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Testimony of 

The Honorable Ruth Y. Goldway, 

Commissioner

On Behalf of the Postal Regulatory Commission

Before the U.S. Senate Committee on Homeland 

Security and Governmental Affairs

Subcommittee on Federal Financial Management, 

Government Information, Federal Services,

and International Security

August 6, 2009
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Chairman Carper, Ranking Member McCain, and members of the Subcommittee, thank 

you for the opportunity to testify on the financial crisis facing the United States Postal Service. 

I am honored to be participating at this hearing. As many of you are aware, I have 

served on the Commission for 11 years, with many opportunities to both support and second 

guess three different chairs. The Commission acts as both a regulator of the Postal Service and 

a protector of its role as the Universal Service provider. Striking the appropriate balance is 

difficult. Articulating such in brief statements is most challenging. This document has been 

prepared in consultation with Chairman Blair. We are in general agreement on these matters,

however with somewhat different emphases. 

Others on today’s panel have described in detail the financial straits in which the Postal 

Service finds itself at this time. Suffice it to say that based on the available reports submitted by 

the Postal Service to the Commission, we expect revenues to be down over $6 billion from last 

year at the end of the third quarter, an 8% reduction. By the year’s end, the Postal Service most 

likely will run out of cash and not be able to make all of its year end payments, absent 

Congressional action. To put this in perspective, UPS and FedEx have had revenue declines of 

11% and 21% respectively. This is a difficult time for the industry as a whole.

The Postal Service has responded to the revenue loss with the most aggressive cost 

cutting in its history. In fact, under Postmaster General Potter, the Postal Service has cut costs 

for several years. Since 1999, 160,000 career workforce positions have been taken out of the 

system. (This year it is on track to eliminate an additional 100 million work hours.) Whatever 

the concerns of those of us who evaluated the Postal Service in the 90’s, in the 21st Century, 

management and labor have worked remarkably cooperatively and efficiently to streamline the 

system.
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The Commission is exercising its authority to ensure that savings are not achieved at the 

expense of service. To date, reports submitted to the Commission by the Postal Service 

indicate satisfactory levels for delivery. Accurate measurements systems for customer 

satisfaction and access are being reviewed. 

Retiree Health Benefit Fund Liability

Despite its many actions to increase revenue and cut costs, the Postal Service may run 

out of cash by the end of next month, which marks the end of fiscal year 2009. They need 

some immediate relief.

Consequently, the Postal Service is seeking legislation to adjust its retiree health benefit 

payments. This Committee, through its recent approval of S.1507, the Postal Service Retiree 

Health and Benefit Fund Reform Act, has taken a step towards alleviating – at least for the short 

term – the Postal Service’s financial crisis, while maintaining the long term solvency of the fund.

At the request of the House Subcommittee on Federal Workforce, Postal Service and 

District of Columbia, the Commission recently examined the underlying assumptions and 

methodologies used by the Office of Personnel Management (OPM) and the Postal Service 

Inspector General (OIG) to determine the Postal Service’s unfunded liability for its Retiree 

Health Benefit Fund. Copies of the report were provided to members of this Subcommittee and 

are available online at www.prc.gov. Hopefully, our analysis will prove helpful in informing the 

debate should this Committee consider long-term measures to address funding for the Retiree 

Health Benefit Fund. 

In brief, the Commission found that the different purposes of the two valuations led to 

differing, though reasonable, assumptions and results. OPM, essentially, took a current 

snapshot of the Postal Service workforce and rolled it forward to establish the liability, which 
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was reported on the Postal Service’s 2008 financial statements. OIG made its calculations 

incorporating expected Postal workforce declines through 2016, essentially creating a snapshot 

of a much smaller Postal family in 2016, and a smaller liability. The two valuations also 

assumed different future rates of medical inflation. 

The Commission developed an alternate calculation utilizing current industry and 

government best practices. This produced a long-term liability that could result in over $2 billion 

in lower payments per year than current law requires. The following chart depicts the three 

calculations. 

Future Pricing 

Looking ahead to FY 2010, the Postal Service expects continued, though moderating, 

declines in mail volume. This would have significant ramifications for postal revenues. Under 

the Postal Accountability and Enhancement Act (PAEA), the Postal Service has the ability to 

raise new revenue through general rate increases, subject to a CPI-based price cap on its 

market dominant products and to a price floor and market constraints for its competitive 
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products. Following Commission review, the Postal Service exercised its flexibility and 

implemented general price increases for its competitive products in January and for its market 

dominant products in May. These increases helped offset some of the revenue lost to declining 

volume. 

Due to recent low inflation in the overall economy, it appears that the Postal Service may 

have little to no room next year to raise prices for its market dominant products, which account 

for 90 percent of revenue. To raise prices above the cap, the Postal Service would have to file 

with the Commission a so-called “exigent” rate case and they would have to demonstrate 

“extraordinary or exceptional circumstances” to justify exceeding the rate cap imposed by the 

PAEA. 

Prior to 2007, the former Postal Rate Commission reviewed Postal Service forecasting 

assumptions and methodology as part of its rate analysis. In the new streamlined rate setting 

processes established by the PAEA, this has not been necessary. Even if the Postal Service 

does not file an exigent rate case, it may be beneficial for the Postal Service to share its volume 

forecasting model with the Commission as a general practice. 

Further Cost Savings

The Postal Service has responded to the financial burden of employee health benefit

payments, PAEA price caps and declining volumes, in addition to the above referenced 

streamlining, by proposing a significant reduction in its footprint and service levels.

It has submitted to the Commission a proposal for evaluating the possible closures of

about 1000 branches and stations. Under the law, the Postal Service is required to seek an 

advisory opinion whenever it considers embarking on changes that could affect service 

nationwide. While the Commission does not have power to direct the Postal Service to operate 

in a particular manner, the public review within the administrative procedures of Docket N2009-1 
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will examine the adequacy of the Service’s analysis and how it will measure the impact of any 

closure on affected communities and measure the overall quality of service before such 

closures take place. Further, we will examine the adequacy of notice provided to the public 

during the Postal Service’s evaluation process and the level of consideration public comments 

are given. The Commission is considering holding field hearings in this case. We will also seek 

to determine whether the Postal Service will maintain adequate levels of service within the 

framework of its Universal Service Obligation. 

In the event offices are closed, the Postal Service will be required to provide appropriate 

public notice as set forth in Title 39. 

Five-day Delivery

The Postal Service has also requested that Congress lift restrictions currently contained 

in annual appropriations language that prohibit the Postal Service from reducing mail delivery 

from six days a week. In a study issued last summer, the Postal Service stated that a one-day 

reduction could save as much as $3.5 billion a year. The Commission, in its study of universal 

service released in December 2008, found the savings to be closer to $1.9 billion. Utilizing data 

for FY 2008, we now estimate savings of about $2.2 billion. In both cases, the amount of 

savings is reduced because of anticipated modest declines in mail volume as a result of the 

service reduction. The Postal Service has stated that it is currently conducting a new, 

comprehensive study of this issue. 

Future of Universal Service

Whether it is 5-day delivery, collection box removal or the closure of facilities, the Postal 

Service is intent on reducing its physical presence. No proposals have been put forward to find 

new sources of revenue at Post Offices, such as partnering with other public agencies or 

reinvigorating its brand. The Postal Service’s actions bring into question long-held concepts of 
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how the Postal Service fits into the framework of American society. The Commission is well 

aware from its proceedings of the impact that the Postal Service has on our nation’s charities, 

educational institutions, political processes and the overall flow of information. It was not long 

ago that the Postal Service demonstrated its ability to be a binding force for the Nation, when it 

allowed residents of New Orleans to elect a Mayor even though they themselves had been 

dislocated from the city by Hurricane Katrina. 

The Postal Service continues to be an economic pillar for the nation and the world’s 

largest postal system, accounting for about 45 percent of global mail volume. The Postal 

Service is highly regarded by the American people. In a recent Gallup Poll, ninety-five percent 

of those polled indicated that it was personally important to them that the Postal Service 

continue to stay in business. 

The Postal Service is at a very uncertain moment in its history. It is contending with 

historic mail losses driven by an exceptionally difficult economic environment. There is no 

question, however, that the increased transparency, accountability and flexibility provided by the 

PAEA have been beneficial. Within the current law, there remains considerable room for 

innovation. Postal products continue to be shaped by historic class differences, largely in place 

since the 1920’s that may not make sense today. Potentially new markets could be developed 

around hybrid products that combine characteristics between classes – for example, a standard 

mail product with guaranteed date of delivery. Opportunities to better use its existing facilities 

have yet to be explored.

The American public continues to demand effective, reliable and affordable nationwide 

postal service. Nevertheless, the Postal Service’s ability to continue to be self-sustaining is in 

question. The model of the past four decades – that mail volume growth would be sufficient to 

support an expanding delivery network, fully fund Postal Service operations and future health 
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care benefit costs and maintain universal service at existing levels – may need to be 

reexamined. 

Chairman Carper, this concludes my written statement. I appreciate the invitation to 

testify and welcome the opportunity to answer any questions that you or members of the 

Subcommittee may have.