government just doesn't know how to run a business so first of all the idea that the government is going to fix a business model i think has been proven over and over and over again it can't do it  the idea that somehow government is going to fix this i am not sure that government has a great track record when it comes to business so i just thought i would put that out there the office of the inspector general recently released a study are there any modifications to a postal employee's pay or benefit schedule that would help insolvency mister donahoe absolutely we are working with our unions right now we have a union contract discussion going on with the american postal workers union rural   the compensation that we give our people in terms of health benefit contribution our people pay right now about eighty one percent towards their we pay eighty one percent towards their health benefits mister mack i have twenty five seconds so let me just a say our core business will always be delivery there is one customer need that will not change and it is the very essence of what we do day in and day out now i must ask you  if we make the kinds of assumptions that we are making at this hearing that perhaps you will pay but not overpay into the trust fund and you have calculated that to be fifty five or seventy five million give or take however millions you want to let's say you pay or not overpay let's assume that you are delivering mail five days a  delivering the mail as you are delivering it now is a model the model in the statute is a model the model of a profitable enterprise is a model that we can expect to survive that you will be a profitable enterprise under the assumptions of the statute that  remember i am saying you would not overpay into the trust fund mister donahoe yes ma'am i think that we can be profitable i think that there are a number of things that have to happen number one the postal service has undertaken a number of issues revenue generation cost reductions on our own that we feel responsible towards and will work towards that point as i mentioned before we are also working with the unions going forward we have very responsible leadership there they understand what we have to do for a strong postal service so we will take care of what we need to take care of before in a very long time i don't think i have heard it before period the first quarter showed a modest increase of one point five percent is that because people quit writing their tax forms to what do you attribute an is total volume and we have seen a nine point six percent increase in standard mail advertising mail an increase in our package business but we have had a decrease of five point nine percent in first class first class pays the freight and that is why we have been asking also for the consideration before congress to go from six to five days ms norton and you think that then would have what effect mister donahoe i will tell you this if we can get a resolution around the health benefits if we can get a resolution around the first payment the president has made that the opm analysis and the postal regulatory commission did what we believe is an objective analysis bringing in a highly respected third party expert to review the situation so one could say you have the self interest of the postal service and the self interest of the office of personnel management each one wanting to protect its funds but i want to assure you that the postal regulatory commission had go towards employees salaries and benefits do you believe that the usps should be able to renegotiate collective bargaining agreements mister herr one area that we suggested the congress reconsider is whether  president has suggested giving usps some breathing room will that actually make the problem worse by delaying it mister herr i would say that one of the things that we have been on the record as saying the postal service needed some short term relief for this retiree health care benefit payment we have been saying that for two years this would be a third year i think this is really the time we are the statutory debt limit to make some hard decisions about what this organization is going to look like going  forward the overall liabilities and obligations outlined in my statement are over one hundred dollars billion now so it is time to take into consideration the changing use of the mail what kind of footprint the postal service needs and to really think about that is all going to be elevation as chairman of the subcommittee and i thank my good friend and colleague mister lynch for his leadership in the past on these issues and some very thoughtful and groundbreaking hearings we have had in the past this being another contribution and welcome to the panelists anywhere between fifty and seventy five dollars billion were verified that that alone amortized over some period of time could provide significant relief to what is currently a significant imbalance in the operational revenues of the fact make such a request that is not a trivial number and if we are going to talk about dire futures for the postal service surely we want to look into a fifty to seventy five dollars billion item that could provide relief fairly quickly over an amortized basis and i know mister chairman you share my concern about the options in front of us and i would urge the subcommittee to consider making a formal request to gao for just such a study let me ask you another question mister herr and maybe ms goldway or mister postmaster you talked a little bit i think you made reference mister donahoe to the impact of the internet on your business but the internet can also generate business can it not for example if i order a book from amazon not only is that business for the postal service but it is actually lucrative business for the postal service is that not correct mister donahoe absolutely mister connolly ms goldway because my time is limited have you had a chance to look at the draft legislation we have been working on and do you by and large find that is consistent with many of the findings the postal regulatory commission has brought before this subcommittee over the years ms goldway i certainly think that many of the suggestions that have been discussed by other legislators to address the financial issues are included and i am very pleased in addition there are some specific items that you and i have addressed that we think will really improve the revenues for the postal service in the future and position it as a more modern agency with the rest of the government so i certainly appreciate your efforts there and i am sure it will be a valuable contribution to the conversations for legislation mister connolly we can only hope and i am going to run out of time i have twenty seconds but real quickly don't we have a problem on here as well i would now like to recognize the distinguished gentleman from illinois mister davis for five minutes mister davis thank you very much mister chairman and let me congratulate you on your elevation as a matter of fact we had a young fellow have listened to the testimony and i have listened to the questioning and of course i am not one of these individuals who believe that government cannot get it right  i don't subscribe to that school of thought i think that government can in fact get it right and i guess as one of the persons who helped put together the postal enhancement and accountability act we thought we were getting it right or at least moving in the direction of getting it right we thought that we were providing the kind of flexibilities that the postal service needed we thought we were providing opportunities for new products and new approaches and we thought we were providing opportunity to make use of all the resources that the postal service should have at its disposal you attempted a moment ago to talk about your vision in terms of how we can get it right and how we can have the postal service be self sufficient how we can make sure that we interact a certain way with our stakeholders and our unions could you  but we do provide that kind of contact that people are looking for if you look at what we offer from a standpoint of the ability of a person to get in front of a customer's eyes we are the most direct way the most direct and there is plenty of opportunity there you talk about the internet there are oftentimes no way you will find a website unless you get a postcard in the mail that says come to my website and we know we provide value there we know we provide value for small business in the package shipping business when they can go down to the local post office and put three or four or five packages in at a flat rate of a fish and chips with guaranteed delivery within two to three days there is tremendous value there and we know that people will continue to mail packages we know we have some very valuable partnerships ups and fedex we deliver the last mile for a lot of their packages this holiday season we delivered sixteen percent more than we did last year so we know there is definitely opportunity in that area  we also realize that there are costs that we need to address i think as i said before we have very responsible leadership from our unions they understand this they can hear the waterfall they understand that we have to make some changes having very good discussions with the apwu the rural carriers have kept the contracts open so we think there are some opportunities to move in the right direction there with our management associations we have seen progress in a lot of the changes we have made there they have been very service is pretty proud of the fact that we do a good job excellent service we have taken more costs out of this organization than any private firm and we know we can continue to do that in the future we need the aid of congress on a couple issues mister davis let me just ask you i know that we have been talking about donahoe sure if we can get some resolution on a couple of these fixed costs we definitely can and the other thing that is important is with the uncertainty of all this discussion about year after year the postal service loses money that starts to make customers fearful recess while we get ready for our second panel we are probably going to have another vote series a little bit after so hopefully we can accomplish all we need to accomplish before that vote series again thank you all for being here and we will let the clerk set up for the next  give to this committee will be the truth the whole truth and nothing but the truth witnesses respond in the affirmative mister ross let the record reflect that all witnesses answered in the affirmative please be seated again in order to allow time for discussion and questions please limit your testimony to five minutes of course your written operating officer for cox target media headquarters in largo florida we own valpak direct marketing systems and we are one of the largest direct mail firms in north america thank you for this opportunity to testify on what we agree is a looming crisis for the usps valpak has been in the business for over forty two years we pioneered the concept of local cooperative direct mail in the united states valpak is owned by cox enterprises based in atlanta which is one of the largest media conglomerates in the united states valpak is a franchise organization with locations in every state valpak represents more than two thousand direct and franchise employees each year we assist more than fifty four thousand small businesses from local mom and pops to large national companies today valpak delivers savings and values to about forty million households each month and each year our familiar blue envelope carries some twenty billion money saving offers in five hundred million envelopes just three years ago we opened a two hundred and twenty  million facility in saint petersburg florida to accommodate our growth for the future our company is also aggressively entering the digital space in the online and mobile couponing business this will allow us to reach new customers with our products and continue to serve as a leader in our industry our digital strategies will continue to complement our mail volume the nature of our business means that we watch the usps and it issues very closely we believe that the post office under jack potter and now pat donahoe have done a remarkable job in downsizing the post office to adjust for plummeting mail volumes while maintaining high service levels if you were to set aside the five dollars fifty cents billion artificial financial burden to prepay future retiring health costs which congress imposed in the paea the post office actually had an operating profit of six hundred and one dollars million over the last four years we believe the post office's march nd two thousand and ten action plan envisioning america's future postal service was well designed and except for its proposal to reduce the role of the postal regulatory commission we support it in all respects it seems to us that the post office is constantly getting caught up in the political machinations of congress it may not be popular to tell congress that the bill was ill conceived but look at what the paea did it imposed a cpi based cap on prices it gave the post office virtually no new powers to cut costs and at the last minute we were told that it was necessary to get the bill scored properly congress needed to impose a five dollars fifty cents billion annual financial burden to prepay future retiring health costs a obligations using overpayments made by mailers towards these retirement expenses to help pay ordinary health benefit expenses on the cost cutting items we urge congress and the commission to allow the u to move to five day delivery by recent polls at least two thirds of the people don't care that much about saturday delivery and it would allow the post office to save what should be about three dollars billion annually and second allow the post office to close standalone money losing post offices and replace them with retail facilities in place with high foot traffic this is not to say that we support all the postal service does we are deeply frustrated with some of the pricing policies which have allowed it to lose five dollars billion over the last four years on underwater products as a prosperous company would not choose to offer products which lose money and it is completely unacceptable that  one that is on the brink of insolvency would continue to do so lastly we do oppose the post office's efforts to go into competition with existing customers one example of this is the recently passed market test called marketing mail made easy easy for that to say this proposal has generated a lot of opposition from the mail community we don't think that cannibalizing the mail that is represent a major swath of a nearly one dollar trillion industry that employs more than seven five million people it runs the gamut of paper communications from forestry and paper companies printers and technology providers to companies which create every type of mail there is far more at stake in how the postal service fares than the postal service itself the future of an industry roughly fifteen times the size of postal revenues the huge number of jobs it supports and the substantial impact that industry has on the economy and we believe postal insolvency which could happen by the end of this fiscal year without action will have consequences not only for the postal service but quite possibly for the nation given the state of the industry and potential postal insolvency the coalition believes it imperative for congress this year to correct a core element of the financial imbalance by eliminating a hidden tax assessed on postal ratepayers that was used to reduce the deficit and effectively subsidize retirements of non postal federal retirees and repatriating that money over time to underwrite the pre funding of retiree health benefits required by congress the fifty dollars billion or more in  overpayments to csrs and the nearly seven dollars billion more to fers constitute a vast hidden tax that would if redirected dramatically improve the position of the service and consequently the industry and the public generally which it serves some believe repatriating this money would constitute a bailout with great respect we strongly disagree while these overpayments were caused by a good faith actuarial misinterpretation they were nonetheless paid not by the american taxpayer but by postal ratepayers as the postmaster general pointed out usps's money comes almost exclusively from user fees postage and ninety percent of that comes from businesses having collectively funded the bulk of these overpayments we believe the right outcome is to use the money to benefit the postal service and thereby those who depend upon it the alternative is insolvency on september th facing the choice of paying five dollars fifty cents billion to pre fund retirees health benefits or paying its employees and keeping the lights on as the postmaster general put it before they will sensibly opt for the latter there will be no legal or other consequences for the postal service or its managers but it will be in default of an obligation questions about its reliability will arise for those who do business with it and will overseas holders of u s securities treat this as the first loose thread in unraveling the nation's financial ball of yarn what would that do t treasuries after all it remains the united states postal service insolvency must be avoided and if it isn't the obligations won't simply go away to the extent that the financial shortfalls for u overtake it those obligations will fall to congress then there will be the need for an actual taxpayer funded bailout in our written statement we offer other recommendations we believe would help the service and the industry grapple with the interrelated financial structural and innovative elements of this looming crisis these include addressing the high cost of compliance with mailing rules giving the postal service more flexibility to close facilities or offer certain non postal products more  flexibility on negotiated service agreements and more without structural changes as well financial transfers will only kick the proverbial can down the road as has been noted several times during this hearing mail remains an important communication channel even in its current fragile state the postal system remains pervasive and effective yet despite these attributes challenged by disruptive technology and retrenching resulting from the recession our system is struggling mailers and suppliers  undergone dramatic changes the past two years collectively enduring hundreds of thousands of layoffs the shuttering of numerous businesses and other dislocations the result has been unprecedented budgetary pressure on mailers to reduce their costs of distribution no one can force anyone to mail mailers have choices because of the internet first class the cash cow of the system is effectively no longer a monopoly and continues to sink like a stone each account going online is costing a dozen bills a dozen payments and several promotional pieces each year the decline in first class threatens the system's financial stability similarly when prices rise there is more pressure on catalogers other advertisers and periodicals to use alternatives decrease the weight and size of their mailing otherwise reduce their mail exposure like first class mailers they have choices via the internet and other marketing channels the concomitant effect on suppliers is just as significant less mail means less paper printing and technology business thank you mister chairman we believe that all of this financial pressure on mailers puts a premium on holding prices down while maintaining service chairman ross congratulations again on your chairmanship and good afternoon ranking member lynch welcome back from afghanistan and greetings to the other members of the subcommittee i am pleased to be here today on behalf of the nearly two hundred and ninety thousand members of the national association of letter carriers we are honored to be the public face of the united states postal service an agency mandated by the u s constitution and one of america's oldest proudest and most essential institutions i have submitted a written statement but in my few minutes here i would like to leave you with five points to consider some of which counter the conventional wisdom it is worth nothing that the figures i will cite are from official sources we can all form our own opinions about public policy but we should start from shared facts first the postal service remains a vital part of our society and our economy it provides the only truly universal delivery and communications network in the united states serving every corner of this country from the most rural areas of montana to every city block of manhattan six days a week for several years in a row the public has name the postal service the most trusted federal agency in america in large part because of its dedicated and professional workforce the postal service is a vital infrastructure service that is not only an essential element of the country's financial payment system but also a key facilitator of business and communications for the one hundred and fifty million homes and businesses it serves according to a two thousand and nine study by the postal service the annual value of transactions moving through the mail exceeds thirty dollars trillion underlining its importance to the health of our nation's economy second there is indeed a financial crisis at the postal service one we must address for the sake of the economy and the millions of workers employed by the mailing industry but it isn't the crisis you might think it is let me explain with the nation still suffering from the worst recession since the great depression mail volume has fallen a trend exacerbated by internet diversion and yet the postal service has been running an operational profit you heard that correctly postal and profit in the same sentence in the most recent quarter alone postal operations had a profit of two hundred and twenty six dollars million taking in more than a quarter billion dollars over operating expenses that brings to eight hundred and thirty seven dollars billion the net operational profits over the past four years and this has been a d by increased productivity labor management partnership fair and flexible work adjustments and performance and quality that have lifted customer satisfaction all while maintaining the most affordable postal rates in the world but while the postal service is operating more smartly than ever it faces a huge burden unrelated to its daily work the two thousand and six congressional mandate to pre fund future retiree health benefits for the next seventy five years and to do so within ten years and obligation faced by no public agency or private firm in america imperils the postal service in the past four years the postal service has made twenty dollars ninety cents billion in pre funding  it is that unique obligation during a recession that has plunged the postal service into a financial crisis point three fortunately there is a good solution the postal service has a surplus of between fifty and seventy five  in its pension funds according to two independent audits because of overpayments made since one thousand nine hundred and seventy one congressional approval to let the postal service make an internal transfer of its own money derived from the sale of products and services would leave both the pension and retiree funds in far better shape than virtually all such accounts in this country why because not only have daily postal service operations been carried out efficiently the agency has been highly responsible with future obligations all this let me emphasize without using any taxpayer money for over a quarter century we are simply asking that the postal service be allowed to use its own money as any responsible business would addressing this issue one that builds on prior work by ranking member lynch chairman ross we hope you and your colleagues will embrace this bipartisan consensus on pre funding reform fourth while this proposal backed by the postal service has no downside that is not the case with some of the other usps ideas eliminating saturday service for example would be disastrous it would save about five percent of the postal budget by sacrificing sevent percent of service it would inconvenience millions of small business owners who transact business on saturdays and americans who need medicines on the weekend it would add eighty thousand postal employees to the jobless rolls it would imperil the postal service future by forcing customers to turn elsewhere and as competitors fill the vacuum future revenue would decline all this to save an amount barely half the annual pre funding payments no business would choose this option over an internal transfer of its own funds and neither should we finally the postal service has a bright future the current challenges aren't the first since benjamin franklin served as the first postmaster general nor will they be the last as realists we know we must adapt to society's evolving needs the mail mix for example is shifting with too little first class mail these days as the economy improves we have to watch the mail flow and adapt as needed even as we speak the overall mail volume is rising for the first time in four years we have lots of ideas on new services to offer the growing number of home based businesses on expanding our work with ups and fedex as their most economical option for last mile delivery  on adding to what letter carriers already do to protect community and national security i would like to conclude by congratulating all the new members of the subcommittee we believe these are nonpartisan issues in the tradition of bipartisan cooperation that has characterized this subcommittee as worth nurturing we look forward to working with all of you on postal issues and to find bipartisan solutions to the challenge before us nelc has demonstrated repeatedly in recent years that it is prepared to do its part to help preserve the long time viability of the postal service by serving the american people and helping the businesses that rely on universal service to grow and prosper and we remain every bit as committed to that goal today thank you gao had in terms of collective bargaining and binding arbitration his recommendation was that the financial condition of the united states postal service should be taken into consideration in the binding arbitration procedures how do you feel about that mister rolando his wish is granted because the financial condition of the postal service has been considered in every arbitration that we have had the arbitrators are required to consider the arguments of both parties and in every interest arbitration we have had that win win solutions i know my union has worked with them aggressively for the last few years on adjusting routes to the change in volumes which by their own numbers has saved them over one dollar billion and i think we need to continue to work together through negotiations and in between those  well mister chairman the postal service and its employees have indeed cut a lot of costs out of the system but by definition looking at the situation that it is in it hasn't been enough we think that to get to your previous question our understanding is that the system is overbuilt by almost a factor of two and that there needs to be a drastic realignment and restructuring closing and consolidation of facilities and for that there will need to be some change in the law  post office they have done a fantastic job to manage the costs and i think there is more that they can do if some legislative activities are taken to give them a little more room to work on the cost side of the house we are very supportive of the postal regulatory commission  sackler back to you you touched on this in your opening remarks about if the postal service defaulted on its obligation to the treasury could you expound on what impact you think that would have i mean assuming we did nothing and they couldn't meet their obligation they have exceeded their but the implications in terms of how people look at the service and the fact that whether or not it is functioning largely independently it is still an arm of the united states government and to have an arm of the united states government default on an obligation even if the actual impact is only technical you have to think well what are those who are holding our bonds and have the future of our finances in their hands office and some of the challenges that they are having right now you know there are a lot of folks out in the industry that are saying should we move to digital should we move to something else for fear of where the post office is going to end up i think whatever we do we need to do it quickly i think we to remind the gentleman that the united states postal service is a unique business it was actually created by the united states congress and it is one of the few institutions that is explicitly provided for in the united states constitution government has done a pretty good job over the past two hundred and thirty six years in guiding the post office in providing universal sort of lay out the history here of opm denying obligations and what the results have been going back to two thousand and two the postal service pension fund was found to be overfunded by op by seventy eight dollars billion and we in congress had to go back in two thousand and three and tell opm you have to straighten this out so there was an overpayment there of seventy eight dollars billion then in two thousand and three opm attempted to make the postal service pick up the responsibilities for military service pensions obligations for postal service employees so if they are in the service they wanted the post office to pick up their pension credits that were due because of the military service and we said that would not be  right so congress rejected that attempt in two thousand and nine we found that opm used an exaggerated seven percent health care appreciation inflation forecast instead of the five percent that is the industry standard understand that these are pension credits for folks before they went to work for the post office but they have been overcharged and the post office is picking up the inflation for those costs so there is a whole history here of the opm and look anybody can make a mistake but hundred percent pre fund it by one hundred percent but if you look at what opm is doing they pre fund their obligations at forty percent so you would think what is good for the goose is good for the gander but that is not the case so i just wanted to make those clarifications just for some of the handlers dramatically is there any information that you would like congress to have before or do you think the post office should provide to congress before we make that decision mister rolando well i think it is important that it not only don't mean to interrupt you but in fairness i have to tell you i heard loud and clear from the folks that have catalogs and magazines that apparently they use saturday as their delivery day because they want folks to on their day off actually read the product that they deliver so you are right