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THE ANNUAL REPORT OF THE POSTMASTER

GENERAL AND THE IMPACT OF TERRORIST

ATTACKS ON POSTAL OPERATIONS

HEARING

BEFORE THE

INTERNATIONAL SECURITY, PROLIFERATION AND

FEDERAL SERVICES SUBCOMMITTEE

OF THE

COMMITTEE ON

GOVERNMENTAL AFFAIRS

UNITED STATES SENATE

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

SEPTEMBER 20, 2001

Printed for the use of the Committee on Governmental Affairs

(

(II)

COMMITTEE ON GOVERNMENTAL AFFAIRS

JOSEPH I. LIEBERMAN, Connecticut, Chairman

CARL LEVIN, Michigan

DANIEL K. AKAKA, Hawaii

RICHARD J. DURBIN, Illinois

ROBERT G. TORRICELLI, New Jersey

MAX CLELAND, Georgia

THOMAS R. CARPER, Delaware

JEAN CARNAHAN, Missouri

MARK DAYTON, Minnesota

FRED THOMPSON, Tennessee

TED STEVENS, Alaska

SUSAN M. COLLINS, Maine

GEORGE V. VOINOVICH, Ohio

PETE V. DOMENICI, New Mexico

THAD COCHRAN, Mississippi

ROBERT F. BENNETT, Utah

JIM BUNNING, Kentucky

JOYCE A. RECHTSCHAFFEN, Staff Director and Counsel

HANNAH S. SISTARE, Minority Staff Director and Counsel

DARLA D. CASSELL, Chief Clerk

INTERNATIONAL SECURITY, PROLIFERATION AND FEDERAL SERVICES

SUBCOMMITTEE

DANIEL K. AKAKA, Hawaii, Chairman

CARL LEVIN, Michigan

ROBERT G. TORRICELLI, New Jersey

MAX CLELAND, Georgia

THOMAS R. CARPER, Delaware

JEAN CARNAHAN, Missouri

MARK DAYTON, Minnesota

THAD COCHRAN, Mississippi

TED STEVENS, Alaska

SUSAN M. COLLINS, Maine

GEORGE V. VOINOVICH, Ohio

PETE V. DOMENICI, New Mexico

ROBERT F. BENNETT, Utah

Nanci E. Langley, Deputy Staff Director

Mitchel B. Kugler, Minority Staff Director

Brian D. Rubens, Chief Clerk

(III)

C O N T E N T S

Opening statements: Page

Senator Akaka .................................................................................................. 1

Senator Stevens ................................................................................................ 8

Senator Cochran ............................................................................................... 10

Prepared statements:

Senator Cleland ................................................................................................ 23

Senator Bunning ............................................................................................... 24

WITNESSES

THURSDAY, SEPTEMBER 20, 2001

John E. Potter, Postmaster General and Chief Executive Officer, U.S. Postal

Service ................................................................................................................... 2

Kenneth C. Weaver, Chief Postal Inspector, U.S. Postal Service ........................ 3

ALPHABETICAL LIST OF WITNESSES

Potter, John E.:

Testimony .......................................................................................................... 2

Prepared statement .......................................................................................... 25

Weaver, Kenneth C.:

Testimony .......................................................................................................... 3

Prepared statement .......................................................................................... 44

APPENDIX

Karla W. Corcoran, Inspector General, U.S. Postal Service, prepared statement ...................................................................................................................... 49

U.S. Postal Inspection Service, prepared statement ............................................. 63

News Release from the U.S. Postal Inspection Service entitled ‘‘Chief Postal

Inspector Warns of Charity Scams,’’ dated September 20, 2001 ...................... 76

Questions and responses for Mr. Potter from:

Senator Levin .................................................................................................... 79

Senator Collins ................................................................................................. 81

Senator Cochran ............................................................................................... 82

Senator Cleland ................................................................................................ 95

Senator Carper ................................................................................................. 96

Senator Bunning ............................................................................................... 98

Senator Bennett ................................................................................................ 99

Questions and responses for Mr. Weaver with attachments from:

Senator Collins ................................................................................................. 100

(1)

1The prepared statement of Ms. Corcoran appears in the Appendix on page 49.

THE ANNUAL REPORT OF THE POSTMASTER

GENERAL AND THE IMPACT OF TERRORIST

ATTACKS ON POSTAL OPERATIONS

THURSDAY, SEPTEMBER 20, 2001

U.S. SENATE,

SUBCOMMITTEE ON INTERNATIONAL SECURITY,

PROLIFERATION, AND FEDERAL SERVICES,

OF THE COMMITTEE ON GOVERNMENTAL AFFAIRS,

Washington, DC.

The Subcommittee met, pursuant to notice, at 10:02 a.m., in

room SD–342, Dirksen Senate Office Building, Hon. Daniel K.

Akaka, Chairman of the Subcommittee, presiding.

Present: Senators Akaka, Stevens, and Cochran.

OPENING STATEMENT OF SENATOR AKAKA

Senator AKAKA. The Subcommittee will please come to order.

Good morning. Today, we have the Postmaster General, who will

report to Congress on the state of the U.S. Postal Service. He is accompanied by the Postal Service’s Chief Postal Inspector, Kenneth

Weaver. We are also pleased to have a written statement by the

Inspector General of the Postal Service, which updates her testimony from our May hearing, and I ask at this time that the statement be inserted in the record.1

The great tragedy of September 11 has forever altered America

and everything we take for granted. In the midst of unimaginable

horrors, our Federal employees pulled together to deliver essential

government services. Despite the terrible losses, the Federal Government was back to work the next day. It is in that spirit that

we have asked the Postmaster General and the Chief Postal Inspector to address how the Postal Service was impacted by last

week’s events, where it is today, and what Americans may expect

in the future.

The operation of the U.S. Postal Service and the delivery of the

mail are critical to our Nation’s economy. One of the keys to America’s recovery will be a strong and viable Postal Service. Delivery

of the U.S. mail is a basic and fundamental public service that

must be protected from disruption. However, there will be new

costs associated with continuing this reliable and efficient service,

which must also be reviewed.

The delivery and security of the mail and the safety of postal employees are not the only challenges facing the Postal Service. There

2

1The prepared statement of Mr. Potter appears in the Appendix on page 25.

are many in our audience who are concerned with the Board of

Governors’ announcement that it will file a new rate case this

month.

As so many have said, the continued use of rate increases to

raise revenue may end up having the opposite effect, depressing demand which will drive down revenues. It is essential that an organization the size of the Postal Service be governed by short- and

long-term financial goals that support its core mission of providing

universal mail service to all Americans at affordable prices. Because the Postal Service appropriately sounded the alarm over declining volume and decreasing revenues, Senators Cochran,

Lieberman, Thompson and I called on the Postal Service in May to

develop a transformation plan. This plan will be completed at the

end of this year.

Two months earlier, again at our request, the GAO began conducting an in-depth investigation of the Postal Service, and expects

to finish its report by early next year. I will review all options recommended by the GAO, the Postal Service, and postal stakeholders. Moreover, despite the horrible burden placed on our President, it is critical to the Postal Service and the Nation that nominees for the vacancies at the Postal Rate Commission and the

Board of Governors be sent to the Senate as soon as possible.

Again, I welcome the Postmaster General and the Chief Postal

Inspector to the Subcommittee. I would yield my time to Senator

Cochran if he were here. However, I was informed that he is delayed by traffic, but will be here soon. Before Postmaster General

Potter begins, I would like to note that Mr. Weaver must leave directly after his statement. Although we will not have an opportunity to ask questions of him now, he will respond to any written

questions in an expeditious manner.

Mr. Postmaster General, we look forward to hearing from you.

TESTIMONY OF JOHN E. POTTER,1 POSTMASTER GENERAL

AND CHIEF EXECUTIVE OFFICER, U.S. POSTAL SERVICE

Mr. POTTER. Thank you. Good morning, Mr. Chairman. I appreciate the opportunity to talk with you today about the U.S. Postal

Service. I have submitted detailed testimony in advance. However,

recognizing the pressing business of the Senate, I will abbreviate

my comments. Last week’s attack had a personal impact on us. The

Governors of the Postal Service were in public session when the

terrorists attacked the Pentagon. With our offices overlooking the

Potomac, within seconds we saw the absolute horror of the moment. None of us will forget the black plume of smoke coming from

the building.

In New York, our Church Street Station was in the shadows of

the World Trade Center. Our employees were getting the daily mail

ready for thousands of businesses in the area. Their station was

showered with glass and debris in the opening attack. They were

in the process of evacuating when the first tower fell. Incredibly,

none of our employees were hurt even as they ran to assist the

wounded. I visited New York City last Friday and met with employees and managers who ran to help. I could still see the shock

3

1The prepared statement of Mr. Weaver appears in the Appendix on page 44.

2The report of the U.S. Postal Inspection Service appears in the Appendix on page 63.

and disbelief on their faces several days later. As a native of New

York City, the sight of the skyline without the towers remains inconceivable.

Almost from the instant of the attack, we began to discuss ways

to keep the mail moving. Over the years, we have learned that in

times of natural disasters, the appearance of letter carriers making

their rounds is an important signal to neighborhoods and the Nation that the fabric of everyday life, although damaged, remains intact. In times of disaster, our Postal Inspection Service, Mr. Chairman, plays a constructive role in helping management. Chief Postal

Inspector Ken Weaver is with me today and I would like him to

speak for a few moments about the role of his inspectors and the

postal police officers, and what they did last week.

Chief Weaver.

TESTIMONY OF KENNETH C. WEAVER,1 CHIEF POSTAL

INSPECTOR, UNITED STATES POSTAL SERVICE

Mr. WEAVER. Thank you, Postmaster General Potter, Mr. Chairman and Members of the Subcommittee for the opportunity today.

I have a separate written report of the activities of the U.S. Postal

Inspection Service and would like to have it entered into the

record.2

Senator AKAKA. It will be entered into the record.

Mr. WEAVER. Mr. Chairman, today I am wearing an American

flag on my lapel in place of the Postal Inspector pin that I normally

wear. I have served in the Army, as you have, under this flag. I

have also served under this flag for 30 years in the United States

Postal Service, 27 of those years as a postal inspector. As the Chief

Inspector, I have always been proud of the outstanding work performed by the men and women of our Postal Service, but I have

never been more proud of how Inspection Service employees handled themselves and answered the call to duty than I have during

this crisis. As the tragic terrorist events of last week unfolded, the

Inspection Service immediately took action in support of the Postal

Service and all Americans.

Across the country, inspectors, postal police officers and support

personnel performed acts of heroism and provided security and investigative assistance to protect employees and customers, the

mail, our post offices and to help others in their effort to address

our Nation’s tragedy. The Inspection Service has the responsibility

to ensure the safety and security of postal employees, facilities and

assets, as well as the U.S. Mail. We have done just that, and we

have done more.

I visited New York yesterday to express my heartfelt appreciation to all our people for the outstanding effort they have put forth

during this crisis. Although shaken from the attacks, there is that

steely New York resolve to put things back together. I saw it in the

eyes of our employees. They will not be defeated. On the tragic day

of September 11, our New York division suffered the most serious

effects from the attack. The postal facility across the street from

the World Trade Center, Church Street Station, was the home for

4

1The press release of the U.S. Postal Inspection Service appears in the Appendix on page 76.

numerous Inspection Service staff employees. Inspectors at Church

Street offered immediate assistance to victims on the street; civilians, local police officers and firemen injured in the attack, and

helped to evacuate the area as smoke and debris filled the air.

Since the attack, inspectors in New York and outlying offices

have been following up on the numerous bomb threats and scares

which have forced evacuation of postal facilities. We are also working with the FBI on investigative leads in the New York area.

When the attack on the Pentagon occurred, postal inspectors from

the Washington, DC area responded to assist FBI agents with evidence collection at the crash site. In Pennsylvania, inspectors from

the Pittsburgh area reported to the plane crash site at Somerset

County to assist in securing the site and the mail. Three teams of

postal inspectors continue on a rotating shift at the FBI command

center.

We are also providing significant investigative assistance and

support to the FBI, the Federal Aviation Administration and emergency management agencies across the Nation, while assisting

postal operations managers at command centers. As Postal Service

operation managers have dealt with moving the mail during the

last week, the Inspection Service has worked to ensure mail security nationwide. For example, the Amtrak network has been expanded and postal inspectors are present at key locations nationwide that serve as transfer points for the mail.

Tragedies so often bring out the best in people. Unfortunately,

tragedies also bring out those who would prey on the misfortune

of others, and on that very desire to help victims. These are the

con artists who will solicit donations through the mail for the families of victims, yet not a dime will ever make it to those in need.

Mr. Chairman, I want to assure you that postal inspectors will aggressively pursue those con artists. We are offering some advice to

the American public on how to make sure their donations go where

they are intended. In conjunction with this hearing, we have issued

a press release with this useful information, and I would like to

make it part of the record.1

Senator AKAKA. Without objection, it will be made part of the

record.

Mr. WEAVER. Thank you, Mr. Chairman.

Safety and security of Postal Service employees is my top priority. Security must be part of all postal employees’ activities. We

have advised management of the security precautions they should

take to contribute to this overall effort. I am also proud that postal

employees have provided eyes and ears in our Nation’s neighborhoods and business communities. In recent days, employees have

provided information which has assisted law-enforcement investigative efforts during this crisis.

Before closing, Mr. Chairman, I want to, again, salute the outstanding commitment to duty and resolve of postal inspectors, postal police officers and our support staff. And I assure you that the

U.S. Postal Inspection Service will continue to work to keep our

employees and customers safe, to keep the mail moving, and to preserve America’s confidence in the postal system. We will also conVerDate 11-MAY-2000 09:36 May 13, 2002 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 76800.TXT SAFFAIRS PsN: SAFFAIRS
5

tinue to join with other Federal law-enforcement agencies in the investigation of last week’s tragic events.

Mr. Chairman, I appreciate your interest in the Inspection Service and the opportunity to address you. This concludes my remarks.

Senator AKAKA. Thank you very much, Mr. Weaver for your excellent report. I certainly want to add my pride and gratitude of

the people in the Postal Service and what they have done since

Tuesday to make our Nation feel secure that the mail will continue

to be processed and delivered throughout the country. We are

proud of the folks in the Postal Service and I want to extend our

thank you to them for what they have done. As you have pointed

out, events like this bring out the best and the worst among people.

We would like to encourage those who have come forward to sacrifice themselves, their time, their resources, to help our country to

continue to be great. That is what we are all trying to do, and I

want to thank you again for your report, which I feel will renew

the spirit of America.

Mr. WEAVER. Thank you, Mr. Chairman.

Senator AKAKA. Mr. Potter.

Mr. POTTER. Mr. Chairman, like Chief Weaver, I am extremely

proud of our 800,000 men and women and how they pulled together

to reroute mail from aircraft to ground transportation. We had men

and women volunteering to go to New York City and help get the

mail home. It became clear to me in Washington when I was in

New York that our team was committed to keeping the Nation’s

fundamental communications network delivering. I cannot say

enough about the thousands of postal employees in New York City

and the Washington, DC and the greater Pittsburgh metropolitan

areas, whose personal lives were disrupted, yet found ways to get

to work and ask, ‘‘How can I help?’’

I also want to salute the hundreds of contract truck drivers who

move the mail every day, and my compliments to George Warrington, President of Amtrak, who added hundreds of cars to their

network to move the mail. They reacted with flexibility and speed.

I also want to thank Fred Smith, the CEO of Federal Express, and

his team. As you know, it was only 3 weeks ago that FedEx began

moving Express, Priority, and First-Class Mail under a new contract. Almost from the time of the terror attack, our teams worked

cooperatively and closely to serve America and our customers. I am

pleased to report that amid the national focus on Tuesday, September 11, mail handlers and clerks reported to plants across the

Nation that afternoon, and worked into the evening to process and

distribute the mail for customers and businesses.

On Wednesday, September 12, across America, postmasters and

station managers opened their offices. By midmorning, while clerks

manned their retail windows, letter carriers began fanning out

throughout the neighborhoods, delivering and picking up Wednesday’s mail. In New York City, we concentrated on how to get the

mail to residents and businesses in Lower Manhattan. With the determination that marks New Yorkers, they got it done. Today, we

are well along to restoring full service in New York.

While America’s airlines sat idle, our operations managers kept

mail moving over land by trucks and trains. When the Federal

Aviation Administration gave the go-ahead for commercial airlines

6

to fly, we were ready to put the mail back aboard. In cooperation

with the FAA, our aviation security group had redoubled efforts to

ensure the safety of mail traveling by air. Our people remain in

close contact with the FAA, cargo carriers, commercial airlines and

the Postal Inspection Service to ensure the integrity of mail flying

on airliners. Therefore, in places such as Hawaii, Alaska and Puerto Rico, our customers are getting mail and parcels from the mainland again.

In the broader context, the events of last week tell a great deal

about our role as a basic and fundamental service, provided for the

people by the Government of the United States. But in providing

that service, the Postal Service is mandated to operate like a business, yet we face the same economic factors as every other business. This means that we must balance our public service responsibility within the framework of businesslike operations, since we do

not receive and have not received tax dollars for postal operations

in almost 20 years. Like other businesses, rising costs and the soft

economy of the past year have affected us.

Revenue and mail volume lag behind projections, and as soon as

we saw those trends developing early in 2000, we responded aggressively to lower costs. Through it all, we have had record customer satisfaction levels, reflected by strong performance in independent service measurements. Over the past 2 years, we have reduced career staffing by more than 21,000 positions. This year

alone, we used 23 million fewer work hours, the equivalent of

11,500 employees. When all the initiatives were totaled, we removed more than $1.3 billion in costs from our system just this

year. These efforts have contributed to nine straight quarters of

positive productivity, an unprecedented increase of 4.5 percent over

the last 2 years.

Next year, we have the most challenging budget we have ever

had. We are looking to reduce work hours by another 26 million.

That is the equivalent of 13,000 jobs. We will do that in an environment that will see another 1.7 million daily delivery stops

added to our network, and hopefully, an additional 2 billion pieces

of new mail in our system. Yet, as fast as we have reacted to reduce cost, rising energy and health-care costs and an uncertain

economy have continued to challenge us. Even before last week’s

terror attack, we expected that mail volume will not keep pace with

the annual growth in new households. Fiscal year 2001 will show

a deficit in the range of $1.65 billion, the second straight year of

losses. For fiscal year 2002, we project that we are going to have

a deficit of $1.35 billion.

Against this backdrop, 2 weeks ago I announced the most sweeping changes, organizational changes, to affect the Postal Service in

10 years. The changes will improve our focus, will improve our accountability. We will prioritize program expenditures and drive

performance. We have reduced the number of officers in the Postal

Service by 20 percent, and we will eliminate over 800 headquarters

and headquarters-related positions. We have eliminated two of our

ten field area management organizations. The eight remaining

areas will accelerate efforts to achieve a 30 percent staffing reduction by the end of this year.

7

Our plants and district offices will reduce administrative staffing

by 10 percent, without affecting the collection, the processing and

delivery of the Nation’s mail. Success with automated equipment

will also permit us to consolidate a number of processing facilities

and operations around the country. This will be announced in midOctober, with implementation scheduled for January. Despite these

cutbacks, the Board of Governors of the Postal Service voted to file

a new rate case with the Postal Rate Commission later this month.

Unfortunately, a 30-year-old statutory rate procedure has us initiating the process a year before new rates can be implemented.

Strong cost management enables us to limit this filing to an average of just under 9 percent, lower than the 10 to 15 percent that

many anticipated. While the cost of a First-Class stamp would increase by 3 cents, if our proposal were initiated, it is important to

note that the 8-cent stamp of 1971, when adjusted for inflation,

would cost more than the 34-cent price of today’s stamp.

By the way, Mr. Chairman, we estimate that a typical family will

pay less than one dollar extra per month for this service. Recognizing the difficult position of the Postal Service, financially and

otherwise, both Congress and the Comptroller General of the

United States have asked us to develop a comprehensive transformation plan to serve as a long-term blueprint for this organization’s future. In the last week, perhaps more than ever, we have

seen how the Nation depends on the Postal Service to keep people

in touch and to help drive the economy. This transformation plan

will help us to identify short- and long-term actions that protect

our ability to do this.

We are working with a wide range of postal stakeholders and

pursuing a three-phased approach to developing the plan. Each of

these phases is being developed on parallel tracks. In phase one,

we will continue to identify and implement actions that are available to us right now to manage more effectively and serve the

American people better. In phase two, we will identify the moderate legislative changes that provide us with better tools to meet

the business and consumer needs of our customers in today’s world.

In the third phase, we are working to identify options for long-term

comprehensive changes that will define and support the role of the

Postal Service well into the 21st Century.

Development of this transformation plan is one of my highest priorities. You will receive our discussion document at the end of this

month and our plan at the end of this year. There is a general

agreement that the 31-year-old law that created the Postal Service

does not provide us with the tools necessary to protect affordable,

universal service. I look forward to the Subcommittee’s input in our

continuing efforts to build a strong and healthy future for America’s Postal Service. With your help, I believe our post offices can

continue to play a vital role in keeping America connected.

I cannot say often enough how proud I am of our employees.

When I was in New York with those employees most affected last

week, I thanked clerks, mail handlers, supervisors and letter carriers for coming to work. One letter carrier, whom I cannot forget,

looked at me and said, ‘‘I have to be here because my customers

need me to be here.’’ That, Mr. Chairman, says a great deal about

our men and women. Thank you for this opportunity. I look forVerDate 11-MAY-2000 09:36 May 13, 2002 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 76800.TXT SAFFAIRS PsN: SAFFAIRS
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ward to working with you and the Subcommittee in the future. I

would be pleased to respond to any questions you may have.

Senator AKAKA. Thank you very much, Postmaster General Potter for your testimony. Without objection, we will put your full

statement in the record.

Mr. POTTER. Thank you.

Senator AKAKA. I also want to convey to you our pride and our

gratitude to the Postal Service for the way in which they responded

to the disaster that occurred on September 11. As you pointed out,

they went back to work the next day to deliver mail and to continue service to our country. I am also glad to hear from your statement about helping the economy. It gives us an idea of where we

are, and I am glad to hear about where the Postal Service is now

and what you are planning for the future.

In speaking about the disaster and our economy, I felt terrible

to learn that there were 60 nations that were affected by the possible deaths of people in the World Trade Center. As you pointed

out, the tragedy of September 11 has united us in our spirit and

our resolve, and we certainly want to continue that.

Senator COCHRAN. Good morning.

Senator AKAKA. I’m pleased to have my good friend, Senator

Cochran with us now. I just want to ask—I do not know the time

constraints for my other friend, Senator Stevens, and would like to

ask Senator Cochran to make the decision as to whether Senator

Stevens will go before him.

Senator STEVENS. Let me make that. I will be glad to—— Senator COCHRAN. No, I am going to make the decision. Senator

Stevens ought to be recognized.

Senator AKAKA. Thank you very much. Senator Stevens.

OPENING STATEMENT OF SENATOR STEVENS

Senator STEVENS. Mr. Postmaster General, I welcome you in

your first appearance here, that I have been able to attend. I do

think we are very fortunate with your background, in terms of the

operations that you have been involved in in the Postal Service,

that you have come up to this level of the postal system. So I congratulate you for your appointment, and I also want to tell you that

we are going to need all of your experience in dealing with the

times that are ahead of us.

In Alaska, we have had some really difficult times, I am sure you

know. In our State, 75 percent of all intercity travel is by air, almost 90 percent of the mail is delivered by air into the smallest of

communities. After September 11, as you know, everything was

grounded for a day or two. We had a hard time reminding some

people downtown that the taxis were still running in New York,

the buses were running, and the trains were running there, but

guess what? There were none of those in 90 percent of Alaska. So

we do appreciate your understanding and help in that situation. I

am informed that we are almost back to normal, not quite, but almost.

In an area where hay for horses and diapers for babies are delivered by the Postal Service under what we call bypass mail, it is a

real challenge to keep up with our system. I wanted to chat with

you just a little bit about the future of that. There is currently a

9

limit on the use of the passenger-carrying aircraft for rural Alaska.

I had to look into that. It was an odd and terrible day for Alaska,

September 11 and 12 was, because that was a time when our

school teachers were leaving to go from the major hubs out to the

rural schools, 270 of them and probably 260 of them going by air.

We had enormous difficulty getting our people around, and one

of the things we have tried to do with bypass mail is to ensure that

a sufficient amount of mail went on the passenger-carrying local

airplanes, so that stability of those airlines to survive would be assured. Have you been able to look into that yet, Mr. Postmaster

General, in terms of what we will be able to do to sustain the type

of local passenger service that has been in the past sustained

through the use of bypass mail and the support of the Postal Service?

Mr. POTTER. Senator Stevens, let me begin by thanking you for

your help to the Postal Service and working with the FAA. It is

most appreciated. As you mentioned, there are restrictions on our

tendering of mail, certain types of mail, to larger aircraft within

Alaska. We are using cargo planes to move the mail. We have recertified our processes for airline security, working very closely

with the FAA. In fact, just this past summer, we had redone our

airline security procedures with the FAA’s approval, and we had

retrained many of the people in the country who handle the mail.

With last week’s events, we went out and did a certification, 100-

percent certification of all people, to make sure we were in compliance with those new regulations or those new procedures that we

had. We are going to work closely with the FAA to ensure that we

are able to move mail within Alaska, and we will take whatever

security measures are necessary. We do want to keep mail—as you

said, for the viability of those passenger airlines, we would prefer

to keep mail flying on those planes, but again, we will take all the

necessary steps in order to assure that the mail that is tendered

to those airlines is—— Senator STEVENS. Well, I thank you very much for that. Many

people forget that these little carriers that we are talking about

that carry 9 to 12 passengers, there is not much of a fuel load.

They are not really capable of doing much damage as far as being

used as those two monster airplanes were used in New York, as

bombs—and the one against the Pentagon. These are, again, taxis,

and they are literally air taxis, but they have an economic viability

if they can carry the mail; and if they are assured that they will

carry the mail, they get out to those villages and oftentimes people,

when they see the mail plane come in, they make up their mind

that this is the time to go to town. So it is the mail that really generates passenger traffic and not the other way around. I do look

forward to working with you, and again, I really am delighted.

You have got the background, in terms of logistical activities of

the Postal Service that we need now, and I am sure this Subcommittee is going to be working very hard with you. I have got

to apologize. My friend from Hawaii, he has a similar circumstance,

but when the planes do not fly over there, they just take boats. We

do not have quite the same circumstance, except when I first came

to the Senate, once a year there was a vessel known as the North

Star, that took supplies to all the villages along the Alaska Coast.

10

It went out once a year. All of their supplies had to go to their local

stores—they had to purchase them a year in advance—and

logistically that meant, in terms of their economy there, they did

not get much.

Things have changed now. The day before Christmas I flew over

with a friend of mine over to Bethel, which is in the center of the

West Coast of Alaska. I walked through a mall and a native store

there, where the things that were available to those people for

Christmas was just overwhelming, compared to what I knew was

there 30 years ago. Extending the mail system and making it reliable in Alaska has been brought about by the modernization of

rural Alaska, and has brought them into the 21st Century with everyone else. I cannot think of another entity of government that

means more to rural Alaska than the Postal Service.

I want you to know, as I have in the past, Mr. Chairman, I have

served on this Subcommittee longer than anyone on our side of the

aisle in history. The old Postal Committee was my first Committee

when I came to the Senate, and I want to continue as long as I

am here to work with you, because I think you are the lifeline for

rural Alaska. I am sorry. I have got to go back to the other committee, Mr. Chairman and Senator Cochran, because we have— guess who? Secretary Mineta and FAA is over there, and I want

to make sure they understand what I just told you. Thank you very

much.

Mr. POTTER. Thank you.

Senator AKAKA. Thank you very much, Senator Stevens for your

statement. I must also add that we certainly share the concerns

that noncontiguous States have, especially with the mail service.

So I want to thank Senator Stevens for his comments.

And now, Senator Cochran.

OPENING STATEMENT OF SENATOR COCHRAN

Senator COCHRAN. Thank you. Mr. Chairman, I want to join you

in thanking Senator Stevens for being here this morning and putting in perspective the importance of the Postal Service, not only

in his State, but I think it is true throughout rural America. So the

challenges are quite immense. I noticed that one of the biggest

challenges for the Postal Service is to try to modernize and bring

your activities up into the modern world, and one of the steps that

was taken some time ago was to move into the area of e-Commerce,

so-called electronic activities. I am told that in spite of the fact that

it was expected to help make up for lost revenues from loss of mail

moving into that area, the Postal Service has not really been able

to make any money in e-Commerce.

My question is can you confirm that, and, if so, what are your

plans to deal with the challenges of e-Commerce? Are you going to

abandon that or continue to work on it?

Mr. POTTER. Recently, I made organizational changes at the

headquarters level. Part of that organizational change was to take

the vice president of e-Commerce, the vice president of Package

Services, the vice president of Core Products and the senior vice

president of Corporate Business Development, and move them into

one organization called the Vice President of Products for the Postal Service. Over the course of time, there has been internal comVerDate 11-MAY-2000 09:36 May 13, 2002 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 76800.TXT SAFFAIRS PsN: SAFFAIRS
11

petition for resources along the areas—and, obviously, e-Commerce

was one of the areas that was in competition for resources. The

reason I did that was because I wanted the organization to focus

on one thing. I wanted to focus on core products.

We have some $68 billion in revenue, and my challenge to the

organization is not to become the premier provider in the e-Commerce world. My challenge to the organization is to see what we

can do to grow that core business, because it is a simple analysis.

If you wanted to make $680 million and you were the Postal Service, it is a lot easier to grow the core by 1 percent than it is to take

a new product and have it come to grow to $680 million in revenue.

Now, with that said, I want to assure everybody, and our customers in particular, that we want to move into the Internet. We

want to do business, because businesses are moving to the Internet

to deal with one another, and that is a channel for payments. I am

talking about our major customers—that is a channel that we use

to share information. So the Postal Service has to be on the Internet.

We do have a number of e-Commerce initiatives that have not

produced revenue, that are not meeting the expectations of their

business plan. We have also eliminated some of those initiatives,

but I would be happy to share those for the record with you. The

initiatives that we have, we have put under a microscope. We are

tracking, monitoring on an accounting-period basis, the revenues

that we take in, what our costs are, and over the next 6 months,

our plan is to take those initiatives that have not been meeting

their business plan, and to put them on a critical watch. If, in 3

months we cannot turn things around, we are going to eliminate

those initiatives. We are not going to perpetuate programs that do

not have a bright future and will not generate the revenues that

were expected when those programs were initiated.

Senator COCHRAN. I noticed that one of the requests that has

come from the Postal Service just recently is for a supplemental appropriation. Could you tell us what this supplemental appropriation is needed for, and the exact amount you are requesting?

Mr. POTTER. We have asked for $957 million. That is money that

is owed to us for services that were provided in the 1990’s, and the

Congress made a decision that they would pay that amount to us

in $29 million over a 42-year period of time. What we are asking

for is to accelerate those payments. Given our financial condition

right now, we could certainly, as could other businesses around

America, use $957 million. But our goal is to take that money and

begin to invest it in the infrastructure. Last year, we stopped the

building of post offices around America. We put a freeze on our

capital budget for construction of postal facilities. We have had to

make a decision that we are going to continue that freeze into

2002. We would like those funds so that we could, first of all, help

our bottom line, as well as to accelerate our ability to move ahead

and continue to build the infrastructure that we need.

Senator COCHRAN. There had been some discussion that, rather

than ask for a substantial postal rate increase, as we now know

has been done, there was consideration given to asking for a

phased-in increase in postal rates. Why was the decision made to

12

ask for a larger increase and not phase-in the postal rate increases?

Mr. POTTER. We took a very hard look at the phasing-in of postal

rates. Unfortunately, the fact that we are so close to our borrowing

cap gave us very little flexibility, in terms of being able to ask for

a smaller rate increase in 2003—our fiscal year 2003—and then

smaller increases beyond that. So we really were hard pressed in

terms of bumping up against our borrowing limits. Now, that said,

a lot of people have suggested why not just expand the borrowing

limit? Unfortunately, given the fact that the only way we can pay

down the debts that we have is through net income, expanding the

borrowing limit really does begin to mortgage our future.

So we felt that, given the circumstances, we had to ask for a rate

increase and we could not establish a rate increase phasing it in.

There are just too many inherent risks to what we have to deal

with in the next year. Those risks include the soft economy and the

types of volumes that we had projected for this year. Certainly,

that is at risk. We have three cases—three contracts that expired

that are currently being arbitrated by a third-party arbitrator who

will make a decision about the amount of money that we pay our

employees. We have a fourth agreement that is currently being negotiated with our National Association of Letter Carriers. In total,

there are some 700,000 employees whose salaries will be determined in the coming months. We do not know what the outcomes,

particularly on the arbitration, will be. So, there is an inherent risk

there. So, given the risks in our economic situation as we look into

the future, we felt it only prudent to file rates, and we did not feel

that we could file rates in a phased manner.

Senator COCHRAN. There was a letter that some of us signed,

asking for a report on the transformation plan of the Postal Service. I understand that you are making good progress in compiling

this information for the Congress and before the end of the year,

we can expect to have a complete report that we requested. Is that

information that I have true, and do you have any comments about

the transformation plan?

Mr. POTTER. Senator, that is true. We plan to produce and publish a discussion document by the end of this month. We are well

underway to completing that document. I have reviewed several

drafts. We are working closely with the GAO, and we are planning

a parallel phased approach. Our first phase—and, again, we are

going to run these parallel to one another—is to do everything that

we can as a Postal Service to improve our posture. That includes

taking costs out, looking at our networks. In our second phase, we

are working and looking for moderate legislation that will help us

and give us some tools so that we can improve the way we do business and act in a more businesslike manner. And the third phase

will be a discussion of a long-term perspective; a comprehensive

discussion about where the Postal Service should be, what should

universal service look like 15 or 20 years from now, so that we can

begin managing our way to an ultimate picture, an ultimate vision,

of what the Postal Service is.

It is very important as we do that that we recognize them now

more than ever—given the events of last week, that we recognize

the importance of the Postal Service to our economy. Some nine

13

million people throughout America are employed, not by the Postal

Service, but in the mail business. Some $900 million is transacted

in the mail business. We are a vital part of the economy, and we

take this opportunity to build a transformation plan very seriously.

It is a high priority and we are going to fulfill the direction that

we were given by the Senate to build a comprehensive plan with

stakeholder input, so that we have a good working document that

we can then fulfill.

Senator COCHRAN. Well, Mr. Chairman, I congratulate the Postmaster General on the good start you are off to. I think you are

making good progress. You have got a sense of where you need to

be, an obligation to reduce deficits and to get better control over

the operation of the Postal Service, generally. So I wish you well

and commend you for the excellent start that you have made as

Postmaster General.

[The prepared statement of Senator Cochran follows:]

OPENING PREPARED STATEMENT OF SENATOR COCHRAN

I welcome you, Postmaster General Potter and Chief Postal Inspector Weaver, in

your first appearances before the Senate. I would also like to thank you both for

the significant efforts the Postal Service and the Postal Inspection Service have

made during the past several days to keep the mail moving in as safe and expeditious a manner as possible.

Postmaster General Potter, you stepped into your new role at a very interesting,

and also very difficult, time for the Postal Service. In fact, you were appointed Postmaster General just 2 weeks after this Subcommittee held a hearing in May to discuss the seemingly rapidly deteriorating financial situation of the Postal Service.

Fortunately, the numbers relating to the Postal Service’s expected deficit for this fiscal year have improved slightly since then. However, significant challenges remain

in the effort to return to a ‘‘break-even’’ state—as made evident by the Postal Board

of Governors’ plan to file for another rate increase, an ongoing facilities funding

freeze, and new plans for substantial workforce cuts. Hopefully, today’s hearing will

provide us the opportunity to discuss further cost cutting and revenue generating

plans you may be considering.

I appreciate the efforts the Postal Service has made thus far in preparing a comprehensive transformation plan, as requested by Senators Akaka, Thompson,

Lieberman, and me. I understand that we can expect to receive this at the end of

the year, along with a detailed plan for deficit reduction. These plans should prove

highly useful in helping the Senate understand the long-term operational, financial

and human capital needs of the Postal Service.

Despite the Postal Service’s current difficulties, the agency’s tremendous workforce of over 800,000 employees has maintained record service performance and high

levels of customer satisfaction—with over one million new addresses being added

each year. The agency’s reputation as a highly dependable deliverer of mail to

American citizens throughout the country is well deserved.

I am pleased to have this opportunity to review with the Postmaster General the

activities and problems of the Postal Service and any issues that, in his judgment,

should be brought to the attention of this Subcommittee.

I do hope the Postal Service will continue to pursue its fundamental responsibilities, providing universal mail service at affordable rates.

I thank you, Chairman Akaka, for holding this hearing. I look forward to hearing

the Postmaster General’s and Chief Inspector Weaver’s reports.

Mr. POTTER. Thank you, Senator.

Senator AKAKA. Thank you very much, Senator Cochran.

Postmaster General, you and Mr. Weaver have described some of

the extraordinary steps the Postal Service has taken during the

past 10 days to ensure that the mail is delivered in a timely manner, despite the devastating circumstances that we all faced. I, too,

want to join Senator Cochran in applauding your leadership during

14

this time, and also your leadership in what is ahead for the Postal

Service.

I again commend the hundreds of thousands of dedicated postal

workers who work so hard every day to deliver the mail. Many

times during disasters, the Postal Service is the first sign of the

Federal Government on the scene. As you noted, mail was delivered to many homes and businesses last Tuesday. My question is

what types of disaster plans does the Postal Service have, and

would you further explain the steps the Service took last week to

secure the U.S. mail, ensure delivery, protect its employees and

communicate information to the field? You partly answered this,

but perhaps you can expand on that.

Mr. POTTER. Let me just tell a little story. You mentioned that

mail was delivered on Tuesday. We had people who work in our

headquarters building, and, as you know, the city was evacuated.

We shuttered postal headquarters and people were asked to go

home, and there was a horrendous traffic jam as people moved to

their homes, and I had two employees come to me and say, ‘‘You

know, I got home at two o’clock and right behind me was the letter

carrier, delivering that mail.’’ So even here in Washington, people

were delivering the mail.

As soon as we saw—as we were up on the 11th floor of our building and we saw what happened at the Pentagon, we began an evacuation of our building, and we immediately went into our continuation-of-operation plan. We had people that were dispatched to a

location outside the Beltway to activate that center, while we kept

half the folks downtown to communicate to the areas and to issue

instructions on what to do. Immediately, we moved and developed

a plan to move mail on the ground.

About 20 percent of our mail flies, so we wanted to make sure

that the economy kept going and that we kept the payments that

were in the mail—we kept them moving. So, immediately we went

to ground transportation. As I said, Amtrak offered to give us additional cars on trains, build trains for us, and within a couple of

hours we had that conversation. Federal Express called us and

said, ‘‘We will move the mail by truck.’’ We went to our trucking

folks and we asked them to run extras and make sure that the

mail kept moving. Throughout that process, we stayed in communication with the field. As you know, domestic air carriers were

told to ground their planes. Some of those planes landed in places

where we do not have air mail centers. So we dispatched our folks

out to the airports, and as quickly as we were allowed to get access,

we took the mail that was flying off the plane, put it on ground

transportation and got it moving.

We expanded our current surface networks. We have a network

to carry our advertising mail and our parcel post throughout the

country. We immediately used that network to move First-Class

Mail, Priority Mail, and although it would be a little late, Express

Mail, on trucks. We worked closely and contacted in very short

order the FAA to determine what their plans were. We made contact with our cargo air carriers, FedEx. We made contact with

other cargo air carriers who had worked for us in the past or

worked to handle our Christmas mail, and we prepared them so

15

that once we had the go-ahead to fly, we could move mail on cargo

planes and begin to tender mail to domestic carriers.

And, as I said earlier, we reacted in terms of any restrictions

that might be placed on us in terms of flying mail on domestic carriers. I am happy to say that the mail moved. It is moving. We

have contacted a lot of our larger customers, particularly remittance centers around the country, to garner from them what their

perception was, and they understood that mail would be delayed a

day or two. But they were satisfied that we kept the mail moving,

they are receiving their payments, and we made our contribution

in that way to the economy.

Our goal was to get back to normal as quickly as possible. In

New York, as we speak, there are only the two stations in New

York that we have not moved our carriers back into. That is the

Church Street Station that was right under the Trade Center, and

I do not think that we are going to get access to that anytime soon.

We have made provisions for the people who are serviced by

Church Street Station to receive their mail at our General Post Office in New York, and, as they come to pick up the mail, we are

offering them forwarding service, and we are suggesting to them

that they not make the trip to 33rd Street and Eighth Avenue in

Manhattan, but that they put together—if they have a residence or

if they have moved their business, that we began to forward the

mail for them. We do not want to inconvenience those customers.

The other station in Manhattan that has not opened is Wall

Street Station. Our carriers are preparing mail. We have sent

trucks down there to find out what buildings we could get access

to. Whatever buildings we can get access to, we have our carriers

going into that area to deliver the mail. We just got power back in

the building late last night, so today we are doing a cleanup. Tomorrow, we will have access to that building and we will be delivering the mail out of our Wall Street Station. Once we move the

mail, there are customers who are in buildings that they cannot access—who will be able to pick up their mail at the Wall Street Station. So we are doing everything we can possible to make sure the

mail is moving

Our office in the Pentagon is open again. We are delivering mail

to the Pentagon. So, for the most part, I can say the mail is moving. I think people have to be somewhat patient with us. We are

trying to stay within the standards, the expectations that people

have for mail moving across the country, and where possible, we

are doing that and we are moving mail on all available transportation, cargo, and airlines. In fact, in your State, Senator, the State

of Hawaii, we have had to put some cargo carriers in place because

right now the mail to Hawaii has increased dramatically, people requesting goods and packages.

There has been a tremendous increase, and so we are flying

charter planes with packages into Hawaii. We are using charters

to move mail to Guam and American Samoa, and we are moving

letter mail on all commercial carriers, and where we cannot, we are

using cargo planes. The one problem we have in your State continues to be the Compact Islands, although we believe we have a

flight leaving Saturday to get the packages down there. The smaller products have moved.

16

So, again, I cannot say enough about the people who work in the

Postal Service. This is not what I did. This is what the people in

New York, the people throughout the country, are doing to move

the mail. Our logistics people, our Vice President of Network Operations, Paul Vogel, has done an outstanding job in coordinating the

efforts of the country. This truly has brought out the best in postal

managers. There is a level of cooperation like we see every time

that we are challenged, and there is something where the Nation

needs us to help them, and so I could not be more proud of what

we have done. We are going to continue to work hard. We are going

to make sure that the mail is secure, that our employees are secure.

We have issued instructions to create a greater awareness on the

part of our employees of the need for safety. This is not just mail

that flies. This is all of our vehicles, all of our post offices. So we

are getting the word out to make sure—and I personally am going

to do that—to make sure that when they leave their vehicles that

they are locked; to make sure that if there is a stranger who shows

up at a postal building, that they are immediately challenged and

that we take the proper precautions to make sure our doors are

locked, precautions that are just common sense. But we need to reinforce that common sense which is more important today than

ever, because we cannot have the American public lose confidence

in the mail.

Senator AKAKA. I want to thank you very much for responding

to the needs of the Pacific, to Hawaii, Guam, and American Samoa.

As we all know, the mail stopped because it could not be delivered

by commercial airlines to those places. But I am glad to know that

the Postal Service has responded and moved it as quickly as you

could to those areas. I want to know what steps the Postal Service

took in helping to protect the employees and also communicating

with them in the field?

Mr. POTTER. We put out ‘‘Direct Line,’’ which is a communication

that goes to all post offices. We have done it that way. We have

a Postal Service television network where we have kept people

abreast of all the events that have gone on, let them know changes

that were being made, and basically made them aware of the need

to secure the mail, secure themselves, stay safe, and, again, deliver

mail to America on a daily basis. Now, more than ever, I think people are looking at the Postal Service. They understand how vital

it is to not only the economies in Hawaii and in Alaska, but to the

economy of the United States. Over $1 trillion transits the mail

over the course of the year.

So we understand what is in the mail. We understand the need

for people to receive payments to get their bills so that they can

pay them, so we can keep the engine, the economy, moving and we,

again, want to do our part. Our first concern is the safety of our

employees, and I was very happy, as I said in my earlier statement, that no postal employee got hurt. Our managers did the best

they could to get those folks out of harm’s way, and we took the

necessary precautions to ensure that our employees were safe and

at the same time make sure that the mail got through.

Senator AKAKA. Again, I want to thank you for thinking of the

Pacific and working with the Honolulu District to resolve the

17

backup of mail in Los Angeles bound for Hawaii, and for establishing a regular delivery schedule. Can you tell me when the backlog for Hawaii will be clear?

Mr. POTTER. Senator, it is my understanding that we are now

flying a full 747 daily. We had anticipated that, based on the volume that we normally have, we would be flying the 747 every other

day; however, we are now flying that plane daily. Domestic carriers

are again accepting letter mail and lightweight flat mail. So we are

moving all the mail that we possibly can, and it is a matter of getting it to Honolulu and then moving it out on inter-island transportation, and we are able to do that. So we believe that it is not perfect yet, but the flow is just about back to normal. Again, the thing

that was most surprising was the fact that, once this disaster hit,

apparently the amount of orders for goods and the amount of communication going between the mainland and Hawaii jumped tremendously. We appreciate the revenue, but we have had to make

adjustments to react to it.

Senator AKAKA. I want to tell you that the people out in the Pacific are grateful. I know because I was receiving calls about prescription drugs and other necessities that come through the mail.

As soon as there is a disruption, you hear from these folks, and I

am glad you took care of that.

I will ask one more question before I end this round. With the

special challenges facing the Postal Service, there will be additional

costs incurred in getting the mail delivered. My question is how

long do you expect these additional costs to continue and will the

supplemental funding request submitted to the White House just

last week be used for these costs?

Mr. POTTER. We submitted a supplemental funding request to

the White House. They actually asked us to identify additional

costs that we had incurred and we submitted a number in the

range of $50 million. Let me explain what that number is. Approximately half of the $50 million is for the renovation of the facility

that was damaged at Church Street. In addition to that, as Chief

Weaver mentioned earlier, we have provided assistance to the FBI

in the form of equipment so that they could handle evidence at

some of the sites.

We have also spent funds aiding the rescue efforts and the recovery efforts. We have provided trucks. Amtrak donated a service

where they filled up seven carloads with medical supplies to assist

in the Manhattan rescue effort. Those supplies were brought into

our facility. We off-loaded those supplies into trailers and moved

them to the site, and we are incurring some costs for some of the

cargo transportation that we are talking about. So we anticipate

that number could potentially grow, but I guess if you think about

it, this kind of points back to the rate process that we have and

the fact that, to prepare a rate case, to get an outcome and to implement, you are talking on the order of 16 months. Preparation— 4 months, 10 months at the Rate Commission, 2 months to allow

for people to get ready for a new rate.

We are not really ready to handle that type of thing from a rate

standpoint. When we saw fuel costs rise in the past year, our competitors, FedEx, UPS—they put a surcharge on fuel in terms of

what their customers would pay. We did not have that ability or

18

the flexibility to make that change. We submitted the supplemental

because the White House asked us to identify our additional costs.

We think they are going to grow and those are the types of things

we have identified as costs.

Senator AKAKA. Thank you. Let me ask my partner, Senator

Cochran, for any additional questions.

Senator COCHRAN. Mr. Chairman, one other question, if I might.

Despite recent gains in productivity overall, over time, there has

barely been an increase in productivity, and this is in the face of

substantial investments that had been made in information technology, modernization and automation and the like; why has the

Postal Service had such difficulty improving productivity over the

long-term?

Mr. POTTER. As you have heard already, we have made a lot of

progress in the last 2 years. We are focused on our costs and taking

costs out. We have had since the beginning of the Postal Service,

about a 13.3 percent increase in productivity, 4.5 percent of that

has occurred in the last 2 years. We are, again, focused on making

sure that every penny we spend is necessary, because we know it

is going to have to come from the ratepayer.

In terms of why you haven’t seen a greater productivity improvement over time—I believe it is because of the fact that delivery, in

and of itself, is a very labor-intensive activity. We have over

300,000 people who deliver the mail, and we are working to evaluate the processes used in delivery to try to improve productivity in

that area. I mentioned earlier today that we have eliminated some

21,000 career positions. The bulk of those positions are clerk positions, where the automation investment that you have referenced

is focused, and we have gone back to make sure that as we have

improved machines’ ability to read addresses, so that we reduced

the work hours of clerical employees.

We have to take that same resolve, in terms of reducing our cost

in areas of material handling, that is the movement of mail into

buildings and out of buildings and onto machines and off machines.

We want to work with our customers, so that it is kind of transparent, the movement of mail from a printer right to delivery. We

have some processes that were created before the advent of automation, and we have to change the packaging to reduce those costs.

We also have to invest in material handling systems. In the area

of delivery, again, we are focused on those processes to see whether

or not there is an opportunity to reduce costs.

But, in a nutshell, moving mail is a labor-intensive business. We

move over 208 billion pieces of mail a year with some 800,000 employees. I would not call ourselves unproductive. I would say,

though, we have opportunities to improve.

Senator COCHRAN. Thank you. Mr. Chairman, this concludes my

questioning.

Senator AKAKA. Thank you very much.

Mr. Postmaster General, let me ask you the question that is on

everyone’s mind. We know that the Postal Board of Governors will

request that the Postal Rate Commission give expedited consideration to its rate case. In fact, you repeated the need for expedited

review today. If the rate case is completed in less than 10 months,

19

does that mean that rate increases will be implemented as soon as

the case is decided?

Mr. POTTER. Well, as a matter of fact, Mr. Chairman, one of the

reasons that we would like to have an expedited rate case is so

that we would understand what the recommendation of the Rate

Commission is. Many people have talked to me, to other governors,

about delaying the implementation of the case. The only way you

can make a decision about that is to understand what revenues we

might get from that additional rate. So, what we are doing is we

are going to look at all of the different variables that go into a decision about when we might implement the rates. Those variables,

as I described earlier, are what happens to the economy and what

happens to our volume and revenues between now and next summer, what happens in front of the three arbitrators who are going

to decide the wages and working conditions for three of our major

unions, what happens with the negotiations for the National Association of Letter Carriers, and what happens in front of the Rate

Commission and what recommendations they will come back with.

So the idea of asking for an expeditious decision was not with a

mindset of ‘‘we are going to accelerate these rates as quickly as we

can,’’ it is ‘‘let’s get all the information that we possibly can garner

to make a sound judgment about an implementation date.’’ Senator AKAKA. Obviously, the various classes of mail will be impacted differently under the new rate case. I know that postage

rates for periodicals have increased 12.5 percent under this year’s

two increases, and are expected to increase another 10 percent

under the new proposal. Priority mail is targeted for a rate increase of 13.5 percent, even though its rates have already increased

by more than 16 percent this year. My question is how does the

Postal Service calculate the point at which raising rates will have

a negative impact on the different types of mail service, and do you

believe the Postal Service will eventually price itself out of some

classes of mail?

Mr. POTTER. Postal Service rates are determined by Postal Service costs. We operate under a 30-year-old law that basically has us

charging mailers or our customers prices based on what our costs

are. We have worked with periodical mailers. We are attempting

to work with those mailers to try and drive costs out of our processes. As I said earlier, we are trying to figure how to mail from

printers to our letter carriers with as few handlings as possible

along the way. So we are looking at the entire chain, from printing

to delivery, and we have an ongoing dialogue with that group of

mailers. In the area of Priority Mail, yes, our costs have risen, and

that is the driver behind the increases that people see. We believe

with the FedEx contract that we are going to increase the reliability of the mail, Priority Mail and Express Mail, and that we are

going to have competitive products in both of those arenas.

As far as the long-term, I think your question about long-term,

will we price ourselves out of one or two product areas? I would

prefer not to. I am going to work very hard to make sure that does

not happen. The key in my mind is building a solid transformation

plan, putting in the efficiencies that need to be put in in order to

make sure that those costs do not rise, because they trigger rates.

It is also an opportunity to discuss the 31-year-old law that we

20

have governing us and the potential to have some pricing flexibility, so that if we know we are going to put efficiencies into different classes of mail—that we take advantage of that and have

prices that would be more moderate and would allow for an evolution to a more efficient operation.

If you step back and think about the Postal Service, the bulk of

our mail is letter mail. So it was very wise that, 15 or 20 years

ago, our number one priority for investments was letter mail. Now,

by doing that, other classes of mail were not concentrated on.

There were not similar efforts to improve efficiency. Now is the

time to do that because we know how important magazines are to

the American public, we know how important packages are to certain communities around America, because we are, in some communities, the main provider of packages to customers.

We need to keep all Americans linked. We understand our obligation to keep our costs down so those products are competitive.

We cannot just service a few markets around the country. In order

for us to have reasonable rates, we have to have products that are

competitive in all 50 States, and there is sufficient volume there to

allow us to be efficient. We are very much concerned about that

and we are going to do everything we can do to ensure that. We

do not have to walk away from—or our customers don’t have to

walk away from a product offering because we have priced ourselves out of the market.

Senator AKAKA. I am glad to hear that from you, and of your concern. As you know, these periodicals, as you pointed out, depend so

much on the Postal Service. Without the Postal Service, they cannot do business. So you are important and, I am glad you are giving them that kind of attention. Some observers believe that prior

to seeking postal reform legislation, the Postal Service should demonstrate that it has explored the boundaries of the existing ratemaking structure. In fact, the vice chair of the PRC urged the Postal Service to, and I quote, ‘‘to take advantage of the wide latitude

permitted by current law,’’ during our May hearing. However, you

and the Board of Governors say that your options are very limited.

Why do you believe that there are these two opposing views, and

does the Postal Service have any plans to go beyond existing ratemaking structures?

Mr. POTTER. I believe that we have opposing views—I know the

Postal Service’s view is built around experience at the Rate Commission. When someone is preparing you to testify at the Rate

Commission, basically they tell you to provide an answer that says

anything is possible, when given a hypothetical. Well, we could hypothesize all day, and anything is possible, and we do have to test

that and we are testing that. An example of a test under current

law is that we are going to propose, and the Board of Governors

voted to propose, a waiving of delivery confirmation fees in the beginning of December, to see whether or not we can shift the deposit

of packages with us from later in the month, when they are costly,

to earlier in the month of December.

So we are beginning an effort to try to explore and test the

boundaries of what can be done at the Rate Commission. I would

have preferred to have done that with this current rate case; however, as I have described earlier, there were compelling factors that

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just did not enable us to—given the fact that we are about to bump

up against our borrowing limit, that is a compelling reason not to

go with a smaller rate case. If you are in a hole, you have to dig

yourself out. I know we want to continue to look at those options

in the future, and we are going to work closely with the Rate Commission.

I recently had lunch with George Omas to discuss what the alternatives are. So there is an open line of communication, and we

want to keep that there. As I said, the first phase of our transformation plan is to explore all the options that we have under current legislation, and certainly one of those options is to look at alternatives to a traditional rate case at the Rate Commission.

Senator AKAKA. Thank you very much for your responses. It appears that coordination and cooperation certainly are the keys here

at this time.

Senator Cochran, do you have any additional questions?

Senator COCHRAN. I have no other questions, Mr. Chairman.

Senator AKAKA. Senator Cochran, I thank you very much for sitting here with me. I have other questions, but I will submit them

in writing.

Mr. POTTER. Thank you.

Senator AKAKA. Mr. Postmaster General, I want to thank you so

much for your responses and for being with us today. You have

done an excellent job in your first appearance before Congress, and

I sincerely appreciate your leadership during these trying times. I

wish to commend you on your efforts in developing that transformation plan. The Subcommittee and I look forward to working

with you further and for keeping the mail delivered to our country.

Again, I wish to extend my gratitude and my feeling of pride to you

and the employees of the Postal Service.

Mr. POTTER. Thank you, Mr. Chairman. Thank you, Senator

Cochran.

Senator AKAKA. Thank you very much. The Subcommittee stands

adjourned.

[Whereupon, at 11:23 a.m., the Subcommittee was adjourned.]

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A P P E N D I X

PREPARED STATEMENT OF SENATOR CLELAND

Thank you Mr. Chairman for giving me the opportunity to speak at today’s hearing and address the Postmaster General, Mr. John Potter and the Chief Postal Inspector Mr. Kenneth Weaver. First, let me thank the employees of the United States

Postal Service (USPS) for their efforts in keeping the mail moving during the last

week and the Postal Inspectors for their cooperation with other law enforcement authorities to bring to justice those responsible for the terrible attacks of September

11, 2001.

The USPS was established by the Postal Reorganization Act of 1970. This act

chartered the USPS to perform as a business enterprise, with the freedom to provide ‘‘non-postal services,’’ ensuring that USPS could provide universal service reliably, efficiently and as inexpensively as possible for years to come. Furthermore, the

USPS was mandated to operate on a self-supporting, break-even basis, with particular emphasis on restraining postal rate increases and providing ‘‘honest, efficient, and economical management.’’

The Postal Service is an amazing organization. Its Universal Service program

binds the country together by providing inexpensive and reliable First Class mail

delivery for every American and every business. The USPS stops at approximately

134 million addresses 6 days a week and delivers approximately 670 million pieces

of mail every day. The Postal Service generates approximately $64 billion in revenue, ranking it eighth in the United States in the Fortune 500 Global listing. In

addition, the Postal Service employs approximately 800,000 individuals giving it the

Nation’s second largest payroll, and USPS operates approximately 38,000 postal facilities. Managing any organization this size can be a very difficult challenge, but

it was done profitably for much of the latter half of the 1990’s.

In 1997 the Postal Service turned a $1.2 billion profit, and had been profitable

for the years 1995–1999. But in 2000, the Service showed a net loss of $199 million.

The Service originally predicted a deficit for 2001 of approximately $500 million.

Early in 2001 that projected loss was revised to between $2 and $3 billion. With

a new rise in rates effective July 1, 2001, and cost cutting measures the FY 2001

loss is now expected to be approximately $1.6 billion. The Service has gone from

profitability to billion dollar losses in less than 2 years. In order to cut costs and

pay its bills the Postal Service has frozen all existing capital construction projects,

the Board of Governors voted to modify the most recent rate decision by raising certain rates, and the Service expects to save $3 to $4 billion by 2005 through its

‘‘breakthrough productivity’’ plan. I applaud several of the efforts of the Postal Service in attempting to meet this challenge, however, I am concerned about how freezing capital construction projects will affect future service and if delaying these improvements will result in greater costs down the road.

I have heard from many communities across Georgia that they are experiencing

service problems at their existing Post Offices. The lines are too long, there is not

enough parking or the Post Office is not big enough to handle the volume of mail

going through its facility. Georgia has experienced one of the largest growth rates

in the country and many existing facilities are being squeezed in their effort to provide prompt, efficient and reliable service. I have been informed by USPS that

projects in Buena Vista, Butler, Columbus-Beallwood, Cotton, Darien, Gray, Guyton,

Hawkinsville, Kathleen, Lyons, Macon-Downtown, Madison, Marble Hill,

Marshallville, McCaysville, Monroe, Monticello, Pine Mountain, Pooler, Pulaski, Roberta, Rupert, Sharpsburg and Townsend will be affected by the freeze. I am very

concerned about what the freeze in capital construction projects will mean to these

growing communities in Georgia and how long it will last. I would like assurances

from the Postal Service that efforts will be made to ensure that communities across

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the Nation affected by this freeze will not see a decrease in the service that they

and all of us have come to expect from the Postal Service.

In addition, I am concerned about the long term viability of the Service. The Service has increased postage twice in the last year and is in the process of filing an

expedited rate case for another increase in postage rates expected to become effective in late 2002 or early 2003. With the advent of electronic alternatives First Class

mail volume is expected to decline and postage increases may accelerate this

change. USPS’s new product lines and attempts to delve into the e-Commerce arena

have not yet yielded the expected results. Furthermore, costs for the Service increase every day as new addresses are continually added. I applaud the efforts of

the Postmaster General and others to cut cots by reducing management staff levels.

However, I am concerned about the effect these reductions may have on the current

backlog of equal employment opportunity and grievance cases. I feel that we need

to work together to find a long term solution to the potential future problems of the

Service, and I will look forward to an opportunity to review the Service’s recommendations for reform.

Finally, I would like to mention efforts that I and a number of my constituents

have made to award a commemorative stamp to Lt. Henry O. Flipper, who was the

first African-American graduate of the United States Military Academy. He served

as a member of the all-black Buffalo Soldier 10th Cavalry, but he was courtmartialed and dishonorably discharged from the Army. Lt. Flipper has since been

cleared by the Army and was pardoned by President Clinton. I feel that Lt. Flipper

made significant contributions to the civil rights movement and paved the way for

future African-American officers in the U.S. military. The Stamp Advisory Committee has been considering the request for a commemorative stamp for Lt. Flipper

for approximately 15 years and I would appreciate your consideration of this matter

in the very near future.

Once again, I would like to thank the Chairman and the participants in this hearing for allowing me to speak to you about my concerns. I will review the report for

this hearing when it is released and I look forward to working with you in the future on these and other important issues.

PREPARED STATEMENT OF SENATOR BUNNING

I certainly realize that the United States Postal Service is facing some tough financial choices in the coming months, including possibly closing and consolidating

mail processing centers.

I have heard reports that the USPS is considering changes to the Ashland, Kentucky, facility, and I would like to take the opportunity to register my concerns, especially regarding possibly moving the mail processing center to Huntington, West

Virginia.

The Ashland processing center has a strong record of providing good service to

its customers. In fact, it is my understanding that the Ashland mail processing center was recently ranked 12th nationally in terms of efficiency. I am concerned that

this move could mean a decrease in the quality of service my constituents receive,

along with a loss of jobs in Ashland.

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