFFETZ, Utah                 JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
PAUL A. GOSAR, Arizona               GERALD E. CONNOLLY, Virginia
PATRICK MEEHAN, Pennsylvania         JACKIE SPEIER, California
SCOTT DesJARLAIS, Tennessee          MATTHEW A. CARTWRIGHT, 
TREY GOWDY, South Carolina               Pennsylvania
BLAKE FARENTHOLD, Texas              MARK POCAN, Wisconsin
DOC HASTINGS, Washington             TAMMY DUCKWORTH, Illinois
CYNTHIA M. LUMMIS, Wyoming           ROBIN L. KELLY, Illinois
ROB WOODALL, Georgia                 DANNY K. DAVIS, Illinois
THOMAS MASSIE, Kentucky              PETER WELCH, Vermont
DOUG COLLINS, Georgia                TONY CARDENAS, California
MARK MEADOWS, North Carolina         STEVEN A. HORSFORD, Nevada
KERRY L. BENTIVOLIO, Michigan        MICHELLE LUJAN GRISHAM, New Mexico
RON DeSANTIS, Florida

                   Lawrence J. Brady, Staff Director
                John D. Cuaderes, Deputy Staff Director
                    Stephen Castor, General Counsel
                       Linda A. Good, Chief Clerk
                 David Rapallo, Minority Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on July 17, 2013....................................     1

                               WITNESSES

The Hon. Adrian Smith, A Representative in Congress from the 
  State of Nebraska
    Oral Statement...............................................     8
    Written Statement............................................    10
The Hon. Patrick Donahoe, Postmaster General & CEO, United States 
  Postal Service
    Oral Statement...............................................    13
    Written Statement............................................    16
Mr. Joel Quadracci, Chairman, President & CEO, Quad Graphics
    Oral Statement...............................................    30
    Written Statement............................................    32
Mr. Cliff Guffey, President, American Postal Workers Union, AFL-
  CIO
    Oral Statement...............................................    39
    Written Statement............................................    41

                                APPENDIX

A Letter from Senators Coburn and Carper, Submitted for the 
  Record by Chairman Darrell Issa................................    94
Letters to NAPS, NAPUS, NARFE, (EEC UC), Submitted for the Record 
  by Rep. Cummings...............................................    95
The Hon. Elijah Cummings, Ranking Minority Member, Opening 
  Statement......................................................   122
Follow-up Questions and Answers for Patrick Donahoe by Rep. Pocan   124


                    A PATH FORWARD ON POSTAL REFORM

                              ----------                              


                        Wednesday, July 17, 2013

                  House of Representatives,
              Committee on Oversight and Government Reform,
                                                   Washington, D.C.
    The committee met, pursuant to call, at 1:40 p.m., in Room 
2154, Rayburn House Office Building, Hon. Darrell E. Issa 
[chairman of the committee] presiding.
    Present: Representatives Issa, Mica, Duncan, Chaffetz, 
Walberg, Lankford, Meehan, Farenthold, Massie, DeSantis, 
Cummings, Maloney, Tierney, Clay, Lynch, Connolly, Speier, 
Pocan, Duckworth, Kelly, Davis, Cardenas, and Lujan Grisham.
    Staff Present: Ali Ahmad, Communications Advisor; Alexia 
Ardolina, Assistant Clerk; Molly Boyl, Senior Counsel and 
Parliamentarian; David Brewer, Senior Counsel; Daniel Bucheli, 
Assistant Clerk; Drew Colliatie, Professional Staff Member; 
John Cuaderes, Deputy Staff Director; Linda Good, Chief Clerk; 
Tyler Grimm, Senior Professional Staff Member; Christopher 
Hixon, Deputy Chief Counsel, Oversight; Krista Boyd, Minority 
Deputy Director of Legislation/Counsel; Kevin Corbin, Minority 
Professional Staff Member; Elisa LaNier, Minority Director of 
Operations; Lucinda Lessley, Minority Policy Director; Safiya 
Simmons, Minority Press Secretary; and Mark Stephenson, 
Minority Director of Legislation.
    Chairman Issa. Good morning. The committee will come to 
order.
    The Oversight Committee mission statement is that we exist 
to secure two fundamental principles. First, Americans have a 
right to know the money Washington takes from them is well 
spent. And second, Americans deserve an efficient, effective 
government that works for them. Our duty on the Oversight and 
Government Reform Committee is to protect these rights. Our 
solemn responsibility is to hold government accountable to 
taxpayers, because taxpayers have a right to know what they get 
from their government.
    It's our job to work tirelessly, in partnership with 
citizen watchdogs, to deliver the facts to the American people 
and bring genuine reform to the Federal bureaucracy.
    Let us be very clear today: The United States post office 
is in crisis. The American people lost in the range of $16 
billion last year. They never wrote a check, the appropriators 
never had a meeting and authorized anything. And this committee 
was unable to take effective action.
    Last summer, the United States post office defaulted on $11 
billion in payments required by law, and every day they lose 
$25 million, as we speak
    The situation is both unacceptable and as much Congress and 
the administration's fault as any of the hundreds of thousands 
of workers at the post office. Ultimately, we have kicked the 
can down the road, first in 2006 by not doing enough, and then 
every year since then. In 2006, I don't think anyone was 
predicting an additional 25 percent reduction in postal volume 
in just 6 years.
    The post office will and has continued to make some 
adjustments. Attrition has been a primary tool, but less people 
in large, out-of-date facilities is not the answer. Real 
reorganization, fundamental restructuring, rightsizing 
facilities, and being allowed to innovate new products is 
essential.
    Today, we will hear from two panels. Those two panels are, 
in fact, essential to us. We have an obligation--and, 
Representative Smith, I appreciate your being here today--we 
have an obligation to 50-State and all the territorial 
delivery. We have a universal delivery system that is at the 
heart of what the post office does that no private sector 
company is tasked to do. And we're proud of that, and the post 
office has been proud of that for 200 years. But to preserve 
delivery to every point in the globe and every point in the 
United States by the U.S. Postal Service requires real change, 
including the retiree health care plan.
    We will hear today from the second-largest postal union, 
which believes Mr. Cummings, my ranking member, does not go far 
enough and does not entirely do away with the retiree health 
care funding. Now, you will notice I didn't say prefunding, 
because if you stop making the payments, ultimately, you will 
not be able to make those payments.
    Mr. Cummings knows that, I know that, and it's the reason 
that any bill that comes from this committee will restructure 
to the greatest extent possible, but recognizes that those 
bills will come due and they must be addressed by this 
committee if we're to be realistic about reforms that will 
guarantee a post office well into the next century.
    We can discuss plenty of reforms here today, but the truth 
is reforms are going to come primarily from us enabling the 
system to work properly. Congress must reduce or eliminate the 
kinds of preconditions we have put on whenever possible, while 
maintaining our requirement of universal service.
    Our commitment is bipartisan. Our need for a bill is 
urgent, and we intend to do it in the coming weeks. Among the 
most important cost savings that can no longer be overlooked is 
shifting the Postal Service from 6 day to 5 day. This was once 
opposed almost universally, but as time has gone on we have 
found more and more of the major shippers recognizing that the 
alternative of higher cost is more unacceptable than having to 
adjust when you ship a package so it arrives at the time that 
the customer needs it.
    But let's understand, going from 6 to 5 day, even if it 
achieves the $2 billion a year savings, is but a small down 
payment. We must look at every possible savings, and those 
savings must not be on the back of longtime workers. They 
cannot be on the back of those who have given their careers. We 
must find acceptable ways to offer retirement and rightsizing 
to postal workers, and I believe we can do that.
    At the same time, postal unions must join with us to work 
together to make the kinds of efficiency increases that allow 
high pay, good benefits to be earned now and in the future 
while delivering a product that can meet the requirement of the 
customer. I believe we can do that. I believe we will do that.
    I would like to take a moment to thank my ranking member 
who has worked hard on as far as we have gotten. I will not say 
that his vision of the bill and my vision of the bill are yet 
identical. But our teams have worked together and we have 
worked across the dome. As a matter of fact, I will now ask 
unanimous consent that a letter signed by both the chairman and 
ranking member, Senator Carper and Senator Coburn, be placed in 
the record. Without objection, so ordered.
    Chairman Issa. We in the House, we in the Senate must get 
together and we must do it this year if we are going to begin 
to have the post office make the changes now, with the money 
that we are currently losing being the money we invest in no 
longer losing in the future.
    And with that, I recognize the ranking member for his 
opening statement.
    Mr. Cummings. Thank you, Mr. Chairman. I want to thank you 
for your words of bipartisanship. I am reminded that towards 
the end of last year we were working feverishly trying to come 
up with a bill, and I think we got about 85 percent there. And 
so I do believe we will be able to accomplish that, and I 
pledge to you we will work hand in hand to achieve that.
    So I thank you for convening today's hearing, and I thank 
you for agreeing to my request to invite Mr. Cliff Guffey, the 
president of the American Postal Workers Union, to be with us 
today. During our April hearing we were able to hear from the 
letter carriers, and I'm pleased that today we have a chance to 
hear from officials who represent the men and women who work in 
our postal facilities. So, I have said repeatedly, the Postal 
Service is a vital link that binds our Nation together. Our job 
in Congress is to enact comprehensive legislation that will 
strengthen those links by ensuring that the Postal Service 
offers products and services that meet the changing demands of 
consumers while operating an efficient and effective network 
that provides all customers with timely and convenient access 
to these vital services.
    The financial challenge facing the Postal Service is 
familiar to us all. Last year, the Postal Service reported 
losses of approximately $16 billion--that is with a ``B.'' 
Losses have continued this year, and the Postal Service has 
borrowed all of its $15 billion it is authorized to borrow from 
the Treasury. Obviously, these losses are simply unsustainable.
    Unlike any other agency or business in the Nation, however, 
the Postal Service faces the legal burden of prefunding 100 
percent of its future retiree health costs, and this 
requirement is a key contributor to its losses. The Postal 
Service has taken numerous steps to reduce its costs, including 
offering buyouts to employees, reducing operating hours at 
thousands of post offices, and closing dozens of mail 
processing facilities.
    And let me say this. I have said it in private and I have 
said it in public and I say it again today. I want to thank the 
unions for working hard trying to help us get to where we can 
have a bill that makes sense and the unions for bending over 
backwards trying to make sure and understanding that the postal 
system has changed and therefore there has to be changes with 
regard to the number of employees that we have.
    But the Postal Service cannot do this job alone. 
Congressional action is essential to put the Postal Service on 
a sustainable financial path. Although I am glad that the 
committee is poised to consider postal reform legislation and 
it must, I am disappointed with the draft legislation 
circulated by the chairman. The chairman's draft legislation 
would end 6-day mail delivery immediately and end most door 
delivery in this Nation by 2022.
    Rather than returning the overpayments made into the 
Federal employment retirement system to the Postal Service, the 
chairman's bill would burden the Postal Service with yet more 
debt by increasing its borrowing authority, something the 
Postal Service has repeatedly said they simply do not want. The 
chairman's bill includes an extreme provision that would 
abrogate existing union agreements and require that they be 
renegotiated to include provisions allowing the Postal Service 
to unilaterally lay off or dismiss employees, including those 
who have decades of service.
    The chairman's bill would also remove postal workers from 
the existing Federal worker's compensation system and establish 
a postal-specific system that would reduce benefits below those 
provided under current law.
    There is a more sensible alternative to this approach. This 
morning I introduced the Innovate to Deliver Act, which has 
cosponsors, to enable the Postal Service to operate more like a 
business it was meant to be. My legislation would give the 
Postal Service increased operating flexibility while ensuring 
that revenue meets expenses. Specifically, my bill would create 
a new chief innovation officer in the Postal Service charged 
with leading the development of products and services that 
enable the Postal Service to capitalize on new business 
opportunities.
    My legislation also would amend the schedule for retiree 
health payments, recalculate the Postal Service's pension 
surplus using postal-specific characteristics, return the 
surplus to the Postal Service, and provide key tools to 
rightsize the Postal Service workforce in a compassionate 
manner that respects and honors these employees' dedicated 
service over the years.
    If we reject extreme measures that harm postal workers, 
increase the Postal Service's debt, and destroy existing 
services, I believe we can identify commonsense provisions that 
provide common ground solutions. It is possible to develop and 
finalize legislation that we can all support, and I urge the 
chairman to choose this path.
    With that, Mr. Chairman, I ask for unanimous consent to 
enter into the record the statements of testimony from the 
following: the National Association of Postal Supervisors, the 
National Association of Postmasters of the United States, and 
the National Active and Retired Federal Employees Association.
    Chairman Issa. Without objection, so ordered.
    Mr. Cummings. And with that I yield back.
    Chairman Issa. I thank the gentleman.
    Chairman Issa. And before I recognize the chairman of the 
subcommittee, I just wanted to take a liberty here with the 
ranking member.
    Pursuant to our practice of posting legislation and draft 
legislation on the site, and because your draft was circulated 
to us, the following are at Leg Counsel right now for 
redrafting in the bill. So for purposes of discussion today I 
hope that people will be aware the bill in its original form 
will include a chief innovation officer, something the ranking 
member had suggested. It will have a higher experimental 
product test cap added to it. It will have travel reporting for 
postal governors in the PRC. It also will, by popular demand, 
eliminate the requirement for any reopening of collective 
bargaining agreements related to reductions in force. It will, 
however, require that those be placed or harmonized with the 
rest of the Federal workforce at time of new contracts, but in 
no way effect current contracts for the life of those 
contracts. And it will have a workforce-specific pension 
assumptions.
    Now, I realize it's unfair, since I don't have specific 
language, but I wanted to make sure that those, particularly 
the ones that the ranking member had included in his draft 
legislation, will be employed.
    I recognize the ranking member.
    Mr. Cummings. Okay. Thank you very much, Mr. Chairman.
    I just want to make sure I understand what you just said 
and that is what I was asking my staff. So you are saying that 
the things you just named are what? What are those?
    Chairman Issa. Those are being placed before the bill comes 
to the committee, those are being placed into the base text of 
the bill.
    Mr. Cummings. I see.
    Chairman Issa. Because we circulated draft legislation and 
it has been up on what is called Madison, we have had public 
comment in addition to yours. So I wanted to make sure the 
committee understands that, as you said, we were 85 percent 
last year with the Senate even though we had to start over. We 
want to get as close to that 100 percent as we can before it 
comes to the committee. So all of those will be changed prior 
to coming to the committee lest there be any need to offer 
those. Obviously, there are additional items that both sides 
will probably want to offer in amendments.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    Chairman Issa. Thank you.
    We now go to on the chairman of the Subcommittee on Postal, 
Mr. Farenthold.
    Mr. Farenthold. Thank you, Chairman Issa, for allowing me 
to make an opening statement.
    As the chairman of the Subcommittee on the Federal 
Workforce, U.S. Postal Service and Census, Ranking Member Lynch 
and I have held hearings with the Postal Service itself, its 
customers, suppliers, and workers.
    Today's hearing will focus on the big picture, postal 
reform, finding ways for the United States Postal Service to 
stand on its own two feet, to work harder and smarter for the 
future, and not to become a burden on taxpayers. It's all about 
finding innovative solutions that will make the United States 
Postal Service fiscally sound.
    The Postal Service, this committee, and all of Congress 
cannot bury our heads in the sand, ignoring billions in 
deficits, technology changes that are lowering demand, and 
increased competition and huge liabilities for future 
employment benefits.
    Even without the contractual prefunding contract, the 
Postal Service is losing in excess of $5 billion a year. They 
are getting closer to not being able to meet the payroll and 
provide for retiree benefits. Moving to a modified Saturday 
delivery and cluster boxes alone could save as much as $8 
billion annually, and these are only two of the simple and 
obvious changes that need to be made when mail volume continues 
to decline.
    I am hopeful that together we can use what we have learned 
from past mistakes and work in a bipartisan manner to identify 
ways that will make the Postal Service a more successful and 
viable service for the 21st century.
    Thank you very much.
    Chairman Issa. The gentleman yields back.
    We now recognize the gentleman from Massachusetts, the 
ranking member of the subcommittee, Mr. Lynch.
    Mr. Lynch. Thank you, Mr. Chairman. I want to thank the 
ranking member as well, and including Representative Smith and 
the other witnesses who have come before us to help us with our 
work.
    Mr. Chairman, the United States Postal Service and our 
dedicated postal employees have long stood as a shining example 
of essential government service. Year after year, when polled, 
the American people have voted postal clerks, our mail 
handlers, letter carriers, and supervisors as among the most 
trusted and most appreciated government employees.
    Importantly, the Postal Service is not defined by 
partisanship or politics, but rather embodies our core 
governmental mission to ensure the free flow of information, 
communication, and commerce. Towards that end, the agency 
delivers mail 6 days a week to over 152 million residences, 
businesses, and post office boxes nationwide, across every one 
of our congressional districts. And even in the face of 
dangerous events that threaten to halt mail delivery and upset 
the stream of commerce, our mail handlers, our letter carriers, 
our postal clerks continue their commitment to safeguarding the 
continuity of the mail processing and delivering operation.
    It is out of respect for the vital national role of the 
United States Postal Service and its exceptional workforce that 
we must ensure that our most trusted government institution 
does not fall victim to customary partisan gridlock. Instead, 
the viability of the Postal Service depends on our willingness 
on both sides to set partisanship aside and work together 
towards the enactment of meaningful and commonsense postal 
reform legislation.
    Regrettably, however, the discussion draft of the Postal 
Reform Act of 2013 that was recently circulated by the chairman 
fails to reflect the widespread consensus that exists among 
postal stakeholders and this Congress regarding certain 
practical steps that we could take to place the Postal Service 
on more solid financial ground. Notably, right off the bat, in 
measuring the Federal Employee Retirement System surplus, the 
chairman's draft bill would not require the Office of Personnel 
Management to consider the unique position, salary growth, and 
demographic characteristics of postal employees when 
calculating the Postal Services' Federal Employee Retirement 
System surplus.
    In December of 2012, the Office of the Postal Service 
Inspector General estimated that the use of that postal-
specific, rather than government-wide assumption would result 
in a $12.5 billion surplus, which the Postal Service could then 
apply to pay down its Treasury debt and satisfy other 
outstanding obligations.
    This approach to postal reform has received the strong 
support of our postal unions, associations and mailers, and my 
own legislation, H.R. 961, to require the use of postal-
specific formula when recalculating the postal FERS surplus has 
received the support of over 130 Members of Congress, including 
nine brave and exceedingly wise Republicans.
    I'd also note that this language is also included in H.R. 
2690, the Innovate to Deliver Act, the thoughtful postal reform 
legislation that our ranking member, Mr. Cummings, introduced 
last night, of which I am a cosponsor.
    What Chairman Issa draft does mandate, however, is a series 
of drastic, far-reaching, and unnecessary changes to postal 
operations that I strongly believe would only serve to send the 
agency further into the red. It would compromise delivery 
standards and undermine our postal workforce. In particular, 
the proposed bill would immediately reduce mail delivery to 5 
days per week and eliminate an essential Postal Service 
competitive advantage.
    The bill also seeks to phase out another key Postal Service 
feature by replacing door-to-door delivery in favor of curbside 
delivery and even contemplates a shift to so-called 
neighborhood cluster boxes. Moreover, the chairman's draft 
would significantly expedite the review process for 
consolidating and closing and therefore further limiting the 
opportunity for the meaningful community and stakeholder input. 
And the bill would even require the abrogation of existing 
collective bargaining agreements that contain reduction in 
force provisions, despite the fact that these contracts are the 
end result of extensive and hard-fought negotiations in which 
the unions agreed to very, very, very modest increases in wages 
and benefits. And those were negotiated between postal 
management and employee representatives.
    Mr. Chairman, while I appreciate the opportunity to discuss 
your draft legislation in greater detail prior to next week's 
business meeting, I do not believe that the bill in its current 
form would set the Postal Service on a path towards financial 
stability. Accordingly, it is my hope that today's hearing will 
also allow us to focus our collective attention on those areas 
of postal reform that can form the basis of a truly bipartisan 
postal reform package for the sake of the Postal Service, our 
postal stakeholders, and the American people.
    Thank you, Mr. Chairman, and I yield the balance of my 
time.
    Chairman Issa. Thank you. Although you took 16 seconds 
over, I know you did the best you could. And hopefully you did 
recognize that two of your points we are changing and those 
will be incorporated. So for the remaining ones that's what 
markups are for.
    We now go to our first panel--and, Adrian, you're called a 
panel here--the Honorable Adrian Smith, who represents 
Nebraska's Third District. Although the committee's rules 
require that witnesses be sworn in, we do not require Members 
to be sworn in.
    So, Congressman Smith, you're recognized for 5 minutes.

    STATEMENT OF THE HON. ADRIAN SMITH, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF NEBRASKA

    Mr. Smith. Thank you. Good afternoon Chairman Issa, Ranking 
Member Cummings, and members of the committee. Thank you for 
the opportunity to participate in today's hearing on the future 
of postal reform. We certainly need solutions.
    I come before you today as Nebraska's Third District 
representative to discuss the importance of the United States 
Postal Service to our rural communities. The Postal Service 
continues to face a severe fiscal crisis, losing $25 million 
per day. Congress needs to ensure the Postal Service continues 
to uphold its mission to serve all Americans while addressing 
its long-term challenges.
    Throughout rural America, the post office is the center of 
the community and a link to the rest of the country, and even 
beyond. Every day I hear from constituents who are concerned 
about losing access to basic mail services. Those in my 
district are among the most reliant on the Postal Service. I 
myself reside just a short walk from my local post office in 
western Nebraska and I know firsthand the impact the Postal 
Service has on small town Americans. To us, the Postal Service 
is not just a convenience, it is a pathway to information, 
products, medications, and services which are essential to our 
daily work and lives.
    Millions of Americans are at risk of being further isolated 
without access to mail services. Congress must enact postal 
reform which provides certainty for consumers and businesses 
alike.
    Commercial options already are scarce in rural America. 
Arbitrarily targeting the mail in these areas may cause 
potential businesses to lay roots elsewhere, limiting consumer 
choice and harming rural economies. Two years ago, the Postal 
Service announced it was considering for closure more than 
3,600 small mail facilities in an attempt to address its budget 
shortfall. Included on this list for possible closure were 90 
locations in the entire State of Nebraska, with the great 
majority in the Third District. Locations across rural America 
were disproportionately singled out despite the minimal savings 
which would have been achieved by closing these facilities.
    In fact shutting down the smallest 10,000 post offices in 
the United States only would save the Postal Service roughly 3 
percent of the cost of operating its more than 31,000 post 
offices nationwide.
    As co-chair of the Congressional Rural Caucus, I have spent 
the last 2 years closely working with the Postal Service, 
stakeholders, and this committee to ensure rural post offices 
are not unfairly targeted. Because of the importance of 
continuing this bipartisan effort, last week I introduced the 
Securing Access to Rural Postal Services Act, H.R. 2615. I 
appreciate my colleagues joining me in support of this bill. My 
Democratic co-chair of the Congressional Rural Caucus, 
Congressman Mike McIntyre, as well Rural Caucus and Oversight 
and Government Reform Committee member Congresswoman Cynthia 
Lummis, both are original cosponsors of H.R. 2615.
    This legislation would cap small post office closures and 
consolidations at 5 percent of the total number of closures and 
consolidations executed by the Postal Service in any given 
year. The bill also would set guidelines for closing or 
consolidating any post office to ensure those affected by such 
changes would maintain access to the Postal Service.
    The Postal Service would be required to provide 60 days 
notice of its intention to close or consolidate a post office. 
In addition, it would need to survey affected customers to 
determine their preferences for alternative access to postal 
services. If the Postal Service is unable to provide access 
through the alternative chosen by survey participants or if the 
preferred option is determined to be cost prohibitive, it would 
be required to provide access to postal services through a 
different means and give written explanation for why the 
surveyed option was not possible.
    The Postal Service should focus on changes which provide 
the greatest savings with the least service disruption. My 
measure allows the Postal Service flexibility to pursue needed 
cost-cutting reforms while ensuring rural Americans are not 
disproportionately affected. I am pleased the Securing Access 
to Rural Postal Services Act will be included in this year's 
comprehensive bill, the Postal Reform Act of 2013.
    Mr. Smith. I thank the chairman and committee staff for 
recognizing this unique set of challenges facing our rural 
communities and for their willingness to work with me on this 
important issue. I also want to acknowledge the constructive 
input I have received from my district over the last 2 years. I 
appreciate the many ideas shared with me from industry, postal 
workers themselves, and individual patrons of the Postal 
Service.
    Congress must support a robust, efficient, and dynamic 
Postal Service. Without responsible legislation, the Postal 
Service will not be able to return to solvency. I am confident 
this committee will produce a comprehensive reform bill which 
provides universal service standards for consumers, opportunity 
for businesses, and stability for the Postal Service. I am 
committed to continuing to work with this committee, with 
members on both sides of the aisle, to ensure rural Americans 
continue to be an important part of the discussion on postal 
reform.
    Thank you.
    Chairman Issa. Thank you.
    [Prepared statement of Mr. Smith follows:]

    [GRAPHIC] [TIFF OMITTED] T2401.001
    
    [GRAPHIC] [TIFF OMITTED] T2401.002
    
    Chairman Issa. And thanks to the CBO scoring of an estimate 
of closing all 10,000 rural post offices saving in the 
neighborhood of $300 million, we fully concur that H.R. 2615, 
in its entirety, is intended to be folded into the base bill. 
We recognize, as you do, that there are literally dozens of 
fundamental alternatives to an outright closing of a post 
office, including part-time and other techniques that would 
allow service at an appropriate level. So the bill is 
anticipated to limit to 5 percent, as H.R. 2615 does, the total 
number of outright closings.
    I have only one question for you, and we don't usually ask 
questions, but since you did mention rural, how many door 
deliveries would you have in a district like yours.
    Mr. Smith. I don't have that number with me.
    Chairman Issa. Wouldn't it be approximately zero? Wouldn't 
almost everybody in rural Nebraska go down to the curb, go down 
to the front, go down to a box, and pick up their mail, isn't 
that substantially how virtually all of your residents get 
their mail?
    Mr. Smith. I wouldn't say all of the residents, but keep in 
mind that it's not uncommon that someone would have a five-
mile-long driveway in ranch country, at the end of which would 
be their mailbox, and perhaps that is a lot cheaper to have it 
out there by the paved road than five miles down the driveway 
at the doorstep.
    Chairman Issa. You know, it's our intention to make sure 
that we do not make that drive one foot further for any of 
those residents.
    Mr. Smith. Understood.
    Chairman Issa. Mr. Cummings, do you have any questions?
    Mr. Smith, we thank you. We will see you on the floor in 
just a few minutes.
    Mr. Smith. Thank you.
    Chairman Issa. We will now set up the second panel. It will 
be just be a very short break.
    [Recess.]
    Chairman Issa. I thank all the witnesses for their 
patience. Hopefully you've heard from rural America and there 
will be no disagreement here, since there seems to be none here 
on the dais.
    We now welcome our second panel, the distinguished 
Postmaster General and CEO of the United States post office, 
Mr. Patrick Donahoe.
    Mr. Joel Quadraccia?
    Mr. Quadracci. Quadracci.
    Chairman Issa. Quadracci. Joel, I know you well enough, I 
should get the last name right. You are chairman, president and 
CEO of Quad Graphics, one of the largest printers and obviously 
one of the large stakeholders in anything we do.
    And Mr. Cliff Guffey is president of, as previously 
announced, the second-largest, the American Postal Workers 
Union.
    We're very pleased to have all of you. Your testimony is 
important. It will be listened to in the markup.
    Pursuant to the committee rules, we would ask that you 
please rise, raise your right hand to take the oath.
    Do you solemnly swear or affirm that the testimony you're 
about to give will be the truth, the whole truth? Please be 
seated.
    Let the record reflect that all witnesses answered in the 
affirmative.
    I will warn you all that about the time Mr. Donahoe 
finishes, there will be a bell. That will let us get through 
all three of you and then we will break for a period of time 
necessary to take the votes, and unfortunately, the once-in-a-
Congress picture. So members, being politicians, are not likely 
to return until after they get their picture taken.
    Mr. Donahoe.

                       WITNESS STATEMENTS

                  STATEMENT OF PATRICK DONAHOE

    Mr. Donahoe. Thank you, Mr. Chairman. Good afternoon. Good 
afternoon, Ranking Member Cummings, members of the committee. 
Thank you, Mr. Chairman, for calling this hearing today.
    Let me begin by thanking the committee for taking on this 
important challenge of restructuring the business model of the 
Postal Service. The Postal Service continues to face systemic 
financial challenges because it has a business model that does 
not allow it to adapt to changes in the marketplace. We cannot 
pretend that these marketplace changes are not happening or 
that they do not require fundamental changes to our business 
model. We need comprehensive reform now.
    In the past 18 months, the Postal Service reported $19 
billion in net losses, has defaulted on $11.1 billion in 
retiree health benefits to the Treasury, and without 
legislation this year we will be forced to default on $5.6 
billion in payments due to the Treasury on September 30th, 
2013. Our liquidity also remains dangerously low.
    Our financial condition should not obscure the fact that 
the Postal Service plays a vital role in American commerce and 
delivers great value to its customers. Our package business is 
growing and very strong, and our marketing mail will remain 
strong for the long term. Unfortunately, declines in first 
class mail overshadow the healthy parts of our business and 
efforts we have taken to adapt to the lost revenue.
    We have taken aggressive steps to reduce costs. Since 2006, 
we have reduced our annual cost base by over $16 billion. We 
have reduced the size of our career workforce by more than 
200,000 employees, have consolidated more than 350 mail-
processing facilities, modifying hours right now in operations 
at 13,000 post offices, and have eliminated 21,000 delivery 
routes.
    We have been able to accomplish these incredible 
operational changes because of the tremendous dedication and 
effort of our employees. It is to their credit that the 
organization continues to provide high levels of service to our 
customers and community during such change.
    America deserves a Postal Service that can adapt to the 
basic marketplace changes and invest in the future. It needs a 
Postal Service that can evolve and change over time. The Postal 
Service has advanced a plan that can meet these expectations 
and it requires fundamental changes in the way that we 
currently do business.
    Mr. Chairman, we are seeking the authority under law to 
control our healthcare and retirement costs. We can completely 
eliminate the need for prefunding retiree health benefits if we 
can move to our proposed solution. Our goal should be the 
elimination, not just reamortization of any prefunding, and 
this is achievable. Our employees and retirees will also 
benefit from lower premiums and get the same or better health 
benefits. Just by pursuing this one element of our plan, it can 
reduce annual costs by $8 billion.
    We seek the ability to establish a defined contribution 
retirement system for new employees. Given the changes that 
will occur in our industry in the coming decades, I believe it 
is fundamentally unfair to the Postal Service and future 
employees to maintain the defined pension system.
    With the authority to move to a schedule that includes 6 
days of package delivery and 5 days of mail delivery, the 
Postal Service can save nearly $2 billion annually. The 
American public supports this delivery schedule and it's the 
financially responsible step to take.
    We require a more streamlined governance model and 
flexibility under the law to develop, price, and implement 
products quickly. And we are also seeking a refund of 
approximately $6 billion in overpayments into the Federal 
Employee Retirement System.
    If Congress can pass legislation that addresses each of 
these areas, we can close a $20 billion budget gap by the year 
2016 and operate on a financially stable basis. If we do not 
gain that flexibility, our unsustainable losses will continue 
and we will risk becoming a significant burden to the American 
taxpayer.
    There is a simple question to ask about the legislation 
this committee is in the process of developing: Does it enable 
$20 billion in savings by 2016? We believe our plan meets this 
test and provides the most responsible approach for customers 
and employees, but we cannot implement it without legislation.
    Mr. Chairman, we are quickly moving down a road that leads 
straight to a large financial chasm. The postal legislation can 
be a bridge over that chasm. If we build the bridge properly, 
the Postal Service can have a bright future. It can adapt and 
better serve the changing mailing and shipping needs of the 
American industry and the American public, and it can be a more 
powerful engine for economic growth and be profitable and 
operate without burdening the American taxpayer.
    However, we can't get to that future if we don't build that 
bridge, and we need a bridge that gets all the way to the other 
side. Half measures are about as useful as a half bridge. We 
need legislation, together with our planned changes, that 
confidently enables the Postal Service to save that $20 
billion.
    I strongly urge this committee to pass comprehensive reform 
legislation that effectively grants us the authority to operate 
the Postal Service in a financially responsible manner and 
creates a fiscally sustainable model for the next decade and 
beyond.
    Let me conclude by thanking this committee for its 
willingness to address these tough issues and to pass 
comprehensive postal legislation this year. The Postal Service 
is a tremendous organization and needs your help. Thank you.
    Chairman Issa. Thank you.
    [Prepared statement of Mr. Donahoe follows:]

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    Chairman Issa. Mr. Quadracci.
    Mr. Quadracci. You're getting closer.
    Chairman Issa. You know, you'd think with a name that gets 
messed up as often as my four letters that I'd be better. 
Thanks.

                  STATEMENT OF JOEL QUADRACCI

    Mr. Quadracci. Thank you, Chairman Issa and Ranking Member 
Cummings and distinguished committee members, for the 
opportunity to discuss Postal Service and its impact on Quad 
Graphics and the printing and mailing industries.
    I am encouraged that both Chairman Issa and Ranking Member 
Cummings are taking leadership roles in pursuing reforms that 
would lead to the financial stabilization of the Postal 
Service. In some key respects, the drafts are quite close. In 
others, there are disagreements. But it is my hope, and the 
printing and mailing industry will lend strong support to any 
effort to earn bipartisan approval of the necessary reforms.
    My company, Quad Graphics, has grown over the past 40-some-
odd years into one of the largest printers of magazines and 
catalog and retail inserts. We employ about 20,000 American 
workers in the United States, 58 plants, plus dozens of other 
support facilities across 28 states. And I want to be clear 
that we are believers in print. We do believe that print is 
here to stay, but it is evolving, and we have worked with the 
Postal Service on innovative ideas that entail things like 
mobile devices, QR codes, interactive print to make print a 
much more viable part of the multichannel world. And so print 
is here to stay, and we have to make sure we have the ability 
to deliver it in an efficient manner.
    So what's at stake here is that the Postal Service is a $65 
billion business supporting a $1.3 trillion industry that 
provides 8.4 million Americans with family-supporting jobs, all 
of which accounts for 9 percent of the U.S. gross domestic 
product. So it really is about deciding whether or not we want 
to have the post office self-funding and sustainable or whether 
we want to offload the problem onto the taxpayers.
    In terms of the decline in volume and excess capacity that 
exists, pricing back in 2007, the significant increase that 
happened then, along with the recession, has led to a permanent 
reset within the printing and mailing industry. The last great 
increase before the CPI cap was implemented in 2007, which was 
double digit in size, led to double-digit decrease in volume. 
On the heels of that rate case, the great recession continued 
the erosion of volumes to the combined impact of about 25 
percent out of the volume of not only the post office, but our 
industry.
    This, we believe, has become a permanent reset because 
people have figured out how to be more efficient as well as 
have used things like the internet and tablets to take the 
place of some of that spend.
    The reality is the USPS and private industry must rightsize 
to the demand as price increases will not provide additional 
revenue, but will lead to further erosion of demand. Excess 
capacity and costs are the problem and it must be fixed. The 
Postal Service has the capacity to produce approximately 300 
billion pieces of mail; however, the projected volume in 2013 
is closer to 150 billion. This is an unsustainable fact that 
leads to costs far outweighing the actual demands. If excess 
cost were removed, the costs of delivering the products would 
be much closer to being aligned.
    Quad Graphics has a lot of experience in rightsizing, 
unfortunately. When the great recession happened and the 
industry lost its volume, because we had a strong balance sheet 
and a strong business, we were able to take advantage of it. We 
are about a $1.7 billion company. We acquired a $3 billion 
competitor who had gone through bankruptcy and lots of issues. 
We knew that the opportunity was consolidation because we knew 
the industry had to. There was excess capacity. We took on the 
hard work of closing over 21 plants throughout our network to 
make sure that the remaining business, the resulting business 
of this combination would be sustainable on into the future.
    The private sector economic activity is at risk unless 
Congress acts to ensure the Postal Service is sustainable. The 
Postal Service reform cannot wait until the last minute as it 
hurdles towards insolvency. The crisis of confidence is already 
costing the industry customers and volumes as marketers decide 
how best to spend their advertising dollars. Fear of more large 
increases in pricing will scare volume away.
    Our industry changes rapidly. Quad, our customers, and the 
Postal Service need to be nimble and flexible, and the Postal 
Service must be allowed to make the business decisions that are 
necessary without artificial constraints in order to allow that 
to happen.
    For reform to be legitimate and effective, we believe there 
needs to be six key provisions in this. Assuring the Postal 
Service has the authority to streamline its operations to 
rightsize the capacity. Maintain a postage rate structure with 
a CPI cap. Change in the delivery schedule to 5 days, something 
the industry hasn't been clear on, but I think we feel that, in 
conjunction with the rest of the reforms, we are willing to 
support 5-day delivery and can adjust to it. Return to USPS its 
overpayments to the Federal Employees Retirement System. 
Reamortize of payments for prefunding retiree health benefits 
from 10 years to 40 years without impacting what is due to the 
employees. And also provide the USPS the ability to go out and 
shop different healthcare benefits, something that Quad 
Graphics has experience at doing, and our cost happens to be 20 
to 30 percent lower than all industry. And so there are options 
out there not only to shift where things are paid, but actually 
to reduce how much has to be paid.
    So I thank you, Mr. Chairman, for the time, and I urge you 
to move this along as we are at a stage where our customers are 
concerned. Thank you.
    Chairman Issa. Thank you.
    [Prepared statement of Mr. Quadracci follows:]

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    Chairman Issa. Mr. Guffey.

                   STATEMENT OF CLIFF GUFFEY

    Mr. Guffey. Thank you, Chairman. I want to thank you for 
adopting some of senior member Cummings' proposals right up 
front, especially the using the postal demographics. I think 
that's a huge step forward
    The Postal Service was not broken in 2006 when Congress 
passed the PAEA. As a consequence of that legislation, it is 
nearly broke. But it still is not broken. Even today it 
delivers mail to every address in the United States and 
delivers 6 days per week at less than half the cost of mail in 
other industrialized nations. As a matter of fact, I think we 
looked at England. England's is 0.6 of a pound, so it's a 
dollar a letter there, and there are no discounts. I think the 
discounts in this country are appropriate, they are well, but 
taken in a whole with the whole Postal Service, everything is 
operating properly and there needs to be some adjustments to 
save this grand institution.
    Congress needs to legislate to remove the burden of health 
benefits prefunding. With that and a few other changes, the 
Postal Service can continue to provide excellent and universal 
service to the American public. Individual mail-processing 
plants and post offices should not be judged in isolation. They 
are a necessary part of the universal service network. I would 
like to point out that probably over 250 plants have already 
been rightsized, and we are to the point now where the more 
rightsizing that we get, the more that the mail is delayed.
    In other words, if the mail is delayed 2 or 3 days by going 
to other plants and getting to the point where it loses its 
value to the customers and we lose the opportunity to keep the 
customers that we have now if we keep rightsizing. Rightsizing 
is not wrong, it's not inappropriate as long as it doesn't 
damage the product. And the product needs to be universal 
service, overnight or 2 days at maximum.
    Small offices where the mail is going is just as important 
as large offices where the mail begins. Without the network, 
none of the network pieces will work. All the pieces fit 
together. Cutbacks due to financial pressures have caused a 
severe cut in service. The situation will only get worse if 
postal management is forced or permitted to continue it present 
course.
    The network consolidation plan the Postal Service announced 
on May 17th, 2012, is really a plan for dismantling and 
weakening the Postal Service. After reviewing that plan, the 
PRC concluded that the net savings from all these cuts in 
service could be as little as $46 million. Although this may 
sound like a great deal of money, it is only about 0.06 of 1 
percent of postal revenues. More optimistic cost-savings 
projections are built on ridiculously high assumed productivity 
increases.
    I am sure the members of this committee have seen numerous 
press accounts, as I have, that report strong complaints from 
postal customers about delayed mail because of the network 
consolidations. We received an article today about the fact 
that Fastenal Corporation's finances have been damaged by 
delayed mail. Their accounts receivable are not receiving the 
moneys in a proper timeframe.
    Mail is being delayed more than the Postal Service thought 
it would be. When a mail processing facility is closed, mail is 
sent to a distant facility for processing. It is very common 
for delays to occur and for mail not to be transported back to 
the original processing area for an on-time delivery.
    In many places, postal mangers have tried to address this 
by requiring mailers to mail before the end of the business 
day. When mailers cannot do that, such changes cut off mail and 
delay it a full additional day. These unintended delays are 
compounding the effects of the Postal Service reduction in 
delivery standards. Where the Postal Service is intended to 
delay mail 1 or 2 days, the actual effect is greater. The 
Postal Service now plans to deliver Tuesday's mail on Wednesday 
or Thursday. Often it does not get delivered until Friday. Mail 
intended for delivery later in the week is not being delivered 
until the following week.
    These are unnecessary cuts in service to the public. 
Congress should require the Postal Service to provide overnight 
delivery of first class mail in local delivery areas and prompt 
delivery of first class mail elsewhere.
    Congress also must recognize that solving this problem will 
require an increase in postage rates. The Postal Service should 
be permitted to raise rates to increase postal revenue as long 
as the increases are consistent with the market for postal 
services. The CPI cap should be repealed. The situation facing 
the Postal Service is dire. It is important for the Congress to 
refund Postal Service overpayments to CSRS and FERS. Postal 
Service payments to CSRS and FERS should be recalculated on the 
basis of Postal Service employees' experience.
    Congress should reject proposals to create a new class of 
business mail. Further, the Congress should not require to make 
some of the changes that the Postmaster General is asking, but 
should allow it. The unions and management can work together to 
create a better Postal Service for all of the employees of the 
Postal Service. I think the unions are willing to do so, it's 
necessary, but do not require that which could be allowed to 
happen. Thank you.
    Chairman Issa. Thank you.
    [Prepared statement of Mr. Guffey follows:]

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    Chairman Issa. I'm going to try and squeeze in a first 
round of questions, try to minimize the time you have to wait.
    Mr. Quadracci, you listened to the head of the second-
largest union say that a rate increase fixes the problem. What 
does a rate increase do to the customers that you serve, which 
represent in flat mail probably more than any other single 
group?
    Mr. Quadracci. Well, I think it would be devastating. I 
mean, selfishly I should want it because I'd have fewer 
competitors at the end of the day, but I don't think that's 
what we want to do here.
    We saw in 2007, when our customer base had a significant 
increase, we saw a direct correlation to the drop in count. 
Remember, for people like catalogers, people who are using the 
mail to sell product, there is two lists. There is the customer 
list, people they already have captive, but then there is the 
prospecting list where they're trying to get more customers, 
and the problem is, there's a response rate. If the response 
rate isn't great enough to offset the cost, they drop that and 
they find other ways to prospect. So we will see a devastating 
reduction in volume from our customer base if that were to 
happen.
    Chairman Issa. Thank you.
    Mr. Donahoe, you have exigent authority to raise rates, so 
in a sense you could do what Mr. Guffey is asking. You have to 
balance those. What do you think would happen if, without 
reducing most of the loss through other means, if you simply 
sort of wrote a rate increase of 20 percent roughly across the 
board, roughly, what would be needed to balance the books, 
right?
    Mr. Donahoe. If I wrote a rate increase of 20 percent, Mr. 
Quadracci would faint.
    Chairman Issa. But you'd lose how much business? Let's say 
$4 billion, what would you be----
    Mr. Donahoe. It would be more than 20 percent. More than 20 
percent. In our plan----
    Chairman Issa. And what would that do to the efficiency of 
the system if that much volume dropped off?
    Mr. Donahoe. We already have a substantial amount of 
overcapacity. Our plan calls for no rate increases over the 
CPI. It's predictable, customers can plan on that. They're 
planning budgets right now for what they're going to mail next 
year. That's why we are so careful and that's why we are 
pressing hard for the legislation now. Let's get this done. 
These guys can plan on what they're going to put in the system. 
We're getting some growth back. We don't want to hurt that 
growth
    Chairman Issa. Now, if we did do this increase and we lost 
20 percent volume, in a sense, we would have 20 percent of the 
letter carriers idled. In other words, there would be, even 
though it's not allowed under the current collective 
bargaining, 20 percent of letter carriers would have nothing to 
do if 20 percent of the volume went away. Wouldn't that be 
true?
    Mr. Donahoe. If we lost 20 percent of the volume, it would 
be devastating to our finances.
    Chairman Issa. I just want to understand from a labor 
standpoint. If we want to maintain the maximum number of 
efficient, effective postal workers in the processing centers, 
in the retail operations, and carrying the mail to every point 
in the Nation, the maximum number of people being used 
efficiently is based on the maximum volume. Isn't that true?
    Mr. Donahoe. That's true
    Chairman Issa. So volume drives the question of employment, 
assuming people are efficient and effective, right?
    Mr. Donahoe. That's correct.
    Chairman Issa. Mr. Guffey, one of my questions, one of Mr. 
Cummings' ultimate questions, too, is don't we need to get the 
maximum level of efficiency, use attrition and other means to 
help reduce the workforce to match the current volume and keep 
the price low or as low as possible to maintain the maximum 
volume and thus the maximum employees for your union and all 
the other trade unions?
    Mr. Guffey. Of course, and that's what's been going on for 
the last 10 years, the reduction and the productivity 
increasing and consolidating the plants.
    Chairman Issa. Okay. So when you sort of sneered a little 
bit, just a little, about these money savings, if I understand 
correctly, what you're really saying is you'd like to have an 
active role in whether something pencils out or not, but you're 
not objecting to the Postmaster finding ways to deliver the 
same amount of mail with lower total labor, lower total costs, 
and maintaining that volume.
    Mr. Guffey. Well, it might be done with lower labor and 
additional lower costs, and we have done a lot of that in our 
last contract. We saved the Postal Service $3.8 million. When I 
talk about raising the rates, I'm not talking about a 20 
percent raise. I think I would faint just as much as----
    Chairman Issa. I just want to look at $16 billion of loss, 
or even if you did all the maneuvering you could do under 
current law, it would still be, you know, on $64 billion in 
revenue, you're losing more than $12, sans these readjustments 
of retirement. To me that's 20 percent. You got to get it from 
somewhere, and if you don't get it from the American Lung 
Association's mailer, you've got to get it from somebody else's 
mailer to get more.
    Mr. Guffey. There are reductions that we're talking about 
here in refinancing the long-term health insurance for the 
retiree.
    Chairman Issa. Right----
    Mr. Guffey. We are talking about many things.
    Chairman Issa. Right. And all of that's on the table. 
Absolutely, all of it's on the table
    Mr. Guffey. So that would not throw all of the cost savings 
into a rate increase.
    Chairman Issa. Okay. I just want to understand that--and 
the point that I was making, and hopefully all three of you are 
going to agree, is the least desirable part of any reform is 
the rate increase that inherently drives down volume. Is that 
agreed across the board? That that's the last thing you really 
want. If you can find savings without, including healthcare 
cost savings, if you can find savings without reducing those 
things which drive people to use your service, that's the best 
solution, right?
    Mr. Guffey. Correct, but that would also include the fact 
not slowing the mail down because that will also drive them 
away.
    Chairman Issa. This committee is very concerned about 
quality of service, quality of service, and we want to define 
it and we want to make sure our final legislation provides the 
guidance that is going to assure quality of service.
    Now, understand, I flew to Alaska, and I understand that 
their needs are for a certain type of delivery. They are less 
concerned about speed, while others are more concerned about 
time perhaps than whether they can get a can of Coke 
delivered--or case of--actually a pallet of Coca-Cola 
delivered.
    Mr. Ranking Member, I think it would be fairer if we pick 
you up when we come back. I want to thank you all, and we'll 
stand in recess until after that last vote.
    [Recess.]
    Chairman Issa. Okay. While we wait for others to get back, 
I'm going to use the fact that I sprint better than some of the 
other old guys.
    Two quick things. Mr. Donahoe, when you talked about the 
savings of about $8 billion in your opening statement, I was 
intrigued because you and I have had this discussion before, 
and I've been very willing to give you that jurisdiction if we 
can, although we are working on a government-wide attempt to 
save quite a bit in healthcare cost.
    The question I have is, if we were--and again, Mr. Guffey 
will be back in a minute, I'm sure--but if we were to give you 
that authority, allow you do it, and essentially give you back, 
quote, your prefunding, would the Federal Government be off the 
hook? And if so, how would we eliminate the contingent 
liability if, let's say, 20 years from now there wasn't enough 
money and ultimately people, retired postal workers, looked to 
the Federal Government as the bailout? You might remember the 
railroad retirement.
    Mr. Donahoe. Mr. Chairman, we've put together a proposal on 
the healthcare. What we proposed was that we would take our 
plan over Postal Service wide. The key to success with that 
plan, we'll also be able to cover the retirees.
    Now, we have had discussions with the unions. There has 
been some suggestions from Mr. Rolando, as you remember at the 
last hearing----
    Chairman Issa. Yes.
    Mr. Donahoe. --that we try to organize that under FEHB 
because there was been a concern from the employees of not 
moving away from FEHB. From our perspective, we're okay to 
wait, as long as we get the savings. The savings are what's key 
to us. If I could put a chart up here.
    Chairman Issa. Sure, if they have it.
    [Slide]
    Mr. Donahoe. Yes. If I could explain, this chart is the key 
to the $8 billion savings. If you look on the far left, you'll 
see a $10,700 column. What that is, that represents the average 
healthcare cost for a 65-year and older postal retiree on 
average. The Postal Service retiree pays that. We pay 70 
percent. They pay 30 percent.
    Chairman Issa. Right.
    Mr. Donahoe. So, if you take a look at the concurrent bar 
on the right, the largest bar, that represents where we are 
from a prefunding perspective right now. We've got about $49 
billion in the bank, with another $46.9 billion on the hook. 
It's $96 billion prefunding.
    Now, we are required to make these payments because this is 
the most affordable plan that you can get existing in the 
system right now, the FEHB system. The next chart, the next 
column over, you can see it says, ``With Medicare A and B'' in 
the blue. The second one to the left.
    [Slide]
    Chairman Issa. I'm going to cut you short in one sense. It 
is at least under consideration to move the entire Federal 
healthcare benefit to one that would put Medicare in first 
position as you were talking about doing.
    Mr. Donahoe. That's excellent
    Chairman Issa. So if we do that with the entire Federal 
workforce, including postal workers, if I understand correctly, 
that will take a substantial portion of the $8 billion you hope 
to save in addition to the amount would be saved within the 
Federal system.
    Mr. Donahoe. If you require A, B, and D. We pay for 
everything now. The mailers pay for it. It's postage money. 
What's happens is, the farthest right-hand column, you can see 
we in fact would have a small surplus. We would have completely 
prefunded everything we needed.
    Chairman Issa. Okay. We'll follow up more on that. I wanted 
to make sure I understood it because our committee, of course, 
controls the entire Federal workforce's benefits, and we are 
looking specifically at--and if the ranking member were here, I 
know he would chime in positively--we are looking at making 
sure that Federal employees do not pay, and the Federal 
Government on behalf of Federal employees do not pay more or 
less than Lockheed Martin, IBM, or any other private sector 
company.
    Currently, as you've said to us, and we fact checked it, 
the Federal Government is more generous to the savings, not of 
the Federal worker necessarily, but of Medicare, which means 
we're not properly saving. And of course, as you know, since 
the mid-1980s, your postal workers and all Federal workers have 
paid into----
    Mr. Donahoe. Yes.
    Chairman Issa. --the system so, they're fully vested.
    Mr. Davis, are you ready to go?
    Mr. Davis. Yes, sir.
    Chairman Issa. Then it is my distinct pleasure to recognize 
the ranking member in presence, Mr. Davis.
    Mr. Davis. Thank you very much, Mr. Chairman. And let me 
thank you and the ranking member for moving us to the point 
where we have actually got legislative initiatives to take a 
good hard look at. I want to thank all of the gentlemen for 
being here and testifying.
    We talk a great deal about the quality of service that is 
provided, and we've talked a great deal about universal 
service. Let me ask you, Mr. Donahoe, could universal service 
be maintained when the service standard requirements are 
degraded through unilateral and/or arbitrary reductions in the 
workforce or by realignment of the network, that is the mail 
network? And, you know, there is the claim that we lose $25 
million a day. Is that an assessment that we are pretty 
comfortable with?
    Mr. Donahoe. Thank you, Congressman. Let me first off on 
the service standards. We measure everything. We measure first 
class mail, commercial first class standard mail and 
periodicals. Our people are doing a tremendous job. And right 
now everything we measure is showing us at all-time service 
levels. And that's from taking the mail all the way through 
delivery. And so with all the consolidations we've been doing, 
the people have been doing a very good job with that.
    One of the things that we're weighing for next year, we are 
looking at the system right now to figure if there is a way 
that we can maintain current service standards and continue to 
make the consolidations to absorb in the excess capacity that 
we have. That's a balancing point. No final decision has been 
made on that right now. But we think that as we have run 
through the first sets of consolidations, we find the service 
levels have held very high and we do check this with our 
customers, both those who send mail through the blue mailboxes, 
as well as the commercial mailers.
    As far as the $25 million a day, that's a number that we 
have used based on the fact that we have not only had operating 
losses within the system, but we've had the loss that's been 
associated with the prefunding. I think if you check today, 
this year, we are going to finish our finances approximately, 
this is approximately, about a billion dollars better than we 
said in the beginning of the year because we've had revenue 
increases, especially in the package business, we have been 
able to absorb those in. We have also been able to work and 
take advantage of negotiated contracts with Mr. Guffey and our 
other union leaders and be able to reduce the rate of pay with 
the employees. So that's helped. So it's a little less than the 
$25 million a day right now. Thank you.
    Mr. Davis. Thank you. Let me ask you a little bit about the 
5-day delivery discussions that we've been having. Have you 
asked the PRC for an updated advisory opinion on the savings 
from moving to a 5-day modified delivery?
    Mr. Donahoe. The last time we had an official discussion 
with them was last year when they came out with the savings 
statement of $1.7 billion. We think it's a little bit higher. 
There have been some other adjustments we've made, as you know, 
because we've said we would deliver packages, especially 
medications, on Saturday, too.
    Mr. Davis. Are we currently losing money on Saturday 
delivery?
    Mr. Donahoe. Well, when you take a look at universal 
service, you could look at pretty much by address. Some places 
you are always going to make money Monday through Saturday, and 
other places, just by as hard as it is to get to the places, 
you're going to lose.
    So from a fairness perspective, that's why we've made the 
pitch around Saturday because it's the lightest day of the 
year--or lightest day of the week. It's a day of the week where 
you have fewer business open. So we've always tried to figure 
out in order to maintain universal service to, you know, hard-
to-reach places across the country, we would just go with 
Saturday as the standard for everybody.
    Mr. Davis. Well, let me just quickly, Mr. Guffey, given the 
continuous decline of mail volume, do you think that 
eliminating the postal monopoly on access to the mailbox would 
create a serious disadvantage for the Postal Service?
    Mr. Guffey. I think it would create a serious disadvantage 
for the American public. Keeping the monopoly on the mailbox is 
what keeps the Postal Inspection Service able to follow through 
and investigate problems with lost mail and what have you. If 
other people have routine access to postal mailboxes, I think 
that would deteriorate.
    The Postal Service, to have its universal service, needs 
that right, and if it doesn't have that right, then universal 
service will deteriorate very fast in this country.
    Mr. Davis. Thank you, gentleman, very much.
    And thank you, Mr. Chairman. And I yield back
    Chairman Issa. I thank the gentleman.
    We now go to the gentleman from Texas, the subcommittee 
chairman, Mr. Farenthold.
    Mr. Farenthold. Thank you very much. I appreciate you all 
being here.
    I'll start with Mr. Quadracci. Did I get that right.
    Mr. Quadracci. Quadracci
    Mr. Farenthold. Quadracci.
    Chairman Issa. Quadracci. Couldn't you get it right on the 
15th time the way I finally did?
    Mr. Quadracci. Here, everybody together, Quadracci.
    Chairman Issa. Quadracci.
    Mr. Farenthold. Quadracci. All right.
    There was some testimony earlier on--and I'm sorry, I 
forget who made it--that as a result of some of the 
consolidations--and maybe it was just part of a question--there 
have been substantial delays in getting product delivered. Have 
you noticed that within your experience and for your customers?
    Mr. Quadracci. I would say in our experience over the last 
2 years, the performance has been better than it's ever been. A 
couple of years ago, the post office put in a system to really 
help monitor performance throughout the network.
    Now, I want to be clear I'm speaking about catalog, 
magazine, and direct mail. We have not seen those disruptions 
as they've realigned things. And we have better visibility to 
when there are disruptions, we can contact them very quickly 
and resolve the issues. So it's actually been quite good.
    Mr. Farenthold. Thank you.
    And, Mr. Donahoe, we're talking a lot about giving the 
Postal Service the flexibility to do what they need to do to be 
competitive in the 21st century. The bill, the draft 
legislation you've seen, did we go far enough? Did we give you 
what you need to do that?
    Mr. Donahoe. I think that, as I've stated before, it's our 
intention to continue to press for comprehensive legislation. 
We think that what the bills do in terms of the reamortization 
helps, it gives us some breathing space, but as the chairman 
said, you would be looking at overall healthcare of the Federal 
system. I would strongly encourage that. I would strongly 
encourage a good deal of competition in those systems and bring 
the prices out, because we know we're paying way too much now.
    So from that perspective we think it's good. We like the 
fact that there's this 6- to 5-day considerations in there, and 
we would also like to encourage the continuation on flexibility 
with governance in pricing.
    Mr. Farenthold. All right. And just so we get it in the 
record, and I know we've talked about this in subcommittee 
hearings, I do want to make sure it's clearly in the record, 
can you explain to us why mail volume is going down and whether 
or not you see any way of turning that around?
    Mr. Donahoe. Let's break it down into three categories--
first class, commercial standard, and packages. Packages are 
growing. We are seeing double digit growth. It's been great, 
mainly tied in----
    Mr. Farenthold. Even with competition from private 
carriers?
    Mr. Donahoe. Yes. And we compete with FedEx and UPS. We 
also work with FedEx and UPS, as well as Newgistics, DHL. We 
provide a lot of last-mile delivery for them, so it's been 
growing in leaps and bounds very good.
    From a standard mail, advertising mail, Mr. Quadracci can 
tell you it's stabilizing. There's a lot more technology being 
applied in that area. So it gives the customers the ability to 
match up digital and physical, use it for advertising. We think 
that there is a nice growth opportunity.
    Where we're seeing dropoffs is first class. Single piece 
mail, we've lost 60 percent of it in the last 10 years. People 
pay bills online. It's cost us about $14 billion in today's 46-
cent stamp, if we had that. The other area that we're worried 
about, it's been fairly stable, but that's commercial first 
class, bills and statements. We've done a lot of work to try to 
keep people in that mail.
    Mr. Farenthold. And with respect to some of the proposals. 
A chief innovation officer, you think that's probably a good 
idea, too?
    Mr. Donahoe. I think that's a great idea. We pride 
ourselves on a lot of the innovations we've been doing now. I 
think that we work very well, listen to our customers. Our 
people, from a craft perspective, come up with a lot of good 
suggestions, too. I think it's a great idea.
    Mr. Farenthold. And we talk about the drop in volume of 
first class mail. Do you think it would be a more substantial 
or quicker drop in that if the standards of the service dropped 
where, for instance, if I dropped--you know, put a piece of 
mail in the mailbox at my house, put the little red flag up, 
now it gets to wherever it's going within Corpus Christi the 
next day. If that went to 2 or 3 days within the city, do you 
think that would accelerate that drop substantially?
    Mr. Donahoe. It certainly would if it was 3 days, and we're 
looking at that now to try to figure how, as we continue to 
shrink the network down, we can try to maintain some level of 
overnight service. But, you know, we've got to see where we're 
at in that.
    Mr. Farenthold. All right.
    And I want to ask Mr. Guffey, do you see some areas for 
cost savings in innovation, specifically, that we need to 
address above and beyond the obvious issues of prefunding and 
the stuff we normally talk about? Do you see some efficiencies 
we can find and some ways we can go that you and your folks 
could get behind?
    Mr. Guffey. I think that----
    Mr. Farenthold. Microphone, please, sir.
    Mr. Guffey. I think there are some opportunities at this 
time to work with the Postal Service on some of the healthcare 
issues. It's something that--we recognize the problem, and the 
whole country has the problem.
    We think there is opportunities to sit down with the Postal 
Service and do something about the cost to the Postal Service 
for the retirees. In other words, it's not fair for the Postal 
Service to pay a full boat, the full cost of a health insurance 
plan for a person who's going to get most of his services from 
Medicare.
    Now, that is a tremendous cost to the Postal Service, we 
recognize that, but because they pay that much money for the 
retiree, that money goes into the healthcare system for the 
current employee. So, you know, in this dynamics, there's going 
to be some shift of cost to the Medicare and there's going to 
be a lot of shift to the current employees.
    Meeting that fine balance is something that we think we can 
do. I think all the unions can get together and work that out 
with the Postal Service. It's something we don't want to be 
required to do but allowed to do.
    Mr. Farenthold. Well, I see my time has expired. I 
appreciate you all's coming before the committee and testifying 
today. Thank you.
    Chairman Issa. I thank the gentleman.
    And, Mr. Donahoe, when I was explaining what we were doing 
with the health care, we were also doing the one-, two-family 
that you had proposed. So that was one of your other savings. 
Both of those would be included, which I think is another----
    Mr. Donahoe. Thank you very much. That would really help.
    Chairman Issa. Thank you.
    We now go to the gentleman from California, who was one of 
the first back, for 5 minutes, Mr. Cardenas.
    Mr. Cardenas. Thank you very much, and boy am I tired. 
Thank you, Mr. Chairman. I tried to rush back, and I guess it 
paid off.
    Chairman Issa. You need to know the shortcuts.
    Mr. Cardenas. I'm learning, I'm learning. Thank you very 
much. And I'd like to thank the panel for being here and 
answering our questions.
    My first question is, according to the Congressional 
Research Service, Postal Service employees are the largest 
single pool of workers within the Federal Employees 
Compensation Act program, otherwise known as FECA. In its 
report, the CRS noted that, and I quote, ``Postal workers are 
injured on the job at rates disproportionate to the rest of the 
Federal Government. Postal employees make up almost 22 percent 
of the Federal workforce but they account for almost 40 percent 
of the cases recorded in 2012.''
    Mr. Donahoe, do these figures sound correct to you?
    Mr. Donahoe. Yes, sir.
    Mr. Cardenas. Okay. Could you explain why the Postal 
Service accounts for such a large percentage of Federal workers 
compensation cases?
    Mr. Donahoe. Yes. Number one, the Postal Service--the work 
that our people do is hard work. If you think about today, in 
Washington, D.C. or anywhere up the east coast, you've got 
letter carriers out in 95-degree heat delivering mail. If you 
go into our processing plants in the evening where Mr. Guffey 
represents the people, that's a hard job. You're on your feet 8 
hours a night, you're putting mail in a machine and taking mail 
out.
    We are very proud of the fact that in the last 10 years the 
Postal Service, working with the unions and working with OSHA, 
have been able to reduce workplace accidents as measured by 
illness and injury rate by 50 percent. And if you take a look 
at what's happened over that time, there has been a lot of work 
with ergonomics and whatnot. We still have a high injury rate. 
Any accident is unacceptable. But we're proud of the fact that 
we have been able to push those rates down.
    Mr. Cardenas. So, basically, so that everybody understands, 
even in our most automated times that we've ever seen in the 
world and in this country, the Postal Service is still very 
manual intensive in the sense, like you mentioned, postal 
workers walk door to door, they don't electronically meet 
people at their front door. In addition to that, we still have 
people who are actually, such as in warehouse-type situations, 
where they're moving goods, et cetera?
    Mr. Donahoe. Yes.
    Mr. Cardenas. Okay. So in general, I would assume that 
organizations who are still doing an intense amount of that 
kind of work have injuries in their workplaces more than 
perhaps maybe in an office setting in general?
    Mr. Donahoe. Yes, I think that's true.
    Mr. Cardenas. Okay. So also my next question is, does 
having a higher than normal injury rate reduce overall 
productivity and efficiency within the Postal Service?
    Mr. Donahoe. Yes, that's why we focus so hard on making 
sure that we reduce the rates. Because an accident is something 
that, you know, has a cost in the short term, but what we also 
worry about is long-term injury to employees. You can get 
injured at work and carry a back injury for the rest of your 
life. So that's why we focused on trying to reduce this.
    Mr. Cardenas. And you mentioned earlier about the ways in 
which--or the methods that you've taken advantage of as a 
department such as ergonomics. Can you condense for that what 
exactly does that mean? It sounds kind of foreign.
    Mr. Donahoe. Well, if you think about on a nightly basis a 
person would go and work on a certain machine. There's work 
that we've done to help people learn to stretch better so that 
when they lift things or move things that they don't have a 
tendency to hurt themselves. And then you can also employ 
various--a piece of equipment, some back support, and things 
like that. These are all the things we've learned over the 
years to try to reduce the accidents.
    Mr. Cardenas. And they have been reduced, right?
    Mr. Donahoe. Yes, 50 percent down in 10 years.
    Mr. Cardenas. Okay. I think it's important for the 
taxpayer--excuse me, the ratepayers to know that.
    In your April testimony before this committee, you asked 
Congress to reform the workers' compensation program and 
specifically you requested that the Postal Service, ``be 
provided with the ability to settle Federal workers' 
compensation claims. This would allow the Postal Service and 
the employee to agree on a settlement, sever ties and end the 
employee's receipt of FECA benefits.'' Why did you make that 
request and is it practical? And do you still believe that we 
should give you that authority?
    Mr. Donahoe. Yes. We believe it is. What we'd like to see, 
there is a bill presently being sponsored and being discussed, 
I don't know where it is exactly right now between the Senate 
and the House, that talks about changing some of the retirement 
requirements for people on FECA to move to, you know, move 
people off FECA, onto retirement. We support that.
    We would also like to have the ability to have a buyout 
process like the States do where a person could take a buyout 
and go on with their lives. We have 17,000 people as we speak 
on the periodic rolls right now. It's going to cost us, we 
estimate, about $16 billion in liability. We think that we 
could reduce that, let a person get on with life, they could go 
work somewhere else and they would be off our rolls.
    Mr. Cardenas. Okay. Thank you very much.
    My time has expired. I yield back. Thank you.
    Mr. Farenthold. [presiding] Thank you very much.
    We'll now recognize the gentleman from Florida, Mr. Mica, 
for 5 minutes.
    Mr. Mica. Thank you.
    Well, I guess a lot of your costs, Mr. Donahoe, are related 
to labor, something like 80 percent of the costs?
    Mr. Donahoe. Yes, 79 percent.
    Mr. Mica. And how about benefits like health care and stuff 
like that? You seem to have a lot of issues with this so-called 
prepayment, but what percentage are the benefits?
    Mr. Donahoe. In terms of benefits, benefits make up 48 
percent of all postal salary and benefit costs.
    Mr. Mica. Now, you know the President is delaying, I guess, 
the employer mandate. What if we opened up for savings purposes 
the postal employees to join--well, actually just put them on 
Obamacare? What would you think of that?
    Mr. Donahoe. Well, we have actually gone out and solicited 
in the private market and secured private insurance outside the 
Federal system for our noncareer employees.
    Mr. Mica. So you wouldn't object if I have an amendment to 
open it up? What about a mandate?
    Mr. Donahoe. I would like to open it up for free 
competition. We'd like to go out and bid, get everybody to bid 
and give us the best price for health care. We don't do that 
now.
    Mr. Mica. How about you, Mr. Guffey? Would you like to 
either have a mandate or to open it up to Obamacare?
    Mr. Guffey. I think Obamacare was written in such a manner 
that a person could keep their current insurance, and we're 
very happy with our current insurance, thank you.
    Mr. Mica. Well, we are shifting some of the employees, I 
think Members of Congress and also staff. And 40 percent of his 
cost. And it seems to be touted as such an economy saver for 
maybe reducing some of their costs. Maybe I could look at that 
and work on an amendment with you all when we get the bill up.
    Let's see. How many employees do you now have, Mr. Donahoe?
    Mr. Donahoe. Currently we have 492,000 career employees and 
119,000 noncareer.
    Mr. Mica. And how many would be--are sort of mandated by 
your union agreements, labor agreements? All of those 
positions?
    Mr. Donahoe. No. No. We've got about 50,000 people in the 
organization on the career side, that would be the Postmaster, 
supervisors, administrative people in that, and they are not 
mandated by union agreements.
    Mr. Mica. Okay. So you could go down--I mean, you have, 
say, 440,000 that are mandated?
    Mr. Donahoe. Yes.
    Mr. Mica. Do you have vacancies?
    Mr. Donahoe. We have vacancies. We continue to absorb the 
vacancies.
    Mr. Mica. So you're not filling them?
    Mr. Donahoe. No. We have absorbed 200,000 people under our 
system in the last 6 years.
    Mr. Mica. Right. And to get to sort of a break-even is 
there any projected, is it going to be 300,000, 400,000?
    Mr. Donahoe. Right now if we were in a 5-day delivery mode 
with the downsizing of the network we think we would be able to 
support about 400,000 career employees and about 65,000 to 
70,000 noncareer. That would equate to around an operating 
expense with noncareer of about $62 billion a year.
    Mr. Mica. I noticed the different proposals to try to 
increase your revenues. I support the 5-day service. But there 
could be the availability of a special service. Is that 
anticipated? Or pay a premium to get mail on a Saturday?
    Mr. Donahoe. One of the things we've looked at, of course, 
is to provide package service on Saturday. There is an option 
if we sort, because we will be sorting mail for post office 
boxes on Saturday, so there could be an option if somebody 
wanted to pay----
    Mr. Mica. But you could have a method and also increase 
your revenue, I think.
    Mr. Donahoe. That is an option.
    Mr. Mica. I pay sometimes for Saturday delivery extra with 
some package carriers, I think.
    And you said you're a billion dollars better off than you 
were, you've had some reductions. So what's the loss, is it 
from $16 to $15, or $15 to $14?
    Mr. Donahoe. No. NO. The loss this year was projected to be 
$7.6 billion. We're thinking--and this is not, you know, it's 
not 100 percent firm at this point--somewhere between $6 and 
$6.4. So it's a little better than a billion better.
    Now, here is the reason why. Operationally, we are probably 
going to be fairly close to a billion dollars better. The 
health care costs are fixed and we'll have a little bit better 
of a rate change with the interest rates, which help us in the 
long-term liabilities for workers' comp, so we get some credit 
on that.
    Mr. Mica. Finally, the unfunded liability. The report I got 
says about $100 billion in unfunded liabilities. Is that 
correct?
    Mr. Donahoe. High $90s, yes.
    Mr. Mica. Okay. Thank you.
    Yield back.
    Mr. Farenthold. Thank you very much, Mr. Mica.
    We'll now recognize Mr. Clay for 5 minutes.
    Mr. Clay. Thank you, Mr. Chairman.
    And according to a recent press release, the APWU's 2010-15 
collective bargaining agreement saved the Postal Service almost 
$3.8 billion over the lifetime of the contract.
    Mr. Guffey, considering those savings, would you say that 
Postal Services' financial condition was taken into 
consideration when you negotiated that agreement?
    Mr. Guffey. Definitely. Definitely. Every negotiation and 
every arbitration the information about the status of the Post 
Office and the problems they're having is under consideration.
    Mr. Clay. Thank you for that response. And the draft bill 
released by the chairman would require the abrogation and 
renegotiation of any existing collective bargaining agreements 
prohibiting the use of reduction in force authority. Instead, 
this bill would require provisions allowing the Postal Service 
to unilaterally fire employees.
    Mr. Donahoe, has your legal department reviewed this 
provision? And if so, have they provided you with an opinion on 
what the consequences of abrogating existing contracts might 
be?
    Mr. Donahoe. Well, we haven't looked at that, and I'm not 
so sure that today that whenever the chairman spoke, I wasn't 
sure if he changed some of that. So I think there might have 
been a change afoot. But we have not looked at that.
    Mr. Clay. I would suggest that your legal counsel look at 
it and----
    Mr. Farenthold. If the gentleman would yield for a second.
    Mr. Clay. I'm sure it's not too far off from what was 
initially proposed.
    Mr. Farenthold. We've agreed to take the mandatory 
renegotiation provision out of the final bill. It is at Leg 
Counsel being drafted now.
    Mr. Clay. Okay. I would hope their legal counsel would look 
at it.
    Mr. Farenthold. Right. And we intend to take that out.
    Mr. Clay. The more eyes the better.
    Mr. Guffey, did the APWU's 2011 agreement have a provision 
prohibiting the use of RIF authority?
    Mr. Guffey. There are specific provisions that go into if 
you do conduct a RIF, and those provisions are spelled out in 
article 6 of our contract. The danger has been, and I don't 
think it's really a danger because the Postal Service and the 
unions are both very concerned about the employees and we've 
been able to manage the downsizing of our organization by 
almost 200,000 employees by attrition/buyouts and excessing 
people to other crafts or to other functions. And I would 
caution that the repeal of the contracts or to prohibit 
negotiating of these things is not necessary.
    Mr. Clay. Would a new collective bargaining agreement 
require the consent of your members?
    Mr. Guffey. Yes.
    Mr. Clay. Okay. And, Mr. Donahoe, is there a particular 
reason why the Postal Service has chosen not to try to 
renegotiate RIF authority in its existing collective bargaining 
agreements?
    Mr. Donahoe. Not that I'm aware of. As Mr. Guffey said, 
we've worked very hard over the last number of years to try to 
make what we call for soft landing for people. As a matter of 
fact, in the latest negotiation we were able to reach an 
agreement to expand the number of noncareer people. We've got 
about 30,000 on the rolls. And they would be used if we needed 
to as a buffer for any big loss in volume. They're hired with 
the idea that they are only temporary. So we've tried to figure 
out how to give the Postal Service the flexibility if workload 
changes.
    Mr. Clay. Also the chairman's bill would replace the 
current conventional arbitration process with a last best final 
offer process. This process establishes a set timeframe within 
which an arbitration board must select a final offer.
    Mr. Guffey, as the president of APWU, do you think the 
current arbitration process moves too slowly?
    Mr. Guffey. It definitely moves too slowly, but the goal of 
the union and management both is to negotiate agreement, get to 
an agreement. There's been few times in our history where we've 
had to go to arbitration. In those panels right now there is 
always a neutral, there's one person from the unions and one 
person from management on those panels to determine what the 
final outcome would be.
    Mr. Clay. And, Mr. Donahoe, would the Postal Service 
benefit from a structured process as required by this 
provision?
    Mr. Donahoe. I think that the timing would help if we would 
resolve things faster. But I like the idea of having a little 
bit more flexibility in terms of what we do now. We have used 
what's commonly referred to baseball arbitration, and it can be 
a little bit worrisome, it's a lot less predictable.
    Mr. Clay. Thank you both for your response.
    I yield back.
    Mr. Farenthold. Thank you very much.
    We'll now recognize the gentleman from Kentucky, Mr. 
Massie, for 5 minutes.
    Mr. Massie. Mr. Donahoe, in talking about the partnership 
with UPS in a press release called ``Brown and Blue Make 
Green,'' you said that, ``It's a great template for how posts 
and private enterprises can work together to better serve our 
customers, the planet and the bottom line. We hope our 
partnership can serve as a model for others to work together in 
new ways, whether they are competitors, collaborators, 
customers or all of the above.''
    Is it a template for how the U.S. Post office can implement 
more partnerships with private industry to deliver a better 
package at a lower price?
    Mr. Donahoe. We work very strongly right now with private 
industry in many different ways. If you would take a look at 
the volume of mail, we have a $65 billion revenue base, it 
would probably be a good $15 billion to $18 billion more in 
just revenue alone if we didn't have work-share partnerships 
with companies like Quad Graphics. Mr. Quadracci's company 
produces mail, sorts it. At the same time, it is very 
efficient. He can drop it into our system and our clerks sort 
it and letter carriers deliver it.
    So that's been a very good working relationship. I think 
that opportunities to work with companies like FedEx UPS, DHL, 
Newgistics has been very good, especially for the paying 
customer, because they're able to get the best price, the best 
value and very timely service.
    Mr. Massie. What about in the area of first class delivery? 
Is there an opportunity to do something similar to what you did 
with UPS with other companies to deliver first class mail?
    Mr. Donahoe. We do what we call first class presort now 
where a lot of companies actually produce the mail and sort it 
and then bring it into us. So that's a pretty active process 
now.
    Mr. Massie. How about in the delivery of it, the final 
delivery?
    Mr. Donahoe. Final delivery to a large extent we've got a 
great delivery force out there, and we do what's called post 
office Delivery Unit drop ship where a lot of packages and mail 
come in at that point and then we deliver the final mail.
    Mr. Massie. How about some innovative ways to deal with the 
problem of keeping up the rural service to rural areas? What 
are some reforms you've implemented? But more importantly, what 
are some that you've thought about that you haven't yet?
    Mr. Donahoe. Well, we're working with our rural carriers 
union right now on what we call a new evaluation system. It's 
come out of our last arbitration. We think it'll be a good 
process to get a good handle on costs for delivery in rural 
areas.
    Of course there's a lot of work that's been done with both 
city carriers and rural carriers on visibility. Our visibility 
to package and soon to be mail delivery is going to be very 
good, so people know within 10 minutes when they got mail in 
their mailbox.
    Mr. Massie. How about the services in the rural areas? For 
instance, when we have a post office close down, there are 
certain services that are no longer provided. Are there 
opportunities to work with private organizations there?
    Mr. Donahoe. Yes. We're doing what's called the Post Plan, 
which is trying to match up the revenues and the workload on 
the window services. But we also have opportunities for people, 
like in a small store, to have what's called a village post 
office. We've got about 350 of them now with another 100 on the 
way. If you own, let's say, a small gasoline station in a rural 
area, it's a little bit extra revenue and it creates foot 
traffic, too, where people come in and mail a package or buy 
stamps at their local store.
    Mr. Massie. So far is that a model that you think could 
work or is working?
    Mr. Donahoe. Yes. Absolutely. There has been a lot of 
interest and we'll continue to expand in that area.
    Mr. Massie. So what is your overall plan for addressing the 
financial crisis?
    Mr. Donahoe. Financial crisis pretty much boils down to 
this: We've got to resolve the healthcare issue. As I was 
saying to the chairman when people came back in, it is worth $8 
billion. We strongly advocate exactly what he has mentioned 
about moving out, taking a look at the entire Federal system. 
We overpay substantially for our retiree health benefits, as 
Mr. Guffey mentioned. On average we pay $10,000 for a post-65-
year-old retiree when, in fact, that post-65-year-old retiree 
should be paying $3,300. Very inefficient. Big changes there. 
Six to five-day delivery, we keep Saturday delivery of package. 
We're looking for some other changes in structure as far as 
some of the opportunities for new growth.
    Mr. Massie. But there are still opportunities available to 
partner with private industry and you found that to work so 
far----
    Mr. Donahoe. Absolutely.
    Mr. Massie. --in rural areas----
    Mr. Donahoe. Absolutely. Rural, cities, across the entire 
gamut. Yes.
    Mr. Massie. Okay. Thank you very much.
    I yield back, Mr. Chairman. Thank you.
    Chairman Issa. [presiding.] Thank you.
    We now go to the ranking member of the subcommittee, the 
gentleman from Massachusetts, Mr. Lynch.
    Mr. Lynch. Thank you, Mr. Chairman.
    Mr. Donahoe, I just want for the record just to express my 
disagreement with you on going to 5-day. I think America is on 
a 6-day schedule now. And we've had this conversation in 
private, you're a good man, we just disagree on this. I just 
think that America's business and America's workers, America's 
families live on a 6-day schedule. And I am very concerned that 
by stopping delivery on Saturday, which is pretty much the 
consensus day that will be dropped off, we would basically 
enhance or exacerbate the downward spiral of the Postal Service 
and we would lose a lot of volume. Our problem right now is we 
don't have enough volume of mail. And I think by eliminating 
Saturday we're going to exacerbate that problem, we're going to 
have less volume, and it's going to be a self-fulfilling 
prophecy.
    And I could just picture myself as a consumer and I'm about 
to mail something on a Wednesday or a Thursday, and if I know 
it's not going to get there by Friday and it's closed on 
Saturday and it's closed on Sunday, well, wouldn't it make more 
sense for me to call UPS instead of putting it in the mail. I 
just think you're going to invite a further decline. But that's 
me. That's my schtick.
    But I want to talk to you about door-to-door delivery. And 
I have great sensitivity to the rural community. I do. I 
understand a lot of the rural communities consist of a gas 
station, a post office, maybe a grocery store, and that's 
downtown for a lot of those small towns. So losing a post 
office is a big thing, it's a big deal, it could be very 
damaging to rural communities, especially given the fact that 
you might have to drive another 200 miles to find another post 
office. So I am very sensitive to their needs. And we've got to 
figure out a way to hold them harmless if possible. And I 
appreciate Mr. Smith's testimony earlier.
    But I also see a proposal in the chairman's bill that says 
that, well, for instance, right now, according to your folks in 
our briefing, they said you provide door delivery to about 37 
million--a little bit more than 37 million homes and 
businesses. And the chairman's plan is to eliminate 30 million 
of that in door delivery. And that's largely urban. And the 
idea is to replace that with cluster boxes or some other means 
of delivering mail.
    Now, I come from a very thickly settled, densely settled 
urban neighborhood where the houses are basically attached. 
There's no open space, there's no place to put a cluster box. 
And you're talking about basically eliminating door delivery 
for urban residents.
    I don't see how this works. And I'm not just speaking for 
south Boston or for the city of Boston, I'm talking about New 
York, Chicago, Los Angeles, Houston, Baltimore, you know. And 
on top of this you're going to have to buy land or find land 
and then construct these cluster boxes. I don't understand how 
you're making money on that, instead of having somebody just 
deliver it the way they have been for the past 80 years.
    Mr. Donahoe. Let me comment on a couple of those. First of 
all, on the small post offices, we have the Post Plan, so 
there's no plan on closing small post offices. So those towns 
that have just got the gas station and whatnot can rest 
assured. We may have fewer hours there, but we'll keep them 
open.
    In terms of 6- to 5-day delivery, my biggest concern is, as 
we lose volume, we do not want to raise prices to make up the 
difference, so we've got cut some infrastructure out. That's 
what's driven. We certainly aren't excited about moving in that 
direction, but our fear is if we don't doing something from an 
infrastructure standpoint it'll push price.
    Let's talk about cluster boxes. Cluster boxes are an 
interesting proposal because if you look at what customers say 
when you make changes, probably the biggest thing that upsets 
customers. So as we move into that area there's definitely an 
economic opportunity, it costs about $161 per year for delivery 
at a cluster box versus $353 for a door-to- door.
    But what we're looking at is, is there a way to make this a 
win-win, so that if you put a cluster box, say, in a street in 
Boston or Baltimore or northern Virginia, could you set it up 
in a way that's designed differently than we have today? Today, 
see, we've got two slots for packages and 10 or 12 slots for 
letters.
    Mr. Lynch. What I'm trying to say is, though, you have to 
knock a house down.
    Mr. Donahoe. Well, there's ways of looking at this. We've 
been looking to try to figure out how you'd have a freestanding 
unit that you can put packages in as well as mail, so that if 
you were worried about having to come home and then go to the 
post office to pick a package up that you ordered on eBay or 
Amazon, we could put it right in your box. So what we're 
thinking is, is if we can design these things in a way that you 
can fit more than a couple of letters in, people may start to 
like them. And what we would try to do would be to work with 
neighborhoods to test them out and see what the feedback looks 
like.
    I've had door delivery in my house, I've had cluster box, 
I've had street box. With a cluster box it's pretty good once 
you understand how they work. And I think the key thing for us 
to is to make sure that customers see it as a win and not 
taking something away from them.
    Mr. Connolly. Mr. Chairman?
    Chairman Issa. Yes, the gentleman from Virginia.
    Mr. Connolly. Would you allow just one observation as a 
Bostonian by birth?
    Chairman Issa. As long as the voters of Virginia do not 
mind.
    Mr. Connolly. They know.
    Chairman Issa. I will give you that 1 minute. But 
understand it could be at your own peril, especially if you the 
if you talk about the Red--the White Sox.
    Mr. Connolly. Red Sox.
    Chairman Issa. Red Sox, White Sox, those non-Yankees.
    Mr. Connolly. Mr. Lynch is talking about the lack of land. 
My family lives in West Roxbury in Mr. Lynch's district. There 
is no land to put in boxes. There's none. It's not a matter of 
what shape the box would be or what you put in it, there is no 
common land at all. The urban set backs are such----
    Chairman Issa. I thank the gentleman.
    Mr. Donahoe. We understand that. Thank you.
    Chairman Issa. Mr. Chaffetz, you're recognized. Could I 
have 15 of your seconds?
    Mr. Chaffetz. Absolutely.
    Chairman Issa. Mr. Donahoe, isn't it true that the highest 
density area practically you can name is New York City, and in 
New York City cluster boxes are a reality of high rises? So 
isn't it true that some of the noncurb, nonchute is in fact 
apartment houses where there's whole rooms the size of a post 
office. So at the end of the day, isn't it true that if you do 
it where you can and do it the way you can, you save money?
    Mr. Donahoe. Yes. And what we're trying to do in New York, 
too, is put a lot more package boxes in so we can----
    Chairman Issa. So we can protect the kind of thing you're 
delivering more of.
    Mr. Donahoe. Yes.
    Chairman Issa. I thank the gentleman.
    Mr. Chaffetz. And thank the chairman. I appreciate this 
piece of legislation, the good work that's gone into it. It's 
not perfect, but it is a move in the right direction. I think 
everybody understands and knows that we have to engage in some 
postal reform.
    One of the things that I'm deeply concerned about, we've 
heard the mention of rural multiple times. I have a county in 
my district that's larger than the size of Connecticut. It has 
15,000 people in it. And I do hope that one of the strongest 
considerations we have as we look at how to deal with the rural 
markets is proximity. That should be the case as it is in the 
density of Boston or south Boston or Cape Cod where they just 
have a ridiculous number of post offices, as opposed to maybe 
some of the other areas where you literally could go 100 miles 
before you see the next one. I think proximity is that key 
metric that we need to look at.
    At that same time I would encourage, Chairman, that we need 
the ability to have some flexibility and actually close some 
post offices from time to time. Now, I happen to come from a 
high-growth area. We had a situation in one of my largest 
cities in my congressional district where there was a major 
fire. It just so happens with this post office there is no 
longer access from the north end of this facility. Nor can you 
get access to this postal facility from the eastern side. No 
longer can you access it from the western side. Only from the 
south side, with no sidewalk, can you actually get to this post 
office. We have been begging and pleading with the Postal 
Service to look at the extenuating circumstances, make a change 
for the betterment of the community, which is a reflection of 
the postal workers, they're going to be on the brunt end of the 
criticism that the Postal Service is negligent and reluctant to 
make this change. And we're hamstrung because deep within the 
bowels of your organization everybody's scared to death of 
making a change.
    And somehow, some way, Mr. Chairman, there has got to be 
some flexibility. We had a fire. We're closing in on a year 
here and our people are not served yet, but they keep saying, 
well, we've got to keep waiting because there's postal reform 
and there are some Senators that don't want any post offices 
closed. We have to do more. We have to do better that way.
    The other thing that I would encourage, Mr. Chairman, is we 
have this opportunity, and I've said this many times before, 
the great opportunity in my mind for the Postal Service is to 
become more relevant in people's lives. And the balance that we 
have to find is to make sure that we don't cannibalize into 
some of the private sector.
    And so my question, which is a long one here, long time 
coming, is what are we doing to galvanize other government 
agencies and be the conduit and the opportunity to be the face, 
if you will, the access point for other government services. 
When I think of passport services, for instance, Mr. Chairman, 
it's great, that appears to be a great success. When I think, 
hey, I got to renew my passport, got to go to the Post Office.
    FEMA, we've talked about for a couple years, is spending 
untold millions of dollars trying to recreate and remap the 
entire United States, but it's the postal worker who knows if 
that sign gets blown down in a hurricane, they know where that 
street, they probably know how many people live there.
    There are other services that wouldn't cannibalize the 
private sector but would open up an avenue and a conduit, if 
you will, so that people can actually access government 
services. I think in my rural district I would love to have the 
State government do the Department of Motor Vehicles through 
the post office. What a great place to come do that. And yet it 
would be a good revenue source for the Postal Service.
    So my question about the bill is the flexibility, but also 
making sure that we're being innovative but without 
cannibalizing the private sector, so that little mom and pop 
who's selling coffee doesn't suddenly have to compete with a 
post office that suddenly wants to sell coffee and T-shirts and 
other things that they're doing. You have 15 seconds, so good 
luck.
    Mr. Donahoe. Pass comprehensive legislation and it will get 
people away from being fearful that the Postal Service cannot 
meet their needs. Get it behind us, and I guarantee you'll see 
plenty of that spring up because that's what people are looking 
for. Thank you.
    Mr. Chaffetz. Yield back.
    Chairman Issa. Thank the gentleman. Johnny on the spot, on 
the button, zero.
    We now go again to the Bostonian, the third member from 
Massachusetts on the top of the dais, the gentleman, Mr. 
Connolly.
    Mr. Connolly. And by the way, Mr. Chairman, there are three 
of us from the Virginia delegation from Massachusetts, 
including my good friend Bob Goodlatte, who loves being 
reminded he is from Massachusetts.
    Chairman Issa. You know, there were three of us from the 
same high school at one time. Two are gone. I'm the lone 
survivor from Cleveland Heights High. But I do not make it a 
point of talking about growing up in Cleveland with those 
sidewalks and those chutes and those doors on those homes 
produced before 1974 as though that was the only solution to 
mail delivery. I just wouldn't do it.
    Mr. Connolly. Well, my parents appreciate my advocacy.
    Mr. Donahoe, we had Walt Francis before this committee 
talking about your proposal to pull out of FEHBP. Now, Walt 
Francis is probably the living walking expert on the Federal 
health program. He writes an annual book analyzing every single 
plan and option in great detail, his checkbook, and he looked 
at your claims, which seem a little vague. He said, you say you 
can better manage health insurance than OPM? Highly unlikely, 
extremely unlikely, he says. You say FEHBP fails to match other 
employee benefits; KFF data on private employer insurance shows 
no such disparity. USPS says it can offer the same and possibly 
even better health care choices; he says extremely unlikely and 
inconsistent with claims to offer more understandable set of 
choices by USPS.
    You say FEHBP fails to provide health promotion and 
wellness incentives, chronic condition and disease management 
programs. Absolutely false. They most certainly are offered by 
FEHBP.
    And then finally, he says you say, it can communicate 
benefits to enrollees more effectively. Well, that's 
interesting because every employee group I've talked to with 
the Postal Service is utterly confused about what it is you're 
proposing and quite anxious about it. I think we heard Mr. 
Guffey say, as the president of a union, we have our options 
with FEHBP and we're happy with them.
    Is that true, Mr. Guffey?
    Mr. Guffey. More or less, but we would be willing to sit 
down and negotiate with the problems.
    Mr. Connolly. But I'm looking at what USPS has posted, the 
so-called healthcare proposal. It's two pages. And it's utterly 
lacking in detail in terms if you're an employee wanting to 
know, well, is this a better deal than I'm getting currently 
right now, if I'm an annuitant over 65, if I want to look at 
how it folds in with Medicare, if I want to know what my annual 
out-of-pocket deductions might be, what about prescription 
drugs, there is no specificity.
    So, Mr. Donahoe, how would you answer Mr. Francis' rather 
profound critique of this proposal to pull out of FEHBP.
    Mr. Donahoe. Let me ask if we can put the slide back up 
there. Can we put that slide back up with the charts?
    [Slide]
    Mr. Donahoe. Here is the way I'd answer Mr. Francis. If you 
look at the far left, that $10,000 healthcare plan is what a 
post-65-year-old Federal employee has to pay, period. That's 
the average pay that we all pay, any Federal employee. If 
you're in the private sector where you have Medicare wrap-
arounds, A and B, you pay on average $4,500. If you have A, B, 
and C, which we feel we have every right to, you pay $3,000.
    Why in the world would we ever tolerate spending three 
times the health care for our retirees in an FEHBP plan when 
they don't compete it, when they don't offer wrap-around, when 
they don't offer single plus one? That's the way the rest of 
the Federal Government has worked. In 1962, back when the OMB 
was created, FEHBP was a wonderful plan. That was 40, 50 years 
ago. We need to update it.
    Mr. Connolly. Mr. Donahoe, can you commit to providing 
specific data----
    Mr. Donahoe. I can give you----
    Mr. Connolly. --and dollar amounts?
    Mr. Donahoe. I can give you a specific--what you've got in 
your hand I'm not so sure where you got that from. But I can 
give you a much more detailed presentation in person and we'll 
go step by step and cover every detail.
    I would state on the record that it is in the best 
interests of the Federal Government, not just the Postal 
Service, to compete these plans. There's money to be saved. We 
should not as Federal employees be subsidizing everybody else 
like I've showed you on that chart.
    Mr. Connolly. Well, I'll look forward to the data. By the 
way, this was handed up by your congressional relations in 
meetings with our staff.
    Mr. Donahoe. I'll get you an updated one.
    Mr. Connolly. With specificity so we know--we can compare.
    Real quickly, have you--why haven't you signed an MOU with 
the Department of Labor with respect to disclosure of FECA 
records? You're looking at a new FECA process for the Postal 
Service, but you have not yet agreed to their privacy 
standards, and they're concerned that that could lead to 
violations of the Privacy Act.
    Mr. Donahoe. We're stuck between a rock and a hard spot on 
that one because for years, as I mentioned earlier, we've been 
working to bring people back to work from workers' comp. We've 
got 16,000, 17,000 people in the periodic rolls.
    What we do now is, is when we have discussions with the 
people at the DOL we share that information electronically with 
the unions as required by our contract. What we think is, is if 
we have to go to the manual process that they're suggesting and 
a more restricted electronic process, we won't be able to share 
the information with the unions, and that becomes a Labor 
Department issue on the other side.
    So it's kind of, we'd like to get this thing worked out, 
matter of fact I've written a letter that's gone over to the 
Acting Secretary to sit down and see if we can figure this out.
    Mr. Connolly. Thank you.
    And, Mr. Chairman, I know my parents thank you for the 
extra time.
    Chairman Issa. You're most welcome and your parents are 
welcome.
    With that we go to the gentleman from Oklahoma, Mr. 
Lankford.
    Mr. Lankford. Thank you.
    Mr. Donahoe, you have a tough job in a lot of ways, you 
know that full well, because we need significant reform, you're 
waiting on the House and the Senate to get its act together to 
be able to help provide that. You're trying to do stuff in the 
meantime. And across America people say over and over again, 
that's my post office, whether they like or don't like or 
disagree on how many days it took to get there this time or 
whatever it may be, they set their drive home from work based 
on a certain drive route to stop by to get to their box and be 
able to check in at a certain time in the morning. There's a 
tremendous sense of ownership. So I do not envy that task. And 
thanks for what you're doing, and for all of you and what 
you're doing. There are a lot of folks that don't get a lot of 
thanks that are out there in the heat today. And so we do 
appreciate that.
    Mr. Guffey, let me ask you a question. You've made some 
proposals and some different ideas that have come up. What 
cost-saving proposals would you support that are efficiency 
structures or that are labor related or that are the way the 
post office does its business? You kind of live and breathe, 
you're around it. The people are experts that are there. I 
interact with some of the union folks at our military base that 
do civilian work. They know better than anyone where the 
efficiencies are, where they can do reductions and such.
    Where do you see cost savings?
    Mr. Guffey. We are trying to work with the post office 
right now in saving and transportation of mail. We think we can 
work with the post office----
    Mr. Lankford. Give us a couple of those ideas. What does 
that look like?
    Mr. Guffey. Redoing the routes and making routes more 
efficient so that a truck can take more than one or two, three 
stations at the same time to different locations, making sure 
that the facilities can handle a certain size truck, and if it 
can handle a bigger truck we'll make a bigger truck so that 
truck can go to two or three locations. There's a lot of things 
we're getting into it, and those are in negotiations and I 
can't speak on them too much.
    I said we are willing to talk about doing some more 
efficient things with the health plan inside FEHB, want to 
aggressively look at those approaches and everything.
    There are other things that happen on different types of 
containers. We talk about on-the-job injuries, and we think 
there are a lot of containers that are within the post office 
that shouldn't be utilized when they're utilized, not that they 
can't be utilized but there's areas that they're utilized that 
they shouldn't be utilized, which by themselves can cause on-
the-job injuries.
    There's a myriad of things that we're looking at in 
rotations and how to get more flexibility. We negotiated more 
flexibility with the post office in this last negotiations by 
giving them noncareer people, but we also went away from the 
traditional five 8-hour days to allow the post office to 
schedule in such a manner that without paying overtime they 
could keep post offices open later. We did a lot of things that 
we could do to work together with the post office to provide a 
workforce that was more conducive to them providing services to 
the American public.
    Mr. Lankford. Okay. Are we at the right size as far as 
total workforce?
    Mr. Guffey. It's hard to say yet. The volume is constantly 
changing. Our concerns on the consolidation is when it hits the 
point where it delays the mail. And when I say delay the mail, 
we could have instances--I'm from rural Oklahoma, too, I 
graduated with 32 kids, so I know what we're talking about. But 
you have situations where mail was processed in office A and 
now it's going to be processed in office B, which may be 80, 90 
miles away or something. The mail that was taken to office A to 
be processed was in 5 or 10, 20 different cities around that 
area, and it would go to office A and turn around and get back 
and delivered the next day.
    Well, now to get it to office B many times they have to 
change the dispatch times in these one, two, three, four, five, 
six, seven, eight offices to 1 o'clock or 2 o'clock in the 
afternoon. In Grove, Oklahoma, now I think it's like 1 o'clock 
in the afternoon to make the dispatches so it can get to Tulsa 
or Oklahoma City to be turned around and worked back. Well, 
that means the businesses in Grove, they can no longer can put 
the mail on their counter for the mailman to pick up because he 
may not get back to the post office until 5. And if he doesn't 
get back until 5 that means the mail doesn't get dispatched 
that day. It sits there until the next day.
    Now, scales of economy are important, and what can happen 
in these offices, it's going to vary. And I think if the 
Postmaster General has the tools to get things done properly, I 
think we'll get it done. We can work together. I mean, I have 
said several times to Postmaster General we are going to solve 
this problem. We've got to solve the problem in the long run. 
And I think we can if the post office gives us the ability--not 
the post office, but the Congress gives us the opportunity to 
do certain things, we'll do our best to work through the 
problems. It's not in anyone's interest to destroy the post 
office.
    Mr. Lankford. Oh, no, it's not ours either, nor is that the 
goal there. As Mr. Quadracci can tell you, there are a 
tremendous number of private sector jobs that are affected by 
what happens to the post office by rates, by times, by 
scheduling efficiencies, all these things are all built in. So 
this is very important to you, it's important to us, it's 
important to the private sector as well. So it's got to be 
right. But I do hope there is a way to be able to get together 
and everybody look for efficiencies and find a way to be able 
to resolve it.
    So with that I yield back.
    Chairman Issa. I thank the gentleman.
    We now go to the gentlelady from New York for her round.
    And you are from New York, not Boston.
    Mrs. Maloney. I am. But I have relatives in Boston.
    Chairman Issa. Yeah, but you're not rooting for anyone with 
sox in their name, right?
    Mrs. Maloney. No.
    Chairman Issa. Okay. Just check.
    Mrs. Maloney. Well, first of all thank you to the ranking 
member and to the chairman for holding this hearing and to the 
distinguished panel. I also recognize in the audience the 
former chief of staff to the committee here, Ron Stroman.
    Very good to see you, Ron. Congratulations on your new move 
to be Deputy Postmaster General. That's great. But it's good to 
see you and we miss you. So good to see you. I just noticed 
you.
    Mr. Chairman, I really truly want to thank you for holding 
this hearing. We all know that postal reform is something that 
needs to happen, and I hope we can work on this in a bipartisan 
way to make it happen.
    I have some very serious concerns with the discussion draft 
of the Postal Reform Act of 2013. As it stands, the current 
discussion draft requires a dramatic downsizing of the Postal 
Service, reduces customer service by moving to a 5-day 
delivery, and guts collective bargaining agreements.
    I deeply and greatly oppose these kinds of initiatives that 
hurt seniors, businesses, and take a major step back in the 
rights of hardworking letter carriers. These kinds of 
initiatives not only hurt seniors, rural areas, and low-income 
urban areas, but many businesses and postal workers will be 
hurt.
    I do, however, want to commend the chairman for including 
in his discussion draft the underwater classes provision to 
address the problem of mail classes whose rates do not always 
cover their costs, such as magazines. Too many magazines are 
going out of business. This provision prevents a seriously 
negative impact on the magazine publishing industry, which 
employs a great number of people in our country, much of which 
is headquartered in my congressional district, including Time 
Inc., Hearst, and Conde Nast.
    The draft takes a sensible approach on this issue, delaying 
the implementation of any rate increase on periodicals and 
other so-called underwater classes of mail until the Postal 
Service has time to remove excess costs from the system. After 
2 years of reforms at the Postal Service, if periodicals do not 
cover 90 percent of their true costs, a reasonable rate 
increase of 2 percent would go into effect. I think this 
approach makes sense, and I hope it is included in whatever 
final postal reform bill this committee considers.
    Mr. Donahoe, I know that there's a review of postal 
services across the country and I want to know your criteria, 
specifically in closing post offices, if you look at cost-
benefit. Are the post offices making money? Regretfully, I've 
had some cases where the post offices are making money, 
literally a profit, which is what we want, in fact the 
competitors are opening up stores across the street or next 
door to them hoping that people will come to them instead of 
staying in the lines at the post office. But even when they are 
making money, they are sometimes slated to be closed. And I'd 
like to know what is your criteria for closing post offices and 
why is not the cost-benefit analysis or a productivity. I would 
think we want to a strong post office, those that are making 
money we should be keeping because that's going to cover the 
costs.
    Mr. Donahoe. Yes, I agree with you. We have a process for 
large cities all the way down to the smallest rural office that 
we do review if we do propose any closures. We have really 
moved away from that to a large extent as we put changes into 
place to change hours mainly in the smaller offices.
    In a big city like New York what we've run into, and I 
think there's been a couple in your district, where we've 
unfortunately lost the lease on the building that we were in 
and then we've had to move. So I know that we've been actively 
seeking some retail space in your area because some high rises 
are being built and buildings that we were in probably for the 
better part of 30 or 40 years we're now forced out of.
    We are looking at relocating in some cases. Other cases, 
whether its stamps online or being able to pick postage up at a 
local drugstore in the city, we're moving in that direction, 
too.
    So I think the key thing for working with your people in 
the upper Manhattan area is to make sure that we do a good job 
to find the retail space close so that we don't have to move 
too far away from the places where we lost our lease. So you've 
got my commitment to work with you on that.
    Mrs. Maloney. Thank you very, very much. And I want to 
commend the postal workers. They work in really terrorist 
conditions. Anthrax has been discovered in the mail in several 
offices in the great city of New York and they have responded 
with great courage and devotion to their jobs.
    Mr. Donahoe. Thank you.
    Mrs. Maloney. So thank you.
    Chairman Issa. I thank the gentlelady.
    We now go to the gentleman from Tennessee, Mr. Duncan.
    Mr. Duncan. Well, thank you very much, Mr. Chairman.
    Mr. Donahoe, I see that one of your recommendations, and 
you have mentioned this, is to reform workmen's compensation. 
And I see notes that said some employees have been on workmen's 
compensation, some postal employees, since before the Postal 
Service was established in 1971. You said you've got 17,000 
employees drawing what you refer to as periodic payments?
    Mr. Donahoe. Periodic rolls, yes, yes.
    Mr. Duncan. How would you reform workmen's compensation, 
and have you done a wild estimate or guess as to how much you 
could save if your reforms were put into place?
    Mr. Donahoe. Well, it's been a multistep approach. Number 
one, we've been working this issue for a number of years, and 
the key thing first was to reduce accidents so people didn't 
end up on workmen's comp. So we've been very aggressive with 
vehicle accidents and illness, injury. We have seen nice 
reductions there.
    Mr. Duncan. And I've read there is a big reduction in the--
--
    Mr. Donahoe. We still have people on workers' compensation. 
Some people we would like to have the ability to have them 
retired out of the system and there is legislation I know 
that's afoot here both in the House and over in the Senate. We 
would support that. That would address people who have been on 
workers' comp since 1981--or 1971. The problem with that in 
some cases is that they make more money on workers' 
compensation than they do going into retirement, so we've got 
to figure out how to resolve that issue.
    The other approach, and it's for a much larger group, is to 
either help to get them back to work or actually buy them out 
like a private sector company would do. On the back-to-work 
efforts we have worked very closely with Mr. Guffey, we have 
insourced some work in which we have employed--reemployed 
people off the periodic rolls, and it's been helpful because it 
helps us pull that large liability down. We still have a long 
way to go as far as getting people back to some active duty.
    We think that probably there's about 10,000 people who one 
way, shape, or form would to be able to get back to work. 
That's what we're looking at. And then the other 6,000 to 7,000 
probably would either have to be retired or have some kind of a 
buyout.
    But the key thing here is we have a liability of about $17 
billion that is part of the chairman's note, that we're sitting 
on almost $100 billion worth of liability. We've got to resolve 
that.
    Mr. Duncan. Let me ask you this. Another one of your 
recommendations is the right to have appeals of EEOC class 
action decisions to Federal Court. Do you have a large number 
of those----
    Mr. Donahoe. What happens, it's a small number but it's an 
extremely expensive process. I'll give you an example. And this 
is something--this is not what we would normally see in an EEOC 
type of complaint. We're proud of the fact that the EEOC 
complaints have dropped over the years we've focused on that, 
but we have some situations where class actions come about. We 
just settled one for $17 million and the class action was, I 
didn't get overtime while I was on workers' compensation. If 
you're on workers' compensation you shouldn't get overtime. And 
we had to pay out $17 million to settle that. And there's no 
point--we couldn't go anywhere from a plea bargain up to say--
I'm sorry--an oversight up to the courts. What we're asking for 
is give us the opportunity, if we disagree with some of these 
big class actions, to take them to court to have somebody 
impartially look at them.
    Mr. Duncan. All right. Mr. Guffey you said a while ago your 
employees are happy with their present health plan. Do you 
think they would be willing to go under Obamacare and would you 
be willing to recommend that they do that?
    Mr. Guffey. I would not be willing to recommend they go to 
Obamacare. Obamacare allows them to stay in their own insurance 
and that's what we recommend that they do.
    Now, we are willing to sit down with the Postmaster General 
and negotiate on a different type of health care within the 
FEHB family. I'm a single-payer type person. I think you take 
out all the costs and overhead of all the different plans, the 
CFOs and the CEOs and all these different people, and the 
boards and different people that these different health plans 
have to pay. For the same amount of money I think we can 
probably come up with a health plan that will deliver services 
to the membership and to the post office and can come up with 
something.
    But that is something, I think, the type of insurance that 
our people go into is something that's negotiable, and we're 
more than willing to negotiate on it.
    Mr. Duncan. Have you seen the letter that the three unions 
recently sent objecting to the provisions--or the requirement 
that they go under Obamacare and give up their so-called 
Cadillac health plans?
    Mr. Guffey. I would sign it today.
    Mr. Duncan. You would sign that same letter?
    Mr. Guffey. Yes.
    Mr. Duncan. All right.
    Chairman Issa. I thank you, Mr. Duncan.
    If I can just clarify the record. Are you saying that from 
a union position--I know you can't speak for all the members--
but that if a comprehensive reform eliminated, if you will, 
sort of the letter carriers' bidding within the system and went 
to a larger group with less overhead, that as long as the 
unions had some form of representation in that process, they 
would be supportive if it lowered the cost. Because right now 
the Federal employee health care plan has specific grandfathers 
for letter carriers and so on, if you will, for these special 
groups. Is that what you were saying? I wanted to make sure I 
understood, because those have separate overhead costs that 
could be eliminated.
    Mr. Guffey. We could come up with a health plan, I think, 
that we could tell our members that this is the health plan 
that you will get your matching funds from the post office for, 
and it's going to be within FEHB. We could come up--maybe we 
could. I think there's an opportunity, a real opportunity to 
negotiate that, to take out all those other costs.
    Now, having said that, I think the real savings for the 
Postal Service is in not paying the full freight for the same 
type of health insurance for the retirees.
    Chairman Issa. Right, and we're working on that.
    Mr. Guffey. But if you do that, and save the money for post 
office there, it throws additional costs back to the current 
employees.
    Now, working on a plan, a universal type plan which would 
give our membership what they have wanted, to change the 
benefits would have to go through OPM, we could probably come 
up with a lower cost that would also save the post office money 
and prevent the costs from going up.
    Chairman Issa. And I don't want to take more time today, 
but I would invite you and the other union representatives to 
engage with our staff, we have working groups on both sides, 
because we control, if you will, that question for the entire 
Federal workforce and we are currently working on a reform, 
sans the Postmaster's leaving the system, that is intended to 
achieve several of the areas the Postmaster has put forward.
    But if there's a willingness to give us additional 
opportunity that would come specifically out of changes as to 
how we deal with postal to the benefit of all the workers, we'd 
love to work with you on it. We'd like to make sure you see 
what we're proposing for the Federal workforce.
    Mr. Guffey. I understand, but our position is, we will 
provide you some information and what have you, but we believe 
our position is negotiate with the post office and not with the 
committee. You understand what I'm saying?
    Chairman Issa. No, no, we're happy to have your input.
    Mr. Guffey. Right.
    Chairman Issa. To be honest, you don't get a vote.
    Mr. Guffey. I understand that.
    Chairman Issa. Currently, the committee's position--and it 
has to be for now--is we're making a decision on behalf of the 
Federal workforce. The post office is part of the Federal 
workforce and so therefore we'd like to have that large section 
of current and retirees have input into it just as I would any 
other Federal worker. Like I say, the Postmaster and I are 
discussing whether or not there is a cost savings in departing.
    The problem we have--and I hope Mr. Tierney will 
understand, I'll give him all his time of course--but is that 
we cannot get a CBO score that supports the Postmaster's 
position. If we can't get that, that makes legislation 
difficult. And that's why we're trying to work on things which 
we know will score real savings for the post office and put it 
into a comprehensive health care reform, and we certainly would 
welcome union input in addition. Of course the Postmaster has a 
seat at the table.
    Thank you.
    Chairman Issa. Mr. Tierney, why don't you take about 7 
minutes, because I owe your side that.
    Mr. Tierney. Well, I appreciate that, but I don't think my 
time will take all of that time.
    Mr. Donahoe, I just really wanted to finish on the thought 
that Mr. Connolly started about the Federal Employees 
Compensation Act. You had not signed the memorandum of 
understanding. That's your answer to him, right?
    Mr. Donahoe. Yes.
    Mr. Tierney. So the Department of Labor says that these 
FECA records really require protection under the Privacy Act. 
Do you agree with that?
    Mr. Donahoe. Yes.
    Mr. Tierney. Okay. Do you, or does the Postal Service ever 
disclose the FECA records, and if you do, in what 
circumstances?
    Mr. Donahoe. I'll have to get back to you. I don't know 
what we do with those other than share information, talk with 
the doctors. And there may be some time, if there is a 
grievance filed, that some information would be shared with the 
unions, but I cannot tell you that for certain. I'll have to 
follow up on that.
    Mr. Tierney. You'll follow up with the committee and give 
us that?
    Mr. Donahoe. Yes.
    Mr. Tierney. Thank you. So let me ask you this. Has the 
Postal Service ever used the FECA record to discredit an 
employee when that employee was before the EEOC or the Merit 
System Protection Board?
    Mr. Donahoe. I'm not aware of that, but I'd have to get 
back to you on that.
    Mr. Tierney. Would you do that as well, check as many 
instances as that happened?
    Mr. Donahoe. Sure.
    Mr. Tierney. As a general matter of policy, would you 
generally commit that you would not use them that way?
    Mr. Donahoe. Absolutely we wouldn't want to do that, no.
    Mr. Tierney. The Department of Labor went to the Justice 
Department's Office of Legal Counsel to get an opinion 
concerning your dispute.
    Mr. Donahoe. Right.
    Mr. Tierney. They reported back that they thought the 
Office of Legal Counsel agreed with them on the matter. And 
you, however, wouldn't participate in those conversations. Why 
not?
    Mr. Donahoe. Me, personally?
    Mr. Tierney. Or the Postal Service. Why wouldn't the Postal 
Service----
    Mr. Donahoe. I'm not aware of that. I would have to get 
back to you on that, too.
    Mr. Tierney. Okay. So what the Department of Labor said the 
Office of Legal Counsel determined was that the Department has 
exclusive authority over the FECA records on that.
    Mr. Donahoe. Right.
    Mr. Tierney. Following that, they then told this committee 
that they no longer provide access to the FECA records to the 
Postal Service.
    Mr. Donahoe. Yes.
    Mr. Tierney. Has that caused you problems in any way?
    Mr. Donahoe. It hasn't caused problems in the short term, 
but it will cause problems in the long term because you turn 
the whole process into a manual process.
    I think there is a win-win in here somewhere. Like I told 
Mr. Connolly, we don't want to end up with a situation where we 
end up violating agreements we have with the unions because of 
other agreements that we've made. So we've got to figure that 
out.
    Mr. Tierney. So when you report back to the committee, will 
you be able to share with us the reasoning behind your 
reluctance or the Postal Service's reluctance to sign that 
memorandum of agreement?
    Mr. Donahoe. Yes.
    Mr. Donahoe. The other thing, as I mentioned, we've sent a 
letter up for me to go up and speak with the Acting Director so 
that we can--or Acting Secretary--so that we can get a common 
area where we might be able to work together on that.
    Mr. Tierney. Okay. Barring Mr. Lynch or the ranking member 
having any other questions, I'll yield back. I yield back.
    Chairman Issa. I thank the gentleman.
    We now go to the gentleman from Mr. Pennsylvania, Mr. 
Meehan.
    Mr. Meehan. Thank you, Mr. Chairman. And, Mr. Chairman, 
just as a matter to make sure that we correct the record as a--
--
    Chairman Issa. You're not a Bostonian?
    Mr. Meehan. Well, you know, I've got to tell you, as 
somebody who suffers--is a suffering Red Sox fan for all these 
years, Yaz, Carl Yastrzemski would pass out in front of the 
Green Monster if he thought Congress believed that he actually 
played for the White Sox. So as long as we can----
    Chairman Issa. You know, I'm a Cleveland Indians fan 
through and through.
    Mr. Meehan. My condolences.
    Chairman Issa. You know, they were once a professional 
baseball team, and they still have a great ballpark. So you 
know, as we run down your clock, I just want you to remember 
you started this.
    Mr. Meehan. I appreciate that.
    Mr. Donahoe, I appreciate the work that's being done by you 
and all the organizations and the tough choices that have to be 
made and the spirit of collaboration that everybody has to work 
on to try to define resolutions. And I find myself looking for 
the right ways to help support the post office in making their 
calculations and decisions. But I also live and work with, you 
know, my neighbors who work for the post office, and sometimes 
I get very frustrated with the process that we've gone through. 
And you and I have discussed some of this.
    But let me just say that it's very difficult, as we're 
getting to the end of some of these issues, and I'm talking 
about the whole question of consolidation that has been pushed 
forward, and I've seen a process, and to walk through it, you 
know. We began with the identification that there was going to 
be a consolidation that was going to be proposed, and they 
suggested that there was, you know, a line of savings. And so, 
right from the outset, the Southeastern facility in my region 
was slated to be closed and projected a $16 million savings.
    We looked at the thing and realized that they didn't even 
calculate within the four corners of the letter correctly, and 
we asked for a recalculation of that. It went to--and a GAO 
study to confirm that it was being done appropriately. The GAO 
came back and said, well, based on the information that you had 
given to them, they could see how a decision could be made. 
They didn't weigh in, just how a decision could be made, so to 
speak.
    Then we find that during this process, that there is a 
second consolidation that's being considered in which, even 
though we've asked for a stay while this is being studied, that 
mail that was supposed to go to Philadelphia under the process 
that was being proposed to keep Philadelphia open was actually 
being diverted to Delaware. It was being diverted to Delaware 
because there was an overflow, and we really began to question 
the efficiency of that, finding that there is then a second 
study that's being done during the period of time that we all 
believe that the first consolidation is still being considered.
    Come back the second time and say, okay, they are actually 
going to consolidate everything down in Delaware now, which 
makes no sense to me because I've got a big city between 
Delaware and Southeastern, and this has an impact not just on 
the Postal Service, but businesses that use the Postal Service 
and rely on it for its efficiency.
    So now we begin to see that there is a proposed savings of 
$13 million by closing down the Southeastern facility as part 
of plan B, but we found out it's being consolidated and pushed 
even quicker.
    So the bottom line in the process is, how can I have 
confidence that the decisions and calculations that were made 
were accurate and corrected in the best interest of the Postal 
Service and not due to some other kinds of issues which, quite 
frankly, I can't understand because the logistics don't make 
sense to me, that you would close Southeastern and keep a 
Delaware and Philadelphia facility within a short distance of 
each other open at the same time, as well as one in New Jersey, 
right across the river.
    Mr. Donahoe. Let me comment on the--first of all, the 
history of Southeastern came about because of the overflow in 
Philadelphia. We built a new facility in Philadelphia in the 
mid-2000s and right before the mail volume loss, we've lost 27 
percent of our volume, and a substantial portion of that was 
what we would consider outgoing mail, which we processed in 
Southeastern.
    The idea was to originally move everything from 
Southeastern into Philadelphia. As we looked, there were some 
opportunities to move the 193 ZIP Code area down into 
Wilmington because of the geographical proximity. From what I 
know, all of Southeastern, with the exception of 193, is still 
going into Philadelphia. The Wilmington will get the far south 
193 portion and will split the mail up.
    We've already started that move. We've made these moves 
because financially we are in a desperate situation. You know, 
we've been trying to keep our head above water. We've got 8 
days of cash on hand. And I know, you know, it hurts whenever--
it hurts when it happens to a local facility, but we've had to 
make these changes across the country.
    There will be no service degradation because Philadelphia, 
Wilmington, and Southeastern are all considered overnight 
service. That will not change. And we'll watch that like a 
hawk, you've got my commitment. But we've got to make these 
changes. We just have too much capacity, and we've got to take 
the capacity out of the system. We can eliminate the building 
in Southeastern, we'll be able to find jobs, landing spots for 
the people. Most of them are within that area anyway. And we'll 
continue to make sure we provide great service.
    Mr. Meehan. Let me ask you about some of those employees 
right now. What kind of job security is there for those who are 
at Southeastern? Is there an assurance that they are going to 
continue to receive work within the area?
    Mr. Donahoe. We have eliminated in the last 6 years 200,000 
jobs. In the last 13 years 314,000. We've never laid anybody 
off, never. I have been fanatical about holding jobs, using 
overtime, noncareer people, we always find a landing spot. Mr. 
Guffey and I worked together to eliminate the need to excess 
people for farther distance than 50 miles. That makes us even 
hold ourselves more to account to try to find landing spots.
    Because when you start moving people all over the country, 
it's bad for them personally. Economically, it's a disaster. 
And so you've got my commitment that we will find landing spots 
for the people at Southeastern. We know that. I know that for a 
fact as I sit here.
    Mr. Meehan. All right. Well, thank you.
    Mr. Chairman, just one last question for Mr. Quadracci.
    The company prints all kinds of different mail, and in my 
region as well, including standard flats and magazines. And I 
have heard from some of those who do that in my area that 
aggressive postage rates increases for their mail can sometimes 
be devastating.
    Can you tell me, from your experience, what happened to 
your business with the postal rate increases once you began to 
have to deal--whether in the end it was really more cost-
effective, that you might lose more business by virtue of the 
rate increase? Tell me how you were impacted by that.
    Mr. Quadracci. Well, 2007 would be the last example where 
it was the last time they could raise prices beyond the cap and 
there were double-digit increases, you know, to many of my 
clients, and we saw double-digit decreases in volume as people 
pulled back. And I was explaining before that a lot of it has 
to do with, you know, there is different files that people mail 
to. One is a prospecting file where they're trying to get new 
customers, and that one is very delicate based on response 
rates. And so if you get a rapid spike in pricing on postage, 
you'll see them cut that way back, and we saw it. In fact, the 
whole industry saw it.
    You know, we ended up consolidating a couple of businesses 
that couldn't make it because of this, much larger than us. 
Some of them in your district were a part of that. And as a 
part of that, we closed over 21 plants to rightsize the 
infrastructure. And it was tough. I mean, I know it's important 
to try and save jobs, but in the private sector we had to 
release jobs. Very tough for us to do as a company, but to be 
sustainable we made the tough decisions.
    Let's put this into perspective. Since 2001, postal rates 
went up 50 percent. Since 2001, print prices went down 33 
percent. And we've had to make tough changes every part of our 
business to stay profitable and we've been able to do that.
    And so, you know, when you talk to the private sector and 
you're dealing with a declining situation, you have to get 
ahead of the curve, you have to make the tough decisions to do 
it. You know, it's challenging but it's real. Those price 
increases beyond CPI have devastated this industry and it will 
devastate it again if we let that happen.
    Mr. Meehan. Well, thank you for your indulgence, Mr. 
Chairman.
    Chairman Issa. I thank the gentleman.
    We now go to the gentlelady from Illinois, Ms. Duckworth.
    Ms. Duckworth. Thank you, Mr. Chairman, and thank you for 
holding this very important hearing.
    Mr. Quadracci, I want to sort of follow up a little bit. It 
would seem to me that some of the mail that's going out in the 
standard flat rate, catalogs specifically, are generating more 
mail, and mail that actually generates more revenue. So when 
people decide to purchase something, and now that has to be 
delivered via package mail. Do you keep--does your industry 
keep any data, statistics on that, how much subsequent mail is 
created out of the catalog mail?
    Mr. Quadracci. I'm not sure if we have some of that data. 
Some of the organizations might. But there has been a decline 
in catalog mail through this timeframe. We're seeing some 
stabilization, but there is still a decline. It does generate 
package products, you know, through the post office, which is a 
good thing.
    Ms. Duckworth. Mr. Donahoe, do you have any data on it at 
all in terms of how much follow-up mail at a higher rate, such 
as package mail, is generated by the catalog mail delivery?
    Mr. Donahoe. There are some statistics, and we can get that 
for you, from the industry. To Mr. Quadracci's point, some 
catalogs, a lot of times, will generate first class mail and 
then packages, too. So there is a multiplier effect, and I can 
have our marketing people get in touch with you on that.
    Ms. Duckworth. That would be great. Thank you.
    Ms. Duckworth. Mr. Donahoe, the second quarter of this year 
the Postal Service reported having approximately 616,000 
employees, of whom 498,000 were career.
    Mr. Donahoe. Yes.
    Ms. Duckworth. Is it correct that this is the smallest 
workforce of the U.S. Postal Service since 1966?
    Mr. Donahoe. Yes, it is.
    Ms. Duckworth. Could you explain why labor costs continued 
to represent such a large portion of your overall costs?
    Mr. Donahoe. Labor costs are high in terms of total for two 
reasons. Number one, we are a people-intense organization. A 
lot of times we're compared to FedEx and UPS. They're both 
great companies, but they run air systems--they run airlines, I 
should say--large trucking firms. We contract a lot of that 
type of work out.
    The major driver for our costs are the benefits costs. As I 
mentioned before, it's 48 percent of our cost, a large chunk 
with the prefunding, but we also think there are some 
efficiencies that we can get, working with the unions and with 
everyone here, around the health costs for the current 
employees.
    Ms. Duckworth. So under the chairman's bill, postal 
employees receive lower employer contributions to their health 
benefits and life insurance than they do now, requiring that 
the employees contribute more. That seems to me to be a pay cut 
for the current postal employees.
    Mr. Donahoe. We're working through that right now. In the 
course of the last 3 years we have moved management employees 
to--we'll be very close to the Federal rate, I think, in 2014. 
It's been a part of our union negotiations that will start back 
up in 2015, and of course we'll ask to continue to move that.
    Ms. Duckworth. Thank you.
    Mr. Guffey, did APWU's most recent collective bargaining 
agreement with the Postal Service include any concessions to 
incrementally increase your members' share of these costs?
    Mr. Guffey. Yes, we moved, I think, 3 to 4 percent so much 
per year. Like I say, these things were won sometimes in the 
past based on the wages then. We took less wages to get more 
pay for the health benefits. And now the post office is 
negotiating to take it back, and that's why we don't believe it 
belongs in legislation to require us to go there because it's a 
negotiation issue. They're not in the same legislation. They're 
not trying to give us back what we gave up to get that. And we 
think that's imperative, and when you have a labor organization 
dealing with management, it's a give and take, quid pro quos, 
and what have you, and to take back our quid pro quo for 
something that we gave up years ago we think is not right.
    Ms. Duckworth. So how would the chairman's bill affect the 
agreement that I was just talking about with the concessions to 
incrementally increase your share. Are you saying that this 
bill would actually do that?
    Mr. Guffey. We haven't seen the final bill and everything, 
but we believe that anything that deals around labor relations 
and negotiations should not be legislated. It should be 
allowed, maybe, under the bill, but not required. And that's 
what I was talking about earlier, dealing with the Postmaster 
General on a whole realm of issues that, we can work through a 
lot of issues if we have the ability to do so.
    Ms. Duckworth. Thank you.
    I'm out of time. Thank you.
    Chairman Issa. Would the gentlelady yield just for a 
colloquy?
    Ms. Duckworth. Yes.
    Chairman Issa. So the gentlelady understands, the intent of 
the bill is at the expiration of their contracts they would 
harmonize with the rest of the Federal workforce. However, the 
intent, and clear intent, and I want to make sure it's 
understood during the markup, too, is that that allows 100 
cents on the dollar to be moved back into pay or other benefits 
not covered by Federal harmonization.
    So the intent was to be able to say once and for all that 
the Federal workforce has, based on category, substantially the 
same reimbursements, benefits, retirements. That was more a 
matter of comparing apples and apples, because for this 
chairman's time there has always been, well, you know, they 
make less but they do this, but they don't do that. And quite 
frankly, our employees here in the House, employees over at the 
White House and so on, we wanted to make a statement that if 
you're a Federal employee, to the greatest extent possible, the 
benefits, which are not ordinarily negotiable, in other words, 
Federal workers cannot negotiate benefits as part of their 
collective bargaining, the union can, but to be honest, it 
created a different interpretation of what a fair reimbursement 
was to a Federal worker.
    So although it's open to amendment, and we're certainly 
happy to take your input, the intention in the bill was to not 
reopen negotiations. We're clearly saying that it simply would 
be harmonized when they renegotiate their new contracts. And 
the intent is that any givebacks would then be passed on so 
that it would translate into higher pay, but a different 
benefit for current employees, and obviously it has no effect 
directly on retirees.
    We now go to the ranking member of the full committee, who 
has been patiently waiting for his first round.
    Mr. Cummings. Let me ask you--first of all, let me say that 
we got to resolve this. Mr. Donahoe, I've said that if we can 
send somebody to the moon, seems like we ought to be able to 
resolve this. And I think that our constituents have sent us 
here to work through problems, and I think our constituents are 
getting more and more frustrated when we fail to do so. We have 
a limited amount of time. We do not--we hold these positions 
for a temporary period, and this is our watch.
    Mr. Guffey, I insisted that you be here, and I want to 
thank the chairman for making sure that happened. I want you to 
tell me what is it, what in a bill--we're going to do a bill--
what must you see in a bill that would make you feel 
comfortable supporting it? Can you give me the elements, the 
things that you must see? Is that a fair question?
    Mr. Guffey. I think it's fair. I think, personally, and I 
think my organization would like to see something that took 
care of the prefunding issue with the long-term health 
insurance. I think we would like to see something done with the 
overfunding of the retirement plans. I think we would like to 
make sure, and I think I heard Chairman Issa say that they will 
be using postal-only calculations to take care of the overages 
in the different accounts.
    I think we would like to see more opportunities for the 
post office to do more things in other government agencies. 
We'd like to see them do more, have the postal management have 
the greater flexibility to deal with agencies or mailers to 
generate income to the Postal Service.
    We would like to make sure that the issues that need to be 
done in collective bargaining remain in collective bargaining. 
But there are some things that maybe need to be changed in the 
law to allow certain things to happen. Part of that might be 
part of the health insurance issues.
    There are a myriad of things that we would like to see, but 
the main thing we'd like to see, I think, is just a viable post 
office for the future.
    Mr. Cummings. Now, Mister--were you finished?
    Mr. Guffey. Sure.
    Mr. Cummings. Mr. Donahoe, what issues do you have with 
regard to anything he just said?
    Mr. Donahoe. I think the, you know, the key for us is 
resolving the health care. I think that we're in 100 percent 
agreement with that, so I don't think that there is any issues 
there.
    I think that probably the difference between where the 
unions are and the Postal Service is, is the degree and speed 
of change. I think that we're all in agreement that we have to 
make some changes. So when we're pushing for the 6- to 5-day, I 
understand why Mr. Guffey and Mr. Rolando are a little more 
reticent, because their members are worried about that. So 
those type things.
    I think we're both in--we're in full agreement with FERS 
refund, Federal Employee Retirement, and getting the payment 
set right. We still continue to overpay, and that's money 
that's coming out of our pocket, the ratepayer's pocket. Those 
are some things.
    I also think that we're in full agreement on opening up for 
new products. You know, there's discussions around other 
government services, even shipments of things like wine, beer, 
and spirits. There's a big business in that. We think we'd do a 
great job. So there is a lot of points of agreement that we 
have.
    Mr. Cummings. Did you have something else, Mr. Guffey?
    Mr. Guffey. No. I think as long as the service standards. 
We just want to see a viable Postal Service, you know, whatever 
that is in the future.
    Mr. Cummings. Now, Mr. Chaffetz, a little earlier talked 
about the cannibalism of the private side. I remember 
cannibalism. I know you remember that. I don't remember all the 
rest of what he said. But what he was referring to is that he 
didn't want, when we go into the innovation piece and trying to 
make money through the Postal Service, that we not interfere 
with the private side. He listed something about passports and 
some other things, and you just mentioned wine shipments and 
whatever.
    I guess, you know, I'm trying to figure out where we draw 
the balance. On the one hand, you know, in my bill we talk 
about this innovation officer to come in and bring as much 
innovation as possible to the table, but on the other hand, you 
have folks who are saying, oh, no, no, no, no, no, no, no, 
don't step on this, don't step on that, don't step on this. And 
by the time you start eliminating the private things you could 
get into, there's nothing left, and it's talking out of both 
sides of our mouths.
    So, Mr. Donahoe, you mentioned wine. Can you think of other 
things?
    Mr. Donahoe. Sure.
    Mr. Cummings. Other than passports, and I think you 
mentioned a few other things.
    Mr. Donahoe. I think the thing that we should challenge 
ourselves with is build things or perform work that helps not 
only the Postal Service, but others. I'll give you an example. 
We're working through this whole digital approach now. We think 
that we can fill a very important role in the space on secure 
digital messaging, authentication, things that really can't be 
done by the private sector because there's always a concern of 
lack of trust or, you know, who's got what information, that 
from a Postal Service perspective we think that we would be 
able to fit in that spot.
    What that does then, that allows other people to grow. I 
mean, if you think about the group of us sitting here. We have 
an excellent infrastructure network of plants and processing 
centers and retail and delivery that Mr. Quadracci can bring 
volume in that he prints for thousands of customers. So if we 
can replicate a lot of that same thought going out into the 
future, I think there is a real win for us, and we don't end up 
tramping on toes of people who, you know, would claim foul, 
that we're government and not private sector.
    Mr. Cummings. Mr. Chairman, I would just ask for unanimous 
consent. The Chairman has taken all kinds of time. I just want 
to make--I want to just have 3 more minutes and I'll be 
finished. I've been here. I see you reaching for your gavel. I 
just thank you very much.
    Mr. Lankford. [Presiding] You've got 3 minutes there.
    Mr. Cummings. Thank you very much.
    Let me ask you this. You know, I believe, you know, if 
given the proper tools, the Postal Service could expand its use 
of new technologies to offer new products and services. I also 
believe the Postal Service should be given expanded authority 
to offer non postal services such as check cashing, warehousing 
and logistics and facility leasing.
    Let me you this, Mr. Donahoe. How much of the space in the 
Postal Service existing facility for print is vacant? Do we 
have a lot of space?
    Mr. Donahoe. There's a number. I'd have to get back to you 
on that because it kind of varies by facility. We've squeezed a 
lot of that out in the last year or so, but we probably still 
have some space available.
    Mr. Cummings. So the Postal Service could lease that space 
out or collocate it with other agencies?
    Mr. Donahoe. Yes. We've talked to other agencies, we've 
talked to other firms that would like to move into space that 
we have and actually use our facility as a fulfillment site 
because they can operate a little warehouse right there and 
hand it across to us and we can get it delivered.
    Mr. Cummings. So make sure that we understand this. You all 
are doing things right now that are in the pipeline that would 
yield substantial funds that you just haven't gotten to yet? In 
other words, you haven't--the deal has not been sealed? Is 
that----
    Mr. Donahoe. I would say from a digital perspective, yes, 
we've been careful because we didn't want to get ahead of 
legislation----
    Mr. Cummings. Right, right, because that was my next 
question. Are we hindering you from going where you're trying 
to go?
    Mr. Donahoe. As fast as we can get legislation----
    Mr. Cummings. You didn't answer.
    Mr. Donahoe. As fast as we can get the legislation passed, 
that helps us.
    Mr. Cummings. So in other words, you're out there and 
you're going toward some things and you're kind of worried that 
you don't want to reach a deal or you can't reach a deal or 
you're sitting down with somebody to reach a deal, but you're 
so worried that the Congress has not caught up with where you 
are. And so you, even if you were able to reach a proposed 
deal, you couldn't carry it through right now.
    Mr. Donahoe. That's in some cases, and in some cases the 
opposite, where customers are a little afraid to do deals with 
us because they're afraid that we would have some problems with 
our finances. So it goes both ways.
    Mr. Cummings. All right. Thank you, Mr. Chairman.
    Mr. Lankford. Thank you for being here very much.
    With that, this hearing is adjourned.
    [Whereupon, at 4:55 p.m., the committee was adjourned.]


                                APPENDIX

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