OVERSIGHT OF THE U.S. POSTAL SERVICE

HEARING

BEFORE THE

SUBCOMMITTEE ON THE POSTAL SERVICE

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

OCTOBER 21, 1999

Serial No. 106–110

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpo.gov/congress/house

http://www.house.gov/reform

OVERSIGHT OF THE U.S. POSTAL SERVICE

OVERSIGHT OF THE U.S. POSTAL SERVICE

OVERSIGHT OF THE U.S. POSTAL SERVICE

OVERSIGHT OF THE U.S. POSTAL SERVICE

VERSIGHT OF THE U.S. POSTAL SERVICE

GHT OF THE U.S. POSTAL SERVICE

U.S. GOVERNMENT PRINTING OFFICE

63–821 CC WASHINGTON : 2000

OVERSIGHT OF THE U.S. POSTAL SERVICE

HEARING

BEFORE THE

SUBCOMMITTEE ON THE POSTAL SERVICE

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

OCTOBER 21, 1999

Serial No. 106–110

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpo.gov/congress/house

http://www.house.gov/reform

(III)

COMMITTEE ON GOVERNMENT REFORM

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

DAVID M. MCINTOSH, Indiana

MARK E. SOUDER, Indiana

JOE SCARBOROUGH, Florida

STEVEN C. LATOURETTE, Ohio

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

BOB BARR, Georgia

DAN MILLER, Florida

ASA HUTCHINSON, Arkansas

LEE TERRY, Nebraska

JUDY BIGGERT, Illinois

GREG WALDEN, Oregon

DOUG OSE, California

PAUL RYAN, Wisconsin

HELEN CHENOWETH-HAGE, Idaho

DAVID VITTER, Louisiana

HENRY A. WAXMAN, California

TOM LANTOS, California

ROBERT E. WISE, JR., West Virginia

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, Washington,

DC

CHAKA FATTAH, Pennsylvania

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

HAROLD E. FORD, JR., Tennessee

JANICE D. SCHAKOWSKY, Illinois

———

BERNARD SANDERS, Vermont

(Independent)

KEVIN BINGER, Staff Director

DANIEL R. MOLL, Deputy Staff Director

DAVID A. KASS, Deputy Counsel and Parliamentarian

CARLA J. MARTIN, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON THE POSTAL SERVICE

JOHN M. MCHUGH, New York, Chairman

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

BENJAMIN A. GILMAN, New York

STEVEN C. LATOURETTE, Ohio

DAN MILLER, Florida

CHAKA FATTAH, Pennsylvania

MAJOR R. OWENS, New York

DANNY K. DAVIS, Illinois

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California

ROBERT TAUB, Staff Director

HEEA VAZIRANI-FALES, Counsel

JANE HATCHERSON, Professional Staff Member

ABIGAIL D. HUROWITZ, Clerk

DENISE WILSON, Minority Professional Staff Member

(V)

C O N T E N T S

Page

Hearing held on October 21, 1999 .......................................................................... 1

Statement of:

Corcoran, Karla W., Inspector General, U.S. Postal Service, accompanied

by Thomas Coogan, legal counsel; and Richard Chambers, Assistant

Inspector General for Audit, U.S. Postal Service ....................................... 8

Henderson, William J., Postmaster General and Chief Executive Officer .. 115

Ungar, Bernard L., Director, Government Business Operations Issues,

U.S. General Accounting Office, accompanied by Teresa Anderson, Assistant Director; and Gerald Barnes, Assistant Director, U.S. General

Accounting Office .......................................................................................... 33

Letters, statements, et cetera, submitted for the record by:

Corcoran, Karla W., Inspector General, U.S. Postal Service:

Followup questions and responses ........................................................... 78

Prepared statement of ............................................................................... 12

Henderson, William J., Postmaster General and Chief Executive Officer:

Followup questions and responses ........................................................... 134

Prepared statement of ............................................................................... 117

LaTourette, Hon. Steven C., a Representative in Congress from the State

of Ohio, June 30, 1999, Report to Congress ................................................ 412

McHugh, Hon. John M., a Representative in Congress from the State

of New York, prepared statement of ........................................................... 4

Ungar, Bernard L., Director, Government Business Operations Issues,

U.S. General Accounting Office:

Followup questions and responses ........................................................... 108

Prepared statement of ............................................................................... 36

(1)

OVERSIGHT OF THE U.S. POSTAL SERVICE

THURSDAY, OCTOBER 21, 1999

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON THE POSTAL SERVICE,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 10:10 a.m., in room

2154, Rayburn House Office Building, Hon. John M. McHugh

(chairman of the subcommittee) presiding.

Present: Representatives McHugh, Sanford, LaTourette, Miller,

Fattah, Owens, and Davis.

Staff present: Robert Taub, staff director; Heea Vazirani-Fales,

counsel; Jane Hatcherson, professional staff member; Abigail D.

Hurowitz, clerk; Denise Wilson, minority professional staff member; and Earley Green, minority staff assistant.

Mr. MCHUGH. Good morning. The hearing will come to order. On

behalf of the subcommittee members, I’m pleased to welcome everyone here as we continue the oversight agenda for the 106th Congress.

Let me begin by saying to those who have suggested our Postal

Service ain’t broke, I think today’s GAO testimony will serve as a

wake-up call as we will hear GAO explain first class mail volume

is expected to decline at an average annual rate of 2.5 percent in

fiscal years 2003 to 2008. Such a decline would be unprecedented.

Let me say that again. Unprecedented in the Service’s history and

will likely create severe financial and performance challenges. According to the Postmaster General, not only will this erosion place

nearly $17 billion of total revenue at risk, but even worse, the

Service’s environment is changing so rapidly that we simply can’t

predict precisely when or to what extent competitive pressures may

affect the Service’s revenues. As a postal commentator by the name

of Gene Del Polito recently quipped, ‘‘In today’s world, Internet

years are more akin to dog years than the Julian calendar.’’

So indeed we need to take heed when the GAO states again,

‘‘The Postal Service may be nearing the end of an era.’’ Irrespective

of Congress’s progress in modernizing the Nation’s postal laws, it

is clear that these developments make it imperative for the Postal

Service to resolve long-standing performance challenges that will

be detailed by our first panel of witnesses.

Our first panel today will include Ms. Karla Corcoran, the Postal

Service’s Inspector General, and Mr. Bernard Ungar, the Director

of Government Business Operations Issues for the General Accounting Office. Both the IG and GAO are on the front lines as

America’s postal watchdogs, and they have proven to be valuable

2

partners with the subcommittee in reporting to us on a broad range

of postal operations. Although the GAO has been evaluating postal

operations since the days of the Post Office Department, the Inspector General is still a relatively new player on the post scene.

Unlike every other major Federal agency, when it came to the Postal Service, the American public did not have the benefit of the oversight provided by an independent Inspector General. Fortunately,

in my opinion, we remedied that problem in 1996 when we enacted

legislation to create the postal IG.

In that regard, the subcommittee certainly looks forward to hearing from Ms. Corcoran on the progress of establishing her office

since her last presentation to this subcommittee in 1998. It is important that the American postal consumer be assured that the Inspector General has the necessary staff and resources to vigorously

carry out all of her responsibilities under the IG Act. With a budget

of some $62 billion and nearly 900,000 employees, the Postal Service rivals only the Department of Defense as the largest Federal

agency. It would thus seem appropriate that the postal IG’s budget

would be comparable to the budgets of the Offices of Inspector General within the Department of Defense and other such agencies. I

look forward to Ms. Corcoran’s update on this matter today.

It is important as well to note that both the IG and the GAO

have identified a number of initiatives that the Postal Service could

undertake to improve its own performance. I look forward to Ms.

Corcoran and Mr. Ungar highlighting these initiatives, especially

the extent to which the Service has followed up on the questions

raised by the IG and GAO in reports to Congress. Further, they

have a number of assignments pending. I hope Ms. Corcoran and

Mr. Ungar can report to us on the status of these assignments and

the impact these reports will have in assessing the productivity

and the efficiency of the Postal Service.

Our second panel consists of a single, yet a very important, individual, the Postmaster General, Mr. William Henderson. As Mr.

Henderson notes in his written statement, mail delivery scores and

net income appear today to be fine. However, he also underscores

that the Postal Service faces considerable challenges in sustaining

its current performance in maintaining a competitive role in providing mail service to the American public in the future. As both

the IG and the GAO have found, the Postal Service requires significant attention to such areas as labor-management relations, internal controls, and revenue protection. The subcommittee looks forward to hearing Mr. Henderson’s plans to develop innovative and

workable solutions to these and other problems facing the Postal

Service.

While today’s hearing is not specifically devoted to initiatives regarding reform, the GAO’s message makes clear that time appears

to be growing short for the Postal Service to successfully address

these challenges. Unless the Service can adopt to a rapidly changing communications environment and growing competition, we are

facing a major crisis in the postal sector. Inevitably the issues of

modernizing our postal laws will prove inherent in evaluating the

operations of the Postal Service itself, and the subcommittee is interested in hearing Mr. Henderson’s assessments of developments

in the reform debate.

3

We thank all three of our panels of witnesses here today for joining with us.

With that, I would be happy to yield to the distinguished ranking

member for any comments he may wish to make at this time.

[The prepared statement of Hon. John M. McHugh follows:]

4

5

6

Mr. FATTAH. Thank you, Mr. Chairman. I’m pleased to join you

today for a general oversight hearing on the U.S. Postal Service

and in welcoming our distinguished panelists.

Our focus on the Postal Service is timely. Two days ago the

House Subcommittee on Regulatory Reform and Paperwork Reduction held a hearing on the U.S. Postal Service regulations regarding commercial mail receiving agencies. Last week the Postal Service Office of Inspector General released some 51 reports and agreed

to savings of over $1.1 billion. A number of these reports, six to be

exact, address the treatment of postal workers by their supervisors.

As a member of the subcommittee concerned, as we all are, with

labor-management issues, I can tell you I’m concerned about the

state of affairs at the Postal Service, particularly as it impacts better workplace relations. With over 826,000 employees, the Postal

Service must move forward with real improvement in the way it

treats its employees and improving labor-management relations.

Two weeks ago our staff was briefed by the Postal Service about

e-commerce initiatives. The Postal Service is very interested in

having every household connected to an e-mail address. This foray

into e-commerce must first grapple with a report just issued by the

IG on computer security within the Postal Service. The report identified many significant weaknesses in computer security. As the IG

states, ‘‘the backbone of any successful e-commerce program must

be built upon a secure and trustworthy computer network. Addressing deficiencies and shortcomings in the Postal Service’s own

computer system obviously must come first.’’

Diversity and equal employment opportunity are two issues I am

most interested in seeing resolved. To that end, I’ve asked the GAO

to review and report back to this subcommittee the progress of the

Postal Service in achieving diversity in the Postal Career Executive

Service. These are senior, high-level, high-paying positions which

must adequately reflect the diversity of the work force.

With regards to OSHA, in the 105th Congress we enacted the

Postal Employee Safety Enhancement Act. The Postal Service can

now be cited, fined, and referred for criminal prosecution by OSHA

for health and safety violations. Are postal facilities safe? Is the

Postal Service in compliance with OSHA? I believe my colleagues

on this subcommittee will agree that all postal employees deserve

a safe working environment. I look forward to exploring this issue

further with the IG and with the Postmaster General.

Recently, we have been hearing rumblings that a postal rate increase is looming. I just got used to paying 33 cents for a stamp.

I wish to examine how, given enormous profits touted by the Postal

Service, how we can be in a position again to face an increase in

the price of a postage stamp. The dialog on this matter must continue.

Mr. Chairman, I can raise further issues forever. Suffice it to say

that the general oversight of the Postal Service could not have

come at a better time. I wish to thank the IG and the GAO for

their time and reports and willingness to explore new issues and

to find problems. I look forward to hearing how the Postal Service

will tackle its current challenges and better position itself. Thank

you.

Mr. MCHUGH. I thank the gentleman.

7

Any other Members seeking recognition at this time?

Mr. Davis.

Mr. DAVIS. Thank you very much, Mr. Chairman, and I want to

thank you for convening this hearing regarding oversight of the

U.S. Postal Service. Today’s hearing is timely and very important.

In fact, this is our second hearing concerning the Postal Service

and its operations this Congress.

There are a number of issues that have emerged since our last

oversight hearing. Among those issues include a report issued by

the General Accounting Office concerning diversity within EAS 17

and above positions. In addition, there have been serious complaints and concerns regarding the number and amount of advertising dollars that are spent with small business vendors and in

minority communities.

The diversity issue is one that concerns me greatly, and making

sure that minorities and women are represented at every level of

the Postal Service must continue to be a priority. In addition, ensuring the minorities and women receive an adequate share of contracts must continue to remain high.

Recently I had the opportunity to address a diversity forum sponsored by the Postal Service. At that forum were managers and senior managers discussing the importance of diversity. The Postal

Service has been moving in the right direction with regard to this

issue, and I want to commend them for that and urge that we continue with this progress.

The question of advertising dollars and how they are spent concerns me. I requested the Congressional Research Service provide

to me a breakdown of the total advertising budget for the Postal

Service and how it is spent. In particular, I wanted to see what dollars were being spent in what communities and with minority vendors. I was told by CRS that the Postal Service did not have such

a breakdown. Now, if that is true, I would like for us to move in

the direction of seeing how we can put one together. This is a question that I posed with the Census Bureau not long ago, and we

were successful in passing an amendment that would target advertising dollars to minority communities and with minority vendors.

I will be interested in hearing the Postal Service’s views on this

issue.

Finally, I, too, am concerned about the article that appeared in

the USA Today newspaper yesterday that suggested that first-class

mail could be in jeopardy by the year 2003 because of advances in

technology and more people paying bills via e-commerce. The article also went on to say that the Postal Service could lose more than

$17 billion in revenue over the next decade due to e-commerce. I’m

interested in knowing what plans are being made to ensure the

long-term competitiveness and viability of the Postal Service to

continue providing universal service. I look forward to hearing

GAO’s full analysis of this issue, and again, Mr. Chairman, I thank

you for convening this hearing and look forward to hearing all of

the witnesses.

Mr. MCHUGH. I thank the gentleman for his comments.

I know his question relates to what the Postal Service is doing

because the Postal Subcommittee has been working on H.R. 22 for

5 years. I just wanted to make sure we understood that.

8

Let me now call forward our first panel. Karla Corcoran, the Inspector General of the U.S. Postal Service, who, I understand—if

you’d just please come up while I’m doing your introductions—who,

I understand, is accompanied by Mr. Thomas Coogan, who is a

legal counsel for the IG, and Richard Chambers, who is Assistant

Inspector General for Audit, and also Bernard L. Ungar, the Director of the Government Business Operations Issues Office of the

U.S. General Accounting Office, who, I understand, is accompanied

by Teresa Anderson, Assistant Director, and Gerald Barnes, also

Assistant Director. You can see they’re veterans because they have

not been seated, and they know they have to take the oath.

[Witnesses sworn.]

Mr. MCHUGH. The record will show that all of the witnesses responded to the oath in the affirmative. And again, once more, we

welcome you all here. Thank you for joining us.

Starting from right to left because why not. Why don’t we start

with the Inspector General, and we do have your written testimony. I have read all of the testimony today in its entirety. It was

all very interesting, and all of that will be submitted in its entirety

for the record. We now turn our attention to you for your personal

comments today.

STATEMENT OF KARLA W. CORCORAN, INSPECTOR GENERAL,

U.S. POSTAL SERVICE, ACCOMPANIED BY THOMAS COOGAN,

LEGAL COUNSEL; AND RICHARD CHAMBERS, ASSISTANT INSPECTOR GENERAL FOR AUDIT, U.S. POSTAL SERVICE

Ms. CORCORAN. Thank you, Mr. Chairman.

Chairman McHugh, Congressman Fattah and members of the

subcommittee, I’m pleased to be here today to discuss with you the

progress of the OIG and what we’ve seen as we started looking at

the Postal Service. Joining me are my counsel, Tom Coogan, and

my Assistant Inspector General for Audits Richard Chambers.

With your permission, I’m going to ask that we enter the full statement into the record.

Mr. MCHUGH. Without objection.

Ms. CORCORAN. As you know, this is our third year as an independent Inspector General within the Postal Service. In the first

year, we spent most of our time creating a separate mission from

the Inspection Service. Our second year, we focused on hiring and

initiating audits and investigations. You might be interested in

knowing that we’ve identified over 1,000 projects that we believe

need to be done within the Postal Service. And this is our third

year we have spent reviewing key postal programs.

We are a new organization by almost any standard. However, we

have numerous accomplishments and have made remarkable

progress. In the last 6 months alone, we’ve issued over 100 reports

with $1.1 billion, that’s a B for billion, in savings and cost avoidance over the next several years. We have 190 ongoing investigations. Our investigations have yielded 17 criminal charges and $2.1

million in fines and recoveries. We also have proactive investigations that are targeting fraud and corruption.

In the last 6 months, our office has grown from 178 to 400—I’m

sorry, in the last 18 months our office has grown from 178 to 400

and from four offices to six offices. With the Governor-approved

9

budget for year 2000, we will grow to 648 staff. We will have 5 additional offices for a total of 11 offices. I’m very excited about our

diversity statistics. Our staff consists of 43 percent women and 42

percent minorities.

Each year the Inspector General community recognizes outstanding accomplishments within the community. I’m proud to say that

this year, in fiscal year 1999, we received a total of eight Executive

Council on Integrity and Efficiency Awards. This included four

awards for excellence for our work in Y2K, labor-management, and

developing a computer intrusion course for the entire community.

This is the most awards received by any Inspector General within

the community.

Today I’d like to highlight for you the work we have done in five

areas. Those areas are performance, technology, financial management, labor-management, and oversight of the Inspection Service.

In the first area of performance, we have conducted 49 reviews

of critical core business areas within the last 18 months. In the

Corporate Call Management area, we identified nearly $1 billion in

cost avoidances over the next several years by changing technology.

In the transportation area, we issued two reviews identifying over

$150 million in savings over a 5-year period. These were in the

highway transportation contract area and the rail detention management area.

We also looked at the Priority Mail Processing Center. We found

that the contractor network had not significantly improved on-time

delivery, yet it cost $100 million more than processing that mail inhouse.

Our investigators identified in the international arena as much

as $20 million in revenue that could have been collected. However,

the Postal Service had negotiated lower international rates even

though the mail was processed totally within the United States.

We’ve also performed work in the environmental area. We reviewed Postal Service’s use of natural gas vehicles, and found that

these vehicles have been placed in areas where there is no supply

of natural gas.

In the second area, technology, as you know, we have focused

much of our work over the last 18 months in the Y2K area. We’ve

issued nine reports. We testified before a joint committee subcommittee hearing in February. At that time we said Postal had

a lot of work to do to be ready. Since then, with our assistance,

Postal has made tremendous progress. However, challenges remain. In our latest report on Business and Continuity Plans, we

identify many of our concerns about their plans and the testing of

those plans.

In addition, in the technology area, we are doing work in electronic commerce, computer intrusion, and developmental projects.

We are also doing work in the financial management area. We

include contracting and facilities in this area. We’ve done a total

of 31 reports over the last 18 months.

In the Dinero Seguro money transfer program, we identified

ways to reduce the risk of money laundering. You asked us, Mr.

Chairman, whether the indictment of Postal Service’s Mexican

business bank partner would jeopardize the integrity of the program. We said that it would not. However, as a result of our reVerDate 11-SEP-98 12:26 May 24, 2000 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 C:\DOCS\63821.TXT HGOVREF1 PsN: HGOVREF1
10

view, we did identify a previously unknown scheme, whereby drug

traffickers would wire drug proceeds to Mexico. By partnering with

other Federal agencies, we have made five arrests, and seized 25

kilograms of marijuana and 3 kilograms of cocaine.

The Postal Service purchases over $8 billion of goods and services each year. Therefore, we’ve done quite a bit of work in the contracting area, much of it for Congressman Fattah. For example, one

of the reviews we have done is to look at why there has been a decline in minority contracting. In another review, we recommended

that three contractors for the Postal Service be suspended and/or

debarred for various improprieties.

Postal Service has 38,000 facilities. This makes Postal one of

America’s largest owners, developers, and managers of real estate.

At your request, Mr. Chairman, we reviewed the Olympic facilities

in Atlanta. We found that inappropriate approval and oversight

had cost at least $9 million more than their original projections.

Postal Service has identified labor-management as key to achieving their goals into the 21st century. This has been one of the

toughest areas for us to address, first, because of the sheer magnitude of complaints we have received—over 2,500 individual complaints. Second, this is an area that we get push back from management. We have more recommendations that have not been

agreed to in this area than in any other area.

We’re also extremely concerned about retaliation against employees that have assisted or worked with the OIG. Whenever we have

allegations that employees are being retaliated against for working

with the OIG, we immediately review them. We have 11 current

investigations in this area under way, and 3 that we have completed.

In the labor-management area, we focus on systemic reviews. In

the last 18 months we’ve done 30 reports and 60 congressionals. A

major report in this area has been to look at the threat assessment

program. We have found that violence prevention and response

policies within the Postal Service have not been followed in three

districts. We are extending that review now to look at 26 additional

districts so that we can make Postal-wide recommendations for improvement.

The last area that I’d like to talk to you about is oversight of the

Inspection Service. As you well know, that is one of the principal

reasons why an independent Inspector General was created within

the Postal Service. We have done 18 Inspection Service reports.

These include crime lab certification, abuse of authority, and disciplinary actions. At your request, Mr. Chairman, we reviewed the

classification of postal inspectors performing audits. We found that

250 inspectors who were performing audits were not spending at

least 50 percent of their time in law enforcement as required by the

Office of Personnel Management. The Inspection Service has

agreed with our findings and has told us that they will no longer

perform ‘‘Yellow Book’’ audits.

This will have a major impact on the OIG. We currently are reviewing this with a task force, and we will be getting back with the

Governors and you to let you know what impact this will have on

us.

11

One of our greatest challenges is continuing to develop effective

relationships with the Inspection Service. I’m looking forward to

working with the new Chief Inspector. We both have the same goal

of improving postal operations. We have agreed to renew

teambuilding to increase communication, trust, and coordination.

In summary, I’d like to thank you for allowing us to serve the

Postal Service. We have been a truly independent voice and a

venue for all stakeholders to confidentially report allegations. We

have delivered objective information and analysis of postal programs, and we have provided greater economy, efficiency, and integrity to Postal Service programs. I look forward to continuing to

serve you and the Postal community. This concludes my statement.

I’d be pleased to answer any questions.

Mr. MCHUGH. Thank you very much both for your statement

here today and, as I’ve mentioned earlier, your service over the

past 3 years.

[The prepared statement of Ms. Corcoran follows:]

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Mr. MCHUGH. I believe rather than breaking up the panel, if it’s

agreeable to the Members, we’d like to go to Mr. Ungar for his testimony, and then we can return to questions for both the witnesses.

So, Mr. Ungar, welcome to you again also. Thank you for being

here, and we’re looking forward to your comments.

STATEMENT OF BERNARD L. UNGAR, DIRECTOR, GOVERNMENT BUSINESS OPERATIONS ISSUES, U.S. GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY TERESA ANDERSON,

ASSISTANT DIRECTOR; AND GERALD BARNES, ASSISTANT

DIRECTOR, U.S. GENERAL ACCOUNTING OFFICE

Mr. UNGAR. Thank you, Mr. Chairman, members of the subcommittee. We’re pleased to be here today to assist the subcommittee in carrying out its oversight function over the Postal Service.

In our written statement, we really discuss three broad areas:

the Service’s historical performance, major challenges it faces in

the next few years, and the results of our work since the last oversight hearing that the subcommittee had. In my summary, I would

like to focus on the major challenges that we see and the change

that we see over the horizon that the Postal Service is facing.

First, I would like to note that our work as well as work of the

Inspector General and information from the Postal Service would

indicate that the Postal Service’s performance currently and in the

recent years has been notable. It’s earned profits consecutively over

the last 6 years, which is kind of a first since it was established

as the modern Postal Service. It reports improvements in on-time

delivery in both overnight mail, first-class overnight mail, and 2-

and 3-day mail. It’s made some progress in the labor-management

area and some progress in work force diversity, particularly after

the report that Mr. Davis mentioned. It’s in better shape today now

than it was a few months ago for the Y2K situation, and it’s improved controls that we previously found to be deficient in the

areas of changing addresses when people move and the acceptance

of business mail. It also, last but not least, has made notable

progress, in our view, in implementing the Results Act over the

last year.

However, as we indicated in our written statement, we see that

the Postal Service may be nearing the end of an era. While the performance has been notable, we see formidable challenges in the future, first of which and foremost in our mind is sustaining its financial viability in the face of competition, increased use of electronic communications, and increased customer demands for more

service, better, and cheaper.

Historically, increasing postal rates and increasing mail volume

have provided the Service with additional revenues which have enabled it to take care of and finance wage increases, modernization,

and improvements in the quality of service. However, as figure 1

in our statement shows, and as indicated by the board over to my

right, first-class mail volume, as you indicated, Mr. Chairman, may

be in for a downturn. The growth rate of mail volume has increased, as we have in the chart laid out by decade. During the

1970’s, it was increasing. It continues to increase in the 1980’s.

However, in the 1990’s, the rate of increases started to come down,

and the latest projection from the Postal Service is that during the

34

next decade it’s going to basically come down below where it was.

In other words, not only will the rate decline, but the actual firstclass mail is projected to volume decrease starting around 2003 and

then continuing to go down from there as a result of electronic communication and technology.

In addition, the Postal Service faces increased competition, as

you know, from a variety of sources, and this certainly could also

affect the volume of first-class mail and the revenue that’s associated with first-class mail.

Now, why is this important? One of the main reasons it’s important is because first-class mail generates a large proportion of the

Postal Service revenue overall, and it covers about—at least it has

covered about—two-thirds of the Postal Service’s overhead cost. So,

if the volume of first-class mail goes down, the revenue goes down;

it’s going to have to make up that amount of money from someplace or cut costs substantially or both in order to cover the overhead, or the revenues from other classes of mail will have to increase.

Just to give you an idea as to the type of challenge that we see

the Postal Service facing, let’s take the year 2000, for example, and

the goal the Postal Service has which is currently to earn $2 million—excuse me, $100 million in 2000. To achieve this goal, the

Postal Service says it must realize a 1 percent reduction in work

hours of its employees and increase productivity by 3.1 percent.

Now, how is this going to happen? It faces, at the same time it

wants to achieve this goal, a situation in which mail volume in

2000 is expected to grow nearly 4 percent, and the number of delivery points that its carriers make is expected to grow as well as it

has over the last few years.

To top that off, if you look at the chart to my right again, looking

at productivity historically since the modern Postal Service was established, it’s only gone up 9 percent overall since 1972. And in 4

of the last 5 years, it has not gone up. It’s gone down. And it’s only

gone up 3 percent on four occasions, 4 years over the entire period

that’s on the chart. So that puts in perspective its goal of 3 percent

next year. That’s not to say it’s not achievable. I think, as we indicated, it’s going to be a fairly significant and formidable challenge

for the Postal Service to do this.

The second challenge that we see deals with maintaining its

service delivery. Our discussions with some of its large customers

indicate they are very concerned about the Postal Service’s ability

to do this in the future. And this largely will depend upon new indicators—the Service now doesn’t measure all classes of mail. It’s

in the process of developing indicators for a number of those, and

I think it’s going to be very important for the Service to continue

that to make sure it does have indicators for all its major classes

of mail so its customers and stakeholders, including Congress, can

see just how well it’s doing, and hopefully it will be improving.

But both addressing its financial performance challenges and its

service delivery performance challenges hinges heavily, in our view,

and I think in terms of also the Inspector General, on its ability

to forge a partnership or a better partnership with its employees.

And as we’ve indicated in the past, as well as others, labor-management relations has been a very difficult problem in the Postal

35

Service. We have seen some progress since our last report. The

Postal Service and its unions and management associations have

been meeting. However, we haven’t seen a whole lot of substantial

progress. We’re glad to note that there was a negotiated agreement

with some of its unions. However, as you know, with the city carriers, that wasn’t the case. And the implications of that for the future may not be positive in terms of how the Service is going to

be able to deal with that.

Second, there is some indication from Postal Service data that

the number of grievances has not gone down. As a matter of fact,

it appears to have gone up, which is not a good sign in terms of

improving the partnership with its employees, and it’s going to be

difficult, we think, for the Postal Service to accomplish its goals

and meet the challenges if it can’t forge a much better relationship

with its employees.

Finally, the last challenge I’d like to summarize has to do with

the integrity of the data that the Postal Service uses for both measuring performance and for ratemaking. It’s critical, we think, that

the Service has reliable data to report to its stakeholders and to

its customers on its on-time delivery in all classes of mail as well

as other indicators. It’s also very important for the Service to provide reliable data for ratemaking purposes.

Mr. Chairman, this is an issue that you raised several years ago,

as you know. The contract—excuse me, the Postal Service at your

behest and urging—hired a contractor to assess the data. The report is issued. The contractor made 40—over 40 recommendations—as to improvements that could and should be made in the

ratemaking data process. Unfortunately, when we’ve talked to the

Postal Service, we can’t get a clear signal from the Postal Service

as to what specific actions it plans to take with respect to those

recommendations and a timeframe. So in our testimony, we are

making a formal recommendation to the Postmaster General to develop a plan and come up with some specific actions that it would

propose to take. Obviously, it may not be able to address all those

in the short term; so I would presume there would be some that

the Postal Service could address in the short term and perhaps

some that would take more time and effort.

That, Mr. Chairman, concludes my summary. We’d be happy to

answer any questions that you may have.

Mr. MCHUGH. Thank you, Mr. Ungar.

[The prepared statement of Mr. Ungar follows:]

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Mr. MCHUGH. I recognize Mr. Fattah.

Mr. FATTAH. I just want to put this on the record. We have to

go to vote. Immediately after the vote Title I is coming back to the

floor. I have two amendments scheduled for debate on the floor. I

may not be back with you for a while, but you are in capable

hands. I will have some written questions that my staff will submit

to the panel.

Mr. MCHUGH. We thank the gentleman. I appreciate his work on

Title I. That’s a very important bill. So we will go vote. It’s a Journal vote, so it doesn’t take a lot of time or thought. It’s yes or no.

And try—if I could ask those Members that can, return as soon as

they can. We stand in recess. Thank you.

[Recess.]

Mr. MCHUGH. I’m here. You’re here. Let’s start.

Mr. Ungar, let’s begin with you. Obviously your report has created some interest, and I think that’s a good thing. I think it can

help us to focus on the challenges that many of us had thought

were certainly on their way, but most of us thought, I believe, that

they were a little bit further away than what we’re now hearing.

The projections you used are from the Postal Service itself. Did

you have an opportunity to examine the probable validity, the accuracy, the level of confidence on those, and if so, how do you evaluate that? Pretty good projection, do you think? Reasonable?

Mr. UNGAR. We didn’t do a full evaluation of that, Mr. Chairman.

It seemed reasonable on the surface, but again, I’d have to say we

did not certainly independently verify the information, and I think

it’s difficult to predict the future. I think the Service looked at

the—looked historically at what the situation has been, and certainly what the current scenarios are, and what the likely trends

are given electronic communication and competition, and put the

estimate together.

Mr. MCHUGH. For your purposes, you took that figure as moderately reliable; might be higher, might be a little lower, but as far

as we can tell sitting here today, 21⁄2 percent within the next 3

years seems reasonable?

Mr. UNGAR. It’s in the ballpark. Again, predicting exactly in

what year, at what point in time and exact percent I think is going

to be very difficult. It certainly seems to be reasonable given the

scenarios.

Mr. MCHUGH. I remember when I graduated from high school

that was an end of an era. It was the end of a not-so-good era and

the beginning of a pretty good one. When I decided not to run for

reelection in the New York State Senate, that was the end of an

era. I came down here. It was the start of not such a good era. How

do you phrase ‘‘end of an era’’ in your report?

Mr. UNGAR. Mr. Chairman, Mr. Davis, Mr. LaTourette, basically

we’re using it in the context of a major change. Now, whether it’s

positive or negative I think depends upon, as in your experience,

how the Service and the Congress deal with the formidable challenges that the country faces in terms of what’s facing the Postal

Service. Obviously its performance in recent times is good. The

Service may feel good at the end of one era, but as we approach

the next millennium, I think the competitors are here. They’re

probably here in this room. They’re out there.

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Mr. MCHUGH. They’re always out there.

Mr. UNGAR. That’s right, yes. They’re not only domestic competitors, but they’re foreign competitors, too, as you know, who are

here and there may be more on the way. That is coupled with electronic commerce, coupled with the kind of unique organization that

the Postal Service is, sort of half governmental and half private,

and some of the constraints it faces, it doesn’t have, on the one

hand, some of the flexibility that the private sector firms have. On

the other hand, it has some protections. It doesn’t have to do some

things that the private sector has to do, although that’s dwindling

in some cases like in the area of worker safety. So it really is a

situation in which the Service is going to have to face the challenge. It’s going to probably have to change—I don’t know if I

should use the word reform.

Mr. MCHUGH. Go ahead.

Mr. UNGAR. But I think it can’t do it certainly alone. I think the

Congress is going to really have to work with the Postal Service,

and as we mentioned in our statement, I think it’s going to be very

important for the Postal Service to effectively work with the human

capital, the employees in the Postal Service, and somehow in some

way, and I’m not quite sure how, to do better in terms of working

relationships with the unions, particularly the clerks and the city

letter carriers, than it has in the past. It’s been very

confrontational.

I think as we testified before, the implementation of delivery

point sequencing was a major dilemma and a major difficulty for

the Postal Service working with the unions, with the city letter carrier union. In the future there undoubtedly are going to be

changes. I don’t know exactly what those changes are going to be.

We don’t see how the Postal Service is going to make progress

without more of a cooperative effort. We think the Results Act and

the goals that the Postal Service has set and the goals it will set

working with the stakeholders, including the unions, might be a vehicle to try to reach agreement on some common goals relative to

its future viability for both the well being of its employees and its

financial viability.

Mr. MCHUGH. You really segued into just the last part before I

turn it over to my colleagues, and then if we have time, I’d like obviously to get back to Ms. Corcoran and also to you. This is what

the Postmaster General later will describe, and I’m assuming you

agree with this generalization as well. It could put at risk $17 billion of Postal Service revenues. That’s almost 30 percent of its current operating stream. That’s an enormous challenge.

I’m hearing you say that the Postal Service has certain inherent

problems in House problems that it needs to stand up to. But as

well, it probably can’t go it alone; that the Congress and, I would

assume, this subcommittee and this House has a role as well to try

to—let’s not use the word reform—reposition the Postal Service. I

think I heard you say as well there are two things about that. One,

to allow the Postal Service to respond to this new era in a way that

all of us agree is appropriate, whatever that way may be, but also

perhaps to level the playing field as that activity interfaces with

the private sector. Is that a fair description of what you said?

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Mr. UNGAR. Yes, sir. I think it will be, of course, a public policy

decision on that level playing field and how far one goes and the

consequences for the public in terms of universal service.

Mr. MCHUGH. Absolutely. I don’t want to presume to ask you to

help us there. That’s supposedly what we get paid for. Thank you.

Let me yield to Mr. Davis.

Mr. DAVIS. Thank you very much, Mr. Chairman.

Ms. Corcoran, I was very intrigued by your testimony, especially

the level of progress that you indicate in being able to identify

areas of need and then coming up with movement toward some resolution of those. Did I understand that by contracting out priority

services, that that had not been an increase in on-time delivery?

Ms. CORCORAN. A very small increase, less than 2 percent, I believe.

Mr. CHAMBERS. About 1 to 4 percent.

Ms. CORCORAN. About 1 to 4 percent.

Mr. DAVIS. Did I understand that this system, though, saved the

Service $100 million?

Ms. CORCORAN. No, it cost an additional $100 million over doing

it in-house because they have to put their own infrastructure together, the contractor does, to do this.

Mr. DAVIS. So we spent an additional $100 million to contract out

priority services and yet did not experience much in the way of an

increase of on-time delivery.

Ms. CORCORAN. That’s correct.

Mr. DAVIS. That is, in discussions or conversations, did you get

anything relative to what the rationale had been for making the

decision to contract those services out?

Ms. CORCORAN. Yes, we did. The Postal Service realized at the

time that they were doing the contracting that it was going to cost

more to contract, and that’s one of the things that they pointed out

to us numerous times, that they had been aware of this from the

start.

Mr. Chambers has been involved in a lot of the discussions with

Postal Service, so I’d like him to address that.

Mr. CHAMBERS. Actually, as our report indicates, this really

stemmed from a problem earlier in the decade with delivery rates

for priority mail. This was an initiative on the part of the Postal

Service. This network was created to try and get the on-time performance scores for priority mail to increase. They felt that a dedicated network that would be operated primarily on the east coast

would increase those scores. In the process, they contracted out to

a vendor, and again, as we’ve said, that is a more expensive proposition. We really haven’t been able to document that it’s increased

the performance a lot. Part of that stems from the fact that they

didn’t create a baseline of performance in that area, so it’s kind of

hard to say that the performance in that region today is much better than it was before. So what we did was to compare the performance in that region with similar regions of the Postal Service where

they operated without a contractor. That’s the basis on which we

say there was very little increase in performance.

Mr. DAVIS. Did we find that their projections were off or the

analysis just was not good from the beginning? Were there changes

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in the environment which took place that had not been foreseen

that could have resulted in the lack of performance?

Mr. CHAMBERS. Well, again, the performance in that region today

is comparable to what it is in other regions of the Postal Service.

Also there is really no evidence that before the network there was

a significantly lower performance in that region before. They were

trying to get scores higher. The percentage of on-time delivery,

they’re trying to get that up to like 95–96 percent. It’s coming close

to that, but again it’s not much lower than that in other highly developed urban type areas of the United States.

Mr. DAVIS. Thank you. Ms. Corcoran it is also my understanding

that the Postal Service failed to collect $20 million in revenue because they charged a lower negotiated international rate for mail

actually processed as domestic mail. If that is the case, is there

something that they need to do? What can they do to get this under

control?

Ms. CORCORAN. This, I believe, is a one-time instance as far as

we know. We’re certainly going to be looking at that. They do have

rules and procedures in place. The mail was to be put in the mail

stream outside the country; instead it was actually trucked into the

country and put into the mail stream here. Had it been put into

the mail stream outside of the country, the international rates

would have been appropriate. But we even found they were losing

revenue even at that, because it was costing them more than what

it would have.

Mr. DAVIS. But you would think that the corrective action has

been taken that would prevent any recurrence.

Ms. CORCORAN. We just issued that report at the end of September. We will be going back and working with them to assure that

they have taken corrective action on it.

Mr. DAVIS. Thank you very much.

Mr. Ungar, the IG has identified a problem with the quality and

integrity of data provided by the Postal Service. Obviously, this is

some of the information that they would have used to make the

prediction or the projection that there’s going to be a substantial

decline in first class volume in the next decade. How reliable do

you find this data to be or think that it is?

Mr. UNGAR. Mr. Davis, as we indicated, we didn’t make an independent verification of the data. I think the data we’re really talking about relate to the future, the predictions for the future in

terms of mail volume that’s expected. So again, we aren’t in a position to verify that, but on the other hand, I’m not sure how you

verify a prediction. All you can do is ask, does it appear reasonable,

do the assumptions appear reasonable?

And it’s certainly clear that the competition is there. I don’t

think anybody would argue with that. I think the, you know, the

trend toward more and more use of electronic communications,

electronic commerce, and the Internet is there.

Now, again we certainly can’t say with any certainty that the

exact percent is accurate down to the tenth of a point, or we can’t

certainly say that the exact day or the time is there. But it’s certainly—the direction that the Postal Service is projected—reasonable, based on all that information.

70

Mr. DAVIS. On page 16 of your testimony, you state, and I quote,

that the Service reported that it has made aggressive capital investments in technology and infrastructure to improve the distribution and delivery of mail as well as reduce labor cost. How much

have we been able to reduce labor costs or is that something that

we’ve been able to determine?

Mr. UNGAR. Mr. Davis, I think it’s come down slightly as a percentage of overall costs. I don’t believe that labor costs have come

down absolutely; is that correct?

Ms. ANDERSON. They have come down as a percentage slightly.

Mr. UNGAR. They’ve come down as a percentage of total costs. I

don’t believe they’ve come down in absolute terms.

I think that’s going to be a fairly significant challenge for the

Postal Service. I think the customers of the Postal Service, particularly the business mailers, have been expecting to see an actual

drop in the cost of operations in the Postal Service and greater efficiency as a result of these capital investments. Unfortunately, it

doesn’t appear as though the actual savings have materialized as

quickly or as greatly as the Postal Service had predicted.

Now one area that we specifically looked at and reported on last

year was the delivery point sequencing initiative. There were significant problems in getting that going on schedule and keeping it

on schedule. So there were some areas there where the Postal

Service didn’t realize as much savings as it expected.

Mr. DAVIS. Finally Mr. Chairman, if I might, Ms. Corcoran, you

indicated that you had discovered, or that your office found $1.1

billion during the last 6 months in monetary benefits. Do you have

any idea of what’s actually out there, how much more there might

be or how much more one could look for?

Ms. CORCORAN. I wish I did, but I don’t. $1.1 billion—the cost

avoidance through fiscal year 2007—is fairly significant to have

found in a 6-month period. In all honesty, I would hope that we

don’t find that much every 6 months because it would indicate that

things aren’t going as well within the Postal Service as you would

hope. But we will continue to look and to work with them to try

to improve things, so there’s not that type of monetary savings.

Mr. DAVIS. Well, I think you’ve done an outstanding job in that

area. And I would hope also that you don’t find much more because

it’s not there.

Thank you, Mr. Chairman.

Mr. MCHUGH. I thank the gentleman.

The gentleman from Ohio, Mr. LaTourette.

Mr. LATOURETTE. Thank you, Mr. Chairman, and thank you for

having the hearing. Ms. Corcoran, I, having been a member of this

subcommittee now for a few years, want to give you and your office

praise—for every time you appear before the subcommittee first,

and second of all, for the fine work that you’ve done and the reports that you’ve issued.

I do want to talk to you about your written testimony in two

parts, one on page 4. There was a conclusion reached by you and

your office that found that the international business unit of the

Postal Service did not have key processes in place to achieve projected revenue goals and that some initiatives fell short of revenue

projections. And then on page 8, in the list of reports that you’ve

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issued, the second bullet point on page 8 indicates that your office

examined the financial profitability of international mail and determined that international mail contributed positively to the financial position of the Postal Service and is not subsidized by domestic

mail service.

I guess—can you reconcile those two paragraphs for me? Do I understand, in the international mail arena, the Postal Service has 14

what are called outbound mail services. And if I understand what

you’re saying on page 4, you’re saying that not all of those are operating in a revenue positive position for the Postal Service, but on

page 8 are you saying, overall, that the Postal Service’s international mail operation is—it’s covering its costs and it’s not being

subsidized by domestic mail?

Ms. CORCORAN. This is a little confusing when you compare those

two. On page 8 what we’re talking about there was a question that

was asked quite often a year ago about whether or not international mail was cross-subsidized by domestic mail. And page 8

we did a review, and we found that that was not occurring.

The review that we talk about on page 4 was really a review of

the international business unit as a whole, not necessarily of their

products, but of their initiatives. We were looking at this separate

business unit. In fact up until this point in time, I believe it was

the only business unit that the Postal Service had identified as a

separate unit. We took a look to see whether or not what they were

expecting from this business unit was really going to occur and

whether or not the projections in revenues that they had were really appropriate. We found that, as it says here, they fell short of

some of the revenue projections.

Mr. LATOURETTE. My question is spurred by a report from June

of this year to the Congress by the Postal Rate Commission that

examined the 14 outbound international mail products, and they

indicated that of the 14, four they found to be noncompensatory;

that is, they didn’t make as much money as it cost for the Postal

Service to be involved in them. And I’m wondering if that squares

with what you found, and if it does, in order to have the paragraph

of the bullet point on page 8 make sense, are the other 10 making

so much money that it covers the deficits in costs for the four that

are not? And the four that are cited by the Postal Rate Commission

are the surface printed matter and small packet surface periodicals, global priority mail and global package link.

Mr. CHAMBERS. I would like to answer that one for you. Actually

when we completed our work, looking at international mail, the

possible cross-subsidization, we concluded that there is not crosssubsidization between domestic and international; that is, as a

whole, the international products are paying their way. We did,

however, I believe in our report raise the possibility that there

could be cross-subsidization within the international products; that

is, one might not be paying its way and another would.

At the time we concluded our work, we planned to do a second

phase. It was about the same time that the Congress gave the

Postal Rate Commission additional oversight responsibilities in the

international mail arena at which point we deferred to them to

take a look at the possibility of cross-subsidization within those

products.

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Mr. LATOURETTE. Thank you.

Mr. Ungar, is that something you all looked at at GAO?

Mr. UNGAR. We didn’t look, Mr. LaTourette, at revenue and expenses in the depth of the Inspector General. We looked at the

GPL program last year and reported on that.

Did you want to say anything?

Ms. ANDERSON. We didn’t look at whether or not it was being

cross-subsidized. Again, we’ve been working with the PRC and with

the Postal Service in looking at the general issue of the quality of

ratemaking data, but we did not look specifically at the international area.

Mr. LATOURETTE. Did you make any recommendations relative to

GPO?

Mr. UNGAR. Excuse me?

Mr. LATOURETTE. Did you make any recommendations as a result of your analysis, or are you deferring to the PRC in terms of

rate?

Mr. UNGAR. Not on GPL. We did, however, make a recommendation to the Postal Service on ratemaking domestically in terms of

the Postal Service’s response to the contractor’s recommendations.

I think they only dealt with domestic rates; the contractor didn’t

look at the international area.

Mr. LATOURETTE. Thank you very much.

Thank you, Mr. Chairman.

Mr. MCHUGH. I thank the gentleman.

I’ll come back to that line because I think the gentleman from

Ohio has raised some very interesting points that I would like to

pursue a little bit further.

But let me yield to my fellow colleague from the great State of

New York, Mr. Owens.

Mr. OWENS. Thank you very much, Mr. Chairman. Unfortunately, we have a major bill on the floor for the Education and

Labor Committee that I serve on; I won’t be able to stay. But I

have a couple questions related to the work force.

I’m the ranking Democrat on the Subcommittee on the Work

Force, and you acknowledge—we would like to acknowledge the

fact that we have seen some impressive efforts in identifying systemic problems in the labor-management area. Specifically I want

to ask, has the Postal Service been receptive to your reviews on

how to improve the grievance arbitration procedure, reduce the

backlog of grievances, and improve the labor climate? And if they

have not, why not? If so, what’s changed, what’s different?

Mr. CHAMBERS. I believe, as we took a look at the grievance and

arbitration area, we actually did two or three different reports on

that and found that there was an opportunity to review those processes. In fact, we found——

Mr. OWENS. Can you get closer to the mic, please.

Mr. CHAMBERS. We did take a look at the grievance and arbitration area. We issued a couple of reports. One report on the management information data found that they really needed to improve

the information they had in the grievance and arbitration area.

They agreed with us on our work and said that they would improve

that area.

73

I think our second report dealt more with how the grievance and

arbitration cases were handled in terms of working with the

unions. If I’m not mistaken, I believe there was not a consensus on

how those issues could be resolved. I don’t have those details at my

fingertips.

Mr. OWENS. Did you not have some reports on conditions in the

workplace?

Mr. CHAMBERS. Yes, I believe we have issued a number of those

reports as well. Again, specific reports don’t come to mind right off,

but I know we have issued several reports in those areas.

Mr. OWENS. You’re not familiar with the one that deals with the

Suncoast district?

Mr. CHAMBERS. Yes, I’m sorry. That’s the district-wide review we

did on the labor-management climate, and we did find a number

of areas where there could be improvement. In fact, it was on that

basis that we recommended expansion of our work; and we’re now

doing it nationally, we’re looking at an additional 26 districts.

We did not get an agreement out of—it was an interesting situation, because we actually got more agreement at the local level on

the issues than we did as we moved up to the area level within the

Postal Service.

Mr. OWENS. Can you explain a little more, if the Postal Service

has a zero tolerance for violence, how could that situation be so

prevalent? I mean, can you explain?

Mr. CHAMBERS. Well, much of, I think, what we’ve disclosed dealt

with the issue of the labor climate assessments and the fact that

those climate assessments were not being done, and that some of

the issues that were arising from them were not being corrected.

It’s on that basis, as we said, we want to do a more nationwide effort on that.

Mr. OWENS. But there was resistance as you went up the chain,

you said.

Mr. CHAMBERS. That’s my recollection on that particular one. I

would have to double-check it, but as I recall—and this is something that’s not uncommon—we have, in some cases, gotten more

cooperation from management on labor-management issues at the

lower levels than when we move up. In fact, the most consistent

resistance we get on our labor-management recommendations actually comes at the headquarters level and at the area vice president

level.

Mr. OWENS. What is the response of the Postmaster General to

that?

Ms. CORCORAN. I have mentioned this to Mr. Henderson. We

have been hoping that a Deputy Postmaster General would be put

in place so we could start working with them. Now they have put

in an executive vice president for Human Resources, and that was

done last week. We will be addressing those issues with her.

Mr. OWENS. Would you say that massive labor-management

problems are still not a priority, have not been made a priority?

Ms. CORCORAN. They are a priority, by all means. In fact, we

have devoted a substantial amount of our resources to looking at

these issues.

Mr. OWENS. On another subject, last year Representative Fattah

contacted your office and requested an investigation of Postal ServVerDate 11-SEP-98 12:26 May 24, 2000 Jkt 000000 PO 00000 Frm 00079 Fmt 6633 Sfmt 6633 C:\DOCS\63821.TXT HGOVREF1 PsN: HGOVREF1
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ice minority procurement opportunities. Your report revealed that

the Postal Service did not enforce its requirements that contractors

submit subcontracting plans and encourage including minority subcontracts. It also showed that contracting officers use their discretion in deciding when to comply with requirement, and that minority contracts have declined annually since fiscal year 1994.

To your knowledge, has the Postal Service begun to reverse the

decline of the minority contracting opportunities? Has the Postal

Service adopted any of the recommendations contained in your report?

Ms. CORCORAN. Yes, they have. While we have not done a followup review as of yet, we have been keeping tabs on this, what the

Postal Service has done in this area, while we’ve been doing other

contracting areas. We will eventually be doing a followup audit,

probably toward, spring of next year. We want to give Postal Service long enough to actually put processes in place.

Also, Congressman Davis, you had mentioned earlier today your

concern about minority contracting for advertising. We are going to

be doing a local advertising job this year. We will be looking at

whether or not minorities are given the same opportunity to compete for advertising as well as other individuals.

Mr. OWENS. You’ll be recommending those things, or there is already a commitment from the top that those things will be done?

Ms. CORCORAN. We will be looking to see whether or not Postal

has an adequate program in place to assure that minorities are included in local advertising.

Mr. OWENS. The commitment has been made; they have said

they would put an adequate program in place to correct this. That

commitment has been made already.

Ms. CORCORAN. No, not to my knowledge.

Mr. OWENS. You’re going to recommend it.

Ms. CORCORAN. Well, I cannot say what we will recommend until

we’ve done the review. But we will look to see whether or not they

have adequate controls in place. And if they don’t, then we certainly will make recommendations to assure that minorities are

adequately included within the contract’s consideration.

Mr. OWENS. Thank you.

Mr. MCHUGH. The vice chairman of the subcommittee, the gentleman from South Carolina, Mr. Sanford.

Mr. SANFORD. Thank you, Mr. Chairman. I want to apologize. I

may have to run in just a second.

I guess my question would be for you, Mr. Ungar, that if you look

at this as a theoretical question, but H.R. 22, for instance, the

whole debate about the bill has been tied to, you know, what do

we do to prepare the Post Office for what’s coming its way; and I

think that John created the perfect bill given the political confines

he had to deal with.

In other words, I don’t think you could have crafted a finer bill,

given the political reality that exists on the Hill and with the different constituents tied to Postal. My question would be, assume

you’re just a raging idealogue, which is where I would be, not tied

to the political reality that John has to deal with on a daily basis,

if you were to look at it from that perspective and you look at the

problems confronting the Post Office, would your goal be, in this

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perfect world, to deal more with the cost side or on the revenue

side, increasing revenue as a way of fixing the problem or decreasing cost?

Mr. UNGAR. That’s a tough question. I think I would focus first

on cost, but let me ask Ms. Anderson to address that more fully.

Ms. ANDERSON. I would think that the Postal Service would really need to focus on both. And you’ll find that they have goals and

they have strategies in their performance plans that I think really

go to trying to achieving gains in both areas. And obviously the

more successful they are in reducing their costs, that would put

less pressure on the need to find additional revenues. But I think

the efforts really have to go toward both sides.

Mr. SANFORD. One of my struggles has been, if you look at the

cost part of the equation and you look at labor costs as measured

against other private sector competitors—and again it’s not a perfect match-up, given universal service and other constraints that

the Postal Service has—would you really focus in on the labor portion of the cost segment?

Would that be a big star as you look at cost structure, Mr.

Ungar?

Mr. UNGAR. Well, it has to be looked at, sir, because obviously

there are different percentages, but it’s roughly in the 80 percent

area, plus or minus, that constitutes a cost. So I don’t know how

the Postal Service would be able to make any substantial progress

without somehow addressing that.

Now, exactly how it’s going to do that is a real challenge. As we

indicated, productivity over the last many years hasn’t significantly

improved despite, you know, the amount of money that’s gone into

automation and capital improvement. Maybe that will change

somewhat in the future as more progress is made. But I don’t know

how it’s going to make substantial progress without looking somehow at the labor portion of that.

Mr. SANFORD. What would be benchmarks that you would see in

the private sector in terms of productivity gains with private sector

competitors in mail-related businesses?

Mr. UNGAR. I would presume you would have to look at organizations like Federal Express. If you are talking about individual companies, I would presume it would be those organizations that are

involved in the same type of activity. Now, maybe foreign counterparts might be another.

Mr. SANFORD. Do you have any of those? Would you have any

feel for what kind of productivity gains they’ve been looking at?

Mr. UNGAR. We have not addressed that, sir.

Ms. ANDERSON. We haven’t looked at the private sector.

Mr. UNGAR. We haven’t looked at that aspect of foreign postal organizations and what kind of data they have.

Mr. SANFORD. I thank the chairman.

Mr. MCHUGH. I thank the gentleman.

Mr. Ungar, as I said in my earlier comments, many of us expected this type of challenge that you generally outline in your report. But most of us thought it was some time away; we thought

the wolf was out in the woods. I think you’re showing us that if

the wolf isn’t at the door, he may in fact be coming up to the front

steps.

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I want to probe what you said a little bit earlier, because it may

be worse than that. If I heard you correctly, you talked about the

Postal Service’s financial plan for next year, 2000, their projection

of $100 million net revenue. I believe I heard you say that the factors on which that $100 million is predicated are, shall we say, optimistic, a 1 percent reduction in work hours, which goes against

everything that we see in the workplace structure, in the numbers

of stops, numbers of employees; 3.1 percent productivity increase,

as opposed to an entire 9 percent increase since 1972, or 25 years.

So I believe what you’re suggesting in your very judicious way

is that $100 million based on $62 billion of revenue—I wish I had

a $100 million in my back pocket. But if your entire budget is $62

billion, $100 million is not an enormous amount of money, so that’s

pretty optimistic.

Is that what I heard you say?

Mr. UNGAR. In our conservative way, I think so, yes. Although,

again, predicting the future is awfully difficult, as you know. That’s

why we label this as a challenge and a fairly formidable challenge,

because the forces seem to be going in the opposite direction.

Now, maybe there will again be some very big payoff that we’re

not seeing in some of the automation and capital improvements.

But it would certainly seem to take—I hate to use the word ‘‘miracle,’’ but it would certainly take some significant event or series

of events that would appear to enable the Service to achieve its

goal. Again, it certainly may do that, but it looks like a fairly significant challenge for all the reasons that we both cited.

Mr. MCHUGH. I understand that. I have been in government for

nearly 30 years now and I know what it is to make 5-year budget

projections and look 6 years back and laugh like crazy, no doubt

about it, but we have to make certain assumptions.

But the point that I think needs to be kept in mind here is that

a lot of good folks are here this morning because of, in large measure, what your analysis found. And I think they’re here because

they wanted to try to better understand how it is that now, within

a timeframe as short as 3 years, we could have a problem facing

the Postal Service that could total $17 billion, nearly 30 percent of

its total operating revenues.

What I’m suggesting is, if you just forget about the 3 years from

now when that $17 billion is driven largely by the challenge from

electronic commerce and electronic communication, you’ve actually

got a Postal Service that could be in big, big trouble starting as

early as next year. I think in terms of what this subcommittee has

been trying to do for the past 5 years, and, as the vice chairman

said, as we’ve tried to react to the practical and the political realities of passing a bill in this town, 3 years, 2003 is just around the

corner. Next year, for all intents and purposes, is here today.

So I think the message for this morning has to be, we don’t have

a lot of time anymore. The Congress has to be a part of this. We

owe it to the Postal Service, but more importantly, we owe it to the

American people.

The Postal Service itself has problems that it needs to meet head

on. As Ms. Anderson said, there are certain cost constraints and

cost problems that they can and should meet internally. But this

is going to take some serious resolve by this Congress and by the

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Postal stakeholders, a lot of whom are in this room today and a lot

of whom I don’t think truly believe the urgency of the problem. But

I hope they’re beginning to reassess this morning.

So, with that, we do have the Postmaster General. We’ve taken

up almost 2 hours of your time, and I deeply appreciate your being

here.

Ms. Corcoran, particularly, I’ve got a whole lot of questions I

want to ask you. But with both of your indulgence, we’ll submit

those for the record.

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Mr. MCHUGH. I want to thank Ms. Corcoran, who, I think, is

doing an amazing job in establishing an office, and yet at the same

time, not spending a lot of time getting acclimated, but rather

going out, and as her testimony so adequately and, I think, accurately details, making a real difference in the quality of service

that the Postal Service provides.

Thank you for that effort and that initiative.

And, Mr. Ungar, to all of you in the GAO, thanks for your partnership and you’ll be hearing from us. Thank you so much.

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Mr. MCHUGH. The next person to testify, of course, is the Postmaster General and Chief Executive Officer of the U.S. Postal

Service, Mr. William J. Henderson.

General Henderson, welcome. Raise your right hand.

[Witness sworn.]

Mr. MCHUGH. The record will show the Postmaster General responded to the oath in the affirmative, as I knew he would, because

he’s always a truthful man.

Mr. Postmaster General, Bill, welcome. Thank you for being

here. Thank you for your patience. As you can see, we have a few

topics to talk about. The stage has been set, and we’re looking forward to your comments. I have read your testimony; it will be submitted in its entirety for the record. We now look forward to your

presentation this morning.

STATEMENT OF WILLIAM J. HENDERSON, POSTMASTER

GENERAL AND CHIEF EXECUTIVE OFFICER

Mr. HENDERSON. I won’t read back my testimony to you. I’ll just

make a few brief comments, and then we’ll go to the questions, if

that’s what you like.

First of all, thank you for all the help you’ve been. We’ve had—

in a short term, we’ve had a very good year. In the Postal Service

this fiscal year we set record goals in service and we also received

a record rating of 94 percent by the consumers across America in

rating the Postal Service good, very good and excellent.

We expect in this fiscal year to do about $100 million better than

what we planned, so somewhere the neighborhood of $300-plus million. That’s in spite of the fact—and you’ve been talking about it—

the fact that we missed our revenue plan by $620 million. In other

words, when we postponed the rates increase in June—that was

scheduled for June, to January, we gave the American public an

$800 million deficit. We didn’t expect at that time to also have to

make up another $620 million in revenue.

So, from an operating point of view, it was a difficult, but successful year.

We also, on the employee front, were very proud of the fact that

we negotiated two labor agreements, one with the American Postal

Workers Union, one with the Mail Handlers Union, that set the

stage, I believe, for much better labor relations. We’re in the process of negotiating, as we speak, with the National Letter Carriers

Association. And we regrettably went to arbitration with the National Association of Letter Carriers, but that is now behind us. So

I think it’s been a very successful year for the Postal Service.

But I, like you, do not think that the future is potentially as good

unless the Postal Service does something about the Internet, gets

involved in it, gets active in it. And I also think that H.R. 22 is

a very important piece of legislation that will help the Postal Service in its future.

I’ve talked about $17 billion which is the amount of money that

people pay postage for to get bills and payments to one another.

And there’s no question all you have to do is read the paper: The

conditions are springing up every day trying to put partnerships together in order to get that lucrative piece of business. So it’s not

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a matter of if, but when, and the impact on the Postal Service will

be substantial when that occurs.

So I think all of the posts of the world face this and all of the

posts of the world, with the exception of the U.S. Postal Service,

all the industrialized posts, are actively engaged in reformation, including a major move toward privatization. So I think your work

on this subcommittee is very important to the lifeblood and future

of the Postal Service.

And I might add that you can’t wait until the thing crashes, because by the time you recover from a crash, you will have injured

a lot of businesses in America with forced higher rates.

So thank you.

[The prepared statement of Mr. Henderson follows:]

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Mr. MCHUGH. Thank you. I think that’s certainly one of the messages here today insofar as the Congress’ role in this. Three years

is the blink of an eye; it takes us 3 years to decide what day of

the week it is, and then we don’t all agree. So the point being, I

think, the challenge is immediately upon us.

I’m sure my colleagues are going to want to ask you about what

you can do internally to make it up. But let me ask a broaderbased question, just to begin. You’re talking in your testimony and

in other venues about at risk in this decline of first-class mail, $17

billion roughly. That is about 30 percent. If nothing else were to

change, you’ve had no legislative relief, you’ve now had to go to this

service cutback size, because you’re locked in on contracts, et

cetera, what does 30 percent in terms of cutbacks mean to an organization like the Postal Service? Are you even able to dream of

such a thing?

Mr. HENDERSON. Well, it would be very traumatic not just for the

Postal Service’s workers; it would be traumatic for the American

public. I mean, the Postal Service is forced by law to break even.

So you would begin a huge cost-cutting effort, but you would also

begin raising prices. I mean, I’ve used as a metaphor many times

the Sears problems in the 1980’s where they lost traffic in their

stores across America. And if they had had the postal laws governing them, they would have had to raise their prices, which would

have just sent them into a spiral.

So it’s very important that these issues be addressed prior to this

happening, not after it happens.

Mr. MCHUGH. Generally, for rate cases, I understand you roughly equate a 1-cent increase in the cost of a first-class stamp as a

billion dollars in revenue; is that right?

Mr. HENDERSON. Right.

Mr. MCHUGH. That probably would not be true anymore, however, in the future, if your first class volume is coming down like

that; but let’s use that. If it were even semipractical to raise the

price of a first-class stamp 17 cents above, making it 50 cents, have

you projected or looked at what that might do to the volume of

first-class usage? Wouldn’t you just be digging your own hole deeper and causing more problems, and the higher you’re forced to raise

the cost, the less the return, diminishing return?

Mr. HENDERSON. That’s absolutely right. We are looking at scenarios, operational scenarios, but as a general proposition, you can

see it from prior rate increases, when you raise the rates, there’s

a deflation of volume for a period of time until stamps become a

better bargain. It would be disastrous for the American community

to have that happen, absolutely disastrous, and we would try every

possibility not to allow it to happen. But $17 billion is a lot of

money.

Mr. MCHUGH. Have you had an opportunity to prioritize your

least favorite options? In other words, what do you do first? Let me

pose the question that you never want to answer: Do you begin to

close Post Offices or do you cut back on Saturday mail delivery

or——

Mr. HENDERSON. We are in the process of developing those scenarios now. I don’t have the priority today, but I mean you would

look at every cost center you had. You would have to look at everyVerDate 11-SEP-98 12:26 May 24, 2000 Jkt 000000 PO 00000 Frm 00130 Fmt 6633 Sfmt 6633 C:\DOCS\63821.TXT HGOVREF1 PsN: HGOVREF1
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thing. Service reductions, you would have to look at it across the

board in order to make up a 30 percent drop in your revenues.

Mr. MCHUGH. You operate 38,000 post offices roughly across

America. If you were forced to a point by which you had to close

some, I would assume a large segment of the least efficient or most

costly are probably in rural communities. Is that a fair statement?

Mr. HENDERSON. Yes.

Mr. MCHUGH. We do have some bells, for a vote, but before we

do that, let me yield to Mr. Davis and maybe he can complete his

questioning before we go vote.

Mr. DAVIS. Thank you very much, Mr. Chairman.

Mr. Henderson, we discussed a great deal with Ms. Corcoran—

cost savings, cost-cutting, finding revenue that could be enhanced.

Given the fact that we spent the $101 million contracting out Priority Service without any real discernible improvements, is there any

rethinking of that decision?

Mr. HENDERSON. Well, let me say for the record that we don’t

agree that there was not any substantial improvement. We have an

independently measured service, independent measure of service,

that shows the PMPC network substantially higher than the rest

of the country. The IG based that finding on the fact that we did

not have a baseline. But if you look at absolute scores between

what the PMPC network is doing and the rest of the country,

there’s a substantial improvement; and that improvement is based

on the fact that we’ve created a network, hubs for processing of priority mail, not the fact that whether or not it’s done in house or

by private sector.

Mr. DAVIS. You indicate that they weren’t looking necessarily at

all of the factors in terms of a baseline. There has been some question relative to data generated and the integrity of data generated

by the service and that data being used to make certain projections

and analysis.

Is there any change taking place relative to the data-gathering

process that you’re using?

Mr. HENDERSON. Across the board, the answer is yes. I mean, we

did—had an independent study done that generally gave the Postal

Service a clean bill of health, but made a lot of recommendations

for tightening up data collection. And we are in the process of implementing those recommendations. That doesn’t relate to the

PMPC, which is measured—it’s not our—it’s an independent measure of service data.

Mr. DAVIS. We raised the question earlier. As a matter of fact,

I believe that Representative Owens raised the question to an investigation of minority procurement opportunities, and while that

information was not available and forthcoming from the IG, do you

have information relative to the changes that have occurred in relationship to that?

Mr. HENDERSON. Yes. We have a substantial effort to involve

more minority businesses in purchasing, and it has been under way

for some time; and we think when the IG goes back in and reviews,

they’ll see substantial progress being made.

Mr. DAVIS. I would like to yield to Representative Owens.

Mr. OWENS. I thank the gentleman for yielding. I have an

amendment on the floor. I won’t be able to return.

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But you had mentioned a 94 percent consumer rating. Did I hear

that correctly?

Mr. HENDERSON. Uh-huh.

Mr. OWENS. Can you explain that a little bit?

Mr. HENDERSON. We do an independent measure across the

United States; we call it the customer satisfaction index. It’s done

by Gallup, and 94 percent rated the Postal Service good, very good

and excellent on that. It’s an overall question. It’s a very detailed

questionnaire.

Mr. OWENS. Is that broken down by districts or cities, or can I

see a——

Mr. HENDERSON. Yes, it’s broken down by districts, by major

metropolitan areas. We would be happy to provide you the data.

Mr. OWENS. I would be very thankful.

Mr. DAVIS. Maybe the last question before we have to go, Mr.

Chairman.

Mr. Henderson, would your office have the time that you could

perhaps provide us with your own report of the procurement practices and changes that have occurred?

Mr. HENDERSON. Yes, absolutely. I’ll provide it to you.

Mr. DAVIS. Thank you, Mr. Chairman.

Mr. MCHUGH. We have about 8 minutes for this vote. I understand it’s just a single vote.

Mr. Postmaster General, with your forbearance, we’ll be back

very shortly.

[Recess.]

Mr. MCHUGH. As much as I’m tempted, I think we had better

wait a moment for another responsible adult.

As you’ve heard here this morning, we do have a series of very

important education bills that it happens a good number of the

subcommittee members are very interested in and wanted to be on

the floor. So I’m not certain when they’ll get back.

So I will exercise the prerogative of the Chair and reconvene our

discussion here. If they come back, I’ll yield to them. In the meantime, why don’t we talk?

Mr. HENDERSON. Sure.

Mr. MCHUGH. You have mentioned—I believe Mr. Ungar mentioned the letter carrier agreement that came about as a ruling of

an arbitrator. What is the likely total financial impact of that

agreement, including what it is likely to do in the future—and I’m

not asking you to reveal your hand, but it does have significant implications for the first time. It decouples a number of the various

employee units in a pay perspective that I assume the other employees units are going to want to reestablish, and it’s probable

that you’re going to have to respond in some way.

If you’re working on a ballpark figure, what do you think the

total cost of that one ruling is going to be?

Mr. HENDERSON. Within the confines of the ruling itself, it’s $2.4

billion. If you take it out—I mean, everybody in the internal postal

community is very interested in that because it changes the relationship. So you’ll have the rest of the unions going to reestablish

that relationship, which means they want a higher level. You then

have postmasters who have an existing differential with craft employees that will have—will want some differential, and then you’ll

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have supervisors wanting some differential. So we haven’t tried

to—I don’t know if I could swallow that number; I haven’t tried to

calculate it yet. But it did have, you know, a ripple effect throughout all of the labor deals. It’s affected the current negotiations that

we’re in.

Mr. MCHUGH. I not only understand, I certainly accept that. But

the ball park, are we talking, more likely, tens of millions or, more

likely, hundreds of millions of dollars?

Mr. HENDERSON. Hundreds of millions. Billions of dollars.

Mr. MCHUGH. Billions of dollars from this one ruling?

Mr. HENDERSON. Yeah.

Mr. MCHUGH. Your fiscal plan that Mr. Ungar referred to that

is projecting $100 million net revenue based on some productivity

assumptions, based on some work-hour assumptions, did that include anything to accommodate this ruling?

Mr. HENDERSON. No. No, it didn’t. And this fiscal year will not

be impacted because the level increase doesn’t occur until next

year.

I was interested in hearing him call making this budget this fiscal year a ‘‘miracle.’’

Mr. MCHUGH. Well, we’re getting near the season of miracles. I

believe he said he did not want to use the word ‘‘miracle,’’ but he

decided on ‘‘some major development.’’

But the point I wanted to make—and I believe you would agree,

and if you don’t, please respond. I’m not trying in any way to minimize what I think has been a string of remarkable net revenue

years for the Postal Service, truly historic. But on a $62 billion revenue plan, $100 million is thin—a lot better than the reds that

piled up year after year in previous times, but still thin.

So if you then have something thrown at you, so to speak, that

is totally beyond your power, really totally beyond your ability to

forecast, that only makes the picture more difficult. And when

we’re talking about hundreds of millions, billions of dollars, added

onto your revenue projections and loss of first-class income of $17

billion, you’ve got a serious problem.

Mr. HENDERSON. Yes.

Mr. MCHUGH. And it’s here today.

Mr. HENDERSON. And I would add that the activity in e-commerce, the Internet is very suppressed, and it’s suppressed because

of Y2K. You’ve got large corporations like IBM, large organizations

like the U.S. Postal Service are really strapped down right now. In

other words, we’ve frozen new projects until we get through Y2K.

And that’s been a common practice throughout industry and the

public sector.

After January, after the Y2K problem starts to dissipate, or the

potential problem, you’re going to see much more activity than we

predict on the Internet, than has been experienced thus far.

Mr. MCHUGH. And I agree. There’s a likely technological snowball building here that is unleashed in certain part past Y2K and

people’s concerns about it, but continues to roll as more and more

Americans find themselves wired into the Internet. As more communities across this country have Internet access, opportunities increase; and as people become more comfortable in engaging in that

kind of commerce. A lot of folks today peruse the pages of the

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Internet, looking at product, and then pick up the phone and call

in the order because they’re not just quite comfortable. But that’s

going to lessen as time goes on.

So the problem isn’t something where you take the hit, you hunker down, accommodate it and you go on. It’s something that’s

going to continue to increase and put more, rather than less, pressure on you.

Let me ask you one final question, and I’ll yield to Mr.

LaTourette. A lot of people say, well, electronic commerce did have

its challenges, but it has its benefits as well. If you call up—if you

wire in, call up on the Internet a mail order house, order a pair

of snow boots or whatever it is, then the possibility of the Postal

Service serving as the carrier certainly is there and increases your

opportunity.

Have you been able to weigh or project revenue losses on firstclass versus what you might pick up? I know those are total estimates, but——

Mr. HENDERSON. We think that the Postal Service would be used

as a majority move for e-commerce because of the low-cost, highquality service that’s provided. The answer to the question depends

on the rate of erosion. If it’s—it erodes like business-to-business

mail did, in which we made it up in other products, then it’s OK.

But if it’s like what they call the ‘‘hockey stick,’’ and that is, there’s

just enormous adoption of electronic bill payment that doesn’t involve the Postal Service, then I don’t think there’s any way you can

make up a $20 billion, $17 billion organization.

So it really is the—the key is the rate of erosion. And it’s eroding

right now, just so you’ll know, at between 1 and 2 percent. But—

less than 1 percent of all Americans pay their bills electronically

today, but as I say, that’s—the Internet is looking for sources of

revenue. And clearly you and I have to pay our bills and there’s

a clear opportunity here to tap in. And I think, after the Y2K fiasco

is over, then you’ll see one heck of a move for a lot of players to

get into this.

Mr. MCHUGH. Thank you.

The gentleman from Ohio, Mr. LaTourette.

Mr. LATOURETTE. Thank you, Mr. Chairman.

And, General, it’s nice to see you again. I have about four areas

of concern that I want to talk with you about. They’re not all connected, so I apologize for skipping around. But I want to begin

where the chairman left off, and that is that I know it’s tough to

guess after Y2K, but there has been some speculation and I think

when you appeared over at the Senate at a similar hearing there

was discussion about the fact that your priority mail services and

your package services with the advent of e-commerce do—you do

look at that as a potential to offset some of the losses in first-class

mail.

I understood the ‘‘hockey stick’’ examination. But I know that I

was startled when I read U.S.A. Today yesterday and saw the projection, and certainly all of us in the subcommittee take the GAO’s

testimony here seriously and recognize the chairman and all of the

good work that he’s done in postal reform to move through this

Congress at a good rate, to position the Postal Service for the next

century.

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However, it would not be—rather than just being doom and

gloom, couldn’t the users of the Postal Service and the fans of the

Postal Service take some comfort in the fact that people will not

only be paying their bills over the Internet in the future, but if

they order snow boots up in New York, that the Postal Service will

be the dominant carrier of the snow boots to their homes. And that

will, in fact, sort of be both a blessing and a curse of the Internet

for the Postal Service in the next century.

Mr. HENDERSON. Yes. And if I painted that, I’ll clear that up. I

don’t want to paint the Internet as a curse. The Internet is the

Internet. It is a new channel into the home. It’s how you leverage

it that’s going to determine whether it’s a positive or negative impact. And we have people working very actively to make it a very

positive impact on the Postal Service.

Mr. LATOURETTE. The second area of concern that I have, I believe in August of this year, the Postal Service launched its new

PC postage program, which I think is a very exciting program and

a great example of how the Postal Service can use new technologies

to move forward. If I understand my history right, it hasn’t been

since 1928 that the Postal Service has taken a look at the postage

meter market. In that line, I think on August 9th you had a press

event and you actually have awarded some contracts to vendors.

Mr. HENDERSON. Yes, to two vendors.

Mr. LATOURETTE. And who are those?

Mr. HENDERSON. Stamps.com and e-stamp. We didn’t award contracts; we certified that their encryption met our standards. There

are two more, Pitney Bowes and Neopost, that will be coming out

there and are in the testing phases now. So there are four companies in the world that we know about that are going for postage

online.

Mr. LATOURETTE. And that actually leads into the question that

I had. It was my understanding that there are two vendors that

are looking for that seal of approval or that certification, and because this is such an exciting opportunity, I think if you look—you

go back in time and say, this hasn’t happened since 1928 that this

market has been open to competition.

Do you have any qualms or difficulties or questions in indicating

to the subcommittee that—and I say this because it’s my understanding that the DOJ has an investigation dealing with some monopolistic practices dealing with postage meters at present. Is there

any concern that you have that the opening of this new market is

going to somehow be constrained, be anything but fair, and everybody that has the ability to meet your standards is going to have

the ability to compete, which obviously is going to benefit consumers and the service?

Mr. HENDERSON. That’s our goal, to make sure that it’s open and

fair. There’s no indication to me, anyway, that there’s anything but

really open competition in the PC postage. You’ve got two unknown

players right out of the box. I mean, they didn’t exist; they’re new

companies.

Mr. LATOURETTE. I think that’s what’s exciting about it. You

would think when this program, when I first read about it and saw

that this program—you would think that the old standbys would

be the ones that would be jumping on it. So when two firms that

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I don’t think I was familiar with get the first certifications, I think

that that adds to some of the excitement by some of us that that

is going to be a good, competitive growth area.

The second—or maybe it’s third, I’ve lost track, but this subcommittee recently had the opportunity to look at legislation called

Honesty in Sweepstakes Act of 1999. And the part of the issues

that we discussed had to do with what happens when Federal regulation would somehow preempt or invade the jurisdiction of the

States relative to what their postal regulations are or their regulations regarding mail coming into their States are.

Can you indicate just what procedures you have in place when

your customers, the mailers, are subject to conflicting postal regulations as they relate to State laws? Is that something that you’ve

taken a look at?

Mr. HENDERSON. I have to submit that for the record. That’s a

little beyond my range.

Mr. LATOURETTE. Then if you could, I’ll send you a quick note,

and I would appreciate that.

The last one has to do with what I was talking to the Inspector

General about. You know from some of the hearings on H.R. 22,

competition is something that is of concern to me. I talked to her

about the international mail arena and specifically the Postal Rate

Commission’s report from June of this year, that if I had my numbers right, there are 14 international products, and that, at least

as I understood the PRC’s evaluation, four of those, at the moment

at least, aren’t carrying their weight, that they’re being subsidized

if not by domestic mails, as was indicated by the IG. The money

has to be coming from somewhere. Is it correct that those four

products, at the moment at least, are being subsidized by other

international mail products? International mail is paying its own

way, but you have——

Mr. HENDERSON. They are at the moment. I don’t know at this

moment, but there were four products. Most of the impact for those

products occurred as a result of Asian flu where they were profitable, and their volume is sensitive. When the volume goes down,

your infrastructure costs overwhelm your revenue. And we—it’s not

important who the customers were, but we talked with the customers, and they asked us to hold out to see if those markets would

improve. We held out for quite a while, and then we were forced

to raise the rates, and then we lost some of the business as a result

of that. So it——

Mr. LATOURETTE. Of those, and again, if you want me to submit

this one because you don’t have the report in front of you, I don’t

want to sandbag you and ask you a question that’s unfair, but that

seemed to be the finding of the PRC relative to global package link.

When it comes to global priority mail, they indicated that although

the suppressed foreign markets may have been a factor, one of the

things the Postal Service has indicated was that the loss was due

to a rather high advertising budget for that product. And so in addition to not only raising rates, I think 14 percent in the instance

of that particular product, there was going to be a suppression of

the advertising budget for what was now deemed to be a product

that wasn’t carrying its weight. Has that occurred since the PRC

report has come out?

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Mr. HENDERSON. Yes, as far as I know, that has occurred. That

was factual, what you just said. When you have a product, if I’m

selling one box and I’m trying to sell it all over the country, the

revenue generated from one package doesn’t cover that infrastructure cost. There’s a point at which you have to reach a certain volume, and they decided to pull back on the advertising and try some

other technique.

Mr. LATOURETTE. The overall question, I think, that comes up in

postal reform and also relative to the international mail, is there

a procedure in place that when you launch a new product, you have

14 international products, four aren’t making it, is there a time

when you sort of cut them loose and say, we thought this was a

good idea, but it doesn’t appear to be that way? If the answer is

yes, and I would hope it’s yes because you wouldn’t want to continue to lose—pour money down the hole that isn’t yielding a result, have you reached that conclusion with any other foreign products cited by the Postal Rate Commission at this point?

Mr. HENDERSON. No, not yet, but we do look at that monthly. It’s

been difficult not only for us, but it’s been difficult for the private

sector and the international market, too. We have had companies

that have gone as long as 7 or 8 years without making money, but

there’s a belief that American goods and services are going to be

demanded in foreign countries, and the carrier of choice is going to

be the folks that make the money, and we’re very interested in

making the money.

Mr. LATOURETTE. And then last, and then I’ll get off of this subject and stop asking questions, again, going the global package

link, as I understood, I think, the last time you might have been

here and when you were over at the Senate a little earlier, there

was some discussion about the fact that the rates are set because

there’s a requirement that a shipper send at least 10,000 packages

a year. Somewhere recently I’d seen published up to one-third of

the customers—and you’re right, it isn’t important who the customers are, but those who are enrolled or signed up for those discounted rates indicating that they would ship up to 10,000 packages a year, up to a third of them have not fulfilled that mark. Is

that a correct report?

Mr. HENDERSON. Generally speaking, there’s—they have a cutback. I don’t know if the numbers are—I don’t know that they’re

inaccurate. I just don’t know. But there was a pullback because

much of that mail was headed to Asia, and they are just pulling

out of that market. They’re pulling back trying to reduce the impact of the Asian flu.

Mr. LATOURETTE. If the rate structure is predicated on volume,

which I assume—you know, you say I’m going to give you this rate

to ship something overseas, but you’ve got to agree to send 10,000

pieces, for whatever reason if they find that not economically practical, has the Postal Service adjusted its rates upward for that

product to reflect the fact that the premise upon which it’s based,

that you’re going to use so much of our business, has not occurred?

Mr. HENDERSON. We did adjust the rates separate not because

the volume didn’t materialize, but because we were trying to cover

more of our costs. It’s a negotiated deal with various individual

customers. We try to be accommodating to them. We don’t want to

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just pull out and leave them high and dry. That doesn’t give us a

good business reputation. So to the degree possible, we try to hang

in there with them. They’re certainly not in the business of losing

money, and matter of fact, I think every indication is Asia is starting to come back.

Mr. LATOURETTE. So would it be your expectation that that particular program, which has a 10,000-piece-per-year floor, if the

economy improves, that the Postal Service will make money on

that product?

Mr. HENDERSON. We hope to. That’s why we’re here. That’s my

expectation.

Mr. LATOURETTE. Thank you.

Thank you, Mr. Chairman.

Mr. MCHUGH. I thank the gentleman. Excellent line of questioning, which also, by the way, would be covered under H.R. 22. It’s

been an unpaid political advertisement.

Mr. Sanford.

Mr. SANFORD. Let me go from the universal to the very parochial,

if I may, and it may be inappropriate that I even ask you this question, in which case I just ask that you hand it off to whoever might

know. That is, recently the Postal Service announced that they

were canceling plans to build a facility at the old Air Force base

in Myrtle Beach, SC. That sent up all kinds of red flags, with folks

back home calling me. The reason that the Postal Service said that

they were going to do this is because of the distance between Florence, SC, and Myrtle Beach. The logical question that people ask

back home of me was, well, Myrtle Beach didn’t move over the 12

months of them negotiating this site, tying down the land, whatnot;

we stayed in the same spot. We don’t understand this reasoning.

And so my question would be, could you offer any insights that I

could offer to my constituents back home on the change?

The other thing I think just procedurally, I think this is a very

legitimate point, was one of the things that the Postal Service folks

brought up back home was after the operational review, they decided the site no longer made sense, but in the process they got all

kinds of people excited, thinking there were 200 jobs coming to

Myrtle Beach. Shouldn’t the operational review come first before

communities, whether it might be—whether it’s Myrtle Beach or

L.A., get excited about the prospect of a postal facility coming to

their neighborhood, and it turns out at the end of the operational

review that doesn’t happen?

Mr. HENDERSON. You’re absolutely right. I’ll give you the rationale for the record, the details to your office on what the reason for

changing their minds. I do know that they are still looking in Myrtle Beach for an operating facility, but it is unfortunate when a

community anticipates something that as a result of an operational

review might not occur. So we—they should have done the operational review first. That’s right.

Mr. SANFORD. If there’s any way—because apparently it was

talked about at the beginning of October, some sort of press release

from the Postal Service just to squelch it, because people keep calling—not that I’m selfish about this, but I am—our office saying

why this happened, some kind of explanation from the Postal Service to the local media outlets back home just so that they feel like

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the question has been answered, because from their perspective it

feels like it’s still hanging out there, and they don’t quite understand why.

Mr. HENDERSON. We’ll put out a press release. We’ll show it to

you before we release it.

Mr. MCHUGH. Mention him.

Mr. SANFORD. I appreciate it.

I don’t want to burn up any more of your time, but going back

to this cost conversation we briefly had, any further insights that

you could offer me or others on the committee on how to get ahold

of the cost part of the income statement with Postal Service?

Mr. HENDERSON. It’s substituting capital for labor. It’s automation. If you take the productivity in the Postal Service in 1988 and

assume that same productivity today, you’d have to add over

100,000 people to the rolls. There’s a huge impact.

The thing that we have enjoyed over the last 25 years, 28 years

I’ve been in the Postal Service, is continuous growth. In other

words, you’re just like an automobile plant with enormous demand

that keeps escalating up. You keep expanding. That’s what happens in the Postal Service. We have been in the past growing.

We’ve made money in the last 5 years, and our expenses each year

have been somewhere in the neighborhood of 5 percent. So that’s

good growth. These charts don’t predict that for the future, but

there was never anticipation that the Postal Service’s absolute

costs would go down because you have a growing workload, growing demand, and it shows up on your bottom line.

Mr. SANFORD. I thank the Chair.

Mr. MCHUGH. I thank the gentleman.

General Henderson, you may have heard Mr. Ungar in the response to one of the subcommittee members—I’m sorry, I don’t remember which one—who asked about ratemaking data. Mr. Ungar

cited the report that made some 40 recommendations, I believe he

said, and then he went on to suggest that GAO had not yet been

successful getting a response from you folks as to how, if at all, you

were going to respond to any or all of those 40 recommendations.

Are you familiar with where that might be?

Mr. HENDERSON. We’re in the process of implementing those recommendations. I’ll clear the problem up with GAO.

Mr. MCHUGH. Is it your plan to issue a response to the report

or an implementing plan to the recommendations? In other words,

how might we on the subcommittee be advised as to what you’re

going to do to pursue that?

Mr. HENDERSON. We didn’t plan on it, but after this today, we’ll

put together a timeline and some milestones and provide you the

report.

Mr. MCHUGH. Great.

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Mr. MCHUGH. Anyone else on the subcommittee?

Mr. LaTourette.

Mr. LATOURETTE. I don’t have any more questions, but if I could

just make a request to the chairman. In my questions to the Postmaster General, I referenced a report from the Postal Rate Commission to the Congress dated June 30, 1999. For some reason—

it doesn’t look quite as bad as some of the redacted documents I

used to get when I was a prosecutor—some of the figures have

been redacted. I would ask unanimous consent if that’s an appropriate request, the unredacted version of this report be made a part

of the record of this hearing.

Mr. MCHUGH. Without objection, so ordered.

Mr. LATOURETTE. Thank you.

Mr. MCHUGH. Do you have the unredacted?

Mr. LATOURETTE. I was hoping that maybe Robert, who is so resourceful, can find it for us.

Mr. MCHUGH. We’ll have to put a codicil on that. If we can get

it, we’ll put it in the record. I don’t believe we redacted it, did we?

We’re not like that. Oh, it’s being litigated. When it’s litigated, if

we can get the unredacted report, without objection it will be entered into the record in its entirety. I thank the gentleman.

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Mr. MCHUGH. General Henderson, we thank you for your time.

I think we’ve established, if nothing else, we have some very significant challenges in front of us. There are obviously differing

opinions as to how those challenges should be met, what role both

you and the Congress should play. If nothing else, I hope we’ve

taken a step closer to the realization that this is not theory any

longer, that the Postal Service that tens of millions of Americans

rely upon each and every day is entering a new era, as we’ve

heard, and that associated with that is going to have to come some

sorts of changes. Depending on the eye of the beholder, it may be

beautiful or otherwise, but something needs to be done that is different than status quo.

Toward that end, and I know I can speak for all of the members

on this subcommittee, both sides of the aisle, we want to engage

with you in an honest and open and, we hope, productive dialog on

how we can make those changes happen so that communications

in America are continued to be conducted under an umbrella of

confidence and reliability on postal services provided for some 200

plus years in this country, and we thank you for your effort. We

particularly thank the postal workers, the folks we see on the

streets every day and who sort and route the mail. They do a tremendous job.

We will be submitting questions for the record. You’ve kindly offered to provide some information to some of the Members. We welcome your response on that as well.

With that, the hearing is adjourned.

[Whereupon, at 12:45 p.m., the subcommittee was adjourned.]

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