<DOC>
[106th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:63821.wais]
OVERSIGHT OF THE U.S. POSTAL SERVICE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON THE POSTAL SERVICE
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
----------
OCTOBER 21, 1999
----------
Serial No. 106-110
----------
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
------
OVERSIGHT OF THE U.S. POSTAL SERVICE
OVERSIGHT OF THE U.S. POSTAL SERVICE
OVERSIGHT OF THE U.S. POSTAL SERVICE
OVERSIGHT OF THE U.S. POSTAL SERVICE
OVERSIGHT OF THE U.S. POSTAL SERVICE
OVERSIGHT OF THE U.S. POSTAL SERVICE
OVERSIGHT OF THE U.S. POSTAL SERVICE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON THE POSTAL SERVICE
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
OCTOBER 21, 1999
__________
Serial No. 106-110
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
______
U.S. GOVERNMENT PRINTING OFFICE
63-821 CC WASHINGTON : 2000
COMMITTEE ON GOVERNMENT REFORM
DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut ROBERT E. WISE, Jr., West Virginia
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
STEPHEN HORN, California PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida PATSY T. MINK, Hawaii
THOMAS M. DAVIS, Virginia CAROLYN B. MALONEY, New York
DAVID M. McINTOSH, Indiana ELEANOR HOLMES NORTON, Washington,
MARK E. SOUDER, Indiana DC
JOE SCARBOROUGH, Florida CHAKA FATTAH, Pennsylvania
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
MARSHALL ``MARK'' SANFORD, South DENNIS J. KUCINICH, Ohio
Carolina ROD R. BLAGOJEVICH, Illinois
BOB BARR, Georgia DANNY K. DAVIS, Illinois
DAN MILLER, Florida JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas JIM TURNER, Texas
LEE TERRY, Nebraska THOMAS H. ALLEN, Maine
JUDY BIGGERT, Illinois HAROLD E. FORD, Jr., Tennessee
GREG WALDEN, Oregon JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California ------
PAUL RYAN, Wisconsin BERNARD SANDERS, Vermont
HELEN CHENOWETH-HAGE, Idaho (Independent)
DAVID VITTER, Louisiana
Kevin Binger, Staff Director
Daniel R. Moll, Deputy Staff Director
David A. Kass, Deputy Counsel and Parliamentarian
Carla J. Martin, Chief Clerk
Phil Schiliro, Minority Staff Director
------
Subcommittee on the Postal Service
JOHN M. McHUGH, New York, Chairman
MARSHALL ``MARK'' SANFORD, South CHAKA FATTAH, Pennsylvania
Carolina MAJOR R. OWENS, New York
BENJAMIN A. GILMAN, New York DANNY K. DAVIS, Illinois
STEVEN C. LaTOURETTE, Ohio
DAN MILLER, Florida
Ex Officio
DAN BURTON, Indiana HENRY A. WAXMAN, California
Robert Taub, Staff Director
Heea Vazirani-Fales, Counsel
Jane Hatcherson, Professional Staff Member
Abigail D. Hurowitz, Clerk
Denise Wilson, Minority Professional Staff Member
C O N T E N T S
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Page
Hearing held on October 21, 1999................................. 1
Statement of:
Corcoran, Karla W., Inspector General, U.S. Postal Service,
accompanied by Thomas Coogan, legal counsel; and Richard
Chambers, Assistant Inspector General for Audit, U.S.
Postal Service............................................. 8
Henderson, William J., Postmaster General and Chief Executive
Officer.................................................... 115
Ungar, Bernard L., Director, Government Business Operations
Issues, U.S. General Accounting Office, accompanied by
Teresa Anderson, Assistant Director; and Gerald Barnes,
Assistant Director, U.S. General Accounting Office......... 33
Letters, statements, et cetera, submitted for the record by:
Corcoran, Karla W., Inspector General, U.S. Postal Service:
Followup questions and responses......................... 78
Prepared statement of.................................... 12
Henderson, William J., Postmaster General and Chief Executive
Officer:
Followup questions and responses......................... 134
Prepared statement of.................................... 117
LaTourette, Hon. Steven C., a Representative in Congress from
the State of Ohio, June 30, 1999, Report to Congress....... 412
McHugh, Hon. John M., a Representative in Congress from the
State of New York, prepared statement of................... 4
Ungar, Bernard L., Director, Government Business Operations
Issues, U.S. General Accounting Office:
Followup questions and responses......................... 108
Prepared statement of.................................... 36
OVERSIGHT OF THE U.S. POSTAL SERVICE
----------
THURSDAY, OCTOBER 21, 1999
House of Representatives,
Subcommittee on the Postal Service,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:10 a.m., in
room 2154, Rayburn House Office Building, Hon. John M. McHugh
(chairman of the subcommittee) presiding.
Present: Representatives McHugh, Sanford, LaTourette,
Miller, Fattah, Owens, and Davis.
Staff present: Robert Taub, staff director; Heea Vazirani-
Fales, counsel; Jane Hatcherson, professional staff member;
Abigail D. Hurowitz, clerk; Denise Wilson, minority
professional staff member; and Earley Green, minority staff
assistant.
Mr. McHugh. Good morning. The hearing will come to order.
On behalf of the subcommittee members, I'm pleased to welcome
everyone here as we continue the oversight agenda for the 106th
Congress.
Let me begin by saying to those who have suggested our
Postal Service ain't broke, I think today's GAO testimony will
serve as a wake-up call as we will hear GAO explain first class
mail volume is expected to decline at an average annual rate of
2.5 percent in fiscal years 2003 to 2008. Such a decline would
be unprecedented. Let me say that again. Unprecedented in the
Service's history and will likely create severe financial and
performance challenges. According to the Postmaster General,
not only will this erosion place nearly $17 billion of total
revenue at risk, but even worse, the Service's environment is
changing so rapidly that we simply can't predict precisely when
or to what extent competitive pressures may affect the
Service's revenues. As a postal commentator by the name of Gene
Del Polito recently quipped, ``In today's world, Internet years
are more akin to dog years than the Julian calendar.''
So indeed we need to take heed when the GAO states again,
``The Postal Service may be nearing the end of an era.''
Irrespective of Congress's progress in modernizing the Nation's
postal laws, it is clear that these developments make it
imperative for the Postal Service to resolve long-standing
performance challenges that will be detailed by our first panel
of witnesses.
Our first panel today will include Ms. Karla Corcoran, the
Postal Service's Inspector General, and Mr. Bernard Ungar, the
Director of Government Business Operations Issues for the
General Accounting Office. Both the IG and GAO are on the front
lines as America's postal watchdogs, and they have proven to be
valuable partners with the subcommittee in reporting to us on a
broad range of postal operations. Although the GAO has been
evaluating postal operations since the days of the Post Office
Department, the Inspector General is still a relatively new
player on the post scene. Unlike every other major Federal
agency, when it came to the Postal Service, the American public
did not have the benefit of the oversight provided by an
independent Inspector General. Fortunately, in my opinion, we
remedied that problem in 1996 when we enacted legislation to
create the postal IG.
In that regard, the subcommittee certainly looks forward to
hearing from Ms. Corcoran on the progress of establishing her
office since her last presentation to this subcommittee in
1998. It is important that the American postal consumer be
assured that the Inspector General has the necessary staff and
resources to vigorously carry out all of her responsibilities
under the IG Act. With a budget of some $62 billion and nearly
900,000 employees, the Postal Service rivals only the
Department of Defense as the largest Federal agency. It would
thus seem appropriate that the postal IG's budget would be
comparable to the budgets of the Offices of Inspector General
within the Department of Defense and other such agencies. I
look forward to Ms. Corcoran's update on this matter today.
It is important as well to note that both the IG and the
GAO have identified a number of initiatives that the Postal
Service could undertake to improve its own performance. I look
forward to Ms. Corcoran and Mr. Ungar highlighting these
initiatives, especially the extent to which the Service has
followed up on the questions raised by the IG and GAO in
reports to Congress. Further, they have a number of assignments
pending. I hope Ms. Corcoran and Mr. Ungar can report to us on
the status of these assignments and the impact these reports
will have in assessing the productivity and the efficiency of
the Postal Service.
Our second panel consists of a single, yet a very
important, individual, the Postmaster General, Mr. William
Henderson. As Mr. Henderson notes in his written statement,
mail delivery scores and net income appear today to be fine.
However, he also underscores that the Postal Service faces
considerable challenges in sustaining its current performance
in maintaining a competitive role in providing mail service to
the American public in the future. As both the IG and the GAO
have found, the Postal Service requires significant attention
to such areas as labor-management relations, internal controls,
and revenue protection. The subcommittee looks forward to
hearing Mr. Henderson's plans to develop innovative and
workable solutions to these and other problems facing the
Postal Service.
While today's hearing is not specifically devoted to
initiatives regarding reform, the GAO's message makes clear
that time appears to be growing short for the Postal Service to
successfully address these challenges. Unless the Service can
adopt to a rapidly changing communications environment and
growing competition, we are facing a major crisis in the postal
sector. Inevitably the issues of modernizing our postal laws
will prove inherent in evaluating the operations of the Postal
Service itself, and the subcommittee is interested in hearing
Mr. Henderson's assessments of developments in the reform
debate.
We thank all three of our panels of witnesses here today
for joining with us.
With that, I would be happy to yield to the distinguished
ranking member for any comments he may wish to make at this
time.
[The prepared statement of Hon. John M. McHugh follows:]
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[GRAPHIC] [TIFF OMITTED] T3821.002
Mr. Fattah. Thank you, Mr. Chairman. I'm pleased to join
you today for a general oversight hearing on the U.S. Postal
Service and in welcoming our distinguished panelists.
Our focus on the Postal Service is timely. Two days ago the
House Subcommittee on Regulatory Reform and Paperwork Reduction
held a hearing on the U.S. Postal Service regulations regarding
commercial mail receiving agencies. Last week the Postal
Service Office of Inspector General released some 51 reports
and agreed to savings of over $1.1 billion. A number of these
reports, six to be exact, address the treatment of postal
workers by their supervisors.
As a member of the subcommittee concerned, as we all are,
with labor-management issues, I can tell you I'm concerned
about the state of affairs at the Postal Service, particularly
as it impacts better workplace relations. With over 826,000
employees, the Postal Service must move forward with real
improvement in the way it treats its employees and improving
labor-management relations.
Two weeks ago our staff was briefed by the Postal Service
about e-commerce initiatives. The Postal Service is very
interested in having every household connected to an e-mail
address. This foray into e-commerce must first grapple with a
report just issued by the IG on computer security within the
Postal Service. The report identified many significant
weaknesses in computer security. As the IG states, ``the
backbone of any successful e-commerce program must be built
upon a secure and trustworthy computer network. Addressing
deficiencies and shortcomings in the Postal Service's own
computer system obviously must come first.''
Diversity and equal employment opportunity are two issues I
am most interested in seeing resolved. To that end, I've asked
the GAO to review and report back to this subcommittee the
progress of the Postal Service in achieving diversity in the
Postal Career Executive Service. These are senior, high-level,
high-paying positions which must adequately reflect the
diversity of the work force.
With regards to OSHA, in the 105th Congress we enacted the
Postal Employee Safety Enhancement Act. The Postal Service can
now be cited, fined, and referred for criminal prosecution by
OSHA for health and safety violations. Are postal facilities
safe? Is the Postal Service in compliance with OSHA? I believe
my colleagues on this subcommittee will agree that all postal
employees deserve a safe working environment. I look forward to
exploring this issue further with the IG and with the
Postmaster General.
Recently, we have been hearing rumblings that a postal rate
increase is looming. I just got used to paying 33 cents for a
stamp. I wish to examine how, given enormous profits touted by
the Postal Service, how we can be in a position again to face
an increase in the price of a postage stamp. The dialog on this
matter must continue.
Mr. Chairman, I can raise further issues forever. Suffice
it to say that the general oversight of the Postal Service
could not have come at a better time. I wish to thank the IG
and the GAO for their time and reports and willingness to
explore new issues and to find problems. I look forward to
hearing how the Postal Service will tackle its current
challenges and better position itself. Thank you.
Mr. McHugh. I thank the gentleman.
Any other Members seeking recognition at this time?
Mr. Davis.
Mr. Davis. Thank you very much, Mr. Chairman, and I want to
thank you for convening this hearing regarding oversight of the
U.S. Postal Service. Today's hearing is timely and very
important. In fact, this is our second hearing concerning the
Postal Service and its operations this Congress.
There are a number of issues that have emerged since our
last oversight hearing. Among those issues include a report
issued by the General Accounting Office concerning diversity
within EAS 17 and above positions. In addition, there have been
serious complaints and concerns regarding the number and amount
of advertising dollars that are spent with small business
vendors and in minority communities.
The diversity issue is one that concerns me greatly, and
making sure that minorities and women are represented at every
level of the Postal Service must continue to be a priority. In
addition, ensuring the minorities and women receive an adequate
share of contracts must continue to remain high.
Recently I had the opportunity to address a diversity forum
sponsored by the Postal Service. At that forum were managers
and senior managers discussing the importance of diversity. The
Postal Service has been moving in the right direction with
regard to this issue, and I want to commend them for that and
urge that we continue with this progress.
The question of advertising dollars and how they are spent
concerns me. I requested the Congressional Research Service
provide to me a breakdown of the total advertising budget for
the Postal Service and how it is spent. In particular, I wanted
to see what dollars were being spent in what communities and
with minority vendors. I was told by CRS that the Postal
Service did not have such a breakdown. Now, if that is true, I
would like for us to move in the direction of seeing how we can
put one together. This is a question that I posed with the
Census Bureau not long ago, and we were successful in passing
an amendment that would target advertising dollars to minority
communities and with minority vendors. I will be interested in
hearing the Postal Service's views on this issue.
Finally, I, too, am concerned about the article that
appeared in the USA Today newspaper yesterday that suggested
that first-class mail could be in jeopardy by the year 2003
because of advances in technology and more people paying bills
via e-commerce. The article also went on to say that the Postal
Service could lose more than $17 billion in revenue over the
next decade due to e-commerce. I'm interested in knowing what
plans are being made to ensure the long-term competitiveness
and viability of the Postal Service to continue providing
universal service. I look forward to hearing GAO's full
analysis of this issue, and again, Mr. Chairman, I thank you
for convening this hearing and look forward to hearing all of
the witnesses.
Mr. McHugh. I thank the gentleman for his comments.
I know his question relates to what the Postal Service is
doing because the Postal Subcommittee has been working on H.R.
22 for 5 years. I just wanted to make sure we understood that.
Let me now call forward our first panel. Karla Corcoran,
the Inspector General of the U.S. Postal Service, who, I
understand--if you'd just please come up while I'm doing your
introductions--who, I understand, is accompanied by Mr. Thomas
Coogan, who is a legal counsel for the IG, and Richard
Chambers, who is Assistant Inspector General for Audit, and
also Bernard L. Ungar, the Director of the Government Business
Operations Issues Office of the U.S. General Accounting Office,
who, I understand, is accompanied by Teresa Anderson, Assistant
Director, and Gerald Barnes, also Assistant Director. You can
see they're veterans because they have not been seated, and
they know they have to take the oath.
[Witnesses sworn.]
Mr. McHugh. The record will show that all of the witnesses
responded to the oath in the affirmative. And again, once more,
we welcome you all here. Thank you for joining us.
Starting from right to left because why not. Why don't we
start with the Inspector General, and we do have your written
testimony. I have read all of the testimony today in its
entirety. It was all very interesting, and all of that will be
submitted in its entirety for the record. We now turn our
attention to you for your personal comments today.
STATEMENT OF KARLA W. CORCORAN, INSPECTOR GENERAL, U.S. POSTAL
SERVICE, ACCOMPANIED BY THOMAS COOGAN, LEGAL COUNSEL; AND
RICHARD CHAMBERS, ASSISTANT INSPECTOR GENERAL FOR AUDIT, U.S.
POSTAL SERVICE
Ms. Corcoran. Thank you, Mr. Chairman.
Chairman McHugh, Congressman Fattah and members of the
subcommittee, I'm pleased to be here today to discuss with you
the progress of the OIG and what we've seen as we started
looking at the Postal Service. Joining me are my counsel, Tom
Coogan, and my Assistant Inspector General for Audits Richard
Chambers. With your permission, I'm going to ask that we enter
the full statement into the record.
Mr. McHugh. Without objection.
Ms. Corcoran. As you know, this is our third year as an
independent Inspector General within the Postal Service. In the
first year, we spent most of our time creating a separate
mission from the Inspection Service. Our second year, we
focused on hiring and initiating audits and investigations. You
might be interested in knowing that we've identified over 1,000
projects that we believe need to be done within the Postal
Service. And this is our third year we have spent reviewing key
postal programs.
We are a new organization by almost any standard. However,
we have numerous accomplishments and have made remarkable
progress. In the last 6 months alone, we've issued over 100
reports with $1.1 billion, that's a B for billion, in savings
and cost avoidance over the next several years. We have 190
ongoing investigations. Our investigations have yielded 17
criminal charges and $2.1 million in fines and recoveries. We
also have proactive investigations that are targeting fraud and
corruption.
In the last 6 months, our office has grown from 178 to
400--I'm sorry, in the last 18 months our office has grown from
178 to 400 and from four offices to six offices. With the
Governor-approved budget for year 2000, we will grow to 648
staff. We will have 5 additional offices for a total of 11
offices. I'm very excited about our diversity statistics. Our
staff consists of 43 percent women and 42 percent minorities.
Each year the Inspector General community recognizes
outstanding accomplishments within the community. I'm proud to
say that this year, in fiscal year 1999, we received a total of
eight Executive Council on Integrity and Efficiency Awards.
This included four awards for excellence for our work in Y2K,
labor-management, and developing a computer intrusion course
for the entire community. This is the most awards received by
any Inspector General within the community.
Today I'd like to highlight for you the work we have done
in five areas. Those areas are performance, technology,
financial management, labor-management, and oversight of the
Inspection Service.
In the first area of performance, we have conducted 49
reviews of critical core business areas within the last 18
months. In the Corporate Call Management area, we identified
nearly $1 billion in cost avoidances over the next several
years by changing technology. In the transportation area, we
issued two reviews identifying over $150 million in savings
over a 5-year period. These were in the highway transportation
contract area and the rail detention management area.
We also looked at the Priority Mail Processing Center. We
found that the contractor network had not significantly
improved on-time delivery, yet it cost $100 million more than
processing that mail in-house.
Our investigators identified in the international arena as
much as $20 million in revenue that could have been collected.
However, the Postal Service had negotiated lower international
rates even though the mail was processed totally within the
United States.
We've also performed work in the environmental area. We
reviewed Postal Service's use of natural gas vehicles, and
found that these vehicles have been placed in areas where there
is no supply of natural gas.
In the second area, technology, as you know, we have
focused much of our work over the last 18 months in the Y2K
area. We've issued nine reports. We testified before a joint
committee subcommittee hearing in February. At that time we
said Postal had a lot of work to do to be ready. Since then,
with our assistance, Postal has made tremendous progress.
However, challenges remain. In our latest report on Business
and Continuity Plans, we identify many of our concerns about
their plans and the testing of those plans.
In addition, in the technology area, we are doing work in
electronic commerce, computer intrusion, and developmental
projects.
We are also doing work in the financial management area. We
include contracting and facilities in this area. We've done a
total of 31 reports over the last 18 months.
In the Dinero Seguro money transfer program, we identified
ways to reduce the risk of money laundering. You asked us, Mr.
Chairman, whether the indictment of Postal Service's Mexican
business bank partner would jeopardize the integrity of the
program. We said that it would not. However, as a result of our
review, we did identify a previously unknown scheme, whereby
drug traffickers would wire drug proceeds to Mexico. By
partnering with other Federal agencies, we have made five
arrests, and seized 25 kilograms of marijuana and 3 kilograms
of cocaine.
The Postal Service purchases over $8 billion of goods and
services each year. Therefore, we've done quite a bit of work
in the contracting area, much of it for Congressman Fattah. For
example, one of the reviews we have done is to look at why
there has been a decline in minority contracting. In another
review, we recommended that three contractors for the Postal
Service be suspended and/or debarred for various improprieties.
Postal Service has 38,000 facilities. This makes Postal one
of America's largest owners, developers, and managers of real
estate. At your request, Mr. Chairman, we reviewed the Olympic
facilities in Atlanta. We found that inappropriate approval and
oversight had cost at least $9 million more than their original
projections.
Postal Service has identified labor-management as key to
achieving their goals into the 21st century. This has been one
of the toughest areas for us to address, first, because of the
sheer magnitude of complaints we have received--over 2,500
individual complaints. Second, this is an area that we get push
back from management. We have more recommendations that have
not been agreed to in this area than in any other area.
We're also extremely concerned about retaliation against
employees that have assisted or worked with the OIG. Whenever
we have allegations that employees are being retaliated against
for working with the OIG, we immediately review them. We have
11 current investigations in this area under way, and 3 that we
have completed.
In the labor-management area, we focus on systemic reviews.
In the last 18 months we've done 30 reports and 60
congressionals. A major report in this area has been to look at
the threat assessment program. We have found that violence
prevention and response policies within the Postal Service have
not been followed in three districts. We are extending that
review now to look at 26 additional districts so that we can
make Postal-wide recommendations for improvement.
The last area that I'd like to talk to you about is
oversight of the Inspection Service. As you well know, that is
one of the principal reasons why an independent Inspector
General was created within the Postal Service. We have done 18
Inspection Service reports. These include crime lab
certification, abuse of authority, and disciplinary actions. At
your request, Mr. Chairman, we reviewed the classification of
postal inspectors performing audits. We found that 250
inspectors who were performing audits were not spending at
least 50 percent of their time in law enforcement as required
by the Office of Personnel Management. The Inspection Service
has agreed with our findings and has told us that they will no
longer perform ``Yellow Book'' audits.
This will have a major impact on the OIG. We currently are
reviewing this with a task force, and we will be getting back
with the Governors and you to let you know what impact this
will have on us.
One of our greatest challenges is continuing to develop
effective relationships with the Inspection Service. I'm
looking forward to working with the new Chief Inspector. We
both have the same goal of improving postal operations. We have
agreed to renew teambuilding to increase communication, trust,
and coordination.
In summary, I'd like to thank you for allowing us to serve
the Postal Service. We have been a truly independent voice and
a venue for all stakeholders to confidentially report
allegations. We have delivered objective information and
analysis of postal programs, and we have provided greater
economy, efficiency, and integrity to Postal Service programs.
I look forward to continuing to serve you and the Postal
community. This concludes my statement. I'd be pleased to
answer any questions.
Mr. McHugh. Thank you very much both for your statement
here today and, as I've mentioned earlier, your service over
the past 3 years.
[The prepared statement of Ms. Corcoran follows:]
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Mr. McHugh. I believe rather than breaking up the panel, if
it's agreeable to the Members, we'd like to go to Mr. Ungar for
his testimony, and then we can return to questions for both the
witnesses.
So, Mr. Ungar, welcome to you again also. Thank you for
being here, and we're looking forward to your comments.
STATEMENT OF BERNARD L. UNGAR, DIRECTOR, GOVERNMENT BUSINESS
OPERATIONS ISSUES, U.S. GENERAL ACCOUNTING OFFICE, ACCOMPANIED
BY TERESA ANDERSON, ASSISTANT DIRECTOR; AND GERALD BARNES,
ASSISTANT DIRECTOR, U.S. GENERAL ACCOUNTING OFFICE
Mr. Ungar. Thank you, Mr. Chairman, members of the
subcommittee. We're pleased to be here today to assist the
subcommittee in carrying out its oversight function over the
Postal Service.
In our written statement, we really discuss three broad
areas: the Service's historical performance, major challenges
it faces in the next few years, and the results of our work
since the last oversight hearing that the subcommittee had. In
my summary, I would like to focus on the major challenges that
we see and the change that we see over the horizon that the
Postal Service is facing.
First, I would like to note that our work as well as work
of the Inspector General and information from the Postal
Service would indicate that the Postal Service's performance
currently and in the recent years has been notable. It's earned
profits consecutively over the last 6 years, which is kind of a
first since it was established as the modern Postal Service. It
reports improvements in on-time delivery in both overnight
mail, first-class overnight mail, and 2- and 3-day mail. It's
made some progress in the labor-management area and some
progress in work force diversity, particularly after the report
that Mr. Davis mentioned. It's in better shape today now than
it was a few months ago for the Y2K situation, and it's
improved controls that we previously found to be deficient in
the areas of changing addresses when people move and the
acceptance of business mail. It also, last but not least, has
made notable progress, in our view, in implementing the Results
Act over the last year.
However, as we indicated in our written statement, we see
that the Postal Service may be nearing the end of an era. While
the performance has been notable, we see formidable challenges
in the future, first of which and foremost in our mind is
sustaining its financial viability in the face of competition,
increased use of electronic communications, and increased
customer demands for more service, better, and cheaper.
Historically, increasing postal rates and increasing mail
volume have provided the Service with additional revenues which
have enabled it to take care of and finance wage increases,
modernization, and improvements in the quality of service.
However, as figure 1 in our statement shows, and as indicated
by the board over to my right, first-class mail volume, as you
indicated, Mr. Chairman, may be in for a downturn. The growth
rate of mail volume has increased, as we have in the chart laid
out by decade. During the 1970's, it was increasing. It
continues to increase in the 1980's. However, in the 1990's,
the rate of increases started to come down, and the latest
projection from the Postal Service is that during the next
decade it's going to basically come down below where it was. In
other words, not only will the rate decline, but the actual
first-class mail is projected to volume decrease starting
around 2003 and then continuing to go down from there as a
result of electronic communication and technology.
In addition, the Postal Service faces increased
competition, as you know, from a variety of sources, and this
certainly could also affect the volume of first-class mail and
the revenue that's associated with first-class mail.
Now, why is this important? One of the main reasons it's
important is because first-class mail generates a large
proportion of the Postal Service revenue overall, and it covers
about--at least it has covered about--two-thirds of the Postal
Service's overhead cost. So, if the volume of first-class mail
goes down, the revenue goes down; it's going to have to make up
that amount of money from someplace or cut costs substantially
or both in order to cover the overhead, or the revenues from
other classes of mail will have to increase.
Just to give you an idea as to the type of challenge that
we see the Postal Service facing, let's take the year 2000, for
example, and the goal the Postal Service has which is currently
to earn $2 million--excuse me, $100 million in 2000. To achieve
this goal, the Postal Service says it must realize a 1 percent
reduction in work hours of its employees and increase
productivity by 3.1 percent. Now, how is this going to happen?
It faces, at the same time it wants to achieve this goal, a
situation in which mail volume in 2000 is expected to grow
nearly 4 percent, and the number of delivery points that its
carriers make is expected to grow as well as it has over the
last few years.
To top that off, if you look at the chart to my right
again, looking at productivity historically since the modern
Postal Service was established, it's only gone up 9 percent
overall since 1972. And in 4 of the last 5 years, it has not
gone up. It's gone down. And it's only gone up 3 percent on
four occasions, 4 years over the entire period that's on the
chart. So that puts in perspective its goal of 3 percent next
year. That's not to say it's not achievable. I think, as we
indicated, it's going to be a fairly significant and formidable
challenge for the Postal Service to do this.
The second challenge that we see deals with maintaining its
service delivery. Our discussions with some of its large
customers indicate they are very concerned about the Postal
Service's ability to do this in the future. And this largely
will depend upon new indicators--the Service now doesn't
measure all classes of mail. It's in the process of developing
indicators for a number of those, and I think it's going to be
very important for the Service to continue that to make sure it
does have indicators for all its major classes of mail so its
customers and stakeholders, including Congress, can see just
how well it's doing, and hopefully it will be improving.
But both addressing its financial performance challenges
and its service delivery performance challenges hinges heavily,
in our view, and I think in terms of also the Inspector
General, on its ability to forge a partnership or a better
partnership with its employees. And as we've indicated in the
past, as well as others, labor-management relations has been a
very difficult problem in the Postal Service. We have seen some
progress since our last report. The Postal Service and its
unions and management associations have been meeting. However,
we haven't seen a whole lot of substantial progress. We're glad
to note that there was a negotiated agreement with some of its
unions. However, as you know, with the city carriers, that
wasn't the case. And the implications of that for the future
may not be positive in terms of how the Service is going to be
able to deal with that.
Second, there is some indication from Postal Service data
that the number of grievances has not gone down. As a matter of
fact, it appears to have gone up, which is not a good sign in
terms of improving the partnership with its employees, and it's
going to be difficult, we think, for the Postal Service to
accomplish its goals and meet the challenges if it can't forge
a much better relationship with its employees.
Finally, the last challenge I'd like to summarize has to do
with the integrity of the data that the Postal Service uses for
both measuring performance and for ratemaking. It's critical,
we think, that the Service has reliable data to report to its
stakeholders and to its customers on its on-time delivery in
all classes of mail as well as other indicators. It's also very
important for the Service to provide reliable data for
ratemaking purposes.
Mr. Chairman, this is an issue that you raised several
years ago, as you know. The contract--excuse me, the Postal
Service at your behest and urging--hired a contractor to assess
the data. The report is issued. The contractor made 40--over 40
recommendations--as to improvements that could and should be
made in the ratemaking data process. Unfortunately, when we've
talked to the Postal Service, we can't get a clear signal from
the Postal Service as to what specific actions it plans to take
with respect to those recommendations and a timeframe. So in
our testimony, we are making a formal recommendation to the
Postmaster General to develop a plan and come up with some
specific actions that it would propose to take. Obviously, it
may not be able to address all those in the short term; so I
would presume there would be some that the Postal Service could
address in the short term and perhaps some that would take more
time and effort.
That, Mr. Chairman, concludes my summary. We'd be happy to
answer any questions that you may have.
Mr. McHugh. Thank you, Mr. Ungar.
[The prepared statement of Mr. Ungar follows:]
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Mr. McHugh. I recognize Mr. Fattah.
Mr. Fattah. I just want to put this on the record. We have
to go to vote. Immediately after the vote Title I is coming
back to the floor. I have two amendments scheduled for debate
on the floor. I may not be back with you for a while, but you
are in capable hands. I will have some written questions that
my staff will submit to the panel.
Mr. McHugh. We thank the gentleman. I appreciate his work
on Title I. That's a very important bill. So we will go vote.
It's a Journal vote, so it doesn't take a lot of time or
thought. It's yes or no. And try--if I could ask those Members
that can, return as soon as they can. We stand in recess. Thank
you.
[Recess.]
Mr. McHugh. I'm here. You're here. Let's start.
Mr. Ungar, let's begin with you. Obviously your report has
created some interest, and I think that's a good thing. I think
it can help us to focus on the challenges that many of us had
thought were certainly on their way, but most of us thought, I
believe, that they were a little bit further away than what
we're now hearing.
The projections you used are from the Postal Service
itself. Did you have an opportunity to examine the probable
validity, the accuracy, the level of confidence on those, and
if so, how do you evaluate that? Pretty good projection, do you
think? Reasonable?
Mr. Ungar. We didn't do a full evaluation of that, Mr.
Chairman. It seemed reasonable on the surface, but again, I'd
have to say we did not certainly independently verify the
information, and I think it's difficult to predict the future.
I think the Service looked at the--looked historically at what
the situation has been, and certainly what the current
scenarios are, and what the likely trends are given electronic
communication and competition, and put the estimate together.
Mr. McHugh. For your purposes, you took that figure as
moderately reliable; might be higher, might be a little lower,
but as far as we can tell sitting here today, 2\1/2\ percent
within the next 3 years seems reasonable?
Mr. Ungar. It's in the ballpark. Again, predicting exactly
in what year, at what point in time and exact percent I think
is going to be very difficult. It certainly seems to be
reasonable given the scenarios.
Mr. McHugh. I remember when I graduated from high school
that was an end of an era. It was the end of a not-so-good era
and the beginning of a pretty good one. When I decided not to
run for reelection in the New York State Senate, that was the
end of an era. I came down here. It was the start of not such a
good era. How do you phrase ``end of an era'' in your report?
Mr. Ungar. Mr. Chairman, Mr. Davis, Mr. LaTourette,
basically we're using it in the context of a major change. Now,
whether it's positive or negative I think depends upon, as in
your experience, how the Service and the Congress deal with the
formidable challenges that the country faces in terms of what's
facing the Postal Service. Obviously its performance in recent
times is good. The Service may feel good at the end of one era,
but as we approach the next millennium, I think the competitors
are here. They're probably here in this room. They're out
there.
Mr. McHugh. They're always out there.
Mr. Ungar. That's right, yes. They're not only domestic
competitors, but they're foreign competitors, too, as you know,
who are here and there may be more on the way. That is coupled
with electronic commerce, coupled with the kind of unique
organization that the Postal Service is, sort of half
governmental and half private, and some of the constraints it
faces, it doesn't have, on the one hand, some of the
flexibility that the private sector firms have. On the other
hand, it has some protections. It doesn't have to do some
things that the private sector has to do, although that's
dwindling in some cases like in the area of worker safety. So
it really is a situation in which the Service is going to have
to face the challenge. It's going to probably have to change--I
don't know if I should use the word reform.
Mr. McHugh. Go ahead.
Mr. Ungar. But I think it can't do it certainly alone. I
think the Congress is going to really have to work with the
Postal Service, and as we mentioned in our statement, I think
it's going to be very important for the Postal Service to
effectively work with the human capital, the employees in the
Postal Service, and somehow in some way, and I'm not quite sure
how, to do better in terms of working relationships with the
unions, particularly the clerks and the city letter carriers,
than it has in the past. It's been very confrontational.
I think as we testified before, the implementation of
delivery point sequencing was a major dilemma and a major
difficulty for the Postal Service working with the unions, with
the city letter carrier union. In the future there undoubtedly
are going to be changes. I don't know exactly what those
changes are going to be. We don't see how the Postal Service is
going to make progress without more of a cooperative effort. We
think the Results Act and the goals that the Postal Service has
set and the goals it will set working with the stakeholders,
including the unions, might be a vehicle to try to reach
agreement on some common goals relative to its future viability
for both the well being of its employees and its financial
viability.
Mr. McHugh. You really segued into just the last part
before I turn it over to my colleagues, and then if we have
time, I'd like obviously to get back to Ms. Corcoran and also
to you. This is what the Postmaster General later will
describe, and I'm assuming you agree with this generalization
as well. It could put at risk $17 billion of Postal Service
revenues. That's almost 30 percent of its current operating
stream. That's an enormous challenge.
I'm hearing you say that the Postal Service has certain
inherent problems in House problems that it needs to stand up
to. But as well, it probably can't go it alone; that the
Congress and, I would assume, this subcommittee and this House
has a role as well to try to--let's not use the word reform--
reposition the Postal Service. I think I heard you say as well
there are two things about that. One, to allow the Postal
Service to respond to this new era in a way that all of us
agree is appropriate, whatever that way may be, but also
perhaps to level the playing field as that activity interfaces
with the private sector. Is that a fair description of what you
said?
Mr. Ungar. Yes, sir. I think it will be, of course, a
public policy decision on that level playing field and how far
one goes and the consequences for the public in terms of
universal service.
Mr. McHugh. Absolutely. I don't want to presume to ask you
to help us there. That's supposedly what we get paid for. Thank
you.
Let me yield to Mr. Davis.
Mr. Davis. Thank you very much, Mr. Chairman.
Ms. Corcoran, I was very intrigued by your testimony,
especially the level of progress that you indicate in being
able to identify areas of need and then coming up with movement
toward some resolution of those. Did I understand that by
contracting out priority services, that that had not been an
increase in on-time delivery?
Ms. Corcoran. A very small increase, less than 2 percent, I
believe.
Mr. Chambers. About 1 to 4 percent.
Ms. Corcoran. About 1 to 4 percent.
Mr. Davis. Did I understand that this system, though, saved
the Service $100 million?
Ms. Corcoran. No, it cost an additional $100 million over
doing it in-house because they have to put their own
infrastructure together, the contractor does, to do this.
Mr. Davis. So we spent an additional $100 million to
contract out priority services and yet did not experience much
in the way of an increase of on-time delivery.
Ms. Corcoran. That's correct.
Mr. Davis. That is, in discussions or conversations, did
you get anything relative to what the rationale had been for
making the decision to contract those services out?
Ms. Corcoran. Yes, we did. The Postal Service realized at
the time that they were doing the contracting that it was going
to cost more to contract, and that's one of the things that
they pointed out to us numerous times, that they had been aware
of this from the start.
Mr. Chambers has been involved in a lot of the discussions
with Postal Service, so I'd like him to address that.
Mr. Chambers. Actually, as our report indicates, this
really stemmed from a problem earlier in the decade with
delivery rates for priority mail. This was an initiative on the
part of the Postal Service. This network was created to try and
get the on-time performance scores for priority mail to
increase. They felt that a dedicated network that would be
operated primarily on the east coast would increase those
scores. In the process, they contracted out to a vendor, and
again, as we've said, that is a more expensive proposition. We
really haven't been able to document that it's increased the
performance a lot. Part of that stems from the fact that they
didn't create a baseline of performance in that area, so it's
kind of hard to say that the performance in that region today
is much better than it was before. So what we did was to
compare the performance in that region with similar regions of
the Postal Service where they operated without a contractor.
That's the basis on which we say there was very little increase
in performance.
Mr. Davis. Did we find that their projections were off or
the analysis just was not good from the beginning? Were there
changes in the environment which took place that had not been
foreseen that could have resulted in the lack of performance?
Mr. Chambers. Well, again, the performance in that region
today is comparable to what it is in other regions of the
Postal Service. Also there is really no evidence that before
the network there was a significantly lower performance in that
region before. They were trying to get scores higher. The
percentage of on-time delivery, they're trying to get that up
to like 95-96 percent. It's coming close to that, but again
it's not much lower than that in other highly developed urban
type areas of the United States.
Mr. Davis. Thank you. Ms. Corcoran it is also my
understanding that the Postal Service failed to collect $20
million in revenue because they charged a lower negotiated
international rate for mail actually processed as domestic
mail. If that is the case, is there something that they need to
do? What can they do to get this under control?
Ms. Corcoran. This, I believe, is a one-time instance as
far as we know. We're certainly going to be looking at that.
They do have rules and procedures in place. The mail was to be
put in the mail stream outside the country; instead it was
actually trucked into the country and put into the mail stream
here. Had it been put into the mail stream outside of the
country, the international rates would have been appropriate.
But we even found they were losing revenue even at that,
because it was costing them more than what it would have.
Mr. Davis. But you would think that the corrective action
has been taken that would prevent any recurrence.
Ms. Corcoran. We just issued that report at the end of
September. We will be going back and working with them to
assure that they have taken corrective action on it.
Mr. Davis. Thank you very much.
Mr. Ungar, the IG has identified a problem with the quality
and integrity of data provided by the Postal Service.
Obviously, this is some of the information that they would have
used to make the prediction or the projection that there's
going to be a substantial decline in first class volume in the
next decade. How reliable do you find this data to be or think
that it is?
Mr. Ungar. Mr. Davis, as we indicated, we didn't make an
independent verification of the data. I think the data we're
really talking about relate to the future, the predictions for
the future in terms of mail volume that's expected. So again,
we aren't in a position to verify that, but on the other hand,
I'm not sure how you verify a prediction. All you can do is
ask, does it appear reasonable, do the assumptions appear
reasonable?
And it's certainly clear that the competition is there. I
don't think anybody would argue with that. I think the, you
know, the trend toward more and more use of electronic
communications, electronic commerce, and the Internet is there.
Now, again we certainly can't say with any certainty that
the exact percent is accurate down to the tenth of a point, or
we can't certainly say that the exact day or the time is there.
But it's certainly--the direction that the Postal Service is
projected--reasonable, based on all that information.
Mr. Davis. On page 16 of your testimony, you state, and I
quote, that the Service reported that it has made aggressive
capital investments in technology and infrastructure to improve
the distribution and delivery of mail as well as reduce labor
cost. How much have we been able to reduce labor costs or is
that something that we've been able to determine?
Mr. Ungar. Mr. Davis, I think it's come down slightly as a
percentage of overall costs. I don't believe that labor costs
have come down absolutely; is that correct?
Ms. Anderson. They have come down as a percentage slightly.
Mr. Ungar. They've come down as a percentage of total
costs. I don't believe they've come down in absolute terms.
I think that's going to be a fairly significant challenge
for the Postal Service. I think the customers of the Postal
Service, particularly the business mailers, have been expecting
to see an actual drop in the cost of operations in the Postal
Service and greater efficiency as a result of these capital
investments. Unfortunately, it doesn't appear as though the
actual savings have materialized as quickly or as greatly as
the Postal Service had predicted.
Now one area that we specifically looked at and reported on
last year was the delivery point sequencing initiative. There
were significant problems in getting that going on schedule and
keeping it on schedule. So there were some areas there where
the Postal Service didn't realize as much savings as it
expected.
Mr. Davis. Finally Mr. Chairman, if I might, Ms. Corcoran,
you indicated that you had discovered, or that your office
found $1.1 billion during the last 6 months in monetary
benefits. Do you have any idea of what's actually out there,
how much more there might be or how much more one could look
for?
Ms. Corcoran. I wish I did, but I don't. $1.1 billion--the
cost avoidance through fiscal year 2007--is fairly significant
to have found in a 6-month period. In all honesty, I would hope
that we don't find that much every 6 months because it would
indicate that things aren't going as well within the Postal
Service as you would hope. But we will continue to look and to
work with them to try to improve things, so there's not that
type of monetary savings.
Mr. Davis. Well, I think you've done an outstanding job in
that area. And I would hope also that you don't find much more
because it's not there.
Thank you, Mr. Chairman.
Mr. McHugh. I thank the gentleman.
The gentleman from Ohio, Mr. LaTourette.
Mr. LaTourette. Thank you, Mr. Chairman, and thank you for
having the hearing. Ms. Corcoran, I, having been a member of
this subcommittee now for a few years, want to give you and
your office praise--for every time you appear before the
subcommittee first, and second of all, for the fine work that
you've done and the reports that you've issued.
I do want to talk to you about your written testimony in
two parts, one on page 4. There was a conclusion reached by you
and your office that found that the international business unit
of the Postal Service did not have key processes in place to
achieve projected revenue goals and that some initiatives fell
short of revenue projections. And then on page 8, in the list
of reports that you've issued, the second bullet point on page
8 indicates that your office examined the financial
profitability of international mail and determined that
international mail contributed positively to the financial
position of the Postal Service and is not subsidized by
domestic mail service.
I guess--can you reconcile those two paragraphs for me? Do
I understand, in the international mail arena, the Postal
Service has 14 what are called outbound mail services. And if I
understand what you're saying on page 4, you're saying that not
all of those are operating in a revenue positive position for
the Postal Service, but on page 8 are you saying, overall, that
the Postal Service's international mail operation is--it's
covering its costs and it's not being subsidized by domestic
mail?
Ms. Corcoran. This is a little confusing when you compare
those two. On page 8 what we're talking about there was a
question that was asked quite often a year ago about whether or
not international mail was cross-subsidized by domestic mail.
And page 8 we did a review, and we found that that was not
occurring.
The review that we talk about on page 4 was really a review
of the international business unit as a whole, not necessarily
of their products, but of their initiatives. We were looking at
this separate business unit. In fact up until this point in
time, I believe it was the only business unit that the Postal
Service had identified as a separate unit. We took a look to
see whether or not what they were expecting from this business
unit was really going to occur and whether or not the
projections in revenues that they had were really appropriate.
We found that, as it says here, they fell short of some of the
revenue projections.
Mr. LaTourette. My question is spurred by a report from
June of this year to the Congress by the Postal Rate Commission
that examined the 14 outbound international mail products, and
they indicated that of the 14, four they found to be
noncompensatory; that is, they didn't make as much money as it
cost for the Postal Service to be involved in them. And I'm
wondering if that squares with what you found, and if it does,
in order to have the paragraph of the bullet point on page 8
make sense, are the other 10 making so much money that it
covers the deficits in costs for the four that are not? And the
four that are cited by the Postal Rate Commission are the
surface printed matter and small packet surface periodicals,
global priority mail and global package link.
Mr. Chambers. I would like to answer that one for you.
Actually when we completed our work, looking at international
mail, the possible cross-subsidization, we concluded that there
is not cross-subsidization between domestic and international;
that is, as a whole, the international products are paying
their way. We did, however, I believe in our report raise the
possibility that there could be cross-subsidization within the
international products; that is, one might not be paying its
way and another would.
At the time we concluded our work, we planned to do a
second phase. It was about the same time that the Congress gave
the Postal Rate Commission additional oversight
responsibilities in the international mail arena at which point
we deferred to them to take a look at the possibility of cross-
subsidization within those products.
Mr. LaTourette. Thank you.
Mr. Ungar, is that something you all looked at at GAO?
Mr. Ungar. We didn't look, Mr. LaTourette, at revenue and
expenses in the depth of the Inspector General. We looked at
the GPL program last year and reported on that.
Did you want to say anything?
Ms. Anderson. We didn't look at whether or not it was being
cross-subsidized. Again, we've been working with the PRC and
with the Postal Service in looking at the general issue of the
quality of ratemaking data, but we did not look specifically at
the international area.
Mr. LaTourette. Did you make any recommendations relative
to GPO?
Mr. Ungar. Excuse me?
Mr. LaTourette. Did you make any recommendations as a
result of your analysis, or are you deferring to the PRC in
terms of rate?
Mr. Ungar. Not on GPL. We did, however, make a
recommendation to the Postal Service on ratemaking domestically
in terms of the Postal Service's response to the contractor's
recommendations. I think they only dealt with domestic rates;
the contractor didn't look at the international area.
Mr. LaTourette. Thank you very much.
Thank you, Mr. Chairman.
Mr. McHugh. I thank the gentleman.
I'll come back to that line because I think the gentleman
from Ohio has raised some very interesting points that I would
like to pursue a little bit further.
But let me yield to my fellow colleague from the great
State of New York, Mr. Owens.
Mr. Owens. Thank you very much, Mr. Chairman.
Unfortunately, we have a major bill on the floor for the
Education and Labor Committee that I serve on; I won't be able
to stay. But I have a couple questions related to the work
force.
I'm the ranking Democrat on the Subcommittee on the Work
Force, and you acknowledge--we would like to acknowledge the
fact that we have seen some impressive efforts in identifying
systemic problems in the labor-management area. Specifically I
want to ask, has the Postal Service been receptive to your
reviews on how to improve the grievance arbitration procedure,
reduce the backlog of grievances, and improve the labor
climate? And if they have not, why not? If so, what's changed,
what's different?
Mr. Chambers. I believe, as we took a look at the grievance
and arbitration area, we actually did two or three different
reports on that and found that there was an opportunity to
review those processes. In fact, we found----
Mr. Owens. Can you get closer to the mic, please.
Mr. Chambers. We did take a look at the grievance and
arbitration area. We issued a couple of reports. One report on
the management information data found that they really needed
to improve the information they had in the grievance and
arbitration area. They agreed with us on our work and said that
they would improve that area.
I think our second report dealt more with how the grievance
and arbitration cases were handled in terms of working with the
unions. If I'm not mistaken, I believe there was not a
consensus on how those issues could be resolved. I don't have
those details at my fingertips.
Mr. Owens. Did you not have some reports on conditions in
the workplace?
Mr. Chambers. Yes, I believe we have issued a number of
those reports as well. Again, specific reports don't come to
mind right off, but I know we have issued several reports in
those areas.
Mr. Owens. You're not familiar with the one that deals with
the Suncoast district?
Mr. Chambers. Yes, I'm sorry. That's the district-wide
review we did on the labor-management climate, and we did find
a number of areas where there could be improvement. In fact, it
was on that basis that we recommended expansion of our work;
and we're now doing it nationally, we're looking at an
additional 26 districts.
We did not get an agreement out of--it was an interesting
situation, because we actually got more agreement at the local
level on the issues than we did as we moved up to the area
level within the Postal Service.
Mr. Owens. Can you explain a little more, if the Postal
Service has a zero tolerance for violence, how could that
situation be so prevalent? I mean, can you explain?
Mr. Chambers. Well, much of, I think, what we've disclosed
dealt with the issue of the labor climate assessments and the
fact that those climate assessments were not being done, and
that some of the issues that were arising from them were not
being corrected. It's on that basis, as we said, we want to do
a more nationwide effort on that.
Mr. Owens. But there was resistance as you went up the
chain, you said.
Mr. Chambers. That's my recollection on that particular
one. I would have to double-check it, but as I recall--and this
is something that's not uncommon--we have, in some cases,
gotten more cooperation from management on labor-management
issues at the lower levels than when we move up. In fact, the
most consistent resistance we get on our labor-management
recommendations actually comes at the headquarters level and at
the area vice president level.
Mr. Owens. What is the response of the Postmaster General
to that?
Ms. Corcoran. I have mentioned this to Mr. Henderson. We
have been hoping that a Deputy Postmaster General would be put
in place so we could start working with them. Now they have put
in an executive vice president for Human Resources, and that
was done last week. We will be addressing those issues with
her.
Mr. Owens. Would you say that massive labor-management
problems are still not a priority, have not been made a
priority?
Ms. Corcoran. They are a priority, by all means. In fact,
we have devoted a substantial amount of our resources to
looking at these issues.
Mr. Owens. On another subject, last year Representative
Fattah contacted your office and requested an investigation of
Postal Service minority procurement opportunities. Your report
revealed that the Postal Service did not enforce its
requirements that contractors submit subcontracting plans and
encourage including minority subcontracts. It also showed that
contracting officers use their discretion in deciding when to
comply with requirement, and that minority contracts have
declined annually since fiscal year 1994.
To your knowledge, has the Postal Service begun to reverse
the decline of the minority contracting opportunities? Has the
Postal Service adopted any of the recommendations contained in
your report?
Ms. Corcoran. Yes, they have. While we have not done a
followup review as of yet, we have been keeping tabs on this,
what the Postal Service has done in this area, while we've been
doing other contracting areas. We will eventually be doing a
followup audit, probably toward, spring of next year. We want
to give Postal Service long enough to actually put processes in
place.
Also, Congressman Davis, you had mentioned earlier today
your concern about minority contracting for advertising. We are
going to be doing a local advertising job this year. We will be
looking at whether or not minorities are given the same
opportunity to compete for advertising as well as other
individuals.
Mr. Owens. You'll be recommending those things, or there is
already a commitment from the top that those things will be
done?
Ms. Corcoran. We will be looking to see whether or not
Postal has an adequate program in place to assure that
minorities are included in local advertising.
Mr. Owens. The commitment has been made; they have said
they would put an adequate program in place to correct this.
That commitment has been made already.
Ms. Corcoran. No, not to my knowledge.
Mr. Owens. You're going to recommend it.
Ms. Corcoran. Well, I cannot say what we will recommend
until we've done the review. But we will look to see whether or
not they have adequate controls in place. And if they don't,
then we certainly will make recommendations to assure that
minorities are adequately included within the contract's
consideration.
Mr. Owens. Thank you.
Mr. McHugh. The vice chairman of the subcommittee, the
gentleman from South Carolina, Mr. Sanford.
Mr. Sanford. Thank you, Mr. Chairman. I want to apologize.
I may have to run in just a second.
I guess my question would be for you, Mr. Ungar, that if
you look at this as a theoretical question, but H.R. 22, for
instance, the whole debate about the bill has been tied to, you
know, what do we do to prepare the Post Office for what's
coming its way; and I think that John created the perfect bill
given the political confines he had to deal with.
In other words, I don't think you could have crafted a
finer bill, given the political reality that exists on the Hill
and with the different constituents tied to Postal. My question
would be, assume you're just a raging idealogue, which is where
I would be, not tied to the political reality that John has to
deal with on a daily basis, if you were to look at it from that
perspective and you look at the problems confronting the Post
Office, would your goal be, in this perfect world, to deal more
with the cost side or on the revenue side, increasing revenue
as a way of fixing the problem or decreasing cost?
Mr. Ungar. That's a tough question. I think I would focus
first on cost, but let me ask Ms. Anderson to address that more
fully.
Ms. Anderson. I would think that the Postal Service would
really need to focus on both. And you'll find that they have
goals and they have strategies in their performance plans that
I think really go to trying to achieving gains in both areas.
And obviously the more successful they are in reducing their
costs, that would put less pressure on the need to find
additional revenues. But I think the efforts really have to go
toward both sides.
Mr. Sanford. One of my struggles has been, if you look at
the cost part of the equation and you look at labor costs as
measured against other private sector competitors--and again
it's not a perfect match-up, given universal service and other
constraints that the Postal Service has--would you really focus
in on the labor portion of the cost segment?
Would that be a big star as you look at cost structure, Mr.
Ungar?
Mr. Ungar. Well, it has to be looked at, sir, because
obviously there are different percentages, but it's roughly in
the 80 percent area, plus or minus, that constitutes a cost. So
I don't know how the Postal Service would be able to make any
substantial progress without somehow addressing that.
Now, exactly how it's going to do that is a real challenge.
As we indicated, productivity over the last many years hasn't
significantly improved despite, you know, the amount of money
that's gone into automation and capital improvement. Maybe that
will change somewhat in the future as more progress is made.
But I don't know how it's going to make substantial progress
without looking somehow at the labor portion of that.
Mr. Sanford. What would be benchmarks that you would see in
the private sector in terms of productivity gains with private
sector competitors in mail-related businesses?
Mr. Ungar. I would presume you would have to look at
organizations like Federal Express. If you are talking about
individual companies, I would presume it would be those
organizations that are involved in the same type of activity.
Now, maybe foreign counterparts might be another.
Mr. Sanford. Do you have any of those? Would you have any
feel for what kind of productivity gains they've been looking
at?
Mr. Ungar. We have not addressed that, sir.
Ms. Anderson. We haven't looked at the private sector.
Mr. Ungar. We haven't looked at that aspect of foreign
postal organizations and what kind of data they have.
Mr. Sanford. I thank the chairman.
Mr. McHugh. I thank the gentleman.
Mr. Ungar, as I said in my earlier comments, many of us
expected this type of challenge that you generally outline in
your report. But most of us thought it was some time away; we
thought the wolf was out in the woods. I think you're showing
us that if the wolf isn't at the door, he may in fact be coming
up to the front steps.
I want to probe what you said a little bit earlier, because
it may be worse than that. If I heard you correctly, you talked
about the Postal Service's financial plan for next year, 2000,
their projection of $100 million net revenue. I believe I heard
you say that the factors on which that $100 million is
predicated are, shall we say, optimistic, a 1 percent reduction
in work hours, which goes against everything that we see in the
workplace structure, in the numbers of stops, numbers of
employees; 3.1 percent productivity increase, as opposed to an
entire 9 percent increase since 1972, or 25 years.
So I believe what you're suggesting in your very judicious
way is that $100 million based on $62 billion of revenue--I
wish I had a $100 million in my back pocket. But if your entire
budget is $62 billion, $100 million is not an enormous amount
of money, so that's pretty optimistic.
Is that what I heard you say?
Mr. Ungar. In our conservative way, I think so, yes.
Although, again, predicting the future is awfully difficult, as
you know. That's why we label this as a challenge and a fairly
formidable challenge, because the forces seem to be going in
the opposite direction.
Now, maybe there will again be some very big payoff that
we're not seeing in some of the automation and capital
improvements. But it would certainly seem to take--I hate to
use the word ``miracle,'' but it would certainly take some
significant event or series of events that would appear to
enable the Service to achieve its goal. Again, it certainly may
do that, but it looks like a fairly significant challenge for
all the reasons that we both cited.
Mr. McHugh. I understand that. I have been in government
for nearly 30 years now and I know what it is to make 5-year
budget projections and look 6 years back and laugh like crazy,
no doubt about it, but we have to make certain assumptions.
But the point that I think needs to be kept in mind here is
that a lot of good folks are here this morning because of, in
large measure, what your analysis found. And I think they're
here because they wanted to try to better understand how it is
that now, within a timeframe as short as 3 years, we could have
a problem facing the Postal Service that could total $17
billion, nearly 30 percent of its total operating revenues.
What I'm suggesting is, if you just forget about the 3
years from now when that $17 billion is driven largely by the
challenge from electronic commerce and electronic
communication, you've actually got a Postal Service that could
be in big, big trouble starting as early as next year. I think
in terms of what this subcommittee has been trying to do for
the past 5 years, and, as the vice chairman said, as we've
tried to react to the practical and the political realities of
passing a bill in this town, 3 years, 2003 is just around the
corner. Next year, for all intents and purposes, is here today.
So I think the message for this morning has to be, we don't
have a lot of time anymore. The Congress has to be a part of
this. We owe it to the Postal Service, but more importantly, we
owe it to the American people.
The Postal Service itself has problems that it needs to
meet head on. As Ms. Anderson said, there are certain cost
constraints and cost problems that they can and should meet
internally. But this is going to take some serious resolve by
this Congress and by the Postal stakeholders, a lot of whom are
in this room today and a lot of whom I don't think truly
believe the urgency of the problem. But I hope they're
beginning to reassess this morning.
So, with that, we do have the Postmaster General. We've
taken up almost 2 hours of your time, and I deeply appreciate
your being here.
Ms. Corcoran, particularly, I've got a whole lot of
questions I want to ask you. But with both of your indulgence,
we'll submit those for the record.
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Mr. McHugh. I want to thank Ms. Corcoran, who, I think, is
doing an amazing job in establishing an office, and yet at the
same time, not spending a lot of time getting acclimated, but
rather going out, and as her testimony so adequately and, I
think, accurately details, making a real difference in the
quality of service that the Postal Service provides.
Thank you for that effort and that initiative.
And, Mr. Ungar, to all of you in the GAO, thanks for your
partnership and you'll be hearing from us. Thank you so much.
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Mr. McHugh. The next person to testify, of course, is the
Postmaster General and Chief Executive Officer of the U.S.
Postal Service, Mr. William J. Henderson.
General Henderson, welcome. Raise your right hand.
[Witness sworn.]
Mr. McHugh. The record will show the Postmaster General
responded to the oath in the affirmative, as I knew he would,
because he's always a truthful man.
Mr. Postmaster General, Bill, welcome. Thank you for being
here. Thank you for your patience. As you can see, we have a
few topics to talk about. The stage has been set, and we're
looking forward to your comments. I have read your testimony;
it will be submitted in its entirety for the record. We now
look forward to your presentation this morning.
STATEMENT OF WILLIAM J. HENDERSON, POSTMASTER GENERAL AND CHIEF
EXECUTIVE OFFICER
Mr. Henderson. I won't read back my testimony to you. I'll
just make a few brief comments, and then we'll go to the
questions, if that's what you like.
First of all, thank you for all the help you've been. We've
had--in a short term, we've had a very good year. In the Postal
Service this fiscal year we set record goals in service and we
also received a record rating of 94 percent by the consumers
across America in rating the Postal Service good, very good and
excellent.
We expect in this fiscal year to do about $100 million
better than what we planned, so somewhere the neighborhood of
$300-plus million. That's in spite of the fact--and you've been
talking about it--the fact that we missed our revenue plan by
$620 million. In other words, when we postponed the rates
increase in June--that was scheduled for June, to January, we
gave the American public an $800 million deficit. We didn't
expect at that time to also have to make up another $620
million in revenue.
So, from an operating point of view, it was a difficult,
but successful year.
We also, on the employee front, were very proud of the fact
that we negotiated two labor agreements, one with the American
Postal Workers Union, one with the Mail Handlers Union, that
set the stage, I believe, for much better labor relations.
We're in the process of negotiating, as we speak, with the
National Letter Carriers Association. And we regrettably went
to arbitration with the National Association of Letter
Carriers, but that is now behind us. So I think it's been a
very successful year for the Postal Service.
But I, like you, do not think that the future is
potentially as good unless the Postal Service does something
about the Internet, gets involved in it, gets active in it. And
I also think that H.R. 22 is a very important piece of
legislation that will help the Postal Service in its future.
I've talked about $17 billion which is the amount of money
that people pay postage for to get bills and payments to one
another. And there's no question all you have to do is read the
paper: The conditions are springing up every day trying to put
partnerships together in order to get that lucrative piece of
business. So it's not a matter of if, but when, and the impact
on the Postal Service will be substantial when that occurs.
So I think all of the posts of the world face this and all
of the posts of the world, with the exception of the U.S.
Postal Service, all the industrialized posts, are actively
engaged in reformation, including a major move toward
privatization. So I think your work on this subcommittee is
very important to the lifeblood and future of the Postal
Service.
And I might add that you can't wait until the thing
crashes, because by the time you recover from a crash, you will
have injured a lot of businesses in America with forced higher
rates.
So thank you.
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Mr. McHugh. Thank you. I think that's certainly one of the
messages here today insofar as the Congress' role in this.
Three years is the blink of an eye; it takes us 3 years to
decide what day of the week it is, and then we don't all agree.
So the point being, I think, the challenge is immediately upon
us.
I'm sure my colleagues are going to want to ask you about
what you can do internally to make it up. But let me ask a
broader-based question, just to begin. You're talking in your
testimony and in other venues about at risk in this decline of
first-class mail, $17 billion roughly. That is about 30
percent. If nothing else were to change, you've had no
legislative relief, you've now had to go to this service
cutback size, because you're locked in on contracts, et cetera,
what does 30 percent in terms of cutbacks mean to an
organization like the Postal Service? Are you even able to
dream of such a thing?
Mr. Henderson. Well, it would be very traumatic not just
for the Postal Service's workers; it would be traumatic for the
American public. I mean, the Postal Service is forced by law to
break even. So you would begin a huge cost-cutting effort, but
you would also begin raising prices. I mean, I've used as a
metaphor many times the Sears problems in the 1980's where they
lost traffic in their stores across America. And if they had
had the postal laws governing them, they would have had to
raise their prices, which would have just sent them into a
spiral.
So it's very important that these issues be addressed prior
to this happening, not after it happens.
Mr. McHugh. Generally, for rate cases, I understand you
roughly equate a 1-cent increase in the cost of a first-class
stamp as a billion dollars in revenue; is that right?
Mr. Henderson. Right.
Mr. McHugh. That probably would not be true anymore,
however, in the future, if your first class volume is coming
down like that; but let's use that. If it were even
semipractical to raise the price of a first-class stamp 17
cents above, making it 50 cents, have you projected or looked
at what that might do to the volume of first-class usage?
Wouldn't you just be digging your own hole deeper and causing
more problems, and the higher you're forced to raise the cost,
the less the return, diminishing return?
Mr. Henderson. That's absolutely right. We are looking at
scenarios, operational scenarios, but as a general proposition,
you can see it from prior rate increases, when you raise the
rates, there's a deflation of volume for a period of time until
stamps become a better bargain. It would be disastrous for the
American community to have that happen, absolutely disastrous,
and we would try every possibility not to allow it to happen.
But $17 billion is a lot of money.
Mr. McHugh. Have you had an opportunity to prioritize your
least favorite options? In other words, what do you do first?
Let me pose the question that you never want to answer: Do you
begin to close Post Offices or do you cut back on Saturday mail
delivery or----
Mr. Henderson. We are in the process of developing those
scenarios now. I don't have the priority today, but I mean you
would look at every cost center you had. You would have to look
at everything. Service reductions, you would have to look at it
across the board in order to make up a 30 percent drop in your
revenues.
Mr. McHugh. You operate 38,000 post offices roughly across
America. If you were forced to a point by which you had to
close some, I would assume a large segment of the least
efficient or most costly are probably in rural communities. Is
that a fair statement?
Mr. Henderson. Yes.
Mr. McHugh. We do have some bells, for a vote, but before
we do that, let me yield to Mr. Davis and maybe he can complete
his questioning before we go vote.
Mr. Davis. Thank you very much, Mr. Chairman.
Mr. Henderson, we discussed a great deal with Ms.
Corcoran--cost savings, cost-cutting, finding revenue that
could be enhanced. Given the fact that we spent the $101
million contracting out Priority Service without any real
discernible improvements, is there any rethinking of that
decision?
Mr. Henderson. Well, let me say for the record that we
don't agree that there was not any substantial improvement. We
have an independently measured service, independent measure of
service, that shows the PMPC network substantially higher than
the rest of the country. The IG based that finding on the fact
that we did not have a baseline. But if you look at absolute
scores between what the PMPC network is doing and the rest of
the country, there's a substantial improvement; and that
improvement is based on the fact that we've created a network,
hubs for processing of priority mail, not the fact that whether
or not it's done in house or by private sector.
Mr. Davis. You indicate that they weren't looking
necessarily at all of the factors in terms of a baseline. There
has been some question relative to data generated and the
integrity of data generated by the service and that data being
used to make certain projections and analysis.
Is there any change taking place relative to the data-
gathering process that you're using?
Mr. Henderson. Across the board, the answer is yes. I mean,
we did--had an independent study done that generally gave the
Postal Service a clean bill of health, but made a lot of
recommendations for tightening up data collection. And we are
in the process of implementing those recommendations. That
doesn't relate to the PMPC, which is measured--it's not our--
it's an independent measure of service data.
Mr. Davis. We raised the question earlier. As a matter of
fact, I believe that Representative Owens raised the question
to an investigation of minority procurement opportunities, and
while that information was not available and forthcoming from
the IG, do you have information relative to the changes that
have occurred in relationship to that?
Mr. Henderson. Yes. We have a substantial effort to involve
more minority businesses in purchasing, and it has been under
way for some time; and we think when the IG goes back in and
reviews, they'll see substantial progress being made.
Mr. Davis. I would like to yield to Representative Owens.
Mr. Owens. I thank the gentleman for yielding. I have an
amendment on the floor. I won't be able to return.
But you had mentioned a 94 percent consumer rating. Did I
hear that correctly?
Mr. Henderson. Uh-huh.
Mr. Owens. Can you explain that a little bit?
Mr. Henderson. We do an independent measure across the
United States; we call it the customer satisfaction index. It's
done by Gallup, and 94 percent rated the Postal Service good,
very good and excellent on that. It's an overall question. It's
a very detailed questionnaire.
Mr. Owens. Is that broken down by districts or cities, or
can I see a----
Mr. Henderson. Yes, it's broken down by districts, by major
metropolitan areas. We would be happy to provide you the data.
Mr. Owens. I would be very thankful.
Mr. Davis. Maybe the last question before we have to go,
Mr. Chairman.
Mr. Henderson, would your office have the time that you
could perhaps provide us with your own report of the
procurement practices and changes that have occurred?
Mr. Henderson. Yes, absolutely. I'll provide it to you.
Mr. Davis. Thank you, Mr. Chairman.
Mr. McHugh. We have about 8 minutes for this vote. I
understand it's just a single vote.
Mr. Postmaster General, with your forbearance, we'll be
back very shortly.
[Recess.]
Mr. McHugh. As much as I'm tempted, I think we had better
wait a moment for another responsible adult.
As you've heard here this morning, we do have a series of
very important education bills that it happens a good number of
the subcommittee members are very interested in and wanted to
be on the floor. So I'm not certain when they'll get back.
So I will exercise the prerogative of the Chair and
reconvene our discussion here. If they come back, I'll yield to
them. In the meantime, why don't we talk?
Mr. Henderson. Sure.
Mr. McHugh. You have mentioned--I believe Mr. Ungar
mentioned the letter carrier agreement that came about as a
ruling of an arbitrator. What is the likely total financial
impact of that agreement, including what it is likely to do in
the future--and I'm not asking you to reveal your hand, but it
does have significant implications for the first time. It
decouples a number of the various employee units in a pay
perspective that I assume the other employees units are going
to want to reestablish, and it's probable that you're going to
have to respond in some way.
If you're working on a ballpark figure, what do you think
the total cost of that one ruling is going to be?
Mr. Henderson. Within the confines of the ruling itself,
it's $2.4 billion. If you take it out--I mean, everybody in the
internal postal community is very interested in that because it
changes the relationship. So you'll have the rest of the unions
going to reestablish that relationship, which means they want a
higher level. You then have postmasters who have an existing
differential with craft employees that will have--will want
some differential, and then you'll have supervisors wanting
some differential. So we haven't tried to--I don't know if I
could swallow that number; I haven't tried to calculate it yet.
But it did have, you know, a ripple effect throughout all of
the labor deals. It's affected the current negotiations that
we're in.
Mr. McHugh. I not only understand, I certainly accept that.
But the ball park, are we talking, more likely, tens of
millions or, more likely, hundreds of millions of dollars?
Mr. Henderson. Hundreds of millions. Billions of dollars.
Mr. McHugh. Billions of dollars from this one ruling?
Mr. Henderson. Yeah.
Mr. McHugh. Your fiscal plan that Mr. Ungar referred to
that is projecting $100 million net revenue based on some
productivity assumptions, based on some work-hour assumptions,
did that include anything to accommodate this ruling?
Mr. Henderson. No. No, it didn't. And this fiscal year will
not be impacted because the level increase doesn't occur until
next year.
I was interested in hearing him call making this budget
this fiscal year a ``miracle.''
Mr. McHugh. Well, we're getting near the season of
miracles. I believe he said he did not want to use the word
``miracle,'' but he decided on ``some major development.''
But the point I wanted to make--and I believe you would
agree, and if you don't, please respond. I'm not trying in any
way to minimize what I think has been a string of remarkable
net revenue years for the Postal Service, truly historic. But
on a $62 billion revenue plan, $100 million is thin--a lot
better than the reds that piled up year after year in previous
times, but still thin.
So if you then have something thrown at you, so to speak,
that is totally beyond your power, really totally beyond your
ability to forecast, that only makes the picture more
difficult. And when we're talking about hundreds of millions,
billions of dollars, added onto your revenue projections and
loss of first-class income of $17 billion, you've got a serious
problem.
Mr. Henderson. Yes.
Mr. McHugh. And it's here today.
Mr. Henderson. And I would add that the activity in e-
commerce, the Internet is very suppressed, and it's suppressed
because of Y2K. You've got large corporations like IBM, large
organizations like the U.S. Postal Service are really strapped
down right now. In other words, we've frozen new projects until
we get through Y2K. And that's been a common practice
throughout industry and the public sector.
After January, after the Y2K problem starts to dissipate,
or the potential problem, you're going to see much more
activity than we predict on the Internet, than has been
experienced thus far.
Mr. McHugh. And I agree. There's a likely technological
snowball building here that is unleashed in certain part past
Y2K and people's concerns about it, but continues to roll as
more and more Americans find themselves wired into the
Internet. As more communities across this country have Internet
access, opportunities increase; and as people become more
comfortable in engaging in that kind of commerce. A lot of
folks today peruse the pages of the Internet, looking at
product, and then pick up the phone and call in the order
because they're not just quite comfortable. But that's going to
lessen as time goes on.
So the problem isn't something where you take the hit, you
hunker down, accommodate it and you go on. It's something
that's going to continue to increase and put more, rather than
less, pressure on you.
Let me ask you one final question, and I'll yield to Mr.
LaTourette. A lot of people say, well, electronic commerce did
have its challenges, but it has its benefits as well. If you
call up--if you wire in, call up on the Internet a mail order
house, order a pair of snow boots or whatever it is, then the
possibility of the Postal Service serving as the carrier
certainly is there and increases your opportunity.
Have you been able to weigh or project revenue losses on
first-class versus what you might pick up? I know those are
total estimates, but----
Mr. Henderson. We think that the Postal Service would be
used as a majority move for e-commerce because of the low-cost,
high-quality service that's provided. The answer to the
question depends on the rate of erosion. If it's--it erodes
like business-to-business mail did, in which we made it up in
other products, then it's OK. But if it's like what they call
the ``hockey stick,'' and that is, there's just enormous
adoption of electronic bill payment that doesn't involve the
Postal Service, then I don't think there's any way you can make
up a $20 billion, $17 billion organization.
So it really is the--the key is the rate of erosion. And
it's eroding right now, just so you'll know, at between 1 and 2
percent. But--less than 1 percent of all Americans pay their
bills electronically today, but as I say, that's--the Internet
is looking for sources of revenue. And clearly you and I have
to pay our bills and there's a clear opportunity here to tap
in. And I think, after the Y2K fiasco is over, then you'll see
one heck of a move for a lot of players to get into this.
Mr. McHugh. Thank you.
The gentleman from Ohio, Mr. LaTourette.
Mr. LaTourette. Thank you, Mr. Chairman.
And, General, it's nice to see you again. I have about four
areas of concern that I want to talk with you about. They're
not all connected, so I apologize for skipping around. But I
want to begin where the chairman left off, and that is that I
know it's tough to guess after Y2K, but there has been some
speculation and I think when you appeared over at the Senate at
a similar hearing there was discussion about the fact that your
priority mail services and your package services with the
advent of e-commerce do--you do look at that as a potential to
offset some of the losses in first-class mail.
I understood the ``hockey stick'' examination. But I know
that I was startled when I read U.S.A. Today yesterday and saw
the projection, and certainly all of us in the subcommittee
take the GAO's testimony here seriously and recognize the
chairman and all of the good work that he's done in postal
reform to move through this Congress at a good rate, to
position the Postal Service for the next century.
However, it would not be--rather than just being doom and
gloom, couldn't the users of the Postal Service and the fans of
the Postal Service take some comfort in the fact that people
will not only be paying their bills over the Internet in the
future, but if they order snow boots up in New York, that the
Postal Service will be the dominant carrier of the snow boots
to their homes. And that will, in fact, sort of be both a
blessing and a curse of the Internet for the Postal Service in
the next century.
Mr. Henderson. Yes. And if I painted that, I'll clear that
up. I don't want to paint the Internet as a curse. The Internet
is the Internet. It is a new channel into the home. It's how
you leverage it that's going to determine whether it's a
positive or negative impact. And we have people working very
actively to make it a very positive impact on the Postal
Service.
Mr. LaTourette. The second area of concern that I have, I
believe in August of this year, the Postal Service launched its
new PC postage program, which I think is a very exciting
program and a great example of how the Postal Service can use
new technologies to move forward. If I understand my history
right, it hasn't been since 1928 that the Postal Service has
taken a look at the postage meter market. In that line, I think
on August 9th you had a press event and you actually have
awarded some contracts to vendors.
Mr. Henderson. Yes, to two vendors.
Mr. LaTourette. And who are those?
Mr. Henderson. Stamps.com and e-stamp. We didn't award
contracts; we certified that their encryption met our
standards. There are two more, Pitney Bowes and Neopost, that
will be coming out there and are in the testing phases now. So
there are four companies in the world that we know about that
are going for postage online.
Mr. LaTourette. And that actually leads into the question
that I had. It was my understanding that there are two vendors
that are looking for that seal of approval or that
certification, and because this is such an exciting
opportunity, I think if you look--you go back in time and say,
this hasn't happened since 1928 that this market has been open
to competition.
Do you have any qualms or difficulties or questions in
indicating to the subcommittee that--and I say this because
it's my understanding that the DOJ has an investigation dealing
with some monopolistic practices dealing with postage meters at
present. Is there any concern that you have that the opening of
this new market is going to somehow be constrained, be anything
but fair, and everybody that has the ability to meet your
standards is going to have the ability to compete, which
obviously is going to benefit consumers and the service?
Mr. Henderson. That's our goal, to make sure that it's open
and fair. There's no indication to me, anyway, that there's
anything but really open competition in the PC postage. You've
got two unknown players right out of the box. I mean, they
didn't exist; they're new companies.
Mr. LaTourette. I think that's what's exciting about it.
You would think when this program, when I first read about it
and saw that this program--you would think that the old
standbys would be the ones that would be jumping on it. So when
two firms that I don't think I was familiar with get the first
certifications, I think that that adds to some of the
excitement by some of us that that is going to be a good,
competitive growth area.
The second--or maybe it's third, I've lost track, but this
subcommittee recently had the opportunity to look at
legislation called Honesty in Sweepstakes Act of 1999. And the
part of the issues that we discussed had to do with what
happens when Federal regulation would somehow preempt or invade
the jurisdiction of the States relative to what their postal
regulations are or their regulations regarding mail coming into
their States are.
Can you indicate just what procedures you have in place
when your customers, the mailers, are subject to conflicting
postal regulations as they relate to State laws? Is that
something that you've taken a look at?
Mr. Henderson. I have to submit that for the record. That's
a little beyond my range.
Mr. LaTourette. Then if you could, I'll send you a quick
note, and I would appreciate that.
The last one has to do with what I was talking to the
Inspector General about. You know from some of the hearings on
H.R. 22, competition is something that is of concern to me. I
talked to her about the international mail arena and
specifically the Postal Rate Commission's report from June of
this year, that if I had my numbers right, there are 14
international products, and that, at least as I understood the
PRC's evaluation, four of those, at the moment at least, aren't
carrying their weight, that they're being subsidized if not by
domestic mails, as was indicated by the IG. The money has to be
coming from somewhere. Is it correct that those four products,
at the moment at least, are being subsidized by other
international mail products? International mail is paying its
own way, but you have----
Mr. Henderson. They are at the moment. I don't know at this
moment, but there were four products. Most of the impact for
those products occurred as a result of Asian flu where they
were profitable, and their volume is sensitive. When the volume
goes down, your infrastructure costs overwhelm your revenue.
And we--it's not important who the customers were, but we
talked with the customers, and they asked us to hold out to see
if those markets would improve. We held out for quite a while,
and then we were forced to raise the rates, and then we lost
some of the business as a result of that. So it----
Mr. LaTourette. Of those, and again, if you want me to
submit this one because you don't have the report in front of
you, I don't want to sandbag you and ask you a question that's
unfair, but that seemed to be the finding of the PRC relative
to global package link. When it comes to global priority mail,
they indicated that although the suppressed foreign markets may
have been a factor, one of the things the Postal Service has
indicated was that the loss was due to a rather high
advertising budget for that product. And so in addition to not
only raising rates, I think 14 percent in the instance of that
particular product, there was going to be a suppression of the
advertising budget for what was now deemed to be a product that
wasn't carrying its weight. Has that occurred since the PRC
report has come out?
Mr. Henderson. Yes, as far as I know, that has occurred.
That was factual, what you just said. When you have a product,
if I'm selling one box and I'm trying to sell it all over the
country, the revenue generated from one package doesn't cover
that infrastructure cost. There's a point at which you have to
reach a certain volume, and they decided to pull back on the
advertising and try some other technique.
Mr. LaTourette. The overall question, I think, that comes
up in postal reform and also relative to the international
mail, is there a procedure in place that when you launch a new
product, you have 14 international products, four aren't making
it, is there a time when you sort of cut them loose and say, we
thought this was a good idea, but it doesn't appear to be that
way? If the answer is yes, and I would hope it's yes because
you wouldn't want to continue to lose--pour money down the hole
that isn't yielding a result, have you reached that conclusion
with any other foreign products cited by the Postal Rate
Commission at this point?
Mr. Henderson. No, not yet, but we do look at that monthly.
It's been difficult not only for us, but it's been difficult
for the private sector and the international market, too. We
have had companies that have gone as long as 7 or 8 years
without making money, but there's a belief that American goods
and services are going to be demanded in foreign countries, and
the carrier of choice is going to be the folks that make the
money, and we're very interested in making the money.
Mr. LaTourette. And then last, and then I'll get off of
this subject and stop asking questions, again, going the global
package link, as I understood, I think, the last time you might
have been here and when you were over at the Senate a little
earlier, there was some discussion about the fact that the
rates are set because there's a requirement that a shipper send
at least 10,000 packages a year. Somewhere recently I'd seen
published up to one-third of the customers--and you're right,
it isn't important who the customers are, but those who are
enrolled or signed up for those discounted rates indicating
that they would ship up to 10,000 packages a year, up to a
third of them have not fulfilled that mark. Is that a correct
report?
Mr. Henderson. Generally speaking, there's--they have a
cutback. I don't know if the numbers are--I don't know that
they're inaccurate. I just don't know. But there was a pullback
because much of that mail was headed to Asia, and they are just
pulling out of that market. They're pulling back trying to
reduce the impact of the Asian flu.
Mr. LaTourette. If the rate structure is predicated on
volume, which I assume--you know, you say I'm going to give you
this rate to ship something overseas, but you've got to agree
to send 10,000 pieces, for whatever reason if they find that
not economically practical, has the Postal Service adjusted its
rates upward for that product to reflect the fact that the
premise upon which it's based, that you're going to use so much
of our business, has not occurred?
Mr. Henderson. We did adjust the rates separate not because
the volume didn't materialize, but because we were trying to
cover more of our costs. It's a negotiated deal with various
individual customers. We try to be accommodating to them. We
don't want to just pull out and leave them high and dry. That
doesn't give us a good business reputation. So to the degree
possible, we try to hang in there with them. They're certainly
not in the business of losing money, and matter of fact, I
think every indication is Asia is starting to come back.
Mr. LaTourette. So would it be your expectation that that
particular program, which has a 10,000-piece-per-year floor, if
the economy improves, that the Postal Service will make money
on that product?
Mr. Henderson. We hope to. That's why we're here. That's my
expectation.
Mr. LaTourette. Thank you.
Thank you, Mr. Chairman.
Mr. McHugh. I thank the gentleman. Excellent line of
questioning, which also, by the way, would be covered under
H.R. 22. It's been an unpaid political advertisement.
Mr. Sanford.
Mr. Sanford. Let me go from the universal to the very
parochial, if I may, and it may be inappropriate that I even
ask you this question, in which case I just ask that you hand
it off to whoever might know. That is, recently the Postal
Service announced that they were canceling plans to build a
facility at the old Air Force base in Myrtle Beach, SC. That
sent up all kinds of red flags, with folks back home calling
me. The reason that the Postal Service said that they were
going to do this is because of the distance between Florence,
SC, and Myrtle Beach. The logical question that people ask back
home of me was, well, Myrtle Beach didn't move over the 12
months of them negotiating this site, tying down the land,
whatnot; we stayed in the same spot. We don't understand this
reasoning. And so my question would be, could you offer any
insights that I could offer to my constituents back home on the
change?
The other thing I think just procedurally, I think this is
a very legitimate point, was one of the things that the Postal
Service folks brought up back home was after the operational
review, they decided the site no longer made sense, but in the
process they got all kinds of people excited, thinking there
were 200 jobs coming to Myrtle Beach. Shouldn't the operational
review come first before communities, whether it might be--
whether it's Myrtle Beach or L.A., get excited about the
prospect of a postal facility coming to their neighborhood, and
it turns out at the end of the operational review that doesn't
happen?
Mr. Henderson. You're absolutely right. I'll give you the
rationale for the record, the details to your office on what
the reason for changing their minds. I do know that they are
still looking in Myrtle Beach for an operating facility, but it
is unfortunate when a community anticipates something that as a
result of an operational review might not occur. So we--they
should have done the operational review first. That's right.
Mr. Sanford. If there's any way--because apparently it was
talked about at the beginning of October, some sort of press
release from the Postal Service just to squelch it, because
people keep calling--not that I'm selfish about this, but I
am--our office saying why this happened, some kind of
explanation from the Postal Service to the local media outlets
back home just so that they feel like the question has been
answered, because from their perspective it feels like it's
still hanging out there, and they don't quite understand why.
Mr. Henderson. We'll put out a press release. We'll show it
to you before we release it.
Mr. McHugh. Mention him.
Mr. Sanford. I appreciate it.
I don't want to burn up any more of your time, but going
back to this cost conversation we briefly had, any further
insights that you could offer me or others on the committee on
how to get ahold of the cost part of the income statement with
Postal Service?
Mr. Henderson. It's substituting capital for labor. It's
automation. If you take the productivity in the Postal Service
in 1988 and assume that same productivity today, you'd have to
add over 100,000 people to the rolls. There's a huge impact.
The thing that we have enjoyed over the last 25 years, 28
years I've been in the Postal Service, is continuous growth. In
other words, you're just like an automobile plant with enormous
demand that keeps escalating up. You keep expanding. That's
what happens in the Postal Service. We have been in the past
growing. We've made money in the last 5 years, and our expenses
each year have been somewhere in the neighborhood of 5 percent.
So that's good growth. These charts don't predict that for the
future, but there was never anticipation that the Postal
Service's absolute costs would go down because you have a
growing workload, growing demand, and it shows up on your
bottom line.
Mr. Sanford. I thank the Chair.
Mr. McHugh. I thank the gentleman.
General Henderson, you may have heard Mr. Ungar in the
response to one of the subcommittee members--I'm sorry, I don't
remember which one--who asked about ratemaking data. Mr. Ungar
cited the report that made some 40 recommendations, I believe
he said, and then he went on to suggest that GAO had not yet
been successful getting a response from you folks as to how, if
at all, you were going to respond to any or all of those 40
recommendations. Are you familiar with where that might be?
Mr. Henderson. We're in the process of implementing those
recommendations. I'll clear the problem up with GAO.
Mr. McHugh. Is it your plan to issue a response to the
report or an implementing plan to the recommendations? In other
words, how might we on the subcommittee be advised as to what
you're going to do to pursue that?
Mr. Henderson. We didn't plan on it, but after this today,
we'll put together a timeline and some milestones and provide
you the report.
Mr. McHugh. Great.
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Mr. McHugh. Anyone else on the subcommittee?
Mr. LaTourette.
Mr. LaTourette. I don't have any more questions, but if I
could just make a request to the chairman. In my questions to
the Postmaster General, I referenced a report from the Postal
Rate Commission to the Congress dated June 30, 1999. For some
reason--it doesn't look quite as bad as some of the redacted
documents I used to get when I was a prosecutor--some of the
figures have been redacted. I would ask unanimous consent if
that's an appropriate request, the unredacted version of this
report be made a part of the record of this hearing.
Mr. McHugh. Without objection, so ordered.
Mr. LaTourette. Thank you.
Mr. McHugh. Do you have the unredacted?
Mr. LaTourette. I was hoping that maybe Robert, who is so
resourceful, can find it for us.
Mr. McHugh. We'll have to put a codicil on that. If we can
get it, we'll put it in the record. I don't believe we redacted
it, did we? We're not like that. Oh, it's being litigated. When
it's litigated, if we can get the unredacted report, without
objection it will be entered into the record in its entirety. I
thank the gentleman.
[The information referred to follows:]
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Mr. McHugh. General Henderson, we thank you for your time.
I think we've established, if nothing else, we have some very
significant challenges in front of us. There are obviously
differing opinions as to how those challenges should be met,
what role both you and the Congress should play. If nothing
else, I hope we've taken a step closer to the realization that
this is not theory any longer, that the Postal Service that
tens of millions of Americans rely upon each and every day is
entering a new era, as we've heard, and that associated with
that is going to have to come some sorts of changes. Depending
on the eye of the beholder, it may be beautiful or otherwise,
but something needs to be done that is different than status
quo.
Toward that end, and I know I can speak for all of the
members on this subcommittee, both sides of the aisle, we want
to engage with you in an honest and open and, we hope,
productive dialog on how we can make those changes happen so
that communications in America are continued to be conducted
under an umbrella of confidence and reliability on postal
services provided for some 200 plus years in this country, and
we thank you for your effort. We particularly thank the postal
workers, the folks we see on the streets every day and who sort
and route the mail. They do a tremendous job.
We will be submitting questions for the record. You've
kindly offered to provide some information to some of the
Members. We welcome your response on that as well.
With that, the hearing is adjourned.
[Whereupon, at 12:45 p.m., the subcommittee was adjourned.]
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