[Senate Hearing 114-579]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 114-579




                               BEFORE THE

                              COMMITTEE ON
                          UNITED STATES SENATE


                             SECOND SESSION


                            JANUARY 21, 2016


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                    RON JOHNSON, Wisconsin Chairman
JOHN McCAIN, Arizona                 THOMAS R. CARPER, Delaware
ROB PORTMAN, Ohio                    CLAIRE McCASKILL, Missouri
RAND PAUL, Kentucky                  JON TESTER, Montana
JAMES LANKFORD, Oklahoma             TAMMY BALDWIN, Wisconsin
MICHAEL B. ENZI, Wyoming             HEIDI HEITKAMP, North Dakota
KELLY AYOTTE, New Hampshire          CORY A. BOOKER, New Jersey
JONI ERNST, Iowa                     GARY C. PETERS, Michigan
BEN SASSE, Nebraska

                    Keith B. Ashdown, Staff Director
       Patrick J. Bailey, Chief Counsel for Governmental Affairs
            Jennifer L. Scheaffer, Professional Staff Member
              Gabrielle A. Batkin, Minority Staff Director
           John P. Kilvington, Minority Deputy Staff Director
       John A. Kane, Minority Senior Governmental Affairs Advisor
 S. Alexander Fiske, Minority U.S. Postal Service Office of Inspector 
                            General Detailee
                     Laura W. Kilbride, Chief Clerk
                   Benjamin C. Grazda, Hearing Clerk
                            C O N T E N T S

Opening statements:
    Senator Johnson..............................................     1
    Senator Carper...............................................     1
    Senator Tester...............................................    18
    Senator Booker...............................................    20
    Senator Peters...............................................    22
    Senator Heitkamp.............................................    27
    Senator Baldwin..............................................    29
    Senator McCaskill............................................    34
Prepared statements:
    Senator Johnson..............................................    57
    Senator Carper...............................................    58

                       Thursday, January 21, 2016

Megan J. Brennan, Postmaster General and Chief Executive Officer, 
  U.S. Postal Service............................................     5
Robert G. Taub, Acting Chairman, Postal Regulatory Commission....     7
Lori Rectanus, Director, Physical Infrastructure, U.S. Government 
  Accountability Office..........................................     8
David C. Williams, Inspector General, U.S. Postal Service........    10
James E. Millstein, Former Chief Restructuring Officer at the 
  U.S. Department of the Treasury, and Founder and Chief 
  Executive Officer, Millstein & Co..............................    12
Fredric V. Rolando, President, National Association of Letter 
  Carriers.......................................................    43
John ``Chip'' Hutcheson III, President, National Newspaper 
  Association....................................................    46
Kathy Collins, General Manager, Rothschild Mill, Domtar Paper 
  Company........................................................    48

                     Alphabetical List of Witnesses

Brennan, Megan J.:
    Testimony....................................................     5
    Prepared statement...........................................    61
Collins, Kathy:
    Testimony....................................................    48
    Prepared statement...........................................   188
Hutcheson, John ``Chip'' III:
    Testimony....................................................    46
    Prepared statement...........................................   177
Millstein, James E.:
    Testimony....................................................    12
    Prepared statement...........................................   133
Rectanus, Lori:
    Testimony....................................................     8
    Prepared statement...........................................   110
Rolando, Fredric V.:
    Testimony....................................................    43
    Prepared statement with attachments..........................   152
Taub, Robert G.:
    Testimony....................................................     7
    Prepared statement...........................................    78
Williams David C.:
    Testimony....................................................    10
    Prepared statement...........................................   128


Statements submitted for the Record from:
    American Consumer Institute..................................   193
    Alliance of Nonprofit Mailers................................   194
    Alliance of Nonprofit Mailers et al..........................   196
    Amazon et al.................................................   199
    American Quarter Horse Association...........................   202
    Americans for Tax Reform.....................................   203
    Association for Postal Commerce..............................   206
    Benedictine Mission House....................................   208
    Consumer Reports.............................................   209
    Credit Union National Association............................   210
    DMA--Direct Marketing Association............................   212
    Envelope Manufacturers Association...........................   214
    Financial Services Roundtable................................   224
    Guideposts...................................................   226
    International Warehouse Logistics Association................   228
    MPA--The Association of Magazine Media.......................   235
    National Associaton of Letter Carriers.......................   239
    National Association of Postal Supervisors...................   240
    National Association of Postmasters of the United States.....   244
    NARFE--National Active and Retired Federal Employees 
      Association................................................   249
    National Catholic Development Conference.....................   255
    National Committee to Preserve Social Security and Medicare..   257
    National Taxpayers Union.....................................   258
    Quad/Graphics, Inc...........................................   260
    R Street Institute...........................................   262
    Charles Shelby...............................................   265
    Steve W. Smith...............................................   266
    Time Inc.....................................................   268
    Taxpayers Protection Alliance................................   269
Responses to post-hearing questions for the Record from:
    Ms. Brennan..................................................   270
    Mr. Taub.....................................................   277
    Ms. Rectanus.................................................   282
    Mr. Williams.................................................   291



                       THURSDAY, JANUARY 21, 2016

                                     U.S. Senate,  
                           Committee on Homeland Security  
                                  and Governmental Affairs,
    The Committee met, pursuant to notice, at 9:30 a.m., in 
room 342, Dirksen Senate Office Building, Hon. Ron Johnson, 
Chairman of the Committee, presiding.
    Present: Senators Johnson, Lankford, Enzi, Carper, 
McCaskill, Tester, Baldwin, Heitkamp, Booker, and Peters.


    Chairman Johnson. This hearing will come to order.
    I want to welcome all of the witnesses. Thank you for your 
time and for your testimony.
    I am going to keep my opening statement incredibly brief 
because I am going to want to spend more of my time asking 
questions once we hear from the witnesses. I have an opening 
statement, which I will ask to be entered into the record.\1\
    \1\ The prepared statement of Senator Johnson appears in the 
Appendix on page 57.
    My questions will all be about eliciting the reality of the 
current situation and what is going to be happening in the next 
couple of months and why it is so important that we address 
this issue. So, that is what I am hoping that we are going to 
hear in testimony and that will be the thrust of my questions.
    Chairman Johnson. With that, I will turn it over to the 
Ranking Member for his opening statement.


    Senator Carper. Thank you, Mr. Chairman. Good morning, 
    [Chorus of responses.]
    This is a chipper looking group. I am glad that we are 
doing this today and not on Saturday. This is pretty good 
timing. I want to thank our Chairman for scheduling this 
hearing and all of you for showing up, giving us your thoughts, 
and responding to our questions.
    As we are all aware, the United States Postal Service 
(USPS) has been struggling with some serious longstanding 
financial challenges for a while. One of my top goals since I 
joined this Committee 400 years ago---- [Laughter.]
    No, 15 years ago--has been to address these challenges and 
to help the Postal Service find a way to thrive in the 21st 
    The Postal Service operates, as we know, as the center of a 
$1.4 trillion mailing industry that employs, I am told, about 
7.5 million people across our country. This industry provides 6 
percent of our Nation's jobs, and that puts it on par, when it 
comes to total jobs and revenues, with the airline industry 
and, I am told, the oil and gas industry as well. And 
businesses, both large and small, depend on the Postal 
Service's one-of-a-kind retail processing and delivery network, 
a 200-year-old legacy delivery network.
    But, as we sit here today, there are some real questions 
that continue to be asked about what the future holds for the 
Postal Service.
    Despite having finished 2015 with an operating profit, the 
Postal Service continues to report billions of dollars of 
losses. On top of that, it has maxed out its $15 billion line 
of credit with the U.S. Treasury. This has left Postal 
management with no other choice but to default on another $5.7 
billion health care payment last year, the fourth year in a row 
that the Postal Service has been unable to fulfill that 
statutory obligation. When the Postal Service closed its books 
on fiscal year (FY) 2015, it announced a $5.1 billion loss, its 
ninth consecutive multi-billion-dollar loss.
    Complicating matters is the fact that the emergency rate 
surcharge that went into effect in 2014 to compensate the 
Postal Service for its losses during the recession, is set to 
expire--I believe in late March or early April. And by all 
accounts, the income being generated by this increase is now 
the biggest thing keeping the Postal Service's head above 
water. When the surcharge expires, rates for the Postal 
Service's core products will decline, diminishing the Postal 
Service's revenues and liquidity as well as erasing the small 
operating profits that it has recently shown.
    But, I think that we can still be optimistic about the 
future of the Postal Service. I am, and I hope that you are, 
too. And I say that because, despite what the Postal Service 
has been through, we have seen some significant growth in an 
important area, and that is package delivery. The Postal 
Service's total volume for this line 
of business jumped more than 14 percent--is that right, 
General?--14 percent last year. In addition--this is even more 
encouraging, at least to me--the steady decline of First-Class 
Mail volume since 2006 appears to be leveling off, and by some 
accounts, we may be starting to see some new demand for this 
product, which has always been the biggest money maker for the 
Postal Service. If that happens, then we are off to the races, 
so we will keep our fingers crossed. This past holiday season 
was much stronger for the Postal Service than anticipated, with 
mail volume related to e-commerce reportedly exceeding 
    For the Postal Service, though, to truly be successful in 
the digital age, Congress must enable--we need to be enablers--
the Postal Service to take full advantage of the opportunities 
offered by the package boom and other recent successes. I like 
to say, as they say at Home Depot, ``You can do it, we can 
help.'' And that is our job, to help.
    Nearly 10 years have passed since major Postal reform 
legislation was last signed into law, although we have made 
several attempts in recent years without getting the ball into 
the end zone. It is now time for Congress to get off the bench, 
get into the game, and let us score a touchdown.
    Absent legislative intervention, the Postal Service will 
continue twisting in the wind. It will remain unable to fully 
invest in its future. Its employees and customers will continue 
to be uncertain about what the future holds for them.
    There are a handful of Postal reform provisions that we 
have debated on this Committee, as some of us know, for years. 
Taken together, they would set up the Postal Service and its 
leadership up to turn the agency's finances around further and 
set it up to succeed in the years to come.
    The most important of these provisions, we know, is to 
address health care costs at the Postal Service. And, in fact, 
this agency is the single largest payer into Medicare, yet it 
does not receive 
full value from the program for its contributions. I put 
forward legislation in the last Congress with our former 
colleague Dr. Coburn--many of our colleagues here have 
supported it--and this year, with Senators Moran, McCaskill, 
and Blunt, that would allow the Postal Service to do what 
private businesses do when they coordinate their health care 
plans with Medicare. This has the potential to largely 
eliminate the unfunded liability for the retiree health 
benefits (RHB) and to save the Postal Service some $32 billion 
over the next 10 years.
    Our proposal would also give the Postal Service significant 
savings when it comes to pension costs, which the Office of 
Personnel Management (OPM) now determines using inaccurate data 
that does not account for the makeup of the Postal Service's 
workforce and other important factors. Requiring OPM to use the 
right data would also reap more than $2.5 billion in savings 
over the next 5 years alone.
    We also freed, in our legislation, the Postal Service to 
innovate and explore new business opportunities by removing 
dated restrictions, in current law, on the type of products and 
services that they can offer. This part of our bill would let 
the Postal Service do some specific things, like join United 
Parcel Service (UPS), Federal Express (FedEx), and others in 
offering and delivering beer, wine, and spirits. It would also 
encourage the Postal Service to test new innovations, much like 
its existing authority to initiate Sunday package delivery, and 
to experiment with things like grocery delivery in other parts 
of the country. Coupled with our proposal to make permanent the 
emergency rate increase currently set to expire, this part of 
our bill has the potential to bring in significant revenues in 
the coming years.
    Finally, our bill will also push or prod the Postal Service 
to do what the last Postmaster General often told me was his 
top goal if we are able to get Postal reform done, and that is 
to put the ``service'' back into Postal Service. Since 2002, 
the Postal Service has made great strides to be more efficient, 
cutting total work hours by nearly 30 percent, fueling $17 
billion in savings. We have also seen the number of mail 
processing centers cut in half, from more than 600 to about 300 
    But the solution to the challenge that the Postal Service 
faces today cannot be just about more cuts. Cutting costs was 
certainly necessary. Concern has been raised that further cuts 
will only degrade service and end up chasing customers away. I 
share those concerns. We may also be seeing service suffer due 
to deep cuts that have been made in some areas.
    In order to thrive in coming years, the Postal Service 
actually needs to invest in a new generation of delivery 
vehicles--we know that--as well as in its processing plants and 
in its Post Offices themselves. It needs to harness and deploy 
new technology that can improve service and contain costs, 
rather than continue to make cuts that will further erode 
    All right. Coming to the end. That is why our bill, a 
bipartisan bill, would pause further service standard changes 
for 5 years and mail processing closures for 2 years. This will 
give the Postal Service and the Postal Regulatory Commission 
(PRC) time to explore what the appropriate level of service 
should be and, hopefully, to return service to the levels that 
were provided to customers until last year, when service 
standards were set at the modified 1-, 
2-, and 3-day delivery standard that many of us supported.
    So, in sum, I believe that our bill, a bipartisan bill, 
represents real and lasting reform that can help the Postal 
Service be just as important for my sons' generation as it was 
for my generation--our generation--and for my parents' 
generation. We have offered legislation that enjoys wide 
support among the Postal stakeholders, whose often widely 
diverging priorities and goals have made Postal reform hard to 
achieve in recent years. And that is because after months of 
effort to find common ground, the Postal Service, its unions, 
and large contingencies of Postal customers and stakeholders 
have finally succeeded in coming to an agreement on a number of 
key provisions that they feel--that we feel--need to be 
contained in any Postal bill for the Postal Service to succeed, 
truly succeed. These key provisions are contained in our bill.
    Lastly, while working together, it is important that 
Congress provides some certainty to both Postal employees and 
customers and that it ensures that taxpayers--along with all of 
the fiscal challenges that we face--are not saddled with 
shoring up a failing Postal Service. We cannot afford to be 
here a year from now discussing how we can dig ourselves out of 
yet another Postal crisis. I do not believe any of us want to 
do that. I sure do not. We do not want to kick the can down the 
road one more time.
    As it turns out, if we are smart enough and creative enough 
and bold enough, we do not have to. We can do what needs to be 
done to actually fix the problem.
    So, Mr. Chairman, thank you again for holding this hearing, 
thank you to everybody for attending and for providing 
testimony, and thank you to my colleagues for being here. I 
look forward to working with our colleagues in the weeks ahead 
to promptly enact Postal reform legislation that will enable 
the Postal Service and its employees to seize the day and 
provide the services that are needed in the 21st Century.
    I think that they really have it right at Home Depot when 
they say, ``You can do it, we can help,'' and the time has 
come. Let us just do it. Thank you.
    Chairman Johnson. Thank you, Senator Carper.
    We will, I believe, have a vote scheduled at 10:30, at 
which point in time I am going to have to leave and I will be 
turning the gavel over to Senator Carper. You have some 
experience with this, right, so----
    Senator Carper. I am pretty new at it. [Laughter.]
    Chairman Johnson. It is the tradition of this Committee to 
swear in witnesses, so if you will all rise and raise your 
right hand.
    Do you swear the testimony you will give before this 
Committee will be the truth, the whole truth, and nothing but 
the truth, so help you, God?
    Ms. Brennan. I do.
    Mr. Taub. I do.
    Ms. Rectanus. I do.
    Mr. Williams. I do.
    Mr. Millstein. I do.
    Chairman Johnson. Thank you. Please be seated.
    Our first witness is Ms. Megan J. Brennan. Ms. Brennan is 
the Postmaster General of the United States Postal Service. She 
began this post in February of last year, having served prior 
to that as Chief Operating Officer (COO) and Executive Vice 
President of the Postal Service. Ms. Brennan began her Postal 
Service career as a letter carrier in Lancaster, Pennsylvania. 
Ms. Brennan.


    Ms. Brennan. Thank you, Mr. Chairman. Good morning. Good 
morning, Ranking Member Carper and Members of the Committee. 
Thank you, Chairman Johnson, for calling this hearing. I am 
proud to be here today on behalf of the dedicated men and women 
of the United States Postal Service, who work hard every day to 
serve the American people.
    \1\ The prepared statement of Ms. Brennan appears in the Appendix 
on page 61.
    The Postal Service currently operates with a business model 
that is unsustainable. In the past decade, total mail volume 
has declined by 27 percent, and First-Class Mail, our most 
profitable product, has declined by 35 percent. To put this in 
perspective, the annual value of the revenue loss as a result 
of this volume decline is $21 billion per year.
    We continue to make difficult, but necessary, business 
decisions within the constraints of our business model to adapt 
to a rapidly changing marketplace. We have streamlined our 
operations, restructured our networks, and have improved 
productivity for six consecutive years. As a result of these 
efforts, we have achieved annual cost savings of nearly $15 
billion. We have also been successful in stabilizing marketing 
mail revenues and growing our package delivery business, which 
together enable America's e-commerce. However, all of these 
actions cannot offset the negative impacts caused by the 
continuing decline in the use of First-Class Mail.
    Since 2012, the Postal Service has been forced to default 
on more than $28 billion in mandated payments to the U.S. 
Treasury for retiree health benefits. Without these defaults as 
well as the deferral of capital investments and aggressive 
management actions, we would not have been able to pay our 
employees, our suppliers, or to deliver the mail.
    Without legislative reform, our net losses will continue to 
grow, regardless of our continuing efforts to grow revenue and 
improve operational efficiencies. If allowed to continue, this 
will have a devastating impact on the future of the 
organization and the customers that we serve.
    Mr. Chairman, we need legislation now. Over the past year, 
we have been working with key stakeholders, including our labor 
unions and a cross-section of the mailing industry, to identify 
potential key reforms about which there is broad consensus and 
which would return the Postal Service to financial health. As 
part of this process, we have sought to understand the 
interests and concerns of our stakeholders and to educate them 
about the needs of the Postal Service.
    The legislation that we are seeking reflects the results of 
these discussions and includes the following provisions: 
Requiring Medicare integration for Postal retiree health plans, 
continuing our exigent price increase for market dominant 
products, calculating all retirement benefit liabilities using 
Postal-specific salary growth and demographic assumptions, and 
providing some additional product flexibility.
    By enacting legislation that includes these provisions, the 
Postal Service can achieve an estimated $27 billion in combined 
cost reductions and new revenue over the next 5 years. Together 
with other important initiatives, this would make us 
financially stable.
    Medicare integration is the most important of these 
provisions. As the second largest contributor to Medicare, our 
proposal allows the Postal Service and our employees to fully 
utilize the benefits for which we have already paid. By 
requiring Medicare integration for Postal Service retirees, we 
will essentially eliminate the current unfunded liability for 
retiree health benefits. Further, in most cases, it will cost 
less for our employees and retirees while providing them with 
the same or better health coverage.
    Also significant is the need to make the exigent rate 
increase a part of our rate base. The continuation of the 
exigent pricing surcharge is critical to the Postal Service's 
financial health. An expiration of the surcharge, which is 
expected to occur this April, will reduce our revenues by 
approximately $2 billion each year, further worsening our 
already precarious financial condition.
    Mr. Chairman, our financial challenges are serious, but 
they can be solved. While the set of proposals we are advancing 
today are narrower in scope than we previously sought, they are 
fiscally responsible. They enable the Postal Service to invest 
in the future and to continue to provide affordable, reliable, 
and secure delivery to every business and residential address 
in America. Importantly, we believe that these provisions are 
capable of gaining broad support among key Postal stakeholders.
    Mr. Chairman, I look forward to working with this Committee 
to restore the financial health of the United States Postal 
    This concludes my remarks and I welcome any questions that 
you and the Committee may have. Thank you, Mr. Chairman.
    Chairman Johnson. Thank you, Postmaster General.
    Our next witness is Robert Taub. He is the Acting Chair of 
the Postal Regulatory Commission. He has been on the Commission 
since October 2011 and prior to that was the Special Assistant 
to the Secretary of the Army. Chairman Taub.

                     REGULATORY COMMISSION

    Mr. Taub. Chairman Johnson, Ranking Member Carper, and 
Members of the Committee, good morning. I will hit on a few key 
points from the Commission's very detailed written testimony.
    \1\ The prepared statement of Mr. Taub appears in the Appendix on 
page 78.
    In 2015, the Postal Service had a total net loss of $5.1 
billion, which is an improvement from 2014. However, this is 
the ninth consecutive net loss since 2007 and has increased the 
cumulative net deficit since then to $56.8 billion. These 
continuing losses have negatively impacted liquidity, requiring 
the Postal Service to use all of its $15 billion statutory 
borrowing capacity and causing total liabilities to far exceed 
total assets by almost $50 billion.
    In the past 5 years, the Postal Service has not made any of 
the required prefunding payments into its future Retiree Health 
Benefit Fund. This accruing nonpayment into the fund has skewed 
the Postal Service's current liabilities in relation to its 
assets. To reduce its debt ratio to historic averages, the 
Postal Service would have to significantly increase its cash 
position or investments in capital assets as well as reduce its 
obligations to the Retiree Health Benefit Fund.
    Low liquidity levels in recent years have impeded the 
Postal Service's ability to make capital investments in 
infrastructure. It now operates an aging vehicle fleet, 
increasing the need and, consequently, the cost for maintenance 
and repair. Also unmet is the need to invest in sorting and 
handling equipment to fully capitalize on business 
opportunities in the growing package delivery markets.
    Total mail volume in 2015 dropped to levels not seen in 
more than 27 years, and the Postal Service anticipates further 
reductions in total volumes in 2016. The continuous decline in 
First-Class Mail seriously jeopardizes the Postal Service's 
ability to cover its fixed overhead costs.
    Recent increases in revenues and subsequent higher 
liquidity are largely due to the temporary market dominant 
product exigent surcharge. The additional revenue from 
competitive products, which are mainly parcels, is not 
sufficient to offset the future revenue loss resulting from the 
termination of the exigent surcharge when it is removed this 
April. At that point, in order to maintain the operating net 
income that it is currently achieving, the Postal Service would 
have to make up the loss of that revenue, which is 
approximately $2.1 billion annually.
    With the growing liability of retiree health benefits, the 
inability to borrow for needed capital investments, and the 
continued loss of high-margin First-Class Mail revenues, the 
important task of improving the financial condition of the 
Postal Service is daunting.
    Despite the financial news, there is still strength in the 
system. The Postal Service is the one government agency that 
touches every American on a daily basis. It is an organization 
that literally serves 150 million American households and 
businesses on a typical day. It facilitates trillions of 
dollars in commerce. The fundamental problem is that the Postal 
Service cannot currently generate sufficient funds to cover its 
mandated expenses and also invest in critically deferred 
capital needs.
    Where can we look for answers? I would argue that the 
starting point is to look at ourselves. What do we, as a 
Nation, need from a Postal and delivery system and what is its 
cost? What exactly is universal mail service in the United 
States? The Commission has determined that, unlike in other 
countries, the universal service obligation (USO) in the United 
States is largely undefined. Instead, it is comprised of a 
broad set of policy statements with only a few legislative 
prescriptions. The Commission estimates the cost of providing 
universal service to be more than $4 billion annually. When 
assessing the current State of the Postal Service, policymakers 
should look at this fundamental issue and decide exactly what 
we, as a Nation, need from the Postal Service, and most 
importantly, how those expectations are to be funded. I note 
that Senator Carper's bill would require an assessment of the 
    Thank you, Mr. Chairman, for convening this hearing to 
shine a spotlight on this important part of our infrastructure. 
I know that you appreciate deeply the importance of these 
    Senator Carper, it has been a long journey, fifteen years 
ago, when we met with then-Congressman McHugh off the Senate 
floor when you were first exploring how to modernize our Postal 
laws. It took us in the House a dozen years to see the 2006 law 
enacted, and we could not have done so without your leadership 
here in the Senate. Thank you for your continued commitment.
    There are no easy answers, but answer, we must. The 
Commission stands ready to assist in the search for solutions. 
On behalf of all the Commissioners and the hard working agency 
staff, thank you for the opportunity to testify.
    Chairman Johnson. Thank you, Chairman Taub.
    Our next witness is Lori Rectanus. Ms. Rectanus is the 
Director of Physical Infrastructure at the U.S. Government 
Accountability Office (GAO), overseeing GAO's audit portfolio 
for Postal issues, Federal fleet management, currency and coin 
production, and Federal building security. Ms. Rectanus.


    Ms. Rectanus. Thank you. Chairman Johnson, Ranking Member 
Carper, and Members of the Committee, I am pleased to be here 
today to discuss the Postal Service's financial challenges.
    \1\ The prepared statement of Ms. Rectanus appears in the Appendix 
on page 110.
    The Postal Service is a critical part of the Nation's 
communication system, but its financial situation, as we know, 
is dire. We placed the Postal Service on our ``High-Risk List'' 
in 2009, where it remains.
    Today, I will discuss the factors affecting the Postal 
Service's deteriorating financial condition, the status of its 
unfunded liabilities, and the choices that Congress faces in 
addressing these financial challenges.
    The Postal Service's financial struggles are well 
documented. Beginning in 2007, expenses began consistently 
exceeding revenues and it has lost over $56 billion since then. 
The situation is primarily caused by a decline in mail volume, 
as we have heard, particularly in profitable First-Class Mail, 
commensurate with increasing expenses, largely because of 
salary increases. Increases in compensation and benefits alone 
will add over a billion dollars in additional costs in fiscal 
year 2016. The gap between revenue and costs continues despite 
significant efficiency initiatives undertaken by the Postal 
    Regarding unfunded liabilities and debt, they are a large 
and growing burden on the Postal Service. At the end of fiscal 
year 2015, the Postal Service had about $125 billion in 
unfunded liabilities and outstanding debt, which accounted for 
about 182 percent of its revenues. Retiree health benefits 
accounted for about $55 billion of the unfunded liability, 
partly because the Postal Service has not made required 
prefunding health payments for the last 5 years and does not 
expect to make the required 2016 payment.
    Given this history and future events, it is not likely that 
the Postal Service will be able to make its required retiree 
health and pension payments in the near future. Beginning in 
fiscal year 2017, the Postal Service will be required to start 
making annual payments for health benefits on top of annual 
pension payments. Using available data, we determined that 
these payments could total about $11 billion. Although this is 
less than what was required in fiscal year 2015, it is about 
$4.6 billion more than what the Postal Service paid.
    The expiration of the temporary rate surcharge and a lack 
of major cost savings initiatives will further stress the 
Postal Service's ability to make these payments.
    Having large unfunded liabilities for Postal retiree health 
and pension benefits places taxpayers, employees, retirees, and 
the Postal Service, itself, at risk. Postal retirees 
participate in the same health and pension benefit programs as 
other Federal retirees, so if the Postal Service does not 
adequately fund these benefits and Congress wanted these 
benefits to continue, the Treasury and, hence, the taxpayer may 
need to step in. Alternatively, unfunded benefits could lead to 
pressure for reductions in benefits or pay. For the Postal 
Service, unfunded benefits endanger its future viability by 
saddling it with bills later, after employees have already 
    Postal Service actions alone, under existing authority, 
will be insufficient to achieve financial solvency. 
Comprehensive legislation is needed. In doing so, Congress 
faces difficult decisions and tradeoffs in key areas.
    First, what is the level of Postal services needed in the 
21st Century and what are we willing to pay for those services? 
Given how communication is changing, Congress could consider 
what Postal services should be provided on a universal basis 
and how those services should be provided.
    Second, what is the appropriate level of compensation and 
benefits that should be paid in an environment of revenue 
pressures? Congress could consider revising the statutory 
framework for collective bargaining to ensure that the Postal 
Service's financial condition be considered in binding 
    Third, what is the continued viability of the Postal 
Service's dual role of providing affordable universal service 
while remaining self-financing? In assessing any alternatives 
to the current structure, Congress should consider costs that 
might be transferred from the Postal Service, which is financed 
by rate payers, to the Federal Government, which is funded by 
    In conclusion, we must take a hard look at what level of 
Postal services we need and what we can afford. The status quo 
is not sustainable.
    This concludes my prepared statement. Chairman Johnson, 
Ranking Member Carper, and Members of the Committee, I would be 
pleased to answer any questions that you have.
    Chairman Johnson. Thank you.
    Our next witness is David Williams. Mr. Williams is the 
Inspector General (IG) of the United States Postal Service and 
has been Inspector General since 2003. Prior to that, he served 
as the Deputy Assistant Administrator for Aviation Operations 
at the Transportation Security Administration (TSA). Mr. 

                         POSTAL SERVICE

    Mr. Williams. Thank you, Mr. Chairman, Ranking Member 
Carper, and Members of the Committee.
    \1\ The prepared statement of Mr. Williams appears in the Appendix 
on page 128.
    There are two sharply opposing views of the reality facing 
the Postal Service and judgments are difficult to make when 
viewing ongoing financial data through the distorted lens of 
prefunding expenses.
    The first view is that the financial situation is dire and 
that the Postal Service's mission is antiquated. The Postal 
Service is losing more than $5 billion every year and has 
exhausted its borrowing limit of $15 billion. First-Class Mail 
volume, which has always supported the network, is in decline 
and will never return, and the Postal Service owes nearly a 
billion dollars in unfunded liabilities for retiree benefits 
and workers' compensation.
    The second view is more elaborate. First, the Postal 
Service has weathered the storm of the digital disruption with 
much opportunity on its horizon. Technological advances are 
paradoxically creating new societal needs that the Postal 
Service's extensive network is uniquely positioned to fulfill 
regarding e-commerce, e-Government, and coming smart 
infrastructure services. For example, the Postal Service could 
provide physical transaction points for industries that have 
gone partially virtual and offer neighborhood logistics support 
for emerging smart cities.
    Second, the Postal Service ended 2015 with more cash 
reserves than it has had for many years, $6.6 billion. It has 
set aside an unprecedented $337 billion and possesses 
significant real estate to meet future contingencies. The $15 
billion Treasury debt is entirely due to required payments for 
distant and vacillating future retiree health obligations.
    Now, it is very difficult to decide exactly what is needed 
to stabilize the infrastructure when prefunding activities are 
commingled with actual ongoing financial operating data. The 
arbitrary $5 billion prefunding payments show up as annual 
losses in financial statements, even if no cash is spent at 
all. Most stakeholders are simply lost attempting to understand 
postal financial reports. The Postal Service either made a 
controllable profit of $1.2 billion last year or it lost $5 
billion. Since 2007, did the Postal Service make a billion 
dollars or did they lose nearly $57 billion? Decisions are 
extremely difficult with this kind of seemingly conflicting 
data--and these numbers do not include the neglect of 
infrastructure investments and that some of the savings were 
achieved through service cuts.
    The Postal Service has historically been required to break 
even. So, there was no extra money when the sudden 2006 Postal 
Accountability and Enhancement Act (PAEA) mandated $5 billion 
annual payments went into effect. A Consumer Price Index (CPI) 
price cap, and prohibitions against entering new business lines 
and closing certain facilities, barred the Postal Service from 
attacking these problems using normal business strategies, such 
as price increases, rightsizing, and product diversification, 
which are available to other world posts and private express 
    The Postal Service's survival is a tribute to the men and 
women working there, as well as to the American people, who 
demand that, like every nation, we have a Postal Service 
infrastructure to connect the world to our homes and our 
    Legislative efforts to provide relief for the Postal 
Service have failed for the last 6 years, but recent 
legislative proposals offer some needed solutions. Replacing 
the arbitrary retiree health funding schedule with actuarially 
based payments will make prefunding retiree health payments 
more affordable for the Postal Service and improve transparency 
of financial reporting. Proposed Medicare changes for postal 
retirees will likely eliminate much of the remaining unfunded 
retiree health care liabilities.
    Another useful proposal is to permit the Postal Service to 
explore offering modernized services in response to changing 
citizen needs and also to enable private sector strategies. 
Collaboration between the Postal Service and the private sector 
has worked well. It is a good deal for citizens, and it is a 
great deal for American business.
    Finally, a more flexible, responsive pricing regime is 
needed to help ensure the Postal Service's financial stability 
at a time of rapid change.
    In recent years, stakeholders have been starved for clear 
information, causing confusion about the road ahead for the 
Postal Service. In this age of extraordinary threats and game-
changing opportunities, other nations are not confused. Other 
world posts are racing to support innovators, citizens, and 
businesses. The United States cannot afford to stagnate in 
decisions regarding investments for its public infrastructures 
if we hope to enable citizens and maintain our leading position 
among nations.
    Thank you.
    Chairman Johnson. Thank you, Mr. Williams.
    Our final witness is James Millstein. Mr. Millstein is the 
founder and Chief Executive Officer (CEO) at Millstein and 
Company. Mr. Millstein is the former Chief Restructuring 
Officer at the U.S. Treasury and has an extensive background in 
the restructuring of large private and public entities. Mr. 


    Mr. Millstein. Thank you, Chairman, Ranking Member Carper, 
and Members of the Committee.
    \1\ The prepared statement of Mr. Millstein appears in the Appendix 
on page 133.
    I am here today because the Postal Service is in trouble--
trouble that we can fix, but it does require a financial 
restructuring to restore its ability to meet its ongoing 
obligations and, frankly, a restructuring of the regulatory 
regime under which it operates, to enable it to deal with the 
challenges of a very rapidly changing market for its products 
and services. Some of these challenges require immediate fixes. 
Others can be handled in a more deliberate fashion after 
further study and public debate.
    If I can, in the short time that I have for an opening 
statement, I think that I will lay out the four challenges that 
I see and we can discuss the fixes down the road.
    So, Congress intended the Postal Service to be a self-
sustaining governmental entity. The sale of its postage 
products and services was intended to cover the cost of its 
operations with no governmental or taxpayer support. 
Nevertheless, the Postal Service faces four significant 
challenges that have put its ability to sustain itself, in that 
fashion, in jeopardy.
    First, as a result of the growth of e-mail and Internet 
advertising, physical mail volume is down over 24 percent since 
the financial crisis. Running a nationwide delivery network 
with shrinking volumes makes it increasingly difficult for the 
Service to cover its network operating costs.
    The second challenge is the rigid regulation of its 
pricing. Established under the 2006 Act, Congress presumed that 
the Service would have a monopoly in its First-Class and 
standard mail products, and so to protect the public against 
price gouging and to protect competitors in the package space 
against unfair competition, the Service is prohibited from 
increasing rates on its First-Class and standard mail by more 
than the rate of inflation. Hit by the double whammy of a 
downturn in volumes resulting from the great recession and from 
the rapid growth of e-mail and Internet advertising, this 
regulatory regime has left the Service with very little 
flexibility to adjust its prices to recapture lost revenue so 
as to be able to cover the operating costs of its network and 
be self-sustaining.
    Employing the only safety valve in the statute, the Service 
applied for and received a so-called exigent price increase 
from the PRC, allowing it to cover its costs and make a small 
operating profit. However, this temporary price increase 
expires this coming April, which will again leave the Service 
unable to be self-sustaining in covering its operating costs.
    The third challenge is the Postal Service's legacy 
liabilities, and in particular, the statutory mandate imposed 
under the 2006 Act, in which the Service was required to 
prefund its post-retirement health care plan. The Act required 
the Service to make 10 annual installments of $5 billion each, 
the last of which would be due next year. Not surprisingly, the 
Service has defaulted on the majority of these payments, as it 
would have had to raise prices well beyond what its price 
regulation permitted--or that the market could bear--to 
generate $5 billion in incremental revenue every year to 
satisfy this mandate. As a result, its Retiree Health Benefit 
Fund remains $55 billion underfunded, based on projected 
liability of $105 billion.
    The fourth challenge is presented by the universal service 
obligation, an obligation to touch all 155 million delivery 
points on a regular basis at uniform prices in an era of 
overall declining volumes and limited price flexibility. The 
cost of this obligation is assumed to be offset by the benefit 
of the mailbox monopoly that the Service is alleged to enjoy. 
But in an era of rapidly growing electronic alternatives, it is 
unclear, at least to me, that the Service has any monopoly at 
all and, therefore, is being saddled with a financial burden it 
is not being adequately compensated to carry. With competitors 
skimming the most profitable business away, electronic 
alternatives reducing its volumes, and rigid price regulation 
limiting its flexibility, the universal service obligation, as 
currently conceived, is slowly choking the Service to death.
    So, in the short term, in my business, in the financial 
restructuring business, the first job is to keep the patient 
alive, and in this instance, that means making sure that it has 
sufficient cash revenue to service its operating expenses.
    In the long term--and these are the big questions that this 
Committee and this Congress has to face--the question is, what 
do we want this Postal Service to be? How are we going to 
permit it to transform itself to meet the challenges--the 
technological challenges, the market challenges, and the 
competition--that it faces, and at the same time, serve the 
public interest by keeping this Nation connected--keeping those 
155 million delivery points connected with each other?
    Thank you very much.
    Chairman Johnson. Thank you, Mr. Millstein.
    Again, I kind of reserved my opening statement so that I 
can spend a little more time asking questions. I do want 
everybody to refer to this basic balance sheet with a number of 
columns, and what I have tried to do is--because we have a 
financial problem and we have to look at numbers--I just want 
to quickly lay out for my colleagues and for the witnesses how 
this thing is set up.
    The first column is the current balance sheet the way that 
it is reported by the government, which is not using Generally 
Accepted Accounting Principles (GAAP).
    The second column puts on the balance sheet the fund 
balances, as well as the unfunded liability, of the retirement 
system and the health care system.
    Then as to the columns A, B, and C, the first scenario, A, 
simply reamortizes the short-term liability back into where it 
really should be classified. It basically reclassifies the 
long-term liability to where it should be. Then you start 
talking about Medicare integration as well as current debt 
    Now, I realize that this is relatively complicated, but if 
you really take a look at this, I think that it really lays out 
and crystalizes the main problem here, and that is the point, I 
think, of this hearing: to let us try and make this as simple 
as possible. I think, Mr. Millstein, that you did a really good 
job of laying out the four main problem areas.
    Let us go to number two. We talked about rigid regulation 
of pricing. I know that in the last go-around here, we compared 
U.S. Postal Service price increases to their competitors, UPS 
and FedEx. Off of the top of my head, I think that over a 6-
year period--this was a couple of years ago--UPS and FedEx had 
increased their prices about 33 percent. The Postal Service was 
somewhere between 14 and 16 percent, depending on which service 
you are looking at. Is that--do you have any information on the 
current status of that, of how far the Postal Service is behind 
competitively, in terms of raising prices?
    Mr. Millstein. I do not, sir, but in the materials that we 
provided, there is one interesting statistic. The Postal 
Service carries, in the package business, about the same volume 
as FedEx, and yet it earns half of the revenue of FedEx. The 
market--the dominant market package deliverer is UPS. So, the 
Postal Service is a real competitor and a growing competitor in 
that package space and it is the future, I think, of the 
business, but it is hamstrung in competing in that package 
space by the price regulations under which it operates. In 
part--it is not limited in the package space in the same way 
that it is limited in the First-Class Mail and standard mail 
    But, the key here is that the Postal Service must maintain 
a network that reaches all 155 delivery points, whereas UPS and 
FedEx can pick their spots, can pick dense urban markets, where 
the cost per delivery--per unit of delivery--is much lower than 
servicing all 155. So, the issue that we face surrounds giving 
the Service the pricing flexibility to be able to price all of 
its products in a way that will allow it to be able to maintain 
that network.
    Chairman Johnson. OK. Again, I want to go--when the exigent 
price increase is no more, and, basically, they have recovered 
the amount of money they were supposed to recover--it is not 
about timing, it is about how much business they have done--I 
do want to talk about what that would actually do to Postal 
rates when you combine the--I would say the misclassification 
of the long-term liability, as it was forced to be classified 
as a short-term liability. The combination of those two 
things--I will go to the Postmaster General. Can you talk about 
what effect that would have in pricing?
    Ms. Brennan. Let me say, Mr. Chairman, first, if I may 
address the comment about competitive pricing, we do 
consistently evaluate where we have had room to take price on 
the competitive side. We recently just raised our prices 
roughly 10 percent, the first time in 3 years.
    Now, on the market dominant side, the challenge is, those 
products generate roughly 76 percent of our revenue and they 
are capped. So, that is why the urgency of addressing the 
exigent surcharge and the rollback in April is critical to us, 
because it will impact us, causing a billion dollar negative 
hit on our top-line revenue this fiscal year and $2.1 billion 
going forward.
    Chairman Johnson. And it will require legislation to 
prevent that rollback, correct?
    Ms. Brennan. Sir, yes. The PRC order requires that once we 
achieve or collect the $4.6 billion, we need to roll prices 
    Chairman Johnson. As an accountant, I have always been a 
little bothered by the talk of prefunding the health care plan, 
because we really did not prefund it. We just really 
reclassified a long-term liability into a short-term liability, 
correct? I mean, it has really just been a balance sheet entry, 
    Ms. Brennan. Yes.
    Chairman Johnson. There really was not any funding going 
on. We just borrowed more money. It was short-term borrowing, 
and we have just, I think, improperly reclassified a long-term 
liability into a current liability. Is that basically true?
    Ms. Brennan. Yes, sir.
    Chairman Johnson. So, in terms of what we must do, I mean, 
from my standpoint, just according to GAAP, we should 
accurately reflect this as a long-term liability, as opposed to 
a short-term liability. But, you have a four-point plan. Having 
done this a couple of years ago and having the scars on my back 
for trying to actually come to a compromise here, what are the 
areas of agreement between all of the interested parties--and 
there are a lot of them--what are the areas of agreement? I 
know that Senator Carper wanted a touchdown. Maybe we ought to 
be thinking about a field goal.
    What are the things that we absolutely must do to avoid a 
real calamity in terms of the Postal system or pricing, and 
what is going to be possible to do here in the short term?
    Ms. Brennan. Sir, in terms of pricing, it would maintain 
the exigent, making that part of the rate base. That will 
generate $2.1 billion annually. In terms of the large----
    Chairman Johnson. Is there any resistance to that?
    Ms. Brennan. Yes. Now, I will say that there are many in 
the industry, a broad cross-section, who support that, because 
part of the proposal that we put forth would bake the exigent 
into the rate base and then forego any CPI price increase in 
calendar year 2016 or 2017, and then in 2017, we will have the 
price review that the PRC will undertake--and that is 
critically important.
    Chairman Johnson. OK. So, again, in business, you try not 
to roll back prices----
    Ms. Brennan. Right.
    Chairman Johnson [continuing]. Particularly when you are 
already at lower prices than your competition anyway. So, to 
me, that would be somewhat of a no-brainer, but OK. So, that is 
the first thing. We do not have total agreement on that, but I 
think that, if you really have a level head, and you want to 
see a vibrant, viable Postal system, then you have to agree to 
    What is the next area of agreement?
    Ms. Brennan. Sir, cornerstone--and I have heard no one 
dispute the fact that we should ensure that we are fully 
integrated with Medicare for retirees 65 and older. As 
mentioned, the Postal Service has paid $29 billion into that 
fund and our employees should benefit from it. We are asking to 
be treated like any self-funded entity.
    Chairman Johnson. What the game plan there would be, 
though, would be to offload the roughly $100 billion liability 
of the health benefit plan, the pension health benefit plan, 
onto Medicare, but without transferring the assets in that 
health benefit plan? So, you are going to offload about a $100 
billion liability into Medicare, but the Postal Service is 
going to maintain the $50 billion of assets in their fund?
    Ms. Brennan. Well, and I think, as discussed, accounting 
principles would indicate that that should shift, as well.
    Chairman Johnson. But right now, according to the proposal 
as it is being laid out for me, that is not being contemplated 
and we would not integrate it.
    Ms. Brennan. I think that is----
    Chairman Johnson. So, the Postal Service holds on to the 
$50 billion and offloads a $100 billion liability onto 
Medicare, the American taxpayer. I would agree that you would 
probably get some credit for the $29 billion, and as we talked 
about earlier in the anteroom, we do not know, out of that $29 
billion funding from payroll deductions, how much the Postal 
Service has actually used----
    Ms. Brennan. Yes. We do not have access to that 
    Chairman Johnson. They have used some of it, correct?
    Ms. Brennan. Correct.
    Chairman Johnson. OK.
    Ms. Rectanus, you talked about a $100 billion unfunded 
liability. According to the balance sheet here, it is about $79 
billion. Looking at the summary figures here, can you tell me 
where the difference comes from?
    Ms. Rectanus. You mean $100 billion for retiree health 
    Chairman Johnson. OK. You are only talking about that.
    But that is not unfunded because they have $50 billion of 
offsetting assets in their fund.
    Ms. Rectanus. Yes. According to the Congressional Budget 
Office (CBO) data that we used, the unfunded obligation left 
over was $101 billion. That was based on the $50 billion that 
they do have in assets.
    Chairman Johnson. So, the total liability is $150 billion, 
offset by $50 billion in the asset fund.
    Mr. Millstein, can you address that?
    Mr. Millstein. I do not think that that is right. I think 
that the CBO liability is $105 billion and the asset offset is 
around $50 billion.
    Chairman Johnson. OK. Well, sure. Let me just say that this 
is--and, again, I am not beating up any witness here--this is 
the problem that I have been having for a number of years. 
Again, as an accountant, I understand numbers and I cannot get 
them. There is just so much confusion on this issue, and yet we 
are--we passed the 2006 law that reclassified a long-term 
liability into a short-term liability that created a real pinch 
on the Postal Service that never should have occurred. So, if 
we are going to pass something, we need the information and we 
need it to be accurate. So, we have a long way to go.
    I guess that I will stop at this point in time. I guess 
that I have kind of made my point. I am still not there in 
terms of understanding the financial condition of the Postal 
Service, exactly what these proposals would do, as well as who 
is for these proposals and who is against them.
    The way that you get results--and we have actually proven 
this in this Committee--is by looking for areas of agreement 
that unify, as opposed to exploiting differences. You can 
actually get results that way. We have actually passed 55 
pieces of legislation through this Committee. Sixteen have 
already been signed into law. We have to find that sweet spot 
here, because everybody that I talk to says that we have to 
keep the Postal Service viable--and I agree with that--and yet 
we have not had all of those parties come together and find an 
    So, the first thing you have to agree on, though, is we 
have to have the numbers right and we have to know what we are 
actually doing--and we are not there yet.
    Mr. Williams, you can quickly comment before I turn it over 
to Senator Carper.
    Mr. Williams. Thank you, Senator. I think that the 
liability, as you said, the $79 billion, that is the mandate. 
We have additional liabilities, though. Workers' Compensation 
brings it up to about $98 billion. And when you add the 
Treasury debt, it is $125 billion. Those are all of our 
liabilities. The mandate is to prepay $79 billion.
    Chairman Johnson. OK. So, again, I have been after this--I 
have been at this for quite some time, trying to get--so, what 
we need to do is, working with you, let us come up with a 
relatively simplified balance sheet that lays it out so that 
there are not any questions about this, and so that we are not 
dealing with a bunch of different numbers. ``Oh, that is not 
included here,'' or ``This is off of the balance sheet there.'' 
I think that this is a pretty good format and I am really just 
going to ask people, just for my benefit if for nobody else's, 
to give me the information. OK, work on this, and we will talk 
to you afterwards. Senator Carper.
    Senator Carper. I am going to yield my time to Senator 
Tester, who needs to leave. But, I do want to say something 
before I do that.
    First of all, your testimony is very good and, I think, 
very helpful and very instructive. But, what we really have 
been doing with the Postal Service is requiring them to 
maintain this universal network, 150 or 160 million delivery 
points. They have to do that. And while making that the 
requirement, we limit their ability to increase prices for a 
number of their products. We limited, in some cases, the kind 
of products that they can offer through their distribution 
    And we require the Postal Service to do something that I do 
not know if any other business in America does--not only to 
recognize the liability associated with their 65-and-over 
retirees for health care, but to address that and to pay that 
down--not over 30 or 40 years--but over 10 years. I am not 
aware of any company in America that does that. So, that is a 
pretty good to-do list there for us, and our job is to do it.
    I have wrestled with the numbers, as Senator Johnson has 
alluded to, and I do not pretend to be an expert on this, but 
if I can understand it, I think that most of us can. And one of 
the things that we need from the Postal Service, Postmaster 
General, is something that we talked about just yesterday, and 
that is a 10-year financial statement laying out your expected 
revenues and your expenses. Give us an opportunity to see what 
happens and where that leaves us in a cash position each year, 
and see if that cash position is sufficient to enable us, not 
just to meet some of these liabilities and to pay them down, 
but also to capitalize--or recapitalize--the Postal Service's 
vehicles, modernize their fleet, modernize their package 
handling facilities, and modernize their Post Offices. That is 
our challenge. And, actually, I think that we can do that. 
Senator Tester.


    Senator Tester. Thank you, Tom, for your generosity.
    I will make this very quick. First of all, I appreciate all 
of your testimonies. I mean that. I think that you pretty much 
all said the same thing in a different way.
    But, I am going to start with you, Mr. Williams. You have 
been around the block in the IG world, and you can answer this, 
too, Jim, if you would like. Is there any other agency in the 
government that has to prepay their benefits?
    Mr. Williams. There is not.
    Senator Tester. OK. So, the Postal Service is alone in 
    Mr. Williams. Right.
    Senator Tester. And, I think that you made the point very 
well in your testimony, about getting numbers that make sense, 
whether the Postal Service made money or lost money, as they 
move forward. But, I think that the prepayment thing, if we do 
not get our arms around that, along with the Medicare thing--I 
do not know if you guys will ever get to a point where you 
would be solvent. Would you agree with that, Postmaster 
    Ms. Brennan. Senator Tester, if I may, first, to the 
Chairman, the Postal Service will provide certainly the current 
assets and liabilities to ensure that we have valid numbers.
    Senator Tester, looking ahead, based on our projection----
    Senator Tester. Yes.
    Ms. Brennan [continuing]. We would be liquid, have 
manageable debt with legislation. We still would have 
liabilities, and the discussion then would be about how to 
amortize those liabilities to make----
    Senator Tester. But without dealing with the prepayment 
issue, would you still be liquid?
    Ms. Brennan. Without dealing with the prepayment issue?
    Senator Tester. Yes.
    Ms. Brennan. No, sir.
    Senator Tester. OK. So, unless we are willing to agree on 
that single issue, we are never going to get you to a point--
and then be able to deal with the others, also. I would agree 
with that.
    Did anybody on this panel, and I am not making any 
accusations, take a look at the contracts between the private 
carriers in the last mile to see if they are appropriate? Go 
    Mr. Taub. Senator Tester, the contracts that the Postal 
Service has, to the extent that they are negotiated service 
    Senator Tester. Yes, that is correct.
    Mr. Taub [continuing]. That goes before the Postal 
Regulatory Commission.
    Senator Tester. Yes.
    Mr. Taub. Under the law, we look at that to ensure that 
they cover their costs and that, collectively, all competitive 
products have to contribute to the overhead. So, that has to go 
through review through the Commission.
    Senator Tester. So, is it a zero-based thing or do they 
make profit?
    Mr. Taub. As long as they are covering their costs, it is 
in compliance with the law. But, I would note that for 
competitive products, we require that, collectively, they 
contribute 5.5 percent to the institutional costs. This last 
year, they contributed over 13 percent.
    Senator Tester. OK. The universal service obligation was 
brought up several times during the testimonies, and the 
thought occurred to me, who are you going to prune off? I mean, 
Heidi and I have customers that live a long ways apart from one 
another. If we prune those folks off, it would probably save a 
lot of money, but arguably, they may be the folks who most need 
the service.
    So, Jim, do you have any ideas on how we can deal with this 
    Mr. Millstein. Yes. I do not think that we have to invent 
this out of whole cloth. Obviously, you can vary service in 
terms of how often it is done to try to manage the costs.
    But, other countries that have an equal interest in making 
sure that all of these points of contact are maintained on a 
regular basis allow their postal services to do other things to 
subsidize that universal service obligation. We have tightly 
restricted the Postal Service's products and services and so it 
does not have the ability to earn revenue and profit from other 
lines of business that it could enter into in order to meet 
that universal service burden--and it is a burden. So, it 
really is a question of, if the Congress wants to keep it up, 
it could subsidize it----
    Senator Tester. OK.
    Mr. Millstein [continuing]. But you have determined, as a 
group, that you want this thing to be self-sustaining. If you 
want it to be self-sustaining, you have to give it the ability 
to generate the revenue necessary to meet that universal 
service obligation.
    Senator Tester. David, do you want to respond?
    Mr. Williams. I really do not think that we need to begin 
down that trail.
    Senator Tester. Good.
    Mr. Williams. But if we do start down that trail, I 
honestly think that it is time to give up. When we cut off that 
first person----
    Senator Tester. Yes. I would agree 100 percent with that, 
and I am glad that you guys clarified that within your 
statements. I appreciate that.
    I will just say one last thing. Those who think that the 
Postal Service is antiquated need to come to my house, because 
without the Postal Service, I am in a world of hurt--and I have 
fiber coming into my house. So, it is a big deal.
    And, the last thing that I will say, with OPM breach that 
this Committee has dealt with--I just met with Beth Cobert the 
other day--the most secure way to send information to the folks 
who have been breached is through direct mail, and we need to 
keep that in mind as we go forward.
    Thank you, Mr. Chairman.
    Chairman Johnson. Thank you, Senator Tester. Senator 


    Senator Booker. Just for the record, I heard that Senator 
Tester said, ``Those who think that the Postal Service is 
antiquated should come to my house.'' I am going to take that 
as an invitation, which he has never given me before, to his 
house. [Laughter.]
    Senator Tester. I look forward to that, Booker.
    Senator Booker. I appreciate that. I am one of those house 
guests that will never leave. [Laughter.]
    I do think that the Post Office is antiquated, but not in 
the ways that have been discussed, and not in the ways that 
would make my friends in rural States annoyed. I am just 
concerned about some of the updates to equipment that could 
make it more efficient and more effective.
    I have introduced legislation, the Postal Innovation Act, 
which stresses the urgent need for the U.S. Postal Service just 
to modernize, from updating the 190,000 vehicles in the Postal 
fleet with new crash avoidance technologies to investing in 
innovation. USPS has the opportunity to really show leadership 
in technology and safety efforts that could help in some ways, 
as the government did with seat belts, to lead the way into a 
new era of protecting lives, as well as integrating technology. 
And on top of that it could accrue long-term savings, which 
seems to be one of the buzz words here.
    So, to the Postmaster General, I would just like to ask, 
how will USPS be working to incorporate new safety technology 
in the Postal fleet to reduce accidents and to lower greenhouse 
gas emissions?
    Ms. Brennan. Thank you, Senator Booker. In terms of the 
next generation delivery fleet, we are working with industry 
experts and we are looking at industry best practices in terms 
of safety. The requirements assessment, as we move forward in 
this process, is the safety, ergonomics, fuel emissions, fuel 
efficiency, and also, from an operational standpoint, having 
enough cargo space, given the change in the product mix for the 
    Senator Booker. So, when I was the mayor of a city, the 
challenge that I often had was that, if we made a significant 
up-front investment, then it would cost a lot of money, but the 
savings would accrue over many years. And, do you all have the 
resources to invest in the kind of innovations that would 
create long-term savings, or is that a problem for you?
    Ms. Brennan. Well, Senator, legislation will give us some 
additional capital moneys that we can invest in the 
infrastructure, because, as mentioned, we have deferred capital 
investments in the past due to not having money available. We 
will continue to prioritize the available capital moneys that 
we have. But we need to be in a position where we are able to 
invest in the infrastructures, repairs, and alterations of our 
more than 30,000 buildings, as well as the new vehicle fleet. 
Roughly 212,000 vehicles are on the road 6 days a week, and 
increasingly 7 days a week, traveling nearly four million 
miles. So, we have to invest in our infrastructure to enable us 
to continue to compete in this critical marketplace.
    Senator Booker. I completely agree. I appreciate that.
    I also believe that, in order to maintain the robust 
delivery service and continue to reap the benefits of a 
thriving connected country, we must take action toward forming 
a comprehensive Postal bill, which you all seem to be calling 
for and some of my colleagues seem to be calling for. I am 
really happy that Senators Carper, McCaskill, Moran, and Blunt 
have put forth what I think is a very balanced, bipartisan 
proposal that could keep the USPS afloat, although I am hoping 
that some other innovations will be included in it as well.
    And, so I just want to ask the panel real quick before I 
conclude, do you agree that there is this need? What is the 
urgency, in terms of the timeline for this legislation? How 
urgent is it to act? I would like to sort of highlight that.
    Ms. Brennan. Senator Booker, the time is now.
    Senator Booker. And the consequences of delay?
    Ms. Brennan. The consequence is that it would necessitate 
us making decisions around defaulting on additional obligations 
and potentially put our core mission, delivering the mail to 
every American, at risk.
    Senator Booker. So, this is not something that should wait 
until after a Presidential election or until the next Congress? 
This is something that really needs to be done right now?
    Ms. Brennan. The time is now, sir.
    Senator Booker. Thank you very much.
    Mr. Chairman, I appreciate the time.
    Chairman Johnson. Thank you, Senator Booker.
    There is a vote called at 10:30 and I really do have to 
leave, so I will turn it over to the capable hands of Senator 
Carper. You are going to have to figure out how to--if you want 
to recess to have everybody vote or whatever, that is fine and 
that will be up to you.
    Again, I want to thank the witnesses. This is an issue, as 
Senator Booker's question elicited, that we have to address. 
Literally, failure is not an option. So, I wanted to hold this 
hearing, and Madam Postmaster General, I will definitely be 
sitting down with you----
    Ms. Brennan. Thank you.
    Chairman Johnson [continuing]. And I think you understand 
my passion to get the actual facts and figures straight----
    Ms. Brennan. Yes, sir.
    Chairman Johnson [continuing]. So that I know exactly what 
we are dealing with when we head to some kind of markup, in 
terms of the areas of agreement that we need to get resolved. 
    Ms. Brennan. Thank you, Mr. Chairman.
    Chairman Johnson. So, again, that is my commitment. We will 
definitely jump into this.
    And with that, I will turn it over to Senator Carper. Thank 
    Senator Carper [Presiding.] What I would like to do is to 
play tag team here. Is there someone who would like to go vote 
and then come right back and I will continue to--OK. That would 
be great. Gary, I think that you are next. Thank you, Heidi.


    Senator Peters. Thank you, Senator Carper, and thank you to 
the panel for your testimony. We definitely have a significant 
issue here, one that is going to take a lot of effort to work 
    And I have some questions, but before I do that, I actually 
want to begin by reading an e-mail that I received from a 
constituent, someone who is very agitated about mail service. I 
promised that I would read this beacuse I was going to be with 
the panel. I think that it highlights the challenges that we 
have with the service and how we need to be part of the 
solution to help you.
    But, this is a quote from the gentleman's e-mail, ``I am on 
the Martin Luther King Holiday Commission and we proudly give 
$15,000 in scholarships each year. The students apply to the 
Commission via mail and were informed to provide their 
applications this year postmarked by December 4, with the 
actual judging to be held on December 12.
    I went to the Post Office every day between December 4 and 
December 12 to be sure to get every application. They seemed to 
trickle in this year, but for some odd reason, they only came 
from the Lansing schools and there was an unusually small 
number of them. I even went to the Clerk's desk on the morning 
of December 12, asked them if there was any other way that our 
mail could have been misplaced. They checked the sorting room 
and said that everything had been received. I continued to get 
our mail the following week and did not receive any other 
applications, and aside from the normal checks, receipts, ads, 
et cetera.
    On Tuesday, December 22, one of our Commissioners in my 
absence went to the Post Office to check the mailbox and [oh my 
goodness] there were found 40 applications all postmarked 
December 4 and routed through Grand Rapids. Forty young people 
within a stone's throw of Lansing were denied a chance at up to 
a $5,000 scholarship because our government has made the Postal 
system inept.''
    We certainly do not want the government to make the Postal 
Service inept and allow for something like this to happen. If 
you do the math here, it took 18 days for applications that 
were postmarked on the day that they were supposed to be to 
actually get into the hands of this Commission.
    So, I hear these types of comments frequently in Michigan 
and I guess I feel like we are in somewhat of a death spiral. I 
understand the impact on First-Class Mail and revenues and the 
financial stress that that puts on the Service, but as service 
degrades, then people figure, ``I am not going to use the 
Service anymore. I am going to have these students just do it 
electronically going forward.'' And I know that there have been 
a number of closures related to that.
    Postmaster, it looks like you want to respond to this. I 
was not going to ask for a response to this, but I would love 
to hear your thoughts.
    Ms. Brennan. No, Senator Peters, I just would like to say 
that service is foundational and it is key to growth for the 
Postal Service. It is in our name. So, we are working day in 
and day out to improve service reliability. This particular 
example is certainly unacceptable and not indicative of the 
caliber of service we typically provide. But, know that we are 
committed to improving service.
    Senator Peters. Well, I know that you are and I did not 
mean to suggest that you were not. I meant that, as a 
situation, this shows that we have a problem here. And I know 
that the folks, the men and women who work in the Postal 
Service are hard working and dedicated individuals. But, also, 
as you cut costs and close facilities and do these types of 
things, it is going to have an impact on service, and we have 
to figure out a way so that that does not happen, so that we 
are not in this death spiral.
    And, I think, Mr. Millstein, that your testimony was 
particularly interesting. The comment that you made was that 
the Congress and the government treat the Postal Service as a 
monopoly--when it clearly is not a monopoly, and yet we saddle 
USPS with the regulations that you would expect from an 
electric utility--perhaps even more than an electric utility, 
which we know is a monopoly since it is only that one line into 
the household. There is no monopoly occuring in this space--and 
it is not happening, particularly, when taking into account the 
universal service obligation.
    I want to pick up on the universal service obligation, as 
well, because I also represent--Michigan has a number of very 
rural areas, as well, and I am concerned about that universal 
obligation. And your comments to Senator Tester, that we should 
not end that, I agree with. We have to continue that service.
    You mentioned that other countries have flexibility, but 
are there any countries that do not subsidize that type of 
thing? And, I look at subsidies--Congress currently subsidizes 
because we want airline service to extend to rural areas. We 
subsidize airlines to fly airplanes to those areas. We are 
expecting the Postal Service to make a profit in very rural 
areas. Are there countries that do not subsidize, or is that 
only related to flexibility, or is there more to it?
    Mr. Millstein. Yes. There are a number of countries. Japan, 
Italy, Britain, and Australia have privatized their postal 
services, and in the context--having privatized them--require 
them to still meet a universal service obligation. And you do 
not have to go down the full road to privatization in order to 
do this, but what you do have to do is permit what 
privatization permitted in these countries, which is to allow 
those postal services to engage in other lines of business and 
to use the profits made in those other lines of business to 
subsidize their ability to meet the universal service 
    So, you can do this in a couple of different ways. The 
Congress, itself, could do it by direct appropriation in order 
to ensure that rural communities are served and those 155 
million points of delivery have regular service. Or, you can 
expand the kinds of businesses that the Postal Service is 
permitted to be in so as to generate incremental revenues to 
foot that bill. But, either way, it costs something to maintain 
this network, and clearly, the price constraints under which 
the Service is currently operating, do not permit it to do this 
very well for very much longer without incremental price 
increases or incremental revenues.
    Senator Peters. Mr. Williams.
    Mr. Williams. Thank you, sir. Actually, the hallmark--the 
world posts are doing much better now, but the hallmark of 
their success has been pricing flexibility as well as the 
ability to diversify. World posts now make--last year, they 
began making more money on non-mail than on mail.
    As far as privatization, it has some intriguing aspects to 
it, but when you talk about privatization, there are posts that 
are moving in that direction. The only ones that are privatized 
so far are in tiny places, and we would be really foolhardy to 
try to extrapolate from what the city-State of Singapore is 
doing--they are privatized--or Belgium, the size of Maryland, 
and others. The larger countries, in terms of geography, have 
not privatized--or else they have only partially privatized. 
The Postal Service is partially privatized. The work share 
discounts and the partnerships that they have constitute 
probably around 25 to 28 percent privatization. We have just 
done it in a different way, and we have done it in a way that 
preserves our promises to our people.
    Senator Peters. Mr. Millstein.
    Mr. Millstein. Yes, but I think that there are some larger 
industrial nations that have begun the process of privatizing 
their postal services. They are not fully done. They still own 
a substantial majority of the equity, but they are in the 
process of selling that equity into the public markets.
    That said, that is a big step. You do not have to go there 
to fix the short-term problems that the Postal Service faces. 
But what you do have to do is find a way to give the Postal 
Service flexibility to raise prices and increase revenues to 
maintain this universal service obligation. They cannot do it--
it costs money to do it. They have to be able to generate the 
revenues to cover the burden.
    Mr. Williams. There is a reason that the large countries 
are not finished privatizing. It is because they stopped. They 
started forward, they began to sag, and they have halted the 
    Senator Peters. Yes.
    Mr. Williams. The only one that is a little bit larger is 
England. When England privatized, they took over all of the 
liabilities. Not only is that not on the table, to take over 
our liabilities, but, in the past legislation, you asked that 
we prefund them. I know that you are trying to do some really 
interesting, clever things in the proposed legislation, but as 
far as large countries that have privatized--there are not any. 
They started and they stopped.
    Senator Peters. Yes. Well, I appreciate that. Certainly, I 
am a big proponent of maintaining universal service. I think 
that it is a critical part of the Postal Service. I appreciated 
the comment that you lose your soul if you end that feature of 
the Postal Service. But understand that you are also being 
cannibalized, your business, by very aggressive private 
companies that are out there taking the real profitable parts 
of your business.
    So, I just want to say, my time has ended, but I am here 
for you in figuring out a solution to this. I look forward to 
working with you. Sorry about the time constraints on this 
panel, but I know that all of you are committed to finding a 
solution, and I am, as well. I look forward to working with you 
in the--it will have to be in the months ahead--not years. Too 
many years have already gone by. We have to figure this out and 
we have to figure it out as soon as possible.
    Ms. Brennan. Thank you, Senator Peters.
    Senator Carper. I like that sense of urgency. That is a 
sense of urgency that all of us on this panel need to feel--all 
of us. Thank you, Senator Peters.
    I joined Senator Peters and Senator Stabenow about 10 days 
ago in Detroit for the opening of the Detroit Auto Show, and 
before I left, I stopped by one of the restrooms there, Gary, 
and as I was coming out, there was a janitor waiting to go in. 
And, as you know, there were tons of people, the place was just 
packed with thousands and thousands of people there for the 
opening day.
    And, I said to the janitor, ``The restrooms here are really 
clean. I mean, this is amazing, all of these people and they 
look so presentable and they are clean.'' And, I said, ``Who 
does this? '' And, he thought for a second and he said, ``Well, 
I do.'' And, I said, ``Well, you are doing a good job.'' He 
said to me, I will never forget--he said, ``That is my job and 
I am proud to do it.'' And, I said, ``Terrific.'' And, he said, 
``We all have our jobs. We need to do our jobs well.''
    He was right. And our job here is to be an enabler. We 
cannot fix this problem by ourselves, but we can certainly 
enable the Postal Service to do a lot of what others have 
suggested that they need to do. So, we are going to do our job.
    Part of our job is to unleash innovation and creativity 
within the Postal Service. General, you and I have talked a bit 
about some of the innovations that are being pursued, that 
could be pursued, and I would just like for you to share with 
us some of what you are doing now that you think is promising, 
in terms of generating additional revenues. I am not interested 
in the Postal Service owning a bank. In some countries, the 
postal services own banks. I do not know, could we lease space 
for bank branches like we do in supermarkets? That might make 
sense. I am not interested in the Postal Service owning an 
insurance company.
    But, those things notwithstanding, there are some 
innovations that can be made and we can do a number of things. 
The Postal Service can do a number of things if you want to and 
if we let you. So, go ahead and just give us--and then I am 
going to ask the other panelists to react to those ideas and 
maybe give us some of your own. Please, General.
    Ms. Brennan. Thank you, Ranking Member. If you consider our 
infrastructure, it is important that we innovate at the core, 
which we have been doing when you consider the growth in market 
share of our package volume, looking at customized delivery 
solutions with this exponential growth in e-commerce.
    When we look beyond the current statute--and fundamentally, 
we are looking for more flexibility in pricing and product. One 
example that we should consider is that, if we have more than 
200,000 vehicles, as I mentioned, traversing more than four 
million miles on any given day--Inspector General Williams 
mentioned smart cities--is there an opportunity for us to 
partner with these local municipalities and apply sensors to 
our delivery vehicles that could capture air quality samples, 
that could consider road conditions, traffic patterns, and the 
like? That is just one example.
    Also, we are currently partnering with the Census Bureau on 
onboarding Census employees, similar to our passport operation 
that we have in our retail offices, where you come in, we 
validate your information, and we authenticate your identity. 
Something that we are currently doing with another Federal 
agency, but maybe there is application there, as well, that we 
can pursue. So, these are just two examples.
    I think that we have been very innovative with the mail, in 
terms of bridging hard copy and digital and working with the 
industry to look at promotional pricing to say, ``How do you 
enhance the value of hard copy communication?'' So, I think 
that there are a number of opportunities--certainly within our 
current constraints and then with some additional flexibility--
that we can pursue.
    Senator Carper. Can you talk about what is going on with 
respect to delivering groceries in a couple of metropolitan 
    Ms. Brennan. Yes, sir. We actually started grocery delivery 
in San Francisco roughly 2 years ago and we have since expanded 
to other markets. And we look at that, again, as an opportunity 
to innovate at the core, leveraging our infrastructure and 
looking for other ways to generate revenue. So, we are talking 
with a number of potential customers about expanding that type 
of service, and also looking at other physical goods that we 
could deliver.
    Mr. Taub. Senator Carper, I have a few observations.
    Senator Carper. Chairman Taub.
    Mr. Taub. First and foremost, as you have heard, I think, 
throughout all of the witness testimonies this morning and 
certainly the Commission's testimonies, there is a financial 
balance sheet mess and that has real world implications in 
terms of very low liquidity, very little working capital to 
invest, and critically deferred capital investments, whether it 
is vehicles or package sortation equipment. So, we can think of 
great ideas, but unless you have that capital to invest, there 
are some costs there and I think that the Postmaster General 
outlined some of these. While we think about broadening the 
aperture, I do not think that we should lose sight of the core 
of the Postal Service and innovating the products that they 
have today.
    The other aspect that I observe also goes to this issue 
that I mentioned--and the Commission's testimony outlines this 
aspect of universal service. We had some discussion here 
earlier today. I would point out, though, that in the United 
States, unlike most other countries around the planet, we have 
not specifically defined the various features--except for the 
33 years of the annual appropriation bill mandating 6-day 
delivery--in law. That has served the Postal Service and our 
Nation well for 240 years, the flexibility to balance those 
needs. But now, when you are in the financial situation that we 
are, a better understanding of the costs of what we expect of 
the Postal Service helps us to determine--if we are looking to 
broaden that aperture--the costs of getting in an area, the 
potential benefits of getting in an area, and if getting in 
that area will still allow the Postal Service to be self-
    Senator Carper. All right. Thank you for those thoughts.
    I am going to ask the rest of our panel just to keep in 
mind a response to my question, responding to what the General 
has said. I am going to pass the gavel to Senator Heitkamp and 
run to vote. I will be back shortly. Thank you, Heidi. Thank 
you all.


    Senator Heitkamp [Presiding.] It will be a fleeting moment 
of fame, I am quite certain. [Laughter.]
    I want to follow up on what Senator Tester was talking 
about. No big surprise there, Megan, but I obviously continue 
to be very concerned about rural Postal delivery. I just want 
to give you some statistics, and I want to thank you all for 
once again appearing. I ran into several of my colleagues as I 
was rushing back here, telling them that we are working on 
Postal reform. This has been an issue that so many people have 
spent so many hours on, and I thank both Jim and Dave.
    You basically nailed it. There is not any idea out there 
that we have not vetted, that we have not figured out, or that 
we have left behind. There is no magic bullet. We just have to 
do the work that a board of directors should do for an entity 
that runs very much like a business.
    And, certainly, I think that there has been a lot of effort 
on this Committee--it has not been successful, I mean, let us 
be honest. I watched, in my location here in D.C., the mail 
being delivered at Christmastime with U-Hauls. We even saw it 
in North Dakota, so we know that we have some issues that we 
have to confront in terms of mail delivery.
    And, I certainly share the sentiment that once we start 
telling someone, ``We are not going to deliver the mail at the 
end of the mile,'' then we are not the United States Postal 
Service. We are not meeting our constitutional obligation.
    And, so, my focus has been mostly on what this means for 
rural America. And, so, I want to kind of give you some 
statistics, just so that you understand what Senator Tester is 
talking about, in terms of the prominence and importance of 
mail delivery in rural America.
    The Inspector General of the United States Postal Service 
released a report   in April 2015   about the   variance in 
originating First-Class Mail single piece volume declines 
throughout the United States. From 1995 to 2013, the 
originating First-Class Mail volume in North Dakota only 
decreased by 37 percent. That is the lowest rate of volume 
decline of any State in the country. It is significantly lower 
than the 61 percent national average First-Class Mail volume 
decline for this same period. And I want to point out that 
other rural States, such as South Dakota, Montana, and Vermont 
followed a similar pattern. If you want to know where you have 
not seen this same rapid rate of decline, it is in rural 
States. It is in rural communities. So, that just impresses 
upon people how important rural delivery is.
    And, we recently, and I do not know--Megan, I am sure your 
staff has briefed you about the situation that we have in 
    Ms. Brennan. Yes----
    Senator Heitkamp. It is a subdivision in Fargo, basically, 
but it is rural delivery. And we have talked several times 
about this, about the contracting for rural Postal carriers and 
the difficulty that we have when old deliverers, basically, are 
edged out monetarily by somebody who wants the contract.
    I am going to talk a little bit about what is happening in 
this neighborhood in South Fargo. The residents recently formed 
a Facebook group, and everybody in the subdivision is on this 
Facebook group. Do you know why? So that they can swap mail, 
because the mail is not getting delivered to the right Post 
Office (P.O.) box.
    Now, think about the time of year that we are in and what 
is being delivered. Senator Tester has explained that the 
safest way to protect your personal data and your personal 
information is the U.S. Postal Service, right? So, what is 
being delivered to your neighbors right now? Your W-2s, right? 
Confidential information--1099s, tax data, and information that 
contains some of the most private information, other than your 
medical information: your financial information.
    And when we followed up on this, and the Postmaster in 
Fargo is busy working on this, but when we followed up on this, 
we asked, ``What is the training for somebody who gets a new 
contract? '' They said, ``24 hours.'' 24 hours to try and 
figure out how to deliver the mail.
    And, I do not mean to say that this one incident proves the 
point of what is happening in rural delivery, but you know and 
I know, from the portal we opened up called #fixmymail, that 
this is not an isolated circumstance. It is unique, because it 
is occuring in rural Fargo, as opposed to Dunn County or one of 
the more rural counties.
    So, how are we going to reestablish that trust and faith, 
Postmaster General, in rural delivery, when in rural America 
they just think that they have lost a whole lot of quality in 
the delivery of Postal services?
    Ms. Brennan. Senator Heitkamp, we are committed to rural 
America and I, personally, am as well. And in terms of 
training, that is an investment in our employees and that is 
something that we have addressed this year and----
    Senator Heitkamp. Well, they are not really your employees, 
though. They are your contractors, right?
    Ms. Brennan. But they represent the Postal Service, so----
    Senator Heitkamp. They sure do.
    Ms. Brennan. We need to train them. Whether it is a 
contract employee or a career Postal employee, they need to be 
    In terms of improvements in rural America, we have been 
working to establish hubs, entry points specifically for our 
county newspapers, by working with the National Newspaper 
Association. In many rural areas, we have adjusted 
transportation and also added additional capacity where it is 
needed. But, please know, we are committed to rural America.
    And, as you know, we are also looking to enhance service 
measurement, working with the regulator, so that we can have 
more granular data and that we can identify pinch points or any 
systemic issues, if we have them, and so that we can address it 
quicker and ensure that we are providing consistent and 
reliable service. That is our commitment.
    Senator Heitkamp. And I have no doubt that your words are 
heartfelt. I mean, we have had these conversations and I have 
been grateful for all of the meetings and the work that we did 
on our rural Postal bill, many provisions of which have been 
included in this bill. But, service standards are not what they 
were. They just are not, and they are not acceptable. Even in 
the old days, when I was a kid--and I think that I have told 
you this story, where I challenged my law school classmates in 
Portland, Oregon to send me a letter that said ``Heidi'' and 
the zip code--and I got that letter. I got their letters. I 
mean, they took up the challenge. And I got them in 2 days. 
That does not happen anymore.
    And, so, we recognize the challenges and the financial 
challenges facing the Postal Service, but I do not want this 
just to be about spreadsheets. I want this to be about service 
and about once again reestablishing, especially in rural 
communities--we desperately need to have a fair balance between 
cost cutting and economy measures and continuing the mandate 
that we believe the writers of the Constitution gave us, which 
is to have a Postal system that works for the entire country.
    And, so, I just want to make sure of that, and we will have 
follow-up questions, Megan. I know that you are heartfelt, but 
we just do not see it in rural America. We do not see that 
concern being translated into improvements.
    Ms. Brennan. And I would say, Senator Heitkamp, that 
financial stability does support those service efforts. We are 
committed and we look forward to continuing to work with you on 
these issues.
    Senator Heitkamp. I have used up all of my time, and I see 
that Senator Baldwin is back. I am going to yield and give her 
time, and if they do not show up, then we will have it all to 
ourselves, Tammy.
    Senator Baldwin. Great. [Laughter.]
    Thank you, Chairman Heitkamp.
    Senator Heitkamp. The inmates are in charge of the asylum. 


    Senator Baldwin. I appreciate it, and in their absence, I 
want to recognize the Chairman and Ranking Member Carper for 
this hearing. Everybody has commented on the fact that the 
Postal Service touches each one of our constituents, each one 
of our communities, and I am appreciative of the work of all of 
the stakeholders in getting us to have this conversation. And, 
I will talk to him directly when he returns, but I appreciate 
Senator Carper's work and look forward to continuing to work 
with him on the rate provisions, in particular, in the 
    So, everyone has acknowledged the significant changes to 
dealing with printed mail in the era of e-commerce and in the 
wake of our recession. The Postal Service affects our 
communities in different ways, and I think that last session, 
many of my colleagues heard me talk about some of the unique 
ways in which it impacts Wisconsin, because we have this 
incredible workforce of loyal Postal Service workers, but we 
are also a State that is forested in the north of the State and 
is the number one producer of paper in the country. Because of 
that, we have a vibrant graphics and printing industry and we 
have many mailhouses in the State. Fully a third of the 
communication papers printed in the State of Wisconsin are 
delivered through the Postal Service. So, the health, vibrancy, 
and future of the Post Office, I think, has a disproportionate 
impact on the State of Wisconsin.
    As a consequence of that, I not only hear from Postal 
customers, but also from my constituents who work in the 
mailing industry. From them, I hear about the challenges 
associated with the changes in mail volume. One of the things 
that I have heard about is the importance of having consistent 
rates and predictable pricing, so that businesses can plan and 
budget accordingly.
    Chairman Taub, one of the purposes of the current rate 
structure and the upcoming rate review is to ensure pricing 
stability, yet it appears that the effect of the exigency 
surcharge may have exactly the opposite effect. For example, it 
seems like, if we do not take action, rates are likely to go 
down in April and will potentially go back up at some point--
either through legislation or after the PRC review.
    So, I have a couple of questions, but I want to start with 
this one: Can you speak to the importance of pricing 
predictability and how the constant changing of rates, or this 
yo-yo effect that we see, affects consumers and the mailing 
    Mr. Taub. Certainly, Senator. First and foremost, I would 
like to point out that in 2017--or actually starting December 
20 of this year--by law, the Commission will begin a proceeding 
to look at the decade of experience that we have with this 
price-cap system and the market-dominant rate system that is in 
place. I certainly would not and could not prejudge what the 
Commission will do at that time, but as the law mandates, that 
will be conducted in a very open and public way, with notice 
and an opportunity for public comment. And the key mandate of 
that study is for the Commission to look at this decade of 
experience, look at the nine objectives in law and the 14 
factors we take into effect, and assess how it has been 
    I would say, certainly, the law has been clear that there 
is a CPI cap. The law also included a provision for, in an 
extraordinary and exceptional circumstance, an opportunity to 
recover losses due to that event. That has occurred here, all 
done in an open and public way with advance notice. But, we 
certainly will be looking at that.
    Of the nine objectives, number two is to create 
predictability and stability in rates, and as I said, that is 
one of nine. Our most recent annual report observed that some 
of these can sometimes seem in conflict with one another, but 
the bean will be on our nose, starting December 20 of this 
year, to look at that. But, clearly, whatever we look at, 
objective number two goes to your point, which is the need to 
create predictability and stability in rates--and that will 
have to be applied equally with the other eight objectives.
    Senator Baldwin. Well, in your testimony, you talked about 
the balancing of certain objectives and factors, and you have 
repeated that now. Talk a little bit more about the balancing 
issue, because, I mean, I think that that is clearly what is 
most critically important to constituents who have such 
interactions with the U.S. Postal Service in the State of 
Wisconsin and elsewhere. How do you make sure that it is both 
fair and equitable to consumers, while at the same time 
ensuring that it sustains the Postal Service?
    Mr. Taub. Indeed, that is the challenge that the 2006 law, 
in its wisdom, put on for the Commission. The Commission 
promulgated regulations shortly after that law was enacted to 
create this new system. In essence, what it did was say that we 
are going to take this current CPI limitation, that is very 
clearly delineated in statute, and then we will look to make 
sure that, whenever the Postal Service makes changes, they are 
balancing those nine objectives and factors. It is going to 
shift December 20 of this year when we start that review, 
because now the bean is back on our nose to look at those nine 
objectives and ask, ``In the 10 years of experience, have they 
achieved that? ''
    And maybe just to highlight a few for the record, not only 
are you creating predictability and stability in rates, but 
number 5 is to assure adequate revenues, including retained 
earnings, to maintain financial stability. Number 4 is to allow 
the Postal Service pricing flexibility. Number 8 speaks of just 
and reasonable rates.
    Sometimes, certainly, I think that even describing that can 
be in conflict, and so it is going to be our challenge to make 
sure that when we look at this--whatever system is the 
outcome--we hit that sweet spot.
    If I could just add to that, looking ahead to 2017, there 
is a large spectrum, it seems to me, just reading the law and 
having been involved in it, of what the Commission may or may 
not do. And as I said, I do not know what the Commission will 
do. It will have to look at this. But, the outcome could be 
everything from looking at it and saying that the status quo is 
where we are at, to, as the law says, devise such modifications 
or an alternative system to set rates to meet those objectives. 
That is a broad spectrum. I do not know where the Commission 
will set in, but please know that, first, we are planning right 
now for that study so that we can hit the ground running. There 
is going to be a lot of focus on that, understandably, and the 
stakes are high and we want to do it right. We do not want to 
end up with a study that raises more questions than it answers.
    Senator Baldwin. Mr. Chairman, I have gone over my time, so 
I yield back.
    Senator Carper. [Presiding.] Did you ask what you wanted to 
    Senator Baldwin. I did.
    Senator Carper. OK, good. Heidi?
    Senator Heitkamp. I have just a couple more questions, if 
that is OK.
    Senator Carper. Yes. Go ahead.
    Senator Heitkamp. Thank you.
    Going back to the statistics that I cited, Megan, can we 
just get a commitment that you actually will look at geographic 
needs in rural America, that we can get a greater sense of 
where meeting those needs fits within the Postal Service's 
    Ms. Brennan. Yes, Senator Heitkamp. Yes. Absolutely.
    Senator Heitkamp. OK. Thank you.
    And a question for the Inspector General, Mr. Williams. 
Thank you for all of your great work. And in your testimony, 
you state that the Postal Service's survival is a tribute--and 
I am sure that the Postmaster General would agree with this--to 
the men and women who work there. I have met with Postal 
workers who are incredibly dedicated, walking in this kind of 
ice, delivering mail. This is hard work and they do it every 
day because they love their customers, they love their route, 
and they are so committed and dedicated.
    But, we see morale going down and down and down. And, I 
commissioned a report that you guys were very generous in 
helping with, providing some great data regarding challenges in 
the Bakken with overtime and taking a look at how we could 
continue to address morale concerns. Are you currently working 
on any additional morale or workforce studies that really 
highlight some of the needs that we have to continue to 
recognize and appreciate the people who work for the Postal 
    Mr. Williams. The proposed legislation, the Improving 
Postal Operations, Service and Transparency Act of 2015 
(iPOST), contains a provision whereby we would conduct a 
comprehensive study. So, we have begun the process of trying to 
imagine what that would be like and structuring for it. We are 
looking at that. Intuitively, you do worry. We are into the 
sixth or seventh year where postal workers are being told that 
their performance is poor and that we are facing bankruptcy and 
insolvency. That has affected morale. I have not counted it 
yet, but you can feel it. You can feel it everywhere.
    So, I would say that we do have a problem. There are 
results coming out of a recent employee survey that the Postal 
Service conducted called ``Postal Pulse'' by Gallup. That will 
be coming out. That will tell us some.
    I do know that the Postal Service is struggling with that. 
They have created a program called ``Postal Proud,'' which is 
an effort to try to instill in workers a sense of pride, to 
express to them a sense of appreciation, and to remind them of 
the importance of their mission.
    Senator Heitkamp. Yes. Not to belabor this point, but my 
husband, who is a family physician, takes care of a number of 
postal workers. He came home and told me that we were very bad 
employers. And, I take that to heart. I mean, again, one story 
does not make the case, but certainly we know that we have an 
issue. We included a morale component in the rural bill that I 
developed, but we need to find better ways to say thank you--
and I want to make that point.
    Thank you, Mr. Chairman, for giving me the extra time.
    Mr. Williams. If I may, Senator, I am sorry, but----
    Senator Carper. No, go ahead.
    Mr. Williams. I think--well, we were asked, when is the 
time to pass legislation? In some ways, we are already 
beginning to see casualties from that legislation not having 
been passed. The vehicles that we are planning for the future 
are probably not exactly the vehicles that we would have. The 
build-down, which has caused some disruption--we hope 
temporarily--partially caused that because it had to be rushed. 
There was not enough money to have a coherent, gentle glide 
into it. And, I would say, morale is another casualty. The time 
to pass legislation has passed and we are beginning now to 
unscrew lightbulbs from the tree.
    Senator Carper. I am going to yield to Senator McCaskill in 
just a second, but would the rest of you just react to what the 
Inspector General has just said about a sense of urgency? Mr. 
    Mr. Millstein. Yes. As I said in my opening remarks, the 
first thing you need to do is stabilize the patient--and this 
patient is soon to be bleeding cash, not making revenue. And as 
it bleeds cash, it has really no choice but to cut back on 
service standards and cut back on the network, in order to be a 
self-sustaining entity. So, the first order of business here is 
to find ways to increase its revenue so that it can cover its 
    Senator Carper. All right. Thank you. Ms. Rectanus.
    Ms. Rectanus. Thank you----
    Senator Carper. Your reaction to what Mr. Williams just 
    Ms. Rectanus. Yes. Thank you. Well, as you know, the Postal 
Service's financial position has been on our ``High-Risk List'' 
for many years, and we have been saying words like ``urgent'' 
and ``dire'' also for many years.
    While we definitely support providing the Postal Service 
the resources it needs to do its job--because we know right now 
that expecting it to provide universal service while being 
self-sustaining is not working--we would caution that there is 
a downside to only looking at rates and revenue generation 
without an equal expectation of and the flexibility for the 
Postal Service to also do what it can to reduce its excess 
capacity and better align costs with revenues. This is 
something that we had talked about for comprehensive reform. 
So, we would also say that that is urgent.
    Senator Carper. Good. Thank you. Mr. Taub, Mr. 
    Mr. Taub. Senator, I think that I simply concur with what 
you have heard already. Frankly, the time to pass, as the 
Inspector General indicated, has passed. We are late on this 
and the Postal Service needs that financial breathing room, and 
I would suggest that that should be the real primary focus. If 
they can get some of that breathing room, frankly, I think that 
there is a lot in the 2006 law that is working well. The tools 
are there for the Postal Service, if they just have that 
financial breathing room to move forward.
    Senator Carper. All right. Thank you.
    General, sense of urgency?
    Ms. Brennan. Mr. Chairman, as mentioned earlier, the time 
is now.
    If you would indulge me, please, may I respond to Senator 
Heitkamp's comments about employee morale?
    Senator Carper. Go ahead.
    Ms. Brennan. Morale is critically important, because we are 
a human organization--and I take that responsibility very 
seriously. In fact, one of my core objectives is employee 
engagement at all levels of the organization. And Inspector 
Williams mentioned a new initiative called ``Postal Proud.'' 
That is intended to leverage the pride and the commitment that 
Postal employees have to serve their customers.
    And if I may, also, Mr. Chairman--just to respond to Ms. 
Rectanus' comment about cost reductions--I think that the 
Postal Service has demonstrated--by taking out nearly $15 
billion from our annual cost base and also by projecting out 
another $5 billion reduction through 2020--that we recognize 
that there are two sides of a financial ledger. We have to grow 
the business and we also need to continue to drive operating 
efficiency. Thank you.
    Senator Heitkamp. Mr. Chairman.
    Senator Carper. Yes?
    Senator Heitkamp. Can I just follow up and say that I want 
to applaud you personally, because I do not think that when I 
came to the Senate that was true--that there was an attempt to 
reach out to and to work with the employees. I think that that 
is a great improvement that we have seen since you have taken 
over the helm. And, so, I want to personally acknowledge the 
hard work that you have engaged in and the outreach that you 
have done.
    Ms. Brennan. Thank you, Senator Heitkamp.
    Senator Carper. General, are you going to sit there and 
take that? [Laughter.]
    Ms. Brennan. I welcome that. Thank you.
    Senator Carper. Senator McCaskill.


    Senator McCaskill. Thank you.
    Last year at a hearing, I expressed concern about the 
blurring of the line between customer and competitor for last 
mile agreements. We all know that the last mile is one of the 
most important drivers of costs in our Postal infrastructure. 
It is that last mile that is very expensive. And, so, the 
notion that we are doing business with our competitors for the 
last mile, to me, deserves a great deal of scrutiny.
    And after that hearing, I was really concerned that that 
scrutiny was not occurring, and so we asked GAO to take a look 
at it, as Ms. Rectanus knows, and it is not good, folks. Our 
competitors do an analysis on every single load as to weight 
and whether they can make more money by using the Postal 
Service or delivering it themselves.
    Meanwhile, we do not even know what our costs are based on 
weight. We do not even collect information on the size of the 
packages that we are delivering under those agreements. The 
Postal Service does not know the impact of package size and 
weight on its delivery costs in those agreements.
    Now, I do not get that. These are the competitors, who we 
have to beat to be successful as a Postal Service--and they are 
fleecing us. They are analyzing every instance to see whether 
they are going to push these off on us because they can make 
more money, or whether they are going to keep them, themselves, 
because they can make more money.
    Meanwhile, we have in these contracts an agreement that 
there must be a minimum volume--and we are not collecting those 
payments when they do not meet their minimum volume. Sales 
officials told GAO that they decided not to require payment for 
business reasons, including maintaining this mailer as a source 
of package volume. We look like suckers. We need the volume. We 
do not care if you are making money off of us. We will do the 
expensive part because we do not even realize that we should 
turn you down for this unless you pay us more. There should 
never be an instance when our competitors are making money off 
of us for the last mile, ever.
    So, who is responsible for enforcing these contracts and 
who is making this decision to give our competitors a free ride 
when they do not even meet the minimums on the contract?
    Ms. Brennan. May I address that, Senator McCaskill?
    Senator McCaskill. Yes, please. I think that you are in 
    Ms. Brennan. The negotiated service agreements are 
profitable, and given the commercial sensitivity----
    Senator McCaskill. How do you know that?
    Ms. Brennan. Given the commercial sensitivity, I would be 
happy to talk with you in more detail in a closed session. But, 
suffice it to say that negotiated service agreements are 
reviewed by the regulator. The negotiated service agreements 
that you are commenting on have grown revenue and contribution 
year after year. It is a high contribution product, Parcel 
Select, because it is entered at the destination facility, at 
the local Post Office, and it eliminates all of that upstream 
cost of transportation and distribution.
    Senator McCaskill. If you are not analyzing these packages 
on the same basis as your competitor, how do you know that they 
are profitable?
    Ms. Brennan. Senator McCaskill, in response to your inquiry 
and the GAO study, we did go back and look at cube and weight, 
and I have that information and I would be happy to share that 
with you.
    Senator McCaskill. That is terrific. So, why are we not 
enforcing the provisions of the contract on minimum volume?
    Ms. Brennan. I am not sure which contract you are referring 
to, but I would--I would welcome the opportunity to discuss 
that with you----
    Senator McCaskill. Well, it is in the GAO report----
    Ms. Brennan. Right.
    Senator McCaskill [continuing]. Which I am sure you know by 
now, right?
    Ms. Brennan. I am familiar with it.
    Senator McCaskill. So, in the GAO report, it says that you 
do not collect the payments on the volume targets that they are 
required to be, and GAO--am I correct that GAO was told that 
this was due to business reasons and wanting to maintain the 
customer--and therefore, it was decided not to enforce the 
provisions of the contract?
    Ms. Rectanus. Yes. What we were told was that there were 
circumstances where there were broader business reasons for 
them to want to maintain the contract, including anticipating 
additional volume in the future. So, they did it with a 
reasonable basis, but it had not been documented, which is what 
we were talking about, in terms of improving the procedure, so 
that when you make decisions like that, it is clear as to why 
those decisions are being made.
    Senator McCaskill. I just think that this needs a lot more 
attention, Postmaster. First of all, I think that you have done 
a much better job of marketing since we began examining the 
challenges that the Postal Service faces. I think that you are 
doing some positive things and that a lot of the blame for the 
problems needs to be pointed in our direction--not in your 
direction. This Congress has been incapable, despite this guy 
who works on this, I think, 24/7, and we all get to the point 
where we see him coming down the hall and we go, ``Oh, Post 
Office.'' [Laughter.]
    We know he is going to be on us about this.
    You are in a death struggle with your competitors, and I 
just do not want them to have any advantage over us, because we 
have no choice about that last mile. They do. And I want to 
make sure that choice is profitable for us, because they are 
making a choice sometimes to say, no, we will carry it 
ourselves. So, that is what I am really worried about.
    Ms. Brennan. Yes. And if I may, Senator McCaskill, there is 
such competition in that space--not just with our traditional 
competitors, but also with what I will describe as the 
``Uberization'' of package delivery, the crowdsourcing of 
package delivery, the leisure carriers, or the regional 
carriers. So, we have to be pretty deliberate, in terms of how 
we price, because it is a very competitive landscape. But, do 
know that we are very conscious of the need to increase yield 
per package.
    Senator McCaskill. That is great.
    Mr. Taub, how close is the Postal Service to being able to 
break down delivery times for rural and urban areas?
    Mr. Taub. We have been working closely as a result of the 
request that we received from the Senate. As you know, we 
started out, at that point, with no rural-delivery information 
being able to be reported. The Postmaster General may be able 
to echo some more, but between working with the Senate staff 
and the Postal Service, my understanding is that the Postal 
Service may be able to start reporting to us something this 
spring, which would be a big step forward.
    Senator McCaskill. I look forward to that. I think that it 
is really important that we get a handle on this. For those of 
us who are really pushing to protect rural delivery, I think 
that it is important that we know what we are working with from 
a data-driven perspective.
    Thank you all very much. Thank you, Mr. Chairman.
    Senator Carper. Thank you, Senator McCaskill.
    Just before I ran off to vote, I asked for good ideas--
innovative ideas--and the General and the Chairman were kind 
enough to respond. Lori, David, and Jim, I would love to hear 
from you all as well.
    Before I do, I just will say to the Inspector General, we 
have been the beneficiaries, in this Committee, of a couple of 
folks who have served as detailees. One is still with us. He is 
over my left shoulder. It is Alex Fiske--and earlier it was 
Bruce Marsh--and they have just done terrific work, not just 
for the Senate, but, I think, for our country as well. So, we 
thank you very much for sharing them with us.
    Mr. Williams. Thank you, Senator, for recognizing that.
    Senator Carper. You bet.
    OK. Lori.
    Ms. Rectanus. I would like to echo something Mr. Taub said 
about the flexibility to engage in additional activities. Given 
what has brought us to this point--about costing the Postal 
Service more to deliver the services than they are paying for 
the services--they do not have a lot of places where they can 
take a risk. And, also, given their current structure, where 
they have monopolies in some areas and in other areas they may 
be disadvantaged, I think that it would be very difficult to 
find the appropriate venue.
    So, I do not have any ideas on my own, but I guess that 
what I would say is that we would want to be very cautious 
about making sure that, in any area that they would go into, 
they would not be unfairly disadvantaged or unfairly advantaged 
because of their unique situation.
    Senator Carper. Thank you. Mr. Williams.
    Mr. Williams. The 21st Century is going to see the 
proliferation of mega-cities of over 10 million each. Today, we 
have mega-cities. Almost exactly half of those are heaven and 
half of those are hell. What is coming at us is an enormously 
heavy lift.
    The Postal Service is in every neighborhood of America, and 
the difference between a bad mega-city and a good mega-city is 
a smart city. And we can play a very important role in, as 
Megan mentioned, collecting essential data, Wi-Fi strength, gas 
leaks, and all sorts of things as we pass through every single 
    Post Offices can become the front offices for a number of 
industries that are partially going virtual. I do not think 
that we want to live in an all-virtual world. We are atomic 
structures and cannot do that. So, that will require that, at 
the end of the day, there be contact points for humans with all 
of these industries--and we could be that contact point.
    In the neighborhoods, the delivery people can do more with 
regards to logistics management. So, there is enormous 
challenge and promise ahead of us. It is going to, eventually, 
become a question of not what can the Postal Service do, but 
what must the Postal Service do, in a number of these topical 
    Senator Carper. Well, those are very thoughtful ideas. 
Thank you.
    Under our legislation, we call for a real focus on 
innovation and the establishment of positions--essentially a 
Chief Innovation Officer (CIO)--and you may be one of our first 
nominees for that because that was pretty good. [Laughter.] Mr. 
    Mr. Millstein. Well, I actually join in those remarks. But, 
I come at it from a financial perspective. So, maintaining a 
network such as the Postal Service's is an expensive 
proposition, and the key to keeping costs--rather, prices--down 
is having more unit volume running through that network. So, 
the best way to moderate the increases that would otherwise be 
visited upon existing users is to add more users, so as to 
spread the fixed costs of that network across a greater number 
of units.
    As everyone has said here, that last mile is critical, and 
driving more unit volume through that last mile is critical to 
maintaining the integrity of the network and to keeping prices 
down. So, I think that you have to open them up to allow not 
just beer, wine, and other product deliveries, but to also let 
them innovate around partnerships with other businesses in 
these local environments that deliver goods to their customers. 
That is one way.
    Second, the Post Offices themselves are part of that 
network, which in the small community I came from, before I 
came to Washington, was a social center. But, with declining 
volumes of real mail, this is less and less so. So, the second 
way is to turn those Post Offices into, as Mr. Williams was 
saying, the front end of a variety of businesses. You may 
resist banking and insurance done by the Postal Service, 
itself, but it should be able to joint venture in that space 
with banks and insurance companies in the sale of products 
without--there are issues about putting the United States 
Postal Service imprimatur around any private business and 
avoiding any implication that it is government-backed, but 
nonetheless, I think that you have to drive traffic into the 
Post Offices, themselves. Otherwise, it is an underutilized 
asset. It is a key part of the network, and so this solution, 
to me, is all about driving incremental revenues through that 
network in order to moderate the price increase that would 
otherwise occur to offset declining volumes.
    Senator Carper. Those are all very helpful comments.
    I have one more quick one and then I am going to yield to 
Senator Heitkamp and to Senator Baldwin for any last questions 
that we have for this panel.
    General, I understand that this plummet, this deep drop 
that we have seen in First-Class Mail volume, really since--in 
part since the advent of the Internet, but really since the 
Great Recession--that it may be leveling off and the--in a 
sense, Senator Tester talked about the security aspects and we 
spend a whole lot of time in this Committee focusing on how to 
enhance cybersecurity. But, what are the prospects for First-
Class Mail going forward? As you look down the road to a couple 
of years from now, what does it look like?
    Ms. Brennan. Yes. Senator Carper, in fiscal year 2015, the 
single piece First-Class Mail, the ``Aunt Minnie'' stamped 
mail, declined roughly 5.5 percent. The commercial mail, or the 
presort volume, was fairly stable.
    When we look out, though, to 2020, we are expecting to see, 
roughly, a 17 percent decline in First-Class Mail. So, that 
will put tremendous pressure on the organization.
    Senator Carper. All right. Thank you very much.
    Senator Heitkamp, I want to thank you for joining us in 
crafting this legislation that I have been talking about. And I 
want to thank you and your staff for all of the input that you 
have provided to us. It is much appreciated and I think that it 
is going to bear great fruit.
    Senator Heitkamp. Thank you, Mr. Chairman, and I want to 
thank you for being so doggedly determined that we, as the 
board of directors for the United States Postal Service, do our 
duty and do our responsibility. Thank you for this hearing.
    I have no further comments, other than to say that I really 
appreciate the inclusion of a number of provisions that really 
focus on rural delivery and service performance standards. And, 
so, we will continue to work with the Chairman and continue to 
be committed to doing our responsible duty here on this 
Committee and in the U.S. Congress.
    Senator Carper. Thank you so much.
    Senator Baldwin, please.
    Senator Baldwin. Thank you. While you were casting your 
vote on the Senate floor, I had an opportunity to discuss rate 
predictability and stability, but I also had the opportunity to 
commend you, in your absence, on your work and look forward to 
continuing to work with you, especially on those rate 
provisions in the bill.
    And, we have had them before us for quite a while. This 
panel has been well grilled, and I am looking forward also to 
hearing from our second panel.
    Senator Carper. Thank you. Thank you so much. And, we just 
look forward to working with you as we go forward, and I hope 
with a sense of urgency.
    Maybe one last question. This will actually be for you, 
General. The Postal Service admittedly struggled to provide 
high quality, on-time delivery service in 2015, and your annual 
compliance reports show that no First-Class Mail products met 
their expected service targets for the year. I would just ask, 
what steps have you all taken, thus far, to improve delivery 
performance nationwide?
    Ms. Brennan. Yes, Senator. There have been a number of 
activities. One, looking particularly for volume that moves via 
air, we made some adjustments to our air transportation 
network, as well as to our surface network. Also, in select 
markets, we adjusted staffing and scheduling, as well as made 
adjustments to the operating window--primarily process 
improvements to ensure that we eliminate the variability of 
that service performance that you cited.
    Also, in terms of stabilizing the network, last spring we 
made a decision to defer any additional consolidations, 
recognizing that service is the Governor and that that is the 
commitment that we made.
    Senator Carper. All right. Thank you.
    One of the things that I love to do with panels, and 
especially with this panel--and I will do it probably with the 
next panel as well--is just to ask each of you--you gave your 
opening statements, five or so minutes, and did a great job of 
staying in the time limit. Just take a minute each--no more 
than a minute--and just give us a closing thought. It could be 
something that you have heard, thought about, something other 
people have said, questions, or whatever may pop up, just 
something else that you think is important to leave with us. It 
could be repetitious. I do not care. Just an important, 
valuable thought that you would like to leave with us before 
you leave. Thank you. General.
    Ms. Brennan. Senator Carper, first, thank you for your 
tireless advocacy on behalf of, not just the Postal Service, 
but the mailing industry--because it is a supply chain. And, I 
would like to thank you, on behalf of our employees, because 
the long-term viability of this organization is vital, and it 
is vital to the American economy. Our commitment is that we 
will continue to change and improve to better serve the 
American public. While we are challenged, these challenges are 
not insurmountable. With your help, we will preserve the United 
States Postal Service well into the future and maintain that 
universal service obligation. But, thank you very much for the 
opportunity to be here.
    Senator Carper. Thank you for those kind words. You can do 
it, we can help.
    Ms. Brennan. Thank you, sir.
    Senator Carper. Mr. Chairman.
    Mr. Taub. Senator, thank you, as well. I echo the 
Postmaster General's comments, as well as Senator Baldwin's and 
Senator Heitkamp's. All of you have legislation pending to deal 
with these fundamental issues and that is critical.
    I think the point that I would hit upon is one that we have 
talked a lot about, which is universal service. I think that it 
is important to underscore that, unlike in other countries, it 
is not defined. So, when each of us talk about what is expected 
of the United States Postal Service, each of us may have a 
different idea of what they are supposed to do and each of us 
will have a different price tag.
    Your legislation does require us at the Commission to 
repeat what we did in 2008, which was to undertake a study on 
universal service. I think that your proposal is crafted in a 
way to try to drive that definition a little further. But, 
frankly, until we go to first principles in the United States 
and really understand what it is that this 100 percent 
government agency rooted in the Constitution, going back before 
the Republic to Ben Franklin in 1775, what it is that we expect 
of them in 2016, we all may not be happy with the results of 
what they may or may not do going forward.
    Senator Carper. Thank you. Thank you, sir. Ms. Rectanus.
    Ms. Rectanus. Thank you again. I was pleased to be here 
    As GAO has said in its High-Risk Series, for us, we do 
still believe that comprehensive reform is needed, but we would 
also encourage you to think about comprehensive reform along 
three tracks. We have talked a lot today about ratepayer 
potential effects. We have talked a little bit about taxpayer 
potential effects. I think that what we would also want to see 
is support for the Postal Service's continued efforts to align 
costs with revenue, which does get at some of the level of 
services that we think are worthy of providing and that we are 
willing to pay for.
    We also would reiterate the importance of restructuring 
benefits, which we have talked a lot about.
    And the final thing to consider is putting in statute an 
allowance to take into account the Postal Service's financial 
position in binding arbitration.
    Senator Carper. All right. Good. Thank you, ma'am. Mr. 
    Mr. Williams. Thank you, Senator. Two quick points.
    Senator Johnson's very useful balance sheet statement has a 
line for other Postal assets. It is our property. It is at 
$16.1 billion. That is exactly how you would put it on a 
financial statement and it is exactly wrong with regard to how 
we ought to be viewing these assets. That is the depreciated 
value, which is what you use on a balance sheet, not the fair 
market value if we sell that property. I am not sure what the 
fair market value is. Down and dirty estimates can go up to $80 
    The second point--so, I think that we need to--that would 
be a consideration that this great worksheet has lit up.
    Senator Carper. OK. Thank you.
    Mr. Williams. The second thing is it--I think that a case 
could be made that it is time to declare victory on prefunding. 
I think that we are--the risk of overfunding is as great or 
greater than not having been fully funded at this point and we 
would love to do a report on that.
    Senator Carper. Great. Thank you. Thank you so much.
    Mr. Millstein, I also want to thank you for your earlier 
work at Treasury----
    Mr. Millstein. Thank you, sir.
    Senator Carper [continuing]. And at a very tough time for 
our country----
    Mr. Millstein. Thank you, sir.
    Senator Carper [continuing]. And to you and some others who 
did great work.
    Mr. Millstein. This is a considerably friendlier hearing 
than the ones that I was subjected to. [Laughter.]
    Senator Carper. I was in some of those and I know what you 
    Mr. Millstein. I appreciate how difficult it is to assemble 
legislative coalitions, but I do think that--and I do not want 
to be Donny Downer--but I do think that the Service is facing 
trends that are really working against it in the long term. 
And, so, I think that there is an immediate need to improve its 
cash-flow position and its balance sheet by restructuring the 
health care liability, in particular.
    But, for the long term, I think that if this Committee 
wants to avoid having a repeat of this hearing every year and a 
repeat of the need for an exigent rate increase, I think that 
we really have to, as a country, look at the network and what 
we are willing to let the Service do with it in order to 
preserve it. And, I do not think that that can be done 
overnight. I think that that really does require the Service to 
do some long-term projecting of what the impact of electronic 
communications is going to be on its business mail and the 
allegedly market dominant products and the impact of 
competition, as the Postmaster General said, a variety of 
competition in the last mile now. The Service needs to take a 
sober and realistic view, in terms of what the impact of those 
trends on its revenues will be, and try to come up with a plan 
that allows the Service to continue to fulfill its important 
mission all over America.
    Senator Carper. All right. Thank you.
    Before you all leave, you said some very kind words about 
the work that I and my colleagues have done, and I would just 
say that we appreciate that, but our staffs have worked so much 
harder than we have. We especially want to say thank you to 
those sitting behind me: John Kane, John Kilvington before 
that, and Jennifer, my Ohio State University (OSU) buddy. I 
also want to thank the other folks on Senator Johnson's team 
and certainly on Senator McCaskill's staff as well. We are just 
very grateful to them. We have a couple of other cosponsors. I 
think that Senator Moran may be stopping by. He is a Senator 
from Kansas. He and his staff have been terrific to work with 
and Senator Blunt and his staff have been as well.
    So, for everybody that has been a part of this, we are 
looking forward to keeping it going with a greater sense of 
urgency and we are going to be calling on each of you for some 
more help as we move forward. So, thank you all and we will 
look forward to seeing you again soon and talking with you. 
Thank you.
    Ms. Brennan. Thank you.
    Mr. Taub. Thank you.
    Ms. Rectanus. Thank you, sir.
    Senator Carper. I am going to ask our next panel of 
witnesses to go ahead and find your seats, please.
    As we welcome our second panel of witnesses and as you take 
your seats, I am just going to ask, my first question of our 
witnesses is are any of you from Wisconsin? Are any of you from 
Wisconsin? OK. We happen to have a Senator here from Wisconsin 
and we would be delighted if she chose to introduce you, Kathy.
    Senator Baldwin. I would be delighted to, and thank you to 
all of our panelists.
    I want to take a moment to introduce Kathy Collins from my 
home State of Wisconsin. Kathy grew up on a dairy farm and 
attended the University of Wisconsin-Madison (UW-Madison). At 
UW-Madison, she earned a degree in chemical engineering. Ms. 
Collins joined Domtar in 2013 in the role of Environmental 
Health and Safety Manager and then was promoted to General 
Manager of the Rothschild Mill, which I had the pleasure of 
touring back in October 2014 and once before then.
    I do want to note that the mills in Rothschild and Nekoosa 
have approximately 800 employees and are incredibly important 
to their communities and to our State's economy.
    Ms. Collins has more than 25 years of experience in the 
pulp and paper industry and we are just very lucky to have you 
here as a witness, especially to speak on the importance of the 
health and vibrancy of the U.S. Postal Service to the postal 
and forestry industry.
    Kathy, welcome.
    Senator Carper. Senator Baldwin, thank you very much for 
introducing Kathy. It is very nice to see you. We look forward 
to hearing from you here.
    I am going to be very brief in our introductions, but Fred 
Rolando has been the President--I want to say since 2009, is 
that right, Fred?--of the National Association of Letter 
Carriers (NALC), the union that represents, I think, over a 
quarter of a million active and retired letter carrier 
    I just want to say, for the record, what a joy it has been 
to have the chance to work with you and the members of your 
team as we try to fashion a path forward, not just for the 
Postal Service to survive or to get along, but actually to 
thrive and to better provide services going forward and to 
provide additional services--to enable additional services that 
maybe we have not even thought about. And, I am encouraged that 
those ideas are out there. We had some good ideas here earlier 
and I look forward to hearing from you at this time.
    So, go ahead, and then I will introduce Chip when it is his 
turn in the batter's box. Thank you.


    Mr. Rolando. Thank you, Senator. Likewise. I want to thank 
    \1\ The prepared statement of Mr. Rolando appears in the Appendix 
on page 152.
    Senator Carper. I like it when witnesses say, ``Likewise.''
    Mr. Rolando. Likewise, yes.
    Senator Carper. You do not hear that every day.
    Mr. Rolando. You do not. We say it quite a bit, so that was 
easier. I want to thank you, Ranking Member Carper, and please 
thank Chairman Johnson for inviting me to testify, and I want 
to thank the rest of the Committee members, also, for also 
serving as our board of directors. As you know, you are about 
the only board that we have now, so we appreciate that.
    You have asked me to focus today on the impact of 
legislative and regulatory burdens that are placed on the 
Postal Service, including the mandate to prefund retiree health 
benefits. But before I do so, I would like to comment on the 
broader theme of the hearing, the reality facing the Postal 
    In recent years, that reality has changed dramatically for 
the better. We are not in 2009 any more, when the Great 
Recession sent mail volume plummeting, and along with the 
prefunding mandate, crushed the Postal Service's finances and 
raised doubts about the viability of the Postal Service.
    In fact, in more recent years, we have returned to 
operational profitability, earning $2.6 billion over the past 2 
years. Our pension funds are healthy and better funded--at 92 
percent--than most private sector pensions. And, we have set 
aside some $50 billion, more than two decades of future retiree 
health care premiums, when most large private companies have 
not set aside a dime.
    Postal employees never doubted the viability of the Postal 
Service, despite seeing the loss of 200,000 Postal jobs since 
2006. Postal productivity has increased dramatically, and we 
have consistently advocated for sensible reforms. Thanks to 
solid direct mail growth and booming e-commerce, total volume 
has stabilized in 2015 and total revenue has increased to $69 
    As we continue to balance the challenges and the 
opportunities posed by technological change in the decades 
ahead, the Postal Service is going to remain a vital part of 
the Nation's infrastructure. With an approval rating of 83 
percent from the American people, we believe that it can thrive 
in the 21st Century with the right public policies.
    That said, there are three significant legislative 
regulatory burdens placed on the Postal Service under current 
law that should be addressed by this Congress.
    First, there is the legal requirement to massively fund 
future retiree health premiums decades in advance, regardless 
of the financial conditions facing the agency or facing the 
country. All told, 86 percent of the Service's $57 billion in 
reported losses since 2007 stemmed from this inflexible 
    Over the years, NALC has suggested a variety of legislative 
measures to address the prefunding mandate. Fortunately, this 
Committee has reached bipartisan consensus on an approach to 
address the burden during the last Congress. Reforms to the 
Federal Employees Health Benefit Program (FEHBP) to maximize 
participation in Medicare among eligible Postal retirees would 
all but eliminate the remaining $50 billion unfunded liability 
for future retiree health, while raising Medicare spending by 
less than two-tenths of 1 percent annually. Given that the 
Postal Service and its employees have contributed billions to 
Medicare, we urge you to adopt this approach again.
    Second, Congress should reconsider the policy that requires 
100 percent of Postal retirement funds be invested in low-
yielding Treasury bonds. Together, the Civil Service Retirement 
System (CSRS) and the Federal Employees Retirement System 
(FERS) System, those pension accounts, and the Postal Retiree 
Health Fund hold nearly $340 billion in Treasury securities. 
That makes the Postal Service and its employees the third 
largest creditor of the United States Federal Government, just 
behind China and Japan.
    No private company in America would invest its retirement 
assets in such an unsophisticated way, especially during a 
period when Treasuries are yielding 2 to 4 percent returns and, 
of course, health care costs are growing between 5 and 7 
percent annually. At least with the Retiree Health Fund, 
Congress should adopt private sector best practice, which is to 
invest long-term retirement funds in well diversified 
portfolios of private stocks, bonds, and real estate, as well 
as government bonds. The current policy forces the mailing 
industry to basically give Uncle Sam a low-cost loan instead of 
sensibly investing to cover future health care liabilities.
    My submitted testimony makes the case for prudent 
investment change and also addresses common objections to it 
and explains how several independent agencies invest 
successfully in private securities.
    By changing the Retiree Health Fund's investment policy, 
Congress could raise the long-term rate of return on the fund's 
assets, achieve our prefunding goals, offset the cost of Postal 
Medicare integration, relieve upward pressure on postage rates, 
and reduce the misguided impulse to cut services.
    Third, in my full testimony, I address the postage rate 
making process, which the Postal Regulatory Commission will 
formally review in 2017. In the meantime, Congress should 
reverse the scheduled expiration of the 4.3 percent exigent 
rate enacted during the recession and suspend any CPI-based 
rate increases until the PRC review is complete. This will 
preserve the financial stability of the Postal Service as the 
PRC does its work.
    Let me conclude by noting that there is a remarkable degree 
of consensus among Postal stakeholders about the principles of 
successful reform. All four unions, the Postal Service, and a 
wide range of companies providing financial services, 
prescription drugs, newspapers, direct mail products, and e-
commerce sales have agreed on a set of principles for your 
consideration. I have attached a copy to my written testimony.
    In brief, our industry coalition urges you to first 
stabilize the Postal finances by making the exigent increase 
permanent and freezing capped postage rates until the PRC 
review is complete.
    And, second, we urge you to resolve the prefunding burden 
by maximizing Medicare integration among Postal participants in 
the Federal Employees Benefit Association (FEBA) and by 
sensibly changing the way that we invest the Retiree Health 
    Our coalition's recommendations are grounded in best 
private sector practice and are drawn from the consensus 
provisions of your bill, Senator Carper. They represent the 
measures on which the coalition could agree while remaining 
confident that they would stabilize the Postal Service for 
years to come, which will allow the Service to adapt to meet 
the evolving needs of the Nation.
    Senator Carper, you and former Senator Tom Coburn, along 
with Senator Johnson's support, deserve a lot of credit for 
your determined and patient work in helping to build this 
consensus during the last Congress. So, now, let us finish the 
job, and in doing so, the NALC is ready and willing to engage 
Committee members and all stakeholders on any other issues of 
interest, such as changes to the Federal Insurance 
Contributions Act (FICA), service standard issues, etc.
    Thank you, Senator Carper and Members of the Committee for 
inviting me to testify today.
    Senator Carper. Mr. President, thank you so much for 
joining us and thank you for your testimony and for your kind 
words. We very much look forward to working on this and getting 
this job done.
    I failed to administer the oath to our witnesses, something 
that I did not do as Chairman. Senator Johnson does it and I 
think that it is a fine policy to have. But you have 
testified--and not under oath--so I am going to administer the 
oath, and I will not ask you to give your testimony again----
    Mr. Rolando. Is this retroactive? [Laughter.]
    Senator Carper. But, I am going to ask you to each stand 
and to go ahead and swear for us that--do you swear that the 
testimony you will give before this Committee will be the 
truth, the whole truth, and nothing but the truth, so help you, 
    Mr. Rolando. I do.
    Mr. Hutcheson. I do.
    Ms. Collins. I do.
    Senator Carper. Very well. Thank you.
    And, President Rolando, now that you are under oath, is 
there anything that you want to change, or are you going to 
stick to that story?
    Mr. Rolando. Good morning. [Laughter.]
    Senator Carper. All right. John, also known as Chip, 
Hutcheson the third, right?
    Mr. Hutcheson. That is correct.
    Senator Carper. All right. Mr. Hutcheson is the President 
of the National Newspaper Association (NNA), a 130-year-old 
organization of community newspapers. He has been a community 
newspaper publisher since 1976, and could I just ask, where do 
you live?
    Mr. Hutcheson. I live in Princeton, Kentucky.
    Senator Carper. Princeton, Kentucky. My sister is in 
Winchester, just east of Lexington. My mom used to live in 
    Mr. Hutcheson. I am 210 miles west of Lexington.
    Senator Carper. OK. Well, you are out there.
    Mr. Hutcheson. I am.
    Senator Carper. You are out there. OK. Good. Alright well, 
thank you for joining us today and we look forward to your 
testimony very much. Thank you. Please proceed.


    Mr. Hutcheson. Thank you, Senator Carper and Members of the 
Committee. I would like to express my thanks to you and to 
Chairman Johnson for inviting me to appear today. I do 
represent the National Newspaper Association. We have been in 
existence for 130 years, lobbying and working for community 
newspapers--especially related to Postal issues. I do publish a 
twice-weekly newspaper in Princeton, Kentucky.
    \1\ The prepared statement of Mr. Hutcheson appears in the Appendix 
on page 177.
    I am here to impress upon this Committee the need for 
urgency. We have heard that mentioned in the previous panel. 
Without immediate action, the Postal Service will deteriorate 
further. On behalf of the American people, and particularly 
those in rural America, I believe that we cannot allow services 
to be cut further.
    Senator Carper, NNA appreciates the work that you have done 
on S. 2051, the iPOST Act, and we believe that that can provide 
a vehicle for consensus in this Congress. NNA joins a number of 
other mailers, the Postmaster General, the employee groups, and 
others to support urgent action, hopefully by using your bill 
as a vehicle to reach agreement with all stakeholders.
    A package of reforms, including integration of Medicare 
benefits for Postal retirees, can form the basis for 
legislation. We want to emphasize, however, that our members 
need to be assured that the provisions in a final bill will 
guard against further service deterioration and that USPS will 
continue to work toward sustainability and efficiency.
    NNA's member newspapers are primarily weeklies. We aim to 
reach rural audiences in rural and small-town America in time 
for weekend shopping and activities. We must have the mail in 
order to reach those readers.
    Surveys by NNA, the Pew Research Center, and others show 
how crucial the printed newspaper is today, even with the 
growth of digital technology. The heaviest dependence on 
printed newspapers occurs in rural areas and among minorities, 
senior citizens, low-income earners, and those who have not 
attended college. The younger, more urban, or better educated 
demographics may not realize that their digital avenues are 
paved with newspaper revenues. Without a printed and delivered 
newspaper, there would be no digital newspapers.
    In communities like Princeton, Kentucky, the newspaper 
holds together community life, democracy, and civic engagement. 
In a year of a landmark national election, getting the 
newspaper delivered is important to everyone.
    We have had extreme problems in many markets, like mine, 
since the Postal Service began closing mail processing centers. 
In a survey of publishers, I learned this: 92 percent have 
experienced problems reaching readers on time with their 
periodical newspapers. 40 percent report delivery problems, 
even with First Class or priority mail. Nearly 50 percent 
attribute the problem to a closed or a downsized plant. Many 
others report problems, but they are not sure where the snag 
    People simply give up when the newspaper arrives late time 
and time again. Lost subscribers and late newspapers damage our 
newspapers. They damage the businesses in our towns, which, in 
turn, damages the commerce in our towns. It damages our 
residents' incomes.
    I do want to give credit where credit is due to the Postal 
Service. At our request, the Postal Service has begun to 
implement a measurement system to determine the on-time 
delivery of rural mail. This measurement has not yet included 
newspapers, but it is a great start.
    Postmaster General Megan Brennan, her management team, and 
the dedicated people who deliver the mail have helped us to 
find patches for service cuts. For example, we now have 
transfer hubs in some locations where plant operations were 
closed. These help us to move a portion of our mail more 
directly to its destination. While these patches help, they 
cannot take the place of an efficient mail processing 
    We do not want to see more plants closed. For that reason, 
NNA members are prepared to swallow a bitter pill. We opposed 
the Postal Service's exigency rate increase 2 years ago because 
it delivered a postage increase three times inflation or more 
to our members. But today, we are willing to allow that 
increase to remain in the Postal Service rate base, provided 
that the money is used to sustain and improve service.
    We asked our members their views on giving up a rollback of 
postage rates that is scheduled to occur this April unless 
Congress intervenes. We asked, ``Which is the priority for your 
newspaper, lower the rates or maintain improved service? '' The 
response from 77 percent was to let the Postal Service keep the 
money, but to not do such a big increase again and definitely, 
definitely to improve the service.
    There are few issues more important to community newspapers 
than this one. We are urging our members to emphasize the need 
for action to sustain universal service. Newspapers will be 
asking candidates on the campaign trail what they intend to do 
about this critical issue. We stand ready to assist, to help 
this Committee and the Senate leadership, to enact legislation 
    I would be happy to answer any questions that you may have.
    Senator Carper. Mr. Hutcheson, thank you for what you have 
just said, and I would just add to that, God bless you and 
those 77 percent of the respondents.
    Mr. Hutcheson. Thank you.
    Senator Carper. That is very much welcomed.
    Kathy, I am just about to get a quick phone call. Senator 
Heitkamp is here and I think we will be rejoined by Senator 
Baldwin, but I will be right back to hear most of your 
comments, so please proceed and thank you.

                   MILL, DOMTAR PAPER COMPANY

    Ms. Collins. Thank you, Ranking Member Carper and Members 
of the Committee. My name is Kathy Collins and I am the Mill 
Operations Manager at Domtar's Rothschild Paper Mill in central 
Wisconsin. My written statement is submitted for the record and 
thank you for allowing me the opportunity to bring highlights 
of my testimony to the Committee's attention.
    \1\ The prepared statement of Ms. Collins appears in the Appendix 
on page 188.
    I manage 400 hardworking Wisconsin men and women who 
manufacture approximately 136,000 tons of printing paper each 
year, most of which is delivered to our end users through the 
U.S. Postal Service. I speak on behalf of the American Forest 
and Paper Association (AF&PA) on the business realities and 
future viability of the U.S. Postal Service.
    The paper industry has a large stake in the success of the 
Postal Service, which delivers over one third, or $6 billion, 
of the communication papers manufactured by this industry. The 
packaging sector of our industry is also an increasingly 
important part of the Postal Service--and it drives their 
growth strategy, which has been driven by the surge in e-
    The Postal Service is an essential component of our 
Nation's economic engine. The Postal Service has the 
infrastructure to enable our customers, from multinational to 
small mom-and-pop companies, to connect with every household in 
this country through paper.
    A few points about the U.S. forest products industry. It 
makes up 4.5 percent of the U.S. manufacturing gross domestic 
product (GDP). We produce $200 billion in products annually. We 
employ nearly 900,000 men and women. We deliver a payroll of 
$50 billion annually and we are a top 10 manufacturing sector 
employer in 47 States. We are an integral part of the fabric 
and the economy in our host regions, many of which are rural 
areas where similar job and economic opportunities do not 
    The Postal Service is facing unprecedented challenges to 
adapt to new market realities that are also faced by Domtar and 
the entire paper industry and are caused by shifts in the way 
people communicate with one another and conduct business.
    Our industry has focused productivity efforts on the most 
efficient manufacturing processes. In the past 10 years, the 
average output per worker in U.S. pulp and paper mills has 
increased by nearly 13 percent. We must do more with less.
    Domtar and industry survivors have repurposed facilities, 
enabling us to take advantage of opportunities to produce new 
and value-added products that serve adjacent markets. Adapting 
to changing markets and continuing to meet the needs of our 
customers remains crucial. Developing new revenue streams is 
important, but so is keeping loyal customers in our mature 
business, a lesson that the Postal Service must follow.
    As we have heard today, the Postal Service has had nine 
consecutive years in the red. The losses stem, primarily, from 
the requirement to prefund its Retiree Health Benefits Fund and 
its workers' compensation expenses, both of which are beyond 
the Postal Service's control. We commend the Postal Service for 
its aggressive cost cutting measures by consolidating 
facilities, changing window hours, changing delivery routes, 
and reducing its workforce size. However, there is a limit to 
how much they can cut without degrading service. A look at 
current performance may suggest that they have cut too deeply.
    Domtar and the paper industry support legislative reform 
measures that will align labor costs, benefits, and future 
obligations with market competition. Congress must remove the 
handcuffs and unreasonable burdens that are the largest 
contributor to Postal Service financial losses. Postal 
facilities must adapt to the times. Rate stability and 
predictability are needed for mailers to stay with mail. 
Congress and the Postal Service must recognize that raising 
prices while reducing service is not a successful strategy to 
address declining demand. Mail must be cost-competitive, but we 
need price predictability for mailers and cost control 
incentives for the Postal Service. Reliable service is 
absolutely essential to compete with other communication 
options. And the Postal Service should have the flexibility to 
innovate and develop new revenue sources.
    Congress can help by passing legislation addressing the 
basic issues that stand in the way of the Postal Service 
adapting to the changing world and doing so profitably. We 
specifically cite prefunding of retiree health care benefits 
and reform of the Federal Employees Compensation Act (FECA) 
relative to workers' compensation claims as areas that need 
prompt attention.
    We greatly appreciate the Chairman, Senator Carper, and the 
rest of the Committee for making reform of the Postal Service a 
priority. We need to work together to enact comprehensive plans 
that will put the Postal Service on a path to long-term 
    Thank you.
    Senator Carper. Thank you.
    Senator Heitkamp, why do you not lead us off? Thank you. 
Thank you very much, Ms. Collins.
    Senator Heitkamp. Thank you so much, Ranking Member Carper.
    It is absolutely essential to the rural economy that we get 
this right. I share your concern, Mr. Hutcheson, about what 
happens when my mother-in-law or grandmother cannot get your 
newspaper, which connects her to her community. And I think 
that if you are from a rural State, there is no other way that 
you can look at this other than as the lifeline of a community. 
And so, thank you for your efforts. Thank you for your 
political push on this. We have to make this issue a higher 
priority in the halls of Congress, and so I really applaud you.
    Ms. Collins, I think that what we are going to see is a 
resurgence of mailers, actually. I think that there is this 
idea that you can simply run an algorithm and know who your 
audience is. The surest way to know your audience is to mail 
directly to that audience, where you know who is on the other 
end of that. So, good luck as we approach the political season. 
It should be good for you as we see more and more targeting.
    Fred, I want to talk a little bit about morale and about 
how grateful we are for the employees of the U.S. Postal 
Service. And, I know and you know that I so much appreciate the 
Postal unions' hard work in trying to bring about the needed 
Postal reforms. I do not think that there is anyone who is a 
stakeholder who does not look at this and know that we cannot 
ignore this. We need to get something done. But, as 
stakeholders, we all need to have a voice in the challenges 
    And so, I would say that the Postal Service has been 
working to come up with reforms, and certainly Senator Carper 
has been leading that effort--herding the cats, so to speak--
making sure that everybody is on the same page. But, I want to 
again emphasize that we cannot ignore the fourth stakeholder, 
the American customer. Improving service must be part of any 
Postal reform package.
    And, I want to ask you, can the rural Senators have your 
continued commitment to work to incorporate those customers 
that you see every day, that your people have the connection 
with, and make sure that they are represented at the table?
    Mr. Rolando. Oh, absolutely, Senator. We are on the front 
lines with the customers. We hear about it every day. We know 
that our customers depend on us. We know that we depend on our 
customers. The Postal Service is the one secure delivery method 
for our customers' communications. This is the strength of the 
Postal Service. I guess that it is the basis of our 83 percent 
approval communication rating and, of course, that trust and 
that service level is essential to the growth of the Postal 
Service as we continue to grow our current products and any 
future products. So, absolutely, you have our commitment.
    Senator Heitkamp. I think that maybe we forget how hard the 
work is, and anyone who--I think that it would be really smart 
for every one of us to just walk along with the delivery 
folks--or drive along with the delivery folks--and certainly a 
day like this reminds us of the commitment that your people--
and all of the employees of the Postal Service--have made to 
continue to keep the American economy working.
    Mr. Rolando. Well, and I will tell you, it is an honor for 
letter carriers to walk around and provide that service, 
because as you know, at the same time, they have the distinct 
opportunity on a daily basis--because of where they are day in 
and day out--to serve the American people in so many other 
ways, in terms of watching out for the elderly, stopping 
crimes, putting out fires, and just all of the other things 
that go along with knowing your community and knowing the 
    And speaking to the morale, I just want to mention, that is 
a big piece of what we need to accomplish with the legislation. 
You have a workforce that knows that they are the most trusted 
agency in the Federal Government. They know that we lost 
200,000 jobs and still the productivity is at an all-time high. 
Yet, all that they hear about in the media is how the Postal 
Service is going broke and is irrelevant and how we had to, in 
the past, fight the legislation of certain legislators and 
leaders of the Postal Service, who have bought into this 
strategy of attacking the networks and the services that we 
need to grow, rather than addressing the elephant in the room. 
It is really nice to see now that we have some discussion and 
consensus going on to address the real problem, the 
manufactured crisis, rather than attacking the networks, and 
that that particular leadership of the Postal Service is no 
    Senator Heitkamp. I think that it was particularly 
rewarding when we look at what we would traditionally see as a 
bean counter, the Inspector General, recognizing the importance 
of that morale, recognizing the importance of maintaining the 
workforce, and really expressing to us his concern that we are 
almost too late, given where we are.
    Finally, it is an issue for me. As you know, I am a strong 
advocate for 6-day delivery and an even stronger advocate for 
service performance. Fred, why is it so important that we have 
reliable delivery and service?
    Mr. Rolando. Well, again, it is the one secure method for 
delivering communications. Our customers depend on it. They 
know that it is secure. They know that it is timely. They trust 
the person who is bringing the mail.
    You mentioned the 6-day delivery, which is such an 
important part of the network. We can barely do it in 6 days. I 
cannot imagine doing it in less. We need to expand to 7 or 8 
    Senator Heitkamp. I want to make this point, because I 
think that way too often the attitude is that 6-day delivery is 
just a jobs program.
    Mr. Rolando. Right.
    Senator Heitkamp. And, I want to applaud you for your 
response, which really immediately looked at what the 
customers' needs are. I think that that is an easy dodge for 
some people when they are talking about 6-day delivery, to say, 
``Oh, that is just kind of people trying to protect their 
jobs.'' No, it is people trying to do their jobs and do what is 
best for American consumers.
    And so, I appreciate that perspective and really look 
forward to working with the customer groups and the Postal 
unions as we move forward.
    Mr. Rolando. As do we. Thank you, Senator.
    Senator Carper. Senator Heitkamp, my wife seems, lately, to 
be interested in me working with her to update our will. I say, 
``Martha, I am fine. I feel perfectly healthy. I ran this 
morning. I work out every day.'' She says, ``No, we should do 
    We were coming home from church a couple of weeks ago and 
stopped at a stoplight at an intersection. Off to the right was 
a graveyard, a cemetery, and my wife said--she was already 
talking about updating our will and other things, and she said, 
``By the way, what do you want your tombstone to say?'' I said, 
``Martha, I am fine. I feel great. What is this? '' And, she 
said, ``No, really, what do you want to have put on your 
tombstone?'' And I said, ``Well, OK. All right. Here. `Return 
to Sender'.'' [Laughter.]
    When I heard you and Fred going back and forth on days of 
the week--six, seven, and he actually mentioned 8 days a week--
I was thinking, well, maybe for your tombstone, knowing how 
strongly you have pushed on this, your tombstone epitaph could 
be, like, ``Eight Days a Week.'' That would be pretty good. 
Apologies to Lennon and McCartney.
    Senator Heitkamp. Ranking Member, I will take it.
    Senator Carper. All right.
    Senator Heitkamp. ``Eight Days a Week.''
    Senator Carper. Good. All right. I will ask a couple of 
questions and then I may have to slip out. I need to be 
someplace at 12:30, so I would like to ask a couple of 
questions and then yield to Senator Baldwin to close it out. 
All right.
    First of all, I want to go back to the morale thing for 
just a second. Some of my staff heard me mention this before, 
but I can go home at night to Delaware and come back and forth 
on the train. I usually listen to National Public Radio (NPR) 
on my way to the train station in the morning from my house. It 
is not too far away.
    And, about a year or two ago, they were reporting on an 
international study that had been done. They had asked 
thousands of people all over the world, ``What is it that makes 
you like your job? What enhances your morale in the work that 
you do? '' Some people like getting paid. Some people said that 
they like the folks who they work with and the environment in 
which they work. Some people said that they liked having a 
pension, they liked having health benefits, or they liked 
vacation time. But, do you know what most people said that they 
liked? They said that the thing that they liked the most about 
their job was that they knew that the work that they were doing 
was important and that they felt that they were making 
progress. They knew that the work that they were doing was 
important and they felt that they were making progress.
    So, the work that the Postal Service does, with all of 
their partners and for all of us, is important--in some places, 
incredibly important. And what we have to do is do the enabling 
work, in this Committee and in this body in which we serve, to 
enable the Postal Service, your members or your customers, to 
do the important work of our country.
    The question that I would have, if I could--a question for 
President Rolando. Let us go back to Medicare integration. My 
own feeling is--I have always said that this is a liability. 
The question is, why do we have to address it in 10 years, when 
a lot of businesses never address it, do not even think much 
about it? And, I think that it is a liability that needs to be 
addressed. But, what we have proposed in our legislation is to 
do it over 40--to amortize over 40 and up to 80 percent of the 
liability. Does that seem like a reasonable approach to you?
    Mr. Rolando. Yes. I think that we are pretty much on the 
same page when it comes to Medicare integration. The issue, 
just from listening to the first panel, is the whole idea that 
we are shifting a liability to Medicare off of a balance sheet 
when, in fact, all we are looking to do is reduce the liability 
by allowing Postal employees to participate in a program. And 
it seems the question is how much have Postal employees put in 
versus how much came out. And I do not think that Postal 
employees should be treated differently in that way. This is 
not an Employee Retirement Income Security Act of 1974 (ERISA) 
plan. It is a social insurance program. If there is something 
wrong with the Medicare program, that is a discussion for a 
different day and a different hearing. But, we just want to 
participate--like everybody else does--in Medicare because we 
pay in like everybody else does. So, I do not see it as a shift 
in that liability in any way, shape, or form, as was 
characterized earlier today.
    Senator Carper. Yes. I fully concur.
    Dr. Coburn and I, when we first discussed this issue 3 
years ago, came to the conclusion that there is an equity 
question--equity fairness question--because how can you say 
that the retirees of the number 2 employer in the country, 
which pays more into Medicare maybe than almost anybody else, 
cannot derive the full benefit of those payments. It is just 
not fair. It is not right.
    Mr. Hutcheson, if I could ask a question? In October, I 
guess that it was last year, a GAO report found that because 
Postal Service delivery performance is tied to a national 
standard, their reported on-time mail delivery performance 
results were not entirely complete and may not give an accurate 
assessment of service for many communities across the country. 
Are there measures that can be taken to ensure better delivery 
performance in all areas as well as on a national level? I 
think that you spoke to this a little bit in your testimony, 
but we would love to hear more.
    Mr. Hutcheson. Yes, sir. Thank you. I am certainly not an 
expert on service measurements and I know that the Postal 
Service has begun the process of attempting to measure the 
mail. I think that our concern is that the urban mail is 
commingled, and those figures are commingled, and I would 
question--and I do not believe that we have an accurate figure 
for rural mail. I think that it is difficult to determine. For 
newspapers, it is impossible, because we do not go through the 
machines where they can measure that. We cannot be seen in 
their mail flow. But, I think that rural mail figures are 
probably obscured when you mix the urban mail in with it.
    I do think that the Postmaster General has tools to deal 
with this situation. We know that the plants that have gone 
away are not going to come back. We do know that those are 
gone. But, I do hope that the Postal Service is--in the 
previous panel they talked about innovation. How can they 
follow the example of the steel industry of some 20 years ago, 
and look at smaller and--for lack of a better word--more 
boutique type of operations, where you can get more mail access 
points that can deliver the mail and can keep it flowing, 
rather than keeping rural mail, as we have discussed, flowing 
to these huge processing centers and there being delayed, like 
the example that the Senator gave earlier in Fargo.
    I think that that is what happens. Mail gets stuck in these 
large centers and it is--we always wish that it could go back 
to the way that it used to be, when you could mail a First-
Class letter in your community. It had your community's 
postmark and they would get it no later than the next day. But 
with all of these plant closings, I think that, for rural mail 
specifically, if we could get some of these smaller operations 
that do not impose large expenditures to get started, I think 
that it could be a real help for the Postal Service. The 
greater the distance is, the greater the problems that we have.
    Senator Carper. OK.
    Mr. Hutcheson. And if we could do that, I think that it 
would help.
    Senator Carper. All right. Thank you.
    A quick question for you, Ms. Collins, and then I will 
yield to Senator Baldwin. In your written testimony--I did not 
hear all of your oral testimony, I apologize--you compared the 
Postal Service's efforts to cut costs to right-size the 
enterprise and become more efficient with the actions that your 
company has taken--had to take--in recent years to remain 
viable in the paper industry.
    When it comes to the Postal Service, and from your 
perspective as a Postal customer, can you talk with us a little 
bit about how far cuts can go before they begin to erode the 
quality of service and reliability?
    Ms. Collins. The infrastructure of the Postal Service 
really is the foundation of the Postal Service. As we put 
products out and provide those to our customers, who then turn 
around and get those products working through the Postal system 
to deliver that communication to the end user, you cannot back 
away from service. If you back away from service, the 
foundation of the Postal Service, what more is there? That is 
what the Postal Service is about.
    If people start questioning the predictability and if 
people start questioning the reliability of the Postal Service, 
you start losing those customers. And what I can tell you is 
that, from a manufacturing perspective, when you lose a 
customer, it is extremely difficult to get a customer back. So, 
predictability, stability, service, quality--whether you are 
making paper or you are delivering mail--it is about the level 
of service and the level of quality. Whatever you put out 
there--again, it is tough to get it back.
    Senator Carper. Thank you so much.
    Senator Baldwin, we will ask you at the end of the hearing 
to adjourn us, and also there is a short script, as you know, 
to read. Do you have it?
    Senator Baldwin. I have just been handed that script. I am 
all ready. Thank you so much----
    Senator Carper. Thank you so much for doing this. And 
again, our thanks to each of you for not just----
    Senator Baldwin. Do I get the gavel while----
    Senator Carper. You do. You get it all. [Laughter.]
    I will even pour your water.
    But, again, to all of you, thank you so much for working 
with us and for providing, I think, very helpful and valuable 
testimony today. Thank you. God bless.
    Senator Baldwin. [Presiding.] And, I am going to be brief, 
too, because I, likewise, have to get to a 12:30 meeting, but 
thank you for all of the time that you have spent with us this 
    I want to actually start where Senator Carper left off with 
you, Ms. Collins. You were just asked about predictability and 
stability, in terms of level of service and quality of service. 
You were just addressing that. Can you just add in the impact 
of price fluctuations on the industry, if you have anything 
further that you would want to add about that stability?
    Ms. Collins. Again, as we consider which are the important 
parts of keeping the Postal Service viable and continuing to 
keep the mail volume up, one of the things that we have to be 
careful of--and Mr. Hutcheson referred to that--is the yo-yo 
effect--as you indicated, as well, Senator Baldwin--the yo-yo 
effect of rates.
    So, if the exigent rate increase is taken away in April and 
the rates drop, and then we look at a bill that potentially 
raises the rates again, and then we look at the PRC in 2017 
evaluating the rates one more time, I just have a lot of 
concern about the rates bouncing around. And, again, what does 
that do to the predictability of the Postal Service? If you are 
a mailer trying to decide what method of communication to use, 
predictability is one of the factors that you would look at to 
decide which method to use. So, I worry about dropping rates, 
then putting rates back in play again, and then having the PRC 
review the rates one more time.
    Senator Baldwin. Mr. Rolando, I would like to have you talk 
a little bit more about the proposal that you have worked on 
with the Postal Service that would require actuarially based 
payments and allow the Postal Service to conservatively invest 
a reasonable portion of the Retiree Health Benefit Fund. And, 
could you agree that Congress--would you agree that Congress 
should move on areas that we have reached some level of 
significant agreement on, such as requiring actuarially based 
    Mr. Rolando. Yes. The points that the coalition put 
together--yes, I think that we should move forward on those. As 
you know, there have been a lot of issues discussed over the 
years in different sessions and none of those pieces of 
legislation went anywhere because of the objections by many 
different parties at many different levels. So, the idea of 
putting the coalition together was to find out what we could 
agree on and if the body of what we could agree on would be 
enough to stabilize the Postal Service and posture it for what 
it needs to do in the future. Those were the basic points of 
that, the Medicare integration and certainly the investment 
    You cannot continue to provide, again, a low-interest loan 
to the government, earning 2 to 3 percent, when just the cost 
of health care is going up 5 to 7 percent. No matter what you 
have in there, you are going to deplete it by doing that. It 
just does not make good business sense.
    Senator Baldwin. President Rolando, I also wanted to hear 
some of your thoughts on service standard changes and 
consolidations. I am concerned about service. Our Nation's 
letter carriers work extremely hard to deliver mail to every 
community, every delivery point, and so thank you for your 
service and for that service.
    As I mentioned during the first panel before the Committee, 
I heard a great deal of concern from my constituents when the 
Network Rationalization Plan was implemented. Can you discuss 
what letter carriers and other unions have experienced with 
respect to the recent consolidations and changes to service 
    Mr. Rolando. Yes. I think that I can speak for probably the 
other unions in saying that we are all extremely concerned 
about the changes that came at the beginning of 2015. As you 
know, they were put in place with a plan to close more plants, 
because under the current standards, they could not do that. 
Fortunately, Postmaster General Brennan has stopped the 
closings, but the changes did go into effect.
    We certainly favor restoring the old service standards. The 
reason that you do not see that, of course, in the consensus 
bill is because we could not come to an agreement for the core 
pieces of this bill. But, we are going to--we will continue to 
pursue, in other venues, restoration of the service standards. 
And of course, if the Committee wants to address that, I know 
that all of the stakeholders will get together and discuss with 
the Committee what could be done, if that becomes an issue.
    We are willing, like I said before, to discuss any other 
issues. These are the ones that we did have the common ground 
on to move forward.
    Senator Baldwin. Great. Well, I want to thank the panel of 
witnesses for your time, your expertise, and your input. It is 
extremely valuable.
    And with that, I have a text to read. The hearing record 
will remain open for 15 days, until February 5 at 5 p.m., for 
the submission of statements and questions for the record.
    This hearing is adjourned. Thank you again.
    Mr. Hutcheson. Thank you.
    Mr. Rolando. Thank you.
    [Whereupon, at 12:27 p.m., the Committee was adjourned.]

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