[Senate Report 111-203]
[From the U.S. Government Publishing Office]


111th Congress                                                   Report
  2d Session                  SENATE                            111-203                                                                _______________________________________________________________________

                                                       Calendar No. 424
 
   POSTAL SERVICE RETIREE HEALTH BENEFITS FUNDING REFORM ACT OF 2009 

                               __________

                              R E P O R T

                                 of the

                   COMMITTEE ON HOMELAND SECURITY AND

                          GOVERNMENTAL AFFAIRS

                          UNITED STATES SENATE

                              to accompany

                                S. 1507

                             together with

                            ADDITIONAL VIEWS

 TO AMEND CHAPTER 89 OF TITLE 5, UNITED STATES CODE, TO REFORM POSTAL 
    SERVICE RETIREE HEALTH BENEFITS FUNDING, AND FOR OTHER PURPOSES

              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                  June 9, 2010.--Ordered to be printed

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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii              TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware           SCOTT P. BROWN, Massachusetts
MARK L. PRYOR, Arkansas              JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana          GEORGE V. VOINOVICH, Ohio
CLAIRE McCASKILL, Missouri           JOHN ENSIGN, Nevada
JON TESTER, Montana                  LINDSEY GRAHAM, South Carolina
ROLAND W. BURRIS, Illinois
EDWARD E. KAUFMAN, Delaware

                  Michael L. Alexander, Staff Director
                     Kevin J. Landy, Chief Counsel
                        Kenya N. Wiley, Counsel
 John P. Kilvington, Staff Director, Subcommittee on Federal Financial 
Management, Government Information, Federal Services, and International 
                                Security
     Brandon L. Milhorn, Minority Staff Director and Chief Counsel
                   Jennifer L. Tarr, Minority Counsel
                  Trina Driessnack Tyrer, Chief Clerk











                            C O N T E N T S

                                                                   Page
  I. Purpose and Summary..............................................1
 II. Background and Need for the Legislation..........................2
III. Legislative History..............................................4
 IV. Section-by-Section Analysis......................................5
  V. Evaluation of Regulatory Impact..................................6
 VI. Congressional Budget Office Estimate.............................6
VII. Changes in Existing Law Made by the Bill, as Reported...........14
VIII.Additional Views................................................17












                                                       Calendar No. 424
111th Congress                                                   Report
  2d Session                   SENATE                           111-203
                                                      
======================================================================

   POSTAL SERVICE RETIREE HEALTH BENEFITS FUNDING REFORM ACT OF 2009

                                _______
                                

                  June 9, 2010.--Ordered to be printed

                                _______
                                

Mr. Lieberman, from the Committee on Homeland Security and Governmental 
                    Affairs, submitted the following

                              R E P O R T

                             together with

                            ADDITIONAL VIEWS

                         [To accompany S. 1507]

    The Committee on Homeland Security and Governmental 
Affairs, to which was referred the bill (S. 1507) to amend 
chapter 89 of title 5, United States Code, to reform Postal 
Service retiree health benefits funding, and for other 
purposes, having considered the same, reports favorably thereon 
with amendments and recommends that the bill do pass.

                         I. Purpose and Summary

    Over the last several years, the United States Postal 
Service (Postal Service) has faced a significant financial 
crisis due to its declining mail volume. S. 1507 seeks to help 
alleviate that crisis by reducing the amount of money the 
Postal Service is required to set aside now for retiree health 
benefits it will not have to actually confer until a number of 
years in the future.
    In fiscal year 2008, the Postal Service handled 9.5 billion 
fewer pieces of mail--4.5 percent less by total volume--than it 
did the fiscal year before, leading to a net loss of $2.8 
billion. In fiscal year 2009, the Postal Service's mail volume 
decreased by an additional 25.6 billion pieces, and it posted 
an annual net loss of approximately $3.8 billion.\1\ The Postal 
Service would have lost even more in fiscal year 2009--$7.8 
billion--had Congress not given the Postal Service permission 
to reduce its payments to the Postal Service Retiree Health 
Benefits Fund (the Fund) by $4 billion for the fiscal year.\2\
---------------------------------------------------------------------------
    \1\The Challenge to Deliver: Creating the 21st Century Postal 
Service: U.S. Postal Service Annual Report (Fiscal Year 2009).
    \2\Id.
---------------------------------------------------------------------------
    The Fund was established in 2006 by the Postal 
Accountability and Enhancement Act (P.L. 109-435) to hold money 
Congress required the Postal Service to put aside to pay for 
the health benefits of future Postal Service retirees. Required 
annual payments into the Fund range from $5.4 billion to $5.8 
billion from fiscal years 2006 through 2016.\3\ The purpose of 
S. 1507 is to adjust the Postal Service's payment schedule into 
the Fund to provide it some financial relief in the next 
several years.
---------------------------------------------------------------------------
    \3\P.L. 109-435.
---------------------------------------------------------------------------

              II. Background and Need for the Legislation

    As a result of a Government Accountability Office (GAO) 
inquiry in 2001,\4\ the Office of Personnel Management (OPM) 
reviewed the Postal Service's liability and payments for the 
pensions of Postal Service employees covered by the Civil 
Service Retirement System (CSRS), the retirement system for 
federal employees who started work prior to 1984. OPM 
discovered that if the Postal Service continued making payments 
according to CSRS's statutorily mandated schedule, the Postal 
Service would end up over-funding its CSRS obligation by 
between $71 billion and $103 billion.
---------------------------------------------------------------------------
    \4\United States Postal Service: Information on Retirement Plans, 
GAO-02-170 (Washington, DC: December 2001).
---------------------------------------------------------------------------
    In response to OPM's finding, Congress passed and President 
Bush signed P.L. 108-18 in April 2003. That bill eliminated the 
Postal Service's annual payment into the CSRS trust fund and 
required the Postal Service to pay off what was believed to be 
its remaining $5 billion CSRS pension liability over a period 
of 40 years.
    P.L. 108-18, however, did not give the Postal Service 
unfettered access to the savings generated by this change. 
Rather, P.L. 108-18 directed the Postal Service to use the 
difference between the old statutory CSRS payments and the new 
payments made under the 40-year payment schedule in fiscal 
years 2003 and 2004 to pay down its debt and maintain rate 
stability. It then required the Postal Service to deposit 
savings generated after fiscal year 2004 into an escrow 
account. The 2003 law left for future legislation to decide the 
ultimate use of the funds the escrow account contained.
    P.L. 108-18 also required the Postal Service to report to 
Congress on how the Postal Service proposed to use the savings 
in 2006 and beyond. The law required the Postal Service, in 
preparing its proposal, to consider whether, and to what 
extent, future savings should be used to address debt 
repayment; prefunding of post-retirement health care benefits 
for current and former postal employees; productivity and cost-
saving capital investments; delaying or moderating increases in 
postal rates; and any other matter.
    In September 2003, the Postal Service provided two options 
to Congress for how the escrow funds should be used. Both 
options contemplated that the Postal Service would prefund 
health benefits for future retirees.\5\ At the time Congress 
was considering these proposals, the amount of the Postal 
Service's unfunded obligations for the health benefits of its 
future retirees was approximately $50 billion.
---------------------------------------------------------------------------
    \5\Postal Service Proposal: Use of Savings For Fiscal years After 
2005, P.L. 108-18. September 30, 2003. See also Postal Pension Funding 
Reform: Issues Related to the Postal Service's Proposed Use of Pension 
Savings, GAO-04-238, pages 3-4 (Washington, DC: November 2003); CRS 
Report for Congress: Pension Issues Cloud Postal Reform Debate, Order 
Code RL32346, page 6 (Washington, DC: January 2006).
---------------------------------------------------------------------------
    The following Congress revisited the issue in the Postal 
Accountability and Enhancement Act (P.L. 109-435). In response 
to the Postal Service's recommendations, the 2006 law 
established the Fund, which will be used to pay the health 
benefits of future postal retirees. Following an initial 10-
year period of annual payments ranging from $5.4 billion to 
$5.8 billion to reduce the portion of benefits owed to future 
retirees that is currently unfunded, any remaining liability in 
the fund will be amortized over a 40-year period. The payments, 
deposited in the Fund, are in addition to the payments the 
Postal Service makes throughout the year to OPM to cover its 
share of current retirees' health care premiums, which totaled 
about $2 billion in fiscal year 2009.
    The Postal Service indicated to Congress in 2006 that it 
would be able to make the annual payments required under the 
2006 law and that passage of P.L 109-435 would put the Postal 
Service on ``firm financial footing for the future.''\6\ The 
Postal Service's Inspector General, however, recently called 
the payment schedule included in P.L. 109-435 ``unusual'' in 
that the annual payments over the first ten years are not based 
on an amortization of the Postal Service's unfunded future 
retiree health liabilities or the amount in the Fund.\7\
---------------------------------------------------------------------------
    \6\New Postal Law: A Message from the Postmaster General, PCC 
Insider, December 20, 2006.
    \7\U.S. Postal Service, Office of Inspector General, Financial 
Management Advisory Report, ESS-MA-09-001, p. 17, July 22, 2009.
---------------------------------------------------------------------------
    Facing potentially significant financial losses for fiscal 
year 2009 and wishing to access the funds it has been required 
to set aside in the Fund, the Postal Service proposed 
legislation that would have permitted payments to OPM for 
health benefits due to its current retirees to come from the 
Fund rather than as a direct payment from the Postal Service. 
Due to significant mail volume decline, which the Postal 
Service attributes to the length and severity of the recession 
and the continued electronic diversion of what in the past has 
gone through the mail, the level of relief that would be 
provided by the enactment of this proposal may no longer be 
enough to get the Postal Service through the next few fiscal 
years.
    At a hearing last year before the Committee's Subcommittee 
on Federal Financial Management, Government Information, 
Federal Services, and International Security, Postmaster 
General John Potter highlighted the severity of the Postal 
Service's financial problems.\8\ He pointed out that the 
economic slowdown that the country as a whole has faced has 
accelerated the diversion of hard-copy mail to other forms of 
communication.\9\ He projected a year-end loss of ``at least'' 
$7 billion. He also said that if the Postal Service were to 
make the full $5.4 billion retiree health pre-funding payment 
on September 30, 2009, as scheduled, the Postal Service would 
likely run out of cash. As a result, he indicated that the 
Postal Service would not be able to make that payment.\10\ On 
June 18, Postmaster General John Potter and Postal Service 
Board of Governors Chairman Carolyn Gallagher sent a letter to 
Congress stating that they had informed the Office of 
Management and Budget, the Treasury Department, the 
Congressional leadership and members of this Committee and the 
House Oversight and Government Reform Committee that the Postal 
Service did not plan to make the full payment.
---------------------------------------------------------------------------
    \8\Statement of John E. Potter, Postmaster General, U.S. Postal 
Service, (hereinafter ``Potter Statement''), for the Hearing on ``The 
U.S. Postal Service in Crisis'' Senate Homeland Security and 
Governmental Affairs Subcommittee on Federal Financial Management, 
Government Information, Federal Services, and International Security: 
August 6, 2009 (hereinafter ``August 6, 2009 Hearing'').
    \9\See Potter Statement at August 6, 2009 Hearing.
    \10\See Id.
---------------------------------------------------------------------------
    The fiscal year 2010 Legislative Branch Appropriations Act, 
signed into law by President Obama on September 30, 2009, 
contained language reducing the Postal Service's fiscal year 
2009 retiree health pre-funding payment from $5.4 billion to 
$1.4 billion, an amount the Postal Service indicated it could 
afford to pay.
    S. 1507 is intended to address these ongoing problems on a 
longer term basis. It would reduce the size of the Postal 
Service's retiree health pre-funding payments in fiscal years 
2010, 2011 and 2012. The legislation would also require OPM to 
determine any additional payment the Postal Service must make 
into the Fund based on the Postal Service's expected 
obligations while increasing the Postal Service's total 
payments in fiscal years 2015, 2016, 2017, 2018, and 2019. 
These provisions are intended to insure that the Postal 
Service's annual payments keep up with changes in its retiree 
health obligations. It would also require that premium payments 
for current postal retirees be paid out of the Fund. Finally, 
the bill would increase the Postal Service's annual borrowing 
limit for fiscal years 2009 and 2010 from $3 billion to $5 
billion. The financial troubles facing the Postal Service are 
so severe, however, that postal management will need to make 
additional changes at the Postal Service beyond those included 
in the bill.

                        III. Legislative History

    S. 1507 was introduced by Senator Carper on July 23, 2009, 
and referred to the Committee. It was then reported to the full 
Senate favorably by a roll call vote of 11-1 on July 30, 2009. 
Chairman Lieberman, Senators Levin, Carper, Pryor, Landrieu, 
McCaskill, Tester, Burris, and Bennet, Ranking Minority Member 
Collins, and Senator Graham voted ``yea.'' Senator Akaka voted 
``nay.'' Four amendments were adopted during the Committee's 
consideration of the bill:
     A Collins amendment requiring that a report 
authorized in section 710(a) of the P.L. 109-435 on the future 
business model of the Postal Service currently due in 2011 be 
completed by GAO by March 2010 was adopted by voice vote. 
Senators Lieberman, Akaka, Carper, Pryor, Landrieu, McCaskill, 
Burris, Collins, Coburn and Voinovich were present.
     A Collins amendment modifying the emergency 
borrowing provisions in the bill so that any additional 
borrowing the Postal Service does in fiscal years 2009 and 2010 
is kept under its $15 billion debt ceiling was approved by 
voice vote. Senators Lieberman, Akaka, Carper, Pryor, Landrieu, 
McCaskill, Burris, Collins, Coburn and Voinovich were present.
     A Coburn amendment requiring the members of 
arbitration boards impaneled to decide disputes between the 
Postal Service and its bargaining-unit employees to consider 
the financial condition of the Postal Service in making 
decisions about collective bargaining agreements was approved 
by voice vote. Senators Lieberman, Akaka, Carper, McCaskill, 
Burris, Collins, Coburn and Voinovich were present. Senators 
Akaka, McCaskill and Burris asked that their votes be recorded 
as ``nay.''
     A Coburn amendment prohibiting the Postal Service 
from awarding bonuses to Postal Service executives for work 
performed in years in which the Postal Service had a year-end 
net loss was approved by voice vote. Senators Lieberman, Akaka, 
Carper, McCaskill, Burris, Collins, and Coburn were present.

                    IV. Section-by-Section Analysis


Section 1. Short title

    Section 1 establishes the short title of S. 1507 as the 
``Postal Service Retiree Health Benefits Funding Act of 2009.''

Section 2. Government contributions

    Section 2 removes the requirement in current law that the 
Postal Service directly pay the employer share of current 
postal retirees' health care premiums. Under the language in 
this section, these obligations would be paid out of the Fund.

Section 3. Postal Service Retiree Health Benefits Fund

    Section 3 strikes the existing schedule of payments the 
Postal Service is required to make into the Fund and replaces 
it with a new schedule. The new schedule would require ten 
years of payments into the Fund. Those payments would feature 
two components. The bill specifies the amount of the first 
component, which would total $1.7 billion in fiscal year 2009 
and grow to $5.3 billion in fiscal year 2019. The amount of the 
second component would be based on a valuation made by the 
Office of Personnel Management each year of the Postal 
Service's unfunded retiree health obligation. Whatever remains 
of the obligation in fiscal year 2020 would be amortized over a 
period of 40 years.

Section 4. Temporary increase to postal borrowing limitations

    Section 4(a) would increase the Postal Service's annual 
borrowing limit for fiscal year 2009 and fiscal year 2010 from 
$3 billion to $5 billion.
    Section 4(b) would require that any additional borrowing 
above $3 billion that the Postal Service makes in fiscal year 
2009 and fiscal year 2010 remain within the Postal Service's 
overall $15 billion borrowing limit and be paid back by the end 
of fiscal year 2019.

Section 5. Consideration of Postal Service financial condition

    Section 5 would require the members of arbitration boards 
impaneled to decide disputes between the Postal Service and its 
bargaining-unit employees to consider the financial condition 
of the Postal Service in making decisions about collective 
bargaining agreements.

Section 6. Assessment of future business model of the Postal Service

    Section 6 would require that a report authorized in section 
710(a) of the P.L. 109-435 on the future business model of the 
Postal Service be completed by GAO by March 2010. It is 
currently due in 2011.

Section 7. Prohibition on bonuses

    Section 7 would prohibit the Postal Service from awarding 
bonuses to Postal Service executives for work performed in 
years in which the Postal Service had a year-end net loss.

Section 8. Effective dates and application

    Section 8 states that any payments the Postal Service has 
paid during fiscal year 2009 by the date of enactment of S. 
1507 that it would not be required to pay under the amendments 
made in the bill shall be credited against the payments due on 
September 30, 2009.

                   V. Evaluation of Regulatory Impact

    Pursuant to the requirements of paragraph 11(b) of rule 
XXVI of the Standing Rules of the Senate, the Committee has 
considered the regulatory impact of S. 1507. The Congressional 
Budget Office states that the bill contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandate Reform Act and would impose no costs on state, 
local, or tribal governments, or private entities. The 
enactment of this legislation will not have significant 
regulatory impact.

             VI. Congressional Budget Office Cost Estimate

                                                September 14, 2009.
Hon. Joseph I. Lieberman,
Chairman, Committee on Homeland Security and Governmental Affairs,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 1507, the Postal 
Service Retiree Health Benefits Funding Reform Act of 2009.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Mark 
Grabowicz.
            Sincerely,
                                              Douglas W. Elmendorf.
    Enclosure.

S. 1507--Postal Service Retiree Health Benefits Funding Reform Act of 
        2009

    Summary: S. 1507 would change the payments that the United 
States Postal Service (USPS) makes for retirees' health 
insurance premiums. In total, the bill would decrease those 
payments over the 2009-2014 period and increase the payments in 
subsequent years. In particular, the bill would:
           Authorize the Postal Service to make 
        payments for retirees' health insurance premiums from 
        the Postal Service Retiree Health Benefits Fund 
        (PSRHBF) for fiscal years 2009 through 2016;
           Change the amounts that the Postal Service 
        is required to pay into the PSRHBF over the 2009-2019 
        period; and
           Direct the Postal Service, over the 2009-
        2019 period, to make estimated annual payments to the 
        PSRHBF to prefund the health care costs of future 
        retirees.
    In addition, S. 1507 would raise the borrowing limitation 
of the Postal Service for fiscal years 2009 and 2010 and make 
other changes to the laws that govern the agency's operations.
    CBO estimates that enacting the bill would result in on-
budget costs totaling about $4.8 billion and off-budget savings 
of $2.1 billion over the 2009-2019 period. (USPS cash flows are 
recorded in the Postal Service Fund and are classified as off-
budget, while the PSRHBF is an on-budget account.)
    Combining those effects, CBO estimates that the net cost to 
the unified budget of enacting S. 1507 would be $2.8 billion 
over both the 2010-2019 and 2009-2014 periods. All of those 
effects reflect changes in direct spending. Enacting S. 1507 
would not affect revenues.
    S. 1507 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
and would not affect the budgets of state, local, or tribal 
governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of S. 1507 is shown in Table 1. The costs of 
this legislation fall within budget function 370 (commerce and 
housing credit).

                                                                               TABLE 1--ESTIMATED COSTS OF S. 1507
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                      By fiscal year, in millions of dollars--
                                                  ----------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                              2009-      2009-
                                                      2009       2010       2011       2012       2013       2014       2015       2016       2017       2018       2019       2014       2019
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                   CHANGES IN DIRECT SPENDINGOn-budget Effects:\1\
    Estimated Budget Authority...................      2,400      2,500      1,105        465        332        266        -23        -92       -548       -712       -845      7,068      4,848
    Estimated Outlays............................      2,400      2,500      1,105        465        332        266        -23        -92       -548       -712       -845      7,068      4,848
Off-budget Effects:\1\
    Estimated Budget Authority...................     -2,400     -1,250       -553        -47        -33        -27         23         92        548        712        845     -4,309     -2,089
    Estimated Outlays............................     -2,400     -1,250       -553        -47        -33        -27         23         92        548        712        845     -4,309     -2,089
Total Unified Budget Effects:
    Estimated Budget Authority...................          0      1,250        553        419        299        239          0          0          0          0          0      2,759      2,759
    Estimated Outlays............................          0      1,250        553        419        299        239          0          0          0          0          0      2,759     2,759
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\The Postal Service has stated that it will not be able to make the payment that it is required to make to the PSRHBF in 2009. If the full 2009 payment were not made, the estimated on-budget
  and off-budget effects of the legislation would change, but CBO estimates that the total unified effects for 2009 would still be zero.
Note: Positive numbers indicate increases in costs; negative numbers indicate reductions in costs.

    Basis of estimate: CBO assumes that S. 1507 will be enacted 
near the end of fiscal year 2009. Enacting the bill would 
decrease Postal Service payments for retirees' health insurance 
premiums over the 2009-2014 period and increase those payments 
for subsequent years. The bill would affect outlays of the off-
budget Postal Service Fund and the on-budget PSRHBF. CBO 
estimates that the net cost to the unified budget would total 
about $2.8 billion over the 2010-2019 period.

Postal Service retiree health benefits under current law

    The Postal Service makes two annual payments over the 2009-
2016 period for retirees' health insurance premiums. (USPS 
spending on those activities is classified as off-budget.) The 
agency makes a direct payment to the on-budget Federal 
Employees Health Benefits (FEHB) fund for current retirees. CBO 
estimates that this payment will be about $2.0 billion in 2009 
and $2.2 billion in 2010, rising to $4.1 billion by 2016.
    In addition, over the 2009-2016 period, the Postal Service 
is required to make specified annual payments that range from 
$5.4 billion to $5.8 billion to the PSRHBF, an on-budget 
account established by the Postal Accountability and 
Enhancement Act (Public Law 109-435) to prefund future 
retirees' health benefits. Under current law, funds in the 
PSRHBF may not be expended for retirees' health costs until 
fiscal year 2017.
    Beginning in 2017, the Postal Service will make estimated 
annual payments to the PSRHBF to cover the ``normal costs'' of 
providing health benefits to future retirees. Those payments 
will be equal to the annual increase in retiree health care 
liabilities attributable to current employees. In addition, the 
agency will make annual payments amortized over 40 years to 
liquidate the ``unfunded liability'' for retirees' health 
benefits. The unfunded liability is the total liability accrued 
to date for retirees' health benefits minus the PSRHBF balance, 
that is, the amount that has not been set aside to cover future 
liabilities.
    Table 2 displays Postal Service payments for retirees' 
health benefits under current law, and payments for retirees' 
health benefits and other changes in USPS costs that would 
result if S. 1507 is enacted.

                                     TABLE 2--POSTAL SERVICE PAYMENTS FOR RETIREE HEALTH BENEFITS--OFF-BUDGET COSTS
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        By fiscal year, in millions of dollars--
                              --------------------------------------------------------------------------------------------------------------------------
                                 2009      2010      2011      2012      2013      2014      2015      2016      2017      2018      2019     2009-2019
--------------------------------------------------------------------------------------------------------------------------------------------------------
Current Law:.................
    Estimated Payments to         2,000     2,200     2,505     2,765     3,132     3,466     3,777     4,108         0         0         0       23,953
     FEHB....................
    Specified Payments to         5,400     5,500     5,500     5,600     5,600     5,700     5,700     5,800         0         0         0       44,800
     PSRHBF1.................
    Estimated Payments for            0         0         0         0         0         0         0         0     6,230     6,666     7,133       20,029
     Normal Costs2...........
    Estimated Amortization            0         0         0         0         0         0         0         0     3,822     3,822     3,822       11,466
     Payments................
                              --------------------------------------------------------------------------------------------------------------------------
        Total................     7,400     7,700     8,005     8,365     8,732     9,166     9,477     9,808    10,052    10,488    10,955      100,248
S. 1507:
    Payments to PSRHBF.......     1,700     1,700     3,100     3,900     4,100     4,300     4,500     4,700     4,900     5,100     5,300       43,300
    Estimated Payment for         3,300     3,500     3,800     4,000     4,300     4,600     5,000     5,300     5,700     6,100     6,500       52,100
     Normal Costs3...........
    Estimated Impact on All           0     1,250       553       419       299       239         0         0         0         0         0        2,759
     Other USPS Costs4.......
                              --------------------------------------------------------------------------------------------------------------------------
        Total................     5,000     6,450     7,453     8,319     8,699     9,139     9,500    10,000    10,600    11,200    11,800       98,159
Change in Off-Budget Costs...    -2,400    -1,250      -553       -47       -33       -27        23        92       548       712       845       -2,089
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\The Postal Service has stated that it will not be able to make the full payment of $5.4 billion required in 2009. CBO has no basis for estimating the
  amount of any shortfall. However, anything less than a full payment would affect the 2009 change in off-budget costs, but CBO estimates that the total
  unified budget effect for 2009 would still be zero.
\2\These payments are equal to the annual increase in retiree health care liabilities attributable to current employees.
\3\These costs are based on information provided by the Office of Personnel Management.
\4\Total USPS expenses in 2008 were nearly $80 billion (on a cash basis), including spending on personnel, transportation, and facilities. If health
  care expenses are reduced by S. 1507, CBO expects net spending on these activities to increase.
Note: FEHB = Federal Employees Health Benefits fund; PSRHBF = Postal Service Retiree Health Benefits Fund.

Postal Service retiree health benefits proposed under S. 1507

    The bill would authorize the USPS, over the 2009-2016 
period, to make payments to the FEHB fund for current retirees' 
health insurance premiums from the PSRHBF. Under current law, 
funds in the PSRHBF are not available for spending until fiscal 
year 2017, and current retirees' health insurance premiums are 
paid for by USPS from sales of postage and other products.
    S. 1507 also would replace the current specified payments 
into the PSRHBF for fiscal years 2009 through 2016 with lower 
payments that range from $1.7 billion in 2009 to $5.3 billion 
in 2019.
    In addition, from 2009 through 2019, the bill would direct 
the Postal Service to make estimated annual payments to the 
PSRHBF to cover the normal costs of providing health benefits 
to future retirees. The agency would make estimated 40-year 
amortization payments toward the unfunded liability for 
retirees' health benefits beginning in 2020 instead of 2017.
    Table 3 shows cash flows of the PSRHBF under current law 
and under the bill.

                                                    TABLE 3--POSTAL SERVICE RETIREE HEALTH BENEFITS FUND (PSRHBF) CASH FLOWS--ON-BUDGET COSTS
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                             By fiscal year, in millions of dollars--
                                                                --------------------------------------------------------------------------------------------------------------------------------
                                                                   2009      2010      2011      2012      2013      2014      2015      2016       2017        2018        2019      2009-2019
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Current Law:...................................................
    Specified Payment from USPS\1\.............................    -5,400    -5,500    -5,500    -5,600    -5,600    -5,700    -5,700    -5,800           0           0           0      -44,800
    Estimated Normal Payments..................................         0         0         0         0         0         0         0         0      -6,230      -6,666      -7,133      -20,029
    Estimated Amortization Payments............................         0         0         0         0         0         0         0         0      -3,822      -3,822      -3,822      -11,466
                                                                --------------------------------------------------------------------------------------------------------------------------------
        Total..................................................    -5,400    -5,500    -5,500    -5,600    -5,600    -5,700    -5,700    -5,800     -10,052     -10,488     -10,955      -76,295
S. 1507:
    Payment to FEHB............................................     2,000     2,200     2,505     2,765     3,132     3,466     3,777     4,108           0           0           0       23,953
    Specified Payments from USPS...............................    -1,700    -1,700    -3,100    -3,900    -4,100    -4,300    -4,500    -4,700      -4,900      -5,100      -5,300      -43,300
    Estimated Normal Payments..................................    -3,300    -3,500    -3,800    -4,000    -4,300    -4,600    -5,000    -5,300      -5,700      -6,100      -6,500      -52,100
    Estimated Amortization Payments............................         0         0         0         0         0         0         0         0           0           0           0            0
                                                                --------------------------------------------------------------------------------------------------------------------------------
        Total..................................................    -3,000    -3,000    -4,395    -5,135    -5,268    -5,434    -5,723    -5,892     -10,600     -11,200     -11,800      -71,447
Change in On-Budget Costs......................................     2,400     2,500     1,105       465       332       266       -23       -92        -548        -712        -845        4,848
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\The Postal Service has stated that it will not be able to make the full payment of $5.4 billion required in 2009. CBO has no basis for estimating the amount of any shortfall. However,
  anything less than a full payment would affect the 2009 change in on-budget costs, but CBO estimates that the total unified budget effect for 2009 would still be zero.
Note: USPS = United States Postal Service; FEHB = Federal Employees Health Benefits fund.

Reduced spending from USPS Fund (Off-budget account)

    The bill's changes in payments for retirees' health 
insurance premiums would lower costs of the Postal Service for 
those activities over the 2009-2014 period and raise the 
agency's costs in subsequent years. CBO also expects that 
lowering health care expenses would lead to an increase in 
other USPS costs totaling $2.8 billion over the 2009-2019 
period. We estimate that enacting S. 1507 would reduce net USPS 
spending by $2.1 billion over the 10-year period--such spending 
is off-budget.
    We expect that lowering the health care expenses of the 
Postal Service Fund by about $2 billion annually would lead the 
agency to modify its efforts to reduce other spending in future 
years. Faced with an imbalance of receipts from postal 
customers and operational costs, the Postal Service has made 
significant efforts to reduce spending in recent years. We 
expect that they will continue such efforts under current law.
    Early in 2009, the Postal Service announced plans to cut 
spending by $5.9 billion over the 2009-2010 period. Just a few 
months later in response to worsening financial conditions, the 
agency accelerated the plan to cut $5.9 billion in 2009 alone. 
More recently, the Postal Service has announced the possibility 
of closing post offices, laying off employees, and making other 
reductions in service--cost-cutting measures that were not 
publicized earlier in 2009. CBO expects that by eliminating a 
$2 billion health care expense, enacting the bill would lead 
the agency to alter its cost-reduction program by cutting 
spending less aggressively than it would without the 
legislation. Consequently, CBO estimates that enacting this 
legislation would increase other postal expenses relative to 
current law.
    CBO estimates that there would be no increase in net USPS 
outlays in 2009 because nearly all of the fiscal year will have 
elapsed by the time the legislation is enacted. We estimate 
that the increase in net USPS outlays in 2010 and 2011 would be 
about half of the reduction in required health care payments--
about $1.2 billion in 2010 and $550 million in 2011. In fiscal 
years 2012 through 2014, we expect the increase in net USPS 
outlays to be nearly equivalent to the reduction in required 
payments as CBO expects that the agency will have its revenues 
and expenses more nearly aligned by that time.

Increased spending from PSRHBF (On-budget account)

    CBO estimates that enacting S. 1507 would increase on-
budget direct spending by $2.4 billion in 2009 and by about 
$4.8 billion over the 2009-2019 period. Those costs result from 
changes in cash flows of the PSRHBF as displayed in Table 3. S. 
1507 would not affect the net cash flows of the FEHB fund 
(although under the bill's provisions, the payments to this 
fund would be made out of the PSRHBF rather than the Postal 
Service Fund).
    CBO estimates that the payments from the PSRHBF would range 
from $2 billion in 2009 to $4.1 billion in 2016. In addition, 
over the 2009-2019 period, the bill would change the specified 
payments from the Postal Service Fund into the PRSHBF. As shown 
in Table 3, the current annual payments, ranging from $5.4 
billion to $5.8 billion over the 2009-2016 period, would under 
the bill range from $1.7 billion to $5.3 billion over the 2009-
2019 period. Finally, S. 1507 would direct the Postal Service 
starting in 2009 to make estimated annual payments to the 
PSRHBF to cover the costs of providing health benefits to 
future retirees. Currently, payments for those so-called 
``normal costs'' will not be made until 2017. CBO estimates 
that those payments would grow from $3.3 billion in 2009 to 
$6.5 billion by 2019. Under the bill, the agency also would 
make estimated 40-year amortization payments toward the 
unfunded liability for retirees' health benefits beginning in 
2020 rather than in 2017 under current law.
    CBO estimates that S. 1507 would increase the net spending 
from the PSRHBF for each of fiscal years 2009 through 2014 and 
decrease spending in subsequent years; over the 10-year period 
net spending would increase by $4.8 billion.

Net cost under S. 1507 (Unified budget)

    CBO estimates that enacting S. 1507 would increase costs to 
the unified budget by about $2.8 billion over the 2009-2019 
period. We estimate that the bill would increase on-budget 
spending from the PSRHBF by $4.8 billion over the 2009-2019 
period. Those costs would be partially offset by decreased off-
budget spending from the Postal Service Fund of $2.1 billion 
over the 10-year period.

Other provisions

    S. 1507 would raise the Postal Service's debt limit from $3 
billion to $5 billion for fiscal years 2009 and 2010. Because 
the legislation would lower USPS costs in those years, CBO does 
not expect the agency to use the additional authority. The bill 
also would preclude the Postal Service from paying bonuses to 
certain senior employees for years in which the agency lost 
money. Based on the total amount of such bonus payments in 
recent years, CBO estimates that savings would not be 
significant in any year.
    Intergovernmental and private-sector mandates: S. 1507 
contains no intergovernmental or private-sector mandates as 
defined in UMRA and would not affect the budgets of state, 
local, or tribal governments.
    Estimate prepared by: Federal costs: Mark Grabowicz and 
Kirstin Nelson; Impact on state, local, and tribal governments: 
Elizabeth Cove Delisle; Impact on the private sector: Paige 
Piper/Bach.
    Estimate approved by: Theresa Gullo, Deputy Assistant 
Director for Budget Analysis.

       VII. Changes to Existing Law Made by the Bill, as Reported

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, changes in existing law made by 
S. 1507 as reported are shown as follows (existing law proposed 
to be omitted is enclosed in brackets, new matter is printed in 
italic, and existing law in which no change is proposed is 
shown in roman):

Title: To amend chapter 89 of title 5 to reform Postal Service retiree 
            health benefits funding, and for other purposes

             TITLE 5. GOVERNMENT ORGANIZATION AND EMPLOYEES

                          PART III. EMPLOYEES

                   Subpart G. Insurance and Annuities

                      CHAPTER 89. HEALTH INSURANCE


              SECTION 8909. EMPLOYEES HEALTH BENEFIT FUND


               POSTAL SERVICE RETIREE HEALTH BENEFIT FUND


8909a. Postal Service Retiree Health [Benefit] Benefits Fund

           *       *       *       *       *       *       *


          (2)(B) Not later than June 30, [2017] 2019, the 
        Office shall compute, and by June 30 of each succeeding 
        year shall recompute, a schedule including a series of 
        annual installments which provide for the liquidation 
        of any liability or surplus by September 30, [2056] 
        2059, or within 15 years, whichever is later, of the 
        net present value determined under subparagraph (A), 
        including interest at the rate used in that 
        computation.
          [(3)(A) The United States Postal Service shall pay 
        into such Fund--
                  [(i) $5,400,000,000, not later than September 
                30, 2007;
                  [(ii) $5,600,000,000, not later than 
                September 30, 2008;
                  [(iii) $5,400,000,000, not later than 
                September 30, 2009;
                  [(iv) $5,500,000,000, not later than 
                September 30, 2010;
                  [(v) $5,500,000,000, not later than September 
                30, 2011;
                  [(vi) $5,600,000,000, not later than 
                September 30, 2012;
                  [(vii) $5,600,000,000, not later than 
                September 30, 2013;
                  [(viii) $5,700,000,000, not later than 
                September 30, 2014;
                  [(ix) $5,700,000,000, not later than 
                September 30, 2015; and
                  [(x) $5,800,000,000, not later than September 
                30, 2016.]
          (3)(A) The United States Postal Service shall pay 
        into such Fund--
                  (i) $5,400,000,000, not later than September 
                30, 2007;
                  (ii) $5,600,000,000, not later than September 
                30, 2008;
                  (iii) $1,700,000,000, not later than 
                September 30, 2009;
                  (iv) $1,700,000,000, not later than September 
                30, 2010;
                  (v) $3,100,000,000, not later than September 
                30, 2011;
                  (vi) $3,900,000,000, not later than September 
                30, 2012;
                  (vii) $4,100,000,000, not later than 
                September 30, 2013;
                  (viii) $4,300,000,000, not later than 
                September 30, 2014;
                  (ix) $4,500,000,000, not later than September 
                30, 2015;
                  (x) $4,700,000,000, not later than September 
                30, 2016.
                  (xi) $4,900,000,000, not later than September 
                30, 2017
                  (xii) $5,100,000,000, not later than 
                September 30, 2018; and
                  (xiii) $5,300,000,000, not later than 
                September 30, 2019.
          (B) Not later than September 30, 2009, and by 
        September 30 of each succeeding year through 2019, the 
        United States Postal Service shall pay into such Fund 
        the net present value computed under paragraph (1).
          (C) Not later than September 30, 2020, and by 
        September 30 of each succeeding year, the United States 
        Postal Service shall pay into such Fund the sum of--
                  (i) the net present value computed under 
                paragraph (1); and
                  (ii) any annual installment computed under 
                paragraph (2)(B).

SEC. 4. TEMPORARY INCREASE TO POSTAL SERVICE BORROWING LIMITATIONS.

    (a) In General.--For fiscal years 2009 and 2010, section 
2005(a) of title 39, United States Code, shall be applied by 
substituting ``$5,000,000,000'' for the limitation specified in 
paragraph (1).
    (b) Repayment and Limitation on Outstanding Debt.--Any 
amount borrowed under the increase in borrowing authority 
provided under subsection (a) of this section shall be repaid 
by the Postal Service to the United States Treasury by not 
later than the end of fiscal year 2019. The Postal Service's 
total outstanding debt may not exceed the maximum amount 
allowable under section 2005(a)(2) of title 39, United States 
Code.

SEC. 5. CONSIDERATION OF POSTAL SERVICE FINANCIAL CONDITION.

    Section 1207(c)(2) of title 39, United States Code, is 
amended by inserting ``The arbitration board shall consider the 
financial condition of the Postal Service in making any 
decision.'' after the first sentence.

SEC. 6. ASSESSMENT OF FUTURE BUSINESS MODEL OF THE POSTAL SERVICE.

    Section 710(a) of the Postal Accountability and Enhancement 
Act (Public Law 109-435; 120 Stat. 3247) is amended by striking 
the first and second sentences and inserting ``The Comptroller 
General of the United States shall prepare and submit to the 
President and Congress a report that evaluates the options and 
strategies for the long-term structural and operational reforms 
of the United States Postal Service necessary to achieve 
financial stability and long-term fiscal viability. The final 
report required by this section shall be submitted by March 31, 
2010.

SEC. 7. PROHIBITION ON BONUSES.

    Section 3686 of title 39, United States Code, is amended--
          (1) by redesignating subsection (e) as subsection 
        (f); and
          (2) by inserting after subsection (d) the following:
    ``(e) Prohibition on Bonuses.--Notwithstanding any 
provision of this section, including subsection (c), any bonus 
under this section--
          ``(1) subject to paragraph (2), shall be paid on 
        October 1 following the date such bonus would have 
        otherwise been paid if not for this subsection; and
          ``(2) shall not be paid if the Postal Service had a 
        year-end net loss for the fiscal year preceding that 
        October 1.''.

                         VIII. Additional Views

              ADDITIONAL VIEWS OF SENATOR SUSAN M. COLLINS

    It has been slightly more than three years since enactment 
of the Postal Accountability and Enhancement Act of 2006 
(PAEA).\1\ Given that span of time and the authorities provided 
in the Act, it is frustrating that the United States Postal 
Service (USPS) has failed to take the steps needed to 
fundamentally reform its operations and secure a stronger 
fiscal footing. Although the struggling economy has contributed 
to USPS's poor financial state, it has exacerbated the 
situation by failing to take advantage of the revenue-
generating flexibilities afforded in the PAEA.
---------------------------------------------------------------------------
    \1\Pub. L. 109-435.
---------------------------------------------------------------------------
    As Congress considers USPS's latest request for relief, it 
is appropriate to consider the most recent history in this 
saga. Every three years the USPS has come to Congress for 
financial relief in exchange for promises of future 
profitability. Regrettably, the era of sustained profitability 
has never materialized.
    Nine years ago, in 2001, the Government Accountability 
Office (GAO) first placed USPS on its ``high-risk list'' 
because it faced formidable financial, operational, and human 
capital challenges that threatened its long-term viability.\2\
---------------------------------------------------------------------------
    \2\GAO-07-310.
---------------------------------------------------------------------------
    In 2003, Congress passed postal reform legislation that 
reduced USPS's pension costs by approximately $9 billion from 
fiscal year 2003 to 2005.\3\
---------------------------------------------------------------------------
    \3\Pub. L. 108-18.
---------------------------------------------------------------------------
    In 2006, the PAEA relieved USPS of a $27 billion financial 
liability, primarily by transferring obligations for the 
retirement benefits of its employees with prior military 
service to the Treasury Department.\4\ In addition, based on 
USPS's own recommendation, Congress established a ``Postal 
Service Retiree Health Benefits Fund'' (Fund) so that USPS 
could address one of its major operating costs--post-retirement 
health benefits for employees and retirees.\5\ When Congress 
was considering the PAEA, the unfunded liability associated 
with these post-retirement health benefits was estimated to be 
between $47 billion and $57 billion. To pay down these 
substantial liabilities, PAEA requires USPS to prefund the 
benefits through annual payments into the Fund.\6\ With USPS's 
support, Congress adopted this fiscally responsible payment 
stream to significantly reduce these unfunded obligations.
---------------------------------------------------------------------------
    \4\Pub. L. 109-435.
    \5\Postal Service Proposal: Use of Savings for Fiscal Years After 
2005, P.L. 108-18. September 30, 2003. See also Postal Pension Funding 
Reform: Issues Related to the Postal Service's Proposed Use of Pension 
Savings, GAO-04-238, pages 3-4 (Washington, DC: November 2003); CRS 
Report for Congress: Pension Issues Cloud Postal Reform Debate, Order 
Code RL32346, page 6 (Washington, DC: January 2006).
    \6\Pub. L. 109-435.
---------------------------------------------------------------------------
    After enactment of the PAEA, GAO removed USPS from its 
``high-risk'' list in January 2007, noting that the new postal 
reform law gave USPS additional pricing flexibility, allowed it 
to retain earnings, and provided additional mechanisms to 
address continuing challenges related to USPS's increasingly 
competitive business environment.\7\
---------------------------------------------------------------------------
    \7\GAO-07-310.
---------------------------------------------------------------------------
    In 2009, with USPS once again in dire fiscal straights, the 
Postmaster General returned to Congress seeking legislative 
relief from obligations to fund future retiree health benefits, 
after making only two full payments into the Fund. At the 
Postmaster General's request, Congress acted to reduce by $4 
billion the annual retiree health benefits payment that was due 
to the Fund. I reluctantly supported this reduction because 
USPS simply could not have made the full payment and was at 
risk of not meeting its payroll obligations.
    The Postmaster General's request to Congress for relief 
from its payments for future retiree health benefits is just 
the most recent in a long history of USPS requests for 
financial assistance in exchange for the promise of becoming 
financially solvent--some day.
    With the most recent proposal to modify the PAEA payments 
for future retiree health benefits, American taxpayers have 
been asked to shoulder additional risk to stem USPS's flow of 
red ink. Congress must break this pattern if we expect USPS to 
continue to provide the crucial services that form the linchpin 
of a $900 billion mailing industry that employs close to nine 
million people.
    The Postal Service Retiree Health Benefits Funding Reform 
Act of 2009 would restructure the Fund based on a proposal that 
was sent hastily from the Administration to Congress last year. 
There are two significant problems with the adjusted payment 
schedule set forth in this legislation: (1) GAO estimates that 
it would increase USPS's unfunded liability for future retiree 
health benefits by more than $4 billion by the end of fiscal 
year 2019 and (2) it would require USPS to make much steeper 
payments beginning in 2015 than under current law, payments 
that the Postal Service is very unlikely to be able to handle.
    According to the Office of Personnel Management (OPM) and 
GAO, the payment stream established in the PAEA would reduce 
USPS's unfunded liabilities for future retiree health benefits 
to $39.2 billion by 2017. This legislation, however, would 
reduce USPS's payments in the next several years, thereby 
increasing the USPS's unfunded liability for these obligations 
by more than $4 billion by the end of fiscal year 2019 
(compared to current law).
    The USPS does not show any signs of changing its financial 
condition enough to be prepared to make the increasingly steep 
payments this legislation would mandate after 2015. In fiscal 
year 2009, USPS was only able to pay $1.4 billion into the 
Fund--and only after Congress provided $4 billion in relief 
from the $5.4 billion payment required by the PAEA. If USPS was 
unable to make a $5.4 billion payment in fiscal year 2009, it 
is unclear how USPS could make the far greater payments that 
the legislation would require in the future, including a 
payment as high as $11.8 billion. Indeed, given the likelihood 
that USPS would not be able to make these high payments and 
would need to seek additional relief in the future, this 
legislation undoubtedly would further increase the amount of 
the USPS's unfunded liabilities for future retiree health 
benefits.
    To address both of these concerns, I offered an alternative 
that would have provided USPS some limited initial relief from 
the PAEA payment stream but also would have limited the 
increase in future year payments to the Fund. GAO estimated 
that this approach would only increase the unfunded liability 
related to these benefits by approximately $500 million dollars 
at the end of the 10-year period covered by the bill (compared 
to current law)--a stark contrast to the $4 billion increase in 
the underlying bill. Moreover, because the annual payments 
would increase at a slower rate, USPS would be in a better 
position to actually make the payments. Unfortunately, the 
Committee failed to adopt this amendment.
    I ultimately supported moving this legislation to the 
floor, particularly after the Committee adopted amendments 
Senator Coburn and I proposed to keep the pressure on USPS to 
fundamentally reform its operations. One amendment I offered, 
which was adopted by the Committee, would retain the existing 
$15 billion debt ceiling for USPS. Senator Coburn's amendment, 
which I had included as a portion of another amendment I filed 
at the markup, would require the arbitrator to consider USPS's 
financial condition when rendering collective bargaining 
decisions. For Congress to maintain pressure on USPS to make 
needed reforms, the proposals set forth in these amendments are 
critical additions to the legislation.
    Nonetheless, given USPS's past performance following 
legislative relief from its financial obligations, I am 
extremely concerned that the two factors I have outlined above 
will place USPS back on Congress's doorstep in a few short 
years, should this legislation be enacted. And, because of the 
changes the bill would make, the financial obligations facing 
the USPS would be more daunting than before. If the bill is 
considered on the floor, I likely will offer additional 
amendments designed to place the USPS on a stronger financial 
footing moving forward.
    In an April 2010 report on USPS's strategies and options to 
facilitate progress toward financial viability, GAO indicated 
that USPS's business model is not viable due to its inability 
to reduce costs sufficiently in response to continuing mail 
volume and revenue declines.\8\ Despite USPS's efforts to cut 
costs, GAO found it has had difficulty eliminating costly 
excess capacity and that its revenue initiatives have had 
limited results. These GAO findings indicate that the USPS may 
be able to improve its financial viability only if it takes 
more aggressive action to reduce costs. For example, USPS's 
capability to match its workforce to its changing workload is 
restricted by USPS's inability to use part-time workers, and to 
cross-train employees to work outside their crafts. GAO's 
report also stressed the importance of USPS continuing to fund 
its retiree health benefit obligations to the maximum extent 
that its finances permit.
---------------------------------------------------------------------------
    \8\GAO-10-455.
---------------------------------------------------------------------------
    It will take all members of the postal community, including 
USPS employees and management, members of the mailing 
community, Congress, and the Administration to contribute to 
the solution to this financial crisis. Any legislation passed 
by Congress should reinforce these goals, not undermine them.

                                                  Susan M. Collins.

   ADDITIONAL VIEWS OF SENATOR DANIEL K. AKAKA AND SENATOR CARL LEVIN

    The Committee report states that an amendment by Senator 
Coburn would require arbitrators to take the financial health 
of the Postal Service into account when a labor contract goes 
to binding arbitration, but provides no information on the need 
for that provision. We have concluded that there is no need for 
the amendment, and that specifying what factors arbitrators 
must consider is likely to distort the collective bargaining 
and labor arbitration process.
    At a hearing of the Committee's Subcommittee on Federal 
Financial Management, Government Information, Federal Services, 
and International Security, President Fred Rolando of the 
National Association of Letter Carriers testified that under 
Title 39 U.S.C., arbitrators may and consistently do take the 
financial health of the Postal Service into account during 
arbitration.\1\ Similarly, William Burrus, President of the 
American Postal Workers Union (APWU), testified that in each of 
the three negotiated and three arbitrated labor contracts in 
the last 16 years, the financial health of the Postal Service 
was a factor at the bargaining table and during arbitration.\2\ 
Several arbitrated labor disputes, in fact, have stated that 
certain decisions were made in light of financial conditions at 
the Postal Service.\3\
---------------------------------------------------------------------------
    \1\Senate Homeland Security and Governmental Affairs Subcommittee 
on Federal Financial Management, Government Information, Federal 
Services, and International Security Hearing, ``The U.S. Postal Service 
in Crisis'' (S. Hrg. 111-409), p. 40, August 6, 2009.
    \2\Id. at p. 50.
    \3\See Interest Arbitration Proceedings, USPS and National Rural 
Letter Carriers' Association, Opinion and Award, pp. 16-18, 28, 
February 3, 2002 and Interest Arbitration with the National Association 
of Letter Carriers, p. 29, September 19, 1999.
---------------------------------------------------------------------------
    Title 39 sets some general workforce policies for the 
Postal Service, which some have suggested tie the hands of 
postal labor arbitrators. According to 39 U.S.C. Sec. 1003, 
``It shall be the policy of the Postal Service to maintain 
compensation and benefits for all officers and employees on a 
standard of comparability to the compensation and benefits paid 
for comparable levels of work in the private sector of the 
economy.''
    This laudable policy is subject to the collective 
bargaining process. The Postal Service does not set the pay and 
working conditions of bargaining unit postal employees; it 
bargains over them with its four employee labor unions.
    Should labor and management fail to agree during periodic 
contract negotiations, 39 U.S.C. Sec. 1207 provides for a 
neutral arbitration board to settle disputed items. According 
to subparagraph (c)(2): ``The arbitration board shall give the 
parties a full and fair hearing, including an opportunity to 
present evidence in support of their claims, and an opportunity 
to present their case in person, by counsel or by other 
representative as they may elect.'' Currently, the law provides 
no direction or constraints on what the arbitrators consider, 
requiring only that there is a full and fair hearing at which 
each side may present its case. Rather, the law offers only 
general guidance to the Postal Service, not arbitrators.
    During the Committee's consideration of S. 1507, an 
amendment from Senator Coburn was adopted, by voice vote, which 
would for the first time add an explicit criteria that the 
arbitration panel would be required to consider. It would amend 
Sec. 1207(c)(2) by adding ``The arbitration board shall 
consider the financial condition of the Postal Service in 
making any decision.''
    This amendment does not change the Postal Service's general 
pay comparability or other compensation policies under 39 
U.S.C. Sec. 1003, only how disputes should be settled if 
collective bargaining fails. Moreover, it implies a lopsided 
standard for arbitrators, favoring management, by requiring 
that they consider financial health of the Postal Service and 
no other factors. The language also presumes that each labor 
contract will go to arbitration, and does not require any 
consideration of the financial state of the Postal Service 
during contract negotiations before any arbitration.
    According to the amendment's supporters, one of the primary 
reasons for inclusion of this language is to keep labor costs 
down during times of financial difficulties for the Postal 
Service.\4\ However, the Congressional Budget Office (CBO) 
estimates for budgetary impacts of S. 1507, as amended, makes 
no mention of any savings as a result of the arbitration 
amendment. But even if it were effective in bringing labor 
costs down, this is not the way to do it. As APWU President 
Burrus testified, ``Free collective bargaining is either free 
or it's not.''\5\ Within the confines of the collective 
bargaining process, the parties must be free to reach their own 
agreement. It does not work to establish a process allowing the 
parties to bargain freely over wages and other issues, but then 
allow the employer recourse to a neutral arbitrator required by 
law not to be neutral.
---------------------------------------------------------------------------
    \4\Senate Homeland Security and Governmental Affairs Subcommittee 
on Federal Financial Management, Government Information, Federal 
Services, and International Security Hearing, ``The U.S. Postal Service 
in Crisis'' (S. Hrg. 111-409), pp. 6, 10, 25, August 6, 2009.
    \5\Id. at p. 50.
---------------------------------------------------------------------------
    The Postal Service certainly faces an immediate financial 
crisis, brought on by customers using the mail less and 
accelerated by the worst economic crisis since the Great 
Depression. The Postal Service needs relief from its retiree 
health prefunding payments to address its critical financial 
deficits. Efforts to reduce the Postal Services workforce 
costs, while important, should be examined separately. We 
strongly support the aims of this bill, with the exception of 
the amendment by Senator Coburn.

                                   Daniel K. Akaka.
                                   Carl Levin.

                                  
