[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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              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:]
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    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:]
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    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:]
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    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:]
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    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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