[Senate Hearing 113-18]
[From the U.S. Government Publishing Office]


                                                         S. Hrg. 113-18
 
                     SOLUTIONS TO THE CRISIS FACING 
                        THE U.S. POSTAL SERVICE 

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

                                HEARING

                               before the

                              COMMITTEE ON
               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS


                             FIRST SESSION

                               ----------                              

                           FEBRUARY 13, 2013

                               ----------                              

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

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





                                                         S. Hrg. 113-18

                     SOLUTIONS TO THE CRISIS FACING
                        THE U.S. POSTAL SERVICE

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

                                HEARING

                               before the

                              COMMITTEE ON
               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS


                             FIRST SESSION

                               __________

                           FEBRUARY 13, 2013

                               __________

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

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

                               ----------

                         U.S. GOVERNMENT PRINTING OFFICE 

80-219 PDF                       WASHINGTON : 2013 



        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

                  THOMAS R. CARPER, Delaware Chairman
CARL LEVIN, Michigan                 TOM COBURN, Oklahoma
MARK L. PRYOR, Arkansas              JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana          RON JOHNSON, Wisconsin
CLAIRE McCASKILL, Missouri           ROB PORTMAN, Ohio
JON TESTER, Montana                  RAND PAUL, Kentucky
MARK BEGICH, Alaska                  MICHAEL B. ENZI, Wyoming
TAMMY BALDWIN, Wisconsin             KELLY AYOTTE, New Hampshire
HEIDI HEITKAMP, North Dakota

                   Richard J. Kessler, Staff Director
               John P. Kilvington, Deputy Staff Director
                    Beth M. Grossman, Chief Counsel
       Lawrence B. Novey, Chief Counsel for Governmental Affairs
                  Katherine C. Sybenga, Senior Counsel
               Keith B. Ashdown, Minority Staff Director
         Christopher J. Barkley, Minority Deputy Staff Director
     Catharine A. Bailey, Minority Director of Governmental Affairs
                     Trina D. Shiffman, Chief Clerk
                    Laura W. Kilbride, Hearing Clerk



                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Carper...............................................     1
    Senator Coburn...............................................     8
    Senator Tester...............................................    10
    Senator Ayotte...............................................    13
    Senator Begich...............................................    13
    Senator Enzi.................................................    25
    Senator Pryor................................................    32
    Senator Levin................................................    35
    Senator Heitkamp.............................................    51
Prepared statements:
    Senator Carper...............................................    61
    Senator Coburn...............................................    64

                               WITNESSES
                      Wednesday, February 13, 2013

Hon. Darrell E. Issa, a Representative in Congress from the State 
  of California..................................................     1
Hon. Elijah E. Cummings, a Representative in Congress from the 
  State of Maryland..............................................     4
Hon. Patrick R. Donahoe, Postmaster General and Chief Executive 
  Officer, U.S. Postal Service...................................    16
Hon. Eugene L. Dodaro, Comptroller General of the United States, 
  U.S. Government Accountability Office..........................    19
Cliff Guffey, President, American Postal Workers Union...........    40
Jeanette P. Dwyer, President, National Rural Letter Carriers' 
  Association....................................................    41
Robert J. Rapoza, President, National Association of Postmasters 
  of the United States...........................................    44
Joel Quadracci, Chairman, President, and Chief Executive Officer, 
  Quad/Graphics, Inc.............................................    46
R. Richard Geddes, Ph.D., Associate Professor, Department of 
  Policy Analysis and Management, Cornell University.............    48

                     Alphabetical List of Witnesses

Cummings, Hon. Elijah E.:
    Testimony....................................................     4
    Prepared statement...........................................    67
Dodaro, Hon. Eugene L.:
    Testimony....................................................    19
    Prepared statement...........................................   110
Donahoe, Hon. Patrick R.:
    Testimony....................................................    16
    Prepared statement with attachments..........................    69
Dwyer, Jeanette P.:
    Testimony....................................................    41
    Prepared statement...........................................   148
Geddes, R. Richard, Ph.D.:
    Testimony....................................................    48
    Prepared statement...........................................   169
Guffey, Cliff:
    Testimony....................................................    40
    Prepared statement with attachments..........................   127
Issa, Hon. Darrell E.:
    Testimony....................................................     1
    Prepared statement...........................................    65
Quadracci, Joel:
    Testimony....................................................    46
    Prepared statement...........................................   163
Rapoza, Robert J.:
    Testimony....................................................    44
    Prepared statement...........................................   155

                                APPENDIX

Additional statements for the Record:
Hamilton Davison, President and Executive Director, American 
  Catalog Mailers Association, with an attachment................   179
Donna Harman, President and CEO, American Forest and Paper 
  Association, Inc...............................................   185
Benjamin Y. Cooper and Arthur B. Sackler, Co-Managers, Coalition 
  for a 21st Century Postal Service, with attachments............   188
Fredric V. Rolando, President, National Association of Letter 
  Carriers, with attachments.....................................   193
Joseph A. Beaudoin, President, National Active and Retired 
  Federal Employees Association..................................   236
National League of Postmasters...................................   243
Steven Mitzel, Senior Vice President and General Manager, 
  Valassis Shared Mail, Valassis Communications, Inc.............   248
Responses to post-hearing questions for the Record:
    Mr. Donahoe..................................................   253
    Mr. Dodaro...................................................   275
    Mr. Guffey...................................................   289
    Ms. Dwyer....................................................   293
    Mr. Rapoza...................................................   295


                     SOLUTIONS TO THE CRISIS FACING
                        THE U.S. POSTAL SERVICE

                              ----------                              


                      WEDNESDAY, FEBRUARY 13, 2012

                                     U.S. Senate,  
                           Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:07 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Thomas R. 
Carper presiding.
    Present: Senators Carper, Levin, Pryor, Tester, Begich, 
Baldwin, Heitkamp, Coburn, Enzi, and Ayotte.

              OPENING STATEMENT OF CHAIRMAN CARPER

    Chairman Carper. Dr. Coburn and I are happy to welcome our 
guests this morning.
    I have a statement that I want to give. I am going to just 
yield to our friends from the House Committee on Oversight and 
Government Reform first--Chairman Darrell Issa, and Ranking 
Democrat, Elijah Cummings. They are our friends.
    We are happy to see you. We have enjoyed working with you 
on a variety of issues, especially in the last months of last 
year, having a chance to bear down and try to get to--like I 
say in football parlance, we got it in the red zone, did not 
get it in the end zone in terms of a final solution on postal 
reform, but we made real progress.
    And I am going to forego my comments initially and ask our 
colleagues, if it is OK with you, Senator Coburn----
    Senator Coburn. You bet.
    Chairman Carper [continuing]. To just go ahead, and then we 
will take it up from there.
    Again, Mr. Issa, welcome. Mr. Cummings, welcome. Thank you 
for joining us.

   TESTIMONY OF HON. DARRELL E. ISSA,\1\ A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Issa. Thank you, Chairman Carper and Ranking Member 
Coburn.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Issa appears in the Appendix on 
page 65.
---------------------------------------------------------------------------
    You are new to your positions even though you are from the 
sustaining body. Mr. Cummings and I came very close in the last 
Congress to what we thought was a bipartisan, bicameral deal. 
We start off this Congress with a view that with you as team 
members and co-chairs in what we think is a bipartisan, 
bicameral problem and a bipartisan, bicameral solution, we 
believe we can get there.
    Clearly, as you convene today, the subject of 5-day 
delivery is going to be among the most important subjects. And 
I would like to emphasize that a little bit because I believe 
that in order to get a comprehensive reform, we must first 
realize that freeing the hands of the Postmaster General in a 
way that was envisioned by the independence of the U.S. Postal 
Service (USPS) is a good first step.
    The Postmaster General has determined that going from a 
less than 50 cent single delivery on a Saturday to a 5-day 
delivery of that type of mail--no matter how small and no 
matter where for less than 50 cents, a single flat letter will 
be delivered anywhere in America. But on Saturday, a light day, 
an excess day relative to most other countries, the idea that 
there should be a small premium for flat mail--$5.60--still 
less than the cost of getting a good Hallmark card from CVS, 
you can have a letter delivered.
    More importantly, with the Postmaster's proposal, we will 
continue to see vital medicines and packages delivered for a 
fraction of how they would be delivered in any other way at 
every point in America.
    I think that maintenance of universal service, but a right-
sizing of the cost to benefit, is really the hallmark of what 
the Postmaster General is asking us, as Congress, to not stand 
in the way of.
    I believe the Postmaster General is correct, that he has 
the authority consistent with the law in that he is maintaining 
a service, but the law never intended him to do it at a loss. 
The Postmaster General had to bear over $15.9 billion in losses 
last year. This completely depleted his $15 billion line of 
credit. It caused him, in order to meet cash flow, to forego 
required and agreed payments of $5.5 billion for the second 
year in a row.
    This deferral does not mean that eventually those amounts 
will not come due. It is very clear that ultimately either the 
ratepayer or the taxpayer will have to pay the over $25 billion 
in accumulated debt of the Postal Service.
    Now when I say $25 billion, I do not want the statisticians 
to say, no, it is only $15 billion. But clearly, this deferral 
eventually, in any proposal, still has to be taken care of as 
to the eventual medical retirement and other retirement 
benefits of postal workers, and keeping that commitment 
currently is backed by the full faith and credit of the U.S. 
taxpayer.
    As I said, I think the important thing for this Committee 
to realize is that guaranteeing 6-day delivery everywhere in 
America but doing it at a rate that allows for the post office 
to become solvent again is critically something the Postmaster 
General has to be allowed to do as a preamble, if you will, to 
the legislation that we envision.
    Australia, Canada, Finland, Spain, Italy, and, as we often 
note but then sometimes snicker, Sweden have all gone to 5-day 
delivery. Both rural and urban countries have found that with 
the advantages of electronic mail, with the advantages of 
direct deposit--including, I might note, even Social Security 
which will be 100 percent direct deposit for our seniors--the 
volume of flat mail has gone down and, for the benefit of 
efficiency, will continue to go down.
    I think we in Congress often look at loss of jobs as a bad 
thing. I just want to close by making a conclusion. Had we 2 
years ago, 3 years ago, 4 years ago, dealt with this problem, 
individuals of the post office who are in fact long-term 
workers, fully able to retire, could have been paid a full year 
of their pay as an incentive to retire, not early but in fact 
not later. The cost of a $50,000 buyout of a potential retiree 
is 20,000 retirees for $1 billion. Essentially, in less than a 
year you could provide that benefit to every single person 
eligible to retire and still do it for less than we lost last 
year.
    I am not suggesting that we automatically pay large 
buyouts, but I am saying that if we can find the efficiencies, 
we can in fact find a way to encourage people to retire without 
breaking any contracts, trust, in fact, having people happy to 
go into their golden years while the post office has the right 
amount of people.
    I have just one last point, and it is a point that is a 
bargaining point of which we are so aware.
    Chairman Carper, you enjoy a great many urban older homes 
in your State. Many of those homes have chutes in their door. 
Every day, a postman comes up and puts flat mail in there. But 
more and more, those same homes see a vital piece of medicine 
or their purchases from Amazon placed on the stoop, crammed 
inside the door or in some other way delivered as best the 
postman can with the reality that flat mail system, did not 
really envision what you do with a box that will be left if you 
are not home. And more and more, our seniors and our young 
people are out and active.
    So the Postmaster General, in his request, would like to 
accelerate over the near future the ability to put in cluster 
boxes, which often are pushed back against by older homes and 
seniors who say, what if I have to walk around the corner?
    I would tell you here today that providing a secure box 
large enough to take purchases and medical supplies in every 
neighborhood in America should be a goal that we in Congress 
promote. Whether it is a new neighborhood or an old 
neighborhood, we can find a way to design acceptable boxes that 
both reduce the time necessary to delivery mail but increase 
the security of vital packages and medicines delivered to every 
point in America.
    So I believe that the two largest single savings in the 
system--5-day deliver and the modernization of to-the-curb 
delivery--are, in fact, both beneficial if done right. One, we 
know how the Postmaster General wants to do it. The other 
should be a goal of this Congress to make sure the funding is 
available to provide appropriate secure storage for every 
American because, more and more, that is how medicines are 
delivered and that is how important purchases are delivered.
    With that, I would be happy to take your questions, and I 
yield back.
    Chairman Carper. Good. Mr. Issa, thank you for your 
thoughtful and constructive testimony, and now we are pleased 
to welcome Congressman Cummings.

 TESTIMONY OF HON. ELIJAH E. CUMMINGS,\1\ A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MARYLAND

    Mr. Cummings. Thank you very much, Chairman Carper, Ranking 
Member Coburn, and Members of the Committee. It is certainly my 
honor and my privilege to be here this morning.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Cummings appears in the Appendix 
on page 67.
---------------------------------------------------------------------------
    And I want to say to you, Mr. Chairman, you are absolutely 
right. We spent some time in the red zone, but America expects 
us to get in the end zone.
    I was listening to you, Senator Coburn, this morning on 
Morning Joe, and I said to myself, we ought to be able to get 
this done with a reasonable guy like Senator Coburn. And I 
believe that we will; I really do.
    I am also pleased to be here with my friend and my 
colleague, our Chairman, Chairman Issa.
    And the Postal Service is a vital link that binds our 
Nation together. Delivering mail to more than 150 million 
addresses and operating 32,000 post offices nationwide, the 
Postal Service connects families, friends, and businesses 
across the vast distances of our great country.
    Last year, however, the Postal Service reported losses of 
approximately $16 billion. It lost $1.3 billion in the most 
recent quarter. It has borrowed the full $15 billion it is 
authorized to borrow from the Treasury, and it continues to 
lose approximately $25 million a day.
    It also faces a burden not required of any other agency or 
business in this country. It must pay billions of dollars every 
year to pre-fund health benefits for its retirees.
    As we all know, this math simply does not add up. The 
Postal Service needs a new formula for success.
    Obviously, last week, the Postal Service announced that it 
intends to end Saturday mail delivery, except packages, 
beginning in August. In my opinion, this announcement was an 
unfortunate development, and it will not solve the Postal 
Service's long-term fiscal problems. Instead, the Congress 
needs to pass comprehensive reform legislation that addresses 
not only delivery standards but the full range of reforms 
needed to fundamentally re-engineer the Postal Service for the 
next century.
    To its credit, the Senate last year passed comprehensive 
bipartisan legislation to reform postal operations, including 
extending the schedule for retiree health payments, returning 
overpayments to the Postal Service made to the Federal pension 
system and providing key tools to right-size the Postal Service 
workforce.
    I think everybody agrees. We have to right-size this 
workforce.
    I was particularly pleased that the Senate included several 
provisions from my legislation, the Innovate to Deliver Act. 
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 have done that.
    Unfortunately, the most significant challenge facing the 
Postal Service today is not Saturday delivery, declining mail 
volume, or pre-funding health care for its retirees. It is 
Congress' failure to act.
    Although the Senate passed a comprehensive and bipartisan 
bill, the House failed to consider any postal reform 
legislation whatsoever; none. Obviously, we cannot solve this 
problem if we continue to ignore it. It will only grow more 
desperate and more dire.
    There is some reason for hope, however, and that is the 
ongoing commitment of the Members of Congress in this very 
room. The people in this very room can make this happen.
    Over the past 2 months, we have come together to discuss 
potential solutions in a serious and sustained manner, and I 
have been encouraged by the many areas of agreement we have 
reached. As a matter of fact, House Minority Leader Nancy 
Pelosi asked me today about the status of the bill, and I told 
her that I thought that we had gotten 90 percent there. We were 
not that far.
    I believe that we were on maybe the two-foot line, Mr. 
Chairman. And we just cannot afford to fumble the ball because 
when we fumble the ball what happens is that America loses.
    I believe we are close, and I believe that we are very 
close. And if we launch a renewed effort as soon as possible, 
we can develop a bipartisan, bicameral solution. If we are 
serious about this, I predict that we could complete this 
legislation before the end of March when the current 
appropriations rider expires.
    To meet that deadline, however, we need to re-engage and we 
need to do it right now. There is absolutely no time to waste.
    Finally, let me conclude with the issue that is closest to 
my heart in this debate. I believe we have a solemn obligation 
to honor the dedicated Postal Service employees who have served 
this institution for decades. As we examine how to right-size 
the Postal Service workforce, I urge my colleagues to fight, 
and fight very hard, to demonstrate compassion and respect for 
these middle-class American workers and their families.
    By the way, 21 percent of them are veterans, 40 percent are 
women, many of them single heads of household.
    And so, Mr. Chairman, I thank you for holding this 
important hearing, and I look forward to working with you and 
our colleagues in the days to come.
    And, with that, I yield back.
    Chairman Carper. Thank you. Again, more very thoughtful, I 
think, constructive comments, and thank you for those.
    I thank both of you for being here.
    I like the visual here of the two of you, sitting side by 
side, Democrat and Republican, rolling up your sleeves, ready 
to make this happen.
    A lot of us watched the Super Bowl, and you and I were 
pulling for the same team, Mr. Cummings. It was the Ravens. 
They have a quarterback--where is he from?
    Mr. Cummings. Delaware.
    Chairman Carper. Delaware.
    Mr. Cummings. That is right. I started to mention the 
Ravens, but I did not want to take it too far.
    Mr. Issa. You mean the Browns re-placarded.
    Chairman Carper. At the end of the game, the 49ers had it 
down close to the end zone. But they could not get the ball in 
the end zone.
    And we have to make sure we get the ball in the end zone.
    We have been joined here by Senator Ayotte, a new Member of 
our Committee. We are delighted that you are on the Committee, 
delighted that you are here today.
    She brought with us a veteran, not a grizzled veteran but a 
great colleague, one I love to work with--Mike Enzi.
    Senator Enzi, happy that you are here.
    And we have been joined by Senator Baldwin from Wisconsin, 
a new Member on our Committee, too.
    We will be joined by others as the morning goes.
    I have a long statement. I am going to ask unanimous 
consent that it be considered part of the record.\1\
    I just want to respond a little bit to what our two lead-
off witnesses have said and draw some pieces out of my prepared 
testimony.
---------------------------------------------------------------------------
    \1\ Senator Carper's prepared statement appears in the Appendix on 
page 61.
---------------------------------------------------------------------------
    We need the Postal Service. We have needed the Postal 
Service since this Nation was born. There are seven or eight 
million people who have a job today that exists in no small 
part because of the work the Postal Service does for all of us.
    I had my staff actually go back and count the number of 
letters we got 12 years ago when I was a Freshman here and the 
number of emails we got 12 years ago a day. And for about every 
one email received 12 years ago, we got about 15 letters. 
Today, it is just the opposite; for every 15 emails, we get 
roughly one letter. Therein lies the problem.
    The world has changed. The way we communicate has changed. 
And the Postal Service has tried to change with it and to some 
degree has succeeded, and there are a number of other things 
they have to do to change further.
    And our job is to help facilitate that, and, when they come 
up with new ideas for making money, to try not to be an 
impediment to those ideas.
    The President talked to us last night about what we need to 
do on deficit reduction and to grow the economy, and I think 
there is a lesson in what he said for us here today.
    We need to right-size this enterprise. The Postal Service 
is attempting to do that with respect to the number of mail 
processing centers, which will be down by almost half by 
probably a year or so from now.
    We did not close thousands of post offices. We did not 
close thousands of rural post offices. But we found a better 
way to get the job done and to save money by allowing 
communities to say they would like to have their post office 
open for 2, 4, or 6 hours a day and maybe take a former 
postmaster and put him or her into work on an hourly basis, 
saving a lot of money there and still providing the essential 
service.
    We have tried to make it possible to incentivize folks who 
are eligible to retire. The Postal Service is beginning to do 
that and to incentivize a lot of people to retire.
    We have seen the workforce drop, I want to say, from--I am 
looking at Postmaster General Donahoe to help me. But I think 
it was not that long ago we had about 800,000 employees or so 
in the Postal Service. I think today we are approaching 
500,000--not there yet, maybe a little bit below, and moving a 
bit lower than that.
    But, the idea here is to right-size the enterprise.
    The other thing that the President talked a fair amount 
about last night was entitlement programs--something that 
Senator Coburn and I have thought a lot about and tried to do a 
lot about.
    But, we spend more money for health care in this country 
than any other country on Earth. In Japan, they spend 8 percent 
of the gross domestic product (GDP) for health care; we spend 
16 percent.
    The closest major country to us is Norway. They spend 52 
percent less on health care than we do. They cover everybody. 
They get better results.
    And one of the things that the post office is trying to do, 
along with most other employers in this country, is to figure 
out how do we provide good health care for people, and get 
better results for less money, or better results for the same 
amount of money.
    And we are going to be anxious to hear what you have to 
say, again, on this, Mr. Postmaster General, but to figure out 
how we can work to make that happen in a way that does not 
disadvantage the employees, retirees, or their dependents. I 
think we can and we need to do that.
    The other thing the President talked last night about the 
need to grow revenues. He had some different ideas. And we may 
differ in the way we would approach that, but the Postal 
Service--it cannot just be about cutting people or cutting 
services. No, we have to grow the pie here, just like we need 
to grow the pie of revenue for our country.
    And I heard on the radio the other day an old Paul Simon 
song--``50 Ways to Leave Your Lover.'' Well, the Postal Service 
has, I think, about 50 new ways to make money. And we are going 
to hear from the Comptroller General later today on those 50 or 
so ways to make some more money for the Postal Service and to 
enable us to grow the pie. And we look forward to figuring out 
how we should do that and how can we be less of an impediment 
when you come up with a good idea.
    The last thing I want to say is this--postal employees are 
going through a time of great uncertainty. It has not been an 
easy time to be a postal employee.
    I just want to remind them and remind all of us that most 
Americans feel that the Postal Service does a great job for 
them. They have better approval ratings than even Dr. Coburn 
and me, as hard as that is to believe.
    Senator Coburn. I do not know what poll you have been 
looking at. [Laughter.]
    Chairman Carper. Well, if you are over 85 percent, I want 
to drink what you are drinking over here.
    Mr. Issa. It does seem like that is a combination of not 
that high and a whole lot lower for us.
    Chairman Carper. I do not know, but at the end of the day I 
want the Postal Service employees to know that we are grateful 
for the work they do. They perform a vital and important 
service. And we appreciate their willingness to work with our 
leadership and with all of us and with their customers to try 
to right-size this enterprise.
    This is a problem that can be fixed. This is a challenge 
that can be met. And my goal, and I know it is one shared by 
Dr. Coburn, is to do it a whole lot sooner than later.
    We are in overtime right now. We are going to get the ball 
in the end zone. But this is not going to be like Notre Dame 
the other night in basketball where they had five overtimes.
    We are not going to go to five overtimes. We are going to 
have one overtime. This is it, and we are going to get this job 
done.
    With that having been said, let me yield to Dr. Coburn.

              OPENING STATEMENT OF SENATOR COBURN

    Senator Coburn. Well, I want to thank you for your 
testimony and also your hard work on this issue.
    I was one of those that failed to vote for the Postal 
Reform Bill coming out of the Senate because I thought it 
lacked some of the essential things that are required to solve 
it, but I want both of you to know I am firmly committed to 
getting a compromise bill that will pass both chambers and 
doing it forthright. And so you have my commitment to do that, 
and I appreciate your testimony.
    Chairman Carper. I have a question if I could. Sometimes 
when Members come and testify before us, they do not anticipate 
answering questions. But I am going to ask a question of each 
of you, and if you have a thought on it, that would be fine. I 
do not want to put you on the spot.
    But, on the issue of health care and deficit reduction, if 
we do not figure out how to get better health care results for 
less money, or the same amount of money, for programs like 
Medicare and Medicaid, we will never balance the budget.
    The Postal Service have acknowledged fully that we have to 
do more than just amortize, if you will, the prepayment of 
retiree health care over 40 years. We are going to do that. We 
would in the Senate bill. My hope is that the compromise we 
work out will change the amortization schedule and do something 
like a 40-year amortization. I think that is a more appropriate 
approach.
    The Postmaster General is going to share with us some ideas 
with respect to doing what they have finally done in the auto 
industry with the United Auto Workers (UAW), and the big three.
    And the big three said, we are trying to run a health 
insurance program, and the UAW says that they would be willing 
to run it because they thought they could get, for their 
employees, for their members, better results, frankly, for less 
money.
    Would you all just react to that concept. Is that something 
you think we could actually work toward?
    Mr. Issa. Mr. Chairman, I think--and we have all had good 
guidance from the Postmaster General on what he would like to 
do. And I think it is not just ambitious; it is necessary.
    It is very clear that if the government can, in fact, 
transfer out its full faith responsibility for health care on a 
willing basis, that is in everyone's best interest.
    I think that we all have to be realistic. You cannot 
transfer something out--literally, say, look, we are going to 
turn it over as General Motors (GM), as you noted, did--and 
then still be the full faith. So that is the one challenge, but 
I support the idea that getting the government out of the 
health care business for this entity is a good idea.
    But, I would also like to note something because your 
Committee here in the Senate, slightly different than our 
arrangement, has complete control over the Federal workforce 
where we have a big chunk, but we do not have it all.
    The real question, I think, on health care is: Is the 
Federal Government employee retirement system first or second 
relative to Medicare?
    And this is an important issue that I think we in the 
Federal Government have to decide. From a standpoint of the 
accountants that we all rely on, they consider it neutral 
because it is just two different pockets.
    But from a standpoint of what would happen in the private 
sector, no company would say, well, look, we are going to pay 
all the bills, and if there is anything not paid we will turn 
it over to Medicare.
    They would say, no, Medicare has been fully paid into by 
these men and women of the post office, and we expected 
Medicare to provide what it would provide for a private sector, 
and then we will supplement it.
    This is what States choose to do if they are in our 
system--and the few that are not fully in the system. But it is 
certainly what the private sector does.
    That is one of the key questions for your Committee, even 
more than our side: Are we going to look at Medicare as the 
primary system responsible for all Federal workers, including 
the Postmaster General's proposal, and if so, that changes the 
calculation of what the ratepayer fairly should pay for what 
is, in fact, now a supplemental medical facility.
    And that is not the way we have looked at it in the past--
one of the reasons that the number we are wrestling with is so 
big, Mr. Chairman.
    Chairman Carper. Excellent point.
    Mr. Cummings. Mr. Chairman.
    Chairman Carper. Congressman Cummings, please.
    Mr. Cummings. I have heard the proposals of the Postmaster 
General, and I have said to him that I do not have a problem 
with it as long as we are able to get comparable coverage.
    It is one thing to go out and change things. It is another 
one when you have--on the one hand, with the present system you 
have 100 percent, and then you go to another system; you have 
75 percent, of the coverage.
    He claims that they can do that. If he can, that is fine.
    There are two words that I think we need to concentrate 
on--effectiveness and efficiency.
    And so, if he can effectively do it cheaper with the same 
kind of effect, then so be it. But I think the jury is still 
out. I believe that he believes that it can be done, and I am 
not going to doubt him, but I would like for him to show me.
    Last but not least, let me leave you with this: I think 
that when you all listen to the testimony today, I hope you 
will concentrate on something you said, and that is on one hand 
we want the postal system to right-size itself, to be effective 
and efficient, to now adapt to a new world, but at the same 
time the question becomes--they will mention all the things 
that they can do to bring in money, but I hope they are also 
honest enough--and I know they will be--and frank enough to say 
when maybe Congress needs to give them the opportunity to do 
that.
    In our committee, we had some folks who, when the Postal 
Service would lift up a proposal for how to bring in new 
revenue, they would say, oh, no, we cannot do that.
    Not you, Mr. Chairman. [Laughter.]
    But, no, you cannot do that.
    And I know that the Postmaster General has to get very 
frustrated. They are telling him on the one hand, find new 
revenue; be effective and efficient; and do things the right 
way.
    He goes out there and tries to do it, and they say, oh, no, 
do not touch that. Do not close a post office. Do not compete 
against this guy.
    And so, some kind of way we need to get past that.
    And I am hoping that as you listen to the testimony--
because I think that is the kind of thing--that is where we 
need to go to figure out--if we are going to innovate, at least 
they have to have the license to get there and not be hindered 
by us.
    Chairman Carper. Great. I love it when we agree. That is 
good.
    Again, normally, we do not ask questions of our first 
round, but we are going to ask, see if anyone has anything 
else--Senator Coburn?
    Senator Coburn. Go ahead.
    Mr. Issa. We are fine.
    Chairman Carper. OK, Senator Tester, welcome.

              OPENING STATEMENT OF SENATOR TESTER

    Senator Tester. Well, it is good to be here. Thank you, Mr. 
Chairman.
    I am one of those guys who says do not end Saturday 
delivery; do not shut down that mail processing center in rural 
Montana.
    And I will tell you why--because it has an impact on rural 
Montana that you may not feel in Pittsburgh or Miami or Chicago 
or Houston or L.A. or any of the big cities, when we do not get 
mail for 5 or 6 days.
    So, if we are going to have a mail service that is going to 
work for urban America, it damn well better work for rural 
America too.
    And we have had many discussions on this--the Postmaster 
General and I--and we disagree. I think if we are going to cut 
the nose off of our face to try to save the Postal Service, why 
do not we just turn the contract over to the United Parcel 
Service (UPS) or Federal Express (Fed Ex); do away with it?
    It is in the Constitution that we have to have a Postal 
Service, and I think it has been something that has worked well 
for this country for centuries, and I think we ought to 
continue to try to make it work into the future.
    It may not be the force it once was, but the fact is when 
it comes to our senior citizens, when it comes to rural 
America, this is something that is absolutely critical. We do 
not have broadband in a lot of these places where we are going 
to be cutting service.
    So, you are right. I am one of the guys who, when they say 
cut service on Saturday, says no; are there any options out 
there?
    And, by the way, we have given other options, and I have 
not seen the results come from any of those other options 
recommended. The first thing that we have done is cut service, 
and I think that is the worst thing to do.
    I am a farmer. The worst thing I can do is give my 
customers something they do not want. And that is exactly what 
is happening in rural America. I cannot speak for the inner 
city or the big city areas.
    Mr. Issa. Senator, if I could respond, first of all, it is 
something that you and Denny Rehberg agree on.
    Senator Tester. Amen, brother.
    Mr. Issa. Mr. Rehberg was a classmate of mine when I came 
to Congress 12 years ago, and he let me know that he was not 
going to support any processing center changes in Montana, 
period.
    Senator Tester. Then we did agree.
    Mr. Issa. And he would not vote for my bill under any 
circumstances before the election. And after the election, he 
still would not vote for it unless I addressed some of the 
issues you have.
    And I think that you are right. We have to make sure that 
rural America is guaranteed a quality of service, and that is 
the debate we should have.
    It should not be the number of processing centers. It 
should be how many days to get from, if you will, Billings to 
Billings.
    It is the point at which you are sending it to your 
neighbor, but it is going to a processing center. How long 
before your next door neighbor gets that mail?
    Senator Tester. And I agree with that, and I can tell you 
that the problem is that once it is done, it is done. Once that 
processing center in Wolf Point, Montana is closed and that 
letter from the bank is going to somebody who does not have a 
job in western Montana takes 5 or 6 days, it will be the last 
time the U.S. Postal Service (USPS) is used.
    So that is what I am talking about.
    Mr. Issa. And, as you know, Senator, UPS very much wants to 
maintain a level of service because that haul to rural 
Montana--in fact, UPS is delivered by the U.S. Postal Service. 
We have a partnership in the post office with the private 
sector that is a win-win, but I assure that we want to make 
sure that there are safeguards so that what is claimed to be a 
level of service is, in fact, verified to be a level of service 
before any processing center can be closed.
    And I think that is what you need to insist in the bill, 
and that is what I think that all of us need to make sure we 
promise in the bill.
    And I know that Alaska has the same concern. They, of 
course, have bypass mail--I have been up there. I have been to 
those rural areas. They need to maintain a level of service 
that is unique in Alaska. And we need to preserve both of them.
    That is one of the reasons for the right-sizing in urban 
areas, not having, if you will, processing centers that can see 
each other, post offices that can see each other, is something 
the Postmaster General wants to concentrate on. And we think 
that we can come up with a bill that maintains a level of 
service and most of the post offices, particularly rural.
    Senator Tester. I will look forward to that.
    I think you touched on the issues that Congressman Rehberg 
and I both agreed upon, and that is that standard of service 
delivery has to be kept competitive. And I can tell you that 
what I see going on in rural America with some of the proposals 
that have come out makes it not competitive.
    And, we count too. That is all.
    Mr. Cummings. Senator, let me say this--that Senator 
Collins kept these issues at the forefront of all of our 
discussions.
    As one who lives in an urban area and has grown up in one, 
I am very sensitive to this. I think that we have to legislate 
for all of America.
    Senator Tester. That is right.
    Mr. Cummings. And I get it, and I am not anxious to see our 
Postal Service--and all due respect to UPS, but I think we can 
do this. I really believe that. I do not think that we are that 
far, and being able to do it in a way that satisfies your 
constituents, but we have just got to make our minds up to do 
it.
    Senator Tester. I agree with your----
    Chairman Carper. Finish your sentence, and then we are 
going to have to----
    Senator Tester. I will just say this; the reason that I 
oppose some of the things the Postmaster General has 
recommended is this--I do not oppose him because I do not think 
the Postal Service needs to be solvent--I think it does need to 
be solvent. We need to work towards that. I think that is an 
admirable goal, and we should try to achieve it.
    My concern is that the Postal Service will not remain 
competitive in rural America and, consequently, it will be 
gone. And that is a real negative for economic development. It 
is a real negative for seniors. It is a real negative for 
everybody.
    So I think we are on the same page, but when I object to 
the fact that some of the things the Postmaster General is 
putting forth I do not agree with, I am going to continue to do 
it.
    Mr. Cummings. I understand.
    Mr. Issa. Mr. Chairman, could I just take two seconds?
    Chairman Carper. Please. I want to make sure if anyone else 
has any questions, they can----
    Mr. Issa. I would hope that we understand that the post 
office can remain competitive with a much lower level of 
service. The reason we want to maintain the service and we want 
to guarantee it in this bill is we want rural America to remain 
competitive. And if they do not get that level of service, it 
is harder to be a rural American and still compete in the 21st 
Century.
    So we totally support what you want to achieve.
    Chairman Carper. Good. Anyone else?
    Senator Ayotte, you were here first. Do you have anything 
you want to ask of these witnesses?
    Senator Ayotte. Just a brief question for both of these 
witnesses.
    Chairman Carper. I would ask you just to be brief in your 
responses, please.

              OPENING STATEMENT OF SENATOR AYOTTE

    Senator Ayotte. I am new to this Committee, but one thing 
that really struck me in looking at this Government 
Accountability Office (GAO) report--because we are going to 
receive testimony on this report today--was something that I 
think I am hearing from both of you, you would agree on.
    So I wanted to get your comment on it, which is the report 
says, if Congress does not act soon, the Postal Service could 
be forced to implement reforms to allow the post office to be 
sustainable, that if we do not act soon the Postal Service 
could be forced to take more drastic actions that could have 
disruptive, negative effects on its employees, customers, and 
the availability of reliable and affordable postal services.
    So I see this as many other areas that we have around 
here--whether it is preserving Medicaid, Social Security--that 
if we do not act soon on this the choices get harder. Is that 
true?
    Mr. Issa. Absolutely.
    Mr. Cummings. Senator, I agree wholeheartedly. We have to 
act. That is why I said it from the very beginning.
    We were so close in the last session, and I think that we 
can get there. We are not that far apart; we really are not.
    Senator Ayotte. OK. Thank you.
    Mr. Cummings. Thank you.
    Chairman Carper. Senator Enzi, did you have a question for 
these witnesses?
    OK, Senator Begich.

              OPENING STATEMENT OF SENATOR BEGICH

    Senator Begich. Thank you very much, Mr. Chairman.
    Thank you both for being here.
    And, Congressman Issa, thank you for going up to Alaska. I 
know we had a good conversation about that opportunity, and you 
got to see what we would call a hub, and then you saw real 
rural Alaska.
    Mr. Issa. Nowhere else do they use a hydrofoil to deliver 
mail.
    Senator Begich. That is right. It is an amazing place. No 
roads to access. You had to fly in. You had to figure out if it 
was going to be a boat or what to get to the next location.
    So I appreciate that.
    I also want to say, thank you for just your comment here in 
this engagement with Senator Tester in regards to bypass mail. 
Alaska is very unique, and I think you experienced a long 
flight.
    But also it is not just about mail. It is about food. It is 
about supplies. Without that access and that affordable access, 
we would have situations that people could not afford to live 
or survive, literally, out there.
    I appreciate the work you both did, especially toward the 
end. I think you could feel the moment. I think Senator Carper 
was constantly reminding us of this moment that we were so 
close, but the clock ran out, and it was what it was. And I 
hope that we can get back to that in that broad sense because 
it is so important for my State, understanding the rural 
component, understanding the uniqueness of Alaska and getting 
things to places where you cannot just get in a car and drive 
down the street to the next Wal-Mart, seeing we have no Wal-
Marts in rural Alaska to say the least.
    So, thank you for that understanding, and I want to 
continue to work with you through this Committee, through the 
Chairman, on making sure that Alaska and its uniqueness of that 
delivery--because that is it. I mean, that is how we get food.
    And timeliness with the post office is critical, as you 
probably heard some examples when you were there that when food 
is shipped in, sometimes if it is delayed--and bypass mail 
actually consolidates it, gets it out quicker. Food may come 
through another system, not consolidated, not through bypass. 
And what happens then is it is rotten, spoiled or it cannot get 
to the customer in time, and it is no longer valuable.
    And if you are paying in some cases for half a gallon of 
milk or a gallon of milk, $12, you actually want it usable for 
at least a couple days.
    So, again, thank you.
    I do not know if you have any comments, either one of you, 
on bypass mail or just the rural aspects of Alaska.
    I know, again, Congressman Issa, I cannot say enough about 
we had that one conversation, and then you took me up on the 
challenge. And I thank you for that.
    Mr. Issa. And, Senator, I just want to reiterate; fixing 
bypass mail is strictly about finding even greater efficiency.
    You are right. It is on a per pound basis, the most 
efficient way. On a per mile basis, one could imagine. To the 
extent that we touch bypass mail, our goal with the Postmaster 
General is to still make it affordable, to make it the least 
cost delivery system to those native islands, all kinds of 
rural parts that even in Montana they would call rural.
    Senator Begich. Senator Tester and I would agree on that.
    Mr. Issa. Exactly. And so, I think we can do it, and 
particularly, we are looking at simply trying to make sure that 
there is maximum efficiency, maximum choice.
    As you know, the concern that I started with was that I 
want to make sure that we not mix apples and oranges.
    There is another problem in Alaska. It is not my 
committee's responsibility. Mr. Cummings is involved in this in 
his other committee. And that is we have to ensure affordable 
air access to some places not available by roads. And I want to 
make sure that when we are done we empower the mail to be 
delivered as inexpensively as possible, but we try to make sure 
we preserve that affordable passenger service that has also 
been intertwined with the same carriers.
    And that is a sensitivity I know you have, and I want to 
make sure our committee has as we try to find a win-win 
solution.
    Senator Begich. Thank you.
    Mr. Chairman, I will just make one last comment. It is very 
unique. And I do not know what plane you had gone on, but in 
Alaska we have what we call combis, which are when row 16 is 
actually the front seats of the plane because the front of the 
plane is all cargo. And that is that unique mix that makes it 
affordable for passengers and freight. There is nothing like it 
in Alaska.
    Literally, I was in Alaska this weekend. The day before I 
was ready to go to Homer, Alaska, Wien Airlines cancelled, 
totally, service. So we had to quickly switch, and there is 
only now one airline going into this one community of several 
thousand people, which is very problematic for food and 
passengers.
    So I appreciate all your work, both of you. Thank you.
    Chairman Carper. What do you call it? Combis?
    Senator Begich. Combis. The front half is cargo, and the 
back half is passengers. And in Alaska, cargo is higher value, 
meaning it is food, supplies, and you can get easily kicked off 
a plane if it means bringing out food or bringing in food.
    And for our fish products, this is how it is shipped out. I 
will just remind folks here 60 percent of all wild caught fish 
in this country comes from Alaska.
    So those combis are high priority, but they move food. And 
so, literally, when you get row 16, you should be very excited 
about that because that means you have at least three feet of 
leg room. But there is a blank wall. That is all the cargo that 
is in front, and it is delivered into it.
    Chairman Carper. All right, thanks.
    Senator Pryor, would you like to speak? OK. As I said when 
we introduced our first two witnesses, a lot of times when 
Members of the Senate come and testify, and I am sure it is 
true in the House, it is really a perfunctory deal. And they 
come, we are courteous, they give their testimonies, and there 
are no questions, and they head out on their way.
    I wanted this to be more than perfunctory, and it certainly 
has been that.
    I said earlier I love the visual of the two of you sitting 
side by side, having a chance to work on a really important 
issue together.
    And before you leave, the last thing I will do is I want to 
just quote Albert Einstein, who said a lot of memorable things. 
One of the things that he said I think is especially memorable 
and appropriate for today--``in adversity lies opportunity.'' 
That is what he used to say.
    We have plenty of adversity here but also plenty of 
opportunity, and we are going to seize that opportunity. We are 
going to seize the day. Carpe diem.
    And with that, carpe diem. We will send you on your way. 
God bless you. Thank you.
    Mr. Issa. Thank you.
    Mr. Cummings. Thank you, Mr. Chairman.
    Chairman Carper. Our second panel is comprised entirely of 
generals--a Postmaster General and a Comptroller General. And 
neither of them are in uniform today. I guess they are in the 
uniforms that they wear to work every day.
    We are happy you have joined us.
    Our first witness is going to be Patrick Donahoe. Mr. 
Donahoe is the Postmaster General and the Chief Executive 
Officer (CEO) at the Postal Service. Mr. Donahoe has spent his 
entire career at the Postal Service, beginning as a clerk at 
the age of 12.
    All right, maybe not 12, but a young clerk in his hometown 
of Pittsburgh, spending many years in top leadership positions 
before being appointed Postmaster General in 2010.
    Good man, and we enjoy working with you. Glad you could be 
with us today.
    Our second witness on this panel is Gene Dodaro. Mr. Dodaro 
has served as the Comptroller General of the United States and 
head of the U.S. Government Accountability Office since 2010. 
He was the Acting Comptroller--that is when I first met him--
when he came on board.
    And he is one of the witnesses I most enjoy welcoming. I 
want this to really put the pressure on him because he never 
uses prepared testimony. He speaks right off the top of his 
head.
    And we have hundreds of people who come before us and 
testify, and they have it right there in front of them. They 
have people whispering in their ears. And this man just sits 
there and delivers.
    You have heard the term, stand and deliver. He sits and 
delivers. And my guess is he will probably do it again today.
    And with that having been said--with that big buildup, 
Postmaster General--good luck. We are happy you are here, and 
we look forward to your testimonies in helping us to develop 
consensus and get that ball in the end zone. Thank you so much.
    Postmaster General Donahoe.

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

    Mr. Donahoe. Good morning, Mr. Chairman, Dr. Coburn, and 
Members of the Committee. Thank you very much.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Donahoe appears in the Appendix 
on page 69.
---------------------------------------------------------------------------
    Thank you, Mr. Chairman, for calling this hearing today to 
discuss the dire financial conditions of our Nation's Postal 
Service and for the opportunity to provide details of the 
Postal Service's proposals to return to long-term financial 
stability. I am glad to be here to discuss these important 
issues which are now more urgent than ever.
    The Postal Service faces tremendous financial challenges. 
Last year, the Postal Service recorded a loss of $15.9 billion. 
It defaulted on payments to the U.S. Treasury of $11.1 billion. 
The Postal Service has exhausted its borrowing authority and 
continues to contend with a serious liquidity crisis.
    At one point last October, the Postal Service had less than 
4 days of cash on hand to fund operations. For an organization 
the size of the Postal Service, which has revenues of $65 
billion and a workforce of 495,000 career employees, this is a 
razor-thin margin. By way of comparison, most private sector 
companies usually have about 2 months of cash on hand.
    The Postal Service cannot continue on its current path. We 
are losing $25 million a day. We are weighed down financially 
by the increasing burden of health care obligations, and we are 
projecting ever increasing financial losses unless significant 
financial changes are made to our business model. We have a 
responsibility to provide and finance universal service to our 
Nation, but we do not have sufficient authority to carry out 
this responsibility.
    Fortunately, there is an alternative path. If Congress 
enacts legislation and legislative reform, the Postal Service 
can return to profitability, the Postal Service can return to 
long-term financial stability, and the Postal Service can avoid 
becoming a burden to the American taxpayer. It merely requires 
to providing the Postal Service with greater flexibility to 
adapt to a changing marketplace.
    Within our current business model, we have been very 
aggressive in our efforts to reduce costs. Since 2006, we have 
reduced the size of our workforce by 193,000 career employees. 
We have reduced our cost base by $15 billion and have 
consolidated more than 200 mail processing facilities. We are 
modifying hours at 13,000 post offices, and we have reduced 
21,000 delivery routes.
    At the same time, we are striving to retain and generate 
new revenues. We have seen strong growth in our package 
business, and this has been fueled by an effective marketing 
and innovation system as well as the continued growth of e-
commerce.
    Marketing mail continues to serve as a valuable marketing 
channel, and we expect this part of our business to remain 
strong for a long time. First-Class Mail that businesses send 
continues to prove its value and has also been relatively 
stable.
    Fortunately, people like to receive hard-copy statements 
and other business correspondence through the mail; but 
unfortunately for us, they are electing to pay bills online. 
The result is that we have seen declines in First-Class Mail 
sent by residential customers, and this is a trend that we 
think will continue to erode postal revenues.
    Despite our best efforts to increase revenue and reduce 
operating expenses, we lack the flexibility in our business 
model to close a widening budget gap. This is the core cause of 
our financial challenges. The Postal Service must generate 
roughly $20 billion in cost reduction and revenue generation by 
the year 2016 to return to financial stability. We are taking 
every reasonable and responsible step in our power to 
strengthen our finances immediately, and, indeed, we have been 
directed by our Board of Governors to do so.
    Last week, the Postal Service announced the new 6-day 
package delivery and 5-day mail schedule effective the week of 
August 5, 2013. The anticipated savings from this schedule, 
when fully implemented, is approximately $2 billion per year. 
This approach to our delivery schedule ensures continued growth 
in our package business and helps enable e-commerce throughout 
the U.S. economy. It also reflects the changing realities of 
America's mailing habits. We would urge Congress to eliminate 
any impediments to our new delivery schedule.
    Market research conducted over the last few years has shown 
consistently high levels of support from the public for a new 
delivery schedule. Just this morning, CBS News released a poll 
that showed 71 percent of the public supports the new delivery 
schedule. The Postal Service also conducted a poll this 
weekend, and it showed an 80 percent support level.
    Although discussion about our delivery schedule gets a lot 
of attention, it is just one important part of a larger 
strategy to close our budget gap. It accounts for $2 billion in 
cost reductions while we are seeking to fill a $20 billion 
budget gap.
    During the 112th Congress, the Senate passed S. 1789 which 
included many reforms sought by the Postal Service. Although 
this legislation was not enacted, we believe it could provide a 
framework for swift action in the current Congress.
    There are several key provisions needed in legislative 
reform for our business model. These include:
    Requiring the Postal Service to sponsor its own health care 
system, since a huge portion of our costs go to health care for 
employees and retirees. This would go a long way toward 
resolving our retiree health benefit pre-funding obligation.
    Reforming our business model to remove restrictive 
governance issues. This would enable us to adapt much more 
effectively to the competitive marketplace and to changes in 
our finances.
    Transitioning to a new workforce based on a redefined 
employee of the future--this would include a defined 
contribution retirement system for employees joining the Postal 
Service after 2015, versus defined benefits.
    We would also like to see a proper calculation of our 
Federal Employees Retirement System (FERS) surplus and to use 
those funds to pay down the debt of the Postal Service.
    Allow me to briefly discuss one of the most important 
opportunities we have to steady our financial ship. This 
results in the way that we provide health care to our employees 
and retirees.
    There is substantial opportunity for savings--up to $7 
billion worth in 2016 alone--for moving to a much more modern, 
responsive, customer-focused system. This would involve having 
the Postal Service manage its own health care. We would 
competitively select a large national provider.
    By moving away from the Federal system, nearly all of our 
employees and retirees would get the equivalent or better 
health care coverage and pay less for it. The reduced costs to 
the Postal Service would enable a major recalculation of the 
retiree health benefit obligation and, under some scenarios, 
might completely eliminate the need to fund the future Retiree 
Health Benefits (RHB) payments in their entirety.
    The most important part of the health care proposals gets 
to the root cause of cost control. It bends the cost curve 
permanently downward, and there is little value to simply 
remortgage an unsustainable and growing obligation. We have to 
reduce these long-term issues for the long term.
    As we look at the challenges facing the Postal Service, I 
believe we need to put every option on the table. We need to 
make decisions, and we need to act. This is fundamentally an 
issue of adding up the items to get us to a $20 billion total 
by the year 2016. Resolving our health care benefit obligations 
will not get us there on its own, neither will the delivery 
schedule changes that we proposed. We have to do every item 
that we have on our list.
    The financial problems of the Postal Service are getting 
bigger every year. If we had reformed the business model 
several years ago, we would be in much better shape today. But 
if we delay reform another year or more, we may never get back 
to the sustainable model, and we will put tremendous pressure 
on our continued liquidity.
    We need your help to pass legislation that allows for more 
revenue generation, and efficient and effective cost control, 
and makes fundamental changes to our business model. Without 
your help, the Postal Service could soon be running deficits--
operating deficits--in the range of $10 to $15 billion dollars 
annually. If Congress acts, it can avoid a future scenario in 
which the Postal Service requires a taxpayer bailout, which 
could be in excess of $45 billion by 2017.
    We must change our business model. Time is not on our side. 
It works against us every day. To preserve our mission to 
provide secure, reliable and affordable universal delivery 
service, and to do so without burdening the American taxpayer, 
the Postal Service needs urgent reform to its business model.
    Mr. Chairman, let me conclude by thanking you and the 
Members of this Committee for recognizing the difficult 
challenges that we face and for your willingness to take them 
on this year. The Postal Service is a tremendous organization 
with tremendous employees and it needs your help.
    The American people deserve a financially healthy and vital 
Postal Service. The Postal Service stands ready to work with 
this Committee to achieve that goal.
    Thank you very much.
    Chairman Carper. Thank you, Mr. Donahoe. Thanks for your 
testimony. Thanks for your leadership and for your continued 
service from an early age.
    Mr. Dodaro, you are on. It is great to see you. Welcome.

 TESTIMONY OF HON. EUGENE L. DODARO,\1\ COMPTROLLER GENERAL OF 
    THE UNITED STATES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Dodaro. Good morning, Mr. Chairman, Ranking Member 
Coburn, and Members of the Committee. It is a pleasure to be 
here to discuss the Postal Service's financial condition.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Dodaro appears in the Appendix on 
page 110.
---------------------------------------------------------------------------
    The Postal Service's financial condition has been on our 
high risk list for years.
    Chairman Carper. It has been on and off, has not it?
    Mr. Dodaro. It has gone on, off, and back on. I put it back 
on while I was Acting Comptroller, so I knew it was a serious 
issue. That was back in 2009 when we put it back on.
    It originally was on the list in 2001 and then came off in 
2007 after the 2006 reform legislation, but that, obviously, 
did not work. And that was a pre-recessionary period of time, 
before the mail volumes declined even more. So it has been on 
the list for years.
    Our assessment is the financial situation is dire, that 
declining mail volumes have not generated enough revenues in 
order for the Postal Service to meet its expenses and financial 
obligations. They have been increasing their borrowing. They 
are up to the $15 billion debt limit in borrowing from the 
Treasury Department. They are accumulating large unfunded 
benefit liabilities for their programs.
    If you add the debt and the unfunded liabilities for the 
benefit programs together, currently, it is $96 billion. As a 
percent of their revenue in the last 5 years, it has grown from 
83 percent of revenues to 147 percent of revenues.
    As the Postmaster General mentioned, there are severe 
liquidity problems right now. They also have not been able to 
come up with a financing plan to make capital investments in 
its delivery fleet, and many of the vehicles in the fleet are 
approaching the end of their life span.
    And, looking ahead, the mail volume for First-Class Mail, 
which is their most profitable line, is expected to continue to 
decline to 2020.
    So these are not the ingredients for a financially 
sustainable business model for the future.
    We have said, for years, comprehensive legislation and 
actions are needed. The Postal Service needs to act, and the 
Congress needs to act.
    Now from the Postal Service standpoint, since 80 percent of 
their costs are personnel costs, they need to continue to 
reduce the size of their workforce in an appropriate manner and 
in a compassionate manner. They need to look at the benefits 
also that are being paid to their employees to make sure that 
they are appropriately sized.
    There is also excess capacity in their mail processing 
system, and this, obviously, is a structural issue that they 
have. And, at core, there is a structural issue between their 
ability to generate revenues to meet their expenses.
    They also need, in my opinion, to look at pricing for some 
of their products where they are losing money--Periodicals, for 
example, and also flat Standard Mail like catalogues, etc. 
Those two items together are not meeting their costs to the 
tune of about a billion dollars last year.
    They also need to look at new revenue sources. Packages are 
a bright spot in that regard, and they have a number of other 
issues and initiatives under way to generate revenues. But 
really, right now, there is nothing on the horizon that is 
going to stem the tide or the need to address their expenses to 
meet expected revenues in that period with the exception of 
some of the package areas.
    Now, with regard to the Congress, there are three things I 
would point out that the Congress needs to deal with in this 
comprehensive legislative package:
    First would be to modify the schedule for the prepayment of 
health care costs. We noted that the schedule that was included 
in the 2006 legislation had large fixed payments up-front. The 
Senate bill would have moved it to an actuarial adjustment, 
which we think would be helpful in that regard.
    But it is really important that the pre-funding continue to 
the extent the Postal Service is able to financially meet those 
payments. Otherwise, you are just pushing the costs down the 
road, and with the specter of declining mail volume, you really 
are not going to be in a better position. Then to meet these 
costs than you would be doing it on a rationale basis.
    Second, we believe the collective bargaining statutes 
governing the Postal Service need to be modified and 
modernized. They were set 40 years ago when the Postal Service 
was not in such a competitive position that it is now and its 
business model being in question. And we think that the 
Congress should require that the Postal Service's financial 
condition be given mandatory consideration in binding 
arbitration issues going forward for the Postal Service.
    Last, but certainly not least, is that the Congress has to 
facilitate the ability of the Postal Service to make changes to 
dealing with market conditions, mail volume changes, and to be 
able to have the flexibility to adjust their business 
operations. Now this, obviously, is very important as it deals 
with the service standards that have been set and some of the 
constraints that they have been operating under. And I think 
that the real policy issues that need to be addressed by the 
Congress are to provide some flexibility in those standards but 
to make sure the Congress is clear on what standards it wants.
    And I think the other issue is that oftentimes these 
service standards are looked at in a sort of one-size-fits-all 
means for the entire country. I am not sure that is a necessary 
requirement going forward and that there be more flexibility to 
deal with rural issues and to deal with other unique aspects of 
the conditions.
    So this is a really important area because if you go back 
and you think about the personnel costs are 80 percent of their 
costs, a lot of personnel costs are driven by the service 
delivery standards.
    So you have a structural issue built into your expenses on 
almost a fixed basis, and you are faced with declining revenues 
coming from declining mail volumes. And so that structural 
issue needs to be dealt with in the legislation.
    I commend you, Mr. Chairman, Ranking Member Coburn, and 
Members of the Committee, for your commitment to legislation in 
this area. You need to act soon on this, as everybody has said 
this morning. I just put my two cents in, in addition to that 
because I think, otherwise, you are going to face a lot of 
unintended consequences that nobody really needs to deal with 
in this particular situation.
    So I look forward to continuing to support the Committee, 
and we at GAO will do our part to the extent we can to help as 
you deliberate and shape the legislation going forward.
    So thank you for the opportunity, again, to be here this 
morning, and I look forward to responding to questions.
    Chairman Carper. As always, we appreciate your being with 
us and testifying and appreciate so much the work that your 
team does at GAO in helping us in a lot of ways, to try to get 
better results for less money.
    Dr. Coburn and I, and some others, look forward to being 
with you, I think, tomorrow when you roll out the GAO High Risk 
List. I describe that as our To Do List to find ways to stop 
wasting money. And so we are grateful for that as well.
    I am going to go back to something I mentioned earlier. I 
think General Donahoe mentioned this, but I want to go back to 
the issue of health care costs. I think you also alluded to 
this.
    In terms of right-sizing the enterprise, looking at the 
distribution system that we have now, I think a lot of work has 
been done to rationalize it.
    And I think if you look at what we passed in the Senate, in 
our legislation--moving to a modified 1-day delivery in 
metropolitan areas; and in the rest of the country, 2 and 3-day 
delivery; the idea of giving the Postal Service the option of 
going from 6 to 5-day a week delivery within the next 2 years 
and knowing that some want to go sooner, but there is probably 
a compromise out there somewhere that I think we can seize 
onto.
    If you look at the postal distribution centers--you look 
the smarter way that we are using our post offices, especially 
in rural areas, not taking away and not closing the post 
offices but continuing to provide service in a more cost 
effective way.
    If you look at the rather remarkable reduction--in the 
workforce to the Postal Service, from roughly 800,000 employees 
not that many years ago to just under 500,000, without layoff, 
without firing people, trying to be humane--and I think being 
humane--I think that is real progress and not often 
acknowledged. But that, frankly, is the kind of right-sizing 
that we need to do.
    The 800-pound gorilla in the room in terms of deficit 
reduction for our country is health care. If we cannot figure 
out particularly Medicare and Medicaid, and do it in a way that 
does not savage old people, poor people, then we are in real 
trouble long-term. And I think it is a real critical point for 
the Postal Service going forward.
    Congressman Issa raised the issue of Medicare. Postal 
employees pay into Medicare, but unlike most other employers 
around the country and their employees, they do not get much 
benefit, as does my wife who retired from DuPont. When she 
reaches 65, in about another 20 years----
    Senator Coburn. Tomorrow is Valentine's Day, not today.
    Chairman Carper. Oh, OK. [Laughter.]
    When their employees reach 65, no longer is DuPont the 
primary provider of health care. It is Medicare, and they 
provide the wraparound, the Medigap coverage.
    And so that is one issue.
    The second issue is: Do we have the ability to create not a 
larger purchasing pool in the Federal Employees Health Benefits 
(FEHB) plan but actually a smaller purchasing pool that is 
comprised of postal employees, their dependents, postal 
retirees, and their dependents? To me, it is sort of 
counterintuitive but obviously not impossible.
    So let me just ask Mr. Dodaro, Postmaster General over here 
and his folks have this idea for pulling the Postal Service out 
of FEHB, creating a smaller purchasing pool, and they think 
they can actually get health care with the quality of the 
service just as good, for less money. Your reaction to that?
    Mr. Dodaro. First, I want to be clear that the Postal 
Service, even if you set aside the pre-funding of health care 
benefits, is still operating at a deficit situation. So this is 
a big issue and needs to be dealt with.
    Second point I would make is that the $7 billion that the 
Postmaster General mentioned that they would be able to save in 
this includes the $5.5 billion dollars in pre-funding, and then 
there is $1.5 billion in their estimates in terms of actually 
bringing down the costs of providing health care.
    We are currently looking at that issue in response to a 
request from this Committee. We are carefully looking at what 
effect it would have on the Postal Service employees, and what 
potential effect it would have on the remaining part of the 
Federal employees health care benefits system. We expect to 
have our report out to you by July this year.
    So we are taking a careful look at it. There are no easy 
answers. I think a lot of people believe they could drive down 
the costs, but we are carefully looking at how those things 
could be handled.
    Chairman Carper. Yes, we need your help and appreciate 
that.
    One other quick question and my time will expire in about a 
minute. New products. Postmaster General, just mention maybe 
the best, most promising three ideas for new products to 
generate revenues.
    Mr. Donahoe. Thank you, Mr. Chairman.
    Three areas: First of all, securing the business First-
Class Mail is critical for us. It is still our largest product 
even though First-Class has shrunk. This past year, we 
introduced the idea of two ounces for the price of one. It is 
giving mailers the ability to put extra messaging in their 
mail. We have seen a nice leveling off of that product, which 
is good cash flow from that product.
    Second of all, Every Door Direct, which is an offspring of 
direct mail, gives small businesses the opportunity to hit 
local customers in a real simple way. We have seen almost $700 
million of growth in that product in the last year and a half.
    Package perspective? We have a couple of things there. We 
call it Early Bird. You bring the packages in the morning; we 
deliver them the same day. So working with Fed Ex, UPS, and 
some other big customers has really worked well. That has 
helped with a 14 percent increase in package business over the 
last 2 years. And we have Metro Post, which is same-day 
delivery. We are starting that off in San Francisco.
    Chairman Carper. OK, thanks so much. Dr. Coburn.
    Senator Coburn. Thank you.
    General Donahoe, I notice in looking at the numbers that 
your revenues were slightly lower this time last year, but yet 
your expenses were up 15 percent. You went from $70.6 billion 
in expenses to $81 billion. What accounts for that difference?
    Mr. Donahoe. The biggest account there, was the double 
payment that we were responsible to make into the retiree 
health care pre-funding. We were excused from that payment in 
2011 but had to make two in 2012.
    Senator Coburn. And that accounted for how much?
    Mr. Donahoe. That accounted for a total of $11.1 billion. 
It is $5.6 billion in 2012, $5.5 billion in 2011.
    Senator Coburn. OK. So if you had not had that $11.1 
billion payment?
    Mr. Donahoe. Our costs would have been relatively stable.
    The approach has been, from a cost standpoint, in a number 
of different areas, consolidation of the operations which we 
have talked about here before. Taking transportation costs out. 
Trading in the lesser-cost hours by working with the unions 
through either negotiated agreements or arbitrations where we 
can bring a person in for $35,000 a year versus an $80,000-a-
year employee.
    Those are all things that we have had to do to pull costs 
down.
    Now you have to understand; during that time, like any 
other organization, we are facing upward pressure from 
inflation, health care, and gasoline. We are the largest user 
of fuel in the Nation. So that is a net reduction based on a 
lot of effort in this organization.
    Senator Coburn. Good. Pricing power and the ability to have 
the flexibility to match price with service--you do not 
essentially have that now, correct?
    Mr. Donahoe. No, correct.
    Senator Coburn. But I do not see that mentioned anywhere in 
your bullet points of things that need to change. There is a 
sweet spot for First-Class Mail. Matter of fact, Mr. Guffey 
from Shawnee, Oklahoma, mentioned the ability to have the 
pricing power. And I would love both your comment, and 
Comptroller Dodaro's, on why that is important and what that 
can do for your revenues.
    Mr. Donahoe. It is critical. Well, on our chart\1\ of 
legislative goals, I think the third point on there is 
streamline governance--and that means pricing power; that means 
product power; that means service power, for our Governors.
---------------------------------------------------------------------------
    \1\ The chart referenced by Mr. Donahoe appears in the Appendix on 
page 84.
---------------------------------------------------------------------------
    When the Postal Service was established in 1971, they were 
established with a Board of Governors just like a corporate 
board of directors that had all kinds of power.
    In between the establishment and the final solution, there 
was a Postal Regulatory Commission (PRC) put into place, with 
good intentions. I am not talking against the intention behind 
that, but it took the power away from the Board to set prices, 
set service levels, and set products.
    What we are asking for is to go back in that direction. We 
have no issue with a regulatory commission, but they should be 
strictly after-the-fact. This lets us move fast. It lets us get 
in the markets that you have already discussed here today. And 
as long as it is legal for us to do, we should be pursuing it. 
It also gives us the opportunity to change prices.
    Now I will say this from a price standpoint; let us resolve 
the cost issues before we go and start pushing prices up 
because there is a real demand quotient in there and we do not 
want to sink the system just by trying to generate some mail 
from a price increase.
    Senator Coburn. Comptroller Dodaro.
    Mr. Dodaro. Obviously, in the dynamic market that the 
Postal Service is operating in now, flexibility on pricing is 
really important. The current structure sets it up in two 
tiers. One where they have a monopoly or market dominance in 
that area--there are price caps set. Then there is competitive 
pricing for other areas where they do have the flexibility to 
try and recover all their costs.
    And I mentioned a couple of these areas in my opening 
statement in terms of periodicals and catalogues where they are 
not covering their costs now. They do have flexibility, but 
there are demand issues and the point of return where you do 
not want to drive down volume if you overprice in that area. 
But they definitely need some pricing flexibility to be able to 
move quickly in this environment.
    A lot of what is happening here has been driven by changes 
in technology, and those changes in technology are going to 
continue to occur and at a rapid pace. And so they need the 
flexibility.
    They need to have an accountability and oversight structure 
as well to be able to provide the necessary accountability and 
authority.
    Senator Coburn. Well, my time is about up.
    I just want to say this for the record. I do not think 
anybody has a tougher job than what the Postmaster General has, 
and the fact is the post office is in trouble. And I 
congratulate you.
    There are really 536 postmasters general, unfortunately, 
and the goal of our reform ought to be that there is one and 
that we give you the flexibility to do the service, to keep the 
standards there and have a system that offers the best service 
at the best price with the best quality the country can have.
    So I congratulate you--I know a lot of the things you have 
done are controversial, but leadership is about leading. And I 
want to congratulate you for having led. Thank you.
    Mr. Donahoe. Thank you.
    Chairman Carper. I approve that message.
    All right, Senator Enzi, you are next and then Senator 
Tester.

               OPENING STATEMENT OF SENATOR ENZI

    Senator Enzi. Thank you, Mr. Chairman, and I am pleased to 
be on this Committee because this first hearing particularly 
affects a lot of Wyoming people. Everybody in Wyoming, in fact.
    And we are one of the rural States too. I appreciated the 
Senator from Montana's comments earlier. The post offices are 
absolutely essential in our rural areas.
    And one of the difficulties that we have had was the list 
that was sent out saying that post offices were going to be 
closed, and I think it was a completely wrong process to go 
through. You said they were going to close, and you came in and 
explained that they were going to be closed, and then of 
course, Congress got in the way.
    But the best process for any of these people in any of 
these rural States, who have to solve problems themselves all 
the time, is to let them know how much it costs and ask them 
how they can reduce the costs. I think you will be surprised at 
the innovative ideas that the people have so that they can 
continue to get the kind of service that they have come to 
expect from the post office.
    And another thing, because of our rural areas, that we have 
had some difficulty with is the mail sorting was moved to 
bigger areas. And you talked about what sounds like a great 
idea--same day delivery. Well, we used to have same day 
delivery on the local stuff. They would drop it into a separate 
box that is local, and the people that are local sort and get 
it out to the people that live in the town that day.
    Now you drop it all in one box, and it takes a day to go to 
another town. They sort it. It takes another day to come back, 
and they get their local mail.
    The ones that I really hear from are the ones that have 
pre-sorted mail. Now, if it is pre-sorted, it is already ready 
to go out. But it is loaded on a truck. It is hauled 130 miles, 
and it has done nothing with it. And then it is loaded back on 
a truck, and it is hauled back again, and it is delivered.
    They keep asking me, how come that has to happen, and the 
people that have that pre-sorted mail wonder why it then takes 
longer to get their mail out than it used to.
    So there are a lot of ideas out there in these rural areas 
that I think can cut down a lot of the costs. The post office 
is an essential part of the community in most of those places. 
Solicit their ideas, and there will be a lot less problems.
    Like I say, I am new to this. So I have probably got some 
questions that have been answered before, but the biggest one 
that I am curious about--I know there has been this precipitous 
drop in mail volume across the country, and I know there are a 
number of reasons: The Internet, the popularity of email, and 
the lost art of letter-writing, which you might want to 
encourage through English classes.
    I still think that one of the biggest thrills that people 
get is an actual delivered, hard copy letter that they can keep 
or frame or whatever they want to do. And there are more and 
more of them being framed because they are so rare.
    But with this drop in total postal volume, has the Postal 
Service reduced the number of employees to reflect the reduced 
need?
    How do the employee numbers compare with the volume today?
    Has that number changed from 5 years ago?
    Mr. Donahoe. Thank you, Senator. Let me address a couple of 
these issues, answer your question first, and then I want to 
come back on the service issues.
    First of all, our people do a tremendous job. They are very 
productive. You will hear a couple of our union presidents come 
up to talk about some of the things that they know from an 
employee perspective, but they do a great job.
    In the year 2000, we had 804,000 employees. Today, we have 
about 495,000. So our reduction in the head count has been 
continuous. We have done that without layoffs. We are proud of 
that fact.
    But, in that same time, mail volume has not dropped off 
that quickly. Our employees are much more productive on a 
yearly basis. I think, until the recession, we missed a couple 
of quarters in there. We had probably about 10 years of 
productivity improvements in a row, and we have 3 more years, 
even in a declining volume.
    So our people do a great job. We have been very conscious 
of trying to cut costs ahead of time and trying to anticipate 
the volume loss that we have seen.
    From a service standpoint, there is a number of reasons why 
we do what we do as far as consolidating and moving mail to 
locations to sort. It is more efficient to sort mail through a 
large, automated mail sorting system that we have. I would be 
very happy to hear from our mailers locally, in cities in 
Wyoming, to see how we could speed that up, but a lot of it is 
due to the cost issues that we are faced with.
    And I think going forward--to your point, Senator Tester, 
Senator Begich--from a rural perspective there are some special 
things we need to do.
    We need to listen to our customers. We have done that in 
the cases of making some changes in post offices. We have had 
13,000 town hall meetings over the past year across the 
country, talked to customers to find out when the best time it 
is to serve them, how to serve them, and we have made changes 
accordingly and also saved some money that way.
    Senator Enzi. Well, thank you. I appreciate the 13,000 town 
meetings.
    I just want to reiterate again that if the towns could have 
been better prepared before the town meetings you might not 
have even needed the town meetings because I think they would 
have supplied some ideas for cost savings so they could still 
have this great community attribute.
    And I did not want to imply that the postal workers are not 
doing good work and efficient work. My father-in-law was a 
postal worker, and his dad was a postal worker. So we have a 
great interest in that in our family.
    Mr. Donahoe. Thank you.
    Chairman Carper. Senator Tester.
    Senator Tester. Thank you, Mr. Chairman, and I want to 
thank both of you for being here today. I appreciate your being 
here so we can get a little information.
    Postmaster General, what was your loss for 2012 in total?
    Mr. Donahoe. The loss for 2012 is $15.9 billion; $11.1 
billion was due to the default on the pre-funding for retiree 
health benefits.
    Senator Tester. OK. So, without the pre-funding of $11.1 
billion, about $4.8 billion was your loss?
    Mr. Donahoe. Yes.
    Senator Tester. Mr. Dodaro, there have been all sorts of 
numbers floating around on what Saturday delivery is going to 
save and what potentially it could cost in percentage of mail 
volume drop. Were you able to look at that at all?
    Mr. Dodaro. The last time we looked at that, the proposal 
at that time was also to eliminate packages on Saturday as 
well, and so that has changed. So our prior analysis really is 
not up to date.
    But, I would say it is one of the areas where there is the 
largest opportunity for savings that we have looked at, but it 
would be dependent upon how they would make the transition in 
terms of realigning their employees to achieve the savings that 
are anticipated, make the appropriate changes, and to see what 
the type of response would be from mailers and businesses in 
terms of the change over time.
    We have also said that this change alone is really not 
going to provide the answer, and if it is considered and 
included--it needs to be part of a comprehensive package of 
reforms.
    Senator Tester. So, before--when the packages were not 
being delivered, can you recall what the figure was?
    Mr. Donahoe. I can tell you what the figure was.
    Senator Tester. What was it?
    Mr. Donahoe. The original estimate was $3.1 billion. We 
pulled that down to $2.7 billion as we have taken more costs 
out of the system with volume loss.
    We think that it is probably around $2 billion now because 
we would have to add probably about $600 million back in for 
what we call dynamic routing of packages on the weekend.
    If you recall, the original proposal was to keep post 
offices open, mailbox delivery on Saturday.
    Senator Tester. OK.
    Mr. Donahoe. And so the transportation and the post offices 
are already open, so those costs are already considered.
    Senator Tester. OK. So have you estimated what the drop in 
mail volume would be?
    Mr. Donahoe. I will tell you we have spoken to a number of 
customers and have never been able to ascertain the number. Our 
best estimate is around $100 million in what we call 
contribution.
    If you take a look at what has happened on Saturdays, 
Senator, there have been many people moving away from Saturday 
as a requested delivery day. Most of your circulars--
supermarket circulars--they are Monday through Friday. A lot of 
the cataloguers, as Mr. Quadracci will tell you, they like 
Monday, Tuesday and Wednesday.
    And so the choice was, if we had to eliminate a day because 
we do not have 5 days worth of mail delivery, it would have to 
be Saturday.
    Senator Tester. Yes, I have you there. Actually, if you are 
going to eliminate a day, I would agree with that.
    Didn't the Postal Regulatory Commission research that said 
that with the post office closures on Saturday there would be a 
drop of over 10 percent--10.3 percent to be exact--in mail 
volume?
    Mr. Donahoe. I know that when we went to the commissioner 
for a ruling and an advisory opinion on Saturday, I think their 
number was a total of $600 million versus our estimate.
    Senator Tester. And that 600 million would reflect 10.3 
percent?
    I do not have my calculator to do the math real quick.
    Mr. Donahoe. That is about 1 percent, $65 billion.
    Senator Tester. OK. Well, I do not know if you are going to 
deal with this anymore, Mr. Dodaro, or not, but it would be 
really good to get numbers that we could really take a look at 
because the fact of the matter is, I think, everybody on this 
dais wants to try to help the Postal Service become more 
economical.
    And that is one of my arguments. That is the argument that 
I made to Congressman Issa and Congressman Cummings--that if we 
are doing things that actually reduce our mail volume and 
reduce the profitability, we are heading in the wrong 
direction.
    Mr. Donahoe. If I could add a comment, I visited your State 
last summer for a couple of reasons:
    One, to talk to our customers about what they would like to 
see in their post offices--and that helped us to come up with 
the Post Plan--which was modified hours, keeping the mailboxes 
available.
    The other thing that people said to us was--and we heard 
this too with the Commission hearings--we understand mail is 
going away. You have to be efficient.
    Our latest surveys that we just did this weekend, including 
rural areas, across the board said, the Postal Service must be 
efficient. But they also told us, deliver packages.
    You told me, farm implements. A farmer cannot wait for 
Monday delivery.
    Senator Tester. Pharmaceuticals.
    Mr. Donahoe. We heard you loud and clear, and that is why 
we have come back with this proposal. We think it is a win-win. 
We know it is tough taking away Saturday delivery, but with the 
financial situation we are faced with----
    Senator Tester. Yes, I just----
    Mr. Donahoe [continuing]. We cannot see any other answer.
    Senator Tester. What I need is numbers that work.
    Mr. Dodaro, are you going to do any more work on this, or 
is it done?
    Mr. Dodaro. We definitely can. We have a good underpinning 
and understanding there. We will look at the cost savings, and 
we will look at the tradeoff issues in terms of what the 
estimates have been made for mail volume.
    Senator Tester. Thank you very much.
    Mr. Dodaro. And we will get that to the Committee as soon 
as we can.\1\
    Senator Tester. Thank you very much.
---------------------------------------------------------------------------
    \1\ Mr. Dodaro's responses to questions for the Record from Senator 
Tester appear in the Appendix on page 287.
---------------------------------------------------------------------------
    I appreciate, Mr. Chairman, my time has run out, and I have 
more questions but will submit them.
    The issue is this--if I might just close really quickly.
    We are changing mail standards in rural America. We are 
changing them from one to three, to two to three. And, quite 
frankly, with the closure of some of the mail processing 
centers, it is going to be much longer than that.
    And you can argue with me if you want, but I will show you 
the mail once this all goes into effect.
    And I can tell you that if I have a piece of mail that has 
to go somewhere and it has to be there on a date and specific 
time, you have to be competitive or I am not going to use you.
    Mr. Donahoe. We are still the best solution. I will be more 
than happy to come out to sit down and go through it.
    I have all kinds of data that shows exactly how much time 
it is. I will be more than happy to sit down, and we will go 
through it. OK? Thank you.
    Senator Tester. Thank you very much.
    Mr. Donahoe. All right.
    Chairman Carper. All right, I think Senator Begich is next.
    Senator Begich, could you talk to us more about Alaska, 
please? Talk to us about that Alaska salmon. How good is it for 
us?
    Senator Begich. It is the best, and we do not like that 
genetically engineered Frankenfish either.
    Chairman Carper. Well, I just wanted to get that on the 
record.
    Senator Begich. I appreciate it. Someday we will get the 
Food and Drug Administration (FDA) here, and we will have 
conversation.
    But, Mr. Chairman, congratulations on being Chairman. You 
will hear about Alaska every meeting.
    First, thank you for being here. Thanks for being part of 
this today and, again, thanks for the work you have done during 
the last hearing, last session, in trying to get somewhere.
    Mr. Postmaster General, last summer, you released a plan. 
At some point, the idea was to keep all the post offices open 
but modify, reduce hours, kind of work that system versus 
shutting down.
    Can you assure me--of course, I am going to be parochial 
here--from Alaska's perspective, that means that post offices 
in Alaska will not be shut down in the rural areas especially, 
but you will end up just modifying hours based on the plan you 
had put out last year?
    Mr. Donahoe. Yes. We listened to our customers.
    Senator Begich. You said, yes. I will stop you there.
    Mr. Donahoe. Yes.
    Senator Begich. I never want to go further than an answer 
that is positive.
    Mr. Donahoe. OK.
    Senator Begich. So I appreciate that. Second, you heard my 
conversation with the two Congressmen that were here earlier in 
regards to bypass mail. I think you understand we have had 
multiple meetings on this about the importance of it.
    Mr. Donahoe. Yes.
    Senator Begich. And I really appreciate your kind of 
recognition of that.
    Mr. Donahoe. Yes.
    Senator Begich. And, as we have talked before, universal 
service includes getting mail to everywhere.
    Mr. Donahoe. Right.
    Senator Begich. And sometimes it is more expensive. 
Sometimes it is less expensive.
    And that is your philosophy? That is still the same?
    Mr. Donahoe. That is still the same. We know how important 
the U.S. mail is in the State of Alaska and many of the other 
islands that we serve all through the Atlantic and Pacific.
    Senator Begich. That is right. Very good.
    How much of your business--and I think you have told me 
this once before, or for the record. How much of your business 
is the last piece for UPS and Fed Ex--because you have 
relationships. Is it 1 percent? Five percent? Ten percent?
    Mr. Donahoe. We have nondisclosure agreements with those 
companies.
    Senator Begich. OK.
    Mr. Donahoe. But just to give you a perspective, though, 
Fed Ex is our fourth largest customer----
    Senator Begich. OK.
    Mr. Donahoe [continuing]. And UPS is now in the top 10.
    Senator Begich. OK, that gives me some understanding.
    I mean I am assuming they want to see this postal reform 
done as quick as possible. Is that a fair statement?
    Mr. Donahoe. Absolutely.
    Senator Begich. If you are unable to, or we are unable to, 
accomplish that, is there clearly--I mean, what do Fed Ex and 
UPS do?
    I mean, we are the last mile in some of these rural areas. 
Is that a fair statement?
    Mr. Donahoe. That is a fair statement, yes.
    Senator Begich. So what will happen?
    Mr. Donahoe. I do not know.
    I will tell you this; it is not just Fed Ex and UPS. There 
are many other companies, banks, and mutual funds that are 
looking for reliable, affordable, dependable mail service. That 
is the key to resolving this issue. We do not want large 
companies like Citibank or Bank of America, as well as Fed Ex 
and UPS, to seek other ways to get their product delivered.
    We do a great job. We do it affordably, dependably. We want 
to continue to do that.
    Senator Begich. Assuming they can even find a network as 
built up as yours. Is that a fair statement?
    Mr. Donahoe. There is no network as built up as ours, yes.
    Senator Begich. Right. Now that we are coming out of the 
recession and the economy is getting better--I mean, I just saw 
a report that I just read that indicated Treasury had a surplus 
for the first time in 5 years in their January month, which is 
because the economy is better; people are working again.
    Are you seeing any stabilization, or is it still a deep 
slide, of First-Class Mail or general mail overall?
    Mr. Donahoe. There are three key issues that we look at 
from a product standpoint.
    Senator Begich. OK.
    Mr. Donahoe. Packages are increasing. We are seeing a 
double-digit increase, 17 percent, just for this last month of 
December, year over year.
    Senator Begich. That is good.
    Mr. Donahoe. It is 14 percent over the past 2 years. That 
has been great.
    Senator Begich. OK.
    Mr. Donahoe. Ad mail, direct mail--the most direct way to 
get to your eyes, better than TV, radio, or anything else--that 
has been very stable. We are starting to see that moving up 
with the economy.
    Senator Begich. OK.
    Mr. Donahoe. First-Class Mail--you have two things going 
on. Commercial First-Class--bills and statements that are 
sent----
    Senator Begich. Right.
    Mr. Donahoe Is pretty stable.
    Senator Begich. OK.
    Mr. Donahoe. First-Class bill payments continue to drop at 
a rate of about----
    Senator Begich. That is just individual, the Internet, 
PayPal, all that kind of stuff?
    Mr. Donahoe. We have lost people paying bills online, which 
you cannot fight. It is free.
    Senator Begich. I understand.
    Mr. Donahoe. And what is happening--if you put it in 
perspective--is in the last 10 years, we have lost 60 percent 
of that volume and, just to put it in terms of revenue, $14 
billion in revenue for that revenue stream.
    Senator Begich. Yes.
    Mr. Donahoe. If we did not have that volume drop off, we 
would not worry about pre-funding health care; we would not 
worry about 6-day delivery.
    Senator Begich. No, I understand. I just wanted to----
    Mr. Donahoe. Right.
    Senator Begich. But a couple of those indicators are at 
least stabilizing and moving in the right direction?
    Mr. Donahoe. Yes.
    Senator Begich. That is a good thing.
    Mr. Donahoe. Yes.
    Senator Begich. OK, let me end there.
    Mr. Dodaro, let me ask you a question. Thank you for the 
report. Thanks for the work you have done.
    Let us assume for a moment the bill passes. Will you be 
part of the process of ensuring that those things we put in 
place, that we said and the Postmaster General said, will save 
X amount of money, to monitor that in such a way, or is that 
something we have to help you create that framework to make 
sure that happens? Does that question make sense?
    Mr. Dodaro. Yes, definitely. We will stay involved. As I 
mentioned in my opening statement, the Postal Service is on the 
high risk list.
    Senator Begich. Right.
    Mr. Dodaro. We will keep it on the high risk list until we 
are sure that the problems have been solved.
    Senator Begich. OK.
    Mr. Dodaro. In other words, once the legislation has 
passed, we will not take it off until implementation is 
successfully achieved by the Postal Service, and so we will 
stay monitoring that situation and providing regular reports.
    Senator Begich. And based on the metrics within the 
legislation as well as what you have established through your 
office.
    Mr. Dodaro. That is exactly right.
    We made the mistake of taking them off too early before.
    Senator Begich. Right.
    Mr. Dodaro. I am not going to make it twice.
    Senator Begich. OK, very good. Thank you very much.
    I know my time is up, and I will have some questions for 
the next panel. Thank you.
    Chairman Carper. Senator Pryor.

               OPENING STATEMENT OF SENATOR PRYOR

    Senator Pryor. Thank you, Mr. Chairman.
    And Mr. Chairman, I want to thank you for doggedly working 
on postal reform over the last few years but especially last 
year. You and Senator Lieberman, Senator Collins, and Senator 
Brown passed the Postal Reform Bill. A lot of people said you 
could not do that. So thank you for your hard work.
    And I am assuming that, Mr. Donahoe, you would agree that 
if the House had taken up the Senate bill or passed a bill 
similar to that and we had conferenced it and got it to the 
President, then you would not have recently made this 
announcement on the Saturday delivery--that the bill that the 
Senate had passed had provisions in there to make sure this 
would not happen, at least for a couple of years. Do you agree 
with that?
    Mr. Donahoe. Well, we need to move as quickly as we can to 
close the $20 billion gap, and that includes changing the 
delivery schedule. It is worth $2 billion. And I think 
sometimes people think that is not a lot of money, but to us it 
is a substantial amount.
    The volume is not there, and we need to move on. Package 
delivery is what people are looking for, and that is what we 
are proposing.
    Senator Pryor. All right, I do not want to bring up a 
touchy subject, but let me go ahead and do it: Your legal 
authority for ending Saturday delivery.
    I know that in the appropriations bills over the years we 
have put provisions in the appropriations bill that basically 
say you have to deliver on Saturdays, or 6-day delivery.
    And there is P.L. 12-175, the Continuing Appropriations 
Resolution that extends the Consolidated Appropriations Act of 
2012; that is P.L. 12-174. And there is a section there, 
Section 101, that specifically extends the funding levels of 
the fiscal year appropriations law under the authority and 
conditions provided and in the previous funding resolution, 
except as otherwise provided by the Continuing Resolution (CR). 
And the CR does not contain the language.
    So could you articulate for the Committee your legal 
authority under current law to end Saturday delivery?
    Mr. Donahoe. We have, over the course of the last couple 
years, looked at everything we do--our networks, how we 
deliver, how we provide health care, everything including the 
6- to 5-day delivery. We have challenged ourselves.
    I have talked here before as part of my testimony and 
written testimony about how we know we can save $7 billion with 
our own health care plan.
    We have challenged ourselves to figure out, from a 
standpoint of the legality, the 6 to 5-day mandates, and it is 
our interpretation, based on what my attorneys have told me, 
that we are clear to move ahead on this.
    Now we have time because I know people have said to me, 
well, there is a CR and it expires at the end of March. I would 
implore this Congress not to put any other restrictions on us 
from a 6- to 5-day perspective.
    We have lost substantial volumes. We have lost 27 percent 
of our total volume, over 30 percent of First-Class volume.
    Every customer we have talked to, business senders, 
receivers say. Do the right thing. Be responsible.
    This is a responsible act.
    People have said to us, I want my medicine in the mail.
    We are going to do that.
    I want my eBay and my Amazon packages.
    We are going to do that.
    But we cannot afford--with the substantial $14 billion loss 
that we have seen in First-Class Mail--to continue to prop up 
6-day delivery if it is not needed and there is no demand for 
it.
    Senator Pryor. Well, that was not really my question.
    The question is, what is your legal authority to do it?
    You said you are satisfied that you have legal authority. I 
am not, and I am not sure the Committee is. I am not sure the 
Congress is.
    You do not have to do it right now, but I would like for 
you to articulate in writing what your legal authority----
    Mr. Donahoe. We have provided a nine-page legal opinion to 
your staff.\1\ So my attorneys will be more than happy to come 
up and talk with you.
---------------------------------------------------------------------------
    \1\ The document referenced by Mr. Donahoe appears in the Appendix 
on page 101.
---------------------------------------------------------------------------
    But again, I would implore you, let us move away from the 
6- to 5-day delivery. It is $2 billion. It gives us the 
liquidity that we need now, and we need to move ahead and 
change these delivery schedules.
    Senator Pryor. Because in 2011 you stated that Congress 
must act to allow the Postal Service the authority to determine 
delivery.
    Mr. Donahoe. I agree with you. I agree.
    And in 2011 and 2010, I also thought that we were bound by 
a lot of the health care laws that we thought we had. As we 
have researched this, we have found a way to change the health 
care provisions in this organization to provide better health 
care to our employees and retirees and reduce this $7 billion 
cost a year that we are paying for pre-funding in health care 
for our employees.
    It is the same approach with everything we have done. We 
have challenged ourselves because we have had to.
    People have accused me of moving the goal posts. You do not 
want the Postal Service to fail in this country. It is my 
responsibility, and I have taken that responsibility to make 
sure that we do everything within our power.
    And I am imploring Congress, please do not force us back 
into a 6-day window. Let us make the move in August. It is well 
planned. Customers can take that to the bank. People will 
adjust. And we will make sure that we deliver what people want, 
and that is packages. Thank you.
    Senator Pryor. Thank you, Mr. Chairman.
    Chairman Carper. You bet.
    Let me--before we recognize Senator Levin--just say I think 
what you said, Mr. Donahoe, is you would like for the Postal 
Service to go from 6- to 5-day delivery effective--was it 
August 1?
    Mr. Donahoe. August 5.
    Chairman Carper. August 5. If we are still here in this 
Committee, in this chamber, in the Senate and the House--if we 
are still here on August 5, debating this issue and postal 
reform legislation, we have failed.
    Mr. Donahoe. Yes, I agree.
    Chairman Carper. I have no intention--I know Senator Coburn 
and I think my colleagues here agree. We have no intention of 
still being debating these issues. It is imperative that we 
act.
    Mr. Donahoe. Yes.
    Chairman Carper. I call this the first overtime. I want us 
to get this done.
    And we have plenty of other stuff like cyber security to go 
into on the high risk list, and immigration reform and a whole 
lot of other things.
    Mr. Donahoe. Yes.
    Chairman Carper. And we need to.
    All right, Senator Levin.

               OPENING STATEMENT OF SENATOR LEVIN

    Senator Levin. Thank you, Mr. Chairman.
    And thanks to you and Dr. Coburn, I think we do have a hope 
of getting a postal reform bill done again this year. We did it 
last year without getting the House to agree to it. There were 
some provisions in there that were critically important in 
terms of reforms which were not law but were important, and so 
we have to continue to try to move in that direction.
    I am not satisfied with your answer to Senator Pryor's 
questions, Postmaster General.
    First of all, the legal opinion which you sent to the 
Committee, I guess; I have not seen it.
    Mr. Chairman, do we have that legal opinion, and if so, can 
the rest of the Members get a copy of it?
    Chairman Carper. I will ask our staff, do we have that 
legal opinion?
    Staff. Yes, we do.
    Senator Levin. OK, well, perhaps you could----
    Mr. Donahoe. And, again, I would be more than happy to have 
the attorneys come up and spend time with you, too.
    Senator Levin. Yes. Well, a copy of that opinion would 
help.
    You ask us not to act, and what strikes me is what 
difference does it make whether we prohibit what you are saying 
you are going to do or not because apparently you believe you 
have the legal authority, despite what Congress has said, to 
cancel the sixth day.
    Mr. Donahoe. What I am asking is that Congress would not 
implement any language that would prohibit us from moving away.
    Senator Levin. And I am asking you, what difference does it 
make whether we put that language in or not because you 
apparently believe that despite that language you have the 
legal authority to cancel that sixth day?
    Mr. Donahoe. That is our interpretation of the way the law 
is written now--that we can move. But what I am asking is, 
please do not put language in that says, specifically, you 
cannot do it, because I would obey the law and would not do it.
    Senator Levin. Well, that is important to hear, but you did 
say Senator Pryor said that Congress must act to allow the 
Postal Service the authority to determine delivery frequency. 
You said Congress must act, and we did act. And, despite what 
is in the law, your lawyer apparently is saying that you can 
cancel that sixth day.
    Mr. Donahoe. I think it is important that we sit down and 
walk through our interpretation of the CR versus the 
appropriations. I think that would clear things up, from our 
opinion.
    Senator Levin. All right. Well, we will look forward to 
reading that opinion.
    By the way, you have been very responsive in terms of 
certain information that I have asked relative to the contracts 
with Fed Ex and with UPS, and we appreciate that. We understand 
that they are providing it to us confidentially because it has 
certain information in there which apparently is proprietary. 
Fair enough.
    And so we are not able to act on that. I cannot do anything 
with it because of the condition under which it is given to me, 
which I respect. I am not going to violate that condition, but 
on the other hand, I am handcuffed.
    And I think it is important that there be oversight of 
those contracts. Those are important contracts. They are 
important to us. They are important to those private entities.
    Fed Ex and UPS are profitable. We deliver a lot of their 
packages. There is a benefit to us. We, apparently, make money 
on those contracts as well.
    But, in terms of the relative benefit, Congress has to have 
some mechanism to oversee those contracts, and so I do not know 
whether the GAO can do it or--can you do that?
    Mr. Dodaro. Sure, we can take a look at it, but we are 
bound by the same disclosure requirement.
    Senator Levin. Well, but you can give us conclusions as to 
whether or not----
    Mr. Dodaro. I would be happy to look at it.
    Senator Levin [continuing]. These are fair.
    Mr. Dodaro. Right.
    Senator Levin. I am not saying they are not.
    Mr. Dodaro. Right.
    Senator Levin. I am not able to handle the material because 
I cannot do anything with it. Again, I respect proprietary 
limitations.
    Mr. Donahoe. We compete them. I mean, it is the American 
way. Compete the contract. Everything we do, we compete.
    Senator Levin. That is fine, but----
    Mr. Donahoe. Every contract in this Postal Service is 
competed.
    Senator Levin. That is fine, but it is also the American 
way that there be some congressional oversight of your 
contracts. I hope it is the American way.
    We do not have that oversight now. So, if the GAO can give 
us that review, I think it would be reassuring to all of us. I 
am not suggesting any other than there needs to be 
congressional oversight and there is not, unless we can have 
some entity look at it that is able to give us some conclusions 
on it.
    Mr. Dodaro. We would be happy to do that.
    Senator Levin. Mr. Chairman, that is something I would like 
to see done, but I cannot do that. It is up to the Chairman as 
to whether or not to think that is something which is 
appropriate.
    Mr. Donahoe. Our inspector general (IG) also does that. You 
are certainly welcome to that information.
    Senator Levin. So could we ask the GAO to do that?
    Chairman Carper. You and I should talk about it offline and 
we will come back to Mr. Dodaro.
    Senator Levin. That would be fine. That is the Chairman's 
and Ranking Member's decision, but I would ask them to consider 
that.
    My time is up. Thank you, Mr. Chairman.
    Chairman Carper. All right, I asked Dr. Coburn about maybe 
having another round. He says, if we do that, we will be here 
at supper time with the next panel.
    Senator Levin. What is for supper?
    Chairman Carper. Well, it is not going to be that good. 
[Laughter.]
    So we are going to forego another round.
    I do want just to follow up on questions from Senator 
Levin. The legal opinion--we appreciate, Mr. Donahoe, your 
providing that document.
    Mr. Donahoe. Sure.
    Chairman Carper [continuing]. Certainly for Dr. Coburn and 
myself and our staffs. I want to make sure that others on the 
Committee and their staffs have received the same document.
    Mr. Donahoe. Absolutely.
    Chairman Carper. And the Postmaster General has offered to 
send their legal team up to brief us and answer our questions. 
So let us take him up on that.
    And the other thing I want to say just in closing--again, 
thanks very much for coming. It has been a very helpful 
hearing.
    Sometimes people hold hearings to be able to put a 
spotlight on a problem.
    Sometimes people hold hearings to embarrass folks that 
ought to be embarrassed, maybe sometimes not.
    One of the reasons Dr. Coburn and I do hearings in many 
cases, in most cases--and certainly in this case--is to find 
out how do we get to yes, how do we resolve this issue, how do 
we solve this problem.
    This is imminently solvable. That is not to say it is easy, 
but this is one we can fix. This is one we can solve.
    And I think the dialogue that we have had in the first two 
panels here today was constructive; I think there was a good 
spirit here with the Members of the Committee and with the 
House leadership here today on the relevant committee. That is 
all very encouraging.
    We still have a panel to go. We have some good witnesses 
here to add to that.
    The last thing I want to say that one of several banks that 
my family uses--when they first started offering service in 
Delaware I would go to the automated teller machine (ATM), Tom, 
and I would put in my debit card to get some money out. And I 
would put it in, and a message would pop up in the window of 
the ATM machine. And it would say the name of the bank, and 
then it would say: Friendly, but you will get used to it.
    Anyway, friendly, but you will get used to it. I like to 
think that is our motto for Delaware.
    But I just want to say I have noticed this year in 
traveling by airplanes that most of us do not like going 
through the security checks at airports.
    I ride the train most of the time, thankfully, but I have 
noticed the folks at the Transportation Security Administration 
(TSA)--first, I thought it was my imagination, but now I am not 
so sure that it is. I am sensing that a greater friendliness 
and a helpfulness on the part of TSA----
    Senator Coburn. You need to fly more often.
    Chairman Carper. Maybe to Oklahoma. I will fly with you. 
[Laughter.]
    But, in any event, I am not sure it is my imagination or 
not, but we have certainly talked to the guy who runs TSA a lot 
about this. But I think that they are beginning to start a 
little bit of a culture change and it is starting to take 
effect. I hope so.
    I just want to say when I walk into a post office for 
service, whether it is Delaware or any other place--in 
Delaware, they generally know me, and for the most part they 
like me. Not everybody does, I am sure, but they are friendly 
and so forth.
    But too often, I see the provision of service in post 
offices that I would not describe as friendly and welcoming, 
and in some cases because the folks that are providing the 
service behind the counter have so much on them and they are 
trying to grapple with big challenges. And I can understand 
that.
    I would just ask as we move forward and come through this 
tough time and, hopefully, emerge on the other side of the 
river, that we focus more on a friendliness, a customer 
friendliness, not just deliver the stuff door to door, which is 
important, but also as we go to the post office to drop off our 
packages or buy stamps or whatever.
    I would close with that. Dr. Coburn.
    Senator Coburn. I was just going to make the point that not 
many people do more oversight than we do.
    I trust Postmaster General Donahoe to make a good contract 
with Fed Ex and UPS. It is in his best interest. It is in the 
best interest. And it is kind of like us telling the National 
Institutes of Health (NIH) which electron microscope to buy.
    There comes a point where we are questioning everything, 
and the fact is we need to question the real problems that we 
have right now in terms of service, delivery, and price. And we 
need to give the post office the flexibility to do what they 
can do to prepare to offer that service in a way that puts them 
back in fiscal health.
    And I think we have a great team there. We have great 
employees, all the way down the line. We need to give them the 
flexibility to do that.
    And like I said--I will emphasize again--our problem with 
the post office is we have 536 postmasters general, and until 
we change that and let somebody run the post office and let us 
look appropriately at their performance, rather than second-
guessing every small item, we are never going to get out of 
this.
    And I fully support you going to 5-day delivery. I think it 
is an absolute must. And even if we delay it 2 years, all we 
are going to do is waste $4 billion that we could have saved in 
a time when we are running huge deficits, and we are going to 
have to expand your borrowing capability to do that.
    So thank you both for being here.
    Mr. Donahoe. Thank you.
    Chairman Carper. And, with that, gentlemen, we will bid you 
adieu. Look forward to seeing you soon. Thanks very much for 
your input today. Good to see you. Thank you.
    And we will invite our third panel of witnesses to come 
forward at this time, please.
    While our witnesses are gathering for the third panel, let 
me just take a moment to express our appreciation for the 
members of our staff on both the Democratic and Republican 
side. I know we have our differences from time to time, but I 
especially like the idea of not just the Members working 
together but our staffs working together. I think we had a lot 
of cooperation as we put together this panel and the other 
panels and prepared for this hearing.
    So thank you all for your work on that.
    Panel No. 3, the third and final panel. And I like to say 
we are saving the best for last, but the other two were pretty 
good. They were pretty good panels too, so we will see.
    I will make very brief introductions for our third panel, 
and then we will ask them to proceed with their testimony.
    The first witness on panel three is Cliff Guffey. Good to 
see you.
    Mr. Guffey has served as President of the American Postal 
Workers Union (APWU) since 2010.
    We enjoy working with you very much--you and your team.
    Senator Coburn. He is an Oklahoman.
    Chairman Carper. Is he really?
    Senator Coburn. And I would note that he has facial hair 
too. [Laughter.]
    Mr. Guffey. I was going to say you look better than most--
--
    Chairman Carper. I asked him to introduce you--well, we are 
glad you are here, Mr. Guffey.
    Next, we have Jeanette Dwyer.
    Jeanette Dwyer is President of the National Rural Letter 
Carriers' Association, held that position--I want to say it is 
your second year, right?
    Ms. Dwyer. Yes.
    Chairman Carper. Since 2011. Good. Very nice to see you. 
Thank you.
    Nice to see you, Mr. Rapoza. Also, we have three presidents 
here.
    Mr. Rapoza is the National Association of Postmasters of 
the United States. This is, I think, your third year since 2010 
as I recall. Very nice of you to come. Thank you for joining us 
today.
    And where are you from, Mr. Quadracci?
    Mr. Quadracci. Wisconsin.
    Chairman Carper. Wisconsin. Senator Baldwin was here 
earlier. You may have seen her, and she has another hearing 
that she needs to be at. She said if she got back in time she 
wanted to be able to introduce you. I do not think she is going 
to be able to. So, from her to you, welcome. We are glad that 
you are here, and she is as well.
    You are, as I understand, you are the Chairman and 
President and CEO of Quad/Graphics, a printing company founded 
by--is it by your dad?
    Mr. Quadracci. [Nodding affirmatively.]
    Chairman Carper. By your dad in 1971, all right.
    Is your son or daughter going to take it over when----
    Mr. Quadracci. I have three daughters and they are all 
under the age of 11. We have a ways to go.
    Chairman Carper. You can never start too early.
    Finally, Richard Geddes, and Mr. Geddes is an Associate 
Professor at Cornell University and a visiting scholar at the 
American Enterprise Institute.
    One of the reasons why we had this hearing here today as 
opposed to last week is because you were not available to be 
with us last week, and Dr. Coburn said wisely that he thought 
we should wait, and I think you are worth the wait. So we are 
delighted that you are here. Welcome.
    Mr. Guffey, I think you can start it off if you want, and 
we will ask you to keep your testimony to about 5 minutes----
    Mr. Guffey. Thank you, sir.

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

    Mr. Guffey. Good morning, Chairman Carper, Dr. Coburn, and 
Members of the Committee. I am Cliff Guffey, President of the 
American Postal Workers Union, and I must say I have been very 
heartened by the spirit of cooperation between the parties here 
today. It is very stirring as an American citizen to see how 
this is playing out. 
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Guffey appears in the Appendix on 
page 127.
---------------------------------------------------------------------------
    The Postal Service has income of $65 billion a year. The 
Postal Service's Chief Financial Officer reported recently that 
the Postal Service has an annual cash flow of more than $140 
billion. That is one way to measure the importance of the 
Postal Service to our economy.
    In addition to its importance to businesses, it is 
important to ordinary citizens. Many towns and cities have 
protested against the closing of mail processing facilities and 
post offices. For small communities, the post office is still 
an important part of the town's identity and an important 
communications center.
    Many people in this country do not have access to the 
Internet. According to a recent study by the Pew Center, one in 
five American adults do not use the Internet; 40 percent of 
American adults, nearly 100 million people, do not have 
broadband access. Senior citizens, adults with less than high 
school education, and those living in low income households are 
the least likely to have Internet access.
    For the 36 years before the passage of the Postal 
Accountability and Enhancement Act (PAEA), the Postal Service 
was always changing. It had to change from a manual mail 
processing operation to a mechanized operation to an automated 
operation.
    Through all those changes, it has been the world's best 
postal system. It did this by adapting to new technologies and 
new challenges. The Postal Service has been well aware of the 
impact of the Internet, and it has been developing strategies 
to deal with it.
    From 2000 to 2006, before the passage of the PAEA, the 
Postal Service reduced its employee complement by approximately 
100,000 people. Almost 80,000 of those cuts came from 
bargaining units represented by the APWU. Since the passage of 
the PAEA, the Postal Service has reduced APWU bargaining unit 
employees by another 86,000 employees.
    But the PAEA did not cause the Postal Service to begin to 
change. The Postal Service was already in the middle of a rapid 
change. Change has been an ongoing process.
    Unfortunately, the crisis caused by the pre-funding 
requirement for retiree health benefits is forcing the Postal 
Service to go too fast and too far. It is on the brink of 
cutting services in ways that will permanently damage the 
Postal Service by making it less useful. This would be a tragic 
mistake, and it is unnecessary.
    Calls for privatization of the Postal Service would take 
policy in the wrong direction. Universal service at a uniform 
rate is being provided without any government subsidy. 
Privatization would inevitably lead to a loss of service for 
economically disadvantaged communities.
    There is enough mail volume in our system to continue to 
provide universal service. We need to consider increasing 
postage rates so that service can continue. Our postal rates 
are very low compared to other industrialized countries. This 
includes countries where postal services have been privatized. 
Our rates are lower.
    We appreciate the leadership shown by Chairman Carper and 
this Committee in addressing the problem caused by pre-funding 
retiree health benefits. The Postal Service has pre-funded $46 
billion for retiree health benefits. That is more than enough. 
The pre-funding requirement should be stopped.
    S. 1789 in the last Congress also would have made another 
important change by authorizing the Postal Service to offer 
additional products and services.
    The Postal Service could partner with other Federal 
agencies, and with State and local governments, to make 
government services more accessible.
    There are a number of other ways the Postal Service can 
provide useful services to the public while increasing its 
revenues. These include providing secure digital mailboxes. The 
Postal Service could build on its role as a provider of secure 
money orders to begin providing banking services for people in 
need of inexpensive and readily available banking services.
    These types of changes are necessary. We need to preserve 
our post offices for the benefit of the communities they serve. 
With these changes, the Postal Service can keep providing 
essential services and add new services.
    We urge Congress to stop the pre-funding requirement, to 
remove the cap on postal rates, and to authorize the Postal 
Service to provide additional services. The time for action is 
now. We will do whatever we can do to help Congress and the 
Postal Service make these changes.
    Chairman Carper. Thank you so much for being here, for your 
leadership and for those comments. Thank you.
    Ms. Dwyer, welcome.

 TESTIMONY OF JEANETTE P. DWYER,\1\ PRESIDENT, NATIONAL RURAL 
                  LETTER CARRIERS' ASSOCIATION

    Ms. Dwyer. Chairman Carper and Members of the Senate 
Homeland Security and Governmental Affairs Committee, my name 
is Jeanette Dwyer, and I am President of the National Rural 
Letter Carriers' Association (NRLCA), which represents over 
113,000 bargaining unit employees.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Dwyer appears in the Appendix on 
page 148.
---------------------------------------------------------------------------
    Our craft epitomizes the concept of a universal service by 
providing these services in rural, suburban, and urban areas 
throughout the United States, including places that the Postal 
Service's competitors do not go. And we do this in a most cost 
effective way.
    Rural letter carriers are paid under an evaluated system 
that ties their salaries to a variety of factors--most notably, 
mail volume, boxes served, and route mileage, particular to 
their individual routes. In good times, when a route grows, 
salary increases. But when volume goes down on a route, for 
instance, the carrier may receive less pay. We are the only 
postal employees who provide this type of service to the Postal 
Service.
    Rural letter carriers are also doing their part to generate 
new business and revenue for the Postal Service. Through the 
Rural Reach Program, rural letter carriers actively approach 
businesses on their routes that are using competitors. As of 
February 1, 2013, Rural Reach has generated more than $313.5 
million in new business for the USPS.
    The NRLCA and its members care deeply for the Postal 
Service and the service it provides to Americans, and we are 
greatly concerned about the apparent direction it is going. The 
Postmaster General's plan to eliminate Saturday mail delivery 
will destroy the Postal Service. The NRLCA does not support 
this plan nor do we believe that the Postal Service can 
implement this plan without congressional action.
    The Postmaster General himself recognizes that he cannot 
circumvent Congress to implement his plan. The Postal Service's 
own Web site states in its Frequently Asked Questions that in 
order to eliminate Saturday delivery ``Congress must elect not 
to renew the legislation requiring the Postal Service to 
deliver 6 days a week.''
    In the past 2 years, Postmaster General Donahoe has 
testified twice before Congress, including once before this 
very same Committee, that the Postal Service is asking Congress 
to enact legislation that would grant him the authority to 
reduce mail delivery to 5 days. He said the same thing to us in 
Savannah, Georgia, at our national convention before 3,000 
rural letter carriers and their families.
    Whether it is the current Postmaster General or his 
predecessor, Jack Potter, both have recognized that if the 
Postal Service wants to eliminate a day of delivery they must 
first seek congressional approval to remove the 6-day delivery 
requirement from the relevant legislation.
    We share the same concern echoed by Senators Pryor and 
Levin.
    So why does the Postmaster General now believe he can 
eliminate mail delivery without congressional approval?
    Beyond questioning the legality of the Postmaster General's 
unilateral actions, there is also good reason to question the 
Postal Service claim of how much money it will save by reducing 
service. In a recent letter to Postmaster General Donahoe and 
Postal Regulatory Chairman Ruth Goldway, Senator McCaskill and 
Congressman Gerry Connolly expressed their concern that ``The 
USPS did not adequately consider the impact of eliminating a 
day of mail service on rural and remote communities. We believe 
6-day deliver remains a critical strength and a competitive 
advantage for the USPS that will enable it to grow business and 
bolster revenue over the long run.''
    Indeed, the Postal Service can ill afford to eliminate 6-
day mail delivery. The NRLCA firmly believes that any savings 
occasioned by reducing delivery days will be offset by the lost 
revenue that will occur when consumers and businesses look to 
the Postal Service's competitors to have their mail, packages, 
and products delivered. Less service equals less mail equals 
the beginning of the end for the Postal Service.
    And then there are jobs. At a time when unemployment hovers 
at 7.8 percent, this is no time for massive layoffs. We believe 
that the Postmaster General severely underestimated the number 
of jobs that would be lost when he put that number at 22,500. 
The NRLCA alone would experience the loss of approximately 
20,000 jobs. That number could reach upwards of 30,000 jobs 
depending on availability of work.
    Mr. Chairman, the Postmaster General was dead wrong when he 
stood up at his press conference and said that he talked with 
letter carriers and they support the reduction to 5-day 
delivery. I can assure you that rural letter carriers do not 
support the elimination of Saturday delivery.
    The nature in which the Postal Service announced its 
decision to eliminate Saturday mail delivery is troubling.
    First, Postmaster General Donahoe gave us less than 24 
hours notice of the announcement.
    Furthermore, the NRLCA has received reports that postal 
managers throughout the country had been conducting standup 
talks to rural carriers and other employees regarding this 
plan. Managers have reduced employees to tears with warnings 
that they will lose their jobs. Think about getting this news 
and then being sent out to deliver mail to your customers who 
are surely going to question you about the Postal Service's 
plan.
    This is not the way to manage a business, maintain 
harmonious labor relations or bolster employee morale, 
especially at an organization that consistently ranks as the 
most trusted government agency because of the loyal, dedicated, 
and trustworthy employees who make up its workforce.
    I must point out the severe hardship that will be visited 
on rural America if our customers and small business lost a day 
to send and receive mail. We cannot afford to move backwards. 
We must continue to provide the service our customers expect.
    Thank you, Mr. Chairman, for allowing me to testify before 
the Committee today. I would be happy to answer any questions 
you may have.
    Chairman Carper. Thank you for accepting our invitation and 
for your being here today and those comments, and we look 
forward to asking some questions if we could. Thanks.
    Mr. Rapoza, please proceed.

     TESTIMONY OF ROBERT J. RAPOZA,\1\ PRESIDENT, NATIONAL 
        ASSOCIATION OF POSTMASTERS OF THE UNITED STATES.

    Mr. Rapoza. Chairman Carper, Ranking Member Coburn, and 
Committee Members, I am Robert Rapoza, President of the 
National Association of Postmasters of the United States 
(NAPUS) and Postmaster of Honokaa Post Office, in Hawaii.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Rapoza appears in the Appendix on 
page 155.
---------------------------------------------------------------------------
    Last year, NAPUS joined with the Chairman and Members of 
this Committee in promoting S. 1789. We recognize that the 
legislation was imperfect. However, it offered the best 
opportunity to provide the Postal Service with essential 
breathing room to restore the Postal Service to viability, and 
we look forward to join with you again this year to advance 
meaningful legislation.
    Absent constructive postal legislation, the Postal Service 
responded to those challenges that are within its control. At 
the very least, it is time for Congress to pass legislation 
that addresses those challenges that Congress may have created.
    This three-legged stool leading to disaster consists of: 
Nonstop cost-cutting by the Postal Service, unfair 
congressionally imposed financial obligations, and failure to 
reach a compromise on fundamental differences regarding postal 
legislation that exist within the Congress.
    One of the most damaging impediments to postal 
sustainability within your control is the statutory requirement 
that the Postal Service pre-fund 75 years of retiree health 
benefits. No other entity, public or private, is under such an 
obligation. And 70 percent of the Postal Service's recent 
losses are tied to this pre-funding requirement.
    Kicking this can down the road has already damaged the 
image of Congress, as well as the Postal Service's ability to 
provide the service that Americans expect and deserve. 
Postmasters and the communities we serve have made painful 
sacrifices as the Postal Service attempts to drive down the 
cost of providing an essential public service.
    With the implementation of the initiative known as 
POStPlan, full-time postmaster positions have already been 
reduced, and upon completion, more than 50 percent of the 
Nation's post offices will offer the public 6 or less hours of 
service. American access to these post offices will be based on 
work hours, with both postmaster organizations working with the 
Postal Service to save universal service by reducing post 
office hours to earned work hours and not convenience and 
accessibility. Convenience and accessibility will be in your 
hands.
    Revenue generation must be included in legislative relief. 
Congress should enable the Postal Service to expand the variety 
of products that can be mailed to include wine and spirits, and 
future legislation should authorize greater pricing flexibility 
for the Postal Service within its market-dominant classes of 
mail.
    And, finally, as the small parcel market expands, the 
Postal Service must be in a position to capture a significant 
share of it. The physical presence of post offices provides a 
major competitive advantage to the Postal Service's 
participation in the parcel market.
    It is crucial that the Postal Service be able to partner 
with other Federal agencies and municipal governments in 
delivering essential government services. For example, as we 
heard Chairman Issa this morning, we understand the Social 
Security Administration (SSA) is exploring the use of Social 
Security cash cards as an alternate to paper checks for 
beneficiaries who are unable to utilize, or those who do not 
want to direct deposit their annuity. The post office could 
easily verify identity and residence, and the local post office 
could be the location where such cards could be reloaded on a 
monthly basis.
    In addition, in the wake of natural disasters that impact 
specific communities, the post office could be the distribution 
point for the Federal Emergency Management Agency (FEMA) cash 
cards to assist in relief efforts.
    Senators, it will be a sad day for America if Congress is 
incapable of reaching a compromise on meaningful postal 
legislation.
    As we have heard this morning, some view the Postmaster 
General's recent actions as acts of desperation which are 
doomed to backfire while others view it as part of a bold 
calculated plan for the survival of the Postal Service, an 
organization of which I have been an employee for the past 46 
years. In either case, my fear is that if this Congress does 
nothing to resolve their fundamental differences on postal 
reform, the integrity of our Nation's universal postal system, 
which was constitutionally established more than 230 years ago, 
will be irrevocably compromised.
    As President of the National Association of Postmasters of 
the United States and on behalf of the Nation's postmasters, I 
urge this Congress to promptly respond to the postal crisis and 
constructively assist the Postal Service to continue to provide 
the products and services that Americans expect and deserve. 
And I pledge that during the remaining months of my term in 
office NAPUS will assist the Chairman and this Committee to 
that end.
    Thank you for inviting me to testify on behalf of our 
Nation's postmasters. The future of the Postal Service is in 
your hands, and may God bless you.
    Chairman Carper. Thank you. Pray for wisdom for us, if you 
would.
    It is also in your hands, in the hands of all of our 
leaders and those who testified earlier and those who, frankly, 
will not have a chance to testify.
    But this is a shared responsibility. We have a 
responsibility to provide leadership just as you do for your 
organizations, and Dr. Coburn and I fully intend to provide 
that leadership. And I think we heard this morning from 
Chairman Issa and from Ranking Member Cummings from the House 
that they intend to join us in providing that leadership.
    So I am encouraged. I hope you are as well.
    Mr. Quadracci, we are happy you are here. Pretend I am 
Tammy Baldwin, your Senator, welcoming you.
    Mr. Quadracci. You do not look anything like her.
    Chairman Carper. We are glad that you are here, and I am 
sure she is as well. So we are glad you are here.
    Actually, you have, I think, two Senators--Ron Johnson, who 
also serves on this Committee. So, for both of them, welcome, 
and from all of us, thanks.

 TESTIMONY OF JOEL QUADRACCI,\1\ CHAIRMAN, PRESIDENT AND CHIEF 
             EXECUTIVE OFFICER, QUAD/GRAPHICS, INC.

    Mr. Quadracci. Thank you and thank you for giving me the 
opportunity to talk about the impact of the postal issues on 
our industry, both the printing and mailing industry, as it is 
a very large and important one to the United States.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Quadracci appears in the Appendix 
on page 163.
---------------------------------------------------------------------------
    Mr. Chairman, as you said, Quad/Graphics was founded by my 
father in 1971. I was born in 1969. So you can imagine that I 
have grown up around print my entire life. As they say, ink is 
pretty much in my veins, and I know a lot about it.
    I also know that at the end of the day print is not dead. I 
know I am supposed to think it is dead because I read about it 
a lot, in print. Nothing could be further from the truth, but 
the industry has a lot of challenges with it.
    At the end of the day, print is continuing to change how it 
is being used by marketers out there, and I think that is a 
really important fact that everybody has to keep in mind--that 
how we look at print historically is not how it is going to be 
used in the future or even now.
    And when we think about comparing it to other countries in 
terms of the postage rate system we have, from a marketing 
standpoint, this country is the most competitive that I have 
seen, and we are operating all over the world. And so it is not 
really apples to apples to say how print is used here is the 
same as how it is used elsewhere.
    Some examples of how things are changing--and the post 
office was very helpful with this, with the advent of things 
like the Quick Response (QR) code. Marketers are really trying 
to figure out now how to use all different media channels 
together. The days of sort of a siloed approach where you have 
a print strategy, you have an online strategy, a TV strategy 
are over, and everyone is trying to look at it horizontally and 
say how does this work together.
    One example with the QR code; we were able to help our 
customers. One customer in particular used the QR code to do 
product demonstrations. So when you saw the product in print, 
you snapped it on your phone; you immediately saw a product 
demonstration which led to about a 20 percent increase in sales 
of that product. And so it is a perfect example of how all 
these media channels are coming together.
    And it is important, again, when we think about print, the 
immediacy of print is going to continue to be even more 
important than it was in the past because the consumer is very 
finicky. The consumer is using all channels. The only two media 
channels I think that they have ever jettisoned for another one 
are smoke signals and Morse Code. The rest have all been 
layered on, and they are very ambidextrous.
    And so one of the main points I wanted to make today is 
that print is very important. It is alive and well. But it is 
changing rapidly, and marketers are changing how they use it.
    The other important thing to note is that with the printing 
and mailing industry, the post office may be a $65 billion 
business, but the rest of the industry that is associated with 
it, that is directly impacted by it, is a $1.3 trillion 
business with 8.4 million Americans being supported by it in 
some way, shape, or fashion. In Wisconsin alone, we have over 
200,000 people who rely on the post office for what it does in 
their jobs.
    What we are seeing is a crisis of confidence. The rate at 
which we are solving this is causing problems in our business. 
It is causing problems in our customers' business because the 
uncertainty is there; they are not sure what to do. They are 
trying to figure out where they spend their money, and they 
have not figured out this horizontal marketing scheme yet.
    I was with a major retailer in Cincinnati yesterday and we 
had the same conversation. And they said about the change in 
strategy with the number of days being delivered, it is, well, 
we have to figure that out because sales on weekends are 
extremely important to us.
    So, I urge this Committee to move forward. I have heard a 
lot today that is very promising that we will get some 
solutions here because our customers are demanding and also the 
competition is real and it is out there. And when people do not 
have it figured out yet, they may move away from a medium--that 
might hurt them in the long term--to try and solve that 
problem.
    The other thing that I want to talk about is the importance 
of right-sizing the ship. We had to right-size our ship. We had 
an opportunity when the big recession hit. The industry lost 
about 25 percent of its volume. We ended up acquiring one of 
our larger competitors because they could not keep pace.
    But we had to do the tough work. We ended up closing over 
21 facilities--that is over 7 million square feet--to shore it 
up and make it sustainable. And so, without taking the girth 
out of our business, without realizing that 25 percent 
reduction in demand is permanent--it is a reset--we would not 
be able to run a business today.
    And so we believe that the core elements of this--many have 
been talked about today--are assuring that the postal system 
has the authority to make those changes, to reduce the 
infrastructure that it has, the re-amortization of payments for 
pre-funding retiree health benefits, return the USPS its 
overpayments to the FERS program and provide the USPS with the 
needed flexibility to manage health care.
    On that note, that is a passion of mine because there are 
ways to pull cost out, and much of health care has been talking 
about who pays for what as opposed to how do you pull the cost 
out. We have been practicing our own health care at Quad for 23 
years, and we do it at about a cost of 25 to 30 percent less 
than all industry. And now we are doing it for other businesses 
all over the country.
    And so who would have thought that managing your own health 
care or paying attention to health care and practicing it the 
way it should be practiced could be a competitive advantage for 
a printing company?
    But it is true. It is real. And the other people who we are 
working with, using primary care as its focus, and preventive 
health care, are seeing the same things.
    So thank you for letting me share my points of view.
    Chairman Carper. That is great. Dr. Coburn and I have a 
huge interest in all your testimony really but particularly the 
last part you talked about.
    And, as I said earlier, a big part of getting the Postal 
Service where it needs to be--long-term sustainability--is 
being able to make sure their employees and retirees are 
getting good health care but to be able to do that in a more 
cost effective way. So, thanks.
    When we ask some questions, I will drill down on that.
    All right. Dr. Geddes, again, we are happy you could be 
here this week and look forward to your testimony. Thank you. 
Welcome.

TESTIMONY OF R. RICHARD GEDDES,\1\ PH.D., ASSOCIATE PROFESSOR, 
     DEPARTMENT OF POLICY ANALYSIS AND MANAGEMENT, CORNELL 
                           UNIVERSITY

    Mr. Geddes. Thank you, Mr. Chairman. I was exceedingly 
honored to hear you say that you saved the best for last. So it 
is great to be here.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Geddes appears in the Appendix on 
page 169.
---------------------------------------------------------------------------
    Senator Coburn, thank you----
    Chairman Carper. That was before I heard Mr. Quadracci. So 
it is a high bar you have now to keep me honest.
    Mr. Geddes. I will try to project.
    Again, thank you very much for this terrific hearing on 
this tremendously important issue. I am very excited that the 
Committee is taking this up.
    In my view, the main reason why we are here today 
discussing this is because of fundamental technological 
innovation in the communications marketplace. And I view the 
story that we are talking about today as, in fact, a very old 
story of industries that either adapt to major technological 
changes or they end up being crippled as a result of it.
    Postal services, I believe, in the long term can either go 
the way of sailing ships in the age of steam or the horse and 
buggy in the age of the automobile or the old slide rules that 
some of us might remember in the age of calculators. 
Fortunately, international experience is far ahead of the 
United States regarding how to adapt to that technological 
change and is extremely helpful about what we can do.
    The technology that we are talking about in this case is 
low cost electronic communications that are fairly close 
substitutes for sending a letter message, including--as we are 
all aware--email, text messages, telephone calls, faxing, and I 
am sure other things that will come down the pike pretty soon. 
This is weakening the core reason for the Postal Service's 
current legal structure and really its reason for being, which 
is delivery of the First-Class letter.
    A recent example of technological change that many of us 
are familiar with is Netflix, which used to send many DVDs 
through First-Class Mail, and is increasingly moving to 
streaming video. I could give you a lot of other examples.
    First-Class Mail volume has declined by a full one-third 
since it peaked out in 2001. This is really a big issue for the 
U.S. Postal Service because letter mail is, by far, their most 
profitable product. They make about three times the amount of 
profit per piece on First-Class Mail than they make on a piece 
of standard or advertising material. That is really where their 
profit is.
    Now there are two broad postures or reactions that one can 
have to such a technological threat. One can either shrink from 
it and try to say we are going to downsize in reaction to this, 
or you can embrace the technology and try to innovate in 
response to it.
    I believe that the first approach, which is to some extent 
what the Postal Service is constrained to do now, is going to 
be highly unfortunate for the Postal Service.
    Fortunately, as I noted, a substantial amount of 
international experience in the postal sector now shows that if 
you take the second approach, you embrace the technology, 
recognize it is not going to go away--it is dynamic. It is 
going to change--and you innovate as a result of this, postal 
sectors in a number of countries have evolved into dynamic 
industries in which a wide variety of business units cooperate.
    First, I want to just emphasize why relying on downsizing 
alone is going to be hurtful to the Postal Service.
    First of all, there is, obviously, a natural limit to how 
much you can cut costs without sacrificing what I believe to be 
the Postal Service's core, most valuable asset, which is its 
universal delivery network that allows it to take a physical 
piece of mail to the household the last mail, as they say, and 
they do that 6 days a week. I think that borders on a miracle 
that the Postal Service is able to achieve that.
    The second thing I think a lot of people do not think about 
is that I have heard for 15 years that the reason why we need a 
letter monopoly is economies of scale. The idea is that a 
bigger entity can provide that service at a lower cost per 
unit. So you want one big entity doing it.
    Well, guess what? Economies of scale work in both 
directions. When the Postal Service is getting smaller, the 
cost per unit of a letter is going up. It is working against 
you.
    So I view the Postal Service as caught in a vice right now 
between declining revenues on one hand and rising unit cost 
because of dis-economies of scale on the other.
    So it is really quite a problematic approach to say we are 
going to shrink in response to this new technology.
    However, international experience teaches us that if we 
free up, liberalize, our postal sector in meaningful ways, we 
allow it to operate more like a regular business, which I view 
as an extension of the 1970 act that created the Postal Service 
and told the Postal Service to operate in a more businesslike 
fashion. Let us take the next step now and adopt those laws 
that would allow it to do that.
    It can become self-sustaining or even profitable, I 
believe. Sound policy could liberalize the Postal Service to 
make its own business decisions, to be more innovative and 
entrepreneurial and, I believe, to use its existing delivery 
assets to create more economic value for customers using its 
existing assets. I believe it can even thrive in the electronic 
age.
    All 27 member countries of the European Union have repealed 
their postal monopolies. New Zealand repealed its delivery 
monopoly in 1998. Sweden repealed in 2003. Germany and the 
Netherlands repealed in 2007 and 2009, respectively. Just the 
threat of competition has helped those postal services become 
more efficient and more focused enterprises. And they freed up 
their monopolies because they realized that those entities were 
not going to get the commercial freedoms they need if they 
retain monopoly over the core business sector.
    There are a whole host of other examples I could give you.
    Deutsche Post began to allow private investors to help 
assist it with its capital needs years ago. It acquired DHL in 
2001. The new entity is now called Deutsche Post DHL. It is a 
global player in the postal and delivery sector. It does 
business in 220 countries, and it is now the world's largest 
courier company.
    New Zealand Post is widely considered to be one of the best 
run companies.
    I personally believe that there is no reason why if we take 
this cue from other countries--the U.S. is behind, at the end 
of the pack at this point--that the U.S. Postal Service cannot 
become a player and a leader in the global shipping, logistics, 
and courier businesses. Liberalization would give it the 
ability to attract experienced global talent and help focus its 
incentives and help to give it access to additional sources of 
capital.
    So I will just end with an analogy. An economist has said 
that the difference between competition from within your 
industry--from another competitor--versus from a new technology 
is like the difference between knocking on someone's door and 
breaking the door down.
    And the door was broken down a long time ago by the 
Internet. And I think what came in is like a 300-pound lion, 
extremely powerful, with sharp claws and teeth, and that is the 
Internet.
    And that lion is clawing up a whole bunch of industries, 
including my own--massive, open online courses, college 
courses, for free. This is outrageous. Right? But Cornell has 
to adjust to that, and we are trying to figure out how that is 
going to affect our business at Cornell.
    And I think the Postal Service needs to be given that 
freedom that we have at Cornell to adapt to this new technology 
that is changing the landscape in many businesses. So I would 
hope that that would be the direction that we take in this 
reform center and not simply worry about this cost or that 
cost.
    Thank you very much for the time, and I look forward to 
answering your questions.
    Chairman Carper. Dr. Geddes, you were worth waiting for. 
Thank you for making us think outside the box, and I want to 
thank Dr. Coburn for inviting you.
    Mr. Geddes. Thank you, sir.
    Chairman Carper. We are joined by a new Member of our 
Committee from North Dakota, and I am going to just recognize 
her for any questions she might have or brief comments she 
would like to make.

             OPENING STATEMENT OF SENATOR HEITKAMP

    Senator Heitkamp. Just a brief comment. I was presiding 
this morning, so was not able to attend the whole hearing, and 
I apologize for that.
    I, obviously, have great concern particularly about rural 
delivery and what happens when you eliminate the monopoly, the 
economies no longer work economically in your favor for the guy 
at the end of the line that may be 20 miles down the road. And 
we know--and I am sure the people here representing the rural 
carriers know--the importance of that as a social connection 
for a lot of people as well as that connection to commerce and 
to business.
    And so I think where I appreciate your comments, Mr. 
Chairman, my concerns are going to be how do we continue to 
deliver what is mandated, in my opinion, in the Constitution to 
those people at the end of the line and how do we continue to 
have a viable post office in light of those challenges.
    And I really appreciate the opportunity just to hear this 
part and look forward to deliberation of the Committee.
    Chairman Carper. We are just happy you are here, and we 
appreciate the fact that you, probably as much as anybody in 
our new incoming class, will be presiding over the Senate so 
that Dr. Coburn and I can work on other stuff.
    But we are going to work on this together, and, as I said 
earlier, we are going to get this done. And you are going to be 
a big part of it, so thank you.
    Senator Heitkamp. Thank you.
    Chairman Carper. Dr. Coburn, please.
    Senator Coburn. Go ahead.
    Chairman Carper. I want to go back to Mr. Quadracci. He 
talked a little bit about health care, and my ears always perk 
up when employers talk about how they somehow figured out how 
to get better health care results for less money and to be able 
to move from what I call sort of a stovepipe, fee-for-service 
health care delivery system to more of a coordinated delivery 
of health care and how we are able when we are really smart to 
incentivize people to take personal responsibility for their 
health care and reward them when they do, and how to focus more 
on wellness and prevention, rather than having a sick care 
system but having a health care system.
    So, when you said that, my ears perked right up. Maybe 
there are some things that we can learn from your company and 
sort of take them to heart as we address postal reform.
    But, please, just take a minute or two and tell us what you 
are doing.
    Mr. Quadracci. Sure. Twenty-three years ago, my father 
thought that health care was going up too fast in cost. Imagine 
that when you look at what it is today. And so he brought 
health care in-house because we had a concentration of 
employees in Wisconsin where you could support a doctor.
    Chairman Carper. Again, roughly how many employees do you 
have?
    Mr. Quadracci. We have 20,000 employees.
    Chairman Carper. That is a lot. Thanks.
    Mr. Quadracci. About 7,000 in Wisconsin.
    So what we did is we went back to the future, which you 
have your neighborhood doctor, bring him in, and let us start 
seeing patients there. And it sort of evolved into a whole 
wellness program, but really it is about preventive health 
care, and it is about that primary care doctor being in the 
middle of the circle and being sort of the quarterback of what 
has to happen here.
    And it is also about owner-involved maintenance--a 
manufacturing term. It is about enlisting the patient to engage 
and be a part of it.
    And so we--as we have grown it over the years--I mean, you 
go into one of our facilities. There is one in Senator Coburn's 
backyard in Oklahoma City. It is a full clinic. We have our 
dentistry. We have our own ophthalmology.
    And the longest time you are going to wait in the waiting 
room is 5 minutes, and the shortest time you are going to see 
your primary care doctor is 20 minutes for a hangnail because 
he is going to use it as an opportunity to reconnect and find 
out what is going on with you. That dialogue and understanding 
the family lineage--all that stuff kind of wraps together to 
have the health care provider be able to understand what is 
happening.
    So, instead of spending 5 minutes because you are 
complaining about abdominal care and go order a $500 Magnetic 
Resonance Imaging (MRI), let us work together, the doctor and 
the patient, to kind of tick off: What is with your lifestyle? 
What has happened with Aunt Milly? Does she have polyps?
    That information is incredibly important. And then over the 
next maybe couple of months we will design a program that maybe 
ends up in an MRI as opposed to starting one.
    My personal doctor there told me that at his old practice 
that if he had done that he would have been fired and that he 
would be told to get the MRI, book $500, and maybe you will 
find the problem, maybe not. We will go on to the next test, 
but we have another patient to see.
    So it is incredibly powerful. We have 22 years or 23 years 
of data to prove it, and now we are doing it for big companies 
all over the country.
    Chairman Carper. We are going to want to talk to you some 
more. There might be some lessons learned here for us, not just 
with respect to postal employees but for our Federal workforce, 
as we seek to try to get better health care results for less 
money or the same amount of money.
    I am going to turn to our three presidents if I may.
    And I asked earlier for--I think it was a question asked of 
the Postmaster General. I said, give us your three best ideas 
for generating new revenues, for growing the pie of revenues.
    We know it just cannot be cut, cut, cut. You know, 
downsize, downsize, downsize. How do we use this distribution 
network, this enterprise? As we right-size it, how do we use it 
to be able to generate more revenues?
    Let me just ask each of you; from your own leadership 
positions, give us one really good idea for the Postal Service 
that you think could actually generate some significant 
revenues for the Postal Service.
    Mr. Guffey. Well, being from a rural place in Oklahoma--and 
I still have a home in Grove, Oklahoma--when I wanted to change 
and enroll in the e-benefits for veterans--I had to drive to 
Muskogee, Oklahoma. And when I was driving to Muskogee, 
Oklahoma, I passed seven post offices.
    And all I did when I got to the Veterans Administration 
(VA) in Muskogee was show my ID. And they said OK, now you can 
log on. Here is your log-on. You can go home.
    And it seems to me that there is enough government work 
throughout the rural areas that could be consolidated into post 
offices.
    Give an example now. If you have to go to the post office 
to change your address, if the post office has a secure Web 
network, which I hope they will get into for a lot of purposes, 
can you imagine instead of going to 15 different places and 
everything and say here is my address. It gets changed at the 
VA, SSA, and wherever else we need to, State agencies or 
whatever. One place--that is where you get your change of 
address cards to mail to 20 different spots, right there on the 
computer.
    As the other witness testified, embrace the changes that 
are coming and find out if we are going to have brick and 
mortar there, there is no reason for six other Federal agencies 
to have brick and mortar and people doing the same type of 
thing.
    Like I said in previous testimony, the post office is where 
the flag flies in the rural communities. I just do not want to 
see it coming down and to divest its work everywhere else. I 
would think that you could save costs and save money by putting 
a lot of those activities into a post office.
    Chairman Carper. Thank you very much for those ideas. Ms. 
Dwyer.
    Ms. Dwyer. Well, the post office has done a lot of things 
right recently--going after parcel delivery. We need to compete 
with Fed Ex and UPS with real-time scanners, real-time things 
that we can give our customers. Those kinds of things are the 
things that we are reaching out. We are willing to work with 
them and do that.
    We deliver 30 percent of Fed Ex on the ground. We are 
delivering a significant portion of UPS parcels. We need to be 
getting something for that, and we do not know what we are 
getting as far as money, but certainly we need to be 
capitalizing on UPS and Fed Ex to the last mile.
    We go where they cannot go; we go where they do not want to 
go, because it is not cost effective for them. The last mile is 
something that we need to be building on in parcel delivery and 
working to go towards that.
    Chairman Carper. Thanks very much.
    For some folks who may be watching the hearing--I think 
most people in this room know this--a nice piece of business 
for the Postal Service is because they go to every post mailbox 
6 days a week.
    Ms. Dwyer. That is correct.
    Chairman Carper. To be able to partner in some cases with 
Fed Ex and UPS, get paid for the delivery to the last mile, the 
last five, the last 10 miles is a smart piece of business. But, 
as you suggest, we want to make sure USPS are being 
appropriately compensated for it, and we will have some private 
conversations with them to make sure that is happening.
    I do not know that it is our job to mandate for it. It is 
not our job to mandate what those relationships might be, but I 
think it is a smart relation to build on. Thank you very much.
    Mr. Rapoza and then I am done.
    Mr. Rapoza. Well, we need to partner more with the local 
governments. There are other things we can do such as 
licensing, motor vehicle transactions, and as I mentioned 
earlier the Social Security card, but we should not miss out on 
the opportunity on the package business.
    But we are focusing solely on the package business in the 
delivery portion. We should also be looking to our post office 
where they can come and package it and then ship it out. We are 
just looking at the back end. So, I think we should take a 
broader look at how we can get these companies--or we can get 
into the wrapping of the packages and then put it out into our 
system.
    Chairman Carper. All right, thank you. Dr. Coburn.
    Senator Coburn. Well, thank you.
    One of the things President Dwyer said that--and I would 
actually like for you to restate it. You said eliminating of 
Saturday delivery would destroy the post office, I think. That 
may be a paraphrase of what you said.
    Ms. Dwyer. That is pretty clear, yes, sir.
    Senator Coburn. Would you explain why you think that and 
what you see as the events coming about? If, let us say, it 
happened August 5, tell me what you see happening because of 
that.
    Ms. Dwyer. Let me go back to something else I said in my 
testimony. Less service equals less mail equals the beginning 
of the end for the Postal Service.
    Service is what the U.S. Postal Service is all about. 
Eliminating that day of delivery takes away our competitive 
advantage. There are companies; there are people, who will 
pounce on that. They will be more than glad to give that one 
day of delivery.
    The problem with that, sir, is they not only take the one 
day of delivery. Everything they have been mailing through the 
U.S. Postal Service now walks out the door.
    Senator Coburn. Who are those people?
    Ms. Dwyer. There are plenty of people--entrepreneurs out 
there. I cannot tell you.
    Senator Coburn. Well, give me an example of somebody that 
you think is going to do that. Since to build the 
infrastructure to get to the last mile is so competitive, the 
two smartest package delivery people besides the post office 
have decided they cannot afford to build that infrastructure. 
Tell me who can build that infrastructure to be able to compete 
with that.
    Ms. Dwyer. I could not tell you who could do that right 
now, but I can tell you that data does not tell you what walks 
out either.
    Senator Coburn. Yes.
    Ms. Dwyer. You cannot tell me what data supports that 
either.
    Senator Coburn. Let me ask you the other question. If 
service is that important, why are we not delivering on Sunday?
    I mean, taking your theory that if we----
    Ms. Dwyer. We are not averse to doing that.
    Senator Coburn. Let me finish my question here for a 
minute.
    Ms. Dwyer. OK.
    Senator Coburn. Eliminating Saturday delivery--there is no 
question when it was studied by the GAO, when it was all 
eliminated, in terms of the savings, they see less savings if 
you do package and parcel on Saturday.
    If, in fact, your theory is right, then what we ought to be 
doing is gearing up to deliver on Sunday. And so--but I have 
heard nobody testify in 4 years on the post office that says we 
ought to go to an additional day of delivery.
    And so my real question is I do not see anybody out there 
with the capital available to build the infrastructure to go 
the last mile, and I think there are some real data to say 
there are some savings, whether it is $600 million or $2 
billion a year in terms of doing that. But there is nowhere in 
the Constitution that says you will deliver 6 days a week. 
Nowhere does it say that.
    I understand the concern, and I can certainly see it in 
terms of rural letter carriers because of your compensations. 
It will impact compensation if we eliminate Saturday delivery, 
will it not?
    Ms. Dwyer. Yes, sir, it will.
    Senator Coburn. Yes. I have one other question for Ms. 
Dwyer.
    Ms. Dwyer. Can I finish answering that one?
    Senator Coburn. Well, let me put this point in, and you can 
do whatever you want. OK? How is that?
    Ms. Dwyer. All right.
    Senator Coburn. Mr. Guffey had testified that they support 
giving the post office the ability to have rate flexibility. In 
other words, if they see a spot where they can raise rates, 
they should not have to wait and go through all this process. 
They should capture what is a value based on their service that 
will not--there is a point where increasing demand versus 
increasing price and things go down.
    Do the rural letter carriers support that philosophy, to 
give the post office the ability to do that?
    Ms. Dwyer. Yes.
    Senator Coburn. OK. Thank you. Now answer how you wanted 
to.
    Ms. Dwyer. Can I go back?
    Senator Coburn. You bet.
    Ms. Dwyer. We have a pilot program with Amazon, which would 
be 7 days a week. We are testing that right now.
    And the problem with all of this is all you hear is 
negative publicity. We do not hear any positive publicity about 
the Postal Service.
    You do not hear about that we are doing 7 days a week. All 
we are talking about is how we eliminate, how do we slash and 
cut, not how we build, not how we go to the rural communities, 
not how we support the people who are working.
    And Chairman Issa said sometimes we take it as a bad thing 
that we have job loss. Yes, sir, we do. We have 38 percent of 
our craft who are part-time employees, who work on Saturday and 
replace a carrier during the week. Their jobs will go away, 
many of them.
    Those are middle-class jobs. Those are minorities. Those 
are women. Those are veterans, of which the Postal Service has 
approximately 25 percent.
    So, yes, sir, we do care about jobs.
    Senator Coburn. OK. Thank you.
    Chairman Carper. Senator Heitkamp, I am going to give you 
another shot. Anything else you want to say before I give the 
benediction? But anything you want to add or take away?
    Senator Heitkamp. I do want to add to what you have been 
talking about in terms of the synergies between print and other 
forms of media, and how eventually people are going to catch on 
how important print is to reinforcing an advertising message, 
reinforcing, in our case, political messages. And we saw a lot 
of print, obviously, in my State.
    So my question to you is, a time frame and a direction 
because it seems to me that one of the things that the post 
office has is the ability to meet the 6-day requirement. It is 
the ability to reach every person. Television does not do that 
anymore because you get direct television. You get cable. You 
get regular service
    So one thing that the post office is, is universal, and 
that is their marketing niche. If they lose the marketing 
niche, they lose their value to you.
    But we need to know how we can, and when we can, see that 
kind of click in new marketing strategies that will again bring 
back some additional business to the post office.
    Mr. Quadracci. Well, you are seeing it already. You may not 
know it, but you know, at the end of the day, when you think 
about what is good about print in marketing, it is a passive 
medium. It is the old adage--put the right product in front of 
the right person at the right time, and you may get them to do 
something.
    The problem with online is it is more about search. It is 
more about active participation.
    And so, from a marketing standpoint, print is really 
powerful in getting people's attention.
    So what marketers are doing today and have been for a 
while--we do a lot of personalization within the print. So you 
have the efficiency of the big presses, but maybe you are doing 
a million versions of that catalogue to a million people, maybe 
just one little change here, one little change there.
    And that creates response rate increase. It is proven. We 
have been doing it for years.
    Now what is happening when you think about mobile 
technology--the example I showed you before where it is 
immediate. You no longer have the break in the chain where you 
get that impulsive: Oh, I like that product. Now I have to 
remember when I go online on my computer to go look at it.
    Now it is immediate, and you can make things happen.
    So it is already happening. You are going to see some 
things that are subtle, some that are not so subtle, and 
really, response is going to dictate it.
    I wish I had a crystal ball and what the time frame is and 
what is the big pop, but it is really the consumer that is 
going to dictate that.
    Senator Heitkamp. If I can just follow up one more point.
    Chairman Carper. Well, I do not know. You are pretty 
junior. [Laughter.]
    No, go ahead.
    Senator Heitkamp. How will the lack or loss of universal 
delivery affect that outcome?
    Mr. Quadracci. I think that I said it before, that what the 
new channels have brought is a much more degree of need for 
immediacy in your marketing channels.
    And my concern is we have different categories of customers 
who will be affected different ways on the 6-day to 5-day 
schedule. Some agree; some do not. So I am not going to pass 
judgment on that.
    But what I worry about is how print will be used and the 
fact that now with some of this technology we can pull print 
closer and make sure that it is a true multichannel approach, 
that pulling immediacy away can start to degrade that. And so 
that is why I say I would put some caution out there, not about 
what we do now but about how this is evolving in the future 
because the immediacy thing is really important to marketers.
    Senator Heitkamp. Thank you.
    Chairman Carper. Dr. Coburn.
    Senator Coburn. I just had one other question for all three 
of our presidents.
    You heard Mr. Geddes's testimony about what is happening in 
the rest of the world in terms of postal organizations. What is 
your response to that?
    What do you think about it?
    Mr. Guffey. A couple of things. The idea, such as you 
evoke, that allowing the Postal Service more freedom to do 
certain things, I think is a good idea.
    I think when you compare and start comparing our national 
delivery system from Alaska to Florida, from Maine down to the 
Hawaiian islands, for the universal cost, and you start talking 
about New Zealand----
    Senator Coburn. Yes, it does not compute.
    Mr. Guffey. That is right.
    Senator Coburn. Well, how about DHL and Germany?
    Mr. Guffey. Well, the same thing with Germany--if you look 
at the size of Germany and their rail system, their postal 
service used to run their rail system.
    In other words, they have a high speed rail system going 
throughout their whole country. Time-wise, it is going to be on 
time. They can put the mail out on the trains. It is going to 
be to the other city. We do not have that in this country.
    Senator Coburn. Yes.
    Mr. Guffey. Germany has universal health care, socialist 
health care for everybody in the country. We do not have that. 
We are paying for the health care, which is something else I 
would like to mention just real quick.
    Under the Postal Service's plan, they want to take us out 
of the health care of the Office of Personnel Management. The 
Office of the Inspector General (OIG), of the Postal Service, 
has looked at that and said of the $63 billion that it would 
save over X amount of time, $42 billion of that would go 
directly into Medicare, shifting costs from the post office 
into Medicare, taking it off budget and putting it on budget 
for you guys, and you have to match that $42 billion from 
something. And another $13 billion would be transferred to the 
workers.
    I think there are means for us to sit down with the post 
office and negotiate some kind of single-payer plan within the 
Postal Service without going outside OPM to save the post 
office a lot of money and without transferring money costs to 
the Federal Government.
    Senator Coburn. OK, Ms. Dwyer.
    Ms. Dwyer. Our country, the United States of America, has 
the most affordable Postal Service in the world. When you 
compare us with other countries, they certainly are more 
expensive and they do not deliver to a universal network. We 
have South Dakota, North Dakota, and Montana. Those States and 
rural communities throughout this Nation depend on the U.S. 
Postal Service for an affordable postal service.
    And I think that we do not need to get away from if its 
affordable for every United States citizen.
    And I think America has a history of caring about their 
communities, and I think that is what you have to look at.
    Senator Coburn. OK, Mr. Rapoza.
    Ms. Dwyer. Wait a minute. Can I say something about the 
health care?
    On the health care issue, I agree with what he said. We 
have looked at that independent plan. But on our plan--the 
rural letter carrier plan--we have 96 percent of our membership 
already in the Medicare A and B. We have done those things.
    And where does the Postal Service, in their financial 
predicament today, intend to get the money to pay the claims 
from those employees who would file claims in that health care 
plan?
    Senator Coburn. Mr. Rapoza.
    Mr. Rapoza. I agree with what I have heard here, but we do 
have the best postal service in the world. We are going through 
some turbulent times now, because we are so used to volume 
increases. And now we have a decrease, and we are going to 
adjust. And when we are done with all of this, the other 
countries will be looking at us, how we can continue to 
maintain universal service and with low cost.
    I would stay with what we have.
    Senator Coburn. So what I take from this is you all have 
kind of missed one of Dr. Geddes's main points--is that you can 
downsize until you are not there anymore.
    I would love to hear Dr. Geddes's response to what he has 
heard to what he said?
    Mr. Geddes. Thank you, sir. I, naturally, respectfully, 
disagree with my fellow panelists.
    Some of these countries that have liberalized, for example, 
New Zealand Post--New Zealand is an extremely sparsely 
populated country. The population is concentrated in 
Christchurch and a few other cities, are equally concerned 
about the citizens that live in the more rural areas as we are 
in the United States, and they have been extremely successful 
under a liberalized post.
    Look at Australia--it has the population of the New York 
metro area, but is the size of the lower 48 States. It is an 
extremely rural country with the exception of those 
concentrated cities. They have been liberalized and been 
successful in maintaining universal service.
    One thing I would like to stress, Senator--and maybe it is 
in regard to Senator Heitkamp's remarks--is that the link 
between the notion that we have to retain monopoly and a state-
owned enterprise structure to ensure universal service is 
simply false. It is just not true that you have to do that.
    You can ensure universal service in several much more 
efficient ways than through a government-owned monopoly, and I 
have written about that in some other venues--about bidding for 
routes where you just bid on the basis of the lowest subsidy 
you will accept to serve the route. But what that does is 
inject one of the most powerful forces in economics for social 
good into the equation, and that is competition. You can 
include the Postal Service in that bidding. You can include 
UPS, Fed Ex, and others. If you liberalize the sector, you 
could have many bidders.
    And it is simply a non sequitur to say that we must retain 
two monopolies--we have not discussed the mailbox monopoly in 
this hearing yet, but there are two monopolies in the United 
States--plus a government ownership structure to ensure 
universal service.
    In fact, I think our universal service would improve, and 
we could more precisely define and consider those standards 
with legally enforced contractual arrangements if we injected 
competition into the equation.
    So I think, of course, as I noted, all 27 countries that 
are members of the European Union, including Hungary, have 
repealed their postal monopolies. They are just as concerned 
about universal service as we are, but they have gone through 
this whole process 10 years ago, and they made that decision.
    Senator Coburn. All right. Well, I would like to thank all 
of our panelists. Appreciate your being here.
    You have heard both the Chairman and myself say that we are 
committed to trying to fix this problem, and we will. Thank 
you.
    Chairman Carper. And I said I would give the benediction, 
and so that is what I intend to do.
    I think Chaplain Barry Black here in the U.S. Senate is a 
retired Navy admiral, actually, he was the Chief of Chaplains 
for the Navy Marine Corps, and he reminds us all that the Cliff 
Notes of the New Testament is the Golden Rule.
    And it is not just the Cliff Notes of the New Testament; it 
is the Cliff Notes of just about every major religion. I do not 
care if you are Catholic, Protestant, Jewish, Muslim, Hindu, 
Buddhist. Almost every one of them, somewhere in their sacred 
scriptures, you will find really just the Golden Rule.
    And I think that is something I try to use to apply to just 
about everything I do. I think the same is true of all of my 
colleagues.
    And I will just say as we go forward here it is a good one 
for us to keep in mind--to make sure that we are treating our 
customers, the post office customers, our constituents, the way 
we would want to be treated, to make sure that we are treating 
the employees of the Postal Service the way that we would want 
to be treated, and try to make sure that we are treating the 
taxpayers of our country the way they want to be treated.
    In a day and age when we are running these huge budget 
deficits and the Postal Service has used up its line of credit 
with the Federal Government, how do we try to make sure that we 
are treating our taxpayers the way we would want to be treated?
    When we talk about the role of government, I say, I am an 
old governor. I am a recovering governor. Heidi is a recovering 
attorney general and going to be a great Senator. Dr. Coburn is 
a physician.
    But one of the things I say is Senators do not create jobs. 
Governors do not create jobs. Presidents do not create jobs. 
What we do is help create the nurturing environment for jobs.
    And part of that nurturing environment is a vibrant Postal 
Service and the ability to deliver to our doors, whether it is 
5 or 6 days a week, even 7 days a week, some of the goods and 
services that are needed and demanded.
    But a big part of what we need to do in part of that 
nurturing environment, that we need to provide, is certainty 
and predictability. And the Postal Service needs to be able to 
offer that to their customers, and I think to their employees 
as well.
    And one of the best ways to grow a stronger economy is to 
provide certainty and predictability, and part of it is going 
to come from the Postal Service.
    And I leave this hearing today not discouraged, not ready 
to throw up my hands by any means. I leave encouraged. And 
there is a good spirit in this room, and there is a good spirit 
of cooperation within this Committee.
    And I think we have a lot of willing partners that are 
going to help us solve this problem, not forever, because our 
society changes and the world changes in which we live and 
operate. We are not going to solve this one forever, but we are 
going to solve it for now and, hopefully, put in place the 
mechanisms so that as the world changes and markets change and 
needs change, that we will be able to evolve and meet those 
needs.
    So, for all the folks that have spoken before us here 
today--first panel, second and third panel--we appreciate very 
much your input.
    And again, as I said earlier, we are in overtime here. We 
got to the red zone last year, in football parlance. We did not 
get the ball in the end zone. We are in overtime.
    And I am not interested in two or three or four overtimes. 
I want to get this done in the first overtime, provide that 
certainty, that predictability. And then we can move on to 
cyber security and immigration reform and a whole bunch of 
other challenges that we face.
    It has been a good day. I said we would be done at 1 p.m., 
and by golly, it is 1 p.m.
    So, with that, this hearing is adjourned. Thank you all.
    [Whereupon, at 1:02 p.m., the Committee was adjourned.]



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