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94–202 PDF 2004

S. Hrg. 108–527

POSTAL REFORM: THE CHAIRMEN’S PERSPECTIVES

ON GOVERNANCE AND RATE-SETTING

HEARING

BEFORE THE

COMMITTEE ON 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

APRIL 7, 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

Senator Akaka .................................................................................................. 3

Senator Carper ................................................................................................. 3

Senator Lautenberg .......................................................................................... 17

Prepared statement: 

Senator Fitzgerald ............................................................................................ 33

WITNESSES 

WEDNESDAY, APRIL 7, 2004

Hon. George Omas, Chairman, U.S. Postal Rate Commission; accompanied 

by Stephen L. Sharfman, General Counsel, U.S. Postal Rate Commission .... 6

S. David Fineman, Chairman, U.S. Postal Service Board of Governors ............. 8

ALPHABETICAL LIST OF WITNESSES

Omas, Hon. George: 

Testimony .......................................................................................................... 6

Prepared Statement ......................................................................................... 34

Fineman, S. David: 

Testimony .......................................................................................................... 8

Prepared Statement ......................................................................................... 72

APPENDIX 

CRS memorandum entitled ‘‘Governance of the U.S. Postal Service,’’ dated 

December 18, 2003 ............................................................................................... 78

CRS memorandum entitled ‘‘Proposed Governance of the U.S. Postal Service,’’ 

dated February 19, 2004 ...................................................................................... 92

CRS memorandum entitled ‘‘Present and Proposed U.S. Postal Service Governance Boards,’’ dated March 31, 2004 ............................................................ 105

(1)

POSTAL REFORM: THE CHAIRMEN’S 

PERSPECTIVES ON GOVERNANCE AND 

RATE-SETTING 

WEDNESDAY, APRIL 7, 2004

U.S. SENATE, 

COMMITTEE ON GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:03 a.m., in room 

SD–342, Dirksen Senate Office Building, Hon. Susan M. Collins, 

Chairman of the Committee, presiding. 

Present: Senators Collins, Akaka, Carper, and Lautenberg. 

OPENING STATEMENT OF CHAIRMAN COLLINS 

Chairman COLLINS. The Committee will come to order. Good 

morning. 

I would like to welcome everyone to the Committee’s final hearing on Postal reform. Many of you thought we would never get to 

this point. Today marks the eighth in a series of hearings that the 

Committee began last September. Our Senate hearings have focused on the 35 legislative and administrative recommendations of 

the President’s Commission on the U.S. Postal Service, recommendations that 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 730,000 career employees. 

But less well known is the fact that it is the linchpin of a $900 billion mailing industry that employs nine million Americans in fields 

as diverse as direct mailing, printing, catalog production, paper 

manufacturing, and financial services. The health of the Postal 

Service is essential to thousands of companies and the millions 

that they employ. 

At our first hearing in September, the Committee heard from the 

Commission’s Co-Chair, Jim Johnson. Commissioner Johnson 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. 

At the Committee’s second hearing last November, we heard 

from Postmaster General, Jack Potter, and Comptroller General, 

David Walker. In his testimony, Mr. Walker of the General Accounting Office shared the Commission’s concerns about the Postal 

Service’s more than $90 billion in unfunded liabilities and other obligations. He pointed to the need for fundamental reforms to miniVerDate 0ct 09 2002 07:50 Aug 06, 2004 Jkt 094202 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 C:\DOCS\94202.TXT SAFFAIRS PsN: PHOGAN
2

mize the risk of a significant taxpayer bailout or dramatic Postal 

rate increases. 

In February, the Commission heard from representatives of the 

four largest Postal unions, along with postmaster and supervisor 

associations. The Commission’s controversial workforce-related recommendations were discussed at great length during that hearing. 

In March, the Committee held 2 days of hearings in which we 

heard from members of the mailing community and Postal competitors. We focused not only on the workforce and financial recommendations, but also heard testimony on the Postal Service’s 

monopoly and mission, the rate-setting process, and corporate governance issues. 

Last month, I joined House Chairman Tom Davis to conduct a 

joint Senate-House hearing at which we took testimony from Treasury Secretary Snow, Postmaster General Potter, and the Postal 

Service Board of Governors Chairman David Fineman, who is with 

us today, as well. A focal point of the hearing was the administration’s strong opposition to returning the military pension obligation 

to the Treasury. I urged Secretary Snow to work with Congress to 

resolve not only the military pension obligation issue, but also to 

solve the escrow fund issue, which I consider to be key to reform. 

Today, we will focus on the recommendations pertaining to the 

reform of the rate-making process and changes recommended by 

the Commission in the structure of both the Postal Rate Commission and the Postal Service Board of Governors. 

As a Senator representing a largely rural State whose citizens 

depend heavily 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 

the citizens of my State, whether they live near our northern or 

western borders, or on islands, or in our many small rural towns, 

have the same access to Postal services as the people living in our 

large cities. 

We must save and strengthen this vital institution upon which 

so many Americans rely for communication and for their jobs. The 

Postal Service has now reached a critical juncture. It is time for action, both by the Postal Service and by the Congress. 

Senator Carper, Senator Akaka, Senator Stevens, and others on 

this Committee have committed to working with me to draft a bipartisan Postal reform bill. We are also working closely, mindful of 

the short time remaining this year, with House leaders on Postal 

reform, including Chairman Davis and Congressman McHugh. 

I am very pleased today to have the benefit of hearing from the 

Postal Rate Commission Chairman and the Postal Service Board of 

Governors Chairman. I am very pleased that you are both able to 

join us today along with the General Counsel of the Postal Rate 

Commission and I look forward to your testimony. 

Before we proceed to our witnesses, I would like to call on my 

colleagues, who have been very active in Postal reform, starting 

with Senator Akaka. 

3

OPENING STATEMENT OF SENATOR AKAKA 

Senator AKAKA. Thank you very much, Madam Chairman. It has 

been my pleasure to sit next to you and to work with you on the 

many issues that have come before our Committee. I want to thank 

you for giving so much of your personal attention to ensuring the 

fair and open forum in which we have reviewed the recommendations made by the Commission on the Postal Service. Your commitment to crafting a bipartisan Postal reform bill is deeply appreciated, and as our hearings come to an end and the drafting process begins, I also want to thank your staff, who has worked diligently on this. 

I am especially pleased that today’s hearing will focus on proposed changes to the rate-setting process and governance issues. 

Ensuring the stability and viability of the U.S. Postal Service has 

long been an oversight responsibility of this Committee and of 

great importance to me. We understand the consequences of ignoring the challenges facing the Postal Service, but we also recognize 

opportunities that change may bring. 

I have repeatedly said that there must be a greater financial 

transparency within the Postal Service. As did the General Accounting Office, the Commission found that the Postal Service’s financial reporting has not always provided a clear picture of its fiscal condition. I am pleased that the Postal Board of Governors is 

taking steps to address this issue. 

Financial transparency and accountability is essential if the 

Postal Service is to have greater flexibility over setting its rates. 

I support putting in place mechanisms that will allow the Postal 

Service to respond more quickly to changing economic conditions or 

events that impact the delivery of the mail. To do so, however, we 

must ensure that the financial information is current and that it 

is available in a timely manner. I also believe that members of the 

Board of Governors should have additional resources to hire staff, 

which will increase the Board’s independence and effectiveness. 

Freedom to set rates will also require greater oversight by Congress, especially since the Commission recommends giving the proposed Postal Regulatory Board significant authority to set broad 

public policy in the area of rates, compensation, and the definition 

of universal service. 

Chairman Collins, I look forward to this hearing and I thank our 

very distinguished guests and witnesses, Chairman Omas, Chairman Fineman, for joining us today, and also Mr. Sharfman. Thank 

you very much. 

Chairman COLLINS. Thank you very much, Senator. Senator Carper. 

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. Thanks, Madam Chairman. To my colleagues 

and to our witnesses here today, welcome. It is good to see you all. 

I haven’t seen Mr. Fineman for a while. Actually, we rode down on 

the train together, same car, just on the other side of the aisle. We 

have already gone through our questions. I thought his answers 

were excellent. [Laughter.] 

We didn’t get into a great deal of detail, but thanks for coming. 

Thanks for being a great customer for Amtrak, too. [Laughter.] 

4

Madam Chairman, I think this is the last in a series of hearings 

that have been helpful for me, I hope for our Committee and for 

our staffs, and I just want to express my thanks to you, your staff, 

and to our own staff, my own staff, for the work that has been done 

in arranging these hearings and scheduling them. 

I think both the Board of Governors and the Postal Rate Commission have performed admirably since their creation, especially 

in recent years, and I want to commend Chairman Fineman and 

a previous Board of Governors Chairman who is not here today, 

Bob Rider, who is one of our constituents in Delaware, a good man. 

Chairman Omas and Mr. Sharfman—will you help me pronounce 

your last name? Is it Sharfman? 

Mr. SHARFMAN. You have it correct. 

Senator CARPER. Great, three for three. I am usually not that 

good. I want to commend Postmaster General Potter and the Postal 

Service for having made it through some tough times. If you go 

back and think about it, in recent years, we have had a catastrophic terrorist attack, actually a series of them. We have been 

faced with bioterrorism. We have seen a recession. The Postal Service has come through it in remarkably good shape. 

Through it all, the Postal Service has remained a linchpin of a 

$900 billion mailing industry and continues to reach every home on 

my block, every home in my State, every business in all of our 

States, every home, 6 days of the week. 

Having said that, as we celebrate the Postal Service’s notable 

successes, I think it is important that we focus on what needs to 

be done going forward if the Postal Service is going to be as successful in the next 30 years as it has in the last 30 or so years. 

In spite of the strong leadership that we have seen from Chairman 

Fineman and his predecessor and Chairman Omas and his colleagues, I have come to the conclusion that some changes are needed at the Board of Governors and some changes are needed at the 

Postal Rate Commission. 

S. 1285 is the number given to the comprehensive postal reform 

legislation that I introduced last year, and that legislation recognizes this truth and so do the recommendations of the Presidential 

Postal Commission. 

My legislation turns the Board of Governors into a body more 

likely to be able to steer the Postal Service through the challenging 

years that lie ahead by requiring that members have some experience managing an organization, I am tempted to say the size of the 

Postal Service, but there aren’t many organizations the size of the 

Postal Service, but some experience in managing large organizations. 

My legislation also improves qualifications for the members of 

the Postal Rate Commission, requiring that Commissioners have 

backgrounds in areas like economics, accounting, and law. Those 

Commissioners are also given more power to demand information 

from the Postal Service, along with new authority to regulate something that we call service standards, so that the Postal Service cannot try to cut back on service when times get tough instead of finding efficiencies. 

I am pleased that the recommendations from the President’s 

Commission dealing with governance and oversight are largely 

5

similar to what we put on the table with S. 1285. The President’s 

Commission also recommends improving qualifications for governors and commissioners and gives the Postal Rate Commission 

some important new powers. I believe that they may go a little too 

far in some instances, and we will talk a bit more about that here 

later. 

But let me say that I fear that having a—and I mentioned this 

to Mr. Fineman today on the train—that the idea of having a majority of the members of the Board of Governors not being confirmed by the Senate will weaken Congressional oversight over the 

Postal Service and I think we need to be careful before we take 

that step because the Postal Service is important to us every day. 

It is important that most, I think, if not all of the members of the 

Board of Governors should be confirmed by the Senate. 

In addition, to protect against the Board not becoming too political, I think it is important that we maintain the notion that the 

Board be bipartisan and the governors only be removed for cause, 

and we will have ample opportunity to explore that here in a moment. 

In this vein, I think it is also important the governors serve for 

longer than just the 3 years that the Commission suggests. 

Second, let me just say it may not be appropriate to give the 

Postal Rate Commission the authority to unilaterally change universal service and the scope of the Postal Service’s monopoly. I can 

understand why some would want to leave this authority in the 

hands of Congress. However, I believe we should give the Commissioners the authority to interpret the definition of universal service 

in current law as we do in the bill that I proposed. 

In closing, Madam Chairman, thanks again very much for really 

helping us to have a very helpful series of hearings. I believe that 

what we need to do with Senator Akaka and others on our Committee once we conclude this hearing is to get to work—I know we 

have been to work, but to finish the good work that has begun. We 

look forward to putting together just an excellent bill that we can 

present to our colleagues, hopefully later this month. Thank you. 

Chairman COLLINS. Thank you, Senator. 

I would now like to introduce our two witnesses, our three witnesses, I should say, who have joined us today. 

George Omas is the Chairman of the Postal Rate Commission. 

He was appointed to that position in November 2001 and has 

served as a member of the Commission since August 1997. Prior 

to joining the Commission, he worked for more than 20 years in the 

U.S. House of Representatives, nearly 18 of those years for the 

Committee on the Post Office and Civil Service, so I think that he 

has a great understanding of the challenges of putting together 

Postal legislation and we appreciate his expertise. 

He is accompanied today by Stephen Sharfman, the General 

Counsel to the Postal Rate Commission. 

David Fineman is the Chairman of the U.S. Postal Service Board 

of Governors. He was elected Chairman of the Board in January 

2003 and reelected in January 2004. He has served on the Board 

since May 1995. He is also a long-time managing partner of a prestigious Philadelphia law firm, since I notices your name is listed 

first. 

6

1The prepared statement of Mr. Omas appears in the Appendix on page 34. 

I want to thank you, Chairman Fineman, for your willingness to 

return to Capitol Hill so soon after the joint hearing. I felt at the 

joint hearing that we didn’t have an opportunity to hear as fully 

from you as I would have liked and I appreciate your willingness 

to return to Washington for our hearing. 

Mr. FINEMAN. My pleasure. 

Chairman COLLINS. Mr. Omas, we will start with you. 

TESTIMONY OF GEORGE OMAS,1 CHAIRMAN, U.S. POSTAL 

RATE COMMISSION, ACCOMPANIED BY STEPHEN L. SHARFMAN, GENERAL COUNSEL, U.S. POSTAL RATE COMMISSION 

Mr. OMAS. Chairman Collins, Members of the Committee, thank 

you for providing me with the opportunity to testify on ways to 

achieve meaningful Postal reform. I understand my full statement 

will be incorporated into the record, so I will just take a few minutes to focus on some of the most important aspects of Postal modernization. 

First, if I may, I would like to recognize Danny Covington and 

Tony Hammond, two of my fellow Commissioners, who have accompanied me here today. 

The Postal Reorganization Act of 1970 focused on taking politics 

out of the old Post Office Department and allowing the renamed 

U.S. Postal Service to operate in a more business-like fashion. I 

think that legislation was a success. The administration has now 

presented five principles to guide the future evolution of the Postal 

Service into a more efficient and market-responsive organization. I 

fully support those five principles. 

Postal reform will greatly benefit the Nation if it can revitalize 

and modernize the Postal Service. However, I urge Congress to 

keep unchanged the basic character of the Postal Service, that is, 

to bind the Nation together through correspondence of the people. 

The Postal Service should become more business-like and it should 

adopt modern, efficient practices, but it must also retain its essential character as a service provider to the people by their government. 

The administration seeks reform that provides the Postal Service 

with the flexibility to more easily implement best business practices while assuring that the public has transparent access to timely and accurate cost and performance information to assure total 

accountability. 

The responsibility for adopting best business practices and being 

self-financing, I feel lies with the Postal Service. The responsibility 

of assuring transparency and accountability lies with the regulator. 

My testimony discusses in some detail, ways to assure a successful 

balance of these two missions. 

During my tenure at the Postal Rate Commission, the Postal 

Service has not been totally transparent. It has opposed changes 

suggested by mailers to make rate cases faster and less complex. 

It has resisted attempts by the Commission, by the mailers, and by 

the neutral third parties, such as the GAO, to gain detailed information about Postal Service practices and operating results. I sinVerDate 0ct 09 2002 07:50 Aug 06, 2004 Jkt 094202 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 C:\DOCS\94202.TXT SAFFAIRS PsN: PHOGAN
7

cerely hope this culture of confidentiality and resistance to change 

can be overcome through reform legislation. 

With regard to transparency, I fully and totally agree with the 

testimony of Treasury Secretary Snow, that the private sector confidentiality concerns should not apply to our government-owned 

Postal Service and that Postal reform requires true and exacting 

transparency. The public should have broad access to detailed information on cost and service performances that the regulator will 

analyze in order to assure compliance with all applicable public 

policy. 

The Postal Service and the regulator must work together with 

mailers to develop a modern system for regulating rates. That system should allow the Postal Service flexibility to meet the needs of 

all of its customers while establishing a strong and efficient incentive to reduce costs and to increase efficiencies. 

One aspect of this system should be to eliminate the adversarial 

trial-type rate-setting hearings which we conduct presently. If 

there is a meaningful transparency of Postal Service operations, 

and in financial data, consumers can be assured that the new rates 

are consistent with applicable requirements by a brief administrative review. I will elaborate on that point. 

Draft reform legislation in the last Congress, Senator Carper’s S. 

1285 and the House bill H.R. 4970, tasks the new regulator to work 

with the Postal Service and the mailers to develop a modern ratemaking system that meets a number of important policy goals. 

Such a system would encompass both standards to guide the Postal 

Service in its pricing and procedures for implementing rate 

changes. 

However, when the President’s Commission on the Postal Service 

provided its thoughts on pricing, it suggested that rate changes be 

allowed to take effect without any public review. It left mailers to 

file after-the-fact complaints to correct rates that violate price caps 

or involve cross-subsidies. I think that recommendation is misguided and I urge that it not be enshrined in legislation. 

Rate changes are not a routine matter. Businesses have to purchase and install new programs to compute postage and individuals 

have to purchase new stamps. Every effort should be made to avoid 

the disruption that would be caused by complaints leading to rate 

adjustments. 

A far more efficient and mailer-friendly system would involve advance administrative review. This would take advantage of enhanced Postal transparencies to ensure that planned new rates for 

market-dominant services are within applicable pricing guidelines, 

such as rate caps, and cross-subsidy prohibitions. A brief administrative review of planned rate changes would not limit management’s flexibility. 

Rate predictability is a key aspect of total reform, and mailers 

of market-dominant products must be given ample advance notice 

of rate changes. Review could easily be accomplished before mailers 

have to prepare to implement the new rates. 

Another key safeguard in the modern system of rate regulation 

should be a provision allowing for limited exigent rate cases. A reformed rate system should include price caps that give incentives 

to the Postal Service to reduce cost and increase efficiencies. It 

8

1The prepared statement of Mr. Fineman appears in the Appendix on page 72. 

should also allow for exigent rate increases in case unforeseeable 

extraordinary circumstances threaten the Postal Service’s financial 

stability. 

It must be understood, however, that exigent increases are limited to extraordinary circumstances and are not appropriate simply 

because revenues are mis-estimated or cost reduction programs are 

not as successful as planned. These types of events are normal in 

any business and Postal management must be expected to adjust 

to normal business fluctuations. To assure that the system is not 

abused, all exigent rate increases for market-dominant products 

must be approved in advance by the regulator. 

Reform legislation that clearly sets out national goals of more 

modern and more efficient business practices, and meaningful oversight to protect consumers and maintain universal service, will go 

a long way toward assuring that our Postal Service will thrive in 

the coming decades. I hope these efforts are successful. 

I would be happy to answer any questions you or the Committee 

might have. Thank you. 

Chairman COLLINS. Thank you for your testimony. Chairman 

Fineman. 

TESTIMONY OF S. DAVID FINEMAN,1 CHAIRMAN, U.S. POSTAL 

SERVICE BOARD OF GOVERNORS 

Mr. FINEMAN. Thank you. As I have indicated to Senator Carper 

on the Amtrak train coming down and Senator Collins on numerous occasions, I leave the Board on December 8 of this year, having 

served probably in excess of 8 years on this Board. Actually, Bob 

Rider and I came to this room and had our Senate confirmation 

hearings together and it has been a wonderful experience. 

But I do think, leave aside everything else, after 8 years, I think 

it is appropriate not to be reappointed. I don’t think that Board 

members should serve more then 9 years. That would be 17 years 

on a board of this sort. I would think that would be absolutely inappropriate. So I am not seeking to be reappointed, and I come 

here in a forthright kind of way to say to you, I only have a few 

more months left. I want to be as forthright as I can and enter into 

a dialogue with you about what my experience has been on the 

Board. 

Shortly after I got on the Board, it became clear to me that there 

needed to be a change in law, and I think both myself and Congressman McHugh at that time were lonely voices out there talking 

about Postal reform and changes to be made. 

What became clear to me, and Chairman Omas referred to it a 

little bit, is that the rate-making process is so cumbersome. I have 

referred to it over and over as the Lawyer’s Welfare Act of 1970. 

What it contemplates, to a large degree the way the law was enacted, is an adversary system, and in that adversary system you 

have various people who intervene in the case and then ask for 

documents. It becomes very much some sort of an adversarial system, and Chairman Omas has stated over and over that he looks 

at himself as a judge in a quasi-judicial role. I think it is appropriate, and he has handled everything in an extremely efficient 

9

manner as a Federal judge might do, tried to bring people together 

over periods of time, entered into settlements. But it is a system 

that doesn’t make a lot of sense. 

Let’s talk about financial transparency. We have received the 

recommendation from the Presidential Commission, which is a 

Commission we asked for. The Board said at some point, we ought 

to have a Presidential Commission appointed. We were happy that 

they were appointed, and we have begun to institute reforms to try 

to comply with SEC requirements as they recommended. 

But when we talk about financial transparency, if you have the 

present system, I would say to you, quite frankly, you are not going 

to get the kind of transparency that everybody seems to want, although I can’t understand what else they want, because what you 

have is this adversarial system. 

So every time a rate case starts, what I have talked about in 

speeches is we back a truck up, literally back a truck up to the 

Postal Service and put on it tons of documents that then go over 

to the Postal Rate Commission and that is only the first truck. 

Then when, to some degree, our competitors ask for different documents, we then back up more trucks and answer questions and expend incredible energy, time, and money into these rate cases that 

make little sense as to a way to create rates in the present environment that we have. 

Let us step back for a minute and look at the world in 1970. 

FedEx, did it exist? Did it exist in the form that it exists today? 

Was the dominant force that it is in the package business in 1970 

as compared to the Postal Service? When the Senator and I came 

up, he could have seen me sneaking onto my Blackberry, looking 

at my E-mails, answering E-mails today. The world didn’t exist as 

it exists today, and that is why Senator Carper’s bill and other bills 

you have talked about having a price cap regimen, I think are really important. 

It is really important, and when you look at that, where you are 

going to have issues, it seems to me they are going to have to be 

discussed internally. The devil is going to be a little bit in the detail. What is the price cap that you use? You heard from the Postmaster General. He said to you, well, the world didn’t exist the 

same way it existed before. It didn’t even exist the same way when 

we had the first set of price cap regimens that came into existence 

in telecommunications. There, you used the CPI. 

Could we have predicted, as an example, that inflation would be 

as low today as it is? Probably nobody in this room would have predicted that. So if we used a CPI over the last few years, would the 

Postal Service be able to accomplish what it accomplishes with that 

kind of index? I think that is what the Postmaster General was 

saying to you, and I think that is an issue. I think that what he 

has done is to bring some light onto that issue and it is an issue 

that you have to look at. 

I understand that this hearing was called to a large degree to 

talk about governance. I happen to agree with Senator Carper, and 

I have said it before, as Senator Collins has heard, and my testimony reflects that the issues for the Board of Governors are not 

Democrat or Republican issues. Quite frankly, more than 8 years 

that I have been on the Board, there have not been partisan issues. 

10

We have acted—tried to act in a very business-like kind of manner 

and I would think that the manner in which the Board is recommended in the Presidential Commission could result in a partisan Board, which is something I think everybody wants to stay 

away from. 

I do believe there should be qualifications. I am concerned to 

some degree that the qualifications set forth in the Presidential 

Commission might be a little bit stringent. Many of us, including 

myself, Bob Rider, Ned McWherter, a former member of our Board, 

former Governor of Tennessee, Jim Miller, Al Casey, we have sat 

on public boards. I think that you would find that the Board, to a 

large degree, is constituted of extremely qualified people. On the 

other hand, I think you do have to set forth those qualifications. 

And while we are talking about qualifications, if you are going 

to have a Postal Rate Commission which would have the kind of 

powers that are set forth in Senator Carper’s bill, and Congressman McHugh’s bill, you are going to have to have stringent qualifications for those people because you are really talking about people who will have immense power, which raises other questions. 

I don’t think you want to give them the kind of power that was 

suggested to a large degree in the report. I don’t think you want 

to allow them to make determinations about the monopoly. Do you 

want to allow them to make determinations about universal service? I would say about 3 or 4 years ago, all I did was recommend 

that we should study the idea of 5-day delivery. When I testified 

on the House side, I thought I had committed a mortal sin. One 

of my fellow Governors, Alan Kessler, sat next to me and said to 

me—he had just gotten on the Board—he said to me, ‘‘David, the 

Republicans sound like Democrats. The Democrats sound like Republicans. I don’t quite understand what is going on here.’’ And all 

we did was say, study it. But I do think that is a major public policy issue and it is clear to me that Congress wants to have something to do with that. 

So with that, I would say to you I will be more than happy to 

take any questions that you have and I look forward to entering 

into a dialogue. 

I do want to take this opportunity to thank, as well, your staff. 

I know that your staff has worked diligently, all of your staffs have 

worked diligently on this issue and they should be—sometimes 

they are not thanked enough and I think they should be thanked, 

because they really have worked very hard, I know, to try to come 

to grips with what is a very complicated issue. 

I want to take this opportunity also to thank publicly people from 

my staff, Bill Johnstone, particularly, the Secretary of the Board of 

Governors, John Reynolds, and Ralph Moden from Legislative Affairs, who have also worked very hard on this issue and we look 

forward to continuing to work with you. Thank you very much. 

Chairman COLLINS. Thank you, Mr. Chairman. 

Mr. Omas, I want to discuss with you the issue of the after-thefact review of rates as recommended by the Commission. This is an 

issue that is critical in the whole rate-setting process, and I was 

very interested to hear your testimony that you believe an afterthe-fact rate review was, I think you described it as misguided. I 

think your real views are even stronger than the word ‘‘misguided.’’

11

The current rate-setting system can take 18 months. It costs millions of dollars and it has engendered widespread opposition. Almost no one is happy with the current system. Part of the recommendations by the Commission were to establish the rate cap, 

but the other part to deal with the expense and length and the litigiousness of the current process was this after-the-fact review. 

I can understand the concerns that have been expressed by you 

and by members of the mailing community that it could create 

chaos in the system if you after the fact reverse a rate increase or 

change a rate increase that the Postal Service under the cap has 

gone ahead and implemented. But if you have a before-the-fact review, which does seem like the logical answer to that problem, how 

can we ensure that it is going to be much more rapid, far less litigious, and far less costly than the process now. If it is before the 

fact, if it is before the rates go into effect, aren’t we going to be 

trapped in the same process, or a process similar to what we have 

now? 

Mr. OMAS. Madam Chairman, I don’t think so. I think, as the 

legislation that was introduced by Mr. Carper and Mr. McHugh 

and the recommendations that have come from the President’s 

Commission for more transparency and for more data collection 

and with the regulator having the ability to request and ask for 

more transparency and for data to request certain studies, I feel 

very strongly that an administrative review of the rates can be 

prompt. Right now, when the Postal Service issues a new rate, 

there is a time gap in between when it is approved and before it 

is implemented. 

I think within that general time frame, it would be very easy to 

do an administrative review of the rates with the proper data. It 

would just be a matter of getting the proper information and plugging it in. If there is any question, we would do it. I am not espousing that this would be as long, as I said in my statement, as the 

trial-type hearings we have now. This would just be, basically be 

a paper process. 

Chairman COLLINS. What kind of time period do you think such 

a review would take? 

Mr. OMAS. I think it could be expeditiously done. Within less 

than 90 days. 

Chairman COLLINS. That would certainly be——

Mr. OMAS. With the proper transparencies, what we are talking 

about is simply looking at the numbers and seeing whether their 

attributable costs are in place and whether or not the product is 

paying its way, as is now required by law. 

Chairman COLLINS. Mr. Fineman, you talked about the truck 

backing up to the Postal Service and carting off a truckload of documents for the rate process. What is your judgment on the afterthe-fact review versus a pre-implementation review? 

Mr. FINEMAN. I don’t agree with Chairman Omas. Let us try to 

create a new system here. There are two parts to this. There is one 

part where we are saying we are going to try to implement a price 

cap, and as a result of implementing a price cap, we are going to 

give a lot of power to a commission. Now, what is the trade here? 

What is the trade? The trade is that management be given a fair 

amount of flexibility within which to manage the Postal Service. 

12

So imagine what the system is that we are creating now if we 

follow what Chairman Omas has indicated. We are going to have 

this price cap. Some sort of board, the Board of Directors or Board 

of Governors or whatever you want to call them—it doesn’t really 

make any difference to me, quite frankly—that board from time to 

time, depending on what economic conditions are, will try to adjust 

rates within that cap, depending on what happens. 

We get a spike in the price of gasoline. Right now, what happens 

in the real world when you get a spike in the price of gasoline for 

other people who are in our business, similar kinds of business? 

You get rate adjustments. What happens to us if we get a real 

spike, and it affects us in a real material way? We would have to 

apply for a new rate. I think it is unfair, and I use the word ‘‘we’’ 

and I shouldn’t use that word because I am talking about it in 

terms of—I won’t be on that board. I am talking about it in terms 

of what will exist. 

What you are trying to do here today and you are trying to do 

through the system is give management the flexibility to manage 

within that price cap regimen. If you take it back, I think what you 

are going to have is another system of this give-and-take between 

people and creating some sort of adversarial system, which is really 

what you want to try to get away from. Have that adversarial system happen when you create the cap, not afterwards. 

Chairman COLLINS. Thank you, Mr. Fineman. 

My time has expired, but I can see that Mr. Omas is dying to 

do a rebuttal, so I am going to give you just one minute. 

Mr. OMAS. I would simply like to say that I am in no way suggesting that we go back to a 10-month process. What I stated was 

that if proper transparencies existed, yes, we are going to assure—

the Postal Service should have total and complete flexibilities to set 

their price caps within the regime. All I am saying is I think the 

public has a right to know whether or not the rate increase is consistent with the law, whether it was increased for fuel purposes or 

not. However, I feel that fuel should be a part of an overall business practice, as I mentioned in my statement. 

If you are going to operate like a business, these are things that 

must be taken into consideration. In the private sector, I don’t 

think things always go up and down because fuel goes up or electricity goes up. I think it ends up—that is good business practices, 

to take into consideration for those variations. But all I am saying 

is that we just would review. I am not asking for mounds of paper 

or I am not suggesting mounds of paper. I am simply stating that 

a pre-review would save a lot of people a lot of problems. 

Let us say, for instance, and I won’t take much of your time, that 

a rate does go into effect and then there is a complaint that the 

regulator must review and that review finds a defect in that rate 

structure. That means that all of the people who have prepared 

their computers, their mailing structures and everything to accommodate the new rate structure will have to go back. I mean, it 

doesn’t make any sense. Thank you. 

Chairman COLLINS. Thank you. I have many additional questions, but I am going to yield to my colleagues. We will do a second 

round of questions, just so that you all know, and perhaps even a 

third. 

13

1The memos appear in the Appendix on page 78. 

Senator Akaka. 

Senator AKAKA. Thank you very much. I want to thank both of 

you for your statements. 

Chairman Omas, your detailed written testimony certainly will 

assist us in drafting the Postal reform legislation and I want to 

thank you personally and your staff, who have always been available to help this Committee. I appreciate that dedication. 

Mr. OMAS. Thank you, Senator. 

Senator AKAKA. Chairman Fineman, I appreciate your guidance, 

as well, and I want to thank you for your nearly 10 years of service 

as a member and now Chairman of the Postal Service Board of 

Governors. 

My first question is to Chairman Omas and is one that I have 

asked of several witnesses. Concern has been expressed that a 

price cap on Postal rates could become a cap on Postal compensation. Would you please share your views with us on this matter? 

Mr. OMAS. Yes, sir. A major goal of Postal reform is to provide, 

I think, meaningful incentives that will encourage the Postal Service to be more economical and more efficient. Price caps, I feel, 

would achieve that goal. 

I think as productivity increases under this more economical and 

efficient system, productivity would be rewarded with higher wages 

over a period of time. I think that they go hand in hand, and if the 

efficiency and the productivity come together, the employees will be 

rewarded for their productivity. 

Senator AKAKA. Chairman Fineman, I was pleased that you 

raised the concern over the Commission’s proposal that the President would appoint the first three members of the new board, who 

in turn will select other members with concurrence of the Secretary 

of the Treasury. I strongly believe that a modernized Postal Service 

needs more, not less, Congressional oversight, and removing the 

Senate’s advice and consent role, I believe is wrong. 

I also believe that the selection method raises serious constitutional questions and I asked the American Law Division of the 

Congressional Research Service to review this issue. Chairman Collins, if there is no objection, I would like to include in the record 

three CRS memos dated December 18, 2003, February 19, 2004, 

and March 31, 2004, that discuss this matter.1

Chairman COLLINS. Without objection, they will be included. I 

think that will be very helpful for all of us to read. 

Senator AKAKA. Thank you very much. 

Chairman Fineman, I believe the ideal governance design for a 

newly constituted Postal Board of Directors should ensure that decisions concerning the Postal Service can be made in an independent and transparent manner. This has been alluded to in your 

testimony. 

My question to you is, do you believe the current structure provides independence, and what changes would you recommend? 

Mr. FINEMAN. Let me begin by making a real personal comment 

and then I will, if I can, answer your question in some detail. All 

of us sitting here today, could we all agree, and I think we would, 

that the Federal judiciary, in essence, is extremely competent. I 

14

mean, we would all agree to a large degree that the people who are 

sitting on the District Courts, and Court of Appeals are, and while 

there might be from time to time those issues that the U.S. Senate 

has with any individual nominee, but we would all agree to that. 

I was nominated by President Clinton to be a Federal judge. It 

was near the end of his administration. I am one of those 60 people 

or so who didn’t get confirmed at the end of President Clinton’s administration. Having gone through that process, and I went 

through this process, I was qualified by the American Bar Association, met with the Department of Justice, met with the General 

Counsel’s office in the White House, so I have had two FBI background checks, this one for this position and later for the Federal 

judiciary. 

Was there any difference, and I have talked a lot about this with 

people in the mailing community, other people who are lawyers. 

Some of them have come to me and said, well, there is a vested 

interest in the Federal judiciary with the Justice Department, no 

matter who the administration is, to make sure that there are 

qualified people here. 

I think that what you have to do is to set forth that those qualifications are for our Board so that you do get top-quality people, 

and then also have a review by the Senate. It is appropriate. It is 

a good check. It is appropriate, and I don’t see that there should 

be any problem with that. We have to continue to have a bipartisan 

Board, as you have said, Senator, and we have spoken about this 

before. We can’t make this into a politicized organization. 

As to terms, we now sit for 9 years. The Presidential Commission 

recommended 3 years. I probably would say to you, having had experience, 3 years is on the low side because it is a complicated organization. Nine years is probably a little bit on the high side. I 

would say someplace in between would probably be appropriate. 

There are recommendations in the Commission about age requirements. Most public boards today do have age requirements, 

and even the Federal judiciary, to become a senior judge at a certain period of time. They talk about 70 years of age. I think 70 is 

a little bit on the light side. I just saw, I mean, I always speak 

about the manager for the Florida Marlins. He took that team to 

the World Series and he was in excess of 70 years of age. So I think 

that probably you are talking about something, not 70 years of age, 

a little bit in excess of 70 years of age. That would be appropriate. 

Those kinds of reforms, I think are appropriate for our Board. 

Senator AKAKA. Thank you, Madam Chairman. 

Chairman COLLINS. Thank you. Senator Carper. 

Senator CARPER. Thanks, Madam Chairman. 

You know, it is really very fortunate to have before us today people who served in these roles, and with Chairman Fineman, someone who has been around almost 8 years, or over 8 years, and is 

going to be stepping down and is sort of unencumbered because of 

that fact and can really share from his heart what he thinks we 

should do. 

Let us back up just for a moment. Just explain to us, if you will, 

how the Board is currently constituted. Just run before us who 

nominates, how many people on the Board, ages that they can 

15

serve, qualifications. Just take a moment and just give us that, 

please. 

Mr. FINEMAN. Presently, the Board is constituted of nine outside 

directors, outside governors, and two who are management, the 

Postmaster General and the Deputy Postmaster General, no more 

than five of one party. There are no real qualifications that are set 

forth as a matter of statute other than there shouldn’t be a conflict 

between ourselves and the mailing community. 

I think that the prime things that the Board does, just to go a 

little bit further, is our selection of the Postmaster General, which 

is done by the appointed governors, and the Deputy Postmaster 

General is selected by the Board with the Postmaster General, and 

our ability to—and we, as a matter of statute, set rates. 

Senator CARPER. Talk to us about the qualifications that we 

should put in the law. 

Mr. FINEMAN. I think you have to have people who have sat, or 

have qualifications to be on a board of a major business. I mean, 

we would rank, I think, I don’t know, if we were a business, I think 

No. 2 or 3. Wal-Mart has now surpassed us in the number of employees that they have. I think we are now second to Wal-Mart, 

and we keep decreasing the amount of employees, which is an admirable thing. Through the efforts, I think, of the Board and the 

Postmaster General, we are now a bit more than 700,000 or so employees. 

You can’t have people who have no business acumen whatsoever. 

But it is a public board. It is different from a private board. So people have to come to this Board with a little bit more than, I think, 

just basic business qualifications. 

Senator CARPER. Talk to us, if you will, about the size of the 

Board. Should nine members, five of either party——

Mr. FINEMAN. My personal feelings, and they represent my personal feelings here, so I want to make that perfectly clear, I think 

that a board operates a little bit better with a smaller group of people, but not too much smaller, seven or so, because what we are 

talking here is different from a corporate board. 

One of the things that you have done, all of you, in going through 

what have been the most recent scandals in corporate America, is 

you talked about having, making sure there are outside directors 

who are independent and creating the Board with more outside directors. Just think about this for a minute. We have a Board of almost all outside directors plus the Postmaster General, who we 

hire. 

So it strikes me that kind of thinking isn’t necessarily needed because we have all outside Directors. But I do believe that if we had 

a little bit of a smaller Board, it might be a little bit more manageable. 

Senator CARPER. You talked about the length of the term that an 

appointee would serve on the Board, and I think the Commission’s 

recommendation was a 3-year term? 

Mr. FINEMAN. Correct. 

Senator CARPER. A single 3-year term? 

Mr. FINEMAN. I think you can be renominated. I don’t have that 

in front of me. 

Senator CARPER. I just don’t recall. 

16

Mr. FINEMAN. I believe you can be renominated. You can be renominated. 

Senator CARPER. All right, thank you. We thank the audience. 

[Laughter.] 

You are suggesting 3 years is a little short. I would be inclined 

to agree. The current term is what, 9 years? 

Mr. FINEMAN. Correct. 

Senator CARPER. That is a little bit long. I wonder, Madam 

Chairman, if there is some number that works between three 

and——

Chairman COLLINS. Five or seven might just be the answer. 

[Laughter.] 

Senator CARPER. You never know. Maybe even six, I don’t know. 

Talk to us a little bit about the age restrictions. I think the Commission suggested 70. Is the Commission saying at age 70, the person would have to step down or they could not be nominated for 

another term beyond the age of 70? 

Mr. FINEMAN. I am not sure about that. I think they have to step 

down at 70, which is not an unusual situation. I know that on some 

public boards—I see my good friend Senator Lautenberg has a 

smile on his face at this point. But I think that is——

Senator LAUTENBERG. I’m so interested in this subject. [Laughter.] 

Mr. FINEMAN. I think that they have copied, to some degree, 

what occurs on some outside corporate, well, in corporate boards 

throughout America. 

Senator CARPER. Mr. Omas, I want to ask you a question about 

the qualifications of the Board of Governors. I asked Chairman 

Fineman what he thought were qualifications that would be helpful 

and he gave us some ideas. I am going to ask you about the Commission, as well. But with respect to the Board of Governors, what 

kind of qualifications would you suggest we keep in mind? 

Mr. OMAS. Well, I would——

Senator CARPER. To write into law? 

Mr. OMAS. I agree with Chairman Fineman. I think that the 

Postal Service is so complex and it is, as Chairman Fineman said, 

next to Wal-Mart as far as a big business is concerned and it is 

multi-disciplined. I think you need people—I don’t think you can 

actually say that someone should come in with an accounting background or with a statistics background. I think you have to find 

someone who has a good across-the-board knowledge of business, of 

government public service. 

I think it needs a little bit of everything and I think I would go 

with Chairman Fineman in that I think it would be very difficult 

to specifically say exactly what qualifications one must have, and 

Mr. Carper, as we all know, the sad thing about some of the positions on the Board of Governors as well as the Rate Commission, 

it is not the most sought after of positions. So it would make it 

even more difficult to find people. If you started putting regulations, you might find that you are doing more harm than good. 

Again, that is my personal opinion. 

Senator CARPER. On our next round, Madam Chairman, I would 

like to come back and with Mr. Omas ask really some questions 

about the structure of the Commission. Not now that my time is 

17

expired, but I look forward to having a chance to ask you that in 

a few minutes. Thank you. 

Chairman COLLINS. Thank you. Senator Lautenberg. 

OPENING STATEMENT OF SENATOR LAUTENBERG 

Senator LAUTENBERG. Thank you very much, Madam Chairman. 

I am so tempted to get into a defense of aging—— [Laughter.] 

But I realize it is probably not the single most important subject 

for 95 percent of you in the audience. 

Thanks very much to all of you, and you, Madam Chairman, for 

conducing this hearing. I think it is really important and I ask 

unanimous consent that my full opening statement be included in 

the record. 

Chairman COLLINS. Without objection. 

Senator LAUTENBERG. Thank you. 

[The prepared statement of Senator Lautenberg follows:]

PREPARED STATEMENT OF SENATOR LAUTENBERG 

Madam Chairman: 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 an example: A 2-year delay in postal rate increases has the potential 

to save publication companies like Time Warner approximately 200 million dollars 

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, mail is ‘‘migrating’’ to cheaper Internet-based alternatives even as the Postal Service’s delivery network expands at a 

rate of 1.7 million new addresses per year. 

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. 

Accordingly, it is clear that the Postal Service needs to become more efficient and 

more effective in fulfilling its universal service goal. 

Having said that, I’m at a loss to explain how we expect the USPS to become solvent by making it responsible for picking up its workers’ and retirees’ pension benefits that are attributable to their military service. It is patently unfair to shift 27 

billion dollars of pension costs associated to military service from the Department 

of Treasury to the Postal Service. 

As the Presidential Commission on Postal Reform recommended, the administration and Congress should return responsibility for paying these benefits to the 

Treasury Department which, until recently, paid these obligations through annual 

appropriations. 

With regard to other matters, I support the Commission’s recommendation to 

make the rate-setting process less cumbersome and more efficient. Today, the process can take upwards of 10 months; the Commission’s recommendations would reduce the rate-making process to 60 days. 

I am also intrigued by the notion of increasing work-sharing and private sector 

partnerships. I would hope, however, that such partnerships are not at the expense

of the hardworking men and women of the Postal Service. Improving the Postal 

Service should not mean gutting its workforce. 

Today, I look forward to hearing from Chairman Omas of the Postal Rate Commission and Chairman Fineman of the Postal Board of Governors—the two ranking 

Postal Service officials who will be tasked with the responsibility of implementing 

the postal reform measures that we pass. 

I am interested to hear our witnesses’ views on the Presidential Commission’s recommendations and any other postal reform ideas they wish to share with us. 

Thank you, Madam Chairman.

18

Senator LAUTENBERG. Some of the questions I raise, I understand have been or are in the process of review, and that is how 

military retirees get treated and so forth. We will leave that to the 

review that is underway. 

I can’t help be somewhat amused by the discussion about how 

many sit on the Board and the members’ particular qualifications 

because if we want to act like a board of directors of a regular business, that is the environment I came from. I ran a pretty large 

company, was the creator of the company, that today employs over 

40,000 people. When I look at regulations regarding age and so 

forth, I wish that we could have an electronic competency test, although I am afraid that we might have problems within the institution here—— [Laughter.] 

And then we could push a button and see, well, say this guy is 

older, having just passed my blank birthday, but the people of New 

Jersey decided that despite the fact that I was in my senior status 

by a large measure, that they wanted me to come back here and 

represent them, and I was very much pleased to be able to do that. 

So as you look at the composition of a board and say, what 

should it look like, I agree that there ought to be some consideration for limiting age. Mr. Fineman, what happens in the Federal 

courts when someone reaches, is it 70? 

Mr. FINEMAN. They reach a senior status——

Senator LAUTENBERG. Senior status, which means they continue 

to function. 

Mr. FINEMAN. They continue to function——

Senator LAUTENBERG. And their opinions continue to be respected and implemented. So perhaps we can drop that one. Maybe 

the ones who ought to be age limited are those who have the heavy 

pack on their backs and are worn to a frazzle by the heavy load. 

I hope, Madam Chairman, that one of the things that can be 

done with a degree of expediency is to examine what the mission 

is. What should the Postal Service be like? Seven-hundred-andfifty-thousand or so people employed, good, loyal employees, work 

hard every day, go out in the most miserable weather imaginable, 

and it is getting more miserable by the day. What do we want to 

provide? When I think of the expression commonly used that it 

should look more like a business, well, which business? Like Enron 

or one of those, or should it be like a business that has more impact on how the process works? 

Like the time that we chose to move 28,000 employees out of 

baggage screening at the airports because we needed a higher degree of comfort about the efficiency and the manner in which they 

work, so we said, we are going to take them right out of that business world and we are going to put them in the world of government where that can be regulated and understood and make sure 

that they are trained properly. 

So it is kind of the obverse, if I can use that term, to that which 

we hold out as a model, Mr. Omas, and I know how hard you have 

had to work to weave your way through the network. 

There is a question about whether or not the Congress ought to 

be more involved. Well, the Congress has been very much involved 

for one heck of a long period. There isn’t a person who serves here 

or in the House that doesn’t have a Postal concern. You want to 

19

arouse the ire of your constituents, tell them you want to close the 

post office that has two employees and you know Jack and Mary. 

Well, heck, they have been here a long time. You have to decide, 

I think, a set of conditions that describe exactly what we want the 

Post Office to do. 

You are right, gasoline prices go up. Everybody is getting a boost, 

the airlines, etc. The Post Office must swallow hard and keep walking and it can’t be that way. 

Can we do something, I ask you, by way of establishing a review—it has probably been attempted a dozen times—that really 

details what we ought to do? Is there such a thing, a combination 

with the private sector and the Post Office? 

We ran into a problem in New Jersey. Mine is that I am running 

out of time. I will be brief with this. But the problem was that we 

had bus routes, a lot of them that were run by private companies. 

They didn’t like those routes, and then automatically the State inherited or the community inherited those bus routes. It is not different than the Post Office. It is a government service that people 

rely on that has helped build this great country of ours by knowing 

that there was a reliability of communications. 

Well, that world has changed and now how do we adapt? Does 

the Post Office get a chance to pick up part of that business? Are 

we involved in the electronic side of the communications arena in 

any way? I think those things all have to be considered. 

I have used my time, Madam Chairman, but I hope that if anyone wanted to respond, that you would allow them to do it. Is there 

another approach that we ought to be taking altogether instead of 

simply, and I don’t demean it, instead of simply saying, well, here 

is the number of directors and here is what they ought to look like. 

What is it that the mantra ought to be, the mantra for the Postal 

Service in this country? 

Chairman COLLINS. You may answer. Go ahead. 

Mr. OMAS. Senator, that is a tough one. I think the Presidential 

Commission tried to address some of those things. I think one of 

the things inherent whenever you look at an existing government 

entity, you sort of tend to look at what the structure is and how 

you can improve the existing structure. I see exactly what you 

mean. I don’t know that anyone has ever gone out of the ballpark 

to see if there is any other meaningful way to reform the system. 

I guess no one has ever given it really any consideration. I think 

you have brought something to light here that we never looked at. 

I think we have always looked at improving what we had, and I 

think that is what we are attempting to do here with this reform. 

But I think it is thinking like that that will contribute to the people making the decisions doing the right thing for the Postal Service when we get to that end. 

Mr. FINEMAN. Senator, what I think that you were saying is that 

when we talk about the Postal Service, there are great public policy 

issues here, and it seems to me that those public policy issues, to 

a large degree, rest with you, the elected officials in this country. 

So if I can take a step back a little bit where we have talked 

about creating a Postal Rate Commission, what I would not want 

to see happen is that a group of people appointed and confirmed 

by the Senate then make decisions which are public policy deciVerDate 0ct 09 2002 07:50 Aug 06, 2004 Jkt 094202 PO 00000 Frm 00023 Fmt 6633 Sfmt 6601 C:\DOCS\94202.TXT SAFFAIRS PsN: PHOGAN
20

sions. I think that is what you were elected to do and I would hope 

that when you consider a statute, consider enacting new law, that 

you will understand that your responsibilities include the responsibility of determining what is universal service and whether we 

should continue to have uniform prices. That is your responsibility, 

not the responsibility, I would suggest, of what might be the Postal 

Rate Commission. 

Senator LAUTENBERG. Thank you. 

Chairman COLLINS. Thank you, Senator. 

Mr. Omas, many of our previous witnesses, including Treasury 

Secretary Snow, members of the mailing community, Postal competitors, the GAO, have testified that the Postal Service’s system 

for allocating costs is not transparent and at times that it is based 

on faulty or obsolete data. One advantage of the old too adversarial 

rate-setting system is that those issues tended to surface. 

For example, I am told that there was a rate increase that was 

once proposed for in-county newspapers. There was going to be a 

34 percent rate increase. During the rate proceeding, it came out 

that it was based on inaccurate data. Now, that error was uncovered during the rate case, but under the new system we are talking 

about, we are not going to have these lengthy adversarial proceedings and that is why the review issue becomes an important 

one. 

But putting the issue of whether you do the review before the 

fact or after the fact aside, what steps do you think the Postal 

Service can take to increase the transparency of its financial data 

and to ensure that the cost allocations are more accurate than 

many observers believe them to be at present? 

Mr. OMAS. Madam Chairman, as you probably know, right now, 

that is one of the things that becomes very important in a rate 

case. We look at attributable costs and we look at causality, and 

whatever causes costs can be attributed to that particular piece of 

mail, we attribute that. 

I feel that with better transparencies, and if the Postal Service 

focused more on the causality of what the various classes go 

through, I think we can have a better sense of and focus more on 

what should be attributed to what class of mail. 

Chairman COLLINS. The Presidential Commission said that it declined to prescribe a specific target for cost attribution, but it criticized the Postal Service’s attribution level as being far too low. 

Right now, I believe the Postal Service attributes 40 percent of the 

costs to institutional costs. Secretary Snow at our hearing also said 

that he thought that was not an appropriate level. 

Can the Postal Service do a better job at this, since it is such a 

critical issue, and if we can’t count on the Postal Service to attribute costs in a more precise way, who should make those decisions? I mean, is that something that you see the Regulatory Board 

being responsible for? 

Mr. OMAS. Yes, I do see the Regulatory Board being responsible 

for that, and here again—I hate to sound like a broken record—we 

just go back to transparency, transparency, transparency. If the figures and data studies are there, we know how to attribute it, we 

have ways of, I mean the Postal Service and the staff at the Rate 

Commission, research staff, have found ways of attributing the 

21

costs of the mail, of what causes mail costs. I feel with the proper 

data that can continue and we can do a better job. 

Chairman COLLINS. There is widespread interest in putting into 

this legislation a price cap. What do you think is the proper role 

of the new Regulatory Board versus the Congress in establishing 

the cap, the inflation component, and the productivity index? 

Mr. OMAS. I strongly feel that the Postal Service should have the 

flexibility to set its prices, and I think the legislation allows 24 

months, which would be a super rate case. I think at that time, we 

would be able to work out with the mailers, with the stakeholders, 

with the Postal Service and the regulator exactly how that would 

be addressed. 

Chairman COLLINS. Mr. Fineman, do you have any observations 

on the appropriateness of a cap, how much we should specify in the 

law, how much we should leave up to the Postal Service, and what 

should be the responsibility of the Regulatory Board? 

Mr. FINEMAN. I believe that your legislation should identify what 

that cap is. I strongly believe that. I think there is too much risk 

here in having what I would call real soft cap language which 

would allow the Postal Rate Commission to set what would be the 

cap. I think that in a system like this, what you would end up having is a considerable amount of lobbying back and forth in this 

most important issue. 

I think you are going to have to come to grips with—there is a 

fair amount of literature that is written already about cap regimen 

and the real issue here, I think, becomes that most people have 

identified the cap using some sort of CPI index over many years. 

And why have they done it? If you go back, it kind of has a little 

bit of a historical bent to the telecommunications industry. That is 

basically where this CPI comes from. 

And the real question now that I think the Postmaster General 

put out at the last hearing is that with the labor-intensive business 

that we have, can we, if we look at just the last 3 or 4 years—obviously, if you looked over the last 20 years and you used the CPI 

as the number, you would come to the conclusion that we can manage within a CPI environment plus a total factor productivity 

index. 

You could probably manage within that, because if you looked 

over the last 20 years, what you saw was inflation went way up 

during periods in the 1980’s, as an example, and now we have 

these very low inflationary numbers. So the real question is, if the 

country continues to operate under its present economic environment, can business run with a cap that is set under CPI, and I 

think that is something that you all are going to have to come to 

grips with. 

Chairman COLLINS. Thank you. Senator Akaka. 

Senator AKAKA. Thank you. I want to ask for more specific responses. The Chairman has alluded to outdated and inaccurate 

data that has been used. Chairman Omas, in the most recent rate 

case, the 2001 case, some delivery costs were still being attributed 

to data from the 1980’s, which had long been recognized as obsolete 

by all parties, including the Postal Service. 

22

Specifically, what expanded authority do you need to ask for cost 

studies on an ongoing basis to ensure that accurate and up-to-date 

information is used to attribute to Postal costs? 

Mr. OMAS. Yes, Senator, I do support giving the regulator that 

authority. I think that authority—it should be essential that the 

regulator be able to direct the Postal Service to collect and analyze 

data. As I said before, a lot of times, and this case is a prime example, everyone knew that it was obsolete but we still had to use it. 

Had we had the authority to ask the Postal Service or to direct the 

Postal Service to redo a study, then that information would have 

been forthcoming. 

And to expand a little bit further, I think that not only should 

the regulator have the ability to ask for these studies and to request other analyzed data, it should also have the ability to subpoena the Postal Service in instances where we have found that the 

data that was presented to us was not sufficient. 

Senator AKAKA. Chairman Omas, in your comments you have 

used the words ‘‘unchanged’’ and that the Postal Service is very 

complex, which adds to the difficult task before us. Transparency 

seems to be something that we need to focus on. 

Current Postal reform efforts are focusing on giving the Postal 

Service management greater flexibility while increasing its transparency. And again, specifically, what authority would a regulator 

need to ensure there is sufficient transparency to guarantee that 

the Postal Service does not abuse its new authority and to assure 

that all classes of mailers are protected from discriminatory or unjustified rate increases? 

Mr. OMAS. Again, Senator Akaka, I think that both the Senate 

bill and the House bill address that issue by giving the regulator 

the authority to ask for studies and direct the Postal Service to collect data and analyze various data that the regulator would request. They also gave the regulator the subpoena authority. 

Senator AKAKA. Chairman Fineman, I have long worked on the 

need for greater financial transparency within the Postal Service. 

As I noted in my statement, the Commission found that financial 

reporting has not always provided a clear picture of the Postal 

Service’s fiscal condition. I was pleased, however, when the Postmaster General and the Board announced that the Postal Service 

will transition its financial reporting to standards set by the Securities and Exchange Commission for publicly traded non-stockholder-owned companies. 

Could you update us on this transition, especially with regard to 

developing financial statements and disclosures comparable to 

those provided by publicly traded companies? 

Mr. FINEMAN. I would say about 6 months ago or so, maybe a 

little bit less, we began to work closely to try to do exactly what 

you stated in your question, and we have to date begun to post on 

our website information on a monthly basis and we have recently 

entered into dialogue with the SEC, appropriate staff people of the 

SEC, so that we can determine exactly how we can file whatever 

has to be filed. We have worked with outside counsel, securities 

counsel, and with our outside auditors at Ernst and Young to determine exactly how we can transform, in essence, our reporting 

that we presently do so that it complies with SEC requirements. 

23

I do want to add one other thing about this transparency issue, 

and I alluded to it in either a question I answered or the opening 

statement that I made. The present system that you have, and I 

think that if there is concern about transparency, the present system you have creates, in my opinion, what is an adversary system 

as to how we set rates. You, in essence, have a trial before the 

Chairman and the other Commissioners. 

So let us step back for a minute and say, what is that trial? 

What happens there? What usually happens? Why are we taking 

all of this time? Who are these people who are intervening? 

In my experience, what I have seen in the industry, quite frankly, is that there are two sets of people. There is a large part of the 

mailing industry who are trying to get rates as low as possible. We 

all would do that, right, if we were in their business? You want to 

keep the rates as low as possible because that is a cost that they 

have. 

Then there are a bunch of other people who are somehow identified to some degree as competitors, and sometimes they like to get 

the rates as high as they can be. Why do they want the rates high? 

Because then for their competitive product, they probably can 

charge a higher rate. 

Now, that is reality. I don’t know if anybody has come here before to talk about that and say that is what happens, but I can say 

to you that is the reality of what occurs. And you go through this 

long adversarial system and we are asked to come forth with all 

kinds of studies. The Chairman and I have done something which 

has been extremely innovative. We have, for the first time, over a 

series of meetings, brought together our staffs and our Boards to 

have joint meetings in which we ask our staffs to supply us with 

certain information and studies that are done. 

These issues about attributable costs are extremely complicated. 

People at the Postal Service could have one view. Outside people 

could have another view about what are attributable costs, so could 

people at the Postal Rate Commission. Professors spend their lives 

writing papers about attributable costs. It is not an issue that is 

just real easy to come to grips with. There are vast studies about 

it. 

The last thing I wanted to comment about is this idea of crosssubsidization. I mean, the Postmaster General at the last hearing 

stated in no unequivocal terms that there is not cross-subsidization. I believe there is not. Quite frankly, that is an issue that is 

litigated for 10 months or so before the Postal Rate Commission. 

That is a major issue that is litigated over and over again before 

the Postal Rate Commission, and there is an appellate process. In 

other words, there are a long series of cases that we could go to 

in these courts of appeals where various people take the appeals 

about this kind of issue. 

I would say to you that I don’t believe that there is cross-subsidization. Are there institutional costs that are spread across various classes of mail? Sure. 

Chairman COLLINS. Thank you. Senator Carper. 

Senator CARPER. In my first round of questioning, I asked principally Chairman Fineman to help us with respect to the structure 

of the Board of Governors of the Postal Service from the Board 

24

side. Mr. Omas, I want to do a similar kind of thing with you with 

respect to the Commission. Just take a moment, if you will, just 

lay out for us currently how the Commission is created. 

Mr. OMAS. Well, currently, the Postal Rate Commission consists 

of five Commissioners, three of which are of one party. We at 

present only have four Commissioners. We are waiting for a fifth 

to come. We serve a term—each of the terms are staggered so that 

there is never complete, total vacancy at one time. We serve a 6-

year term with what we call a follow-up year, which is 7 years. In 

other words, that means if the White House or the Senate decides 

that they want to appoint someone at the end of my term, they 

would appoint—as my term expires, I would have a year to stay 

while you are deciding who the new person would be or whatever. 

Senator CARPER. And if during the course of that year, a successor were confirmed, then that person would——

Mr. OMAS. I would step down, absolutely. That is the present 

system. There are five of us. 

As you know, the President’s Commission recommended that 

there be a Postal Regulatory Board composed of three members. I 

personally—and here again, this is personally me—I think that 

would be a mistake and I will say the reasons why I think it 

should be at least five members is, as Chairman Fineman stated, 

we are a totally bipartisan Commission and I don’t think politics 

comes into play there. 

But with a three-member Board, it could become very politicized. 

You could end up with two Democrats or two Republicans. There 

could be a vacancy opened where that is a Democratic vacancy and 

the Republicans would have control. Someone could get sick. There 

could be a major complaint that needs to be considered and you 

have one vacancy, you have one person out sick, you don’t have a 

quorum to meet. 

So I think I will probably be out of the picture, so I am not looking for myself. Like Chairman Fineman, I am coming to, in a couple of years, the end of the road for the Commission. But I strongly 

believe that it—and your bill and the McHugh bill leaves the Commission with five members. I strongly believe it should continue to 

be five members because of those reasons. 

Senator CARPER. Does current law provide for political balance 

among the five members? 

Mr. OMAS. Yes. 

Senator CARPER. Do you recall what the Commission’s recommendations are with respect to political balance. I think they retain it, don’t they? 

Mr. OMAS. The Chairman of the Commission, of the Board, would 

serve at the pleasure of the White House. It is similar to what it 

is right now. 

Senator CARPER. That was not my question. My question is, with 

respect to political balance, what are the Commission’s recommendations? 

Mr. OMAS. I don’t recall. It would still be balanced as it is now 

with——

Senator CARPER. It is interesting, because in the Board of Governors, there is no similar recommendation. We can end up with 

25

a Board of Governors that would be entirely of one party or the 

other. 

Mr. OMAS. Absolutely. 

Senator CARPER. And in a three-member panel like that—the 

comments of Chairman Omas are helpful here. In a panel of three 

members, two of one party and a vacancy in the third member, we 

would end up with a situation I don’t think would be very helpful. 

In the legislation that I have introduced, and similar to what 

Congressman McHugh is going to introduce, we called for investing 

in this new Postal Rate Commission, we make it a Regulatory 

Commission, the authority to formulate service standards, such as 

frequency of delivery, speed of delivery, that kind of thing. 

If you will take just a moment and talk about the Presidential 

Commission’s recommendations vis-a-vis the role, the powers of 

your Commission going forward and compare them with what we 

have included in our legislation and just take a moment to, if you 

had to sort of pick and choose between the two different approaches, they are broader than we are with respect to investment 

of power. What is the right balance here? 

Mr. OMAS. Well, one of the things that I feel very strongly about 

is the President’s Commission recommended post-rate review. I 

would recommend at least an administrative review before rates 

are implemented. 

Senator CARPER. Say that one more time, please. 

Mr. OMAS. The President’s Commission recommended a post-rate 

review. In other words, the Postal Service could implement rates 

and it would only be after the fact that if a complaint came from 

a mailer, a utility mailer or whatever, that we would be able to entertain that complaint. But as I told Mrs. Collins earlier, I oppose 

that because of what it can do—having to go back after the fact, 

after they have been implemented. The President’s Commission 

recommended that it be a post-rate review. Your bill did not address that subject. 

Your bill kept the Commission, the Regulatory Commission, as a 

five-member board. I would support that. I support the subpoena 

power and the ability to direct the Postal Service to conduct studies 

and analyze data. Your bill gives us some ability, whereas the 

President’s Commission gives the Rate Commission total and complete review over the monopoly and the universal service. 

I feel that, basically, your bill, it strikes a better—yours and the 

House bill strikes a better balance in that you would still control 

some oversight but yet we would determine periodically what the 

service standards are. And I think the big thing here is, is the 

Postal Service meeting service standards. One thing is that most 

operators do not define their monopoly or have decision power over 

their monopolies. Therefore, that is why I think some of the public 

policy issues involved in the monopoly and the USO should be kept 

by Congress with a review by the regulator. 

Senator CARPER. Mr. Sharfman, do you agree? 

Mr. SHARFMAN. Absolutely. The key issue that we see, though, 

is in who interprets the laws passed by Congress. Currently, the 

Postal Service interprets what is consistent with the private express statutes and it claims the authority to determine what the 

extent of the monopoly is. We believe it would be better if a neutral 

26

third party, in this case the regulator, would consider complaints 

as to whether the monopoly is being violated. 

Senator CARPER. Thanks, Madam Chairman. 

Chairman COLLINS. Thank you. Senator Lautenberg. 

Senator LAUTENBERG. Thank you, Madam Chairman. 

I am curious about a couple of things and perhaps I can get a 

better understanding here. The question was raised by Senator 

Akaka about the SEC requirements. Now, the replications of the 

corporate world’s requirement, the 10–K and the 10–Q, they are 

the same requirements? 

Mr. FINEMAN. That is exactly what we are trying to come to grips 

with right now. There is no statutory requirement that we do this. 

We are trying to voluntarily comply with exactly your issues, the 

10–Qs and the 10–Ks. The question becomes what are significant 

events that we are going to have to report on a regular basis?. 

What are those monetary thresholds as to what might be a significant event? 

Those issues are issues that the Board, and we are going to confer with the SEC, might be appropriate for us to report on a regular basis. They are the hardest issues that a publicly-traded company has, as well, to try to figure out what is an appropriate 8–

K requirement. So we are going to try to come to grips with that, 

and I suspect we will have that fully completed within the next few 

months. At least before I leave this Board, which is in December. 

Senator LAUTENBERG. That could be your legacy, get your picture 

on the front cover. Would it constitute an annual report? I mean, 

there is no constituency body as we know as shareholders. 

Mr. FINEMAN. We do issue an annual report, and I would say 

that annual report is extremely comprehensive. I mean, from time 

to time, there might be criticism from some outside people of that. 

I think that the real criticism that I have seen deals with how we 

report about costs and cost allocations. Some people have criticized 

that we are not adequate in our reporting of cost allocations, but 

we do issue a pretty comprehensive annual report that I think has 

won all kinds of awards vis-a-vis government, at least. I think to 

a large degree we are trying to be as transparent as we can. 

Senator LAUTENBERG. What is the distribution of the annual report after FedEx and UPS? 

Mr. FINEMAN. We distribute it to thousands of people who get a 

hold of it, I can assure you of that, and I think your office, as well 

as every other office on Capitol Hill. 

Senator LAUTENBERG. It is a limited distribution. Does the Post 

Office, and I obviously have not looked through this—as a matter 

of fact, I have not seen it, very frankly, before—are there capital 

costs in the—significant capital costs? What kinds of things? Are 

we talking about property, buildings, etc.? 

Mr. FINEMAN. Capital expenditures are significant. The Board 

presently reviews every capital expenditure in excess of $10 million. The Commission was a little bit critical, saying that was on 

the low side. We have been having our Capital Projects Committee 

review that presently. I don’t think that anybody at the management level would indicate that by having that level of review, we 

are in any way hampering their ability to go forward with capital 

projects. 

27

I mean, in our area, Senator Carper and myself and Senator 

Lautenberg—I am from Philadelphia, so now we are building probably one of the most significant plants that exists now outside of 

Philadelphia at a juncture between I–76 and I–95. The Postal Service is going to have to revamp its network over the next few years. 

One of the reasons we have to do it is places like Philadelphia 

are indicative, where you have an old WPA plant that was built 

next to the railroad tracks in Philadelphia. The same thing exists 

in Chicago, L.A., all over, because we carried mail on the railroad 

trains. Now, we do it mostly on interstate highways and by——

Senator LAUTENBERG. How do they account for the expenditures 

for these capital projects? Are they on a cash basis or——

Mr. FINEMAN. There is a capital budget, a 5-year capital budget, 

and everything is basically on a—everything is really on a cash 

basis here. 

Senator LAUTENBERG. Right. 

Mr. FINEMAN. One of the issues I think that you might be alluding to here is one of our real problems over the years, as I have 

seen it, is that there is no reserve—we can only have debt. We 

have a $15 billion ceiling on debt. We borrow from the Treasury, 

exclusively from the Treasury. But there is no capital here. We 

can’t go to the public sector and go get capital to go do things of 

this sort. 

Senator LAUTENBERG. Why wouldn’t it make sense—do we try to 

substitute leases and call on the private sector to pick up some of 

the capital obligations that we have, because as I understand it, 

and again, correct me if I am wrong, overall, there is a pretty good, 

I won’t call it profit, but there is a pretty good revenue return from 

normal operations and that it is only when it gets to the capital 

side or to the fixed cost side, let us say for the pension liability that 

we talked about, that is what creates the biggest problem for the 

Post Office. Borrowing is, in fact, a subsidy in a way, and I don’t 

know why we differentiate there. 

Mr. FINEMAN. I think this Board particularly, and I take my hat 

off to former Governor McWherter who worked very hard to keep 

our debt as low as possible. Actually, I think last month, for the 

first time in the history of the Postal Service for some period of 

time, we were actually debt-free for about a day or so. Then obviously we had to borrow to make payroll and things of that sort, just 

like any normal business would be run. 

We are probably one of the largest leaseholders, tenants, in the 

United States. Many of our facilities are leased and we have looked 

at opportunities where that provides a good return for us. 

Senator LAUTENBERG. One last question, if I may. Mr. Omas, do 

you know there is a wonderful pen made in Italy called the Omas? 

Mr. OMAS. Yes, sir. 

Senator LAUTENBERG. It is very expensive, too. 

Mr. OMAS. Very expensive, and my family is from the Dalmatian 

Coast and I have been trying for years to figure out whether I am 

kin to them. 

Senator LAUTENBERG. That is very interesting. Do you believe 

that the Postal Regulatory Board will be in a decent position, or 

in the appropriate position to determine Postal employees’ pay 

comparability? 

28

Mr. OMAS. No, sir, I don’t think we have the expertise. I mean, 

obviously, if Congress decides that the Regulatory Board should 

take that on, I am sure that we would have the ability to find the 

proper people and staff it in the proper way. But if you were to ask 

me that with the present staffing we have, I would say no. 

Senator LAUTENBERG. Thanks, Madam Chairman. 

Chairman COLLINS. Thank you, Senator. You just asked the 

question I was planning to ask Chairman Omas. 

Senator LAUTENBERG. About the pen? [Laughter.] 

Chairman COLLINS. Not about the pen, though I would like one 

of those pens, I hasten to say. [Laughter.] 

I think that the Presidential Commission’s recommendation on 

having the Board look at the wages is not one that we should incorporate in our legislation, but I am glad to get you on record on 

that. I already knew Chairman Fineman’s opposition to that proposal and I appreciate your asking the question. 

I do want to clarify, however, on the exchange between Senator 

Lautenberg and Chairman Fineman that the Postal Service’s debt 

and liability picture is anything but rosy. The unfunded liabilities 

for retiree health benefits, for workers’ compensation, are literally 

in the tens of billions of dollars. I don’t want to leave this hearing 

record with the impression that the Postal Service is ‘‘debt-free.’’ In 

fact, it is——

Mr. FINEMAN. The real question—I mean, obviously, the unfunded liability is a real problem. That is why we are here. 

Chairman COLLINS. Right. Exactly. 

Mr. FINEMAN. As a practical matter, that is why we are here. We 

can’t—under the present system, we are not going to be able to 

fund those liabilities as we see a decline in First-Class Mail and 

an increase in delivery points. 

Chairman COLLINS. I just wanted to make that clear for the 

record, because I believe that if we do not act to pass comprehensive reform, that the GAO is right in predicting a death spiral for 

the Postal Service and we cannot allow that to occur. It is too vital 

to our country and to the nine million people whose jobs depend directly and indirectly on the Postal Service. 

Mr. Fineman, let me end my questioning with one final question 

to you, and that is part of our challenge in drafting this bill is 

going to be to figure out what is appropriately the duty of Congress, and I agree with your comments earlier that defining the 

monopoly and universal service are public policy questions that 

should be answered by Congress. But defining the responsibilities 

and the authority of the authorizing law set by Congress versus the 

Postal Regulator versus the Postal Service is going to be a very 

challenging and important task. 

Could you give us any guiding principles in this area to establish 

the appropriate balance between the authority and the responsibilities, particularly of the regulator and the Postal Service? 

Mr. FINEMAN. One of the concerns that I had a little bit with my 

friend Chairman Omas’s comments is that what you do not want 

to have happen is when you have this new legislation, and I think 

I have made reference to this before—I consider it a trade, and the 

trade becomes there is going to be more oversight from a Postal 

Regulatory Board, or the PRC, whatever you want to call it—there 

29

is going to be more oversight and the trade will be that management will have more flexibility. 

That is the deal here, and you have got to make sure—because 

if you saddle management, it seems to me, with less flexibility and 

you continue to have more oversight, then we haven’t accomplished 

anything. What we are trying to do is, and I think that is the 

struggle here, is to create the appropriate balance, to make sure, 

because there is a monopoly. If there wasn’t a monopoly, I am not 

sure we would be talking about all of this. 

But because there is a monopoly, we want to make sure that 

there is the kind of oversight that the American public is entitled 

to have. At the same time, you want to allow management and the 

Board to be able to run the business as a business and not be saddled with a bunch of bureaucratic regulations. 

Chairman COLLINS. Mr. Omas, do you want to add anything to 

that? 

Mr. OMAS. Well, I think that because the Postal Service is a public entity that there should be some type of oversight. I don’t think 

that Senator Carper’s bill, or any of the things that have been in 

the McHugh bills, the Carper bill, or even the Presidential Commission’s recommendations, say that we are taking away existing 

flexibility. 

But the one thing—I come from the point that the Postal Service 

is a public entity. It should run like a business and should be selffinancing. But I also think, because public policy does become involved, because they do have a monopoly and there are competitive 

products out there that they compete with, that there should be a 

certain amount of oversight. 

I am not intimating that there should be—that we should go 

back to the 10-month hearings or this or that or the other. What 

I am saying is that, or what I feel very strongly, that because of 

the monopoly and the USO regulation, the charter for universal 

service, that Congress, along with the regulator, should set the 

guidelines. As to what they feel that the Postal Service should accomplish or should not accomplish on service levels. 

And all I am saying is that there should be an ability to review 

and to ask for studies. I am saying ask for a study that will help 

evaluate, are they producing? Are they delivering universal service? Are they abusing the monopoly and cross-subsidization? That 

is the only thing that I am suggesting—that is where I am coming 

from. 

Chairman COLLINS. Thank you. Senator Carper. 

Senator CARPER. Whether we would adopt the approach suggested in the McHugh bill, my legislation, the President’s Commission, the regulatory body—now we call it the PRC—your job is 

going to change. The nature of your job is going to change, whichever those approaches or combinations that we choose. 

I am not, frankly, familiar with the kinds of resources that you 

have now, what the five Commissioners have now to rely upon to 

enable you to do your job. I would say, Madam Chairman, that regardless of which of these approaches we take or some combination 

thereof, your job is not going to be easier. It is not going to be diminished. If anything, it is going to be enhanced. 

30

I guess my question is, how can we make sure that you have the 

resources that are necessary to enable you to do your new job well? 

Mr. OMAS. I think one of the determining, or one of the things 

that the bill allows us—both your bill and the McHugh bill allows 

us 24 months within which to make various decisions, to develop 

regulations, rules, practices, how we approach whatever we are told 

to do. Once we have made those decisions, I think at that time, we 

would need the ability to hire consultants and have extra expenditures to bring in the staff, and it would be after we go through that 

and we set up how we would approach issues, and how we would 

regulate, and what we would do that we could determine what resources we will need. 

But yes, sir, we would definitely need to expand the staff. I don’t 

know that the commissioners would need additional staff. I think 

we would need additional research economists, in some instances 

attorneys, to get the job done. 

Senator CARPER. Do I understand that the President’s Commission has recommended that the new rate system go into effect after 

using the current system one more time? 

Mr. OMAS. That is correct. That is the 24 months I just referred 

to—that is when the parameters for the rate caps, etc., would be 

set, and one of the things that I will address that Chairman 

Fineman said earlier about the rate caps, we would set an original 

rate cap, but that does not prevent us from going back periodically 

to review that rate cap and either increase it or whatever. 

Senator CARPER. Chairman Fineman. 

Mr. FINEMAN. Yes, I just wanted to comment. It seems to me 

that—we are not here to hold a hearing about the military pension 

and the escrow matter, but I think to a large degree that is going 

to have an impact upon this whole calendar. The real question is 

going to be, for how long are we going to be able to hold rates stable? And the issue is going to be, to some degree, what happens 

with the escrow provisions in the military pension. Then if you 

pass a piece of legislation, how long will it be until there really is 

a necessity to do something? 

You are going to have some period of time where we are going 

to have these discussions with a new—I am assuming we pass legislation—with a new Commission as to the setting of the appropriate rate. But I think if we are going to look at a calendar, some 

impact is going to happen as a result of what happens here with 

the escrow provisions and the military pension. 

One further comment, if I can, because you talked about this. It 

is one of the reasons that I tend to believe that if you are going 

to have qualifications—and we are looking way out into the future 

now—of the Rate Commissioners or whatever you might call them, 

is if we don’t have, with the kind of power that you have in your 

bill and Congressman McHugh’s bill, if we don’t have those kind 

of qualifications of economists, lawyers, statisticians, accountants, 

and people who have had experience in dealing with this kind of 

environment, people maybe from the FTC, FCC, places like that, 

what you are going to have is a Commission that is going to be 

very staff-driven, totally dependent on staff, because we are talking 

about a very complicated system here. So it is a reason why I both 

think there are qualifications for Board members as well as qualiVerDate 0ct 09 2002 07:50 Aug 06, 2004 Jkt 094202 PO 00000 Frm 00034 Fmt 6633 Sfmt 6601 C:\DOCS\94202.TXT SAFFAIRS PsN: PHOGAN
31

fications for the members of what might be the Postal Regulatory 

Board. 

Senator CARPER. Madam Chairman, It looks like my time has expired. It seemed to go so quickly, more quickly than usual. 

Chairman COLLINS. That is because your questions were unusually good, or—— [Laughter.] 

Are they always that good? 

Senator CARPER. Unusually vague, perhaps. I don’t know. 

[Laughter.] 

I have a couple other questions I might submit in writing. I just 

want to say to our witnesses today, especially Mr. Sharfman over 

there, I could just barely see your lips move when the other witnesses spoke. [Laughter.] 

We appreciate your being here today. This has been a very helpful back-and-forth. To Chairman Fineman, thank you for your extended service. Chairman Omas, thank you very much, as well. 

Mr. OMAS. Thank you. 

Chairman COLLINS. Thank you. 

I want to join Senator Carper in thanking our witnesses not only 

for their testimony today, but also for the advice and the insights 

that they have shared with me and with the Committee staff. 

I do want to thank Ann Fisher on my staff. She has worked very 

hard in putting together these eight hearings that we have held to 

make sure that we did an in-depth review of the Commission’s recommendations and heard from a wide variety of stakeholders. 

Now the hard part begins. Senator Carper and I seek to draft a 

bill and get it introduced at the end of this month. We are trying 

to keep on an aggressive time table because we are committed to 

getting Postal reform legislation enacted this year. I think the 

Commission’s recommendations and the Postal Service’s financial 

straits demand that we take advantage of this opportunity to act 

this year. 

This hearing record will be held open for 15 days for the submission of any additional materials. 

I again thank you very much for your testimony. This hearing is 

now adjourned. 

[Whereupon, at 12:03 p.m., the Committee was adjourned.] 

(33)

A P P E N D I X 

PREPARED STATEMENT OF SENATOR FITZGERALD 

Good morning. I am pleased to join my colleagues today as we consider proposed 

reforms to the U.S. Postal Service regarding its rate-setting process and governance 

structure. Chairman Collins, Senator Carper, Senator Akaka, and other Members 

of this Committee have worked tirelessly on the important issue of postal reform, 

which affects each and every individual residing in the United States. With their 

leadership and concerted efforts, we may achieve substantial reforms that will help 

the U.S. Postal Service meet its current and future challenges while continuing to 

serve as a vital link in the Nation’s communication network. 

The U.S. Postal Service (USPS) is a unique institution that has provided an invaluable service since its inception. Its size and impact throughout the Nation is tremendous. The Postal Service has over 830,000 employees nationwide, over 43,000 

of whom are in my home State of Illinois. The Postal Service also operates 2,079 

postal facilities in my State. It is a $67 billion enterprise—making it the Nation’s 

second largest employer and the 11th largest by revenue—and it supports the $900 

billion mailing industry. 

While the Postal Service faces the challenges of demographic change and increased market competition, its rate-setting process and governance structure have 

been in place since the 1970’s and are too cumbersome to meet today’s needs. The 

two aspects of reform we are considering today will play important roles in the ability of the Postal Service to adapt to the changing marketplace. 

Strong financial management and good governance have long been interests of 

mine. I believe that good business practices, strong financial accounting, and independent oversight are important to the overall success of any institution, and these 

are key areas to address in the transformational process at the U.S. Postal Service. 

I look forward to discussing with our witnesses their views on improving the financial transparency of the Postal Service’s operations so that it may better allocate 

its costs for rate-setting purposes. I also look forward to hearing the views of our 

witnesses regarding how to ensure that independent oversight of the Postal Service 

is both effective and efficient. 

Again, I would like to commend Chairman Collins for her sustained and strong 

leadership on this important issue. I look forward to today’s testimony. 

Thank you, Chairman Collins.

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