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THE REPORT OF THE PRESIDENTIAL COMMISSION

ON THE U.S. POSTAL SERVICE: PRESERVING

ACCESS AND AFFORDABILITY

HEARING

BEFORE THE

COMMITTEE ON 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

NOVEMBER 5, 2003

Printed for the use of the Committee on Governmental Affairs

(

(II)

COMMITTEE ON GOVERNMENTAL AFFAIRS 

SUSAN M. COLLINS, Maine, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

ARLEN SPECTER, Pennsylvania 

ROBERT F. BENNETT, Utah 

PETER G. FITZGERALD, Illinois 

JOHN E. SUNUNU, New Hampshire 

RICHARD C. SHELBY, Alabama 

JOSEPH I. LIEBERMAN, Connecticut 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

RICHARD J. DURBIN, Illinois 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

MICHAEL D. BOPP, Staff Director and Chief Counsel 

ANN C. FISHER, Deputy Staff Director 

JOYCE A. RECHTSCHAFFEN, Minority Staff Director and Chief Counsel 

SUSAN E. PROPPER, Minority Counsel 

AMY B. NEWHOUSE, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

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

Senator Akaka .................................................................................................. 4

Senator Stevens ................................................................................................ 5

Senator Carper ................................................................................................. 7

Senator Pryor .................................................................................................... 9

WITNESSES 

WEDNESDAY, NOVEMBER 5, 2003

Hon. John E. Potter, Postmaster General, U.S. Postal Service ........................... 10

Hon. David M. Walker, Comptroller General, U.S. General Accounting Office 

(GAO) .................................................................................................................... 17

ALPHABETICAL LIST OF WISTNESSES

Potter, Hon. John E.: 

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

Prepared Statement ......................................................................................... 27

Walker, Hon. David M.: 

Testimony .......................................................................................................... 17

Prepared Statement ......................................................................................... 44

APPENDIX 

Post-Hearing Questions and Responses for the Record from: 

Hon. John Potter .............................................................................................. 103

Hon. David Walker ........................................................................................... 117

ADDITIONAL MATERIALS SUBMITTED FOR THE RECORD 

American Business Media ....................................................................................... 137

ADVO, Inc. ............................................................................................................... 138

Alliance of Nonprofit Mailers .................................................................................. 142

American Forest & Paper Association (AF&PA) ................................................... 144

Americans for Tax Reform ...................................................................................... 147

Amercian Postal Workers Union, AFL–CIO (APWU) ........................................... 148

Association of American Publishers, Inc. (AAP) ................................................... 153

Association for Postal Commerce (PostComm) ...................................................... 158

Association of Priority Mail Users, Inc. (APMU) .................................................. 180

Association of United States Postal Lessors (AUSPL) ......................................... 188

Consumer Action ...................................................................................................... 191

Cox Target Media, Inc. and Valpak Direct Marketing Systems, Inc. (Valpak) .. 193

Direct Marketing Association (The DMA) ............................................................. 203

Envelope Manufacturers Association (EMA) ......................................................... 208

Financial Services Roundtable ............................................................................... 213

Free Speech Coalition, Inc. (FSC) .......................................................................... 218

Greeting Card Association (GCA) ........................................................................... 226

Institute for Research on the Economics of Taxation (IRET) .............................. 229

International Paper (IP) .......................................................................................... 234

Lexington Institute .................................................................................................. 235

Magazine Publishers of America (MPA) ................................................................ 238

Mail Order Association of America (MOAA) ......................................................... 250

McGraw-Hill Companies, The ................................................................................. 253

National Association of Presort Mailers (NAPM) ................................................. 259

Page

IV

National Farmers Union ......................................................................................... 263

National League of Postmasters ............................................................................. 265

National Star Route Mail Contractors Association ............................................... 276

National Taxpayers Union (NTU) .......................................................................... 280

Parcel Shippers Association (PSA) ......................................................................... 282

Pitney Bowes ............................................................................................................ 290

Postal Rate Commission (PRC) .............................................................................. 298

Printing Industries of America, Inc. (PIA) ............................................................ 313

Publishers Clearing House ...................................................................................... 315

Small Business Survival Committee (SBSC) ........................................................ 317

Spencer Press Inc .................................................................................................... 326

Time Warner, Inc. .................................................................................................... 327

(1)

THE REPORT OF THE PRESIDENTIAL COMMISSION ON THE U.S. POSTAL SERVICE: 

PRESERVING ACCESS AND AFFORDABILITY 

WEDNESDAY, NOVEMBER 5, 2003

U.S. SENATE, 

COMMITTEE ON GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Committee met, pursuant to notice, at 2 p.m., in room SD–

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

Present: Senators Collins, Stevens, Akaka, Carper, and Pryor. 

OPENING STATEMENT OF SENATOR COLLINS 

Chairman COLLINS. The Committee will come to order. 

Good afternoon. Today marks the second in a series of hearings 

that the Governmental Affairs Committee will hold to review the 

reforms recommended by the Presidential Commission on the Postal Service. 

At our first hearing in September the Committee heard from the 

Commission’s Co-Chair Jim Johnson, who outlined the rationale 

behind the Committee’s recommendations. 

Commissioner Johnson also made the very important point that 

although the Postal Service will end this fiscal year with a net income of more than $4 billion, reduced debt, and a smaller workforce, Congress cannot ignore the fundamental reality that the 

Postal Service is an institution in serious jeopardy. 

The Commission presented its assessment in stark terms. It said, 

‘‘an incremental approach to Postal Service reform will yield too little, too late given the enterprise’s bleak fiscal outlook, the depth of 

current debt and unfunded obligations, the downward trend in 

First-Class mail volumes, and the limited potential of its legacy 

postal network that was built for a bygone era.’’

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

Postal Service itself and the Congress to embrace far-reaching reforms. 

I have long been a supporter of having an independent commission take a look at the Postal Service, and I want to commend the 

Commission for its very thorough review. 

The financial and operational problems confronting the Postal 

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

down $7 billion in debt to the Treasury and its long-term liabilities 

are enormous, to the tune of nearly $6 billion for workers comVerDate 0ct 09 2002 09:07 Mar 15, 2004 Jkt 091039 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 C:\DOCS\91039.TXT SAFFAIRS PsN: PHOGAN
2

pensation claims, $5 billion for retirement costs, and perhaps as 

much as $45 billion to cover retiree health care costs. 

Last year, when the Office of Personnel Management discovered 

that the Postal Service was paying too much into the Civil Service 

Retirement System fund, I joined with my colleague, Senator Carper, in introducing legislation, which was also co-sponsored by Senator Akaka and others on this Committee, to correct the funding 

problem. This means that the Postal Service was able to delay its 

next rate increase until 2006 and move aggressively to pay down 

billions of dollars in debt owed to the U.S. Treasury. 

There are other issues with that legislation, however, involving 

an escrow account which we will discuss today. 

Despite the reprieve afforded the Postal Service by the CollinsCarper bill, many problems remain and they have a significant economic impact. The Postal Service itself has more than 750,000 career employees. But less well-known is the fact that it is also the 

linchpin of a $900 billion mailing industry that employs 9 million 

Americans in fields as diverse as direct mailing, printing, catalog 

production, and paper manufacturing. The health of the Postal 

Service is essential to the continued vitality of thousands of companies and the millions of Americans they employ. 

One of the greatest challenges for the Postal Service is the decrease in First-Class mail volume as business communications, 

bills, and payments move more and more to the Internet. This is 

highly significant, given that First-Class mail accounts for 48 percent of total mail volume and the revenue it generates pays for 

more than two-thirds of the Postal Service’s institutional costs. 

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

costs from its nationwide infrastructure and transportation network at a time when carriers must still deliver 6 days a week and 

the number of addresses served has only continued to grow. 

In many ways the work of the Commission builds upon actions 

already undertaken by the Postal Service. The Senate took the advice of the Comptroller General and requested that the Postmaster 

General deliver to Congress in April 2002 a comprehensive transformation plan. The Postal Service, in its plan, determined what 

changes could be made within existing constraints that would result in improved operations, performances and finances. 

The transformation plan has been recognized as a very positive 

first step but that is exactly what it is, a first step. Without legislation many of the necessary reforms highlighted in the Commission’s report simply cannot happen. 

As a Senator representing a largely rural State whose citizens 

depend heavily on the Postal Service, I appreciate the Commission’s strong endorsement of the basic features of universal service, 

affordable rates, frequent delivery, and convenient community access to retail postal services. It is important to me that my constituents, whether they live in the Northern Woods or on the islands off our coast, or in our many small rural communities have 

the same access to quality postal services as the people of our cities. Most commercial enterprises would find it uneconomical, if not 

impossible, to deliver mail and packages to rural Americans at the 

rates that the postal service offers. So the preservation of universal 

service is my top priority. 

3

Nevertheless, the Postal Service has reached a critical juncture. 

It is time for a thorough evaluation of its operations and requirements. It is time for action. 

Senator Carper and I have committed to working together with 

other interested Members of this Committee to draft a bipartisan 

postal reform bill. Now, given the history of previous attempts to 

pass postal reform legislation, I recognize that this is a daunting 

challenge. But it is essential that we seize the opportunity presented by the Commission’s report, supplemented by the transformation plan, to build on the excellent work already underway 

and to complete the job. 

I am going to submit the rest of my statement and my full statement in the record. We are expecting, unfortunately, to have three 

back-to-back votes at 2:30. So I am eager to hear Senator Akaka’s 

remarks and then hear from our two excellent witnesses today, 

Postmaster General Jack Potter, and Comptroller General David 

Walker. Both of them have considerable insights that will be very 

helpful to the Committee. 

[The prepared opening statement of Senator Collins follows:]

PREPARED OPENING STATEMENT OF SENATOR COLLINS 

Today marks the second in a series of hearings the Committee will hold to review 

the reforms recommended by the Presidential Commission on the Postal Service. At 

our first hearing in September, the Committee heard from Commission Co-Chair 

Jim Johnson. His testimony provided Committee members with the rationale behind 

the recommendations. Commissioner Johnson also made the very important point 

that although the Postal Service will end this fiscal year with net income of more 

than $4 billion, reduced debt, and a smaller workforce, Congress cannot ignore the 

fundamental reality that the Postal Service is an institution in serious jeopardy. 

The Commission presented its assessment in stark terms, and I quote, ‘‘an incremental approach to Postal Service reform will yield too little, too late, given the enterprise’s bleak fiscal outlook, the depth of current debt and unfunded obligations, 

the downward trend in First-Class mail volumes and the limited potential of its legacy postal network that was built for a bygone era.’’ That is a very strong statement, and one that challenges both the Postal Service and Congress to embrace farreaching reforms. 

From the outset, I have been a strong proponent of the Commission. In the Summer of 2002, I introduced my own bill to establish a Presidential Postal Commission 

charged with examining the problems the Postal Service faces, and with developing 

specific legislative and administrative proposals that Congress and the Postal Service could implement. Naturally, I was pleased to have such a Commission issue this 

type of report just one year later. Under the effective leadership of Co-Chairs Harry 

Pearce and James Johnson, the Commission put together a highly comprehensive 

report on an extremely complex issue—identifying the operational, structural, and 

financial challenges facing the U.S. Postal Service. 

To the relief of many, including myself, the Commission did not recommend privatization of the Postal Service. Instead, the Commission worked toward finding a 

way for the Postal Service to do, as Mr. Johnson described it to me, ‘‘an overwhelmingly better job under the same general structure.’’ The Commission’s recommendations are designed to help this 225-year-old Service remain viable through at least 

the next two decades. 

The financial and operational problems confronting the Postal Service are serious. 

At present, the Postal Service is paying down $7 billion in debt to the U.S. Treasury, and its long-term liabilities are enormous—to the tune of nearly $6 billion for 

Workers’ Compensation claims, $5 billion for retirement costs, and perhaps as much 

as $45 billion to cover retiree health care costs. 

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

discovered that if postal payments into the Civil Service Retirement System Fund 

were to continue on the basis required under existing law, the Postal Service would 

over-fund its estimated retirement liability by approximately $71 billion dollars over 

a period of 60 years. In February, Senator Carper and I introduced legislation to 

correct this funding problem. That bill’s enactment this past April enabled the PostVerDate 0ct 09 2002 09:07 Mar 15, 2004 Jkt 091039 PO 00000 Frm 00007 Fmt 6633 Sfmt 6621 C:\DOCS\91039.TXT SAFFAIRS PsN: PHOGAN
4

al Service to delay its next rate increase until 2006 and to more aggressively pay 

down billions in debt owed to the U.S. Treasury. The bill also required the Postal 

Service to submit to Congress a proposal regarding the use of the ‘‘savings’’ resulting from the Act, beginning in 2006. Those ‘‘savings’’ would be placed in an escrow 

account and may not be spent until a pending plan is approved and authorized by 

Congress. It is my intention to address this issue as part of an overall postal reform 

bill. 

Despite the reprieve afforded the Postal Service by the Collins-Carper bill, many 

problems remain, and they have a significant economic impact. The Postal Service 

itself has more than 750,000 career employees. Less well known is the fact that it 

is also the linchpin of a $900-billion mailing industry that employs 9 million Americans in fields as diverse as direct mailing, printing, catalog production, and paper 

manufacturing. The health of the Postal Service is essential to the vitality of thousands of companies and the millions that they employ. 

One of the greatest challenges for the Postal Service is the decrease in mail volume as business communications, bills and payments move more and more to the 

Internet. The Postal Service has faced declining volumes of First-Class mail for the 

past 4 years. This is highly significant, given that First-Class mail accounts for 48 

percent of total mail volume, and the revenue it generates pays for more than twothirds of the Postal Service’s institutional costs. 

The Postal Service also faces the difficult task of trying to cut costs from its nationwide infrastructure and transportation network. These costs are difficult to cut. 

Even though volumes may be decreasing, carriers must still deliver 6 days a week 

to more than 139 million addresses. 

In many ways, the work of the Commission builds upon work already started by 

the Postal Service. In late 2001, the Senate took the advice of Comptroller General 

David Walker and requested that Postmaster General Jack Potter deliver to Congress, in April of 2002, a comprehensive Transformation Plan designed, and again 

I quote, ‘‘to ensure the continuation of affordable universal service and to prepare 

the organization for the challenges of change in a dynamic marketplace.’’

In the Transformation Plan, the Postal Service determined what changes could be 

made, within existing constraints, that would result in improved operations, performance and finances. This plan has been widely recognized as a good ‘‘first step,’’ 

but that’s exactly what it is—a first step. Without legislation, many of the necessary 

reforms highlighted in the Commission’s report simply will not happen. 

As a Senator representing a largely rural State whose citizens depend on the 

Postal Service, I appreciate the Commission’s strong endorsement of the basic features of universal service—affordable rates, frequent delivery, and convenient community access to retail postal services. It is important to me that my constituents 

living in the northern woods, or on islands, or in our many rural small towns, have 

the same access to postal services as the people of our cities. If the Postal Service 

were no longer to provide universal service and deliver mail to every customer, the 

affordable communication link upon which many Americans rely would be jeopardized. Most commercial enterprises would find it uneconomical, if not impossible, to 

deliver mail and packages to rural Americans at rates that the Postal Service has 

been offering. 

The preservation of universal service, and many more issues, must be examined 

in depth if we are to save and strengthen this vital service upon which so many 

Americans rely for communication and their livelihoods. The Postal Service has 

reached a critical juncture. It is time for a thorough evaluation of the Postal Service’s operations and requirements. It is time for action. 

Senator Carper and I have committed to work together with other interested 

members to draft a bi-partisan postal reform bill. Given the history of previous attempts at legislative reforms, I know this will be a challenging goal, but it is essential that we seize the opportunity provided by the Commission’ excellent work. 

I welcome our witnesses today, Postmaster General Jack Potter and Comptroller 

General David Walker, and look forward to hearing their views and insights on the 

recommendations of the Presidential Commission on the Postal Service.

Chairman COLLINS. Senator Akaka. 

OPENING STATEMENT OF SENATOR AKAKA 

Senator AKAKA. Thank you, very much, Chairman Collins. 

I want you to know, it is indeed an honor and a pleasure and 

privilege to serve as your Ranking Member today. And I want to 

add my welcome to our two distinguished witnesses. I also want to 

5

commend our panelists for their focused attention, determination, 

and passion on what I consider a key public policy issue, which is 

how to modernize and sustain the U.S. Postal Service. 

And I want to add that both of you are such pleasant people to 

work with and I look forward to working with you in the future. 

Even before the Presidential Postal Commission was convened, 

GAO warned that the long-term financial outlook of the Postal 

Service was at risk without significant changes. At this Committee’s request, the Service developed a transformation plan that offered its vision for the future. The U.S. economy depends on a 

strong and viable Postal Service, which anchors a $900 billion mailing industry that generates 8 percent of our gross domestic product. 

Nor can we ignore that, for many Americans, the Postal Service 

is their only contact with the Federal Government. The delivery of 

mail 6 days a week at an affordable rate is an essential service and 

a critical lifeline for many citizens living in the rural areas or 

States like Hawaii and Alaska. The good news is that productivity 

is up, overnight performance is at its highest level, and over 93 

percent of consumers are satisfied with their service. 

However, the continued decline in First-Class mail is just one reminder that the long-term stability of the Postal Service remains 

at risk. 

This Committee understands and appreciates the challenges facing the Postal Service. It is in this spirit that I look forward to discussing the Commission’s recommendations with both Postmaster 

General Potter and Comptroller General Walker. Although we may 

disagree on some of the recommendations, I am hopeful that our 

common goal of guaranteeing the future of the Postal Service will 

bridge any chasm. 

I will work with our Chairman on bipartisan legislation that will 

preserve universal service at an affordable price and honor the 

Postal Service’s commitments to its employees and retirees. 

Thank you very much, Chairman Collins. 

Chairman COLLINS. Thank you, Senator Akaka, it is always a 

great pleasure to have you serve as the Ranking Member of the 

Committee. Senator Stevens. 

OPENING STATEMENT OF SENATOR STEVENS 

Senator STEVENS. Thank you very much. I just came in in time. 

It is nice to see you, Mr. Postmaster General. We are working on 

a few matters around here, non-controversial of course. 

Madam Chairman, I am here today to commend Postmaster General Jack Potter for his efforts which have guided the Postal Service now since June 1, 2001. He took on great responsibility when 

he agreed to become the 72nd Postmaster General of United States 

and has helped us develop and institute a transformation plan for 

the Postal Service. His leadership has facilitated increased productivity and has improved customer satisfaction. 

I understand the purpose of this hearing is to comment on and 

evaluate the recommendations made by the President’s Commission on the U.S. Postal Service. The Commission also took on great 

responsibility when they agreed to study the Postal Service and 

provide these recommendations to improve it. 

6

Although I believe further reform of the Postal Service is necessary, it is my belief that many aspects of the existing Postal 

Service should be preserved. I was pleased to hear and read that 

the Commission and the Postmaster General have pledged their 

commitment to preserve universal mail service throughout the 

United States. 

For my State of Alaska, the concept of universal service is absolutely essential. Alaska does not have access to the infrastructure 

found in what we call the lower Forty-Eight. For many Alaskans 

the mail service is a lifeline. We do not use roads. We only travel 

by air primarily. We have one railroad that goes north to south. 

But each day it is the Postal Service that delivers 2 million pieces 

of mail to Alaskan homes and businesses, including vital products 

that would otherwise not be available in the bush of Alaska. 

I remember one time, John, when one of my constituents figured 

out how to get hay. He just mailed it and put a postage stamp on 

it. And he just had to fly planes for each 1,000 pounds, that is all. 

The services you provide through the Postal Service reach every 

home and business in America and are essential to American commerce and society. 

The Commission’s report also provided a comprehensive evaluation of the Postal Service’s workforce, operation, leadership, and financial outlook. The President’s Commission made several recommendations to reduce the Postal Service’s outstanding debt. One 

recommendation suggests that the Treasury Department should be 

obligated to fund the cost of CSRS benefits that current and former 

Postal Service employees have earned through military service. I 

also believe that the Postal Service should not be responsible for 

financing military pension benefits. If the Postal Service was required to pay the military portion of CSRS benefits, the Postal 

Service would be the only Federal Agency required to pay such 

costs. 

In the early 1970’s I, along with several other Senators, joined 

together to create the Postal Service out of the old Post Office Department. And in 1971, President Nixon signed into law the Postal 

Reorganization Act. In the years which have gone by since the 

Postal Reorganization Act was originally adopted, technological advances coupled with the financial state of the Postal Service have 

demonstrated the need for more postal modernization. All recommendations made by the President’s Commission should be 

closely scrutinized and assessed, I think, by every Member of this 

Committee to ensure the future vitality of the Postal Service. 

I am committed to working with you, Madam Chairman, on the 

Postal Service. I think labor unions, other Members of Congress, 

and all who helped create this legislation to reform the Postal Service and ensure the core of the mission of the Postal Service is preserved, need to work together. 

I thank you, Madam Chairman, for holding this hearing. I do 

have some questions I would like to leave behind. We are in the 

middle of a conference. But as I said in the beginning, the Postal 

Service is in good hands. And I am most pleased to be able to work 

with you, John. He is a fishing buddy now, so it is a first name. 

Once you are a fishing buddy you are on a first-name basis up my 

way. 

7

I am very serious. I have now served on this Committee longer 

than any member in history and I am very proud of my relationship with the Postal Service and with those who have held your position. It is a very vital necessity in rural America in particular. 

Be assured that we will maintain what the Constitution dreamed 

of, which was a universal service of mail delivery to all Americans 

as long as it is needed. 

I congratulate you and thank you very much for your help, my 

friend. Thank you, I have to go back to my conference. 

Chairman COLLINS. Thank you, Senator Stevens. We are very 

honored to have your insights, given your long association with the 

Postal Service. Thank you. 

Senator Carper, now during my opening statement, I pledged 

that we are going to solve this problem. So do not say anything 

that undercuts that, since you were not here to hear what I 

pledged that you were going to do. 

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. I always try to live up to your pledges for me 

and will continue to do that. 

My family and I went up on vacation to Alaska in August and 

went fishing on the Kenai River. I do not know, General Potter, if 

you went fishing there with Chairman Stevens, but that is a great 

place to fish. We spent a night in a lodge. They had pictures of all 

kinds of people up on the wall who had been fishing there on the 

Kenai and had done pretty well. I think they had more pictures of 

him than anyone else—there were hundreds of pictures of him, a 

lot of pictures of him. He is a fellow who knows how to catch fish. 

He also knew 32 years ago how to create the Postal Service out 

of the old Post Office Department. The Postal Service has endured 

for a long, long time and has served our country well. 

Senator Akaka and Senator Collins, the idea that any of us could 

create a legacy, something as important as the Postal Service, that 

would stand for over three decades, with relatively little change is, 

I think, remarkable. 

In 1971, though, a lot was different than it is now. In 1971, I was 

over in Southeast Asia in the Navy and we did not have E-mail. 

We did not have the ability to pick up a cell phone and talk to people on the other side of the world. We wrote letters, sent them first 

class. We did not have direct deposit for our checks. There is just 

a whole lot that is different today than it was then and it impacts 

on the Postal Service. 

What is incumbent on us, I think, is to build on the legacy really 

that Senator Stevens has provided for us, to stand on the shoulders 

of those who came before. And they are, as it turns out, pretty 

broad shoulders. 

I think we are fortunate, as we try to figure what kind of Postal 

Service we want to have in the first half of the 21st Century, to 

have a Chairman of this Committee who understands the issues as 

well as she does and is interested in working with folks on her side 

and our side. I am delighted to have a chance to work with my 

friend, Senator Akaka. 

I think the sun, the moon, and the stars may be in alignment 

here. There is a realization on the part of the people in this counVerDate 0ct 09 2002 09:07 Mar 15, 2004 Jkt 091039 PO 00000 Frm 00011 Fmt 6633 Sfmt 6601 C:\DOCS\91039.TXT SAFFAIRS PsN: PHOGAN
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try, certainly the people who are served by the Postal Service, that 

maybe it is time to change some things and to modify the way we 

operate. 

There is also a realization that coming out of the legislation I introduced last year, what Congressman McHugh and others have introduced in the House, out of the recommendations of the Postal 

Commission itself, there is a fair amount of convergence of opinion 

in what we should do. And that gives us, I think, another reason 

to be hopeful that maybe in 2004 we will be able to make great 

progress and end up with a Postal Service that not only stands the 

test in 2004 and 2005 but for a whole lot longer. 

Madam Chairman, I have a statement I would like to enter into 

the record, if I could. 

Chairman COLLINS. Without objection. 

[The prepared statement of Senator Carper follows:]

PREPARED OPENING STATEMENT OF SENATOR CARPER 

Thank you, Madam Chairman, for holding this important series of hearings on 

the report from the President’s Commission on the United States Postal Service. 

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

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

birth, the Postal Service is a key part of the nation’s economy, delivering to more 

than 100 million addresses and supporting a massive mailing industry. 

Thirty years of success, however, does not mean postal reform will be easy. Now 

is not the time to tinker with the current system in hopes that mail volume will 

recover or that cost-cutting will buy the Postal Service a few more years. 

As my colleagues are aware, mail volume has not been what we’d like it to be 

in recent years. In fact, many observers believe that First Class Mail, the Postal 

Service’s largest and most important product, has been in decline since the 1980’s. 

The Postal Service itself estimates that advertising mail could overtake First Class 

Mail as the Postal Service’s leading product less than 2 years from now. 

At the same time that First Class Mail is on the decline, the Postal Service continues to add nearly two million new delivery points each year. This creates the 

need for new routes, more letter carriers and new postal facilities. As more and 

more customers turn to electronic forms of communication, however, letter carriers 

will likely bring fewer and fewer pieces of mail to each address they serve. The rate 

increases that will be needed to maintain the Postal Service’s current infrastructure, 

to finance retirement obligations to its current employees, and to pay for new letter 

carriers and new facilities will only further erode mail volume. 

The Postal Service has been trying to improve on its own. They are making 

progress but there is only so much they can do. Now is the time for Congress to 

step in. 

In order to ensure that the Postal Service is as successful in the 21st Century 

as it was in the final years of the 20th, we will need to make fundamental changes 

to the way it operates. Fortunately, there is probably general agreement on about 

what 90 percent of those changes should be. 

Congress has been at work on postal reform for nearly a decade now, mostly in 

the House. The work done in the House influenced the postal reform legislation I 

introduced earlier this year—S. 1285, the Postal Accountability and Enhancement 

Act. I was pleased to learn this summer that the final recommendations from the 

President’s commission on the Postal Service were very similar to that bill in a 

number of respects. 

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

service and the Postal Service’s monopoly over the mailbox. The commission also 

recommends, like I do, turning the Postal Service’s Board of Governors into a 

stronger, more independent body that would be better able to manage a business 

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

give the Postal Service significant pricing flexibility and turn the Postal Rate Commission into a stronger regulatory body. They would also streamline the Postal 

Service’s physical infrastructure and encourage them to adopt new technology that 

would improve productivity and add value to their products. 

9

We began the process of postal reform at the beginning of this year with the successful passage of the Postal Civil Service Retirement System Funding Reform Act, 

which I joined Senator Collins in introducing. That bill has given mailers a break 

from rate increases. It has also allowed the Postal Service to run a surplus this 

year. The facts show, however, that this situation will not last. We have a brief window now to get real postal reform done. I hope that these hearings we are holding 

begin the process of working out bipartisan postal reform legislation that we can 

pass in the first few months of next year.

Senator CARPER. I really look forward to working with you and 

Senator Akaka and other colleagues. And General Potter, you and 

your team on the management side, the labor side, the rank and 

file, we are proud of the work that you are doing, and grateful for 

the work that you are doing. 

I do not know if there is anybody here representing the Commission today, I suspect there is, and we are grateful for the fine work 

that you have done, your willingness to talk with us, and to receive 

broad input and we look forward to hearing from our Comptroller 

General, as well, and others who are going to be testifying. 

Thanks very much. 

Chairman COLLINS. Thank you very much. It is now my pleasure 

to call on Senator Pryor. 

OPENING STATEMENT OF SENATOR PRYOR 

Senator PRYOR. Thank you, Madam Chairman. 

I want to thank you for your leadership and Senator Carper and 

others for your leadership. I know recently you guided us to the 

successful passage of the Postal Civil Service Retirement System 

Funding Act of 2003 and I think that was an important step for 

the Postal Service. 

Also, I think now, as we look at what we are talking about today, 

we understand there are lots of challenges that the Post Office is 

facing. I think that most Senators I have talked to want to make 

sure that we keep the word service in mind with Postal Service, 

that we are serving the people of this country in the ways that we 

feel like it was designed to do. 

But also, we need to look at possible administrative changes and 

we need to certainly consider postal workers, but other factors in 

how we modernize our postal system and make it more efficient, 

but also to meet the challenges that lay ahead. 

So Senator Collins, Senator Akaka, and Senator Carper, I really 

look forward to working with you on this and look forward to today’s hearing. Thanks for having it. 

Chairman COLLINS. Thank you, Senator. 

I would now like to call upon our first witness for the day. It is 

Postmaster General John Potter. I want to join my colleagues in 

commending you for your outstanding leadership of the Postal 

Service during very challenging times. 

Since taking the helm as Postmaster General in 2001 you have 

made great strides in reducing inefficiencies, improving service and 

productivity, strengthening labor relations, and cutting costs. And 

I think that is a tribute to how well you know the Postal Service 

as a 24-year veteran of the Postal Service. You know it inside out. 

So we are very pleased to have you with us today. 

You may proceed. 

10

1The prepared statement of Mr. Potter appears in the Appendix on page 27. 

TESTIMONY OF HON. JOHN E. POTTER,1 POSTMASTER 

GENERAL, U.S. POSTAL SERVICE 

Mr. POTTER. Good afternoon, Chairman Collins, and thank you 

for those kind remarks and good afternoon to the Members of the 

Committee. 

I welcome this opportunity to discuss postal legislative reform. 

My complete prepared testimony has been submitted for the record, 

so I will keep my remarks brief. 

I want to thank the Committee for advancing the notion last 

year that a President’s Commission on the Postal Service might enable legislative change to move forward. The Commission was one 

of the most important developments during 2003. As Postmaster 

General, I am grateful for the Commission’s efforts. They took on 

a complex assignment over a short period of time and they did an 

outstanding job of learning about our business through input from 

a variety of industry stakeholders. They made difficult decisions in 

arriving at their final report. We all owe each of the members of 

the Commission our sincere thanks. 

I am pleased that the Commission acknowledged that the Postal 

Service, through implementation of the transformation plan, is 

making substantial progress in adapting to an uncertain future. 

The plan is taking us in the right direction and I appreciate the 

support of this Committee as we work to create and now execute 

the plan. 

The transformation plan is all about delivering for our customers. To that point, we have brought service and customer satisfaction to historic performance levels. The year 2000 marked the 

first of a record four straight years of increased total factor productivity. We have reduced our career employee complement by 70,000 

from its peak level in 1999. We have delivered $5 billion in cost 

savings since then. We have established pay for performance systems for managers and executives. 

We have also seen, I might add, increases in employee satisfaction as well as a reduction in the backlog of employee grievances 

awaiting arbitration. In sum, we are aggressively managing the 

business. 

In addition, the recent legislation adjusting our payments to the 

Civil Service Retirement System, combined with our cost control efforts, will enable us to hold rates steady until 2006. We are particularly grateful for the understanding and cooperation of the 

Chairman and this Committee for your prompt action in addressing 

the potential overpayment of the Postal Service pension funds. 

The Civil Service Retirement System legislation has contributed 

to the reduction of outstanding USPS debt by more than one-third 

from $11.1 billion to $7.3 billion this year. At the same time, the 

legislation presents very definite challenges. First it shifts the responsibility for funding CSRS retirement benefits earned by postal 

employees for time served in the military from the Treasury to the 

Postal Service. GAO estimates this transferred an obligation of 

more than $27 billion from taxpayers to postal ratepayers. These 

costs for other Federal departments and agencies continue to be 

paid by the Treasury. The Postal Service is the only exception. 

11

We agree with the recommendation of the President’s Commission that the Postal Service should not be responsible for military 

service cost. The CSRS legislation also asks the Postal Service for 

proposals regarding the use of savings resulting from the Act beginning in 2006. Those savings are to be placed in an escrow account pending Congressional authorization of how they will be 

used. For 2003 and 2004 there are actual funds available, savings, 

to use for other purposes and we will use those funds to pay down 

debt. In 2005 those funds will be used for operating expenses and 

capital investments, allowing us to extend the rate cycle. 

We are doing everything we can to extend the rate cycle beyond 

2005, but we expect that we will have to raise rates in 2006 due 

to inflationary cost increases. 

Should the escrow account or escrow funds not be eliminated, 

postage rates will have to rise even more than is necessary. Thus, 

without further legislation, postal customers will find themselves 

back where they started, reinstating the overfunding the legislation 

was designed to correct. We have provided our comments on these 

issues to Congress, the administration, and the GAO, and we hope 

that you will act on our recommendations. 

Many in the Postal Service and the mailing community and Congress have long recognized that our basic business model is outdated and lacks flexibility. The stellar service performance and 

$3.9 billion net income projected for fiscal year 2003 should not 

deter us from moving forward with legislative reforms. Besides, 

about $3 billion of the $3.9 billion positive net income is due to the 

CSRS legislation. The reality is that mail volume declined in each 

of the last 3 fiscal years, dropping nearly 6 billion pieces overall. 

During the same 3-year period, the number of addresses we serve 

increased by 5.2 million. 

The President’s Commission recognized that electronic media 

threatens First-Class mail and the Postal Service’s long-term success. The Commission also understood the need to act before a crisis imposes hardships on the American public, American businesses, or on postal employees. 

We accept most of the Commission’s views and are working to 

implement those where we can. For example, we are enhancing our 

financial reporting, transitioning to Securities and Exchange Commission requirements where those requirements make sense when 

applied to a non-stockholder owned company. We support the Commission’s recommendation that the Postal Service requires additional flexibility to manage, especially when it comes to rate-making. 

Let me assure you that the Postal Service is committed to the 

collective bargaining process and continually seeks to enhance its 

relationship with our employees. We have demonstrated our preference for negotiated settlements and seek to avoid the use of arbitrators to settle our disputes. In the event the parties reach impasse, we agree with the Commission that the collective bargaining 

process could be enhanced with a mandatory mediation step providing another opportunity for settlement prior to arbitration. 

It is our intention to negotiate with each of our unions to add 

mediation to the current process. In addition, collective bargaining 

12

should give all parties the ability to negotiate for benefits as well 

as wages. 

And let me assure you again though, it is not our intention to 

reduce the benefits already enjoyed by current and retired employees. 

In short, on many key issues, the Commission and management 

have a basic level of agreement. There are, however, some areas 

where we have reservations. 

As an example, in the area of governance, the Commission recommends significant changes to our governing board. The Governors of the Postal Service are today appointed by the President 

with the advice and consent of the Senate. The law requires that 

no more than five may belong to the same political party. This has 

allowed the Postal Service to enjoy bipartisan oversight for the last 

three decades. The Commission’s proposed new board of directors 

could change this. In addition, the Commission proposes a Postal 

Regulatory Board with discretionary policy authority in a wide 

range of areas to replace the current Postal Rate Commission 

which has a more limited mandate. 

For instance, the Postal Regulatory Board can revisit the vital 

national issue of postal monopoly and universal service. From the 

perspective of the Postal Service, these are clearly issues of broad 

public policy. They are not regulatory issues. Without the fine limits or guidelines, the regulator could conceivably limit the monopoly 

in such a way as to jeopardize universal service or even redefine 

the scope of the Nation’s mail service itself. 

The powers of the proposed regulatory board could also affect the 

outcome of the collective bargaining process. They could define the 

range within which wages may be negotiated. They would also be 

charged with making a wage comparability determination. This, 

too, is something that should be part of the collective bargaining 

process. Under the proposals of the Commission, the powers given 

to a regulatory board would essentially destroy meaningful collective bargaining. We do not think that it is in the Nation’s best interests. 

When considering the role of a regulator, there should be a clear 

line between what is appropriately a management function with 

board oversight, regulatory function, and that which is public policy reserved for the Nation’s lawmakers. 

I am encouraged by the interest of this Committee and the interest that you have demonstrated by holding a series of hearings to 

explore the recommendations of the President’s Commission on the 

Postal Service. The Commission has added a new voice to the important conversation about the future of America’s mail system. 

Chairman Collins, I have been asked on many occasions for my 

vision of the Postal Service’s future. In my opinion, America needs 

a Postal Service that has an incentive to improve service and productivity, a Postal Service that is given the flexibility to reduce 

costs, a Postal Service that can implement rates that are responsive to the market and that will mitigate large counterproductive 

rate increases. 

America also needs a Postal Service that has the ability to work 

with and treat customers as individuals with individual needs, 

13

where our products, services, and systems are available to those 

customers where they are located, not just where post offices are. 

And finally and most importantly, America needs a Postal Service that can retain a motivated and informed workforce to provide 

universal service to every home and business in the Nation. 

Thank you, Madam Chairman and I will be happy to answer any 

questions. 

Chairman COLLINS. Thank you very much, Mr. Potter. 

You outlined some areas where you believe the Commission’s recommendations should be altered. Could you tell us what you view 

to be the most important recommendation of the Commission as far 

as ensuring the long-term viability and strength of the Postal Service? 

Mr. POTTER. I think there are two areas that the Commission focused on that I think are helpful to the Postal Service. The first 

is the area of rates and the need to change the rate system so that 

we can manage that process better than we have in the past. 

In addition to that, I think the other area of focus is the notion 

that management has the ability to control its costs through the 

network of post offices and processing centers throughout the country, through which we deliver service to America. 

Chairman COLLINS. Thank you. 

The Postal Service has recently reported, and you said in your 

testimony today, that it has reduced the workforce by some 70,000 

over the past 5 years. I want to commend you for the way in which 

you have done this. I think that it has been done in a way that 

has avoided disruption to service and to the lives of the individual 

employees involved by placing a great reliance on attrition or early 

retirement programs, even those without particular financial incentives. 

At the Committee’s hearing in September, Commissioner Johnson noted that by the year 2010 approximately 47 percent of the 

Postal Service’s workforce, the career workforce, will be eligible for 

retirement. Does this offer an opportunity for you to right-size the 

organization without resorting to widespread layoffs that would obviously be painful for the employees involved? 

Mr. POTTER. We have committed to our unions that we would not 

lay people off. In fact, we have signed contracts with two of our 

unions a year in advance of their expiring. The reason we did that 

was to address the concerns of our employees that we had plans 

to lay people off. 

I believe that the level of attrition that we anticipate happening 

over the next decade is sufficient to handle any restructuring that 

might occur within the Postal Service. And I do not believe we are 

going to have to resort to layoffs. 

Chairman COLLINS. One of the recommendations made by the 

Commission was that the pension and other benefits of postal employees should be made a matter of collective bargaining. I believe 

you endorsed that recommendation today but I just wanted to clarify that for the record. 

Mr. POTTER. I endorsed that recommendation, particularly for 

new hires. But I believe that we have a contract with our current 

employees and those who have retired from the Postal Service and 

14

I do not believe that those changes should occur other than through 

collective bargaining. 

Chairman COLLINS. The Commission made some controversial 

recommendations, in terms of creating an independent commission 

that would look at the capacity of the Postal Service, particularly 

your mail processing centers. It would be modeled on a base closure 

commission. Some of us who have experience with base closure 

commissions do not have positive feelings about that process. 

I wondered if you could share with us whether you think that we 

need to create a base closure-like commission to review the structure of the Postal Service, the infrastructure of the Postal Service, 

or whether you think that there is a better way to identify excess 

capacity to the extent it exists? 

Mr. POTTER. The Postal Service has been evolving for over 200 

years. In the past 2 years alone we have modified our network. We 

have closed over 50 facilities. I think that evolution will continue 

to take place. I personally think that the expertise to make decisions about which facilities are necessary and which are not rests 

within the Postal Service. I think we are the best experts in the 

world when it comes to mail and we know what opportunities exist. 

The other thing about the Postal Service is we are everywhere 

and we intend to stay everywhere. When it comes to making decisions about networks and facilities, these really are local issues, in 

a sense they are metropolitan issues. And I believe they need to be 

dealt with by postal management at the local level and the communities, politicians, employees in that local area. 

So I think that the value of a national commission is questionable. It may help but I think we would have to see further details 

about how they might approach this issue which I believe for the 

most part are local in the sense that they deal with metropolitan 

issues and not national issues. 

Chairman COLLINS. Thank you. Senator Akaka. 

Senator AKAKA. Thank you very much, Madam Chairman. 

Thank you for your testimony, Mr. Potter. I want to add to what 

I said earlier in my statement. You have been the right man in the 

right place at the right time since you were named the Nation’s 

72nd Postmaster General. Again, it is a pleasure to work with you 

and I look forward to that. 

Mr. Potter, you spoke of the need to shift the obligation to cover 

military retirement costs of postal employees back to the Treasury 

from the Postal Service. This shift is supported by the President’s 

Commission. I understand that the resulting savings would be used 

to fund future retiree health benefits. 

I am curious why the Postal Service did not oppose the requirement that it cover military service payments when Congress was 

considering the CSRS legislation. Would you please comment on 

that? 

Mr. POTTER. At the time that the legislation was drafted, it had 

a clause that asked for later comment. So we chose to follow that 

path, get the benefits that we could, and deal with that issue as 

outlined in the legislation at future hearings like this and in future 

legislation that dealt with the escrow account. 

Senator AKAKA. Thank you. The Commission recommends providing the proposed Postal Regulatory Board with a number of new 

15

authorities including defining universal service and the mail monopoly, setting revenue requirements, and studying wage comparability. A great deal of this tracks legislation considered by the 

House of Representatives last year which the Postal Service supported. 

My question to you is will you support similar provisions in the 

future? 

Mr. POTTER. What we did last year, we supported a comprehensive legislative bill. We did not necessarily support every item in 

that bill. And I think we are pretty clear on our feelings about the 

role of the regulator, the role that management should play, and 

we feel that we should have the ability to manage our networks, 

our systems, our people. And we believe that the Congress should 

have a role when it comes to defining universal service and outlining for the Postal Service what our obligations are to the American public. 

Senator AKAKA. My final question, and I appreciate your responses to my other questions, Mr. Potter. 

The Commission recommends using the Postal Service’s core 

strength, the first mile and the last mile. United Parcel Service recently announced a test program utilizing the Postal Service for deliveries to homes in some rural areas. Does this relationship require any special contractual arrangement with UPS governing the 

handling of items that UPS gives to the Postal Service for delivery? 

Mr. POTTER. No, UPS is accessing a rate, a parcel select rate, 

where they deposit mail at a delivery unit and we carry it the last 

leg to the customer’s door. So they are simply accessing an existing 

postal rate. It is not an exclusive rate. Anybody in America can access that rate and we hope that all package companies use us for 

the last mile. 

Senator AKAKA. Thank you, Madam Chairman. 

Chairman COLLINS. Thank you very much, Senator. I would inform everyone that there are about 6 minutes left in this vote. My 

hope is we could get through some questions—unfortunately we 

have three votes back to back—and then take a 20-minute recess, 

and then go on to our second witness. Senator Carper. 

Senator CARPER. Mr. Postmaster General, Senator Collins asked 

a question relating to a BRAC-like procedure to address the issue 

of identifying post offices that might be candidates for realignment, 

for closure, or whatever. Let me ask a variation of that question, 

but one that focuses more on processing centers, distribution centers, that kind of thing. 

I know that the Postal Service is taking steps to close or make 

other changes in its processing centers across the country. I think 

it was announced in September that three—I think you call them 

remote encoding centers—I think one was in Kentucky and maybe 

another in New York—but three centers would be closed by early 

next year. 

In Delaware, as you know, there are a number of changes that 

have been made. We only have one processing/distribution center, 

just south of Wilmington. Those changes have resulted in some 

work moving up to Philadelphia where I am told they are planning 

to build a very large new processing center close to the PhiladelVerDate 0ct 09 2002 09:07 Mar 15, 2004 Jkt 091039 PO 00000 Frm 00019 Fmt 6633 Sfmt 6601 C:\DOCS\91039.TXT SAFFAIRS PsN: PHOGAN
16

phia airport, which as it turns out is closer to my home than it is 

to the home of the mayor of Philadelphia. 

I am sure that similar changes have been reported across the 

country. I guess my question is is there some strategy behind what 

the Postal Service is doing with its processing facilities? And if 

there is, could you share that with us today? 

Mr. POTTER. As I said earlier, the Postal Service has evolved over 

the years. At one point in our history we had 74,000 post offices 

and over 1,000 places that processed originating mail and acted as 

plants. Over the course of time, deployment of equipment, first 

mechanized equipment and now automated equipment, has enabled 

the Postal Service to consolidate the processing of that mail. As I 

said earlier, we are constantly looking at our networks to determine where and how we can efficiently process mail. 

So the examination or the discussion of the network and what alternatives might exist to make the network more efficient, while 

delivering better service, has been something that we have been 

participating in for 25 years. So I consider it to be again part of 

the evolution of the Postal Service. 

Senator CARPER. Do I gather from that that there is no strategy 

behind what you are doing in this area? 

Mr. POTTER. The strategy is to become efficient, provide high levels of service, to accommodate employees as best we can through 

the contract to make this network more and more efficient. That 

is the basic concept of what we are doing and it is something that 

is part and parcel with the Postal Service and it has been part and 

parcel at the Postal Service for at least the 25 years I have been 

at it. 

Senator CARPER. When you look at what the Commission is recommending, and maybe consider the legislation that I introduced 

earlier this year, and what you are trying to do in terms of bringing the Postal Service into the 21st Century, the discussions you 

had with organized labor and your customers, what would you pick 

out as just a handful of the toughest issues that we face as we take 

up early next year the issues of postal reform? 

Mr. POTTER. I think one of the toughest issues that any postal 

administration has faced throughout the world is this notion of how 

you provide access to postal services. And whether that is a brick 

and mortar post office versus a rural carrier, which we have, a post 

office on wheels. People like their post office and the notion that 

there are other ways of providing that service other than through 

brick and mortar is something that all postal administration’s 

around the world struggle with. So that is something that I believe 

we will struggle with as well. 

The notion of the role of a regulator, we recognize that there will 

be a regulator. The question is what is appropriate for the regulator to do, what is appropriate to allow management to do with 

oversight by the presidentially appointed board. That is a tough decision. What should you be keeping, in terms of your oversight 

when it comes to universal service and the monopoly, issues which 

are very important to your communities. Those are the issues that 

I think you will probably hear the most debate about and be concerned about. 

17

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

In addition to that, anytime you deal with labor and labor issues, 

they are very sensitive and everybody is concerned about the way 

they are treated as an individual, including me, what your pay, 

what your benefits are, and what your working conditions are. So 

anything that would affect that is sensitive. 

And those, I think, are the key issues that you will face as you 

work through legislation. You have done it before. I hope I hit the 

ones that people have been commenting to you on. 

Senator CARPER. Thanks. Madam Chairman, my time has expired, and I think our time has almost expired. 

Chairman COLLINS. It has indeed. I want to thank Senator Carper for his questions. 

Postmaster General Potter, you are a lucky individual today because this series of votes is going to spare you a second round of 

questions. So we will excuse you but we will look forward to working closely with you. 

The Committee will be in recess for approximately 20 minutes 

and then we will turn to the Comptroller General. Thank you for 

being here today. 

[Recess.] 

Chairman COLLINS. The Committee will come to order. 

First of all, let me apologize to our witness and to the members 

of our audience for the delay. We did have three back to back votes 

this afternoon, something that was neither anticipated nor scheduled at the time we scheduled this hearing. 

I am now pleased to welcome our second witness, U.S. Comptroller General David M. Walker. 

As Comptroller General, Mr. Walker is the Nation’s chief accountability officer and the head of the U.S. General Accounting 

Office. Mr. Walker has also been a leader in the effort to review 

and transform the U.S. Postal Service. 

We are very pleased to have you with us today and we appreciate 

your patience and your insights. You may proceed. 

TESTIMONY OF HON. DAVID M. WALKER,1 COMPTROLLER 

GENERAL, U.S. GENERAL ACCOUNTING OFFICE (GAO) 

Mr. WALKER. Madam Chairman, thank you very much. Senator 

Carper, it’s good to see you again. 

I am pleased to be here to participate in this hearing on the 

President’s Commission on the U.S. Postal Service. I would like for 

my entire statement to be entered into the record, if that is possible, Madam Chairman. 

Chairman COLLINS. Without objection. 

Mr. WALKER. Thank you. I will move to summarize the key 

points for your consideration. 

I think it is important to note that the U.S. Postal Service has 

gained some financial breathing room recently as a result of the 

pension legislation that both of you sponsored and pushed. That 

legislation resulted in a significant benefit to the Postal Service 

and its stakeholders within the last year. 

At the same point in time, I think it is important to recognize 

that the Service’s long-term financial challenges remain. And acVerDate 0ct 09 2002 09:07 Mar 15, 2004 Jkt 091039 PO 00000 Frm 00021 Fmt 6633 Sfmt 6601 C:\DOCS\91039.TXT SAFFAIRS PsN: PHOGAN
18

cordingly, the Service’s long-term outlook and transformation effort 

remains on our high-risk list. 

Since we placed the Service on our high-risk list in April 2001, 

the Service has developed its 2002 transformation plan, cut various 

costs, and improved its productivity. These are all positive, important steps which Postmaster General Potter ought to be commended for. 

At the same point in time, these modest incremental steps cannot resolve the fundamental and systemic issues associated with 

the Postal Service’s current business model. And as you said, 

Madam Chairman, this is a positive first step but much more needs 

to be done in order to get us to where we need to be. 

With regard to the Commission’s report, we believe that the 

Commission’s report provides a valuable contribution to assist the 

Congress, the Service, the Executive Branch, and the stakeholders 

in considering the actions needed to transform the Postal Service 

to a more high performing, results oriented, transparent, sustainable, and accountable organization. 

The Commission’s recommendations echo many of GAO’s prior 

reports, and address concerns that we have raised in the past. We 

agree with the Commission that an incremental approach to Postal 

Service reform will likely yield too little, too late. 

We believe that the time has come for Congress to enact comprehensive postal reform legislation that would clarify the Service’s 

mission and role, including defining universal postal service in a 

21st Century world, enhance its governance structure, accountability, oversight, and transparency mechanisms, improve regulation of postal rates, and make important human capital reforms. 

As noted in my statement, we agree with many of the Commission’s recommendations, but have some concerns with regard to 

certain recommendations. For example, with regard to the basis for 

appointing certain members of the Board of Governors, the role and 

responsibilities of the new Postal Regulatory Board, and certain 

other issues such as negotiated service agreements. 

In addition to statutory reform, we agree with the Commission 

that the Service has many opportunities to become more efficient, 

notably by standardizing its operations and reducing excess capacity in connection with its network and otherwise. This vision is 

achievable if approached in a comprehensive, integrated fashion, 

based upon a strategy and a formal plan. And it is also something 

that has to be done in conjunction with the various postal stakeholders, both internally and externally, in order to maximize the 

chance for success. 

The impending retirement of much of the Service’s workforce provides an opportunity to right-size the organization with minimal 

disruption. However, the Service has not provided adequate transparency, in our opinion, of its plans to rationalize its infrastructure 

and workforce, as well as on the status of the initiatives that are 

outlined in its transformation plan. While incremental progress has 

been made, more needs to be done. There needs to be more specificity and there needs to be more transparency with regard to these 

important initiatives, in our view. 

To facilitate the Service’s progress in implementing actions under 

the existing system, we recommend that the Postmaster General 

19

develop a comprehensive and integrated plan to optimize its infrastructure and workforce in collaboration with its key stakeholders 

and to make that plan available to the Congress and the general 

public. 

In addition, the Postmaster General should provide periodic updates to Congress and the public on the status of implementing its 

transformation initiatives and other Commission recommendations—and also GAO recommendations I might add—that fall within the scope of its existing authority. We believe it is important to 

have a strategy, to have a plan with key milestones with appropriate transparency and accountability mechanisms. 

We also share the Commission’s concerns that the Service’s funding of its approximate $92 billion in liabilities and other obligations 

should be a matter of serious concern. Although recent legislation 

has addressed how the Service will cover its CSRS pension obligations over the next 4 years, the Service continues to make minimum payments for its substantial obligations which are currently 

financed on a pay-as-you-go basis. 

In this regard, in our view, given the legal nature and the economic substance of the Service’s retiree health obligations, these 

costs and related obligations should be accounted for on an accrual 

basis, not a cash basis. This is an important matter that demands 

timely attention. This issue also involves $48 billion in discounted 

present value terms. 

We recognize that building accrual base measures for retiree 

health costs into the current rate base, either through a change in 

accounting or otherwise, may be difficult considering the pressure 

to hold down rate and defer rate increases. However, in our view, 

we believe it is more prudent, appropriate and equitable to address 

the unfunded obligations in a manner that is fair and balanced to 

both current and future ratepayers. 

At the same time, in our view, consideration should be given to 

possible transition adjustments for rate setting purposes in connection with any related change in accounting or funding for retiree 

health benefits. 

Basically what is happening right now is they are accounting and 

building these costs into rates on a pay-as-you-go basis which 

backloads the cost and puts additional pressure on rate increases 

in the future, which is a matter of concern given the demographics 

of the workforce and the competitive posture that the Postal Service faces. 

In summary, we and the Commission agree that the Service 

faces an uncertain future. We also agree that both Congressional 

action on comprehensive postal reform legislation and additional 

actions by the Postal Service to make improvements under its existing authority are necessary to ensure the future viability of the 

Postal Service. 

The simple truth is that the Service’s current business model is 

not sustainable in today’s competitive environment. Progress has 

been made, there is no question about it. But in our view, the time 

has come for both comprehensive postal legislative reform as well 

as additional administrative actions by the Postal Service to help 

assure that it can meet the needs of its customers and our country 

20

in the 21st Century. The status quo is not only unsustainable, it 

is arguably unacceptable. 

We look forward to working with the Congress, with both of you, 

the Postal Service and other stakeholders to address these challenges. 

Thank you, Madam Chairman and I would be happy to answer 

any questions that either one of you might have. 

Chairman COLLINS. Thank you very much, Mr. Walker. 

I am going to give Senator Carper the opportunity to question 

first, because I know he has a commitment over on the House side. 

Senator CARPER. Thank you so much, Madam Chairman. 

General Walker, how are you? Good to see you. 

Mr. WALKER. Well, Senator. How are you? 

Senator CARPER. I am doing fine. 

Thanks so much for being here, and for your help on this and 

a lot of other things. 

It is reported, I think in the Postal Service’s last 5-year strategic 

plan, that the Postal Service will begin delivering more advertising 

mail than First-Class mail sometime, I want to say before the end 

of 2005. I just wondered, in your own thoughts, what might this 

mean for the future of the Postal Service? Will its financial health 

be even more dependent on the health of the overall economy? Will 

customers no longer see as much value in the Postal Service if, 

when they open their mailboxes—as I did last night—and find 

mostly items that were not First-Class mail but were largely solicitations? 

Mr. WALKER. Well, there are a number of issues here, Senator 

Carper. As you know, First-Class mail covers about 70 percent of 

the institutional cost of the Postal Service. So to the extent that 

you have a decline in the volume of First-Class mail, which has occurred in the last couple of years, it is a matter of real concern. 

Second, to the extent that volume is increasing in other areas, 

it can help to offset that concern. However, it depends upon what 

the nature of the volume is and what alternative delivery mechanisms might be available other than through the mail to deliver 

that type of advertising, whether it be through the newspaper, 

whether it be through the Internet, on television, or otherwise, if 

you will. 

It is hard to say what the ultimate impact is going to be. I will 

tell you this, if I look in my home mailbox, I sort between personal 

correspondence which is not very frequent in today’s world, advertisements, which are of growing volume, and bills which I am not 

happy to receive but nonetheless I do receive and I must pay on 

a timely basis. 

I think that is one of the issues that is also relevant in defining 

what is an appropriate definition for universal postal service in the 

21st Century. I think it might be different in rural Alaska and 

rural Maine than it is in urban New York City. 

What kinds of things are being delivered? And what is the sense 

of urgency and the need for frequency with regard to some of these 

types of things. I think these factors need to be considered as well. 

Senator CARPER. Thanks. The President’s Commission suggests, 

I believe, that the new rate system that they call for goes into effect after the completion of one final rate case under the old rules. 

21

Since the outcome of this rate case will serve as really the baseline 

for all future rate changes under the new system, I am just wondering how can we ensure that the process is not bogged down with 

the usual disagreements? What steps should we in Congress or the 

Postal Service or among the regulators, take in order to ensure 

that the case goes a little bit more smoothly than some of our other 

rate cases have gone in the past? 

Mr. WALKER. Senator, there is no question that there have been 

concerns expressed by a variety of parties with regard to how long 

it takes in order to move a rate case, and therefore how far in advance the Postal Service has to begin putting together the necessary filings in order to provide reasonable assurance that they 

will have the revenues when they need them. I will talk with my 

very capable staff and see if I can come up with some specific 

thoughts to provide you for the record, but there is nothing that 

comes to the forefront of my mind at the present point in time. 

Senator CARPER. Thanks very much. 

Madam Chairman, you have been mighty gracious to let me go 

first. I very much appreciate it and look forward to working with 

you on these issues as we go forward and certainly to working with 

GAO and John. Thank you. 

Chairman COLLINS. Thank you, Senator. 

Mr. Walker, the preservation of universal service at affordable 

rates is my key goal when I look at the Commission’s report. One 

surprising recommendation to me that the Commission made was 

to allow an independent regulatory body to shape the private express statutes or to make recommendations on whether or not the 

monopoly on First-Class mail that the Postal Service has, which is 

so linked to universal service, should be changed. 

What is your judgment on that? Do you think that an independent regulatory commission should be making those decisions? 

Or are those decisions that are more appropriately continued to be 

vested in the Congress? 

Mr. WALKER. As I mentioned before, we had some concerns about 

the role and responsibilities that the Commission proposed for the 

Postal Regulatory Board. I think you have to divide these roles and 

responsibilities into three possible categories. One would be public 

policy. Another would be regulatory in nature. And a third would 

be oversight. 

I think to the extent that you are dealing with a public policy 

issue, such as the definition of universal postal service and some 

of those issues, I think they are properly reserved to the Congress. 

In this regard, there may be recommendations coming forth by 

postal management, endorsed hopefully by the Board of Governors, 

and possibly commented on by this new regulatory body. 

But when you are dealing with a major public policy issue, I 

think those types of decisions need to be made by the Congress. 

The real question is, on some of these issues, how do you ensure 

timely action by the Congress? But when you are dealing with universal service, I think the Congress has to play a role. 

Chairman COLLINS. The Commission’s report makes many recommendations affecting the postal workforce. One of those is to 

move toward a pay for performance system. You have had a great 

deal of experience at GAO in modernizing your personnel system, 

22

including, I believe, incorporating elements of a pay for performance system. 

I want to compliment you on how you have proceeded, because 

you have really involved the employees in designing the system. 

You have ensured that they are well-trained. And thus, a lot of the 

changes that you have made have been well regarded and well accepted. 

Could you share with us any thoughts based on your experience 

in transforming the GAO workforce that might apply to the challenges facing the Postal Service? 

Mr. WALKER. First, philosophically I am a believer in pay for performance where it makes sense. I might note that at the present 

point in time about 80 percent of GAO’s workforce is on a pay for 

performance system. It is our objective that 95 percent plus of our 

workforce will be on a pay for performance system within the next 

couple of years. 

There are certain occupations, however, that we do not propose 

to put on pay for performance based upon the nature of what their 

roles and responsibilities are. These are priority wage grade personnel. 

So from a philosophical standpoint, I am a believer in pay for 

performance, where you can end up trying to link institutional 

goals and objectives with individual performance and to recognize 

and reward people who can help to contribute towards desired institutional outcomes. 

I do, however, believe it is not for everybody. I also believe that 

you have to be very careful as to how you go about designing any 

type of pay for performance approach. You have to involve unions. 

You have to involve employees to the extent that they do not have 

union representatives. And you have to have their involvement in 

the very early stages of the process. 

You also have to have a modern, effective, and credible, and preferably validated performance appraisal system because the performance appraisal system would be the basis under which a lot of 

the decisions would be made under a pay for performance approach. You need to have adequate safeguards such as independent 

reviews, in our case by our Human Capital Office and our Office 

of Opportunity Inclusiveness, to maximize the chance that it is 

fairly and consistently applied, and minimize the possibility of 

abuse or discrimination. You need to have appeal rights that exist, 

both informally, and through a more formal internal grievance 

process and independent mechanisms, as appropriate. 

You need to recognize that it will take time to design and effectively implement an effective and credible pay for performance system. Frankly, you will need to modify it and continuously improve 

it over time, based upon actual experience. 

So I believe philosophically it has great merit, but I think one 

has to be very careful about how you approach it. 

Chairman COLLINS. Another of the Commission’s recommendations was that the Postal Service pension and post retirement 

health-care plans should be subject to collective bargaining. What 

is your opinion of that recommendation and what impact do you believe separating out the postal retirement benefits from the rest of 

23

the Federal workforce would have on the overall financial stability 

and health of the Federal retirement plans? 

Mr. WALKER. From a philosophical standpoint, I am a general believer in collective bargaining. And therefore, to the extent that you 

can subject compensation, all forms of compensation to bargaining, 

then philosophically I think that is a good thing to do. 

Obviously, we do however have to recognize that the Postal Service is a major Federal employer. It is also a major element of the 

Civil Service Retirement System. You just had legislation to deal 

with that. It is also a major player in the FEHBP, the Federal Employees Health Benefits Program. 

Now candidly, and it is my understanding that a separate accounting and reporting has already been done with regard to the 

Postal Service on the pension issue, which was the subject of the 

legislation that you recently passed. 

Furthermore, there is a separate accounting that is being done 

right now at our request and also the Congress’ request to look at 

the retiree health obligations to try to find out whether or not that 

$48 billion number is a reasonable number or whether or not there 

are problems associated with it. 

It is also my understanding that the Postal Service has the authority right now if they want to pull out of the FEHBP and to 

have their own plan for active employees as long as they provide 

a comparable plan. 

So I think philosophically it makes sense to consider subjecting 

this to collective bargaining. I think that there would be clearly 

similar issues associated with the balance of the Federal Government, but those are not insurmountable obstacles and I think those 

could be worked through. 

Chairman COLLINS. Senator Akaka told me that he was going to 

be returning to ask questions. I am going to ask his staff to see if 

they can check on that, so that we can see whether I should continue to question you in order to buy some time for him to return 

or whether the end is almost in sight for you. 

Mr. WALKER. Do I have a vote, Senator? 

Chairman COLLINS. Right. 

Mr. Walker, you were the leader who first suggested to this Committee that the Postal Service come up with a transformation plan. 

And the Postal Service did so in April 2002 and has been implementing it. How would you grade the success of the Postal Service 

in following its own transformation plan at this point? 

Mr. WALKER. I would not want to give them a grade. I will, however, say the following. I believe that they have taken it seriously. 

I believe that they have taken a number of positive steps to begin 

to implement some of the critical elements of the plan. I believe 

that the plan needs to provide for more specificity than it does 

right now. I also believe that there needs to be more transparency 

with regard to what they are doing and what they have accomplished, and also what they plan to do going forward with regard 

to the transformation plan, especially in the area of rationalizing 

infrastructure and workforce modernization. 

Chairman COLLINS. The Postal Service has been criticized, despite recent progress that has been made, for having opaque and 

difficult to follow financial statements. Could you comment on the 

24

issue of the need for more transparency in that area and give us 

your evaluation of the financial reporting systems that the Postal 

Service has in place? 

Mr. WALKER. First, I think we have to keep in mind that the 

Postal Service is one of the largest employers in the United States. 

If it was a Fortune company, it would be a Fortune 10 company. 

So it is a very large and important enterprise. It is also one that 

is important not only to its customers but also to our country. 

I do not believe that the current amount of financial transparency is adequate. I do believe that the recommendation that the 

Commission made, and that frankly we have made before, whereby 

the Postal Service should consider voluntarily complying with the 

substance—not necessarily the detail—but the substance of the 

major reporting requirements that apply to large public companies, 

would be a step in the right direction. 

You might note that there is a difference between the number 

that the Postal Service reported for their preliminary net income 

estimate for this fiscal year, namely what is in their testimony 

versus ours. We said $4.2 billion, they said $3.9 billion. That 

changed within the last 24 hours and we did not find out about it 

until after we had sent our testimony up to the Hill. 

So I think they need to be more transparent and I think that following some of the principles that apply to public companies that 

relate to SEC reporting would be a step in the right direction. 

Chairman COLLINS. You notice that in my statement I picked a 

number between your two numbers, but you are right. When we 

are talking about billions of dollars and such a large enterprise, 

there is a lot more, in my judgment, that I think could be done. 

And complying with some of the standard SEC-type of reporting requirements, I think, would be a step in the right direction. 

Finally, let me ask you is there any recommendation of the Commission that you think is particularly important if we are to ensure 

the long-term viability of the Postal Service? 

Mr. WALKER. There are a number of recommendations that I believe are important, but there are ones that I think are particularly 

important that are also going to be particularly controversial and 

difficult. Looking at their mission, what should their scope be, including the issue of universal postal service in the 21st Century. 

Second, rationalizing their infrastructure. And third, modernizing 

their workforce policies and practices. 

Those, I think, are the three probably most important. They arguably are also the three most complicated and controversial. But 

I hope that we are going to be able to make progress on these because I think it is essential that we do so in order to achieve an 

effective transformation. 

Chairman COLLINS. I thank you very much not only for your testimony today but for the excellent work that the GAO has done on 

postal transformation. We look forward to continuing to work very 

closely with you and your staff as we begin the process of drafting 

postal reform legislation. 

My approach to Senator Akaka’s absence, since I know he is delayed on the Floor, is to ask for your cooperation in answering any 

questions that he might have for the record. 

And the hearing record will remain open for 15 days. 

25

I want to thank you very much for being here today. It has been 

very helpful for the Committee to hear firsthand the views of the 

Postmaster General and the Comptroller General as we continue 

with what will be a series of hearings evaluating the Commission’s 

report and other ideas for postal reform. These hearings will continue early next year and we look forward to working with all interested parties. 

I also want to thank Ann Fisher on my staff who has spent a 

great deal of time working on these issues and will continue to do 

so next year. 

Thank you and this hearing is now adjourned. 

[Whereupon, at 4:02 p.m., the Committee adjourned.] 

(27)

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Æ


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