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



 
        OPTIONS TO BRING THE POSTAL SERVICE BACK FROM INSOLVENCY

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

                                HEARING

                               before the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 17, 2013

                               __________

                           Serial No. 113-50

                               __________

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 April 17, 2013...................................     1

                               WITNESSES

The Hon. Gene Dodaro, Comptroller General, U.S. Government 
  Accountability Office
    Oral Statement...............................................     6
    Written Statement............................................     8
The Hon. Mickey Barnett, Chairman, Board of Governors, United 
  States Postal Service
    Oral Statement...............................................    25
The Hon. Patrick Donahoe, Postmaster General and Chief Executive 
  Officer, United States Postal Service
    Oral Statement...............................................    62
    Written Statement............................................    65
Mr. Frederic Rolando, President, National Association of Letter 
  Carriers, AFL-CIO
    Oral Statement...............................................    81
    Written Statement............................................    83

                                APPENDIX

Statement of Rep. Cummings submitted for the record..............   138
Legal Opinion regarding the Postal Service's proposal to 
  discontinue Saturday's delivery, submitted by Chairman Issa....   140
A letter to Rep. Connolly from GAO dated March 21, 2013, 
  submitted for the record by Rep. Connolly......................   157
Statement from Tony Cardenas, a Member of Congress from the State 
  of California..................................................   164
Responses to questions submitted for the record..................   166


        OPTIONS TO BRING THE POSTAL SERVICE BACK FROM INSOLVENCY

                              ----------                              


                       Wednesday, April 17, 2013

                  House of Representatives,
              Committee on Oversight and Government Reform,
                                                   Washington, D.C.
    The committee met, pursuant to call, at 9:35 a.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, Amash, DesJarlais, Gowdy, Farenthold, 
Collins, Bentivolio, Cummings, Maloney, Norton, Tierney, Clay, 
Connolly, Cartwright, Pocan, Duckworth, Welch, Cardenas, and 
Lujan Grisham.
    Staff Present: Ali Ahmad, Majority Communications Advisor; 
Molly Boyl, Majority Parliamentarian; Lawrence J. Brady, 
Majority Staff Director; Adam P. Fromm, Majority Director of 
Member Services and Committee Operations; Linda Good, Majority 
Chief Clerk; Justin LoFranco, Majority Digital Director; Mark 
D. Marin, Majority Director of Oversight; Jeffrey Post, 
Majority Professional Staff Member; Laura L. Rush, Majority 
Deputy Chief Clerk; Scott Schmidt, Majority Deputy Director of 
Digital Strategy; Peter Warren, Majority Legislative Policy 
Director; Rebecca Watkins, Majority Deputy Director of 
Communications; Kevin Corbin, Minority Professional Staff 
Member; Jennifer Hoffman, Minority Press Secretary; Elisa 
LaNier, Minority Deputy Clerk; Lucinda Lessley, Minority Policy 
Director; Safiya Simmons, Minority Press Secretary; and Mark 
Stephenson, Minority Director of Legislation.
    Chairman Issa. The committee will come to order.
    The Oversight Committee exists to secure two fundamental 
principles: first, Americans have a right to know that the 
money Washington takes from them is well spent, and I might say 
the money the Postal Service 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. Our 
job is to work tirelessly in partnership with citizen watchdogs 
to deliver the facts to the American people and bring genuine 
reform to the Federal bureaucracy.
    Today we are going to have two panels. First, the General 
Accountability Office is going to characterize the insolvency, 
the dire situation with the post office. I personally see that 
today's hearing said insolvency. I say so because there is no 
such thing as bankruptcy of a Federal entity. The post office, 
although required to be solvent, required to be self-funding, 
is in fact neither self-funding nor solvent.
    The Postmaster reported in the neighborhood of $16 billion 
in losses last year. Although there is controversy over the so-
called prefunding that which is being paid in against the 
inevitable health care requirements in retirement by postal 
workers, even if you take away that $11.1 billion default over 
two years, the fact is, in the real world, by any standard, the 
post office is bleeding red ink. They are doing so not because 
the Postmaster General has failed to propose changes, not 
because the GAO will not testify that these changes are 
material and work; not because the CBO has failed to score what 
these savings will be; not because some of those savings have 
been statutorily possible since the 1970s; not because the 
American people failed to support these meaningful changes by 
clear majorities in each category.
    And I want to reiterate the majority of Americans see six 
day as not essential; the majority of Americans are perfectly 
happy going to a cluster box, a corner box, or a lockbox near 
their home to get their mail while $6.6 billion continues to be 
lost because some get it in the chute at a greater cost of 
labor by far.
    Even the Alaskans admit that although bypass mail is 
wonderful and convenient, and they believe it has become an 
entitlement, but it clearly is expensive and they understand it 
is a subsidy from the post office.
    As we try to balance all of these and more, we find 
ourselves back here again and again. The legislation is 
heralded by almost every newspaper in America; it is supported 
by the business community. But behind the scenes lobbying 
continues to make it impossible. Recently, the postmaster 
announced that he would in fact go from six day to a new six 
day that would provide different service. Legal opinions 
varied, but he certainly had a right to try and be challenged. 
He had other avenues. He was supported by the President, who 
called for five day both in last year's and this year's 
Congress's budget, but he backed down. He backed down on the 
pressure of an inevitable lawsuit. He backed down because, in 
fact, the postal unions do not want to have these reforms at 
this time because it will reduce their revenue. They do not 
want to have these reforms even though they are vastly 
supported.
    That is the problem we are here to talk about today, is 
insolvency and a failure to make the changes that are agreed on 
that can be made or to support legislation that would allow 
further changes.
    I want to thank everyone for being here. There will be two 
panels. I am going to split my time with the chairman of the 
subcommittee, Mr. Farenthold.
    The gentleman is recognized for the rest of my time.
    Mr. Farenthold. Thank you, Mr. Chairman, for allowing me to 
give this brief opening statement.
    The United States Postal Service is an institution founded 
in our Constitution. Before the age of Internet and cell 
phones, it was the key mode of communication between loved ones 
separated by distances and between businesses and their 
customers and with the Government. We live in a different time 
today than when Benjamin Franklin was Postmaster General.
    Today's hearing is about ways the Postal Service can 
modernize, work harder and work smarter, and prepare for the 
future. While I am a strong proponent of the benefits of the 
Internet, the loss of business to email and electronic bill 
payments is a real problem for the Postal Service. We need an 
infrastructure in this Country for moving matter, not just bits 
of data.
    For the post office, it is not just about cutting cost, but 
finding innovative solutions that will bring the USPS back from 
the brink of financial collapse and make it stronger for the 
future. There is no doubt the Postal Service is in need of 
reform. Even without the prefunding requirement, which I am 
sure we will hear a lot about today, the Postal Service is 
losing roughly $5 billion a year.
    To start off the conversation on postal reform in the 113th 
Congress, I chaired a hearing of the House Oversight Committee 
on the Federal Workforce, Postal Service and Census last week 
that focused on the Postal Service customers and what they 
need. Any elementary business course tells you, when business 
is struggling, the first thing they should do is go to their 
customers. Today we will hear more from the postal side and how 
they can become a more efficient 20th century mail provider.
    My concern as a government watchdog and as a taxpayer is 
that, without reform, the American people are going to be left 
footing the bill for a taxpayer bailout. That is the last thing 
we need right now. I agreed with the U.S. Postal Service's plan 
to modify Saturday delivery, as did nearly 70 percent of 
Americans. Unfortunately, the board of governors has decided 
not to pursue this common sense cost-saving measure. The Postal 
Service's reversal on this calls into question their ability to 
move forward with desperately needed reforms. I truly believe 
there are smart ways that the Postal Service can lower its 
costs and improve its service, and I hope we can bring them to 
light today.
    Thank you very much.
    Chairman Issa. I thank the gentleman.
    We now recognize the ranking member for his opening 
statement.
    Mr. Cummings. Thank you very much, Mr. Chairman. I am 
grateful to you for convening today's hearing and I want to 
thank you for agreeing to my request to invite Mr. Fred 
Rolando, the President of the National Association of Letter 
Carriers, to be a part of this hearing.
    Labor is the foundation on which our Postal Service is 
built, and we must honor the employees who have served this 
institution for decades by ensuring that labor representatives 
are central partners to our reform efforts. Delivering mail to 
more than 150 million addresses, operating 32,000 post offices 
nationwide, the Postal Service remains a vital link that binds 
our great Nation together.
    Last year, however, the Postal Service reported losses of 
approximately $16 billion and it lost $1.3 billion in the most 
recent quarter. Ladies and gentlemen, this is simply 
unacceptable. It continues to lose approximately $25 million a 
day and it has borrowed all of the $15 billion it is authorized 
to borrow from the Treasury.
    Obviously, such losses are unsustainable. However, much of 
this loss is attributable to the burden the Postal Service 
faces in prefunding its retiree health costs, a requirement not 
imposed on any other agency or business in the Country.
    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 centers.
    I often am reminded of a statement that I said many times: 
you can lose what you have by trying to hang on to what you 
used to be. You can lose what you have by trying to hang on to 
what you used to be. Things are changing and the Postal Service 
has to change.
    In addition, in January the Postal Service's board of 
governors directed the Postal Service to eliminate delivery of 
all Saturday mail except packages. This change effectively 
would have ended six day delivery. Every appropriations measure 
enacted since 1984 has included a rider requiring six day mail 
delivery. It states that six day delivery and rural delivery of 
mail shall continue at not less than the 1983 level. The plain 
language of this rider clearly prohibits the changes ordered by 
the board of governors.
    Now, let me be clear. No matter what my position might be 
on five or six day, I can tell you that the postmaster would 
catch hell if he went against what the Congress voted for. We 
voted for that. So, Mr. Postmaster, I can understand the 
problems that would come when you have a Congress saying do one 
thing and then you turn around and do something else.
    In March, Congress extended this rider in the 
appropriations measure to fund the government for the remainder 
of fiscal year 2013. As a result, the board rightly reversed 
course and delayed implementation of five day delivery until 
Congress passes legislation authorizing such a change. Again, 
this is Congress that did this. We did this, not the 
postmaster. We did it.
    As I have said repeatedly, Congress needs to pass 
comprehensive reform legislation that addresses not only 
delivery standards, but the full range of reforms needed to re-
engineer the Postal Service for the next century. This 
legislation must amend the schedule for retiree health 
payments, recalculate the Postal Services's FERS surplus using 
postal-specific characteristics, and provide key tools to 
right-size the Postal Service workforce.
    As I propose in my Innovate to Deliver Act, we should also 
create a new chief innovation officer position in the Postal 
Service. Too many people argue that the Postal Service should 
be self-sustaining like a business, while at the same time 
arguing it should be banned from competing against the private 
sector. I believe we must allow the Postal Service to expand 
into new business lines and my bill would do just that.
    Finally, and unfortunately, the most significant challenge 
facing the Postal Service today remains what it has been for 
the last two years: Congress's failure to act. We have to do 
something, us up here. Although the Senate passed a 
comprehensive and bipartisan bill during last Congress, the 
House failed to consider any postal reform legislation 
whatsoever. Last fall, the House and the Senate did come 
together to negotiate potential solutions in a serious and 
sustained manner. We did not resolve a bill but, as I stated 
when Chairman Issa and I testified before the Senate Homeland 
Security and Government Affairs Committee in February, I 
believe we can quickly finalize legislation that puts the 
Postal Service on the path to a sustainable financial future. 
This legislation is urgently needed and we should begin work on 
it immediately, and I am sure we will.
    So, Mr. Chairman, I want to thank you. I want to thank you 
for holding this hearing. It is a very, very important hearing 
and I look forward to hearing from our witnesses.
    With that, I yield back.
    Chairman Issa. I thank the gentleman.
    I would like to swear in the panel at this time. Since they 
appear to both be present, could we have both the first and 
second panel, and we will swear you in together? Then we won't 
have to do it twice. So, postmaster and Mr. Rolando, if you 
will step up also, and please rise. We have to be efficient in 
a committee that demands efficiency. Please raise your right 
hand.
    Do you solemnly swear that the testimony you are about to 
give will be the truth, the whole truth, and nothing but the 
truth?
    [Witnesses respond in the affirmative.]
    Chairman Issa. Let the record reflect that both the first 
and second panel answered in the affirmative.
    Please take your seats.
    Additionally, there is another sworn witness here today. 
And it is the first time I have done this, so there is no 
script for it. Mr. James Bilbray, another member of the board 
of governors, is effectively on the first panel. For health 
reasons, he was not able to attend; however, yesterday he did 
give us a rather thorough, about a 90-minute interview, sworn 
interview. So I have dispersed his question and answers on the 
record. It will be available to those on the dais. You may use 
it as though it is live testimony. However, it will not be 
placed in the record officially--and this is almost for the 
press to understand--until Mr. Bilbray reviews it and signs it. 
This is an oddity of--although he did it yesterday, we have to 
give him time to review it. For purposes of being a witness, 
though, you normally don't get to revise and extend every 
answer.
    So we are going to treat it as much as we can as a live 
witness. Specific questions and answers may be used. Those will 
be in the record but, of course, they will be subject to any 
additional signature; along with the signature, any additional 
remarks he makes that may clarify it. I think that is the best 
way to have the record, at least several days from now, be 
thorough and complete.
    Mr. Cummings. Mr. Chairman, just one quick thing.
    Chairman Issa. Of course.
    Mr. Cummings. It is my understanding that Mr. Bilbray, just 
for clarification, Mr. Bilbray did say that he is willing to 
come at a later date, is that right?
    Chairman Issa. He was willing to come at the next board of 
governors meeting, but he was also willing to do, in advance of 
this, a live interview. The live interview, I think, was 
bipartisan and really, I think, reflected what we wanted to do, 
was have the information as clearly on time as possible. So we 
are appreciative that he adjusted his schedule; did it 
yesterday. There will not be a need, as far as I can see, for 
him to come back separately. I think his testimony pairs well 
with Mr. Barnett, and Mr. Bilbray, of course, is the vice 
chair.
    Mr. Cummings. I just wanted to make sure that, in fairness 
to him, that he did volunteer.
    Chairman Issa. Oh, absolutely. He was accommodating both by 
offering to come at an alternate date or, in spite of some 
health problems that he is having, he was able to do it 
yesterday. So that is why, to be honest, Micky, he beat you to 
the testimony by a whole day.
    With that, we now recognize the Honorable Gene Dodaro for 
his opening statement.

                       WITNESS STATEMENTS

             STATEMENT OF THE HONORABLE GENE DODARO

    Mr. Dodaro. Thank you very much, Mr. Chairman, Ranking 
Member Mr. Cummings, members of the committee. I am very 
pleased to be here today to talk about the Postal Service's 
financial condition.
    The Postal Service's financial condition has been on our 
high-risk list since 2009. The situation is dire. In the last 
five years the Postal Service has added $10 billion to its debt 
to the Treasury, reaching the $15 billion debt limit. Declining 
mail volumes have not generated the revenues necessary to meet 
expenses and financial obligations of the Postal Service. Its 
debt and unfunded benefit liabilities now stand at $96 billion. 
As a percent of revenues, they have grown from 83 percent of 
revenues in 2007 to 147 percent of revenues in 2012.
    Looking ahead, the Postal Service projects that first class 
mail, which is one of the most profitable products that they 
have, will continue to decline in volume through 2020. Also, 
they have pointed out that they have severe liquidity problems 
right now and have challenges in making capital investments in 
their delivery fleet, which many of the vehicles are 
approaching the end of their useful lives.
    These are not the ingredients of a successful, sustainable 
business model going forward. The Postal Service needs to act 
and the Congress needs to act in order to address this 
situation. We have recommended a comprehensive legislative 
package be passed. From the Postal Service's standpoint, what 
we think they need to do is to continue to reduce their costs. 
They need to continue to look at their delivery and processing 
structure; they need to reduce their workforce. Eighty percent 
of their total costs are workforce related costs. They need to 
reexamine the benefits paid to the workforce in a compassionate 
and thorough manner.
    The Postal Service also needs to reexamine products that 
are not covering their costs. Periodicals, for example, and 
standard flat mail, in terms of catalogs, have not covered 
their costs last year, in 2012, by $1.5 billion. So they need 
to make some adjustments. We believe they could be done within 
the price caps that currently exist.
    Also, as the Postal Service has done, they need to continue 
to look for new revenue sources, as well.
    Now, with regard to the Congress, as part of the 
legislative comprehensive package, there are at least three 
things I would point out in my opening statement it should 
address: one, it needs to modify the prepayment of post-
retirement health care costs in a fiscally responsible manner. 
It is very important that this be dealt with in that way so 
that costs are not deferred down the line, particularly in 
light of the declining mail volume that portends revenue 
challenges going forward.
    Secondly, the Congress should modify the collective 
bargaining agreement statutes to require that the Postal 
Service's financial condition be considered in binding 
arbitration. It has been 40 years since the legislation has 
been passed, and it was at a time when the Postal Service was 
in a different competitive position at that time. So we think 
it needs to be modernized and we think the requirement that the 
financial condition be considered as part of binding 
arbitration would be helpful in addressing this situation.
    Lastly, and perhaps not inconsequentially, the most 
important thing in my opinion is that the Congress give the 
Postal Service the flexibility both in pricing and delivery 
methods in order to react to changes in the marketplace and 
declining mail volume. Its biggest competition is technology. 
Technology is changing rapidly and the Postal Service is unable 
to make those changes in a very nimble and quick fashion.
    So we believe these are the type of changes that ought to 
be considered by the Congress, and I think it is very important 
for the Congress to act soon on this legislation to prevent 
unintended consequences both for the Postal Service, the 
American people, and for the finances of that entity, as well 
as the Federal Government.
    So thank you very much, Mr. Chairman. I am happy to 
entertain questions at the appropriate time.
    [Prepared statement of Mr. Dodaro follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Issa. Thank you.
    Mr. Barnett.

           STATEMENT OF THE HONORABLE MICKEY BARNETT

    Mr. Barnett. Good morning, Chairman Issa, Ranking Member 
Cummings, and members of the committee. I serve as chairman of 
the board of governors of the United States Postal Service. I 
am honored to be asked to testify and I thank you for inviting 
me today.
    The Postal Service plays an incredibly important role in 
the American economy. It provides a national delivery platform 
that every business and residence relies on. It directly 
supports an $800 billion mailing industry that employs 8 
million people.
    America needs a financially healthy Postal Service. It 
needs a Postal Service that can adapt to changes in technology 
and the habits of American consumers. It needs a Postal Service 
that inspires confidence in its future.
    Today, the Postal Service faces tremendous financial 
challenges. Its business model is inflexible and its future is 
uncertain. We lack sufficient authority to fulfill our 
responsibilities to our great Nation.
    Unfortunately, the laws that control the actions of the 
Postal Service do not provide the authority or the flexibility 
for it to continue as a self-sustaining organization. We simply 
lack the tools under the law to solve the problems we face. If 
we are given the authority and the flexibility to quickly 
address our problems, we will do so.
    The board has directed that the management of the Postal 
Service explore and act upon every opportunity to generate new 
revenue and to reduce costs. Postmaster General Donahoe and his 
team have pursued these opportunities aggressively. They have 
achieved tremendous results, but they are limited in the 
actions they can pursue. Our board strongly supports the five-
year business plan developed by postal management. It is a 
responsible plan that will close our large and growing budget 
gap. We believe it provides the only realistic roadmap to long-
term financial stability.
    I know that this morning we will be discussing our national 
delivery schedule. Based on the chairman and the vice 
chairman's opening statements, there are differing opinions 
about the limits of the law passed by Congress. Last week the 
board acted upon legal guidance that says the recently passed 
continuing resolution prevents changes to our delivery 
schedule. It is a roadblock that stands in the way of a 
financially responsible action to reduce approximately $2 
billion in costs. We need to remove that particular roadblock 
and many others.
    I look forward to discussing this issue and the authorities 
we need under the law to implement our plan. The board of 
governors is eager to support the efforts of the committee to 
pass comprehensive postal reform legislation. We would be 
pleased to help in any way we can.
    Thank you again for the opportunity to testify. This 
concludes my remarks.
    Chairman Issa. Thank you. I will now recognize myself for a 
first round of questioning.
    Mr. Dodaro, you went through what the postmaster should do, 
and he has done a lot. Six day delivery, you have looked at the 
legal opinion. Does, in your opinion, the legal opinion have a 
path of suggestions if, even though it questions whether this 
alternative is legal, does it have a path of alternatives that 
could be pursued?
    Mr. Dodaro. Thank you for that question, Mr. Chairman. I 
think it is important to understand what our legal opinion did 
address and what it didn't address. What it did address was the 
provision that was in the first continuing resolution passed by 
the Congress covering the first half of the fiscal year.
    Chairman Issa. And the second CR was substantially the 
same; it was a partial year set of language.
    Mr. Dodaro. Right.
    Chairman Issa. Previously used.
    Mr. Dodaro. Right. But the rationale by the Postal Service 
for saying the provision didn't apply was the fact that there 
was not an appropriation attached to the provision in the first 
six month continuing resolution, and they argued that since 
there was not an appropriation of funds, that the provision did 
not apply----
    Chairman Issa. Isn't it true that the legal opinion--and I 
will be asking the postmaster--the legal opinion says you have 
two alternatives, regardless? You can ask for the President to 
ask for recision of this puny $100 million piece of 
appropriations that creates the legitimacy for the rider, and 
clearly you can also plan October 1st because there isn't a 
rider in effect. So they have two ways to go to five day. One 
is to ask the President to act consistent with his five day 
budget request, which is take back the $100 million so we can 
save $2 billion or, in the alternative, simply announce that 
October 1st, if there isn't a rider, they will be doing five 
day. Didn't the legal opinion say in both cases that they could 
do that?
    Mr. Dodaro. Basically, we held in the legal opinion that it 
wasn't explicitly tied to the appropriation of funds, so we did 
not agree with that. We thought----
    Chairman Issa. Okay, so you disagreed with the legal 
opinion on which the postmaster made his decision not to go to 
five day?
    Mr. Dodaro. That is correct.
    Chairman Issa. Okay, Mr. Barnett, you have read the legal 
opinion. I will mention that Mr. Bilbray apparently had not, 
because he didn't seem, in our interviews with him, to 
understand the nuances of the alternatives. Did you look, in 
the last pages of the legal opinion on which the board acted, 
at those two alternatives that were very clear: don't take the 
money in the future or ask for a recision to get to the rest of 
the year? Weren't both of those in the legal opinion?
    Mr. Barnett. They were, Mr. Chairman.
    Chairman Issa. Okay. And I believe the legal opinion is in 
the record already. Okay, well, I will ask unanimous consent 
that it be in the record, in case it isn't. Without objection, 
so ordered.
    Chairman Issa. One of the things that I wanted to get out 
from Mr. Bilbray is he was asked: Have you or any other board 
members received direct pressure, to your knowledge, of trying 
to exert pressure to protect a specific mail processing plant?
    Answer: I only had one call; that was Senator Reid called 
me about the Reno processing center.
    Okay. And did he ask that you not close that?
    He did.
    And he goes on.
    Mr. Barnett, isn't there a pattern of pressure on all of 
you governors and on the postmaster from U.S. Senators to 
protect processing centers that have been deemed to be excess 
and wasteful?
    And, by the way, and perhaps some House members, too, that 
have the guts to call you.
    Mr. Barnett. Mr. Chairman, it is true that we occasionally 
are contacted by Senators or Representatives, and maybe one of 
the advantages of being from New Mexico, without any processing 
centers, I have not received any such calls.
    Generally speaking, the board has very little political 
pressure. We received one letter on the six day closing from 
Publishers Clearing House, the only letter that I received as a 
governor in regard to the six to five day.
    Chairman Issa. Isn't it true that Publishers Clearing House 
ships at an extremely low rate, such that they are part of that 
group that doesn't cover their own cost?
    Mr. Barnett. That would be correct. But I didn't get 
pressure either, Mr. Chairman.
    Chairman Issa. Well, we will get to the postmaster in a 
minute and I will get to the political stuff, but I want to be 
very quick.
    Mr. Dodaro, the nature of this legislation not going 
through, there is a piece of language in the 2006 bill--and I 
want both of you answer to the extent you can--exigent 
circumstances. According to the law, there are a number of 
things the postmaster can do and the board of governors can do 
if they are in dire situation--exigent, dire, insolvent, they 
all seem to be pretty similar to me--including raising postal 
rates to cover that $1.5 billion you mentioned. Isn't it true 
that they have authority they have not used if they are willing 
to trigger the fact that when you lose $16 billion on $64 
billion of revenue, that is exigent circumstances to trigger 
things to save money or to gain revenue, isn't it?
    Mr. Dodaro. I am aware of the provision, became aware 
recently, but we haven't really looked at it to know the full 
extent of it, that it can occur under the circumstances that 
you mentioned, so that those decisions, though, would have to 
be balanced against what potential mail volume might decline as 
a result of the raises in rates. So I would be happy to provide 
a more detailed answer for the record, Mr. Chairman.
    Chairman Issa. Mr. Barnett, as I ask you to answer the same 
question, I might mention I am from the consumer electronics 
industry some years ago. We understand that if you lose money 
on every sale in order to make it up in volume, and thinking 
volume will take care of you, it will at your bankruptcy. So as 
you answer whether or not increasing the price and thus losing 
volume on something you are losing money on, how would you 
address that?
    Mr. Barnett. We have had numerous board discussions on this 
in the seven years I have been on the board and we have 
discussed exigent rate cases at many of those board meetings. I 
might add I am the dissenting vote; I was the only board member 
to vote against the last three rate increases, based primarily 
on my colleagues' statement that I am more concerned about loss 
of volume than I am increasing revenue, although both are 
important. Our infrastructure depends on volume, and if we 
raise prices, we had great concerns on the board that volume 
would then decline even further, leading to further deficits.
    We have directed, at our last board meeting last week, that 
management look at every other option available. Once we made 
the vote to not go to five day delivery on August the 5th, we 
asked that they look at everything else available to us, which 
would be to reopen the labor negotiations, to look at the 
filing of an exigent rate case, and then accelerate, if 
possible, the consolidations in the processing plants as 
quickly as we can expeditiously do it.
    Chairman Issa. Thank you very much.
    Recognize the ranking member.
    Mr. Cummings. Thank you very much.
    Let's not kid ourselves, Mr. Dodaro. If Congress says we 
want you to do something a certain way, and the postmaster came 
back and said, no, I am doing it my way, the postmaster would 
catch hell. I am telling you everybody up here knows that and 
everybody out there knows that. So he was caught in a hell of a 
bind. And I want to go back to something that Mr. Bilbray said 
in his testimony so we will be real clear. He said this, and I 
quote from his transcript on page 58, ``Let me tell you, this 
is a tough job, and we have to deal with a lot of bureaucracy 
in the Administration, the Postal Regulatory Commission and 
Congress, and they are all our bosses. And we try to do the 
best we can, but we are really restricted on what we can do, 
when we can do it and what, you know, like I say, what we can 
do, and it's tough. I mean, I was a congressman; I understand 
when you try to close a post office in my district. I was just 
as bad as everybody else out there and I understand them 
totally, and I wish I had served on the board of governors 
before I went to Congress because I think I would have been a 
hell of a lot better congressman in dealing with the post 
office.''
    I just want to make sure that is a part of the record.
    But let me go back to you, Mr. Dodaro. Does the GAO believe 
that the six day rider apply even if no money is appropriated?
    Mr. Dodaro. Yes. We said the Congress has the ability to 
give operational guidance through the appropriations thing and, 
yes, that is what our legal opinion held.
    Mr. Cummings. Because I am getting confused. Does that mean 
that the postmaster did the right thing consistent with that 
opinion or he did the wrong thing? Consistent with what you 
just said.
    Mr. Dodaro. Right. I think initially the decision by the 
Postmaster General to go forward based on the first six month 
CR provision, we disagreed with that.
    Mr. Cummings. Okay. And then when he reversed, what 
happened?
    Mr. Dodaro. Well, we haven't looked at the issue since 
then.
    Mr. Cummings. I see. I see. Now, I would like to ask you 
about the Postal Service's cash position and its financial 
outlook, Mr. Barnett. Is the board of governors given a routine 
update of the Postal Service's financial condition?
    Mr. Barnett. We are.
    Mr. Cummings. And for the year ending September 30, 2012, 
the Postal Service wrote in its financial statement: ``Although 
our cost reduction and revenue generation initiatives are 
expected to possibly impact cash flow, we project that they may 
not, in the aggregate, be sufficient to offset potential cash 
shortfalls which could occur in the second half of 2013.''
    Now, Mr. Barnett, in your board meetings this year, has the 
Postal Service indicated that it may experience a cash 
shortfall in the second half of 2013?
    Mr. Barnett. We have discussed it extensively at every 
board meeting and the answer is yes, the cost-cutting has 
possibly pushed that date off. But the manner in which we are 
cash flowing now is by not paying our prefunded RHB payments 
and we are not planning to make the one that is due on 
September 30th.
    Mr. Cummings. So there will be a shortfall.
    Mr. Barnett. There will be a shortfall.
    Mr. Cummings. And when will that be? When do you predict?
    Mr. Barnett. Well, we are already in the shortfall. As you 
know, we haven't made the last two years' payments and we are 
not going to make this year's payment. If you are saying will 
there be sufficient monies to make payroll without making the 
payments----
    Mr. Cummings. Yes.
    Mr. Barnett.--I believe we will through this calendar year.
    Mr. Cummings. Now, in its financial statement for the year 
ending September 30, 2011, the Postal Service indicated that it 
``ended 2011 with $1.5 billion of total cash and $2 billion of 
remaining borrowing capacity on its $15 billion debt 
facility.'' For the year ending September 30, 2012, the Postal 
Service wrote: ``We ended 2012 with $2.3 billion of total cash 
and no remaining borrowing capacity on our $15 billion debt 
facility.'' In a recent financial briefing to the committee 
staff, the Postal Service indicated that its cash position has 
continued to improve.
    Mr. Barnett, do you know how much cash the Postal Service 
currently has on hand?
    Mr. Barnett. I do. We have approximately nine days in 
operating income, Mr. Vice Chairman.
    Mr. Cummings. And about how much money is that?
    Mr. Barnett. Just approximately $2 billion.
    Mr. Cummings. All right. Now, Mr. Barnett, do you agree 
with this report, do you agree that the growth in the shipping 
and package product is improving the Postal Service's financial 
condition?
    Mr. Barnett. It is.
    Mr. Cummings. And despite the growth in the Postal 
Service's shipping and package service, the Postal Service 
still reported a loss of $1.3 billion in the most recent 
quarter. Mr. Barnett, how much of that loss is attributable to 
the prefunding payment due to the Retiree Health Benefit Plan, 
do you know?
    Mr. Barnett. I do not know.
    Mr. Cummings. Can you get me that information?
    Mr. Barnett. I am sure the Postal Service can get you that 
information. What is attributable to anything is a relative 
question. You could say all of it is due because all of it is, 
the $5.5 billion, but the answer is we don't have sufficient 
cash to make any payment on the prefunding of the Retiree 
Health Benefit.
    Mr. Cummings. So if the Postal Service did not have to make 
the RHB payment, its financial outlook would be better, would 
you agree on that?
    Mr. Barnett. It would be better, but we would not be 
solvent, no.
    Mr. Cummings. Finally, while the Postal Service's financial 
position is certainly concerning, it appears that the Postal 
Service will continue to remain solvent through the rest of 
this year and that the RHB payments are significant factors in 
the Postal Service's operating losses. Do you agree with that, 
Mr. Barnett?
    Mr. Barnett. Mr. Vice Chairman, I don't. I think my learned 
colleague here would say if we are not making our payments that 
are due, we are not solvent; and we are not making the payments 
that are due.
    Mr. Cummings. I see my time has expired.
    Thank you very much, Mr. Chairman.
    Chairman Issa. We now recognize the gentleman from Florida, 
Mr. Mica.
    Mr. Mica. And I yield first.
    Chairman Issa. Very briefly. Thank you.
    Mr. Barnett, prefunding is a statutory requirement. You are 
bound by law to do that, aren't you?
    Mr. Barnett. That is correct.
    Chairman Issa. And six day delivery, we have established, 
although it comes with no money, or virtually no money, is a 
statutory requirement you are required to do.
    Mr. Barnett. That is correct, Mr. Chairman.
    Chairman Issa. So why does the board obey one law and 
ignore another? You obey a law that costs you $2 billion and 
you ignore a law that says you owe us $5.5 billion a year, and 
you have done it for two years. Why would you pick one law to 
obey, that you choose to obey, that actually costs you $2 
billion? Where is the fiduciary balance there? If you are going 
to break a law, why is that the law you broke or didn't break?
    Mr. Barnett. Mr. Chairman, thanks for that question, 
because we do have a reason. The board has discussed it 
extensively. The real problem with the going from six to five 
day, knowing it will be challenged in court and not knowing 
what the result would be, is the tens of thousands of dollars 
that many, many businesses would have to implement in software 
updates and changes in their procedures. It also involves 
approximately 23,000 employees that would be directly affected 
by their futures and transfers and changes in work hours.
    Chairman Issa. Okay, I get it, Mr. Barnett. I appreciate 
the gentleman. I think we got the answer: the union wanted to 
keep six day and they didn't mind not paying their just debts 
pursuant to the law.
    Mr. Mica. Well, you know, this little exercise here I think 
points out the situation we find ourselves in, and Mr. Dodaro, 
our GAO representative, I think he summed it up only partially. 
He said the situation is dire. I think it is beyond dire, and 
it is probably going to get even worse. I think we are headed 
for a total meltdown in the postal system. Probably the only 
thing worse than the Federal Government, as far as its fiscal 
shape, is the United States Post Office, and there is not much 
to be said there. And we have some of the same difficulty in 
facing our fiscal challenges, and, quite frankly, I am not sure 
if the board of governors can resolve this. I was just checking 
and we were able to pass some legislation out of the committee 
that could never pass the House, and probably wouldn't pass the 
Senate, and all the interests here at play, making certain that 
nothing gets done or bad choices. I feel sorry for the board of 
governors because with the CR we didn't provide the flexibility 
and the authority, put you on hold. So I think it is going to 
get worse. Maybe that will help us resolve it.
    But two of the primary areas that we are going to have to 
address, one is personnel, and I notice that personnel and 
infrastructure are your big cost items. First of all, 
personnel. I don't know what you are doing at headquarters, but 
I actually thought I saw the number rise to 3,008 in the 
figures that I have of personnel right down the street. Not to 
mention that is just headquarters, but around these districts. 
So that is one thing, Mr. Barnett. Do you have a plan to reduce 
some of the overhead as far as management?
    Mr. Barnett. Mr. Chairman, representative, yes.
    Mr. Mica. And they don't have union contracts or do they?
    Mr. Barnett. There are certain management contracts.
    Mr. Mica. Okay. But, again, you are going to have to 
address that. You need a plan to come back with far fewer. I 
remember visiting over there some years ago in one of the RIFs 
that you all did, and there were hundreds of vacant desks. I 
don't know if that building is partially empty. Is it now?
    Mr. Barnett. There are empty desks in that building, from 
my observation.
    Mr. Mica. But there are still 3,000 people just in D.C. So 
that is one thing.
    Then facilities. You have 32,904 facilities, and I asked 
how many are vacant. Now, they said 166 was what I got this 
morning. I don't think that is accurate. They may be vacant, 
but there are thousands that are underutilized. I know my 
experience just in my district, in trying to consolidate or 
change out, there are post office locations in my district, I 
could give you five of them, that are so out of date, so 
expensive, in such poor areas for service. The problem is the 
postal authorities are totally mindless. No one can come up 
with a solution.
    Now, I have in one instance given you a solution and we 
were able to turn that into a valuable property, but it is a 
mindless mentality in the post office not willing to move 
forward in some of these. Do you think that can be changed?
    Mr. Barnett. It is changing. There have been tremendous 
strides the last two years going to village post offices and 
reducing the hours they are open to two, four, six hours.
    Mr. Mica. Well, we will be doing some hearings in some of 
the empty facilities to highlight the lack of progress, just to 
give you advanced notice. And I am not just picking on you; we 
have done this and we will be doing it next week in our fourth 
building in Washington, D.C., the Nation's capital, under other 
jurisdictions than the post office.
    But personnel and management, some things we can tackle, 
and then consolidation of the facilities and changing them out.
    Yield back.
    Chairman Issa. I thank the gentleman.
    We now recognize the gentlelady from the District of 
Columbia, Ms. Norton.
    Ms. Norton. Thank you very much, Mr. Chairman. I may not be 
here when the Postal Service witnesses themselves come forward. 
I realize you are here, Mr. Barnett, but I do want to say for 
the record, and I am certain that members of the committee 
would agree with me, that we are enormously indebted to Postal 
Service workers for catching the letter that contained ricin 
and kept it from coming to the Congress. I think this indicates 
once again the dedication of Postal Service employees and their 
vigilance, and the risk today to being a Postal Service 
employee. They now become not only Postal Service employees who 
see that the mail gets delivered, but they have a security 
function and they carried that security function out with great 
excellence yesterday, and I thank you for that.
    The Senate passed a bill last year; this side did not. If I 
may say so, instead of going through these same issues every 
year in these hearings, five day, six day, why don't we just 
pass a bill and then we will iron out the differences? This 
gets to be very repetitive and nonproductive. My major concern, 
as I think about the new model that Mr. Dodaro spoke about, is 
the need to treat the postal service like the independent 
business we spun it off to be, including the ability to use its 
extraordinary infrastructure to sell non-postal products. But 
let me get to the issues that are before us today.
    First let me lay the predicate for this question. I think 
they are going into their third year of default on prefunding 
of health benefits, and I suppose that is a kind of civil 
disobedience that they have been forced to. The third year, by 
the way, is coming up in September. One effect of these 
prepayments, Mr. Dodaro, is it not, is to offset the Federal 
deficit?
    Mr. Dodaro. On the prepayments for health care?
    Ms. Norton. Yes.
    Mr. Dodaro. No, it is basically to provide the money in 
advance for the Postal Service.
    Ms. Norton. I know what it does. Does it have the effect, 
though, of offsetting the deficit or making the deficit look 
smaller?
    Mr. Dodaro. I would have to go back and look at that. I am 
not sure offhand. I think the money is segregated in a 
different account for the Postal Service, but I would have to 
check and give you a definitive answer.
    Ms. Norton. Well, I believe it is in a trust account and is 
used, and I wish you would look at that because I think that 
its disguise of the deficit is one of the reasons that the 
Postal Service is seen as having to do what nobody else has to 
do; and, of course, that is what I want to get to.
    Is 75 years of prefunding health care considered a best 
practice?
    Mr. Dodaro. Prefunding is considered a best practice.
    Ms. Norton. That was not my question, sir. This is the only 
business and the only Federal Government that is prefunding --
--
    Mr. Dodaro. Actually, the Defense Department is prefunding.
    Ms. Norton. How much are they prefunding?
    Mr. Dodaro. They have prefunded $150 billion already.
    Ms. Norton. How much has the Postal Service prefunded?
    Mr. Dodaro. I believe it is about 48. About 43, 46.
    Ms. Norton. So would you recommend that for the Federal 
Government? And, if so, why haven't you recommended it for 
other Federal agencies? Is this the best practice? Is this what 
we should be doing. And, if so, how many years in advance 
should agencies be doing what the post office alone is doing 
today?
    Mr. Dodaro. Basically, the prefunding is not 75 years, it 
is 50 years.
    Ms. Norton. Oh, so you recommend 50 years of prefunding for 
every agency?
    Mr. Dodaro. I am not saying what we recommend, I am saying 
what the law requires.
    Ms. Norton. Do you think prefunding for Federal agencies, 
like the prefunding we require of the Postal Service, is to be 
recommended to the Federal Government? And, if so, why have you 
not recommended it for other Federal agencies?
    Mr. Dodaro. Well, first of all, the Postal Service is 
supposed to be self-sustaining.
    Ms. Norton. That is my point.
    Mr. Dodaro. Right.
    Ms. Norton. And, of course, whenever Congress wants to 
interfere, it can. Is that how you treat a private business? Do 
you think the post office is being treated like other private 
businesses?
    Mr. Dodaro. Well, it is not exactly a private business; it 
is still a part of the Federal Government, set up as an 
independent agency. We have a lot of these organizations that 
have been set up. Fannie Mae and Freddie Mac are other 
examples, and Government corporations, whether it is FDIC or 
whatever. So there are a lot of entities like that.
    Ms. Norton. Of course, with Fannie Mae and Freddie Mac, we 
bailed them out to the cost of billions of dollars. Do you 
think that is what we should do with the Postal Service as it 
now becomes insolvent?
    Mr. Dodaro. I think that is a policy matter for the 
Congress.
    Ms. Norton. But isn't that the direction we are going?
    Mr. Dodaro. Our recommendations are to make changes so that 
it doesn't get into that.
    Ms. Norton. It is already into that, Mr. Dodaro. It is time 
for somebody to recommend some changes that helps them get out 
of it. Now, the GAO itself issued a report in which it talked 
about alternative approaches to fund health care benefits. 
Which of those alternatives would you suggest?
    Mr. Dodaro. We would suggest moving to an actuarial-based 
prefunding operation, as opposed to the fixed payment schedule. 
We have recognized that the fixed payment schedule that was set 
up in 2006 had large up-front costs, more than you would have 
in an actuarial-based system. So we think that would be a good 
move, which is what the Senate version of the bill would have 
done.
    Ms. Norton. Thank you. Thank you, Mr. Dodaro.
    Chairman Issa. I thank the gentlelady.
    We now go to the gentleman from Utah, Mr. Chaffetz. Could I 
have five seconds?
    Mr. Chaffetz. Sure.
    Chairman Issa. Mr. Dodaro, simple yes or no. Isn't it true 
that Congress, long ago, passed laws requiring at least a 
minimum that actuarial prefunding by every pension plan in 
America held by private companies? It is the law. You go to 
jail for not doing it, right?
    Mr. Dodaro. Yes.
    Chairman Issa. Thank you
    Mr. Chaffetz.
    Mr. Chaffetz. Thank you.
    Appreciate you both being here.
    Mr. Barnett, what does the White House suggest that you do?
    Mr. Barnett. I have not talked to the White House; they 
haven't called me, so I don't know.
    Mr. Chaffetz. So as my colleague from the District of 
Columbia is suggesting it is time for somebody with an idea, 
are you suggesting the White House has no plans, no 
suggestions, no direction for you in what you are supposed to 
do?
    Mr. Barnett. I certainly didn't mean to say that. I suspect 
they have been in contact with the United States Postal 
Service, just not with me or any of the board of governors.
    Mr. Chaffetz. Just not the chairman of the board. Okay. 
That is one of my concerns, is there should be some 
involvement, engagement here.
    Mr. Dodaro laid out three general categories, suggestions. 
What would you agree with or disagree with on that list as he 
laid out these three?
    Mr. Barnett. I completely agree with all three and would 
add just a few more. But we are in 100 percent agreement with 
the three items he mentioned.
    Mr. Chaffetz. So what is prohibiting you? You talk about 
more flexibility and delivery in pricing, for instance, as one 
of those items, and yet try to make an adjustment there and 
then it gets pulled back. What is the hesitation?
    Mr. Barnett. We have, of course, a regulator that we must 
file with, called the Postal Regulatory Commission, and it is 
an unduly cumbersome, slow process to do so; and in the current 
marketplace we need the flexibility to move quickly. We would 
recommend, for example, that the regulator perhaps could come 
back and examine the data that was done to make--the board of 
governors would, say, decide on a price change or possibly a 
new price for a new product, give the regulator the chance to 
go back and examine it and require some modifications after the 
fact, but not require the up-front filing, the delays and the 
time to go through it because it is just too slow and there is 
no flexibility at all.
    Mr. Chaffetz. So part of perhaps what we should look at is 
restructuring that process and how that Postal Regulatory 
Commission works, is that the suggestion?
    Mr. Barnett. Mr. Chairman, Representative, completely. The 
regulation model we are under is like a utility model from the 
1950s, where we are a monopoly and we must file for rate 
increases, go through the expert witnesses, the whole bit. We 
are not, any longer, a monopoly in most of our products; we 
certainly are still in first class mail, but we are in direct 
competition in almost all our other products.
    Mr. Chaffetz. Mr. Dodaro, did you want to comment? It 
looked like you wanted to say something about this discussion.
    Mr. Dodaro. No. No. I agree with the comments.
    Mr. Chaffetz. Okay.
    Mr. Chairman, as we look at this issue, I really do 
believe, and I have believed from day one, one of the core 
issues that we have to grapple with here is how does the Postal 
Service become more relevant. You know, there are only so many 
times you can raise prices. There are only so many times that 
you can make your product more expensive in the marketplace. To 
me it is a question of relevancy. And the world is changing; we 
are becoming more electronic in our communications and people 
are more cost conscious. The Postal Service is having to deal 
with some very difficult things. For instance, for every penny 
of increase in the cost of fuel, they are going to have to deal 
with that; it is millions of dollars of costs to the Postal 
Service. Since President Obama took office until now, which 
happens to be the same time that I was elected, the price of 
fuel has doubled; and that is of real impact on the day-to-day 
lives and solvency of the United States Postal Service.
    I do want to actually compliment some of the work that has 
been done with some of the unions and some of the others in 
actually drawing back down the number of employees that are 
engaged. I only wished that the rest of Federal Government 
would have to go through such scrutiny, because what you would 
find, actually the Postal Service, as bad and as dire as the 
situation is, most other departments and agencies don't have to 
go through these types of gyrations; they don't have to go out 
and sell their services, they don't have to justify a price, 
they don't have to live within their means. And this is the 
only department and agency that I can look at that has made 
significant personnel changes to actually drive down the number 
of people that are involved and engaged in its agency. So on 
that side I do applaud.
    Now, on the other side, to my friends in the unions, there 
is going to have to be some more flexibility here. When they 
talk about collective bargaining, I think they are going to 
have to be some serious discussions about that. Both of these 
gentlemen concur with that. I happen to think that is going to 
be part of the issue. We are going to have to look more closely 
and have more cooperation on moving to cluster boxes and those 
types of simple things that will have multi-billion dollar 
effects on the Postal Service; maybe a little bit more 
inconvenient, maybe somebody isn't able to book as many hours, 
but small things that will make a big difference in the 
solvency of the Postal Service and ultimately, Mr. Chairman, 
become more relevant.
    Yield back.
    Chairman Issa. The gentleman yields back.
    We now go to the gentleman from Virginia, Mr. Connolly.
    Mr. Connolly. Thank you, Mr. Chairman, and thank you for 
holding this hearing, you, with our distinguished ranking 
member, Mr. Cummings,
    Mr. Dodaro, I want to thank you for the legal opinion from 
GAO, it was clear and concise and, I think, dispositive. One 
may not like a law, but to counsel people to circumvent it or 
ignore it is a different matter entirely, and GAO, I think, 
made a real contribution at least in understanding where we 
were legally, and I thank you for that opinion and for your 
colleagues as well. I think the chairman entered the opinion 
into the record. That is the opinion of March 21 and I now 
enter it into the record as part of my five minutes, without 
objection.
    Mr. Connolly. Mr. Dodaro, you said there were three things 
that were fairly fundamental to reform. The first thing you 
mentioned was prepayment. And I was a little confused with the 
byplay between you and Ms. Norton of the District of Columbia. 
Clearly, in saying that is the first thing Congress has to deal 
with, and, by the way, I happen to agree with you. I wish some 
newspapers like The Washington Post would even acknowledge it 
is a problem. But you included it. Presumably you included it 
because you do think that there is some aspect of it that is 
onerous and needs to be reformed. Is that correct?
    Mr. Dodaro. We believe that the 2006 law that set up the 
schedule for this front-loaded some of the prepayment 
penalties. Not penalties, excuse me, the amounts for 
prepayments. It was based on a fixed schedule up front, and we 
think if it is moved to an actuarial schedule that will help 
smooth out the payments over the period of time. But I want to 
be clear, we think prefunding needs to occur and that it needs 
to be done in a fiscally responsible manner. It is in the best 
interest of the Postal Service, for their future viability; it 
is in the best interest of the beneficiaries for their 
benefits.
    Mr. Connolly. Your point is so stipulated and the chairman 
correctly pointed out that it is not a unique requirement. But 
the 2006 legislation has some aspects to it that clearly put a 
burden on the Postal Service that are unique, is that not 
correct?
    Mr. Dodaro. We think there is a means to modify that, 
moving to an actuarial approach.
    Mr. Connolly. And the Senate recognized that in its postal 
reform bill that actually passed the Senate as S. 1789, is that 
not correct?
    Mr. Dodaro. That is correct.
    Mr. Connolly. And you reviewed that legislation?
    Mr. Dodaro. Yes.
    Mr. Connolly. Do you believe that legislation, in 
principle, is consistent with your recommendations for 
comprehensive reform?
    Mr. Dodaro. On the issue of prefunding, we agreed with two 
of the three changes that they have put in place. The only 
thing that we would ask be reconsidered would be the 
requirement to go to an 80 percent total funding. We think it 
should be 100 percent.
    Mr. Connolly. Mr. Dodaro, would it be fair to say that if 
we alleviate or reform the 2006 prepayment requirement in any 
fashion, that constitutes a Federal bailout of the Postal 
Service? Is that a fair characterization from your point of 
view?
    Mr. Dodaro. No. Modifying the schedule, as long as the 
prefunding occurs to achieve the full cost of the post-
retirement health care benefits, no; it is just changing the 
payment schedule.
    Mr. Connolly. Does the prepayment in any way involve U.S. 
taxpayer dollars?
    Mr. Dodaro. I don't believe so.
    Mr. Connolly. So wouldn't a bailout imply that we are using 
taxpayer dollars?
    Mr. Dodaro. It usually is a connotation.
    Mr. Connolly. No, no, no. General Dodaro, it is not a 
connotation. A bailout, a Federal bailout is with U.S. taxpayer 
dollars, is it not? I mean, if I use someone else's money to 
help somebody else out, that is not a Federal bailout.
    Chairman Issa. Would the gentleman yield?
    Mr. Connolly. I would f the chairman will give me a little 
consideration.
    Chairman Issa. Would you suspend the time?
    Mr. Connolly. I thank the chair.
    Chairman Issa. That is the best consideration the chair can 
give.
    Mr. Connolly. And I appreciate it.
    Chairman Issa. The chair is prepared to make it very clear 
on the record that in the negotiations we had with the Senate 
until the wee hours of the waning Congress, we had already 
agreed to go to an actuarial restatement. I would hope that the 
gentleman would agree also, though, that like the Railroad 
Retirement Act, if in fact we do not get an actuarial payment 
and there is a default, full faith and payment from the Federal 
Government would happen. So I am not expecting a bailout. The 
reason that we agreed to an actuarial one partially was the 
GAO's finding that the 2006 law, although well intentioned, was 
now unachievable with current economic conditions for the post 
office.
    Mr. Connolly. If we can keep that clock frozen for one 
second.
    Chairman Issa. As long as the ranking member doesn't start 
pulling at me here.
    Mr. Connolly. I thank the chairman and I am glad to learn 
of those negotiations, and his point is well taken. I am only 
pointing out, though, that I think there has been some loose 
rhetoric in the past when there has been any talk of prepayment 
relief of any kind, that that automatically is a Federal 
bailout. That is inaccurate and it is not fair, and the money 
involved so far is not U.S. taxpayer money; in fact, it is 
Postal Service revenue.
    Chairman Issa. Right. And I think for purposes of today, if 
everyone wants to go from a $16 billion loss last year, down by 
a little over $2 billion, which would be the restated amount, 
we are happy to say it was only $14 billion had they been 
making an actuarial payment rather than an actual. The problem 
is you can't be a little bit pregnant, to use an old 
expression. Also, a little loss of $14 billion is still a lot 
of money.
    Mr. Connolly. It certainly is. I thank the chair.
    Mr. Barnett, are you familiar with the memo from King & 
Spalding with respect to five day delivery proposal?
    Mr. Barnett. I am.
    Mr. Connolly. And did that memo influence the board of 
governors in its decision ultimately to say we have to comply 
with the law?
    Mr. Barnett. Yes, it did.
    Mr. Connolly. And did you, at any point in your 
deliberations before or after the Postmaster General's 
announcement about five days, look at the legal aspect of that 
and question the Postmaster General in terms of his legal 
reasoning or the reasoning he relied on?
    Mr. Barnett. The Postmaster General and the deputy are both 
members of the board. We had extensive discussions over several 
meetings on the first legal opinion dealing with the language 
prior to the current CR and then the current CR, so, yes, we 
have had numerous discussions with the Postmaster General.
    Mr. Connolly. And just real briefly, bottom line, what made 
the board decide we can't go forward with this proposal?
    Mr. Barnett. The King & Spalding opinion was the primary 
motivator for the change.
    Mr. Connolly. Which told you what, bottom line?
    Mr. Barnett. Well, it told us, bottom line, that we would 
be going to court and that the disruption that would occur if a 
preliminary injunction were issued, particularly if they went 
to court July 20th, a week ahead of the August 5th date and got 
a preliminary injunction, the disruption to the Postal Service 
and ultimately to the consumers of the Postal Service was 
something we felt was too grievous to take a risk on.
    Mr. Connolly. Thank you.
    Chairman Issa. I thank the gentleman.
    Mr. Connolly. I thank the chair.
    Chairman Issa. We now go to the gentleman from Oklahoma, 
Mr. Lankford.
    Mr. Lankford. Thank you, Mr. Chairman.
    Mr. Dodaro, you mentioned three things that Congress should 
do in this and you mentioned multiple things the USPS can do, 
as well, in the process on that. I want to highlight a couple 
of these things that have been discussed as far as additional 
revenue. What would you recommend USPS could do right now to 
deal with revenue issues, whether they be pricing or products 
or advertising or the many things that have been kicked around? 
What do they already have authority they could do?
    Mr. Dodaro. They have the authority to change the pricing 
for some of the products where they are not covering their 
costs. I highlighted the periodicals and standard flat mails in 
some of the catalog areas. Clearly, in the periodicals area 
they have been losing money on that for the last 16 years. The 
amount that they lost money in 2012, I believe, was about $650 
million. So that is one area that it could re-price. And the 
same on standard flat mails. Now, they may have to adjust the 
mix because there are varying products in there with the 
catalogs and other things. And there are some other areas where 
they are losing money on different products as well. So that is 
one thing that they could do.
    Mr. Lankford. Okay. Do they have any latitude, right now, 
on advertising? That has been discussed, whether it be products 
for sale at a post office itself or a village station, or 
whether that be actually advertising on the truck. I would 
assume they would not put a big advertising for FedEx on the 
side of their truck, by the way, as far as selling advertising, 
but to be able to produce that.
    Mr. Dodaro. Yes, they can do advertising.
    Mr. Lankford. Okay. Because that has been discussed.
    Mr. Barnett, can I shift over to that? I am sure this has 
bee discussed as well with the board of governors. You have to 
deal with price and products; the higher the price, the lower 
the usage. We get that. And it is especially difficult for 
catalogs because catalogs are in great competition right now 
with the Internet as one more step. What has been discussed at 
this point in how to be able to strike that balance?
    Mr. Barnett. Well, just to give you an example, on the 
catalogs, for example, the catalogs become a feeder for, then, 
packaged delivery, or a potential feeder for packaged delivery, 
which is a great growth in our area. So we do have great 
discussions, lengthy discussions. We have a new director of 
marketing, vice president that came on about a year ago. She is 
doing a fabulous job. The board of governors has gone to meet 
with potential customers or existing customers with potential 
increases in New York, in Phoenix, in San Diego; we meet with 
them, they tell us what their needs are. We are trying our best 
to increase revenues everywhere we can. We are underwater in 
several of these categories. We are still stuck with a price 
cap; we still cannot increase prices in excess of the CPI. So 
while I don't disagree with my colleague's statement here, I am 
not sure that we can get there based on the limit of the CPI on 
the underwater products.
    Mr. Lankford. As far as packaged delivery, though, where is 
that moving? Because obviously every retail location will tell 
you they are getting hammered in a retail box store by Internet 
purchases, and there is more and more being shipped on that. 
Where are we right now in moving towards getting more revenue 
by increasing the number of packages that are coming to USPS, 
rather than other providers?
    Mr. Barnett. Tremendous success story. We have had three 
years of 7 percent growth in package delivery, and we 
anticipate even further growth in package delivery.
    Mr. Lankford. Okay.
    Mr. Dodaro, you also mentioned, as well, that prefunding is 
in the best interest of employees of USPS. Can you talk about 
that some? Because there has been a lot of push-back to say 
that a lot of individuals say we don't want to do prefunding; 
why are we being mandated? But you mentioned that is in the 
best long-term interest of those employees.
    Mr. Dodaro. Yes, because at some point, if there isn't 
enough revenue set aside, either in advance or being generated 
at the time to pay for those benefits, the benefits potentially 
could be changed and lowered, so the employees would not 
receive the benefits they thought they were going to receive. 
So I think it is in the best interest of the Postal Service, 
for their future viability, and the same for the employees.
    Mr. Lankford. Struggle through it right now, but because it 
protects retirees in the days ahead.
    Mr. Dodaro. Yes.
    Mr. Lankford. Okay, thank you.
    With that, I yield back.
    Chairman Issa. I thank the gentleman for yielding back.
    We now go to the gentleman from Pennsylvania, Mr. 
Cartwright, who is not here. Okay, Pocan.
    Mr. Pocan. Thank you, Mr. Chair.
    Chairman Issa. Thank you. The gentleman from Wisconsin.
    Mr. Pocan. Thank you.
    I am one of the new folks around here, so I am still not 
used to, you know, we pass a budget, but we don't really pass a 
budget in Washington; and we use words like sequester. I never 
told my nieces or nephews I am going to sequester their toys if 
they don't behave. So there is a lot that is new to me around 
here.
    Chairman Issa. If the gentleman would yield. Have you 
learned exigent today?
    Mr. Pocan. Thank you. Lost five seconds. That is all right.
    And the last part is this pension requirement, because, as 
I understand it, it is extremely unique; no one else has to 
prepay 75 years into the future. If I understand it right, 
someone who is not even born, who would go to work for the post 
office, you are already paying for their pension now. Seventy-
five years into the future is a long period of time. I am 
getting shaking heads no.
    Mr. Dodaro. It is 50 years, and this is prefunding only for 
the people that are currently employed at the post office or 
retirees, not future people.
    Mr. Pocan. Okay. All right. But it is the only agency that 
is doing 75 years in the future, is that correct?
    Mr. Dodaro. I mentioned earlier that the Department of 
Defense is voluntarily doing it for the military.
    Mr. Pocan. But those are appropriated dollars, right, as 
opposed to revenue dollars that are brought in?
    Mr. Dodaro. Well, that is how they get revenue, but they 
are prefunding their requirements in advance.
    Mr. Pocan. Right, but that is completely different than how 
the funding comes in from the post office, correct, because we 
don't have the appropriated dollars?
    Mr. Dodaro. That is correct, but----
    Mr. Pocan. Okay, that is fine. I was just checking on that.
    The problem I have is that when I look at the Constitution, 
which we all had to swear to just a few months ago, I read 
Article I, Section 8, Clause 7, and it says we have to 
establish a post office. So, to me, there is a higher 
responsibility as we take a look at doing this and, therefore, 
we have to make sure that we are actually providing the 
service. I have also been a small business owner for over half 
my lifetime. In Brooklyn, Wisconsin, the small community of 
Brooklyn, honestly, I believe they rely more on the post office 
than they do in Brooklyn, New York. They don't have some of the 
other alternatives. If you are going to keep people in those 
small communities in rural Wisconsin and across the Country, 
you need a viable post office, and that includes things like 
six day delivery and local post offices.
    If I could just ask questions in two different areas, if I 
can. One, Mr. Barnett, I guess two questions. One, were the 
board members briefed and on board with the postmaster's 
decision to implement a five day a week mail delivery schedule 
prior to it being announced on February 6th?
    Mr. Barnett. Yes, we were.
    Mr. Pocan. They were. And any union representatives on that 
board? It was implied that the union is the one who blocked it 
going from five to six days.
    Mr. Barnett. All of the members of the board of governors, 
we only have five at the moment, of the nine, all are public 
interest, public service appointees, so there are no union 
appointees or business appointees.
    Mr. Pocan. So it wouldn't be fair to say that the union 
members somehow blocked.
    Mr. Barnett. No, sir.
    Mr. Pocan. Okay, thank you.
    And then a question for Mr. Dodaro. I know that GAO has 
supported this move for the 75 years in the future, which is, 
again, unique. No other agency in government does that, that 
far into the future. But when you say you support that, if you 
have to look at what the post office is doing and essentially 
that if they are going to have to eliminate services in order 
to do it or that they will be cutting delivery days or slowing 
service in order to make these inflated payments, is that 
something that is still supported in order to prefund this? 
Because we know what a big chunk it was for years, it would 
have been still profitable and, as you said, we are front-
loading a lot of the payments. In order to keep that going, we 
are hurting Brooklyn, Wisconsin and we are hurting those small 
businesses in my area. Is that something that you would 
support?
    Mr. Dodaro. Well, in the context that the Congress has 
required the Postal Service be a self-funding operation, yes. 
And if you look at the fact that the decline in mail volume, 
particularly first class mail, is projected to go down through 
2020 in the future, it doesn't look like the revenue base is 
going to be there to pay these benefits later, so somebody is 
going to have to pay it at some point in time, and we think 
this is a prudent course. Now, we said that we are fine with 
modifying the prepayments, given the overall financial 
condition of the Postal Service, but it needs to be done in a 
fiscally prudent manner; otherwise, you are just pushing the 
problem down the road.
    Mr. Pocan. And, also, I believe you did say you are open 
also to providing additional services, and I think there is 
some legislation to do that, to allow them to be like any other 
small business who would adapt and take on maybe some new areas 
to raise some revenue. Is that correct?
    Mr. Dodaro. Yes. We think they ought to pursue other 
revenue areas. I think when you move into non-postal areas you 
need to think about the competition with other entities, 
whether they would be subject to the same regulatory 
authorities that the other agencies would be involved. So it 
gets a little complicated. But they need to pursue alternatives 
in conjunction with the Congress.
    Mr. Pocan. Thank you.
    Chairman Issa. You still have five seconds left.
    The gentleman may not have heard, a moment ago, but with 
Mr. Connolly I did make it clear that we have always said that 
the $2 billion difference between the statutory prepayment and 
the actuarial responsibility we are always happy to remove. The 
challenge is the remaining $14 billion.
    And since you did say you were new, taking a little 
privilege from the chair, we have also always supported the 
innovation fund, the additional dollars. We do have to bear in 
mind the U.S. post office does not pay parking tickets. The 
U.S. post office does not pay taxes, including gas taxes, 
including license plate fees, and the like. So we also 
recognize that when they want to go into private areas, we have 
to make sure they are not leveraging reduced cost, such as no 
property tax and so on. So there is a balancing and hopefully 
you will take a very active role in the postal reform bill that 
is still being authored here in the House as we speak, and I 
would invite you to do so. Thank you.
    We now go to the gentleman from Tennessee, one of the 
gentlemen from Tennessee, Mr. DesJarlais.
    Mr. DesJarlais. Thank you, Mr. Chairman.
    Just a few questions. First, Mr. Dodaro, did the GAO look 
to see if the modified Saturday plan met the requirements of 
the postal rider?
    Mr. Dodaro. No.
    Mr. DesJarlais. Okay.
    Mr. Rolando, in December 2012 report from the GAO, it 
explicitly stated that the 2006 postal reform law did not 
require USPS to prefund 75 years of retiree health benefits 
over a 10-year period. Do you agree with that statement?
    Mr. Rolando. Barnett.
    Mr. DesJarlais. Oh, I am sorry, Mr. Barnett.
    Mr. Barnett. I apologize.
    Mr. DesJarlais. Let me reread it.
    Mr. Barnett. Thank you. I appreciate it.
    Mr. DesJarlais. I apologize for miscommunicating your name. 
December 2012 report GAO explicitly stated that the 2006 postal 
reform law did not require USPS to prefund 75 years of retiree 
health benefits over a 10-year period. Do you agree with that 
statement?
    Mr. Barnett. I apologize, but I am not equipped to answer 
the question. I read the GAO, I read his testimony last night, 
and I agree with everything in it, but I am not quite following 
the question, and I apologize for not understanding.
    Mr. DesJarlais. Okay. Maybe I am not reading it clearly. 
The GAO report from 2012 explicitly stated that the 2006 postal 
reform law did not require USPS to prefund 75 years of 
retirement health benefits over a 10-year period.
    Chairman Issa. Perhaps the GAO could.
    Mr. DesJarlais. Okay, Mr. Dodaro, do you know the answer?
    Mr. Dodaro. Yes, Mr. Barnett is right. Our point there was 
it was only 50 years, not 75 years.
    Mr. DesJarlais. Okay, so you agree with that, then.
    Mr. Dodaro. Yes.
    Mr. DesJarlais. Okay. And then I guess to either one, just 
to put one last persistent myth to rest, the same GAO report 
also stated, contrary to some claims, there is no liability 
held, nor contributions made, for any future employees who have 
yet to be hired or yet to be born. Do you agree with that?
    Mr. Barnett. Mr. Chairman, Representative, we do, and I 
would like to note, if I could, that the board believes that we 
would hope the opportunity for postal reform might consider the 
prospect that all future hires would go to a defined 
contribution plan, would not affect any current employees in 
any way, but that in the future that is a better way of looking 
at retirement plans. We would also, in the same regard, like to 
have more flexibility at doing our own health plan and 
competitively shopping it. We believe we could save our 
employees a lot of money by shopping our own health plan and 
having a better plan, a more affordable plan for our employees.
    Mr. DesJarlais. The Federal exchanges aren't looking good?
    Mr. Barnett. Well, we are a part of FEHB, and it is my 
understanding we have very little flexibility there.
    Mr. DesJarlais. All right. Thank you, gentlemen.
    Chairman Issa. Would the gentleman yield?
    Mr. DesJarlais. I will yield.
    Chairman Issa. I might note that every member here on the 
dais is leaving FEHB and heading to the exchanges at the end of 
the year, by law. We could accommodate you, I am sure, very 
easily on that.
    Mr. Dodaro, just using up the rest of this time, because I 
think it is important that we get this in, if we were to go to 
no payments to the health care retirement, isn't it true that 
in a matter of just a few years you would end up with an 
unfunded liability? In other words, the $45 billion in 
prepayment would expire in a decade or so and then you would 
simply have people taking money out that are currently there, 
and no money coming in; and the likelihood is that the post 
office is not anticipating some windfall of profits in the 
future that would pay it?
    Mr. Dodaro. That is correct.
    Chairman Issa. And if this were a private company, and it 
is trying to be operated as at least a break even private 
company, what would be their payments, their actuarial payments 
into a fund like this? One billion, two billion, four billion? 
Right now it is $5.5 billion, which is arbitrary, we all agree 
to that. What would be the level payments they would make over 
the next several decades to meet this obligation?
    Mr. Dodaro. About $3 billion.
    Chairman Issa. Okay, so $3 billion instead of $5 billion, 
$5.5 billion. There is a delta there, and I hopefully we have 
made the record straight today that the loss is less if one 
were to go to this, but it still would be a loss of roughly $14 
billion.
    Mr. Dodaro. There is no question this is only one part of a 
broader package that is needed to deal with the full range of 
fiscal challenges.
    Chairman Issa. Isn't it true that the Postal Service has 
had statutory authority and, actually, a mandate to move from 
the chute to the curb, in other words, gain that efficiency of 
curbside delivery, and that there has been a transition, but 
that that transition has slowed to a crawl, and that is part of 
about $6 billion of their accumulated loss?
    Mr. Dodaro. They have had a policy to do that, but they 
have some flexibility, and based upon what we have seen--we 
haven't studied it for a while--it is made on a decentralized 
basis, so whether they get any push-back from the local 
communities or not. But you are right in the sense that it is 
very cost-effective to do that. In fact, to deliver an address 
to a door costs about $350 in 2009; where, if you go to 
centralized delivery in cluster boxes, it is about $160. So it 
makes a big difference.
    Chairman Issa. Thank you.
    The gentlelady from Illinois, Ms. Duckworth.
    Ms. Duckworth. Thank you, Mr. Chairman.
    Mr. Barnett, on April 10th of this year the board of 
governors announced your decision to delay the implementation 
of the modified delivery schedule that had been approved in 
January. Why did the board of governors decide to delay the 
move to a five day delivery schedule?
    Mr. Barnett. Primarily because of a legal opinion that it 
would be unlawful to do so.
    Ms. Duckworth. Did you seek this opinion, this outside 
legal--was it outside legal counsel or was it internal?
    Mr. Barnett. It was outside legal counsel, and we did seek 
the opinion.
    Ms. Duckworth. Okay.
    Mr. Chairman, I ask unanimous consent to enter into the 
record the King & Spalding legal memo dated April 5th, 2013.
    Chairman Issa. The gentlelady was not here at that moment, 
but it is already in the record.
    Ms. Duckworth. It is. Oh, okay. Thank you.
    Mr. Barnett, earlier this year, 87 of my colleagues joined 
me in sending a letter to the postmaster, expressing our 
concern that ending Saturday delivery would negatively impact 
the ability of Americans to receive home delivery of 
prescription drugs in a timely manner. Some of these drugs are 
not delivered as a package and actually come in first class 
mail. For example, anything delivered by a patch delivery 
system, Nicotine patch, pain killers, psychiatric drugs. Some 
of those are in a patch delivery system as well.
    Among the people who most rely on home delivery are 
seniors, service men and women, veterans, and the disabled. 
Many of them live on a fixed budget. In a subcommittee hearing 
last week, Carl Jansen, VP of Pharmacy Operations at CVS 
Caremark, which currently has the delivery contract for 
Tricare, for example, testified that ending Saturday delivery 
would impact their ability to maintain current margins and he 
indicated that he did not know if this would lead to cost 
shifting to customers.
    Have you looked at the impact that ending Saturday delivery 
would have on shifting costs to either business or consumers?
    Mr. Barnett. Mr. Chairman, Representative, yes, we have had 
numerous board discussions and presentations by people from 
industry, by people from the Postal Service about what that 
impact would be. We are faced with the problem of losing 
billions of dollars a year, and we only have three or four ways 
to reduce costs that are of the magnitude to solve that 
deficiency, and this is one of the largest at $2 billion. It 
would make a significant impact.
    There are abilities now for emergencies and for the 
seniors. We don't deliver on Sunday, so all of the same 
arguments you just used would be true on Sunday. The seniors 
don't get their drugs delivered or their pharmaceuticals on 
Sunday; they sometimes don't on Monday, as well. The Postal 
Service is and has a plan in effect for those people that have 
an emergency need or an urgent need for that, and there were 
contingent plans that, by the way, are part of the reason to 
take nine months or seven months to put in place. We need to 
get those things into where we have notification to the 
carriers about those people that have urgent needs.
    There is a way to shift them to packages that are not as 
expensive as people think, and there is also some ability 
through CVS or others to work at getting the pharmaceuticals to 
them earlier, on Friday, for example, so that they wouldn't 
need them on Saturday.
    Ms. Duckworth. But the cost would still be getting shifted 
onto consumers and being shifted onto businesses.
    Mr. Barton. We don't take testimony, but some of the 
presentations to us have been that there wouldn't be any 
additional cost, there would be a change in the manner in which 
they would arrive at their mailings. They will have to do them 
in a different fashion if it is five days a week, as opposed to 
six. There would be no additional cost.
    Ms. Duckworth. Well, the VP of pharmacy operations at one 
of the largest pharmaceutical pharmacies in the Country 
disagrees with you and testified accordingly yesterday.
    I understand and very much appreciate what you just said, 
that you have been reaching out to business customers and that 
you understand the needs with regards to this issue. Could you 
tell us what types of concerns you have heard and if, when you 
altered your plan for implementation of five day delivery, it 
was affected by that dialogue at all.
    Mr. Barton. The board attempted to take all of it into 
account in making its decision. There is a 70 billion piece 
drop in volume. We were at 213; we are now at 160. When you 
have that kind of decline in volume, you must look at 
modifications of delivery schedules.
    And I misspoke a minute ago; pharmaceuticals will be 
delivered on weekends, regardless. And the Postmaster General 
will be up here in a minute for the next panel; he will get 
into that more. So it was going to be delivered, regardless.
    But, yes, all of that is taken into account, and yet we 
face having to cut several billion, at least $5 billion more a 
year out, and I don't know where else to do it except one big 
chunk of it is from six to five day.
    Ms. Duckworth. I am over time.
    Mr. Farenthold. [Presiding.] That is all right. If the 
gentlelady would yield for a second.
    I chaired that committee and it was my understanding of the 
testimony that though CVS Caremark had some concerns, they were 
more concerned with an overall cessation in Saturday delivery, 
rather than the modified plan. I would like to follow up with 
them on that one. Without objection, we will forward your 
specific inquiry for clarification to CVS and include that as 
part of the record. Without objection, we will do that and get 
that to you and include it as part of the record, because that 
is something we really do need to be clear on because it is an 
important issue, to make sure the seniors are able to get their 
medications on Saturday. It is a very important issue we will 
follow up on.
    With that we will move along to the gentleman from 
Michigan, Mr. Walberg. You are recognized for five minutes.
    Mr. Walberg. Thank you, Mr. Chairman.
    Mr. Barnett, with only nine days of liquidity, when do you 
project that the Postal Service will run out of cash?
    Mr. Barnett. I am unable to give you a date. We will be 
down to, our projections show two days of liquidity on October 
16th. On October 15th we will have a large worker's comp 
premium payment, and we think we will be down to two days 
liquidity at that time. But that is the start of the Christmas 
mailing season, when we have tremendous increases in revenue in 
that quarter, starting October 1st. So we probably will be able 
to, from a cash flow standpoint, albeit not paying the 
prefunding and so forth, we are going on many more months, 
maybe a year or two. I do not have a date I can give you.
    Mr. Walberg. So any contingency plans you have right now is 
based primarily on the holiday season coming and expanded 
revenues that come in from that.
    Mr. Barnett. Mr. Chairman, Representative, we are in dire 
cash flow straits under any method we look at. We don't want to 
in any way sugar coat that today. We are in real trouble and we 
need comprehensive postal reform yesterday.
    Mr. Walberg. Do you have contingency plans, though, that 
you have seen?
    Mr. Barnett. We have discussed contingency plans, Mr. 
Chairman, Representative.
    Mr. Walberg. Has the board approved them?
    Mr. Barnett. Mr. Chairman, Representative, we have not had 
a formal vote on contingency plans, but we have discussed them 
at length, and postal management knows the opinion of the board 
about what contingencies we would have to do.
    Mr. Walberg. Well, let's move on. Were you asked, as a 
board, to approve the Postal Service's decision to implement 
the five month moratorium on the processing plant 
consolidation?
    Mr. Barnett. We discussed the moratorium. We are a board 
that represents the public interest, and a part of that public 
interest is what might loosely be termed politics; and you have 
politics going on when you are trying to get comprehensive 
postal reform. Just as we had announced we hoped we could close 
lots of post offices, a wise decision was made collectively by 
the board, by postal management that that was going to upset 
Congress a great deal, and we went to the concept of a village 
post office and the reduction of hours in the post offices, and 
it seems to have stopped the political rhetoric or lowered the 
political rhetoric an immense amount, and we still got 80, 90 
percent of the savings. In other words, we do keep, in rural 
areas, post offices open, but they are now open two hours a day 
rather than eight. We have fewer postmasters, we have fewer 
costs. It was, I will call it a political compromise, if you 
will, because we tried to listen, as part of representing the 
public interest is that kind of consideration.
    We didn't have specific political consideration. Well, 
there was political consideration: do you do a moratorium. 
Well, we were promised, albeit incorrectly, that comprehensive 
postal reform was on its way. I can tell you I have been on the 
board six years. I have heard that every year for six years. I 
am like the kid on Christmas Day; I am waiting for the postal 
reform, but I haven't seen it yet.
    Mr. Walberg. Okay.
    Mr. Chairman, I yield back.
    Mr. Farenthold. Thank you very much.
    At this point we will go to the gentleman from California, 
Mr. Cardenas. You are recognized for five minutes, sir.
    Mr. Cardenas. Thank you, Mr. Chairman.
    As reported in an article in Bloomberg on April 11th, 2013, 
the Postmaster General was quoted as without being able to cut 
back to five delivery days from six, the Postal Service will 
take its board's advice and ask its employee unions to 
renegotiate multiyear contracts.
    Mr. Barnett, did the board of governors authorize the 
Postmaster General to take this action?
    Mr. Barnett. Mr. Chairman, Representative, we directed him 
to take that action.
    Mr. Cardenas. Okay. Was it discussed at the April 9th board 
of governors meeting, or any earlier meeting?
    Mr. Barnett. We had two meetings in the last week and I am 
not sure of the dates, but it was discussed at both meetings, 
yes.
    Mr. Cardenas. Okay. And do you know if the Postmaster 
General has spoken to any of the bargaining union leaders, 
renegotiating their agreements?
    Mr. Barnett. Mr. Chairman, Representative, it is my 
understanding that the requests have gone out, and he will be 
here shortly and he can tell you more. We have not had a board 
meeting since that time.
    Mr. Cardenas. Okay. So the board hasn't discussed it 
further.
    Mr. Barnett. Not further.
    Mr. Cardenas. Okay. Thank you. Is it true that the U.S. 
Postal Service handles approximately 40 percent of the world's 
mail volume?
    Mr. Barnett. Yes.
    Mr. Cardenas. That is about right? Okay. How much of U.S. 
mail is handled by private industry in this Country, roughly?
    Mr. Barnett. Mr. Chairman, Representative, we have a 
monopoly on first class mail, so we have 100 percent of that. 
If you are talking about priority mail or package delivery and 
so forth, I don't know that number. We would still, I think, 
have a majority of it. Well, packages, 20 percent. But there is 
a lot of criteria from first class all the way down to 
packages.
    Mr. Cardenas. And today's recovery cost of a first class 
piece of mail is approximately what, full recovery cost?
    Mr. Barnett. The Postmaster General informs me that 50 
percent contribution on the first class mail, and it is the 
most profitable.
    Mr. Cardenas. So what are we charging today for first class 
mail?
    Mr. Barnett. Forty-six cents.
    Mr. Cardenas. Forty-six cents. And you are saying that that 
is full cost recovery on that piece of mail?
    Mr. Barnett. Yes.
    Mr. Cardenas. Okay. And you are saying that private 
industry doesn't endeavor in this Country, they don't get 
involved in first class mail, apparently?
    Mr. Barnett. They are unable to use the mailbox to deliver. 
They certainly can deliver things to your driveway, to your 
front door, mail or packages.
    Mr. Cardenas. And when it comes to packages, how do we do 
when it comes to packages, are we losing revenue whenever we 
try to compete in that arena?
    Mr. Barnett. Mr. Chairman, Representative, no. I think we 
are making money. We increased our revenues by more than $300 
million last year. It is quite profitable.
    Mr. Cardenas. Okay. So it appears that this Government 
entity, the U.S. Postal Service, in your earlier testimony, I 
am getting the feeling that one of the biggest problems we have 
isn't that we can't compete in these delivery systems at 
various levels, it appears that you are finding it hard to 
actually make decisions in a timely manner to make those 
adjustments to actually bring yourself into better revenue 
positions?
    Mr. Barnett. Mr. Chairman, Representative, there are two 
primary problems. Every year there are more places to deliver 
the mail to approximately 150 million delivery sites a day and 
it grows, so the cost of delivering to all those delivery sites 
every day is a growing item; while there is a tremendous 
decline in the mail. So it is a system that, without other 
changes, is going to absolute failure. You can't continue to 
have decline in mail. And my colleagues pointed out several 
times that through 2020 we project a decline in first class 
mail, and it is not that we don't necessarily think there may 
be a decline after that; that is just as far out as we 
projected it. Personally, as a board of governors and for all 
the things, I think mail will continue to decline forever 
because of the ability of electronic diversion and other 
methods of communication.
    Mr. Cardenas. Thank you.
    I yield back my time.
    Mr. Farenthold. Thank you very much.
    I see I am up now, so here we go. I would like to start out 
with Mr. Dodaro. You are with the Government Accountability 
Office. You are a nonpartisan organization. You were designed 
to be the neutral arbitrators, the guys with accountants, green 
eyeshade deals. To quote the old Dragnet TV show, you are the 
just the facts, ma'am, people. Would that be a fair 
characterization of your organization?
    Mr. Dodaro. That is correct, without the green eyeshade.
    [Laughter.]
    Mr. Farenthold. All right. So as a representative of a 
large district in South Texas and now the chairman of the 
postal subcommittee, I hear from a lot of postal workers. They 
will come into my office, we will have a nice chat, or they 
will stand out in front of my office with signs. Either way, I 
hear a lot from them. And I have made some promises to them, 
and that is we need to get down to some of the numbers with 
prefunding. And I know we have talked about that a lot today, 
but I want to be perfectly clear on this so there can be no 
question. My fear is some of these postal employees are getting 
some bad information through the grapevine or from some outside 
organizations. Correct me if I am wrong here. If we were to do 
away with all prefunding completely, the Postal Service would 
still be losing money. Is that correct?
    Mr. Dodaro. That is correct.
    Mr. Farenthold. If we were to go to, as some of my 
colleagues on the other side of the aisle have suggested, a 
more actuarial based with the Senate, we would save about $2 
billion to $3 billion over what the prefunding requirement is 
today, is that correct?
    Mr. Dodaro. That is correct.
    Mr. Farenthold. All right. And as Mr. DesJarlais asked, we 
are not prefunding for people who haven't been born yet, and we 
are looking at a rational deal accumulating money to pay these 
postal workers the benefits that they have been promised. If we 
don't put money away, it is going to be up to the whim of 
Congress as to whether or not there is money there to pay them 
if they don't accrue for it. Would that be a fair statement?
    Mr. Dodaro. That is absolutely correct.
    Mr. Farenthold. All right. Mr. Barnett, would you agree 
that those are accurate statements as well?
    Mr. Barnett. Mr. Chairman, I agree.
    Mr. Farenthold. All right. So let's talk a little bit about 
Saturday.
    Chairman Issa, Mr. Barnett, asked you which law you chose 
to break, whether the prefunding payments or the Saturday 
delivery. My question on that is, as a business person, if I 
had the opportunity to go to court to save several billion 
dollars, even if my lawyer said, well, it is a questionable 
issue, it might be safer to go ahead, I think I might have gone 
ahead with it. You pointed out earlier in your testimony that 
there was a concern about the money that the private sector 
would have to do to adapt their shipping mechanisms and the 
like. Didn't you already put a similar burden on the private 
sector when you said, well, we are going to stop Saturday 
delivery for all but packages and priority mail? Didn't a good 
many of those people already spend the money and at least start 
to make those plans and adaptations?
    Mr. Barnett. Mr. Chairman, I don't have any personal 
knowledge of what they started, but there is no disagreement, 
the board has been unanimous now for over three years that it 
is going to be necessary to go from six days to five days.
    Mr. Farenthold. Okay.
    Mr. Barnett. It will happen. I can't tell you when, but it 
will happen.
    Mr. Farenthold. All right. I want to get one more thing to 
meet my commitment to my postal workers to get to the bottom of 
this. An actuarial-based prepayment of retirement in health 
care benefits is consistent with what is required by Federal 
law of UPS, Federal Express, and almost every other corporation 
in the Country; it would be very similar.
    Mr. Dodaro. I am informed it is not exactly. I can provide 
a detailed list for the record.
    Mr. Farenthold. Would you provide the details of how an 
actuarial would be different from what private sector companies 
are doing? Because I would like to know and I would like to 
make that available to the postal employees that I represent 
and throughout the Country.
    Mr. Dodaro. Yes. You are correct for pensions, but it is 
not the same for health care benefits.
    Mr. Farenthold. Okay.
    Mr. Dodaro. So I will provide a more detailed record for 
the record.
    Mr. Farenthold. And you are saying that the Postal Service 
is in the hole 140 percent of current revenue, is that the 
number you gave?
    Mr. Dodaro. Their debt and unfunded liabilities are 147 
percent.
    Mr. Farenthold. Okay. Now, if there were a private company 
in that situation, bankruptcy would probably be where they are, 
is that correct?
    Mr. Dodaro. You would be teetering.
    Mr. Farenthold. Okay.
    Finally, let me go to Mr. Barnett on something relatively 
unrelated. You testified that you all wanted more flexibility 
in rates, and I can understand that with respect to packages, 
but you have a monopoly on first class mail; you have a de 
facto monopoly on third class mail, catalogs and what a lot of 
people would refer to as junk mail; there are some people who 
will door hangers and things like that, but nobody that has the 
reach that you guys do. How do we give you that flexibility 
without giving you the power to do sweetheart deals and pick 
winners and losers based on political? I can understand maybe 
coming up with a frequent mailer program where, based on volume 
or objective standards, you come up with something, but there 
is a case with respect now you are offering a company that 
competes with newspapers, talking about offering them a 
sweetheart deal on rates. How do we give you that flexibility 
and, as a quasi-governmental agency still make sure you treat 
everybody fairly and in an objective fashion?
    Mr. Barnett. Mr. Chairman, as I indicated, I think one way 
of doing it is to allow the board of governors and the Postal 
Service to implement immediately, with some notice, but 
relatively short notice, these rates or these changes, subject 
to the Postal Regulatory Commission then having the authority 
to say, no, you have unfairly calculated your numbers by 
improperly allocating what to monopoly status as opposed to the 
competitive side of the house. So I don't think it should be 
completely unfettered, I don't think that would necessarily 
work; although I think you would find the board of governors 
equally up to the task of balancing all of the aspects you just 
described as you would the Postal Regulatory Commission.
    Chairman Issa. Mr. Chairman?
    Mr. Farenthold. Yes, sir.
    Chairman Issa. Perhaps the chairman would make sure that on 
the question of pensions, which I know you covered very 
thoroughly, the question of if a private sector pension did not 
fully accrue and have all the money in, for example, United 
Airlines when they went bankrupt, what would occur versus what 
would occur in the case of the post office. I think Mr. Dodaro 
is pretty qualified to contrast the outcomes.
    Mr. Farenthold. I am about out of time, but I do think that 
question deserves an answer. We will get that question. 
Hopefully somebody will yield on my side and we will get that. 
I am already way over. I do want to get that answered; we will 
do it within the constraints of the time rules.
    So we will go to Mr. Cartwright now for five minutes.
    Mr. Cartwright. I have no questions for this panel.
    Mr. Cummings. Would the gentleman yield?
    Mr. Cartwright. Yes.
    Mr. Cummings. Thank you.
    I want to go back to the question that was just asked, in 
fairness. With regard to what the chairman just asked, can you 
answer that?
    Mr. Dodaro. Yes. The Pension Benefit Guaranty Corporation 
would step in and have to take over that situation. In that 
case they have a minimum amount that they pay to the 
pensioneers. It may or may not be anywhere close to what they 
were promised under the programs, but PBGC, the Pension Benefit 
Guaranty Corporation, would take over as they have for other 
plans where companies have failed in the private sector.
    Mr. Cummings. Now, what about health benefits?
    Mr. Dodaro. The health area, I don't believe there is any 
comparable situation. I will go back and think about that, and 
if I have a different answer, I will provide it for the record, 
but I don't believe there is so.
    Mr. Cummings. Your aid is swiftly jotting down the praecipe 
there. What do we have?
    Mr. Dodaro. Basically that the participants lose. The 
benefits will be cut.
    Mr. Cummings. But your recommendation with regard to the 
health benefits is what, now?
    Mr. Dodaro. That prefunding take place in a fiscally 
responsible manner. We believe this protects the Postal Service 
employees, as well as the Postal Service as an institution, and 
helps preserve their benefits; that it be done on an actuarial 
basis consistent with the Senate legislation that was passed; 
that a goal be set for 100 percent funding over time. Those are 
our recommendations.
    Mr. Cummings. And you would feel comfortable that they 
would be sufficiently taken care of no matter what?
    Mr. Dodaro. Yes. Yes. If that happens, along with-- now, 
you need the comprehensive legislation to make the Postal 
Service have the ability to make the prefunding arrangements. 
That is where the flexibility comes in and other issues. But 
assuming the Postal Service has the financial ability to make 
those prepayments, yes, I think that is in the best interest of 
the employees and the Postal Service.
    Mr. Cummings. You also talked about making sure that they 
have the opportunity to raise rates, is that right? Did you say 
that?
    Mr. Dodaro. Yes. I think they need flexibility in both 
pricing and in delivery. You know, in the delivery area, 80 
percent of their costs are personnel costs. You are not going 
to eliminate your personnel costs unless you change your 
delivery stand.
    Mr. Cummings. Right.
    Mr. Dodaro. And when you have the mail volume dropping the 
way it is dropping, and projected to continue to drop, you need 
to have flexibility to change your delivery methods. Five day 
delivery is something we think should be considered. But they 
need pricing options with flexibility, too. Their main 
competition is the introduction of new technologies. They are 
occurring very rapidly, changing how people are communicating. 
If they don't have the flexibility to make those changes, they 
are not going to be able to be competitive in the future. The 
Postal Rate Commission could stay in place as a check against 
what they are doing, but unless they are given the flexibility, 
I just don't see how they are going to be able to bring their 
costs in alignment with revenues.
    Mr. Cummings. And so I take it that there is research that 
has been done to say that if the postmaster were to raise the 
rates, that that would not interfere with future business? In 
other words, you can raise your rates to a certain degree and 
lose business. I am assuming that you all have already taken 
all of that into consideration, is that right?
    Mr. Dodaro. Well, you need to balance raising the rates. I 
mean, many of our suggestions go to cutting the costs. Our 
point is that you need to bring costs in alignment with the 
revenues. So I am not saying you should solely do raising the 
rates. I think you have to cut the costs first and use rate 
abilities, particularly for products where you are losing, not 
covering your costs already, as I mentioned with periodicals 
and catalogs. But you have to balance those issues 
appropriately.
    Mr. Cummings. And on the downsizing, you know, there has 
been substantial downsizing already, and I take it that when 
you talk about downsizing, I think you mentioned that there 
should be some type of incentives for downsizing, people 
retiring?
    Mr. Dodaro. Yes.
    Mr. Cummings. And why did you come to that recommendation? 
What was the basis of that, sir?
    Mr. Dodaro. Well, I think if you look at the decline in the 
mail volume, we have looked at there is excess capacity in the 
system, in the mail processing network, and they are already 
trying to consolidate the mail processing centers. And if you 
look at the decline, Mr. Barnett mentioned they went from 213 
million pieces of mail to 160 pieces of mail, and they are 
expected to go further over a relatively short period of time. 
So you have excess processing capabilities and also in your 
retail operations as well. They are already cutting back the 
number of hours, as he mentioned, some places to two hours a 
day; and that is under just the current volume. If the volume 
drops further, the excess capacity will build, and then you are 
going to have to downsize because you don't have revenue to 
support that network.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    Mr. Farenthold. All right, patiently waiting has been the 
gentleman from Michigan. Mr. Bentivolio, you are recognized.
    Mr. Bentivolio. Thank you, Mr. Chairman.
    Chairman Barnett, I have a few questions. I want to recap, 
make sure I understand this correctly, but I also want you to 
know that I have a fond affection for the post office; as a 
soldier overseas, it was the highlight of my day and a big 
morale booster to get mail from home. And I think I carried 
that over home; I always look forward to looking in my mailbox. 
But there are a few things that are clear: some days there is 
no mail at all and other days there is maybe one or two, in 
contrast 10 years ago, 15 years ago, before the Internet, there 
was all kinds of mail. Always looked forward to it and always 
looked forward to my postal delivery person to say hello to 
him. Always had good relationship with the post office.
    But there are a few facts, and you have indicated those. 
You have a declining volume in first class mail, in which you 
have a monopoly, correct?
    Mr. Barnett. Correct.
    Mr. Bentivolio. Right. And you have increasing locations to 
deliver that mail, which you are required to do so. Where you 
are increasing, if I understand, your marketing shares in 
package delivery, correct?
    Mr. Barnett. Mr. Chairman, Representative, that is correct.
    Mr. Bentivolio. Okay. But you are required to compete with 
other commercial businesses in that area.
    Mr. Barnett. That is correct, Mr. Chairman.
    Mr. Bentivolio. So you have to compete on something while 
there are other competitors, of course. All right, now, for 
cost cutting, you are consolidating some sorting locations or 
mail----
    Mr. Barnett. Mail processing plants, yes, sir.
    Mr. Bentivolio. Mail processing. Thank you very much. Now, 
you also are looking at cutting delivery down to five days 
versus six. Have you ever done any testing anywhere in the 
Country, any region, where you have done that; you have said, 
okay, folks, in this particular area we are only going to 
deliver five days; measure your cost savings and measure your 
customer satisfaction or whatever, some kind of evaluation? 
Have you ever done any tests like that?
    Mr. Barnett. Mr. Chairman, Representative, I am unaware of 
any tests except that the presentations made to the board show 
that delivery over time has been all over the place. In New 
York City, I was told, in 1900 they delivered in New York City 
five times a day. In as late as in the 20th century they 
delivered twice a day to many areas of the Country. There are 
areas of the Country now that don't receive mail delivery six 
days a week, I mean, the proverbial bottom of the Grand Canyon, 
that kind of thing.
    Mr. Bentivolio. Okay.
    Mr. Barnett. So there has always been some flexibility. 
But, Mr. Chairman, Representative, you hit the nail on the 
head: if you are not getting any mail and there is no volume, 
we have no choice but to eventually cut back the delivery time.
    Mr. Bentivolio. Right. But you may have to deliver to my 
neighbor on that same day I don't get any mail. So you still 
have to be there, correct?
    Mr. Barnett. We do. Mr. Chairman, Representative, today 
that is our problem. The cost of going, whether you go by that 
mailbox or not, the cost is still there. In fact, there are 
enough people using one of our innovative ideas, Every Door 
Direct, which has been a real success. You can go as a small 
local businessman in a town and you can pay to go to every door 
within a zip code for a much lower price; and it is not large 
monies yet, but it is certainly an innovative idea that is 
working.
    Mr. Bentivolio. Okay, excluding medicine delivery, 
pharmaceuticals, emergency mail, possibly a few other things, 
have you ever looked at delivering, for instance, using one 
carrier to deliver to one route Monday, Wednesday, and Friday, 
and route two, for instance, same delivery person on Tuesday, 
Thursday, and Saturday? So you get the six day delivery. I 
mean, does that count? Is that something you could consider?
    Mr. Barnett. Mr. Chairman, Representative, I think that 
postal management is considering every option that is 
available. Obviously, there are logistics and legal issues 
surrounding universal service. The union agreements, the union 
contracts, most of those would have to be renegotiated to 
accommodate some of that. But I am not sure the cost savings 
would be there sufficient to justify it. But I think they have 
thought of and are looking at every option that is available 
out there.
    Mr. Bentivolio. So is there any test results or any areas 
where you have done this that maybe we can look at?
    Mr. Barnett. Mr. Chairman, Representative, I don't know of 
any test results. I do know we have polled it extensively. The 
board has asked and management has provided extensive polls 
over the last 24 months showing very high numbers, in the 70 
percent range of the public, is in favor of reducing delivery 
from six days to five days. And the business community has 
been, by and large, very favorable to closing. As a matter of 
fact, most of the governors report, as I do, back from my local 
businesses, I don't get enough mail anymore that I care about 
Saturday delivery. Additionally, you should know that all the 
post offices are open on Saturday and that any businesses or 
individuals that need Saturday delivery can get a post office 
box, because it will be delivered on Saturday and will be 
available at post offices. So this would only primarily be 
those that didn't have the need and don't get a post office 
box.
    It is not a perfect scenario, and certainly you can come up 
with people that will be inconvenienced, but we are billions in 
the hole and somebody somewhere is going to have to be 
inconvenienced.
    Mr. Bentivolio. Because I get the impression from the 
surveys and all the data that I have read, plus just looking in 
my own mailbox, that mail is declining. And I think, as 
everybody explained here, we are under dire circumstances. I 
think maybe looking at some more drastic measures might be at 
least worthwhile to look at.
    With that, I will yield back my time. Thank you very much, 
Mr. Chairman.
    Mr. Farenthold. Thank you very much.
    At this point we will recognize the gentlelady from New 
York, Mrs. Maloney.
    Mrs. Maloney. I want to thank all the panelists, thank you 
for your public service, and to be identified with my colleague 
on the other side of the aisle who said the highlight of his 
day was getting the mail. That is certainly true with the 
military and with many of us, and they do a terrific job in 
many ways getting mail to all across our Country. It has become 
a dangerous job, with ricin being discovered in the mail going 
to a United States Senator. Of course, it went through the mail 
service, workers were exposed to it. I know that in New York, 
many workers were exposed to anthrax. So with the new terrorism 
that, unfortunately, is with us, they are really in the line of 
fire in many ways.
    Postal services are very appreciated by communities, and 
nothing gets them more excited than a consolidation or a notice 
to close. And I have two notices in the district that I am 
honored to represent, and one of them, in the Old Chelsea area, 
is in a beautiful building that is owned by the post office, 
and they are proposing to sell the building and then to a place 
they are going to lease. And they are proposing to do this 
before they find the place they lease, and I respectfully 
request and believe that you should know where you are going 
before you sell a post office because, in New York, in an urban 
area, it is cheaper to stay in a building you own than to 
lease. So if our project and our goal is to save money, I think 
we should know where we are going before we close a post office 
and have some type of cost-benefit analysis.
    Also, do you look at other creative ways. Maybe in a post 
office, some are very large and beautiful, you could possibly 
rent some space to an attorney or someone that would help with 
the cost if the goal is to raise money.
    So my question is why in the world are you selling post 
offices before you even know where you are going to lease? 
Because I bet you money if you do that in my district, you are 
going to end up paying more money leasing than owning your post 
office site. Mr. Barnett?
    Mr. Barnett. Mr. Chairman, Representative, in every case 
like that a cost-benefit analysis is done by the real estate 
division of the Postal Service. This specific question is 
probably better addressed to the Postmaster General on the next 
panel, but the board of governors would agree in general with 
your statements. We would not wish to do anything that would 
cost more money.
    Mrs. Maloney. Well, I truly do believe it is a mistake to 
close anything before you know where you are going. Now, they 
are making a commitment to stay in the community. It is a post 
office that makes money, and, again, if our goal is to make 
money, I don't understand why you would consolidate, close, 
sell, or do anything with a center that is literally making 
money. Can you explain that to me?
    Mr. Barnett. Mr. Chairman, Representative, again, there 
will be a written, fully available cost-benefit analysis to any 
real estate transactions that are going to occur. We are in 
hundreds, if not thousands, of those around the Country today.
    Mrs. Maloney. But where in the process is it done? It 
should be done now, while it is being considered, not after the 
fact. If there is any such analysis now, I don't have it; and I 
have asked for it. So if there is not a law that says you have 
to have the cost-benefit analysis before the decision is made 
and before you move forward, I think it should be. That is just 
good government and good business. I can't imagine a business 
selling their building to go lease something without first 
knowing where they are going to go and how much it is going to 
cost. And I am not kidding you, in New York it could be more 
expensive, considerably, to lease than to own your own 
building. The easiest way to live in New York in an urban area 
is to own your own building. And I would say in upstate New 
York, too. So I would like a clarification for the committee on 
what exactly is the procedure. And if you are doing this cost-
benefit analysis, when do you get that cost-benefit analysis. 
Maybe GAO knows.
    Mr. Dodaro. We are aware they have a process. We haven't 
looked at it for a while. I can provide some additional 
information for the record.
    Mrs. Maloney. Well, I would appreciate that. Now, is there 
a law or a procedure that if it is, in fact, making money, you 
don't close it? I would share with you that there were efforts 
to close other post offices in my district and I showed that 
they were making more money than any place in the State, so why 
are you trying to close them? And I think that you touched on 
it, Mr. Barnett. We are in a very competitive process right 
now, and if you close something people have other options, not 
only the Internet, but they can go to private providers. And if 
you think they are going to walk blocks away to someplace else, 
they are not going to do it; you are going to lose those 
customers. So it doesn't look to me like a good business plan. 
Anyway, I am very concerned about it.
    I would also like to know the law on community outreach. 
Believe me, my community is reaching out to me, and I want to 
know are you required to have a community meeting so the 
community can be heard, or is that a discretionary decision, or 
how is that handled? I must say that the post office has been 
very responsive to many of my requests, but I would like to 
know what is the official procedure.
    Chairman Issa. [Presiding.] The gentlelady's time has 
expired, but the gentleman may answer briefly.
    Mr. Barnett. The PRC and the Postal Service do have 
procedures in place. There are community meetings in every case 
and it is all set out with Postal Regulatory Commission 
procedures and USPS procedures.
    Mrs. Maloney. Thank you. My time has expired.
    Thank you, Mr. Chairman.
    Chairman Issa. Thank you.
    For the record, the postal laws of the United States, 
August 2011 edition, on page 21, item 411 specifies cooperation 
with other government agencies as to subletting. But if the 
gentlelady would like it, we would arrange a bipartisan 
briefing on a number of the issues she brought up here today.
    With that, we go to the gentleman from Tennessee, Mr. 
Duncan.
    Mr. Duncan. Thank you, Mr. Chairman. I have been given the 
figures that there are now 471,000 postal retirees and 522,000 
current employees. Are those numbers roughly accurate?
    Mr. Barnett. Mr. Chairman, Representative, I am informed 
those are fairly correct.
    Mr. Duncan. And what I am really wondering about, I am 
assuming or guessing that you are paying the health benefit not 
only for them, but their families as well, is that correct? Do 
we know how many people total that you are paying health 
benefits for at this time?
    Mr. Barnett. Mr. Chairman, Representative, I don't. The 
Postmaster General will be up shortly. He will have those 
numbers. I am sorry, at the board level we don't get into quite 
that detail.
    Mr. Duncan. Okay. Well, have you changed or reduced the 
retirement and health benefits for newly hired employees in the 
last few years?
    Mr. Barnett. Mr. Chairman, Representative, one of the 
things we hope that the comprehensive postal reform will do is 
clarify some of that. But when you say there are changes, there 
are only changes in the collective bargaining agreements with 
the unions, and they are some modifications as to new hires.
    Mr. Duncan. But basically you are still paying the 
retirement and the health benefits?
    Mr. Barnett. The answer, Mr. Chairman, is yes.
    Mr. Duncan. Well, I guess what I am getting at, it is less 
than 20 percent. In fact, I think it is only 16 percent of 
employees in the private sector have retirement plans with 
their companies, and also I was given the figures that the 
hourly pay for postal employees right now is running from 
around $24 an hour to $29 an hour; and in most places, almost 
every place in the Country, those are really good salaries. And 
I am just wondering, we all want to give people as much as we 
can possibly give them, but do you think the Postal Service 
would have trouble getting employees if you told these new 
hires that we were just going to pay you $25 or $30 an hour, 
but you weren't going to get any pension or health benefits, 
since those seem to be the big expenses here or the big 
problems here?
    Mr. Barnett. Mr. Chairman, Representative, without much 
detail, I can tell you recently we had some jobs available at 
$15 per hour and there were 90,000 applicants.
    Mr. Duncan. Well, all I am saying is that you certainly 
wouldn't have any trouble getting employees in, I think, 
probably 98 percent of the Country, paying those kind of wages, 
$24, $25 an hour, even if you told new employees that, 
unfortunately, we can't continue to pay the retirement and 
health benefits that we have always paid. On top of that, I 
think the retired postal employees should be the ones that are 
demanding the most fiscal conservatism in the future, or we are 
going to have real trouble paying these benefits that have 
already been promised, it seems to me. And I see you shaking 
your head up and down, Mr. Barnett.
    Mr. Barnett. Mr. Chairman, Representative, we discussed 
these at length in the board and it is why I said earlier that 
we hope that the comprehensive postal reform will look at the 
possibility of going to defined contributions in the future, 
allowing us to run our own health plan, things of this type. 
Yes, we would like to run it more like a business, which will 
ultimately be to the benefit of the consumers, as well as our 
employees.
    Mr. Duncan. One last thing, just so that I have it 
straight. I saw where you have reached the debt limit of $15 
billion, is that correct?
    Mr. Barnett. Mr. Chairman, Representative, that is correct.
    Mr. Duncan. And you defaulted on the $11 billion 
prepayment.
    Mr. Barnett. That is correct, Mr. Chairman and 
Representative.
    Mr. Duncan. So it is really worse than the $15 billion. And 
then the postmaster, in his testimony, says you are losing $25 
million a day, which comes out to a little over $9 billion a 
year. So it seems like it is almost worse than what we have 
been talking about in the past.
    Mr. Barnett. Mr. Chairman, Representative, very 
respectfully, I can tell you that we have our five-year plan, 
which we adopted years ago, has had some modifications to it, 
we can operate in the black, but 100 percent of the reason that 
we cannot operate in the black today is because we cannot get 
postal reform through the Congress.
    Mr. Duncan. All right. Thank you very much.
    Chairman Issa. If I could ask unanimous consent just to 
follow up for 10 seconds.
    Mr. Barnett, you were asked about lower wages. Based on 
your assessment, if we put in all of the efficiency changes and 
we optimize with current volume how we deliver, what we 
deliver, where we deliver it, can we break even and still pay 
the good wages and benefits we currently pay to our employees?
    Mr. Barnett. Mr. Chairman, I don't have an absolute answer 
to that, but it would be very difficult.
    Chairman Issa. So the answer is almost close, that sort of 
thing? You are not sure we would break even, but you could come 
pretty close?
    Mr. Barnett. Well, Mr. Chairman, we have a lot of things. 
The flexibility and the workforce rules, all of those things, 
defined contributions, the health plans, all of it are a part 
of the entire structure.
    Chairman Issa. Okay. Well, my indulgence from the members 
should expire.
    As we go to the gentlelady from New Mexico, I do want to 
let everyone know that in the last Congress, and intended in 
this Congress, is to have substantially same wages and benefits 
going forward as we do. Our reforms were intended to, and I 
believe on a bipartisan basis we are going to try to keep the 
wages and benefits as close to what they are for the purpose of 
making sure that what we are looking for is efficiency to break 
even and not necessarily wage reductions.
    The gentlelady is recognized.
    Ms. Lujan Grisham. Thank you, Mr. Chairman. And I want to 
thank both of our panelists for being here today. And a point 
of personal privilege, Mr. Chairman, panelist Barnett and the 
chairman of the board of governors is, of course, from my 
district, and that is the most important, from the State of New 
Mexico; and I am grateful for your service and for both 
panelists for engaging in this really important issue.
    My questions, like many of the others of my colleagues who 
have gone before me, we are clear that we have a revenue issue. 
We are clear that we have a loss of revenue problem. But what 
has not been, I think, stated by the panelists as robustly as I 
would like is, unlike a private business, this was a public 
service, and as we talk about cost-benefit analysis, about 
figuring out where some things are going to be more expensive 
than they might be in the private sector, it is because we are 
delivering a public service. And in a State like New Mexico, 
where we are rural and frontier, and including in my district, 
which is the most urban district, since 2011, with 27,000 
people out of the workforce for the Postal Service and work 
hours reduced by 40 million hours across the Country, the 
number one complaints I get in my office are long lines, having 
to travel long distances to find a post office. And I am very 
concerned about States like New Mexico as we try to figure out 
that the fixed cost here is personnel, and to change that means 
that we don't have an effective public service.
    So specifically more than just you need reforms and 
flexibility, what is the process for making sure that you have 
a high quality, very dependable, and an infrastructure that is 
going to benefit and protect States like New Mexico that have 
rural and frontier issues that are critical to having an open 
post office?
    Mr. Barnett. A lot of answers to that, Mr. Chairman, 
Representative, but the concept of the village post office is 
most effective in the rural areas. The concept of a village 
post office is that we would put post offices in grocery 
stores, Targets, Walmarts, any place that might be like that, 
Home Depots, Office Depot, things like that; because they are 
open more hours than typical post offices, so you have more 
coverage. It is done at a lower cost, typically. And most 
people don't need all of the services of a post office; they 
only need a stripped down version of the post office.
    Additionally, we are and we need to be more innovative at 
getting out the word that you can do most of your things on the 
Internet today. If you need stamps, all you need do is go on 
the Internet, order them, and they will be delivered to your 
house in a couple days, or your business. You don't need to go 
to the post office to get stamps. We need to have more of that 
done.
    Our flat rate shipping boxes have been a real boon to that. 
You know, a box costs $5.65, $5.95, or, for the bigger boxes, a 
little more. You don't need to go to the post office; you just 
need to put your things in there and put the postage on it. You 
can order your postage online.
    So we are doing as many things as we can to get more 
village post offices.
    Ms. Lujan Grisham. And I love the village post office 
concept in many ways, and I am very fearful about whether or 
not you are going to get the kind of quality and relationship 
building between those folks and their constituents. And, 
really, a lot of these post offices and postal workers toot 
these folks, particularly older folks who aren't using the 
Internet to the same degree. We have a huge growth rate in that 
population, but also in rural and frontier States you don't 
have Internet coverage. And I think about people in areas where 
that is not going to be a possibility, and the more rural you 
are, the less opportunity you have for the kinds of Home Depots 
and Walmarts or big box stores don't exist because they don't 
have the population centers to support them. And in many areas, 
of course, as you know, in our State we don't even have grocery 
stores; we might have a convenience store. And there are issues 
I have about consumer protection in that environment.
    So while I appreciate it is a concept that could work, we 
need strategies that are going to take into consideration their 
main factors and that the goal here, in addition to being able 
to be in the black, is that you have a public service and we 
have to serve these constituents. So I would really encourage 
you, with your leadership on the board of governors, to really 
think about ways that are going to be unique; more than just 
the flexibility to get there, but that you are looking at 
quality, productivity, those relationships, the rural fabric in 
these States related to the post office; and when I was in 
aging, the Postal Service was a very effective partner in 
reaching those constituents.
    Thank you. I yield back.
    Mr. Mica. [Presiding.] Thank you.
    We recognize the gentleman from Georgia, Mr. Collins.
    Mr. Collins. Thank you, Mr. Chairman.
    Just in listening and writing down notes, we went all over 
the map, from the importance of the Postal Service. I don't 
think anybody will detract from that. We have talked about how 
you have been in committees before. I serve on the Postal 
Service subcommittee. What concerns me about this is some of 
the things that are said. And really, as we go forward, and I 
know the next panel will have a similar issue, but we talk 
about Department of Defense, we talk about the post office and 
the prepayments being made, there is one truism among both, and 
I think we can just nod our head, is that if, on both counts, 
the taxpayer is ultimately on the hook. Yes. So it is not an 
issue of is this just a quasi-government organization. Both DOD 
and these prepayments, we are ultimately on the hook, the 
taxpayer is.
    What concerns me here is that in a time in which, admitted, 
Mr. Chairman, you're low liquidity, you are not really sure you 
can get down as low as two days later this year, in a time in 
which the discussions have been made; and I read about the 
board of governors and your role. You do believe you have a 
fiduciary duty in your role to the Postal Service in your role, 
correct?
    Mr. Barnett. Mr. Chairman, Representative, yes.
    Mr. Collins. Okay. That means there is a trust, that there 
is a trust with you and the board of governors, not just 
strictly you, but also I believe with the Postmaster General 
and others in this situation. What I keep hearing is, well, we 
thought of and we are looking at that; we have a five year plan 
that was many years ago; we have discussions that we want to 
do; we are exploring ideas--and these are direct quotes from 
today -- exploring ideas that do not have high likelihood of 
being implemented.
    One, we keep talking about going to dealing with your 
health benefit plans. Now, let's just get it out in the open 
here. To go to that without congressional intervention, which 
in this time, in divided government, is not going to happen, 
you are not going to be able to break these collective 
bargaining agreements and these health agreements to get that 
to happen. We are focusing on things that don't matter. Because 
in the big picture they may sound great, they may help you get 
the flexibility, they may help you, but we are just throwing it 
out. Can we cut to the chase here? Are we just waiting on 
Congress to do this for you all?
    Mr. Barnett. Mr. Chairman, Representative, we are waiting 
on comprehensive postal reform, because we cannot do any of 
these things unilaterally.
    Mr. Collins. Well, what can you do?
    Mr. Barnett. We can't go from six to five days.
    Mr. Collins. What can you do?
    Mr. Barnett. Oh, what can we do? We are doing. We have 
reduced the workforce by over 200,000 employees in four years. 
That is a significant reduction.
    Mr. Collins. Excuse me just one moment. Reclaiming my time. 
But we are also still entering into agreements, in a postal 
hearing just the other day, that are basically lost money type 
of agreements, sweetheart agreements, however you want to 
contact it. We are still doing things that, again, from a 
picture--what really strikes me here is we are reshuffling the 
deck on the Titanic and you are sinking. And we are saying, 
well, eventually, Congress, you have to come in and let us do 
these things, but I believe there are other things that we are 
not doing. In a sense saying that it doesn't matter how great 
the post office, and the postal employees are wonderful people. 
I have greatest respect and admiration for them. But you are in 
an environment right now where they are being put as pawns is 
probably a good way to put it, in a situation in which we 
continually talk about what we could do, and if the Congress 
would just step in or the Congress would just do this.
    There are things that have been reported from the GAO that 
can be done that we are not doing. My only question is why. Are 
we depending on legal opinions? Are we depending on other 
things so we can't do these things? Are we just a political 
aspect? I mean, I am sitting here asking for--you know, if it 
had only been Congress and there has been discussion about, and 
I know there is discussion out there about just turning it all 
back over and putting it back under the Government. That is 
just not a viable answer at this point. The people are not 
going to take a bailout of the Postal Service. It just seems to 
me that instead of making decisions in which you can--and there 
have been things and I don't want a listing--there are things 
right now that I believe we could be doing, that have been 
reported out, we are not doing, and I think the American people 
just ask one simple question: Why not?
    Mr. Barnett. Mr. Chairman, Representative, respectfully, we 
are doing them. We are consolidating plants.
    Mr. Collins. You have implemented every report from the GAO 
on things that you can do, everything that you can do at this 
point?
    Mr. Barnett. Mr. Chairman, Representative, respectfully, 
yes.
    Mr. Collins. And also taking the six to five day, you are 
going to say that that has to come back to us and that you 
can't touch that because of a legal opinion?
    Mr. Barnett. Mr. Chairman, Representative, not just because 
of the legal opinion; Congress voted three weeks ago to say no, 
you cannot do it.
    Mr. Collins. But also the chairman of this committee 
basically stated as well that that was not the opinion in 
passing. It is in the record. Of the rider coming out.
    Mr. Barnett. Mr. Chairman, I am unaware of any legal 
opinion by anybody anywhere that has ever been shown to me.
    Mr. Collins. Not a legal opinion. I think the biggest point 
here, and I will be working with you on this, working for 
others as we go forward on this, and just to simply say find 
something that can be done. Find something that can be done so 
we can move this forward. And if you want to blame Congress, 
then that is the easy thing to do; then it is going to be 
happening and we will have to do that, and we will move forward 
on it. But I think the Postal Service is a valued organization, 
constitutionally mandated, that we need to fix and we need to 
get it back to a way that it serves what we need served. Thank 
you.
    Mr. Mica. I thank the gentleman and yield to the gentleman 
from Missouri, Mr. Clay.
    Mr. Clay. Mr. Chairman, I am going to forego my time and 
ask unanimous consent if I can have 10 minutes on the second 
panel. And I will yield to him.
    Mr. Mica. Ten minutes? Well, I don't have the authority to 
do that.
    [Laughter.]
    Mr. Clay. Well, I am trying.
    [Laughter.]
    Mr. Mica. I don't want any mistake here. I want to be full 
committee chairman, but I am not, so I don't have that leeway. 
But I think that would be taken into consideration. Really, I 
guess some of it is up to the minority, to give him double time 
later. What do you think?
    Mr. Cummings. I think that would be good. But is the 
gentleman yielding his time? I just want to make sure I 
understand what is going on here.
    Mr. Mica. Well, if he yields his time, then he is not going 
to get double time.
    Mr. Clay. No, I ask unanimous consent for 10 minutes on the 
second panel.
    Mr. Mica. On the second panel. It is up to you. Then he 
gets nothing?
    Mr. Clay. Then I won't yield.
    Mr. Mica. Okay. All right, without objection, he will have 
10 minutes on the second panel. I didn't say in what order.
    Have all members had their five minutes? We want to be fair 
to all of the members.
    Well, we are going to go for a second round.
    Mr. Cummings. No, we are not.
    Mr. Mica. We are not was the decision made. Okay, look at 
the sigh of relief there. But I thank both of you for coming 
today and for being available as witnesses and both of you for 
your job in trying to help us find a resolution. It is an 
important service that the Government provides, the U.S. Postal 
Service.
    So with that I will excuse the witnesses and we will call 
the next panel, and, as we change, the chairman will recognize 
them and swear them in.
    Chairman Issa. [Presiding.] We will take a short, necessary 
break.
    [Recess.]
    Chairman Issa. The committee will return to order and I 
would now remind the witnesses they have previously been sworn 
and, with that, will recognize the Postmaster General.

                       WITNESS STATEMENTS

           STATEMENT OF THE HONORABLE PATRICK DONAHOE

    Mr. Donahoe. Good morning, Mr. Chairman, Ranking Member 
Cummings, and members of the committee. Thank you, Mr. 
Chairman, for calling this hearing.
    The Postal Service is currently operating with a broken 
business model. Since the economic recession of 2008, we have 
been experiencing a significant imbalance between revenues and 
costs. This imbalance will only get worse in the coming decade 
unless laws that govern the Postal Service are changed.
    In the past two years, the Postal Service has recorded $21 
billion in losses, including a default of $11.1 billion in 
payments to the United States Treasury. The Postal Service has 
exhausted its borrowing authority and continues to contend with 
dangerously low liquidity. We are losing $25 million a day, and 
we are on an unsustainable path.
    Primarily due to the rise of online bill payment, the use 
of first class mail has dropped 28 percent since the year 2007, 
which roughly equates to $8 billion in annual revenue that we 
would have otherwise had today.
    That steep decline in our most profitable category is not 
the cause of our financial problems. Our financial problems are 
due to the fact that we have restrictive laws that prevent us 
from fully responding to these changes in consumer behavior. 
Any private sector company could quickly adapt to market 
changes that we have experienced and remained profitable. 
However, we do not have all the flexibility that we need to 
grow revenue, reduce costs, and adapt in a changing 
marketplace.
    There are areas that we can act within the law, and we have 
been very aggressive in these areas. Since 2006, we have 
reduced the size of our workforce by nearly 200,000 career 
employees. That is 28 percent, without any layoffs. We have 
done it in a very careful manner. We have consolidated more 
than 300 mail processing facilities. We are in the process of 
modifying hours in more than 13,000 post offices. We have 
eliminated 21,000 delivery routes. These actions have bent the 
cost curve and reduced our annual cost base by $15 billion 
annually. So this year's cost is $75 billion. It would have 
been $89 billion had we not taken these actions.
    We have examined and acted on every reasonable and 
responsible action to match volume loss with cost reductions. 
No other organization, public or private, that I am aware of 
can claim a similar cost reduction while continuing to function 
at a high level. And yet we have to go much farther, much 
faster, and we are prepared to do so.
    In February of this year the Postal Service announced that 
it would introduce a new national delivery schedule designed to 
reduce our costs by approximately $2 billion annually. We did 
so after receiving advice from our legal counsel. We did so 
because the continuing resolution in existence at that time did 
not prevent us from taking this fiscally responsive action. The 
law was set to expire on March 27th and we urged Congress not 
to act to block our new delivery schedule when it enacted the 
next continuing resolution to fund the Government for the rest 
of the fiscal year.
    However, according to our legal opinions, House Resolution 
933, to fund Government operations for the remainder of the 
fiscal year included language specifically designed to prevent 
the Postal Service from changing its delivery schedule. 
According to the law, we are now required to deliver mail as if 
it were the year 1983.
    The Postal Service is a law-abiding arm of the Federal 
Government. Congress passed the law, we reviewed it, we 
complied with it and informed our customers, which we did last 
week. Our customers require certainty, especially of something 
as fundamental as our delivery schedule, and so we announced 
that we would delay implementation of our new schedule until we 
gained legislation giving us the ability to move forward.
    Mr. Chairman, we need the flexibility under the law to 
implement our new delivery schedule. We need the ability to 
develop and price products quickly; the ability to control our 
health care and retirement costs; the ability to switch to a 
defined contribution retirement system for newly hired 
employees; the ability to quickly realign our mail processing 
delivery and retail networks; we need a more streamlined 
governance model; and we need more flexibility in the way that 
we leverage our workforce.
    Contrary to the arguments that we hear from some parties, 
it is not enough to merely resolve prefunding of retire health 
benefits. We can implement our five-year business plan, close 
the $20 billion budget gap that will be here if we don't act by 
2017, and return the Postal Service to long-term profitability, 
but only if we gain the flexibility in each of these areas. If 
we do not gain this flexibility, our losses will continue and 
we will risk becoming a significant burden to the taxpayers. It 
is that simple.
    Mr. Chairman, we need Congress to affirmatively grant us 
the authority to operate the Postal Service in a financially 
responsible manner. We need full authority to carry out our 
responsibility and provide universal service to our Nation. 
Every day we record a loss of $25 million. Every day our 
financial hole gets that much deeper, and we cannot stay on 
this current path.
    Let me conclude by thanking this committee for its 
willingness to address tough issues and pass comprehensive 
postal reform legislation this year. The Postal Service is a 
tremendous organization with tremendous people and we need your 
help. Thank you.
    [Prepared statement of Mr. Donahoe follows:]

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    Chairman Issa. Thank you.
    Mr. Rolando.

                 STATEMENT OF FREDERIC ROLANDO

    Mr. Rolando. Thank you, Chairman Issa and Ranking Member 
Cummings and the other members of the committee for inviting me 
to testify at today's hearing.
    This hearing is vitally important to the 190,000 letter 
carriers I represent, as well as the 7.5 million private sector 
workers that are employed by the printing, publishing, paper, 
direct marketing, e-commerce, and shipping industries that rely 
on a strong Postal Service. Indeed, our affordable universal 
service is crucial to the American economy and to American 
businesses that generate 95 percent of all mail.
    My written testimony offers a comprehensive set of options 
to restore the Postal Service to solvency. This afternoon I 
will cover the issues you specifically asked me to address in 
your invitation.
    On cost savings, the NALC and the other postal unions have 
contributed billions in savings through collective bargaining. 
That process concluded for us just 12 weeks ago. The new NALC 
contract emerged from an interest arbitration that focused on 
the financial condition of the Postal Service and led to an 
award that will provide the Postal Service with huge savings in 
the years to come.
    As we did during the great recession, when we worked 
tirelessly with management to adjust routes in response to 
reduced mail volume, we have done our part to preserve the 
viability of the Postal Service through the bargaining process, 
but more must be done and we need the Congress to do its part 
as well.
    I will highlight two cost-cutting reforms from my written 
testimony. First, the Congress should repeal or dramatically 
reduce the retiree health prefunding mandate that has caused 
over 80 percent of postal losses since 2007 and pushed us 
towards insolvency. Applying private sector retiree funding 
standards to the Postal Service will give us the best chance to 
adapt, expand our e-commerce delivery volume, and develop new 
services for our customers as traditional mail volume declines.
    Some suggest that lifting or reducing the prefunding burden 
amounts to a taxpayer bailout, but no taxpayer funds will go to 
the Postal Service; and retaining the current prefunding policy 
will increase, not decrease, the risk of a future taxpayer 
bailout. Forcing the Postal Service to slash service, reduce 
quality, and degrade its unique last mile delivery network will 
simply drive more business away and tip us into a death spiral. 
We cannot destroy the village to save it.
    Second, we recommend that Congress give the Postal Service 
the flexibility to negotiate with its unions to establish a set 
of postal-only plans within FEBA. This would allow us to use 
incentives to reduce costs and improve health among postal 
employees. FEBA does a good job of controlling premium costs, 
but we could cut postal employee health care costs further if 
our health plans used single network providers for hospital 
services and prescription drugs. We could also cut costs for 
future retirees by better integrating our plans with Medicare 
and by taking advantage of low-cost prescription drugs through 
an employer group waiver plan. Most of the savings that the 
Postal Service wants to achieve by leaving FEBA can be achieved 
within FEBA with the right kind of reforms.
    Your invitation also asked about our position on an annual 
federal appropriation for the Postal Service. Of course, for 
most of its history, the Postal Service in America has been 
funded by both taxpayers and ratepayers, even though we have 
received no taxpayer subsidies since 1983; and it is certainly 
true that the Postal Service benefits the Nation as a whole, 
not just ratepayers, by facilitating national markets, 
strengthen democracy through postal voting and campaign 
mailings, and promoting local communities with newspapers and 
periodicals. But we do not support an annual appropriation to 
strengthen the Postal Service. Other reforms can do the job 
without help from taxpayers.
    Finally, you asked for our views on governance reform. We 
strongly support a fundamental reform of the governance 
structure of the Postal Service. The goal should be to attract 
dynamic and entrepreneurial management to the Postal Service 
and to create a board comparable to private sector boards of 
directors that govern multibillion dollar enterprises. Creating 
a board with men and women that have deep experience running 
large national companies and partnering with unionized 
workforces would help us preserve affordable universal service. 
In the context of such a restructuring, NALC is prepared to 
work with Congress, the White House, the Postal Service and its 
stakeholders to develop a strong and viable business and 
regulatory model for the 21st century.
    Let me conclude by saying the potential insolvency of the 
Postal Service is no accident. It is not merely the result of 
technological change, the bad economy, or poor management, 
though those factors have contributed. Intended or not, it is 
primarily the result of congressional decisions in 2006 to 
mandate retiree health prefunding and to impose strict price 
controls on postal rates. We will have to continue to make 
difficult changes, but reversing or revising these policy 
choices are crucial to saving the Postal Service and I urge 
this committee to do so. Thanks again for inviting me.
    [Prepared statement of Mr. Rolando follows:]

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    Mr. Farenthold. [Presiding.] Thank you very much, Mr. 
Rolando. Since the chairman has stepped out, I will recognize 
myself first for questions, and I would like to start with you 
because the prefunding really is a big issue that we are 
facing, and I want to be perfectly clear on where you and the 
members of your organization are on that. You do believe we do 
need to set aside some money. Are we really just arguing about 
how much money we set aside? You don't want to do away with 
prefunding completely, correct?
    Mr. Rolando. We believe prefunding is a good thing, and the 
gentleman from GAO said this about five times this morning, if 
it is done in a fiscally responsible way. It is not fiscally 
responsible to exhaust your borrowing authority, to drain your 
savings, and to use all your resources to take money from one 
of your pots and put it in another pot. It is not fiscally 
responsible. As long as the Postal Service has the surpluses to 
do what was intended, to then fund for prefunding, we think it 
is a great idea.
    Mr. Farenthold. All right, we heard testimony from the GAO 
that if we completely did away with prefunding, there would 
still be a deficit. So under your scenario there, we would put 
no money away for your retirees. Is there a number that they 
have to work into their budget and their planning that is a 
reasonable amount to put away to ensure that your retirees are 
paid the benefits and given the health care that they were 
promised?
    Mr. Rolando. The number is $45 billion. That is how much we 
have put away.
    Mr. Farenthold. But that is not going to last. So you want 
to zero it out and just use what you have until it is out or 
until the Postal Service is making money?
    Mr. Rolando. No. When we have surpluses, we should continue 
to prefund. But as we are right now, we have $45 billion. 
Again, you have to look at the source of the prefunding. It was 
thought that at the time, in 2006, looking out over--the 
gentleman earlier said it wasn't 75 years. He is correct; it is 
more like 92 years is the amount of time that they did the 
assumptions for, for about a 92 year period. What he is 
confused about is the time that they were going to take to pay 
it off was 50 years.
    Mr. Farenthold. Would you all support a, I think the term 
was actuarial-based accrual system or payments?
    Mr. Rolando. Yes. We have several options in my written 
testimony. There are several ways to prefund. We do believe in 
prefunding, we do believe it should be fiscally responsibly 
done, and we do believe it should be done out of the surpluses.
    Mr. Farenthold. All right, so I guess we are arguing about 
what fiscally responsible is. And, again, I don't want to put 
words in your mouth, but you are saying only if there is a 
profit or an excess do we put some away; we don't actually find 
efficiencies or make changes to our service, dropping down to 
five days, for instance, or raising postal rates to get there.
    Mr. Rolando. What is not fiscally responsible is taking all 
your money out of the bank, all your borrowing authority, and 
all your resources, and pretending that you are in default to 
put money of your own into another account and call it 
prefunding for the future.
    Mr. Farenthold. All right, we will go to the Postmaster 
General. Thank you, as well, for being here. I would imagine 
there is a slightly different opinion on your part as to what 
needs to be done with respect to meeting the obligations and 
keeping the promises you made to current employees?
    Mr. Donahoe. Yes. First of all, we stand very firm in 
making sure that we keep the promises to the employees. This 
organization, when we were hired, Fred and I, we had the 
promise of health care, and we have to live up to that. I would 
tell you that rather than worrying about how much to prefund, 
we need to step back and take the suggestion that you heard 
from both of us, that we take over our own health care plan. 
And, truthfully, we could work it within the FEHBP. I have no 
issue with that. As long as we were able to compete it, make it 
affordable and cut the cost for our current employees, and then 
use the full effects of Medicare, which we pay into--ratepayers 
are paying Medicare; postal employees are paying Medicare--and 
conduct our health care like any other business. As a matter of 
fact, Mr. Chairman, if we did that, we are on record in our 
testimony showing that we actually break even and there is no 
further need to prefund. We would provide top quality health 
care for all the postal employees employed right now and into 
the future.
    Mr. Farenthold. Well, I know the OPM is looking at some of 
the same ideas you want for the entire Federal workforce.
    Mr. Donahoe. I would love to spend more time with the OPM, 
and I would invite them to spend time with us as a group, the 
unions and the management associations, and we can sit down and 
go through step by step. What we find with the OPM, truthfully, 
Mr. Chairman, is they play four corners offense on us; and that 
was something that used to happen before the time clock for 
basketball. So we would encourage you guys to take the lead, 
force that issue. We are ready to step up.
    Mr. Farenthold. All right, let's talk a little bit about 
the current path the Postal Service is on. Assuming we in 
Congress do nothing and you continue down the path you are on, 
what are your plans for when you run out of money?
    Mr. Donahoe. Well, let me address that in a couple ways. 
Number one, we are accused very often of moving the goal posts 
here. The reason the goal posts move is because we have very 
efficient employees who do a great job every day, and we have 
worked very hard to make up the substantial drop in revenue. I 
told you the first class revenue is dropping; it will continue 
to drop. We think we will lose another $5 billion in first 
class revenue. We will make some up from a package perspective; 
that will close some of the gap. But what we need is 
congressional action now so that we do not face that problem.
    The biggest problem we face is a concerned confidence in 
the mail itself. That is something that goes across all postal 
employees, including the industry itself. So the faster you act 
to give us the flexibility to get this place back on firm 
financial footing, the better the entire industry will be.
    Mr. Farenthold. Thank you very much.
    I see I went over. We will give Mr. Cummings six and a half 
minutes.
    Mr. Cummings. Thank you very much. Thank you, Mr. Chairman.
    Mr. Donahoe, tell me something. Are you familiar with what 
Mr. Rolando just said about his suggestions with regard to 
health care and the postal system? Are your plans almost 
identical or what would be the difference, if you know, between 
what he is talking about and what you are talking about?
    Mr. Donahoe. I don't think it is radically different. Fred 
and Cliff Guffey, from the APWU, have both talked to us about 
the importance of controlling our own health care plans. It is 
fair for our current employees and for our retirees. From our 
perspective, what we propose has been any changes that we will 
take on with health care, including taking over our own, we 
would include the union in terms of oversight of that plan. So 
I think we are pretty close as far as where we would like to 
go. There may be a difference as far as Fred's statement around 
the FEHBP. I think that we could live with it as long as we 
were able to achieve the bottom-line savings that we think we 
need.
    Mr. Cummings. Mr. Rolando, the letter carriers have been a 
strong proponent of the Postal Service maintaining a six day 
mail delivery. You testified that ``it is a strategic asset 
that must be protected to return the Postal Service to health'' 
and it should not be ``sacrificed to maintain the disastrous 
retiree health fund prefunding policy.'' You also mentioned 
that the postal regulator of the United Kingdom concluded last 
month that six day delivery should remain part of the rural 
mail's universal service obligation. Can you elaborate on the 
reasons for that decision, and are there specific 
characteristics of the mailing industry in the United States 
that may have led to that decision? In the United Kingdom, 
rather.
    Mr. Rolando. I believe it has to do with the whole 
downsizing strategy of sacrificing your networks that you need 
to achieve the growth to replace the revenue that is being 
lost. Once you start out with a strategy of dismantling your 
network, you lose the ability for growth, especially in what we 
are facing here in the United States, and I don't believe it is 
much different in the United Kingdom, with what is going on in 
the whole retail world and what we are seeing with e-commerce 
and so forth, and the way the American people are going to shop 
and the way they are going to want to use the mail. You have 
your e-commerce same day, next day delivery, you have Amazon, 
eBay, Google, Walmart, the major chains all competing for that 
retail market, and the one thing they have in common is the 
United States Postal Service in order to receive those 
packages, whether it is same day, one day. And if we start out 
our growth plan with a strategy of downsizing the very network 
that is going to get us all that business, I think we are going 
in the wrong direction, and I believe the United Kingdom sees 
it the same way.
    Mr. Cummings. I would assume, Mr. Donahoe, that you would 
have a little different answer there, and I am assuming that 
you would say that we have a situation where perhaps we need to 
right-size our workforce so that--and some testimony came up in 
the previous panel where they were saying that you are going to 
have a lot of capability, but you are not going to have the 
work. So how do we balance all of that? You follow me?
    Mr. Donahoe. Sure.
    Mr. Cummings. There has to be a balance, because I think, 
at the rate we are going, we are getting ready to fall off a 
cliff; and if we are not careful, I know I heard others talk 
about alternative plans, but I am trying to figure out how do 
we do that at the same time and be reasonable with regard to an 
outcome?
    Mr. Donahoe. Yes. I think the key thing for the Postal 
Service is to look at the revenue lines going forward, and we 
think that we can halt revenue at about $65 billion. Now, with 
that $65 billion in revenue, you have changes going on in terms 
of the products themselves; a slower decrease in first class, 
pretty stable in terms of direct mail, standard, and an 
increase in packages. Given that $65 billion in revenue, 
resolving the health care alone is worth saving somewhere 
between $6 billion and $7 billion a year. Our current cost 
structure right now has us at about $74 billion with that 
included. So if you address that, if we continue with the 
consolidations we have been making, we employ the work that we 
have been able to do with the unions for a lower cost employee, 
which has worked out very good coming out of the negotiations 
and arbitrations, and address the six to five day of package 
delivery for six days, mail for five days, we can get our cost 
structure down to about $61 billion to $62 billion. That $2 
billion in profit every year can be applied against our debt, 
get us back on firm footing, and put us in good shape going out 
in the future.
    The thing we have to be very careful in terms of a country 
like Great Britain, they charge $0.95 for a stamp now. If we 
charge $0.95 for a stamp, we would completely lose our first 
class volume, and that would bankrupt this organization. So it 
is a very careful balance of pricing, product, taking cost out, 
more flexibility in labor, and addressing these big killer 
costs like health care.
    Mr. Cummings. Are you frustrated that when you want to go 
into an area, a new area, that you seem to run into obstacles, 
some of them placed by members of Congress?
    Mr. Donahoe. We run into obstacles. We run into obstacles. 
One of the things that we try to do is focus on core growth. 
Fred mentioned the package business. It has been great. The 
carriers have been doing a great job; the rural carriers have 
been doing a great job. We have been growing faster than the 
competition, picking up market share, as well as working with 
the competition, FedEx, UPS, DHL. So that has been a real 
bright spot there.
    We have other areas; trying to merge up direct mail with 
electronic communication these days, where something that comes 
in your mailbox can actually be scanned by your cell phone and 
you can make a purchase that quick. So we have been able to 
take advantage of those.
    Where we get a little bit worried and sometimes frustrated 
is suggestions that we get into some areas that we don't think 
we can really make money, nor compete, nor even really have a 
part in those areas. So there is a little bit of frustration 
there.
    Mr. Cummings. Thank you very much.
    Mr. Donahoe. Thank you.
    Chairman Issa. [Presiding.] The gentleman from Tennessee.
    Mr. Duncan. Thank you, Mr. Chairman. I am very interested 
in all the big picture testimony that I have heard today, but I 
have a more specific question I want to ask in just a few 
minutes, but you heard me ask the last panel. Do you know how 
many people, total, you are paying for their health care now, 
counting families?
    Mr. Donahoe. I will get you that information. We have 
health care for retirees, health care for currents. But we do 
have some people that we employ who opt out of health care 
because their spouse provides it or something like that. So I 
will get you that information.
    Mr. Duncan. Okay. And, of course, the children would come 
under that plan also.
    Mr. Donahoe. Yes.
    Mr. Duncan. So I just was curious about the total number.
    Mr. Donahoe. Yes.
    Mr. Duncan. But I had a man from Tennessee who has run a 
shipping store and he has participated in your approved shipper 
program for many years, but he recently had to renew his 
contract and was told he can no longer be able to use the click 
and ship site, and would have to go some private sites. And he 
wrote me this, he said: Now I apparently am grandfathered in, 
but I won't be listed on the post office's online locator 
because I use the post office's website to process mail rather 
than a private vendor. Again, I can be an approved shipper for 
the U.S. Postal Service so long as I don't use their own 
website to process my mail. This is both stupid and ridiculous 
on the face of it. As I note, I can and, in the short-term, 
will have to use a private vendor, and all these issues go away 
except that this level of stupid shouldn't go unchallenged. The 
post office should have any such programs go to their site 
first, if not exclusively. And someone who has some influence 
with them will have to raise the issue because according to 
folks at the Postal Service, they can't do anything about it.
    Now, do you know what he is talking about?
    Mr. Donahoe. I have an idea. I will follow up if you could 
get me that information privately. But what we are doing is 
this: We are actually bidding a system out in the private 
sector right now to replace some of the click and ship software 
that we have, and we are transitioning companies onto that. 
That is what he sounds like he is getting caught in the middle 
of that, so we will follow up.
    Mr. Duncan. All right. Thank you very much.
    Mr. Donahoe. Thank you.
    Mr. Duncan. Thank you, Mr. Chairman.
    Chairman Issa. Would the gentleman yield?
    Mr. Duncan. Yes, I will yield.
    Chairman Issa. I would like to use this time to ask a 
question of the postmaster. We have inquired a little bit about 
the so-called Velassis contract. Is it fair to say that this is 
a low-profit contract or a no-profit contract to the post 
office? That is what we have as figures, is that correct?
    Mr. Donahoe. I think it is a contract that we feel that we 
can grow revenue with. Velassis came to us with a proposal, as 
many other companies----
    Chairman Issa. No, no, I appreciate it, Mr. Donahoe. Profit 
and revenue are two different things.
    Mr. Donahoe. Right.
    Chairman Issa. We already heard you are losing money in 
this category. So you are going to get more volume of something 
you don't make money on at the expense of the newspapers of 
America, basically, because that is really what this contract 
does, is, to a great extent, it takes what people usually pay 
for in their newspapers, moves it through the postal system, 
increases your volume. But do you exist to move volume or do 
you exist to provide an essential service? And the reason I ask 
that is if the service is being provided elsewhere by entities, 
although it is a declining area, entities, they make a profit 
on it and the private sector, but you are going to take it in, 
not make any money on it. What is the basis for it other than 
revenue? I mean, is it justified against reducing the rate of 
decrease of the post office?
    Mr. Donahoe. We will make money on this because what 
happens, Mr. Chairman, is we bring that type of volume in 
across all of our routes. You are spreading that cost across 
routes and the revenue per delivery actually goes up.
    Chairman Issa. Okay, so let me rephrase that. You are 
losing a lot of money.
    Mr. Donahoe. Right.
    Chairman Issa. You don't currently have a pathway to break 
even. This is about maintaining or increasing volume in a 
losing operation by including nonessential services being 
provided by others, is that correct?
    Mr. Donahoe. No, no, no. We will make money on this 
product. We will make money on this product the way the price 
is structured. What we are saying is our routes are going out 
today on a Monday through Saturday basis, and even in a Monday 
through Friday world. The key for us in the future is revenue 
per delivery. So you have first class revenue and packages at a 
high end, but things like standard mail and periodicals, they 
still bring revenue to the organization.
    Chairman Issa. You lose money on periodicals.
    Mr. Donahoe. Yes, we do.
    Chairman Issa. Okay, so you lose money on periodicals; you 
lose money on nonprofit; you lose money on political mail; you 
lose money on basically all the work you do on behalf of 
people, all the junk mail I get soliciting me to give somebody 
else money, they do it because they make a profit doing fund-
raising by direct mail, and you lose money on that, is that 
correct?
    Mr. Donahoe. In terms of nonprofit and periodicals, we do 
lose money.
    Chairman Issa. And you lose money on Saturday delivery.
    Mr. Donahoe. And we lose money on Saturday delivery. We 
would be better off delivering packages on Saturday, mail 
Monday through Friday. It gives us the ability to collapse the 
volume that we have in the system, down 27 percent in the last 
five years, to a much more tighter network. That is why we are 
making that proposal.
    Chairman Issa. Thank you.
    We now go to the gentleman from Virginia for five minutes.
    Mr. Connolly. Thank you, Mr. Chairman.
    With respect to the chairman's point about making a profit, 
Mr. Donahoe, is postal service referenced in the Constitution 
of the United States?
    Mr. Donahoe. Yes, sir.
    Mr. Connolly. Does it mention FedEx or UPS?
    Mr. Donahoe. No. When the Constitution was written, they 
weren't around.
    Mr. Connolly. Does it mention a profit, that that service 
is dependent on a profit?
    Mr. Donahoe. Post roads, if I am not mistaken.
    Mr. Connolly. So it is actually a service mission. I am not 
saying you should lose money, but we have to take into account 
the fact that the Constitution actually mandates your service.
    Mr. Donahoe. Yes.
    Mr. Connolly. So that makes you unique, does it not?
    Mr. Donahoe. Well, PAEA also instructed us to move towards 
a more profitable----
    Mr. Connolly. I understand. I am only talking about the 
constitutional issue here.
    Mr. Donahoe. Okay.
    Mr. Connolly. Mr. Donahoe, you announced in February your 
determination that you were going to eliminate, except for 
parcel delivery, I believe, and maybe some other exceptions, 
six day delivery and go to five, is that correct?
    Mr. Donahoe. That is correct.
    Mr. Connolly. And you said you thought you had the legal 
authority to do so at that time.
    Mr. Donahoe. When we made the announcement in February, 
yes.
    Mr. Connolly. In November, however, prior to that, you 
signed a document dated November 15th to the SEC, part of the 
Sarbanes-Oxley compliance, in which you said that actually the 
language requiring six day mail delivery frequency remains in 
effect.
    Mr. Donahoe. We believed that at the time.
    Mr. Connolly. So what happened between November and 
February that changed?
    Mr. Donahoe. Here is what happened. As you well remember, 
the time ran out on the lame duck session. We were able to see 
no completion with postal legislation. Our board had a meeting 
and our board said you have got to do whatever you can do to 
continue to move to either raise revenues or cut costs moving 
forward. So they asked us to come back with a plan, and we came 
back with a plan in the January meeting with a couple of 
options.
    For years and years, Congressman, we always assumed that we 
would have no control over health care until we dug in and saw 
that we had options.
    Mr. Connolly. Mr. Donahoe, thank you. Unfortunately, my 
time is limited and I am trying to follow the logic here. So I 
appreciate that.
    So at that January board of governors meeting, did they 
endorse your legal reasoning with respect to your power to go 
from six to five?
    Mr. Donahoe. We laid out the fact that the way the CR was 
written, we felt we were on firm legal ground to do that and 
they endorsed our move.
    Mr. Connolly. They had a formal vote and endorsed it?
    Mr. Donahoe. They did not have a vote. We discussed it and 
they said proceed and proceed at haste.
    Mr. Connolly. So when the GAO, in March, responded to my 
inquiry and opined otherwise, at the time you issued a 
statement saying you disagreed with the GAO, is that correct?
    Mr. Donahoe. The GAO issued a statement after the CRs were 
both passed in the House and in the Senate. We still are not so 
sure that we agree with the GAO's statements back on the 
original CR, but after the CR-933 was passed, we felt we were 
required by law to deliver mail six days a week.
    Mr. Connolly. You felt you were no longer required?
    Mr. Donahoe. No, I am sorry. We felt that we were required 
to deliver, and that is why we made the statement.
    Mr. Connolly. Okay. And what persuaded you, was it the King 
& Spalding memo?
    Mr. Donahoe. Yes. What happened was we used the same firm 
for both interpretations. King & Spalding gave us an 
interpretation for the first CR, along with our internal legal 
counsel; the second CR internal legal counsel and King & 
Spalding. We did not want to disrupt our customers; we felt it 
was prudent, because we knew there would be a lawsuit coming 
somewhere, to make the right decision.
    Mr. Connolly. Right. Okay, understood.
    Mr. Chairman, I would ask, if there is no objection, that 
the King & Spalding memo be entered into the record.
    Chairman Issa. It has already been entered.
    Mr. Connolly. Oh, great. I thank the chair.
    I am going to run out of time. I want to pick up on Mrs. 
Maloney's question about metrics, because one of the things, 
frankly, a lot of us actually would like to be supportive of 
reforms that can streamline and save money and make us more 
efficient, but in looking at decisions made, they are 
sometimes, frankly, puzzling in terms of the metrics. What 
analysis, what empirical data is going into making decisions to 
close this but keep that open, or to move to a leased rent in 
New York and sell a building you own? And I am wondering if you 
can provide the committee with some kind of background by way 
of what is informing you to make decisions under the rubric of 
cost savings, and are these net decisions? Are you also taking 
into account the fact that they may also be associated with the 
loss of revenue, so that the net savings may be something else 
again?
    Mr. Donahoe. Well, all of those decisions are based on the 
fact that we have too much infrastructure in the organization, 
and the infrastructure boils down to two things. If you want to 
maintain six days and all the infrastructure, if you are a 
customer, you have to pay for it. If you want to maintain it, 
if you are an employee, you have to take lower wages, because 
that is the only differential.
    What we have done from a real estate perspective, to give 
you an idea, in the last six years we have sold $1.1 billion 
worth of real estate. The chairman mentioned that he would 
sponsor a seminar here, I guess you would call it that, where 
we would come in. I would be more than happy to walk through, 
for you and your staff and anybody here, exactly our approach 
on large facilities, small facilities, lease versus buy, and 
all of the opportunities we have in there to make decisions.
    Mr. Connolly. I would welcome that.
    Chairman Issa. I look forward to moving forward in a forum 
environment.
    I might note for the gentleman from our founding State that 
the Constitution reads that the Congress shall have the power 
to, and in this case, to establish post offices and post roads. 
I will take note we no longer establish post roads, and there 
is no constitutional mandate to have a post office. It is, in 
fact, a tradition, it is an establishment of Congress, and, 
most importantly, it is something everybody on this dais 
believes in and wants to make work. But I think for purposes of 
citing the Constitution, we have the ability to eliminate the 
post office, spin it off as a completely private entity. We 
have a lot of abilities. I do believe it can be fixed, and I 
think that is the reason that we have the hearing here today.
    With that, I would like to go to the gentleman from 
Wisconsin at this time. Or, Mr. Cartwright, the gentleman from 
Pennsylvania.
    Mr. Cartwright. Thank you, Mr. Chairman.
    Mr. Donahoe, the Postal Service was required by the Postal 
Accountability and Enhancement Act to make fixed annual 
payments of between $5.4 billion and $5.8 billion over 10 years 
to prefund the costs of future retiree health benefits accrued 
by current employees and retirees. As a result of its 
deteriorating financial condition, the Postal Service defaulted 
on $11.1 billion in prefunding payments for fiscal years 2011-
2012. The Postal Service has also stated that its financial 
condition may prevent it from making its $5.6 billion due in 
September.
    Now, many have criticized this prefunding requirement. In 
fact, you said in your statement that it is set at unrealistic 
levels, is that correct?
    Mr. Donahoe. I think that it is, but as I have also said, I 
think there is a solution to eliminate prefunding with our own 
health care.
    Mr. Cartwright. The fact is that no other business or 
government entity has to face this kind of prefunding 
requirement, am I correct in that?
    Mr. Donahoe. Mr. Dodaro said that the Federal Government, 
through the military, does. I think that most companies that 
provide retiree health benefits are required in some way, shape 
or form to fund them.
    Mr. Cartwright. Mr. Donahoe, do you agree that the 
prefunding mandate, as it applies to the Post Office, is 
unfair?
    Mr. Donahoe. I think it has hurt us financially. But I 
think it is the responsible thing to do. If we expect, as 
employees, to have health care in retirement, we have to pay 
for it. It cannot be funded by the taxpayers. And I think that 
we owe it to this body to put our plans forward. I think Fred 
and I both agree, there is a solution here. And we would ask 
Congress to act on those and give us the opportunity to compete 
health care.
    Mr. Cartwright. I want to jump in here, Mr. Donahoe. In 
April 2012, the Senate did pass the 21st Century Postal Service 
Act, which contained a provision easing this burdensome 
prefunding payment requirement. The provision would have 
required the Postal Service to fund 80 percent of the actuarial 
liability of retiree health costs over 40 years.
    Mr. Donahoe, what financial relief would the Senate's 
provision provide for the Postal Service, and do you believe 
more can be done?
    Mr. Donahoe. Yes. The Senate provided some relief based on 
changing the actuarial formulas and requiring us to only pay 80 
percent. What we would propose, and we would ask Congress to 
sit down and look at our plans to actually move away from the 
current health care structure we have now. It is much more 
efficient, it includes Medicare and we wouldn't need to be 
arguing about prefunding at all. We think we have a solution.
    Mr. Cartwright. President Rolando, I have a question for 
you. The media often reports that labor costs represent a much 
higher percentage of the Postal Service's total expenses 
compared to competitors. And they frequently cite an 80 percent 
figure at USPS. Can you explain for us why the USPS's labor 
costs are higher than their competitors?
    Mr. Rolando. Yes. Actually that figure has come down about 
10 percent over the last few years. The answer is simple: we 
are very labor intensive. We go to every house six days a week. 
You can lower that labor cost. You could eliminate delivery 
altogether and have everybody come pick up their mail at the 
post office. But again, we are here with a universal service 
obligation. We are not looking to turn this thing into a 
corporate profit machine.
    Mr. Cartwright. Mr. Rolando, do you feel that the 
percentage of labor cost is appropriate for the kind of service 
that we get from our national Postal Service?
    Mr. Rolando. Absolutely. The productivity, and I think the 
Postmaster General has said this many times, the productivity 
is not the problem. The employees are working harder than ever. 
Their street time has increased by 25 percent over the last few 
years.
    Mr. Donahoe. If I can comment on the labor, if you don't 
mind.
    Mr. Cartwright. Please.
    Mr. Donahoe. I think an interesting thing to look at, I 
mentioned before when we were talking about total costs, the 
goal would be to get down to a $62 billion cost level. That 
would put us in reasonably profitable territory and give us the 
opportunity to pay debt down. But even at that level, our labor 
costs still consists of about 76 percent of all costs. Because 
as you shrink your labor costs down, we also are going after a 
lot of the other non-labor type, non-personnel type costs, 
transportation, fuel, things like that. So to the first point, 
we are labor-intensive. The key is shrinking the pie, it is not 
worrying about what portion of the pie is in there.
    Mr. Cartwright. Thank you very much.
    I yield back.
    Chairman Issa. Thank you.
    Mr. Donahoe, if you were a private company, and you 
defaulted on your health care for your retirees, the Federal 
Government doesn't step in and provide the money, do they?
    Mr. Donahoe. No. We would not have health care for the 
employees.
    Chairman Issa. Okay, and you don't pay your health care for 
retirement, it is substantially paid by the ratepayer, is that 
right?
    Mr. Donahoe. I pay a portion of it, 30 percent. The 
ratepayers pay 70.
    Chairman Issa. So the only reason that we could just forego 
that money would be if we didn't mind having the taxpayer pick 
up what the ratepayer and the employee do not pick up 
eventually. We have already had a legal decision that you would 
still get it, even if you don't pay into it. You are aware of 
that, right?
    Mr. Donahoe. I think we are absolutely, positively 
responsible for paying for our own health care.
    Chairman Issa. I agree. You gave a figure of 70 some 
percent, your goal to get to $62 billion. What would be the 
head count, the full time equivalent, a number of personnel 
today versus if you reach that goal, forgetting about how you 
reach it? How many people would work for the Post Office?
    Mr. Donahoe. We think that by 2016, with what we have laid 
out from a consolidation standpoint, including the six to five 
day change, it would be about 400,000 career employees, with 
about 60,000 non-career full-time employees. They are a 40-hour 
person that works at a substantially lower cost.
    Chairman Issa. And that is a hundred and how many thousand 
less thank you have today?
    Mr. Donahoe. Right now, as we sit here today, 497,000, it 
is about 97,00 people.
    Chairman Issa. Okay, so you need 100,000 less people, round 
number.
    Mr. Donahoe. Yes.
    Chairman Issa. Mr. Rolando, are you prepared to lose your 
share, obviously you are only one of the unions, of that 
100,000 people through attrition, retirement and buyouts?
    Mr. Rolando. Well, again, we don't agree with that 
downsizing strategy.
    Chairman Issa. Do you agree that you need to pay your 
health care costs? You already said you don't want a bailout. 
You don't want taxpayer money. You do agree that going to 
actuarial, you are still going to have about a $14 billion 
loss. How do you propose to make it up?
    Mr. Rolando. As I said earlier, we believe that the 
downsizing strategy is what is going to put us in a position of 
insolvency. It would actually increase our chances of that 
happening.
    We believe that we need to maintain these networks.
    Chairman Issa. So you are maintaining your $14 billion, 
after adjustment, net loss. Who is going to pay for it? You 
have already said you didn't want the taxpayers' money. You are 
not bankable.
    Mr. Rolando. Who said we need the taxpayers' money?
    Chairman Issa. You said you didn't need the taxpayers' 
money.
    Mr. Rolando. Yes, that is correct.
    Chairman Issa. So the bottom line is, you have no money, 
you are insolvent. Whether you agree or disagree with the kinds 
of changes the Postmaster and his predecessor have done, they 
have been done. What is your end game to get out of this? I 
made it very clear from the dais, we are happy to work with the 
Postmaster and the board on all kinds of changes, including, 
obviously, consideration of health care, actual health care 
changes that would be chosen in alternative to the current one. 
Obviously, rescheduling the actuarial payments necessary to 
meet the obligation of your current and future retirees.
    But you have a $14 billion loss. I called you in here 
today, not to beat you up, but to make you tell us how do you 
get there. If we go from six to five and reschedule your health 
care today, if we do that today, we take the loss, recognized 
loss from $16 billion to $12 billion, we take it down by $2 
billion by rescheduling, we take it down another $2 billion by 
getting rid of six day. If we did both of those, it has 
dominated most of the time the ranking member and I and others 
have spent, we get you to a $12 billion loss.
    If we go to cluster boxes and quickly move America to 
secure storage, to where your letter carriers put a package, 
particularly medicines and so on, they put it in a lock box 
instead of trying to slip it through a chute which it doesn't 
fit through most of the time, we save $6 billion. That takes 
you from $12 billion loss to a $6 billion loss. But it does 
substantially reduce the number of letter carriers, through 
efficiency, not through a cut in service. If we did those 
things today we could get you to a $6 billion round loss.
    Are you supportive of those changes, putting in cluster 
boxes so that there would be secure storage, so that your 
letter carriers, your remaining letter carriers, would go to 
clusters, they wouldn't go to chutes at 37 million homes? Yes, 
it reduces the number of union employees. But yes, it also 
saves the Post Office. Can you be supportive of that?
    Mr. Rolando. Yes, sir, we are very supportive of whatever 
size workforce it takes to make the Postal Service have a plan 
for growth. We don't believe those savings exist to go from six 
to five day. To the contrary, we think it would cost us money. 
We do believe, if the Congress will help us out with the 
prefunding and give us what we need to negotiate the health 
benefit changes we need, which will certainly decrease the 
liability in prefunding, address the pension surpluses, give us 
some pricing relief and some of the other things that we have 
been discussing in these bills the last couple of years, that 
we will be fine, without destroying our networks. We are 
prepared to have whatever workforce, whether it is more or 
less, to make sure that the Postal Service can grow into the 
future.
    Chairman Issa. You didn't answer the question. I appreciate 
all that, and we want to work with you on all that. But the 
cluster boxes are important. Because if the Postmaster, who has 
currently dropped to a dribble the amount of these conversions, 
was given a mandate to make these changes, to supply secure 
storage for every American, so that in fact over the next few 
years, you transition to where Mr. Cummings, who I think has a 
chute at his house, my old house I grew up in, a chute in the 
house, if we went to a cluster box but knew our medicine was 
locked securely in there, the Post Office would save $6 billion 
by CBO estimate.
    Can you support that? That doesn't reduce service. In fact, 
for 105 million people, it doesn't change service, because 
three out of every four people already have a box they walk to. 
Can you support that? Because it affects letter carriers more 
than anybody.
    Mr. Rolando. I can't speak to alleged savings. But I can 
tell you this. If the Postmaster General decided that that is 
what they were going to do with new, current, whatever 
deliveries, and whatever they had to deal with with the public 
regarding that, we would certainly conform to whatever 
workforce was necessary to do that, of course.
    Mr. Cummings. Would the chairman yield?
    Chairman Issa. Of course I would yield.
    Mr. Cummings. I usually don't do this, but I am listening 
very carefully.
    Chairman Issa. You always listen very carefully, Elijah.
    Mr. Cummings. Mr. Rolando, I am trying to really make sure 
that your testimony is clear. But it is not really clear to me. 
I want you to clarify this. It is based on what the chairman 
just asked. We are trying to figure out, all of us up here know 
that there is probably going to be some downsizing. We call it 
right-sizing. And there is nobody that I can think of that 
wants to have jobs more than I do. I want jobs. I want jobs. I 
want to keep as many people working as possible.
    The question becomes, though, I have been listening to what 
you have been saying about maintaining the networks, that is 
what you call them. But if you have more people than the work, 
the work to do, I am trying to figure out, what is the value of 
the network if it possibly destroys the very entity. I think 
this question goes to your credibility. Because we are trying 
to, I think the chairman has been fair, he said okay, help me, 
help me to help you. We need to know that. What is the answer 
to that? Because we want people working. But at the same time, 
we don't want to destroy the entity at the same time.
    And the question is, these networks, if the networks don't 
have the work to be networking, am I missing something?
    Mr. Rolando. Not at all. We are interested in the Postal 
Service being able to grow and replace the revenue that we have 
lost through the different technology, recession, whatever it 
might be. We want to replace that revenue.
    We want to maintain the networks to the extent we need 
those networks to accomplish that type growth, as I spoke to 
earlier with regard to e-commerce and so forth, and the unique 
advantage that we have, the competitive advantage in the 
ability to adapt to the way people shop in the future, whether 
that is six days a week, seven days a week, five days a week, 
whatever that ends up being.
    But we don't want to start out with a downsizing strategy 
of changing a network, eliminating a day of delivery, opening 
those mailboxes to competitors right off the bat, before we 
even enter into that market. Whatever that workforce looks like 
afer we have accomplished that and see what our place in the 
retail market is, of course that is what we are going to do. 
Because we have, of course, an interest in the solvency of the 
Postal Service and the growth of the Postal Service.
    Mr. Cummings. Just this last question. I guess what I am 
trying to get to is, do you believe in the concept of right-
sizing, and right-sizing as I have said many times, with 
compassion?
    Mr. Rolando. Let me tell you how compassionate it is. We 
have lost 193,000 jobs in the Postal Service in the last few 
years. My union is probably 40,000 of those jobs. That was done 
jointly, NALC and the Postal Service, put aside the manuals. We 
were going through the recession, and we jointly adjusted and 
eliminated thousands and thousands and thousands of routes and 
jobs in order to right-size. So we know first-hand what right-
sizing is all about.
    Mr. Cummings. Are you saying that enough right-sizing has 
now been done? This is my last question, Mr. Chairman.
    Are you saying that you believe that we have now had right-
sizing? And you will never hear me say that the unions 
phenomenally cooperative. I think the Postmaster would say the 
same thing.
    Mr. Donahoe. I agree
    Mr. Cummings. You all have been phenomenal. But I am just 
trying to get to where you are, so I can understand it. You are 
saying that perhaps the right-sizing now is done? Enough has 
been done?
    Mr. Rolando. No. I didn't say that.
    Mr. Cummings. What are you saying?
    Mr. Rolando. I am saying let's look and see what we are 
going to do with the retail market and see what kind of 
workforce we need to grow the business.
    Mr. Cummings. Okay, thank you. Thank you, Mr. Chairman.
    Chairman Issa. Thank you. I think you helped make it very 
clear.
    The gentleman from Missouri I believe is next in line, next 
in time and has a little extra time.
    [Laughter.]
    Mr. Clay. Thank you so much, Mr. Chair. And thank you for 
conducting this hearing.
    Let me start with the Postmaster. In an April 11th, 2013 
Bloomberg article, Postmaster General Donahoe, you were quoted 
as saying ``Without being able to cut back to five delivery 
days from six, the Postal Service will take its board's advice 
and ask its employee unions to renegotiate multi-year 
contracts.''
    Mr. Donahoe, have you asked the postal unions to 
renegotiate existing contracts?
    Mr. Donahoe. I sent the union presidents and the management 
association presidents a letter yesterday. I asked them to 
please consider that. What I would like to do is sit down 
before we do anything as a group and have a session where we 
kick around some ideas. There may be some opportunities in 
there we should look at.
    Mr. Clay. So that will be, renegotiating existing 
contracts. Now, I hope that the management of the Postal 
Service realizes that we are kicking numbers around, but these 
are real people, real lives, who have planned their futures and 
those jobs mean something to them. I am going to get Mr. 
Rolando into the discussion too. Have you thought about that?
    Mr. Donahoe. Yes. I come from western Pennsylvania, where 
our steel industry dissolved right in front of everybody's 
eyes. We lost 100,000 jobs in four years there. I have cousins 
to this day that are my age, 57 years old, who have never been 
able to get a reasonable-paying, full-time job again. I do not 
want that to happen to the Postal Service. As a group, I will 
commend the unions for being very good as a management 
associations to be very flexible. We have made some big, big 
changes. But there are some things we still need to do to get 
us to a point where we can get the costs under the revenue 
line, pay the debt down and provide a very good, secure 
environment for people going forward.
    I am proud of the fact that the 200,000 jobs that we have 
reduced in the last six years, we have never laid anybody off. 
That goes back to my western Pennsylvania roots, where I saw 
families get crushed because people didn't have that 
consideration.
    Mr. Clay. Two years ago, on April 11th, 2011, the Postal 
Service announced that a tentative agreement had been reached 
with the American Postal Workers Union that would save the 
Postal Service an estimated $3.8 billion over the life of the 
contract. Mr. Donahoe, if the Postal Service is slated to save 
an estimated $3.8 billion under this agreement, how much more 
do you reasonably believe could be saved by renegotiating that 
agreement, and what types of provisions would have to be 
renegotiated to achieve additional savings?
    Mr. Donahoe. I think that the contract that was signed with 
the APWU is a breakthrough contract. I think that Mr. Guffy 
stepped up in a very courageous way and did for his members, 
both present and future, the right thing in terms of 
employment.
    What I would propose, again, and as I have said, I don't 
want to talk about any ideas that we have publicly because I 
think it is disrespectful until we have a discussion with the 
union presidents and the associations. We may find coming out 
of there that we can't agree on anything. But there may be 
something there that we should at least talk about going into 
the future.
    That said, this request from the board, direction from the 
board to me on the renegotiation is again a concern from the 
board that if we don't do something, we will run out of cash. 
We have heard this discussion today. Passing comprehensive 
postal legislation can resolve this. Our business plan gets us 
back to profitability without having to do anything until we 
get with the unions again in 2015, when the regularly scheduled 
talks begin again.
    Mr. Clay. Additionally, both the National Association of 
Letter Carriers and National Postal Mail Handlers Union 
recently concluded their arbitration processes with the Postal 
Service and agreements with both unions are now in place until 
2016.
    Mr. Donahoe. Yes.
    Mr. Clay. Did either of these agreements provide 
significant savings?
    Mr. Donahoe. Yes, they did. With the Carriers' agreement, I 
think we reached a breakthrough on flexibility for what we call 
city carrier associates. I think that gives us the ability to 
deliver packages on the weekends in a very affordable manner. I 
think that was a breakthrough. I also think that if you take a 
look at what we have been able to come up with with the 
Carriers going forward in terms of affordable career employees 
for the future, that sets a good tone.
    Now, saying that, I will also say, and I know it is a hot 
spot with people, I think it is critical that we as an 
organization consider defined contribution retirement systems 
for our people going into the future. I know, and we have done 
a lot of work on this, it scares people sometimes. But with the 
uncertainty in the Postal Service in the future, I think that 
we could assemble a very good benefits package for retirement 
that is not only good for a person in the shorter run, 20 
years, but is transportable.
    Mr. Clay. And you are probably going down the correct path, 
because that is the model that most American businesses have 
taken.
    Mr. Rolando, you have sat through the testimony today in 
this hearing. We know that the business model has to change in 
order for us, for the postal system to survive. Has there been 
any contemplation of replacing the FEHBP with the Affordable 
Care Act? Under the law, which is about to be implemented in 
2014, the Affordable Care Act says that if an employer does not 
provide health insurance, then they will be penalized, and then 
perhaps if an employee doesn't have it, or an American doesn't 
have it then they will be penalized. Has anybody done a balance 
sheet on that?
    Mr. Rolando. Let me start out with your first comment. With 
regard to the business model, we do believe there needs to be a 
change in the business model. We just one with some vision for 
the future, for growth, not down-sizing.
    With regard to the health care and the whole business about 
the agreement, when I saw that from the board of governors, it 
had an insulting component to it that I won't get into. But it 
had another component that it was unnecessary. A major part of 
the arbitration award that we got with the Postal Service was a 
memorandum of understanding about health care that allows us to 
pursue. That is where all the potential, as the Postmaster 
General has alluded to, that is where all the potential is for 
further savings with regard to our collective bargaining 
agreement, is what we can negotiate in terms of how we handle 
health care.
    We have a task force that came as a result of that 
memorandum of understanding. That is why it is unnecessary, we 
need to just get busy on that task force.
    With regard to the Affordable Care Act, our arbitration 
award provides for all new employees, our non-career employees, 
currently when they are hired, they have no health insurance 
and no retirement. Every new employee is non-career. At such a 
time as the Affordable Care Act comes into play, part of that 
arbitration award indicates how those individuals will be 
insured pursuant to the Affordable Care Act and the required 
contribution by the Postal Service by virtue of that law.
    Mr. Clay. Let me toss this out for both of you. That is the 
sticking point for this Congress, that is the prepayment of the 
health benefit. Apparently we are stuck on this side of the 
table. Because one side won't give. And so that is the hurdle, 
the major hurdle. I would love to hear from both of you. What 
do we do? Let's start with the Postmaster.
    Mr. Donahoe. As we have said before, I think that the one 
thing that the NALC, the APWU and the Postal Service are in 
agreement on is exploring, as Fred just mentioned, with the 
memorandum of understanding, the Postal Service taking over the 
full administration of its own health care plan, including for 
the retirees. Again, there are different models out there. We 
are flexible,
    Fred has mentioned in his testimony that they would like to 
see it done through the FEHBP. As long as the outcome is what 
the outcome needs to be, and that is elimination of the 
prefunding, providing a very good health care plan at a much 
more affordable competed price, not just out there with the 217 
plans now, and retiree coverage, I think it would be a gigantic 
breakthrough, not only for the Postal Service but the rest of 
the Federal Government. The rest of the Federal Government 
faces the same problem we do.
    Mr. Clay. Mr. Chairman, can I have an additional minute?
    Chairman Issa. I certainly think that ten minutes was not 
nearly enough.
    [Laughter.]
    Chairman Issa. I certainly think Mr. Rolando does want to 
comment on his view on the health care, FEHBP and so on. So I 
will allow time there, of course, as is necessary for the 
gentleman from Missouri.
    Mr. Clay. Thank you so much.
    Mr. Rolando. You asked what the Congress should do, because 
you are stuck. We have one major area of dispute with the 
Postal Service, I think. We think dealing with the five-day, we 
would lose $2 billion, they think that maybe they would gain $2 
billion. We see it as down-sizing, we want a vision for growth,
    Beyond that, it is beyond me why the Congress can't 
consider, we have $45 billion in that fund. Nobody else has to 
do it. We can pay as we go. There are all kinds of options to 
earn interest on that money and to continue to put money in 
that fund as we become profitable.
    If you look at the pensions, even under the anti-business 
OPM rules that we have for our pension funds, we are 99 percent 
funded in civil service. The average agency, I believe, is 40 
percent funded. We are $3 billion overfunded in FERS. If you 
use the independent companies assumptions of how you are 
supposed to do that, the fair allocation between the old postal 
department and the U.S. Postal Service, we have surpluses of 
$50 billion to $75 billion in civil service. If you use the 
current OPM assumptions and apply just postal assumptions, you 
will see that we have a $12 billion surplus in FERS, and we are 
about 99 percent in civil service. This is a wealthy broke 
company in terms of pensions and health care and so forth.
    So if we could go forward and fix the pre-funding, address 
the pensions, give us some pricing freedom, allow us to do what 
we need to do with health care, maybe open up some products and 
services, I think that we have a vision for the future that 
will make the Postal Service flourish for years to come. And I 
don't see where it is a partisan issue. This is America's 
postal service.
    Chairman Issa. I thank you. Would the gentleman yield some 
of his time to me?
    Mr. Clay. Whatever is left, Mr. Chairman.
    [Laughter.]
    Chairman Issa. Just one follow-up. Mr. Clay was asking a 
series of questions and you were very generous in talking about 
the health care component. It is an area that although you 
disagree slightly, you agree a great deal. As a rhetorical 
question, knowing that the rank and file would ultimately make 
the decision, if the Federal Government was prepared to hand 
you the $45 billion in prefunding, and allow you the liberty of 
making the many changes that you together would negotiate in 
your contracts, are you prepared to leave the Federal 
Government off the hook for any eventual shortage? In other 
words, take responsibility to make sure that future payments 
match future obligations, both for retirees and current 
employees.
    Is that something that labor would consider doing? Mr. Clay 
rightfully said we should all agree on this, it is a sticking 
point. One of the sticking points is that what if 20 years from 
now we get asked to give $50 billion because there isn't enough 
there? Obviously the $45 billion would earn more money in a 
conventional investment rather than Treasury bills. Obviously 
the changes the Postmaster has asked to do with Medicare taking 
primary position and then what appears to be a mutual agreement 
that you could bid out more efficiently than you do on behalf 
of your various groups of letter carriers, is that something 
that you would be prepared to do?
    Mr. Rolando. That is one of the many items that we need to 
talk about in the task force that involves a whole lot more 
than you and me and the Postmaster General as far as the 
actuarial effect. That is why we put the task force together.
    Chairman Issa. I can only say that those bold moves, like 
the gentleman from Missouri is suggesting, we would love to be 
able to say we have a request and a concurrence, so that we 
could consider putting those into legislation as a win-win. I 
have been unfair to the gentleman from Wisconsin.
    Mr. Clay. But we are getting close to putting out a bill.
    Chairman Issa. I think we are close. The ranking member and 
his team and our team worked pretty well in the last Congress 
to get close. The reason we are not putting one out right now 
is that we would like to get even closer to what we need.
    Mr. Clay. With the two sides here.
    Chairman Issa. Not just with these two sides, but quite 
frankly, with the Senate, who started off with no pathway to 
savings. But they did have some great referrals. I think we 
came in on a bipartisan basis with some savings, and I think 
you see some of it here today. We do look forward to that.
    Mr. Pocan, I am so sorry that you have been relegated to 
the most important position, one that gives you the anchor 
position on the first panel.
    [Laughter.]
    Mr. Pocan. Thank you. Thank you, Mr. Chair, and than you, 
gentlemen, for being here.
    I do have some questions for Mr. Donahoe in a second about 
some of the questions I have as you are looking at some of the 
savings. But Mr. Rolando, I am going to paraphrase something, 
and tell me if I am fair in this. Just briefly, what you are 
essentially saying is, you are concerned that we keep the core 
of the services that people have expected all my lifetime, but 
the important part is, if we need to find ways to keep those 
core services, additional revenue or other ways, we should do 
that, rather than what some people might call some of the 
proposals have been more austerity proposals. You want to keep 
the mission and the core mission of the Postal Service to be 
what it has been, but how we best supplement that, you are open 
to having those conversations.
    Mr. Rolando. That is correct. We want to maintain the 
universal service for all Americans, regardless of where they 
live, how much money they make, what was intended.
    Mr. Pocan. Thank you. Mr. Donahoe, I have a couple of 
questions. One in the health care area. I know there have been 
conversations about how you are potentially changing things. So 
do you presently have any postal-specific FEHBP claims data on 
health premiums?
    Mr. Donahoe. We have looked at that. I am going to have to 
get back to you on that, because our people have talked to the 
OPM on that. We will have more information coming up soon with 
the health care plan we are sponsoring for non-career people,
    Mr. Pocan. How about any postal employee demographic 
information specific for health care?
    Mr. Donahoe. We can provide you that information. We have 
that. Generally, we are a little older group than most of the 
rest of the Federal Government.
    Mr. Pocan. If you could get us that information, Mr. 
Chairman, I would appreciate having that.
    A second question is something I am hearing back home on 
mail sorting. There has been a talk about a pilot program of 
moving mail sorting from Madison to Milwaukee. The concern we 
have in our area is, is that going to provide a delay in some 
of the service. One, is there a pilot program being proposed in 
my area, and two, how do you ensure that you don't have a delay 
that I think people are anticipating if this would happen?
    Mr. Donahoe. I mentioned in my testimony we have 
consolidated 300 facilities. We have another 120 under review 
right now, and some are actually being consolidated as we 
speak.
    I am not positive that Madison is in this year, 2013, or if 
it is going to be in 2014. I know we are looking to 
consolidate. What we are trying to on the 2014 is figure out 
how to make the consolidations and maintain a degree of 
overnight service. That is what we heard back from customers. 
That has been the big complaint. With the ones we are doing 
now, we were able to make those changes in maintaining 
overnight service.
    Mr. Pocan. If you do have any specific information in that 
area, I would like to see it.
    Mr. Donahoe. How about if we have somebody come up and sit 
down with you and walk through everything?
    Mr. Pocan. I would appreciate that. It would be helpful. 
Because we do have some providers in our area, for example, a 
biotech firm that the average product they have is one-fifth of 
one drop of a product that breaks down DNA. They do all their 
overnight shipments with dry ice. I just want to make sure we 
have that service still for them.
    Mr. Donahoe. Yes.
    Mr. Pocan. The final area is around the Saturday delivery. 
The question is, I know that FedEx, their Smart Post program is 
the fastest growing sector of their market. It is based out of 
Wisconsin. How they are doing it, it is about 19 percent up, I 
think, from a year ago. Part of that is, we are doing the final 
mile. We are delivering that last mile of delivery of service.
    If we are not delivering to every single home, which gives 
us that advantage in doing that, how could that affect that 
service as well as our competitiveness with other firms, if we 
are not hitting every single home on Saturdays?
    Mr. Donahoe. What we have looked at is employing the same 
kind of technology FedEx and UPS use, which is dynamic routing. 
When we sort the packages on Saturday for the carrier routes, 
the software packages would actually put them in efficient 
delivery order. So the people that are now lower cost employees 
would work on Saturday and they would deliver the packages in 
those areas.
    Mr. Pocan. And you have actually got some kind of financial 
model?
    Mr. Donahoe. Yes, we have done all the financial modeling.
    Mr. Pocan. If we could just set that up, I would really 
appreciate it. Especially around the mail sorting. That is 
probably the issue back home I am getting the most often.
    Mr. Donahoe. Well, sir, the health care, the Madison and go 
through the dynamic routing for you.
    Mr. Pocan. Thank you very much.
    Chairman Issa. I thank the gentleman.
    Mr. Donahoe, I think if I didn't ask you briefly a couple 
of questions on now multiple ricin attacks, that we believe 
have occurred, I would be remiss. I hope to the extent you are 
prepared, I hope you can answer. We understand, obviously as 
many as two Senate offices at this point, plus a potential 
letter to the President. Are there steps that you are taking to 
protect your employees and to at the same time see if there is 
any additional sources of this material at this time that you 
can make us aware of?
    Mr. Donahoe. Sure. What we do, Mr. Chairman, as you know we 
have had these incidents before, going back to the anthrax 
attacks over 10 years ago. What we learned back then was the 
importance of having protocols in place where, anything 
happens, we react. Over the course of years we have had some 
situations where there have been ricin scares. Until this date, 
there has never been actually proved that have gone through the 
system. We have a process that we make sure that our employees 
know, we can actually track the mail back through the system to 
double check from an employee health standpoint where we are.
    Another thing we have done with our inspection service, we 
have the absolute best detection systems going. So our 
inspection service works in concert with the FBI not only to 
detect what we have, but they also work back to catch these 
criminals.
    Chairman Issa. Thank you. We often talk about rain nor 
sleet nor dark of night. I think the fact that people would be 
so vicious as to put a deadly poison that can poison all along 
the way is another risk that we often don't think of postal 
carriers as being involved in.
    Today we did not cover the processing centers, and at a 
future time obviously they are a major factor. Quite frankly, 
Mr. Rolando, the one that I am most concerned about, I believe 
letter carriers can be worked out on an attrition basis, where 
processing centers are a little bit more specific so that you 
can have a disruption if you are doing the right thing on 
right-sizing that portion,
    I want to ask you just one closing question, Mr. Rolando. 
Do you believe that the post office should deliver on Saturday 
and Sunday if it can profitably do so?
    Mr. Rolando. Yes.
    Chairman Issa. Now, the Postmaster has on different 
occasions, not just this latest one that prompted today's 
hearing, has proposed the idea of finding ways to have premium 
services on Saturday and Sunday. The current proposal, which we 
are respectful on this side of the dais, too, that sometimes 
you just take the lawyers' opinion and you live with it, but 
the current situation is one in which the Postmaster proposed a 
$5.60 of getting a Saturday flat envelope delivered.
    My question to you, and it is to you because you represent 
200,000 letter carriers, you represent the largest single 
portion of the workforce and the one that we relate to the 
most, do you believe that goal should be to find the right 
price, so that in fact we could have seven-day delivery, not 
six, but seven, but make sure that it is paid for, so that 
whether it is a bottle of medicine, pain patches or other 
things that one of our members referred to, that in fact there 
could be a scheme in which the Post Office could provide, to 
the greatest extent possible, to every point in America, every 
single day of the week, as long a they can do so profitably? In 
this day and age, would you support an attempt for the 
Postmaster to find the right price for that delivery?
    Mr. Rolando. I believe pricing should certainly cover our 
costs. It certainly doesn't do that now. I think we have to be 
real careful with what that proposal entailed with not having 
letter mail delivery when you are delivering parcels. I believe 
that could, having the shared network of keeping costs down 
with the overhead, be a problem.
    Chairman Issa. I appreciate that, although I believe 
letter, not called letter, but the flat pack, the express mail, 
was envisioned. I think, Mr. Donahoe, it was like $5.60 for a 
letter.
    Mr. Donahoe. That is a priority flat rate letter, yes.
    Chairman Issa. Maybe I will pose this to you to keep the 
dialogue on both sides. If you were given a mandate to find the 
ability to deliver all mail but have a premium Saturday stamp, 
what would that price look like at optimum volume for Saturday 
or Saturday and Sunday? Less than $5.60, more than 47 cents? 
Can you give us a target number?
    Mr. Donahoe. Off the top of my head, it would be awfully 
hard. I think the point of the $5.60 for a priority envelope, 
we would treat that like a package. That is why we said that 
would be the way we go with it. I think what would happen would 
be, the mailers, whether a first class mailer or standard 
mailer, they are very price sensitive.
    As we have discussions of price goes up to keep Saturday or 
get rid of Saturday and keep prices down, the keep prices down 
winds hands-down. So I wouldn't even venture a guess to say 
that people would pay more other than your point of a priority 
envelope at $5.60. I don't think we would see a ton of volume 
there, because most people said, hey, I would do without 
Saturday delivery.
    Chairman Issa. I will close with just a comment on this. 
When I send a card to my mom or other people and I don't know 
whether it is going to get there on Friday or not, and somebody 
says it is a dollar to make sure that if it doesn't get there 
on Friday, it gets there on Saturday, I think every son in 
America would put that dollar stamp on. That is one of the 
reasons I mentioned it is, the what-if. Maybe it won't get 
until Monday because Saturday delivery, when you send it on 
Friday, because you forgot, even though you think you are a 
good son, that is a dollar wasted. You send it on Wednesday and 
it gets there on Friday, and you put the stamp on because you 
want to be sure, that is a dollar wasted. But then if you are 
aggregating costs, it could in fact represent a very affordable 
price for the what-if.
    I mention that because in the private sector, we have 
variable pricing for variable services. I think one of the 
challenges that the letter carriers are facing, that the 
ranking member and I are facing is, we don't want to 
arbitrarily tell you to stop doing six-day. What we want to 
tell you is, we want to work with you, we want to be your 
partner in maintaining quality living wages for your Federal 
employees doing the public service, do it within a budget 
without appropriation if at all possible. We hope without any 
appropriation. And maintain the service.
    I have serious doubts about the innovation leading to vast 
new products. But having said that, in our bill we did have a 
fund to expand innovation. And we will in the next bill.
    So we called you here today because we thought the American 
people deserved to hear about this confusion between five-day 
anticipated and six-day, which we will continue to have at 
least until October. I have a long list of things my staff has 
given to beat you up, to be honest, Patrick. And I considered 
using every bit of it. But to be constructive, I know you have 
a tough job. I have been a CEO, I know what it is like when you 
have rising revenues and you just throw money at it, everything 
looks great.
    Sadly, I also was sitting on the board as we went through 
some tough times. And you have been through some tough times 
for your entire time, both in the number two position and 
number one.
    Mr. Rolando, I don't know what it is like to represent 
hundreds of thousands of people. I do know what it is like to 
be a rank and file union member and to look to your union and 
say, why am I giving back? Why are things not always better?
    So my hope is that this is the beginning of a cycle where 
by the time October comes this year, we will have at least 
language that can pass out of the House that can maintain the 
respect for people who already work or are already retired from 
letter carrying and other services for the Post Office, but 
meet the requirement of getting a pathway to break even. If we 
can do that, I think we set the stage for America believing 
that there are adults on this side of the dais, which according 
to current polls, they don't believe. That is one of the goals 
I have.
    So I will throw away all the other questions. I have a 
couple that I would ask if we give you questions to be answered 
after the fact, would you agree to answer them?
    Mr. Donahoe. Yes.
    Chairman Issa. We will have staff give you, for some of the 
members that couldn't.
    Does the ranking member have any other statement?
    Mr. Cummings. Very, very quickly. Thank you very much, Mr. 
Chairman.
    I started off this hearing by reminding us that we must 
minimize our distractions to reach our goals. And the other 
thing that I reminded us of is that you can lose what you have 
by trying to hang on to what you used to be. That is a serious 
statement.
    And it sounds like, Mr. Postmaster General, you are trying 
to make the adjustments that you have to make. And Mr. Rolando, 
I understand, and I thank you for being patient with me and 
answering my question. Because I understand what you are 
saying. You are saying, okay, the Post Office is going to 
change and you want to make sure that the personnel is there 
for those changes.
    Still, it is going to be a kind of interesting dance. 
Because we have to figure out what that future looks like so 
that we can even figure out what we need and at the same time 
try to make sure that we maintain a healthy postal system 
whereby the rates are not skyrocketing, there is no 
uncertainty, unreasonable uncertainty. All of those things.
    So I just hope that all of us can sit down and come to an 
agreement. Because one thing is for sure. We can do this.
    Mr. Donahoe. Yes.
    Mr. Cummings. If we can't do this, we might as well go 
home. I am serious. Or go play golf, even if you don't play 
golf. Do something. But the American people expect us to get 
this done. I think all of us agree that we need to have some 
kind of comprehensive legislation.
    So I am looking forward to working with the Chairman as we 
try to resolve these matters in good faith. Again, I thank you 
all.
    Thank you, Mr. Chairman.
    Chairman Issa. I thank you all. We stand adjourned.
    [Whereupon, at 1:30 p.m., the committee was adjourned.]



                                APPENDIX

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