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[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]

 THE U.S. POSTAL SERVICE'S UNCERTAIN FINANCIAL OUTLOOK, PARTS I AND II

=======================================================================

                                HEARINGS

                               before the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                       APRIL 4, AND MAY 16, 2001

                               __________

                           Serial No. 107-10

                               __________

       Printed for the use of the Committee on Government Reform

  Available via the World Wide Web: http://www.gpo.gov/congress/house
                      http://www.house.gov/reform

                                _______

                  U.S. GOVERNMENT PRINTING OFFICE
75-418                     WASHINGTON : 2001

____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov  Phone: toll free (866) 512-1800; (202) 512�091800  
Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001

                     COMMITTEE ON GOVERNMENT REFORM

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut       MAJOR R. OWENS, New York
ILEANA ROS-LEHTINEN, Florida         EDOLPHUS TOWNS, New York
JOHN M. McHUGH, New York             PAUL E. KANJORSKI, Pennsylvania
STEPHEN HORN, California             PATSY T. MINK, Hawaii
JOHN L. MICA, Florida                CAROLYN B. MALONEY, New York
THOMAS M. DAVIS, Virginia            ELEANOR HOLMES NORTON, Washington, 
MARK E. SOUDER, Indiana                  DC
JOE SCARBOROUGH, Florida             ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio           DENNIS J. KUCINICH, Ohio
BOB BARR, Georgia                    ROD R. BLAGOJEVICH, Illinois
DAN MILLER, Florida                  DANNY K. DAVIS, Illinois
DOUG OSE, California                 JOHN F. TIERNEY, Massachusetts
RON LEWIS, Kentucky                  JIM TURNER, Texas
JO ANN DAVIS, Virginia               THOMAS H. ALLEN, Maine
TODD RUSSELL PLATTS, Pennsylvania    JANICE D. SCHAKOWSKY, Illinois
DAVE WELDON, Florida                 WM. LACY CLAY, Missouri
CHRIS CANNON, Utah                   ------ ------
ADAM H. PUTNAM, Florida              ------ ------
C.L. ``BUTCH'' OTTER, Idaho                      ------
EDWARD L. SCHROCK, Virginia          BERNARD SANDERS, Vermont 
------ ------                            (Independent)

                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
                     James C. Wilson, Chief Counsel
                     Robert A. Briggs, Chief Clerk
                 Phil Schiliro, Minority Staff Director

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    April 4, 2001................................................     1
    May 16, 2001.................................................   187
Statement of:
    Fineman, S. David, vice chairman, Board of Governors, U.S. 
      Postal Service, accompanied by Tirso Del Junco, Governor, 
      U.S. Postal Service; Alan C. Kessler, Governor, U.S. Postal 
      Service; Ernesta Ballard, Governor, U.S. Postal Service; 
      and John Walsh, Governor, U.S. Postal Service..............   134
    Henderson, William J., Postmaster General of the U.S. Postal 
      Service....................................................    75
    Quinn, William H., national president, National Postal Mail 
      Handlers Union; Clifford Dailing, secretary-treasurer, 
      National Rural Letter Carriers' Association; Vincent R. 
      Sombrotto, president, National Association of Letter 
      Carriers; and Moe Biller, president, American Postal 
      Workers Union, accompanied by William Burrus, executive 
      vice president.............................................   298
    Schroeder, Pat, president and chief executive officer, 
      Association of American Publishers; Jerry Cerasale, board 
      member, Mailers Council, senior vice president, Direct 
      Marketing Association, Inc.; John C. Campanelli, president, 
      R.R. Donnelley Logistics; John T. Estes, executive 
      director, Main Street Coalition for Postal Fairness; and 
      Gene A. DeL Polito, president, Association for Postal 
      Commerce...................................................   211
    Walker, David M., Comptroller General of the United States, 
      General Accounting Office, accompanied by Bernard Ungar, 
      Director, Physical Infrastructure Team, U.S. General 
      Accounting Office..........................................    28
Letters, statements, etc., submitted for the record by:
    Biller, Moe, president, American Postal Workers Union, 
      prepared statement of......................................   323
    Burton, Hon. Dan, a Representative in Congress from the State 
      of Indiana, prepared statements of........................ 5, 194
    Campanelli, John C., president, R.R. Donnelley Logistics, 
      prepared statement of......................................   244
    Cerasale, Jerry, board member, Mailers Council, senior vice 
      president, Direct Marketing Association, Inc., prepared 
      statement of...............................................   224
    Clay, Hon. Wm. Lacy, a Representative in Congress from the 
      State of Missouri, prepared statements of................ 70, 199
    Dailing, Clifford, secretary-treasurer, National Rural Letter 
      Carriers' Association, prepared statement of...............   309
    Del Polito, Gene A., president, Association for Postal 
      Commerce, prepared statement of............................   272
    Estes, John T., executive director, Main Street Coalition for 
      Postal Fairness, prepared statement of.....................   254
    Fineman, S. David, vice chairman, Board of Governors, U.S. 
      Postal Service, prepared statement of......................   136
    Henderson, William J., Postmaster General of the U.S. Postal 
      Service, prepared statement of.............................    77
    Kucinich, Hon. Dennis J., a Representative in Congress from 
      the State of Ohio, prepared statement of...................   350
    Maloney, Hon. Carolyn B., a Representative in Congress from 
      the State of New York, prepared statement of...............    17
    Manzullo, Hon. Donald, a Representative in Congress from the 
      State of Illinois, prepared statement of...................   161
    McHugh, Hon. John M., a Representative in Congress from the 
      State of New York, prepared statements of................ 11, 204
    Quinn, William H., national president, National Postal Mail 
      Handlers Union, prepared statement of......................   301
    Schroeder, Pat, president and chief executive officer, 
      Association of American Publishers, prepared statement of..   214
    Shays, Hon. Christopher, a Representative in Congress from 
      the State of Connecticut, prepared statement of............    23
    Sombrotto, Vincent R., president, National Association of 
      Letter Carriers, prepared statement of.....................   315
    Towns, Hon. Edolphus, a Representative in Congress from the 
      State of New York, prepared statement of...................   158
    Walker, David M., Comptroller General of the United States, 
      General Accounting Office, prepared statement of...........    31
    Waxman, Hon. Henry A., a Representative in Congress from the 
      State of California, prepared statement of.................   190

 
     THE U.S. POSTAL SERVICE'S UNCERTAIN FINANCIAL OUTLOOK, PART I

                              ----------                              

                        WEDNESDAY, APRIL 4, 2001

                          House of Representatives,
                            Committee on Government Reform,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:05 a.m., in 
room 2154, Rayburn House Office Building, Hon. Dan Burton 
(chairman of the committee) presiding.
    Present: Representatives Burton, Gilman, Morella, Shays, 
McHugh, Horn, Scarborough, LaTourette, Barr, Ose, Lewis, 
Putnam, Otter, Schrock, Waxman, Maloney, Norton, Cummings, 
Kuchinich, Davis, Turner, Allen, Schakowsky, and Clay.
    Staff present: Kevin Binger, staff director; Daniel R. 
Moll, deputy staff director; David A. Kass, deputy counsel and 
parliamentarian; Mark Corallo, director of communications; John 
Callender and Randy Kaplan, counsels; Sarah Anderson, staff 
assistant; Robert A. Briggs, chief clerk; Robin Butler, office 
manager; Michael Canty, legislative assistant; Josie Duckett, 
deputy communications director; John Sare, deputy chief clerk; 
Danleigh Halfast, assistant to chief counsel; Corinne 
Zaccagnini, systems administrator; Phil Schiliro, minority 
staff director; Phil Barnett, minority chief counsel; Denise 
Wilson, minority professional staff member; Ellen Rayner, 
minority chief clerk; Jean Gosa and Earley Green, minority 
assistant clerks; and Lorran Garrison, minority staff 
assistant.
    Mr. Burton. The Committee on Government Reform will come to 
order. We expect a vote on the floor on the Journal probably in 
about 15 minutes. So, we will get started with opening 
statements. After that, we will probably have to break for the 
vote, but we will only be gone for about 10 minutes.
    A quorum being present, the Committee on Government Reform 
will come to order. I ask unanimous consent that all Members 
and witnesses written opening statements be included in the 
record.
    Without objection, it is so ordered.
    I ask unanimous consent that all articles, exhibits and 
extraneous or tabular material referred to be included in the 
record.
    Without objection, it is so ordered.
    I want to welcome everyone to this hearing of the 
Government Reform Committee. We are here today to examine the 
current financial condition of the Postal Service.
    As part of the reorganization of our committee structure 
for the 107th Congress, postal issues will be handled at the 
full committee level.
    As most of you know, I am a veteran of the old committee on 
Post Office and Civil Service. I have been extremely active on 
postal issues for many years.
    Representative John McHugh, the former chairman of the 
Postal Subcommittee, did an outstanding job for 6 years working 
on postal reform. I intend, along with Mr. Waxman, to conduct a 
vigorous oversight of the Postal Service and through that 
oversight we will work to assure affordable, universal postal 
service.
    The Postal Service is the only government agency that 
touches the lives of virtually every household and every 
American in this country. In other words, every citizen has a 
stake in the future of the Postal Service.
    The Service employs over 900,000 people to deliver more 
than 668 million pieces of mail every day.
    At the outset, let me say that I am concerned about the 
news coming out of the Postal headquarters. They are predicting 
a $2 to $3 billion loss this fiscal year, the same year that 
they just raised postal rates.
    My first reaction was disbelief, especially in view of the 
fact that in the last couple of years there has been a surplus. 
My second reaction was grave concern when I was informed that 
the Postal Service intends to file for another rate increase in 
just a few months.
    In the past I have been critical of the Postal Service 
because their first response to every financial shortfall 
appears to be to raise rates. An increase of the magnitude 
proposed between $6 and $8 billion total revenue, is 
astronomical. That represents a 10-percent increase in over all 
revenues.
    This kind of increase would drive businesses away from the 
Postal Service. Some mailers would be forced to seek 
alternative means of communication. Others very well could be 
driven into bankruptcy. I view this as a slippery slope for the 
Postal Service.
    This rate increase, combined with the revenue drain being 
caused by the information technology revolution spells long-
term trouble for the Service. The alternative to raising rates 
is to do what every private sector business does when its sales 
decline: cut costs and increase quality of service.
    You know, if General Motors or Chrysler has financial 
difficulties and their sales drop, they don't raise the cost of 
the car to make up for the deficiency. They try to figure out 
ways to streamline, to economize and to make sure that they are 
going to be competitive in the marketplace. That same principle 
should be applied to the Postal Service.
    The alternative to raising rates, as I said, is to do what 
every private business does when its sales decline. That is to 
cut costs and increase service quality.
    Today, I hope to hear a specific plan from the Postmaster 
General about what steps are being taken to reduce expenses. 
The Postal Service has announced plans to immediately freeze 
capital commitments for improvements to postal facilities. This 
will reportedly save about $1 billion. More cost containment 
options must be examined. Nothing should be off of the table. 
Another rate increase should be the last option and not the 
first.
    Today, I am calling on the Postal Service to work together 
with all stakeholders to examine all possible ways to cut 
costs. I am confident that we can find the savings without 
affecting the quality of mail service.
    If we can succeed with significant cost containment, this 
will allow the Postal Service to push back the filing for the 
next rate increase or to eliminate it entirely. The current 
economic slowdown adds to the dire financial straits in which 
the postal service finds itself.
    However, the larger, long-term problem is the regulatory 
model that is nearly three decades old. It does not provide the 
Postal Service with the flexibility needed to succeed in a 
rapidly changing market.
    Again, I want to pay tribute to my colleague, John McHugh. 
John labored for years trying to develop legislation to fix the 
Postal Service before the crisis hit. Well, John, it looks like 
you are the only guy in this room who has the right to say, ``I 
told you so.''
    I think this situation is akin to the current energy crisis 
occurring in California. Nobody took the steps necessary to fix 
the problems early on. Now, we have rolling blackouts and price 
spikes.
    We are in the early stages of a similar crisis in the 
Postal Service. If we take the necessary steps now to fix the 
problems, maybe we can avoid a full-blown crisis over the next 
few years. I am sure there are some naysayers in this room who 
believe that the information technology revolution in not real, 
that advertisers are not moving over to the internet, that 
consumers are not going to pay their utility bills on line, 
that none of this supposed change will have an impact on the 
Postal Service and their revenues.
    These folks remind me of people who said the entertainment 
industry would never replace silent movies with the newfangled 
talkies.
    Today we will be hearing from a number of distinguished 
witnesses to examine the current financial problems at the 
Postal Service. Our first witness is the head of the General 
Accounting Office, the watchdog for the legislative branch, 
Comptroller General David Walker. General Walker has had a team 
of experts working to help this committee analyze the data we 
are receiving from the Postal Service.
    Our second witness is a man I want to pay a special tribute 
to, Postmaster General Bill Henderson. General Henderson is 
completing his tenure at the helm of the Postal Service. He has 
presided over a period of great turmoil, a time of some 
detours, a few potholes, but also much progress. I want to 
thank you, Bill, for your 30 years to service to the country.
    Our last panel will consist of five members of the Board of 
Governors of the Postal Service. In addition to directing and 
controlling the expenditures of the Postal Service, the Board 
has the difficult task of selecting the new Postmaster General.
    I welcome all of our witnesses and look forward to their 
testimony.
    Before I yield to Mr. Waxman, let me say I have discussed 
briefly with him the need to work out a bipartisan solution to 
this crisis. He has extended his hand in friendship to me and 
we are going to try our best to see if we can't come up with a 
bill that will solve the problems that we are facing.
    I believe he feels this is a necessity as well as I do. 
Hopefully, with bipartisan support, we can reach agreement. 
Toward that end I would like to suggest that all segments, and 
this is very important, I hope everybody listens to this part 
because we as legislators can't do this by ourselves.
    Toward that end, it would like to suggest that all segments 
of the postal community sit down together and make 
recommendations to Mr. Waxman and myself as to how this problem 
can be solved. That is going to take some compromise. Everybody 
is going to have to sit down together, the postal unions, the 
postmasters, the people who do a lot of mailing, the mass 
markets, the magazine publishers, all of you have to sit down, 
the packet deliverers, and try to find out where you have some 
commonality so we can get a product that we can get through the 
Congress.
    If they make recommendations to Mr. Waxman and myself on 
how to solve this problem, then we think we can get it solved. 
This process will hopefully lead to a legislative proposal that 
can pass the House, the Senate and be signed by the President.
    Compromise, as I said, is clearly necessary. Those who do 
not realize this and fail to participate in the process do so 
at their own peril. The reason I say that is if you stay out of 
the mix and we come up with a solution to this problem with 
which you do not agree and you have not participated in the 
process, Mr. Waxman and I may draft a bill.
    It may pass the House with both Democrat and Republican 
support and pass the Senate and get to the President and 
something you feel is necessary in the bill may have been left 
out.
    So, please appoint somebody from your area to work with 
other members of the community to come up with a proposal that 
you can present to Mr. Waxman or myself that we can work with. 
If we do that, I think we can come up with a product we will be 
happy with and the American people will be satisfied with.
    With that, Mr. Waxman, do you have an opening statement?
    [The prepared statement of Hon. Dan Burton follows:]

    [GRAPHIC] [TIFF OMITTED] T5418.001
    
    [GRAPHIC] [TIFF OMITTED] T5418.002
    
    Mr. Waxman. Well, Mr. Chairman, I am going to hold my 
opening statement because Mr. Gilman has a meeting with 
President Mubarak of Eqypt. I want to allow him to go first. 
Peace in the Middle East is a very high priority. Peace in the 
Postal Service is a secondary priority.
    Mr. Gilman. Thank you, Mr. Waxman, for yielding. Mr. 
Chairman I want to thank you for conducting this hearing this 
morning.
    Along with Chairman Burton, as a long-time because of our 
former Postal Committee and now the inactive Postal 
Subcommittee, I am pleased that our full committee is going to 
now devote time and attention to this important issue facing 
our U.S. Postal Service.
    It is important that we examine all of the factors leading 
up to the Postal Service current financial projections. We have 
all read the news reports and the memos and have met with our 
local Postal Supervisors, Postmasters, and labor leaders 
concerning the $3 billion of debt that the Postal Service now 
finds itself confronting.
    In fact, in my own Congressional District in New York at 
the new City Post Office, I have been hearing of manpower 
shortages which already exist, and now we are learning that the 
Postal Service may have to cut jobs even more in order to help 
control costs.
    Accordingly, I am left to wonder how the Postal Service 
will maintain the core mission of universal service. There are 
many reasons we can point at to answer just how the Postal 
Service has found itself in these troubled waters today.
    Continued decline in volume, insufficient revenues, 
electronic communication are just some of the problems 
confronting the Postal Service. However, these factors have all 
been foreshadowed by our colleague, Congressman John McHugh 
over the past two Congresses as he worked diligently to try to 
bring postal reform before the committee and before the 
Congress.
    We cannot now throw up our hands in dismay and wonder how 
the Postal Service has arrived at this point when in fact we 
have known for some time that these factors do exist. The 
Postal Service must also be prepared to take responsibility for 
the difficult economic times they are now experiencing.
    The Postal Service has known for some time the problems and 
inefficiencies in the postal system which do exist. Both the 
GAO and the Postal Service's Inspector General has repeatedly 
testified before our Postal Subcommittee on the difficulties 
that the Service has had in realizing opportunities on savings.
    Accordingly, Mr. Chairman, I am hopeful that today's 
hearing will provide our committee with the consensus needed to 
move forward on postal reform, as well as to provide the Postal 
Service with the understanding that in order to survive and 
perform its core mission changes in management practices are 
going to have to be made to implement and be adhered to.
    I want to thank Mr. Waxman again for yielding.
    Mr. Chairman, thank you for holding this hearing.
    Mr. Burton. Thank you, Mr. Gilman. Give President Mubarak 
our regards.
    Mr. Waxman.
    Mr. Waxman. Thank you, Mr. Chairman. I want to commend Mr. 
Gilman on his statement and wish him well in his meetings.
    I thank you, Mr. Chairman, for calling this hearing and 
putting this issue on the agenda with a sense of priority, 
which you have articulated so well.
    I look forward to working with you because I think reforms 
in this area should be bipartisan. As a Member of Congress, we 
all know too well the enormous undertaking that postal 
employees do every day. In good weather and bad, postal workers 
haul and deliver our letters and packages and we thank them for 
their efforts.
    But some serious challenges confront the Postal Service. 
Two months ago the U.S. Postal Service Board of Governors 
reported the Postal Service will suffer a $2 to $3 billion 
deficit for fiscal year 2001. Since that announcement, the 
Board has called for an immediate freeze on capital commitments 
and is looking at reducing mail delivery service to 5 days and 
consolidating Post Offices. Some say the Postal Service is in 
the midst of a crisis.
    Well, I look forward to learning more about these problems 
from today's hearing and the presentations of the witnesses 
that we have scheduled. I also look forward to learning more 
about these issues through the activities of the Postal Caucus, 
which is chaired by Representative Danny Davis.
    I encourage all members on our committee to study these 
issues and join our Postal Caucus.
    I am committed to sensible postal legislation. Last year, 
with the support of many of my colleagues, I introduced H.R. 
2535, the Postal Service Enhancement Act. It operated from the 
premise that the Postal Service performs a valuable service 
that should be strengthened and enhanced. The legislation 
provided ratemaking flexibility, negotiated service agreements, 
and phased-in postal rates. It also established a Presidential 
Commission to identify waste and inefficiency in the Postal 
Service and provided enhanced authorities for the Postal Rate 
Commission. Unfortunately, the measure was not considered by 
this committee.
    In the face of calls for postal legislation, we need to 
analyze the Postal Service's financial condition. We need to 
determine an accurate projection of postal revenues and losses 
and examine the procedures the Postal Service uses to track its 
actual costs and savings from productivity initiatives. We need 
to know the causes of postal deficits and identify structural 
or operational issues that could impact the Service's ability 
to provide affordable universal postal service.
    We also need to make sure that the Postal Service is acting 
responsibly. For example, the freeze on construction of new 
facilities is dramatic action. We need to examine whether the 
freeze is justified by the facts. If it is simply an attempt to 
garner headlines and pressure Congress, the action will create 
ill will and be counter-productive.
    I know the chairman is interested in working on these 
important issues in a bipartisan fashion. I welcome his 
initiative and look forward to working with him and all of our 
colleagues on this committee on how to reform the Postal 
Service, deal with its fiscal problems, and serve the needs of 
the American people.
    Thank you, Mr. Chairman.
    Mr. Burton. Thank you, Mr. Waxman.
    We have about 5 minutes before we have to leave for the 
vote. Do any other Members at this time have opening 
statements?
    Mr. McHugh, we will go to you and then we will come back to 
Mr. Davis.
    Mr. McHugh. Thank you, Mr. Chairman. I will try to be 
brief. Everyone was saying such nice things about me, I 
couldn't help but be reminded of a quote attributed to Mickey 
Mantle, one of my heroes, when he said, ``If I knew I was going 
to live this long I would have taken better care of myself.''
    If I had known I was going to be so right, I probably would 
have worked harder. I do appreciate the kind things that have 
been said.
    I would like, Mr. Chairman, to submit for the record my 
complete statement that is available here for anyone who might 
be interested, and just say a few words in summary, not the 
least of which is to express my personal gratitude to you, Mr. 
Chairman.
    You were kind enough to say I was the only person in the 
room who had the right to say, ``I told you so.'' With all due 
respect, I disagree. I think there are a number of people in 
this room, and it starts with you, Mr. Chairman, and extends to 
the good people who served on both sides of the aisle in the 
Postal Service Subcommittee, including Mr. Davis, Mr. Fattah in 
his ranking membership, and others who did work hard and who 
recognized this problem.
    Unfortunately, I think they are not too surprised by the 
developments that we have seen over the past several months. 
Beyond those good people, I have to pay particular tribute to 
the Postmaster General, Bill Henderson, who took incredible 
leadership, and I suspect, not a small amount of criticism from 
amongst his peers for the rather daring positions that he took.
    I want to join with you, Mr. Chairman, in wishing him all 
the best in the future. He has certainly earned whatever good 
things will come to him. Although we will miss him, I know he 
will be a great addition to whatever efforts he dedicates 
himself to in the future.
    We do have some folks here with us today, too, that have 
been very, very supportive of the subcommittee's efforts over 
the past 6 years to identify these problems: the GAO, the 
Inspector General, the Congressional Research Service. They 
have said to us repeatedly that, in fact, the Postal Service is 
at the end of an era. Those were the words used by the GAO in 
1999.
    As I noted during our last Postal Subcommittee hearing some 
7 months ago, ``Folks, we are fooling ourselves if we think 
that the growing pressure of declining revenues and increased 
costs at the base of the Postal Service does not require 
Congress to act and at long last to begin to address this very, 
very serious situation.''
    We did have a base bill--a base bill that I am pleased to 
say was reported unanimously twice with Republican and Democrat 
support from the subcommittee. But, because of the reality of 
Washington where on far too many occasions the urgent overcomes 
the merely important, the bill was not able to be advanced 
further.
    We now have a crisis. The time to delude ourselves to the 
contrary is past. The statistics, the proposals that we have 
heard over the past several weeks, I think, underscore that--a 
$2 to $3 billion operating deficit for this current fiscal 
year.
    The Service will reach its statutory debt limit of $15 
billion by October 1st of this year. The Postal Service is 
running out of cash and has already cut capital spending by 
some $1 billion; 800 postal facilities due for construction or 
rehabilitation in every district and every community in this 
country will be put aside.
    There was an announcement yesterday that the Postal Service 
is seriously considering the possibility of terminating 
Saturday deliveries. This is only the beginning.
    I agree fully with the chairman that the Postal Service has 
to draw upon every option as the first direction in trying to 
meet this challenge. Rate increases are something we would like 
to see avoided at all possible costs. But at the end of the 
day, I would say to my colleagues: This is Congress' 
responsibility.
    When all of the efforts are made and whatever failures or 
successes might come, it is each Member of the 435 Member House 
that has to go home and tell his or her constituents why it is 
that the Postal Service is not able to perform its core 
function, because Congress failed to act.
    I want to add my voice to those of the chairman, Mr. 
Waxman, Mr. Davis and others who stand ready to work on a 
bipartisan basis because this is not a matter of politics. It 
is a matter of policy. It is a matter of service to the people 
of this country. We owe it to them to work within our abilities 
to at long last bring about meaningful postal reform that meets 
all of the concerns of the incredibly diverse universe that is 
the Postal Service.
    So, Mr. Chairman, I am looking forward to that effort. 
Thank you for your leadership. I am looking forward to the 
comments here today.
    [The prepared statement of Hon. John M. McHugh follows:]

    [GRAPHIC] [TIFF OMITTED] T5418.184
    
    [GRAPHIC] [TIFF OMITTED] T5418.185
    
    Mr. Burton. Thank you for your leadership, Mr. McHugh. We 
will start with Mr. Davis when we come back.
    We will stand in recess to the call of the gavel.
    [Recess.]
    Mr. Burton. The Chair now recognizes the ranking member on 
the former Post Office and Civil Service Subcommittee, Mr. 
Davis.
    Mr. Davis. Thank you, Mr. Chairman. Mr. Chairman, I am 
pleased to join with you today at the first full committee 
hearing devoted solely to the U.S. Postal Service. Although 
this is not a general postal oversight hearing, it is timely 
given the recent developments in the financial status of the 
Postal Service.
    As a member of the former Subcommittee on the Postal 
Service for a number of years, I can personally attest to the 
importance of the Postal Service, the service that it provides 
to the American people across this Nation.
    Postal clerks, mail handlers, letter carriers, police 
inspectors and others are engaged on a daily basis in the 
delivery, processing and protection of our mail system.
    As a member of the former subcommittee, I can also speak 
first hand to the efforts of Representative John McHugh and his 
staff to change the structure and operation of the Postal 
Service. This change is embodied in H.R. 22, the Postal 
Modernization Act, which was unanimously voted from the 
subcommittee in April 1999.
    This bipartisan action taken 2 years ago was an 
acknowledgement of the insight and the hard work of 
Representative McHugh. It also allowed us the opportunity to 
further define and refine postal legislation in the full 
committee setting.
    Unfortunately, while many in the postal community wanted 
change, agreement on just what that change should look like and 
how far it should go proved illusive. In July 1999, ranking 
member, Henry Waxman and Representative Chaka Fattah, former 
ranking member of the Postal Subcommittee, introduced 
legislation, H.R. 2535, the Postal Enhancement Act. This, too, 
was in response to those wishing for change, although on a much 
narrower scope than the Postal Modernization Act.
    Since then and now the Postal Service continues to push for 
change in the area or people, prices, and products. In 
addressing the people portion, the Board of Governors recently 
sent letters to the Hill pointing out that the 1970 Postal 
Reorganization Act establishes, ``a system of collective 
bargaining followed by compulsory arbitration that mitigates 
against a negotiated settlement and which, moreover, has often 
placed some 80 percent of our total costs in the hands of a 
third-party arbitrator with neither understanding of nor the 
responsibility for our role and mission.''
    The Board has gone on to say that current postal law does 
not provide a mechanism to control wage rates. Relative to 
prices and products, the Board want to adjust postage rates 
quickly and offer new products in response to market changes 
and needs.
    This hearing is timely because it allows us to pick up 
where we left off in the last Congress, with one exception. The 
Postal Service is now predicting a deficit of somewhere between 
$2 and $3 billion and a crisis is apparently at hand.
    To its credit, the Postal Service and Board have begun to 
take steps to stabilize the situation. The Postal Service has 
warned us that their ability to deliver universal service is at 
risk without postal reform.
    The Board has called for an immediate freeze on capital 
commitments. The Postmaster General has just announced that it 
will cut $2.5 billion in costs, eliminate 75,000 jobs and 
create a new mailing industry task force to assess the role and 
value of hard copy mail and identify opportunities for future 
growth.
    Of course, just yesterday the Board directed management to 
study cost savings associated with reduction in the delivery of 
service to 5 days and consolidate postal facilities.
    Mr. Chairman, I look forward to working with you and 
ranking member, Henry Waxman, Representative McHugh and others 
as we seriously examine the Postal Service's financial status. 
As the newly elected chair of the newly created Bipartisan 
Congressional Postal Caucus, I invite all of my colleagues and 
urge them to join so that we will have many opportunities to 
engage in discussion relative to the current state of the 
Postal Service.
    I believe that this medium would be an excellent chance to 
really seriously understand, as well as further hammer out 
possibilities as we deal with the realities of our situation.
    I thank you, Mr. Chairman, for your leadership. I look 
forward to our seriously tackling this problem. I thank you 
very much and yield back the balance of my time.
    Mr. Burton. Thank you, Mr. Davis.
    Mr. Barr.
    Mr. Barr. Thank you, Mr. Chairman. I would like to echo the 
comments of Mr. Davis. I thank you for your leadership on this 
issue. I think the U.S. Postal Service is clearly important 
enough so this ought to be a topic for our full committee.
    I appreciate, as always, your taking the leadership on key 
issues.
    As have many Members of Congress, I have lived and worked 
overseas. I know, through having suffered through postal 
services in other countries, how fortunate we are here in 
America to have the finest postal service anywhere in the 
world. As probably most Members do, I work very closely with 
our post offices in our district. I work very closely with our 
Postmasters, as well as the men and women who perform the vital 
service of delivering our mail.
    That being said, Mr. Chairman, I am very disturbed by the 
recent reports of financial difficulties in the Postal Service. 
I think it is very timely that we look very, very carefully and 
comprehensively at what has caused what appears to be a very, 
very sudden turn-around.
    I am also very concerned about reports that we continue to 
receive about excessive bonuses, excessive reimbursement for 
relocating employees, limousines, lavish parties. Hopefully, 
all of those reports that we are getting and all of the 
discussions that we get from business of the Postal Service are 
all wrong in those regards. Maybe we can clear the record on 
that here today.
    If they are not completely made up, though, we do have some 
serious problems with how moneys are being spent. Also, I am 
extremely concerned about reports that are now surfacing that 
the Postal Service wants to cut out Saturday delivery. I think 
that would be the worst thing possible that they could do for 
themselves.
    There is nothing that would hasten people's interest in 
pursuing other forms of delivering mail than that sort of ``cut 
off your nose to spite your face'' activity or proposal by the 
Postal Service. Hopefully, we will get this cleared up today 
and the Postal Service leadership will tell us that those 
reports are completely inaccurate, that the Postal Service will 
be proud to continue delivering mail to the American people and 
American businesses 6 days a week, Mr. Chairman.
    If those reports are not completely false and if we hear 
from the Postal Service today that they are indeed even 
contemplating that, then I think that we will be in a situation 
of looking at dramatically changing the authority that the 
Postal Service has. I think that they will put themselves in a 
box that will result in American businesses and citizens 
looking for alternative means of having their mail delivered. 
This would be one of the most self-defeating proposals that I 
have ever heard in my life, Mr. Chairman.
    I think your hearing today could not be more timely. I 
appreciate the witnesses coming forward. I look forward to a 
very, very productive hearing, not only today, but as you 
continue to exert leadership on this issue.
    Thank you, Mr. Chairman.
    Mr. Burton. Thank you, Mr. Barr.
    Who was here first? Why don't we go to that lovely lady? 
Yield to Mrs. Maloney.
    Mrs. Maloney. I would be delighted to yield to Mr. 
Kucinich, since he has seniority over me.
    Mr. Kucinich. Please go ahead.
    Mrs. Maloney. What a gentleman. Thank you.
    First of all, I want to be associated with the comments of 
many of my colleagues. I certainly agree with Congressman 
McHugh from the great State of New York, and the chairman that 
this is a bipartisan issues; it is a policy issue, one that we 
should all care about and all work on.
    I agree with Mr. Barr, we do have the best Postal Service 
in the world and one that should continue 6 days a week.
    I would like to summarize my remarks and put my full 
comments into the record. I am very glad that this hearing is 
being held. I want to really express the distress that I had 
earlier in a former year when the Postal Committee was 
abolished and really merged into the Government Reform and 
Oversight Committee and this year the Postal Subcommittee was 
eliminated.
    Certainly, a quality universal Postal Service is incredibly 
important to every American. I was very distressed when the 
subcommittee was eliminated. I am glad that my colleague, Mr. 
Davis, along with friends on the other side of the aisle have 
formed a Task Force on Postal Service, of which I am a member. 
I applaud them for taking that leadership role.
    I think that everyone in this room has got to be upset by 
the revenue estimates generated by the Postal Service in recent 
months. What makes the situation even more confusing is that 
the estimates generated by the USPS are so entirely different 
from their own projections as recently as last year.
    Now, I just want to say that one of the things that 
happened last year was the rate increase. Now, this rate 
increase was supposed to ensure that the USPS would not repeat 
last year's financial problems.
    But now, just a few months later, the Postal Service tells 
us that we are looking at a $2 to $3 billion loss.
    My main question today is really a management question. How 
in the world did this change so much and so quickly? Now, the 
Postal Service hearings said that they would like more 
flexibility. They would like more flexibility to run the Post 
Office more like a private business.
    But I have to say, what business in this country would even 
dream of succeeding with such poor planning and projections?
    So I think we really have to look at the management. Even 
with these unclear, uncertain financial projections, the USPS 
has basically shouted from the rooftops about their problem, 
the situation that they face. You know, the sky is falling, we 
are in a terrible situation. They are saying that the only 
thing that can save the Post Office is radical postal reform.
    Now, indeed everyone needs to reform every year. We need to 
reform the Post Office and all of our agencies for a 21st 
century operation. But we cannot forget that the Post Office 
was created to serve all Americans in a convenient and 
affordable manner and we have to make sure that continues.
    We cannot make radical policy decisions based on unclear 
projections. Just last month, the Post Office and the Postal 
Service stopped all work on all capital projects across the 
Nation.
    Yesterday, in a move that I believe was timed to raise the 
profile of this hearing, the Post Office announced that it was 
considering eliminating Saturday service and closing postal 
facilities.
    Now, believe me, we are all concerned about the Post 
Office's financial situation, but we cannot even begin to 
identify solutions to these problems if we do not have a clear 
picture and view of where we are going, if we don't have clear 
planning.
    I am very pleased to see Mr. Walker here, the General 
Accounting Officer. I know that he will speak about some of the 
reforms they believe the Post Office should pursue, including 
better tracking of costs, expenses and capital assets. I am 
very eager to hear their views and gain a better perspective on 
how accurate USPS projections are and just what is needed to 
ensure their future financial stability.
    I am also interested to learn from the Postal Service why 
their projections have changed so dramatically and whether they 
have implemented some of the efficiencies they have previously 
claimed would save $700 million a year.
    So, hopefully today's hearing will shed some light on these 
and other issues surrounding the operation of the Post Office 
and help us guarantee that the Postal Service remains a modern 
and effective organization for the 21st century and beyond.
    Thank you very much for having this hearing, Mr. Chairman.
    [The prepared statement of Hon. Carolyn B. Maloney 
follows:]

[GRAPHIC] [TIFF OMITTED] T5418.186

[GRAPHIC] [TIFF OMITTED] T5418.187

    Mr. Burton. Thank you, Mrs. Maloney.
    Mrs. Morella.
    Mrs. Morella. Thank you, Mr. Chairman and also Ranking 
Member Waxman for holding this critical hearing on the 
uncertain financial future of the U.S. Postal Service. I do 
also associate myself with the comments of my colleagues on 
both sides of the aisle.
    After 5 years of operating at a surplus and comparably 
minor loss in fiscal year 2000, the Postal Service's 
announcement of a potential $2 to $3 billion deficit in fiscal 
year 2001 is quite disconcerting. Such a dismal national 
projection and reports of yet another increase in postal rates 
has taken my constituents and me by surprise after only 
recently becoming accustomed to the recent 1-cent stamp 
increase.
    In fact, in January of this year the Postal Service 
increased rates an average of 4.6 percent. While it was not the 
6 percent increase the service sought, at that time it was 
believed to be sufficient.
    Today I am interested in learning what has caused the 
Postal Service to abruptly fall into such a state of disrepair 
that they would be projecting losses in the same calendar year 
that they raised rates.
    To the defense of the Postal Service, I understand how 
difficult it must be to operate like a self-supporting 
business, as intended by Congress, without the flexibility of 
price control and within the framework of an antiquated piece 
of legislation.
    However the constraints of the Postal Reorganization Act of 
1970 are not new challenges for the Postal Service and 
therefore do not sufficiently explain such a dramatic reversal 
of financial fortune over this past fiscal year.
    In addition, this committee is well aware that increased 
competition from private delivery companies and electronic 
communication alternatives such as the Internet, have led to 
substantial declines in the Service's first class mail volume.
    These challenges will only grow over the next decade as 
broadband Internet access is extended to each residence. I hope 
that our witnesses will be able to inform this committee as to 
what action has been taken to better compete during this ever-
evolving information age and how successful these actions have 
been.
    For instance, what success has the Postal Service 
experienced with its e-commerce ventures, e-bill pay and online 
bill paying service and postal CS and electronic delivery 
service?
    Finally, I am also concerned with some of the Postal 
Service's short and long-term strategies to address its 
financial frustrations. Today the media reports that the Postal 
Service Board of Governors has directed management to study the 
cost savings associated with reducing delivery service to 5 
days a week.
    I feel that this cost cutting approach will compromise the 
Postal Service commitment to universal service and its renowned 
reputation for customer service. We do think the number of 
delivery days will have a devastating impact on our economy and 
should in no way be pursued as a viable option.
    Our reliable and affordable Postal Service is the hallmark 
of our Nation's infrastructure. In many neighborhoods, the post 
office plays a more active role in the fabric of the community 
than simply providing a facility for the dissemination of mail.
    For instance, in my district, Garrett Park, the postmaster, 
the postal workers and the facility provide a healthy 
environment for local residents to meet, discuss issues of 
concern as they pick up their mail.
    Whatever action is taken to resolve this financial crisis, 
we urge the Postal Service to preserve this, which has become 
the last remaining vestige of our great American culture.
    I look forward to a bipartisan resolution of this. I thank 
you, Mr. Chairman.
    Mr. Burton. I thank the gentlelady.
    Mr. Kucinich.
    Mr. Kucinich. Thank you very much. Mr. Chairman and members 
of the committee. The new 34-cent stamp, U.S. postal stamp, has 
a depiction of the Statue of Liberty. I think it is appropriate 
at this time in our deliberations about the Postal Service that 
we reflect on this stamp. Yes, it costs 34 cents and for that 
34 cents people have reliable service, service that is 
accountable.
    But more than that, this 34 cents and this stamp 
representing the Statue of Liberty speaks to the Postal Service 
in another way and that is that the Postal Service is connected 
to a basic freedom that the people of this country have, an 
ability to communicate with one another, that for 34 cents you 
can send a message across the country.
    You don't have to own a computer. You can send a message to 
anywhere in the country. You can send a message from Cleveland, 
OH where I live, to a small town in Alaska, where only a few 
hundred people live. You can enable people to communicate with 
each other all around this country, and with the help of the 
Postal Service all over the world.
    So, the U.S. Postal Service is really about freedom as much 
as it is about a service. The U.S. Postal Service has for 
countless years provided a universal service.
    We have to step back and think about the purpose of 
government here. Government certainly exists to provide a 
service. We hope that government doesn't lose money in doing 
that, but sometimes that happens.
    The Honorable Inspector General stood before one of our 
subcommittees recently and told us that the Department of 
Defense, which provides a service, cannot reconcile $2.3 
trillion of accounting entries. We are talking about billions 
of dollars; they were talking about $2.3 trillion in accounting 
entries.
    Would anyone suggest that we go to mercenaries as opposed 
to a Department of Defense in order to somehow have better 
service? No, we try to solve the problems that we have with the 
defense budget.
    In Social Security, there were projections that Social 
Security was going to have a shortfall. The forces for 
privatization marched into Congress and said, ``Well, now we 
must turn Social Security over to the stock market.''
    Would anyone suggest that today? Because everyone knew the 
truism that what goes up must come down. The market went down. 
People are saying prayers of thanksgiving that the money was 
not invested in the stock market.
    Years ago, prior to the privatization of Medicare, we saw 
people getting service, the best service they could get, 
through the help of the Federal Government, the Medicare 
Program, but the privatization of Medicare through Medicare 
HMOs resulted in service going down and costs going up.
    So, let us look at our Postal Service, the universal 
service, the government service, this public service which 
provides the same service for everyone, no matter what social 
or economic class, no matter whether they live in the city, the 
suburb or rural areas, a service which is accountable to this 
Congress. That is why we have this hearing here today. A 
service where someone can call us if they are not satisfied 
with us and a Member of Congress can find out why not.
    We understand that there are individuals interested in 
privatization, who look at the Post Office not as a service to 
be rendered to the American people, but as an opportunity for 
making profit. We understand that. This is a great country that 
provides everyone an opportunity to make money. That is one of 
the great things about America.
    But we are talking about a government service here. We are 
talking about a public responsibility that we have to make sure 
the American people can communicate to everyone.
    So, as we move forward with these deliberations, let us not 
forget the excellent work that is being done by the men and 
women of the U.S. Postal Service. Let us be grateful for a 
service that we have had that has enabled Americans to 
communicate with each other.
    Let us not forget the responsibility that we have to keep 
this service intact, to get it through its current financial 
difficulties and put it on the path where it can continue many 
more generations of serving the American people.
    I thank the chairman for holding this hearing.
    Mr. Burton. Thank you, Mr. Kucinich.
    Mr. Shays.
    Mr. Shays. Thank you, Mr. Chairman.
    Aging and anachronistic infrastructures pose an ominous 
threat to our economic well being. The President eloquently and 
passionately decries the human and fiscal cost of a public 
education system hobbled by low expectations and poor 
performance.
    Energy consumers are just beginning to pay the price 
demanded by long-neglected energy production and conservation 
systems.
    Interstate commerce is slower and most costly due to 
crumbling highways and railroad bridges.
    Today, we discuss the decay besetting another national 
economic pipeline, the U.S. Postal Service, the USPS. With 
increased competition from economic, electronic mail, Faxes, 
the Internet and unregulated shippers, both foreign and 
domestic, the USPS appears to have entered a death spiral.
    Cost controls and productivity increases remain limited and 
elusive. Required by law to raise rates to meet costs, each 
price increase drives more consumers away. It wasn't meant to 
be this way.
    The current statutory structure reformed a 1970's Post 
Office unquestionably dominant and financially capable of 
providing universal service. Never intended to operate as a 
competitive enterprise, the USPS we see today was designed to 
operate as a government service and entry-level employer.
    But the world has changed much in three decades. The laws 
governing postal operations, human capital management and rate 
setting have not. As a result, today's Postal Service is a 
lumbering behemoth, a dinosaur forced to raise gazelles.
    I am concerned that we as custodians of this national 
economic asset seem able only to tinker at the margins of the 
problem while the need for fundamental structural reform of the 
postal delivery system goes unmet.
    I hope this hearing and those that will surely follow will 
move us toward a modern, efficient, and affordable postal 
system that will empower, not impede, national economic well 
being.
    Thank you, Mr. Chairman.
    [The prepared statement of Hon. Christopher Shays follows:]

    [GRAPHIC] [TIFF OMITTED] T5418.003
    
    Mr. Burton. Thank you, Mr. Shays.
    Ms. Schakowsky.
    Ms. Schakowsky. Thank you, Mr. Chairman. I want to welcome 
our distinguished witnesses here today to discuss the Postal 
Service's financial standing. I look forward to their 
testimony.
    I would like to associate myself with Mr. Kucinich's 
remarks and I, too, want to acknowledge the importance and the 
generally excellent work of the Postal Service and the postal 
workers and letter carriers.
    That being said, news of financial problems at the Postal 
Service concerns me and my constituents. Postal issues rate 
among the highest concerns of my constituents in the Chicago 
area.
    There are over 1,200 postal employees working in the Ninth 
Congressional District. I am repeatedly informed by some letter 
carriers that our postal workers have to work long hours and 
sometimes double and triple shifts.
    I hear that from constituents, that letter carriers work 
routes with which they are not familiar as substitutes leading 
to a less timely and accurate delivery of the mail.
    Finally, Mr. Chairman, I am aware that the Postal Service 
has put a halt to all capital commitments. This decision has 
put a stop to two projects in my district, one in Skokie and 
one in Edgebrook. In Illinois, there are a total of 25 projects 
scheduled for 2001 that are currently on hold.
    We all need to look very seriously at the reasons for 
halting these projects that could improve service to consumers 
and the various proposals for improving this system so that 
postal workers and postal customers are fairly treated and 
served.
    I thank you, Mr. Chairman. I hope our GAO and Postal 
Service witnesses can address some of these issues for the 
committee today.
    Mr. Burton. Thank you, Ms. Schakowsky.
    Mr. Otter.
    Mr. Otter. Thank you, Mr. Chairman. Mr. Chairman, I am 
going to shorten my remarks considerably so we have more time 
for questions. I think there is going to be a lot more to gain 
because of what the other Members have already said relative to 
the Postal Service today.
    Mr. Chairman, a lack of accountability and oversight has 
given the U.S. Postal Service free rein to stray from its core 
mission of delivering the mail. The Postal Service has an 
unfair competitive advantage over the private sector because of 
its monopoly in revenues and in privileges.
    As a result, private competitors and taxpayers are 
economically disadvantaged and the mail users are forced to pay 
ever-increasing stamp prices. The Postal Service brings in $50 
billion every year from its monopoly on letter mail. Yet, it 
continues to seek other sources of revenue.
    Recently the Postal Service lost $85 million, it was 
reported, to try to create new market ventures for things such 
as phone cards, videos, TV, tee shirts, baseball caps, 
stationary, greeting cards, ties, and also by selling 
advertising on its vehicles.
    The Postal Service has maintained a $300 to $500 million 
annual advertising budget, despite the fact that it has no 
competition in the first class monopoly. The Postal Service has 
used this advertising money to directly compete with companies 
who must necessarily operate in the private sector without all 
of the perks of a government agency like the Postal Service.
    The U.S. Postal Service productivity has increased only 11 
percent over the last three decades, even with all the 
advantages that we have seen in technology.
    Time and again the Postal Service has said it will work on 
reducing costs and increasing productivity. Taking a look at 
one item, twice the Postal Service has paid for studies that 
were done for an annual cost for processing undeliverable as 
addressed mail.
    It appears that the Postal Service has not significantly 
changed the way that it deals with undeliverable as addressed 
mail because it continues to lose $1.5 billion annually on that 
alone.
    From 1995 to 1999, the Postal Service has budgeted $8.5 
billion on capital investment in automation and mechanization 
equipment. However, it only spent $5.2 billion. The Postal 
Service portrays the image that it is not concerned with 
productivity or enhancing their efficiency. This is of great 
concern. Yet they still want another postal rate increase.
    Mr. Chairman and members of the committee, with the 
projections of this year's deficit at $2.3 billion, the Postal 
Service needs to refocus their mission on delivering the first 
class mail. Stop using taxpayer money to compete with the 
private sector and start making sound business decisions and 
ultimately need a thorough review by this committee and this 
Congress.
    Thank you, Mr. Chairman.
    Mr. Barr [assuming Chair]. I thank the gentleman.
    The chair recognizes the gentleman from Missouri, Mr. Clay, 
for 5 minutes.
    Mr. Clay. I will forego any opening statement and will wait 
for questions.
    Mr. Barr. Thank you. The gentleman yields back.
    The gentleman from Virginia, Mr. Schrock, is recognized if 
he has an opening statement.
    Mr. Schrock. Thank you, Mr. Chairman. I really do not have 
an opening statement except to say that I agree with almost 
everything I have heard from my colleagues here. At the 
appropriate time and after we have heard from our witnesses, I, 
too, have five or six questions I would like to ask.
    Thank you, Mr. Chairman.
    Mr. Barr. Thank you, sir.
    The chair recognizes the gentleman from Maryland, Mr. 
Cummings.
    Mr. Cummings. Thank you very much, Mr. Chairman. I am glad 
we are holding this hearing on the Postal Service's current 
financial position and the impact postal loss projections will 
have on the ability of the agency to fulfill a statutory 
mission under the Postal Reorganization Act of 1970.
    Before I go on, I just want to thank all the men and women 
of the Postal Service who deliver the mail 6 days a week and do 
a very good job in my district and, I am sure, across the 
Nation.
    We all want a stable and strong Postal Service. The Postal 
Service processes about 208 billion pieces of mail a year or 
about 680 million pieces of mail every day.
    Additionally, the Postal Service delivers mail to over 
5,600 new addresses a day. It generates $65 billion in 
operating revenues and operates 38,000 Post Offices, stations 
and branches.
    For several years postal reform has been a big issue before 
this committee and Congress. In the 106th Congress, Congressman 
McHugh introduced H.R. 22, the Postal Modernization Act. And 
Congressman Waxman introduced H.R. 2535, the Postal Enhancement 
Act.
    The Subcommittee on the Postal Service held hearings on 
both of these reform items. There is widespread agreement that 
reform is needed for the Postal Service. This committee has the 
oversight responsibility to explore exactly what type of reform 
is needed.
    The Postal Service must develop a long-range strategic plan 
that truly assesses postal reform. I look forward to hearing 
the testimony of our witnesses, David M. Walker, William J. 
Henderson, and S. David Fineman. I hope they will be able to 
help us examine postal losses and revenues, postal rate 
increases, deficit and mail volume projections, competition, 
information technology and budget forecasting.
    Thank you very much, Mr. Chairman.
    Mr. Barr. I thank the gentleman.
    The chair recognizes the gentleman from California, Mr. 
Horn.
    Mr. Horn. Thank you, Mr. Chairman. I know we need to get to 
the excellent witnesses. But I just want to mention a few 
things. One is, I don't think any of us have any problem with 
the letter carriers and clerks we know. I have spent 30 years 
in Long Beach. I have never had a problem with anybody behind a 
counter or anybody walking the mail. That started when I was a 
little kid on a farm. Mr. Cagney, the rural carrier, was not 
only a newspaper for the rest of the county, but also sent our 
mail around the world.
    But what I do have a problem with is some of the 
supervisors and some of the central operations here in 
Washington.
    Let me give you an example. I talked to 100 injured Federal 
workers one afternoon. Sixty of them came out of the Postal 
Service. One of them, after the truck had fallen on his foot or 
something, he asked for the form to file under the Federal 
Workers' Compensation law. The Postal supervisor wouldn't give 
him that.
    Why? Because that supervisor, is performance is that you 
don't have these things happening. Apparently, that is the way 
the system works. Well, I think it is a lousy way to work when 
it does that. Until the supervisors start helping people and 
the central Postal administration here starts thinking about 
people, we are never going to get anywhere with the Postal 
Service.
    I guess when I heard that Postmaster General Runyon had 
$100,000 spent on his farewell dinner and all, I must say, I 
get a little upset, as one who cares about the taxpayers' 
money, to say the least, and any agency's money.
    We finally got a Post Office person in Long Beach that 
started things moving. His name was Mr. Shapiro. He will 
probably be punished now that I have said that. After all, 
somebody in the line is helping people. What do you know?
    The fact is that the city of Long Beach, half a million 
people, surrounds the city of Signal Hill with 10,000 people. 
We want a zip code for them. Why? Because all their insurance 
rates go up when they use the zip codes coming from the inner 
city of Long Beach, CA.
    I think that is just outrageous, not to get a decent zip 
code for the city. Now, they can make laughter down there and 
all the rest of it. But I would say the Post Office, when it 
starts acting like a humane institution, I will have more 
respect for it. But right now, with the management of the 
Postal Department, I am not happy about it.
    I want them to know about it and get off their seats and 
start getting something done.
    So, I thank you, Mr. Chairman, and I look forward to the 
witnesses.
    Mr. Burton [resuming Chair]. Thank you, Mr. Horn.
    Ms. Norton.
    Ms. Norton. Thank you, Mr. Chairman. I have just a few 
remarks.
    I hope we are not at another low point for the Post Office. 
We encountered such a point in the early 1990's when there was 
a great deal of oversight from this committee. We may recall 
that mail delivery times around the country were terrible, none 
worse than here in Washington, DC, where official mail as well 
as residential mail was delivered at times that were among the 
worst in the country.
    To their credit, the Post Office improved extraordinarily 
in delivery mail times. I am not sure what it is today, but 
there was cosmic improvement after some oversight here and 
management focused on the problem.
    That leads me to believe that if management focuses on the 
problems that have arisen today, they, too, can be solved. I 
don't agree with my friends on the other side that the Post 
Office can still deliver mail at low rates and not become more 
market oriented.
    Certainly they are going to have to compete with the 
private sector if they are going to keep the cost of mail down 
for the average person who must depend on the mail. They, 
unlike Members of Congress, except for the frank, which is paid 
for, do not communicate by FAX or e-mail or any of the other 
gadgets.
    We cannot have it both ways. In fact, the Post Office was 
criticized for not becoming more competitive. Well, they have 
gone and done some of that. I am not sure they have done enough 
of it. I am not worried about the private sector. We have 
extraordinary privatized services and, of course, they don't 
have the same burden of keeping the cost of the average letter 
down the way we insist, justifiably so, that the Postal Service 
do.
    I do want to raise one concern that I have. There is a 
pejorative term that has come into our language, ``going 
postal.'' This comes from the fact that there have been a fair 
number of violent incidents involving Postal workers.
    The question has been raised over and over again about the 
stress that is associated with mechanization and automation of 
services and perhaps with improved management that forces 
workers into patterns that are more rigid than before.
    I am very concerned with how labor relations are handled 
with the increasing pressure on the Post Office to deliver mail 
at lower costs and compete with the private sector.
    I went out with a Postal worker here in the District of 
Columbia. I asked the postmaster to just give me a worker to go 
with at random. I was astounded by what I saw. He was often the 
only person that residents saw. He had an extraordinary 
relationship with his neighborhood. It was in Adams Morgan. He 
climbed steps over and over again. He must have been in the 
best shape.
    I want to learn more today about how management is coping 
with its cost problems and I want to learn more today about how 
management is coping with its labor management problems.
    Thank you, Mr. Chairman.
    Mr. Burton. I thank the gentlelady.
    Mr. Walker, I think we are ready now to have you sworn.
    [Witness sworn.]
    Mr. Burton. I assume you have an opening statement.

STATEMENT OF DAVID M. WALKER, COMPTROLLER GENERAL OF THE UNITED 
   STATES, GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY BERNARD 
  UNGAR, DIRECTOR, PHYSICAL INFRASTRUCTURE TEAM, U.S. GENERAL 
                       ACCOUNTING OFFICE

    Mr. Walker. I do have an opening statement. As you have 
already noted, the entire statement, I know, will be in the 
record. If I could summarize it now, I would appreciate it.
    I am pleased to be here today to participate in this 
committee's hearing on the U.S. Postal Service. The Postal 
Service plays a vital role in our economy. It links people 
together and helps to bridge the growing digital divide.
    Overall, the Service, however, faces major challenges that 
collectively call for a structural transformation in order for 
it to remain viable in the 21st century.
    The last major reform of the Postal Service occurred in 
1970. The world has changed fundamentally since 1970. It will 
change even more in the coming 31 years.
    The Service's projected financial losses have increased 
significantly during the past 4 months. Over the past 2 years 
we have raised concerns about a range of financial, operational 
and human capital challenges that threaten the Postal Service's 
ability to continue to provide affordable, high quality and 
universal postal service on a self-financing basis.
    Moreover, the Service's financial outlook has worsened more 
quickly than expected. It is not clear how the Service will 
address its mounting financial difficulties and other 
challenges. These challenges include, as chart one will show, 
which is also slide one in your packet: The Service's net 
income has declined over the past 5 years. The Service 
currently projects a fiscal 2001 deficit of between $2 billion 
and $3 billion, up from a projected loss of $480 million just 4 
months ago.
    It is my understanding that the two primary reasons for the 
change in the projection were No. 1, a postal rate increase 
that was $800 million lower than they expected to get, and No. 
2, a decline in the economy and the resulting effect on volume.
    In my opinion, Mr. Chairman, as the Social Security and 
Medicare trustees do, and I was a trustee of Social Security 
and Medicare for 5 years, in general I think it is not a good 
idea to project rate increases unless you know for a fact that 
they are going to occur.
    Therefore, I think one of the reasons for the variance is 
because there was a projected rate increase that in fact had 
not been approved. That is $800 million. That is a lot of 
money.
    Further, in fiscal 2002, the Postal Service estimates that 
its deficit will be in the $2.5 to $3.5 billion range, assuming 
no further rate increases.
    If I can refer you now to chart two, costs have been 
growing at a faster rate than revenues over recent years.
    Now we will go to chart three, which is figure five, I 
believe. The Service has experienced a net increase in 
outstanding debt at the end of each fiscal year since 1997. Its 
total outstanding debt reached $9.3 billion at the end of 
fiscal year 2000.
    Service official expects that they could reach the $15 
billion statutory debt limit by the end of fiscal year 2002, 
assuming no additional increases in postal rates. In addition, 
the Service does not have a plan to reduce its debt burden. 
Depending on future events, the Service may face a cash 
shortage in fiscal years 2002 or 2003.
    The next chart, which would be slide No. 6, I believe, 
shows the Service faces increasing competition from both 
domestic and foreign-based entities. It also expects certain 
electronic diversion of existing mail will be caused by greater 
use of the Internet that will cause a substantial decline in 
first class mail volume in the next decade, and thus place the 
Service under, in its own words, ``extreme financial 
pressure.''
    Although the Service has plans to cut its costs by $2.5 
billion by 2003 through increasing productivity and improving 
human capital programs, it has historically had great 
difficulty in achieving its planned outcome.
    The Service has also had periodic conflicts with some of 
its key stakeholders, including the postal unions and the 
Postal Rate Commission. We have noted longstanding labor-
management relations problems that have hindered improvement 
efforts, including the fact that three major labor agreements 
expired in November 2000, which collectively cover over a half 
a million of the Postal Service's work force.
    In addition, the Postal Service and the Postal Rate 
Commission have had longstanding disagreements concerning 
pricing decisions, and they continue. The Service is subject to 
statutory and other restrictions that seem to limit its ability 
to transform itself.
    A lot of these provisions were put in place in the last 
reform in the 1970's and some preexist that.
    Finally, two key leadership positions need to be filled 
related to critical postal operations and rate setting, namely 
the Postmaster General. Postmaster General Henderson has 
announced that he will be leaving next month. In addition, 
former Chairman Ed Gleiman is no longer chairman. He resigned 
recently.
    Based upon all this information, Mr. Chairman, we believe 
that the Service's deteriorating financial situation and the 
contributing structural challenges call for prompt aggressive 
action, particularly in the area of cutting costs and improving 
productivity, including considering existing legislative 
provisions that serve to limit the ability of the Postal 
Service to transform itself.
    Accordingly, we are adding the Postal Service's 
transformation efforts to our high-risk list, effective 
immediately, so that we and others can focus on its financial, 
operational, and human capital challenges before the situation 
reaches truly crisis proportions where the options for action 
may be more limited.
    Let me emphasize, we are not putting the entire Postal 
Service on our high-risk list. Management and employees at the 
Postal Service do some things right, and in fact on-time 
delivery has improved significantly over the last several 
years.
    Rather, we are focusing on the challenges associated with 
the transformation effort and the related obstacles that must 
be addressed in order to enable the Postal Service to truly 
transform itself for the 21st century.
    In our view, we believe that the following actions need to 
be taken. First, the Postal Service should develop a 
comprehensive plan in conjunction with Congress and its other 
key stakeholders, such as the postal unions and management 
associations, customers, and the Postal Rate Commission, that 
would identify the administrative and legislative actions 
needed to address the Service's financial, operational and 
human capital challenges and that would establish a timeframe 
and specify key milestones for achieving desired results.
    Second, the Service should provide summary financial 
reports to the Congress and the public on a quarterly basis. 
These reports should present sufficiently detailed information 
for the stakeholders to understand the Service's current and 
future projected financial condition and how its outlook may 
have changed since the previous quarter and its progress toward 
achieving the desired results specified in its comprehensive 
plan.
    Last, but certainly not least, GAO will work with the 
Congress and the Service to identify and analyze possible 
improvement options and will continue to analyze and report to 
the Congress on the Service's ongoing financial condition.
    In consultation with other postal stakeholders, including 
the Postal Service Office of the Inspector General, postal 
unions and management associations, the Postal Rate Commission 
and customers, GAO will review the Service's financial results 
and future outlook, progress in cost-cutting and productivity 
efforts, other countries' experiences in dealing with related 
challenges and the options for addressing the Service's short-
term and long-range challenges.
    Mr. Chairman, that concludes my prepared remarks. I would 
be more than happy to answer any questions that you or any 
other members of the committee may have.
    [The prepared statement of Mr. Walker follows:]

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    Mr. Burton. Thank you, General Walker.
    You reported just a moment ago that the Postal Service is 
being added to the GAO's high-risk list. I have a couple of 
questions on that. Maybe I will just give them all to you at 
once and you can answer them collectively.
    What factors do you take into consideration when 
determining an agency or program should be placed on the high-
risk list? That is No. 1.
    Is it unusual for an agency or program to be added to the 
high-risk list during a congressional session? I mean 
immediately. We didn't know about this until just recently and 
then, boom, all of a sudden it just hit us.
    Third, what would it take for the Postal Service to be 
removed from the high-risk list? If you can start off with that 
question, I would appreciate it.
    Mr. Walker. I would be happy to, Mr. Chairman. They are all 
excellent questions.
    First, what are the factors that we consider? Last year, in 
calendar 2000, we published for notice and comment the factors 
that we use in determining when a function or program is deemed 
to be high risk, and No. 2, what it takes to get off.
    Some of the factors that are relevant for considering when 
a program goes on include: Is the program of national 
significance? I think we can all agree that the Postal Service 
has a program that is of national significance.
    Does the challenge relate to a key management function that 
deals with its performance and accountability? Does the risk 
relate to a systemic or structural problem? Does it involve $1 
billion or more of taxpayer funds?
    Have there been corrective measures identified? What is the 
progress toward addressing those? Based upon applying these 
criteria in our professional and independent judgment, we 
believe that the Postal Service's transformation effort meets 
these criteria.
    In other words, that transformation effort is at high risk; 
not the entire Postal Service.
    There are several significant subsequent events that have 
occurred since we made our determination about the January 2001 
list. We made that determination in early November 2000, in 
order to finalize it and to publish it in January 2001.
    The significant subsequent events, for example, have been a 
significant deterioration in the projected financial condition 
of the Postal Service, escalating from an approximate $480 
million anticipated loss for this year to $2 to $3 billion and 
further escalating in the future.
    Second, mounting debt without a debt repayment plan.
    Third, a continued conflict over rate setting.
    Fourth, key leadership voids. The Postmaster General 
announced that he was not going to seek reappointment and the 
chairman of the Postal Rate Commission resigned during this 
period of time.
    In addition, three major labor agreements have expired and 
are now set for binding arbitration, covering over half of the 
Postal Service's work force.
    Finally, last but certainly not least, the Board itself has 
stated that it is at serious risk of not being able to achieve 
its statutory mission.
    Mr. Chairman, we could have waited on the 2-year cycle, but 
I think if there had been subsequent events and the facts 
dictate that it meets our high risk criteria, if it is a 
important enough program, and I would argue the Postal Service 
transformation effort is important, and the Postal Service 
clearly is, then I think we have a responsibility to act.
    In these times, we can't necessarily wait 2 years before we 
end up adding critical areas to the high-risk list.
    As far as what it will take to get off, Mr. Chairman, which 
I think was your third question, there must be a plan, a 
specifically identified plan dealing with both operational as 
well as legislative challenges, to try to address these issues. 
There must be commitment on behalf of the parties to do it. It 
must be implemented to some extent and we must see some 
meaningful results. We must be convinced that it is on a 
sustainable path to deal with some of the major structural 
problems in order to get it off the list.
    I might add that there is an analogous situation, and it 
may not sound analogous, but I think there is an analogous 
situation that occurred earlier in the 1990's. I used to be 
head of the Pension Benefit Guarantee Corp. PBGC is a 
government corporation that is intended to be self-financing, 
that was experiencing a deteriorating financial condition and 
had certain operational problems as well as certain legislative 
challenges.
    GAO put it on its high-risk list, the single insurance 
program in the early 1990's. Through a combination of 
management actions and legislative actions, it was removed from 
the list several years later.
    I think it is a decent analogy, even though that program 
was in a totally different line of business.
    Mr. Burton. Let me ask one more question real quickly. I 
think you alluded to the fact that the Postal Service will 
reach the statutory borrowing limit of $15 billion sometime in 
the next year or two. What will that mean for Postal operations 
when they reach that limit? Will the Postal Service run out of 
cash?
    Mr. Walker. Well, it will then depend on what the projected 
cash-flows are. Right now the Service is using this borrowing 
authority for two things, for modernization, for construction 
activities, as well as to cover operating losses, any cash-flow 
problems from operations. By law, as you know, the service can 
only borrow $2 billion a year for construction and improvement 
and only $1 billion a year to cover negative cash-flows 
associated with operations.
    I think it would be better to ask the Service what projects 
its cash-flows to be in 2003. But they are deteriorating and we 
expect right now, if the Service doesn't get a postal rate 
increase, that it could hit the debt limit in 2002.
    By the way, the answer is not simply to raise rates. It is 
a more fundamental, structural issue that we need to look at 
here, because you could simply raise rates and deal with the 
short-term problem. That is dealing with the symptom rather 
than dealing with the disease. We need to deal with the 
disease, I think.
    Mr. Burton. Mr. Davis.
    Mr. Davis. Thank you very much, Mr. Chairman.
    Mr. Walker, you indicated that if the Service is to reach a 
break-even point, in all probability, that is going to occur 
through a rate increase, although you have indicated that you 
would suggest or hope that would be the last thing that would 
happen or that every effort should be made to minimize that 
occurrence.
    You also indicated that one of the ways of generating new 
revenue or additional revenue is through services and products. 
But we note that the Postal Service has had a difficult time 
generating real money with services and products.
    Given those facts, do you see any way other than perhaps 
through a rate increase that the situation can be reversed?
    Mr. Walker. I think we need to look at a range of options. 
I think we need to look at opportunities for cutting costs, for 
enhancing productivity. I think that the Congress needs to 
consider looking both on the rate-setting side as well as some 
of the restrictions that are imposed on the Postal Service with 
regard to automatically going to binding arbitration and some 
of the issues that affect its cost structure.
    What you can do to provide reasonable flexibility to the 
Postal Service to allow it to try to transform itself, working 
with its stakeholders while providing appropriate 
accountability for results.
    I think there are opportunities for economies, for cost 
cutting, for productivity improvement. But at the same point in 
time, I think there are some structural impediments that the 
Service faces that are going to have to be addressed in order 
to try to enable it to pursue certain things.
    You are right, also, Mr. Davis that historically, at least 
based on our experience, many of the efforts that the Postal 
Service has made to try to get into different products and 
services have not resulted in additional margin. They have not 
resulted in helping the situation and in some situations have 
hurt.
    Mr. Davis. You know that in almost any business situation 
when we start talking about how to come out of a dilemma, 
immediately we think of cutting costs, that is reducing the 
requirements for operating.
    Do you think we can cut costs and at the same time continue 
to provide the high quality of service that we have heard some 
Members allude to that they have been able to receive and 
benefit from?
    Mr. Walker. Well, clearly, the Postal Service, I think, has 
done a good job. It has improved its on-time delivery over the 
past several years. Customer service, in general, customer 
satisfaction rates have generally been positive and generally 
have been moving in the right direction, if you will.
    So, I think we want to try to minimize postal rate 
increases and maintain quality and reliability of the Service. 
I do think, however, that we need to look at more market-
oriented approaches to things like rate setting, considering 
price elasticity a lot more than has been the case.
    In other words, obviously, to the extent that you end up 
raising rates on certain types of postage, in some cases it 
could have a very serious effect on the volume and in other 
cases it won't have a serious adverse effect on the volume.
    On the other hand, if you look at the cost side, I think we 
also have to look at what benchmark is being used to set labor 
wage rates. What is the benchmark that is being used to 
determine that those rates are fair? To what extent is it based 
on skills, knowledge and performance? To what extent is it not 
based on those factors?
    I think we also have to look at things compared to other 
countries and other systems because everything in the world is 
relevant. We have to learn from them. What are some of the 
things that they did in order to try to minimize costs while 
maintaining reliable service? We are doing some work in that 
area. I think it can help this committee tremendously in trying 
to deal with some of these issues.
    Mr. Davis. Finally, if I could, why do you think the 
Service has had not as much success as desirable in generating 
large amounts of revenue with its new products or services?
    Mr. Walker. I don't know how much market testing there has 
been. You might want to ask the Postmaster General that 
question. But it is not clear to me that there has been a 
significant amount of concept testing, market testing in 
advance of some of these products and services that normally 
you would see in the private sector, that would occur.
    Mr. Davis. Thank you very much, Mr. Chairman. I am just 
wondering if sometimes we are not really whistling in the wind 
in terms of reaching for what is not there when we try to come 
up with other approaches and other ways.
    Thank you very much.
    Mr. Burton. Mr. McHugh. We will continue until we get to 
the 5-minute mark and then we will recess for the vote.
    Mr. McHugh. Mr. Walker, thank you for being here. Again, I 
appreciate the work and the effort that GAO has provided on 
this very important issue, certainly in the past 6 years that I 
have been working on it and that effort continues today.
    Let me ask you a general question with respect to all these 
dire predictions. I have read your testimony and I understand 
you are currently analyzing them in-depth. But have you seen 
anything in your studies thus far that would suggest to you 
that the $2 to $3 billion estimate the Postal Service is 
currently projecting is in any way unreasonable or likely far 
too high?
    Mr. Walker. We are still analyzing the projection. I can't 
draw a conclusion at this point in time. Nothing has come to 
our attention that I am aware of that would cause us to say 
that it is unreasonable. It is also based on no increase in 
postal rates as well.
    The biggest uncertainty associated with that projection is 
frankly, the Postal Service doesn't know and frankly nobody in 
America knows how soft the economy is going to get and how long 
it is going to last. That is probably the biggest uncertainty 
that exists.
    Mr. McHugh. I appreciate that. Obviously, you have said 
here many times that certainly one of the major challenges of 
many, and one of the more frustrating things about this 
problem, is that it is so multi-faceted. Some of my colleagues 
like to talk about productivity. Others like to talk about 
confining unnecessary, in their view, competition, etc.
    But clearly one of the major problems is the fact that the 
structure, as you call it, the need for structural reform, is 
one that has been in place for 30 years. Would you agree with 
that?
    Mr. Walker. That is correct. I mean, the world is 
fundamentally different than it was 30 years ago. The type of 
competition that the Postal Service is facing is very 
different. There are several foreign countries that have postal 
services offices on our soil. They are starting out at first to 
be able to get some of the international bulk market.
    There is nothing to preclude them from trying to be able to 
cherry pick some of the domestic market through contracting 
type activities, etc. I think we have to keep that in mind.
    It is just a whole new ballgame. The other thing is that on 
the productivity front there has been, it is my understanding 
through speaking with my very capable staff, that there has 
been only about an 11 percent productivity increase since the 
early 1970's in the Postal Service.
    Now, to its credit, last year I think the Service had about 
a 2.4 or 2.5 percent increase, which is maybe the best year 
ever and clearly one of the better years. But their service's 
ability to sustain productivity increases over time has not 
been good in the past and obviously it is something we hope can 
happen in the future to keep down prices.
    Mr. McHugh. Yes, I believe it is the largest since 1993, 
and I think that is a tribute to the current Postmaster 
General. It is a little difficult to get too terribly 
productive in a $60 billion a year industry when 76 or 80 
percent of your costs are driven by the employees.
    You do have a very aggressive automation underway. Mr. 
Otter mentioned some shortfall figures. They did spend over $5 
billion; I think most of us agree that is a lot of money, even 
on Capital Hill. But when the core of your service is to walk 
that individual to every household in America, unless you give 
them roller blades, productivity is a little hard to achieve, I 
would think.
    Let me just finish up with a couple of comments. I think, 
my colleagues, we have to remember that when we get caught up--
and I am a Republican and I am proud of that fact, we have to 
remember the phrase ``competing against the private sector.'' 
We should always pause and ask ourselves, who is competing 
against whom.
    I think our constituents, when they go to the Postal 
Service want to be able to buy certain services and certain 
products like envelopes and boxes and want to be able to mail a 
box at the Postal Service and most of us would expect them to 
do that.
    There are a number of great delivery companies in the 
private sector. I think we have to be cognizant and sensitive 
to their positions as well. But the fact of the matter is that 
we have allowed the Postal Service one door to exit their 
current conundrum. Then we sit around and criticize them for 
walking out the door. Coffee cups and novelty tee shirts are 
probably not the best idea. I think it was a show of 
desperation by the Postal Service to try to generate revenues. 
Thankfully, they have ended that. We do have to level the 
playing field.
    Our bill required taxes on their competitive products and 
gave increased oversight to the PRC. Subpoena power required 
them to operate under Anti-Trust Provisions. There were those 
who were deeply concerned about the recent FedEx-USPS 
partnership and such.
    But at the end of the day, the reality is that they are 
operating in a 30-year old paradigm that doesn't work any more. 
It doesn't work for either the Postal Service, those folks who 
depend upon them, or those folks who choose very effectively to 
compete against them.
    When you have a Postal Service that can't, under law, put 
itself up for winning the Federal Government contract for 
overnight-urgent mail, I think that suggests that we have to do 
some things that will allow them to operate differently and 
require them to operate differently. I hope we can come to that 
agreement.
    Mr. Chairman, again, thank you for your leadership.
    Mr. Burton. Thank you, Mr. McHugh. We are going to rely on 
your research and previous commitment as subcommittee chairman 
on this legislation that we are going to be working on.
    Mr. McHugh. You are too good to me, Mr. Chairman.
    Mr. Burton. Mr. Cummings.
    Mr. Cummings. Mr. Chairman, we only have about 8 minutes to 
vote. Do you mind?
    Mr. Burton. No. If you like we will be glad to recess and 
you can speak when we come back.
    Mr. Cummings. I appreciate that.
    Mr. Burton. We will stand in recess. We have two votes on 
the floor. I apologize. This is one of the problems we have to 
deal with in the legislative process. We will be back in 20 or 
25 minutes.
    We stand in recess until the fall of the gavel.
    [Recess.]
    Mr. Burton. General Walker, over the years the General 
Accounting Office has done considerable work on the Postal 
Service's finances and its delivery performance. To what extent 
will the Postal Service's current financial situation impact 
the delivery of the mail? Do you have an answer to that?
    Mr. Walker. There does not appear to be an immediate threat 
in any way to the Postal Service's ability to continue to 
deliver the mail. The simple fact of the matter is that while 
it is losing money, it has lost money before and it still has 
borrowing authority.
    But the fact of the matter is that we project, at least 
based on the information we have been given so far from the 
Postal Service, that the financial situation will become 
particularly critical at the end of 2002.
    What we think is important is to recognize that we need to 
deal with the structural problem here. Yes, we need to improve 
productivity. Yes, we need to cut costs. Yes, we need to try to 
minimize rate increases.
    But in order to try to accomplish all of those objectives, 
it is not only certain management actions that are going to 
have be taken. Certain legislative reforms are going to have to 
be necessary as well.
    Mr. Burton. Let me ask you this question and then, Mr. 
Cummings, I think you were next. I apologize. I will yield to 
you.
    Seventy-five to eighty percent of the total costs of the 
Postal Service are personnel. We have tried over the years to 
encourage automation. I think they have taken steps to use new 
technologies and automation to speed up delivery service.
    It seems that with the new technologies that we have, there 
could be more use of automation and technology. Without 
disrupting the personnel that works for the Postal Service, it 
seems to me, and maybe you have done some research on this, 
that through attrition, through people retiring, through people 
leaving the Postal Service, I don't know what the figures are 
per year, if you can't give me that, maybe the Postal Service 
can, let us say that out of 900,000 employees there are 60,000 
that leave in a year, maybe even more than that.
    It seems that there could be an incremental change from 
heavy use of personnel for certain delivery processes to a 
heavier reliance on automation and without firing people or 
laying people off, just through attrition and retirements and a 
transfer to automation we could make the kind of economies that 
we see in the auto industry.
    In the auto industry, I think they did it with layoffs. I 
am not saying we should do that because I think we have great 
people in the Postal Service and through attrition you could do 
that. But they went to robotics, instead of having people 
putting screws and bolts in on the assembly line.
    Why can't that be done in an orderly fashion and reduce 
costs? If it can be done, why isn't it being done?
    Mr. Walker. Well, clearly technology is part of the answer, 
additional use of technology. It is my understanding that the 
Postal Service has ended up doing more in the area of 
technology with regard to first-class mail, to try to automate 
more of that type of activity.
    But you properly point out that it costs money in order to 
be able to design and implement the new technology. Ultimately, 
if you are going to achieve the productivity increase and 
reduce overall costs, it has to come from some place.
    You properly point out, Mr. Chairman, 75 to 80 percent of 
the costs of the Postal Service deals are people costs. 
Therefore, ultimately you are going to need to get that cost 
down.
    What needs to happen is an integrated plan that focuses on 
desired outcomes, that focuses technology investments along 
with strategic work force planning so as much as possible you 
can do what you just said? Based upon attrition, you can end up 
hopefully being able to save money through attrition, and use 
technology to increase productivity.
    I don't know that plan exists, quite frankly, Mr. Chairman. 
That is something you ought to ask the Postal Service.
    Mr. Burton. We will address that to the Postal people and 
the Postmaster General when we get a chance.
    Mr. Cummings.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    Comptroller General, I just want to thank you for your 
testimony. It has been very enlightening, to say the least. You 
know, as I listen to you, you made a number of comments which 
led me to believe, you know, I kept saying, is this operation 
run like a corporation? Because it seems to me if it were truly 
run like a corporation, either it would be out of business or 
it would be doing pretty good.
    In other words, you talked about a number of the issues and 
it seems as if, if there were certain key folks in certain 
positions that had certain responsibilities you wouldn't have 
things such as these nontraditional efforts to raise money and 
things of that nature.
    In other words, it seems to me that you would have methods 
by which you could control what you are doing and, at the same 
time, change as society changes and as technology changes. It 
seems like something is out of kilter there.
    Mr. Walker. The Postal Service has a lot more restrictions 
placed on it, both on the rate-setting side or the revenue 
side, and on the labor side than would exist in the private 
sector.
    For example, if you take on the rate side, there are a 
number of factors that the Postal Rate Commission can consider, 
and in fact that it does consider, in setting rates. But a lot 
of it is driven by cost and the desire to minimize overall 
rates, which we all can agree to.
    In the private sector, I know you would see a lot more 
market oriented consideration in determining what you are going 
to end up charging for particular classes of mail. You would 
see a lot more consideration on what the likely rate increase 
would have on volume, the elasticity issue.
    You would try to minimize overall rate increases, but what 
you would also see is you would see a circumstance where the 
rate increases would be geared more toward areas where there is 
less competition and where it is less likely to have an adverse 
effect on volume, which obviously could cut revenues.
    On the labor side, clearly collective bargaining is very 
important. We want to support collective bargaining. You want 
to have cooperative labor-management relations. That hasn't 
always been the case at the Postal Service and other entities 
as well.
    You generally don't find circumstances in the private 
sector where statutorily you are required to go to binding 
arbitration if the parties reach an impasse.
    Take the FAA, the Air Traffic Controllers, that obviously 
is a vital function for the public, just as postal workers 
provide a vital function for this country for reasons that I 
articulated. But the FAA, Air Traffic Controllers don't have 
binding arbitration if they reach an impasse.
    Now, part of the problem is, if you are not going to do 
that, if you go through mediation, where is it going to go? In 
the case of the FAA it comes to the Congress. That is 
problematic, too.
    So, I think what we need to do, Mr. Cummings, is there 
needs to be a plan that recognizes we have to try to minimize 
costs, we have to try to increase productivity, we have to try 
to minimize rate increases and there are things that can and 
should be done administratively within the context of current 
law.
    I also think we have to look at what type of legislative 
reforms might be necessary, given the passage of 31 years and a 
fundamentally different economy to try to look at some of the 
framework and see if that framework might have to be modified 
in light of changes in the economy and in light of increasing 
competition.
    Mr. Cummings. I have just one other question. Let us assume 
you had maximum cooperation from the Congress and you were able 
to do the things that you think you need to get done to 
accomplish what you want to accomplish here, what kind of 
timetable are you talking about in turning it around so that 
you are operating in the black? Not you, but I mean the Postal 
Service.
    Mr. Walker. The Postal Service, yes.
    Mr. Cummings. You are such an expert, you sound like you 
need to be in the Postal Service.
    Mr. Walker. I have already got a good job, Mr. Cummings.
    Mr. Cummings. I thought maybe you were looking for a night 
job.
    Mr. Walker. I have a night job already, too. Last week Mr. 
Horn tried to make me chief operating officer of the U.S. 
Government. I told him I had a good day job and a night job, I 
might add.
    But in any event, I do believe, as we say in our testimony, 
that it is incumbent upon the Board and management to come 
forth with a proposal. But I think we need to have a clean 
sheet of paper here.
    I don't think we can necessarily assume that the past 
problems or obstacles that have existed, including relevant 
political considerations, I think we have to at least put those 
options on the table. I think we have to talk about them 
because ultimately we have to make this situation more relevant 
for the 21st century.
    We are not going to be able to get around that. It is just 
a matter of when we are going to come to that realization and 
when we are going to act on it.
    Mr. Burton. Thank you, Mr. Cummings.
    Mr. Clay.
    Mr. Clay. Thank you, Mr. Chairman. Mr. Chairman, at this 
time I would also like to request unanimous consent to submit 
my opening statement for the record.
    Mr. Burton. Without objection.
    Mr. Clay. Mr. Walker, thank you today for your testimony, 
also. You have several questions I would like to go through 
with you. What steps can the Postal Service take to ensure that 
their e-commerce activities will result in a positive return on 
investment and how long can the Postal Service pursue these 
initiatives if they don't make money.
    [The prepared statement of Hon. Wm. Lacy Clay follows:]

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    Mr. Walker. Mr. Clay, I would be happy to provide something 
for the record on that but I can't answer it right here at this 
time.
    Mr. Clay. Do you know how much money they are losing on 
these activities?
    Mr. Walker. On the e-commerce activities, I don't. We 
recently received some information. I think one of the things 
that has to happen in general in government, including the 
Postal Service, is to move more toward activity-based costing 
where we have more information with regard to types of products 
and services and functions. Postal has more than most, but not 
enough.
    Mr. Clay. Along those same lines, how much money is the 
Postal Service counting on from its new products and services?
    Mr. Walker. Mr. Clay, I would respectfully suggest that 
they would be in a better position to answer that than I would.
    Mr. Clay. OK. Last September, GAO made several 
recommendations to address a number of inconsistencies and 
problems it found with information the Postal Service provided 
on its e-commerce activities. What action has the Postal 
Service taken to respond to GAO's recommendations?
    Mr. Walker. If it is all right, Mr. Chairman, I would like 
Bernie Ungar to come up who I think held his hand up earlier. 
He leads our work in the Postal area. He might be able to 
address it.
    Mr. Ungar. Mr. Cummings, as you indicated, we did make 
three recommendations to the Postal Service. I think one of the 
most important ones was for the Postal Service to get a better 
handle on its revenues and expenses from its e-commerce 
products.
    The Postal Service did agree with all of our 
recommendations, that one in particular. It has taken action to 
implement a new system to collect and allocate costs and report 
revenue.
    We just got information recently from the Postal Service, 
so we have not had a chance to assess it yet. But we are 
certainly pleased that the Service took our recommendations to 
heart.
    Mr. Clay. So, do you think they will make money off of 
their activities?
    Mr. Ungar. We are still analyzing that. The information to 
date would suggest that the Service is still having problems 
making money, but again, we are in the early stages at this 
point.
    Mr. Clay. Mr. Walker, the Postal Service was recently 
chastised for approving over $200 million in bonuses for 
managers. How typical is this sort of behavior when every 
dollar is needed to cover necessary and critical expenses?
    Mr. Walker. I am not intimately familiar with the bonus 
system that the Postal Service has. I do, however, know that it 
is based on somewhat of a balanced scorecard approach. It has 
specific measures that are set in advance and include results, 
financial performance, on-time performance, and certain 
employee-related issues as well.
    In the private sector generally you would find that it is 
important to have a well-defined plan that has balanced 
measures, that considers profitability but also considers other 
factors like productivity improvement, which I know there is a 
factor at the Postal Service.
    We would be happy to take a look at it, if you like, Mr. 
Clay, but it is my understanding that it is a plan that has 
existed for some time.
    It is not unusual to see bonuses paid in the private sector 
when a company is losing money, because it depends on whether 
it is intended to be a profit-sharing arrangement or whether or 
not the bonus structure is based upon other measures that, even 
though they may not result in immediate profit, may end up 
resulting in positive outcomes over time.
    But without reviewing the exact program, it would be tough 
for me to tell where I think that stacks up.
    Mr. Clay. So, irrespective of the $3 billion deficit that 
is being projected, it is OK to pay the bonuses. Is that what 
you are saying?
    Mr. Walker. What I am saying is merely because they are 
paying bonuses doesn't tell me that there is a problem. What I 
would want to do is to look at what is the nature of the bonus 
program. How is it set up? What are the key measures? How well 
are they defined? How reliable is the information and how do 
these bonuses compare to other comparable entities, if you 
will.
    Mr. Clay. Mr. Walker, one final question. The Postal 
Service has reported that its worker compensation expenses are 
increasing substantially and are difficult to control. Why are 
these costs increasing so dramatically and what efforts are 
underway to bring them under control?
    Mr. Walker. I think the Postal Service would be in the best 
position to answer that, but I will tell you this: We do have 
concerns about this issue. We do have concern about the so-
called ``lost days'' rate. How many lost days does the Postal 
Service have on average per worker per year?
    As you probably know, Mr. Clay, Treasury Secretary Paul 
O'Neill is a big proponent of focusing on these issues, as I 
am. This was one of his lead efforts when he was chairman and 
chief executive officer of Alcoa.
    I think that is an area that clearly has to be focused on 
to a greater extent. It also could be a combination of what has 
occurred over years when there hasn't been as positive labor-
management relations and possibly some of the related stress 
factors.
    Bernie.
    Mr. Ungar. Last year one of the major reasons for the 
increase was in effect a speed-up by the Department of Labor in 
processing claims. We also have just begun work, at the request 
of Mr. Horn, to look at the Workers' Compensation Program. So, 
we are also trying to get a handle on what is actually causing 
those problems and the increases and what can be done to 
prevent the increases.
    Mr. Burton. Thank you, Mr. Clay.
    General Walker, thank you very much for being here. We 
really appreciate it. We will probably be back in touch with 
you in the future.
    Mr. Walker. Thank you, Mr. Chairman.
    Mr. Burton. Postmaster General Henderson, would you come 
forward? I understand you have an association with you who 
might want to answer some questions as well. As always, we will 
swear you in before you sit down.
    [Witnesses sworn.]
    Mr. Burton. Make no mistake about it; those Members who are 
not here will be aware of everything that is said. There will 
be some of these Members coming back. This is Wednesday and we 
are going on a 2-week break, so there will probably be a lot of 
the Members who are leaving.
    This is very important and the gravity of the situation 
with the Post Office will be conveyed not only to the Members 
of the committee who are not here right now, but to the 
leadership and the White House. I intend to contact the White 
House because I am not sure they are aware of the shortfall.
    I was just informed, and maybe you can address this in your 
opening remarks, General Henderson, that the shortfall of $2 to 
$3 billion may be under-estimated. It could be as high as $4 to 
$5 billion from what I have been told. So, if you could address 
that in your opening remarks, I would really appreciate it.

 STATEMENT OF WILLIAM J. HENDERSON, POSTMASTER GENERAL OF THE 
                      U.S. POSTAL SERVICE

    Mr. Henderson. Thank you, Mr. Chairman. I am very glad to 
be here today to talk about the Postal Service. I am pleased 
that after 30 years of working in the Postal Service next month 
I will be leaving.
    I want to thank you for your help in trying to push reform 
and former Chairman McHugh's help in trying to push reform. I 
think that is critical to the future of the Postal Service.
    I also want to thank the 800,000 employees across America 
who work for the Postal Service for their outstanding customer 
satisfaction scores of 92 percent customer approval. That is 
the highest in the Federal Government and also for their on-
time service performance with externally measured first class 
mail, which is 93, and for 14 quarters has been 93 or better 
all across the Nation. That is excellent work that these 
employees do.
    My disappointment of my tenure as a 10-year Postmaster 
General is the fact that we didn't get postal reform. We have 
talked about what is happening today for the last 4 or 5 years. 
We have talked about the fact that there is going to be a 
decline in demand for postal products 1 day and the Postal 
Service has to be given tools to avert that.
    I have been in Congress talking about this theme. Today, 
you are seeing it as a reality. I will put up slide No. 1. I 
will just show you something that drives Postal costs. It is 
something, Mr. Chairman, that you mentioned earlier.
    If you will look at that graph, you can see that the red 
line is the cost per work here and the yellow line is the net 
income. There is a direct correlation between cost per work 
year in the Postal Service and net income.
    If you take revenue per piece, which is the price of 
postage and go back 30 years, you will see the price of revenue 
per piece tracks identically to the cost per work year. So, 
there is the driver.
    If you will go to slide No. 2, you will see that the yellow 
cylinders are the actual growth and the red part is the planned 
growth. You will see AP-5, 6 and 7, that is after the rate 
increase. You will see that revenues are well below planned 
after the rate increase.
    If you will go to slide No. 3, the point of this slide is 
that over the last 2 years we are processing 8 billion more 
pieces of mail, 3.1 more million deliveries with 20,000 fewer 
employees. So, you can see the impact of automation on the 
Postal Service.
    Finally, the last slide, this is a slide that explains 
exactly where we are today. The yellow line is where we 
projected the $480 million loss. You see the top line there. 
When we received the opinion from the Postal Rate Commission, 
we adjusted that line to $1.3 billion, accounting for the $800 
million that you mentioned in your opening statement.
    When we had actual performance in quarter one, which is the 
green line, you will see that expectations for revenue were 
very low. Now, we are projecting out between $2 and $3 billion 
right there. But if the economy goes south even from where it 
is today, postal mail volume is a surrogate for the economy, it 
could be worse.
    I just want to be candid with you. We can't do much about 
that revenue line as it stands today. We don't have any tools, 
really to effect the revenue. We just have to adjust our costs 
and our expenses. That is where you see some of what would be 
characterized as more radical things being talked about.
    We have to respond to lessening revenues. We talked about 
this as being a major problem in the reform hearings that 
former Chairman McHugh conducted. We talked about the fact that 
today it happens to be the economy. Tomorrow it could be bills 
and payments, the $17 billion being taken away from the Postal 
Service. It has to have tools to adjust. Without those tools, 
unfortunately, rate increases come along.
    The Postal Service, as a matter of policy, doesn't like 
raising rates. We have some options that we are going to look 
at for this upcoming talked about rate case.
    But nonetheless, the problem exists; the problem of 
declining revenues is a fact in today's economy. I know you 
will understand this because you have been a part of that 
discussion.
    That is where we are today, Mr. Chairman. Thank you.
    [The prepared statement of Mr. Henderson follows:]

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    Mr. Burton. I know how hard you have worked trying to get 
postal reform through. A number of us in the Congress have been 
supportive of what you wanted. We have not always been able to 
have the kind of bipartisan support for one reason or another. 
I am not blaming Democrats or Republicans. I am just saying it 
wasn't there.
    Congressman Waxman and I think Congressman Davis, as well 
as the Republican Congressmen, I think are more committed today 
to reform. We are a little bit late, but hopefully we can get 
something done.
    But I wanted to point out to you something that I just saw 
today. Have you seen one of these?
    Mr. Henderson. What is it?
    Mr. Burton. It is a device that you can e-mail from 
anywhere in the world. You can just carry this with you and if 
you want to send a message to your wife or your girlfriend.
    Mr. Barr. Mr. Chairman, I would like the record to reflect 
that I do not use that to send messages to my girlfriend, only 
official duty.
    Mr. Burton. I am sure you don't.
    Mr. Barr. Only official duty.
    Mr. Burton. E-mails are easily traceable any more, as I 
know.
    Mr. Barr. That is precisely the point.
    Mr. Barr. In any event, with this kind of technology, and I 
will be expressing this to my colleagues on both sides of the 
aisle, with that kind of technology the Postal Service is 
definitely in a very competitive area.
    The thing that troubles me, and maybe you can explain this 
a little bit; you are talking about losing some market share 
now. You are talking about declining revenues probably in part 
because of the technology.
    But with these kind of technologies, not only e-mails, but 
with faxes, if they raise postal rates, let us say another 2 
cents a letter for first class mail or 4 cents or whatever they 
decide to do, is it not logical to assume that more people will 
be sending e-mails, which is much less costly, than to just 
continue to buy stamps just because of the cost?
    Won't more businesses start doing that?
    Mr. Henderson. I think the general trend, regardless of the 
rates for postage, is going to be to use more electronic 
services as opposed to hard copy. There is though, the very 
effective ad mail, advertising mail. There is a lot of 
technology around that. That is going to grow remarkably, I 
think. Because they can still reach your mailbox. They have a 
lot of data about you. It has high privacy to it. It has 
terrific prospects for the future.
    For packages, we still are the cheapest available 
residential pick-up and delivery organization in the United 
States. So, I think there are opportunities there. The 
elasticities based on pricing, they are sensitive.
    If you look back at every rate case, all except for the one 
that we raised rates across the board 10.3 percent, volume has 
declined before it came back. So, there is a concern there 
about that.
    Mr. Burton. My assistant was just pointing out that 
standard e-mail is 17 cents and it is much less profitable than 
the first class mail.
    Mr. Henderson. Yes, in terms of total profit, not margin, 
but in terms of total moneys we get from it. Yes, that is one 
of the phenomena we are having right now, that we are trading 
what was our growth product, first class mail, 34 cents, for 17 
cents for standard at standard A. So, we are delivering mail to 
your mailbox that is generating a lot less revenue for us. That 
is a big concern.
    Mr. Burton. Well, if you raised the rates on that class of 
mail as well as first class mail, won't that cause a potential 
decline in that revenue source as well?
    Mr. Henderson. That is right. There is a potential decline. 
But that is the only tool, absent rate reform; I mean that is 
the only tool that the Governors have to ensure the fiduciary 
responsibility that they have been entrusted with by the 
President. That is the one tool they have.
    We can cost-cut our way. We can close, you know, if you 
look at Post Offices, there are opportunities there. 26,000 of 
the smallest Post Offices in the United States, it takes over 
$2 to take in $1. You have some places like Cape Cod where you 
have seven townships and 53 Post Offices.
    So, there are some infrastructure inefficiencies.
    Mr. Burton. But those are stopgap measures, are they not?
    Mr. Henderson. That is right.
    Mr. Burton. I mean that is a one-time thing. You might save 
$1 billion in 1 year or maybe $1.5 billion. But the problem is 
going to continue and once you have eliminated that problem, 
you are still going to have the revenue drain you are talking 
about.
    Mr. Henderson. That is right. You have to have reform.
    Mr. Burton. We are trying to figure out how to put together 
a bipartisan package. You know, the Postal Reform bill, H.R. 
22, didn't get the support that it needed for a number of 
reasons. It should have, but it didn't. So, we are going to try 
to come up with a different approach.
    I want to ask one other question and that is, we were 
talking about automation and new technologies helping replace 
the huge amount of revenue that is paid for personnel. What I 
was suggesting earlier is that the 75 to 80 percent of the 
costs are personnel cost, personnel-related, retirement 
benefits, health benefits, as well as salaries.
    If you had everything the way you wanted it, if everything 
tomorrow could be changed the way you wanted it, could we, 
through retirements and normal attrition, transfer to a more 
automated system so we would still have the Postal delivery 
system, but through a more automated system as far as handling 
the mail is concerned that would be able to generate enough 
savings so that we would not have to have these Postal rate 
increases?
    Mr. Henderson. It depends on what the outcome of binding 
arbitration is on your remaining workers. We have a huge effort 
underway for automation. In fact, if you look at letter mail, 
mail processing costs, that are where the focus has been, with 
the billions of dollars. You will see that the actual costs are 
declining in that area.
    But if you are going to get wage increases of 4, 5 or 6 
percent annually and keep doing that, it is just like going 
from a push mower to a riding mower but paying three times as 
much money. You are not netting out on the bottom line. So, you 
have to get a handle on your work hour costs.
    Mr. Burton. So you are suggesting what in the area of 
binding arbitration?
    Mr. Henderson. Well, I think that is right ought to be an 
alternative to binding arbitration.
    Mr. Burton. Such as?
    Mr. Henderson. Well, there is the Railway Labor Act. You 
could think up a new way of settling disputes. I think that the 
voice of the customer needs to be heard in the outcome of a 
labor dispute and not just an arbitrator saying, hey, I am 
cutting the baby 50-50 or I am going to give them the average 
wage increase across America.
    I think that process needs to be re-examined and relooked 
at. I think labor's voice needs to be heard. I am not knocking 
collective bargaining. I think collective bargaining is 
important. I am just trying to figure out a new way to resolve 
the dispute process that doesn't result in these extraordinary 
work hour increases that drive rates.
    Mr. Burton. Have you discussed with the labor leaders in 
the Postal Service the problem that they are facing with 
alternative sources of correspondence and how that will affect 
them if that is right isn't some kind of change in the binding 
arbitration?
    Mr. Henderson. Well, I have talked with them about the 
future.
    Mr. Burton. I mean being priced out of the market place. We 
have seen in industries like the auto industry where many 
companies are going offshore. Well, you are not going to go 
off-shore, well, you might even go off-shore with some of the 
competition that is coming into this country and opening up 
facilities, which was mentioned earlier.
    But you are not going to go offshore to build a Post Office 
like we do a car. But devices like the one that Congressman 
Barr has are becoming more and more in vogue and people are 
using them.
    If the labor force continues to price itself up, thus 
driving the cost of the service up, it seems that more and more 
people will be turning toward these alternative sources of 
communication.
    Has anybody, yourself included, discussed, sat down and had 
long discussions with the leaders of the unions about how this 
would affect them?
    Mr. Henderson. Yes. Our labor union leaders are well 
informed. In fact, they write about it in their magazines, 
about the future of the Postal Service and the need for Postal 
reform. I wouldn't say there is any agreement on an alternative 
to arbitration.
    They are very concerned. I don't mean to speak for them. 
But they are very concerned about the notion of eliminating 
collective bargaining. They are very much opposed to that. They 
wouldn't support anything like that and we're not proposing 
that. But they are concerned about the future and they do 
understand postal costs intuitively.
    Mr. Burton. It seems like to me that that is kind of like 
the Gordian Knot that Alexander the Great had to face. I am not 
sure what the answer is, but it seems to me at some point that 
is going to have to be one of the things we are going to have 
to sit down and figure out.
    We will try to talk to Mr. Gould and some of the other 
people who are in charge of the various unions and see what 
their suggestions are on how to deal with that.
    Your successor, whoever it happens to be, we will try to 
have them in the loop, too, and get everybody together. As I 
said earlier in my opening statement, it is extremely important 
that all segments of the Postal community, not only the Postal 
unions and the people who run the Post Office and the Postal 
Rate Commission, but also those who are involved in competition 
that would be effected by Postal reform legislation, need to 
sit down and try to work out their differences.
    Let me just ask a couple more questions here and then I 
will yield to my colleagues here.
    Do you agree with the decision by the Comptroller General 
to add the Postal Service to its high-risk list right now?
    Mr. Henderson. I agree with Mr. Walker in adding the 
transformation process. He didn't add the Postal Service. He 
added the Postal transformation process to his high-risk list. 
I think he should. I think the efforts that we have had in 
Postal reform and the fact that we have not been able to 
achieve reform and the conditions today and looking into the 
future, I think it warrants any help we can get. I am open for 
anybody to get on this bandwagon.
    Mr. Burton. Do you have any other recommendations to make 
to the Board of Governors or the new Postmaster General on what 
kind of actions can be taken to get the Postal Service off of 
that list and get things moving in the right direction?
    Mr. Henderson. I think it is going to take a cooperative 
effort between the management of the Postal Service, the Board 
of Governors, and the Congress, which plays a moving role, to 
come up with a strong bipartisan piece of legislation that will 
help the Postal Service and that it moves through Congress with 
the support of the American people.
    We can't do it by ourselves. We have shown that. We have 
also some legal restrictions and thus far, until you have a 
problem it doesn't seem that people want sit back and take 
notice. I think if they get rate increases in the summertime or 
a proposal, I think people will really take notice, and they 
should.
    Mr. Burton. Let me just say that unfortunately, one of the 
strengths and weaknesses of the legislative process is we 
usually don't respond until there is a shrill cry from some 
place. We should be a little bit more far-sighted, but it seems 
like we aren't.
    Mr. McHugh down there has been working on this and talking 
about this for a long time, as we have said. It has fallen on 
deaf ears and now we are into almost a crisis situation.
    Mr. Barr, do you have any questions right now?
    Mr. Barr. I do. Thank you, Mr. Chairman.
    Mr. Postmaster General, I appreciate your being here. 
Again, I would like to tell you directly as I said earlier, and 
I mean this very sincerely, I do think we have the best Postal 
Service anywhere in the world.
    Having lived and worked in other countries, I am very 
familiar with the fact that ours is better by far than almost 
any other and certainly better than every other.
    My experience, having been a temporary carrier during 
college, is very first-hand knowledge. That continues to this 
day. I meet frequently with postal employees and Postmasters in 
the Seventh District of Georgia.
    From time to time when we have a problem in management or 
with employees, it is my experience that the Postal Service has 
always been very receptive to working with us and working with 
a particular Post Office to straighten it out.
    My concerns, like yours, are certainly not with the 
employees themselves. They do an outstanding job under very 
difficult conditions sometimes.
    I share the concerns of other Members of this committee and 
I think, the general public, with some of the things we are 
seeing and reading about nowadays. It is not something new.
    I pulled up in our computer system a letter that I had 
recalled writing back in 1997 to Chairman McHugh. This was in 
response to a news report back in the middle of 1997 about the 
new Postmaster in Atlanta throwing a party for herself costing 
$45,000. It is that sort of abuse of the public's moneys that 
give us concern.
    I just saw, as I am sure you have, this article from just a 
couple of months ago about Postal Service executives using 
chauffeur-driven limousines. I would appreciate your comments 
on that, whether that has been cut out completely.
    Also, if you could, comment on the reports that I alluded 
to earlier with regard to the possibility of cutting back 
Saturday delivery. I think if there is one thing that the 
Postal Service can do that will guarantee its demise it is cut 
back or eliminate service on Saturday.
    I can't understand why something so self-destructive would 
even be considered. I certainly understand that you all have to 
look at cost-cutting measures. Certainly that is important. 
From time to time you have to consider raising the postage 
rate. I think all of us understand that. We may not always 
agree with the amount or the timing. But I certainly, for one, 
understand that does have to happen from time to time.
    I also understand that many of your costs, not all of them, 
but many of your costs are beyond your control, the cost of 
fuels, for example.
    So, I commend the Postal Service for exploring ways to 
streamline its operation, and encourage you to look at other 
ways of doing so. But I would urge you to look at constructive 
ways of saving money, not self-destructive ways.
    Again, I would think that looking at curtailing Saturday 
deliveries would guarantee that millions of Americans would 
seriously begin to look elsewhere for alternative ways to have 
their mail delivered.
    I would like to know what is the thought process that is 
going on that would lead to even considering something like 
that, given what seems to me to be the obvious self-destructive 
nature of it.
    Mr. Henderson. Let me go back to the first few issues. With 
80,000 managers and 800,000 employees, you are going to have 
instances of people abusing the rules of doing something that 
they should not do.
    I can assure you when that occurs, we work very closely 
with the Inspector General. We take immediate action. If we 
have to change the rules, we do that. If we have to discipline 
somebody, we do that. If we have to fire somebody, we do that. 
So, we are going to have instances of that. We are not proud of 
those instances. We take action as a result of learning of 
those things.
    With regard to Saturday delivery, what we are going to do 
is do an internal study to see how much Saturday delivery 
actually costs us and what savings are there. It is not a 
decision. A decision to curtail Saturday delivery has not been 
made.
    We have done this in the past. We did it in the 1970's. In 
fact, in the 1970's I was a part of the task force that looked 
at what Saturday delivery cost us.
    Then we are going to talk to our Board of Governors. They 
have asked us to put a value on it and we are. That is what 
they publicly asked us to do yesterday. Our operating people 
will do that.
    But there is no decision made today to eliminate Saturday 
delivery. There are some constituents of Saturday delivery that 
have to be considered, some voices. One are the newspapers. 
Newspapers rely on the Postal Service's Saturday delivery in 
many places. That is the only effective way they have of 
reaching their customers. There has to be some consideration of 
that.
    Another one would be remittance mail. Remittance mailers, 
people who receive their bills on Saturday are more likely to 
pay their bills right away than those who receive their bills 
on Monday. That is a study that the remittance mailers have 
made. So, there is obviously a financial impact on those folks.
    Those are things we are aware of. We are not going to be 
irrational here. We are going to be prudent. But we do have a 
problem. We have a problem that our customers are saying, 
``Don't raise rates, don't raise rates.''
    The demand for Postal products is declining.
    Mr. Barr. Mr. Chairman, could I just pose one quick 
followup question, please?
    I understand that the economy does have both an indirect 
and a direct bearing on the manner and frequency with which 
people use the Postal Service. It is the same as virtually 
every other service available to the public. I don't think that 
looking at curtailing Saturday delivery is irrational. It is 
super-rational, and that is the problem.
    It is looking at Postal delivery in terms of nothing but 
dollars and cents. Therein, I think, lies the problem. You 
could look at the dollars and cents of curtailing delivery 
every other day, I suppose, and one could come up with a super 
rational argument that, hey, it makes sense to do that. Let us 
do it.
    I think you are making a serious mistake even suggesting 
that you are going to open that can of worms. It is already 
causing, maybe not a firestorm, but a lot of people asking very 
serious questions about the Postal Service. It is drawing a 
tremendous amount of attention to you, not all positive.
    I think there is just so much room for improvement in other 
areas, why you would bite off that at the beginning of this 
exercise is something I don't quite understand. I would urge 
you all to move that off of the table. Look at these other 
areas and consider such drastic steps as curtailing Saturday 
delivery way down the road, if at all.
    You are doing more than just making some adjustments to 
save you money. You would be fundamentally altering what the 
Postal Service means to American citizens if you do that. I 
think that would be a fatal mistake for the Postal Service to 
do that. I don't think you ought to even go down that road at 
this point, even studying it.
    Thank you, Mr. Chairman.
    Mr. Burton. Mr. Davis.
    Mr. Davis. Thank you very much, Mr. Chairman.
    Mr. Henderson, let me commend you for what I think has been 
your ability to hold together a very complex system that was 
fraught with many needs and problems. While it is easy for 
people to throw darts from the outside, sometimes when you get 
on the inside, you see things a little differently.
    I think that you have demonstrated real management skill 
and insight in terms of being the keeper of a complex system 
and a complex process and especially the fact that we have seen 
some improvements relative to on-time delivery.
    I commend you and your staff for the work that you have 
done.
    When we talk about change and we talk about changes and 
everybody is saying we need some legislative fix, one of the 
things I have also observed is that it is oftentimes much 
easier to say things than it is to do them. Oftentimes, after 
all is said and done, more gets said than done.
    So, it is easy to talk about the fixes. In your mind, when 
we talk about legislative changes or restructuring, what comes 
to mind?
    Mr. Henderson. Well, I think the two big targets are: One 
is pricing freedom and the other one is some solution other 
than arbitration to collective bargaining disputes. They are 
the two main drivers of the Postal Service. Those are two areas 
that I think need attention.
    We have talked about some other areas like the ability to 
introduce new products in a rapid way. We have talked about the 
ability to use our income for broader investments.
    If you look at the posts around the world, and I know, Mr. 
Chairman, you see a growing move to unleash these postal 
services, and I say ``unleash'' them because they go very 
aggressively into the commercial markets.
    I just had a meeting last week with Klaus Zumlichel who is 
the head of the Deutsches Post. He is the head of the largest 
logistics company in the world. He just bought the largest bank 
in Germany. He has an express mail business similar to the 
Postal Service's and then he has a mail monopoly. He owns 51 
percent of DHL.
    I am not suggesting that we ought to become Deutsches Post. 
But I am pointing out that the world is really changing 
rapidly. We are like a Third World country post. We have these 
31-year old laws.
    People ask me from foreign countries all the time, ``Why 
doesn't the Postal Service change its legislative construction? 
Why is it lagging behind the likes of Royal Mail and the likes 
of the TPG, the Dutch Post?''
    I really don't have an explanation for them. They come over 
here and they say, ``You are destined for just higher prices. 
You know, we have studied that model.''
    When I came to the Postal Service in 1972, we were the 
model for the whole world. Everybody was coming to the United 
States to see this new postal organization that was independent 
from government but still a part of government. Now they come 
here and they are shocked.
    Some of my colleagues in foreign posts have been there a 
long time and they just don't understand it. You know, I have 
been a voice for reform until my voice has almost run out. I 
don't know what is going to precipitate it, I really don't. But 
I think those areas of pricing and controlling our labor costs 
are imperative.
    Mr. Davis. It seems to me that a part of our financial 
difficult has come as a result of our inability to deliver on 
promised savings, I mean where projections were made that we 
were going to be able to reduce costs. And we have not been 
able to deliver on those promises.
    Could you share why we were not able to deliver on those 
promises?
    Mr. Henderson. Well, I think we have done a better job than 
we get public credit for in terms of delivering. We talk about 
labor productivity. We have had positive labor productivity in 
1997, 1998 and 1999. In a year of declining mail volume, we 
have positive productivity this year. Last year we had the 
highest productivity we have had in 9 years.
    The difficulty is that you are wage rates go up beyond your 
productivity levels. Therefore, you net out at a cost. That is 
a fundamental issue with the Postal Service.
    And, there are a lot of fixed costs in the Postal Service. 
We come to your house, for example, we send a letter carrier by 
every day, regardless of whether they have 50 pieces of mail or 
5; when they have 5 pieces of mail, you lose a lot; when they 
have 500 pieces of mail, you make some money.
    So, the infrastructure itself, it is a service to the 
American people, but it has built-in inefficiencies in it. You 
are not going to not get mail. I don't think anybody here is 
suggesting that we not deliver to everyone every day. In doing 
that, if you don't have a robust mail system, it loses money.
    I will give you another example of the business cycle. We 
make all our money in the first two quarters of our fiscal 
year, September through quarter two. Our fiscal year begins in 
September.
    We lose money the remaining two quarters of the fiscal 
year. Somebody says, ``Why do you do that?''
    It is because mail volume dries up. The last two quarters 
of our fiscal year doesn't have the robust mail volume. It is 
like the water pressure in your house is going down and 
somebody says to you, ``Why don't you take out some pipes?''
    It is a fixed infrastructure and without robust volume, it 
is inefficient.
    Mr. Burton. Thank you, Mr. Davis.
    Mr. Otter.
    Mr. Otter. Thank you, Mr. Chairman.
    Mr. Henderson, I apologize for being gone while you were 
giving your testimony, however, I did read your very 
informative written testimony. I guess coming from Idaho I am 
not different than anybody else. You always hear from me when 
there is a problem. You don't hear from me when I get all my 
mail, especially all my bills, then you don't hear from me.
    But those are the questions generally that I think I am 
asked. I don't hear from anybody that says, ``Gee, the Post 
Office did a great job for me today.''
    I hear from them when they say that you are not doing a 
good job.
    One of the questions that I have relates to my opening 
statement. My opening statement referred to one of the highest 
cost or loss areas in the Postal Service, which seems to be the 
undeliverable mail or mail not deliverable at this address.
    The figure that I had was $1.5 billion. Is that 
representative? Is that about correct?
    Mr. Henderson. That is in the ballpark.
    Mr. Otter. But this is not a phenomena that just happened 
in the last few years. This is something that has been building 
and so it has been part of that almost $10 billion in total net 
losses that you are carrying on the books right now; isn't it?
    Mr. Henderson. The net loss is $3.4 billion.
    Mr. Otter. Aren't you carrying a loss of what I thought was 
in excess, with this year, pretty close to $10 billion?
    Mr. Henderson. You are talking about the negative net 
income?
    Mr. Otter. Yes.
    Mr. Henderson. Yes.
    Mr. Otter. OK. That has to be paid for somewhere, sometime.
    Mr. Henderson. That is right.
    Mr. Otter. You talked about the Deutsches Post. Are you 
familiar with the program they have, the Siemens Group has a 
national registry for the change in addresses, that technology?
    Mr. Henderson. Is that Fast Forward?
    Mr. Otter. Yes.
    Mr. Henderson. Yes, I am.
    Mr. Otter. Now that technology has been around for quite 
some time; hasn't it?
    Mr. Henderson. Yes.
    Mr. Otter. That technology seems to avert on-going costs 
that would add up to the $1.5 billion. Have you looked at that 
program?
    Mr. Henderson. Those are two separate issues. Undeliverable 
as addressed is mail that has the wrong address on it. Fast 
Forward says, I am going to move from Washington, DC, to New 
York City and when the mail is addressed to me in Washington, 
DC, it will automatically re-barcode the mail and send it to 
New York City.
    Undeliverable as addressed is just a service that we 
provide. We try to deliver mail to the address on the envelope. 
If that address is bad or doesn't exist, we obviously can't 
deliver it. We have to dispose of it. But they are two separate 
things. They are not the same thing.
    Mr. Otter. OK. So, then, take me through how it adds up to 
$1.5 billion loss. You have already got the 34 cents for the 
piece of mail that wasn't deliverable. Does it cost you that to 
store it or what do you do with it?
    Mr. Henderson. It costs us that to handle it. It is a cost 
to the Postal Service of handling mail that has a bad address 
on it. I can't tell you when we accept it if it is a bad 
address or not. When we sort it and we can't find the address, 
we dispose of the mail.
    In America there are 630 million pieces a day. There are 
going to be some bad addresses in that volume. That is just a 
part of the service that we provide.
    Mr. Otter. OK. Let us move to another area that is a cost. 
That is $300 to $500 million in advertising for a product on 
which the Post Office enjoys a total monopoly.
    Mr. Henderson. That number is not accurate.
    Mr. Otter. What would the number be?
    Mr. Henderson. It is $161 million and it is primarily 
devoted to the non-monopoly, the very competitive mail. When we 
don't advertise, our share of the market goes down. It 
measurably goes down. When we do advertise, our products grow.
    So, it is an essential to stay competitive. We have been 
doing this for years.
    Mr. Otter. There is one other area I would like to get in 
to that I mentioned in my opening statement, the byproducts 
that you produce, including the Internet high tech. How much 
has the Post Office spent to get into the e-mail?
    Mr. Henderson. Well, we have our own e-mail system, 
obviously, that we use for interoffice communications. I 
couldn't tell you off the top of my head how much it cost to 
install that e-mail system. I can tell you for the record. But 
it is a significant savings for us, being able to go to a 
computer and if I want to talk to my Chief Financial Officer, 
to be able to e-mail.
    Mr. Otter. No, I understand that. What I mean is, you don't 
offer an e-mail product available to the market place?
    Mr. Henderson. Yes, we do offer a secure service to the 
marketplace.
    Mr. Otter. Yet, then isn't it your testimony also that one 
of the things cannibalizing the first class mail system is the 
e-mail?
    Mr. Henderson. Well, e-mail is not having much of an impact 
on first class mail because correspondence had gone away before 
e-mail came along. I mean there is an assumption, and I think a 
logical assumption, by most people, that e-mail really banged 
us.
    People didn't write letters. By the time e-mail came along, 
people had stopped writing each other all across America. What 
e-mail represents is a technology that really leads to 
electronic data exchange, the B-to-B stuff, that has really 
been slowing down. That has affected us, but not just the 
general e-mail.
    Mr. Otter. But you are not offering that product?
    Mr. Henderson. We offer a secure e-mail, but not just the 
general e-mail. I think Social Security is the major customer 
of that right now. We offer several varieties. We have a stamp. 
We offer secure document services and those sorts of things, 
and we have revenue streams from them.
    Because they have upfront costs, they are not profitable 
yet. But we have been instructed by our Governors to create 
P&Ls for all of them. We implement all the GAO's 
recommendations, so we are watching them very closely. 
According to our market research they are promising, but they 
are not big deals.
    I mean on a $67 billion base these are very small 
initiatives. We are really focused on our core business. That 
is where the Postal Service is going to hang its hat. We are 
actually learning them.
    We have an e-bill pay service. One of the reasons we got 
into electronic bill paying was to understand it better because 
it is going to cannibalize the $17 billion of our core product, 
which is first class mail. We do understand it a lot better 
right now than we did before. It may not be the early threat 
that we thought it was going to be. But learning experiences 
for the organization are very important.
    Mr. Otter. Thank you, Mr. Henderson. I appreciate it.
    Thank you, Mr. Chairman.
    Mr. Burton. Mr. McHugh.
    Mr. McHugh. Bill, again, as I said earlier, thank you for 
your service. Thank you for the hard work you have put forward. 
I know all of us on the committee wish you well in your future 
endeavors, whatever they may be.
    Some of us may envy your escaping this current milieu but 
you have certainly served your time and done more than your 
part. You will go with our thanks.
    One thing I am a little unclear on is on part of your talk 
with Mr. Barr. If the large newspapers want Saturday mail, does 
that mean we keep it or get rid of it?
    Mr. Henderson. It doesn't mean we keep it. I was just 
pointing out that I have been talking to them and I know that 
they are not very fond of it.
    Mr. McHugh. I am not sure how we would vote on that.
    Let us talk a little bit about what Mr. Otter probed you 
on. I heard you correctly, I believe, that the largest share of 
your mail advertising goes to your competitive products. But 
clearly there is some direction toward your first class 
monopoly. What is happening to your first class monopoly?
    Mr. Henderson. It is eroding. I mean it is virtually 
irrelevant. If you were going to invest in a letter delivery 
company today, you could not raise the venture capital to do 
it. There are just too many other investments that have greater 
returns.
    The margins on a 34-cent letter are fractional. So, while 
we have protections that were relevant years ago, I think those 
protections today are not as relevant. Also, you have 
electronic alternatives.
    As Chairman Burton said, it is free, virtually free to send 
an e-mail or communicate with somebody electronically. That is 
going to occur, so the monopoly will be eroded over time.
    Mr. McHugh. So, if you are required to do something, even 
though I understand it is not a major portion of your budget, I 
don't think prudent business practices would suggest that you 
shouldn't advertise for something you are required to do and 
you are already losing money on it, so you don't want to lose 
share further. Would that be a fair statement?
    Mr. Henderson. That is an accurate statement.
    Mr. McHugh. I would like to talk about potential savings. 
Again, Mr. Barr's question, can I assume you don't know what 
the actual cost versus the supposed benefits of delivery of 
Saturday mail are at this moment?
    Mr. Henderson. Not at this second, no. But I will know 
within 90 days.
    Mr. McHugh. So, you are trying, which I think would be an 
important business practice, to assess a very important part of 
your delivery system and find out what the investment is versus 
the return?
    Mr. Henderson. That is right.
    Mr. McHugh. Let us talk about another part, another 
distasteful thing, but something I am wondering if you are 
looking at. You are currently on a self-imposed moratorium on 
the closure of Post Offices that are operating. You are limited 
by statute from closing smaller rural Post Offices, something 
that I am very interested in, solely on the basis of economic 
concerns.
    Has anybody looked at perhaps streamlining those 
organizations and possibly assessing if that moratorium were to 
go away what the cost of savings could be there?
    Mr. Henderson. Yes, we are looking at that. We are looking 
at the infrastructure, what we need and what 40,000 Post 
Offices cost us across the United States. How many do we need? 
You do most of your business in the largest 7,000. The 
remaining Post Offices are there as a convenience to America.
    As I said to Chairman Burton, in the 26,000 smallest 
offices of the 40,000, it costs over $2 to take in $1. That is 
a very expensive infrastructure. Yet, it is a presence. I 
understand the non-economic side of it. People feel like they 
are losing their identity when they close their Post Office, 
their sense of history.
    The two things that Americans dislike most in rural 
America, and you know this, too, is the fact when their 
newspaper closes or their Post Office closes. They feel like 
they are somehow lost. We understand that. But we have to 
examine every aspect of our infrastructure, what it costs and 
then we have to talk about it with our customers in the pricing 
mechanism.
    Mr. McHugh. Last, before my time runs out, you have 
recently made a commitment, for lack of a better word, to find 
savings in the elimination of 75,000 man-years over the next 5 
years. When roughly 80 percent of your costs are derived from a 
sole source, I think it is logical that in desperate times you 
look at that kind of saving.
    But I don't think you lose 75,000 man-years of service and 
not have some diminutive effect upon the service itself. Were 
you able to assess the tradeoffs that were involved in that 
kind of action?
    Mr. Henderson. Yes. We have not done anything yet that 
would affect the excellent service that Americans get all 
across this Nation. That would be a serious tradeoff. That is 
something, quite frankly, we were asked the day before 
yesterday by our Governors.
    We were asked to say, ``What does it cost to have 95 
percent''--and I am using this as an example--``95 percent on-
time delivery in Washington, DC, whereas 6 or 7 years ago it 
was in the 40's or 50's?''
    Here is one of the individuals here, our Chief Financial 
Officer, who helped improve service in this capital metro area. 
So, we are going to look at all aspects of it. There is nothing 
sacred. There are no sacred cows in the Postal Service going 
forward.
    Mr. McHugh. If I may, Mr. Chairman, one final question. I 
appreciate the committee's patience.
    There has been a lot of talk today about inefficiencies. I 
know you would be the first to admit that you can, you are 
trying and, hopefully, will do better. We need to be supportive 
of your effort there as well.
    Just for those who may not know, what is the price of a 
first class stamp in America compared to other countries, even 
those that have totally modernized and reorganized their 
structure?
    Mr. Henderson. Well, it is about half of what it is in 
Germany, for example. That is held up as the model for the 
world right now.
    Mr. McHugh. Thank you, Mr. Chairman.
    Mr. Burton. Half of what it is in Germany?
    Mr. Henderson. Yes, sir.
    Mr. Burton. Mr. Scarborough.
    Mr. Scarborough. Thank you, Mr. Chairman.
    I just want to followup with a few questions regarding 
efficiencies at the Post Office. The Postal Service has been 
investigating automated sortation and information technology 
now for quite a few years.
    However, we hear reports from the GAO that the Postal 
Service has only increased its efficiency by about 10 percent 
over the last three decades. Would you give us an update on 
what is happening with that process and why efficiency improved 
at a faster rate?
    Mr. Henderson. That indicia that GAO is talking about is an 
indicia that we created. It is called ``Total Factor 
Productivity.'' It is not labor productivity. It is Total 
Factor Productivity. It really measures the health of an 
industry. Total Factor Productivity takes into account labor 
productivity, but it also takes into account capital you invest 
and the cost of supplies and services.
    So, it has an indicia in it that is called labor 
productivity. That is a gauge of our automation. If you looked 
at the productivity level in 1988, prior to automation, and you 
looked at it today and we had the same productivity today that 
we had in 1988, you would have to add 100,000 workers to the 
roles of the Postal Service.
    Automation has made a huge impact. But we also get 1.8 
million deliveries a year additional in the Postal Service and 
have had for years. If you say, ``What is that?'' We are adding 
a city the size of Chicago annually. So, there is a counter 
balance there between growth in mail volume, which has been 
traditional up until this year, and growth in deliveries.
    You balance that with what you are able to take out in 
automation. If you look at the mail processing, the 
productivity of letter mail, that is primarily where these 
billions of dollars have been focused, you will see that the 
actual costs of mail processing of letter mail are declining.
    That is why you can have only a penny increase in the price 
of first class postage.
    Mr. Scarborough. OK. Well, you said, ``Well, we have also 
been picking up more volume of work.'' But in this U.S. News 
and World Report article that has been passed around, the 
people are talking about your work force has grown, which, of 
course, it needs to grow. But it has grown to 900,000, which 
this U.S. News article says is the second largest work force in 
America, right behind Wal-Mart.
    Have you parted with FedEx recently? I am wondering, in 
that partnership with FedEx are you looking at best practices 
regarding not only automation but also labor, sort of handling 
labor practices and how to make that whole process more 
efficient from top to bottom?
    Mr. Henderson. We do that as a matter of practice. But we 
don't have any agreement with FedEx to do that. Our Federal 
Express agreement is essentially a transportation agreement. 
They will in the future fly first class, express and priority 
mail.
    We in turn allow FedEx boxes to be on Postal property. I 
will add there is not exclusivity to this. We will talk to 
anybody.
    Mr. Scarborough. You would allow UPS to place their boxes 
on your property?
    Mr. Henderson. We would likely talk to UPS if they wanted 
to talk.
    Mr. Scarborough. OK. I was just joking with you. You don't 
have to if you don't want to.
    Mr. Henderson. Thank you.
    Mr. Scarborough. I would suggest, looking at private 
industry. This is in reference from the U.S. News article that 
was sent around. It says labor costs, and everybody has talked 
about this, eat up 76 percent of your revenues, which I 
certainly understand the problems inherent there. They say that 
compares to 56 percent at UPS and 42 percent at FedEx.
    One final question I have has to do with your postal rate 
increase for magazines. I don't have information in front of me 
right now. But if I am not mistaken, at the beginning of the 
year that rate increase shot up about 10 percent. There is now 
a proposal on the table to increase that another 15 percent.
    That is a pretty dramatic increase, 25 percent in about 6-
months time. That is a heck of a hit for the magazine industry 
and more importantly, for the consumers to get those magazines 
delivered. Is it not?
    Mr. Henderson. It is a heck of a hit for the magazine 
industry. We work with them. Their costs are higher than the 
other classes of mail. That is unfortunate. If we had a 
different rate-setting process, for example, magazines generate 
a lot of mail. They are at one point in the value chain. They 
have business reply mail inside of them. They have 
subscriptions that you write oftentimes and send first class 
mail.
    But we have to treat them like a commodity. That is one of 
the fundamental flaws. You ought to be able to look at the 
value chain of these things that generate a lot of mail. We are 
not able to under the current cost-setting regime.
    Mr. Scarborough. I appreciate your responses and appreciate 
your time here. I really do think a 25 percent increase in 6 
months is a little bit excessive.
    Thank you.
    Mr. Burton. Thank you, Mr. Scarborough.
    Mr. LaTourette.
    Mr. LaTourette. Thank you, Mr. Chairman.
    I apologize. I had to go listen to the new Secretary of 
Transportation, Mr. Mineta, next door. I did hear the opening 
statements of some of my colleagues, though.
    Anybody who wonders why you find yourself in this situation 
should have watched Ms. Wilhite on CSPAN this morning who did a 
great job for the Service talking about the increase in fuel 
costs, the impact of technology on your mail volume and some of 
the sag in the economy.
    I did want to go back to something Mr. Scarborough was 
asking you about. I think the last time you were before the 
subcommittee that doesn't exist anymore there had been some 
news accounts and reports of the pending agreement with FedEx. 
Now we know that has gone forward.
    If I could, I would like to revisit some of those issues. 
At that hearing, and sadly, I am not one of those guys who goes 
back and gets a transcript, so we are going to have to rely on 
my faulty memory. But I think I expressed some concerns about 
the anti-competitive nature of it. I think you made the 
observation that you had a legal opinion at the time that it 
didn't have to be bid. There has now been litigation that 
confirms that position.
    I am aware of and I assume you are aware of the fact that 
some of your regional carriers are making the observation that 
they could deliver the same service for less money. The 
question I have for you, despite the fact that you are right 
legally or not, and you clearly are, but if that is a valid 
claim, my question is, why would one of the largest contracts 
in the Postal Service's history, to my understanding, one, be 
of a 7-year duration, and two, not be opened up for competitive 
bids so that you get the best price for the service?
    Mr. Henderson. Well, we did an extensive evaluation of 
Federal Express. We are in litigation, so I am limited in what 
I can talk about. But I can tell you that this is the best 
transportation arrangement that the U.S. Postal Service has 
ever had in its history.
    It is going to be terrific for the American people. 
Priority Mail is going to be virtually 100 percent on time. 
Trust me, it is a terrific deal.
    Mr. LaTourette. I think Federal Express is a wonderful 
company. I am not disparaging their ability to move things 
around the world in any way. The question is, if in fact, I 
think the specific figure that I saw was something like a 35 
percent savings.
    Are you saying that because of the value of having this on-
time delivery it doesn't matter what it costs or that the 
increased costs justifies the benefits or are you disputing the 
fact that in fact these services could be obtained by the 
Service for less money?
    Mr. Henderson. What we are saying is that in the past we 
have paid a fully loaded cost. In other words, we have had to 
lease a fleet. We pay for the whole fleet. Now, we have a 
variable cost. We don't have to lease a fleet. We are leasing 
space.
    It is the same arrangements we have with the airlines. If 
you look at flying mail, 28 cents a pound on the commercial 
airlines as opposed to at one point on our leased airplanes it 
was $1. But with Federal Express we get the variable costs and 
not the fully loaded costs because they have other things that 
they are charging against it. That makes it very economic for 
us.
    Mr. LaTourette. It is my understanding that some of the 
terms of the agreement put a ceiling, if you will, on the 
amount of mail that Federal Express is obligated to carry. Is 
that correct?
    Mr. Henderson. I think that is a minimum. That is a level 
of detail that I am not familiar with.
    Mr. LaTourette. I think it is a maximum, too. So, the 
question I have is do you know that not to be true? If it is 
not, I won't even ask the question.
    Mr. Henderson. I don't know the answer. I can get the 
answer, but I don't know the answer.
    Mr. LaTourette. If you could. My specific question is if 
there is in fact a maximum that they are obligated to carry. It 
seems to me in some of the literature, at least prior to this 
agreement, they listed the Postal Service and the Postal 
Service listed FedEx as a competitor, and you were in certain 
product lines.
    But having a maximum obligation, it appears to me, if that 
is one of the contract terms, seems to place in the hands of a 
former competitor a great deal of power over the U.S. Postal 
Service. So, I would be interested in the answer to that.
    The last observation, if you can sort of dig up the answer 
to the question as well, at the previous hearing we talked 
about having FedEx boxes at Postal Services. As a matter of 
fact, in my District office in Paynesville, I can look out on a 
beautiful square where I see three mailboxes and I see one 
FedEx box. Not only the placement of the FedEx boxes, but how 
the Postal Inspectors are going to be utilized relative to 
FedEx activities.
    My specific question is whether or not anyone at the Postal 
Service has solicited or received an opinion from the Justice 
Department or anywhere else as to whether or not we have come 
up proper with some of the Anti-Trust laws of this country. 
Anything that the Service can provide in writing, I would very 
much appreciate.
    Mr. Henderson. OK.
    Mr. Burton. Thank you, Mr. LaTourette.
    Let me just ask a couple of more questions to followup on 
Mr. LaTourette's. You said you did an evaluation. I have high 
regard for FedEx, UPS, all the major deliverers, so I am not 
picking on anybody. But, why wasn't there a competitive bid on 
that contract that set out all the criteria that you required, 
all the things that you required, and then when you got the 
bids to make sure they could meet all the requirements or else 
the bid was null and void?
    Mr. Henderson. There is a short answer and then I will 
provide for the record a very detailed answer.
    Mr. Burton. OK. That will be fine.
    Mr. Henderson. The short answer is we didn't look at the 
competitive field. We had an evaluation by outsiders, experts. 
Really, there was no one----
    Mr. Burton. Who were those outside people?
    Mr. Henderson. Price Waterhouse Coopers. Our transportation 
people felt very strongly that it was unnecessary. We litigated 
that. I mean that was the complaint against us and we won the 
litigation. It was a very thorough job that was done.
    We think we have a wonderful partner in Federal Express, as 
I said to Mr. LaTourette. It is the best transportation deal we 
have ever had in the Postal Service, both from a economic point 
of view, but more importantly from a service point of view.
    This is going to take a product that has been 2 or 3 days 
in the marketplace and make it 2 days 100 percent, virtually 
100 percent of the time.
    Mr. Burton. I was told, and I don't know how accurate this 
is, that the contract is around $6 to $7 billion. According to 
some of their competitors that have contacted a number of us in 
the Congress, $2 to $3 billion could have been saved if another 
carrier had the contract.
    Is that a stretch?
    Mr. Henderson. That is more than a stretch. That is a leap.
    Mr. Burton. Just out of curiosity, how do you know that?
    Mr. Henderson. Because we did an evaluation. We have been 
in the transportation business for a long time. We have 
arrangements with a number of people all across America, many 
of which are complaining now. So, we know their internal costs. 
We understand the efficiencies of air transportation. I can 
tell you, and I will provide you in writing a detailed rebuttal 
to what those folks are saying.
    Mr. Burton. We would like to have that for the record just 
so we have all the facts straight. I guess Price Waterhouse 
evaluated that as well.
    Mr. Henderson. I will be happy to provide you that 
evaluation.
    Mr. Burton. OK.
    We have asked many questions today about the Postal Service 
and how they have saved money in the past and where they might 
save money in the future. Hypothetically, if your cost 
containment efforts could save you $3 billion, how would that 
impact your decision to file a rate case this year?
    Mr. Henderson. It could postpone the decision if you made 
$3 billion in cost savings. This year, if you got them now, you 
could actually postpone the rate increase. But ultimately, it 
is a short-term fix. Ultimately, you need postal reform. We 
need postal reform.
    Mr. Burton. I understand because we talked earlier in the 
meeting today about if you close down Post Offices and you went 
with cluster boxes and closed Post Offices and did some other 
economies, you could probably save a one-time savings of a few 
billion. But that would only postpone the inevitable.
    Mr. Henderson. That is right. It is not a fix. It is what 
David Walker said from GAO. There are some short-term fixes 
like raising rates or cutting costs. But long term, if you 
don't have transformation, he calls it ``transformation,'' if 
you don't have postal reform it is not going to fix the 
problem.
    Mr. Burton. Let me ask you this: Let us say that we are 
working on a postal reform bill that meets the problem, and we 
are going to try like heck to do that, in the interim, so that 
we don't cause some small businesses and other mailers who are 
using the mail a great deal, using the Postal Service a great 
deal, to keep them from either going out of business or losing 
a great deal of profit and making them uncompetitive, magazines 
and other things like that, could these short-term economies 
you are talking postpone it while the Congress tries to reach 
an agreement on a postal reform bill? Could that postpone a 
rate increase?
    Mr. Henderson. In my opinion, it will not. We are going to 
look at some ways. John Nolan, the Deputy Postmaster General, 
is heading up an effort to look at some creative ways of 
getting finances with the Postal Rate Commission without a huge 
rate increase. We have not completed those yet.
    But we are going to work with the industry, people like 
magazine publishers and newspapers and all to see if there is a 
way. This conversation came about over the last several weeks, 
especially at the last National Postal Forum where we had all 
of our customers.
    We are going to study alternatives here. But we are in a 
vice right now. We are in a box. We have declining volumes, 
revenues way under planned. The solution to price increases in 
the long haul is to support your efforts in postal reform.
    Mr. Burton. Could you keep Mr. Davis and myself and Mr. 
Davis and Mr. Waxman and Mr. McHugh in the loop on that as well 
as other Members of the Congress, so we can be as up-to-date as 
possible without having everybody come in for another hearing?
    Mr. Henderson. OK.
    Mr. Burton. We will now call our third panel, Mr. David 
Fineman, the vice chairman of the Board of Governors and the 
following members of the Board, Tirso del Junco, Alan Kessler, 
Ernesta Ballard.
    Am I missing somebody?
    Mr. Fineman. No. It is just a little bit different. Mr. 
John Walsh is here and former Governor McWherter is not here.
    Mr. Burton. Mr. Walsh, we will have you in his stead.
    [Witnesses sworn.]
    Mr. Burton. I guess, Mr. Fineman, you are going to make the 
opening statement.
    Mr. Fineman. Yes, sir.
    Mr. Burton. OK, Mr. Fineman, you are recognized.

    STATEMENTS OF S. DAVID FINEMAN, VICE CHAIRMAN, BOARD OF 
GOVERNORS, U.S. POSTAL SERVICE, ACCOMPANIED BY TIRSO DEL JUNCO, 
GOVERNOR, U.S. POSTAL SERVICE; ALAN C. KESSLER, GOVERNOR, U.S. 
POSTAL SERVICE; ERNESTA BALLARD, GOVERNOR, U.S. POSTAL SERVICE; 
         AND JOHN WALSH, GOVERNOR, U.S. POSTAL SERVICE

    Mr. Fineman. Thank you, Mr. Chairman.
    Let me take this opportunity to first, before I say 
anything, to thank you for holding these hearings and to thank 
you for your interest in the Postal Service and thank you for 
your interest in reform.
    Congressman McHugh, I want to thank as well, as well as 
Congressman Davis, for their interest in reform.
    I want to take another opportunity to do one more thing. 
One of the things that the Board of Governors does, maybe our 
most important thing, is the hiring and firing of the 
Postmaster General.
    We are in the process now of looking for a new Postmaster 
General. I want to take this public opportunity with the 
Congress to thank Mr. Henderson for his years of service with 
us. It clearly was a good choice for us to have made in the 
hiring of Mr. Henderson.
    We have a prepared statement which I have given to you. I 
don't want to reiterate it at this late hour.
    Let me just take a couple of minutes to tell you what the 
frustration is of being on the Board of Governors of the Postal 
Service and why we are coming here today to ask you for the 
necessary reform, much of which has been spoken about this 
morning.
    The frustration is actually a rate case. We have talked 
about what a rate case could be. Let us talk about a rate case 
was. The actual process, begins 6 months ahead of time and we 
are now in that process, of saying to the management, OK, let 
us go look and study what a rate case should be.
    Following that 6 months, management come back to us. Over 
some period of time we meet and discuss the various rates. Then 
actually a truck pulls up to the Post Office, our offices, 
unloads tons of paper and takes it over to the Postal Rate 
Commission.
    The Postal Rate Commission then holds hearings for about 10 
months. Following that, a decision comes back to the Board of 
Governors and then we have a opportunity to modify that 
decision.
    Let us look at what we did here. We sent that decision back 
to the Postal Rate Commission. What does the Postal Rate 
Commission do? It reviews that decision again and it comes back 
to the Board of Governors.
    What does the Board of Governors have an opportunity to do? 
We can implement the decision, even though we might not 
necessarily agree with the Postal Rate Commission, and in this 
case, we sent it back to the Postal Rate Commission again for a 
review.
    During that period of time, the Postal Rate Commission can 
send the decision back to us. We are still waiting, actually, 
for the decision to come back. It has been over there about 30 
days or so.
    During that period of time we have no power. We can't 
change our rates. Our hands are tied. There is no ability to 
run the Postal Service as you would run a private business.
    At the same time, as you have mentioned before, the largest 
part of our costs are fixed by a third party.
    Under those circumstances, Mr. Chairman, we come to you, we 
come to Congress and ask you please enact some legislation that 
gives us the power to do in 1971 what Congress said, which is 
to act like a business.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Fineman follows:]

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    Mr. Burton. Thank you very much. Let me start off by saying 
I presume that you sent to, previously, Mr. McHugh and Mr. 
Davis your recommendations on how to streamline the process.
    Mr. Fineman. I think that is a fair question. During the 
previous administration, I would say, that the Board of 
Governors could not reach consensus. We are appointed by 
various Presidents and we are a bipartisan group. The statute 
provides five of us be of one party and four of another. There 
was no consensus reached by the Board previously.
    The letter which we sent to the leaders in Congress and to 
the President of the United States set forth the views of all 
of the members of the Board as it is constituted today.
    Mr. Burton. Was it individual views or the unanimous view 
of the Board?
    Mr. Fineman. The letter that we sent to the leadership and 
to you, Mr. Davis and Mr. McHugh, and all Members of Congress, 
we assume, have it now, is the unanimous views of all of the 
members of the Board.
    Mr. Burton. I don't have that letter in front of me, but 
does that letter spell out the reforms that you think are 
necessary to make this operate in a more efficient, business-
like manner?
    Mr. Fineman. I think what it does is it sets forth in 
general principle the kind of reforms that we think are 
necessary.
    Mr. Burton. Let me suggest, and I suggested this in my 
opening comments today, that every segment of our society that 
is interested in the problems we face needs to get to the 
relevant committees, and particularly this committee, since we 
have the jurisdiction, the recommendations that they think 
should be incorporated into a postal reform bill.
    Now, we have a lot of good things in the bill and Mr. 
McHugh and Mr. Davis fashioned in previous Congresses. But 
obviously there were some problems with that; otherwise we 
would have gotten it passed.
    What we would like to have is the direct mailers, the 
newspapers, the magazine people, the Board of Governors, 
everybody tell us from their point of view, individually or 
collectively as groups, what you think ought to be in the bill 
so we can craft it as quickly as possible and try to meet the 
requirements that are necessary to solve the problem and make 
this more like a business instead of, it sounds like a 
hodgepodge of things.
    I can't imagine you playing ping-pong with those rate 
increases. That is what you were doing. They sent it to you and 
you sent it back. They sent it to you and you sent it back. 
Obviously, that is not the way to run a business. There has to 
be a final decisionmaking process that is going to stand.
    So, if you and your colleagues on the Board have some 
suggestions, as quickly as you can reach agreement, we would 
sure like to have those.
    Mr. Fineman. We will submit them to you, Mr. Chairman.
    Mr. Burton. Would you do that?
    Mr. Fineman. Yes, sir.
    Mr. Burton. In an attempt to contain costs, hearings the 
Board considered reducing the work force through attrition?
    Mr. Fineman. We have told management to go forward with 
every kind of cost saving that they can attempt to reach. We 
obviously don't want to decrease service. But at the same time, 
we have put everything on the table, Mr. Chairman. One of them 
is obviously reduction in our work force. But we don't want to 
reduce service.
    Mr. Burton. I understand. But have you urged and taken a 
look at automation and other new technologies that might be 
able to not take the place of people, but those who are leaving 
through attrition or through retirements, to cut down the 
costs? Much like I said before when the auto industry went to 
robotics.
    Mr. Fineman. Absolutely, Mr. Chairman. That is one of the 
things that we have done. I think we can be proud of the 
automation system that has come about. We have heard the 
Postmaster talk about the productivity gains that we have had.
    Mr. Burton. But I was wondering if there is more.
    Mr. Fineman. I think there is a higher bar that can be 
reached. I think that I speak for everyone on this Board in 
saying that to you. That is the challenge that we have given to 
management.
    Mr. Burton. We would like to have the recommendations for 
that as well.
    Let me ask one more question here while I have the time. 
How frequently does the Board of Governors meet with the major 
mailers or trade associations that represent them?
    Mr. Fineman. I cannot say that there are regular, periodic 
meetings. I can say that Chairman Rider, who is not here today, 
and myself met with I believe it to be all the major mailers 
organizations to have a frank conversation with them. 
Obviously, they talked to us about rates. We talked to them 
about reform. We had a very, very frank conversation.
    There is not a regular periodic meeting. I do personally 
believe that we have to reach out and meet with those mailers 
on a regular basis.
    Mr. Burton. Well, they are very concerned, a number of 
them, as you know, the smaller ones about going out of business 
because costs are getting out of control. The larger ones are 
concerned as well. So, I hope you will make those as frequent 
as you can. I know you have a lot on your plate.
    The Postmaster General, who we all agree has done an 
outstanding job, has announced his retirement. What unique 
qualifications and leadership traits will the Board be looking 
for when they select the next Postmaster and when do you 
anticipate making an announcement?
    Mr. Fineman. Well, we have no one right now. I want to make 
that perfectly clear. We are still in the process of 
interviewing. When we leave here we are going to leave to begin 
some more interviews this afternoon. We conducted some 
yesterday afternoon. We have been working on this for some 
period of time.
    I think it is probably one of the most difficult jobs in 
government. Not a whole lot of people are raising their hand 
volunteering. We are trying to seek out the best person from 
both the private sector and government service who can lead an 
organization of almost 800,000 people, 38,000 locations, with 
all the problems that this committee has gone through earlier 
this morning, into the 21st century.
    I guarantee you that this is at the top of our priorities, 
Mr. Chairman.
    Mr. Burton. I am sure it is. Since we are all trying to see 
more sound business practices incorporated into the Postal 
Service, I hope you will look long and hard at people in the 
free enterprise system who have shown superior talents in using 
business practices to streamline businesses.
    You will notice a lot of the major corporations will steal 
an executive from one to the other because they are so 
effective at dealing with these complex problems when we have 
so much competition. I hope you will do the same thing.
    Mr. Fineman. We will. Thank you, Mr. Chairman.
    Mr. Burton. Mr. Davis.
    Mr. Davis. Thank you, Mr. Chairman.
    Mr. Fineman, let me appreciate the work that you and your 
colleagues do as members of the Board of Governors. Let me also 
express an appreciation for the frustration that you amplified 
as you started your testimony. It does seem to me that it would 
be somewhat difficult to be part of a management operation but 
not really have the authority to make management decisions that 
impact heavily upon what it is that you do.
    So, I think we heard you when you talked about the Postal 
Rate Commission and the relationship between the two and where 
the Board sits in relationship to where they are.
    But let me ask you, in your letters to us, you have 
mentioned collective bargaining and compulsory arbitration as 
some concerns. Let me ask what it is that you would hope to 
accomplish by raising that issue and what is it that you think 
legislatively might be done that could alleviate whatever 
problems you see with the issue?
    Mr. Fineman. Congressman, you come from Chicago and I come 
from Philadelphia. We could argue as to which town is more of a 
labor town, whether it is Philadelphia or Chicago.
    My friends in the labor unions in Philadelphia, I am sure, 
would argue hard for Philadelphia. There is no intention, and I 
want to make this perfectly clear, no intention on our part to 
take away from the collective bargaining process. I believe in 
the collective bargaining process, as do my colleagues.
    What we are talking about is the third party arbitrator who 
makes these decisions in a vacuum. I think that there are 
various models that are out there that we should look at--I say 
``we'' collectively with Congress, as to what else can be done.
    I am a lawyer, Labor Law 101 told us that when there is 
friction between labor and management when they negotiate a 
contract. At the end of the day after both parties negotiate 
the contract, because they have risks on both sides, they 
probably walk out and they have better labor-management 
relationships.
    That is what I think we have to find. One of the things 
that Postmaster General Henderson mentioned was the Railway 
Labor Act. I think that is a good place to start. That is the 
kind of thing that we are talking about, Congressman.
    Mr. Davis. Has there ever been, to your knowledge, any cost 
or amount put on the difficulties that we have experienced or 
continue to experience relative to labor-management relations 
and how much time and how much energy, and ultimately how much 
of the cost of operating the system this becomes for us?
    Mr. Fineman. I can't tell you with any specificity what it 
is, but there is not infrequently a Board meeting where it 
isn't something that is discussed, the amount of time that 
people spend at mediations, arbitrations, spend on grievances.
    Now, there is a great success story at the Postal Service, 
one that has been modeled all over the United States, which is 
the Redress System in which we try to mediate the differences 
between the parties before they get to the grievance stage.
    It is a real success story as to how they have been able to 
lower costs. But obviously, it is a great cost, Congressman.
    Mr. Davis. If we could get a better handle on that, in all 
likelihood, we could actually save ourselves a great deal of 
money as well as time and other kinds of things.
    Mr. Fineman. I believe so.
    Mr. Davis. Let me ask you, even though this was not a part 
of your testimony, but I couldn't help but be intrigued as we 
were listening to the discussion relative to partnership with 
FedEx. I was trying to figure out how can we determine 
marketplace impact on ultimate costs unless we are negotiating 
with the marketplace as opposed to an entity within the 
marketplace.
    Would you have any idea?
    Mr. Fineman. I can only say that this Board, when the FedEx 
contract was discussed with it, was concerned about many of the 
things that the Congress was concerned with as well. As a 
result, we decided that we would hire our own counsel to look 
at that contract. We listened to the experts from Price 
Waterhouse. We listened to experts about a fairness opinion 
from Morgan Stanley. We became convinced that it was the right 
thing to do.
    Mr. Davis. I don't doubt any of the experts. It just seems 
to me that that is a concept in terms of free enterprise that I 
have a little bit of difficulty understanding. But certainly we 
will get additional information, I am sure.
    Mr. Fineman. Yes, sir.
    Mr. Davis. Thank you very much, Mr. Chairman. I have no 
further questions.
    Mr. Burton. I just have a couple more questions. I want to 
thank you very much for your patience. I know it has been a 
long day and your rear end starts falling asleep.
    Mr. Fineman. We are still with you, Congressman.
    Mr. Burton. What is that saying? ``The mind can't focus on 
things that the rear can't tolerate?'' It is something like 
that.
    There is a potential rate increase pending now. You have 
played ping-pong with it. The economies that we have talked 
about today that the Postmaster talked about could affect the 
profitability of the Post Office or non-profitability of the 
Post Office.
    Is it absolutely essential that there be a rate increase in 
the not too distant future or can this be handled through 
economies in the Post Office while we try to fashion some kind 
of solution here in the legislative branch?
    Mr. Fineman. We are going to attempt to do everything we 
can not to have a rate increase. But on the other hand, if it 
is absolutely necessary, we will go forward with it. We are 
going to do what we have to do in our fiduciary obligation.
    I would say this: One of the things that I heard some of 
the Congressmen talking about earlier is the fear that I have 
and it is the system that doesn't provide any solution for us. 
Because the fear that I have is that if we impose a rate 
increase and then we deplete the amount of mail that we have, 
this is only a spiral that we can't get ourselves out of.
    Mr. Burton. That is absolutely right.
    Mr. Fineman. When we met with the mailers, you know, and 
they are begging us that their companies are going to suffer as 
a result of a rate increase, I feel for them. That is the 
question of reform. That is the question as to why we need 
reform.
    The other part of it is that we cannot do this under 
present statute. We have no choice because we have this cost-
based system so we can't do anything without a market-based 
system. It is a frustrating position to be in. I feel the pain, 
to some degree, that the mailers have. I want to feel their 
pain. I say to them, ``I want you to sit in my seat for a 
minute as the steward here and not roll up this deficit.''
    I think you have to remember something. What we have been 
able to do before, when we talk about a rate increase, one of 
the things that the system does allow us is that we propose 
rates to the Rate Commission. It will take them almost 10 
months to get back to us.
    Then we have a choice as to when we impose the rate. The 
rate is not going to be imposed at the time we make the 
submission to the Postal Rate Commission. We will do everything 
in our power; particularly if some of the measures that we have 
asked management to reach out for can be implemented within 
that period of time.
    Mr. Burton. I think the point that you made we have made 
and it has been made over and over again. The analogy was the 
car business. If you are having a problem, lacking sales and 
lacking revenues, if you raise the price you certainly aren't 
going to solve the problem. You are going to compound it. I am 
afraid that that might be what you are talking about.
    We are going to try to talk to the White House, and I hope 
you will as well and the new Postmaster will as well, telling 
them that this is a problem that needs to be addressed by not 
only the legislative but also the executive branch and some 
leadership to really try to force this issue.
    Let me ask one more question and then I will let you go. 
Has the Postal Service generated a net profit from its e-
commerce initiatives, do you know, like its E-bill Pay Program?
    Mr. Fineman. At this point I can't tell you that we have. 
The numbers that have been given to us by management so far 
indicate that there are losses. The losses are small in 
relationship to the general revenue of the Postal Service, but 
they are not profitable at this point.
    Mr. Burton. Well, any information you can give us on that 
or anything else that you think might be a helpful solution, we 
would like to have.
    Do any of the rest of you have any comments you would like 
to make? We appreciate you all being here.
    Mr. Davis. Mr. Chairman, before you wrap up, I would just 
like to be sure that you have unanimous consent for Mr. Towns 
to submit his remarks for the record and that we have unanimous 
consent to leave the hearing open so that individuals who have 
questions and were not here can get those in.
    Mr. Burton. Without objection, it is so ordered. We will 
ask if the Members have questions if we can submit them to the 
people who testified today for answers in writing.
    Mr. Fineman. We will look forward to answering them. Thank 
you again, Mr. Chairman.
    Mr. Burton. Thank you very much. We will continue to work 
with you to solve this problem.
    We stand adjourned.
    [Whereupon, at 2:05 p.m., the committee was adjourned.]
    [The prepared statement of Hon. Edolphus Towns, Hon. Donald 
Manzullo, and additional information submitted for the hearing 
record follows:]

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     THE U.S. POSTAL SERVICE'S UNCERTAIN FINANCIAL OUTLOOK, PART II

                              ----------                              

                        WEDNESDAY, MAY 16, 2001

                          House of Representatives,
                            Committee on Government Reform,
                                                    Washington, DC.
    The committee met, pursuant to recess, at 10 a.m., in room 
2154, Rayburn House Office Building, Hon. Dan Burton (chairman 
of the committee) presiding.
    Present: Representatives Burton, Gilman, Morella, Shays, 
McHugh, LaTourette, Barr, JoAnn Davis of Virginia, Otter, 
Schrock, Waxman, Owens, Mink, Norton, Kucinich, Davis of 
Illinois, Tierney, and Clay.
    Staff present: Kevin Binger, staff director; Daniel R. 
Moll, deputy staff director; David A. Kass, deputy chief 
counsel; Mark Corallo, director of communications; John 
Callender, counsel; S. Elizabeth Clay, professional staff 
member; Sarah Anderson and Scott Fagan, staff assistants; 
Robert A. Briggs, chief clerk; Robin Butler, office manager; 
Josie Duckett, deputy communications director; Leneal Scott, 
computer systems manager; John Sare, deputy chief clerk; 
Corinne Zaccaagnini, systems administrator; Phil Barnett, 
minority chief counsel; Denise Wilson, minority professional 
staff member; Ellen Rayner, minority chief clerk; and Jean Gosa 
and Earley Green, minority assistant clerks.
    Mr. Burton. Good morning. A quorum being present, the 
committee will come to order.
    I ask unanimous consent that all Members' and witnesses' 
opening statements be included in the record. And without 
objection, so ordered.
    I would also like to ask, we have some people who would 
have liked to testify today, that are not testifying. They have 
some statements that they would like to include in the record. 
And without any objection, we would like to include their 
statements in the record. So, without objection, we will put 
those in the record as well.
    I ask unanimous consent that all articles, exhibits, or 
extraneous or tabular material referred to be included in the 
record. Without objection, so ordered.
    I have been advised that we are going to have a vote in a 
few minutes. So what we are going to do is we are going to have 
Mr. Waxman, Mr. Waxman has to meet with the leadership on the 
Democrat side, so we are going to have him give his opening 
statement and then we will let him go. We will then recess 
until we have the vote and then we will come back. I apologize 
for the delay but it is not me calling this vote.
    I will now yield to Mr. Waxman for an opening statement. I 
will reserve my time until we come back after the vote.
    Mr. Waxman.
    Mr. Waxman. Thank you very much, Mr. Chairman, for allowing 
me to make my opening statement first. Because I have a 
conflict, I will have to leave in a minute. I will try to get 
back to the hearing, but if not, I will certainly review the 
record.
    Today, we begin part II of oversight hearings on the U.S. 
Postal Service's uncertain financial outlook. I want to begin 
by commending Chairman Burton for his continued commitment to 
postal issues. The financial status of the Postal Service is an 
important matter deserving of our time and focus. The impact of 
recent postal rate increases on mail volume and postal revenue 
is an important subject and one that we will vigorously discuss 
today.
    Much has taken place since our first hearing on April 4th. 
Two days after our hearing, Senator Harkin introduced S. 71, a 
resolution expressing the sense of the Senate that 6 day mail 
delivery should not be reduced. Tomorrow, Representative Danny 
K. Davis, chairman of the Congressional Postal Caucus, will 
introduce a companion House Resolution. I urge my colleagues to 
lend their support to this measure.
    Two weeks after our first hearing, the Coalition to 
Preserve Universal Mail Service presented an outline of a 
legislative approach to address the financial crisis facing the 
Postal Service. We will be able to explore the matter of reform 
further since many of the Coalition members are present today.
    On May 7, the Postal Board of Governors voted to implement 
a new postal rate schedule. Under this schedule, rates for a 1 
ounce, first-class letter stay at 34 cents, and an additional 
ounce will cost 23 cents. The cost for postcards will increase 
1 cent, and rates will also increase for express mail, 
certified mail, and domestic money orders.
    On Monday the Mailers Council unveiled its first quarterly 
report card on the Postal Service. The grades reflect the 
Postal Service productivity in six categories, ranging from 
retail services to revenue per work hour. This performance tool 
will be issued quarterly and is designed to help the Postal 
Service achieve greater productivity. And late yesterday the 
Postal Board of Governors released a series of principles to 
guide postal reform.
    I look forward to working with the chairman and members of 
the postal community as we discuss the actions needed to 
improve postal management and finances. I want to welcome all 
of today's witnesses. In particular, I am glad to see that 
Congresswoman Pat Schroeder, who served in the U.S. House of 
Representatives from 1972 until 1996, will testify today. Among 
her many accomplishments, Representative Schroeder served on 
the Committee on Post Office and Civil Service, so she is 
clearly no stranger to postal issues or postal finances.
    Mr. Chairman, I look forward to working with you. I will 
certainly get the record of all the witnesses. Those I am not 
able to hear personally, I will have a chance to get their 
testimony. Thank you.
    [The prepared statement of Hon. Henry A. Waxman follows:]

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    Mr. Burton. Thank you, Mr. Waxman.
    I think we will go ahead and proceed with opening 
statements until we are called to the floor. That way we can 
expedite some of the things that need to be done.
    We received, as Henry alluded to, a letter from the Postal 
Board of Governors, and, although we have not yet reviewed 
that, since we want to have everybody on the same page, I think 
we will make available to all the interested parties the 
recommendations of the Board of Governors as far as postal 
reform is concerned. This is a letter that was dated May 15. We 
just received it this morning. So we are making 100 copies and 
will have those for anybody who is interested. If we run out of 
copies, we will get some more. The reason we want to do that is 
we want to make sure that you understand what they are 
recommending and we want to get input from everybody so that we 
can come up with the best possible solution to the problem.
    At our first hearing on this issue held last month, we 
heard from a number of distinguished witnesses, including the 
Postmaster General, the Comptroller General, and members of the 
Postal Board of Governors. Postmaster General Henderson 
discussed the agency's gloomy financial forecast and projected 
losses of more than $2 billion, and some believe as high as $3 
billion, this year. The independent and nonpartisan General 
Accounting Office reported that the financial, operational, and 
work force challenges facing the Postal Service are so severe 
that the GAO added the agency's need to address these 
challenges to its ``High Risk'' list. I think just yesterday 
Senator Thompson in the Senate mentioned how important this 
issue is, because it is now one of the highest risk areas of 
the Government. The Board of Governors stressed the need for 
postal reform, and also discussed steps taken in recent weeks 
to address problems facing the agency.
    I want to say, Representative Davis, I will be glad to 
cosponsor your resolution on the 6 day mail delivery not being 
changed. So put me on, if you would.
    Mr. Davis of Illinois. Thank you very much, Mr. Chairman.
    Mr. Burton. The Board suspended capital construction 
projects, ordered a study of 5 day mail delivery, and directed 
the Postal Service to prepare for a new rate case.
    Since the hearing, the Board announced that it was going to 
raise rates effective July 1. In announcing the new rates, the 
Board took the unusual step of overturning the Postal Rate 
Commission. In fact, this is I believe only the second time 
since the enactment of the Postal Reorganization Act in 1970 
that the Board has overruled the Postal Rate Commission and 
raised rates. We are disappointed that happened. I talked to 
the Board of Governors yesterday and will be meeting with them 
next week to talk about what the future prospects are for 
additional rate increases. I think we need to solve this 
problem with a minimal impact on the American people and the 
people who are doing mailing, and a lot of you are here today.
    Prior to the Board's announcement, several Members of 
Congress, including myself, Congressman McHugh, and both the 
House and Senate Majority Leaders, contacted the chairman of 
the Board of Governors urging them not to raise rates. But they 
did not pay much attention to us. So we are going to have 
another meeting with them to see if we cannot have a little 
more input.
    I am very concerned about the July rate increase. I am also 
concerned about reports of another more substantial rate filing 
being proposed for later this year. The impact of these 
increases on businesses and consumers can be devastating. The 
increases are a temporary solution to a long-term problem. They 
could also have the unintended consequences of driving postal 
business away. Rate increases could force some mailers to seek 
alternatives or cause them to close down entirely. Other 
mailers will pass the additional cost on to consumers resulting 
in higher prices for products being shipped through the mail. 
And if we have a rate increase on first class mail as well, 
then it is going to be inflationary because it is going to hit 
everybody.
    Today we will learn how the Postal Service's dismal 
financial forecast is impacting postal stakeholders, including 
the mailing community and the postal work force. The Postal 
Service is a massive bureaucracy. With about 900,000 employees, 
the Postal Service has the second largest work force of any 
company in the United States. I think the only one bigger is 
Wal-Mart. Labor costs account for almost 80 percent of the 
agency's budget. The GAO has reported that over the next decade 
about half of the postal work force will be eligible to retire. 
The departure of these dedicated professionals will leave a 
void in terms of knowledge and experience. However, their 
departure also provides the agency with an opportunity to 
restructure and refocus its massive work force.
    Challenges facing the postal community, including mailers 
and the postal work force, illustrate the need for 
comprehensive postal reform. We must work on a bipartisan basis 
to produce meaningful legislation that will ensure universal 
mail service at affordable prices for all Americans. We 
recently sent a letter to the President requesting the 
assistance of the White House on this issue. I have also 
discussed the need for postal reform with the Secretary of 
Commerce, Don Evans.
    The postal issue is such a big issue it will affect every 
segment of our society. It is an issue that has not yet been 
raised with the administration, but we are going to make sure 
that everybody over there is made aware of it as quickly as 
possible so that we can have the assistance of the White House 
in putting pressure on all interested parties to get a solution 
passed by the Congress. We have a great opportunity to reform 
the Postal Service. We have the attention of all the 
stakeholders, including the mailers and the postal employees, 
management and the American people.
    We have with us today a number of distinguished witnesses. 
On the first panel, we have representatives of the mailing 
industry. Our lead off witness on the panel is former 
Congresswoman Pat Schroeder. Pat was a member of the Post 
Office and Civil Service Committee and she is now president and 
CEO of the Association of American Publishers. On panel II we 
will hear from postal employee union representatives. I will 
look forward to hearing from all of you in just a few minutes.
    [The prepared statement of Hon. Dan Burton follows:]

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    Mr. Burton. Mr. Davis, if you want to make your opening 
statement before we run out of time; we still have 11\1/2\ 
minutes on the clock. So we will recognize you.
    Mr. Davis of Illinois. Thank you very much, Mr. Chairman. I 
want to, first of all, thank you for your ongoing commitment to 
postal reform. I also want to thank you for calling this 
hearing today.
    Last month, we had an opportunity to hear from the Postal 
Service Board of Governors and the General Accounting Office. 
At that hearing the witnesses painted a grim picture for the 
future of the Postal Service unless postal reform is enacted. 
In fact, Postmaster General Henderson suggested that the Postal 
Service is projected to have a budget shortfall of between $2 
and $3 billion this fiscal year.
    In an effort to cut costs, the Postal Service has frozen 
fiscal year 2001 postal facility projects. In Illinois alone, 
some 26 postal projects have been affected. Additionally, the 
Postal Service is also doing exploratory study on the idea of 
reducing mail delivery from 6 to 5 days. Of course, my 
constituents expect 6 day mail delivery. I am pleased, along 
with Representative John McHugh and Members of the 
Congressional Postal Caucus, to introduce bipartisan 
legislation tomorrow that will address the issue of 6 day mail 
delivery.
    I am also honored that today we will have an opportunity to 
hear from other stakeholders, like the mailers, publishers, and 
postal unions. The recent action by the Board of Governors to 
increase postal rates by an average of 1.64 percent is sure to 
spark a lot of conversation. The action by the Board of 
Governors speaks volumes for the need to reform the current 
system. The increase which goes into effect July 1 is expected 
to generate an additional $975 million in revenue. However, we 
all know that this is no panacea.
    In my congressional district alone, the Postal Service 
plays a vital role. Aside from the constitutional mandate of 
binding our Nation together through universal service, the 
Postal Service employs over 5,000 people, generates more than 
$25 million in Federal taxes and $5 million in State taxes. In 
addition, one of the biggest postal customers in the service is 
located in my district, R.R. Donnelley and Sons.
    It is in the Nation's best interest to have a viable and 
stable Postal Service. We cannot guarantee stability and 
viability operating on rules that were written in 1970. We have 
moved into a more sophisticated and technologically based 
economy. Therefore, the rules of the road should reflect these 
advances in technology.
    We have many challenges before us, Mr. Chairman, the energy 
crisis, the rise in fuel prices, labor-management issues, and 
the need for postal reform. However, I am confident that 
through your leadership and with the full cooperation of all of 
the Members of the Congress, with an executive branch that 
understands the problems that we are facing, with the motivated 
constituency, that we are going to be able to find a solution 
to these problems.
    So I thank you again, Mr. Chairman, for convening this 
hearing. I welcome all of the witnesses and look forward to a 
rather productive day.
    Mr. Burton. We really appreciate your interest and input, 
Congressman Davis. I am looking forward to working with you to 
find a solution.
    We have about 7 minutes on the clock. I think we will 
recess for the vote and then we will come back as quickly as 
possible to have final opening statements and hear from our 
witnesses. So we will be back in about 10 minutes.
    [Recess.]
    Mr. Burton. The committee will be in session.
    We heard from Mr. Waxman, Mr. Davis, and myself. We will 
now hear from Mr. Otter. You are recognized for 5 minutes.
    Mr. Otter. Thank you, Mr. Chairman. Let me associate myself 
with both your and the ranking member's remarks in welcoming 
our first and second panel today.
    I want to draw your attention, prior to beginning my 
opening statement, to the stack of mail that is here that I 
received. It was 2 days mailing out of Idaho, and if we had not 
had 6 day mailing, I would not have gotten it in 11 days. But 
it all came from one little old town in Idaho and it is 
relative to the Postal Service.
    For years the U.S. Postal Service management has touted 
that they favor a business-like approach. I applaud that 
philosophy. But if they are going to talk the talk, then they 
must walk the walk. We all benefit from the services of the 
Postal Service. But it must be held accountable. The Postal 
Service management cannot continue its practices of increasing 
rates on the consumer when the Postal Service's financial 
problems lie within its own organization--or perhaps 
inorganization.
    It is not right to force and over-tax the American public 
to continue bailing out the Postal Service's $3 billion 
deficits. For too long the Postal Service has had the 
opportunity to reduce its debt. For example, on several 
occasions the Postal Service has had recommendations made to 
them on how to reduce cost. Several of these suggestions could 
be adopted now. For example, Price Waterhouse Cooper outlined 
proposals that would reduce the costs for the Postal Service by 
$500 million to $1 billion a year. However, even after paying 
the bill to Price Waterhouse Cooper, rather than heed their 
recommendations, the Postal Service has ignored them and 
refused to change.
    The Postal Service has also built and maintained and annual 
advertising budget of hundreds of millions of dollars despite 
its monopoly on first class mail. This is a direct conflict for 
the American people to subsidize a Government agency to compete 
with our friends and neighbors in the private sector.
    The new Postal Service rate increases brought on by the 
Postal Board of Governors, who voted unanimously to overrule 
the Postal Rate Commissioners' protests, are drastic increases 
for the Postal Service to impose on the Americans to make up 
for inefficiencies that are solely of its own making. It is 
unfortunate that men and women of the U.S. Postal Service are 
under a management team that has run this organization into 
financial chaos. The employees of the Postal Service deserve 
and should have better management, and so should the American 
people.
    Mr. Chairman, it is time for the Postal Service to operate 
in a more business-like fashion. It faces financial pressures 
but the U.S. Postal Service can, and must, cut costs, improve 
productivity, and become solvent rather than continuing to pass 
their financial woes onto an American public. Thank you, Mr. 
Chairman.
    Mr. Burton. Thank you, Mr. Otter.
    Mr. Clay, do you have an opening statement?
    Mr. Clay. Good morning. I want to welcome the witnesses 
from both panels testifying today. I want to especially welcome 
former Congresswoman Patricia Schroeder. She gave many years of 
distinguished service to the House of Representatives.
    Mr. Chairman, thank you for this second hearing on the U.S. 
Postal Service's uncertain financial outlook. The first 
hearing, held of April 4, 2001, provided insight into the 
planning and projections of the Postmaster General and the 
management of the U.S. Postal Service. Questions were also 
raised regarding the exceptionally large deficit projections 
for the current fiscal year.
    The hearing today receives testimony provided by magazine 
publishers who, of course, are bulk mailers, and the testimony 
of representatives of those who do such a tremendous job of 
getting the mail delivered. Their testimony and ideas will be 
solicited on a range of issues. Among them are: the direction 
and impact of current postal reform, projected postal rate 
increases, labor-management relations, and the impact of these 
and additional issues on their respective organizations and on 
the country as a whole.
    Mr. Chairman, I ask unanimous consent to submit my 
statement to the record. Thank you.
    Mr. Burton. Without objection, so ordered.
    [The prepared statement of Hon. Wm. Lacy Clay follows:]

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    Mr. Burton. Mr. Gilman.
    Mr. Gilman. Thank you, Mr. Chairman. I want to commend you 
for conducting this hearing this morning, another in the series 
of our hearings on the Postal Service. I am pleased that the 
full committee is continuing to devote its time to the current 
issues facing our Postal Service. It is imperative that we 
examine all the factors leading up to the Postal Service's 
current financial projections.
    At our April 4th hearing, the committee heard testimony 
from the Postmaster General reporting the Postal Service losses 
of $2 to $3 billion this fiscal year. Furthermore, on May 8th 
the Postal Board of Governors announced a postal rate increase. 
All of this combined leads to increased costs by mailers and 
places a work force of 900,000 employees in flux, all of which 
can eventually affect all of our constituents.
    When I hear the Postal Service suggest that jobs may have 
to be cut in order to help control costs, we are all left to 
wonder how the Postal Service will maintain the core mission of 
universal service. As I noted at the last hearing, there are 
many reasons we can point out to answer how the Postal Service 
has found itself in these troubled waters--continued decline in 
volume, insufficient revenues, and electronic communication 
which they did not properly prepare for, as we looked at that 
years ago.
    However, these factors have all been foreshadowed by this 
committee, and our colleague, Mr. McHugh, the gentleman from 
New York, while working diligently to bring postal reform 
before this committee, was not getting the kind of support that 
was needed. Accordingly, it is now time for this committee to 
fish or cut bait and to finally approve a reasonable postal 
reform measure. And that does not include just closing post 
offices.
    Additionally, the Postal Service must also be prepared to 
take responsibility for the difficult economic times they now 
are experiencing. The Postal Service has known for some time 
the problems of inefficiency in its system which exist. Both 
the GAO and the Postal Service's IG have repeatedly testified 
before the Postal Subcommittee on the many difficulties the 
Postal Service has had in realizing opportunities of savings.
    So we look forward to examining these issues. We look 
forward to examining ways to help our Postal Service get on a 
sound financial footing. Thank you, Mr. Chairman.
    Mr. Burton. Thank you, Mr. Gilman.
    Mr. Cummings.
    Mr. Cummings. Thank you very much, Mr. Chairman. I am glad 
that we are holding this hearing on the Postal Service's 
current financial position, the impact of postal loss 
projections, and the impact on postal business and the postal 
work force.
    At the April 4th hearing, GAO placed the Postal Service's 
transformation efforts on their ``High Risk'' list, so that 
Congress, GAO, and others can focus on the postal financial, 
operational, and human capital challenges. The Postal Service 
has projected a deficit of $3 billion. They have attributed the 
loss of revenue to e-mails, rising fuel costs, Government 
regulation, and e-commerce.
    Mr. Chairman, there is widespread agreement that reform is 
needed for the Postal Service. I have received numerous calls 
and packages from my constituents regarding postal reform. In 
fact, I just received a postal reform proposal yesterday from a 
small businessman in my district outlining a possible solution 
to the financial crisis at the U.S. Postal Service.
    I agree with the Coalition to Preserve Universal Mail 
Service when they recommended that postal reform should project 
universal service at fair and reasonable prices. The Coalition 
further stated that the Postal Service should not submit a 
request for higher postal rates any time before 2002, nor 
should it impose service reductions on the American people.
    We all want a strong and stable Postal Service. As such, 
this committee and Congress will continue to work with the 
Postal Service and others to develop a long-range strategic 
plan that truly assesses postal reform.
    I look forward to the hearing and the testimony of our 
witnesses. I hope they will be able to help us examine postal 
losses in revenues, postal rate increases, deficit in mail 
volume projections, competition, information technology, and 
budget forecasting. I thank you.
    Mr. Burton. Thank you, Mr. Cummings.
    Mr. McHugh.
    Mr. McHugh. Mr. Chairman, let me echo the words of others 
in expressing my appreciation for your efforts here to bring 
what I think increasingly people are realizing is a very, very 
troubling state of affairs with respect to the U.S. Postal 
Service. I am sure most people are tired of hearing me talk 
about this issue. I know over the past 6 years I have grown 
weary of my voice. So, with your consent and the committee's, I 
would ask unanimous consent to enter my full statement into the 
record.
    I would just say, Mr. Chairman, I spent some time yesterday 
and this morning reading the testimony and there is a great 
deal of talk about the issue of flexibility and the way in 
which certain provisions in the bill that we first worked on 
over the past 5 years now and others have proposed that the 
Postal Service be afforded some sort of flexibility. I would 
just say to the benefit, I hope, of some in this room, if the 
events over the past 2 weeks have not proven to people that the 
Postal Service today has ultimate flexibility, that the Postal 
Service today, for better or worse, has total unobstructed 
rights to set whatever rates they may choose to, I am afraid 
those people are beyond instruction.
    We have to begin today, for the many interests that are 
represented in this room, particularly to the interests that 
Mr. Otter spoke about and the reading of his letter, the 
American people, the more than 800,000 Postal Service 
employees, to deal with this issue in a forthright manner. We 
can talk about the failures of the system, we can talk about 
the failures of the people within that system. But, ultimately, 
the failure to act will be upon our heads. This is our 
responsibility.
    So I would hope that our first hearing and continuing today 
will provide some sort of impetus to do what many, many good 
people, a good number of whom will be seated at that front 
table both in the first and second panel, have been laboring so 
hard in quiet desperation to achieve over the past 5 years, and 
that is meaningful reform that addresses the challenges that 
the Postal Service meets and does it in a way that is fair to 
those against whom it competes, but, most importantly, is fair 
for those who rely upon it, the American people. Thank you, Mr. 
Chairman. I yield back.
    [The prepared statement of Hon. John M. McHugh follows:]

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    Mr. Burton. Thank you, Mr. McHugh. And once again, we want 
to thank you for all the work you have put forth in this area. 
Working with you and the rest of the committee, hopefully we 
will get a solution.
    Mr. Tierney.
    Mr. Tierney. I will put my remarks on the record, if I may, 
Mr. Chairman.
    Mr. Burton. Mr. Shays.
    Mr. Shays. Mr. Chairman, I am delighted you are having this 
hearing. I think it is a very important hearing. I do not have 
a statement.
    Mr. Burton. Mrs. Mink.
    Mrs. Mink. Thank you, Mr. Chairman. I want to express my 
appreciation to you, Mr. Chairman, for calling this hearing and 
for continuing the pursuit for facts and information concerning 
this whole problem of postal service that affects every single 
individual in our various constituencies.
    I want to welcome all the panelists that have been invited 
here, and especially my former colleague, Pat Schroeder, and 
look forward to her comments.
    Mr. Chairman, this whole issue of postal service is a very 
confounding one in terms of my district. I represent the rural 
areas in my State of Hawaii, and it has always been extremely 
frustrating for me to realize that the term ``universal 
service'' does not apply to almost half of my district. They do 
not have home delivery. By universal service, I have always 
felt that the promise made to the American family was home 
delivery. But we do not have home delivery.
    We have post offices, of course. And the idea that some of 
them might be closed in these rural communities is very 
frightening to the people who live in these remote areas. Now 
they have to be able either to walk, and many of them are 
senior citizens and cannot, or they have to be able to drive a 
car to the post office which sometimes is 10 or 15 miles away 
to pick up their mail. And the hours that the post office is 
open in these remote areas is very confining. It is like 8 to 
noon, or maybe noon to 4, or some hours like that. And so we 
have a huge population that has a very, very difficult time 
even as it is to get their mail at a post office box. Post 
office boxes are not easy to come by. They are very limited. 
Sometimes you have to wait for years to get a box, so you have 
to share one with someone. And not only that, Mr. Chairman, you 
have to pay for the box. Even if the fee is nominal, like $10 a 
month, it is still a fee that they pay that nobody else does 
for this universal service.
    So I am very confused about this promise of universal 
service. And as I look at this whole issue of postal service, I 
want to make sure that what the promise to America was is that 
this service to every single homeowner in this country was, 
indeed, universal. That was really the essence and philosophy 
of the Postal Service, that everybody, no matter where they 
lived, could at least feel the comfort that the mail would 
arrive at their place of residence, or in the case of half of 
my district, at their post office.
    So I look with great interest, Mr. Chairman, at the various 
implications of the suggestions that are being made. I want you 
to know that I sit here as a rural member of the United States 
of America very concerned that this idea of universal service 
not be prejudiced in any way and that the people of the remote 
places in America can continue to rely on the Postal Service. 
Thank you very much.
    Mr. Burton. Thank you, Representative Mink.
    Mrs. Morella.
    Mrs. Morella. Thank you, Mr. Chairman. I want to thank you 
for this second hearing concerning the uncertain financial 
future of the U.S. Postal Service. After 5 years of operating 
at a surplus and a comparably minor loss in fiscal year 2000, 
the Postal Service's announcement of a potential $2 billion to 
$3 billion deficit in fiscal year 2001 came as quite a surprise 
to this committee.
    Since the committee's April 4th hearing, the Postal Service 
has taken many reactionary steps, like suspending capital 
improvement projects, and studying 5 day delivery service, to 
stabilize its financial outlook. Many of my colleagues and I 
were recently shocked to learn that on May 8th the Postal Board 
of Governors voted unanimously to increase postal rates an 
average of 1.64 percent, overturning the Postal Rate 
Commission's April 10th reaffirmation of its decision not to 
raise rates. The April 4th hearing clearly illustrated many 
factors causing the Postal Service to project losses in the 
same calendar year that they have already raised rates. 
However, additional rate increases and possible cuts in service 
were never suggested as the prescription to the Postal 
Service's malady.
    As I stated in the April 4th hearing, our reliable and 
affordable postal service is the hallmark of our Nation's 
infrastructure. For many neighborhoods, the post office plays a 
more active role in the fabric of the community than simply 
providing a facility for the dissemination of the mail.
    So today I am eager to hear from the postal stakeholders, 
those who are most affected by these sudden shifts in policy 
and who have first-hand experience of the challenges facing the 
Postal Service. I am interested in learning what reforms they 
feel might be necessary to preserving this great institution.
    Mr. Chairman, you have a great line up of people who are 
going to be testifying on both panels. Some of us will be back 
and forth on the Foreign Operations bill on the floor of the 
House right now. But I particularly want to acknowledge and 
also thank my former colleague Pat Schroeder for being here on 
the first panel. Thank you, Mr. Chairman.
    Mr. Burton. Thank you, Mrs. Morella.
    Vice Chairman Barr.
    Mr. Barr. Thank you, Mr. Chairman. Let me echo the 
sentiments of other committee members in thanking you not just 
for this hearing today, but for your pattern of conducting 
regular and consecutive oversight hearings on issues.
    I notice in today's Wall Street Journal that Senator 
Thompson of Tennessee, in referring to the problems with the 
Postal Service, says ``It is obvious that the ox is in the 
ditch big time.'' Mr. Chairman, that may very well be true. And 
if it is, the last person we want trying to remove the ox is 
Rube Goldberg. Now I know I run the risk that a lot of young 
people do not know who Rube Goldberg was, but I know the 
chairman does and a lot of the folks here do.
    In looking through the statements today, I find one of the 
more revealing and very accurate statements in the testimony of 
Mr. Sombrotto, president of the National Association of Letter 
Carriers of AFL-CIO. In his very first page of his prepared 
remarks, he notes something that I think ought to catch the 
attention of all of the folks, not just on this committee but 
who are here today and who are in charge of trying to resolve 
these problems. He draws attention to the fact that the 
legislation under which the Postal Service operates and the 
framework within which it is trying to come to grips with the 
problems that face it is more than 30 years old. That 
legislative mechanism, the Postal Reorganization Act of 1970, 
predates even the notion, much less the implementation, of the 
Internet and other advanced electronic communications.
    I think it is more than time for us to take a look at the 
underlying legislation. I cannot imagine that those involved 
directly in this process, the Governors and the other 
individuals involved with the Postal Service, would not 
wholeheartedly join in that effort to take a look at the 
legislation which is woefully outdated and work with us to 
revitalize the mechanism within which the Postal Service 
operates.
    It is not enough any longer to say that we have the best 
delivery service anywhere in the world. We do. And many of us, 
myself included, have lived and worked and travelled in other 
countries and we know first-hand that is true. But that is no 
longer enough to get us just by saying we have the best postal 
service in the world. The Postal Service has very serious 
problems. It is failing within the framework put together by 
our Government more than 30 years ago to meet the challenges of 
the Internet Age.
    That is why I commend you, Mr. Chairman, other members of 
this committee, for beginning the very, very hard, but I 
believe absolutely essential, process of taking a new look at 
this legislation, making sure that we do not have Rube 
Goldbergs hiding out there in the mechanism somewhere, and in 
doing this to help the Postal Service and help not only 
American households who would not understand the logic, as we 
do not either, of saying, gee, the best way to meet these 
challenges is to cut back service, which is what we considered 
at the hearing last month. I hope that one has been put to bed 
and, as Steve Forbes said, ``beheaded, buried, burned, and a 
stake driven through its heart so it is never to rise again.''
    The solution to meeting the challenges posed by higher 
energy costs, competition from other entities is not to cut 
back service, it is not to make yourself even less desirable. 
We need to look at other more innovative ways. And I salute 
those such as Mr. Sombrotto and others that we will be hearing 
from today for recognizing that and urging us to move in the 
direction of modernization rather than sticking our head in the 
sand. Thank you, Mr. Chairman.
    Mr. Burton. Thank you, Mr. Barr.
    Before we recognize the first panel, let me just say that a 
number of the interested parties have, at our request, been 
holding get togethers and meetings to see where they can find 
common ground to make recommendations to this committee on a 
legislative proposal to deal with this problem. And I would 
urge all of the people who are interested, which is just about 
everybody, especially the main groups to sit down together when 
you have the time, and we will be happy to meet with us if you 
so choose, and send us any recommendations you have so we can 
put all of that in the mix when we are drafting legislation to 
deal with this. Of course, Mr. McHugh's H.R. 22 will be one of 
the keystones in that formulation.
    We will now welcome the first panel. Former Congresswoman 
Pat Schroeder, Jerry Cerasale, John Campanelli, John Estes, and 
Gene Del Polito. We have a practice of swearing everybody in. 
So if you would please stand and raise your right hands.
    [Witnesses sworn.]
    Mr. Burton. Please be seated.
    We will now recognize the Honorable Pat Schroeder for her 
opening statement. If you could, Congresswoman Schroeder, you 
remember this, if you could keep your remarks to 5 minutes, we 
would sure appreciate it.
    Thank you.

  STATEMENTS OF PAT SCHROEDER, PRESIDENT AND CHIEF EXECUTIVE 
 OFFICER, ASSOCIATION OF AMERICAN PUBLISHERS; JERRY CERASALE, 
 BOARD MEMBER, MAILERS COUNCIL, SENIOR VICE PRESIDENT, DIRECT 
  MARKETING ASSOCIATION, INC.; JOHN C. CAMPANELLI, PRESIDENT, 
 R.R. DONNELLEY LOGISTICS; JOHN T. ESTES, EXECUTIVE DIRECTOR, 
  MAIN STREET COALITION FOR POSTAL FAIRNESS; AND GENE A. DEL 
       POLITO, PRESIDENT, ASSOCIATION FOR POSTAL COMMERCE

    Ms. Schroeder. Thank you very much. And I really want to 
compliment you and the committee. I think this attendance is 
amazing and it says everybody is very, very concerned about the 
status of the Post Office. So thank you, Mr. Chairman, for your 
leadership and the leadership of others on this committee for 
having this hearing and for inviting me to testify.
    I, in my life after Congress, am now head of the 
Association of American Publishers, which basically represents 
the majority of book publishers in America. We have profits and 
nonprofits. We mail Bibles, we have textbooks, we have medical 
journals, you name it, whatever is out there it is in our 
membership. And we are terribly concerned about what has been 
going on. That is why I am here today. We love books. Books R 
Us. We think that we should have been part of this educational-
cultural-scientific-information clause that the Congress had 
put in the Postal Reform.
    Yet, we were terribly surprised during the last rate 
increase to find out we were not. To really explain why it is 
dramatic, I brought a chart. Visuals are always wonderful. Look 
at the black line, there would be two kinds of similar book 
mailings that people might have used during the last 10 years. 
We basically use the Bound Printed Matter, although a lot of 
our people use other classes, too, but Bound Printed Matter is 
the main thing that books use. So we picked out two random 
ones. And as you can see, through the last decade, it went 
along just keeping up with inflation. But then, boom, launch, 
launch. There it goes. And now we have the news the rate might 
go up even more. We got this average of 18 to 36 percent 
increase and then we got the message that there will probably 
be another 15 percent increase, that means as much as a 50 
percent hike on books.
    Now this Congress has cared so much about education, about 
reading, about having printed matter in the home. The year of 
the brain went on and on about children who start school, who 
have books in the home, who are around printed matter, and who 
have people reading to them do much better. I know all of you 
have been involved in many, many, many of the literacy efforts 
of the administration. Everybody is concerned about America's 
literacy rate which has looked awful for a very long time. One 
of the solutions we know is to get books into the home. One of 
the ways to do it is to get them there through the mail. And 
yet, we are really pricing them out. Somebody is going to have 
to pay for this, either the consumer or someone, or people will 
not purchase them. It is just that simple.
    We have worked hard on ``Get Caught Reading.'' We 
appreciated many people here working with us. But I think all 
of us know we have to do everything that is possible. We just 
saw the latest studies come in about fourth graders. It was 
absolutely appalling that 60 percent of fourth graders read at 
a basic level or below. According to the ``Twilight of American 
Culture,'' there are 120 million adults who only read at a 
fifth grade level. We know kids now spend 12 times as much time 
in front of a TV set as they do reading. I could go on and on. 
Books. We think books.
    We were surprised because in this rate case, we thought 
being part of the educational, cultural, scientific, and 
information rate they would take that into account, which they 
did not. They also went on to say during the rate case, ``Oh, 
but you have many more costs in this class, that is why we are 
having to raise it.'' And we would say,``What costs?'' ``Well, 
we cannot show them to you.'' There is no transparency. You are 
fighting a 2 ton marshmallow. You punch it and it punches you 
back and you have no idea what is in it because they will not 
tell you what the costs are. If you order books on the Internet 
through Amazon, or Barnes and Noble, or Borders, you will find 
most of them now are using private services because the Postal 
Service is pricing themselves out. Look, this affects so many 
book clubs. This affects children's book clubs. Even Dolly 
Parton mails 10,000 books a month to children in her area who 
are between the ages of zero and 5 because she thinks it is 
that important.
    One of the things I think is essential, because I have 
spent so much time in this area having been on the Post Office 
and Civil Service Committee and having sat through many of 
these hearings, is we do not need another Postal Rate 
Commission hearing this summer. I think what you are doing is 
absolutely right on target. Thank you for writing the President 
and the Secretary of Commerce and getting everyone involved 
because we really need to delay the rate commission till we get 
some reforms done. Everybody says, ``we have got to reform, 
but, oh, not that one, and not this one, and just do something 
but not that.'' This is an emergency. In every single nation, 
if you cannot protect your borders with a military, if you 
cannot deliver the mail to people, if you do not have a strong 
currency, what is a country about? This is absolutely 
essential. So having universal service, being able to do this 
is critical. I think if you just continue to allow it to 
hemorrhage with more and more rate increases and not getting 
essential reform done, we will be right back here next year. It 
will just go on and on. So, thanks for calling attention to the 
problem.
    I also think there is a way to phase in the rate increase 
so you do not chase more and more people out of the system. Now 
more and more books are being chased out of the system. I guess 
I could give you all sorts of things that we could do. My 5 
minutes are up. But I do think it is very, very important that 
we look at many options. We are ready to do it. We are ready to 
work with you any way we can. And we thank you once again.
    [The prepared statement of Ms. Schroeder follows:]

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    Mr.Burton. Thank you, Representative Schroeder. And as I 
said before, any recommendations that you have that we could 
put in the mix, we would sure appreciate.
    Mr. Cerasale.
    Mr. Cerasale. Thank you very much, Mr. Chairman, members of 
the committee. It is a pleasure to be here and be invited to 
speak. I am Jerry Cerasale and I am on the Board of Directors 
of the Mailers Council. It is a pleasure to be sitting here 
next to one of our distinguished trustees. In another life, I 
am the senior vice president for Government Affairs for the 
Direct Marketing Association. But I am here today on behalf of 
the Mailers Council.
    We are a pretty diverse group. We represent 70 percent of 
all the mail in the United States carried by the U.S. Postal 
Service. We are so diverse that any recommendation that you 
might have on postal reform you will have members of the 
Mailers Council support it. You will also have members of the 
Mailers Council oppose it. Our membership agrees that there 
should be postal reform, they just do not necessarily agree on 
what is the answer to postal reform.
    But we do agree on something that we think is very 
important for the Postal Service, and that is cost control. A 
major ingredient of cost control is productivity and 
productivity improvement. We think that the Postal Service has 
not done well. As we look at Total Factor Productivity from 
1972 to 1998, we find the Postal Service has increased 
productivity by 9.1 percent, which is not very good. And most 
of that increase came before the 1991 recession. Historically, 
the Postal Service has focused on productivity and improved it. 
But the focus has not remained and things have slipped.
    So the Mailers Council decided that we wanted to try and 
get a constant focus on postal productivity improvement. So we 
developed the Mailers Council Quarterly Report Card on Postal 
Service Productivity. The first of which was released on Monday 
and the results are on the chart over on the right. We hope to 
highlight with this report card both the positive and negative 
trends in productivity in the Postal Service very early to 
encourage continued efforts where things are going well and to 
begin immediate action to correct problems that we see.
    We chose for this productivity report card quite a few 
measures. Because no measure is perfect, we think that a 
diverse number of measures will likely show, that basket will 
show correct and accurate trends. We also at the Council wanted 
to try and measure different functions independently so we can 
try and show management areas where they can focus efforts to 
improve productivity.
    As we look at the grades on the chart, the first set are 
internal productivity grades. That is taking a look at 
improvements within the Postal Service. We chose some areas to 
try and get, as I said, a long-term and diverse view. Revenue 
per work hour, D+; volume per work hour, we give them a grade 
of D+; unit labor costs, C; mail processing is a B, very good. 
We were encouraged by that. That shows what has happened with 
all the efforts by the Postal Service in machinery and so forth 
to help improve the productivity of mail processing, and I 
think it is represented by this grade. Delivery and retail 
services, both in the C range. These grades represent both a 
mid-term and short-term view of Postal Service productivity 
recently.
    We also wanted to use a benchmark and tried to pick some 
private sector areas in productivity and compare the Postal 
Service with them. The grades shown here in the next four are 
not grades of the private sector, but Postal Service compared 
with the private sector. And they are in the C and C-range, 
representing that the Postal Service has not done as well as we 
would hope that they would do.
    We are also concerned with salary limits on Postal Service 
managers. We would like to see if we can lift those to try and 
help the Postal Service attract and retain talented leaders 
that are needed in this time. But we would urge that any 
additional compensation be also tied to productivity increases 
at the Postal Service.
    The recent events--the two rates cases in 6 months, the 
threat of another rate filing soon--are proof of the need for 
the Postal Service to improve productivity. Using the William 
and Mary system, in which I have invested a great deal of my 
disposable income recently, the Postal Service measures a 1.8 
GPA. We need some 4.0s in order to really improve the situation 
at the Postal Service. And the real factor in this is not the 
first column with the grades, it is those empty three columns. 
We need to see improvement consistent up through there, and we 
hope that you look forward to seeing these quarterly reports as 
much as we do.
    Thank you very much. I am willing to answer any questions 
you have.
    [The prepared statement of Mr. Cerasale follows:]

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    Mr. Burton. Thank you, Mr. Cerasale.
    Mr. Campanelli.
    Mr. Campanelli. Good morning, Mr. Chairman and members of 
the committee. I appreciate the opportunity to be here and 
certainly was encouraged by your opening statements. My name is 
John Campanelli and I am president of R.R. Donnelley Logistics, 
which is a business unit of R.R. Donnelley and Sons Co. The 
company is an integral part of the U.S. direct mail marketing 
industry, which contributes over $1.5 trillion annually to our 
economy and is responsible for employing over 10 million 
Americans.
    Both my oral and written statement focus on three basic 
points. First, what we see as the future mission of the U.S. 
Postal Service and the essential elements of postal legislative 
reform that will enable this new, more tightly focused mission. 
Second, a review of what the Postal Service can and must do 
under current law authority to position itself for reform and 
continued viability. And third, what the Postal Service should 
avoid doing as it moves forward.
    As the largest single consolidated user of the Postal 
Service outside of the Federal Government, my company has a 
significant stake in assuring the continued viability of 
America's postal system. Our views on postal reform can be 
summarized as strongly supporting the continuation of 
reasonably priced universal mail service. We share our 
customers' and your constituents' need for a distribution 
channel that will service every residential and commercial 
address every day with predictability and reliability.
    While we are obviously concerned about the future, I also 
want to state our serious concern about the present situation 
facing the Postal Service. The combination of rate increases of 
the past 6 months, along with the additional rate case that has 
been announced for filing sometime in the near future, is just 
unacceptable for the Postal Service's customers and will likely 
do more harm than good to the Postal Service bottom line.
    Let me turn briefly to discuss the future mission of the 
Postal Service that can guide reform. First and foremost is 
enhancing the Postal Service's historic core competency in 
last-mile delivery to the home and office. The ``last mile'' 
core competence begins with the local post office, the local 
delivery unit goes to the home and office, and back. This kind 
of well-defined focus requires that the Postal Service does 
have the ability to change to market conditions and presents 
policymakers also with a threshold test question that they can 
use in evaluating the impact of a given provision upon reform; 
namely, will this provision help the Postal Service to leverage 
the scale and scope it currently enjoys in the ``last mile'' 
delivery network.
    In addition, legislative reform also requires that we 
recognize the human side of the change equation. This means the 
postal employee and management organizations must have a 
meaningful place in the reform process. If reform ultimately 
affects employment, it also must include measures to mitigate 
the impact that any potential change has on employees.
    Similarly, there is a serious and legitimate debate between 
the Postal Service and the private sector competitors on how to 
assure fair rules of competition between a Government agency 
fulfilling an important public policy goal such as universal 
service and a private competitor seeking to fulfill an equally 
valid commercial objective. Certainly, my company does not want 
the Postal Service to be able to unfairly compete with the 
private sector. Conversely, undue restrictions upon the Postal 
Service can only limit consumer choice and is unworthy of 
reform and harmful to the continued viability of the Postal 
Service in providing uniform-priced universal service.
    While reform is needed to achieve these goals, the Postal 
Service should not wait for legislative reform to realize the 
increased efficiency from its delivery network, as pointed out 
by Jerry in the Report Card. Certainly, any effort to increase 
the efficiency by actions permitted under current law would not 
eliminate the need for current reform. On the contrary, such 
actions will have the effect of better positioning the Postal 
Service to leverage the gains that reform can offer. In 
particular, acting now could enable the Postal Service to 
permanently avoid large upstream capital investments in plant 
and equipment that may well become stranded due to new 
alliances, new work-sharing opportunities, and the mix change 
in the mail itself in the coming years. In my written 
statement, I have included several ideas that are possible and, 
in fact, overdue under current law.
    What the Postal Service should avoid doing in the future, 
and I fully recognize the Postal Service finds itself in 
difficult financial straits, the imposition of additional rate 
increases that are several times the rate of inflation, at a 
time when most businesses in the country are going through 
severe belt-tightening exercises, has a potential to do far 
more harm than good and provides no long-term benefit. More 
importantly, such rate increases are clearly inconsistent with 
the objectives of the Congress, the administration, and the 
private sector in revitalizing our Nation's economy. Rather 
than continually raising rates, the Postal Service should 
follow the lead of the private sector in reducing costs as 
rapidly as possible.
    In conclusion, Mr. Chairman, the U.S. Postal Service is an 
integral part of our Nation's communications and commercial 
infrastructure. While the future may be uncertain, the economic 
importance of the Postal Service is unmistakably clear. You and 
your colleagues are to be congratulated and commended for 
bringing the proper attention to this issue to Congress, the 
administration, and to our Nation. Thank you.
    [The prepared statement of Mr. Campanelli follows:]

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    Mr. Burton. Thank you, Mr. Campanelli.
    Mr. Estes.
    Mr. Estes. Good morning, Mr. Chairman. Thank you for the 
opportunity to address you and the members of the committee. 
Our written statement tells you who Main Street is and what it 
is about. Quite briefly, we represent consumers, business and 
trade publishers, religious publishers, technology and 
communications companies, large and small newspapers, and 
financial institutions. These groups yesterday placed in the 
``Washington Post'' a statement of what they believe postal 
reform should do and what postal policy should be. With your 
permission, I would like to offer that ad as a part of the 
record for the committee.
    Mr. Burton. Without objection. I would like to see that as 
well.
    Mr. Estes. Mr. Chairman, I would like to make five points. 
First, it is really not our intention to rehash Main Street 
views on postal reform as those were embodied in H.R. 22. We 
briefly mentioned our views with respect to H.R. 22 in order to 
orient the full committee about where we were coming from and 
why we felt from a policy standpoint many of the provisions, 
but not all, of that bill were not in our best interest nor 
represented a viable approach for the Postal Service. We 
recognize that there was disagreement. There were those that 
embraced that bill and there were some, like us, that did not.
    But rather than go over that again, we really welcome your 
opportunity, the opportunity extended to us to look at a new 
approach. That will involve H.R. 22, we realize that, and it 
will involve other things. So we are looking forward to that, 
and we thank you for that opportunity.
    Second, Mr. Chairman, the Postal Service problems today we 
think are really in two facets. There is developing a long-term 
solution which is critical, I think we all agree to that, and 
there is also the necessity to develop a short-term temporary 
fix. I would cover the long-term approach in a second. But with 
respect to the short-term approach, we think, Mr. Chairman, 
that the committee, you, should rely heavily on the efforts of 
the General Accounting Office initiatives, also on frequent 
consultation with GAO by this committee coupled with aggressive 
oversight of the Postal Service by this committee.
    The short-term goals we believe are first. Imperatively and 
critically look at the facts. Since 1995 through 2000, Postal 
Service revenues and Postal Service volume has increased. It 
has been a steady trend. That is a good, solid fact. We are 
faced with something now, how serious is that that we are faced 
with now, and how much out of synch is that with the overall 
trend for the last 5 years of the service, we have to get to 
the bottom of that and we have to look at it. It is not just 
enough to look at a few facts in isolation in our judgment.
    A second point on the short-term solution, Mr. Chairman, we 
think it is essential to insist on a limited mission for the 
Postal Service now, this is on a short-term fix, so we can get 
our arms around this and really find out what is going on over 
there from the standpoint of financial management and cost 
control.
    And last, we think immediate improvements are essential for 
financial forecast. The financial forecasting is not that good 
over there and we think something has to be done. GAO has 
recognized that, too.
    Our third point, Mr. Chairman, you asked for things that 
jump out at us. Three things do.
    Labor costs. We have stressed at length in our statement 
about labor costs and how we think they should be addressed and 
some of the problems that the union and the Service faces. 
Historically, the unions gave up the right to strike. That is a 
big thing for a union to give up. In return for that, they got 
compulsory arbitration. Is that a good approach or not? But 
there is quid pro quo there and a tradeoff. And that was done 
knowledgeably with an effort to try and find a solution to the 
labor problems back in 1965.
    Mr. Chairman, another thing we set out as a major challenge 
is rate-setting.
    And third, something has to be done we think about 
management compensation; that is high level, top level 
compensation at the Service. As you said and as others on the 
committee have said, this is one of the biggest organizations 
in the world. And from a comparability standpoint, if we are 
going to attract qualified people that have the experience that 
is needed, we have to look at the compensation package that is 
being extended. We think it is inadequate.
    Mr. Chairman, we have called for a Presidential commission 
to assist you with respect to developing a national reform 
program. We applauded your effort in your letter to the 
President. We think you probably did not have a commission in 
mind. We hope you would rethink that and look at it. We think 
it will be helpful.
    Finally, Mr. Chairman, my fifth point is we are here to 
help. We want to be a part of the team and we want to find a 
solution. It is critical for all of us. Thank you.
    [The prepared statement of Mr. Estes follows:]

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    Mr. Burton. Thank you, Mr. Estes.
    Mr. Del Polito.
    Mr. Del Polito. Mr. Chairman, thank you very much for the 
privilege and the opportunity to appear before you today on the 
issue of postal reform. You have my written statement and I 
would just like to add a few thoughts to it.
    First of all, I have got to tell you I am delighted they 
took down that report card. The last time I saw a report card 
that bad was the one I had to turn into my parents in my senior 
year in high school. It just evoked bad memories.
    I speak in my testimony about the incentives that underlie 
the Postal Service, and I characterize them as misdirected. Now 
I deliberately chose not to characterize them as good or bad 
because such value judgments really do not work, do not matter. 
The only issue is whether or not the incentives that are laid 
before people get them where they need to go and get them to do 
the kinds of things that they should be doing. Clearly, when 
you take a look at the incentives that underlie today's postal 
system, which, incidentally, stem from the Postal 
Reorganization Act itself, they are not working for an 
institution that now must find its way within a competitive 
environment.
    So, in other words, if you want to change the way the 
Service's stewards behave, you have got to do something to 
change the incentives that underlie postal law. Because if you 
do anything less than that, you will fail to achieve meaningful 
postal reform. Getting the incentives right is going to be the 
key to postal reform.
    Now around the time of my son's first birthday, he began to 
show signs of his autism. That started our family down a long 
and arduous road for his rehabilitation. And much of the work 
that we ended up having to do with him was based on a 
behavioral training method that clearly laid out the rewards 
and the consequences of his responses to various learning 
tasks. Now he is 11 and he is doing fine. He has learned 
extremely well that there are rewards for working hard and 
there are consequences for slacking off. When he does well he 
earns a Nintendo time. When he goofs off he loses his Nintendo 
privileges.
    Clearly, a child who began life with so debilitating a 
disability was able to learn very, very quickly how to respond 
to the incentives that were set before him. Why then some 
people have such a hard time appreciating that adults who do 
not have such disabilities will not learn to behave in 
accordance with the incentives before them to me is just an 
absolute mystery.
    So again, to sum up, if you want to reform the Postal 
Service, you have to change the incentives that drive the 
behaviors of the people who operate the system. Thank you.
    [The prepared statement of Mr. Del Polito follows:]

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    Mr. Burton. Thank you, Mr. Del Polito. That was very 
concise.
    Let me start off by saying to Mr. Estes, we do not oppose a 
Presidential commission, but time is of the essence and I am 
not sure that commissions work in a real timely fashion. 
Usually, by the time you formulate the commission you are into 
6 months, 3 months, 4 months, and then by the time they come 
back with a report you have got another 6 months, and then by 
the time it is published and everything it is well over a year 
before you have something. And I am not sure we have that 
luxury of time. That is why I have asked everybody that is 
concerned to give us suggestions on how we can improve on, if 
possible, H.R. 22 or add to it and come up with short-term 
solutions and a long-term plan that is going to maintain the 
viability of the Postal Service. So that is the first thing 
that we would like to have.
    We are going to be meeting with the Board of Governors, at 
least some of the leaders on the Board of Governors, in the 
next week. And if any organization that is interested has 
suggestions on short-term solutions to the problem, I would 
like to have those so I could present those to the Board of 
Governors and ask them to take a hard look at those, especially 
anything that is a business-like solution to the problem. If 
there are ways that they can streamline or make the Postal 
Service effective in the short run, we would like to have those 
suggestions.
    I would like to know from all of you, and I think you 
alluded to it a little bit in your opening statements, how the 
rate increase of January 7th affected your companies and your 
employees, and how you think the scheduled rate increase that 
is going to go into effect on July 1st will affect you. And 
also, if the Postal Service, if the Postal Rate Commission and 
the Board of Governors go along with it, if they have a huge 
rate increase, what that will do to you.
    We will start with you, Ms. Schroeder.
    Ms. Schroeder. Thank you. I think I addressed that very 
clearly. And that is, clearly, somebody has got to pay. What it 
really will do, I think, is cut down the number of books that 
are going into homes. And I just think, at a time when we are 
focusing on literacy, that would be disastrous.
    Mr. Burton. So it is just going to be incrementally worse.
    Ms. Schroeder. Absolutely. I think it will.
    Mr. Burton. And it is going to cause an inflationary trend 
in the cost of books being sent through the mail.
    Ms. Schroeder. Absolutely.
    Mr. Burton. Mr. Cerasale.
    Mr. Cerasale. Well the Mailers Council has 70 percent of 
the mail but I think the thoughts are we probably put in 90 
percent of the revenue. So that the $1 billion increase that is 
coming on July 1st will be $900 million coming from Mailers 
Council members. It will hurt them. You have rates that have 
gone up above the rate of inflation. And looking at the rumored 
rate increase being filed that will be above the rate of 
inflation again, this will significantly increase the cost of 
doing business, both in catalogs, in magazines, in financial 
institutions, sending out bills, etc. There is going to be I am 
sure some significant pressure to try to find alternative means 
to try and avoid these rate increases.
    Mr. Burton. Do you think that it will drive people to 
paying bills through the Internet and things like that, thus 
reducing the revenues to the Postal Service?
    Mr. Cerasale. I am sure it will. Clearly, it has already 
begun. I think the softness in first-class mail volume is due 
in part to the competition and in part to the rates that are 
there. Business-to-business, many businesses are moving to a 
paperless billing system. I think if costs keep going up for 
postage that we are going to see major pressure and efforts to 
try to get individuals to move to a paperless payment system.
    Mr. Burton. Mr. Campanelli.
    Mr. Campanelli. Mr. Chairman, most of our customers 
establish a fixed budget for printing, distribution, mailing, 
etc. So when the cost per piece goes up they simply reduce the 
pieces, whether they be books, magazines, catalogs, that they 
send out. Generally, that impacts prospecting and trying to 
generate new business.
    I also think that the other impact right now from an 
economic perspective is in technology and information 
technology and the Internet. That with the focus in industry 
turning from potentially creating new markets to webifying 
companies to drive cost out, that an area of increased postage 
going up will just have companies look at ways to use 
technology to off-set those costs, to bring those costs down. 
So in the near-term industry will be looking at webifying the 
business, using the Internet, using technology to drive out 
costs and that specifically will impact mail volume. I think, 
beyond that, the Postal Service could learn a lesson from that 
as well and focus their technology efforts on making it easier 
to do business and using technology to take out costs.
    Mr. Burton. So what I gather from what you are saying is 
that it is like a car company that was losing market share to 
raise the price of the car only guarantees more losses. And 
with the competition that is now apparent, which was not 
apparent 20 years ago or 30 years ago, the competition of the 
Internet and other services provided from other companies, if 
the Postal Service continues to raise rates, they are going to 
continue to lose market share.
    Mr. Campanelli. That is absolutely right. I have not seen 
any chip manufacturers raising their rates recently.
    Mr. Burton. Mr. Estes.
    Mr. Estes. Mr. Chairman, the business-to-business 
periodicals industry, which we represent through the American 
Business Media, in the past decade their postal rates have 
increased by 60 percent. That is in the past 10 years. The 
religious periodicals, who we also represent, now have as part 
of their budgets 20 to 22 percent going for postage. The 
amazing thing is that in this last action by the Governors the 
average postage increase for business-to-business periodicals 
went up 2.6 percent, but for the religious periodicals it went 
up 2.9 percent. And this is a business, so to speak, that does 
not carry advertising. It comes out of their contributions from 
their churches and whatnot. So they are being hit very hard 
right now. And last, the banking industry, who we also 
represent, for the last year that we had a survey, that was 
1999, their total postage costs were $2.6 billion annually. The 
action taken by the Governors, as you pointed, kept the stamp 
the same but raised the second ounce to I think 23 cents. That 
action alone will cost the banking industry annually $52 
million. So on three of the members we represent, that is the 
bottom line.
    Could I say just one thing about the commission aspect. We 
would hope that any commission, if any commission ever 
develops, that there would be a deadline, like 10 months or 
something like that, and we put that in our paper.
    Mr. Burton. Yes. Thank you, Mr. Estes.
    Mr. Del Polito.
    Mr. Del Polito. Everybody else seems to have done a 
credible job in terms of documenting the disaster. I could add 
my own stories but it probably would not add anything to your 
knowing. But what I think you need to appreciate is that what 
they also have cost themselves with their customers is a 
tremendous amount of good will has been poured down the sewer.
    I have never in my entire career in the postal community, 
which is now 18 years, seen people react to what they perceive 
to be the approach of the Board of Governors and the management 
of the Postal Service with such anger. If I have to hear one 
more time in any venue out of a postal service manager's mouth 
``We are going to go ahead and raise your rates because you 
have got no place else to go,'' the bottom line they need to 
appreciate is increasingly in the future people will have a 
place to go. If they are looking for a fiscal crisis to be able 
to act as the crutch for postal reform, they are about to get 
it big time.
    They have got a key decision in front of them relative to 
what they do in July. If they file for a postal rate increase 
of any magnitude before the beginning of the next year, they 
are going to be making a tragic, tragic mistake. And, quite 
frankly, mailers are tired of being the monkey in the middle 
between games to be played between the Postal Service and the 
Postal Rate Commission over the fine points of the law that 
increasingly has become an anachronism.
    It is nice to be able to hear that after 6 years people 
finally begin to agree that postal reform is a necessity. Now 
it is time to get it done.
    Mr. Burton. Thank you. Before I go to Mrs. Mink, let me 
just say that I would like to have excerpts of this, we are 
video taping this, I would like to have excerpts put on a tape 
so I can give it to the Board of Governors next week.
    Mrs. Mink.
    Mrs. Mink. Thank you, Mr. Chairman.
    Mr. Cerasale, was it, of the Mailers Council, I looked 
through your testimony and I am struck by that paragraph in 
which you said that you have repeatedly asked to have an 
opportunity to sit with the Board of Governors and that this 
request has consistently been denied. What is the basis for 
that denial? Is it statutory, or is it simply some rule that 
they have adopted on their own that places them above the 
public?
    Mr. Cerasale. It is not statutory, it is not really a rule 
that they have passed either. It is a policy that they follow. 
I can understand some of it. To a certain extent, they are a 
part-time board and to meet every single mailer they would use 
up all their time. However, we think that from the Mailers 
Council standpoint, we represent such a huge percentage of 
their customers, that it would be worthwhile for them to meet 
with us.
    We had one meeting with a group of mailers with the 
chairman and vice chairman of the Board, and they at least 
expressed a desire to continue having these meetings 
periodically. So that we may have finally made a crack in the 
door of the Board that is running a service organization 
meeting with its customers.
    Mrs. Mink. Thank you very much. Maybe they knew about this 
hearing today.
    Mr. Cerasale. That is a possibility.
    Mrs. Mink. Congresswoman Schroeder, as you know, tomorrow 
we will be debating on the floor the reauthorization of the 
Elementary and Secondary Education Act. A large component of 
that legislation has to do with the concern of the President 
and his administration, all the teachers, and people that are 
involved in analyzing public education today and why Johnny 
cannot read after the third grade. So we have weighed in 
tremendous resources for this campaign on literacy and reading 
and adequacy of the instruments given to teachers so that they 
are qualified to teach reading.
    And in your testimony, you raise this specter of crippling 
what we are trying to do in our legislation to encourage the 
distribution of books and adequacy of our libraries and so 
forth by indicating that these rate increases that attack your 
particular membership is going to severely limit the publishing 
industry from getting these books out to the very people we 
want to assist. Where will the industry go to if the Postal 
Service insists upon these rate increases that will price you 
out of relying upon the Postal Service for this distribution?
    Ms. Schroeder. Thank you so much for your question, 
Congresswoman Mink, because this is really what troubles me. 
There are many book clubs for children. Obviously, postage is a 
very key part of it. We do not know even how to price books if 
they are going to continue with 50 percent postage increases 
every year, and companies are not even going to offer them in 
the future if they end up having to absorb all these additional 
costs that they did not predict. How do you put out a business 
plan?
    Now I would rather talk about reading than the business 
plan, but we are not going to get the reading material to the 
children if there is no business model that allows a company to 
stay in business that is doing that. And that is really where 
we are. A business person cannot predict what the costs are 
going to be when you saw that chart going straight up. They 
want to get stuff out to children but parents do not have a lot 
of money and so you want to keep it as low as you possibly can.
    I think it is a tax on reading. I really do. And in the 
reform legislation this Congress passed when you were here, it 
very clearly said that should be taken into account, that the 
cultural issues, the educational issues, the scientific and 
information should be taken into account. It was not taken into 
account at all. They really whapped books. We are very 
concerned about what happens to those children's reading 
programs and adult reading programs that are out there.
    Mrs. Mink. Thank you very much.
    Mr. Estes, I think I have time for another question, in 
your testimony you made mention of the encroachment of the 
Postal Service into the electronic industry and establishing 
various partnership arrangements. You level some criticism on 
this movement and made a statement that the taxpayers, in fact, 
were being pushed into this particular partnership because we 
in essence pay for most of the revenues that the Postal Service 
receives. Can you elaborate on precisely what the Postal 
Service has done in your view that is an encroachment on their 
primary mission.
    Mr. Estes. Yes, Congresswoman. The problem that we see the 
Postal Service facing is one of getting into the private sector 
where we do not believe they should be. They ought not to be 
competing with private sector organizations, who are doing a 
good job. Now they have started up new ventures--e-mail 
ventures, e-bill pay ventures, with the American Express Co. a 
check fulfillment process, several others. Those have lost 
money. That money has to be made up somewhere from the revenue 
stream. And the revenue stream that is most often used to make 
up money is from the first-class revenue stream. And that is 
what we are really addressing here.
    Basically, our concern is that the Postal Service as such, 
as a Government agency, a quasi Government agency, ought not to 
be in the business of starting up private sector ventures in 
competition with the private sector.
    Mrs. Mink. Thank you very much. Thank you, Mr. Chairman.
    Mr. Burton. Thank you, Mrs. Mink.
    Mr. McHugh.
    Mr. McHugh. Thank you, Mr. Chairman. Let me express my 
appreciation particularly to the individuals sitting at the 
front table who, in the case of John, and Gene, and Jerry, 
especially, were so actively involved in this process. 
Obviously, their presence here today reflects their continuing 
concern. And I am not sure why they have gone through what they 
have over the past several years and are still voluntarily here 
today. I am not sure we subpoenaed them, did we? No? 
[Laughter.]
    They are here voluntarily, and my compliments to all of 
you.
    Mr. Estes, you made a comment back in March 1999 before our 
subcommittee and I want to read it to you. ``We often hear the 
warning that it would be unwise to wait until the Postal 
Service is broken to fix it. But without evidence of present or 
eminent breakage, such as declining volume or revenue trend 
lines over a representative period of time,'' you then 
reference H.R. 22, ``demands for change rest on little more 
than conjecture.'' Would you like to update that statement?
    Mr. Estes. You are referring to the situation today with 
respect to----
    Mr. McHugh. That is why we are here, sir.
    Mr. Estes. Right. Yes, sir, I can. As I mentioned a minute 
ago, the last 5 years have been pretty good with respect to 
volume and revenue. In looking at the data for this year of 13 
accounting periods, we are now through 8 of them, and as a 
result of those 8 through 13 accounting periods, the revenue 
for the Postal Service is down from budget 1.8 percent, the 
volume is over budget by 0.9 percent, and the expenses are off 
by 0.1 percent. Those, to our way of thinking, Mr. McHugh, 
represent a trend, or maybe there's a modification.
    Mr. McHugh. I appreciate your qualified yes. Can we agree, 
and we've not agreed on a great deal in specific terms, 
objective wise, I think we have, can we agree that whatever 
trend lines, whatever quarters of fiscal revenues and 
expenditures may show, the current system doesn't work for your 
members? Wouldn't the data that you outlined and Ms. Schroeder 
and others have suggested, double digit price increases within 
the last several months suggest it doesn't work?
    Mr. Estes. Yes, we can agree that reform is essential.
    Mr. McHugh. Then let me just say, you were very gracious in 
your comments and deferred remarks about H.R. 22. I have no 
love personally for H.R. 22. I told particularly some of the 
folks at the front table there and then our second panel, if I 
have to write a bill of my own hand, that wouldn't be it. But I 
don't have the only vote in this House. There are 434 others, 
as I know Ms. Schroeder recognizes. And we tried to do 
something that was passable, achievable.
    You do, however, in your written statement, that will be 
part of the record, make some comments and observations about 
H.R. 22 that I have to tell you are simply incorrect. I commend 
you for your continuing interest, for the clarification of the 
comment you made earlier with respect to the condition and the 
crisis of the Postal Service.
    I'm going to ask the chairman for unanimous consent that we 
can enter into the record a point-counterpoint of the concerns 
that you expressed. Because I think that's important. If H.R. 
22 is a major part of reform, terrific. If it's not, that's 
fine too. But as you heard the chairman say, I think it is 
going to be the focus of a starting point. So I think it's 
important we proceed accurately.
    Mr. Burton. Without objection, that will be put in the 
record.
    Mr. McHugh. Thank you, Mr. Chairman. And all I'm asking, 
Mr. Estes, is that you, when it is submitted, please read it 
and comment and return, so that we can at least understand each 
other based on facts. Is that fair?
    Mr. Estes. Mr. McHugh, yes, it's fair, and let me just add 
that even though we've disagreed on some of the substances of 
what has been proposed, you and your staff have always been 
gracious, as you are now, in listening to our concerns. So yes, 
it's eminently fair as you are.
    Mr. McHugh. I appreciate that. Because really, what we all 
need to do is focus on the future. And Gene Del Polito made 
some comments about that in his testimony. He's been a muse of 
sorts to me and he continues to be.
    What's important is not what happened yesterday. What's 
awfully important is what happens today and into tomorrow. So 
I've squandered most of my time on that. The good news here is 
we've dealt with these folks, all of them, and have appreciated 
their input. Mr. Chairman, again, my compliments to you.
    If this were easy, we would have done it a long time ago. 
It's not. As Jerry said, even amongst his own membership, 
everyone agrees on the word reform, but it's like beauty, it's 
in the eye of the beholder. But it's all of our 
responsibilities now to find a common bridge that we can cross 
that does more good than not. And your leadership, Mr. 
Chairman, has been exemplary and I deeply appreciate it. Thank 
you.
    Mr. Burton. Mr. Del Polito, did you have a comment about 
Mr. Estes?
    Mr. Del Polito. I know that Jack remains unconvinced, 
unless he sees sufficient trends. But I would ask everyone to 
keep in mind, as I had said in my statement, that the fact that 
the crisis that the Postal Service is in right now may not be 
due to electronic diversion, it's coming and it's coming fast. 
I think everyone should take to heart the comment that former 
Postal Rate Commission Chairman Ed Gleiman shared with me over 
lunch 1 day in which he said, you know, we should count 
ourselves lucky. We've gotten a wakeup call. Because if we pass 
this one by, we're going to find that the crisis is going to be 
much worse than we ever imagined.
    It's always amazing to see that people will build their 
houses on the San Andreas Fault and they'll be told, it's going 
to shake and the house is going to come down. But they don't 
believe it until it happens. And then you hear the weeping and 
the gnashing of teeth after they're sorry.
    Mr. Burton. I don't want to have a debate here, Mr. Estes, 
but go ahead.
    Mr. Estes. Just a quick comment. The Postmaster General, 
the current Postmaster General has indicated that e-commerce is 
not that much of a problem. He believes that people stopped 
writing letters some time ago. E-mail does not represent a 
threat to the Postal Service. I can give you the transcript of 
that if you'd like to see it.
    The other is that the question of the Internet, Mr. 
Henderson believes, may be a blessing for the Postal Service, 
because of the added business that they will get in shipping 
and what-not. I can also make that available. It's a transcript 
of a hearing, of some testimony he gave.
    Mr. Burton. I'm not sure I agree with Mr. Henderson.
    Mr. Davis was here for questions first. Is that all right? 
Mr. Davis has been here I think from the beginning. Mr. Davis.
    Mr. Davis of Illinois. Thank you very much, Mr. Chairman. I 
really appreciated the testimony of the panel, all of you. 
Especially the passionate testimony or presentation from 
Representative Schroeder relative to reading and the importance 
of it, and the need to foster it as we try and guarantee 
further our sense of democracy.
    I also detected, though, running through the panel a theme 
which essentially said that continued rate increases are going 
to have a seriously negative impact on your businesses, and on 
your industry. And I certainly can appreciate that. The 
question that I would raise in an effort not to be redundant, 
given this understanding, if you would, what would you propose 
as alternatives, or if you have any notions of alternative 
solutions? Would you be willing to share those with the 
committee?
    Mr. Campanelli. Congressman Davis, to kind of recap some of 
my testimony, fundamentally the Postal Service, and I do agree 
with Mr. Estes on this, should have a tighter scope and a 
tighter mission. That is again focusing on getting the mails to 
the home and mail coming from the home.
    There are many options upstream, through negotiated service 
arrangements, through additional work sharing agreements, and 
to have private industry handle a lot of the processing, 
sortation, transportation of the mails prior to that last mile 
that's effectively employed now. There are areas, a lot of 
areas, that can be expanded upon that to take that cost out and 
to use private industry to manage that piece of the business.
    In addition to that, the areas of information technology 
also create significant opportunity for taking out time and 
cost. That is fundamentally how information gets to the Postal 
Service about the mail. And also, I would add to the comment 
that it's not so much the e-mail from the individual users, but 
it's the webification of business and industry and the business 
mail that's going to consumers that's going to cause the 
erosion of first class mail.
    The final point is that in the process, there's a 
transformation going on in the types or shapes of mail. And the 
Postal Service has long been pretty good at processing letter 
sized mail. But as they get into larger pieces of mail, flats, 
magazines, catalogs and larger pieces of mail, that is where 
they have a lot of inefficiency. Using industry to move those 
pieces of mail, do more of the sortation, etc., and also within 
the Postal Service then combining classes of mail so that we 
don't have to treat those pieces of mail, books, magazines, 
catalogs, moving through the Postal Service independently, 
creating redundant infrastructure within the Postal Service to 
accept certain types of mail. To the extent that we can combine 
those and move those together through the Postal Service, we 
will create a more efficient Postal Service.
    Ms. Schroeder. Congressman Davis, may I just add, I think 
that's very important. All of our businesses would probably be 
gone if they'd only had 11 percent productivity increase over 
three decades. The Postal Service invested in all sorts of 
machinery and technology to make themselves more productive. 
But somehow it didn't happen. There's been a real disconnect.
    Continuing the focus what you really want, universal 
delivery, is very important. That's what its mission is. Keep 
it on that. Work on the productivity. But what you usually find 
is, whenever you push somebody, they blame someone else. If 
you're going to have a commission we often found all of the 
commissions were really a way to bury the issue of reform. When 
Congress did the base closing commission which had a date 
certain and Congress either had to accept the results or turn 
them all down, something did happen. They couldn't pick and 
choose.
    If it gets to a crisis point where you think you have to 
have a commission I think you're going to have to do, something 
like the base closing commission, which I noticed the Wall 
Street Journal recommended today. But I think it is absolutely 
essential we stay focused on universal service and we get the 
productivity up far more than 11 percent over three decades. 
That's incredible.
    Mr. Del Polito. In the terms of the longer term, one of the 
things I think you need to be aware of is that there really are 
a multiplicity of options from which we could choose in terms 
of how you could restructure a postal system in order to be 
able to have it operate more efficiently, cost efficiently and 
productively. It's regrettable that each and every time we talk 
about more significant structural reforms people choose to 
characterize it in terms of privatization.
    The issue I think that's important here in terms of 
redirecting incentives is not whether or not the private sector 
owns the enterprise or not, but whether or not the enterprise 
is structured in a manner in which it is able to function 
successfully within a competitive environment. A corporatized 
Postal Service, one that has a true stock corporation where 100 
percent of the stock is owned by the Government and where the 
incentives are appropriately structured, could do a vastly 
superior job in satisfying the needs of the American people, 
its workers and the businesses that it serves without 
necessarily saying that Government has to abrogate its 
ownership or responsibility for it.
    It's unfortunate that in many instances, in seeking out 
alternatives such as the way we've attempted to respond to H.R. 
22, that everyone else, everyone wants to be held safe from 
whatever the options may be. Everyone wants a guarantee that 
nothing is put at risk. That kind of brings to mind the 
statement that a fellow by the name of Bayard Ruston gave to my 
graduating college class back in 1968, when he turned around 
and he said, those who actively pursue security lose it.
    And if we're really going to be successful here, when we 
hear everything needs to be put on the table, we need to be 
serious about that. Because if we all seek to be sure that we 
are insulated from change, the very thing we seek to avoid 
we'll get.
    Mr. Campanelli. Representative Davis, I think that from the 
Mailers Council, the big key, echoing on Representative 
Schroeder's statement, is the productivity. It doesn't matter 
what reform you may come up with if you have reform. Whatever 
happens, whatever piece we have of the Postal Service, be it 
what it is today or what it might be in the future, the focus 
has to be on productivity to improve what's happening.
    As you saw from that report card, even against the private 
sector, the Postal Service has not fared that well. But the one 
area where there was some light was the mail processing, where 
internally we've given it a B on our report card. That stems 
from, maybe too late, maybe it took too long, but it stems from 
a lot of capital placed into mechanization, placed into 
automation, trying to improve the productivity of the Postal 
Service.
    One of the things the Service has done in this crunch time 
is to pull back on capital expenditure. That's a mistake. That 
is a major error. They should be moving forward to get more of 
those Bs and hopefully As on that report card.
    Mr. Davis of Illinois. Thank you very much, Mr. Chairman. I 
know that my time has expired. And I'd just say that I think 
Bayard Ruston was right then, and he'd probably be right today.
    Mr. McHugh [assuming Chair]. I thank the gentleman. And let 
me state for the record, while he's in the room, I never like 
to compliment someone unless they're here, Mr. Davis has been a 
leader over the past several years on the subcommittee when we 
were undertaking this endeavor. And he continues that 
leadership. We're working very diligently with he and our two 
staffs, along with the chairman, of course, to try to find a 
bipartisan way to approach this issue. Because it doesn't check 
to see your party registration before it hits you, as I'm sure 
all of you know. So I compliment the gentleman.
    Ms. Norton.
    Ms. Norton. Thank you very much, Mr. Chairman.
    I apologize that I wasn't here to hear your testimony, 
because this is an area of great interest to me. Anybody who is 
interested in public policy has to be fascinated by this 
public-private policy dilemma and how to solve it. I listened 
to your responses and got a sense of your own suggestions. We 
had a prior hearing.
    I'm struck, and of course it really goes not to what would 
you do to reform, but whether we know how to reform this 
entity. I would really like to have you address this. You've 
spoken of what amounts to short term and long term problems. We 
know about the long term problems, because even during the 
flush economy, there were bills here and they got stuck. They 
were mostly dealing with the notion that it was going to get 
worse and there were all kinds of problems that really didn't 
fit the 1970 bill we passed. Times have changed.
    Now, we've got short term economic problems, financial 
problems exacerbating the problems that the Postal Service 
already has. I am very concerned that as we have these hearings 
and hear these suggestions, that we may yet fasten upon some of 
them. Because I do not feel yet that I know how to handle this 
hippopotamus. The Postal Service Act says that the Postal 
Service is to be a business. Of course, there is no business 
like it. And we are expecting of this business what we expect 
of any other business, free collective bargaining, management 
can change quickly when there are problems, we don't have any 
of that.
    Of course, this is a business that is subsidized, so we 
can't compete in the ordinary sense of the word. Of course, 
there are things that you can't do in a market economy if you 
don't compete. These are the kinds of dilemmas that I don't 
know how to address. Nobody ever thought about technological 
communication at all when we passed the 1970 act.
    I know that there is an unusual coalition of mailers and 
employees, and I know what you say. This is my dilemma. You 
say, no service reductions. I couldn't agree more with that. 
This is your universal coalition, your universal service 
coalition, you say, no increases in rates. Couldn't agree more 
with that. I consider that management 101.
    Except management 101 goes for the businesses of the kind 
I'm most often used to. I don't know how to handle, you say the 
products ought to be improved. That's real vague, particularly 
since they can't, this is what your coalition said, since they 
can't compete. So you'd better watch out how you improve your 
products, because you can improve your products so you're 
competing right with somebody as the Postal Service acted like 
it was trying to do for parts of the 1990's with the private 
sector.
    Then of course, the Congress is going to smack you down and 
you're supposed to promote, watch out about that, too, because 
when they promote it, as when they went over to the Olympics 
and promoted like any other business, Congress said, what do 
you mean promoting that way? We don't promote that way. Well, 
that's how private businesses promote. God, I'd hate to be in 
the Postal Service and try to figure it out. What are you? What 
kind of hybrid are you?
    You say eliminate inefficiencies. I'm looking now at what 
your coalition says, and increased productivity, again 
management 101. Every business knows how to do that. The 
difference is, all the businesses know how to do it according 
to management 101, and we have not created a Postal Service 
that operates according to management 101. I am asking whether 
or not, by asking for short term bargaining, that's the part 
that caught my attention. You said, don't let them do any of 
this. You say don't let them do any of this. You say, enable 
the board of Governors to address short term cash needs, more 
appropriately through bargaining rather than shortsighted 
strategies.
    I'd like you to speak, are you asking for a time out to 
allow them to get some money so that they can continue until we 
find a mechanism to figure out how to do this? Or would you 
really like Congress to just absorb these suggestions and try 
to implement them without a more thorough look at this strange 
and unique animal? I am absolutely perplexed as to how to 
reform.
    It is perfectly clear to me that there needs to be reform. 
You're talking about an organization, for example, part of what 
some in Congress want to do is get hold of collective 
bargaining. Better be careful here. You have got some of the 
worst labor management relations in the country in the Postal 
Service. You've got violence among employees in the Postal 
Service, there's so much stress there. You've got 125,000 
unresolved grievances, a sure sign of a backlog.
    I want to be careful there, too. So if all of you have any 
easy answers for how we can do one, two, three, four, I want to 
hear them. I'm more impressed with your notion that to give 
them some money and then let them go about it, then I want to 
know how do you go about it, how do we find out which is the 
right set of reforms to, in fact, plaster onto this absolutely 
unique business on the planet?
    Ms. Schroeder. Congresswoman Norton, as always, you go 
right to the core of it. Having listened to this debate for 20 
some years on the committee, I think there are two things that 
we really have to lay out there. No. 1, we created a critter 
like nothing else. It's not really private, it's not really 
public.
    I think we've also created a Postal Service that's almost 
like the cowardly lion. They're really afraid to come and tell 
the Congress the real status. OK, OK, we can get along. Let's 
face it, about $1 billion is owed the Postal Service by the 
Government for revenue foregone, if you really read the statute 
the way I read it. But they're kind of afraid to come ask that, 
because then they get their hands whacked.
    So part of the problem is, we have to clearly define what 
the Postal Service is. I think it has to become a Government 
agency that has more accountability to you where we can deal 
much straighter. I just don't think this half and half thing 
has worked. I really think we've got to be clear about it. I'm 
glad you said that.
    I don't think we want to privatize it. Because you may say 
we don't know how to reform it, but we clearly could not 
privatize this, either. There is nothing; there's no model like 
that. How are you going to deliver mail not to a country, but 
to a continent, and still retain universal service, and the 
things that every person thinks that every government should be 
doing for its citizens, including me?
    This half and half status has caused Congress to be able to 
micromanage. It's caused the Postal Service to be afraid to 
really level with us as to what's going on. And we find it's 
even very difficult to have the transparency that you would 
have if you had a Government agency. You would be able to have 
much more public records, much more information about the 
costs, much more availability to what's happened. We've been 
trying to meet with the Postal Service for 3 weeks and can't 
even get in. You know, that wouldn't happen, you'd call your 
Member of Congress.
    So I honestly think you've got to decide what this beast 
is. We created something that doesn't fit anywhere, it's kind 
of imploded on us.
    Ms. Norton. Does anyone else have any response to that?
    Mr. Del Polito. I tried to lay down in my statement the 
fact that I genuinely believe that what is at ill here and why 
you get the curious behaviors that you do out of the Postal 
Service is because of the way the incentives are structured 
that cause people to behave the way that they do.
    I'll just give a very simple one, which was in my 
statement. They are now going through the process of trying to 
identify a new Postmaster General. They probably have already 
made a selection, and within the context in which the selection 
has to be made, I'm sure they've made a good one.
    But the most we pay the PMG in this Nation is $164,000 and 
nobody gets paid more than he or she does. In Germany they pay 
their chief executive officer $1 million and he's got all kinds 
of stock options and other ways of increasing and maximizing 
his income when he makes that institution perform well. The 
same is also true of Canada. The Canada Post CEO gets $400,000 
a year. Even the Italian post office pays their CEO $400,000 a 
year.
    When you go looking to try and find out who's going to 
bring you the kind of creative energies and restructuring of 
incentives to get people to go forward, you've got to ask 
yourself, do I really want to take on that level of 
responsibility for $164,000 a year, but no matter how well I 
do, that's the most I could possibly earn. And if I screw up, 
I'm going to have everybody on my back chewing on my legs 
telling me what I've done wrong.
    If you want to change the way they behave, change the 
incentives in the system.
    Ms. Norton. Thank you, Mr. Chairman. I do hope you're 
including more than incentives for pay for the CEO.
    Mr. Del Polito. Yes, I am. [Laughter.]
    Mr. McHugh. Well, whoever that candidate was, if they saw 
that, they've probably withdrawn. [Laughter.]
    Mr. Shays.
    Mr. Shays. Thank you. I'd like to ask each of you, first, 
if you agree that ultimately to solve this problem, you either 
have to raise rates or a combination, cut costs or cut 
services. And I need to know, and I buy in totally with the 
fact that you have disincentives for logical action. So I'd 
like to ask each of you what you would do specifically, without 
a lot of rhetoric, and tell me which is your highest priority.
    We'll start with you, Mr. Estes.
    Mr. Estes. Mr. Shays, I think the most important aspect to 
address is cost cutting and cost management. I refer you to an 
IG report that's part of the April----
    Mr. Shays. No, just right now. I'm not going to dispute 
that, but bottom line is, cost cutting. Thank you.
    Mr. Campanelli. Well, I'd first start by saying the Postal 
Service has already raised rates. So doing it again isn't the 
answer. It does focus on costs. But it is, and a quicker way to 
get at that is better leverage private industry to handle more 
of the upstream processing and invest in the last mile delivery 
network for the Postal Service, a tighter scope of what they 
do, and focus on the universal service, going to the home every 
day, providing that service.
    Mr. Shays. Wait a second, wait a second. Do what?
    Mr. Campanelli. Again, it would be to focus the Postal 
Service on the last mile delivery network, to leverage the 
scope and scale that they have that is unparalleled in the 
country.
    Mr. Shays. But in giving you some choices, you're saying we 
need to focus on universal service, and that's going to cut 
costs?
    Mr. Campanelli. With that focus, then take the upstream 
processing where much of the Postal Service costs and 
inefficiency is, and use private industry to do that more 
effectively.
    Mr. Shays. But we would cut costs, you're telling me we 
would cut costs by privatizing some of the services?
    Mr. Campanelli. Yes.
    Mr. Shays. Fair enough.
    Mr. Cerasale. Mr. Shays, we would say cut costs, of course, 
improving productivity is a way to try and hold and cut costs. 
I guess we should look at the total, not just the costs to the 
Postal Service but the total cost of mailers and the Postal 
Service in trying to deliver things, and we want to try and 
look at reducing the overall costs to customers of the Postal 
Service. It could be their costs as well as the Postal Service.
    Mr. Shays. Thank you.
    Ms. Schroeder. Thank you, Congressman Shays. I honestly 
believe in the whole theory of elasticity and inelasticity, you 
can't raise rates right now on top of what you just did, 
because you're going to lose volume. That only feeds on itself. 
It's the first time they've run a deficit after they just 
raised a rate. So you've got a real issue.
    That drives you to costs, that drives you to 
infrastructure, that drives you to looking at these higher fees 
and figuring out how you streamline it or what you do about it. 
That's why I think we're here. I also think the Government 
needs to look at whether they have lived up to their commitment 
to the Post Office in revenue foregone, and whether we fully 
funded the pension fund, which I understand is a problem. It's 
those types of things that everybody's got to look at it.
    Mr. Shays. Mr. Del Polito.
    Mr. Del Polito. I think first, one of the things they 
should begin to look at is the wasteful programs that they 
still maintain that are not bringing in revenue. Someone was 
making references earlier to some of the e-commercial 
activities that they're involved in which at this point has 
been a drain on them. Those certainly can be cut.
    They should take a look at other elements within their 
organizational structure that also are relatively non-
productive and take steps to cut back.
    No one wants to see the Postal Service not be able to pay 
its bills. I think as Ms. Norton tried to raise earlier, yes, 
we do want a breathing spell. And that breathing spell means 
that if you do need postal rate increases, smaller, more 
manageable postal rate increases are obviously a hell of a lot 
better than having to swallow them in one fell swoop. We've 
been telling the Postal Service that for years. I think they 
heard more frequent, I don't think they heard smaller.
    Finally, there are things I think that the Governors can do 
themselves to alleviate some of the pressure that the Postal 
Service has. They've been asked several times, would you be 
interested in increasing your borrowing authority to get beyond 
the debt limit problems that you're facing today. They've said 
no. There's no reason why that debt can't be increased. There's 
absolutely no reason why some of the flexibility they need for 
operational purposes can't be provided.
    Mr. Shays. Mr. Estes, I interrupted you. You wanted to 
explain about the GAO report.
    Mr. Estes. I just wanted to call your attention, Mr. Shays, 
to an IG report that was part of the record of the April 4th 
hearing that goes into some of the areas where cost cutting 
would be addressed specifically.
    Mr. Shays. Thank you, Mr. Chairman.
    Mr. McHugh. I thank the gentleman. Vice chair of the 
committee, Mr. Barr? No questions.
    Next refer to my colleague from New York, who also was one 
of the most active members of the Subcommittee on the Postal 
Service over the past 6 years, Mr. Owens. No questions.
    Well, as my father used to say when he punished me, we 
could do this all night, but--[laughter.]
    I want to, on behalf of Chairman Burton and all the members 
of the committee, thank you for being here today, for your 
continued efforts, and most importantly, on that promise of 
continued cooperation. We certainly heard the message that you 
recognize the need to act in some way. We'll not reach a 
perfect solution nor one that makes everyone happy. But if we 
can reach one that, as I mentioned earlier, does more good than 
not and is at least palatable to the majority, perhaps that's 
the way we should go.
    But either way, it's a great responsibility. Perfectly 
timed, thank you so much for your presence here today.
    Rather than immediately call our second panel, and I know 
you gentlemen have been waiting patiently, as you just heard, 
we've been called for a vote, it would probably make the most 
sense from a time management perspective to allow the Members 
to go vote and hopefully come back as soon as we can. So with 
your indulgence, we will stand in recess until after this vote.
    [Recess.]
    Mr. Burton [resuming Chair]. We should have another hour 
before there's another vote. We'll now welcome our second panel 
to the witness table. William Quinn, Clifford Dailing, Vincent 
Sombrotto and Moe Biller, who will be accompanied by William 
Burrus. So would you all please stand?
    [Witnesses sworn.]
    Mr. Burton. Be seated.
    As with our first panel, we'll ask you to try to confine 
your remarks to as close as possible to 5 minutes. We'll start 
with you, Mr. Quinn.

 STATEMENTS OF WILLIAM H. QUINN, NATIONAL PRESIDENT, NATIONAL 
    POSTAL MAIL HANDLERS UNION; CLIFFORD DAILING, SECRETARY-
TREASURER, NATIONAL RURAL LETTER CARRIERS' ASSOCIATION; VINCENT 
    R. SOMBROTTO, PRESIDENT, NATIONAL ASSOCIATION OF LETTER 
 CARRIERS; AND MOE BILLER, PRESIDENT, AMERICAN POSTAL WORKERS 
 UNION, ACCOMPANIED BY WILLIAM BURRUS, EXECUTIVE VICE PRESIDENT

    Mr. Quinn. I'm Billy Quinn, national president of the 
National Postal Mail Handlers Union, representing more than 
50,000 union mail handlers. Congress is obviously concerned 
about two related issues. The first is the difficult financial 
situation that currently confronts the Postal Service. The 
second is the need for reform of the Postal Reorganization Act.
    On the question of postal finances, many of the Postal 
Service's current financial difficulties are beyond its 
control. The American economy began to slow late last year, and 
that slowdown occurred faster and deeper than predicted. As a 
result, the volume of mail has not grown as much as expected, 
and the mix of that mail has taken an unprofitable turn, thus 
causing deficits.
    At the same time, fuel prices continue to rise, imposing 
additional costs on postal operations. Similar problems are 
facing thousands of other companies, and it is foolhardy to 
expect that the Postal Service would be immune from these 
general economic trends.
    We therefore applaud last week's decision by the board of 
Governors to raise rates. Although some have suggested 
cataclysmic results and have complained about a second rate 
increase in the past 6 months, we believe in this instance that 
the board chose a responsible course of action. Indeed, no 
mailer who complaints about rates today ever acknowledges that 
rates did not increase at all for the 2 years prior to this 
latest round of increases.
    Unfortunately, the Postal Service also has suggested that 
it might react to the economic slowdown in other less 
responsible ways, such as cutting back on services. We do not 
believe that the cutting of services on which the American 
public has come to depend is a solution to the current 
financial situation. Many in Congress like to blame the Postal 
Service or its dedicated employees for the Service's financial 
predicament.
    But a review of history easily points the finger of blame 
in other directions. It is Congress, you should remember, that 
throughout the 1980's and early 1990's, used the Postal Service 
as a cash cow by imposing unjustified costs on the Postal 
Service in order to reduce Federal budget deficits. And it was 
the House of Representatives, after several years of USPS 
surpluses, that passed the resolution June 1998 without any 
meaningful debate that essentially forced the board of 
Governors to delay a rate increase and forego more than $800 
million that was needed to operate the Postal Service.
    The Postal Service's competitors also share some of the 
blame. I can assure each and every member of this committee 
that United Parcel Service, FedEx and others have only one 
interest when they debate postal reform, and it is not the 
public interest, it is their own bottom line. Others may 
hesitate to say that publicly, but that's the fact of the 
matter.
    That brings me to the second major challenge facing the 
Postal Service, the need for postal reform. On this issue, 
Congress needs to act to amend the current statute so we cannot 
argue against congressional intervention. But Congress needs to 
act in a responsible and informed manner. The Mail Handlers 
Union will support legislation that gives the Postal Service 
flexibility in pricing, the freedom to design or introduce new 
postal products, and the ability to borrow and invest with 
fewer constraints.
    It is patently ridiculous, for example, that the Postal 
Service is unable to change its pricing structure to compete 
for the overnight business of the Federal Government. Frankly, 
I find that embarrassing, that the very government which 
demands universal service from the Postal Service does not 
utilize that service. As many of you know, we have been working 
with other employee organizations and with representatives of 
the mailing community to see if a consensus can be reached 
around these difficult issues.
    While much work still needs to be done, I am encouraged 
that appropriate reform of the Postal Reorganization Act can be 
enacted. A key ingredient in any reform legislation, however, 
must be protecting the ability of the Postal Service to provide 
universal service to the mailing public by processing and 
delivering letters and packages at affordable rates. These 
rates must be sufficient to protect and support the 
infrastructure that universal service requires and to provide 
postal employees with a decent and fair standard of living.
    To say that I am encouraged, however, is not to say that I 
am blindly optimistic. In the last few months, the board of 
Governors has used the Postal Service's recent financial 
difficulties to launch an attack on the collective bargaining 
process that has governed the Postal Service and its employees 
for the past 30 years.
    That attack is wholly unwarranted. Postal reform 
legislation must not interfere with the PRA's current framework 
for collective bargaining. The collective bargaining process 
should be treated as sacred, and should not be changed either 
intentionally or inadvertently by enactment of postal reform.
    This means that the collective bargaining process must be 
allowed to function without artificially imposed constraints, 
such as price caps that effectively become wage caps. The 
bargaining process must be allowed to set wages and benefits 
and the Postal Service must be allowed to pay for its labor 
costs through appropriate postal rates.
    If fair and decent wages require an increase in postal 
rates, then the Postal Service must be allowed to raise its 
rates without jumping through the overly cumbersome hoops that 
currently exist. We look forward to continuing to work with the 
committee and its staff, to ensure that appropriate reform 
legislation is enacted.
    I want to thank you for the chance to testify. I would be 
glad to answer any questions.
    [The prepared statement of Mr. Quinn follows:]

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    Mr. Burton. Thank you, Mr. Quinn.
    Mr. Dailing.
    Mr. Dailing. Mr. Chairman and members of the committee, my 
name is Clifford Dailing, and I am the secretary-treasurer of 
the 100,000 member National Rural Letter Carriers' Association.
    Rural letter carriers drive 3 million miles daily to 
deliver and pick up mail for 30 million customers on over 
68,000 rural routes. Rural carrier routes average 46 miles, 
with 445 stops, delivering 2,875 pieces of mail daily. We offer 
all the services of a small post office by selling stamps, 
money orders, and accepting parcels and priority mail.
    The Postal Service has added over 1 million new rural 
deliveries or addresses each of the last several years. I am 
here today to emphasize our commitment to the future of the 
U.S. Postal Service that guarantees universal service at 
uniform prices with 6 day delivery.
    To accomplish that goal, however, we believe that Congress, 
Postal Service management and postal employees must accomplish 
three things. First, we need Congress to pass postal reform 
legislation that recognizes the changing face of America, both 
rural and urban and the changing nature of communication. Rural 
America, where our members work, depends on 6 day delivery for 
its commerce and information. E-commerce has not replaced hard 
copy on the farms and small towns spread across this country. 
And so far, has reached little even in the city.
    Yet the Postal Service is experiencing tremendous financial 
problems that could result in a deficit this fiscal year 
between $2 billion and $3 billion. If we are losing money now, 
before millions of Americans begin using the internet for 
conducting business that involves the mail, what will happen 
when the internet actually starts reducing mail volume?
    That eventually is one of the reasons why Congress must 
continue to pursue passage of postal reform legislation. We 
believe that it is imperative that all Members of Congress join 
with the leaders of this community in supporting postal reform 
immediately. The Postal Reorganization Act, or Title 39 of the 
U.S. Code, was written at a time when the Nation typed with 
electric typewriters on stationery paper, backed by carbon 
paper. We had phones but no cell phones, mail but no e-mail.
    Today technology has changed our lives considerably. But 
some postal facts remain unchanged. We still have the lowest 
postage rates in the world while carrying 46 percent of the 
world's cards and letter volume. Every day we deliver almost 
680 million pieces of mail, far more than any other Nation in 
the world. In this country, hard copy has not gone away. 
Nationally, we are in an economic slowdown. As a result, the 
Postal Service has collected far less revenue this year than 
was anticipated at the time the last postage rate case planned 
or filed.
    Under current law, the Postal Service begins planning for a 
rate case almost 2 years before rates can go up. Look at where 
the stock market was back then. Remember what the price of gas 
was in 1999, and you'll see why the Postal Service, just like 
many organizations, is seeing a possible financial crunch. And 
it's easier to understand postal deficits when you understand 
that once the Postal Service actually decides how and when it 
wants to raise rates, it takes another 10 months before that 
can occur.
    What happens in the meantime? The economy can and often 
does change dramatically. Fuel prices, a major expense for the 
Postal Service service transport fleet of over 202,000 
vehicles, can increase substantially. Our competitors can 
adjust the gasoline price escalations by adding a fuel 
surcharge to their delivery prices. But the Postal Service 
simply inhales our competitors' truck fumes for at least 
another 10 months.
    That is one example of why the Postal Service needs greater 
flexibility in ratemaking, as well as in its financing, and in 
the agreement it can negotiate with its customers. We need 
legislation to take the current Postal Service into a new era. 
That brings us to the second major change. We need to ensure 
the survival of the Postal Service, one that is the 
responsibility of the Presidentially appointed members of board 
of Governors. The board directs and controls the Postal 
Service's expenditures, reviews its practices, conducts long 
range planning and sets policies on all postal matters. They 
also select the postmaster general.
    With the retirement this month of Bill Henderson, the board 
is about to select a new postmaster general for this new era. 
We have a few suggestions for this individual, to provide the 
leadership the Postal Service desperately needs to thrive in 
this new era of electronic communication and competition. Begin 
by working with Congress to move postal reform onto the 
President's desk. Don't just testify at hearings. Go from 
member to member to inform and persuade.
    Get out of the Postal Service headquarters. Travel with few 
staff and survive the postal universe. Do it regularly instead 
of relying on local managers for information. Find out for 
yourself how we can make this Postal Service a better 
organization. Visit the facilities where there are problems, so 
you can listen to managers' and employees' views. Be a good 
listener, and you'll hear about the tension that exists today 
in too many local offices, from small offices in isolated rural 
areas to the biggest post offices in America's largest cities.
    What we're suggesting, Mr. Chairman, is that the new 
postmaster general must attempt to change the culture of the 
Postal Service. That is the third major objective we in the 
postal community must address if the Postal Service is to 
survive another century. We need to improve the postal 
workplace environment. We don't want managers who dictate but 
ones who want to cooperate.
    The culture must change because today, too many workers 
feel they are not satisfied employees, and don't feel like 
winners. When employees feel like winners, managers do too. One 
particular important problem the new postmaster general can 
address to improve the postal workplace is our system of 
incentives. Managers and workers need to have incentives to 
reach their goals.
    The Postal Service needs incentive based work force. The 
National Rural Letters Carriers has an incentive based work 
force for many years, one that uses what we call the evaluated 
pay system. Our system has consistently shown impressive 
results.
    For example, rural letter carriers need less supervision, 
less help from part-time carriers, overtime is not an issue for 
us. As a result, we have few disputes with our supervisors and 
managers, and thousands fewer grievances compared to the other 
postal unions. The only major difference in the way we perform 
our work compared to the other union workers in the Postal 
Service is our incentive based pay systems.
    Rural carriers have the highest employee satisfaction index 
in the Postal Service. And not coincidentally, rural carrier 
customers have the highest customer satisfaction index. If we 
can accomplish these three goals, the passage of new postal 
law, the appointment of an enlightened PMG, and an improved 
workplace environment, we could see the U.S. Postal Service 
empowered to go on for the next 30 years.
    Mr. Chairman, and committee, I thank you.
    [The prepared statement of Mr. Dailing follows:]

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    Mr. Burton. Thank you, Mr. Dailing.
    Mr. Sombrotto.
    Mr. Sombrotto. Thank you, Chairman Burton, for the 
opportunity to testify today on the subject of postal reform.
    Before I get started, I would like to make a couple of 
brief comments. First of all, very late last night, an 
unprecedented and unconventional move, the Postal Service board 
of Governors submitted to this committee, as well as the Senate 
Governmental Affairs Committee their suggestions on postal 
reform. I would like for the NALC to have the opportunity to 
enter into the record some remarks as it pertains to their 
particular submission.
    Mr. Burton. Mr. Sombrotto, we encourage that, we'd like to 
have remarks and suggestions from all of you. We're going to 
put all of those things into the mix and try and come up with a 
bill that everyone can live with.
    Mr. Sombrotto. Thank you. In order to supplement my 
testimony, I have a number of charts and graphs that I want to 
make available to the committee for their perusal. I am Vincent 
Sombrotto, president of the National Association of Letter 
Carriers, representing more than 315,000 active and retired 
letter carriers.
    For more than 6 years, the NALC has worked closely with 
Representative John McHugh and other members of this committee 
to come up with meaningful postal reform legislation. Those 
efforts evolved into H.R. 22, a bold approach to reforming the 
postal service. I fear that if we do not act soon, even the 
far-reaching goals envisioned in H.R. 22 will not be enough to 
put the Postal Service on a stable foundation.
    The Postal Reorganization Act of 1970 is more than 30 years 
old, and predates the advent of the Internet and other advanced 
electronic communications. Moreover, the legislation could not 
have anticipated the intense global competition that now exists 
within the delivery service marketplace. If the reports coming 
from the U.S. Postal Service are to be believed, we will be 
facing some major challenges in the near future.
    Under the current system, the Postal Service is 
particularly vulnerable to economic fluctuations. For example, 
the Postal Service delivers more than 52 million pieces of 
financial mail each year. An economic slowdown, coupled with 
the reduced commercial lending and marketing cutbacks, results 
in lower mail volume and reduced postal revenue. 
Understandably, many feel that rates should not be increased 
until the Postal Service has cut their costs. However, the 
number of delivery points grow by some 5,600 addresses a day, 
and mail volume is relatively flat. The result is higher cost 
without increased revenue.
    The Postal Service can and should be seeking the statutory 
freedom to expand the services they offer, including negotiated 
service agreements and creating joint ventures with private 
companies. Unfortunately, some of the suggestions put forth by 
the Postal Service have gone in the opposite direction. The 
Postal Service's recent overtures to cut back on service or 
erode collective bargaining rights are neither desirable nor 
are they feasible. Instead, the Postal Service should be 
looking at ways to enhance service.
    If your product or service is running head to head into 
stiffer competition, whether it be from other businesses, 
emerging technologies or both, you don't reduce the quality of 
your product or your service so it's less attractive to its 
customers. You try to figure out how to improve your product or 
service. In the case of the Postal Service, this would mean 
more timely delivery and innovations that meet consumers' 
changing needs.
    For businesses, the Postal Service could look to flexible 
pricing, information about the progress of mailings and perhaps 
new logistical and inventory control services. Ideas such as 5 
day delivery are not an enhancement of service.
    The other point that has been raised recently pertains to 
the collective bargaining system, which the Postal Service 
operates. Despite the commitment that John McHugh has made to 
the current collective bargaining system, and the agreement of 
many of our largest postal customers that changes to collective 
bargaining will not be part of the postal reform bill, some 
continue to bring up this issue.
    I know that you, Mr. Chairman, have already understood that 
the NALC will not support any postal reform bill that includes 
erosion of the collective bargaining rights, and specifically 
third party arbitration. Without third party arbitration as a 
last resort, should the parties be unable to reach what the 
NALC has always sought, a negotiated settlement, there would be 
no pressure on management to negotiate fairly and 
constructively.
    Calling for doing away with the rights of a neutral third 
party arbitration in exchange for the right to strike are a 
non-starter with us. As we march down the road toward postal 
reform, there are some key principles that we must adhere to. 
The preservation of universal service is paramount. This means 
providing full mail service to every address 6 days a week. 
Other essential elements, including enabling the Postal Service 
to enter into contractual agreements and providing it with the 
flexibility to adapt to unexpected changes in the economy, such 
as the recent increases in fuel prices.
    The NALC is committed to working with all of the 
stakeholders in the postal reform debate. In addition to 
working with you, Mr. Chairman, and Congressman McHugh and 
Congressman Davis, we know that this has to be a bipartisan 
effort. We need active input of Ranking Member Henry Waxman as 
well as Danny Davis, who has also demonstrated great leadership 
behind this issue.
    Thank you again for the opportunity to provide testimony 
here today. I look forward to working with you to meet the 
challenges of enacting postal reform. I'll be happy to answer 
any questions.
    [The prepared statement of Mr. Sombrotto follows:]

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    Mr. Burton. Thank you, Mr. Sombrotto.
    Mr. Biller.
    Mr. Biller. Chairman Burton, members of the committee, my 
name is Moe Biller, I'm president of the American Postal 
Workers Union, AFL-CIO, with a membership of 366,000. Thank you 
for your invitation to provide testimony today on the major 
challenges facing the U.S. Postal Service and the impact these 
challenges may have on the members of the American Postal 
Workers Union.
    I have been a close observer of postal operations and 
postal labor relations and public policy as it affects the U.S. 
Postal Service for nearly 65 years. I've been President of the 
American Postal Workers Union almost 21 years. I have known and 
worked under 20 postmasters general of the United States.
    We are appalled that the postal board of Governors has 
informed the Congress that they wish to destroy the collective 
bargaining process of postal employees as it exists today. As 
we understand it, the board of Governors has proposed that 
collective bargaining in the Postal Service be governed in part 
by the Railway Labor Act. The board of Governors apparently 
intends to pay lip service to the principle that postal workers 
should have the right to strike, but in the manner that this is 
proposed, the right to strike would be a total fiction.
    Application of the Railway Labor Act to the U.S. Postal 
Service would not provide a meaningful right to strike, and the 
Postal Service knows this well. What they are really saying is 
that they would rather place wages, hours and working 
conditions into the hands of the President and the Congress 
rather than impartial arbitrators chosen by the parties.
    Under the Railway Labor Act, when a labor dispute threatens 
to disrupt an essential service, the dispute is placed before a 
Presidential emergency board. This would inevitably happen 
whenever postal unions and management fail to reach agreement 
and the dispute would be dumped into the lap of the President 
and the Congress. No strike would be permitted and postal 
management would simply abdicate its responsibility to bargain.
    This is obvious from looking at the railroad and air 
transit industry. For the past 15 years, every rail labor 
dispute has prompted Federal Government intervention. The 
recent Northwest Airlines dispute is another example of the 
right to strike, how the right to strike is fought under the 
Railway Labor Act. The Railway Labor Act also results in long 
delays. In the Amtrak dispute in the early 1990's, workers 
worked without a contract for more than 4 years.
    It is perfectly clear that the board of Governors has no 
intention of permitting a strike. They simply want to deprive 
employees of any means to force the Postal Service into good 
faith negotiations. I can tell you that the detailed standards 
the board suggests by setting bargaining unit compensation, 
unlike the stance it proposes for setting management 
compensation, will not give postal workers fair and equitable 
treatment.
    The Postal Service also wants to be free of the unfair 
labor practice jurisdiction of the National Labor Relations 
Board. Rail Labor Administration coverage would deprive the 
National Labor Relations Board of jurisdiction. The Postal 
Service would avoid finding that it committed unfair labor 
practices, including findings that if the Service fails to 
bargain in good faith and discriminates against employees for 
protected activities.
    Instead of an administrative remedy for unfair labor 
practices, postal unions would be forced into court to enforce 
the law. This would be time consuming and expensive for both 
the Postal Service, the unions and the courts.
    In short, the board of Governors proposal is contrary to 
every sound tenet of labor relations. Postal workers would be 
deprived of free collective bargaining, which is still limited 
today, while the Postal Service is deprived of its stated 
goals. The board's proposal would build in more delay and more 
costs without resolving the problems for Postal Service labor 
relations.
    The APW supports giving postal workers the right to strike 
under the National Labor Relations Act. If the Postal Service 
wants to be treated like a private sector employer, for 
example, UPS, postal employees should be covered by the 
National Labor Relations Act and have the right to strike.
    Finally, I must comment on the proposal to strip veterans 
of their rights and to decimate employee fringe benefits. 
Veterans who have served their country with distinction deserve 
employment protections and postal workers deserve decent health 
and retirement benefits. The proposal to strip them of health 
benefits and retirement exposes the Postal Service desire to 
return postal employees to welfare eligibility. Postal workers 
are hard working and productive. The proposal by the board of 
Governors demeans these dedicated workers.
    I would like those remarks to be added to the rest of my 
testimony.
    Mr. Burton. Mr. Biller, we will add the other remarks that 
you'd like to add.
    Mr. Biller. I apologize for the momentary delay. With me 
today is Mr. William Burrus, on my left, who serves as 
executive vice president of the American Postal Workers for 21 
years. He served before that as the president of the Cleveland 
Area local of the American Postal Workers Union and other 
important offices. The testimony we're giving today is not just 
our personal testimony. However, it is given on behalf of our 
366,000 dedicated employees of the Postal Service, which we are 
privileged to represent.
    I took out the part where it says my remarks will be brief. 
[Laughter.]
    I have little doubt that the process of considering these 
issues will be intensive and most likely extensive. During that 
process, the resources of the American Postal Workers Union, 
its staff and professional consultants are available to provide 
the committee with any assistance that might be helpful.
    I'm going to address four more points in this brief 
testimony. Take out the word brief. First, I will state our 
views concerning the reasons for the present financial 
difficulties for the Postal Service. These views are based upon 
relatively indisputable public records of the Postal Service.
    Second, I want to place the present challenges facing the 
Postal Service in perspective. The sky is not falling, and it's 
important that the Congress of the United States make sound 
policy decisions, notwithstanding the cries of the doomsayers.
    Third, I want to emphasize that postal workers represented 
by the American Postal Workers Union have been and are an 
important part of successes achieved by the U.S. Postal Service 
since postal reorganization in 1970.
    Finally, before concluding, I want to state a few basic 
principles that the American Postal Workers Union considers 
fundamental to any sound effort to improve the Postal Service 
through legislation. On the question of the Postal Service 
current financial situation, I want to emphasize first the 
comments of no less an authority than Postmaster General 
William Henderson and a member of the board of Governors, as 
they repeatedly pointed out in testimony before Congress and 
elsewhere the current financial problems of the Postal Service 
are a revenue issue and not a cost issue. The Postal Service is 
indeed an economic bellwether. The current sharp and 
unanticipated slowdown in our economy explains a substantial 
part of the current deficit projection of the Postal Service.
    Very similar views were expressed by a representative of 
the General Accounting Office in their congressional testimony, 
to the effect that the biggest unknown about the postal revenue 
this year is how soft the economy will be. The critics of the 
Postal Service costs are largely business mailers. These same 
businesses profit handsomely because the Postal Service has 
reduced their postage rate by many billions of dollars in 
return for the performance of preparatory work.
    In the recent rate case, the Postal Service acknowledged 
that it could not justify the current discounts on the basis of 
cost avoidance. As you evaluate the final strength of the 
Postal Service, it is important that you maintain some 
perspective on the present situation. There are two types of 
perspectives I would like to mention, short term and long term. 
I will deal with the short term perspectives first.
    Congress and the mailing community are very concerned that 
the Postal Service has projected potential deficits of $2 
billion or $3 billion for this fiscal year. We have the same 
concerns. Only 6 fiscal years ago, in 1995, the Postal Service 
enjoyed the largest increase in operating profits of any 
company in the world, and earned $1.8 billion. In two other 
years, the Postal Service generated profits of $6 billion and 
$1.3 billion.
    By 1998, the criticism of the Postal Service was that it 
was generating too much surplus money. Thus, in the relatively 
short term perspective of 3 to 6 years, it's clear that the 
Postal Service as presently configured and operated has the 
capacity to generate substantial surpluses as well as 
substantial deficits.
    The long term perspective I want to offer begins 31 years 
ago. In 1970, postal workers were at that time Federal 
Government employees engaged in the nationwide work stoppage. 
They withheld their labor because working conditions were 
intolerable and wage levels were unacceptably low. In 1970, 
postal workers in New York City qualified for welfare. It is 
important to recall that in the Postal Reorganization Act, 
Congress addressed the problems of inadequate pay by enacting 
an increase in postal wage, in fact, two of them.
    Thereafter, Congress widely provided the free collective 
bargaining of wages, hours and working conditions. From 1970 
through 2000, the real wages of bargaining unit postal 
employees has adjusted for inflation and have remained 
virtually unchanged. Those who call for a decrease in postal 
workers' compensation as a way of saving money must confront 
this fact. Postal workers will not accept a cut in real wages. 
We will not go back to inadequate pay and welfare in a number 
of areas in this country. Any attempt to take that approach to 
the financial problems of the Postal Service will be self-
defeating.
    So whether your perspective is short term, within the last 
3 to 6 years, or long term, the 31 years since postal 
reorganization, the present financial crisis should not be 
permitted to obscure the fact that the Postal Service has 
succeeded in keeping postage rates in line with the underlying 
rate of inflation in our economy.
    Next, I would like to discuss the third of my four topics, 
the contributions of rank and file workers to the success of 
the U.S. Postal Service. At this time, bargaining unit wages 
are only 57 percent of Postal Service operating revenues. I 
want to emphasize that this 57 percent includes all bargaining 
unit employees combined, not just APW bargaining unit 
employees. Rapid automation has reduced labor costs as a 
portion of postal revenues. Postal workers are now more 
productive than ever, and postal worker productivity has played 
an important part in keeping postal rates in line with 
inflation and our economy.
    Finally, I want to outline the principles the APW considers 
as of fundamental importance should Congress consider 
legislation to change the postal service. One, the ratemaking 
process as it presently exists takes too long. Either the 
present ratemaking process must be compressed into 6 months or 
less, or it should be replaced with a different process.
    Legislation must protect universal postal service, 
including 6 day delivery of mail. This is essential both for 
the public welfare and the financial health of the U.S. Postal 
Service.
    Three, we support the provision of pricing flexibility for 
the Postal Service. As close observers of the antiquated postal 
ratemaking process and of the marketplace, we are convinced 
that the Postal Service has been forced to operate in a highly 
competitive market with one hand tied behind its back. 
Additional pricing flexibility is warranted.
    And No. 4, the right to engage in collective bargaining for 
wages, hours and working conditions must be protected. Postal 
workers will not accept any effort to go back to 1970 or 
earlier. Any such effort, if it were accomplished, would be 
counterproductive. We have opposed in the past and we will 
continue to oppose legislation that places an artificial cap on 
postal wages. Such legislation would strike the heart of free 
collective bargaining.
    Mr. Chairman, this concludes my prepared remarks. And 
Executive Vice President Burrus on my left and I are available 
to answer your questions. We'll be more than happy to make 
staff and professional consultants of our union available to 
the committee for consultation or any other assistance we can 
provide.
    Thank you again for inviting us to be with you today.
    [The prepared statement of Mr. Biller follows:]

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    Mr. McHugh [assuming Chair]. Thank you, Mr. Biller. It's 
good to see you again.
    Let me first of all explain the real Chairman's absence. As 
you probably heard, we had a vote. Rather than take more of 
your time, we dispatched me to vote and run back, so the 
chairman has gone to vote and he'll be back. I'll try not to 
infringe upon his questions.
    Let me also say two things. No. 1, I appreciate the effort 
that all of you gentlemen and the organizations and the hard 
working men and women that you represent have made with respect 
to the Postal Service reorganization reform acts that we have 
put forward. I'm not one of those that happens to believe that 
by and large, the postal workers are the problem. I think they 
are, if not the answer, certainly the reason the vast majority 
of Americans think so highly of the mail service in this 
country, for all the complaining and all the pot shooting that 
goes on. They understand the vital role and the very 
unappreciated role that your members bring on their behalf each 
and every day.
    It's a source of great criticism, which I understand on one 
hand, that postal employees represent 80 percent plus of the 
cost of the organization, and Mr. Biller has refuted that 
somewhat in his testimony. Nevertheless, it's a little 
difficult when you by law have to visit every household in 
America, or certainly provide mail to every household in 
America, every day, to do that without people, and good people. 
Your people are a tremendous asset to us. It's certainly 
something that we need to keep in mind as we continue to 
endeavor to deal with this situation.
    Mr. Biller, you said in your comments the sky is not 
falling, if I heard you correctly. I take it you meant that you 
didn't feel that the current situation in the Postal Service 
merits radical reform? I don't want to put words in your mouth. 
But the question I would ask you, the Postal Service last week 
raised rates again, which Mr. Quinn felt was appropriate. I 
understand that. But it was a rather unusual step in that for, 
I believe, only the second time in the history of the Postal 
Rate Commission, they rejected the findings and voted to 
institute that second phase of the increase.
    They had placed a moratorium on some 800 postal facilities 
across the Nation, either under construction or soon planned 
for reconstruction. Six or seven of those were in my district. 
Virtually every Member of Congress was touched by that.
    They called for over a 5-year period a diminution of 75,000 
manhours, man years, excuse me, the equivalent of 75,000 jobs, 
to be taken out of the Postal Service by attrition. And they've 
commenced a study on the possible termination of Saturday mail. 
Whether you agree with those or not, those are pretty 
affirmative steps, to put it in a kind light.
    Would you gentlemen agree, based on what Mr. Biller said, 
that those steps were an overreaction? I'd be interested in 
exactly where you feel we are with respect to the Postal 
Service's current fiscal position. And it makes no difference 
to me who starts. Mr. Burrus.
    Mr. Burrus. Yes, Mr. Chairman. Much of the efforts by the 
U.S. Postal Service are suspected to be intended to place 
pressure on Congress to enact reform. It's not unusual in a 
year of collective bargaining by one of the labor unions or at 
a time when there's legislation pending before the Congress 
that we find ourselves going from a $200 million deficit in 1 
year to a $2 billion to $3 billion deficit projected in the 
following year.
    Now, the numbers that you use, the 76 to 80 percent of the 
employee costs, as reputed by President Biller, it's only 57 
percent of the unions represented at this table. But whatever 
figure is used, rate costs have not increased beyond the cost 
of the postage rate increase that was approved by the Postal 
Rate Commission. The Postal Service realized $2.8 billion in 
new revenue before the most recent action.
    Wages have not increased anywhere near that. My bargaining 
unit, APW, is currently in negotiations, contract expires on 
November 20th, has not achieved a wage increase this year. So 
if they're experiencing or expect to experience a $2 billion to 
$3 billion deficit, it's creative bookkeeping. As President 
Biller said, the sky is not falling.
    Certainly there is a need for postal reform, there's a need 
to look to the future. But all of the actions that have been 
announced that the Postal Service has serious difficulties, 
there are serious problems about those announcements, 
particularly the timing of them.
    Mr. McHugh. Well, let me followup then. Last month, 
Chairman Burton convened a hearing and one of the people who 
testified was the Comptroller General of the United States, 
David Walker. In his both written and oral presentations, he 
said the GAO has found that the Postal Service is in the midst 
of what he described as a serious financial and operational 
crisis, that absent legislative change places the Postal 
Service's ability to meet its universal service obligations at 
``high-risk.'' Do you disagree with the Comptroller?
    Mr. Burrus. I don't disagree, but it relates to the future, 
it doesn't relate to a specific year. The GAO findings did not 
relate to the year 2001 and a projected deficit of $2 billion 
to $3 billion in that specific year. They were taking a long 
term view. And the impact of technology on the volume of first 
class mail into the future.
    Mr. McHugh. With all due respect, he said, the Postal 
Service is in the midst, not on the verge, in the midst of a 
serious financial and operational crisis. I'm not assigning 
blame to that to anyone. I'm trying to--and I've heard and by 
and large I agree with your comments about the source of that 
is certainly not your workers. Please don't assume anything I 
asked was trying to impugn that your workers are the problem. I 
hope I stated clearly in the beginning I don't feel they are.
    But I'm trying to ascertain, you as the leaders of those 
800,000 people, how you viewed this challenge? Is it serious 
enough for us to take steps to do something about it? Clearly 
we shouldn't act in haste. Moe Biller cautioned us about that. 
I agree with that. And we shouldn't act imprudently.
    But should we act, I guess is the other question?
    Mr. Sombrotto. Well, the question is, what is the real 
picture? Once we define what the real picture is, then of 
course we have to deal with how we correct it. But there are 
flaws in that picture.
    I've heard a lot and read a lot of testimony and read some 
statements by the board of Governors and so on. A lot of 
stakeholders have put their oar in the water, and they're all 
giving their own views of why the Postal Service is in crisis. 
But I just want to respond to a couple of things, and that's 
why I provided some graphs for the committee's attention.
    Since 1972, the consumer price index has gone up some 314 
percent, since 1972, the consumer price index has gone up some 
314 percent. Postal workers, letter carriers, those wages have 
gone up by some 297 percent. So that's well below the inflation 
rate.
    Mr. McHugh. Are you saying that price caps aren't 
necessarily a wage cap, then?
    Mr. Sombrotto. No, I'm not talking about wage caps, I'm 
just talking about what the reality is, what has happened. And 
postage rates have gone up some 286 percent.
    So to summarize that, the CPI has gone up greater than 
letter carrier wages and postage rates have gone up less than 
the CPI. So if there's a problem here, then let's find out what 
the problem is, because it's got nothing to do with wages of 
postal employees and it's got nothing to do with collective 
bargaining. And it's got nothing to do with binding 
arbitration. I just wanted to make those points.
    Mr. Dailing. Mr. McHugh, the issue that I'd like to address 
in attempting to answer your question is what we are meeting 
about, and that's the ability for the Postal Service to be 
competitive into the future. We recognize with your bill of 
H.R. 22 that something needs to shake out, some change needs to 
be done for the future of all of us to survive in providing 
universal service to all those customers out there.
    One of the things that is always asked of me, of my rural 
mail carrier customers, when I pull up to that box and provide 
them with a stamp, is why don't they just go ahead and raise it 
up to 35 cents? Why just a penny? That's what our customers, or 
my customers, are asking me.
    Now, I realize that's just a small portion of the big 
picture. Pricing flexibility, that type of reform, has to be 
done, and needs to be done through this Congress and the work 
of these committee members.
    Mr. McHugh. Thank you. Mr. Quinn.
    Mr. Quinn. Well, as I said in my statement, Congressman 
McHugh, there are a host of reasons that contributed to this 
projected deficit. And clearly, some of them are out of the 
Postal Service's control, a slowdown in the economy, the jump 
in gas prices, have a devastating effect on the Postal Service. 
Obviously, you've been the voice in the wilderness for a number 
of years, talking about reform. But I concur with your 
statements that the Congress shouldn't act in haste in this 
particular matter, that we certainly hope that some of these 
circumstances that contributed to the deficit are aberrations.
    But as I also said in my statement, Congress is not without 
sin in this regard either, because Congress was tapping into 
the Postal Service's funds to address some of the issues facing 
it with the national deficit when that was a cause celebre 10 
years ago. So I think everybody agrees that there's a need for 
reform. The question is, what kind of reform is going to be 
enacted. I hasten to caution you that Congress has to be 
extremely careful not to throw out the baby with the bathwater.
    Mr. McHugh. Thank you. Speaking of aberrations, my sitting 
here is one and I will yield the Chair back to the Chairman. 
[Laughter.]
    Mr. Burton [resuming Chair]. Thank you, Mr. McHugh. Mr. 
Davis, have you had questions yet?
    Mr. Davis of Illinois. Thank you very much, Mr. Chairman. 
Let me just indicate to the panel that I appreciate not only 
your testimony but also the work that your membership performs. 
It's not quite as glamorous as the old Pony Express, but I can 
tell you that the citizens of this country appreciate the fact 
that come rain, shine, sleet or snow, no matter how hot, no 
matter how cold, that they can expect to be able to communicate 
with other people across the Nation. So we appreciate that 
fact.
    We've been talking about studies and reports and criticisms 
and analysis. The GAO issued a report earlier this year that 
talked about the fact that productivity had only increased 11 
percent in the last 30 years, and that it actually declined 3.3 
percent from 1993 to 1999. How do you gentlemen respond to that 
report, and what impact do you think that labor has had on 
productivity?
    Mr. Sombrotto. I provided you with some material on that 
question. The total factor productivity that the GAO talked 
about, 11 percent over the 30 some odd years, is about 
consistent with what happens in the private sector in similar 
circumstances, that is in similar industries or businesses. But 
what they didn't take into account is the postal labor factor. 
When you take that into account during that same 30 odd years, 
the increase in productivity in postal labor is more than 32 
percent.
    So it has nothing to do with productivity. The productivity 
has been there. Total fact of productivity includes many 
facets. It includes the investment capital, investment changes 
that the workers have no, the employees have no part in. When 
you get to the labor itself, their labor has increased the 
productivity a significant amount in those 30 some odd years.
    Mr. Davis of Illinois. So you're saying that, in reality, 
it has no real impact or it's not an issue?
    Mr. Sombrotto. That is exactly what I'm saying.
    Mr. Davis of Illinois. Let me then just ask another 
question. There have been concerns expressed that as we talk 
about postal reform, and that as we come up with a bill, that 
if it should include a postal rate indexing, that we really 
could be talking about putting a cap on the wages of postal 
employees. How do you respond, any of you actually?
    Mr. Sombrotto. Caps are for baseball players, not for 
collective bargaining. The collective bargaining process 
happens to be, it's a national policy. And in collective 
bargaining, both parties sit down in an effort to fashion an 
agreement that reflects the involvement of each party in 
whatever the enterprise is.
    We find it very comfortable for us to sit down across the 
table and make our case for what we contribute to the health 
and welfare of the Postal Service. Management has a right to 
make their case. We try to do that collectively without a third 
party, if we can. When we can't, then we have to go to a third 
party and we go through the same process. Both sides have an 
opportunity to put their best foot forward, put their best 
evidence forward as to their position.
    And in the end, a neutral makes that decision. We're 
comfortable with that. That's a democratic process in action. 
We don't see any need to be tinkering with that collective 
bargaining process.
    Mr. Davis of Illinois. Anyone else?
    Mr. Burrus. A price cap does become a wage cap, and we 
would have no interest at all in having legislation passed that 
would impose on the collective bargaining process artificial 
limits. While it's true collective bargaining within the Postal 
Service since reorganization, we have never, particularly in 
recent years, achieved ECI, which was the benchmark in H.R. 22. 
But that does not stop the human spirit from attempting to 
exceed the ECI if that had been the cap.
    The argument that was raised that, why would the unions be 
opposed to a cap that they've never achieved in 30 years, the 
highest increase received by postal employees in a single year 
has been a 3 percent increase. There have been occasions over 
the last 15 or 20 years the ECI has gone up over 4 percent.
    So while we have never achieved that, to impose an 
artificial ceiling in the rights of workers to bargain 
collectively, free collective bargaining, would be an 
imposition and a distortion of the intent in 1970 where the 
unions were partially responsible for the passage of postal 
reorganization with the promise that we would have free 
collective bargaining. To renege on that promise some 30 years 
later we think would be a disservice to the working people that 
serve the American public.
    Mr. Davis of Illinois. Thank you. I'm going to ask a 
question that does not necessarily relate to your testimony, 
but you were here this morning, and you all heard the testimony 
of the panel that came before. We heard notions of a more 
constricted, or a more limited, Postal Service as being a 
possible approach or a possible remedy for working through some 
of the difficulties that we're facing.
    How do you respond to that? And the question becomes 
really, do we think that a more limited Postal Service could 
generate the revenue necessary to operate whatever part of the 
system that was left?
    Mr. Quinn. Well, presumably, if the Postal Service 
hierarchy embarks upon some project that they believe is going 
to generate more revenue for the company, I don't see what the 
downside is. I believe what the thrust of the statements this 
morning are is that some of those endeavors the Postal Service 
made to generate additional revenue proved to be unsuccessful.
    But I don't see in the long run why you should, as a matter 
of course, rule out any possible endeavors that could generate 
more revenue. It would obviously be better for the Postal 
Service, it would be better for the public, it would be better 
for Congress.
    Mr. Davis of Illinois. I think my question really dealt 
more with, if privatization is to be increased or a part of the 
overall system, how much privatization might we be talking 
about? Or at what point do we take away more revenue than we're 
able to generate to make sure that universal coverage remains, 
or that we have the money in the system to provide universal 
coverage or universal service for first class delivery?
    Mr. Quinn. Well, when you talk about universal coverage, 
and privatization, it's oxymoronic. The fact of the matter is, 
the privateers are interested in skimming the cream off the 
top. The Congresswoman from Hawaii talked about the problems in 
the rural areas of that State that would be exacerbated a 
thousandfold if privatization were to take hold.
    The fact of the matter is that private companies are not 
going to provide universal coverage, they're not going to go 
into areas of this great land of ours where they're not going 
to turn a profit. And I think the concept of that on its face 
is ludicrous.
    Mr. Dailing. I have to agree with my counterpart that any 
type of privatization away from going to every mail box every 
day would be a devastating effect on the universal service. I 
have to reiterate again that we believe some very simple tasks 
could be accomplished in a type of postal reform and that would 
allow a pricing flexibility in the promotion of the products 
that the Postal Service can provide to the American public.
    Mr. Davis of Illinois. Thank you very much, Mr. Chairman.
    Mr. Burton. Thank you, Mr. Davis.
    Mr. Otter.
    Mr. Otter. Thank you, Mr. Chairman.
    Mr. Quinn, in your testimony, you indicated that part of 
the problem was because of the economic downturn that began 
last year, and that was part of the problem, the reason you 
were now looking at maybe a $2 billion to $3 billion deficit in 
the Post Office operations this year. How do you account for, 
or what happened, then, before that? Because it seems to me 
that we're about $9.6 billion in debt, and that had to happen 
prior to last year, because the economy turned down last year. 
What happened to that money?
    Mr. Quinn. Well, it's not in my bank account. The $9.6 
billion that you're alluding to was accumulated over 30 years. 
The fact of the matter is that Congress itself knew that there 
were going to be problems in the adjustment when the Postal 
Reorganization Act was passed in 1970, and the fact is, through 
1982, the Postal Service received subsidies from the Federal 
Government. They haven't received anything in subsidies for the 
past 19 years.
    The fact of the matter is that the former Congresswoman 
from Colorado alluded to the revenue foregone, where the Postal 
Service used to receive far more moneys on mail for the blind 
or things along those lines. In addition, the fact of the 
matter is that through the year 1998, Congress put a hit on the 
Postal Service to the tune of $14 billion in the passage of 
numerous omnibus budget reconciliation acts.
    If you factor in all of those things, plus the vote of the 
House of Representatives in June 1998 by a 393 to 12 vote, the 
House of Representatives in a non-binding resolution had the 
temerity to criticize the Postal Service for having surpluses 
in a number of years, four surpluses in a row. And said that 
the Postal Service had lost sight of the fact that it was a 
public trust and that the Postal Service in effect had imposed 
a stamp tax on the American people.
    So the Postal Service has been put in the position when 
they do well, they're criticized and if they do poorly, they're 
criticized. But I think the fact is, going back to the 
statement that I made, the projections that were made by the 
board of Governors obviously had to have been based on the 
economy. Nobody foresaw the economy going in the tank as it 
did. And once the economy goes in the tank, you're going to 
have a commensurate reduction in business and in mail volume.
    Mr. Otter. Is it time, then, for us to have a vigorous and 
unabashed debate on whether or not affordable universal service 
is still appropriate for today?
    Mr. Quinn. Well, I guess that's for wiser minds than I. But 
the fact----
    Mr. Otter. I think it's an important question that you need 
to look at.
    Mr. Quinn. The fact is that Congress mandated universal 
coverage. And if Congress is going to mandate it, perhaps 
Congress should look at perhaps subsidizing it once again. I'm 
not taking a stance on that particular thing, but Congress is 
making an incredible demand on the Postal Service that 
certainly couldn't be made on any other company, UPS or FedEx, 
etc. And somebody has to absorb the costs for the universal 
coverage.
    The fact is again, the privateers would love to take any 
kind of business from Boston to New York, Chicago to Los 
Angeles, because there's a lot more profit there. But when you 
go into the more rural areas of the country, obviously, that's 
not the case. But of course, the beginning lines of the 
Reorganization Act talk about binding the country through a 
universal mail system.
    Mr. Otter. If we did take a look at that, and we did 
privatize it, or part of it, and subsidized the rural area, 
would it cost us more or less than $2 billion a year?
    Mr. Quinn. Well, I don't think you can take one particular 
year and say, we're looking at a deficit now of $2 million or 
$3 million. Although the Postal Service is mandated to turn a 
profit overall, it's not everything in 1 year or the next year. 
The fact of the matter is, from the mid-1990's on, there were 5 
years in a row that the Postal Service turned handsome 
surpluses. Obviously a lot of that, those surpluses went to 
make up for the deficit that had been accumulated over the 
years. You alluded to that earlier.
    But it's again, as I said to Congressman McHugh, you have 
to be very cautious in this regard that you don't throw the 
baby out with the bathwater.
    Mr. Otter. I agree, Mr. Quinn, and you were right and they 
were wrong, and I wasn't here. That's a joke. [Laughter.]
    Mr. Quinn. Well, I have to agree with you, I don't know 
whether it was meant humorously or not, I was right. 
[Laughter.]
    Mr. Sombrotto. If I may, they were partly right, they were 
partly wrong, and I was here. The fact is that we have 
universal coverage, that is the law now. And we're committed to 
universal coverage. And there's no reason why we can't have 
universal coverage and do it efficiently, if we run the Postal 
Service efficiently. That's all it needs. It needs management 
that runs the Postal Service efficiently.
    It's got one of the most dedicated work forces in the world 
that work in the Postal Service. Men and women commit their 
lives to this job, to working in the Postal Service. Have to 
work at least 30 years before you can even think about 
retiring. So there's a commitment. Most postal employees, if 
you look at the average tenure of a postal employee, a postal 
employee is upwards of 20 years now, on the same job.
    While people are changing jobs all over this country seven, 
eight times during their life time, letter carriers, clerks, 
mail handlers, rural carriers, all take the job with a 
commitment that they're going to stay on the job to see it 
through and meet the commitments of the laws that govern the 
Postal Service.
    So all we need is, there's no reason why we can't have 
universal service. It's something that's desirable, something 
that's needed. But it also can be done and it need not run a 
deficit if it's done correctly.
    Mr. Burton. Thank you. Major Owens.
    Mr. Owens. The last speaker gave us all the answers. Why 
don't we act?
    My question is, and I apologize for having to go back and 
forth, trying to cover three meetings, but is this meeting here 
any more than a high school forum, a general discussion that 
has no significance? What do you think of the fact that the 
ability, the capability of Congress to solve any of these 
problems has been drastically reduced? I think 6 or 7 years 
ago, we eliminated the Committee on Postal Operations and Civil 
Service. We had a whole committee, and then we reduced, we had 
the postal operations assigned to a subcommittee. Now we've 
wiped out the subcommittee.
    So what do you think Members of Congress are going to be 
able to do? We don't have a decent staff to come up with decent 
legislation or study the problem and be able to deal with the 
critics. Where do we fit in the situation?
    There are a number of very critical problems that need to 
be resolved. There are models out there for combined private-
public operations, or a public operation which contracts some 
parts to private. There are all kinds of models we have, 
National Space Administration certainly is not hemmed in in 
certain ways that the Postal Service is hemmed in.
    There are a number of ways we might solve the problem, but 
where's the power? Who really has the power to proceed to put 
together some of the recommendations that you've been making 
here and come up with some legislation that is going to be 
meaningful?
    I don't see it here in Congress now. We don't have any 
clout any more. I'd like to hear your comments on that.
    Mr. Burrus. There continues to be a role for Congress to 
play in serving as the protector of the public in terms of 
providing universal service at an affordable cost. There 
continues to be a role. It's important that Congress plays that 
role.
    Certainly the structure within the Congress has been 
modified over time that the Postal Service has not received the 
same type of oversight that it did back at the time of postal 
reorganization. I would imagine the Postal Service on occasion 
is happy that there is not that regular oversight.
    But while Congress is being requested to provide some 
relief through postal reform, we believe that their 
consideration of that request should not be done with the 
backdrop that the Postal Service has lost $2 billion to $3 
billion. All of the discussions that have transpired by the 
prior panel, as well as the questions posed to us, has taken as 
a fact that the Postal Service is going to lose $2 billion to 
$3 billion. All the reports by Postal Service management has 
been that if nothing changes, they could lose up between $2 
billion to $3 billion. No one has said to this date that they 
have lost it or will lose it.
    Mr. Owens. Let me rephrase my question. Are you being set 
up for failure?
    Mr. Burrus. No.
    Mr. Owens. To quote from a postmaster general from a 
Cabinet a long time ago, the reduction of the congressional 
responsibilities from a full committee to a subcommittee and 
then wipe out the subcommittee, is somebody setting you up for 
failure so that privatization would be an inevitable answer, 
and privatization would be carried out by people, certainly, 
who don't represent the people, because the Congress has no 
capacity really to get deeply involved in that. We don't have a 
single staff person devoted fully to this pursuit, when you 
need a whole crew of people to stay on top of this very serious 
matter.
    You expressed some ambivalence when you said, maybe you 
don't want somebody to monitor you all the time. We need a 
strong statement from somebody out there that Congress should 
get back in the game. If you don't feel we should get back in 
the game, then I don't think anybody else will.
    Mr. Burrus. The Postal Service has succeed in the past and 
can succeed in the future. The objectives are limited. They're 
being, now that we've got a Christmas tree, everybody wants to 
put ornaments on it. Flexibility in pricing, a shorter 
ratemaking cycle, when you add on collective bargaining and 
privatization and those other issues, they are non-starters. If 
the agenda is limited, Congress can play an important role, 
granting the Postal Service pricing flexibility and a shorter 
rate cycle.
    We believe that with those changes, the Postal Service can 
compete in the future.
    Mr. Owens. Mr. Biller, do you have an opinion?
    Mr. Biller. He stole my thunder.
    Mr. Sombrotto. I would hope that the Congress is going to 
play a role. Certainly many of us, and I venture to say most of 
us, are playing the role now. The chairman's suggestion that 
the stakeholders get together and see, work together toward 
trying to find a common solution to what is the problem, if 
that problem present itself. And to that extent, we have been 
meeting, we have been trying, and we will continue to do that. 
We will try to find a, if there is a serious problem and if 
there is a serious problem, how can we address that problem.
    All that I've been saying on behalf of the members that I 
represent, that if there is a serious problem, you're not going 
to eliminate that problem by reducing service, by finding 
artificial means of trying to get over this what we hope is a 
blip in our operation.
    Mr. Owens. I apologize for being less diplomatic than you 
are. But that sounds like a Boy Scout approach. If we don't 
have a subcommittee or you don't have a committee addressing 
this matter, do you really think you're going to work things 
out in this informal way?
    Mr. Sombrotto. No. Well, I don't know that we can work it 
out. But in conjunction with those that make these decisions, 
then you all are the ones that ultimately are going to have to 
present a postal reform. We hope that working with all of you 
that we will come up with a solution.
    But we want to play a role, because we have people whose 
lives depend on our ability to play a role in that forum.
    Mr. Burton. Thank you, Major Owens.
    Mr. Biller. We don't organize or reorganize the Congress of 
the United States or its committees. So your complaint should 
be----
    Mr. Owens. Well, some powerful body, I was hoping there'd 
be a call to the majority party to re-establish a subcommittee 
or committee to deal with the problem. That's what my great 
hope was.
    Mr. Burton. Let me just say to Major Owens that we fully 
intend to get input from all the interested parties, and we 
fully intend to bring legislation to the floor that is 
bipartisan in nature. And, although there is not a subcommittee 
on postal reform or postal services right now, we've brought 
that to the full committee for the express purpose of raising 
the profile of the issue, so that we could get the problem 
solved.
    And it is fully our intention to make this one of the No. 1 
priorities of this session of Congress, because it has to be. 
Although we don't have a subcommittee or a full committee on 
post office, civil service, like we had before, I can assure 
you, this is going to be a top priority. I hope you'll be a 
participant in helping us solve it.
    Mr. Owens. I'm pleased to hear that, Mr. Chairman.
    Mr. Burton. Thank you, Mr. Owens. Mr. Barr.
    Mr. Barr. Thank you, Mr. Chairman. I appreciate the 
hearing, appreciate the witnesses, both their written and oral 
testimony and their answers to questions. It's been very 
enlightening. And I commend your efforts and your commitment to 
work with all the parties concerned over the coming months of 
this session of the Congress to craft legislation that will 
help to do something that as far back as our founding fathers 
recognized was essential to the well being and the security of 
this Nation and that is to have universal, consistent postal 
service.
    As I mentioned earlier, and I believe this very strongly, 
we do have the best postal service in the world. We want to 
keep it that way. But in order to do so, they're going to have 
to be changes made, there are going to have to be compromises 
probably made on all sides involved. And I commend what we've 
heard here today and appreciate the flexibility and willingness 
of these witnesses and the ones that hopefully previously will 
be committed also to working together to solve these problems 
and bring the Postal Service into the 21st century so it can 
compete properly, consistent with the national mandate that it 
I hope will continue to have for universal service.
    I again want to thank the witnesses for their time and 
expertise here today, and their service, and look forward, Mr. 
Chairman, to working with you and other members of the 
committee and interested parties to craft legislation.
    Mr. Burton. Let me just end by saying we will have some 
questions we'd like to submit to all the panelists for the 
record. But more important than that, we really do want your 
suggestions and your input. And I really do appreciate all of 
you, if you will, to meet collectively and with smaller groups 
to iron out differences that you have here. I see in the 
audience some people who have had some severe differences with 
the former bill, H.R. 22.
    We really want to have everybody's input, and we're going 
to take all these issues and sit down with the major interested 
parties and try to work out differences that are really knotty, 
like cutting through the Gordian knot that Alexander the Great 
cut, and come up with a solution that we can all live with.
    Everybody's not going to be completely happy, I'm going to 
tell you, there's going to be differences, you know that, when 
you have this many interested parties, there's going to be 
differences. But as the GAO said, the Postal Service is now in 
a high risk category. We can differ on that. We can have some 
differences of opinion. I heard what you said, I listened very 
clearly.
    But according to a lot of the leadership in the various 
agencies, there's a very severe problem facing us. We don't 
want to wait until we get to the edge of the cliff before we 
stop the car. We want to try to stop the car and solve the 
problem before we get that far.
    So we want your input, we request your input. I really, I 
think Major Owens has a point, if we waited around, it sounds 
like a debating society around here many times, and we don't 
get a lot done. But this is something that we have to get done. 
We are committed in this committee to getting it done. Senator 
Thompson is aware of the problem over there. I will be meeting 
with him.
    I'll be meeting with the Board of Governors this week to 
talk to them about some of the problems, but we want your help, 
we want your input. If you give it to us, we'll do our damndest 
to solve the problem--pardon my language, we'll do our darndest 
to solve the problem.
    With that----
    Mr. Biller. We thank you very much.
    Mr. Burton. Thank you, Mr. Biller. Thank all of you. We 
stand adjourned.
    [Whereupon, at 2:15 p.m., the committee was adjourned, to 
reconvene at the call of the Chair.]
    [The prepared statement of Hon. Dennis J. Kucinich and 
additional information submitted for the hearing record 
follows:]

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