[Senate Hearing 114-332]
[From the U.S. Government Publishing Office]






                                                        S. Hrg. 114-332

         NOMINATIONS OF PETER V. NEFFENGER AND DAVID S. SHAPIRA

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

                                HEARING

                               before the

                              COMMITTEE ON
               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS


                             FIRST SESSION

                               __________

      NOMINATIONS OF PETER V. NEFFENGER TO BE ASSISTANT SECRETARY,
  U.S. DEPARTMENT OF HOMELAND SECURITY, AND DAVID S. SHAPIRA TO BE A 
            GOVERNOR, U.S. POSTAL SERVICE BOARD OF GOVERNORS

                               __________

                             JUNE 10, 2015

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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

                    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
 Gabrielle D'Adamo Singer, Deputy Chief Counsel for Government Affairs
              Jose J. Bautista, Professional Staff Member
            Jennifer L. Scheaffer, Professional Staff Member
              Gabrielle A. Batkin. Minority Staff Director
           John P. Kilvington, Minority Deputy Staff Director
        Deirdre G. Armstrong, Minority Professional Staff Member
                     Laura W. Kilbride, Chief Clerk
                   Lauren M. Corcoran, Hearing Clerk
                   
                   
                   
                   
                   
                   
                   
                   
                   
                   
                   
                   
                   
                   
                   
                   
                   
                   
                   
                   
                   
                   
                   
                   
                   
                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Johnson..............................................     1
    Senator Carper...............................................     1
    Senator Ernst................................................    11
    Senator Sasse................................................    13
    Senator Ayotte...............................................    16
    Senator Lankford.............................................    19
    Senator Heitkamp.............................................    22
Prepared statements:
    Senator Johnson..............................................    47
    Senator Carper...............................................    49

                               WITNESSES
                        Wednesday, June 10, 2015

Vice Admiral Peter V. Neffenger, to be Assistant Secretary, 
  Transportation Security Administration, U.S. Department of 
  Homeland Security
    Testimony....................................................     3
    Prepared statement...........................................    51
    Biographical and financial information.......................    57
    Letter from the Office of Government Ethics..................    81
    Responses to pre-hearing questions...........................    84
    Responses to post-hearing questions..........................   112
    Letters of support...........................................   120
Hon. Robert P. Casey, Jr., A United States Senator from the State 
  of Pennsylvania                                                    29
David S. Shapira, to be a Governor, U.S. Postal Service Board of 
  Governors
    Testimony....................................................    31
    Prepared statement...........................................   135
    Biographical and financial information.......................   138
    Letter from the Office of Government Ethics..................   165
    Responses to pre-hearing questions...........................   169
    Responses to post-hearing questions..........................   183
Hon. Patrick J. Toomey, A United States Senator from the State of 
  Pennsylvania                                                       32
 
         NOMINATIONS OF PETER V. NEFFENGER AND DAVID S. SHAPIRA

                        WEDNESDAY, JUNE 10, 2015

                                     U.S. Senate,  
                           Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:06 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Ron Johnson, 
Chairman of the Committee, presiding.
    Present: Senators Johnson, Lankford, Ayotte, Ernst, Sasse, 
Carper, Heitkamp, and Peters.

             OPENING STATEMENT OF CHAIRMAN JOHNSON

    Chairman Johnson. This hearing will come to order.
    Good morning. I would like to welcome Admiral Peter 
Neffenger. I appreciate your willingness to serve. The hearing 
is obviously called to consider your nomination for the 
position as the next Administrator of the Transportation 
Security Administration (TSA). We held a pretty interesting 
hearing yesterday, and I think you come into this position 
understanding that you have some significant challenges ahead 
of you, and we are obviously looking forward to the hearing 
today and appreciate your thoughtful testimony, and I will be 
looking forward to your oral testimony and answers to our 
questions. I think I will hold off on further comments until we 
get into the question phase.
    The hearing today will also consider the nomination of 
David S. Shapira to be a Governor of the United States Postal 
Service (USPS), another agency that is going to require some 
out-of-the-box thinking, another agency that has significant 
problems. So I just want to thank both nominees for your 
willingness to serve and, again, your willingness to appear 
here today.
    And with that, I will turn it over to our Ranking Member.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. Thanks, Mr. Chairman.
    Admiral, welcome. Thank you for serving us for all these 
years--what, 34 years? Anybody in your family here today? OK. 
All right.
    Some brief comments, if I could. Thank you for joining us 
yesterday, too, and our staffs have enjoyed meeting with you 
and having a chance to ``take the measure of the man,'' as we 
say in Delaware.
    But as we know, TSA has been without a Senate-confirmed 
leader since the highly regarded John Pistole departed the 
agency at the end of last year. And as we have learned from 
press reports of late, as well as from numerous briefings and 
our hearing yesterday, TSA faces serious challenges that demand 
strong, permanent, Senate-confirmed leadership. Thankfully, the 
President has nominated in you, Admiral Neffenger, someone whom 
I believe, I think we believe, can provide TSA with the kind of 
leader that it needs right now.
    Our Admiral has served as a commissioned officer, as we 
know, in the Coast Guard since 1982, assuming the position of 
Vice Commandant in May 2014. Throughout his 34-year career in 
the Coast Guard, Admiral Neffenger has displayed exceptional 
leadership skills and the will to confront difficult challenges 
head-on. In fact, Admiral Neffenger is no stranger to crisis, 
having served as the Deputy National Incident Commander for the 
Deepwater Horizon oil spill. And if you can handle that, you 
can handle a lot of things.
    As the Department of Homeland Security (DHS) Inspector 
General (IG) John Roth said to this Committee just yesterday, 
he said what TSA needs is someone willing to acknowledge and 
confront the many challenges facing this agency. And I would 
add that the agency also needs someone who will strive for 
perfection, realizing that it is hard to achieve, it may be 
impossible to achieve, but while addressing at the same time 
the competing priorities of security and expedited travel. We 
want to make sure that we are flying in planes that are safe, 
people get where they need to go safely. We also want to make 
sure that we can expedite their movement through the security 
checkpoints, and they are not always in sync with it. In fact, 
they are of oftentimes in conflict. So it is not an easy job. 
We are grateful for the people who do this work. We want to 
make sure that they are meeting their challenges and that we 
are providing this kind of support that they need and the kind 
of leadership that they need.
    I had the opportunity to meet with Admiral Neffenger 
recently to discuss his desire to lead TSA and his vision for 
the agency. I came away from our meeting confident that he is 
the right person for the job at this time.
    Following our discussion with Admiral Neffenger, we will 
consider our second nominee today, David Shapira, who is 
sitting here in the front row on our left, your right, to serve 
as a Governor on the Postal Service's Board of Governors. We 
are considering this nomination at what is a very challenging 
time for the Postal Service. But as Albert Einstein once said--
and we talked about this yesterday--``in adversity lies 
opportunity.'' Plenty of adversity for both positions, but by 
the same token, a lot of opportunity.
    The Postal Service operates at the center of a massive 
printing, delivery, and logistics industry that employs 
millions of people. Even as First Class mail is lost to other 
forms of communication, I think the future is more promising 
than some would believe for the Postal Service in a number of 
other ways, several of which we discussed yesterday.
    Advertising mail is still a popular and effective option 
for thousands of mailers. Millions of people still like to 
receive their magazines in the mail every week. They like the 
printed copy, even the Millennials like the printed copy, not 
just the stuff on the Internet. E-commerce and package delivery 
are booming, making the Postal Service a vital partner for 
businesses large and small. Even the Postal Service's 
traditional competitors rely on it to carry items the last mile 
to rural communities around the country. Federal Express 
(FedEx), the United Parcel Service (UPS), they want to deliver 
a lot of stuff. They do not always want to go the last mile, 
the last 5 miles, or the last 10 miles, and the Postal Service 
is happy to do that because they are going anyway.
    I look forward to talking to Mr. Shapira, I think we look 
forward to talking with you, Mr. Shapira, today about what you 
think needs to be done in order to address the ongoing 
challenges that face the Postal Service and to hear about the 
skills and experience that he will bring, you will bring to the 
Board. As a leader of a $10 billion company with nearly 40,000 
employees, Mr. Shapira will bring a unique business perspective 
to the Board of Governors that is very much needed, I think 
very much welcome.
    If confirmed, Mr. Shapira and the four other Board nominees 
pending before the Senate would double the size or at least the 
membership of the Board, and we need that. I see a real 
opportunity here with this new injection of talent to make 
significant progress toward strengthening our Postal Service.
    In closing, I want to thank both of our nominees, Admiral, 
and hopefully we will be able to call him ``Governor Shapira.'' 
It is a great job--Governor. I love that one. You will, too.
    So thank you all, and we look forward to hearing from you 
and getting to know you better. Thanks so much.
    Chairman Johnson. Thank you, Senator Carper.
    Admiral, it is the tradition of this Committee to swear 
witnesses in, so if you would please 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?
    Admiral Neffenger. I do.
    Chairman Johnson. Thank you. Please be seated.
    Vice Admiral Peter Neffenger currently serves as the Vice 
Commandant of the United States Coast Guard (USCG). During his 
34 years of service, he has held various key leadership 
positions. From 2003 to 2006, he served as the Sector Commander 
in Los Angeles, California, home to the largest port complex in 
the United States. From 2008 to 2010, he served as the 
Commander of the Ninth Coast Guard District, where he was 
responsible for Coast Guard operations throughout the five 
Great Lakes and helped secure over 1,500 miles of the U.S.-
Canada border. In addition, he served as Deputy National 
Incident Commander during the 2010 Deepwater Horizon oil spill 
in the Gulf of Mexico. Admiral.

    TESTIMONY OF VICE ADMIRAL PETER V. NEFFENGER,\1\ TO BE 
 ASSISTANT SECRETARY (TRANSPORTATION SECURITY ADMINISTRATION), 
              U.S. DEPARTMENT OF HOMELAND SECURITY

    Admiral Neffenger. Thank you, Mr. Chairman. I have 
submitted my written statement for the record, and I have a 
brief opening statement.
---------------------------------------------------------------------------
    \1\ The prepared statement of Admiral Neffenger appears in the 
Appendix on page 51.
---------------------------------------------------------------------------
    Good morning, Chairman Johnson, Ranking Member Carper, and 
distinguished Members of the Committee. I am deeply privileged 
to appear before you today as the President's nominee to head 
the Transportation Security Administration. I am honored by the 
President's call to service in this important position and by 
the support of Secretary Jeh Johnson, who has provided strong 
leadership for our Department.
    I would also like to thank the 50,000 men and women of the 
United States Coast Guard and the 30,000 members of the 
volunteer Coast Guard Auxiliary with whom I have been 
privileged to serve for more than three decades and from whom I 
have learned important lessons about leadership and about 
service to the Nation, commitment to excellence, and duty to 
people.
    And to the dedicated men and women of TSA, I want you to 
know that I am deeply honored to potentially join your ranks 
and to serve along with you and the American people in securing 
our transportation systems. You perform an incredibly important 
and difficult mission, one that demands constant attention to 
detail and vigilance while sustaining a high level of 
professionalism and respect. I have confidence in them, and I 
will be honored to lead them.
    As TSA pursues solutions to the challenges presented by 
recent covert testing, there are several critical concepts that 
must be in place to address the vulnerabilities noted. TSA must 
ensure the appropriate measures of effectiveness are in place 
to drive a focus on the primary mission across the agency, in 
this case, securing aviation. There must be a culture of 
operational evolution, one that constantly questions 
assumptions, plans, and processes, and is able to rapidly field 
new concepts of operation, new performance standards, and new 
capabilities.
    Finally, delivering an effective system and earning the 
confidence of the public will come only through competence, 
disciplined performance, and professionalism. If confirmed, I 
will bring this perspective, and I will relentlessly pursue 
these objectives, to address the immediate challenges, and more 
broadly, to accomplish the important mission entrusted to TSA.
    In addition, in my view, striking a balance between the 
demands of security and the imperatives of liberty is critical. 
If confirmed, I will take on this challenge with a leadership 
perspective that has been at the core of my approach as a Coast 
Guard leader and one that has been proven in the crucible of 
the real world: a well-defined statement of mission, clear and 
unequivocal standards of performance, training and resourcing 
that enable the workforce to achieve success, and a relentless 
pursuit of accountability.
    During my nearly 34 years of active service, I have been 
assigned to a broad variety of operational, staff, and 
leadership positions culminating in my current duties as Vice 
Commandant and second in command of the Coast Guard--the 
Nation's fifth armed service and its premier maritime law 
enforcement agency. Each assignment has brought greater and 
more complex responsibilities and challenges, and, if 
confirmed, I will apply the leadership skills I have gained as 
well as my extensive experience in law enforcement, maritime 
transportation security, and management of large complex 
agencies to ensure the protection of our Nation's 
transportation systems?
    Nearly 14 years after 9/11, we must recognize that the 
global terrorist threat has evolved. Today this threat is more 
decentralized, more diffuse, and more complex. Certain 
terrorist groups remain intent on striking the United States 
and the West, and we know that some of these groups are focused 
on commercial aviation. Moreover, we see an emerging threat 
from lone wolf actors. The threats are persistent and evolving, 
and they are TSA's most pressing challenge.
    Workforce training, retention, and accountability are a 
second challenge facing TSA. If confirmed, I will pay close 
attention to the development of the TSA workforce. I will 
examine how to use the TSA Academy established by John Pistole 
to further improve performance and to instill an ever greater 
sense of pride in the agency and its critically important 
mission. I will continue the focus on customer service. 
Travelers expect efficient and effectiveness screening, and 
they deserve to be treated with respect.
    A third challenge is ensuring that TSA continually fields 
the tools it needs to address the persistent and evolving 
terrorist threat. We must question ourselves; we must evolve 
our capabilities; we must adapt faster than those who wish to 
harm us. We must envision what comes next and direct 
investments appropriately.
    As such, if confirmed, I will commit myself to ensuring 
that TSA remains a high-performing, highly capable 
counterterrorism organization guided by a risk-based strategy; 
that TSA employs multi-layered, intelligence-driven operations; 
that TSA recruits and retains a skilled and highly trained work 
force, while placing a premium on professional values and 
individual accountability; that TSA pursues advanced 
capabilities with adaptation central to its acquisition 
strategy; and that TSA continues to strengthen its integration 
in the intelligence community, in the private sector, with its 
stakeholders, and among Federal, State, and local partners. If 
confirmed, I will follow this strategy, engage and lead the 
work force, and adapt and invest appropriately.
    I believe I have a proven record of leading people and 
carrying out complex missions. I have an extensive background 
in applying security principles to port operations and maritime 
threats, principles that translate effectively to other 
transportation modes, and I have a proven record of leading 
through crises.
    Finally, throughout my career, I have remained aware of the 
need to balance desires for greater security with the 
protection of the liberties and the rights we cherish. If 
confirmed, safeguarding the civil liberties and privacy 
interests of all Americans will remain a top priority. I look 
forward to partnering with this Committee on a range of 
initiatives to enhance the safety of the traveling public and 
to achieve this balance.
    In closing, I again thank President Obama and Secretary 
Johnson for their confidence. Mr. Chairman, Ranking Member 
Carper, thank you for the opportunity to appear before you 
today, and I look forward to your questions.
    Chairman Johnson. Thank you, Admiral.
    Before I begin my round of questions, it is also the 
tradition of this Committee to ask all nominees a series of 
three questions, so I will start with those.
    Is there anything you are aware of in your background that 
might present a conflict of interest with the duties of the 
office to which you have been nominated?
    Admiral Neffenger. No, sir.
    Chairman Johnson. Do you know of anything, personal or 
otherwise, that would in any way prevent you from fully and 
honorably discharging the responsibilities of the office to 
which you have been nominated?
    Admiral Neffenger. No, sir.
    Chairman Johnson. Do you agree without reservation to 
comply with any request or summons to appear and testify before 
any duly constituted Committee of Congress if you are 
confirmed?
    Admiral Neffenger. Yes, sir.
    Chairman Johnson. Thank you.
    Admiral, the hearing we had yesterday I thought was pretty 
revealing, and I think one of the things both in my preparation 
for the hearing and during the hearing that was pretty stark is 
the dual goal, the dual mission of TSA. On the one hand, you 
have the need for efficiency, that we move passengers through 
the security check zone so that nobody misses their flight, so 
nobody is inconvenienced, that the public does not get 
impatient. On the other hand, we are looking for 100 percent 
security.
    Can you just speak to the conflicting nature of those two 
goals and how you evaluated where you place priority?
    Admiral Neffenger. Well, thank you, Senator. I would be 
happy to speak to that.
    The priority is always the mission, from my perspective. I 
think in terms of my career in the Coast Guard, I have never 
lost sight of the fact that it is about the safety and security 
of the people using the maritime transportation system and the 
safety and the security of the system itself.
    That said, you still need to move goods and services 
through those systems. The aviation system is no different, and 
it is critical that you move people through that system 
effectively and efficiently.
    It is always a balancing act between getting those right, 
but I think if you focus on security, if you are transparent 
with the need for that security--by definition, a security 
system creates inefficiencies. We know that. The port 
environment was a good example of that. Before September 11, 
2001, most of the ports of the United States were wide open, 
and they were wide open for a reason: because you needed to 
move a lot of stuff in and out those ports, whether they be 
containers or bulk cargo or the like. And there are a lot of 
access points to the port because you wanted to be able to get 
trucks and rail and other services in and out as necessary to 
move that.
    After September 11, 2001, when we started looking at some 
of the first attempts to secure the maritime port environment, 
it was a real challenge to figure but how you do that without 
clogging up the system. I think the way you do that is you work 
very closely with your private sector partners. Believe it or 
not, they have a lot of good ideas out there, and I think that 
we can benefit from their ideas. I think it is, again, no 
different in the aviation sector.
    So as you look at--and there may be some need to introduce 
a few inefficiencies in order to address some of these recent 
findings of the Inspector General. In the process of doing 
that, you have to do that very carefully with the airports, the 
people who are running the major airlines, the people who 
operate the airport environment, as well as the traveling 
public to explain why, as you are looking for those factors 
that mitigate.
    And in the long term, you have to think about what the 
security system looks like in the future. I know you talked 
about out-of-the-box thinking. Well, it is going to take out-
of-the-box thinking to think about what would the security 
system look like if we designed it for tomorrow versus the one 
we have today? And I think that it will always be a balance 
between those two, but I do not think it is an impossible task. 
I just think it is a very difficult task.
    Chairman Johnson. Were you surprised by the revelation of 
the Inspector General's report that said that there was a 95-
percent failure rate to detect metal weapons and fake 
explosives? Did that surprise you?
    Admiral Neffenger. Yes, sir, it did, and it disturbs me, 
and, if confirmed, it is the immediate priority to address 
those findings, to close those gaps immediately, but then to 
look systemically at what the issues are that brought that 
forth in the first place.
    Chairman Johnson. But do you acknowledge that reality? I 
mean, those are not my words, but other people have termed what 
TSA does as ``security theater,'' which let me first say there 
is some deterrent effect and positive effect for those 
checkpoints for that theater. But do you know the fact that it 
is simply not working?
    Admiral Neffenger. Well, if I can take a step back from 
that and talk first in terms of how I view a security system--
and it really is a system of security. If I think about 
entering into that system, from the moment I put my name into a 
reservation system, I want to know that I am being looked at in 
some way. So I hope that--some of that is behind the scenes. I 
want my name to be scrutinized, and I want it to be bounced 
against all the right databases. And I want to ensure that the 
people who are doing that have access to the intelligence that 
they need and the databases that they need. I know that that 
has been some questions that have been raised.
    Second, I want that to be continuous as I am moving through 
the system, and from the time I put my name in that system to 
the time I exit my destination airport on the other end, I want 
to be looked at. So I want things happening behind the scenes.
    I want some other things to be happening as well, and there 
are other ways that you can scrutinize an individual. I want to 
know as much as I can about the travelers moving through. So I 
am a big fan of Known Traveler Programs. I am a big fan of 
Trusted Traveler Programs. I am a member of Global Entry 
myself. I did that for a good reason, partly to move myself 
through the system, but to participate in the system in the way 
that I thought the system needed me to.
    Following that, when I get to the airport, I would like to 
know that there are a number of things that might happen. So if 
I am a bad guy and I am trying to make my way through the 
system, I do not want to see a path through, or every path I 
take I want to be unpredictable on the other end. So I like the 
idea of layers in a system, but I want to be sure that those 
layers are effective.
    So as I look at what TSA is doing--and they have layers 
that have been described to me, whether they be Behavior 
Detection Officers or bomb-sniffing dogs or other methods that 
they use, I would like to understand what is the effectiveness 
behind that, how do we ensure that those are being effective, 
and then how do they overlap with one another.
    If you can devise a system that has a number of layers that 
overlap in such a way that you close to the maximum extent 
possible the gaps that exist in that and you evolve that system 
over time, because you still have to keep in mind what the 
threat is, so you are always looking at the threat, you are 
plugged into the intelligence community (IC), you understand 
how that threat is evolving, read Inspire magazine, look at the 
things that are being recommended by those who would do harm to 
the system, and then go back immediately and question whether 
your layers are effective.
    So although disturbing and of great concern, the IG's 
findings are exactly what you need to find out to determine 
whether your system is effective.
    Chairman Johnson. Another vulnerability are really the 
employees of the airports and the airlines that are working 
behind the scenes and their security clearances, again, another 
IG report showing that we are not necessarily matching up 
everybody to all the potential watchlists. Is that something 
you will make a commitment to make sure that the TSA enters 
into the interagency agreements so that every possible 
watchlist is utilized for those checks?
    Admiral Neffenger. Yes, sir, I think that is an imperative, 
and, in the Coast Guard, we are a full member of the 
intelligence community. I have been working within the 
intelligence community for quite a few years now. As we know, 
one of the findings of the 
9/11 Commission was the failure of the intelligence community 
to link itself together and to provide information to the 
people who need it. So it is absolutely imperative that TSA has 
information to those same databases, to all the information 
that is potentially available out there. So I would absolutely 
commit to that.
    Chairman Johnson. OK. Thank you. Senator Carper.
    Senator Carper. Somewhere in one of my questions is a 
statement that Secretary Jeh Johnson says you are the smartest 
flag officer that he has ever met, and I asked him how many he 
has met. He said, ``Two.'' [Laughter.]
    But you are one of the two. No, he has met a lot of them.
    But the answer that you just gave to our Chairman's 
question, which led you to go through the various layers and so 
forth, I thought that was excellent.
    When you look at the IG's report of the 95-percent failure 
rate at TSA in, I think, 70 attempts to try to pierce the 
system and the success of the so-called Red Team--they are not 
really a Red Team, but we will call them the Red Team folks 
from the IG's office. But if you go back over the last 10 years 
or however long TSA has been around--it has been about a 
decade--we measure success with a lot of metrics, but for me 
one of the key metrics here is how many of our airplanes were 
taken down and how many people died in flights because of 
explosions or crashes. And that we need to keep in mind.
    There was an old Methodist minister in southern Delaware 
who used to say to me, he used to say, ``Just remember this, 
Tom,'' he would say. ``The main thing is to keep the main thing 
the main thing.'' And for us, the main thing is to try to make 
sure that people can get where they need to go safely and 
expeditiously.
    I want to talk a little bit about agency morale. My 
colleagues here have heard me say more than they want to 
remember: Find out what works; do more of that. And when I was 
Governor, I used to say to my Cabinet, if we were trying to 
work out a particular issue or problem or challenge we faced in 
Delaware, and I would say some other Governor in some other 
State has dealt with this, figured out how to do it, done it 
successfully. We need to find him or her, find out who did this 
for them, and see if that is transferable for us from that 
State to Delaware.
    When you look at agency morale, the Coast Guard, as I 
recall, has very high morale as measured by comment metrics. As 
we know, TSA does not. There have to be some lessons learned, 
and the question is: Just like we tried to move ideas from one 
State to our State to see if they were transferable and would 
work, what can we learn from the Coast Guard with respect to 
high morale and help improve that morale of the folks who work 
at TSA?
    Admiral Neffenger. Well, thanks for that question, Senator, 
and you are right, I think the Coast Guard does have a very 
high morale. And to me, morale begins with a clear sense of 
mission and a clear sense of importance, and then a leadership 
that invests in the mission and the people who are performing 
that mission.
    You have to have alignment throughout your organization, 
because if you say the mission is the most important but then 
you start measuring other things, then the mission is not the 
most important, and that begins to affect morale.
    So a clear sense of mission, a mission that is important. I 
think TSA has a great mission, and it is a very important 
mission. And I see no problem making that a clear statement.
    Then you have to train your workforce to accomplish that 
mission, and it cannot just be a one-time training. It is a 
continuous process, because if you want a learning organization 
and a continuously improving organization, you have to 
continuously train that organization and then take advantage of 
what those front-line people can tell you.
    Some of the things, some of the best innovations in the 
Coast Guard have come from the people on the front lines doing 
the work. I tell people today I am not the United States Coast 
Guard. I represent the United States Coast Guard, but the 
United States Coast Guard are those men and women out on the 
small boats and out at the stations and out in those remote 
units doing the work. That is no different than for the TSA 
itself. I think the Transportation Security Officers (TSOs) at 
those airports, that is the face of TSA, and it is also the 
mission of TSA, and they are the ones who accomplish it.
    So you need to train them, and you need to empower them to 
accomplish that mission, and then you need to listen to them 
when they are telling you where the mission is not--where they 
are failing or where procedures or equipment or the like are 
not allowing them to meet the mission. And so you have to value 
that workforce, and you have to support that workforce. You 
really need to have their backs.
    I had a great opportunity to sit down with about a dozen 
TSOs over at Reagan Airport as part of my briefings in 
preparing for the potential of this position. And they were 
very frank and clear. They understand the mission. I always 
remember that they are still among the very few who have raised 
their hands and said, ``I swear to support and defend the 
Constitution of the United States against all enemies, foreign 
and domestic.''
    That is a pretty powerful statement, and I have always 
found that when you remind people of that and you connect it to 
a mission, that begins the upward movement.
    But then you also have to have accountability across your 
workforce, because the people who are performing well know the 
people who are not performing well. And if you allow that 
inconsistency to exist in an organization, then it is not long 
before people feel like, again, you do not have their back and 
you are not really serious about it.
    So I think you invest in the people. You train them. You 
set and communicate clear standards. You engage with the 
workforce. One of the things that you grow up with in the 
military is an understanding that you have to be out and you 
have to talk to your work force. Again, they are the people who 
do the work. My job is to support them, to provide them with 
the resources and the training and the standards and the 
capabilities to do it, to have their back when they have got 
challenges, and, more importantly, to look for ways to empower 
them to do their job most effectively.
    Senator Carper. Good. You said in your testimony that from 
the Coast Guard you have learned a number of important lessons 
about leadership, and I was going to ask you to talk about some 
of them. But you have already talked about them. But think 
about that question, the important lessons of leaders. The most 
important element in any organization I have ever been a part 
of or observed, the most important element for their success is 
leadership. It is one, two, and three. And talk to us about why 
you think you have been successful as a leader.
    Admiral Neffenger. As I said in my opening statement, I 
have been really----
    Senator Carper. You picked the right parents.
    Admiral Neffenger. That was luck, and I did have great 
parents. But I have been really fortunate to work alongside 
some very dedicated people. Again, it is a privilege when you 
serve alongside people who say, ``I want to do the best I can. 
I want to take on the hard jobs of this Nation, and I want to 
try to do them to the best of my ability.'' And I do not even 
know how to get those done, but we are going to figure it out 
together. So that is challenging.
    And growing up in an organization helps you learn about 
leadership, and there are good examples of leadership, and 
there are bad examples of leadership. But the best leadership 
is the side-to-side leadership, what you learn from the people 
who are working with you.
    And so what I have learned is that it starts with being 
trained to do the mission and knowing that the people around 
you are trained to do the mission, and that if somebody is not 
performing to their standards, that they will be held to 
account. That is important because that is part of good 
leadership.
    It is a leader with a strong vision as to where you are 
going. What is the job, boss? And what are we trying to do 
here? And how do we get it done? And somebody who understands 
how to organize teams, how to take the best of people's 
strengths, combine them in a way that presents the best 
opportunities to succeed at whatever the current task is, and 
then evaluates how that task was conducted when it is done, and 
relentlessly pursues that perfection that you talked about in 
your opening comments--knowing that you might not get there, 
but you just might find excellence in the process.
    So I think that it is engaging with the workforce, it is 
listening to what the workforce has to say, and then carrying 
that through at every level of the organization as you move up.
    Senator Carper. Well, my time has expired, but I would just 
say to my colleagues I think we have just received an excellent 
tutorial on leadership. Thank you.
    Admiral Neffenger. Thank you, Senator Carper.
    Chairman Johnson. Thank you, Senator Carper. Senator Ernst.
    Senator Carper. Can I just say one--I am going to be in and 
out. We have a markup going on in one of my other committees, 
and I need to be there as well as here. We have not figured out 
how to do this cloning thing yet, but when we do, I will be at 
both places.
    Chairman Johnson. OK.

               OPENING STATEMENT OF SENATOR ERNST

    Senator Ernst. Thank you, Chairman Johnson, and thank you, 
Ranking Member Carper.
    Admiral, thank you for being here today, and thank you very 
much for your service. I am very impressed. You have done an 
excellent job of laying out your vision.
    I want to address something that Senator Carper brought up 
yesterday during our hearing on TSA. He asked the witnesses to 
provide advice to Congress in addressing the recent problems 
that were discussed earlier. And in response, TSA employee 
Becky Roering raised concerns about the lack of oversight with 
respect to TSA's numerous contracts. And she suggested that the 
results of these numerous contracts are that there are 
difficulties measuring performance and ensuring efficient use 
of taxpayer dollars. And this is an important issue for me and 
for many of us, and so I am going to be hopefully introducing 
some legislation. I have been working on legislation to promote 
the importance of program management, and that is all 
throughout the Federal Government.
    But if you are confirmed, sir, how would you address the 
issues that are raised by Ms. Roering in regards to the 
numerous contracts and obligations of TSA?
    Admiral Neffenger. Well, thank you, Senator Ernst. I have 
had a lot of experience with overseeing contracts and looking 
at how those contracts were put in place in the Coast Guard. In 
my current role as Vice Commandant, I am what is called ``the 
component acquisition executive''----
    Senator Ernst. Very good.
    Admiral Neffenger [continuing]. Which is a horrible title, 
but what it really means is I am responsible for all of the 
ways in which we spend money to buy things or to hire people to 
help us do things. So in the Coast Guard, our contracting is 
mostly in the area of information technology (IT) services and 
financial management services.
    I will tell you, you have to look at those very carefully. 
Contracting can be a very useful tool if it is used 
appropriately, but what I found is you have to have strong 
controls in place, and those controls are not just at the 
program management level, so you have to have people who are 
trained and qualified to understand what they are looking at, 
but you have to have a process. And, I used to tell people I am 
a substance guy, but I have discovered that unless you have 
good process, substance does not occur.
    And so first of all, how do I generate the requirements for 
why I am hiring a contractor in the first place? And then how 
do I review those requirements on a regular basis to determine 
if they are correct? And then how well do I explain those 
requirements to the potential contractors that are going to bid 
on the contract? Are they tight enough that they can be 
overseen and controlled? And what is my ongoing oversight of 
the management of that contract so that I understand that 
contract, when laid against those requirements, is meeting my 
requirement? And then what is my exit strategy if it is not 
working? Because you have to have that on the other end.
    And there is a lot more to that process, as you well know, 
but you really have to look from front to end. It is not just a 
matter of whatever exists right now. So, if confirmed, one of 
the things that I need to do and that I intend to do is to look 
very carefully at not just the way the resources are currently 
expended, but how effective the expenditure of those resources 
has been, particularly with respect to contracting, because it 
can be an invisible world if you are not careful.
    Senator Ernst. Very good. Well, I appreciate the fact that 
you do have some experience with contracting, with program 
management, and, of course, logistics, an important bottom 
line. So thank you.
    One other question as well. I know that TSA has committed 
to supporting a number of our veterans and hiring veterans, and 
veterans do make up a large portion of positions within TSA, 
such as Transportation Security Officers. And as they are 
uniquely qualified, I believe, of course, for these civilian 
positions in the security space, is there even more that can be 
done at TSA to recruit more of our veterans into TSA?
    Admiral Neffenger. That is a wonderful question. I do not 
have an answer for you right now, but I will tell you, I agree 
with you that our veterans provide a wonderful potential source 
of employment. These are people who know what it means to serve 
an important mission and who know how to accomplish that 
mission. So I think that there is room for that.
    If confirmed, I will look at how that is currently being 
done, and I will look for opportunities to take advantage of 
that and to increase it where potentially possible.
    Senator Ernst. Very good. Thank you.
    And just last, very briefly, we did have some questions 
about the PreCheck Program that came out from yesterday's 
hearing, and we heard a lot from a number of the different 
witnesses that expressed concerns about the PreCheck program 
and maybe how it is being expanded too much and the 
corresponding security risks with that. Could you address some 
of the PreCheck ideas that you might have to make sure that we 
are properly vetting those passengers or those travelers, just 
to make sure we are not just handing PreChecks out like candy 
as Ms. Roering had stated?
    Admiral Neffenger. Well, I think the properly vetting piece 
is the important part of your question. I believe in a trusted 
population. As I mentioned before, I think that the more you 
can know about a population, the more comfortable I am about 
that population moving through a system. So I am a fan of 
vetting people going into PreCheck, and I think the goal should 
be to have a fully vetted population in PreCheck.
    I understand that there have been some challenges with 
respect to enrollment centers. If confirmed, that is one of the 
things I want to look at, is how can those be expanded in a way 
that could make that entry into that system, for those who want 
to, more accessible and more available. But I think the goal 
should be to move toward a PreCheck population that is a known 
population, that is a vetted population, and that, to the 
extent possible, is one that is expanded based upon that rule 
set.
    Senator Ernst. Very good. Well, I appreciate your answers 
today, your testimony, and I look forward to working with you 
in the future. Thank you, Admiral.
    Admiral Neffenger. Thank you, Senator. Same here.
    Senator Ernst. Thank you, Mr. Chairman.
    Chairman Johnson. Thank you, Senator Ernst. Senator Sasse.

               OPENING STATEMENT OF SENATOR SASSE

    Senator Sasse. Thank you, Mr. Chairman.
    Admiral, thank you for being here, and thank you for your 
past service. In your prehearing questions, the Committee asked 
you if you believe that TSA is fulfilling its aviation security 
responsibilities. You did not directly answer the question, but 
you said that you ``would ensure that TSA remains laser focused 
on its core mission.'' Do you believe that TSA is today laser 
focused on its core mission?
    Admiral Neffenger. Well, Senator, I think that is the 
question given the results of the Inspector General's 
investigation. I believe that there are still good layers of 
security within TSA, but clearly there are some challenges, 
particularly with respect to the equipment that was tested by 
the Inspector General. So I want to be able to provide you with 
a true and a complete answer to that question, if confirmed. 
And my immediate task is to, first of all, get the full results 
of the IG's investigation as well as the GAO investigation and 
any internal work that has been done by the TSA itself, because 
they have their own inspection team internally.
    What are they finding? Are they finding the same kinds of 
things? And then how much has that been linked up? And then 
what is the extent of the gaps that have been found? And then 
what can be done immediately to mitigate those gaps as we look 
for what the systemic issues are across the organization? And 
then going back to a comment I made previously--and then I want 
to look at how that fits into the entire system and whether 
there are any gaps in the other layers that TSA currently has 
in place for that security system, because the system as it 
works as a whole is what determines its effectiveness, in 
addition to those individual components of the system, such as 
the equipment that the IG found deficient?
    Senator Sasse. I appreciate the layering piece of your 
answer, but I guess I will ask you more directly. Do you think 
that TSA is succeeding at its mission?
    Admiral Neffenger. Well, I travel a lot, and I traveled to 
the west coast this past weekend. I felt safe. But I want to 
know if that feeling was a good feeling to have, and based upon 
the findings, clearly there is a problem with the way in which 
people are being screened because the screening equipment did 
not work in the instances in which I had done, and it occurred 
at a number of airports.
    I will need to look at how that is being done across the 
system, and, more importantly, what have we done to mitigate 
that? What has TSA currently done to mitigate it? And can it be 
safe?
    Senator Sasse. I appreciate that we were in a classified 
briefing together yesterday, so I know you are trying to do 
your homework as well. But for those of us who have been 
pushing on these issues, I will be honest that I am not that 
surprised by this 96-percent issue in this report, because 
there are other classified reports that we cannot reveal the 
particulars of in this setting. But I think you are not 
answering the question of whether or not you think today TSA is 
succeeding or failing at its mission.
    Admiral Neffenger. Well, I appreciate where you are going, 
Senator, and I think the reason that I am not giving a direct 
answer is because I think that there are aspects of the system 
that do work. And what I want to know is how well do they work, 
and I think some of the Secure Flight checking, some of the 
name-based checking is working. I do not know how effective it 
is.
    So what I will tell you is that, if confirmed, I need 
really to dig into it deeper. I have had a number of briefings 
about the way in which they do their business. I think that 
some of what I have heard is reassuring; some of what I have 
heard is deeply disturbing, not the least of which were the IG 
reports.
    Senator Sasse. Without revealing any details that would 
give the terrorists a road map to our particular 
vulnerabilities, do you believe the public has a right to know 
more of what the administration knows about TSA's failings?
    Admiral Neffenger. Senator, I am a fan of transparency in 
government. I am a fan of making clear to people how effective 
their government is, how its performance is, and, more 
importantly, what we do about it when we find the performance 
has not lived up to the standards or has failed. So I am a fan 
of that.
    I am not a fan of giving away secrets to our enemies, and I 
am certainly not a fan of exposing vulnerabilities that we know 
exist. And so I think that is a delicate line that has to be 
walked, but I do not want to give any comfort to those who 
would harm us, nor do I want to give any help to those who 
would harm us.
    Senator Sasse. I do not either, and so my calls to the 
administration to declassify more of the information and for 
the President to come clean with the American people about how 
badly TSA is failing clearly include the caveat that we should 
not reveal any details that would give the terrorists a road 
map. But Chairman Johnson's point about security theater, 
clearly one of the main benefits of TSA has been the deterrent 
benefit of people who believed it was functioning much more 
effectively than we know it to be functioning at this point. 
Politico yesterday said you would be leading a Herculean 
turnaround at TSA. Do you think a Herculean turnaround is what 
is required?
    Admiral Neffenger. I think, first of all, a refocus, as I 
said, on the basic mission and an understanding that this 
organization has got to be one that continually changes and 
adapts. The day you think you have the security system right is 
the day that you are going to be defeated in that security 
system.
    One of the things you learn in the military is that you 
question every assumption that you have about your performance, 
and you question it because you know that somebody is going to 
be questioning you if you do not do it yourself. And so if you 
do not question yourself, then you are not staying ahead of the 
people who are already questioning you. And it does not 
surprise me that there are people out there that have found 
ways to defeat the system. The question is: What do you do 
about it internally?
    So I do think that there is a huge effort to do that.
    Senator Sasse. If you are going to fix a broken 
institution, I think that requires us admitting that the 
institution is broken. Secretary Johnson at this hearing last 
month said that TSA is the best model of risk-based security at 
DHS, and he specifically highlighted the PreCheck system. 
However, we now know that TSA failed to catch weapons 96 
percent of the time and that we have 73 airport workers that 
have links to terrorism.
    I am curious, your sense of the institutional history, how 
can we have these kinds of security lapses 14 years after 9/11?
    Admiral Neffenger. Well, I think that is the question, 
Senator, and it is the question that made me say yes to taking 
this job, because I travel and my family travels, and I want 
that to be safe for my family to travel, and I want it to be 
safe for Americans to travel. I care very deeply about the 
safety and security of this Nation, and I want to be able to 
answer that question in an affirmative way. I want to be able 
to say yes, it is safe to do so.
    I do not know if it is right now, but if confirmed, that is 
going to be my focus. And what I promise you and commit to you 
is I will come back to this Committee and other oversight 
committees. And I will lay out what I find, and I will lay out 
the challenges I find, and I will do so in a transparent way; 
and where it requires doing so in a classified setting, we will 
do so in a classified setting.
    Senator Sasse. But I think that the turnaround is going to 
require admitting the magnitude of the challenge, so I am 
curious as to what letter grade you would give DHS and TSA in 
particular as you begin this mission.
    Admiral Neffenger. Well, it may be premature for me to 
assign a letter grade to it. I will come back to you with that 
if I get confirmed. But I will tell you that they are not where 
they need to be.
    Senator Sasse. As a former college president, I do not know 
any institution where a 4-percent success rate could be 
anything other than an F. I think we need to admit the 
magnitude of this problem, and I think the American people have 
a right to understand the issue more clearly.
    Thank you, Mr. Chairman.
    Chairman Johnson. Thank you, Senator Sasse.
    I do want to underscore your point. Coming from a 
manufacturing background, I solved a lot of problems. The first 
step in solving a problem is fully admitting that you have the 
problem and properly defining it. And, Admiral, I just have to 
say I feel safe flying as well, but only because of the odds. 
25,000 flights, what are the odds? So, I mean, I think the line 
of questioning Senator Sasse was undertaking there is exactly 
right, and we have to admit the problem, and we have to 
properly define it. Senator Ayotte.

              OPENING STATEMENT OF SENATOR AYOTTE

    Senator Ayotte. Thank you, Chairman.
    Admiral, I appreciate your being here and for your 
willingness to take on this position. And you are a nominee for 
this very important position, as has been outlined today, with 
the failures that we have seen that the American people can 
expect so much better from TSA. And so I appreciate your 
willingness to take this on, and as you have heard all of this 
testimony yesterday before this Committee, both in open and 
classified settings, what would you prioritize as the first 
thing that you are going to do if you are confirmed for this 
position?
    Admiral Neffenger. Well, thanks, Senator. I think that, as 
you know, Secretary Johnson laid out a pretty clear set of 
directions to address the immediate challenges, and I think 
that my first priority is to ensure that those are carried out, 
that the answers that he has demanded are found, but, more 
importantly, that they are extended as necessary to address the 
immediate crisis. That is the most important thing right now, 
to restore confidence in the system to the extent possible, to 
close the gaps, and to mitigate the vulnerabilities to the 
extent possible, but then, more importantly, to look 
systemically across the organization to see how much will it 
take to do this over time. Some of these things can be fixed 
right away, and some of these things are going to take some 
time to fix.
    Senator Ayotte. Let me ask you, the testimony that we heard 
yesterday that was quite disturbing with respect to the 73 
airport workers that the IG found links to terrorism, and then 
we were told that, in fact, TSA was not fully vetting those 
employees against all the information that the Federal Bureau 
of Investigation (FBI) had in terms of those that we might have 
based on intelligence, on our terror watchlist.
    So here is the question that I have for you: When I heard 
it yesterday before the Committee, I heard, yes, we identified 
this problem in 2014, but then we went over to the FBI and 
asked for information, and here we are in 2015, when we think 
about something that urgent, that there was not an immediate 
fix to that is pretty disturbing.
    And so what I would ask of you is this Committee and our 
oversight function, you find something like that, you do not 
wait for the bureaucracy to answer, that you let us know and 
that we make sure that a fix like that that is so obvious and 
so immediate so that we do not have 73 airport workers with 
ties to terrorism, that we find right away that we are vetting 
people fully, that we fix something that is so obvious 
immediately and do not let the bureaucracy bog us down.
    Will you commit to us that if you find something like that, 
you are not waiting for an answer from some other agency, but, 
in fact, you will engage us to help you be effective in 
protecting the American public?
    Admiral Neffenger. Senator, I could not agree with you more 
on that issue. Absolutely, if there are legislative fixes that 
need to be there, I will be the first one to come back to 
Congress and request those fixes. In the meantime, if 
confirmed, the first thing I am going to do is ensure that we 
are connected to all of those databases. As a member of the 
intelligence community now, as a full member, I understand the 
importance of connection. And, in fact, as we said earlier, 
that was one of the key findings out of the 
9/11 Commission report.
    Senator Ayotte. September 11, 2001 was all about connection 
and communication----
    Admiral Neffenger. Yes, ma'am.
    Senator Ayotte [continuing]. And knowing the information 
and sharing it with each other.
    Admiral Neffenger. That is right. So I am in full agreement 
with you and absolutely commit to that.
    Senator Ayotte. Well, I appreciate that, and I would say 
that you take on this very important task of leadership right 
now, but understand that this Committee is very committed to 
having your back. If you find things that need to be fixed 
right away, if you find things that are wrong, that you need 
legislation, you need us to say to the administration this has 
to be a priority, we want to work with you to make sure that we 
get this right.
    And one thing that I wanted to ask about as well, we 
yesterday had testimony before our Committee from 
whistleblowers, and I think they were compelling. But, clearly, 
what they went through individually to be able to tell their 
story is something that we do not want to have happen in an 
agency where we have a culture where, if you bring forward bad 
information, that you are either punished or you are swept 
aside.
    So I would like a commitment from you that as you engage 
with the employees in the organization and you have those that 
come forward as whistleblowers or with information as to 
deficiencies in the agency, that you will fully support them 
and make sure that they have the support so that we can make 
sure that we understand all the problems and can address them.
    Admiral Neffenger. I do commit to that, Senator. I believe 
strongly in listening to your workforce. I believe in finding 
mechanisms for the workforce to express their concerns with 
problems. If they see a problem, I want to hear about it. And I 
will tell you, if they do not feel that there is any other way 
than to go outside the organization to provide that 
information, that is still important to get that information, 
and I do not believe that there should be any punishment 
against an individual who finds that--because, again, these are 
people who raised their hand and took an oath, and they are 
finding something. It takes a lot of courage to speak out, and 
it takes a lot of courage to go outside your organization to do 
it. We should commend them for the courage. We should listen to 
what it says, and then we should not be afraid to tackle the 
challenges.
    Senator Ayotte. I was glad to hear you say in answer to 
Senator Ernst that you think that, in terms of PreCheck, we 
need to ensure a fully vetted program. I think that is a 
priority. And also the other issue I would ask you to look at 
is the Security Identification Display Area (SIDA) badge issue, 
because that issue has popped up in other contexts where we 
know those badges, behind the scenes, the access that is given 
with one of those badges in the airport, and that, in fact, the 
system is one where the airports are controlling that, but we 
cannot account for where all the badges are. So I would ask you 
to take a very careful look at those badges to make sure we are 
not giving people access that we should not be.
    Admiral Neffenger. I will do that.
    Senator Ayotte. Thank you.
    And one final thing that I would say is the other thing 
that I took from the testimony yesterday, both classified and 
unclassified, was we have seen that there are many standard 
operating procedures (SOPs), as Director Roering mentioned, but 
there seems a disconnect in consistent application of those 
SOPs. So looking at whether it is a checklist or more 
consistent application of SOPs, because it only takes, as you 
know, Admiral, one instance of an SOP not being followed in 
terms of the checks that need to be in place to protect the 
country to allow a terrorist through. So I wanted to get your 
perspective on that and what you think we should be doing to 
make sure there is consistency.
    Admiral Neffenger. Well, that is a great question, and that 
is fundamental to how people perform the mission. And so, as 
you know, in the military it is all about standard operating 
procedures, and the reason you do that is so that you can 
ensure that you are focused on the mission. And, of course, 
those get refined over time. It is important, first of all, 
that they be straightforward, clear, and understandable; that 
you have a consistent way of training to those standards, 
whether that be through resident training or through teams that 
train, individual teams or individual units.
    And then there has to be an oversight function, too. You 
have to have a way to determine whether those standards are 
being adhered to.
    And so, again, in the Coast Guard, my experience has been 
you have standardization teams. We just call them ``stan 
teams,'' and these are standardization teams that then go 
around and they test that people are living up to the 
standards. It can be up to and including things like the 
Inspector General or others have done, but it is usually just a 
matter of walking people through the procedures and say, all 
right, you are going to confront this situation, what is the 
procedure and how do you do that?
    And, again, checklists can help. Those are very important 
where a checklist is appropriate. But it is also an 
understanding of the process that you are trying--again, you 
focus on the mission, and you say: What do I need to do to 
accomplish that mission? What are the standards that I need to 
have in place to do that? What is the process for doing that? 
And what parts of that can be done in a checklist fashion? And 
then how do I ensure that it is being done? And then I go back 
and do that whole process over again.
    So I concur with you, and I think that it is important to 
look at the current SOPs. Are they appropriate? Listen to the 
people that are using them. How effective are they? From your 
perspective, can you understand what you are reading? And if 
you can understand what you are reading, does it make sense to 
you? Or are you seeing things that we ought to add that we are 
not doing?
    The other thing that I have discovered over time is that 
you can become a slave to your standard operating procedures 
and not be aware of what the real process is. So you have to be 
careful not to just go through the motions. You have to have a 
thinking population that says, ``Wait a second, this does not 
make any sense.'' And we get that all the time in the military. 
Somebody will say, ``Why in the world are we doing X?'' And you 
look at it, and you go, ``I have no idea why we are doing that. 
It does not make any sense. Let us do something else.''
    Senator Ayotte. Thank you.
    Chairman Johnson. Thank you, Senator Ayotte. Senator 
Lankford.

             OPENING STATEMENT OF SENATOR LANKFORD

    Senator Lankford. Thank you, quite frankly, for your past 
service and for taking this on as a consideration. You have 
been asked to consider leading an agency right now that has 
very low morale, that has had systemic procurement problems, 
that has some recent very bad evaluations and, quite frankly, 
uses wrong metrics in some of the ways that they are evaluating 
some of their own performance. So you have a task to do that is 
not an easy thing to step into. It is not an easy assignment 
regardless, so I want to tell you thank you for your 
consideration for walking through this, and I want to just 
bounce a couple issues off you, some of your perspective on 
things for you personally.
    Some of the metrics of evaluating the issue of conduct 
versus performance metrics and evaluations here, whether the 
goal is to quickly get people through the line or to be able to 
evaluate for safety checks and such. I think we can do both, 
but right now we seem to be pushing on the speed side of it 
rather than on the safety side, and it is almost like we are 
lulling ourselves back to sleep again on some critical issues.
    So I want to talk about how you will adjust that as far as 
evaluation, and then I want to move from there, and if you want 
to go ahead and move to it, to the morale issue of how you 
reengage some really great folks. When I interact with the 
Oklahoma City TSA folks, there are some great folks that serve 
there and are really terrific servants of the Nation. But the 
morale issues are terrible as we deal with it nationwide. So if 
you want to talk about some of those. Then we will move on to 
some other issues.
    Admiral Neffenger. Yes, sir. Thank you. I think you have 
hit on one of the key concerns: the care of the workforce and 
the training of the workforce and the morale of the workforce. 
I mentioned in an earlier question that was about this very 
same issue, I said to me morale starts with an important 
mission, so we already have that. This is an important mission, 
a clear sense of that mission and a dedication of the 
leadership of the agency to performing that mission.
    And so when you talk about the potential disconnect between 
what is being measured and what is most important, I think that 
is key to one fundamental aspect of morale. If I am being told 
the most important thing I can do is protect the American 
public and to protect the traveling public, but I am not being 
measured as to how I do that, then that is a disconnect right 
there. And my fear is that that starts to breed cynicism in the 
workforce, and cynicism leads to low morale. So I get that 
completely.
    So the first thing you do is you focus back and you say, 
look, what is the most important thing we are doing out there? 
Why did you raise your hand, take an oath of office? These are 
great Americans. Not many people do that in this country. So 
they are still among the one percent that say, I want to serve 
my Nation, and you deserve to support them in doing that.
    Next comes training. You have to train them, and you have 
to continually train them and get them in that continual 
learning process so that they can do the mission.
    Senator Lankford. If I can interrupt, how is that different 
than what is happening now? What is the change that has to 
happen? Because all those things are occurring now.
    Admiral Neffenger. Well, I think that over time it is very 
easy for an organization to shift focus, to think they have the 
mission right, and then to work on other things. So I think you 
can never stop referring back to it. What I have found in my 
service in the Coast Guard is that you can have--even in a 
high-morale organization like the Coast Guard, we can have 
pockets of low morale, and what causes it? It is the day you 
get even a little complacent at the leadership level and you 
think you have it right.
    No one gets tired of being reminded how important their job 
is, and no one gets tired of being trained to do that job, and 
no one gets tired of feeling good and learning how to use 
equipment. And no one gets tired of engaging with their 
organization and telling you where they think they can do it 
better.
    So I think it is engagement with the workforce. That is an 
ongoing, it cannot just be a one-time thing. You cannot think 
you got it right because you held a meeting with them and you 
moved on. Annual surveys are good places to figure out where 
you need to start engaging more effectively, but they do not 
answer the question for you. They raise all the questions.
    Senator Lankford. Both your hiring and your training there 
makes a big difference, because they work in very close 
quarters with each other.
    Admiral Neffenger. That is right.
    Senator Lankford. And if there are a couple bad apples in a 
group, it is really difficult for everyone in the group. So 
just managing personnel and placement and attitudes there on 
the line make an enormous difference.
    Can we talk a little bit about procurement? This has been 
an ongoing issue. TSA has millions of dollars worth of 
equipment stored in warehouses, trying to figure out where to 
move old equipment, wrong equipment, determining the efficiency 
of equipment, when they are going to purchase something 
different. If it has a 2-percent gain in efficiency, is that 
enough? So there are lots of issues that involve billions of 
dollars in procurement nationwide. So talk to me as far a 
changing attitude for you on that.
    Admiral Neffenger. Well, in my current role, I serve as 
what is called ``the component acquisition executive'' for the 
Coast Guard, so I oversee all--the whole acquisition process 
for the Coast Guard, and that starts with the basic 
requirements--first of all, it starts with the mission and how 
that mission can be accomplished against what the threats are 
that keep us from accomplishing the mission. And then you begin 
to build the requirements that you need to accomplish that 
mission. Some of those are human requirements. Some of those 
are equipment requirements. And those are interactive as you go 
through.
    Then you have to have an ability to translate those 
requirements into the actual thing that you need to buy. So 
there is a process that has to be in place, and what I have 
learned in the Coast Guard is--we completely rebuilt our 
acquisition program over the past decade. We did not have one 
of the best acquisition processes in the government. I think we 
do have one of the best acquisition programs in the government 
now, and it is because we looked at it from start to finish. 
You cannot simply walk out to industry and say, ``Give me 
something that will do something.'' I do not blame industry for 
providing you things that do not work. They will provide you 
what they have. But you need to really examine what do I 
actually need to know. So if you are looking at a piece of 
detection equipment, what do I need that thing to find? And 
then what are the limitations of the technology in order to 
find that so that I can figure out what the other requirements 
that go on top of it are? So it is not just enough to have 
requirements for the equipment. You have to have the 
requirements for the things the equipment cannot do, and those 
are combined. So all of that feeds into the procurement 
process, and then you need a rigorous process. So you have to 
adhere to the oversight, the controls, and the various 
program--you have to separate the person who is writing the 
requirements from the person who is implementing the 
requirements to the person who is overseeing the program to the 
person who is contracting for the program. And the more 
separation you can have amongst those, the more rigorous you 
can hold that process. Otherwise, you are going to run into 
schedule breaches; you will run into cost overruns.
    Senator Lankford. And I would encourage you to evaluate the 
effectiveness of this equipment, not based on how it functioned 
in the laboratory in a sterile environment----
    Admiral Neffenger. It has to be a real-world test.
    Senator Lankford [continuing]. But how it actually 
functions in the real world. That has been a problem, that we 
have to have that real-world involvement.
    With the Chairman's indulgence, one quick comment as well. 
The PreCheck issue, we have a lot of people coming through 
PreCheck that are not really prechecked. We are either going to 
have to change the name, because we have millions of people 
going through that are really not prechecked, or really focus 
on PreCheck. And I am not talking about other people, Trusted 
Traveler and all these other programs where they really have 
gone through a process. But it seems to me that we are 
increasing the number of people through it to get throughput 
and get efficiency, and we are losing some of the focus of what 
it is designed to do and what the actual security is designed 
to do at the airport and the other lanes here.
    So we are trying to increase efficiency and are losing our 
focus on security. I think that is a recipe for disaster. So 
PreCheck should be PreCheck and should have some kind of 
background on them rather than just it is random or we think--
or they meet some sort of profile.
    So thank you, Mr. Chairman, for that. I yield back.
    Chairman Johnson. Thank you, Senator Lankford. Senator 
Heitkamp.

             OPENING STATEMENT OF SENATOR HEITKAMP

    Senator Heitkamp. Thank you, Mr. Chairman, and I just want 
to add my voice to what Senator Lankford just said. It has got 
to mean something, and it cannot just be, ``Oh, you flew a lot 
of miles and nothing bad happened on that plane, so now we are 
going to hand you the pass.'' We have to actually know who we 
are dealing with.
    I want to add my voice to what I surely hope has been the 
sense of the Committee here, how grateful we are that you are 
stepping up to take on this enormous challenge. I think too 
often we do not say thank you to the folks who go through what 
is sometimes a very onerous and difficult process, but we are 
extraordinarily grateful, and we find that more and more people 
who put on the uniform of our country in our armed services and 
serving us tend to step up and continue their service, and so 
thank you so much, Admiral, for what you are doing and your 
willingness to take this on. At least I am excited about the 
changes that I know you are going to make and the things you 
are going to do having been in such important leadership 
positions in the past.
    The one thing I do want to talk about is something that 
Senator Lankford and I have focused a lot on in our 
Subcommittee, which is how do you engage everyone, regardless 
of whether they are, the person collecting the trays at the end 
of the scanning line to the person at the very top, how do you 
engage them in the overall, overarching mission so they have a 
sense of purpose and they have a sense of what they are doing 
every day? What strategies do you think you can deploy to 
improve morale by giving people a sense of importance?
    Admiral Neffenger. Well, I talked about in my opening 
statement the need to look at--first of all, what do we teach 
people when they come into the organization? I think back to my 
experience coming into the Coast Guard, and you are taught the 
base culture of the organization. And in our case, everyone is 
read this wonderful letter that came from the first Treasury 
Secretary, Alexander Hamilton, and it was his first 
instructions to the very first 10 commanding officers of the 
Revenue Cutter Service, which was the precursor to the United 
States Coast Guard. And this was a challenging mission because 
they were told to go do something that had never been done 
before, which is to collect tariffs from merchant vessels 
trading with the brand-new United States of America, something 
that merchant vessels were not really pleased about and did not 
really want to encounter this new government attempting to 
exert its power.
    And so in the process of writing this letter, he lays out 
all their requirements and their duties and obligations and the 
law that they have and the expectations. But he says something 
very interesting in the letter, and it is the thing that begins 
this cultural indoctrination in the Coast Guard, and he says, 
``Always keep in mind that your countrymen are freemen and, as 
such, as impatient of everything that bears the least mark of a 
domineering spirit.'' And it is wonderful 18th Century prose, 
and it goes on and on. The letter is multiple pages long. But 
that one line is repeated over and over and over again 
throughout your career in the Coast Guard. We use it when we 
advance people in rank. We use it when we promote them in rank. 
We use it when they swear in a new oath of office and remind 
them that you are going to do things that by nature interfere 
with the free movement of people. And sometimes you are going 
to do things that interfere with their individual rights 
because they would like to go do something and you are going to 
get in their way. You do not have to do that in a way that 
offends them, and you do not have to do that in a way that does 
not respect them.
    How does TSA do that? One of the things I would like to 
examine is what is the way in which TSA provides a culture. 
There is a TSA Academy. I do not know how well attended it is. 
I would like to look at that opportunity. And then over time, 
what are the ways in which you can continue to engage with the 
workforce? We live in an age in which it is very easy to 
communicate with people. I do not accept the premise that 
because you have a widely dispersed and geographically 
distributed workforce that you cannot find a way to talk to 
them? We do this all the time. I mean, I have a widely 
dispersed and geographically distributed workforce that works 
in small unit teams. I cannot touch every single member of the 
Coast Guard every day, but I can assure myself that they are 
plugged into the organization.
    So I am going to look for ways to do that, if confirmed, in 
the TSA. I am going to find a way to connect leadership to the 
front-line operation. In my experience, one of the other big 
factors of morale is how distant is your leadership from the 
actual people doing the work. I do not do the work of the Coast 
Guard anymore. The Coast Guard does that work, those front-line 
men and women out there. So how do they know that I have their 
back? And how do they know that I am paying attention to them, 
that I am providing them with the tools and the training that 
they need, if I do not listen to them and if I do not find a 
way to engage with them?
    So those are the things I think about as I look to 
connecting with the workforce, to listening to what they have 
to say, to learning from them. I meant what I said in my 
opening statement that I have learned about duty to people, I 
have learned about commitment to excellence, I have learned 
about service to this Nation from the people who are doing that 
on a daily basis. I continue to learn today. I am always 
astonished at the new things I learn about those things.
    Senator Heitkamp. I know it has been said already here, but 
I think improving the morale of TSA, reducing the turnover, 
really having an appreciation by everyone how important their 
work is and how much their country is counting on them. And as 
we saw in California, their work can be dangerous, and they 
need to be appreciated for that, for standing on the front line 
trying to stop--being that visible signal.
    The other thing I would say that the public gets frustrated 
with is when they do not see value added to some of the things 
that TSA does. They go, ``Well, why would we need to do that? 
And why would we need to do this?'' And I think it is really 
important that your communication, as you are focusing on 
communicating why they need to do that, is also turning it 
outwards and talking about the challenges that you have so that 
people who are like us, who are at airports all the time, 
better understand what that goal is. And so I would just offer 
that suggestion that that communication not just be internal, 
that we spend a lot of time talking to the traveling public 
about the importance of what you do. I mean, I just think we 
have great hope for you, and if there is something that we can 
do and ideas that you have where laws restrict you, I hope that 
you come back to this Committee, come back to us individually 
and say, ``This is something that makes no sense. Please change 
it.''
    Admiral Neffenger. Thank you, Senator. I will do that.
    Senator Heitkamp. Thank you, Mr. Chairman.
    Chairman Johnson. Thank you, Senator Heitkamp.
    I think we have pretty well covered most of the issues. I 
know our Ranking Member has another question or two.
    I will just make this statement, though: Regardless of the 
fact that we have not had additional airplanes used as a 
weapon, I would first say that is because we did take a look at 
the priority solutions, and we hardened the cockpit doors. 
Again, very cost-effective, but also very effective from the 
standpoint of security.
    I do believe that the TSA has been in somewhat of a state 
of denial, that what processes and procedures and equipment we 
have in place--again, it will catch the water bottles. It will 
catch my little Boy Scout pocket knife that I was given and did 
not realize I had it in my briefcase. We will do that. But for 
determined people that want to defeat that system, I think the 
IG's report is pretty telling. So it is a matter of recognizing 
reality and being we have those problems.
    I guess until the Ranking Member comes back, in testimony 
yesterday, one of the whistleblowers, Ms. Roering, claimed 
that--we were talking about the morale issue--there is a 
feeling of fear and mistrust within the TSA. And Senator Ayotte 
talked about retaliation--which, by the way, we are going to 
have a hearing tomorrow on whistleblowers and the kind of 
retaliation they have faced. It is disturbing across the 
government how prevalent that really is. Apparently, there is 
that kind of problem within the TSA as well.
    So I guess I am just asking, you have a significant 
management challenge, the low morale, if it is true--and I want 
to ask your opinion. Do you believe there really is, is it 
possible that there really is a prevalent feeling of fear and 
mistrust? But, just from a standpoint of the tedious nature of 
the task, it is just prone to complacency. We are human beings. 
How do you manage that? How do you rotate shifts? How do you 
provide incentives to keep people alert? But really speak to 
the fear and mistrust statement of our witness from yesterday.
    Admiral Neffenger. I hope that it is not a pervasive fear 
and mistrust. But I will tell you that I start from the premise 
of trusting my organization. I want the people who work for the 
organization to feel free to bring problems to the 
organization. That is where you learn the most about what you 
are doing.
    I will commit to you that this is one of the most important 
things for me. It speaks right to the fundamentals of morale. 
If I work for an organization that I do not trust and that I am 
afraid is going to take action against me if I bring problems 
to light, then that is a real problem. That is a real morale 
killer. So you have to address that right up front.
    So what I will commit to you is that that is not the way I 
do business. It is not acceptable in any of the people with 
whom I am working or the people who report to me. And I will 
take a hard look at the current climate in the TSA.
    Chairman Johnson. I appreciate that.
    Senator Carper, do you have a question or two?
    Senator Carper. Yes. Admiral, over Memorial Day weekend and 
I think again last week, threats were made against 
international flights that were bound for the United States, 
and while those threats were deemed ultimately not to be 
credible, we know that passenger screening overseas presents a 
significant risk to our aviation security.
    If confirmed, how would you work with our international 
partners to improve passenger and baggage screening standards 
in foreign countries?
    Admiral Neffenger. Well, I think it is important to have 
agreed-upon international standards, and those have to be 
rigorous, and they have to be at a level that assures that you 
are doing the absolute best you can to stop any potential 
threat.
    I have had a lot of experience with that in the maritime 
sector. As you know, the Coast Guard represents the United 
States to various international bodies that deal with 
international maritime security, international maritime safety. 
And what I have found is that, first of all, those other 
countries want their systems to be safe as well. But if you 
have a patchwork of approaches, then you are going to have gaps 
in your security.
    So it is important to work with the international bodies in 
the aviation world, such as the International Air Transport 
Association (IATA) and the International Civil Aviation 
Organization (ICAO), to ensure that you have clear and well-
defined and consistent standards, that you have a mechanism for 
enforcing the adherence to those standards. In the case of the 
world in which I work, that includes spot checks and verifying 
teams. So we send teams all over the world to foreign ports 
from the U.S. Coast Guard, and we inspect to make sure that 
they actually are doing what they claim to be doing on paper. 
And when we find evidence that they are not, then we apply 
sanctions up to and including the refusal to allow a vessel 
from that port to arrive in U.S. ports, and we do that.
    I think the same standards need to be even more imperative 
that you do that in the aviation world because we know that we 
have significant concerns with foreign fighters, we have 
significant concerns with increasing radicalization of 
terrorist groups, and we know that they are continuing to focus 
on the aviation system.
    So I intend to work, if confirmed, with counterparts around 
the world, particularly those countries that have last points 
of departure bound for the United States, and, more 
importantly, to work with the international associations to 
ensure that the standards that are set are appropriate and that 
there is an oversight mechanism for enforcing those standards.
    Senator Carper. All right. Thanks.
    In our closed session yesterday, which you were good enough 
to join us for, one of the things we discussed was the role of 
patdowns in better ensuring our security. These flights--and it 
is a sensitive, awkward situation. It is important for our 
security, but it is difficult for those that are trying to 
ensure security and, frankly, for the passengers who endure 
this.
    I am sure that some other countries may have figured out a 
better way to do this. I am not sure who it is or if they have. 
But I would just ask if, as one of the things when you get 
settled in, one of the things that we do is look around the 
world and say everybody has to--all kinds of nations, dozens of 
nations deal with these issues, and maybe somebody has come up 
with a better mousetrap and we can learn from them.
    The last thing I want to ask is a variation of what I asked 
at the end of our session yesterday with the IG and the others 
on TSA. Give us a short to-do list for us on this side of the 
dais. One of the things that Chairman Johnson and I--and Tom 
Coburn for that matter--and our Committee, one of the things we 
always looked to the Government Accountability Office (GAO), 
every 2 years, beginning each Congress, they would give us a 
to-do list--not just us specifically but its high-risk list, 
high-risk ways of wasting money, and we almost use it as a to-
do list. But just give us a short to-do list, if by some small 
chance you are confirmed, have the opportunity to serve in this 
role, what would be a couple things that we could do that you 
think would be especially helpful to you as the leader but, 
more importantly, the folks you would lead and to the people of 
our country, what could be helpful? Just a couple of items.
    Admiral Neffenger. Senator, thank you for that.
    First, thank you for the offer to help. I believe strongly 
in working with the Congress because you have an important role 
to play not only in oversight but in ensuring that the right 
laws, the right legislation is in place to allow a mission like 
the security of our transportation system to succeed. And I 
promise to work with you on that.
    What I would like to do, if confirmed, is to bring you a 
list of those things that I think can be most effective for 
this Committee to attend to. I really do appreciate the 
willingness of every member of this Committee with whom I have 
met to work with me. I promise you that it will be just as much 
coming from my side as it is from your side. And what I would 
like to do is bring to you in a very open manner the challenges 
that I find, where those challenges need to be addressed by 
work that this Committee can do, and where those challenges are 
something that the agency has the ability to do but you need to 
be aware of before it is put into place.
    Senator Carper. All right. Thank you.
    Mr. Chairman, I would just close by saying Jeh Johnson, our 
Secretary of DHS, is not one given to hyperbole, and when he 
told me a couple of months ago, he said, ``We have our leader 
for TSA.'' And I said, ``Well, who is it?'' And he said, ``It 
is an admiral. His name is Pete. He is in the Coast Guard, and 
he wears a lot of stars.'' And he said, ``You are going to 
really like him.'' And I must say I am impressed. Thank you for 
your willingness to serve, and hopefully we will get you 
confirmed and you can go to work.
    Admiral Neffenger. Thank you.
    Senator Carper. Thank you.
    Chairman Johnson. Senator Sasse, you had an extra question.
    Senator Sasse. You bet. Thank you, Mr. Chairman and Ranking 
Member Carper.
    They need to get to another nominee, so I will flag two 
questions, one of which I will submit in my letter and one I 
will ask you here.
    The first is: I appreciate many of your statements about 
your desire to skate to where the puck is going to be and 
ultimately be dealing with the security threats we face in the 
homeland and the jihadi opponents from abroad over the course 
of the coming decades and to be forward-looking on that.
    I also appreciate your clear care and concern for the 
workforce and for the morale issues inside the organization. 
There are lots of good and freedom-loving Americans inside TSA. 
And my worry about the magnitude of the challenges we face does 
not start chiefly with workforce issues. Obviously, you have 
flagged some technology failures, but I think we have big 
leadership problems inside the organization, and I think we are 
at a gap as far as strategic priorities and measurement of our 
performance against those priorities.
    You mentioned and yesterday Director Roering talked about 
the fact that there is this tension between a couple of 
different TSA missions, but almost none of the metrics actually 
go to the success at interdicting prohibited weapons and 
materials and explosives.
    I am curious--and we will submit this by letter--about what 
your familiarity is with what briefings and performance metrics 
Secretary Johnson from the Department receives at least on a 
weekly basis. Some of us who have been pushing on these issues 
for a number of months have not gotten adequate answers from 
the Department about the frequency and the quality of the 
performance metrics inside the key components and agencies 
inside DHS. And so I would like to understand what familiarity 
you have had with the briefings that the leadership team of DHS 
gets on a regular basis when you have been at the Coast Guard 
and what you expect to be included on as far as these 
performance metrics are in your potential new role at TSA. So 
we will submit that by letter today.
    The final question I will ask in person is--I have had a 
chance to meet with Inspector General John Roth three times in 
the last week and really appreciated the work of his 
organization, and he has said directly to us, sometimes in 
classified settings but he also said at a public hearing the 
other day, that he does not believe that the leadership of TSA 
``truly understands the nature of the risks that they face.'' 
He does not believe that TSA truly understands the nature of 
the risks that they face.
    I am curious which camp you would put yourself in. Do you 
believe that he is right that TSA does not understand the 
nature of the risks they face? Or do you think that the 
leadership has understood the nature of these risks?
    Admiral Neffenger. I had a chance to sit down with 
Inspector General Roth as well, as part of my preparation for 
this. I understand the risks, the nature of the risks that we 
face. I think there are people in TSA who do understand the 
risks. What I want to understand is how effective are those 
voices and how well can those voices be heard. And, more 
importantly, what are the reasons why that information appears 
to be challenging to make it to the right levels of the 
organization?
    So I think it is tied directly to your previous question. I 
look forward to answering that question, and, more importantly, 
I look forward to engaging with this Committee in the future as 
we look to ensure that the things that we do measure are the 
right things and that you continue to question whether they are 
the right measures.
    Again, just like security, the measures you put in place 
might be appropriate today, but they might not be appropriate 
for tomorrow. So you have to continually refine those, and you 
have to be relentless in your examination of those measures to 
ensure that you do keep focused on the right things.
    Senator Sasse. Thank you, sir.
    Chairman Johnson. Thank you, Senator Sasse.
    Admiral Neffenger, I just have to commend the President and 
the Secretary for finding such a quality individual as 
yourself, somebody who is, I think, very well qualified, very 
well suited for this position, this enormous challenge. And so 
I certainly want to tell you and voice my appreciation for your 
past service and for your willingness to serve, and I will 
certainly make the commitment, I think, of this Committee and 
for myself. A number of us have already voted for your 
confirmation out of the Commerce Committee. We will try and 
move this confirmation as quickly through this Committee as 
well as through the Senate so you can get on the job.
    But, again, we are just so thankful for your willingness to 
serve, and the further commitment, too, is to have this 
Committee here to have your back, to do everything we can. We 
will commit ourselves to helping you succeed in your mission of 
keeping this Nation safe.
    Admiral Neffenger. Thank you.
    Chairman Johnson. Thank you again, and we look forward to 
working with you in the future.
    Admiral Neffenger. Thank you, Senator.
    Chairman Johnson. Thank you. We will seat Mr. Shapira now.
    [Pause.]
    We are going to move on to the second part of our hearing 
here. Mr. David Shapira has been nominated to be a Governor for 
the United States Postal Service. Mr. Shapira is the chairman 
of the board of directors of Giant Eagle. Under his leadership, 
Giant Eagle saw huge growth, expanding from the Pittsburgh area 
to Ohio, Indiana, West Virginia, and Maryland. By comparison, 
the United States Postal Service continues to see huge losses 
and decreasing volume, ending fiscal year (FY) 2014 with a net 
loss of $5.5 billion.
    The United States Postal Service needs smart, creative 
solutions to counter the loss in revenue created by changing 
consumer behavior. The ability to expand and adapt to customer 
preference that Giant Eagle has shown is something that the 
Postal Service vitally needs.
    Mr. Shapira, welcome. We look forward to your testimony. We 
have Senator Bob Casey from Pennsylvania here who would like to 
say a few words prior to Mr. Shapira's testimony.
    Senator Carper. Before he speaks, let me just say, Mr. 
Shapira, we do not trust Senator Casey. His word means---- 
[Laughter.]
    Chairman Johnson. That is why you were hoping Senator 
Toomey would be here. He might come.
    Senator Carper. That is right. Maybe if we wait, maybe Pat 
will show up, too. Seriously, great to see you, Bob. Thanks for 
coming. This is great.

       TESTIMONY OF THE HONORABLE ROBERT P. CASEY, JR., 
 A   UNITED   STATES   SENATOR   FROM THE STATE OF PENNSYLVANIA

    Senator Casey. Well, I want to thank the Chairman and the 
Ranking Member for giving me this opportunity to introduce 
David Shapira.
    Mr. Chairman, you highlighted, I should say, some of his 
business background, and that is, I think, one of the most 
significant parts of his record and resume. I will not dwell on 
the details of his background, but I do want to say something 
about his character, and I think that is what I will start 
with.
    We all know the challenges of being in elected public 
service. Appointed public service comes with a lot of 
challenges as well. The process itself is a substantial 
challenge, and I am always amazed and gratified that we have 
people willing to put themselves forward for public service 
even though the process to get there to be confirmed or even to 
be considered is challenging. And I think the fact that David 
is willing to do this is an indication not just of his 
character but also his commitment to our country.
    He has been, as you mentioned, Mr. Chairman, the chief 
executive officer (CEO) and chairman, from 1980 until 2012 of 
Giant Eagle. Since 2012, he has served as executive chairman of 
Giant Eagle, one of the most successful businesses that I know 
in Pennsylvania. He graduated from Oberlin College, received 
his M.A. in economics from Stanford. We do not have a lot of 
that around here. We could use more of that with degrees in 
economics.
    He is on the board of directors of the Allegheny Conference 
on Community Development, Equitable Resources Incorporated, 
Extra Mile Education Foundation, Hillel Academy of Pittsburgh, 
the Pittsburgh Cultural Trust, the Pittsburgh Symphony, United 
Jewish Federation, the United Way of Allegheny County, and I 
could go on and on, but I will not. He is also a member of the 
Carnegie-Mellon University Board of Trustees.
    I believe his experience and his success will be of great 
benefit to the Postal Service, serving as a member of the Board 
of Governors. But, again, I come back to his character. This is 
a person of integrity and someone who truly believes that what 
he is doing, if he were to be confirmed, would be public 
service. As I have often quoted, we have an inscription on the 
Finance Building in our State capital. It reads as follows: 
``All public service is a trust, given in faith and accepted in 
honor.'' I think David understands that, that if he is given 
this opportunity, he accepts it with honor, and the best way to 
demonstrate that you have accepted it in that fashion is to do 
quality public service with integrity. He will do that, I have 
no doubt about that.
    So, David, we are grateful you are willing to serve, and I 
am honored to be part of this nomination process for you.
    Chairman Johnson. Thank you, Senator Casey. We appreciate 
those words of support.
    I know Senator Toomey also wanted to come here, and I am 
not sure if he will make it. If he does, we will certainly 
offer him that opportunity. If not, I would ask unanimous 
consent that his statement of support be entered in the record.
    Senator Carper. I will not object if Mr. Casey will repeat 
one time those words inscribed in Harrisburg. What was it? 
``All public service''?
    Senator Casey. ``. . . is a trust, given in faith and 
accepted in honor.''
    Senator Carper. I do not object. Thank you.
    Senator Casey. I wish they were my words, but they are 
inscribed on a building in Harrisburg.
    Senator Carper. Those are great words.
    Chairman Johnson. Again, thank you, Senator Casey.
    Mr. Shapira, it is the tradition of this Committee to swear 
witnesses in, so if you will please rise and raise your right 
hand. 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, God?
    Mr. Shapira. I do.
    Chairman Johnson. Thank you very much.
    I could read your introduction, but we have already read it 
before, so we will just listen to your testimony.

TESTIMONY OF DAVID S. SHAPIRA,\1\ TO BE A GOVERNOR, U.S. POSTAL 
                   SERVICE BOARD OF GOVERNORS

    Mr. Shapira. Thank you very much, Chairman Johnson. If I 
can just say I am blown away by Senator Casey coming and saying 
what he did, and I really thank you for that.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Shapira appears in the Appendix 
on page 145.
---------------------------------------------------------------------------
    Chairman Johnson, Ranking Member Carper and Members of the 
Committee, thank you for the honor of appearing today and for 
the privilege to be considered for nomination to the United 
States Postal Service's Board of Governors. I want to thank 
President Obama for this honor and for the vote of confidence 
that it represents. It is truly humbling, and if confirmed, I 
will work diligently to show that this confidence and your 
consent is well deserved.
    I also want to thank my wife, Cindy, and my family for 
supporting this undertaking. The responsibility and opportunity 
for national public service will require sacrifice, and if I am 
confirmed, they will be my partners.
    My family is truly my greatest gift, and nothing I have 
accomplished would have been possible or even desirable without 
them.
    Senator Carper. Is she the young woman sitting behind you 
over your left shoulder?
    Mr. Shapira. She is this very young, beautiful woman, yes.
    Senator Carper. We thank you for your willingness to share 
your husband with our country.
    Mr. Shapira. Though my written testimony provides details, 
for more than 30 years I was the chairman, CEO, and president 
of Giant Eagle markets.
    Senator Carper. This is what we call the walk-on. This is 
the walk-on.
    Mr. Shapira. I really am now completely blown away.
    During that time our chain of stores grew from about 50 
stores to over 400 stores, was doing a little bit under $10 
billion in volume and employees, about 36,000 Americans.
    I do not want to take credit for this. I was always 
surrounded by smart, capable people, and the achievement is 
theirs, not mine. Large organizations like Giant Eagle only 
succeed when they tap and inspire the talents of a diverse 
workforce, and I am immensely proud of the team that I helped 
to lead.
    When I stepped away from the day-to-day operations in 2013, 
I left the company in very capable hands--actually, the hands 
of my daughter, Laura, who is now the CEO, and her executive 
and extended team. I have always had an interest in giving back 
to my community and have served on boards and in lay leadership 
positions in a number of civic organizations over the years. 
However, since my retirement as CEO of Giant Eagle, I have been 
able to more fully pursue what I hope will be a second career 
in community service and philanthropy. I believe that such 
service is a foundation of our great country and is a major 
component of our democratic society.
    A colleague of my father's used to hand out business cards 
that said, ``The more I give, the more I get.'' Every citizen, 
to the extent that he or she is able, should look for 
opportunities to serve.
    Now President Obama has offered me a new opportunity, one 
with a truly national and international scope. The United 
States Postal Service epitomizes a key tenet that underlies our 
unique government of the people: the right of everyone--rich or 
poor, rural or urban, of every creed, faith, and race--to 
efficient, affordable, and reliable communications. So 
critically important to the Founding Fathers was this concept 
that they established the U.S. Post Office at the Second 
Continental Congress of 1775, a year before signing the 
Declaration of Independence. The U.S. Postal Service is a 
conduit of commerce, political thought, and messaging. Perhaps 
most importantly, it is a bedrock to people everywhere to 
remain connected to family, friends, community, and the greater 
world around them. Though other communications have come--
disrupting the paradigm and creating new challenges and 
opportunities--the mail still remains and has a significant 
place as an essential government service.
    Today, however, the institution is struggling. For years 
now, its expenses have exceeded its revenue. Looking deeper, 
its most profitable product--First Class mail--is in decline, 
but it is achieving growth in the delivery of packages. The 
Post Office has undertaken an ambitious effort to cut costs, 
but it faces the real risk of degrading service, which could 
leave it worse off in the long run. Its recent losses have 
forced it to delay needed capital investments, and like any 
well-managed enterprise, it needs to address its long-term 
liabilities, particularly retiree health benefits.
    To address these challenges, my business experience tells 
me that given the Postal Service's size, the answer is 
multifaceted. It must preserve and enhance its current products 
while seeking out new opportunities to expand. It must look for 
ways to be more efficient, but also must preserve those assets 
which will enable it to have long-term growth. It needs a solid 
plan to address its long-term liabilities, but also must make 
near-term capital investments.
    If confirmed, I look forward to exploring these issues in 
much greater depth, and I believe that my business background, 
experience, and commitment to public service can help push this 
work forward.
    Thank you, Members of the Committee, for your attention, 
and I look forward to answering your questions.
    Chairman Johnson. Thank you, Mr. Shapira.
    We welcome Senator Pat Toomey, and Senator Toomey has got a 
few words of support as well. Senator Toomey.

         TESTIMONY OF THE HONORABLE PATRICK J. TOOMEY, 
  A UNITED  STATES  SENATOR  FROM  THE  STATE OF PENNSYLVANIA

    Senator Toomey. I do. Thank you very much, Chairman Johnson 
and Ranking Member Carper. I appreciate your giving me this 
chance. I apologize that I was not here at the beginning, but 
you know there is a rule in the Senate that requires 
conflicting simultaneously scheduled meetings. But it is a 
pleasure for me to be here and to just say a few words on 
behalf of Mr. Shapira with respect to his nomination to be a 
Governor of the U.S. Postal Service.
    I will be brief, but, first of all, let me just say the 
Postal Service and the United States are very fortunate that a 
man of his accomplishments and his capabilities is willing to 
serve in this capacity. I am delighted that he is willing to do 
this. We will benefit enormously from his wisdom, his 
experience, and the very hard work that I know he will do here.
    I think Mr. Shapira was far too modest in describing his 
accomplishments in guiding Giant Eagle from what started as a 
very small chain with several other families and has become a 
very large business, employing tens of thousands of people and 
really doing great work.
    In addition, David has served on numerous corporate and 
university boards from which he has developed a terrific range 
of experiences and really acquired great knowledge about so 
many different business activities and models.
    His philanthropic work with his wife, Cindy, has been 
absolutely terrific and very important, especially in western 
Pennsylvania and beyond. So I just think that David Shapira 
just represents the best that Pennsylvania and Pittsburgh has 
to offer this country. He is an extremely talented and 
accomplished business and philanthropic leader, and we are just 
very fortunate to have his services, and I fully support his 
confirmation.
    Chairman Johnson. Well, thank you, Senator Toomey and 
Senator Casey, again for taking time to offer those words of 
support to the nominee.
    Mr. Shapira, it is also the tradition of this Committee to 
ask a series of questions prior to my questions. We will allow 
the Senators to retreat.
    Let me start with: Is there anything you are aware of in 
your background that might present a conflict of interest with 
the duties of the office to which you have been nominated?
    Mr. Shapira. No, and if anything should arise, I would 
recuse myself from any possible decisions about that.
    Chairman Johnson. OK. Thank you.
    Do you know of anything, personal or otherwise, that would 
in any way prevent you from fully and honorably discharging the 
responsibilities of the office to which you have been 
nominated?
    Mr. Shapira. No.
    Chairman Johnson. Do you agree without reservation to 
comply with any request or summons to appear and testify before 
any duly constituted Committee of Congress if you are 
confirmed?
    Mr. Shapira. Yes.
    Chairman Johnson. OK. Thank you.
    So, Mr. Shapira, I am obviously intrigued by your business 
background. I started my business in 1979. You started a year 
later. You just did a whole lot better than I did. So obviously 
you have some real talents.
    You talked about new opportunities for the post office. Can 
you tell me your concern--or whether you are concerned or not 
concerned about the postal system competing with the private 
sector and how you would try and set up guidelines if you have 
concerns?
    Mr. Shapira. Let me answer that question with a little bit 
of background. As I was getting prepared for this hearing, I 
realized that during my career at Giant Eagle, we faced a 
situation which I think is very--we faced then and continue to 
face, actually, a situation which is very similar to what the 
post office does, and that is, the rise of new competitors and 
new technologies which threatened various parts of our 
business. In the Giant Eagle case, something that most people 
would not think about, but there has been an enormous lifestyle 
shift from eating at home to eating out, and in the supermarket 
business, we serve food to eat at home. So every meal that 
switches from the home to a restaurant takes business away from 
us.
    So the way we adapted to that was to continue to do what we 
did, but also to begin to diversify what we sold. And as I was 
saying at the staff hearing yesterday, or Monday, we started 
going into new businesses but within our stores, so that not 
only did the new business bring in revenue, but the fact that 
we had the new business reinforced the old business.
    Some examples of that are getting into the business like 
pharmacy. When I started in the supermarket business, there 
really was no such thing as pharmacies in supermarkets, and 
today, well, Giant Eagle in particular, but really all good 
supermarkets have very successful pharmacies.
    A second example of that is gasoline. Who ever would have 
imagined that you would get your gas at the same place you get 
your groceries?
    I think the post office has the same kind of problem. It 
has a severe technological threat and competitive threat to its 
best product, which is First Class mail. I think the way to 
defend that is to continuously try to improve First Class mail, 
but also to develop other products which can bring in revenue 
and hopefully reinforce the use of First Class mail at the same 
time.
    Actually, as I look at what the post office has been doing, 
it actually has been doing those things, so I do not think it 
needs a radical change. I think it needs an emphasis on 
continuing to change its format over time.
    In terms of competing with private businesses, or at least 
nongovernmental businesses, I guess is the right word, which I 
think is the essence of your question, it is a very interesting 
question. The post office has a mission; it needs to carry out 
the mission. Its competitors have a different mission. That 
gives them certain advantages and certain disadvantages. And, 
clearly, the post office competes against them as they compete 
against the post office, and, frankly, I think competition is a 
good thing. So I am in favor of seeing new products and being 
aggressive about building the business model.
    Chairman Johnson. OK. Having been in the business world, I 
imagine you have done a lot of strategic planning. I certainly 
have and found great value in business, we call it strengths, 
weaknesses, opportunities, and threats ``(SWOT) analysis.'' 
People are not really familiar with that here in Washington, 
D.C. I am pretty sure you are: strengths, weaknesses, 
opportunities, and threats.
    Can you just kind of go through in your mind a quick SWOT 
analysis of the postal system? Let us start with strengths. 
What are the primary strengths of the Postal Service?
    Mr. Shapira. Well, the primary strengths are the system and 
the employees and the history. The post office has a system 
which calls on every single address every day. That is an 
enormous strength.
    A second strength is brand equity. Everyone understands the 
post office. Everyone understands how to mail a letter, how you 
go about getting a stamp, putting it on. In this case, brand 
equity is sort of an institutional memory, not only of the post 
office but the whole population of the country.
    Well, the weaknesses are several things. One is I think the 
post office is constrained from operating as efficiently as it 
might by law. So an example of that is the necessity to pre-
fund the retiree health benefits, which is something that I am 
not aware of any other company or institution that does.
    And a second weakness is it is in some ways constrained 
from introducing new products. My understanding is that the law 
says that the post office cannot introduce a new product that 
does not use the post box, the mailbox. In days like today 
where technology is changing so quickly, the inability to adapt 
to changing technology is a big weakness. And, of course, it is 
a huge threat. The threat of the Internet in terms of First 
Class mail or even actually Second Class, bulk mail, is 
enormous. And I know as a company like Giant Eagle, we are 
trying to move as fast as we can to sending out our 
communications with the public over the Internet because it is 
so much cheaper.
    Now, it is not so easy to do, which is a big strength of 
the post office. So while it is nice to dream about it, it 
cannot just carry it off.
    I am sure I am leaving some out, but those are the 
strengths and weaknesses.
    The threat is, I think, a number of things. Clearly, 
technology is an enormous threat. Actually, it is a threat to 
any kind of business at any time. So one reason I am happy I am 
retired these days is because technology is changing so fast, 
it is very hard to keep up with.
    And I think the other threat is the constraints that are 
put on by law and by the political system.
    The opportunities are enormous. The need to get information 
from one place to another is only going to grow. We are an 
increasingly interconnected world, and the question is: How can 
the post office adapt to the changes in the need to accomplish 
that task?
    My experience says that whenever there is disruption like 
there is today, it is an enormous threat, and it is also an 
enormous opportunity, and the question is: Can the post office 
figure out how to take advantage of that?
    Chairman Johnson. OK. Thank you. Senator Carper.
    Senator Carper. Thanks, Mr. Chairman.
    Again, very nice to have a chance to meet with you and to 
meet Cindy as well. I used a basketball term yesterday, Mr. 
Chairman, talking with Mr. Shapira about the role that his wife 
played in encouraging him to let his name be put forward by the 
President, and I described her role as ``getting an assist on 
the play.'' So we thank you for your encouragement, Cindy, and 
for your willingness to let Mr. Shapira serve.
    I was born in Beckley, West Virginia, a coal mining town in 
southern West Virginia, south of Charleston, and I was back 
there a couple of months ago for a funeral of my 98-year-old 
Aunt Hazel, and she was married to my mother's oldest brother. 
And back in about 1950, he started a little supermarket in 
Beckley, West Virginia, on Harper Road, right off the turnpike. 
It is called Patton's Market. And they sold groceries and 
gasoline. Sounds familiar, huh? They were ahead of their time.
    Mr. Shapira. Everything that goes around comes around.
    Senator Carper. There you go. And as I grew up in Virginia, 
in Danville, and Roanoke. But I would go back in the summers 
with my sister just to be with our grandparents, our cousins, 
and I would work at--a little bit, not a lot, but summers at 
that Mom-and-Pop supermarket. My uncle died, sadly, early. But 
his brother, my Uncle Jim, and his wife, Nell, took it over. 
And down the road from them on Harper Road, a Kroger opened up. 
People said, ``Patton's Market is doomed.'' But they were not. 
And then later on, I think an A&P opened up, and people said, 
``Patton's Market is doomed.'' But they were not. And they 
continued to do reasonably well right up until my aunt and 
uncle reached retirement age. They worked hard. It was not 
easy. They did not have a chain of Mom-and-Pop supermarkets, 
but they had theirs.
    Over time they changed the way they did business to adjust 
to the competition that they had just down the road. They 
offered people the chance to buy food on credit. Folks wanted 
to have groceries delivered. They delivered. My grandfather was 
a butcher. He had Parkinson's disease. His hands would shake 
just like this. And he drove those mountain roads until he was 
81 to go into that butcher shop and cutting meat. When he was 
in the shop, his hands were steady like a rock. It was an 
amazing transformation that he would go through. But if people 
wanted a special cut of meat, they got it. If folks wanted 
produce, they got it. The folks who walked in that store, the 
staff knew the names of the people that were coming in, even 
their children.
    They continued to be a little supermarket, but over time 
they became a catering service as well. And you mentioned 
people changed the way that they eat, and they decided, well, 
if you want to have somebody prepare your food, we will help 
with that.
    I learned so much from my aunt and uncle and from their 
business in terms of customer service and being a servant. Our 
job is to serve. Our job here is to serve. Talk about the 
lessons, the life lessons that you have learned from starting 
and growing your business that might be appropriate or 
applicable to the post that you have been nominated for. And 
thank you for letting me tell my life story through my aunt and 
uncle.
    Mr. Shapira. Thank you for the question. That is a great 
question. At Giant Eagle, we believe that we serve four 
constituencies, and the four constituencies are: our customers, 
our team members or employees, the communities we live in, and 
our shareholders. And when I talk about this, I like to say 
that those four are not in any particular order except for the 
last one. That does not mean that we do not think our 
shareholders are important. Obviously, they are important, and 
we know that we have to make money and we have to grow the 
business and we have to pay dividends. Otherwise, the 
shareholders will say, ``We do not need you.''
    So why do I say the other three are more important? The 
reason is we take a long-run view of our business, and we think 
if we serve those other three constituencies well and that we 
are good, financially responsible business people, that in the 
long run the shareholders will be better off. And, of course, 
so will everybody else in all those constituencies.
    I think in an organization like the post office, which is a 
little different because in this case the customers actually 
are the shareholders--we are all the shareholders--but I think 
if we concentrate on serving our customers, taking care of the 
workforce and making sure that the workforce is well trained, 
well motivated, understands why they are here--it was 
interesting listening to the Admiral, who I thought spoke 
beautifully on this subject. If we remember that part of our 
mission is to serve communities, big or small, near or far, and 
if we are free from some of the constraints that we operate 
under, the post office can be very successful and adapt over 
time and change.
    Senator Carper. I should know the answer to this question, 
but I do not, so I will ask it. In the Postal Service, there 
are four labor unions that are organized and represent 
different employees and employee groups within the Postal 
Service. And we have the opportunity to work with them, and the 
Board of Governors, the folks who are leaders at the Postal 
Service have the opportunity to work with them as well. And I 
find them to be more often than not constructive and trying to 
be helpful to enable the Postal Service to survive and thrive 
and go on to serve us for hundreds more years in this country.
    I do not know to what extent you in your business have had 
a chance to work with collective bargaining units, but if you 
have, could you share with us some of what you have learned 
from that that might be helpful for the Postal Service? And if 
you have not, then just any observations you might have with 
that in mind.
    Mr. Shapira. Well, we have. Giant Eagle is a union company. 
We have some small non-union operations, but basically we are 
union company. We have dozens of different union contracts. I 
think dealing with--assuming that the unions have reasonably 
good leadership, then in many ways it is better to be a union 
company. It gives you an ability to communicate with people 
that you do not necessarily have if you are non-union.
    If the union has bad leadership, it is a different--but my 
view on dealing with employees is you have to respect them, you 
have to listen to them, you have to get feedback from them. You 
have to include them in the process. You have to train them. I 
will parrot some of the things that the Admiral said. You have 
to have a clear mission. You have to explain it to people. When 
there is a problem, you have to be open and honest about what 
the problem is. You have to make people understand what the 
problem is. And my experience is that in most cases--not all, 
but in most cases, you can--unions are cooperative and can help 
solve the problem. But, of course, you have to respect their 
point of view, too.
    It takes me back to when I talked about our constituencies. 
One of the most important constituency is the employees, and 
the union represents the employees, and so you should respect 
it, just like you would if they were not in the union, 
actually.
    Senator Carper. Thanks.
    Chairman Johnson. Thank you, Senator Carper.
    Mr. Shapira, have you really studied the financial 
situation of the post office? Are you pretty well versed in 
that?
    Mr. Shapira. When you use the words ``really studied,'' I 
would say no.
    Chairman Johnson. Casually studied?
    Mr. Shapira. Well, more than casually. I did prepare for 
this, and so I would say I am reasonably familiar with it.
    Chairman Johnson. So I am an accountant with a business 
background. I find it rather confusing. Do you find what 
preparation you had for this or what you have looked at as 
relatively confusing? Or do you think it is pretty 
straightforward?
    Mr. Shapira. Both. But, when you look at the pre-funding 
requirement of the retirement health benefits, that seems to me 
to be very straightforward. And, in fact, it is, what 
essentially goes on is we put a debit against our earnings for 
the amount. We put it in our debit balance, and then we do not 
pay.
    Chairman Johnson. Right.
    Mr. Shapira. And so it is like a joke.
    Chairman Johnson. So it is a debt that is owed to the 
Federal Government. It is really not pre-funded. It is pre-
funded only to the extent that now you have a liability of the 
post office to the Federal Government. It is just one of the 
liabilities.
    Mr. Shapira. It is just one of the liabilities, right. 
There are pension liabilities. I mean, there are all kinds of 
liabilities. But the pre-funding of the retirement benefits and 
the connection of it to whether the employees have to use 
Medicare seems to me that that should be an obvious and very 
easy fix. And in looking at the financial statement, the pre-
funding is just very slightly smaller than the loss, the total 
loss to the system. So if the pre-funding were eliminated, we 
would not be losing money--well, we would still be losing 
money, but not very much.
    Chairman Johnson. But we still would have this overhang of 
about $100 billion of unfunded liability. I have looked at the 
balance sheet as best I can reconstruct it in something close 
to the Generally Accepted Accounting Principles (GAAP) versus 
other large bankruptcies, and it looks like a bankrupt entity 
to me. Do you have a similar type of conclusion?
    Mr. Shapira. If you just took a straight up and down look, 
it seems like we are bankrupt. But the liabilities are actually 
paid out over many years. This is a discounted value of the 
future liabilities. So, bankruptcy, you can look at a balance 
sheet and say you are bankrupt, or you can look at a cash-flow 
statement and say you are bankrupt. In a cash-flow statement, I 
do not believe we are bankrupt. And so the question is--by the 
way, this is not just the post office question. This is a 
question for private industry. This is a question for the 
government. It is particularly true in pension liabilities. We 
have these enormous pension liabilities, and the question is: 
What are we going to do about it?
    I do not think we are bankrupt in the sense that I think we 
still have time to deal with it. But we are bankrupt in the 
sense that if we do not deal with it, it is clear what the end 
is going to be. So I think it is a matter of definition of what 
your terms are, but it is clearly a serious problem and one 
that--I do not want to say all--I know Giant Eagle faces it. We 
are members of collective bargaining agreements that have 
employer joint pension funds where the funds are horribly 
underwater. They are on, I think it is called, a ``red list.'' 
And the question is: What are you going to do about it? We 
clearly have to face up to the problem.
    Chairman Johnson. I think the problem is--and Senator 
Carper led the way with Senator Tom Coburn, trying to come to 
some political resolution to this, which was not successful. 
You spoke about all the constraints on the post office, 
constraints because Congress is trying to in some way, shape, 
or form manage and direct what should be--I think the goal was 
to make the post office a more autonomous type of organization, 
but they do not have that autonomy, both operationally or 
financially. So the American taxpayer in the end is still on 
the hook for this.
    If you read the Constitution--and I realize the post office 
is an enumerated power, but it is pretty basic--it says in 
Article I, Section 8, ``to establish post offices and post 
roads.'' Do you think it is really a governmental imperative or 
constitutional imperative that no matter what the post office 
is, we have to maintain a post office as opposed to we have to 
perform the constitutional duty of delivering mail? And when 
the delivery of mail becomes, less and less vital and becomes 
more and more obsolete because of technology, do we have to 
come up with different things for the post office to do just to 
have a post office, even if it is way outside the mission of 
delivering mail?
    Mr. Shapira. That is a wonderful question, which I am not 
sure I know the answer to. But I would say this: There is a big 
question within your question, which is: What is the definition 
of delivering the mail? It does not say you have to deliver the 
mail two times a day, seven times a week. It says you have to 
deliver the mail. Does that mean every day? Does it mean every 
other day? Does it mean two times a day?
    The function is important. The question of how we define 
the function is also very important. So it seems to me that the 
answer to your question, you would really have to define what 
it is we want to maintain, and general terms are not very 
helpful in doing that, which I think is what causes the 
controversy.
    Chairman Johnson. Well, and I completely agree with you. We 
need to define what the post office should do. What is the 
constitutional enumerated power of it? And we really need to 
ask ourselves a serious question with a bankrupt organization. 
Do we need to maintain this organization at all cost and have 
it expand into different areas that just might compete with the 
private sector companies with an implicit taxpayer guarantee, 
with the taxpayers on the hook for growing liabilities? I think 
these are very serious questions that the Board of Governors is 
going to have to be asking themselves, and Congress, we have to 
ask ourselves the same questions. But, again, I appreciate your 
answer.
    Mr. Shapira. Senator, can I just add to that? This is the 
first time I have ever been in a hearing like this. I have seen 
them on television, but I was fascinated by the questions of 
the Admiral, who was sitting here before me, and it was obvious 
to me you were all impressed, and I was equally impressed with 
the kind of answers he gave.
    One of the things I really liked about the questions and 
answers was the willingness of the Committee to have his back 
and at least what appeared to be the desire on both sides, his 
side and the Committee's side, to cooperate on helping to solve 
the problem.
    My view of the post office is that the post office cannot 
solve these problems itself. It needs you, it needs the 
Congress. There are laws established here. You have to follow 
the laws. And there needs to be a cooperative solution to the 
problem. That is obviously difficult because different people 
have different political views, but I like to take the attitude 
that there are no problems that are unsolvable if you have good 
people with common objectives who are trying to solve it, 
although it would not--I do not think it would be me who would 
be interacting with the Committee, although maybe it would be. 
I think the cooperation of this Committee and the post office 
is crucial to solving these problems.
    Chairman Johnson. First of all, I completely agree. And, 
again, coming from a manufacturing background, I have solved a 
lot of problems, and there is a process you go through. And it 
starts with the definition of the problem, defining what it is 
you are trying to accomplish, laying out the reality of the 
situation, which is why I was asking your understanding of the 
financial situation of the post office, which, trust me, in the 
political environment gets all jumbled up and people do not 
really, I do not think, completely understand. I am having a 
hard time, and, again, I am a trained accountant. I have been 
in business a long time. I have looked at a lot of balance 
sheets, and it is still confusing to me. I am getting a little 
bit better handle on it, but, again, it starts with the reality 
of the situation, then based on that defining the problem, 
defining exactly what the achievable goal is. Then you start 
setting strategies. I think we oftentimes bypass that process, 
and I think that is what you are hearing in the earlier part of 
our Committee hearing, is we were really trying to get to what 
was the definition of the problem. Are we admitting we are 
having one? Are we looking at this honestly? And that is what 
we need to do in the post office as well.
    So, again, I really appreciate the fact you have this 
business background, highly successful, I think you are going 
to have the right type of mind. You are answering the questions 
from my standpoint exactly correctly. What is the definition? 
But we have to ask the right questions.
    So, again, I appreciate the input, and we absolutely want 
to cooperate with the Board of Governors and the Postmaster 
General. This is a big problem, and it has not been fixed. I 
have real questions whether or not we can resolve this through 
a political process because we have not been able to do that in 
the past.
    But, again, I know Senator Carper is highly dedicated to 
this. He has done a lot of work on it, and I have certainly 
supported his efforts in the past and want to support his 
efforts in the future. Senator Carper.
    Senator Carper. Thanks. Thanks, Mr. Chairman. Thanks for 
your support and for what you just said.
    In terms of what is the role of the Postal Service, what 
should it be, and what should our role be vis-a-vis the Postal 
Service, I look back to Abraham Lincoln, who was once asked, 
``What is the role of government in our lives?'' And he said, 
``The role of government is to do for the people what they 
cannot do for themselves.''
    Now, there is actually a constitutional stipulation that we 
have a Postal Service, and one of the reasons why we have it is 
because our forefathers said, if we are going to have this 
experiment, this experiment called the United States of 
America, it might be helpful if we could communicate to the far 
reaches of the country, however large we grow to be, it might 
be important for us to be able to facilitate commerce, and 
maybe the Postal Service in other countries has been helpful, 
and maybe we can find a helpful role for them in this country.
    As you have said in your own business, over time the demand 
of your customers has changed, the needs of your customers have 
changed, and your business has changed to meet those. And I 
think the same is true with the Postal Service.
    Some of the folks that we work with--we are an enabler. I 
think the Congress is an enabler. The Chairman has heard me 
talk about one of my last trips down to Honduras, a place that 
I soon hope to visit with him, and we are trying to figure out 
why are all these people coming up here to the United States 
trying to get into our country from Honduras, Guatemala, El 
Salvador, and it is because they live very difficult lives, 
which we contribute directly to making even more difficult.
    But my last time down in Honduras, I was at a press 
conference, and at the end we were asked a bunch of questions 
by the press there, and one of the things I said to them, I 
told them, I said, ``Do you guys in Honduras have Home Depots? 
'' And they said, ``We have them. Tenemos. We have them.'' And 
I said, ``We have them in America, too.'' And their 
advertising, the way they advertise in America for years has 
been--here is Home Depot's advertising: ``You can do it. We can 
help.''
    And I said to the folks in Honduras that day, I said, ``You 
can do it. We can help.'' Just like Colombia, Plan Colombia 
helped pull them back from the brink. I said, ``You can do 
this.'' We can help with the Alliance for Prosperity that they 
have adopted with three countries.
    I think the same is true with the Postal Service. I think 
the Postal Service can do it. There is a need for the services 
to be offered. FedEx, UPS--they do not want to deliver packages 
to every door in America every day. They would lose their 
shirts. The Postal Service is already going to those doors, 
those mailboxes is a nice piece of business for the Postal 
Service, and they can work out a deal with FedEx and UPS to 
help fly and move some of the Postal Service's products around 
the country. So one hand sort of washes the other.
    The issue that a lot of people keep coming back to is the 
issue of the unfunded liability for retiree health care, and 
the question is: Is it a real liability? I think it is. And my 
last year as Governor, we were up in New York meeting with the 
folks from Moody's, Standard & Poor, and Fitch trying to get a 
AAA credit rating. Our State had never had a AAA credit rating. 
And we had done 8 years of balanced budgets, 7 years we cut 
taxes, we paid down some of our debt, strong employment 
numbers. And we went and really made the case in my last year 
as Governor for a AAA credit rating. And lo and behold, all 
three of them across the board gave us AAA the first time, and 
we still have it.
    But they said to us at the time, they said, ``You have a 
liability that you are not addressing.'' And I said, ``What is 
that?'' When I became State treasurer, when Pete du Pont was 
elected Governor, we had no money in our pension fund for our 
employees, for our retirees. None. We used to sell revenue 
anticipation of those taxes, and revenue anticipation to raise 
money to be able to make pension checks every payment every 
month. And we fixed that, fully funded, amortized, like in 10 
years took care of it. But they said to us, they said, ``You 
have all this big liability for your retiree health care, and 
you have not set aside any money.'' They said, ``You need to do 
something about that.'' They still gave us a AAA credit rating, 
but they said, ``You have got to address this.'' And we began 
to, and the State of Delaware continues to try to address that. 
So it is a real liability.
    But in order to get President Bush to sign into law the 
2007 postal legislation, the Postal Service not only had to 
recognize that liability, but they had to pay it off over like 
10 years, which is--I do not know of any company in America 
that has been asked to do something that aggressively.
    When you look at the liability, the money that the Postal 
Service pays into the Medicare Trust Fund is greater, I 
believe, than any other employer in America. They pay more 
money into the Medicare Trust Fund than any other employer. 
They do not get full value for what they pay. And most postal 
retirees 65 and over sign up for Medicare Part A. A majority 
sign up for Part B. I think almost none, maybe none, sign up 
for Medicare Part D, the prescription drug program. And so the 
Postal Service is--in effect, by overpaying into Medicare, they 
are actually subsidizing their competitors so that they can 
underpay.
    My wife retired from DuPont when she turned 65. She still 
only looks 45, but when she turned 65, folks at Medicare 
reached out to her and said, ``Martha, we love you, but by the 
way, you are going to have to sign up for Medicare Part A, Part 
B, Part D. We will provide wrap-around coverage for you.'' And 
not just DuPont did that, but all kinds of employers in the 
country do that when their retirees reach 65. The Postal 
Service cannot do that.
    And one of the best things, the most important things that 
we can do is to fix this issue. We still have the liability. It 
still must be met. But we ought to level the playing field, and 
that is part of our enabling responsibility.
    Let me ask a question after I have given that diatribe 
there. Let me ask a question about--the Postal Service 
continues to try and reduce costs while also maintaining fast 
and reliable service and growing its business, and here is the 
question: How would you as a member of the Board of Governors 
try to find the right balance on this challenge, maintaining 
fast and reliable service and growing your business? It is a 
little bit like some of the questions we asked the Admiral.
    Mr. Shapira. I think it is the responsibility of all 
businesses to keep their costs as low as possible, but I also 
have a very strong belief that you cannot cut costs and make 
yourself successful in the long run. You have to grow revenue. 
So the concept that we can cut our costs to become profitable, 
while I believe it is important to cut costs, to me it is a 
doomed strategy. You need to be able to look at a growing 
business to be successful, and if you cannot do that, then 
cutting costs works in the short run. But, you can only cut 
them so far, and what inevitably happens is you cut costs and 
it starts affecting the service, and the sales go down even 
more.
    So my view is absolutely pay attention that costs be as 
efficient as you can, but it is not a successful business 
strategy in and of itself. You have to have a strategy that 
grows the top line.
    Senator Carper. Mr. Chairman, one of the things that Mr. 
Shapira and I talked about yesterday on the phone was one of 
the roundtables that we have held. One of the three roundtables 
we have held dealt with--and we invited a bunch of folks to 
come in, one from the Postal Service, others from different 
walks of life, customers and so forth of the Postal Service. 
And we just asked them, ``Well, what are your ideas for growing 
business? Where are some opportunities out there?'' I was 
delighted to hear how many creative ideas there are, and this 
was just scratching the surface.
    So I think you cannot be just cut, cut, cut. The Postal 
Service has reduced I think by almost half the number of full-
time employees that they have over the last dozen or so years. 
They reduced by half the number of mail processing centers that 
they have in this country. They want to trim that back further. 
They reduced by a third the number of full-time post offices 
around the country. They have done a lot of rightsizing, and 
part of--now it is--before, it was to help them in ways like 
the pre-retirement pension liability, make it more fair, and--
but there are some great opportunities here. We are going to 
have fun fixing this. And I look forward to doing that.
    Some of the best lessons I have learned in my life are from 
my failures, not so much from my successes. And I have had 
plenty of failures. I think probably if we are honest, we would 
all say that we have. But when you look back at some of the 
lessons you may have learned, for example, the dissolution and 
the bankruptcy of your company's former subsidiary--was it 
Phar-Mor? Was that what it was called? Could you just maybe 
give us an idea or two what you learned from that and if there 
are any lessons from that experience that might be applicable 
here?
    Mr. Shapira. I learned so much from that it would take me 
an hour to----
    Senator Carper. Well, we do not have that long.
    Mr. Shapira. Right. I did not figure you did.
    In the first place, I agree with you. I actually have come 
to the conclusion that if one is looking at success, however 
one might define it, the biggest successes come from having 
failures and then recovering from them. And one of the things I 
learned from the Phar-Mor debacle--I cannot call it anything 
other than that--was that you can recover. You have to keep 
your eye on the ball. You have to fight your way out of 
whatever problem you are in, and then you have to take the 
lessons that you have learned from that and apply them as you 
go forward in the future.
    So just as an example, Phar-Mor's failure, which not only 
bankrupted Phar-Mor but came very close to bankrupting Giant 
Eagle as well, caused Giant Eagle to be a much more focused 
manager on the bottom line, building assets, cutting debt, and 
being a much more secure and safe company. So I do not have any 
doubt that having gone through Phar-Mor, that changed the way 
we managed Giant Eagle.
    The second thing I learned--which, as an accountant, 
Senator, you will know this--is that one of the things you are 
always looking for is fraud. And every accountant I have ever 
talked to, when you talk about fraud, they say, ``If you get a 
conspiracy of just a few key people, it is very hard to 
detect.'' And that is actually what happened at Phar-Mor. The 
whole conspiracy was four people. And so one of the things that 
I have become much more vigilant about since then is looking at 
the financial statements, looking at how they pulled off the 
fraud at Phar-Mor, and asking, Is there anything that is going 
on in our current company that is anything like that?
    And I have actually taken and applied that in a larger 
sense wherever I am, either as a director or as a chief 
executive. Whenever something goes wrong in a company that is 
like ours, the first thing I do is I call in the top 
executives, and I say, the first thing is, ``Let us thank God 
it was not us. And in the second place, let us find out what 
happened and why it happened and if we are vulnerable to 
that.''
    The last thing I have learned is--well, I have learned lots 
of things, but I have often wondered to myself how did I 
survive that crisis. I mean, I was the chief executive. It was 
a very natural question to ask: Did he know? Should he have 
known? et cetera. And I know myself that when you read about 
one of these frauds, the first thing everyone assumes is the 
chief executive must have known. Well, I did not know. I was 
the one who discovered the fraud, actually, but what I learned 
is the most important thing is to really be totally honest and 
open all the time and to make sure that when there is bad news, 
you do not make any effort to hide it and that it comes from 
you.
    I think taking that and applying it to the situation at the 
post office--there is a lot of bad news at the post office, and 
I think we ought to recognize the bad news, and we ought to try 
and figure out--I mean, you are never going to deal with it 
unless you recognize it. And then we ought to try and come up 
with plans that say, OK, this situation is bad, that situation 
I bad, how are we going to deal with it?
    To me, if you identify what the problems are, no matter 
what people's going-in assumptions are, you can--if you can get 
them to understand the problems, you can generally get them to 
agree on solutions, assuming there are solutions. But the 
solutions are often very tough and require changes that a lot 
of people do not want to make. So if you want to accomplish 
those kinds of changes, people have to have a shared 
understanding of the problem.
    Senator Carper. Thank you very much.
    Mr. Chairman, we have been blessed this morning by the 
testimony of two nominees who I think are exceptional, and I 
will close where I started off here. We are lucky that you are 
willing to do this and that Cindy is willing to give you up to 
serve the people of our country.
    The last quick thing I would say, innovation, just to go 
back, the legislation that Dr. Coburn and I worked on had a big 
focus on innovation, trying to foster innovation, encourage 
innovation. And the other four people that have been nominated 
as Governors by the President to serve, a couple of them are 
really good on the innovation front as well. And my hope is 
that the legislation that we pass will have some thoughtful 
provisions that deal with innovation, fostering innovation, and 
hope that we will have a chance to work with you on that--and, 
frankly, a lot of other things.
    I am way over my time. Thanks very much for your patience, 
Mr. Chairman.
    Chairman Johnson. Thank you, Senator Carper.
    Mr. Shapira, I will tell you one thing right off the bat. 
The solutions for the Postal Service and for the fiscal 
situation of this country will not be easy. So I just want to 
thank you for, again, coming here, for your testimony, your 
willingness to serve. I want to thank you for being an example 
of a great American, someone who is serving your community, 
your State, your Nation by doing what Americans do: aspiring, 
building something, building something successfully, obviously 
with some adversity.
    Unfortunately, in today's society we too often demonize and 
demagogue people that are trying hard, building businesses, 
creating great jobs. We need to celebrate that success, and, I 
celebrate it with you, and I appreciate your willingness to 
serve in this capacity. And I thank your wife for being by your 
side here in this service.
    Again, I look forward to moving this nomination through as 
quickly as possible so that we can get the Board of Governors 
operating under regular order.
    The nominees have filed responses to biographical and 
financial questionnaires, answered prehearing questions 
submitted by the Committee, and had their financial statements 
reviewed by the Office of Government Ethics (OGE). Without 
objection, this information, together with my written opening 
statement, will be made part of the hearing record, with the 
exception of the financial data, which are on file and 
available for public inspection in the Committee offices.
    This hearing record will remain open until noon tomorrow, 
June 11, at 12 p.m., for the submission of statements and 
questions for the record.
    This hearing is adjourned.
    Mr. Shapira. Senator, thank you very much.
    Chairman Johnson. You are welcome.
    [Whereupon, at 11:30 a.m., the Committee was adjourned.]

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