<DOC>
[108th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:94999.wais]
THE POSTAL SERVICE IN CRISIS: A JOINT SENATE-HOUSE HEARING ON
PRINCIPLES FOR MEANINGFUL REFORM
=======================================================================
JOINT HEARING
before the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
and the
COMMITTEE ON GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
MARCH 23, 2004
__________
Serial No. 108-171
__________
Printed for the use of the Committees on Government Reform and
Governmental Affairs
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
______
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COMMITTEE ON GOVERNMENT REFORM
TOM DAVIS, Virginia, Chairman
DAN BURTON, Indiana HENRY A. WAXMAN, California
CHRISTOPHER SHAYS, Connecticut TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana CAROLYN B. MALONEY, New York
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
DOUG OSE, California DENNIS J. KUCINICH, Ohio
RON LEWIS, Kentucky DANNY K. DAVIS, Illinois
JO ANN DAVIS, Virginia JOHN F. TIERNEY, Massachusetts
TODD RUSSELL PLATTS, Pennsylvania WM. LACY CLAY, Missouri
CHRIS CANNON, Utah DIANE E. WATSON, California
ADAM H. PUTNAM, Florida STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia CHRIS VAN HOLLEN, Maryland
JOHN J. DUNCAN, Jr., Tennessee LINDA T. SANCHEZ, California
NATHAN DEAL, Georgia C.A. ``DUTCH'' RUPPERSBERGER,
CANDICE S. MILLER, Michigan Maryland
TIM MURPHY, Pennsylvania ELEANOR HOLMES NORTON, District of
MICHAEL R. TURNER, Ohio Columbia
JOHN R. CARTER, Texas JIM COOPER, Tennessee
MARSHA BLACKBURN, Tennessee ------ ------
PATRICK J. TIBERI, Ohio ------
KATHERINE HARRIS, Florida BERNARD SANDERS, Vermont
(Independent)
Melissa Wojciak, Staff Director
David Marin, Deputy Staff Director/Communications Director
Rob Borden, Parliamentarian
Teresa Austin, Chief Clerk
Phil Barnett, Minority Chief of Staff/Chief Counsel
COMMITTEE ON GOVERNMENTAL AFFAIRS
SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan
NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii
ARLEN SPECTER, Pennsylvania RICHARD J. DURBIN, Illinois
ROBERT F. BENNETT, Utah THOMAS R. CARPER, Deleware
PETER G. FITZGERALD, Illinois MARK DAYTON, Minnesota
JOHN E. SUNUNU, New Hampshire FRANK LAUTENBERG, New Jersey
RICHARD C. SHELBY, Alabama MARK PRYOR, Arkansas
Michael D. Bopp, Staff Director and Chief Counsel
Ann C. Fisher, Deputy Staff Director
Joyce A. Rechtschaffen, Minority Staff Director and Counsel
Susan E. Propper, Minority Counsel
Amy B. Newhouse, Chief Clerk
C O N T E N T S
----------
Page
Hearing held on March 23, 2004................................... 1
Statement of:
Fineman, David, chairman, Board of Governors, U.S. Postal
Service.................................................... 47
Potter, John E., Postmaster General of the United States,
U.S. Postal Service........................................ 62
Snow, John W., Secretary, U.S. Department of the Treasury,
accompanied by Brian C. Roseboro, Acting Under Secretary
for Domestic Finance, U.S. Department of the Treasury...... 24
Letters, statements, etc., submitted for the record by:
Blackburn, Hon. Marsha, a Representative in Congress from the
State of Tennessee, prepared statement of.................. 40
Burton, Hon. Dan, a Representative in Congress from the State
of Indiana, prepared statement of.......................... 21
Clay, Hon. Wm. Lacy, a Representative in Congress from the
State of Missouri, prepared statement of................... 45
Collins, Hon. Susan, a Representative in Congress from the
State of Maine, prepared statement of...................... 9
Cummings, Hon. Elijah E., a Representative in Congress from
the State of Maryland, prepared statement of............... 98
Davis, Chairman Tom, a Representative in Congress from the
State of Virginia:
Letter dated February 23, 2004........................... 92
Prepared statement of.................................... 4
Fineman, David, chairman, Board of Governors, U.S. Postal
Service, prepared statement of............................. 50
Harris, Hon. Katherine, a Representative in Congress from the
State of Florida, prepared statement of.................... 94
Kanjorski, Hon. Paul E., a Representative in Congress from
the State of Pennsylvania, prepared statement of........... 101
Maloney, Hon. Carolyn B., a Representative in Congress from
the State of New York, prepared statement of............... 90
McHugh, Hon. John M., a Representative in Congress from the
State of New York, prepared statement of................... 14
Potter, John E., Postmaster General of the United States,
U.S. Postal Service, prepared statement of................. 65
Ruppersberger, Hon. C.A. Dutch, a Representative in Congress
from the State of Maryland, prepared statement of.......... 36
Snow, John W., Secretary, U.S. Department of the Treasury,
prepared statement of...................................... 27
Van Hollen, Hon. Chris, a Representative in Congress from the
State of Maryland, prepared statement of................... 96
THE POSTAL SERVICE IN CRISIS: A JOINT SENATE-HOUSE HEARING ON
PRINCIPLES FOR MEANINGFUL REFORM
----------
TUESDAY, MARCH 23, 2004
House of Representatives, Committee on Government
Reform, joint with the Committee on
Governmental Affairs, U.S. Senate,
Washington, DC.
The committees met, pursuant to notice, at 2:40 p.m., in
room 2154, Rayburn House Office Building, Hon. Tom Davis
(chairman of the Committee on Government Reform) presiding.
Present: Representatives Tom Davis of Virginia, Burton,
McHugh, Schrock, Duncan, Miller, Murphy, Turner, Carter,
Blackburn, Tiberi, Towns, Maloney, Cummings, Davis of Illinois,
Clay, Van Hollen, Ruppersberger and Norton.
Also present: Senators Collins and Carper.
Staff present for the Committee on Government Reform:
Melissa Wojciak, staff director; Keith Ausbrook, chief counsel;
Ellen Brown, legislative director and senior policy counsel;
Jack Callender, counsel; Robert Borden, counsel/
parliamentarian; Drew Crockett, deputy director of
communications; Teresa Austin, chief clerk; Brien Beattie,
deputy clerk; Corinne Zaccagnini, chief information officer;
Althea Gregory, minority counsel; Denise Wilson, minority
professional staff member; Earley Green, minority chief clerk;
and Jean Gosa, minority assistant clerk.
Chairman Tom Davis. The committee will come to order. I
want to begin by welcoming the Members of the Senate
Governmental Affairs Committee to our hearing room, and
especially thank Chairman Collins and Senator Carper for their
tireless work on this important issue.
This joint hearing caps off a series of six hearings
conducted by the Senate Governmental Affairs Committee and
three hearings conducted by this committee's Special Panel on
Postal Reform and Oversight since the report of the President's
Commission on the U.S. Postal Service was released last July. I
think that one thing we have learned from all of these hearings
and from the work of the President's Commission is that the
current legal framework under which the post office operates is
outdated and unsuited for today's economy. It's putting the
jobs of millions of Americans at risk.
Let me explain. Under current law, the only response
available to the Postal Service that they have to declining
volumes and revenues is to raise rates even further. As rates
go up, even more volume leaves the system, contributing to what
Comptroller General David Walker has called a death spiral.
First class mail volumes have been in decline for several
years, even as the number of addresses that the Postal Service
serve increases.
I believe that without comprehensive postal reform this
year, we face a time in the near future when the Postal Service
will no longer be able to sustain itself with higher and higher
rate increases. And many of the 9 million Americans whose jobs
rely on a stable, healthy postal system will be out of work.
The postal reform is not only a job issue, it's a consumer
issue. Everyone gets mail, and everyone buys stamps. If we
allow the Postal Service to continue its death spiral, it will
hit every American in the pocketbook.
Last year this committee and the Senate Governmental
Affairs Committee worked together along with the administration
to solve a potential overfunding of the Civil Service
Retirement System by postal taxpayers--ratepayers. That reform
delayed the next rate increase until 2006, providing much
needed relief for the Postal Services customers, but it left
several unresolved issues which we must deal with as the
legislation moves forward.
First, the legislation transferred responsibility for
funding the military portion of retiree benefits to the Postal
Service for CSRS. I realize there are differences of opinion on
whether that change should be revisited or left in place, and I
look forward to the witnesses' perspectives on that.
Second, the legislation required the Postal Service to
calculate, collect and place into escrow the post-2005 savings
caused by the legislation. We wanted to get a clear sense of
the Postal Service's plans for cost reduction and productivity-
enhancing capital improvements before releasing all the
savings. I believe that the Postal Service has fulfilled its
requirements in this regard, and I think it's now time to
release the escrow.
Let me take a moment to explain the budget effects in the
CSRS escrow because there seems to be a great deal of confusion
about it. When we took up the administration's proposed Postal
CSRS Reform Act last year, the bill, as it was written by the
administration and introduced with budget-neutral changes in
the Senate as S. 380, it had a CBO-estimated cost of $17
billion between 2003 and 2008 and $42 billion between 2003 and
2013. In the House, H.R. 1169 as introduced placed the savings
to ratepayers, which counts as a cost in the unified budget, in
escrow by requiring the Postal Service to collect the savings
from its customers beginning in 2006 and not spend it without
prior congressional approval. This bill and the bill which
eventually was enacted had a CBO-estimated cost of only $7.2
billion between 2003 and 2013. Compare that to the 42 billion
cost without the escrow. All we did was put off, temporarily,
the majority of the budget hit from the Postal CSRS Reform Act
as proposed by the administration.
This year the chickens are coming home to roost. Sometime
in the late fall, shortly after the beginning of fiscal year
2005, the Postal Service will be filing a rate increase to take
effect at the beginning of fiscal year 2006. If we have not
released the escrow, that rate increase will likely include an
extra 2-cent surcharge on the rate of a first class stamp as
part of an extra 5.4 percent rate increase across the board
solely to fund the escrow amount.
Releasing the escrow will be a crucial component of
comprehensive postal reform legislation, but the
administration, according to Secretary Snow's testimony today,
says they are, ``willing to work toward a proposed modification
of the Postal CSRS Funding Reform Act abolishing that escrow
that will not increase the deficit.'' Therefore, we expect the
administration to find the necessary offsets to accomplish this
goal so that the comprehensive postal reform legislation can
move forward, and we won't be faced with the largest rate
increase, really tax increase, in postal history.
If we are going to prevent a postal melt-down from
happening, this is the year. For the first time since the Nixon
administration, the White House has called for comprehensive
postal reform. We are very fortunate to have Treasury Secretary
Snow here today to present the administration's case for postal
reform. We also have the guidance of the President's Commission
on the Postal Service, which did an extraordinary job in a very
short amount of time. We can also build on the 9 years of hard
work that Chairman McHugh and Chairman Burton devoted to this
issue.
And last but not least, our colleagues in the Senate who
join us today are as committed as we are to preventing the
Postal Service from melting down.
I look forward to working with everyone in this room as we
move toward comprehensive postal reform legislation. I want to
thank all of our witnesses for appearing before the committee,
and I look forward to their testimony.
[The prepared statement of Chairman Tom Davis follows:]
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Chairman Tom Davis. I now call on my Senate counterpart,
Senator Collins, for any opening statement.
Senator Collins. Thank you, Mr. Chairman.
I am very pleased to join Chairman Davis and my House
colleagues in conducting a joint hearing on postal reform. For
the Senate Committee on Governmental Affairs, this represents
the seventh in a series of hearings that began last September.
Our Senate hearings have focused on the 35 legislative and
administrative recommendations of the President's Commission on
the Postal Service, recommendations that are designed to help
this 225-year-old service remain viable over the long term.
So much depends upon the Postal Service's continued
viability. The Postal Service itself has more than 730,000
employees. Less well known is the fact that it is also the
linchpin of a $900 billion mailing industry that employs 9
million Americans in fields as diverse as direct mailing,
printing, catalog production, paper manufacturing and financial
services. The health of the Postal Service is essential to
thousands of companies and the millions that they employ.
At our first hearing last September, the committee heard
from Commission Cochair Jim Johnson. Commissioner Johnson made
the very important point that the Postal Service's short-term
fiscal health will not last, and that Congress must not ignore
the fundamental reality that the Postal Service as an
institution is in serious jeopardy. At the committee's second
hearing, we heard from the Postmaster General and Comptroller
General David Walker. Mr. Walker, of the General Accounting
Office, warned us about the Postal Service's $92 billion in
unfunded liabilities and other obligations as set forth in the
Commission's report. He pointed to a need for fundamental
reforms to minimize the risk of either a significant taxpayer
bailout or dramatic postal rate increases such as the chairman
has described.
In February, the committee heard from representatives of
the four largest postal unions, along with the postmaster and
supervisor associations. Earlier this month at our fifth and
sixth hearings, we heard from members of the mailing community
and from postal competitors. We focused not only on the work
force and financial recommendations, but also heard testimony
on the Postal Service's monopoly, mission, the rate-setting
process and corporate governance issues.
As a Senator representing a largely rural State whose
citizens depend heavily on the Postal Service, I appreciate and
endorse the Postal Commission's strong endorsement of the basic
features of universal service, affordable rates, frequent
delivery and convenient community access to retail postal
services. It's important to me that the people of my State,
whether they are living near our western or northern borders,
or on islands, or in our many small rural communities, have the
same convenient access to postal services as the people of our
cities. We must save and strengthen this vital institution upon
which so many Americans rely for communication and for their
jobs.
The Postal Service has reached a critical juncture. It's
time for action, both by the Postal Service and by the
Congress. Senator Tom Carper and I have committed to work
together with the other members of the Senate Governmental
Affairs Committee to draft a bipartisan postal reform bill. As
this hearing is evidence of, we are also working very closely
with House leaders on postal reform, including Chairman Davis
and Congressman McHugh. I am very pleased to participate in
this historic joint committee hearing today. I think it shows
how serious we are about accomplishing this critical task this
year.
Thank you, Mr. Chairman.
Chairman Tom Davis. Thank you very much.
[The prepared statement of Hon. Susan Collins follows:]
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Chairman Tom Davis. Gentleman from Illinois Mr. Davis.
Mr. Davis of Illinois. Thank you very much, Mr. Chairman. I
am pleased to join with you in convening the first joint House
and Senate hearing on the U.S. Postal Service. I would
especially like to applaud the hard work and dedication of
Senators Susan Collins, Joseph Lieberman, Ted Stevens, Daniel
Akaka and Tom Carper, leaders in the effort to reform and
modernize the Postal Service. I am proud to work with you in
this effort and prouder still of the momentum we have created,
momentum which will surely lead to successful efforts to
rewrite the Postal Reorganization Act of 1970.
Today is an important date not just because of the historic
nature of a joint hearing on the Postal Service, but because
this marks the end of hearings and signals the beginning of
Members and staff coming together to draft postal reform
legislation. Thankfully we have a very solid foundation upon
which to build, H.R. 4970, the Postal Accountability and
Enhancement Act.
Since the introduction of H.R. 4970 in the last Congress,
much has taken place in the postal world. Beginning in the
108th Congress, we created a new postal panel. The Presidential
Commission on the Postal Service was created and issued a
report containing 35 recommendations. Those recommendations
were followed by the administration's issuance of five
principles of comprehensive postal legislation.
Beginning this year our postal panel held a series of
hearings addressing various aspects of recommendations
submitted by the Presidential Commission and the
administration's principles for reform, and as the ranking
member of the postal panel, I recently convened the Chicago
Advisory Postal Group in which a number of postal-reliant
businesses in the Chicago area attended. The message from this
group and others was that postal reform must go forward.
I was pleased to note that we agreed on many important
issues. Protection of universal service is a universally
accepted principle. We need and must protect universal service.
The Postal Service must have the flexibility to set rates and
provide rate stability. The Postal Service cannot and must not
bear the military service payment obligation; and finally, that
we need to get rid of the escrow account.
As we continue to work together to craft responsible postal
reform legislation, I would like to commend you, Chairman Davis
and Mr. McHugh, for taking the time to be engaged and provide
direction and input into this valuable process. Your support
and that of the mailing community is critical if we are to be
successful in passing postal reform legislation. I also want to
commend Mr. Waxman, who is the ranking member on our side, for
the leadership he has displayed throughout this process. And if
we are to be successful in passing this reform legislation,
then that spirit of cooperation must, and I am sure will,
continue.
With that, I extend a warm welcome to our panelists and
look forward to the participation.
Chairman Tom Davis. Thank you very much.
Is Mr. McHugh here, chairman of our postal panel?
Mr. McHugh. Thank you very much, Mr. Chairman. I note you
and Senator Collins and, of course, Mr. Davis covered more than
adequately the full range of issues. So what I would prefer to
do, with your forbearance, is to submit my written statement in
its entirety for the record and just make a couple of comments.
First of all, I want to add my words of welcome to Senate
colleagues, particularly to Senator Collins, who has done such
a terrific job as she detailed to some extent in her opening
statement with respect to this issue. I admire her courage, her
commitment and her dedication to the issue. We don't expect
anything less from an esteemed graduate of a great institution
of higher learning like St. Lawrence University in Canton, NY,
which happens to be in my district, and we are very proud of
that fact. But she's been a real leader, as has Senator Carper.
And I have had a chance to work with Senator Carper as well for
a number of years now, and we are very appreciative of their
concern and their efforts.
Chairman Davis mentioned 9 years. It dawned upon me that
there are individuals who actually murder people who are
sentenced to less time. But it's been an interesting journey,
and I want to thank former Chairman Burton for his role in my
sentencing and for allowing me to participate. And I make jest
of it, but it has been one of the more fascinating stories of
my life. And I was thrilled when the President, probably
against a lot of political advisers' better judgment, decided
that this was important enough for him to assign a President's
Commission to not just receive those reports and findings and
put them on the shelf, but to followup with the call of reform
as he did in December. And I certainly want to thank the
administration for understanding, as has been stated here, how
important this so-called industry, if it is an industry, but it
is so massive, is to our economy; nearly 9 percent of the gross
domestic products of this Nation, and that's incredible.
We can go through the details as to how the canary in the
mine shaft is not doing well. We have seen the signs. We have
had the cooperation from leaders on the Postal Service side
like the Postmaster General, like chairman of the Board of
Governors David Fineman, like the Treasury, and others, so many
others who have detailed that. But suffice it to say that
unlike our tendencies in Washington to react only in times of
crisis, this is an instance when I don't think we can afford to
wait, because by the time the crisis is upon us in its full-
blown dimensions, our Nation, our economy will have suffered
greatly.
So with the cooperation of leaders like the gentleman from
Chicago, IL, Danny Davis, like the ranking member, Mr. Waxman,
and others, we have tried to take this down a bipartisan path,
which is what it should be, and all of their cooperation and
understanding; and certainly Chairman Tom Davis for being
gracious enough to figure out a way in which I could still stay
involved in this and for taking the issue on full square has
been a real demonstration of how Congress can work effectively
and on a bipartisan basis.
So I look forward and certainly welcome our panelists here
today, and I would just note for the record that today in Roll
Call there is a full-page ad taken out calling upon this
Congress to enact reform now because it's necessary. And
although there is a lot of great names and associations here, I
would like to just name a couple of the smaller ones: The
American Bankers Association; American Express; Capital One;
FedEx Corp., someone who provides a lot of competition to the
Postal Service; and an interest who understands the importance
of the USPS to the Nation, International Paper; Magazine
Publishers of America; National Federation of Independent
Businesses; National Retail Federation; Time Warner, and on and
on and on.
Those folks who understand that the economy of this Nation
and the well-being and the way of life that the Postal Service
has become for, as Senator Collins so accurately noted, well
over two centuries is at risk if we fail to do the right thing,
and that's why I am thrilled we are here for this historic
meeting and look forward to the testimony of the witnesses. And
with that, I'd yield back and thank the chairman.
[The prepared statement of Hon. John M. McHugh follows:]
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Chairman Tom Davis. Thank you very much.
Ms. Norton, followed by Mr. Burton.
Let me just note for the record Members will have 7
legislative days in which they can submit any written
statement, so you don't have to feel obligated, but we've had a
lot of Members who have put a lot of work into this, and I want
to give them the opportunity to make statements if they so
desire.
Ms. Norton.
Ms. Norton. Mr. Chairman, just let me briefly say that I
think you are doing a public service to the Nation, you and
Chairwoman Collins, in calling this hearing. In my judgment,
this hearing may already be too late. Reading about the Postal
Service is like reading about a failing business or shall I say
a failed business, and that may be because it is not a business
at all in the normal sense of the word. It is some kind of
unique hybrid that Congress kind of pieced together, and we are
paying the price for the kind of hybrid we put together. I
mean, we act as though the Postal Service does not have tough
competitors in the private sector, like FedEx and UPS. We act
as though they don't have to provide universal service.
Yes, Ms. Collins will talk about the far reaches of Maine,
because if you try closing a post office up in some sparsely
populated part of Maine, they will be on her back saying, don't
close my post office. That's the difference between the very
successful private competitors and the Postal Service, and the
Congress has acted as if there is no difference. And the
results are here in the figures we see and in the prospects we
have.
And what we see in some of these proposals, some of these
proposals are indeed good, but some of these proposals read
like what every failed business does. It tries to take it out
on consumers and take it out on employees, and then, of course,
you get completely torn-up labor relations. You try that in the
post office, and I think it's not a very pretty picture.
And yes, you close post offices left and right. Let me tell
you about my colleagues. They will all be calling Chairman
Davis saying, not my post office.
I don't know what the answer is, but I know we have blinked
this crisis, and we can't blink it anymore. We need a more
radical vision than I see even in the proposals before us. The
fact is that there is no self-respecting nation in the world
that does not provide affordable postal service. We are coming
to be that Nation, and we have to wake up, smell something. I'm
not sure it's the coffee. And I'm not sure what we've been
smoking, but we are very late to try to do something about the
oldest Federal agency in the United States.
Thank you, Mr. Chairman.
Chairman Tom Davis. Thank you very much.
Mr. Burton.
Mr. Burton. Thank you, Mr. Chairman.
Mr. Chairman, I have been on the Post Office and Civil
Service Committee, I know I look a lot younger, but for 20
years, and--don't I look a lot younger? I thought I did. But
anyhow, when I first became a member of the committee, we
didn't have this kind of a crisis, but with electronic messages
being sent, with the faxes being sent, we've seen a
deterioration of the revenues coming in to the Postal Service,
and they are really suffering on difficult times. And we are
looking at unfunded obligations now of about $90 billion.
And I'd like to have my whole statement submitted for the
record.
[The prepared statement of Hon. Dan Burton follows:]
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Chairman Tom Davis. Without objection.
Mr. Burton. And something has to be done. You know, last
year Congressman McHugh and I and others worked very hard to
get a postal reform bill passed, and we ran into a few
impediments, not the least of which was members of the private
sector in this country who want to take over a large part of
the Postal Service's business doing everything they could to
stop postal reform.
We are at a point now, in my opinion, where we have to do
something. We should have done it last year. We should have
done it before that. But it's getting so bad now that I think
that the Postal Service is in danger of going belly up, or the
taxpayers are going to have to pay a huge amount of money to
bail out the Postal Service. And so something has to be done.
I know there's going to be a lot of political pressure, Mr.
Chairman, from various entities in the private sector saying,
you know, we don't want postal reform, and the main reason is
because they want to--they want more market share. And I
understand it's competition, they want to get more business,
but we can't let that be the reason that we see the postal
system in this country be altered into a situation where it's
irreparably damaged and the American people suffer. So we have
to do something.
Congressman McHugh has done yeoman's service on this, as
you know. I applaud you and Senator Collins and her colleagues
in the Senate for making this a top priority, and I really am
happy that the administration is making this one of their main
objectives this time. We have to do something. If we don't,
there's going to be major postal rate increases. The deficit in
the Postal Service is going to continue, and the Postal Service
as we know it is going to be in peril. Something has to be
done, and I am glad, Mr. Chairman, you're taking on this mantle
of leadership right now along with Senator Collins to make sure
we get that job done.
Chairman Tom Davis. Thank you.
I'm glad to have you working with us, Chairman Burton. I
think if we'd been able to get assurances in moving this to the
floor in the last Congress, we would have gotten it out of
committee. This time I think we have that with the impetus from
the administration if we can move it through the committee.
Secretary Snow has a limited period of time with us, so
what I'd like to do right now is swear all of the panel in,
hear from Secretary Snow, have him take questions from each
side briefly before he has to go, and I understand that Mr.
Roseboro will be here to answer questions after we address the
panel, and then we will go on with opening statements and try
to fit them in appropriately, if there's no objection to that.
Would the panel please rise with me as I swear you in.
[Witnesses sworn.]
Chairman Tom Davis. Mr. Secretary, thank you very much for
your service to the country, and thank you for taking the time
to be with us this afternoon.
STATEMENT OF JOHN W. SNOW, SECRETARY, U.S. DEPARTMENT OF THE
TREASURY, ACCOMPANIED BY BRIAN C. ROSEBORO, ACTING UNDER
SECRETARY FOR DOMESTIC FINANCE, U.S. DEPARTMENT OF THE TREASURY
Secretary Snow. Thank you very much, Chairman Davis, and
Chairman Collins and distinguished members of the panel. I am
delighted to have the opportunity to be with you today to
address this overdue subject and this critically important
subject.
Let me say I thank you for your flexibility in
accommodating me. I wanted to be here, and appreciate your
allowing me to come in light of the fact that I may not be able
to stay the whole time. But as you said, Under Secretary Brian
Roseboro, who is very knowledgeable on this subject, can speak
well in my absence.
I am here because I want to underscore the Bush
administration's commitment to the objective of a strong,
comprehensive postal reform. As you said, Congressman Burton,
we can't wait 20 years to get this done. We really need to get
it done now. It's widely acknowledged by everybody who looks at
the question that the business model of the Postal Service just
doesn't work anymore. It's not sustainable in light of all the
technological changes and changes in the marketplace and
substitutes that have come along. We need a new model.
The President recognized that and sought to help the debate
by establishing a commission, which--a bipartisan commission to
look into the question of what could be done to put the Postal
Service on a sound financial footing so it could operate well
into the 21st century and serve those important objectives that
were mentioned in your comments. That commission issued its
report in July, and it's, as we think about it at the Treasury
Department, the most important document on the Postal Service
in 30 years. And I certainly take my hat off to the members of
that Commission, who did really first-rate work in producing
their recommendations.
I wouldn't say that we endorse every 1 of the 35
recommendations, but we believe the report as a whole is a
critical building block for the reform effort. And, of course,
the leadership of these two committees is critical in making
that happen.
We would suggest that comprehensive postal reform ought to
be what we are seeking, and it ought to be guided by five broad
precepts or principles implementing best practices, and
enhancing transparency of operations, providing for greater
operational flexibility, fostering greater accountability and
ensuring self-financing. And encompassed within these larger
principles, there are three specific issues of great interest
to the administration and, I know, to members of the
committees, because I have spoken to some of you about this.
The first is the appropriate allocation of the Civil
Service Retirement System military costs, a second is meeting
the break-even mandate, and a third is making sure there's
accurate cost accounting.
Congress called on the Postal Service to achieve self-
financing when it passed the Postal Reorganization Act in 1970,
and this principle must be a cornerstone of any postal reform
that's pursued today. In order to meet the self-financing
mandate, we think that the postal--that the pension cost for
military service of Postal Service employees should be
attributed to the Postal Service rather than to the U.S.
taxpayers. Congress demonstrated that it shared this belief
when it passed the Postal Service--Postal Civil Service
retirement legislation in 2003.
We would oppose any effort to shift the roughly $27 billion
of pension costs connected with military service back to the
taxpayers. This position, in our view, represents a fair and
equitable allocation of those pension costs. It represents good
government, good practice, and is financially prudent.
With respect to another issue that I know is on the mind of
many of you, the act's provision establishing the escrow
account, it is important, I think, to start by noting that the
administration never advocated including that provision in the
final bill. And I'd say that we are prepared to work with you
toward a modification of the Postal CSRS Funding Reform Act,
abolishing the escrow in a way that will not have a serious
adverse effected on the deficit, as long as it's part of a good
overall postal reform bill. So we would look forward to working
with you on that.
Second, an accurate assessment of the Postal Service's
financial performance must reflect all of its liabilities, not
just some of them, including any unfunded liabilities not
currently reflected on the balance sheet as well as all
taxpayer-funded appropriations.
Finally, we suggest that comprehensive postal reform must
require the Postal Service to present more accurate revenue and
cost allocations. Currently the Postal Service attributes 42
percent of its total costs to general overhead, only allocating
58 percent of its costs across product lines. That makes it
tough to run the business well if you can't allocate your cost
to the specific services for which those costs are generated.
And while we recognize that cost attribution can be complicated
for any company, particularly a company of the size and
complexity of the Postal Service, we think that a more accurate
cost attribution is possible, and that by getting it, we could
get costs and prices and profitability into better alignment.
In our view, the Congress has a unique opportunity to take
decisive action here, to craft a comprehensive postal reform
bill that can lead to a more successful operation of the Postal
Service. We continue to appreciate and endorse the effort and
dedication of the Postal Service employees, its management, the
Board of Governors, all of whom have made tremendous
contributions to this organization, and Postmaster General in
particular. I understand, and I want to compliment the
Postmaster General for this, that the Postal Service is
implementing all 16 recommendations of the President's
Commission that don't require prior congressional action.
That's much to be commended.
Let me close by saying that the administration is anxious
to work with you to craft a reform bill framed in accordance
with these principles that I outlined. We recognize that it
will require shared sacrifice from everybody, from all the
shareholders, but we have an opportunity here to put in place
something that will stand the test of time in this enormously
dynamic market.
So I regret that I won't be able to be with you for the
full length of the hearing, but I do look forward to being part
of the effort to bring about significant, far-reaching,
comprehensive postal reform. Thank you.
Chairman Tom Davis. Thank you, Mr. Secretary.
[The prepared statement of Secretary Snow follows:]
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Chairman Tom Davis. I know you need to leave in a couple of
minutes. I wonder if you could just try to stay for a couple of
minutes and answer some questions, or if you can deflect them
to Secretary Roseboro if you think that's more appropriate. But
I wanted to recognize Senator Collins.
Senator Collins. Thank you, Mr. Chairman.
Secretary Snow, over the past several months that we have
been holding hearings, we have heard from many different
parties expressing many different views. We've heard from the
Postal Service unions, the associations, the CEOs of major
companies such as Time, Inc., and RR Donnelly. We have heard
from representatives of the newspaper and direct marketing
associations, and they have very different views in some cases
on what should be done. But there were two issues that united
every single witness who has testified before our committee at
these six previous hearings, and that is the two issues that
they all have in common are a desire to see the escrow account
repealed and the return of the military pension obligation to
the Treasury Department.
This morning, or this afternoon, rather, you have praised
and justifiably so, the fine work of the President's
Commission, and as you're well aware, those recommendations
were part of the Commission's recommendations as well. So the
administration's is a pretty lonely voice on those two issues.
I do recognize that the bill that the administration
proposed to correct the overfunding of the pension system did
not include an escrow account, because I introduced the
administration's bill. I don't understand why today you have
said that removing the escrow account, which was not part of
administration's original bill, must be done so in a deficit-
neutral position. This is an overfunding that the OPM and OMB
identified and which we have corrected. It doesn't make sense
to lock up that money and prevent the Postal Service from using
it.
That's my first concern, and then if there's time, I'd like
to turn to the military pension issue.
Secretary Snow. Well, as I understand it, that's roughly $3
billion in the escrow account today. And----
Senator Collins. Well, the escrow account grows in future
years if we don't remedy this problem.
Secretary Snow. I would agree. Right. Right. But that is
money that, as we keep score on the Federal deficit, goes into
the plus column today. And if the moneys are allowed to flow
out of the escrow account, they would be charged against the
deficit and add $3 billion to the deficit. That's the basic
issue we have with the escrow account. And as I say, I'd be
willing to work to find an offset for the $3 billion, but we'd
be much happier about the prospect of the escrow account
solution you want if there were an offset.
Senator Collins. Secretary Roseboro, did you want to add to
that?
Mr. Roseboro. Oh, yes. Just consistent with the Secretary's
remarks, anything that increases the budget deficit increases
the burden on taxpayers, and that is just fundamentally
inconsistent with the principle the President has laid down in
terms of the Postal Service being self-financing, as well as
the original principle of postal reform from the early 1970's
of Postal Service being self-financing. So as indicated, while
we recognize the difficult accounting nature of dealing with
this particular aspect, we would prefer to focus on economic
exposure and how that could be adversely effective on the
taxpayer. But we will be more than willing and anxious to work
with the committee to find some type of resolution to the
problem.
Senator Collins. Well, I'm eager to work with you to
resolve this issue, because I think it's absolutely critical,
but it really is not relevant to the break-even mandate of the
Postal Service. This was legislation that corrected an
overfunding by the Postal Service to the retirement system. So
to say that we have corrected that, but then we are locking up
the money and not allowing it to be spent to fund retiree
health care benefits, pay down the debt to the Treasury, or to
remove the need for a dramatic increase in postal rates, for
example, just doesn't make sense to me. It contradicts the
entire purpose of the legislation that we passed at the
administration's request last year.
Secretary Snow. Senator, we don't disagree in principle. We
do have that issue of a $3 billion hit to the accounts of the
United States, and, as I said, we're prepared to work to try
and find some offsets for that. But in principle we're not
disagreeing with you.
Senator Collins. I see that I have 3 seconds left, so I
will yield back the balance of my time and hope that the
military pension issue will be addressed by others. Thank you,
Mr. Chairman.
Chairman Tom Davis. Mr. Davis.
Mr. Davis of Illinois. Thank you very much, Secretary. I'll
just ask one question in terms of along the same lines. If we
should shift the military retirement cost to the ratepayers,
and if we can't shift it to the taxpayers, then more than
likely it gets shifted to the ratepayers. Would that not put
the Postal Service in the worst shape in terms of perhaps
negating the possibility of some business that could be done
that would not be done?
Secretary Snow. Congressman, you raise a good point. How
would the $27 billion be amortized or dealt with? This is
something that Under Secretary Roseboro has looked at. In broad
outline it would have to come through greater efficiencies,
perhaps some phasing in of some pricing increases over time.
But as we look at the situation, there are considerable
opportunities, and I think the Postmaster General would agree,
considerable opportunities for further efficiencies within the
organization itself that would absorb some considerable part of
those costs. But my learned colleague can give you a better
answer than I can on that, and I very much apologize.
Chairman Tom Davis. Thank you. We know you've got to run,
and we appreciate very much. Thank you for your time.
And, Mr. Davis, I think what I want to do, if it's OK with
you, is go on before we proceed; everybody's sworn, see if any
other Members, want to make opening statements, and let's move
that out of the way, and then we can get to the testimony of
the rest of the panel.
And, Mr. Roseboro, I'll just have some cleanup work to do
following that, some questions from some of the panel members.
OK. Mr. Ruppersberger.
Mr. Ruppersberger. Mr. Chairman. Thank you, Mr. Chairman
and Senator. It's great to have you here and join together in
this bipartisan issue.
We're here today to explore what legislative changes are
necessary to ensure the U.S. Postal Service continues to serve
the best interests of the American public, but because the
Postal Service is a $900 billion industry, it employs more than
9 million people, we can all agree our objective is to
stabilize the Postal Service and secure its future.
As we consider options for reforming the U.S. Postal
Service, it is crucial to recognize our Nation's shifting
economic, commercial and technological conditions. Hard-copy
communications have been affected by the use of fax machines
and a variety of electronic communications including the
Internet. The U.S. Postal Service faces increased competition,
as we know, from private delivery companies and also the
challenges of operating during an economic slump. Mail volume
has declined during each of the fiscal years 2001, 2002, 2003,
and the Service has lost $2.3 billion in the last 3 years.
The financial problems of the postal industry, however,
must not be imposed on the backs of the men and women who have
made the U.S. Postal Service the best postal service in the
world. As our national unemployment rate continues to decline,
we must protect the job security of postal employees, including
the retirement, health benefits and Workers' Compensation.
In addition, we must consider the impact of the postal
reform on individuals and small businesses. Cutbacks on
services, charges and delivery, and post office closures could
unfairly burden our communities both rural, suburban and urban.
Last we must not overlook the U.S. Postal Service's
uncertain funding for emergency preparedness. It has been more
than 2 years since our country was brutally attacked by the
terrorists on September 11, 2003, and other issues involving
anthrax. We live in an era of uncertain threat levels and must
ensure the U.S. Postal Service has the resources to keep their
employees, our families and our communities safe.
Chairman Tom Davis. Thank you very much.
[The prepared statement of Hon. C.A. Dutch Ruppersberger
follows:]
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Chairman Tom Davis. Any other Members? Ms. Miller, you want
to make an opening statement?
Mrs. Miller. Thank you, Mr. Chairman. I'll be brief. I
certainly appreciate your commitment to reforming the postal
system.
I'd like to thank my esteemed colleague from New York. I
saw Mr. McHugh; didn't realize he had a 9-year sentence to
postal reform here. So we're looking forward to a successful
conclusion of all of that, and I certainly would like to extend
my thanks to Senator Collins for joining us today, and
certainly her commitment as well as the President's. I am
certain with all of us, we can get reform--a reform initiative
signed into law before the end of the year.
You know, the Postal Service is such an important element
of our society, as everybody has said here. It's actually over
8 percent of the Nation's gross national product, which is a
startling number, and certainly individuals and businesses rely
on it each and every day. And for this reason, any
consideration of reform certainly has to be sensitive to the
needs of consumers, both individuals and businesses.
In addition, I think that the reform needs to be sensitive
as well to all of our postal workers, and I don't think that
can be stressed enough. These are the people who make sure that
your magazines are arriving in your home or your apartment or
what have you every single day, that they show up every week.
They make sure your bills are paid on time. These are the
people that really make it work. And sometimes I think that we
take our postal workers and our service for granted there, but
I certainly want to thank the men and women who work every day
to make it so reliable.
And I do think sometimes we have a tendency to want to say
that the Postal Service is a very large and inefficient
government bureaucracy, but I think when you think for 37 cents
I can put something in the mail in Macomb County, MI, where I
live, and in several days it'll arrive anywhere in the
continental United States, I think that's really remarkable.
So I think it's important to note that the Postal Service
is not broken, but it needs to be improved. And I think the
largest room no matter what business you're involved is
certainly the room for improvement.
So I want to thank all the witnesses who are testifying
today. I look forward to working with all of you.
Thank you, Mr. Chairman.
Chairman Tom Davis. Thank you very much.
Mrs. Blackburn.
Mrs. Blackburn. Thank you, Mr. Chairman. And thank you to
Senator Collins for coming to join us today.
I have a statement that I will give for the record, but
just very briefly to touch on a couple of things. I do want to
thank our witnesses. And I want to thank the members of the
Postal Service, the employees of the Postal Service from my
district who care deeply about reform and have come to join us
today.
We are all concerned with what we have seen happen with the
Postal Service's financial health over the past decade and the
deterioration that has taken place there, and I think as we
have held the hearings in the House and the Senate, there are
three areas where we have looked at that are in need of crucial
reform.
First, the Postal Service must develop a 21st century
business model. And the Service is operating in 2004 as it did
in the 1970's, and we know that is very difficult for the
Postal Service and for the taxpayers.
Second, the Postal Service must have financial
transparency. And proper financial management enables executive
officers to make sound financial decisions, and it allows new
reforms to take hold, and that is something that is essential.
And also, we think that it is essential that an extensive
independent audit must be taken as soon as possible so the
Postal Service can be held accountable for its operations, and
the waste and inefficiencies can be identified and targeted for
elimination.
And third, the Postal Service must contain its labor costs.
Eighty percent of its total expenses for last year were for
labor, and this stands in stark contrast to some of the
commercial mailing enterprises which we have heard from during
the course of our hearings.
Again, I want to thank the chairman for his leadership, and
I want to thank our witnesses for being here today, and we look
forward to working with you and hearing your testimony.
Thank you, Mr. Chairman.
Chairman Tom Davis. Thank you.
[The prepared statement of Hon. Marsha Blackburn follows:]
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Chairman Tom Davis. Senator Carper and then Mr. Clay.
Senator Carper. To our colleagues here in the House of
Representatives, to my Chairman Susan Collins, it's great to
see all of you. To our witnesses, especially our General, thank
you for being here today. I remember walking in this building,
gosh, how long ago was it? 1965. 1965, when I was a freshman at
Ohio State University, Navy ROTC, midshipman, and we were--
spring break. I didn't have enough money to go to Florida for
spring break, and I ended up taking a free, all-expenses-paid
trip to Quantico, VA.
To see if I wanted to grow up and be a Marine officer. I
ended up--I enjoyed the trip. I have great respect for the
Marines and still do. But I enjoyed the trip. I just wanted to
have a chance to maybe get out of Quantico one afternoon to
come to Washington, DC, and, lo and behold, I did.
And a bunch of my buddies and I got on a train in Quantico
and came on up here to D.C. They went up to Georgetown to get
in to trouble, and I came to Capitol Hill and ended up
wandering into this building, in spring break of 1965.
And there was a hearing going on. Everything else was shut
down around the Capitol. There was a hearing going on in this
building, I think on this floor, just down the hall. It was a
Judiciary Committee hearing, and I think the chairman was a guy
name Emmanuel Celler, I think he was the chairman. And they
were having hearings on the Voting Rights Act of 1965. That was
my introduction. I said, when I left, to my colleague, Ed
Towns, with whom I came here in Congress, I said, when I left
that day to go back to Quantico with my buddies, I said, did
you guys have a good time? They had a great time in Georgetown.
They wanted to know if I did too, and I said yep. But some day
I would like to come back and work in this town, and it is
great to be back in this building where we all started several
decades ago.
Well, to my colleagues, especially to my old colleague Ed
Towns, it is an honor to be here. This postal reform issue has
been one that has been with us for a while, as you know, and I
hope that we can do work that is as good as that done by Ted
Stevens almost 3\1/2\ decades ago.
In fact, he did his work just shortly after I was here as a
Navy ROTC midshipman, and we want to be able to build on good
work that has been done by Congressman McHugh and those who
helped him shape his legislation.
As my colleagues are aware, this will likely be the final
hearing I think we are going to hold following the declarations
from the President's Postal Commission. I think it is a good
sign that we are here, Democrats and Republicans, House and
Senate, united in the belief that we need to make some
fundamental changes to the way our Postal Service does business
in the 21st century.
By all accounts the Postal Service has been a success since
it was created. I think even its detractors would admit that.
It receives virtually no taxpayer support, and it services
hundreds of thousands of employees, to provide to nearly every
American, nearly every day, that service is second to none.
And more than 30 years after its birth, the Postal Service
is a key part of our Nation's economy, delivering to more than
100 million addresses and supporting a massive mailing
industry. And even a casual observer, however, can see that the
past few years haven't been easy ones for the Postal Service.
As we learned in our hearings in Governmental Affairs on
the other side of the Capitol, they have been difficult for
private firms, large and small, and for millions of mailing
industry employees who depend on stable postal rates. I am
pleased that we have this once in a generation opportunity,
maybe once in a two generation opportunity now to work in a
bipartisan way to modernize the Postal Service, to update its
business model for the 21st century.
At the end of last year, as we all know, President Bush
issued a set of postal reform principles focused on those
recommendations from his Postal Commission aimed at improving
transparency and accountability at the Postal Service and
giving management the increased flexibility that they need to
streamline operations and seek out new mail volumes.
And his principles touch on the main themes addressed in S.
1285 and in Congressman McHugh's latest bill. I think it is
safe to say, my friends, that as I have said before, that we
probably have agreement on 90 percent of what ought to be in
the new postal reform bill.
And now that our hearing work is just about complete, I
look forward to sitting down with you, Madam Chairwoman, with
our friends here in the House, Congressman McHugh, and our
other interested colleagues to put together a bill that is a
worthy successor to that hammered out 40 years ago by a junior
Senator, Ted Stevens. Thank you.
Chairman Tom Davis. Thank you, Senator. Mr. Clay.
Mr. Clay. Thank you for allowing me to claim my time. I
appreciate that. It is an honor to participate in today's
hearing on developing principles for meaningful postal reform
with our Senate colleagues. I would also like to extend thanks
to today's witnesses. This historic meeting leaves no
uncertainty about the willingness of Congress to address the
important issue of postal reform.
Postal reform has presented us with a unique opportunity to
craft legislation that would modernize our postal system to
become more customer friendly and efficient in the 21st
century. Still, there are many components of postal reform that
have yet to be resolved, such as the Civil Service Retirement
System, military obligation, and the fair and equitable
treatment of postal workers, to name a few.
The U.S. Postal Service is no ordinary business enterprise.
It is a government entity with no shareholders that provides a
commercial service which operates under a break-even mandate
and pays no Federal, State or local taxes. It is truly unique.
Fundamental reform is sorely needed to bring the service
into the information age. We must examine further efforts to
cut costs while maintaining service and preserving universal
delivery. I trust that as a body we will take the time to
resolve our differences on the issue of postal reform. Simply
put, we owe that commitment to both the ratepayers and
taxpayers.
And, Mr. Chairman, I look forward to hearing from today's
witnesses, and ask unanimous consent to enter my statement in
to the record.
[The prepared statement of Hon. Wm. Lacy Clay follows:]
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Chairman Tom Davis. Without objection, so ordered. Any
other Members wish to make opening statements at this point?
Again we have--I am sorry, Mr. Towns.
Mr. Towns. Mr. Chairman, let me thank you for holding this
joint hearing today on the very important issue of postal
reform. This has been a thorough and informative process, and I
feel confident that both sides are well prepared to fashion a
bill that will put the Postal Service on firm ground for years
to come.
The Postal Service is truly at a precipitous point, as it
is quickly heading down a path which is economically
unsustainable. Each year the Postal Service adds nearly 2
million new homes, businesses or other new delivery points.
However, at the same time, mail volume has been declining for 3
straight years. While some of that decrease is due to the
recent economic recession, a significant portion of the decline
is due to structural changes that are only going to become more
pronounced.
Overall, the Postal Service has lost $2.3 billion, that is
B as in ``boy'' in the last 3 years. We have bought some time
by passing the Civil Service Retirement System Funding Act. We
saved more than $6 billion for the last 2 years. But we cannot
allow this breathing room to deter us from making important but
tough decisions. Our constituents are depending on us as well
as the Postal Service and the mailing industry.
Together this enterprise comprises a nearly $900 billion
industry, employing 9 million workers nationwide, and
representing more than 8 percent of the gross domestic product.
So a failure to act will have wide ranging consequences.
As I have said before, there is significant room for
agreement on a vast majority of issues, such as the escrow
account and the military pension issues. In areas of limited
disagreement, I strongly believe that a compromise can be
forged that increases the efficiency and effectiveness of the
Postal Service, accommodates the needs of the mailing industry,
and at the same time protects our postal workers.
I look forward to hearing from our witnesses today about
their views on what principles should guide our committees in
writing a final postal reform bill.
Thank you very much, Mr. Chairman, and I yield back the
balance of my time, and I am glad to see that Senator Carper
made his way over. It shows you that this is an important
issue.
Chairman Tom Davis. Thank you very much. Members will have
7 legislative days to put statements in. We will proceed to the
panel now. And I think, Mr. Fineman, we will start with you,
and then, Mr. Potter, to you. Mr. Roseboro, do you want to make
any remarks or are you just here to be the flycatcher for the
Secretary?
Mr. Roseboro. It is a privilege to have the best job in the
world right now, sir. I will report back.
Chairman Tom Davis. Go ahead.
STATEMENT OF DAVID FINEMAN, CHAIRMAN, BOARD OF GOVERNORS, U.S.
POSTAL SERVICE
Mr. Fineman. Thank you, Chairman Davis. As most of you
know, I am the chairman of the Board of Governors of the U.S.
Postal Service, and I have served a sentence with Congressman
McHugh. For the last 8 or 9 years we have been together. My
term expires on December 8th of this year. And this will, as I
said to Congressman McHugh a little bit earlier, probably be
the last time that I have an opportunity to testify before the
committee, because I look forward to this committee going into
the hard work to get a bill out and probably won't need too
much more testimony.
I want to take this opportunity just to thank Congressman
Davis, Senator Collins, Senator Carper, Congressman Danny Davis
also, and the people who have worked so hard on this
legislation.
Congressman McHugh and I were lonely voices, I think, about
8 years ago or so saying that we thought that there was going
to be a problem. And the last time I testified, Senator Carper,
I said that you and I both take the train. As you know, I come
from Philadelphia. We both take that train coming in on that
Northeast extension.
And the last time I said that there was a train wreck about
ready to happen. I thought that the train was probably in
Baltimore and coming down to Union Station. And I guess it
might be at BWI now as it keeps going down. It is not ready to
come into Union Station, but it is pretty close.
As I listened to Secretary Snow's remarks, I thought back
upon the 8 years or so that I have been on the board. And I
think the remarks about the pension and the funding of it
reflect what is such a tough job here, understanding what the
Board does.
You know, at one point the legislation that you presently
have says that, well, we have to run this like a business. And
we do try our hardest to run this like a large business would
be run. Many of us have sat on public boards before.
But at the same time, you take an issue like the pension. I
think it is just a good example. Other businesses, you know,
you don't fund what are your military obligations by the
business itself. It just doesn't work that way. You want us to
act like a business and be independent; at the same time you
say we have certain obligations. We understand the obligation
of universal service.
But at the same time, if we are going to be self-
sustaining, we should be really self-sustaining. I am a lawyer
by trade. The $3 billion was put into an escrow fund. That
means, the way I practice law, that it is sitting there just
waiting for something to happen. That something was that
Congress wanted a report from us as to how we were going to use
that money. We gave that report.
Chairman Davis reported back to us, at least today, that
they were satisfied with what the report was that we gave. It
seems to me that the escrow then gets broken, similar to the
way you do a real estate deal. You put some money in escrow,
the escrow gets broken, and it goes to one of the parties. This
is no different. You asked us for something. We set it aside.
It is obvious to us, and obvious I think to this panel, that
money should be given to us.
And while we talk about the escrow fund, we are coming to a
point in time where Congressman McHugh, the main issue that he
and I spoke about for the last 8 years was the ratemaking
process. And the ratemaking process is broken. It doesn't work.
I am a lawyer. And I was interested in 1965--I graduated from
George Washington Law School in 1970, the same year that this
act came into existence.
I kind of wish I knew about it. I have called it the
Lawyers Welfare Act of 1970. You know, to a large degree that
is what happens. It churns litigation. It churns the ability to
set rates. And there is another process that can happen, you
have all heard me talk about it before. And you have all had
proposals, and I think it will happen.
But you take this and the escrow fund, look at the position
we are in today. As the chairman of the Board, I have a
fiduciary obligation to the American public, to the Postal
Service, to the ratepayers. We are going to have to act on
rates probably sometime in November. If we don't know whether
or not this $3 billion is coming back into our coffers, we are
going to have to do something.
I mean, it is not a threat, it is not a promise, it is just
reality. It is just the way the system works. The system
shouldn't work this way. There should be another rate making
process. And I would hope that you would attack it.
Last thing I would like to comment upon, and I think I have
the right to do it as the chairman of the Board, is about
governance issues. I do want to thank the President for putting
together this Presidential Commission and the people over at
Treasury who worked so hard on that within a short period of
time. I was amazed that they could come out with their report
within the short period of time that they worked. However, the
one issue where I do disagree with the President's Commission
deals with governance issues. And the reason that I disagree is
the manner in which the directors are chosen, and as
Congressman McHugh knows, I couldn't care less whether you call
us Governors, directors or whatever. The manner in which they
are chosen could cause a partisan board to come into existence
under the formula selected by the Presidential Commission. My
experience has been that these are not Democratic nor
Republican issues. It is reflected in the bipartisan nature of
whom I am testifying before today. It is reflected in the
bipartisan nature of our Board.
Congressman Carper is a good friend of a Republican, Bob
Rider from Delaware, the former chairman of this Board, and he
and I were confirmed on the same day. There are no issues
between us that are Republican and Democrat, and I would hate
to see this Board formulated in a manner in which there could
be either a Republican board or a Democratic board depending on
who the President is, and I ask you very much to give that a
little bit of your attention.
And with that, I know that we--there are many of you here
today, and many of you might have questions. So I want to cut
my remarks short. And thank you again, thank Chairman Davis and
the two Senators, for calling this meeting. You know, as a kid
from Philadelphia in a row house, I kind of pinch myself a
little bit that I am in some ways helping to make history. So,
Mr. Chairman, thank you very much.
[The prepared statement of Mr. Fineman follows:]
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Chairman Tom Davis. Thank you. Thank you, General Potter,
thanks for being with us.
STATEMENT OF JOHN E. POTTER, POSTMASTER GENERAL OF THE UNITED
STATES, U.S. POSTAL SERVICE
Mr. Potter. Good afternoon, Chairman Davis, Chairman
Collins and members of the committee. I am pleased to come
before you today as we continue to discuss the critical need
for comprehensive reform of the legislative framework governing
the Postal Service.
I am especially grateful to Chairman Collins and Chairman
Davis for your active leadership on postal legislative reform
and for providing the opportunity for all stakeholders in the
mailing community to voice their needs, preferences, and common
commitment to postal reform. And while I am at it, I want to
thank everyone on the committee. A lot of accolades have
already been said, I want to echo them.
Let me begin by saying first of all how proud I am of
postal employees. All of the men and women who work for the
Postal Service, they are doing a great job, and I am very proud
of what they are doing. We have seen service performance rise
to record levels. Customer satisfaction is at an all time high.
We have had an unprecedented 4 straight years of
productivity improvement. Our employees are delivering for
America. And speaking of delivering for America, the Postal
Service is most grateful to the administration and Congress for
the Civil Service retirement legislation passed last year. The
legislation enabled us to reduce our outstanding debt by one-
third and will help us hold rates stable until 2006. That
legislation left two open issues to be addressed this year;
namely, the obligation for military benefits and the escrow.
As we have previously testified, the Postal Service
believes it should not be responsible for funding Civil Service
Retirement benefits earned by postal employees while they
served in the military. This $27 billion obligation includes a
$7 billion reimbursement to the Treasury for payments made to
retirees since 1971, as well as $10 billion interest on those
payments.
There is also an additional $10 billion in cost to cover
future benefits for existing employees' military service. We
disagree with the shift in the obligation from the taxpayer to
the ratepayer. The legislation also requires the Postal Service
to create an escrow account from savings resulting from the
legislation.
The simple fact is that under present postage rates there
will be no funds available after 2005 to place in an escrow
account. The moneys needed for the escrow fund equate to a 5.4
percent rate increase. I don't believe a rate increase is good
for the recovering economy or for the mailing industry or for
the long-term future of universal service as we know it today.
Therefore, I strongly urge the elimination of the escrow
requirement.
Let me now turn to key priorities we believe should be
addressed in your deliberations on postal legislation. First
and foremost, we believe that we must have the flexibility to
adjust rates to meet the varying demands of customers. Mailers
have long told us that small annual price increases are
preferred to price shock every couple of years. Annual
increases could be more easily absorbed in their business
plans.
Conversely, the public prefers a uniform rate for a single
piece of first class mail that would change less frequently.
The current ratemaking system does not allow us to accommodate
those varying preferences. We recommend that a model that gives
the Governors of the Postal Service the authority to set prices
with an after the fact review process that addresses issues
such as cost coverage, consumer interest, and impact on
competition would be beneficial.
In a related area of price caps, my concern is that given
the volatility of today's marketplace an imperfectly crafted
price cap could be harmful. To guard against that concern, we
propose that the price cap be constructed to recognize the many
cost factors which enter into the ratemaking process, many of
which are beyond our control.
Specifically, we propose that in addition to a metric for
wage growth, a realistic price cap would also account for
delivering network expansion, fuel price volatility and, most
importantly, legislatively mandated employee benefits.
Second, it is essential that we have flexibility to adjust
our national infrastructure--our retail and processing
networks--to meet changing customer preferences and market
conditions. Many postal retail services are now conveniently
available on line, in grocery stores and in other private
sector retail outlets and through the mail. We should not be
expected to retain all of our post offices simply because they
have always been there.
Likewise, sorting capability continues to be increasingly
more efficient. This, combined with the potential loss of mail
volume, requires an evolving processing network to minimize
costs.
Third, it is essential that the Postal Service be given
greater latitude to manage and control costs. Despite our
success in reducing costs over the past 4 years, the fact
remains that a significant portion of our costs are imposed on
us by legislation. For us to succeed, those costs must be
addressed.
For example, Federal statute gives the Department of
Transportation authority to set the rate we pay airlines for
international mail transportation. International mail is a
highly competitive area. We should be able to negotiate
directly with airlines in the same way we do in contracting for
domestic air transportation costs. It is more businesslike and
provides us an opportunity to reduce costs which ultimately
benefit the marketplace.
When you will look at postal expenses as a whole, employee
benefits are the single largest cost category that today is
beyond our control. Benefits, such as retirement contributions,
health benefits, life insurance, retiree health benefits and
workers compensation are mandated by statute.
Collectively last year they amounted to more than $13
billion in costs. We propose that a collective bargaining
process which covers almost 90 percent of our career work force
be expanded to include the negotiation of benefits in addition
to wages, hours and conditions of employment. In short,
everything should be on the table.
Finally, I would like to comment on a statement to the
Committee on Governmental Affairs earlier this month by UPS
Chairman and CEO Mike Eskew. ``The Postal Service's mail
monopoly allows it to subsidize competitive products and
inappropriately compete with the private sector.'' His
statement misses the mark on both counts.
First, the Postal Service's monopoly on letter mail does
not subsidize competitive products. Cross-subsidization is
against the law, and in a nation of laws we are not in the
business of breaking the law.
Second, a principal duty of the independent Postal Rate
Commission is to ensure that cross-subsidization doesn't occur.
During our arduous ratemaking process, if there were cross-
subsidization, one or more of the rate intervenors would point
that out to the PRC.
I would add that in 2003 our competitive products, Express
Mail, Priority Mail and package services, earned $2.5 billion
over and above their direct costs. The funds were made from
Express Mail, Priority Mail and package services and they were
used to finance universal service. Terms like inappropriate
competition are easy to toss around, but they often ignore an
important lesson of history.
At the turn of the century by law the Postal Service, the
Post Office Department at the time, could not carry parcels
weighing more than 4 pounds. Only private express companies
delivered larger packages. But then more than half of the
American public lived in rural areas and received little or no
parcel delivery from private carriers. Those who did had to pay
exorbitant rates for their service.
When the Parcel Post Act of 1912 was enacted, all of that
changed. For the first time in history all Americans, from
those living in major urban centers to residents in remote
rural areas, were able to use the mail to receive the goods
they needed at affordable prices. Today the Postal Service
continues to deliver to every address in the country without
residential or rural surcharges that are increasingly common by
other companies.
In fact, recently the elected public officials of Pasco, WA
protested such surcharges of $1 for business delivery and $1.75
for residential delivery.
Pasco has a metropolitan area of more than 150,000 people.
The lesson is clear. We have an opportunity and obligation to
preserve and protect universal mail service in this country,
the right and privilege of every American to receive reliable,
efficient, affordable mail service, regardless of where they
live or do business.
I believe that this is the legacy we must preserve for our
future generations, a legacy that will be preserved only if we
have the courage, determination and vision to enact legislation
that will truly help us build a stronger Postal Service in the
future.
Thank you, Chairman Collins, thank you, Chairman Davis, and
the rest of the committees for your interest in the Postal
Service.
[The prepared statement of Mr. Potter follows:]
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Chairman Tom Davis. Thank you very much. Let me ask Mr.
Roseboro. I heard the Secretary's testimony about the escrow
money and the deficit, but this really isn't deficit money,
this is postal ratepayer's money that they paid into the fund,
right?
Mr. Roseboro. Yes, it is.
Chairman Tom Davis. Why would you use it for other--I mean,
I don't think we ought to be under the illusion this money is
going to be paid for the Defense Department or the Education
Department. These are postal dollars paid by ratepayers under a
fund that is akin to an enterprise fund.
And under State law in Virginia, if I had taken money from
an enterprise fund and used it or amassed it for anything else,
I would go to jail. But at the Federal level, we don't have
those rules. So you can sit here and use this to, ``mask a
deficit when it is to phoney baloney.'' These are postal
dollars that ought to ultimately be used for the Post Office.
I am trying to understand for $3 billion this year, which
is what is in there now, why don't we just call it what it is,
and postal dollars, and release it?
Mr. Roseboro. You are absolutely correct from the
perspective that you would look at this $3 billion which would
grow in terms of the escrow structure. While I would say,
however, I disagree that it is attempting to mask any
deterioration in the deficit.
What our concern is, from a budget scoring proposition, a
budget scoring proposition that was built into last year's
legislation, is that it remain a strong preference that it
remain budget neutral. And to accomplish that from a budget
scoring perspective, that is where we think we need to aid the
committee, aid the Congress in trying to determine what makes
sense, what, if anything, can work, and we are willing to lend
a hand.
Chairman Tom Davis. Well, isn't it budget neutral simply
because of the way that the scorers look at these things? They
had counted this money as basically general fund money. If you
shift it to the Post Office, then it shows up as a deficit on
the general fund side, and it is used for postal--am I
understanding it correctly?
Mr. Roseboro. It is an accounting budget scoring issue,
absolutely, sir.
Chairman Tom Davis. So the alternative, if you keep it
neutral, is that ratepayers would have to pay an additional $3
to $4 billion a year, not for any purpose that has anything to
do with the Postal Service or its employees, but basically to
reduce the deficit. And the alternative is that you raise
postal rates, which has--you talk about a tax increase, that is
what postal rates are. You talk about trying to get jobs in
this country, that is a job killer in my opinion.
Now, what am I missing here?
Mr. Roseboro. We would look at it as that isn't necessarily
the only alternative that could be structured, and again we
would work to explore other reasonable alternatives that do not
have that outcome which you just outlined.
Chairman Tom Davis. I am just--I hear you. I really
appreciate the Secretary's remarks about how he wants to look
at finding offsets with this, and we have--I guess if we have
to do that, that is what we have to do. But it just seems so
much cleaner and straighter and more honest to just say these
are postal dollars, we are going to release them and let the
chips fall where they may on the budget, because ultimately
those are dollars that shouldn't be put in the same fund as
taxpayer dollars. These are ratepayer dollars. The way the
Postal Act is set up is so the Post Office could pay for
itself.
Now you are saying dollars that they generate, we are going
to take these dollars away and put them over here, so at least
for accounting purposes these look like dollars that are raised
from income tax.
Mr. Roseboro. Well, again, we think there may be other
alternatives. Again in terms of exploring those options, in
terms of those dollars being directed toward other postal
obligations, the frequently mentioned here unfunded obligations
of substantial nature.
Chairman Tom Davis. Let me ask you. What would a 5.4
percent across the board postal rate increase do to the
economy?
Mr. Roseboro. We think that any increase would not be a
good thing. However, recognizing the reality of other options
being available, other leverage to push in a structure, in a
business, of 42 percent unallocated costs, that there could not
be explored, could not be found other cost saving measures, as
we push for the Postal Service to have flexibility with regard
to technology, with regard to work force issues where it has a
great opportunity in the coming years with regard to natural
attrition, eligibility for retirement increasing.
We think it is not just a binary issue of raising rates or
pushing the expense onto the taxpayers, we think there are some
other options that could be practically explored.
Chairman Tom Davis. I am encouraged by the fact that you
want to work with us and recognize the problem at the end of
the day if we just leave those dollars over there without
finding some--and we look--I like the straight up way of doing
it, that is kind of--but we look forward to working with you on
that, and appreciate your commitment.
Mr. Davis.
Mr. Davis of Illinois. Thank you very much, Mr. Chairman.
Mr. Potter, Secretary Snow indicated that there were still
efficiencies to be found in the Postal Service. Would you
comment on where some of those might be?
Mr. Potter. Well, over the past 3 years we have worked very
hard to find productivity improvements throughout our system.
Some of the cost saving opportunities are in the supplies and
services, the transportation that we procure, some of the
services that we buy such as leases on buildings.
In the past 3 years, we have managed to reduce our spending
on that by over $1 billion. In addition to that, we have taken
out over $1.7 billion worth of labor cost simply by managing
our business better. We have done an internal benchmarking
program that has our employees focused on productivity.
And our employees are stepping up to the plate. So I see
productivity improvement opportunities in every operation that
we have. I think our employees are engaged in that, and the
product is what you see. You see a reduced work force that is
taking on additional work, and productivity that is growing.
So I see opportunities in delivery. I see opportunities in
mail processing operations. I see opportunities in all of the
supplies and services that we buy, and we have a very broad
program. As the Secretary said, there are 16 areas that were
recommended to us by the President's Commission, and we are
exploring each and every one of those opportunities.
Mr. Davis of Illinois. If we were to try to make up the $27
billion in military retirement costs, do you have any idea how
long that might take using these efficiencies?
Mr. Potter. Being extremely aggressive, we are able to take
about $1 billion cost out in a year without disrupting the
service to the American public, and service is the No. 1 goal
in our organization. We don't want to do anything dramatic that
would cause us to disrupt service.
I think the horizon is decades in terms of getting at the
$27 billion on top of what we have already planned to do
because our plan calls for $1 billion in savings over each of
the next 3 years in order to try and mitigate increases in
postage.
Mr. Davis of Illinois. Mr. Roseboro, do you think that
those are the kinds of efficiencies that the Secretary had in
mind?
Mr. Roseboro. Yes, sir. As was indicated, the Postal
Service has made a great start. There is still room for
considerable improvement looking forward. With regard to your
specific concern, Postmaster General Potter spoke to the
Secretary before he left about the $27 billion being shifted
over to the Post Office.
If I may sort of put that into a context, which will
hopefully help make clearer our position on that, why we think
that is reasonable. First, we look at in the context of the
legislation that was passed last year, last April, a package of
reform, a package of reform that was quite unique in that the
Postal Service was the beneficiary of a dynamic analysis with
regard to its pension funding, that effectively resulted in,
even with the obligation as the legislation passed last year
required, for the Postal Service to pay the $27 billion in
military funding, it still received a net gain of $78 billion.
And even with that $27 billion, I would like to just note
this has also got lost, that there is still an obligation by
the Treasury taxpayer to pay close to $21 billion of military
obligations. So as a package, it was fair, reasonable, as well
as consistent with establishing the Postal Service system,
consistent with the Federal Employees Retirement System [FERS],
where that is a requirement to pick up the military obligations
by agencies, and the Postal Service now has, correct me if I'm
wrong, Postmaster Potter, over 500,000 of its employees are now
under the FERS system.
So from our perspective, that was very important. But with
regard to looking forward and in managing the $27 billion
liability, I would say actually the challenge is greater than
that. There is the additional $60 billion in unfunded health
care liabilities, $7 billion in unfunded worker's compensation
liabilities, a little under $6 billion in unfunded pension
liabilities still.
All of those we feel needs to be addressed, as practically
speaking made part of a rate case, recognizing the
impracticality of looking to do anything dramatic soon and
cause any type of spike in rates.
We think we can work with the Postal Service through the
Office of Personnel Management, for example, to devise a
prudent amortization plan over the long term, because these are
long-term liabilities, to minimize any shock as well as also
being able to gain some of the cost savings opportunities that
the Postal Service is now and in the future will be pursuing.
Mr. Davis of Illinois. Thank you very much. It sounds like
we are saying no matter what we are able to do we are still
going to be woefully short and are going to have to come up
with something else.
Chairman Tom Davis. Thank you. Senator Collins.
Senator Collins. Thank you, Mr. Chairman.
Postmaster General, one of the troubling developments that
you have had to deal with is the decline in the volume of first
class mail in each of the last 3 years.
Can you tell the committee what your forecast is for the
next year or so as far as the volume of first class mail? Are
you projecting further declines?
Mr. Potter. We are projecting that next year, and we are
working very hard to do this, we are projecting that volume
basicaly will be flat, although it may grow a little. And the
reason we do, and that is only in the next year, is because of
the recovering economy and the efforts that our employees have
made to improve service and to reach out to customers.
However, when you will look further, beyond that, the
structural change, the movement of what is a hard copy
communication today, it could be a bill or a payment that is
done via the mail, we see the structural change of that
migrating to the Internet continuing.
And so in the short term, given the fact that the economy
is rebounding, we are not as hard pressed as we might be in
future years. We are preparing ourselves for the future, and
that is why we are counting on postal reform to give us the
flexibility to react to what we anticipate will be some
significant changes in our mail mix.
Senator Collins. And if in fact you had to file for a 5.4
percent increase in postal rates because reform was not
forthcoming and the escrow account remained in place, wouldn't
that likely drive down the volume of mail still further and
create what the GAO has warned about, of this death spiral of
increasing rates and then plunging volume?
Mr. Potter. Yes, it would. Each of our products is subject
to marketplace elasticities. The higher we raise rates the less
mail we have. People have alternatives for every one of the
products that we have.
Senator Collins. I want to turn now to one of the specific
recommendations of the Commission. I believe that the Postal
Service has something in the neighborhood of $7.2 billion in
liabilities for worker's compensation. Is that in the
neighborhood?
Mr. Potter. Yes, it is.
Senator Collins. Right now, as a result of reforms that
were passed in the 1970's, it is my understanding that a postal
employee who is receiving worker's compensation can remain on
worker's compensation, assuming no return to work, forever,
that there is not a conversion to retirement at a certain age.
And, in fact, I read one study that indicated the Postal
Service was paying worker's comp benefits to an employee who
was age 102.
Mr. Potter. That is correct.
Senator Collins. Are you supporting the changes that the
Commission recommended to have a conversion at some reasonable
retirement age? Obviously our hope would be that we could get
any injured worker back to work and that we can avoid injuries
in the first place.
But for those workers who do receive worker's comp, do you
support, first of all, the conversion at a normal retirement
age and, second, the reinstatement of the 3-day waiting period?
Mr. Potter. On both counts we do. We feel that it is
reasonable that at some point in time, and I'm not going to
tell you what the age is, in fact right now we would make money
if it was 80 years old, at some point in time people should be
forced to retire. It is unreasonable to pay those escalating
costs. We estimate that on an annual basis it costs us about
$9,500 per employee who stays on worker's comp rolls versus
them converting to a retirement pay at some reasonable point.
So that is a big cost to us.
In addition, the 3-day waiting period was converted in the
past, and as a result we saw a rise in claims. If I could, the
Postal Service is working very hard on the worker's comp area,
and we believe that it starts with injuries and illnesses of
our employees, and we have gone very aggressively on a safety
campaign to make sure that our employees don't get harmed. Our
injury-illness rate over the last 3 years is down 28 percent.
And despite that, our worker's compensation costs have
grown. We are also working hard to find other employment if
people can't work in the Postal Service, find other employment
for those people on worker's comp rolls. Today we have over 200
folks who don't work for the Postal Service but are on our
worker's comp program, work for private sector employers, and
we make up the difference between what the private sector
employer pays them and what they would get on worker's comp.
So we are very interested in this area, and I think that
the Treasury and the President's Commission was right to point
it out as an opportunity, and we are working hard to fix it.
Senator Collins. Thank you, Mr. Chairman.
Chairman Tom Davis. Thank you.
Senator Carper.
Senator Carper. Thanks, Mr. Chairman. Since the tragedy of
September 11 and the anthrax attack, something has actually
come out of something awful, and I think that something good is
improved performance within the Postal Service.
I think the saying ``success has many fathers'' has been
offered. In this case, success has many fathers and mothers, I
might add, and maybe one or two of the fathers are sitting at
this table before us and some are represented here in the
audience of the hearing room.
We have seen remarkably improved relations, working
relations between our labor unions which represent postal
employees, the Board, the Board of Governors and postal
management. And I would ask you, the fruits of those labors,
those improved relations, aren't something that we mandated. We
didn't pass a law that said you got to do this. But you have
done it.
And just take a moment and just talk about some of the
positive steps that have been taken to provide maybe better
service at a more reasonable cost. The General and also for
Governor Fineman.
Mr. Potter. I am very proud of the improved labor relations
that we have in the Postal Service. I think one of the keys to
that is we are focused on the customer, and we put the customer
first, and we as an organization have put that as our No. 1
priority. Service is No. 1.
And we do things as efficiently as we possibly can. When
you talk about the success in the Postal Service, you talked
about the mothers and fathers of it over the last several
years, I think there are over 700,000 mothers and fathers of
the success. It is each and every employee who comes to work
every day, dedicated to serving their customers and who have
focused--again, we are in tough times. People recognize that we
have to change, and we engaged, long before the President's
Commission, we were engaged in the business of trying to
improve service to our customers because we recognized we are
in a competitive environment, looking at opportunities that we
had based on the changing mail mix and changing demographics,
to improve the efficiency of the mail that we--of moving the
mail flow out of our system.
And I think it has just been an entire organization working
together to make that happen. We have seen improvements in our
relationship with the unions. And I think that if there is a
key to success, is that we communicated, and we have stressed a
need to communicate up and down our organization on everything,
and we are trying to treat each and every individual in our
work force as we would want to be treated ourselves.
It is not to say that it is a perfect system. With over
700,000 people it can't be perfect, but we are working hard to
try and achieve that.
Senator Carper. Governor Fineman, before you respond,
General Potter mentioned communicate, better communications,
and that solves a lot of problems in many forums. We have had
recommendations from the Commission that on the issue of
collective bargaining that we mandate through law that you
collectively bargain benefits, not just wages but benefits as
well.
And I don't know, there is probably some in the House and
some in the Senate who are inclined to do that, some who are
maybe reluctant. And I would ask for you to, maybe both, be
thinking about whether there might be an opportunity, as you
communicate and have this dialog between management, Governors
and organized labor, maybe an opportunity to dialog on the
issue, rather than mandate, us mandating benefits on the
collective bargaining, maybe you just voluntarily try that, and
particularly before we step in and legislate something.
Mr. Potter. If I could, let me just tell you that dialog is
taking place and will continue.
Senator Carper. Is there anything that we can do to push
that forward?
Mr. Fineman. I would just say that I congratulate
management. When I came onto the Board, there was not the same
tone that was set between management and labor.
Senator Carper. When did you come on the Board?
Mr. Fineman. 1995 or so. There was not the same tone. There
was this big backlog of grievances. And slowly, and I think
through the previous Postmaster General particularly, and
Postmaster General Potter, there is a different tone that is
set.
The tone is set that--we understand that at certain times
we are going to be adversarial, but at the same time we have to
keep talking to each other.
In regard to your second question, I have said publicly
before, and in my written statement that I have submitted, that
I am a long believer in the collective bargaining system. And I
would believe that--I would hope that this committee in
drafting legislation will not in any way usurp that collective
bargaining system through some other kind of system, some of
which is recommended by the Presidential Commission.
I think it has to say--and the reason the collective
bargaining works and the reason it is working today is exactly
what you said, Senator. It is the question, do you have open
communication with people to talk about what your problems are.
And if you can have a collective bargaining system in which you
set wages, you are going to be talking to each other. You set
up a process to keep talking with each other.
Senator Carper. Well, keep talking. Thanks very much.
Chairman Tom Davis. Thanks.
Mr. McHugh.
Mr. McHugh. Thank you, Mr. Chairman. To editorialize a bit,
Postmaster General Potter mentioned the testimony of UPS with
respect to the question of cross-subsidies. It is a very hotly
contested issue, one of the very first I heard about some 9
years ago.
And we have tried to come to the resolution, I know that
the Postmaster General and others know this, but just for the
record come to a resolution that while the debate is
interesting and important, it probably can't be decided given
today's state of realities.
So what we have done in our bill, as you know, Mr. Chairman
and Senator Collins, is to try to create a circumstance where
the issue cannot happen in the future if it has happened in the
past. And we all heard the Postmaster General's strong denials,
which I respect, and we do that by creating a regulatory body,
now the Postal Rate Commission, that is given all of the
authority it would need to have to make those determinations
unquestionably, subpoena power on data, powers it does not now
have.
So it certainly--we have suggested to UPS, for whatever
faults they may have in the bill, that is something that they
should be very, very supportive of.
I also want to associate myself with the comments of just
about everyone who has spoken so far with respect to the
frustration regarding the escrow.
Senator Collins knows far better than anyone, as she noted,
that the interesting dilemma here is that the administration's
original bill would actually be more costly to the budget than
the ultimate resolution.
And it certainly--this is no fault of the Treasury
Department. I think it dramatically underscores the folly of
budget scoring as it currently is constructed. And to suggest,
and again this isn't Treasury's fault, it is the way the game
is played right now, to suggest that a $3 billion hit on the
Treasury is better than a 6 percent increase in postal rates to
the overall economy and budget situation of the United States
of America is lunacy.
And I am just curious again, that this is no responsibility
of yours, Mr. Secretary Roseboro. But I am wondering, did the
Treasury ever have a chance to determine what the overall
impact of the economy of the United States would be, or
ultimately to the Treasury, if we had to do a 6 percent
increase, 2-cent increase on first class?
Mr. Roseboro. No specific analysis was done on that, sir.
But again, I think we can generalize and say it would not be
good in terms of the economy, without question. But second,
again, I emphasize that we think that it is not a binary
decision of raising rates or take this course. We think there
are some other options that could be explored, and we are
eagerly looking forward to working with you.
Mr. McHugh. I understand that. Again, you are playing by
the rules that were handed to you. That is not a direct
criticism. Let's get to something that may be.
You had mentioned, and Secretary Snow mentioned the
allocation of costs are over at 42 percent. Although it is not
said directly in the Secretary's testimony, and although you
didn't say it directly, I am certainly getting the impression
that somehow you feel that is wrong, it ought to be higher.
And you may or may not be right. Maybe it should be 50.
Maybe it should be 55. But I am just curious, has the Treasury
taken a position that 42 percent is by definition too low, and
if so, how did you come to that conclusion?
Mr. Roseboro. No, sir, just the opposite. We feel 42
percent is too high. We think from a business perspective an
allocated cost should run south of 10 percent as a generality.
Mr. McHugh. You are right. I misspoke. I spoke the other
way around. But the unallocated costs are too high.
Mr. Roseboro. Yes, sir. Absolutely.
Mr. McHugh. How, given--I could understand how, and
Secretary Snow is certainly a very astute businessman, you
could do that in the private sector, but how do you make that
determination in the Postal Service? Has a study been done or
some kind of data?
Mr. Roseboro. From a business perspective, there is no
comparison for commercial enterprise not being able to allocate
a higher percentage of a cost along product lines. And we think
that number could be improved as the Postal Service works to
improve systems, whether technical on the MIS side through
overall organization. But----
Mr. McHugh. I don't mean to interrupt you, but my time is
running out. But there is no study, and by the way the Postal
Service, I think you would agree, hardly fits the traditional
business model. It is a totally different organization.
But be that as it may, you feel--I am interested in how you
feel, and that--I am compassionate to your feelings, Mr.
Secretary, but that doesn't mean that it is right or wrong.
What I think, and let me ask my final question, if I may
indulge the forbearance of the chairman and the other
distinguished members, would I be correct in saying, and I
would fully support this if it is your view, that the Treasury
position is we need to more finely hone the allocation of those
costs to ensure that it is distributed accurately. Would that
be a fair statement?
Mr. Roseboro. Yes, sir.
Mr. McHugh. Without prejudging what it ought to be?
Mr. Roseboro. Yes, sir. Based on the principle of self-
financing, if there going to be adequate self-financing, if
that is going to be successful, it goes without saying that
proper cost allocation is key to setting appropriate rates.
Mr. McHugh. I thank you very much. I fully agree with that.
I am glad we were able to clear it up. Thank you, Mr. Chairman.
Chairman Tom Davis. Thank you. Ms. Norton.
Ms. Norton. There is kind of a fictional quality to this
hearing, if I may say so. For example, on the veterans
benefits, weren't many of those benefits accrued before there
was any Postal Service as we know it?
You know, Mr. Roseboro, the notion of holding the Postal
Service accountable, with the administration not holding itself
accountable, is very interesting to me. So you are offloading
veterans benefits, which of course no private corporation would
have to pay, but even veteran benefits predating the 1970
formation of the Postal Service, and you think that is a fair
way to go at postal reform?
Mr. Roseboro. Yes, Congresswoman. Again, in the context of
the postal legislation that was passed last year. And again it
is very important to look at this as the package and what the
package attempted to do. One, it attempted to make the FERS
pension funding in the postal equivalent, if you will, to the
FERS system, which requires this.
Additionally, again I will emphasize, the dynamic analysis
given to the Postal Service has never been done before, and
again resulted in, even with the $27 billion obligation to the
Postal Service on the military funding, still leaving $21
billion for Treasury taxpayers, a net plus $78 billion. That is
not done either in the private sector.
So we think in terms of a package that was more than fair
and reflected in the legislation that was passed as a package,
and we think in terms of postal reform and moving forward to go
back and undo that particular cherry-pick aspect of it is a
step backward in postal reform.
Ms. Norton. Just like you think the escrow is. In other
words, accountability all works against the Post Office and in
your favor. Let me--I served on, before I came to Congress I
served on the Board of three Fortune 500 companies. So when you
look at your list of recommendations, they read like the list
that any corporation would have, not any corporation about to--
that would be in bankruptcy or be out of business if it were in
the private sector.
For example, and this is the kind of criticism I have, and
why I can't accept the administration's recommendations with a
straight face? I could if you said, for example, in
implementing best practices, ensure that the Postal Service's
governing body is equipped to meet the responsibilities and
objectives of a private enterprise. I take it you mean--of
course that is left out--of its size and scope. And it seems to
me you should add right there, under best practice, of its size
and scope with the obligation to give universal service.
Instead you put universal service under accountability, because
you are going to make sure that the Postal Service, under the
accountability section, has the appropriate oversight to
protect consumer welfare and universal mail service.
I just think, you know, you need to sit down with some
people in the private sector to figure out how to set your own
goals in a more realistic way, and I think you will find, Mr.
Roseboro, over here, that whatever was said last year or even
this year, Members here in the final context tend to regard
ratepayers and taxpayers as interchangeable.
And I have a hard time believing that some of what is
proposed here will pass the laugh test here in the Congress if
it gets to the floor. For example, just let me--to ask a
question about some of the doublespeak that I find in these
recommendations.
On top of everything else, about the last thing the Postal
Service needs is a complete blow-up or explosion of its labor
relations; they are already bad enough. You apparently support
collective bargaining, but would establish a three-member board
appointed by the President to set compensation. Well, the last
time I heard, wages were considered by most employees a central
feature to compensation. Are you saying that the Postal Service
should have a collective bargaining regimen like that of
Federal workers who we do not pretend are a part of the private
sector?
Mr. Roseboro. Actually, referring to the 35 recommendations
from the Commission, as we indicated in the beginning, while we
the Commission did a great, admirable job in laying out some
prescriptions to perform, we did not support all of the
recommendations.
Ms. Norton. Do you support that recommendation?
Mr. Roseboro. We support collective bargaining. We do not
support a board to determine compensation.
Ms. Norton. Do you support continuing bargaining for wages
as you do--as the Postal Service does today?
Mr. Roseboro. Absolutely.
Chairman Tom Davis. Thank you very much, Ms. Norton. Mr.
Clay.
Mr. Clay. Thank you, Mr. Chairman. I appreciate it.
Mr. Potter, let me ask you about--the Postal Service
requested $350 million for emergency preparedness for fiscal
year 2004, which it did not receive, and $779 million for
fiscal year 2005.
I understand the money would help you, the Postal Service,
buy and install systems to detect biological agents and poisons
and new ventilation and filtration systems in 282 mail handling
centers nationwide.
If money is not appropriated for emergency preparedness,
will funding for this purpose have to be built into postal
rates?
Mr. Potter. Yes, it will.
Mr. Clay. Are there any other options other than postal
rates?
Mr. Potter. No. It is either an appropriation or a rate
increase.
Mr. Clay. So again we get back to a tax increase, as the
chairman stated.
OK. The President's Commission has recommended rescinding
existing regulations that require citizen input before closing
plants and small post offices. Rural and urban post offices
deemed unprofitable would be closed and future services will be
provided on an-ability-to-pay model.
Does this undermine the Service's mission to provide
service and access to all communities at uniform rates?
Mr. Potter. The issue of post offices is one that is very
complex. Right now, as you said, there is rules and a comment
period. Certainly we would want to have the comment of
communities as we look to change our infrastructure. We are not
proposing abandoning communities. We are proposing that we
deliver services in a different way. For example, we have some
post offices in America where people actually have to come and
pick up their mail. We might, alternatively, have those folks
have their mail delivered closer to their door to a rural
mailbox. Those rural carriers are post offices on wheels.
The issue of post offices is very complex. When I think of
post offices and post office closings, there are people who are
trying to intimate that we would have to close 20,000 of our
38,000 outlets. That is not the case. On one end of the
spectrum we have over 2,500 post offices that have less than
200 people living in the area that they serve. We have over
4,500 that have less than 200 deliveries. Now, I certainly
think that any good organization should have the ability or the
option of exploring how they can deliver services to those
communities. But the post office that we all think about, that,
you know, serves populations of several thousand people, they
are not going to close. We need those facilities to provide
delivery services, post office box services, as well as counter
services, and I don't envision those closing in my lifetime.
But there are those issues out there where we should be able to
explore how we can better economically serve communities.
Mr. Clay. You are absolutely right. It is about efficiency
and streamlining of the service. I appreciate your answer.
Mr. Roseboro, perhaps you can answer for Secretary Snow,
who stated that the recalculation of postal retirement costs
provided the Postal Service with a properly calculated enormous
gain of $78 billion at the expense of other CSRS participants.
We understood that the Postal Service was on track to overfund
its obligations by $78 billion.
Wouldn't that suggest that the Postal Service was in
essence supporting the rest of the CSRS participants with its
contributions?
Mr. Roseboro. The Postal Service was the only CSRS
participant that received the benefit of this dynamic analysis.
So, in that sense, they benefited.
Mr. Clay. OK. Well, then--OK, this takes me to the next
question then. How can correcting a considerable overpayment be
considered a gain for the Postal Service?
Mr. Roseboro. I wouldn't characterize it as correcting an
overpayment. Again, it was putting it on equal footing with the
FERS, the Federal employment retirees system pension setup.
That was--would be a more accurate characterization. And doing
that resulted in the $78 billion gain for the Postal Service as
well as the obligation to pay the $27 billion portion of the
military pension cost.
Mr. Clay. Well, isn't it true that the $27.9 billion that
represents the military cost obligation that has been
transferred from Treasury to the Postal Service, $17 billion of
this amount is retroactive to 1971 and has already been paid to
retirees?
Mr. Roseboro. I understand that to be correct, yes.
Mr. Clay. That is true.
Mr. Roseboro. Yes, sir.
Mr. Clay. OK. Then when they set up in FERS in 1983 wasn't
it applied prospectively to individual new hires employed after
1983?
Mr. Roseboro. I'm not sure, sir.
Mr. Clay. You're not sure about it? I believe it was.
Chairman Tom Davis. You can get back to us on that. Thank
you very much.
Mrs. Maloney.
Mrs. Maloney. Thank you. I thank the chairman and woman of
the respective bodies for holding this important hearing, and I
thank all of the panelists for all of your hard work in these
difficult times, and I'm very pleased that a New Yorker is at
the helm of the postal department, Mr. Potter. We're all very
proud of your hard work.
I, first of all, would like to be associated with the
comments of my colleague, Mr. Clay, on the need for the Federal
Government to fund adequately the Post Office's need for
preparedness and Homeland Security concerns that have been
piled on with the anthrax threat and, also, the comments of my
colleague, Eleanor Holmes Norton, that any reform not weaken
collective bargaining or jeopardize the health benefits of our
hard-working employees.
I would like to ask Mr. Potter, we now have a freeze on
postal rates until 2006; and for the first time, according to
GAO, the volume of postal mail has dropped; and some recommend
that it may continue to drop. My question is, do you believe
that an extension of the current rate freeze would benefit the
U.S. Postal Service after 2006?
Mr. Potter. I believe that the longer we can hold rates
stable, the more opportunity we have to grow volume.
Mrs. Maloney. Well, as you know, in 2006, we will be
reviewing the escrow account and how it should be used. What
reforms have you put in place to make services available so
that the mail can get out at a reasonable rate that benefits
all of our residents and all of our businesses?
In addition to representing actually the postal workers who
were in the anthrax scare in New York City, I also represent
many magazines and publishers; and in the past several years,
several have gone out of business--Mademoiselle, Mode, Brill,
Business Weekly, a number of very significant magazines. The
reason that they state that they went out of business was the
increased cost of postal rates. This has the ramification of
many workers losing their jobs at a time when over 3 million
private sector jobs have been lost in our economy recently.
This is very serious.
So what steps are you taking to really run the Post Office
more like a business so that our workers are employed with
their benefits and that the businesses can afford to employ
people, pay taxes and contribute their aspect to the American
economy?
Mr. Potter. First of all, we're working very hard to
improve service; and we've done that in every measured category
and nonmeasured category as we see complaints down. Customer
satisfaction nationally is at an all-times high. Our cost--we
have taken $2.7 billion of cost out of our system in the last 2
years. When we put the transformation plan together, we said
that we would achieve $5 billion of cost savings out of our
bottom line. That's above and beyond the savings that we've had
as a result of reduction in volume. So we are very focused on
becoming more efficient.
Now, unfortunately, that's meant that we have had fewer
employees. So if you talk about unemployment, since I have been
Postmaster General--that's less than 3 years--we've reduced our
career work force by almost 70,000 people; and I'm not proud of
that. I'm proud of the productive improvement, but I wish we
had volume so that we could keep everyone gainfully employed.
Now we've done that through attrition, and we've worked with
our unions and our management associations on that, but we are
very, very focused on improving service, reducing costs.
You speak of periodical mailers. We've in the last 3 years
introduced automated flat sorters to handle periodical mails;
and we've seen our productivity of what we call flat mail--our
oversized letters, catalogs, periodicals, magazines--we've seen
our productivity double. So we are very much concentrated and
working closely with those folks in the periodical industry to
improve our productivity and to do the best we can to flatten
their rates out.
Mrs. Maloney. Well, how can the Post Office better adapt to
the technological advances that have contributed to the decline
in first-class mail?
Mr. Potter. Well, the best way we can do it is by employing
them. We have the most automated postal system in the world.
That has helped enable us to reduce our work force and improve
our productivity.
We're also reaching out to customers over the Web. We
recognize that's a place where people are doing business, and
we're working very hard to reach people where they are. We
believe that we need to bring our services to the door of every
American. After all, we're there every day. We want to bring
our services to them at their door, whether it's stamps by mail
or other issues. We're focused on growth, and we believe a
combination of high levels of service, improved productivity
and a focus on growing the business and being customer friendly
are the ingredients that will help us be successful in going
forward.
Chairman Tom Davis. Thank you. Time's up. The gentlelady's
time has expired. Thank you very much. If you want to do any
followups, I'm sure if you submit them to the panel--be happy
to.
[The prepared statement of Hon. Carolyn B. Maloney
follows:]
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Chairman Tom Davis. We have one more member, Mr. Duncan,
who has joined us. Recognize him for 5 minutes.
But before I do, I want to insert in the record a letter
from Grover Norquist, Americans for Tax Reform, to John McHugh;
and it notes at the end--it says, ``As Congress prepares to
address postal reform this year, it seems pension reform might
be a good place to start. I urge you to support transferring
the military service pension obligation from the USPS back to
the Treasury and to allow the USPS to stop overfunding the
Civil Service Retirement System.''
Without objection, this will be placed in the record.
[The information referred to follows:]
[GRAPHIC] [TIFF OMITTED] T4999.076
Chairman Tom Davis. Gentleman from Tennessee.
Mr. Duncan. Thank you, Mr. Chairman. I was here for a few
minutes earlier but then had to leave because of some
appointments, and I apologize.
But I read this article that--an article that ran a few
months ago in the New York Daily News about the Office of the
Inspector General of the Postal Service holding conferences
where, at one conference in 2001, some staffers wrapped each
other from head to toe in toilet paper, aluminum foil, straws
and pipe cleaners. At an annual conference in Washington in
December 2003, 725 employees went on a treasure hunt to seek
clues from costumed actors playing a wizard, magician, dragon,
princess and mad scientist. At another annual conference in
2002, employees built tents out of newspapers, hop-scotched
across the ballroom on squares, learned scat singing, all these
ridiculous things.
They spent millions of dollars doing this. I could--one of
the conferences was $1.2 million, one was $1.3 million, one was
$1.1 million.
I'm assuming that this type of thing has been cut out or
eliminated. But I would like for you to assure me on the record
that it has been eliminated and that we're not having
conferences of top management at the Postal Service that are
going in for these really--they talked about conferences where
people--where the employees were asked to hiss like snakes,
quack like ducks. I mean, it's just crazy; and they spent
millions of dollars doing these things.
Mr. Fineman. Congressman, I want to assure you that is not
occurring any longer. I want to assure you that when the Board
of Governors received complaints about things of this sort, and
those articles particularly, we took what were appropriate
steps, referred those complaints to the President's Council on
Integrity and Efficiency, who did their own investigation--
separate investigation on these matters. We were working very
closely on the Senate side with Senator Grassley, who had an
interest in these matters.
The Inspector General, who was then in charge of these
matters, has since resigned; and a new Inspector General has
been hired, someone who comes with vast experience in the area.
I can assure you that office is being revamped and is now
acting in an efficient and appropriate fashion.
Mr. Duncan. All right. Thank you very much.
Thank you, Mr. Chairman.
Chairman Tom Davis. Thank you very much.
Let me again, Senator Collins, thank you very much for
cohosting this with me and Mr. Davis and other Members for
being present with us today.
I want to thank our witnesses for taking time from their
busy schedules to appear before us.
Committee stands adjourned.
[Whereupon, at 4:43 p.m., the joint committee hearing was
adjourned.]
[The prepared statements of Hon. Katherine Harris, Hon.
Chris Van Hollen, Hon. Elijah E. Cummings, Hon. Paul E.
Kanjorski, and additional information submitted for the hearing
record follow:]
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