S. Hrg. 113–405 

POSTAL REFORM—2013 

HEARING 

BEFORE THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

SEPTEMBER 19, 2013 

OUTSIDE THE BOX: REFORMING AND RENEWING THE POSTAL 

SERVICE PART I—MAINTAINING SERVICES, REDUCING COSTS, AND 

INCREASING REVENUE THROUGH INNOVATION AND 

MODERNIZATION 

SEPTEMBER 26, 2013 

OUTSIDE THE BOX: REFORMING AND RENEWING THE POSTAL 

SERVICE PART II—PROMOTING A 21ST CENTURY WORKFORCE 

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

Printed for the use of the 

Committee on Homeland Security and Governmental Affairs 

( 
POSTAL REFORM—2013 
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85–506 PDF 2014

S. Hrg. 113–405 

POSTAL REFORM—2013 

HEARING 

BEFORE THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

SEPTEMBER 19, 2013 

OUTSIDE THE BOX: REFORMING AND RENEWING THE POSTAL 

SERVICE PART I—MAINTAINING SERVICES, REDUCING COSTS, AND 

INCREASING REVENUE THROUGH INNOVATION AND 

MODERNIZATION 

SEPTEMBER 26, 2013 

OUTSIDE THE BOX: REFORMING AND RENEWING THE POSTAL 

SERVICE PART II—PROMOTING A 21ST CENTURY WORKFORCE 

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

Printed for the use of the 

Committee on Homeland Security and Governmental Affairs 

( 
(II) 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

THOMAS R. CARPER, Delaware Chairman 

CARL LEVIN, Michigan 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

MARK BEGICH, Alaska 

TAMMY BALDWIN, Wisconsin 

HEIDI HEITKAMP, North Dakota 

TOM COBURN, Oklahoma 

JOHN MCCAIN, Arizona 

RON JOHNSON, Wisconsin 

ROB PORTMAN, Ohio 

RAND PAUL, Kentucky 

MICHAEL B. ENZI, Wyoming 

KELLY AYOTTE, New Hampshire 

RICHARD J. KESSLER, Staff Director 

JOHN P. KILVINGTON, Deputy Staff Director 

BETH M. GROSSMAN, Chief Counsel 

LAWRENCE B. NOVEY, Chief Counsel for Governmental Affairs 

KATHERINE C. SYBENGA, Senior Counsel 

JOHN G. COLLINS, Professional Staff Member 

KEITH B. ASHDOWN, Minority Staff Director 

CHRISTOPHER J. BARKLEY, Minority Deputy Staff Director 

CATHERINE A. BAILEY, Minority Director of Governmental Affairs 

JOSEPH D. MOELLER, Minority U.S. Postal Service Office of the Inspector General Detailee 

LAURA W. KILBRIDE, Chief Clerk 

LAUREN M. CORCORAN, Hearing Clerk 
(III) 

C O N T E N T S 

Opening statements: Page 

Senator Carper.................................................................................................. 1, 391 

Senator Coburn ................................................................................................. 4, 394 

Senator Tester................................................................................................. 17, 417 

Senator Heitkamp........................................................................................... 20, 406 

Senator McCaskill ............................................................................................ 22 

Senator McCain ................................................................................................ 28 

Senator Pryor .................................................................................................... 31 

Senator Johnson ............................................................................................... 408 

Senator Baldwin ............................................................................................... 411 

Senator Ayotte .................................................................................................. 414 

Prepared statements: 

Senator Carper................................................................................................ 53, 449 

WITNESSES 

THURSDAY, SEPTEMBER 19, 2013 

Hon. Patrick R. Donahoe, Postmaster General and Chief Executive Officer, 

U.S. Postal Service ............................................................................................... 6 

Hon. Ruth Y. Goldway, Chairman, Postal Regulatory Commission .................... 8 

Hon. David C. Williams, Inspector General, U.S. Postal Service ........................ 10 

Cliff Guffey, President, American Postal Workers Union .................................... 34 

Jeanette P. Dwyer, President, National Rural Letter Carriers’ Association ...... 36 

John Beeder, President and Chief Operating Officer, American Greetings ....... 38 

Jerry Cerasale, Senior Vice President, Government Affairs, Director Marketing Association, Inc. ........................................................................................ 40 

Seth Weisberg, Chief Legal Officer, Stamps.com .................................................. 41 

ALPHABETICAL LIST OF WITNESSES

Beeder, John: 

Testimony .......................................................................................................... 38 

Prepared statement with attachment ............................................................. 136 

Cerasale, Jerry: 

Testimony .......................................................................................................... 40 

Prepared statement .......................................................................................... 201 

Donahoe, Hon. Patrick R.: 

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

Prepared statement .......................................................................................... 55 

Dwyer, Jeanette P.: 

Testimony .......................................................................................................... 36 

Prepared statement .......................................................................................... 130 

Goldway, Hon. Ruth Y.: 

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

Prepared statement .......................................................................................... 71 

Guffey, Cliff: 

Testimony .......................................................................................................... 34 

Prepared statement with attachment ............................................................. 93 

Weisberg, Seth: 

Testimony .......................................................................................................... 41 

Prepared statement .......................................................................................... 211 

Williams, Hon. David C.: 

Testimony .......................................................................................................... 10 

Prepared statement .......................................................................................... 87 
Page

IV 

APPENDIX 

Statement from Donna Harman, President and CEO, American Forest & 

Paper Association ................................................................................................. 218 

Additional information submitted by Senator Coburn ......................................... 221 

Chart referenced by Senator Coburn ..................................................................... 331 

Responses to post hearing questions for the Record: 

Mr. Donahoe ...................................................................................................... 332 

Ms. Goldway ...................................................................................................... 348 

Mr. Williams ..................................................................................................... 357 

Mr. Guffey ......................................................................................................... 362 

Ms. Dwyer ......................................................................................................... 364 

Mr. Beeder ........................................................................................................ 366 

Mr. Cerasale ...................................................................................................... 368 

THURSDAY, SEPTEMBER 26, 2013 

Hon. Patrick R. Donahoe, Postmaster General and Chief Executive Officer, 

U.S. Postal Service ............................................................................................... 395 

Jonathan Foley, Director, Planning and Policy Analysis, U.S. Office of Personnel Management ............................................................................................. 397 

Frank Todisco, Chief Actuary, Applied Research and Methods, and John 

E. Dicken, Director, Health Care, U.S. Government Accountability Office .... 399 

Fredric V. Rolando, President, National Association of Letter Carriers AFL– 

CIO ........................................................................................................................ 426

John F. Hegarty, National President, National Postal Mail Handlers Union .... 428 

Robert J. Rapoza, National President, National Association of Postmasters 

of the United States ............................................................................................. 430 

Douglas J. Holtz-Eakin, Ph.D., President, American Action Forum ................... 432 

Dean Baker, Ph.D., Co-Director, Center for Economic and Policy Research ...... 434 

ALPHABETICAL LIST OF WITNESSES

Baker, Dean, Ph.D.: 

Testimony .......................................................................................................... 434 

Prepared statement .......................................................................................... 540 

Donahoe, Hon. Patrick R.: 

Testimony .......................................................................................................... 395 

Prepared statement with attachment ............................................................. 451 

Foley, Jonathan: 

Testimony .......................................................................................................... 397 

Prepared statement .......................................................................................... 471 

Hegarty, John F.: 

Testimony .......................................................................................................... 428 

Prepared statement .......................................................................................... 512 

Holtz-Eakin, Douglas J., Ph.D.: 

Testimony .......................................................................................................... 432 

Prepared statement .......................................................................................... 535 

Rapoza, Robert J.: 

Testimony .......................................................................................................... 430 

Prepared statement .......................................................................................... 520 

Rolando, Fredric V.: 

Testimony .......................................................................................................... 426 

Prepared statement .......................................................................................... 489 

Todisco, Frank: 

Testimony .......................................................................................................... 399 

Prepared statement .......................................................................................... 475 

APPENDIX 

American Enterprise Institute for Public Policy Research, statement for the 

Record ................................................................................................................... 544 

Postal Workforce Pay and Benefits Statistics submitted by Senator Coburn .... 551 

Federal Law Enforcement Officers Association, statement for the Record ........ 553 

National Active and Retired Federal Employees Association, statement for 

the Record ............................................................................................................. 559 

National Treasury Employees Union, statement for the Record ......................... 565 

National Association Letter Carriers, statement for the Record ......................... 572 
Page

V 

Responses to post-hearing questions for the Record from: 

Mr. Donahoe ...................................................................................................... 580 

Mr. Foley ........................................................................................................... 586 

Mr. Todisco and Mr. Dicken ............................................................................ 590 

Mr. Holtz-Eakin ................................................................................................ 597 

(1) 

OUTSIDE THE BOX: REFORMING AND 

RENEWING THE POSTAL SERVICE, 

PART I—MAINTAINING SERVICES, REDUCING 

COSTS AND INCREASING REVENUE THROUGH 

INNOVATION AND MODERNIZATION 

THURSDAY, SEPTEMBER 19, 2013 

U.S. SENATE,

COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:01 a.m., in room 

SD–342, Dirksen Senate Office Building, Hon. Thomas R. Carper, 

Chairman of the Committee, presiding. 

Present: Senators Carper, Pryor, McCaskill, Tester, Heitkamp, 

Coburn, McCain, and Johnson. 

OPENING STATEMENT OF CHAIRMAN CARPER 

Chairman CARPER. The Committee will come to order. Actually, 

there is a lot of order here already and, I hope, some optimism. It 

is a beautiful day out there and I hope that the future turns out 

to be just as bright as this day has been so far. 

Thank you for joining us, Dr. Coburn and I, and some of our colleagues will be coming along shortly. I want to thank our staffs for 

the work you have done in helping us prepare for this hearing, and 

for all of you for the work that you have done in preparing for this 

day. 

We meet today to examine the financial challenges facing the 

United States Postal Service (USPS) and to consider proposals that 

have been put forward to address those challenges. Since I first 

joined this Committee, actually 12 years ago as a freshman Senator, one of my top goals has been to not just help the Postal Service get by, but to help it be strong once again and remain viable 

for the long-term. I think that is a goal we share. 

Back in 2006, I worked with Senator Collins, Senator Lieberman, 

our House colleagues and the Bush Administration, a lot of key 

stakeholders, to give the Postal Service some of the tools that it 

would need to deal with the challenges posed by the increasing use 

of electronic forms of communication. 

We had no idea at the time that the worst recession since the 

Great Depression lay just around the corner, and that it, along 

with the growing use of email, electronic bill pay, and other communication innovations would so dramatically erode mail volume. 
2 

Today, as I have mentioned before at this Committee’s hearings 

and in other venues, we find ourselves closer than we have ever 

been to losing the vital services that the Postal Service offers, along 

with the eight million or so jobs that depend on its continued vitality. As we sit here today in the fall of 2013, the Postal Service has 

maxed out its credit line with the U.S. Treasury and is rapidly running out of cash. 

Despite an improving economy and some positive signals, particularly from package delivery and advertising mail, the immediate future for the Postal Service is not bright. Absent legislative 

intervention, the Postal Service will likely limp along for a few 

months unable to invest for the future, and with its employees and 

customers uncertain of what the future holds. It can only limp 

along this way for so long. 

This situation is unacceptable. It is also avoidable and it calls for 

urgent action from Congress and the Administration. Unfortunately, despite repeated requests from Postal management for assistance, we failed to act. After months of effort, though, to find 

common ground, Dr. Coburn and I finally succeeded in introducing 

bipartisan, comprehensive legislation on August 1 that has the potential, to set the Postal Service on the path toward self-sufficiency 

and relevance in the 21st Century. 

And I want to just say here publicly how grateful I am to him 

and to the folks on his staff for working with John Kilvington and 

others on our staff and those that are represented in this room and 

outside this room. A lot of work, hard work, a lot of give and take. 

But I think in the end it is going to be worth all that effort. 

Our bill attempts to permanently address the Postal Service’s 

longstanding health and pension issues and right-size its processing and delivery network while providing it with the tools to 

generate new revenue in a digital world. Some of you have heard 

me say this before. I will just say it again. 

The Postal Service is unique in this country. Nobody else goes to 

every mailbox, virtually every door, business and residential, in 

this country 5 or 6 days a week. There is a great potential to earn 

additional revenues from this network. We have to figure out collectively how to access that and how to realize that potential. 

But my goal with this bill, and I believe Dr. Coburn’s goal as 

well, is to enact a set of reforms that are fair to really three groups 

of people. One, our Postal customers; two, our Postal employees 

and retirees; and to taxpayers. Our further goal is to fix this problem, at least for the foreseeable future, and not to kick the can 

down the road. 

Our hearing today will focus largely on the provisions in our bill 

that relate to Postal rates, potential changes in the levels of service 

provided by the Postal Service, and the innovations that Postal 

management must put in place in order for the Postal Service to 

survive and thrive in the coming years. 

It is important to note at this point that despite the relatively 

positive financial news we have seen in recent months, some tough 

decisions are still needed in order to get the Postal Service out of 

the troubles that it faces, and whether it happens today, next 

month, or next year, it is likely that Postal customers will need to 

sacrifice at least some of the conveniences that they enjoy today. 
3 

Our bill would give the Postal Service the authority it needs to 

adjust its operations to reflect the changing demand for the products and services it offers, and the changing needs of its customers. 

The Postal Service today needs to be granted the authority from 

Congress to make decisions similar to those that our auto companies made in recent years in right-sizing their industry, and enable 

them to succeed despite the challenges that they face in the 21st 

Century marketplace in this country. 

But the solution to this problem we have gathered here to discuss today cannot be just about cutting. We are not going to cut 

our way out of this dilemma. It has to be about innovation and it 

has to be about finding a way for the Postal Service to be almost 

as important to my son’s generation as it was to my generation, 

while we served our country during the Vietnam War, and to my 

parents’ generation during World War II. 

The Postal Service has been attempting to do just that. It has aggressively marketed its package offerings and made them more 

user-friendly and valuable to customers. It has also partnered with 

companies like the Federal Express (FedEx), like the United Parcel 

Service (UPS), like Amazon.com to deliver items the last mile, the 

last 5 miles, or the last 10 miles to their customers. 

For example, in my State, Amazon.com sends trucks out every 

night, actually in the wee hours of the morning, from their plant 

in Middletown about 20 miles from where I live. And they send 

them to Postal Service facilities all over the mid-Atlantic and 

northeast to deliver overnight items that people have ordered the 

previous day. Nice piece of business actually. 

The bill that Dr. Coburn and I have put forward would help 

Postal management with its efforts, but also expand the range of 

products and services the Postal Service can offer by eliminating 

what was, in retrospect, a short-sighted restriction placed on Postal 

innovation in 2006. Our provision, along with others such as our 

language allowing the Postal Service to compete with UPS and 

FedEx in the shipping of beer, wine, and spirits, is intended to give 

Postal management the tools they need to make greater use of its 

one-of-a-kind processing, distribution, and retail network. 

At the end of the day, what Congress must do is to provide some 

certainty to both Postal employees and customers and to ensure 

that taxpayers, along with all the fiscal challenges we face as a 

country, are not also saddled with shoring up a failing Postal Service. 

I do not want to be back here in a few years discussing how we 

can dig ourselves out of yet another Postal crisis. I suspect I speak 

for everyone in this room. I do not believe that any of us want to 

do that, and as it turns out, if we are smart enough and if we are 

creative enough and bold enough we will not have to. 

In turning this over to Dr. Coburn for whatever comments he 

wants to make—let me add just a P.S. We face huge fiscal challenges in this country. It is better. We had a big deficit of $1.4 trillion about 4 years ago, huge deficit, and it is now only about $700 

billion. It is still a lot. And Dr. Coburn has worked a whole lot on 

these issues, I have, too, and so have others of our colleagues. 

I think there are three ways to actually put our country on the 

right track financially. One of those is we need to overhaul our en-
4 

titlement programs in a way that saves money, saves these programs, and does not hurt the least of these in our society. The second thing we need to do is we need to raise some revenues, hopefully by doing more on the tax exclusion side, eliminating a lot of 

tax breaks, some of the ones that are least productive, rather than 

just raising rates. 

And the third thing we need to do, and this really is what we 

are talking about here, we need to, in almost everything we do, ask 

this question: how do we get a better result for less money? The 

Postal Service cannot continue to be a burden on the Treasury and 

the taxpayers. We know you do not want to. 

I was in a meeting yesterday, Tom, and one of the discussions 

was, how can we most help get the economy moving even stronger. 

And some people had different ideas. I think, for my money, for our 

money, the best way to do it is to demonstrate, in large part, to 

the business community who are not hiring people, who are sitting 

on a lot of cash, that we can govern, that we can be fiscally responsible, we can provide certainty with respect to the Tax Code. There 

are seven or eight million jobs that flow from the Postal Service, 

and a lot of Postal customers need some certainty that the Postal 

Service is going to be in business, is going to be able to provide the 

service that they need and meet their needs. 

So there is a lot riding on this and a lot of it involves jobs. Not 

just the people who work for the Postal Service—we value their efforts—but the people who need the Postal Service in order to survive and thrive. Dr. Coburn. 

OPENING STATEMENT OF SENATOR COBURN 

Senator COBURN. Well, let me say to you, Senator Carper, we 

worked hard to try to get a draft bill out. I am committed with you 

to try to move this process forward. I would thank your staff as 

well. I think we have a great working relationship. I would thank 

the input that we got from all the outside groups as we attempted 

to do this, and my assessment is that since nobody likes it, we are 

probably right where we need to be. Since everybody hates it, that 

is usually a good middle ground. 

It is a draft. It is a starting point. The reason we are having 

these hearings today is to hear, in formal ways rather than in the 

office, what is positive, what is negative, what are the critiques, 

what are the negatives from everybody’s viewpoint. 

The fact is, when we finish the Postal bill in Congress, everybody 

is going to have to give something. We are not going to solve this 

problem. I would note that we had Professor Geddes from Cornell. 

Seventy-five percent of the rest of the world has privatized their 

Postal Service. And his other recommendation is, you cannot have 

a shrink to grow model. 

What you have to do is have products and you have to have pricing capability and that pricing has to be based on what your net 

revenue can come by hitting the sweet spot for your customer and 

for the Postal Service. This is a draft because we intend to make 

further changes based on input. The reason we dropped the bill before the August recess was to make sure that both the customers, 

the Postal Service, and the workers that work in the Postal Service 

know that we are committed to getting a deal done. 
5 

And we have demonstrated in our compromises that we are willing to do that and we are willing to listen. I am going to work with 

three priorities in mind. First, the Postal Service should look to 

cutting costs. They have to. And I would congratulate the Postmaster General on what he has done thus far, but he has a way 

to go. 

The second, we should look for more revenues, not just through 

price increases, but ingenuity, new ideas, new markets, in ways 

that do not unfairly allow the Postal Service to compete against the 

private sector. 

Third and last, we should look to the taxpayers as the last resort. 

As Senator Carper can tell you, I actually believe we ought to let 

the Board of Governors (BOG) have a lot of power in running this 

business so they can react to markets, so they can make the kind 

of changes they need to be competitive. 

I will note that yesterday, FedEx raised its prices—its stock went 

up $5—on the basis that they saw an economy that was brightening in terms of their package service. That bodes well for the 

Postmaster and all the employees that work for the Postal Service. 

It also creates some slack and gives them some working room. 

Those are positive developments. 

What the Postal Service and the Postal employees have done 

with packages needs to be applauded, and we need to ensure that 

they have the capability through their management structure to be 

nimble and quick and reflective so they can compete in that market. 

The question before the panel today is quite simply, how did we 

do with the draft? And we have heard the blowback. We recognize 

that we want to take that in and then we want to work some more. 

So there is no bill until there is a bill signed by the President, but 

it is going to have to be balanced and everybody is going to have 

to make a sacrifice if we are going to solve this problem. 

The Postal Service deserves a great deal of credit for staving off 

the liquidity problems, but that is going to end within a year. And 

so, we have a short period of time to try to create an organization 

that can compete, is long-lasting, and represents the service that 

Americans deserve, and recognizes the dedication of the employees 

that work for the Postal Service. 

The Chairman and I are committed to getting this done. That is 

why we are here today. And Tom, again, I thank you and I thank 

all of those that are going to testify for their input. 

Chairman CARPER. You bet. We have been joined by a couple of 

our colleagues. I want to thank Senator Johnson, who is faithful. 

I do not know if he is as faithful in going to church, but he is faithful in coming to these hearings and I am grateful for that. And I 

also want to welcome Senator Tester. We have been spending a fair 

amount of time talking about issues of particular concern to Montana, and I value that contribution and look forward to both of your 

strong participation as we go forward. 

I want to just briefly welcome our witnesses. No strangers to this 

panel. They will be glad when they do become strangers to this 

Committee. Our first witness is Patrick Donahoe. People say, How 

does he pronounce his last name? I say, It is like who, as in who, 
6 

1The prepared statement of Mr. Donahoe appears in the Appendix on page 55. 

as in who are you. So just keep that in mind as you say his name. 

He does not care, though. 

Mr. Donahoe is the Postmaster General and Chief Executive Officer (CEO) of the Postal Service. Mr. Donahoe has spent his entire 

career at the Postal Service, beginning as a clerk in his hometown 

of Pittsburgh, and spending many years in top leadership positions 

before being appointed Postmaster General in 2010. 

Our next witness is Ruth Goldway, Chairperson—do you like to 

be called Chairwoman? I would if I were a woman. How do you like 

to be referred to? 

Ms. GOLDWAY. Thank you, Senator. We had a long discussion 

about this at the Commission and determined that it should remain Chairman. 

Chairman CARPER. All right. 

Ms. GOLDWAY. That is the term of art for the position, as opposed 

to the sex. 

Chairman CARPER. We will go with that. Chairman of the U.S. 

Postal Regulatory Commission (PRC) it is. Ms. Goldway has served 

on the Commission for 15 years, dating back to her appointment 

to that body by former President Clinton in 1998. She has led the 

Commission as its Chairman since 2009. 

The final witness for the panel, David C. Williams, is Inspector 

General (IG) for the Postal Service. In addition to his current position, to which he was appointed in 2003, Mr. Williams has served 

as Inspector General to no less than four other Federal agencies, 

including the Nuclear Regulatory Commission (NRC) and the Department of the Treasury. 

We thank all of our witnesses for being here. We would ask that 

you keep your testimony to about 7 minutes. If you go way beyond 

that, I will rein you in. But I know some of you have a lot to say 

and we want to make sure you have a chance to say it. 

With that, I will say, Senator Heitkamp, welcome. Great to see 

you. We are looking forward to welcoming you to Delaware tomorrow, too. All right? 

Senator HEITKAMP. I look forward to it as well, Mr. Chairman. 

Chairman CARPER. Thank you. There you go. Mr. Donahoe, you 

are our lead-off hitter. Please proceed. Your entire statements will 

be made part of the record. 

TESTIMONY OF THE HON. PATRICK R. DONAHOE,1 POSTMASTER GENERAL AND CHIEF EXECUTIVE OFFICER, U.S. 

POSTAL SERVICE 

Mr. DONAHOE. All right. Thank you, Mr. Chairman. Good morning, Mr. Chairman, Dr. Coburn, Members of the Committee. Thank 

you, Mr. Chairman, for calling this hearing. 

The Postal Service is a tremendous organization. It has a proud, 

dedicated workforce that delivers mail and packages to every business and residence in America. It does so affordably, securely, and 

reliably. The Postal Service plays an incredibly important role in 

the American economy and in American communities. And yet, it 

is in the midst of a financial disaster. 
7 

Over the past 2 years, the Postal Service has recorded roughly $20 billion in net losses and defaulted on $11.1 billion in retiree 

health benefit payments to the U.S. Treasury. We will default on 

another $5.6 billion payment due September 30 of this year, and 

our cash liquidity remains dangerously low. 

The Postal Service, as it exists today, is financially 

unsustainable. It is burdened by an outdated and inflexible business model. Without significant structural changes, it will continue 

to record large financial losses. We must get on the path to financial stability quickly and we need your help to do so. 

Earlier this year, the Postal Service published a comprehensive 

business plan designed to restructure the organization and to return it to profitability. If fully implemented, our plan will generate 

$20 billion in savings by 2017, including repayment of our debt. 

The Postal Service is pursuing elements of this plan very aggressively and we are achieving some great results, especially in the 

area relating to consolidation of mail processing facilities, elimination of delivery routes, optimizing our retail network, and generating new revenue in our package business. 

Unfortunately, the strategies that we are allowed to pursue can- not get us to the $20 billion mark by 2017. To fully implement our 

plan, we require the enactment of legislation that reforms our business model. I want to make the point that the legislation we are 

seeking is not merely about closing the large budget gap. We want 

to be an organization that can readily adapt to the changing demands of our customers. The marketplace for mailing and shipping 

services is changing and the Postal Service requires the legal 

framework that enables us to act with speed and flexibility. 

While we always meet the universal service obligations and meet 

the basic products and service expectations of the American public, 

this legislation could determine whether we can continue to do that 

in the future. Can we be much more nimble and efficient and continue to invest in the future of the mailing industry? Yes, but we 

need the flexibility to do so under this law. 

In 2006, the Postal Service was given additional flexibility by 

Congress to better compete in the package delivery business. We 

made the most of that flexibility. We have created effective products and marketing campaigns and now our package business is 

growing very rapidly. We need this kind of flexibility across all of 

our businesses. 

We believe there are tremendous opportunities to leverage that 

and technology to make mail more compelling as an investment for 

American businesses. We also believe that there are great opportunities for the Postal Service to provide digital offerings in the future. 

If we are able to operate with greater product and pricing flexibility under the law, and if we can do so from a strong financial 

position, I am confident that we can develop and market products 

and services that drive growth in the American economy and benefit America’s mailing industry. 

Mr. Chairman, we are highly focused on the health of America’s 

mailing industry. Mail is a communications channel that competes 

against digital, print, broadcast, and other media channels. Industry-wide innovation is very important and the Postal Service 
8 

1The prepared statement of Ms. Goldway appears in the Appendix on page 71. 

should have the flexibility to support and speed that innovation. 

We also need to keep mail affordable so that it remains competitive 

and continues to deliver value for American businesses. 

Unfortunately, because our financial condition is so precarious 

and the legislative process is so uncertain, we have reached the 

point that we have to consider raising prices above the rate of inflation. I believe it is important that we discuss this issue today because the prospects for legislation have a direct bearing on pricing 

decisions that may impact the health of our business customers. 

Let me conclude with the following thought. The Postal Service 

is quickly moving down a path that leads it to becoming a massive, 

long-term burden to the American taxpayer. The legislation that 

you are considering is a great starting point to get us off the path 

to disaster and onto the path of continued financial stability. 

We agree with the overall approach taken by Senate Bill 1486. 

It provides important pricing and product flexibility and a strong 

framework for restructuring the Postal Service. However, in order 

to meet the goal of generating a savings of $20 billion by 2017, the 

legislation must resolve our long-term health care costs. I believe 

this is achievable and I am greatly encouraged by recent discussions that we have had on this topic, which I know we will continue to discuss next week. 

I would like to thank the Committee for taking up postal reform 

legislation this year and I look forward to supporting your work 

and hope to help in any way I can. This concludes my remarks. 

Thank you very much. 

Chairman CARPER. Postmaster General, thank you very much. 

Chairman Goldway, please proceed. 

TESTIMONY OF THE HON. RUTH Y. GOLDWAY,1 CHAIRMAN, 

POSTAL REGULATORY COMMISSION 

Ms. GOLDWAY. Thank you, Chairman Carper, Ranking Member 

Coburn, and Senators Johnson, Heitkamp, and Tester. Thank you 

for the opportunity to testify today. I am pleased to represent the 

Postal Regulatory Commission and to share its views on the important topic of Postal reform. 

We appreciate your leadership in shaping the debate on what 

must be done to assist the Postal Service and to assure its sustainable future. The Committee has convened this hearing to explore 

how the Postal Service can be renewed and reformed, to thrive in 

this changing environment, and to examine the solutions set forth 

in Senate Bill 1486. 

Certainly, there is broad agreement that legislative changes are 

needed to place the Postal Service on a more sound financial footing. Nevertheless, the Postal Accountability and Enhancement Act 

(PAEA), contained numerous reforms that were a positive force for 

change toward modernizing the Postal Service. Efforts to renew 

and reform the Postal Service need not and should not replace the 

many positive provisions included in the PAEA. 

My written testimony emphasizes the importance of transparency and accountability in the efficient provision of Postal services, and addresses the Commission’s experiences and views on a 
9 

variety of issues addressed in S. 1486. For example, the PAEA significantly increased the transparency and accountability of the 

Postal Service by mandating accurate and periodic financial reporting that is subject to Commission review and public comment. 

However, in my oral statement, I will focus on ratemaking, an 

area where the Commission has broad responsibilities. A major 

focus of the PAEA was ratemaking. It sought to end the Postal 

Service’s reliance on unpredictable price increases and concerns 

that the Postal Service was passing along the costs of less than optimally efficient operations to mailers through cost of service ratemaking. 

The PAEA achieved these goals by introducing a regulatory price 

cap regime for those Postal Service products, over which it enjoys 

a statutory monopoly or possesses market power. The Postal Service’s rate adjustments for these market-dominant products are now 

at predictable intervals and rate increases for each class of mail 

are capped at the rate of inflation. 

This rate cap approach has had many positive impacts in many 

areas. Most importantly, it has protected rate payers from large, 

unpredictable rate increases that were permissible under the old 

law. The ability to accurately budget for rate increases has reduced 

disruption to mailer operations and permitted mailers to plan their 

mailing programs with regular reliability. 

The price cap has also successfully motivated the Postal Service 

to implement extensive cost-saving strategies to achieve increases 

in efficiency. Since the price cap became effective, the Commission 

has reviewed the impact on service of many proposed changes intended to reduce the costs of mailing, processing, transportation, 

and delivery. 

Now, degrading the reliability of service is not an acceptable way 

to reduce costs. The PAEA requires the Postal Service to enhance 

service measurement, and the Commission to review service performance reports as part of its annual compliance determination. 

The PAEA does, however, provide an exception to the price cap, an 

emergency rate provision. 

It requires that the Postal Service justify this price increase 

based on extraordinary or exceptional circumstances to an independent, impartial regulatory body. This has guarded customers 

from unwarranted exigent price increases. This protection is particularly important in a government-mandated monopoly environment. 

The PAEA sought to eliminate the lengthy and expensive rate 

case litigation that had occurred under prior law. It implemented 

this goal by providing the Postal Service with increased flexibility 

to set prices within the bounds of the inflation-based price cap regime, and requiring the Commission to design and implement a 

modern system of rate regulation. 

The Commission developed a simplified process that replaced the 

10-month adversarial proceeding required under prior law. The 

new expedited process has significantly decreased litigation-related 

expenses for both the Postal Service and the mailers and organizations that formerly participated in rate cases. 

Since the passage of the PAEA, the Commission has reviewed 

rate adjustment proposals to assure compliance with the law 
10 

1The prepared statement of Mr. Williams appears in the Appendix on page 87. 

promptly and efficiently. Excluding the one exigent rate case, rate 

requests have been completed on an average of just 37 days. The 

Commission completed its one exigent rate request in 86 days. And 

I think it is noteworthy that no mailer has filed a complaint related 

to a rate adjustment that was reviewed and approved by the Commission. 

The Commission stands ready and willing to continue to assist 

the Committee, Congress, the Postal Service, and stakeholders to 

ensure the Postal Service can meet its challenges now and well into 

the future. When Postal reform is enacted, the Commission will 

swiftly and responsibly implement the new law to ensure that the 

Postal Service remains an effective part of the overall American 

communications network. 

Thank you again for providing me the opportunity to testify 

today, and I would be pleased to respond to any questions the Committee Members may have. 

Chairman CARPER. Good. Madam Chairman, thank you so much 

for your testimony and for your willingness to respond to those 

questions. We are going to have a number of them, I promise. 

David Curtis Williams, welcome back. Good to see you. Thanks for 

your testimony. Thanks for the good work that you do. Please proceed. 

TESTIMONY OF THE HON. DAVID C. WILLIAMS,1 INSPECTOR 

GENERAL, U.S. POSTAL SERVICE 

Mr. WILLIAMS. Thank you, Mr. Chairman, and Senator Coburn 

and the Members of the Committee. I appreciate the opportunity 

to testify today. Since 2007, the Postal Service was hit with rapid 

volume losses due to the economic downturn and Internet diversion. The decline in mail volume now appears to be slowing. The 

financial crisis, though serious, is leveling off. 

The Postal Service has taken dramatic and successful actions to 

optimize its network to the reduced demand. The focus today, however, is on the revenue side, and my office has conducted two related studies. The first study found the Postal Service’s ability to 

generate needed revenue under the Consumer Price Index (CPI) 

price cap is largely dependent on unlikely increases in volume. This 

is true of any labor intensive enterprise subject to price controls. 

The Postal Service’s obligation to deliver daily to a growing number of addresses alone assures that it will remain labor intensive. 

Mail volume was expanding significantly when the CPI cap was deployed. Also, at that time the monopoly, even with the universal 

service requirement, was a lucrative asset. These conditions suggested the need for a price control since monopolies can be impervious to efficient market forces. 

In 2007, mail growth abruptly reversed. With fewer pieces of 

mail going to a delivery point, each remaining piece of mail had to 

raise more revenue to pay for the cost of delivery. Sufficient revenue above inflation was unavailable under the price cap. Recent 

volume losses, combined with the price cap, imperil the Postal 

Service’s ability to provide universal service while remaining selffunded. 
11 

The price cap was intended to protect trapped monopoly customers, but the monopoly has lost much of its value since there is 

powerful competition for each type of mail today, advertising, personal communications, business transactions, and parcels. Customers have alternatives and the diminishing monopoly, combined 

with the universal service requirement, is now a growing liability. 

Our study suggests adjusting the CPI cap to take into consideration volume fluctuations and revenue generated per delivery 

point. 

The second study examined how sensitive postal customers are 

to price increases above CPI. We found that for moderate, predictable price increases, postal products generally have low price elasticity. That means small increases would provide badly needed revenue. As prices are increased, some volume will leave, but the associated revenue loss will be more than offset by revenue from the 

price increase. 

The study examined 20 years of data through 2012 and looked 

for any changes in price sensitivity, including from the Internet 

and from the recession. We are not saying that all postal customers 

have a high tolerance for price increases. Some customers remain 

price sensitive. Rather, as a whole, the demand for these postal 

products has low price elasticity. Current fears of a postal collapse 

are likely a far greater risk than a small price increase. 

Pricing freedom through efficient market forces should be used 

when possible. Casting them aside in favor of artificial controls has 

been problematic and it is problematic for the Postal Service today. 

Efficient market forces have a long history of successfully disciplining companies. If the Postal Service loses customers with excessive prices, it will suffer the same punishing consequences as 

any other business. 

New innovative technologies offer many opportunities to improve 

core postal operations and customer service. Vast data generated 

throughout the network can be mined for operational efficiencies. 

Global Positioning System (GPS) can optimize routes, manage the 

fleet, and track packages. Mobile imaging can provide customers 

visual delivery confirmation. Sensors and their Radio-frequency 

identification (RFID) technology can digitally link postal equipment 

and vehicles, providing real-time visibility in all aspects of the network, joining the Postal Service to the Internet of things. 

In this remarkable but highly imperfect digital age, citizens and 

businesses face fundamental problems. The loss of privacy, security, and confidentiality; the fragmentation of messaging—Toyota 

could not connect the dots between written correspondence and 

email complaints several years ago—the difficulty of navigating egovernment services, the risk of buying online from unknown individuals, uneven broadband and banking access, and expensive ecommerce middlemen that inhibit entrepreneurs and small businesses. 

The Postal Service can help address these problems. Secure electronic messaging can preserve privacy, security, and confidentiality. Storage and integration services can give people tools to organize communications in a multi-channel world. The Postal Service can offer seamless e-government services by supporting the digital platform with its network of post offices and delivery carriers. 
12 

The creation, storage, and validation of digital identities would 

protect against the risks of transacting with unknown people and 

businesses. Post offices can become centers of continuous democracy, acting as hubs to gather citizen input. The sale of single-use 

cash cards and the cash redemption of digital currency can provide 

alternatives for the unbanked, enabling their participation in commerce. 

And virtual post office boxes can offer citizens and foreign buyers 

of U.S. goods delivery of their packages anywhere and anytime, 

and support businesses with back-end operations such as microwarehousing. The Postal Service already has a physical network 

underlying the emergent wired digital infrastructure. By further 

enabling that network, the Postal Service can assure that e-commerce is seamlessly supported by powerful fulfillment services for 

physical goods. 

The Committee’s attention to revenue and innovation is tremendously important and pre-funding, which the Committee will take 

up next week, is also a substantial factor in the plight of the Postal 

Service’s finances. Part of the need for the price increase and absence of investment capital for innovation are directly tied to the 

financial drains from pre-funding. Thank you. 

Chairman CARPER. Well, thank you. Boy, you had a mouthful 

there, did you not? That was good stuff. I am going to ask the Postmaster General just to react to some of what Mr. Williams has just 

shared with us in terms of additional things that we can do to help 

the Postal Service to reduce its costs. He gave us a whole laundry 

list of things that the Postal Service can do to help us on the revenue side. So just be thinking about reacting to those ideas. 

My colleagues have heard me talk about this before. When I 

think about the problems that the Postal Service faces and has 

faced for a number of years, I go back to another legacy industry 

and that is the auto industry. It was not that many years ago 

where we were in the tank and we had seen our market share drop 

from about 85 percent, 30 or 40 years ago, to about 45 percent. 

And the question was what are we going to do about it? Are we 

going to give up, just let everybody else in the world take the business away from us and send the auto industry down the tubes or 

not? And they chose not. 

A couple of things happened there and I think they are relevant 

for us today. One, they right-sized their enterprise. They said, we 

have more manufacturing plants than we need given our market 

share. They had more parts plants than they need, they have more 

employees than they need. 

And what they did, they did not just fire people. They did not 

abrogate labor contracts, but they decided to right-size the enterprise, in a humane way. And they also decided, how can we use 

what we have in order to generate additional revenues? And they 

are generating a whole lot of revenues. They are generating the 

kind of products that people want and are willing to pay for. So I 

think there are some lessons to be learned there in terms of rightsizing the enterprise, and we have those opportunities, and what 

we are trying to do is just that. 

Remember when people used to kind of joke and say that the big 

three—Ford, Chrysler, General Motors (GM)—were really a pro-
13 

vider of health care to several hundreds of thousands of people and 

they had a subsidiary that made cars, trucks and vans? Well, when 

you look at the Postal Service, it is not that bad in terms of being 

a provider of health care that has a subsidiary that delivers packages and mail. 

But the health care costs are substantial. And in the auto industry what they have done, United Automobile Workers (UAW) steps 

up and says, We would like to take over running the health care 

for our members and for our retirees, and we want to do it—we 

think we can do it in a more cost-effective way. They call it the Voluntary Employees Beneficiary Association (VEBA). They have done 

it and it has actually worked. 

I know there are discussions going on with the Postal Service 

and with your unions and other employee groups, and I just encourage you to continue to do that because that is huge. As we try 

to find ways to bring down costs, that is just critically important. 

I like to say that in adversity lies opportunity. This challenge 

from the Internet, from folks that are taking away your first-class 

business, that challenge is going to be there for a long time. But 

with that challenge comes real opportunity. When I checked our 

mail last week, we get all kinds of stuff. I know my colleagues do, 

we all do, all kinds of stuff in the mail. 

Last week I got a little envelope from you, from the Postal Service, and it is a mailer here that talks about priority mail express 

and how the Postal Service will deliver 1-day, 2-day, 3-day service. 

You can deliver it on Sunday, guaranteed delivery, insurance paid 

for up to a certain level. Really good stuff. 

This is the kind of thing that has a huge, huge upside potential, 

I think. And in an age when a lot of people still want to deliver 

stuff on Saturdays or Sundays this kind of thing could help us. I 

just applaud you for this kind of innovation. 

I want you to go take a couple minutes and respond to some of 

what David Williams has been giving us, particularly his laundry 

list, not just on the cost side, but his laundry list on the revenue 

side. Go ahead, please. 

Mr. DONAHOE. Thank you, Mr. Chairman. I appreciate the fact 

that, on the mailing we sent you, 11 scans is our average, so we 

provide a lot of visibility on those packages, too. Priority Mail is a 

heck of a deal. 

Let me respond to Dave Williams. Dave and the IG have been 

excellent partners with us on a number of subjects over the past 

few years. We have asked them to take a look at opportunities, and 

he and his team have come back with a lot of good suggestions. 

I think the key thing for us to keep in mind looking forward, and 

we have looked forward in our business plan and even beyond 

there—5-year business plan, 10-year look ahead—the revenues in 

the Postal Service look to be relatively stable at about $65 billion, 

$66 billion, and that is given a volume decrease of about 5 percent 

annually in first-class. 

That includes single piece and commercial, fairly stable volumes 

in our standard mail, with some package volume increase. We have 

been experiencing a substantial package volume increase and we 

think we will see that for the near-term future. 
14 

Now, given that the other thing that we have to consider is the 

fact that even though we have taken substantial costs out— 

300,000-plus people in the last 10 years, 200,000 of them in the 

last 5 years, and substantially reduced the costs bending the cost 

line by $16 billion—we are still facing substantial problems going 

forward. 

The key issue, even if we get to the point where we are debt-free, every year with a cost base of $61 billion or $62 billion that we 

have, we will be facing inflationary costs, at 2 percent, of about 

$1.5 billion a year. So we have to figure out what we can do going 

forward. 

Now, we think that you cannot cut your way out of this problem. 

I agree 100 percent with you. I think that the Postal Service has 

taken some very good actions in the last few years, not just in the 

area of packages, but in the area of mail. 

Just this week we are spending our time in the field—I was in 

Minneapolis yesterday for Postal Customer Council Day—and we 

are spending a lot of time with our customers out there, talking to 

them about how you actually start to merge the technology of the 

Internet with mail so it is relevant, so it is actionable, so you get 

some of the mail. That piece of mail you had, it would be great if 

you could order boxes with one click off of your smart phone and 

get that delivered. That is where we need to go from a mail perspective. 

Dave’s comments on pricing? We agree. We need flexibility. Our 

Board is responsible for the long-term health and welfare of this 

Postal Service and the industry. They need the authority to be able 

to set prices and the freedom to do it quickly. So a lot of the things 

that Dave has talked about, the flexibility, the speed, the market, 

the new opportunities out there, areas in digital—and we will talk 

about that in a little bit—we are in full agreement. And we think 

that we need the flexibility and your law gives us a very good starting point down that road. 

Chairman CARPER. Good, thanks. And before I turn it over to Dr. 

Coburn, I will just say, as my staff has given me some numbers, 

they said, How many processing plants did the Postal Service have 

in 2008? The number is 614. How many do we have today? 323. 

In 1999, there were about 800,000 employees; today, I think we are 

just under 500,000. But we have not eliminated a lot of post offices, 

especially a lot of rural post offices, and I understand this is something that Senator Tester has worked on, Senator Moran worked 

on, others as well. 

Rather than closing 3,000 or 4,000 post offices, you have come up 

with a way you can actually continue to keep post offices open or 

use these other ways in the communities, using rural letter carriers, but there are a variety of ways to continue to provide services 

to rural communities. They do not have any access to the Internet, 

have not had it, will not have it for years. But I applaud the way 

that you have really tried to right-size the enterprise. I think you 

are getting a lot closer to a sweet spot and we applaud that. Dr. 

Coburn. 

Senator COBURN. I thank all of you for your testimony. General 

Williams, let us talk about the price of elasticity that you talked 

about. You said in general, but you said there were certain seg-
15 

ments that are more inelastic than others. Can you quantify that 

for us? What are those segments? 

Mr. WILLIAMS. The study showed fairly broad inelasticity. Actually, if my heart went out to somebody, it would be the small city 

and town newspapers. They have a very low margin, they have 

been hit by this wave of creative destruction that has hit all the 

media, and they deliver through the mail. So I would say that they 

would certainly meet the—— 

Senator COBURN. What other segment? 

Mr. WILLIAMS. I think that probably at the margins, as I said, 

it is all pretty low, but the not-for-profit organizations will be another that I would turn to and be careful in assuring that they—— 

Senator COBURN. So under this bill that we have which gives 

pricing authority to the Post Office, can you imagine a scenario 

where they would not consider total revenue volume associated 

with price increases, and look for that sweet spot? Would anybody 

not look at that and try to make that determination? 

Mr. WILLIAMS. No. I think that is exactly where the Governors 

and senior management come in. I think it would go exactly the 

way you just outlined. 

Senator COBURN. Well, that is exactly what most other businesses do. 

Mr. WILLIAMS. Exactly. 

Senator COBURN. And since, as you said, the monopoly power is 

a hindrance now rather than an advantage, can you think of any 

reason why we should not have, in a bill, the ability for pricing 

power based on markets, competitive markets, and their competition and the service and quality of what they offer? 

Mr. WILLIAMS. We believe that, as I said, the market forces are 

adequate and very appropriate to this situation. We are available 

to you and we are available to others to search out any small areas, 

but broadly, those are our beliefs. 

Senator COBURN. All right, thank you. 

Mr. WILLIAMS. Yes, sir. 

Senator COBURN. There has been some criticism of that study. 

Can you lay out the methodology that was used in that study? You 

stand behind that study as accurate, do you not? 

Mr. WILLIAMS. We do. We think it has been supported by many 

other earlier studies. There have been some occurrences that we 

tried to isolate and look at to make sure that those had not 

changed, this norm of inelasticity. We looked at the 20-year period 

that just ended in 2012. We tried to isolate the period before the 

Internet. We looked at the whole period, and then we tried to isolate the period before the Internet, early adoption. There was also 

a flat period and the mature adoption. 

We looked at the recession. And during that period, also, there 

were two large price increases, in 2000 and 2001. We tried to isolate those as intervening variables and throw it up against the regression and it would not budge. It appears to us that we could 

definitely stand behind the study as others have. 

Senator COBURN. The people that the Post Office compete with, 

how do you think they determine their prices? How do you think 

FedEx made a determination to raise their rates yesterday? Do you 
16 

1Statement for the Record is in the Appendix on page 223. 

think they did a study and looked at what the market could bear 

based on the quality of service that they were offering? 

Mr. WILLIAMS. Yes, sir. 

Senator COBURN. Made a calculation? 

Mr. WILLIAMS. I am certain they did, as well as their competitors. FedEx and UPS annually have—their increases have been 

about twice the rate of inflation, as ours were held inside inflation. 

The Postal Service’s competitive side is in—they have their feet wet 

now and they have been involved in increases. They have increased 

above inflation and those areas have grown. 

The British just got rid of their price cap for virtually everything. 

We are a pretty good deal. Worldwide we do not charge as much 

as the other world posts. 

Senator COBURN. But we are also losing billions of dollars a year. 

Mr. WILLIAMS. That is the price we—— 

Senator COBURN. And it is true that, I think, this week the British Postal Service becomes privatized. 

Ms. Goldway, you talked a lot about predictability for rates so 

mailers are not caught off-guard, but in doing so with the rate cap, 

wasn’t the Postal Service’s current financial crisis predictable? 

Ms. GOLDWAY. Yes, prices are predictable. Under the current 

price cap, yes, prices are predictable. 

Senator COBURN. The crisis that we face, was it not predictable? 

Ms. GOLDWAY. Well, I guess it was not predictable, no. 

Senator COBURN. I would like to enter into the record my statements from a hearing in 2007, which I will give to the clerk in a 

moment.1 It was predictable. I predicted it. When we passed the 

last Postal bill, I said we would be back here because we are not 

setting up a competitive market force, an independent organization 

that can respond and compete with what they have to compete 

with, and that markets ought to determine rates, where they can, 

and we do not allow the monopoly. 

Because it is no longer a force. It is an asset in terms of what 

the Post Office can do in terms of an asset that they can sell for— 

they can deliver better anywhere else, anywhere in the country. 

They go the last mile. So that is an asset. But the risk of a monopoly power of the Post Office is gone. 

So we now have in front of us an organization that is price controlled and labor controlled. And I can tell you, we are never going 

to solve the problems of the Post Office if those two things stay 

there. So what we have to have is fair treatment for the employees 

in the Post Office and flexibility for the Post Office to maximize its 

return on the service that it has to sell. 
17 

1The chart referenced by Senator Coburn appears in the Appendix on page 331. 

So my question again is, talking about predictability for rates for 

the mailers, but that predictability led to a predictable consequence 

and that is billions and billions and billions of dollar losses. I would 

enter into the record the number of Postal employees since 19261

and the attrition that has happened because of this. And yet, the 

cost reduction still is not good enough because we have no pricing 

power that is market-based. We have no pricing power that is market-based. So I would ask that this be entered into the record as 

well as my statement from 2007, 4 months after the last Postal bill 

was passed. 

Chairman CARPER. Without objection. 

Senator COBURN. I want to talk to you about a touchy subject 

with your employees and it is called arbitration. In our bill, it is 

presently the law that an arbitrator cannot consider the financial 

health of the Post Office in arbitrating a labor dispute with the 

Post Office. Is that correct? 

Mr. DONAHOE. That is correct. 

Senator COBURN. Do you know of any business in the world that 

could be successful in negotiating their labor contracts when they, 

in fact, cannot consider their financial health when they negotiate 

their labor contracts? 

Mr. DONAHOE. No. In a situation where you have binding arbitration, you have to consider not only the current financials, but 

you have to look ahead. And that is what we are asking for with 

this legislative, the ability not only to look at it from an arbitrary 

perspective, but to make some changes, in the bill, around employee retirement costs and everything else, because we know the 

revenues will be fixed at about $65 billion to $66 billion and we 

have to control these costs. 

Senator COBURN. All right. I am out of time. I will come back. 

Chairman CARPER. Thank you, Dr. Coburn. Let me just go down 

the list to welcome Senator McCain and Senator Pryor. Next was 

Senator Johnson. He is next in line when he returns. Senator Tester, you are next, and after you, Senator Heitkamp, Senator 

McCain, Senator Pryor. Thank you. 

OPENING STATEMENT OF SENATOR TESTER 

Senator TESTER. Thank you, Mr. Chairman and Ranking Member Coburn, and I want to thank the panel for being here today. 

I agree you guys need better price flexibility. There are no ifs, ands 

or buts about that. I would also say that if the goal here is to privatize the Postal Service, then we ought to have a bill to do exactly 

that and move forward. I think it would be a mistake, but nonetheless, we ought to have that debate, change the Constitution and do 

it and move forward. 

My concern revolves around rural America. The Postmaster General knows that. We have talked many times. I believe that some 

of the best customers of the Postal Service happen to live in rural 

America. They really do depend upon it. As of July 1, 2002, the 

Postal Service changed its delivery standards for much of rural 

America. Dakotas, Montana, Nebraska, reductions were made in 
18 

the alternative means of transportation, and as a result, in those 

States, overnight delivery is almost impossible. 

In fact, I would say—and I got that flyer, too, that the Chairman 

got. It was a good flyer. But I would question whether you could 

have overnight delivery to my house in Montana on a weekday, but 

much less on a Saturday or Sunday. I would love to see it happen. 

I do not think it is possible right now. 

And the reason is, is because those standards have changed. 

Many of the processing facilities are gone in the rural areas because of volume. I mean, you guys made the call and I understand 

that. I think it was a mistake, but the call had to be made one way 

or the other. And then the Postal Service continues to tell me that 

the reduction in hauling mail by plane has not impacted these delivery standards. 

So the question I have, to get to the question, is, were there any 

studies conducted before the July 1 reduction in the alternative 

methods of transportation services? 

Mr. DONAHOE. Yes, Senator, we go through what is called an 

area mail processing study and we take a look at everything—all 

the effects, the cost savings that come out of that, and any service 

interchanges that we have had proposed. 

Senator TESTER. Did those studies indicate that those reductions 

to services would not impact rural America? 

Mr. DONAHOE. The studies that we have put together show 

where we have to make service standard changes in order to get 

the savings out of the reductions. We have made those and we have 

maintained overnight service in large portions of rural America. 

Senator TESTER. So what you are saying is, the study—and I do 

not want to put words in your mouth. The study indicated that 

there would be minimal impacts by this? Is that fair to say? 

Mr. DONAHOE. It depends on how much of a change you are 

going to make. 

Senator TESTER. With the changes that you actually did make. 

I mean, because the changes have been made. They are real life 

changes now. 

Mr. DONAHOE. Right. 

Senator TESTER. Did the studies indicate that if you made those 

changes, because you did it proactively—— 

Mr. DONAHOE. Right. 

Senator TESTER [continuing]. That it would have minimal impact 

on service in rural America? 

Mr. DONAHOE. Yes, it would. As we have made changes in service across the country, we started with the premise that about 40 

percent of all the mail that we delivered was overnight. The goal 

was to maintain as much of that as possible. With the first round 

of changes, we have been able to maintain approximately 35 percent. 

There were some places we had to downgrade from 1-day to 2- 

day. Again, it is about 5 percent of the total volume. But we have 

been able to maintain overnight service in rural areas. 

Senator TESTER. OK. I get you back to rural America—I get back 

to Montana, rural America, every weekend. I go back, travel the 

State. In August, we got a chance to do some pretty extensive traveling. And I can tell you that almost with every stop, I did not hear 
19 

about delays of 1 day. I have heard mail delivery takes 3, 4, or 5 

days. 

And I can tell you, my wife and I just mailed a mortgage check 

on Monday and I said, It is not going to get there. It is not going 

to get to where it needs to go by Wednesday or Thursday. It is 

going to be a week. And we are probably going to get dug for that, 

and that is not the old mail service we used to have, to be honest 

with you, and that is where my challenges are. 

If we get fined for that, then bring on UPS and FedEx because 

I cannot do it. Do you see what I am saying? And that is the challenge. So my question is, look, there is not anybody that lives out 

there. There is a million people in the whole State of Montana. And 

how many people live in Pittsburgh? A million people, more than 

that? 

Mr. DONAHOE. Two. 

Senator TESTER. Two million. So if you are looking at a business 

model that is based upon where you are going to make your money, 

you are probably not going to make a lot of money in Big Sandy, 

Montana. The question is, the Postal Service was set up to serve 

people, I think. Is that taken into the equation when we are closing 

mail processing centers, we are not using planes to move mail in 

rural America? Are those kind of things taken into account? 

Mr. DONAHOE. Absolutely. 

Senator TESTER. And so, what is the answer when the postal 

standard has changed from overnight, 1 to 3 days, to 3 to 5? Is that 

deemed acceptable? 

Mr. DONAHOE. No. We have not changed any service standards 

to three to five, except in areas where we go, say, in Alaska—— 

Senator TESTER. I got you on that, right? But the reality is, it 

has changed, and I am not going to put words in Heidi Heitkamp’s 

mouth, but my guess is she can verify it in North Dakota, too, because those five States—I think there were five—were the ones 

that the standards were changed in. And it is closer to five than 

it is to three. 

Mr. DONAHOE. We measure our mail—whether it is standard 

mail, first-class, periodicals—everything that is measured has continued to either stay at, or improve on, service levels, as well as 

Priority Mail. I would be more than happy to sit down with you 

and share all the data. We take our universal service responsibility 

very seriously. You have never heard me talk about not doing that, 

but we are faced with a financial crisis—— 

Senator TESTER. I got you. 

Mr. DONAHOE [continuing]. To try to figure out how to keep our 

head above water. 

Senator TESTER. And all I am trying to get to is if I am swimming upstream here and the goal here is to maximize profitability 

at the expense of rural America, just tell me. 

Mr. DONAHOE. No, it is not. It is universal service. It is to keep 

mail service affordable, not become a burden to the American public, be able to provide reliable, responsible service, and eventually, 

through this legislation get the cloud of financial turmoil away 

from us. 

Senator TESTER. OK. I would just tell you, I do not doubt that 

your studies say what they say. I do not doubt that a bit. I can tell 
20 

you, in reality, because I live there over half of my time. I live on 

that farm 12 miles west of Big Sandy. I can tell you, in reality, it 

ain’t working that way, not in that place. 

And I do not ask for any special treatment, by the way. I do not 

want special treatment. I just want to be treated like my neighbors. So if I am being treated that way, so are my neighbors. So 

I bring that up. Just take a peek at it to see what you think. 

Mr. DONAHOE. Absolutely. 

Senator TESTER. As this legislation moves forward and we have 

that debate—and just one more question and then I will kick it 

over—is there going to be further consolidation of mail processing 

centers or post offices while we are having this debate in Committee or on the floor? 

Mr. DONAHOE. No. The bill, as it is written, puts a 2-year freeze 

on mail processing facilities. We have some scheduled for 2014. We 

would not advance any of those things to try to get under the wire. 

From a post office perspective, when I visited out in Montana last 

year, people told us, Keep our office open, keep our local identity. 

If you have to change window time, we understand that, but give 

us access to mail. We have done that. 

Senator TESTER. Fair. So what you are saying is, there would not 

be any post offices closed or mail processing centers closed while 

we are debating this bill before it becomes law? 

Mr. DONAHOE. No. We have done what we needed to do for this 

year. Any further changes would require us to service the interchange and we will not do that. 

Senator TESTER. Thank you for your patience, Mr. Chairman. 

OPENING STATEMENT OF SENATOR HEITKAMP 

Chairman CARPER. You bet. Thanks for those questions. Senator 

Heitkamp. 

Senator HEITKAMP. Thank you so much, Mr. Chairman, and 

Ranking Member, Dr. Coburn. No big surprise here. We are just 

going to follow on to Senator Tester’s testimony. And I just have 

a basic question, and I do not mean to be sarcastic about it. But 

I need an answer from you, Mr. Donahoe. Do you believe that the 

highly rural areas of America deserve the same level of service as 

suburban and urban areas of this country? 

Mr. DONAHOE. I do, and I believe that even the offshore areas 

like Hawaii, Alaska, and Puerto Rico do, and we consistently measure and stay on our mission to provide universal service. I believe 

that fully. 

Senator HEITKAMP. And I believe you believe that answer. But 

there is always a constant discussion that we have about what your 

studies show and the reality of what our constituents experience 

dealing with the post office. And I want to just followup on what 

Senator Tester’s discussion was about having an expectation that, 

if you put your mortgage check into the mailbox and it is picked 

up, you will, in fact, be able to pay your mortgage on time if it is 

due 3 days from then. 

And I do not think that anyone in rural America anymore believes that is true or trusts it. And it has created a sense that the 

constitutional obligation that was recognized, the importance of the 

Postal Service, the importance of offering this opportunity to every 
21 

place in the country is not being met. And so, I do not want to belabor that point. I do want to tell you that you can do all the studies in the world, but that is not the experience that people are having in rural America. 

The other question that I want to get to, and it really goes to the 

future of the post office and the future of the Postal Service, you 

heard Mr. Williams relay a lot of opportunities, and I have been 

on this Committee now for a very few months, certainly do not 

have the extent of the experience that the Ranking Member and 

that the Chairman have on this debate. 

But yet, I constantly hear good ideas, what seem like good ideas 

that ought to be explored about how we can make the post office 

more relevant, and certainly rural post offices more relevant. So I 

am curious, in the last 12 months since I have heard all this discussion, what steps have you taken, as the Postmaster General, to 

identify and recognize and begin to implement some of those good 

ideas? Give me three examples. 

Mr. DONAHOE. Well, let us start with Priority Mail. 

Senator HEITKAMP. Priority Mail has been around a long time. 

I have used it a lot. 

Mr. DONAHOE. Right. 

Senator HEITKAMP. I am talking about innovations, not Priority 

Mail. I am talking about different kinds of things, whether it is 

digital—and you heard Mr. Williams give you a whole litany of 

ideas. 

Mr. DONAHOE. Right. 

Senator HEITKAMP. I want to know, in that space, what you have 

done. 

Mr. DONAHOE. I will start with digital. 

Chairman CARPER. Could I interrupt, please, for a second? Let 

him do four, because what they have done, they have re-branded 

Express Mail, and I think in a very smart, thoughtful way that can 

grow revenues by a half-billion dollars or more a year. 

Senator HEITKAMP. Mr. Chairman, I get that. I am a faithful 

user of the mail service. I have used Priority Mail. It is easy, it is 

the packaging I agree with. But obviously, those moves have not 

made the post office more lucrative or have not solved the problems 

that we have today. So I want to know about other innovations. 

Mr. DONAHOE. Well, they have made the post office more relevant. Our revenue off packages alone has grown about $1.5 billion 

in the last 3 years. That goes a long way. 

In terms of digital, we have established a digital group. We are 

working with a very good contractor in that area, In-Q-Tel. We, as 

a matter of fact, have just been awarded the contract, the first contract ever, to be the intermediary within the Federal Government 

on what is called the F–6 Program. We are very active in the digital area around starting to work on products that would help to 

set a platform for authentication of who you are. Just like Mr. Williams mentioned, the work is already being done right now in 

terms of getting on the Internet. 

Secure digital messaging, there is a lot of work to be done there. 

We think that there are big applications in the health care world, 

the financial world, and for personal services. We also are explor-
22 

ing the whole concept of digital vaulting with our contractor. That 

is digital. 

Senator HEITKAMP. And when you did those projects, and you 

looked at them, what is the revenue benefit of those? 

Mr. DONAHOE. Five year projects $758 million. 

Senator HEITKAMP. For which projects? 

Mr. DONAHOE. For that digital set of projects. We have worked 

with In-Q-Tel and we have done work with their marketing group. 

We have a business plan that is established with a pro forma look 

ahead for 5 years, and the financial gains that we think we can 

have in 5 years are about $758 million. A lot of work has been 

done. 

But I will tell you, I have not spent a lot of time publicly talking 

about all of those types of things because the bottom line is that 

we have to address the cost factors in this organization. You can 

grow a business like digital, a billion dollars; we introduced a product 2 years ago called Every Door Direct, part of our standard mail. 

We have grown that $800 million off of a base of zero in 2 years. 

Inflation in our organization pushes costs by $1.2 to $1.4 billion 

a year. We have to get after the costs as well as innovation and 

growing new products. 

Senator HEITKAMP. Would you agree that some of what you 

would need to do in terms of looking at cost containment, business 

plans, and business models without incorporating or merging the 

sense of what the new lines of revenue could be, you could be making decisions on the cost side that would greatly reduce or eliminate your opportunity to be relevant in a new product line? Would 

you agree that is true? 

Mr. DONAHOE. No. I think that there are big opportunities right 

now. As we work with mailers—I spent yesterday in the State of 

Minnesota in Minneapolis. We talked specifically with 300 customers about the growth of mail. Mail has to be relevant—— 

Senator HEITKAMP. I only have a few more seconds here, but I 

do want to point out that if you close every rural post office in 

North Dakota, you will not have an opportunity for new revenue. 

Mr. DONAHOE. There is no proposal to close any post offices. As 

a matter of fact, in your State, we are expanding some post offices, 

Williston and a few others, because of the oil boom. We are responding to that and there is no interest in closing post offices. You 

have never heard me say that. We have made changes of the PostPlan that helps us from a bottom line perspective, but it gives customers what they are asking for, access to the post office and rural 

town identity. 

Chairman CARPER. Senator Heitkamp, thanks for those questions 

and for your passion for these issues. Senator McCaskill, if you are 

ready, you are next in line. We had a couple people who have come 

and gone and they may slip back, but you are next up if you would 

like. 

OPENING STATEMENT OF SENATOR MCCASKILL 

Senator MCCASKILL. Well, this is an occupation where about half 

the time we all pretend we are ready even when we are not, do we 

not? So I think I will go ahead and ask questions. I am ready. 
23 

Chairman CARPER. You have never had a problem with being 

ready. 

Senator MCCASKILL. I am ready. I want to talk a little bit about 

the expensive part of our infrastructure, and really what is a reality. I obviously have come out strong for 7-day delivery. I believe 

it is a competitive advantage we have and that if we give up that 

competitive advantage it is a mistake, to give up that competitive 

advantage because this is now a competition. We are competing. 

One of the things that I need clarification on is what we are 

charging our competitors. The growth in the UPS and the United 

States Postal Service is going to be in packages. I mean, it is pretty 

obvious. I know in my life, I spend a lot more time clicking than 

I do driving in terms of shopping. 

So if we are competing for package delivery, the growth area, answer this question for me, Mr. Donahoe. Is, in fact, UPS paying 

less to go down that last mile than I am? Are they not using us 

for their last mile of delivery in the rural areas? Are they not using 

our infrastructure, our competitors? 

Mr. DONAHOE. Yes. UPS, FedEx, and a number of private companies use us for last mile. It is called Parcel Select. Drop at the post 

office, you get your mile delivery. 

Senator MCCASKILL. And do they get it cheaper than I get it? 

Mr. DONAHOE. Well, there is no real access for you to have on 

that product, unless you would actually bring it to the post office. 

If you were mailing—— 

Senator MCCASKILL. No. If I am sending a package to a friend 

of mine in rural Missouri—— 

Mr. DONAHOE. Right. 

Senator MCCASKILL [continuing]. Is my cost less expensive or 

more expensive than what you are charging your competitor? 

Mr. DONAHOE. Different products. You would use Priority Mail. If a flat-rate box, you would pay somewhere over $5 depending on 

the size of the box. That takes advantage of our whole network. We 

collect it, we process it, we transport it, we deliver it. What happens with UPS, FedEx, and some other customers, they bring mail 

and sorted already to the ZIP code, drop it with us, our clerks sort 

it and carriers deliver it. It is only a small portion of the work, so 

you do not charge somebody the entire amount for a small portion 

of the work. 

Senator MCCASKILL. Well, I guess what I am worried about is 

that we are not seeing them as a competitor, that we are seeing 

them as a customer. And they are surfing off the most expensive 

part of our Internet, of our architecture. I mean, they are using the 

part that is costing us so much money. And I do not feel like the 

agreements that you have entered into with them treat them as a 

competitor, but rather, treat them the same way you treat every 

other customer. Is that an unfair characterization? 

Mr. DONAHOE. No. We have costed these agreements out like any 

other business. The fortunate thing about our package business, it 

is competitive so we can enter into contracts and these contracts 

make money for the Postal Service. The package business is a very 

competitive industry. UPS versus FedEx versus other companies 

like LazerShip, who nobody even talks about. LazerShip is out 

there competing with people making $10 an hour. It is very com-
24 

petitive. Price, affordability, dependability, visibility is critical to 

win in this package game. 

Senator MCCASKILL. But they are using you because you are 

cheaper than them doing it themselves. 

Mr. DONAHOE. We have increased the market share in the package business by two points. We have also secured a substantial 

number of customers coming in for the Last Mile Delivery that 

have bypassed some of the other competitors. We have grown our 

business. 

Senator MCCASKILL. I think you understand the point I am making. 

Mr. DONAHOE. Sure. 

Senator MCCASKILL. I mean, if you spend—if this is a telecom 

company and they have, in fact, are a whole sector of telecom, the 

people who worked and did the infrastructure, they are getting a 

huge payoff for the infrastructure from their competitors, a huge 

payoff, especially in rural areas. And we have done all kinds of 

things to assist with that. 

I really want to know what the specifics are of the agreements. 

I want to know what your competitors are paying for the—— 

Mr. DONAHOE. We would be more than happy to sit down—— 

Senator MCCASKILL. The irony is, it is the most competitive part 

of the business, it is where the most growth is, but I do not sense 

that you are exacting a competitive advantage based on the fact 

that we have made the investment, the United States Postal Service has made the investment, in the delivery system they must use. 

Why do we not have them do it themselves? 

Mr. DONAHOE. We would be more than happy to sit down 

and—— 

Senator MCCASKILL. Do you know who would be cheaper then? 

If they had to do their own Last Mile Delivery, guess who would 

be cheaper. 

Mr. DONAHOE. We know we are cheaper and that is why they use 

us for Last Mile Delivery. 

Senator MCCASKILL. Guess how much cheaper we would be. A lot 

cheaper. 

Mr. DONAHOE. We are pretty cheap now. We are the best value 

out there for anybody mailing a package, Priority Mail or anything 

else. 

Senator MCCASKILL. I would like to get the specifics of the agreements that we have with our competitors on package delivery—— 

Mr. DONAHOE. We will sit down—— 

Senator MCCASKILL [continuing]. And I want to make sure that 

we are taking advantage of what we have as opposed to stuck in 

a mode that they are just other customers. 

Mr. DONAHOE. I think it will be valuable to show you what we 

do, what we do with some of the large contracts like FedEx and 

UPS. I think it would be good to see what LazerShip and some of 

the other competitors charge, too. It is a very competitive industry. 

Senator MCCASKILL. Have you modeled out what would happen 

if you decided not to carry their packages for them? Have you done 

an economic model of what they would have to charge to send their 

packages versus what we charge? 
25 

Mr. DONAHOE. No, we have not done that. I am sure they have 

done that model and they make the decision using us based on 

what their prices are. 

Senator MCCASKILL. But we are the ones that have it. We have 

the architecture. Why have we not modeled it out? 

Mr. DONAHOE. Well, think about it this way. If our letter carriers 

and rural carriers are driving down that road every day, 5 days a 

week for mail in the future, 6 to 7 days a week for packages, it is 

in our best interest to have as many packages on that route as possible. That is our goal. 

Senator MCCASKILL. But the goal—— 

Mr. DONAHOE. And we have to do it at the most reasonable price, 

which we have very smart people in our organization that have put 

those prices together. We are not giving anything away, but we 

have to take full advantage of the network and load that network 

up with as much mail and packages as we can. That is why we are 

here. We have lost 27 percent of our mail volume. You have to 

make some changes—— 

Senator MCCASKILL. Exactly right. And, Mr. Donahoe, what I am 

asking you to do is what any business would do. Model out what 

they are going to have to charge if they do not use you versus what 

we charge, and that is the way we would carry more packages. We 

would get more of their business. 

Mr. DONAHOE. That is true in some cases, but to a large extent— 

I will give you an example. One of the competitors right now uses 

a model that determines whether we get the packages or not based 

on the density of the route that they have on any given day. That 

is how technical and how advanced the technology is. So some days 

we get it, some days we do not, based on how many packages are 

in a certain city block. 

This is not just on a whim, giving us mail on 1 day, or not. It 

is very specific, it is very technical, and our people, I think, have 

done an excellent job pricing and growing this business to grab a 

large chunk. We have picked up two points in the package business 

in what is a very competitive environment. 

Senator MCCASKILL. And I think that you are not using every 

advantage you have in that competitive market. My time is up for 

this round. I have a lot of other questions for the record. 

Mr. DONAHOE. We will be happy—— 

Senator MCCASKILL. At a very minimum, you should be doing 

the modeling as to what it would look like if you no longer allowed 

them to use our carriers and whether or not we could get a competitive advantage. 

Mr. DONAHOE. We have best guesses, but it is not perfect. But 

believe me, the technology is there to make it a lot more specific 

on a daily basis. We will come over and sit down with you. 

Senator MCCASKILL. That would be great. 

Mr. DONAHOE. Thank you. 

Senator MCCASKILL. Thank you, Mr. Chairman. 

Chairman CARPER. Sure. Dr. Coburn, go ahead. 

Senator COBURN. Just a little comment. By statute, you cannot 

sell that product below your cost. 

Mr. DONAHOE. No. 
26 

Senator COBURN. So there is no subsidy now that is achieved for 

that that is transferred to other mailers because we are doing this. 

This is gravy for them. By law, they cannot give UPS or FedEx a 

price below their cost. 

Senator MCCASKILL. I do not want them to. I want them to give 

them a higher price on the cost. 

Senator COBURN. I understand that, but that is a market-determined price. So there is no subsidy. As a matter of fact, packaging 

business is subsidizing the rest of it now. 

Senator MCCASKILL. I get that. I think you and I can discuss 

this, but I think we would agree. I probably was not as articulate 

as I should have been trying to make the point. I am not asking 

them to charge them less. That is the issue. I want them to charge 

them more because they are using something we have and we 

would gain a competitive advantage by charging them more. 

Senator COBURN. Well, actually, I actually think they have done 

a pretty good job in what I have looked at in terms of pricing their 

product to get as much volume as they can. The higher the price 

goes, the lower their volume goes and that is, again, giving them 

the ability to make a decision based on the price elasticity of the 

market they are in to get as much as they can, and there may be, 

in this area, some real inelasticity as far as the lower end on the 

price. 

Senator MCCASKILL. That is why I want to look at all the specifics. 

Senator COBURN. That is what this bill is all about, to give them 

the flexibility so that they can get the most revenue based on this 

wonderful asset that we have called the U.S. Post Office. 

Senator MCCASKILL. I agree with that. I do agree with that. 

Chairman CARPER. Thank you. I think that was a good exchange. 

Chairman Goldway, you have not been getting enough questions 

here. We are going to ask you at least one. But Mr. Williams argued a few minutes ago that the Postal Service could change prices 

without losing volume. Dr. Coburn says that the monopoly is not 

what it was. 

My question of you is, to what extent do you believe that the 

Postal Service still has monopoly power over certain mail products? 

What does that say about decisions that we ought to make about 

retaining or changing the system for postal rate regulation? And I 

am going to ask, after you have responded, I am going to ask the 

Postmaster General to get involved in this and come back to Mr. 

Williams as well. Please. 

Ms. GOLDWAY. I think it is a very important issue that you have 

raised. 

Chairman CARPER. If you think about it, the PRC was not always 

the Postal Regulatory Commission. For many years, it was the 

Postal Rate Commission. 

Ms. GOLDWAY. Right. 

Chairman CARPER. They had a very different role than they have 

had in the last 6, 7 years. 

Ms. GOLDWAY. And I think this matter can be discussed and debated by many people. What our staff has indicated is that there 

is still a strong monopoly when it comes to letter mail and those 

products that the Postal Service has a market-dominant position 
27 

in. If you are a non-profit organization and you want to communicate with a paper product, your option is only one and that is to 

go through the Postal Service. You do not have another option. 

So studies that determine what the price elasticity and inelasticity in the future will be, when we have been operating in a monopoly system for the last 100 years, are not necessarily reliable. 

And it seems to us that the Postal Service cannot have it both 

ways. 

It cannot say that this is a competitive market and if you let us 

have competition without any regulation, we will not raise prices 

more than we need because there is competition that will keep 

prices down. On the other hand saying, there is price inelasticity 

and it is OK if we raise prices because we will keep our volumes 

up because there is no concern about that. There is constant demand. 

You cannot present both arguments. So it seems to me, if you 

want to eliminate the monopoly and allow prices to fluctuate and 

get their sweet spot, as we have done with the competitive products 

that the Postal Service has done where they have raised prices over 

5 percent a year, then you do that. 

But if you ask first-class mailers, if you ask people who send 

greeting cards, if you ask people who are non-profit mailers whether they can manage with a 5 percent price increase, you are going 

to get responses that say they simply cannot do it and that, in fact, 

you will lose so much volume that you will not get the revenue that 

the Postal Service thinks it is going to get from that mail. 

Further we believe in the Commission that the price cap regime 

has created the stability and transparency and accountability that 

has given mailers some assurance in a time of real transition, and 

has given the Nation’s users the sense of trust in the mail, which 

is very important to the Postal Service brand and its future. 

Chairman CARPER. I would welcome the thoughts of General 

Donahoe on this. Sort of the implicit question is, what is the role 

of the PRC going forward? It is not what it used to be. Maybe it 

is not what it is today, but what should it be? And I appreciate 

what you just said, Madam Chairman. 

Mr. DONAHOE. You know where we stand. We put a white paper 

out on our role around Governors in general. The key for us from 

a Governor’s perspective is this: If you are putting the responsibility on the Governors and management of the Postal Service to 

run the organization, we should also have the authority to make 

choices and changes on prices, service, and products, and do it with 

absolute speed. 

This world has gotten faster and faster. Every day that we look 

around, you think about the changes that have happened just in 

the telephone and computer industry, and we are in the same exact 

environment. Our feeling has been that we have a very reasonable 

and responsible Board of Governors. They will not make decisions 

that put the organization out of business. They will not make decisions that hurt the industry. 

We think that we should be in a situation as spelled out in your 

bill that has a lot of flexibility around a cap, potentially no cap at 

some point in time, and the ability to have after-the-fact review 

with the Commission. We have no argument that the Commission 
28 

should be there to take a look at things—decisions that we make— 

like a public rate commission does today, and we would support 

that 100 percent. 

Ms. GOLDWAY. Could I just—— 

Chairman CARPER. Madam Chairman, go ahead, and then we 

will go to Mr. Williams. 

Ms. GOLDWAY. Because the Postal Service is a federally owned 

enterprise and is exempt from many of the State and Federal regulatory laws, the law governing the Postal Service includes in it a 

provision that there can be no refunds. The Postal Service is exempt from giving refunds. If it establishes rates that are determined to be in some way unlawful, given the various requirements 

that are still in the law that you propose, how does a complaint 

mechanism solve that problem, an after-the-fact complaint mechanism. It is a question. You may be satisfied with it, but it is a question that we hear from stakeholders. 

Chairman CARPER. Dr. Coburn said that could easily be added to 

the bill and I appreciate the element. Let me go to Mr. Williams 

before my time runs out. And then we recognize Senator McCain. 

No, not just yet. One more minute. 

Mr. WILLIAMS. I think increasingly we find ourselves in a very 

fast, very unforgiving environment and we need tremendous agility. There are sudden threats and there are perishable opportunities. The Postal Service needs to be able to move in an agile manner to operate and navigate inside that environment or they will 

disappear, and if they cannot do it, they should disappear. 

There are a lot of alternatives to messaging of all sorts today. In 

advertising, there has been television, radio, newspaper, and now 

an aggressive Internet market. And personal communications, texts 

and tweets and wall posts have fabulous features to them. Bill payment companies are aggressively moving to cut back office costs by 

driving people to the Internet. 

In parcels, actually, we are the ones that are breaking the monopoly. The Postal Service got into parcels in order to break some 

of the mischief that was occurring between the parcel companies 

and the railroads. So I believe that efficient market forces should 

always be used when it is possible, and I believe in this environment, it is possible and it is the ingredient that is needed to move 

the Postal Service forward. 

Chairman CARPER. Thank you. Senator McCain, welcome. 

OPENING STATEMENT OF SENATOR MCCAIN 

Senator MCCAIN. Well, thank you, Mr. Chairman. I want to 

thank you and Senator Coburn for this product which, I think, is 

a very important one and an issue we have been wrestling with for 

a long time. The fact that you and Senator Coburn have come together to craft this language with compromise, I think, which Senator Coburn is very well known for is a model, as you know, of 

compromise here in the Senate. 

I do want to thank both of you for putting together this legislation which is urgently needed to remedy a very serious situation 

in a broad variety of ways. I thank you both for working this out 

and I look forward to supporting it in any way that I possibly can. 
29 

Mr. Williams, you just made a very interesting comment. Five 

years ago, the whole means of communications in America was 

vastly different than it is today. I think you could argue that 5 or 

10 years from now, it may be again very different from what it is 

today. And you made the argument, and I think it is valid, that 

we have to have an enormous amount of agility in order to keep 

up with these incredibly ever-changing methods of communication. 

Is that an argument, in your mind, to privatize the Postal Service? 

Mr. WILLIAMS. The United States is, so far to date, has picked 

a different route and it has been—— 

Senator MCCAIN. The Europeans have chosen a different route, 

right? 

Mr. WILLIAMS. They have in halting manner. They are sort of 

going forward as quickly as they can and they pause when they 

need to. In the United States, they have joined with the private 

sector in public/private partnerships and co-opetition which definitely—Senator McCaskill’s comments were absolutely fascinating. 

So I am not sure what the road is ahead. Privatization or—— 

Senator MCCAIN. Then if you are not sure of the road ahead, do 

you have confidence in this legislation, that it can accommodate the 

road ahead? 

Mr. WILLIAMS. I do. I think it is a good piece of legislation. If I 

was worried about anything, and I am not worried sick, it would 

be that we do not quite have it balanced yet. We are still trying 

to match demand with supply. We still have a ways to go. The bill 

seems to want to pause that with regard to the closure of additional plants and post offices. That is the part I look at with some 

worry. 

I also see some value in it. It might be good to pause, but we 

are losing money, we are accumulating debt, all of our money for 

innovation is gone, we need to arrive as fast as we can at this balance and then return to normalcy. 

Senator MCCAIN. Thank you. Mr. Donahoe, you have earned the 

praise of Senator Coburn for all the work you have done in helping 

craft this legislation with him and Senator Carper. I can assure 

you that is very hard to come by. So you should appreciate it. I 

want to thank you and I want to thank the panel for the work that 

they have done. 

But given the fact that 80 percent of the Postal Service costs are 

associated with labor, how important is language in this bill that 

would require the financial health of the Postal Service to be a consideration during arbitration of labor contracts? 

Mr. DONAHOE. I think it is very important. I think the key for 

the Postal Service—— 

Senator MCCAIN. Very important and very controversial, right? 

Mr. DONAHOE. It is controversial. There are a lot of things in the 

proposed bill, and things that we have put white papers out on that 

are very controversial but needed. When you look ahead in this 

Postal Service, the whole idea is long-term, comprehensive legislation and it cannot be halfway. So if we are going to address these 

issues, we have to address long-term costs like retirement costs, 

like some of the issues that we face today from a workforce environment. 
30 

I think the key thing to keep in mind, from a labor perspective 

is this: If we deliver mail to every door 5 days per week and process mail through the system and deliver packages 7 days per week, 

we will have to have people to do that. So labor costs will always 

be large. The key thing is not so much the percentage of labor 

costs. It is shrinking the total cost of the organization and that is 

what we aim to do. 

We have made very good progress with the unions over the last 

couple of years with substantially higher rates of non-career employees, which helps the bottom line. Good people come in, they get 

jobs, they are a lot more affordable. We need to continue that work 

to make our retirement systems more affordable. Next week we are 

going to talk about health care. 

There needs to be dramatic changes in the health care proposals 

for the Postal employees, which should apply to all Federal employees, to make it more affordable. That is the way we need to go. We 

need to be courageous and we need to be bold and we need to make 

this happen. 

Senator MCCAIN. You made reference to the issue of 5-day mail 

delivery, and in your testimony, you said the American public overwhelmingly supports moving to a 5-day delivery. This legislation 

has a moratorium on that. Do you think that is just a matter of 

compromise or do you think that is a good idea or bad idea? 

Mr. DONAHOE. I think it is a matter of compromise. I would love 

to be in a situation where next Memorial Day we move to a 5-day 

schedule. It is the perfect time. Mail volume is down low. It is a 

good time for us to make the transition and it saves us $2 billion 

a year. The American public, in every survey that we have done, 

has been fully in support. I think the lowest percentage is 70 percent. 

We have some survey information that says 80 percent-plus of 

Americans think it is a good idea, versus closing post offices and 

raising prices. 

Senator MCCAIN. For the record again, you believe that the Carper-Coburn bill gives you the flexibility that you need to achieve 

the billions in cost reductions that are necessary to sustain the 

Postal Service for the long term? 

Mr. DONAHOE. It gives us the flexibility and the speed that we 

need. The one thing that is missing is the requirement to use Medicare as a primary for health care for retirees. We are going to talk 

about that next week. I will make a pitch that it has to be mandated. If not, we do not hit the financial numbers that we need to 

hit. Our business plan lays this out. If we follow what we need to 

do from a business plan perspective, we will get this organization 

back on good, firm financial footing. 

Senator MCCAIN. And you agree with that, Ms. Goldway? 

Ms. GOLDWAY. I certainly respect and admire and support the efforts that the Postmaster General has made with regard to costcutting. I think the levels of efficiency and savings are quite remarkable. But I do not and my Commission does not endorse all 

of the aspects of this particular law. 

Senator MCCAIN. So would you submit for the record the areas 

that you do have concerns with? 

Ms. GOLDWAY. Well, I think our testimony—— 
31 

Senator MCCAIN. I know your testimony, but it is very helpful 

for us to have in writing your exact concerns. Would you do that? 

Ms. GOLDWAY. I will be happy to do that. 

Senator MCCAIN. Thank you very much. 

Ms. GOLDWAY. Thank you for the opportunity. 

Senator MCCAIN. Thank you very much. Thank you, Mr. Chairman. 

Chairman CARPER. Those are great questions. Thanks so much, 

Senator McCain, for your support. In Arkansas, they always say, 

when they say hi to people, they say, Hey, man. So that is why I 

say to him every time I see him. Senator Pryor, you are recognized. 

OPENING STATEMENT OF SENATOR PRYOR 

Senator PRYOR. Thank you, Mr. Chairman, and I want to thank 

you and Senator Coburn for your work on this. 

Ms. Goldway, let me start with you, if I may, on the Postal Service Advisory Opinion Process. I know there has been some questions about how long it takes and why it takes so long, but let me 

ask you about, from your standpoint, the value of providing a nonbinding advisory opinion. What is the value in a non-binding opinion? 

Ms. GOLDWAY. Well, I think we have had many examples 

brought out today. The Postmaster General talks about the fact 

that the Postal Service has decided to maintain post offices in rural 

America. They did that after coming to us with a proposal to close 

3,600 rural post offices. And the discussion that we were able to 

provide and the open forum of the advisory opinion process and the 

recommendations we gave them suggested that they provide an alternative, adjusting hours, and that is what they have done. 

So I think that the point of these advisory opinions is to give the 

Postal Service a better opportunity to get an honest review of what 

their proposals would be to change, rather than barrel ahead with 

what their initial proposals are. The same could be said for the 6 

to 5 day delivery. When we reviewed that and highlighted many of 

the problems that rural America would face with eliminating the 

sixth day, we talked about packages, particularly prescription 

drugs, and as a result, the Postal Service has adjusted what it now 

proposes to do with going to a 5-day delivery pattern. 

There are problems with the advisory opinion process. It can be 

lengthy. There is a lot of opportunity, we think, to streamline the 

processes, and the Commission has introduced rules to reduce the 

litigious nature of some of the processes so that we can make decisions in a more timely fashion. We hope to do that. 

But we do believe that the transparency and accountability of the 

Postal Service is maintained when you have this advisory opinion 

process included in the public policies of the government. 

Senator PRYOR. From your standpoint, is there value in these advisory, non-binding advisory opinions? 

Mr. DONAHOE. Yes. We take the advisory opinions very seriously. 

We also solicited our customers, to Chairman Goldway’s point, with 

post offices. We spent some time in the field in a number of different places and people told us, Hey, if you can keep the post office open, if you can make it more affordable from changing the 
32 

hours, we are OK with that, but please keep it open. And we balanced that with what we got back, too, from the Commission. 

Senator PRYOR. Let me ask you a followup on one of Senator 

McCain’s questions. He made a statement and I just want to know 

if it is accurate. He said that 80 percent of postal costs are associated with labor. Is that right? 

Mr. DONAHOE. 78 percent. 

Senator PRYOR. 78 percent of postal costs are related to labor? 

Mr. DONAHOE. Yes. 

Senator PRYOR. Is that anything in addition to just the hourly, 

the wages and the salaries and the benefits, et cetera? Is that what 

that is? 

Mr. DONAHOE. It is salaries, benefits, as well as the amount of 

money that we put away for retirement and health care. Now, on 

top of that is the retiree health care pre-funding. That represents 

about 5 percent. So if we resolve that, our percentage of employment costs in terms of total would be about 73 percent. 

Senator PRYOR. And remind the Committee again about your 

numbers of employees. I know you have been shrinking your workforce. So let us say, 10 years ago, 5 years ago versus today, how 

much have you shrunk your workforce? 

Mr. DONAHOE. High point of employment in the years late 1999, 

2000, we had 804,000 careers employees with about 100,000 noncareer. Today we have 490,000 career employees with 120,000 noncareer. So there has been about 308,000 reduction in total career 

employment. 

Senator PRYOR. What is that, about a 35, 40 percent reduction? 

Mr. DONAHOE. It is almost 40 percent, yes. 

Senator PRYOR. And also, while I am thinking about a followup, 

let me ask about some cost savings. I know over the years, we on 

this Committee and in other contexts here in the Senate, we have 

talked about the possibility of you guys going to natural gas vehicles. Do you all have an initiative on that? 

Mr. DONAHOE. Yes, we do. We are working with the—we are 

working with the Star Ride Association as we speak. They have put 

together a very good group of about five large truck company owners and they are working with our people to explore ways that we 

can move into using natural gas, especially for the long haul fleets. 

What we have to figure out is how to make that a win-win, and 

we would like to be able to compensate these companies for making 

these investments, at the same time share some of the savings. 

In fact, we have even reached out to the Department of Energy. 

We think this would be a good project for some investment, rather 

than some of the others that have been made, because there are 

definitely opportunities to get some payback on this. 

Senator PRYOR. And do you think you will save money by doing 

that? 

Mr. DONAHOE. We think we will save money and we think the 

Star Ride Association will save money, and we think it is a good 

thing for the environment. 

Senator PRYOR. And let me ask you, Ms. Goldway, if I can, you 

mentioned in your testimony that a, quote, sizable portion of the 

U.S. population still depends on the mail to help manage their lives 

and communicate with businesses, governments, and social institu-
33 

tions. Would you tell us more about that sizable portion of people 

and kind of what you mean and how they are going to be affected 

by some of these changes? 

Ms. GOLDWAY. There are many people, especially in rural areas, 

but, in fact, throughout the country who are not connected to the 

Internet at all. And while we talk about the dramatic changes that 

are taking place, as much as a third of the country is either not 

connected or not connected at a strength of broadband that would 

enable them to have the kind of interactive products and communications that we talk about. 

And yet, our government is committed to providing universal 

service of communication to everyone. So we need to have a Postal 

Service that does that. Furthermore, as long as we do not have a 

national identification system and we rely on where you live to 

identify you, the Postal Service is the address master for the country. 

And the Postal Service really needs to be maintained in order for 

people to vote, for their children to be enrolled in schools, for all 

ranges of emergency services. It is a vital network. And when we 

talk about balancing the needs of the public and businesses, we 

have to keep that in mind. 

And it is difficult. It is not an easy situation when we know, as 

other Senators have pointed out, that it is more expensive to provide service in the rural communities. But it is something that has 

to be planned for and has to be watched over. And we believe that 

some sort of regulatory oversight that assures that protection is 

necessary in whatever legislation is developed to give the Postal 

Service the additional financial support that it needs. 

Senator PRYOR. Thank you. 

Ms. GOLDWAY. Thank you for that opportunity. 

Senator PRYOR. Thank you, Mr. Chairman. 

Chairman CARPER. Thank you, Senator Pryor. Senator Coburn, 

anything else you want to say before this panel leaves? 

Senator COBURN. I will have some questions for the record. 

Chairman CARPER. Before you all leave, again, thanks very 

much. Excellent testimony, very thoughtful testimony. I thought a 

real good discussion of some mighty important issues. Mr. Williams, you always bring a lot to the field, like they say in sports, 

not leaving anything on the playing field. So we have a lot of good 

ideas out there and I thought this was a hopeful conversation, and 

I am looking forward to our next panel of witnesses. 

I just want to say, we probably do not say this enough and I 

want to say it. When folks look at the service they get from the 

Federal Government, in some cases they are pretty happy, in some 

cases not as happy. We can always do everything better. The Postal 

Service can do everything better as well. 

But we need to keep in mind, of all the services, government-related services—and this is not an entirely purely government operation we know, but folks in this country still have a very high regard for the Postal Service. I think over the last 7 or so years, still 

No. 1 compared to the rest of the services that we provide. That 

is pretty good. 

We can do better and I want to make sure that we do better, especially when people go into a post office around the country for 
34 

1The prepared statement of Mr. Guffey appears in the Appendix on page 93. 

service, that they get friendly service, they get prompt service and 

they get friendly service. For me that is important. I know it is for 

our Chairman, Chairman Goldway. I would just ask that you keep 

that in mind. 

The other thing I want to say to any of the folks around the 

country who work for the Postal Service or retired from the Postal 

Service, I just want to say we appreciate your service. We appreciate what you do for all of us. We want to make sure that you and 

your descendants will be around for a long time to continue to provide that service and we will be around for a long time to enjoy 

seeing you get better. Thanks so much. 

Mr. DONAHOE. Thank you. 

Mr. WILLIAMS. Thank you, Mr. Chairman. 

Chairman CARPER. With that, I would like our second panel of 

witnesses to come forward, please. All right, everybody. I would ask 

you to calm it down. We have this panel. We want to hear them. 

I would ask you to take your conversations out into the hallway, 

if you would, please. These folks deserve our respect, they certainly 

have our thanks. 

I will just briefly introduce our witnesses. I want to start off by 

introducing Cliff Guffey. Cliff, very nice to see you. He serves as 

President of the American Postal Workers Union (APWU) since 

2010. Tough leader, tough negotiator, but also a very fair-minded 

person who cares deeply about the Postal Service. 

I would say the same thing about Jeanette Dwyer. Great to see 

you. Always welcome the chance to meet with you. President of the 

National Rural Letter Carriers Association (NRLCA), I think since 

2011. 

The next witness, Mr. Beeder, Mr. John Beeder serves as President and Chief Operating Officer (COO) of the American Greetings 

Corporation and has served in various executive roles in the greeting card industry for 30 years, starting as a child, I bet. Welcome, 

aboard. 

And next we have Jerry Cerasale—is that right? It is not right, 

is it? 

Mr. CERASALE. Cerasale. 

Chairman CARPER. Cerasale, OK. I am sorry. It is a tough one. 

Mr. Cerasale has served as Senior Vice President, Government Affairs at Direct Marketing Association since 1995. Mr. Cerasale, 

great to see you. 

And finally, Seth Weisberg. Seth is currently the Chief Legal Officer for Stamps.com, and has worked in various capacities for the 

company since 1998. Mr. Weisberg, happy to see you all. We are 

going to ask you to take about 5 minutes to give us your testimony. 

If you go way beyond that, I will have to rein you in, but if you 

could stay in that neighborhood that would be great. We will start 

off with Cliff Guffey. Mr. President, welcome. 

TESTIMONY OF CLIFF GUFFEY,1 PRESIDENT, AMERICAN 

POSTAL WORKERS UNION 

Mr. GUFFEY. Thank you, sir. Dr. Coburn. 

Senator COBURN. Welcome, being a fellow Oklahoman. 
35 

Mr. GUFFEY. Good morning, Chairman Carper and Members of 

the Committee, thank you for this opportunity to testify on behalf 

of the APWU about maintaining postal services, reducing costs, 

and increasing revenue. No discussion of reducing postal service 

costs can occur without a discussion of the requirement of pre-funding of retiree health benefits. 

As I have said elsewhere, S. 1486, as it stands now, is fatally 

flawed and we oppose it as written. It fails to correct what was the 

cause of the Postal Service’s financial crisis, the mandate in the 

Postal Accountability and Enhancement Act of 2006, that the Postal Service pre-fund retiree health benefits. 

Because of that requirement, there has been a lot of ill-considered and destructive cost-cutting by the Postal Service. These sorts 

of cost-cutting efforts must be stopped. They are penalizing the 

workers, men and women, of the United States Postal Service by 

threatening their jobs and undermining their benefits. 

They are cutting services to the American people and instead of 

protecting Postal Service from impending financial disaster, they 

are dismantling our Nation’s postal services. To our utter dismay, 

S. 1486, as written, would permit cost-cutting from health benefits 

and retirement benefits. It would remove the cornerstone of the 

1970 law that created the Postal Service by making it possible for 

the Postal Service to attack our retirement and health benefits. 

Those benefits are part of the Federal law that created the Postal 

Service. By permitting the Postal Service to cut costs by attacking 

those benefits, Congress would be undermining the ability of postal 

workers to live in security and dignity, both as active workers and 

after they retire. 

We vehemently oppose any changes that would interfere with the 

right of the postal employees and retirees to continue to participate 

in the Federal Employees Health Benefits Program (FEHBP) and 

Federal retirement programs. While the Postal Service claims that 

it can lower health care costs, that is not true. What the Postal 

Service seeks to do is shift costs from itself to employees, to retirees and Medicare. This is not acceptable. 

It is a desperate and ill-considered attempt to deal indirectly 

with what should be dealt with directly, the retiree health benefits 

pre-funding requirement. Because of the pre-funding requirement, 

the Postal Service has cut costs in ways that have created hardships for postal workers and threatened to destroy the Postal Service. The Postal Service has closed mail processing facilities, closed 

post offices, lowered its service standards, and reduced hours at 

post offices, particularly in rural and small communities. 

The Postal Service has cut its mail processing network so deeply 

and so recklessly that it is now violating standards mandated by 

law, standards that the Senate sought to protect when it approved 

S. 1789 last year. Network consolidation is delaying first-class mail 

and periodicals by 2 or 3 days in many places. We urge this Committee, the Senate, and the Congress to insist that the service 

standards be maintained. 

Likewise, retail services and services to rural areas have been 

cut and are still at risk. Retail services and rural post offices must 

be preserved and protected. In addition, it is past time for the Fed-
36 

1The prepared statement of Ms. Dwyer appears in the Appendix on page 130. 

eral Government to stop holding onto excess Postal Service funds 

that have been deposited in Federal retirement programs. 

Postal rate payers have, for many years, been subsidizing the 

Federal Government through substantial overpayments into Federal accounts. This has always been unfair to the rate payers, but 

now it is more than unfair. It is unsustainable. To correct this, 

postal retirement obligations must be recalculated on the basis of 

postal employee demographics and all over-funding in Federal retirement accounts must be repaid to the Postal Service without restriction. 

We think Title V of S. 1486, which would cut benefits for injured 

employees throughout the Federal Government, is an example of 

how postal cost-cutting threatens to penalize postal employees. It 

is wrong, we oppose it, and it should be removed from this bill and 

dealt with elsewhere. 

As the Chairman and this Committee have recognized, it is necessary to repeal the restriction on the Postal Service providing nonpostal services. There are many ways in which the Postal Service 

can use its mail processing, retail, transportation, and digital networks to provide useful and new services that will enhance the 

Postal Service’s performance, aid our communities and small businesses, and to help sustain the Postal Service. 

We appreciate the fact that Chairman Carper and Ranking Member Dr. Coburn have addressed the issue of postal revenues and a 

CPI cap on rates. We believe the CPI cap is unsustainable. To preserve universal service, a better balance must be found between 

rates and service. APWU members have borne the brunt of the 

drastic changes made by the Postal Service in the past 7 years. 

Our members have been penalized unfairly for financial problems they did not create and could not control. The APWU cannot 

accept efforts to impose further sacrifice on postal employees. 

Thank you and I am available for questions. 

Chairman CARPER. Mr. Guffey, thank you for your testimony 

very much. We look forward to asking some questions. Ms. Dwyer, 

welcome, nice to see you. 

TESTIMONY OF JEANETTE P. DWYER,1 PRESIDENT, NATIONAL 

RURAL LETTER CARRIERS’ ASSOCIATION 

Ms. DWYER. Good morning, Chairman Carper and Members of 

the Committee. I appreciate this opportunity to testify on behalf of 

the NRLCA. The NRLCA and its members care deeply for the Postal Service and the service that it provides to Americans. But we 

have significant concerns about the damage that the pending Senate Postal Reform legislation will do to that service. 

We have shared these concerns in our written testimony, but I 

would like to use my time today to focus on service. Make no mistake. If the Postal Service is to remain viable and competitive, we 

need to keep the ‘‘service’’ in Postal Service. This means continuing 

to utilize its trained and dedicated Federal workforce to provide 6- 

day mail delivery, keeping sufficient post offices and processing facilities open, and maintaining current service standards. 
37 

The Postal Service must also continue to take advantage of and 

strengthen its unique ability to perform services such as delivering 

the ‘‘last mile’’. Although the Postal Service is undoubtedly faced 

with financial challenges, these issues are not primarily the result 

of its business practices. It is no secret that the most significant 

restraint on its success remains the congressionally mandated prefunding of retiree health benefits. 

The Postal Service would have shown a $660 million profit in the 

third quarter of fiscal year 2013 had the retiree health benefits 

pre-funding burden been excluded. Thus far in 2013, it would have 

made a $330 million profit excluding the pre-funding payment. 

This is a remarkable achievement considering the Nation’s sluggish 

recovery from the largest economic downturn since the Great Depression. 

It demonstrates the Postal Service’s ability to turn a profit while 

building upon its current business model and continuing to provide 

universal service. But S. 1486 would disrupt this success. It would 

slash service, cut delivery days, close post offices and postal facilities, disrupt collective bargaining, and reduce employee benefits, all 

because of a pre-funding schedule that represents roughly 80 percent of the Postal Service’s total losses over the past 6 years. 

These changes will drive more and more people away from using 

what is consistently ranked the most trusted government agency, 

and will eventually lead to the Postal Service’s demise. We have already seen the negative impact of these cuts and reductions. Prior 

service changes and plant consolidations have slowed down processing and delivery times across the country. 

Numerous accounts are coming in from rural letter carriers that 

mail is coming to them late in the day. This means late delivery 

to customers, often after dark, inconveniencing customers awaiting 

parcels, medications, and other important items. 

Meanwhile, mail that carriers collect on the route is often sitting 

overnight before being processed because many post offices have 

imposed earlier dispatch times, meaning that mail collected on the 

route does not come back in time to be sent to the plant. 

Shipping and package delivery revenue continues to increase dramatically as a result of a rapidly increasing e-commerce sector, 

which is helping to mitigate the negative impact of online communication and bill pay. But further cuts will continue to chip away 

at the Postal Service’s ability to efficiently handle the mail and 

package volume coming through this system. 

The NRLCA strongly believes that S. 1486 would cause the Postal Service to abandon those Americans who most depend upon the 

regular delivery of the mail. Rural America, in particular will suffer extreme hardship if our customers and small businesses lose a 

day to send and receive mail. 

The livelihoods, and often health and well-being of entire communities depend on the Postal Service to facilitate communication and 

deliver goods. In many parts of rural America, there are simply no 

alternatives. In the past, the Postal Service and its rural letter carriers have always been there for them. I am here today because I 

want rural carriers to continue to be able to provide high quality 

service to their customers. 
38 

1The prepared statement of Mr. Beeder appears in the Appendix on page 136. 

Mr. Chairman and Members of the Committee, we have the potential to succeed if only Congress would address the unfair prefunding mandate and allow the Postal Service to focus on growing 

the business, not shrinking it by reducing delivery service. By 

doing so, you will give the Postal Service a fighting chance to remain viable without taking drastic measures that will only harm 

this great institution. The Americans who rely upon it, and the employees, such as rural letter carriers, who serve it with determination, integrity, and pride. 

Thank you for allowing me to submit testimony and I would be 

happy to answer any questions. 

Chairman CARPER. Great. Madam President, thank you so much. 

Thanks for the testimony and for being here with us today. Mr. 

Beeder, great to see you. Please proceed. 

TESTIMONY OF JOHN BEEDER,1 PRESIDENT AND CHIEF 

OPERATING OFFICER, AMERICAN GREETINGS 

Mr. BEEDER. Thank you, Senator Carper, Senator Coburn. I am 

speaking here today on behalf of the Greeting Card Association 

(GCA), which represents more than 150 publishers of greeting 

cards and related social stationery products throughout the United 

States. We are grateful for the opportunity to participate in today’s 

hearing. 

S. 1486 contains many desirable reforms and initiatives. We are 

pleased to see the two common sense recommendations. A shift to 

more cost-effective modes of delivery and a realistic treatment of 

retiree health benefit funding are prominent features of S. 1486. 

However, the ratemaking provision of S. 1486 is a matter of 

grave concern. Section 301 should be stricken and the current 

PAEA ratemaking provisions left in place. The Postal Service’s financial problems are not due to the ratemaking system. The Postal 

Service today has a cost problem, not a ratemaking or a revenue 

problem. 

The unworkable PAEA retiree health care pre-funding schedule, 

appropriately redesigned as in Section 103 of the bill, cures a large 

part of the Service’s current deficit. Thus, there is no reason to encourage it to drive away customers and reduce its own revenue by 

eviscerating the ratemaking system as S. 1486 would do. 

Doing away with PAEA’s relatively liberal price cap incentive to 

efficiency after 2016 makes no sense, especially in the context of 

other important features of S. 1486. With neither a close tie between rates and costs nor an exogenous price cap limiting increases 

there would be nothing in the statute to forestall resorting to regular rate hikes above the CPI as a way of avoiding the unavoidable. 

S. 1486 would weaken existing controls unnecessarily. Today 

there is an independent evaluation by the PRC of whether each 

new set of rates conforms to the price cap. Handing this function 

over to the same Board of Governors, which directed the filing of 

the rates in the first place, would put the Board in the untenable 

position of independently verifying its own actions. 
39 

Another serious flaw in the bill is treatment of exigency rate 

cases where at least four legal standards must be met. These have 

the potential to be controversial. The evaluator must find, one, that 

exceptional or extraordinary circumstances are present; and then 

that the increase is, two, reasonable; three, equitable; and four, 

necessary under the best practices of honest, efficient, and economical management. 

S. 1486 would have the Board of Governors decide these four difficult questions. This is a conflict of functions and would allow the 

Postal Service to effectively act as an unregulated monopolist. 

These problems cannot be solved by allowing rate decisions to be 

reviewed by the PRC on complaint. Injured mailers, who have the 

burden of proof, would be hard-pressed to meet the considerable expense of proving such a case. The Board of Governors would decide 

rate questions with apparently no obligation to describe or disclose 

all the data and assumptions upon which they relied. 

Moreover, during the complaint process, the complainants would 

be paying questionable and, perhaps, provably unjustified rates. 

We could realistically expect potential complainants would simply 

switch more of their communication to alternative carriers or to the 

electronic media. 

Another ill-advised feature of the bill is Section 206 which does 

away with the PRC’s advisory opinion role in connection with significant nationwide service changes. First, abolishing any independent, pre-implementation review would be a serious loss of 

users of the mail and the Congress itself. 

The PRC’s advisory opinions have provided a well-informed, objective view of these changes, some of which are fundamental definitions of the level and quality of service that should be of concern 

to Congress. Section 206 appears to contemplate rate and classification changes along with or as part of a service change. This 

could make estimation of the combined effects almost unmanageable. 

The GCA is also disappointed that S. 1486 seriously weakens the 

sensible compromise reached in the 112th Congress on reducing delivery days. Section 207 of S. 1789 appropriately required a 2-year 

waiting period and a determination, subject to review by the Government Accountability Office (GAO) and the PRC, that other prescribed cost-savings measures did not obviate the need to cut service in order to achieve long-term solvency. These necessary safeguards are diluted or omitted altogether in S. 1486. 

To summarize, Sections 301 and 206 should be stricken from the 

bill to restore the bill’s focus on creating a streamlined, cost efficient, capable Postal Service to meet today’s needs. Encouraging an 

approach to financial problems that would facilitate potentially 

large rate increases and service cuts, cuts needlessly and undermines the beneficial features of the bill. And eliminating independent review of important decisions is not in the interest of mail 

users, the Congress, or in the long run, the Postal Service itself. 

Thank you. 

Chairman CARPER. Mr. Beeder, thank you so much. Mr. 

Cerasale, please proceed. 
40 

1The prepared statement of Mr. Cerasale appears in the Appendix on page 201. 

TESTIMONY OF JERRY CERASALE,1 SENIOR VICE PRESIDENT, 

GOVERNMENT AFFAIRS, DIRECT MARKETING ASSOCIATION, 

INC. 

Mr. CERASALE. Thank you very much. Good afternoon, Senator 

Carper, Senator Coburn, it is a pleasure to be here and I am here 

representing a united mailing industry, including the Affordable 

Mail Alliance, the Coalition for a 21st Century Postal Service, all 

major customer trade associations, paper, printing, and mailing 

technology industries. Together it is a $1.3 trillion industry that 

employs nearly eight million private sector workers and constitutes 

some 9 percent of gross domestic product (GDP). 

It is those businesses, non-profits, and other mailers whose decisions to purchase postage pays the bills of the Postal Service. They 

account for approximately 80 percent of mail volume and contribute 90 percent of the revenue of the Postal Service. Yet, that 

industry has lost since 2007 over one million jobs and many more 

are still at stake. 

So we are very pleased to be invited here today to testify before 

you. We are encouraged that you remain invested in postal reform. 

We appreciate your leadership on this vital matter. My written testimony contains our positions, and often our support, on many of 

the provisions in your bill, S. 1486, and I ask that the testimony 

be admitted in the record. 

This afternoon, I do want to focus on one major area, postal 

rates. S. 1486 would grant the Board of Governors of the Postal 

Service unilateral pricing authority for the mail over which it has 

both the statutory monopoly for delivery and a monopoly over the 

mail receptacle. There would be no price cap and there would be 

a weakened Regulatory Commission that would have after-the-fact 

complaint review with no authority to set postage rates and no authority to require refunds. What monopolist would not want such 

power? 

And although the monopoly is weaker than it has been, it still 

exists, and even if it were eliminated, the Postal Service would still 

maintain market power over the delivery of paper letters. We oppose that expansion of monopoly power. We do not think it is good 

for the economy, for our industry consistent with our system of 

checks and balances, and in the long run, we do not think it is good 

for the United States Postal Service. 

Elimination of the price cap, a cap which the PRC today said has 

been successful in reining in costs of the Postal Service, would reintroduce uncertainty and unpredictability in rate setting and drive 

out mail from the mail system at a faster pace. We hear that all 

the time from executives of our companies. 

We also have heard today that mail volume is price inelastic. 

Any mail volume lost would be more than compensated by an increase in postage revenue. We disagree with that, particularly 

when postage increases are more than the rate of inflation. Inspector General Williams has said that his price elasticity study was 

limited to small changes in price, not inflation busting increases. 

The last time market dominant postage rates were greater than 

the rate of inflation was May 2007. I am going to use the example 
41 

1The prepared statement of Mr. Weisberg appears in the Appendix on page 211. 

of catalogs. Catalogs received a double digit postage increase in 

May 2007 and in the next year, volume for those catalogs dropped 

23 percent. And most of that volume was the loss of prospecting 

mail, looking for new customers, and the investment which is the 

investment in the mail future. 

During that time of 23 percent volume drop, standard mail increased—volume rose. However, if catalogs were inelastic, even 

with a 23 percent volume collapse, postal revenues should have increased. It did not. Revenue dropped 11 percent. The catalogs were 

not price inelastic. 

Now, the Postal Service has relied on similar studies when it invested in flat shape sorting equipment to bring down the cost of 

sorting mail, which we agree with. Unfortunately, the 23 percent 

drop in mail volume resulted in too little flat-shaped mail to make 

running those machines efficient. 

We are paying for that mistake. The mistake is one of the primary reasons the flat-shaped mail is currently, quote, underwater, 

close quote. We urge you not to make decisions based upon studies 

that do not apply, or we think do not apply, to inflation—above inflation postage increases. Please do not eliminate the cap. 

We ask you also to include the compromise in the Postal Reform 

bill that the Senate passed last Congress to study the effects of excess capacity on flat-shaped mailing costs before requiring any 

postage changes. Many of the provisions of S. 1486 will alleviate 

the financial pressure on the Postal Service. Allow those to work 

before enabling above-CPI postage increases. 

Mail is not price inelastic with above-inflation postage increases, 

and the Postal Service will suffer in the long run. We pledge to 

work with you to find solutions in the Postal Service financial status that do not drive customers away from the mail. Thank you 

very much for the time and I look forward to your questions. 

Chairman CARPER. You bet. Thanks, Mr. Cerasale. Mr. Weisberg. 

TESTIMONY OF SETH WEISBERG,1 CHIEF LEGAL OFFICER, 

STAMPS.COM 

Mr. WEISBERG. Thank you very much for inviting me to speak 

today. I am here on behalf of Stamps.com, the leading PC postage 

company. PC postage is Internet-based computer software that allows customers to print their own postage using their existing computer and printer. Our software has been developed to provide a 

full suite of modern, cutting edge tools to mailers and shippers. We 

provide continuous product improvements and high touch customer 

support all at negligible cost to the Postal Service. 

Customer adoption of PC postage has grown rapidly since it was 

introduced and has brought in new mail volume that would otherwise have gone to postal competitors. Just 6 years ago, PC postage 

accounted for roughly $250 million in annual postage sales. In 

2012, Stamps.com, and Endicia together, accounted for over $2.85 

billion in postage sold. 

Stamps.com postage growth alone was more than 70 percent year 

over year in 2012. That is right, growth even through the heart of 

the recession. The substantial majority of postage purchased 
42 

through PC postage is used on Priority Mail and Express Mail 

products, the classes of mail that provide USPS with its highest 

level of contribution above direct costs. 

Virtually all the Priority and Express growth surge in recent 

years is generated through the PC postage industry channel. A recent Postal Service study showed revenue through the PC postage 

channel costs two cents per $1 of revenue, compared to 47 cents per 

$1 of revenue through a USPS-owned retail outlet. 

Our technology includes batch capability that allows users to 

print a large volume of shipping labels all at once, database integration technology for seamless, automatic import and export of information to and from a customer’s internal order database, and direct integration with e-commerce platforms. 

An e-commerce merchant with multiple stores can consolidate all 

of their orders so they can ship them out with ease. With one click, 

they can directly import all of their order data from the most popular online marketplaces, including eBay, Amazon.com, Yahoo!, 

PayPal, Google Checkout, and Etsy, plus the most popular shopping cart software. When they are ready to ship, they can just select the orders and print their shipping labels. 

All the shipping data, including USPS tracking, will automatically post back to their web stores. They can also automatically 

order a carrier pick-up, send an electronic manifest to the Postal 

Service, and generate a scan form so all the carrier has to do is 

scan the form once and all of the packages are automatically in the 

Postal Service’s computer systems. 

We believe that public/private partnerships are the best path forward for the Postal Service as technology innovation becomes increasingly important for its future. The Postal Service’s e-commerce 

shipping business has been on fire because of a deeply successful 

public/private partnership set up over a decade ago. 

The existence of the PC postage industry is based on a partnership between the Postal Service and private industry that was 

forged in 1995 when the Postal Service intelligently decided that 

the extremely challenging technology issues that need to be solved 

to allow a standard PC to print U.S. legal tender in a secure and 

convenient method were best solved by private industry. 

Public/private partnership in the PC postage industry takes the 

form of the Postal Service regulating industry participants to make 

sure they are secure and work well technically with the Postal 

Service’s systems. The Postal Service also partners with the industry to achieve mutual win-win goals of improving the customer experience, increasing revenue, and minimizing costs. 

Pat Donahoe and so many of the dedicated postal veterans who 

have ably worked with us for many years deserve much credit for 

the success story that is the partnership between the Postal Service and the PC postage industry. Thank you. 

Chairman CARPER. Dr. Coburn has another engagement he needs 

to get to. I am just going to say one quick thing and then I will 

just turn over the questioning to him and then I will wrap it up. 

Mr. Cerasale, in your comments, you mentioned the rate hike, I 

think you said it was April 2007, and then we saw like a year later 

the drop of, I think you said, 23 percent in mail volume for at least 

one particular product. 
43 

1The letter to the Postal Regulatory Commission appears in the Appendix on page 233. 

My recollection was the worst recession since the Great Depression actually began in 2007 and we sort of hit the bottom, like at 

the bottom of the cliff, sometime in late 2008. So I just would have 

us keep that in mind. You do not have to say anything. Now let 

me yield to Dr. Coburn. We will continue that conversation. Thank 

you. Senator Coburn. 

Senator COBURN. I want to ask Mr. Cerasale, you said your industry represents 9 percent of the GDP in this country? That was 

your testimony? 

Mr. CERASALE. $1.3 trillion worth of—yes, it is about 9 percent 

of the GDP. 

Senator COBURN. Well, that is not just your industry. That is the 

side effects coming off of your industry. 

Mr. CERASALE. Yes. The entire mail community industry. 

Senator COBURN. The entire mail community industry represents 

$1.3 trillion? 

Mr. CERASALE. Yes. 

Senator COBURN. I would like very much for you to supply the 

back-up of that data to this Committee. 

Mr. CERASALE. I will. 

Senator COBURN. That means it is the second largest component 

of our whole economy. 

Mr. CERASALE. I will do that, yes, Senator. 

Senator COBURN. I doubt seriously that is factual. We have had 

some criticism, Mr. Cerasale, on the IG’s study, and in your statement, you say it is unacceptable to give more pricing authority to 

the Board. But that would tend to contradict your position in PRC 

Order 154–1, which I will put your letter1 to the Postal Regulatory 

Commission in the record. 

Chairman CARPER. Without objection. 

Senator COBURN. Where it says, you do not believe the Commission has the authority to require further adjustment in this proceeding. So my question is this, do you trust the PRC more than 

the Postal Service when it comes to pricing standard flats? 

Mr. CERASALE. The Postal Service has a monopoly and there 

needs to be someone to overlook it. 

Senator COBURN. So here is my question to you on that. Do you 

think that a Board of Governors of the Post Office is going to give 

a price that is going to cause them a 23 percent loss in volume in 

the first year of a recession? 

Mr. CERASALE. Well, it was the first year of the recession, but 

standard mail rose during that year. 

Senator COBURN. I understand that. I mean, it is prudent. Any 

of your businesses that you represent, are they going to do that? 

They are not going to do that. 

Mr. CERASALE. My businesses would not do that with a product 

that they could not sell with volume dropping. They would most 

likely reduce prices to try and increase sales and volume and not 

raise prices whatsoever. 

Senator COBURN. And so right now, your industry, in terms of 

the Post Office, what is the net difference in revenues versus cost 

of delivery of your products today? 
44 

Mr. CERASALE. Well, if you look at the—— 

Senator COBURN. Today. I mean, this last year. 

Mr. CERASALE. Yes, I understand. The Postal Service has lost, I 

think it is a $6 billion loss, so I think if you look at—and my industry produces—pays for all the mail, that is it. Part of that cost, of 

course, is the retiree health benefit pre-funded. They are—— 

Senator COBURN. I am actually trying to get to your industry and 

what the revenue is the Postal Service gets off of your industry 

versus what it costs to deliver your mail. 

Mr. CERASALE. Right. 

Senator COBURN. And I think that number is in excess of $500 

million last year, was the difference between the cost of delivering 

your product and the revenue that came from that, and I would be 

happy to share that with you. 

Mr. CERASALE. Sure. I was trying to answer in terms of all the 

mail, which is what—we produce 90 percent of the revenue, 80 percent of the volume. So it virtually looks at the—you would have to 

say that in large part, it is the financial bottom line of the Postal 

Service. That is the differential. 

Senator COBURN. All the more reason—— 

Mr. CERASALE. That is 90 percent of the volume and that includes—that cost includes what the Postal Service will be defaulting. 

Senator COBURN. All the more reason. If you are that integral of 

a part of the revenue of the Postal Service, would not cogent members of the Board be very slow to cause something that would lose 

them significant volume? 

Mr. CERASALE. They should be. 

Senator COBURN. Well, do you think they would not be? 

Mr. CERASALE. Our businesses, people that we talk to in our industry, would try to look to lower prices to get more volume. That 

is what they would do if there is a volume—a sales problem. And 

that is not what the Board of Governors is looking to do. 

Senator COBURN. Well, but what they are—I guess the point I 

am trying to make is, right now, the cost to have your business is 

a half-a-billion dollar loss—— 

Mr. CERASALE. OK. 

Senator COBURN [continuing]. In the Post Office. So the question 

is, are there not smart people that can say, where is the best cost 

benefit ratio for the Post Office in terms of your industry? And are 

you saying you do not think those people are available to make 

those decisions? 

Mr. CERASALE. I think there are people available to make that 

decision, but I would not put it in the hands of the monopolists totally. As I said in my written and in the oral statements, we have 

an excess capacity issue that the Postal Service based on numbers 

that have been produced and purchased the flat sorting equipment 

system that is not utilized because the volume went away. The volume went away on a pricing decision. 

So we think that eliminating that kind of excess capacity—and 

the Postal Service has done an excellent job eliminating capacity, 

but we have seen drops in first-class mail volume long before 2007, 

and some of those changes should have been occurring sooner. 
45 

Senator COBURN. But if you look at their employment, they had 

a shrinkage of 100,000 employees before the caps were ever put in. 

Mr. CERASALE. Yes. 

Senator COBURN. So they recognized that problem. It was not 

that they did not recognize it. Let me move on, I think, if I can. 

In your statement, you say in today’s competitive world, the market will be determinative regarding postage rates. That is exactly 

what our bill is trying to do, is let the market be determinative. 

And I understand. If I was sitting where you are, I would say, 

no, I want a second shot at this every time. And I do not disagree. 

I am a private sector guy. I understand that. But there has to be 

a balance. We cannot continue to subsidize the flat business at a 

half billion dollars a year and then tell the people who are working 

for the Post Office, oh, by the way. 

And so, the question is, is there is a balance there? There has 

to be a balance. And what Senator Carper and I are trying to do 

is to create the environment where all those factors are taken into 

consideration as you make those decisions. And the way the Postal 

Regulatory Commission is set up is, you are going to second-guess 

it a lot. And then if you do not agree, you can sue them. 

So we are trying to change that to where market forces really are 

determinative. And it may just be that they lower the price so flats 

will come back based on what their market analysis says. 

Mr. CERASALE. I am not here just representing flats. I used the 

catalogs only as an example. I am representing all shapes and sizes 

and so forth. 

Senator COBURN. I understand that. 

Mr. CERASALE. But we agree that market forces should help determine what prices are asked, but you do have a statutory monopoly and it is there, it exists, and it is a monopoly not just on the 

delivery of letter mail, but a monopoly on the mail receptacle as 

well. That also has some significant market power that the Board 

of Governors would have control over in setting rates, and that is 

the problem that we face. 

And I do not have an exact solution for it. I know that eliminating the cap, after-the-fact review, no refunds, and think about 

it. How would we even do refunds? 

Senator COBURN. Well, we have already testified. There are ways 

to do refunds on the large customers. There is no question about 

that. Let me make one other point with you. We are going to have 

a postal system and what we know is we have to make it viable. 

We have to make the numbers work. And we cannot do all of that 

on the backs of the people who work for the postal system. It cannot happen. 

But here is what is going to happen if we do not get this right 

and we do not use market forces. You are not going to use the Postal Service. 

Mr. CERASALE. That is right. 

Senator COBURN. You are going to go and build warehouses and 

packaging where you are putting all the catalogs and mailers in a 

parcel box and then you are going to come back and use the Postal 

Service. So you are going to get your product out there, whatever 

the market determinative way says. 
46 

And what Senator Carper and I are trying to do is balance both 

the pricing and the cost and give the flexibility so that the decisions can be made in real time, because it is acute. They are at 

their limit on borrowing. We are going to try to make all the 

changes that we can in terms of pre-paid health care. We are trying to make the changes in terms of the retirement funds that have 

been put in excess. We are trying to do all those things. 

But to say that we are always going to have a slow process when, 

in fact, market ought to determine—just as your testimony said— 

what the price ought to be that you are paying. And they are not 

going to do something that is going to kill their volume because 

that is what they need right now. They need volume and revenue. 

And so, I understand where you are coming from representing 

your industry and I appreciate it, but it is like I have told everybody in your industry, there is going to be more than an inflation 

cost because we cannot even meet the commitments that we have 

now to the postal employees unless there is something. 

Now, how much that will be versus how much volume loss that 

is, they are never going to make a decision that gives them less 

revenue. They are going to make a decision that gives them more 

revenue, and that volume/price relationship is going to be determinative in the marketplace. And so, you have an extra Governor 

out there for you because they need you, they want you, and they 

are not going to run the prices up on you excessively. I am out of 

time. I will let you go and then I will come back. 

Chairman CARPER. Mr. Cerasale, are you ready for a break? 

Mr. CERASALE. No. 

Chairman CARPER. Pick on somebody else here for a minute or 

two? 

Mr. CERASALE. It is a good discussion. 

Chairman CARPER. Real good discussion. 

Mr. CERASALE. It is one we should have. This is an important 

question. 

Chairman CARPER. Back when we introduced this bill, what we 

hoped to do was to foster a good discussion and we certainly have, 

and this is continuing. I guess it is going to continue next week and 

well beyond. But this has been a real helpful hearing to us thus 

far. 

I have a couple of questions. I am going to ask each of you to 

take maybe less than a minute and just give us a closing thought, 

so you will be thinking about what you want to leave us with. Then 

we are going to wrap it up and head for the hills. 

I want to come to, if I could, to Mr. Weisberg. I held up earlier 

this mailer that I got, Mr. Weisberg. I do not know if you were here 

when we did it, about sort of the re-branding of Express Mail. They 

call it Priority Mail Express. I have a really smart new product and 

one that I think is actually going to make a lot of money for the 

Postal Service. We will see if that is true. 

But you said earlier you cannot just cut, cut, cut, although there 

are a lot of ways to save money. The Postal Service has identified 

those. They have worked with their unions, their employees, the 

Board to do that. But we talked a little bit, briefly, about what we 

need to do to reduce the Federal budget deficit further. We are 

down from $1.4 trillion to $700 billion. What do we need to do fur-
47 

ther? I have said we need entitlement reform that saves money, 

saves programs, does not savage old people or poor people. That is 

No. 1. 

No. 2, we need tax reform to actually generate some revenues. 

And we need to figure out how to get a better result for less money 

in everything we do. It is interesting to me how many people have 

said to me over the last 4 or 5 months, they are willing to pay a 

little more in taxes. They just do not want us to waste their money. 

That is what they say. They say, I am willing to pay some more 

taxes. I just do not want you to waste the money. 

So for us on the Postal side, that means we have to look at the 

cost side and where we can take costs out, what do we need to do 

in our jobs, here in Congress, to enable those savings to be realized. And obviously, the unions have to be a part of this, in the give 

and take process with management. 

But even after we have done a fair amount on the cost side, there 

is some more to be done. A big discussion on health care, very important discussion next week on health care, as you know. I just 

want to come back to you. I appreciate very much your insights. 

But you talked about how public/private partnerships are the 

best path forward for the Postal Service, I think you said, the success of PC postage, which certainly supports your point. How can 

the Postal Service help create a more nurturing environment for 

the marketplace to create new products that help its customers? 

That is No. 1. 

And second, we know you are not a futurist. Neither are we. But 

could you offer any insights on what untapped innovation opportunities might be out there for the Postal Service? And you referred 

to a couple of those. The Postmaster General gave us a pretty good 

list. 

Our friend, the Inspector General, gave us a pretty good list. But 

just anything that you heard out there, anything of your own. 

What are some other untapped innovation opportunities that you 

are aware of that you would certainly underline, highlight, say for 

God’s sake, do these? Please. 

Mr. WEISBERG. Thank you very much. For your first part of the 

question on how to foster public/private partnerships in the development of technology, I would really point to working well with 

your partners, doing deals with them in a fair and square way, and 

for us, we would also say not unfairly competing with your own 

business partners. 

So it is really a focus on working together well, putting good incentives in place, and then getting out of the way to let it be done 

efficiently and well. And the Postal Service has worked for us very 

well in that way, I would say. One suggestion I would have for the 

Postal Reform bill in that area is some language that you will see 

in the House bill that talks about making sure the Postal Service 

is not unfairly competing with postage evidencing providers. 

In the second part of your question, where are the real revenue 

opportunities for growth through innovation, and it is in packages. 

You have been hearing about it. The Postal Service has a huge role 

in packages. They have a tremendous cost advantage by going to 

all of the consumer locations. There is huge growth coming in the 
48 

delivery of packages, and the Postal Service is getting the smallest 

share of it amongst its competitors today. 

By having cutting edge technology, that means product developments, updates that happen on a daily basis, that means having 

24–7 high quality, high touch customer support, all of the modern 

things that a technology company can do, the Postal Service has a 

tremendous opportunity to continue to grow the package business 

in a big way for many years to come. So it is really innovations 

around that. 

And if you look at what has been set up with the PC postage industry, our salespeople can go working hand-in-hand with the Postal Service sales force to a company that needs to get up and running shipping packages, even a large company, and have them 

shipping overnight. 

We had one example where a major health care provider, Kaiser 

in Southern California, had a sudden need, because of DHL being 

shut down, to get drug prescriptions really quickly to its customers. 

They came to us at 5 p.m. one day. The next day they were printing out all of the Express Mail shipping labels to do it. 

In order to do that, you really need a private technology company 

that lives and breathes—we are based in California—the way that 

those companies work to be able to get customers up and running 

quickly and to do it in an efficient way. All of that without the 

Postal Service paying money for it. For the Postal Service to try to 

do that itself would just be so much less efficient. 

Senator COBURN. I just had a few questions for Mr. Beeder. I am 

a big buyer of cards. When I go in a place, I buy them. 

Mr. BEEDER. Thank you very much. 

Senator COBURN. You talk about inflation, though, over the last 

10 years. I just have some examples. It is your birthday. That is 

a $3.69 card. 

Mr. BEEDER. And worth every penny of it. 

Senator COBURN. Well, it depends. 

Mr. BEEDER. OK. 

Senator COBURN. I am going to make a point here. 

Mr. BEEDER. OK. I know you are. 

Senator COBURN. Here is a card that is $3.99. This was made by 

your competitor. Here is a cheap one. It is only 99 cents. So let us 

just take—oh, and this one is a Superman for Senator Carper, 

$5.99. So let us just take, for example—I do not know what the average is, but let us say $2. And a postage stamp right now is what? 

Mr. BEEDER. Forty-six cents. 

Senator COBURN. Forty-six cents. And inflation last year was 

what? 

Mr. BEEDER. What was it, Senator, 3 percent? 

Senator COBURN. Less than 2 percent. 

Mr. BEEDER. OK. 

Senator COBURN. All right. So 2 percent on 46 cents is a penny. 

Now, let us say if the average cost is $2 and you went up inflation, 

that is 4/10ths of 1 percent. If you went up twice inflation, that is 

about 6/10ths of 1 percent. So you went up twice inflation. Do you 

think that the demand price curve on your card, which is—I think 

$2 is way too cheap for the average card in terms of my assessment. 
49 

Do you think that actually makes a difference? Instead of the one 

penny increase or two penny increase, do you think that actually 

makes a difference when I am buying a $5.99 or $4.99 card, especially when it is all around holidays? Explain to me your concern 

about a 4 percent postage increase for the mailing—in your section 

of the mailing industry and how that works economically, because 

I really do not understand it. 

Mr. BEEDER. Well, you mentioned holidays. A good number of the 

cards sent through the Postal Service are actually holiday cards. 

And when you buy a holiday card or an invitation or even a piece 

of stationary and you want to mail it, you will buy frequently a holiday card, 20 of them in a box for $6 or $8. So the cost of that card would be 30 or 40 cents, not $2. I wish 

every card we sold was $2. 

Senator COBURN. Almost every one I buy is way more expensive 

than that. 

Mr. BEEDER. Can I have your name and number? We will get you 

some marketing materials. 

We are concerned because the holiday volume is so strong that 

the postage stamp actually costs more than the greeting card. So 

that when you increase the prices on postage, you fundamentally 

change the economic equation of a consumer who might be sending 

60, 80, 100 cards on the holiday and they have to fund all of that 

postage. That is where it really hits home in our industry. 

Regarding the pricing of those greeting cards, one of the things 

that we have worked very hard on, that you have encouraged the 

Postal Service to work on, is innovation. So we have competition 

from the Internet, we have competition from all of these online 

sources, so we have improved the capability of what greeting cards 

can do so that we can compete with those services. Greeting cards 

walk, they talk, they bounce, they jiggle, they have Superman on 

them and—— 

Senator COBURN. They sing songs. 

Mr. BEEDER. That is what we have to do. But we do not live in 

a monopoly environment. We have to compete in the marketplace 

against all types of things and if we do not deliver innovation and 

keep track of prices, make sure that we support the Postal Service 

as we can, it impacts our business a lot. 

Senator COBURN. So why would not somebody who is going to 

send 50 greeting cards this Christmas buy a Forever stamp? 

Mr. BEEDER. They could do that this year. But in future years, 

as the pricing goes up, the price of the Forever stamp will go up, 

too. That is a solution that might bridge them over for a year or 

two. We are thinking about the long term, Senator. 

Senator COBURN. OK. Thank you very much. 

Chairman CARPER. Every week at this time there is a Bible 

study group that meets over by the Capitol and one of the things 

that Barry Black always tells us—he is our chaplain, a Navy Admiral, Chief of Chaplains for the Navy and Marine Corps. He always 

implores the Senators usually the ones that show up are the ones, 

those of us who need the most help. 

But one of the things he always urges us to do is to pray for wisdom. So that is something that a lot of my colleagues and I do. We 

need to, God knows. I am not going to ask what your prayers are 
50 

for us, but in terms of imparting some wisdom, this is a chance to 

give us just a quick closing statement. I will ask you to use less 

than a minute if you will. I am going to start, Mr. Guffey, with you, 

Mr. President. Just something you really want us to take to heart 

as we walk out of here. 

Mr. GUFFEY. Just two things real quickly. This is for the Senator 

from Montana who is no longer here. What people have to understand, these offices where they close a plant down, there are a lot 

of towns around those plants. And mail would get picked up there 

at five in the evening, taken over to this plant, and be worked and 

returned back, 1-day service. 

Now since they do not work the mail in Plant A, the mail in 

these small towns has to leave those towns to get over here to 

Plant B to be worked earlier in the day, say like at one o’clock. 

That means all the cards that are picked up, or people want to 

mail invitations for their kid’s birthday party, or sympathy cards 

for a funeral that week or something, they drop it in the mail and 

the carrier comes by and picks that mail up. 

Then they take it back to the office. Well, the dispatch time has 

already gone by. So if this is Friday evening, it does not get over 

to Plant A until Saturday and over to Plant B until the following 

Monday and that is when those cards are canceled. 

So those 3 days do not even count in the Postal Service’s system. 

When they cancel it, then it gets marked into the Postal system 

and it goes through and their records show 1-day delivery, 2-day 

delivery, when they have actually added maybe 2, 3, or 4 days on 

there that do not even count. That is one thing and I have heard 

two other—— 

Chairman CARPER. I am going to ask you, I said 1 minute and 

you are up to 2 minute. One more thing and that is it. 

Mr. GUFFEY. OK. That is it. The issue about privatization. Let 

us talk about privatization. Just two things about that. All these 

small countries over there like England and what have you, have 

a great transportation system, do not require movement of mail by 

airlines. And they also have socialized medicine which means they 

do not have any current costs for their employees in health insurance and they do not have any future retiree costs. 

Chairman CARPER. That is not true for all of them, but go ahead. 

Mr. GUFFEY. Well, it is for England and Germany, sir. And to say that is just to say this. They have more expensive—.6 pounds is $1 

over here; Germany, it is 78 cents. It is more expensive and they 

have it privatized and they have it outside. And they do not have 

discounts. They do not have discounts for big mailers. 

Now, we have a system over here that works, it is better for everything, so privatization is not a situation, I think, that works in 

this country. 

Chairman CARPER. OK. Thanks so much. Ms. Dwyer, please be 

brief, if you will. Get right to the point. 

Ms. DWYER. All right. I will try. The rural letter carriers have 

always been service oriented. That is what I talked about today. 

We are passionate about it. We believe it. And I am here to tell 

you, if you try to cut it to 5 days a week, you will destroy the Postal Service. 

Chairman CARPER. OK. 
51 

1 Additional information submitted by Senator Coburn appears in the Appendix on page 221. 

Ms. DWYER. We have a firm belief that is true. Listen to the 

numbers that I gave you today. The Postal Service can succeed. 

Allow us to do that. Unshackle us from the pre-payment. Do that 

and give us a chance to be viable, keep us in an environment where 

we can succeed and we will do that. 

Chairman CARPER. All right. Thanks. That was great. The legislation that Dr. Coburn and I have introduced says, essentially, a 

year after enactment of the bill, the Postal Service may go from 6 

to 5-day per week services. You still have to have post offices open, 

access to postal boxes, they still have to do parcel and package delivery, and they are free to provide the service even on Sunday if 

they can find a way to make that financially viable. 

But if there is any chance to ensure that when the Postal Service, a year after enactment of our bill, for example, that they decide 

not to go to 5-day-a-week service, it is for them to have found ways, 

innovative, new products, new ways to generate revenues off this 

legacy organization. And the other thing is to find ways, especially 

on the health care side to save money. That is the 800-pound gorilla here in the room. I know you all are working on that and I 

would ask that we just continue to do that, good conversations, 

good negotiations. I would just urge you to keep those up. Mr. 

Beeder. 

Mr. BEEDER. Affordable rates are critical to consumers’ participation in the Postal system and the provisions in this bill raise the 

prospect of a number of negative outcomes. Without adequate review, it is likely that inappropriate rate increases could be imposed 

with no practical remedy available to mailers. The USPS oversight 

not only provides price stability, but also fairness among mailers, 

subject to the monopoly provisions of the non-competitive categories. 

Chairman CARPER. Good. Thank you, sir. Mr. Cerasale. 

Mr. CERASALE. Yes. The monopoly is something that we are concerned about. The CPI cap has been an incentive to rein in postal 

costs and without it, we think or fear it is too easy to raise postage. 

And in the scoring battles we have had in previous postal reform 

legislation, the Congressional Budget Office (CBO) has found increasing postage decreases the likelihood of cost-cutting. And I 

would be very worried about that. 

Chairman CARPER. Thank you. Mr. Weisberg. 

Mr. WEISBERG. I would like to help us all leave on a positive 

note. The Postal Service has done a fantastic job in working with 

the PC postage industry and is just starting to reap the benefit of 

that growth. There is a huge opportunity in the growth of e-commerce shipping and we look forward to working with the Postal 

Service to help get the benefits of it. 

Chairman CARPER. Thanks. Dr. Coburn, any last word? 

Senator COBURN. No. I would like permission to put just a little 

statement into the record on cross-subsidization, statements of Mr. 

Cerasale that he has made in terms of 19961 and 1998 where his 

industry was worried about cross-subsidization. 

Chairman CARPER. Good enough. Without objection. 
52 

We are at the point to adjourn. I just want to again thank you 

very much for being here, for preparing for your testimony, and for 

giving it, for answering my questions. I also want to say, I see behind Mr. Cerasale the Postmaster General. We asked him to stay. 

We are delighted that he stayed. 

We have another hearing. Some of you will be back. But whether 

you are at the hearing and speaking, we are going to have some 

time for continuing this dialogue. I think I leave here more encouraged than not. There was hope in a hopeless world. And we have 

to keep working hard to get there and I think we will. God bless 

you. Thanks so much. 

[Whereupon, at 12:44 p.m., the Committee was adjourned.] 
(53) 

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(391) 

OUTSIDE THE BOX: REFORMING AND 

RENEWING THE POSTAL SERVICE, 

PART II—PROMOTING A 21ST CENTURY 

WORKFORCE 

THURSDAY, SEPTEMBER 26, 2013 

U.S. SENATE,

COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Committee met, pursuant to notice, at 10 a.m., in room SD– 

342, Dirksen Senate Office Building, Hon. Thomas R. Carper, 

Chairman of the Committee, presiding. 

Present: Senators Carper, Levin, Pryor, Tester, Baldwin, 

Heitkamp, Coburn, Johnson, and Ayotte. 

OPENING STATEMENT OF CHAIRMAN CARPER 

Chairman CARPER. The Committee will come to order. Welcome, 

everyone. We meet today for the third hearing that we have held 

this year to consider the financial challenges facing the Postal 

Service, and this is the second since Dr. Coburn and I put forth a 

comprehensive, bipartisan proposal to address those challenges. 

As I mentioned at our hearing last week, one of my top goals 

since joining this Committee has been to not just help the Postal 

Service get by, but to help it become strong again and remain viable for the long term. 

Despite my efforts, and despite the efforts of our predecessors on 

this Committee and those of Postal management, Postal employees, 

and others, we find ourselves closer than we have ever been to losing the vital services that the Postal Service offers to all of us. At 

risk as well are the approximately 8 million jobs that depend on 

its continued vitality. 

The Postal Service has maxed out its credit line with the Treasury and is rapidly running out of cash. Despite an improving economy and some positive signals from some parts of its business, its 

immediate future is not bright. Absent legislative intervention, the 

Postal Service will likely limp along for a while unable to invest 

for the future, with its employees and customers uncertain of what 

that future holds. But it can only limp along for so long. 

There is no single easy solution to this problem. It is a problem 

that has been years in the making and will take years still to fully 

address. But with urgent action from the Congress and the Administration, the collapse of the Postal Service is avoidable, and I 

would just say action from the Board of Governors (BOG), action 
392 

from Postal management, and from the unions who represent the 

Post Office, and from the employees themselves. This is a shared 

responsibility, and we are certainly a big part of that responsibility. 

Last week, my colleagues and I debated the tough decisions that 

will need to be made in the coming months and years regarding the 

level of service that the Postal Service should offer the American 

people. We also discussed how it should price and market its products. Most importantly, we heard about a number of innovative 

ways, really an encouraging number of innovative ways that the 

Postal Service can make itself relevant to a new generation of customers by taking creative advantage of its one-of-a-kind retail, 

processing, and delivery network. 

Today our focus will be the Postal workforce and the steps that 

the Postal Service must take to make sure it has the right people 

with the right skills as it works to survive and thrive in the years 

to come. We will also touch on the financial obligations the Postal 

Service—and, by extension, the Treasury—has made to Postal employees and how those obligations should be funded. 

At its peak in 1999, the Postal workforce totaled some 800,000 

people. Today the Postal Service employs just under 500,000 men 

and women to service an ever-growing number of addresses across 

the country. This is possible due in part to the recent declines in 

mail volume, but also to automation and some hard work on the 

part of Postal management and the rank-and-file to make processing and delivering the mail more efficient. More must be done 

in this area, and the bill that Dr. Coburn and I have introduced 

we believe will help. 

Our bill would also help end longstanding debates about how 

much the Postal Service owes the Treasury for its employees’ pension and health care obligations, how much it should be paying to 

fund these obligations, and how aggressive its payment schedule 

should be. 

On pensions, we would require the Office of Personnel Management (OPM) to use more accurate data on how Postal employees 

are paid and how much they actually draw down over their lifetimes from the Federal Employees Retirement System (FERS) and 

from the Civil Service Retirement System (CSRS). This reform 

would likely save the Postal Service billions of dollars over time. 

It would also show that the Postal Service has overpaid its obligations to the Federal Employees Retirement System, and result in 

a refund of as much as $6 billion. 

On health care, we would end the extremely aggressive schedule 

put in place in 2006 to pay down the Postal Service’s unfunded retiree health obligation, a schedule more aggressive than any I have 

ever seen in State or local governments, municipal governments, 

or, frankly, in the private sector. 

That payment schedule was put in place for a noble purpose 

about 7 years ago. The goal was to make certain that a thenhealthy Postal Service that faced an uncertain future due to the 

growth in electronic communications was putting away as much 

money as it could so that taxpayers would not be stuck with its 

health care bill. But the size of the payments have been crippling. 

Our bill would create a more sensible and affordable schedule for 

paying down the vast majority of the Postal Service’s long-term ob-
393 

ligation over the next 40 years. It would also give the Postal Service access to the more than $40 billion in its retiree health account 

today to pay its growing costs related to premiums for current retirees. 

These reforms alone would make the Postal Service’s books dramatically better and free up cash that it can use to invest in innovation, its vehicle fleet, and other long-neglected needs. But the reforms in our bill intended to enable more efficient use of the Medicare benefits the Postal Service and its retirees have paid for have 

the potential to dramatically reduce its outstanding health care obligations and, as a result, its retiree health prefunding payments. 

Finally, our bill would give the Postal Service and the unions 

representing the employees the authority that they need to have a 

full, a robust, and hopefully a productive conversation about the 

package of pay and benefits current and future Postal employees 

should receive. Unlike other proposals that have been made over 

the years, our proposal would not enable layoffs, would not abrogate union contracts. It would seek to ensure that anyone whose 

job might be displaced in one area would clearly have another place 

to go in the Postal Service, so that no one would actually in the 

end lose their jobs. The workforce would be reduced, continue to be 

reduced, but it would be done through attrition, and it would be 

done in a humane way. 

We seek to require in our legislation, as I said, a conversation 

about tradeoffs between labor and management. This reflects the 

fact that it is not my goal and I do not think it is our goal to make 

Postal employees alone bear the price associated with fixing the 

Postal Service. 

I have said there are three groups that I hope that we are mindful of as we legislate, that we are fair to, and they include customers, Postal customers, they include Postal employees, and they 

include taxpayers. Those are the three, for me the three key 

groups. 

Before I turn to Dr. Coburn for his statement, I just want to 

thank him and his staff for working with us to be able to put together, after a long time and a lot of work, this bipartisan legislation. We know it is not perfect. We know it is not the finish line. 

But I think it is certainly well intended, I think a well-constructed 

compromise, and one that we seek to improve on as time goes by. 

The Postal Service faces serious challenges. A lot of people are 

working very hard to overcome those challenges. We have been 

working very hard to be a good partner. This is a problem that can 

be fixed. 

I will close with these words: I think one of the things that is 

missing right now to move our economy from a modest economic 

recovery to a robust economic recovery is concerns across this country, can we govern, can we be fiscally responsible as a country, can 

we provide certainty, particularly with respect to our Tax Code? 

Those are the three elements that nationally are needed to get our 

economy moving in an even stronger way. And I think when you 

have 7 or 8 million jobs that flow from the Postal Service, that depend on the Postal Service, we could do a whole lot in terms of 

helping the economy, boosting the economy, by providing the certainty that is missing and the certainty that is needed. We can fix 
394 

this problem, and our goal, our challenge, is to do that with the 

help of a lot of people in this room and people who are listening 

to and watching this hearing today. 

And now I am happy to turn to my colleague and my cosponsor 

on our legislation. Tom. 

OPENING STATEMENT OF SENATOR COBURN 

Senator COBURN. Thank you, Senator Carper. 

Most of you know we put out this draft bill after working for a 

long period of time with a lot of the stakeholders, with the Postmaster General. But it is a draft bill, and this is one of multiple 

hearings that we are going to have on it. 

But I would give this warning to everybody involved in this process: If you do not like what is in this bill and you want to solve 

the problem, you cannot just complain about what is in the bill. 

You have to come with an alternative solution that accomplishes 

the same goals. 

So having said that, there are three options: One is the Post Office has to continue to be able to trim its costs in a way that is both 

ethical and proper; it has to figure out how to achieve greater revenues; and, finally, the third option—which is not an option—is to 

have the taxpayers of this country bail it out. It is not going to happen. 

And so I am very appreciative of John Kilvington and Senator 

Carper and the rest of his staff in terms of working. I think we can 

be a model for compromise. 

This bill is not finished. Everybody knows it is not finished. We 

are going to try to have a modified bill before we ever go to markup 

based on what we hear from these hearings and what we can accomplish. But it cannot be, ‘‘No.’’ It has to be, ‘‘No, but here is a 

different solution.’’ I hope that the people that testify today recognize that. We are going to solve this problem. We are going to get 

a bill. Tom and I are committed to forging a compromise that we 

can get through our Committee and we can get to the Senate floor. 

We are going to do that based on our personal relationship, but 

also recognizing the responsibility, as he said, to govern. We are 

going to do it. The fact that not anybody really likes the end product is probably the sweet spot of where we need to end up being. 

So I want to thank him again. He is a good friend of mine. The 

word ‘‘friend’’ is used pretty cavalierly in the Senate and not sincerely. But Tom Carper is a friend of mine, and I am willing to 

make tough choices to make him successful and us successful in accomplishing that. 

I yield back. 

Chairman CARPER. Tom, thank you for those kind words. 

We have been joined by Senator Pryor, Senator Johnson, and 

Senator Heitkamp. We welcome all of you. And with that, we are 

going to turn to our first panel of witnesses. 

The first witness is a new face. We have not seen him here before. I think his name is Donahoe. But, Postmaster General, I am 

glad we do not have to pay you on a per appearance basis because 

the debt would be even greater. 

Mr. Donahoe is the Postmaster General—he has his deputy right 

there behind him. Ron, it is nice to see you—but Postmaster Gen-
395 

1The prepared statement of Mr. Donahoe appears in the Appendix on page 451. 

eral and Chief Executive Officer (CEO) at the Postal Service. Mr. 

Donahoe has spent his entire career at the Postal Service, beginning as a clerk in his hometown of Pittsburgh, Pennsylvania. He 

spent many years in top leadership positions before being appointed Postmaster General in 2010, 3 years ago. It must seem like 

three decades ago, but it has only been 3 years. 

Our next witness is Jonathan Foley. Mr. Foley is Director of 

Planning and Policy Analysis at the U.S. Office of Personnel Management, where he is responsible for providing advice on a range 

of topics that include the Federal Employees Health Benefit Program (FEHBP). Before taking on his current position, Mr. Foley developed and implemented primary health care policy for the New 

Zealand Ministry of Health from 1999 to 2008. How we ever got 

you to leave New Zealand to come and take this job is beyond me, 

but we are glad you did. 

Next is Frank Todisco, Chief Actuary at the U.S. Government 

Accountability Office (GAO). In that capacity Mr. Todisco serves as 

an adviser to the agency on major Federal programs and policies 

pertaining to retirement security, health care, and life and casualty 

insurance. Frank, it is good of you to join us. We are an admirer 

of the folks that you work with, you and your team, and very grateful for your help. 

The final witness for this panel is John Dicken. Mr. Dicken 

serves as Director for Health Care Issues at the U.S. Government 

Accountability Office, where he leads the agency’s assessments of 

private health insurance and prescription drug pricing issues. 

We thank all of our witnesses for being here. Your entire testimonies will be made part of the record, and feel free to testify. We 

will set the clock at about 7 minutes. Try to stick to that if you 

can, and if you go way beyond it, we will have to bang the gavel. 

So welcome, Postmaster General. You are up. Take it away. 

Thank you. 

TESTIMONY OF THE HON. PATRICK R. DONAHOE,1 POSTMASTER GENERAL AND CHIEF EXECUTIVE OFFICER, U.S. 

POSTAL SERVICE 

Mr. DONAHOE. Thank you. Good morning, Mr. Chairman, Dr. 

Coburn, Members of the Committee. Thank you, Mr. Chairman, for 

calling this hearing. 

There is a fundamental question to be answered about the future 

of the Postal Service, and it is this: Will the Postal Service be given 

the authority and flexibility that enables it to continue as a selffunding entity? 

I believe everyone wants that answer to be yes. The Postal Service can be profitable and pay down its debt. It can continue to provide secure, affordable, and reliable universal service. It can continue to meet the needs of rural America. It can continue to drive 

economic growth. It can continue to be a responsible employer and 

a great place to work. And if given flexibility and authority to 

adapt in a changing world, it can meet all of these goals without 

becoming a burden to the American taxpayer. 
396 

The choice is simple: greater flexibility and authority now or 

massive taxpayer exposure and service degradation later. 

The Postal reform bill of 2013, S. 1486, goes a long way toward 

putting us on the path to financial stability. It provides flexibility 

and authority in many critical areas, and most importantly, it acknowledges our primary challenge: The related issues of health 

care benefits and the need to prefund liabilities. 

As currently written, the bill would provide significant savings, 

but as both you, Mr. Chairman, and you, Dr. Coburn, have noted, 

it remains a work in progress. Working together with all stakeholders and by including stronger language regarding Medicare integration and health care costs, Senate bill 1486 can accomplish 

the goal that we all share. 

As the Committee knows, we are seeking additional authority 

under the law to control our health care costs. We want to negotiate better and more cost-efficient health care coverage for our employees and retirees and ensure better integration with Medicare. 

If we do so, we can virtually eliminate our unfunded liability for 

retiree health care benefits. We can also reduce the amount that 

we will need to set aside for retirees in the future to an amount 

that we can manage. This in turn will secure lifetime coverage for 

all of our retirees. It will maintain choices for our employees and 

retirees, and it will immediately reduce our health care cost burden 

from 20 cents out of every revenue dollar that we bring in to just 

8 cents. This is a savings of approximately $8 billion a year 

through the year 2016 compared to our current expenses. 

Today the Postal Service and its employees are paying for benefits we do not use. We are effectively buying insurance we do not 

need, and we are overpaying for it. Both the Postal Service and our 

retirees have paid $27 billion into Medicare, yet many do not draw 

the benefits that they are entitled to. And so we are obligated to 

overpay to compensate for this fact. 

Under the current law, the Postal Service and its retirees pay 

full freight into insurance companies within the FEHB system. Instead, our retirees should be using Medicare A, B, and D as their 

base coverage. Under this vastly preferable scenario, the Postal 

Service and our retirees would merely need to fund far less costly 

benefits wrapped around Medicare coverage. 

This is more than just a budgeting issue. This is an issue of fairness. It is fundamentally unfair to ask our employees and retirees, 

and ultimately our ratepayers and potentially taxpayers, to continue to needlessly overpay into health care insurance. 

In simple terms, we are merely asking to be able to manage our 

retiree health care not by reducing benefits, like many other employers that we hear about today, but by wrap-around supplementary plans around Medicare. This will allow us to maintain 

current levels of coverage, generate annual savings for both the 

Postal Service, our employees, and our retirees, and we can do this 

simply by eliminating unwanted overpayments. 

Does the Postal Service have an obligation to employees and retirees to provide health care insurance for decades to come? Of 

course it does. And the best way to meet that obligation is to create 

a program that is financially stable in the long term. 
397 

1The prepared statement of Mr. Foley appears in the Appendix on page 471. 

Our proposal accomplishes that goal. We have developed our plan 

with leading experts in the field, which is essentially the approach 

that nearly every other company takes and one that the GAO has 

supported. If we are allowed to negotiate our own health care plan, 

either within or outside of the FEHB Program, the Postal Service 

will be able to provide the same or better coverage at a much lower 

cost for the vast majority of our employees and our retirees. 

I cannot overstate how important it is for the Postal Service to 

have its own health care plan or to have a health care plan 

through FEHB with the OPM, work with us to negotiate a new integrated plan that gives us choices specifically for the Postal Service within the FEHB. 

We want to work with this Committee to establish an effective 

and sustainable health care program for our employees and retirees. We want Senate bill 1486 to include clear mandates for the 

Postal Service, the FEHB, and OPM to make this happen. 

Mr. Chairman, by taking this approach, the Postal Service can reduce annual costs by up to $8 billion a year annually through 

2016. This goes a long way to closing the projected budget gap that 

will exist in 2016 of $20 billion, if we do not take action. 

Yesterday the Postal Service announced a price increase above 

the rate of inflation. We did not want to take this step, but we have 

little choice due to our current financial condition. Resolving health 

care issues will mitigate the pressures to raise prices and take 

other unpalatable steps in the future, but we must fully address 

our health care costs in order to do so. 

I would like to thank the Committee for taking up Postal reform 

legislation this year and holding this important hearing again 

today. I look forward to answering your questions and supporting 

your work in any way that I can. 

This concludes my remarks. Thank you. 

Chairman CARPER. Thank you, General Donahoe. 

Mr. Foley, please proceed. 

TESTIMONY OF JONATHAN FOLEY,1 DIRECTOR, PLANNING 

AND POLICY ANALYSIS, U.S. OFFICE OF PERSONNEL MANAGEMENT 

Mr. FOLEY. Chairman Carper, Ranking Member Coburn, and 

Members of the Committee, thank you for the opportunity to testify 

regarding reform of the U.S. Postal Service, including changes to 

employee benefits. As program administrator for the Federal Employees Health Benefits Program, Civil Service Retirement System, 

the Federal Employees Retirement System, and fiduciary for the 

health and pension trust funds underpinning these programs, OPM 

has an interest in reforming the benefits available to the Postal 

Service workforce. 

The Postal Accountability and Enhancement Act (PAEA) of 2006 

required the Postal Service to prefund retiree health benefits to 

cover the Postal Service’s liability for the health care costs of current and future retirees under the FEHB Program. Due to its financial difficulties, the Postal Service was unable to make the required fixed payments due in fiscal years 2011 and 2012. OPM cal-
398 

culates the actuarial liability at $94 billion as of September 30, 

2012. Subtracting the fund value of $46 billion, there remains an 

unfunded liability of about $48 billion. 

With respect to retirement benefits, Postal Service contributions 

to FERS total approximately $3 billion per year. These expenses 

are incurred only on behalf of those employees enrolled in FERS. 

The FERS funding and employee cost-sharing requirements are the 

same as those that apply to all non-postal agencies and employees. 

The President’s Fiscal Year (FY) 2014 budget includes short-term 

relief and long-term reforms to the Postal Service, including a proposal allowing OPM to calculate the Postal Service’s share of its 

FERS costs using postal-specific demographic assumptions. In the 

proposal, the amount of any postal FERS actuarial funding surplus 

as most recently computed according to governmentwide actuarial 

assumptions would be refunded to the Postal Service in 2013, and 

any remaining amounts would be refunded in 2014 and 2015 after 

OPM has completed a demographic study of Postal Service data to 

determine a postal-specific normal cost. 

The Postal Reform Act of 2013 would authorize the Postal Service to negotiate retirement benefit terms for new employees and to 

create new health benefit plans which may be offered within the 

FEHB Program. 

Section 102 of the legislation would grant labor organizations 

and the Postal Service the authority to negotiate retirement benefits for employees. OPM is concerned that the ability to negotiate 

retirement benefits, especially whether an employee is covered in 

FERS, will result in disparate execution of benefits. Tracking and 

reporting variable employee deduction rates based on bargaining 

unit and time period would be immensely time-consuming and costly, resulting in delays in retirement claims processing for all agencies. 

Additionally, OPM has technical concerns with Section 102(a)(1). 

Employee retirement contributions to the Civil Service Retirement 

and Disability Fund resulting from negotiated agreements require 

clarification. OPM would like to work with the Committee to address these technical concerns. 

Section 104 would authorize the Postal Service to enter into individual or joint collective bargaining agreements with bargaining 

representatives to create a single Postal Service Health Benefits 

Plan. The Postal Service and its employees and retirees are well 

served by the FEHB Program. OPM’s overhead costs for the FEHB 

Program are only 0.08 percent of total premiums. These very low 

overhead costs have been achieved by the accumulated experience 

of the agency and its staff having managed these programs for decades. In addition, annual premium increases for FEHB plans are 

typically at or below industry averages. In fact, the average growth 

in FEHB premiums has been below 4 percent for each of the last 

3 years. 

A withdrawal of Postal employees and actives would have a particular impact on health plans with a large postal population. Postal Service employees and retirees represent more than 50 percent 

of the enrolled population in 23 FEHB plans. If these plans were 

to choose to withdraw from the FEHB Program, their remaining 
399 

1The prepared statement of Mr. Todisco appears in the Appendix on page 475. 

non-postal members, approximately 90,000 people, would need to 

choose another plan. 

Section 104 could also have the effect of eliminating retiree 

health coverage for employees who become enrollees in the Postal 

Health Plan that is outside of Chapter 89. These enrollees would 

not be able to carry FEHB into retirement, and the Postal Health 

Plan would not extend health insurance coverage to retirees. If this 

is not the intent of Congress, OPM could provide technical assistance to address this matter. 

Section 105 would remove postal actives and annuitants with 

both Medicare Parts A and B from the FEHB risk pool and create 

separate FEHBP enrollment options for health benefit plans with 

a separate risk pool for these individual and family members covered by Medicare Parts A and B. Postal annuitants without Medicare coverage, with Medicare Part A only, or Medicare Part B only, 

would be the only postal groups to remain in the original FEHB 

Program risk pool. Because the groups to be removed are less expensive than those employees and retirees that are to remain, we 

anticipate this change will result in an increased cost to the FEHB 

Program on a per enrollee basis. If Postal employees and retirees 

are removed from the FEHB Program risk pool under both Sections 

104 and 105, costs under the original FEHB Program risk pool 

would increase by about 2 percent per enrollee. However, the impact on premiums from individual plans with high concentrations 

of postal enrollees would be considerably greater. 

Any effort to return the Postal Service to financial sustainability 

requires careful analysis in order to avoid unintended consequences. We look forward to working with the Committee to assist the Postal Service in addressing its fiscal challenges. 

Chairman CARPER. Mr. Foley, thanks so much for that testimony. 

Mr. Todisco, you are recognized. Please proceed. 

TESTIMONY OF FRANK TODISCO,1 CHIEF ACTUARY, APPLIED 

RESEARCH AND METHODS, AND JOHN E. DICKEN, DIRECTOR, HEALTH CARE, U.S. GOVERNMENT ACCOUNTABILITY 

OFFICE 

Mr. TODISCO. Thank you, Chairman Carper, Ranking Member 

Coburn, Members of the Committee. I will be making a single 

statement on behalf of GAO, and then Mr. Dicken and I will both 

be available to answer questions. 

Thanks for the opportunity to testify today on Postal Service pension and health care benefit issues. As shown in Table 1 of our 

written testimony, the Postal Service had $96 billion in unfunded 

benefits and other liabilities at the end of fiscal year 2012. These 

liabilities have become a large and growing financial burden, and 

the Postal Service’s financial condition will make paying for them 

highly challenging. 

Our testimony focuses on our work on three particular benefit 

issues: Funding Postal Service retiree health benefits, the Postal 

Service’s proposal to establish its own health plan outside of the 
400 

Federal employees health care program, and the treatment of potential surpluses under the Federal Employees Retirement System. 

First, funding retiree health benefits. We reported last December 

that Congress needs to modify the Postal Service’s retiree health 

prefunding payments in a fiscally responsible manner. We noted 

that the payment schedule under current law is significantly frontloaded, with payment requirements through 2016 that are well in 

excess of the actuarially determined amounts. We have also stated 

that the Postal Service should prefund any unfunded retiree health 

benefit liabilities to the maximum extent that its finances permit. 

One reason for prefunding is to protect the Postal Service’s longterm viability by paying for retirement benefits as they are being 

earned. To the extent prefunding is postponed, larger payments 

will be required later when they likely would be supported by less 

first-class mail volume. 

Fully funded benefits also make promised benefits more secure. 

However, the Postal Service currently lacks liquidity, and no 

prefunding approach will be viable unless the Postal Service can 

make the required payments. 

We have raised concerns about proposals to lower the funding 

target from 100 percent to 80 percent. An 80-percent funding target 

would lead to a permanent unfunded liability of roughly 20 percent, which would mean about a $19 billion unfunded liability at 

today’s level. 

Next, the Postal Service’s proposed health care plan. GAO recently reported that the Postal Service would likely realize large financial gains from its proposal to establish its own health plan outside of the Federal employees health care program, FEHBP. The 

Postal Service’s proposed plan is designed to increase postal retirees’ enrollment in Medicare as well as take advantage of Medicare’s subsidies for employer-based prescription drug plans. Of the nearly $55 billion the Postal Service projects in reduced health benefits liability from this proposal, nearly $49 billion is related to fuller coordination with Medicare. The withdrawal of all of 

the nearly 1 million postal enrollees from FEHBP would represent 

about a 25-percent decrease in FEHBP enrollment. Nonetheless, 

most remaining non-postal enrollees would likely not be significantly affected by a Postal Service withdrawal. 

Note that the Postal Service has recently discussed the possibility of a new postal health program that would be offered within 

FEHBP, whereas we analyzed the prior proposal to go outside of 

FEHBP. Further, if Postal enrollees were allowed to voluntarily select whether or not to participate in new postal plans within 

FEHBP, the impact on Postal Service savings and on FEHBP premiums could vary from prior estimates. 

As Congress considers proposals for a Postal Service health care 

plan, it should weigh the impact on Medicare, which also faces fiscal pressure. Other important issues include safeguards for plan 

assets, which would include the almost $50 billion of retiree health 

assets, and protections for plan participants comparable to those in 

the Federal health program. 

Last, treatment of FERS pension surpluses. We have reported on 

several key considerations regarding the release of any FERS pension surplus to the Postal Service. 
401 

First, it is important to note that estimates of retirement benefit 

liabilities contain a high degree of uncertainty and can change over 

time. 

Second, regarding the proposal to use postal-specific actuarial assumptions rather than governmentwide assumptions to measure 

the Postal Service’s liability, we support using the most accurate 

assumptions possible, subject to such assumptions being recommended by an independent body. 

Third, we have pointed out that a release of the entire surplus 

could be considered as a special one-time action as part of a larger 

package of reforms, but that returning surpluses whenever they developed would likely eventually result in an unfunded liability. We 

have suggested alternative formulas that could be used to address 

any future surpluses. 

Finally, any decisions on the FERS surplus should be made cognizant of the Postal Service’s various other unfunded liabilities. 

In closing, GAO continues to believe that a comprehensive package of legislative actions is needed so that the Postal Service can 

achieve both short-term and long-term financial viability and ensure adequate benefits funding for more than 1 million postal employees and retirees. 

This concludes our prepared remarks. We would be happy to answer any questions. 

Chairman CARPER. Mr. Todisco, thanks so much. Our thanks 

again to all of you. Very constructive testimony, and we want to dig 

into it, but let me just, if I could, sort of set the playing field and 

go back a week ago to our previous hearing. One of the things we 

talked about at that time was rightsizing this enterprise. Much as 

the auto industry has rightsized itself over the last half dozen or 

so years. What the Postal Service is attempting to do is to rightsize 

the enterprise, and we are trying to not be an impediment but actually to help you do that. 

If you go back a dozen or so years ago, the workforce, I think as 

the Postmaster General said, was about 800,000 people. Today it 

is just under 500,000. If you go back about half a dozen years ago, 

my recollection is that the number of postal processing plants in 

our country was about 600. We are now down to roughly 300, 325. 

Among the most encouraging things that I heard last week at 

our hearing—I do not know about Tom and the others that were 

there, but when you, Mr. Postmaster General, and other witnesses 

talked about how do we take what is unique about the Postal Service’s one-of-a-kind distribution system that goes to every mailbox in 

the country at least 5 or 6 days a week, how do we take that legacy 

distribution center and find new ways to make money out of it in 

a digital age? And I thought the ideas that came forward were just 

very encouraging. This cannot be just about cut, cut, cut. This has 

to be about how do we innovate and find new ways to make revenues, and I think there are some great ideas out there. And some 

of them are already being implemented. 

Before we leave here today, I just hope that we develop a clearer 

understanding amongst ourselves and with our witnesses on two or 

three key points. 

One is the issue of is it fair, is it appropriate, is it equitable for 

the Postal Service to continue to pay into Medicare and to overpay 
402 

into retirement for its employees? We know the Medicare trust 

fund is not in good shape, but is it fair to ask the Postal Service 

and its employees to continue to pay into a Medicare system where 

they are not actually getting the full benefits from it? Is that fair? 

Second, is it fair for the Postal Service—well, let me just back 

up. There are two retirement systems, we know, into which the 

Postal Service and employees have paid: The Civil Service Retirement System, the oldest and the Federal Employee Retirement 

System which most of the people who work for the Postal Service 

pay into. When I introduced legislation, gosh, almost 3 years ago, 

at the beginning of the last Congress, on postal reform, I actually 

said it looks like the Postal Service has not only overpaid its obligation to the Federal Employee Retirement System, the newer system, but maybe as much as $50 billion or $75 billion into the old 

system. And I thought, boy, this is going to make solving this problem easy. We will just get that money back from the Civil Service 

Retirement System, and we will be off to the races. 

Well, it was not that easy. And as it turns out, there are a lot 

of folks who did not believe that there had been that overpayment 

into the Civil Service Retirement System, and they included OPM, 

they included the Office of Management and Budget (OMB), they 

included the Administration, they included GAO. So, frankly, some 

of the key people that we looked to help us make those decisions 

said, no, not the case. 

There is, however, agreement that there has been an overpayment in the Federal Employee Retirement System, and it appears 

to be that there is going to continue to be an overpayment going 

forward because of the actuarial assumptions that we use for Postal employees. And, one, we have the opportunity, I think the obligation, to try to take some of that overpayment into FERS and return it to the Postal Service, not to spend. What I think the Board 

of Governors wants to do is to pay down its obligation to the Treasury, some of it at least. 

The other question is: What do we do about making sure going 

forward we do not continue to have that overpayment into FERS? 

I think the bill that Dr. Coburn and I have introduced seeks to address both of those in a fair and equitable way. 

The other thing, a long time ago when I was elected State Treasurer, we had no cash management system in Delaware. We could 

not balance our budget if our lives depended on it. We were a mess. 

And one of the things we set to work—Pete du Pont was our Governor, and we went to work trying to salvage the cash management 

system, to establish a pension fund, and to amortize that over 40 

years. We did it in 10 years—not 40 but in 10 years. And in my 

last term as Governor, I was up meeting with the folks at the rating agencies—Moody’s, Standard and Poors (S&P), Fitch—and they 

said, ‘‘You guys have done a pretty good job on your finances,’’ and 

they were about to raise us to AAA. But they said, ‘‘There is one 

thing you have not done.’’ And I said, ‘‘What is that?’’ And they 

said, ‘‘You have not done anything to prepare for paying the health 

care costs of your retirees.’’ That is what they said: ‘‘You have not 

done anything.’’ 

So we went to work on that. We are still working on that. And 

we will be working on that in Delaware for a number of years. 
403 

Well, we have an obligation, the Postal Service has a real obligation to set aside money for paying the retiree health care benefits. 

And the question is: How do we do it? 

The 2006 legislation said basically let us do it in 10 years. I do 

not know of anybody, any business, any company, any level of government, that has that kind of obligation. It is just not responsible. 

What Dr. Coburn and I have said is this: It is almost like a 40- 

year mortgage. There is this obligation, let us pay it. Let us make 

sure it is going to be paid. Let us do it over 40 years, not ignore 

it, not do it over 10 years, 20 years, or 30 years. Let us do it over 

40 years. 

Also, there is this question of money that has been set aside, the $40 billion that has already been paid. What do we do with that? 

And what we propose to do in our legislation is allow the Postal 

Service to use that money in the meantime to help meet the obligation to provide health care for its retirees. 

The last thing I want to say is this: I want to turn to GAO on 

this. I want to ask about the fairness, the equity of the Postal Service continuing to overpay into FERS but, most importantly, really 

paying twice for the health care, including overpayments into 

Medicare, for benefits that, frankly, they are not going to use. 

Would you talk to us about the fairness of that and what we 

ought to do? Thank you. 

Mr. TODISCO. Well, I will talk first about FERS, and then Mr. 

Dicken will talk about the Medicare issue. 

It is in the nature of a defined benefit plan, which FERS is, that 

the future benefit payments are uncertain. We do not know how 

long people will live. We make estimates about that, when they will 

retire, et cetera. So it is an uncertain measure, the liability. It is 

going to change from year to year. And when you are close to 100 

percent funding, which the Postal Service is for their FERS obligation, small changes in the liabilities up or down could put you into 

a surplus 1 year, a deficit the next year. 

That said, the estimates that are out there now seem to indicate 

that with revised assumptions, using postal-specific assumptions, 

there will be a bigger surplus than previously measured. And we 

have said returning that as part of a package of reforms could 

make some sense. 

But going forward, you talked, Mr. Chairman, about how to avoid 

surpluses in the future in FERS, and it is impossible to avoid surpluses or deficits completely, and you want to keep them small, and 

a way to do that is to stay with a fully funded target, and as you 

deviate from that a little bit from year to year, you amortize those 

gains or losses over some reasonable period of time, and you just 

keep heading toward that moving target. 

Chairman CARPER. Go ahead, Mr. Dicken. 

Mr. DICKEN. Regarding Medicare, indeed, the Postal Service and 

its employees have paid taxes that would be for the Medicare Part 

A and Part B. And, indeed, more than three-fourths of Medicareeligible Postal Service retirees have used Medicare Part A and B. 

The remainder, because they have paid those taxes, would be eligible if they have the 40 quarters of tax payments, but would also 

require for Part B that the retirees pay their share of the Medicare 

Part B premiums to get that coverage. 
404 

About half the savings that the Postal Service estimates from 

their plan also come from coordination with the drug benefit in 

Medicare Part D, and as you know, that is funded differently and 

through not so much the taxes that have been paid but through 

other premium payments that would need to be made. 

Chairman CARPER. OK. My time has expired on this round. I 

want to come back and drill down on this some more, Postmaster 

General and Mr. Foley, if you will. 

I will just close, before turning it over to Tom. My wife, as I said 

to some of you before, my wife retired from DuPont. When she 

turns 65—in about another 30 years—she will be eligible for Medicare, and they expect her to use it. They expect her to use it. They 

will provide a wrap-around plan. And it is not just DuPont that 

does this. It is just about every company of any consequence in this 

country. And the question is: Should the Postal Service be treated 

differently, should its employees be treated differently? And we do 

not believe so. Dr. Coburn. 

Senator COBURN. Mr. Dicken, let me ask you, was it your testimony just now that three-quarters of retired postal employees utilize Medicare A and B? 

Mr. DICKEN. Right. Of those participating in FEHBP that are 

Medicare eligible, three-fourths have also enrolled in—— 

Senator COBURN. So they are buying a Medicare wrap-around 

plan now. 

Mr. DICKEN. They are buying—— 

Senator COBURN. Three-quarters of them are. 

Mr. DICKEN. That Medicare would become the primary payer for 

those if they are retired. FEHBP then would be the secondary 

payer. 

Senator COBURN. So only one-quarter of retired postal workers 

are not using Medicare. 

Mr. DICKEN. What we have is that 77 percent have enrolled in 

Part A and B. Others have enrolled either in neither or only Part 

A or Part B. 

Senator COBURN. OK, but those are good numbers that we have, 

77 percent are in A and B. That is a big fact we were not aware 

of. Thank you. 

Mr. Foley, I wanted to ask you a question. Based on your statement just a minute ago, it would seem to me right now that the 

Postal employees are subsidizing the rest of the Federal employees 

through FEHBP, because if you take backward what you said, a 2- 

percent differential, either their costs are less or they are paying 

more. So basically Postal employees in this country are subsidizing 

the rest of the Federal employees. Is that an accurate assumption 

based on your testimony? 

Mr. FOLEY. The nature of a risk pool that includes a lot of diverse employees and annuitants with different circumstances, the 

nature of the risk pool is such that there are gives and takes in 

terms of the costs per enrollee. And so if you remove a population— 

as I said in the testimony, a population that costs less than Medicare A and B covered individuals, it will increase the costs of those 

who remain in the pool. 

Senator COBURN. So the inverse is that postal employees today 

are presently subsidizing the rest of the Federal workforce, if that, 
405 

1Statement for the Record from Dr. Geddes appears in the Appendix on page 544. 

2Statement for the Record from USA Today appears in the Appendix on page 551. 

in fact, is the case. If you pull them out and they are a lower-cost 

segment, you will see a resultant increase in the rest, because they 

are a lower-cost segment but they are paying the same. So they are 

in essence—and this is a key point for our Committee—Postal employees today are subsidizing the rest of the Federal workforce. 

And that is part of our problem, and that is part of the point that 

the Postmaster General has been making is that he can get a better package, a better deal, either in FEHBP or out, that will give— 

and here is the point: Senator Carper and I agree on a lot of things 

in this bill. We do not want the first Postal employee to see a 

change in the real benefit that they are getting. The question is: 

Can the Postal Service and can the employee get exactly the same 

benefit at a lower cost to the Postal Service? And your testimony, 

even though there are problems in executing this, as you outlined, 

would say that is true, because you just said 2 percent—at a minimum a 2-percent pop for everybody else, and this only represents 

a quarter of FEHBP, which implies a 6- to 7-percent subsidy by 

Postal employees for the rest of the Federal workers. I think that 

is an important note that we need to act on, and as far as being 

part of whatever we end up doing, is to recognize that disparity in 

our negotiations. 

I need two unanimous consents. Dr. Rick Geddes from Cornell 

has submitted testimony for our hearing, and I would like to submit that at this time.1

Chairman CARPER. Without objection. 

Senator COBURN. And I would also like to put in a comparison 

from USA Today and also work my staff has done on average salary and benefits within the Postal Service by bargaining unit,2 and 

also nationally Federal, State and local, and private, and the comparisons, because the reason I want to put this into the record is 

if you look at the private sector, the benefits per employee average 

$10,589. At the State and local government level, it is $16,857. At 

the Federal level, it is $41,791. And that is a significant fact we 

need to bear in mind as we ask the Postal Service to be competitive, to be able to continue to deliver the magazines, the flats, the 

catalogues, and not have to raise those prices. We have to give 

them the capability to handle those costs in a more efficient way. 

So I would ask unanimous consent for both those things. 

Chairman CARPER. Without objection. 

Senator COBURN. Mr. Todisco, your testimony shows that Federal workers’ compensation liabilities have grown from $7.7 billion in 

2007 to $17.6 billion in 2012, and these liabilities, as I understand 

it, do not include Postal workers yet to be added to the program. 

Is that correct? 

Mr. TODISCO. That is correct. 

Senator COBURN. Do you think the Postal Service should prefund 

its workers’ compensation obligations? 

Mr. TODISCO. That is a policy decision. The Postal Service would 

be better off if those were prefunded. We recognize that there are 

not the funds right now to do that given the other unfunded obligations, including the retiree medical unfunded liability and the debt 
406 

to Treasury. But it would enhance the long-term viability of the 

Postal Service if those benefits were funded. 

Senator COBURN. All right. In your testimony on the FERS overpayment, can you see a way that would address your concerns of 

this swing if we were to do something rather than just take overpayment, take the average 3-year rolling average of what that was, 

would that seem to be a more sensible way to address what the actual overpayment is so that we do not overshoot? What would you 

think about that? 

Mr. TODISCO. Well, there is a policy decision about whether to do 

a one-time return of surplus, but aside from that issue, going forward, it does make sense to do some kind of smoothing as to how 

you react to those measurements from year to year. 

Under current law, when there is a deficit, that is amortized over 

30 years. The annual payment is increased just to fund that over 

30 years. When there is a surplus under current law, the Postal 

Service gets no financial benefit from that. That is an unfair asymmetry in current law which—— 

Senator COBURN. For the Postal Service. 

Mr. TODISCO. For the Postal Service that we have recommended 

fixing. 

Senator COBURN. All right. Thank you. My time is up. 

Chairman CARPER. Senator Pryor. Senator Pryor slipped out. 

Senator Heitkamp, welcome. 

OPENING STATEMENT OF SENATOR HEITKAMP 

Senator HEITKAMP. Thank you, Mr. Chairman. I just have a couple questions because I am mainly here to try and understand kind 

of a path forward. And, obviously, Mr. Foley and the other gentlemen are here representing and concerned about a plan, but we are 

concerned about the viability and the future of the United States 

Post Office. And a big part of that is exactly the discussion that Dr. 

Coburn just had with you, which is, we have to be able to pay our 

bills. We cannot be in the position of subsidizing other systems or 

having demands that competitors do not have in terms of your cost/ 

benefit. And so it is with a great deal of sympathy that I have for 

the Postal Service in terms of the dilemma that they are in. So I 

just have a couple probably more technical questions. 

First, Mr. Foley, can you share OPM’s analysis of the impacts of 

these provisions on the remaining FEHB? Your testimony indicated 

that costs would increase about 2 percent for the original program 

risk pool once the Postal employees and retirees are moved out, 

which I think we have discussed a little bit with Dr. Coburn. And 

I know that there was some debate last year on the very similar 

plan that some carriers might, in fact, see premium increases as 

high as 35 percent. 

What type of impact do you expect on those who would remain 

within the system? 

Mr. FOLEY. As I said, the overall impact is 2 percent, but the impact varies by plan. So if there is a large concentration of Postal 

employees and annuitants in a plan and they are removed, then it 

is likely that the premiums for that particular plan will increase. 

There are, as I said, 23 plans where over 50 percent of their enrollees are annuitants, Postal annuitants, and employees. There is 
407 

a wide range in terms of the premium impact for those individual 

plans. They tend to be between 10 and 20 percent for those plans, 

but there are some—— 

Senator HEITKAMP. This is always the danger of average, right? 

Mr. FOLEY. Right, and there are some that are higher. Those are 

among the 23 plans with the high concentration. FEHBP is fortunate to have a large number of plans, so as you see, the 2 percent 

is reflective of that large group of plans. 

Senator HEITKAMP. Also in your testimony, you mentioned significant concerns regarding the ability to administer retirement 

benefits if the post office is able to negotiate retirement benefits 

and create groups of employees with different benefits and deduction rates. You say that the claims processing for all agencies 

would be negatively impacted by the burden. 

Can you provide additional detail on that impact and how other 

Federal employees would be potentially harmed by this effort? 

Mr. FOLEY. The potential exists through this bargaining to come 

up with differential arrangements for different bargaining units, 

and the difficulty we have with that is that is not something that 

is part of the current system. So it requires developing a whole new 

way of measuring employee service time and reflecting that accurately in pensions. And so that is a burden actually on the Postal 

Service as well as on OPM to track that accurately and to make 

sure that we are making the proper pension payments. So it introduces complexity into an already complex system where there are 

a number of different arrangements depending on the employee’s 

status. So for us, that will have an impact on the overall claims 

processing system because of the complexity of those particular arrangements. 

Senator HEITKAMP. But you certainly can appreciate how dealing 

with this in a kind of broader context and designing new systems 

would create problems not only administratively but also huge uncertainties for the retirees and for the near retirees that are looking at these plans. 

Mr. FOLEY. We are happy to work with the Postal Service and 

the Committee to try to address those administrative concerns. We 

just feel obliged to point out that in an already stressed system, 

this puts further stress on that system. 

Senator HEITKAMP. Right. I have a question for Mr. Todisco. In 

the Postmaster’s testimony, he indicated his belief that better integrating Medicare with retiree health benefits, the post office would 

be able to virtually eliminate the need for its prefunding requirement. GAO has done significant research on this topic of the health 

plan proposal. Does the research at GAO indicate that the Postmaster is correct in terms of his assumptions? 

Mr. TODISCO. Yes, with a clarification, if I may. The current liability is $94 billion; the assets are $46 billion; the unfunded is $48 

billion. The estimate of the Postal Service’s proposal to go outside 

of FEHBP, it would reduce that liability by $55 billion, thereby 

eliminating the unfunded. The liability would now be less than the 

assets already in the plan. 

There would still need to be prefunding going forward because 

the liability does grow over time as workers accrue additional benefits. And under the Postal Service’s own proposal, they would pro-
408 

pose to prefund going forward, but it would require a much smaller 

level of payment than under the current situation. 

Senator HEITKAMP. And I am just trying to kind of get a handle 

around these numbers. That is even with the 77 percent number 

that Mr. Dicken reported, those same savings. I mean, you have 

taken all that into consideration. 

Mr. TODISCO. Right. Just adding on the other 23 percent and integrating—and adding in Medicare Part D, you get that amount of 

savings. 

Senator HEITKAMP. OK. Thank you. 

Chairman CARPER. Dr. Coburn, did you want to interject something? 

Senator COBURN. Just a followup on Senator Heitkamp’s discussion. If, in fact, FEHBP created separate plans inside FEHBP for 

the Postal Service, would your concerns, the administrative concerns, and the complexity be markedly decreased? 

Mr. FOLEY. Our preference is to work with the Postal Service inside the FEHBP and to do reforms both on the employee side and 

the retiree side. 

Senator COBURN. But you would testify that your concerns would 

be much alleviated if it was inside versus outside. 

Mr. FOLEY. Yes. 

Senator COBURN. The problems that your testimony gives, that 

is as if they go outside of FEHBP. Is that correct? 

Mr. FOLEY. That is correct. I will just point out and feel obliged 

to point out that, a lot of this has to do with the impact on Medicare, and so really there is a conversation with the Centers for 

Medicare and Medicaid Services (CMS) that needs to be brought 

into this. But speaking from the FEHB perspective, we are happy 

to work with the Postal Service on new benefit designs within the 

FEHB. 

Senator COBURN. All right. Thank you very much. 

Chairman CARPER. OK. Let me just run through the order that 

we have. Senator Johnson is next, then Senator Baldwin; after 

Senator Baldwin, Senator Ayotte. Senator Tester has joined us and 

Senator Levin has joined us. 

Senator Johnson, you are next, and then, Tammy. Go ahead. 

OPENING STATEMENT OF SENATOR JOHNSON 

Senator JOHNSON. Thank you, Mr. Chairman. 

Mr. Todisco, let us define ‘‘unfunded liability.’’ My understanding 

of that is it is basically the amount of money you need in the bank 

today to fund future benefits. Correct? 

Mr. TODISCO. That is correct. 

Senator JOHNSON. What is the discount rate you have used in 

calculating that $96 billion in your Table 1 on page 2 of your testimony? 

Mr. TODISCO. That discount rate is actually selected by OPM, 

and I think it is 4.7 or—it is roughly in the 5-percent zone, but I 

do not have the—— 

Mr. FOLEY. That is correct. 

Mr. TODISCO. Thank you. 
409 

Senator JOHNSON. So, again, you would be assuming you would 

have to make a 5-percent return on those invested funds in order 

to fund the future benefits. Correct? 

Mr. TODISCO. That is correct, yes. 

Senator JOHNSON. Are there any investments right now that are 

guaranteeing 5 percent long term? 

Mr. TODISCO. No, there is not. 

Senator JOHNSON. Pretty tough. So, in other words, with a lower 

investment rate, that unfunded liability would be actually higher. 

Mr. TODISCO. That is correct, yes. 

Senator JOHNSON. And there is really no difference between unfunded liability and liability. It is just a liability that you have to 

pay sometime in the future. 

Mr. TODISCO. Well—— 

Senator JOHNSON. I mean, there is really very little difference. 

Mr. TODISCO. Well, there is the liability. When there are assets 

supporting the liability, then the difference between the two becomes the—— 

Senator JOHNSON. Right, correct, OK. I keep hearing that the retirement system, the health care system, has been overfunded improperly. Now, as I am looking at your Table 1 here, what I am 

seeing is basically a $99 billion unfunded liability reduced by a $3 

billion surplus in the FERS system. It does not look like there is 

anything that has been overfunded, I mean, other than you just 

segregate these little funds. And because of the calculation uncertainty of the discount rate, I do not see anything being overfunded 

in this fund. Is that an accurate assessment? 

Mr. TODISCO. It is accurate. Out of the five different items we 

have in that table, the FERS piece is overfunded, but the other—— 

Senator JOHNSON. So, again, explain to me, because I hear all 

kinds of complaints that we have just unfairly made the postal 

workers overfund their pension liabilities and their health care. 

What are they talking about there? I have never understood that. 

Mr. TODISCO. Well, there are different arguments with respect to 

different programs. With regard to FERS, the argument is that 

there is a surplus there; further, that the surplus, if remeasured 

using postal-specific assumptions, would be even bigger. And so the 

argument there is that the FERS—— 

Senator JOHNSON. But, again, that surplus could be wiped away 

by a different assumption in terms of the discount rate. 

Mr. TODISCO. That is correct. 

Senator JOHNSON. And easily wiped away by just a little tweak 

in the discount rate, quite honestly. So there is really no overfunding that you can really put any kind of confidence in whatsoever. It could be just as easily way underfunded based on your discount rate assumption. 

Mr. TODISCO. Well, as we have said, those liability numbers have 

a high degree of uncertainty. 

Senator JOHNSON. Correct. OK. If we go to a different type of 

health care plan, as is being proposed, the testimony is the postal 

system would save $55 billion, $49 billion of that apparently coming at the expense of Medicare. But, again, now we just heard testimony that 77 percent of Postal workers are already in Medicare. 
410 

Did that $49 billion take into account the fact that 77 percent of 

postal workers already are taking advantage of Medicare benefits? 

Mr. DONAHOE. Yes, it does, if they are in Part A and B. Right 

now they are not using the drug benefit in Medicare, so that is not 

currently being used. 

Senator JOHNSON. OK. So, again, if we are taking a look—I was 

kind of like consolidating the books of the Federal Government 

here, so you might be saving $55 billion for the Postal Service, but 

you are increasing the liability to Medicare and some other parts 

of the Federal Government by $55 billion. Correct? I mean, we are 

really just robbing Peter to pay Paul. Or am I missing something 

here? 

Mr. DONAHOE. We certainly report that the largest share of that, 

$49 billion out of that $55 billion, is related to Medicare integration. Much of that is from the Medicare program. Some of that is 

also premiums for Part B by retirees that would be enrolling, and 

some of it would be discounts from drug manufacturers that are 

flowing—— 

Senator JOHNSON. And the remaining $6 billion would probably 

be the reduction in costs to the Postal system primarily because 

you have different actuarial postal-specific assumptions, so it adds 

that kind of 2-percent differential of Postal workers inside the 

FEHB. Correct. 

Mr. DONAHOE. No. I would like to clarify, if I could—maybe to 

put a little light on this. The differential, what causes the overfunding, is the fact that when we do not integrate Medicare, we, 

in fact, pay more for health benefits. The average health benefit 

cost for a Federal retiree that is 65 years old, including a Postal 

retiree, is about $7,000 a year. The Postal Service pays 70 percent, 

the retiree pays 30 percent. In the private sector, a wrap-around 

plan averages somewhere between $4,000 to $4,500 a year. If we 

did that same math, we pay 70 percent, the employee/retiree pays 

30 compensation, there is a differential. 

When you take that and amortize that with a million people over 

the lifetime of those people, that is where the big overfunding is. 

What we are asking for, Senator, is to be able to be treated just 

like anybody else. We are the second largest payer into Medicare. 

We would just like to have integration of Medicare A, B, and D 

paid just like everybody else. That eliminates the $55 billion of 

overfunding. 

Senator JOHNSON. There are certainly private sector companies 

that provide retiree health benefits. Correct? 

Mr. DONAHOE. There are not as many as you would think. 

Senator JOHNSON. But there are some. 

Mr. DONAHOE. There are. 

Senator JOHNSON. So it would certainly be different treatment 

because those individuals are also paying into Medicare—— 

Mr. DONAHOE. Which we are. 

Senator JOHNSON [continuing]. Throughout their working life, 

and then they get employer-provided retiree health benefits. 

Mr. DONAHOE. Which we do. 

Senator JOHNSON. But we are not recommending in this piece of 

legislation to reimburse their Medicare payments, are we? 
411 

Mr. DONAHOE. No. What we are saying—here is what happens. 

What we are saying is reamortize the amount of money based on 

the differential in a wrap-around plan versus the full benefit plan 

that we have to pay OPM. OPM and FEHB do not afford a retiree 

the ability to buy a wrap-around plan. That is what we would like 

to do. We would like to work with them to set that kind of a plan 

up to reduce the overall cost. 

From a Medicare perspective, the cost increase for Medicare on 

a yearly basis would be somewhere between $1 billion and $1.3 billion a year, so you are trading $55 billion in on the overpayment 

for us for a $1 billion cost increase. 

Senator JOHNSON. OK. And I understand that with the Postal 

system, but, again, I think it is important to point out that additional cost is going to be borne within the Medicare system, which, 

according to my 30-year projection, is about a $36 trillion deficit in 

Medicare over the next 30 years. One dollar of payroll tax going in, 

$3 of benefits going out. So, again, I understand how you are responsible for the Postal system, but I think it is important to point 

out from the Federal Government’s standpoint, we are not saving 

anything. 

Mr. DONAHOE. We have no argument—— 

Senator JOHNSON. We are kind of just shuffling—— 

Mr. DONAHOE [continuing]. No argument with that. We agree 

that Medicare needs to be fixed. All we are asking for is a level 

playing field. 

Senator JOHNSON. OK. Thank you. 

Chairman CARPER. Thanks, Senator Johnson. 

Senator Baldwin, welcome. Thank you. 

OPENING STATEMENT OF SENATOR BALDWIN 

Senator BALDWIN. Thank you, Mr. Chairman. And I appreciate 

your providing a number of hearings on the draft legislation that 

you and the Ranking Member have introduced. 

I wanted to ask some questions related to input that I am hearing from my State and my constituents. In some ways these sort 

of changes affect all 50 States in similar ways, and then there are 

unique ways in which they impact States. Wisconsin is actually the 

No. 1 State in terms of paper production, and since what is sent 

around in the mail is usually on paper, we have a real impact. And 

so this legislation affords the Postal Service far more authority in 

setting its own rates above the rate of inflation and without prior 

authorization from the Postal Regulatory Commission (PRC). 

I am wondering, Mr. Donahoe, if you can talk a little bit about 

how you and the Postal Service will be good stewards of this expanded authority, and especially as it affects the paper industry 

and those obviously who rely heavily on your services. 

Mr. DONAHOE. Thank you, Senator. I think that your point about 

paper is very true because 40 percent of paper ends up in the mail, 

and that is why the entire industry from the forestry and the paper 

producers and the printers and logistics providers sees it as critical 

that we resolve this issue, because there are substantial numbers 

of jobs that are affected by what we will decide here in the next 

couple of weeks and months. 
412 

From our perspective, we think that the Board of Governors, as 

we talked about last week, should have the authority to set prices 

because we have the responsibility to manage the organization. I 

think that if you took a look at our 5-year plan, and we have done 

an actual look ahead 10 years, we have never included anything 

more than a Consumer Price Index (CPI)-based price change in 

those plans. We think that there is a balance that must be 

achieved, especially addressing big costs like health care, along 

with some other infrastructure changes that we are proposing 

going forward to keep the Postal Service viable. 

We know that big price increases will dampen the demand for 

mail and hurt not just the Postal Service but the entire industry. 

Our Governors take that to heart, and we agree 100 percent with 

you that is something that must be considered. 

Senator BALDWIN. A century ago, Wisconsin passed the Nation’s 

first workers’ compensation program. Interestingly, it was under 

Governor Robert M. LaFollette, Sr., who at one point was a U.S. 

Senator in the seat that I now have the distinct honor of holding. 

We called him ‘‘Fighting Bob LaFollette.’’ So I know that there are 

a lot of provisions in this draft bill that make very significant 

changes to the Federal Employees Compensation Act (FECA), 

which is obviously relating to workers’ compensation, and that the 

draft bill contains changes not just for the Postal Service workers 

but for workers throughout the Federal Government that result in 

benefit cuts, as I understand it. Under the cuts in the draft, Postal 

workers would receive 22 percent less under the Federal Employees Compensation Act than if they had worked a full career for 

non-postal Federal employees, cuts are around 35 percent, if I read 

this correctly. And I have some strong concerns about this because 

it is my further understanding that this cut does not necessarily 

solve the long-term financial problems of the Postal Service. 

Also in the bill, obviously, there are changes that have been proposed in the prefunding of retiree health care plans from 100 percent to 80 percent. I think that is a step in the right direction. But 

I have heard from actuaries that we could go further, and I have 

heard perhaps as low as 30 percent, which would put the Postal 

Service on a path to sounder financial standing. 

So I guess the question is: Why would we go in the direction of 

cutting Federal employee workers’ compensation benefits when the 

Postal Service actual financial problems can be better solved by 

further reducing the prefunding of the retiree health care? I want 

to ask that of you, Mr. Donahoe. 

Mr. DONAHOE. OK. Thank you, Senator. A couple things on workers’ compensation. First of all, I think it is important. Safety is a 

critical issue for the Postal Service. We have worked very well with 

the unions and the Department of Labor (DOL) over the last number of years to improve on that. Our illness/injury rate has dropped 

more than 50 percent. We are very proud of that. We have been 

very active—as a matter of fact, before the last couple of years, we 

were the No. 1 what is called the Voluntary Protection Program 

(VPP). It is the Occupational Safety and Health Administration 

(OSHA) VPP process that really recognizes people for having a safe 

workplace. We cannot agree any more strongly that the workers’ 
413 

compensation issues are a major issue. We do not like to see our 

employees get hurt. 

One of the things that we are faced with, though, is a liability. 

You heard the gentleman from the GAO mention that we have outstanding liabilities. Our liability for workers’ compensation right 

now is $16.5 billion, and we have 16,000 people on the workers’ 

comp rolls. It would be in our best interest from a Postal Service 

perspective to do a couple things. 

No. 1, be able to reemploy these people. Many of them would like 

to come back to work, and we need to find jobs that they can do, 

and it certainly would help us. 

The other issue—and I think this is what is being addressed by 

the bill itself—is we have to find a way for a person to move off 

the rolls. We have people right now in their 80s and 90s, we have 

a couple people over 100 years old still on workers’ compensation. 

And there is no real incentive to leave that, and I think that is 

being addressed by the bill. 

But the key thing is accident reduction, do not let people get 

hurt, keep them safe. 

Senator BALDWIN. I know I do not have a lot of extra time, but 

let me just try to add one more comment. You can react to if, you 

please. 

I have heard certainly from Postal workers in Wisconsin some 

concerns as we look at the staffing overall of the Postal Service 

that it is management heavy. And, I understand that you look at 

that in terms of ideals, management to craft employee ratio carefully and have ideal levels. I would just say in terms of optics we 

just had over the August work period an announcement of a closure of, at least, origination mail processing in my home town of 

Madison. Fifty-four employees were told that their jobs would be 

phased out and that the operation would move to Milwaukee at the 

same time as an announcement of three additional management 

staff being added to the same operation. So 54 are leaving, 3 management being added. Optics, it did not look very good. 

Mr. DONAHOE. I would like to respond to that. Optics does not, 

and that is not something I stand for whatsoever. 

In the last 5 years, the Postal Service has reduced the head 

count by 205,000 people. American Postal Workers Union (APWU), 

the clerks union, has taken the largest hit. They have had a reduction of 37 percent. Management is at 32 percent. I take it very seriously that we do not pad management ranks. It is my feeling that 

our employees do the work every day; there is no reason why all 

of us should not be under the same requirements for change. We 

have not taken raises. We have not taken bonus money, pay for 

performance, anything like that. 

In terms of the rest of the crafts, mail handlers, letter carriers, 

rural carriers have taken a smaller impact, but, of course, with the 

route structure that we have today, you would expect that. But we 

are very serious about it, 32 percent, and I will look into the numbers up there in Madison. 

Thank you. 

Chairman CARPER. Was there a time not long ago where senior 

management did not contribute to their health care coverage? 
414 

Mr. DONAHOE. We did not at one time, and this year we are contributing about 28 percent. 

Chairman CARPER. Good. Thanks very much. 

All right. Next up, Senator Ayotte, and then Senator Tester. 

OPENING STATEMENT OF SENATOR AYOTTE 

Senator AYOTTE. Thank you, Mr. Chairman. 

I wanted to followup, Mr. Dicken, on the question that Senator 

Johnson asked, because it just was not clear to me. Obviously, we 

are concerned about the fact that Medicare is scheduled to go bankrupt in 2026, and that this is a very important issue that needs to 

be addressed by the Congress as a whole to preserve Medicare for 

future beneficiaries and those who are going to rely on this important program, and also for fiscal responsibility and sustainability. 

So do we know at all, if we do this proposal with the implementation of the Postmaster General’s plan, do we have any numbers of 

what the impact would be on the solvency of Medicare? 

Mr. DICKEN. What we do know based on the Postal Service’s proposal that we examined, and their estimates, is that for the first 

5 years, the average increase in costs to the Medicare program 

would be $1.3 billion. That is the annual increase. That is a fairly 

small share of overall Medicare spending, which is over $550 billion a year, but it certainly needs to be weighed given that both 

programs are facing long-term fiscal sustainability issues. 

Senator AYOTTE. And also with 44 percent of the Postmaster 

General’s savings for 2016 coming from the Postal health plan, if 

enacted, this would be, I think, one of the largest determinants, if 

we adopt this proposal, of the postal health, financial health. And 

are there examples of similar withdrawals from FEHBP—I love 

acronyms in Washington—or restructuring? And what lessons can 

we take from those other examples to include in this proposal to 

make sure that this is successful? Have we done something like 

this before in another context that we can use as an analogy? 

Mr. FOLEY. There have not been withdrawals of this scale. There 

were withdrawals in the late 1980s and in the Federal Reserve and 

the Federal Deposit Insurance Corporation (FDIC). They returned 

to the FEHB in the late 1990s. It was a relatively small impact, 

but it was somewhat disruptive to have that in and out—— 

Senator AYOTTE. So they got out, and then they got back in? 

Mr. FOLEY. Exactly. 

Senator AYOTTE. Is it because it did not work or is it because 

they did not realize the savings that they thought or for whatever 

reason they got out? 

Mr. FOLEY. They have separate authority to get out. I was not 

there at the time, but my sense was that they thought that they 

could strike a better deal with insurance companies by moving out. 

And that turned out not to be the case. 

Senator AYOTTE. And so how confident are we that we can strike 

a better deal here? 

Mr. DONAHOE. I think that we can. I think that when you bring 

a force of 1 million people to the marketplace, you have a lot more 

impact. I think that the reason the FDIC—and we will research 

this for you—went back was because they were faced with having 
415 

to prepay retiree health benefits, and so they turned around and 

went back into the plan so they did not have to prefund them. 

But in our case, we have a million people, retirees and currents. 

We would be the largest single insured organization in this United 

States. We think that between either a plan with one provider or 

a set of providers, we would have the ability to force competition. 

Now, that said, we also have said in my testimony that we are 

perfectly willing to work with FEHB and carve out, as you would 

say, maybe a set of our health benefits plans. The unions and the 

Postal Service have worked, and we have identified about 16 plans 

that have over 90—it is probably about 95—percent of our employees. If we took them and if we competed that and if we required 

those plans to provide the wrap-arounds for our retirees, it would 

answer the same issues that we are looking for right now. There 

are ways forward, plenty of options. We are not steadfast on one. 

Senator AYOTTE. So we are talking about if we take the Medicare 

piece, what does that do to Medicare, so it is a shifting of Federal 

dollars that Senator Johnson talked about as well. So if you get out 

of FEHB and then you go out on your own, you have a million people, do we have any sense of whether that drives up the costs in 

FEHB? In other words, are we going to be shifting on that end? 

Have we done any numbers on that? Do we have a sense of—as we 

look at the big Federal picture here that we are responsible for? 

Mr. DONAHOE. Sure. I think that both the GAO and the OPM 

have already commented on that. Do you guys want to—— 

Mr. FOLEY. Yes, and it really depends on which population is 

taken out. The Medicare A and B population by carving them out 

has a 2-percent impact, increase in the premiums for the remaining 

FEHB population. So that was what I was speaking to in my testimony. And GAO can speak for themselves. The analysis they did 

was based on a slightly different proposal, so the impact was different. 

Mr. DICKEN. And certainly when we looked at pulling entirely 

the Postal employees and retirees out, overall, even though that is 

a large percentage, 25 percent of current enrollment in FEHBP, the 

effect was modest for most plans that we talked to. The plans indicated that there might be small premium changes, increases in—— 

Senator AYOTTE. So, in your opinion, if you are looking at the 

Federal Government as a whole, is it a net gain—in other words, 

a savings I meant to say. 

Mr. DONAHOE. From a Federal Government—— 

Senator AYOTTE. From a whole of Federal Government perspective. 

Mr. DONAHOE. What I would tell you would be the whole Federal 

Government should compete their health care plans, instead of sitting with what we have with 200 health care plans that are not 

competed today. And I would tell you the whole Federal Government should take the same approach with the wrap-around, because the difference with us is this: Ratepayers pay our funds. Taxpayers pay for the rest of the government. That is why we have insisted we should be treated like a private entity. We are already— 

from a Medicare perspective, 92 percent of our employees use Medicare A who are 65 or older, 77 percent use Medicare B. That is why 

it is not such a big hit on Medicare. We are paying for D. We do 
416 

not have the access to it. All we are saying is this resolves a substantial portion of our problem for the Postal Service. It also protects our ratepayers because they are much more like a private sector company than the rest of the Federal Government. 

Senator AYOTTE. And I know that my time is up, but just on the 

ratepayer issue that I know others have asked you about as well, 

with the drop in volume—and I know that is why you are here so 

that we can make reforms that are appropriate to protect ratepayers, but also to make sure that people get service and the Post 

Office continues to thrive. Do you think that one of the issues when 

you look at the financial piece of this here, you have $63.5 billion 

in unfunded health and pension liabilities, and so as we look forward, a lot of it we are talking about, OK, we are going to put a 

bunch of it on future ratepayers as well. And so how do we look 

forward toward—given the drop in volume we have seen, there are 

a lot of businesses that are relying on the Post Office as well. I 

mean, how do you view our ability to balance that? And I think 

that is a really big concern that many of us have of making sure 

that, yes, you do run it like a business, and in order to run a business, you would also make sure your customers are still there for 

you. 

Mr. DONAHOE. That is a key critical issue. That is why we are 

here. Addressing the long-term health of the Postal Service is critical for a very large industry, and we have to get this resolved now. 

We have to get it done right. So resolving the health care, making 

changes in our infrastructure, moving from 6-day to 5-day, making 

some changes as we have done with our unions, working through 

and having more non-career flexible people in the workforce, we 

have made some proposals on long-term retirement changes. We 

think that we have an excellent 5-year business plan with a 10- 

year look ahead that puts the Postal Service on very sustainable, 

firm ground for the next 10 years. 

The key issue here is to resolve this so that from a Postal Service 

perspective and an industry perspective we can start to innovate 

and grow this industry. The mail is still the best way to get in 

front of somebody’s eyes if you are sending a message, much better 

than the Internet, much better than any other way, because it is 

the most direct way to get there. So resolving this and getting back 

on growing this industry is critical. 

Senator AYOTTE. And doing nothing is essentially, let us just let 

it go to bankruptcy, right? So we need to—— 

Mr. DONAHOE. That is why we are here. 

Senator AYOTTE [continuing]. Get this done, is your message, 

right? 

Mr. DONAHOE. You will never hear me say, do nothing. I mean, 

I probably do not have a lot of friends in Washington, but the issue 

is trying to make these changes so we can grow a very important 

industry and keep it healthy going forward. 

Senator AYOTTE. Thank you. I appreciate all of you, and I know 

that this is not an easy problem that you have been asked to solve, 

so we appreciate that you are taking on these hard questions. 

Chairman CARPER. I am Tom Carper, and I agree with that message. [Laughter.] 
417 

And I am anxious to hear Senator Tester, his comments and his 

questions. Jon. 

OPENING STATEMENT OF SENATOR TESTER 

Senator TESTER. Thank you, Mr. Chairman. 

I guess this question is either for Mr. Todisco or Mr. Dicken, and 

it goes back to the questioning that Senator Johnson asked. There 

is a $49 billion additional liability to Medicare if the changes are 

made to FEHBP. I believe you said that, Mr. Dicken. Is that correct? 

Mr. DICKEN. That $49 billion of the financial gains to the Postal 

Service are for the more full integration with Medicare. That is 

composed of costs to the Medicare program, additional premium 

payments from Medicare Part B, as well as drug payments to drug 

manufacturers. 

Senator TESTER. OK. So I will ask it again, and you tell me what 

the figure is, if it is not $49 billion. If the plan is implemented, 

there is a $49 billion liability to Medicare. And if it is not $49 billion, just tell me what the number is. 

Mr. DICKEN. Indeed, the $49 billion offset, that is coming from 

different funding streams through the Medicare program, some 

through the trust fund, some through savings in the drug benefit, 

some through premiums from beneficiaries. 

Senator TESTER. OK. 

Chairman CARPER. Could we just drill down on that for a moment? Let us go to other folks on the—I was thinking it was about 

$900 million a year, is my recollection. But, Postmaster General, 

can somebody else—— 

Mr. DONAHOE. I think that the increase in the liability, Senator, 

to Medicare from our estimates and what we have shared with the 

GAO would be about $1 billion in year one and then $1.3 billion 

from there, because if you remember, a substantial number of our 

people already use Medicare, so the transition of those last ones 

would not really hit Medicare a whole lot harder. 

Senator TESTER. OK. So—— 

Chairman CARPER. Dr. Coburn—— 

Senator TESTER. Go ahead. 

Senator COBURN. Let me add one other comment. 

Chairman CARPER. This will not come off your time, Jon. 

Senator TESTER. That is good. 

Senator COBURN. This differential is in the difference of what the 

post office could buy the exact same coverage with a wrap-around— 

no, but most of these savings—$1.3 billion a year, you multiply 

that times 30 years, that is $29 billion. 

Senator TESTER. That is real money. 

Senator COBURN. OK. That is real money. But most of the savings comes from the difference in purchasing the exact same thing 

from purchasing a different way. There is no question we add to 

the liability of the Medicare program. 

Senator TESTER. And that is the number I want to get, and—— 

Senator COBURN. And that is $1.3 billion a year. 

Senator TESTER. And I think we are talking to the GAO folks. 

I mean, you guys know this stuff, right, inside and out? 

Senator COBURN. It is their testimony. 
418 

Senator TESTER. Yes. So where did the $49 billion figure come from? Is that the total liability of the $1 billion per year initially 

and 1.3 years after that? 

Mr. TODISCO. No, it is not. There are two figures out there as you have identified. The $1.3 billion is the annual increase in Medicare 

costs over the next 5 years. The $49 billion is a reduction in the 

Postal Service liability. That liability is a present value of payments going decades into the future. And the $49 billion consists 

of increased costs to Medicare as well as other elements such as 

participants paying Part B premiums, as well as discounts from the 

pharmaceutical industry from the Part D program. 

Senator TESTER. Do you have a breakdown on that, by the way? 

Mr. TODISCO. We do not have a breakdown on that. 

Senator TESTER. Would it be a lot of work to get that breakdown? 

Mr. DONAHOE. We can give that to you. We have a breakdown. 

Senator TESTER. OK. I would like to do that. Thank you. 

Postmaster General Donahoe, last week I asked you if the post 

office would be closing post offices and processing centers while this 

debate of this current bill was going on, and you said, ‘‘No, we have 

done what we need to do for the year.’’ Yet just this week, I have 

heard about more closures. I mean, basically what I want to know 

is what do you mean? There have been more closures or consolidations, so what did you mean when you said, ‘‘We have done what 

we need to do for the year’’? 

Mr. DONAHOE. Here is where we are right now: For fiscal year 

2013 that we are in, we had a series of plants that we were consolidating. We also had a set of what we call stations of large post offices that we were either consolidating or moving. And then we are 

working through what is called the Post Plan, which is the smaller 

post offices moving to part-time hours. We are finishing that up for 

this year. 

When you asked me would we advance anything from next year 

in, I said no, we would not, and we would not do that. The Post 

Plan has been an ongoing plan. That is where we have been reaching out with the local people. Plants, we would not make a change. 

Senator TESTER. And that plan goes through the end of this calendar year? 

Mr. DONAHOE. The Post Plan will go to the end of next fiscal 

year, which will be September 2014, and that is the small offices 

transitioning. 

Senator TESTER. So what you are saying is through September 

2014, next year, there are already things in motion that are going 

to close down processing centers and post offices. It is already in 

there. I am not talking about reduction of hours, just closures. The 

processing centers and post offices. 

Mr. DONAHOE. OK. 

Senator TESTER. And that plan goes through the end of September of next year, a year from now. 

Mr. DONAHOE. Reduction of hours in small post offices is scheduled, and that is moving through. We are finishing up consolidation 

of plants now in fiscal year 2013. We will finish that before the holiday season. The ones that we have on target for next year—we 

have some starting in February, March, April of next year—those 

are the ones that I told you we would not advance. Where we are 
419 

right now, we will freeze any of those in 2014 pending the outcome 

of the legislation and just finish up what we have now, because 

these take time. If you want to do them right, you have to be very 

careful—— 

Senator TESTER. There is no ifs, ands, or—— 

Mr. DONAHOE. You have to do it the right way. 

Senator TESTER. No ifs, ands, or buts about that, Postmaster 

General. I just want to know what we are doing, OK? And I still 

do not know. So the question is: At what point in time are your 

plans to stop closures going to stop? OK? So is it the 1st of December of this year? Is it the 1st of January next year? Or is it the 

end of September next year? 

Mr. DONAHOE. Let us walk through; there are three streams, 

OK? 

Senator TESTER. OK. 

Mr. DONAHOE. Start with the smallest ones first. We have about 

6,000 small post offices that we are in the middle of transitioning 

from 8 hours—— 

Senator TESTER. Reduction of hours. 

Mr. DONAHOE [continuing]. Or 6 hours, down to 2, 4, and 6. 

Senator TESTER. OK. 

Mr. DONAHOE. That will continue to go through. We are trying 

to do that in a very organized manner so it does not disrupt customers. The other thing we are trying to do is make sure that our 

employees have a landing spot coming out of that. So that is one. 

Senator TESTER. That is fine. 

Mr. DONAHOE. The second one is in some of the larger cities we 

have excess facilities, we have excess space. 

Senator TESTER. OK. 

Mr. DONAHOE. We are in the process of moving those around to 

get rid of excess space. That is the second. 

Third are plants. So we are finishing up some plants right now. 

That will be done for the year before the holiday season, so that 

will finish up in November. 

We have additional ones scheduled for next year. Those are the 

ones I told you would not be advanced into this year. We will wait 

and see what happens with legislation. 

Senator TESTER. Got you. OK. Is it possible to get that list of—— 

Mr. DONAHOE. Sure. We will come over and go through that with 

you. 

Senator TESTER. Thank you very much. 

I just want to clarify something else that came up in last week’s 

hearing and just correct me if I am wrong. I think that you stated 

it is your belief that under the current contract an arbitrator cannot consider the financial health of the United States Postal Service. 

Mr. DONAHOE. I misspoke. What I should have said was that 

they can consider it, but they are not required by law not to consider it. I think that is where I misspoke. 

Senator TESTER. OK. 

Mr. DONAHOE. OK? I think that we clarified that for the record 

already, Senator. My people said, ‘‘I think you said the wrong 

thing.’’ 
420 

Senator TESTER. Not that we ever make mistakes, so, yes, because I think the last three arbitrations there was a lot of financial—— 

Mr. DONAHOE. Oh, yes, absolutely. 

Senator TESTER [continuing]. By the Postal Service. 

Mr. DONAHOE. There is no requirement, but yes. 

Senator TESTER. Thank you. 

Thank you, Mr. Chairman. 

Chairman CARPER. I am going to come back to you, Postmaster 

General, for something, but before I ask you, let me telegraph my 

pitch. I want you to again just lay out—you are good at this. I just 

said to Dr. Coburn, I said, ‘‘The Postmaster is pretty good at explaining this stuff,’’ so I am going to give you a free, clear shot just 

to explain again what we are trying to do with respect to Medicare, 

what we are trying to do with respect to FEHBP, and what we are 

trying to do with FERS and so forth, just to kind of go through 

that. And then refer to some of the concerns that have been raised 

about that path forward, all right? And then rebut those. That is 

what I am going to ask you to do. 

Before we do that, I want us to keep this in mind. As important 

as the health care issues are to the long-term solvency of the Postal 

Service, it is not the whole ball game. As important as Medicare 

is, the prepayment for the retiree benefit, that is all important. As 

important as the FEHBP coverage is, Medicare A, B, D, all that is 

important. But let me just put it in context. Context includes last 

week’s discussion. Context includes how do we enable the Postal 

Service to take this legacy organization, this legacy distribution 

system, and in the 21st Century make money with it? How do we 

do that? Is there a way to do it delivering mail 6 days a week? If 

there is, what do we have to do with respect to pension obligations? 

What do we have to do with respect to health care, with Medicare, 

and all that? That all kind of works together. 

The Postal Service has done I think good work, I think humane 

work with respect to reducing distribution centers—and that is a 

big deal—from 600 to, gosh, 325 or so. And in our bill, we just basically say, OK, let us hold it there for now. 

Great work has been done I think in a humane way with reducing the head count from 800,000 employees a decade or so ago 

down to under 500,000, in a humane way. 

So all that has been done or is well on the way toward being 

done. So it is not just about health care. It is not just about Medicare. It is not just about pensions. But we need to do really something responsible, humane, and effective in all those areas if we are 

going to be successful in closing this $20 billion bogey. 

All right. General, that is the setup, and then the question is— 

hit us with your best shot. Make the case for the kind of reforms 

that we are talking about, that you are suggesting, that Dr. Coburn 

and I are trying to include in our legislation. Any criticism that you 

have heard that you would like to rebut, please do that. Thank you. 

Mr. DONAHOE. Well, thank you, Mr. Chairman. Let me start, if 

I could, with health care. We feel it is our responsibility to prefund 

health care if we expect to keep it as a benefit. That is our responsibility, so you have never heard us say we should not do it. You 
421 

have never heard us say that we should walk away from that. We 

have to resolve the problem. 

I think it is critical that people understand what the drivers are 

in this whole area. Our plan is to integrate Medicare because we 

think that we have paid into Medicare, it should be integrated, because our revenues are based on ratepayer revenues, not taxpayer 

revenues. So there are a couple key numbers that you have to consider. 

No. 1, a retiree from the Postal Service at age 65 pays an aver- age of about $7,000 a year for a health care plan. That is the total 

cost, us and them. And that goes across the board, and that is done 

every year—this person makes that payment. 

The second thing is we are the second largest payer into Medicare, the Postal Service is, and we, unfortunately, are not able to 

take full advantage of that payment into Medicare because of the 

lack of requirements to use those benefits. So, A, we have 92 percent; B, we have 77 percent. By law we cannot use D. 

The third thing is this: In the private sector, an average health care cost plan is somewhere between $4,000 and $4,500 a person. 

That differential is what is driving all of this cost. So when you 

look at the long-term with that differential, and resolving that it 

cuts in half the health benefit payment into the prefunding that we 

need to make—if we can resolve that issue, if we can integrate 

Medicare and use that system that we have paid into and get the 

right health care payments based on what our ratepayers should 

be paying, we for all intents and purposes eliminate the need for 

any further prefunding. We will, therefore, be overfunded into 

FERS, within $16 billion funded into a $200 billion Civil Service 

Fund, we will be fully funded into the retiree health benefit, and 

that puts us in an excellent position going forward. The going forward is a critical thing. 

If you look forward in this organization, paper, over time, will 

start to disappear. That is why we have been so active in the package business. We know there are big opportunities there. We are 

not giving up on paper, but we know that if you take a long look 

on this, we will have issues going forward. And so that is why it 

is critical for us to resolve a number of these other issues. 

Getting the FERS payment resolved is also critical. All we are 

asking is paying our fair share. We overfund FERS right now by 

about $300 million a year. We have overfunded into that a little 

bit over $6 billion. We would like to take the $6 billion back and 

put it against our debt. That almost cuts our debt in half. 

Our goal in terms of debt is to be debt free by 2017 so that as 

we have declining volumes—and we project about 5-percent firstclass decline in a year for the long term—we will be in good shape 

going into 10, 15 years out in a debt-free environment. 

Other critical areas that we do need help is flexibility in terms 

of pricing and governance around what we do with products. We 

think that there are big opportunities still in the mail. It has to 

be affordable. We think there are big opportunities in the package 

business. It has to be affordable. We know that. But you also must 

act quickly. That is why we have asked to give us after-the-fact review instead of this laborious process that we have to go through 

still from a rate case. 
422 

We had to file yesterday in order to make a rate change in January. I mean, we buy fuel every day, and the person changes the 

price with the flick of a switch. That is not a good environment to 

be in if you are trying to fight for your lives. 

The other key critical issues going forward is the ability to use 

the Postal Service, our resources, like our post offices, like our law 

enforcement, to play a key role—not competing with the private 

sector—but playing a key role in digital going forward. We talked 

about that last week. That is also in your bill. 

We fully support what is in your bill. We think it is very good. 

What we are looking for is just a little bit more clarity around the 

Medicare integration, and I think that will get us over the finish 

line. 

Chairman CARPER. Well said. Thank you very much for that explanation. Dr. Coburn. 

Senator COBURN. Just a little history on Medicare. When Part B 

was started, it was to be a 50–50 payment differential between the 

participant and the government. We are at 25 percent. 

Now, on average, the average couple pays in $110,000 for Medicare during their working lifetime and takes out $330,000. Senator 

Johnson has raised the concerns, about this unfunded liability’s impact on Medicare, and I understand why we would want to look at 

the whole picture. But the fact is that fairness plays a role. There 

is not anybody else out there that cannot take advantage of Medicare if they paid into it. And what the Postal Service is saying is 

if we can provide exactly the same thing to our employees that they 

are getting today, at $2,800 per retiree per year cost difference, 

then we ought to be allowed to be able to do that. 

Now, that is a lot of money in terms of their cash-flow, and that 

is giving an equal service, not a poorer service, an equal service to 

their employees. 

So what we have to do is, as Senator Carper said, how are we 

going to look at all these pieces and try to come up with something 

that gives us long-term viability of the Postal Service, and that is 

the real issue. 

I have a question for you, Mr. Postmaster. One of the things that 

has really concerned me is the Department of Labor has recently 

suspended the transfer of the Federal Employees Compensation 

Act data to you all, which is crucial to ensuring your program integrity and good service to your employees. Can you please describe 

to the Committee the impacts that the Department of Labor’s decision is having on you as an entity and also on your employees? 

Mr. DONAHOE. Thank you, Doctor. The suspension is a problem 

for us. As I mentioned to Senator Baldwin before, safety is critical, 

and we are very proud of the fact that we have reduced the illness/ 

injury rate by 50 percent. However, we have 16,000 people on 

workers’ compensation periodic rolls right now, and it has been our 

goal and it is consistently our goal to try to get them back to work. 

And part of the back-to-work process involves working with doctors, it involves working with our unions, it involves working with 

many people, and sometimes outside people, because we have actually placed people in jobs outside the Postal Service. 

The fact that everything is moved back to paper now is a major 

problem because it makes it much harder in terms of moving that 
423 

information data around. I think there were some concerns about 

privacy. We have always taken the utmost care to protect the privacy of any individuals, and we will continue to do that. And we 

look forward—I have written the Secretary a letter—I would like 

to go up and sit down with him and work through this because it 

is in our best interests to get people back to work. We have a $16.5 

billion liability in workers’ compensation, and we have to address 

it, and the best way to address it is get people back to work. 

Senator COBURN. Yes, and a specific problem as far as you cannot get the case numbers, one. 

Mr. DONAHOE. Yes. 

Senator COBURN. Your injured workers have tripled, with thirdparty billing and medication. Subrogation of claims data, you cannot get that. 

Mr. DONAHOE. Right. 

Senator COBURN. And you cannot get any case verification or inquiries. 

Mr. DONAHOE. No. 

Senator COBURN. All right. Mr. Foley, I had one other question. 

In your testimony, you said that the overall management cost of 

FEHBP is 0.8 of 1 percent. Is that the management cost inside the 

government, or is that the management cost including your major 

contractor who runs this program? 

Mr. FOLEY. OPM runs the program. We have health plans that 

incur administrative costs, and that is built into their premiums. 

But the number I cited was reflective of OPM’s costs. 

Senator COBURN. So that includes the management costs of the 

health plans that run this program, that 8—— 

Mr. FOLEY. No, it does not. 

Senator COBURN. What is that figure as a percentage of the total 

cost? 

Mr. FOLEY. It varies by plan. The larger plans are between 5 and 

6 percent, the large national fee-for-service plans. The smaller 

Health Maintenance Organizations (HMOs) are between 10 and 15 

percent. 

Senator COBURN. All right. Thank you. I think I will submit the 

rest of my questions for the record so we can get to the next panel. 

Chairman CARPER. OK. Fair enough. Senator Johnson, please. 

Senator JOHNSON. Just a couple quick ones. 

First of all, so my questions are not misinterpreted, I have a 

great deal of respect for Tom-squared here in terms of what they 

are trying to do, and, Mr. Postmaster General, if it were up to me, 

I would set you free. I am incredibly impressed with what you are 

trying to do and the challenges you face. 

Just kind of getting back to the whole Medicare issue, talking 

about 77 percent of Postal employees already taking advantage of 

Part A and B, whatever that is, do we know a calculation of what 

it costs Medicare currently on an annual basis? 

Mr. DICKEN. I do not think we have a breakout for Medicare 

costs for Postal employees—— 

Senator JOHNSON. Do you think it is more than $1.3 billion that 

we would be saving annually? I mean, are there—in other words, 

the Postal employees are already into Medicare for $5, $10 billion 

a year. I am just trying to get some sort of sense there. 
424 

Mr. DICKEN. We do not have the number, but given that is the 

majority of the postal retirees, that would be a larger cost. 

Senator JOHNSON. OK. That would be something I would like to 

find out. It is kind of a key point. 

Mr. Donahoe, can you tell me, why is there such a big difference? What is the difference between the $7,000 and the $4,500 in terms 

of a Postal Service person, a retiree at the age of 65 versus the private sector? 

Mr. DONAHOE. Sure. 

Senator JOHNSON. Is it more generous benefits? 

Mr. DONAHOE. First, Senator—no. It is not that at all. I think 

that if you asked Mr. Foley, he could tell you that there are no 

wrap-around plans available right now within FEHB. There has 

never been an incentive to actually encourage people to use the 

Medicare wrap-around because, from a taxpayer’s perspective, that 

would be considered a shift of costs from another Federal agency 

onto Medicare. From our perspective, the fact that our ratepayers 

pay our way, we look at ourselves much more from a private sector 

perspective. And so what we are saying is rather than paying a 

higher-priced FEHB plan, we would much rather have the lower 

price than have the accounting and the actuarial numbers go 

against that number like—— 

Senator JOHNSON. But basically the $7,000 pays for the entire health care cost where the $4,500 is a wrap-around plan around 

Medicare. 

Mr. DONAHOE. Right. It is inefficient. We are paying for more 

than we need. You do not need a big—— 

Senator JOHNSON. No, I understand, but so really you have less value in terms of what the $4,500 is buying than—— 

Mr. DONAHOE. The $4,500 pays for what you need. What you end 

up doing, it would be like—it is like throwing $3,000 down the 

drain. 

Senator JOHNSON. OK. Let me go back to GAO. Do we know the 

total value paid by postal workers into Medicare today, the total 

value? Is it $50 billion? Is it $100 billion? 

Mr. DICKEN. I believe the Postmaster General gave you what—— 

Mr. DONAHOE. $27 billion. 

Senator JOHNSON. $27 billion to date? OK. That is really all I 

have Mr. Chairman. Thank you. 

Chairman CARPER. It is $27 billion per—— 

Mr. DONAHOE. That is since inception. 

Chairman CARPER. Day, week, month, year? 

Mr. DONAHOE. Total since 1983. 

Chairman CARPER. OK. All right. 

Senator JOHNSON. Let me just clarify that. My understanding, 

that is the amount of payroll taxes paid by postal employees into 

the Medicare system from its inception of Medicare to date? 

Chairman CARPER. No, I do not think so. Can—— 

Senator JOHNSON. OK, well, as long as they have been doing it, 

then. OK. 

Chairman CARPER. Let us just make sure we get a correct answer to all of us on the record. OK? On that question. 

Mr. DONAHOE. Can I ask a clarifying question? 

Chairman CARPER. Please, sure. 
425 

Mr. DONAHOE. Do you want to get that from the GAO or from 

us? 

Chairman CARPER. Both. 

Mr. DONAHOE. OK. Will do. 

Chairman CARPER. And then we will compare. 

Senator COBURN. Let us get it from both so we can see where the 

discrepancy is. 

Chairman CARPER. All right. I asked Dr. Coburn if he had any 

more questions, and I think not, nor do I, not for this panel. It has 

been a real good conversation and given us some great input, and 

some clarification is still needed. 

One of the questions I have is for you, Postmaster General. It 

sounds like there needs to be a conversation between you and the 

Secretary of Labor on the workers’ compensation issues, some of 

the FECA matters. Can we be helpful there in facilitating a good 

conversation, we want to be helpful. 

With that having been said, we are grateful for your testimony, 

for your work, and look forward to continuing to work with you 

to—if it is not perfect, make it better. We know what we have introduced is pretty good. We think it is. We know it is not perfect. 

We want to make it better. Thank you very much. [Pause.] 

I am going to ask the second panel to take their seats, please. 

I would ask the audience to help us restore some order here. 

Gentlemen, welcome. How many of you were here to hear the 

testimony and the questions for the first panel, raise your hand. It 

looks like everybody was. Good. Thank you for doing that. Almost 

everybody was. 

I am happy to see the Postmaster General and Deputy Postmaster General are remaining for the second panel. I think that is 

very helpful. That is something that Dr. Coburn has always suggested. I am glad you are doing that. But let us welcome our second panel. 

Our first witness on panel two is Fredric Rolando. I love to say 

that name. Mr. Rolando has served as president of the National Association of Letter Carriers (NALC) since 2009. His own career as 

a letter carrier has spanned three decades dating back to 1978. 

Next we have John Hegarty. Mr. Hegarty is national president 

of the National Postal Mail Handlers Union (NPMHU), a position 

he has held since 2002. 

Our next witness is Bob Rapoza, and Mr. Rapoza has been the 

president of the National Association of Postmasters of the United 

States (NAPUS) since 2010, and he told me earlier today that he 

is going to turn that post over to his successor in the not too distant future. But it has just been a real pleasure working with you, 

sir. 

Next we have Douglas Holtz-Eakin. Mr. Holtz-Eakin has served 

as president of the American Action Forum. Prior to his current position, Mr. Holtz-Eakin served as Commissioner on the Financial 

Crisis Inquiry Commission and led the Congressional Budget Office 

(CBO) as its sixth Director from 2002 to 2005. Doug, it is great to 

see you. Welcome. 

And, finally, Dean Baker. Mr. Baker currently is the co-director 

of the Center for Economic and Policy Research, a position he has 

held since 1999. Dr. Baker, good morning. 
426 

1The prepared statement of Mr. Rolando appears in the Appendix on page 489. 

Your entire statements will be made part of the record, and we 

will ask you to summarize as you see fit, and we are just glad you 

are here. Welcome to this conversation and the conversations that 

will follow. Thank you. Mr. Rolando. 

TESTIMONY OF FREDRIC V. ROLANDO,1 PRESIDENT, 

NATIONAL ASSOCIATION OF LETTER CARRIERS, AFL–CIO 

Mr. ROLANDO. Thank you, Chairman Carper and Dr. Coburn and 

the rest of the Committee, for the opportunity to testify today on 

behalf of the 270,000 members of the NALC. My name is Fred 

Rolando. I am a letter carrier from Sarasota, Florida, currently 

serving as the president to the NALC. 

I would like to cut right to the chase because the 7 minutes went 

down to 5, it looks like. 

Chairman CARPER. Take 7. 

Mr. ROLANDO. While we appreciate very much your hard work in 

putting together S. 1486, we feel that the bill fails to permanently 

address the primary cause of the current financial crisis: The 

unaffordable mandate to prefund future retiree health costs. 

This unique mandate is responsible for 80 percent of the losses 

incurred since 2007 and 100 percent of this year’s reported loss. Instead, the bill offers a 3-year moratorium and a new system of 

prefunding payments that will be greater after 2015 than they are 

today, at which time the Postal Service will again default. 

That inadequate prefunding proposal, combined with the prospect of large postal hikes, the elimination of Saturday mail delivery 

and business door delivery, the phase-out of household door delivery, and the promotion of a morale-killing two-tier postal workforce 

would drive the Postal Service into a death spiral. 

Although these proposals are intended to protect taxpayers 

should the Postal Service fail, we feel the bill would instead lead 

to the failure of the Postal Service, ensuring that taxpayers are left 

on the hook, while damaging the mailing industry and the U.S. 

economy. 

As we meet today, the Postal Service is not in a free fall. Its pensions are nearly fully funded, even with the unfair accounting 

methods that are in place. We have amassed $49 billion for retiree 

health that we have no access to. The Great Recession is over, and 

the Internet is creating new business for us, not just diverting it. 

The Postal Service has returned to operational profitability this 

year so far. 

Thanks to the hard work and the sacrifice of postal employees, 

who endured huge job cuts and painful concessions in the last 

round of collective bargaining, and to the surging package revenues, the Postal Service made $660 million in the most recent 

quarter—a profit that, of course, was wiped out by a $1.4 billion 

charge for the prefunding. 

This success has been made possible by our high-quality workforce and our successful system of labor relations, which has ensured quality service at the most affordable rates in the world for 

40 years. 
427 

The proposals to interfere with that system are based on misinformation, some of which was discussed earlier and brought up by 

Senator Tester. I would like to further clarify what the Postmaster 

and Senator Tester were talking about. 

Arbitrators are indeed required to consider the financial position 

of the Postal Service if it is raised by either party, which it has 

been in every interest arbitration since inception. Congress should 

reject these proposals along with drastic cuts to workers’ compensation benefits and focus on the elephant in the room—the 

prefunding. 

Solutions to the Postal Service’s prefunding problem can be found 

in reforms that are outlined in my written testimony. 

First, if measured accurately and fairly, the Postal Service’s pensions, which, again, are nearly fully funded, would be massively 

overfunded. Unfortunately, the OPM continues to use outdated 

valuation methods to measure the Postal Service’s assets. We welcome S. 1486’s proposal to measure the postal accounts with postalspecific assumptions. But we urge the Committee to go further by 

implementing the PRC’s 2010 audit of the Postal Civil Service Retirement System account, done by the Segal Company, which uses 

modern private sector methods. The resulting pension surpluses 

could be used to pay down the Postal Service’s debt and to fully 

fund its future retiree health benefits. 

Second, we feel the OPM should be directed to invest the funds 

of the retiree health fund in a way that responsibly maximizes its 

returns. 

Third, we feel that Congress should seek reforms in how FEHBP 

and its participating plans cover postal employees to reduce the 

costs of retiree health benefits and, therefore, lessen or even eliminate the unfunded liability. 

Together, we feel that these steps would allow us to focus on 

growth and innovation that would exploit our best assets, not destroy them. 

Mr. Chairman, at last week’s hearing, you said, and I quote, ‘‘I 

do not want to be back here in a few years discussing how we can 

dig ourselves out of yet another postal crisis.’’ And I totally agree 

with you, but I am afraid this bill would guarantee that result as 

written. 

The legislation we need must make sensible reforms to reduce 

the unfunded liability of postal retiree health benefits. It must 

eliminate the Postal Service’s debt with surplus pension funds and 

adopt reasonable pricing and product reforms without attacking 

our invaluable networks and productive workforce, which are both 

essential to our future growth. 

There are many good policy alternatives to austerity and 

downsizing. I urge you to consider the proposals that the NALC 

has put forward in our written testimony. We do pledge to work 

around the clock with all of you and all of the other major stakeholders to strengthen and to protect the United States Postal Service. 

I thank you for the opportunity to testify. 

Chairman CARPER. Thanks very much, and thank you for your 

leadership and for your willingness to try to work with us and all 

the other stakeholders to get to a place where this Postal Service 
428 

1The prepared statement of Mr. Hegarty appears in the Appendix on page 512. 

could be vibrant and just a real linchpin of our economy for a long 

time to come? 

Mr. Hegarty, please proceed. 

TESTIMONY OF JOHN F. HEGARTY,1 NATIONAL PRESIDENT, 

NATIONAL POSTAL MAIL HANDLERS UNION 

Mr. HEGARTY. Thank you, Chairman Carper. 

Chairman Carper, Dr. Coburn, Members of the Committee, on 

behalf of the National Postal Mail Handlers Union, I appreciate the 

opportunity to testify here today to present our views. 

My union represents more than 45,000 craft employees, most of 

whom work in the Postal Service’s large processing plants, such as 

the one that I come from in Springfield, Massachusetts. Processing 

is time sensitive and labor intensive. Further reductions in the 

number of processing facilities or in the hours worked by mail handlers will have a dire impact on the timely processing and delivery 

of all classes of mail. This is especially true for mail items that 

need prompt processing and delivery, such as priority, express, or 

first-class mail, and also medicines from pharmacy companies, 

newspapers, magazines, and advertisements. 

The Postal Service has faced some severe economic conditions 

since 2007. To the extent that the Postal Service has had to 

downsize because of the Great Recession of 2008 and the decline 

in mail volume, that downsizing has already occurred. Three hundred processing plants have been eliminated in the past 5 years, 

and the employee complement has been reduced by more than 

300,000. Postal employees have already contributed to and sacrificed for the financial turnaround of the Postal Service. My members have had their wages frozen for the past 2 years and employee 

contributions have increased for both health insurance and retirement. 

About 20 percent of Postal employees, including more than 5,000 

members of my union, are working in non-career, part-time jobs at 

reduced pay rates. And thousands of employees have been involuntarily excessed or transferred to other work locations, often hundreds of miles away, and have had to uproot their homes and their 

families because of the closings and consolidations of the postal 

network. 

Last week, the Postmaster General testified that the Postal Service has reduced costs by $16 billion during the past few years. As 

a labor-intensive service industry, it should be clear that most of 

those savings have come from Postal employees. 

A fair estimate is that the recent bargaining agreements have 

contributed $12 billion to the Postal Service’s expense reductions. 

The question to be asked, therefore, is: What have the other stakeholders contributed? 

First and foremost, it is now time for Congress to take action. 

Most of the losses announced by the Postal Service over the last 

few years have nothing to do with a failing business model or the 

obsolescence of the mail. In 2006, Congress mandated that the 

Postal Service prefund future retiree health benefits and do so 75 

years into the future, but do so within 10 years. We all know about 
429 

the prefunding. The Postal Service now has $49 billion in that account. 

The facts are even brighter with regard to retirement. The Postal 

Service not only is fully funded in its retirement costs but, in fact, 

as we heard earlier, has overfunded their share of the Federal Employees Retirement System. Congress needs to act immediately to 

adjust the FERS account using postal-specific data and return the 

overpayments. 

Nor should there be any severe restriction on how the Postal 

Service should use these monies. It should be allowed to pay down 

some of its debt and invest in programs and technologies to grow 

the business. 

With all respect, S. 1486 does not properly deal with both of 

these issues. On retiree health, the bill does not eliminate the remaining prefunding requirement but, rather, defers these 

unaffordable payments until 2016. Although the bill reduces the 

overall funding to 80 percent of total liability and allows for the 

payment of current retiree health premiums and the retiree health 

fund, the annual payments that would be required from the Postal 

Service starting in 2016 actually might exceed the obligations 

under the current law. 

With regard to pension, the draft bill unacceptably caps the FERS refund at only $6 billion. S. 1486 also fails to require an accurate calculation of the postal surplus attributable to the Civil 

Service Retirement System in the manner reasonably proposed by 

S. 316, which has been introduced with 31 Senate cosponsors. 

In one of its most unjustified provisions, S. 1486 would subject 

the continuation of Federal health and retirement benefits for Postal employees to future negotiation and arbitration, thereby threatening the future solvency and stability of the entire Federal Health 

Benefit Program and threatening to single out new Postal employees for grossly unfair treatment on the subject of employee benefits. 

This bill is also deficient on issues relating to the maintenance 

of service by the Postal Service. After a 2-year moratorium, S. 1486 

would allow for the continued dismantling of the mail processing 

and delivery network that has always been the backbone of the 

Postal Service. Allowing the Postal Service to reduce service standards or eliminate days and points of service will only lead to lower 

quality and slower service. This would cause additional losses in 

business from mailers and the American public, which in turn will 

lead to deeper cuts and a continuing crisis. 

We also see no reason that the major mailers and the mailing 

public should not be asked to contribute their fair share to the future success of the Postal Service, perhaps by loosening the cap on 

rates to something more than the Consumer Price Index or by 

measuring inflation with another index that more realistically reflects the cost pressures faced by the Postal Service. 

As currently drafted, S. 1486 also contains a wholly unjustified 

reduction in workers’ compensation benefits. The legislation would 

penalize injured workers with the worst injuries by forcing them 

into a retirement system that is based on their final salary, even 

though they were prohibited from earning increases in salary because of their on-the-job injuries. These workers also would be unable to save through the Thrift Savings Plan or earn Social Secu-
430 

1The prepared statement of Mr. Rapoza appears in the Appendix on page 520. 

rity credits while receiving workers’ compensation. These provisions need to be removed. 

Finally, let me address the Postal Service’s proposals to change 

its retirement and health insurance programs. 

With regard to retirement, there is no basis whatsoever for the 

proposal to leave the FERS system and adopt a separate defined 

contribution program. As already noted, retirement obligations are 

fully funded, if not overfunded, and do not impose any burden on 

postal finances. 

As for health insurance, the Postal Service continues to call publicly for a USPS-only health plan, but that proposal is inconsistent 

with my union’s guiding principles on health care for our members 

and other postal employees. 

First, we insist that the Postal Service remain part of the Federal Employees Health Benefit Program to ensure the continued 

success of that program and to take advantage of the size and bargaining power of the Office of Personnel Management. 

Second, we insist that our members continue to have a wide 

range of choices in health insurance plans so that individual employees can choose which plan is best based on their family situation and other circumstances, just as all other Federal employees 

are allowed to do. 

Thank you again for allowing me to testify. I would be happy to 

answer any questions. 

Chairman CARPER. Let the record show you used every second of 

your time except the last 2 seconds. 

Mr. HEGARTY. I watched the clock. 

Chairman CARPER. That is pretty good timing. All right. Thanks. 

Thanks so much. 

Mr. Rapoza, please proceed. 

TESTIMONY OF ROBERT J. RAPOZA,1 NATIONAL PRESIDENT, 

NATIONAL ASSOCIATION OF POSTMASTERS OF THE UNITED 

STATES 

Mr. RAPOZA. Chairman Carper, Ranking Member Coburn, and 

Committee Members, thank you for inviting the National Association of Postmasters of the United States, to testify today. I will 

once again seek to provide constructive input. For the record, I am 

currently serving my 47th year as a Postal employee and very 

proud of it. 

In my February 2013 testimony, I identified the core elements 

that Postmasters believe must be part of postal legislation, and 

they include: Promoting revenue generation through innovation 

and credible pricing; funding retiree health benefits and pensions 

fairly and realistically; and preserving universal service. 

Mr. Chairman, I concluded my February testimony with the admonition: ‘‘The future of the Postal Service is in your hands.’’ And 

you amended my remark by commenting: ‘‘The future of the Postal 

Service is in our hands.’’ I agreed. So, let me share with the Committee some of the sacrifices endured by Postmasters, which have 

contributed to Postal cost reductions. 
431 

Postmasters have been denied merit-based salary adjustments 

for the past 3 years. Postmasters are not entitled to cost-of-livingadjustments. Five thousand full-time Postmaster positions were 

eliminated over the past year. Another 4,500 will be eliminated by 

September 2014, and more than 6,000 Postmasters will shoulder 

the burden of overseeing multiple part-time post offices, with 

strained resources and limited training. 

It is also important to note that the non-career postal employees, 

known as Postmaster Replacements (PMRs), who will staff most of 

these part-time post offices, are not afforded employer-provided 

health benefits. However, we hope that the Committee can address 

the unmet health needs of the PMRs. 

Additionally, beginning this year, Postmasters will absorb an increased share of their FEHBP premiums. Even with these sacrifices, Postmasters continue to maintain a strong commitment to 

postal-reliant communities. So, Mr. Chairman, I think it is crucial 

to understand that Postmasters continue to do our part on behalf 

of the Postal Service and its future. 

Now let me summarize NAPUS positions on certain provisions of 

S. 1486. Section 301, provides more expeditious rate adjustments 

and pricing flexibility. Indeed, the hard CPI cap has proven to be 

injurious to postal operations and finances; moreover, the cap has 

not stemmed the tide of mail leaving the postal system. We believe 

that Section 302 of the legislation provides the Postal Service with 

essential latitude in developing innovative products and services 

and commend you for its inclusion. 

The Postal Inspector General called upon the Postal Service to leverage the Postmasters’ community status by encouraging Postmasters to join local civic associations, providing fertile ground for 

marketing postal products and services. This should be included as 

part of an effective strategy to market the products and services. 

It could very well be a better investment than having a contract 

with a company like Faith Popcorn’s Brain Reserve for an hourly 

rate between $91 and $836. 

While NAPUS could support some of the sections that address 

issues that moderate Postal Service employee benefit obligations, 

others raise red flags. Section 101 would provide a refund of up to 

$6 billion that the Postal Service has provided on behalf of its 

FERS beneficiaries. While we can agree to this provision, NAPUS 

believes that if the overpayment exceeds $6 billion, the higher 

amount should be reimbursed to the Postal Service. 

Section 102 would permit the Postal Service to deny newly hired 

Postal employees the opportunity to participate in FERS. It is unclear from the language how Postmasters would be treated under 

Section 102, since we do not collectively bargain. Moreover, it is unfair to put at risk the assurance and stability of retirement benefits 

for future Postmasters by eliminating statutory retirement protection. 

Section 103 would restructure the Postal Service’s retiree health 

prefunding schedule to make required payments more manageable. 

While NAPUS believes that Congress should revisit the obligation 

in its entirety, amortizing 80 percent of the projected liability over 

a 40-year period, beginning in 2016, is a step in the right direction. 
432 

1The prepared statement of Mr. Holtz-Eakin appears in the Appendix on page 535. 

Let me state for the record that I represent the only employee 

organization at this table that does not collectively bargain or sponsor an FEHBP health plan. Section 104 would subject employee 

health coverage, not just the Postal Service premium contribution, 

to collective bargaining. Postmasters currently have the opportunity to consult over benefits, not bargain over them. 

NAPUS is also concerned about the uncertainty of continued 

comprehensive health coverage for Postal retirees, particularly for 

those who are not Medicare eligible. It is also unclear how the voluntary separation of Medicare eligibles will impact Postal employees and retirees who are not Medicare eligible. 

In conclusion, NAPUS is concerned with the thrust of a number 

of the provisions that impact Postal employees’ and retirees’ statutory health and retirement benefits. Nevertheless, NAPUS continues to be willing to discuss the future of postal health benefits, 

so long as such coverage remains within FEHBP and the interests 

of our members are protected. 

We are also concerned about the decision to omit specific provisions that were included in S. 1789 that helped assure postal accessibility to all Americans. We are supportive of those provisions that 

make the retiree health prefunding schedule more manageable and 

provide the Postal Service with opportunities for innovation, encouraging governmental partnerships and enhanced pricing flexibility. 

I thank you, Mr. Chairman, and NAPUS is committed to working 

with you and your Committee and the Postal Service to cross that 

goal line that we talked about in February. 

Chairman CARPER. Thank you. Thank you for that testimony, 

and thank you for 47 years of service to our country. You have been 

serving us through the Postal Service for longer than most people 

in this room have been alive, and we are aware of that and grateful 

for your service. Thank you. 

Dr. Holtz-Eakin, it is great to see you. Do you still enjoy testifying before Congress? I know you do not do it quite as much as 

you used to when you were CBO Director, but do you enjoy it? 

Mr. HOLTZ-EAKIN. I both enjoy it and think it is an obligation. 

It is a kind of public service and something—— 

Chairman CARPER. You are good to do it. We appreciate it very 

much. Thank you. 

TESTIMONY OF DOUGLAS J. HOLTZ–EAKIN,1 PH.D., 

PRESIDENT, AMERICAN ACTION FORUM 

Mr. HOLTZ-EAKIN. Mr. Chairman, Senator Coburn, and Senator 

Johnson, thank you for the chance to be here to discuss postal reform. This is an issue that I worked with this Committee on as far 

back as 2004 when I was at CBO and when I heard there were 

deep concerns about the financial outlook for the Postal system. 

And I can say that it is in far worse shape than we envisioned at 

that time, and I sympathize with the job you have in front of you. 

It is a quite difficult problem to solve. 

In light of the fact that only 10 years ago we missed it by a fair 

amount in the work we did, I guess I would emphasize something 
433 

that came up in the first panel, which is the sensitivity of many 

of the numerical conclusions and, thus, the structure of the solution 

to assumptions. The discount rate got highlighted by Senator Johnson. I worry about the projected growth of health care costs in a 

lot of these actuarial assumptions because that historically has 

bounced around a lot, and it is at the heart of the Postal system’s 

financial problems. Right now we are having a relatively modest 

growth in health care costs. That has happened before, and it has 

gone away. I believe there is reason to worry about upside growth 

in the health care costs, and that will make all these problems 

more difficult. I would design solutions that are as robust to that 

as you can, I would say, the only admonition I would bring to that. 

With respect to the rest, I think everyone would agree that the 

heart of the solutions are in changing the fundamentals, changes 

to the scope of activities, the volume of those activities, and what 

the Post Office can charge for them. That is going to improve the 

revenue outlook and, the real subject of today, what happens on 

the cost side, what are the quantity of facilities and equipment that 

have to be financed, at what capital cost, and in particular, how 

many workers, what is their productivity, and what is the compensation cost. 

Some things contemplated in the bill will change those. New 

types of retirement plans that are not FERS could change lifetime 

compensation costs, fundamentally alter the outlook over the 

course of the future. Those I think are to be focused on. Some of 

the rest, as has been mentioned, amount to shifts in costs over time 

or across people, and how you think about them I think really 

comes down to how you think about the Post Office as either part 

of the government or as a stand-alone entity in the two extremes. 

If it is part of a government pool, insurance pools for retirement 

or health inherently involve redistribution from person to person or 

agency to agency. That is part and parcel of insurance. If so, then 

those shifts are something everyone should accept and not worry 

about. They are part of financing a government pool of benefits. 

If you think of it as a stand-alone entity, then, in fact, in FERS 

perhaps there has been overpayment. That would be refunded and 

not replicated in the future. You might think differently about the 

shifts from Medicare and FEHBP. So that is really a decision the 

Committee has to make about what is the vision of the future of 

this entity. But some of them, I think, are—there are two other aspects that I think are important. One is sometimes you change the 

fundamentals. I would be concerned that if you shift more people 

to Medicare, which has a history of high volume and non-managed 

activities, you will actually change the fundamentals. You will 

spend more. It is not just who picks up the bill and which accounting it goes through. And I would pay attention, again, to fundamentals. You do not want costs going up. You want them going 

down. 

And the second is because the post office is such a large fraction 

of, in particular FEHBP, a system that has often been held up as 

a model for future reforms, that you do not do back-door FEHBP 

reform in this bill, that you be careful to make sure that the system itself is either reformed in its own right, where I think there 
434 

1The prepared statement of Mr. Baker appears in the Appendix on page 540. 

is some case to be made, but at least not damaged by the postal 

reform. 

I am happy to be here today. I look forward to any help I can 

offer. 

Chairman CARPER. Good. Thanks so much for that testimony and 

for joining us as well. 

Dr. Baker, welcome. Good to see you. 

TESTIMONY OF DEAN BAKER,1 PH.D., CO-DIRECTOR, CENTER 

FOR ECONOMIC AND POLICY RESEARCH 

Mr. BAKER. Thank you, Chairman Carper and Ranking Member 

Coburn, for inviting me to testify. I appreciate the opportunity to 

address the Committee. 

I want to make two main points, which, of course, have come out, 

I am sure, in the earlier panel, which I am sorry I missed. It was 

an overcrowded room. I would have been here otherwise, but I 

could not find a place to comfortably situate myself. But I would 

like to make, first off, the point that the pace of buildup in the retiree health care fund is certainly extraordinary and, as has been 

pointed out, is much of the source of the losses that the Postal 

Service has incurred in the last decade. 

The second point is that the treatment of the Postal Service continues to be very asymmetric with private sector firms, and if the 

goal of Congress is to try to treat the Postal Service in the same 

way that we would expect a private sector firm to operate, we are 

still very far from that, and particularly what I want to emphasize 

is the treatment of the retiree benefit funds. 

On the first point, the Postal Accountability and Enhancement 

Act passed in 2006, which required a very ambitious pace of 

prefunding for the retiree health benefit system. I understand the 

intention of Congress. The goal, of course, was an admirable one: 

To ensure that the taxpayer was not stuck with the bill in the 

event that there was a sudden crisis and, the Postal Service would 

have to suddenly make good on these obligations. And prefunding, 

arguably, is a reasonable goal. 

It is worth noting that this is generally not done in the private 

sector. We are seeing firms rapidly move away from having retiree 

health benefits, but in those that do, you will find very few, if any, 

that have full prefunding. So this is extraordinary, and it was also 

an extraordinary decision to go ahead and do that over a 10-year 

period. The numbers speak for themselves. We are talking about a 

rate of prefunding on the order $5.5 billion a year, which is about 

8 percent of the Postal Service’s revenue. So that is a very heavy 

burden to have imposed on any business, and certainly the Postal 

Service had a very difficult time dealing with that. 

Now, that would have been true even in normal times. Of course, 

in 2006, Congress did not anticipate the economic collapse that we 

subsequently saw 2 years later. Very few people did. And it is very 

unlikely, had Congress anticipated the sort of downturn that we 

subsequently saw and still find ourselves in today, that they would 

have made a proposal of putting this sort of extra burden on the 

Postal Service. 
435 

Now, in addition to requiring a very high rate of prefunding, a 

very rapid rate of accumulation, I should say, I should also point 

out that the assumptions involved here are in many ways very pessimistic. Doug had raised the issue about health care costs, and, 

again, great uncertainty on that. But I look at those assumptions 

and see them as very pessimistic: 7 percent annual growth in 

health care costs. I would just point out that we have the recent 

experience of health care costs growing much more slowly than 

that. And, again, none of us know exactly what will happen. But 

it is worth noting that the Center for Medicare & Medicaid Services projects 5 percent per person health care cost growth over the 

next decade. So in this sense, we are talking about considerably 

more rapid growth, which has a huge effect when compounded over 

the projection period. So we would be very far toward meeting that 

80-percent target if, in fact, that 5-percent rate persists over the 

projection period. Again, I am not saying that it will. I am simply 

saying that it is a reasonable possibility, and we are imposing a 

very heavy burden on the Postal Service that may not be necessary. 

A second point, again, I am sure this came out, but I just think 

it is striking. I had occasion to be in one of the mediation hearings 

back in 2011, and I looked at the Postal Service’s projection at that 

time. They were projecting revenue falling to just $63 billion as of 

2013 and continuing to decline over the rest of the decade, so it 

would be about $59 billion by the end of the decade. We are now 

looking at revenue of $66 billion. So, in fact, there has been really 

a quite remarkable turnaround. We are looking at a system that 

does look as though it is quite viable apart from these retiree obligations. So it is not as though we have an ailing system on its last 

legs. It looks very much as though we have a system that, in principle, is viable but is suffering very much from, I would say at 

least, an excessive burden in requiring it to prefund at a very rapid 

rate. 

The second point I want to make was that the treatment of retiree funds is certainly asymmetrical with the private sector. 

Again, there are many ways we could talk about the Postal Service, 

certainly its lack of flexibility and pricing and product offerings 

that put it at a disadvantage in many ways relative to the private 

sector. But it is really quite striking if you look at its prefunding 

requirements. Specifically what I am simply saying here is its requirement that it invest its funds exclusively in government bonds. 

Again, I understand the rationale for that. Obviously if they were 

to invest in other assets, it would involve an increase in the deficit 

as ordinarily reported. But, nonetheless, that is a very real handicap. I just did some quick calculations, very simple calculations. If 

you simply assume that the funds—and here I am talking about all 

three funds: CSRS, FERS, and the Retiree Health Benefit (RHB) 

Fund. If all three had been invested in a diversified portfolio offering a 7-percent nominal rate of return, the difference between that 

and investing in government bonds would be about $6.6 billion in 

the current year. If we assumed an 8-percent nominal return, 

slightly higher but still consistent with what is assumed in many 

pension funds, the difference would be about $9.9 billion. So this 
436 

is very large relative to the operating income of the Postal Service, 

and it would make a very big difference. 

Now, again, I understand it would not be easy to talk about 

switching, particularly in the case of CSRS, which is probably just 

about impossible to switch into a diverse portfolio, but it is something that I think Congress has to take into account if there is an 

expectation that the Postal Service is going to compete with private 

sector competitors who do, if we look at UPS, in fact invest a pension fund in a diversified range of assets. 

So, in conclusion, what I would just say is that I think the Postal 

Service is clearly a viable, ongoing entity, and I understand it is 

the intention of the Committee and the intention of Congress to 

keep it as such. And I think it has to be mindful of the handicaps 

that it has placed, obviously unintentionally, with what I would 

consider an excessive prefunding requirement with its health care 

fund. 

Thank you for listening. 

Chairman CARPER. Thank you all. Taken together, that is very 

constructive and I think helpful testimony, and we welcome every 

bit of it. 

Dr. Coburn and I do not agree on every single thing, but one of 

the things I think we are pretty much in lockstep on is the need 

to reduce our Nation’s budget deficit. And I focus on three areas, 

as I said earlier on, and one of those is we need entitlement reform 

that saves these programs, saves them for the next generation, 

saves money, and also does not savage old people or poor people. 

That is No. 1. 

No. 2, we need tax reform to generate some revenues to go toward deficit reduction. 

And, No. 3, we need to look at everything we do, everything we 

do in the Federal Government, and ask this question: How do we 

get a better result for less money in literally everything that we 

do? And the same is true here with respect to health care coverage 

for Postal employees and for Federal employees. 

When I was Governor, they let me be Chairman of the National 

Governors Association (NGA) for a while, and after that they let 

me be the Chairman in the National Governors Association of 

something called a ‘‘Clearinghouse for Good Ideas.’’ We had a Center for Best Practices, and all the States, all the Governors, would 

share ideas that worked with other Governors. And we used to say 

there are 50 States, there are 50 laboratories of democracy, let 

them go forward and experiment. And then the rest of us will learn 

for better or for worse from those experiments. 

Do we have the opportunity here, if somehow our friends from 

organized labor, from the Postmaster, from Postal management, if 

they are able to come up with a way to get, if you will, better 

health care coverage for a little bit less money could that not be 

like one of 50 laboratories to experiment, but an experiment? Could 

it be a good, viable experiment for us as we consider everybody else 

that is in FEHBP? That is my question. Let me just direct that 

first to Dr. Holtz-Eakin and then to Dr. Baker. Could this be a 

good opportunity to experiment so we might learn for the rest of 

the Federal Government, how to get better health care coverage for 

less money or the same amount of money? 
437 

Mr. HOLTZ-EAKIN. I certainly think so. There is no reason to believe that when FEHBP was invented 40-odd years ago that Congress got it right by legislating for specific designs, with all due respect. Some things have changed a little bit. So, yes, there is a 

good case to be made for reforming FEHBP, and there is a good 

case to be made that this is a place where you could try some 

things out. No doubt about that. 

Chairman CARPER. Thank you. Dr. Baker. 

Mr. BAKER. Certainly, I would just mention one—well, two points 

I would make. 

First off, I would like it to be voluntary on the part of—because, 

in principle, we want something that would both benefit the beneficiaries and save the government money. 

But, second, in terms of, nothing is ever simple. Something that 

can be done, we do have a health care system just north of us in 

a country called Canada where costs are about half as large, I 

guess about 60 percent as large as the United States’, which should 

start raising an obvious point that, if we could get people, say, in 

a neighboring State, in Washington State, in Maine—we have lots 

of areas of the United States that are close to Canada, Michigan 

where I spent many years. If we could arrange for a situation 

where people could buy into the health care systems in Canada and 

split the savings with the U.S. Government, that could be very 

much a win-win. And, again, if you gave people the option, they are 

not forced into that, if someone in Michigan opts to take advantage 

of the health care system across the river in Windsor, that could 

be a win-win for everyone involved. 

Chairman CARPER. All right. Thank you. 

I am a glass-half-full guy, and I am a glass-half-full with respect 

to better containing the growth of health care costs in this country 

going forward. A lot of people say, well, it is Obamacare, the reason 

why we have seen a slowing of health care costs. It is the Affordable Care Act. I think it has helped, but it is not the only thing. 

We are doing a lot of smarter things in this country in delivering 

health care costs: electronic health records, federally qualified community health centers where we reduce the number of people who 

show up in emergency rooms sick, really sick, get hospitalized. 

They now go to their community health center; get better access to 

prescription medicines; the idea of coordinating delivery of health 

care and providing medical homes; the idea of giving everybody in 

every State in the country the opportunity to participate in a large 

purchasing pool, an exchange or marketplace for health care. All 

those things that are new—and some are not new ideas, but they 

are actually being implemented—I think they have the potential 

for really helping us continue to rein in the growth of health care 

costs. And that 5 percent that I think you cited, Dr. Baker, I think 

that is not an unrealistic number. 

I want to come back to something, Fred, that you said, and I 

tried to write down part of it. You said, ‘‘Congress should focus on 

the elephant in the room: The prefunding of retiree health care liability,’’ or words to that effect. Tom Coburn and I have really tried 

to do that. We really have tried to do that. And if you look back 

at what we did in 2006, the only way we got President Bush to sign 

the bill was to agree to this unrealistic, overly conservative ap-
438 

proach to prefunding retiree health care. At the time I did not 

think it was a good idea. I am not sure that Senator Collins, 

thought it was a good idea. That was the price for admission. That 

was the price for getting the bill signed into law. 

And what we have done in our legislation—let me just be real clear. What we have done in our legislation—the $40 billion that 

has been prepaid to meet this retiree health benefit? We provide 

to the Postal Service the ability to access that money to pay for retiree health care costs. And we do not say you have to meet the 

rest of the liability. We do not say you even have to amortize the 

liability, the remaining liability for retiree health care costs over 40 

years 100 percent. We say 40 years, 80 percent. 

But I will tell you this: It would be interesting if we could actually look at every county, city, and State in this country and see 

how they propose to amortize their liability for their retiree health 

care. My bet is that nobody has an approach that is even that fiscally responsible, that responsible. 

So we really have tried hard on this. We have really tried hard 

on this, and I am disappointed to hear you suggest that we have 

not. 

Let me just go to Mr. Hegarty and Mr. Rapoza. Your response 

to that, if you will. Have we been as delinquent on this as Mr. 

Rolando has suggested? Then I will ask our other two witnesses as 

well. We have tried to be responsible. 

Mr. HEGARTY. Yes, well, I thought you were directing the question to Mr. Rolando—— 

Chairman CARPER. No. To you. 

Mr. HEGARTY [continuing]. But that is fine. No, we appreciate 

your efforts on this. Do not take it that we are saying that you 

have not done anything on it. We just have a difference of opinion 

on the funding schedule going forward. Some facts and figures out 

there would suggest that 2016, 2017, 2018, and farther out, the liability will actually be more per year than it is now. In other 

words, now it is $5.5 billion. In 2018, it might be $5.8 billion because it has been re-amortized. 

I appreciate the 80 percent. I appreciate the 40 years. I think it 

is a step in the right direction. But as you heard the Postmaster 

General testify earlier, we are trying to come up with a plan—and 

we are not there yet so I cannot give you too many details, but he 

alluded to it—where we can save the Postal Service the money on 

health care and eliminate the prefunding going forward. 

Now, it has been said that we are going to be overloading Medicare or adding costs to Medicare. I have been paying into Medicare 

my whole adult working life. When I retire, I want the benefit of 

those payments. So that is a promise that the government made to 

me: If you pay your Medicare taxes, you will have Medicare when 

you retire. I do not see that as being unreasonable that Postal employees should—the 23 percent who are not currently taking advantage of Medicare, that they should not be encouraged to take 

advantage of Medicare, Part B. 

Chairman CARPER. I think it is fair to say Dr. Coburn and I 

think it is an inequity. What we have right now is an inequity. 

Folks pay into Medicare, but the Postal Service, their employees, 

retirees, do not have the full benefit from that. 
439 

Mr. Rapoza—and I know I am over my time. Let me just go to 

you, please. 

Mr. RAPOZA. NAPUS looks forward to working with the Committee. We worked with you on S. 1789, and we look forward to 

working on S. 1486. And when we testified on February 13, I think 

you mentioned that we were in a red zone on the 20-yard line. 

Chairman CARPER. Yes. 

Mr. RAPOZA. I did not know we had 80 yards to go. I thought we 

just had that 20 to go. I guess we were on the wrong side of the 

50-yard line. But we are kind of frustrated that it keeps going up. 

But we appreciate all you are doing because you have a lot of other 

things on your plate. And I think this morning was the first time 

I have seen almost the full Committee here sitting down. So there 

is a lot of focus on this, and we appreciate what you are doing. 

I do think that a fresh look at the liability is warranted and the 

members that I represent are concerned on the Medicare issue also. 

We are concerned by the unknown. But the Postal Service has been 

very open with us. We have forwarded them 19 questions. They 

have returned answers. So we are communicating with the Postal 

Service. The biggest fear is trying to get to the unknown. 

For us, the other fear is not having power to negotiate. We consult, yet we do not have collective bargaining. So where do we fit 

in on this? And that is the part that we are willing to work with. 

Chairman CARPER. Just a brief comment from Dr. Holtz-Eakin 

and Dr. Baker, and then I will yield to Tom. 

Mr. HOLTZ-EAKIN. You cannot separate the prefunding from the 

rest of the issues. Those are costs that are going to be paid now, 

or they will be paid later, paid out in a schedule that you laid out 

in the legislation. But by spreading them out longer, you are buying time to fix the business fundamentals, and it will only be a 

good idea if you fix the business fundamentals and never forget 

that. 

Chairman CARPER. Thank you. 

Dr. Baker, just briefly. 

Mr. BAKER. Yes, just quickly I would say that as I am sure you 

recognize, this is a very serious burden if you are to take any business, even a thriving one like Apple or Amazon, and say, OK, we 

made an accounting mistake, you have to pay 8 percent of your 

revenue into X fund, that would be a huge burden that would jeopardize even their viability. So I think we have to recognize that. 

Chairman CARPER. Good. Thanks. Tom. 

Senator COBURN. Yes, I would just note for the record, according 

to Congressional Research Service (CRS), 25 percent of private 

companies prefund their retirement health care. So the fact we say 

that not very many people do that is inaccurate. Twenty-five percent do. Some are through the Voluntary Employee Beneficiary Association (VEBAs), some are not. But, in fact, 25 percent of private 

companies. 

The second point that I would make, private companies have to 

list their unfunded liabilities for their retiree health care as a liability on their balance sheet. We have an organization, the Postal 

Service, that has twice as many liabilities as it has assets right 

now. And that is without listing retiree health benefits in it. 
440 

So the point is it goes down to this: We have an obligation to 

keep our word to the retirees of the Postal Service, and I take what 

Dr. Holtz-Eakin said. Nobody can predict what the future health 

care costs are. But the trend, until we have a truly transparent, 

competitive market in health care, which we do not have today— 

we did not have it before the Affordable Care Act, and we do not 

have it today. Until we have transparency and true markets on 

health care, where individuals make the best choice for them and 

their family, we better err on the conservative side on the cost 

pressures on health care. 

I am absolutely committed to the workforce of the Post Office to 

make sure that every commitment that has been made to their employees on retiree health benefits is kept. And what we have to do 

is find the sweet spot that you all are agreeable with that still 

meets the reality test. 

I have one other question. Your comments, Mr. Rolando, on the 

Federal Employees Compensation Act, just to remind you, those 

who are permanently totally disabled and unable to work under 

this bill would be exempt from this section. They are grandfathered. They are totally grandfathered. We have numerous people over 90 years of age collecting workers’ compensation from the 

Post Office rather than their retirement. And I understand the differential there, that because they were injured, they could not go 

back and earn more through time. I am not fighting that. I am actually open to allowing people on that to continue to participate in 

FERS. I do not have any problem with that. But we still have to 

reform the system because it is totally unaffordable and we have 

gone from $7 billion to $17 billion in 6 years in terms of—so what 

we have to do is look at every aspect, and that is what Senator 

Carper and I have tried to do with this bill. And we knew we were 

going to get tons of criticism. That is why we are having this hearing. We want to get the feedback. 

I want to assure you that our commitment is firm, that one is 

we get pricing capability at the Post Office. Now, we may not win 

it the way we would like to do it right now, which we think is important. It needs to be market based. It needs to be sweet spot 

based. You do not want to run away your business. But you also 

do not want to subsidize business to a degree greater than it has 

to be subsidized to keep it. And we have to keep our commitments 

in terms of the promises made to retired Postal workers. 

And then we have to have the regular negotiations that you all 

are good at to get the best benefit you can given the political realities and the financial realities of the Post Office. So that is what 

we are trying to do. 

Mr. ROLANDO. May I respond? 

Senator COBURN. Sure. 

Mr. ROLANDO. On the workers’ compensation, I agree with you, 

I think it is important that any workers’ compensation program ensures that a worker, because they are injured is no better off or no 

worse off as a result of the benefits that they are able to get rather 

than retirement. I think the issue with the provision is that the 

data and the research that was done by the Department of Labor 

was not done in FERS employees. It was done on Civil Service employees, who are pretty much gone. I mean, we have less than 10 
441 

percent Civil Service. There was no data run on the FERS employees. 

If you compare FERS employees to the benefits, they are already 

worse off with the workers’ compensation benefits, and this bill 

would take them even further down. But as far as the equality you 

are talking about, we are all for that. 

Senator COBURN. But I would also tell you, in the private sector 

nobody stays on workers’ comp in the private sector at retirement 

age. They go to the retirement. 

Mr. ROLANDO. Sure, and we agree in equity that would be great 

if we had a bill that did just that with no loss, no gain. 

Could I also comment on what you said, if you have time, on the 

prefunding? Because we mentioned 25 percent of the companies— 

and I agree—— 

Senator COBURN. That is not my data. That is Congressional Research Data. 

Mr. ROLANDO. Sure. I think it is correct. We are all for the 

prefunding. We just think there are maybe like four ways you do 

it. Either you have beaucoup profits and you can just do it, which 

would be great at 100 percent, 75 years in the future. That would 

be wonderful. 

Or as I mentioned, if we had some surpluses, if they were recognized, all those things we talked about, if you could do it that way, 

that would be wonderful. 

A third way, as you mentioned, the corporate practice is 25 percent of the companies that do it, but they do it at an average rate 

of 35 percent, not 100 percent. If we mirrored that. 

The fourth way would be to find a way to bring the liability 

down, which we have all spoken to, to some extent. Of course, the 

NALC would be all for figuring out a way to do that so it does not, 

of course, compromise the networks and the workers and so forth. 

There are ways to do that. 

Senator COBURN. Let me ask you a question. Would you all be 

interested at all from a bargaining standpoint in having a VEBA 

and you run your own health care? 

Mr. ROLANDO. That is a tough question. 

Senator COBURN. Well, would you think about it and reply to 

me? 

Mr. ROLANDO. Well, at this point—— 

Senator COBURN. I do not want to put you on the spot. 

Mr. ROLANDO. At this point, what we are really looking at and 

we are in discussions with the Postal Service, the other unions, the 

mailers, we are all looking at all these Medicare provisions and 

how that would work as part of a more comprehensive reform that 

includes the things that really need to be done without compromising the networks and the workforce. We have been in pretty 

deep discussions about that. 

Senator COBURN. So it is important to put back into the record. 

If you include employee health benefits, the benefit package for the 

average employee of the Postal Service, excluding management, is 

$35,000 a year. That is the benefit package. That is the cost of the 

benefit package. And that is 31⁄2 times what the average private 

sector benefit package is. 
442 

So those things need to be put into perspective in terms of if we 

are going to be competitive. And I would make this point, and I 

think Dr. Holtz-Eakin has. It is not just the Postal Service that is 

wrestling with health care costs, right? I mean, the charade we 

have seen this week is about health care costs ultimately and how 

do we stay competitive as a Nation. Your comments about up 

north, I would differ in terms of the same health outcomes, but 

there is no question it is lower. Plus we have six studies that show 

$1 out of every $3 we spend in this country does not help anybody 

in health care, and I think that is market force related, because we 

all think somebody else is paying for our health care. And anything 

we can do, you all can negotiate with the Postal Service, that gives 

you the same health care at a lower cost ultimately benefits you 

not just in your health care but benefits you in terms of the future 

of the Postal Service. And that is why I think some of the ideas 

that the Postal Service and the unions are working on are going 

to be very beneficial. And I would also say you ought to share in 

some of the benefits of that. 

And so we have a lot of things we need to do. I will submit to 

each of you some questions for the record, if you would get back 

with me on those. 

And I have never held a job longer than about 9 years, Mr. Postmaster, so I would congratulate you again on the number of years 

you have done. 

Chairman CARPER. But he has always had a good job. 

All right. Senator Johnson. 

Senator JOHNSON. Thank you, Mr. Chairman. 

Chairman CARPER. And I want to say again—I always say this 

when he comes. Along with Dr. Coburn, he is a faithful attender 

of these hearings, and we are deeply grateful. 

Senator JOHNSON. Well, I learn a lot, and these are important 

issues. 

Let me just chime in on my own opinion in terms of what is happening with the moderation in the rise of health care costs, having 

been purchasing health care for the last 31 years. I think the increase in deductibles over time, the advent of the Health Savings 

Account (HSAs) have actually begun reconnecting the consumer to 

the product, the payment to the product. I think that has gone a 

long way toward just starting to restrain costs, which was one of 

my big problems with the health care law. And then just the poor 

economy, that always depresses prices across the board. So I think 

those are the two primary factors. 

Mr. Rapoza, there are a couple statements I just need to talk to 

you about. You talked about misinformation, outdated models in 

terms of calculating the liabilities. I personally think the elephant 

in the room here really is the GAO testimony that shows on their 

Table 1 an unfunded liability in total of $96 billion, basically $99 

billion less a $3 billion surplus in FERS, which is what we are all 

talking about this prefunding. 

Mr. Rapoza, you talked about being concerned. If I were a Postal 

worker, I would be concerned about that $96 billion unfunded liability. What am I missing here? 

Mr. ROLANDO. Were you referring to pensions or retiree health 

care? 
443 

Senator JOHNSON. I am talking about the entire liability having 

to do with pensions and health care. Again, I know you can pick 

and choose the little individual section, but if I am a retired Postal 

worker, I would be kind of concerned about the overall package 

that I have been promised and the financial stability of the Postal 

system to make those payments? 

Mr. ROLANDO. As a Postal worker, if I am Civil Service, I am 

pretty comfortable because I am 100 percent funded for my retirement. If I am a FERS enrollment, I am pretty comfortable because 

we are 100 percent or overfunded in that retirement system. 

As far as my retiree health care, the Postal Service has been 

making the premiums for 50-some years, continued to do so, and 

they have $50 billion in account to continue to do so. 

Senator JOHNSON. So do you just reject that $96 billion unfunded 

liability in terms of—— 

Mr. ROLANDO. No. I am proud to work for a company that is 

more funded than any other company in the country for their retiree health benefits. 

Mr. HEGARTY. Senator Johnson, we do not have the tables in 

front of us, so I have not seen the $96 billion liability. But we 

would be happy—— 

Senator JOHNSON. OK. I would really suggest you take a look at 

that GAO report. 

Mr. HEGARTY. Yes. 

Senator JOHNSON. That is certainly what would concern me. 

Mr. Rolando, you also talked about that the losses are clearly— 

they have nothing to do with the lost revenue, but in 2007 revenue 

was about $75 billion, now it is about $65 billion, is what I get. 

That is a $10 billion drop. Whereas, operating expenses have been 

reduced, but it is $3 billion. So operating expenses, 80 percent of 

which are labor, I mean, isn’t that the primary cost driver, and 

isn’t really what the Post Office is struggling with is a different, 

dramatically changed business model where we are losing paper 

mail and they are having to grapple with that problem? 

Mr. ROLANDO. Well, that is a two-part question. I think that the 

percentage might be correct, but I do not believe the Postal Service 

is struggling with it at all. We are very labor intensive. We go to 

every house 6 days a week all over the country with additional addresses added every year. So, of course, a large percent of your 

costs are going to be labor. The percentage used to be in the mid80s. It is now in the high 70s as a result of—— 

Senator JOHNSON. But then, again, isn’t that the main driver in 

terms of the financial situation of—again, I think it is—— 

Mr. ROLANDO. Sure. 

Senator JOHNSON [continuing]. Misleading to keep banging on 

this prefunding of a liability that is, let us face it, pretty sensitive 

to just the assumptions, and that surplus can go away in a second 

based on the changing assumptions of those models. 

Mr. ROLANDO. It is one of the—— 

Senator JOHNSON. Also, by the way, what is the incorrect calculation on those? I mean, you are saying it is an outdated model. How 

should it be calculated? What is wrong with the model in terms of 

the calculation of the liability? 
444 

Mr. ROLANDO. Your first question, I believe the labor is a positive 

factor because of the productivity gains. 

The second question, the model you speak of, were you talking 

about the workers’ compensation model? 

Senator JOHNSON. You said that the calculation of the liability is 

based on outdated models, and they have to modernize their calculation models. 

Mr. ROLANDO. Oh, OK. You are referring to the Segal and the 

Hay reports with regard to the actuarial reports of the—— 

Senator JOHNSON. Yes, whatever you were talking about. 

Mr. ROLANDO [continuing]. Pensions? OK, yes, that is what we 

were talking about. Again, I am not an actuary, but the independent reports indicated that if you use—and the GAO themselves said all of those methods were acceptable methods. It was 

just a matter of a policy decision by the Congress. 

Senator JOHNSON. Dr. Holtz-Eakin, could you chime in on that? 

Mr. HOLTZ-EAKIN. I have not seen the Segal report. I am happy 

to look at it and get back to you. 

Senator JOHNSON. OK. I mean, do you question the GAO calculations in terms of unfunded liabilities, $96 billion? 

Mr. HOLTZ-EAKIN. No, not fundamentally. 

Senator COBURN. Let me just caution you. The Segal report has 

revisionist history in it in terms of what the deal was in 1983 when 

all the assets were transferred to the Post Office and the obligations were assumed by the Postal Service. So they have totally discounted that in this analysis, which you cannot discount. 

Mr. BAKER. If I can comment on the methodological issue, I think 

the question is whether you take life expectancy specific to the population, to the Postal workers, and I believe those are somewhat 

less than the overall population. I think that is a methodological 

issue. 

Senator JOHNSON. Again, to me we are quibbling with details 

when you are talking about $96 billion—what difference would it 

make? I mean, would it be $93 billion versus $99 billion? We are 

probably talking about that order of magnitude in terms of the differences based on the calculation, wouldn’t we? Nothing significant? 

Mr. HOLTZ-EAKIN. Oh, I do not know. I would take a look. I 

mean, as we know, health care costs have grown faster than any 

discount rate that is out there in the market for quite a while now, 

and so when you assume they moderate and how fast they moderate drives the calculation. 

Senator JOHNSON. Let me talk a little bit about just average cost 

of benefits compensation. A couple years ago, when I was running—I saw a study that showed that the average cost for Federal 

workers was a little over $120,000, average cost, total cost—that is 

pay and benefit—of the private sector was about $65,000. And you 

can see just in terms of benefits, $35,000 for a postal worker, 

$10,000 private sector. 

Dr. Holtz-Eakin, can you just comment? How did it get that outsized? 

Mr. HOLTZ-EAKIN. I do not have a complete history of the Postal 

Service. I guess this is why I—— 
445 

Senator JOHNSON. I am just saying Federal workers in general 

as head of the CBO, just your comment on that. 

Mr. HOLTZ-EAKIN. They are not comparable. Look at the Post Office. It is not a private sector entity. If so, it would be bankrupt. 

That is what the accounting tells you. It has got a government-provided monopoly for particular lines of business. Monopolies do 

things very differently, and often they pad their payrolls on top of 

everything else. We have seen a lot of that. It is true across the 

government. 

So that is why the focus going forward has to be not the timing 

of this agreed-upon decision to honor the retiree health costs. It is 

about the business fundamentals, what those labor costs as a laborintensive industry and what are the lines of business they are 

going to serve. That is it. If they do not fix that, you do not fix 

things. 

Senator JOHNSON. So coming from the private sector as an accountant, I always had to benchmark my costs, whatever they 

were, whether it was material costs versus labor costs versus benefit costs, against people I compete with. And that is really what 

you are talking about in terms of the fundamentals, we have to 

benchmark what we are paying in total Postal workers versus what 

the private sector—who they will have to compete against, whether 

it is FedEx, whether it is UPS. We are going to have to get those 

costs in line, and primarily with the Postal Service it is labor costs 

that have to get in line with the private sector over time. 

Mr. HOLTZ-EAKIN. And the places we have seen the government 

struggle the most are those places where new competition has arisen to things that were previously exclusively government monopolies. And that is true here. 

Senator JOHNSON. OK. Well, thank you. My time has expired. 

Thank you, Mr. Chairman. 

Chairman CARPER. Dr. Coburn. 

Senator COBURN. I just had one more, and I wanted to hear your 

response to one of the comments Dr. Baker made about getting a 

better return on the funds that we have today. For example, when 

we are investing in T-bills instead of investing in a complex portfolio that is balanced against risk, what would you all think, if you 

hear a proposal like that where we actually got more bang for our 

buck on the invested dollars, what would be your position with 

that? 

Mr. ROLANDO. Well, I would not want to put it in timbers or 

something like that, but I think—— 

Senator COBURN. That is OK. We do not carve in trees in Oklahoma because we do not have that many. [Laughter.] 

Mr. ROLANDO. I do not think it would be a bad idea to look at 

the different funds in the Thrift Savings Plan where Postal employees already have their life savings and, look at a little better return 

there, something safe that has some precedent. 

Senator COBURN. OK. Mr. Hegarty. 

Mr. HEGARTY. I agree with President Rolando. I think the Thrift 

Savings Life Cycle Funds, whether you look at the L–40 or the L– 

50, the risk gets spread out over time, the returns would be significantly more than T-bills. I agree with Fred. 

Senator COBURN. Dr. Holtz-Eakin, what do you think about that? 
446 

Mr. HOLTZ-EAKIN. I am far more cautious. We have been through 

this war with Social Security, and this line of reasoning is the one 

that says that, No. 1, the Postal Service gets the upside, taxpayers 

gets the downside if they do not perform. And, No. 2, if this logic 

really worked, we should issue, say, $16 trillion more in Treasuries, invest it in the stock market, pocket the difference as the 

Federal Government. 

Senator COBURN. OK. Thank you. 

Senator JOHNSON. Could I just chime in on that? 

Senator COBURN. Sure. 

Senator JOHNSON. Also a couple years ago, as I was running, I 

did my own little model. I am an accountant. I do spread sheets. 

And I just took a look at the Social Security surplus. Had we invested that—and I realize these did not exist back then, but a Dow 

Jones index fund, totally exclusive of dividends, had we done 

that—and this is a couple years ago, it would be a fair better result 

today—we would have $5 trillion in a trust fund that was a real 

asset to the Federal Government. A real assets versus $2.6 trillion 

trust fund invested in Treasury bonds that has zero value to the 

Federal Government because they offset liabilities in the Treasury. 

So can we do it at this point in time? At some point in time you 

are better off starting to do the right thing as opposed to doing the 

wrong thing. 

Chairman CARPER. Gentlemen, it has been a real good hearing, 

and the first panel was very helpful. The second panel, the Postmaster General, you and Ron, I thank you for staying to hear this 

second panel. They all did a real good job, and I thank my colleagues for being here as well. 

I want to just give you each a chance to make a closing statement, 30 seconds, just take maybe half a minute, and, Fred, if you 

would like to just lead it off, just half a minute, something you 

would like to leave us with, please? 

Mr. ROLANDO. Yes, I want to leave you with one of the last 

points that was raised because I think it is an important point with 

an important response with regard to the comparability in the private versus Federal. I would really be interested in looking at that 

data and sending you a response because I think it is really important to look at apples and apples in there, because it is really easy 

to look at apples and oranges when you are making a comparison 

like that. And I would hate to leave that in the record, as was just 

said. 

Chairman CARPER. All right. Thank you. Mr. Hegarty. 

Mr. HEGARTY. I would say that, as in my testimony, the cuts that 

the Postal Service has made so far have basically hit rock bottom. 

We have lost 300,000 good middle-class-paying jobs. Approximately 

25 to 40 percent, depending on category of Postal employees, are 

veterans. We are losing the opportunities for our returning vets to 

come back and get a good job with the Post Office like their brethren in years past have done. In the plants, we have cut from over 

600 plants, as you stated, Mr. Chairman, to somewhere in the 

neighborhood of 350, 375 right now. 

I am worried that further cuts will erode the business model and 

not allow the Postal Service to grow and to compete for the busi-
447 

ness that is out there, and I think it is a cutting mode that should 

be construed as a death spiral for the Postal Service. 

Chairman CARPER. Good. Thanks. 

Mr. Rapoza, a closing word. 

Mr. RAPOZA. Senator Carper, I want to thank you and the Committee for having this hearing, and I think the sooner we get some 

postal reform, the more pressure will be released out in the field, 

not only with staffing but vehicle needs and other essentials out 

there that we need to provide the service to the American public. 

So, I would urge you to try to get it done before I leave on December 31. 

Chairman CARPER. Yes, sir, that is our goal. [Laughter.] 

That is our goal. And then we can name the bill after you, 

maybe. You never know. 

All right. Dr. Holtz-Eakin. 

Mr. HOLTZ-EAKIN. Mr. Chairman, I am pleased to see the Senate 

working on real problems in a bipartisan fashion, and I think it is 

a wonderful precedent for much of the rest of our government. 

On this, I think the thing that I would urge you to remember is 

that this is not a private sector entity. I am all for giving the Post 

Office all the tools they need to be successful in the lines of business that the Congress decides they should pursue. But they are 

ultimately backed by the U.S. taxpayer, and due protection to that 

exposure is really important in this. 

Chairman CARPER. All right. Thank you. 

Dr. Baker, please. 

Mr. BAKER. I guess I would just make three quick points. 

First off, again, looking at the numbers, having not looked at 

them for a couple years, I am impressed to see the progress the 

Postal Service has made in restoring itself to profitability. 

Second, I am pleased to see the bipartisan interest in considering 

at least the possibility of a diversified portfolio for the retirement 

funds, because I think that is-—again, if we want to emulate a private business, that is what you would do. 

And, last, I hope I get you to consider letting Postal workers get 

their health care in Canada. [Laughter.] 

Chairman CARPER. Let me give the benediction, if I can. The 

Postal Service announced this week an exigent rate case, and I 

think they are looking at an increase of as much as 5.9 percent and 

on an emergency basis. There are about 90 days before us until I 

think that could kick in. And I think the Board of Governors said 

upon announcing the exigent rate, they would be happy not to see 

that take place. I think I speak for most of us on this side of the 

dais that we would be happy to see that not take place either. 

Part of the key, a good part of the secret to making sure that it 

does not take place, is for us to legislate wisely. We need good 

input. We have gotten some good input here today. And I know 

there have been serious negotiations between our labor unions, our 

friends who represent Postal employees, many of them, and Postal 

management. If there is a true interest on the part of our friends 

in organized labor to be able to preserve 6-day-a-week service, I do 

not know if there is some way that you can negotiate a compensation package maybe for the folks that are delivering on that sixth 

day that makes this competitive, to do it, and to not do it at a loss. 
448 

I know you all have tried to do that before, and I would just ask 

that you look at that again as you go forward. And I know there 

is good spirit involved in those negotiations, and I would just urge 

you to keep at it. 

The last statement: I have said before, the situation at the Postal 

Service is dire. It is not hopeless. There is hope in a hopeless 

world. And if we have some opportunities here to seize, then I 

think our goal, my goal is that we ought to seize those opportunities, seize the day. If we work together and work smart, the future 

of the Postal Service for the next couple hundred years can be almost as bright as it has been for the last couple hundred years. 

Again, our thanks to everybody for being here, my colleagues 

who have joined us today, Senator Johnson who stayed to the notso-bitter end. And I would say because he has, he will hear this before our other colleagues do: That the hearing record will remain 

open for 6 days—I think that is until October 4—for the submission 

of statements and questions for the record. 

And with that, the hearing is adjourned, and lunch is served 

somewhere for each of us. Thank you so much. 

[Whereupon, at 12:57 p.m., the Committee was adjourned.] 
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