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ACCOMPLISHING POSTAL REFORM IN THE 115TH 

CONGRESS – H.R. 756, THE POSTAL SERVICE 

REFORM ACT OF 2017 

HEARING 

BEFORE THE

COMMITTEE ON OVERSIGHT 

AND GOVERNMENT REFORM 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

FEBRUARY 7, 2017 

Serial No. 115–13 

Printed for the use of the Committee on Oversight and Government Reform 

( 

Available via the World Wide Web: http://www.fdsys.gov 

https://oversight.house.gov 


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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

Jason Chaffetz, Utah, Chairman 

John J. Duncan, Jr., Tennessee 

Darrell E. Issa, California 

Jim Jordan, Ohio 

Mark Sanford, South Carolina 

Justin Amash, Michigan 

Paul A. Gosar, Arizona 

Scott DesJarlais, Tennessee 

Trey Gowdy, South Carolina 

Blake Farenthold, Texas 

Virginia Foxx, North Carolina 

Thomas Massie, Kentucky 

Mark Meadows, North Carolina 

Ron DeSantis, Florida 

Dennis A. Ross, Florida 

Mark Walker, North Carolina 

Rod Blum, Iowa 

Jody B. Hice, Georgia 

Steve Russell, Oklahoma 

Glenn Grothman, Wisconsin 

Will Hurd, Texas 

Gary J. Palmer, Alabama 

James Comer, Kentucky 

Paul Mitchell, Michigan 

Elijah E. Cummings, Maryland, Ranking 

Minority Member 

Carolyn B. Maloney, New York 

Eleanor Holmes Norton, District of Columbia 

Wm. Lacy Clay, Missouri 

Stephen F. Lynch, Massachusetts 

Jim Cooper, Tennessee 

Gerald E. Connolly, Virginia 

Robin L. Kelly, Illinois 

Brenda L. Lawrence, Michigan 

Bonnie Watson Coleman, New Jersey 

Stacey E. Plaskett, Virgin Islands 

Val Butler Demings, Florida 

Raja Krishnamoorthi, Illinois 

Jamie Raskin, Maryland 

JONATHAN SKLADANY, Staff Director 

WILLIAM MCKENNA, General Counsel 

JEFFREY POST, Government Operations Subcommittee Deputy Staff Director 

SHARON CASEY, Deputy Chief Clerk 

DAVID RAPALLO, Minority Staff Director 


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C O N T E N T S 

Page 

Hearing held on February 7, 2017 ......................................................................... 1 

WITNESSES 

The Hon. Megan J. Brennan, Postmaster General, United States Postal Service 

Oral Statement ................................................................................................. 8 

Written Statement ............................................................................................ 10 

The Hon. Robert G. Taub, Chairman, Postal Regulatory Commission 

Oral Statement ................................................................................................. 29 

Written Statement ............................................................................................ 31 

Ms. Lori Rectanus, Director, Physical Infrastructure Issues, U.S. Government 

Accountability Office 

Oral Statement ................................................................................................. 64 

Written Statement ............................................................................................ 66 

Mr. Arthur Sackler, Manager, Coalition for a 21st Century Postal Service 

Oral Statement ................................................................................................. 88 

Written Statement ............................................................................................ 90 

Mr. Fredric V. Rolando, President, National Association of Letter Carriers 

Oral Statement ................................................................................................. 97 

Written Statement ............................................................................................ 99 

APPENDIX 

H.R. 756 Postal Service Reform Act of 2017, submitted by Mr. Chaffetz, 

can be accessed at: http://www.lis.gov/cgi-lis/query/z?c115:H.R.756: 

NARFE Statement for the Record, submitted by Mr. Connolly .......................... 140 

Letter of February 1, 2017, from United Postmasters and Managers of America, submitted by Mr. Lynch ............................................................................... 148 

Coalition for a 21st Century Postal Service Statement, submitted by Mr. 

Lynch ..................................................................................................................... 149 

American Catalog Mailers Association PRNewswire, submitted by Mr. Lynch . 150 

Letter of February 2, 2017, from Harland Clarke Holdings, submitted by 

Mr. Lynch ............................................................................................................. 151 

Letter of February 1, 2017, from National Association of Postal Supervisors, 

submitted by Mr. Lynch ...................................................................................... 152 

Response from the United States Postal Service to Questions for the Record ... 153 


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ACCOMPLISHING POSTAL REFORM IN THE 

115TH CONGRESS – H.R. 756, THE POSTAL 

SERVICE REFORM ACT OF 2017 

Tuesday, February 7, 2017 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, 

Washington, D.C. 

The committee met, pursuant to call, at 10:02 a.m., in Room 

2157, Rayburn House Office Building, Hon. Jason Chaffetz [chairman of the committee] presiding. 

Present: Representatives Chaffetz, Issa, Jordan, Amash, Gosar, 

Farenthold, Massie, Meadows, DeSantis, Ross, Walker, Blum, Hice, 

Grothman, Palmer, Comer, Mitchell, Cummings, Maloney, Norton, 

Clay, Lynch, Connolly, Kelly, Lawrence, Krishnamoorthi, and 

Raskin. 

Chairman CHAFFETZ. The Committee on Oversight and Government Reform will come to order. And without objection, the chair 

is authorized to declare a recess at any time. 

Thank you all for being here for an important topic that the committee has some keen interest and jurisdiction in dealing with the 

postal reform that this Congress really needs to address. 

I want to thank Chairman Issa, the chairman previous to my becoming the chairman, who really I think laid a foundation, did a 

great deal of work on this topic and issue. So I thank the chairman 

for all the progress that was made at that time, and hopefully, I 

think we have built on that. 

We are faced, though, with 10 consecutive years of financial losses at the Postal Service, totaling some $62 billion. And the 

United States Postal Service isn’t at a crossroad, it is at the crossroads. It is up to this Congress to address the challenges facing the 

Postal Service, its customers, the businesses that rely on it, and 

the taxpayers who will bear the burden if we fail to act. 

What I think I want the public to understand is that, by and 

large, there is no appropriation that Congress makes to the Postal 

Service. The Postal Service has to offer products and generate revenue in order to sustain itself. But there are some things that Congress can do to put it on a more even playing field to make the system more fair as it moves forward. 

And there are some reform efforts, things that may seem small 

to the outside, small on the surface, but they can make literally billions of dollars of difference in the financial equation for the Postal 

Service, and I would argue that as a tool of the economy, it is vital 

for us to have a good, strong, vibrant Postal Service. It happens to 


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actually be one of the few things that is actually in the Constitution that we are supposed to be working on. So there are a lot of 

good things that we can do, but it really starts with the members 

in this room. 

Let’s understand that the difficulties facing the Postal Service 

are significant. Since 2006, the annual volume of mail delivered by 

the Postal Service has declined by roughly 30 percent. While some 

of these losses are offset by unprecedented growth in package delivery, the new revenue is not enough. The Postal Service faces some 

$119 billion in unfunded liabilities, including $52 billion in liabilities just for retiree health care. 

Taxpayers will be left holding the bag for these liabilities if we 

fail to act. We don’t want to be in a situation where there has to 

be a bailout. We are trying to avoid a bailout. I want people and 

members to understand that a failure to act will lead us down that 

path. 

To its credit, the Postal Service has not sat by idly. Recognizing 

the challenges, the Postal Service embarked on aggressive cost-cutting measures during the last decade. The agency reduced its career employee headcount since 2006 by roughly 200,000 people. 

These are people, real people with families and incomes. But that 

is a dramatic change. I wish others in the Federal Government had 

maybe acted as responsibly as the Postal Service has because they 

were able to do it without resorting to layoffs. 

Unfortunately, despite these efforts, the Postal Service cannot 

fully address its challenges without legislative reform, and for that 

reason, the last Congress we worked very closely with Ranking 

Member Cummings. And I want to really thank him. I also want 

to thank Congressman Meadows, who is the chairman of our subcommittee who oversees this. He has poured untold number of 

hours and passion into this and expertise trying to find a reasonable solution. 

Also heavily engaged, Representative Connolly, Representative 

Lynch trying to come together and craft a comprehensive, bipartisan reform proposal. And that is what I think is also imperative. 

If we are actually going to get to the finish line and get a bill on 

the President’s desk, I would like to see that as a bipartisan reform 

proposal that we can all get behind and champion. I didn’t get everything I wanted. Congressman Cummings didn’t get everything 

he wanted. But that is the nature of coming up with a compromise 

without compromising your principles, but coming up with a compromise that we can all live with that puts the Postal Service on 

the financial trajectory that it needs to be. 

Last July, I was proud to see our committee favorably report the 

bill by a voice vote. Unfortunately, it didn’t make it across the finish line before the end of the Congress, but we did make a lot of 

progress, particularly with getting the CBO, the Congressional 

Budget Office, to come in and score the bill. 

Building on our legislation from last Congress, last week we introduced H.R. 756, the Postal Service Reform Act of 2017. Our bipartisan group of original cosponsors grew by one with the addition 

of Congressman Dennis Ross. He was not on the committee in the 

last Congress, but he was on the committee before that and spent 


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a lot of time working on the postal issues, and we appreciate his 

expertise. 

We are also benefitted by the expertise of Brenda Lawrence. I 

want to thank her for her passion and commitment on this. She 

knows it firsthand, and she is a valuable voice in this legislation 

moving forward. 

In an era of partisan politics, this legislation represents a significant bipartisan compromise. The bill gives Postal Service the freedom it needs to successfully meet the business realities the agency 

faces. To do this, the bill allows the Postal Service to fully integrate 

its healthcare plans with Medicare. With such integration, the 

Postal Service can virtually wipe out its $52 billion retiree 

healthcare unfunded liability. 

Further, the bill achieves real savings by moving to more efficient mail delivery, saving the Postal Service more than $200 a 

year for each address that can be converted from the door-to-door 

delivery to centralized delivery. The bill also helps the agency more 

accurately evaluate its cost structure and reforms key governance 

matters. Our witness panel today represents a cross section of the 

mailing industry stakeholders. I want to thank them personally. I 

also want to thank a lot of people that are in the audience today 

and others who we have spent considerable time with trying to 

come up with a reasonable bipartisan solution that puts the financial trajectory of the Postal Service in the right direction. 

It is a tool of the economy. It is something that affects every single American, and we need to get it right. 

Chairman CHAFFETZ. With that, I will now recognize the ranking 

member, Mr. Cummings. 

Mr. CUMMINGS. Thank you very much, Mr. Chairman, and I do 

thank you for convening today’s hearing to examine how we can accomplish the postal reform in this new Congress. 

Mr. Chairman, after years of work, we came very close, as you 

said, to enacting legislation reforming the Postal Service during the 

last Congress. But we simply just ran out of time. Mr. Chairman, 

you made a very strong commitment at the end of last year, end 

of the term. You said this would be one of the first orders of business. And I want to take this moment to thank you for keeping 

your promise. This is very, very important. 

And the other thing I thank you for, Mr. Chairman, is so often 

what happens is that when a lot of work has been done in one 

term, it is just tossed away and then you have to start all over 

again. But I thank you for picking up where we left off and making 

the bill a better bill and working with all of these people in this 

audience and the members on our committee who I will mention 

in a few minutes. But again, I want to thank you for that commitment and carrying through with it. 

And so I am proud of how much progress we made during the 

last Congress. After more than a year of negotiations, the chairman 

and I, together with Subcommittee Chairman Meadows and Subcommittee Ranking Member Connolly and Representative Lynch 

and Representative Ross and Representative Lawrence, we were 

able to introduce a bipartisan postal reform bill. Our bill reflected 

close work with the many stakeholders concerned about postal reVerDate Nov 24 2008 14:52 Aug 15, 2017 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 H:\26360.TXT APRIL

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form, including most of the witnesses we will hear from today. And 

I want to again thank you all of you. 

One of the things that we found out with regard to the postal 

system is that we have a lot of stakeholders. And all of those stakeholders were willing to compromise, to work hard, to give their 

input, and we could not have done this without you. 

We were able to pass this bill out of committee. We ran into 

delays waiting for a cost estimate from the Congressional Budget 

Office. We found ourselves working through the 11th hour negotiating with the Homeland Security and Governmental Affairs Committee in the Senate. I want to thank Chairman Chaffetz and my 

colleagues for their commitment in advancing this effort today. 

We have already introduced a bill this Congress that is substantially similar to the bill we wrote last Congress. I look forward to 

considering that bill in this committee and eventually in the full 

House as soon as possible. 

The urgency of enacting comprehensive postal reform has only 

increased. The Postal Service faces deepening financial challenges 

and eventually will run out of cash without legislative relief. The 

total volume of mail handled by the Postal Service has fallen by 

more than 25 percent since 2006 and continued declines are expected. 

The cost of the Postal Service’s operations have also risen in part 

because the Postal Service is required to provide universal delivery 

service to every address in the United States. Every year, about 

900,000 new addresses are created in this country, and the network of postal facilities, letter carriers, and workers must expand 

to deliver to every new address, 900,000. That is a lot. 

The Postal Service is burdened by a 2006 statutory requirement 

by Congress to fully prefund its liabilities for retiree healthcare 

costs, a requirement that no other Federal agency or private sector 

company faces. These liabilities, combined with the Postal Service’s 

unfunded pension liabilities, currently total about $125 billion, 

which is almost double its annual revenues. 

Even as its fixed costs continue to grow, the exigent rate increase 

that had been approved to enable the Postal Service to recoup some 

of the losses incurred because of the 2008 recessions permanent impact on mail volume expired. Since 2006, the Postal Service has implemented significant cost-saving measures, including reducing positions and work hours and consolidating facilities and delivery 

routes. 

I want to thank the Postmaster General for her efforts, but I also 

want to take a moment to thank the unions for bending over backwards and trying to work with the Postal Service in coming up 

with practical solutions so that on one hand you protected your employees to make sure that they had security and benefits that they 

were promised but at the same time did everything in your power 

to make sure we had a viable Postal Service. And from the depths 

of my heart I thank all of you. 

Altogether, these actions have saved the agency some $14 billion 

per year. However, there are numerous legal restrictions that limit 

the Postal Service’s ability to cut costs or introduce new products 

to counteract its deteriorating financial condition. 


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As the chairman said, none of us got everything we wanted in 

this bill. One of the things that I have worked for for many years 

is trying to open up the doors for the Postal Service to do other 

things and to generate new types of income. The things that I really wanted in the bill are not there, but, on the other hand, I didn’t 

want to see us throw away this golden opportunity that we have. 

And perhaps we can work that out some other time. But again, 

none of us got what we want. I know that people who are sitting 

in the audience who are saying, boy, I wish I had that and I wish 

I had this. Just wish we get the bill through, please. 

Taking all these requirements and trends together, the Postal Service reported a net loss of $5.3 billion for fiscal year 2016, which 

represents the 10th consecutive year of net losses. 

We have repeatedly discussed the deteriorating financial condition at the Postal Service in this committee, but the situation has 

now worsened by unprecedented lack of any Senate-confirmed 

members on the Postal Service’s Board of Governors. Because 

many key management decisions are reserved by statute to the 

Senate-confirmed board members, there are many actions such as 

establishing rates, class, and fees for products that the Postal Service simply cannot take now. 

The need for postal reform is as urgent as it ever was. Fortunately, we also may be closer than ever to enacting reform. We 

must press ahead, all of us. We must continue to work together— 

Congress, the Postal Service, and the stakeholders—to achieve 

what has been out of reach for so many years. 

Only we can ensure that this 240-year-old institution, an institution that connects every family, every business, every community 

in this nation will continue to be there to serve all Americans. 

So I want to thank our witnesses for being here today once again 

to discuss what we must do to place the Postal Service on a viable, 

sustainable path for the future. 

And, Mr. Chairman, with unanimous consent I would like to give 

Gerry Connolly—I understand that the chairman will be introducing our subcommittee ranking and chairman, but I just want to 

say before you do that, I want to thank you, Mr. Meadows, and I 

want to thank you, Mr. Connolly, for working so hard to make this 

happen. Thank you, Mr. Chairman. 

Chairman CHAFFETZ. I thank you. 

As the gentleman indicated, I would like to recognize Mr. Meadows and Mr. Connolly to give brief statements as well. 

Mr. Meadows, is recognized. 

Mr. MEADOWS. Thank you, Mr. Chairman. I will be very brief. I 

want to thank you for, as the ranking member talked about, following up on your commitment to finish the work. 

We talked about the 11th hour. Actually, I think it was the 11– 

1/2 hour or the 11th—I got more phone calls from Senator Carper 

before the first of the year than I think my wife would normally 

endure. And so that being said, we are picking up where we left 

off hopefully to get it across the finish line in a way that probably 

makes everybody both happy and sad at the same time, and that 

is the only way you get a good bipartisan compromise is to make 

sure that there is something for everyone to complain about and for 

everybody to brag about. 


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And that being said, I think it is incredibly important to recognize that if we do not act, this is really going to affect jobs. When 

you look at the backbone of the Postal Service, it is not just for 

those postal employees but it is for the 7.5 million jobs that it represents either directly or indirectly throughout our economy. And 

failure to act would also mean that it would require a bailout on 

behalf of the American taxpayer, something that I am acutely sensitive to and want to avoid if we can to the tune of some $119 billion minimum. According to my calculations, it could be upwards 

of $150–175 billion in terms of a bailout if we don’t act. 

And so, Mr. Chairman, I just want to applaud you and this committee and the staff for their hours of working very diligently to 

not only reintroduce this bill but hopefully have some additional 

comments from the expert witnesses here today, and I look forward 

to their testimony. 

And with that, I will yield back. 

Chairman CHAFFETZ. I thank the gentleman for the balance of 

the time. 

We would like to recognize Mr. Connolly of Virginia. 

Chairman CHAFFETZ. I thank the gentleman. 

Mr. CONNOLLY. Thank you, Mr. Chairman. 

And first, let me ask unanimous consent that testimony provided 

by the National Active Retired Federal Employees Association, 

NARFE, opposing our bill be entered into the record. 

Chairman CHAFFETZ. Without objection, so ordered. 

Mr. CONNOLLY. I thank the chair. 

And I want to commend Chairman Chaffetz and Ranking Member Cummings for their leadership in holding together this coalition, not easy. And it is a bipartisan coalition that helped write this 

bill. And especially Chairman Chaffetz could have yielded to the 

temptation, in light of the circumstances of 2017, to start all over 

again. And he didn’t do that. We worked together. We held it together. And I want to thank all the stakeholders represented in 

this room and those not in this room for understanding we can’t 

let perfect be the enemy of the good. 

The Postal Service as we know it is insolvent. This bill is intended to put it back on the road to solvency. This bill is intended 

to correct big mistakes that were made, maybe with the best of intentions, back in 2006 in the lame duck that was called reform but 

added, you know, an untenable burden to the Postal Service. 

And we have worked hard at the staff level and with stakeholders and among ourselves as Members to come up with a bipartisan bill. It incorporates a number of principles we have been 

fighting about. I have spent nine years of my life on postal reform. 

When I ran for this office, postal reform was not one of my platform provisions, but it became one because of the urgency of the 

issue. 

And we may have opportunities to perfect it as we go along. 

Until a bill is passed and sent to the President for signature, it is 

always a work in progress. And so there may be opportunities to 

try to perfect things, but the coalition we have got is both strong 

and fragile. And there are a lot of moving pieces, and sometimes, 

you know, changing one affects all of it. 


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And so I commend the chairman and the ranking member and 

my colleagues—Mr. Lynch, Mr. Meadows especially, and of course 

Ms. Lawrence, who brings so much expertise and experience to this 

subject—for making this happen. It is not always that we are able 

to come together on a bipartisan basis on a major piece of reform 

legislation. It is exactly the kind of work this committee ought to 

be doing, and we are doing it. 

And, again, I really thank Mr. Chaffetz for his leadership and his 

patience, and I thank my colleagues—Mr. Meadows, Mr. Lynch, 

and of course the ranking members Mr. Cummings—especially for 

their hard work on this very important endeavor. 

I yield back. 

Chairman CHAFFETZ. The gentleman yields back. Thank you 

both very much. 

I would ask unanimous consent to enter the following letters of 

support into the record: a letter from the United Postmasters and 

Managers of America; the Coalition for 21st Century Postal Service; a letter from the American Catalog Mailers Association; a letter of support from Harland Clarke Holdings; and a letter from the 

National Association of Postal Supervisors all in support. Without 

objection, so ordered. 

Chairman CHAFFETZ. We will hold the record open for five legislative days for any member who would like to submit a written 

statement. And I would also add QFRs or questions for the record, 

we will allow five legislative days for that. And then if we have any 

of those, we will be submitting to those that serve on this panel. 

We would expect and hope a very timely response to any inquiries 

that might come that way as well. 

We will now recognize the panel of witnesses. We are pleased 

and honored to welcome the Honorable Megan Brennan, the Postmaster General of the United States Postal Service. We have the 

Honorable Robert Taub, chairman of the Postal Regulatory Commission. We have Ms. Lori Rectanus, director of Physical Infrastructure Issues at the United States Government Accountability 

Office. Mr. Arthur Sackler is manager for the Coalition for a 21st 

Century Postal Service, and Mr. Fredric Rolando, president of the 

National Association of Letter Carriers. 

We welcome you all. We thank you for being here. As you know, 

I think you have all testified before us previously, but pursuant to 

committee rules, all members are to be sworn before they testify, 

so if you will please rise and raise your right hand. 

[Witnesses sworn.] 

Chairman CHAFFETZ. Thank you. Let the record reflect that all 

witnesses answered in the affirmative. 

We still start with the Postmaster. As you know, we would appreciate it if you could limit your verbal comments to roughly five 

minutes. We will be able to give you a little latitude, but your entire written statement will obviously be made a part of the complete record. 

You are going to need to pull those microphones up close and 

tight to your mouth so we get a good—it is broadcast, and we need 

to make sure we get a good audio out of this as well. 

The Postmaster General, you are now recognized for five minutes. 


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WITNESS STATEMENTS 

STATEMENT OF MEGAN J. BRENNAN 

Ms. BRENNAN. Thank you. Good morning, Mr. Chairman, Ranking Member Cummings, and members of the committee. Thank 

you, Chairman Chaffetz, for calling this hearing. I’m proud to be 

here today on behalf of the 640,000 dedicated men and women of 

the United States Postal Service. 

The Postal Service provides the Nation with a vital delivery platform that enables American commerce, serves every American business and home, and binds the Nation together, as it has for more 

than 240 years. 

The Postal Service is self-funded. We pay for our operations 

through the sale of postal products and services and do not receive 

tax revenues to support our business. Over the past decade, total 

mail volume declined by 28 percent. First class mail, which makes 

the greatest contribution to covering the cost of our networks, declined by 36 percent. In response, we have streamlined our operations, restructured our networks, reduced the size of our workforce, and improved productivity. As a result of these efforts, we’ve 

achieved annual cost savings of approximately $14 billion. 

We also successfully stabilized marketing mail revenues and 

grew our package business, which together drive e-commerce 

growth. However, given the constraints imposed by law, all of those 

actions cannot offset the negative impacts caused by the consistent 

decline in the use of first class mail. 

The Postal Service is required to maintain an extensive network 

necessary to fulfill our universal service obligation to deliver the 

mail to every address six days a week, regardless of volume. The 

cost of the network continues to grow as approximately one million 

new delivery points are added each year. However, less volume, 

limited pricing flexibility, and increasing costs means that there is 

less revenue to pay for our growing delivery network and to fund 

other legally mandated costs. 

Since 2012, the Postal Service has been forced to default on $33.9 

billion in mandated payments for retiree health benefits. Without 

these defaults, the deferral of critical capital investments and aggressive management actions, we would not have been able to pay 

our employees and suppliers or deliver the mail. 

Despite our achievements in growing revenue and improving 

operational efficiency, we cannot overcome systemic financial imbalances caused by business model constraints. Without legislative 

and regulatory reform, our net losses will continue and our financial position will worsen, threatening our ability to meet America’s 

evolving mailing and shipping needs. 

Mr. Chairman, we believe there is broad support for the core provisions of the bill you have introduced. By enacting this urgently 

needed legislation, which includes those provisions, the Postal 

Service can achieve an estimated $26 billion in combined cost reductions and new revenue over five years. Enactment of these provisions, favorable resolution of the Postal Regulatory Commission’s 

pricing review system, and continued aggressive management actions will return the Postal Service to financial stability. 


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Medicare integration is the cornerstone of your bill. The civilian 

Federal Government is not required to prefund retiree health benefits, but that obligation is imposed on the Postal Service. We are 

merely asking to be treated like any business that offers health 

benefits to its retirees and has to fund them. 

Full integration with Medicare is a universally accepted best 

practice in private sector. Requiring full Medicare integration for 

Postal Service retirees would essentially eliminate our unfunded liability for retiree health benefits. It is simply a matter of fairness 

to enable the Postal Service and our employees to fully utilize the 

benefits for which we have paid. 

We also strongly endorse the provision of the bill that would restore half of the exigent rate increase as a permanent part of our 

rate base. That provision will help us pay for the infrastructure 

necessary to fulfill our universal service obligation. 

Mr. Chairman, our financial challenges are serious but solvable. 

We appreciate your continued support and your focus on bipartisan 

postal reform in the 115th Congress. H.R. 756 is fiscally responsible and enables the Postal Service to invest in the future and to 

continue to provide affordable, reliable, and secure delivery service 

to every business and home in America. 

Mr. Chairman, Ranking Member Cummings, I look forward to 

working with you in this committee and our stakeholders to restore 

the financial health of the United States Postal Service. 

This concludes my remarks, and I welcome any questions that 

you and the committee may have. Thank you very much. 

[Prepared statement of Ms. Brennan follows:] 


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KING-6430 with DISTILLERInsert offset folio 1 here 26360.001

iir!f!!ll UNITED STIJ.TES J!iiif POSTIJ.L SERVICE 

STATEMENT OF 

POSTMASTER GENERAL AND CHIEF EXECUTIVE OFFICER 

MEGAN J. BRENNAN 

before the 

House Oversight and Government Reform Committee Hearing 

"Accomplishing Postal Reform in the 115th CongressH.R. 756, the Postal Service Reform Act of 2017" 

UNITED STATES HOUSE OF REPRESENTATIVES 

Tuesday, February 7, 2017 

Good Morning Mr. Chairman, Ranking Member Cummings and Members of the Committee. 

I am pleased to represent the 640,000 hard-working and dedicated men and women of the 

United States Postal Service. These men and women play an integral role in every region, 

community and neighborhood of our nation, every day. 

Thank you, Chairman Chaffetz, Ranking Member Cummings and Members of the Committee, 

for calling this hearing, to discuss the need for timely and comprehensive postal reform 

legislation. By law, the United States Postal Service operates as a basic and fundamental 

service provided to the people by the Government of the United States. We provide the nation 

with a vital delivery platform that enables American commerce, serves every American business 

and residential address, and binds the nation together, as it has for more than 240 years. 

WHO WEARE 

We currently deliver to more than 156 million delivery points. The 154 billion pieces of mail we 

deliver annually account for 47 percent of the world's mail, which we deliver at levels of 

efficiency and affordability equal to or exceeding any comparable post. The Postal Service is a 

self-funding entity. We pay for our operations entirely through the sale of postal products and 

services and do not receive tax revenue to support our business. 

Even in an increasingly digital world, the Postal Service remains an essential part of the bedrock 

infrastructure of the economy. The physical delivery of mail and packages to America's homes 

and businesses is the core function of the Postal Service, and this fundamental need of the 

American people will exist for the foreseeable future. 
11 


KING-6430 with DISTILLERInsert offset folio 2 here 26360.002

Our customers place great faith in the ability of the Postal Service to deliver for them, both in the 

literal delivery of mail and packages, and in the larger sense as an organization that is adapting 

and changing to better meet America's evolving delivery needs. 

The Postal Service is speeding the pace of innovation, improving our competitive posture by 

offering new products, and continuing to implement initiatives intended to lower our cost base 

and stabilize our systemic financial imbalances. And we're doing so against a backdrop of great 

change in technology use and consumer habits, and of rapidly rising expectations for delivery 

services. 

During the last decade, we have responded aggressively to the challenges that confronted us. 

For example, in response to the sharp decline in mail volume, we right-sized our operations, 

increased workforce flexibility, and established a more affordable, two-tiered wage system. 

These efforts have resulted in cost savings of approximately $14 billion annually. We also are 

proud of our achievements in growing our package business, and implementing innovations that 

have enhanced the value of the mail to better serve our customers. 

Despite these achievements, our efforts have not been enough- and cannot be enough -to 

restore the Postal Service to financial health, absent legislative and regulatory reform. Our debt 

is at an unsustainable level and while we continue to pursue available management actions to 

reduce our costs even further, there are limited remaining initiatives within our control that will 

result in substantial cost savings without threatening our ability to continue to provide prompt, 

reliable, and efficient postal services. The $5.6 billion net loss for 2016 represented the 10th 

consecutive annual net loss the Postal Service has incurred. We have reached our borrowing 

limit and have a cash reserve that is wholly inadequate for an organization of our size and 

insufficient to meet our future financial obligations. 

Our ability to continually change and improve to meet the changing needs of the American 

economy and society depends upon our ability to operate with a financially sustainable business 

model. My testimony today describes our current financial situation and demonstrates the 

urgent need for the legislation introduced (H.R. 756) that would provide the Postal Service with 

the financial stability to invest in our future and continue to be an engine of growth, to be a 

strong business partner, to compete for customers with compelling new services and offerings, 

and to meet the expectations of the American public. 

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The timing of this hearing is notable. We are now entering the 11th year since the enactment of 

the Postal Accountability and Enhancement Act of 2006 (PAEA). At the time the PAEA was 

enacted, we had just finished fiscal year 2006, in which we delivered 213 billion pieces of mail; 

last year, we delivered 154 billion pieces- a 28 percent decline. Unfortunately, the PAEA did 

not establish a business model with sufficient flexibility to enable us to effectively respond to this 

precipitous volume decline. 

POSTAL SERVICE FINANCIAL CONDITION 

Our business was severely impacted by the Great Recession. First-Class Mail- our most 

profitable product- declined by 36 percent since 2007 and is expected to continue to decline 

as a result of divergence to digital communications and the increase in online transactions. 

Marketing Mail likewise saw a significant volume drop due to a significant reduction in 

advertising spending caused by the recession. This decline in volume has eroded our financial 

stability, and reduced our revenue available to help pay for the nationwide retail, processing, 

transportation and delivery network that we are required to maintain in order to provide universal 

service. 

171 111 

IIIII L 

j 

Volume {First-Class Mall) 

" 

II IIIII 

The consequence of this loss of mail volume, along with continued growth in the required 

delivery points, and unaffordable, legally-mandated payments, has been 10 consecutive years 

of net losses. In 2012, the Postal Service reached the $15 billion statutory borrowing ceiling and 

has been forced to default on $33.9 billion in mandated payments for Retiree Health Benefits 

(RHB). Without these defaults, the deferral of critical capital investments, and aggressive 

management actions, we would not have been able to pay our employees, our suppliers, or 

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deliver the mail. 

Ten Years of Net losses Despite Innovation and Improved Efficiency 

($)Net Loss 

so 

" 2 1$21 

3 

.,. !$·11 

l$1.>1 l$5.1) ($5.1) (SS,O) ($5.5) ($5.1) l$$.6) 

(Sill 

l$1\ll ($8.5) 

(Sll! 

1$1-11 

iSlA) 

!$1$.9) 

1518! 

2007 .... .... lOlO 2011 2012 * 2013 2014 201S 2016 

•Note: The 2012 loss was due to legislative deferral of the 2011 $5.5 billion payment for RHB, which made the total payment due for 

RHB $11.1 billion in 2012. 

MANAGEMENT ACTIONS 

In response to the dramatic changes in our business environment, we acted to right-size our 

network and infrastructure within the constraints of our existing business model and current 

legal obligations. We pursued an aggressive agenda of cost cutting, efficiency improvements, 

and innovation that resulted in approximately $14 billion in annual savings. We achieved these 

annual savings by consolidating processing plants and delivery units; modifying retail hours at 

more than 13,000 Post Offices; reducing the total workforce size by more than 150,000 through 

attrition; negotiating collective bargaining contracts to control costs and increase workforce 

flexibility; and through reductions in administrative overhead. 

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COST CONTROL MEASURES: 9/30/2006-9/30/2016 

Count %Change 

Consolidated Mail Processing Facilities 360 • 54% 

Infrastructure Delivery Route Consolidations 20,000 • 9% 

Post Offices with Reduced Retail Hours 13,000 • 36% 

Work Hours (annual ongoing) 301M • 21% 

Career Employees 187,000 • 27% 

Workforce Non-Career Employees 31,000 .. 31% 

Total Employees 156,000 • 22% 

Administrative Positions 25,000 • 33% 

Number of Administrative Areas 9to 7 • 22% 

Number of Districts 80to 67 • 16% 

Administration 

The Postal Service continues to control costs and meet current and future customer needs and 

market trends. Leveraging available data and enhanced technology, we are improving our 

diagnostics and reporting tools. Recent targeted capital investment has allowed the organization 

to process mail and increasing package volume more efficiently. 

INNOVATION 

As a part of our efforts to adjust to the dynamic marketplace, we are changing and improving to 

better serve our customers through continued innovation and improved efficiency. We continue 

to focus on anticipating customer needs and enhancing the value of mail while remaining 

proactive, flexible and responsive to the marketplace. Focused innovation, such as the 

integration of marketing mail and digital advertising, is key to sustaining mail volume into the 

future. 

We also continue to innovate by spurring growth in our package business. We are partnering 

with a number of major U.S. retailers to develop customized delivery solutions to meet their 

particular business needs. Examples ofthe solutions we have developed include our Sunday 

and same-day delivery initiatives, as well as our "ship-from-store" agreements that expedite the 

delivery of goods from businesses to consumers and improve convenience. These efforts have 

significantly enhanced the continued double-digit growth in package volume. 

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Continued innovation in our package business is essential to our ability to meet our universal 

service obligation to the American people as First-Class Mail continues to decline. These 

products provide an essential - and growing - level of contribution to help us pay for our 

institutional costs, and thus help to sustain the network that benefits all mailers. 

RECENT FINANCIAL PICTURE 

As a result of these innovation and cost reduction initiatives, in the last three years, we grew our 

package business and stabilized our marketing mail volume - which together with the 

temporary exigent price increase resulted in increased revenue and generated $3.2 billion of 

controllable income. 

Controllable income is a non-Generally Accepted Accounting Principles (GAAP) measure that 

excludes the mandated lump-sum RHB prefunding, and non-cash actuarial adjustments to our 

workers' compensation and Federal Employees Retirement System (FERS) liabilities over 

which management has little or no control. Controllable income is more reflective of operating 

performance than net income, due to the outsized effects of these mandated and uncontrollable 

expenses. Although our progress in achieving three consecutive years of controllable income 

has demonstrated the effectiveness of our innovation, marketing and cost-management 

strategies, when non-controllable expenses are considered, our net losses over the last three 

years have averaged over $5 billion, driven primarily by our continuing obligation to fund retiree 

health benefits, which accounted for our entire loss over the last 3 years. 

As a result of these net losses, we do not have sufficient cash to meet all of our existing legal 

obligations, pay down our debt, and maintain a sufficient level of liquidity to ensure continuity of 

postal operations and meet our universal service obligation. Our cash balance remains 

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insufficient to support an organization with more than $70 billion in annual expenses, and with 

liabilities that exceed assets by $96 billion, when all post-retirement obligations are included. 

Total Liabilities, Including Retirement Obligations, Exceed Assets by $96 Billion 

As of Sept. 30, 2016 

CSRS Fund Balance $174.4B CSRS Actuarial Uability $191.9B 

FERS Fund Balance $112.1B FERS Actuarial liability $115.98 

RHB Fund Balance $51.98 Retiree Heatth Benefits Obligation $104.08 

Total Retirement-Fund Assets $338.4B Total Retirement-Related liabilities $411.88 

Workers' Compensation $20.08 

Debt $15.0B 

Unrestricted Cash $8.18 Accrued Compensation, $4.68 

benefits, and leave 

land, Buildings & Equipment, net $15.38 Deferred Revenue $2.38 

Other Assets $1.88 Other $5.48 

Total Assets $363.68 Total Liabilities $459.18 

This chart includes all assets and liabilities of pension and post-retirement health benefits obligations. 

Items highlighted in yellow are not shown on our balance sheet and the RHB obligations are valued under 

actuarial funding basis as of Sept. 30, 2016. 

CAPITAL INVESTMENT 

In response to the grave financial crisis brought on by the Great Recession and continued 

electronic diversion of mail, we dramatically slowed our capital-investment activity. This 6-year 

period of reduced capital investment was a short-term countermeasure to a financially 

challenging operating environment during which we were at the statutory borrowing limit and 

had insufficient cash reserves. During this period, capital investments were restricted to those 

necessary to ensure the health and safety of employees and customers, and those that 

produced a significant and rapid return on investment. 

In 2015 and 2016, the Board of Governors decided it was necessary to increase capital 

investments to address deferred initiatives and provide critical new equipment and systems 

required to ensure our continued ability to provide universal service and improve our financial 

results. These investments include replacing aged administrative, delivery and service vehicle 

fleets; repairing facilities; sustaining, enhancing or developing new IT systems; ensuring IT and 

physical security; and procuring, upgrading and maintaining mail and package processing 

equipment. As the chart below illustrates, we continue to be very judicious in our capital 

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investments, as 2017 projected outlays remain below 2007 levels. 

Postal Service Capital Investment 

53'000 ls2.111 ·----r=-==cap"'n"',"",ea"',""o""u1l"'a"'ys======;--

$2,500 

$2,000 

$1,500 

$1.000 

$500 

--- 2000~2005Avg. Capital caSh Outlay= $2,186 

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 

Plan Fhcll Yar 

BUSINESS MODEL CHALLENGE 

The PAEA did not establish a business model with sufficient flexibility to enable us to effectively 

respond to ongoing volume declines. 

Some of our most significant costs are fixed by law and are outside management's control. 

Further, our ability to earn revenue to pay for those costs is constrained by law. This 

fundamental imbalance is the root of our financial instability, and is primarily influenced by three 

key factors: 

Universal Service Obligation: We are required to maintain an expansive retail, 

transportation, processing, and delivery network, so that we can serve every address six 

days a week. The cost of the network continues to grow as the country adds 

approximately 1 million delivery addresses each year. Additionally, total mail volume has 

declined from 213 billion pieces in 2006 to 154 billion pieces last fiscal year, and 

projections are that mail volume will continue to decline. Simply put, we deliver less mail 

to more addresses every year. 

Legally mandated costs: The Postal Service is also legally required to participate in 

U.S. government pension, health, and benefits programs. By law, we have been 

required to fund RHB using an onerous and unaffordable accelerated prefunding 

payment schedule, which is unique to the Postal Service. Beginning in 2017, this is 

replaced by an equally unaffordable system of funding retiree health benefits normal 

costs and paying down the unfunded liability of the retiree health benefits fund. 

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• Price cap: We operate under a fixed statutory price cap that applies to the mail products 

that generate 74 percent of total revenue. Reduced mail volume and the constraints of 

our statutory price cap means there is less revenue to pay for our required and 

increasingly expensive network and other costs imposed upon us by law. 

UNIVERSAL SERVICE OBLIGATION 

The Postal Reorganization Act of 1970 and other provisions of Title 39, United States Code, set 

the parameters for the Postal Service's universal service obligation (USO). The dimensions of 

the USO can be summarized as follows: 

Product scope: Pertains to all postal services, which must be designed to meet public 

needs. 

• Universality: The public must have "ready access to essential postal services," to the 

extent "consistent with reasonable economies." Postal services must be provided 

"throughout the United States" to, "as nearly as practicable, the entire population of the 

United States," explicitly highlighting the need to service "rural areas." And the Postal 

Service may not unduly or unreasonably discriminate among mailers. 

• Service: According to riders that Congress has consistently inserted into annual 

appropriations bills, the Postal Service must deliver mail six days per week to most 

addresses, regardless of whether it makes economic sense to do so. In addition, the 

Postal Service must prioritize "prompt" and "expeditious" mail delivery. The Postal 

Service must design its service standards so as to "reasonably assure Postal Service 

customers delivery reliability, speed and frequency consistent with reasonable rates and 

best business practices." 

• Price: Certain rates must be uniform across the nation. Some mailers are statutorily 

entitled to discounted or free rates. 

Accountability: The Postal Regulatory Commission (PRC) is authorized to adjudicate 

disputes about undue or unreasonable pricing discrimination, improper closing or 

consolidation of Post Offices, as well as review the Postal Service's service standards 

regulations, and certain other matters that bear on the USO. The Postal Service must 

measure and report publicly about its service performance, which the Commission 

reviews as part of its annual compliance determination. 

Most of these universal service parameters are broad and allow for some discretion on the part 

of the Postal Service to adjust operations to changing conditions. However, the Postal Service's 

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discretion is checked by statutory restrictions, the prospects of legal disputes before the PRC or 

in labor arbitration, oversight by members of Congress, and, the prospect that service 

reductions could lead to decreased demand from the consuming public. 

While some private delivery companies provide competing service with respect to some USPS 

products, they do not operate under a USO. The USO legally binds us to provide prompt and 

reliable service to the entire nation at affordable (and in some cases uniform) prices, regardless 

of cost. In recognition of the burdens imposed by the USO, Congress has historically sought to 

sustain the USO by guaranteeing the Postal Service certain revenue. The Private Express 

Statutes require all letters less than 12.5 ounces carried over post routes to be sent through the 

Postal Service, with various exceptions. Another statute requires all mailable matter placed into 

mailboxes to bear postage; that statute not only protects postal revenue, but also ensures the 

privacy, security and efficiency of the mail. 

LEGALLY MANDATED COSTS 

We are required to participate in U.S. government pension and health benefits programs for 

employees and retirees, including the Federal Employees Health Benefit (FEHB) program, the 

Civil Service Retirement System (CSRS), the Federal Employees Retirement System (FERS) 

and the Federal Employees' Compensation Act for workers' compensation (FECA). The PAEA 

imposed a requirement on the Postal Service to prefund the Postal Service Retiree Health 

Benefits Fund (PSRHBF) in 2006, on an accelerated basis for 10 years, and on an actuarial 

basis thereafter. 

As noted above, the fixed RHB payment schedule ended last year, and has been replaced with 

a requirement to make RHB normal cost payments and to begin paying down our unfunded 

RHB liability. In addition, beginning this fiscal year (FY 2017) we are also obligated to begin 

amortizing our unfunded liability in CSRS. These obligations are in addition to another sizable 

existing payment - normal cost payments under FERS and amortization payments on an 

unfunded FERS liability (we contend that FERS is not underfunded if our liability was more 

appropriately calculated using postal-specific economic and demographic assumptions, and 

have therefore requested that the Office of Personnel Management (OPM) reconsider this 

amortization amount). The table below highlights the average required annual retirement-related 

payments over the last five years, as well as the average projected annual payments for the 

next five years. 

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• Excludes $5.56 in 2011 rescheduled 

Therefore, we remain subject to very sizable retirement-related payments going forward, on top 

of our operating expenses and needed increase for critical capital expenditures on items such 

as information technology infrastructure, processing and delivery infrastructure, and new 

delivery vehicles. 

Absent fundamental legislative and regulatory reform, we continue to face the prospect of 

defaulting on future retirement-related payments in order to continue paying our employees and 

suppliers and to provide postal services to the American public. This increases the risk that 

taxpayers may ultimately be called on to fund these benefits. For instance, a failure to make the 

actuarially-based RHB payments that begin this year would reduce and eventually exhaust the 

balance in the PSRHBF. 

Therefore, it is clear that continuing to default on our retirement-related funding obligations is 

not a feasible strategy. Rather, we need a statutory and regulatory structure that allows us to 

take steps to raise revenue and cut costs in a rational, business-like manner, so that we can 

fulfill our responsibility of providing universal service in a self-sufficient manner while also 

covering our post-retirement benefits obligations. This requires two steps: the enactment by 

Congress of appropriate postal reform legislation, and a favorable outcome of the 1 0-year 

pricing system review by the PRC. 

PRICE CAP 

The fixed statutory price cap is now under review by the PRC, as required by law. This review of 

the current pricing system is of critical importance. Through this review, the PRC will assess 

whether the existing system governing market-dominant products is achieving the objectives set 

forth by Congress. The objectives include requirements that the regulatory system enable the 

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Postal Service to be financially stable and have adequate resources to ensure the continuation 

of high-quality service. This is consistent with the long-standing policy that the Postal Service 

provides universal service and meets our other statutory obligations in a self-sufficient and 

business-like manner. Our ability to fulfill these objectives is hamstrung by the inflexible price 

cap imposed by the PAEA over products that produce 74 percent of our revenue. 

The current price cap limits price increases simply on the basis of household inflation (as 

measured by the Consumer Price Index), without regard to our specific circumstances, including 

mail volume trends that have declined precipitously in the last decade and that will continue to 

decline, and our unaffordable but legally mandated cost structure. That unaffordable cost 

structure is driven by our obligation to provide universal service and to maintain the network and 

infrastructure necessary to fulfill that role, as well as by employee benefit and other costs 

imposed upon us by law. 

The PRC began its review proceeding in December 2016 to potentially replace the current 

system with a suitable regulatory structure. We are preparing our initial comments to the PRC, 

which will elaborate further on our view that the PRC cannot rationally conclude that the current 

system is achieving its objectives. We will therefore urge the PRC to replace the current system 

with a regulatory structure that enables us to effectively respond to the challenges and 

opportunities presented by a dynamic marketplace. 

The current price cap has clearly failed to achieve the objectives. Despite the fact that we have 

achieved significant cost savings, the restrictions on our business model and the limitations 

imposed by the cap have contributed to our financially unsustainable position, characterized by 

chronic net losses, high debt, and a liquidity position that is inadequate, and that would have 

been catastrophic had we not defaulted on statutorily mandated payments and deferred critical 

capital investments. 

Replacement of the current price cap with an appropriate regulatory structure is ultimately 

necessary because the current system is unworkable in today's environment. Congressional 

action on legislative reform would minimize the size of the price increases needed to cover our 

costs. 

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LEGISLATION 

Last week, the House Committee on Oversight and Government Reform introduced postal 

reform legislation containing provisions that we believe have the capability to achieve broad 

support among stakeholders, including postal management, many in the mailing industry and 

the postal unions. These provisions reflect the adoption of private sector best practices, 

consistent with our responsibilities to the public. They include: 

Requiring full Medicare integration for parts A, B, and D for postal retiree health plans. 

• Restoring half our exigent price increase for Market-Dominant products. 

• Calculating all retirement benefit liabilities using postal-specific salary growth and 

demographic assumptions. 

• Providing some additional product flexibility. 

Enactment of these provisions would resolve several significant long-term financial burdens on 

the organization with potential to generate total savings of $26 billion over five years. Combined 

with a favorable outcome of the 1 0-year pricing review by the PRC and continued aggressive 

management actions, these provisions would restore our financial stability, ensure our ability to 

meet our universal service obligations, and allow for further innovation, investment, and growth 

for the Postal Service, and the mailing industry as a whole. 

RETIREE HEALTH BENEFITS 

Our significant financial losses are due in large part to the legally mandated RHB prefunding 

requirement. Such a requirement to prefund retiree health care obligations is not imposed on 

most other federal entities or private-sector businesses that offer retiree health benefits, let 

alone on an accelerated basis. The Postal Service's funded level for RHB far exceeds that of 

civilian federal government entities, state governments, and those private sector companies that 

offer retiree health benefits at all. 

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USPS Retirement Health Benefit Funding Compares Favorably to Other Entities 

Percentage of Civilian Federal Government Funded (exc:l. USPS) 

Percentage of Fortune 1000 Companies Fundedi•l 

Percentaae of u.s. Department of Defense Fundedi•l 

Percentage of State Governments Funded31 

Percentage of USPS Actuarial Uabllity Funded at 9/30/2016 

!l)Scuret: Civi!Sarvieef!tti111rM:nt & Cililbilitvfund.~nnualfltport. FY2C15 

12',.sourct·. Fmanclfl Rtpoft ofthtUnitlldStataGov•nm.nt, FY2C16 

13:•Source: USPS Offiu cflnspac:tcr GaneraiReportNumblrFT-M+12...CC.! 

0%(1) 

0%. 37.0%i•l 

26.7% 

30.0% 

49.9% 

!-':• Ei&htv·uven pttUnt of fortune lOX u:mp;tniapr~ide retir•h .. lth careben.flts; hc\~Wr, only 31m prefund tht 

tkptnu .. Tha mtdiJnfundinJifflitl rarp.dfrom 23* tc3T,£ asrepcrtlld in 2C12CIG P:aportFT.-M.o\-12~ 

While the statutory accelerated RHB prefunding payments expired Sept. 30, 2016, the current 

actuarial payments are equally unaffordable because FEHBP benefits are not integrated with 

Medicare for all postal retirees. Virtually all self-funded private and public-sector organizations 

that provide retiree health benefits require Medicare integration. The Postal Service and our 

employees and annuitants pay into Medicare at the same rates as these entities, and should be 

entitled to the same Medicare benefits. The proposed bill requires OPM to create separately 

rated postal plans within the FEHBP, beginning with the 2018 contract year, which would be 

fully integrated with Medicare Parts A, 8, and D. These plans would be offered by any existing 

FEHBP carrier that currently covers at least 1,500 postal employees and annuitants, and other 

carriers that desire to participate. 

Each year, the Postal Service would make a normal cost payment into the RHB fund, except to 

the extent that such a payment would cause the RHB actuarial liability to be more than 1 00 

percent funded. 

Opponents of this provision have argued that it would simply shift cost from the Postal Service 

to Medicare. While it is true that Medicare costs will increase by approximately one-tenth of 1 

percent per year, this provision is actually reversing the cost shifting that currently exists from 

Medicare to the FEHBP plans, which is presently imposing additional unwarranted costs, on the 

Postal Service, on our ratepayers, and on our employees. Since 1983, the Postal Service and 

its employees have been the second largest contributor to Medicare, contributing more than $30 

billion during this period. At present, however, 8 percent of annuitants and dependents do not 

participate in Medicare Part A and 26 percent do not participate in Part B. Appropriately 

assigning claims costs to Medicare, instead of FEHBP, creates savings for the Postal Service 

14 
24 


KING-6430 with DISTILLERInsert offset folio 15 here 26360.015

and participants, and effectively resolves the RHB funding issue. Requiring full participation in 

Medicare by eligible annuitants is a universal practice among nearly all private sector and state 

and local government employers who provide health benefits to retirees. The Postal Service is 

simply asking to be treated like any other entity that is required to pay into Medicare and selffund the benefits they offer to their retirees. 

The integration cost of $821 million in FY 2016 would have been just one-tenth of 1 percent 

{0.1%) of the total annual Medicare payments. 

The requirement for all retirees and survivors over age 65 to participate in Medicare Parts A and 

B- plus the additional Part D savings resulting from establishing an Employer Group Waiver 

Plan {EGWP) to take advantage of subsidies available for prescription drug benefits within each 

FEHB plan -would essentially eliminate the Postal Service's unfunded retiree health benefit 

liability and reduce expenses by $16.8 billion over 5 years (2018-2022). 

MARKET-DOMINANT RATES 

The partial restoration of the exigent price surcharge is critical to the Postal Service's financial 

health. The PRC-ordered rollback of the surcharge occurred April10, 2016, and reduced our 

revenue and net income by approximately $1 billion last year and $2 billion per year going 

forward, which is an irrational outcome considering the Postal Service's financial condition. 

The price cap that is currently imposed on market-dominant products and services is clearly not 

enabling the Postal Service to achieve financial stability despite our best efforts to reduce costs. 

In fact, the current price cap simply will not work since mail volumes have rapidly declined, while 

many of the costs necessary to meet our universal service obligation are largely fixed and 

growing. The growth experienced in the past few years in package revenue is not enough to 

offset the decline in revenue from market-dominant products. The exigent surcharge, combined 

with aggressive management actions, softened the financial blow that the Postal Service 

suffered as a result of the massive loss of mail volume, and is the principal reason we achieved 

controllable income over the last three fiscal years {although we still suffered net losses in each 

of those years in excess of $5 billion). 

The proposed bill reinstates half of the 4.3 percent exigent increase {2.15 percent) and makes it 

a part of the rate base. Taking this step now would constitute an important interim measure to 

15 
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KING-6430 with DISTILLERInsert offset folio 16 here 26360.016

enhance the Postal Service's financial position as the PRC considers reforming the pricing 

system in the 1 0-year pricing system review; other countries have also allowed similar 

safeguard measures as part of broader regulatory reform. In addition, the PRC would be 

required to complete all aspects of its review by May 1, 2018, so as to provide all stakeholders 

with greater certainty and timeliness than the open-ended timeframe under the PAEA. 

PENSIONS 

The proposed bill requires the OPM to calculate FERS and CSRS liabilities using postal-specific 

salary growth and demographic assumptions, rather than government-wide assumptions. It 

establishes a process by which any FERS surplus would be returned to the Postal Service. The 

surplus would be returned immediately for use in paying down debt. Future surplus amounts 

returned would be used to first address any possible pension and RHB liabilities, and then to 

pay down existing debt. 

The Postal Service's retirement plans are already significantly better funded than those of most 

other entities in both the public and private sectors. In fact, the Postal Service's percentage for 

CSRS pension funding is more than five times the level of other civilian federal government 

entities and is higher than the average funding level for those few Fortune 1000 companies still 

offering traditional pension plans. In addition, the Postal Service's FERS pension funding is at 

nearly 97 percent, even when calculated using government-wide assumptions (which overstate 

our liability). 

USPS Pension Funding Compares Favorably to Other Entities 

Percentace of USPS Actuarial Uability Funded at 9/30/2016 

Percentage of Civilian Federal Government Funded (excl. USPS) 

Other Entities: 

Percentage of U.S. Department of Defense Fundedi'l 

Percentage of State Governments Fundedl'l 

Percentage of Fortune 1000 Companies Fundedl'l 

ll;·So~rct:CMIS""ictlltth11tnlrlt&.Ci:lltlihtyFuniiAI\nullllltptlft,"Y2ClS 

90.9% 

Pension 

39.6% 

66.0% 

80.0%141 

96.7% 

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!3;·Suur,t.USI'SOflllt•Dflt1JP«ttlrG.,.,al!l'tpcrtNumbllrFT.M.>\.12.CC2 

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16 
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PRODUCT FLEXIBILITY 

The proposed bill authorizes the Postal Service to provide non-postal services to state, local 

and tribal governments; so long as the PRC concludes that the provision of such services is 

consistent with a number of requirements. Specifically, any such non-postal service must be 

consistent with the public interest, must not create unfair competition with the private sector, 

must not unreasonably interfere with the value of postal services, must be undertaken in 

accordance with all federal laws and regulations applicable to the provision of such services, 

and must be reasonably expected to improve the net financial position of the Postal Service. 

FINANCIAL IMPACT 

As we've said, there is a way forward. The chart below shows the value of each of the parts 

making up the proposed bill, with total savings of $26 billion over five years. Enacting these key 

concepts into law would put the Postal Service on a more stable financial footing, allowing for 

further innovation, investments, and growth for the Postal Service, and the mailing industry as a 

whole. 

USPS POTENTIAL SAVINGS 

With Legislated Medicare Integration Parts A, B and D 

$in billions 

TQIIII 

Provision 21118 20ft 2018 21121 21122 20ft. 

21122 

A Medicare integration for postal retiree heatth plans 4.1 3.3 3.2 3.2 3.0 $16.8 (including savings from lower RHB liability) 

B Exigent Surcharge at 2.15% (October 1. 2017) 0.9 0.8 0.8 0.9 0.9 $4,2 

c Retirement liability calculation using postal- 0.7 0.8 0.8 0.9 0.9 $4.2 specific assumptions 

D Non.postal services and centralization of delivery 0.1 0.0 0.1 0.2 0.3 $0.66 

E Total s.vJngs from 8llll'l'ovl$1oM $$.7 $&.9 $6.0 $6.1 $1.1 ma 

F Interest savings from lower borrowing 0.3 0.2 0.5 0.8 0.9 $2.8 

G Toe.JSavlngs $6.0 $6.2 $6.6 $6.9 $6.0 $28.8 

Note: Totals moy not add up due ta rounding. 

Overall, our financial situation is very serious but solvable; we can return to financial stability 

through the enactment of prudent legislative reform that this Committee has introduced and a 

favorable resolution of the PRC's 1 0-year pricing system review. At the same time, we will 

continue to pursue cost savings in all aspects of our operations and revenue growth. These 

17 
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steps will allow appropriate investment in the future of the organization. so that we can continue 

to provide prompt, reliable and efficient delivery service to the American public. 

The mailing industry continues to help power our nation's economy. The Postal Service plays an 

indispensable role as a driver of commerce and a provider of delivery services to all 

communities- and we fulfill this role by leveraging one of the nation's oldest and most effective 

partnerships with the private sector. More than 18,500 small businesses help us serve the 

American public through mail processing, transportation and retail operations contracts. More 

than 14,000 postal transportation supplier contracts account for approximately $7 billion in 

annual spend. And we provide access to our products and services in more than 72,000 

commercial locations through partnerships with retailers of all sizes. 

The need to adopt the proposed legislative reform provisions discussed above is simply too 

important to delay. Indeed, Congressional action on legislative reform is more important than 

ever considering the onset of the PRC's 10-year pricing system review. Ultimately, postal law 

requires the Postal Service to provide universal postal services, and to meet our other statutory 

obligations, in a self-sufficient manner, without becoming a burden on the taxpayer. 

GOVERNANCE 

We appreciate that the bill recognizes the importance of independent governance for the Postal 

Service. As an independent establishment within the Executive Branch, the Postal Service's 

powers are directed by a Board of Governors, who serve as the equivalent of the outside 

directors on a private sector board of directors. 

The Postal Service is currently operating without any Governors. The final outside Governor 

vacated his seat in December 2016, after serving a 1-year hold-over term past the expiration of 

his original term. The Senate has not confirmed a single Governor nominee since 2010. 

The Governors select the Postmaster General and the Deputy Postmaster General and provide 

strategic oversight by approving overall expenditures (including our capital investment plan), 

reviewing practices, conducting long-range planning, and setting price and product policy, in 

accordance with postal statutes. These are essential oversight and decision-making functions 

that are best performed as the result of informed discussions among well-qualified Governors 

with diverse perspectives who can represent the public interest. The presence of the Governors, 

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and their ultimate control and authority over the Postal Service, also ensures that the Postal 

Service's governance structure adheres to constitutional requirements. 

The Postal Service continues day-to-day operations and will do so for the immediate future, but 

our long-term success would be significantly enhanced in all respects with a fully constituted 

Board of Governors. The absence of Governors also raises significant legal questions that could 

materially impede the Postal Service's continued ability to operate, and heightens the need to 

shore up our financial condition through legislation until Governors can be nominated and 

confirmed. 

CONCLUSION 

Mr. Chairman, the United States Postal Service delivers for the American public- both literally 

and figuratively. We serve every American business and residence. We do so reliably and 

affordably, and we strive continually to earn the trust of the American public by maintaining the 

privacy and security of the items we deliver. We enable America's commerce by meeting its 

marketing and communications needs, by delivering the physical content that powers 

e-commerce, and by serving as an indispensable business partner to America's entrepreneurs 

and business owners. 

America deserves a financially stable Postal Service that can continue to play this vital role in 

our economy and society. In a dynamic and increasingly digital, mobile- and device-driven 

world, the Postal Service has opportunities to enhance the way we enable commerce. However, 

we require the financial ability to invest in the Postal Service's future. 

There is a path forward that depends upon the passage of provisions in H.R. 756, combined 

with a favorable outcome of the PRC's 1 0-year pricing system review. Once enacted, and 

together with aggressive management actions, the Postal Service can meet all of our 

obligations and continue to improve the way we serve the American public. 

Thank you, Mr. Chairman, Ranking Member Cummings and Members of the Committee, for the 

opportunity to submit this testimony. I welcome any questions that you and the committee may 

have. 

### 

19 
29 

Chairman CHAFFETZ. Thank you. 

Chairman Taub, you are now recognized for five minutes. 

STATEMENT OF ROBERT G. TAUB 

Mr. TAUB. Chairman Chaffetz, Ranking Member Cummings, 

members of the committee, good morning. I’ll hit a few key points 

from the Commission’s very detailed written testimony. 

Not much has changed from my last appearance here about nine 

months ago. In summary, the Postal Service still faces significant 

financial obstacles for the future. With its growing liability of retiree health benefits, the inability to borrow for needed capital investments, and the continued loss of high-margin first class mail 

revenues, the important task of improving the financial condition 

of the Postal Service remains daunting. Its total liabilities exceed 

its total assets by $56 billion. 

The fundamental problem is that the Postal Service cannot currently generate sufficient funds to cover its mandated expenses and 

also invest in critically deferred capital needs such as new delivery 

vehicles and package sorting equipment. 

The pressing question is what needs to be done to improve the 

financial condition of the Postal Service? Pursuant to statute, the 

Commission recently submitted a report evaluating the operations 

of current postal law to the President and Congress. This report 

provided a variety of recommendations for legislation, which are attached to my written statement. Significantly, the Commission determined that the most important recommendations it could make 

related directly to improving the Postal Service’s financial condition. 

I commend this committee’s bipartisan leadership for coming together just last week, as you did last Congress, to introduce legislation to address these challenges. H.R. 756 is specifically designed 

to put the Postal Service on sound financial footing. 

Your invitation noted a focus today also on the significance and 

potential implications of the Commission’s ongoing review of the 

rate system. By law, after December 20, 2016, the Commission 

must review the decade-old price-cap system for regulating marketdominant products to determine if the system is achieving its statutory objectives, and if it is not, to, quote, ‘‘make such modification 

or adopt such alternative system,’’ end quote, to achieve the objectives. There are nine objectives listed in the law that must be 

achieved, as well as 14 factors that the Commission must take into 

account. 

When I testified to the committee nine months ago, I stated that 

the Commission had already begun marshalling its limited resources to structure the review and schedule a process that would 

allow full and open opportunities for public participation while at 

the same time providing certainty and being decisive in the task. 

I also committed that the Commission would provide notice to the 

public of its plans for the review well in advance of commencing it. 

We delivered on those commitments. On September 1 during a 

public meeting, I first announced commission plans for the review, 

that it would begin in December, that the comment deadline would 

extend to very early spring, and by early autumn the Commission 

would issue an order that would include its findings and, if necVerDate Nov 24 2008 14:52 Aug 15, 2017 Jkt 000000 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 H:\26360.TXT APRIL

KING-6430 with DISTILLER
30 

essary, proposed rulemaking information for any changes to the 

system. 

Indeed, on December 20 at 8:00 a.m. sharp we commenced our 

review. The Commission has designed a process that seeks targeted 

input from the public but also deliberately moves forward with the 

aim of completing its findings and beginning any needed rulemaking by early autumn of this year. 

The Commission is mindful that your bipartisan postal reform 

bill would mandate a process whereby final rules on any modifications or changes to the system must be implemented by very early 

2018. We are working hard to meet that goal. 

Thank you, Mr. Chairman and Ranking Member Cummings, for 

convening this hearing to shine a spotlight on this critical part of 

our nation’s infrastructure. I know you both deeply appreciate the 

importance of these issues. There are no easy answers but answer 

we must. The Commission stands ready to help in your search for 

solutions. On behalf of all four commissioners and the entire hardworking agency staff, thank you for the opportunity to testify 

today. 

[Prepared statement of Mr. Taub follows:] 


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Testimony of 

Robert G. Taub 

Chairman 

On behalf of the 

Postal Regulatory Commission 

Before the 

U.S. House Oversight & Government Reform Committee 

February 7, 2017 
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Introduction 

Chairman Chaffetz, Ranking Member Cummings, and members of the 

Committee on Oversight and Government Reform, good morning. My name is Robert 

G. Taub. I am the Chairman of the Postal Regulatory Commission (Commission). I am 

pleased to testify before you today. 

Background 

The Commission is an independent federal agency that is responsible for 

ensuring transparency and accountability of the U.S. Postal Service's operations and 

finances. Today, the Postal Service is a $71 billion operation with more than 600,000 

employees. It is not quasi government, quasi private, or quasi anything- it is 100 

percent part of the Federal Government, operating as an independent establishment in 

the Executive Branch. Yet the Postal Service receives no tax dollars for operating 

expenses and relies completely on the sale of postage, products, and services to fund 

its operations. 

As a separate and independent federal regulatory agency, the Commission 

determines the legality of the Postal Service's prices and products, adjudicates 

complaints and fair competition issues, and oversees the Postal Service's delivery 

performance consistent with statutory requirements. Its mission is to ensure 

transparency and accountability of the Postal Service and foster a vital and efficient 

universal mail system. The Commission is the regulator, not the operator, of our nation's 

Postal Service -we do not manage the Postal Service, we regulate it. The Commission 

is composed of five Commissioners, each appointed by the President and confirmed by 
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the Senate. The Commission receives an annual appropriation from Congress out of the 

Postal Service Fund. 

Why a regulator for another government agency? Unlike almost any other federal 

agency, the Postal Service operates in a commercial marketplace while also having a 

large contingent of captive customers given the Postal Service's market dominance for 

certain products and services. The Postal Service is provided a statutory monopoly over 

mailboxes and the delivery of letters. The public interest role of a regulator in this case 

is clear: a need to protect the captive customers and ensure fair competition. 

The Commission carries out this work with a very small budget and staff. Its 

current year appropriation is $15.2 million to regulate the $71 billion Postal Service. The 

David and Goliath analogy is sometimes apt. Despite a steadily increasing and complex 

workload, until this year, the Commission's annual appropriation had always been less 

than what it received in Fiscal Year (FY) 2008. FY 2008 was the last year that the 

Commission received its funds directly from the Postal Service rather than through the 

appropriations process. The Commission's budget in FY 2008 was $14.985 million for 

an authorized complement of 70 employees; 8 years later, the Commission's 

appropriation in FY 2016 was $15.2 million for an employee complement of 77. The FY 

2016 appropriation of $15.2 million depicts the first marginal increase in 8 years above 

the FY 2008 level. The majority of the Commission's FY 2016 budget was allocated to 

pay and benefits ($10.7 million) with the remainder allocated for operating expenses 

($4.5 million). This marginal increase in funding has allowed the Commission to begin 

filling deferred vacancies and funding previously deferred IT Infrastructure and 

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cybersecurity initiatives. The Commission has also prioritized its limited resources to 

ensure we have the necessary funding for completion of the 10 year rate review study. 

Commission Focus on Postal Service Financing 

Commission rules require the Postal Service to file several reports with the 

Commission regarding financial results on a monthly, quarterly, and annual basis. The 

Commission staff internally analyzes these reports. Prior to 2014, the Commission's 

Annual Compliance Determination (ACD) included a chapter on the overall financial 

health of the Postal Service. However, because the ACD is focused on rates and 

service performance, it did not include a detailed analysis of other financial data 

provided in the Postal Service's Annual Compliance Report as well as its Securities and 

Exchange Commission equivalent Fonm 10-K filing. In 2014, the Commission developed 

a separate Financial Analysis report to provide greater clarity and transparency of the 

Postal Service's financial data and trends. 

This year, the Commission will publish its fourth annual Financial Analysis report 

which not only reviews the overall financial position of the Postal Service, but also 

analyzes volumes, revenues, and costs of both Market Dominant and Competitive 

products. The report includes a chapter that analyzes the Postal Service's financial 

status in terms of profitability, solvency, activity, and financial stability using accounting 

ratios. I would like to highlight our preliminary observations and conclusions that will be 

reported in the Commission's FY 2016 Financial Analysis report. 

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Overview of USPS Finances: Liabilities Outstrip Assets Resulting in Low Liguiditv 

In FY 2016, the Postal Service had a total net loss of $5.6 billion, which is a $531 

million deterioration from FY 2015. This decade of consecutive net losses posted since 

FY 2007 has increased the cumulative net deficit since FY 2007 to $62.3 billion. These 

continuing losses have significantly affected the financial position of the Postal Service 

by negatively impacting liquidity, requiring the Postal Service to use all of its $15 billion 

statutory borrowing capacity, and causing total net liabilities to far exceed total net 

assets. 

In FY 2016, total revenue increased by $2.6 billion. Market Dominant revenue 

decreased by $0.7 billion while Competitive products revenue increased by $2.1 billion. 

A change in accounting estimate related to Forever Stamps resulted in an additional 

$1.1 billion in revenue. 1 Competitive product volumes continued to increase 

significantly in FY 2016, growing 14 percent over last year. This higher volume coupled 

with a Competitive product price increase (effective January 17, 2016) contributed to the 

increase in total revenue. Total Market Dominant revenue declined 1.5 percent from the 

prior year. CPI based price increases were not enough to offset declining volumes and 

the expiration of the exigent surcharge. 2 The exigent surcharge generated $1.1 billion in 

revenue in the first 6 months of the fiscal year before its expiration in April. 

1 Deferred revenue was increased to record omitted revenue from a recalculation of Forever Stamp usage included in Postage in 

the Hands of the Public (PIHOP) during the past years. 2 

This surcharge was pennitted by the Commission after it found that the Postal Service had justified the recovery of additional 

contribution by showing a causal link between the extraordinary or exceptional circumstances of the Great Recession and mail 

volume losses. 

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Total expenses increased 4.2 percent or $3.1 billion in FY 2016. This increase is 

largely a result of higher overall compensation and benefits costs of $1.5 billion and an 

increase in workers' compensation expense of $0.9 billion. Compensation and benefits 

costs as a percent of total expenses remained the same as in the prior year at 78.6 

percent. Compensation accounts for the largest portion of personnel expenses, 

representing 60.6 percent of total personnel costs. Retirement benefits are the next 

largest component of total personnel expenses at over 26.3 percent. Retirement 

benefits are comprised of statutory payments to the Postal Service Retiree Health 

Benefits Fund (PSRHBF), retiree health benefits premiums, employer contributions to 

the Federal Employee Retirement System (FERS) and the Civil Service Retirement 

System (CSRS) pensions and Social Security. The current premiums for annuitant 

health benefits along with the statutory prefunding PSRHBF payments account for 15.2 

percent of total retirement related expenses. 

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Percentage Breakdown of Total Personnel Expenses, FY 2016 

Other Workers' Breakdown 

An increase in workhours (the second consecutive increase since FY 2005) and 

the number of career employees (the second consecutive increase since FY 1999) 

increased compensation expenses by $0.7 billion. Retirement expenses also increased 

due to an increase in the FERS annuity rate from 13.2 percent of base pay to 13.7 

percent of base pay and a supplemental payment to the FERS fund. Other benefits 

costs such as the current year premiums for retiree health benefits and the payment to 

the Department of Labor for workers' compensation costs also contributed to the 

increase in compensation and benefits. The $0.9 billion increase in workers' 

compensation expense was due to actuarial changes in the development of the 

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estimate and changes in the discount rate. Non-personnel expenses, including 

transportation, increased in FY 2016. Further data on personnel related costs are 

detailed later in this testimony. 

In the face of financial losses, over the past decade, the Postal Service has 

reduced the size of its workforce by about 175,000 career employees, cut labor related 

costs, and increased its productivity. Today the Postal Service delivers roughly the 

same volume of mail that it delivered in 1987, but with almost 160,000 fewer total 

employees. Yet even with these sizeable reductions, the Postal Service does not have 

the cash to pay down its debt or fully invest much needed capital in its operations. 

The significant gap between the Postal Service's net current assets and net 

current liabilities is of particular concern. The Commission finds that despite an 

improvement in liquidity during FY 2016, current assets, consisting mostly of cash and 

cash equivalents, continue to be insufficient to meet the payment of current liabilities. 

Postal Service Current Assets and 

Current Liabilities 

"' ,.,~I $50,000 

§ $40,000 

~ $30,000 

!~~~-.J.J . .I.JJJJJJ.J 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 

Fiscal Years 

• Current Assets • Current Liabilities 

7 
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In FY 2016, total current liquid assets increased by $1.5 billion from FY 2015; 

however, the amount of current liabilities rose by $5.7 billion, worsening the overall 

financial situation. Most of the increase in the current liabilities is due to the fact that the 

Postal Service did not make the $5.8 billion final statutory payment required in FY 2016 

to the Postal Service Retiree Health Benefits Fund (PSRHBF). The total net current 

assets were $9.5 billion at the end of FY 2016, of which $8.3 billion was cash and cash 

equivalents. Net current liabilities at the end of this fiscal year were $54.6 billion, which 

included $33.9 billion in missed payments to the PSRHBF (the payments scheduled for 

FY 2011 through FY 2016). Also included in net current liabilities is $10.1 billion of the 

total $15 billion owed to the Federal Financing Bank. Further data on the PSRHBF are 

detailed later in this testimony in the additional information on personnel related costs. 

These low liquidity levels in recent years have impeded the Postal Service's 

ability to make capital investments in infrastructure and hindered the growth and 

productivity enhancements in key assets required for primary postal operations. As the 

Postal Service noted in the FY 2016 Form 10-K statement, it now operates an aging 

vehicle fleet, increasing the need, and consequently the cost, for maintenance and 

repair. Also unmet is the need to invest in sorting and handling equipment to fully 

capitalize on business opportunities in the growing package delivery markets. 

According to the Postal Service's FY 2016 Form 10-K statement, "If our 

operations do not generate the liquidity we require, we may be forced to reduce, delay 

or cancel investments in technology, facilities, and/or transportation equipment, as we 

have done in the recent past. ... Additionally, our aging facilities, equipment and 

transportation fleet could inhibit our ability to be competitive in the marketplace, deliver 

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a high-quality service and meet the needs of the American public .... An aging or 

potentially obsolete infrastructure could result in loss of business and increased costs." 

Analysis of Available Liquidity 

16,000 

14,000 

12,000 

"' 10,000 " 0 

~ 8,000 

.E 6,000 ""' 

4,000 

2,000 

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 

-cash -uncapped Available Debt -Total Liquidity (Cash+ Avail. Debt) 

On an operational basis the Postal Service's net income (i.e., before including 

the statutory prefunding accruals to the PSRHBF, any non-cash adjustments to workers' 

compensation liability, supplemental contribution to FERS Annuity and the adjustment 

for postage related to Forever Stamps for prior year usage) is $610 million. Most of this 

operational net income can be attributed to an increase in revenues from the Market 

Dominant and Competitive products rate increases, the exigent price surcharge on 

Market Dominant products, and the continuing growth in Competitive products parcels. 

The exigent surcharge, effective for the first 6 months of the fiscal year, increased 

revenue by an estimated $1.1 billion. The temporary surcharge was removed on 

April10, 2016. 

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The increase in operating net income enabled the Postal Service to improve its 

liquidity position. Compared to FY 2015, the Postal Service increased its cash position 

by $1.4 billion. This increase in cash enables the Postal Service to begin planning for 

replacement of its capital assets, primarily delivery vehicles, and package sorting 

equipment Yet, as noted, this increase is overshadowed by the increase in current 

liabilities, primarily due to the inability of the Postal Service to make the statutorily 

required pre-funding payments into the PSRHBF. Overall, according to the Postal 

Service, it has approximately 30 days of cash available to pay basic operating 

expenses. This consists only of available cash as the Postal Service has reached the 

statutory borrowing limit The current level of Postal Service reported liquidity has 

improved since its low point in FY 2012, but total cash on hand plus total debt is almost 

half of what was available 10 years ago. 

If a downturn in the economy or other circumstance should further stress the 

Postal Service's cash flow, it risks not being able to pay some of its bills and could, in a 

worst case scenario, run out of cash. 

Analyzing Postal Service Financial Status: Profitability, Solvency, Activity, and 

Financial Stability 

The Commission's Financial Analysis report uses "ratio analysis" to measure the 

profitability, solvency, and financial stability of the Postal Service. As detailed in the 

Commission's Financial Analysis reports, ratio analysis is used to conduct a quantitative 

analysis of information in a financial statement Ratios are calculated from current fiscal 

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year numbers and are then compared with previous years and historic averages to 

determine the Postal Service's financial performance. 

The ratios explain the Postal Service's financial health and provide valuable 

insight into its past performance. The financial data used in the ratio analysis is derived 

from accounting information not adjusted for inflation, changing demographics, industry 

dynamics, or government regulations. Financial analysis used in the private sector may 

not be directly relevant to government agencies because revenue streams, equity 

structures, and management incentives differ. It is also difficult to determine a single 

measurement that signifies financial health for a government agency. Financial 

performance, although not a primary indicator of success, influences the fulfillment of 

missions and objectives for government agencies with a service-related mission, such 

as the Postal Service. 

Some of the ratios calculated by the Commission for FY 2016 show a slight 

improvement compared to the previous year with the majority deviating greatly from the 

average of the last 10 years. The Commission's Financial Analysis report calculates 

"liquidity-related ratios" as well as "key ratios" related to sustainability. 

Liquidity-related ratios are one of the most widespread indicators of an agency's 

solvency. Calculated using the Postal Service's financial results for FY 2016, they show 

an improvement over the prior year with values close to the historic 1 0-year average. 

The following table details the three liquidity-related ratios: 

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Ratio Analysis of Postal Service Financial Statements 

~ !l/llll.lOli ...... ~ ..... ~SI!rvlol.._.:iocl'tllr 

- VII,.. 

A current ~t!o Is calculated by divldin& current assets 

·. ~-

by current liabilities. It lndtcates an entity's. ability to 

Current Ratio 0.17 0.16 0.01 meetshorttermdebtobli atlons. 0.16 

This quick ratio Is calculated by dlvldlfli liquid assets 

!cash. cash equivalents and short-term investments, 

current receivables} by current Uabll!ties, It is a 

I'TW!asure of an entity's ability to meet its short term 

obli(ations uslne its most liquid auets. {near cash or 

Quick Ratio 0.17 0.16 0.01 uickassets. 0.15 

Cash ratio is calculated by divldln& absolute Hquld 

auets {cash, cash equivalents and short-term 

Cashflatlo O.lS 0.14 0.01 Investments} h\1 cmrent liab!Uties. 0.11 

The improved liquidity-related ratios are largely a result of the increased cash on 

hand held by the Postal Service after exhausting its borrowing capacity. The Postal 

Service's working capital remains a negative value of $45.1 billion, deteriorating by $4.1 

billion from the prior year. This means that the increase in current liabilities largely due 

to the missed retiree health benefit statutory prefunding payment of $5.8 billion 

significantly exceeded the growth in current assets, 92 percent of which is cash on 

hand. 

The Commission's Financial Analysis report assesses three key ratios for Postal 

Service sustainability as detailed in the following table. Ratios for the current fiscal year 

as seen in the debt ratio and the current liability ratio have deteriorated compared to the 

prior year and the historic average for the past 10 years. 

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Ratio Analysis of Postal Service Financial Statements 

The accruing nonpayment into the statutory retiree health benefit fund and the 

long-term workers' compensation obligations have artificially skewed the Postal 

Service's current liabilities in relation to its assets. To reduce its debt ratio to historic 

averages, the Postal Service would have to significantly increase its current cash 

position or investments in capital assets and reduce its obligations to the PSRHBF. 

The Postal Service's fixed assets to net worth ratio shows an insignificant 

improvement reflecting the slight increase in capital spending. However, the value still 

remains at negative 0.27, a result of recurring net losses accumulated over the last 

decade. A negative fixed assets to net worth ratio indicates the erosion through 

depreciation of the entity's long term tangible business assets, a critical investment for a 

viable entity. 

The current liability ratio reflects the Postal Service's share of short term liabilities 

to total liabilities at 67 percent, increasing a percentage point from the start of FY 2015. 

The accrual of the unpaid statutory PSRHBF prefunding payments is included in current 

obligations, accounting for the increase in current liabilities. An increasing current 

liability ratio indicates increasing obligations due to be paid within the current year. 

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Understanding the Postal Service's liabilities is critical, especially as the cash flows 

generated from operations render the Postal Service unable to meet its current 

obligations. 

Evaluating Financial Strength: Altman Z-Score 

The Commission's Financial Analysis report also uses a financial analysis 

evaluating an agency's financial strength, defined as the Altman Z-Score, to calculate 

the possibility of bankruptcy. The users, stakeholders, and the business environment 

vary between the Federal Government and the private sector. Stakeholders of private 

sector entities use financial analysis to make investment and credit decisions, and 

success is often measured by the company's stock valuation. In contrast, Federal 

agencies are mission-oriented and measure success through the provision of service. 

Furthermore, unlike private sector firms, Federal agencies do not have direct 

shareholders whose income and wealth is affected by management decisions. 

Financial analysis can be useful in both the Federal Government and the private 

sector. It can be used as a strategic management tool that provides the public with a 

concise and systematic way to organize the data in financial statements (e.g., balance 

sheets, income statements, and statements of cash flows) into meaningful information. 

The information derived from these indicators would provide the data needed to 

evaluate an agency's financial condition. 

Financial viability is affected by a combination of environmental, economic, and 

organizational factors, including the decisions and actions of management and the 

governing board. For example, the decline in volume of First-Class Mail, which has a 

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high-contribution margin (the decline being a negative environmental trend), can lead to 

the erosion of a healthy cost coverage base. However, Postal Service management's 

response to this decline and constraints on management flexibility also affect its 

financial condition. 

As detailed in the Commission's Financial Analysis report, the Commission 

calculated the Altman Z-Score to predict the probability of the Postal Service running 

out of cash to pay its creditors. Financial analysis evaluates the financial strength of an 

agency through the use of a variety of metrics. In conjunction with financial ratios, these 

metrics are used to gauge an entity's long-term viability. However, sometimes the 

agency's ratios reflect conflicting views. To help eliminate confusion, New York 

University Professor Edward Altman developed the Z-Score in 1968 as a tool to 

explicitly address the likelihood that a company could go bankrupt. 

A quantitative model designed to predict the financial distress of a business, the 

Altman Z-Score uses a blend of the traditional financial ratios and a statistical method 

known as multiple discriminant analysis. The formula has achieved general acceptance 

by management accountants and auditors. 

The Commission calculates the Altman Z-Score in its Financial Analysis report to 

predict the probability of bankruptcy of an entity with the attributes of the Postal Service. 

The Commission uses a factor model for a private non-manufacturer to evaluate the 

Postal Service's financial stability as follows: 

Altman Z-Score = T1+T2+T3+T4 as denoted in the tables below. 

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The four performance ratios in the calculations are combined into a single score 

by weighting. The coefficients are estimated from a set of entities that have previously 

declared bankruptcy. A matched sample of entities is collected and matched by industry 

and estimated assets. 

The Commission calculates that the Postal Service's Altman Z-Score was 

negative 6.4 on September 30, 2016. That means that there is a high probability that the 

Postal Service will go into financial distress. More commonly, a lower Altman Z-Score 

reflects higher odds of bankruptcy. This 2016 Altman Z-Score of negative 6.4 for the 

Postal Service is a setback from the FY 2015 score of negative 6.1 (and from the FY 

2014 score of negative 5. 7), and it is a significant deterioration from the positive score 

10 years ago for FY 2006 of 0.2. Despite the results obtained, it should be mentioned 

that the Altman Z-Score as a predictor of the entity's bankruptcy probability is only 

relative, the structure of the Postal Service's ratios may be atypical, and interpreting the 

significance of the Z-Score would require deeper analysis by Postal Service 

management. 

Altman Z-Score, FY 2006 

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Altman Z-Score, FY 2016 

The deterioration in the Postal Service's viability relates to the erosion of retained 

earnings caused by consecutive net losses, the statutory obligation to prefund PSRHBF 

benefits, and decreasing Retained Earnings/Total Asset ratio. A comparatively lower 

Working Capital/Total Assets ratio results from the continued lag in replacement of its 

almost fully depreciated existing assets. The significant drop in these two measures 

causes the negative fluctuation to the Postal Service Altman Z-Score when comparing 

FY 2016 with FY 2006. 

Total Mail Volume: Continuing Decline 

Total mail volume in 2016 dropped to levels not seen in more than 29 years, and 

the Postal Service anticipates further reductions in total volumes for 2017. The 

aggregate decline in mail volume is the result of the economic recession of 2007 along 

with the acceleration of a long-term trend of mail migrating to electronic media. 

According to the Postal Service, the volume lost to electronic alternatives is not 

expected to return because the movement constitutes a fundamental and permanent 

change in mail use by households and businesses. 

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Market Dominant products: continuing decline, particularly in First-Class Mail 

Over the last 9 years, Market Dominant products volume declined by 

approximately 52 billion pieces. Approximately 42 percent of the volume decline 

occurred in FY 2009 when Market Dominant volume declined 12.7 percent. 

For specific products within the Market Dominant category, volume declines at 

different rates. In FY 2016, First-Class Mail volume declined by approximately 1.0 billion 

pieces, or 1. 7 percent of total First-Class Mail, and Standard Mail volume increased by 

840 million pieces, or 1. 0 percent of total Standard Mail. These classes constitute the 

bulk of the volume of Market Dominant products overall. In FY 2016, First-Class Mail 

and Standard Mail accounted for 93 percent of the total mail volume. The decline in 

First-Class Mail is the most troubling as First-Class Mail contributes the most to the 

overhead costs of the Postal Service. 

Percent Change in Market Dominant 

Volume 

0.0% 

~ -2.0% 

~ -4.0% 

.5 -6.0% -4.5% f -8.0% 

~ -10.0% 1 ~ -12.0% 1 :. -14.0% J 

2008 

-1.4% -1 2% -0.4

% -1.9% . 

-5.6% 

-12.7% 

2009 2010 2011 2012 2013 2014 2015 2016 

Fiscal Year 

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Competitive products: continuing increases but lower margin 

Volumes and revenues for Competitive products, which are mainly parcels, 

increased 13.7 percent and 12.6 percent, respectively, in FY 2016. While Competitive 

products volume and revenue has grown consistently in recent years, its volume only 

makes up 2.9 percent of the total mail volume of the Postal Service. In addition, the 

margin (i.e., the overall cost coverage) on Competitive products is lower than the margin 

for First-Class Mail. In other words, the Postal Service earns more money from FirstClass Mail than it does from Standard Mail or Competitive product parcels. 

The continuous decline in First-Class Mail volume and revenue seriously 

jeopardizes the Postal Service's ability to cover its fixed overhead costs. As stated in 

the Postal Service's FY 2016 Form 10-K statement," [The Postal Service must) 

generate approximately $2.50 in Shipping and Package revenue to replace the 

contribution from each $1 of lost First-Class Mail revenue, as the costs to process and 

deliver Shipping and Packages services were, and continue to be, substantially higher 

than the costs associated with First-Class Mail." 

Personnel Related Costs 

In FY 2016, total personnel related expenses, including the payment to the 

Postal Service Retiree Health Benefits Fund (PSRHBF) and the non-cash adjustments 

to the workers' compensation, increased by $2.4 billion or 4.1 percent from the prior 

year. The Postal Service continues to expense the amount payable to the PSRHBF, 

although it remains unable to make the actual payment into the fund. The last Postal 

Service paymentto the PSRHBF occurred in 2010. 

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Beginning in 1989, the law required the Postal Service to pay the government's 

share of the premium for its own annuitants, which, in FY 2016, amounted to $3.3 

billion. In 2006, the Office of Personnel Management (OPM) estimated that the Postal 

Service needed to generate $75 billion to cover benefits for all its current and future 

retirees. The 2006 Postal Accountability and Enhancement Act (PAEA) established the 

PSRHBF to collect these payments from the Postal Service. Until 2006, the Postal 

Service had $0 (i.e., zero, nothing) set aside to pay for its future retiree health benefits. 

In addition to the initial amount transferred from the Civil Service Retirement and 

Disability Fund of $17 billion into the PSRHBF upon enactment, the Postal Service paid 

$20.9 billion during the first 5 years after enactment of the 2006 law to meet this overly 

ambitious statutory requirement to prefund much of its future retiree health benefits. 

Presently, even though the Postal Service has not made any of the required prefunding 

payments in the past 6 years, there is $51.9 billion in the PSRHBF and a current 

unfunded amount of $52.1 billion (this is the portion that remains unpaid by the Postal 

Service). 

Under current law, in addition to the Postal Service paying the normal cost 

amounts for retiree health benefits each year, the unfunded amount of $52.1 billion will 

be amortized over 40 years beginning in FY 2017. Also, in FY 2017, the PSRHBF starts 

paying the current year health benefits premiums. 

From an operations standpoint, personnel costs increased by $1.4 billion in 

FY 2016- a majority of which comprises compensation and retirement benefits. 

Compensation increased by $703 million while retirement benefits increased by $277 

million. Compensation expenses grew over the previous year mainly due to obligated 

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salary increases and the growth in Shipping and Package volumes, where, because of 

the size and shape of pieces, handling requires more workhours. As noted previously, 

retirement benefits expenses grew due to an OPM mandated increase in the agency 

annuity contribution rate for the FERS. Additionally, OPM notified the Postal Service 

that the FERS annuity account is underfunded by $3.6 billion as of the end of FY 2014. 

Under current law, the unfunded liability is to be amortized over 30 years, and this 

annual payment is estimated by OPM to be $248 million. The Postal Service has 

expensed this supplemental pension charge, but noted in its annual Form 10-K 

statement that it is reviewing OPM's underlying calculation regarding the unfunded 

pension estimate and has not yet paid this expense pending its review. 

Summarv: Significant Financial Obstacles for the Future 

In summary, the Postal Service still faces significant financial obstacles for the 

future. The exigent surcharge was removed on April10, 2016, because the Postal 

Service had collected all of the allowable $4.6 billion. With the growing liability of retiree 

health benefits, the inability to borrow for needed capital investments, and the continued 

loss of high margin First-Class Mail revenues, the important task of improving the 

financial condition of the Postal Service is daunting. Total liabilities exceed total assets 

by $56 billion. 

Universal Service Obligation CUSO) 

The cost of providing universal service in the U.S. is estimated by the 

Commission to be more than $4 billion annually. Title 39 U.S.C. § 3651(b)(1) requires 

the Commission to estimate in its Annual Report to the President and Congress the 

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costs incurred by the Postal Service in providing three types of public services or 

activities: postal services to areas of the Nation the Postal Service would not otherwise 

serve; free or reduced rates for postal services as required by Title 39; and other public 

services or activities the Postal Service would not otherwise provide but for legal 

requirements. In the Annual Report issued in January 2017, the Commission estimated 

that the total of these three categories is $4.24 billion. 

Aside from the financial pressure of generating sufficient funds to remain solvent, 

the Postal Service must also be concerned about how to fund this $4 billion in universal 

service obligations. This obligation is in addition to those monies required to keep the 

mail moving, undertake capital investments, and pay other multibillion dollar obligations 

such as retiree costs. 

How does the United States define universal mail service? In 2008, the 

Commission, pursuant to law, determined that the USO has seven attributes: 

geography, range of products, access to facilities, delivery frequency, 

priceslaffordability, quality of service, and users' rights (or enforcement). 

Other nations have imposed universal service requirements directly on their 

postal operator by statute, regulation, licensing, or contract. Countries like Australia, 

Canada, and Germany- just to name a few- have a detailed definition of universal 

postal service, with specific standards for delivery and retail access. Unlike other 

countries, the Commission concluded that the USO in the United States is largely 

undefined and instead is comprised of a broad set of policy statements with only a few 

legislative proscriptions. Aside from the annual appropriations mandate for the past 34 

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years to provide 6 days of delivery, Congress has rarely established rigid, numerical 

standards of minimally acceptable service for any of the attributes identified by the 

Commission. Rather, through its history, the Postal Service has been expected to use 

its flexibility to meet the needs and expectations of the Nation while balancing the 

delivery of service against budgetary constraints. 

In the absence of a clear definition, particularly given the Postal Service's current 

financial challenges, each of us may have a differing view of what the Postal Service 

must provide in its services and operations to fulfill the USO, and since there is no 

specific agreed upon definition, all of our views will have different price tags. The 

Commission recommended in its 2008 report "that Congress consider and balance all 

the features of universal service as part of any review of changes necessary to preserve 

a financially viable Postal Service." 

In 2007, the Federal Trade Commission (FTC) issued a report titled, Accounting 

for Laws That Apply Differently to the United States Postal Service and Its Private 

Competitors, Federal Trade Commission, December 2007. The report identified and 

quantified the economic burdens and advantages that exist by virtue of the Postal 

Service's status as a federal government entity and its postal and mailbox monopolies. 

The FTC determined, based on 2006 financial results, that the Postal Service's unique 

legal status ultimately put the Postal Service at an overall disadvantage in the 

Competitive product market. According to the FTC, the Postal Service's competitive 

products benefited from an implicit subsidy of between $39-$117 million per year 

associated with avoided Federal, state, and local legal requirements. However, the legal 

restraints imposed on it by Federal regulations cost the Postal Service an estimated 

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$330-$782 million a year in reduced efficiency in providing competitive products, 

according to the FTC. 

Concluding Observations 

Despite the bad financial news, there is good news, even if it is hard to see or 

seems overwhelmed by the financial position of the Postal Service. There is still 

strength in the system. 

The Postal Service is the one government agency that touches every American 

on a daily basis; it is an organization that literally serves 155 million American 

households and businesses on a typical day. It facilitates trillions of dollars in 

commerce. According to the Envelope Manufacturing Association Foundation's Institute 

of Postal Studies, its 2015 Mailing Industry Job Study found that the Postal Service 

supports a $1.4 trillion mailing industry that employs 7.5 million people. The Postal 

Service is the key cog of a marketing and distribution system through which small and 

large businesses, nonprofit organizations, and consumers can transact business, 

advertise services, and distribute products. It is a significant driver of the Nation's 

economic engine and an essential piece of its infrastructure. 

Throughout its 241-year history, the Postal Service has endured multiple 

economic recessions and a Great Depression. It has dealt with numerous disasters, 

which have interfered with mail delivery and strained the infrastructure. It has responded 

to these immense challenges by adapting, often despite predictions of failure or even its 

demise in the face of competition from new technologies. 

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With the inherent and underlying strength of the system, today's Postal Service 

can survive these challenges too. The fundamental problem as outlined in the 

Commission's testimony today is that the Postal Service cannot currently generate 

sufficient funds to cover its mandated expenses and also invest in critically deferred 

capital needs, such as new delivery vehicles and package sortation equipment. Despite 

the very serious and real financial problems, let's also keep in mind the good news -the 

strength in the system - and take some degree of hope knowing that this is the 

foundation that Congress and the Administration can build upon to find solutions. The 

strength in the system will be the engine that ensures the Postal Service will continue to 

meet its basic mission to "deliver." 

Where Do We Go From Here? 

The pressing question is "What needs to be done to improve the financial 

condition of the Postal Service?" The Commission has made recommendations on 

modifying the retiree health benefits funding and the computation of the liabilities for 

both retiree health benefits and pensions through separate studies on those topics, and 

also in its "Section 701" reports issued in September 2011 and November 2016. 

Section 701 of the PAEA mandates that the Commission, at least every 5 years, 

submit a report to the President and Congress evaluating the operation of the changes 

made by the PAEA and to make recommendations for any legislation or other measures 

necessary to improve the effectiveness and efficiency of our Nation's postal laws. 

Appendix A to this testimony is the Executive Summary from the 2016 report and details 

the Commission's legislative recommendations. The Commission's report emphasized 

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the starkly different environment faced by the Postal Service since the enactment of the 

PAEA- a time when volume was growing and the Postal Service was earning revenues 

that exceeded costs. In short, the Commission determined that the most important 

legislative recommendations it could make related directly to improving the volatile 

financial condition of the U.S. Postal Service. 

I note that the bipartisan postal reform legislation, H.R. 756, the Postal Service 

Reform Act of 2017, introduced just last week by Chairman Chaffetz, Ranking Member 

Cummings, Subcommittee Chairman Meadows and Ranking Member Connolly, and 

Representatives Ross and Lynch is specifically designed to put the Postal Service on 

sound financial footing. 

Today's hearing invitation noted that the hearing would discuss "the significance 

and potential implications of the Postal Regulatory Commission's ongoing review of the 

market dominant rate system." By law, after December 20, 2016, the Commission must 

review the price cap system for regulating Market Dominant products to determine if the 

system is achieving its statutory objectives and if it is not, to "make such modification or 

adopt such alternative system" to achieve the objectives. There are 9 objectives listed in 

the law that the modern rate regulation system must be designed to achieve, as well as 

14 factors that the Commission must take into account. While each of the nine 

objectives must be applied in conjunction with the others, I would observe that relevant 

to the focus of today's hearing on Postal Service finances, objective number five is "[t]o 

assure adequate revenues, including retained earnings, to maintain financial stability." 

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When I last testified to the Committee in May 2016, I stated that the Commission 

had already well begun marshaling its limited resources to identify approaches to 

structure the review and schedule a process that would allow full and open opportunities 

for those interested to participate. I also committed that the Commission would provide 

notice to the public of its plans for the review well in advance of commencing it. 

We delivered on those commitments. On September 1, 2016, during a public 

meeting of the Commission, I first announced Commission plans for that review. The 

Commission chose to notify the public in September so that all interested parties could 

prepare to participate in the review. The public was informed that the Order beginning 

the review would be issued on December 20; that the deadline for public comments to 

be submitted would be in early Spring of 2017; and that the Commission planned to 

issue an order which included its findings and, if necessary, preparatory rule-making 

information for any changes to the system in early Autumn of 2017. 

On December 20, 2016, at 8:00a.m., the Commission commenced docket 

RM2017-3 to review the price cap system for regulating Market Dominant products. In 

carrying out its statutory responsibility, the Commission has sought to achieve a 

balance of seeking views from the public while at the same time recognizing the 

importance of providing certainty and being decisive in its task. As a result, the 

Commission has designed a process which seeks targeted input from the public, but 

also deliberately moves forward with the aim of completing its findings by early Autumn 

this year (2017). The Commission is indeed mindful that H.R. 756, your new bipartisan 

postal reform bill, would mandate a process whereby final rules regarding modifications 

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or changes to the rate system must be implemented by very early 2018. We are working 

hard to meet that goal. 

There are no easy answers, but answer we must. I've outlined above some work 

that the Commission has completed and will be undertaking in this regard. I commend 

this Committee leadership for again coming together, as you did last Congress, to 

introduce legislation to address these challenges. The Commission stands ready to 

assist in your search for answers on behalf of our Nation's postal system and the more 

than 325 million Americans who depend on it. 

On behalf of all four Commissioners and the entire hard working agency staff, 

thank you for the opportunity to testify today. I am happy to answer any questions. 

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Appendix A: Excerpt from the Commission's 2016 "section 701" report 

(November 14, 2016) 

EXECUTIVE SUMMARY 

This marks the Postal Regulatory Commission's (Commission} second report under section 

701 of the Postal Accountability and Enhancement Act (PAEA} of 2006. Every 5 years the 

Commission is required to issue a report and its first one was submitted to Congress and 

the President in 2011 (2011 Report). In general, the reports are to reflect the Commission's 

assessment of how well the PAEA is operating and is an opportunity to recommend 

legislation or other measures necessary to improve the effectiveness and efficiency of our 

Nation's postal laws. 

The Commission's 2016 report, like its 2011 Report, emphasizes the starkly different 

environment faced by the Postal Service since the PAEA's enactment in 2006 -a time when 

volume was growing and the Postal Service was earning revenues that exceeded costs. 

Today, the Postal Service faces the reverse: mail volume that has declined more than 25 

percent since 2006 coupled with a total net loss of $5.1 billion in FY 2015 ·despite an 

exigent surcharge that generated an additional $2.1 billion in revenue. 

Twice this year, the Commission was invited to provide testimony at congressional 

hearings focused on the steadily deteriorating financial condition of the U.S. Postal Service. 

Specifically, the Commission was asked to share with the Senate and House oversight 

committees key findings of its annual Financial Analysis of U.S. Postal Service Financial 

Results. Testimony delivered by Acting Chairman Taub described the fundamental 

problems facing the Postal Service: a growing liability for retiree health benefits; an 

inability to borrow for needed capital investments, such as new delivery vehicles and 

package sortation equipment; and the continued loss of high margin First-Class Mail 

revenues. 

This fiscal year total net loss as of June 30, 2016, was $3.3 billion compared to a net loss of 

$2.8 billion for the same period last year, a deterioration of$0.5 billion. For this same time 

period, the Postal Service's total liabilities exceeded the total value of its assets by $53.7 

billion. The Postal Service has recorded monthly net operating losses since the expiration 

of the exigent surcharge in April this year; and working capital for the 9 months which 

ended June 30, 2016, was negative $43.3 billion. The net deterioration of$2.3 billion in 

working capital from the beginning of the fiscal year was largely due to the growth in 

employee-related liabilities, including the statutory accruals for payments Into the 

Retirement Health Benefits Fund (RHBF}. 

It Is clear, the most Important legislative recommendations the Commission can make 

relate directly to improving the financial condition of the U.S. Postal Service. While this 

year's 70 l report will again discuss and make recommendations related to certain rate and 

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Section 701 Report .z. 

service matters, along with improvements to Commission processes, the Commission 

places a particular emphasis upon the following recommendations: 

• The Commission renews its recommendation from its 2011 Report that Congress 

modify the retiree health benefits fund prefunding level and payment schedule as a 

measure to improve Postal Service sustainability. Decreasing the funding target to 

one more in line with industry norms would provide much needed improvement in 

the Postal Service's assets to liabilities ratio. 

• The Commission recommends lengthening the amortization period of the current 

unfunded liability. The current amortization period is 40 years. Extending the 

amortization period would free significant capital by reducing Postal Service annual 

payments. 

• Further improvement in liquidity could be provided by allowing the Postal Service 

to use any available Federal Employees Retirement System (FERS) surplus, rather 

than requiring the surplus to be transferred to the RHBF. The Commission, 

therefore, recommends that Congress grant the Postal Service the authority to use 

available FERS surpluses to pay off current or future liabilities, including debt to the 

U.S. Treasury, pension liabilities, and retiree health benefit liabilities. 

Finally, it must be noted that the timing of this report coincides closely with a significant 

Commission undertaking. By law, after December 20, 2016, the Commission shall 

commence a review of the price cap system for regulating Market Dominant products. The 

purpose is to determine whether the system is achieving its statutory objectives and if it is 

not, to "make such modification or adopt such alternative system" to achieve the objectives. 

Considering the breadth of this review, certain postal rate matters that would normally be 

addressed in this report will be deferred for consideration in December's review. 

In this report, the Commission also details a variety of other recommendations for possible 

changes to discreet rate, service, and regulatory matters or processes. All of the 

Commission's recommendations are listed in Appendix A. 

On October 20, 2016, the Commission sent its report to the Postal Service for review and an 

opportunity to comment, consistent with Section 701 of PAEA. On November 9, 2016, the 

Postal Service sent back its comments, which are attached at Appendix B. 

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Seclion 701 Report 

Section 701 Report Recommendations 

Appendix A 

Page 1 of2 

• The Commission recommends that Congress amend the current required RHBF 

prefunding level to comport with standard industry practice in both private and 

public sectors. 

• The Commission recommends lengthening the amortization period of the current 

unfunded liability. 

• The Commission recommends that Congress grant the Postal Service the authority 

to use available FERS surpluses to pay off current or future liabilities. 

• With clearly defined and limited exceptions, the Commission recommends 

establishing a "soft floor" (a lower limit subject to certain exceptions) on 

worksharing discounts, which would benefit the postal community by providing 

appropriate pricing signals to incentivize efficient mail preparation. 

• The Commission again recommends that the definition of a post office be clarified to 

adopt the plain meaning of the term post office, inclusive of branches and stations. 

• The Commission recommends clarification on whether CPUs and non postal 

operation units also fall under the Commission's administrative review authority 

under section 404(d). 

• The Commission recommends consideration of the duration of emergency 

suspensions of post offices. 

• The Commission recommends that Congress consider clarifying under which 

circumstances the Postal Service is required to consult with the Commission when 

making proposed service standard changes. 

• The Commission recommends that Congress clarify the meaning of section 3691 and 

the requirement that the Postal Service set service standards "in consultation with" 

the Commission. 

• The Commission recommends that If the Postal Service is permitted to offer new 

nonpostal services, proposed nonpostal services be subject to the same regulatory 

review the Commission applied when reviewing existing nonpostal services 

pursuant to section 404(e)(3). 

• The Commission recommends that where a proposed nonpostal service meets the 

statutory test, the Commission should have the authority to designate the service as 

a Market Dominant, Competitive, or experimental product 

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Section 701 Report Appendix A 

Page2of2 

• The Commission recommends that Congress consider adding language to 39 U.S. C. 

§ 3661 that requires the Postal Service, upon receipt of the Commission's advisory 

opinion, and prior to implementation, to provide a written response to Congress 

addressing the Commission's recommendations. 

• The Commission recommends that Congress consider raising the maximum revenue 

limitation on market test products thereby providing the Postal Service with more 

opportunities for advancement of new postal products to bolster revenue streams. 

• The Commission recommends that Congress increase the maximum duration on 

market tests for experimental products. 

• The Commission recommends Congress consider allowing the Postal Service to 

satisfy the requirements of section 3641(b )(2) by setting forth a reasonable basis 

for its belief that an experimental product would not cause market disruption. 

• The Commission urges Congress to consider and balance all the features of universal 

service as part of any review of changes necessary to preserve a financially viable 

Postal Service. 

• The Commission concurs with commenters that the postal industry and general 

public could benefit from an updated FTC Report with a more current accounting for 

the value of relevant legal differences between the Postal Service and its private 

competitors. 

32 
64 

Chairman CHAFFETZ. Thank you. I do appreciate it. 

We are pleased to have the GAO with us as well. Ms. Rectanus, 

you are now recognized for five minutes. 

STATEMENT OF LORI RECTANUS 

Ms. RECTANUS. Thank you, Mr. Chairman. Chairman Chaffetz, 

Ranking Member Cummings, and members of the committee, 

thank you for the opportunity to be here today to discuss the Postal 

Service’s financial challenges. While the Postal Service is a critical 

part of the Nation’s communication and commerce, its financial situation puts it at risk of not being able to carry out its mission. Its 

financial condition has been on GAO’s high-risk list since 2009. 

My testimony today covers the factors affecting its financial condition, its unfunded liabilities, and the difficult choices involved in 

addressing these challenges. First, the continued deterioration of 

the Postal Service’s financial condition is simply a truth that revenues are not keeping up with expenses, a trend since 2007. This 

means that over the last decade the Postal Service has had a net 

loss of over $60 billion. While much of this loss was in fact due to 

the nonpayment of retiree health prefunding payments, the Postal 

Service still lost over $10 billion outside of this requirement and 

other requirements. 

The revenue expense gap occurs because first class mail, the 

most profitable mail, continues to decline and is now down to 1981 

levels. The Postal Service has made significant efforts to grow revenue in other ways such as with package services. 

In the meantime, however, expenses continue to grow largely because of compensation and benefit payments for employees. This is 

due to salary increases, as well as a larger workforce in the past 

several years, to support the more labor-intensive package business. In fact, over the past three years the workforce has actually 

increased by over 20,000 people, contrasting sharply with prior 

years when its size decreased greatly. The Postal Service reported 

that rising comp and benefit costs generated over $1 billion in additional expenses for active workers in 2016. Bottom line is that postal revenues increased by $2.6 billion in fiscal year 2016 but expenses increased by over $3 billion. 

While the Postal Service has made numerous efforts to right-size 

operations and undertake other cost-cutting initiatives, it has no 

current plans to implement the kind of major initiatives that would 

significantly reduce this financial gap. We recognize that previous 

efforts have faced resistance from stakeholders and they would involve tradeoffs. But in the absence of such efforts, the Postal Service is not on a solid path for the future. 

Second, unfunded liabilities and debt total about $121 billion or 

almost 170 percent of annual revenues. They are mostly retiree 

health and pension benefit obligations for which the Postal Service 

has not set aside sufficient funds. And as we’ve mentioned today, 

about $50 billion of those liabilities are retiree health benefits that 

remain unfunded partly because the Postal Service has not made 

about $34 billion in required prefunding payments. 

This year, the Postal Service will have about $10 billion in required payments for retiree health and pension benefits, which is 

roughly $3 billion over what it paid in 2015 and 2016. Given its 


KING-6430 with DISTILLER
65 

poor financial position, Postal Service non-payments are likely to 

continue. This situation places everyone at risk. If the Postal Service does not adequately fund its benefits, ultimately, the taxpayer 

may be asked to step in or benefits or pay could be reduced. 

Because the Postal Service cannot fix these problems by itself, 

comprehensive legislation is needed to better align expenses with 

revenues. In doing so, Congress has key considerations. First, what 

postal services do we need in the 21st century, and how should 

those be provided? Congress has the opportunity to consider what 

future customers need on a universal basis and what tradeoffs are 

acceptable. 

Second, what is the appropriate level of compensation and benefits in an environment of revenue pressures? Congress can consider 

requiring that the Postal Service’s financial condition be considered 

in any binding arbitration. 

And finally, what is the continued viability of the Postal Service 

providing affordable universal service while also remaining self-financing? Congress has the opportunity to consider the pros and 

cons of various business models and identify the most appropriate 

model for the future. 

In conclusion, as we’ve all said, the status quo was not sustainable, and I hope 2017 is the year of action. This concludes my 

statement. Chairman Chaffetz, Ranking Member Cummings, and 

members of the committee, I would be pleased to answer any questions you have. 

[Prepared statement of Ms. Rectanus follows:] 


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For Release on Delivery 

Expected at 10 a.m. ET 

Tuesday, February 7, 2017 

GA0-17-404T 

United States Government Accountability Office 

Testimony 

Before the Committee on Oversight and 

Government Reform, House of 

Representatives 

U.S. POSTAL SERVICE 

Key Considerations for 

Restoring Fiscal 

Sustainability 

Statement of Lori Rectanus, Director, Physical 

Infrastructure Issues 
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Highlighl$ of GA0-17-404T; a testimQny 

befllre lhe Commiltee on OVersight an<t Gov~minenl Refonn. House of Representatl\1$ 

Why GAO Did This Study 

USPS 1$ a criUcal part of the nation's 

communication and comn>erce, 

delivering 154 bRilon pieces of mail in 

fiscal year 2016 to 156 milliondelivery 

points. However. USPS:s mi$Slon of 

providing prompt, reliable and efficient 

universal services to the publi¢ is at 

riSk due to Us poor financial condition. 

USPS's net loss was $5.6 billion in 

flllcal year 2016,lts tenth consecutive 

year of net losses~ At the end of fiscal 

year 2016, USpS had $121 billion in 

unfundad liabilkles; mostly for retiree 

health and pensions, and debt-an 

amilunt equal to 169 percent of 

USPS:s revenues. 

In July 2009, GAO added USPS's 

financial. condition to Us list of high-risk 

areas needing attention by Congress 

and the ex'ecutive brancl1. USPS's 

financlel condition remains on GAO's 

High-Risk List. lri Previous reports, 

GAO has idantified strategies and 

options tot USPS to generate revenue, 

reduce costs, increasa the efficiency of 

Its delivery oparetiOns, and restructura 

the funding of USPS pension and 

retiree health benefits. GAO has. also 

prevlousiy reported that a 

coinpr<;~hen!'I'Ve package of actions is 

needed to Improve USPS's finan\)lal 

viability. 

This testimony discusses (1) factors 

affecting USPS's deteriorating financial 

condition, (2} USPS's ability to make 

required retiree health and pension 

payrtl!lnts, and (3) considerations and 

choides CongreSs faces in '!ddressing 

USPS's financial cl1altenges. This 

testimony iS: bssed primarily on past 

GAO work: that has examined USPS's 

financial condition-including its 

flabl1ities-and updated USPS financial 

infOrmation (or fiscal years 2016 and 

2017. 

View GA0-174041'. For more information; contact Lori Rectanus at (202) 512-2834 or rectanusl@gao.gov. 

'*·ii'FiiMitl' 

U.S. POSTAL SERVICE 

Key Considerations for Restoring Fiscal 

Sustainability 

What GAO Found 

The U.S. Postal Service's (USPS) deteriorating financial condition is 

unsustainable as a result of trends including: 

Declining mail volume: First-Class Mail-USPS's most profitable productcontinues to decline in volume as communications and payments migrate to 

electronic alternatives. USPS expects this decline to continue for the 

foreseeable future. 

Growing expenses: Key USPS expenses such as salary increases and work 

hours continue to grow, due in part to growth in shipping and packages, 

which are more labor-intensive. Compensation and benefits comprise close 

to 80 percent of USPS's expenses. 

USPS's financial condition makes It unlikely it will be able to fully make its 

required retiree health and pension payments in the near future. In fiscal year 

2016, when USPS was required to make $13.0 billion in retiree health and 

pension payments, it made $7.0 billion in payments-mainly due to not making a 

required retiree health payment of $5.8 billion. USPS's required payments have 

been restructured for fiscal year 2017 and are estimated to total $10.3 billion. 

USPS's ability to make these 2017 payments will be further challenged due to: 

Expiration of a tEmporary "exigent" rate surcharge: USPS has said the April 

2016 surcharge expiration is reducing its revenues almost $2 billion annually. 

No new major cost savings initiatives planned: USPS made efforts in recent 

years to right-size its operations, but has no current plans to initiate major 

new initiatives to achieve cost savings in its operations. 

Large unfunded liabilities for postal retiree health and pension benetns-which 

were $73.4 billion at the end of fiscal year 2016-may ultimately place taxpayers, 

USPS employees, retirees and their beneficiaries, and USPS itself at risk. As 

GAO has previously reported, funded benefits protect the future viability of an 

enterprise such as USPS by not saddling it with bills after employees have 

retired. Further, with USPS retirees participating in the same health and pension 

benefit programs as other federal retirees, if USPS ultimately does not 

adequately fund these benefits and If Congress wants these benefits to be 

maintained at current levels, funding from the U.S. Treasury-and hence the 

taxpayer-would be needed to maintain the benefit levels. Alternatively, 

unfunded benefits could lead to pressure for reductions in USPS benefits or pay. 

Congress faces difficult choices and tradeoffs to address USPS's financial 

challenges. The status quo is not sustainable. Considerations for Congress 

include the (1) level of postal services provided to the public and the affordability 

of those services, (2) compensation and benefits for USPS employees and 

retirees in an environment of revenue pressures, and (3) tension between 

USPS's dual roles as an independent establishment of the executive branch 

required to provide universal delivery service and as a self-financing entity 

operating in a business-like manner. 

-------------United States Government Accountability Office 
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Chairman Chaffetz, Ranking Member Cummings, and Members of the 

Committee: 

I appreciate the opportunity to be here today to discuss the varied 

challenges facing the U.S. Postal Service (USPS) and choices Congress 

faces in addressing USPS's ongoing financial challenges. USPS is a 

critical part of the nation's communication and commerce, delivering 154 

billion pieces of mail in fiscal year 2016 to about 156 million delivery 

points, and with about 640,000 employees. USPS, however, continues to 

face a serious financial situation with insufficient revenues to cover its 

expenses, putting its mission of providing prompt, reliable, and efficient 

universal services to the public at risk.' USPS continues to incur deficits 

that are unsustainable. Moreover, at the end of fiscal year 2016, USPS 

had about $121 billion in unfunded liabilities and debt, most of which were 

for retiree health and pension benefits' USPS continues to have $15 

billion in outstanding debt-the statutory limit. These unfunded liabilities 

and debt are a large financial burden, increasing from 99 percent of 

USPS revenues in fiscal year 2007 to 169 percent of revenues in fiscal 

year 2016. USPS also recorded a net loss of $5.6 billion in fiscal year 

2016-its tenth consecutive year of net losses totaling over $62 billion. 

In July 2009, we added USPS's financial condition to our list of high-risk 

areas needing attention by Congress and the executive branch. USPS's 

financial condition continues to deteriorate and remains on our High-Risk 

List. 3 We have previously issued a number of reports that identified 

strategies and options for USPS to generate revenue, reduce costs, 

increase the efficiency of its delivery operations, and restructure the 

funding of USPS pension and retiree health benefits. 4 We continue to 

believe that a comprehensive package of actions is needed to improve 

USPS's financial viability. 

1 39 U.S.C. § 101(a). 

2 Unfunded benefit liabilities are the estimated amount USPS has not sufficiently set aside 

to cover the benefits eamed by its current and retired employees that are attributable to 

service already rendered. 

3 GAO. High-Rjsk Services: An Update, GA0-15-290 (Washington, D.C .. February 2015). 

An updated GAO high-risk report will be issued later this month. 

4 For example, our December 2012 report analyzed five different approaches for funding 

retiree health benefits and discussed the differing impacts that each alternative would 

have on USPS's future annual payments and unfunded liabilities. GAO, U.S. Postal 

Service: Status, Financial Outlook, and Alternative Approaches to Fund Retiree Health 

Benefits. GA0-13-112 (Washington, D.C.: Dec. 4, 2012). 

Page 1 GA0~17404T U.S. Postal Service 
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This testimony discusses: (1) factors affecting USPS's deteriorating 

financial condition, (2) USPS's ability to make required retiree health and 

pension payments, and (3) considerations and choices Congress faces in 

addressing USPS's financial challenges. This testimony is based primarily 

on our past reports and testimonies that examined USPS's financial 

condition, including its liabilities. 5 The reports and testimonies cited in this 

statement contain detailed information on the methods used to conduct 

our work. For this testimony, we updated USPS's financial information 

with reported results for fiscal year 2016, which ended September 30, 

2016. In addition, we reviewed testimony and reports prepared by USPS 

and the Postal Regulatory Commission in 2016 and USPS estimates of 

retiree heaHh and pension payments that USPS will be legally required to 

make in fiscal year 2017. We found these estimates to be sufficiently 

reliable for providing a general description and estimate for the large 

pending payments USPS faces. The work upon which this testimony is 

based was conducted in accordance with generally accepted government 

auditing standards. Those standards require that we plan and perform the 

audit to obtain sufficient, appropriate evidence to provide a reasonable 

basis for our findings and conclusions based on our audit objectives. We 

believe that the evidence obtained provides a reasonable basis for our 

findings and conclusions based on our audit objectives. 

5 GAO, U.S. Postal Service: Continuing Financial Challenges and the Need for Postal 

Reform, GA0-16-651T {Washington, D.C.: May 11, 2016); U.S. Postal Service: Financial 

Challenges Continue, GA0-16-268T {Washington, D.C.: Jan. 21, 2016); US. Postal 

Service: Action Needed to Address Unfunded Benefit Liabilities, GA0-14-398T 

(Washington, D.C.: Mar. 13, 2014}: US. Postal Service.· Health and Pension Benefits 

Proposals Involve Trade-offs, GA0-13-872T {Washington, D.C.: Sept. 26, 2013); U.S. 

Postal Service: Proposed Health Plan Could Improve Financial Condition, but Impact on 

Medicare and Other Issues Should be Weighed before Approval, GA0-13--658 

(Washington, D.C.: July 18, 2013); U.S. Postal Service: Status, Financial Outlook, and 

Alternative Approaches to Fund Retiree Health Benefits, GA0-13-112 {Washington, D.C.: 

Dec, 4, 2012); Federal Employees' Compensation Act: Analysis of Proposed Program 

Changes, GA0-13-108 {Washington, D.C.: Oct. 26, 2012); U.S. Postal Service: Allocation 

of Responsibility for Pension Benefits between the Postal Setvice and the Federal 

Government, GA0-12-146 {Washington, D.C.: Oct. 13, 2011); and U.S. Postal Service: 

Strategies and Options to Facilitate Progress towand Financial Viability, GA0-1 0-455 

{Washington, D.C .. Apr. 12, 2010). 

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Declining Mail 

Volume and Growing 

Expenses Contribute 

to USPS's 

Deteriorating 

Financial Condition 

After about 30 years of relatively steady growth, USPS's expenses began 

consistently exceeding revenues in fiscal year 2007-a trend that has 

continued through fiscal year 2016 (see fig. 1 ). As a result, USPS has lost 

a total of $62.4 billion since fiscal year 2007. 

Figure 1: U.S. Postal Service Revenue and Expenses, Fiscal Years 1972 2016 

Dolla,.. {in bmions) 

.. 

.. 

70 

.. 

50 

40 

30 

20 

•• 

0~~--~--~~--~--~--~--~~--~--~ fl I I I I I I tl I FlscaiYur 

Expenses 

-- Revern.~e 

Soun:e:U.S.Posta!SeMce. l GA0.17...404T 

As we testified last year, 6 the continued deterioration in USPS's financial 

condition is due primarily to two factors. 

1. Declining First-Class Mail volumes: The long-term decline of FirstClass Mail volume, which USPS expects to continue for the 

foreseeable future, has fundamental implications for USPS's business 

model because this remains USPS's most profitable class of mail. 

Domestic First-Class Mail volume declined by 2 percent in fiscal year 

2016 from the previous fiscal year to 61 billion pieces-a level41 

percent below its peak in fiscal year 2001, and the smallest level since 

fiscal year 1981 (see fig. 2). USPS recently reported that First-Class 

GA0-16-268T. 

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Mail volume is declining as major commercial mailers actively 

promote the use of online services, and although the rate of decline 

has slowed, will continue to decline in future years with the migration 

to electronic alternatives resulting from technological changes. 7 In the 

long run, USPS also faces the possibility of a future economic 

downturn that could have an additional impact on First-Class Mail 

volume. 

Figure 2: U.S. Postal Service First..Ciass Mail Volume, Fiscal Years 1972 2016 

Pieces (in billions) 

120 

100 

.. 

60 

.. 

20 

0 

~ 

~ ~ 

~ I I Fiscal Year 

So!Jroe:U.S.Poa!a!Service.j GA0-17-404T 

First-Class Ma11 vol1,.1me is the smallest since fiscal year 1981 

I I I 

Note: This chart shows domestic First-Class Mail volume. 

2. Growing Expenses: USPS expenses increased by $3. 1 billion in fiscal 

year 2016 from the previous year, outpacing the $2.6 billion increase 

in revenues. Increasing compensation and beneftts expenses were a 

key driver of expense growth. USPS reported that compensation and 

benefits for active employees increased by $1.2 billion, due to 

contractually obligated salary escalations and additional work hours 

associated in large part with growth in the more labor-intensive 

States Postal Service, 2016 Report on Form 10-K (Washington, D.C: Nov. 15, 

2016). 

Page4 GA0-11-404T U.S. Postal Serviee 
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Shipping and Packages business. 8 In this regard, USPS reported a 14 

percent growth in Shipping and Packages volume in fiscal year 2016. 9 

However, to accommodate the surge in this volume and to minimize 

service disruptions during the holiday season, USPS reported 

increasing Sunday delivery service and adding non-career employees 

for the holiday season. This contributed to growth in USPS work hours 

in fiscal year 2016 from the previous year, when the number of USPS 

career employees increased by 17,000 and the number of non-career 

employees increased by 1 ,000. Over the past 3 years, the size of 

USPS's total workforce has increased by about 22,000, including 

career and non-career employees; this growth contrasts with the trend 

from fiscal years 1999 through 2013, when the workforce decreased 

by more than 288,000 (see fig. 3). Compensation and benefits 

comprise close to 80 percent of total USPS expenses. Thus, 

expenses will continue to grow if increases in salaries and work hours 

continue. 10' 11 

8 The Shipping and Packages category includes Priority Mat!, Priority Mall Express, Parcel 

Select, First~Ciass Package Service, Standard Mail Parcel Service Parcel Return Service, 

and Package Services such as Bound Printed Matter, Media Mail, and Library MaiL 

9 Growth in the volume of Shipping and Package Services and Standard Mail in fiscal year 

2016 offset the decline in First-Class Mail volume. As a result, total mail volume increased 

by Q_ 1 percent in fiscal year 2016 to 153.9 billion pieces, which was 28 percent below its 

peak in fiscal year 2006. 

10 USPS has budgeted for a $0.4 billion increase in compensation and benefrts for fiscal 

year 2017 based on a number of factors, including an anticipated number of work hours 

similar to fiscal year 2016. 

11 USPS's Total Factor Productivity (TFP) slightly declined in fiscal year 2016-the first 

time productivity declined since fiscal year 2009. TFP is an index that measures how 

efficiently USPS uses resources (inputs) to handle all aspects of its workload. See USPS, 

FY2016 Annual Report to Congress (Washington, D. C.: December 2016). 

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Figure 3: Total Number of U.S. Postal Service Employees, Fiscal Years 1972-2016 

Employees (in thousands) 

1,000 

... 

800 

700 

... 

400 

300 

200 

100 

Fiscal Year 

Source· U.S Posta!Selvtee. ! GA0-17-404T 

I 

Note: This graphic includes both career and non-career employees. 

As previously discussed, USPS's unfunded liabilities and debt have 

become a large financial burden, 12 increasing from 99 percent of USPS 

revenues at the end of fiscal year 2007 to 169 percent of revenues at the 

end of fiscal year 2016. These unfunded liabilities and debt-totaling 

about $121 billion at the end of fiscal year 2016-consist mostly of retiree 

health and pension benefit obligations for which USPS has not set aside 

sufficient funds to cover. 

12 USPS's unfunded liabilities and debt as a percentage of its revenues declined to 169 

percent at the end of fiscal year 2016 from 176 percent (an updated estimate} at the end 

of fiscal year 2015, largely due to growth in USPS revenues, which increased $2.6 billion 

in fiscal year 2016 from the previous year to $71.5 billion. In addition, USPS's unfunded 

liabilities and debt of $120.7 bi!Hon at the end of fiscal year 2016 was $0.9 bi!!ion less than 

the comparable figure at the end of the previous year. These totals included the latest 

Office of Personnel Management (OPM) estimates of unfunded USPS liabilities for postal 

pension benefits (projections for fiscal year 2016 and a revised estimate for fiscal year 

2015), OPM valuations of unfunded liabilities for postal retiree health benefits, USPS 

estimates of liabilities for postal workers' compensation benefits, USPS debt, and other 

liab!!ities on USPS's balance sheet. 

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USPS Will Remain 

Unlikely to Fully Make 

Required Retiree 

Health and Pension 

Payments 

When the Postal Accountability and Enhancement Act (PAEA) 

established the Postal Service Retiree Health Benefits Fund, it required 

USPS to begin prefunding health benefits for its current and future postal 

retirees, with annual payments of $5.4 billion to $5.8 billion from fiscal 

years 2007 through 2016, followed by actuarially determined prefunding 

payments beginning in 2017 and every year thereafter. 13 As of the end of 

fiscal year 2016, USPS's liability for retiree health benefits was about 

$104.0 billion and the Postal Service Retiree Health Benefits Fund 

balance was $51.9 billion, with a resulting unfunded liability of $52.1 

billion. USPS has missed a total of $33.9 billion in required prefunding 

payments, which represent about half of its total losses since fiscal year 

2007. 14 However, USPS would have still lost $10.6 billion during this time 

period even without the annual prefunding requirement. 

USPS will remain unlikely to fully make its required retiree health and 

pension payments in the near future. Beginning this fiscal year (2017), 

USPS is no longer required to make fixed prefunding payments. Instead, 

under the requirements established by PAEA, it is required to start 

making annual payments based on actuarial determinations of the 

following component costs: 

a 40-year amortization schedule to address the unfunded liabilities for 

postal retiree health benefits, 

the "normal costs" of retiree health benefits for current employees, 15 

and 

13 Pub. L. No. 109-435, § 803, 120 Stat 3198 (2006), codified at 5 U.S.C. § 8909a. Under 

the prefunding mechanism established by PAEA, as implemented by the Office of 

Personnel Management (OPM), USPS payments into the Postal Service Retiree Health 

Benefits Fund (PSRHBF) would be projected to fund the liability over a period in excess of 

50 years, from fiscal years 2007 through 2056 and beyond (with rolling 15-year 

amortization periods after 2041). PAEA established ~fixedn prepayment amountsmeaning that the amounts were set by statute and did not vary with actuarial 

measurements of the cost of the benefits-in the first 10 years, from fiscal years 2007 

through 2016, with actuaria!ly determined payments thereafter. However, the payments 

required by PAEA were significantly "frontloaded, ~with the fixed payment amounts in the 

first 10 years exceeding what actuarially determined amounts would have been using a 

50-year amortization schedule. For more detail, see GA0-13-112. 

14 For financial reporting purposes, missed prefunding payments are treated as USPS's 

expenses and reported as a liability on its balance sheet. 

15 The "normal cost~ is the annual expected growth in liability attributable to an additional 

year of employees' service. 

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a 27 -year amortization schedule to address the unfunded liabilities for 

postal pension benefits under the Civil Service Retirement System 

{CSRS). 16 

These payments are in addition to annual payments USPS is already 

required to make to finance its pension benefits under the Federal 

Employees Retirement System (FERS) 17, which consists of a 30-year 

amortization schedule to address any unfunded liabilities, and the normal 

costs of FERS benefits for current employees. USPS will find it very 

difficult to make all of these required payments given its financial 

condition and outlook. As table 1 below shows, in fiscal year 2017, USPS 

will be required to make an estimated total of $10.3 billion in payments for 

retiree health and pension benefits under CSRS and FERS-about $3.3 

billion more than what USPS paid in fiscal year 2016 for these benefit 

programs. 

16 CSRS is a defined benefit, contributory retirement system for certain federal 

employees. It was replaced by the Federal Employees Retirement System (FERS) for 

federal employees who first entered covered seJVice on and after January 1, 1987. 

17 In addition to providing an annuity at retirement based on years of service and "high-3~ 

average pay, FERS also consists of Social Security and the government's Thrift Savings 

Plan (TSP). 

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Table 1: U.S. Postal Service (USPS) Payments for Retiree Health and Pensions, 

Fiscal Years 2016 and 2017 (Dollars in Billions) 

Fiscal year 2016 ~ Fiscal year 2016 ~ Fiscal year 2017 -

USPS payment Required paid required (estimate) 

Retiree health benefits 

Health premiums $3.3 $3.3 Not applicable 

Fixed prefunding $5.8 $0 Not applicable 

Normal cost Not applicable Not applicable $2.9 

Amortization Not applicable Not applicable $2.6 

Pension benefits 

Civil Service 

Retirement System 

(CSRS) 

Amortization Not applicable Not applicable $1.2 

Federal Employees 

Retirement System 

(FERS) 

Normal cost $3.7 $3.7 $3.3 

Amortization $0.2 $0' $0.2 

Total $13.0 $7.0 $10.3 

Source- U S Postal Sei'Vlce ! GAO-1 7 -404T 

Note: Fiscal year 2017 estimates may change later this year when the Office of Personnel 

Management (OPM) provides USPS with the amounts of these required payments. 

aUSPS has not made its fiscal year 2016 FERS amortization payment and has a pending request that 

OPM reconsider this amount 

~>oata do not add exactly to the total due to rounding. 

In addition to declining mail volumes and increased expenses, USPS's 

ability to make its required payments for these retirement programs will 

be further challenged due to: 

Expiration of a temporary rate surcharge: USPS has reported that the 

April 2016 expiration of a 4.3 percent "exigent" surcharge that began 

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in January 2014 is reducing its revenues by almost $2 billion 

annually. 18 

No new major cost-savings initiatives planned: USPS has made 

efforts in recent years to right-size its operations to better adapt to 

declining mail volumes that are adversely affecting its financial 

position. For example, in fiscal year 2015, USPS reduced the hours of 

over 13,000 post offices to better match retail service with demand 

and reduced its physical footprint by consolidating 36 mail processing 

facilities, and instituted operational changes to better utilize resources. 

However, USPS has no current plans to initiate new major initiatives 

to achieve cost savings in its operations. According to USPS, it will 

continue to implement operational initiatives to contain costs and take 

actions to maintain liquidity, 19 but as we testified last year, 20 such 

actions will not be enough to stave off future losses and stabilize its 

finances. Although USPS has faced stakeholder resistance to its rightsizing efforts, in the absence of such efforts, USPS will continue to 

face challenges to appropriately match resources with mail volume 

and help address its compensation and benefits costs. 

USPS has reported that without structural change to its business model 

and legislative change, it expects continuing losses and liquidity 

18 In December 2013, the Postal Regulatory Commission (PRC) approved USPS's 

request for an uexigent surcharge" which allowed USPS to raise postal rates for most mail 

above the statutory price cap that is generally limited to the rate of inflation, except under 

extraordinary or exceptional circumstances that necessitate a larger rate increase. In July 

2015, PRC ruled that USPS could continue the surcharge until it collected $4.6 billion in 

incremental revenue, which represents USPS's approximate loss due to the suppression 

of mail experienced during the Great Recession. This surcharge was discontinued April 

10, 2016, resulting in the reduction of many postal rates, including the rate for a FirstClass Mail stamp that was reduced from 49 to 47 cents. On January 22, 2017, the FirstClass Mail stamp rate was increased to 49 cents as part of USPS pricing changes 

implemented under the statutory price cap. However, the January 2017 increase did not 

mitigate the continuing fiscal effects of the expiration of the exigent increase, which was 

an increase over the inflation-based cap 

19 To improve liquidity in recent years, USPS has reported conserving cash by spending 

only what it believed was essential to maintain its existing facilities and service levels. For 

example, although USPS said it must invest in upgrades of letter sorting equipment that is 

at or near the end of its useful life and also in equipment to fully capitalize on business 

opportunities in the growing package delivery market, it deferred facilities maintenance to 

conserve cash in instances where this could be done without adversely impacting 

employee health or safety issues. 

20 GA0-16-651T. 

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challenges for the foreseeable future. 21 According to USPS, it has 

maintained adequate liquidity only by not making required payments to 

prefund retiree health benefits and deferring needed capital investments. 

Looking forward, USPS has reported that, if circumstances leave it with 

insufficient cash, it may prioritize payments to its employees and 

suppliers ahead of some payments to the federal government, as it has 

done in the past. 

Large unfunded liabilities for postal retiree health and pension benefitswhich were $73.4 billion at the end of fiscal year 2016-may ultimately 

place taxpayers, USPS employees, retirees and their beneficiaries, and 

USPS itself at risk. As we have previously reported, funded benefits 

protect the future viability of an enterprise such as USPS by not saddling 

it with bills after employees have retired. 22 Further, since USPS retirees 

participate in the same heatth and pension benefit programs as other 

federal retirees, if USPS ultimately does not adequately fund these 

benefits and if Congress wants these benefits to be maintained at current 

levels, funding from the U.S. Treasury, and hence the taxpayer, would be 

needed to continue the benefit levels. According to USPS's testimony last 

year, "absent fundamental legislative reform, we face the prospect of 

having to continue to default on these prefunding payments [for retiree 

health benefits] in order to continue paying our employees and suppliers 

and to provide postal services to the American public. This increases the 

risk that taxpayers may ultimately be called on to fund these benefits. "23 

Alternatively, unfunded benefits could lead to pressure for reductions in 

benefits or in pay. Thus, the timely funding of benefits protects USPS 

employees, retirees and their beneficiaries, taxpayers, and the USPS 

enterprise. 

21 For example, USPS has proposed statutory changes that would require postal retirees 

to participate in Medicare when they become eligible. This proposal would reduce USPS's 

expenses-and unfunded liability-for retiree health benefits because Medicare would 

become the primary insurer for all postal retirees. 

22 GA0-13-112. 

23 USPS, Statement of Megan J. Brennan, Postmaster General and Chief Executive 

Officer, United States Postal Service, Before the Senate Homeland Security and 

Governmental Affairs Committee (Washington, D.C., Jan. 21, 2016) 

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Congress Faces 

Difficult Choices to 

Address USPS's 

Financial Condition 

USPS's financial situation leaves Congress with difficult choices and 

trade-offs to achieve the broad-based restructuring that will be necessary 

for USPS to become financially sustainable. USPS's ability to make its 

required retiree health and pension payments requires a decrease in 

expenses or increase in revenues, or both. Although USPS needs to take 

further action to reduce costs and increase revenues, USPS's actions 

alone under its existing authority will be insufficient to achieve sustainable 

financial viability; comprehensive legislation will be needed. 

Congressional decisions about how to address the following issues will 

shape USPS's future role, services, operations, networks, and ability to 

adapt to changes in mail volume. In making these decisions, Congress 

could consider, among other things, the following factors: 

The level of postal services and the affordability of those services: 

USPS's growing financial difficuHies combined with vast changes in 

how people communicate provide Congress with an opportunity to 

consider what postal services will be needed in the 21st century. 

Specifically, Congress could consider what postal services should be 

provided on a universal basis to meet customer needs and how these 

services should be provided. Congress also could consider trade-offs 

in reducing the level of postal services, such as providing USPS with 

the authority to reduce the frequency of letter mail delivery to enable 

USPS to reduce its expenses. A key factor in any consideration to 

reduce postal services would include potential effects on postal 

customers, mail volumes, and employees. In particular, Congress 

could consider the quality of postal service-such as the frequency 

and speed of mail delivery and the accessibility and scope of retail 

postal services-in considering any service reduction. For example, 

as part of its efforts to reduce excess capacity, in January 2015 USPS 

revised its standards for on-time mail delivery by increasing the 

number of days for some mail to be delivered and still be considered 

on time. Even with the revised standards, on-time delivery 

performance declined significantly, particularly for the second quarter 

of fiscal year 2015, a decline USPS attributed to operational changes 

implemented in January 2015 and adverse winter weather. 

Performance has rebounded since then, facilitated in part by 

increases in workforce and mail transportation capacity and costs. 

Compensation and benefits in an environment of revenue pressures: 

Key compensation and benefits costs for USPS employees have 

increased and continue to increase, while the volume for First-Class 

Mail-USPS's most profitable product-has declined and continues to 

decline. To put USPS's situation into context, many private sector 

companies (such as automobile companies, airlines, mail preparation 

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and printing companies, and major newspapers) took far-reaching 

measures to cut costs (such as reducing or stabilizing workforce, 

salaries, and benefits) when demand for their central product and 

services declined. However, although USPS has taken some steps to 

improve its financial situation, USPS has stated that its strategies to 

increase efficiency and reduce costs are constrained by statutory, 

contractual, regulatory, and political restrictions. USPS is subject to 

requirements to maintain 6-day delivery, limit rate increases for most 

mail within an inflation-based price cap, and participate in federal 

benefit programs. Most USPS employees are covered by collective 

bargaining agreements with four major labor unions which have 

established salary increases, cost-of-living adjustments, and the 

percentage of health insurance premiums paid by employees and 

USPS. When USPS and its unions are unable to agree, the parties 

are required to enter into binding arbitration by a third-party panel. 

There is no statutory requirement for USPS's financial condition to be 

considered in arbitration. Considering USPS's unsustainable financial 

condition and the competitive environment, we continue to believeas we reported in 201 024-that Congress should consider revising the 

statutory framework for collective bargaining to ensure that USPS's 

financial condition be considered in binding arbitration. 

USPS's dual role of providing affordable universal service while 

remaining self-financing: As an independent establishment of the 

executive branch, USPS has long been expected to provide 

affordable, quality, and universal delivery service to all parts of the 

country while remaining self-financing. USPS and other stakeholders 

have considered a range of different business models to address 

USPS's financial difficutties. For example, USPS's 2002 

Transformation Plan included a range of alternatives from a publicly 

supported model to a business model with a corporate structure 

supported by shareholders. Any alternative business rnodel would 

need to address the level of any costs that would be transferred from 

USPS, which is financed by postal ratepayers, to the federal 

government, which is funded by taxpayers. In addition, if Congress 

requires eligible postal retirees to participate in Medicare, as USPS 

has previously proposed, it should consider the tradeoffs for the 

federal budget deficit and Medicare's financial condition, as well as 

the implications for affected employees. 25 

24 GA0-10-455. 

25 GA0-13-658. 

Page 13 GA0-17--404T U.S. Po$tal Service 
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Conclusion 

GAO Contact 

and Key 

Acknowledgments 

Finally, a fully functioning USPS Board of Governors is needed to support 

USPS's ability to carry out its critical responsibilities, as certain powers 

are reserved to the nine presidentially-appointed Governors who must be 

confirmed by the Senate. Because the last serving Governor left the 

Board in December 2016 due to term limits, the 11-member Board 

currently consists of only the Postmaster General and the Deputy 

Postmaster General. According to USPS, the critical responsibilities 

reserved to the Governors include setting postal prices, approving new 

products, and appointing or removing the Postmaster General and the 

Deputy Postmaster General. USPS stated last year that, in the event no 

Governors are in place, these critical duties may not be able to be 

executed, potentially leaving USPS without the ability to adjust its prices 

as needed, introduce new products, or appoint or replace its two most 

senior executive officers. 

USPS management, unions, the public, community leaders, and 

Members of Congress need to take a hard look at what level of postal 

services residents and businesses need and can afford. The status quo is 

not sustainable. 

Chairman Chaffetz, Ranking Member Cummings, and Members of the 

Committee, this concludes my prepared statement. I would be pleased to 

answer any questions that you may have at this time. 

For further information about this statement, please contact Lori 

Rectanus, Director, Physical Infrastructure Issues, at (202) 512-2834 or 

rectanusl@gao.gov. Contact points for our Congressional Relations and 

Public Affairs offices may be found on the last page of this statement. In 

addition to the contact named above, Frank Todisco, Chief Actuary, FSA, 

MAAA, EA, Applied Research and Methods; Derrick Collins, Assistant 

Director, Physical Infrastructure Issues; Samer Abbas; Antoine Clark; 

Kenneth John; Josh Ormond; Crystal Wesco; and Chad Williams made 

important contributions to this statement. Mr. Todisco meets the 

qualification standards of the American Academy of Actuaries to render 

the actuarial opinions contained in this testimony. 

Page 14 GA0·17-.404T U.S. Postal Service 
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Appendix 1: U.S. Postal Service (USPS) 

Financial Obligations and Related 

Information 

Table 2: Selected U.S, Postal Service (USPS) Liabilities and Outstanding Debt (Dollars in Billions) 

Funded status of Retiree Health 

Selected USPS liabilities (included and Pension Funds {not fully 

on USPS balance sheet) included on USPS balance sheet) Totals 

fiscal Outstanding Workers' Other Funded Funded Funded Total Total Total Unfunded 

year debt compensation liabilities status for status for status for USPS USPS USPS obligations, 

liabilities retiree CSRS FERS balance liabilities, revenue liabilities, 

health (unfunded) (unfunded) sheet debt, and and debt as 

benefits assets unfunded percentage 

(unfunded) obligations of revenue 

2007 (4.2) (7.8) (12.7) (55.0) (3.1) 8.4 25.8 (74.3) 75.0 99% 

2008 (7.2) (8.0) (12.5) (53.5) (9.0) 6.5 26.0 (83.7) 75.0 112% 

2009 (10.2) (10.1) (13.2) (52.0) (7.3) 6.9 28.1 (85.9) 68.1 126% 

2010 (12.0) (12.6) (13.6) (48.6) 1.6 10.9 24.3 (74.3) 67.1 111% 

2011 (13.0) (15.1) (14.2) (46.2) (17.8) 2.6 23.4 (103.7) 65.7 158% 

2012 (15.0) (17.6) (13.7) (47.8) (18.8) 0.9 22.6 (112.1) 65.2 172% 

2013 (15.0) (17.2) (12.5) (48.3) (17.8) (0.1) 21.6 (110.9) 67.3 165% 

2014 (15.0) (18.4) (12.5) (48.9) (19.4) (3.6) 23.0 (117.8) 67.9 174% 

2015 (15.0) (18.8) (12.5) (54.8) (16.7) (3.8) 24.0 (121.6) 69.0 176% 

2016 (15.0) (20.0) (12.3) (52.1) (17.5) (3.8) 25.2 (120.7) 71.5 169% 

Sourc~r US Postal Sel"l/lce (USPS) Form 10.KStatements. jGA0-17·404T 

Note: This table provides data on selected USPS liabilltles and outstanding debt at the end of each 

fiscal year as reported by USPS and the Office of Personnel Management (OPM). Key terms include 

the following: 

Selected USPS liabilities include outstanding debt and workers' compensation liabilities, and other 

miscellaneous liabilities on USPS's balance sheet such as deferred revenue-prepaid postage, 

payables and accrued expenses. compensation and benefrts liabilities (e.g., wages that have been 

earned but not yet paid as of the end of the fiscal year), and the value of employees' accumulated 

leave. Not included is the current liability for the statutory Postal Servtce Retiree Health Benefits Fund 

(PSRHBF) payments not yet paid by USPS, which rs a component of the unfunded liability for retiree 

health benefits. and is also highlighted in table 4 in the «Tatar Hoe for the column labeled «Missed 

USPS prefunding payments." 

Outstanding debt is total USPS short-term and long-tenn debt. 

USPS liabilities for workers' compensation are the actuarial present value of future workers' 

compensation payments that USPS is estimated to have to make for injuries that have already 

occurred, 

Unfunded actuarial liabilities for retiree health benefits are OPM estimates as of the end of each 

fiscal year. The unfunded liabilities are the excess of !iabil!ties over funded assets. The liabilities 

represent the actuarial present value of the cost of the portion of future retiree health premiums for 

which USPS is responsible and that are attributable to past service; these liabilities reflect all such 

projected future costs for current retirees and beneficiaries and a portion of such projected future 

costs for current workers. The portion ($33.9 billion) ofthe fiscal year 2016 $52.1 billion unfunded 

liability that is attributable to the missed prefunding payments is reflected as such on USPS's balance 

sheet; the remainder ($18.2 billion) of the $52.1 billion unfunded liabHlty ls not on USPS's balance 

sheet. 

Unfunded Civil Service Retirement System (CSRS) and Federal Employee Retirement System 

{FERS) actuarial liabilities are OPM estimates as of the end of each fiscal year. The unfunded 

liabilities are the excess of liabilities over funded assets. The liabilities represent the actuarial present 

value of the cost of future retiree pension benefits for which USPS is responsible and that are 

Page 15 GA0~17-404T U.S. Postal Service 
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Appendix 1: U.S. Postal Service {USPS) 

Financial Obligations and Related Information 

attributed to past service; these liabilities reflect all such projected future costs for current retirees and 

beneficiaries and a portion of such projected future costs (in excess of worker contributions) for 

current workers. 

Unfunded obligations, liabilities, and debt are the sum of the unfunded actuarial liabilities 

(obligations), USPS liabilities, and debt shown in this table 

Total USPS revenue consists of total USPS operating revenue plus interest and investment income 

for each fiscal year 

Total assets consist of current assets including cash and noncurrent assets largely comprising 

property and equipment measured at historic purchase value after depreciation. This does not include 

assets funding the retiree health and pension benefits 

Table 3: Funded Status of U.S. Postal Service (USPS) Pension Obligations (Dollars in Billions) 

Total USPS 

CSRS funded status FERS funded status Pension funded status 

fiscal year CSRS CSRS NetCSRS FERS FERS NetFERS Pension Total pension 

assets actuarial funded assets actuarial funded Pension actuarial funded status 

liabilities Status liabilities status assets liabilities (unfunded) 

(unfunded} (unfunded) 

2007 193.8 198.9 (31) 63.5 55.1 8.4 257.3 252.0 5.3 

2008 195.1 204.1 (90) 69.3 62.8 6.5 264.4 266.9 (2.5) 

2009 195.3 202.6 (7 3) 75.2 68.3 6.9 270.5 270.9 (0.4) 

2010 194.6 193.0 1.6 80.8 69.9 10.9 275.4 262.9 12.5 

2011 193.0 210.8 (17.8) 86.6 84.0 2.6 279.6 294.8 (15.2} 

2012 190.7 209.5 (18.8) 91.7 90.8 0.9 282.4 300.3 (17.9} 

2013 186.6 204.4 (17.8) 96.5 96.6 (0.1) 283.1 301.0 (17.9) 

2014 182.1 201.5 (19.4) 100.9 104.5 (3.6) 283.0 306.0 (23.0) 

2015 177.4 194.1 (167) 105.2 109.0 (3.8) 282.6 303.1 (20.5} 

Projected 2016 174.4 191.9 (17.5) 112.1 115.9 (3.8) 286.5 307.8 (21.3} 

&lurce U,S Postal Sel"\llce (USPS) Form iQ...K Statements ! GA0-17-404-T 

Note: This table provides the Office of Personnel Management's (OPM} estimation of the funded 

status of the Clvll Service Retirement System (CSRS) and Federal Employee Retirement System 

(FERS) programs for USPS, as of the end of each fiscal year. Data are actual amounts far fiscal 

years 2007-2015 and projected amounts for fiscal year 2016. Key terms include the following: 

Assets include securities of the Civil Service Retirement and Disability Fund (CSRDF). Although 

CSRDF is a single fund that does not maintain a separate account for each participating U$. 

government employer, PAEA requires certain disclosures regarding obligations and changes in net 

assets as if the funds were separate. 

Actuarial liabilities are actual amounts for fiscal years 2007-2015 and projected amounts for fiscal 

year 2016, as of the end of each fiscal year. These data are prepared by OPM and represent the 

actuarial present value of the cost of future retiree pension benefits for which USPS is responsible 

and that are attributed to past service; these liabilities reflect all such projected future costs for current 

retirees and beneficiaries and a portion of such projected future costs for current workers. 

Net funded status equals assets minus liabilities. 

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Appendix 1: U.S. Postal Service (USPS) 

Financial Obligations and Related Information 

Table 4: U.S. Postal Service (USPS) Retiree Health Benefits Funded Status (Dollars in Billions) 

One~time 

transfer One~time End of year 

Beginning from CSRS transfer USPS End of End of year net funded Missed USPS 

Fiscal of year pension from USPS prefunding Interest year actuarial status prefunding 

year assets fund escrow payment earned assets liabilities (unfunded) payments 

2007 0.0 17.1 3.0 5.4 0.3 25.7 0.0 

2008 25.7 5.6 1.3 32.6 86.1 (53.5) 0.0 

2009 32.6 1.4 1.5 35.5 87.5 (52.0) 0.0 

2010 35.5 5.5 1.5 42.5 91.1 (48.6) 0.0 

2011 42.5 0.0 1.6 44.1 90.3 (46.2) 0.0 

2012 44.1 0.0 1.6 45.7 93.6 (47.9) 11.1 

2013 45.7 0.0 1.6 47.3 95.6 (48.3) 5.6 

2014 47.3 0.0 1.5 48.9 97.7 (48.9) 5.7 

2015 48.9 0.0 1.5 50.3 105.2 (54.8) 5.7 

2016 50.3 0.0 1.5 51.9 104.0 (52.1) 5.8 

2017 51.9 N/A N/A N/A NIA NIA N/A 

Total NIA 17.9 13.9 NIA NIA N/A 33.9 

Source US Postal $eMce (USPS) Form 10-K Statements I GA0--17--404T 

Note: This table provides the Office of Personnel Management's (OPM) estimation of the funded 

status of USPS obligations for retiree health benefits. Data for assets, liabilities, and net funded status 

are actual amounts for fiscal years 2007-2016. Key tenns include the following: 

Assets include securities of the PSRHBF, which is managed by OPM. 

Actuarial liabilities represent the actuarial present value of the cost of the portion of future retiree 

health premiums for which USPS is responsible and that are attributable to past service; these 

liabilities reflect all such projected future costs for current retirees and beneficiaries and a portion of 

such projected future costs for current workers 

Net funded status equals assets minus liabilities. 

One-time transfer from the Civil Service Retirement System (CSRS} Pension Fund: The Postal 

Accountability and Enhancement Act {PAEA) established the PSRHBF and directed OPM to 

detennine any USPS surplus for CSRS obligations as of Sept. 30, 2006, and to transfer this amount 

from the Civil Service Retirement and Disability Fund (CSRDF) into the PSRHBF by June 30, 2007. 

Pub. L No. 109-435 (2006). 

One-time transfer from USPS Escrow Fund: PAEA required USPS to transfer the escrow funds 

resulting from the Postal Civil Service Retirement System Funding Reform Act of 2003 (Pub. l. No. 

108~ 18), which reduced USPS's CSRS payments and required these reductions to be placed into 

escrow. 

USPS prefunding payments are statutory payments established by PAEA that are due from USPS 

to the PSRHBF. Subsequent congressional action reduced the 2009 prefunding requirement from 

$5.4 billion to $1 A billion and delayed $5.5 billion from fiscal year 2011 to fiscal year 2012. resulting 

in a requirement to pay $11.1 billion in fiscal year 2012. See 5 U.S.C § 8909a(d)(3)(A). 

Missed Prefunding Payments have not been made by USPS and remain as current liabilities on 

USPS's balance sheet These amounts are reflected in this table through a lower asset total and 

higher net unfunded liability than wouk:l have occurred if the prefunding payments were made. 

Page 17 GA0-17-404T U.S. Postal Service 
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Appendix 1: U.S. Postal Service (USPS) 

Financial Obligations and Related Information 

Table 5: Summary of U.S. Postal Service (USPS) Pension and Retiree Health Benefit (RHB) Funds (Dollars in Billions) 

Total USPS Pension funded status USPS RHB fund status Total Pension & RHB summary 

Fiscal Total Total Total pension RHB RHB RHB funded Total Total Pension and 

year pension pension funded status assets actuarial status assets actuarial retiree health 

assets actuarial (unfunded) liabilities (unfunded) liabilities benefit funded 

liabilities status (unfunded) 

2007 257.3 252.0 5.3 25.7 80.8 (55.0) 283.0 332.8 (49.7) 

2008 264.4 266.9 (2.5) 32.6 86.1 (53.5) 297.0 353.0 (56.0) 

2009 270.5 270.9 (0.4) 35.5 87.5 (52.0) 306.0 358.4 (52.4) 

2010 275.4 262.9 12.5 42.5 91.1 (48.6) 317.9 354.0 (36.1) 

2011 279.6 294.8 (15.2) 44.1 90.3 (46.2) 323.7 385.1 (61.4) 

2012 282.4 300.3 (17.9) 45.7 93.6 (47.9) 328.1 393.9 (65.8) 

2013 283.1 301.0 (17.9) 47.3 95.6 (483) 330.4 396.6 (66.2) 

2014 283.0 306.0 (23.0) 48.9 97.7 (48.9) 331.9 403.7 (71.9) 

2015 282.6 303.1 (20.5) 50.3 105.2 (54.8) 332.9 408.3 (75.4) 

2016 286.5 307.8 (21.3) 51.9 104.0 (52.1) 338.4 411.8 (73.4) 

Source· US Posta! Se~ce {USPS) Fmm 10.K Statements. I GA0~17404T 

(101462) 

Note: This table provides the Office of Personnel Management's {OPM) estimation of the funded 

status of USPS obligations for pensions and retiree health benefits, Data for assets, liabilities, and net 

funded status are actual amounts for fiscal years 2007-2016 for retiree health benefits, and actual 

amounts for fiscal years 2007-2015 and projected amounts for fiscal year 2016 for pension benefits, 

as of the end of each fiscal year. Key terms include the following: 

Assets include securities of the Civil Service Retirement and Disability Fund (CSRDF) and the Posta! 

Service Retiree Health Benefits Fund (PSRHBF). Although CSROF is a single fund that does not 

maintain a separate account for each participating U-S. government employer, PAEA requires certain 

disclosures regarding obligations and changes in net assets as if the funds were separate. 

Actuarial liabilities are actual amounts for fiscal years 2007-2016 for retiree health benefits, and 

actual amounts for fiscal years 2007-2015 and projected amounts for fiscal year 2016 for pension 

benefits, as of the end of each fiscal year. These data are prepared by OPM and represent the 

actuarial present value of the cost of future retiree pension and health benefits costs for which USPS 

is responsible and that are attributed to past service; these liabilities reflect aU such projected future 

costs for current retirees and beneficiaries and a portion of such projected future costs for current 

workers. 

Net funded status equals assets minus liabilities. 

Page 18 GA0-17-404T U.S. Postal Service 
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l.i Please Print on Recycled Paper. 
88 

Chairman CHAFFETZ. Thank you. 

Mr. Sackler, you are now recognized for five minutes. 

STATEMENT OF ARTHUR SACKLER 

Mr. SACKLER. Thank you and good morning, Mr. Chairman, 

Ranking Member Cummings, and members of the committee. 

The Coalition for a 21st Century Postal Service or C21 appreciates the opportunity to present our views on the Postal Reform 

Act of 2017, H.R. 756. We support this bill and urge its approval 

as promptly as possible. We also support Mr. Lynch’s bill, H.R. 760, 

and urge its approval. Our hope is that you will be able to build 

upon this rare display of unity among stakeholders behind your bill 

and move it along. 

C21 consists of trade associations and companies broadly rep- resentative of the $1.4 trillion mailing industry, which supports 

some 7–1/2 million jobs. It includes mailers of every kind and every 

size in every class and category of mail and their suppliers of 

paper, printing, equipment manufacturer, mail services, and more. 

I respectfully ask that the study that presents those numbers be 

made part of the record. 

Chairman CHAFFETZ. Without objection, so ordered. 

Mr. SACKLER. We want to thank you, Mr. Chairman, the other 

original sponsors of this legislation, now joined by Mr. Ross, and 

your staffs for your efforts and persistence in developing this critical bipartisan bill. 

Mr. Chairman, as you and everyone else has noted, the Postal 

Service is in deep financial trouble. Its balance sheet is awash in 

red ink, and its operations are barely breaking even. The industry 

respects the job the Postmaster General and her entire team has 

done in cutting billions in costs and making the system more efficient and effective. 

But it hasn’t been nearly enough. There are two prime reasons: 

technology and obligations imposed under PAEA. Only a few 

months after the Postal Service had its best year in 2006, Steve 

Jobs introduced the iPhone and the mobile revolution, including social media, was off and galloping. The mail diversion genie is out 

of the bottle and no one is going to be able to put it back. And it’s 

a prime reason why there’s been such a massive drop-off in the 

very profitable first class mail. 

But the obligations in the tens of billions, especially for the virtually unique mandatory prefunding of postal retirees’ health benefits, is a crushing burden that can be dealt with. When included 

in 2006’s PAEA, no one had an inkling of the peril for paper brewing in Cupertino. The front-loaded $5.5 billion annually was marginally affordable, but not now and not for years. 

In the face of this huge liability, the industry confronts the stark 

reality of a review of the postal rate-setting system that will be 

conducted by Chairman Taub and the Regulatory Commission. 

There’s a serious risk that that liability could be dissipated by rate 

increases in a new system. That would gravely damage the industry and the Postal Service. To eliminate the Postal Service’s red ink 

would require an increase our economists calculate of about 18 percent. That’s unaffordable in today’s environment, even if moderated 

to 6 to 7 percent increases per year for several years running. 


KING-6430 with DISTILLER
89 

H.R. 756 provides an elegant solution to this profound financial 

problem. Integrating postal annuitants into Medicare will save the 

Postal Service billions each year and follow the best practices of the 

private sector. Companies that offer health insurance to employees 

and retirees generally require them to join Medicare at age 65. 

Most important, this integration will preclude the need for taxpayer support. The score on last year’s bill with this same change 

was a net positive. The imposition on Medicare would be comparatively minimal. Integrating remaining annuitants into Medicare is 

central to our support for this bill. 

The implications of this bleak financial situation are near existential for Postal Service in its current form, so we support H.R. 

756, notwithstanding its one-time market dominant postal rate increase of 2.15 percent. We accept this increase in this unique set 

of circumstances only as necessary to achieve this bill and stabilize 

the Postal Service. Congress has wisely delegated rate-setting to 

the postal agencies, but with respect, the industry will be compelled to oppose any effort to regard this bill as a precedent for 

other legislative rate increases. 

The industry has long supported the self-sustaining postal system funded entirely by postage. That remains the best course from 

our perspective. And that is the beauty of your bill. It vastly improves the Postal Service’s financial stability, keeps the Postal 

Service self-sustaining, and wards off any prospect of a taxpayer 

bailout, as you noted, Mr. Chairman. 

With that, I will conclude my testimony. Thank you for this opportunity, and I will be happy to answer any questions you or your 

colleagues may have. 

[Prepared statement of Mr. Sackler follows:] 


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• 

COALITION FOR A 

21st CENTURY 

POSTAL SERVICE 

Before the 

Committee on Oversight and Government Reform 

U.S. House of Representatives 

Washington, DC 

Testimony of 

Arthur B. Sackler 

Sackler Brinkmann & Hughes LLC 

On Behalf of the 

Coalition for a 21st Century Postal Service 

February 7, 2017 
91 


KING-6430 with DISTILLERInsert offset folio 76 here 26360.076

Statement of the Coalition for a 21'' Century Postal Service, p.2 

Mr. Chairman, Mr. Ranking Member and Distinguished Members of the Committee on Oversight 

and Government Reform, my name is Art Sackler, and I appear before you today as the Manager of the 

Coalition for a 21" Century Postal Service, or C21 as we call it. C21 is grateful for the opportunity to 

present to you our views on HR 756, The Postal Reform Act of 2017. For reasons this statement will set 

forth below, C21 supports this bill, and urges Committee markup and approval on the Floor of the House 

as quickly as possible. In the absence of this legislation, both postal-driven businesses and the Postal 

Service itself will be in grave financial peril soon. 

C21 is a coalition of trade associations and companies from across the face of the mailing 

industry and its vital supply chain. Together, we broadly represent an industry with $1.4 trillion in 

annual sales, and employing 7.5 million workers.' Neither figure includes the Postal Service itself. 

Among our members are mailers of every kind making use of all rate classes and categories, the printing 

industry, the paper industry, manufacturers of equipment and software used by mailers and suppliers, 

mail service providers, and companies whose base is ecommerce. They range from small businesses 

through some of the largest corporations in the country. They are located throughout the fifty states. 

Accompanying this statement is a copy of a recent in-depth study of mailing industry jobs and revenues 

that we respectfully request be made part of the record. It includes a breakdown of the industry by 

state and by congressional district for both sales and jobs.' 

Before we go further, C21 would like to express its great appreciation to Chairman Chaffetz, 

Ranking Member Cummings, Chairman Meadows, Ranking Member Connolly and Mr. Lynch, and their 

respective staffs, for the long and difficult effort that has culminated in HR 756. This bill, in C21's 

judgment, constructively addresses the problems at the core of the USPS financial predicament. 

Financially stabilizing USPS, as this bill would do, has become a most urgent matter. 

The Unfortunate USPS Financial Position and Outlook 

Mr. Chairman, as you and the Members of this Committee know well, the Postal Service has 

been, and continues to be, in a deep financial hole. This is not caused by operations. On the contrary, 

because of factors such as the extensive cost cutting accomplished by the Service over the past decade 

largely driven by the price cap in the Postal Accountability and Enhancement Act of 2006, the rapid 

growth in package deliveries from the boom in ecommerce, and at least some leveling off in the loss of 

traditional mail, postal operational finances are in relatively good shape.' 

It is on its balance sheet that USPS is in financial extremis. Because of obligations imposed by 

Congress in PAEA, primarily the requirement to pre-fund retirees' health benefits,' and otherwise (e.g., 

workers compensation), the Service has confronted a payment load it has been unable to meet in at 

1 Chapman and Johnson, EMA Foundation's US Mailing Industry Jobs and Revenue Study 2015, October 6, 2015, attached, and 

http://www.envelope.org/ipsdocuments?ecp v::::dd&ecp dp;::Postai+Transformation%2FJob+Studies%2F2015+Jobs+Study . 2

l!Lat 25-35. The EMA Foundation's study's sales and jobs breakout for all435 Congressional Districts includes, for example, 

Utah's Third District, where there are about 13,800 postal-related jobs, and nearly $1.5 billion in postal-driven commerce. In 

the Maryland 7'', the corresponding numbers are approximately 13,500 and $560 million. 3 The Postal Service reported an operational surplus of some $615 million for FY 2016. We do note, however, that with the 

inexorable expansion of addresses to serve, and some new initiatives, postal expenses are up, primarily for adding to the 

workforce. Given that there is no corresponding increase in Market Dominant mail volume and the great majority of postal 

revenues it contributes, this equation presents a gathering problem for USPS' operational financial stability, as well. 4 5 USCj8909a. 
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Statement of the Coalition for a 21" Century Postal Service, p.3 

least four years. It has defaulted on its obligation for pre-funding in each of those years, with another 

one coming up in FY 2017. 

There have been no penalties or otherwise adverse actions to the institution or its staff for these 

defaults, as there should not be for having to choose to keep the postal system running instead of 

meeting the prefunding and other obligations. That has not meant, however, that the obligations are 

escaped. The defaulted amounts are simply tacked on to the total to be amortized over forty years as 

also required by PAEA.5 

According to the Postal Service, the balance sheet shows the institution in the red by some 

$81.2 billion overall. Of that, approximately $68 billion is due to the obligations, or "noncontrollable" 

expenses, imposed by statute. Counting these obligations in an annualized fashion, USPS estimates a 

net loss of $4.2 billion in FY 2017, continuing a string of that scale of net losses, and a very slight 

operations surplus. It is, in the view of C21, extremely clear that these obligations must be mitigated for 

USPS to regain its financial balance. 

Placing the USPS Balance Sheet Desolation in its Full and Threatening Context 

It is important to put this bleak financial picture in the context of the overall postal ecosphere. 

Mailers and their suppliers are facing a review and potential reworking of the "modern rate setting 

system" mandated ten years after enactment by PAEA." Initiated on schedule by the Postal Regulatory 

Commission on the 10-year anniversary of PAEA's signing into law by President George W. Bush, that 

process is well under way. 

The great fear of the postal-reliant businesses that comprise our coalition and the balance of the 

industry is that, in the absence of legislation such as HR 756, the Commission may believe itself 

compelled to make up the gap in USPS finances via the only tool it has in its toolbox: raising postal 

rates. The industry does not subscribe to the view that the statute authorizes the Commission to 

abrogate the rate cap/ but if the Commission were to proceed to raise rates beyond the cap, it would 

take years to sort out in the courts. 

Were the foregoing to happen, rates would rise dramatically. Our best estimate of how rates 

would have to rise to fully rectify the postal balance sheet is 17.6%, with CPI-U increases, at least, on top 

of that. If those increases were stretched out to moderate sticker (or "rate") shock, and balance other 

rate setting objectives and factors in 39 USC J3622(b) and (c), we estimate the likely course of increase 

would be 6-7%/yr for three years, followed by at least CPI increases. In either case, the results for 

mailers and their suppliers would be devastating. For an industry that has never fully recovered from 

the Great Recession, increases of this magnitude will kill off businesses, cost great numbers of jobs and, 

most of all, spur flight from the postal system. 

In 2017, the state of communications technology combined with demographics pose an 

unprecedented challenge to USPS. The full-scale acceptance and sufficient trust of email, online banking 

and a spectrum of other transactions, online promotions and marketing of various kinds and, most of all, 

mobile technology and its commercial apps, and social media makes diversion from the mail easier, 

'5 USC j8909a(d)(2)(B)(2) 6 39 usc j3622(d)(3). 7 39 USC j3622(d)(l)(A) 
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Statement of the Coalition for a 21" Century Postal Service, p.4 

dramatically less expensive and more impactful than ever. The millennia! generation and large and 

growing numbers of its elders have become very reliant on this panoply of technology for a great range 

of communications, distribution, and transactional purposes.' 

For mailers then, the choice of paper versus electronics becomes one of return on investment. 

A big component of determining ROI is price. With prices of postage rising in a major way, the ROI 

becomes eroded, biasing companies against using paper. Pre-Internet, the price of a piece of mail was 

reliably about one-third for paper, one-third for printing and one-third for postage. Today, postage 

costs range from 55-70%, depending on the type of mail. This is a reflection ofthe relentless increases 

in postage, even if only at CPI-U, over the last ten years while the prices of paper and printing stagnated 

or even declined. 

So, with the increases contemplated above, we believe the probability is high that vast 

additional volume will be reviewed for removal and diversion to electronic communications. Companies 

overwhelmingly report that that will be the case. 

In this regard, it is of no comfort that the recent "exigent" surcharge imposed on the system did 

not result in an apparent decline of mail. First, by definition, it was a temporary surcharge so mailers 

could plan for and absorb it in ways they will not be able to do if faced with the prospect of significant, 

permanent increases. Second, mailers report that the re-expansion of the economy from the depths of 

the recession masked the impact of diversion from those increases. That is, companies generally were 

seeing gains in customers and accounts. With those added accounts, a number remained in paper, 

although an increasing percentage of new accounts were all-electronic. The net effect was some stasis 

in mail volumes. With respect, we urge you not to expect a similar result from increases in postage if 

they are even in the same ballpark as those projected above. 

Integrating Postal Annuitants into Medicare is an Essential Part ofthe Solution 

In light ofthe above, we believe it is imperative that your bill be enacted into law." We start 

from the premise that the postal system has worked well and should continue to work under a system 

supported entirely by user fees. We believe that a solution must be found within the four corners of 

that construct if at all feasible. 

That is why we strongly support the Medicare Integration provisions in Title I of your bill. By 

moving postal annuitants to Medicare at age 65, USPS will realize a savings of some $2.9 billion annually. 

And by continuing to provide an insurance program under the Federal Employees Health Benefits 

Program as an employee group wraparound program, or essentially supplemental health insurance, the 

bill ensures full coverage for all postal annuitants. 

These provisions conform to the best practices of the private sector. Companies that maintain 

health insurance for their employees and retirees routinely require a transition into Medicare at age 65. 

8 See, e.g., https:Uwww.marketingsherpa.com/artic!e/chart/channels-preferred-by-age-groups: 

https://www.miteksystems.com/blog/83-millennials-expect-mobile-caoture-all-mobile-transactlons: and 

http:Unpf.org/odfs/presentations/2016/Winning%20with%20Millenials%20and%20Securing%20the%20Future%20of%20the% 

20USPS.pdf 

9 Accompanying this statement is a letter from more than 1330 companies and trade associations expressing support for the 

direct antecedent to this bill in the 114" Congress, HR 5714, which we respectfully request be made part ofthe record. That 

level of support persists. 
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Statement ofthe Coalition for a 21" Century Postal Service, p.S 

The companies may then offer supplemental insurance programs, or at least a contribution to each 

employee or retiree toward obtaining his or her own supplemental. 

There is, however, one other private sector best practice we would urge the Committee to 

follow: investments of some funds into conservative vehicles. Conservatively investing a minor 

percentage of the funds in the RHBF will result in returns on those invested funds that are multiples of 

the current rules constraining these funds to invest in Treasuries at the current 1. 7% more or less. This 

is not only a private sector best practice, but would also follow the successful approach used in the 

federal Thrift Savings Plan life-cycle funds, and adopted by Amtrak, TVA, the Railroad Retirement Board, 

and others. The bill introduced by Mr. lynch, HR 760, The Postal Service Financial Improvement Act of 

2017, would accomplish just that. We urge approval by the Committee and a favorable Floor vote on 

this bill, as well. 

In any event, not to integrate all postal annuitants into Medicare would foreclose the only 

affordable and budget-wise path to stave off a high risk of financial chaos for the postal system and its 

users and suppliers. Ultimately such a problematic situation would fall to Congress, the guarantor of all 

postal obligations, which would have to respond with taxpayer funds or radically change the system. No 

one wants a bailout or the disruption severe change would cause throughout the country, and especially 

in rural areas. 

C21 Members Accept the 2.15% Market Dominant Increase in HR 756 as a Unique Necessity 

Sec. 207 of your bill would impose a one-time 2.15% market dominant-wide rate increase. To 

put it bluntly, mailers do not welcome rate increases generally, including this one; they are bad for 

business, although acknowledged that within limits a cost of doing that business. 

C2l's members also are concerned about the precedent of returning some rate setting to and 

by Congress. Congress wisely delegated its rate setting authority to the two postal agencies it created in 

1970's Postal Reorganization Act, and reaffirmed in 2006's PAEA. By taking politics out ofthe Postal 

Service, Congress assured that rate setting according to standards it set would be handled in a 

dispassionate manner by professionals at the Service and at the regulator. It also assured that its 

Members would not have to spend precious time and staff resources in a bid to address complex and 

numerous postal rates in an equitable manner. While hardly a perfect system, rate setting both under 

PRA and after PAEA has generally been balanced and objective; something that is considerably harder to 

achieve in a political environment. 

Nonetheless, we accept the necessity in this unique set of circumstances for the one-time 

across-the-board 2.15% increase (so long as it is not raised above 2.15% and Medicare Integration is 

achieved throughout the legislative process10) as, from our perspective, a necessary evil to assure 

longer-term postal financial stability. Our support for the bill overall will remain notwithstanding this 

increase. And it will certainly not hurt the Postal Service to receive an additional $1.1 billion annually 

from this increase. 

C21 does wish to add, however, for the record that it will strenuously oppose any attempt to 

view this increase in this unique situation as a precedent for any other legislated increase. Postal rates 

10 Were either of these two conditions no longer to be met, our coalition would be compelled to withdraw our support for this 

bill, and oppose it. 
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Statement of the Coalition for a 21'' Century Postal Service, p.6 

are user fees, not taxes. They should, therefore, never be viewed as the source for an offset of any 

other budgetary or non-budgetary government expenditure that does not impact the postal system 

directly and exclusively. It is worth reiterating what Members of this Committee well understand: 

mailers must pay taxes, but they can choose not to mail. 

Service Performance Execution to Standards Should be Addressed 

Medicare Integration and the rate increase are the two core provisions in HR 756, in our 

judgment, essential to maintaining the financial viability of USPS. However, there is one other area that 

we believe needs to be addressed in any finished legislative product: execution to service standards. 

Many of our members have reported service problems, notably failures to meet the revised, 

slowed service standards of recent vintage. This has been particularly visible in rural areas, but the 

reports cover all Market Dominant mail categories. C21 believes it is important to compile and examine 

these failures with a view toward meeting service standards universally and reliably. C21 members 

understand that the Postal Service "gets it" on service and has been making major efforts and 

investments to enable meeting its standards in a very high percentage of its mail, while continuing its 

necessary emphases on efficiency and cost effectiveness. Nevertheless, reports of problems persist. 

Therefore, C21 believes that the best way to approach resolving these problems would be to 

charge the Postal Regulatory Commission with studying within specified time limits affordable options, 

in conjunction with the Postal Service and postal stakeholders, to ensure current service standards are 

being met universally and reliably. 

We urge you to consider an approach that would address this issue. 

Nonpostal Services 

The physical delivery of mail and packages is the core function of the Postal Service. C21 

supports the USPS's efforts to develop innovative mailing and shipping services. Continued innovation 

around the delivery function is necessary to enhance the value of mail, facilitate e-commerce and grow 

mail and package volumes. C21 also supports a small amount of additional flexibility for USPS to assist 

in providing limited governmental services on behalf of other federal agencies, or state, local and tribal 

governments, as provided in sec. 204 of your bill. 

We do not, however, endorse expansion into unrelated fields, such as banking, insurance, 

telecommunications, printing or the provision of mail services. This is for three reasons: 1) it would be 

huge distraction of executives' time and existing, precious postal resources to develop such additional 

businesses; 2) it could easily create unfair competition with the government in the field; and 3) based on 

past history, it would generate fierce opposition from industries affected, and bog down or even stop 

any progress on urgently needed legislation. Nor should USPS be permitted to expand into private 

markets by licensing the USPS brand or other intellectual property. Businesses generally believe that 

USPS should stick to its core competencies in collecting, handling and delivering mail. 

We believe HR 756 has struck the right balance on these services. 

Once again, Mr. Chairman, the Coalition for a 21" Century Postal Service appreciates this 

opportunity to present our views to your Committee. The time to act is now and your bill presents an 
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Statement of the Coalition for a 21'' Century Postal Service, p.7 

intelligent, workable and bipartisan approach to fixing the problem. We commend the bill and I would 

be happy to respond to any questions you or your colleagues may have. 
97 

Chairman CHAFFETZ. Thank you. 

Mr. Rolando, you are now recognized for five minutes. 

STATEMENT OF FREDRIC V. ROLANDO 

Mr. ROLANDO. Thank you, Chairman Chaffetz and Ranking 

Member Cummings and members of the committee for the opportunity to testify on behalf of —— 

Chairman CHAFFETZ. I am not sure that mic—is that microphone 

on? 

Mr. ROLANDO. No. 

Chairman CHAFFETZ. Oh, okay. But is the—there. 

Mr. ROLANDO. Is that better? 

Chairman CHAFFETZ. That is much better. 

Mr. ROLANDO. All right. 

Chairman CHAFFETZ. There you go. 

Mr. ROLANDO. Again, thank you for the opportunity to testify on 

behalf of 295,000 active and retired letter carriers and the three 

other postal unions, the APW, the Rural Letter Carriers, and the 

Mail Handlers union. 

We commend the committee for introducing H.R. 756 and Representatives Lynch and McKinley for introducing H.R. 760, a bill 

that would greatly improve the way the Postal Service’s trust fund 

for retiree health benefits is invested. 

This morning, I will focus my remarks on the postal reform bill. 

Please see my written testimony to see why we support the LynchMcKinley bill. 

By introducing H.R. 756, the leadership of this committee has set 

a standard for bipartisan cooperation on legislation that should be 

emulated. The bill has broad support across the mailing industry, 

including business and labor, and is based on best practices in the 

private sector. Bipartisanship on postal reform makes sense given 

that the Postal Service is based in the Constitution and operates 

independently without taxpayer funds. 

It is vital to our national economic infrastructure. We serve every 

community, every household, and every business in America at 

least six days a week. At 84 percent, few organizations have higher 

public favorability rating than the post office, and no other agency 

engenders a greater sense of trust. In the age of e-commerce, voteby-mail, and mail-order prescription drugs, it’s more important 

than ever. 

There is broad agreement among all the major stakeholders that 

legislation is urgently required to strengthen the Postal Service. 

Our coalition of stakeholders believes that the two bills introduced 

last week have the essential elements needed to stabilize and fortify the Postal Service for years to come. 

Over the past decade, postal employees have worked diligently to 

restructure operations, cut costs, and sharply increase productivity 

in response to technological change and the Great Recession. Despite the loss of more than 200,000 jobs, we’ve managed to preserve 

our networks and to maintain our capacity to serve the Nation. 

But only Congress can address our biggest financial challenge, 

the unique and unsustainable burden to prefund future retiree 

health benefits decades in advance. No other enterprise in the 

country faces such a burden, which was imposed by legislation in 


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98 

2006. The expense of this mandate has accounted for nearly 90 percent of the Postal Service’s reported losses since 2007. Without a 

change in the law, the mandate will cost $6 billion this year alone. 

H.R. 756 would maximize the integration of Medicare and our 

Federal health program for Medicare-eligible postal annuitants, 

most of whom have already voluntarily enrolled in Medicare Parts 

A and B. 

The proposal would also give us access to low-cost prescription 

drugs and other benefits provided to private employer plans by the 

Medicare Modernization Act. The savings would help to reduce all 

of our premium costs, and therefore, prefunding costs. This approach adopts the standard practice of large private companies that 

provide retiree health insurance. It would effectively resolve the 

prefunding burden that undermines the health of the Postal Service while only raising Medicare spending by 1/10 of 1 percent over 

10 years. 

H.R. 756 also addresses a revenue shortfall caused by the expiration of the 2013 exigent rate increase authorized by the Postal Regulatory Commission to help the Postal Service recover from the 

permanent decline in mail volume caused by the Great Recession. 

The compromise adopted by your leadership bill, effectively restoring half of the exigent increase, is a reasonable one. 

Mr. Chairman, your bill effectively deals with the two core issues 

that must be addressed: the unaffordable prefunding mandate and 

the expiration of the exigent increase, and it does it in a way that 

meets the budget scoring rules of the Congressional Budget Office. 

All four postal unions urge the committee to adopt this legislation. 

We pledge to work with all of you in our broad coalition of mailing 

industry partners to achieve postal reform this year. Together, we 

can strengthen a great national institution and, even better, we 

can show the country that it is still possible to make our democracy 

work for the common good at a time of great partisan polarization. 

Thanks again for inviting me to testify today. 

[Prepared statement of Mr. Rolando follows:] 


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Testimony of 

Fredric V. Rolando 

President, National Association of Letter Carriers 

to a Hearing on "Accomplishing Postal Reform in the 115th Congress" 

by the House Committee on Oversight and Government Reform 

February 7, 2017 

Thank you, Chairman Chaffetz and Ranking Member Cummings, for the opportunity to 

testify today on behalf of NALC and its 295,000 members, active and retired letter carriers who 

live and work in every community in the country. I am pleased to represent the other three 

postal unions in today's hearing - the American Postal Workers Union, the National Rural Letter 

Carriers Association and the National Postal Mail Handlers Union. We commend both of you 

along with Chairman Meadows, Ranking Member Connolly and Reps. Lynch and Ross for your 

dedication to our constitutionally-mandated Postal Service and your commitment to achieving 

postal reform through the introduction of H.R. 756, the Postal Reform Act of 2017. I also wish 

to add a special thank you to Congressman Lynch for re-introducing his bill, H.R. 760, the 

Postal Service Financial Improvement Act of 2017. That bill would dramatically improve the way 

the assets of the Postal Service Retiree Health Benefits Fund are invested. 

Mr. Chairman, you have asked me to discuss the urgent need for postal reform legislation 

and how the pending review of the postage rate-making system by the Postal Regulatory should 

influence the debate over postal refonm. I am happy to do that today. 

There is broad agreement among all the major stakeholders -and increasingly in Congress 

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-that legislation is urgently required to strengthen the Postal Service. NALC and the other 

postal unions believe that H.R. 756 and H.R. 760 have all the elements needed to stabilize and 

fortify the Postal Service for years to come. Before discussing these elements, it is important to 

acknowledge all that we have done to strengthen the Postal Service on our own. Indeed, the 

Postal Service and its employees have worked diligently since the last major postal reform bill 

was passed ten years ago to restructure operations, cut costs and markedly increase 

productivity in response to technological changes and the effects of the Great Recession. In 

fact, even as the number of delivery points continued to grow by about one million addresses 

per year, the postal workforce has been reduced by more than 200,000 positions. In so doing, 

we've successfully managed to preserve our networks and to maintain our capacity to serve the 

nation. 

Although we will continue to adapt and evolve to meet the changing needs of America's 

businesses and households in the years ahead, only Congress can address our biggest 

financial challenge: the unique and unsustainable burden to massively prefund future retiree 

health benefit premiums decades in advance. No other enterprise in the country faces such a 

burden, which was imposed by the Postal Accountability and Enhancement Act (PAEA) of 2006. 

The expense of this mandate has accounted for nearly 90 percent of the Postal Service's 

reported financial losses since 2007. Without a change in the law, that mandate will cost nearly 

$6 billion in FY 2017 alone. 

These reported losses have obscured a tremendous operational comeback in recent years, 

as the combination of a boom in e-commerce delivery, record productivity and stabilizing letter 

mail volumes have helped the Postal Service record operating surpluses over the past three 

years. 

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In fact, the Postal Service, which requires no taxpayer appropriations, remains a vital 

component of this country's economic and communications infrastructure. In 2016, the Service 

delivered more than 150 billion pieces of mail and became an even bigger player in the booming 

e-commerce sector, now offering 7-day delivery. Almost one half of all bills are still paid by mail. 

The majority of bills and statements received by households are still delivered by mail. Trillions 

of dollars move through the postal system every year. The Postal Service's $72 billion in 

revenue is only a small part of the $1.4 trillion of GOP accounted for by the U.S. mailing 

industry, which now employs 7.5 million Americans, mostly in the private sector. The health of 

this huge industry depends on a healthy Postal Service. 

Although the Postal Service's finances remain fragile and technological challenges will 

persist long into the future, it should be clear that the Postal Service remains a vital part of the 

nation's infrastructure. We have done our part to preserve the Postal Service, which enjoys an 

84 percent approval rating with the American people according to the most recent Pew 

Research survey on federal agencies. By advancing H.R. 756 and H.R. 760, Congress can now 

do its part to extend the Postal Service's 240-year history of serving America deep into the 21st 

Century. 

H.R. 756- The Postal Reform Act of 2017 

There are two major legislative/regulatory burdens placed on the Postal Service under 

current law. The prefunding mandate and an overly restrictive and inflexible cap on postage 

rates. Relief from these burdens would go a long way toward strengthening the Postal Service 

over the long run. Fortunately, the Postal Reform Act of 2017, introduced last week by the 

leaders of this committee, effectively addresses these burdens in a way that the meets the 

budget scoring rules established by the Congressional Budget Office. 

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The prefunding mandate 

As I indicated in the introduction to this testimony, the most significant burden is the 

legislative mandate included in the Postal Accountability and Enhancement Act of 2006 (PAEA) 

that requires the Postal Service to massively prefund future retiree health premiums. Congress 

adopted this mandate in a most inflexible manner. It required the Postal Service to make 1 0 

fixed payments of between $5.4 billion and $5.8 billion annually between 2007 and 2016- and 

then to begin making actuarial-based pre-funding payments over 40 years, beginning in 2017. 

The actuarial-based payments are comprised of two parts: a normal cost payment to cover the 

future cost of retiree health accrued each fiscal year, and a payment calculated to amortize any 

remaining unfunded liability over the next 40 years. Unfortunately, in the absence of legislative 

change, the pre-funding expense is actually expected to increase in 2017 and every year 

thereafter-- as a result of these actuarial-based payments. They will be even more unaffordable 

than ever. 

According to an annual survey of Fortune 1000 companies by Towers Watson, only 38 

percent of such firms pre-fund retiree health at all- that is, 62 percent don't prefund at all. (See 

Perspectives: Accounting for Pensions and Other Post-Retirement Benefits, 2015.) Those 

companies that voluntarily pre-fund typically make contributions only when the companies are 

profitable. 

The Postal Service pre-funding payments, which could not be suspended when the Great 

Recession hit, were so onerous that the Postal Service exhausted its $15 billion borrowing 

authority in order to make the payments. Since 2012, it has not been able to make the 

payments at all- though the expenses associated with the missed payments have continued to 

be recognized, driving the misleading impression that the Postal Service is failing operationally. 

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The damage the prefunding mandate has inflicted is not just financial. It has starved the 

Postal Service of needed investments, most notably the urgent need to replace its obsolete fleet 

of vehicles. It has also adversely affected the quality of service received by the American 

people, especially in the immediate aftermath of the Great Recession. Between 2008 and 2013, 

the Postal Service removed tens of thousands of mail collection boxes; slashed the operating 

hours of thousands of post offices; and reduced its service standards in order to dramatically 

downsize its network of mail processing plants. When we diminish services we risk 

unnecessarily driving mail volume out of our system. 

The leadership of this committee reached bipartisan consensus on a concept for addressing 

the prefunding burden during the last Congress, which was included in a bill (H.R. 5714) 

adopted by the Committee but never presented to the full House of Representatives for a vote. 

It included reforms to the Federal Employees Health Benefit Program (FEHBP) as it relates to 

postal employees and Medicare coverage. These reforms, which are modeled on best practice 

in the private sector, would all but eliminate the Postal Service's unfunded liability for future 

retiree health benefits. We are very pleased your new bill retains these reforms. 

Under H.R. 756, FEHBP plans would segregate postal employees and postal annuitants into 

a separate risk pool and all postal annuitants would enroll in Medicare Parts A&B when they 

reach 65 years old. (At present, 80-90 percent of postal annuitants already voluntarily enroll in 

the two main parts of Medicare.) The proposal would also give FEHBP plans access to low-cost 

prescription drugs and other benefits made possible by the Medicare Modernization Act. The 

savings would help reduce FEHBP premium costs- and prefunding costs. Indeed, about half 

the reduction in the Postal Service's unfunded liability would come from prescription drug 

savings; the rest from maximizing the participation in Medicare Parts A and B. 

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This approach ensures that the Postal Service and its employees fully benefit from the $30 

billion they have contributed in Medicare taxes since 1983 and adopts the standard practice of 

large private companies that provide retiree health insurance. This reform would effectively 

resolve the prefunding burden that undermines the health of the Postal Service while raising 

Medicare spending by just one-tenth of one percent over the next 1 0 years. 

Pricing regulation 

The second major burden placed on the Postal Service is the stringent and inflexible system 

adopted by the PAEA for regulating postage rates. In the testimony we presented to this 

committee in May 2016, we outlined the many shortcomings of inflexibly tying the rise in 

postage rates to increases in the Consumer Price Index. There is no need to rehash those 

shortcomings here in this testimony because the Postal Regulatory Commission has initiated a 

comprehensive review of the price-setting process for so-called Market Dominant services. This 

review was mandated by the PAEA, which also empowers the Commission to make changes if 

the objectives of the current system are not being met. We believe that the PRC is the most 

appropriate venue for deciding the future regulation of postage rates and other issues related to 

cost accounting and rate structures. 

However, we believe this Committee should address one rate issue that was not 

contemplated by the 2006 law- the expiration of the 4.3 percent exigent rate increase 

authorized by the PRC to help the Postal Service recover from the permanent decline in mail 

volume caused by the Great Recession of 2008-2010. Given this permanent decline in volume, 

we believe that the PRC should have made the exigent increase permanent. Nevertheless, after 

years of litigation between the PRC and the USPS and other parties, the exigent increase 

expired on Apri110, 2016. 

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This has complicated the task of stabilizing the Postal Service's finances. The loss of $2 

billion in annual revenue resulting from the expiration means that the Postal Service's modest, 

yet healthy operating profits in recent years (approximately $1 billion annually) will turn into 

operating deficits of approximately $1 billion annually. In January 2016, before the April 10th 

expiration of the exigent increase, the four postal unions, the Postal Service and a significant 

number of major mailers, argued that Congress should freeze Market Dominant postage rates in 

place until the PRC review is completed (waiving the final two CPI-based increases) as part of a 

narrowly focused set of reforms to strengthen and stabilize the Postal Service. This would have 

effectively made the exigent increase permanent. 

Even after the exigent increase expired, our industry coalition worked to forge a consensus 

approach to the exigent rate increase issue. The compromise adopted by your leadership bill -

effectively restoring half of the exigent increase - is a reasonable one. We are very pleased that 

this compromise is included in H.R. 756. 

We believe that there is an urgent need to enact legislation along the lines of H.R. 756 

because if we do not, the current PRC review of the rate-setting process will have no choice but 

to address both the burden of prefunding and the need to make up for the lost exigent increase 

revenues. That could lead to an untimely rate shock that neither the American people nor the 

Postal Service's diverse group of stakeholders would welcome. 

As the Committee prepares to mark up H.R. 756, we will suggest minor improvements to the 

language in two sections of the bill. With respect to integration with Medicare Part B, I am sure 

that is nobody's intent to require any current Medicare-eligible annuitant to enroll in the program 

if neither the annuitant nor the Postal Service can benefit from doing so. A modest tweak in the 

language would address this rare circumstance. With regard to the proposed policy of providing 

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all new addresses with curb-line or centralized delivery, we'd suggest giving the Postal Service 

the flexibility to make sensible exceptions to the policy if it is more efficient or financially 

beneficial to do so. Again a modest tweak in the language in Section 202 could accomplish this. 

We urge the Committee to quickly schedule a mark up of H.R. 756, and then to vote for its 

approval. 

H.R. 760- The Postal Financial Improvement Act of 2017 

Let me now turn to another legal burden that undermines the financial stability of the Postal 

Service: the overly restrictive investment policies applied to the Postal Service's retirement 

funds. We are pleased that this committee will review these policies by considering Mr. Lynch's 

bill, H.R. 760, the Postal Financial Improvement Act. 

In general, the Postal Service has incredibly well funded retirement plans, although declining 

interest rates in recent years have temporarily inflated liabilities and created relatively small 

unfunded liabilities. At the end of 2015, the Postal Service's CSRS and FERS pension funds 

were 93.2 percent funded well into the healthy "green zone" under the private sector Pension 

Protection Act and much better than the 80.3 percent funded percentage for the 100 largest 

pension plans according to the November 2016 Pension Funding Index produced by the 

Milliman Company. At the same time, while the median level of funding for retiree health 

benefits among Fortune 1000 companies is zero percent (0 percent), the Postal Retiree Health 

Benefit Fund is nearly 50 percent funded. 

These strong funding positions are all the more remarkable given the restrictions placed on 

the investment of the Civil Service Retirement and Disability Fund (which holds the federal and 

postal accounts for both CSRS and FERS) and the Postal Service Retiree Health Benefits Fund 

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(PSRHBF). By law, the pension funds and the PSRHBF must be invested in low-yielding 

Treasury bonds. Together, the CSRS and FERS postal accounts and the PSRHBF hold $338 

billion in Treasury securities- making us, the Postal Service and its employees, the third largest 

creditor of the U.S. federal government just behind the governments of China and Japan. No 

private company in America would invest 1 00 percent of their pension and post-retirement 

health funds in such a conservative way. Best practice in the private sector is to invest in a welldiversified portfolio of private sector stocks, bonds and real estate as well as government bonds. 

The best place to begin improving the way the Postal Service invests its assets for 

retirement costs is the PSRHBF. It makes the most sense because it is a unique burden of the 

Postal Service and the assets in the PSRHBF are not commingled with the assets of other 

agencies, as in the case with the CSRS and FERS plans. 

Current PSRHBF investment policy effectively forces the USPS (postage rate payers) to 

give Uncle Sam a low-cost loan instead of investing strategically to cover future health care 

liabilities. The retiree health fund has been earning 3-4 percent on its Treasury bonds, but longterm health care costs are rising 5-7 percent annually. It makes no financial sense to invest the 

PSRHBF in assets that yield less than the rising cost of health care. 

Thankfully, H.R. 760 would allow us to move toward private sector best practice by adopting 

a more sensible investment policy for the Postal Service Retiree Health Benefits Fund, which 

now holds $52 billion in trust to cover the Postal Service's share of retiree health care 

premiums. 

H.R. 760 would direct the Secretary of the Treasury to invest up to 30 percent of the 

PSRHBF's assets in private sector stock and bond index funds -- the kind of safe, non-political, 

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low-cost funds offered by the federal Thrift Savings Plan. Under the bill, the Secretary would 

hire one or more investment managers and chair an Investment Committee to manage the 

investments in private sector index funds. By adopting H.R. 760, Congress could: 

• Raise the long-term rate of return on the retiree health fund's assets; 

Reduce the burden of prefunding; 

• Offset the cost of postal Medicare integration; 

• Relieve upward pressure on postage rates; and 

• Reduce the misguided impulse to slash service levels 

H.R. 760 is identical to a bill adopted by this Committee in the last Congress- H.R. 

5707. One of the much discussed challenges of the bill last year was the complications posed 

by the need to convert some of the PSRHBF's non-marketable Treasury securities into cash 

before using it to purchase private sector index funds. We believe this challenge could be 

overcome if H.R. 760 were amended to provide for the creation of a separate off-budget 

investment fund on the balance sheet of the Postal Service, instead of taking assets out of the 

PSRHBF to execute new investments. We could call this new fund the USPS Health 

Investment Trust (HIT). The same Investment Committee could then be directed to invest some 

or all of its future normal cost and amortization payments through the HIT. (These payments 

would, under current law, flow directly into the PSRHBF. But in the future they could be 

invested by the HIT first.) 

The assets in the HIT would be invested as directed by the bill - in index funds of stocks, 

bonds, and government securities- and be used to fund the PSRHBF, as needed. The Postal 

Service could be required to maintain a minimum balance in the PSRHBF- for example, 

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enough to cover three to five years of postal retiree health premiums, held 1 00 percent in 

Treasury bonds the way it is now. 

With or without these improvements, we urge the Committee to adopt H.R 760 so that it 

may be considered along with H.R. 756 by the full House of Representatives. 

Conclusion 

The introduction of these bills and today's hearing are two vital steps in what will surely be a 

long-process. Last year the legislation was referred to both the Ways & Means and Energy & 

Commerce Committees. Meanwhile, the Senate will also have to agree to take it up in the 

weeks and months to come. On behalf of more than half a million active and retired postal 

employees, I want to thank the leaders of this committee for beginning this process. 

All four postal unions urge the Committee to adopt this legislation as quickly as possible. 

We pledge to work with all of you and our broad coalition of mailing industry partners to make 

this legislation a reality. Together, we can not only strengthen a great national institution to 

better serve the American people and its businesses, we can also show how it is possible to 

make our democracy work for the common good at a time of great partisan polarization. 

Thank you, Chairman Chaffetz, Ranking Member Cummings and all the Members of the 

Committee for inviting me to testify on this crucially important matter. 

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Chairman CHAFFETZ. Thank you. I love your passion for it, and 

not many people get choked up on postal reform so we appreciate 

your passion there and —— 

Mr. ROLANDO. It’s in my blood. 

Chairman CHAFFETZ. There you go. Thank you. Thank you very 

much. 

I will now recognize myself for five minutes. 

One of the choices that is before us is to do nothing, right? Just 

let her go, just keep on the same trajectory. I would like to kind 

of hit the three—let’s start with Ms. Rectanus. From your perspective, do nothing, what happens? 

Ms. RECTANUS. To be quite simply—to be, you know, I guess the 

doomsday is we’re going to run out of money. As an example, in 

2017 with the restructuring the $52 billion that the Postal Service 

has put aside, that’s where premiums are going to start to come 

out of now. And given that for retirees, the Postal Service has paid 

three to four premiums a year, billion dollars in premiums a year, 

with a total of $52 billion it’s not hard to understand that that 

fund’s going to run out of money. So if we run out of money, what 

happens? Either the—we’re talking about a taxpayer bailout, as 

you had talked about. We’re talking about reducing pay in benefits, 

which could come to trouble. Or we could talk about saddling the 

Postal Service with coming up with more money when they probably do not have that. So there’s not really a good scenario other 

than we’re going to run out of money. 

Chairman CHAFFETZ. Chairman Taub, what is your perspective 

on that? 

Mr. TAUB. I’d concur with GAO on that. You know, I think I 

would add that we’re in some ways past the point where it’s somewhat salvageable. I think in the early years after the Great Recession, if it was just the prefunding issue and that had gotten fixed, 

the Postal Service may have had some breathing room. 

Right now, over half of the problem goes beyond just the 

prefunding and we’re starting to see, as I said, the impact of assets 

that have not only—getting to the end of their depreciated life but 

are fully depreciated. And the inability to invest in where there are 

opportunities of innovating the core, as the Postmaster General 

calls it, you need capital to do that. And when your borrowing authority is maxed out, you have roughly 30 days of cash on hand, 

not only would I concur with the GAO’s assessment but I would 

argue we’re already in the danger zone. 

Chairman CHAFFETZ. What is your general perception if you 

can—and you may not be able to—but what is your general perception of what would happen to postal rates? 

Mr. TAUB. Under current law, as we speak, the majority of their 

products, market-dominant letter mail, periodicals, flats, advertising mail are capped at CPI and only for extraordinary circumstances. We’re in the midst of that review now trying to balance these nine objectives. I would note in regard to your question 

and the focus of the hearing today, objective number five speaks of 

having financial viability in the sense of retained earnings and financial stability. So one of the nine objectives that must be applied 

equally goes to the heart of this financial issue. 


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Chairman CHAFFETZ. And, Postmaster, from your perspective, we 

do nothing, what does that picture look like? 

Ms. BRENNAN. Yes, Mr. Chairman, clearly the financial condition 

worsens and the continued default on legally obligated payments 

that impact both current employees and retirees. And the most 

egregious failure would be an inability to meet our obligation to 

serve the American public, an inability to deliver the mail. 

Chairman CHAFFETZ. What is your current cash on hand? And 

then once you give me that number, then why isn’t that used to 

pay some of the payments that were due? You have defaulted, I believe, on five payments. 

Ms. BRENNAN. Yes, Mr. Chairman. We’ve defaulted for the past 

five years to the tune of $33.9 billion. Our current cash on hand 

is $8.2 billion. And a determination was made by the Temporary 

Emergency Committee, which consisted at the time of our lone 

independent governor, myself, and the Deputy Postmaster General 

to default on that payment to ensure that we can serve sufficient 

cash, which for an organization of our size is arguable at best—but 

to reserve sufficient cash to ensure if there is any contingency that 

would occur in the near-term, we could at least have some cushion. 

Chairman CHAFFETZ. I mean, you have more cash than some of 

the others who are in the mail industry, but where is that proper 

balance? Where is —— 

Ms. BRENNAN. Well, and I think—that’s a concern, Mr. Chairman, because for an organization that has expenditures of more 

than $70 billion a year, we would submit that $8.2 billion is insufficient. That’s the concern for us. And also as noted by the chairman—and we’ve discussed this—the fact that we have deferred on 

critical capital investments in the past five years to the tune of 

over $8.9 billion, that impacts our ability to compete and to generate additional revenues. 

Chairman CHAFFETZ. Tell us if you can give me a perspective on 

your fleet management. There was a hearing I think Chairman 

Meadows chaired earlier about the fleet. We were concerned the 

Postal Service was going to come up with a very sizeable contract 

to—but explain to me where you are in the fleet and where you— 

your perspective on it. 

Ms. BRENNAN. Yes, Mr. Chairman. Well, we have one of the largest civilian fleets in the country with over 212,000 vehicles traveling more than 4 million miles a day. The fleet, though, is at the 

end of its expected life, particularly our delivery vehicles that the 

average age is over 25 years. And the maintenance—annual maintenance cost is over $1 billion. 

So we have an approach to look at the next-generation delivery 

vehicles that currently we’re in the midst of a prototype testing period where we’re working with six different suppliers to provide us 

with these vehicles that we will test over the course of the next 18 

months. We also just this week actually—a request for proposal for 

a commercial off-the-shelf solution for right-hand-drive vehicles is 

expected. So we’ve got a multi-prong approach looking at how to 

address the vehicle fleet. 

Chairman CHAFFETZ. Okay. Mr. Cummings had a follow-up on 

that whole —— 


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Mr. CUMMINGS. Yes, just one question. What are we doing 

about—when you consider the fleet—making it in America? I mean, 

are these—what do you all aim at? Is there any—you know, we 

have got a lot of concern about trying to make sure we give our 

automobile industry as much business as possible. I was just wondering what you are doing there. 

Ms. BRENNAN. And, Congressman Cummings, we don’t—we 

haven’t made any decision in terms of the production phase of that 

next-generation delivery vehicle, but we will follow our typical protocol, which is preference for domestically sourced parts, and we 

will require production of the vehicle, assembly of the vehicle in the 

United States. 

Mr. CUMMINGS. Well, you should expect to hear from President 

Trump this afternoon. 

Chairman CHAFFETZ. All right. I will now recognize the gentleman from Massachusetts, Mr. Lynch, for five minutes. 

Mr. LYNCH. Thank you, Mr. Chairman. And I want to thank the 

witnesses. 

Mr. Chairman, you deserve great credit on this. I have to say you 

have done a masterful job with the able support of Mr. Cummings 

and the relentless leadership of Mr. Connolly and Mr. Meadows, 

who have really avoided the landmines during this whole process. 

And I think as well we have been helped enormously by Ms. Lawrence on our side and Mr. Ross, who a long time ago got into this 

battle. 

There are a bunch of others—you know, this has been a negotiation. We have been in the trenches. It has been a little bit like 

mudwrestling at times, but we have come out of this in pretty good 

shape based on the stakeholders’ testimony this morning. And I 

don’t want to leave anybody out here. I know that Fred Rolando, 

our president of Letter Carriers, is here, but also behind him Jim 

Sarver and Corey Kelly have been enormously helpful to us during 

negotiations. With the Rural Letter Carriers, Jeanette Dwyer and 

Paul Swartz have been terrific. The APWU, that is my mother’s 

union and my sister’s union. I have about 17 members of my extended family that are either letter carriers or postal clerks, so this 

is important for me to be able to go home. 

But Mark Dimondstein and Jennifer Warburton have been terrific with us, great job. And our mail handlers’ President Paul 

Hogrogian and also Bob Losi with the Labors International and the 

Mail Handlers union have been terrific. And also Postmaster 

Bryan, you have been dynamite on this. And there has been—you 

know, there has been compromise necessary on all parts but you 

have been terrific in your relationship with the unions, which has 

made my life much easier but also Sheila Meyers and Ron 

Stroman, our old friend who used to be on this committee. And as 

well the staff on both sides, majority staff has been extremely patient, as has our staff. They have been doing a great job. 

Probably the key component of this proposal is really—is twopronged. One is the establishment of postal-specific health plans 

within the Federal Employees Health Benefit Program. What we 

are going to do is require postal employees to actually sign up for 

Medicare and coordinate their benefits. It is going to save us a ton 

of money and also get away from that annual $5.5 billion that we 


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require the Postal Service to contribute to accelerating their retirees’ health benefits. 

But I do want to ask the Postmaster General about that. So 

there are some concerns out there about the funding of that piece 

that will require postal employees to sign up for Medicare and that 

it is some type of giveaway. That is what I have heard out there. 

Now, you and I know differently, but could you explain to me how 

much money the postal workers have contributed to Medicare but 

in large part have not participated in that? Could you describe that 

for me, please? 

Ms. BRENNAN. Yes, Congressman. In our opinion this is a question of fairness. We’re merely asking that we be treated like any 

other self-funded entity that provides retiree health benefits, as 

noted by a number of the panelists. It’s best practice in private sector. And that’s the ask from the Postal Service. And our employees 

in the Postal Service have paid more than $30 billion into the 

Medicare trust fund since the early ’80s, and we’re just asking to 

receive the benefit for which employees have paid. 

Mr. LYNCH. That is great. Mr. Rolando, on the accelerated funding of employee health benefits that costs the post office about $5.5 

billion a year. Is there any other agency in the United States Government that is required to accelerate their funding like this or are 

they allowed to pay as people are projected to retire? 

Could you press your—there you go. 

Mr. ROLANDO. Sorry. 

Mr. LYNCH. You sound like a Patriots fan. 

Mr. ROLANDO. No comment. 

Mr. LYNCH. Take the Fifth, I know. 

Mr. ROLANDO. No, there’s no other agency or private company 

that is required to do the prefunding. And I think relative to the 

chairman’s question, I think what happens absent the legislation 

is one of two things. We either are in a position to just pay the premium each year for the retiree health benefits and remain 50 percent prefunded, which is 50 percent more than anybody else. Or 

the other option would be if we need to be at 100 percent, we have 

to deal with that in the rates process, which nobody else wants to 

do. 

Mr. LYNCH. Okay. Thank you very much. Mr. Chairman, I thank 

you for your indulgence, and I yield back. 

Mr. MEADOWS. [Presiding] I thank the gentleman. 

Ms. Brennan, I want to make sure we clarify one thing. I think 

your statement was that—and maybe I misheard—that postal employees pay $30 million. I think it’s $30 billion —— 

Ms. BRENNAN. Thirty billion, sir, yes. 

Mr. MEADOWS. Okay. All right. 

Ms. BRENNAN. Yes, $30 billion. 

Mr. MEADOWS. Thank you. The chair recognizes the gentleman 

from Texas, Mr. Farenthold, for five minutes. 

Mr. FARENTHOLD. Thank you very much. And, Postmaster General Brennan, the big financial crush obviously that we hear again 

and again is the decline in the volume of first class mail, which is 

basically your profit center. And so is there a bottom to this where, 

as people start to get all of their bills by electronic mail and are 

paying electronically, email penetration is way up there in this 


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country, but there are certain things you just want to do in the 

mail, you know, thank-you notes, certain types of invitations. I am 

much more likely to open a—well, that is not first class but we get 

into advertising. I would much rather—I am much more likely to 

open a catalog that comes to me in the mail than I am to click on 

something in a, quote, ‘‘spam’’ type email. So is there a bottom to 

the loss of volume that has been looked at or projected anywhere? 

And is there a turnaround there? 

Ms. BRENNAN. Congressman, the single-piece first class mail, 

which is the stamp mail which is most susceptible to electronic diversion, we do project out the current secular trends to continue, 

roughly a 4 percent decline each year. 

Mr. FARENTHOLD. In perpetuity? 

Ms. BRENNAN. As far out as the next five years. Beyond that, I 

think it’s more art than science at—frankly. What I would submit 

is that the largest portion of the first class mail piece is commercial 

mail, which is, as an example, bill presentment. Mr. Sackler represents a number of these mailers and would tell you that the 

value of that mail—and many consumers still want that statement 

in the mail. We have worked with the industry, promotions to turn 

that mailroom into a marketing center as opposed to just a cost 

center. So that’s gone a long way in terms of helping to stabilize 

that particular component of the mail. 

But I think our responsibility, and we’ve demonstrated that, is 

that we will continue to scale to demand —— 

Mr. FARENTHOLD. Okay. 

Ms. BRENNAN.—adjust the infrastructure —— 

Mr. FARENTHOLD. All right. 

Ms. BRENNAN.—as necessary. 

Mr. FARENTHOLD. So there is a limit to how you can scale to demand I would think when you have got to service 100 percent of 

the country. So I guess that is my next question is you mentioned 

that part of your expenses is six-day delivery to everywhere. Is it 

worth looking at at some point in the future maybe not six days 

to everywhere for everything? I mean, to be competitive, maybe you 

do need six and actually I think one of your competitive advantages 

is seven-day package delivery. You know, over Christmas I got 

packages from Amazon that you guys brought on Sunday. Matter 

of fact, I got one a couple of weeks ago. Apparently, you are still 

doing it. 

So is shrinking to a less-than-six-day delivery for non-packages 

a potential cost-savings? 

Ms. BRENNAN. Yes, as you noted, we are delivering packages 

seven days in select locations, primarily major metropolitan areas. 

The —— 

Mr. FARENTHOLD. I am happy Corpus Christie, Texas, is now a 

major metropolitan area. 

Ms. BRENNAN. I said primarily, and we are expanding that because certainly we serve every home and every —— 

Mr. FARENTHOLD. Right. 

Ms. BRENNAN.—business, Congressman. To your point, and candidly, we’ve spent the better part of the past two years trying to 

build a coalition around core provisions of a bill likely to generate 

broad support. And that’s what we focused on. And also I would 


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offer candidly it’s been my experience that there’s no congressional 

consensus around moving to five-day delivery. 

Mr. FARENTHOLD. Well, I can tell you that for sure as well. 

But let’s go back to Amazon for a second. I think they gave you 

all a big boost over the holiday season. I think they are a numberone customer for package delivery across you and your competitors 

in the country, but their stated goal is to cut you guys out. So I 

mean in the long term is this something that you can count on or 

am I going to see the Amazon drone delivering my package? 

Ms. BRENNAN. Amazon is obviously a valued customer and business partner. I would say that there is competition in every product 

line and none more than in the last mile of delivery, whether it be 

the traditional competitors, Amazon, the crowdsourcing of package 

delivery. So we’re well aware of what those headwinds look like. 

And again, I would offer that our ability then to scale to demand. 

We’ve got to compete for that business every day, and we’ll continue to do that to earn that business. 

Mr. FARENTHOLD. All right. And finally, you talked about capital 

expenses beyond—your biggest being vehicles. What are your big 

capital—just list off the couple of items that are your big capital 

items beyond vehicles. 

Ms. BRENNAN. Information systems, our IT infrastructure, repair 

and alteration, facility modifications, additional capacity for package sortation. 

Mr. FARENTHOLD. All right. Well, I see my time has expired. I 

may be around for a second round of questioning if you guys are. 

Ms. BRENNAN. Thank you. 

Mr. FARENTHOLD. Thank you. 

Mr. MEADOWS. I thank the gentleman. The chair recognizes the 

ranking member of the full committee, Mr. Cummings. 

Mr. CUMMINGS. Thank you very much. 

Ms. Rectanus, the last time you were here to discuss the postal 

issues in May of 2016, you testified, and I quote, ‘‘The Postal Service’s financial condition continues to deteriorate.’’ You attributed 

the decline in the financial condition to declining mail volume and 

growing expenses. What trends have you observed in the Postal 

Service’s financial condition over the last eight months? And has 

that deterioration continued? 

Ms. RECTANUS. We’ve observed a continued—sort of the same decline that we saw before, the same types of losses, about the same 

nonpayment of the prefunding continuing and the difficulty to generate the kind of revenue in order to support the expenses. 

Mr. CUMMINGS. And let’s go through some of the financial figures 

for fiscal year 2016, Ms. Brennan. At the end of fiscal year 2016, 

the Postal Service reported $610 million in controllable income 

compared to $1.2 billion in controllable income at the end of fiscal 

year 2015. Is that right? 

Ms. BRENNAN. That’s correct. 

Mr. CUMMINGS. Controllable income excludes retiree health benefits, prefunding pension liabilities, and workers’ compensation liabilities, correct? 

Ms. BRENNAN. That’s correct. 

Mr. CUMMINGS. According to your fiscal year 2016 financial results, as a result of the expiration of the exigent rate increase, and 


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I quote, ‘‘Revenue for 2016 was lower by approximately $1 billion 

than it otherwise would have been.’’ And the Postal Service has reported that, and I quote, ‘‘Going forward without the surcharge, the 

Postal Service expects its revenue to decline from what it otherwise 

would be by almost $2 billion per year. Ms. Brennan, can the Postal Service afford to lose an additional $2 billion in revenue each 

year going forward? 

Ms. BRENNAN. No, sir. 

Mr. CUMMINGS. Do you believe that the exigent rate increase 

needs to be restored? 

Ms. BRENNAN. I do. And as this coalition had discussed with the 

leadership of this committee, the compromise proposal to half it, 

the Postal Service is supportive of that as packaged as part of a 

larger reform bill. 

Mr. CUMMINGS. Ms. Brennan, I also have concerns about the 

state of the Postal Service’s liquidity, particularly given that the 

Postal Service has exhausted the credit limit of $15 billion. How 

many days of cash do you currently have on hand? 

Ms. BRENNAN. It’s roughly 30 days, Congressman. 

Mr. CUMMINGS. Have liquidity problems affected or do you anticipate that they will affect the Postal Service’s ability to pursue 

needed capital investments? 

Ms. BRENNAN. It will. As we’ve done in recent years, we’ll 

prioritize our capital spend, recognizing that, given the competitive 

landscape, in order for us to continue to compete and generate additional revenues, we need to invest. 

Mr. CUMMINGS. Now, Mr. Taub, last year when you appeared before the committee to discuss postal operations, you testified that, 

based on the Postal Regulatory Commission’s analysis of the Postal 

Service’s financial strain, and I quote, ‘‘There is a high probability 

that the Postal Service will go into financial distress,’’ end of quote. 

Is that assessment—is that still valid? 

Mr. TAUB. Yes, it is, Congressman. 

Mr. CUMMINGS. Absent any legislative action, when might the 

Postal Service experience financial distress? 

Mr. TAUB. You know, trying to crystal ball things like that is difficult, but I would say in the short term we’re looking in that fiveyear window as the Postmaster General indicated. They’ve done 

their own look forward, and, absent change, about in the two- to 

three-year window there’s some real challenges for the Postal Service. 

That being said, to the Postal Service’s credit, they have ensured 

that delivery to the American mailing consumer and businesses remains the top priority. So whereas they may start seeing some 

challenges with meeting service standards, for example, or being 

able to keep certain facilities open, their commitment to continuing 

to deliver is front and center. So for the average consumer, we may 

not see the full brunt of it right away, but there’s some hell to pay, 

shall we say, if there isn’t change. 

Mr. CUMMINGS. Now, Ms. Brennan, I kind of joked about it but 

I was serious. On this fleet situation, how is that decided? Because 

you can imagine that there is going to be some tweeting about you 

this afternoon. But tell me, how is that decided with regard to the 

fleet? That is a lot of jobs. That is a lot of vehicles. 


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Ms. BRENNAN. We have a competitive procurement process 

where, in this example that I cited on the next-generation delivery 

vehicles, we had a request for proposal that went out. It was open 

competition. And we ended up with—we selected six suppliers. I’ll 

provide for the record—I believe we had maybe 10 suppliers in 

total that competed for the process. I’ll provide that for you. 

Mr. CUMMINGS. Yes, please do. 

Ms. BRENNAN. But again —— 

Mr. CUMMINGS. Please do, I said. 

Ms. BRENNAN. Yes. 

Mr. CUMMINGS. I would like to see that. Yes. 

Mr. CUMMINGS. And finally—and I will close with this, Mr. 

Chairman, and I thank you for your indulgence—many industries, 

millions of jobs, and millions of people depend on the Postal Service. I believe that Congress must act now and we must act right 

now to help put the Postal Service on a sustainable path forward. 

This committee should quickly consider the bipartisan postal reform bill we have introduced, and the House should adopt the 

measure as soon as possible. 

And again, I just want to—I don’t know how this hearing is going 

to go because I know we have votes coming up, but I want to thank 

everybody, every single body. They didn’t mention everybody’s 

names, but you know who you are. I really, really thank you. 

Now, you all have got to—I believe that we are on I would say 

about the five-yard line, and you all have—well, let’s say 10. Well, 

you all have got to help us get the ball over the line, seriously. Let 

the Members of Congress know how you feel and give us the support that we need. Thank you very much. 

Mr. MEADOWS. I thank the gentleman. The chair recognizes the 

gentleman from California, Mr. Issa, for five minutes. 

Mr. ISSA. Well, thank you, Mr. Chairman. And I want to thank 

Mr. Cummings for giving me a different opening than I was going 

to have. Ladies and gentlemen, it is the third quarter and you are 

down by 25 points, and if Tom Brady doesn’t come in, the fact is 

you are bankrupt. You are beyond bankrupt. You are in record deficit. Let me just go through the numbers because I, like Mr. 

Cummings and Mr. Chaffetz, want this bill to move and I want it 

to accomplish what a bill a little over 10 years ago didn’t. 

Ten years ago when I was young to this committee we in fact— 

are we going to get into Patriots jokes here? If we are, let me know. 

But 10 years ago roughly we thought we would fix this, and all we 

really did was give you a line of credit that you ran up against your 

deficits. 

So if I do the arithmetic round numbers, 33.9, I will call it $34 

billion, that is what you haven’t paid that was your obligation 

under the law to pay and you simply defaulted on it. Ms. Rectanus, 

I will use you for the numbers, make sure I am right. Deferred 

maintenance is about $9 billion, those vehicles and things that just 

have to be restored soon or the wheels literally will fall off. There 

is $15 billion that Congress gave in a line of credit that simply 

went to pretend like bills were being paid when in fact it was simply taking care of the losses. So that comes out to 57.8 if my pencil 

was right. But I am sure there are some odds and ends on top of 

it. And since we are running at half-a-billion dollars a month of 


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loss, anything we say, by the time it gets enacted, will be over $60 

billion. 

During my entire tenure on this committee, people have talked 

about having to prepay and how, you know, that is onerous, but 

there is only about $50 billion in prepay. So the debt is far greater 

than the prepay today, so if we just wipe those across each other, 

you still have a net debt. Isn’t that true, Ms. Rectanus? 

Ms. RECTANUS. That is true. The unfunded liabilities are about 

$121 billion. So, yes, while RHB is 50-some billion of that, there 

is, you know, a significant amount of additional debt —— 

Mr. ISSA. Okay. So if we did a classic bankruptcy sort of backof-the-envelope, we take the assets of the prepaid and we wipe it 

out against all these deferreds, you put it back and forward, you 

still end up in the same boat, which is there is no net equity in 

the post office. Additionally, the post office is losing money in the 

bill even with the transfer of the obligation from post office first 

to Medicare first, meaning that the taxpayers, which includes postal workers who pay into Medicare, are going to get a bill. Their 

costs are going to go up in return for the post office going down. 

And I supported that during my chairmanship. I am not trying to 

walk away from that provision. It is something I expect we will do. 

But you still end up with a loss, right, Ms. Rectanus? 

Ms. RECTANUS. Yes. There are other things going on with the 

Postal Service’s business model that are beyond the retiree health. 

Mr. ISSA. Okay. 

Ms. RECTANUS. Fundamentally, revenues are still having a difficult time keeping up with expenses. 

Mr. ISSA. Okay. Well, let’s go through this. And I always make 

the assumption that we are not cutting pay of any worker. We are 

not firing or laying off any worker, but we can and should make 

our labor force the right size going forward. 

So if we went aggressively toward no longer having a small portion of the population get mail put in a chute and those who are 

in single boxes going to near-single boxes, twos, fours—in other 

words, we went to an all clustered arrangement the way Carmel, 

California; Rancho Santa Fe in my district, some of the most affluent neighborhoods, in addition to some of the poorer neighborhoods 

already have, cluster boxes, that still saves about the difference between the loss and a profit, doesn’t it? 

Ms. RECTANUS. In terms of moving to delivery, there are potentially significant savings —— 

Mr. ISSA. So —— 

Ms. RECTANUS.—to that approach —— 

Mr. ISSA.—additionally —— 

Ms. RECTANUS. There’s tradeoffs. 

Mr. ISSA. Additionally, the United States post office, with the 

power of the government, if they chose to aggressively site in or 

near people’s homes cluster boxes that could safely hold packages, 

they would leapfrog in service capability what Amazon is trying to 

build at your corner gas station, wouldn’t they? And I guess I 

should take that to the Postmaster General. Not what are the problems, but if you did that, wouldn’t you in fact offer a service far 

better and far more distributed than that which Amazon is trying 

to build today in some parts of urban America? 


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Ms. BRENNAN. Congressman Issa, as you and I discussed, the 

Postal Service approach is all new possible deliveries, as noted— 

excuse me. We add nearly a million a year. Based on the delivery 

characteristics, we either implement box-on-post at the end of your 

driveway or centralized delivery. And just looking at last year 

where, when we looked at the growth by mode, over 750,000 new 

deliveries were centralized. So there is certainly an efficiency gain 

associated with that. 

Mr. ISSA. Okay. And don’t we owe it to the American people to 

be efficient everywhere, to find not pockets of resistance but in fact 

to say that all recipients are created equal? They pay the same 

amount. If there is an excess charge because of distance meaning— 

and I see some of the rural delivery people here in the audience— 

it costs more to get it 30 miles out in the country in an unpopulated area, but it shouldn’t cost more to get it delivered in an urban 

environment than it actually costs in that rural environment, 

should it? 

Ms. BRENNAN. As you know, we have a universal service obligation. In terms of efficiency, as noted, based on the delivery characteristics—and we try to strike a balance clearly in terms of the 

need to meet the customer —— 

Mr. ISSA. Mr. Chairman, I am just going to have one very quick 

follow-up just to get the record complete if I could. If you implemented cluster at every point in America to the greatest extent 

physically possible and not over the objections but physically possible, wouldn’t you save enough money to be in the black with the 

other changes that are in this legislation such that you could make 

investments and in fact be better prepared to compete against 

those who are trying to essentially take over work that you are better suited to do in principle today? 

Mr. MEADOWS. The gentleman’s time is expired but you can 

briefly answer. 

Ms. BRENNAN. Thank you. I would say in addition to this bill, a 

favorable outcome of the PRC 10-year price review and continued 

aggressive management actions we can be solvent a decade beyond. 

Mr. ISSA. Thank you, Mr. Chairman. 

Mr. MEADOWS. All right. I thank the gentleman. The chair recognizes the gentlewoman from Michigan, Mrs. Lawrence, for five 

minutes. 

Mrs. LAWRENCE. Thank you, Mr. Chair. 

I want to acknowledge the chairman and the Ranking Member 

Cummings and the committee for all the hard work they have 

done. I looked Chairman Chaffetz in the eye and constantly had 

the ear of Congressman Cummings that this was a very important 

responsibility of this committee, and I thank you both for your 

leadership. 

I want to ask a question about—we all know that the Postal 

Service is dependent upon the rate of the cost of mail to generate 

revenue, so under the Postal Accountability Enhancement Act, the 

Postal Regulatory Commission was required to establish a new system to regulate rates for market-dominant products. The act also 

mandated that the Commission review the rate system 10 years 

later to determine if the system is meeting the objectives established by Congress. 


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The Commission began the review in 2016 and it stated, and I 

quote, ‘‘The Commission will determine if the objectives taken into 

account the factors are being achieved by the current system.’’ 

Mr. Taub, if the Commission finds that the system is meeting its 

objective, does the review end? 

Mr. TAUB. Under the law, it speaks to if the Commission finds 

that there’s a need for a modification or a change to the system, 

if necessary, it would undertake a rulemaking to take that change. 

Conversely, if there is no change needed, there wouldn’t seem to be 

a need for a rulemaking change. But that being said, we’re in the 

midst of that review, and I certainly don’t want to prejudge how 

it might come out. 

Mrs. LAWRENCE. Well, you are in the midst of it, but I have a 

question. Will the Commission consider service performance in determining whether rates are fair? 

Mr. TAUB. Oh, we have to. It’s one of the nine objectives. Objective number three is to maintain high-quality service standards established by law. There are nine objectives in the law, and they all 

have to be applied concurrent with the others. So it’s a challenge. 

There’s objectives such as creating predictability and stability in 

rates, allowing the Postal Service pricing flexibility. There’s the 

mandate that we have to assure adequate revenues, including retained earnings to ensure financial stability. And there are several 

others, even including deterring terrorism and protecting the mail. 

Mrs. LAWRENCE. Absolutely. 

Mr. TAUB. So it’s a lot to balance. 

Mrs. LAWRENCE. I want to ask the Postmaster General Brennan. 

Talk to me about—because I am so committed to the postal reform, 

but tied to that is our customer service performance. So can you 

speak to that when it comes to the rate saying how does this impact your vision and policies for the Postal Service? 

Ms. BRENNAN. Yes, Congresswoman. In fact, as noted, the favorable outcome of the postal regulatory 10-year price review is very 

important to us. While we recognize that we’re not going to price 

our way out of this and we certainly don’t want to do anything that 

would further accelerate movement out of the mail, we recognize 

that we have competition in every product line. So we’re looking for 

pricing flexibility. In fact, I would say that our position is that a 

price cap is fundamentally unsuited in a network environment. 

That said, for us, service goes beyond transit time. And as you 

and I have discussed, it’s that customer experience at every 

touchpoint in the organization. And we are investing in additional 

training to ensure that we are providing the best possible customer 

experience for the American public. 

Mrs. LAWRENCE. Mr. Taub, I wanted to bring up recently a joint 

alliance of 16 mailers filed a motion with the Commission requesting changes to the review procedural schedule. Specifically, they 

asked to be allowed to provide reply comments. The Commission 

denied this motion. As you are aware, the decisions of the Commission would be about—would make the rate system more profoundly 

impact our billion-dollar mailing industry. What opportunities will 

exist for—to ensure that the industries weigh in during this review 

process? 


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Mr. TAUB. Thank you, Congresswoman. Indeed, we’re in the 

midst right now of what is termed an advanced notice of proposed 

rulemaking. So we are at the very initial stages of looking at the 

system and have opened up a very long 90-day comment period for 

anyone and anyone in the American public and industry to provide 

us comments. As I mentioned, early autumn of this year would be 

the time when we’re hoping to be able to issue our order to say is 

the system meeting the objectives? If not, if we are going to move 

to the next phase, that would begin a notice of proposed rulemaking, which in that process provides a very robust comment period. So we’re quite a ways from being in a position to say with any 

certainty what the Commission will do, and if it is a change, that 

would be—have to take the form of a final rule that first would go 

through a very robust notice and comment process. 

Mrs. LAWRENCE. Thank you, Mr. Chair, and I yield back. 

Mr. MEADOWS. I thank the gentlewoman. The chair recognizes 

the gentleman from Georgia, Mr. Hice, for five minutes. 

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

Ms. Brennan, I want to go back to some other comments that 

have been made just to try to get a little broader perspective. One 

of the issues that came up specifically dealt with Amazon and a serious competitor that they are. And one of the areas of technology 

that they have excelled in obviously is drone delivery. Is there any 

looking into consideration of drone delivery with the Postal Service? 

Ms. BRENNAN. Currently, our engineering group is researching 

and we’re probably on the peripheral of this advanced technology, 

currently just learning. And I would say, whether it’s drone exploration or any other type of new technology, Congressman, we need 

the capital monies to be able to invest. 

Mr. HICE. Well, I understand the need for capital monies to invest, but you are looking into the possibility? 

Ms. BRENNAN. We’re exploring and recognizing what’s happening 

in the industry. Right now, we’re not an early adopter I would categorize that, but we’re certainly aware of what’s happening in that 

space. 

Mr. HICE. Okay. So at the current time then the commitment is 

to continue with the vehicle delivery? 

Ms. BRENNAN. Correct. 

Mr. HICE. Okay. And it is astounding to me and I think probably 

most people to know you have got over 200,000 vehicles on the road 

doing some 4 million miles a day. That is a staggering amount. I 

am curious; you mentioned the commercial off-the-shelf right-handdrive proposal, as well as the next-generation delivery vehicles. 

First of all, the commercial off-the-shelf, how many proposals did 

you receive? 

Ms. BRENNAN. Actually, they’re due this week —— 

Mr. HICE. Okay. 

Ms. BRENNAN.—either today or tomorrow, so I don’t have that information. I’ll —— 

Mr. HICE. So —— 

Ms. BRENNAN.—provide it for the record. 

Mr. HICE. Do you know what you would anticipate? 

Ms. BRENNAN. I don’t. 


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Mr. HICE. Okay. When will an award be granted with that? Do 

you have any idea? 

Ms. BRENNAN. Well, we’ll do our due diligence depending on how 

large that potential supplier pool is, but we’d want to move with 

pace given the need. 

Mr. HICE. And what would that pace look like? Are we talking 

months or —— 

Ms. BRENNAN. Months, yes. 

Mr. HICE. Okay. So six months-ish? 

Ms. BRENNAN. Yes, or less. 

Mr. HICE. Okay. Or less. Okay. And the next-generation delivery 

vehicles, with that, when will the testing begin? 

Ms. BRENNAN. The testing we anticipate will begin next fall. 

Mr. HICE. Okay. So fall of 2018? 

Ms. BRENNAN. Of —— 

Mr. HICE. So this coming fall? 

Ms. BRENNAN. 2017, yes. 

Mr. HICE. 2017, okay. 

Ms. BRENNAN. Yes, the supplier—excuse me. The suppliers have 

one year in which to develop the prototypes, and then we anticipate 

testing for a good probably 12 to 18 months. We’d like to test those 

vehicles in different climates, in different topography, and the like. 

Mr. HICE. And how will you determine the most cost-efficient 

product between the two? 

Ms. BRENNAN. Best value. We would look at a host of factors. 

We’d look at the lifecycle cost. We’ll also look at certainly fuel efficiency and ensure we’ve got industry best standard with safety features and the like. And also obviously the efficiency for our employees to be able to maneuver safely in the back of the vehicle. 

Mr. HICE. Okay. How in the world are you going to fund this acquisition? 

Ms. BRENNAN. Therein lies the challenge for us —— 

Mr. HICE. Yes, it does. 

Ms. BRENNAN.—Congressman. We’ve deferred, and it’s why the 

vehicles are beyond their expected lifespan, and it’s why we’re incurring these costs to keep them on the road. So the sooner we can 

get this bill passed, the sooner we can get an outcome from the 10- 

year price review, and then incumbent upon management to continue to do our part to control costs. 

Mr. HICE. But you are looking at an acquisition? 

Ms. BRENNAN. We have made no decisions on production. We’re 

merely in a prototype-testing phase. 

Mr. HICE. Okay. Then what would—when the time comes and 

obviously at some point it is going to have to come. When the time 

comes, how many vehicles are you looking at? 

Ms. BRENNAN. We’ve made no commitments on numbers, but if 

you look just at the delivery fleet, it could be as high as 140,000. 

But there’s been no commitment made to any quantity of vehicles 

in a production environment. 

Mr. HICE. Right. I understand that there is no commitment because you are still waiting on the funding aspect of it all. Is there 

any consideration though of looking—just to throw an arbitrary 

number out—of purchasing maybe 10,000 vehicles at a time or do 

you feel the requirement to get 100-plus thousand? 


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Ms. BRENNAN. No, it’ll depend, first of all, on available capital to 

fund that, and we certainly want to be flexible enough because obviously, technology is changing and you want to ensure that the 

Postal Service would be able to benefit from any changes in technology. So there’s no commitment in terms of a defined number of 

vehicles that we would purchase in any given year. 

Mr. HICE. So that is all—your last question, obviously, the vehicles we have two-plus decades old. At some point a decision has to 

be made. What kind of time frame do you think we are working 

under? 

Ms. BRENNAN. Well, in addition to the next-generation delivery 

vehicle and now the commercial off-the-shelf solution that we’ll 

evaluate, we also have a bridge strategy where we typically replaced in the past—say, in the past two years up to 12,000 vehicles 

at a time. But again, the decision will be made based on available 

funding and certainly based on supplier ability to provide the vehicles for us. 

Mr. HICE. Well, thank you for your work —— 

Ms. BRENNAN. Thank you. 

Mr. HICE.—and thank you, Mr. Chairman. 

Mr. MEADOWS. I thank the gentleman. The chair recognizes the 

gentleman from Virginia, Mr. Connolly, for five minutes. 

Mr. CONNOLLY. I thank the chair. 

Ms. Brennan, the fixed payments established in title 5 of the 

U.S. Code for prefunding of the retiree health benefit fund expired 

in 2016, but the payments in that fund are required to continue. 

What are the payments expected to be in 2017? Mr. Rolando in his 

testimony pointed out they are actually expected to grow. 

Ms. BRENNAN. Well, in addition to the normal costs and the amortization costs for the RHB, we also have the requirement for our 

pension obligations. So in sum total, our retirement-related payments exceed $10 billion. 

Mr. CONNOLLY. Ten billion? 

Ms. BRENNAN. Ten billion. 

Mr. CONNOLLY. And is that the largest source of the insolvency 

concern? 

Ms. BRENNAN. It is. 

Mr. CONNOLLY. It is. And the bipartisan legislation that you have 

been involved in that we have introduced, would that address that 

issue? 

Ms. BRENNAN. As noted, Congressman, this bill, as proposed, 

would generate over $26 billion over a five-year period in new revenue and cost-savings. And then it’s incumbent upon management 

to continue to drive operating efficiency and also we look to the 

chair and the PRC for a favorable outcome of the price review. 

Mr. CONNOLLY. And then, let me see. You have also got on top 

of that—you have got the payments to cover the pension liabilities, 

is that correct, of your employees? 

Ms. BRENNAN. Yes, and I included that, sir, in the 10.3. 

Mr. CONNOLLY. And that’s $1.5 billion. 

Ms. BRENNAN. The—it’s 1.2 for —— 

Mr. CONNOLLY. In 2017? 

Ms. BRENNAN. Correct. For the CSRS it’s 1.2, sir. 


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Mr. CONNOLLY. Right. And you got Federal Workers Compensation Fund, which I think is $1.4 billion roughly —— 

Ms. BRENNAN. Yes. 

Mr. CONNOLLY.—for 2017? So total payments due on September 

30, my calculation roughly is about $8 billion. Yours is 10? 

Ms. BRENNAN. Due on September 30 is actually $6.7 billion. 

What I cited was the annual costs —— 

Mr. CONNOLLY. Got it. 

Ms. BRENNAN.—of all retirement-related payments. 

Mr. CONNOLLY. Got it. And, frankly, that is just a weight too 

heavy. 

Ms. BRENNAN. It is. 

Mr. CONNOLLY. Okay. And so I think that really makes for the 

compelling case for why we simply can’t let well enough alone. We 

have to do something or we are going to lose the Postal Service as 

we know it. Is that your assessment as well, as the Postmaster 

General? 

Ms. BRENNAN. It’s urgent, Congressman. And as noted previously, absent this legislative action and the regulatory reform, 

the financial condition worsens, we continue to default, we put at 

risk current and future—or excuse me—current retirees’ and future 

retirees’ benefits at risk, and we threaten our ability to meet our 

universal service obligation. 

Mr. CONNOLLY. I want to also salute you, Ms. Brennan. I have 

worked with several Postmasters General. I think you have really 

tackled this job with an open mind. You have listened to competing 

points of view. You have tried to make sure the stakeholders are 

represented. You have shown respect for the workforce and for 

even dissenting points of view. I think your willingness to state the 

case but also be flexible in trying to find solutions and be open to 

other points of view I think frankly helped break the logjam up 

here. And that was a spirit we were lacking, frankly, in the past. 

Ms. BRENNAN. Thank you, Congressman. Thank you for your 

leadership. 

Mr. CONNOLLY. Mr. Rolando and Mr. Sackler, you are kind of 

representing stakeholders from different points of view. I assume 

you both concur something like this is necessary, and absent this, 

we risk the collapse of the Postal Service as we know it. 

Mr. ROLANDO. Yes, this is —— 

Mr. CONNOLLY. And I don’t mean to put words in your mouth but 

your support gives evidence —— 

Mr. ROLANDO. Well, there’s no voice that helps —— 

Mr. CONNOLLY.—to something. 

Mr. ROLANDO. No, I think this legislation is important. That’s 

why we support it. But I also think, you know, to the other extreme 

it’s important to offer a perspective on what Chairman Issa mentioned, that, you know, when you look in terms of fairness and 

what we’re required to do versus other agencies and other companies, his analogy with regard to bankruptcy, I think every Federal 

agency in the government and many companies would also be in 

bankruptcy under the analogy that you offered. But yes, we’re prepared to work and go forward with this legislation, very necessary. 

Mr. CONNOLLY. Mr. Sackler? 


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Mr. SACKLER. Well, Mr. Connolly, we strongly support this bill. 

We think that you and the chairman and the ranking member and 

Mr. Meadows and Mr. Lynch have really come up with a solution 

that’s absolutely necessary. Without this kind of relief lies disaster 

for the Postal Service and for changing it into something that we 

don’t recognize. 

I would just add, though, another thing to be wary about is the 

rate-setting proceeding—rate-setting system proceeding that the 

Commission is undertaking. If the rate cap is removed and the liabilities are addressed through rate increases, then it’s basically— 

in terms of loss of volume, you ain’t seen nothing yet. That will 

guarantee that all of the obligations and the entire set of problems 

that the Postal Service has will land once again on your doorstep, 

and those obligations will have to be funded by the Treasury. 

The industry—sizeable pockets of the industry have never recovered from the Great Recession, and when you couple that with the 

kind of diversion from the mail that we are seeing—and first class 

is the most prominent example—more than a third of that is already gone. The commercial first class mail that has left the system at a slower pace than single-piece first class mail, those folks 

now have huge—a huge array of electronic options. 

Mr. CONNOLLY. I would just —— 

Mr. SACKLER. And if it loses too much —— 

Mr. CONNOLLY. I would just observe—and yielding back. And my 

friend Mr. Meadows and I have worked on an entity with a similar 

dilemma, Metro. If you get in a vicious cycle where we cut back 

services and raise costs—raise prices, you lose more customers, requiring you to cut back on services and raise more costs. And that 

becomes a never-ending vicious cycle that can also yield to very undesirable outcomes. So your caution is well-taken. And I yield back. 

Thank you, Mr. Chairman. 

Mr. MEADOWS. I thank the gentleman. The chair recognizes a 

welcome addition back to the committee, the gentleman from Florida, Mr. Ross, for five minutes. 

Mr. ROSS. Thank you, Chairman. Four years ago, I left this committee, and at that time this issue was in a great deal of contention. We had been working. We tried to bring things together. Unfortunately, we didn’t have a plan together. I laud my colleagues 

on both sides of the aisle. I laud those in the panel for bringing together this package. Unfortunately, I feel that my only contribution 

has been the fact that I left this committee four years ago. 

But having said that, I think —— 

Mr. CONNOLLY. And by the way, there has been a void. 

Mr. ROSS. Thank you, Gerry. 

I do stand here very much in support of maintaining, sustaining, 

resurrecting, and otherwise making sure the Postal Service stays 

alive for a very, very long time and continues to serve the American public. And so I am glad to be an original cosponsor of this 

bill. I am glad that we are moving this along, and I am very hopeful that this will get through. 

Having said that, I do have some concerns that I still had some 

time ago. And, Ms. Brennan, you mentioned that you need to be 

able to compete and to invest in order to gain revenue. My question 

to you is are you looking at investing infrastructure for competitive 


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products or for market-dominant products? In other words, are you 

looking at partial investment or first class mail or market-dominant products? 

Ms. BRENNAN. Congressman, it’s both in some cases because 

some of—when I think of the processing equipment in our facilities 

that needs to be replaced, there’s —— 

Mr. ROSS. So parcel can be more efficient. 

Ms. BRENNAN. In this case I’m talking about letter sortation —— 

Mr. ROSS. Okay. 

Ms. BRENNAN.—to be more efficient. They’re looking at deploying 

robotics to reduce overall labor costs. That would be to support 

market-dominant products in the example that I’m referencing 

here, but also to support competitive products. 

Mr. ROSS. And, Chairman Taub, my concern is is that in 2002 

I believe it was the USPS attributed 4 percent of its delivery cost 

to packages, competitive products, partial. In 2016 package volume 

doubled and letter mail, first class mail declined by 25 percent. Yet 

the USPS still attributes less than 5 percent of its delivery cost to 

packages. My concern is is are subsidizing—are we taking marketdominant products, first class mail, and using revenues from that 

to subsidize a competitive product? 

Mr. TAUB. Under the law in our review, that’s not the case. 

Mr. ROSS. You can’t do it under the PAEA. 

Mr. TAUB. Right. 

Mr. ROSS. So is it a concern of yours, though, that that—if we 

as Congress raise rates by one cent, that increased revenue, is that 

going to go to what? Is it going to go to subsidize a competitive 

product? 

Mr. TAUB. No. Under the bill as written, it’s on the market-dominant side. And right now, the one area where the Postal Service 

is receiving money that is going to the institutional cost of the 

Postal Service is on the competitive side. In fact, market-dominant 

is a big money loser. There’s a whole class of products —— 

Mr. ROSS. Right. 

Mr. TAUB.—that aren’t covering their costs, standard mail. So 

frankly, the cost-coverage problems are predominantly on the market-dominant side. 

Mr. ROSS. So I understand your testimony to be that the parcel 

system, the parcel delivery system, the package delivery system is 

covering its costs? 

Mr. TAUB. Under the law and the constructs of regulation in 

place, it is. 

Mr. ROSS. And the transparency for that accounting is important 

to me because I don’t want us to step into something 10 years from 

now or five years from now when we realize that market conditions 

have changed and we are subsidizing a competitive product to the 

detriment of the U.S. Postal Service. 

Mr. TAUB. Exactly. Congressman, if I may just take a minute or 

30 seconds to put in a little context, before 2006, there was not the 

vibrant transparency and accountability that exists today. And 

right now, the Postal Regulatory Commission tells the Postal Service how to measure costs, how to report them. We’re in the midst 

right now of —— 


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Mr. ROSS. So we are not hiding institutional costs with the parcels? 

Mr. TAUB. Based on our review, that is not the case. We do have 

one P.S. Every five years we have to set what collectively competitive products must contribute to the overhead, and we’re in the 

midst of that review right now. And the law says it has to be an 

appropriate share. So we’re going to be looking at what collectively 

each year the Postal Service—right now —— 

Mr. ROSS. I appreciate that. 

Mr. TAUB.—it’s 5.5 percent. Postal Service this past year it was 

about 17 percent, well above. 

Mr. ROSS. All right. Thank you. 

Mr. TAUB. Yes. 

Mr. ROSS. Mr. Rolando, I would be remiss if you and I didn’t 

have a conversation. I miss seeing you as much as I am sure you 

miss seeing me. But be that as it may, still the one issue remains 

that 80 percent of the costs of the Postal Service is labor. And, 

again, as markets continue to diversify and products continue to 

change, we are going to come back and look at how we handle the 

labor costs. Are you prepared—do you think that it is going to be 

necessary that we have to now start looking at collective bargaining in terms of how we deal with the cost of labor? 

Mr. ROLANDO. I didn’t know you were gone but —— 

Mr. ROSS. I made that much of an impact. 

Mr. ROLANDO. No, seriously, that’s what we’ve been doing for the 

last 10 years. This isn’t something that’s been on the sideline while 

we wait for —— 

Mr. ROSS. And I appreciate you —— 

Mr. ROLANDO.—instruction. Yes. 

Mr. ROSS.—always coming to the table on that. And I know you 

—— 

Mr. ROLANDO. Yes. 

Mr. ROSS.—defend and advocate very well for your Association of 

Letter Carriers, and I admire that. I just don’t think we can ever 

remove you from the equation, and it is an ongoing —— 

Mr. ROLANDO. Right. 

Mr. ROSS.—process that we are going to have to have with you 

and your association. 

Mr. ROLANDO. And it has been and continues to be. 

Mr. ROSS. Thank you. And I yield back. 

Mr. MEADOWS. I thank the gentleman. The chair recognizes Mr. 

Cummings. 

Mr. CUMMINGS. Just based on that last just 30 seconds, just 

based on Mr. Ross’ last question, again, I want to reiterate I have 

not seen unions work so hard to try to come up with solutions anywhere than the postal unions. And we could not have done this— 

and I am sure all of our—everybody up here will agree—without 

the unions. And I really thank you because it is difficult because 

you have to—like I said, you have got to balance the needs of your 

members, there are expectations, and at the same time be—and it 

calls for phenomenal leadership. And I just want to take the time 

to thank all of you for what you have done. I just wanted to reiterate that. 


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Mr. MEADOWS. The gentleman recognizes the gentleman with the 

stylish glasses from Missouri for five minutes. 

Mr. CLAY. And, Mr. Chair, I know the ranking member took 

some of my time. Oh, no, they restarted. Very good. 

Mr. MEADOWS. The gentleman will recognize that the chairman 

is always fair with —— 

Mr. CLAY. All right. 

Mr. MEADOWS.—its time. 

Mr. CLAY. The —— 

Mr. MEADOWS. We are glad the gentleman from Missouri could 

get out of bed to come to the hearing. 

Mr. CLAY. No, no, in seriousness, no, you know, let me say that 

the Postal Service has a complex and critical mission to deliver 

mail to every community, every business, and every American in 

the U.S. six days a week. Currently, the Postal Service delivers to 

near 154 million address, which is a staggering number. Ms. Brennan, obviously the Postal Service has to have enough personnel and 

a large enough network to serve this number of addresses, doesn’t 

it? 

Ms. BRENNAN. That’s correct. We need to maintain an extensive 

network that includes facilities, equipment, people, and the like. 

Mr. CLAY. Which adds up to a substantial fixed cost, doesn’t it? 

Ms. BRENNAN. Correct, Congressman. 

Mr. CLAY. These fixed costs are continually growing because the 

Postal Service must deliver mail to 900,000 new addresses a year. 

Is that correct? 

Ms. BRENNAN. Roughly, yes, sir. 

Mr. CLAY. It is difficult to cover these fixed overhead costs because the Postal Service’s mail volume and revenues have declined 

and are expected to continue declining. Since 2007, total mail volume has declined by 27 percent, and the volume of first class mail 

has declined by 35 percent. Ms. Brennan, first class mail provides 

the greatest amount of revenue to help cover the Postal Service’s 

overhead cost. Is that correct? 

Ms. BRENNAN. That’s correct. It defines our requirements and 

pays the bills, and it’s why we’ve taken the actions we have over 

the past few years to scale to demand based on that decline. 

Mr. CLAY. Sure. And the Postal Service’s package business has 

grown significantly, but the volume of package delivery has not 

been enough to make for lost first class mail volume, is that correct? 

Ms. BRENNAN. That’s correct. Package volume is roughly 3 percent of our total volume. 

Mr. CLAY. Now, how much an increase in package volume would 

you need to make up for lost first class mail volume? Any idea? 

Ms. BRENNAN. Volume increase, a percent would be roughly 250 

percent. 

Mr. CLAY. Okay. And, Ms. Brennan and Ms. Rectanus, you have 

both previously testified that the Postal Service’s untenable fiscal 

situation is tied to a flaw in the agency’s business model. On one 

side the law limit’s the Postal Service’s ability to increase its revenues because it cannot raise postage rates above the CPI base price 

cap, and the Postal Service’s authority to pursue new products and 

services is severely limited. Ms. Rectanus, do I have that correct? 


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Ms. RECTANUS. Again, these are legal current requirements. I 

don’t think GAO has classified them as flaws, but yes, we have said 

that those are currently legal requirements that they—either they 

must meet or affect their ability to generate revenue. 

Mr. CLAY. And on the other side, the Postal Service is limited in 

its ability to cut cost a significant portion of which are fixed costs 

relating to the network pensions and healthcare benefits, is that 

correct? 

Ms. RECTANUS. That’s correct. The—there are legal requirements 

that they make these pension payments, and as we’ve talked about 

before, there are some legislative prohibitions that affect their ability to downsize or right-size or make other changes that would help 

reduce some of their expenses. 

Mr. CLAY. So we are in line for another postal rate increase, is 

that correct? Or maybe someone—Ms. Brennan, can you answer 

that? We are in line —— 

Ms. BRENNAN. We just recently, Congressman, raised prices on 

our market-dominant within that strict price cap of 8/10 of a percent. We also have the 10-year price review before the Commission 

currently. 

Mr. CLAY. And how much of the shortfall would that help make 

up or does it just keep us above water? 

Ms. BRENNAN. Well, it’s part of the path to wellness if you will. 

It’s—this legislation that will generate over $26 billion over five 

years, it’s the PRC price review and it’s continued management action. 

Mr. CLAY. And we should not be surprised by the Postal Service’s 

financial situation considering that the private sector businesses 

don’t have these restrictions, which means that I think this committee is on the right path by reviewing this legislation and hopefully moving it out. 

Mr. Chairman, I see that my limited time has expired and I will 

yield back whatever has left. 

Mr. MEADOWS. The gentleman has gone over an unlimited 

amount of allocation. 

And so the chair recognizes himself for five minutes for a series 

of questions. 

I want to thank each of you. Mr. Rolando, I want to come to you. 

Your statement was just unbelievable. You said all four unions 

support this bill with no changes. Is that correct? Is that correct? 

With no changes you support this bill, all four unions? 

Mr. ROLANDO. Yes, all four unions support this bill. I think we 

mentioned two tweaks in the written testimony that we thought 

would be helpful. 

Mr. MEADOWS. Yes, but if those two tweaks don’t get done, this 

is better than —— 

Mr. ROLANDO. Totally support this bill coming out of committee, 

absolutely. 

Mr. MEADOWS. All right, Mr. Rolando. Thank you for your willingness to put it forth. I know that that comes at some cost to some 

of your members. You know, they are not all unified in supporting 

necessarily this bipartisan bill, so I recognize that. 

Mr. ROLANDO. No, we believe we’ve got the members covered. 


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Mr. MEADOWS. Okay. Well, very good. So let me come back a little bit. I am willing to invest the political capital. We have a number of stakeholders that are here as we are looking to truly save 

the Postal Service as we know it. At the same time, what I don’t 

want is a hearing to happen 10 years from now where the GAO 

comes in and says shortly after the 2006 bill was passed, we started on a path that was fiscally not responsible. Of course, your 

opening testimony said from 2007 on. So it means the minute that 

we passed the bill we have had an issue since we passed that 2006 

bill. Is that correct? 

Ms. RECTANUS. I—again, I think when the bill was passed, there 

was a sense that this was a forward-thinking foresight-focused effort. I think the Postal Service itself recognized that these were a 

good idea, don’t know if anyone anticipated the recession that 

would come after and the inability to —— 

Mr. MEADOWS. Yes, but 2007, the recession wasn’t here at 2007. 

Your testimony said 2007. We were still blowing and going at that 

particular —— 

Ms. RECTANUS. That’s true. 

Mr. MEADOWS.—time. 

Ms. RECTANUS. That’s true. In 2007 is when the Postal Service 

first started recording those losses. 

Mr. MEADOWS. Okay. So, Ms. Brennan, I want to come to you because part of what you have talked about is, well, this helps the 

balance sheet, but you are leaving yourself an out that says that 

if Mr. Taub doesn’t do what he believes—what you believe is appropriate there that you could still potentially have problems. So what 

do you believe Mr. Taub needs to do? 

Ms. BRENNAN. Mr. Chairman, my point there was that having a 

strict price cap on products that generate roughly 74 percent of 

your revenue and having a universal service requirement —— 

Mr. MEADOWS. But you are making money on those products. I 

mean, according to your balance sheet, you are making money so, 

I mean, why would you need an increase? 

Ms. BRENNAN. Well, my point is that a strict price cap, again, 

where you’ve got competition in every product line, including in 

market-dominant, that —— 

Mr. MEADOWS. Well, the only competition you really have in 

market-dominant is the internet. And when we really look at—I 

mean, let’s be honest about it. Competition the way that you are 

defining it is very different on packages than it is on your marketdominant product, wouldn’t you agree with that? 

Ms. BRENNAN. Well, if you look at electronic diversion, whether 

it’s bill payment, and then when you look at our standard or our 

advertising mail, which is susceptible to digital advertising, which 

is —— 

Mr. MEADOWS. Right, the internet. 

Ms. BRENNAN.—certainly—exactly—but has certainly increased. 

That puts pressure on the organization. But I’m not saying —— 

Mr. MEADOWS. So what would you like to see from Mr. Taub, getting back to my question? 

Ms. BRENNAN. I’d like there to be no cap and to give postal leadership the opportunity to set price. 


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Mr. MEADOWS. All right. So let’s go with no cap and your ability 

to set the price as you see fit. So let’s go to the elephant in the 

room that we continue to hear about, and that is service standards. 

Senator Heitkamp has spent a number of calls—I have committed 

to her that we will address service standards. So a two-day package, how long does it take for a two-day package to get there before 

they get a refund under the Postal Service? 

Ms. BRENNAN. The only refund would be if it’s a priority mail express piece. 

Mr. MEADOWS. So a two-day package, when you are advertising 

a two-day package, if it takes six days to get there, do they get 

their money back? 

Ms. BRENNAN. No. It’s a service standard, not a guarantee. But 

clearly —— 

Mr. MEADOWS. But do you make that clear? 

Ms. BRENNAN. Yes. 

Mr. MEADOWS. Okay. Because when we go and we get a two-day 

package, how many days do you think we expect it to take to get 

there? 

Ms. BRENNAN. Two days. 

Mr. MEADOWS. Exactly. So when it doesn’t get there in two days, 

who do we blame? 

Ms. BRENNAN. Well, it’s a failure on our part. There’s a process 

failure that we need to address. 

Mr. MEADOWS. All right. So when you don’t do that, when Senator Heitkamp gets complaints or I get complaints, where does the 

responsibility or the penalties lie? I mean, how do we fix that? 

Ms. BRENNAN. Well, I think we’ve demonstrated that we’ve addressed systemic issues, but I would also —— 

Mr. MEADOWS. Well, not according to Ms. Heitkamp and not according to me you haven’t address the systemic issues. You may 

have addressed some, but from a service standard, we need to 

make sure that all these stakeholders—because I just got pulled 

into five newspaper owners just the other day because they knew 

the hearing was coming. And they said it doesn’t do them any good 

when a newspaper is supposed to get there on a Thursday and it 

has got coupons for a Thursday, Friday and it gets there on Monday or it gets there, you know, two weeks later. So how do we 

make sure that service standards get pulled into this? 

Ms. BRENNAN. Well, I would say, first of all, Mr. Chairman, obviously service is foundational. It’s key to growth for us. And we address any service issue that is experienced by a customer. In terms 

of how you address it, I think we have had some conversation regarding maintaining the existing service standards as-is. 

Mr. MEADOWS. But I have talked to some of your union employees, you know, going back to Mr. Rolando, and they say that the 

way that you measure that sometimes misrepresents—it allows you 

to take your best service standards with first class mail and yet 

some of the others—is that not accurate? 

Ms. BRENNAN. We measure every class of mail. 

Mr. MEADOWS. All right. So which one—are you meeting service 

standards across the board? 

Ms. BRENNAN. In terms of last fiscal year we made our composite 

service standard for —— 


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Mr. MEADOWS. You just changed the word. You said you had 

them individually and then you just used the word composite. So 

which of those individually did you meet or not meet? 

Ms. BRENNAN. We met our standard service performance target 

for last year. We met our standing —— 

Mr. MEADOWS. On each one of those categories? 

Ms. BRENNAN. No, our composite. 

Mr. MEADOWS. That is what I am asking. You are giving me an 

answer to a question I didn’t ask. So in these individual buckets, 

which ones did you meet and which ones did you not meet? 

Ms. BRENNAN. In terms of how we measure performance, last 

year, we did not meet the service standard in our first class and 

our priority or our standard. We showed marked improvement compared to the prior year. We established —— 

Mr. MEADOWS. So three of how many buckets? 

Ms. BRENNAN. We established the service goals with the Board 

of Governors and we established —— 

Mr. MEADOWS. Well, there is no Board of Governors anymore. 

Ms. BRENNAN. There was at the time —— 

Mr. MEADOWS. There was a Board of Governor. 

Ms. BRENNAN.—Mr. Chairman. There was an independent governor, yes, at the time. And we established stretch —— 

Mr. MEADOWS. So —— 

Ms. BRENNAN.—targets —— 

Mr. MEADOWS. So I am running out of time. So out of—how 

many buckets do you have for service standards? Because you just 

said you didn’t meet them —— 

Ms. BRENNAN. In those three —— 

Mr. MEADOWS.—in three of them. 

Ms. BRENNAN.—we did not. We met our scanning target, we met 

our customer insight target, and we met our parcel select target. 

Mr. MEADOWS. All right. 

Ms. BRENNAN. Three of the six. 

Mr. MEADOWS. And so how can you say as a composite that you 

are meeting the service standards? If you are losing 50 percent of 

the time, how are you meeting the standard? 

Ms. BRENNAN. The example I was giving you on standard or marketing or advertising mail was we measure letter volume, we measure flat volume, we measure the volume, whether it’s measured at 

a sectional center facility or upstream at a network distribution 

center. We provide that level of granularity to our customers and 

to the industry. 

Mr. MEADOWS. All right. I am way over time so I am going to 

recognize the gentlewoman from Illinois, Ms. Kelly. 

Ms. KELLY. Thank you, Mr. Chair. And welcome to the witnesses. 

The reform proposal approved by the committee during the last 

Congress includes a provision championed by Ranking Member 

Cummings to create a chief innovation officer position to lead the 

development of innovative postal and non-postal products and services. Ms. Brennan and Mr. Rolando, there is some agreement 

among some of the major stakeholders about allowing the post office to partner with State, local, and tribal governments. Isn’t that 

true? 

Ms. BRENNAN. That’s correct. 


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Mr. ROLANDO. Yes, it is. I believe Chairman Chaffetz has initiated some of those efforts within his own State. 

Ms. KELLY. Well, I was going to ask for an update beside that, 

any update about it? 

Ms. BRENNAN. In terms of current efforts? 

Ms. KELLY. Yes. 

Ms. BRENNAN. Within the constraints of the law, one example 

would be working with the Census Bureau in Arizona to on-board 

new employees utilizing in-person proofing at our retail units. 

Ms. KELLY. Okay. Obviously, to be financially viable, the Postal 

Service must reduce cost and increase revenue, as we have been 

talking about, and you have taken significant steps to reduce cost 

over the last several years, which has resulted in about 14 billion 

in annual servings. But there are limits to how much you can cut 

cost and still meet the universal delivery mandate and preserve an 

adequate level of service. So let’s talk about the other side of the 

equation, increase revenues. One option is for the Postal Service to 

expand the products and services it offers. Mr.—that was a mouthful. Ms. Rectanus and Mr. Taub, do you agree that in order to be 

financially viable in the long term, it is important for Postal Service to develop innovative products and services? 

Ms. RECTANUS. The GAO’s position is that there has to be a delicate balance between revenue generation and cost-cutting. In that 

respect, we do support the Postal Service’s efforts to generate revenue in—consistent with the role that it plays. For those areas 

where it could make appropriate money, we would support that. 

We would not support areas where it would unfairly benefit because of its monopoly in infrastructure status. And given its financial situation, we also would not support anything that’s inherently 

risky. 

Mr. TAUB. I certainly agree. The Postal Service under current 

law is not only authorized but encouraged to undertake as many 

dynamic and interesting and innovative postal products. What they 

are barred from under current law is getting into non-postal products. But certainly when it comes to postal products and services, 

the sky is the limit. And as I said, I know the Postmaster General 

and her team are focused on, as they call it, innovating the core, 

which is what it should be about. 

Ms. KELLY. And do you guys have anything that you would recommend? 

Mr. TAUB. Attached to my testimony is a long list of recommendations that we just sent to the President and Congress recently under a mandate of law. Some of that was along the lines 

of, to your question, allowing a little bit more flexibility on experimental product offerings, whether it’s revenue limits or length of 

time or the statutory requirements that they can undertake. When 

it came to non-postal services and products, the Commission recommended that we have a very mature regulatory system in place 

for reviewing and approving postal products and services. So that 

could work well as a protection for the public interest, shall we say, 

from the unfair competition aspect if the Postal Service were allowed to broaden the aperture and get into non-postal products. 


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Ms. KELLY. And, Ms. Brennan, can you tell us about some of the 

efforts that the post office has undertaken that the Postal Service 

can pursue? 

Ms. BRENNAN. Currently, in terms of innovation one example I 

would provide is informed delivery where we’re testing, the consumer would receive on their smartphone a digital image of the 

mailbox content that will be delivered today and also provide a 

click-to-shop option there. 

Ms. KELLY. Okay. And how is your financial situation preventing 

you from being innovative? 

Ms. BRENNAN. I think the overall financial condition of the Postal 

Service informs every decision we make. So clearly, we have to 

prioritize and remain focused on core business. 

Ms. KELLY. Okay. I can’t compete with Representative Lynch 

with his 17 family members in the post office, but I have five. 

Ms. BRENNAN. Five. 

Ms. KELLY. And so I have to be able to go home, too. But I do 

believe that to ensure the Postal Service’s long-time viability that 

we in Congress have to do everything we can to provide the agency 

more authority and flexibility to find ways to cut costs and increase 

revenue. 

Thank you. I yield back. 

Mr. MEADOWS. The gentlewoman has access to popcorn that the 

gentleman from Missouri would never have access to that makes 

her a cut above, I assure you. 

So the gentleman recognizes the gentleman from Wisconsin, Mr. 

Grothman, for five minutes. 

Mr. GROTHMAN. Yes, Ms. Brennan, you say that the current rate 

cap is completely unsuitable, which I understand. But aren’t you 

concerned that significantly upping the rates would result in further decreasing the mail volumes? 

Ms. BRENNAN. Congressman, absolutely. We do not want to do 

anything that would further accelerate moving out of the mail. I 

think if you look at the history prior to the PAEA, the Postal Service on balance filed price increases that were relatively modest. 

Mr. GROTHMAN. Okay. Mr. Sackler, industry is the biggest user 

of the mail and is the largest contributor to volume. Maybe we call 

that junk mail sometimes. I don’t know. Maybe you don’t call it 

that. What effect would an increase have on the declining volume, 

the industry —— 

Mr. SACKLER. It would have a major impact, Mr. Grothman not 

just in the direct mail promotional kinds of categories but further 

diversion into electronic alternatives and the very profitable first 

class mail, just to point out that mail is marked up more than 330 

percent. So it’s invaluable to the postal system. And If the rates go 

up in a very significant way from here, the outflow, which has been 

starting to plateau a little bit, would reaccelerate and probably in 

a great extent. 

Mr. GROTHMAN. Okay. H.R. 756 proposed a 2.1 percent increase, 

is that right? Do you think that is going to have an effect? 

Mr. SACKLER. It may have an effect on some. There are some in 

the industry, as you may know and as Chairman Meadows may 

know, that oppose even that amount of an increase as unaffordable. 

The large majority of the industry, however, is willing to accept the 


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risk of adding 2.15 percent onto the rate base in exchange for getting this bill, which, on balance, would be hugely helpful through 

the Congress. 

Mr. GROTHMAN. Okay. Maybe you have already covered it, but 

when you have projections the out years, are you projecting that 

to cause a decrease in mail volume? 

Mr. SACKLER. I think that with the establishment of so much 

trust and reliance on electronic media, there is little that can be 

done to reverse some of the outflow of mail. But if you add a huge 

increase on top of that, it’s going to accelerate it dramatically. 

That’s the worry of the industry. 

Mr. GROTHMAN. Okay. You consider the 2.1 percent not a significant increase? Is that what you are telling us? 

Mr. SACKLER. It is significant, but it is one that, to put it 

colloquially, we’re all holding our noses and accepting in the spirit 

of compromise in order to get this bill done. 

Mr. GROTHMAN. Okay. Ms. Brennan, one other thing. Do you 

think you can do anything to stop the decline in mail volumes? 

Ms. BRENNAN. Congressman, in terms of the first class mail, I 

think the best we can do is slow the diversion of first class mail. 

I think the efforts with the industry in terms of giving print a digital reflection will help us stabilize the marketing mail or the advertising mail. And regarding the package growth, given the competition, particularly in the last mile, our forecast is that the rate 

of growth will slow. So we’ll face these upward pressures, and, as 

I noted earlier, we’ll continue to make responsible decisions and 

scale to the demand. 

Mr. GROTHMAN. Is there anything else that you would like to 

have if this didn’t have to be a compromise bill, you would have 

your dream bill? 

Ms. BRENNAN. I don’t want to alienate the individuals to the far 

left. However, I would say we initially had proposed restoring the 

full exigent price increase as opposed to the compromise of 2.1, but 

we certainly recognize this is a compromise bill and we value the 

industry. They’re our business partners and we want to keep them 

at the table and in the mail. 

Mr. GROTHMAN. Okay. I yield the remainder of my time. 

Mr. MEADOWS. I thank the gentleman. The chair recognizes the 

gentlewoman from the District of Columbia, Ms. Eleanor Holmes 

Norton. 

Ms. NORTON. I thank you, Mr. Chairman, for this early hearing 

on the Postal Service. After all, we got through a bipartisan postal 

bill last Congress that had to go to another committee, so it didn’t 

come out of the Congress. But when you hear Mr. Rolando say that 

all four unions support this bill and you had Democrats and Republicans supporting this bill, I am very hopeful that this time we can 

get this bill done. 

I have a question about an age-old issue, the pension issue. And 

in the last bill we required the Postal Service to use demographic 

assumptions of the Postal Service, specific to the Postal Service, to 

calculate pension liabilities. For the record, Ms. Brennan, what is 

there about the demographics of the postal workforce as compared 

with the Federal Government workforce that apparently lowers the 

costs for the Postal Service’s pension. 


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Ms. BRENNAN. Ma’am, there are a couple issues, one in terms of 

demographics. The age of the workforce, the turnover rate, the economic assumptions go to the salary growth, given that we’re largely 

blue-collar, 90 percent of our employees’ salaries are negotiated 

through collective bargaining agreements. And this provision in 

and of itself will generate roughly $4 billion over five years for the 

Postal Service. 

Ms. NORTON. So the factors that differ or separate you out from 

the Federal Government workforce are collective bargaining? 

Ms. BRENNAN. No, ma’am. The—specifically, the demographics 

are the age of the workforce —— 

Ms. NORTON. The age of the workforce is younger? 

Ms. BRENNAN. Yes, and particularly the noncareer employees, we 

have over 135,000 flexible workforce. Also, the turnover rate and 

then the economic assumptions I stated were based on the fact that 

the majority of our employees’ salaries are determined through collective bargaining agreements —— 

Ms. NORTON. The turnover rate, is it greater or less than the 

Federal Government turnover —— 

Ms. BRENNAN. In terms of our noncareer employees, it’s greater. 

Ms. NORTON. Yes. 

Ms. BRENNAN. In terms of our career employees, I believe it’s 

better. It’s less than 1 percent. But I’d have to check those numbers, ma’am. 

Ms. NORTON. Could I ask Ms. Rectanus, do you agree with this 

assumption that we have been making in the last bills—I think it 

is in this bill as well—that specific demographics of the Postal 

Service should be used rather than demographics from the Federal 

workforce? 

Ms. RECTANUS. We do support that under the premise that if 

you’re going to be identifying surpluses and liabilities, you want to 

use the most accurate data you have. So we do support using postal-specific assumptions. 

Ms. NORTON. Here is the rub. And perhaps one of you could explain this to me. The CBO has also estimated but used the OPM, 

the Office of Personnel Management, but it is estimated that using 

postal-specific demographic data to calculate contributions owed by 

the Postal Service would result in a huge amount, $6 billion, an increase in the contributions from all other Federal agencies. Now, 

the CBO could not explain that. Since you would assume that, although the payments go into one fund, changing the assumptions 

on one side would result in equal and opposite change on the other 

side. So do any of you have an explanation as CBO itself did not 

on why the contributions owed yield a $6 billion increase in contributions that all other Federal agencies would be required to 

make? 

Ms. BRENNAN. I would just comment, Delegate Norton, that we’re 

asking OPM for a redetermination of that value. 

Ms. NORTON. Thank you. Considering that we—I am sure the 

chairman would like to move this bill, do you expect that to come 

in the near future? 

Ms. BRENNAN. I can’t answer that, ma’am. 

Ms. NORTON. Mr. Chairman, I think the committee ought to ask, 

lest we find that this—rebellion from the Federal workforce beVerDate Nov 24 2008 14:52 Aug 15, 2017 Jkt 000000 PO 00000 Frm 00140 Fmt 6633 Sfmt 6633 H:\26360.TXT APRIL

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cause this is an unexplained difference between the overall Federal 

workforce and the postal workforce if we could inquire and perhaps 

ask the CBO to further explain its $6 billion increase finding. 

Mr. MEADOWS. Well, the only thing that the chair recognizes is 

a CBO analysis is the only entity that makes a weatherman’s forecast look good. And so with that, I will be glad to ask for clarification from CBO. 

Ms. NORTON. Thank you, Mr. Chairman. 

Mr. MEADOWS. I thank each of you for your input, for your testimony here today. I want to thank the stakeholders. I have learned 

more about postal reform than I have ever cared to know based on 

your input, but it has been very valuable input. 

As we look at this, one just remaining item, Ms. Brennan, I am 

going to ask you. And I believe that in talking to your Deputy Postmaster General that I have this commitment, but I want it for the 

record. We need a real transparency as it relates to your financials 

and how we can look at this because there seems to be an indication that that is totally in the purview of the PRC and bypassing 

Congress. I am certain that that was not the message that was 

meant to be sent, but it was the message that was received. And 

so my concern is is when we look at that, you are asking for Congress to act to provide relief. I can’t make that informed decision 

without clear financials. And so do I have your commitment to 

make sure you get to this committee the type of financials with 

transparency that helps us make an informed decision? 

Ms. BRENNAN. Yes, any information you need, Mr. Chairman. 

And I suspect you’re talking specifically about the costing methodologies and cost attribution? 

Mr. MEADOWS. Well, as we look at that, yes. 

Ms. BRENNAN. Yes. 

Mr. MEADOWS. I am a business guy and —— 

Ms. BRENNAN. Understood. 

Mr. MEADOWS.—when you look at, for example, we have got $2.5 

billion increase in institutional cost when we have the first class 

mail volume going down. So I need to know where the 2.5 increase 

in institutional costs went since obviously it can’t be attributed to 

those areas. And I am not asking you to answer that here today 

unless you want —— 

Ms. BRENNAN. However, I may. 

Mr. MEADOWS. If you want to get into it—I don’t think you want 

to go there today. Why don’t we just leave it for the record —— 

Ms. BRENNAN. That’s fair. That’s fair. 

Mr. MEADOWS.—because as we look at institutional costs, I have 

a great concern that we mandated it at a certain percentage in 

2006. And yet when we have your revenue, about 25 percent of it 

now comes from packages, and that mandated compliance has not 

changed. And so that is for a more in-depth discussion that we 

won’t hold in a public forum. But as long as I have your commitment —— 

Ms. BRENNAN. You have my commitment, whatever information 

you need. 

Mr. MEADOWS. All right. 

Ms. BRENNAN. Absolutely. 


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Mr. MEADOWS. The other point I would ask you is to get with 

Senator Heitkamp on service standards. 

Ms. BRENNAN. Will do. 

Mr. MEADOWS. If she is not happy, I am not happy, and I am 

saying that from the other side of the aisle, okay? And so we need 

to make sure that service standards are addressed. 

And so if there is no further business before this committee, the 

committee stands adjourned. 

[Whereupon, at 12:19 p.m., the committee was adjourned.] 


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APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD


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Richard G. Thissen 

National President 

February 6, 2017 

Committee on Oversight and Government Reform 

United States House of Representatives 

Washington, D.C. 20515 

Jon Dowie 

National Secretary/Treasurer 

Dear Members of the House Committee on Oversight and Government Reform: 

On behalf of the National Active and Retired Federal Employees Association (NARFE), I 

appreciate the opportunity to submit our views regarding legislative reforms affecting the 

United States Postal Service (USPS or "Postal Service") in advance ofthe February 7 

hearing, "Accomplishing Postal Reform in the ll51

h Congress." NARFE represents the 

interests of federal and postal employees and retirees, as well as their spouses and 

survivors, and has more than 220,000 members across the country, about 30 percent of 

whom are retired postal workers, their spouses or survivors. 

This letter will offer our views on postal reform generally, but will focus on H.R. 756, the 

Postal Reform Act of20 17, which was introduced by Chairman Jason Chaffetz, R-UT, 

with the co-sponsorship of Ranking Member Elijah E. Cummings, D-MD, and Reps. 

Mark Meadows, R-NC, Dennis A. Ross, R-FL, Gerald E. Connolly, D-VA, and Stephen 

F. Lynch, D-MA. 

NARFE strongly opposes this bill, as it unfairly places the burden of fixing the Postal 

Service's finances on the backs of postal retirees. In so doing, it breaks a longstanding 

promise to postal retirees by removing choice as it relates to their health care and forcing 

them to pay additional health insurance premiums or lose their earned health insurance 

coverage. 

Specifically, the bill would require postal employees and retirees to enroll in Medicare or 

forfeit the Federal Employees Health Benefits Program (FEHBP) coverage they earned as 

a benefit of long years of employment. For those 76,000 current postal retirees not 

enrolled in Medicare, this individual mandate would require an additional $134 per 

month (or more) in Medicare Part B premiums. That's more than $1600 per year for an 

individual, and more than $3200 per year for a couple. All for health insurance coverage 

many postal retirees do not want, may not be able to afford, and have previously chosen 

not to take. 

NARFE has no objection to this requirement for current employees/future retirees, and 

suggests a simple alternative that would preserve choice for current postal retirees and 

realize substantial savings for the Postal Service: automatically enroll current postal 

retirees in Medicare Part B, but provide them with a short opt-out window of 60 or 90 

days. This option was offered as an amendment by Rep. Brenda Lawrence, D-MI, at last 

year's mark-up and, at the very least, should receive consideration and a vote at any 

National Active and Retired Federal Employees Association 

www.NARFE.org I 606 N. Washington Street, Alexandria. VA 22314 I phone 703-838-7760 1 fax 703-838-7785 
141 


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subsequent mark-up. Without this option, the bill breaks a promise regarding postal 

retiree health benefits and replaces the individual postal retiree's choice of health 

insurance with a paternalistic government requirement, at significant cost to the Medicare 

program. 

Below are further comments on the mandatory Medicare enrollment proposal, NARFE's 

proposed amendment, the prefunding requirement, alternatives for consideration, and 

other issues. 

Mandatory Medicare Enrollment and the Postal Service Health Benefits Program 

(PSHBP) 

NARFE opposes H.R. 756 because of the provision, within Section 101, that would force 

eligible postal retirees, their spouses and survivors to enroll in Medicare Part B or forfeit 

the Federal Employees Health Benefits Program (FEHBP) coverage that they earned as a 

benefit through years of employment. For those required to newly enroll- about 76,000 

individuals -this would require a minimum of $134 per month in Medicare premiums 

($268 per month for couples). 

We object to this provision for current retirees on two grounds: it changes the bargain 

regarding health benefits for postal retirees after they have retired, setting a dangerous 

precedent; and it removes choice for postal retirees with regard to their health insurance 

coverage. As a result, postal retirees, their spouses and survivors would be forced to pay 

more in premiums for additional coverage they may not want, while on a fixed income 

and unable to recoup those costs. 

This provision may also cost postal retirees an additional $850 per year, on average, in 

health care costs. 1 While NARFE recognizes that dual enrollment in Medicare Part B and 

FEHBP (or Postal Service Health Benefits Program, as the legislation creates) provides 

some benefit, in the form of lower deductibles and co-pays, the value of that wraparound 

coverage is only about $750 per year, on average. Yet, Part B premiums cost an 

additional $1,600 per year. Not only would this bill remove the choice from postal 

retirees as to whether they pay more in premiums up front for the possibility of lower 

costs down the road, but it turns out that this option is likely to be the more expensive 

one, according to a report by the Heritage Foundation. 

NARFE does not object to this provision for current employees/future retirees, as it 

would not be breaking a promise of future retiree health benefits in exchange for current 

employment. It also would allow current employees an opportunity to plan for their 

future. 

1 "Postal Service Health Benefits and the FEHBP: The Urgent Case for Getting Reform Right," Walton 

Francis, Heritage Foundation, available at: http://www.heritage.org/health-care-reform/report!postalservice-health-benefits-and-the-fehbp-the-urgent-case-getting. 

2 
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Automatic Enrollment and Transition Fund 

While NARFE opposes the overall mandatory Medicare enrollment proposal, we support 

two provisions included in the bill having to do with the transition to Medicare. 

First, we support a provision requiring that those postal retirees forced to enroll in 

Medicare as a condition of continuing their FEHBP coverage be automatically enrolled. 

This would avoid a complete loss of health insurance coverage for individuals who fail to 

enroll affirmatively. 

Second, we support a provision calling for those postal retirees forced to enroll in 

Medicare to pay less than full Medicare Part B premiums for the first three years of 

coverage-- paying only 25, 50 and 75 percent of their premium in years one, two and 

three, respectively. This would lessen the financial impact of the forced enrollment. 

Nonetheless, it still changes the health benefits for postal retirees after they have retired 

and removes the choice they currently have. 

NARFE 's Proposed Alternative: Allow Current Postal Retirees to Opt Out 

NARFE suggests a simple change to the current construct: retain the provision 

automatically enrolling postal retirees in Medicare, but provide current postal retirees the 

option to opt out of the forced enrollment. 

This proposal would allow postal retirees to retain choice. The notification of enrollment 

in Medicare, along with notice of the option to opt out, could include educational 

materials detailing the benefits of enrollment. Under this proposal, it is likely that a high 

percentage of postal retirees not currently enrolled in Medicare would not opt out, 

retaining much of the savings sought by the Postal Service. We propose a small opt-out 

window (60 or 90 days) to encourage enrollment. NARFE also would educate its postal 

retirees on the benefits of Medicare enrollment. 

Rep. Lawrence proposed an amendment that would have made this change at the July 

mark-up to last year's postal reform bill (H.R. 5714, ll41

h Congress). Unfortunately, the 

committee did not vote on the amendment. We ask that this proposal receive a vote this 

time around. 

Not only would this proposal allay the legitimate and serious concerns of postal retirees, 

but it could reduce the cost to Medicare resulting from increased enrollment, and thereby 

mitigate objections from the members of the House Committee on Ways and Means and 

others.2 According to the Congressional Budget Office, the mandatory Medicare 

2 For individuals with dual enrollment in Medicare Part Band FEHBP, Medicare becomes the primary 

payer. 

3 
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provisions of this bill would increase Medicare spending by $7.8 billion over 10 years. 3 

The opt-out would allow USPS to retain savings and simultaneously lessen the 

constraints placed on Medicare. 

Postal Service Health Benefits Program 

To ensure that the savings created by the mandatory Medicare enrollment are captured by 

the Postal Service, Section 101 ofH.R. 756 creates a new Postal Service Health Benefits 

Program (PSHBP), parallel to the FEHBP, to be implemented and administered by the 

Office of Personnel Management (OPM), for postal employees, Medicare-covered 

annuitants, and their spouses and survivors. Premiums for these plans would be based on 

a separate, postal-only risk pool. With Medicare picking up a share of the costs for those 

newly enrolled postal retirees and family members, PSHBP premiums would be reduced. 

However, based on preliminary estimates by the USPS that premiums will be reduced by 

about 10 percent, this reduction would not come close to covering the additional premium 

cost for new enrollees in Medicare Part B. 

NARFE does not object to the basic construct of the PSHBP, which allows postal 

employees and retirees to retain their current health insurance plans, but we have 

concerns that the most-costly postal retirees and family members will remain in FEHBP 

plans, impacting the FEHBP risk pool. 

Under H.R. 756, most postal employees, retirees and their family members would be able 

to retain their current FEHBP plan under the new umbrella ofPSHBP, which NARFE 

supports. Any current FEHBP plan with at least 1,500 postal enrollees would be required 

to provide a parallel PSHBP plan. The parallel PSHBP plans would have to be 

"actuarially equivalent" to current FEHBP plans. For example, there would be a Blue 

Cross Blue Shield Standard plan under both the FEHBP and PSHBP, which would offer 

equivalent benefits, but for different premiums. NARFE remains wary of splitting the 

FEHBP risk pool and the precedent it may set for the future, but the manner in which 

H.R. 756 does so is likely the least disruptive. 

However, NARFE is concerned that the PSHBP would exclude from coverage about 

11,6004 postal retirees and family members who are not eligible for Medicareessentially, those who retired prior to 1983. These individuals would remain in the 

FEHBP. Because of their age and the fact that their health care costs are covered only by 

the FEHBP, they are the most expensive group of participants to cover. By excluding 

them from the postal risk pool and leaving them in the FEHBP risk pool, H.R. 756 would 

cause a subtle cost-shift to the FEHBP. Congress should be wary of setting a precedent 

through cherry-picking risk pools. 

3 CBO Cost Estimate, H.R. 5714, the Postal Reform Act of2016, as ordered reported by the House 

Committee on Oversight and Government Reform on July 12, 2016, November 10,2016, available at: 

https://www.cbo.gov/sitcs/defaultlfilcs/114th-congress-20 15-20 16/costestimate/hr5714.pdf. 4 This number likely has decreased from last year, when the figure was cited to us by congressional staff, 

based on USPS data. 

4 
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Medicare Part D Coordination 

NARFE supports the coordination of prescription drug benefits by both the FEHBP and 

PSHBP plans with Medicare Part D, either through the Retiree Drug Subsidy Program or 

an Employer Group Waiver Plan (EGWP). Both of these options are available to privatesector companies that provide adequate prescription drug coverage to meet Part D 

requirements. Both options lower the cost of providing retiree prescription drug coverage, 

without reducing the quality of coverage. 

In addition to allowing PSHBP plans to coordinate coverage with Medicare Part D, the 

committee also should authorize FEHBP plans to do the same. There is no sound 

rationale to allow one to do so, but not the other. 

Waiver of Late Enrollment Penalties and Benefits of Part B Enrollment 

NARFE supports the provision ofH.R. 756 providing a waiver of increased Medicare 

Part B premiums that otherwise would apply due to late enrollment for those currently 

retired and newly enrolled in Medicare. Without this, the mandatory enrollment provision 

would be grossly unfair and even more cost-prohibitive for the participant. 

Eliminate the Prefunding Requirement 

The impetus behind mandatory Medicare enrollment for postal retirees and their family 

members is to lower the Postal Service's prefunding payments for retiree health benefits. 

By requiring Medicare to pay first for all postal retirees and family members, H.R. 756 

lowers the Postal Service's future liabilities. 

But the need to lower future liabilities now is the result of an unnecessary and overly 

burdensome congressional mandate to fully prefund all ofthe Postal Service's future 

retirees' health care obligations. Rather than complicate the matter by shifting costs to 

Medicare, breaking promises to postal retirees and mandating additional health insurance 

coverage that many postal retirees do not want, we suggest a much easier solution for the 

USPS' artificial financial crisis: eliminate the prefunding requirement. 

The prefunding requirement is the unfortunate consequence of the quirks of 

congressional budget scoring. The annual prefunding payments by the USPS into the 

Retiree Health Benefits Fund, ranging from $5.4 to $5.8 billion over 10 years, were 

mandated by the Postal Accountability and Enhancement Act of2006. This scheme was 

designed to allow the USPS a refund for $27 billion in overpayments for its share of 

former veterans' retirement benefits without creating an on-budget cost for the bill. That 

is not a sound policy rationale. No other federal agency or private-sector company fully 

prefunds its retiree health benefits, let alone within such a short time frame. 

Without this obligation, the USPS would have made a profit during the last three fiscal 

years (2014, 2015 and 2016). Its controllable operating income was $1.357 billion in 

5 
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FY14, $1.188 billion in FY15, and $610 million in FY16.5 Yet, its FY16 books show a 

$5.591 billion net loss, primarily due to its $5.80 billion prefunding obligation.6 But the 

USPS did not make its prefunding payments last year; it has not done so since 2010. 

This liability is driving cost-cutting strategies at the Postal Service and prohibits 

investments that could expand business and save money over the long term. Since 2012, 

the USPS has reduced delivery standards, which has resulted in increased delivery time 

across the country, according to the Government Accountability Office (GA0-14-828R). 

Top-level USPS management continues to plan reductions in USPS infrastructure in line 

with the reduced delivery standards. The prefunding requirement is a counterproductive 

congressional mandate that should be eliminated. 

Other Suggested Alternatives for Legislative Action 

The impetus for mandatory Medicare enrollment is to reduce the prefunding liability and 

thereby improve the Postal Service's finances. But there are other options for doing this 

without forcing postal retirees to solve these financial problems. 

First, Congress could make it easier for the USPS to increase revenue by raising postal 

rates. The 4.3 percent exigent rate increase instituted in January 2014, and in place 

throughout FY 15 and half of FY 16, was instrumental in increasing USPS revenue. In 

FY15 alone, it increased revenue by $2.1 billion.7 This rate increase ended in April2016 

when the USPS' authority to maintain it expired. The consequent loss of revenue 

resulting from this rate decrease will only drive further counterproductive cost-cutting 

strategies. Congress should allow the USPS greater ability to raise rates to sufficiently 

account for the costs of mailings, increasing revenue. Without this ability, the USPS will 

continue to provide subsidized service below cost to mass mailers. 

Additionally, Congress could loosen the shackles on the USPS' ability to increase 

revenue in other ways. For example, it could allow the USPS to ship alcohol. With the 

USPS prohibited from carrying alcohol, this revenue opportunity is left to its competitors, 

which have no such restrictions. Or Congress could allow or direct the USPS to increase 

financial services to those without viable private-sector options for things such as check 

cashing, bill payment, savings accounts or small-dollar loans. The Postal Service 

provided some of these services prior to the mid-1960s, and many other industrialized 

5 U.S. Postal Service Reports Fiscal Year 2016 Results, available at: https://about.usps.com/news/nationalreleases/2016/pr16 092.htm; 2015 United States Postal Service Annual Report and Comprehensive 

Statement, pp. 20-23, available at: http://about.usps.com/who-we-are/financials/annual-reports/fy2015.pdf 

(accessed May I 0, 20 16). 6 Other items not under the control of USPS include non-cash expenses related to changes in the federal 

workers' compensation program, including fluctuations in expenses due to changes in discount rates, and 

the amortization of its portion of the Federal Employees Retirement System (FERS) using 

govemmentwide, rather than postal-specific, assumptions. These two items account for a Joss of $1.026 

billion and $248 million, respectively. ld 7 2015 United States Postal Service Annual Report and Comprehensive Statement, p. 22, available at: 

http://about.usps.com/who-we-are/financials/annual-reports/fy20 15.pdf (accessed May I 0, 20 16). 

6 
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countries do so. Congress should examine closely its restrictions on the USPS' ability to 

increase revenues by eliminating or lessening the limitations it currently imposes on 

USPS activities. 

Additional Views on Postal Reform 

Six-Day Delivery 

NARFE supports maintaining six days of mail delivery throughout the United States. 

This modest delivery standard, or a more demanding one, has existed since at least 

1888. H.R. 756 rightly preserves six-day delivery by not specifically targeting the 

number of delivery days. 

To-the-door Delivery 

NARFE supports maintaining curbside and to-the-door delivery, opposing a transition 

to cluster box delivery. This is of particular concern to NARFE members, as most are 

retired and some may not have the ability to walk several blocks to retrieve their mail 

-and they shouldn't have to. 

H.R. 756 takes an ill-advised step away from to-the-door delivery, prohibiting it for 

new addresses and allowing conversions of existing neighborhoods under certain 

circumstances. This would be neither efficient nor what the American people want 

from their Postal Service. 

Conclusion 

Simple solutions exist for the financial problems facing the Postal Service, but H.R. 756 

takes a more complicated route - forcing postal retirees and survivors who are satisfied 

with their current health insurance coverage to pay another $1600 per year or more to 

keep it. 

The reason for doing so is unconvincing. This Congress is simply trying to save the 

Postal Service money in a manner that avoids more politically difficult decisions. 

This is not the only path forward. Why not allow the USPS to raise the price of postage to 

a more reasonable amount, instead of continuing to heavily subsidize the business of bulk 

mailers? Why not allow the USPS to ship alcohol or provide more financial services? 

Why not eliminate or lessen the burdensome prefunding requirement? 

These are the questions you should ask before you place the burden of postal reform on 

the backs of postal retirees and their survivors. 

While this postal reform bill is much improved compared to its predecessors, it seeks 

significant savings through "Medicare integration," as supporters like to call it. We call it 

7 
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unfair and unnecessary. It augments the finances of the Postal Service at the expense of 

its retirees. 

Thank you for considering NARFE's views. If you have any questions or comments 

regarding this request, please contact NARFE Legislative Director Jessica Klement at 

703-838-7760 or jklement@narfe.org. 

Sincerely, 

Richard G. Thissen 

National President 

8 
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United Postmasters and Managers of America 

February 1, 2017 

Honorable Jason Chaffetz, Chainnan 

Honorable Elijah Cummings, Ranking Member 

House Committee on Oversight and Reform 

Washington, DC 20515 

Dear Chainnan Chaffetz and Ranking Member Cummings: 

As you know, on November 1, 2016, the United Postmasters and Managers of America 

(UPMA) was established through the merger of the National Association of Postmasters 

of the United States and the National League of Postmasters. On behalf approximately 

27,000 members ofUPMA, we commend the bipartisan efforts of your committee to 

introduce and its intent to expeditiously pass H.R. 756, a postal relief measure similar to 

legislation the committee passed during the I 14th Congress. 

H.R. 756 reflects priorities Postmasters and postal managers have articulated in the past. 

For example, the measure provides relief from the impact the injurious postal retiree 

health benefit pre-funding requirement and establishes a more equitable calculation of the 

Postal Service's pension and health insurance liabilities. In addition, the bill provides the 

agency with greater product and price flexibility, creates a pause in efforts to reduce 

hours, reclassify and consolidate rural post offices, and heightens the due process rights 

of certain managerial level postal employees. We are also appreciative that H.R. 756 does 

not include a provision requiring the Postal Service to alter its process for securing air 

parcels, which would have cost the Postal Service more than $3 billion. 

While there may be a number of future amendments that UPMA could support, including 

a clarification of how Medicare interacts with the postal retiree health coverage, 

enhancement of protections extended to Postmasters and managers serving rural 

communities, and improving rural postal services, UPMA supports H.R. 756. We thank 

the committee for its bipartisan commitment to move this bill to the floor of the House of 

Representatives. Consequently, UPMA looks forward to working with you and the House 

bipartisan leadership to pass the bilL 

Sincerely, 

Sean Acord 

Co-President 

Anthony Leonardi 

Co-President 

8 Herbert Street, Alexandria, Virginia 22305-2600 • 703-683-9027 • 703-683-0923 (fax) 

www.unitedpma.org 
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COALITION FOR A 

21st CENTURY 

POSTAL SERVICE 

Contact: Art Sackler 

art.sackler@sbhlawdc.com/202-955-0064 

Mailing Industry Offers Support for Postal Reform Act of 2017 

Bill Would Preserve the Postal System and Avoid a Bailout 

Washington, DC ..... February 1, 2017 The Coalition for a 21" Century Postal Service (C21) expressed 

its support for HR 756, the Postal Reform Act of 2017, introduced yesterday by a bipartisan group of 

Members of the House Oversight and Government Reform Committee, including its leaders. The Postal 

Service is in deep financial trouble, and this bill would constructively address, among other things, 

retiree health obligations that account for many$ billions in postal red ink. 

Not only is the postal system deeply in the red on its balance sheet from its virtually unique and 

unsustainable statutory prefunding obligations (operations are nominally in the black), it and its 

customers are confronting a mandated review of its rate setting system this year. What is at stake is 

whether the Postal Service can continue to be wholly funded by user fees: postage. It receives no 

taxpayer funds. Absent this bill, the result could be major, unaffordable rate increases that would drive 

large volumes of mail out of the system, damaging businesses and costing jobs around the country. 

Ultimately, taxpayer funds would be necessary to prop up a failing, but still essential postal system. 

"This bill provides an intelligent, workable and bipartisan solution to the financial predicament faced by 

the Postal Service," said Art Sackler, Manager of C21. "C21 member mailers and suppliers, and the 

industry as a whole, have long supported a universal, self-sustaining postal system, and this bill would 

keep it that way." 

The industry generates $1.4 trillion in commerce, and employs 7.5 million workers. With the major 

increases necessary to cover its liabilities, mailers would gravitate far more aggressively to electronic 

alternatives to mail in online, social and mobile media. This would put the survivability of the postal 

system at risk, and likely require support from taxpayers. 

"The beauty of this bill," added Sackler, "is that it would put the Postal Service back on the path to 

financial balance without taxpayer funds." 

The OGR Committee will conduct a hearing on HR 756 on February 7. C21 will testify. 

# II # 

The Coalition for a 21" Century Postal Service consists of business mailino associations and companies -

including newspapers and other periodicals, advertisers and catalogers, greeting cards, financial 

services, telecommunications, insurance and other statement mailers, ecommerce businesses and other 

parcel shippers, small businesses of every kind- and their suppliers- paper, printing, technology, 

envelope manufacturing, mail services and other companies. 
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PRNewsw1re aaSJONcompany 

Major Mailing Organization Backs House Oversight 

Committee's New Postal Reform Bill; Urges 

Immediate Passage 

NEWS PROVIDED BY 

American Catalog Mailers AssociationFeb 01, 2017, 18:31 ET 

AMERICAN CATALOG 

MAILERS ASSOCIATION 

WASHINGTON, Feb. 1, 2017 /PRNewswire-USNewsw!re/ M~ The American Catalog Mailers Association wholeheartedly endorses the 

just-released Postal Service Reform Act of 2017, a critical milestone toward resolving the health of our nation's Postal Service, which 

drives some 7.5 million jobs and $1.4 tri!Hon in commerce. The btl! was introduced by the House Oversight and Government Reform 

Committee on January 31st. 

"We are delighted with the progress to resolve an enormous problem that only Congress can solve, and the House seems intent on 

doing just that," says Bob Runke, ACMA's Vice Chairman and CEO of Barco Products. "We commend Chairman Chaffetz, Ranking 

Member Cummings and the bipartisan co-sponsors for all their hard work in the past session and their leadership in the new 

Congress." 

The ACMA believes that by gaining bipartisan support from Congress. as wei! as Postal Service management, its labor unions and the 

mal!ing community, this bill can truly make a difference to jobs in America while protecting critical infrastructure that a!! Americans rely 

on. 

"Passage of this bill is vital for the future survival of our Postal Service," says the ACMA's President & Executive Director Hamilton 

Davison. "Absent Congressional action, users of the mail wm face increasing uncertainty that will drive business out of the mail and 

effectively force unprecedented taxpayer support to keep the USPS afloat- and nobody wants thae Since 1971, the US Postal Service 

has been fully funded by postage. It receives no taxpayer funding. 

"We sincerely hope the House of Representatives will quickly push this bill forward," Davison adds. Hit has been studied, vetted, 

positively scored and is clearly good for all interests. Congress must demonstrate this is not business as usual and get this 

commonsense legislation passed into law.~ 

About the American Catalog Mailers Association 
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february 2, 2017 

The Honorable Jason Chaffetz 

Chairman 

1 t HARLAND CLARKE HOLDINGS' 

House Committee on Oversight and Government Reform 

2157 Rayburn House Office Building 

US House of Representatives 

Washington, DC 20515 

Dear Chairman Chaffetz: 

Victor Nichols 

Chief Executive Officer 

On behalf of Harland Clarke Holdings (HCH), I am writing to thank you for your leadership and 

introduction of the Postal Service Reform Act of 2017, H.R. 756. Comprehensive postal reform legislation is the 

only way the current financial outlook for the USPS can be fundamentally improved to ensure continuity and 

stability for the future. 

HCH is a key partner of the USPS through our Harland Clarke and Valassis operations. Val ass is is the 

nation's largest program mailer, delivering advertising messages and values to up to 100 million households each 

week. Last year, Val ass is entered more than 3 billion pieces of mail containing nearly 40 billion pieces of 

advertising into the USPS, touching 9 out of 10 American mailboxes. Harland Clarke is a leading provider of 

integrated payment solutions, marketing services, and retail products for nearly 12,500 financial and commercial 

clients, mailing nearly 300 million pieces of mail on an annual basis. As such, Valassis, Harland Clarke, and our 

customers rely heavily on a financially sound USPS as the means by which we deliver valuable products and 

solutions to consumers. 

We are pleased that you, Ranking Member Elijah Cummings, Chairman Mark Meadows, Ranking Member 

Gerry Connolly and other key members of your committee have come together again to reintroduce a bipartisan 

postal reform bill in an expeditious fashion this Congress to achieve this goal. Similar to the bill unanimously 

approved by your Committee last July, H.R. 756 includes a range of reforms that will put the USPS on solid 

financial footing over the long term, including reforms of postal service health and pension benefits, governance, 

and personnel. 

Additionally, rate predictability, consistency, and efficiency is of paramount concern to HCH. The 

enactment of comprehensive postal reform legislation, such as H.R. 756, will alleviate the pressure on postal rates 

as the only means of fixing the USPS' financial problems and put our company into a much better position to grow 

our volume with the USPS as we have in each of the last 7 years. Rate increases alone cannot solve the fiscal 

challenges faced by the USPS and meaningful reform legislation will address these challenges in a broader way, 

ensuring the stability of future postal rates. 

Thank you for championing this important issue. We look forward to continuing to work with you and 

your staff on enacting comprehensive postal reform legislation this year. 

Sincerel~/:1~ 

Victor Nichols 

Chief Executive Officer 

15955 La Cantera Parkway • San Antonlo, Texas 78256 • Tel415.519.0011 

victor.nicho!s@har!andclarke.com 
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NATIONAL ASSOCIATION POSTAL 

February 6, 2017 

The Honorable jason Chaffetz 

Chairman 

Committee on Oversight and 

Government Reform 

U.S. House of Representatives 

Washington, D.C. 20510 

National Headquarters 

1727 KJNG STREET, SUITE 400 

ALEXANDRIA, VA 22314-2753 

Phone (703) 836·9660 

The Honorable Elijah Cummings 

Ranking Member 

Committee on Oversight and 

Government Reform 

US House of Representatives 

Washington, D.C. 20510 

Re: Postal Reform Actof2017, H.R. 756 

Dear Chairman Chaffetz and Ranking Member Cummings: 

I write to thank you and your colleagues for your bipartisan efforts to restore the 

financial solvency of the United States Postal Service and ensure the efficient and 

affordable nationwide delivery of mail through the introduction of the Postal Reform Act of 

2017, H.R. 756. In our view, meaningful reform of our nation's postal system needs to 

maintain prompt service for all Americans, address burdens that harm the Postal Service's 

financial health, and infuse greater innovation into the postal system. Your comprehensive 

reform legislation advances these priorities and has earned the support of the National 

Association of Postal Supervisors. 

The Postal Reform Actof2017 would reduce the Postal Service's onerous burden to 

pre fund its retiree health benefit obligations. The legislation would also establish a more 

equitable calculation of the Postal Service's pension and health benefit liabilities and 

achieve savings through the integration of Medicare and FEHBP health benefits. And it 

would provide greater product and pricing flexibility to the Postal Service and assure due 

process rights of all Postal Service managerial employees. 

We encourage the House Oversight and Government Reform Committee and others 

charged with responsibility to consider H.R. 756 to report the bill to the House floor as 

promptly as possible. Thank you for your leadership and your continued efforts to assure 

the delivery of prompt, affordable mail service to all Americans. 

Sincerely, 

EJil~ Brian). Wagner 

National President 

Representing supervisors, managers and postmasters in the United States Postal Service 
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Questions for Ms. Megan J. Brennan 

Postmaster General 

U.S. Postal Service 

Questions from Chairman Jason Chaffetz 

February 7, 2017, Hearing: "Accomplishing Postal Reform in the 115th Congress- H.R. 756, 

the Postal Service Reform Act of 2017" 

1. Please explain all business rules, and procedures relating to the cost attribution of special 

purpose routes (parcel routes, pickup routes, and combination routes). 

a. Are these types of routes costed separately or jointly? 

b. How are the costs broken down? 

c. How is the price of gas costed? 

Response: 

Overview 

The street time city carriers spend on Special Purpose Routes (SPR) involves activities 

relating to the collection of mail, often on "routes" called "collection routes" (instead of "pickup 

routes"); delivering parcels not during the routine delivery of mail on a fixed, daily line of 

travel, often on "routes" called "parcel routes;" and performing other necessary but 

unstructured activities such as driving between postal processing facilities or the airport to 

transport mail to the appropriate facility for delivery, often on "routes" called "combination 

routes." Carriers on "letter routes" service the same delivery points in the same order daily, 

but SPR carriers may not. The names of the "routes" can be misleading. Carriers on "letter 

routes" also deliver flats and parcels, as well as collect mail. Similarly, SPR carriers on 

"collection routes," "parcel routes" or "combination routes" may be conducting additional 

activities beyond what the name of the route suggests. For example, a SPR carrier on a 

"parcel route" may deliver parcels in the morning, service collection points in the afternoon, 

and make a facility stop on the way back to the office. The total street costs associated with 

SPRs in 2016 was approximately $455 million, or 3.7 percent of total city carrier street costs. 

a. Jointly. The cost model used to attribute Special Purpose Route (SPR) street costs to 

products analyzes the activities performed by SPR carriers rather than classifying 

them based on route type. Consequently, the SPR cost model aggregates the costs 

across all SPR route types prior to the activities being jointly analyzed. 

b. The heterogeneity of activities performed by SPR carriers greatly affects the 

methods used to attribute costs to products. Because of the dissimilarity of SPR 

activities between offices, the activities were aggregated across SPR types before 

being analyzed. At a high level, the Postal Service conducted a special study where 

a random sample of SPR carriers was asked to record their specific activities. These 

activities were aggregated into four cost pools. The first pool, Access Time, includes 

the time between collection boxes or delivery point stops in relatively close proximity 

including time at stop unrelated to volume. The second, Load Time, includes the time 

at the box or delivery point effecting delivery or collection. The third, Network Travel 

Time, includes time driving between postal facilities or between delivery or collection 

segments. The fourth, Support Time, includes driving to first activity from office or 
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from last activity to office. Next, the Postal Service determined how much time was 

spent in each of the four cost pools that would vary with volume. For example, 

activities such as access time and load time are found to vary with volume, while 

network travel time does not vary with volume and is considered institutional. 

Support costs are allocated to Access Time, Load Time, and Network Travel Time on 

a pro rata basis. In 2016, SPR Access Time was $217 million, Load Time was $31 

million and Network Travel Time was $207 million. 

The variable costs are distributed to products using an ongoing statistical data 

system named the City Carrier Cost System. This system randomly samples SPR 

carriers and records the mail mix being delivered and/or collected. It uses the 

sampled data to assign volume variable delivery and collection costs to products in 

accordance with the Postal Regulatory Commission's established attribution 

methodology. The SPR cost model itself is filed as part of the Annual Compliance 

Report and can be found in the USPS-FY16-32, CS06&7-Public-FY16 workbook. 

c. Fuel costs for postal vehicles are accumulated in general ledger accounts. 

Fuel expenses for SPRs are aggregated and then attributed in the same proportion 

as SPR street labor costs. 

2. Please provide the itemized cost attributions for parcel routes, pickup routes, and 

combination routes. 

Response: 

As explained in the response to question one, the SPR cost model aggregates costs 

across all SPR types prior to conducting a joint analysis of activities. Hence, itemized 

cost attributions by route type are unavailable. 

3. When special purpose routes are costed, how much of the route is considered "network 

travel"? 

a. How and in what circumstances is network travel attributed to individual products or 

classes? 

b. Please provide the attribution breakdown of network travel over each of the last ten 

years. 

Response: 

In FY 2016, SPR network travel costs were $207 million or 1. 7 percent of the $12.4 

billion in total city carrier street labor costs. 

a. SPR network travel costs are those associated with movements not directly related to 

delivery or collection activities. For example, SPR network travel costs would include 

time traveling between postal facilities or between delivery or collection segments. 

SPR network travel costs do not include time traveling to and from the first activity 

(this time is considered support time) and exclude the time between nearby stops 

(this time is considered access time). Since SPR network travel costs are unrelated 

to volume, they are treated as institutional costs and not attributed to products. 
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b. Because SPR network travel costs are considered institutional and unrelated to 

volume, they are not attributed to products, and thus no breakdown to products 

exists. 

4. How is the time associated with traveling to/from a route attributed? 

a. If it is partially variable and partially institutional, what are the percentage 

breakdowns? 

Response: 

a. SPR costs associated with travel from the office to the first activity and from the last 

activity to the office are considered support costs, and therefore are partially variable. 

In FY 2016, these costs were 41.8 percent variable and 58.2 percent institutional. 
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Questions for Ms. Megan J. Brennan 

Postmaster General 

U.S. Postal Service 

Questions from Representative Bonnie Watson Coleman 

February 7, 2017, Hearing: "Accomplishing Postal Reform in the 115th Congress-H.R. 756, 

the Postal Service Reform Act of 2017" 

The Committee strongly supports the US Postal Service's licensing program and included 

language in the Postal Service Reform Act of 2016 to enhance and sustain it. Since these 

activities directly and positively impact the Postal Service's bottom line, I request that the 

Postal Service provide the Committee with an update on the status of these existing 

agreements, especially those that deal with supporting the core mission of the Postal Service 

and include items like mailing and shipping supplies. 

Response: 

United States Postal Service® Licensing protects the use and application of all USPS intellectual 

property. USPS intellectual property (stamps, trademarks, photographs, logos, and trade dress) 

are available for use in publishing, in advertising, on products, and in many other personal and 

professional applications. USPS utilizes licensing as a valuable marketing tool to enhance the 

Postal Service's brand with the following program objectives: 

• Create additional touch points with current customers on our core products and services 

• Introduce the Postal Service® to new customers who do not traditionally utilize our core 

services 

• Reinforce positive attributes of the brand 

• Protect the brand from misuse 

• Generate additional stream of revenue 

Contract Contract 

Current Licensee Category Start End 

Black Stone Design Apparel 7.1.2016 12.31.2017 

California Costumes Novelty 4.1.2016 3.31.2018 

Dynomighty Design, Inc. Accessories 6.1.2012 5.31.2017 

Greenlight LLC Diecast 9.1.2016 12.31.2019 

Hallmark Group Ltd Collectibles 1.1.2017 12.31.2019 

LePage's 2000 Mail & Ship 5.31.2012 5.31.2017 

MBI Collectibles 1.1.2015 12.31.2017 

Old World Christmas Inc Ornaments 8.1.2016 12.31.2018 

Terracycle Accessories 5.1.2016 4.30.2019 

Trau & Loevner Apparel 8.1.2015 7.31.2018 

The Vintage Sign Co. Home Decor 8.1.2015 9.30.2019 

White Mountain Puzzles Toys 4.1.2016 3.31.2019 

Salsbury Industries Mail & Ship 10.1.2016 9.30.2021 

Florence Corporation Mail & Ship 8.1.2016 7.31.2021 

Compx Security Products Mail & Ship 2.1.2016 2.28.2021 

Postal Products Unlimited Mail & Ship 10.1.2016 9.30.2021