U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

51–708 CC 1999

S. Hrg. 105–754

ANNUAL REPORT OF THE POSTMASTER GENERAL

HEARING

BEFORE THE

SUBCOMMITTEE ON INTERNATIONAL SECURITY,

PROLIFERATION, AND FEDERAL SERVICES

OF THE

COMMITTEE ON

GOVERNMENTAL AFFAIRS

UNITED STATES SENATE

ONE HUNDRED FIFTH CONGRESS

SECOND SESSION

OCTOBER 1, 1998

Printed for the use of the Committee on Governmental Affairs

(

For sale by the Superintendent of Documents, Congressional Sales Office

U.S. Government Printing Office, Washington, DC 20402
(II)

COMMITTEE ON GOVERNMENTAL AFFAIRS

FRED THOMPSON, Tennessee, Chairman

WILLIAM V. ROTH, JR., Delaware

TED STEVENS, Alaska

SUSAN M. COLLINS, Maine

SAM BROWNBACK, Kansas

PETE V. DOMENICI, New Mexico

THAD COCHRAN, Mississippi

DON NICKLES, Oklahoma

ARLEN SPECTER, Pennsylvania

JOHN GLENN, Ohio

CARL LEVIN, Michigan

JOSEPH I. LIEBERMAN, Connecticut

DANIEL K. AKAKA, Hawaii

RICHARD J. DURBIN, Illinois

ROBERT G. TORRICELLI,

New Jersey

MAX CLELAND, Georgia

HANNAH S. SISTARE, Staff Director and Counsel

LEONARD WEISS, Minority Staff Director

LYNN L. BAKER, Chief Clerk

SUBCOMMITTEE ON INTERNATIONAL SECURITY, PROLIFERATION AND

FEDERAL SERVICES

THAD COCHRAN, Mississippi, Chairman

TED STEVENS, Alaska

SUSAN M. COLLINS, Maine

PETE V. DOMENICI, New Mexico

DON NICKLES, Oklahoma

ARLEN SPECTER, Pennsylvania

CARL LEVIN, Michigan

DANIEL K. AKAKA, Hawaii

RICHARD J. DURBIN, Illinois

ROBERT G. TORRICELLI, New Jersey

MAX CLELAND, Georgia

MITCHEL B. KUGLER, Staff Director

ANN C. REHFUSS, Professional Staff Member

LINDA J. GUSTITUS, Minority Staff Director

JULIE A. SANDER, Chief Clerk
(III)

C O N T E N T S

Page

Opening statements:

Senator Cochran ............................................................................................... 1

Senator Stevens ................................................................................................ 2

Senator Levin .................................................................................................... 2

Senator Collins ................................................................................................. 10

Prepared statement:

Senator Cleland ................................................................................................ 3

WITNESSES

THURSDAY, OCTOBER 1, 1998

Hon. William J. Henderson, Postmaster General, U.S. Postal Service ............... 3

Prepared statement .......................................................................................... 4

APPENDIX

Questions submitted by Senator Levin and responses from Mr. Henderson ..... 19
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ANNUAL REPORT OF THE POSTMASTER

GENERAL

THURSDAY, OCTOBER 1, 1998

U.S. SENATE, SUBCOMMITTEE ON INTERNATIONAL SECURITY, PROLIFERATION, AND FEDERAL SERVICES, OF THE COMMITTEE ON GOVERNMENTAL AFFAIRS

Washington, DC.

The Subcommittee met, pursuant to notice, at 2:02 p.m. in room

SD–342, Senate Dirksen Building, Hon. Thad Cochran, Chairman

of the Subcommittee, presiding. Present: Senators Cochran, Stevens, Levin, and Collins.

OPENING STATEMENT OF SENATOR COCHRAN

Senator COCHRAN. The Subcommittee will now come to order.

Today our Subcommittee meets to receive the annual report of the Postmaster General. This hearing offers the Postmaster General the opportunity to report publicly on the state of the U.S. Postal Service and to answer our questions about the operation and

management of the Service. Congress passed the Postal Reorganization Act of 1970 for the purpose of converting the Post Office Department from a taxpayersubsidized, Executive Branch Department to a self-sustaining,

independently managed service. This has not been an easy transition, but it has enabled the Postal Service to become a more efficient and reliable provider of mail services.

After having served for several years as the agency’s chief operating officer, William J. Henderson was appointed in May to serve

as Postmaster General. With approximately 800,000 employees and

more than $60 billion in annual revenues, today’s Postal Service

far exceeds the size and scope of most U.S. companies. Competition

from electronic alternatives and private sector competitors has presented the U.S. Postal Service and its Postmaster General with a

big challenge.

New postal rates have been approved and are scheduled to take

effect on January 10 of next year. This was the third increase in

postal rates approved by the board of governors during this decade.

The new increase is expected to generate $1.3 billion in revenue

and result in an average increase of 2.9 percent across all domestic

services.

Among other subjects of interest to me, I would be interested to

hear what impact on the use of U.S. postal services this rate increase will have, and whether you expect, Mr. Postmaster General,
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your competitors will be raising their rates, too. Mr. Henderson, we

welcome you, and we look forward to hearing your report on the

state of the U.S. Postal Service.

Our distinguished colleague, who is the senior Member of this

Subcommittee, to all of us, the distinguished Senator from Alaska,

Ted Stevens, is here. And I yield to him for whatever comments he

might like to make.

OPENING STATEMENT OF SENATOR STEVENS

Senator STEVENS. Thank you very much, Mr. Chairman.

I welcome the Postmaster General. We had a delightful trip to

Alaska this year when we dedicated the Klondike Gold Rush

stamp. I look forward to having him come back to our State. I

would urge you to join us on one of those trips, so you can see more

of the rural parts of Alaska.

I look forward to seeing your 1999 performance plan and how

that ties in to the changes in your 5-year plan.

I would be very pleased to hear the answers to the Chairman’s

questions, too, Mr. Postmaster. But we’ve got a bill on the Floor

and I must leave. So I have to beg your pardon on that, and tell

you that I do look forward to visiting with you.

One of the issues I think we should visit with you on, the Chairman and I and perhaps the Ranking Member, Senator Levin,

would be the Y2K issue and how that’s going to affect the Post Office and how far along you are on making the changes that will be

necessary because of that in your automated programs. I assume

you’ve got a task force working.

Let me just ask one question. Have you been in touch at all with

Senator Bennett and his committee, the Y2K Committee, about

postal problems?

Mr. HENDERSON. No, I have not. But we do have a huge effort

on Y2K going on.

Senator STEVENS. I look forward to talking about that. And

again, please excuse me.

Senator COCHRAN. Thank you very much, Senator.

Senator Levin, do you have any comments or remarks before the

Postmaster General commences his annual report to us?

OPENING STATEMENT OF SENATOR LEVIN

Senator LEVIN. Just to join you and Senator Stevens in welcoming our new Postmaster General. I know this is the first you’ve

appeared on the annual report, at least, before this Subcommittee.

You’ve been before this committee many times before in different

capacities, I think. But this is the first as Postmaster General, as

far as these annual oversight hearings are concerned.

You are also the first postal employee to be named Postmaster

General in the last dozen years or so, and that experience is going

to be of great importance to the Postal Service and of great value

to the Nation. So we look forward to your comments today.

But again, as I’ve indicated to you in hearings and privately, we

look forward to your service and your tenure as Postmaster General.

Mr. HENDERSON. Thank you.
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Senator COCHRAN. Senator Cleland has submitted a prepared

statement for the record.

[The prepared statement of Senator Cleland follows:]

PREPARED STATEMENT OF SENATOR CLELAND

Mr. Chairman, it’s good to have the opportunity to review the progress of the U.S.

Postal Service. I would like to express my appreciation to Mr. Henderson for testifying today, and for the leadership that he has provided to the Postal Service. I have

been very impressed with the direction that he has set for the Post Office in the

relatively short time that he has been Postmaster General. The initiatives that he

has taken to incorporate technology into the Postal System, including the information management platform, exemplify the vision that is needed as the Postal Service

enters the next millennium.

I want to take this opportunity to again stress my strong support for the issuance

of a commemorative stamp to honor the contributions and achievements of Lieutenant Henry O. Flipper. Lt. Flipper was the first African American to graduate from

the U.S. Military Academy, West Point. This year at the NAACP convention in Atlanta, supporters collected 2,546 signatures urging the Citizen’s Stamp Advisory

Committee to issue a stamp. I have a copy of the petitions with me today if Mr.

Henderson would be so kind as to give them to the Subcommittee.

In the next several years, the Post Office faces many challenges brought about

by changing technology and the increasingly competitive marketplace for information. The Postal Service must find a way to remain relevant in an electronic age.

I feel confident that Mr. Henderson has the ability to deal with these challenges

fairly and effectively.

Senator COCHRAN. Mr. Postmaster General, you may proceed.

STATEMENT OF HON. WILLIAM J. HENDERSON, POSTMASTER

GENERAL, U.S. POSTAL SERVICE

Mr. HENDERSON. Thank you, Mr. Chairman, Senator Levin.

I will hit the highlights of my prepared statement.

First of all, from an overall perspective, the Postal Service is in

good shape. We have enjoyed 15 consecutive quarters of improved

postal services and occupy a strong position in the marketplace.

Two and 3-day mail service is up a remarkable eight points. That’s

the biggest leap we’ve ever made in one category in 1 year.

So things are really on the right track. We’re very proud of the

fact that we’ll probably have in this year between $500 million and

$600 million net surplus. And at the same time, we postponed a

rate increase until January 10, and that 2.9 percent increase will

be the smallest in our history. This delayed rate increase has saved

the ratepayers of America $800 million. So we’re very pleased.

We still see challenges in the area of labor relations. We’re actively involved right now in labor negotiations with our unions. It

is our hope to improve labor relations significantly in the coming

years. I think there is a commitment from both labor unions and

postal management to do that.

So things are very good right now. We do have a major initiative

that we announced in our customer forum, a major technology platform that we’ll be putting in place that will do essentially three

things. It will provide the Postal Service with better operating information so that we can make the correct decision before it’s a

mistake that we have to correct. It will provide us a better, activity-based accounting system, and it will provide an information

platform through which our customers can monitor their mail. We

think that will be a great advantage for us in the marketplace.
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So we think the Postal Service is on the right track. We appreciate the support of this Subcommittee. I’ll be happy to answer any

questions you might have.

[The prepared statement of Mr. Henderson follows:]

PREPARED STATEMENT OF MR. HENDERSON

Good morning, Mr. Chairman and Members of the Subcommittee. I welcome this

opportunity to talk with you today.

I want to thank you, Chairman Cochran, and all the Members of the Subcommittee, for your support and your oversight of the U.S. Postal Service. I appreciate the time and energy you invest in helping us fulfill our fundamental mission

of delivering to everyone, everywhere, every day.

I am pleased to report that the men and women of the Postal Service are doing

a fine job of succeeding at this mission. We have just ended Fiscal Year 1998, and

the early results show it was one of our best.

Service was up. We now have the results from our final quarter, and I want to

announce them today. Nationally, 93 percent of local First-Class Mail was delivered

overnight. That is one point better than a year ago, and marks our 15th straight

quarter of improvement. Combined 2- and 3-day service also improved to 87 percent.

That is an 8-point increase over last year and our highest mark ever.

Our customers asked us to expand our measurement system for First-Class Mail.

We have responded. Last month, we began extending our coverage from 62 percent

to 80 percent of destinating First-Class volume. The expansion process will be completed and the results publicly reported in the spring of 1999.

Priority Mail service performance has also improved. Both consumers and commercial customers continue to find great value in Priority Mail. We are investing

significant resources in this product to make it even stronger. We are also working

very closely with our customers to improve service for periodicals and advertising

mail.

We have gone to great lengths to get ready for a banner fall and holiday mailing

season. We began our preparations early in the year. Working with our customers,

we developed our most extensive set of plans ever. These plans were implemented

in July. So far, performance has been solid. We will make every effort to keep service high throughout the season and into the new year.

Hurricane Georges has made that task extremely difficult in the Caribbean and

the Gulf Coast. It effectively cut off the flow of mail in a number of locations. By

Tuesday, postal operations in Puerto Rico, the Virgin Islands, and Florida were

mostly back on line. Because of heavy flooding and damage, we were forced to close

facilities and suspend deliveries in New Orleans and several locations in Alabama

and Mississippi this week. Our employees are going the extra mile to get mail delivered despite the elements and working to restore service as quickly as possible in

the affected areas.

Financially, we expect to end 1998 with a surplus of $500–$600 million. We have

made a great deal of money over the past 4 years, but there are nearly $4 billion

in accumulated losses since 1971 still to be recovered.

Originally, we planned to put our 2.9 percent rate change in place over the summer. This would have helped us restore our equity more quickly. However, the postal governors and management decided that delaying new rates past the holidays

was the right thing to do. It shows America that we are committed to being responsible and responsive. We listened to our customers. Stable rates for a fourth straight

holiday season will help our customers grow their businesses during this most critical time of year. Overall, this is an $800 million dividend for the Nation.

It also poses a challenge to the Postal Service. Our revised 1999 budget calls for

a $200 million surplus. I have asked our field and headquarters managers to increase that amount by several hundred million dollars by operating smarter and

tapping into our employees’ good ideas. We need this additional net income to help

restore our equity, continue building our infrastructure, and keep next year’s rates

in place at least 2 years.

Overall, I am pleased with our progress. Still, we have some work to do to get

ready for the dynamic marketplace of the 21st Century.

Over the last 4 years, the Postal Service has become a performance-driven and

customer-centered organization. This focus will not waver. We will continue to deliver improvement and innovation. That means more reliable and timely deliveries,

better customer service, new product features, and higher overall efficiency and

value.
5

In fact, on Wednesday we provided the President and the Senate and House with

copies of our 1999 Annual Performance Plan. This plan was created within the

framework of the Government Performance and Results Act and carries forward our

updated 5-year Strategic Plan.

Over the next 5 years, technology will be a key to our success. The electronic revolution has and will continue to divert billions of dollars in business from the mail

stream. However, technology has also been a God-send. Over the past 2 decades, it

has created a postal revolution—automation. Automation has saved the American

people billions of dollars. It has helped keep postage rates in line with inflation and

given businesses and non-profit organizations the ability to narrowly target their

messages and advertisements. The result is that mail has continued to grow. In

1999, mail volume is expected to reach 200 billion pieces for the first time, more

than double what it was in 1971.

Now, we are taking the next step to keep mail strong and vibrant in the next century. On August 21, I announced a major technology initiative for the Postal Service. I committed to building an information management platform in 5 years. This

platform will add a new level of sophistication and value to hardcopy mail. I named

a new Chief Technology Officer to begin leading a coordinated effort to link together

new and old information systems into a vast electronic network.

This platform will have three key benefits. First, it will give the Postal Service

real-time information—instead of yesterday’s reports—on which to base decisions.

This will drive billions of dollars in costs out of our system and improve service.

Second, it will revolutionize pricing through a true activity-based accounting system. Knowing our true costs will help us manage them better and price more effectively.

Third, it will give customers access to information about their mail. The mail will

‘‘talk’’ to customers. It will tell them what kind of mail it is, where it is in our system, and when it will be delivered. This will enable customers to better manage

staffing, inventories, cash flows, and other critical business factors.

We have just started to build our information platform, but it will be a key force

in improving the value of mail for the American people in the years to come.

I believe the Postal Service is on the right track for 1999. Our employees are focused and ready to deliver for the holidays. We are committed to embracing technology and process management and using these tools to drive our performance to

the next level. We are proud to serve every American, everywhere, every day, and

we look forward to working with this Subcommittee to continue that mission in the

21st Century.

Thank you, Mr. Chairman.

Senator COCHRAN. Mr. Henderson, I first of all want to congratulate you and the employees of the Postal Service for improving the

on-time deliveries of the mail. I’m curious to know whether this is

something that can be sustained, this performance level, over a

long period, or even improved upon in the future.

What is the outlook for continuing to meet these goals?

Mr. HENDERSON. It is our goal to not only sustain it, but to continue to improve it. It pays for itself in the marketplace; our products become more and more competitive because of the quality we

provide. Our customers respond by using the Postal Service more.

And that’s a great testament to postal employees across this country, that they have rallied to the cause of service.

Senator COCHRAN. There’s a question that I worked into my

opening remarks about the postal rate increase and whether or not

you expect your competitors to also raise their rates. What is the

outlook, in your view, of that?

Mr. HENDERSON. Our competitors, traditionally, have had annual

rate increases. Our 2.9 percent increase is the first increase in 4

years. It’s a third of the inflation rate. We think we’ll characterize

it as a speed bump. We don’t see that it will affect our volume. We

worked with our customers on this rate increase. We’re very proud

of the fact that it’s the lowest in our history.
6

Senator COCHRAN. When I was home during the August recess,

in my State of Mississippi, there were some who came to meet with

me to express concerns about the effect on small town newspapers

and other mailers of that kind, of the rate increase that was going

to take effect. What impact will it have on your customers of that

kind, and what can be done to help ease the burden that they

have?

Mr. HENDERSON. Well, it’s about the least amount of impact that

we could have on periodicals mailers still and have a rate increase.

They can work with their local post offices to make sure they’re

taking advantage of any and all discounts that they might be entitled to. And I would urge them to do that.

But 2.9 percent is a very small increase.

Senator COCHRAN. There was a statement you made recently

about a plan to link the major information systems. If I understood

that right, could you tell us what you’re talking about, and what

is the purpose of these changes and the benefits that you expect

from the changes?

Mr. HENDERSON. As I said in the opening statement, we intend

to put an information platform in place in the Postal Service which

first of all provides operating managers with real-time information

about what’s going on. Rather than see the report hours or in some

cases days later, they’ll be able to get real-time information.

The platform will also provide more of an activity-based accounting system, so that we can attribute our costs more accurately. And

third, it will provide a window for our customers to see what information they would like to know about their mail.

So the system will pay for itself in better operating decisions.

Senator COCHRAN. In connection with the recent decision by the

Postal Rate Commission to approve a rate increase, it was observed

by the Commission that the Service did not spend as much on program expenses as was expected in 1997. Why were monies not expended as planned, and were the revenue requirements accurate

that were presented to the Postal Rate Commission?

Mr. HENDERSON. The aggregate of those slippages was about

$540 million. They occurred because management made decisions

that it needed to slow up technology, to fine-tune it. An example

was the tray management systems, that’s probably the largest example, that we planned on deploying last fiscal year. I slowed it up,

personally, because I wasn’t satisfied with the performance of the

prototypes in several post offices.

So there’s a variety of reasons why we slow up the deployment

of technology. With an organization our size, you can’t expect to hit

a home run every time you’re at bat. Some of these technologies

sound better than they actually work. And when we do find that

is the case, we stop them at that point.

Senator COCHRAN. What about the revenue requirements? Were

they accurate as presented to the Commission?

Mr. HENDERSON. Well, the revenue requirements were adjusted

by about $700 million, based on the real-time assessment. I think

the Rate Commission did the right thing in making that adjustment. At the time we planned the rate case, we planned on that

technology, those capital expenditures to work in a fashion that

probably wasn’t realistic, in hindsight.
7

1Questions by Senator Levin and responses from Mr. Henderson appear in the Appendix on

page 19.

So the revenue requirement was adjusted. For example, the Postal Service did better in the field operationally by about $300 million. That’s $300 million on $50 billion in revenue. That’s a fraction, but the money’s there.

Inflation was less than what we had projected, and that was

worth about $500 million there. So when you add it all up, and

then the $800 million that we gave back to the customers because

of the rate increase delay, it’s going to end up between a $500 million and $600 million surplus. But there’s not one single reason for

all that. It’s multiple.

Senator COCHRAN. Thank you. Senator Levin.

Senator LEVIN. Thank you, Mr. Chairman.

A few years back, there were major stresses in terms of the relationship between management and employees. We had a number of

tragic incidents in post offices in my home State, Michigan. I know

that’s something you are very conscious of. And I’m wondering if

you could tell us the kinds of efforts that you’re making to work

with employees to remove, reduce stress levels, and also to have a

harmonious relationship between management and employees, so

it’s not the military-style command that’s given, but rather more of

a partnership.1

There obviously needs to be a boss and there needs to be an employee. There needs to be a supervisor and there needs to be someone who will carry out instructions. But there’s also a tone which

can be created in post offices. And because the demands are so

great on these employees, I’m wondering what efforts you’re making to see if we can have a harmonious work place.

Mr. HENDERSON. Your point is well taken. People ask you, is

there one thing that wakes you up at night and worries you. It is

the labor climate in the Postal Service and the atmosphere that

may surround a lot of our clients. There are two fundamental ways

that we’re looking at this. One is a leadership model, in which

we’re going to measure characteristics of our managers in terms of

promotions and model the kind of behavior that we want in a work

place, which is certainly more participative.

The other avenue is really a systems approach, a process approach. We’re trying to redesign some of our antiquated processes,

like the way we manage city delivery, as an example. There’s a tension, it’s not a violent tension, but there’s a tension between the

carrier and the manager. We have a memorandum of understanding to go out and redesign with the NALC the way we manage city carriers all across America.

We’re very committed to taking the tension out of the system. We

think that if you take the tension out of the system, you’ll get more

productivity, because you’ll get more discretionary effort out of the

employees.

But we have a huge effort that involves outside consultants, it

involves our employee assistance program, which I think is world

class. It involves engineers redesigning work. It involves new ways

of doing labor relations and new ways of settling disputes. We have
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a new dispute resolution process that Janet Reno recently recognized in a meeting as being best in class.

So we’re really trying to attack it on several different fronts. And

it really starts here in this chair. This is where you model a nonmilitaristic, more participative style of management.

Senator LEVIN. What is the status, by the way, of the negotiations between the Postal Service and the employee unions on new

labor contracts?

Mr. HENDERSON. We’re in the presentation stage of negotiations.

We just recently finished a summit meeting at Federal Mediation.

I think the dialogue thus far has been good. There is a strong commitment on both sides, it appears, to reach a settlement. So we’re

very hopeful, not being naive, but hopeful.

Senator LEVIN. We recently had a hearing of the Subcommittee

on the problem of fraudulent or misleading sweepstakes mailings.

The House Postal Subcommittee is going to be holding similar

hearings, I believe, next year. I think there was a press conference

either today or yesterday on that subject, which I believe you and

the FTC were involved in.

I’m wondering if you would first discuss your views on the seriousness of the sweepstakes problem and the role of the Postal Service in preventing it. Then second, would you comment on a bill

which I’ve introduced that now has the co-sponsorship of a number

of Members of the Subcommittee, including Senators Collins and

Durbin, I believe, which would eliminate deceptive practices by prohibiting misleading statements and would impose a much stiffer

penalty for each deceptive mailing, as well as giving the Postal Inspection Service subpoena authority.

So on both of those issues, in general, what is your position on

this, how big a problem is it, what are you doing about it, and do

you support S. 2460, which I introduced and just described?

Mr. HENDERSON. First, it is a problem. And it’s a problem for the

Postal Service in a number of ways. It’s a problem for our consumers, but it’s also a problem for our good name. We don’t want

to be associated with fraudulent mailings.

I know everyone in the mailing industry I’ve had conversations

with are really concerned about it, too. It’s not condoned by any of

the mailing associations, and they’re trying to police it.

The difficulty that we have with it, from a postal point of view,

is that we don’t want to kill advertising mail. Obviously, that’s very

important to the health and well-being of the Postal Service on the

one hand. On the other hand, we absolutely do not want fraudulent

mailings in the mail. So we’re trying to balance those two, and I

think you’ve had some very constructive, as I understand, discussions with the mailing industry about ways to police sweepstakes

mail, as an example, without killing off the legitimate sweepstakes

mailings.

My approach is to have a balance between the mailing industry

and the consumer in this regard, so that the interest of the Postal

Service in keeping mail in the mail stream is pursued. I’m not as

familiar as I should be with your bill. But, as I understand it, your

bill is a compromise and the mailing industry does support it.

Senator LEVIN. I’m not sure they support all of it. [Laughter.]

I think parts of it they may support.
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Mr. HENDERSON. We’re very concerned about killing off the legitimate sweepstakes, or making it so difficult that that type of mailing will go away. We’re equally concerned, and the Postal Inspection Service, as you know, is very diligent on that, policing fraud

that exists in sweepstakes mailings.

Senator LEVIN. I want to again thank Senator Cochran for holding hearings in this area. It’s a very significant problem where I

come from. And we want to give the Postal Service the tools to go

after the violations, the people who are using deceptive practices

instead of legitimate practices. There are just too many of them.

The tools that you have in current law are not adequate. The

penalties are just the price of doing business, too often. And we

cannot rely on the industry to police itself. Although it’s helpful, we

have to have some very good tools in your hands and willingness

on your part to use them.

So I would appreciate, if you would, a formal response to that bill

indicating your comments on it.

Mr. HENDERSON. I will do that.

Senator LEVIN. Several weeks ago, the Senate voted to adopt an

amendment to the fiscal year 1999 Treasury Postal Appropriations

Bill that would establish guidelines that must be followed by the

Postal Service before you could close or open or relocate a post office. You opposed the amendment. I’m curious as to why and what

alternative proposals you could offer to ensure that the opinions of

the public will be taken into account when a post office is going to

either be closed or opened or relocated.

Mr. HENDERSON. I opposed that, Senator, because it would put

our facilities program in gridlock. If every dispute in the United

States over where a facility was located had to be settled in Washington, DC, it would just put a huge burden, it seems to me, on

the process.

Now, we did redesign the process we use so that there is a public

hearing and communities involved have a voice. And it is our policy

to try to go along with communities wherever possible. But to have

a formal procedure, so that if I want to build a post office in location A and one person objects, and it therefore comes to Washington, DC to be resolved, it seems to me to be an unnecessary regulation of the building process.

And I have gone around and tried to explain this, what happens

if we don’t hold those capital monies for a delayed project resolution; there’s an expense associated with holding capital funds. So

we go on to the next project. And if there are no complaints about

that project, we’ll build that post office in that community.

That will deny some places that need legitimate help with that

legitimate help. And I just think it’s an unnecessary regulation of

our organization. When you put a post office in a community where

they don’t want it, they never forgive you. They bring that up time

and time again. It’s not worth it.

And if the community wants the Postal Service, which most do,

there is a way to resolve these kinds of issues, and that’s what we

intend to do. We want to be a good citizen.

Senator LEVIN. My last question has to do with the recent

issuance of a stamp that focuses on breast cancer awareness, a

stamp where there’s a surcharge in order to raise funds for re10

search in breast cancer. I’m wondering if you have any early returns, whether it’s just too early to know whether or not that is

producing the hoped-for income. There was some question as to

whether in fact it would be productive enough to do and the precedent that it would set. I was troubled by both those aspects of it,

as a matter of fact. Are there any early returns that you have that

you can tell us?

Mr. HENDERSON. We have some early returns, I don’t remember

what they are. But I’ll be glad to provide those to you.

In general, though, it has created a great deal of awareness of

breast cancer issues, and has been remarkably well received all

across this country. The genuine identification with this issue, the

real tenacity to whip this issue, it’s been almost overpowering.

Senator LEVIN. There’s a tremendous public interest, obviously.

The question is whether or not that’s going to translate into purchases and sales of stamps so it really produces the money. That’s

the issue. So if you could give us for the record any of the returns.

Mr. HENDERSON. I will.

Senator LEVIN. And as it goes along, perhaps give us a 6-month

report on it, that would be helpful. Because we’re looking at that

in terms of future issues of the same kind, whether we ought to

start down that road. We already have started down it, whether we

ought to continue down that road in using postage stamps to

produce revenue for very good causes. I don’t know of a better one

than breast cancer awareness and research.

So it is important in terms of whether we want to, whether we

raise enough money in that process to use this mechanism of raising funding for other important issues as well.

Senator COCHRAN. The distinguished Senator from Maine, Senator Collins, has been a leader in the effort to do something about

these misleading mailings, deceptive practices, fraudulent, overreaching of postal customers. And she was an active participant in

the hearing we held, and then she chaired hearings in the investigation subcommittee.

We’re glad you joined us for the hearing today. You may proceed.

Senator LEVIN. Can I ask the Senator from Maine to yield so I

can correct my oversight, thanking her also for holding those hearings. They were terrific, indeed.

OPENING STATEMENT OF SENATOR COLLINS

Senator COLLINS. Thank you very much. Thank you, Mr. Chairman, and thank you, Senator Levin, for your kind comments as

well.

The Chairman held hearings that all three of us participated in,

and Senator Levin has alluded to, on the issue of deceptive mailings. This is an issue that is of great concern to all of us. I’m particularly concerned about what I call government look-alike mail.

It always comes in the kind of envelopes that government checks

come in, they’re always that kind, they frequently say, buy savings

bonds, often they have an eagle on it.

They have various notices to the Postmaster General, all of

which are intended to deceive people into thinking that these are

mailings from official government agencies, and of course they’re

not. They’re inevitably solicitations. I got one myself this week at
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home. Little do they know I’m now saving every one I get. [Laughter.]

Similarly, I had a constituent in Washington County, Maine, that

received this mailing saying, official business, special notification of

cash, currently being held by the U.S. Government, is ready for you

as long, of course, as you send $9.97 by return mail. We see cases

where, and I’m even more concerned about those than I am the

sweepstakes mailings, although we’ve seen a lot of deception and

fraud in sweepstakes mailings as well.

We also see mailers using look-alike postal cards to try to deceive

consumers. Your return receipt card is almost identical, except in

color, to this ‘‘blue return receipt card,’’ I put that in quotes, that

was used for this mailing. This one is a sweepstakes mailing. And

it seems to me that you’re mainly dependent on cease and desist

orders, of ordering people to cease this kind of activity. And that

doesn’t seem to be very effective to me. Oftentimes, if you put

someone out of business, they crop up elsewhere, for example.

So I want to follow up on the work the Chairman’s done and Senator Levin, in inviting you to tell us more about your enforcement

efforts in this area, but also to ask you to work with us in the next

Congress to develop legislation to really crack down on these deceptive mailings. I know you have a balance, because you don’t want

to curtail legitimate mail. And yet, we just see a huge increase in

these kinds of fraudulent and misleading mailings that are really

of great concern to us.

Mr. HENDERSON. As we said a couple of days ago, we are stepping up our enforcement efforts. But we are very happy to work

with you and others to try to work out a solution to this problem.

Obviously, as I said earlier, these kinds of deceptive mailings not

only hurt the individual, they also hurt our organization, devalue

the quality of the mail service. So we’re very concerned.

Senator COLLINS. Do you believe that legislative changes are

needed to give you additional authority, whether it’s subpoena authority or the ability to impose civil penalties, for example, after

due process, after hearings, perhaps?

Mr. HENDERSON. Our Postal Inspection Service is of the belief

that they need more authority in dealing with these sorts of things.

The specifics of that I really can’t get into. It’s more of a law enforcement issue. But they do feel that they need more authority

and broader powers.

But we’ve got to be careful we don’t cross the line of censorship.

We’re very concerned about that. Our job is to deliver the mail.

Where we draw the line in the sand that says, this is mail that we

ought to do something about, that we ought to somehow censor, is

concerning to us not only as an organization, but to myself as a citizen in a free country. So we must strike a balance here. But we

certainly don’t condone those deceptive practices, and we are out

trying to chase them down.

Senator COLLINS. I would ask that you provide the Subcommittee

with some specific recommendations for statutory changes over the

next few months, in the hopes that we continue to work with the

Chairman on legislative remedies. We want to make sure that anything we come up with doesn’t cross that line, and yet really takes

care of what I’m convinced is a growing problem.
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Mr. HENDERSON. We’d be more than willing to do that.

Senator COLLINS. The second issue I want to raise with you is

one that’s near and dear to my heart, coming from a large rural

State. And that is the issue of small, rural post offices. I understand that the Postal Service has imposed a moratorium on the

closing of small post offices. And in my State, many of these post

offices, which are in small towns, remote areas, such as

Frenchboro, or Cliff’s Island, are really the source of community

pride. They are central to the identify of rural communities in

Maine.

One constituent told me, ‘‘It’s what puts us on the map.’’ Another

recounted how during the terrific ice storm that we had in January, everyone gathered at the community post office to find out

what was going on, and to exchange information.

So they’re really not only important from a mail service point of

view, and in keeping with our commitment to universal service, but

there’s a very important role that they play in small communities.

I’d like to know your plans for keeping the moratorium, and

what you see coming as far as the role of small, rural post offices.

Mr. HENDERSON. I agree with you 100 percent. I was a big driver

for putting the moratorium on. They are in some ways the soul and

fabric of America. Communities only mourn as a community two

events, in my association with the Postal Service. The first is if

their newspaper closes, they think they’ve lost their identity. And

second, they have lost their identity if their post office closes.

So you’re not going to see me lifting or modifying the moratorium, period. I think that, while small post offices cost money, they

provide intangible benefits. Communities are loyal to this organization at a grass roots level, because a postmaster does the right

thing every day to customers in their small community.

And we’re glad that people gather at their post offices to talk and

to even play checkers, which where I grew up, that’s what they did

in the small post office, they played checkers. And we’re very proud

that our post offices are part of the fabric of the communities. So

you’re not going to see any reduction of that moratorium while I’m

around.

Senator COLLINS. I’m very glad to hear that. And I really appreciate the commitment that you have. I do think it’s so important.

A related problem that we’ve seen in a lot of small towns in

Maine is when a postmaster or postmistress retires, and sometimes

there is difficulty in finding someone to take the place, or find new

real estate to have a post office. In some little villages in Maine,

the post office is part of the postmaster’s house.

How do you deal with situations like that, because that’s a concern that I hear from a lot of my constituents? I realize that’s not

a case where you’ve initiated a closure, but the impact can be just

the same.

Mr. HENDERSON. We generally hold those post offices in suspension and try to find a location. We go around and talk to grocery

stores, if there is one, and every other place, to try to find a location for the post office. And we keep trying to find a location and

somebody who will run the post office.

In some instances, we’re not successful, over long periods of time.

But generally if we make it known to the community that they
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don’t have a post office unless we’ve got a roof, somebody will supply a roof.

Senator COLLINS. I’m pleased to hear that you are going to pursue that as well. Because the results can be the same, the loss of

that very important community tie and service.

The final issue I want to raise with you is the renovation of post

offices. When I was running for the Senate in 1996, I went to

Castine, Maine. And I swear that every citizen in Castine came up

and talked to me about the post office’s plans to move the post office out of the historic building in which it was located, which had

been the oldest continuously operating post office, I believe, in the

United States. And there was much to do about taking it out of the

downtown, taking it out of this historic building.

This particular saga had a happy ending, and the Postal Service

agreed to do some necessary renovations, to keep the post office located in town. But it created a lot of anxiety among the citizens

that it was going to be moved out of the downtown, that it would

no longer be in this historic building, and then what would become

of this historic building.

How does the post office consult with communities when it’s deciding the location of a post office, or when it believes that there

is a need for significant renovations?

Mr. HENDERSON. We just recently issued new guidelines that require not only consultation with the community, but a public hearing on our plans. As I said earlier, it is the goal of the Postal Service to be a great citizen. When you put a post office in a place

where the community doesn’t want you, they never forgive you.

They never forgive the Postal Service.

So it really is our goal to have a Postal Service that the community rallies around. So it’s not our intention to try to buck the community. We often find there are disputes between landholders, who

want that piece of property. But most of the time, if everybody involved is well-intentioned, that is, they want the Postal Service and

they’re willing to move, we are more than willing to cooperate with

the community. And our guidelines are pretty strict about being

aboveboard in public hearings and very open. So we’re trying to be

a good citizen here.

Senator COLLINS. Thank you very much, Mr. Chairman.

And again, I wish you good luck in your new position, Mr. Henderson, and I look forward to working with you.

Mr. HENDERSON. Thank you.

Senator COCHRAN. Thank you, Senator Collins, very much, for

your participation and for your leadership.

Mr. Henderson, in the 1997 annual report, revenues were shown

from international mail to have declined from 1996. What do you

attribute this decline to, and what do you expect the benefits and

rate of return will be from the new international service centers?

Mr. HENDERSON. The decline primarily is due to just pure electronic erosion. People have different ways of communicating now,

and the mom and pop international letters that were the bulk of

international mail are simply being replaced.

Our commercial product, Global Package Link, which was a subject of a hearing some time back, has also suffered some declines
14

because of the economics of the Asian market. We’re seeing about

a 25 percent drop in Global Package Link.

So overall, internationally, the world is not in the booming economy that the United States is. And the impact of that is hard to

tell at this point in time. We’re still, as everyone is, hopeful that

there will be a huge rebound, and that once again, the Asian economy will be bouncing and rolling. But we don’t see any signs of

that right now.

Senator COCHRAN. What about the benefits from the international service centers? Anything to tell us about?

Mr. HENDERSON. That’s a pure service issue. It’s not a financial

issue, it’s a service issue. We have a goal of being the leader in the

world in international service scores, and we’re not there yet. It’s

our belief that we have to isolate that mail in these international

hubs, but we’re not nearly far along enough to see an impact of

that today.

Senator COCHRAN. Competitors of the Postal Service have raised

concerns about whether the Postal Service is competing fairly. We

hear that from time to time in private meetings and in public hearings as well. And this is specifically with respect to differences in

application of certain laws, such as Customs treatment or antitrust immunity.

How do you respond to these concerns, and how can they be addressed as competition continues to increase?

Mr. HENDERSON. Well, just to comment on international service,

we’re treated like a postal service, not like a commercial shipper.

So we have different rules, not necessarily better rules. But different rules. And they do not give us a real competitive edge in the

marketplace. They actually slow the process.

I will tell you that the Postal Service does nothing today that it

hasn’t done for the last 25 years except, and this is one very big

exception, the quality of the service of the Postal Service is very

competitive in the marketplace. We don’t operate fundamentally

any different today than we did in 1975, except that our package

business, our priority business, our mail business, is of a much

higher quality.

And that quality service is the reason our competitors are worried. They see us as a real competitor, because our products are of

a much higher quality today. Citizens don’t use the Postal Service

as a deliverer of last resort. They see us as an alternative to the

private sector competitors. And what that’s saying is that we represent good government. That’s what we are all about, is improving

the levels of service that we provide the American people.

And we’ve done it in such a dramatic fashion that those private

sector competitors, who are in the same marketplace as we are, are

seeing a loss of volume, simply because of the quality of service we

provide. That’s it in a nutshell. It’s the quality of service the U.S.

Postal Service provides the American public today.

And we would argue with our competitors who say that we ought

to not provide that quality of service, which is really nonsensical.

We ought to get better. So we see it as an example of pure good

government.
15

Senator COCHRAN. Tell us what the role of the universal postal

union is, and what benefits does our country get from participating

in the universal postal union?

Mr. HENDERSON. The primary role, from my perspective, of the

UPU, is to determine the exchange of monies for international

mail. In other words, when Great Britain mails a letter to the

United States, there are certain monies that change hands, tariffs,

if you will, that are imposed between countries, and the UPU is the

vehicle to determine those exchanges. That’s the primary role from

our perspective.

Senator COCHRAN. Recently, a foreign postal administration announced that it planned to acquire a local mail-forwarding company. I believe this was the United Kingdom, I may be wrong.

What impact will this have on the U.S. Postal Service’s revenue

and volume? And does the Postal Service plan to respond in any

specific way to this development?

Mr. HENDERSON. There are a number of countries that are in the

United States trying to ship mail as freight to their country and

then convert it to postage and deliver it to wherever around the

world. The Dutch are very active here, and Royal Mail is in New

York and Chicago.

Senator COCHRAN. Royal Mail, is that the United Kingdom?

Mr. HENDERSON. Yes. And the Swedish are here. They’re investing in American companies that are related to mail.

The Royal Mail has a goal of getting about $80 million of revenue

out of the United States. I think the Dutch are probably in that

same neighborhood today.

Our response has been to do a better job, through the international service centers, to do a better job with U.S. mail. Our customers, U.S. businesses, are really looking at service as an issue.

That’s why we’re very focused on increasing and improving our

international service.

We are active, also, in foreign markets, looking at the opportunities. But quite frankly, it’s more of a nationalistic issue than it is

a real dollar and cents issue. Because in effect, $80 million on a

$62 billion budget is not much of an impact. It’s more in your face

than it is real impact.

Senator COCHRAN. What is the status of the Postal Service’s efforts to develop electronic communications services? What role

should the Postal Service play in this area, given the fact that private companies are also providing these services?

Mr. HENDERSON. We’re in the early stages of looking at some secure electronic services now, including a desktop post office, which

provides mailing labels. It can also provide some very limited addressing. It’s designated for the small office, home office market.

We have an electronic stamp that’s pending that we just received

a patent on.

But these efforts are in their infancy. They’re not very sophisticated and they’re not driving any revenue. There is an issue about

what our role ought to be in the electronic services. We are getting

inquiries from the private sector about being a trusted third party.

There is some concern that if remittance mail, for example, gets

into the hands of a private sector company who has an electronic
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platform, there’s no effective way to regulate the tariffs that will

be charged on that platform.

And private sector interests have asked the Postal Service if we

would be willing to provide that sort of platform because the PRC

provides some public oversight and regulation. And we’re discussing those issues, but we haven’t taken any initiatives.

But it is an interesting role that the Postal Service might play

in the future, because we are a public entity.

Senator COCHRAN. Last year, the Postal Service filed a request

with the Postal Rate Commission to offer ‘‘pack and send’’ as a new

postal service. In April of this year, the PRC approved a 2-year test

of this service, but it encouraged the board of governors to consider

the financial consequences of entering into competition with existing owner-operated small business that provide similar services.

Has the board looked into this issue, to your knowledge, and

what is the current status of pack and send?

Mr. HENDERSON. It’s currently on hold. We’re having a series of

discussions with Jim Amos who is the head of Mailboxes, Etc., a

partnership experiment with them. Pack and send is all a part of

that discussion. There again we’re trying to get a partner here, and

not a foe. We think there’s an opportunity for the Postal Service

to generate some revenue and for Mailboxes, Etc. to generate some

revenue, to work in tandem at the local level with the Postal Service. So we’re in discussions right now, we have 270 test sites that

we’ll be kicking off beginning in November.

Senator COCHRAN. Last year, also the Postal Service reported

plans to build 150 wireless communication towers on postal property. We understand because of some public criticism the Postal

Service has been reviewing the program. What’s the status of that

program and how many antennas, if any, have been constructed,

and how many do you anticipate building?

Mr. HENDERSON. There’s 25 that have been constructed, and

we’re in some discussions with the organization, UniSite, as to future plans.

Senator COCHRAN. The Postal Service has attempted over the

last several years to introduce a variety of new products, some

things are sold in the post offices now, people complain that they’re

not really postal-related.

What is your policy on this issue? How do you determine what

new products are appropriate to market and which ones aren’t?

What steps do you take to ensure that the Postal Service doesn’t

undertake creating an unfair relationship with other businesses in

the process?

Mr. HENDERSON. We have a retail group that approves and specifies what can be sold in post offices. I think we have sold some

merchandise, such as ties and tee shirts, that I would call inappropriate for a post office. We shouldn’t be marketing stamps on ties

and tee shirts at a post office, we should be marketing them

through a catalog. So we’ve taken those products and separated

them, and I think you’ll see a lot more discipline now in our retail

units than you have in the past.

Senator COCHRAN. Senator Levin asked you a question about the

labor relationships. You have four unions, I think, that you’ve

begun negotiations with. What’s the status of these negotiations?
17

Do you think you can reach contracts with them and avoid the use

of arbitration or other devices to settle disputes?

Mr. HENDERSON. We’re currently negotiating with the American

Postal Workers Union, the National Association of Letter Carriers,

and the Mail Handlers Union. It is our hope that we can reach a

settlement, but it takes two parties. Right now, I think both sides,

from my perspective, appear to be committed to reaching a settlement. It depends on, in the final hours, what the terms are.

Senator COCHRAN. The General Accounting Office reported last

year the number of employee grievances continues to increase. It

has been doing that over the last several years.

Is that something we should be worried about? What’s being

done to deal with this problem?

Mr. HENDERSON. It is one of the hot subjects of negotiations. It

is our belief in management that the grievance process is broken,

it’s too long and too cumbersome, and has too many layers. And

we’re actively engaged with the unions in trying to streamline it,

to offer a quick route to justice, if you will, to the people who are

complaining. We’re very hopeful we’ll come out of these negotiations with a much better system.

Senator COCHRAN. There’s an awful lot of new emphasis in the

work place on training and making people sensitive to harassment

issues and diversity issues and the like. What do you think the

record of the Postal Service is on these things? Are you doing what

you need to be doing to ensure that these issues are dealt with in

a fair way and an appropriate way across the country?

Mr. HENDERSON. Yes. We have a huge, ongoing effort. Everything from training programs like Looking Glass, in which you

learn to appreciate diversity, to seminars and training on sexual

harassment and those sorts of things.

It is something that’s not fixed. It’s forever ongoing. You have to

continuously train people, and make them very sensitive to those

kinds of issues.

Senator COCHRAN. What’s the status of your efforts to implement

the new process known as redress to expedite resolution of EEO

complaints?

Mr. HENDERSON. We’re rolling that out nationwide. Mary Eleano,

our general counsel, was recognized by Janet Reno as a dispute

resolution expert in government. This is really Mary’s child. She’s

done a heck of a job with the Redress Program, and we think that’s

really going to unclog a process that’s been horribly clogged for a

long time in the Postal Service.

Senator COCHRAN. One of the Postal Service’s initiatives that’s

recently raised some concerns is the contract for processing priority

mail. What’s the status of the implementation of the priority mail

processing centers?

Mr. HENDERSON. We have five centers on the east coast. They’ve

shown dramatic improvement in the quality of priority mail. That’s

an active subject of labor negotiations, as you might expect. And

we’re going to see what comes out of labor negotiations before we

draw any judgments or make any decisions about the future.

Senator COCHRAN. Can you tell us if there will be many postal

employees affected in an adverse way by this new program? Does

it have high cost associated with it?
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Mr. HENDERSON. There’s virtually no impact on postal employees. What it represents is, as your service gets better, you get new

business, new packages come in, packages that were carried by others are now carried by the Postal Service. It’s a net positive; it’s

growth for the Postal Service. We don’t see it as having an impact

on postal employees.

In terms of how much it costs and that sort of thing, it will depend primarily on whether we out-source it, or we build the facilities ourselves.

Senator COCHRAN. Do you have any plans to bring a certain

number of these priority mail processing centers on-line? Do you

have specific plans for how many you want?

Mr. HENDERSON. Yes. We have a plan that says in order to service the entire Nation, we need about 20 more facilities. We haven’t

decided on locations. But it takes about 20 more facilities to service

beyond the test area that we have now.

We have not gone to the governors of the Postal Service to ask

for approval. We implemented the test to establish two things: One,

the threshold question, could we dramatically improve service. And

the answer to that question is, yes, we have. And the second is

once we’ve dramatically improved service, can we in fact grow our

revenue with this improved service, attract more people in the marketplace. And the answer to that is yes, too.

So we are in the process, and as I say, it’s being discussed in negotiations. We are preparing to go back to the governors to talk

about the success we’ve had in phase one.

Senator COCHRAN. You’ve been on the job now 5 months? Has

the time gone pretty quickly, or does it seem like you’ve been there

10 years now?

Mr. HENDERSON. No, it’s actually passed rather rapidly. I tell everybody it’s more fun than being the chief operating officer, because

you have somebody to yell at. [Laughter.]

Senator COCHRAN. Who is your chief operating officer?

Mr. HENDERSON. Clarence Lewis.

Senator COCHRAN. Do you yell at him like Mr. Runyon used to

yell at you?

Mr. HENDERSON. No. It’s just a stress releaser. It’s not real.

[Laughter.]

Senator COCHRAN. I know I may have omitted some questions

that I should have asked you, and if some occur to us that we

should submit, I hope you’ll be helpful to us and respond in writing

for the record.

I know also Senator Stevens had asked you a question about the

Y2K effects on postal operations. And I’m not sure we got an answer. If you could, provide us for the record what you are doing,

what the status of that effort is and what you think the outlook

is for dealing with it in the Postal Service.

Mr. HENDERSON. I’d be happy to do that. Thank you.

Senator COCHRAN. Mr. Henderson, you’ve done an excellent job.

We thank you very much.

Mr. HENDERSON. Thank you.

Senator COCHRAN. The hearing is adjourned.

[Whereupon, at 2:55 p.m., the Subcommittee was adjourned, to

reconvene at the call of the Chair.]
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