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PRESERVING A STRONG UNITED STATES POSTAL

SERVICE: WORKFORCE ISSUES

HEARINGS

BEFORE THE

COMMITTEE ON 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

FEBRUARY 4 AND 24, 2004

Printed for the use of the Committee on Governmental Affairs

(

(II)

COMMITTEE ON GOVERNMENTAL AFFAIRS 

SUSAN M. COLLINS, Maine, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

ARLEN SPECTER, Pennsylvania 

ROBERT F. BENNETT, Utah 

PETER G. FITZGERALD, Illinois 

JOHN E. SUNUNU, New Hampshire 

RICHARD C. SHELBY, Alabama 

JOSEPH I. LIEBERMAN, Connecticut 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

RICHARD J. DURBIN, Illinois 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

MICHAEL D. BOPP, Staff Director and Chief Counsel 

ANN C. FISHER, Deputy Staff Director 

JOYCE A. RECHTSCHAFFEN, Minority Staff Director and Counsel 

SUSAN E. PROPPER, Minority Counsel 

AMY B. NEWHOUSE, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

Senator Collins ................................................................................................. 1, 41

Senator Akaka .................................................................................................. 3, 43

Senator Sununu ................................................................................................ 4

Senator Carper ................................................................................................. 5, 74

Senator Coleman .............................................................................................. 8

Senator Durbin ................................................................................................. 25

Senator Stevens ................................................................................................ 73

Prepared statement: 

Senator Lautenberg .......................................................................................... 83

WITNESSES 

WEDNESDAY, FEBRUARY 4, 2004

Walter M. Olihovik, National President, National Association of Postmasters 

of the United States ............................................................................................. 9

Steve LeNoir, President, National League of Postmasters .................................. 12

Ted Keating, Executive Vice President, National Association of Postal Supervisors ..................................................................................................................... 15

John Calhoun Wells, Private Consultant, former Director of Federal Mediation and Counciliation Service (FMCS) ............................................................ 28

James L. Medoff, Ph.D., Meyer Kestnbaum Professor of Labor and Industry, 

Faculty of Science and Arts, Harvard University ............................................. 32

Michael L. Wachter, Ph.D., Co-Director, Institute of Law and Economics, 

and the William B. Johnson Professor of Law and Economics, University 

of Pennsylvania Law School ................................................................................ 35

TUESDAY, FEBRUARY 24, 2004

Dan G. Blair, Deputy Director, Office of Personnel Management, accompanied 

by Nancy Kichak, Chief Actuary, Office of Personnel Management ................ 45

William Young, President, National Association of Letter Carriers ................... 52

Dale Holton, National President, National Rural Letter Carriers ...................... 56

William Burrus, President, American Postal Workers Union, AFL–CIO ........... 58

John F. Hegarty, President, National Postal Mail Handlers Union ................... 63

ALPHABETICAL LIST OF WISTNESSES

Blair, Dan G.: 

Testimony .......................................................................................................... 45

Prepared statement .......................................................................................... 179

Burrus, William: 

Testimony .......................................................................................................... 58

Prepared statement .......................................................................................... 199

Hegarty, John F.: 

Testimony .......................................................................................................... 63

Prepared statement .......................................................................................... 216

Holton, Dale: 

Testimony .......................................................................................................... 56

Prepared statement .......................................................................................... 192

Keating, Ted: 

Testimony .......................................................................................................... 15

Prepared statement .......................................................................................... 128

Page

IV

LeNoir, Steve: 

Testimony .......................................................................................................... 12

Prepared statement .......................................................................................... 111

Medoff, James L., Ph.D.: 

Testimony .......................................................................................................... 32

Prepared statement .......................................................................................... 148

Olihovik, Walter M.: 

Testimony .......................................................................................................... 9

Prepared statement with an attachment ....................................................... 84

Wachter, Michael L., Ph.D.: 

Testimony .......................................................................................................... 35

Prepared statement .......................................................................................... 157

Wells, John Calhoun: 

Testimony .......................................................................................................... 28

Prepared statement .......................................................................................... 135

Young, William: 

Testimony .......................................................................................................... 52

Prepared statement .......................................................................................... 186

APPENDIX 

Letter from James L. Medoff, dated February 17, 2004, in response to Senator 

Carper’s question with attachments ................................................................... 232

Letter from Victoria A. Lipnic, Assistant Secretary for Employment Standards, U.S. Department of Labor, dated Feb. 24, 2004 ...................................... 239

Questions and Responses for the Record submitted from: 

Mr. Olihovik ...................................................................................................... 240

Mr. LeNoir ........................................................................................................ 241

Mr. Keating ....................................................................................................... 244

Mr. Wells ........................................................................................................... 247

Mr. Wachter ...................................................................................................... 252

Mr. Medoff ......................................................................................................... 260

Mr. Blair with an attachment ......................................................................... 264

Mr. Young ......................................................................................................... 325

Mr. Holton ......................................................................................................... 333

Mr. Burrus ........................................................................................................ 338

Mr. Hegarty ...................................................................................................... 349

(1)

PRESERVING A STRONG UNITED STATES 

POSTAL SERVICE: WORKFORCE ISSUES 

WEDNESDAY, FEBRUARY 4, 2004 

U.S. SENATE, COMMITTEE ON GOVERNMENTAL AFFAIRS, Washington, DC. 

The Committee met, pursuant to notice, at 2:03 p.m., in room 

2154, in the Rayburn House Office Building, Hon. Susan M. Collins, Chairman of the Committee, presiding. 

Present: Senators Collins, Coleman, Sununu, Akaka, Durbin, and 

Carper. 

OPENING STATEMENT OF CHAIRMAN COLLINS 

Chairman COLLINS. The Committee will come to order. I want to 

begin today’s hearing by thanking Chairman Tom Davis of the 

House Government Operations Committee for allowing us to use 

his hearing room. The Senate Governmental Affairs Committee, 

like all of the committees in the Senate is precluded from using its 

normal hearing room today which is located in the Dirksen Building. So we were very thankful that we were able to reschedule this 

morning’s hearing for this afternoon with the good graces of Chairman Davis. 

I also want to thank my staff for their extraordinary efforts in 

getting the word out about the hearing, and also in trying to recreate some of the hearing materials, given the fact that we are still 

denied access to our offices. They really made heroic efforts. They 

were working yesterday out of offices at GAO, at OPM, and virtually all over the city, and in some cases out of their homes. But 

it just shows what can happen when everybody works together. 

Today marks the third in a series of hearings that the 

Committee is holding to review the reforms recommended by the 

Presidential Commission on the Postal Service. Under the effective 

leadership of Co-Chairmen Harry Pierce and James Johnson the 

Commission put together a comprehensive report on an extremely 

complex issue identifying the operational, structural, and financial 

challenges facing the U.S. Postal Service. The Commission’s recommendations are designed to help this 225-year-old Postal Service 

remain viable over the long term. 

So much depends upon the Postal Service’s continued viability. 

The Postal Service itself employs more than 730,000 career employees. Less well known is the fact that the Postal Service is also the 

linchpin of a $900 billion dollar mailing industry that employs 9 

million Americans in fields as diverse as direct mailing, printing, 

catalog production, and paper manufacturing. The health of the 

2

Postal Service is essential to the thousands of companies in these 

fields and the millions that they employ. 

One of the greatest challenges for the U.S. Postal Service is the 

decrease in mail volume as business communication, bills and payments move more and more to the Internet. The Postal Service has 

faced declining volumes of First-Class Mail for the past 4 years. 

This is highly significant given the fact that First-Class Mail accounts for 48 percent of total mail volume, and the revenue it generates pays for more than two-thirds of the Postal Service’s institutional cost. 

At our first hearing to review the Commission’s recommendations in September, the Committee heard from Commission CoChairman James Johnson. His testimony provided Committee 

Members with the rationale behind the Commission’s recommendations. Commissioner Johnson also made the very important point 

that the Postal Service’s short-term fiscal health is illusory and 

that Congress must not ignore the fundamental reality that the 

Postal Service as an institution is in serious jeopardy. 

This Committee is very familiar with the Postal Service’s short 

and long term financial outlooks, having reported out just last year 

a pension bill that forestalled the financial crisis that awaits the 

Postal Service if we do not act. The Presidential Commission presented its assessment of the fiscal crisis in frank terms concluding, 

‘‘an incremental approach to Postal Service reform will yield too little, too late given the enterprise’s bleak fiscal outlook, the depth of 

its current debt and unfunded obligations, the downward trend in 

First-Class Mail volumes, and the limited potential of its legacy 

postal network that was built for a bygone era.’’

That is a very strong statement and it is one that challenges 

both the Postal Service and Congress to embrace far-reaching reforms. 

At the Committee’s second hearing in November we heard from 

the Postmaster General and the Comptroller General of the General Accounting Office. The Postmaster General described transformation efforts already underway at the Postal Service, many of 

which are consistent with the Commission’s recommendations. In 

his testimony the Comptroller General of the General Accounting 

Office shared the Commission’s concerns about the Postal Service’s 

$92 billion in unfunded liabilities and obligations. He pointed to 

the need for fundamental reforms to minimize the risks of a significant taxpayer bailout or dramatic postal rate increases. 

I would note that since April 2001, the Postal Service has been 

included on the GAO’s high-risk list. 

Today we will focus on the various recommendations affecting 

the Postal Service’s workforce comprised of more than 700,000 

dedicated letter carriers, clerks, mail handlers, postmasters, and 

others. The Committee will have the opportunity to more fully explore the workforce-related recommendations of the Commission 

which include some of its more controversial proposals. Among 

them are recommendations to reform the collective bargaining process, to give management and employee unions the authority to negotiate not only wages but also all benefits, to establish a performance-based pay system for all employees, and to authorize the new 

Postal Service Regulatory Board to develop a mechanism for ensurVerDate 0ct 09 2002 10:17 May 18, 2004 Jkt 092687 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 C:\DOCS\92687.TXT SAFFAIRS PsN: PHOGAN
3

ing that total compensation for postal employees is comparable to 

the private sector. 

The Postal Service faces the difficult task of trying to rightsize 

its workforce to meet the decline in mail volume, technological competition, and other operational challenges. With some 47 percent of 

the current employees eligible for retirement by the year 2010, 

rightsizing does not, however, have to mean widespread layoffs and 

it should not. With careful management, much can be done to minimize any negative impact on employees and to create a more positive working environment. 

As a Senator representing a largely rural State, whose citizens 

depend on the Postal Service, I appreciate the Commission’s strong 

endorsement of the basic features of universal service: Affordable 

rates, frequent delivery, and convenient community access to retail 

postal services. It is important to me that whether my constituents 

are living in the northern or western stretches of Maine, or on islands, or in our many small communities that dot the State that 

they have the same access to postal services as the people who live 

in our large cities. If the Postal Service were no longer to provide 

universal service and deliver mail to every customer, the affordable 

communications link upon which many Americans rely would be 

jeopardized. 

I would note that most commercial enterprises would find it uneconomical, if not impossible, to deliver mail and packages to rural 

Americans at the rates that the Postal Service has been offering. 

The preservation of universal service and many more issues must 

be examined in depth if we are to save and strengthen this vital 

service upon which millions of Americans rely, not only for communication, but also for their livelihoods. The Postal Service has 

reached a critical juncture. It is time for a thorough evaluation of 

its operations and requirements, and it is also time for Congress 

to act to pass reform legislation. 

Senator Carper and I have committed to working together with 

Senator Stevens, Senator Akaka, Senator Lieberman, Senator 

Sununu, and Senator Fitzgerald who have expressed great interest 

in this area. I know given the history of previous attempts at legislative reforms that we are taking on a daunting challenge, but it 

is essential that we seize the opportunity provided by the Commission’s excellent work. Successful reform will hinge on the cooperation and the support of the Postal Service’s workforce. I very much 

look forward to hearing the testimony of our witnesses today. 

I would now like to call on Senator Akaka for his comments. 

OPENING STATEMENT OF SENATOR AKAKA 

Senator AKAKA. Thank you very much, Madam Chairman. I really want to thank you for going forward with this hearing, even on 

the House side. And I wish to thank our House colleagues for offering their hearing room to us. And of course, I want to extend my 

sincere appreciation to our witnesses who rearranged their schedules to be with us this afternoon. We are indeed privileged to hear 

your views on the workforce recommendations of the Commission 

on the U.S. Postal Service. So welcome to our panelists who represent the postmasters and supervisors, and to our second panelists 

as well. 

4

For the second time in a little over 2 years, first with anthrax 

and now with ricin, we find ourselves facing the aftermath of a bioterrorist attack through the mail. The threat of bioterrorism is 

something I have long been concerned with, held hearings on, and 

have introduced legislation. The President’s fiscal year 2005 budget 

released on Monday failed to include the Postal Service’s request 

of $779 million to help secure the mail. We can ill afford threats 

to the Postal Service which is the cornerstone of a $9 billion dollar 

mailing industry. 

Our first witnesses, representing the Nation’s postmasters and 

postal supervisors, are uniquely qualified to discuss postal operations and management. I also look forward to the testimony of our 

expert witnesses on pay comparability and arbitration; issues that 

will certainly be discussed again once we reschedule yesterday’s 

hearing with the postal unions. 

The Postal Service is currently enjoying a period of stable labormanagement relations, but I fear this unfavorable environment 

could change if portions of the workforce recommendations suggested by the Postal Commission are adopted. The Commission 

would implement a pay-for-performance system for all postal employees, impose a rigid collective bargaining procedure, task a new 

postal regulatory board with determining total compensation, and 

require negotiations over benefits. 

One in three Federal workers is employed by the U.S. Postal 

Service. I urge caution in embracing any proposal that would cut 

out postal workers from the government’s pension plans and the 

Federal Employee Health Benefit Plan, especially postal retirees. 

We should do no harm to retired postal workers who have already 

earned their benefits and planned their retirements under the Federal pension and health plans. 

I thank the Chairman and Senator Carper for seeking a review 

of whether postal-only pension and health plans would undermine 

the stability of the existing Federal system. Nor should postal reform legislation result in postal workers bearing the brunt of any 

reorganization. We should remember that the future of the Postal 

Service is dependent not only on how well and how effectively it 

manages its capital assets and services, but on how well its labor 

force is managed. 

I want to thank you, Madam Chairman, for conducting these 

postal hearings in an open and bipartisan manner. I am pleased to 

work with you, as I have always said, and with our colleague from 

Delaware and others to examine how to best position the Postal 

Service to serve the public in the 21st Century and be a model employer. Thank you very much, Madam Chairman. 

Chairman COLLINS. Thank you, Senator. Senator Sununu. 

OPENING STATEMENT OF SENATOR SUNUNU 

Senator SUNUNU. Thank you very much, Madam Chairman. It is 

a pleasure to be here and I very much appreciate you having this 

hearing. I must say it is a pleasure to be back in this room. It is 

also nice to see that my Senate colleagues who never served in the 

House had no trouble finding this side of the Capitol. 

I first began my work in Congress on this committee, the Government Reform and Oversight Committee, and 6 years ago began 

5

watching John McHugh’s efforts at postal reform. That was a very 

difficult task for John and for other committee members, so I think 

it is a great effort on your behalf to try to pick up this process, try 

to build on the Commission’s work, knowing full well how many obstacles will be placed in front of you, and trying to work through 

a balanced, thoughtful approach to reform. 

You noted in your opening statement the trends, the changes in 

technology, the competitive forces that are out there, the importance of the mail industry to so many in the private sector who are 

trying to communicate with customers or friends, whatever that 

may be. But at the same time there are changes that are very 

much necessary. 

So I salute and appreciate your work, and I am especially 

pleased to be here today with Wally Olihovik, the President of the 

National Association of Postmasters and would be happy to provide 

a flowery introduction at the appropriate time. Thank you again. 

Chairman COLLINS. Thank you very much, Senator. In the interest of full disclosure, it took two staff people and a trail of bread 

crumbs for me to find my way over to the House side. I tried to 

follow you from lunch but you were too quick for me. 

Senator Carper. 

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. Thank you, Madam Chairman. To my friend 

from New Hampshire, let me just say, I served over here for 10 

years. I served on the House Banking Committee for 10 years, just 

down the hall and it is nice to be back. I could have used the bread 

crumbs this afternoon just to make sure I found it quickly. But it 

is great to be here and we appreciate very much our host for letting 

us come. 

Senator Akaka served over here for a spell as well and I know 

that the former Governor from Minnesota did not serve in the 

House. But did you work with Bill Cohen when he was a House 

member? 

Chairman COLLINS. I did indeed. But only in the Cannon Building. 

Senator CARPER. Fair enough. I am delighted that we’re all here 

and encouraged by being in this room where our House colleagues 

have been working on these issues, especially Congressman 

McHugh and Congressman Waxman, a good deal longer than others of us. 

Madam Chairman, I am delighted that our Committee is going 

to be taking a day or two to study the workforce recommendations 

that were made by the President’s Postal Commission last summer. 

These recommendations that we are going to be discussing today 

have received quite a bit of attention, as we all know, over the last 

few months. Whether one supports them or not, to my colleagues 

I would just say that we can agree that they are among the most 

controversial made by this Commission. 

The Postal Service employs over 800,000 people, I think about 

825,000, but the key workforce recommendations made by the 

Commission affected roughly 725,000 employees that are represented by the four major postal unions. Those are the recVerDate 0ct 09 2002 10:17 May 18, 2004 Jkt 092687 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 C:\DOCS\92687.TXT SAFFAIRS PsN: PHOGAN
6

ommendations that I am going to focus on today in my opening 

statement, if I may. 

When the Commission first announced them I was, to be honest 

with you, a bit skeptical. The collective bargaining process used at 

the Postal Service today has, I think, worked well for the most 

part. It forces the parties into arbitration less than half the time. 

In recent years that process has allowed the Postal Service and 

three of its four unions to negotiate modest contract extensions. It 

has also created a Postal Service that has provided millions of 

hard-working men and women over the years with stable middleclass jobs that, I guess now for more than three decades. After taking a couple of months to study the Commission’s recommendations 

more closely I have to admit that I continue to be a bit skeptical, 

at least with respect to the issues before us today. 

First there are the recommended changes to the collective bargaining process. The Commission’s recommendations aim to make 

the process quicker and more efficient through the use of strict 

timeliness, mandatory mediation, and the last best final offer 

model of interest arbitration. I must say as a baseball fan it is an 

approach that I am used to, at least with respect to negotiating 

contracts in baseball and one that frankly I find some favor with. 

Having said that, these suggestions appear to ignore the fact 

that the current process, while admittedly not perfect, should take 

no longer than 135 days if followed to the absolute letter. These 

suggestions also appear to ignore the fact that the current process 

gives the unions and management significant flexibility that has 

allowed both sides to be creative and work to avoid arbitration. It 

is not clear to me just yet how the Commission-recommended process would work any better. As you know, some skeptics have raised 

concerns that this new process could actually force more disputes 

into arbitration where one side is likely to lose big in the risky last 

best final offer stage. Again as I said, while I am one who favors 

the last best final offer approach, I think we have to proceed cautiously here. 

Then there are recommendations dealing with employee pay and 

benefits. The Commission appears to have come to the conclusion 

that postal employees are overpaid, at least when benefits are 

taken into account. To remedy this they call on a new postal regulatory body to develop an updated definition of comparability and 

to use it to set a cap on total compensation for postal employees. 

They also recommend allowing postal benefits to be negotiated during collective bargaining. Like with the Commission’s recommendations on collective bargaining, I am not yet convinced of the need 

for these changes either. 

As I have mentioned in the past, I do not believe that postal employees are overpaid, and to the extent that there is a pay premium, arbitration panels in postal labor disputes have the authority, I believe, to look at the extent of the premium and to moderate 

employee pay accordingly. Before we make any changes to the Federal Employee Health Benefits Plan that could have a dramatic impact on other Federal employees we should recognize that the Postal Service already has the ability to use the collective bargaining 

process to press its employees to pay a greater share of their 

health-care costs. 

7

I am pleased then that the postal reform principles announced 

by President Bush last month ignore the Commission’s workforce 

recommendations. The wages and benefits paid out to the Postal 

Service’s bargaining unit employees do account for more than 50 

percent of the Postal Service’s total costs. The Postal Service performs labor intensive work, however, and this will not change even 

if we were to adopt the Commission’s recommendations wholesale. 

The President recognizes this and has called on us to focus on 

those fundamental reforms that are necessary to update the Postal 

Service for the 21st Century. 

The challenges the Postal Service faces today were laid out in 

stark detail just last week when Postmaster General Potter and 

the Postal Board of Governors Chairman David Fineman testified 

before the House Government Reform Committee’s special panel on 

postal reform. I presume that happened here in this room. Chairman Fineman pointed out, I believe, that the total volume of mail 

delivered by the Postal Service has actually declined by more than 

5 billion pieces since 2000. Over the same period the number of 

homes and businesses that the Postal Service must deliver to has 

increased by some 5 million. First-class mail, the largest contributor to the Postal Service’s bottom line, is leading the decline in 

volume. Some of those disappearing First-Class letters are being 

replaced by advertising mail, which I am sure finds its way to all 

of our mailboxes, and which earns significantly less. Many FirstClass letters are being lost for good, the First-Class Mail business, 

to E-mails and to electronic bill paying. 

Let me just say, we should certainly be talking about whether 

any changes need to be made to the Postal Service’s workforce. I 

actually look forward to learning more about the Commission’s recommendations and how they would work. As the President points 

out, however, we do need to focus our reform efforts on initiatives 

that will improve transparency, will improve accountability at the 

Postal Service and give management the increased flexibility that 

they need to streamline operations and to seek out new mail volumes. 

In closing, I would like to urge the Postal Service and its unions 

to sit down with each other and find out if there are any changes 

that should be made to the collective bargaining process or to the 

laws governing pay and benefits for postal employees. I am not convinced today that the Commission’s recommendations are the right 

approach but I am certain that there are changes out there that 

would make a decent system even better. The best reforms in this 

area will be the ones that management and labor can agree to 

jointly. 

Thanks again, Madam Chairman, for letting me give what I 

know is a fairly long statement. I really do appreciate the opportunity to work with you, Senator Akaka, Senator Sununu, Senator 

Stevens, and our other colleagues on these issues. This is important legislation and this is a great opportunity for us and we look 

forward to making it happen. 

Chairman COLLINS. Thank you. Senator Coleman. 

8

OPENING STATEMENT OF SENATOR COLEMAN 

Senator COLEMAN. Thank you, Madam Chairman. I want to 

thank you for your trademark bipartisan leadership in taking on 

very tough issues, and this is a tough issue. I respect the concerns 

raised by my colleague from Delaware. The reality though is that 

I think we take for granted universal service, we take for granted 

affordability. I think in these tough economic times there are not 

going to be taxpayer bailouts of institutions that do not meet the 

challenge of improvements in productivity. So we have got some 

challenges. 

I will also look at the recommendations in a reflective way. I do 

not come to this with a prejudgment but I do come to this with a 

sense that we have to do what you, Madam Chairman, articulated 

in your opening statement, preserve universal service, preserve affordability. The Post Office, it is a personal thing for so many of 

us, the service that we get. 

It is also a key in my State. We have a tremendous printing industry. When I was mayor of St. Paul that was one of the strongest 

industries in the city. Their lifeblood depends on the efficiency and 

affordability of the service. So let us go about the task of doing 

what must be done to preserve universal service, preserve affordability, and approach it with an open mind to the type of changes 

that will be required for us to get there. 

Thank you, Madam Chairman. 

Chairman COLLINS. Thank you very much. 

I would now like to welcome our first panel of witnesses, and I 

would like to turn to Senator Sununu for purposes of introducing 

our first witness. 

Senator SUNUNU. Thank you, Madam Chairman. I am very 

pleased to be here as a Member of this Committee to participate 

in this hearing, until I am asked to preside over the Senate, which 

will come at 3 o’clock. I am especially proud to introduce Wally 

Olihovik, the President of the National Association of Postmasters 

and one of New Hampshire’s finest experts, I suppose, to the rest 

of the country. 

Mr. Olihovik has served the National Association of Postmasters 

and the Postal Service with tremendous distinction. He is a great 

voice and provides a great perspective on the value of the Postal 

Service, the importance of some of the things that were spoken 

about in our opening statements, universal service and being a 

competitive force, or a competitive engine for so many businesses 

that rely on the Postal Service. But also a great perspective on 

what can be done to improve the organization and the employment 

structure of the Postal Service, the security issues that we have all 

been so conscious of since September 11, and of course, the reputation for service that is just outstanding. If you ask customers 

across the country about their perspective of the service that the 

USPS provides, it is very high indeed, and especially due in no 

small part to the work of Mr. Olihovik in New Hampshire. 

New Hampshire’s Postal Service has received some of the highest 

quality ratings of any postal organization in the country because of 

the attributes that Wally and his counterparts have brought to it. 

He has been a great resource as a legislator. I am an engineer. 

What do I know about public employment or the Postal Service or 

9

1The prepared statement of Mr. Olihovik appears in the Appendix on page 84. 

civil service rules or collective bargaining or these issues that I did 

not have to deal with necessarily in the private sector. So to have 

the postmasters and other postal workers in New Hampshire to be 

able to draw on as a resource have been invaluable to me. 

While his professional service has been outstanding, as the 

Chairman pointed out to me, Wally is a three-time recipient of the 

Benjamin Award, which is given to those Postal Service employees 

that make an extraordinary effort in the area of community service. Just underscoring the degree to which Wally understands that 

lifetime commitment that he has made to the Postal Service and 

the postmasters extends to much more than just that 8 o’clock to 

6 o’clock timeframe where you might be on the job. 

I have been proud to work with the postmasters nationally and 

in New Hampshire on a number of issues. They have been outstanding to work with and, again, that is due in no small part to 

the perspective and leadership that Wally Olihovik has brought to 

the organization. It is a pleasure to welcome all of our panelists 

and to introduce Wally today. 

Chairman COLLINS. Thank you, Senator. After we hear from Mr. 

Olihovik we will hear from Steve LeNoir, who is the National 

President of the National League of Postmasters. He also serves on 

the Postmaster General’s leadership team, workplace advisory committee and mail security task force. Prior to becoming the national 

president of the league he served two terms as the South Carolina 

State president for the league. 

Our final witness on this panel will be Ted Keating who is the 

Executive Vice President of the National Association of Postal Supervisors. He has been with the Postal Service for more than 40 

years and has held numerous managerial positions during that 

time. Prior to becoming the executive vice president he served as 

the association’s New England area vice president. So we have New 

England well-represented on our panel today. 

Mr. Olihovik, we will start with you. 

TESTIMONY OF WALTER M. OLIHOVIK,1 NATIONAL PRESIDENT, NATIONAL ASSOCIATION OF POSTMASTERS OF THE 

UNITED STATES 

Mr. OLIHOVIK. Thank you, Madam Chairman and Members of 

the Committee. On behalf of the 42,000 NAPUS members, thank 

you for inviting me to share my views with the Committee. 

For well over 100 years NAPUS has advanced the quality of postal service to our customers, whether they reside and work in our 

largest cities or our smallest towns. NAPUS looks upon the Members of this Committee as loyal allies in the effort to ensure the 

success of the Postal Service. The long-term financial outlook for 

the Postal Service has not changed for the better. Growing electronic diversion, keen competition and lingering economic uncertainty continue to chip away at postal revenue. 

Last year NAPUS applauded the Chairman’s legislation that 

called for a Presidential Commission on the future of the Postal 

Service. Moreover, NAPUS was encouraged by many, though not 

every one of its recommendations. NAPUS was honored to particiVerDate 0ct 09 2002 10:17 May 18, 2004 Jkt 092687 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 C:\DOCS\92687.TXT SAFFAIRS PsN: PHOGAN
10

pate actively in the Commission process. Madam Chairman, there 

are those in the Postal community who believe incorrectly that 

postal reform is unnecessary. NAPUS disagrees with that view. 

As you know, this Committee assisted the Postal Service, if only 

temporarily, by passing Public Law 108–18. The Civil Service Retirement System recalculation legislation provided a short reprieve. 

As part of your efforts to reform the Postal Service, Congress needs 

to revisit the pension issue in order to reverse the decision to shift 

the military retirement liability onto the Postal Service. 

In addition, remedial legislation is warranted to permit the Postal Service to use the escrow that will accrue as the result of the 

CSRS calculation. The military retirement modification shifted a 

$27 billion obligation from the Federal Government to the Postal 

Service. The President’s Postal Commission recommended that this 

obligation return to the government. The Postal Service could use 

these much-needed funds to pre-fund retiree health obligations. 

Eliminating the escrow account would reduce the need for a postage rate increase in 2006. 

NAPUS also believes that such funds could be invested in postal 

infrastructure that has been ignored for some time. 

Over the last 2 years, the Postal Service has successfully reduced 

costs to balance shrinking revenue. However, the Postal Service 

cannot continue to chip away at costs without influencing the quality of mail services that Americans expect and demand. Rather, we 

need the tools and flexibility that are essential to grow revenue. A 

more comprehensive approach is necessary which addresses the 

operational, regulatory, and financial needs of the Postal Service. 

This Committee is familiar with the alarm sounded by many in 

the Postal community as well as the General Accounting Office 

about the fiscal condition of the Postal Service. Just 2 months ago 

President Bush urged Congress to enact postal reform legislation. 

The basic and uncontested mission of the U.S. Postal Service is 

that every mailer and mail recipient in this country has access to 

an affordable and universal postal network. President Bush 

prefaced his announced principles for postal reform by stating that 

comprehensive postal reform must ensure that the U.S. Postal 

Service can continue to provide affordable and reliable universal 

service. For NAPUS, universality and reliability are paramount as 

this Committee pursues its much-needed reform of the Postal Service. 

It is immaterial whether the postal customer resides or works in 

a rural, urban or suburban setting. All communities are entitled to 

high-quality mail services. Congress emphasized its strong interest 

in protecting universal postal access through the Postal Reorganization Act of 1970 stating, no small post office shall be closed 

solely for operating at a deficit. Last July the President’s Commission on the Postal Service made a number of recommendations relevant to postal infrastructure. 

One of the noteworthy Commission conclusions was that any post 

office necessary for the furtherance of universal service should not 

be closed solely because it is unprofitable. Closing small post offices 

would be a dreadful and misguided strategy. Such actions would 

have a devastating effect on many communities yet have little impact on postal finances. As Robert Cohen of the Postal Rate ComVerDate 0ct 09 2002 10:17 May 18, 2004 Jkt 092687 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 C:\DOCS\92687.TXT SAFFAIRS PsN: PHOGAN
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mission testified before the Presidential Commission, closing the 

10,000 smallest post offices would only net a savings of about $567 

million, considerably less than 1 percent of the Postal Service’s operating budget. The postal network is not merely the sum of its 

parts. It is an integrated system which relies even on its smallest 

components. 

Americans expect access to a full-service post office. The Postal 

Service’s own transformation plan recognized this reality. Despite 

the fact that 70 percent of postal customers were aware that postal 

products may have been available elsewhere, 80 percent of stamp 

sales continue to take place at the post office. NAPUS has worked 

with communities in safeguarding their legal rights to protect their 

post office. As part of this effort NAPUS publishes and circulates 

the red book, a NAPUS action guide for preventing the closing and 

consolidation of your post office. In addition, NAPUS has worked 

closely with the Congressional rural caucus to safeguard a community’s due process rights. 

Madam Chairman, I request permission that the Committee include the NAPUS action guide in the official hearing record. 

Chairman COLLINS. Without objection. 

Mr. OLIHOVIK. Post offices provide exceptional value to mail 

products, including essential mail security through secure post office boxes at convenient locations staffed by quality, trustworthy, 

knowledgeable, reliable and accountable postal personnel. Postmasters fully recognize and embrace the principle that a postmaster must be accountable. However, daily teleconferencing with 

middle postal management is not accountability. Unfortunately, all 

too often this is used as a form of micromanagement. Postmasters 

cannot be accountable to everyone at every level of the postal bureaucracy. Therefore, NAPUS was pleased that the President’s 

Commission embraced our recommendation that the Postal Service 

must focus on removing layers of managerial bureaucracy with an 

eye toward simplicity and downward delegation. We hope that postal headquarters will apply this suggestion. 

Indeed, the ability to reach postal excellence relies on the availability of appropriate and fair incentives. The Postal Service recently implemented a new pay-for-performance system to replace 

the controversial EVA program. The key ingredients to its success 

are upfront, well-planned incentives and performance goals and 

good communications. Three components comprise the performance 

aspect of the new pay system. The combination of reaching corporate and unit goals make up 80 percent of the performance incentive, meeting the core requirements of the job covers the remaining 20 percent of the incentive. The link between performance 

incentives and achieving corporate goals reflects a strategy employed by the private sector. 

Although I am cautiously optimistic about the success for the 

new pay system, I strongly feel that the Postal Service must do a 

better job defining the core requirements. Many postmasters 

throughout the country have communicated to me their concerns 

about the implementation of the pay system. Make no doubt about 

it, NAPUS fully supports a fair pay-for-performance system. However, what looks good on paper may be challenging in practice. 

There is no substitute for communication and collaboration. The 

12

1The prepared statement of Mr. LeNoir appears in the Appendix on page 111. 

agency’s difficulty in communicating the system to its own managers, however, concerns me. 

It is important to note that it is difficult to manage a postal facility when performance incentives are inconsistent. The managerial 

force is compensated using a system that rewards performance. 

The current salary structure for craft employees does not reward 

excellent performance. Unless we are somehow able through collective bargaining to create a pay plan that rewards individual or unit 

achievement, we will miss a crucial opportunity to optimize efficiencies and encourage exemplary performance. In sum, the 

present pay system compromises the workplace by rewarding one 

set of employees yet influencing another. This practice adversely 

affects morale and performance. 

We must do a better job with our unions to train employees to 

perform different tasks within the post office. We should work with 

the crafts to lower or eliminate barriers that preclude postmasters 

from assigning personnel different duties within a post office. Postal employees should have the flexibility and training to cross over 

and perform a variety of tasks. I would also suggest that crosstraining improves job security for those employees whose skills 

could become obsolete. 

Finally, NAPUS remains extremely concerned about the Presidential Commission’s suggestion to sunset FEHBP and FERS coverage of postal employees. The proposal would subject health and 

retiree benefits to collective bargaining. My two primary concerns 

with the proposal is that it does not address the impact upon current and future postal retirees, and it ignores the effect that separating out postal employees would have on the entire Federal benefits program. 

Madam Chairman, this concludes my remarks. I look forward to 

working with you and the other Members of the Committee as we 

strive to ensure the Postal Service will thrive for many years to 

come. 

Chairman COLLINS. Thank you. Mr. LeNoir. 

TESTIMONY OF STEVE LeNOIR,1 PRESIDENT, NATIONAL 

LEAGUE OF POSTMASTERS 

Mr. LENOIR. Madam Chairman, Members of the Committee, 

thank you for inviting me to appear before you today. My name is 

Steve LeNoir and I am President of the National League of Postmasters. I welcome this opportunity to discuss with you the important issue of postal reform. With your permission, I would like to 

enter my written testimony into the record and then proceed to 

give a short summary. 

Chairman COLLINS. Without objection, all statements will be submitted in full for the record. 

Mr. LENOIR. Starting in 1887 to represent rural postmasters and 

formally organized in 1904, the National League of Postmasters is 

a management association representing the interest of all postmasters. Although we represent postmasters from all across the 

country, from the very smallest to the very largest, rural postVerDate 0ct 09 2002 10:17 May 18, 2004 Jkt 092687 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 C:\DOCS\92687.TXT SAFFAIRS PsN: PHOGAN
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masters are a sizable portion of our membership. The league 

speaks for thousands of retired postmasters as well. 

Madam Chairman, we would like to thank you and your colleagues on the Governmental Affairs Committee for your dedication 

to the issue of postal reform. Postal reform is critical to the longterm ability of the Postal Service to provide for affordable, universal mail service to every individual, home, and business in 

America. 

There is no doubt that the Postal Service needs fundamental 

change. We know that our jobs and those of the people we manage 

are ultimately at stake. While we know that the Postal Service’s 

transformation plan takes us in the right direction, we also know 

that legislative reform is necessary to finish the process. We commit ourselves to work with you to make this a reality. 

Madam Chairman, the most critical issue facing the Postal Service now is the Civil Service Retirement System issue. Last year’s 

legislation corrected an overpayment to CSRS that saved the Postal 

Service billions of dollars but put those savings—from 2006 on—

into an escrow account. The Postal Service has suggested using the 

savings to pre-fund its retiree benefits, thus funding one of the biggest unfunded liabilities the Postal Service will face in the future. 

We think that is an excellent idea. 

Also last year, CSRS legislation forced the Postal Service to as- sume the responsibility for $27 billion of military retirement benefits that were earned by postal employees before joining the Postal 

Service. That responsibility is not one the Postal Service should 

bear and it deserves to be transferred back to the general Treasury. We strongly urge Congress and the Committee to make both 

of these issues a top priority. 

This past year postal headquarters, the National League of Postmasters, NAPUS and NAPS worked for 11 months to develop a 

new pay-for-performance system. In the past, compensation systems for postal managers were an all or nothing system. You either 

met the goal or you missed it. Now we have created a new compensation system for postmasters and other managers that we believe will be a good driver of productivity. It recognizes individuals 

not only for their contribution to the corporate goals but also for 

their individual performance. It drives the right behavior by constantly encouraging individuals to strive for stretch and breakthrough productivity. Even small measures of improvements will 

be rewarded. 

The new pay-for-performance system takes three factors into account: How we perform nationally as a Postal Service, how our post 

offices performed, and how we performed as an individual. Everyone is aligned with their performance goal. It is a concept of recognizing both team and individual performance that we have never 

had before. I believe we have developed a fair system and the Postal Service has committed to review the process after the first year 

to see if any adjustments are needed. 

The compensation system for rural carriers is also a good driver 

of productivity in that it provides for an evaluation system that is 

paid by the workload. It includes a combination of mail volume, the 

number of deliveries, mileage, and stops. This process provides a 

win-win situation for both the rural carriers and the Postal Service. 

14

While the league is pleased so far with the new pay-for-performance system we do believe there are too many layers of management between postmasters and postal headquarters and some of 

that should be removed. We strongly feel that postmasters should 

have the authority to manage their post offices without being 

micromanaged. 

Another problem that we see is that promotions in craft positions 

are determined by seniority. In many cases the most senior person 

is not the best qualified for the job. It is not that he or she may 

be a bad employee, but just not the right person for a particular 

spot. 

Moreover, we need much more flexibility in how we are able to 

use our craft employees. Current rules prohibit craft employees 

from doing work in other crafts. We could greatly improve efficiency if we had more flexibility. 

We also need to address the issue of sick leave for FERS employees. Currently they get no credit for unused leave at retirement. 

We need to change this rule so they could sell back sick leave or 

get credit at retirement. 

One area in which we have made considerable progress is that 

we have reduced the number of grievances filed by employees. We 

need to continue to make progress in this area and work with the 

unions to revise outdated work rules. 

An issue that does cause us concern is the possibility of closing 

rural post offices. I appreciate your comments earlier and strongly 

agree with your sentiments. The National League of Postmasters 

is concerned that access to a post office in a rural community could 

dramatically change if postal reform is not implemented properly. 

We are particularly concerned that overzealous individuals could 

develop a mistaken belief that closing small post offices would net 

meaningful savings for the Postal Service. As my counterpart 

pointed out, the facts do not support that. The record shows that 

the cost of the 10,000 smallest post offices is less than 1 percent 

of the Postal Service’s total budget. 

We believe there is great value in our network of over 26,000 

post offices and we have not yet fully maximized that value. We 

are suggesting that in rural areas where the private sector does not 

provide adequate services, the Postal Service could fill that gap. 

For instance, in my community of Horatio, South Carolina, I added 

a fax and copy machine to my post office because the closest business that offered that service was over 20 miles away. That served 

our citizens well, had no effect on the private sector, and has paid 

for itself many times over. 

Also, the Postal Service could partner with State and Federal 

Governments. For instance, we could offer voter registration in our 

offices, making it easier for our citizens to participate in the democratic process. We could also assist in gathering census data in 

rural areas and play a role in homeland security. The league believes that providing universal service means not only providing 

universal mail delivery to all citizens but also providing equal access to postal services including a post office. 

The Postal Service has an obligation to provide quality postal 

service and access to post offices on a universal bases regardless 

of whether a post office is considered profitable. We urge this ComVerDate 0ct 09 2002 10:17 May 18, 2004 Jkt 092687 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 C:\DOCS\92687.TXT SAFFAIRS PsN: PHOGAN
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1The prepared statement of Mr. Keating appears in the Appendix on page 128. 

mittee to see that a definition of universal service in any reform 

bill makes it clear that post offices are necessary to fulfill the universal service mandate, particularly in rural areas where post offices play such a critical role. 

Madam Chairman, rural post offices are key to a healthy rural 

economy and are necessary to provide universal service in America. 

As supported by our written testimony, the local post office is an 

American institution that literally binds rural America together politically, socially, and economically. It is the lifeblood of rural communities and it should not be harmed. 

No less important are smaller post offices in inner-city areas. 

They provide a vital link to the Postal Service and the country and 

they should also not be harmed. While we understand there may 

be legitimate reasons to close a post office, we do not believe that 

existing rules pertaining to the closing of a post office should be 

changed. These rules are fair to customers, local communities, and 

the Postal Service. Let us work to make post offices not only a lifeline to customers but also a positive link to government at all levels. 

We think there is great value in our network of post offices. The 

American flag is raised at post offices every day all across this 

country. The tradition of postmaster, starting with Ben Franklin in 

colonial times is connected to the many freedoms enjoyed through 

the Constitution of the United States and the Bill of Rights. It supports and enables many of the rights given to us. Universal service 

is important to all Americans in the equal opportunity it provides. 

I would be happy to answer any questions the Committee may 

have. 

Chairman COLLINS. Thank you. Mr. Keating. 

TESTIMONY OF TED KEATING,1 EXECUTIVE VICE PRESIDENT, 

NATIONAL ASSOCIATION OF POSTAL SUPERVISORS 

Mr. KEATING. Thank you, Chairman Collins, for the opportunity 

to appear on behalf of the 36,000 postal supervisors, managers and 

postmasters who belong to the National Association of Postal Supervisors. I, too, will abbreviate some of my testimony since you 

have the complete written record, and I will go right to our testimony. 

We agree with the Postal Commission that the current network 

of post offices and plants requires streamlining, leading to the 

closure of unneeded facilities to ensure that universal service is delivered in the most effective and cost-efficient manner possible. Indeed, many of the Nation’s post offices are probably no longer necessary to fulfill the universal service obligation. Streamlining or 

rationalizing of the postal network should be carried out on a comprehensive basis under the authority and control of the Postal 

Service in consultation with Congress and its stakeholders. The ultimate aim should be to arrive at cost savings while preserving affordable, universal service. 

We see no need for the establishment of a postal network optimization committee as recommended by the President’s Commission 

applying a base closing approach towards unneeded postal faciliVerDate 0ct 09 2002 10:17 May 18, 2004 Jkt 092687 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 C:\DOCS\92687.TXT SAFFAIRS PsN: PHOGAN
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ties. A base closing approach with P–Noc preparation of recommendations to Congress to consolidate and rationalize the service’s processing and distribution infrastructure will only delay and 

diffuse the decisionmaking that should remain in the hands of the 

Postal Service. The Postal Service is the best equipped entity to arrive at the optimal number of locations and functions for mail processing and distribution functions just as the Postal Service is similarly equipped to arrive at the number of locations and functions 

for post offices. 

Under current law, the Postal Service is not allowed to close post 

offices for economic reasons alone. The Commission recommended 

that such statutory restrictions be repealed and that the service be 

allowed to close post offices that are no longer necessary for the fulfillment of universal service. We agree and urge the Congress to 

grant to the Postal Service the flexibility and necessary accountability in a fair and rational way to fulfill its universal service obligation in a cost-efficient and effective manner. 

Adversarial labor-management relations have been a persistent 

cause of problems in operational efficiency as well as the culture 

and work-life of the Postal Service. The General Accounting Office 

and others have repeatedly documented the degree to which poor 

communication, persistent confrontation and conflict, excessive 

number of grievances, and difficult labor contract negotiations have 

persisted within the Postal Service. From my perspective as executive vice president of one of the foremost management organizations within the service, progress is being achieved in fostering better communications at the national level between the Postal Service and the leadership of the craft unions and management associations. 

However, progress at lower levels and other areas continues to 

remain uneven, especially in the resolution of grievances. The Postal Commission noted that encouraging progress is being made by 

the Postal Service and one of its unions in resolving grievances 

through the use of a streamlined process involving a dispute resolution team comprised of representatives of management and craft. 

We believe the dispute resolution team approach is best directed to 

the resolution of contract related disputes in the field where they 

began while workplace or environment disputes are best resolved 

by mediation. 

We also are concerned by the growing reliance by dispute resolution teams of non-binding arbitration decisions as precedent. We 

encourage the Committee to continue its oversight on this particular endeavor. 

Over the past decade the Postal Service has led the Federal Government in efforts to build incentive-based, performance-driven 

compensation systems. It has followed the lead of cutting edge organizations in the private sector in using performance management 

systems to accelerate change and improve individual and organizational performance. Incentive-based systems within he Postal Service currently apply only to the performance of executive managers, 

postmasters, supervisors and other non-bargaining management 

employees covered under the EAS salary schedule. 

More recently the National Association of Postal Supervisors and 

the postmaster organizations have collaborated with the Postal 

17

Service in establishing a new pay-for-performance system, reshaping the EVA system first established in 1995 that better rewards 

teamwork, efficiency and service quality in a fair manner. Measurable and realistic goals are now being established at the unit, district, and area levels as part of the new system. Progress in this 

area is being made. 

We agree with the Commission that it is time to expand meritbased pay to the entirety of the postal workforce, including bargaining unit employees. The establishment of an incentive-based 

culture of excellence in any organization relies upon performance 

management systems that reach across the entire organization and 

cover all employees, not only those in the management ranks. The 

Commission urged the Postal Service to undertake a study of performance-based compensation programs for both management and 

union employees and work with the unions and management organizations to design and implement a performance-based compensation system. We are counting on the Postmaster General and the 

craft unions to negotiate some form of pay-for-performance at the 

bargaining table. 

We also urge Congress to repeal the current statutory salary cap 

as it applies to the Postal Service and authorize the Postal Service 

to establish rates of pay for top Postal Service officers and employees that are competitive with the private sector. Pay compression 

of salaries at the top, leaving little financial incentive for top midlevel employees to take on new levels of responsibilities, are hindering the Postal Service from recruiting the best and brightest to 

top leadership positions. The cap should be lifted and the Postal 

Service should have the discretion to set compensation to attract 

and retain qualified individuals in the upper management ranks. 

Many Federal entities that require a capable, experienced CEO and 

other top officers already have pay-setting authority. They include 

the Tennessee Valley Authority, the Federal Reserve Board, the 

Public Company Accounting Board, and the Federal Home Loan 

Bank Board. 

Additionally, we encourage the Committee to take a critical view 

toward the necessity of establishing a new regulatory body such as 

a postal regulatory board to assume authority over total compensation, scope of the monopoly, and definition of universal service as 

well as other important policy and regulatory powers exercised by 

Congress, the Postal Rate Commission and the Postal Service 

itself. Similarly, we question the wisdom of subjecting the Postal 

Service pension and post-retirement benefits to collective bargaining. This could significantly impact the vitality of the entire 

Federal pension and retiree health benefit programs and we caution the Congress to move very carefully in full consultation with 

the postal stakeholder community before proceeding in these areas. 

We support the Postal Service’s proposal to eliminate the escrow 

requirement so the service will not have to include the $3 billion 

as mandated incremental operating expense in fiscal year 2006. 

The service cannot use the escrow funds unless Congress eliminates the escrow requirement or specifies by law how these funds 

may be used. If no action is taken, the unavoidable necessity to 

raise rates higher than necessary will come about. This can and 

should be avoided. 

18

We believe that improved and continued communication by the 

Postal Service with Congress over how it will address its long term 

challenges and fund its retiree obligation should provide Congress 

the information it needs and assurances to eliminate the escrow requirement. 

We also support relieving the Postal Service of the burden of 

funding retirement benefits attributable to military service and returning that responsibility to the Department of the Treasury. We 

support the use of these savings to pre-fund retiree health benefits, 

obligations for current and former employees estimated at approximately $50 billion dollars. Under this proposal the funds would 

stay in the Civil Service Retirement System and therefore would 

not impact the Federal deficit. 

Finally, we have recently been apprised of a difference in methodology used by the Office of Personal Management and the Postal 

Service in determining the Postal Service’s CSRS obligation. We 

were quite surprised to learn that according to the Postal Service’s 

calculations its obligation is $86 billion less. 

Chairman Collins, thank you for the opportunity to present these 

views. We look forward to working with you to secure postal reform 

and I am available to answer any questions that you have. Thank 

you very much. 

Chairman COLLINS. Thank you very much. I want to thank you 

all for sharing your experience with us. We are now going to begin 

a round of questions of 7 minutes for each of us. 

All of you have considerable experience in the Postal Service. 

Each of us is committed to universal service, to making sure that 

we strengthen and preserve the Postal Service. You have all 

stressed the need for us to act on the military pension issue and 

the escrow account issue. I cannot help but point out, even though 

I am on the House side, that the original Collins-Carper bill did not 

have an escrow account in it and it is something, on those two 

points, where I am very sympathetic to the opinions that you have 

expressed. 

But putting aside those two issues which are clearly among your 

top priorities, if you were going to advise the Committee on what 

two reforms you think should be included in our legislation and are 

absolutely imperative for the future of the Postal Service, what 

would they be? I would ask you to give us the benefit of your many 

years of experience here as opposed to just representing your members in replying to us. We will start with Mr. Olihovik. 

Mr. OLIHOVIK. I think the thing that is absolutely critical to 

NAPUS is the universal service aspect. But the two reforms I think 

that the Postal Service needs is really the flexibility and price-setting because in today’s world, the archaic structure of the way we 

do things now, it just does not make sense. It does not allow this 

organization to react in any kind of a timely manner. It is approximately 12 to 14 months before the Postal Service realizes it has a 

problem, has to put in a new rate structure, and has the ability to 

get the new rate approved. So, we need some more flexibility. 

I think the flexibility aspect is as far as where we want to go. 

I am very supportive of the new pay-for-performance program. I absolutely live by my remarks. I think we need to extend that even 

further into the system. It is a well-thought out program. I did 

19

preface some of my remarks that I still have a little bit of concern. 

But I am still very cautiously optimistic that at the end of the day 

this is going to turn out to be right for the Postal Service. And I 

am proud that the Postal Service brought us in early on to listen 

to our points of view. 

But I think as we are looking down the road, any healthy organization needs all its parts pulling in the same direction. This program as we have developed it is geared for excellence, and I think 

that if we can somehow get the crafts to come to the table and be 

part of the process I think that will go a long way into turning this 

whole organization in the right direction. 

Chairman COLLINS. Thank you, Mr. Olihovik. Mr. LeNoir, same 

question for you. 

Mr. LENOIR. I would think, give us flexibility in our rate-making 

process. I understand that we have monopoly products like FirstClass Mail, but there are other products that I think we need more 

flexibility and not as much oversight where we have competition. 

Currently it takes us—our competitors can change rates overnight 

where we have to go through a very long process and lay everything out on the table. Then our competitors set their rates according to how that process works out. So I do believe we need more 

flexibility in the rate-making process for non-monopoly products. 

Also I think we need more flexibility in the way that we can use 

our employees. In the larger post offices, sometimes you cannot 

cross crafts, like a clerk could not do carrier work. We have a number of employees but we cannot necessarily use them like we 

should if we had more flexibility to use those employees. 

Chairman COLLINS. Thank you. Mr. Keating. 

Mr. KEATING. I agree with my two colleagues. I think pricing and 

flexibility is the key most important issue being addressed and that 

the Postal Service needs to continue. The other issue I think would 

be to convince Congress to allow the Postal Service to make those 

decisions necessary. I believe they are the best qualified people to 

move ahead with a transformation plan and allow them to make 

the decisions necessary and not have to answer to any further regulatory boards than they already have. Thank you. 

Chairman COLLINS. As I was preparing for this hearing I reviewed the worker’s compensation program of the Postal Service. I 

was surprised to learn that in the Postal Service, if you are on 

worker’s compensation you can choose to stay on worker’s compensation even after the normal retirement age. There is in fact a 

102-year-old postal employee who is still receiving worker’s compensation benefits. I also found that there were hundreds of cases 

where individuals have been receiving worker’s compensation for 

longer than 30 years, and that there were over 1,000 cases where 

the individual had qualified for worker’s comp benefits between 20 

and 29 years ago. 

It seems to me that this is an area that we need to take a close 

look at given the enormous unfunded liability for worker’s comp in 

the Postal Service. Could you share any views with the Committee 

based on your experience on whether you think this is an area that 

reforms need to be undertaken? Mr. Olihovik. 

Mr. OLIHOVIK. Senator Collins, I would not by any means classify 

myself as a compensation expert. It is a very confusing process. I 

20

know as a postmaster some of the greatest frustration that I have 

experienced was going through the worker’s compensation merrygo-round. I think outside of the job of postmaster, one of the most 

challenging jobs you can have in the Postal Service is in injury 

compensation. Worker’s compensation is probably equally challenging. 

It is clear to me talking to some of the experts back in the district, whether it be in Massachusetts or New Hampshire, that 

there is clearly a level of frustration out there with the system. It 

needs to really be drastically looked at and in some cases probably 

overhauled. We cannot make it comfortable where people are sitting home. We have got to do the right thing for people that are 

injured. There is no doubt about that. But we cannot create a situation where our hands are tied. 

That is about the only thing I can share. I know that from a district level there is a tremendous amount of frustration with the 

system as it presently exists. 

Chairman COLLINS. Your point is a very good one. We do need 

to make sure we have a system that is fair and compassionate to 

injured employees. I was, however, alarmed at some of those statistics, particularly when you look at the unfunded liability. 

Mr. LeNoir. 

Mr. LENOIR. Madam Chairman, you point out a very legitimate 

issue and I think we need to work to get it corrected. That would 

be the short answer. 

Chairman COLLINS. Thank you. Mr. Keating. 

Mr. KEATING. Chairman Collins, I read that same report that 

you referred to and I was amazed at what the report entailed. I 

worked in finance for most of my career before coming to Washington and I can tell you that it has been a system out of control 

for a long time and it needs an overhaul and complete look at. 

Chairman COLLINS. Thank you. Senator Akaka. 

Senator AKAKA. Thank you very much, Madam Chairman. I wish 

to thank all of you for your excellent testimonies. As the elected 

leaders of the Postal Service’s management associations you know 

firsthand that modernization of your agency is critical for its survival. Your counsel and your guidance is greatly appreciated. 

My first question is directed to Mr. Olihovik, who like Mr. 

LeNoir and Mr. Keating, collaborated with the Postal Service on its 

new pay performance system for non-bargaining employees. I believe Mr. Olihovik appropriately raised several valid concerns over 

the success of the new pay system, including the need for managers 

to be trained in implementing the system. I agree that without a 

credible, transparent, and accountable management plan in place 

putting a pay-for-performance system in place is risky. 

My question is, how would you strengthen the new pay-for-performance system for postal managers and what would need to be 

done to bring all employees, including union workers, under a payfor-performance system? I would like to have both Mr. LeNoir and 

Mr. Keating respond to this as well. 

Mr. Olihovik. 

Mr. OLIHOVIK. Senator Akaka, before I respond to that I would 

be remiss if I once again did not thank you for your support and 

leadership in promoting the Postmasters Equity Act. You have 

21

been a strong friend to postmasters for many years and I do thank 

you for that. 

Your question is a good one. I will go back to some of the things 

that I said in my prepared remarks. I think the most important 

thing that you can do in any new program that you have is good 

communication. I think the Postal Service is trying to do that. I am 

trying to be as patient as I can with this. I accept my responsibility 

as a management association head as far as helping the Postal 

Service build this program, and I am going to do everything I possibly can to make sure that it is successful. 

Like any program there are some difficulties, some stops and 

starts. Convincing people of a whole new way of doing things is 

hard. As I referred to the core goals, we are having some issues 

there. That is 20 percent of a postmaster’s performance compensation. It is not that the Postal Service, from the headquarters viewpoint, has not been trying. They had a major seminar just a couple 

of months ago. They invited the management associations to be a 

part of that seminar, and spoke to a large group of human resources people throughout the country. So everybody was in attendance. They were all hearing a very clear, consistent message. 

It is a whole new way of doing things, and as I said, it is the 

right way to do things. But I still think we need a little bit more 

clarification and communication on specific aspects of it. Having 

done that, I think that this program is going to work and I think 

it is going to be one of the best things that has happened to all people and management. 

Getting to the second part of your question, Senator, as far as 

extending it to the crafts, quite honestly it goes to one question and 

it is bedrock in everything that we do, in all our relations. It comes 

down to the word trust. They have to trust in the system. They 

have to believe in the system. So as managers we have to lead the 

way and show that it is a good system, it benefits and rewards excellence. I think if we allow them the input through the collective 

bargaining process I think that they will work to craft it—intelligent people usually do intelligent things. I think that they will 

buy into the process, and once they do that, having everyone as a 

total group striving for excellence together is the right way for any 

successful organizations to go. 

Senator AKAKA. Thank you. Mr. LeNoir, would you like to comment on the Postal Service’s pay-for-performance system? 

Mr. LENOIR. Yes, Senator Akaka. I also thank you for your help 

with the Postmasters Equity Act. All three of us at this table 

helped design that system and I think that, like I said, it is not 

perfect and we realized it would not be perfect the first year we 

rolled it out. But I certainly think it is a stride in the right direction. 

The Postal Service has committed in April to sit back down with 

us and revisit the system and look at where we may have some 

shortcomings. So we look forward to that opportunity. As my 

friends stated, the core goals are a concern to us and we have to 

make certain we get that process right. But I really think we have 

made a lot of progress in this new system, and like I said we look 

forward—we realized there would be problems rolling it out. We 

were late getting the goals out to the employees because it was the 

22

first year rolling it out. But I believe next year things will smooth 

out and it will continue to improve and lead us in the right direction. 

The second part of your question is about incentives for other 

workers. I believe we have different systems in place. As I said, the 

rural carrier system seems to work very well in that they have an 

evaluated system and it goes by the amount of mail they get, the 

number of stops they get. If they finish their route early, they are 

able to go home. So that gives them incentive to work as efficiently 

as possible and complete their route so that they can go home. 

But on the other hand, a city carrier, he is there for 8 hours and 

if he works very fast he is given additional work to do when he gets 

back to the office. And if he works very slow he is given overtime. 

So I just think the two systems, as you can see they are like night 

and day, and I think we need to work to try to get everybody on 

some type of incentive-type system. 

Senator AKAKA. Thank you. Mr. Keating. 

Mr. KEATING. Yes, Senator. Wally in his testimony expressed 

some reservations about this, and I think we all have reservations. 

The system is so brand new. We are still in the process of rolling 

out to the field. I think if you took a census of my membership they 

would probably say we are crazy for doing this, but the leadership 

decided that this was the way to go. As far as, the Postmaster General is on record numerous times, even last night at the league’s 

dinner, saying that this is a work in progress. We will continue to 

work out the problems as it goes. It is an experimental type year. 

I am convinced that we can make it work. 

And to the second part of your question, quite honestly, the only 

way that this is going to be ever sold to the unions is that it does 

work. It has to work in order to convince the unions to buy into 

the process. 

Senator AKAKA. Thank you very much for your responses. My 

time has expired. 

Chairman COLLINS. Thank you. Senator Carper. 

Senator CARPER. Thank you, Madam Chairman. As I said to you 

in our earlier conversation, I may have to slip out to get on a teleconference call. If I do, I ask your indulgence. 

I want to stick with this issue of pay-for-performance for a moment. In the past some pay-for-performance systems have been 

criticized for being wasteful, even ineffective. Do you agree with 

that? If so, how is the new approach better? 

Mr. OLIHOVIK. I am sorry, I did not hear the first part of what 

you said. 

Senator CARPER. I said in the past some of the pay-for-performance systems that were espoused by the Postal Service have been 

criticized for a variety of reasons, for being wasteful, for not being 

very effective. I do not know if you agree with that or not. If you 

do or do not, just tell me. And if you could, just let me know how 

this new system, this work in progress, is better. 

Mr. OLIHOVIK. Under the system that we had before, the EVA 

program, (economic value added) the main problem we had was 

that it was not well explained and to my understanding not too 

well understood by too many people. I think with the new program 

there is a clearer definition. 

23

I think especially with 80 percent of the performance pay being 

objective. It is very objective. Twenty percent with the core requirements are subjective. That is what we are trying to convince people 

of. With the objective part, you hit the number or you do not hit 

the number. But it is not a finish line mentality. You can come 

close to the number and be rewarded. And if you go significantly 

past the number you are rewarded to a greater extent. 

So I think people understand that concept. I certainly understand that concept and I certainly support it. I would not characterize the old system as being really wasteful but I would probably 

classify them more as not being well understood. 

Senator CARPER. Thank you. Mr. LeNoir. 

Mr. LENOIR. Senator Carper, under the old EVA system you 

were connected to your district’s goals. Say, for example, you are 

in a area, like Columbia, South Carolina, if they had a bad year 

and my little town of Horatio had a good year, I was in a geographic region and we were all hooked together. 

Now we have designed a system that measures how we perform 

nationally, how your post office did, and how you did as an individual. So we feel like it is a lot more—we are accountable for what 

we do now and it is a system that drives us to do better in our offices instead of being grouped with a large number of people. 

Senator CARPER. Thanks. What town was it, Horatio? 

Mr. LENOIR. Horatio, South Carolina. 

Senator CARPER. Where is that located? 

Mr. LENOIR. It is near Sumter. I tell everybody it is between Pixley and Hooterville. But it is a very small town. [Laughter.] 

Senator CARPER. That clears it up for me. Thank you. Mr. 

Keating. 

Mr. KEATING. Senator, what we had before was really not a payfor-performance system. It was a team bonus system where if the 

team did well and the team was a large group, everybody benefited. 

But I do not think that can compare to the pay-for-performance 

system that we are putting in now. This is individual versus a 

team effort. 

Senator CARPER. For us as Members of this Committee who are 

interested in postal reform, what do we need to be mindful of with 

respect to pay-for-performance system proposals and implementation? 

Mr. OLIHOVIK. I think you should really take a close observation 

of it during this first year. As Steve said, we have a commitment 

from the Postal Service that if anything needs to be tweaked, that 

we will go back and we will make the necessary adjustments. We 

are fully supportive. This is a team effort. This is a group effort to 

do our level best to make this work, and I commend the Postal 

Service for leading with that attitude, and I am convinced that 

with some minor modifications that I anticipate we will make it 

work. 

Mr. LENOIR. I think this new pay-for-performances, system, we 

were able to do it because we are managers and we are not bound 

by union contracts. That gave us the flexibility to develop this system. I think the challenge is going to be how we roll that down to 

the craft, to the lower levels. 

24

Senator CARPER. Thank you. Again my question is, what are the 

implications for us as Members of this Committee, the Committee 

of jurisdiction, as we approach postal reform? Do we have an interest in this? Is this something that we ought to be mindful of? That 

is my question. 

Mr. LENOIR. I do think and the Postmaster General said that we 

do support collective bargaining and I do not think that that is necessarily a fight that we need to take on. 

Senator CARPER. Mr. Keating. 

Mr. KEATING. Basically the same thing, I think there are some 

issues in communications that are not being addressed properly. It 

is going to take a lot of work on headquarters management organizations in the field. There has always been a problem between the 

Postal Service headquarters and the field in listening to and understanding communications sent out. We struggle with this all the 

time. We sit down at a bargaining table and agree to an issue and 

it gets misinterpreted, or misinterpreted by the time it gets down 

to the field level. I think it is ironic that we are in the communications business but we do not communicate with our employees and 

managers that well. We need to do better. 

Senator CARPER. Thanks. Let me change gears, if I could, and 

talk about the accessing of retail postal services in places other 

than post offices themselves. Any of you have an idea of what percentage of the volume of mail services that provided like in a retail 

type setting, what percentage actually take place in a post office 

itself versus some other location? I have heard 80 percent in a post 

office. Does that sound about right? 

Mr. OLIHOVIK. Right, that was in my prepared remarks with the 

stamp sales itself. I made the comment that even though 70 percent of Americans were well aware that retail services were available elsewhere outside of a traditional post office setting, that 80 

percent of Americans continue to vote every single day to purchase 

those stamp sales at a traditional post office. 

Mr. LENOIR. Senator, I think it is important to note that in large 

communities where lines are an issue it may be a good idea to have 

stamps available in Wal-Marts and other places such as that. But 

in our medium to smaller communities I think we would be making 

a big mistake to take the stamps and retail things out of their lobbies. Over 7 million people visit our lobbies each business day and 

we can use that as an opportunity to up-sell and sell additional 

products, and I think we would be making a mistake to try to drive 

them to grocery stores instead of the post offices where lines are 

not an issue in the smaller communities. 

Senator CARPER. What are some examples of retail operations 

where people can avail themselves and buy postal services outside 

of a post office where it actually is a good value for the customer? 

Can you give us some examples of where it works well? 

Mr. LENOIR. I am sorry, are you referring to something like 

stamp sales? 

Senator CARPER. Basically. 

Mr. LENOIR. Obviously like I said, in the larger markets it 

makes perfect business sense to make access more available, as the 

Commission suggested, and we totally agree with that. But in a 

small town where you might have three or four businesses and a 

25

post office we do not think it makes good business sense to all of 

a sudden have stamps available at the gas station which is a mile 

down the road from the post office. We just think that would be 

shortsighted. 

Mr. OLIHOVIK. Senator, in many of the larger cities we have 

what they call contract postal units and depending on which unit 

you look at they can work very effectively. I myself have one in 

Nashua, New Hampshire. 

Senator CARPER. I was just in Nashua last Saturday. I was just 

there in the town hall up on the third floor introducing Joe 

Lieberman to a packed house. Boy, it was hot. That was the only 

time all day I was hot. 

Mr. OLIHOVIK. I am sure you noticed what a friendly city it was. 

Senator CARPER. It was great. People were wonderful. 

Mr. OLIHOVIK. That is good to hear. In Nashua we have a contract postal unit. We pay a private contractor approximately 

$100,000 a year to run this facility. They in turn generate $1 million. That is pretty good value that the Postal Service is getting for 

its money. Many times when they work, you have got good people 

operating them. I do not have any problem with that. Sometimes 

you get other people operating them and they are not so good. But 

I can give you examples both ways. 

By and large my experience with contract postal units, as they 

exist in large city settings, usually work pretty well. The Postal 

Service, even in its transformation plan, determined that basically 

for every dollar that they spend they are taking in $10 in return 

so that is a pretty good margin. 

Senator CARPER. I would say it is. Madam Chairman, I have a 

couple more questions I would like to submit in writing for our 

panel. Thank you very much for being here today and I am going 

to go jump on this call and be right back. 

Chairman COLLINS. Thank you. The hearing record will remain 

open for 14 days for the submission of additional material. 

Senator Durbin. 

OPENING STATEMENT OF SENATOR DURBIN 

Senator DURBIN. Thanks, Madam Chairman, and thank you for 

your courage and determination that this hearing would go on. Neither rain nor snow nor sleet nor ricin will stop this Committee 

from its appointed tasks, and I am happy to be here with you. 

I have been to several of these hearings before and I am looking 

for recurring themes and I think I have found one. When we have 

postal labor witnesses they tell us the problem is management and 

the politicians. When we have postal management witnesses they 

tell us the problem is labor and the politicians. So I am beginning 

to find that there is one recurring theme here that perhaps we 

need to visit and that is what we need to do to try to resolve differences between labor and management and make the Postal 

Service more efficient and more modern in the 21st Century. This 

Commission is a good starting point but it is not the ultimate answer. It will undoubtedly be changed during the course of considering legislative options. 

Mr. Olihovik, you testified before the Commission last April 

about the red tape and micromanagement the postmasters have to 

26

deal with, and I would like to read part of your testimony. ‘‘Over 

the past three decades the Postal Service has mutated into a costly, 

multi-layered bureaucracy that has distanced postmasters from 

postal headquarters. Consequently, mid-level postal managers positioned at area and district positions often interfere with successful 

post office management and can undermine a postmaster’s authority. It can be as petty as requiring a local postmaster to file triplicate requisition forms to purchase a role of toilet paper.’’ Was that 

hyperbole? 

Mr. OLIHOVIK. No, it was not. That statement, and to the extent 

that it is happening today we still, I feel, have too many layers of 

bureaucracy. As I said in my prepared remarks, for the position of 

postmaster, we select people based on their background, their skill 

level, and the trust that we have in them to do the job. However 

in too many locations, not all locations, but in too many locations 

we do not give them the authority that they need to effectively do 

that job in the local community that they serve. They are micromanaged to some extent. They are answering to everybody and 

anybody at a district level. It is the type of situation when everything becomes a priority, then nothing becomes a priority. It makes 

it very difficult. I like to refer to it as the conflict of imperatives, 

who do I please first? 

In the exact scheme of things, really a postmaster should report 

to a postal operations manager who in turn reports to the district 

manager. But too many times, in too many settings, you have got 

people in multi-departments, delivery departments, address management departments all interfering in the daily operation of a 

postmaster. It makes it next to impossible to manage the operation 

at times. 

Senator DURBIN. It seems that you and postal labor agree on that 

point, that there is a lot of money and time wasted in bureaucracy. 

But you raise a point too that is closer to home to your personal 

interest, where you would suggest that the employees ought to give 

when it comes to their collective bargaining rights and benefits 

they currently receive. Most of you, though there have been some 

qualifications to this remark, are careful to guard the existence of 

post offices themselves, to try to find new ways to utilize buildings 

that currently provide postal services. Some of them are creative 

and interesting and I salute you for that. 

But is that not part of our challenge here? From the labor side, 

they do not want to give us benefits. From your point, you do not 

want to give up the building that needs a postmaster. Are we going 

to have to ask both sides to be more accommodating to reach our 

goal? 

Mr. OLIHOVIK. I think with the situation that we face in the 

Postal Service certainly everybody should be called upon to sacrifice. That goes across the board. As far as my relationship with 

the unions, I have a lot of respect for the unions. I have a good 

working relationship with the people. I think one of the benefits 

that we have now with Jack Potter is some of the people that he 

is dealing with on a national level, the presidents of the unions, I 

think have come around to a 21st Century viewpoint on just what 

is best for the organization. We all have to be smart and realize 

that if there is no Postal Service, there are no postmasters, there 

27

are no letter carriers, there are no mail handlers. So we have to 

do what is right for the Postal Service. 

As far as the question regarding small post offices, there are 

some that make the argument that there are too many out there, 

that we do not need every one that we have, that you cannot close 

small post offices. Senator, I would say that is not the case. There 

is nothing right now that prevents Postal Service headquarters 

from closing a small post office. If you look in the last 30 years 

itself——

Senator DURBIN. Except for elected officials. 

Mr. OLIHOVIK. We have a process in place. It is a recognized 

process. When the process has been followed to close a small post 

office, we have in fact closed 14,000 small post offices over the last 

30 years. 

Senator DURBIN. It is devastating, as most people know, to small 

towns to lose a post office. Sometimes they just disappear at that 

point. That is all that is left. I saw one up in Alaska, and frankly 

it was in the middle of Arctic Village, Alaska and it was one of the 

few things there that appeared to have any connection, direct connection with the outside world. 

Mr. LeNoir, you talked about things we could do with post offices, some of them very imaginative, creative things that we might 

accomplish there. But are we postponing the inevitable if we try to 

find new ways to use post offices that go way beyond their original 

purpose? 

Mr. LENOIR. Senator, absolutely not. I come from a rural town, 

I have been postmaster in the town for 23 years and they have less 

than 5,000 people in that town. That post office is so much more 

than just a building to them. A rural carrier going in front of somebody’s house does not give you the same service that a post office 

does. I have people in my community that did not have the educational opportunities and I help them fill out money orders, answer and read mail. Those people are not second-class citizens. I 

have a gentleman that comes up on a riding lawnmower every day. 

That is his mode of transportation. To those people, this is essential for them to have a post office there, not just a carrier going 

by their house. 

I feel very strongly that if we are going to have those offices out 

there, we need to figure out the best way that we can utilize that 

network. As I have stated in my written testimony, that network 

of post offices, 26,000 all across this country, no private industry 

can touch that. I do not think that we have fully utilized those post 

offices. In rural areas like mine where there is no competition with 

the private sector, I think there is a lot of things we could do that 

would not step on the toes of the private sector and would bring 

those offices closer to profitability. 

Senator DURBIN. Can I ask a question that is only somewhat related to an issue that has been before us but I am curious, do any 

of you have postal employees who have been activated in the Guard 

and Reserve for Iraq or Afghanistan or any other theater at this 

point? 

Mr. LENOIR. We are not at our offices now but we know of plenty 

of postmasters that have been. 

28

1The prepared statement of Mr. Wells appears in the Appendix on page 135. 

Senator DURBIN. Those postal employees that are activated, is 

there a policy in the post office to protect their income, to hold 

them harmless while they are activated Guard and Reserve? 

Mr. LENOIR. I would have to get back with you on that. I am not 

certain. 

Senator DURBIN. I think the answer is no. I only raise that, not 

in criticism of you but in criticism of the fact that here we are in 

the Federal Government not doing what States and local units of 

government and private corporations do, which is stand behind the 

men and women who are activated. We passed an amendment 

which I offered on the floor in the last omnibus appropriation bill 

to say we would hold Federal employees harmless who are activated, and 10 percent of all Guard and Reserve are Federal employees. Unfortunately, when it went to conference it was stripped 

out, not by the House but by the same Senate that had put it in 

the bill. I hope we can return to that this year. 

Thank you, Madam Chairman. 

Chairman COLLINS. Thank you. I would like to thank our panel 

of witnesses for your excellent testimony today. We want to work 

very closely with you as we proceed from here and take advantage 

of the many years of experience that you have. So thank you so 

much for being here today. 

I would now like to call forward our second panel of witnesses. 

We are very fortunate today to have three very distinguished experts in the area of labor relations. John Wells is a labor relations 

consultant and a commercial arbitrator. He also served as the director of the Federal Mediation and Conciliation Service during 

President Clinton’s Administration. Both his current and previous 

work have provided him with extensive public and private sector 

experience with the collective bargaining process. 

Dr. James Medoff is a professor of labor and industry at Harvard 

University. He is considered to be one of the foremost experts on 

matters pertaining to labor unions and the role that they play in 

our economy. He has also served as a consultant to the National 

Association of Letter Carriers. 

Dr. Michael Wachter is the William B. Johnson Professor of Law 

and Economics at the University of Pennsylvania. He has conducted extensive research on the topic of postal wage compatibility 

and comparability with the private sector. He has also served as 

a consultant for the Postal Service. 

Gentlemen, we are very pleased to have you here today. You do 

represent a great deal of expertise that the Committee is going to 

need the help of people like you, your help as we seek to tackle 

these very difficult issues. 

Mr. Wells, we will begin with you. 

TESTIMONY OF JOHN CALHOUN WELLS,1 PRIVATE CONSULTANT, FORMER DIRECTOR OF FEDERAL MEDIATION AND 

CONCILIATION SERVICE 

Mr. WELLS. Thank you, Madam Chairman. My name is John 

Calhoun Wells and I am proud for the gracious invitation to appear 

before you and this Committee today. 

29

If I may be permitted a personal note, I was looking forward to 

testifying at the Dirksen Building because as a young pup right out 

of graduate school I went to work for a former colleague of yours, 

former U.S. Senator Wendell Ford, in 1975 to 1978 and served in 

the Dirksen Building. Then when we came here I was disappointed 

except I looked and realized that this is a room in which I had testified before Chairman Jack Brooks several years ago. And I moved 

from Kentucky to Beaumont, Texas where I found my bride and became a good friend of Chairman Brooks and shot ducks with him. 

So I feel reassured looking here to testify before this August body 

with this picture of Jack in front of me. 

I am going to summarize the opening part of my remarks for you 

and then focus more principally on the latter part which deals with 

the issues you have before you. I did in fact serve from 1993 to 

1998 as President Bill Clinton’s Director of the Federal Mediation 

and Conciliation Service. I really came to that job with a lifetime 

of experience in collective bargaining and labor relations. Every 

member of my family has been a member of a labor union, including myself. I was Kentucky’s first for secretary of labor. 

As FMCS director I handled an unusual number of difficult situations and strikes, the most infamous of which was the UPS strike 

with the Teamsters. I see Senator Durbin there and I am reminded 

of the Caterpillar strike that I personally handled for 4 years, 3 

months, and about 7 or 8 days. I would have left earlier. Your dear 

colleague and my friend, the late Senator Paul Simon, was extraordinary helpful, always behind the scenes. Never wanted any publicity. And without him that strike may have still been going on. 

So I have had the experience of very difficult and unpleasant 

labor situations. As a native of eastern Kentucky, we had a good 

number of them in the coal fields as well. 

But I have also served to help build labor-management partnerships between organizations like GTE and the CWA and IBEW 

unions, and also Kaiser Permanente and AFL–CIO. I guess I want 

to suggest I have been active in both the public and the private sectors during my career. I have worked with all the major unions, 

AFL–CIO and many of our Nation’s major employers. 

Now let me focus a bit more on my experience with the Postal 

Service. Since 1993 I have both observed and participated in postal 

labor relations. As director of the Federal Mediation Service my 

staff made me aware of a study by the General Accounting Office 

which was exceedingly critical of the state of labor relations in the 

Postal Service. Shortly thereafter Congressman John McHugh personally asked if I would intervene and try to bring the parties together, and from that we organized a series of labor-management 

summits that occurred on approximately a quarterly basis once we 

got them going, and it included the Postmaster General, his direct 

reports, and also the top union officers as well. I chaired a series 

of these summits for 4 or 5 years and continued when I left the 

government in 1998, and I was asked by the parties to continue to 

facilitate those sessions. 

Now a second way in which I have been involved in postal labor 

relations, I served as the mediator and the interest arbitrator for 

the impasse that resulted from the unsuccessful collective bargaining negotiations between the National Rural Letter Carriers 

30

and the Postal Service. Those proceedings resulted in a unanimous 

award being issued February 2, 2002. As a result, I would say, of 

this participation in these matters I have been involved in postal 

labor relations for the past decade, both from trying to facilitate 

and improve what was often a contentious relationship at that 

time, much improved today I would note, but also then serving as 

a neutral in a labor negotiations impasse. 

I therefore appreciate the chance to address this Committee and 

share some insights I have developed as a result of these 10-odd 

years of experience and how this in fact relates to the recommendations, or some of the recommendations at least, of the President’s 

Commission on Postal Reform that I understand this Committee is 

considering. 

I want to focus on my experience as a mediator and interest neutral in the collective bargaining impasse between the Postal Service 

of the National Rural Letter Carriers because I think this experience gives me particular insight to share with you concerning these 

recommendations from the President’s Commission. I am referring 

specifically to those recommendations called collective bargaining 

process improvements. 

With regard to the collective bargaining and interest arbitration 

process, it is my personal opinion and professional judgment that 

the current process suffers from three basic problems. Madam 

Chairman, this is the heart of my testimony. It is too formal, it is 

too adversarial, and it takes too long. In my judgment changes to 

the process are needed to address these counterproductive characteristics. 

First, the current process is too formal because it relies so heavily upon litigation with all of the formality of judicial proceedings—

witnesses, numerous witnesses, hundreds of exhibits, thousands of 

pages of testimony before a court reporter, rebuttal, surrebuttal, 

and so forth and so on. Such formalistic procedures by their very 

nature tend to skew the practical in favor of the technical and often 

lead to time and resources being devoted to issues of forms instead 

of substance, and to matters of what I would consider too often 

marginal relevance rather than those of fundamental significance. 

Litigation processes are no substitute for practical, real-world decisionmaking. 

Second, the current process is too adversarial because the arbitrator in this judicial capacity does not get the opportunity to meet 

with the parties informally and to really mediate the issues which 

are at the heart of the dispute. Instead of engaging in mediation 

where the neutral can really engage and encourage the parties to 

focus on the core issues at dispute, these overly adversarial proceedings are characterized by each party responding tit for tat and 

full litigation regalia in force, regardless of the merit or the significance at issue. The us versus them mentality is difficult to contain 

in a hearing room and too often spills over to impact the entire relationship. In fact I believe if you will speak with the leadership 

of the unions and the Postal Service they will tell you that after 

a difficult, tough interest arbitration that the relationship too often 

is damaged and harmed and it takes a good bit of time to get it 

back on track again. 

31

Third, the protracted length of these specifics is well-documented 

and exacerbates the remaining underlying problems. As noted in 

the commission’s report, the last three impasse proceedings took 

between 13 months and 17 months to finish. In fact the interest 

arbitration at which I was a neutral chairman, it took 141⁄2 months 

from the contract expiration date to the issuance of an award. This 

is certainly not a definition of efficiency and it is a problem. The 

current process seems to encourage the parties to negotiate for 90 

days in good faith, attempting to reach a conclusion to the collective bargaining negotiation, and then upon the failure to do so they 

start from square one in the dispute resolution process. 

In reviewing the section of the Commission’s report on proposed 

changes to the collective bargaining I was impressed with their express goal to have a process where each step builds on the progress 

already made and emphasizes mediation and problem solving. In 

other words, even when negotiations have not successfully reached 

a complete agreement, the impasse procedures should be designed 

to build on the progress made to date and to discourage the parties 

from trying to revert to hard-line positions previously abandoned. 

Interest arbitration, if it must have happened, need not have 

gone far from scratch with the parties posturing on issues and advancing positions that previously were the subject of compromise. 

I believe that the primary recommendations of the Commission in 

this respect represent a considerable improvement over the current 

process. 

The primary recommendations of the Commission that I would 

like to address are the inclusion of a mediation stage, essentially 

a lieu of fact-finding and the use of the mediator as the interest 

arbitrator neutral in the med-arb format. I speak to these issues 

with personal experience. I served as both the mediator and then 

the interest arbitration neutral chairman in my role with the Postal Service and the rural carriers. As such I think that I have some 

experience and insight to share with you. I might note that my understanding is that I was only the second person in the history of 

collective bargaining in the Postal Service who had served both as 

a mediator and the interest arbitrator, the one immediately preceding me back in the late 1970’s. 

In my judgment, there was great value to the mediation that preceded the interest arbitration with the Postal Service and rural 

carriers union because the parties engaged in very frank, very serious discussions during the mediation with me. As a result, while 

the mediation did not resolve the dispute, it did resolve some of the 

issues of the dispute and it focused the parties on the principal 

points of contention. In fact there were signed agreements on several issues which enabled those matters to avoid the arbitration entirely. Further, the mediation had the effect of introducing realistic 

expectations to both sides. 

Also, the mediation better prepared me to serve as the interest 

arbitrator. I was more familiar with the parties, with the individuals, more knowledgeable of their issues and had a better understanding of what was most important to each. I think it would be 

an error to start all over again by bringing in a new neutral for 

interest arbitration. 

32

1The prepared statement of Mr. Medoff appears in the Appendix on page 148. 

My service in both roles allowed for a continuity that permitted 

each step in the process to build upon the previous one rather than 

to start anew. I note that even though there were significant 

changes in the contract affecting both parties as a result of that arbitration which I chaired, the interest arbitration award was a 

unanimous decision among all three arbitrators, myself as the neutral chairman, the Postal Service partisan arbitrator and the rural 

letter carriers’ partisan arbitrator. We worked very hard to achieve 

that unanimous decision and are very proud of it. 

I would suggest that based on my considerable labor relations 

background, and more importantly the 10 years that I have spent 

in postal labor relations, med-arb would be a valuable tool for resolving collective bargaining disputes in the Postal Service. 

I would like to conclude, Madam Chairman, by this personal observation. I think that you and your colleagues have an unusual 

opportunity to strengthen and to improve an institution, the Postal 

Service, that is a national treasure. I know you come from a rural 

area. I was raised five miles down a gravel road in the mountains 

of eastern Kentucky in the late Carl Perkins’ district, so I understand the value of the Postal Service for rural people. I hope that 

you and your colleagues can fashion a bipartisan—very important, 

a bipartisan reform that makes sense, that helps the Postal Service, its employees, its union, its management to survive and to 

prosper. And most importantly, to help this institution continue to 

serve the best interest of our Nation and our people. 

I think you are taking on an awesome task and it is really in line 

with your national reputation of fashioning bipartisan solutions to 

vexing problems, that you are willing to do this, and I commend 

you for it, ma’am. 

Chairman COLLINS. Thank you very much. Thank you for your 

excellent testimony. As I heard you talk about all your experience 

I thought that you may be the key person for us to bring in as we 

try to reach agreement on this legislation upon which there are 

going to be so many disparate views. 

Mr. WELLS. You are most gracious. 

Chairman COLLINS. Thank you. Professor Medoff, welcome. 

TESTIMONY OF JAMES L. MEDOFF, PH.D.,1 MEYER KESTNBAUM PROFESSOR OF LABOR AND INDUSTRY, FACULTY OF 

SCIENCE AND ARTS, HARVARD UNIVERSITY 

Mr. MEDOFF. Thank you very much. It was a pleasure to hear 

from someone who is really a neutral, given that myself in representing NALC for the past 5 years and Michael Wachter in representing the Postal Service for, I think it was the past 25. So we 

have both had parties and he is the neutral, who I think is very 

good for you to have brought here. 

Now if I remember what the questions were for me to address, 

one was the Presidential Commission’s recommendations, and the 

second was the issue of postal pay comparability. Now I have four 

main points to say about both of these. 

First, I am pleased that the Commission recognized the value of 

collective bargaining and recommended its retention. Personally, I 

33

am a very strong supporter of collective bargaining and, for whatever it is worth, I would also recommend its retention. 

Second, urge the Committee to be very cautious about making 

radical changes in the existing collective bargaining process unless 

both labor and management support them. So consistent with the 

remarks that came before me, you really do not want to change 

anything too dramatically in this area unless both labor and management agree to those changes, because it is not going to work if 

they do not. 

My third point, which to my left here will be criticized I am sure, 

but I do not believe that there is a postal pay premium. I should 

say that it is also the case that Mr. Fleischli does not seem to really believe there is a premium either. So I am going to argue later 

on that if you measure the wage differential between postal pay 

workers, in particular letter carriers, and comparable workers in 

the private sector, which I think the law says is what we should 

be doing, you are going to find out that the letter carriers are paid, 

if anything they are underpaid. So there is not a premium. There 

is an underpayment. 

I tried to tell you who I was working for in the very beginning. 

I think now you know for sure, but the data do support that position. 

Then fourth, we want to keep regulators out of the collective bargaining process. Pay comparability is best left to the parties, because the parties will work out really what jobs are comparable. 

That is not something that really anyone can just dictate from up 

here, what is comparable. You have seen, women have seen the 

whole problem with the issue of comparable work. Who is going to 

dictate what jobs are exactly comparable? It is very difficult. So I 

think people like me would say, why don’t you just enforce the hell 

out of Title VII of the Civil Rights Act, then the whole issue of comparable pay will not be an issue? 

So I am saying, coming up with comparable jobs, comparable female versus comparable male jobs, for example, it is a very difficult 

thing to do. So people who write laws, in fact the people who 

passed the civil rights law passed this thing called Title VII because it would be much easier to say that no woman should be denied a job because she is a woman. No woman should be paid less 

than a man because she is a woman. 

Any questions on that at this point? 

Chairman COLLINS. We will hear all of the testimony, then I will 

do some questions. Thanks. 

Mr. MEDOFF. Collective bargaining. To have unions and collective 

bargaining are good for society in my opinion. Unions provide voice. 

It is also my opinion they provide voice in two ways. One, they provide this thing called a grievance procedure, which on a day-to-day 

basis lots of workers complain about being mistreated in the workplace. So that is a form of voice. And every 3 years or so they have 

this collective bargaining process which is another way that voice 

will be provided. 

Now my feeling is that voice is very good. Now the main thing 

that voice does is it reduces the amount of attrition, the amount 

of quitting, the amount of leaving your job. If you do not like your 

job, you do not have to tell your boss, what is the expression, to 

34

shove it. You just can stay on the job and you can file a grievance, 

you can go to collective bargaining, and everything you have to say 

about the job will be said without your having to leave it. So ultimately, having a union structure in place reduces the amount of 

attrition, the amount of quitting of jobs by a whole lot. 

And the main reason why I argue that unions increase productivity is that attrition is very expensive in terms of productivity. So 

we estimated a direct route between quits and attrition and productivity. We see by lowering the amount of attrition, unions increase the amount of productivity. Some of you will say, what, is 

he crazy? Has he not heard of feather-bedding? I go, yeah, I have 

heard of feather-bedding. 

But I imagine there are few people in this room who have been 

to places where they have orchestras recently. Now let me ask you, 

how often has anybody seen a standby orchestra? Or how many of 

you have been recently on diesel trains where you have a fireman? 

So I think the whole thing of feather-bedding is really way overblown as an important issue. 

So ultimately that is an issue that has to be studied. There are 

a lot of things that unions do, some of which have been just talked 

about, that ultimately increase productivity. One is by reducing attrition. One is by providing voice to management where they cause 

productivity to be higher, not lower. 

Now let me turn here to the next page. I have down here, be 

careful about having a rigid timetable, because in the same way it 

does not work, and people who are involved in collective bargaining 

know that it does not work to come up with some solution which 

forces everybody to wear a size seven shoe. I have a certain sense 

in reading these recommendations, in terms of the last best offers 

and things like that, that really we are forcing all of the people, 

all of the parties involved into wearing size seven shoes, and that 

does not work. I think people have to state really what would be 

a comfortable shoe size for them to wear. 

Let me just move on. Now the last thing I said that I would talk 

about was pay comparability. When we talk about pay comparability, in labor economics there is a big issue of what are you 

talking about, jobs or people? Because when you talk about comparability you could be talking about either comparable jobs or 

comparable workers. 

I think I am talking about both. To me, what I think the law 

says and what a comparable job is for our discussion is really the 

type of job that is similar. If you went to a company they would 

say, this is a similar job and in most cases they would be looking 

at another company that had this job and they would come up with 

a list of jobs that were ‘‘comparable.’’ Now they would not do anything like what my friend Dr. Wachter does here like run a regression where he defines comparable jobs in terms of jobs which have 

people who have the same human capital, who have the same experience and education and therefore are comparable. Now that just 

would not be done in business. So I cannot believe that we should 

be asked here to adopt a definition of comparability which is not 

one that would be adopted anywhere else in our society. 

Am I within my 10 minutes? 

35

1The prepared statement of Mr. Wachter appears in the Appendix on page 157. 

Chairman COLLINS. You are a little over your 10 minutes but we 

very much appreciate it. 

Mr. MEDOFF. I apologize for that. 

Chairman COLLINS. No, that was absolutely fine and thank you. 

Dr. Wachter. 

TESTIMONY OF MICHAEL L. WACHTER, PH.D.,1 CO-DIRECTOR, 

INSTITUTE OF LAW AND ECONOMICS, AND THE WILLIAM B. 

JOHNSON PROFESSOR OF LAW AND ECONOMICS, UNIVERSITY OF PENNSYLVANIA LAW SCHOOL 

Mr. WACHTER. Thank you, Madam Chairman, and Members of 

the Committee. My name is Michael Wachter and I am currently 

employed by the University of Pennsylvania as the William B. 

Johnson Professor of Law and Economics. I served as the university’s deputy provost from 1995 through 1997 and was the university’s interim provost in the year 1998. I have been employed at the 

University of Pennsylvania since 1969. 

I have published extensively in the areas of labor economics, 

labor law, corporate law and finance. Virtually all the work that I 

have done for the Postal Service over the years has been published 

in academic journals and books. My consulting work and testimony 

on behalf of the Postal Service has focused on the issues of postal 

wages and benefits and how they compare to private sector wages 

and benefits. 

I first consulted for the Postal Service in 1981. At that time it 

was not tied to an interest arbitration but simply assisting them 

in wage-setting and their own approach to wage-setting and collective bargaining. Since that time I have testified in numerous interest arbitration proceedings. My most recent testimony was before 

the Goldberg interest arbitration panel in 2001 to resolve the dispute between the Postal Service and the APWU. On April 29, 2003 

I also appeared before the President’s Commission on the U.S. 

Postal Service. 

The starting point for my analysis of postal wages and benefits 

is and always has been the Postal Reorganization Act, which states 

that the U.S. Postal Service shall ‘‘maintain compensation and benefits for all officers and employees on a standard of comparability 

to the compensation and benefits paid for comparable levels of 

work in the private sector of the economy.’’ The Postal Service is 

unusual compared to many regulated firms since it is so highly 

labor-intensive. Currently, nearly 80 percent of its costs are for 

compensation, which makes labor cost issues critical to the financial health of the Postal Service. 

The President’s Commission has recommended that the Postal 

Service’s pension and post-retirement health care plans should be 

subject to collective bargaining. Based on my research on postal 

labor issues dating back 25 years, I believe the Commission’s recommendation on this count is both appropriate and necessary. My 

conclusion is based on four fundamental points. 

First, my work on postal comparability shows that there is a sizable postal compensation premium with respect to the private sector. This violates the basic tenets of the Postal Reorganization Act 

36

1The report entitled ‘‘Wage and Benefit Comparability of U.S. Postal Service Clerks to the 

Private Sector,’’ by Michael L. Wachter, Barry T. Hirsch and James W. Gillula, October 2001, 

is retained in the files of the Committee. 

and renders the Postal Service vulnerable to competitive product 

market pressures. 

Second, the finding of a postal compensation premium has been 

supported by postal arbitrators who have addressed the issue since 

1984. As a consequence of their findings, the Postal Service and its 

unions have operated in an environment of moderate restraint with 

respect to wages since 1984. 

Third, while there has been some significant moderate restraint 

in postal wage growth, there has been no such moderation with respect to the growth in postal benefits. 

Finally, in today’s increasingly competitive environment, the 

Postal Service needs both compensation restraint and flexibility to 

meet its mandate of providing universal mail service. Let me add 

that even if there were not a premium, the need for flexibility 

would stand simply because of the competitive environment in 

which the Postal Service operates. 

Indeed, the Postal Service finds itself today operating in increasingly competitive product markets across the board. There has 

been a fundamental shift in postal volume growth that reflects not 

only economic trends but also technological innovations such as the 

Internet. Technology poses a threat of a significant diversion of 

mail from the Postal Service. Total postal volume peaked in 2000 

at nearly 2,008 billion pieces. Since that time total mail volume declined in each of the past 3 years while the economy has been 

growing, sometimes moderately, more recently quite strongly. 

Particularly troubling to the Postal Service is the trend in FirstClass Mail since this helps pay for the expanding delivery network. 

In the first 30 years following postal reorganization First-Class 

Mail grew rapidly and appeared to be immune from competition 

and pricing. This is no longer the case. First-class mail has now declined for 2 years. Moreover, except for standard mail most Postal 

Service classes of mail will experience negligible volume growth or 

even volume declines in the coming years. 

The competitive pressures put enormous pressure on the Postal 

Service to bring its wages and benefits into conformity with private 

sector comparability. 

As I mentioned, I have testified in many postal interest arbitrations, most recently before the Goldberg arbitration panel involving 

the Postal Service and the APWU. I also have published numerous 

academic articles on this topic with my colleagues Dr. Jim Gillula, 

who is behind me here today, and Barry Hirsch. We have concluded that a substantial wage and benefits premium exists. I have 

also provided for the record a copy of my report to the APWU interest arbitration panel.1 In this report we found a wage premium of 

21 percent and a total compensation premium of 34 percent. 

My compensation premium findings have been corroborated by 

internal Postal Service data that reveal that new postal hires are 

paid much more than they are paid in the private sector, that at 

any one time there are literally hundreds of thousands of individuals seeking to become postal employees and that very few existing 

postal employees voluntarily leave their jobs. 

37

Since 1984, postal arbitration panels have consistently, and I say 

consistently without exception, found the existence of a premium 

when they have addressed that issue, and the need for moderate 

restraint as a way of decreasing the premium. I have provided a 

listing of quotations on this point in my written testimony beginning with Clark Kerr’s conclusion in 1984 that discrepancies in 

comparability existed and that an extended period of moderate restraint would be needed to close the gap. 

In the most recent arbitration, the 2001 postal APWU arbitration, Arbitrator Steven Goldberg stated, ‘‘in concluding that there 

exists a Postal Service wage premium, I join a long list of arbitrators in prior USPS interest arbitrations who have reached the 

same conclusion.’’

As a way of tracking the principle of moderate restraint instituted by Arbitrator Kerr, my colleagues and I have tracked the 

growth rates for postal wages and compensation compared to private sector growth rates. The results of these tracking analyses are 

particularly relevant considering the Commission’s recommendation that retirement and retiree health benefits should be subject 

to collective bargaining. 

During the 20 years from 1984 through the end of 2003 postal 

wages operating in an environment of moderate restraint, have 

grown at an average annual rate of 3 percent. This compares to the 

private sector annual growth rate of 3.5 percent. Thus, there has 

been a modest but notable annual closing of the wage gap by onehalf percent per year over a prolonged period of time. 

Unfortunately, although there has been moderation of postal 

wage growth, there has been no such moderation on the benefit 

side. As a consequence, over these past 20 years postal compensation cost growth has actually slightly exceeded private sector compensation growth. The effects of moderate restraint on the wage 

side introduced by Arbitrator Kerr and agreed to by a whole list 

of postal arbitrators has been entirely erased by the growth in postal benefit costs. 

Some postal benefits are subject to collective bargaining. However, over $7 billion of retirement and retiree health benefits expenses are outside the collective bargaining process. The President’s Commission would allow the parties to negotiate over these 

benefits which have proved critical to the problems of bringing the 

postal premium under control. 

In summary, in operating in increasingly competitive markets 

the Postal Service must ensure that its wages and benefits meet 

the comparability mandate as provided for under the Postal Reorganization Act. This requires that the Postal Service and its unions 

be able to address all labor cost components, including benefits, in 

future negotiations. 

My experience in observing moderate postal wage growth during 

the past 20 years shows me that the collective bargaining process 

can make progress in allowing the Postal Service to conform to the 

comparability standard. Consequently, I support the Commission’s 

recommendation that retirement and health benefits for retirees 

should be part of the collective bargaining process. In principle, all 

postal benefits should be part of the collective bargaining process 

and open to resolution through interest arbitration if necessary. 

38

This concludes my testimony. Thank you for providing me with 

the opportunity to testify before the Committee. 

Chairman COLLINS. Thank you very much, Professor, for your excellent testimony as well. I want to apologize to the experts on this 

panel. I have just been notified that Senator Carper and I have a 

vote underway on the Senate floor. It is a long ways from where 

we are to the Senate floor and the vote is underway, so I am going 

to just ask one very quick question of Mr. Wells rather than getting 

into a lot of the pay comparability issues. But what I would like 

to do is to submit some questions to all three of you for the record 

and continue this dialogue over the next few months. But I very 

much appreciate all of you being here today. 

Mr. Wells, the postal unions have generally opposed pay-for-performance systems for employees that are under collective bargaining. I wonder, given your very broad experience whether you 

have any examples of large companies that have successfully implemented pay-for-performance systems with a unionized workforce. 

Mr. WELLS. It is not easy to do, Madam Chairman, but yes in 

fact there are a number of models out there. There is a gentleman 

by the name of Joe Scanlon who was a steelworker and then went 

on to become a professor at MIT and he, working with the steelworkers, instituted a number of pay-for-performance processes in 

the steel industry in the 1940’s and 1950’s. Kaiser Steel, likewise 

in the 1960s instituted something called the Kaiser long-term sharing plan in which productivity improvements were translated into 

pay-for-performance. That was done with the steelworkers. 

More recently, I mentioned Kaiser Permanente and the AFL–

CIO unions. There are seven or eight unions and like 60,000 employees involved that I was involved in helping shape a partnership. This Kaiser is the huge HMO. They have a performance sharing plan and their collective bargaining agreement is part of their 

partnership. And the Saturn plant of GM, also which has UAW 

represented, I know they spent at least 10 years with pay-for-performance. I do not know about the current contract. 

So there are a number of models out there. Professor Tom Coken 

at MIT, a very distinguished industrial relations professor, has 

done a paper recently on this and that may be something that the 

staff may want to take a look at. 

Chairman COLLINS. Thank you. 

Mr. WELLS. Could I say one thing though, Madam Chairman? 

Chairman COLLINS. Yes. 

Mr. WELLS. I was supportive of a number of these recommendations, and I am. I do not support all of them. I want to make sure 

that I am on the record though, I have real questions about the notion of having a three-member panel of neutrals. Having partisan 

arbitrators helps sharpen the debate, it educates the neutral chairman about what is important about the issues. They keep you from 

making a serious mistake, and I think the current system really is 

one that ought to be looked at very hard before you replace it in 

terms of the composition of the arbitration panel. 

Chairman COLLINS. You just answered one of the unasked questions that I had been planning to ask, so I am very glad that you 

39

1Letter from Mr. Medoff, dated February 17, 2004, with a response to the question from Senator Carper above appears in the Appendix on page 00. 

did. It does seem like the current system encourages more buy-in 

for the ultimate decision. 

Senator Carper, if you could very quickly ask a question so we 

do not miss our vote. 

Senator CARPER. You bet. Again, thank you for your really excellent testimony, most helpful testimony. Dr. Wachter was suggesting that, just as the Postal Service and the union management 

bargain for wages, they ought to also bargain for benefits. 

Let me just ask the other witnesses, if you will, to address that 

assertion and tell me to what extent you agree or disagree, and 

maybe if you do not agree, why. 

Mr. WELLS. In terms of bargaining for benefits? 

Senator CARPER. Yes. 

Mr. WELLS. I do an awful lot of work in the private sector. That 

is really my background, and everything is on the table in the private sector including benefits. On the other hand, I think the answer to that question, Senator Carper, is what kind of a Postal 

Service do you want? Do you want it to be a Postal Service that 

can compete with FedEx and UPS and really be a private sector 

model? Or do you want a Postal Service that is going to provide 

universal service, that is going to be more closely akin to a Federal 

agency? 

If you want it to be a Postal Service that is like a UPS or a 

FedEx or the private sector, then you need to put things on the 

table that are not there. On the other hand, if you are committed 

to universal service and a Postal Service such as we have grown 

use to, then I think you need to protect it. 

So the answer is, what kind of a Postal Service? Once you decide 

what your vision of the future of the Postal Service is, then you can 

decide about what you put on the table and what you do not put 

on the table. 

Senator CARPER. Thanks. 

Dr. Medoff, your comments in response to Dr. Wachter’s suggestion that not only wages but also benefits be collectively bargained? 

Mr. MEDOFF. That makes sense to me. I think it should be total 

compensation that is collectively bargained over, not just wages but 

wages plus fringe benefits. So I think it is the whole compensation 

package that should be bargained for by labor and management.1

Senator CARPER. Good. Thank you. Was that short enough? 

Chairman COLLINS. That was very good. Thank you. 

Senator CARPER. Better than usual. 

Chairman COLLINS. Again, my apologies to our expert witnesses. 

We very much appreciate your testimony as we tackle these very 

difficult issues. 

The hearing record will remain open for 14 days for additional 

materials. This hearing is now adjourned. I thank all of our witnesses today. Thank you. 

[Whereupon, at 4:18 p.m., the Committee was adjourned.] 

(41)

PRESERVING A STRONG UNITED STATES 

POSTAL SERVICE: WORKFORCE ISSUES 

TUESDAY, FEBRUARY 24, 2004

U.S. SENATE, 

COMMITTEE ON GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Committee met, pursuant to notice, at 10 a.m., in room SD–

342, Dirksen Senate Office Building, Hon. Susan M. Collins, Chairman of the Committee, presiding. 

Present: Senators Collins, Stevens, Akaka, and Carper. 

OPENING STATEMENT OF CHAIRMAN COLLINS 

Chairman COLLINS. The Committee will come to order. 

Good morning. Today marks the fourth in a series of hearings 

the Committee on Governmental Affairs is holding to review the reforms recommended by the Presidential Commission on the Postal 

Service. 

Under the effective leadership of Co-Chairmen Harry Pierce and 

James Johnson the Commission put together a comprehensive report on an extremely complex issue identifying the operational, 

structural, and financial challenges facing the U.S. Postal Service. 

The Commission’s recommendations are designed to help this 225-

year-old service remain viable over the long-term. 

So much depends upon the Postal Service’s continued viability. 

The Postal Service itself has more than 735,000 career employees. 

Less well known is the fact that it is also the linchpin of a $900 

billion mailing industry that employs 9 million Americans in fields 

as diverse as direct mailing, printing, catalog production, and 

paper manufacturing. The health of the Postal Service is essential 

to thousands of companies and the millions that they employ. 

One of the greatest challenges for the Postal Service is the decrease in mail volume as business communications, bills and payments move more and more to the Internet. The Postal Service has 

faced declining volume of First-Class Mail for the past 4 years. 

This is highly significant given the fact that First-Class Mail accounts for 48 percent of total mail volume and the revenue it generates pays for more than two-thirds of the Postal Service’s institutional costs. 

At our first hearing last September the Committee heard from 

the Commission Co-Chairman Jim Johnson. His testimony provided us with the rationale behind the Commission’s recommendations. Commissioner Johnson also made the very important point 

that the Postal Service’s short-term fiscal health is illusory and 

42

that Congress must not ignore the fundamental reality that the 

Postal Service is an institution in serious jeopardy. 

This Committee is very familiar with the Postal Service’s short 

and long-term financial health having reported out the pension bill 

last year that forestalled the financial crisis that awaits the service 

if we do not act and enact further reforms. 

The Presidential Postal Commission presented its assessment of 

this fiscal crisis in frank terms concluding, ‘‘that an incremental 

approach to Postal Service reform will yield too little too late given 

the enterprise’s bleak fiscal outlook, the depth of the current debt 

in unfunded obligations, the downward trend of First-Class Mail 

volumes, and the limited potential of its legacy postal network that 

was built for a bygone era.’’ That is a very strong statement and 

an assessment that challenges both the Postal Service and Congress to embrace far-reaching, comprehensive reform. 

At the Committee’s second hearing last Fall we heard from the 

Postmaster General Jack Potter and the Comptroller General 

David Walker. The Postmaster General described the transformation efforts already underway at the Postal Service, many of 

which are consistent with the Commission’s recommendations. In 

his testimony Mr. Walker of the General Accounting Office shared 

the Commission’s concerns about the Postal Service’s $92 billion in 

unfunded liabilities and other obligations. The Comptroller General 

pointed to the need for fundamental reforms to minimize the risk 

of a significant taxpayer bailout or dramatic postal rate increases. 

I would note that since April 2001 the Postal Service has been included on the GAO’s high-risk list. 

Most recently the Committee heard from representatives of the 

postmaster and supervisor associations along with the former director of the Federal Mediation and Conciliation Service plus two experts on the issue of postal pay comparability. The issues of payfor-performance and potential changes to the bargaining process 

were discussed at length. 

Today we will again focus on the various recommendations affecting the Postal Service’s workforce comprised of more than 

700,000 dedicated letter carriers, clerks, mail handlers, postmasters and others. The Committee will have the opportunity to 

more fully explore the workforce-related recommendations of the 

Commission which include some of its more controversial proposals. 

Among them are recommendations to reform the collective bargaining process, to give management and employee unions the authority to negotiate not only wages but also all benefits, to establish a performance-based pay system for all employees, and to authorize a new postal regulatory board to develop a mechanism for 

ensuring that the total compensation for postal employees is comparable to the private sector. 

The Postal Service faces the difficult task of trying to right-size 

the workforce to meet the decline in mail volume, technological 

competition, and other operational challenges. With some 47 percent of the current workforce eligible for retirement by the year 

2010 right-sizing does not, however, have to mean widespread layoffs. Indeed, it should not. With careful management much can be 

done to minimize any negative impact on employees and to create 

a more positive working environment. 

43

As a Senator representing a large rural State whose citizens depend on the Postal Service I appreciate the Presidential Commission’s strong endorsement of the basic features of universal service: 

Affordable rates, frequent delivery, and convenient community access to retail postal services. It is important to me that my constituents living on or near our northern or western borders, or on 

our islands, or in our many small rural communities have the same 

access to postal services as the people of our cities. If the Postal 

Service were no longer to provide universal service and deliver mail 

to every customer, the affordable communication link upon which 

many Americans rely would be jeopardized. Most commercial enterprises would find it uneconomical, if not impossible, to deliver mail 

and packages to rural Americans at the rates that the Postal Service charges. 

The preservation of universal service is critical to reforming the 

Postal Service. That and many other issues must be examined in 

depth if we are to save and strengthen this vital service upon 

which so many Americans rely for communication and for their 

jobs. The Postal Service has reached a critical juncture. It is time 

for a thorough evaluation of its operations and requirements. It is 

also time for legislative reforms. 

Senator Carper and I have committed to working together with 

Senators Stevens, Akaka, Lieberman, Fitzgerald, and many other 

Members of this Committee who care deeply about the future of the 

Postal Service. We want to draft a bipartisan postal reform bill. 

Now given the history of previous attempts at legislative reforms 

I know that this will not be an easy task, but it is essential this 

year that we seize the opportunity provided by the Commission’s 

excellent work. Successful reform will hinge on the cooperation and 

the support of the Postal Service’s workforce. But reform is necessary if we are going to preserve and strengthen the Postal Service. 

I welcome our witnesses today and look forward to hearing their 

insights and views on the recommendations of the Presidential 

Commission on the Postal Service. 

Now I would like to recognize Senator Akaka, who had perfect 

timing this morning. He did not have to hear my speech but he 

does get to present his. 

OPENING STATEMENT OF SENATOR AKAKA 

Senator AKAKA. Thank you very much, Madam Chairman. I 

thank you for your leadership here and I want you to know that 

your opening remarks affirm my feelings too. It is important that 

we deal with this. 

I am pleased to join you this morning as we continue our review 

of the recommendations made by the Commission on the U.S. Postal Service, and to reaffirm I am here to join you in our commitment 

to all who rely on the U.S. Mail. 

I look forward to hearing from today’s witnesses who are uniquely qualified to discuss the Commission’s workforce recommendations. We are indeed fortunate to have as our first panelist Dan 

Blair, the Deputy Director of the Office of Personnel Management 

who for many years served as a senior congressional counsel on 

postal and civil service matters. I also look forward to hearing from 

44

our second panel, the elected presidents of the four largest postal 

unions. Together you represent nearly a half-million postal employees and your input is central to any successful modernization of the 

Postal Service. 

The achievements of the Postal Service in recent years, highlighted by ever-increasing record levels of productivity and an improving financial outlook, are shared by postal employees. In fiscal 

year 2003, the Postal Service’s net income reached $3.92 billion, 

approximately $3 billion of that figure can be attributed to our 

Chairman’s CSRS legislation which I was proud to co-sponsor. 

This positive financial turnaround comes at a time when the 

Postal Service is rationalizing its workforce. Since 1999, the workforce was downsized by 88,000 employees and yet customer satisfaction and on-time First-Class Mail delivery are at all-time highs. 

In concert with this good news is a stable labor-management climate that has resulted in a series of voluntarily-negotiated labor 

contracts. 

I attribute this favorable labor environment to the leadership of 

our second panel, to the Postmaster General, and to the flexibility 

built into the existing collective bargaining law governing those 

who provide this essential public service. That is why I am concerned that certain workforce recommendations suggested by the 

Postal Commission could adversely impact today’s sound labor environment and undermine existing conditions. 

The Commission would implement a pay-for-performance system 

for all employees, impose collective bargaining procedures with 

rigid timelines and no flexibility to waive those timelines, empower 

a new postal regulatory board with determining total compensation 

and defining universal service, and require negotiations over any 

benefits in addition to wages. 

This Committee, more than any other Senate committee, understands the impact that bargaining over benefits could have on the 

stability and financial integrity of the government’s two pension 

plans and its employee health insurance program. As I noted, 

Madam Chairman, at our hearing 2 weeks ago, postal workers 

make up one-third of the Federal workforce and I urge caution 

when considering splitting postal employees from these Federal 

programs without knowing the effect on active and future employees. 

Moreover, subjecting benefits to collective bargaining could have 

a serious effect on retirees. We should do no harm to retired postal 

workers who have already earned their benefits and planned their 

retirements under the Federal pension and health plans. 

Rationalizing Postal Service requires leadership from the top down 

and I believe that leadership is now in place. 

I look forward to working in a bipartisan manner on a process 

that is transparent and accountable to the postal workforce and, of 

course, the public. I thank our distinguished panelists for being 

with us and I again want to thank Madam Chairman Collins very 

much for her able and good leadership. Thank you very much. 

Chairman COLLINS. Thank you very much, Senator. It has been 

a pleasure to work with you, not only on postal issues but many 

others as well. 

45

1The prepared statement of Mr. Blair appears in the Appendix on page 179. 

I would now like to welcome our first witness who is no stranger 

to this Committee as Senator Akaka points out. He is Dan Blair, 

who is the Deputy Director of the Office of Personnel Management. 

Mr. Blair has extensive experience in the civil service sector having 

served for almost 17 years on the staffs of both this Committee and 

the House Government Reform and Oversight Committee. We are 

very pleased to have you back. I know that the Director of OPM, 

Kay Coles James relies very heavily on you and we appreciate your 

being here today. You may proceed with your statement. 

TESTIMONY OF DAN G. BLAIR,1 DEPUTY DIRECTOR, OFFICE 

OF PERSONNEL MANAGEMENT, ACCOMPANIED BY NANCY 

KICHAK, CHIEF ACTUARY, OFFICE OF PERSONNEL MANAGEMENT 

Mr. BLAIR. Thank you, Madam Chairman, Senator Akaka. I appreciate that warm welcome. Thank you for inviting me to testify 

here this morning. I have a longer statement that I would ask that 

you include for the record. 

Chairman COLLINS. Without objection. 

Mr. BLAIR. But I am happy to summarize. 

Nancy Kichak, to my right, is OPM’s chief actuary and she accompanies me here today. Should you have any technical questions, 

with your permission, I may ask Ms. Kichak to assist in answering 

your or the Committee Member’s questions. 

Chairman COLLINS. That would be fine. 

Mr. BLAIR. Thank you. 

First, I want to commend you and this Committee for the 

thoughtful, studied way in which you approach the complex issues 

affecting postal reform. A well-managed, fiscally healthy Postal 

Service is essential for our national and economic well-being. You 

said that in both your statements and I am glad that we find that 

common ground because it is extremely important. 

The President’s Commission on Postal Reform made many good 

recommendations on which a postal reform measure could move 

forward. Postmaster General Jack Potter has also done a commendable job by working hard to move his organization forward as 

well. Further, the President has endorsed the need for modernizing 

postal operations and layed out five guiding principles for postal reform last year, so there appears to be the critical mass necessary 

to propel legislative reform and anyone interested in the health of 

our economy and our Nation wishes this Committee success as you 

move forward in enacting needed reforms. 

In your invitation to testify you asked for our comments in three 

specific areas, pay-for-performance, negotiability of retirement and 

health benefits, and the proper assessment of pension liabilities. 

First, thanks to this Committee’s efforts we have made progress 

on introducing pay-for-performance systems into the Federal Government. As you know, our pay systems did little to offer managers 

the ability to use their most strategic management tool, pay, in 

ways to incentivize and recognize outstanding performance. Hopefully we are taking steps to change this. 

46

Your efforts to enact needed pay reforms for the Senior Executive 

Service and authorize creation of the Human Capital Performance 

Fund are most appreciated. We are in the process of implementing 

the new system for the SES and have issued guidance over the 

past few months to the agencies. We are also working to draft regulations to implement the new system as well. This year’s budget 

also asked Congress to fund the Human Capital Performance Fund 

in the amount of $300 million. So thanks to your good work and 

good efforts of this Committee, Madam Chairman, we are making 

much-needed progress. 

Second, you asked us about the potential impact on the Federal 

systems in making the Postal Service’s pension and post-retirement 

health benefits subject to collective bargaining. We understand this 

is based on the Commission’s recommendations that reflected its efforts to give the Postal Service additional flexibility when it came 

to collective bargaining. You asked us to prepare a detailed report 

on the impact of this recommendation on the retirement and Federal health benefits programs, and we are currently preparing that 

report. So I am not prepared to go into detail or present conclusions at this point. However, I would bring to the Committee’s attention a few of the issues raised in considering such a proposal. 

First, keep in mind that retirement funding is based upon predictability and continuity. Hence, bargaining over retirement benefits could be adopted to the extent it does not destabilize retirement 

funding. While our pending report will address in detail our 

thoughts on this, I would note that the postal benefit structure is 

currently fully integrated with the non-Postal Service structure. 

Further, I would bring to the Committee’s attention that there 

has never been a major group severed from either one of the two 

primary Federal retirement systems. 

Regarding the recommendation to make eligibility and retiree 

contributions under the post-retirement component of the Federal 

Employees Health Benefits Program negotiable we would note that 

currently FEHBP benefits are offered to all enrollees regardless of 

work or retirement status. We do not distinguish what benefits are 

offered to active employees, retirees or by specific agency employer. 

Should postal retiree benefits be subject to bargaining we would 

want to ensure that the mechanism employed would not lead to unintended consequences, such as increasing adverse selection and 

thereby increasing cost and complicating the administration of the 

FEHBP. 

Also, many of the current carriers in the FEHBP are postal related, such as the plans offered by the Mail Handlers, the Letter 

Carriers, the Postal Workers Union, the Rural Letter Carriers, and 

the Postmasters. The impact on the FEHBP could be substantial 

should the Postal Service cover its retirees or retirees under a separate health insurance program and should these plans then drop 

out of the FEHBP. 

I would also point out that experience has shown that when 

agencies have offered their employees alternative health insurance 

plans, such as the FIRREA agencies did in the mid-1980’s and 

1990’s, they sought legislative relief through this Committee to 

bring their retirees back into the FEHBP due to increasing costs. 

47

Of great interest to the administration is the Commission’s recommendation to shift responsibility for military service credit in 

the Civil Service Retirement System from the Postal Service to the 

taxpayers. Last year this Committee did the right thing when it 

promptly considered and moved legislation addressing Postal Service overfunding of its pension obligations. That legislation placed 

the Postal Service on sound actuarial footing, including correctly 

assessing the Postal Service with the full cost of covering its CSRS 

employees, including those with military service. The administration stands firm in opposing any efforts to shift these costs to the 

taxpayer. 

Some have said there is no direct relationship between an employee’s prior military service and the Postal Service operations. 

We wholeheartedly disagree. Granting credit for military service 

enables the Postal Service to better recruit and retain veterans as 

part of its team. Providing these benefits gives the Postal Service 

an advantage in hiring employees of recognized professionalism, 

level of experience, dedication to service, and commitment to excellence. Such military service does indeed provide a direct benefit to 

the operations of the Postal Service. 

In addition, such a proposal runs counter to the long-standing 

principle which has stood as the cornerstone of the 1970 Postal Reorganization Act that the Postal Service should cover all the costs 

of its operations. The President set the administration’s policy 

when he established as one of the guiding principles for postal reform that the legislation ensure that the Postal Service is self-funding. 

Last year’s legislation rightly granted the Postal Service needed pension funding relief; $78 billion in pension relief to be precise. 

Under this methodology the taxpayers still fund the cost of providing military service credit for postal employees under CSRS in 

the amount of $21 billion. Shifting further liabilities that essentially fund postal operations to the taxpayer would be wrong and 

the administration is on record as opposing it. 

There is common ground on which this Committee can proceed 

in working towards a postal reform measure. However, there are 

other areas about which the administration has voiced its objections and I hope that I have provided you with a clear understanding of where we stand on these issues. 

This concludes my oral presentation and, Madam Chairman, I 

am happy to answer your or Senator Akaka’s or any Member’s 

questions at this point. Thank you very much. 

Chairman COLLINS. Thank you for your statement. I know that 

OPM in response to a letter that Senator Carper and I sent is still 

evaluating what the impact would be of potentially taking the Postal Service out of the Federal retirement system and the Federal 

Employees Health Benefit Plan. But do you or Ms. Kichak have 

any preliminary judgments that you could share with the Committee on this issue? 

My concern is that we are not talking about a small number of 

people. We are talking about taking a huge number of employees 

and retirees out of the Federal plans. I wonder if you could elaborate on what the impact would be on the stability and the financial 

health of both the retirement and the employee health benefits 

48

plan if you were to separate out the Postal Service employees and 

retirees. 

Mr. BLAIR. I think you hit the nail on the head, that you are 

talking about potentially taking a huge portion of both retirement 

and the FEHBP populations out from under these systems. It is an 

extraordinarily complex matter, but there are some aspects of the 

benefits which could be amenable to negotiation. Changing one 

part, however, can have profound effects on the rest and to achieve 

full negotiability, especially in the pension area, and might require 

the Postal Service to sever its association with both the retirement 

plans. We will go into detail in our report but it is an extraordinarily complex subject. The keys to pension funding are predictability and stability. And if you take that away because benefits 

are being negotiated you undercut the foundation of what our plans 

have been built on. 

With regard to the health benefits issue, again, the Postal Service has flexibility in that area to negotiate the premium costs. Let 

me correct myself, to negotiate the employer’s share of the premium cost, and it has done so. At this point in time they pay approximately 84 percent of the premium costs as opposed to approximately 72 percent for the rest of the Federal Government. So it 

does pay more than the rest of the Federal Government where it 

has exercised that flexibility. In the life insurance area it currently 

plays 100 percent of the life insurance costs. So again, where it has 

flexibility it has shown that it has actually paid more and not less 

of the total share. 

That said, changing the composition of the enrollment group has 

a direct impact on cost. Cleaving off approximately one-third of the 

enrollees in the FEHBP population would not only reduce the risk 

pool that we have, but would perhaps have unintended consequences such as leading to adverse selection. 

In addition, as I said earlier, five of the plans are postal related, 

and we have had trouble keeping plans in the system recently. One 

of the underpinnings of the FEHBP has been competition among 

plans. We not only want to keep plans in, we want to draw more 

plans to it. So those are concerns that we have raised. 

Now I do want to underscore, however, that there may be aspects 

of this that may be amenable to the collective bargaining process 

and we will point those out in further detail in the report. But 

these are some of the concerns that we have raised and I think 

that it is important for the Committee to understand them. 

Chairman COLLINS. Do the Federal employees unions also negotiate the employee-employer split when it comes to health insurance premiums? 

Mr. BLAIR. No, they do not. That is set by statute. 

Chairman COLLINS. So that is a different treatment then. 

The second issue I want to explore with you is the difficult issue 

of what is the appropriate entity to bear the cost of the military 

service of postal employees. I am not inclined to agree with the administration’s position that the Postal Service should continue to 

bear this cost. It is my understanding that the Postal Service bears 

the cost of the old Civil Service Retirement System, the pre-1984 

system, but that other agencies do not bear that cost. Is that corVerDate 0ct 09 2002 10:17 May 18, 2004 Jkt 092687 PO 00000 Frm 00052 Fmt 6601 Sfmt 6601 C:\DOCS\92687.TXT SAFFAIRS PsN: PHOGAN
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rect? Is the Postal Service treated differently from Federal agencies 

when it comes to the old Civil Service Retirement System? 

Mr. BLAIR. Generally speaking that is the case. What happened 

last year when we caught the overfunding problem is that we set 

the Postal Service’s CSRS funding on sound actuarial footing by 

placing it in the same category or treating it in the same way that 

we fund the Federal Employee Retirement System. That means it 

is fully funded. It does not have any unfunded liabilities. 

You are correct in pointing out that there are just a handful of 

other Federal entities out there that may be paying the full cost 

of their retirement system. The ones that come to mind are the 

Metropolitan Washington Airports Authority, and the United 

States Enrichment Corporation, which was a part of the Department of Energy. But nothing on the scale or rank or size of the 

Postal Service. 

But I would urge you to consider what would happen if you 

would shift these responsibilities back to the Treasury. Funding of 

a retirement system is really not done on an a la carte basis by 

taking and picking which portions should be borne by the employer. Rather everything should be borne by the employer. All 

those costs should be borne by the entity providing those benefits. 

The Postal Service has the benefit of offering a retirement system 

which has great recruitment and retention value. Giving veterans 

that military service credit is an incentive for veterans to come into 

the Postal Service. If you are going to provide Federal retirement 

you should be fully funding those costs. 

We recognize that other Federal agencies and other Federal entities out there have not been mandated by Congress to fully fund 

their share of the CSRS system. We do not think that is right. The 

President’s Managerial Flexibility Act would have had all agencies 

fully funding the CSRS system in the same as they would for 

FERS. But giving a break to other agencies does not mean we 

should give the break to the Postal Service. We did the right thing 

last year by placing it on sound actuarial footing and I would urge 

you not to backslide and go in the opposite direction. 

Ms. Kichak, did you want to add anything to that? 

Ms. KICHAK. Only that the fact that the Postal Service being 

treated differently applies to a broad range of items. Congress 

mandated in 1974 that they would start to fund their Civil Service 

Retirement System through postal rates. So they have always been 

treated differently and this is just one more piece of making them 

cover these costs through stamp prices. 

Chairman COLLINS. You could make a case that since the pension costs for military service have nothing to do with postal operations, you could almost make the case that whether you are talking about the FERS system or the CSRS system that postal ratepayers should not be bearing that cost. But I am not trying to 

change it for FERS. I am trying to have equity in the treatment 

of the Postal Service vis-a-vis other Federal agencies in how those 

costs are treated for the pre-1984 employees who are veterans. It 

has a huge economic impact on the Postal Service, as you know, 

which is obviously of concern to the administration as well because 

whoever bears that cost is going to be presented with a pretty hefty 

bill. 

50

Senator Akaka. 

Senator AKAKA. Thank you very much, Madam Chairman. 

Mr. Blair, as you know the Department of Homeland Security 

and Department of Defense have been authorized to establish new 

human resource systems which include performance-based pay. 

The Postal Service also recommends that the Postal Service implement a pay-for-performance system for all employees rather than 

just its managers. However, many experts agree that there is, at 

a minimum, a 5-year learning curve when creating a new personnel system. There are also substantial costs associated with this 

as well. 

My question to you is, what would be gained if the Postal Service 

extended pay-for-performance to all its employees? And do you believe that the adoption of a pay-for-performance system should be 

part of collective bargaining agreements? 

Mr. BLAIR. In answer to your first question, the administration 

is on record as generally supporting pay-for-performance systems. 

We think that pay-for-performance properly rewards people by 

properly recognizing outstanding performance, and it is a strategic 

management tool. 

In answer to your second question, we have limited experience 

in the rest of the Federal Government, the non-postal side, in dealing with collective bargaining over pay. So this is almost an area 

of first impression. Not totally first impression, but it is a newer 

area for us. So we would really be starting from scratch in looking 

at how something like that would be done. 

Generally speaking, to make a performance-based system successful the agency would need to establish the expectations up 

front, deal with demonstrable results, and make sure that the 

agency’s strategic plan and annual performance plans are linked as 

well. But it is a difficult process in applying it across the board. 

In the rest of the Federal Government we are implementing it for 

the Senior Executive Service as we stand right now. We have the 

new Human Capital Performance Fund. 

But we are changing the culture in government. No longer do we 

want to see most of the money being siphoned off for large acrossthe-board pay increases. Rather, we would prefer to see the money 

available to reward outstanding performers. I think that is a general good government principle and I think that those general good 

government principles could also be applied in the Postal Service, 

recognizing that they have a different environment in which they 

operate. 

Senator AKAKA. Thank you. I am also concerned, like the Chairman, of the cost of military service. You mentioned OPM’s position 

that the Postal Service should fund the cost of military service even 

though other Federal agencies do not have this obligation. Do you 

know if other government entities that generate revenue like the 

SEC and other FIRREA agencies fund the cost of their workers 

who have military service? 

Mr. BLAIR. At this point it is my understanding that Treasury 

picks up the difference, any of the normal cost differences above 

the 7 percent contribution that the agency makes. So in other 

words, not only with the military service but also with cost-of-living 

adjustments and any costs over the 7 percent contribution that an 

51

agency makes on behalf of its employees, Treasury picks up. But 

sound pension policy would require that those agencies pick up the 

full difference in the normal cost. That is why CSRS should be on 

the same actuarial and funding footing as the Federal Employees’ 

Retirement System. 

Senator AKAKA. Mr. Blair, I am sure you would agree with me 

that any changes in funding obligations for retirement-related obligation could impact postal ratepayers, taxpayers, and the Federal 

budget. How would you assign the responsibility, and how would 

you structure a mechanism for covering the cost of providing retirement related benefits? 

Mr. BLAIR. I think that we have done that in a sound manner 

with the legislation that was enacted last year. We need to remember where we came from with this legislation. That over the course 

of the last 30 years we have attempted to have the Postal Service 

pay for its pension obligations in a random, piecemeal fashion. 

First, with covering the cost of salary increases and then with covering the cost-of-living adjustments and then making that retroactive. But it was all done on what we call a static basis, meaning 

that we projected what the cost would be, put the payments in legislation, and never had to revisit them. 

But at the urging of this Committee, GAO came to OPM, 18 

months ago I believe it was, and said, why don’t you look at this? 

For the first time we looked at the Postal Service’s pension obligations apart from the rest of the Federal Government and said, what 

would it look like if we took their system and applied a dynamic 

funding process to that from 1971? What we came up with was the 

fact that by continuing those revenue streams that they had into 

the Federal Government for pieces and parts of the retirement 

component, they would have overfunded their entire pension obligation by over $78 billion. 

So that is why the administration recommended, and this Committee did the right thing, in moving quickly with legislation 

changing the methodology under which we determine funding for 

the Postal Service. We think that that is the right thing. We have 

put the Postal Service’s pension funding on sound actuarial funding. But we are concerned that efforts to shift back to the taxpayers bits and pieces and components of that funding do not move 

us in the right direction. Rather it moves us in the wrong direction. 

Because we would like to see the rest of the government moved in 

the same direction as we have done for the Postal Service. 

Senator AKAKA. Thank you very much for your responses, Mr. 

Blair. Thank you, Madam Chairman. 

Chairman COLLINS. Thank you. 

Thank you very much for your testimony today. We look forward 

to working with both of you very closely as we continue to examine 

these important issues. Thank you. 

I would now like to call forth our second panel of witnesses. William Young is the President of the National Association——

Senator AKAKA. Madam Chairman, may I? 

Chairman COLLINS. Yes. 

Senator AKAKA. Madam Chairman, I want to take a moment to 

wish our witness well, and also note that he celebrated a birthday 

yesterday. 

52

1The prepared statement of Mr. Young appears in the Appendix on page 186. 

Chairman COLLINS. Are you going to tell us which one? 

Senator AKAKA. No. 

Chairman COLLINS. He is a good friend to you, Mr. Blair. I join 

in wishing you happy birthday as well. 

Senator AKAKA. Thank you, Madam Chairman. 

Chairman COLLINS. Thank you. 

William Young is the Pesident of the National Association of Letter Carriers. He began his postal career almost 40 years ago. 

Dale Holton is the National President of the National Rural Letter Carriers of America. He began his postal career in 1976 as a 

substitute letter carrier. 

William Burrus is the President of the American Postal Workers 

Union. Prior to being elected president he served for 21 years as 

the APWU’s executive vice president and he began his career as a 

distribution clerk in 1958. 

John Hegarty is the President of the National Postal Mail Handlers Union. He previously served as President of Local 301 in New 

England, which is the second largest local union affiliated with the 

mail handlers union. This is his 20th year with the Postal Service. 

So we are very pleased to welcome you gentlemen here today, not 

only as the elected presidents of your respective unions but also because you have a wealth of experience in the Postal Service that 

I think will be very helpful to this Committee as we continue to 

work through these issues. 

Mr. Young, we will start with you. 

TESTIMONY OF WILLIAM YOUNG,1 PRESIDENT, NATIONAL 

ASSOCIATION OF LETTER CARRIERS 

Mr. YOUNG. Good morning. On behalf of the 300,000 active and 

retired city letter carriers across the Nation, thank you for this opportunity to share our views on the crucial issue of postal reform. 

NALC is the exclusive collective bargaining agent representative of 

approximately 220,000 city letter carriers who work in every State 

and Territory in the Nation. City letter carriers have a tremendous 

stake in the future of the Postal Service. For them postal reform 

is not simply a policy matter or even a political issue. It is a matter 

of great personal importance for themselves and their families. So 

I wish to thank Chairman Collins, Senator Carper, and all the 

Members of this Committee for taking up this vitally important 

issue. 

Over the past decade my union has been urging Congress to pursue comprehensive postal reform. We have long recognized the 

need for a new business model for the Postal Service in the age of 

the Internet. Until recently the debate on postal reform has been 

largely confined to the House of Representatives. Thanks to the 

new leadership of this Committee and the work of the recent Presidential Commission, both ends of Pennsylvania Avenue, we finally 

have a real chance for progress on postal reform. 

NALC supports the general principles for reform recently outlined by President Bush and we look forward to working with the 

leaders of both houses of Congress to achieve bipartisan support. 

Today I would like to briefly address the big picture of postal reVerDate 0ct 09 2002 10:17 May 18, 2004 Jkt 092687 PO 00000 Frm 00056 Fmt 6601 Sfmt 6601 C:\DOCS\92687.TXT SAFFAIRS PsN: PHOGAN
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form before turning to the key workforce issues that are the main 

topic of the panel’s testimony. 

NALC believes that the Postal Service’s unmatched ability to 

reach every household and business in America 6 days a week is 

a vital part of the Nation’s infrastructure. Universal service of letters, direct mail, periodicals, and parcels by the USPS is absolutely 

essential for the economic health of the United States. As such, it 

is important to take steps now to strengthen the Postal Service’s 

ability to function in the face of technological change. 

We urge Congress to reject a pure downsizing strategy and to 

embrace an empowerment strategy for the Postal Service. The 

USPS should be given the commercial freedom it needs to maximize the value of its universal service network by adding services 

and working with its customers to find new uses of the mail to replace those uses that are now migrating to electronic alternatives. 

Greater commercial freedom, which involves flexibility over pricing 

and the ability to strike partnerships to optimize the value of its 

network would allow the Postal Service to maximize revenues and 

control costs while retaining the value of universal service. 

We recognize this approach poses a difficult challenge of balancing the commercial concerns and public service considerations, 

but we believe it is possible to give the Postal Service the flexibility 

it needs while protecting the legitimate concerns of competitors, 

customers and the public at large. 

Let me now turn to the main topic of the hearing, postal workforce issues. Our starting point is simple: Collective bargaining is 

a fundamental right of all, and the Postal Reorganization Act rightly established collective bargaining in the Postal Service under the 

auspices of the National Labor Relations Act. I would like to make 

a couple of general observations before suggesting some guiding 

principles for workforce reforms. 

First, I would like to point out that collective bargaining in the 

Postal Service has been a resounding success. Since the Postal Reorganization Act was enacted there has not been a single work 

stoppage or significant disruption in service as a result of labor relations. Given that the Postal Reorganization Act was enacted in 

part as a result of a national strike in 1970, this 34-year record of 

peaceful labor relations should not be minimized. The fact is that 

postal collective bargaining has been a win-win-win proposition. 

Postal workers have achieved decent pay and benefits, taxpayers 

have saved billions through the elimination of direct and indirect 

taxpayer subsidies, and the mailers have enjoyed affordable postage rates. 

Second, it is important to note that neither the postal unions nor 

postal management favor radical changes to the existing collective 

bargaining system. Given that all sides agree that mail delivery is 

an essential public service, that we should not be disrupted by 

lockouts or strikes, a workable system for resolving collective bargaining impasses is essential. NALC believes the existing system 

of interest arbitration has worked extremely well. 

Third, it is important to note that postal labor relations have improved dramatically in recent years. Three of the four unions now 

have labor contracts in place that were voluntarily negotiated, and 

all four have made progress in reducing the number of workplace 

54

grievances using various mechanisms. These improvements occurred not because Congress or the GAO or any other outside party 

mandated them. They happened because the parties themselves 

worked very hard to find common ground and to seek ways to resolve mutual problems. Postmaster General Jack Potter and his 

team deserve credit for working with us to achieve this transformation. 

With these general points in mind, NALC urges you to abide by 

four principles when you consider the reform of the collective bargaining system. One, I urge you to follow the Hippocratic oath, 

first, do no harm. The system we have is not perfect. Indeed, no 

system is perfect. But the parties have learned how to work together within the current framework, and as I outlined above, the 

process has worked well for all concerned. At a time of great 

change for the Postal Service in almost all other areas, labor stability is crucial. 

Two, maintain the flexibility that is currently built into the PRA. 

The PRA contains specific but flexible timetables for negotiating 

contracts and resolving collective bargaining impasses. It also provides a menu of options for impasse resolution and it gives the parties the flexibility to shape these options for use when appropriate 

as conditions change. Indeed, the unions at this table have used at 

various times mediation, fact-finding, mediation-arbitration, mediation-fact-finding in combination, and last best offer arbitration. In 

the fact of constant change, the flexibility of the current law is a 

virtue. 

Three, avoid politicizing the collective bargaining process. Congressional or White House intervention in the process would be 

highly destructive. This would inevitably happen if a politically appointed regulatory body were injected into the negotiations process. 

Four, avoid exposing the process to outside litigation. Subjecting 

the results of collective bargaining to litigation before a postal regulatory board as proposed by the President’s Commission would be 

disastrous to the process. Depending on the prevailing political 

winds of the day and the makeup of the regulatory board at any 

particular moment, either side might be tempted to try to obtain 

from the regulators what they could not expect to achieve through 

good-faith bargaining. 

Finally I wish to address a couple of specific issues that have 

arisen in the wake of the report of the President’s Commission on 

the Postal Service, those being the direct negotiations of pension 

and health benefits and the changes in the system of interest arbitration. 

I am not sure that this Committee understands, perhaps they do, 

that in the current law we subject a lot of this to collective bargaining. Not the benefits, but the pay, the cost of the premiums 

that employees pay is subject to collective bargaining. In the area 

of health benefits, postal management and its unions already negotiate the share of premiums to be paid by the workers and the 

Postal Service. When it comes to negotiating wage increases, the 

rising costs of pensions is explicitly discussed by the parties. The 

so-called roll-up factor for employee fringe benefits, the added cost 

of benefits when postal wages are increased, is never far from the 

negotiator’s mind. You can be sure that no interest arbitration 

55

panel employed over the past 20 years has been spared evidence 

from both sides on the cost of health and benefit pension benefits. 

My point is this. Although the parties do not directly negotiate 

over all aspects of postal benefit costs, these costs are not ignored, 

and invariably they affect the results of our wage negotiations. Indeed, a close examination of postal wage trends over the past 25 

years reveals that postal wages have increased nearly 15 percent 

less than wages in the private sector as measured by the employment cost index. This wage restraint is a direct reflection of the efforts of negotiators, and in some instances arbitrators, to restrain 

wage costs in the face of rising health and pension cost for the 

Postal Service, a trend that has affected all American employers. 

Given this context, we simply believe it is not necessary to formally place health and pension programs on the collective bargaining table. The parties already effectively take these costs into 

account under the existing system. 

I would like to end with a couple of points about the reforms suggested in the Commission’s report to the interest arbitration procedure. We believe these changes are unnecessary and counterproductive for a couple of very practical reasons. 

First, the Commission’s proposal would discard 30 years of experience by the parties and require us to start all over again under 

a radically different process, a prospect that would inevitably impose significant costs on both sides. 

Second, we believe the only workable changes to the system of 

collective bargaining must be developed and negotiated by the parties themselves, not externally legislated or mandated. Both parties 

must see this process as their process for the results to be legitimate. The existing system gives us the flexibility to shape the dispute resolution process without outside intervention. 

Allow me to add one last note on interest arbitration. We believe 

the existing dispute resolution system is a fair and acceptable alternative to the right to strike. I say this not because we always 

prevail when we go to interest arbitration. Indeed, on more than 

one occasion we have lost. In the 1990’s, an interest arbitration 

panel chaired by Richard Mittenthal adopted a USPS proposal to 

create a lower paid temporary workforce to handle the transition 

to full automation. And another panel chaired by Rolf Valtin increased the employee’s share of health benefits premiums. 

But I say it is fair because win or lose my members know that 

the existing system gives us a fair shot on the merits and therefore 

they accept the results as legitimate. The Commission’s proposed 

changes in the area of interest arbitration fail this basic test of the 

fairness. 

I want to conclude my testimony by repeating something I told 

the members of the President’s Commission at its first public hearing in February 2003. Good labor relations must be built on trust 

and on good faith between the parties. No amount of tinkering with 

the mechanics of the collective bargaining process will change that 

basic fact. At this moment of great challenges for the Postal Service 

we have worked hard with the Postmaster General to build trust 

between us and to improve the workplace culture in the Postal 

Service. Please tread lightly in these areas so as not to risk the 

progress we made. 

56

1The prepared statement of Mr. Holton appears in the Appendix on page 192. 

I offer this Committee the full cooperation of the men and women 

who deliver the Nation’s mail every day. Working together we can 

ensure that every American household and business will continue 

to enjoy the best postal service in the world for decades to come. 

Thank you very much. 

Chairman COLLINS. Thank you. Mr. Holton. 

TESTIMONY OF DALE HOLTON,1 NATIONAL PRESIDENT, 

NATIONAL RURAL LETTER CARRIERS 

Mr. HOLTON. Good morning, Chairman Collins and Senator 

Akaka. My name is Dale Holton and I am President of the 103,000-

member National Rural Letter Carriers Association. 

Once again we thank President Bush for creating the Commission on the future of the Postal Service. We think the commissioners did a very good job in a very short window of time, being 

6 months instead of maybe a year or more. Given their deadline 

we believe their intents were laudable. However, their governance 

recommendations are puzzling, their collective bargaining recommendations are problematic, and their pension and health benefit 

recommendations are perilous. 

Under the issue of governance, the proposed new regulator is assigned a study of pay comparability. In our opinion, pay comparability is a management-labor issue, not a regulatory issue. No 

other regulatory agency in Washington conducts wage comparability studies of workers in industries it regulates; not the 

FAA, the SEC, FTC, or FDIC. We believe that any discrepancies 

in comparability that are perceived to exist can be addressed 

through collective bargaining between management and labor. If 

the Postal Service goes in a downward revenue spiral we anticipate 

that through collective bargaining and ultimately interest arbitration if it becomes necessary, the case will be made by the Postal 

Service to hold the line on wages or provide for increased productivity in order to balance those economic factors. I speak from experience because after all, this is what happened to us in our last 

round of negotiations. 

With regard to the changes proposed to collective bargaining, we 

find them to be problematic. The system of collective bargaining 

that Congress designed 30 years ago continues to work well today. 

This Commission proposes changes in the law that would remove 

flexibility. We believe that the optional system works best. 

In binding arbitration there is no guarantee that either side will 

prevail. The National Rural Letter Carriers Association and the 

Postal Service 2000 contract negotiations went to binding arbitration. Both parties opted to utilize a single arbitrator all the way 

through from mediation to binding arbitration. You could say we 

utilized the med-arb process. We opted for it. We mutually agreed 

to do it. 

Now I would have to say that one of your previous witnesses 

talked about what a great success that process was. I would dare 

say if you questioned any one of 103,000 members that we represent they would disagree. But I would like to explain that rural 

letter carriers are paid on an evaluated system. We have to mulVerDate 0ct 09 2002 10:17 May 18, 2004 Jkt 092687 PO 00000 Frm 00060 Fmt 6601 Sfmt 6601 C:\DOCS\92687.TXT SAFFAIRS PsN: PHOGAN
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tiply the amount of our route mileage, the number of deliveries, 

and an actual count of the mail in order to get a result in total 

hours per week, which is the route’s evaluation. This evaluation is 

the basis of the rural carrier’s compensation. 

Arbitrator John Calhoun Wells, listening to all the testimony, 

awarded the Postal Service an increase in the work pace of rural 

carriers as they case their mail. The Wells award decreased the 

time value of each piece of mail in the annual mail count. The 

award decreased the pay of the average rural carrier 3.1 hours per 

week. Each hour is worth $1,500 a year. Arbitrator Wells granted 

a pay raise of $2,600 which did not compensate for the $4,600 loss. 

Senators, you do the math and you tell me who won the arbitration. 

The point is, binding arbitration does not guarantee that the 

union is going to win every time. The savings to the Postal Service 

by their own figures was approximately 12 million less paid hours 

annually due to this arbitration award. The award savings to the 

Postal Service for rural carrier compensation is $324 million annually. 

During those arbitration proceedings it took the NRLCA and the 

Postal Service 7 months to schedule 21 days of hearings. The expedited timetables proposed by the Commission are laudable but we 

feel they are unattainable. The most impossible proposal is to 

schedule three independent arbitrators and wrap it up in 60 days. 

Again, it took us 7 months to get 21 days out of one arbitrator. We 

cannot imagine scheduling three in a 60-day window. That is unless you only count the days that we actually hold hearings. 

My points being that binding arbitration does not always favor 

the union, the existing procedures allow for flexibility to do the 

things that the Commission proposes, and the proposals to change 

the collective bargaining procedures and timetables are not workable. All of these points make the proposal by the Commission to 

change collective bargaining problematic. 

The Commission’s idea that pension and health benefits should 

be subject to collective bargaining are perilous. Currently the Postal Service has no responsibility to manage a pension or a health 

benefits system. The Office of Personnel Management performs 

that task quite capably. Postal workers are one of every three civilian Federal employees. Removing one-third of the participants out 

of the current retirement system and health benefit program could 

have a serious adverse impact on the existing FERS and FEHB 

programs. 

In order to separate the pension system, the Postal Service would 

need three critical items. They would need investment experts, 

elaborate recordkeeping, and creation of a pension trust fund. The 

National Rural Letter Carriers’ Association and probably the other 

unions would demand some kind of joint trusteeship of any such 

pension fund. 

In the health benefit area we already negotiate. The NRLCA 

health plan negotiates with our insurance underwriter of 40 years, 

the Mutual of Omaha Insurance Company. We then negotiate with 

OPM. For example, the rural carrier health benefit plan could decide next year to pay 100 percent of annual mammographies, since 

our workforce is 55 percent female. Mutual of Omaha’s actuaries 

58

1The prepared statement of Mr. Burrus appears in the Appendix on page 199. 

would estimate how many enrollees would utilize this benefit. Mutual would estimate the amount of premium dollars to reserve for 

this increased benefit. We negotiate how that fits in with allocation 

of all other premium dollars. OPM would then ask NRLCA how it 

proposes to pay for that benefit. Are we going to raise premiums, 

raise the copay, or lower an existing benefit? 

Finally, the percentage of the Postal Service’s contribution to 

each employee’s health benefit premium is currently subject to collective bargaining. Any changes to the current status of pension 

and health benefits are perilous to the programs, the Postal Service 

and the employee. I believe it was the first PMG in Poor Richard’s 

Almanac who said, haste makes waste. In their haste, the Commission made recommendations that to us are puzzling, problematic, 

and perilous. 

I want to thank you for the opportunity to appear here today and 

ask that my full remarks that were submitted earlier be entered 

into the record. 

Chairman COLLINS. Without objection, all statements will be 

printed in the record. Thank you for your testimony. 

Mr. Burrus. 

TESTIMONY OF WILLIAM BURRUS,1 PRESIDENT, AMERICAN 

POSTAL WORKERS UNION, AFL–CIO 

Mr. BURRUS. Good morning, Chairman Collins, and Senator 

Akaka. Thank you for the opportunity to testify on behalf of the 

more than 300,000 members of the American Postal Workers 

Union, AFL–CIO. We are the largest single bargaining union in 

our country. 

We appreciate the opportunity to share with you the views of our 

members on a most important issue, postal reform. Thank you for 

your continuing interest in this vital subject. In compliance to your 

request to limit my testimony to 10 minutes I will summarize my 

oral statement and will submit my printed text for the record. 

This Committee has a historic opportunity to protect and preserve the U.S. Postal Service. But we must be careful to ensure 

that our efforts in fact preserve the Postal Service for the American 

public. Too often in this rush for reform, special interests have 

been considered without balancing the broader needs of our Nation 

and its individual citizens. The debate has been driven by the mailing industry as it seeks to shape the Postal Service in a way that 

best serves its interest. This is neither suprising or bad, but it is 

very important that the Committee distinguish between the public 

interest and universal mail service and uniform rates and the interest of major mailers in maximizing their profits. 

The Committee has requested that testimony be limited to an 

analysis of the Presidential Commission’s workforce related recommendations and I appreciate the flexibility that you afford the 

witnesses to expand beyond the official request. As president of the 

union, foremost among my concerns in this review are the interest 

of our members. But the long-term health of the Postal Service is 

also a concern, and we promise to join with those who seek positive 

change. 

59

Before I discuss the specific workforce recommendations in the 

Commission’s report, I urge that primary attention be focused on 

the Commission recommendation that the Postal Service be relieved of the military retiree costs and that the escrow of the CSRS 

contribution be resolved. 

A third consideration that is also important is resolution of the 

OPM decision to shift to the Postal Service $86 billion in cost for 

services attributed to previous Federal Government employment. 

These would be enormous burdens to the Postal Service, to consumers, and to the mailing industry, and the correction of these 

problems may be the most important actions that Congress could 

take to preserve and protect the Postal Service. 

The Commission’s deliberations. In considering the recommendations of the Commission report I want to emphasize that the Presidential Commission did not give sufficient consideration to the 

needs of individual Americans and small businesses. As a result 

there were no recommendations in the report addressing concerns 

of the public. The commissioners hearings and private meetings 

were dominated by large mailers. While their interests should be 

considered, it should not be to the exclusion of all others. It is now 

up to the Members of Congress to examine the public interest. 

The widespread support for postal reform is based on the 

premise that the Postal Service is a failing institution, one that is 

at risk of entering a death spiral. But I believe it is premature to 

make a final determination on this matter. We must remember 

that postal volume continues to recover from the effects of several 

events, the terrorist attacks of September 11, followed by the anthrax attack that took the lives of two of our members. These two 

events were superimposed over the recession that began in early 

2001 from which we are only now beginning to recover, a relatively 

weak and inconsistent recovery. If one were to extract the impact 

of technological diversion, these events standing alone would have 

had a serious impact on postal volume. 

But there are positive signs. The Postal Service recently reported 

that mail volume during the 2003 Christmas mailing season increased sharply over the previous year, resulting in the highest volume period in the history of the Postal Service. Are we to believe 

that technological impact took a holiday this Christmas, or are 

other factors at work? 

Throughout this period of technological upheaval the Postal Service has shown a remarkable capacity to provide excellent service. 

Despite declining mail volume, productivity increased and service 

standards were maintained. A recent privacy trust survey ranked 

the Postal Service No. 1 in trust. These are remarkable achievements. 

Because of the unprecedented productivity increases and efficiency there is strong reason to believe that the Postal Service revenues could be sufficient to support universal service far into the 

future if rates are properly set. My union, the APWU, has been a 

vocal critic of unfair rate setting that benefits some very large 

mailers at the expense of consumers and small businesses. The 

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ice. These excessive discounts cost the Postal Service hundreds of 

millions of dollars in lost revenue every year. 

A recent personal experience highlights the inequities of excessive postage discounts. Several weeks ago I received two FirstClass letters, one bearing a 37-cent stamp and one which paid 27 

cents. Both letters were bar-coded to be processed efficiently by the 

postal mail stream. The letter with 27 cents postage was deposited 

in the mail stream in Charlotte, North Carolina to be processed 

and transported to southern Maryland where I live. The one with 

37 cents was deposited in Washington, DC, some 400 miles closer 

to its destination. The 27-cent letter required manual distribution 

by the Postal Service itself once it was received in the delivery 

unit. The postage rate for the most costly letter including transportation and processing was in fact 10 cents less. 

The suggestion that mail volume will suffer if discounts are adjusted to represent accurate costs avoided is ludicrous on its face. 

This argument taken to its logical conclusion is that unless the 

Postal Service loses money on discounted mail, mailers will find 

other alternatives. If this were true, it would not make sense—to 

discharge the notion that logic—that there must be a connection 

between postal costs and discounts. Certainly free postage would 

guarantee increased volume. 

The problem of discounts was acknowledged by the Presidential 

Commission’s recommendations that all future discounts be limited 

to the cost avoided. This is simply not good enough. That horse has 

left the barn and we need to get it back to preserve universal service in the public interest. 

Some interested parties have responded by calling for bottom-up 

pricing or bottom-up costing. These concepts would establish a system whereby mailers pay a pro rated share for the services they 

use. I would urge the Congress or the rate Commission to be extremely careful in pursuing this rate strategy. The primary consideration must be adequate funding for universal service at uniform 

rates. Lurking on the horizon would be exceptions that would result in surcharges for services. 

I believe that we will all agree that postal reform will have marginal impact on future mail volume. And if not, adjusting to the 

current business model must focus on future rates. Overlooked on 

this analysis is the fact that the current business model does not 

determine the relative contribution to the institutional cost by 

First-Class Mail as compared to standard mail. If First-Class Mail 

grows or declines, the question of dividing institutional cost among 

all classes of mail will remain. At present it takes approximately 

three pieces of standard mail to make up for one piece of FirstClass Mail. This distribution of cost is a rate-setting decision that 

will be unresolved by postal reform. The elimination of excessive 

discounts along with more appropriate pricing would bolster postal 

revenues and preserve universal service. 

Now I will discuss the specific workforce related Commission recommendations. As the Committee specifically requested I will now 

state our views on the workforce related recommendations of the 

commission, and I begin with our conclusion that the workforce recommendations are outrageous and totally unacceptable to me and 

to the workers I represent. 

61

As I have previously said, on the subject of workforce issues the 

report is fundamentally dishonest. The report repeatedly states 

that the Commission supports the rights of workers to engage in 

collective bargaining. Nevertheless, it recommends the establishment of a regulatory board appointed by the President with the authority to set compensation of postal employees. It is completely inconsistent and totally unacceptable for the Commission to espouse 

a commitment to collective bargaining while simultaneously recommending that postal compensation be dictated by an appointed 

board. 

Testifying before this Committee on September 17, 2003, CoChairman James Johnson testified that any employee compensation change would be prospective and that current employees would 

not be impacted. While in fact Commission recommendations would 

authorize the board to impose a cap on the compensation of new 

employees and to reduce the compensation of current employees. 

While the Commission recommends pay-for-performance it fails to 

note that there is nothing in the current law that prohibits or inhibits pay-for-performance. In fact we have negotiated on several 

occasions at the bargaining table on the subject of pay-for-performance. 

The Commission seems to believe that postal workers are fools. 

The following disingenuous platitudes appear in the report. One, 

plans for modernizing the Nation’s postal network must effectively 

utilize the Postal Service’s most valuable asset, its employees. Two, 

essential to this process is the ability of management and labor to 

work together. Three, first and foremost, Postal Service management must repair its strained relationship with its employees. 

In contrast to these statements, the Commission’s specific recommendations are an invitation to open conflict with its postal employees. The report paid lip service to the importance of good labor 

relations, while making recommendations that would guarantee 

labor conflict. 

The Commission’s recommendations to change the collective bargaining process are unwise and would be counterproductive. Current law permits the parties maximum flexibility in resolving contractual impasse and over the years the parties have negotiated 

every subject identified by the commission: Health benefits, flexibility, retirement, no layoff protection, wages, a two-tier workforce, 

and many others including pay-for-performance. When the parties 

have disagreed they have used last best final offer, fact-finding, 

mediation, and at least once the parties’ mediator became the neutral interest arbitrator. But more importantly, most often we have 

agreed at the bargaining table and concluded negotiations without 

outside interference. 

The Commission is wrong to say that any one of these methods 

is the best way of helping the parties reach agreement. Each negotiation brings its own challenges, and the best way to meet these 

challenges is to permit the parties to adjust to the conditions at 

hand rather than to impose a fixed statutory process. We know 

how to reach agreement and we have done so 65 times over the 32-

year period of collective bargaining. 

Benefits. The Commission urged Congress to consider removing 

postal employees from Federal retirement and retiree health care 

62

plans. This would be a diametric departure from appropriate public 

policy. We categorically reject the contention that it would be appropriate for postal employees now or in the future to be paid 

fringe benefits that are less than those provided to other Federal 

employees. 

In recent years postal workers have repeatedly stood on the front 

lines of homeland security. When hired, they submit to background 

checks and fingerprinting, and they are administered a Federal 

oath of office. The anthrax attack that resulted in the death of two 

of our members and the recent ricin attacks expose the perils of 

postal employment and our role in the Nation’s defense. In the anthrax attacks we rationalized the disparate treatment of postal employees as compared to the occupants of Senate office buildings. 

But the ricin attacks exposed the fact that there is a double standard. Senate office buildings are vacated and tested for a period as 

long as it takes while postal employees are not even informed that 

they have been exposed. 

The administration has been quoted as saying that those who 

needed to know and needed to act upon it were aware of it. And 

the administration budget now includes a complete elimination of 

homeland security building decontamination research. The message 

is no warning, no cleanup. This is unacceptable. Postal workers 

will not be treated like the canaries in the mining industry in years 

gone by. 

Health benefits, whether for active workers and the families, for 

people who have been injured on the job, or for retirees and their 

families are very powerful and emotional issues. It would be a callous act to reduce the benefits of postal workers injured by anthrax 

or exposed to ricin. How would this be explained to the widows of 

Brothers Curseen or Morris? 

The collective bargaining provisions in existing law have worked 

well. They have resulted in labor costs that have tracked the increase in the CPI and the ECI. In comparison, we believe that the 

wages and fringe benefits paid by UPS and FedEx provide an appropriate and useful yardstick for postal compensation. These are 

the largest American companies whose workers perform some of 

the same tasks that we perform. They are, of course, direct competitors to the Postal Service. These companies pay their career 

employees wages and benefits that compare very favorably to the 

wages and benefits our members receive. 

The American Postal Workers Union finds the Commission report unacceptable in its recommendations on collective bargaining. 

Chairman COLLINS. Excuse me, Mr. Burrus, you are now almost 

7 minutes over your allotted time, so if I could ask you to try to 

summarize. Thank you. 

Mr. BURRUS. I will conclude. 

In conclusion, I want to return to the most urgent needs of the 

Postal Service, military retirement costs at $27 billion, the escrow 

cost at $10 billion, and that the position of my union not be misunderstood on the broad issue of postal reform. Because of our outspoken positions on the Presidential Commission work-sharing discounts, it is convenient to report that APW opposes reform. This 

is not true, and for the record, we could support structural change 

to the Postal Reorganization Act that would improve the Postal 

63

1The prepared statement of Mr. Hegarty appears in the Appendix on page 216. 

Service beyond relief from the financial burdens. We support rate 

flexibility, the ability to add new products and better utilization of 

the network, the right to borrow, invest, and retain earnings, and 

the limitation of work-sharing discounts. These changes would ensure the continued effectiveness of the Postal Service far into the 

future. 

Thank you for your patience. Thank you again for your continuing interest in the Postal Service and I would be pleased to answer any questions you may have. 

Chairman COLLINS. Thank you, Mr. Burrus. Mr. Hegarty. 

TESTIMONY OF JOHN F. HEGARTY,1 PRESIDENT, NATIONAL 

POSTAL MAIL HANDLERS UNION 

Mr. HEGARTY. Good morning, Madam Chairman, Senator Carper. 

Thank you for the opportunity to testify, and also thank you to the 

rest of the Committee. My name is John Hegarty. I am the President of the National Postal Mail Handlers Union, which serves as 

the exclusive bargaining agent for 57,000 mail handlers. 

The Mail Handlers Union hopes to remain an active participant 

in the process of postal reform. The recently released White House 

principles show that the White House has considerable confidence 

in the expertise and legislative initiative of your Committee and 

that of your House counterparts. I would like to congratulate each 

of you who have provided leadership on this issue. 

I would like to take a few moments to comment on the latest terrorist homeland security issue affecting both Congress and the U.S. 

Postal Service. I am talking, of course, about the ricin incident in 

Senator Frist’s mailroom earlier this month. It is perhaps ironic 

that this threat occurred on the evening before we were scheduled 

to testify before this Committee on the future of the Postal Service 

and its employees. The advance National Postal Mail Handlers 

Union written testimony raised the danger of substances such as 

ricin and anthrax and noted why career mail handlers are so crucial to the safety and security of our country. That hearing, obviously, was postponed but the need for safety and security goes on. 

As a mail handler from a large processing plant in Springfield, 

Massachusetts let me briefly explain how these types of terrorist 

threats could impact mail handlers. Mail handlers are generally 

the first to handle mail when it enters a processing plant. Raw or 

unprocessed mail which could be letter-sized envelopes or larger 

flat-sized envelopes, and in some operations parcels and packages 

are dumped typically on a conveyor belt and sorted or culled by 

mail handlers. Letters and flats would then be run through a cancellation machine to cancel the stamps and would then be forwarded to other mail processing machinery throughout the building, which is typically manned by either mail handlers or clerks. 

After all the processing is completed mail handlers load the processed mail into the outbound transportation for smaller post offices 

to be sorted where the letter carriers will then, and the rural carriers will deliver to the addresses. 

As you can see, this is a labor-intensive, hands-on type of mail 

processing. Mail handlers, and indeed all craft employees are thereVerDate 0ct 09 2002 10:17 May 18, 2004 Jkt 092687 PO 00000 Frm 00067 Fmt 6601 Sfmt 6601 C:\DOCS\92687.TXT SAFFAIRS PsN: PHOGAN
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fore on the front lines when it comes to possible exposure to biological agents or other terrorist threats through the mail. 

As always, the safety of mail handlers and other postal employees is the first concern of the National Postal Mail Handlers Union. 

We are working with the Postal Service through the Task Force on 

Mail Security on dangerous incidents such as this. We appreciate 

the funding that Congress has already appropriated for biodetection systems to keep our employees safe and we look forward to 

working with Congress in the future on these issues. 

The Mail Handlers Union also appreciates the swiftness of your 

reaction to the CSRS funding problem and the financial strain 

caused by the deadly anthrax attacks. Similar financial issues remain, however, and congressional resolution of both the escrow 

issue and the military service issue are of immediate and paramount importance to the financial future of the Postal Service. Not 

releasing the postal escrow account or forcing the Postal Service to 

pick up more than $27 billion in military costs that no other Federal agency has to pay certainly will result in a severe crisis to the 

Postal Service and ultimately a hike in the cost of postage to all 

ratepayers. We are prepared to do whatever it takes to get both of 

these matters resolved swiftly. 

My union also counts itself as a strong supporter of legislative 

change that would grant the Postal Service additional flexibility in 

pricing, borrowing and the design of postal products. Such changes 

must allow the Postal Service to establish postal rates that remain 

affordable both to the major business mailers and the average 

American consumer while providing sufficient revenue to protect 

and support the infrastructure that universal service requires, and 

to provide postal employees with a decent and fair standard of living. 

Let me turn directly to collective bargaining in the Postal Service. I truly believe that the term ‘‘best practices’’ can be applied to 

Postal Service labor relations. In general our collective bargaining 

process is seen by others as a model of flexibility and labor peace. 

In recent years, moreover, all parties have been working on these 

matters diligently and our efforts have resulted in some dramatic 

progress. The Mail Handlers Union strongly endorses the current 

process for collective bargaining under the Postal Reorganization 

Act. Our current national agreement covers the period from November 2000 through November 2006. Although it originally was 

scheduled to terminate later this year, we recently reached an 

agreement with the Postal Service on a two-year extension that 

was overwhelmingly ratified by our membership. 

Nor is productive collective bargaining a recent phenomenon. 

Since the Postal Reorganization Act was enacted in 1970 we have 

engaged in 13 rounds of full collective bargaining with the Postal 

Service, 8 of which, including the last three, have resulted in voluntary agreements that were endorsed by postal management and 

ratified by the union membership. The other five were resolved 

through arbitration with the results willingly accepted by both parties. On at least three of the five occasions when the parties used 

arbitration, however, the parties actually settled most open issues 

and arbitrated only one or two issues that could not be resolved 

without an arbitrator’s decision. 

65

Even when arbitration does occur, there are no guarantees. For 

example, arbitration in the 1984 round of bargaining created a 

lower entry rate for new mail handlers. An arbitration in the 1990 

round of bargaining produced 3 years without any general wage increases for mail handlers. Because both parties accepted the process, however, even these clear management victories were implemented peacefully. 

The key advantage of the current bargaining process is its flexibility. Under the current statute, the parties to any bargaining 

dispute are allowed to devise their own procedural system for 

resolving their dispute. Thus, under the PRA, fact-finding followed 

by arbitration is the default position, but the parties in prior years 

have used fact-finding, mediation, arbitration, and a multiple combination of these processes to resolve their disputes. If the procedural changes recommended by the Presidential Commission were 

adopted, this flexibility would be eliminated and instead the parties would be constrained by rigid procedural rules that in our view 

would not improve the collective bargaining process one iota. 

The Commission said that the core ingredient of its revised procedure is a mediation-arbitration approach to resolve bargaining 

impasses. Under a med-arb approach, the fact-finding phase now 

set forth in the PRA would be replaced with a mandatory mediation phase of 30 days, and if the mediation were unsuccessful, the 

appointed mediator would become one of the final arbitrators. We 

believe, however, that requiring this med-arb approach would be 

counterproductive to the successful resolution of many bargaining 

disputes. The flexibility now part and parcel of the PRA permits 

the use of med-arb and it has been utilized in prior rounds of bargaining when the parties deemed it advisable. 

But compelling the use of med-arb would corrupt any attempts 

at mediation by destroying the usual confidentiality of the mediation process and making it impossible for either party to actually 

share its priorities with the appointed mediator. To quote a noted 

expert, ‘‘Parties to a combined mediation-arbitration procedure are 

often reluctant to retreat from extreme positions or to reveal how 

they prioritize their interests.’’ It also reduces the likelihood that 

the arbitrator will have an accurate view of the parties’ priorities. 

Also part of the Presidential Commission’s recommendations is a 

proposal that would replace the parties’ current practice which uses 

a three-member arbitration panel in which each party chooses one 

arbitrator and then the parties jointly select one neutral arbitrator 

with three outside arbitrators. In our view, this change would have 

extremely negative consequences for the arbitration process as it 

would completely remove the parties’ respective representatives 

and their unique expertise from the decisionmaking process. It 

makes it much more likely that the eventual arbitration decision 

will be contrary to the desires of either or both parties. It also severely reduces the likelihood that the parties might be able to mediate and settle or narrow their dispute during the arbitration 

process. 

There are also proposals for a 10-day review period after arbitration and a last best final offer, both of which eliminate the current 

flexibility, which is one of the administration’s guiding principles 

that were recently released by the White House. Frankly, I believe 

66

the Nation is better off with bargaining and binding interest arbitration under the PRA than with any other models. The testimony 

before the Presidential Commission from postal management, from 

the postal unions and even from a panel of highly respected neutral 

arbitrators was consistent, that the current collective bargaining 

process is working well: For 33 years the parties have avoided the 

labor strife and economic warfare that often characterizes private 

sector labor-management relations. Arbitrators and all participants 

agree that the process has improved dramatically over the years. 

There is, in short, no reason whatsoever to amend the statutory 

provision governing collective bargaining or to otherwise adopt provisions that would allow outside entities to interfere in the collective bargaining process. 

The Presidential Commission has also proposed bargaining over 

health insurance, pensions, and other benefit programs. In fact the 

current employee contribution rates for health insurance already 

are bargained, and the health benefits themselves established 

through the Federal Employee Health Benefit Program, are universally acknowledged to be well-maintained and well-negotiated by 

OPM. The Mail Handlers Union happens to be the sponsor of one 

of the largest Federal health plans, and I can assure you that if 

the Postal Service were ever to withdraw from the Federal Employees Health Benefits System chaos would be the result. 

As for annuity benefits, with the passage last year of the ‘‘CSRS 

fix’’ legislation, all annuity benefits for postal employees are now 

fully funded. The recommendation on bargaining benefits, therefore, is clearly aimed at guaranteed health insurance for postal retirees. We see absolutely no reason why promises of lifetime health 

insurance to postal employees should be subject to bargaining, especially when the Federal Government provides these benefits to 

Federal employees through legislation, and many other large employers also provide similar benefits. 

In any event, recent proposals from postal management would 

allow the Postal Service to ensure funding of these retiree health 

costs by using the escrow account now available because of pension 

overfunding. That is an appropriate use for those funds and should 

be a part of any postal reform. 

Thank you for allowing my to testify. I would be glad to answer 

any questions you may have. 

Chairman COLLINS. Thank you, Mr. Hegarty. 

Each of you this morning has made very clear the recommendations of the Presidential Commission that trouble you or that you 

outright oppose. It is understandable that you would focus your 

testimony on the recommendations that give you the most heartburn. 

I would like to ask each of you to now tell me which are the one 

or two, or two or three recommendations of the Commission that 

you believe are on point and should be incorporated into the reform 

bill, assuming that there are any. With Mr. Holton’s comments I 

was reminded of the old story about, aside from that, Mrs. Lincoln, 

how did you enjoy the play? [Laughter.] 

But if there are recommendations that you believe are worthy of 

inclusion in legislation we would like to hear that as well. 

Mr. Young. 

67

Mr. YOUNG. Thank you, Senator. I believe the Commission’s recommendations in the area of pricing, flexibility and transparency 

should be incorporated. I think they are very good. I also like the 

Commission’s recommendation on retention of universal service, 

but I would tweak it a little bit because I think that is a public 

policy matter and I think if I was a member, and I am not, of Congress, I would want to retain the jurisdiction over that myself, because it is awful clear to me that when the people up in Maine do 

not get the kind of service that they have been accustomed to, they 

are not going to be calling any regulatory board. They will be calling Senator Collins and asking why that is the case. 

I also like the idea that the Postal Service can retain earnings. 

I think that is an important concept that ought to be adopted. 

Chairman COLLINS. Thank you. Mr. Holton. 

Mr. HOLTON. I concur with what my colleague has already said. 

I also believe that the CSRS military pension portion of it should 

be adopted also. 

Chairman COLLINS. Thank you. Mr. Burrus. 

Mr. BURRUS. I agree with the Committee’s recommendation regarding the CSRS pension liability issue as well as the three issues 

mentioned by my two colleagues. In addition, the opportunity to 

add new products. I think for growth into the future the Postal 

Service needs to have the opportunity to be able to add products, 

so I would add that as a fourth item. 

Chairman COLLINS. Mr. Hegarty. 

Mr. HEGARTY. I would also concur with the pricing flexibility. I 

think the recent hike in gas prices would point out the need or the 

disadvantage that the Postal Service faces when it comes to dealing 

with issues such as a gas increase, where UPS and FedEX and 

some of the competitors immediately establish a surcharge for their 

deliveries. The Postal Service is prohibited by law from doing so. 

The other thing that I think the Postal Service should be able 

to do is to negotiate discounts with their larger customers. One 

thing that caught my eye in talking with Peter Fisher of the Treasury Department last year is that the United States Mint, which 

mails out probably millions and millions of coins each year to collectors, uses UPS or FedEx. They do not use the U.S. Postal Service. The reason they do not is they can get a better rate because 

of volume discounts. I think if a company such as Amazon.com or 

the United States Mint approaches the Postal Service and says, ‘‘I 

will give you three million pieces per month, what can you give me 

for a discount?’’ Right now the Postal Service says, ‘‘I cannot give 

you any discount.’’ I think that should be corrected. 

Chairman COLLINS. Thank you. Each of you has considerable experience in collective bargaining and you have made clear your opposition to many of the changes recommended by the commission. 

But I would like to walk you through a few of them just to make 

sure that I understand where you are because these issues are so 

complicated and you do bring a great deal of experience in collective bargaining to the Committee today. 

The Commission recommended that the current fact-finding period be replaced by 30 days of mandatory mediation. I would like 

to know whether you find the fact-finding process to be useful, and 

how frequently it is waived by the parties. Mr. Young. 

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Mr. YOUNG. So far we have used it, Senator. I do not find it particularly useful, and I will be candid and open in telling you why. 

Because neither party wants to litigate the issue twice. If we are 

not able to strike an agreement, the 1998 historic agreement for 

letter carriers that elevated my members from level five to level 

six, we bargained hard with the Postal Service and we almost go 

there. The differences really were not that great. We then engaged 

in a mediation process. Neither party really was candid or open 

with the mediator because they did not want to put their case on 

twice. We knew that the parties ultimately were not going to agree. 

That it was going to have to go to an arbitrator. 

I think the panel of arbitrators that testified before the Commission could add some clarity to your inquiry here, Senator, if you are 

interested because they have even more experience than I do and 

they were saying similar things about their experiences, which are 

greater than mine, broader than mine. Mine are related only to the 

post office. Theirs, of course, to other industries. But that is the 

real problem with trying to do that. 

Chairman COLLINS. Thank you. Mr. Holton. 

Mr. HOLTON. I tend to agree. We have only, in 33 years, been 

through fact-finding and arbitration twice. All other times we have 

come to agreement on our contract. But in those times, fact-finding, 

you put on your case once, for the most part. You may not go into 

as much detail or depth with it, but you still put it on. You have 

someone that issues a fact-finding report and, as in our example, 

the first time, the fact-finding report was in our favor which would 

tend to lead you back to the bargaining table and say, OK, if we 

go to arbitration these things will be in our favor so we need to 

bargain more on it. And then turn right around and you go to arbitration and then you get a second bite of the apple, so to speak, 

and find an arbitrator that rules the other way. 

So the point is, you are putting on your case twice. Everybody 

knows what the issues are as far as the parties go. They know 

what the issues are. They know what we are going to be up 

against, and regardless of what the fact-finding panel returns as a 

suggestion there is still nothing that tells you you have to go 

through with that, so it may not be a necessary step. 

Chairman COLLINS. Mr. Burrus. 

Mr. BURRUS. Our union finds fact-finding to have no value whatsoever. We had one very bad experience many years ago that after 

completing the fact-finding process, very laborious, put on a fullblown case, the fact-finder concluded that the parties had a disagreement. That was his decision. He concluded we had a disagreement, which we knew when we began the process. 

The current statutory language requires fact-finding, but the parties, the Postal Service and the unions find it in their mutual best 

interest not to invoke the statute. At the conclusion of every negotiation session, and I have had more experience than my colleagues 

here in terms of negotiating national agreements, the chief negotiator. But at the conclusion of every national negotiation I am terribly nervous about the Postal Service invoking the law, of requiring us to go to fact-finding. They have found that is not in their 

interest either. So we have avoided—mutual agreement to avoid 

fact-finding because we just do not find it in our interest for the 

69

very reasons stated, that we are required to put the same case on 

twice. They do not want to expose their case. We certainly do not 

want to expose ours. 

Chairman COLLINS. Thank you. Mr. Hegarty. 

Mr. HEGARTY. I think whether you are talking about fact-finding 

or mediation or any other dispute resolution mechanism, it depends 

on the nature of the impasse. As I said in my testimony, in many 

of our arbitration decisions we really only had one or two items in 

front of the arbitrator that we had to negotiate. The parties knew 

where they stood on most of the items, but there may have been 

one or two items such as pay raises, and cost-of-living adjustments 

that might have been in dispute. I think the parties need the flexibility at the end of the process to determine, based on the nature 

of the impasse, what dispute resolution mechanism they wish to 

utilize. 

Chairman COLLINS. Thank you. Since we have had other Members join us I am going to yield back the remainder of my time and 

we will have 8-minute rounds rather than longer ones that I had 

originally intended before we were joined by our distinguished colleagues on both sides. 

Senator Akaka. 

Senator AKAKA. Thank you very much, Madam Chairman. I 

would again thank all of you for being here. I appreciate the thoroughness with which each of you discussed your union’s view of the 

collective bargaining as well as other workforce recommendations. 

If I am not mistaken, and since the Chairman has mentioned your 

experience, I believe the four of you represent 130 years of service 

to the Postal Service. That tells us something and is quite an accomplishment. 

The Commission proposes that the Postal Service negotiate over 

benefits and implement a pay-for-performance system, yet the Postal Service already negotiates over employee health insurance contribution levels and could negotiate for a pay-for-performance system now. As was indicated by the Chairman, there are differences 

in your statements so let me ask each of you the same question. 

Why do you believe that there are such misunderstandings and 

misrepresentations about Postal Service workforce issues? I would 

like to start with Mr. Young. 

Mr. YOUNG. I have got to be honest with you, Senator, one of the 

reasons we have to share the responsibility for. My thrust here 

today is in essence asking the distinguished Senators to consider 

a hands-off policy in the area of collective bargaining. I am telling 

you that it has taken us 30 years to figure out what we are doing 

and I think we are on the right track now. We have developed 

these relationships and I am totally convinced that the parties 

themselves have to negotiate these kinds of agreement among 

themselves and they do not need it forced on them from outside. 

But I must admit that my members, and maybe even myself on 

occasions, have been too willing to come to you all with our problems. I think it was a lack of maturity, and I am going to apologize 

for the members of my union that still engage in that today. What 

I mean by that is, some letter carrier perceives that he is mistreated at the workplace. He finds it very easy if he hails from the 

State of Hawaii to call on his good Senator from Hawaii to come 

70

to his rescue, when in essence that is not what your responsibilities 

are. You have got much more important things to worry about than 

those issues. Those issues should be dealt with in the internal dispute resolution procedure that has been established. 

So I think one of the reasons that there is some confusion here 

is we have led to that confusion because we are too willing to reach 

out to our perceived friends for help when we maybe should be 

going in a different direction. I think that has contributed a lot to 

some of the misunderstanding. 

I think some of the other misunderstanding is just a lack of experience. I was a little taken back by Mr. Blair’s testimony when he 

acknowledged that the administration does not have much experience when it comes to labor unions, when you were talking about 

pay-for-performance with him. I was thinking about that, and I had 

not thought of it in that vein, to be honest with you. But I will tell 

you all that my union in convention, 8,000 people strong, voted not 

to accept a pay-for-performance type of a proposal, because we 

have, as these other presidents indicated, had those kind of proposals advanced in the past. 

My members are concerned about the fact that they cannot 

measure that performance. That is not cut and dried like if you get 

a step increase after a year’s creditable service, everyone understands what that is. They know how to apply that. 

I do not mean any disparaging of my colleagues and friends in 

management in the Postal Service, but they did not have such a 

great experience with that. They took a pay-for-performance system 

and most of them people, especially on the lower-graded supervisors, they ended up making less money than letter carriers, and 

they sacrificed more than they ever got in return. 

So that is about as much as I can add as far as to the confusion 

and I hope that Senators here will pass on to their colleagues what 

I have said about trying, because I am trying to rein in now the 

members of my union, to get them to understand that they should 

only come to you with public policy issues and not with individual 

personal grievances. I think we can handle those ourselves. 

Senator AKAKA. Thank you. Mr. Holton. 

Mr. HOLTON. I think the misunderstanding—are you talking 

about of the Commission itself or the Senators, or are you talking 

about the public in general? Regardless of which group you are 

talking about, I think a lot of times when people say Postal Service 

you only hear horror stories. When you listen to David Letterman, 

you read the newspaper, you hear about the letter that was 30 

years late that was lost somewhere, you hear about an employee 

who did whatever that was egregious in the workplace. But yet you 

never hear the fact that the employees that we represent are out 

there performing a service every day in all kinds of weather, all 

kinds of circumstances. 

I get letters from the Postmaster General daily sometimes about 

rural carriers who have gone above and beyond the call of duty in 

putting out fires or saving people that have been hurt. NALC does 

a great job with their Heroes Awards every year and they cite 

these things. Those kind of things, we do not get that published out 

there so when people form a perception of the Postal Service and 

it’s employees they only draw from the David Letterman or whoVerDate 0ct 09 2002 10:17 May 18, 2004 Jkt 092687 PO 00000 Frm 00074 Fmt 6601 Sfmt 6601 C:\DOCS\92687.TXT SAFFAIRS PsN: PHOGAN
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ever, or the Washington Post or whatever, that shows that this was 

what was bad in the Postal Service so immediately they paint everybody with one brush. So that may be part of it. 

To follow along with what he was saying about pay-for-performance, or would you rather I just wait and get a question on that 

later? Pay-for-performance, we have participated in that. We had 

striving for excellence together. We still have an MOU in our contract, memorandum of understanding, which recognizes the benefits of pay-for-performance. The MOU tells us that we should work 

together to try to find something that mutually promotes the goals 

of the Postal Service and the employees so that we can use something like that. 

There are so many diverse ways to look at it systemwide, specifically rural carrier duties, that we have not been able to come up 

with a plan that everybody can agree to. So we have just sat here 

with this MOU in our contract since 1995. But it is something that 

effects each individual but is to be applied systemwide. 

The other thing is, a lot of times when you have pay-for-performance if you are going to make it systemwide you can only look at 

what the overall system goals are, and as a result those are pushed 

forward or achieved by everybody involved and not just what the 

individual rural carrier employee can do. So we have not been able 

to agree on any of that. 

Senator AKAKA. Mr. Burrus. 

Mr. BURRUS. Senator, I think that there is a misunderstanding, 

I think, because we are a government entity and government entities should be transparent and should be responsible to the people. 

I think that the Postal Service is held accountable for that, and the 

employees who work for the Postal Service are held accountable 

equally. 

I think it is so very apparent what you say is correct because 94 

percent of our mail is provided by the major mailers. They are our 

major users. Not the average citizen writing to a son or daughter, 

or to one another within the family. Their micromanagement of the 

Postal Service is different than their reaction to their other vendors. UPS, FedEx are likewise providers of service, performing very 

similar service to the Postal Service, but no one questions the 

wages and the bargaining strategies and the procedures used by 

UPS or FedEx, while the procedures, the strategies, and the results 

of the postal negotiations are opened up to the microscope. 

So it is because we are a government agency, and it can be 

micromanaged. You cannot micromanage UPS. You can go to another company. You can take your business to a competitor. There 

is nobody quite as large as UPS. They have a monopoly just like 

we do. 

But because you can do it to a government agency and we have 

all of the benefits of both private and public. We have public protection. We have some private rights. We have right of negotiations. Other Federal employees do not have those rights. So we 

have the right of negotiations but we are still Federal employees, 

so it opens us up to misunderstandings, deep involvement into our 

internal process that one would not find if we were a private corporation, purely private. And if we were some other government 

72

agency they would not be making the demands on us because we 

do not have the same connection with our ratepayers. 

Senator AKAKA. Mr. Hegarty. 

Mr. HEGARTY. Thank you, Senator. I would say that the misunderstanding about Postal Service issues, a lot of the good things 

that we do, have been under the radar screen. I agree with Dale, 

we get a bad rap for the letter that is delivered late or some other 

negative news about the Postal Service. I am hoping that with the 

Presidential Commission and with postal reform that some of these 

good things that we do will come to light. I will just give you a few 

examples. 

I have spoken with the Office of the Inspector General, I have 

spoken with the GAO over the last year and-a-half and tried to 

highlight some of the good things we are doing. They have made 

it into their reports. I did not invent it but we developed a Contract 

Interpretation Manual. I believe the other crafts, I know the letter 

carriers have it and the other crafts are looking at it, where we 

took our national bargaining agreement and took all the gray 

areas, went back 30 years in postal history and found every agreement that we have ever come to at the national level that says, this 

is what that means. We put all of that into a big book so now you 

can use the collective bargaining agreement side by side with the 

Contract Interpretation Manual and resolve a lot of the pending 

disputes in our grievance arbitration procedure. 

We rolled that out nationwide last fall. We did a joint training 

with postal headquarters and mail handlers union headquarters on 

the same stage with a mixed audience. We had the area managers 

of labor relations, we had our union presidents, we had our union 

vice presidents and their counterparts in management all in one 

audience and they heard the same message from both parties: This 

is the Contract Interpretation Manual. This is what it means. It 

will be adhered to. 

We do not have any concrete results on that yet, because as I 

said, we just implemented it last fall, but we are in the process of 

setting up a meeting with postal headquarters to crunch the numbers and see how we did as far as whether the Contract Interpretation Manual is helping us resolve disputes. I believe that it will. 

The other thing that we have in the mail handler craft is the 

quality of work life, which is an interactive process where mail 

handlers and managers work together in postal facilities to better 

the quality of their working life. It is outside of the collective bargaining agreement. It has to do with whatever ideas the craft employees and the managers come up with to better process the mail. 

That has been very successful. We have an annual conference and 

every year it has grown tremendously in size. That has the full 

support of the Postmaster General and myself, and both he and I 

attend the national conference. 

The other thing we have developed over the last few years is an 

intervention protocol, where if we are having a problem facility—

and let us be realistic, in an organization of 730,000 people, you are 

going to have some problems. We have an intervention protocol 

where if a building or a plant seems to be a problem area, the parties can request intervention and the national parties will send a 

73

team in to evaluate the climate and make recommendations on how 

to resolve that. We have used that successfully in the past. 

So I would say that the reason the misperceptions or miscommunications are out there is they just have not publicized enough 

of the good things that we are doing. 

Briefly on pay-for-performance, under the current collective bargaining agreement pay-for-performance is an option. It is 

bargainable and I think it should remain that way. I do not think 

legislating pay-for-performance helps anybody. The problem with 

pay-for-performance for craft employees is it is very hard to individualize it. I will give you an example. 

I mentioned conveyor belts earlier. If this is a conveyor belt and 

the four of us are processing mail on that conveyor belt, how do you 

say that John did so many pieces of mail and Bill did so many 

pieces of mail and Dale did so many pieces of mail? How do you 

individualize which of the four should get the better performance 

award? Say you want to just do it by a building, then you are losing the whole essence of pay-for-performance. If you are going to 

give the plant over in Detroit, Michigan, for instance, a $200 award 

because their performance was that good, you are really saying, 

who within the plant did the job over and above to make that performance that good? Some people in the plant may do an average 

job. Other people may do an exceptional job. 

The other problem with my craft is you get moved around constantly in a plant. I might work on this belt for 2 hours. I might 

be moved over there due to the needs of the service, so it is very 

hard to individualize my performance. 

Senator AKAKA. Thank you very much, Madam Chairman. 

Chairman COLLINS. Thank you, Senator. 

We are very pleased to be joined by Senator Stevens, who is not 

only the chairman of the powerful Appropriations Committee but 

also a long-time Member of this Committee. He has had a longstanding interest in the Postal Service and in preserving universal 

service. So we are very pleased that he was able to join us today. 

Senator Stevens. 

OPENING STATEMENT OF SENATOR STEVENS 

Senator STEVENS. Thank you, Madam Chairman. I sort of am the 

last of the Mohicans, the last one around that was here at the time 

of the Postal Reorganization Act. I am pleased to be here with you. 

I thank you for these hearings. I have gone over the testimony that 

you all have filed. I am delighted that the Commission recommended that the universal concept be maintained. I think that 

is the backbone for rural America, and it certainly is for my State. 

But I have got to say, I think we have to find some middle 

ground here with the Commission because I would invite you to 

come up to my State and go out to dogsled country and go with the 

people who are out on the ice and see them pick up a Blackberry 

and send a message to New York. The concepts of broadband, the 

concepts of wireless are on us as far as basic communications, and 

the Postal Service seems to now be heading for the time when we 

are dealing primarily with third-class or parcel post. You may not 

agree with that but we have got some changes coming, and I do 

hope that all of you will work with us to make sure that we can 

74

find some common ground here in the Congress with regard to 

these recommendations from the commission. 

As with every commission, Madam Chairman, they have gone beyond the point of achievability. They reach out too far. But I think 

we have got to admit that they have got some recommendations 

that we must adopt, and they have got others we are going to have 

to see if we can modify, and others we are going to reject. We have 

a difficult job and I am delighted you have got that duty rather 

than me. I was chair of this Committee. 

I do think that within the suggestions of the Commission are 

suggestions that will reduce the cost of operation that we ought to 

look at, because clearly we have got to find better ways to assure 

the cash flow for the Postal Service than maintaining those things 

which are not efficient. On the other hand, there are some things, 

like the Senator from Hawaii’s mail, parcel post and mail that 

comes to Alaska that there is no way to make them cost-efficient. 

So there has to be some basic system that takes into account the 

cost of universal service. 

I look forward to working with you, Madam Chairman. I really 

do not have any questions for you. I appreciate the fact that you 

have come here with statements that, as I understand it, indicate 

a real willingness to go forward and reach a conclusion where we 

adopt those things in the Commission’s report that can be achieved 

now and put some off for the future. But we all have to look to the 

future. We have to look at how we maintain the postal system despite the advent of these new means of telecommunications and 

basic communications by wireless and broadband. 

Again, I thank you. I hope we can move forward because I think 

action by the Senate is necessary now. The House has acted previously, but we have to take this one and look at it real hard and 

try to achieve something this year if it is at all possible. So I look 

forward to working with you, Madam Chairman. Thank you very 

much. Thank you all. 

Chairman COLLINS. Thank you. 

Senator Carper, it is a pleasure to welcome you to the Committee 

as well. You have demonstrated a longstanding interest in postal 

issues and I was pleased to partner with you last year on the legislation dealing with the retirement contributions. 

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. Thank you, Madam Chairman. It is a privilege 

to work with you on these issues. 

I do not know that we can come close to improving on the great 

work that Senator Stevens did over three decades ago, but I mentioned in an earlier hearing the old adage of, if it ain’t broke, do 

not fix it. I do not know that that applies here. Not that the postal 

system is broken, but if it is not perfect, make it better. I think we 

can make it better. We appreciate really the attitude that you 

brought to the table today. I regret having missed the earlier panel 

of witnesses. I expect I will have a chance to talk with my staff and 

find out in more detail what I did miss. 

I would like to ask a couple of questions, if I could. A bunch of 

the questions that I wanted to ask have been asked. But one of 

them, however, I want to go back to and ask it again. I ask you 

75

to forgive me if I am being redundant, but one the questions I 

think you asked, Madam Chairman, when you said, it is all well 

and good that there are things that you are against, but there are 

also things that you are for with respect to the Commission’s recommendations. I do not want you to go into any great detail but 

I would like for each of you to really break it into two categories: 

The things recommended by the Commission that you agree with, 

just flat-out agree with, and some things that the Commission has 

recommended that you could perhaps agree with if they were modified. If you could just take it up there. 

Mr. Young, we always pick on you first. 

Mr. YOUNG. That is all right. The thing that I can agree to and 

accept is transparency. I think every organization that has a public 

service should have transparency. 

The thing that I would be willing to look at, that is a little bit 

tougher, Senator. There are a lot of things that are on the edge 

there. There are things that we could probably take a look at and 

maybe make a little bit better. But I would answer this question 

in a kind of a unique way, if you would allow me to. When I first 

appeared before the commission, and look, I realize my union believes that the Internet has had a serious detrimental effect on 

First-Class Mail, and my union believes that is going to continue 

and probably escalate in the years to come. So that makes cost a 

very important function of this Committee. I understand that and 

I would not be naive enough to suggest to you that you should ignore that. 

But I want to beg that you go beyond just the cost. I am going 

to give an example, a very recent event. Just last week Brother 

Holton and I went over to the Postal Service and we witnessed the 

signing of an agreement between Homeland Security and the Postal Service whereby, God forbid, there would be a biological attack 

somewhere in this country, voluntarily letter carriers and rural 

carriers would deliver the medicine to the patrons they represent. 

I think the unique kinds of things that we do because of the attachments that we make with those patrons that we deliver to 

every day are far too often ignored. I told the Commission when I 

testified before them in their first hearing, think of what would 

have happened with anthrax if, God forbid, this was a privatized 

Postal Service and you had all these different companies and you 

could not contain the threat. I do not mean to demean private 

workers, but it is not clear to me that these people would be willing 

to go the extra mile that the men and women that I represent and 

the rest of these presidents at this table represent, have already 

demonstrated a willingness to do. These are very courageous public-oriented, public service-oriented employees. 

Senator CARPER. Mr. Young, I agree with everything you have 

just said. But my question was—and it is important that you answer my question. My question was, among the universe of recommendations that this Commission has made, what are several 

that you agree with? You have mentioned one, transparency. 

Mr. YOUNG. You want several? 

Senator CARPER. Yes. 

Second, cite for us some examples of those areas that you think 

there might be room for negotiations to find consensus. 

76

Mr. YOUNG. I think there is room for negotiations on the board 

of governor issue. I think there is room for negotiations on the pay 

cap, the executive salary pay cap. I think there is room for negotiations on the cost of the military. I think there is room for negotiation on service agreements with the mailers. I think there is room 

for negotiation on pricing flexibility. 

Senator CARPER. That is great. That is exactly what I was looking for. Thanks. 

You mentioned the effect that E-mail has had on First-Class 

Mail delivery. I took a bunch of Boy Scouts from Wilmington, Delaware to Norfolk Naval Station this past week. I am an old Navy 

guy. We take them about every 3 years. We visited ships and submarines and saw a carrier as well. Met with seamen recruits and 

chief petty officers and even admirals, and had a chance to—really 

a real interesting session with a fellow who is the commander of 

the U.S. submarine forces around the world. He and his wife 

hosted us for a little reception at, of all places, the Delaware 

House, where they live on Norfolk Naval Station. 

They shared with us what it had been like to have been in the 

Navy on submarines and with a spouse at home and family and all, 

and what it is like today. E-mail has come to the Navy in the big 

way. We have seen a little bit through the Iraqi war how our 

troops are able to communicate better. Aboard ships the same is 

true, and whenever sailors have a minute to spare they try to Email their families back home and to communicate. You could not 

do that in the past. 

The admiral that we visited with, he and his wife told us how 

in the early days they were lucky to get two or three messages during a 3-month deployment from their families. The people on the 

submarines could not send anything out. They could only receive 

maybe two or three messages in. The message was limited to 20 

words. Today they can E-mail their families from the submarines 

deployed around the world, hundreds of feet below the surface, and 

communicate with their families throughout the course of the day 

and the night. So it is a remarkable revolution that we witnessed. 

Mr. Holton. 

Mr. HOLTON. I believe that the pricing flexibility part is something that is vital and we would be in full support of that. As far 

as those things that maybe could be supported if it was tweaked 

or negotiated—and that is the power of the regulator, the way they 

have set the regulator up. There are a lot of things in there that 

we do not like, but it could be something that could be worked on 

and tweaked. 

Also, the way the board of governors operates. All of this, the 

Postal Service in everything that is proposed, needs to have an 

ability to work as a business even though it is still a government 

entity. In order to meet some of these things that we are faced 

with, such as wireless communications, E-mail, those kind of 

things, we have to be able to operate like a business. Yet managers 

at Postal Service headquarters, I think, are pretty much micromanaged from those people that are over them, to the point where they 

are not able to concentrate on the business as much—now this is 

just my opinion—but as much as they may need to concentrate on 

running a $70 billion industry. 

77

So those two things I think could be addressed if they were 

tweaked, fine-tuned, negotiated in such a way. 

Senator CARPER. Thank you, sir. Mr. Burrus, you can repeat any 

of the ones that have already been mentioned. In fact that would 

be helpful. Or you can strike out on some new ground. 

Mr. BURRUS. The military retirement would be at the top of my 

list because it is such a large number. But I will repeat some of 

what has already been said, the rate flexibility, the opportunity to 

offer volume discounts so they can get away from this charade regarding work-sharing discounts, the ability to add new products 

and better utilize the network, to borrow, invest, and retain earnings. I think that is important. 

The work-sharing discount issue has to be addressed. The Postal 

Service cannot be successful if it is giving away money. Even if you 

adopt a good model for the future, and let us assume everything 

that everybody believes is correct, that technology is going to erode 

First-Class volume. I dispute that at this point but let us just take 

that as factual. Even if you adopt a good model, you cannot give 

money away and be successful in the future. No company can be 

successful that I am aware of, by giving money away. Those are 

charities. Those are not businesses. 

So I think something has to be done in terms of the cost avoidance. There has to be a standard. The government has adopted a 

very good standard in terms of contracting, subcontracting. They 

say, here is the standard, the process that will be applied if you 

are going to have someone else perform the activity. 

The Postal Service has been separate and apart from all those 

processes, and time after time again they have given money away, 

hundreds of millions of dollars, and a year later, 2 years later, 5 

years later, we made a mistake. Let us recover. Bring it back inside and let postal employees—we can compete very well. We have 

very experienced, dedicated workers in the Postal Service. 

When the private sector can do it better and cheaper than postal 

employees, I think it is fair game. That the ratepayer is entitled 

to the best and cheapest service they can receive. But in those circumstances where they are not doing it cheaper, it becomes political cronyism where someone that has promised a future job for 

someone gets a service, then I think that is wrong to the ratepayer, 

it is wrong for the Postal Service. So I think that is one of the most 

important things. 

As I said in my testimony, the question of the allocation of the 

rates is a looming problem for the Postal Service into the future. 

I think the Senator from Alaska made significant reference to it, 

the fact that a lot of the volume today—more important than the 

loss of First-Class Mail is the diversion to standard. The contribution to the institutional cost by the different classes of mail is an 

issue that is going to be out there for a long time until it is dealt 

with, with or without reform, because standard mail is a growing 

volume of the Postal Service, projected to grow by billions of pieces 

far into the future. That is going to have to be addressed very significantly and seriously. That is not a question of reform. It is a 

question of how are you going to set your rates. 

Senator CARPER. Thank you, Mr. Burrus. Mr. Hegarty. 

78

Mr. HEGARTY. We agree with the Commission to maintain universal service at uniform prices, and oppose privatization. We agree 

with the Commission that the outmoded and cumbersome ratemaking process needs to be changed. We agree that we want to 

maintain 7-day mail processing and 7-day delivery to every address 

in the country. Maintain equity with Federal employees on the 

funding for military retirees and the CSRS. And also, as I mentioned earlier, to allow the Postal Service to offer discounts to its 

bigger mailers. 

As far as negotiating or what we would agree should be talked 

about, I think within the collective bargaining process we have 

achieved a very delicate balance with the Postal Service. It has 

taken 33 years. I think we have seen the progress made over the 

years, especially in recent years, and that anything that is negotiable now should stay negotiable. I think we have, as I said, been 

able to negotiate fair contracts that were fair not only for the Postal Service and to our workers but for the American people. 

I think locking us into any set of rigid rules, whether it is on collective bargaining, mediation, arbitration, what we can bargain 

over, what we cannot bargain over I think is a big mistake. I think 

that is just change for the sake of change and I would caution 

against that. 

Senator CARPER. Good. That was very helpful. Thank you. 

One last quick question. I appreciate your willingness to let me 

have a few extra minutes, Madam Chairman. I am supposed to be 

co-chairing another meeting in about 2 minutes so I am going to 

ask you to be real brief and direct in responding to this next question. 

As you know, the President’s Commission made a number of recommendations dealing with workers compensation costs, and when 

you look at the number of injuries, the type of injuries and repetition of the injuries, and the costs that grow out of those injuries 

for the Postal Service and for those of us who use the Postal Service, there is a lot of cost that is tied up there. I was struck in one 

of our hearings when we heard that a number of people who are 

hurt on the job and begin drawing workers compensation continue 

to do that not only through their normal working life but well beyond that into their seventies, eighties, even nineties, which 

seemed peculiar to me. I am going to ask you to be real short in 

responding to this question, but are we doing enough to curtail injuries? If you can give me maybe one real good idea for what further we can do to reduce the incidence of injuries. 

And maybe a second idea as to what we can do beyond curtailing 

the incidents to hold down the cost that grow out of workers comp. 

Mr. Hegarty, do you want to go first? Again, I would ask you to 

be brief. 

Mr. HEGARTY. Sure. I appreciate you bringing this up. President 

Bush has sent a memo to Secretary Elaine Chao to ask her to reduce workplace injuries in the Federal sector and I definitely agree 

that prevention is the first key to reducing cost. I do not think we 

should be penalizing employees who through no fault of their own 

are hurt on the job and then suffer a loss of income as a result, 

because they are not getting their full salary, they are not allowed 

to work overtime. Under FERS they are not allowed to make conVerDate 0ct 09 2002 10:17 May 18, 2004 Jkt 092687 PO 00000 Frm 00082 Fmt 6601 Sfmt 6601 C:\DOCS\92687.TXT SAFFAIRS PsN: PHOGAN
79

tributions to the Thrift Savings Plan, which is a serious detriment 

to their future income. 

But as far as are we doing enough, I think we are making 

progress. The American Postal Workers Union, the National Postal 

Mail Handlers Union, OSHA and the Postal Service partnered last 

April on an ergonomic risk reduction project which we have rolled 

out nationwide. We are training site by site now to reduce musculoskeletal injuries and repetitive motion injuries of our people in the 

field. I think ergonomics is probably one of the best fixes that we 

could put in place to eliminate workplace injuries. 

The other thing that the Postal Service has done is partnering 

with OSHA in getting special status on sites for safe workplaces 

and we are working with them on that as well. 

Senator CARPER. Thanks. Mr. Burrus, again, briefly. 

Mr. BURRUS. We are not doing enough. We have had several directions towards reducing workplace injuries for a 20-year period. 

It was attempted to discipline their way out of injuries. That every 

employee that reported an injury was faced with disciplinary action, and that was the wrong approach. We are now coming back 

to the other side of trying to find a cooperative approach. Our 

union stands willing at every opportunity to do all that we can in 

concert with the employer to ensure that employees do not become 

injured. 

The approach of looking at employees that are already injured 

and say, are they costing the service money? Do employees continue on injury compensation because it is in their own interest up 

to the age of 100 and 105, and how much it is costing the system, 

I think that is the wrong approach. I think we ought to look at 

what is causing the injuries. Are employees knowledgeable of how 

to prevent them as best they can. And in those circumstances 

where they cannot avoid the injury or something occurs that no 

matter our best effort employees are injured, then we ought to have 

a joint approach of making sure the employee gets the benefit of 

all of the rights and privileges available to them without being personally penalized. 

Senator CARPER. Thank you. Mr. Holton, a brief comment, 

please. 

Mr. HOLTON. I think we are working toward doing as much as 

we can to improve safety and job-related injuries. I think sometimes though it boils down to money and I will give you an example. 

John just told you about the OSHA ergonomic study that these 

two and the Postal Service have partnered in. Then when it came 

time, I believe they were talking with NALC as well as myself 

about expanding the program to include our delivery people, it got 

to a point where there were no resources left to expand it. So in 

that sense we kind of got left out and it is on hold. 

But then again, we are also working—we have established a national task force, safety task force with the Postal Service and our 

union in which we are looking for ways to reduce auto accidents, 

because rural carriers drive three million miles a day. We are exposed out there on the highways in bad weather and a lot of places. 

And one of the biggest problems we have is pulling out and not 

knowing that something is in a blind spot. So the Postal Service 

80

has contracted with MIT to look at finding some type of sensor that 

we can mount on our car so that as we get ready to pull away from 

a mailbox, it looks behind for us and alerts the driver if something 

is there. Now whether that can work or not and can be made into 

a device that is affordable, but still it is something that we are 

working toward. 

Also John talked about quality of work life. We have a quality 

of work life process also and we continuously address safety issues 

through that process to come up with things that would reduce potential for injury. But it is still, I mean, when you have one employee death or the number of injuries that we have, it is still too 

many. So I am sure that there always can be a case made to do 

more. 

Senator CARPER. Good. 

Mr. Young, I am going to ask you to just maybe in 30 seconds, 

if you could finish. 

Mr. YOUNG. I will try very hard. 

Senator CARPER. Then you can expand on that in writing. 

Mr. YOUNG. It may not be necessary. The job of delivering mail 

in the weather, in the neighborhoods that we deliver is a dangerous 

job. We do what we can to see that the injuries are reduced. I do 

not know if there is any way you can help us there, which is probably going to drive us to look at the costs, even though we do not 

want to, that you are talking about. 

I think, Senator, the idea of the workers comp cost and what 

happens when somebody retires should be discussed and debated. 

There are issues on both sides. I am willing to address that dialogue at the appropriate time. 

Senator CARPER. Thanks. 

Madam Chairman, I appreciate very much your generous allocation of time here for these questions. Gentlemen, thank you all for 

coming here and for the spirit that you bring to today’s hearing. 

Looking out in the audience, Madam Chairman, I see an old colleague that I served with in the House of Representative, Congressman Bill Clay. It is always good to see you, Bill. 

Madam Chairman, I would ask unanimous consent to have my 

statement entered into the record at the appropriate place. Thank 

you so much. 

[The prepared opening statement of Senator Carper follows:]

PREPARED OPENING STATEMENT OF SENATOR CARPER 

Thank you, Madam Chairman. 

I’m pleased that we will be hearing testimony today from OPM and the four major 

postal unions on the workforce recommendations made by the President’s Postal 

Commission last summer. 

As I mentioned at our last hearing, these recommendations have received quite 

a bit of attention since their release. They are probably among the most controversial made by the commission. I won’t go into detail again about my concerns with 

them, but I will briefly touch on one subject I addressed last time. 

I’ve said in the past that I don’t think the evidence is there to prove that postal 

employees are overpaid. I’m also reluctant to tinker with a collective bargaining 

process at the Postal Service that has worked well, especially in recent years. However, I wouldn’t say that the current system is perfect. There is certainly always 

room for improvement. 

I get the impression, Madam Chair, that the Postal Service has a pretty good relationship with its employees right now. It’s something I know they’ve worked hard 

81

on in recent years. That good relationship is in large part the reason why we’ve had 

three out of four major postal unions recently agree to modest contract extensions. 

That said, the current leadership at the unions and the Postal Service will not 

be around forever. I think it is important, then, that the Postal Service take full 

advantage of the once-in-a-generation opportunity that postal reform offers. I believe 

it is important that they sit down with their employees to see if there are any 

changes that need to be made to the current system to ensure that the labor peace 

we have seen in recent years lasts for as long as possible. 

I’m not sure that the Commission’s workforce recommendations are the right approach, but I am certain that there are reforms out there that could make a decent 

system better. The best reforms, however, will be the ones that management and 

labor can agree to jointly.

Chairman COLLINS. Without objection. Thank you, Senator. 

I want to thank all of our witnesses today, both from OPM and 

the distinguished presidents of the four major postal unions. We 

very much appreciate your being with us today. Each of us shares 

a common goal, and that is we each want to make sure that the 

Postal Service continues to provide universal service to all Americans at affordable rates. 

We also are grateful for the work that your union members do 

each and every day. Mr. Young, I am pleased that you reminded 

us, and Mr. Holton reminded us not only of the service provided 

and the Heroes Awards, but also of the recent agreement between 

the Postal Service and the Department of Homeland Security. I 

think that agreement is indicative of the service commitment, the 

willingness to go the extra mile of your members. 

So I very much appreciate your contributions to this debate. I 

hope we can work very closely in drafting legislation. I realize 

these issues are difficult. We may not see eye to eye on all of them 

but I want you to know that your contributions and input are always valued here. So thank you for your testimony today and for 

being with us. 

Today’s hearing was the fourth in a series of hearings. I am committed to making sure that we hear a wide variety of views as we 

go forward and that we have the benefit of as much expertise as 

possible as we tackle this very complex issue. I will keep the record 

open for 15 days for the submission of any additional materials 

that our witnesses or our Members may have. 

This hearing is now adjourned. 

[Whereupon, at 12:22 p.m., the Committee was adjourned.] 

(83)

A P P E N D I X 

PREPARED STATEMENT OF SENATOR LAUTENBERG 

Postal reform is an important national issue, but most Americans spend little 

time thinking about it because they take postal service and the employees who provide it for granted. 

The importance of the U.S. Postal Service (USPS) to our national economy cannot 

be overstated. I’ll give you one example: A 2-year delay in postal rate increases has 

the potential to save publication companies like AOL-Time Warner approximately 

$200 million in mailing costs. 

Last year alone, the USPS delivered more than 200 billion pieces of mail. So the 

important role the Postal Service plays in our economy and the contribution of its 

843,000 dedicated employees should not be overlooked or taken for granted. 

Having said that, this is indeed a time of great change for the Postal Service. As 

the President’s Commission has observed, ‘‘traditional mail streams will likely continue to migrate to cheaper Internet-based alternatives.’’ And given the existing regulatory structure, the Postal Service’s debt is likely to increase every year, making 

it tougher for the Postal Service to achieve its fundamental mission of universal 

service. 

I support the Commission’s recommendation to make the rate-setting process less 

cumbersome and more efficient. 

But I must take issue with many of the Commission’s labor reform proposals. 

As a former businessman, I understand the need to make a workforce as lean and 

efficient as possible. But limiting employees’ collective bargaining rights and attempting to depress workers’ wages while increasing executive compensation will 

not solve the Postal Service’s organizational and workplace problems. Such ‘‘solutions’’ are likely to make things worse. 

Instead, I think we should take full advantage of the opportunity that work force 

attrition will present to us in the years ahead. Forty-seven percent of existing Postal 

Service employees—about 347,000 individuals—will be eligible for retirement by 

2010. 

I look forward to hearing from our witnesses about this idea and other postal reforms. 

Thank you, Madam Chairman.

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