[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
__________
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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.]
APPENDIX
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