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THE THREE R’S OF THE POSTAL NETWORK PLAN:

REALIGNMENT, RIGHT-SIZING, AND RESPONSIVENESS

HEARING

BEFORE THE

SUBCOMMITTEE ON FEDERAL WORKFORCE,

POSTAL SERVICE, AND THE DISTRICT

OF COLUMBIA

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

JULY 24, 2008

Serial No. 110–146

Printed for the use of the Committee on Oversight and Government Reform

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.house.gov/reform

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

HENRY A. WAXMAN, California, Chairman

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

BRIAN HIGGINS, New York

JOHN A. YARMUTH, Kentucky

BRUCE L. BRALEY, Iowa

ELEANOR HOLMES NORTON, District of

Columbia

BETTY MCCOLLUM, Minnesota

JIM COOPER, Tennessee

CHRIS VAN HOLLEN, Maryland

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

JOHN P. SARBANES, Maryland

PETER WELCH, Vermont

JACKIE SPEIER, California

TOM DAVIS, Virginia

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

VIRGINIA FOXX, North Carolina

BRIAN P. BILBRAY, California

BILL SALI, Idaho

JIM JORDAN, Ohio

PHIL BARNETT, Staff Director

EARLEY GREEN, Chief Clerk

LAWRENCE HALLORAN, Minority Staff Director

SUBCOMMITTEE ON FEDERAL WORKFORCE, POSTAL SERVICE, AND THE DISTRICT OF

COLUMBIA

DANNY K. DAVIS, Illinois

ELEANOR HOLMES NORTON, District of

Columbia

JOHN P. SARBANES, Maryland

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio, Chairman

WM. LACY CLAY, Missouri

STEPHEN F. LYNCH, Massachusetts

KENNY MARCHANT, Texas

JOHN M. MCHUGH, NEW YORK

JOHN L. MICA, Florida

DARRELL E. ISSA, California

JIM JORDAN, Ohio

TANIA SHAND, Staff Director

(III)

C O N T E N T S

Page

Hearing held on July 24, 2008 ............................................................................... 1

Statement of:

Donahoe, Patrick, Deputy Postmaster General, U.S. Postal Service; and

John Waller, director, Office of Accountability and Compliance, Postal

Regulatory Commission ................................................................................ 42

Donahoe, Patrick ....................................................................................... 42

Waller, John ............................................................................................... 52

Herr, Phillip, Director, Physical Infrastructure Issues, U.S. Government

Accountability Office; and David Williams, Inspector General, Office

of Inspector General, U.S. Postal Service ................................................... 8

Herr, Phillip ............................................................................................... 8

Williams, David ......................................................................................... 31

Reid, Myke, legislative and political director, American Postal Workers

Union, AFL–CIO; and John Hegarty, president, National Postal Mail

Handlers Union ............................................................................................. 105

Hegarty, John ............................................................................................ 112

Reid, Myke ................................................................................................. 105

Winn, Michael, director of postal operations, Association of Postal Commerce, accompanied by Gian-Carlo Peressutti, vice president for government relations at RR Donnelly; Robert E. McLean, executive director, Mailers Council; Jerry Cerasale, senior vice president, government

affairs, Direct Marketing Association, Inc.; and Anthony Conway, executive director, Alliance of Non-Profit Mailers ............................................ 70

Cerasale, Jerry .......................................................................................... 93

Conway, Anthony ...................................................................................... 99

McLean, Robert E. ..................................................................................... 85

Winn, Michael ............................................................................................ 70

Letters, statements, etc., submitted for the record by:

Cerasale, Jerry, senior vice president, government affairs, Direct Marketing Association, Inc., prepared statement of .............................................. 94

Conway, Anthony, executive director, Alliance of Non-Profit Mailers, prepared statement of ........................................................................................ 100

Donahoe, Patrick, Deputy Postmaster General, U.S. Postal Service, prepared statement of ........................................................................................ 44

Hegarty, John, president, National Postal Mail Handlers Union, prepared

statement of ................................................................................................... 114

Herr, Phillip, Director, Physical Infrastructure Issues, U.S. Government

Accountability Office, prepared statement of ............................................. 10

Marchant, Hon. Kenny, a Representative in Congress from the State

of Texas, prepared statement of .................................................................. 4

McLean, Robert E., executive director, Mailers Council, prepared statement of ........................................................................................................... 87

Reid, Myke, legislative and political director, American Postal Workers

Union, AFL–CIO, prepared statement of Mr. Burrus ............................... 108

Waller, John, director, Office of Accountability and Compliance, Postal

Regulatory Commission, prepared statement of ........................................ 54

Williams, David, Inspector General, Office of Inspector General, U.S.

Postal Service, prepared statement of ......................................................... 33

Winn, Michael, director of postal operations, Association of Postal Commerce, prepared statement of ...................................................................... 76

(1)

THE THREE R’S OF THE POSTAL NETWORK

PLAN: REALIGNMENT, RIGHT-SIZING, AND

RESPONSIVENESS

THURSDAY, JULY 24, 2008

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON FEDERAL WORKFORCE, POSTAL

SERVICE, AND THE DISTRICT OF COLUMBIA,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 3:55 p.m., in room

2154, Rayburn House Office Building, Hon. Danny K. Davis (chairman of the subcommittee) presiding.

Present: Representatives Davis, Kucinich, and Marchant.

Staff present: Lori Hayman, counsel; Marcus A. Williams, clerk/

press secretary; Alex Cooper, minority professional staff member;

and Janice Spector, minority senior professional staff member.

Mr. DAVIS. I have just been informed that the ranking member

is on his way, so given the fact that we have been waiting and

waiting and waiting, we are going to go ahead and proceed.

The subcommittee will now come to order.

Welcome, Ranking Member Marchant, members of the subcommittee, hearing witnesses, and all of those in attendance, to the

Subcommittee on the Federal Workforce, Postal Service, and the

District of Columbia’s oversight hearing, ‘‘The Three R’s of the

Postal Network Plan: Realignment, Right-Sizing and Responsiveness.’’

The Chair, ranking member and subcommittee members will

each have 5 minutes to make opening statements. And all Members will have 3 days to submit statements for the record. Hearing

no objection, such is the order.

Let me, first of all, thank all of you for your patience and indulgence. Of course, we always take the position that democracy requires a great deal of time, effort and involvement. That is sort of

the price that we pay for the opportunity to participate, be engaged, be involved and have a democratic form of government.

Today’s hearing will examine the network’s plans and potential

impact on the public, the postal work force, the mailing industry

and the future economic health of the Postal Service.

The Postal Service accepts and processes over 200 billion pieces

of mail annually and delivers to nearly 148 million addresses 6

days per week. In order to provide this universal service throughout the United States and its territories, the Postal Service utilizes

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a vast network of more than 400 mail processing plants and 37,000

post offices.

Much of this complex network was developed in the 1970’s and

1980’s when our Nation was experiencing significant increases in

mail volume. Today, however, we face declining mail volume, a new

price cap restriction on rate increases, and the mailing industry

conducting more of the mail processing operation.

These structured changes require the Postal Service to revise its

distribution network to meet these changing conditions, while at

the same time addressing its operational needs. All this must be

done in a way that maintains and improves service.

The Postal Accountability and Enhancement Act of 2006 required

the Postal Service, in consultation with the Postal Regulatory Commission, to submit a plan for meeting modern service standards. As

required, the Postal Service submitted this Network Plan to Congress last month, in which they laid out a long-term vision for

rationalizing the infrastructure and work force and how they intend to implement this vision.

The Postal Service has identified excess capacity in its retail systems and mail processing and distribution facilities as an area of

potential savings. The Service plans to reduce excess capacity, increase efficiency and reduce expenses by consolidating operations

and facilities.

For this effort to be successful, the Postal Service must do a better job of realigning its processing and transportation networks,

improve the data used in its computerized and statistical modeling,

and minimize service disruptions. Failure to prevent and predict

service problems will result in poor mail delivery, which in turn

will anger the public and trigger political considerations.

We all want a Postal Service that continues to be a world leader

in the mail industry and one that provides universal access and

high-quality service at affordable prices. Therefore, I think it is

critical that we in Congress consider implementing the changes in

the Network Plan as quickly as possible. After all, Congress made

it clear in the Postal Act that the Postal Service has continued authority to change its network.

I look forward to hearing your views on the Network Plan. And

I want to thank all of the witnesses for your testimony.

Before we begin, I will just indicate, should our ranking member

have opening comments to make once he arrives, we will suspend

with the witnesses and give him the opportunity to do so, and we

will return.

With that in mind, let me welcome panel one.

Mr. Phillip Herr, who is the Director of Physical Infrastructure

Issues at the Government Accountability Office. Mr. Herr currently

focuses on programs at the U.S. Postal Service and the Department

of Transportation.

Thank you very much, Mr. Herr.

Mr. David Williams was sworn in as the second independent inspector general for the U.S. Postal Service on August 30, 2003. Mr.

Williams is responsible for a staff of more than 1,100 employees

that conducts independent audits and investigations of a work force

of about 700,000 career employees and nearly 37,000 retail facilities.

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Gentlemen, thank you so much.

Of course, you know that it is our tradition that witnesses be

sworn in before this committee. Will you raise your right hands?

[Witnesses sworn.]

Mr. DAVIS. The record will show that the witnesses answered in

the affirmative.

Gentlemen, before you start, let me welcome our ranking member, Mr. Marchant. We have been all doing a lot of different things

today and trying to get ready to leave sometime before the end of

tomorrow and also hoping we are going to be in a position to recess

at the end of the next week.

Let me just ask Mr. Marchant if you have some opening comments.

Mr. MARCHANT. In the interest of time, Mr. Chairman, I am

going to submit my statement for the record. Thank you.

[The prepared statement of Hon. Kenny Marchant follows:]

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Mr. DAVIS. Well, thank you very much. Then we will begin with

our witnesses.

Mr. Herr, we will start with you.

STATEMENTS OF PHILLIP HERR, DIRECTOR, PHYSICAL INFRASTRUCTURE ISSUES, U.S. GOVERNMENT ACCOUNTABILITY

OFFICE; AND DAVID WILLIAMS, INSPECTOR GENERAL, OFFICE OF INSPECTOR GENERAL, U.S. POSTAL SERVICE

STATEMENT OF PHILLIP HERR

Mr. HERR. Thank you, Chairman Davis, for your invitation to appear today at this hearing on the Postal Service’s June 2008 Network Plan.

There is broad agreement on the Service’s need to realign its

processing network going back to the 2003 President’s Commission

and the Postal Reform Act. GAO has also issued several reports on

the importance of realigning the Postal Service’s processing network. As we previously discussed, several trends have created excess network capacity and impeded potential efficiency gains.

As most of you know, mail volume is declining, especially firstclass mail. Further, much of the commercial mail now bypasses the

Postal Service’s mail processing and transportation to qualify for

discounts. Likewise, the Service’s processing facilities may not be

optimally located, due to population shifts. Finally, these trends,

along with the projected financial deficit, lead to the conclusion

that the Postal Service needs to effectively realign its network.

My remarks focus on the Postal Service’s actions to address prior

GAO recommendations in three areas: first, strengthening network

realignment planning and accountability; second, improving delivery performance information; and, third, improving community indication with stakeholders.

Turning first to network realignment planning and accountability, the Postal Service has taken steps to address GAO’s prior recommendations. One key step is developing the Network Plan, being

discussed today, that lays out an overall vision, goals and major

strategies.

Our view of the plan found that it generally addresses topics required by the Postal Reform Act and included in our recommendations. However, the Network Plan contains limited specific information on performance targets or the resulting costs and savings related to realignment. Additionally, the plan provides little contextual information about its future network configuration and how its

realignment goals will be met.

Two upcoming reports due at the end of the year offer opportunities for the Postal Service to provide additional information on realignment costs and savings. The Postal Service’s annual reports to

Congress and the PRC are opportunities to make its goals and results more transparent and provide additional information about

the effectiveness of its realignment efforts.

With regard to my second objective, improving delivery performance information, the Postal Service has partially responded to

GAO’s prior recommendations and legislative requirements. The

Service has established performance standards and committed to

developing targets against these standards by fiscal year 2009. The

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Service has also submitted a proposal to the PRC for measuring

service performance, but full implementation is not yet complete.

Delivery service performance is a critical area that may be affected by realignment initiatives. Mail delivery standards are essential to allow the Postal Service and mailers to effectively plan

their activities. Delivery performance information is also critical to

understanding how well the Service is providing prompt and reliable mail delivery.

Turning to my third and last objective, improved communication

with stakeholders, the Postal Service has taken steps to address

our recommendations to improve communication as it consolidates

its area mail processing operations.

It modified its communication plan to improve public notification,

engagement and transparency. Notably, the Postal Service has

moved to keep public meeting to an earlier point, and plans to post

related information on its Web site 1 week before the public meeting. To increase transparency, the Service has clarified its processes for addressing public comments and plans to make additional

information available on its Web site as well.

Going forward, the Service will have the opportunity to assess

the effectiveness of these changes to its communication plan.

Mr. Chairman, in conclusion, GAO has previously discussed the

difficulties the Postal Service has faced when it tries to close facilities and how delays may affect its ability to achieve further cost

reductions and improve efficiency. Part of the problems stem from

the Postal Service’s limited communication with the public about

these activities.

Since 2005, we believe the Service has made progress toward improving the communications process linked to area mail processing

realignment. Going forwarded with needed realignment efforts, it

will be crucial for the Postal Service to establish and maintain open

and ongoing dialog with its various stakeholders, as well as congressional oversight committees and Members of Congress.

Mr. Chairman, this concludes my statement. I am happy to answer questions.

[The prepared statement of Mr. Herr follows:]

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Mr. DAVIS. Thank you very much, Mr. Herr.

We will proceed to Mr. Williams.

STATEMENT OF DAVID WILLIAMS

Mr. WILLIAMS. Thank you, Mr. Chairman and Mr. Merchant. I

appreciate the opportunity to discuss the Postal Service’s network

realignment plans.

The Postal Act of 2006 mandated that the Postal Service continue streamlining its network to eliminate costs and required a facilities plan for rationalizing it. Planning and implementing

changes to one of the world’s largest networks has been challenging.

Planning strategies for such large-scale projects can vary from

long-range, detailed plans with elaborately sequenced steps to

short-range, incremental approaches. The Postal Service has chosen the incremental approach, which uses an order-of-battle-type

strategy that incorporates flexibility and anticipates frequent

change throughout the process.

The Postal Service has used several strategies in its network realignment, and each has had its challenges. For example, the Postal Service had success with local facility consolidations. In the last

5 years, they have closed approximately 50 airport mail centers

and remote encoding centers and consolidated mail at 12 processing and distribution centers, and they have outsourced 13 airport

mail centers.

While some of these changes involve communications with external stakeholders, many involve smaller facilities and internal operations that had no impact on communities. Still, concerns from

stakeholders did delay larger proposed changes, such as those at

Mansfield, OH, and Pasadena, CA.

Our audits have assisted with the network realignment initiative. Our work has shown that the Postal Service could improve the

accuracy of data used to support these initiatives, improve communications with stakeholders, and enhance guidance for measuring

results. The Postal Service has now improved its processes and

guidance.

Looking to the future, the recently issued Network Plan describes the Postal Service’s vision for rationalizing its infrastructure and work force. It focuses on a number of major areas, including the need to continuously improve Service performance measurement, software initiatives to improve the consistency of mail flow

and machine efficiency, plans for network downsizing, and work

force rationalization and support for employees, and plans to expand customer access to products and services.

The Network Plan is more of a strategy document than a tactical

plan. Consequently, implementation plans that detail the locations

and times and final network integration and cost savings are going

to be critical.

Some important steps have already been successfully undertaken, while, for others, risks remain to be addressed. For example,

management established a rigorous and comprehensive process of

monitoring mail flows and machine utilization across the entire

network. The process, which includes weekly calls to local manVerDate 11-MAY-2000 14:41 May 05, 2009 Jkt 000000 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 U:\DOCS\48658.TXT KATIE PsN: KATIE
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agers to discuss performance, has contributed to the increased productivity and record service scores.

The Postal Service is considering improving efficiency and service

in the bulk mail center network through outsourcing, and issued a

draft request for proposal on July 1st. Risks that must be addressed in this approach include reporting requirements of misconduct by the contractors, work stoppages, and conflicts of interest

from contracting with parent or subsidiary companies of mailers.

Some Postal Service network realignment plans depend on a specific sequence of events. For example, the BMC outsourcing initiative may provide the space needed for future Flats Sequencing System equipment deployments. However, if the BMC facilities are not

vacated timely, plans for this equipment placement may be negatively impacted.

The Postal Act of 2006 was designed to force dramatic cost reforms and streamlining actions. If the reforms undertaken are not

timely and substantial, there will be serious and rapid financial

and operational consequences for the Nation’s mail system. Imbalances may be created, resulting in a protracted, anemic staffing of

an oversized network, mail processing efficiency gains and cost savings may be deferred, and mailers and other stakeholders may be

confused by stops and starts in the process. Finally, the Postal

Service may have to borrow substantial funds if they cannot generate sufficient savings.

Postal Service management, the Postal Regulatory Commission,

Congress and stakeholders must work together during this period

of substantial and rapid change to ensure that network realignment has the energy needed to propel it forward in spite of resistance and other obstacles. We continue to support the Postal Service’s efforts and keep Congress fully and currently informed.

I am pleased to answer any questions that you have.

[The prepared statement of Mr. Williams follows:]

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Mr. DAVIS. Thank you very much, Mr. Williams.

Let me thank both of you gentleman.

Why don’t I just begin? And I will start with you, Mr. Herr. You

made a number of recommendations in 2007 for the Postal Service

to improve planning, accountability and communications. Would

you say that your expectations were met in those areas?

Mr. HERR. I think generally the answer is yes. One of the areas

I highlighted in my testimony today is that we think there could

be further specificity with regard to targets and goals going forward. But we also identified the opportunity in the report to Congress due at the end of the year as a place where that could happen.

But in the area of communication, the communication manual

that was released this spring, we saw some substantial changes

there in terms of transparency, putting some meetings at a better

time so people can have public input. So we see some good movement there.

Mr. DAVIS. You talked about the need to realign the networks.

How urgent do you see that, or how critical do you see that function?

Mr. HERR. I think, in concurring with my colleague, the IG, I

think it is a matter of urgency.

One of the things I mentioned in my opening statement, mail volume has declined, and, as such, revenues from that mail has declined as well. We all are very much aware of the unprecedented

rise in gas prices this year, and with an organization with a fleet

of 200,000 vehicles, there is a number of challenges there in terms

of those operating expenses.

The other thing we are seeing is the pace of technological change.

As the Postal Service begins to roll out new equipment, their processing facilities are able to do a better job of processing mail, flats,

equipment of that type. So there are also efficiencies possible there.

Mr. DAVIS. If you were to give additional recommendations to the

Postal Service relative to what you think it needs to do in order

to be as much in compliance with the recommendations that have

already been made, what would you suggest that they do?

Mr. HERR. Rather than suggesting going back to doing another

version of the plan, we think there is a good opportunity coming

in December in the report to the Congress and also the report to

the PRC to lay out additional progress that has been made with

regard to the Network Plan, what some of the goals are for the

coming year, what may have been accomplished in this intervening

period. That seems like a good opportunity, and that is also what

was required in the Postal Reform Act.

Mr. DAVIS. Thank you very much.

Mr. Williams, let me ask you, your office has done significant

audit work concerning network realignment and initiatives, and

you have done a good job of detailing the cost savings or potential

savings associated with consolidations.

What do you feel are the most significant challenges facing the

Service as it attempts to consolidate, in some instances, or make

greater use of facilities and, at the same time, be able to meet levels of efficiency and customer satisfaction?

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Mr. WILLIAMS. Probably the things I worry about most going forward, and there is a lot to feel good about, but the things that concern me the most are, well, first of all, on a general level, there has

been a dismal record in Government for successfully executing this

kind of very large-scale planning. Before this, I was at the IRS, and

I saw their modernization effort stall and collapse under its own

weight. So I worry about that in general.

As I said in my testimony, they have selected a kind of incremental approach, which is sort of area by area, and they certainly have

expertise in that. The vulnerability there is that the broad architecture, the highways that mail moves on, will somehow be diverted

because the plan has been fractionalized. I don’t think that will

happen, and it doesn’t look like it, but it is worth a very close

watch. And I know that kind of watch is being made, and I will

do the best I can.

We did see some failures in the area of early detection of service

degradation and decline. We certainly felt bad about Chicago and

how that went. During this kind of a massive initiative, we needed

to detect very early service declines, and we need to mitigate those

as quickly as we can, more quickly than we have in the past.

Another area would be savings. This is all about trying to pull

costs down. We need to watch those very closely, and we need to

pull those out the moment the savings has occurred. It is a sort of

force in Government that those savings are reinvested if they are

not watched closely by the local managers. That is an area. Actually, you have Pat Donahoe coming up later. That is an area where

the Postal Service has been very effective and very good, and Pat

is much of the reason.

Probably the greatest worry is working with the stakeholders.

There is a little chance that something that is going to save this

much money is going to make everybody happy and we are going

to have a broad agreement that everyone has won, coming out of

this. Stakeholders can either hold the Postal Service’s feet to the

fire, or they can tie the Postal Service’s hands. My fear is that if

they try to do both, we won’t have much beyond just a burn victim.

We are not going to save anything.

And those are the concerns, those are the things I am watching

as closely as I can, and I know my colleague is.

Mr. DAVIS. Well, let me ask you, to make sure I understood. Did

I understand you to indicate that there might be the need for the

Postal Service to look for or find a way to generate additional resources?

Mr. WILLIAMS. No, I did not mean to say that. I think we probably, because of all the points that you raised in your opening

statement, we probably have a surplus of resources, given the conditions today. We are more concerned about debt, on the one side,

and saving costs. And, on the other side, this new reorganization

is all about marketing and focusing on customer needs and expanding the base.

Mr. DAVIS. Did I hear you mention borrowing in any kind of

way?

Mr. WILLIAMS. Yes. I think that has been a concern. We recently

were able to remove the borrowing, and then we immediately headed back into it, borrowing from the Treasury, of course.

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I think that there is probably going to be borrowing this year,

and if conditions don’t improve, there will be borrowing in the future. And as I said the last time I was before you, we have that

rain-or-shine debt of $5 billion a year, and it is likely to require

borrowing as well.

Mr. DAVIS. And I guess the reason I raised that is because when

I think of borrowing, I also think of paying back. If somebody says,

give me whatever, and I say OK. But if they say, let me borrow

whatever, I expect at some point a payback.

So if there is some borrowing, how do we get to the point, or do

we get to the point through these efficiencies and consolidations,

that would put us in a position to repay the Treasury?

Mr. WILLIAMS. Recently, the Postal Service was able to completely pay back the Treasury. And I think that the plan is a good

one, and that could certainly prevent us from going into debt and

allow the repayment again.

Also, I am very hopeful of the new reorganization that was just

made. We brought in some top-flight professionals that are very

good at marketing and sales and studying customer segments that

are out there building on the base.

Those are the two tools we have. We have this one, and then we

have the new initiative to expand marketing and sales.

Mr. DAVIS. Thank you very much.

Mr. Marchant.

Mr. MARCHANT. Thank you, Mr. Chairman.

The intent of the Postal Accountability and Enhancement Act

was to ensure the post office functioned more efficiently. Which one

of the conceptual plans has posed the most real-world application

problems? Which one of the concepts has been the most difficult to

implement in the field?

I would like an answer from both of you.

Mr. WILLIAMS. In my mind, the ones that have collapsed under

their own weight have been the same ones that the other departments of Government have attempted and failed. We see the FBI,

the FAA, and the IRS. Usually the ones that are very long-term

and very elaborately sequenced are impossible to turn. It is like

trying to turn a battleship in a river. It is very, very difficult.

Where it becomes more hopeful is where you have a general idea

of where you are headed and the near-term planning is very specific.

I also mentioned savings. I have seen a lot of savings lost because, after the reform, no one goes in to take those savings and

send them to the bottom line. That happens to be a strength of the

Postal Service. Since my arrival, that is one thing I feel they excel

at.

Mr. HERR. Mr. Marchant, one of the things I observed is that

GAO has done some prior work on organizational transformation.

One of the things that we emphasized in this statement today is

the importance of setting some of these targets and goals. They can

help provide a sense of momentum. They can provide a sense of

progress. They can help stakeholders know that something is being

accomplished.

I think that is important, when you are looking at something this

large. If you think it is going to last forever or it is going to last

41

for 4 or 5 years, one would like to have some sense of where they

are after a year or two or where they hope to be.

So we think those annual reports to Congress would be a place

to provide some of that transparency and clarity for folks in your

position.

Mr. MARCHANT. The Postal Service’s plan to reduce work force by

attrition, is that working?

Mr. WILLIAMS. Just before my arrival, there was a very successful effort to downsize. That has continued. I think the current numbers are 785,000.

The career number is 684,000, which is the one that is very difficult and very stable to suddenly reduce, has reduced greatly since

my arrival. That has been a very successful part of what has gone

on. As a matter of fact, it has been so successful, that trailing behind it has been the network downsizing, and it has left some of

our plants understaffed. And I think this staff has suffered as a result of a slow start in the build-down.

As you know, there has been stakeholder resistance to some of

the initiatives, and that has left some of the employees working

very hard, very, very long hours, and in a very intense environment.

Mr. HERR. My understanding is, I think, in the last 8 years,

through attrition, they have gone down about 100,000 employees.

So that would suggest that they have made some very significant

efforts in that regard.

Mr. MARCHANT. Thank you, Mr. Chairman.

Mr. DAVIS. Well, thank you very much, gentleman. I don’t have

any additional questions. We appreciate your patience, and thank

you very much. You are excused.

We will transition to our second panel. While we are setting up

for them, I will just go ahead and introduce them.

Our second panel will consist of Mr. Patrick Donahoe. Mr.

Donahoe was named Deputy Postmaster General and chief operating officer in April 2005. Mr. Donahoe is the second-highest-ranking postal executive and the 19th Deputy Postmaster General. He

is a 33-year Postal System veteran.

And we welcome you, Mr. Donahoe.

We also have Dr. John Waller, who has been director of the Office of Rates Analysis and Planning of the Postal Regulatory Commission since February 2005. His primary responsibilities are directing the technical advisory staff of the Commission and supporting the commissioners in all proceedings and the development of

reports.

Gentlemen, if you would stand and raise your right hands and

be sworn in.

[Witnesses sworn.]

Mr. DAVIS. The record will show that the witnesses answered in

the affirmative.

Gentlemen, thank you so very much.

We will begin with you, Mr. Donahoe.

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STATEMENTS OF PATRICK DONAHOE, DEPUTY POSTMASTER

GENERAL, U.S. POSTAL SERVICE; AND JOHN WALLER, DIRECTOR, OFFICE OF ACCOUNTABILITY AND COMPLIANCE,

POSTAL REGULATORY COMMISSION

STATEMENT OF PATRICK DONAHOE

Mr. DONAHOE. Good afternoon, Chairman Davis, Ranking Member Marchant and members of the subcommittee. I am Patrick

Donahoe, Deputy Postmaster General and chief operating officer

for the U.S. Postal Service. It my pleasure to be here today to discuss the Postal Service’s Network Plan.

The Postal Service manages one of the world’s most complex distribution and transportation networks. Today’s mail processing network consists of more than 400 processing plants and features

37,000 post offices. We handle 200 billion pieces of mail annually

and deliver to nearly 148 million addresses on a daily basis.

Congress recognized that we need flexibility in order to continue

developing an effective and efficient network. Moreover, current

economic conditions highlighting the importance of the Postal Service utilizing such flexibility, such as a weak economy, continues to

put a strain on our finances.

Through the first two quarters of this fiscal year 2008, total mail

volume has declined 3.4 billion pieces compared to last year, resulting in a loss of over $700 million. This trend is worsening. Under

such conditions, flexibility to manage the network is even more

vital in meeting the challenges facing the U.S. Postal Service.

The Postal Accountability and Enhancement Act of 2006 has

changed the way the Postal Service is regulated. However, it does

not change our basic mission, which is to bind the Nation together

through the correspondence of the people and provide prompt, reliable and efficient mail service.

The postal law of 2006 charts a new course for us as we continue

to fulfill this commitment in relation to service standards for our

market-dominant products. The first objective was to establish a

set of modern service standards for the market-dominant products.

In December 2007, the Postal Service published our new standards.

The second objective was to provide a system of objective performance measurements for each market-dominant product. Measurement systems for many products, such as single-piece first-class

mail, have been in existence for a long time. We are now in the

process of implementing expanded systems and/or introducing new

measurement systems.

The third objective required by the law was to establish goals

and submit a plan to Congress for meeting our modern service

standards. Since February 2008, I, along with other senior postal

officials, have met monthly with Chairman Dan Blair, the PRC

Commissioners and the PRC staff to discuss postal network rationalization. As you know, the Postal Service submitted its Network

Plan to Congress on June 19, 2008. The Postal Service is grateful

to the commissioners and to their staff for their valuable insights.

The Network Plan establishes continuous improvements as the

overarching performance goal, and it describes timetables to establish baselines for 2009 fiscal year performance targets for various

market-dominant products. We embrace this enhanced transVerDate 11-MAY-2000 14:41 May 05, 2009 Jkt 000000 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 U:\DOCS\48658.TXT KATIE PsN: KATIE
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parency and accountability, and look forward to sharing our performance targets, successes and targets with Members of Congress

and all of our postal stakeholders.

The key element to the Postal Service moving forward on the

service standards was to ensure that the voice of the customer was

heard. Numerous meetings with commercial groups, large and

small, have been held, and some of these work groups continue

today. Incorporating concerns of our customers was critical.

I would now like to highlight three elements of the network rationalization which all support our bottom line of either meeting or

exceeding our existing service standards and maintaining efficiency. They are: the continued consolidation of our postal airport

centers; a review of the mail processing network to identify facilities where outgoing or incoming operations could be consolidated;

and the transportation of our postal bulk mail network.

On July 1, 2008, we issued a draft request for proposal for the

BMC network. We are now in the process of receiving comments

from various vendors able to provide the type of network reach and

capacity necessary. We expect to consolidate mail processing operations at some locations, but we are always reluctant to implement

network changes that could result in diminished service. Accordingly, the Postal Service will implement changes that promote efficiency but that also aggressively minimize any diminution of service.

Our dedicated employees do a great job on a daily basis, providing excellent service at the best prices in the world. We are sensitive to the impact that network rationalization could have on our

employees, and we have held numerous consultations with our

unions. We are proud of the fact that we have relied on employee

attrition to reduce well over 100,000 people over the last 7 years.

By using attrition, we have minimized adverse impact on our employees.

We are also pleased to announce that we have requested authority from the OPM to offer certain crafts voluntary early retirement

options. This action helps our bottom line in these times of tight

finances and, just as importantly, benefits our employees by giving

them the option to retire early without facing undue financial penalties.

The Postal Service Accountability Enhancement Act acknowledged the need for the Postal Service to streamline its distribution

network. To achieve this vision, the Postal Service will need the

support of this subcommittee and of the Congress.

We ask you to understand that the consolidations or closures are

a part of a strategy designed to serve the overall needs of the Postal System and our customers nationwide. We will also to continue

to work very closely with our employee unions and our associations.

The Network Plan that we have submitted to Congress is not the

last word on these programs. In accordance with the new law and

in keeping with our goal of continuous improvement, the Postal

Service will submit annual progress reports to Congress.

I will now be pleased to discuss the elements of the plan in more

detail or answer any other questions you might have. Thank you.

[The prepared statement of Mr. Donahoe follows:]

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Mr. DAVIS. Thank you very much, Mr. Donahoe.

We will go to you, Mr. Waller.

STATEMENT OF JOHN WALLER

Mr. WALLER. Good afternoon, Chairman Davis and Ranking

Member Marchant. Thank you for the opportunity to testify.

The Postal Accountability and Enhancement Act requires that

the Postal Service consult with the Commission in the development

of a modern system of delivery performance standards, the establishment of a system that measures achievement of those standards, the adoption of performance goals, and the realignment of the

postal network to meet those goals.

This consultive process started in 2007 with monthly meetings of

the commissioners and a Postal Service team headed by the Deputy

Postmaster General. The Service has provided presentations to the

Commission on the key elements of the Network Plan that has

been submitted to the Congress.

Through this consultation process, the Commission has had the

opportunity to provide independent review and feedback on many

of the Service’s proposals. Conversely, the process has also allowed

the Postal Service to understand the Commission’s requirements as

a regulator.

On June 9th, the Service presented to the Commission for comment its final draft of the Network Plan. On June 16th, the Commission submitted its comments in a letter to the Deputy Postmaster General. At the request of the Commission, the letter was

submitted to Congress, along with a final version of the Network

Plan.

As background, the PAEA requires the Postal Service’s June plan

to establish performance goals, describe network changes necessary

to meet those goals, describe how the new performance goals

change previous submissions to Congress, and describe the Postal

Service’s long-term vision for its infrastructure and work force. Additionally, the Postal Service plan is to include detailed information

on the cost savings, impacts, timeframes and processes for

rationalizing its facilities network.

In its letter to the Postal Service, the Commission noted that the

draft of the Network Plan lacked specific performance goals for individual postal products and the vision of how those activities described in the plan would contribute specifically to meeting those

goals. During the consultive meetings with the Service, the Commission made known its view that the goals expressed as specific

percentages of on-time delivery should be part of the June plan.

Corporate goals already exist for first-class single-piece mail, such

as 95 percent on-time delivery for such mail, subject to overnight

delivery standards. The Commission has consistently urged the

Service to expand such explicit goal statements to all classes of

mail and include them in the Network Plan submitted to Congress.

The draft plan given to the Commission 10 days before delivery

to Congress stated that such specific goals would not appear until

early 2009, and these would be targets to be improved annually.

The Commission is pleased to see, however, that the final version

of the plan presented to you adopts a more aggressive schedule,

and the Commission now expects to see proposed percentage goals

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for all services before the end of the fiscal year. Such changes exemplify the progress and results that can be achieved via the

consultive process that is now a major attribute of the new regulatory environment, as envisioned by the PAEA.

The plan presented to Congress does describe many of the processes by which the postal network will change: for example, the improved guidelines for area mail processing consolidations that several of the witnesses have identified. These guidelines address

many of the concerns raised in the past by the Commission and

discussed in my testimony before this subcommittee last year.

These process descriptions are useful statements of how the Service

will implement realignment.

Once performance goals are established, the Commission expects

more details on the Service’s vision for its network, what the new

facility configuration and transportation links will involve, and a

quantification of the cost and performance benefit.

The Commission will carefully review the impact that network

changes have on delivery service, using data from the Service’s proposed hybrid measurement system currently under Commission review. Of course, this presumes broad adoption of the intelligent

mail barcode in 2009.

In addition, network realignments that can have significant nationwide impact on delivery performance must be subject to review

by the Commission through a request for an advisory opinion, as

required by the both the new and former postal laws. Service impacts will also be included in the annual reports of the Commission.

The Commission takes very seriously the consultation role tasked

to it by Congress. It does understand that the Postal Service faced

a tight deadline for the development of the performance goal and

Network Plan this June. Thus, the Commission looks forward to

continuing the consultation with the Service on both these issues

as additional specificity develops.

Thank you. And I welcome the opportunity to answer any questions members of the subcommittee may have.

[The prepared statement of Mr. Waller follows:]

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Mr. DAVIS. Thank you very much, gentlemen. We appreciate,

again, your being here.

Mr. Donahoe, let me begin with you. Recently I talked with panel

one about the urgency of realignment. How urgent would you say

that the need for realignment is with the networks? And if that

alignment is not taking place perhaps as envisioned or scheduled,

what would be the cost to the Postal Service? And what safeguards

do you have in place, as you make the realignments, to give assurance that it is going to work?

Mr. DONAHOE. Thank you, Mr. Chairman. Let me address that

in a number of ways.

First of all, our major concern today in the very short term, as I outlined in my statement, is our finances. We have lost $700 million to plan this year. Things do not look any better in quarter

three, which we are just finishing up. There is a chance we could

lose over $1.5 billion this year.

The problem with that, of course, is, the way the law is structured, our prices need to remain at or below the rate of inflation.

So making up that difference, short of cutting costs, is left to the

other side of the ledger, the balance sheet, to increase revenues.

Now, we have some great people in the organization doing a wonderful job, but in these tight economic times, you can see what has

happened with FedEx, UPS, other people in that whole area, be it

package delivery or advertising. So the upside on revenue generation probably isn’t going to be here for the next couple of years.

That presses us to move on with this network realignment plan.

As you know, we recently put out a request for proposal on our

BMC network, and that is one of the three areas we are looking

at. We think there are large benefits there to be able to move, hear

what the industry says from a standpoint of being able to give us

some idea of the savings through a competitive process and allow

us to start transforming the network.

The other thing that we plan to do with the BMC network, is not

just walking away from that network and walking away from the

employees. What we were planning to do with the BMC, as we

move the work that is being done out of there presently and into

an outsource network, we are going to move quickly to use those

BMCs for our second phase of the flat sequencing. That allows us

to be more efficient in delivering mail and also gives us that opportunity to keep the cost lines down on that side of the ledger.

Every month that we wait on these opportunities to work on our

network, that delays us and puts us in great peril going forward.

Mr. DAVIS. You talked about your early retirement program. Who

are the employees who are eligible for it? And how effective would

you suggest that it has been?

Mr. DONAHOE. We have used the VERA retirement approach a

couple of times already. We used it in 2005, and we are going to

use it this year in 2008.

The employees that will be offered that VERA would be our

clerks, our mail handlers, our city carriers, our rural carriers, supervisors, postmasters, and a number of other people within the organization, including headquarters and our area offices.

Now, we will restrict it at this point: We are not going to offer

that to our, what we call, ETs, electronic technicians. They are the

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top-notch maintenance people we have in the organization. The

reason we are not is that they are very hard to recruit and train,

so it would be irresponsible on our part to let somebody with that

kind of training walk out the door.

The idea behind that is to give people the option to take that

early retirement. We think it is a wonderful benefit. So if a person

is close to retirement, they might lose a couple percent but they

can move on with life, either to take up a new career or stay at

home and take care of family members.

Mr. DAVIS. I know that any time a consolidation occurs, there

has to be a great deal of hue and cry from any number of sources.

What are the collective bargaining issues that come into play with

the work force representatives in a consolidation?

Mr. DONAHOE. First of all, we have an outstanding collective bargaining process. It is probably the best you could see from a standpoint of any industry. Our unions work very well with us. I am

very proud to say that if you look at some of the things we have

been able to accomplish as a team over the last few years, it has

really gone a long way to help the Postal Service stay strong in a

time when we could already be under great stress.

If you go back to, say, 2000–2001, Mr. Chairman, our revenue

and our volume at that point pretty much leveled out. Our ability

to work with the unions to continue to increase productivity, to be

able to shed a number of employees, has given us the opportunity

to keep our head above that financial water.

Now, looking forward, like I say, we have some excellent processes in place. We have sat down and talked with the unions about

some of the plans with the BMCs. The BMC is not a done deal at

this point, one way or another. Concurrent with the request for

proposal to look at the network, at the same time we have what

is called Article 32, which is part of the collective bargaining process where we still continue to talk with the unions, listen to their

concerns and listen to their recommendations. We value that. We

think it has been a good thing for the Postal Service, it has been

a great thing for the employees.

You know, as we look around this United States, there are a lot

of people who have lost jobs, and lost jobs because of responsibility

that was not taken up with the leadership in management and the

leadership in the union. We think we have great leaders. Everybody understands the importance of a strong Postal Service, because it is not just helping employees, it is also keeping the entire

industry strong.

Mr. DAVIS. Your mail processing staff has actually been significantly reduced since 2000 without consolidation. Can that trend

continue and not necessarily get into as much consolidation as

might be necessitated otherwise? I mean, why do we have to consolidate if we are able to reduce the work force through attrition?

Mr. DONAHOE. The attrition has worked great, and what that has

allowed us to do, to a large extent, is take out operations and improve productivity across the country. We have done some consolidations, as you heard Dave Williams mention a little bit earlier.

As we look forward, the major problem that we face is a slowdeclining first-class mail volume. It has been running at about 3

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to 4 percent. This year it is about 5 percent. Single-piece mail volume pays a lot of bills in the Postal Service.

So, as that declines, a couple things happen. First of all, it hits

the revenue line. The second thing, it leaves substantial capacity

in the rest of our system. So when you start to look around, you

see facilities that are somewhat close that you can do these consolidations and not affect service negatively. In fact, in many cases, it

improves service because you might have better reach to two and

three areas. So we are looking at those types of consolidations.

The technology that is out there today, within our mail processing plants, has allowed us to make some consolidations around airport mail facilities and, at the same time, improve service. So, looking out at a network that we have, the overhead to run these buildings, heat, light—everybody knows what is happening with costs

that way, too—taking a look across the entire cost structure, it is

very responsible on our part to continue to take a look at everything, looking at those consolidations, to help bottom-line finances

in the organization.

Mr. DAVIS. What has been the stakeholder’s response with some

of these—especially coming from elected officials in the areas

where the consolidations have taken place?

Mr. DONAHOE. Well, as the GAO mentioned earlier, in the past

we had a process that we have definitely improved and that is that

communication process. And we’ve worked through the communication process with the local stakeholders, and that is political and

employees and customers. We have seen some success. We have

had some situations, as you know—and there are some bills right

now that are pretty much holding us up from doing some consolidations that we know would be the right thing to do. It would not

have a detrimental effect on our employees nor would it hurt our

customers.

So what we’re looking for, as we said earlier, the law was passed,

we think it is a great law. It gives us flexibility to manage our systems, and our networks. It also keeps postage rates affordable,

which of course keeps a strong industry. But what we’re asking for

is that you let us have that flexibility to act on what we know is

the right thing to do.

Mr. DAVIS. Thank you very much. And let me go to Mr.

Marchant. I will be back to you, Dr. Waller.

Mr. MARCHANT. Thank you, Mr. Chairman. I have a large bulk

mail facility in my district. So I think I will ask some questions

about the bulk mail, the Network Plan as it discusses the network

and the concept of consolidation and outsourcing of the bulk mail.

That is the question I’ll ask both of you to respond to.

Mr. DONAHOE. Sure. In the Fort Worth—Dallas/Fort Worth area,

we’ve got a number of facilities. We have a facility—a plant——

Mr. MARCHANT. This is the one out by the airport?

Mr. DONAHOE. In that network we have a large facility in Fort

Worth, two in Dallas and of course one out at the airport. What

has happened, Congressman, over the years is this. If you go back

25, 30 years ago when we opened the bulk mail facilities, at the

time they were great facilities that really met the needs of the

Postal Service because the way the mail flowed, mailer behavior,

you had substantial volume in your mail that started in facilities,

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say, like Dallas and was transported across the country and our

network say to San Francisco for delivery. Over the course of these

last 25 to 30 years, there has been a substantial change in mailer

behavior. Mailers today—and you’ll hear from some of the mailers

coming up later on—drop a substantially larger portion of mail at

destinations. So rather than have mail go from Dallas to San Francisco, let’s say 100 percent, today standard mail or advertising

mail, over 80 percent of it is dropped at the destination.

So what that has done over the years is left us with a big network with great big buildings and a lot of equipment but nothing

in them. Our plan is to look at who can provide what is left of that

network end to end in a network, transport the mail between Point

A and Point B, give it back to us for our employees to work and

deliver and at the same time take advantage of these facilities,

great facilities, great locations, to go in, clean them out, take out

all the antiquated equipment and put state-of-the-art flat sequencing equipment in there which will improve service and at the same

time reduce our costs.

Mr. MARCHANT. We do have some industry people that are coming up later. But, you know, the first time I heard about it, was

from the people that are doing the mailing in my area. And I guess

in my instance, there is a lot of it dropped directly in Dallas, like

you said, and in San Francisco. So what you are saying is that

those facilities will be used, they will just be retooled and made

more efficient for another kind of service?

Mr. DONAHOE. Yes, sir. That’s our plan. The way mail is entered

into our system today, mailers have the choice of either dropping

it at origin, it goes through our network, or they can drop it at a

destination facility, say, like the Dallas main post office or even

deeper in like a newspaper. A newspaper chooses a lot of times to

deliver mail right to the local post office where the letter carriers

are that morning so that they can make sure that they have the

latest news getting in the letter carrier’s hand and we get that delivered that same day. They get the best rates, the postage rates

to do that and that allows them too within their own network to

stay with the latest news getting out there for delivery on that

same day.

Mr. MARCHANT. Tell me what time definite surface network

means.

Mr. DONAHOE. Time definite surface networks would say that if

you were taking mail from Dallas to San Francisco, it should take

you 3 days or 4 days, whatever the service standard is. Now, the

way we built the service standards is right off of the time definite

surface network. First-class mail, standard mail, periodical mail,

first-class advertisement and newspapers travel on a lot of similar

networks. They have different service standards. We fly mail—if

you were taking mail from Dallas to San Francisco, we’d fly that

mail if it was first class. If it is standard or periodical, we run that

across a network. Our network today, the way it is set up, we run

our trucks at substantially less capacity and in a lot of the cases

we move mail across the country and consolidated points in order

to be more efficient. We’re not as timely as we would like to be.

We know that there are providers in the network out there that

have systems that move mail around the country much quicker.

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We’re looking to take advantage of a system like that to cut costs

and improve service at the same time.

Mr. MARCHANT. So these 18-wheelers that have—I think there is

a major contractor north of Dallas, Ritchie, that has——

Mr. DONAHOE. Al Ritchie.

Mr. MARCHANT. I pass by his facility every Sunday afternoon

when I drive up to the ranch. And he goes from Dallas—I mean,

on the back of each trailer has Point A to Point B. This mail comes

from the bulk mail center to another bulk mail center?

Mr. DONAHOE. Yes, sir. Or to another processing facility. Nationally, we have about 17,000 of these highway contract drivers that

haul mail between plants. We call them processing plants or bulk

mail centers. And even a handful of them deliver mail at mailboxes

across generally the more rural areas.

Mr. MARCHANT. Yeah, Mr. Chairman, I’ll stop with that question.

But these guys are—have to be hurting right now.

Mr. DONAHOE. I tell you, gasoline is expensive.

Mr. MARCHANT. So at some point, and I’m sure that somebody

will answer that question, at some point this has to have a high

impact on the cost to get that mail from Point A to Point B.

Mr. DONAHOE. Yes.

Mr. MARCHANT. Thank you.

Mr. DAVIS. Thank you very much, Mr. Marchant. And maybe the

Postal Service will help us figure out how to get gas prices down.

Mr. DONAHOE. We’re trying to buy a couple of hydrogen cell vehicles. We’ll give those a try.

Mr. DAVIS. But, Mr. Kucinich, thank you for joining us. Do you

have some questions?

Mr. KUCINICH. Yes, Mr. Chairman. Thank you for holding this

hearing. As always, you’re the person who the people can count on

to protect the Postal Service as an ongoing service to the people of

this country. So I appreciate it.

For Mr. Donahoe, welcome and thank you for being here. And as

well as Mr. Waller, thank you.

The U.S. Postal Service is one of the most heavily utilized and

underappreciated branches of the Federal Government as a service.

And as a major supporter of the U.S. Postal Service, I understand

the difficult financial constraints under which you’re currently operating. The Postal Service Network Plan uses all the right

buzzwords like right sizing, optimization and euphemisms for closing facilities and laying off workers in order to make the case for

closing various facilities in the Nation, including airport facilities

and processing facilities. But you’re going to have to forgive me if

I’m skeptical of any nationwide plans for facility closings. There are

questions about the accuracy of the information that drives these

closings. In the past, the amount that was supposed to be saved by

a closing was not achieved. Predictions of the effects on service

have also been erroneous.

I have already made clear to you and to the Postal Service in letters that I oppose the privatization of U.S. postal services, not just

in Cleveland, but around the country. It is my concern about the

long-term financial well-being of the U.S. Postal Service that drives

my concern about privatization. And with me, it is not just about

the Postal Service, it is any public services, whether they are mail

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delivery, water or electricity. It has been my experience they really

don’t yield the gains that are hoped for.

For example, concluding, Mr. Chairman, we had an A–76 on

DFAS, Defense Finance Administration, and it has turned out to

be a fiasco over a period of years. Service goes down, price of operating goes up.

So I want to start with questions about the Cleveland facility

that might be partially closed. On July 8, 2008, I wrote to the Postmaster General, John Potter, with my concerns about the proposed

shutdown of the Cleveland Airport Mail Center [AMC]. Yesterday

I received a response that made a distinction between the AMC operations and AMC retail facility. The letter says retail services will

continue to be provided at this facility for the foreseeable future.

That is a quote. And retail is a concern. And for my constituents

and me, this is in my district. The AMC is the only place a mail

customer can go if they need to get a date stamp on a letter or

package if it is later than usual business hours. I can tell you having been to this facility hundreds of times over a period of a many

years, because I live nearby, there are always lines here.

So will the Cleveland AMC under the current planning retain its

late hours and what services will definitely remain at the facility?

That’s the first question I have. And the second question—you can

probably address these at once. I want to know how this is playing

out nationwide.

Of the 54 AMCs the U.S. Postal Service has already shut down,

how many facilities have retained retail services like late hours

that were unique to the facilities and would you be willing to furnish that information to the committee?

Mr. DONAHOE. Sure. Let me answer that in a couple of different

ways. First of all, Congressman, we have never laid anyone off. I

take that very personally.

Mr. KUCINICH. I know there is a ban.

Mr. DONAHOE. There is a contractual agreement, but it doesn’t

cover everyone. But nonetheless, as leader of the organization, it is

my responsibility to make sure we make the right decisions so that

when somebody comes to work for the Postal Service, we never

have to tap them on the shoulder like somebody from General Motors, Ford or U.S. Steel and say you don’t have a job here anymore.

So we take that very seriously.

In terms of Cleveland, at the airport mail facility, we have no

plans of shutting that down. As a matter of fact, we own the building. What we would like to do is take that airport mail facility retail unit, keep that going and outlease the space in there to make

some money to put against some of the operating costs that we

have in the organization.

At our airport mail facilities, we have great employees working

there. What has happened with those to a large extent is they become obsolete with the way we transport mail. I was a manager

at an airport mail facility many years ago in Pittsburgh, PA. The

way we transport mail today is on the ground predominantly and

what we fly goes to either FedEx, UPS or one of seven airlines. It

used to be 55 airlines. And the work done at the airport mail center was to sort through the mail for 55 airlines. We no longer have

to do that any more. So we’re able to move the mail back up into

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our facility in Cleveland, assign it to the air carriers from there

and the service has gone nowhere but up.

So we’re going to keep that facility open from a retail perspective. We’re looking to outlease the rest of it because we do own that

building.

Mr. KUCINICH. You’re saying the retail facility. You made that

clear. But there are two functions here: One is kind of a general

operation as a mail center. Now is that going to be maintained? I

just want to make sure I understand that clearly? At the Cleveland

Hopkins Airport, that AMC is that going to be retained as a mail

center or a retail center and do you make a distinction in that or

is any of its status going to be changed?

Mr. DONAHOE. The retail facility will remain. The mail processing that we can move back into the Cleveland’s main processing

plant, we are going to do that.

Mr. KUCINICH. You’re going to move the mail processing back to

where?

Mr. DONAHOE. Cleveland, OH and to the main post office down

not too far from Jacobs Field.

Mr. KUCINICH. See, one of the things, Mr. Chairman, that I’m

concerned about and to my friend, Mr. Marchant, here is, you have

these facilities by these airports that are really convenient to the

public and in Cleveland, right down the street, less than 100 yards,

just a few minutes walk, if a minute walk, from the post office is

a FedEx. So if the people are used to coming out there, you know,

late at night to get things processed, there might be more of a

tendency to want to go to choose FedEx. And I don’t want to lose

customers here. I want to make sure that the money that is being

invested here and that Congress makes sure that, you know, we

want to see this post office fortified, we don’t want to lose any business.

And I’d like, Mr. Chairman, I would really appreciate it if this

subcommittee, could work together—I’m chairman of Domestic Policy, and I’d look forward to working with you to see if this change

in the status of mail centers, which are at airports, are in any way

aimed at facilitating a kind of privatization. You know, this is

something that I think this committee ought to look at. You know,

this is what our responsibility is. Mr. Donahoe, you have your responsibility. I’m very concerned that this could be a way to try to

facilitate privatization which would result in greater costs for a

service for our constituents, and frankly I don’t think there are

many areas where you can beat the U.S. Postal Service.

So I’m a fan of yours, but at the same time, I don’t want to see

any change in that Hopkins airport facility. I’m not interested in

running the post office, but I am interested in saving that facility.

So we’ll have further discussion on this, but I appreciate your cooperation with this subcommittee because we’ll be talking some

more.

Mr. Chairman.

Mr. DAVIS. Thank you. Yes. We’ll work with you without a doubt.

Mr. KUCINICH. That would be kind.

Mr. DONAHOE. Could I clarify? Maybe I’m not explaining the retail facility. The retail facility, that is the post office. That will not

close. In fact, if that is the one you’re talking, I’m thinking we

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probably should keep it opened later to compete with FedEx. That

will not close. All we’re doing in the rest of the building is moving

some equipment that we can get better utilization that delivers and

sorts mail for the entire Cleveland area back up to the Cleveland

facility.

Mr. KUCINICH. Mr. Chairman, I thank the gentleman. Mr. Chairman, thank you for your indulgence here. I would look forward to

perhaps looking at what it is you’re talking about moving. I don’t

live too far away, so maybe we can work out something with your

staff.

Mr. DONAHOE. I’d come up and visit you myself.

Mr. KUCINICH. Let’s do it. Let’s chat. I thank the gentleman.

Mr. Chairman, thank you so much.

Mr. DAVIS. Thank you very much, Mr. Kucinich. And Dr. Waller,

let me get back for a minute. Are you satisfied that the Postal

Service has made sufficient progress to address the recommendations that the PRC has made?

Mr. WALLER. Of the ones that we made last year and then the

end case that we had specific ones on? I think we are much like

the GAO, we’re very pleased at what has happened with the AMP

guidelines, which were a series of improvements there, both in

their public interactions and the getting of information out to the

community. We also are hopeful that the descriptions that are in

the handbook of the changes and actually the worksheets where

the devil is in the detail of actually calculating the expected savings because you do as much as you can to get an accurate picture

of how the change will be after the consolidation. But when we

looked at the AMPs from the previous set, the ones that a lot of

them are still pending, they were all over the place. There was a

lot of inconsistency. Now, the new worksheets are there to do it,

but we are going to have to see actually how when new AMPs are

done, that they’ll actually reflect real productivities, because you

can’t just make assumptions about how machines are going to operate because they vary so much between facilities. Now, that aspect

is one that we are very pleased with.

Mr. DAVIS. OK. The Postal Service recently submitted a proposal

for measuring and reporting on delivery service performance. What

is your general assessment of this proposal at this time? And when

do you expect to complete the regulations related to the Postal

Service’s annual compliance report to the PRC?

Mr. WALLER. A very good question. The first on the measurement

plan. I’m a big fan of data, the more data the better and the fact

that we can get a lot of this through machine reads and then complement it with external measurements like the XFC thing for the

final mile of delivery, I think holds great promise. I think we would

have liked to have seen more progress there moving quicker, but

we recognize that it is a big task and that the future does hold a

lot of hope. The Commission there has to make an actual decision

if this is OK to use this internal or hybrid type system instead of

an external measurement system to get accurate measurements of

what the performance service is on delivery.

The Commission put the plan out for public comment because

that’s the way we operate when we have to make some decision

and have gotten back a lot of interesting criticisms, but also genVerDate 11-MAY-2000 14:41 May 05, 2009 Jkt 000000 PO 00000 Frm 00072 Fmt 6633 Sfmt 6633 U:\DOCS\48658.TXT KATIE PsN: KATIE
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eral endorsement of it. I think the industry is in favor of it. But

there is a lot of tweaking they want to do. I must say that through

this consultation process, that measurement system has evolved a

lot from when we first started talking about it. It has gotten much

more granular in reporting and giving greater transparency. So

that has been very good, I think, part of the consultative process,

probably where most effect has been had.

Mailers would like a few more things in it. We’re looking at that

and we hope to make a decision on that in a month or so as the

Commission really considers it. And we’ll issue an order to make

a formal assessment of what the performance measurement system

is.

Now, to your second question. When do we get out those data

rules? I want to say soon, very soon and certainly I think before

the end of the fiscal year when they have to start processing the

data to put out the reports for next year. Now, again there is where

we’ve had the, I think, value of a consultative process that is a twoway street, where we’ve been able to work with the technical staff

over there and refine what can be done very quickly in this coming

year, what is a longer term thing.

So I hope to say this year and that the chairman wants them out

very much, too. But we don’t want to put something out that is just

going to cause extra expense and somebody starts yelling, ‘‘hey, too

much data’’ because it does cost money. So that is why we are carefully crafting them.

Mr. DAVIS. Thank you very much. And let me just ask you one

last question, Mr. Donahoe. If mail volume continued to decline at

the current rates, if these rates should accelerate, how do you see

that affecting the Network Plan?

Mr. DONAHOE. One of the things that we are very concerned

about is this decline in volume, Mr. Chairman. This year we knew

it would probably be a bad year from an economic standpoint and

the fact that the Postal Service today has a lot more exposure to

the economy because 10, 15 years ago with a large percentage of

our mail first class, people paying bills, the economy went up and

down, it didn’t affect us that much. With over 50 percent of our

mail being advertising mail today, that is definitely a concern. One

of the changes we made recently, our Postmaster General has

made some operational changes within the organization to focus on

the growth side. We know that the law has given us opportunities

to compete in the package business. We plan in competing in the

package business. We also know that there are a lot of small businesses, home businesses that are out there that are growing today

even in a slow economy that don’t use the mail. So we’re going to

focus on the revenue generation side. We’re not ready to throw the

towel in yet and say we can’t improve that side.

With the continued financial pressures, you know, we’re asking

just to let us please work through, be flexible. Let’s work with the

union, let us work without any additional constraints so we can figure out as a team what we need to do to continue to watch the cost

side of this organization. You know, we’ve got an excellent working

relationship in this room with the Commission, with the unions,

with our employees, and with the mailers. We’re asking for the

flexibility to continue that and we’ll be successful in the long run.

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Thank you.

Mr. DAVIS. Thank you very much. Mr. Marchant, do you have

any other questions? Well, gentlemen, thank you very much. We

appreciate your testimony. And you’re excused.

We will transition to our next panel, which will be Panel III. And

while we’re doing so, we’ll move ahead with the introductions.

Panel III will consist of Mr. Michael Winn, who has served as the

Director of Postal Operations for RR Donnelly, who is a member of

the Association for Postal Commerce. Mr. Winn has been a member

of the graphic arts industry for over 30 years and has been very

active in many other print and industry associations. Mr. Winn,

thank you very much for being here.

Mr. Robert E. McLean has been the executive director of the

Mailers Council since 1996. He furnishes management service for

the nonprofit advocacy organizations, serves as its public spokesman and represents the Council on Capital Hill. Thank you very

much, Mr. Mclean.

And Mr. Jerry Cerasale has been the senior vice president of

Government Affairs at the Direct Marketing Association since

1995. He is in charge of the DMA’s contact with Congress, all Federal agencies and State and local governments. Thank you very

much, Mr. Cerasale.

And rounding out the group, Mr. Anthony Conway. Mr. Conway

was named the executive director of the Alliance of Non-Profit

Mailers in July 2007. In leaving the Alliance, he represents nonprofit mailer interests before Congress, the Postal Regulatory Commission and the Postal Service.

Gentlemen, as you know, it is our tradition that witnesses be

sworn in. So if you’d stand and raise your right hands.

[Witnesses sworn.]

Mr. DAVIS. Thank you very much. And we’ll begin with Mr.

Winn. And let me just say, Mr. Winn, that we’re always proud to

say to people that one of the corporate headquarters that exists in

the congressional district that I represent in the great downtown

area of Chicago is RR Donnelly and Sons, and we’re delighted that

you’re here. You may proceed.

STATEMENTS OF MICHAEL WINN, DIRECTOR OF POSTAL OPERATIONS, ASSOCIATION OF POSTAL COMMERCE ACCOMPANIED BY GIAN-CARLO PERESSUTTI, VICE PRESIDENT FOR

GOVERNMENT RELATIONS AT RR DONNELLY; ROBERT E.

McLEAN, EXECUTIVE DIRECTOR, MAILERS COUNCIL; JERRY

CERASALE, SENIOR VICE PRESIDENT, GOVERNMENT AFFAIRS, DIRECT MARKETING ASSOCIATION, INC.; AND ANTHONY CONWAY, EXECUTIVE DIRECTOR, ALLIANCE OF NONPROFIT MAILERS

STATEMENT OF MICHAEL WINN

Mr. WINN. Thank you, Mr. Chairman. Chairman Davis, members

of the subcommittee, my name is Michael Winn, and I——

Mr. DAVIS. You may need to pull it a little closer or hit the button.

Mr. WINN. There. That is it. Got it.

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I’m here before you today in my capacity as a member of the

Board of Directors of the Association for Postal Commerce and as

director of Postal Operations for RR Donnelly. I am accompanied

today by Gian-Carlo Peressutti, who has recently assumed the position of vice president for Government Relations at RR Donnelly.

Neither the Association for Postal Commerce, PostCom nor RR

Donnelly are strangers to this committee. However, for the record,

I’d briefly like to summarize who we are and why we appreciate

the opportunity to testify at this oversight hearing concerning the

three Rs of the Postal Network Plan, realignment, right sizing and

responsiveness.

PostCom is the leading trade association in the United States devoted exclusively to the interests of commercial businesses and

nonprofit organizations who depend upon the U.S. Postal Service to

communicate with the public. Our membership, comprised of more

than 300 companies and not-for-profit organizations, has a particular interest in mailers, in matters affecting standard mail subclasses. But our membership uses all classes of mail, and PostCom

represents their interests in virtually all matters affecting the

Postal Service.

As a result, PostCom has been actively involved in the development and enhancement of the Postal Accountability Enhancement

Act of 2006 And in the work both of the Postal Service and the

Postal Regulatory Commission implementing that statute. The Network Plan is a key element of the postal statute and vital to the

economic viability not only of the Postal Service, but also of

PostCom’s members.

RR Donnelly, headquartered in Chicago, is one of the leading integrated print and logistic solution providers to companies and government organizations throughout the United States and abroad.

Our network of consolidation facilities is designed to aggregate

mail and to deliver it to points in the Postal Service’s network, providing our customers with the greatest efficiency and lowest cost.

We, and I speak for all of the PostCom membership, endorse the

goals and objectives of the Network Plan that the Postal Service

has submitted to this committee pursuant to section 302 of the

Postal Accountability and Enhancement Act.

There is a compelling need for the rationalization, integration

and coordination of the Postal Service’s processing and distribution

facilities. That need was recognized in the 2003 report of the President’s Commission on the Postal Service which lays the foundation

for the postal statute. Indeed, many of the goals and purposes embodied in the Network Plan were anticipated by the Postal Service

transformation plan which was submitted to Congress in April

2002 and updated last year.

The Postal Service began its 2002 report to Congress with this

sentence: We live in challenging times. And that is doubly true

today. Overall mail volume is at best stagnant or declining for a

number of reasons, including the volatility of the American economy. The unprecedented increase in the cost of diesel fuel particularly affects the Postal Service and companies like RR Donnelly

that support and serve the Postal Service’s commercial and nonprofit customers. This is because the Postal Service network as it

exists today and in the future is critically dependent on work sharVerDate 11-MAY-2000 14:41 May 05, 2009 Jkt 000000 PO 00000 Frm 00075 Fmt 6633 Sfmt 6633 U:\DOCS\48658.TXT KATIE PsN: KATIE
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ing. A key component of work sharing, as the plan itself recognizes,

involves the destination entry of mail as deep into the postal system as is economically feasible. However, given the combined costs

of diesel fuel and postage, we are rapidly approaching the point at

which the incentives in the form of discounts that the Postal Service provides for drop entry and other forms of work sharing are no

longer adequate to the task.

We are at or very perilously close to the point at which catalog

companies, magazine publishers and other mailers are seeking alternate, usually electronic means of communicating with their customers or they are electing to forego the discounts provided for

work sharing in order to shift mail preparation and transportation

costs back to the Postal Service. The Postal Service can ill afford

either outcome.

Indeed, we do live in challenging times. The goals of the Network

Plan looking toward realignment and right sizing of the Postal

Service facilities are not only merely important, they are indispensable to the preservation of universal service.

In its report, the Postal Service has laid out its performance

goals in terms of continuous improvement in both service and in

efficiency. It has described the purposes of the three integrated elements of its network rationalization plans. They are elimination of

redundant airport mail centers, realignment of the mail processing

network as a whole, and the transformation of the bulk mail network.

In our view, these objectives are fundamentally sound. At the

same time, the establishment of these goals serves to underscore

the central importance of the role of the mailing industry. Mailers

and mail service providers must play a significant role in the development of the specific measures that are needed to successfully

achieve these objectives.

For example, in explaining the rationale for transformation of

the bulk mail centers the plan points out quite correctly that the

increase in destination entry of periodical standard mail and packages over the past several decades has resulted in underutilization

of the existing BMC network. That will remain true only so long

as the price incentives are made adequate to induce mailer behavior in ways that serve both the mailer and the Postal Service.

The overriding objective of the Postal Service Accountability and

Enhancement Act is, of course, to maintain a commercially and financially viable Postal Service which is capable of providing universal service throughout the country. That objective can only be

achieved if the plan yields the lowest combined cost to the Postal

Service and the industry.

The Postal Service states in its plan that it values the ongoing

cooperation of the mailing community in implementing the service

performance standards it has developed, but the need for the mailing community involvement in rationalization and alignment goes

far beyond service. If the only outcome or the principal result of the

plan is to shift more costs from the Postal Service to the private

sector, the plan will quite frankly fail.

Put another way, we believe that when the postal statute speaks

of affordable rates based on efficient network operations, that

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means the entire production and delivery train, including the work

sharing, address hygiene and undertakings of the private sector.

Efficiency and cost shifting are not the same thing. Now that the

goals and objectives of the modernization plan have been defined,

the need for the mailing community involvement with the Postal

Service in the refinement of the steps outlined in the plan and in

its implementation is more critical than ever. Realignment and

right sizing cannot be accomplished overnight, especially in a system as large and complex as that operated by the U.S. Postal Service. Still there are incremental changes that can be made as the

Postal Service advances its goals of continuous improvement service, both in terms of quality and cost.

The report, for example, specifically notes that the Postal Service

is committed to establishing full year 2009 service standard targets, although the measurement systems necessary to produce the

baselines are still in development. While we are pleased to see the

Postal Service move forward with service performance measurement, this is an example of the need for the Postal Service to understand and to respond to the needs of its customers.

As PostCom has pointed out to both the Postal Service and to the

Regulatory Commission, the availability to the industry of

realtime, reliable service performance data is imperative to the industry’s ability to make the most efficient possible use of the system and to thereby achieve the lowest combined cost of service.

With performance service data available to mailers and service providers on a realtime bases, the industry will be able to react to specific problems and maintain efficiency throughout the value chain

and therefore achieve the lowest combined cost.

The Postal Service is to be commended with respect to its commitment to—concerning service performance standards and the

measurement of actual performance under those standards. But it

also must recognize that this data must be available to industry in

a timely and meaningful fashion. PostCom looks forward to working with the Postal Service as it proceeds to operationwise its service standards and service performance measurements. But there is

more that can be done by the Postal Service and industry, working

together toward the common goal of maintaining and enhancing

the value of mail as a communication system.

In its opening address at this year’s National Postal Forum,

Postmaster General Potter specifically pointed out that the Postal

Service cannot be timid in the implementation of change. It must

also learn to share risk with the industries that it serves if it is

to remain commercially and financially viable. These steps cannot

be taken by the Postal Service alone in a silo or in a series of

unconnected silos. The view, concerns and interests of industry

must be factored into the plan at each step during the process of

implementation, and it is equally critical that industry interests be

included in the development and refinement of the broad and general objectives that the Postal Service has laid out in the plan that

it has submitted to Congress.

The devil is in the details in how the objectives and principles

set forth in the 2008 plan and its precursors are refined and put

into actual practice. It is in this respect that, in our view, the Postal Service’s performance to date needs to be improved at the strateVerDate 11-MAY-2000 14:41 May 05, 2009 Jkt 000000 PO 00000 Frm 00077 Fmt 6633 Sfmt 6633 U:\DOCS\48658.TXT KATIE PsN: KATIE
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gic level. The development and implementation of the intelligent

mail bar code is an example of this issue of inadequate responsiveness to the industry needs and input.

The IMB is generally recognized by industry to be of value to

both industry and the Postal Service. It is the long-term basis for

service performance measurement, increased operational efficiency

and right sizing within the postal system. However, until recently,

the Postal Service’s service communications concerning this major

objective have been at best confusing and incomplete and at worst

entirely in conflict with the needs and capacity of industry. The result is an enormous cost to the industry, costs that could have been

better devoted to the actual production, printing and preparation

of mail.

I am happy to report that in recent weeks the senior management of the Postal Service has come to recognize that there is a

need for a high level coordination of all the elements that go into

IMB. This includes the creation of mechanisms through which industry can express its views and concerns regarding consistent, reliable and meaningful information about the IMB plan, its pricing

and its requirements. There are, however, other aspects of the plan

where the Postal Service’s responsiveness to the needs and interests of the industry must be improved. This is especially true at

the tactical level.

We in the industry understand the incremental changes in operations and the use of facilities will result in changes of the routing

of mail. This may occur with more frequency as the Postal Service

moves to a network redesign and redeployment. However, too often

mailers and the logistics companies that they employ do not learn

of operational changes in a particular region or at a particular facility until a truck carrying the mail actually arrives at the facility

only to be told by local officials that routing has been changed. This

occurs when processing equipment has been moved and a truck has

to be routed to the newly designated acceptance site. Whether or

not these unannounced changes in operations produce savings to

the Postal Service, it misses the point. The added cost to industry,

especially in times of high fuel costs, defeat the goal of the lowest

combined cost and therefore the objectives which underlie the Postal Accountability Act.

Accordingly, as to the tactical and strategic matters in the Postal—the Postal Service’s communication of information and responsiveness to input from the industry can be and must be improved.

In conclusion, PostCom and RR Donnelly believe that the basic

objectives and purposes in the Network Plan which the Postal

Service has submitted to Congress are sound. There are aspects of

the plan that need to be worked through, developed more fully and

perhaps modified. That task must not be left to the Postal Service.

That task must be left to the Postal Service working closely with

the associations that represent the industry and with companies

like RR Donnelly that are in the trenches every day. Only through

direct interaction between the Postal Service and the mailing community, which speaks in this context for your constituents, can realignment and right sizing take place in a rational and orderly

fashion. The mutual effort is to produce results that are responsive

to and serve the needs and best interests of all the Postal Service’s

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stakeholders. The Network Plan advanced by the Postal Service

lays the foundation for the realization of these goals.

We thank the subcommittee for this opportunity to present our

views on this critically important Postal Service initiative. Thank

you, Mr. Chairman.

[The prepared statement of Mr. Winn follows:]

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Mr. DAVIS. Thank you very much. And we’ll go to Mr. McLean.

STATEMENT OF ROBERT E. McLEAN

Mr. MCLEAN. Good afternoon, Mr. Chairman, Mr. Marchant. My

name is Bob McLean, and for the past 12 years I have been the

Mailers Council’s executive director. The Mailers Council is the

largest group of mailers and mailing associations in the country.

Collectively, the Council accounts for approximately 70 percent of

the Nation’s mail volume. We welcome this opportunity to testify

on the Postal Service’s operational network and the need to realign

it.

This reduction is a difficult but necessary response to the unprecedented changes in mail volume the Postal Service is experiencing

and will continue to experience for years to come. Reducing the

network size is essential if the Postal Service is to provide affordable, reliable and universal Postal Service to your constituents.

As we testified 1 year ago this month, the Postal Service is working diligently to implement the many changes required by the reform bill signed into law in December 2006. Working with the support of and direction of the Postal Regulatory Commission, the

Postal Service has made tremendous progress in such important

areas as modernizing the ratemaking system and developing new

delivery standards.

Despite these successes, however, the Postal Service faces many

unprecedented changes in how the Nation communicates and conducts commerce. Collectively, these changes are largely irreversible

and include no worthy statistics. Overall mail volume is declining.

Revenue from first-class mail, the most profitable class delivered,

continues to decline as does first-class mail volume. Revenue from

standard mail continues to increase but at a much slower pace

than in the past decade. Higher fuel costs are adding millions in

unprecedented costs every day, a problem that is likely to increase

for the foreseeable future. Higher inflation will also mean significantly higher cost of living allowances for postal employees. That

along with higher health insurance costs will add millions in costs

in fiscal year 2009.

Because of these challenges, it will become increasingly important for the Postal Service to operate as efficiently as possible.

Starting now, to avoid significant annual postage increases that

will only accelerate the decline in total mail volume or if such increases are precluded by the PAEA’s price cap provisions to avoid

serious service declines that will have the same effect.

In its efforts to improve delivery performance and in response to

ongoing and future changes in mail volume and composition, the

Postal Service must be allowed to reduce the size of its operations

network, much of which was designed 40 or more years ago when

there was more mail that was processed quite differently and less

competition from delivery and communication alternatives. More

specifically, the Postal Service must move now to realign and reduce its delivery network which will lead eventually to the closing

and consolidating of some mail processing facilities, especially in

cities where there are multiple plants.

There are several reasons why we encourage you to allow the

Postal Service to move forward with realignment. First, the Postal

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Service has more capacity for processing mail than it needs because

technology has allowed more mail to be processed faster, with

fewer employees and in less time than was in the case years before.

Also, the Postal Service has used the utmost care regarding its employees during the transition toward automation. It has reduced its

work force, as you heard earlier today, by more than 100,000 employees without layoffs, which I think is a remarkable achievement.

Second, mail volume is expected to continue to decline, but mail

delivery points will increase. The Postal Service adds from 1.2 to

1.8 million new delivery points every year. That means they have

to add more facilities for letter carriers, hire more carriers and buy

more vehicles that have more expensive fuels in it. All of this will

add billions to the cost of processing the mail.

Third, unless the Postal Service is allowed to control its cost, the

Postal Service will be unable to live within the price gap imposed

by the reform law. This inability will in turn lead to either a relaxation of the cap followed by extraordinary rate increases or major

service reductions. Either way, more customers will be driven from

the mail, further reducing mail volume and leading to even higher

prices. And we’re back to the much discussed death spiral that, Mr.

Chairman, we discussed often in 2006 before passage of the postal

reform bill.

We recognize that any decision to close a postal facility is a difficult one. It affects the lives of many individuals, including employees in your districts. However, the right sizing of the postal

network as the mail stream changes is essential to keeping postage

affordable for all of your constituents. Higher postage affects everyone and could eventually hasten the demise of the Postal Service,

which the Mailers Council seeks to avoid. We depend on a reliable

postal system that is affordable. Higher postage and a bloated network will in the long run be devastating to more than just postal

employees. And unless Congress allows the Postal Service to consolidate these facilities, we could be talking about a lot of employee

layoffs. This is a dire prediction, but one that we can state without

equivocation because the Postal Service’s potential financial losses

are so large and so unavoidable given the current overhead.

Congress has given the Postal Service a mandate to deliver excellent service to every person in every State without government financial support, which it has done for the past several decades. We

want this situation to continue.

Let’s avoid layoffs, let’s avoid having the Postal Service become

a burden on the taxpayer and allow the postal managers to manage

the agency. Give the Postal Service the opportunity to respond

without encumbrances to these profound changes that it faces now

and will face in the coming years. Please let postal management reduce the size of the postal operational network because it is essential to improving the efficiency of the Postal Service.

Congress has demanded that the Post Office operate more like a

successful business than in the past. It should not simultaneously

prevent it from doing so.

Mr. Chairman, thank you again. I would welcome your questions.

[The prepared statement of Mr. McLean follows:]

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Mr. DAVIS. Thank you very much, and we’ll go to Mr. Cerasale.

STATEMENT OF JERRY CERASALE

Mr. CERASALE. Chairman Davis, Ranking Member Marchant,

thank you very much for giving us the opportunity to be here. I’m

Jerry Cerasale, senior VP for the Direct Marketing Association,

which is an association of 4,000 companies reaching—using all

channels of marketing, all channels of communication to try and

reach citizens in this country and throughout the world. The.

Postal Accountability and Enhancement Act maintains the focus

of the old Postal Reorganization Act that the Postal Service run as

a business. And just as any legislation we have seen, it has compromise in it. There are CPI limited rates. At the same time, the

Postal Service is given the opportunity and the flexibility to run

itself as a business. Both the Postal Service and its customer, the

mailers, face a changing marketplace right at the moment. And to

survive, the Postal Service must constantly adjust to meet that

marketplace. Just as my members are constantly adjusting how

they try to reach customers and potential customers, changing

their advertising dollar mix between the many channels that are

available to them and the number of channels are only going to

grow as time goes on.

Change itself, however, can be very difficult for both the Postal

Service, for the mailers and their employees, for postal employees

and for your constituents and the constituents of your colleagues,

as we change facilities, change processing, as things move across

geopolitical lines. But we have to allow the Postal Service to adjust.

We cannot simply oppose change for change’s sake.

And we applaud the Postal Service for establishing a framework

to implement changes in network and a design that can be used

as we go forward into the future.

In the same light, however, change for change sake is not what

we are seeking. It is here where the PRC, the GAO, the IG and,

most importantly, this Congress has to hold the Postal Service accountable for any change that it implements. Is that change working financially? Has it improved productivity? Has it improved

service? Has it destroyed employee morale? Oversight is what we

need; oversight very often is what we need.

DMA simply asks, allow the Postal Service to adjust its network

within the framework it has provided you, but hold it accountable

that those adjustments are working. And if they are not, have them

adjusted again and make that adjustment swiftly. DMA and I’m

sure all Postal Service customers stand ready to assist you, the

Postal Service, the PRC, the GAO and the IG in getting that done.

Thank you and I am ready for any questions.

[The prepared statement of Mr. Cerasale follows:]

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Mr. DAVIS. Thank you very much, Mr. Cerasale. And we’ll go to

Mr. Conway.

STATEMENT OF ANTHONY CONWAY

Mr. CONWAY. Mr. Chairman, Congressman Marchant, my name

is Anthony Conway. I’m the executive director of the Alliance of

Non-Profit Mailers, a coalition of over 300 nonprofit organizations

and commercial service providers that have an interest in nonprofit

mailing interests. Thank you for inviting me to testify here today.

The U.S. Postal Service provides a vital service that is critical to

the American economy and society. It provides universal service to

all through a network of postal facilities and mail delivery routes

that has grown as America has grown. The Postal Service’s monopoly product, first-class mail, has provided much of the funding for

this infrastructure growth. Year after year, first-class mail volume

would increase and provide more revenue needed to help pay for

the Nation’s growing postal system.

Unfortunately, first-class mail stopped growing about 5 years ago

and growth appears unlikely to resume. That means the Postal

Service must find other services of revenue growth and at the same

time must pursue unprecedented cost control measures to keep

costs and revenue in balance.

The days of business as usual are over. The Postal Service’s mail

processing delivery network provides a tremendous opportunity for

streamlining and cost saving. Designed largely since the Postal Reorganization Act of 1970, the network has remained fairly constant

while mail flows have radically changed. The result is a network

in need of major overhaul to reduce excess capacity and enhance

operational efficiencies. Rationalizing the Postal Service network is

no easy chore, but it must go forward. Without the financial and

operational benefits a redesigned network offers, the Postal Service

will be hard pressed to meet the business challenges it faces.

We agree that an open dialog should occur among stakeholders

to ensure that all voices are heard as a needed network realignment plan is designed and implemented. At the same time, however, it is crucial that process not become an obstacle to progress

and that stakeholder input not be used to create paralysis by analysis.

Thank you for your attention and time, and I’ll be pleased to answer your questions.

[The prepared statement of Mr. Conway follows:]

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Mr. DAVIS. Thank you very much, gentlemen. And let me just

ask one question. The Postal Service officials have stated that they

want to help mailers reduce their costs, that they do not want to

simply pass their costs on to mailers when undertaking the realignment efforts.

Do you have any suggestions as to how the Postal Service and

the mailers can better interact to accomplish this mutual goal?

Anybody.

Mr. CERASALE. Well, the first thing that has to happen is dialog

and communication, which I think we have heard before with GAO

and the IG discussing that and Deputy Postmaster Mr. Donahoe

said the same. We need to have input. I also think, however, that

the Postal Service and mailers have to both be willing, and the

onus is on both of us, willing to accept change, to change our process, and there may be some difficulty and even some costs in initially starting that change. But the answer is going to be simple.

If the Postal Service doesn’t cut costs or if they only cut costs by

throwing more costs onto the mailers, my members are going to

look to other channels. And so this cooperation has to happen constantly, immediately and change has to start.

I like the idea that the Postal Service is going step by step in

this change process because that gives you an opportunity to adjust

and potentially adjust rapidly without having established a huge

amount of investment by both the mailers and the Postal Service

in it. But it only comes through discussions.

Now, we clearly have MTAC and I think that we have to

strengthen MTAC. I think we need more input from the Postal

Service into MTAC to listen to what mailers are saying and to

make changes, and I think that’s where I would start.

Mr. DAVIS. Anyone else?

Mr. MCLEAN. I think that clearly the biggest opportunity right

now is for the consolidation of facilities. The Postal Service has

more capacity than it needs and that situation is going to continue.

It will continue to have more capacity than it needs. So consolidating facilities allows the Postal Service to reduce its costs in the

largest most substantial way possible. As Jerry mentioned, however, this is not going to be a painless process. It can be less painful when the Postal Service talks with its mailers about which facilities it will close because if closing of one facility means that

mailers have to truck mail another 60 miles, that creates a problem, not just savings in terms of consolidating the facilities, but we

believe that is the single biggest opportunity they should address

immediately.

Mr. WINN. The Postal Service was a monopoly. The rules of a

monopoly are very simple. The monopoly sets the rules and you

conform. Under the Postal Accountability Enhancement Act we’re

changing that. We’re changing that to be a model that is to be run

like a business. To run a business you have to understand your

customer’s business. So the Postal Service must take into consideration total combined costs and understand the business of the mailers and the mail service providers.

This is an integrated system all the way from creative to actual

delivery to a customer. Compliments to the Postal Service on this

one. They have been reaching out and actually have been coming

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to our plants and trying to learn how our business runs and our

customers’ business runs. Mr. Bill Galligan, senior vice president

of operations, has actually come to our plants and has been a student of our business, and it has helped a great deal. That’s how

they are going to do it.

Mr. CONWAY. Yes, sir. We are concerned about the prospect of

costs being passed along to mailers, nonprofit mailers, particularly

since the establishment of a CPI price cap which limits the Postal

Service’s ability to raise prices. To protect against that, another

provision that was established in the Postal Accountability and Enhancement Act I think will help guard against that, and that is the

creation of a postal regulatory body that has beefed up ability to

observe and to take input and to get into that kind of thing, to help

protect mailers against that prospect.

But ultimately, I agree with Jerry Cerasale. Ultimately, it is the

benefit to the Postal Service and to all of us if there is greater dialog, greater transparency, greater openness because there is going

to have to be some compromise probably on both sides. And I think

an even greater openness will help enhance that and make it happen in a positive way.

Mr. DAVIS. Thank you very much.

Mr. Marchant.

Mr. MARCHANT. Thank you, Mr. Chairman. This is for Mr. Winn.

You discussed the intelligent mail bar code as one area which the

industry and Postal Service collaborated with very good results.

Can you tell me a little bit about that?

Mr. WINN. Yes, I can. The intelligent mail bar code, as I said in

my testimony, is the foundation of the entire concept of service

measurement and reporting and tracking of the mail. It is something that we of industry see as great value and I know the Postal

Service sees as great value to their compliance with the new statute. The intelligent mail bar code has been worked on for 4 years,

mostly starting with the technical folks, just trying to be able to

reproduce it and develop specifications. Now we’re moving into

areas of content of the bar code and procedures and service levels

and all of that. We have recognized, both the Postal Service and

industry, that this is a major, major undertaking. When I talk of

technology, sometimes I talk about evolutionary technology and

sometimes I talk about revolutionary technologies. This is a revolutionary technology. It will fundamentally change the way we do

business.

We have had our challenges, both on the industry side and the

Postal Service side. We are working through them. There have

been periods where communications were not all that well organized, nor understandable. The senior management team has recognized that and has reaffirmed their commitment to industry to

listen to our needs, and understand our capabilities as we go forward.

So we have had some challenges, but there is a new day in town.

There are definitely mountains to be climbed with this one and

we’re going to have to do it together. RPTS COCHRAN DCMN

HOFSTAD [5:50 p.m.]

Mr. MARCHANT. Mr. McLean, is there a regular apparatus set up

where, instead of when a problem develops, the industry contacts

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the Postal Service and then you try to work it out, is there another

structure that is in place where, on a regular basis, you talk about

proactive cooperation and try to identify areas that are not problems yet or that you can be working on?

Mr. MCLEAN. There are actually a number of ways that the Postal Service works with its customers. Let’s start at the district level

where you live.

There are a number of businesses in your district that belong to

PCCs, Postal Customer Councils, business owners and mailers that

meet with postal officials on a regular basis; oftentimes it is as frequently as monthly. In Washington, there is MTAC, the Mailers

Technical Advisory Committee, that deals with very technical, very

detailed operational issues. And then there are the Mailers Council

and our member organizations that meet with postal officials frequently; typically, meetings are issue-based. We have an excellent

rapport with Postmaster General Potter, who meets with us at anytime we need to, as well as with his senior officials, whether they

are policymakers or operational managers, on postal issues.

I would tell you also the level of communication, not just the frequency, is much better than it was 10–15 years ago with mailers.

I think there are much better lines of communications with us. The

Postal Service understands it faces difficult times and that it needs

to talk with its mailers on issues.

The Intelligent Mail Project is a good example of that. It has

been an up-and-down process over the last 4 years, but I think that

the Postal Service is to be commended, not only for adopting a

technology that is very progressive, but also working with its customers when it realized there were problems with the project and

delaying it by several months to ensure that it would be taking off

in the right direction and it would be a successful program.

Mr. MARCHANT. Postal officials have stated that they want to

help mailers reduce their costs and do not want to simply pass

their cost to the mailers. Do you have suggestions as to how the

Postal Service and mailers can better accomplish this, Mr.

Cerasale?

Mr. CERASALE. The first thing is efficiencies. I think that is one

of the things the network realignment is looking to try, to make

the Postal Service more efficient within its own operations. If they

improve efficiency and improve productivity, that is a win-win for

the Postal Service and for the mailers in holding down costs and

going forward.

However, another suggestion is—and it has started, as Mr.

McLean has said—if the Postal Service talks with its customers on

how they are looking at trying to create a realignment or to adjust

costs or adjust processing, and then we work together to get a new

system, a processing system, with our input into it, then you have

something where the mailers have the ability to enter into this new

system without picking up a significant amount of costs.

You can’t have it where you have zero costs going to the mailer.

You can still get the plus, of when you look at total costs, if the

Postal Service can do something efficiently and it shifts some costs

over to the mailer, but the overall cost, the savings to the Postal

Service is far greater than the cost shifted to the mailers, then in

fact we do have a lower-cost system. And the rates would hopefully

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then reflect that, so that the cost to the mailer, a little bit more

before it goes into the Postal Service but less once it is in the Postal Service, comes out to a plus for them.

So I think as we look at this, we can’t think no change and no

increase in cost to the mailers. We have to look at the overall costs

in the long run. We are looking at postage and what is happening

to what I have to do to prepare the mail.

Mr. MARCHANT. Thank you very much, Mr. Chairman.

Mr. DAVIS. Gentlemen, thank you very much. We appreciate your

testimony and your replies to our questions. And you are dismissed.

We will move to our last panel, and while we are transitioning,

I will introduce them.

Our witnesses for panel four are Mr. Myke Reid. Mr. Reid is the

legislative and political director for the American Postal Workers

Union, the largest postal union in the world, with over 300,000

members. Mr. Reid works as a lobbyist for APWU, as well as a

member of the union’s political action committee.

We have also Mr. John Hegarty. Mr. Hegarty was sworn into office as the National Postal Mail Handlers Union national president

on July 1, 2002, and was re-elected to that position in 2004. For

the 10 years prior to becoming national president, Mr. Hegarty

served as president of Local 301 in New England.

And, gentlemen, we thank you very much.

If you would stand and be sworn in.

[Witnesses sworn.]

Mr. DAVIS. The record will show that the witnesses answered in

the affirmative.

Gentlemen, we are delighted you are here with us, and we thank

you for your patience.

Of course, you have done this any number of times, so you know

the process. We would hope that you would summarize your testimony in 5 minutes, and we will then have some questions.

We will begin with you, Mr. Reid.

STATEMENTS OF MYKE REID, LEGISLATIVE AND POLITICAL

DIRECTOR, AMERICAN POSTAL WORKERS UNION, AFL–CIO;

AND JOHN HEGARTY, PRESIDENT, NATIONAL POSTAL MAIL

HANDLERS UNION

STATEMENT OF MYKE REID

Mr. REID. Thank you, Mr. Chairman.

Good evening, Mr. Chairman and Mr. Marchant. My name is

Myke Reid. I am the legislative director for the American Postal

Workers Union.

I apologize. President Burrus notified me while I was in the room

waiting for the hearing to begin and waiting for his arrival that he

couldn’t be here. So I appreciate the indulgence of the Chair and

the ranking member giving me this opportunity to testify on behalf

of APW members.

Network realignment is a subject of critical importance to the

American people, who are entitled to reasonably priced access to

postal services, and to postal workers, whose lives are affected

when postal facilities are consolidated or closed.

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Unfortunately, the USPS plan for realignment is based upon a

faulty premise. The stated objective of the USPS network plan is

to promote efficiency by eliminating redundancy. But the fallacy of

this plan is that it artificially limits the definition of the postal network.

By design, the plan considers only the 400-plus USPS mail processing facilities to be the network, while in reality the network consists of both public and private facilities that prepare mail for delivery by USPS employees. Facilities owned and operated by Pitney

Bowes and RR Donnelley, as well as many other private entities,

perform many of the same functions as those performed at USPS

facilities.

The most significant distinction between the two systems is that

the postal processing system must accept single pieces of mail,

while the private system processes only commercial mailings.

These two systems are inseparable, and any effort to redesign the

location of processing activities must include a review of the entire

mail processing network.

In a fundamental way, the USPS financed the creation of the private network and continues to subsidize it to this day. The research and development costs of the technology used to modernize

processing have been borne almost entirely by the Postal Service,

in amounts totaling billions of dollars. But once the technology has

been proven to be effective, it has been adopted by the private system.

The work-share discounts that are applied to the private system

represent a transfer of funds from the Postal Service to a private

processor. Each dollar in work-share discounts that is granted to

private processors represents a direct loss in postal revenue.

To make matters worse, an increase in the share of volume in

the private system has an adverse effect on the postal network.

The cost of processing mail in the Postal Service increases as mail

is diverted to the private system. Equipment is not used to capacity, and, as a result, the USPS per-piece cost increases.

By encouraging the growth of the private-sector network, the

Postal Service is creating redundancy, rather than eliminating it.

Any effort to review the network and improve efficiency must examine both the public and private systems.

The Postal Service’s plan for network realignment has passed

through many stages. Each of the previous proposals lacked transparency, and the current plan continues that unfortunate tradition.

One glaring example is that the USPS fails to consider later delivery times or earlier pick-up times as degradations in service. But

to businesses or individuals who depend on timely mail delivery,

time of delivery and time of pickup can be of substantial consequence.

As further evidence of the lack of transparency, I ask members

of the subcommittee a simple question: After reading the plan, do

you have a clear idea of which facilities will be consolidated and

what criteria will be used to make the decisions?

In recent years, the APW has developed its own plan to address

previous attempts at network realignment. And whenever we alerted citizens that their postal facilities were threatened with closure

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or their postal services would be degraded, they and their elected

representatives have responded vigorously.

The Postal Service has expressed frustration at the efforts of

elected officials to protect the postal services of their constituents.

But that advocacy by legislators is as it should be. Members of

Congress and State and local leaders are elected to serve their constituents by advocating their interests.

Pretending that the postal network consists solely of USPS facilities does not make it true. The fact is that public and private, forprofit networks comprise the postal processing system. Any review

of the network must consider the combined system. The logistics of

the network demand that it be coordinated into a national network,

which only the USPS, a public service, is willing and able to provide.

Mr. Chairman, I thank you for the opportunity and your indulgence. I would be happy to answer any questions and even happier

if you would refer them to President Burrus for an answer at some

later time. [Laughter.]

Thank you, Mr. Chairman.

[The prepared statement of Mr. Burrus follows:]

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Mr. DAVIS. Thank you very much, Mr. Reid. And perhaps we will

do both.

Mr. Hegarty.

STATEMENT OF JOHN HEGARTY

Mr. HEGARTY. Good afternoon. And thank you, Chairman Davis

and Ranking Member Marchant, for inviting me to testify.

My name is John Hegarty. I am the national president of the National Postal Mail Handlers Union, which serves as the exclusive

bargaining representative for nearly 60,000 mail handlers employed by the U.S. Postal Service.

I will summarize my testimony. I ask that the entire statement

be submitted for the record.

I would like to talk about the Postal Service’s most recent ill-advised foray into subcontracting, which involves the recently issued

draft request for proposals to outsource work from the bulk mail

centers. For many years, the Mail Handlers Union has tried to

work with the Postal Service toward a better, more efficient and

more economic operation. However, we have several problems with

this latest draft RFP.

The premise of the subcontracting proposal, according to the

Postal Service, is that they will be moving the machines used by

the Flats Sequencing System [FSS], into the bulk mail centers.

This decision about the FSS is based primarily on space available,

not on the current workload. As a consequence, the Postal Service

has a choice: what to do with the work that is being displaced,

which is primarily the sorting of parcels, trays and tubs now performed at the bulk mail centers. The work can be shifted to other

available nearby facilities based on capacity, or the work can be

outsourced. And the draft RFP suggests that the Postal Service is

leaning toward outsourcing. In other words, the FSS is being used

as an excuse to outsource current mail processing.

It makes absolutely no sense to this union to give away mail volume to the private sector, when the nearby postal plants are suffering from a major loss of mail volume themselves. If the FSS is

going to cause work to be moved out of the bulk mail centers, it

would make perfect business sense to relocate that work to nearby

plants. There simply is no need to outsource this work.

On a related issue, the Postal Service is talking about realigning

its plants through closings and consolidations based on the assumption that the current loss of mail volume nationwide is permanent and that this mail volume will never return. Although the

network plan does not specifically identify any facilities, it appears

that the Postal Service is intending to make permanent changes

based on a temporary condition.

It bears noting that their own report references a lack of available data. It seems that much of it is premature. And we have gone

down this road before. Both the Postal Rate Commission and the

General Accountability Office found the Postal Service’s previous

report on realignment to be sorely lacking. This time, however, I

must agree with the Postal Service that it lacks both the historical

data and the accurate future projections that are necessary to finalize any realignment plans.

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Despite that shortcoming in this report, my union and our union

members have been working with the Postmaster General to make

the system more streamlined, resulting in the increased productivity and the higher service standards referenced in the report.

Where we see an achievable goal that is based on a concrete analysis of on-the-ground conditions, we have been able to achieve the

results that best serve the American public.

Both service and productivity are at an all-time high. Career

mail handlers and other postal employees are doing a fantastic job

under difficult conditions. When postal plants are closed or consolidated into other facilities, there are a lot of dislocations and much

inconvenience to the local communities and postal employees. From

a union perspective, any movement of employees must be accomplished in accordance with the collective bargaining agreement and

should make good business sense. Improving the postal system includes preserving the skilled work force.

Finally, the process followed by the Postal Service prior to realignment is critical. By not analyzing each situation in advance

with employee and community input, prior area mail processing

studies have been seriously flawed.

As has been proven numerous times, the career craft employees

often have valuable input and insights to share. While the Postal

Service can boast about saving billions of dollars based on productivity gains and improved efficiency—I am going to modify my testimony briefly here. I was happy to hear Pat Donahoe speak of the

good working relationship with the unions and with the craft employees and give them credit for some of the savings that has been

realized by the Postal Service, including reducing 100,000 postal

employees over the last 7 or 8 years.

Finally, I must mention the most recent development which has

the Postal Service offering voluntarily early retirements to thousands of career employees. Obviously, this is a volunteer program,

and early retirement may not make sense for most eligible employees. But, again, the Postal Service is thinking about making permanent changes based on temporary economic conditions.

Ultimately, some mail handlers may opt for this early retirement

option, and I do not wish to prevent them from doing so. But as

a policy matter, we do not believe it makes business sense to ask

employees to retire voluntarily while also proposing to outsource

postal work to private contractors. Should not someone in postal

management be trying to realign the work, so that career employees who otherwise might retire before they are ready to can continue to perform the work that otherwise might be subcontracted?

Thank you for allowing me to testify. I would be happy to answer

any questions.

[The prepared statement of Mr. Hegarty follows:]

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Mr. DAVIS. Gentlemen, thank you very much. We certainly appreciate your patience.

Let me just ask you, you have been here all afternoon and you

have heard the testimony of representatives from the Postal Service, the PRC and the Government Accountability Office.

You just mentioned, Mr. Hegarty, the attrition early retirement

plans. Are you suggesting that these are somehow tied in with a

privatization scheme or plan and they are just all working, kind of,

hand-in-hand together?

Mr. HEGARTY. I believe they are related. I don’t subscribe to conspiracy theories. But I think, yes, I think you have to look at what

the Postal Service is asking. I have some figures here, just for the

mail handlers and the clerk craft and supervisory, they are looking

at approximately 70,000 employees who are eligible for voluntary

early retirement. They only expect 10,000 of those 70,000 to accept

it, but if we lose 10,000 more employees nationwide, someone has

to do that work. And my thinking is, certainly, the outsourcing of

the bulk mail center work is a component of that plan.

Again, I don’t want to stop the mail handlers from retiring early,

if that is their choice. And I believe President Burrus has put this

message out to his craft as well. People are going to have to take

a real close look at how that is going to impact them financially.

If you are a Civil Service employee, you already have approximately 25 years of Postal Service, because the Civil Service Retirement System, as you know, was capped in 1983 and all employees

hired in 1984 and later are under FERS. You will take a penalty

if you retire under certain conditions under Civil Service.

Now, they say there is no penalty under FERS, but the penalty

under FERS is that you lose your ability to contribute to the Thrift

Savings Plan, lose the employer’s matching contributions for the

Thrift Savings Plan, and you certainly will take a hit on your Social Security. If you retire at the age of 52 or 53, you are not going

to be able to collect your Social Security.

So I just want my folks to go into it with their eyes wide open.

And I am not, again, saying that I would stop any mail handlers

from taking the volunteer early retirement. But I just think the

plan that the Postal Service has put forth is part of a key part of

their program to reduce career employees and, in fact, outsource

work to the private sector.

Mr. DAVIS. Let me ask both you and Mr. Reid: When there have

been consolidations, would you say that there has been adequate

communication relative to preparation and planning for this activity that would give affected employees enough time and opportunity to pretty much know what is coming down the pike and to

plan adequately for it?

Mr. REID. Mr. Chairman, I would think the answer to that would

have to be no. There have been cases where our members have not

found out about what was going on until they were contacted by

reporters from local newspapers. We have argued for years that

there must be more community involvement and input into the system. And the Senate qualified in appropriations language a couple

of years ago that could include the input of postal workers as well.

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But just off the top of my head, without giving you any specific

examples, I would argue that they have not given us adequate

input and notice before consolidation decisions are made.

Mr. DAVIS. So you would argue for greater communication between the collective bargaining units and the Postal Service?

Mr. REID. Absolutely, Mr. Chairman.

Mr. HEGARTY. I would echo that sentiment. I think, in some instances, they have given adequate notice. There are protections

built into the collective bargaining agreement where the employees

have to be given specific notice before they can be relocated, and

you have to factor in all the different types of facilities that may

be consolidated.

For instance, we had a consolidation from Bridgeport, CT, down

to Stanford, CT. I am going to guess that is probably 18 miles

away. You would have to say that the impact on most of those employees was minimal. They had to commute an extra 18 miles. I

am not saying it is easy, especially knowing some of the traffic

down in that area, being from New England myself. So there was

inconvenience to the employees.

The collective bargaining agreements, in many instances, will

raise some complications that need to be dealt with by postal headquarters and with the headquarters people from the union as well,

because we have an Article 12 which allows jobs to be withheld for

other craft employees. So, for instance, if employees in the American Postal Workers Union are expected to be impacted by upcoming automation, the Postal Service can withhold jobs in the mail

handler craft for those excess employees.

We have a current situation occurring right now in Westborough,

MA, where the facility is being closed completely and approximately 75 mail handlers are impacted. We have a dispute, and I

am working on that dispute with postal headquarters right now.

They have told all of those employees that they have to travel 65

miles to Springfield, MA, to continue their employment with the

Postal Service, and they have no option to get postal jobs in nearby

facilities.

In fact, there are postal jobs, mail handler jobs, currently under

withholding in Boston, which is only 29 miles from Westborough.

We have other closer facilities. It is 12 miles to Worcester. It is 47

miles to Brockton, MA. There are probably six or eight facilities

that are closer than Springfield.

And we are asking postal headquarters to get involved in this,

because the impact on these employees is going to be severe. Especially if they worked 20 miles outside of Westborough, now they

have an 85-mile commute instead of a 20-mile commute. And I am

afraid we may lose some of those dedicated postal employees due

to the unreasonableness of local management to work with us and

find closer positions for them.

Mr. DAVIS. Thank you very much, gentlemen.

Mr. Marchant.

Mr. MARCHANT. Thank you.

What we have found in our district office—and I am from the

Dallas-Fort Worth area—most of the calls that we get in our district office are not about the mail service, lack thereof or otherwise,

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but most of the calls that we get concerning the Postal Service are

employee-employer conflict calls.

I don’t know, Mr. Davis, if that sounds familiar to you.

Mr. DAVIS. I thought they didn’t have that in Texas. [Laughter.]

Mr. MARCHANT. And, to me, in my district office, this is the face

of the post office. And there seems to be so much conflict between

the Postal Service itself and its employees in its grievance system

and the way that it is resolved.

We have heard some testimony just recently that process has

been stepped up, redone, streamlined, etc. And, frankly, it is that

worker that is in my age group, it is that worker that is in that

low–50 to upper–50 age group that seems to have the conflict and

the disagreement and the grievance. That just is a sense of frustration to me, because we seem to get that call, you know, either

sometime in the middle of the process or after the process.

Do you feel like there is any progress being made there? Because,

I can tell you, that is what we deal with a lot.

Mr. HEGARTY. I think we have made some progress. I think the

contract interpretation manual that we put out several years ago—

and I have mentioned this in prior testimony—was an understanding reached between postal headquarters and the mail handlers’

headquarters, and I know the other crafts have those as well. It

kind of clarifies a lot of the gray areas in the contract.

That used to be a problem. I will go back to my experience on

the workroom floor, dealing with management. I would show them

a contract violation, and they would say, ‘‘Well, I don’t agree with

your interpretation of the contract.’’ So a lot of that was put to rest

with the parties putting many of those interpretations down in

black and white.

But you are always going to have personality conflicts. You are

always going to have some managers—and it is not just a one-way

street—who still act in an authoritarian manner and just boss people around or tell them what to do and don’t adequately explain

themselves.

So, I am hoping those are isolated incidents. I am sure those are

the calls you get. Nobody is going to call you and say, ‘‘Gee, I just

want to let you know the post office does a great job, and it is a

good employer, and I like working there.’’ You won’t get those calls.

You will get the calls when someone has an issue with their supervisor or an employment issue like that. But I think we have made

some progress over the years.

Mr. MARCHANT. I would encourage both sides to keep working on

that. My point is that, of all the branches of the quasi-U.S. Government, I rarely get a call from the Air Traffic Controllers or the Justice Department employees or the GAO or Social Security Administration—I mean, never, frankly. But somehow or another, local

Congressmen seem to be drawn into this web quickly.

In my office, we are reluctant to become involved, because there

seems to be a pretty established structure on how to get grievances

addressed on both sides. I know this isn’t the subject of this testimony.

Mr. REID. I would just like to add, Mr. Marchant, I would certainly associate myself with the comments of President Hegarty,

but I would also point out a lot of the problems we have arise beVerDate 11-MAY-2000 14:41 May 05, 2009 Jkt 000000 PO 00000 Frm 00126 Fmt 6633 Sfmt 6633 U:\DOCS\48658.TXT KATIE PsN: KATIE
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cause of a complaint of the employee, rather than a grievance of

the employee. It is something that doesn’t rise to a grievable nature, but it is something they don’t like. They don’t like their supervisor’s hair, they don’t like the way they act, they don’t like

their friends.

So, a lot of times, I think what I have heard from congressional

offices is that they get calls from their constituents about complaints which aren’t necessarily grievable actions under the collective bargaining procedure.

But I also agree with John. I think the procedure has gotten better. The number of cases pending arbitration has reduced considerably. Certainly on the national level I think the working relationship is a lot better than it is on the local level, most often because

of just differing personalities.

But if there is something we can do to help you with that——

Mr. MARCHANT. Thank you. It is just that we are a little unsure

at what point to intervene on behalf of a constituent. We have a

constituent here, as well as an employee. So I just wanted to express that to you. Thanks.

Mr. REID. We often work with congressional offices to try to sort

that out. If there is something you would like us to help you with,

we would be more than happy to do it.

Mr. MARCHANT. We may take advantage of that. Thank you.

Mr. DAVIS. Well, it seems as though this has ended with perfection. I don’t know if it was designed to be that way or not.

Let me just agree with Mr. Marchant in terms of the whole business of conflict. That does continue to exist. I would also agree that

there seems to be some success in helping to reduce it. But if there

is an office that does not get a lot of those calls, I would like to

find it. That seems to be one of the big issues. But, certainly, all

of the other issues, I think, are pronounced and are before us.

So I want to thank you gentlemen for your patience, for your testimony, and all of those who have been patient all afternoon.

If you have no further questions, Mr. Marchant, I certainly don’t,

we can both run over and vote and end the day.

So, gentlemen, thank you very much.

The hearing is adjourned.

[Whereupon, at 6:20 p.m., the subcommittee was adjourned.]

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