U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001

83–480 PDF 2003

S. Hrg. 107–849

THE ANNUAL REPORT OF THE POSTMASTER

GENERAL

HEARING

BEFORE THE

INTERNATIONAL SECURITY, PROLIFERATION AND

FEDERAL SERVICES SUBCOMMITTEE

OF THE

COMMITTEE ON

GOVERNMENTAL AFFAIRS

UNITED STATES SENATE

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

SEPTEMBER 27, 2002

Printed for the use of the Committee on Governmental Affairs

(

(II)

COMMITTEE ON GOVERNMENTAL AFFAIRS

JOSEPH I. LIEBERMAN, Connecticut, Chairman

CARL LEVIN, Michigan

DANIEL K. AKAKA, Hawaii

RICHARD J. DURBIN, Illinois

ROBERT G. TORRICELLI, New Jersey

MAX CLELAND, Georgia

THOMAS R. CARPER, Delaware

JEAN CARNAHAN, Missouri

MARK DAYTON, Minnesota

FRED THOMPSON, Tennessee

TED STEVENS, Alaska

SUSAN M. COLLINS, Maine

GEORGE V. VOINOVICH, Ohio

THAD COCHRAN, Mississippi

ROBERT F. BENNETT, Utah

JIM BUNNING, Kentucky

PETER G. FITZGERALD, Illinois

JOYCE A. RECHTSCHAFFEN, Staff Director and Counsel

RICHARD A. HERTLING, Minority Staff Director

DARLA D. CASSELL, Chief Clerk

INTERNATIONAL SECURITY, PROLIFERATION AND FEDERAL SERVICES

SUBCOMMITTEE

DANIEL K. AKAKA, Hawaii, Chairman

CARL LEVIN, Michigan

ROBERT G. TORRICELLI, New Jersey

MAX CLELAND, Georgia

THOMAS R. CARPER, Delaware

JEAN CARNAHAN, Missouri

MARK DAYTON, Minnesota

THAD COCHRAN, Mississippi

TED STEVENS, Alaska

SUSAN M. COLLINS, Maine

GEORGE V. VOINOVICH, Ohio

ROBERT F. BENNETT, Utah

PETER G. FITZGERALD, Illinois

NANCI E. LANGLEY, Deputy Staff Director

DENNIS M. WARD, Minority Staff Director

ANN C. FISHER, Minority Professional Staff Member

AMANDA L. LINABURG, Chief Clerk

(III)

C O N T E N T S

Opening statements: Page

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

Senator Collins ................................................................................................. 2

Senator Cochran ............................................................................................... 6

Senator Carper ................................................................................................. 10

WITNESS

FRIDAY, SEPTEMBER 27, 2002

Hon. John E. Potter, Postmaster General, United States Postal Service:

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

Prepared statement .......................................................................................... 31

APPENDIX

Karla W. Corcoran, Inspector General, United States Postal Service, prepared

statement .............................................................................................................. 36

Questions for the Record submitted to Postmaster General Potter from:

Chairman Akaka .............................................................................................. 55

Senator Cochran ............................................................................................... 63

Senator Levin .................................................................................................... 71

Senator Carper ................................................................................................. 72

Senator Collins ................................................................................................. 77

Senator Torricelli .............................................................................................. 81

Senator Thompson ............................................................................................ 83

Senator Hagel ................................................................................................... 87

Questions for the Record submitted to Karla W. Corcoran, Inspector General,

United States Postal Service from:

Senator Stevens ................................................................................................ 88

(1)

THE ANNUAL REPORT OF THE POSTMASTER

GENERAL

FRIDAY, SEPTEMBER 27, 2002

U.S. SENATE, SUBCOMMITTEE ON INTERNATIONAL SECURITY, PROLIFERATION AND FEDERAL SERVICES, OF THE COMMITTEE ON GOVERNMENTAL AFFAIRS, Washington, DC.

The Subcommittee met, pursuant to notice, at 10:05 a.m., in

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

Akaka, Chairman of the Subcommittee, presiding.

Present: Senators Akaka, Carper, Cochran, and Collins.

OPENING STATEMENT OF SENATOR AKAKA

Senator AKAKA. Good morning. This hearing will please come to

order.

Postmaster General Potter, it is a distinct pleasure to welcome

you back to the Subcommittee today. It is hard to believe that it

has been only one year since your first appearance before Congress.

You and the employees of the United States Postal Service have

gone through more than one could ever imagine.

On September 11, 2001, the postal employees pulled together to

deliver the mail to most parts of the country. Americans were comforted by the sight of postal workers that day and in the weeks to

come. Unfortunately, the events of September were followed by the

horrible anthrax attacks that felled two postal employees. It was

a chilling reminder that ordinary people, just doing their jobs,

could fall victim to terrorism. And later last year, when pipe bombs

were found in the Midwest, postal employees showed their dedication and loyalty again as they continued to process and deliver the

mail. General Potter, you and your employees deserve the Nation’s

gratitude.

General POTTER. Thank you.

Senator AKAKA. I also wish to commend you for embracing this

Subcommittee’s request for a comprehensive report on the future of

the Postal Service. The Transformation Plan you presented our

Subcommittee last May was a well conceived document. I appreciate the extent to which the plan addressed many of the fundamental issues associated with the management and operations of

the Postal Service.

At our May hearing I expressed concern that the plan failed to

lay out a detailed deficit reduction plan. I am pleased that we have

this opportunity to continue this dialogue. I am hopeful that we

can talk about time frames, how proposed cost-cutting goals will

2

provide adequate funds for capital needs, and how the Postal Service will deal with long-term liabilities associated with pension

plans and post-retirement health benefits while ensuring the retirement security of its employees.

I was heartened by your announcement earlier this month that

the Postal Service expects to begin the new Fiscal Year with a positive financial outlook of a $600 million profit. Despite a net loss for

this Fiscal Year, such good news indicates that the cost-cutting initiatives you have instituted will help to sustain a strong and vibrant Postal Service.

The financial problems facing the Postal Service remain a serious

threat. However, I believe you are making progress and I am confident that those of us who care about the future of the Service will

work toward the common goal of its survival.

I strongly support using existing flexibilities, whether they be for

the Postal Service or Civil Service. So it was good news that the

Service is seeking pricing flexibility on two fronts. One is a discount for small periodicals and the other is a negotiated service

agreement for major financial institutions.

There have been other issues under discussion that affect the

Postal Service. I know you were hopeful that the House postal reform legislation would have gone further and I understand that my

colleague from Delaware plans to introduce similar legislation in

the Senate next year. The White House is considering the creation

of a Presidential Postal Commission which would be similar to legislation introduced by the Senator from Maine.

Again I welcome the Postmaster General to the Subcommittee

and now I yield time to my colleague, Senator Collins.

OPENING STATEMENT OF SENATOR COLLINS

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

you.

I want to welcome the Postmaster General this morning, also. I

had the pleasure recently of speaking before the National Association of Rural Letter Carriers at their annual convention, which was

held in Portland, Maine this past summer. As I was preparing my

remarks to speak to the letter carriers I was struck by the thought

that it used to be that postal employees’ greatest problem was biting dogs. Now it is the threat of anthrax in letters and pipe bombs

for rural letter carriers. So I want to second the comments made

by the Chairman as he saluted the courageous work of our letter

carriers in the wake of September 11.

I look forward to hearing the Postmaster General’s report this

morning on the status of the Postal Service. Along with many of

my colleagues, I have become increasingly concerned about the

many challenges facing the Postal Service, which has lost substantial sums of money during the past couple of years. The financial

crisis facing the Postal Service affects its employees and its customers and raises concerns about whether it can continue to meet

its vital mission of providing universal service to every corner of

our country, from Hawaii to Northern Maine. That is a challenge

that the Postal Service, in my judgment, must continue to meet.

There is little dispute that the structure that we now have for

the Postal Service is in need of reform. The question is: What is

3

1The prepared statement of General Potter appears in the Appendix on page 31.

the best way to accomplish the goal of ensuring that the Postal

Service remains vital into this century? Legislative reform efforts

have been met with stalemate in the past few years. For that reason, I have proposed legislation that would create a presidentially

appointed commission composed of 11 members appointed by the

President. The commission’s charter of study would be very broad,

extending to every relevant area. After a year from its first meeting

the commission would issue a report on its findings and recommendations for postal reform. I believe that an outside look by

an independent commission would be valuable to the Postal Service

as it continues to implement its Transformation Plan and also to

Members of Congress as we seek to write a postal reform bill.

I would note that the last time there was a major postal reorganization in 1970 it was also based on the work of a commission.

While I cannot guarantee that we would have the same kinds of

result, I believe that there is considerable evidence that without an

independent commission it will be very difficult to get the reforms

that are needed to preserve the Postal Service as a strong and vital

entity into this century.

Thank you, Mr. Chairman.

Senator AKAKA. Thank you very much for your statement, Senator Collins.

I now would like to hear from the Postmaster General. You may

proceed.

TESTIMONY OF HON. JOHN E. POTTER,1 POSTMASTER

GENERAL, UNITED STATES POSTAL SERVICE

General POTTER. Good morning, Mr. Chairman. Good morning,

Senator Collins.

I appreciate this opportunity to meet with you today to report on

the progress of the United States Postal Service during the past

year. That progress is a reflection of the outstanding efforts of

Postal Service employees throughout the country and the entire

mailing industry. The mailing industry is a $900 billion part of the

national economy that has increasingly become an integrated,

interdependent national network that employs 9 million men and

women. This year, working with the Postal Rate Commission and

our customers, we brought about an unprecedented negotiated rate

settlement. We thank the PRC and our customers for their support.

My thanks to this Subcommittee for its commitment to the Postal Service and the people it serves. Your assistance over the last

year has contributed to a level of success that, in the first months

of the Fiscal Year 2002, did not seem possible.

It was a year marked by challenges and measured by innovation.

Throughout the horror of September 11 and the bioterrorism attacks, postal employees helped keep this Nation connected as never

before. We focused on new ways to move the mail and control costs.

Six months ago when we released our Transformation Plan I

made two pledges. First, I said we would continue our strong focus

on improving service performance and holding the line on costs.

Second, I promised we would do our part to make the Transformation Plan a reality by beginning to make the changes that are

4

possible now under the current legislation. In essence, our management team committed to managing the business like never before.

Today I want to give you a progress report on those commit- ments. First, I am pleased to report that we have pulled $2.9 billion out of our bottom line this Fiscal Year by eliminating unnecessary and redundant programs; by taking advantage of our buying

power to make smarter, more efficient purchases; and by reducing

career employees through attrition by more than 23,000. Our total

complement today is similar to what it was in 1995, and since 1995

we have grown by 21 billion pieces of mail and added some 12 million new deliveries. In the past year our operating group destroyed

the myth that they could not react quickly and decisively in periods

of declining mail volume to increase productivity and improve service.

Despite the loss of some 6 billion pieces of mail from the previous

year, employees and managers rose to the challenge and delivered

a positive total factor productivity as well as a 1.9 percent increase

in labor productivity. From a Service performance standpoint, last

fall’s attacks on America required major realignments in our transportation system, including better use of our transportation partnership with FedEx and major adjustments to our national processing networks.

By the recently ended fourth quarter we reached record levels of

performance for overnight, 2-day, and 3-day First-Class Mail, as

well as Priority Mail. Express Mail scores are the highest they

have been in 4 years.

I want to assure you that the Transformation Plan is not the

plan du jour. As long as I am Postmaster General we will use the

plan to advance universal mail service and America’s mail. We

have set transformational targets for ourselves and we are well on

our way to achieving them.

For example, last week, as the Chairman mentioned, we filed

with the Postal Rate Commission (PRC) a negotiated service agreement with our largest end user of First-Class Mail to incent them

to grow their business and ours. This week we filed another proposal with the Postal Rate Commission that would offer small circulation periodicals a way of achieving work-sharing discounts so

common with larger, mass circulation periodical mailers.

Earlier this year we worked hard with the House on a bipartisan

reform bill. Although it did not move from the House Committee,

we are pleased that more and more lawmakers in the House and

the Senate are showing interest in the future of the Postal Service.

Our on-going discussions with Congress and with the administration make us hopeful for the future.

Looking ahead, there are many things we can and will do in

2003. We are focused on four objectives. First, we will continue our

commitment to improve service performance. As part of that commitment we will continue to focus on making improvements to reduce the risks our systems face against another bioterrorism attack.

Second, I am committed to continue exploring with the Postal

Rate Commission alternatives to the rate-making process within

the current legislation. Those alternatives include additional negotiated service agreements and phased rates.

5

Third, we will use our transformation strategy to grow our business by enhancing existing products and services and expanding

access and convenience.

Finally, we will continue to manage our finances and reduce

costs. Fiscal Year 2003 will be the second in our 5-year transformation commitment to take $5 billion out of our bottom line.

Last year this Subcommittee raised concerns about postal debt

and asked us to put together a plan for debt reduction. We responded to your concerns and focused on our finances. We went

into Fiscal Year 2002 projecting a $1.35 billion negative net income. We soon faced other challenges—a declining economy, September 11, and the anthrax attacks. As a result, we renewed our

emphasis on managing our finances. For instance, we took dramatic steps to reduce expenditures. We imposed a freeze on facility

construction. For the first time in postal history, we were able to

reduce current year expenses below expenses of the previous year.

Much of the credit for these savings goes to our employees, who

have gone that extra mile. Their efforts enabled the Postal Service

to reduce our projected negative net income to significantly less

than $1 billion. We will have the final numbers later on this year.

This also means that we will be in a position to reduce our debt

at least $200 million this year. The significance of this number is

that last September we were projecting an increase in our debt of

$1.6 billion. This $1.8 billion turnaround is dramatic and is a credit

to all our employees and the mailing industry, who helped make

it happen.

Our aggressive implementation of the Transformation Plan has

positioned us to achieve a positive net income in the coming Fiscal

Year 2003. This positive net income also means that by the end of

Fiscal Year 2003 we will be able to further reduce our debt by almost a billion dollars. These projections reinforce the pledge that

I made 6 months ago that there will be no general rate increase

until well into calendar year 2004.

Keeping our rates affordable and improving service are at the

heart of the Transformation Plan. The need to execute the entire

Transformation Plan remains as critical today as it was 12 months

ago when we faced dire circumstances.

As our Transformation Plan states, legislative changes are essential to the long-term health of the Postal Service. I look forward to

working with you to bring about the legislative changes needed to

assure affordable, universal mail service for future generations.

Before I close, it is imperative that I ask your assistance in another key area. As outlined in our Emergency Preparedness Plan,

the Postal Service will continue to focus on reducing risk from any

future bioterrorist attack. The President and Congress came to our

aid earlier this year by approving the emergency supplemental appropriation of $762 million for equipment to help reduce the risk

from biohazardous material. We are grateful for this help. To that

end, we are considering the purchase of biodetection and filtration

equipment for use at our automated processing centers.

To facilitate the procurement of this equipment, we support and

urge your support of Senator John Warner’s amendment to H.R.

5005, the Homeland Security bill. This amendment would include

the Postal Service among those agencies, such as the Department

6

of Health and Human Services and the Department of Transportation, that are engaged in procuring the means to reduce biohazardous risks. We believe this is the right thing to do.

In closing, let me thank you for your support and for helping us

stay the course during this last year. And I look forward to our continuing work in the future years. Thank you very much, Mr. Chairman.

Senator AKAKA. Thank you very much for your report and your

statement. I would like to ask my friend and colleague Senator

Cochran for any statement he may have.

OPENING STATEMENT OF SENATOR COCHRAN

Senator COCHRAN. Thank you, Mr. Chairman.

Welcome, General, to this annual review of the Postal Service operations. I am very pleased to observe that your financial situation

is better than had been expected. The deficit is lower than had

been expected. I commend you for that and during the questionand-answer period we will talk about some of the things that you

have done to help make that happen and what other steps could

be taken to improve the financial condition of the Postal Service.

I noticed in today’s paper, for example, a report on the Brentwood facility and a public meeting that was held about making

that facility safe or possibly reopening it at some time in the future. It would be good to hear about your plans in that connection.

We do want to be sure that the Postal Service provides safe mail

and mail handling, not only for customers but for workers, as well,

and we know that you have been challenged very seriously on this

subject and in this area by the anthrax situation.

We hope that you will continue to keep a look out for ways to

improve the efficiency of the Service and fulfill the mandate under

the law, which is to provide universal service at affordable rates.

We appreciate very much your hard work in the job you have, a

tough job. Thank you.

Thank you, Mr. Chairman.

Senator AKAKA. Thank you very much, Senator Cochran.

Mr. Potter, we have questions and I will limit myself to 6 minutes so that we can move with questions.

Mr. Potter, at our May hearing we discussed the Service’s Transformation Plan. One cost-saving measure is the redesign of the

Postal Logistics Network. You said this would require reducing the

number of processing centers and altering transportation routes for

greater efficiency.

What is the status of your plans for redesigning the Postal Network and what facilities have been or will be closed in the near future? And how are you working with communities on these consolidations and closings? And how are you involving postal employees

in these efforts?

General POTTER. The Postal Service has built and is finalizing a

network integration model. Last year at this time we did not anticipate the major loss of mail, so we are in the process of reviewing

some initial plans, but we have this model; it is under development. That model will be used to determine how we can most effectively adjust our network. That is the network of facilities, as well

as the transportation network that connects those facilities.

7

This past year we have taken a very hard look at our network.

We have primarily focused on annexes of our major plants and we

have shut down some annexes in our plant network. We intend,

once we have the network integration model analysis complete, to

share that with our customers, with the communities involved, and

our employees, but at the current time that modeling has not been

finalized.

Senator AKAKA. The Board of Governors last month announced

their support of the creation of a presidential commission to review

the Postal Service. What are your views on a postal commission

and continued efforts to enact postal reform legislation?

General POTTER. Personally I believe that there is a need for

change, as I said earlier, and whatever vehicle gets us there is the

vehicle that I am going to jump on and support. Certainly a commission, a properly formed commission with a proper agenda, can

elevate the debate to the level that I believe it needs to be, and

that is at the public policy level.

As we look forward and all postal administrations worldwide look

forward, there is the obvious threat of hard copy mail, moving to

the Internet and moving to an electronic format. We have to recognize this is a very real reality, and we have to begin to formulate

public policy around what to do in the event that it happens.

In addition, the Internet and other things are helping to enhance

our ability to bring services to customers. So access to the post office used to mean that you had to go to a post office. Today you

can go to a bank and ATMs will dispense stamps. Grocery stores

dispense stamps. We have others who do that and you can buy

postage over the Internet.

So we have to look at the future needs of the American public

and determine how best they will access postal services. Today you

can buy stamps by mail. We believe that there is going to be a need

to balance the future public policy from a standpoint of how do people access our services and what will the demand for those services

be? And we need to craft and paint a picture of what a future Postal Service will be like so that I, the rest of the managers in the

Postal Service, and future postmaster generals can manage toward

that goal.

Senator AKAKA. The Postal Service has just announced that it expects to realize a profit in the next Fiscal Year. I know you hope

to use these extra funds to pay down some of the Service’s debt to

the Treasury. It appears that the projected profit is based on increasing mail volume. When you testified at our May hearing you

were very pessimistic about relying on increasing mail volume to

generate revenue. Have your views on this issue changed?

General POTTER. Well, we are projecting for the upcoming year

that there will be a slight growth in volume. The main reason that

we are able to say we will be in a position to pay down debt is because of the tremendous cost-cutting that has occurred within the

Postal Service, and again I have to credit all of our employees. Our

productivity is up. We are expecting our productivity to stay up.

Despite the fact that I just said we are going to have some

growth next year, we will still be below our Fiscal Year 2000 levels,

so we are going to grow from a depressed base. We lost some 6 billion pieces of mail last year. We are going to grow from that lower

8

figure, but we are not going to get back to where we were in the

coming year.

It is a combination of improvement over a depressed base and

the fact that we are being very frugal and being very cost-conscious. The combination of the two will enable us to have a positive

net income, and currently we think it will be almost a billion dollars that we will be able to pay toward our debt next year.

Senator AKAKA. Thank you very much. My time is up, so I now

ask for questions from our Ranking Member, Senator Cochran.

Senator COCHRAN. Mr. Chairman, I notice one of the first questions you asked was about postal reform and whether or not a

major initiative for a commission would be in order and since that

is Senator Collins’s bill, I think I will defer to her for any questions

about that—she was here before I was, anyway—to go ahead and

ask questions that she might have.

Senator AKAKA. Senator Collins.

Senator COLLINS. Thank you very much and I thank my colleague from Mississippi for his usual graciousness.

Postmaster General Potter, I want to follow up on the issue of

the commission, though perhaps I do so with some trepidation because your initial response to the Chairman may be as good as I

am going to get on this.

Given the failure of postal reform legislation during the past few

years, even this past year where there was so much discussion in

the House committee and a lot of input and yet still the bill did

not even make it out to the House floor, do you not think that a

commission would be helpful as far as taking an independent look

at the Postal Service and assisting you, as well as Congress, in

coming up with some recommendations for us to consider, for you

to consider, that might help us implement postal reform?

General POTTER. I do think an independent look at the Postal

Service would be helpful, as I said earlier. I believe that there are

some major public policy issues that have to be addressed.

On the other side of the equation though, I do not want to give

the impression that should there be an effort to have some legislative changes that could help us in the short run, that I would be

opposed to them. So the bottom line is I would like to see change.

I understand the benefits that a commission can bring, particularly

if it is an independent commission. And if they step back and look

at the big picture and the role that the Postal Service has in terms

of serving America and the public policy issues that would naturally come up around universal service, as an example, I do think

a commission could be helpful.

Senator COLLINS. Thank you. Recently I met with a group of

more than 20 businesses in Maine that ranged from printers to

small catalogue companies to L.L. Bean, all of whom rely heavily

on the Postal Service and all of whom expressed great concern to

me about having more stability and predictability in postal rates.

One of the catalogue companies, for example, told me that the cost

to mail his catalogues now greatly exceeds the cost of the paper on

which the catalogues are printed. Another told me that the recent

rate increase had created great problems for its company because

he had already set his prices for his products in the catalogue and

then there was the unexpected rate increase.

9

What are your plans for ensuring more predictability and more

stability when rate increases are necessary? What a lot of these

businesses told me is they understand there are going to be rate

increases but it is when they are unexpected, more frequent, or

higher than they can plan for that they really create tremendous

strains for their businesses and for the employees for which they

are providing good jobs.

General POTTER. Well, let me address the stability part of the

question first. I believe that obviously it is a matter of implementing the Transformation Plan. We have set some very aggressive targets for ourselves in terms of productivity, in terms of cost

containment, and we have to stay the course. If our costs remain

relatively stable, then prices will be lower and predictable, so that

is the first step in the process.

Second, I have said and repeatedly have said that I would like

to have a discussion with customers about phased rates. It is a concept that is used in other countries. Some customers have come to

me and told me that when they deal with Canada Post, for example, that they know what their rate increases are going to be 2

years out. When you look at our competitors, they raise their rates

on an annual basis.

We have a system, again a legislated system, that has the Postal

Service raising rates every 2 to 3 years and in the process, what

happens from an operational standpoint is that we have a peak in

volume just before our rate is increased. That is because our rates

are affordable. Once the rates are increased, elasticity kicks in on

some of our products, so our volumes decline. Therefore, we have

a staffing issue on how we deal with those peaks and valleys.

What we would like to do is get to the point, through some adjustments in the way we are currently changing rates, where we

can offer and project rates, and we call it phased rates, annualized

rate increases. It helps obviously customers; they can plan their

budgets several years out. And it would help the Postal Service in

terms of our efficiency. We would not have to deal with peaks and

valleys in our mail volume.

We are very eager to do that. We are engaged with customers

and the Rate Commission to talk through how we could use the

current process to arrive at that type of situation.

Just this past week, I had conversations with a number of customers about elevating that discussion and seeing what we can do

in the short run to advance that.

Senator COLLINS. I want to turn to one other area. As you may

well recall, the Postal Service in Maine has had several cases in

Portland of sexual harassment in the past few years and I know

this has been of great concern to you, as well. But I was disturbed

to read in the Inspector General’s Report that she had initiated an

audit of the Postal Service’s sexual harassment prevention program

and encountered, in her words, ‘‘considerable resistance from management.’’ This is of great concern to me because I know the Postal Service

had initiated some training programs in Portland, Maine that I

was putting a great deal of hope in and if the IG is finding management resistance to effective implementation of the sexual harassment program at the Postal Service, that is very disturbing.

10

I would like you to respond to those criticism and tell me what

the Postal Service is doing to ensure that the very unfortunate and

unacceptable incidents that we experienced in Maine do not occur

again.

General POTTER. The Postal Service is very aggressive in dealing

with sexual harassment, dealing with equal opportunity. We do not

take those matters lightly. We are very aggressive in Maine. There

has been a change in management. There have been a number of

training efforts that have been under way. We are not going to accept sexual harassment anywhere in the country.

There can be differences of opinion between the Postal Service

and others who review our work in terms of how we might implement something. I am focused on getting the job done and making

sure that nobody is a victim of harassment and, if they are, that

they do not have any fear about advising the proper authorities

that a situation occurs and that action is immediately taken.

Oftentimes we can get into the semantics of how somebody might

do something, and I would prefer to focus on the action of dealing

with the matter. I believe that we have responded aggressively in

Maine, and we are going to respond aggressively anywhere in the

country where a problem exists.

Senator COLLINS. Thank you.

Thank you, Mr. Chairman, and thank you, Senator Cochran.

Senator AKAKA. Thank you.

Before I call on Senator Cochran for questions I would like to ask

the Senator from Delaware for any statement you may have.

OPENING STATEMENT OF SENATOR CARPER

Senator CARPER. I do have a statement. I think what I would

like to do is ask that it be entered for the record and I just look

forward to having the opportunity to ask some questions of the

general. Thank you. It is good to be with all of you.

[The opening statement of Senator Carper follows:]

PREPARED STATEMENT OF SENATOR CARPER

Thank you, Mr. Chairman, and thank you, General Potter, for taking the time to

testify before this Subcommittee again on the state of the Postal Service.

As I’ve mentioned in the past, this has been a rough year for the Postal Service

and its employees, possibly the roughest ever. In the past few weeks, however, we’ve

heard that, despite another year of declining mail volume and declining revenue, the

Postal Service’s budget deficit will be significantly smaller than originally projected.

What everyone feared could be as high as $4 billion a year ago was reduced to $1.5

billion, then $1.2 billion. Now, we hear that it could even go below $1 billion.

The Postal Service does not find itself in this position because people are giving

up on e-mail and electronic bill pay and sending their correspondence through the

mail again. As we all know, and as I think the Postal Service admits itself, consumers’ move from mail to newer, electronic means of communication is still happening and will continue to happen. The Postal Service finds itself with a rapidly

improving short-term budget outlook because it has engaged in some dramatic cost

cutting.

As the Postmaster General pointed out in his testimony, billions of dollars were

taken out of the system this year. The freeze on new facility construction was continued and further automation was encouraged. The biggest cuts, however, appear

to have come through workforce reductions. About 23,000 positions have been eliminated through attrition and work hours have been reduced by 77 million despite the

fact that the Postal Service is delivering to nearly 2 million more addresses than

it was last year. I understand that the Postal Service plans to continue these kinds

of cuts next year.

11

I’m happy to see the Postmaster General making the Postal Service more efficient.

I think it should be clear to everyone, however, that the kind of cost cutting the

Postal Service has engaged in this year cannot be sustained and will not be what

makes the Postal Service a fiscally sound entity in the long term.

As the economy begins to pick up, the Postal Service may very well see an increase in volume as the Postmaster General predicts. At the same time, however,

the number of addresses they are required to deliver to will continue to increase.

I don’t know what effect this year’s workforce reductions and the continued facilities

freeze is having on service right now, but if the Postal Service intends to continue

balancing its budget by cutting employees and avoiding new facilities construction,

it will probably have some serious difficulties meeting its current delivery standards, and even its universal service mandate.

The Postmaster General is probably doing all he can right now to keep the Postal

Service afloat. We need real reform of the way the Postal Service does business for

him to be able to go any further. Whether it comes from Congress or from a Presidential Commission, postal reform is still necessary. I think it should, and can, come

from Congress and I hope this Subcommittee will work with General Potter next

year on this issue.

I look forward to hearing from General Potter today and to learning from him exactly what kinds of flexibilities he thinks this Subcommittee needs to give him and

his successors so that the Postal Service can get by in the electronic age.

Senator AKAKA. Senator Cochran.

Senator COCHRAN. Mr. Chairman, thank you.

I understand that mail volume has substantially decreased this

year, as a matter of fact, to a greater extent than we have seen

since the Great Depression in the 1930’s. My question is what has

this done in terms of revenues and the financial condition of the

Postal Service? And do you have any information about whether we

are on the rebound and is volume picking up? Is this something

that is going to take care of itself or do you have to take specific

steps to try to turn it around?

General POTTER. The Postal Service did lose more volume this

year than it ever has in its history, including during the Great Depression. Volumes dropped some 6 billion pieces of mail. In the first

quarter of last year they were down some 5.5 percent. We have

seen them gradually come back. In our last accounting period, we

saw less than a 1 percent drop in volume from the previous year.

What we did throughout was we adjusted the use of our resources to match this lower workload. In fact, we went beyond that.

If we had just matched it, our productivity would be flat. Our productivity was up. So we aggressively managed our costs.

What do we have to do? We have to focus on growing the mail

back. So as much as we focused on costs, moving forward, we have

to focus on growing volume. That is a matter of working with our

customers to understand what their needs are, to make postal

products more effective for them in their business, whatever that

business happens to be. We are working as hard as we can to make

that happen.

And long-term, in terms of people using the mail, we have to assure them that we are going to manage our finances such that they

will not see tremendous increases in price. And that is what we

have laid out in our Transformation Plan and that is what we are

doing as we speak.

Senator COCHRAN. I notice also you have had a freeze on capital

spending in effect for the past 2 years. Can you tell us what impact

this has had on postal operations? Has it had a serious effect and

maybe been one of the reasons you have lost volume?

12

General POTTER. I do not believe that the capital freeze has had

any impact on the Postal Service’s volume. The volume was lost because of the economy, because of September 11, because of anthrax

attacks and a very weak advertising industry. I think we all know

that advertising was probably more dramatically impacted last

year than anybody, and there are a lot of reasons why that occurred.

But as we look forward, we are taking, I believe, the necessary

steps to manage our costs, to create products and services that people will use the Postal Service for.

I am sure that at the beginning of the Fiscal Year there were a

lot of concerns about our service levels. And, as I said earlier, we

have made dramatic improvement. We are now beyond where we

were a year ago. We are now at all-time highs on First-Class Mail,

Priority Mail, and our Express Mail scores are the best they have

been in the last 4 years.

So we believe we are delivering a quality product. Those people

who had some concerns about the Postal Service last year should

try us again. The mail is moving. It is getting home on time. And

we believe we can effectively serve business and the American public.

Senator COCHRAN. I think a lot of people do not realize the impact that this anthrax business and the screening and special precautions that have been implemented, the effect that has had on

delays. For a while we were waiting months literally for the delivery of mail to our offices here in the Senate but I notice that has

changed substantially in the last month or so.

Do you foresee a time when we will actually be getting mail in

the same way we used to without these long delays?

General POTTER. Well, Senator, I would like to point out for the

people watching out there that we do have a special step that we

take for the mail that is coming to the Congress and other highthreat receivers of mail. So the service that you are seeing here in

the Congress is not what the rest of America is seeing and that is

not measured as part of the system I just talked about.

When we first were hit with anthrax, we had to create a procedure to irradiate mail for the Senate and the House and other government agencies, and initially that took some time. Today it is

adding about 2 days to 3 days to the process of delivering mail to

the House. So I would encourage those that have mail for the Senate, send it. We do not want you to hold that back.

Senator COCHRAN. Do not go that far. [Laughter.]

General POTTER. Send plenty of it.

But back to the issue, we did have procedures. We did have some

issues that we did have to work around, and it goes beyond just

irradiating mail. We have two facilities that are still closed—the

Brentwood facility and the Trenton facility. And our people did a

phenomenal job in putting together work-arounds so that we can

deliver mail to those communities served by the Trenton facility or

Belmont facility, as well as the facility here in Brentwood. Those

people are seeing mail delivered in a very timely manner.

Our employees have had to make sacrifices. We had people who

worked in those buildings who are now commuting to other locations so that they can sort, process, and in some cases we had carVerDate 11-MAY-2000 10:48 Feb 14, 2003 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6601 83480.TXT SAFFAIRS PsN: SAFFAIRS
13

riers in those buildings, as well, so they could receive their mail

and bring it out to their customers to be delivered.

Our employees have risen to the challenge. We are delivering

mail, as I said, better than we ever have in the past, and we are

going to continue to do so because we know without service, there

is no Postal Service.

Senator COCHRAN. Right. Thank you. I notice my time has expired, Mr. Chairman.

Senator AKAKA. Thank you, Senator Cochran. Senator Carper.

Senator CARPER. Thanks very much for joining us today and for

your stewardship and for the work that is going on by Postal Service employees throughout the country.

I must say it seems like we were here about a year ago and we

were talking about a deficit for the current Fiscal Year which ends

on September 30. I seem to recall that the projected deficit was as

much as $4 billion. Is that about right?

General POTTER. Yes.

Senator CARPER. And now if I understand these figures correctly,

we are now looking at a deficit for the Fiscal Year that could be

as low as $1 billion, maybe even a bit lower?

General POTTER. It is going to be a bit lower, yes.

Senator CARPER. And we are looking at a situation in the next

Fiscal Year which starts on October 1 where we could see a profit

of as much as a half billion, $600 million?

General POTTER. Hopefully more than that.

Senator CARPER. I missed your testimony. I have not read it; I

will read it later, but I understand that a fair amount of that is

attributable to cost-cutting that is going on and I am going to ask

you just to take a couple of minutes and share with me why you

have been able to make such a dramatic reduction in this year’s

deficit and look forward to a profit for next year. Just talk to me

a little bit about the cost-cutting that is going on. I understand

there are a number of positions that have been eliminated but I

understand you have done that through attrition. If you could just

talk to me about how that has happened, with a focus on where

there has been attrition or some other methods used. And maybe

if you could talk a little bit about how your freeze on capital construction has played into your ability to curtail your costs.

General POTTER. Well, not to tell too long a story, we went into the year with a deficit plan of $1.35 billion. In December, we were

looking at revenue decline of $2 to $2.5 billion. We were looking at

costs related to bioterrorism.

So we embarked on a plan to try and mitigate as best we could that projected deficit or deficit that could have gone to $4 or $5 billion. And the way we went about that was, first of all, trying to

match our use of resources, in one case work hours, to a lower

workload. We had 6 billion pieces less mail, so you do not need the

same number of employees.

Senator CARPER. Is that an annualized total?

General POTTER. That is an annualized total. You do not need

the same number of people to work what we had planned to be,

over 210 billion pieces of mail, as to work 200 billion pieces of mail.

So we modified our use of work hours based on this lower workload

that we received.

14

In addition to that, we went beyond that, and we actually have

seen productivity improve. So had we just managed to the lower

workload, we would have seen a flat productivity, but we went beyond that.

And our plan coming into the year was to reduce some 30 million

work hours and some 10,000 to 12,000 people. All of our reductions

were a result of attrition. We have not laid off any of our craft employees—no carriers, mail handlers, or clerks.

We also did not limit ourselves in terms of cost-cutting to simply

work hours. We cut programs, some that were redundant, some we

sat back and said do we really need this? Can we afford to do that

this year? We cut back. We looked at a lot of our contracts, supplier

contracts, and sought ways to reduce our costs.

So we eliminated some redundant transportation. We had lower

workload. We could tighten up our transportation.

We sought help from our customers. Now keep in mind part of

our result is the fact that our customers agreed to an unprecedented rate settlement. That rate settlement allowed us to raise

rates in June versus October. That contributed $1 billion to this

turn-around.

Senator CARPER. Over 4 months?

General POTTER. Over 4 months.

Senator CARPER. So that would be $3 billion on an annual basis?

General POTTER. It is more like $5 billion. It is the lower part

of our volume period. It is about a fiscal quarter, and it is our low

volume period. So they stepped up to help us with $1 billion. Part of our projected deficit were costs that we thought we were going to incur

and did incur as a result of the terrorist attacks. And the Congress

helped us and appropriated monies for us.

So when I look at the result, I truly say that it is the entire community that came together to deal with this. By the way, we started at the top with our cost-cutting. We eliminated 20 percent of our

officers. We eliminated some 800 jobs at headquarters. We eliminated 20 percent of our mid-level area officers. We eliminated 10

percent of our administrative positions throughout the country.

So this was an all-encompassing effort. Our employees made the

largest contribution in terms of that improved productivity. Our

managers cut back programs, tightened up in terms of the amount

of personnel that they had. Our customers came to the table and

delivered $1 billion, and the Congress stepped in and helped us

with $750 million.

I do not want you to think it was just postal managers. Everybody recognized the dire circumstances and stepped in and helped

us.

Senator CARPER. Talk to us a little bit about the freeze on construction costs, which is something that I suspect you can do for

a while but not forever.

General POTTER. We placed a freeze on construction costs other

than for emergency purposes. Any time we have a life safety issue,

we spend money, whether that is a leaking roof or if there is an

act of God that might damage a building, we go out and repair it.

One of the things that we have learned over the past year is that

there were ways to more effectively utilize space in post offices. In

15

terms of our future plans, we are balancing the ability to tighten

up space, as well as growth in communities. We recognize that we

are going to have to spend, and our plan for next year is to spend

some monies, a limited amount of monies, in those high-growth

areas where there is need for new construction of postal facilities.

We are looking at facilities, some construction of postal facilities

where there is a return to the bottom line.

Senator CARPER. Mr. Chairman, my time has expired. If we have

a second round of questions for the Postmaster General, I would

love to ask some more. Thank you.

Senator AKAKA. Thank you very much.

Postmaster General, the lack of financial accountability in business has received national attention, especially since the Enron

scandal occurred. Congress responded quickly and passed a bill focused on financial accountability.

Given that the Postal Service is essentially a $70 billion business, I have two questions. First, do you believe the manner in

which the Board of Governors operates should be changed? And

second, do you believe the Postal Inspector General should be a

presidentially appointed and Senate-confirmed position to ensure

independence from the postal management?

General POTTER. First regarding the Board of Governors, I believe that the structure of the Board of Governors is one that

works. They are an independent body. They are presidentially appointed. They are very distinguished men and women from around

America. So I think that the process works. They have an outside,

independent auditor, and they assure the fiscal responsibility of the

Postal Service.

In fact, recently they had an outside consultant come in to look

at their practices, particularly when it comes to their audit and finance committee. What they found was that their practices are

among the best in the Nation. So I believe that the body as structured is effectively what other boards throughout the country

would do, whether it is a private concern or a Federal concern.

Regarding the inspector general, I would leave comment to the

Board of Governors, who select the inspector general. Right now

they are responsible for the selection of the inspector general. She

reports to them, and I would prefer that they comment on that

matter.

Senator AKAKA. Thank you. The Office of Inspector General and

the Defense Contracting and Auditing Agency reviews have identified millions of dollars in potential savings in their audits. What

have you done to ensure that these identified cost savings are realized? Does the Inspector General participate in the settlement negotiations?

General POTTER. We have created in the last year an office within our Finance group to work as a liaison between the Postal Service and the Office of the Inspector General to ensure that all findings and all opportunities that are identified by the inspector general are implemented. We are grateful to the inspectors general

when they come up with findings of fraud and other things that

will help the bottom line of the Postal Service. We have put in

tracking systems to make sure that happens.

16

Senator AKAKA. The Postal Service and the Postal Rate Commission hosted two rate summit meetings over the summer. As you

noted in your testimony, the Service filed a rate case with the PRC

for a negotiated service agreement with Capital One. The Board of

Governors also approved the filing of the second case involving

magazine publishers.

Can you explain what benefits the Postal Service will receive

from these rate initiatives and what other initiatives are you planning?

General POTTER. First let me thank the Chairman of the Postal

Rate Commission, George Omas, for all of his help this past year.

The rate settlement was unprecedented, and we are working to

build a stronger and better relationship between the Postal Service,

the Postal Rate Commission and our customers.

The negotiated service agreement for Capital One is designed to

incent them to keep mailing First-Class Mail. They have solicitations that they send out to customers to try and get them to use

their credit card, and one of the things that they did last year was

use First-Class Mail to send out a portion of those solicitations. We

would like them to stay in First-Class Mail.

So that is strictly designed to increase the amount of First-Class

Mail that we receive. The contribution of First-Class letters to the

bottom line versus their alternative, which is Standard A letters or

bulk business mail, is much greater with First-Class Mail, so we

would like them to stay in the First-Class Mail for their solicitations. The NSA is designed to do that.

When it comes to the periodicals, many periodical mailers talk

about the difference in price between a very large mailer and a

smaller mailer. The reason that it is a lower price for the big mailer is because they are able to prepare mail so that it moves

through our system rather rapidly. In fact, it bypasses a number

of handlings in the system.

What we have designed with the proposal to the Rate Commission is to enable multiple smaller mailers to combine their mailing

such that they can bypass steps in our system and therefore lower

their costs and in the process, lower the price that we have to

charge.

We are working with other mailers and other entities to determine whether or not there are other opportunities like I just described. Our goal is where there is a mutual benefit, meaning there

is a benefit to the Postal Service and to the mailer, to either incent

growth and/or to change a process so that it is more economical for

the handling of mail. We would like to engage in that process.

We are looking forward to other negotiated service agreements.

I can tell you there are a lot of mailers out there who are very enthusiastic about it. I can tell you from the Postal Service’s standpoint we are also enthusiastic about moving down that path.

Senator AKAKA. Thank you very much. Senator Cochran.

Senator COCHRAN. Mr. Chairman, thank you.

I understand, General, that the Postal Service is studying whether to close or consolidate some postal facilities. What is under consideration and how do you think this may affect the Service’s future capital investment needs?

17

General POTTER. Today we are considering the consolidation of

our mail processing centers. We have almost 300 centers around

the country. We have seen a change in the mix of mail and by that

I mean where mailers used to bring in mail locally for mail to be

sent throughout the country, we have seen that a lot of them are

bypassing the originating facility and bringing it to destination.

The workload in some of those receiving facilities has gone down.

We have seen a lot of business communities move to electronic

messaging, electronic payment, so we have seen a decline in volumes in certain facilities around the country.

At the same time that we have seen declines in pockets around

the country and change in mailing behavior, we have also improved

the efficiency of those operations by introducing automated equipment. And the combination of all three things has created a situation where we have some underutilized buildings and where there

are efficiencies to be gained by consolidating operations.

As I said earlier, no final decision has been made on network

consolidations. We are currently modeling the alternatives that are

available to us. We are trying to factor in not only the current volumes that we have, any changes in mail mix that might be planned

by our customers, as well as growth that we might anticipate in

different areas around the country.

Senator COCHRAN. To what extent will you involve local communities in these plans or the announcements of plans and how to

deal with that in terms of local interests?

General POTTER. Well, part of our consolidation plan includes a

thorough analysis of service to make sure that there is no diminution of service to customers involved. It addresses where mail

might be deposited to assure that customers do not have to move

mail any further than necessary, so they can deposit mail and they

can do it conveniently.

We do involve customers in that process to tell them how things

are being changed. We also involve customers because if we eliminate a node on a network, we must tell them where to deposit mail.

As far as the American public is concerned, it is transparent. The

post offices that they buy stamps in, the letter carrier that comes

to their door, they are unaffected by the changes that happen within the network. In terms of the general public, they do not see a

change and our goal and our commitment when we make those

changes is to maintain the level of service that we provide.

Senator COCHRAN. What will happen to the employees that work

in these facilities?

General POTTER. There will be no lay-offs. In some cases we will

be able to make these changes primarily through attrition. We

might be able to downsize without having to affect the location of

where someone works. Worst case scenario, we might have to excess employees out of that facility and move them to neighboring

facilities where there is work.

There is a process within our contract, our labor agreement, on

how we deal with a situation where we find ourselves with excess

employees, and that is the term that is used in the contract.

Senator COCHRAN. Some have expressed concerns about the Postal Service awarding large sole source contracts, such as contracts

with Goodyear and FedEx. Is the Service increasing its reliance on

18

sole source contracting? Is this having an adverse effect on open

competition? And is consideration being given to expanding contracts to include not only air transportation but possibly ground

transportation?

General POTTER. Like any other business in America, we are

looking to take advantage of our buying power, and one of the ways

is to consolidate multiple contracts so that we can get the best

price that we can from our suppliers.

Sole source is not the sole mechanism to do that. We compete

those contracts with one or two exceptions. Those major contracts

are competed. The best price is sought out, and that is what has

enabled us to make a big contribution to the financial results that

you see in the past year.

Senator COCHRAN. One of the initiatives included in the Transformation Plan is a private employee-owned company to investigate

equal employment opportunity complaints. Can you give us an update on the status of this initiative? And does this have the potential for approaches in other areas?

General POTTER. We are considering entering into negotiations

with a company to determine the feasibility of moving to an ESOP,

where our employees work for a private company to investigate

EEO matters. We believe it is prudent to have an independent

group investigating EEO complaints and we are looking at that as

an alternative down the road for other areas, but we do not have

any definitive plans. Certainly, it is an option that we look at when

we consider future costs of anything that we do.

Senator COCHRAN. Thank you, Mr. Chairman.

Senator AKAKA. Thank you very much, Senator Cochran. The

senator from Delaware, Senator Carper.

Senator CARPER. Thank you, Mr. Chairman.

When my time expired, General Potter, I was asking about what

you have done in order to hold down your costs on the capital construction side. You have not curtailed dramatically your investment

on the capital side where productivity is enhanced. Is that a fair

statement?

General POTTER. That is very fair. We continue to spend approxi- mately $1 billion a year to invest in equipment or other productenhancing investment opportunities. We are very concerned about

the future of the Postal Service, and we want to make sure that

we do not make any short-term decisions that would affect our future ability to have affordable prices or to provide a high level of

service. So we have continued to invest in those projects that give

us return.

Senator CARPER. Give us just a couple of examples of the kinds

of investments that you have made in the last year to enhance productivity and maybe some examples of what you would like to turn

to next.

General POTTER. Well, probably the best example of a machine

that has enhanced our productivity is the automated flat-sorting

machines that we have.

Senator CARPER. Automated flat-sorting?

General POTTER. Automated flat-sorting machines. We have the

ability today, similar to letters, where we feed mail through a machine that automatically feeds the mail. It reads the address using

19

optical character-reading technology. Where it cannot read an address, it sends that address to a keying station, and there are some

30 around the country, where people key the flat mail, so that we

can properly sort the mail. We have some 530 machines that we

have deployed over the last several years, and they have made a

dramatic difference not only in our costs of handling flats but a

dramatic difference in terms of our ability to provide a high level

of service for flats.

Senator CARPER. When you talk about flats, what all does that

include? Does it include catalogues, stuff like that? Magazines?

General POTTER. A flat is anything that is greater than a letter.

It is a magazine. It is a catalogue. It is a large manilla envelope.

Basically if it is beyond 61⁄2 inches high and up to 10 inches wide,

it is a flat.

Senator CARPER. Are there more productivity gains to be made

in that area with respect to flats?

General POTTER. There are. We are continuing to move more

mail onto this equipment. We have not exhausted all of our opportunities. We are taking mail out of small post offices and automating it. We sort the mail down to the carrier route on these machines. Initially we focused on the mail that was already being

sorted in the mail processing plants. So there is more opportunity

to better utilize that equipment.

We have just recently signed an agreement for new package sorters. The package sorter will do traditional packages of mail. It will

also do bundles of flat mail and other bundled mail so that we can

break down palletized bundles of mail.

In the future we are looking at equipment that perhaps one day

could marry the letter mailstream, the smaller envelopes with the

larger envelopes, and put that mail into walk sequence for our carriers. That technology is far down the road, but we are making investments today in terms of research and development to try and

develop a prototype that will be effective.

Senator CARPER. Good. You spoke earlier of these negotiated

service agreements and do I understand you have recently entered

into one with—is it Capital One?

General POTTER. Well, we have agreed to present one to the

Postal Rate Commission.

Senator CARPER. How does this process work, please? How does

the process work with respect to a negotiated service agreement?

You negotiate with in this case the customer and then you present

it to the Rate Commission?

General POTTER. Yes, we negotiate with customers. Customers

can bring ideas to us. In this case Capital One brought an idea

about, and we had discussions with them about how to keep them

in First-Class Mail and incent them to keep as much of their product in the First-Class mail stream as possible.

We negotiate with them to determine what it would take to

incent them to do that, and we evaluate whether or not there is

a return for the Postal Service. Is it worth our while? What will

it do to other customers? We do not want to enter into an agreement with one customer that would disadvantage other customers

or perhaps cause other customers’ rates to go up.

20

So we go through a very elaborate process. We have been trying

to do this now for about 3 years, and we finally think we have

worked out a formula that works. We put together a case with the

customer and make a proposal to the Rate Commission, and we go

through a litigation process literally where others have the ability

to come in and comment on what is being proposed.

Senator CARPER. How does that process now work with the Postal Rate Commission? Is there a procedure, expedited procedure? Do

they take as much time as they want?

General POTTER. Senator, they have up to 10 months to render

an opinion on the case. They make a recommendation. That recommendation goes to the Board of Governors. In their recommendation they can modify what we propose and then the Board

of Governors has a number of alternatives. They can implement

what the Rate Commission recommends. They can send it back.

And ultimately it is the Board of Governors who will make a decision based on the recommendation of the Rate Commission.

Senator CARPER. Ten months? My first reaction is that sounds

like a long time.

General POTTER. It is a very long time, and we hope that we can

expedite this through the process but legally, I believe, they have

up to 10 months.

Senator CARPER. You say legally. Is that set forth in law? Do you

understand it is set forth in law?

General POTTER. As I understand it, yes.

Senator CARPER. Several people in the audience are saying yes.

General POTTER. We have had numerous instances where we will

propose something to the Postal Rate Commission and they will expedite it. But they are legally not bound to do that. Any time we

take something to the Rate Commission we both mutually try to

move whatever the proposal is through as quickly as possible. The

only legal limitation, though, is a 10-month limitation.

Senator CARPER. Thanks.

My time has again expired, Mr. Chairman. Thank you. If we

have another round I would love to ask a couple more questions.

Senator AKAKA. You certainly may.

Postmaster General, you answered this question in part in your

response to Senator Cochran but I would like to ask for further

clarification because of some disturbing reports that we have been

hearing. This has to do with the closure of post offices.

First, when will you decide which post offices will be closed? And

second, when will these closings take place? There have been reports that they will happen right after the November election. Can

you respond to those questions?

General POTTER. Well first of all, if I misspoke, let me clarify. It

is illegal to close a post office. There is a post office closure process

that we have embarked on. We do not have a master plan to close

post offices. So I want to make that abundantly clear.

When I was speaking to Senator Cochran I was referring to mail

processing plants, plant operations. We have some 300 around the

country. As I described, there is an opportunity to consolidate the

processing. It might be just that we consolidate tours rather than

close buildings. In fact, in most cases we would probably consolidate tours from two buildings into one.

21

We will not close or do any consolidations in 2002, calendar year

2002. Again we are working with these models. We have people

who are drafting proposals from around the country. We are going

to evaluate them at headquarters, and we are going to make sure

we take the necessary steps to implement them properly.

I do anticipate that there will be some consolidations in calendar

year 2003.

Senator AKAKA. Thank you for that clarification.

Your emergency preparedness plan indicates that you will need $799 million in Fiscal Year 2003 to pay for expenses related to the

prevention of future bioterrorist attacks. Does your financial plan

anticipate these expenses will be paid by the Postal Service, by

postal customers, or through an appropriation request from Congress?

General POTTER. Well, the answer is easy on that one. We would

prefer an appropriation from Congress.

Senator AKAKA. During this past year Congress appropriated $35

million to cover the cost of decontaminating the facilities affected

by the anthrax attacks. The Postal Service just completed its final

systems test at Brentwood facility.

What is the time frame for cleaning up Brentwood and where are

you on the clean-up at the Trenton mail processing facility? Do you

know when these facilities will be reopened?

General POTTER. Senator, we are moving as quickly as we can

to reopen our facilities in Brentwood and up in Trenton. We are

trying to do it in a very diligent way in the sense that we want

to take all precautions so that we are not doing anything that potentially could harm the communities that surround those facilities. We want to make sure that we take care so that the facilities

are properly cleaned so that you and I could walk into those facilities with confidence that they are not a threat to our health. If we

are unable to do that, our employees should not go back into those

facilities.

My understanding is that we are probably going to have another

test at the Brentwood facility before we move ahead for clean-up.

Again we are working with other Federal agencies. We want to do

everything that is necessary to assure the safety of those who are

going to fumigate those facilities and treat those facilities, the surrounding communities, and our employees when they go back into

those facilities.

I wish I could give you a time frame. The clock keeps moving

back but it is moving back for proper reasons. It is because we are

taking other precautions, and we are making sure that it is done

right and that we do not have any harm. But our goal is to clean

Brentwood as quickly as we can. The same team that is being used

in Washington, DC, will then move to New Jersey, and it will conduct a clean-up of the Trenton facility.

Senator AKAKA. The Postal Service emphasizes the need to involve the four postal employee unions in initiatives relating to the

Transformation Plan. Could you please provide us with an update

on how this is going and give specific examples of the progress that

has been made?

General POTTER. We have been working very closely with our

unions and it began last year with anthrax. We have a Mail SecuVerDate 11-MAY-2000 10:48 Feb 14, 2003 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6601 83480.TXT SAFFAIRS PsN: SAFFAIRS
22

rity Task Force that meets on a regular basis to discuss the parts

of the Transformation Plan that deal with the protection of our employees and the reduction of risk to our system from biohazardous

threats.

In addition to that, we meet on a regular basis. I personally meet

with the heads of the four unions and three management associations to discuss where we are going with the Transformation Plan.

I was very excited that the National Association of Letter Carriers

has come to an agreement with us to work together on the implementation of the Transformation Plan. It was announced at their

convention last month, and I want to thank their president, Vincent Sombrotto, for his support. And we are looking forward to

working with that union and all the unions on the Transformation

Plan.

And it goes beyond just legislative change. Part of that agreement with the NALC talks about the flexibility that is necessary

to meet the needs of the American public moving into the future.

So I am excited by the fact that these conversations even take

place. Years ago that would not have even been the case. But I am

also excited that we are seeing progress and we are coming to common understanding on a lot of the issues. We will not always agree

about everything but I do think we have a common goal and a common desire for the Postal Service to be successful in the future.

Senator AKAKA. Thank you very much. Senator Cochran.

Senator COCHRAN. Mr. Chairman, thank you.

General, in the Postal Service’s Transformation Plan it is stated

that you plan to develop some new products and services. Can you

tell us what new products and services you are considering?

General POTTER. I can give you an example of one that was

kicked off on September 22 and that is a product called Confirm.

What Confirm enables a customer to do is to put a code—we call

it a planet code—put a code on their mail that is read by our optical character-readers on bar code sorting equipment and other

equipment so that they can deposit their mail and they can track

it through our system.

Oftentimes in the past people have had to call up postmasters to

say, ‘‘Did you see my catalogue? Did you see my periodical?’’ And

what we have built is a system that allows codes to be read, no

labor involved, same optical character-reading capability, so people

will be able to track their mail through the system.

The benefits to the customer are many. We have some customers

who are using this, insurance companies and others, who have bills

that are outstanding from customers. Before they mail a second

piece to say you are in arrears and you failed to meet your payment, they can check to see whether or not that customer has sent

a response.

And there are other things that make it a better product, whatever they use it on, for them. For example, there are customers

who send out advertisements. They know when the advertisement

hits a home so that they can set up their fulfillment response and

better predict what is going to happen in terms of their use of resources.

23

So that is one example of a product where we have a product,

you pay a fee, but it enhances one piece of our core business, in

that case letter mail or flat mail.

Senator COCHRAN. Did you realize any net income from any new

products and services during this current Fiscal Year? If so, how

much income do you——

General POTTER. No, we did not.

Senator COCHRAN. Have you taken any steps to improve the financial information relating to costs and revenues associated with

new products and services, including e-commerce?

General POTTER. Yes, we have raised the bar in terms of our financial reporting, and we deal with those products on a separate

basis. A lot of that financial analysis has led us to curtail and

eliminate some products, particularly e-commerce products, that we

had offered.

So as we introduce new products we put in a very tight financial

monitoring system and then we evaluate the business plans that

were developed around those new products. We will be able to

make evaluations, I think, in a more timely way to determine

whether or not we continue on with a product or we eliminate a

product.

Senator COCHRAN. Speaking of discontinuing new products or

services, have you discontinued any new products over the past

year and how have you reached those decisions as to whether

something is making money or going to make money or is losing

money and should be abandoned?

General POTTER. Well, in the past year we have eliminated Net

Post Certified, Poste CS, a couple of our electronic commerce products. We have used the financial data that we have to reevaluate

the relationship that we have with others on some of these products. For example, our eBillPay product, we have totally revamped

our contract such that today we allow people to access that product

using our website but our total investment is one staffer to manage

the system, the process, and ensure the integrity of the system. But

we literally just allow people to use our brand name on that product. We do the due diligence to make sure that it is an effective

product.

Now we anticipate that we are going to have net income from

that, positive net income from that, as a going concern into the future as a result of the changes that we made.

Senator COCHRAN. Are you satisfied that you are evaluating the

performance of new products and learning why you are or are not

making money with some of these new products?

General POTTER. I am satisfied that we have made tremendous

progress in our analysis. I cannot tell you that I know for sure why

we make or do not make money. I think a lot of the marketplace

dictates that. We are a lot smarter than we were a year ago. I

think we are going to continue to get smarter as we move into the

future. We are going to make very crisp decisions about whether

or not a product is effective for us or is not effective and we are

going to abandon those that simply do not help our bottom line.

Senator COCHRAN. Are you concerned about questions regarding

whether the Service should be spending resources to provide prodVerDate 11-MAY-2000 10:48 Feb 14, 2003 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6601 83480.TXT SAFFAIRS PsN: SAFFAIRS
24

ucts and other services that are already provided by private sector

companies?

General POTTER. I am not concerned because our focus is going

to be, while I am Postmaster General, products that enhance our

core products. So we will look at products that enhance letter mail,

flat mail, and packages. As I just described, Confirm is a new product but it is strictly related to our core mission of delivering hard

copy and delivering package services in America. So as we move

forward we are going to look to make sure that there is a linkage

between the two.

Senator COCHRAN. Thank you. Senator Carper.

Senator CARPER. Thanks.

I arrived a few minutes late and I missed your testimony. I was

in an earlier meeting in my office on Amtrak. Just about every Friday, we pull interested parties together and discuss the figure of

passenger rail service in our country.

One of Amtrak’s significant customers is the Postal Service.

Would you just take a minute or two and describe the nature of

that relationship, your satisfaction with that relationship, if you

see it diminishing, if you see it growing, if there is something that

Amtrak needs to be doing to be able to provide better service or

more service to the Postal Service?

General POTTER. I am very grateful to Amtrak for the help that

we received immediately following September 11 because of the

fact that we were not able to fly mail. That has been a relationship

that has worked for both of us. We have a lot of rail service, particularly on the East Coast and some rail service moving out to the

Midwest, Chicago.

We are reevaluating all of our transportation networks as part

of that network integration model that I discussed and what we are

finding is that there are some redundant services. There is some

mail that we are putting on the train where we have a truck that

is just as effective. There is some mail that is on trucks that might

be better served on a train, and we are looking at the entire network now, not looking at rail independent from highway, independent from air.

So we are in the throes of that analysis and we will see, once

that is completed, what role Amtrak will play. There have been

times that we have had concerns about service. We share it with

Amtrak and we attempt to work through those problems.

I do have a major concern, though, when it comes to Amtrak and

that regards the future of Amtrak. I am sure that all users of that

service who hear the debate that is going on inside the Beltway

know that there has been a budget request that the appropriation

has not quite met and that there is a potential loss on service. So

certainly we have built contingency plans to address that situation

should it occur.

Senator CARPER. The Senate has actually agreed, in our Transportation Appropriations bill as I recall, to fund Amtrak at the $1.2

billion request from Amtrak. The House, I think, has included in

their Transportation Appropriations bill an amount about threequarters of a billion dollars, which is higher than the current level

of appropriation, although not as high as the Senate, and we will

simply have to work out our differences.

25

We have an opportunity in the context of reauthorizing TEA–21

to determine to what extent this country should be putting additional dollars, maybe earmarked sources of funds, into capital investment for Amtrak to upgrade track structure in the Northeast

and to help develop high speed rail corridors in other parts of the

country.

I am actually encouraged by a poll that was published, I think

in the Washington Post this summer, where they questioned people

around America about their view of the future of passenger rail

service, whether we need it or not, and I think about 70 percent

of the people who responded felt that we should maintain or increase Federal support for an inter-city passenger rail system. And

surprisingly, you would think older guys like me would be interested in supporting passenger rail, maybe people of my parents’ generation who rode the trains when they were younger. Actually,

there is a lot of support from young people.

At first I could not understand that, Mr. Chairman, but I think

what it is is a lot of our young people have had the opportunity

to travel abroad and to ride the terrific trains in Asia and Japan

and in Europe, to see what passenger rail can be and to know what

the potential could be here.

As I came in, Mr. Chairman, I heard Senator Collins’ comments

and I think there was some discussion on a commission on postal

reform. When you and I were in the House of Representatives—and

I think Senator Cochran was in the Senate—one of the first things

that was on our plate was a report of a blue ribbon commission on

Social Security, trying to figure out what to do to save Social Security at the time. I think Alan Greenspan was on the commission;

I think Bob Dole was on it and Claude Pepper.

They gave us pretty good recommendations and we acted on

them, depoliticized the issue. We acted on them and 20 years later

Social Security is still alive and kicking. It is not perfect but we

got through that scrape in pretty good shape.

The president, our new president, proposed a commission to

change the way we may invest our monies in Social Security to

give people some discretion to invest money on their own outside

of the Social Security Trust Fund.

The commission, I think, included Daniel Moynihan, former Congressman Tim Penny with whom you and I served, Mr. Chairman.

And they made recommendations but the recommendations have

been really for naught. There has not been much that has happened as a result.

We have the opportunity here to consider legislation, probably

not this year but maybe next year, on a postal reform commission.

I think a postal commission can serve a valuable purpose but I

would hope that the nature of the commission and the membership

of the commission is such that they will not go into it with a predetermined result and that people of different backgrounds, people

with different perspectives, will work together to give us a good

consensus position and not a pitch that is already telegraphed.

Do you have any views on the facility or helpfulness of a commission or maybe the nature of its membership?

By the way, we voted this week on a commission on the heels

of September 11 proposed by Senators Lieberman and McCain and

26

I think that commission would be appointed partly by the House,

partly by the Senate, and partly by the President.

Any thoughts you have on the composition of a commission?

General POTTER. I believe that a commission should be independent, that given the fact that we are talking about the Postal

Service, we probably would be best off if we had business people

who are not that close to the postal community, who could take a

public policy view of the Postal Service, bring business acumen to

the table so they can look at opportunities that might be there, so

that there is no bias in terms of what might happen.

I do believe our employees need to be represented on a commission.

Senator CARPER. And how might that be?

General POTTER. Not them personally, but their views need to be

represented by somebody who is not a member of our unions or

perhaps a competitor’s unions but another group from labor that

could witness, participate and make contributions to the commission.

I also believe that the mandate and the charter for this commission should be broad and that they should be looking at it in perspective of, as I just said, public policy, universal service in light

of the challenges that face the Postal Service—competition with the

Internet—look to provide services perhaps in a different way than

they are currently done. As I stated earlier, the idea of bringing

services to people’s doors versus having people have to go to a location is something that should be part of the mix of what a commission would look at. And the Commission should be chartered to

provide a mechanism to assure universal service to America for

many years to come.

Senator CARPER. Thank you for those views.

My time has again expired, Mr. Chairman. Thank you.

Senator AKAKA. Thank you.

I have another question, Postmaster General. I understand that

you have been talking with the two organizations that represent

postmasters regarding a new procedure for consultations. What is

the status of these discussions and how do you see the matter

being resolved?

General POTTER. We have been working with the management of

the postmaster organizations for the past year and unfortunately,

we did get a little distracted last fall with September 11, with anthrax, and they were active participants on our Mail Security Task

Force.

Right after that we had a consultation that we just completed

that determined their compensation package for 2 years, so our attention was drawn to that. Once that was completed, we engaged

in discussions about changes to the process, the consultation process, that we might embark on in future years.

It is a very interesting dynamic in terms of discussing this issue

with postmaster organizations because we have two organizations

who represent the same people but do not always think alike; there

are a lot of postmasters who belong to both organizations. So we

are trying to work through the process of how we could change the

consultation effort and have those two organizations participate,

given the fact that they may have diverging views but they repVerDate 11-MAY-2000 10:48 Feb 14, 2003 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6601 83480.TXT SAFFAIRS PsN: SAFFAIRS
27

resent the same people. So it is a little delicate but we are working

through it.

Senator AKAKA. Thank you for your response. Senator Cochran.

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

either. I think General Potter has done an excellent job answering

our questions and talking about the Postal Service challenges and

plans for the future.

Senator AKAKA. Thank you very much. Any further statements?

Senator CARPER. I have just a few more questions if I could, Mr.

Chairman.

Senator AKAKA. All right.

Senator CARPER. A congressman from, I think, New York, Congressman McHugh, has been working on reform legislation, toiling

in the vineyards for a long time, and I give him credit for trying

to figure out the right thing to do and to do it and there is, I think,

some likelihood that we will consider in the House and maybe in

the Senate next year reform legislation. I will just give you a couple of examples of things that I hope we could address.

One of those is the issue of retained earnings. Most companies

who make a profit retain earnings and they use that for—in some

cases they pay dividends to their shareholders. You do not have

shareholders but you do have an obligation to the Federal Government to repay and I am pleased at the prospect of your being able

to pay that down. But I would like for us to be able to examine

whether or not you should be able to retain a portion of your earnings from year to year when you are in a profitable situation.

A lot of companies, when they are figuring out how to price their

product or their service, they adjust their prices to what the market will bear. When the demand is strong they may move the price

up a little bit; when demand is weak, they may lower their prices.

And we have seen with the auto companies the zero percent financing and what that has done in order to spur the purchase of cars,

trucks and vans in this country over the last year.

Those are just some of the things. I would like for us maybe to

consider this model of what changes, if any, should be made with

respect to the Postal Rate Commission, although I am encouraged

by the kind of relationship that you described earlier.

I am tempted to ask you what you would have us to consider as

we move toward trying to shape some legislation in the next Congress on postal reform. Rather than do that here, though, I think

what I will do is just say put it on your radar screen as something

we would like to talk with you about and with maybe the Board

of Governors and others who represent your employees.

Who chairs your Board of Governors these days?

General POTTER. The chairman is Robert Rider.

Senator CARPER. That sounds familiar. Where is he from?

General POTTER. Delaware.

Senator CARPER. How is he doing?

General POTTER. He’s doing great. He hired me. He is doing a

great job. [Laughter.]

Senator CARPER. And indirectly, he sort of hired me, too, with

about 300,000 other people who voted.

Both the Chairman and Senator Cochran asked a bit about the

closure of underutilized facilities. When we were in the House, Mr.

28

Chairman, I think we had our first round of base closing commissions and we will probably see another one of those in a year or

two. I do not recall ever in the time we debated those issues when

we were in the House or in the Senate when anyone came to the

House floor or the Senate floor and said, ‘‘Boy, I wish you would

close my base. Sure would like to get rid of my Air Force base or

my naval facility or my Army facility.’’ I do not remember anybody

ever calling for that.

And by the same token, I do not remember hearing anybody who

said, ‘‘Please close my post office. We would like to get rid of that

baby.’’

General POTTER. I have not found one yet, either.

Senator CARPER. I have not seen that. But we know that there

are bases that ought to be closed and some that have and there are

probably some post offices that ought to be closed, as well—maybe

not a lot but probably some. And I would just say as you go forward and consider that, what I always find is helpful if you are

going to take away a facility or a service that people are used to,

replace it with something better. It does not have to be the same

facility but provide even better service so that when people come

to me or other members of the House and Senate and say, ‘‘God,

do not let them close my post office,’’ it is really helpful if we can

say, ‘‘Well, your post office, which is losing X dollars per year, the

people who use that service are going to be provided better service

in these ways.’’ I would ask that you keep that in mind.

Two more things. One of those is alternative energy. In my State

we have learned how to take biodiesel fuel, to mix soybean oil—we

have a lot of soybeans in Delaware. We use the oil from the soybeans, we mix it with diesel fuel and now all of our DelDOT vehicles are diesel-powered.

And as we go forward we are grappling with an energy bill in

our conference between the House and the Senate today and a part

of that is alternative energy, renewable forms of energy, and I do

not know to what extent the Postal Service is able to use or uses

diesel fuel to power your vehicles. I would just ask that you keep

in mind that there is a great interest here in the Senate, not just

from Delaware but other places, as well, on the use of biofuels to

power particularly diesel-powered vehicles.

General POTTER. We believe that we are a leader when it comes

to alternate fuels and we are going to continue to do that. We are

very concerned about the environment and so we are a pioneer and

we are going to continue to be that way.

Senator CARPER. That is great. In the energy bill that is in the

conference there are really three roles that the government is attempting to play to bring about cleaner energy, more efficient energy sources. One of those is R&D investments, early R&D investments through the Federal tax dollars.

The second is to commercialize technologies by using, for example, in vehicles on the military side and our civilian side, to use our

purchasing power to commercialize more energy-efficient, cleaner

burning vehicles, and you have a great opportunity at the Postal

Service to help commercialize those new technologies and we are

mindful of that and grateful.

29

There is a contraption called a Segway which has been developed. I have heard some different uses being proposed for it and

I do not know if any of those involve the Postal Service or not. Do

they?

General POTTER. We have tests going on around America. We

work very closely with Dean Kamen, the founder of Segway and

the inventor of Segway, and we are testing them on mail routes

across the country. We even have them in the Bronx. We are analyzing the Segway to determine whether or not there are benefits,

and we believe there are, to the Postal Service in terms of first for

our employees and wear and tear on their legs, as well as the efficiency of delivery of mail. Those tests are under way and I think

we are in the second phase of what is a three-phased program to

test, thoroughly test, that piece of equipment.

Senator CARPER. Any idea when you will be in a position to say

this is good, this is something we would like to use or expand?

General POTTER. As soon as those tests are complete.

Senator CARPER. Next year?

General POTTER. Probably a year from now. We are excited about

it. We are making enhancements, and I compliment the folks that

work on Segway because as we come up with issues, they find solutions. So it is a good partnership, and we are looking forward to

completion of the tests and the analysis of data.

Senator CARPER. Mr. Chairman, my time has again expired. Let

me just say thank you for giving me this much opportunity to ask

questions. I have had a chance in my first 2 years in the Senate

to participate in a lot of hearings and this has actually been one

of the more constructive and encouraging hearings and I want to

express my thanks to General Potter and those with whom he has

worked—employees and your customers and everyone for the encouraging words.

There is obviously more to be done and I like to say that the road

to improvement is always under construction and that is probably

true in this case, as well.

The last thing I would mention just in closing is grievance procedures—we do not have time to get into it today but I have heard

in discussing with our own postal employees in Delaware how

grievance procedures just take forever and I would like to have the

opportunity maybe to explore how that is changing and what you

are doing about that. I know it is a concern.

General POTTER. I would really like to talk to you about that because we have made a lot of progress in grievance procedures. We

still have one area that is an area of concern and we are working

closely with that union and I hope we can make a breakthrough

this year. So I look forward to a conversation on that.

Senator CARPER. Good. Thanks so much. Thank you, Mr. Chairman.

Senator AKAKA. Thank you.

Senator Torricelli has a number of questions for the record and

I just want to say that the record will remain open for Senators

to submit additional questions until October 4.

Postmaster General, I would like to thank you very much for

your testimony and your responses to our questions today. It is

clear that the Postal Service is moving forward in its transVerDate 11-MAY-2000 10:48 Feb 14, 2003 Jkt 000000 PO 00000 Frm 00033 Fmt 6633 Sfmt 6601 83480.TXT SAFFAIRS PsN: SAFFAIRS
30

formation. We must never forget how critical the mail system is to

linking our country together and the economic significance of the

Nation’s $900 billion mailing industry.

I also would like to thank all of those in the audience who are

interested in the well-being of the Postal Service and are working

together to meet the challenges ahead. I want to thank the Members of this Subcommittee, too, for their interest in this.

Senator Cochran, would you have any further to add?

Senator COCHRAN. I have nothing further, Mr. Chairman, thank

you.

Senator AKAKA. Again I want to say thank you, Postmaster General. This hearing is adjourned.

[Whereupon, at 11:47 a.m., the Subcommittee was adjourned.]

(31)

A P P E N D I X

32

33

34

35

36

37

38

39

40

41

42

43

44

45

46

47

48

49

50

51

52

53

54

55

56

57

58

59

60

61

62

63

64

65

66

67

68

69

70

71

72

73

74

75

76

77

78

79

80

81

82

83

84

85

86

87

88

Æ