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[Senate Hearing 107-70]
[From the U.S. Government Publishing Office]

                                                         S. Hrg. 107-70
 
            THE FINANCIAL OUTLOOK OF THE U.S. POSTAL SERVICE
=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 15, 2001
                               __________

      Printed for the use of the Committee on Governmental Affairs

                        U.S. GOVERNMENT PRINTING OFFICE
73-392                          WASHINGTON : 2002
_____________________________________________________________________________
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                   COMMITTEE ON GOVERNMENTAL AFFAIRS

                   FRED THOMPSON, Tennessee, Chairman
TED STEVENS, Alaska                  JOSEPH I. LIEBERMAN, Connecticut
SUSAN M. COLLINS, Maine              CARL LEVIN, Michigan
GEORGE V. VOINOVICH, Ohio            DANIEL K. AKAKA, Hawaii
PETE V. DOMENICI, New Mexico         RICHARD J. DURBIN, Illinois
THAD COCHRAN, Mississippi            ROBERT G. TORRICELLI, New Jersey
JUDD GREGG, New Hampshire            MAX CLELAND, Georgia
ROBERT F. BENNETT, Utah              THOMAS R. CARPER, Delaware
                                     JEAN CARNAHAN, Missouri
             Hannah S. Sistare, Staff Director and Counsel
                      Dan G. Blair, Senior Counsel
               Ann C. Fisher, Professional Staff Member,
Subcommittee on International Security, Proliferation, and Federal Services
              Joyce A. Rechtschaffen, Democratic Staff Director and Counsel
                  Susan E. Propper, Democratic Counsel
                Yvonne Sanchez, Democratic GAO Detailee
          Nanci E. Langley, Democratic Deputy Staff Director,
  Subcommittee on International Security, Proliferation, and Federal 
                                Services
                     Darla D. Cassell, Chief Clerk
       

                     C O N T E N T S

                                 ------                                
                                                                   Page
Opening statements:
    Senator Thompson.............................................     1
    Senator Carper...............................................     2
    Senator Cochran..............................................     3
    Senator Stevens..............................................     4
    Senator Collins..............................................     5
    Senator Carnahan.............................................     9
Prepared statements:
    Senator Akaka................................................     7
    Senator Cleland..............................................     8

                               WITNESSES
                         Tuesday, May 15, 2001

Hon. David M. Walker, Comptroller General, U.S. General 
  Accounting Office..............................................    11
Hon. William J. Henderson, Postmaster General, U.S. Postal 
  Service........................................................    13
Hon. Robert F. Rider, Chairman, Board of Governors, U.S. Postal 
  Service........................................................    14
Hon. George A. Omas, Vice Chairman, Postal Rate Commission.......    16

                     Alphabetical List of Witnesses

Henderson, Hon. William J.:
    Testimony....................................................    13
    Prepared statement...........................................    77
Omas, Hon. George A.:
    Testimony....................................................    16
    Prepared statement...........................................    88
Rider, Hon. Robert F.:
    Testimony....................................................    14
    Prepared statement...........................................    83
Walker, Hon. David M.:
    Testimony....................................................    11
    Prepared statement...........................................    48

                                Appendix

Senator Byron L. Dorgan, a U.S. Senator from the State of North 
  Dakota, prepared statement.....................................    47
Responses from Postmaster General Henderson to questions asked 
  during the hearing.............................................   108
Karla W. Corcoran, Inspector General, U.S. Postal Service, 
  prepared statement.............................................   118
Ruth Y. Goldway, Commissioner, Postal Rate Commission, prepared 
  statement......................................................   137
Thomas Schatz, President, Council for Citizens Against Government 
  Waste, letter dated May 9, 2001, sent to Chairman Thompson.....   141
``Future Directions in Postal Reform,'' edited by Michael A. 
  Crew, Center for Research in Regulated Industries, Graduate 
  School of Management, Rutgers University, and Paul R. 
  Kleindorfer, Risk Management and Decision Process Center, The 
  Wharton School, University of Pennsylvania.....................   142
Post-hearing questions and responses from:
    Comptroller General Walker...................................   146
    Postmaster General Henderson.................................   149
    Mr. Rider....................................................   178
    Mr. Omas with attached letter................................   193

            THE FINANCIAL OUTLOOK OF THE U.S. POSTAL SERVICE

                              ----------                              

                         TUESDAY, MAY 15, 2001

                                       U.S. Senate,
                         Committee on Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10 a.m., in room 
SD-342, Dirksen Senate Office Building, Hon. Fred Thompson, 
Chairman of the Committee, presiding.
    Present: Senators Thompson, Carper, Cochran, Stevens, 
Collins, and Carnahan.

             OPENING STATEMENT OF SENATOR THOMPSON

    Chairman Thompson. Let's come to order, please. I want to 
welcome everyone to the Committee on Governmental Affairs this 
morning, our hearing on the financial outlook of the U.S. 
Postal Service, along with Senator Cochran and his 
Subcommittee, who have done so much fine work in this area. We 
are here this morning because of our increasing concern over 
the financial condition of the Postal Service. The Committee 
welcomes our witnesses, Comptroller General David Walker, 
Postmaster General William Henderson, Postal Service Board of 
Governors Chairman Robert Rider, and Postal Rate Commission 
Vice Chairman George Omas. I hope our assembled panel can shed 
some light on the course the postal finances have taken over 
the past year.
    While we will discuss many aspects of this problem in hopes 
of achieving a better understanding of the reason for the 
current situation, certain things seem to be clear. The Postal 
Service framework, established by Congress in 1970, appears to 
be near a breaking point. We established a system whereby the 
Postal Service would have the characteristics of a Federal 
agency and the characteristics of a business enterprise. On the 
one hand, we require that the Postal Service provide universal 
service to every home and business in America. We give them 
little control over the rates they charge and their labor cost. 
We require that they leave unprofitable post offices open. We 
leave them open to the swings in the economy, along with 
fluctuations in transportation and fuel cost. Finally, we 
require them to break even.
    On the other hand, we provide the Postal Service with an 
absolute monopoly on the delivery of letter mail. We provide 
that they do not have to pay taxes or be subject to antitrust 
laws, the way that businesses are. This system worked for 
several years. However, circumstances changed. Two trends 
developed that changed the face of the Postal Service. First 
was a technological revolution, which is in the process of 
changing the way in which people communicate with each other. 
That technology is rapidly finding business applications in all 
aspects of society.
    The second change was that the Postal Service eventually 
and inevitably began to take on the characteristics of most 
Federal agencies. It continued to grow without a focused 
strategic plan. It developed serious financial management 
problems, including wildly fluctuating projections of cost and 
income. It is unable to utilize technology to increase its 
efficiency and productivity even after spending billions of 
dollars. It wastes tremendous sums of money due to 
mismanagement. A combination of these factors results in the 
difficulties that we see before us, as laid out by the GAO--
billions of dollars in deficits in the coming years and an 
inability to deliver the services we want and costs that are 
sustainable.
    Clearly, the Postal Service must address its productivity 
and its management issues. An 11 percent growth in productivity 
over the course of 30 years is not good, to say the least. 
Reports by the Postal Service Inspector General of $1.4 billion 
in waste and mismanagement fuel further cynicism about agency 
operations. Just as clear, however, is the recognition that 
Congress must revisit the 30-year-old statutory framework under 
which the Service now operates. As we proceed, we must ask 
ourselves some pointed questions.
    We, in Congress, must ask what services we want the Postal 
Service to provide and what price we are willing to pay for 
them, and do we really expect the Postal Service to hold costs 
at a reasonable level when we are mandating so many things that 
make that impossible. The Postal Service must ask itself if it 
really expects reform that gives it more discretion when it has 
not demonstrated the ability to make financial projections, 
hold down costs, or increase productivity. Stakeholders should 
ask themselves, even though they may be more comfortable under 
the current situation, where will they be if the Postal Service 
falls apart?
    I approach this issue with no preconceived notion as to the 
precise measures that should be taken. There is a lot that we 
need to understand about the nature of this problem. However, 
it is my belief that nothing should be left off the table, 
including the future of the postal monopoly itself.
    Senator Carper.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. Mr. Chairman, thank you very much. To our 
witnesses today, welcome. It is nice to see some of you again. 
One of you looks really familiar. Mr. Rider, where are you 
from?
    Mr. Rider. Rehoboth Beach, Delaware, sir.
    Senator Carper. A lot of people who work over in this part 
of the country are going to be heading for your hometown in 
about 2 weeks, when Memorial Day weekend is upon us. We look 
forward to seeing some of you this summer, and as they make 
their way to Rehoboth Beach, they can go through Bridgeville, 
where I believe your business is, for the Apple-Scrapple 
Festival later this year. That is a great combination, as I am 
sure you can tell everybody. I understand your testimony 
focuses on that very thing. We are really pleased to see you 
here--you and I used to be the same thing. We use to be 
governors together, and now you are chairman of the governors, 
and I am just a former Governor, but we are delighted that you 
are with us.
    To our other witnesses today, Mr. Henderson, I understand 
you are going to be stepping down as Postmaster General after 
several years of Service, and I just want to say publicly, 
thank you for your work and your leadership of the men and 
women who are part of the Postal Service.
    Mr. Walker, we look forward to being with you here today. 
Your people are doing great work, and we are looking forward to 
your comments.
    Just a couple of quick comments. I really look forward to 
your comments and to the give and take that we have here today. 
Mr. Rider and I had a chance to chat on the phone not too long 
ago about a couple of things, and as you look for ways to raise 
revenues and to hold down your cost, I would again urge you to 
focus on workplace safety. The cost that I think we discussed 
on the phone was about $1.5 billion, and some of that is hard 
to control. Some of that is more easily controlled. We talked a 
bit about the good work that has taken place at Alcoa, under 
the leadership of the fellow who is now our Secretary of the 
Treasury. We talked a bit about, closer to home, the work that 
goes on at the duPont Company, where my wife works, and a lot 
of other Delawareans work, as well, and stay focused on 
workplace safety to help to drive down their cost.
    I understand that is a focal point, but as you look for Mr. 
Henderson's successor, I sure hope that you will keep in mind 
it would be great to have a leader who understands how much 
money actually could be saved, is being saved, and could be 
saved. The other thing I would say is my hope is, as we go 
through our testimony today, we will have the opportunity to 
find out some ways that you are raising revenues, would like to 
raise revenues, and ways that you are raising productivity and 
would like to raise productivity, some ways you are trying to 
hold down your costs and would like to further hold down your 
costs.
    What I am looking for are ideas where we can be a partner, 
where we can help to assist you in those efforts and ultimately 
provide better service to the folks that we represent. Again, I 
am glad that you are here and we look forward to this give and 
take. This is an important hearing for everybody in every 
State, and we thank you for joining us today, especially Mr. 
Rider, who I think may have been in Hawaii visiting his 
daughter, and it was good of you to come back here. We have 
offered you some great weather, so you should not be 
complaining, my friend. But we thank you for making this trip 
and we apologize for disrupting your plans with your family.
    Chairman Thompson. We are holding our hearing today in 
conjunction with Senator Cochran's Subcommittee, so I will call 
on Senator Cochran next for any comments.

              OPENING STATEMENT OF SENATOR COCHRAN

    Senator Cochran. Mr. Chairman, it is a pleasure to join you 
this morning in convening this hearing. We think it is an 
important and timely hearing. There are all kinds of 
suggestions even being made in advertisements in the Washington 
Post this morning about what the Postal Service needs to do to 
get its house in order financially, and to turn a profit rather 
than a deficit, and therefore obviate the need for a postal 
rate increase. It would be good to hear the witnesses' reaction 
to that suggestion.
    I think the underlying message is that the Postal Service 
has too many people and it can solve all its problems by 
cutting down the number of employees it has. That will be an 
interesting thing for you to respond to, as well.
    Mr. Omas, it is a pleasure to recognize you, specifically. 
What State are you from?
    Mr. Omas. Mississippi.
    Senator Cochran. I just wanted to be sure I remembered that 
right. Who was your dormitory manager when you were at Guess 
Hall, at the University of Mississippi?
    Mr. Omas. I think his name was Thad Cochran. [Laughter.]
    Senator Cochran. It is good that you remembered all that, 
as well, and we look forward to visiting with you further on 
these issues.
    Thank you, Mr. Chairman.
    Chairman Thompson. All right.
    Mr. Henderson, where did you used to be a postmaster?
    Mr. Henderson. Memphis, Tennessee. [Laughter.]
    Chairman Thompson. Beg your pardon?
    Mr. Henderson. Memphis, Tennessee.
    Chairman Thompson. That's what I thought you said. 
[Laughter.]
    Chairman Thompson. While we are at it, Senator Stevens?
    Senator Stevens. Mr. Henderson, what State have you spent 
more time in, in the last 5 years?
    Mr. Henderson. Alaska. [Laughter.]

              OPENING STATEMENT OF SENATOR STEVENS

    Senator Stevens. Mr. Chairman, I am delighted that you are 
having this hearing. I have three going on this morning, but I 
did want to come and participate here, particularly to thank 
again the Postmaster General for his service. I have worked 
with all the gentlemen at the table, but Postmaster General 
Henderson has come to Alaska quite often to try and see what we 
can do to solve the problems of postal delivery and the deficit 
that they run up there, which is a matter of necessity, and 
that is one of the reasons I am here.
    We have no roads. There is only one main road in Alaska. 
Seventy-five percent of our transportation of goods is by air, 
and that is primarily by parcel post. The system that the 
Constitution guaranteed for maintenance of post offices and 
post roads has real meeting in my State, and Postmaster General 
Henderson, you have recognized that and we appreciate that. 
Beyond that, I came because I listened to the statement of the 
Chairman and I have great respect for him, but I hope he would 
keep in mind that it is 30 years ago now that I tried to get 
the Post Office to be involved in something that we now call E-
mail. This Committee decided that was not proper. That was a 
system that was going to grow in the private sector, and it was 
probably a good decision, because it has grown very well. But 
it competes highly with the Postal Service, and I do not think 
that the monopoly and the printed word is one thing. I do not 
think the Post Office has a monopoly anymore in terms of mail.
    But that is a generational thing, and I would hope you keep 
that in mind. It is an urban thing. The capability of my people 
to go on the Internet is not yours, because we automatically 
changed long distance rules. Intrastate calls in Alaska are 
long-distance calls. Our competition here is with the printed 
word and the generational concept that I mention to you is in 
an aging population, and our population is aging. The majority 
of those people who are aging are not computer capable, and 
they are still dependent upon this postal system.
    I am going to oppose any radical change in the Postal 
Service until we are assured that the access is not limited to 
the younger generations, in terms of capability to communicate. 
Just think of it. All of you can think about it. The mail you 
primarily get, the personal letters you primarily get today, if 
you are computer-capable, are from your relatives that are my 
age. Now, I happen to be fortunate and communicate with my 
children by E-mail. But not many people do that, and I think we 
have to keep in mind this postal system must be maintained to 
deliver the printed word, so long as a substantial portion of 
the population is dependent upon that service.
    I know that there are losses out there. I know that there 
are things that can be changed. But every year we look at a 
deficit in the Postal Service revenue for our State, and you 
all know it is there, and I know it is there, but the 
difference is if you want to eliminate it, then give us about 
$3 billion a year to build roads, and remove the opposition in 
the environmental community to building those roads.
    That is the same in other areas of the country, 
particularly the rural areas of the country, that do not have 
access to the Internet, at least equal access to the Internet. 
On another Committee, we are working on this concept, Mr. 
Chairman, of equal access to the Internet, and I believe the 
day will come when the printed word, as far as personal 
communication, will be gone. But until that day comes, the 
Postal Service will be our way of complying with the 
Constitution; and I hope we all keep that in mind as we look at 
this.
    Mr. Walker, I am interested in your report, and I am not 
criticizing the report, but I think some of the things that are 
analyzed as being losses are expenses of being involved in a 
business that is not bottom-line cost effective. So I hope we 
can keep that in mind. Again, I welcome you all and I thank you 
for the courtesy, because I have to go to another meeting. 
Thank you very much
    Chairman Thompson. Thank you very much.
    Senator Collins.

              OPENING STATEMENT OF SENATOR COLLINS

    Senator Collins. Thank you very much, Mr. Chairman.
    Gentlemen, which State would you most like to spend August 
in? [Laughter.]
    After Senator Stevens leaves, I can get a unanimous answer 
of Maine from each of you.
    Mr. Chairman, I have a lengthy statement which I would like 
to submit for the record in the interest of time.
    Chairman Thompson. It will be made a part of the record.
    Senator Collins. I just want to say that I am troubled by 
how quickly the financial picture of the Postal Service has 
darkened. It was only in February 2000 that the Postal Service 
still had a net income of $1 billion, and yet now we are seeing 
projections of very significant losses, and I am further 
troubled that the first response to those losses is to seek 
higher rates, to look at eliminating Saturday delivery, and to 
look again at closing small post offices, which, in many parts 
of my State, are absolutely critical and are truly the heart of 
a community.
    So I look forward to exploring these issues with our 
witnesses today. The Postal Service in Maine, as in Alaska, is 
absolutely critical. We need to maintain the universal service 
requirement, and I am very concerned about the financial stakes 
that we now face. So, Mr. Chairman, I would put my statement in 
the record, and I look forward to hearing from our witnesses.
    [The prepared statement of Senator Collins follows:]

         OPENING PREPARED STATEMENT OF SENATOR SUSAN M. COLLINS

    Thank you, Mr. Chairman.
    The U.S. Postal Service has origins that predate the birth of the 
United States itself. In 1775, the Continental Congress appointed 
Benjamin Franklin as the first Postmaster General. The value of a 
national postal service was so apparent to our nation's founders that 
the power to establish post offices and roads comprises one of only 18 
clauses of legislative authority explicitly granted to Congress in our 
Constitution.
    This is not to say, Mr. Chairman, that the Postal Service has not 
changed with the times. Under congressional statute, it expanded 
service via navigable waterways in 1823 and the railroads in 1838. 
Airmail followed as early as 1918. The Postal Service apparently even 
experimented with an even more spectacular form of delivery--``missile 
mail''--in 1959. Though missile-borne cross-country mail proved rather 
less successful than other forms, the episode certainly demonstrated 
the Postal Services' willingness to try new innovations.
    Another, far more successful Postal Service innovation occurred in 
1863: the institution of universal postage rates without regard to 
distance. This system would eventually allow all Americans to reach out 
to one another easily and effectively, regardless of where they lived 
or how far the mail had to travel. For a short journey or a long one, 
the Postal Service would charge a single, affordable rate. Even in the 
middle of a terribly destructive and divisive civil war, the Postal 
Service recognized that we were one nation and took important steps to 
help bring that nation together as one. Combining this single-rate 
service with its near-universal penetration of the American 
countryside, the Postal Service helped knit together the nation we know 
today.
    Since 1971, the Postal Service has been organized as a separate 
entity, albeit one different than any other government agency. As such, 
it receives no general fund revenues. Instead, it relies upon sound 
business practices and a watchful Board of Governors to ensure that it 
carries out its mandate to deliver the people's mail in a convenient, 
efficient and uniform manner.
    Still, much has changed in the three decades since we established 
the modern United States Postal Service. The advent of new technologies 
has proven to be a special challenge to the fulfillment of the Postal 
Service's traditional role. Recently, a confluence of factors ranging 
from high gas prices to the advent of E-mail and electronic bill 
payments have caused some to question whether the Postal Service can 
continue to do ``business as usual.''
    From September of last year through this February, the Postal 
Service lost $260 million. Today, the Service estimates it may lose 
between $1.6 billion and $2.4 billion for this year, and perhaps even 
more in 2002. These trends, therefore, call into question the Postal 
Service's ability to continue to provide its current level of services 
at uniform prices and reasonable rates. Alarmingly, the Postal Service 
has accumulated so much debt that it is now approaching its statutory 
borrowing limit of $15 billion.
    Many Postal Service stakeholders have told Congress that the 
Service needs changes in the law to allow it to be more efficient in 
its pricing, labor relations, and financing operations. GAO recently 
testified that the USPS had increased its efficiency by only 11 percent 
over the past three decades--during a time in which the productivity of 
the private sector has been exploding.
    To cope with these its tremendous problems, the Postal Service is 
considering a reduction of core services--including the closing of 
smaller postal facilities and the elimination of Saturday mail 
delivery. At the same time, however, it continues to carry on non-core 
services, such as E-commerce operations, that we are told lose 
substantial sums of money.
    According to a 1998 GAO study, for example, the Postal Service had 
instituted 19 outside business ventures since 1991. During the first 
three quarters in 1998, only four were reported to be profitable. GAO 
found in their 1998 report that, during the seven year period it 
reviewed, the Postal Service lost approximately $85 million on such 
things as coffee mugs, ties, and phone cards. Because the Postal 
Service has not released current information showing whether these non-
core services are actually profitable, this is a contradiction that 
needs to be explored further, Mr. Chairman. When most businesses lose 
revenue, providing less service for higher prices and forsaking core 
services for money-losing side ventures is usually not their response.
    I am especially concerned about the impact of closing post offices 
in smaller communities. It would be unfortunate indeed if the Postal 
Service's failure to meet today's challenges results in its abandonment 
of aspects of the core service that made the service indispensable to 
so many Americans, especially in rural areas. We cannot allow this to 
occur.
    I have no doubt that the Postal Service may need some reforms. The 
world has changed significantly since 1971. Other nations are also 
carrying out interesting postal experiments that bear watching. Ours is 
a large nation, and what works in one country may not work here. 
Nevertheless, we must be open to the idea that things can be done 
better than they are today--and aware that we can learn from the 
experiences of other nations to provide the best postal service for the 
American people.
    I agree with our outgoing Postmaster General when he says that ``a 
seriously weakening postal system would find it more and more difficult 
to carry the full load of universal service.'' It is for that reason 
that this hearing is so important. A weakening postal system must 
concern us all. In the end, we all want the same thing: the best postal 
delivery system for all Americans that we can possibly have.
    I look forward to the testimony of the witnesses and thank you for 
calling this important hearing today, Mr. Chairman.

    Chairman Thompson. Thank you very much. I understand that 
Senator Akaka has been delayed and wishes to have his statement 
made a part of the record. Senator Cleland has also submitted a 
statement for the record.
    [The prepared statements of Senators Akaka and Cleland 
follow:]

             PREPARED STATEMENT OF SENATOR DANIEL K. AKAKA

    Given the Postal Service's projected $2-$3 billion deficit this 
year, it is crucial that Congress examine the actions of the Service 
which affect each and every American. I hope this hearing will assure 
Hawaii's consumers and businesses that Congress is taking their 
concerns seriously.
    Last week's decision by the Postal Board of Governors to modify the 
2000 rate increase has ignited a new round of debate. Some believe 
raising rates may put the Postal Service in a death spiral. What we do 
know is that rate increases alone will not fix the serious cash flow 
and debt problems facing the Postal Service. A good indicator of the 
seriousness of the situation is that the Postal Service has been 
reported to be preparing for yet another rate increase filing this 
summer. I am interested in learning from the Board whether this report 
is true and learning from management exactly how the Service plans to 
make up its possible $2-$3 billion projected loss.
    The U.S. mail is a basic and fundamental public service. Hawaii's 
postal patrons and those of other states are entitled to reliable and 
efficient mail service at a fair and reasonable cost. With a dedicated 
workforce of over 800,000 employees, it is the largest federal civilian 
employer and operates more postal facilities than the number of 
McDonalds, Wal-Marts, Blockbuster Videos and Starbucks, combined. This 
infrastructure fuels the private mailing industry that generates $155 
billion nationwide annually and employs 6.2 million people.
    It is essential that an organization the size of the Postal Service 
be governed by short and long-term financial goals that support its 
core mission--providing universal mail service to all Americans at 
affordable prices.
    Because the Service has appropriately sounded the alarm over 
declining volume and decreasing revenue, I am pleased to have the 
Comptroller General with us. By placing the Postal Service on the list 
of high-risk federal programs, Mr. Walker has spotlighted the serious 
financial and operational problems facing the Service.
    The Postal Service has received a lot of attention in the last 
several months after announcing a freeze on new construction projects, 
studying the elimination of Saturday mail deliveries, and raising 
rates. While I support reviewing all options and believe it is prudent, 
I want to make it clear that before Congress grants the Postal Service 
greater flexibility, we should understand why the Service is facing a 
$2-$3 billion projected loss, and what can be done differently.
    I wish to invite my colleagues to join the newly formed 
Congressional Postal Caucus, on which I serve as the vice chairman. 
Congress should shoulder some of the responsibilities. I am confident 
that by offering a forum to educate and brief members of Congress on 
postal matters and concerns, we will be better prepared to work with 
all stakeholders in finding solutions to our common concerns. I look 
forward to reviewing the testimony presented at this hearing.

                               __________

               PREPARED STATEMENT OF SENATOR MAX CLELAND

    Thank you Mr. Chairman for giving me the opportunity to speak at 
today's hearing and address the Postmaster General, Mr. William 
Henderson, the Vice Chairman of the Postal Rate Commission, Mr. George 
Omas, the Chairman of the Board of Governors, Mr. Robert Rider and the 
Comptroller General of the United States General Accounting Office, Mr. 
David Walker. As you know, the United States Postal Service (USPS) was 
established by the Postal Reorganization Act of 1970. This act 
chartered the USPS to perform as a business enterprise, with the 
freedom to provide ``non-postal services,'' ensuring that USPS could 
provide universal service reliably, efficiently and as inexpensively as 
possible for years to come. Furthermore, the USPS was mandated to 
operate on a self-supporting, break-even basis, with particular 
emphasis on restraining postal rate increases and providing ``honest, 
efficient, and economical management.''
    The Postal Service is an amazing organization. Its Universal 
Service program binds the country together by providing inexpensive and 
reliable First Class mail delivery for every American and every 
business. The USPS stops at approximately 134 million addresses six 
days a week and delivers approximately 670 million pieces of mail every 
day. The Postal Service generates approximately $64 billion in revenue, 
ranking it 8th in the United States in the Fortune 500 Global listing. 
In addition, the Postal Service employs approximately 800,000 
individuals giving it the nation's second largest payroll, and USPS 
operates approximately 38,000 postal facilities. Managing any 
organization this size can be a very difficult challenge, but it was 
done profitably for much of the latter half of the 1990's.
    In 1997 the Postal Service turned a $1.2 billion profit, and had 
been profitable for the years 1995-1999. But in 2000, the Service 
showed a net loss of $199 million. The Service originally predicted a 
deficit for 2001 of approximately $500 million. Early in 2001 that 
projected loss was revised to between $2 to $3 billion, and with a new 
rise in rates effective July 1, 2001, the loss is expected to be 
between $1.6 and $2.4 billion. The Service has gone from profitability 
to billion dollar losses in less than two years. In order to cut costs 
and pay its bills the Postal Service has frozen all existing capital 
construction projects, it is studying the feasibility of eliminating 
Saturday delivery, the Board of Governors voted to modify the most 
recent rate decision by raising certain rates, and the Service expects 
to save $3 to $4 billion by 2005 through its ``breakthrough 
productivity'' plan. I applaud several of the efforts of the Postal 
Service in attempting to meet this challenge, however, I am concerned 
about the need to promptly eliminate waste and how these cost cutting 
measures will affect postal consumers.
    The Inspector General found approximately $1.4 billion in waste, 
fraud and mismanagement within the Postal Service. I am aware that 
eliminating such waste will not alone keep the Postal Service out of 
debt. However, I would like assurances that USPS is addressing the 
problems that the Inspector General identified, and I would like to 
know specifically what USPS is doing to address these issues. 
Successful attention to these matters could appreciably increase the 
credibility of the Service in the eyes of the public and could help 
USPS meet its financial crisis without decreasing service to postal 
consumers.
    I have heard from many communities across Georgia that they are 
experiencing service problems at their existing Post Offices. The lines 
are too long, there is not enough parking or the Post Office is not big 
enough to handle the volume of mail going through its facility. Georgia 
has experienced one of the largest growth rates in the country and many 
existing facilities are being squeezed in their effort to provide 
prompt, efficient and reliable service. I have been informed by USPS 
that projects in Buena Vista, Butler, Columbus-Beallwood, Cotton, 
Darien, Gray, Guyton, Hawkinsville, Kathleen, Lyons, Macon-Downtown, 
Marble Hill, Marshallville, McCaysville, Monroe, Monticello, Pine 
Mountain, Pooler, Pulaski, Roberta, Rupert, Sharpsburg and Townsend 
will be affected by the freeze. I am very concerned about what the 
freeze in capital construction projects will mean to these growing 
communities in Georgia and how long it will last. Furthermore, USPS is 
studying the feasibility of eliminating Saturday delivery in order to 
cut costs. While eliminating such delivery may decrease transportation 
and labor costs, the amount of mail will not decrease and mail delivery 
will either be delayed or carriers will be paid overtime in order to 
deliver the mail efficiently in five days instead of six. I would like 
assurances from the Postal Service that efforts will be made to 
eliminate waste and increase productivity before any services are cut.
    Once again, I would like to thank the Chairman and the participants 
in this hearing for allowing me to speak to you about my concerns. I 
will review the report for this hearing when it is released and I look 
forward to working with you in the future on these and other important 
issues.

    Senator Carper. If we could do that, we would be grateful, 
sir.
    Chairman Thompson. Without objection. Senator Carnahan.

             OPENING STATEMENT OF SENATOR CARNAHAN

    Senator Carnahan. Thank you, Mr. Chairman. I would feel 
remiss if I did not ask you gentlemen which State you would go 
to, to watch Mark McGwire hit a home run, eat the best 
barbecue, and enjoy the best country western music?
    Chairman Thompson. Now, wait a minute. [Laughter.]
    We will discuss this later. [Laughter.]
    Senator Carnahan. Thank you, Mr. Chairman. I would like to 
thank each of the witnesses for being here today. I can 
remember, as a young girl growing up, the excitement I felt 
when the postman would arrive with our mail everyday. He might 
bring us messages from as far away as New York or Los Angeles. 
He would deliver a letter to any of my relatives, even those 
who lived in the rural areas. It is an idea as old as the 
country itself, a National Postal Service, efficient and 
convenient--connecting every American to every other American. 
It is a part of our collective experience, but increasingly 
this idea is in danger.
    At the recent House Government Reform Committee hearing, 
Mr. Walker, you testified that the Postal Service is at growing 
risk of not being able to continue providing universal postal 
service, vital to the national economy, while maintaining 
reasonable rates and remaining self-supporting through postal 
revenue. I am deeply troubled by the current estimates of the 
U.S. Postal Service's financial situation. I am particularly 
concerned at the prospect that the Postal Service may reach its 
$15 billion debt ceiling in just 2 years.
    I believe that, overall, the Postal Service does an 
excellent job in delivering the mail. Postal workers in 
Missouri and all over the country are dedicated and hard-
working, but when Americans see postal rates rise twice in 6 
months and hear that Saturday service may be eliminated, the 
Postal Service's reputation is badly undermined. Before we 
eliminate services, we should ask if the Postal Service can be 
run more efficiently. Before we raise rates, we should think 
about the impact on our families and businesses. This situation 
is serious and warrants attention, both by the management of 
the Postal Service and by Congress, which is why we are here 
today.
    I believe there are three fundamental principles the U.S. 
Postal Service must abide by. It must provide universal service 
to the public. It must offer reasonable rates, and it must be 
self-supporting. If the Postal Service doesn't live up to these 
three principles, then it's failing its mission and failing the 
American people.
    The first principle is that postal delivery is a public 
service and must be available to all. People depend on it. From 
those operating small businesses to seniors living in rural 
areas, who receive life-sustaining medication through the mail.
    The second principles in ensuring reasonable rates. This is 
important on many levels, from the individual consumer who 
mails a few items a week, to the large company, whose 
livelihood depends on shipping its products to its customers. 
The Postal Service is an integral part of our Nation's economy. 
Any changes in postal rates, no matter how small, have ripple 
effects across Missouri and every State in the Nation. While 
sometimes rate increases are warranted, they should be 
carefully considered and evaluated with discretion.
    The third principle is that the Postal Service must be 
self-supporting. The Postal Service is a business. There are 
certain budget realities and constraints that come with that. I 
sympathize that rising fuel costs make delivery more expensive. 
This is an issue that businesses and families across the 
country are struggling with, but fuel costs are not the only 
factor. We need to look at both the long-term and short-term. I 
look forward to hearing each of the witnesses' testimony on how 
costs can be reduced without displacing workers or eliminating 
services.
    There are two points that I would like to leave the 
panelists today. First, such drastic changes in financial 
projections in such a short amount of time are unacceptable. 
Our families have to balance their checkbooks and pay their 
bills, and they expect the same from our government agencies. 
This service is too important for the books not to be kept in 
top order. I am eager to learn what steps the Postal Service 
can take to prevent this from happening again.
    Second, 6-day mail delivery service must be maintained. 
This service is essential for Missourians, particularly those 
in rural areas. It is also important for thousands of small 
businesses struggling to make it on a very small profit margin. 
That is why I am supporting Senator Harkin's Senate resolution 
regarding the need to preserve 6-day mail delivery. The 
resolution opposes the elimination of Saturday home and 
business delivery. It calls on the Postal Service to take all 
the necessary steps to assure that these services are not 
reduced.
    Just last week, the Postal Rate Commission approved yet 
another rate increase. If we cut services while raising rates, 
we're asking our citizens to pay more for less. We owe them 
better than that. While I will not be able to stay for the 
entire hearing, as I have a prior commitment for this same time 
period. I look forward to reviewing each of the witnesses' 
testimony and learning from your expertise.
    Thank you, Mr. Chairman.
    Chairman Thompson. Thank you very much. Mr. Walker.

TESTIMONY OF HON. DAVID M. WALKER,\1\ COMPTROLLER GENERAL, U.S. 
                   GENERAL ACCOUNTING OFFICE

    Mr. Walker. Thank you, Mr. Chairman. I have a full 
statement which, with your permission, I would live to have 
inserted into the record and I will move now to summarize.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Walker appears in the Appendix on 
page 48.
---------------------------------------------------------------------------
    Chairman Thompson. It will be made a part of the record, 
without objection.
    Mr. Walker. Thank you, Mr. Chairman. I am pleased to be 
here today to participate in this joint hearing on the 
financial outlook and transformational challenges of the U.S. 
Postal Service. Overall, the Service faces major challenges 
that collectively call for a structural transformation if it is 
to remain viable in the 21st Century. A structural 
transformation of the Service is called for because the Service 
faces major financial, operational and human capital 
challenges.
    It is a growing risk of not being able to continue 
providing universal postal service, vital to the national 
economy, at reasonable rates, while remaining self-supporting 
from postal revenues, the three criteria that Senator Carnahan 
articulated. Accordingly, in April 2001, GAO placed the 
Service's transformational efforts and its long-term outlook on 
our high-risk list. This inclusion on our high-risk list will 
focus needed attention on the dilemmas facing the Service 
before the situation escalates into a crisis where the options 
for action may be more limited and costly.
    The key factors that contributed to our decision to place 
the Service's transformational efforts and its long-term 
outlook on our high-risk list included the following: The 
Service's financial outlook has deteriorated significantly. Its 
borrowing is increasing, and the Service's debt is approaching 
the $15 billion statutory limit without having a specified debt 
reduction plan in place. In addition, the large number of 
retirements expected over the next several years will place 
even more pressure on the Service's expenses and its need for 
cash.
    The Service recently deferred capital investments to 
conserve cash, thus delaying certain needed infrastructure 
improvements. These deferrals appear likely to continue in the 
current environment. In March 2001, the Postal Service Board of 
Governors wrote to the President and the Congress, asking for a 
comprehensive review of postal laws, and noting that the threat 
was serious and significant with regard to whether or not the 
Postal Service would be able to continue to achieve its mission 
in future years.
    Potential losses in First-Class mail volume over the next 
decade could create large financial deficits, leading to a 
situation where universal postal service could ultimately be 
threatened, prices would likely increase at a much faster rate, 
and other options would need to be explored. The Service is 
subject to several statutory and other restrictions that serve 
to limit its transformational efforts; the binding arbitration 
requirement, the rates-setting process and the facility closure 
restrictions being examples of these restrictions.
    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 three labor agreements that cover over half 
of the Postal Service's workforce, that expired in November 
2000, and will now evidently be resolved through binding 
arbitration. In addition, the Postal Service and the Postal 
Rate Commission have had long-standing disagreements concerning 
pricing decisions.
    Finally, two key leadership positions need to be filled 
regarding postal operations and rate setting; namely, a 
successor to Postmaster General Henderson and a successor to 
the chair of the Postal Rate Commission. Although the Service 
has announced some steps to address its growing challenges, it 
does not have a comprehensive plan to address the numerous 
financial, operational or human capital challenges that we have 
noted.
    In April 2001, we recommended that the Postal Service 
provide quarterly reporting on its financial and operating 
results and projections, in order to enhance transparency and 
improve accountability in connection with these matters. In 
addition, we also recommended that the Postal Service develop a 
transformation plan in conjunction with Congress and other key 
stakeholders that would address the major challenges facing the 
Service. Postal Service officials told us that they generally 
agree with our recommendations, and in that regard I recently 
met with Deputy Postmaster General Nolan, and we discussed ways 
in which the Service could move to begin to address our 
recommendations.
    We appreciate the difficulty of this task, given the long-
standing nature of the structural problems and major 
differences in stakeholder views, many of which are outlined in 
my statement. As I mentioned, we at GAO have already started to 
reach out to some of the affected stakeholders, to try to 
obtain an understanding as to their current positions. Some of 
that is outlined in my statement, and I think you will note 
that there are some significant differences of opinion in that 
regard.
    But the sense of urgency in connection with the Postal 
Service is growing. The basic statutory framework that governs 
the Postal Service has not changed since 1970, despite the fact 
that there have been significant developments in technology and 
a much more competitive marketplace that provide alternative 
forms of communication and delivery choices to both businesses 
and consumers, and these are likely to continue to escalate in 
the future.
    The Service's ability to provide universal postal service 
at reasonable rates will be increasingly threatened unless 
changes are made, both within the constructure of current law, 
as well as through relooking at the legal and regulatory 
framework that governs the Service.
    I thank you, Mr. Chairman. I would be more than happy to 
answer any questions at your pleasure.
    Chairman Thompson. Thank you very much. Mr. Henderson.

TESTIMONY OF HON. WILLIAM J. HENDERSON,\1\ POSTMASTER GENERAL, 
                      U.S. POSTAL SERVICE

    Mr. Henderson. Thank you, Mr. Chairman. First, I want to 
thank the Senate for its cooperation. I have 17 days left after 
30 years of public service in the Postal Service, and I have 
enjoyed it very much. It has been an interesting job, from 
being postmaster of Memphis, Tennessee for several years, to 
postmaster of Greensboro, postmaster of Stockton, California, 
and running plants all across America. It has been very 
interesting.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Henderson appears in the Appendix 
on page 77.
---------------------------------------------------------------------------
    Let me say a couple of things, and I will submit my 
statement for the record. First of all, we agree with the 
General Accounting Office on their assessment of the Postal 
Service and of the Postal Service's future. There is no 
disagreement there, and it is something we have had extensive 
discussions on. Second, and let me try to put the future of the 
Postal Service in kind of precise terms. What do you do when 
your revenues decline and your labor costs are controlled by an 
independent arbitrator?
    If you look at the structure of the expenses, you have 14 
Presidentially-appointed individuals. That is the Board of 
Governors and the Postal Rate Commission, whose primary job it 
is, is to ensure affordable prices for the American public, 14 
Presidential appointees, constructed in 1970 by the Postal 
Reorganization Act. In effect, when you look back 30 years, and 
you look at what controls the price of postage--it has been the 
cost per hour, which has been determined by an independent 
arbitrator; and that fact is something that needs to be 
changed.
    I am not opposing collective bargaining, and no one in the 
Postal Service is; but the fact that when we constructed--the 
United States constructed--the Congress constructed the PRA, 
one of the most important aspects of that construction was how 
do you control postage rates? How do you do that? Do you set it 
up with administrative law judges? How do you do that? The 
major mandate, the major obligation, of nine Presidentially-
appointed Governors and five Presidentially-appointed Postal 
Rate Commissioners, is to set the rate of postage, and, in 
effect, causally, that rate is set by an independent 
arbitrator, and that is something that creates a problem for 
the Postal Service.
    You put that in the context of now what do you do when your 
revenues--that is, the demand for postage--goes down? You have 
whatever it be, mergers and acquisitions, Internet as opposed 
to standard A, competitors as opposed to packages--how do you 
respond to that? It is very difficult for the Postal Service to 
respond to a lessening of demand. For example, your letter 
carrier delivers, on the average, about $1.75 postage to every 
household in America today. That is to break even. So what 
happens when you get 20 percent less postage? You do not stop 
delivering mail. You do not do those sorts of things. You do 
not go from overnight to 2- or 3-day service. You simply absorb 
that cost.
    What happens when the price of fuel--how long has the price 
of fuel been going up now? A year-and-a-half? I bought a Dodge 
Durango 3 years ago, and I filled it up with regular gas at 99 
cents a gallon. Today, that is almost $2 a gallon. For every 
penny in gasoline, it costs the Postal Service $5 million. It 
does not have the ability to put a surcharge, like our 
competitors have, or like the airlines have, or even now, I 
went into a hotel--I stayed in a hotel the other day; had a 
surcharge on my room for energy cost. The Postal Service does 
not have that ability. It accumulates those costs and then 
dumps them at a point when it changes prices.
    Those are antiquated ways of dealing with the future, I 
would urge you to look at that in the coming days, to look at 
the statutory construction of the Postal Service, because it is 
my belief that it is very important to America to have 
universal service, to have affordable rates, to have an access 
system. We talk about the digital divide. One of the things 
that we are doing with Senator Stevens in Alaska is providing 
access vehicles, small devices in lobbies and certain places, 
testing them, so that Alaskans who cannot afford to buy 
computers or cannot afford to buy access modems, can go to 
their post office and cross that digital divide without having 
a barrier of $1,500 or $1,000 for an Internet device, and I 
think that is very important.
    So I think the Postal Service is relevant today. It has a 
strong ubiquity all across America, and it needs to be 
reexamined in light of its statutory construction. Thank you, 
Mr. Chairman. I would be happy, at the appropriate time, to 
answer any questions.
    Chairman Thompson. Thank you very much. Mr. Rider.

   TESTIMONY OF HON. ROBERT F. RIDER,\1\ CHAIRMAN, BOARD OF 
                 GOVERNORS, U.S. POSTAL SERVICE

    Mr. Rider. Good morning, Mr. Chairman and Members of the 
Committee. I am Bob Rider. I am Chairman of the Postal Service 
Board of Governors. I appreciate very much this opportunity to 
discuss the challenging universal mail service and the 
necessity for legislative reform. However, before I start, I 
would like to publicly recognize the 30 years of service given 
to the U.S. public by our Postmaster General, Bill Henderson.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Rider appears in the Appendix on 
page 83.
---------------------------------------------------------------------------
    Bill, as you are all well aware, is retiring on May 31, and 
we all want to wish you well.
    Mr. Henderson. Thank you.
    Mr. Rider. The mission entrusted to the Postal Service by 
Congress is to provide universal mail service to every address 
in all communities and neighborhoods throughout the United 
States at affordable prices. This mission of inclusion and 
facilitation for the Nation's business and personal life is as 
fresh and relevant today as in the country's beginning. The 
American people have always enjoyed among the lowest rates and 
best service in the world. Throughout its history, the Postal 
Service has grown with the Nation. We still add over 30,000 new 
addresses each week to the distribution and delivery network, 
while keeping average price increases below the rate of 
inflation.
    This is the equivalent of a brand new city of Chicago every 
year. We have had only two rate filings since 1995, both times 
just a penny on First-Class rate. We have done this by 
restraining cost and improving productivity, as service 
networks expand to handle the Nation's growth. In recent 
months, several forces have combined to upset the balance 
between revenue and cost for this year. Postal revenue growth 
has slowed with a weak economy, accounting for an expected 
shortfall between $500 million and $1.5 million.
    The Postal Rate Commission recommended rates lower than 
those the Postal Service had proposed and our financial plan 
had assumed, increasing our net loss by $100 million. Other 
costs, such as fuel, have grown due to rising prices, adding 
about $150 million in this fiscal year. Taking these factors in 
combination, we currently believe the fiscal year 2001 net loss 
could exceed $2 billion.
    The law provides us a limited opportunity to deal with this 
shortfall. As finances have suffered, the board has attacked 
the problem with the tools that we have available to us. 
Earlier this month, the Governors reluctantly decided we must 
exercise our authority on the record of the most recent rate 
case, to modify postage rates to adjust a shortfall of about $1 
billion, through a rate adjustment averaging 1.6 percent. We 
took this action to protect the financial integrity of the 
universal mail system.
    Because the adjustment comes so late in the fiscal year, 
this move yields only about $200 million in a shortfall in the 
remainder of this fiscal year. In recent years, the Postal 
Service has had good success with programs for managing work 
hours and other controllable cost elements. Last year's 
productivity improvement of 2.5 percent was the best since 
1993. In current circumstances, however, extraordinarily and, 
unfortunately, painful additional measures are essential. 
First, we have eliminated $1 billion from the capital 
commitment budget for this fiscal year in order to conserve the 
cash to pay our bills, and to reduce future commitments to 
match cash flow.
    Next, we have directed management to prepare another rate 
filing, to get the Postal Service back on a pay-as-you-go 
footing, maintain financial viability and achieve breakeven, as 
the law mandates. Also, we have directed management to take a 
fresh look at all operating expenses, to realize additional 
savings. A number of these actions are now in place, among 
these are a hiring freeze at headquarters. Management has 
eliminated over 1,100 headquarters and headquarters-related 
positions since the beginning of this fiscal year, along with 
20 percent, or 232 of the positions in our area offices.
    These reductions are continuing at headquarters, area and 
district offices. Also, a nationwide freeze in the hiring of 
processing and distribution clerks. So far, we have over 7,000 
fewer career clerks on the rolls than at the end of last fiscal 
year; also, a series of comprehensive area mail processing 
studies, which identify opportunities to consolidate operations 
and to reduce expenses. Many of the delayed capital projects 
are badly needed. Their postponement will make it difficult to 
meet the needs of our customers and our employees. The board's 
responsibilities, nevertheless, require us to make sure that 
financial resources are on hand to pay bills when they come 
due.
    Every 2 weeks, these bills include one of the Nation's 
largest payrolls, providing the livelihood of more than 800,000 
postal families. In the years ahead, cost-cutting and rate 
increases within our current statutory framework are not 
sufficient for the Postal Service to keep pace with today's 
market dynamics. More businesslike management is required to 
maintain the financial integrity of the Postal Service and the 
foundation for universal mail service. The outdated statutory 
framework both contributes to current financial problems and 
severely limits what can be done about them.
    The Postal Service has limited authority over its prices, 
services, wages and other management levers in the postal 
system. The cumbersome history of the recent rate case, which 
took almost 2 years to complete, from preparation to finish, 
spending periods of both economic boom and economic slowdown, 
illustrates part of our problem. None of the private firms 
whose services compete with or substitute for the mail go to 
every household every day. The Postal Service delivers to 136 
million addresses 6 days a week. To break even, we need an 
average of about $1.75 to $2.00 in postage for each delivery 
point every day. Three-quarters of all households do not 
receive that much mail each day.
    If universal service does not remain economically viable, 
many Americans will not get the level of service or the 
affordable prices they are accustomed to receive. The most 
advanced nations around the world are rapidly modernizing and 
reorienting their postal systems. The Postal Service delivers 
40 percent of the world's mail, but America lags far behind in 
postal reform. The overseas posts are reorganizing to protect 
their universal service and keep their rates affordable. Many 
now come over here to compete for some of our mail. Without 
vigorous postal reform in the United States, this country faces 
increasing pressure on the economic foundation for universal 
service at affordable prices.
    The American people should not have to face this result. 
The United States should continue to have the best, most modern 
postal structures and services in the world. We pledge that the 
Postal Service will do all that we can, both to manage the 
current challenge and to contribute to the success of a 
comprehensive postal reform measure.
    Thank you, Mr. Chairman. I would be pleased to respond to 
any questions at the appropriate time.
    Chairman Thompson. Thank you very much. Mr. Omas.

TESTIMONY OF HON. GEORGE A. OMAS,\1\ VICE CHAIRMAN, POSTAL RATE 
                           COMMISSION

    Mr. Omas. Thank you, Mr. Chairman. My name is George Omas. 
With me today are my fellow commissioners, Danny Covington, 
Ruth Goldway,\2\ and Trey LeBlanc. As you know, and has already 
been mentioned, the position of Chairman of the Postal Rate 
Commission is currently vacant. I was elected vice chairman by 
my colleagues and have been performing the administrative 
functions of the chairman since February.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Omas appears in the Appendix on 
page 88.
    \2\ The prepared statement of Ms. Goldway appears in the Appendix 
on page 137.
---------------------------------------------------------------------------
    Mr. Chairman, at this point, I would like to request the 
Committee accept my written testimony that I submitted in 
advance of this morning.
    Chairman Thompson. It will be made a part of the record.
    Mr. Omas. I would like to focus my statement this morning 
on responding to a specific question; the letter inviting me to 
testify here today asked whether I concurred with the Postal 
Service's projection of a $2 billion to $3 billion deficit. The 
short answer to that is that I cannot evaluate that estimate. 
The Postal Service has not provided any systematic explanation 
of its multi-billion dollar projections. The imprecision of its 
forecasts makes it impossible to evaluate their reliability.
    The Postal Service may have detailed analyses that justify 
these forecasts, but such analysis have not be made available 
to the public or to the Postal Rate Commission. The 
Commission's primary function is to respond to the Service's 
requests for rate and classification decisions. The Postal 
Service provides detailed supporting cost data when it asks the 
Commission to recommend rates. However, after the Commission 
provides its recommendation, the Commission does not have ready 
access to data that would enable it to know what portion of the 
Postal Service's rate case cost projections were mis-estimated.
    From the limited data available to the Commission, it 
appears that the major causes of the current losses are costs 
that are substantially higher than the Service projected just a 
few months ago. Some of those who think that drastic 
legislative action is necessary, think that projected deficits 
may have resulted from a decline in volume caused by growth of 
electronic communication, but mail volumes are not declining. 
It also has been suggested that the mix of mail has changed and 
that the Service is now delivering less-expensive mail. But 
from the data currently available to the Commission, it appears 
that the major cause of operating losses are costs that are 
higher than the Postal Service expected.
    The Commission has examined the Postal Service's limited 
preliminary cost reports for the first half of fiscal year 
2001. We have annualized these results for the first six 
accounting periods of 2001 data and compared those figures with 
the revised annual projections estimated for fiscal year 2001 
at the end of the most recent case. This comparison is quite 
revealing. Comparing seven important cost elements, the 
Commission finds that if current cost patterns continue, the 
Postal Service is likely to incur $1.8 billion more in cost in 
2000 than it had estimated to the Commission in July 2000.
    My written testimony, on page 14, includes a table that 
shows the seven cost elements and how inaccurate the Postal 
Service cost projections may have been. To me, this result 
undermines many of the arguments suggesting that radical reform 
of price-setting mechanism is necessary. Mr. Chairman, 
skyrocketing costs are not the result of volume losses to 
electronic mail. Skyrocketing costs are not the result of 
mailers doing more work sharing or switching to less-expensive 
postal products. Skyrocketing costs, again, are not the result 
of a failure to rapidly bring new products to the market.
    I thank you, Mr. Chairman. I would be pleased to answer any 
questions.
    Chairman Thompson. Thank you very much. Well, you have 
touched on a lot of things that we need to get into today, but 
I would like to try to lay a little groundwork. Most of our 
conversation, when we talk to you gentlemen, has to do with 
rate increases. We demand that you do not increase rates, nor 
cut any services, and I am sure we will go through all of that.
    But what I am interested in, is about our particular 
State--our neck of the woods--I want to make sure nothing has 
changed there. We have got to protect ourselves, protect our 
constituents--but even that is really the tip of the iceberg. I 
think what today can do is provide us a useful forum for 
discussing the reasons for these cost increases. It can help us 
get underneath some of the causes of what is going on with the 
Postal Service, fundamentally, and what we need to do about it.
    It seems to me at the outset that, clearly, Congress is 
going to have to recognize that we cannot continue to demand 
the same kind and quality of services that we have always 
demanded. We cannot make such demands while putting 
requirements on the Postal Service that drive up costs and 
mandate losing operations, such as post offices and things of 
that nature, which are desirable, but just not cost-effective. 
We have got to revisit these issues.
    On the one hand, there are certain things that you have no 
control over like requirements we put on the Postal Service. On 
the other hand, there are also certain things that you do have 
control over. And as far as labor and other groups that are 
interested--competitors, customers and so forth--we all have 
our interests. We are all going to have to come to the table 
and do something different, because it is quite obvious, if you 
know the GAO and read the reports, and know Mr. Walker, you 
know that he is not given to hyperbole. I read between the 
lines. It is obvious that the ox is in the ditch, big-time.
    Mr. Walker, just for a minute, let's project out as to what 
we are dealing with here and what we are looking at. What do we 
know? Well, first of all, we know that there have been two rate 
increases already this year. The estimates of where they are 
have wildly fluctuated, from a surplus at the beginning of last 
year to estimates of a $2 to $3 billion deficit in February of 
this year. Now, they are talking about somewhere in the 
neighborhood of a $2 billion deficit, even after the rate 
increases, somewhere between $1.6 billion and $2.4 billion for 
2001; is that correct, basically?
    Mr. Walker. That's correct, Mr. Chairman.
    Chairman Thompson. This assumes more optimistic economic 
forecasts, otherwise the numbers would be worse. It also 
assumes meeting certain aggressive revenue growth and cost 
reduction objectives; doesn't it?
    Mr. Walker. It does make certain assumptions.
    Chairman Thompson. Objectives that have never been met 
before; have they?
    Mr. Walker. Not consistently.
    Chairman Thompson. So I think the $2.4 billion possibility 
is probably low, if you look historically. We have two rate 
increases. It looks like we are probably going to have another 
one in July, right, Mr. Henderson? Is that the way it is 
looking?
    Mr. Henderson. Actually, it depends on what the economy 
does, and, as you were talking about, where the losses end up. 
I think July is probably a bit early, based on current 
information, but certainly it is looking at another rate 
increase in the near-term.
    Chairman Thompson. The near-term would certainly be 
sometime later this year?
    Mr. Henderson. That is correct.
    Chairman Thompson. The speculation has been in the 10 to 15 
percent range. Is that reasonable?
    Mr. Henderson. Based on the existing economy, that is in 
the range of what it looks like, although we do have a 
committee that is looking to some alternatives to that type of 
a rate increase, to try to minimize the impact on the customer. 
That is being headed up by the Deputy Postmaster General, John 
Nolan.
    Chairman Thompson. So, again, getting back to the 
groundwork. That will be three rate increases in 1 year, a 
multi-billion-dollar deficit. No real feeling as to what effect 
that is going to have on business. Some of your postal 
business, of course, is very cost sensitive, and when your 
rates go up, your business goes down in some of these areas. Is 
that not correct?
    Mr. Henderson. That is correct.
    Chairman Thompson. So we will have to figure that in, too, 
which will again exacerbate the problem. As I say, this is 
based on, to me--these are my words--kind of rosy estimates in 
terms of revenue growth and cost reduction objectives. So that 
is where we are. Looking out into the future, Mr. Walker, 
correct me if my analysis is wrong here. But it is not really 
an analysis, it is really a rendition of the factors that we 
are going to have to deal with. One is that in all probability 
we are going to see a decrease in First-Class mail. First-Class 
mail is about two-thirds your revenue, is it not, Mr. 
Henderson?
    Mr. Henderson. Right.
    Chairman Thompson. We will probably see a decrease in 
First-Class mail. Your labor situation is not going to get any 
better, is it, Mr. Henderson?
    Mr. Henderson. No.
    Chairman Thompson. And certainly not in the near-term. The 
thing that jumped out at me, too, along those lines, Mr. 
Walker, is the retirement cost that you do not hear a lot of 
talk about. You say in your report, ``The Service has mounting 
debt and many billions of dollars in liability for future 
retirement and worker's compensation expenses. These 
liabilities have increased in part because the Service was 
statutorily mandated to assume responsibility for funding all 
cost of living adjustments and health benefits for its retirees 
since July 1, 1971. For the remainder of this decade, these 
liabilities will continue to have an increasing impact on the 
Service's future cash flows, placing the Service under growing 
financial pressure.''
    We talk a lot about the fact that many government workers, 
almost half, are going to be eligible to retire in 5 years. It 
is certainly true with regard to the Postal Service. You are 
going to have a high rate of potential retirement in the near-
term, and that is going to have a major impact. You are already 
up to some high numbers, in terms of retirement benefits, which 
are projected to reach $14 billion in fiscal year 2010. So 
these retirement payments are going to have a major impact, in 
addition to everything else that we are talking about. It is 
going to be an additional load on the back of the Postal 
Service; is it not, Mr. Walker? What is the significance of 
that?
    Mr. Walker. There will be a significant cash flow drain 
associated with being able to make the payments for these 
retirement benefits. There is about a $30 billion liability 
that the Service has right now, I believe, attributable to 
unfunded past service-related cost for CSRS. The $14 billion, I 
believe you referred to, Mr. Chairman, is the Service's 
anticipated future annual retirement cost in fiscal year 2010, 
which also includes employees that are under FERS and the 
Federal Thrift Savings Plan, as well.
    Mr. Henderson. Mr. Chairman, if I could add to that, there 
is a talent drain, too. The executive ranks of the Postal 
Service, which account for about the top 1,000 executives, 71 
percent of those are over the age of 50. There are only nine 
executives in the Postal Service under the age of 40--no, 
seven. I take that back--seven executives under the age of 40. 
So not only is it a financial trade, you are going to have a 
huge brain drain here.
    Chairman Thompson. Mr. Walker has been telling us and 
trying to explain to us for some time now that this is a 
government-wide problem. We have reduced our workforce with no 
strategic plan. We have a requirement for more and more 
qualified people, highly-qualified people, especially in the 
technical branches. We have been reducing our workforce with no 
plan toward what the government needs to do. I am sure that 
this is true in the Postal Service, as well as everywhere else.
    So, again the factors we are going to continue to see are 
probably rate increases, if we go on the current pattern. That 
has got to affect the bottom line in these areas that are cost 
sensitive. Some people are going to quit using the Postal 
Service because of the price. We are going to see a decline in 
First-Class mail continue. You are going to see continuing 
labor problems. Your labor situation is built-in, and the 
retirement part of all of that is going to be increasingly 
onerous. Your productivity, while you are trying, has been a 
real failure of the Postal Service. I mean, it does not look 
like to me like you are going to increase our productivity 
enough to make any measurable difference.
    While you have increased productivity 11 percent since 
1970, your productivity has actually declined in 5 of the last 
7 years. This occurred even though the Postal Service has spent 
billions of dollars in automation and technology trying to 
improve productivity. With regard to the Postal Service's 
efforts to have other businesses to generate alternative 
streams of income, such as e-commerce and things of that 
nature, you budgeted $230 million. You wound up making $2 
million for fiscal year 2001. There does not seem to be any 
Lone Ranger coming over the horizon to save that day, in terms 
of making money in these new ventures.
    There is no plan, as I understand, Mr. Walker, with regard 
to these financial problems that the Postal Service has. Either 
with regard to the finances, or the costs, or the projections, 
or the human capital part of the equation, there is no plan, is 
that correct?
    Mr. Walker. There is not a comprehensive, integrated plan 
that would include transformational proposals, as well. No, 
there is not.
    Chairman Thompson. We are losing our Postmaster General and 
we are losing the Chairman of the Rate Commission. Other than 
that, everything is all right. [Laughter.]
    So the idea that we can spend all of our time on these 
details and not recognize that we have got serious underlying 
problems is really keeping our head in the sand.
    Mr. Walker.
    Mr. Walker. If I may, Mr. Chairman, I think the bottom line 
is the status quo is not sustainable. We must recognize that 
there are a variety of structural problems that need to be 
addressed. The answer is not merely to increase rates or merely 
pursue incrementalism, to do a little bit more here, a little 
bit more there. We need to engage in a fundamental 
reexamination and transformation debate in connection with the 
Postal Service. Quite frankly, we need to be able to put on the 
table things that historically have not been put on the table. 
For example, what is the definition of universal postal 
service? Right now, the definition might be 6 days a week 
everywhere.
    Clearly, whatever that definition is has to be met in rural 
Maine, rural Alaska, and other remote areas, irrespective of 
the cost. That is essential, because it is part of the 
fundamental definition. But what is the appropriate definition 
of universal postal service, given changes in technology, given 
alternative forms of communication that exist today?
    Chairman Thompson. And what are we willing to pay for it?
    Mr. Walker. And what are we willing to pay for it, and 
should one size fit all? For example, in many areas such as 
health care, you have a basic guarantee and you have options. 
If you want more than the basic, you can get it, but the 
question is at what price? So what we need to do is rather than 
looking back--yes, we need to learn from the past--but the 
status quo is unsustainable. We need to basically engage in a 
fundamental examination and we need to look forward, in light 
of not just today, but the changes that we know are coming 
tomorrow, some of which you mentioned; the fact that more and 
more bills are being transmitted and paid electronically. Other 
countries have already seen this.
    A lot of that involves First-Class postage, the 34-cent 
postage, the transmittal of payments. First-Class postage 
covers about 70 percent of the Postal Service's overhead costs. 
So there are fundamental issues here that we have got to deal 
with, and we are not going to be able to deal with then through 
incrementalism. We are going to have to put some proposals on 
the table, with pros and cons, that you have to look at as a 
package, because if we look at each element by itself, it can 
easily be torn down; but then again, we have to keep in mind, 
the status quo is unsustainable.
    It is like Social Security and Medicare; the status quo is 
unsustainable. Ultimately, we have to do something.
    Chairman Thompson. You have touched on something very 
important about government, and that is the fact that there are 
some areas where that is true, and the status quo is 
unsustainable. The question is not whether or not it is 
unsustainable, because it clearly is. The question is whether 
or not it has to get a lot worse before it gets any better. 
Whether or not the whole thing has to collapse and we have got 
to have a massive infusion of appropriated funds up here 
overnight someday. It is going to be a surprise to everyone. Or 
whether or not we can go about doing something before then.
    We are going to be here for awhile, but I do not want to 
take all the time this morning. So I am going to wait till my 
next turn for some other questions.
    Senator Carper.
    Senator Carper. Thank you, Mr. Chairman. Hockey great Wayne 
Gretzky was once asked, ``Why are you such a good hockey 
player,'' and he replied, as some of you have heard, ``I go 
where the puck will be, not where the puck is.''
    We have talked today about what your business was like 30 
years ago, Mr. Henderson, when you joined up, and 20 years ago, 
10 years ago, today, the environment in which you compete. 
Let's talk about what it is going to be like a few years down 
the line. I turned to the Chairman during, I think, Mr. Rider's 
comments, and I said, ``You know, it would be interesting if we 
had a futurist here, who actually thought about these kinds of 
issues and could look down the road and take us with him or 
her.''
    Let me just ask each of you to put on your futurists hats 
for a minute, a minute apiece, and we will start over here with 
Mr. Omas. But I am just going to ask you, put on your hat as a 
futurist. Where are we going to be 10 years from now? What is 
the environment that the Postal Service is going to be 
competing in 10 years from now?
    Mr. Omas. Well, I think that one of the places the Postal 
Service should look is at its core business, that is, of 
delivering mail. Many of the new markets, whether it be in 
electronic mail or whatever, have not really--as we all know--
turned any revenue for them. In fact, it has cost the Postal 
Service a great deal of money. As one GAO report said a couple 
of years ago, I think they lost over $88 million on several 
endeavors like T-shirts. I think that in the future the Postal 
Service should look at--it has a tremendous ability to 
deliver--they have the household--they have the structure, and 
I think they should look at that core business and expand on 
developing other products or whatever to be delivered by the 
Postal Service.
    Senator Carper. Thank you. Mr. Rider, what will be the 
competitive environment 10 years from now for the Postal 
Service?
    Mr. Rider. Well, looking back, Senator, we have not done 
such a bad job. In 1971, when the Postal Reorganization Act was 
passed, postage was 8 cents. It has gone up 325 percent since 
then, but the CPI has gone up 343 percent. In the last 10 
years, postage went up 36 percent and the CPI went up 37 
percent. In the last 5 years, postage went up 6 percent----
    Senator Carper. Excuse me. This is all well and good. I 
appreciate your setting the record straight. These are 
important things to get straight, but that is not what I am 
asking. What I am asking is where are we going to be 10 years 
from now? What will the competitive environment be like 10 
years from now?
    Mr. Rider. We are mandated to give universal service, and I 
think it is very important, as the Senator from Alaska has 
stated. We need to give universal service, but we have got to 
have the tools to work with, in order to provide that, and 
those tools have to come through reform.
    Senator Carper. You have answered two questions, neither of 
which I have asked. [Laughter.]
    And those are good answers, but unfortunately not the 
question I am asking. Just think about it for a minute.
    Mr. Rider. What is it in the future?
    Senator Carper. Ten years from now, what do you think it is 
going to be like out here--to compete with? Are we going to 
have more E-mail, more fax machines?
    Mr. Rider. You will be ordering stuff over the Internet 
just like that, but you cannot deliver it over the Internet. It 
is going to have to come from point A to point B to get to your 
house. That is where we should come in.
    Senator Carper. Mr. Henderson, 10 years from now, you will 
have your feet up somewhere.
    Mr. Henderson. That is right. I will be looking at a 
partially-privatized Postal Service. I think that the Congress, 
over the next decade, will privatize the Postal Service and 
make it an independent organization. I think a monopoly will be 
gradually reduced and open to competition. The reason I say 
that is not because of any insight into the U.S. Postal 
Service, but insight into the Postal Service's world. If you 
look at the Deutsche Post, which has testified before Congress, 
they are on the open market. I think that is going to happen, 
and I think there is a lot of resistance to it today. It is 
kind of like speaking about the devil, but eventually that is 
going to happen and this Congress is going to do that.
    Senator Carper. Thank you. Mr. Walker.
    Mr. Walker. I think evolving technologies will continue to 
have an adverse effect on the traditional services provided by 
the Postal Service. I think competition will increase, and I 
think because of that, the Postal Service needs to step back 
and say what is core? What are the core products and services 
that need to be provided? What is universal service? To what 
extent should non-core services be provided, and, if they are 
going to be provided, based upon what market analysis? What 
competitive advantage does the Postal Service have to be able 
to do that, verses private sector entities?
    In many cases, I think there will be more public-private 
partnerships. I think, as Postmaster General Henderson 
mentioned, whether or not the Postal Service will ever be 
privatized or partially privatized is obviously a major issue, 
and I am not going to comment on whether it should be or not. 
That is not my job. But I will tell you we have to look 
overseas and find out what other countries are doing. We are a 
much larger country. We are much more geographically dispersed, 
and we have different wants and needs than other countries do, 
but we can learn from what some other countries have done in 
this area.
    Chairman Thompson. Excuse me, but their postal services are 
now over here, competing with us in some instances, isn't that 
correct?
    Mr. Walker. That is right, for international bulk mail, and 
presumably they could try to expand that, to compete in other 
areas where they could skim.
    Senator Carper. If you would turn to your employees, the 
folks who are out there sorting mail today, the people that are 
out there delivering mail today, and say to them, ``Help us 
solve this dilemma,'' any kind of idea what kind of 
recommendations they would make, the people actually close to 
it, do it every day? What kind of recommendations would they 
make?
    Mr. Henderson. I think they would say put pay-for-
performance in, which is an issue; incentivize both revenue and 
cost-reduction efforts.
    Senator Carper. Have you had the opportunity to experiment 
with that at all?
    Mr. Henderson. We have in management, but not with the 
unions. We are pursuing that right now with the unions, in 
collective bargaining.
    Senator Carper. Is there any interest on the other side, on 
the labor side?
    Mr. Henderson. There is a discussion. I would not call it 
an interest. There is a discussion. I would say that they would 
say have more self-management, cut back supervision because 
everybody is an adult. They would say take out the monotonous 
tasks, capitalize it--when I say capitalize it, I mean automate 
it, the monotonous tasks, because people really want to--they 
want to be involved in their work. They want to contribute. The 
average postal worker is a very dedicated, educated individual. 
So they want to contribute. It is the system where they do not 
contribute.
    It is the fact that you stack mail on a sorter, and that is 
what you do. That is a job we ought to eliminate. They would 
say reengineer some of that work. It is much like the 
automobile industry where you are putting a lug on a wheel. You 
want to eliminate that job, because that is not something that 
a human being wants to do all day long. They would give you 
that kind of feedback. But they are very dedicated to service.
    My father was a railway mail clerk for 38 years, and 
service was just--if you missed a pouch at a post office on a 
train, he would go nuts. They would try to stop the train, and 
I think you have that attitude, especially amongst letter 
carriers and rural carriers in America. That is why you have 
mail service at the high levels that it is today, measured by 
Price Waterhouse. It is because of a lot of dedication.
    Senator Carper. Let me ask, and I am not sure who to direct 
this question to, and this will be my last one, Mr. Chairman, 
and then I will pass it on. In terms of initiatives that have 
been launched by the Postal Service in the last several years, 
where you have attempted to be more entrepreneurial, can you 
cite for me some examples where you think you have been pretty 
successful, maybe an example or two where you think you could 
be if we would allow you to be?
    Mr. Henderson. I think the area where we could be, if you 
would allow us to be entrepreneurial, is in negotiated rates 
with customers who provide efficiencies in mail preparation 
that we could pass on. Right now, it is essentially one-rate-
fits-all, and, I mean, you have all been in business at some 
level or another. You know that if you do not control your 
pricing or do not have the ability to control your pricing on a 
near-term basis, you are very limited in what you can deal 
with, and I think that is a fundamental problem with the Postal 
Service.
    The other thing in being entrepreneurial is speed-to-market 
is very important. I have been in business prior to the Postal 
Service. If you do not have speed-to-market, you are not going 
to be entrepreneurial, and we have no ability to really have 
speed-to-market. We have to go through a public hearing, and if 
we are going to sell a very entrepreneurial service and you 
have to have a public hearing, somebody is going to beat you to 
the market. So the limit of pricing and speed-to-market are two 
inhibitors that are just obvious to anybody who has run a 
business.
    Senator Carper. Mr. Rider.
    Mr. Rider. I was just going to say that freedom in pricing 
does not necessarily mean the freedom to raise rates. It means 
the freedom to reduce them during periods of low-volume. We 
have periods during the year when our volume is just normally 
low. We have periods when the volume is high. If we had the 
freedom of pricing flexibility, we could encourage people to 
mail during that off-season and raise the rates during the 
heavy season, to help even out that mail flow.
    Senator Carper. Mr. Omas.
    Mr. Omas. Senator Carper, I think that the statute, Title 
39, as it now stands, allows for flexibility. There is nothing 
in the law that says that they cannot innovate. Because it is a 
monopoly, before the Service can negotiate a contract, it 
should be brought out in the public so that competitors--to see 
what effect it will have on the stakeholders that do the 
mailing. As far as--we have done a number of expedited cases in 
the last couple of years that, in essence, are a form of 
negotiated service contracts. We did the ride-along and things 
like this that specifically hit a market.
    So there is flexibility now, except that the law requires 
that it be brought to the public's attention before these 
services are negotiated.
    Senator Carper. Thank you. Mr. Walker, the last word?
    Mr. Walker. One of the problems, Senator Carper, is if you 
look at the cost structure of the Postal Service, a very high 
percentage of their costs are fixed costs, rather than variable 
costs, which means that they have very little ability to be 
able to adapt quickly to changes in revenue streams, and that 
is one of the things that is going to have to be looked at. 
They have a significant fixed cost structure, and it goes 
beyond just the issue of infrastructure, which, quite frankly, 
is not just a Postal Service issue. It is a government-wide 
issue, in light of technological changes that have occurred 
over the years, but it is also in the area of labor cost, as 
well.
    I know, for example--at least it is my understanding--
correct, me if I am wrong, Mr. Henderson, that they have, for 
example, a policy whereby when people are hired in, they are on 
probation for 2 years. So theoretically they can do something 
with regard to headcount with regard to those individuals, but 
for people that have more than 2 years, they have very limited 
flexibility. The problem is the last thing in the world you 
want to do, in light of the retirement eligibility rates that 
the Postmaster General mentioned earlier, is to say if you have 
just been here for 2 years, you are going to be the first one 
to go. That compounds your problem, and so one of the things 
that has to be looked at are some of these structural issues 
and how they can gain more flexibility over some of these.
    Senator Carper. Well, Mr. Chairman, I find this whole issue 
just fascinating. I do not know who on this Committee is 
interested in leading the charge, if it is you or Mr. Cochran 
over there or others, but I want to sign up to be a part of the 
solution and to work with folks here at the table, the people 
who will be taking your seats, and those who represent the 
employees of the Postal Service. This is an important issue and 
it is one that I look forward to joining you.
    Chairman Thompson. Thank you very much. I now call on the 
Subcommittee on International Security, Proliferation and 
Federal Service's Chairman, Senator Cochran.
    Senator Cochran. That is quite a title. It is hard to live 
up to all that.
    Mr. Rider, you mentioned the time it took to respond to the 
last rate increase request. It seemed like a long period of 
time to me. One question that I have is whether or not we 
should impose a statutory limitation of time within which a 
request for a rate increase must either be denied or approved.
    Mr. Rider. Well, that would certainly help, but with the 
regulations as they are today, it takes us 6 months or more to 
prepare for a rate case. With the Postal Rate Commission, it 
usually takes them----
    Mr. Omas. The statutes allow 10 months.
    Mr. Rider. Ten months.
    Senator Cochran. So there is a limitation.
    Mr. Omas. There is a limitation.
    Senator Cochran. Should it be shorter? Is that justified? 
Why does it take so long?
    Mr. Omas. The problem is that when the Postal Service 
submits their rate recommendation or a rate case, it is the 
first time that we have ever seen the figures, and by the time 
those figures are published and you get them out to the 
stakeholders and those who are in the mailing community have a 
stake in what the rates will be, they must then present a case, 
and then that takes about 3 months, and then the Postal Service 
rebuts their case. So the thing we get from the stakeholders 
and the community all the time is there is not enough time.
    Actually, at the end of the 3 months for the stakeholders 
and approximately 3 months for the Postal Service to review the 
case, we at the Commission have about 6 weeks actually to put 
together and to analyze the public record to make our decision.
    Senator Cochran. Let me ask a question on another subject. 
We have had an interest in the new businesses that the Postal 
Service has gotten into, and Mr. Henderson and Mr. Walker will 
realize that we have had a couple of hearings. We have had two 
GAO reports on this subject, specifically dealing with the e-
commerce activity of the Postal Service. One question that I 
have is how much revenue is the Service counting on from its 
new products and services, such as e-commerce? Is the Service 
on track to achieve this target? I should ask Mr. Henderson.
    Mr. Henderson. It is minuscule. The Postal Service is a $65 
billion organization. It is not going to reinvent itself into 
another $65 billion organization. If you look at what the 
Internet does--I will tell you in a nutshell what the strategy 
is. The biggest strategy the Postal Service has for the 
Internet, and it is what large businesses across America are 
doing, is using the Internet to take friction out of itself. In 
other words, take personnel. Do it on a Web site instead of 
going to a personnel system. Take purchasing, do it 
electronically instead of talking to a purchasing agent. It has 
nothing to do with selling a business. It has everything to do 
with cost-cutting.
    The second thing that the Postal Service is doing with the 
Internet is creating an information platform that allows 
customers to watch their mail, and that adds value. Whether or 
not we charge for that insight or not is yet to be determined. 
It develops an activity-based accounting system, and it allows 
managers to have better information about things that are going 
on in the Postal Service so they can make better decisions. 
Those are the two biggest initiatives of the new technology 
age, and it is not really about selling services. There has 
been a lot of hype. We have experimented with some of that.
    We have eBill Pay, for example, the largest electronic bill 
payment site. The major use of that is to see what the trends 
are, because we have $17 billion of our $65 billion in bill 
payments and presentment. We think that is going to go away. 
The GAO has talked about that, about the potential for that, 
and we learn from that site. We learn about consumer habits and 
what drives them in one direction or the other, and it has been 
misconstrued in the media. We are not trying to reinvent 
ourselves into some e-commerce organization. We use e-commerce 
constructively, but we are, at our core business, a mail 
delivery system, and that is what we will be in the future.
    Senator Cochran. The GAO report indicated some actions that 
could be taken by the Postal Service to eliminate some 
inconsistencies with its estimates of cost and revenues with 
respect to e-commerce activity. Has there been any action taken 
by the Postal Service to respond to those suggestions?
    Mr. Henderson. We agreed with all those suggestions. 
Actually, we worked very closely with GAO. They were very 
helpful in looking at our fledgling e-commerce business. We 
made some mistakes in the beginning, when we launched it, and 
they were very helpful in suggesting procedures to be put in 
place, and we have implemented those procedures, and I am 
almost positive that Mr. Walker will have a follow-up review of 
the Postal Service in those areas, and we are prepared for 
that.
    Senator Cochran. Is there ever any decision made to abandon 
a service or a product if it fails to meet its revenue?
    Mr. Henderson. Yes, under the e-commerce areas, we will--
the Board of Governors has put very strict mandates on us to 
have a lifecycle of the products. We have a learning curve, and 
then we make some decisions on whether or not to stay in it or 
get out of it. So, yes, there are some strict guidelines on 
management.
    Senator Cochran. Are these decisions made by the Board of 
Governors or made by you? Who makes those decisions?
    Mr. Henderson. Well, they are made by management in most 
instances, as a result of the board requiring certain 
restrictions on us. We agree to stay in a business so long or 
get out of it. If it does not have a net income opportunity or 
it does not have a learning situation, in which we are learning 
a lot about our core business, then we are going to get out of 
that sort of thing.
    Senator Cochran. Have any products of this kind, or 
services, been canceled?
    Mr. Henderson. Yes, in fact, I will provide a list of all 
the products and services we have, and those that have been 
canceled and those that have positive net incomes.
    Senator Cochran. That would be good to have for the record. 
Thank you very much.\1\
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    \1\ Responses from Postmaster General Henderson appears in the 
Appendix on page 108.
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    One other sort of macro question: Both Mr. Walker and Mr. 
Henderson talked about the statutory framework, and the fact 
that there has not been change to this framework since the 
Postal Service was created in 1970. What changes should be 
made, based on your knowledge of what is happening and the 
evolution of technology, demand, and cost? Mr. Walker, do you 
have in your reports to the Committee any specific suggestions 
for statutory framework changes?
    Mr. Walker. We have not gotten to the point, Senator, where 
we outlined specific recommendations. Frankly, we have 
recommended, however, a process that needs to be followed in 
order to come up with that. My view is, if you look at the 
statutory framework, there are several problems. One problem is 
it is cost-based. It is cost-based from the standpoint of 
determining what revenues are. One key question is how do you 
define cost? Second, if it is cost-based, how do you define 
labor cost. Obviously, I am a strong believer in collective 
bargaining, as I am sure you and others are.
    Basically, what has happened over time is it has been cost-
based, without enough market-based principles. There is binding 
arbitration, which I understand might have been done as a 
trade-off back in 1970, in order to avoid the possibility of a 
strike. Obviously, needless to say, Postal Service workers are 
dedicated professionals and they are essential to our economy. 
There is no question about it.
    But there are other important elements, as well. There are 
issues with regard to inability to close facilities in some 
circumstances, even in urban areas where there can be clear and 
compelling cases they are not needed, and therefore they do not 
really affect the ability to reach remote areas and to meet any 
reasonable definition of universal service, even under the 
current definition of universal service.
    So I think there are a number of things; and candidly, 
Senator, I think what has to happen is there has to be a set of 
proposals come up, a package that comes up to the Congress, 
that deals with these major problems, with various pros and 
cons, so that you can engage in a debate about what needs to be 
done, and to look at it as a package, rather than individual 
elements, and as compared to the status quo, because everything 
is relative, and I think that is what we think has to happen 
here.
    Senator Cochran. One other statement that you made to the 
Committee in your prepared statement was the need for a 
comprehensive plan. I think that was your phrase. Is this the 
same thing as a strategic plan? Somebody else mentioned a 
strategic plan. Is that the same thing?
    Mr. Walker. I think it is more than that, Mr. Chairman. The 
issue is that clearly there is a lot of opportunity to help 
make progress in the existing law by focusing on people, 
process, and technology, to reduce cost and increase 
productivity. There is clearly opportunity to do that, but that 
is only going to delay the day of reckoning before the Postal 
Service has to deal with the underlying structural problems. 
Clearly, you need a strategic plan as to where you are going 
and how you are going to get there, but I think the 
transformational plan also embodies, not just actions that 
could be taken within the context of current law, but also 
possibly what type of legislative changes might be necessary.
    A strategic plan typically is what enterprises are going to 
do within the context of current law, and we need to come up 
with specific options, pros and cons, with regard to how do you 
deal with some of the underlying structural problems associated 
with the Service. I think, frankly, the board has a major 
responsibility for leadership in that regard. I mean, they need 
to be involved in strategic planning. They need to be involved 
in succession planning, and I think they need to help 
facilitate this public dialogue and debate, because we are on a 
path that is not a positive path.
    Senator Cochran. Is the GAO capable or are you qualified as 
an agency to help develop this comprehensive plan?
    Mr. Walker. Well, candidly, I believe, Mr. Chairman, it 
would be better if the plan was developed by management or in 
consultation with stakeholders or by an independent business-
oriented authority. We would be happy to review that and 
comment on it, but I do not know that it is appropriate for the 
GAO to come up with, ``the plan.'' We can clearly contribute to 
it. My personal view is that it should not be a single plan. It 
should be various options, and there may be more than one 
alternative that could be looked at, with various pros and cons 
that then could be discussed and debated.
    I think the idea that you are going to come up with one 
plan that you are going to get a consensus on just does not 
exist. So, in the end, we are going to end up having to come up 
with what is the best of available options.
    Senator Cochran. What is your reaction to that, Mr. 
Henderson?
    Mr. Henderson. I agree with it.
    Senator Cochran. How about you, Mr. Rider?
    Mr. Rider. I agree with it, and we are working on it.
    Senator Cochran. You are working on a comprehensive plan?
    Mr. Henderson. Yes.
    Senator Cochran. When can we expect to hear about it, and 
what the details may be, and will it require congressional 
action to implement?
    Mr. Henderson. Yes. In fact, we can provide you with a copy 
of our initial efforts. We will provide that for the record. It 
is signed by the chairman.
    Senator Cochran. So it has been completed? You have 
completed a comprehensive plan and you are ready to submit it 
to the Congress; is that it?
    Mr. Henderson. Preliminary efforts on statutory reform.
    Senator Cochran. I see.
    Mr. Rider. That is one part.
    Senator Cochran. Who is doing the other part?
    Mr. Rider. We are working on the other part, too.
    Senator Cochran. This is beginning to sound George 
Orwellian here, Kafkaesque.
    Mr. Rider. The legislative reform package we have done, it 
will----
    Senator Cochran. All right. We will talk about it some 
more. I am using up too much time.
    Mr. Chairman, thank you.
    Chairman Thompson. Thank you very much. Senator Collins.
    Senator Collins. Thank you, Mr. Chairman.
    Mr. Henderson, I want to talk with you about an area of 
avoidable cost. Before I do so, I do want to thank you for your 
many years of service to the Postal Service and your country, 
and before I launch into this issue, which concerns me greatly, 
I want to make clear that I do not think, in any way, that you 
condone the issue I am about to discuss. As you may know, the 
Postal Service in southern Maine has been sued at least five 
times since 1998 for sexual harassment of female employees, 
producing jury awards and settlements that have exceeded $2.6 
million.
    Those are just the settlements that we know about. In three 
of the cases, the settlement amounts were not disclosed 
publicly. So, undoubtedly, the cost is even higher. Obviously, 
the vast majority of postal employees in Maine and elsewhere do 
not participate in sexual harassment. They do not condone or 
tolerate it in any way. But clearly there is a serious pattern 
and problem when you have five cases in that short of a time, 
that produce awards totaling more than $2.6 million. That is an 
area of avoidable cost.
    It also, obviously, more fundamentally concerns me because 
it harms the employees of the Postal Service, who have been 
subjected to absolutely unacceptable sexual harassment. What is 
the Postal Service doing to prevent these kind of cases in the 
future, which obviously have an adverse impact on morale, are 
unfair to the employees, and cost the Postal Service real money 
to settle?
    Mr. Henderson. Well, first of all, let me say we have a 
zero tolerance for sexual harassment. I have actually fired 
four or five people in my career for sexual harassment. I was 
an investigator 25 years ago in those instances. These cases 
crop up, and they are terrible, and we do not like this, but 
when you have 800,000-plus employees, you have these situations 
exist. It takes an incredible amount of communications and 
training to tell people, to show people, what the work place 
should be and what the standard is, and we constantly have 
this.
    I actually go through the training myself. We have a 
requirement that all of our managers go through sexual 
harassment training. In the case of Maine, we have had to put 
special teams in there, sensitivity teams. We are in the 
process of reviewing whether or not disciplinary action should 
be taken against individuals. It is a day-in and day-out issue 
in any large organization in America, and we are very vigilant 
about it. We are very apologetic when it occurs, and where we 
find culprits, we take very swift and decisive action with 
regard to that.
    Senator Collins. What concerns me is there appears to be a 
disturbing pattern here when you have five essential successful 
cases--five cases settled for millions of dollars in a period 
of 3 years. That is just not acceptable.
    Mr. Henderson. No, I agree with that. I absolutely agree 
with that.
    Senator Collins. Do you know how much the Postal Service is 
spending nationwide to settle sexual harassment cases?
    Mr. Henderson. Yes, we track all of those settlements. I 
will be happy to provide that for the record. I do not happen 
to know off the top of my head what it is, but we do track all 
of our settlements, both in-court and out-of-court settlements, 
with regard to complainants.\1\
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    \1\ Responses from Postmaster General Henderson appears in the 
Appendix on page 108.
---------------------------------------------------------------------------
    Senator Collins. Obviously, as an employer, the Postal 
Service would not want to, in any way, tolerate sexual 
harassment, but there is a monetary implication here when you 
are paying out millions of dollars to settle cases that never 
should have occurred in the first place. So this is something 
that I think deserves more attention by senior managers at the 
Postal Service, because no employees should be subjected to 
sexual harassment. Also, at a time when you are facing such 
financial constraints, you should not have to be paying out 
this kind of money every year to settle cases that should never 
be occurring in any work environment.
    Mr. Henderson. I actually agree with that. I think there is 
a greater moral principle than there is a financial principle.
    Senator Collins. I agree. I wanted to link it to the 
purpose of this hearing, but it is of great concern to me.
    Mr. Rider, it is my understanding, and I think you referred 
to this, that the Postal Service in March wrote to the 
President and the Congress, asking for a comprehensive review 
of postal laws. The letter that you sent was provided to me 
first by the President of L.L. Bean, probably Maine's best-
known company and a company whose future depends on an 
efficient Postal Service. The President of L.L. Bean wrote to 
me and not only provided me with the letter that the Board of 
Governors had sent to the President, but also suggested that 
perhaps it would be helpful to have some sort of Presidential 
Commission created to look at the operation of the Postal 
Service and provide specific recommendations. Could you give me 
your reaction to that recommendation by L.L. Bean?
    Mr. Rider. Yes, we would certainly agree to that--any way 
that we can get the job done. The danger in doing that would be 
the time that it would take to organize a Commission and bring 
them up to speed and get it done. We have sent a reform 
package, as I mentioned earlier, to the House, and that will be 
provided to you right away, and that is what we had in the way 
of reform. We are also working on our strategic planning 
committee, to get a strategic plan to go along with the reform.
    Senator Collins. But do you think that an independent look 
by an outside Presidential Commission would be helpful?
    Mr. Rider. That would be fine.
    Senator Collins. Thank you.
    Mr. Walker, I want to follow up on the issue that the 
Chairman raised about productivity in the Postal Service. GAO 
has testified that, at a time when we have seen unprecedented 
technological advancement and really an explosion in private-
sector productivity that has helped keep inflation down and 
prices down, that the Postal Service has increased its 
productivity by only 11 percent over the past 3 decades; and, 
indeed, the Chairman noted that during one period--I think it 
was between 1993 through 1999--that productivity actually 
declined in the Postal Service, which is contrary to the 
experience of many large private organizations.
    It is my understanding that the GAO is studying whether or 
not the Postal Service's breakthrough productivity plan will 
produce the kinds of cost savings, which I think are in the 
neighborhood of $3 to $4 billion over the next 5 years, that 
the Postal Service is projecting. Do you have any preliminary 
findings or any assessment of whether that plan is a realistic 
one that could help break this disturbing trend?
    Mr. Walker. We do not have the preliminary findings yet, 
Senator Collins. I will tell you, as you pointed out, that 
while the Postal Service has had a near record year this past 
year in productivity increases, about 2.5 percent, it has been 
a roller coaster. Since 1970--it is only an 11 percent increase 
since 1970. There are a variety of reasons for that. In some 
cases, as we pointed out in prior reports, we have noticed that 
there has not been enough focus on the design of this 
technology and the implementation of these technologies in a 
universal manner throughout the Postal Service.
    There are other issues that we have raised, as well, 
including the incentives associated with it, down to the level 
of people who are actually doing the work. We will be looking 
at this area, and I will be happy to provide back to you and 
the Committee our findings, but it is too early to have 
preliminary conclusions yet.
    Senator Collins. Thank you. I look forward to receiving 
those results. Thank you, Mr. Chairman.
    Chairman Thompson. Thank you very much. Gentlemen, 
primarily Mr. Henderson, Mr. Rider, and Mr. Omas, I want to 
talk a bit about your rate case procedure and the facts leading 
to these last, most recent rate increases. I want to discuss 
how they came about, because there is clearly a disagreement or 
difference of views between the Postal Service and the Rate 
Commission on this. I think most people would probably be 
surprised to know exactly how it works. That is, that the 
Postal Service goes before the Rate Commission and presents a 
requested rate increase. Then, if the Postal Service does not 
get what it wants, it can come back to them again. If it still 
does not get what it wants, it can come back to the Rate 
Commission a third time. Finally, if it still does not get what 
it wants, the Postal Service, by unanimous vote, can do what it 
wants to do anyway, right?
    Mr. Henderson. That is right.
    Chairman Thompson. So that is one thing that might bear a 
little discussion--whether or not that is what happened here in 
this particular case. Within that framework, what happened in 
this latest instance was that, in January of last year, you 
filed your case with the Commission. You asked for a 6 percent 
increase, including a $1.7 million contingency amount; is that 
correct?
    Mr. Henderson. That is right.
    Chairman Thompson. At that time, you were projecting a 
surplus of $500 million for fiscal year 2001. As has been 
pointed out, the Commission has 10 months to consider this. I 
can only imagine how laborious this process is. I have read a 
little bit about it. There have got to be huge law firms doing 
nothing in this town except handling rate cases. It reminds me 
of the old transportation cases, back when that was regulated. 
As I understand, there are over 70 parties to the procedure--
everybody has got a dog in the fight. Everybody has witnesses. 
Two-ton trucks pull up with documents. I mean, literately, 
right? You go through that for 10 months. So you went through 
that, and in November, you, Mr. Omas, and the Commission, 
decided against a 6 percent increases. You decided instead on a 
4.6 percent increase, and instead of a $1.7 billion contingency 
amount, you decided on a $700 million contingency amount. Is 
that correct?
    Mr. Omas. That is correct, $1 billion contingency is what 
we actually gave them. They asked for $1.7 billion and----
    Chairman Thompson. You cut it by $700 billion.
    Mr. Omas. Yes, sir.
    Chairman Thompson. That is right. The Governors agreed to 
allow the recommended rates to be implemented, but to do so 
under protest. So, they implemented the new rates and then the 
Postal Service came back to the Commission and requested that 
the full revenue request be restored. Is that correct?
    Mr. Omas. That is correct.
    Chairman Thompson. Here is where we have an issue, at least 
one or two. As I understand it, your position is, the Postal 
Service did not give you any material that would indicate to 
you the need for what it was asking for.
    Mr. Omas. That is correct.
    Chairman Thompson. At the time you first turned the Postal 
Service down, it is your position that the evidence before you 
did not justify that kind of increase.
    Mr. Omas. That is correct.
    Chairman Thompson. You turned them down, then they came 
back to you again and did not supplement the record with 
additional information; is that correct?
    Mr. Omas. That is correct.
    Chairman Thompson. To justify the increase----
    Mr. Omas. And we had offered them the opportunity to reopen 
the case, and they declined to reopen the case.
    Chairman Thompson. Let's stop right there before we 
continue on our little chronology. Let's ask Mr. Henderson and/
or Mr. Rider to comment up to this point, as to whether or not 
that is true.
    Mr. Henderson. Well, we obviously do not agree or we would 
not be in the controversy right here. I will give this to you, 
for the record, as the testimony on what the current situation 
was in the Postal Service.
    Chairman Thompson. Let me ask you some specific questions. 
Then you can comment however you want to, but break it down a 
little bit. Do you disagree that you were projecting at that 
point, in January 2000, a $500 million dollar surplus?
    Mr. Henderson. No--you are correct.
    Chairman Thompson. And you supplied information to the 
Commission, and with those projections, they turned you down. 
When you came back to them again, did you supplement the record 
or did you open up the proceedings, as was your right? Did you 
supplement the record with any additional figures or numbers or 
projections?
    Mr. Henderson. We did not reopen the record, but we gave 
sufficient testimony, in our opinion, to have an accurate view 
of what the economy was doing at the time. I will say that in 
the year 2000 we began to see shortfalls in revenues, which we 
reported to the Commission, of about $240 million. We then were 
forced--we reduced, using good business judgment, our revenue 
forecast in 2001 by $630 million, and then we were hit with 
fuel inflation on the order of magnitude of--in the case of 
$300 million, and we had an unexpected cost of living 
adjustment, because fuel drives our COLA cost, of about $430 
million.
    Chairman Thompson. As I recall, your transportation costs 
constitute about 10 percent of your costs, is that correct?
    Mr. Henderson. That is right.
    Chairman Thompson. And fuel is a part of that?
    Mr. Henderson. Every penny, as I testified earlier, costs 
the Postal Service $5 million, every penny of gasoline.
    Chairman Thompson. So what percentage of your overall costs 
does fuel constitute? We know it is less than 10 percent.
    Mr. Henderson. It is a major driver in our transportation 
costs, and transportation, as you said, runs about 10 percent 
of our costs.
    Chairman Thompson. Do we know how much of that 10 percent 
is fuel?
    Mr. Henderson. Yes, I can provide that for the record. I do 
not know it off the top of my head.\1\
---------------------------------------------------------------------------
    \1\ Responses from Postmaster General Henderson appears in the 
Appendix on page 108.
---------------------------------------------------------------------------
    Chairman Thompson. You understand that you are mentioning 
some facts here that would indicate that some circumstances 
were in the process of changing. Mr. Omas' position, as I 
understand it, is that you did not lay out sufficient facts to 
him at that time to justify a reconsideration. Is that what you 
are saying?
    Mr. Omas. Mr. Chairman, in July 2000, just prior to the 
last of the hearings of the case, we asked the Postal Service 
to give us updated, accurate figures for 1999, cost and revenue 
analysis for fiscal year 1999, which they did. At that time, we 
adjusted their original request by approximately $587 million, 
somewhere along in there, which included the ECI, which is the 
employment index. In the case, we usually did ECI minus one. In 
this instance, we gave them a full ECI. We took into 
consideration fuel costs, and we took into consideration the 
recently concluded labor contract negotiations, which they had 
brought up, that they would be going in there. So, the total 
package that we gave them----
    Chairman Thompson. Also productivity fluctuations, too----
    Mr. Omas. Yes, and we added that to the case. That was in 
the decision we issued in November.
    Chairman Thompson. You understand what Mr. Henderson is 
saying is that, after November, some circumstances changed. As 
I understand what he is saying, they brought oral testimony to 
your attention. You are saying they did not open up the record 
and supply it. What's the gap here? Where are we missing each 
other on this?
    Mr. Omas. There was no oral testimony, Mr. Chairman. They 
submitted to us a request, on remand, that we restore the 
contingency, which we had cut, and several other things. There 
were a total of about $1 billion, which they eventually 
restored. On the first remand, we offered them the opportunity 
to open up the case and we would try to expedite it. They 
declined to take that. They did a second request, and in the 
second request, they again declined to open up the case.
    Chairman Thompson. Between that request and the second 
request, they came out with some revised projections, 
projecting a $2-$3 billion deficit for 2001. I think that was 
February of this year.
    Mr. Omas. That is right.
    Chairman Thompson. Then they came back after that. They 
came back to the Commission again to ask for reconsideration.
    Mr. Omas. But they never presented new data. As far as we 
are concerned, as I said in my opening statement and in my full 
statement, we have no analyses of where they are losing the 
money exactly, and we must--we are charged with following the 
evidentiary record, and we had no record established as to what 
the new shortfalls, the loss of $2-$3 billion, were coming 
from.
    Chairman Thompson. Mr. Henderson, do you take issue with 
any of that?
    Mr. Henderson. I, frankly, do not know. When I say that, I 
say that from--I am not in the lawyering process in the Rate 
Commission. I do know that what was going on was obvious, and 
our appeal stated quite clearly what was happening in the 
Postal Service. These were not projections. This is what was 
actually happening. I mean, our revenues just went south, and 
we were saying to the Postal Rate Commission, ``Look, we need 
more money. Your revenue projections are not accurate.''
    Chairman Thompson. See, the problem that a lot of us have 
is that these are very formal proceedings. Testimony is taken 
under oath, and you go through them every 2, 3, or 4 years. You 
go to all this trouble and all this expense, and take all this 
time in 10 months. You cannot, just in the middle of it or at 
the end of it, start sending stuff over the transom. If you 
have got stuff like this that is relevant and that is clear, 
you open up the proceedings. You make that a part of the 
record, because the Commission can only make their decision 
based on what is in the formal record.
    Mr. Henderson. I agree with you, but I think if you were to 
examine the formal record, you would see that these things 
occurred before the record had closed. In other words, in our 
opinion, the sufficient evidence was on the record to justify 
the revenue requirement. I do not mean to say these things 
happened after the record closed.
    Chairman Thompson. But you will agree that there was no 
formal opening up of the record or live witnesses presented 
with this new information?
    Mr. Henderson. Yes, we did not feel that we needed it, and 
we did not want to start the process over again, so that the 
10-month period would re-click. We needed the money. As it is, 
the Governors went through the statutory process that allows 
them to implement the rate case after two submissions and 
denials by the Rate Commission.
    Chairman Thompson. What happened and the reasons why you 
did it are two different things. I am just trying to get, first 
of all, at what happened. It would seem to me that having been 
turned down twice and with all these things happening, that you 
would dot the i's and cross the t's necessary to get this 
before the people. One might think you were not comfortable 
with your own projections. We talk about economic downturns and 
so forth. We know that, at the last quarter of last year, that 
we were growing at 1 percent. And at the first quarter of this 
year, we are growing at 2 percent. So it is hardly a recession, 
but you had your cost fluctuations, labor costs and fuel, and 
all of that in the record as of July of last year.
    The issue is, when you were projecting a surplus, what 
circumstances changed so dramatically, so that you were, the 
next day, as it were, projecting huge deficits? I do not know 
why. There is obviously more here than meets the eye, and I am 
not smart enough to figure it out. It does not make a whole lot 
of sense to me.
    Senator Cochran.
    Senator Cochran. Mr. Chairman, you mentioned and one of the 
witnesses did, as well, the statutory borrowing limit of $15 
billion, and that this might pose a problem in the near future. 
The borrowing up to the end of fiscal year 2000 has amounted to 
$9.3 billion. My question is, when do you think, Mr. Walker or 
Mr. Henderson or both, the Service is likely to reach its 
borrowing limit?
    Mr. Walker. My understanding is without an additional rate 
increase, above and beyond the one that has recently been 
approved by the Board of Governors, it would be in 2003.
    Senator Cochran. Mr. Henderson, is that your estimate, as 
well?
    Mr. Henderson. I think, yes, 2002, September 2002 or 2003. 
Yes, we will have a problem. Yes.
    Senator Cochran. What is the practical consequence of that? 
If you reach that limit, what happens? Does Congress have to 
raise the limit or do we have to excuse----
    Mr. Henderson. No, you have to raise the limit.
    Senator Cochran. We have to raise the limit.
    Mr. Henderson. If you look at the limit, $10 billion was 
set in 1970. We are in the year 2001, and it has only been 
raised to $15 billion. You say what do we do with the capital? 
What does that mean? We either raise capital through net income 
or we borrow it. We use capital to substitute for labor, that 
is to mechanize the Postal Service and to upgrade its 
infrastructure. So, it would put handcuffs on both the 
infrastructure upgrades and on the further mechanization or 
automation of the Postal Service.
    Senator Cochran. Does the Board of Governors come into play 
here? Do you have a role to play in connection with the 
statutory borrowing limit?
    Mr. Rider. I believe they did. That was before my time.
    Mr. Henderson. They approve, they being the Board of 
Governors, approves every capital expenditure of $10 million or 
over. They have a role in spending the money. They have no role 
in setting the limit. That is purely the purview of Congress. 
That is a statutory----
    Senator Cochran. And the board has to approve the 
borrowing?
    Mr. Henderson. That is right, $10 million and over. That is 
correct.
    Senator Cochran. Does the board have a position on whether 
or not this limitation ought to be changed?
    Mr. Rider. I am confused. The limit of $10 million we have 
is on projects we approve, capital projects we approve. 
Everything over $10 million, the board approves. Less than 
that, we do not. So, we have control over the capital 
expenditures that are being made.
    Mr. Henderson. That is not a statutory limit. That is 
something they approve by bylaws.
    Senator Cochran. We are mixing up two things.
    Mr. Rider. The $15 billion is set by Congress, as I 
understand it.
    Senator Cochran. Mr. Walker.
    Mr. Walker. Mr. Chairman, the $15 billion limit on 
borrowing, the statutory limit, is an action-forcing event. 
That is going to occur sometime between 2002 and 2003, 
depending upon what actual experience is versus projected 
experience. That means, among other things, that we have some 
time to be able to come up with a set of comprehensive 
proposals. Obviously, one of the things that needs to be looked 
at is, part of that set of comprehensive proposals, is whether 
and to what extent that limit should be raised. But, at some 
point in time, as Postmaster General Henderson said, something 
has got to give.
    When you end up coming up and you have negative cash flows, 
you can cut back your capital spending only so far. Some of 
that is only a timing difference. Some of that hurts your 
productivity improvement efforts. But, hopefully, what can 
happen is, if we can have a comprehensive set of plans or 
proposals that will consider what is to be done structurally 
before you hit this wall, because that is basically what the 
limit is. It is a wall that is going to require congressional 
action.
    Mr. Henderson. That is right.
    Mr. Rider. Let me also indicate that the board does not 
favor raising the debt ceiling.
    Senator Cochran. That was my question. That is what I was 
wondering.
    Mr. Rider. We do not favor raising. We would like not to do 
that, because if we raise the debt ceiling, we are raising our 
interest cost. That is just digging our hole a little deeper.
    Senator Cochran. But if you do not raise the ceiling, what 
happens?
    Mr. Rider. We hope that we are going to be able to get 
reform and be able to operate within those constraints.
    Senator Cochran. So you think it would be something that 
would put pressure on the Congress, to enact statutory reforms 
that are needed; is that correct?
    Mr. Rider. It is not a matter of putting pressure on. It is 
a matter of trying to get the job done so that we can stay in 
business.
    Senator Cochran. Either that or the Postal Service can 
change the way it is managing its business, in order to keep 
the costs from increasing. Is that the other answer?
    Mr. Rider. Yes, that is, sir.
    Senator Cochran. But why hasn't that been done?
    Mr. Rider. We are working on that now, sir.
    Senator Cochran. One of the suggestions is that the costs 
of operating the business are out of control. I have heard that 
from critics who have come to see me, to say that it is time 
for the Postal Service to change the way it operates, so that 
it does not permit these costs to run out of control. Do you 
share that view, Mr. Rider?
    Mr. Rider. No response.
    Senator Cochran. Can cost be cut further without statutory 
reforms or new authorities by Congress?
    Mr. Rider. We are in the process of cutting those costs 
just as much as we can, but 76 percent of our cost is labor--76 
percent of our total cost is in labor. With that, we have to 
have the mailmen deliver to every house every day. We cannot 
cut back on that end. We are cutting back on headquarters and 
right on down to that. There is a point beyond which we can cut 
and still provide universal service and good service. Our 
customer satisfaction is quite high. It is in the 90 percent--
93 precent----
    Mr. Henderson. Right.
    Mr. Rider [continuing]. Percent customer satisfaction. In 
the capital business, part of the capital that we spend is for 
machinery which has a good ROI. Part of it is for facilities, 
and that gives us no ROI whatsoever. With adding on the volume 
of deliveries and the business that we are doing, it requires 
some of these antiquated facilities to be expanded, and we do 
not get an ROI for that.
    Mr. Walker. Mr. Chairman, if I may?
    Senator Cochran. Mr. Walker.
    Mr. Walker. There is unquestionably an opportunity to be 
able to further cut costs and enhance productivity; however, 
without underlying structural reforms, you are not going to 
solve the problem. You are not going to solve the problem, 
because even if you end up spending more money on, for example, 
capital improvements, to enhance technology, to further 
automate a number of activities that might be able to be 
automated, in order to achieve the savings on that, you have 
got to do something with the labor costs. Under the current 
structure, it is difficult to do that. You also have to look at 
the infrastructure costs associated with the Postal Service. 
Ultimately, something has got to be done with that. We are not 
going to change evolving technologies. We are not going to 
change the competitive climate. The day of reckoning is going 
to come, and the question is when do we want to deal with it.
    Mr. Henderson. I would add--I would agree with everything 
that Mr. Walker said, and just point out that last year we had 
the best productivity we have had in almost a decade, and we 
lost $199 million, primarily due to softening demand. This 
year, we have better-than-planned productivity, and we have 
costs under our plan, and we are losing money because of 
softening demand for postal products, in other words, our 
revenues, and we are not even being hit by the Internet today. 
As I said earlier, $17 billion of our $65 billion are bill 
payment and presentment. We all know it is not if, but when, 
that is going to go electronic. AT&T, for example, spends $1.75 
or somewhere in that neighborhood, to send you a bill. If they 
could take that out of their cost structure, they could save $1 
billion on the bottom line. Somebody is going to figure out how 
to do that. It is not going to happen tomorrow, it is not going 
to happen maybe 3 years from now, but it is going to happen. 
And, when it happens, you are going to have this same 
phenomenon of how does the Postal Service--as the Chairman 
mentioned, continue to do what is mandated under universal 
service, which is regularly scheduled mail delivery in urban 
and rural areas, 6 days a week across America, and opening post 
offices, keeping post offices opened--this is not a matter of 
good and evil, where it is not cost-effective? I will give you 
a classic example of that. Cape Cod has 7 townships, 53 post 
offices. President Kennedy had a great hand in that.
    Chairman Thompson. Is that Massachusetts? Several of them 
ought to be closed.
    Mr. Henderson. I will not go any further.
    Senator Cochran. Thank you, Mr. Chairman.
    Chairman Thompson. Thank you very much. Mr. Henderson, you 
talk about softening demand, but how much more is demand going 
to soften as these rates continue to increase?
    Mr. Henderson. It is a problem. I agree with you.
    Chairman Thompson. It is a Catch-22, isn't it?
    Mr. Henderson. That is exactly right. It really represents 
what your opening statement said. It is a Catch-22.
    Chairman Thompson. Let's get back to that for a minute. Mr. 
Walker, sitting here listening to this and listening to you, we 
have had this conversation before with regard to other 
governmental agencies. It seems to me that we have the same 
problems here that we have in most all governmental agencies--
financial management problems, projections, trying to determine 
where you are, information technology problems, inability to 
use technology to help themselves, capital management problems, 
same kinds of difficulty in changing the culture. What we have 
done here is tried to combine a Federal agency entity with a 
private entity. To put them all together and give them 
characteristics of both.
    It worked for a while and now it is not working anymore. 
Factors such as the technological revolution that is going on 
and because the bigger it gets, the more it begins to behave 
like other governmental entities. The Postal Service has 
900,000 employees and we cannot seem to do very much about it. 
Obviously, part of that is because of the mandates. If we are 
going to keep all these post offices opened, somebody has got 
to be in them, and therein lies your employee situation to a 
great extent. Aren't these just the kind of characteristics 
that should not surprise us at all? The question is, in some 
sense, why haven't these problems happened sooner than they 
have?
    Mr. Walker. The Postal Service is a major and important 
case study in the two questions, as you know, Mr. Chairman, 
that I have raised before; and that is, now is the time that we 
need to ask what the government should do and how should the 
government do business in the 21st Century. We have to move 
beyond incrementalism. Minor changes here, minor changes 
there--we have to recognize it is a new ballgame and we need to 
fundamentally re-examine some issues, not just with regard to 
the Postal Service, which is why we are here today, and it is 
very pressing and is very important, but in a whole range of 
areas, as well, because many of the challenges they face are 
shared by other entities. The Postal Service is supposed to 
achieve a specifically-defined mission and they are supposed to 
be self-supporting. So, it is more visible with them and it is 
more universal with them, because every American can identify 
with the Postal Service.
    Chairman Thompson. Mr. Henderson, you were very candid in 
your statement awhile ago about how you saw the future. You saw 
a total or partially privatized Post Office. I said in my 
opening statement that everything ought to be on the table, 
including the question of the postal monopoly. What makes sense 
in the kind of world that we live in? You and I both know that 
if that were to come about, it is certainly going to have to 
get--well, that is not going to come about in short order, if 
ever. And whether it should or not is what we are going to be 
discussing here.
    Mr. Rider, what would be your ideas, and Mr. Omas, also, 
what would be your ideas about something that might right the 
ship. Or, less than that, something that might be more 
politically doable than going in that direction? Is it worth 
the effort or should we just wait until we can revolutionize it 
before we do anything? I know that you have had certain reform 
ideas. Congress ought to do something about your labor 
situation. You ought to be able to raise rates whenever you 
want to, essentially, is the way I read it. Are those the only 
proposals that you have that might be done, that might be 
doable, less than privatization?
    Mr. Henderson. Well, let me comment, because you raised the 
issue of privatization and monopoly. You cannot talk about 
monopoly without talking about universal service. Universal 
service is an obligation we have, and it is an obligation to go 
into areas of rural Tennessee and rural Mississippi, where we 
do not make any money. There are 40,000 post offices. The 
26,000 smallest ones, it costs over $2 to take in a dollar. So, 
there is an infrastructure in place that is called universal 
service, that is there, and it is protected by a monopoly, and 
the two cannot--you cannot break one without breaking the other 
one.
    You also have an issue of affordable rates. It costs the 
same amount of money to send a First-Class letter from Dresden, 
Tennessee, to Memphis, as it does to Anchorage, Alaska. That is 
something people accept as a fundamental right of living in 
America. So those are at the core of the U.S. Postal Service, 
and I agree with you, we are not going to break those tomorrow. 
You are not going to break them for a long time, and I think we 
all recognize that because of the impact on America.
    As to the changes that can be made, yes, I think you can 
get price freedom, but as the chairman of the board pointed 
out, it is not just to raise prices, it is to lower prices. We 
make all our money--the Postal Service has a business cycle. It 
begins in September. Halfway through the year, we make all the 
money we are going to make. The last half of the year, we lose 
money. It is purely a function of volume. The first half of the 
year is robust. The Postal Service is very efficient with that 
robust volume. Last half of the year, the volume goes away, and 
the Postal Service scrambles. It is impossible to say you are 
going to have 800,000 people in the first half of the year and 
500,000 at the last half of the year. It does not work. There 
is a trade-off. Pricing freedoms--to change that business cycle 
in the last half of the year just like a retail store does. At 
the end of their business cycle, what do they do? They put 
their clothes on sale. That sounds strange, but we could 
incentivize mailers in that fashion. We could incentivize large 
mailers. Senator Collins talked about my good friend, Leon 
Gorman at L.L. Bean. If he gave us packages for Japan--well, 
Japan is a bad example. If he gave us packages for the United 
States in a certain fashion, we could give him certain 
discounts, having more freedoms. It is not just a matter--do 
not think of it as a model of just increasing prices, it is 
being able to adjust your prices.
    In the final analysis, unless you change the accountability 
of the labor conflict solution at the Postal Service--I am 
talking about the wage increases--unless that has a different 
criteria, where the voice of the customer is heard, you are not 
changing anything. We can incentivize some growth, maybe. I 
actually question in my own mind how much we can incentivize. 
If you look back 30 years, mail volume growth has mirrored GDP. 
The correlation is almost a plus-one. So, if you do not get 
control over the work-hour cost----
    Chairman Thompson. When you say have the customer have a 
bigger input in that, what are you talking about?
    Mr. Henderson. Well, today, the customer has no input in 
it. It is an arbitrator who makes an independent decision, and 
he makes a decision without regard to what that impact will be 
on the price of postage. And if you look back 30 years, you see 
that the cost per hour and the revenue per piece, which is 
postage, correlate. In effect, you have an arbitrator driving 
postage rates.
    Chairman Thompson. I have read where management-negotiated 
contracts were not much different than the ones that 
arbitrators----
    Mr. Henderson. In the 1970's, that was true. In the 1970's, 
there was a belief that the postal workers were underpaid. I 
participated in the 1973, 1975, 1978, 1981, and 1984 
negotiations, not as a principal, but as a person there. There 
was a belief in the 1970's that postal workers were underpaid, 
and they did put in provisions that were in the private sector 
at that time. In the 1980's, most of those provisions were 
taken out of the private sector, like cost-of-living 
allowances, for example. Some took strikes----
    Chairman Thompson. Do all postal workers have COLAs?
    Mr. Henderson. Yes, all craftworkers have COLAs, not 
management. Arbitrators have a tendency not to take out 
provisions that have been agreed to, and have been in there for 
long periods of time.
    Chairman Thompson. What do you think, philosophically, as 
you go along? You are talking about things that might make you 
more competitive and Congress might be able to help you out in 
that regard. But, philosophically, what do you think, as you 
see these businesses around you who are beginning to provide 
some of the same services you are? They say they can do it, 
that they can compete with one another and hold down prices, 
and maybe they can. What do you think about that? Should we 
shut them out? Should government be doing something that 
private enterprise can do? Should we carve certain portions of 
it out? In every other aspect of government, we are outsourcing 
an awful lot. What are your thoughts about that?
    Mr. Henderson. I think that is actually the key question of 
the future of the Postal Service, and that is, what is the role 
of this quasi-government agency in the future, and should it 
compete where the private sector competes? I think the answer 
to that lies in the answer to another question, and that is, is 
a healthy Postal Service important to America? If the answer to 
the question is yes, then you do take steps to allow it to 
compete. If the answer to that is no, that a healthy Postal 
Service is not necessarily important, and you want to shrink it 
down--and there is a sale, there are two philosophical camps--
then you do not do that and you just say size down. My own view 
is that a healthy Postal Service is very important to America 
and will be for a long time to come, and that the Congress 
ought to act in unison and make reforms that allow the Postal 
Service to be more competitive. But, you can choose a different 
ideology. That is legitimate.
    Chairman Thompson. Mr. Rider, what are your thoughts on all 
of this in terms of what we can feasibly do?
    Mr. Rider. I agree, and I was just thinking on our labor 
situation. We are not allowed labor differentials in areas. 
Some of our postal workers in cities like New York, or Los 
Angeles, California, for example, are paid the same as those in 
Dresden, Tennessee, which is not right.
    Chairman Thompson. I understand that your position is, or 
that there has been testimony to the fact, that there is a 23 
percent wage premium, in terms of the private sector, that the 
postal employees have. Is that correct?
    Mr. Rider. I have not seen that figure. Have you?
    Mr. Henderson. Well, we will provide that economic 
information, but I will say that we are not saying that postal 
workers are overpaid. We do not talk like that about our 
employees. Our employees do a very fine job every day and earn 
their money. We will let the economists fight over that.
    Chairman Thompson. I agree. I used to be one of them. One 
of the multifaceted jobs I have had. When I dropped out of 
college 1 year to work a couple of different jobs, to save a 
little money, one of them where I worked was the Post Office in 
Lawrenceburg, Tennessee.
    Mr. Henderson. Oh, really?
    Chairman Thompson. Yes, I think the wage was about a 
dollar-and-a-quarter then, as I recall, but it was better than 
anybody else was making. Mr. Rider, do you have anything 
further?
    Mr. Omas, do you have any thoughts?
    Mr. Omas. Well, Mr. Chairman, that is a bit of a difficult 
question. I think there may be certain areas in the Postal 
Service that could be privatized to make it more efficient, and 
I think all of that needs to be looked at in the overall--where 
the Postal Service is going to go and what we want the Postal 
Service to look like. But I go back to what I said earlier, to 
Senator Carper, is I think the Postal Service's main business 
is its core business, and that is the delivery of mail. They 
have the network. They have the ability and there are companies 
now who are doing a great deal of work-sharing, which I think 
saves money for the Postal Service. We think it does. They 
bring their mail down to sectional center facilities for drop-
shipping. In other words, they take a lot of work out of 
processing the mail. So maybe encouraging that is something the 
Postal Service should look at expanding.
    Chairman Thompson. Senator Cochran.
    Senator Cochran. One final question. There is a requirement 
in the statute that you have to break even, not that you have 
to make a profit. It is still the Postal Service, not the 
Postal Business, in the statute. Should either one of these 
concepts be changed in the comprehensive reform that we 
undertake?
    Mr. Henderson. That is an interesting question. I really do 
not have an answer to that question today. I will say it is 
much easier to manage a business for profit than it is to break 
even. You say how does that make a difference? Well, in 1997, 
in July, we were given the authority to raise rates, and 
because we were making so much money at that time, we decided 
to postpone that decision of implementing that rate increase 
until January. If we would have been operating for a profit, we 
would have put those rates in in July, and just increase our 
profit. Because we were making so much money, we decided to 
postpone it for a year.
    So, it does have an impact on you. I think, from a public 
policy point of view, for our customers, it is probably a good 
notion to have a not-for-profit Postal Service. From a 
management point of view, I would much rather manage an 
organization that runs for profit than one that does not run 
for profit. It is much easier.
    Mr. Rider. May I add that we do need to have some way--if 
we are going to be breakeven, we have to have some way of 
raising capital to take care of our capital needs, both 
facilities and machinery. If we are just in a breakeven 
situation, the only thing we can do there is fund it out of 
depreciation, and depreciation does not take care of even 
replacement today.
    Senator Cochran. Mr. Walker, do you have any observations 
about that issue?
    Mr. Walker. I think it is one of the issues that has to be 
looked at as part of comprehensive reform. In my view, in 
sitting here and listening today, to me, there were several 
things that were evident right off. First, there is a need for 
additional transparency and accountability with regard to the 
Postal Service's financial and operating results and 
projections. There is a need for enhanced communication and 
coordination between the board, management, the unions and the 
Postal Rate Commission on these issues. There is a need to try 
and consider additional contingencies, with regard to variances 
that could exist with regard to either the revenue side or the 
cost side in order to minimize the frequency of postal rate 
increases. There is a need to continue to push, to try to 
improve productivity and minimize cost and minimize rate 
increases, but there is also a need to get on with the effort 
to develop a comprehensive transformation plan, because, in the 
end, we are not going to be able to change the trends that are 
impacting the Postal Service; the technology, the competition. 
In the end, there is going to have to be much more 
comprehensive change to deal with the underlying structural 
problems.
    Senator Cochran. Thank you, Mr. Chairman.
    Chairman Thompson. I think that pretty well says it all. 
That is probably a good place to end right there. I think what 
you have laid out for us is a job for Congress and a job for 
the Postal Service. Clearly, we have laid some requirements on 
the Postal Service that are important. Universal service is 
important and it is going to remain so, regardless of what it 
costs, probably. Mr. Rider talks about the need to raise 
capital. The direction we are going in, you are going to be 
raising it right up here, before the Appropriations Committee.
    I might just ask Mr. Walker, what is the significance--if 
they are about to reach their debt limit of $15 billion--if we 
continue anywhere near where we are going right now? I think 
the picture is probably a little worse than what we are laying 
out because of these assumptions that are not going to pan out, 
but let's say next year, or the year after that, we reach the 
debt limit, what is the significance of that? Obviously, they 
will have to start paying expenses in cash. I mean, in terms of 
retirement payments and all of that, that is a significant 
landmark; isn't it? Congress could, obviously, come in and 
throw a few billion dollars into the pot, but, short of that--
--
    Mr. Walker. You could take some fairly dramatic and, some 
would argue, Draconian actions. You could freeze all capital 
spending. You could end up engaging in massive layoffs for 
people who you have the ability to lay off. I do not think any 
of these are desirable. You could end up taking some short-term 
actions that might end up dealing with the problem in the 
short-term, but it could exacerbate your long-term challenge. 
We have a window of opportunity here, because one of the issues 
that the Congress is going to have to deal with--it is going to 
have to deal with this debt limit issue, the way things are 
going right now. So one of the things we hopefully will do is 
to be able to take a look at this window of opportunity, do 
what you can in the context of current law, and come up with a 
more fundamental transformation plan, including any necessary 
restructuring, before you hit that limit.
    Chairman Thompson. And, as a part of that, and because it 
needs to be done, and because it can help the bottom line, and 
because it gives us the political ability to get something more 
done, the Postal Service is going to have to do something 
better. In terms of productivity, in terms of managing its 
costs, in terms of financial management and things of that 
nature the Postal Service must do better. I think it is not to 
lay blame on anyone, it is just a matter of fact.
    I hate to leave on that note, as a matter of fact, 
especially with Mr. Henderson. You have given a lot of good 
public service to your country over the years, and I want you 
to know we appreciate it. As I say, this is probably not the 
best way to go out, unless you have another hearing or two you 
are going to have to go to on the other side.
    Mr. Henderson. I enjoy the hearings. I would like to enter 
into the record the statement of Karla Corcoran, Inspector 
General.\1\
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Corcoran appears in the Appendix 
on page 118.
---------------------------------------------------------------------------
    Chairman Thompson. You are in a position now, and will be, 
to have a perspective to look back on all this. To really give 
some candid advice to us, as to some things that we can do and 
maybe as to what your successor can do, some of the things you 
have done and some of the things you wish you had done. Thank 
you for your service, and, gentlemen, thank all of you as we 
proceed to try to make progress in this area.
    The record will remain open for a week after the close of 
the hearing. If there is nothing further, we are adjourned.
    [Whereupon, at 12:26 p.m., the Committee was adjourned.]
                            A P P E N D I X

                              ----------                              

PREPARED STATEMENT OF SENATOR BYRON L. DORGAN, A U.S. SENATOR FROM THE 
                         STATE OF NORTH DAKOTA

    Mr. Chairman and Members of the Committee:
    I thank you for the opportunity to share my views with you. As you 
know, the Postal Service recently announced that it will be facing a 
projected deficit in the range of $2 to $3 billion during fiscal year 
2001.
    A number of options have been proposed to help the Postal Service 
become more financially stable. Construction projects, affecting more 
than 800 postal facilities, were put on hold earlier this year. Also, 
last week the Postal Service announced yet another set of rate 
increases in an effort to curtail the projected deficit. In April, the 
Board of Governors called for a study of one of these proposals, 
namely, to cut delivery by the Postal Service to five days a week. This 
is particularly troubling to me because of the negative impact this 
would have on rural areas.
    I understand the many challenges facing the Postal Service. Not 
only are some costs rising--such as fuel prices for delivery vehicles--
but other methods of communicating and doing business have caused a 
decrease in the volume of First-Class mail. Many people are using the 
Internet to pay their bills, to go shopping, and to contact their 
friends and family.
    However, not all Americans have enjoyed the benefits of these 
technological advances. People in rural areas, like much of North 
Dakota, are hampered by limited access to these technologies. These 
people depend heavily on the Postal Service.
    It seems to me that eliminating Saturday mail service affects rural 
areas disproportionately. To those in rural areas, Saturday mail 
service gives people one more day to receive mail, conduct business, 
order and receive prescription drugs, send bill payments, and read the 
news from local and national newspapers. Furthermore, while those in 
urban areas have easy access to other delivery services, such as the 
United Parcel Service (UPS) or Fed Ex, it is often not convenient for 
those in rural areas to use these services or they may not be offered 
at all. Doing away with Saturday delivery from the Postal Service is 
just another way that rural America would be left behind.
    It's also important to remember that taking away Saturday delivery 
won't take away the mail that is now being delivered on Saturday. 
Instead, mail carriers would be forced to deliver a larger volume of 
mail each day. Anytime we have a national holiday, the mail backs up, 
creating delays and higher workloads for carriers. Carriers may be 
forced to work overtime, just to keep up with the steady stream of 
mail.
    The idea to reduce mail delivery to five days a week is not a new 
one. Back in the early 1980's, there were substantial reforms relating 
to the Postal Service, and at that time, some suggested that delivery 
service be reduced to five days a week. Federal subsidies for the 
Postal Service were greatly reduced in the budget, and Members of 
Congress were looking for ways to cut costs. But five day service was a 
bad idea then, and it's a bad idea now.
    In response to those proposals, language was inserted into the 
Treasury/Postal Appropriations bill, requiring the Postal Service to 
maintain service at 1983 levels. As the Ranking Member of the Senate 
Subcommittee on Treasury/Postal Appropriations, I intend to work with 
my colleagues to ensure that this language is retained.
    Limiting mail delivery to five days a week would be detrimental to 
rural communities which must already overcome the obstacle of 
isolation. I will work to prevent this misguided proposal to cut 
delivery service from becoming reality. I commend this Committee for 
holding this hearing and I look forward to working with you on this 
important issue.
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