Testimony of Chairman Ruth Y. Goldway,  

Postal Regulatory Commission  

Before the  

U.S. Senate Homeland Security and Governmental Affairs Committee’s

Subcommittee on Federal Financial Management, Government Information,

Federal Services, and International Security

April 22, 2010

Chairman Carper, Ranking Member McCain, Members of the Subcommittee, thank you

for the opportunity to testify on the Future of the United States Postal Service.   

The Commission is engaged on several fronts to address the vulnerability of the Postal

Service and fulfill our legislative mandate for a modern and transparent system for regulating

rates and assuring high quality service performance.  Our previously issued report on the Postal

Service’s Retiree Health Benefits Fund (RHBF) liability and our recent Annual Compliance

Determination (ACD) as well as action on the cases before us may clarify major issues now

before the Congress.  We are pleased to share this work with you as you deliberate on solutions

for the Postal Service that will best serve the long‐term interest of the Nation.  

Five‐Day Delivery  

On March 30, 2010, we initiated Docket N2010‐1 to conduct a thorough public review of

a Postal Service proposal to eliminate Saturday mail service nationwide.  Based on press reports

and comments we have received, it appears that there is confusion about the process. I must

reiterate to the public that no decision has yet been made to reduce service to five days.  This

important matter requires the consideration of both the Commission and the Congress.

The Commission’s Docket provides for public, on‐the‐record hearings to analyze the

Postal Service’s proposal and supporting evidence, as well as related alternatives that may be

raised by participants.  The Commission’s process allows mailers, stakeholders and members of

the public to offer their perspective and insights.    The Commission has received nearly 2000

public comments thus far by letter, email and fax.  We are also scheduling seven field hearings

to ensure that the views of local communities are well represented in the public record.   

Our process will ask the following questions, among others:  How much will the Postal

Service really save?  Will mail volumes decline more or less than the Postal Service anticipates?  

To what extent will adverse impacts on citizens, businesses or public institutions be ameliorated

by Postal Service operational adjustments?  What will be the economic impact on communities,

mailers and the Nation?    
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The Postal Accountability and Enhancement Act (PAEA) requires the Commission to

monitor service levels to prevent deterioration in service and assure that the Postal Service

meets its Universal Service Obligation (USO).   Five‐day service may meet the USO.  It does so in

other nations.    However, it could well be that six‐day service remains a strategic marketing

advantage for the Postal Service even if it is not part of the USO.  Perhaps a pilot project in a

limited geographic area or for one month of the year would be instructive.  The implications of

reducing service are unknown and must be carefully considered.

We expect to resolve these and many more questions posed by participants and present

our Advisory Opinion to the Postal Service within six to nine months.  The Commission will, of

course, make the proceedings readily available and present our Opinion to Congress.   

The Postal Service may prefer an abbreviated review and immediate action by Congress

to approve their plan.  However, considering the requirement of the law to hold hearings, the

complex matters involved, and based on prior experience – such as our Advisory Opinions on

Postal Service plans to close retail facilities nationwide and to reconfigure its mail processing

network – it is not practical or desirable for the Commission to act more quickly.  Due diligence

should not be sacrificed nor American citizens and stakeholders denied their opportunity to

participate.  It is a government monopoly providing a vital service and we believe the Congress

should have the full benefit of the regulatory agency’s oversight function as Congress makes its

decision.   

PENSION LIABILITY

The Commission released its Annual Compliance Determination on March 29th.    The

report’s substance may have been overshadowed by the Postal Service’s release of its five‐day

delivery on March 30th.    The Commission gave careful consideration to the Postal Service’s

overall financial problems.    The potential near‐term savings in cutting delivery days has

significantly less impact than addressing issues of retiree liabilities. And could add to the rate of

mail decline at a time when mailers and the economy are just beginning to recover from a

severe recession.  

The Postal Service fiscal year ends in just five months on September 30th.  At that time,

the Postal Service must make a $5.5 billion payment to the Treasury to fund future health

benefits.  Shortly thereafter, it will need to make sizeable payments for workers compensation

obligations and to meet payroll.  These large debts, falling so close together, could cause the

Postal Service to run out of cash.  This is similar to the situation it faced last year when Congress

provided $4 billion in relief.   

There are two unresolved issues that could have major immediate impact on the Postal

Service’s financial crisis, as well as a material effect on the five‐day delivery issue.   

First is the question of whether the Postal Service has overfunded its employee pensions

by $75 billion as contended by the Postal Service Office of Inspector General (OIG).    If this

finding is accurate and the funds were used to address other postal liabilities, Postmaster
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General Potter has said that the five‐day proposal would not be needed, at least not for five

years.   

The Postal Service has appealed the Office of Personnel Management’s (OPM)

treatment to the Commission, in a process established by the PAEA.  The Commission will retain

an actuary to review OPM’s calculation of the Postal Service’s pension liability in light of the

OIG’s findings.   

We have issued a solicitation for competitive bids and made a tentative selection of an

actuary.  At present, we are in the process of finalizing the contract.  Under the scope of work,

the actuary will review the pension calculations performed by OPM, by the Postal Service’s OIG,

and as by any alternative methods that represent industry best practices.  The review will also

examine the relevant laws underlying the issue.  We hope to have the actuary’s report by July

1st and will report its expert findings to Congress, OPM and the Postal Service with our

comments shortly thereafter.   

RETIREE HEALTH BENEFIT FUNDING

The second issue involves the calculation and financing of the future costs for postal

retiree health benefits.    Last May, Members of the House Oversight Committee asked the

Commission to look at OPM’s computation of Postal Service liability for future retiree health

benefits and the annual payments that result to fund the Retiree Health Benefits Fund (RHBF)

created by PAEA.   Based on a dynamic calculation of long‐term medical inflation rates and the

declining postal workforce, we found that a recalculation could lower the Postal Service’s total

liability by nearly $35 billion and reduce the required annual payments by more than $2 billion

while meeting the original funding goals of the PAEA.    An OIG report suggested that even

greater reductions were possible.

It must be noted that in any case the payment schedule has proven too ambitious for

the Postal Service to meet, given the devastating effects of the recession on mail volume and

revenue.   My colleagues and I support readjusting the payments to an affordable level, perhaps

over a longer period of time and/or tied to the Postal Service’s ability to pay.  We see this as an

essential part of any plan to help the Postal Service survive and prosper in the coming decades.

POSTAL SERVICE PLAN FOR THE FUTURE

On March 2 of this year, the Postal Service issued a report entitled “Envisioning

America’s Future Postal Service.”  In a litany of problems and worst case scenarios, the Postal

Service estimates that there will be cumulative financial losses of $238 billion by the year 2020

if no changes are made, including no adjustments to pension or RHBF payments and no other

cost savings or improvements in productivity.   

The Postal Service’s response to these potential losses is to cut costs and reduce service.  

Its plan promises fewer employees to serve the public, fewer processing plants and postal

operated retail facilities, and reduced mail collections and fewer collection boxes – more than

24 thousand collection boxes were removed from American neighborhoods just in the past year
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– as well as eliminating Saturday mail delivery service, which heretofore has been considered a

competitive advantage for the Postal Service.   

The basic outcome of all these ideas is that there may well be less mail and less Postal

Service and that those who rely exclusively on the mail, the elderly, the poor, rural America and

those who cannot or will not connect to the internet may suffer the most.   

Even more troubling, its plan stops at the year 2020.    There is nothing in the plan to

indicate how forecasted mail declines will be arrested in the following decade.  On the contrary,

the plan’s proposals seem likely to spur further declines, a downward trajectory that suggests

further shrinkage of the system, with mail and this fundamental communication infrastructure

disappearing in tandem.   

POWER OF THE MAIL

I do not believe that this vision is the inevitable future of the Postal Service.  I believe in

the Constitution of the United States and Title 39’s mandate to provide a postal system that

binds the Nation together.  Even in the Internet Age, mail has a unique power to touch readers

and deliver results for senders.    It can drive sales, touch emotions, deliver votes, and shape

important personal decisions that affect life and country.   

The Postal Service plan, regrettably offers only dire forecasts regarding volume decline

and growing debt, projections that have been questioned by both the Commission’s expert

staff and the Congressional Research Service.    

Until recently, despite economic volatility, terrorism and digital diversion, mail has been

relatively resilient.  Between 2000 and 2008, First‐Class Mail declined an average of 1.2 percent

a year, while Standard Mail increased by an average of 1.6 percent.  This gradual shift toward a

lower‐margin mail mix was addressed in the PAEA, by the creation of a new competitive

business model so the Postal Service could earn offsetting revenue and income in its shipping

services. This model appears to have ameliorated the problem for which it was designed. As

discussed in the ACD, competitive products contributed more than 5.5 percent to institutional

costs and generated $37 million in profits. But the swamping effects of the recession make it

difficult to assess its long‐term potential.   

It also is difficult to know, if or by how much the recession may have accelerated the

existing trend of electronic diversion, since all mail segments declined significantly.  The Postal

Service’s consultants’ research indicates that increased diversion is likely.  Nevertheless, long‐

term forecasts of mail declines based on theoretical diversion are problematic.  Other studies

point to the persisting inelasticity of demand for many mail products. In other words, some

products are pretty stable and may even accommodate rate increases.

If the last few years have taught us anything, they have shown how unpredictable the

future can be.  In my 12 years on the Commission, I can recall times when the Postal Service

predicted billion dollar losses and ended the year with billion dollar gains.   

Even in this difficult year, it appears likely the Postal Service will far exceed its own

expectations.  The latest financial report received by the Commission reveals that through the
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end of February it is nearly $1.2 billion dollars ahead of its forecast.  Although mail volume is

down by 8 percent, Standard Mail volume grew slightly for the month and Shipping Services are

up 1.3 percent for the year.    Both of these products are sensitive to changes in economic

conditions.  It may be that the economy is starting to have a positive effect on the mail.   

Seeing this kind of variability in only six months, it may be prudent to view projections

that lie six years or more down the road with some caution.   

A BETTER APPROACH TO THE FUTURE

The Commission commends the Postal Service for its sustained effort over many years

to increase productivity, improve processes and lower its costs.  We appreciate that this effort

must continue and evolve for the future.  Today’s discussions, however, must not simply focus

on costs and deficits.  The Postal Service should reposition its goals to meet the needs of an

evolving society.   

These are questions that the Postal Accountability and Enhancement Act requires the

Commission to ask.   What does the Constitution and the law require?   What is best for the

Nation?  How can the Postal Service maintain and improve its universal service to citizens and

the business community who rely on the mail?    The PAEA requires the Postal Service to

continue to provide universal service at fair and efficient rates. The PAEA requires the

Commission to carefully monitor both the rates the Postal Service charges its customers and

the quality of service provided.  Under a rate cap regime such as that imposed by the law, any

reduction in service that affects the value of the service to the customer could be considered

the equivalent of a rate hike.   

The PAEA directed the Postal Service and the Commission to establish modern service

standards to “preserve regular and effective access to postal services in all communities,

including those in rural areas or where post offices are not self‐sustaining.”  This suggests that

social concerns must be balanced against economic concerns when changes are proposed.

Congress also clearly intended that the Commission have a role in both considering and

improving visibility into customer satisfaction, as evidenced by the inclusion of the statutory

provisions concerning customer satisfaction in the PAEA.   

It would have been helpful if the consultants hired by the Postal Service had been

tasked to look at what it will take to keep open as many post offices, and station and branches

as possible; what new products the public needs that the Postal Service is uniquely positioned

to provide; how to keep delivery at 6 days, the level required by Congress; and then how to

determine the service levels that are the most advantageous to its future success.

It also would have been informative if the consultants and analysts reviewed the Postal

Service’s recent attempts at innovation.   In this decade, the Postal Service embarked on two

projects that it described as transformative:   the Intelligent Mail Barcode (IMb) and the Flat

Sequencing System (FSS).   

The Postal Service promised that the IMb would revolutionize the transparency and

efficiency of letter mail for the Postal Service and its customers, creating new value in the mail
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and opportunities for growth.  The Commission believed the Postal Service and agreed to use

the IMb as the basis for a measurement system to track service quality.  Yet, we and the mailing

community continue to wait for that promise to be realized.   

Similarly, FSS promised to transform the processing of flats and catalogs so that they

could be sorted automatically into walk sequence, at lower cost and with higher quality.  Both

the IMb and the FSS are behind schedule in their implementation.  It would be helpful at this

juncture to know if the Postal Service thinks these projects are not as promising as originally

envisioned.   What can be done to speed up their introduction and acceptance system‐wide?  

Perhaps the Commission should be doing more with regard to measuring service and insisting

on reducing the cost of flats handling.  An objective analysis of these questions would better

inform future plans.  

As a former Mayor and an advocate for community based economic development, I

would have hoped a detailed, innovative new retail strategy had been explored that would, at a

minimum, improve the revenues of post offices to the point that their continuance is

economically as well as socially justified.  I commend Postal Service efforts to build its website

and expand customer access through internet use, and increase sales of stamps at

supermarkets.  But ask the small towns of America if they think government business should be

conducted in Walmarts.  The functions of a Post Office cannot be easily transferred to Walmart

as the Postal Service proposes.  Envisioning the future calls for a transformative process, not a

capitulation to big box retailing.   

IDEAS FOR POSITIVE CHANGE

The Postal Service is capable of new ideas.  It expanded its competitive flat‐rate Priority

Mail program, began an innovative partnership to sell Hallmark cards in its retail stores, and

launched volume incentivizing sales and advertising initiatives.  The Commission has also

approved the Postal Service’s first experimental product under the PAEA.  More ideas for

expanding in these areas or other innovations should be developed by the Postal Service as

soon as possible and, where appropriate, submitted to the Commission for review.  The

Commission’s record of positive approval Postal Service innovations speaks for itself.

The work of the Commission exposes my colleagues and me to ideas from mailers,

stakeholders, the Postal Service and the public.   Here are some of the more transformative

ideas proposed for inclusion in the Postal Service’s target plans for 2020:   

1. Develop mail products based on value to the customer not necessarily on volume.  

This is the fundamental tenet needed to fix the Postal Service’s broken business

model.    Our Annual Compliance Determination pointed to 14 market dominant

products that failed to cover attributable costs amounting to $1.7 billion.    Thirty

workshare discounts exceed avoided costs. The underlying idea is this:  for years the

Postal Service has been relying on volume and it can no longer do that.   Instead of
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continuing to focus on pushing as much volume as possible through its channels, the

Postal Service needs to instead come up with new, higher‐value products that people

are demanding.

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.

2. Convert the bulk of its vehicle fleet to run on electricity reducing annual fuel and

maintenance expenses by more than $400 million per year and increasing America’s

independence from foreign oil.

3. Have a range of products that are fully trackable and traceable and comparable with

those of private package companies.

4. Provide a one‐stop shop for government services.  Not just passports but national park

passes, regional EZ passes, identity cards, and credentialing, etc.

5. Plan to participate as a full partner in the nation’s 2020 census, thereby saving the

country hundreds of millions of dollars.

6. Building on the money order services now offered, introduce and implement a system

to provide assistance to the unbanked, replacing many usurious “pay day” operations

with reliable fair service.

7. Commit to having a network of post offices in key locations that are open more hours

than in 2010 and even on Sundays, and maintain at least one 24/7 post office in every

big city.

8. Implement a comprehensive Vote‐by‐Mail system that suits the needs of all the states

in the union for federal, state and local elections held at any and all times of the yea

9. Reinvent the letter carrier and tap the value of the relationship between the carrier

and the customer: empower him/her to measure real‐time service; to be accessible to

the community by email; to be the eyes and ears of the community; and to be the

sales and service point for small busines

10. Reorganize the workforce  ‐ not to make them part time employees  ‐ but to enhance

their skills thereby adding flexibility in the processing centers and motivated outgoing

sales people at retail counters.

11. Commit to having ten other ideas in place and operating within the decade

There is no dearth of ideas for modernizing the Postal Service.   Members of our own

Commission staff are independently exploring ideas such as auctioning potential discounts for

postage rates to get a real measure of market demand; adjusting pricing in First‐Class and

Standard Mail to improve Postal Service margins and encourage mailer efficiencies; and

offering postal vehicles as platforms for sensors that generate revenue from other government
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agencies to automatically measure pollution, collect weather data, identify chemical spills,

identify cell phone/wireless dead spots, spot natural gas leaks and map potholes.

Ideas like these will preserve the importance of the Postal Service to the Nation, even

though they may not be sufficient to completely offset long‐term societal shifts in

communications.

Just as limiting access and declines in service create a self‐fulfilling prophecy,

improvements which may seem small can create an incremental reinvigoration that begets real

growth.

Timing Changes

The Commission appreciates the pressures that the Postal Service is under and the hard

work and dedication both management and employees have shown in making changes that

reduce costs without too much sacrifice in service.  They should and are continuing to do so.  

However, an axiom in the business community is that a company cannot cut its way to success.  

It has to have a real plan.  The consensus among the mailers I have spoken with is that there is

very little that is new in these Postal service reports.   

The ten‐year plan and the newly issued GAO report are not effective plans for the

future.  Rather, by concentrating on cuts at the expense of service and innovation, the Postal

Service offers the path to obsolescence.   

2010 is not the time to implement wholesale cuts to the Postal Service.  Before the

Congress decides on the Postal Service’s request to cut days of delivery and resulting service

levels we hope it will address the pension and retiree health benefit issues and develop

manageable payment schedules for the Postal Service.  The Commission is collecting evidence

to provide a complete analysis of the five‐day delivery proposal and our findings should provide

Congress and the Postal Service valuable information on the costs and benefits involved.      

Time will also provide breathing room for hard‐pressed Postal customers and the

economy.  If history is a guide, as the economy rises it will carry the mail with it.  I believe that

with a positive approach it is possible to create a realistic plan that envisions the future, a

future with a vibrant communications network providing universal service and meeting

changing citizen and customer needs and demands.

Thank you, that concludes my testimony.   

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