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90–236 PDF 2003

S. Hrg. 108–213

U.S. POSTAL SERVICE: WHAT CAN BE DONE

TO ENSURE ITS FUTURE VIABILITY?

HEARING

BEFORE THE

COMMITTEE ON 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

SEPTEMBER 17, 2003

Printed for the use of the Committee on Governmental Affairs

(

(II)

COMMITTEE ON GOVERNMENTAL AFFAIRS 

SUSAN M. COLLINS, Maine, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

ARLEN SPECTER, Pennsylvania 

ROBERT F. BENNETT, Utah 

PETER G. FITZGERALD, Illinois 

JOHN E. SUNUNU, New Hampshire 

RICHARD C. SHELBY, Alabama 

JOSEPH I. LIEBERMAN, Connecticut 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

RICHARD J. DURBIN, Illinois 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

MICHAEL D. BOPP, Staff Director and Chief Counsel 

ANN C. FISHER, Deputy Staff Director 

JOYCE A. RECHTSCHAFFEN, Minority Staff Director and Chief Counsel 

SUSAN E. PROPPER, Minority Counsel 

AMY B. NEWHOUSE, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

Senator Collins ................................................................................................. 1

Senator Lautenberg .......................................................................................... 4

Senator Durbin ................................................................................................. 5

Senator Dayton ................................................................................................. 6

Senator Carper ................................................................................................. 14

Senator Akaka .................................................................................................. 17

Senator Fitzgerald ............................................................................................ 18

Senator Pryor .................................................................................................... 27

Prepared statements: 

Senator Coleman .............................................................................................. 39

Senator Lieberman ........................................................................................... 39

Senator Stevens ................................................................................................ 41

WITNESS 

WEDNESDAY, SEPTEMBER 17, 2003

James A. Johnson, Co-Chair, Presidential Commission on the U.S. Postal 

Service, and Vice Chairman, Perseus, LLC 

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

Prepared Statement ......................................................................................... 42

APPENDIX

Questions and Responses for the Record for Mr. Johnson from: 

Senator Collins ................................................................................................. 58

Senator Carper ................................................................................................. 65

Senator Stevens ................................................................................................ 69

(1)

U.S. POSTAL SERVICE: WHAT CAN BE DONE 

TO ENSURE ITS FUTURE VIABILITY? 

WEDNESDAY, SEPTEMBER 17, 2003

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

The Committee met, pursuant to notice, at 10 o’clock a.m., in 

room SD–342, Dirksen Senate Office Building, Hon. Susan M. Collins, Chairman of the Committee, presiding. 

Present: Senators Collins, Fitzgerald, Akaka, Durbin, Carper, 

Dayton, Lautenberg, and Pryor. 

OPENING STATEMENT OF CHAIRMAN COLLINS 

Chairman COLLINS. The Committee will come to order. 

This past December, President Bush announced the creation of 

a bipartisan Commission charged with identifying the operational, 

structural, and financial challenges facing the U.S. Postal Service. 

The President charged this Commission with examining all significant aspects of the Postal Service with the goal of recommending 

legislative and administrative reforms to ensure its long-term viability. 

Harry Pearce, the chairman of Hughes Electronics Corporation, 

and James Johnson, the vice chairman of Perseus, LLC, were appointed by the President to serve as the Commission’s co-chairmen. 

I very much welcome Mr. Johnson here today, and I regret to announce that due to illness, Mr. Pearce is unable to join us here 

today as planned. He was an invaluable participant in the development of the Commission’s final report, and I sincerely regret that 

illness prevents him from joining us today. I wish him, and I know 

that Mr. Johnson joins me in wishing him a speedy recovery. 

Mr. Johnson, I want to begin this morning by thanking you for 

your tremendous effort in putting together a highly comprehensive 

report on an extremely complex issue. In a limited amount of time, 

you and Mr. Pearce conducted seven public hearings across the 

country and heard from countless witnesses. 

On July 31, the Commission released its final report, making 35 

legislative and administrative recommendations for the reform of 

the Postal Service. You and the eight other members of the Commission committed yourselves fully to a daunting task, and I want 

to congratulate you on your fine work. 

As I read through the Commission’s report, I was struck by what 

I considered to be the Commission’s wakeup call to Congress, your 

statement that ‘‘An incremental approach to Postal Service reform 

will yield too little too late given the enterprise’s bleak fiscal outVerDate 0ct 09 2002 09:56 Dec 12, 2003 Jkt 090236 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 C:\DOCS\90236.TXT SAFFAIRS PsN: PHOGAN
2

look, the depth of the current debt and unfunded obligations, the 

downward trend in First-Class mail volumes, and the limited potential of its Legacy Postal Network that was built for a bygone 

era.’’

That is a very strong statement and one that challenges both the 

Postal Service and Congress to embrace far-reaching reforms. 

To the relief of many, myself included, the Commission did not 

recommend privatization of the Postal Service. Instead, the Commission worked toward finding a way for the Postal Service to do, 

as Mr. Johnson described it to me, ‘‘an overwhelmingly better job 

under the same general structure.’’

The Commission’s recommendations are designed to help the 

225-year-old Postal Service remain viable through at least the next 

two decades. 

The financial and operational problems confronting the Postal 

Service are serious indeed. At present, the Postal Service is paying 

down $6.5 billion in debt to the U.S. Treasury, and its long-term 

liabilities are enormous, to the tune of nearly $6 billion for workers’ compensation claims, $5 billion for retirement costs, and perhaps as much as $45 billion to cover retiree health care costs. 

In an unexpected turn of events last year, the Office of Personnel 

Management discovered that if postal payments into the Civil Service Retirement System fund were to continue on the basis required 

under existing law, the Postal Service would overfund its estimated 

liability by approximately $71 billion over a period of 60 years. To 

correct this overfunding problem, Senator Carper and I introduced 

bipartisan legislation in February. It was enacted and signed into 

law this past April, and thus, the result is that the Postal Service 

has been able to delay its next rate increase until 2006 and has 

been able to pay down more aggressively the billions of dollars in 

debt owed to the U.S. Treasury. 

Despite this reprieve, however, many challenges remain. It is important to understand the impact of the Postal Service on our economy. The Postal Service itself employs more than 750,000 career 

employees. Less well-known is the fact that it is also the linchpin 

of a $900 billion mailing industry that employs 9 million Americans in fields as diverse as direct mailing, printing, catalog production, and paper manufacturing. 

The health of the Postal Service is essential to the vitality and 

the economic viability of thousands of companies and the millions 

of Americans that they employ. One of the greatest challenges for 

the Postal Service is the decrease in mail volume as business communications, bills and payments move more and more to the internet. The Postal Service has faced declining volumes of First-Class 

mail for the past 4 years. This is highly significant given that 

First-Class mail accounts for 48 percent of total mail volume, and 

the revenue it generates pays for more than two-thirds of the Postal Service’s institutional costs. 

The Postal Service also faces the difficult task of trying to cut 

costs from its nationwide infrastructure and transportation network. These costs are difficult to reduce. Even though mail volumes 

may be decreasing, carriers must still deliver 6 days a week to 

more than 139 million addresses even if they are delivering fewer 

letters. 

3

Despite much discussion about reforming the Postal Service and 

previous attempts by some of our colleagues in the House of Representatives to do so, the diverse views of what shape postal reform 

should take, if any, have only led to stalemates in the past. To take 

a fresh look at these issues, last July, I introduced a bill to establish a Presidential Postal Commission charged with examining the 

problems the Postal Service faces and developing specific recommendations and legislative proposals that Congress and the 

Postal Service could implement. 

You can imagine my pleasure that the President moved ahead 

with just such a Commission, and today we are hearing the results 

of those efforts. In many ways, the work of the Commission builds 

upon work already started by the Postal Service. At the request of 

the Senate, Postmaster General Jack Potter delivered to Congress 

in April of last year a comprehensive Transformation Plan designed 

to ensure the continuation of affordable universal service and to 

prepare the organization for the challenges of change in a dynamic 

marketplace. 

The Postal Service has determined what changes could be made 

within existing constraints that would result in improved operations, performance and finances. The Transformation Plan has 

been widely recognized as a good first step, but that is exactly what 

it is—a first step. Without legislation, many of the necessary reforms highlighted in the Commission’s report simply will not happen. 

In closing, I would like to say that as a Senator representing a 

large rural State, I greatly appreciate the Commission’s strong endorsement of the basic features of universal service—affordable 

rates, frequent delivery, and convenient community access to retail 

postal services. 

It is important to me that my constituents, whether they are living in the far reaches of Northern Maine or out on an island or in 

our many rural small towns, have the same access to the Postal 

Service as the people of our large cities. If the Postal Service were 

to no longer provide universal service and deliver mail to every customer, the affordable communications link upon which many Americans rely would be jeopardized. Most commercial enterprises 

would find it uneconomical if not impossible to deliver mail and 

packages to rural Americans at the rates that the Postal Service 

has been offering. 

The preservation of universal service and many more issues must 

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

service upon which so many Americans rely for communication and 

for their jobs. The Postal Service has reached a critical juncture. 

It is time for a thorough evaluation of the Service’s operations and 

requirements. It is time for action. 

This will be the first in a series of hearings that the Committee 

will hold to examine these important issues. 

Again, I want to commend the Commission for preparing this important report. We look forward to hearing your testimony, Mr. 

Johnson, and discussing with you the rationale behind some of the 

recommendations and what you recommend as the next steps in 

the effort to reform and preserve the Postal Service. 

Senator Lautenberg. 

4

OPENING STATEMENT OF SENATOR LAUTENBERG 

Senator LAUTENBERG. Thank you, Madam Chairman, and welcome, Jim Johnson. 

I have known Mr. Johnson for a long time, and when I see him, 

I am not sure whether he is representing the cultural concerns of 

the community, the banking concerns of the community, or, in old 

days, the political concerns, but I think he has put those aside for 

better pursuits. We always know that where Jim Johnson lends a 

hand, things usually come out very well. I will have to reserve a 

little judgment until I have a chance to study the proposal a little 

bit longer, but I am certainly glad to see you here, Jim. 

Postal reform is an incredibly important national issue, and most 

Americans do not spend a lot of time thinking about it until the 

mail is not there in the time frame that they expect, or there is 

a request or suggestion that maybe Saturday mail be eliminated or 

curtailment of service in any way, because although it is costly and 

at times cumbersome, the fact is we love it, and we like what the 

Postal Service represents. 

There are a couple of things that have to be of concern as we look 

at reform. One is to be able to guarantee that the basic service is 

available and at the same time, that the staff, the loyal employees 

of the Postal Service, have their rights protected. If change is to be 

made, they have to be consulted, and we have to respect their 

views and ideas. It does not mean that we are going to agree with 

every one of them, but certainly we want to hear what they have 

to say. 

The importance of the U.S. Postal Service to our national economy cannot be overstated. An example is that a 2-year delay in 

postal rate increases has the potential to save publication companies like AOL-Time Warner—I guess it is now just Time Warner—

approximately $200 million in mailing costs. Last year alone, the 

U.S. Postal Service delivered more than 200 billion pieces of mail. 

So the important role that the Postal Service plays in our economy 

and the contribution of its 843,000 dedicated employees, as I said 

earlier, cannot be overlooked or taken for granted. 

Having said that, this is indeed a time of great change for the 

Postal Service. Things that are not directly related to the performance of the Postal Service’s duties, but are rather technology 

changes, have had a vast impact. As the President’s Commission 

has observed, traditional mail streams will likely continue to migrate to cheaper, internet-based alternatives. And given the existing regulatory structure, the Postal Service debt is likely to increase every year, making it tougher for the Postal Service to 

achieve its fundamental mission of universal service. 

I support the Commission’s recommendation to make the ratesetting process less cumbersome and more efficient, but I want to 

take a second look at the Commission’s labor reform proposals—at 

one of them. As a former businessman, I understand the need to 

make the work force as lean and efficient as possible, but restricting employees’ collective bargaining rights, privatizing jobs, and increasing executive compensation, will not solve all of the Postal 

Service’s organizational and workplace problems nor improve employee morale or efficiency. And I would hope that I could be found 

to improve the process, the collective bargaining process but, as I 

5

said in my opening comment, encouraging the views and the ideas 

of the people who are on the front line performing; they have the 

best knowledge bank of all. 

So I look forward, Madam Chairman, to hearing from Mr. Johnson and to try to resolve in whatever way we can some of the tension that exists there but at the same time to make certain that 

the people in this country know that the Postal Service is going to 

be there to provide them with the service they need. 

Chairman COLLINS. Thank you, Senator Lautenberg. 

Senator Durbin. 

OPENING STATEMENT OF SENATOR DURBIN 

Senator DURBIN. Thank you very much, Madam Chairman, and 

thank you for this hearing. 

Jim Johnson, thank you for your public service. You continue to 

add to our country with everything that you have volunteered to 

step forward to do, and this is no exception. 

I, for one, believe that we should start this hearing keeping two 

things in mind which I think your Commission began with. First, 

our commitment to universal mail service. It distinguishes the 

United States as a Nation, and I think it is something that we 

need to preserve and work hard to make certain that in the 21st 

Century, it meets modern standards. 

I was encouraged by your recognition of what the Internet and 

email have done to mail volume and what they are likely to do in 

the future. I think that addressing that head-on is honest and is 

an indispensable part of a realistic evaluation of the future of the 

Postal Service, and I thank you for that. 

Second, I want to commend my colleagues and the good work of 

our fellow Senator, George Voinovich of Ohio, who has since he has 

come to this Committee really focused on an element that is essential to quality service in the Federal Government. He has focused 

on the people of the Federal Government. Beyond the obvious box 

charts and good thoughts that we might have about organization 

and structure, in the final analysis, the success of every agency of 

the Federal Government, from our great military to the men and 

women who serve in so many different agencies, depends on their 

skills and their morale and their commitment to excellence. And I 

think that as we talk about the future of the Postal Service, we 

should never discount that. So long as we have excellent men and 

women serving our country in the Postal Service, I think we have 

the greatest potential to develop it into the 21st Century in a fashion that is essential. 

I want to echo what Senator Lautenberg has said. Many of the 

workers of the Postal Service look at this report with a lot of concern as to whether or not it is going to recognize them as individuals, is going to give them the kind of dignity that they deserve in 

the workplace. And I hope that we can find the right balance. We 

have to say to them that as a team approach, we need to find better ways to reach excellence in performance, and we need to do it 

recognizing your worth as an individual and your importance to a 

team effort. 

I think we also have to say to those who are critics of the Postal 

Service—and there are many out there, from late night talk shows 

6

1The prepared statement of Mr. Johnson appears in the Appendix on page 42. 

to people on Capitol Hill—that if they can find another place in the 

world where, for 37 cents, you can get a letter delivered 2,000 miles 

away within a few days, please tell me where that is. I just do not 

think that is something we should ever take for granted, and I 

hope that becomes the bottom line of our conversation here. 

Thank you very much. 

Chairman COLLINS. Senator Dayton. 

OPENING STATEMENT OF SENATOR DAYTON 

Senator DAYTON. I think that is true everywhere in America except for the mail that comes to the Capitol. 

Senator DURBIN. That is true. 

Senator DAYTON. Madam Chairman, I want to commend you for 

taking on this subject. After grappling with the Department of Defense, I am glad you picked something simple like the Postal Service. Most people would not take on both of those in a lifetime much 

less in the same year. So thank you very much for your leadership 

on these and other issues. 

One reason I am in the U.S. Senate from Minnesota is because 

Mr. Johnson decided to stay in Washington rather than go back 

and run for political office in his home State of Minnesota. Anybody 

with a name that ends in ‘‘-son’’ in Minnesota has a natural advantage of about a quarter million votes. But he found opportunities 

to make even more distinguished service and contributions to our 

country in Washington. He is a proud native son of Minnesota, and 

we are proud to have him as a native son, and I look forward to 

his remarks. 

Chairman COLLINS. Thank you. 

I am now pleased to introduce our witness who clearly is wellknown to those on the Democratic side of the aisle on this Committee—James Johnson, who is vice chairman of Perseus, a merchant banking and private equity firm here in Washington. 

He is well-known not only for his political work but for his 10 

years at Fannie Mae, having served as vice chairman, chairman, 

and CEO and as chairman of the Executive Committee. Prior to 

joining Fannie Mae, Mr. Johnson served as president of Public 

Strategies, a Washington-based consulting firm which advised corporations on strategic issues. He has also served as an executive 

assistant to former Vice President Walter Mondale, another Minnesota connection, and is the recipient of numerous awards and degrees. 

Again, we are very pleased to have you here today, and I want 

to thank you on behalf of all my colleagues for your very diligent 

and impressive work in producing this comprehensive report. 

We look forward to hearing from you. Take as much time as you 

need for your statement. 

TESTIMONY OF JAMES A. JOHNSON,1 CO-CHAIR, PRESIDENTIAL COMMISSION ON THE U.S. POSTAL SERVICE, AND 

VICE CHAIRMAN, PERSEUS, LLC 

Mr. JOHNSON. Thank you very much, Madam Chairman. 

7

I want to compliment you for the extraordinary intelligence and 

discipline with which you have approached this issue. You have become a real leader in this area, and I have no doubt that by virtue 

of you chairing this Committee, the end result of these recommendations and the reform effort will be substantially better. 

To my friends, colleagues, long-time associates, thank you so 

much for your opening remarks. I am delighted that each of you 

are here, and I understand and embrace the spirit of your opening 

remarks. I would like to address many of those concerns as directly 

as possible. 

What I am going to do is not read back through the testimony 

which we presented but rather just highlight a few of the recommendations, Madam Chairman, that we think are most significant and also try to give a little background to our thinking as a 

Commission. 

I should say that the Commission staff did an excellent job. Dennis Shea is here this morning and other members of the staff are 

also here. They did a wonderful job. I also think that the eight 

other members of the Commission deserve a real public thank you. 

These are people who gave hundreds and hundreds of hours. All of 

us came to this very complex challenge with no real background in 

postal issues. A lot of us had substantial background in large organizations, in corporate issues of various kinds and thinking 

through logistics businesses or service businesses, but we were new 

to this issue. I think all of the people sitting behind me in this 

room certainly knew more when I began and probably know more 

today. But we did make a very substantial, honest effort to take 

a look at these complex issues and offer you our best thoughts. 

We do not consider ourselves to have the last word or the final 

word on any of these issues. We have a perspective which is informed by our role in the business world largely, some small business, some large business, some in the public policy world, so we 

welcome the dialogue. We were not writing legislation; we were 

writing perspective, and the perspectives that we gave are an honest effort by all of us to keep the focus on reform, keep the focus 

on a better Postal Service, and to keep appropriate focus on everyone who contributes to that. I am very grateful to you for leading 

this effort in the Senate. 

Let me just give a little bit of context at the beginning. As you 

and your colleagues have pointed out, this is tricky business. What 

we have here is a very large enterprise which is designed to break 

even, to deliver hundreds of billions of pieces of mail, to not have 

excessive costs to the ratepayers, to have universal service, and 

above all to not be a threat ultimately to the taxpayer. 

We are trying to balance a lot of things at once and do it in a 

very complex organization. 

The very first conclusion that the Commission came to is that the 

work of the Congress more than 30 years ago was very good work. 

In fact, this basic construct was a very sound basic construct and 

we should not be looking at radical privatization alternatives, we 

should not be looking at ways of subsidizing this in tax dollars. But 

we should find a way if we possibly can to make the most efficient, 

most effective postal system that could stand on its own two feet, 

that could break even over time, that could manage its responsibilVerDate 0ct 09 2002 09:56 Dec 12, 2003 Jkt 090236 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 C:\DOCS\90236.TXT SAFFAIRS PsN: PHOGAN
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ities and its obligations along with the rate-setting process so that 

it would have adequate revenues, adequate growth, more than adequate service, and in the end be an institution that all Americans 

can respect and value. 

As part of our effort, we did an opinion survey. Peter Hart from 

The Wall Street Journal and Linda Duval led the effort, one traditionally on the Republican side, one traditionally on the Democratic 

side. What we found is that the Postal Service is among the very 

most respected institutions in America. This is not a broken institution. This is a strong and respected institution. And it is very important that everybody keep in mind that Americans all over this 

country very highly value the services they receive and have great 

respect for the people who deliver those services. 

That was the broad context in which we began. We felt that as 

part of the future prospects, one of the things that we should focus 

on is making those services of the postal system even more easily 

available. We have a number of recommendations about how to extend the service, how to extend through retail outlets, more accessibility, how to get more service within easy reach of more people on 

a regular basis. And you will see in the report that that is a big 

part of our thinking. 

We were also concerned about organizational effectiveness in 

terms of the focus of the organization. So many organizations that 

have failed in America in the last 20 years—Senator Lautenberg 

certainly knows about this from his corporate background—have 

failed because they have not kept the focus on their core mission; 

they have gotten involved in things that were not things they knew 

how to do. 

Therefore one of the core recommendations here is stick to your 

knitting. Do what you are supposed to be doing. Do not be looking 

for other ways of expanding into businesses where you do not have 

expertise, where you do not have a clear preparation and a clear 

background. 

The second recommendation in the mission and governance 

area—and this is also something that Members of the Committee 

I think will relate to very strongly—is that we all felt that there 

should be the best of corporate governance put in place. As part of 

that best of corporate governance, our strong belief was that we 

should now take advantage of the benchmarking that is going on 

among large organizations and put in place the characteristics of 

the most effective boards of directors in America today. We reached 

out to the Conference Board and to a lot of academic institutions, 

a lot of other institutions that are focusing on governance in a corporate setting, and made a set of recommendations for a new board 

of directors for the Postal Service, which we think are a sound set 

of recommendations. 

We were also very much aware of the fact that there are many 

public mission responsibilities for the Postal Service. It is supposed 

to operate in a businesslike manner, but it is not supposed to be 

a business that operates without the public sector and public mission very much in mind. 

We tried to craft a new regulatory approach with the postal regulator, with some broad authority for review but also very broad instructions not to be involved in trying to micromanage this large 

9

enterprise. Whether we got this exactly right or not, once again, is 

part of the dialogue of the next several months and longer. 

We said if there are major changes in universal service, really 

major, that should be a subject reviewed by the postal regulator. 

We said if there were extensions of monopoly activities, that should 

be reviewed by the postal regulator. 

We recommended setting up a new rate mechanism, trying to figure out a way to have a much speedier, much more efficient, but 

also fair rate-setting mechanism so that you wouldn’t have this extended 18-month process which is currently part of the Postal Rate 

Commission structure. That is something that is going to require 

a lot of work to get it right. We think we have made some very useful suggestions, and as you think about legislation, obviously, you 

will have to decide whether or not we have gotten most of the dimensions right or not. 

We were also focused very strongly on the overall effectiveness 

of the postal system—the delivery system, the processing system—

so that the enormous strides that have been made in corporate 

America in the last 20 years could be put in place within the context of the business efficiency and logistics requirements of the 

postal system. Many businesses in America today are operating 

dramatically more efficiently than before, with better technology, 

more modern organization, better assessment of the performance 

characteristics of all of the elements. 

Today, gentlemen, Madam Chairman, there are 446 postal facilities for processing, distribution, and bulk mail. We had a very substantial dialogue with the Postmaster General, Mr. Potter, and others about what would be the right sizing of the system—how many 

facilities there should be; how they should be integrated into a 

comprehensive network as opposed to facilities that were built at 

different times with different methodologies, with different characteristics, with different efficiencies. We came up with an idea which 

is not original—and I know that Senator Carper and others have 

expressed a lot of interest in this. After a lot of study of what happened with the Base Closing Commission we have created something that we chose to call the Postal Network Optimization Commission. This Commission would take recommendations from the 

Postmaster General, have an obligation to talk about them very 

broadly with all concerned parties, including the communities that 

would be affected, and come back with a proposal for a network 

modernization which we believe, the Postmaster General believes, 

virtually everybody who testified before our Commission believes, 

would yield a smaller number of facilities. I do not want in any 

way to try to say that is not the implication of this Commission. 

This is a Commission which says in its formation that we believe 

there are more facilities than are required for efficient performance, and we believe that some of them should be redesigned, many 

of them should be reconnected with each other in a smarter, more 

effective way, and that some of them should be closed. 

I think we have provided a mechanism for an enormous amount 

of public input; we have provided a mechanism for congressional 

review; we have provided a mechanism for the Postal Service to 

take the lead, and I think that is a promising recommendation. 

10

We also spent a lot of time talking about the enormous real estate assets of the Postal Service. There are, as you know, 38,000 

postal facilities—not all of them look like what you expect when 

you see a photo. Some of them are contract facilities; not all of 

them are large, not all of them have conceivable alternative uses. 

But we felt that with that enormous real estate holding, $15 billion 

in book value, very substantially more than that in all likelihood 

in market value, that we should be looking for ways to limit the 

overall cost of the leasing, the overall cost of the real estate owned, 

look for an active management of those real estate assets, so that 

as we are pressed to keep rates as low as we can and as we are 

pressed to keep this as a viable enterprise, we do not have substantial assets which are being underutilized. 

We also placed an emphasis on a lot of cost-saving mechanisms 

through work-sharing discounts, through outsourcing of postal 

function. Let me stop for just a moment on the outsourcing concept. 

This is something which I know has become extraordinarily controversial, something that people have talked about at great length. 

The Commission discussed this at great length, and today there 

are already between $10 and $20 billion of cooperative efforts between the private sector and the Postal Service. This is probably 

the leader—it is the leader, I am sure—of all public entities in 

terms of joint public-private partnership and cooperation and the 

intertwining of what is being provided by the government and by 

the private sector. 

We reviewed this. Some on the Commission were extremely aggressive about the potential of this. In the end, I and a couple of 

other Commission members said let us be absolutely clear here, 

and what guides us through all of this activity is best execution. 

We do not have an ideological preference of some kind here that 

we are putting on the table. What we are saying is that at every 

step of the way, best execution is the measure. If the best execution 

is a public execution through the postal employees who are in place 

today, then that is absolutely what should be done. If the best execution happens to be through a contracting mechanism where we 

can lower the cost and get greater efficiency and reliability, then 

we go in that direction. But this is not intended to be a wholesale 

reorientation. This is intended, as so many of our other recommendations, to be focused primarily on best execution. What 

would the best practices in corporate America tell us today about 

the lowest-cost, most efficient, most reliable execution for all of 

these functions that we are talking about? 

We also talked frankly about ways of enhancing the value of the 

Postal Service as it is designed today. As Senator Lautenberg 

pointed out, this is a huge enterprise and, as you pointed out in 

your opening remarks, $900 billion of activity in the United States 

economy. This Postal Service is a very valuable national asset and 

we should be thinking about how not only can we make it run efficiently as it might be threatened by electronic activities, but within 

the core of its mission. We should be thinking about ways in which 

it can be even more economically important, where it can be even 

more socially important, where it can interconnect our people even 

more effectively. 

11

We also had a growth orientation to this service function as well 

as making sure that we were always focused on best execution. 

In the financial areas the Commission more than anything else, 

embraced transparency. We believe that everything about this public enterprise should be transparent. We also had a dialogue with 

the SEC to talk about the best standards of transparency, reporting and visibility of financial reality that flows through their processes. 

We think the Postal Service should report quarterly the way 

major companies in America report quarterly to the SEC, meeting 

the highest standard of transparency. 

We also believe as we change this rate-setting mechanism, if we 

do, that we should be very much focused on an ongoing transparency about the allocation of costs within the Postal Service, that 

the form, content, and timing requirements of mail products and 

services should be clear for all to see how the Postal Service views 

this, how they allocate the costs. We all felt that the cost allocation 

in the present formulas was inadequate. We had some testimony 

on that point saying that it should go up to a dramatically higher 

level than it is today. Not all of us were of the view that that was 

possible, but higher than today in terms of the allocation of costs 

of the various products and services. 

Let me now talk about the more controversial piece of what the 

nine commissioners came to consensus on having to do with the 

work force—and I want to be very frank here and obviously will 

take whatever questions anybody has. 

We believe, the Postmaster General believes, and a number of 

other people believe that there are probably more employees today 

in the Postal Service as a whole than are required in the most efficient organization that could be put together. Many of the employees are eligible for retirement within a short time frame. Our belief 

is that one of the core responsibilities of the newly-constituted 

board of directors is to have a comprehensive human resources 

plan, not unlike any other major corporation in America. As you 

look at the work to be done, as you look at the challenges that you 

face, we believe that the board of directors should have a point of 

view about the optimum size of the work force, and with the retirements that are already expected, we believe that this can be done 

in the context of attrition. But we do not believe, with 76 percent 

of the overall expenses of the Postal Service, that this is something 

that should be ignored. It will be difficult. I believe the consultation 

that Senator Lautenberg talked about and I know others feel 

strongly about is essential to this. It cannot be done without full 

cooperation between management and the unionized labor force of 

the postal system. In the end, others may have a different point of 

view. But we nine citizens, in looking at this, came to believe that 

with the best technology, the best execution, the best rationalization, the best consideration of what was state of the art in terms 

of processing, distribution and all the other bulk challenges of the 

Postal Service, that with proper investment in technology, with 

proper orientation to capital investment over time, the postal work 

force would shrink. So we put that on the table. We do not know 

how much, we do not know over what period of time, but we believe that with that being 76 percent of the cost that you cannot 

12

do a credible report without saying that this is a core responsibility 

to right-size the work force. So we said it. 

Let me make another point—and this too is very controversial—

on pay-for-performance. We had endless conversations within the 

Commission about what was the nature of financial incentive that 

should be part of a structure that is seeking to get to the highest 

level of performance. And we came up with a number of ideas. We 

had a lot of help from outside consultants. Let me just start with 

the bottom line, and that is that the Commission members unanimously believe that an appropriate, disclosed, broad-based reward 

for superior performance should be part of the incentive structure 

for the Postal Service. 

Many of the unionized representatives, or representatives of the 

unionized workers, did not think that was the right way to proceed. 

We listened to them in a variety of different contexts, publicly and 

privately. There is no doubt that there are issues in this area. We 

had an outside consultant talk to us about major companies with 

unionized work forces that did have pay-for-performance systems 

that they believed worked well. But this is not cookie-cutter business. This is something that would have to be shaped very carefully. We would have to make sure that none of those dimensions 

of favoritism and disruption of the work force that the labor representatives talked about came into play. But as a matter of conviction, all of the nine members of the Commission said we believe 

over time that we will have higher performance if we tie performance to superior work contribution. It is controversial, but it is 

something that we attacked and thought about. 

The next thing in the work force area is something that really 

flows directly from Capitol Hill, and this is something we also 

spent an enormous amount of time on, and that is pay comparability. When the Act was passed more than 30 years ago, it became the law of the land that there should be comparability between the people in the postal work force and people in comparable 

jobs in the private sector. That was principally motivated at the 

time because there was a feeling that there was inadequate compensation in the Postal Service, that they were not in fact meeting 

the standard of comparability to the private sector. 

We heard a great deal of testimony from people now saying that 

in their opinion, there was a premium on compensation in the Postal Service to comparable jobs in the private sector. We never came 

to a conclusion on that. The Commission does not have a point of 

view on that. There are individual members of the Commission 

who have a point of view, but one of the things that we worked 

through was not to have an opinion on pay comparability but to 

say this is the law of the land, this is what the Congress has so 

clearly stated, and we should recommend a mechanism to review 

whether or not in fact the law is being complied with. 

Now, obviously, at any time you want to change the law with the 

cooperation of your people in the House, you can change that law 

any way you want. We didn’t know how to have a comprehensive 

report without addressing the issue of comparability. What we said 

was that there should be a thorough examination of this, that there 

should be a review of the most appropriate comparisons, and then 

there should be mechanisms put in place to assure that if it were 

13

not comparable, that with new employees hired, there should be a 

requirement that it be comparable. Once again, very controversial 

and something that no doubt you will discuss at great length. 

One of the things to keep in mind about all of the things that 

we said in the work force area is that none of the things that we 

recommended should be retrospective; nothing should affect current 

retirees, nothing should affect current bargaining agreements. 

These are things that should be considered for the future as opposed to affecting current employees. 

The final recommendation that I know you have talked about at 

great length already has to do with whether or not the Postal Service should have responsibility for military pension costs. We came 

down saying no, that this is an unusual burden and should not be 

a burden of the Postal Service. Lifting those pension costs obviously will have major economic implications and positive implications toward the Postal Service. 

So the core of our message, plain and simple—and I am sorry if 

I have gone on too long—plain and simple is that this is a fabulous 

national asset. The current structure and approach is the right 

structure and approach. We believe that there is no immediate crisis, but we believe that Congress needs to address many of these 

challenges that have been on the table this morning and have been 

on the table many times before. If we do not address the challenges 

now of having the most efficient, effective possible Postal Service, 

there will be a time when we will either have dramatic, and I think 

destructive, rate increases to keep the requirement of breaking 

even, the potential for a bailout, or dramatic reductions in service. 

We do not want any one of those three things. What we are trying 

to do with our recommendations is to push ahead by saying let us 

embrace universal service in the fullest sense of that definition, let 

us get it right as a large organization in terms of best execution, 

and then let us get the most we can possibly get out of this model 

so that we have the potential for the next 10 to 20 years of taking 

what is already a very effective institution, make it even better, 

and stabilize it within the context of its core definition. 

That is what we were trying to do. I have tried to give you a little background behind how we thought about a variety of these 

things. I am fully aware that not everyone will agree on all these 

topics, but I and all the other members of the Commission very 

much welcome the dialogue and are completely open to discussing 

our thinking on any one of these topics. 

Chairman COLLINS. Thank you very much, Mr. Johnson, for an 

excellent statement. Your written statement will be entered in the 

record along with any other materials that you wish to provide, but 

that overview was terrific, and I thank you. 

Senator CARPER. Madam Chairman. 

Chairman COLLINS. Yes, Senator Carper. 

Senator CARPER. Could I ask a point of personal privilege? We 

have been dealing with a natural disaster, a flooding problem, up 

in northern Delaware, and I have been engaged on that this morning and arrived too late to give an opening statement. Rather than 

give one, I would just ask for 2 minutes just to make a brief statement if I could. 

Chairman COLLINS. Certainly. 

14

Senator Carper has been very active on postal issues. We teamed 

up earlier this year on the postal bill that I mentioned in my opening statement. 

I am pleased to yield to you for some comments. 

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. And I am pleased to be on your team. 

Chairman COLLINS. Just stay there. [Laughter.] 

Senator CARPER. You can always look for me on your right flank. 

I love to tell this story, and I will be very quick. In my first year 

or so in the Senate, I was preparing to offer an amendment on the 

energy bill, something that was important at the time and is still 

an important issue. And Senator Collins was good enough to join 

me as a sponsor of the amendment, and we offered it. A lot of people thought we would lose, but we ended up winning by a lot, despite the opposition of the Chairman of the Committee and the 

Ranking Member. 

When it was all over, I went over to Senator Collins on the Senate floor, and I said, ‘‘You know, I have not been here for that long, 

but this is the first time I have ever won a fight on a major amendment.’’ And she looked at me and smiled and said, ‘‘I have never 

lost.’’ And I said, ‘‘I am going to stick with you, sister.’’ And I have. 

My hope is that we will be able to work closely together with our 

colleagues across the aisle here. 

Thirty-two years ago, another junior Senator, a fellow named Ted 

Stevens from Alaska, decided to get involved in postal issues, and 

he did, in a remarkably effective way, and laid the foundation for 

an organization which endured not only for the rest of the 20th 

Century but into the 21st Century. In 1971, I do not know what 

the rest of you were doing, but I was in my second tour in Southeast Asia, and I remember reading something about it in Time or 

Newsweek magazines at the time. Thinking back to 1971, unlike 

our troops today who are deployed in Afghanistan, Kuwait, and 

other places, we did not have the ability to email our families, and 

frankly, we did not have the opportunity to talk to them much on 

the phone. We had a MARS system where you could actually talk 

a little bit on the phone—it was sort of like a Hamm radio operator—you could talk to them a little bit and say ‘‘Over,’’ and then 

they would talk back to you. But we did not have the ability to go 

into a tent or a facility and talk to our families then. 

We wrote a lot of letters. We got a lot of them back. They were 

all handwritten. 

We did not have direct deposit then. 

If you think about the way that our lives were in 1971 and the 

way we work today with direct deposit, email, and can call anybody 

with a cellphone almost around the world at any time, the world 

has changed dramatically, and our postal system needs to change 

and evolve as well. 

I am really pleased that the Commission—and I want to thank 

you and Harry Pearce for your leadership—and for all in the room 

and a lot of people who are not here who have contributed to your 

deliberations, to come with a very thoughtful set of recommendations. Now, obviously, we are not going to agree on all of them, and 

in particular I just want to make sure that in the end, we follow 

15

the golden rule with respect to the way we treat not just our customers but the folks who work at the Postal Service, that we treat 

them as we want to be treated. 

But I am pleased that you have said that universal service is important and we want to continue it. I am delighted that we are not 

going to try to privatize this operation. I am pleased with the importance and the premium that you have placed on employees as 

well. 

I will just conclude with this. Every now and then, Presidents 

send budgets to the Hill, and they are deemed ‘‘dead on arrival.’’ 

We see other proposals from Presidents, Democrat and Republican, 

and from other entities, they come to us and they are described as 

‘‘dead on arrival.’’

I think that the recommendations that you have sent to us are 

‘‘alive on arrival,’’ and we very much look forward to working with 

you and improving some of them, accepting others, and going forward. I think this country will be better for it, and I think those 

who work for the Postal Service and their customers will be better 

for it. 

I thank you for the opportunity to make that comment. 

[The prepared opening statement of Senator Carper follows:]

PREPARED OPENING STATEMENT OF SENATOR CARPER 

Thank you, Madam Chairman. I’d like to begin by thanking Mr. Johnson and his 

colleagues for their willingness to serve on the President’s postal commission. Postal 

reform is a difficult issue. It is also a vitally important issue for every American 

who depends on the Postal Service everyday. Their willingness to listen to all sides 

of the debate and to attemt to craft a set of balanced reform recommendations is 

admired and appreciated. 

By all accounts, the Postal Service has been a success. It receives virtually no taxpayer support and the service its hundreds of thousands of employees provide to 

every American nearly every day is second to none. More than 30 eyars after its 

birth, the Postal Service now delivers to more than 140 million addresses each day 

and is the anchor of a $900 billion mailing industry. 

As the commission’s final report recognizes, however, the Postal Service is clearly 

in need of modernization. When it started out in 1971, nobody had access to fax machines, cell phones or pagers and nobody imagined that we would ever see innovations like e-mail and electronic bill pay. After decades of success, electronic diversion 

of mail volume, coupled with economic recession and terrorism, have made for some 

rough going at the Postal Service in recent years. 

The Postal Service’s financial situation has improved in recent months. They will 

have $4 billion surplus in the current fiscal eyar. They could be debt-free by the 

middle of next year. However, I don’t think volume is yet where we’d like it to be. 

In addition, the Postal Service continues to add nearly two million new delivery 

points each year, creating the need for new routes, more letter carriers and new or 

expanded postal facilities. 

As more and more customers turn to electronic forms of communciation, letter 

carriers will likely begin to bring fewer and fewer pieces of mail to each address 

they serve. The rate increases that will be needed to maintain the Postal Service’s 

current infrastructure, to finance retirement obligations to its current employees, 

and to pay for new letter carriers and new facilities will only further erode mail volume. The Postal Service has been trying to improve on its own. They are making 

progress, but there is only so much they can do. 

That is where Congress must step in. Even if the economy recovers soon and the 

Postal Service begins to see volume and revenues improve, I believe we will still 

need to make some fundamental changes in order to make the Postal Service as successful in the 21st Century as it has been for the past 30 years. 

That is where Congress must step in. Even if the economy recovers soon and the 

Postal Service begins to see volume and revenues improve, I believe we will still 

need to make some fundamental changes in order to make the Postal Service as successful in the 21st Century as it has been for the past thirty years. 

16

S. 1285, which I introduced early this past summer, aims to modernize the Postal 

Service without rolling back service. It instead explicitly preserves the requirement 

that the Postal Service ‘‘bind the Nation together through the mail’’ and serve all 

parts of the country—urban, suburban and rural. It also preserves the Postal Service’s monopoly over the mailbox and maintains the prohibition on closing post offices 

in some rural and inner city communities that often operate at a deficit. 

S. 1285 also forces the Postal Service to concentrate solely on what it does best—

processing and delivering the mail—and provides them with much-needed pricing 

flexibility that they can use to encourage increased mail volume. It does this while 

making the ratemaking process less time-consuming, less administratively burdensome and more predictable. 

S. 1285 also attempts to strengthen service standards for most Postal Service 

products as a way to make the mail more valuable for customers. The bill requires 

the Postal Rate Commission, re-named the Postal Regulatory Commission, to develop standards for the Postal Service’s Market Dominant products, a category made 

up mostly of those products included in the postal monopoly. 

Finally, S. 1285 makes the new Postal Regulatory Commission the strong regulatory body needed to ensure that the Postal Service is serving the public interest 

and competing fairly with private sector mailers. Commissioners would be better 

qualified and would be armed with new authority, such as subpoena power, that can 

be used to demand information from postal management. Commissioners would also 

be empowered to punish the Postal Service for failing to abide by rate and service 

regulations or for using revenue from their monopoly products to subsidize those 

products that are also offered by private sector mailers. 

S. 1285 is based in large part on legislation introduced last year in the House by 

Congressmen John McHugh. While his bill enjoyed the support of much of the mailing community and most Postal Service employees and was endorsed by the Postal 

Service’s Board of Governors, it failed in the Government Reform Committee. For 

any piece of postal reform legislation to be signed into law during the 108th Congress, it will probably need to enjoy near-unanimous support among mailers and 

postal employees and have strong support in Congress and at the White House. The 

president’s postal commission was created, in part, to help build the consensus that 

we will need to get something done. For the most part, I believe they’ve done an 

excellent job. 

Like my bill, the commission’s report calls for the preservation of universal service 

and the Postal Service’s monopoly over the mailbox. The commission also recommends, like I do, turning the Postal Service’s Board of Governors into a stronger, 

more independent body that would be better able to manage a business the size of 

the Postal Service. Both my bill and the commission’s report would also give the 

Postal Service significant pricing flexibility and turn the Postal Rate Commission 

into a stronger regulatory body. They would also streamline the Postal Service’s 

physical infrastructure and encourage them to adopt new technology that would improve productivity and add value to their products. 

I am a little concerned, however, with three items addressed in the commission’s 

report. First, there is the call for after-the-fact review of rates. I fear this could 

allow potentially damaging rate changes to go into effect without being studied 

properly and without giving the public an opportunity to comment. The commission’s recommendations would allow rates set by the Postal Service to later be adjusted by the regulatory body if a third party challenges them. By the time the regulators get an opportunity to act, however, mailers could have already suffered significant financial damage. To avoid this, I believe we should ensure that the regulators are given enough time before rates changes go into effect to study them and, 

if necessary, stop them from happening. 

Second, I am also concerned about the way in which the commission’s recommendations address facility closings. The commission rightly, I believe, acknowledges the need for the Postal Service to rationalize its network of post offices and 

processing centers. While I make similar recommendations in S. 1285, my bill ensures that the facility closing process is part of a larger overall plan to strengthen 

service standards and give Americans better access to postal services than they 

have today. 

While the Postal Service should certainly study the need to close some existing 

facilities, it is important that they do so in an orderly, accountable way that promotes public confidence and does not in any way hinder their ability to carry out 

their mandate to serve all Americans. If done haphazardly, facility closings could 

hurt service in some communities, especially rural and inner-city areas. 

Finally, there are the recommended changes to collective bargaining and employee 

pay. I won’t dwell on the details of those recommendations but I will say that we 

should think carefully before tinkering with a system that I believe has worked well 

17

for both the Postal Service and its union employees. Since the Postal Service’s financial difficulties worsened, postal unions have agreed to contract renewals with modest, reasonable pay increases without going into arbitration. While labor does make 

up a significant percentage of the Postal Service’s costs, the Postal Service performs 

labor-intensive work. Reducing employee pay and benefits will not change this. 

In closing, I believe it is important to emphasize that postal reform should be 

about preserving and improving the important service that the Postal Service provides. As I’ve said in the past, we should give the Postal Service the ability to operate more like a business. We should also recognize, however, that the Postal Service 

is not a business. Whatever new flexibility we give the Postal Service to price its 

products or manage its property and workforce, we should ensure that their top goal 

is to continue serving the public.

Chairman COLLINS. Thank you. I want to give the other Members who arrived after opening statements were done the opportunity to make very brief comments if they would like to. 

Senator Pryor, I think you were next. 

Senator PRYOR. No, thank you. 

Chairman COLLINS. Senator Akaka, if you would like to make 

any brief opening statement, feel free to. 

OPENING STATEMENT OF SENATOR AKAKA 

Senator AKAKA. Madam Chairman, I thank you for asking. I 

would like to ask that my opening statement be included in the 

record. 

Chairman COLLINS. Without objection. 

[The opening prepared statement of Senator Akaka follows:]

PREPARED OPENING STATEMENT OF SENATOR AKAKA 

Madam Chairman, thank you for holding this hearing today. Your attention underscores this Committee’s longstanding dedication to the men and women of the 

U.S. Postal Service and our commitment to all who rely on the U.S. Mail. 

It is timely that we focus on the Postal Service during these difficult economic 

times. The Postal Service is a core element of the American economic engine. The 

Postal Service and mail-related businesses account for nearly $900 billion in job-producing economic activity. Mail generates well over $700 billion in direct sales. The 

value of goods transported by the parcel delivery industry, which includes the Postal 

Service, equals 12 and one third percent of all goods transported in the United 

States. 

Two years ago, the leadership of this Committee asked the Postal Service for a 

comprehensive transformation plan to address short- and long-term operational and 

financial goals. The Postal Service presented its Transformation Plan to the Senate 

at a hearing that I chaired in May 2003. 

My concern then, as it was in December when the President appointed a commission to review the Postal Service, was how do we ensure the continuation of the 

Postal Service’s core mission—universal service—at an affordable price. 

I believe the Commission, within a compressed time frame, tackled that question. 

They grappled with the challenges facing the Postal Service and made significant 

recommendations. 

I was especially pleased that the Commission rejected privatizing the Postal Service. To those who say a privately-run mail service is the only road to financial stability, I am concerned that it would be a one-way street to unequal mail service 

throughout the nation. 

Despite the technological advances that have transformed our lives, I believe a 

government-owned and government-run mail service remains key to the nation’s 

economic and social well being. My state of Hawaii is dependent on affordable and 

timely delivery of goods and services, many of which come through the U.S. Mail. 

Mail is particularly important for Hawaii’s small businesses as means of sustaining 

old customers and nurturing new ones. 

Although no organization, including the Postal Service, should be frozen in time, 

effective reform is dependent on the support of and acceptance by its employees. 

Whether we are transforming the Department of Defense or the Postal Service, 

labor unions and management must work together for the transformation to succeed. 

18

I do not support proposals that would eliminate protections and rights currently 

enjoyed by postal workers. As Federal employees and annuitants, postal workers are 

entitled to certain statutory benefits, including access to the Federal Employee 

Health Benefit program and the government’s 401(k)-type retirement plan. As a 

strong advocate of employee rights, I will review carefully any proposal to shift postal workers and retirees from existing government-wide benefits and protections. 

Postal employees have much to lose if the financial, managerial, and operational 

challenges facing the Postal Service are not addressed. Yet, not all the problems facing the Postal Service are labor-related. The Postal Service’s future may be more 

dependent on how well and how effectively it manages its employees, capital assets, 

purchased transportation services, and consumables such as fuel. 

Like other segments of the transportation industry, the Postal Service operates 

within a quickly changing marketplace. Competition is fierce, and rapidly changing 

economic conditions and rising fuel and energy costs can affect the Postal Service’s 

ability to remain financially viable. The Commission’s recommendations that the 

Postal Service have pricing and management flexibility will allow the Postal Service 

to adapt to this rapidly without the need to penalize its workers. I thank Mr. Johnson and his fellow commissioners for their effort. 

And Madam Chairman, I thank you again for convening this hearing. The collection and delivery of mail is a basic and fundamental public service. I look forward 

to hearing from our distinguished witness.

Chairman COLLINS. Senator Fitzgerald, if you have any opening 

comments. 

OPENING STATEMENT OF SENATOR FITZGERALD 

Senator FITZGERALD. I would just ask to include my opening 

statement in the record, too, Madam Chairman. Thank you for having this hearing, and Mr. Johnson, thank you very much for your 

service. We appreciate it and appreciate the fine recommendations 

of the Commission. 

We will see what we can do. We operate in a political world, so 

we cannot quite be as efficient, I am afraid, as the business world, 

but we can try around here. Thank you very much. 

[The prepared statement of Senator Fitzgerald follows:]

PREPARED OPENING STATEMENT OF SENATOR FITZGERALD 

Good morning. I’m pleased to join my colleagues in welcoming our witness today, 

Mr. James Johnson, co-chair of the President’s Postal Commission. Mr. Johnson has 

played an important leadership role in a much-needed effort to preserve and modernize one of the nation’s vital institutions. I also would like to thank Chairman 

Collins for holding this hearing and applaud her leadership over many years on 

postal issues. 

The U.S. Postal Service (USPS) is a unique institution that has provided an invaluable service since its inception. The Postal Service has over 830,000 employees 

nationwide, over 43,000 of whom are in my home state of Illinois. The Postal Service 

also operates 2,079 postal facilities in my state. 

The Postal Service now faces the challenges of increased competition, however, 

and a regulatory structure that does not meet today’s needs. As a $67 billion enterprise, the Postal Service is the nation’s second largest employer and the 11th largest 

by revenue. The services provided by this multi-billion dollar enterprise are being 

displaced through market competition and greater use of electronic forms of communication. Relatively new means of communication such as email, threaten the financial health and long-term viability of the Postal Service. As fewer and fewer people 

mail letters, postal volume is stagnant or shrinking. 

Due to the Postal Service’s debt and the decline in its traditional revenue sources, 

the General Accounting Office placed the transformational efforts and long-term 

outlook of the Postal Service on its ‘‘high risk’’ list in 2001. As the Commission notes 

in its report, even if the Postal Service were not in financial jeopardy, the inefficiency of its operations causes billions of dollars in unnecessary costs that should 

be eliminated. 

Strong financial management and good governance have long been interests of 

mine. I believe that good business practices, strong financial accounting, and indeVerDate 0ct 09 2002 09:56 Dec 12, 2003 Jkt 090236 PO 00000 Frm 00022 Fmt 6633 Sfmt 6621 C:\DOCS\90236.TXT SAFFAIRS PsN: PHOGAN
19

pendent oversight are important to the overall success of any institution, and these 

are key areas to address in the transformational process at the U.S. Postal Service. 

To transform the Postal Service the Commission has undertaken a comprehensive 

review of the Postal Service’s operations. I was especially pleased to read the recommendations to use the ‘‘best practices’’ of the nation’s leading businesses to transform the Postal Service organization and improve its efficiency. The Commission report emphasizes several aspects of current Postal Service operations that would not 

be required of a business. This is important to take note of, as these responsibilities 

are inconsistent with the Postal Service’s charter as an independently financed federal entity. It is partly due to these requirements that the Postal Service is struggling to maintain its operations. 

I look forward to hearing from our witness today regarding how Congress can help 

the Postal Service function more like a business and less like a bureaucracy. Additionally, I hope to hear about the proposed oversight and regulatory structure of the 

Postal Service, the opportunities to enhance financial transparency, and the management of its monopoly powers. 

Thank you, Chairman Collins.

Chairman COLLINS. Mr. Johnson, we are now going to turn to 

questions, and we will do rounds of 6 minutes each, back and forth. 

Your report makes extensive recommendations, both administrative and legislative, on a large variety of issues, and it really is a 

comprehensive look at the problems of the Postal Service. If Congress were to do nothing—if we failed to enact the legislative reforms that you have recommended, or at least some of the legislative reforms—how long would the Postal Service, as we know it, be 

able to continue to operate? Would it be sustainable in the long 

term if we just throw up our hands and say these issues are too 

difficult? 

Mr. JOHNSON. Let me try to answer that as honestly as I can. 

The Postal Service is in dramatically better shape today than it 

was a year ago for two important reasons. The first reason is the 

bill that you and Senator Carper shepherded through on the recognition of the overpayment of retirement benefits and now the reversing of that overpayment, which is giving the Postal Service an 

opportunity to pay down debt and to have other opportunities to do 

much needed investment. Frankly, that has changed the dynamic 

of urgency to some degree. 

The second thing that has changed the dynamic of urgency is the 

skill of the Postmaster General and the leadership of the Postal 

Service. Their Transformation Plan, their efforts to put best practices in place, are bearing substantial dividends. They are moving 

forward on a wide variety of fronts, and I tried in every one of our 

nine public meetings to compliment them. I do not want to fail to 

do that today because I think excellence in Federal service should 

be recognized systematically, and I think many of the things that 

they are doing are very impressive. 

The short-term, medium-term, next 3-years answer is that things 

are better than they were. In terms of the longer term, we focus 

a great deal of energy on the diversion question, the electronic 

challenge, elements of inefficiency, and the cost structure. I have 

no doubt that in the somewhat longer time horizon, every one of 

the challenges that was apparent a year or two ago will be back 

front and center. As I said earlier, I do not think anyone wants this 

to be taxpayer-subsidized. No one wants to boost rates to the point 

where mailers do not want to mail and where they cut their volumes or boost them again and again to the point where you have 

a downward spiral of activity and revenue. My belief is that we do 

20

not have a long time to get it straight and to take our best effort 

for the long term, but it is not a fire. The full consideration by your 

Committee, the full consideration by your companion committee on 

the House side, the full engagement of the President and the administration, the further engagement of the Postmaster General—

this is an ideal time, it seems to me, where we can see the sort 

of contours of a bad future if we do not act, but we have time to 

get it right. As long as we can maintain forward momentum for reform, true engagement, and honest dialogue, I would be very hopeful. And thanks to the work that you all have done, I am more 

hopeful now than I was a few months ago. 

Chairman COLLINS. You mentioned in your statement the recommendation that the Postal Service should stick to its core business. Over the past few years, the Postal Service has offered a variety of non-postal products and services which actually lost money. 

In addition, I heard from a lot of gift shop owners and printers in 

Maine who are very unhappy about having what they saw as unfair subsidized competition from the Postal Service. 

There are a couple of examples of failed ventures in the non-core 

area such as Net Post Mailing Online, the on-line payment services, which resulted in fiscal year 2002 losses of $10.6 million and 

$1.15 million respectively. 

You have recommended that the Postal Service focus on its core 

business. Could you define that further for us and what exactly you 

mean by that? 

Mr. JOHNSON. Once again, we spent a lot of time on this subject. 

We were informed by so many corporate disasters of people who 

had done essentially the same thing, that is, gotten involved in 

businesses that they were not prepared to run well because they 

did not have adequate background and expertise. So all of us—and 

this was all nine—had the strong view that there should be a restraint on non-postal services and new businesses which were not 

related to the core. 

The way we defined the core business was ‘‘acceptance, collection, 

sorting, transportation and delivery of letters, newspapers, magazines, advertising mail and parcels.’’ That is pretty restrictive, and 

people came along and asked, isn’t it true that people get passport 

photos done in post offices? Are you against that? And we said no; 

that is an incidental public service which we think is completely 

appropriate and not a risky business venture. 

What we were really trying to do here was to get at the risky 

business venture concept as opposed to small auxiliary services 

that in some way might be provided. 

I have the feeling once again that the current management of the 

Postal Service understands this point. I do not think they like 

being overly constrained, and they probably find our definition a 

little bit restrictive. But my own view is that the Postal Service as 

it is defined here is huge, and that is in fact the public function 

that is needed. There are many private sector providers who can 

provide a lot of other services, and I see no reason to be taking 

things where there are adequate public sector providers and replacing them with public sector activities. 

This is a long and complicated discussion in regard to all kinds 

of different government suppliers, whether they be defense contracVerDate 0ct 09 2002 09:56 Dec 12, 2003 Jkt 090236 PO 00000 Frm 00024 Fmt 6633 Sfmt 6601 C:\DOCS\90236.TXT SAFFAIRS PsN: PHOGAN
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tors or communications companies. It is an endless discussion 

about where these boundaries should be. 

Once again, I think our work should be viewed primarily as directional, and that is ‘‘No’’ on risk business ventures, ‘‘Yes’’ on core 

business ventures, where exactly you define that. We have given 

the regulators some power to say that if there are things that are 

challenged to the regulator on the basis that this is something that 

would not be possible without cross-subsidy. For example, we have 

given a lot of latitude for the regulator to come in. I know this is 

a concern of many in the mailing community, and that is that 

things in the end get distorted through various kinds of cross-subsidy, and that before the Postal Rate Commission, that is an ongoing, huge topic. 

We have tried to give a framework without defining it down to 

the last detail, but certainly we come from where you come from. 

Chairman COLLINS. Thank you. 

I am going to call on my colleagues in the order that they arrived, and I believe, Senator Dayton, you were next. 

Senator DAYTON. Thank you, Madam Chairman. 

Mr. Johnson, if we define the mission of the Postal Service as 

universal service 6 days a week, and if the volume of mail, particularly First-Class, is now diminishing, and if that is going to be the 

structural change that is going to persist for a while, then, realistically, how does this business model ever work other than just to 

try to compress the revenues, and even if you try to get efficiencies, 

aren’t we just trying to extend this further and further when it is 

essentially not a revenue-balancing possibility? 

Mr. JOHNSON. A very interesting question, and once again something we spent a lot of time on. We had the feeling that if we were 

guided by best execution throughout, very substantial savings 

could be achieved and therefore, with lower revenues, there still 

could be a break-even result. That was very much on our minds. 

We also talked extensively with the Postmaster General about 

standards of service, and one of the concepts that he talked about—

and he will obviously be before you at some point, and he can correct the record if I am wrong—but part of the point he made to us 

was that there were reasonably small changes in standard of service which would yield quite large economic benefit. All 6-day delivery is not created equal; all extensions of service are not created 

equal—and with more flexibility in management, he could find 

some ways, in his opinion, of very modestly, very reasonably, cutting back on some of those service standards and getting big dollar 

results. 

We do not know the future of the internet; we do not know the 

future particularly of the bill payment mechanism. The bill presentment and bill payment are really the biggest pieces of this 

whole internet point, and if we could see the future on that—and 

we employed some consultants who took us out 20 years and longer 

in terms of looking at the dynamics of how that might work. In my 

own view—I had a good friend and colleague who was at Citigroup 

for 27 years, I hired him, and when he came to work at Fannie 

Mae, I said, ‘‘Tell me about the checkless society,’’ and he said, ‘‘I 

am now in the 30th year of a prediction of a checkless society, and 

22

every one of those 30 years, there have been more checks than the 

year before.’’

I do not know quite how this internet usage, bill payment, bill 

presentment works out over time, and obviously, that is a very big 

piece of this dynamic because in terms of, if you will, the profitable 

business of the post office, a lot of that comes in the bill-paying, 

First-Class dynamic. I think if things are simply stable, if you are 

not getting new efficiencies, if you are not getting better execution, 

if you are not riding a little slower curve on some of these matters, 

you can certainly run to the point where you will run out of efficiencies and cost control, and you will have service requirements 

which will simply give you an imbalance. We think that, if everything is done right, that can be many years from now. But if we 

are sitting here 15 or 20 years from now, you could get to a point 

where the electronic diversion and alternative executions were such 

that you not only had a smaller post office, but you had one at that 

point where you did not feel you had additional capacity to raise 

rates, because you were simply diverting into other mechanisms by 

further rate increases, where you had expenses which were really 

down to a minimum, and that you had a mismatch. 

I think we are probably a couple of decades away from there, and 

for government work, that is not bad. 

Senator DAYTON. It is as good as it gets. 

You recommend what you call a transformation of the nine-member board of governors to what you call a corporate-style, 12-member board of directors which does not require Senate confirmation—

and I am sure that was just an omission in the report—but how 

does this corporate-style board of directors distinguish itself from 

this current nine-member board of governors. And then—I will 

make it a two-part question—you also set up this three-member 

Postal Regulatory Board with greater authority for accountability 

and public oversight of the Postal Service. What is the interface, 

then, between this Regulatory Board and the board of directors? 

Mr. JOHNSON. Let me start at the back end of your question. The 

reason that we put the Postal Regulatory Board in place is that we 

believe that there are major public policy implications of how the 

Postal Service goes about its business. We provided for Senate confirmation of that Postal Regulatory Board because we believe that 

is the core for setting the boundaries and expectations of this activity. 

In terms of the corporate-style board of directors, the qualifications which we would like to see in this new board would involve 

people who had run similarly-sized enterprises, who had deep experience in logistics businesses, people who had been involved with 

companies with very large work forces. Our feeling was that this 

was primarily a business-like function as opposed to a public policy-like function. While it is hard to find the exact contours of what 

is confirmable and what is not confirmable, it seemed to us that 

a reasonable separation between the sort of entre here on public 

policy issues should be Senate-confirmed, and that which was more 

a strictly business background kind of best execution did not seem 

like a confirmation item. 

Just a few examples—if you look at Sallie Mae, Fannie Mae, 

Freddie Mac, Federal Home Loan Bank Board, those being busiVerDate 0ct 09 2002 09:56 Dec 12, 2003 Jkt 090236 PO 00000 Frm 00026 Fmt 6633 Sfmt 6601 C:\DOCS\90236.TXT SAFFAIRS PsN: PHOGAN
23

ness functions, none of those is confirmed. There are Presidential 

appointments there which are simply Presidential appointments, 

and they go to work on what is essentially a business financial entity with essentially a business financial function for the board. 

Now, in all of those entities, there are some public policy dynamics, 

obviously—whether or not you do the work you should be doing for 

housing and for student loans—so it is not pure. But it seemed to 

us that confirmation should be focused on the people who are setting the public policy ground rules, and that the people performing 

business-type functions should probably not be infirmed—but once 

again, you all will decide in the end whether that makes any sense 

or not. 

Senator DAYTON. My time has expired. 

Thank you, Madam Chairman. Thank you for your report. 

Chairman COLLINS. Thank you. Senator Fitzgerald. 

Senator FITZGERALD. Thank you, Madam Chairman. 

Mr. Johnson, I was wondering what your thoughts were with respect to rural post office service. One of the big issues I have heard 

about repeatedly in the State of Illinois is that we have a lot of 

smaller Down State communities, and occasionally, the Postal 

Service recommends closing a facility. Of course, everybody in the 

community is up-in-arms, and it often makes it difficult for me as 

a Senator to figure out what to do. Obviously, the community does 

not want to lose its post office, but we know at the same time that 

there are some post offices that are not efficient to keep. 

I was wondering if you could explain to the Committee your 

Commission’s findings with respect to underutilized facilities and 

what the Postal Service should do with those. 

Mr. JOHNSON. This was also a much-discussed topic, and let me 

give you our perspective. Our feeling is that any postal facility that 

is required to fulfill the universal service obligation should stay 

open. So, pure and simple, if this is part of getting the job done 

either on the retail side or on the distribution side, and if there are 

not reasonable alternatives, it should stay open—that universal 

service comes first. 

Now, if you have a facility where you have three more post offices in a very small area there will be circumstances where there 

will be post offices or postal contract services which it will be very 

hard to argue are essential to providing universal service either in 

terms of retail or other postal functions. 

What we have said in that regard is that we do not like the sort 

of yes-or-no dynamic of open or closed. There should be a very 

broad opportunity for the Postal Service to work with the community to either add Federal or other functions to that facility which 

would make it more economically viable, to cooperate with State 

and local government in keeping it open. For example, they might 

put a part of city hall or some other dimension of public service in 

that building. We even went so far as to say if there was not a 

market for that postal facility, the Postal Service should have the 

option of giving it to the community even if the Postal Service 

owned it, giving it to a nonprofit organization——

Senator FITZGERALD. Do they have that option now? 

24

Mr. JOHNSON. No, I do not believe so. Since I am relatively new 

to all of this, I can be corrected at any time, but I do not believe 

that is an option under current law. 

Our hope was that if there are facilities that really are not economic that you do not just have a yes-or-no for the community to 

be a winner or a loser, and that in fact there would be multiple 

ways for the community, even including giving them the facility, 

that they could put it to good use for public functions or for public 

services. We tried to be as broadly responsive as we could to the 

social function that small post offices play. 

We have 38,000 post offices today. I think it is safe to say that 

every single ‘‘expert’’ we spoke to thought that was far more than 

what was required to get the job done. It is a hot potato. But we 

tried to think through systematically how we might make this a little more viable. I do not know whether we have succeeded or not. 

Senator FITZGERALD. I am not sure if the Postal Service is in any 

way organized as a corporation. 

Mr. JOHNSON. It is. 

Senator FITZGERALD. It is a separate corporation, and it has 

a——

Mr. JOHNSON. It is a separate, independent governmental entity. 

It is not a Delaware corporation. It is not subject to——

Senator FITZGERALD. But it has a Federal Government charter 

like a Fannie Mae or a Freddie Mac, although it would be quite 

different? 

Mr. JOHNSON. It has a Federal Government—it is an independent agency within the Federal Government. 

Senator FITZGERALD. I see in the book that you put out, you have 

a brief statement of the liabilities of the postal agency, but I cannot 

find in here a statement of the assets of the agency. When an agency is not organized as a corporation, it gets very hard to figure it 

out and compare it, say, to the other corporations that you attempt 

to compare it to in terms of revenue and in terms of employees. 

I am wondering if it would not make sense to actually incorporate it and have it go through some of the disciplines that corporations do, even though it would obviously be owned or have 

some special status as a government-chartered corporation. 

Mr. JOHNSON. It is interesting that you should ask that question. 

We talked about that, and we to some extent had the advice of outside experts on that point. The conclusion that we came to is that 

by something that looked more like a traditional chartering, we 

would pick up problems of various kinds, including the capacity to 

be sued for various things and other things that are not currently 

a problem for the Postal Service. 

We tried to get at the financial transparency issues in other 

ways, through the SEC filings that we recommend and so on. Dick 

Strasser, the chief financial officer of the Postal Service, happens 

to be sitting right behind me this morning, and I am sure he can 

shed substantially greater light at the appropriate time on how to 

think about the assets. 

Senator FITZGERALD. I just noticed that in your report, in order 

to come up with some of these viabilities, you are deriving some of 

them from, like, a letter that the CBO wrote to Jim Nussle. It does 

25

not look like they are written down or accounted for in certain 

places. 

Let me ask you one final question. I know my time is up. 

Chairman COLLINS. I am going to try to hold to the time, so if 

you could wrap up; thank you. 

Senator FITZGERALD. Just a final question. Were there other liabilities besides this military pension liability that somehow was 

foisted onto the Postal Service that administrations over the years 

have tried to hide or bury in the Postal Service? 

Mr. JOHNSON. There are major liability areas, but I am not 

aware of those being suddenly or externally introduced. 

Senator FITZGERALD. Thank you. 

Chairman COLLINS. Senator Durbin. 

Senator DURBIN. Thank you, Madam Chairman, and thank you, 

Mr. Johnson and all those who took part in this postal reform effort. 

I think there are two elements that are essential if this is going 

to be successful. The first is selling postal reform proposals to Congress and the White House, and second is selling it to the men and 

women of the Postal Service so that it finally is implemented in a 

successful fashion. 

I read portions of your report with great interest, and let me 

point out one that you noted in your statement. ‘‘The Postal Service 

employs approximately 843,000 people, making it the second-largest work force in the United States. Its jobs are highly-coveted. As 

of July 2001, the Postal Service had a backlog of some 400,000 job 

applicants and virtually no turnover.’’

Then I turn to another section, and I read that ‘‘In 2002, 184,329 

grievances were filed by members of the Postal Service before the 

major union reached a second-step appeal; and 106,834 were pending arbitration.’’

‘‘Clearly, something is wrong when a unionized work force of 

746,000 employees generates more than 184,000 second-step grievances in 1 year. By comparison with a work force of 102,000 employees, American Airlines launched a major alternative dispute 

resolution initiative when its backlog of employee complaints 

reached a mere 800.’’

I want to try to explore this for a moment with you. Those seem 

to be two very contradictory statements. The most coveted job to 

the point where 400,000 people are waiting to get an opportunity 

to work there, and of the people who are there, grievances are 

being filed on behalf of about one out of four employees every year. 

It suggests to me that there is a lure to the job but a dissatisfaction 

once they have arrived with management and the relationship between labor and management. 

Do you feel that we need to look at this more seriously at the 

outset before we can hope to implement successfully any postal reform where a commission or the management is going to suggest 

to a work force which apparently has its differences with the management has any chance of success? 

Mr. JOHNSON. Yes is the answer to your question. I believe that 

the grievances are far too high. Now, there are some alternative 

dispute mechanisms which I think should be more broadly applied. 

The letter carriers have made some very substantial progress on 

26

some experimental programs that they have to reduce grievances 

and deal with them more expeditiously. 

It was absolutely clear to the Commission that this gave every 

evidence of an inadequate level of trust between labor and management, that the grievances were unbelievably high, and that it was 

something that had to be very seriously addressed. I must say, just 

to give you a little editorial comment, there was no feeling that this 

was primarily a labor problem. There was a feeling that this is an 

indication of a very substantial shortfall on management’s part as 

well as an indication of a strong willingness to confront the terms 

of the contract and that, for everybody’s better interest, there 

should be a better way. 

Senator DURBIN. So how will this management team, which is 

having substantial difficulty with the current law, regulation, and 

procedure of the U.S. Postal Service, lead this team into the era of 

reform, suggesting some substantial and sometimes painful 

changes in the workplace? How can this same management team 

which apparently has such a contentious relationship be expected 

to be successful? 

Mr. JOHNSON. A good question once again, and this is also a subjective reply. Having spent dozens and dozens of hours now with 

the management team—I must say, dozens of hours as well with 

the labor leaders who represent the major employee units—my feeling is that Jack Potter and the other people on his team have a 

lot better orientation and attitude than they do record. That gives 

me some hope. It does not make me foolishly optimistic, but I think 

we have a great deal of work here to do on everybody’s part. I 

think you are absolutely right to be focused on this. The grievances 

are dramatically too high. There needs to be an earlier resolution, 

a quicker resolution. And in terms of whether or not this management can provide that leadership, I see every evidence that they 

can, but the record at this point is nothing to be proud of. 

Senator DURBIN. I do not have enough time to get into this next 

area, but I would like you to consider and perhaps get back to me 

informally or formally—if we are looking for a different work force 

for the Postal Service in the 21st Century, in the next 15 or 20 

years, to respond to technology and challenges to the Postal Service, how can you reconcile the need for this type of new Federal employee in the work force with your suggestions of compromising or 

reducing health and retirement benefits for new hires? 

It strikes me that United Airlines and others have learned in the 

midst of bankruptcy that you just have to be careful that you do 

not compromise your ability to retain and attract the very best personnel because somebody out there is going to offer them a better 

arrangements. 

Mr. JOHNSON. I think it is an area of great concern. In every 

company that I am involved in, we are constantly preoccupied with 

whether or not our best people are going to be stolen. 

In the Washington area, when I was CEO of Fannie Mae in the 

1990’s, there was a war underway between IBM, Marriott, Fannie 

Mae, and a few other companies for the best talent in the technology area. What you raise is a very real point. That is part of 

the reason why we made another controversial recommendation, 

and that is that we should not have the same ceiling we have today 

27

on total compensation. The Postmaster General and other key leaders should have more flexibility, or the board should have more 

flexibility, in terms of paying them competitive market rates. 

I think the Congress has kind of a fundamental choice here. 

What we were dealing with was what we viewed as a black-letter 

law on comparability. We tried to add things to the collective bargaining dynamic within the context of our reading of that law. 

Now, if this is going to be even more nimble in the future to the 

Postal Service overall, maybe the Congress needs to look at some 

provisions for flexibility. We were dealing with the fact that we had 

witness after witness after witness who said it is not comparable; 

people in the Postal Service are being paid more. We never bought 

into that. We said we hear what you are saying, but we do not 

have the capacity to determine whether or not it is comparable. 

What we recommended was a mechanism to work on this comparability issue through the Postal Regulatory Board. 

From my point of view, if I were running a comparable company, 

as I was at Fannie Mae, a comparably large company, without 

flexibility in terms of attracting and retaining my most valuable 

employees, I would have been unreasonably hamstrung, and we 

could never have been the company we were if we were hamstrung 

in that way. 

But we viewed it essentially as a precondition of our work, the 

very clear statement in the early 1970’s statute saying that comparability was the law of the land. If that should not be the way 

it is looked at, then Congress should address that. 

Senator DURBIN. Thank you. Thank you, Madam Chairman. 

Chairman COLLINS. Senator Pryor. 

OPENING STATEMENT OF SENATOR PRYOR 

Senator PRYOR. Thank you, Madam Chairman. 

I would like to ask you about some trends at the post office and 

the Postal Service generally in this country—and I may be mistaken, but as I understand it, there has been a drop in First-Class 

mail, and some people think that possibly email, the internet, etc., 

maybe the economy have something to do with that, and as I understand it, your parcel business remains strong. 

So I would just like to hear the trends that you see at the post 

office and what we are dealing with here and where you think we 

are going. 

Mr. JOHNSON. Thank you, Senator. 

The short answer is we do not know where we are going, and 

that is what makes many of us feel so uncertain. We have had this 

economic downturn, and we now have a consensus of economists 

saying it is over and that third-quarter growth will be 5 percent 

or thereabouts, that we are on our way to a substantial recovery. 

We have had this interaction between the rise of the internet, 

the rise of the internet bill-paying dynamic which I was talking 

about just a minute ago, and the downturn in the economy. Typically in the past, if the economy is growing, mail volumes have 

grown. So if you look now at the next 12 months—and I do not 

know how fast you will be dealing with this legislation or possible 

legislation—but we are going to learn a lot in the next 12 months 

in terms of disentangling the electronics from the economy. If we 

28

do in fact have the recovery which most economists now predict, 

and we do not see volume growth, and we have more and more incentives being provided—and this is a very big reality—where credit card companies, public utilities and others are incenting——

Senator PRYOR. Your mass mailers. 

Mr. JOHNSON. Well, no, this is even a little different than the 

mass mailing thing—in many cases, they have very large numbers 

that they are mailing—but if you are paying a bill to a telephone 

company today or to a public utility or to American Express, with 

the cost savings that flow from your being an internet bill-payer, 

they are prepared to give you a gift certificate of $100 or $200 or 

a variety of other incentives to move you from somebody who uses 

the U.S. mails to somebody who does not. This is a very big commercial reality. 

We also do not know at this point—to use an economist’s term—

where the indifference points are in the American consumer’s 

mind. There are lots of people who still say . . . One of the most 

significant credit card companies came to see me not long after I 

had been named co-chair of this Commission. They said that now, 

up to 32 percent of their bills were being paid on line, and they 

were getting nowhere on people being willing to receive their bills 

on line. Then they went through the economics of how much money 

they would save if they could get them to receive their bills on line, 

and it became clear that they could give hundreds of dollars to 

each person with a reasonable perspective about how long that account was going to last, and still be better-off if they could convert 

them to an on line customer. 

We have a lot of unknowns, a lot of variables, a lot of question 

marks. My expectation is at least to answer the primary question 

mark and that is, what is the effect of slow economic growth versus 

robust economic growth? I hope we have a chance to observe in the 

next year. 

Senator PRYOR. I do, too. You may not know where we are going 

in the future, but what about right now? What are the trends right 

now? Are all of your lines of service lines that they have been in 

the past? 

Mr. JOHNSON. No. The real point here is First-Class mail. 

Senator PRYOR. First-Class mail. 

Mr. JOHNSON. Yes. There are many other dimensions here that 

are growing or staying relatively flat, and the First-Class mail, of 

course, is where the highest postal rates are, where the support for 

the overhead of the institution flows from, and that is really where 

the focal point should be in terms of the threat to the basic balance 

of revenues and costs. 

Senator PRYOR. If you do not know where you are going—and it 

is hard to know with all the variables out there, and like you said, 

we will know a lot in the next 12 months—should we, the Congress, go into sort of a holding pattern for the next 12 months and 

let you sort this out before we restructure and transform and 

change things at the Postal Service? 

Mr. JOHNSON. Well, over the next 12 months, I am not going to 

be sorting out much of anything having to do with the mail. I think 

that there are many areas in our recommendations which have an 

orientation to best practice, best execution, better organization, betVerDate 0ct 09 2002 09:56 Dec 12, 2003 Jkt 090236 PO 00000 Frm 00032 Fmt 6633 Sfmt 6601 C:\DOCS\90236.TXT SAFFAIRS PsN: PHOGAN
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ter functioning, growth, marketing, cooperation with the private 

sector, where nothing needs to wait, where a reform agenda could 

be pursued starting today. 

I think there are other dimensions where the size of the challenge may evolve, but we tried to look at a very broad range of possible futures, and even within that broad range of possible futures, 

we came to the view that this was the right structure. Starting 

with universal service, structured as it is today, with the balance 

of revenues and costs, that we could achieve in a couple of decades 

in all likelihood, unless there were some radical change, of stability 

in this model. 

Therefore, you may get more or less political support. For example, on the question of whether or not the Postal Service should 

have to pick up this $25 to $30 billion of armed services pension 

obligation, because if you get a mismatch sooner rather than later, 

it may be even more apparent that it is a burden that should not 

be put on the Postal Service because it will rock the ship. But in 

my view over the long term, much of the reform agenda, not just 

from our work but from the work of people on this Committee, the 

Chairman most notably, work in the House, much of this agenda 

of change, flexibility, transparency, is an agenda that is ready to 

go. So I would certainly not be in the camp of saying wait if you 

do not have to. 

Senator PRYOR. Thank you. Thank you, Madam Chairman. 

Chairman COLLINS. Senator Carper. 

Senator CARPER. Thanks, Madam Chairman. 

I think I said this before, but I want to say it again to you and 

to Harry Pearce and the others who served on this Commission—

and I know you have day jobs as well—but thank you very much 

for finding the time in your lives to invest as heavily as you have. 

And you have a very small staff. I do not know if any of them are 

with you here today—one or two of them look like I have seen them 

before. 

Mr. JOHNSON. Yes. 

Senator CARPER. I just want to express to them and others who 

work with them our thanks; for a relatively few people, they did 

a lot, and I think they have done a good job. 

I mentioned earlier that I spent some time in the Navy back in 

the sixties and seventies on active duty, and for a long time after 

that, actually, in the reserves. I remember being in the military a 

long time ago, and people used to talk about government work. 

They would do a job, not very well, and they would say: ‘‘That is 

good enough for Government work.’’ You have probably heard that 

before. I never liked that, and people learned never to say that 

around me. 

When you are doing government’s work, you are doing the people’s work, and I think that demands our very best effort. 

Later, I was elected to State Treasurer, and at about the same 

time, Jimmy Carter was elected President, and he had a guy 

named Bert Lance, who used to work for me, as his budget director 

for a while. Bert Lance used to like to say, ‘‘If it ain’t broke, don’t 

fix it.’’ I do not know if it originated with him, but he was the first 

person I ever heard say that. I used to say that myself. I stopped 

saying that, though. 

30

And eventually, when I was Governor of Delaware, we would 

never say, ‘‘If it ain’t broke, don’t fix it’’—we would say, ‘‘If it isn’t 

perfect, make it better.’’ And I think we will all agree that our 

Postal Service is not perfect, and it can be made better. 

I wish we had a futurist here. I am glad that you are here, and 

I am delighted that you served on this panel. But I wish we had 

a futurist here who could talk—and this is sort of following up on 

Senator Pryor’s question—and tell us what is the future, what is 

the Postal Service going to look like 10 years from now, 20 years 

from now, 30 years from now. Back when Ted Stevens was a young 

Senator, I do not know if they had a vision of what the Postal Service was going to look like in 30 or 32 years. 

We were talking here about email and trying to get people to use 

electronic checking and that kind of thing. We do a biweekly mail 

report in my office—I always say that the things you measure are 

the things you do best—to actually measure how we are doing on 

the mail, how many letters we receive on what subjects, how long 

our turnaround time is. I hold everybody on my staff accountable, 

including myself. 

It is interesting that when we did our mail report for this week 

and the last few weeks—do you know what we learned—we learned 

I think for the first time that if you look at the folks who are 

emailing us versus the folks who are writing us versus the folks 

who are calling us by phone, we now get more communications by 

email than either of the other two put together. That was not the 

case even 21⁄2 years ago when I came here, so obviously, things are 

changing. 

But take just a moment, and realizing that none of us has the 

ability to see the future clearly, but what do you think 10 or 20 

years from now our Postal Service should look like, just in general 

terms? 

Mr. JOHNSON. The first thing that I would say is that many 

American corporations have found dimensions of productivity increase far beyond what they ever imagined. If you read the Six 

Sigma literature coming from General Electric, a lot of operational 

efficiency literature, if you look at the integration of networks, if 

you look at the imaging now that is routine in major American 

companies, and if you now look at Alan Greenspan’s discussion on 

an ongoing basis of productivity increases, I think we are going to 

see—and I have great respect for public functions as well—I think 

we are going to see a postal system which is dramatically streamlined from what it is today. I find that very encouraging because 

all dimensions of being able to do more and better for less need to 

be pursued in the public sector, or you develop the kind of cynicism 

that you are talking about, about how it is not the best way to do 

things. 

I keep getting reminded of the Social Security Administration 

and some other dimensions of government who constantly are winning awards for the lowest cost, the best execution, doing things 

better than the private sector in many of their functions. I do not 

necessarily see it as more private. A number of my colleagues on 

the Commission do, and I think that should be an ongoing dialogue 

about what is private and what is public. 

31

But I would be thrilled if we were able to take all of those dimensions of logistical, technology, and imaging investment and organize those in the context of being a government entity and staffed 

by people who are staffing it today. 

I think this will make it better integrated, much more efficient 

from a process and logistics point of view, and I would guess even 

within the context of the narrow function that we describe, finding 

lots of new businesses as they go along. I think people want to be 

connected, and I think they want to be connected in tangible physical ways. And yes, you can print an email, and yes, you can take 

things off your screen, and maybe I am just so old that I have not 

gotten it yet, but when somebody sends me a thank you note, if it 

comes on email, I say fine, and it goes into my wastebasket reasonably quickly. But if somebody takes the time to write me, with 

some thought, and I have it tangibly in front of me, it makes a big 

difference to me. Now, as I said, maybe that is generational. 

Likewise, I happen to be somebody who still works from pink 

slips on my telephone messages, because until I throw away the 

pink slip, it is still in front of me, and I cannot ignore it on a list, 

and I cannot ignore it on a memo. I have the slip, and I know that 

if I have not thrown it away myself, I have not dealt with the 

issue. 

I think there is a tactile, touching, feeling dimension to a lot of 

us that some of the discussion about how we are all going to become email people and computer screen people and video-cellphone 

people ignores—yes, we probably will. But as I move around and 

try to get my work done, I have all those tangible assets. In the 

end, if it is important, if it is personal, if it is complicated, I really 

like to see it and feel it and touch it, so I tend to be a little bit 

on the kind of slow revolution side. I am a little bit on the side of 

the person who is not surprised that there are more checks every 

year. But I would not bet on it. I would not bet a lot of money that 

that is the way it is going to roll out. But I think Americans have 

shown a lot of flexibility—and this goes back to Senator Fitzgerald’s question. I come from rural America—I grew up in a town 

of 3,000 people; my father was the acting postmaster in our town 

of 3,000 people—and I know a little bit about that rural dynamic. 

But they are changing, too, and I think as long as you have a service orientation from top to bottom in the Postal Service, we will 

probably be doing a lot of things in different ways. 

Now, if you do not have a service orientation, and you do not 

have a public mission orientation, you are going to leave people behind, and you are going to make bad decisions; but if you have the 

best of technology and that sort of public service, service orientation, this could look very different, but I think it could be even 

more of an asset for our country than it is today. 

Senator CARPER. Madam Chairman, my time has expired. If I 

could just conclude, not with a question but with a comment—there 

is a whole range of issues that I wish we had time to explore. I 

do not know if any of my colleagues have had a chance to visit a 

new post office in their States in recent months or weeks. I was 

down in Seaford, Delaware during the August recess. If you go to 

the beaches in Delaware—Rehobeth or Dewey or Bethany or any 

of those places—from Washington, you pass very close to Seaford, 

32

Delaware, which is where the first nylon plant in the world was 

built by the DuPont Company about 50 years ago. 

They recently sold off their post office which was right in downtown Seaford, and it is now a museum. It is really exciting what 

they have done with it. But they built a new post office not far 

from there, and it is a post office that is really more attuned to the 

21st Century in their ability to process mail, but also in their ability to act as a retail operation and be customer-friendly and so 

forth. 

So I would just invite my colleagues, if you have a chance when 

you are out, touring around your State, to take a look at what the 

Postal Service is doing to give us a little bit of a window into the 

future, which I think would suggest that maybe the best days of 

the Postal Service are not entirely behind us. 

Thank you, Madam Chairman. 

Chairman COLLINS. Thank you, Senator. Senator Akaka. 

Senator AKAKA. Thank you very much, Madam Chairman. 

Mr. Johnson, about 2 years ago, this Committee asked the Postal 

Service for a comprehensive transformation plan, which would address the short- and long-term operational and financial goals of 

the Postal Service, including providing universal service at an affordable price. 

I should tell you that I believe the Commission, within a compressed time frame, tackled that question. You grappled with the 

challenges facing the Postal Service and made significant recommendations. 

You touched on the Commission’s recommendation that would 

task the Postal Regulatory Board with the responsibility of determining pay and benefit comparability. The Commission also recommends clarifying the term ‘‘comparability’’ by redefining current 

laws and applying any clarification prospectively. Were there other 

alternatives discussed on the comparability issue, and were there 

concerns that two different pay and benefit systems could have a 

chilling effect on employee morale? 

Mr. JOHNSON. Yes, there were. There were very substantial discussions of both of those concerns, and we could not think of a better way to proceed than what we recommended. 

As I said earlier, comparability is the law of the land. Partial 

comparability we did not believe was congressional intent. We believed that it was all compensation. This can always be reinterpreted by the Congress, but we felt that it meant all compensation. 

We were highly sensitive about doing anything that would seem 

to abrogate existing arrangements, existing contracts, existing retirees, so we thought the only possible entry point was for new employees. We also felt that if you did not honestly address it—and 

I am not prejudging the comparability issue; friends of mine in the 

labor movement have said to me, convincingly or very strongly, 

that if you look at the correct, honest comparability measures, you 

will not find a premium, and obviously, that is the kind of data 

that the regulator would be legally required to very carefully evaluate. 

We did not think that this was a fabulous, easy, non-disruptive 

way of thinking about it, because just as we considered everything 

33

else, entering with new employees comprehensively seemed to us 

to be the best alternative. So that is where we ended up. 

Senator AKAKA. Thank you for your response, Mr. Johnson. 

You mentioned transparency. The lack of financial transparency 

within the Postal Service has long troubled me, so I was interested 

in the Commission’s recommendation that the Postal Service voluntarily comply with the Securities and Exchange Commission’s reporting standards. My question to you is why should this be voluntary, and what incentive would there be for the Postal Service 

to comply? 

Mr. JOHNSON. I think the incentive to comply would be to end 

a long simmering discussion. As you said, you have had a long concern about whether or not they were reporting adequately, comprehensively, to a standard that should be expected of such a large, 

complex financial enterprise. 

The SEC standard is America’s standard today; it is the gold 

standard in terms of transparency for large financial enterprises, 

so therefore, it kind of ends the issue. 

Ultimately, there might be a way of making it a little less voluntary. On the other hand, these are very complex issues—and I 

happen to know that my former company, Fannie Mae, has committed to meeting all of the SEC standards in all of their reporting. 

It took them 9 months of very detailed negotiations for a company 

that reports a lot more like a standard company than the Postal 

Service does to get all the agreements and standards and arrangements all in place, and it was a very complicated effort. 

It did not seem to us to be an easy thing to mandate given that 

level of complexity. Now, maybe we should have been more aggressive in terms of saying that over a transition period of a couple of 

years or some reasonable period of time, the SEC should be asked 

to declare that they are in compliance. That could be a somewhat 

more aggressive approach, and if the Committee likes this idea at 

all, maybe the Committee should move in that direction. We were 

just a little lighter, even though we all thought it was a good 

standard. 

Senator AKAKA. Madam Chairman, my time has expired. May I 

ask a follow-up to that? 

Chairman COLLINS. Certainly. 

Senator AKAKA. You recommend, Mr. Johnson, that the Postal 

Regulatory Board develop reporting requirements and impose sanctions to enforce its reporting requirements. What sanctions are envisioned by the Commission? 

Mr. JOHNSON. Well, there is a sanction that would involve simply 

requiring the Postal Service to stop a function. For example, if they 

thought that there was cross-subsidy involved, they would have the 

authority to say there is cross-subsidy and you may not do this any 

further. If they found a rate-setting noncompliance, they could 

force compliance with the rate-setting standards which the Regulatory Board had put in place. 

We contemplated the Postal Regulatory Board having subpoena 

power so that if there was a shortfall of information or a shortfall 

of candor, the Regulatory Board would have the legal capacity to 

subpoena records, to subpoena testimony. 

34

I think we have given this regulator some teeth, some would 

argue too many teeth, and it ultimately, obviously, has to be 

shaped by this Committee. But our idea was that on the areas 

where they were supposed to assume responsibility, they had a lot 

of authority. 

Senator AKAKA. Thank you very much for your responses, Mr. 

Johnson. Thank you, Madam Chairman. 

Chairman COLLINS. Thank you, Senator. 

Mr. Johnson, I have so many more questions I want to ask you, 

but in view of the hour, I am only going to ask you a few of them. 

First, all of us are sensitive to making sure that the postal work 

force is fairly compensated, well-treated, and that morale is high, 

and that is why there is sensitivity, I think, to some of the recommendations that were made. But to help give us a better understanding, I want to ask you just a few questions in that area. 

I believe you said that 76 percent of the overall expenses of the 

Postal Service are personnel. I realize the Postal Service is truly 

unique and that it is not comparable to Federal Express or United 

Parcel Service in its mission, but do you have any idea what the 

comparable percentage of personal cost is for FedEx or UPS? 

Mr. JOHNSON. The answer is I do not have enough of an idea to 

give you an answer. It is quite dramatically less. But Dennis Shea, 

who is still working with the Commission for a couple more weeks, 

and I will get back to you. 

Chairman COLLINS. Thank you. That would be helpful. 

Second, it is my understanding from your report that a substantial number of postal employees will be eligible for retirement within the next 7 years, and I think if there is going to be a need for 

downsizing, all of us would hope that we could do this through retirements or other natural attrition rather than making the very 

painful choice of laying people off. Could you give us some idea of 

how many postal employees will be eligible for retirement by the 

year 2010? 

Mr. JOHNSON. The number that we used in the report which we 

got from the Postal Service was 47 percent between now and 2010. 

I assume that is a generally accurate number. 

We also had an interesting session one night with the Postmaster General—and I would urge you to explore these topics with 

him as well. We discussed that there are quite a large number of 

temporary employees in the Postal Service, there are quite a large 

number of special arrangements of different kinds within the Postal Service, and if you are thinking about the counted employees in 

that 835,000, if that is the correct number for today, and the 47 

percent, there is also a lot of latitude in terms of building greater 

efficiencies and lowering costs that can be pursued outside of that 

core of professional employees. 

We were convinced that with the scale of attrition, there would 

be very substantial latitude in terms of having a smaller work force 

without doing the kinds of things that you and the other Members 

of the Committee I am sure would not want to be doing. 

Chairman COLLINS. I have great respect for the fine men and 

women who serve for the Postal Service—I know you do as 

well——

Mr. JOHNSON. So do we. 

35

Chairman COLLINS. [continuing] And we will certainly work 

closely with them and with the Postal Service and with the Commission as we pursue these recommendations. 

The pay-for-performance issue is one that interests me because 

I have been involved in a lot of the civil service reform issues, and 

I know it was unanimously agreed on by the Commission. It is a 

principle that I support. 

Would you agree that if you go to a pay-for-performance system, 

however, it is absolutely key that you have a lot of training in how 

it should be used to ensure that there is a fair system in place with 

standards for employee appraisal and involvement of the employees 

in coming up with the system? 

Mr. JOHNSON. I would certainly strongly agree. We tried to make 

that very clear in the report. We also had some data that was provided for us by Watson Wyatt, the human resources consulting 

firm. They do an employer bargaining objectives survey each year 

of establishments with collective bargaining agreements. Let me 

just give you a couple of numbers. They found a prevalence of incentive and variable pay plans—these are in unionized work forces. 

They found that 16 percent of employers utilize group incentive 

plans, 10 percent utilize gain-sharing plans, 9 percent utilize individual incentive plans, and 7 percent utilize profit-sharing plans. 

The survey also found that these percentages are approximately 50 

percent higher for manufacturing and processing concerns. 

We also went back to Watson Wyatt just in the last few days and 

said there has been a lot of skepticism about whether or not these 

incentive arrangements work in unionized work forces, whether 

they can be done on a fair basis, and asked them for some examples of companies that had these kinds of pay-for-performance incentive plans in place. Dennis can provide you with a list of companies where they are in place if there is a desire on your part or 

your staff’s to see whether there are some of these that, in fact, are 

following the guidelines that we talked about, that you just talked 

about, and are working out well. 

Chairman COLLINS. That would be very helpful. 

Mr. JOHNSON. We do not expect anybody to accept anything on 

faith. Obviously, the Committee would want to examine very carefully places where this is being tried and see whether or not it 

meets the Committee standards in terms of its effectiveness. 

[The information follows.]

INCENTIVE PLANS FOR COLLECTIVELY BARGAINED EMPLOYEES

As a follow-up to the September 17th hearing, I wanted to let you know 

that Commission consultant Watson Wyatt has informed me that they believe the following companies have incentive plans for their represented employees: 

Boeing 

United Parcel Service 

Ford Motor Co. 

Delphi Corp. 

DaimierChrysler 

Nucor Corporation

Chairman COLLINS. The Commission noted in its report that the 

Postal Service has excess capacity in its mail processing function. 

I remember being struck by the fact that the Brentwood facility 

could be closed for I think it was 18 months in the wake of the anVerDate 0ct 09 2002 09:56 Dec 12, 2003 Jkt 090236 PO 00000 Frm 00039 Fmt 6633 Sfmt 6601 C:\DOCS\90236.TXT SAFFAIRS PsN: PHOGAN
36

thrax contamination and yet did not seem to have a notable impact 

on this area’s ability to process and receive mail. 

Did the Commission look at that example and others in reaching 

its determination, and did you come up with any percentage, or did 

you attempt to quantify the excess capacity? 

Mr. JOHNSON. The answer unfortunately is no and no. We did 

not look at Brentwood in any real detail. We did not attempt to 

quantify with any precision. We asked a lot of people what their 

view was of how much excess capacity and inefficiency there was 

in the current system of processing and distribution. And we had 

a lot of general characterizations saying ‘‘a lot’’, ‘‘a tremendous 

amount’’, ‘‘a lot of work can be done’’, ‘‘many, many facilities can 

be closed.’’ We pressed the Postmaster General one night on how 

many he thought could be done over a 3-year period—it was an offthe-record discussion so I will not give you his answer, but it was 

not a trivial number. 

So once again, our work here was really directional. We ask the 

post office to come in with its very best judgment about how it can 

have the most efficient, optimum network, and then deal with it—

take it to the President, bring it to this Committee and the comparable committee in the House, and vote it up or down. 

The feeling on the Commission after having visited a lot of different facilities, but by no means being experts, was that there was 

a large number of facilities that were duplicative. 

Chairman COLLINS. Finally, I realize that the Commission’s report has to be considered as a whole, but are there any particular 

recommendations that you think are absolutely imperative and 

want to highlight for the Committee today—you presented an overview, but if you were prioritizing the recommendations. 

Mr. JOHNSON. Perhaps the next time we talk. 

Chairman COLLINS. OK. 

Mr. JOHNSON. I would be happy to try to think that through in 

the right way. 

Chairman COLLINS. That would be fine. 

Mr. JOHNSON. Thank you. 

Chairman COLLINS. Again, I want to thank you very much for 

your hard work and for appearing before us today at our initial 

hearing to look at the Commission’s report. 

I promise to send you a handwritten thank you note through the 

United States mail. You will not get a curt email thank you from 

me. It will have a 37-cent stamp on it—I will not even frank it. 

[Laughter.] 

Today’s hearing is the first in a series. Our next hearing, which 

will probably be in early November, but we will announce the time 

shortly, will feature the Postal Service and the General Accounting 

Office. 

We also look forward to continuing these hearings next year and 

hearing from those more directly affected—the postal union representatives, the mailing community representatives. We want to 

get a wide variety of views, and we will indeed be soliciting those 

opinions even after we have adjourned for this session. 

I want to thank you, Mr. Johnson, for being our lead-off witness. 

You did a superb job in presenting the Commission’s report, and 

I want to join all of my colleagues in thanking not only you, but 

37

Mr. Pearce and all the members of the Commission and its staff 

for your diligent work. I really think you did a superb job. 

Probably no one will agree with every single recommendation 

that you have made, but all of us are grateful for the very thorough 

look and examination that you did. I think it is a well-balanced, 

well-done report, and I salute you for it. 

We are going to keep the record open for 15 days following this 

hearing for the submission of additional statements and questions. 

I want to thank everybody for being here today. I think the attendance shows that there are many people who recognize how critical this report is to ensuring the future viability of the Postal 

Service, an organization, an institution, that has served our country so well for more than 200 years. 

This hearing is now adjourned. 

[Whereupon, at 12:01 p.m., the Committee was adjourned.] 

(39)

A P P E N D I X 

PREPARED OPENING STATEMENT OF SENATOR COLEMAN 

Thank you Chairman Collins for holding this hearing. I know of your long involvement in this issue and look forward to helping you craft legislation to help the Postal Service prepare for the future. 

I think there is broad agreement on the challenges faced by the Postal Service. 

Every year the addition of 1.7 new addresses increases its operating costs. At the 

same time, competitive and technological changes have reduced both its volume and 

operating margins. E-mail and e-banking will continue to pose a growing challenge 

to First Class mail. While it is true that e-commerce is likely to increase the number 

of packages going to consumers, the Postal Service already faces strong competition 

in these markets. 

The Commission’s report details all of this. It also details over $90 billion in unfunded future liabilities facing the Postal Service. By far the largest part of these 

liabilities is the health care costs promised to current future retirees. Unfortunately, 

the report does not detail how the Postal Service will generate sufficient revenues 

to pay these liabilities. There is a real danger that significantly raising postal rates 

will only increase the competitive threat. 

In the last decade the nation’s leading private companies have implemented revolutionary changes in their logistics operations. Common changes include a significant reduction in the number of warehouses, automation, outsourcing of major activities, installation of inventory management systems often at enormous cost and 

difficulty, and better metrics. The Postal Service has begun to implement some of 

these changes but institutional resistance and statutory restrictions have slowed its 

progress. If the Postal Service were to undergo a revolution equivalent to that in 

the private sector, I believe it would look like a much different organization. 

The question is how do we get from here to there. I believe that if we act soon, 

we can ensure that changes are well thought out and we can find the resources to 

be fair to all the stakeholders. Given the challenges facing the Post Office, all parties are going to have to accept some portion of the costs of transformation. But I 

hope that we can still meet the priorities of each group. In contrast, significant 

delay only increases that chance that reforms will be imposed upon us in an atmosphere of panic at a time when we lack the ability to ensure fairness. Like the steel 

industry a couple of decades ago, the need for change is clear. Now we need the 

will to address these challenges in an honest and fair manner. 

PREPARED OPENING STATEMENT OF SENATOR LIEBERMAN 

Thank you, Madam Chairman, for convening this hearing on the recommendations of the President’s Commission on the U.S. Postal Service. The Commission was 

established in December 2002 and was charged with identifying the severe financial 

and managerial challenges facing the Postal Service, examining potential solutions, 

and recommending legislative and administrative steps to ensure the long-term viability of the Postal Service. 

On July 31, the Commission issued its report, which contains 35 recommendations 

to reform the Postal Service on a wide range of topics. I commend the Commissioners for their efforts to understand and analyze the many challenges the Postal 

Service faces, and I believe they have made a number of valuable recommendations. 

For example, I have long been an advocate for greater financial disclosure by the 

Postal Service, to provide the American people a full accounting of its fiscal health, 

and I am pleased that the Commission has also seen the need for such increased 

financial transparency. 

But before I say more about this and other recommendations that I support, I 

must first express my profound disappointment about parts of the Commission’s reVerDate 0ct 09 2002 09:56 Dec 12, 2003 Jkt 090236 PO 00000 Frm 00043 Fmt 6601 Sfmt 6621 C:\DOCS\90236.TXT SAFFAIRS PsN: PHOGAN
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port that seem based on the mistaken belief that the problems of Postal Service can 

be solved by capping and cutting the pay and benefits of its workers. It is hard to 

think of any institution with a greater impact on virtually every American than the 

Postal Service, and its effective functioning depends on the continued loyal service 

and hard work of its employees. I believe that Commission recommendations which 

would undermine collective bargaining, threaten employees’ economic security, and 

add to morale problems in the workplace, are misconceived and counterproductive. 

Such suggestions send the wrong message at the wrong time to postal workers: just 

when their good will and hard work are most needed to improve the Postal Service’s 

status, these proposals convey the message that postal workers are part of the problem instead of the solution. 

For example, although wages at the Postal Service are now established by negotiation between management and employee representatives under a system of collective-bargaining, the Commission proposes to empower a new presidentially-appointed Postal Regulatory Board to determine what it believes are comparable compensation levels in the private sector and then to forbid collective bargaining agreements to exceed those caps. Collective bargaining, where management and labor are 

supposed to meet and bargain on a level field, would become a sham if a presidentially-appointed political board suppresses wages by capping or even lowering 

the compensation levels that can be agreed to. 

Another troubling recommendation is the Commission’s proposal to empower managers at the Postal Service to bargain away the pension and post-retirement healthcare benefits of workers. These benefits, which are now established in statute, are 

based on longstanding congressional initiatives and commitments, keeping Postal 

Service employees under the same health and retirement benefits as federal civil 

service employees. Breaking these commitments and subjecting pension and retiree 

health-care rights to negotiation is an unwarranted step that could well result in 

reduced benefits and hardship to postal workers. 

I urge my colleagues on this Committee and in the full Senate to recognize the 

importance of maintaining our commitment to a professional and fairly compensated 

postal workforce, and to oppose these and other proposals that try to fix the Postal 

Service’s problems on the backs of a workforce that delivers for each and every one 

of us every day. 

Despite my deep opposition to some of the Commission’s workforce recommendations, I believe other aspects of its report are worthy of commendation. For example, 

as I mentioned earlier, I have long supported efforts to improve the transparency 

of the Postal Service’s financial reporting. In the last Congress, I joined with other 

members of this Committee to successfully urge the Postal Service to provide more 

and better financial information on its website, but these improvements were only 

a beginning. Greater openness is an important first step toward fiscal health and 

accountability, and I support the Commission’s recommendation that the Postal 

Service’s financial reporting be enhanced. Whether this reporting should take the 

form of SEC-like requirements, as the Commission recommends, is a question that 

needs further study, but it is clear to me that the public and the mailing community, as well as the Postal Service itself, will benefit from this additional disclosure. 

I also agree with the Commission that we need to set qualifications ensuring a 

breadth of experience and skills on the Postal Board of Governors, and that this 

Board should operate in many ways like successful corporate boards now do. However, I am not convinced that allowing the Board members to select their own successors, as proposed by the Commission, is the right choice for a governmental entity like the Postal Service that must still be answerable to Congress and the public. 

Another worthwhile recommendation of the Commission urges the Postal Service 

to review its entire management structure to reduce unnecessary layers of management and to realign and modernize its organization. This review would help the 

Postal Service to optimize communications and efficiency throughout the organization and to effectively plan for the future. 

Finally, the Commission wisely reaffirmed certain basic principles fundamental to 

the future of the Postal Service, such as the concept of universal service and preserving the postal monopoly on First Class letter mail. However, I believe the suggested role of a new Postal Regulatory Board in ‘‘refining’’ these concepts requires 

additional review. 

Madam Chairman, I know there are many difficult decisions and discussions 

ahead as we consider these recommendations. This hearing is a good first step. I 

hope future hearings will allow us to hear from those most affected by the Commission’s recommendations. 

41

PREPARED OPENING STATEMENT OF SENATOR STEVENS 

I commend James Johnson and Harry Pearce for your efforts which created the 

final report of the President’s Commission on the U.S. Postal Service. Each of you 

took on a great responsibility when you agreed to study the Postal Service and provide recommendations to improve it. I was particularly pleased to read that the 

Commission pledged its commitment to preserve universal mail service throughout 

the United States. 

My State of Alaska does not have access to the infrastructure found in the lower 

48. For many Alaskans the mail service is a lifeline. Each day the Postal Service 

delivers two million pieces of mail to Alaskan homes and businesses, including vital 

products that would not otherwise be available in bush Alaska. My thanks to the 

Commission for specifically recognizing Alaska’s unique needs and dependence on 

universal service. As the Commission’s report notes, the near daily appearance of 

the Postal Service at virtually every home and business is essential to American 

commerce and society. 

I am also pleased the Commission has recognized the Postal Service should remain a public entity. 

Although I believe reform of the Postal Service is necessary, it is my belief that 

some aspects of the existing Postal Service should be preserved. 

Again, I commend the two co-chairs of the President’s Commission on the Postal 

Service for their efforts and I look forward to the opportunity to further discuss the 

recommendations made in their report.

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