    [House Hearing, 115 Congress]
    [From the U.S. Government Publishing Office]

       ACCOMPLISHING POSTAL REFORM IN THE 115TH CONGRESS - H.R. 756, THE
                       POSTAL SERVICE REFORM ACT OF 2017

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

                                     HEARING

                                   BEFORE THE

                             COMMITTEE ON OVERSIGHT
                             AND GOVERNMENT REFORM
                            HOUSE OF REPRESENTATIVES

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                FEBRUARY 7, 2017

                                   __________

                               Serial No. 115-13

                                   __________

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

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

                                    __________

                        U.S. GOVERNMENT PUBLISHING OFFICE
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                  Committee on Oversight and Government Reform

                         Jason Chaffetz, Utah, Chairman
    John J. Duncan, Jr., Tennessee       Elijah E. Cummings, Maryland,
    Darrell E. Issa, California              Ranking Minority Member
    Jim Jordan, Ohio                     Carolyn B. Maloney, New York
    Mark Sanford, South Carolina         Eleanor Holmes Norton, District of
    Justin Amash, Michigan                   Columbia
    Paul A. Gosar, Arizona               Wm. Lacy Clay, Missouri
    Scott DesJarlais, Tennessee          Stephen F. Lynch, Massachusetts
    Trey Gowdy, South Carolina           Jim Cooper, Tennessee
    Blake Farenthold, Texas              Gerald E. Connolly, Virginia
    Virginia Foxx, North Carolina        Robin L. Kelly, Illinois
    Thomas Massie, Kentucky              Brenda L. Lawrence, Michigan
    Mark Meadows, North Carolina         Bonnie Watson Coleman, New Jersey
    Ron DeSantis, Florida                Stacey E. Plaskett, Virgin Islands
    Dennis A. Ross, Florida              Val Butler Demings, Florida
    Mark Walker, North Carolina          Raja Krishnamoorthi, Illinois
    Rod Blum, Iowa                       Jamie Raskin, Maryland
    Jody B. Hice, Georgia
    Steve Russell, Oklahoma
    Glenn Grothman, Wisconsin
    Will Hurd, Texas
    Gary J. Palmer, Alabama
    James Comer, Kentucky
    Paul Mitchell, Michigan

                       Jonathan Skladany, Staff Director
                        William McKenna, General Counsel
     Jeffrey Post, Government Operations Subcommittee Deputy Staff Director
                        Sharon Casey, Deputy Chief Clerk
                     David Rapallo, Minority Staff Director

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on February 7, 2017.................................     1

                                   WITNESSES

    The Hon. Megan J. Brennan, Postmaster General, United States
      Postal Service
        Oral Statement...............................................     8
        Written Statement............................................    10
    The Hon. Robert G. Taub, Chairman, Postal Regulatory Commission
        Oral Statement...............................................    29
        Written Statement............................................    31
    Ms. Lori Rectanus, Director, Physical Infrastructure Issues, U.S.
      Government Accountability Office
        Oral Statement...............................................    64
        Written Statement............................................    66
    Mr. Arthur Sackler, Manager, Coalition for a 21st Century Postal
      Service
        Oral Statement...............................................    88
        Written Statement............................................    90
    Mr. Fredric V. Rolando, President, National Association of Letter
      Carriers
        Oral Statement...............................................    97
        Written Statement............................................    99

                                    APPENDIX

    H.R. 756 Postal Service Reform Act of 2017, submitted by Mr.
      Chaffetz, can be accessed at: http://www.lis.gov/cgi-lis/query/
      z?c115:H.R.756:
    NARFE Statement for the Record, submitted by Mr. Connolly........   140
    Letter of February 1, 2017, from United Postmasters and Managers
      of America, submitted by Mr. Lynch.............................   148
    Coalition for a 21st Century Postal Service Statement, submitted
      by Mr. Lynch...................................................   149
    American Catalog Mailers Association PRNewswire, submitted by Mr.
      Lynch..........................................................   150
    Letter of February 2, 2017, from Harland Clarke Holdings,
      submitted by Mr. Lynch.........................................   151
    Letter of February 1, 2017, from National Association of Postal
      Supervisors, submitted by Mr. Lynch............................   152
    Response from the United States Postal Service to Questions for
      the Record.....................................................   153

       ACCOMPLISHING POSTAL REFORM IN THE 115TH CONGRESS - H.R. 756, THE
                       POSTAL SERVICE REFORM ACT OF 2017

                                  ----------

                           Tuesday, February 7, 2017

                      House of Representatives,
                  Committee on Oversight and Government Reform,
                                                       Washington, D.C.
        The committee met, pursuant to call, at 10:02 a.m., in Room
    2157, Rayburn House Office Building, Hon. Jason Chaffetz
    [chairman of the committee] presiding.
        Present: Representatives Chaffetz, Issa, Jordan, Amash,
    Gosar, Farenthold, Massie, Meadows, DeSantis, Ross, Walker,
    Blum, Hice, Grothman, Palmer, Comer, Mitchell, Cummings,
    Maloney, Norton, Clay, Lynch, Connolly, Kelly, Lawrence,
    Krishnamoorthi, and Raskin.
        Chairman Chaffetz. The Committee on Oversight and
    Government Reform will come to order. And without objection,
    the chair is authorized to declare a recess at any time.
        Thank you all for being here for an important topic that
    the committee has some keen interest and jurisdiction in
    dealing with the postal reform that this Congress really needs
    to address.
        I want to thank Chairman Issa, the chairman previous to my
    becoming the chairman, who really I think laid a foundation,
    did a great deal of work on this topic and issue. So I thank
    the chairman for all the progress that was made at that time,
    and hopefully, I think we have built on that.
        We are faced, though, with 10 consecutive years of
    financial losses at the Postal Service, totaling some $62
    billion. And the United States Postal Service isn't at a
    crossroad, it is at the crossroads. It is up to this Congress
    to address the challenges facing the Postal Service, its
    customers, the businesses that rely on it, and the taxpayers
    who will bear the burden if we fail to act.
        What I think I want the public to understand is that, by
    and large, there is no appropriation that Congress makes to the
    Postal Service. The Postal Service has to offer products and
    generate revenue in order to sustain itself. But there are some
    things that Congress can do to put it on a more even playing
    field to make the system more fair as it moves forward.
        And there are some reform efforts, things that may seem
    small to the outside, small on the surface, but they can make
    literally billions of dollars of difference in the financial
    equation for the Postal Service, and I would argue that as a
    tool of the economy, it is vital for us to have a good, strong,
    vibrant Postal Service. It happens to actually be one of the
    few things that is actually in the Constitution that we are
    supposed to be working on. So there are a lot of good things
    that we can do, but it really starts with the members in this
    room.
        Let's understand that the difficulties facing the Postal
    Service are significant. Since 2006, the annual volume of mail
    delivered by the Postal Service has declined by roughly 30
    percent. While some of these losses are offset by unprecedented
    growth in package delivery, the new revenue is not enough. The
    Postal Service faces some $119 billion in unfunded liabilities,
    including $52 billion in liabilities just for retiree health
    care.
        Taxpayers will be left holding the bag for these
    liabilities if we fail to act. We don't want to be in a
    situation where there has to be a bailout. We are trying to
    avoid a bailout. I want people and members to understand that a
    failure to act will lead us down that path.
        To its credit, the Postal Service has not sat by idly.
    Recognizing the challenges, the Postal Service embarked on
    aggressive cost-cutting measures during the last decade. The
    agency reduced its career employee headcount since 2006 by
    roughly 200,000 people. These are people, real people with
    families and incomes. But that is a dramatic change. I wish
    others in the Federal Government had maybe acted as responsibly
    as the Postal Service has because they were able to do it
    without resorting to layoffs.
        Unfortunately, despite these efforts, the Postal Service
    cannot fully address its challenges without legislative reform,
    and for that reason, the last Congress we worked very closely
    with Ranking Member Cummings. And I want to really thank him. I
    also want to thank Congressman Meadows, who is the chairman of
    our subcommittee who oversees this. He has poured untold number
    of hours and passion into this and expertise trying to find a
    reasonable solution.
        Also heavily engaged, Representative Connolly,
    Representative Lynch trying to come together and craft a
    comprehensive, bipartisan reform proposal. And that is what I
    think is also imperative. If we are actually going to get to
    the finish line and get a bill on the President's desk, I would
    like to see that as a bipartisan reform proposal that we can
    all get behind and champion. I didn't get everything I wanted.
    Congressman Cummings didn't get everything he wanted. But that
    is the nature of coming up with a compromise without
    compromising your principles, but coming up with a compromise
    that we can all live with that puts the Postal Service on the
    financial trajectory that it needs to be.
        Last July, I was proud to see our committee favorably
    report the bill by a voice vote. Unfortunately, it didn't make
    it across the finish line before the end of the Congress, but
    we did make a lot of progress, particularly with getting the
    CBO, the Congressional Budget Office, to come in and score the
    bill.
        Building on our legislation from last Congress, last week
    we introduced H.R. 756, the Postal Service Reform Act of 2017.
    Our bipartisan group of original cosponsors grew by one with
    the addition of Congressman Dennis Ross. He was not on the
    committee in the last Congress, but he was on the committee
    before that and spent a lot of time working on the postal
    issues, and we appreciate his expertise.
        We are also benefitted by the expertise of Brenda Lawrence.
    I want to thank her for her passion and commitment on this. She
    knows it firsthand, and she is a valuable voice in this
    legislation moving forward.
        In an era of partisan politics, this legislation represents
    a significant bipartisan compromise. The bill gives Postal
    Service the freedom it needs to successfully meet the business
    realities the agency faces. To do this, the bill allows the
    Postal Service to fully integrate its healthcare plans with
    Medicare. With such integration, the Postal Service can
    virtually wipe out its $52 billion retiree healthcare unfunded
    liability.
        Further, the bill achieves real savings by moving to more
    efficient mail delivery, saving the Postal Service more than
    $200 a year for each address that can be converted from the
    door-to-door delivery to centralized delivery. The bill also
    helps the agency more accurately evaluate its cost structure
    and reforms key governance matters. Our witness panel today
    represents a cross section of the mailing industry
    stakeholders. I want to thank them personally. I also want to
    thank a lot of people that are in the audience today and others
    who we have spent considerable time with trying to come up with
    a reasonable bipartisan solution that puts the financial
    trajectory of the Postal Service in the right direction.
        It is a tool of the economy. It is something that affects
    every single American, and we need to get it right.
        Chairman Chaffetz. With that, I will now recognize the
    ranking member, Mr. Cummings.
        Mr. Cummings. Thank you very much, Mr. Chairman, and I do
    thank you for convening today's hearing to examine how we can
    accomplish the postal reform in this new Congress.
        Mr. Chairman, after years of work, we came very close, as
    you said, to enacting legislation reforming the Postal Service
    during the last Congress. But we simply just ran out of time.
    Mr. Chairman, you made a very strong commitment at the end of
    last year, end of the term. You said this would be one of the
    first orders of business. And I want to take this moment to
    thank you for keeping your promise. This is very, very
    important.
        And the other thing I thank you for, Mr. Chairman, is so
    often what happens is that when a lot of work has been done in
    one term, it is just tossed away and then you have to start all
    over again. But I thank you for picking up where we left off
    and making the bill a better bill and working with all of these
    people in this audience and the members on our committee who I
    will mention in a few minutes. But again, I want to thank you
    for that commitment and carrying through with it.
        And so I am proud of how much progress we made during the
    last Congress. After more than a year of negotiations, the
    chairman and I, together with Subcommittee Chairman Meadows and
    Subcommittee Ranking Member Connolly and Representative Lynch
    and Representative Ross and Representative Lawrence, we were
    able to introduce a bipartisan postal reform bill. Our bill
    reflected close work with the many stakeholders concerned about
    postal reform, including most of the witnesses we will hear
    from today. And I want to again thank you all of you.
        One of the things that we found out with regard to the
    postal system is that we have a lot of stakeholders. And all of
    those stakeholders were willing to compromise, to work hard, to
    give their input, and we could not have done this without you.
        We were able to pass this bill out of committee. We ran
    into delays waiting for a cost estimate from the Congressional
    Budget Office. We found ourselves working through the 11th hour
    negotiating with the Homeland Security and Governmental Affairs
    Committee in the Senate. I want to thank Chairman Chaffetz and
    my colleagues for their commitment in advancing this effort
    today.
        We have already introduced a bill this Congress that is
    substantially similar to the bill we wrote last Congress. I
    look forward to considering that bill in this committee and
    eventually in the full House as soon as possible.
        The urgency of enacting comprehensive postal reform has
    only increased. The Postal Service faces deepening financial
    challenges and eventually will run out of cash without
    legislative relief. The total volume of mail handled by the
    Postal Service has fallen by more than 25 percent since 2006
    and continued declines are expected.
        The cost of the Postal Service's operations have also risen
    in part because the Postal Service is required to provide
    universal delivery service to every address in the United
    States. Every year, about 900,000 new addresses are created in
    this country, and the network of postal facilities, letter
    carriers, and workers must expand to deliver to every new
    address, 900,000. That is a lot.
        The Postal Service is burdened by a 2006 statutory
    requirement by Congress to fully prefund its liabilities for
    retiree healthcare costs, a requirement that no other Federal
    agency or private sector company faces. These liabilities,
    combined with the Postal Service's unfunded pension
    liabilities, currently total about $125 billion, which is
    almost double its annual revenues.
        Even as its fixed costs continue to grow, the exigent rate
    increase that had been approved to enable the Postal Service to
    recoup some of the losses incurred because of the 2008
    recessions permanent impact on mail volume expired. Since 2006,
    the Postal Service has implemented significant cost-saving
    measures, including reducing positions and work hours and
    consolidating facilities and delivery routes.
        I want to thank the Postmaster General for her efforts, but
    I also want to take a moment to thank the unions for bending
    over backwards and trying to work with the Postal Service in
    coming up with practical solutions so that on one hand you
    protected your employees to make sure that they had security
    and benefits that they were promised but at the same time did
    everything in your power to make sure we had a viable Postal
    Service. And from the depths of my heart I thank all of you.
        Altogether, these actions have saved the agency some $14
    billion per year. However, there are numerous legal
    restrictions that limit the Postal Service's ability to cut
    costs or introduce new products to counteract its deteriorating
    financial condition.
        As the chairman said, none of us got everything we wanted
    in this bill. One of the things that I have worked for for many
    years is trying to open up the doors for the Postal Service to
    do other things and to generate new types of income. The things
    that I really wanted in the bill are not there, but, on the
    other hand, I didn't want to see us throw away this golden
    opportunity that we have. And perhaps we can work that out some
    other time. But again, none of us got what we want. I know that
    people who are sitting in the audience who are saying, boy, I
    wish I had that and I wish I had this. Just wish we get the
    bill through, please.
        Taking all these requirements and trends together, the
    Postal Service reported a net loss of $5.3 billion for fiscal
    year 2016, which represents the 10th consecutive year of net
    losses.
        We have repeatedly discussed the deteriorating financial
    condition at the Postal Service in this committee, but the
    situation has now worsened by unprecedented lack of any Senate-
    confirmed members on the Postal Service's Board of Governors.
    Because many key management decisions are reserved by statute
    to the Senate-confirmed board members, there are many actions
    such as establishing rates, class, and fees for products that
    the Postal Service simply cannot take now.
        The need for postal reform is as urgent as it ever was.
    Fortunately, we also may be closer than ever to enacting
    reform. We must press ahead, all of us. We must continue to
    work together--Congress, the Postal Service, and the
    stakeholders--to achieve what has been out of reach for so many
    years.
        Only we can ensure that this 240-year-old institution, an
    institution that connects every family, every business, every
    community in this nation will continue to be there to serve all
    Americans.
        So I want to thank our witnesses for being here today once
    again to discuss what we must do to place the Postal Service on
    a viable, sustainable path for the future.
        And, Mr. Chairman, with unanimous consent I would like to
    give Gerry Connolly--I understand that the chairman will be
    introducing our subcommittee ranking and chairman, but I just
    want to say before you do that, I want to thank you, Mr.
    Meadows, and I want to thank you, Mr. Connolly, for working so
    hard to make this happen. Thank you, Mr. Chairman.
        Chairman Chaffetz. I thank you.
        As the gentleman indicated, I would like to recognize Mr.
    Meadows and Mr. Connolly to give brief statements as well.
        Mr. Meadows, is recognized.
        Mr. Meadows. Thank you, Mr. Chairman. I will be very brief.
    I want to thank you for, as the ranking member talked about,
    following up on your commitment to finish the work.
        We talked about the 11th hour. Actually, I think it was the
    11-1/2 hour or the 11th--I got more phone calls from Senator
    Carper before the first of the year than I think my wife would
    normally endure. And so that being said, we are picking up
    where we left off hopefully to get it across the finish line in
    a way that probably makes everybody both happy and sad at the
    same time, and that is the only way you get a good bipartisan
    compromise is to make sure that there is something for everyone
    to complain about and for everybody to brag about.
        And that being said, I think it is incredibly important to
    recognize that if we do not act, this is really going to affect
    jobs. When you look at the backbone of the Postal Service, it
    is not just for those postal employees but it is for the 7.5
    million jobs that it represents either directly or indirectly
    throughout our economy. And failure to act would also mean that
    it would require a bailout on behalf of the American taxpayer,
    something that I am acutely sensitive to and want to avoid if
    we can to the tune of some $119 billion minimum. According to
    my calculations, it could be upwards of $150-175 billion in
    terms of a bailout if we don't act.
        And so, Mr. Chairman, I just want to applaud you and this
    committee and the staff for their hours of working very
    diligently to not only reintroduce this bill but hopefully have
    some additional comments from the expert witnesses here today,
    and I look forward to their testimony.
        And with that, I will yield back.
        Chairman Chaffetz. I thank the gentleman for the balance of
    the time.
        We would like to recognize Mr. Connolly of Virginia.
        Chairman Chaffetz. I thank the gentleman.
        Mr. Connolly. Thank you, Mr. Chairman.
        And first, let me ask unanimous consent that testimony
    provided by the National Active Retired Federal Employees
    Association, NARFE, opposing our bill be entered into the
    record.
        Chairman Chaffetz. Without objection, so ordered.
        Mr. Connolly. I thank the chair.
        And I want to commend Chairman Chaffetz and Ranking Member
    Cummings for their leadership in holding together this
    coalition, not easy. And it is a bipartisan coalition that
    helped write this bill. And especially Chairman Chaffetz could
    have yielded to the temptation, in light of the circumstances
    of 2017, to start all over again. And he didn't do that. We
    worked together. We held it together. And I want to thank all
    the stakeholders represented in this room and those not in this
    room for understanding we can't let perfect be the enemy of the
    good.
        The Postal Service as we know it is insolvent. This bill is
    intended to put it back on the road to solvency. This bill is
    intended to correct big mistakes that were made, maybe with the
    best of intentions, back in 2006 in the lame duck that was
    called reform but added, you know, an untenable burden to the
    Postal Service.
        And we have worked hard at the staff level and with
    stakeholders and among ourselves as Members to come up with a
    bipartisan bill. It incorporates a number of principles we have
    been fighting about. I have spent nine years of my life on
    postal reform. When I ran for this office, postal reform was
    not one of my platform provisions, but it became one because of
    the urgency of the issue.
        And we may have opportunities to perfect it as we go along.
    Until a bill is passed and sent to the President for signature,
    it is always a work in progress. And so there may be
    opportunities to try to perfect things, but the coalition we
    have got is both strong and fragile. And there are a lot of
    moving pieces, and sometimes, you know, changing one affects
    all of it.
        And so I commend the chairman and the ranking member and my
    colleagues--Mr. Lynch, Mr. Meadows especially, and of course
    Ms. Lawrence, who brings so much expertise and experience to
    this subject--for making this happen. It is not always that we
    are able to come together on a bipartisan basis on a major
    piece of reform legislation. It is exactly the kind of work
    this committee ought to be doing, and we are doing it.
        And, again, I really thank Mr. Chaffetz for his leadership
    and his patience, and I thank my colleagues--Mr. Meadows, Mr.
    Lynch, and of course the ranking members Mr. Cummings--
    especially for their hard work on this very important endeavor.
        I yield back.
        Chairman Chaffetz. The gentleman yields back. Thank you
    both very much.
        I would ask unanimous consent to enter the following
    letters of support into the record: a letter from the United
    Postmasters and Managers of America; the Coalition for 21st
    Century Postal Service; a letter from the American Catalog
    Mailers Association; a letter of support from Harland Clarke
    Holdings; and a letter from the National Association of Postal
    Supervisors all in support. Without objection, so ordered.
        Chairman Chaffetz. We will hold the record open for five
    legislative days for any member who would like to submit a
    written statement. And I would also add QFRs or questions for
    the record, we will allow five legislative days for that. And
    then if we have any of those, we will be submitting to those
    that serve on this panel. We would expect and hope a very
    timely response to any inquiries that might come that way as
    well.
        We will now recognize the panel of witnesses. We are
    pleased and honored to welcome the Honorable Megan Brennan, the
    Postmaster General of the United States Postal Service. We have
    the Honorable Robert Taub, chairman of the Postal Regulatory
    Commission. We have Ms. Lori Rectanus, director of Physical
    Infrastructure Issues at the United States Government
    Accountability Office. Mr. Arthur Sackler is manager for the
    Coalition for a 21st Century Postal Service, and Mr. Fredric
    Rolando, president of the National Association of Letter
    Carriers.
        We welcome you all. We thank you for being here. As you
    know, I think you have all testified before us previously, but
    pursuant to committee rules, all members are to be sworn before
    they testify, so if you will please rise and raise your right
    hand.
        [Witnesses sworn.]
        Chairman Chaffetz. Thank you. Let the record reflect that
    all witnesses answered in the affirmative.
        We still start with the Postmaster. As you know, we would
    appreciate it if you could limit your verbal comments to
    roughly five minutes. We will be able to give you a little
    latitude, but your entire written statement will obviously be
    made a part of the complete record.
        You are going to need to pull those microphones up close
    and tight to your mouth so we get a good--it is broadcast, and
    we need to make sure we get a good audio out of this as well.
        The Postmaster General, you are now recognized for five
    minutes.

                           WITNESS STATEMENTS

                     STATEMENT OF MEGAN J. BRENNAN

        Ms. Brennan. Thank you. Good morning, Mr. Chairman, Ranking
    Member Cummings, and members of the committee. Thank you,
    Chairman Chaffetz, for calling this hearing. I'm proud to be
    here today on behalf of the 640,000 dedicated men and women of
    the United States Postal Service.
        The Postal Service provides the Nation with a vital
    delivery platform that enables American commerce, serves every
    American business and home, and binds the Nation together, as
    it has for more than 240 years.
        The Postal Service is self-funded. We pay for our
    operations through the sale of postal products and services and
    do not receive tax revenues to support our business. Over the
    past decade, total mail volume declined by 28 percent. First
    class mail, which makes the greatest contribution to covering
    the cost of our networks, declined by 36 percent. In response,
    we have streamlined our operations, restructured our networks,
    reduced the size of our workforce, and improved productivity.
    As a result of these efforts, we've achieved annual cost
    savings of approximately $14 billion.
        We also successfully stabilized marketing mail revenues and
    grew our package business, which together drive e-commerce
    growth. However, given the constraints imposed by law, all of
    those actions cannot offset the negative impacts caused by the
    consistent decline in the use of first class mail.
        The Postal Service is required to maintain an extensive
    network necessary to fulfill our universal service obligation
    to deliver the mail to every address six days a week,
    regardless of volume. The cost of the network continues to grow
    as approximately one million new delivery points are added each
    year. However, less volume, limited pricing flexibility, and
    increasing costs means that there is less revenue to pay for
    our growing delivery network and to fund other legally mandated
    costs.
        Since 2012, the Postal Service has been forced to default
    on $33.9 billion in mandated payments for retiree health
    benefits. Without these defaults, the deferral of critical
    capital investments and aggressive management actions, we would
    not have been able to pay our employees and suppliers or
    deliver the mail.
        Despite our achievements in growing revenue and improving
    operational efficiency, we cannot overcome systemic financial
    imbalances caused by business model constraints. Without
    legislative and regulatory reform, our net losses will continue
    and our financial position will worsen, threatening our ability
    to meet America's evolving mailing and shipping needs.
        Mr. Chairman, we believe there is broad support for the
    core provisions of the bill you have introduced. By enacting
    this urgently needed legislation, which includes those
    provisions, the Postal Service can achieve an estimated $26
    billion in combined cost reductions and new revenue over five
    years. Enactment of these provisions, favorable resolution of
    the Postal Regulatory Commission's pricing review system, and
    continued aggressive management actions will return the Postal
    Service to financial stability.
        Medicare integration is the cornerstone of your bill. The
    civilian Federal Government is not required to prefund retiree
    health benefits, but that obligation is imposed on the Postal
    Service. We are merely asking to be treated like any business
    that offers health benefits to its retirees and has to fund
    them.
        Full integration with Medicare is a universally accepted
    best practice in private sector. Requiring full Medicare
    integration for Postal Service retirees would essentially
    eliminate our unfunded liability for retiree health benefits.
    It is simply a matter of fairness to enable the Postal Service
    and our employees to fully utilize the benefits for which we
    have paid.
        We also strongly endorse the provision of the bill that
    would restore half of the exigent rate increase as a permanent
    part of our rate base. That provision will help us pay for the
    infrastructure necessary to fulfill our universal service
    obligation.
        Mr. Chairman, our financial challenges are serious but
    solvable. We appreciate your continued support and your focus
    on bipartisan postal reform in the 115th Congress. H.R. 756 is
    fiscally responsible and enables the Postal Service to invest
    in the future and to continue to provide affordable, reliable,
    and secure delivery service to every business and home in
    America.
        Mr. Chairman, Ranking Member Cummings, I look forward to
    working with you in this committee and our stakeholders to
    restore the financial health of the United States Postal
    Service.
        This concludes my remarks, and I welcome any questions that
    you and the committee may have. Thank you very much.
        [Prepared statement of Ms. Brennan follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman Chaffetz. Thank you.
        Chairman Taub, you are now recognized for five minutes.

                      STATEMENT OF ROBERT G. TAUB

        Mr. Taub. Chairman Chaffetz, Ranking Member Cummings,
    members of the committee, good morning. I'll hit a few key
    points from the Commission's very detailed written testimony.
        Not much has changed from my last appearance here about
    nine months ago. In summary, the Postal Service still faces
    significant financial obstacles for the future. With its
    growing liability of retiree health benefits, the inability to
    borrow for needed capital investments, and the continued loss
    of high-margin first class mail revenues, the important task of
    improving the financial condition of the Postal Service remains
    daunting. Its total liabilities exceed its total assets by $56
    billion.
        The fundamental problem is that the Postal Service cannot
    currently generate sufficient funds to cover its mandated
    expenses and also invest in critically deferred capital needs
    such as new delivery vehicles and package sorting equipment.
        The pressing question is what needs to be done to improve
    the financial condition of the Postal Service? Pursuant to
    statute, the Commission recently submitted a report evaluating
    the operations of current postal law to the President and
    Congress. This report provided a variety of recommendations for
    legislation, which are attached to my written statement.
    Significantly, the Commission determined that the most
    important recommendations it could make related directly to
    improving the Postal Service's financial condition.
        I commend this committee's bipartisan leadership for coming
    together just last week, as you did last Congress, to introduce
    legislation to address these challenges. H.R. 756 is
    specifically designed to put the Postal Service on sound
    financial footing.
        Your invitation noted a focus today also on the
    significance and potential implications of the Commission's
    ongoing review of the rate system. By law, after December 20,
    2016, the Commission must review the decade-old price-cap
    system for regulating market-dominant products to determine if
    the system is achieving its statutory objectives, and if it is
    not, to, quote, ``make such modification or adopt such
    alternative system,'' end quote, to achieve the objectives.
    There are nine objectives listed in the law that must be
    achieved, as well as 14 factors that the Commission must take
    into account.
        When I testified to the committee nine months ago, I stated
    that the Commission had already begun marshalling its limited
    resources to structure the review and schedule a process that
    would allow full and open opportunities for public
    participation while at the same time providing certainty and
    being decisive in the task. I also committed that the
    Commission would provide notice to the public of its plans for
    the review well in advance of commencing it.
        We delivered on those commitments. On September 1 during a
    public meeting, I first announced commission plans for the
    review, that it would begin in December, that the comment
    deadline would extend to very early spring, and by early autumn
    the Commission would issue an order that would include its
    findings and, if necessary, proposed rulemaking information for
    any changes to the system.
        Indeed, on December 20 at 8:00 a.m. sharp we commenced our
    review. The Commission has designed a process that seeks
    targeted input from the public but also deliberately moves
    forward with the aim of completing its findings and beginning
    any needed rulemaking by early autumn of this year.
        The Commission is mindful that your bipartisan postal
    reform bill would mandate a process whereby final rules on any
    modifications or changes to the system must be implemented by
    very early 2018. We are working hard to meet that goal.
        Thank you, Mr. Chairman and Ranking Member Cummings, for
    convening this hearing to shine a spotlight on this critical
    part of our nation's infrastructure. I know you both deeply
    appreciate the importance of these issues. There are no easy
    answers but answer we must. The Commission stands ready to help
    in your search for solutions. On behalf of all four
    commissioners and the entire hardworking agency staff, thank
    you for the opportunity to testify today.
        [Prepared statement of Mr. Taub follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman Chaffetz. Thank you. I do appreciate it.
        We are pleased to have the GAO with us as well. Ms.
    Rectanus, you are now recognized for five minutes.

                       STATEMENT OF LORI RECTANUS

        Ms. Rectanus. Thank you, Mr. Chairman. Chairman Chaffetz,
    Ranking Member Cummings, and members of the committee, thank
    you for the opportunity to be here today to discuss the Postal
    Service's financial challenges. While the Postal Service is a
    critical part of the Nation's communication and commerce, its
    financial situation puts it at risk of not being able to carry
    out its mission. Its financial condition has been on GAO's
    high-risk list since 2009.
        My testimony today covers the factors affecting its
    financial condition, its unfunded liabilities, and the
    difficult choices involved in addressing these challenges.
    First, the continued deterioration of the Postal Service's
    financial condition is simply a truth that revenues are not
    keeping up with expenses, a trend since 2007. This means that
    over the last decade the Postal Service has had a net loss of
    over $60 billion. While much of this loss was in fact due to
    the nonpayment of retiree health prefunding payments, the
    Postal Service still lost over $10 billion outside of this
    requirement and other requirements.
        The revenue expense gap occurs because first class mail,
    the most profitable mail, continues to decline and is now down
    to 1981 levels. The Postal Service has made significant efforts
    to grow revenue in other ways such as with package services.
        In the meantime, however, expenses continue to grow largely
    because of compensation and benefit payments for employees.
    This is due to salary increases, as well as a larger workforce
    in the past several years, to support the more labor-intensive
    package business. In fact, over the past three years the
    workforce has actually increased by over 20,000 people,
    contrasting sharply with prior years when its size decreased
    greatly. The Postal Service reported that rising comp and
    benefit costs generated over $1 billion in additional expenses
    for active workers in 2016. Bottom line is that postal revenues
    increased by $2.6 billion in fiscal year 2016 but expenses
    increased by over $3 billion.
        While the Postal Service has made numerous efforts to
    right-size operations and undertake other cost-cutting
    initiatives, it has no current plans to implement the kind of
    major initiatives that would significantly reduce this
    financial gap. We recognize that previous efforts have faced
    resistance from stakeholders and they would involve tradeoffs.
    But in the absence of such efforts, the Postal Service is not
    on a solid path for the future.
        Second, unfunded liabilities and debt total about $121
    billion or almost 170 percent of annual revenues. They are
    mostly retiree health and pension benefit obligations for which
    the Postal Service has not set aside sufficient funds. And as
    we've mentioned today, about $50 billion of those liabilities
    are retiree health benefits that remain unfunded partly because
    the Postal Service has not made about $34 billion in required
    prefunding payments.
        This year, the Postal Service will have about $10 billion
    in required payments for retiree health and pension benefits,
    which is roughly $3 billion over what it paid in 2015 and 2016.
    Given its poor financial position, Postal Service non-payments
    are likely to continue. This situation places everyone at risk.
    If the Postal Service does not adequately fund its benefits,
    ultimately, the taxpayer may be asked to step in or benefits or
    pay could be reduced.
        Because the Postal Service cannot fix these problems by
    itself, comprehensive legislation is needed to better align
    expenses with revenues. In doing so, Congress has key
    considerations. First, what postal services do we need in the
    21st century, and how should those be provided? Congress has
    the opportunity to consider what future customers need on a
    universal basis and what tradeoffs are acceptable.
        Second, what is the appropriate level of compensation and
    benefits in an environment of revenue pressures? Congress can
    consider requiring that the Postal Service's financial
    condition be considered in any binding arbitration.
        And finally, what is the continued viability of the Postal
    Service providing affordable universal service while also
    remaining self-financing? Congress has the opportunity to
    consider the pros and cons of various business models and
    identify the most appropriate model for the future.
        In conclusion, as we've all said, the status quo was not
    sustainable, and I hope 2017 is the year of action. This
    concludes my statement. Chairman Chaffetz, Ranking Member
    Cummings, and members of the committee, I would be pleased to
    answer any questions you have.
        [Prepared statement of Ms. Rectanus follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman Chaffetz. Thank you.
        Mr. Sackler, you are now recognized for five minutes.

                      STATEMENT OF ARTHUR SACKLER

        Mr. Sackler. Thank you and good morning, Mr. Chairman,
    Ranking Member Cummings, and members of the committee.
        The Coalition for a 21st Century Postal Service or C21
    appreciates the opportunity to present our views on the Postal
    Reform Act of 2017, H.R. 756. We support this bill and urge its
    approval as promptly as possible. We also support Mr. Lynch's
    bill, H.R. 760, and urge its approval. Our hope is that you
    will be able to build upon this rare display of unity among
    stakeholders behind your bill and move it along.
        C21 consists of trade associations and companies broadly
    representative of the $1.4 trillion mailing industry, which
    supports some 7-1/2 million jobs. It includes mailers of every
    kind and every size in every class and category of mail and
    their suppliers of paper, printing, equipment manufacturer,
    mail services, and more.
        I respectfully ask that the study that presents those
    numbers be made part of the record.
        Chairman Chaffetz. Without objection, so ordered.
        Mr. Sackler. We want to thank you, Mr. Chairman, the other
    original sponsors of this legislation, now joined by Mr. Ross,
    and your staffs for your efforts and persistence in developing
    this critical bipartisan bill.
        Mr. Chairman, as you and everyone else has noted, the
    Postal Service is in deep financial trouble. Its balance sheet
    is awash in red ink, and its operations are barely breaking
    even. The industry respects the job the Postmaster General and
    her entire team has done in cutting billions in costs and
    making the system more efficient and effective.
        But it hasn't been nearly enough. There are two prime
    reasons: technology and obligations imposed under PAEA. Only a
    few months after the Postal Service had its best year in 2006,
    Steve Jobs introduced the iPhone and the mobile revolution,
    including social media, was off and galloping. The mail
    diversion genie is out of the bottle and no one is going to be
    able to put it back. And it's a prime reason why there's been
    such a massive drop-off in the very profitable first class
    mail.
        But the obligations in the tens of billions, especially for
    the virtually unique mandatory prefunding of postal retirees'
    health benefits, is a crushing burden that can be dealt with.
    When included in 2006's PAEA, no one had an inkling of the
    peril for paper brewing in Cupertino. The front-loaded $5.5
    billion annually was marginally affordable, but not now and not
    for years.
        In the face of this huge liability, the industry confronts
    the stark reality of a review of the postal rate-setting system
    that will be conducted by Chairman Taub and the Regulatory
    Commission. There's a serious risk that that liability could be
    dissipated by rate increases in a new system. That would
    gravely damage the industry and the Postal Service. To
    eliminate the Postal Service's red ink would require an
    increase our economists calculate of about 18 percent. That's
    unaffordable in today's environment, even if moderated to 6 to
    7 percent increases per year for several years running.
        H.R. 756 provides an elegant solution to this profound
    financial problem. Integrating postal annuitants into Medicare
    will save the Postal Service billions each year and follow the
    best practices of the private sector. Companies that offer
    health insurance to employees and retirees generally require
    them to join Medicare at age 65.
        Most important, this integration will preclude the need for
    taxpayer support. The score on last year's bill with this same
    change was a net positive. The imposition on Medicare would be
    comparatively minimal. Integrating remaining annuitants into
    Medicare is central to our support for this bill.
        The implications of this bleak financial situation are near
    existential for Postal Service in its current form, so we
    support H.R. 756, notwithstanding its one-time market dominant
    postal rate increase of 2.15 percent. We accept this increase
    in this unique set of circumstances only as necessary to
    achieve this bill and stabilize the Postal Service. Congress
    has wisely delegated rate-setting to the postal agencies, but
    with respect, the industry will be compelled to oppose any
    effort to regard this bill as a precedent for other legislative
    rate increases.
        The industry has long supported the self-sustaining postal
    system funded entirely by postage. That remains the best course
    from our perspective. And that is the beauty of your bill. It
    vastly improves the Postal Service's financial stability, keeps
    the Postal Service self-sustaining, and wards off any prospect
    of a taxpayer bailout, as you noted, Mr. Chairman.
        With that, I will conclude my testimony. Thank you for this
    opportunity, and I will be happy to answer any questions you or
    your colleagues may have.
        [Prepared statement of Mr. Sackler follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman Chaffetz. Thank you.
        Mr. Rolando, you are now recognized for five minutes.

                    STATEMENT OF FREDRIC V. ROLANDO

        Mr. Rolando. Thank you, Chairman Chaffetz and Ranking
    Member Cummings and members of the committee for the
    opportunity to testify on behalf of ----
        Chairman Chaffetz. I am not sure that mic--is that
    microphone on?
        Mr. Rolando. No.
        Chairman Chaffetz. Oh, okay. But is the--there.
        Mr. Rolando. Is that better?
        Chairman Chaffetz. That is much better.
        Mr. Rolando. All right.
        Chairman Chaffetz. There you go.
        Mr. Rolando. Again, thank you for the opportunity to
    testify on behalf of 295,000 active and retired letter carriers
    and the three other postal unions, the APW, the Rural Letter
    Carriers, and the Mail Handlers union.
        We commend the committee for introducing H.R. 756 and
    Representatives Lynch and McKinley for introducing H.R. 760, a
    bill that would greatly improve the way the Postal Service's
    trust fund for retiree health benefits is invested.
        This morning, I will focus my remarks on the postal reform
    bill. Please see my written testimony to see why we support the
    Lynch-McKinley bill.
        By introducing H.R. 756, the leadership of this committee
    has set a standard for bipartisan cooperation on legislation
    that should be emulated. The bill has broad support across the
    mailing industry, including business and labor, and is based on
    best practices in the private sector. Bipartisanship on postal
    reform makes sense given that the Postal Service is based in
    the Constitution and operates independently without taxpayer
    funds.
        It is vital to our national economic infrastructure. We
    serve every community, every household, and every business in
    America at least six days a week. At 84 percent, few
    organizations have higher public favorability rating than the
    post office, and no other agency engenders a greater sense of
    trust. In the age of e-commerce, vote-by-mail, and mail-order
    prescription drugs, it's more important than ever.
        There is broad agreement among all the major stakeholders
    that legislation is urgently required to strengthen the Postal
    Service. Our coalition of stakeholders believes that the two
    bills introduced last week have the essential elements needed
    to stabilize and fortify the Postal Service for years to come.
        Over the past decade, postal employees have worked
    diligently to restructure operations, cut costs, and sharply
    increase productivity in response to technological change and
    the Great Recession. Despite the loss of more than 200,000
    jobs, we've managed to preserve our networks and to maintain
    our capacity to serve the Nation.
        But only Congress can address our biggest financial
    challenge, the unique and unsustainable burden to prefund
    future retiree health benefits decades in advance. No other
    enterprise in the country faces such a burden, which was
    imposed by legislation in 2006. The expense of this mandate has
    accounted for nearly 90 percent of the Postal Service's
    reported losses since 2007. Without a change in the law, the
    mandate will cost $6 billion this year alone.
        H.R. 756 would maximize the integration of Medicare and our
    Federal health program for Medicare-eligible postal annuitants,
    most of whom have already voluntarily enrolled in Medicare
    Parts A and B.
        The proposal would also give us access to low-cost
    prescription drugs and other benefits provided to private
    employer plans by the Medicare Modernization Act. The savings
    would help to reduce all of our premium costs, and therefore,
    prefunding costs. This approach adopts the standard practice of
    large private companies that provide retiree health insurance.
    It would effectively resolve the prefunding burden that
    undermines the health of the Postal Service while only raising
    Medicare spending by 1/10 of 1 percent over 10 years.
        H.R. 756 also addresses a revenue shortfall caused by the
    expiration of the 2013 exigent rate increase authorized by the
    Postal Regulatory Commission to help the Postal Service recover
    from the permanent decline in mail volume caused by the Great
    Recession. The compromise adopted by your leadership bill,
    effectively restoring half of the exigent increase, is a
    reasonable one.
        Mr. Chairman, your bill effectively deals with the two core
    issues that must be addressed: the unaffordable prefunding
    mandate and the expiration of the exigent increase, and it does
    it in a way that meets the budget scoring rules of the
    Congressional Budget Office. All four postal unions urge the
    committee to adopt this legislation. We pledge to work with all
    of you in our broad coalition of mailing industry partners to
    achieve postal reform this year. Together, we can strengthen a
    great national institution and, even better, we can show the
    country that it is still possible to make our democracy work
    for the common good at a time of great partisan polarization.
        Thanks again for inviting me to testify today.
        [Prepared statement of Mr. Rolando follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman Chaffetz. Thank you. I love your passion for it,
    and not many people get choked up on postal reform so we
    appreciate your passion there and ----
        Mr. Rolando. It's in my blood.
        Chairman Chaffetz. There you go. Thank you. Thank you very
    much.
        I will now recognize myself for five minutes.
        One of the choices that is before us is to do nothing,
    right? Just let her go, just keep on the same trajectory. I
    would like to kind of hit the three--let's start with Ms.
    Rectanus. From your perspective, do nothing, what happens?
        Ms. Rectanus. To be quite simply--to be, you know, I guess
    the doomsday is we're going to run out of money. As an example,
    in 2017 with the restructuring the $52 billion that the Postal
    Service has put aside, that's where premiums are going to start
    to come out of now. And given that for retirees, the Postal
    Service has paid three to four premiums a year, billion dollars
    in premiums a year, with a total of $52 billion it's not hard
    to understand that that fund's going to run out of money. So if
    we run out of money, what happens? Either the--we're talking
    about a taxpayer bailout, as you had talked about. We're
    talking about reducing pay in benefits, which could come to
    trouble. Or we could talk about saddling the Postal Service
    with coming up with more money when they probably do not have
    that. So there's not really a good scenario other than we're
    going to run out of money.
        Chairman Chaffetz. Chairman Taub, what is your perspective
    on that?
        Mr. Taub. I'd concur with GAO on that. You know, I think I
    would add that we're in some ways past the point where it's
    somewhat salvageable. I think in the early years after the
    Great Recession, if it was just the prefunding issue and that
    had gotten fixed, the Postal Service may have had some
    breathing room.
        Right now, over half of the problem goes beyond just the
    prefunding and we're starting to see, as I said, the impact of
    assets that have not only--getting to the end of their
    depreciated life but are fully depreciated. And the inability
    to invest in where there are opportunities of innovating the
    core, as the Postmaster General calls it, you need capital to
    do that. And when your borrowing authority is maxed out, you
    have roughly 30 days of cash on hand, not only would I concur
    with the GAO's assessment but I would argue we're already in
    the danger zone.
        Chairman Chaffetz. What is your general perception if you
    can--and you may not be able to--but what is your general
    perception of what would happen to postal rates?
        Mr. Taub. Under current law, as we speak, the majority of
    their products, market-dominant letter mail, periodicals,
    flats, advertising mail are capped at CPI and only for
    extraordinary circumstances. We're in the midst of that review
    now trying to balance these nine objectives. I would note in
    regard to your question and the focus of the hearing today,
    objective number five speaks of having financial viability in
    the sense of retained earnings and financial stability. So one
    of the nine objectives that must be applied equally goes to the
    heart of this financial issue.
        Chairman Chaffetz. And, Postmaster, from your perspective,
    we do nothing, what does that picture look like?
        Ms. Brennan. Yes, Mr. Chairman, clearly the financial
    condition worsens and the continued default on legally
    obligated payments that impact both current employees and
    retirees. And the most egregious failure would be an inability
    to meet our obligation to serve the American public, an
    inability to deliver the mail.
        Chairman Chaffetz. What is your current cash on hand? And
    then once you give me that number, then why isn't that used to
    pay some of the payments that were due? You have defaulted, I
    believe, on five payments.
        Ms. Brennan. Yes, Mr. Chairman. We've defaulted for the
    past five years to the tune of $33.9 billion. Our current cash
    on hand is $8.2 billion. And a determination was made by the
    Temporary Emergency Committee, which consisted at the time of
    our lone independent governor, myself, and the Deputy
    Postmaster General to default on that payment to ensure that we
    can serve sufficient cash, which for an organization of our
    size is arguable at best--but to reserve sufficient cash to
    ensure if there is any contingency that would occur in the
    near-term, we could at least have some cushion.
        Chairman Chaffetz. I mean, you have more cash than some of
    the others who are in the mail industry, but where is that
    proper balance? Where is ----
        Ms. Brennan. Well, and I think--that's a concern, Mr.
    Chairman, because for an organization that has expenditures of
    more than $70 billion a year, we would submit that $8.2 billion
    is insufficient. That's the concern for us. And also as noted
    by the chairman--and we've discussed this--the fact that we
    have deferred on critical capital investments in the past five
    years to the tune of over $8.9 billion, that impacts our
    ability to compete and to generate additional revenues.
        Chairman Chaffetz. Tell us if you can give me a perspective
    on your fleet management. There was a hearing I think Chairman
    Meadows chaired earlier about the fleet. We were concerned the
    Postal Service was going to come up with a very sizeable
    contract to--but explain to me where you are in the fleet and
    where you--your perspective on it.
        Ms. Brennan. Yes, Mr. Chairman. Well, we have one of the
    largest civilian fleets in the country with over 212,000
    vehicles traveling more than 4 million miles a day. The fleet,
    though, is at the end of its expected life, particularly our
    delivery vehicles that the average age is over 25 years. And
    the maintenance--annual maintenance cost is over $1 billion.
        So we have an approach to look at the next-generation
    delivery vehicles that currently we're in the midst of a
    prototype testing period where we're working with six different
    suppliers to provide us with these vehicles that we will test
    over the course of the next 18 months. We also just this week
    actually--a request for proposal for a commercial off-the-shelf
    solution for right-hand-drive vehicles is expected. So we've
    got a multi-prong approach looking at how to address the
    vehicle fleet.
        Chairman Chaffetz. Okay. Mr. Cummings had a follow-up on
    that whole ----
        Mr. Cummings. Yes, just one question. What are we doing
    about--when you consider the fleet--making it in America? I
    mean, are these--what do you all aim at? Is there any--you
    know, we have got a lot of concern about trying to make sure we
    give our automobile industry as much business as possible. I
    was just wondering what you are doing there.
        Ms. Brennan. And, Congressman Cummings, we don't--we
    haven't made any decision in terms of the production phase of
    that next-generation delivery vehicle, but we will follow our
    typical protocol, which is preference for domestically sourced
    parts, and we will require production of the vehicle, assembly
    of the vehicle in the United States.
        Mr. Cummings. Well, you should expect to hear from
    President Trump this afternoon.
        Chairman Chaffetz. All right. I will now recognize the
    gentleman from Massachusetts, Mr. Lynch, for five minutes.
        Mr. Lynch. Thank you, Mr. Chairman. And I want to thank the
    witnesses.
        Mr. Chairman, you deserve great credit on this. I have to
    say you have done a masterful job with the able support of Mr.
    Cummings and the relentless leadership of Mr. Connolly and Mr.
    Meadows, who have really avoided the landmines during this
    whole process. And I think as well we have been helped
    enormously by Ms. Lawrence on our side and Mr. Ross, who a long
    time ago got into this battle.
        There are a bunch of others--you know, this has been a
    negotiation. We have been in the trenches. It has been a little
    bit like mudwrestling at times, but we have come out of this in
    pretty good shape based on the stakeholders' testimony this
    morning. And I don't want to leave anybody out here. I know
    that Fred Rolando, our president of Letter Carriers, is here,
    but also behind him Jim Sarver and Corey Kelly have been
    enormously helpful to us during negotiations. With the Rural
    Letter Carriers, Jeanette Dwyer and Paul Swartz have been
    terrific. The APWU, that is my mother's union and my sister's
    union. I have about 17 members of my extended family that are
    either letter carriers or postal clerks, so this is important
    for me to be able to go home.
        But Mark Dimondstein and Jennifer Warburton have been
    terrific with us, great job. And our mail handlers' President
    Paul Hogrogian and also Bob Losi with the Labors International
    and the Mail Handlers union have been terrific. And also
    Postmaster Bryan, you have been dynamite on this. And there has
    been--you know, there has been compromise necessary on all
    parts but you have been terrific in your relationship with the
    unions, which has made my life much easier but also Sheila
    Meyers and Ron Stroman, our old friend who used to be on this
    committee. And as well the staff on both sides, majority staff
    has been extremely patient, as has our staff. They have been
    doing a great job.
        Probably the key component of this proposal is really--is
    two-pronged. One is the establishment of postal-specific health
    plans within the Federal Employees Health Benefit Program. What
    we are going to do is require postal employees to actually sign
    up for Medicare and coordinate their benefits. It is going to
    save us a ton of money and also get away from that annual $5.5
    billion that we require the Postal Service to contribute to
    accelerating their retirees' health benefits.
        But I do want to ask the Postmaster General about that. So
    there are some concerns out there about the funding of that
    piece that will require postal employees to sign up for
    Medicare and that it is some type of giveaway. That is what I
    have heard out there. Now, you and I know differently, but
    could you explain to me how much money the postal workers have
    contributed to Medicare but in large part have not participated
    in that? Could you describe that for me, please?
        Ms. Brennan. Yes, Congressman. In our opinion this is a
    question of fairness. We're merely asking that we be treated
    like any other self-funded entity that provides retiree health
    benefits, as noted by a number of the panelists. It's best
    practice in private sector. And that's the ask from the Postal
    Service. And our employees in the Postal Service have paid more
    than $30 billion into the Medicare trust fund since the early
    '80s, and we're just asking to receive the benefit for which
    employees have paid.
        Mr. Lynch. That is great. Mr. Rolando, on the accelerated
    funding of employee health benefits that costs the post office
    about $5.5 billion a year. Is there any other agency in the
    United States Government that is required to accelerate their
    funding like this or are they allowed to pay as people are
    projected to retire?
        Could you press your--there you go.
        Mr. Rolando. Sorry.
        Mr. Lynch. You sound like a Patriots fan.
        Mr. Rolando. No comment.
        Mr. Lynch. Take the Fifth, I know.
        Mr. Rolando. No, there's no other agency or private company
    that is required to do the prefunding. And I think relative to
    the chairman's question, I think what happens absent the
    legislation is one of two things. We either are in a position
    to just pay the premium each year for the retiree health
    benefits and remain 50 percent prefunded, which is 50 percent
    more than anybody else. Or the other option would be if we need
    to be at 100 percent, we have to deal with that in the rates
    process, which nobody else wants to do.
        Mr. Lynch. Okay. Thank you very much. Mr. Chairman, I thank
    you for your indulgence, and I yield back.
        Mr. Meadows. [Presiding] I thank the gentleman.
        Ms. Brennan, I want to make sure we clarify one thing. I
    think your statement was that--and maybe I misheard--that
    postal employees pay $30 million. I think it's $30 billion ----
        Ms. Brennan. Thirty billion, sir, yes.
        Mr. Meadows. Okay. All right.
        Ms. Brennan. Yes, $30 billion.
        Mr. Meadows. Thank you. The chair recognizes the gentleman
    from Texas, Mr. Farenthold, for five minutes.
        Mr. Farenthold. Thank you very much. And, Postmaster
    General Brennan, the big financial crush obviously that we hear
    again and again is the decline in the volume of first class
    mail, which is basically your profit center. And so is there a
    bottom to this where, as people start to get all of their bills
    by electronic mail and are paying electronically, email
    penetration is way up there in this country, but there are
    certain things you just want to do in the mail, you know,
    thank-you notes, certain types of invitations. I am much more
    likely to open a--well, that is not first class but we get into
    advertising. I would much rather--I am much more likely to open
    a catalog that comes to me in the mail than I am to click on
    something in a, quote, ``spam'' type email. So is there a
    bottom to the loss of volume that has been looked at or
    projected anywhere? And is there a turnaround there?
        Ms. Brennan. Congressman, the single-piece first class
    mail, which is the stamp mail which is most susceptible to
    electronic diversion, we do project out the current secular
    trends to continue, roughly a 4 percent decline each year.
        Mr. Farenthold. In perpetuity?
        Ms. Brennan. As far out as the next five years. Beyond
    that, I think it's more art than science at--frankly. What I
    would submit is that the largest portion of the first class
    mail piece is commercial mail, which is, as an example, bill
    presentment. Mr. Sackler represents a number of these mailers
    and would tell you that the value of that mail--and many
    consumers still want that statement in the mail. We have worked
    with the industry, promotions to turn that mailroom into a
    marketing center as opposed to just a cost center. So that's
    gone a long way in terms of helping to stabilize that
    particular component of the mail.
        But I think our responsibility, and we've demonstrated
    that, is that we will continue to scale to demand ----
        Mr. Farenthold. Okay.
        Ms. Brennan.--adjust the infrastructure ----
        Mr. Farenthold. All right.
        Ms. Brennan.--as necessary.
        Mr. Farenthold. So there is a limit to how you can scale to
    demand I would think when you have got to service 100 percent
    of the country. So I guess that is my next question is you
    mentioned that part of your expenses is six-day delivery to
    everywhere. Is it worth looking at at some point in the future
    maybe not six days to everywhere for everything? I mean, to be
    competitive, maybe you do need six and actually I think one of
    your competitive advantages is seven-day package delivery. You
    know, over Christmas I got packages from Amazon that you guys
    brought on Sunday. Matter of fact, I got one a couple of weeks
    ago. Apparently, you are still doing it.
        So is shrinking to a less-than-six-day delivery for non-
    packages a potential cost-savings?
        Ms. Brennan. Yes, as you noted, we are delivering packages
    seven days in select locations, primarily major metropolitan
    areas. The ----
        Mr. Farenthold. I am happy Corpus Christie, Texas, is now a
    major metropolitan area.
        Ms. Brennan. I said primarily, and we are expanding that
    because certainly we serve every home and every ----
        Mr. Farenthold. Right.
        Ms. Brennan.--business, Congressman. To your point, and
    candidly, we've spent the better part of the past two years
    trying to build a coalition around core provisions of a bill
    likely to generate broad support. And that's what we focused
    on. And also I would offer candidly it's been my experience
    that there's no congressional consensus around moving to five-
    day delivery.
        Mr. Farenthold. Well, I can tell you that for sure as well.
        But let's go back to Amazon for a second. I think they gave
    you all a big boost over the holiday season. I think they are a
    number-one customer for package delivery across you and your
    competitors in the country, but their stated goal is to cut you
    guys out. So I mean in the long term is this something that you
    can count on or am I going to see the Amazon drone delivering
    my package?
        Ms. Brennan. Amazon is obviously a valued customer and
    business partner. I would say that there is competition in
    every product line and none more than in the last mile of
    delivery, whether it be the traditional competitors, Amazon,
    the crowdsourcing of package delivery. So we're well aware of
    what those headwinds look like. And again, I would offer that
    our ability then to scale to demand. We've got to compete for
    that business every day, and we'll continue to do that to earn
    that business.
        Mr. Farenthold. All right. And finally, you talked about
    capital expenses beyond--your biggest being vehicles. What are
    your big capital--just list off the couple of items that are
    your big capital items beyond vehicles.
        Ms. Brennan. Information systems, our IT infrastructure,
    repair and alteration, facility modifications, additional
    capacity for package sortation.
        Mr. Farenthold. All right. Well, I see my time has expired.
    I may be around for a second round of questioning if you guys
    are.
        Ms. Brennan. Thank you.
        Mr. Farenthold. Thank you.
        Mr. Meadows. I thank the gentleman. The chair recognizes
    the ranking member of the full committee, Mr. Cummings.
        Mr. Cummings. Thank you very much.
        Ms. Rectanus, the last time you were here to discuss the
    postal issues in May of 2016, you testified, and I quote, ``The
    Postal Service's financial condition continues to
    deteriorate.'' You attributed the decline in the financial
    condition to declining mail volume and growing expenses. What
    trends have you observed in the Postal Service's financial
    condition over the last eight months? And has that
    deterioration continued?
        Ms. Rectanus. We've observed a continued--sort of the same
    decline that we saw before, the same types of losses, about the
    same nonpayment of the prefunding continuing and the difficulty
    to generate the kind of revenue in order to support the
    expenses.
        Mr. Cummings. And let's go through some of the financial
    figures for fiscal year 2016, Ms. Brennan. At the end of fiscal
    year 2016, the Postal Service reported $610 million in
    controllable income compared to $1.2 billion in controllable
    income at the end of fiscal year 2015. Is that right?
        Ms. Brennan. That's correct.
        Mr. Cummings. Controllable income excludes retiree health
    benefits, prefunding pension liabilities, and workers'
    compensation liabilities, correct?
        Ms. Brennan. That's correct.
        Mr. Cummings. According to your fiscal year 2016 financial
    results, as a result of the expiration of the exigent rate
    increase, and I quote, ``Revenue for 2016 was lower by
    approximately $1 billion than it otherwise would have been.''
    And the Postal Service has reported that, and I quote, ``Going
    forward without the surcharge, the Postal Service expects its
    revenue to decline from what it otherwise would be by almost $2
    billion per year. Ms. Brennan, can the Postal Service afford to
    lose an additional $2 billion in revenue each year going
    forward?
        Ms. Brennan. No, sir.
        Mr. Cummings. Do you believe that the exigent rate increase
    needs to be restored?
        Ms. Brennan. I do. And as this coalition had discussed with
    the leadership of this committee, the compromise proposal to
    half it, the Postal Service is supportive of that as packaged
    as part of a larger reform bill.
        Mr. Cummings. Ms. Brennan, I also have concerns about the
    state of the Postal Service's liquidity, particularly given
    that the Postal Service has exhausted the credit limit of $15
    billion. How many days of cash do you currently have on hand?
        Ms. Brennan. It's roughly 30 days, Congressman.
        Mr. Cummings. Have liquidity problems affected or do you
    anticipate that they will affect the Postal Service's ability
    to pursue needed capital investments?
        Ms. Brennan. It will. As we've done in recent years, we'll
    prioritize our capital spend, recognizing that, given the
    competitive landscape, in order for us to continue to compete
    and generate additional revenues, we need to invest.
        Mr. Cummings. Now, Mr. Taub, last year when you appeared
    before the committee to discuss postal operations, you
    testified that, based on the Postal Regulatory Commission's
    analysis of the Postal Service's financial strain, and I quote,
    ``There is a high probability that the Postal Service will go
    into financial distress,'' end of quote. Is that assessment--is
    that still valid?
        Mr. Taub. Yes, it is, Congressman.
        Mr. Cummings. Absent any legislative action, when might the
    Postal Service experience financial distress?
        Mr. Taub. You know, trying to crystal ball things like that
    is difficult, but I would say in the short term we're looking
    in that five-year window as the Postmaster General indicated.
    They've done their own look forward, and, absent change, about
    in the two- to three-year window there's some real challenges
    for the Postal Service.
        That being said, to the Postal Service's credit, they have
    ensured that delivery to the American mailing consumer and
    businesses remains the top priority. So whereas they may start
    seeing some challenges with meeting service standards, for
    example, or being able to keep certain facilities open, their
    commitment to continuing to deliver is front and center. So for
    the average consumer, we may not see the full brunt of it right
    away, but there's some hell to pay, shall we say, if there
    isn't change.
        Mr. Cummings. Now, Ms. Brennan, I kind of joked about it
    but I was serious. On this fleet situation, how is that
    decided? Because you can imagine that there is going to be some
    tweeting about you this afternoon. But tell me, how is that
    decided with regard to the fleet? That is a lot of jobs. That
    is a lot of vehicles.
        Ms. Brennan. We have a competitive procurement process
    where, in this example that I cited on the next-generation
    delivery vehicles, we had a request for proposal that went out.
    It was open competition. And we ended up with--we selected six
    suppliers. I'll provide for the record--I believe we had maybe
    10 suppliers in total that competed for the process. I'll
    provide that for you.
        Mr. Cummings. Yes, please do.
        Ms. Brennan. But again ----
        Mr. Cummings. Please do, I said.
        Ms. Brennan. Yes.
        Mr. Cummings. I would like to see that. Yes.
        Mr. Cummings. And finally--and I will close with this, Mr.
    Chairman, and I thank you for your indulgence--many industries,
    millions of jobs, and millions of people depend on the Postal
    Service. I believe that Congress must act now and we must act
    right now to help put the Postal Service on a sustainable path
    forward. This committee should quickly consider the bipartisan
    postal reform bill we have introduced, and the House should
    adopt the measure as soon as possible.
        And again, I just want to--I don't know how this hearing is
    going to go because I know we have votes coming up, but I want
    to thank everybody, every single body. They didn't mention
    everybody's names, but you know who you are. I really, really
    thank you.
        Now, you all have got to--I believe that we are on I would
    say about the five-yard line, and you all have--well, let's say
    10. Well, you all have got to help us get the ball over the
    line, seriously. Let the Members of Congress know how you feel
    and give us the support that we need. Thank you very much.
        Mr. Meadows. I thank the gentleman. The chair recognizes
    the gentleman from California, Mr. Issa, for five minutes.
        Mr. Issa. Well, thank you, Mr. Chairman. And I want to
    thank Mr. Cummings for giving me a different opening than I was
    going to have. Ladies and gentlemen, it is the third quarter
    and you are down by 25 points, and if Tom Brady doesn't come
    in, the fact is you are bankrupt. You are beyond bankrupt. You
    are in record deficit. Let me just go through the numbers
    because I, like Mr. Cummings and Mr. Chaffetz, want this bill
    to move and I want it to accomplish what a bill a little over
    10 years ago didn't.
        Ten years ago when I was young to this committee we in
    fact--are we going to get into Patriots jokes here? If we are,
    let me know. But 10 years ago roughly we thought we would fix
    this, and all we really did was give you a line of credit that
    you ran up against your deficits.
        So if I do the arithmetic round numbers, 33.9, I will call
    it $34 billion, that is what you haven't paid that was your
    obligation under the law to pay and you simply defaulted on it.
    Ms. Rectanus, I will use you for the numbers, make sure I am
    right. Deferred maintenance is about $9 billion, those vehicles
    and things that just have to be restored soon or the wheels
    literally will fall off. There is $15 billion that Congress
    gave in a line of credit that simply went to pretend like bills
    were being paid when in fact it was simply taking care of the
    losses. So that comes out to 57.8 if my pencil was right. But I
    am sure there are some odds and ends on top of it. And since we
    are running at half-a-billion dollars a month of loss, anything
    we say, by the time it gets enacted, will be over $60 billion.
        During my entire tenure on this committee, people have
    talked about having to prepay and how, you know, that is
    onerous, but there is only about $50 billion in prepay. So the
    debt is far greater than the prepay today, so if we just wipe
    those across each other, you still have a net debt. Isn't that
    true, Ms. Rectanus?
        Ms. Rectanus. That is true. The unfunded liabilities are
    about $121 billion. So, yes, while RHB is 50-some billion of
    that, there is, you know, a significant amount of additional
    debt ----
        Mr. Issa. Okay. So if we did a classic bankruptcy sort of
    back-of-the-envelope, we take the assets of the prepaid and we
    wipe it out against all these deferreds, you put it back and
    forward, you still end up in the same boat, which is there is
    no net equity in the post office. Additionally, the post office
    is losing money in the bill even with the transfer of the
    obligation from post office first to Medicare first, meaning
    that the taxpayers, which includes postal workers who pay into
    Medicare, are going to get a bill. Their costs are going to go
    up in return for the post office going down. And I supported
    that during my chairmanship. I am not trying to walk away from
    that provision. It is something I expect we will do. But you
    still end up with a loss, right, Ms. Rectanus?
        Ms. Rectanus. Yes. There are other things going on with the
    Postal Service's business model that are beyond the retiree
    health.
        Mr. Issa. Okay.
        Ms. Rectanus. Fundamentally, revenues are still having a
    difficult time keeping up with expenses.
        Mr. Issa. Okay. Well, let's go through this. And I always
    make the assumption that we are not cutting pay of any worker.
    We are not firing or laying off any worker, but we can and
    should make our labor force the right size going forward.
        So if we went aggressively toward no longer having a small
    portion of the population get mail put in a chute and those who
    are in single boxes going to near-single boxes, twos, fours--in
    other words, we went to an all clustered arrangement the way
    Carmel, California; Rancho Santa Fe in my district, some of the
    most affluent neighborhoods, in addition to some of the poorer
    neighborhoods already have, cluster boxes, that still saves
    about the difference between the loss and a profit, doesn't it?
        Ms. Rectanus. In terms of moving to delivery, there are
    potentially significant savings ----
        Mr. Issa. So ----
        Ms. Rectanus.--to that approach ----
        Mr. Issa.--additionally ----
        Ms. Rectanus. There's tradeoffs.
        Mr. Issa. Additionally, the United States post office, with
    the power of the government, if they chose to aggressively site
    in or near people's homes cluster boxes that could safely hold
    packages, they would leapfrog in service capability what Amazon
    is trying to build at your corner gas station, wouldn't they?
    And I guess I should take that to the Postmaster General. Not
    what are the problems, but if you did that, wouldn't you in
    fact offer a service far better and far more distributed than
    that which Amazon is trying to build today in some parts of
    urban America?
        Ms. Brennan. Congressman Issa, as you and I discussed, the
    Postal Service approach is all new possible deliveries, as
    noted--excuse me. We add nearly a million a year. Based on the
    delivery characteristics, we either implement box-on-post at
    the end of your driveway or centralized delivery. And just
    looking at last year where, when we looked at the growth by
    mode, over 750,000 new deliveries were centralized. So there is
    certainly an efficiency gain associated with that.
        Mr. Issa. Okay. And don't we owe it to the American people
    to be efficient everywhere, to find not pockets of resistance
    but in fact to say that all recipients are created equal? They
    pay the same amount. If there is an excess charge because of
    distance meaning--and I see some of the rural delivery people
    here in the audience--it costs more to get it 30 miles out in
    the country in an unpopulated area, but it shouldn't cost more
    to get it delivered in an urban environment than it actually
    costs in that rural environment, should it?
        Ms. Brennan. As you know, we have a universal service
    obligation. In terms of efficiency, as noted, based on the
    delivery characteristics--and we try to strike a balance
    clearly in terms of the need to meet the customer ----
        Mr. Issa. Mr. Chairman, I am just going to have one very
    quick follow-up just to get the record complete if I could. If
    you implemented cluster at every point in America to the
    greatest extent physically possible and not over the objections
    but physically possible, wouldn't you save enough money to be
    in the black with the other changes that are in this
    legislation such that you could make investments and in fact be
    better prepared to compete against those who are trying to
    essentially take over work that you are better suited to do in
    principle today?
        Mr. Meadows. The gentleman's time is expired but you can
    briefly answer.
        Ms. Brennan. Thank you. I would say in addition to this
    bill, a favorable outcome of the PRC 10-year price review and
    continued aggressive management actions we can be solvent a
    decade beyond.
        Mr. Issa. Thank you, Mr. Chairman.
        Mr. Meadows. All right. I thank the gentleman. The chair
    recognizes the gentlewoman from Michigan, Mrs. Lawrence, for
    five minutes.
        Mrs. Lawrence. Thank you, Mr. Chair.
        I want to acknowledge the chairman and the Ranking Member
    Cummings and the committee for all the hard work they have
    done. I looked Chairman Chaffetz in the eye and constantly had
    the ear of Congressman Cummings that this was a very important
    responsibility of this committee, and I thank you both for your
    leadership.
        I want to ask a question about--we all know that the Postal
    Service is dependent upon the rate of the cost of mail to
    generate revenue, so under the Postal Accountability
    Enhancement Act, the Postal Regulatory Commission was required
    to establish a new system to regulate rates for market-dominant
    products. The act also mandated that the Commission review the
    rate system 10 years later to determine if the system is
    meeting the objectives established by Congress.
        The Commission began the review in 2016 and it stated, and
    I quote, ``The Commission will determine if the objectives
    taken into account the factors are being achieved by the
    current system.''
        Mr. Taub, if the Commission finds that the system is
    meeting its objective, does the review end?
        Mr. Taub. Under the law, it speaks to if the Commission
    finds that there's a need for a modification or a change to the
    system, if necessary, it would undertake a rulemaking to take
    that change. Conversely, if there is no change needed, there
    wouldn't seem to be a need for a rulemaking change. But that
    being said, we're in the midst of that review, and I certainly
    don't want to prejudge how it might come out.
        Mrs. Lawrence. Well, you are in the midst of it, but I have
    a question. Will the Commission consider service performance in
    determining whether rates are fair?
        Mr. Taub. Oh, we have to. It's one of the nine objectives.
    Objective number three is to maintain high-quality service
    standards established by law. There are nine objectives in the
    law, and they all have to be applied concurrent with the
    others. So it's a challenge. There's objectives such as
    creating predictability and stability in rates, allowing the
    Postal Service pricing flexibility. There's the mandate that we
    have to assure adequate revenues, including retained earnings
    to ensure financial stability. And there are several others,
    even including deterring terrorism and protecting the mail.
        Mrs. Lawrence. Absolutely.
        Mr. Taub. So it's a lot to balance.
        Mrs. Lawrence. I want to ask the Postmaster General
    Brennan. Talk to me about--because I am so committed to the
    postal reform, but tied to that is our customer service
    performance. So can you speak to that when it comes to the rate
    saying how does this impact your vision and policies for the
    Postal Service?
        Ms. Brennan. Yes, Congresswoman. In fact, as noted, the
    favorable outcome of the postal regulatory 10-year price review
    is very important to us. While we recognize that we're not
    going to price our way out of this and we certainly don't want
    to do anything that would further accelerate movement out of
    the mail, we recognize that we have competition in every
    product line. So we're looking for pricing flexibility. In
    fact, I would say that our position is that a price cap is
    fundamentally unsuited in a network environment.
        That said, for us, service goes beyond transit time. And as
    you and I have discussed, it's that customer experience at
    every touchpoint in the organization. And we are investing in
    additional training to ensure that we are providing the best
    possible customer experience for the American public.
        Mrs. Lawrence. Mr. Taub, I wanted to bring up recently a
    joint alliance of 16 mailers filed a motion with the Commission
    requesting changes to the review procedural schedule.
    Specifically, they asked to be allowed to provide reply
    comments. The Commission denied this motion. As you are aware,
    the decisions of the Commission would be about--would make the
    rate system more profoundly impact our billion-dollar mailing
    industry. What opportunities will exist for--to ensure that the
    industries weigh in during this review process?
        Mr. Taub. Thank you, Congresswoman. Indeed, we're in the
    midst right now of what is termed an advanced notice of
    proposed rulemaking. So we are at the very initial stages of
    looking at the system and have opened up a very long 90-day
    comment period for anyone and anyone in the American public and
    industry to provide us comments. As I mentioned, early autumn
    of this year would be the time when we're hoping to be able to
    issue our order to say is the system meeting the objectives? If
    not, if we are going to move to the next phase, that would
    begin a notice of proposed rulemaking, which in that process
    provides a very robust comment period. So we're quite a ways
    from being in a position to say with any certainty what the
    Commission will do, and if it is a change, that would be--have
    to take the form of a final rule that first would go through a
    very robust notice and comment process.
        Mrs. Lawrence. Thank you, Mr. Chair, and I yield back.
        Mr. Meadows. I thank the gentlewoman. The chair recognizes
    the gentleman from Georgia, Mr. Hice, for five minutes.
        Mr. Hice. Thank you very much, Mr. Chairman.
        Ms. Brennan, I want to go back to some other comments that
    have been made just to try to get a little broader perspective.
    One of the issues that came up specifically dealt with Amazon
    and a serious competitor that they are. And one of the areas of
    technology that they have excelled in obviously is drone
    delivery. Is there any looking into consideration of drone
    delivery with the Postal Service?
        Ms. Brennan. Currently, our engineering group is
    researching and we're probably on the peripheral of this
    advanced technology, currently just learning. And I would say,
    whether it's drone exploration or any other type of new
    technology, Congressman, we need the capital monies to be able
    to invest.
        Mr. Hice. Well, I understand the need for capital monies to
    invest, but you are looking into the possibility?
        Ms. Brennan. We're exploring and recognizing what's
    happening in the industry. Right now, we're not an early
    adopter I would categorize that, but we're certainly aware of
    what's happening in that space.
        Mr. Hice. Okay. So at the current time then the commitment
    is to continue with the vehicle delivery?
        Ms. Brennan. Correct.
        Mr. Hice. Okay. And it is astounding to me and I think
    probably most people to know you have got over 200,000 vehicles
    on the road doing some 4 million miles a day. That is a
    staggering amount. I am curious; you mentioned the commercial
    off-the-shelf right-hand-drive proposal, as well as the next-
    generation delivery vehicles. First of all, the commercial off-
    the-shelf, how many proposals did you receive?
        Ms. Brennan. Actually, they're due this week ----
        Mr. Hice. Okay.
        Ms. Brennan.--either today or tomorrow, so I don't have
    that information. I'll ----
        Mr. Hice. So ----
        Ms. Brennan.--provide it for the record.
        Mr. Hice. Do you know what you would anticipate?
        Ms. Brennan. I don't.
        Mr. Hice. Okay. When will an award be granted with that? Do
    you have any idea?
        Ms. Brennan. Well, we'll do our due diligence depending on
    how large that potential supplier pool is, but we'd want to
    move with pace given the need.
        Mr. Hice. And what would that pace look like? Are we
    talking months or ----
        Ms. Brennan. Months, yes.
        Mr. Hice. Okay. So six months-ish?
        Ms. Brennan. Yes, or less.
        Mr. Hice. Okay. Or less. Okay. And the next-generation
    delivery vehicles, with that, when will the testing begin?
        Ms. Brennan. The testing we anticipate will begin next
    fall.
        Mr. Hice. Okay. So fall of 2018?
        Ms. Brennan. Of ----
        Mr. Hice. So this coming fall?
        Ms. Brennan. 2017, yes.
        Mr. Hice. 2017, okay.
        Ms. Brennan. Yes, the supplier--excuse me. The suppliers
    have one year in which to develop the prototypes, and then we
    anticipate testing for a good probably 12 to 18 months. We'd
    like to test those vehicles in different climates, in different
    topography, and the like.
        Mr. Hice. And how will you determine the most cost-
    efficient product between the two?
        Ms. Brennan. Best value. We would look at a host of
    factors. We'd look at the lifecycle cost. We'll also look at
    certainly fuel efficiency and ensure we've got industry best
    standard with safety features and the like. And also obviously
    the efficiency for our employees to be able to maneuver safely
    in the back of the vehicle.
        Mr. Hice. Okay. How in the world are you going to fund this
    acquisition?
        Ms. Brennan. Therein lies the challenge for us ----
        Mr. Hice. Yes, it does.
        Ms. Brennan.--Congressman. We've deferred, and it's why the
    vehicles are beyond their expected lifespan, and it's why we're
    incurring these costs to keep them on the road. So the sooner
    we can get this bill passed, the sooner we can get an outcome
    from the 10-year price review, and then incumbent upon
    management to continue to do our part to control costs.
        Mr. Hice. But you are looking at an acquisition?
        Ms. Brennan. We have made no decisions on production. We're
    merely in a prototype-testing phase.
        Mr. Hice. Okay. Then what would--when the time comes and
    obviously at some point it is going to have to come. When the
    time comes, how many vehicles are you looking at?
        Ms. Brennan. We've made no commitments on numbers, but if
    you look just at the delivery fleet, it could be as high as
    140,000. But there's been no commitment made to any quantity of
    vehicles in a production environment.
        Mr. Hice. Right. I understand that there is no commitment
    because you are still waiting on the funding aspect of it all.
    Is there any consideration though of looking--just to throw an
    arbitrary number out--of purchasing maybe 10,000 vehicles at a
    time or do you feel the requirement to get 100-plus thousand?
        Ms. Brennan. No, it'll depend, first of all, on available
    capital to fund that, and we certainly want to be flexible
    enough because obviously, technology is changing and you want
    to ensure that the Postal Service would be able to benefit from
    any changes in technology. So there's no commitment in terms of
    a defined number of vehicles that we would purchase in any
    given year.
        Mr. Hice. So that is all--your last question, obviously,
    the vehicles we have two-plus decades old. At some point a
    decision has to be made. What kind of time frame do you think
    we are working under?
        Ms. Brennan. Well, in addition to the next-generation
    delivery vehicle and now the commercial off-the-shelf solution
    that we'll evaluate, we also have a bridge strategy where we
    typically replaced in the past--say, in the past two years up
    to 12,000 vehicles at a time. But again, the decision will be
    made based on available funding and certainly based on supplier
    ability to provide the vehicles for us.
        Mr. Hice. Well, thank you for your work ----
        Ms. Brennan. Thank you.
        Mr. Hice.--and thank you, Mr. Chairman.
        Mr. Meadows. I thank the gentleman. The chair recognizes
    the gentleman from Virginia, Mr. Connolly, for five minutes.
        Mr. Connolly. I thank the chair.
        Ms. Brennan, the fixed payments established in title 5 of
    the U.S. Code for prefunding of the retiree health benefit fund
    expired in 2016, but the payments in that fund are required to
    continue. What are the payments expected to be in 2017? Mr.
    Rolando in his testimony pointed out they are actually expected
    to grow.
        Ms. Brennan. Well, in addition to the normal costs and the
    amortization costs for the RHB, we also have the requirement
    for our pension obligations. So in sum total, our retirement-
    related payments exceed $10 billion.
        Mr. Connolly. Ten billion?
        Ms. Brennan. Ten billion.
        Mr. Connolly. And is that the largest source of the
    insolvency concern?
        Ms. Brennan. It is.
        Mr. Connolly. It is. And the bipartisan legislation that
    you have been involved in that we have introduced, would that
    address that issue?
        Ms. Brennan. As noted, Congressman, this bill, as proposed,
    would generate over $26 billion over a five-year period in new
    revenue and cost-savings. And then it's incumbent upon
    management to continue to drive operating efficiency and also
    we look to the chair and the PRC for a favorable outcome of the
    price review.
        Mr. Connolly. And then, let me see. You have also got on
    top of that--you have got the payments to cover the pension
    liabilities, is that correct, of your employees?
        Ms. Brennan. Yes, and I included that, sir, in the 10.3.
        Mr. Connolly. And that's $1.5 billion.
        Ms. Brennan. The--it's 1.2 for ----
        Mr. Connolly. In 2017?
        Ms. Brennan. Correct. For the CSRS it's 1.2, sir.
        Mr. Connolly. Right. And you got Federal Workers
    Compensation Fund, which I think is $1.4 billion roughly ----
        Ms. Brennan. Yes.
        Mr. Connolly.--for 2017? So total payments due on September
    30, my calculation roughly is about $8 billion. Yours is 10?
        Ms. Brennan. Due on September 30 is actually $6.7 billion.
    What I cited was the annual costs ----
        Mr. Connolly. Got it.
        Ms. Brennan.--of all retirement-related payments.
        Mr. Connolly. Got it. And, frankly, that is just a weight
    too heavy.
        Ms. Brennan. It is.
        Mr. Connolly. Okay. And so I think that really makes for
    the compelling case for why we simply can't let well enough
    alone. We have to do something or we are going to lose the
    Postal Service as we know it. Is that your assessment as well,
    as the Postmaster General?
        Ms. Brennan. It's urgent, Congressman. And as noted
    previously, absent this legislative action and the regulatory
    reform, the financial condition worsens, we continue to
    default, we put at risk current and future--or excuse me--
    current retirees' and future retirees' benefits at risk, and we
    threaten our ability to meet our universal service obligation.
        Mr. Connolly. I want to also salute you, Ms. Brennan. I
    have worked with several Postmasters General. I think you have
    really tackled this job with an open mind. You have listened to
    competing points of view. You have tried to make sure the
    stakeholders are represented. You have shown respect for the
    workforce and for even dissenting points of view. I think your
    willingness to state the case but also be flexible in trying to
    find solutions and be open to other points of view I think
    frankly helped break the logjam up here. And that was a spirit
    we were lacking, frankly, in the past.
        Ms. Brennan. Thank you, Congressman. Thank you for your
    leadership.
        Mr. Connolly. Mr. Rolando and Mr. Sackler, you are kind of
    representing stakeholders from different points of view. I
    assume you both concur something like this is necessary, and
    absent this, we risk the collapse of the Postal Service as we
    know it.
        Mr. Rolando. Yes, this is ----
        Mr. Connolly. And I don't mean to put words in your mouth
    but your support gives evidence ----
        Mr. Rolando. Well, there's no voice that helps ----
        Mr. Connolly.--to something.
        Mr. Rolando. No, I think this legislation is important.
    That's why we support it. But I also think, you know, to the
    other extreme it's important to offer a perspective on what
    Chairman Issa mentioned, that, you know, when you look in terms
    of fairness and what we're required to do versus other agencies
    and other companies, his analogy with regard to bankruptcy, I
    think every Federal agency in the government and many companies
    would also be in bankruptcy under the analogy that you offered.
    But yes, we're prepared to work and go forward with this
    legislation, very necessary.
        Mr. Connolly. Mr. Sackler?
        Mr. Sackler. Well, Mr. Connolly, we strongly support this
    bill. We think that you and the chairman and the ranking member
    and Mr. Meadows and Mr. Lynch have really come up with a
    solution that's absolutely necessary. Without this kind of
    relief lies disaster for the Postal Service and for changing it
    into something that we don't recognize.
        I would just add, though, another thing to be wary about is
    the rate-setting proceeding--rate-setting system proceeding
    that the Commission is undertaking. If the rate cap is removed
    and the liabilities are addressed through rate increases, then
    it's basically--in terms of loss of volume, you ain't seen
    nothing yet. That will guarantee that all of the obligations
    and the entire set of problems that the Postal Service has will
    land once again on your doorstep, and those obligations will
    have to be funded by the Treasury.
        The industry--sizeable pockets of the industry have never
    recovered from the Great Recession, and when you couple that
    with the kind of diversion from the mail that we are seeing--
    and first class is the most prominent example--more than a
    third of that is already gone. The commercial first class mail
    that has left the system at a slower pace than single-piece
    first class mail, those folks now have huge--a huge array of
    electronic options.
        Mr. Connolly. I would just ----
        Mr. Sackler. And if it loses too much ----
        Mr. Connolly. I would just observe--and yielding back. And
    my friend Mr. Meadows and I have worked on an entity with a
    similar dilemma, Metro. If you get in a vicious cycle where we
    cut back services and raise costs--raise prices, you lose more
    customers, requiring you to cut back on services and raise more
    costs. And that becomes a never-ending vicious cycle that can
    also yield to very undesirable outcomes. So your caution is
    well-taken. And I yield back. Thank you, Mr. Chairman.
        Mr. Meadows. I thank the gentleman. The chair recognizes a
    welcome addition back to the committee, the gentleman from
    Florida, Mr. Ross, for five minutes.
        Mr. Ross. Thank you, Chairman. Four years ago, I left this
    committee, and at that time this issue was in a great deal of
    contention. We had been working. We tried to bring things
    together. Unfortunately, we didn't have a plan together. I laud
    my colleagues on both sides of the aisle. I laud those in the
    panel for bringing together this package. Unfortunately, I feel
    that my only contribution has been the fact that I left this
    committee four years ago.
        But having said that, I think ----
        Mr. Connolly. And by the way, there has been a void.
        Mr. Ross. Thank you, Gerry.
        I do stand here very much in support of maintaining,
    sustaining, resurrecting, and otherwise making sure the Postal
    Service stays alive for a very, very long time and continues to
    serve the American public. And so I am glad to be an original
    cosponsor of this bill. I am glad that we are moving this
    along, and I am very hopeful that this will get through.
        Having said that, I do have some concerns that I still had
    some time ago. And, Ms. Brennan, you mentioned that you need to
    be able to compete and to invest in order to gain revenue. My
    question to you is are you looking at investing infrastructure
    for competitive products or for market-dominant products? In
    other words, are you looking at partial investment or first
    class mail or market-dominant products?
        Ms. Brennan. Congressman, it's both in some cases because
    some of--when I think of the processing equipment in our
    facilities that needs to be replaced, there's ----
        Mr. Ross. So parcel can be more efficient.
        Ms. Brennan. In this case I'm talking about letter
    sortation ----
        Mr. Ross. Okay.
        Ms. Brennan.--to be more efficient. They're looking at
    deploying robotics to reduce overall labor costs. That would be
    to support market-dominant products in the example that I'm
    referencing here, but also to support competitive products.
        Mr. Ross. And, Chairman Taub, my concern is is that in 2002
    I believe it was the USPS attributed 4 percent of its delivery
    cost to packages, competitive products, partial. In 2016
    package volume doubled and letter mail, first class mail
    declined by 25 percent. Yet the USPS still attributes less than
    5 percent of its delivery cost to packages. My concern is is
    are subsidizing--are we taking market-dominant products, first
    class mail, and using revenues from that to subsidize a
    competitive product?
        Mr. Taub. Under the law in our review, that's not the case.
        Mr. Ross. You can't do it under the PAEA.
        Mr. Taub. Right.
        Mr. Ross. So is it a concern of yours, though, that that--
    if we as Congress raise rates by one cent, that increased
    revenue, is that going to go to what? Is it going to go to
    subsidize a competitive product?
        Mr. Taub. No. Under the bill as written, it's on the
    market-dominant side. And right now, the one area where the
    Postal Service is receiving money that is going to the
    institutional cost of the Postal Service is on the competitive
    side. In fact, market-dominant is a big money loser. There's a
    whole class of products ----
        Mr. Ross. Right.
        Mr. Taub.--that aren't covering their costs, standard mail.
    So frankly, the cost-coverage problems are predominantly on the
    market-dominant side.
        Mr. Ross. So I understand your testimony to be that the
    parcel system, the parcel delivery system, the package delivery
    system is covering its costs?
        Mr. Taub. Under the law and the constructs of regulation in
    place, it is.
        Mr. Ross. And the transparency for that accounting is
    important to me because I don't want us to step into something
    10 years from now or five years from now when we realize that
    market conditions have changed and we are subsidizing a
    competitive product to the detriment of the U.S. Postal
    Service.
        Mr. Taub. Exactly. Congressman, if I may just take a minute
    or 30 seconds to put in a little context, before 2006, there
    was not the vibrant transparency and accountability that exists
    today. And right now, the Postal Regulatory Commission tells
    the Postal Service how to measure costs, how to report them.
    We're in the midst right now of ----
        Mr. Ross. So we are not hiding institutional costs with the
    parcels?
        Mr. Taub. Based on our review, that is not the case. We do
    have one P.S. Every five years we have to set what collectively
    competitive products must contribute to the overhead, and we're
    in the midst of that review right now. And the law says it has
    to be an appropriate share. So we're going to be looking at
    what collectively each year the Postal Service--right now ----
        Mr. Ross. I appreciate that.
        Mr. Taub.--it's 5.5 percent. Postal Service this past year
    it was about 17 percent, well above.
        Mr. Ross. All right. Thank you.
        Mr. Taub. Yes.
        Mr. Ross. Mr. Rolando, I would be remiss if you and I
    didn't have a conversation. I miss seeing you as much as I am
    sure you miss seeing me. But be that as it may, still the one
    issue remains that 80 percent of the costs of the Postal
    Service is labor. And, again, as markets continue to diversify
    and products continue to change, we are going to come back and
    look at how we handle the labor costs. Are you prepared--do you
    think that it is going to be necessary that we have to now
    start looking at collective bargaining in terms of how we deal
    with the cost of labor?
        Mr. Rolando. I didn't know you were gone but ----
        Mr. Ross. I made that much of an impact.
        Mr. Rolando. No, seriously, that's what we've been doing
    for the last 10 years. This isn't something that's been on the
    sideline while we wait for ----
        Mr. Ross. And I appreciate you ----
        Mr. Rolando.--instruction. Yes.
        Mr. Ross.--always coming to the table on that. And I know
    you ----
        Mr. Rolando. Yes.
        Mr. Ross.--defend and advocate very well for your
    Association of Letter Carriers, and I admire that. I just don't
    think we can ever remove you from the equation, and it is an
    ongoing ----
        Mr. Rolando. Right.
        Mr. Ross.--process that we are going to have to have with
    you and your association.
        Mr. Rolando. And it has been and continues to be.
        Mr. Ross. Thank you. And I yield back.
        Mr. Meadows. I thank the gentleman. The chair recognizes
    Mr. Cummings.
        Mr. Cummings. Just based on that last just 30 seconds, just
    based on Mr. Ross' last question, again, I want to reiterate I
    have not seen unions work so hard to try to come up with
    solutions anywhere than the postal unions. And we could not
    have done this--and I am sure all of our--everybody up here
    will agree--without the unions. And I really thank you because
    it is difficult because you have to--like I said, you have got
    to balance the needs of your members, there are expectations,
    and at the same time be--and it calls for phenomenal
    leadership. And I just want to take the time to thank all of
    you for what you have done. I just wanted to reiterate that.
        Mr. Meadows. The gentleman recognizes the gentleman with
    the stylish glasses from Missouri for five minutes.
        Mr. Clay. And, Mr. Chair, I know the ranking member took
    some of my time. Oh, no, they restarted. Very good.
        Mr. Meadows. The gentleman will recognize that the chairman
    is always fair with ----
        Mr. Clay. All right.
        Mr. Meadows.--its time.
        Mr. Clay. The ----
        Mr. Meadows. We are glad the gentleman from Missouri could
    get out of bed to come to the hearing.
        Mr. Clay. No, no, in seriousness, no, you know, let me say
    that the Postal Service has a complex and critical mission to
    deliver mail to every community, every business, and every
    American in the U.S. six days a week. Currently, the Postal
    Service delivers to near 154 million address, which is a
    staggering number. Ms. Brennan, obviously the Postal Service
    has to have enough personnel and a large enough network to
    serve this number of addresses, doesn't it?
        Ms. Brennan. That's correct. We need to maintain an
    extensive network that includes facilities, equipment, people,
    and the like.
        Mr. Clay. Which adds up to a substantial fixed cost,
    doesn't it?
        Ms. Brennan. Correct, Congressman.
        Mr. Clay. These fixed costs are continually growing because
    the Postal Service must deliver mail to 900,000 new addresses a
    year. Is that correct?
        Ms. Brennan. Roughly, yes, sir.
        Mr. Clay. It is difficult to cover these fixed overhead
    costs because the Postal Service's mail volume and revenues
    have declined and are expected to continue declining. Since
    2007, total mail volume has declined by 27 percent, and the
    volume of first class mail has declined by 35 percent. Ms.
    Brennan, first class mail provides the greatest amount of
    revenue to help cover the Postal Service's overhead cost. Is
    that correct?
        Ms. Brennan. That's correct. It defines our requirements
    and pays the bills, and it's why we've taken the actions we
    have over the past few years to scale to demand based on that
    decline.
        Mr. Clay. Sure. And the Postal Service's package business
    has grown significantly, but the volume of package delivery has
    not been enough to make for lost first class mail volume, is
    that correct?
        Ms. Brennan. That's correct. Package volume is roughly 3
    percent of our total volume.
        Mr. Clay. Now, how much an increase in package volume would
    you need to make up for lost first class mail volume? Any idea?
        Ms. Brennan. Volume increase, a percent would be roughly
    250 percent.
        Mr. Clay. Okay. And, Ms. Brennan and Ms. Rectanus, you have
    both previously testified that the Postal Service's untenable
    fiscal situation is tied to a flaw in the agency's business
    model. On one side the law limit's the Postal Service's ability
    to increase its revenues because it cannot raise postage rates
    above the CPI base price cap, and the Postal Service's
    authority to pursue new products and services is severely
    limited. Ms. Rectanus, do I have that correct?
        Ms. Rectanus. Again, these are legal current requirements.
    I don't think GAO has classified them as flaws, but yes, we
    have said that those are currently legal requirements that
    they--either they must meet or affect their ability to generate
    revenue.
        Mr. Clay. And on the other side, the Postal Service is
    limited in its ability to cut cost a significant portion of
    which are fixed costs relating to the network pensions and
    healthcare benefits, is that correct?
        Ms. Rectanus. That's correct. The--there are legal
    requirements that they make these pension payments, and as
    we've talked about before, there are some legislative
    prohibitions that affect their ability to downsize or right-
    size or make other changes that would help reduce some of their
    expenses.
        Mr. Clay. So we are in line for another postal rate
    increase, is that correct? Or maybe someone--Ms. Brennan, can
    you answer that? We are in line ----
        Ms. Brennan. We just recently, Congressman, raised prices
    on our market-dominant within that strict price cap of 8/10 of
    a percent. We also have the 10-year price review before the
    Commission currently.
        Mr. Clay. And how much of the shortfall would that help
    make up or does it just keep us above water?
        Ms. Brennan. Well, it's part of the path to wellness if you
    will. It's--this legislation that will generate over $26
    billion over five years, it's the PRC price review and it's
    continued management action.
        Mr. Clay. And we should not be surprised by the Postal
    Service's financial situation considering that the private
    sector businesses don't have these restrictions, which means
    that I think this committee is on the right path by reviewing
    this legislation and hopefully moving it out.
        Mr. Chairman, I see that my limited time has expired and I
    will yield back whatever has left.
        Mr. Meadows. The gentleman has gone over an unlimited
    amount of allocation.
        And so the chair recognizes himself for five minutes for a
    series of questions.
        I want to thank each of you. Mr. Rolando, I want to come to
    you. Your statement was just unbelievable. You said all four
    unions support this bill with no changes. Is that correct? Is
    that correct? With no changes you support this bill, all four
    unions?
        Mr. Rolando. Yes, all four unions support this bill. I
    think we mentioned two tweaks in the written testimony that we
    thought would be helpful.
        Mr. Meadows. Yes, but if those two tweaks don't get done,
    this is better than ----
        Mr. Rolando. Totally support this bill coming out of
    committee, absolutely.
        Mr. Meadows. All right, Mr. Rolando. Thank you for your
    willingness to put it forth. I know that that comes at some
    cost to some of your members. You know, they are not all
    unified in supporting necessarily this bipartisan bill, so I
    recognize that.
        Mr. Rolando. No, we believe we've got the members covered.
        Mr. Meadows. Okay. Well, very good. So let me come back a
    little bit. I am willing to invest the political capital. We
    have a number of stakeholders that are here as we are looking
    to truly save the Postal Service as we know it. At the same
    time, what I don't want is a hearing to happen 10 years from
    now where the GAO comes in and says shortly after the 2006 bill
    was passed, we started on a path that was fiscally not
    responsible. Of course, your opening testimony said from 2007
    on. So it means the minute that we passed the bill we have had
    an issue since we passed that 2006 bill. Is that correct?
        Ms. Rectanus. I--again, I think when the bill was passed,
    there was a sense that this was a forward-thinking foresight-
    focused effort. I think the Postal Service itself recognized
    that these were a good idea, don't know if anyone anticipated
    the recession that would come after and the inability to ----
        Mr. Meadows. Yes, but 2007, the recession wasn't here at
    2007. Your testimony said 2007. We were still blowing and going
    at that particular ----
        Ms. Rectanus. That's true.
        Mr. Meadows.--time.
        Ms. Rectanus. That's true. In 2007 is when the Postal
    Service first started recording those losses.
        Mr. Meadows. Okay. So, Ms. Brennan, I want to come to you
    because part of what you have talked about is, well, this helps
    the balance sheet, but you are leaving yourself an out that
    says that if Mr. Taub doesn't do what he believes--what you
    believe is appropriate there that you could still potentially
    have problems. So what do you believe Mr. Taub needs to do?
        Ms. Brennan. Mr. Chairman, my point there was that having a
    strict price cap on products that generate roughly 74 percent
    of your revenue and having a universal service requirement ----
        Mr. Meadows. But you are making money on those products. I
    mean, according to your balance sheet, you are making money so,
    I mean, why would you need an increase?
        Ms. Brennan. Well, my point is that a strict price cap,
    again, where you've got competition in every product line,
    including in market-dominant, that ----
        Mr. Meadows. Well, the only competition you really have in
    market-dominant is the internet. And when we really look at--I
    mean, let's be honest about it. Competition the way that you
    are defining it is very different on packages than it is on
    your market-dominant product, wouldn't you agree with that?
        Ms. Brennan. Well, if you look at electronic diversion,
    whether it's bill payment, and then when you look at our
    standard or our advertising mail, which is susceptible to
    digital advertising, which is ----
        Mr. Meadows. Right, the internet.
        Ms. Brennan.--certainly--exactly--but has certainly
    increased. That puts pressure on the organization. But I'm not
    saying ----
        Mr. Meadows. So what would you like to see from Mr. Taub,
    getting back to my question?
        Ms. Brennan. I'd like there to be no cap and to give postal
    leadership the opportunity to set price.
        Mr. Meadows. All right. So let's go with no cap and your
    ability to set the price as you see fit. So let's go to the
    elephant in the room that we continue to hear about, and that
    is service standards. Senator Heitkamp has spent a number of
    calls--I have committed to her that we will address service
    standards. So a two-day package, how long does it take for a
    two-day package to get there before they get a refund under the
    Postal Service?
        Ms. Brennan. The only refund would be if it's a priority
    mail express piece.
        Mr. Meadows. So a two-day package, when you are advertising
    a two-day package, if it takes six days to get there, do they
    get their money back?
        Ms. Brennan. No. It's a service standard, not a guarantee.
    But clearly ----
        Mr. Meadows. But do you make that clear?
        Ms. Brennan. Yes.
        Mr. Meadows. Okay. Because when we go and we get a two-day
    package, how many days do you think we expect it to take to get
    there?
        Ms. Brennan. Two days.
        Mr. Meadows. Exactly. So when it doesn't get there in two
    days, who do we blame?
        Ms. Brennan. Well, it's a failure on our part. There's a
    process failure that we need to address.
        Mr. Meadows. All right. So when you don't do that, when
    Senator Heitkamp gets complaints or I get complaints, where
    does the responsibility or the penalties lie? I mean, how do we
    fix that?
        Ms. Brennan. Well, I think we've demonstrated that we've
    addressed systemic issues, but I would also ----
        Mr. Meadows. Well, not according to Ms. Heitkamp and not
    according to me you haven't address the systemic issues. You
    may have addressed some, but from a service standard, we need
    to make sure that all these stakeholders--because I just got
    pulled into five newspaper owners just the other day because
    they knew the hearing was coming. And they said it doesn't do
    them any good when a newspaper is supposed to get there on a
    Thursday and it has got coupons for a Thursday, Friday and it
    gets there on Monday or it gets there, you know, two weeks
    later. So how do we make sure that service standards get pulled
    into this?
        Ms. Brennan. Well, I would say, first of all, Mr. Chairman,
    obviously service is foundational. It's key to growth for us.
    And we address any service issue that is experienced by a
    customer. In terms of how you address it, I think we have had
    some conversation regarding maintaining the existing service
    standards as-is.
        Mr. Meadows. But I have talked to some of your union
    employees, you know, going back to Mr. Rolando, and they say
    that the way that you measure that sometimes misrepresents--it
    allows you to take your best service standards with first class
    mail and yet some of the others--is that not accurate?
        Ms. Brennan. We measure every class of mail.
        Mr. Meadows. All right. So which one--are you meeting
    service standards across the board?
        Ms. Brennan. In terms of last fiscal year we made our
    composite service standard for ----
        Mr. Meadows. You just changed the word. You said you had
    them individually and then you just used the word composite. So
    which of those individually did you meet or not meet?
        Ms. Brennan. We met our standard service performance target
    for last year. We met our standing ----
        Mr. Meadows. On each one of those categories?
        Ms. Brennan. No, our composite.
        Mr. Meadows. That is what I am asking. You are giving me an
    answer to a question I didn't ask. So in these individual
    buckets, which ones did you meet and which ones did you not
    meet?
        Ms. Brennan. In terms of how we measure performance, last
    year, we did not meet the service standard in our first class
    and our priority or our standard. We showed marked improvement
    compared to the prior year. We established ----
        Mr. Meadows. So three of how many buckets?
        Ms. Brennan. We established the service goals with the
    Board of Governors and we established ----
        Mr. Meadows. Well, there is no Board of Governors anymore.
        Ms. Brennan. There was at the time ----
        Mr. Meadows. There was a Board of Governor.
        Ms. Brennan.--Mr. Chairman. There was an independent
    governor, yes, at the time. And we established stretch ----
        Mr. Meadows. So ----
        Ms. Brennan.--targets ----
        Mr. Meadows. So I am running out of time. So out of--how
    many buckets do you have for service standards? Because you
    just said you didn't meet them ----
        Ms. Brennan. In those three ----
        Mr. Meadows.--in three of them.
        Ms. Brennan.--we did not. We met our scanning target, we
    met our customer insight target, and we met our parcel select
    target.
        Mr. Meadows. All right.
        Ms. Brennan. Three of the six.
        Mr. Meadows. And so how can you say as a composite that you
    are meeting the service standards? If you are losing 50 percent
    of the time, how are you meeting the standard?
        Ms. Brennan. The example I was giving you on standard or
    marketing or advertising mail was we measure letter volume, we
    measure flat volume, we measure the volume, whether it's
    measured at a sectional center facility or upstream at a
    network distribution center. We provide that level of
    granularity to our customers and to the industry.
        Mr. Meadows. All right. I am way over time so I am going to
    recognize the gentlewoman from Illinois, Ms. Kelly.
        Ms. Kelly. Thank you, Mr. Chair. And welcome to the
    witnesses.
        The reform proposal approved by the committee during the
    last Congress includes a provision championed by Ranking Member
    Cummings to create a chief innovation officer position to lead
    the development of innovative postal and non-postal products
    and services. Ms. Brennan and Mr. Rolando, there is some
    agreement among some of the major stakeholders about allowing
    the post office to partner with State, local, and tribal
    governments. Isn't that true?
        Ms. Brennan. That's correct.
        Mr. Rolando. Yes, it is. I believe Chairman Chaffetz has
    initiated some of those efforts within his own State.
        Ms. Kelly. Well, I was going to ask for an update beside
    that, any update about it?
        Ms. Brennan. In terms of current efforts?
        Ms. Kelly. Yes.
        Ms. Brennan. Within the constraints of the law, one example
    would be working with the Census Bureau in Arizona to on-board
    new employees utilizing in-person proofing at our retail units.
        Ms. Kelly. Okay. Obviously, to be financially viable, the
    Postal Service must reduce cost and increase revenue, as we
    have been talking about, and you have taken significant steps
    to reduce cost over the last several years, which has resulted
    in about 14 billion in annual servings. But there are limits to
    how much you can cut cost and still meet the universal delivery
    mandate and preserve an adequate level of service. So let's
    talk about the other side of the equation, increase revenues.
    One option is for the Postal Service to expand the products and
    services it offers. Mr.--that was a mouthful. Ms. Rectanus and
    Mr. Taub, do you agree that in order to be financially viable
    in the long term, it is important for Postal Service to develop
    innovative products and services?
        Ms. Rectanus. The GAO's position is that there has to be a
    delicate balance between revenue generation and cost-cutting.
    In that respect, we do support the Postal Service's efforts to
    generate revenue in--consistent with the role that it plays.
    For those areas where it could make appropriate money, we would
    support that. We would not support areas where it would
    unfairly benefit because of its monopoly in infrastructure
    status. And given its financial situation, we also would not
    support anything that's inherently risky.
        Mr. Taub. I certainly agree. The Postal Service under
    current law is not only authorized but encouraged to undertake
    as many dynamic and interesting and innovative postal products.
    What they are barred from under current law is getting into
    non-postal products. But certainly when it comes to postal
    products and services, the sky is the limit. And as I said, I
    know the Postmaster General and her team are focused on, as
    they call it, innovating the core, which is what it should be
    about.
        Ms. Kelly. And do you guys have anything that you would
    recommend?
        Mr. Taub. Attached to my testimony is a long list of
    recommendations that we just sent to the President and Congress
    recently under a mandate of law. Some of that was along the
    lines of, to your question, allowing a little bit more
    flexibility on experimental product offerings, whether it's
    revenue limits or length of time or the statutory requirements
    that they can undertake. When it came to non-postal services
    and products, the Commission recommended that we have a very
    mature regulatory system in place for reviewing and approving
    postal products and services. So that could work well as a
    protection for the public interest, shall we say, from the
    unfair competition aspect if the Postal Service were allowed to
    broaden the aperture and get into non-postal products.
        Ms. Kelly. And, Ms. Brennan, can you tell us about some of
    the efforts that the post office has undertaken that the Postal
    Service can pursue?
        Ms. Brennan. Currently, in terms of innovation one example
    I would provide is informed delivery where we're testing, the
    consumer would receive on their smartphone a digital image of
    the mailbox content that will be delivered today and also
    provide a click-to-shop option there.
        Ms. Kelly. Okay. And how is your financial situation
    preventing you from being innovative?
        Ms. Brennan. I think the overall financial condition of the
    Postal Service informs every decision we make. So clearly, we
    have to prioritize and remain focused on core business.
        Ms. Kelly. Okay. I can't compete with Representative Lynch
    with his 17 family members in the post office, but I have five.
        Ms. Brennan. Five.
        Ms. Kelly. And so I have to be able to go home, too. But I
    do believe that to ensure the Postal Service's long-time
    viability that we in Congress have to do everything we can to
    provide the agency more authority and flexibility to find ways
    to cut costs and increase revenue.
        Thank you. I yield back.
        Mr. Meadows. The gentlewoman has access to popcorn that the
    gentleman from Missouri would never have access to that makes
    her a cut above, I assure you.
        So the gentleman recognizes the gentleman from Wisconsin,
    Mr. Grothman, for five minutes.
        Mr. Grothman. Yes, Ms. Brennan, you say that the current
    rate cap is completely unsuitable, which I understand. But
    aren't you concerned that significantly upping the rates would
    result in further decreasing the mail volumes?
        Ms. Brennan. Congressman, absolutely. We do not want to do
    anything that would further accelerate moving out of the mail.
    I think if you look at the history prior to the PAEA, the
    Postal Service on balance filed price increases that were
    relatively modest.
        Mr. Grothman. Okay. Mr. Sackler, industry is the biggest
    user of the mail and is the largest contributor to volume.
    Maybe we call that junk mail sometimes. I don't know. Maybe you
    don't call it that. What effect would an increase have on the
    declining volume, the industry ----
        Mr. Sackler. It would have a major impact, Mr. Grothman not
    just in the direct mail promotional kinds of categories but
    further diversion into electronic alternatives and the very
    profitable first class mail, just to point out that mail is
    marked up more than 330 percent. So it's invaluable to the
    postal system. And If the rates go up in a very significant way
    from here, the outflow, which has been starting to plateau a
    little bit, would reaccelerate and probably in a great extent.
        Mr. Grothman. Okay. H.R. 756 proposed a 2.1 percent
    increase, is that right? Do you think that is going to have an
    effect?
        Mr. Sackler. It may have an effect on some. There are some
    in the industry, as you may know and as Chairman Meadows may
    know, that oppose even that amount of an increase as
    unaffordable. The large majority of the industry, however, is
    willing to accept the risk of adding 2.15 percent onto the rate
    base in exchange for getting this bill, which, on balance,
    would be hugely helpful through the Congress.
        Mr. Grothman. Okay. Maybe you have already covered it, but
    when you have projections the out years, are you projecting
    that to cause a decrease in mail volume?
        Mr. Sackler. I think that with the establishment of so much
    trust and reliance on electronic media, there is little that
    can be done to reverse some of the outflow of mail. But if you
    add a huge increase on top of that, it's going to accelerate it
    dramatically. That's the worry of the industry.
        Mr. Grothman. Okay. You consider the 2.1 percent not a
    significant increase? Is that what you are telling us?
        Mr. Sackler. It is significant, but it is one that, to put
    it colloquially, we're all holding our noses and accepting in
    the spirit of compromise in order to get this bill done.
        Mr. Grothman. Okay. Ms. Brennan, one other thing. Do you
    think you can do anything to stop the decline in mail volumes?
        Ms. Brennan. Congressman, in terms of the first class mail,
    I think the best we can do is slow the diversion of first class
    mail. I think the efforts with the industry in terms of giving
    print a digital reflection will help us stabilize the marketing
    mail or the advertising mail. And regarding the package growth,
    given the competition, particularly in the last mile, our
    forecast is that the rate of growth will slow. So we'll face
    these upward pressures, and, as I noted earlier, we'll continue
    to make responsible decisions and scale to the demand.
        Mr. Grothman. Is there anything else that you would like to
    have if this didn't have to be a compromise bill, you would
    have your dream bill?
        Ms. Brennan. I don't want to alienate the individuals to
    the far left. However, I would say we initially had proposed
    restoring the full exigent price increase as opposed to the
    compromise of 2.1, but we certainly recognize this is a
    compromise bill and we value the industry. They're our business
    partners and we want to keep them at the table and in the mail.
        Mr. Grothman. Okay. I yield the remainder of my time.
        Mr. Meadows. I thank the gentleman. The chair recognizes
    the gentlewoman from the District of Columbia, Ms. Eleanor
    Holmes Norton.
        Ms. Norton. I thank you, Mr. Chairman, for this early
    hearing on the Postal Service. After all, we got through a
    bipartisan postal bill last Congress that had to go to another
    committee, so it didn't come out of the Congress. But when you
    hear Mr. Rolando say that all four unions support this bill and
    you had Democrats and Republicans supporting this bill, I am
    very hopeful that this time we can get this bill done.
        I have a question about an age-old issue, the pension
    issue. And in the last bill we required the Postal Service to
    use demographic assumptions of the Postal Service, specific to
    the Postal Service, to calculate pension liabilities. For the
    record, Ms. Brennan, what is there about the demographics of
    the postal workforce as compared with the Federal Government
    workforce that apparently lowers the costs for the Postal
    Service's pension.
        Ms. Brennan. Ma'am, there are a couple issues, one in terms
    of demographics. The age of the workforce, the turnover rate,
    the economic assumptions go to the salary growth, given that
    we're largely blue-collar, 90 percent of our employees'
    salaries are negotiated through collective bargaining
    agreements. And this provision in and of itself will generate
    roughly $4 billion over five years for the Postal Service.
        Ms. Norton. So the factors that differ or separate you out
    from the Federal Government workforce are collective
    bargaining?
        Ms. Brennan. No, ma'am. The--specifically, the demographics
    are the age of the workforce ----
        Ms. Norton. The age of the workforce is younger?
        Ms. Brennan. Yes, and particularly the noncareer employees,
    we have over 135,000 flexible workforce. Also, the turnover
    rate and then the economic assumptions I stated were based on
    the fact that the majority of our employees' salaries are
    determined through collective bargaining agreements ----
        Ms. Norton. The turnover rate, is it greater or less than
    the Federal Government turnover ----
        Ms. Brennan. In terms of our noncareer employees, it's
    greater.
        Ms. Norton. Yes.
        Ms. Brennan. In terms of our career employees, I believe
    it's better. It's less than 1 percent. But I'd have to check
    those numbers, ma'am.
        Ms. Norton. Could I ask Ms. Rectanus, do you agree with
    this assumption that we have been making in the last bills--I
    think it is in this bill as well--that specific demographics of
    the Postal Service should be used rather than demographics from
    the Federal workforce?
        Ms. Rectanus. We do support that under the premise that if
    you're going to be identifying surpluses and liabilities, you
    want to use the most accurate data you have. So we do support
    using postal-specific assumptions.
        Ms. Norton. Here is the rub. And perhaps one of you could
    explain this to me. The CBO has also estimated but used the
    OPM, the Office of Personnel Management, but it is estimated
    that using postal-specific demographic data to calculate
    contributions owed by the Postal Service would result in a huge
    amount, $6 billion, an increase in the contributions from all
    other Federal agencies. Now, the CBO could not explain that.
    Since you would assume that, although the payments go into one
    fund, changing the assumptions on one side would result in
    equal and opposite change on the other side. So do any of you
    have an explanation as CBO itself did not on why the
    contributions owed yield a $6 billion increase in contributions
    that all other Federal agencies would be required to make?
        Ms. Brennan. I would just comment, Delegate Norton, that
    we're asking OPM for a redetermination of that value.
        Ms. Norton. Thank you. Considering that we--I am sure the
    chairman would like to move this bill, do you expect that to
    come in the near future?
        Ms. Brennan. I can't answer that, ma'am.
        Ms. Norton. Mr. Chairman, I think the committee ought to
    ask, lest we find that this--rebellion from the Federal
    workforce because this is an unexplained difference between the
    overall Federal workforce and the postal workforce if we could
    inquire and perhaps ask the CBO to further explain its $6
    billion increase finding.
        Mr. Meadows. Well, the only thing that the chair recognizes
    is a CBO analysis is the only entity that makes a weatherman's
    forecast look good. And so with that, I will be glad to ask for
    clarification from CBO.
        Ms. Norton. Thank you, Mr. Chairman.
        Mr. Meadows. I thank each of you for your input, for your
    testimony here today. I want to thank the stakeholders. I have
    learned more about postal reform than I have ever cared to know
    based on your input, but it has been very valuable input.
        As we look at this, one just remaining item, Ms. Brennan, I
    am going to ask you. And I believe that in talking to your
    Deputy Postmaster General that I have this commitment, but I
    want it for the record. We need a real transparency as it
    relates to your financials and how we can look at this because
    there seems to be an indication that that is totally in the
    purview of the PRC and bypassing Congress. I am certain that
    that was not the message that was meant to be sent, but it was
    the message that was received. And so my concern is is when we
    look at that, you are asking for Congress to act to provide
    relief. I can't make that informed decision without clear
    financials. And so do I have your commitment to make sure you
    get to this committee the type of financials with transparency
    that helps us make an informed decision?
        Ms. Brennan. Yes, any information you need, Mr. Chairman.
    And I suspect you're talking specifically about the costing
    methodologies and cost attribution?
        Mr. Meadows. Well, as we look at that, yes.
        Ms. Brennan. Yes.
        Mr. Meadows. I am a business guy and ----
        Ms. Brennan. Understood.
        Mr. Meadows.--when you look at, for example, we have got
    $2.5 billion increase in institutional cost when we have the
    first class mail volume going down. So I need to know where the
    2.5 increase in institutional costs went since obviously it
    can't be attributed to those areas. And I am not asking you to
    answer that here today unless you want ----
        Ms. Brennan. However, I may.
        Mr. Meadows. If you want to get into it--I don't think you
    want to go there today. Why don't we just leave it for the
    record ----
        Ms. Brennan. That's fair. That's fair.
        Mr. Meadows.--because as we look at institutional costs, I
    have a great concern that we mandated it at a certain
    percentage in 2006. And yet when we have your revenue, about 25
    percent of it now comes from packages, and that mandated
    compliance has not changed. And so that is for a more in-depth
    discussion that we won't hold in a public forum. But as long as
    I have your commitment ----
        Ms. Brennan. You have my commitment, whatever information
    you need.
        Mr. Meadows. All right.
        Ms. Brennan. Absolutely.
        Mr. Meadows. The other point I would ask you is to get with
    Senator Heitkamp on service standards.
        Ms. Brennan. Will do.
        Mr. Meadows. If she is not happy, I am not happy, and I am
    saying that from the other side of the aisle, okay? And so we
    need to make sure that service standards are addressed.
        And so if there is no further business before this
    committee, the committee stands adjourned.
        [Whereupon, at 12:19 p.m., the committee was adjourned.]

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