STATEMENT
OF
JOHN E. POTTER,
POSTMASTER GENERAL/CEO,
BEFORE THE
SUBCOMMITTEE ON INTERNATIONAL AFFAIRS,
PROLIFERATION AND FEDERAL SERVICES
OF THE
UNITED STATES SENATE
MAY 13, 2002
Good morning, Mr. Chairman
and members of the Subcommittee.
I welcome the opportunity to
speak with you today about the transformation of the United States Postal
Service. It was only one year ago that
the Committee on Governmental Affairs conducted a hearing to review the
condition and prospects of the Postal Service in a radically changed
competitive, technological and economic environment.
Describing the condition of
the Postal Service at that hearing, Chairman Fred Thompson said, “The ox is in
the ditch – big time!” His sentiments
were echoed by the Comptroller General of the United States, David Walker, who
placed the Postal Service’s transformation efforts and long-term outlook on the
GAO’s “high-risk” list because of our significant financial, human capital and
structural challenges.
In the year since that
hearing, the Postal Service’s long-term financial outlook has grown even more cloudy. The 2002
economic downturn hit us hard – and continues to hurt us. On the heels of the recession came 9/11, then
the anthrax bioterrorism attack. By the end of fiscal year 2002, we expect
mail volume to be down by six billion pieces, the most significant decline in
more than 70 years. It will contribute
to a projected net loss in the range of $1.5 billion this year – for a third
consecutive year of net losses.
As the Comptroller General
said, “The Service’s ability to provide universal postal service as we know it
today will be increasingly threatened unless changes are made, both within
current law and to the legal and regulatory framework that governs the
Service.” It’s clear the business model
set up in 1970 by the Postal Reorganization Act was devised for another
time. This model needs to be addressed –
the sooner, the better.
Despite the impact of the
recession and the terrorist attacks, we have taken steps to reduce costs and to
manage the business more aggressively than ever before. By the end of this year, we will have reduced
the number of career employees by 20,000.
We will do that through attrition.
We will also have reduced workhours by over 60
million compared to last year. And we
are postponing other program expenditures and delaying capital investments.
Even with these short-term
actions, we recognize the critical need for a long-term approach to the issues
the Postal Service is facing. This was
the consensus following last year’s hearing and it resulted in the Postal
Service’s creation of a comprehensive Transformation Plan. We delivered that Plan to Congress one month
ago.
We believe the Plan offers
the flexibility to give the Postal Service the long-term tools it needs to
carry out its universal service mandate.
That mandate represents a public policy decision that defines the role
of the Postal Service. If that is to
remain the role of the Postal Service in the future, we need your help and the
help of the entire Congress and the Administration to achieve it.
To date, your help has been
significant. I appreciate the leadership
and support of this Committee through the months of effort that culminated in
our thorough and far-reaching Transformation Plan. Your willingness to conduct this hearing so
quickly following the Plan’s completion demonstrates your commitment to the
future of America’s mail service.
It is also appropriate at
this time to recognize the contributions of so many throughout the entire
postal community in developing and completing the Plan we are discussing
today.
The Governors of the Postal
Service made it clear that the Transformation Plan was their foremost
priority. Recognizing the importance of
the Plan, they created an environment that encouraged management to take fresh
and creative approaches to a wide range of issues that must be addressed to
protect our continued ability to provide affordable, universal mail service for
all Americans.
Our work in preparing the
Plan also involved extensive dialog with all members of the mailing
community. This included some of largest
mailers in the nation, households and families, and virtually every type of
mailer in between. It included
organizations and associations that represent the breadth and diversity of the
mailing industry. It included our
suppliers and vendors. It included our
employees and the unions and management associations that represent them. And finally, it included members of Congress
and the Administration. We appreciate
the time and efforts of everyone who has contributed to the Plan.
We believed it was vitally
important that a Plan which set out a future direction for our national postal
system included input from everyone with an interest in this vital sector of
the nation’s infrastructure. To an
unprecedented extent, it has brought together an incredibly wide spectrum of
needs and visions into a single document.
Not surprisingly, continued viability of America’s postal system was the
common concern of virtually everyone who helped us to prepare the Plan.
It is important to understand
that a significant segment of the nation’s economy is dependent on a strong and
healthy Postal Service. In addition to
750,000 career postal employees, the paychecks of more than eight million
Americans are dependent, in whole or in part, on the mail. The mail, and the businesses and services
that support it, contribute $900 billion to the economy. In total, this represents eight percent of
our gross domestic product.
But the mail represents so
much more than a line on an economic graph.
The mail represents the commitment of our employees to the ideal that
regardless of who you are, rich or poor; whether you live in the largest city
or the smallest village; from the remote Alaskan bush to the most distant
Hawaiian island; every American has a fundamental right to send and receive
mail.
It is in this spirit that I
am here today to talk about the Transformation of the Postal Service. Through its more than 225-year history of
serving this great nation, the Postal Service has been a valuable national
asset. We firmly believe that it can –
and will – be an asset for many decades to come. But significant change is necessary for that
to occur.
Certainly, change has been a
part of the Postal Service’s journey through history. We have changed just as America has changed –
from the time when mail was carried by horse and rider, to now, when billions of
letters routinely travel by air.
We’ve moved from an era when
every piece of mail was handled and processed manually, to a time when letters
might go untouched by human hands until they are delivered by a letter carrier
– thanks to automation, thanks to our ability to change.
However, as Comptroller
General Walker said at that hearing one year ago, the Postal Service’s ability
to change to the extent required is limited.
It is limited by the Postal Reorganization Act, the 1970 legislation
that created the modern Postal Service from the heavily subsidized Post Office
Department.
The need for transformation
is, perhaps, greater today than it was on that July day in 1971 when the new
United States Postal Service delivered its first piece of mail. The business model, which was expected to
support the new organization into the future, needs modernization today –
before we reach a point of no return.
That model assumed that continually rising mail volume would result in
similarly rising revenue that would support modernization of our national
processing system and continuing expansion of the delivery network.
We are now at a point in our
history when it is time for another phase in postal evolution. Our 32-year-old operating charter no longer
allows us the ability to quickly or effectively adapt in a communications
marketplace that could not be imagined more than a generation ago.
The Transformation Plan we
presented to Congress last month is about our need to change. It is a blueprint for modernizing every
aspect of the way we do business. But
the Plan is not about change or modernization for their own
sake. It is about the changes required
if our public policy continues to be binding the nation together through
universal mail service.
The Postal Service is doing
everything it can, today and in the near term, to do that. For the longer term, however, we require your
help to protect this vital link between individuals, families, and friends, and
this key driver of commerce. Our
Transformation Plan addresses each of these needs.
We are completing our third
year of increased productivity. We have
ambitious plans to save an additional $5 billion between now and 2006. This must be done. And we will do it.
There is more we can and must
do in the near term. Some of these
activities involve tackling the self-imposed restraints that have often
prevented us from being as efficient and effective as we can be. To this end, I have lifted the moratorium on
closing post offices that management put in place four years ago.
Let me be as clear as I can
be on this issue, because it has lent itself to misinterpretation. This does not mean that there will be
wholesale post office closings. But it
does mean that we will restart the process to close those offices that have
been “suspended” or effectively closed, in some cases for more than a
decade. In most of those places, we have
provided alternative services, often improving customer access to postal
products and services.
These alternative services
can include extension of rural carrier service from another office, highway
contract route delivery, contract stations or the establishment of community
post offices. Where carrier service is
extended, customers can conduct many postal transactions through their
mailbox.
This is consistent with our
business strategy, outlined in the Transformation Plan, of providing more
convenient access to our system. We want
it to be as easy as possible for American people and businesses to use our
services – whether through the Internet, through traditional postal retail
outlets, or through other retail networks.
It is our goal to make postal products – and access to our network –
available to our customers when and where they need them – not just where we
are located. In too many cases, the
network of post offices, developed over many years, over serve some areas and
under-serve others.
We have agreed to begin an
internal review of our retail network with our postmaster groups and the
American Postal Workers Union. We will
expand the group to include other stakeholders in the near future.
We will also evaluate our
existing processing network. With our
automated environment and changes in our mail mix, we no longer need some of
the 400 processing centers we have nationwide.
There are opportunities for consolidations and, with them, cost
savings. At the same time, we can
optimize our processing network and improve efficiency within processing
facilities. Ultimately, this should mean
better service for our nation.
In adjusting our network, it
is not our intention to reduce delivery to less than six days per week. We do recognize, however, that without needed
long-term legislative change, our ability to provide six-day delivery service
could be threatened.
We are also going to become
even more aggressive in pursuing the benefits our size can bring to our
purchasing decisions. We have already
leveraged our buying ability to lower our costs for office supplies,
telecommunications, equipment and fuel.
There are additional opportunities for savings that we intend to pursue.
We will improve our dispute
resolution processes and find a way to reduce the $300 million we spend
annually on labor-management disagreements.
I am excited with the progress that has been made in recent years
regarding grievances with our major unions.
We will build on this success to look at the entire collective
bargaining process. I am grateful that
our unions have agreed to sit collectively with management to review
opportunities to improve the collective bargaining process. And, by addressing these issues, we can bring
improved focus to serving our customers better.
We are also working to
modernize the rate process to the extent possible within the existing
regulatory framework. George Omas, Chairman of the Postal Rate Commission, showed us
that change is possible in this area.
Under his leadership, the parties in the recent rate case came together
to reach a negotiated settlement and avoided protracted and costly
litigation. This was a significant
breakthrough and one that I believe signals a new era of cooperation for all
parties.
Building upon this historic
breakthrough, Chairman Omas and I have agreed to
conduct a joint summit of all the stakeholders on May 28 – from large direct marketers,
to publishers of small magazines, to individual consumers – to share with us
what they believe our industry needs to advance and modernize ratemaking. It is our goal to define the limits of change
possible regarding the rates process under the current legislation. And, on the subject of rates, I am committed
to maintaining the rates that we will implement on June 30 until at least
calendar year 2004.
Industry leaders indicated
they recognize the need for Transformation and they pledge to continue this
work with us. I was gratified by the
level of industry support I encountered two weeks ago at the National Postal
Forum in San Diego.
We will continue to refine
our systems and processes to improve efficiency, reduce costs, and protect the
record levels of service and customer satisfaction we have achieved. We will continue our development of a
performance-based culture, one in which compensation and performance are
linked. We will continue to use
technology to add value to the mail, both by making our system more transparent
and expanding the use of automation to all mail streams.
As we work to optimize our
network, we are sharing best practices and setting uniform standards throughout
the country. If our customers told me
one thing at the recent Postal Forum, it was their desire for uniformity in all
of their dealings with the Postal Service – from mail entry, to postage
payment, to delivery, regardless of which geographic area of the country they
are in.
We will also continue to
protect our employees and the American people by protecting the safety – and
sanctity – of the mail. In this regard,
I want to take this opportunity to express my gratitude to this Committee for
its support and assistance in obtaining the $500 million homeland security
appropriation so necessary to our efforts this fiscal year.
I also want to commend the
efforts of the Postal Inspection Service, the Federal Bureau of Investigation, the Bureau of Alcohol, Tobacco and Firearms and the many
local law-enforcement agencies who worked together in the successful
investigation of the recent pipe bombs incidents. We appreciate the cooperation of our
customers and the dedication of our employees during this trying period.
These initiatives represent
just a few of the many opportunities available to the Postal Service within the
existing legislative and regulatory framework.
Despite all of these efforts, however, we will – sooner rather than
later – run into the limits of what is possible. If we do not act to move beyond these limits,
it is the people and businesses of our nation who will ultimately be affected.
Right now, for instance, we
are locked into a pricing system that provides limited flexibility.
Under the current
legislation, we do not control our own wages.
Too often in our history of collective bargaining, those decisions have
been left to a third party to decide.
We do not have the
flexibility to grow our business to the extent necessary or to develop new
revenue streams. Whenever we attempt to
improve, redesign, or introduce products, a host of special interest groups
line up to take their best shot to stop us.
In the end, the public is not served.
We can make breakthroughs on
these issues. But we cannot do it
alone. We need the help of our policy
makers to legislate postal reforms. If
consensus cannot be reached on the right business model for the Postal Service,
then we will have allowed a vital, national asset to fail and be wasted.
The nation stands to lose a
fundamental government service that we all take for granted: universal mail delivery. That is what our 750,000 employees provide to
every American home and business, six days a week.
We agree with the General
Accounting Office and with you that we cannot let that happen. We must transform.
After months of gaining input
from stakeholders the Postal Service has identified three business models for
discussion.
The first model we considered
was a privatized mail service.
A privatized Postal Service
would be shareholder owned. As such, it
would focus on profit. Financial,
service and operational decisions would be made within that context. The results might be delivery standards and
prices dictated by where a person lives or where a business is located. Metropolitan areas where volume is greater
could receive better or cheaper service than a rural community. And, like any privately-owned business, it
could thrive or fail.
The people we reached out to
in creating our Transformation Plan told us, overwhelmingly, that there was no
support for privatizing the nation’s mail service. People speak of a digital divide; we do not
need a delivery divide.
The American people told us
they strongly support the present definition of universal service at affordable
rates. People have come to rely on
uniformly priced letters for national delivery.
The second alternative model explored in our
Transformation Plan is the restructuring of the Postal Service as a traditional
government agency. A sizable portion of
our operating revenues would come from appropriated funds rather than from
income produced by providing a wide range of services.
We believe this option comes
with an unacceptable price. In this
case, the solution to decreasing mail volume and rising rates would be direct
subsidies, tax dollars; in effect, putting the Postal Service back on the
federal budget.
That would take us back to
the model of the 1960s when the Post Office
Department was dependent on
taxpayers to underwrite the cost of universal service. Remember, no taxpayer dollars go to fund our
normal operations. They are funded from
the sale of stamps and our other products.
Imagine,
if you will, the Postal Service going through an annual appropriations
process and asking Congress to fund 25 percent of its operating
budget. That
would amount to $15 billion in Fiscal Year 2003 terms.
During the 1960s, the old
Post Office Department received up to 25 percent of its
Operating
revenues from taxpayers. That meant that when the Postal Service was
created in 1971, the price of an eight-cent postage stamp was actually ten
cents. The first eight cents of the
stamp price was paid for at the post office counter. The remaining two cents was paid for on April
15.
You’ll recall that service in
the 1960s had declined due to an inability to make capital investments to
modernize processing facilities and grow our infrastructure as mail volume
grew. In addition, our employees’ wages
were depressed.
It wasn't good for America
then, and it wouldn’t be good for America today.
Frankly, that’s where we are
heading if we are unsuccessful in providing the Postal Service the flexibility
it needs to operate successfully in today’s environment.
We provided a third
alternative in the Plan, a Commercial Government Enterprise. It is the model we believe would put the
Postal Service on a more businesslike footing, while keeping it dedicated to
its mission of universal service.
It is a model that is
markedly different from what we have today.
For example, instead of breaking even, our financial goal would be to
generate “reasonable returns.” Earnings
would finance capital projects; we would not have to resort to increasing debt
for this purpose. Retained earnings
would enable us to finance operations through difficult economic times, rather
than having to always resort to increasing postage rates.
In addition, this model would
allow us to utilize our vast retail and delivery assets
to develop new revenue streams. Our 38,000 retail offices and our national
door-
to-door delivery networks could be made available to private
enterprise as a joint-
profit-making venture.
As a commercialized
government enterprise, we could introduce flexible pricing.
Prices for postal products
would still be subject to regulatory review.
But we
would have the flexibility to adjust prices based on market
demand.
Next, as a labor intensive
organization, with 75 percent of our operating
expenses going to labor, this business model would allow us to
explore a more
progressive way to make collective bargaining work for all
parties.
Finally, this model would
give us the needed flexibility to increase access and convenience for our
customers. Management would have the
flexibility to close a number of non-performing retail outlets. And we would be able to invest in new
facilities and services and enter into alliances and ventures with related,
private-sector companies, after due diligence was completed.
Essentially, this
“commercialized Postal Service” would provide the management tools that are
available to private-sector businesses as we work to improve service to our
customers, manage costs more efficiently and leverage our assets to generate
new revenue opportunities.
Ultimately,
this model would permit us to make maximum use of our assets and enable the
nation to share in the benefits of our scope – every home, every business,
every day, and in every retail outlet.
At the same time, it would protect our ability to serve every home,
every business every day – at a broader range of outlets than ever before.
Every American and every
policy maker needs to be involved in these discussions. The future of affordable, universal mail
service depends on it.
We pledge to do our
part. We pledge to continue our strong
performance focus. We pledge to make
changes that are possible within the framework of the existing legislation and
work with the Administration and Congress to bring about legislative reform to
achieve this transformation.
We recognize the efforts of
both the Senate and the House of Representatives in advancing the debate on
postal reform. We acknowledge and
appreciate the thoughtful and far-reaching efforts of many Members to reach
consensus on various reform vehicles. We
believe that these efforts should include serious consideration of the
structural models in the Transformation Plan.
I offer my assistance and that of the entire Postal Service to that end.
We cannot afford to let this
opportunity pass us by. We cannot afford
to risk the legacy of more than 200 years of universal service. The decisions we make today will affect the
future of America’s mail system for generations to come. If this national asset is to be protected and
preserved, then action is needed.
In the difficult months since
September 11, it has become clear to all of us that the world has changed. For the United States Postal Service, the
anthrax attacks, one month later, were a stark confirmation that we cannot do
business as usual anymore. That
realization is firmly rooted in us now as never before.
I am convinced that this plan
for transformation is a key step in moving past our limitations, as we work to
define and embrace sorely needed changes.
With courage and conviction, we can continue to connect our people, our
neighborhoods, our communities – indeed, the whole nation – as no one else can,
just as we have for more than two centuries.
I appreciate the opportunity
to share my thoughts with you today and I look forward to continuing this
important conversation with you. In
particular, I look forward to working with this Committee to explore how we can
provide the American people with a continued, strong postal system.