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THE ROAD AHEAD: IMPLEMENTING POSTAL

REFORM

HEARING

BEFORE THE

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT 

INFORMATION, FEDERAL SERVICES, AND 

INTERNATIONAL SECURITY SUBCOMMITTEE

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

APRIL 19, 2007

Available via http://www.access.gpo.gov/congress/senate

Printed for the use of the Committee on Homeland Security 

and Governmental Affairs

(

(II)

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

JOSEPH I. LIEBERMAN, Connecticut, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

BARACK OBAMA, Illinois 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

SUSAN M. COLLINS, Maine 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

TOM COBURN, Oklahoma 

PETE V. DOMENICI, New Mexico 

JOHN WARNER, Virginia 

JOHN E. SUNUNU, New Hampshire

MICHAEL L. ALEXANDER, Staff Director 

BRANDON L. MILHORN, Minority Staff Director and Chief Counsel 

TRINA DRIESSNACK TYRER, Chief Clerk 

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, 

FEDERAL SERVICES, AND INTERNATIONAL SECURITY SUBCOMMITTEE 

THOMAS R. CARPER, Delaware, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

BARACK OBAMA, Illinois 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

TOM COBURN, Oklahoma 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

PETE V. DOMENICI, New Mexico 

JOHN E. SUNUNU, New Hampshire

JOHN KILVINGTON, Staff Director 

KATY FRENCH, Minority Staff Director 

LIZ SCRANTON, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

Senator Carper ................................................................................................. 1

Senator Coburn ................................................................................................. 4

Senator Akaka .................................................................................................. 6

Senator Collins ................................................................................................. 7

Senator Stevens ................................................................................................ 10

WITNESSES 

THURSDAY, APRIL 19, 2007

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

Postal Service ....................................................................................................... 12

Hon. Dan G. Blair, Chairman, Postal Regulatory Commission ........................... 14

Katherine Siggerud, Director, Physical Infrastructure Issues Team, U.S. Government Accountability Office ............................................................................. 16

ALPHABETICAL LIST OF WITNESSES

Blair, Hon. Dan G.: 

Testimony .......................................................................................................... 14

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

Potter, Hon. John E.: 

Testimony .......................................................................................................... 12

Prepared statement .......................................................................................... 35

Siggerud, Katherine: 

Testimony .......................................................................................................... 16

Prepared statement .......................................................................................... 51

APPENDIX 

Questions and Responses for the Record from: 

Mr. Potter .......................................................................................................... 84

Mr. Blair ............................................................................................................ 112

Ms. Siggerud ..................................................................................................... 119

(1)

THE ROAD AHEAD: IMPLEMENTING POSTAL 

REFORM 

Thursday, April 19, 2007

U.S. SENATE,

SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT,

GOVERNMENT INFORMATION, FEDERAL SERVICES,

AND INTERNATIONAL SECURITY, 

OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:30 p.m., in room 

342, Dirksen Senate Office Building, Hon. Thomas R. Carper, 

Chairman of the Subcommittee, presiding. 

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

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. We ask the Subcommittee to come to order. I 

would like to begin by thanking each of our panelists for being here 

today and for all the folks in the audience and those that aren’t 

here who have worked with a bunch of us over the last, for me, 6 

years, for others, as long as 10 years to update and attempt to 

make the first really major change in our postal system since Senator Stevens and his colleagues some 37 years ago worked to separate the U.S. Postal Department from where it was to bring it into, 

at that time, really into the 20th Century, and what we are endeavoring to do is to bring it into the 21st Century. I am proud of 

what we were able to accomplish and I am grateful to all who have 

played a role in its passage. 

I really want to thank Senator Stevens. One of the first meetings 

I had as a new Senator—I don’t know if you remember it, but we 

had breakfast together and we talked about how you worked to develop consensus all those many years ago and I thank you for that 

counsel and certainly for your support as we tried to improve on 

your work today. 

As I have noted a number of times in the past, one of the first 

hearings that I attended of this Subcommittee some 6 years ago 

was about the Postal Service’s dire financial situation. I believe the 

Postal Service was nearing, at the time, its statutory borrowing 

limit and appeared to be close to financial collapse. Things have 

improved remarkably, thank goodness, since then, and under the 

leadership of Postmaster General Potter, the Postal Service has 

survived September 11, 2001, survived anthrax attacks, and is currently on sound financial footing. 

2

Setting aside a one-time charge relating to a provision in the 

postal reform bill, financial data released in early February show 

that revenue at the Postal Service was up by a little more than 6 

percent in the first quarter of fiscal year 2007, and there is also 

another increase in productivity. 

These numbers are, I think, emblematic of the leadership that 

Mr. Potter and his management team have shown. But they also 

mask some serious long-term problems that threaten the viability 

of the Postal Service as we know it. 

As we are all certainly aware, the Postal Service must compete 

these days with cell phones, compete with e-mails, compete with 

fax machines and electronic bill payment technology. Mail volume 

in some areas, particularly First Class mail, has been declining in 

recent years, although I understand it was flat for the most recent 

year. In many cases, letter carriers are bringing fewer pieces of 

mail to the homes or businesses they visit each day. At the same 

time, the number of delivery points on the postal network, as we 

know, is still increasing by, I am told, some one million per year. 

Many observers have been saying for years that the Postal Service, due to the cost of its obligation to provide universal service, 

was entering a so-called death spiral of declining volume, leading 

to higher rates, leading to more declines in volume and yet still 

higher rates. 

The legislation that we enacted at the end of last year was intended to prevent or at least to slow this decline. We clearly could 

not outlaw e-mail or electronic bill payment in the legislation, but 

what we could do and what I believe we did do is to provide the 

Postal Service with more of the tools necessary to compete in a 

modern economy. 

Up until now, the Postal Service has been operating under a 

business model created by Senator Stevens and his colleagues some 

37 years ago, a model that worked remarkably well. In order, 

though, to change its prices, postal management was forced to go 

through a ratemaking process that often took more than a year to 

complete, and at the end of the day, the Postal Service was given 

little incentive through that rate system to modernize its organization and modernize its operations because they were essentially entitled to receive whatever price increases they needed to cover their 

costs, whatever those costs might be. 

Well, that will soon no longer be the case. Under the rate system 

currently being developed by the Postal Regulatory Commission 

(PRC), the Postal Service will have significantly more freedom to 

price their products according to what the market will bear and tailor prices to the needs and demands of their customers. It will also 

be forced to live for at least 10 years under a tight rate cap based 

on the Consumer Price Index that will force the continuation of the 

streamlining process that was begun under the Postmaster General. 

At the same time, the bill signed into law last December 

strengthened management and transparency at the Postal Service 

and it gave the Postal Regulatory Commission significant new authority to ensure that the Postal Service is complying with applicable laws and regulations. And the authority of the Commission will 

extend for the first time to service in addition to rates. 

3

The bill also looks to the future, requiring the Postal Service to 

come up with long-term goals for the right-sizing of its workforce 

and facilities network, and for the deployment of cheaper, more 

customer-friendly retail options. It also requires regular reports on 

the Postal Service’s future. This will include recommendations on 

changes to the universal service obligation and the postal monopoly 

that are needed to ensure that those who depend on the Postal 

Service are getting the service that they need. 

And finally, the bill seeks to shore up the Postal Service’s finances for years to come. Over the next 10 years, the Postal Service will be making aggressive payments toward paying down its 

more than $50 billion retiree health care liability, and at the end 

of this period, the Postal Service will have full use of billions of dollars every year that they had been paying first into the old Civil 

Service Retirement System Pension Program, and then for the last 

couple of years into an escrow account. This money will give the 

Postal Service the ability to maintain rate stability and continue 

carrying out its universal service obligation in the future when the 

use of electronic forms of communication can only be expected to 

grow. 

Starting today, it is the job of this Subcommittee to make sure 

that postal reform is implemented properly. In addition to hearing 

testimony about the current state of the Postal Service, I want us 

to closely examine some key provisions of the bill and the plans in 

place to carry them out. 

Mr. Blair, you and your team at the Postal Regulatory Commission certainly have your work cut out for you. You have got a number of regulations and reports that must come out in a very short 

period of time, as you know. We structured our bill this way not 

to test you, but to ensure that the Postal Service has the ability 

to access the significant pricing flexibility we gave them as soon as 

possible. 

We also wanted to give postal customers as soon as possible the 

benefit of the predictability and the stability that the rate cap offers them. This is especially important now that the Postal Service 

is implementing a rate increase and there is fear out there that another increase could be just around the corner. Personally, I would 

rather have the next rate increase occur under the new rules, not 

the old rules, so I look forward to hearing from you, Mr. Blair, and 

I know I have read a little bit of your testimony on this point already, but hearing from you about where we are in the rulemaking 

process and what help you might need from us and from the Postal 

Service in getting this new system up and running sooner rather 

than later. 

If I could, let me just close by noting that those of us who had 

a role in drafting the postal reform bill—and we have been joined 

by Senator Collins—I think nobody had a greater role, certainly in 

the Senate, than Senator Collins in drafting this compromise and 

helping to get it done, getting the support of the Administration. 

I want to just note that those of us who had a role in drafting 

a postal reform bill chose not to privatize the Postal Service and 

not to erode in any way the service level that the Postal Service 

provides. I have been concerned, then, with information my staff 

and I have learned about in the press and from postal employees 

4

and customers about the contracting out of mail delivery. I know 

that the Postal Service is under tremendous pressure to streamline 

and to cut costs and that this pressure will only grow once the rate 

cap being developed is in effect. I also know that contractors have 

always been a part of mail delivery, always have been, probably always will be, probably always should be, and I recognize that there 

may be some areas where the use of contractors could be expanded. 

However, I am concerned if what we are seeing now is the beginning of a rapid and wholesale transition from postal employees to 

contract employees in the area of mail delivery. If more mail delivery is to be contracted out, the Postal Service needs to be more 

open about its plans. Customers need to hear about the impact contracting decisions will have on service and employees need to know 

that they will be treated fairly. I, for one, would like to know some 

more about the process being used to solicit and review bids, and 

once a contract has been signed, to oversee the work done by contractors and whoever it is that they may subcontract with. 

Letter carriers are often the only contact most Americans have 

with the Federal Government almost every day. In many cases, 

they are also probably the only part of the Federal Government 

that people have, too often, positive feelings about. I think it is important, then, that there be more openness from the Postal Service 

about what their plans are if contracting out of mail delivery truly 

is to become more common. 

With that having been said, Senator Coburn, you are on. 

OPENING STATEMENT OF SENATOR COBURN 

Senator COBURN. Thank you, Mr. Chairman. I have a statement 

for the record I would like to have admitted. I won’t spend the time 

and I will apologize to our guests that we have a Judiciary hearing 

of some importance going on now and I will be called to that momentarily. 

I want to thank Senator Collins as well as Senator Carper and 

all those that worked on the postal reform bill. It is one of the few 

bills that I didn’t try to stop last year and I want to be appreciated 

for that. [Laughter.] 

I had no part in its delay. I want to talk about long term. We 

have hundreds of thousands of great employees that work for the 

Postal Service. This is an estimate of revenues and expenses. You 

all didn’t prepare this, I prepared this, looking at what is happening and where it is going under the revised postal reform bill 

that was passed. What we see very soon is red. We saw red, $600 

million. The real number was $600 million this past year. I believe 

that what has happened is a great intermediate step and I think 

we have to keep our eye on the ball. 

People claim that I am an idealist. I am not. I am a realist that 

thinks in the long term, and so, therefore, that is reflected as being 

an idealist in the short term. But I think that the decisions that 

we ought to be talking about is what happens 10 years from now. 

I appreciate very much the Chairman having this hearing, but 

I also think it is important that we continue. What is the next 

step? What has happened is the Postal Service has watched its 

costs grow faster than its revenues since 2003. It needs to be freed 

up to run more like a business and less like a bureaucracy if it is 

5

ever to dig out of what that chart is estimated on our behalf. I am 

not sure that everybody would agree with that, but I will show that 

again in 3 or 4 years and we will see how accurate it was. 

The recently-passed reform legislation provided only for ways to 

increase postal rates without really creating ways to cut costs. Simply raising rates without cutting costs won’t do anything in the 

long run to help the Postal Service because of who you compete 

with and how the world is changing. If Congress truly wants to reform the Postal Service, it will need to move beyond the traditional 

reforms that prop up monopolies and bureaucracy and move towards those that promote competition, markets, and innovation. 

Senator Carper mentioned the technologic changes that have 

come about that have impacted First Class mail, and I had a wonderful conversation with the Postmaster General in my office, I believe it was this week or last week—last week, the weeks run together—and I am committed to seeing and believing that his management and those that work under him are great and are what 

we need, and so I would compliment you in that regard. 

But my hope is that we are thinking 10 years down the road, because if we are and if we give you the tools, right now, three-quarters of your costs are labor costs, and yet on a large majority of 

those labor costs, you have no capability to control those. I don’t 

begrudge the fact that the average postal employee in this country 

makes, with benefits, $20,000 more than the average person in this 

country. That is the facts. But if that is the case, and it is, then 

efficiency ought to be the No. 1 thing and performance ought to be 

the No. 1 thing and the power of management to get that efficiency 

that postal workers want to give ought to be there. The tools ought 

to be there. 

So I look forward to your hearing. I have some questions that I 

would like to submit. My staff will stay here during the hearing. 

And again, I apologize to you for not being able to stay. I have reviewed the testimony and I thank each of our witnesses today. 

[The prepared statement of Senator Coburn follows:]

OPENING STATEMENT OF SENATOR COBURN 

My view of the U.S. Postal Service is akin to an iceberg floating in the Caribbean: 

even the best efforts can only help a little. This might seem harsh for an agency 

that recently had life breathed back into it through reform legislation passed late 

last year. But, if we are honest and face the facts, it is difficult to imagine a postal 

service in twenty years that looks anything like it does today. 

For years, pressures inside and outside the Postal Service have mounted, pushing 

it dangerously close to the breaking point. Without the recently passed Postal Reform legislation the situation would be worse, for sure. But, it’s is my opinion that 

the reforms we passed will do no more than simply keep the agency afloat a little 

longer than it otherwise would—I don’t believe it can reverse the downward trend. 

To roughly outline the problems, we have a situation in which revenues are growing at a rate of less than 2.5% per year while costs are growing around 5% per year. 

First-Class mail volume is plummeting, electronic communications are increasing, 

and labor costs are threatening to eat up any revenues that the postal service 

makes. It doesn’t take much to realize that none of this adds up to a healthy bottom 

line. 

The problems faced by the postal service, though, cannot simply be laid at the feet 

of management. Although every large organization can rise or fall on good management—which the postal service has had under Postmaster Potter—I want to emphasize that I believe the problem is primarily structural. By that, I mean that the 

postal service’s problems cannot be solved with new management or by tinkering 

around the edges. The Postal Service must operate under conditions placed on it by 

6

Congress, and those conditions, if unchanged, will bring inevitable failure to thrive 

in the market and a financial millstone around the taxpayer neck. 

There are three things I’m primarily talking about: 

Structural Challenges Facing the Postal Service 

Competition 

First, competition with private industry is a significant challenge and it does so 

with its ‘‘competitive’’ products—Express Mail, Priority Mail and Parcel Post. Most 

other products are protected by a Congressionally-mandated monopoly, though, 

which shields the Postal Service from having to compete in everything it does. But, 

even limited competion has proven to be a huge challenge as we see in the fact that 

since 2002, revenues for Priority and Express Mail have been stagnant and volume 

has been down. 

Competing with the private sector is good for the American public, and the fact 

that it is bad news for the Postal Service is a sign that the Postal Service is fundamentally structurally unsound. The only response to tough competition is to provide better services at better prices or continue to lose its share of the market. No 

reform legislation can completely address the challenge of competing with industry. 

Labor Costs 

Second, labor costs are another significant structural problem facing the Postal 

Service. Despite a decrease of 10,000 employees since 2004, the Postal Service’s 

costs for compensation and benefits have increased by over $4 billion annually. 

Right now, labor costs account for over three-quarters of their annual operating 

budget. On the contrary, the Postal Service’s competitors face far lower labor costs 

and are able to keep them under control. 

Again, this is not necessarily the fault of the Postal Service, it’s been imposed by 

a Congress that lacks the accountability that Fed-Ex or DHS owes to its shareholders. Powerful politicians and employee unions have combined forces to thwart 

any effort of the agency to control its labor costs. Until it is able to do so, labor will 

eat an ever-growing percentage of its budget and threaten to drag the agency into 

ruin. 

Technological Advances 

Even without the problems of competition and labor costs, the business model of 

the Postal Service would be fatally flawed. That’s because the most significant problem facing the Postal Service is that it is losing relevance in the face of technology 

advances. The Internet, telephone and fax have displaced much of what was previously sent by mail. Instead of sending bills or taxes by mail, more and more Americans are going online. In fact, according to the IRS more than 73 million Americans 

filed taxes online last year. 

These advances are revolutionizing the world of communication in business, entertainment and social relationships. This is a great thing—consumers are getting 

high-speed, well-documented, convenient services and these have revolutionized our 

world. We should be applauding these changes. It is the American people who are 

our ‘‘clients’’ not the Postal Service—and we must first and foremost think of what 

they want, need and expect—what’s good for them, not what’s good for the government. 

Where Do We Go From Here? 

The three factors I’ve laid out—competition, labor and technology—were not challenges created by the Postal Service, but they are real, and they must be faced. 

Facing these challenges will require the Congress to go beyond the typical ‘‘reform’’ legislation that addresses how rates are changed, escrow accounts are tallied 

or members are appointed to boards. Rather, we will need to reconsider the very 

fundamental questions such as:

• Is it essential that mail delivery remain a core government function? • Is it time to rethink the definition of ‘‘universal service’’? • Whose needs are being served by the current system? The American public 

or others?

These, I believe, are the questions that need to be asked and the questions I hope 

to answer in this hearing in the months to come.

Senator CARPER. Let me yield now to Senator Akaka for any 

statement he might have. 

OPENING STATEMENT OF SENATOR AKAKA 

Senator AKAKA. Thank you very much, Mr. Chairman. I am 

pleased to be with you here this afternoon. I want to add my welcome to the witnesses. I first want to commend my colleagues, esVerDate 0ct 09 2002 14:10 Apr 07, 2008 Jkt 035526 PO 00000 Frm 00010 Fmt 6633 Sfmt 6601 P:\DOCS\35526.TXT SAFFAIRS PsN: PAT
7

pecially you, Chairman Carper and Senator Collins, who worked 

tirelessly to craft a bill that will hopefully not only preserve the 

Postal Service, but also improve it. 

I am pleased to see that the Postal Service has been taken off 

the GAO’s high-risk list, in large part due to the passage of the 

Postal Accountability Enhancement Act (PAEA). One area I am 

particularly interested to hear about is the effort to implement the 

new accounting standards called for PAEA. While the Postal Service has made strides in the area of financial transparency, including quarterly reporting of data and making that data more accessible, the Postal Service will now be held to similar disclosure 

standards as private companies are under the Sarbanes-Oxley Act. 

Another issue is the creation of new regulations that will give 

the Postal Service increased flexibility in responding to costs by allowing them greater latitude in setting new rates. It is my hope 

that the Postal Regulatory Commission will be able to write strong 

regulations in a timely manner. I also hope that if the final rate 

change case under the old system is put into motion this year, that 

the Commission can still work to develop these regulations as soon 

as possible. 

I have also been made aware about issues regarding the use of 

contractors for delivering mail. While the Postal Service has long 

used contractors for extremely rural routes and for limited highway 

routes, we have seen an increase in the use of contractors for more 

urban routes. I believe there is a place for contractors in the Postal 

Service, but the practice should never be abused or unnecessarily 

expanded. Mr. Potter, I hope that you can share with us what the 

Postal Service is doing in this area. 

Chairman Carper, again, I thank you for calling this hearing and 

look forward to the testimonies here and look forward to working 

with you on this matter. Thank you. 

Senator CARPER. Senator Akaka, thanks much. Thanks for joining us today. Thanks even more for your counsel and input and 

that of your staff as we worked on this endeavor for the last halfdozen or so years. 

I want to yield now to Senator Collins and just say, thank you 

so much not for just being here, but for allowing me to be your 

sidekick as we tried to craft this legislation and to get it done last 

year. Senator Collins. 

OPENING STATEMENT OF SENATOR COLLINS 

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

much appreciate the opportunity to join you today. 

You know, the last postal reform bill before ours was more than 

30 years ago and the author of it was Senator Stevens. This has 

taught me that postal reform only comes around every 30 years, 

and I don’t know about you, but after working so hard over 3 years 

to get our bill passed, I think we should wait another 30 years before there is another one. 

Senator CARPER. Senator, I don’t plan to be around then. 

Senator COLLINS. Neither do I. 

Senator CARPER. Senator Stevens might be, but I will be long 

gone. [Laughter.] 

8

Senator COLLINS. I would ask unanimous consent that my full 

statement be put in the record, but I do want to make just a few 

comments, if I may. 

Senator CARPER. Without objection.

OPENING STATEMENT OF SENATOR COLLINS 

Thank you, Mr. Chairman. I appreciate the opportunity to join you today for this 

very important hearing. 

This Committee has invested a great deal of time and effort on the issue of postal 

reform. This process, which began in 2002, included numerous hearings and close 

consultation with the entire range of experts and stakeholders, from the managers 

of the United States Postal Service and employee unions to non-profit organizations 

and other members of the mailing community. 

I was proud to stand alongside Senator Carper last December as the President 

signed the postal reform legislation that bears our names into law. Through the long 

and complex process of crafting this comprehensive modernization of the Postal 

Service, it became clear to us why postal reform is enacted only every 30 years. 

But enacting legislation is only part of the equation. The other is implementation, 

and that is why we are here today. Although the issues that we confronted were 

many and complex, our purpose was straightforward: to position the Postal Service 

for the 21st Century, to ensure the affordable universal service that is essential to 

the American people, and to strengthen a service that is the linchpin of a $900-billion mailing industry that employs 9 million Americans in fields as diverse as direct 

mailing, printing, catalog production, paper manufacturing, and financial services. 

The health of the Postal Service is essential to the vitality of thousands of companies and the millions that they employ, as well as to the more than 750,000 postal 

employees. 

Given the important contributions of the mailing industry to the Postal Service 

and our economy, I am particularly concerned by the sudden and sharp rate increases proposed by the Postal Regulatory Commission for Standard Mail flats. 

These proposed rates could drive smaller catalog companies out of business or at 

least undermine their profitability. This is exactly the kind of double-digit, unpredictable jump in rates that our reform bill was designed to prevent. 

Let me illustrate the damage this proposal will cause to the catalog mailing industry with some examples from my home state of Maine. Geiger Brothers, a family 

business in Lewiston, is a manufacturer, supplier, and distributor of catalogs, calendars, and a wide variety of other printed materials, including the world-famous 

Farmer’s Almanac. This company estimates this decision would cause an increase 

in mailing costs of 29 percent. This proposed increase would cost Geiger Brothers 

an additional $600,000 this year. 

Another fine Maine company, Cuddledown is a nationally renown manufacturer 

of luxury down comforters and other high-quality bedding products with a heavy reliance on mail orders. This family-owned business, located in Portland, estimates 

that this proposal would increase its mailing costs by 18 percent. 

I have also heard from L.L. Bean, Maine’s legendary outdoor outfitter and a world 

leader in catalog sales, which would be negatively affected by the rate increase and 

may need to reduce its mailings in order to maintain postage costs at a sustainable 

level. 

These unexpected and steep increases will cause similar harm to catalog mailing 

businesses throughout the nation. Not surprisingly, the comments filed in response 

to the proposed rates indicate that this increase will cost jobs and stifle economic 

growth of companies vital to communities throughout our country. 

In addition to the concerns I have with the current proposed rate increase, I 

would strongly discourage the Postal Service from filing a ‘‘final’’ rate case under 

the old rate setting rules before postal reform is fully implemented. Filing a new 

rate case would divert resources and effort from developing a modern system of rate 

regulations as required under the new postal reform law. 

I look forward to the testimony we will hear today concerning how the PRC and 

the Postal Service are working to ensure predictability and stability in the rate setting process and implementing other core principles of the postal reform act.μ

Thank you, Mr. Chairman.

Senator COLLINS. We are very proud of the postal reform legislation that all of us on this panel worked so hard to get signed into 

law last year, but enacting legislation is only part of the equation. 

The other is implementation and that is why I really commend the 

9

Subcommittee Chairman for holding this hearing today and that is 

why we are here. 

Although the issues that we confronted in enacting this legislation were many and complex, our purpose was straightforward and 

that was to position the Postal Service for the 21st Century to ensure that affordable universal service that is essential to the American people was continued and to strengthen a service that is the 

linchpin of a $900 billion mailing industry that employs some nine 

million Americans in diverse fields such as direct mailing, printing, 

catalog production, paper manufacturing, financial services—the 

list goes on and on. 

Given the important contributions of the mailing industry to the 

Postal Service and to our economy, I am particularly concerned by 

the sudden and sharp rate increases proposed by the Postal Regulatory Commission for standard mail flats. These proposed rates 

could drive smaller catalog companies out of business or at least 

undermine their profitability. This is exactly the kind of doubledigit unpredictable jump in rates that our reform bill is designed 

to prevent. 

Let me just illustrate the damage that this proposal would cause 

to the catalog mailing industry with some examples from my home 

State of Maine. Geiger Brothers is a family-owned business in 

Lewiston, Maine, that is a manufacturer, supplier, and distributor 

of catalogs, calendars, and a wide variety of printed materials, but 

it is probably best known to most of you as the publisher of the famous Farmer’s Almanac. This company estimates that the proposed decision would cause an increase in mailing costs of 29 percent. This proposed increase would cost this family-owned business 

an additional $600,000 this year. 

Another fine Maine company, Cuddledown, is a nationally known 

manufacturer of luxury down comforters and other high-quality 

bedding products. It, too, has a heavy reliance on mail orders. It 

is essentially a catalog company. This is another family-owned 

business. It is located in Portland, Maine, and it estimates that the 

proposal would increase its mailing costs by 18 percent. 

I have also heard from L.L. Bean, Maine’s legendary outdoor outfitter and a world leader in catalog sales. It would be negatively 

affected by this sudden and substantial rate increase and tells me 

that they are looking at whether they need to reduce mailings in 

order to maintain postage costs at a sustainable level, and that is 

what happens when you have a sharp increase in postal rates. 

Then mailers look for other ways to deliver their products and that 

causes a decline in volume, which is the last thing we want for the 

Postal Service. 

Not surprisingly, the comments filed in response to the proposed 

rates indicate that this increase would cost jobs and stifle economic 

growth of companies vital to communities throughout the country. 

In addition to the concerns that I have with the current proposed 

rate increase, I want to publicly and strongly discourage the Postal 

Service from filing ‘‘a final rate case’’ under the old rate-setting 

rules before postal reform is fully implemented. All of us knew that 

this particular rate increase was going to come about, but the authors of the bill certainly hoped this would be the last one under 

the old system. Filing a new rate case would divert resources and 

10

efforts from developing a modern system of rate regulations as required under the new postal reform law. We did give a substantial 

implementation time, but frankly, we did not expect two rate filings during that time and I hope that this is the last one that we 

will see under the old system. 

Again, I appreciate how vital the Postal Service is for our economy, for our society. You have no stronger supporter than the 

Members who are here today and we want to continue to work with 

you to ensure predictability and stability in the rate-setting process, to ensure a strong Postal Service not only for the dedicated 

employees of the Postal Service, but also for the Americans 

throughout this country who rely upon it. We hope you will work 

closely with us in implementing the core principles of the Postal 

Reform Act. 

Thank you, Mr. Chairman. 

Senator Stevens, I should have come to you—I apologize. I 

should have come to you sooner. I didn’t, but we are delighted that 

you are here and hope that you are not disappointed with the work 

that we have done to carry on after you. 

OPENING STATEMENT OF SENATOR STEVENS 

Senator STEVENS. I am delighted with the work that you and 

Senator Collins have done, there is no question about that. I am 

saddened that we did not get started at two o’clock, because I had 

hoped to hear the statements. I do have a conflict, as Senator 

Coburn did. I greet you all. 

I understand that we have this rate increase scheduled for May 

14. It will affect everyone nationwide, I am sure, but no one will 

be affected the way rural Alaskans will be because of bypass mail. 

As you all know, we are in a situation where 70 percent of the cities and villages of our State can be reached only by air, so very few 

people out there, Mr. Potter, know the President’s name, but they 

all know your name. [Laughter.] 

They all know the Postmaster General, and there is no question 

about it that this increase—for example, my staff tells me that in 

terms of shipment to Barrow in bypass mail, a gallon of milk will 

increase from $8 to $9 a gallon. You buy it at the store for, what, 

$1.50? A 10-pound bag of flour will increase from $11.50 to $13. 

That is the cost that it is going to go up on these goods and foods 

that my people, really our people, totally depend upon. This is the 

lifeline to Alaska, is the Postal Service, and these communities already pay twice as much for their necessities as the average American. 

So this is something that bothers me considerably. I do hope, and 

as I said to the Postmaster General, I am working even today, tonight, with a group of Alaskans who are trying to suggest ways we 

might change the way packages are prepared and are handled so 

that we can take some of the costs off of the Postal Service and deliver a product to them that would reduce your costs with the hope 

that somehow or other those could be reflected in adjustments of 

the cost increases that are proposed. 

We understand it costs. We understand right now some of our 

people are paying more than $5 a gallon for diesel fuel. We know 

we are all paying around $3 a gallon for gasoline; they are paying 

11

$12. Even though we have all of that oil, it still has to be delivered 

in cans that you deliver through bypass mail. So this is a very important subject for us. 

I would hope, Mr. Blair, that sometime you would bring the Commission back up to Alaska. They haven’t been up there for about 

15 years, as I recall. I think it would be good for people who inspect 

the Post Office to come take a look. It is a workable system, but 

we cannot break it down by forever increasing costs that make it 

impossible for the people to pay. I think we can make some suggestions to you that will alleviate this need for increasing as much as 

it will the cost of bypass mail in Alaska. 

I appreciate your concern, and thank you, Mr. Chairman. 

Senator CARPER. Thank you, Senator Stevens. 

Let me just take a moment, if I could, to introduce our witnesses. 

We apologize for not starting at 2 o’clock. We had a vote that was 

called. In fact, two votes were called and we ended up having just 

one. Maybe when I get to be leader of our side, then we can schedule these votes at a time that is more convenient for subcommittees 

like this one to meet, but that hasn’t come yet. 

I want to just take a moment, if I can, to introduce our witnesses. Jack Potter is the 72nd Postmaster General of the United 

States. He assumed his current duties in June 2001, almost 30 

years after going to work for the Postal Service. He started there 

in 1978 as a clerk and has served through the years as Chief Operating Officer, Vice President for Labor Relations, and in a number 

of other key posts here in Washington and out in the field. He 

holds a Bachelor’s degree from Fordham University and a Master’s 

from Massachusetts Institute of Technology, where my oldest son, 

by the way, is in his freshman year. 

Dan Blair is the chairman of the newly-created Postal Regulatory 

Commission. Congratulations, I think. He was confirmed by the 

Senate as a Commissioner on the Postal Rate Commission, the 

predecessor agency to the Regulatory Commission, on December 6, 

2006, and named as chairman by the President, no less, on December 15. Prior to coming to the Commission, Mr. Blair served as 

Deputy Director of the Office of Personnel Management. He also 

worked for 17 years here on Capitol Hill, including some time on 

the full Committee. How long were you on this Committee? 

Mr. BLAIR. Four years. 

Senator CARPER. Four years. He holds a B.A. and a J.D. from the 

University of Missouri at Columbia. 

Kate Siggerud is a Director of the Physical Infrastructure Issues 

Team at the Government Accountability Office. She has directed 

GAO’s work on postal issues for several years, including recent reports on delivery standards and performance, processing and network realignment, contracting policies, postal stamps, and biological threats. She has an M.A. in public policy from the Hubert H. 

Humphrey Institute of Public Affairs at the University of Minnesota and a B.A. from McCallister College. 

We welcome each of you here today. We thank you for your help 

in crafting the legislation that we are beginning our oversight hearing on at this time. So thank you for coming, and Mr. Potter, you 

are the lead-off hitter. 

12

1The prepared statement of Mr. Potter appears in the Appendix on page 35. 

TESTIMONY OF HON. JOHN E. POTTER,1 POSTMASTER GENERAL AND CHIEF EXECUTIVE OFFICER, U.S. POSTAL SERVICE 

Mr. POTTER. Good afternoon, Chairman Carper. I will have to get 

used to that now. 

Senator COLLINS. So do I. [Laughter.] 

Mr. POTTER. Senator Collins, Senator Akaka, and Ranking Member Senator Coburn, I am honored to be here as America’s Postal 

Service enters a new era. 

The Postal Reorganization Act of 1970 converted a heavily subsidized Post Office Department into a self-supporting Postal Service, one defined by excellent service, customer satisfaction, and productivity. Our people have done an outstanding job. Unfortunately, 

significant changes in the communications and delivery markets 

have made continued success under the original law problematic. 

That is why our Nation is so fortunate that so many have recognized this and acted to preserve universal affordable service to the 

American public. 

I appreciate the extraordinary efforts of the Members of this Subcommittee. I know that we wouldn’t have had that package had it 

not been for the leadership of Senator Collins, particularly in the 

financial area, and the leadership of the Chairman, Senator Akaka, 

Senator Stevens, everyone, Senator Carper, everyone supported 

this effort and it is our job to make it work. Both Houses of Congress, the Comptroller General, David Walker, the Administration, 

the President’s Commission on the Postal Service, all made great 

contributions to the new law. It is my hope that 30 years from 

today, a future Postmaster General will sit at this table and report 

on the progress made possible by the Postal Accountability Enhancement Act of 2006. 

Unfortunately, our business model remains broken, even with 

the positive pricing and product changes and all of the positive 

changes when it comes to employee retirement benefits that are 

built into the new law. With the diversion of messages and transactions to the Internet from the mail, we can no longer depend on 

printed volume growing at a rate sufficient to produce the revenue 

needed to cover the costs of an ever-expanding delivery network. 

This is not to say that the new law does not offer opportunities. We 

are in better position than ever to respond quickly to market conditions and we will operate more nimbly in the expedited and package product sectors. Growth is our greatest challenge as we shift 

from a transaction-based mail stream to one centered on lowermargin marketing and advertising mail. 

People are also finding new uses for the mail and I am encouraged by that. For example, the State of Oregon conducts elections 

through the mail, resulting in greater voter participation. Not only 

is this encouraging from a mail point of view, but it presents a 

unique opportunity for our democracy. 

We will continue our work with all mailers and use the latest 

technology to add even more value to the mail. One example is the 

new intelligent mail bar code. It improves quality. It cuts costs. 

And it increases convenience for mailers and for the Postal Service. 

13

The good news for us all is that marketers have learned that direct mail adds to the value of campaigns and that mail complements other advertising media, including the Internet. Overall, 

direct mail is among the fastest growing and most effective advertising channels in America today. That is why I am very bullish on 

the mail. 

But I am also a realist. Success under the new law will not be 

easy. We have never worked under a fixed rate cap. We have never 

had to manage our costs by class of mail. Both are extremely challenging. Because we have little control over some of our major 

costs, such as fuel and employee retirement and health benefits, we 

must maintain an intense focus on managing those costs. Keeping 

our rates under the rate cap and being able to pay our employees 

a fair wage requires us to find ways to remove an additional $1 billion a year in costs from our system. 

Our preferred path to staying under the rate cap is to achieve productivity targets consistent with the needed $1 billion savings. 

Management and the unions can and should work together to increase productivity in processing, retail, and delivery operations, 

thus keeping costs at or about the rate of inflation. If we do not 

do that, we will have created a situation that requires other actions, such as contracting out. 

Since the earliest days of the American Postal Service, contractors have transported and delivered the mail safely and securely. 

They are screened by the Postal Inspection Service, and like career 

employees are subject to the legal penalties under Title 18 of the 

U.S. Code for criminal mishandling of the mail. Procedures governing contracting out are contained in the labor-management 

agreements with our unions. They are a product of the complex 

give-and-take that marks collective bargaining. 

Let me assure you that it is not our intention to take delivery 

work performed by postal employees today and contract that work 

out. We do contract out, though, new deliveries, but only in those 

locations where it makes sense and in accordance with our national 

agreement. Ninety-four percent of new deliveries, that is homes 

and businesses in 2006, some 1.8 million new deliveries, today are 

performed by U.S. Postal Service city and rural letter carriers. I do 

not foresee laying off any carriers as a result of outsourcing because we are only outsourcing new deliveries, and we are only 

doing it on a very limited basis, and that is something I pledge not 

to do, not to lay anybody off. I stand ready to work with our unions 

to secure the future of our organization, its people, and the people 

we serve. 

In closing, let me reiterate my sincere belief that the new postal 

law offers opportunities to the Postal Service and the entire mailing community to have success going forward. We will take full advantage of these opportunities in support of our historic mission of 

providing affordable, universal service to our Nation. 

Once all the other panelists are done, I would be pleased to answer any questions that you might have, and I also have a longer 

version that I ask be put into the record. Thank you. 

Senator CARPER. We will be happy to put that longer version in 

the record and thank you for summarizing your testimony. 

Mr. Blair, you are next. Thanks very much. 

14

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

TESTIMONY OF HON. DAN G. BLAIR,1 CHAIRMAN, POSTAL 

REGULATORY COMMISSION 

Mr. BLAIR. Thank you, Mr. Chairman, Senator Collins, Senator 

Akaka, Members of the Subcommittee. Thank you for the chance 

to testify today on the operation of the new Postal Regulatory Commission and our strategy for implementation of the Postal Accountability and Enhancement Act. 

I wish to particularly thank you, Chairman Carper and Senator 

Collins, for your unrelenting efforts on behalf of postal reform, but 

I would also like to thank other Members of the Subcommittee for 

the confidence they have shown in the Commission. I would also 

like to acknowledge my fellow members of the Commission in the 

audience today, Vice Chairman Dawn Tisdale, Commissioners Ruth 

Goldway, Tony Hammond, and Mark Acton. 

The Act represents a profound change in our regulatory functions 

and significantly enhances the Commission’s authority. As noted, 

the Postal Service will have more autonomy in setting rates, particularly for its competitive products. However, the ability to increase rates for market-dominant products will be limited ordinarily by increases in the Consumer Price Index. 

To ensure transparency and accountability under this new system, the Act assigns continued oversight responsibilities to the 

Commission. The law provides the PRC with new enforcement 

tools, including subpoena power, the authority to direct the Postal 

Service to adjust rates and take other remedial actions, and levying 

fines in case of deliberate noncompliance with applicable postal 

laws. 

The Commission is fully engaged in implementing the Act as well 

as completing pending business. We understand that transforming 

the Commission into the regulator envisioned by the reform legislation will result in changes to our organizational structure and 

workforce capacity. The PRC is working with an outside expert in 

this regard. 

As you know, on February 26, 2007, the Commission rendered its 

recommended decision on the most recent omnibus rate case. We 

audited the Service’s projected revenue needs and made adjustments to their initial estimates. We also made improvements in the 

design of rates for many postal products at the Postal Service’s request to better align rates more closely with shape. Our decision 

relied on well-established ratemaking principles, including a reaffirmation of the principle that work sharing discounts should be 

limited to the amount of cost savings accrued to the Postal Service, 

the approach ratified by the Act. 

I would like to point out that the current ratemaking laws require the Commission to design rates that encourage efficient practices by mailers and the Postal Service. This last rate case was the 

first fully litigated case in 7 years. Therefore, the need for rates 

that encourage efficiencies was greater than normal because the 

past two rate cases resulted from settlements that didn’t focus on 

changes in the cost of postal operations. 

On March 19, 2007, the postal governors endorsed the Commission’s rate recommendations with three limited exceptions, includVerDate 0ct 09 2002 14:10 Apr 07, 2008 Jkt 035526 PO 00000 Frm 00018 Fmt 6633 Sfmt 6601 P:\DOCS\35526.TXT SAFFAIRS PsN: PAT
15

ing those for standard rate flats mail. On March 29, 2007, the 

Commission issued an order establishing procedures for further 

consideration of these issues and we invited comments from interested parties before the end of this month. Because the Commission’s deliberations are ongoing, I hope you will understand that it 

is inappropriate for me to address them specifically at this time. 

One of the most critical responsibilities the Act assigns to the 

Commission is the establishment of a modern system for regulating 

rates and classes for market-dominant postal products. We are 

moving quickly to develop regulations for the new ratemaking system. The Commission published an Advance Notice of Proposed 

Rulemaking on January 30, 2007, soliciting public comments on 

how the Commission can best fulfill these. The initial round of 

comments was due on April 6, 2007, and the reply comments are 

due on May 7, 2007. To date, 32 parties have submitted comments. 

Creating a new regulatory framework for the establishment of a 

more modern rate setting system is only one of the many actions 

facing the Commission. The Act directs the Postal Service, in consultation with the Commission, to establish service standards for 

market-dominant products and assigns regulatory oversight to the 

Commission. The Act also directs the Postal Service and the Commission to consult on developing a plan for meeting these standards. We look forward to full consultation as envisioned by the Act 

with the Postal Service later this spring and summer. 

A key aspect of the Commission’s ongoing efforts is outreach, soliciting input from postal stakeholders, specialty mail users, and 

consultation with other covernment agencies, such as the Department of the Treasury, State Department, the FTC, Customs and 

Border Protection, the Postal Inspector General, and the GAO. Appearing before this Subcommittee today and hearing your views 

and concerns is a critical part of this process. 

Mr. Chairman, the benchmarks established for the Commission 

pose some daunting challenges, and especially in light of the Postal 

Service’s opportunity to file one last omnibus rate case under prior 

law. There is no question that this final rate case would divert 

Postal Service and Commission resources that, in my opinion, 

would be better devoted to developing a new system of regulatory 

oversight. Nevertheless, the Commission is committed to a timely 

performance of all of its statutory obligations and to doing so in a 

reasoned and balanced manner. 

Mr. Chairman and Members of the Subcommittee, thank you for 

this opportunity to testify today. I appreciate being on the panel 

with the Postmaster General and with Ms. Siggerud. I ask that my 

written statement be included in the record and I am happy to answer questions you may have. 

Senator CARPER. Thanks, Mr. Blair, and your written statement 

will certainly be included in its entirety in the record. 

Ms. Siggerud, you are recognized. Welcome. Thank you. 

16

1The prepared statement of Ms. Siggerud appears in the Appendix on page 51. 

TESTIMONY OF KATHERINE SIGGERUD,1 DIRECTOR, PHYSICAL INFRASTRUCTURE ISSUES TEAM, U.S. GOVERNMENT 

ACCOUNTABILITY OFFICE 

Ms. SIGGERUD. Thank you. Chairman Carper, Senator Akaka, 

thank you for your invitation to testify at this hearing on implementation of the Postal Accountability and Enhancement Act. To 

begin, I wanted to recognize the Congress’s efforts, particularly 

yours, Chairman Carper and Senator Collins, in passing this law. 

It provides tools for establishing an efficient, flexible, transparent, 

and financially sound Postal Service, one that can more effectively 

operate in an increasingly competitive environment. 

My remarks today will focus on, first, why we recently removed 

the Service’s transformation efforts and outlooks from our high-risk 

list; second, the Service’s financial condition; third, opportunities 

and challenges facing the Service; and finally, issues and areas for 

continued Congressional oversight. 

First, when we placed the Service on our high-risk list in 2001, 

we stated that a structural transformation was needed to address 

the financial, operational, and human capital challenges that 

threaten its ability to deliver on its mission. We use this list to 

bring attention to issues that we think need action from the Administration and the Congress. We decided to remove the Postal 

Service from the high-risk list because of the significant changes 

that occurred. 

Specifically, the Service issued a transformation plan in 2002 

and demonstrated commitment to the plan by cutting costs, improving productivity, downsizing its workforce, and improving financial reporting. The 2003 law reduced the Service’s payments for 

pension obligations, allowing it to achieve record net income, repay 

debt, and delay rate increases. 

Elements of the 2006 postal reform law that were responsive to 

our concerns include, first, a framework for modernizing the ratemaking process; second, an opportunity to preserve affordable universal service by reassessing customer needs and identifying efficiencies; third, recognition of the Service’s long-term financial obligations by pre-funding retiree health benefit obligations, resulting 

in short-term costs but long-term benefits; and fourth, enhanced 

transparency and accountability. 

Turning now to the Service’s current financial condition, it will 

be affected by the postal reform law and the upcoming rate increase. The law has better equipped the Postal Service to control 

its costs and operate in a financially sound business-like manner. 

It places the Service on the path to eliminating its multi-billion-dollar retiree health obligations, which in turn provides an opportunity to better position the Service financially in the long term. 

Changes to the Postal Service finances this year besides the prefunding of retiree health and transferring responsibility for military pensions include expensing escrowed funds and eliminating future escrow payments and eliminating certain pension funding requirements. The Service expects to lose $5.2 billion this year, largely due to the one-time expensing of $3 billion escrowed last year 

and then transferred this year to the Retiree Health Benefit Fund 

17

and the additional contribution to this fund the Service must make. 

The Service plans to borrow $1.8 billion, $600 million more than 

it had originally planned for this year. Nevertheless, other expenses and revenues have closely tracked projections. Factors that 

could still affect the Service’s finances this year are the impact of 

rate increases on mail volumes, changes in fuel prices, and the resolution of labor agreements. 

Although we removed the Service from our high-risk list, there 

are continuing and new challenges. These include generating sufficient revenues to cover costs as the mail makes changes; controlling costs, particularly for compensation and long-term health benefits; and improving productivity while operating under the price 

cap structure; promoting the value of mail by providing affordable, 

quality service and establishing mechanisms to measure and report 

on performance; providing useful and reliable financial data; and 

managing the Service’s infrastructure and workforce to respond to 

operational needs and financial challenges. 

The reform law provides opportunities, tools, and flexibilities to 

address these challenges. A series of new regulations, frameworks, 

and studies over the next few years for both the PRC and the Service will be key to implementing the law. 

Finally, with regard to potential areas of Congressional oversight, two particularly important areas are: Ensuring the Service’s 

future financial condition remains sound; and ensuring that the 

new legal and regulatory requirements are carried out in accordance with the intent of the postal reform law. 

Other areas that warrant continued monitoring include: First, 

the impact of the upcoming rate increases on mail volumes, mailers, and the Service’s financial condition; second, actions by the 

PRC and the Service to establish a new price-setting framework; 

third, the Service’s ability to operate under a price cap while some 

of its cost segments are increasing above the rate of inflation; 

fourth, actions to establish modern service standards, monitor delivery performance, and the Service’s plan for meeting those standards; and finally, the Service’s ability to provide high-quality delivery service as it takes actions to deliver costs and realign its infrastructure. 

Successful transformation of the Postal Service will depend heavily upon the innovative leadership by the Postmaster General and 

the Chairman of the PRC and their ability to work effectively with 

employee organizations, employees, the mailing industry, Congress, 

and the general public. 

Mr. Chairman, this concludes my statement. I am happy to answer any questions from the Subcommittee. 

Senator CARPER. Thanks, Ms. Siggerud. I am going to ask the 

first question of you, and just give me a fairly short answer, if you 

would, and then I am going to go to Mr. Blair with some questions 

regarding how quickly he and his team might be able to put the 

new ratemaking process into place. 

Ms. Siggerud, I think it was about 6 years ago that David Walker, the Comptroller General, sat, I think here, and talked about the 

Postal Service being a high risk. Two or 3 months ago, there was 

good news that GAO has taken the Postal Service off the high-risk 

list. Why were they put on? Why were they taken off? 

18

Ms. SIGGERUD. Sure. Let me give you a couple of answers to that. 

Let me re-mention the reasons that we typically put agencies on 

the high-risk list. That is because there are a number of indicators 

which are giving us concern which we feel can be addressed 

through Administration and Congressional action. 

At that time, there was a very high level of debt, reduced capital 

investment, flat productivity, and the changes in the mail mix that 

we have all mentioned today that were threatening continued revenue. We also did not see in place a plan to deal with those very 

significant challenges to the Postal Service’s continued financial 

health and operations. 

Since we put the Postal Service’s outlook on the high-risk list, we 

have seen significant action both from the Postal Service and from 

the Congress in dealing with these issues. We felt it was important 

to recognize that in taking the Postal Service off. 

Second, on all of the indicators that I mentioned that were underlying causes, we saw progress on all of those in the 6 years 

since we put the Postal Service on that list. We thought it was time 

to recognize that progress and the actions by the Service and the 

Congress and to recognize that and to take them off the list. 

Senator CARPER. Thank you. Mr. Blair, I think Senator Collins 

and I both touched on this and if I don’t ask it, she will. She might 

ask it anyway. As we both mentioned in our opening statements, 

I would prefer that the next rate case, whenever it needs to happen, happen under the new rate system rather than under the old 

one. The determining factor in whether or not that happens will be 

how long it takes for you and your staff to issue the regulations implementing the new rate system. 

The legislation enacted gave you, I think, 18 months from December to put that new system in place, and I understand there 

has been discussion around the possibility of a final roll-out happening much sooner. 

Let me just ask to share with us your time line, and what you 

need from us and from the Postal Service in the coming weeks and 

months in order to get the new rate system up and running as 

quickly as possible. 

Mr. BLAIR. Thank you, Mr. Chairman. I appreciate the interest 

in this. You are right that we think it might be a better idea to 

focus our resources on getting the new system up and running than 

working on a rate case under the old system. But we will do whatever it takes and we will do what is required of us under the law. 

We were very proactive from the beginning and in January put 

out that Advanced Notice of Proposed Rulemaking. We were 

pleased to see 32 unique comments come into the Commission. We 

have gone through those and we are waiting for the reply comments at this point. Some have said they think it is a good idea 

to get it up and running sooner. Others have come back and said, 

they think we need to wait a little bit longer just because they 

want to make sure that we think fully through the regulatory 

structure. 

Over the next few weeks, and I say few weeks—I used to have 

the luxury of saying months, now I say the next few weeks—we 

will make some decisions on how we are going to proceed. I have 

had good discussions thus far with the Postmaster General. We 

19

have highlighted some areas for potential discussion, including 

transition issues, at what point do we have a rate date each year, 

and I think those are all going to be helpful as we proceed to getting a new regulatory system in place. 

At the summit that was held last month, I threw out the idea 

of getting a framework in place by October. I stand by this. I think 

it would be a good idea, and I know that the Postmaster General 

on Tuesday, before your House counterpart, said he wanted to get 

a better idea of what that system would look like. I think that is 

fair, and so within the next few days and weeks, we will be having 

further discussions as to what that system will hopefully look like. 

We can hopefully be able to have a better idea sometime this summer on what the timing for this will be, if it is going to be this October or if it is going to take the full 18 months. 

Senator CARPER. Alright. Let me just reiterate again, I appreciate the need to receive input from a number of different interested parties. I am glad you have done that and am glad they have 

shared their comments with you. I just really do hope that the next 

rate case, whenever it needs to happen, happens under the new 

rate system rather than the old and I would ask that you and your 

colleagues take that to heart. 

Mr. BLAIR. We will, and that is why we would like to get it done 

sooner rather than later. I would note that decisional filing isn’t 

mine, so we will have to wait and see on that. But I think that 

your sentiments expressed are good ones and that is why you enacted a new system. You didn’t want to see the kind of jumps in 

rates that we saw in the last case, and I think it is a good idea 

to get the new system up and running. 

Senator CARPER. And in case I failed to mention it, let me just 

say that I personally prefer that the next rate case—no, I have said 

it enough. You get the message. Thank you. 

Let me ask a question, if I could, of Mr. Potter, and Ms. 

Siggerud, I may ask you to comment as well. I think you have already commented on this to some extent, so I probably won’t ask 

you to comment. But Mr. Potter, it was in a little bit of discussion 

in some of the statements here and some of what you all have testified to on this front, but I just want to come back and close the 

loop on it. 

I think in the early part of February, I am not sure what the 

date was, but Postal Service, you were good enough to call me, I 

suspect you called Senator Collins and others, but the Postal Service issued a press release announcing that you reported a $2.7 billion loss in the first quarter of fiscal year 2007 and the Postal Service was projecting, I think, about a $5 billion loss by the end of the 

current fiscal year. I understood from that conversation and what 

I have heard since that these losses are due largely, maybe entirely, to an accounting anomaly brought on by the enactment of 

the postal reform bill late last year and your actual financial results for the first quarter were actually pretty good. I am told they 

were in line with your plans. I believe the Postal Service may have 

actually had about a $1.2 billion budget surplus if you take out 

those sort of one-time anomalies. 

Let me just ask you again to take a minute to explain to us, why 

has the Postal Service had to report such a loss of that magnitude. 

20

Mr. POTTER. Senator, last year under the old law, Public Law 108–18, the Postal Service was required to hold about $3 billion in 

a restricted cash fund and that was held and we had $3 billion in 

cash ready to pay in whatever direction we were directed by the 

Houses of Congress. This year, once the law was enacted, that $3 

billion that we had as restricted cash became an expense, as well 

as the monies that we planned to set aside this year for an escrow 

fund. So where we had planned to have at the end of fiscal year 

2007 about $6.2 billion in restricted cash on the books, that $6.2 

billion became an expense. 

And so as I said to you on the phone and I also had a conversation with Senator Collins and Comptroller David Walker, that although there was an accounting change and we had to conform to 

Generally Accepted Accounting Principles, in terms of our cash flow 

there was no change and that the Postal Service was still in a very 

favorable cash position and that we would have to incur some debt 

as a result of it. It was a very awkward situation. You are sitting 

with restricted cash. How do you approach a rate case without that 

cash being defined as to what you are going to expend it on. 

So it is strictly a matter of the transition from the old law to the 

new law with the added complexity of Public Law 108–18, which 

gave us relief from overpayment of CSRS for 3 years after which 

we had to put money into an escrow account. So again, from a cash 

flow standpoint, we are sound and we will work hard to try and 

pay down that $4.1 billion in debt in the years going forward. 

Senator CARPER. Alright. Thanks very much. My time has expired. Senator Collins. 

Senator COLLINS. Thank you, Mr. Chairman. 

Mr. Blair, there obviously is a substantial difference between 

what the Postal Service asked for or recommended for rates in the 

flats and catalogs category versus what the PRC decided. I realize 

there is a limit to what you can tell us today and I am not trying 

to cross that line, but it would be helpful for us to know generally 

to what extent does the PRC take into account rate shock? In other 

words, do you look at what the impact of a rate increase is going 

to be on a specific segment of the mailing community? 

Mr. BLAIR. That is a good question and I think I can answer that 

without giving my general counsel too much heartburn. We do look 

at rate shock. It is one of the factors that we balance in deciding 

how much of a rate increase will be decided. We look at the attributable costs of the subclasses. We assign this attributable cost to 

the subclass. We divvy up the institutional costs. But we also look 

at—there are certain factors in the Act that can help mitigate and 

one of those is rate shock. Others that would be considered would 

be whether rates are properly aligned with costs and the extent to 

which the rates are fair and equitable. 

In this specific case, I would just urge the Subcommittee to consider that these proposed rate increases came on the heels of two 

settled cases over the course of the last 7 years. The settled cases 

produced some across-the-board increases and were not the result 

of the fully litigated case that this last rate recommendation came 

under. Because of these settled cases, some mailers benefited and 

were insulated somewhat from higher rates than they would have 

received had those cases been fully litigated. What happened this 

21

time was we had a fully litigated rate case in which the rates were 

intended to be more fully aligned with costs. 

The Postal Service came to us and proposed rates that were 

shape-based, meaning that the shape of the mail actually has costs 

causing attributes and those were recognized in the regulations. 

The bottom line is that we attempted to align the rates with the 

costs. We understand that these are high increases and may be a 

heavy burden for some mailers. The governors have asked us to reconsider and that is the process in which we are in. 

I hope I shed a little bit of light on what the Commission’s 

thought processes were along those lines. 

Senator COLLINS. And what is the process from here on for this 

particular case? You have made your decision. The Board of Governors has given you its judgment. It asked you to take a second 

look at three elements, I believe. So what happens now? What is 

the time line? 

Mr. BLAIR. The governors have asked us to reconsider our recommendations. I think the first two items that they asked us to reconsider, we can dispatch pretty quickly. But this one, we have 

asked the parties to comment. A coalition of catalog mailers has 

asked to reopen the record. They asked to do this last week and 

we gave interested parties an opportunity to file reply comments 

until the end of today. We will take those into account and we will 

be making our decision over the course of the next few days, if not 

this week, whether or not to reopen the record. 

At that point, even if we don’t reopen the record, we will still be 

asking parties to submit their briefs, reexamining the old record to 

see what we could find and cull from that that might benefit the 

parties involved. A number of interested parties have commented 

thus far. We have heard from the catalog folks. We have also heard 

from other flats mailers. We have heard from other mailers, as 

well, and so this is proving to draw quite a bit of interest. 

Senator COLLINS. Thank you. Mr. Potter, I want to switch issues 

and bring to your attention an issue that the Maine Postmasters 

have brought to my attention, and that is some of your local postal 

managers believe that they are not being given the opportunity to 

adequately staff carrier routes and window positions. Front-line 

managers are communicating to us that inadequate staffing is, in 

turn, hurting their ability to provide the kinds of first-rate service 

that all of us want to see. I don’t know whether you get the Pine 

Cone Postmaster publication. If not, you should. But this is the 

monthly periodical that is published by the Maine Postmasters and 

the cover story talks about this problem. 

First, let me ask you, are you aware of concerns about inadequate staffing at postal windows at post offices and also on carrier 

routes? 

Mr. POTTER. The Postmaster organizations have brought to my 

attention concerns about, not on a national level because statistically on a national level, we have sufficient staffing for carriers, 

but on a site-specific basis, they have brought that to my attention. 

They have also brought to my attention that in some cases staffing 

is a concern and is causing stress in the workplace. I have asked 

them to bring that back to me and let me know where that exists, 

because I very much want to deal with that right away. 

22

In addition to that, I have asked the folks at headquarters to do 

a review from the top down, because we have the data on all these 

post offices, to make sure that we have sufficient staffing per route, 

and we are in the process of going through that. Unfortunately, I 

can’t be everywhere, nor can the people at headquarters, so in 

some cases, people in the field substitute their judgment for ours 

about what an appropriate staffing level is and we have to address 

them when they are brought to our attention or when in the process of analysis we find out that somebody has been shortsighted in 

terms of their hiring plans. 

We do have other issues, though, Senator, where we have attendance issues and we have people on light and limited duty and 

places where we have to use casual or non-career workers, according to the contract, to cover those jobs. In some cases, people aren’t 

quick enough to make that happen. For example, if somebody goes 

and is called back to service, to serve in Iraq, we can’t fill their job 

on a permanent basis. We have to hold it, and so there were some 

issues around that, as well. 

So we are addressing them and we are working with our Postmaster organization, as I have said. We have asked them to bring 

specifics to our attention so that we can address their concerns, not 

only with staffing, but as well as any kind of workplace climate 

issues that they perceive. 

Senator COLLINS. That brings me to the last issue, and let me 

just touch on it very quickly because my time has expired, if I may, 

Mr. Chairman. 

Senator CARPER. Certainly. 

Senator COLLINS. I toured Maine’s new processing plant in Scarborough recently and I know you have been there, as well. It is an 

absolutely beautiful plant. But I did hear from some of the employees continued concerns again about staffing, about schedules, and 

I would just ask that you work with me to try to make sure that 

we are looking at the concerns both at the Scarborough processing 

plant and the concerns that the postmasters in Maine have brought 

to my attention. I realize you have an enormous operation and 

clearly you can’t be everywhere at once, but I would very much appreciate your working with me to take a look at both of these concerns. 

Mr. POTTER. I would be very happy to. 

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

Senator CARPER. Thank you, Senator Collins. Senator Akaka, 

would you like to proceed? 

Senator AKAKA. Thank you, Mr. Chairman. 

Mr. Potter, thank you so much for your testimony. As I have indicated in my opening statement, I have had some concerns and 

one of them has been on contracting out. In your testimony, you 

mentioned that 94 percent of the deliveries are made by postal employees and that among the actions that you have taken, you said 

other actions could be contracting out. So let me ask you about contracting out. What are your criteria for deciding to contract out a 

new route or to give it to a Federal postal employee? 

Mr. POTTER. Thank you, Senator. First, let me clarify. When I 

referenced that 94 percent, I put it in a positive way of mail being 

delivered by postal employees. That is of new deliveries in 2006. 

23

Overall, I think it is a little more than 2 percent of deliveries are 

contracted out and they have been historically since, I think it is 

1785 when the Congress directed us to do some contracting out of 

delivery. And so therefore, of the 97 percent, I think it is about 

point-five percent of all deliveries in America are done by National 

Rural Letter Carriers or members of the National Association of 

Letter Carriers. 

Going forward, what we have done is we are taking a look at our 

challenges as described on that chart, our costs are going up and 

so we are looking at what is the most economical way to perform 

new delivery. So from a criteria standpoint, since about 2005, we 

have been looking at some city delivery areas, all city delivery 

areas, and saying where does it make sense to potentially contract 

out delivery, and what we have concluded is that the only place it 

does is if you have a body of work that would lend itself sufficiently 

to be sufficiently big to contract out. 

So since 2005 when we began this program, we have been working very hard at it and we have contracted out a total of 18 routes, 

some of which have as few as 50 deliveries because they are in 

places that will grow to be 500 or 600 deliveries. So we are really 

just, in terms of National Association of Letter Carriers and big cities, we are just scratching the surface now, trying to figure out 

does this make sense, how would it work, and we have criteria 

around who we hire and how they deliver, but we are really just 

kind of at the infant stages of that. 

In rural and suburban America, we have always used highway 

contract routes, particularly for those deliveries where there was a 

greater distance than a mile between each delivery stop, and now 

we have expanded that. And again, it is along the lines of new territory, where are new communities being built, and what is the 

most economical way to provide that level of service. 

I know concerns have been raised about security and sanctity of 

the mail, and believe me, we are very much in tune with that. The 

contractors are screened by our Postal Inspection Service. They are 

monitored by the Postal Inspection Service. And in my experience, 

we have human beings doing the work, and so nobody is perfect, 

including our own, and so occasionally problems crop up and they 

are dealt with just as they are with our own employees. 

Senator AKAKA. Well, as you know, we take pride in the Postal 

Service employees because they are Federal workers and in many 

cases, especially in isolated places, the only connection people have 

or citizens have with the Federal Government is the Postal Service 

employees. We want to keep this as close to that as we can. 

Mr. Potter, does the Postal Service tell managers at any level 

whether specific routes should be filled by a contractor instead of 

a postal employee? 

Mr. POTTER. If there is an existing route with a postal employee, 

they are replaced by a postal employee. The only contracting out 

we are doing is new territory. So if there is an established delivery 

route and somebody builds a building and there are 20 deliveries 

in that building, it goes to whatever craft currently delivers that. 

So if it is the NALC or the Rural Letter Carriers, it would go to 

that person. Again, the focus here is on new territory. 

24

Senator AKAKA. Mr. Potter, I have heard from postal employees 

in Hawaii that this may not be the case. I have been told that regional managers have been told to contract out any new routes. I 

urge you to go back and confirm that the Postal Service is not giving specific direction in requiring contractors for new routes. That 

is the word that I get back and I thought I would pass it on to you. 

Mr. POTTER. I appreciate that and we would be happy to share 

the data with you that would show you that is not the case. 

Senator AKAKA. Director Siggerud, thank you for attending 

today. As I said in my statement, I am pleased to see the Postal 

Service removed from GAO’s high-risk list. However, I am concerned that in the short term, the Postal Service’s financial situation has taken a turn for the worse, and this, of course, was mentioned by Mr. Potter as something that concerns him. In light of 

this, do you believe they will be able to stay off the high-risk list? 

Ms. SIGGERUD. Well, it certainly is our hope, Senator Akaka, that 

the Postal Service’s outlook will stay off the high-risk list, but I assure you we will be in an oversight mode together with this Subcommittee to monitor the financial condition and the very significant revenue and cost challenges that Mr. Potter mentioned. I 

think some particular issues to keep an eye on are the debt level, 

for example, was one of the reasons we originally put the Postal 

Service on the high-risk list. 

I would observe that we are in a several-year period of transition 

as this new rate-setting process and the new flexibilities are to be 

implemented and it is hard to tell exactly what the result of that 

will be. The Postal Service today is in a relatively good financial 

condition and our hope is that will be true going forward. We will 

be monitoring that situation. 

Senator AKAKA. Thank you very much. I want to tell you, I am 

glad to hear that. I am sure Mr. Potter is glad to hear that, as well. 

Thank you very much, Mr. Chairman. 

Senator CARPER. Thank you, Senator Akaka. 

I would like to come back, Ms. Siggerud, to you for a question 

relating to productivity and then maybe to bounce that one over to 

Mr. Potter, as well. It is really remarkable, going back 6 years, and 

I said earlier when I first sat in on a hearing and we considered 

some of the reasons why the Postal Service was on the high-risk 

list and some of the challenges they faced, challenges that came 

across the bow, September 11, 2001, and the anthrax attacks that 

followed that, but it has been a remarkable turnaround. I would 

like to think that our legislation that we enacted late last year had 

some impact on the GAO’s decisionmaking——

Ms. SIGGERUD. Yes. 

Senator CARPER [continuing]. But a lot, frankly, occurred before 

that in the good work done under the leadership of Mr. Potter 

working with a lot of folks, the employees, the governors, the Postal Regulatory Commission, and some of the folks in this room. 

Let us talk about productivity. One of the reasons why, in the 

eyes of this layman, you have come out of the woods to get off the 

high-risk is because you were able to harness the technology that 

had been purchased. It was put in place, but you really harnessed 

it, and I think you have been able to trim your workforce, I am told 

by close to 100,000 people. You have not fired anybody that I know 

25

of or laid people off but it has really happened through attrition. 

We still have very high ratings in terms of customer satisfaction. 

I think you are, what, 92 percent excellent, very good, or good. 

That is probably higher than me and most of my colleagues who 

work down here. 

But I looked at the productivity numbers. I think one of the reasons why you made great progress is productivity, and the productivity growth that occurred. I think, again, for the last year, it 

slowed a bit and I would like to talk about that and focus on that 

a bit. Ms. Siggerud, if you could share your thoughts with us, I 

don’t know how closely you follow that, but then to go back to Mr. 

Potter. 

Ms. SIGGERUD. Well, Senator Carper, we certainly have followed 

that particular trend and I think it was somewhat harder in the 

last year or two for the Postal Service to achieve the type of and 

level of productivity increases that it had in the years previous to 

that. We have not looked at the specific reasons for that. I suspect 

that there are a fair number of low-hanging fruits in terms of work 

hour decreases and other types of efficiencies that were undertaken 

in the last 6 years and it may be difficult to continue to achieve 

that kind of productivity increase. 

The Postal Service does plan to enter into a new round of automation in the next few years. I think it is looking to that with regard to flat sorting as another opportunity to increase efficiency 

and productivity. But I think that Mr. Potter may be in a better 

position to say exactly why there was a struggle with productivity 

in the last year. 

Senator CARPER. Mr. Potter, should we be alarmed or concerned? 

As Ms. Siggerud said, maybe you have gotten the long-hanging 

fruit. 

Mr. POTTER. That is what I always look for at first. Instead of 

operating under the new law—with or without the new law, operating in an environment where you have an increasing work base 

of deliveries and a flat or declining mail base is a problem, and we 

have that mail base moving to—as we have gotten more effective 

at delivering mail on time, people have moved down the ladder in 

the sense that they have moved from First Class mail to the standard rate because we have delivered it. In my opinion, one of the 

reasons they were able to do it is because we have improved the 

delivery times on that standard mail. 

But when I look back at the last 5 or 6 years, I am very proud 

of the fact, the total fact that productivity has gone up in each and 

every year and I am also very proud of our employees, because 

when all is said and done, it was them that had to make the 

changes that were necessary in order to improve that productivity. 

And we did take advantage of automated equipment investments 

that had occurred in the 1990s and that continue to occur in the 

new century. 

In addition to that, I think we have to give a lot of credit to the 

relationship that we have with the mailer base. Mailers have made 

their mail more efficient, and the way they have done that is by 

bar coding their mail, making it compatible with our machines, and 

by depositing the mail in locations upstream of origin. So they are 

able to do things at a more reasonable price. We have opened our 

26

systems to allow them to use that. And so this notion of least combined cost between mailers and the Postal Service, I think has also 

made a significant contribution. 

Going forward, as Ms. Siggerud said, I think we have an opportunity to invest in equipment that will walk sequence our flat mail 

and make that more productive. In addition to that, I am excited 

about the intelligent mail bar code, and the reason I am really excited about that is because of the quality improvements that I believe we will see in mail that is being deposited into the system. 

What that system will do, once we have it up and running, it will 

track mail from the time a mailing list is thought about, through 

the printing process, through the logistics process if the Postal 

Service is not used, to the time that mail is deposited into the system. Using an expanded bar code, one with 39 digits of information, we will have information about who sent the mail, what class 

of mail that was sent. We will have a unique identifier for each 

piece and we will have a code that tells us where it is being delivered to. 

What that will enable us to do is eliminate the need to count 

mail when mail is deposited. It will allow us to count mail as it 

is being sorted. And the most exciting part from a quality standpoint, it is going to allow us to give us information—produce information that we can give back to the mailer to improve the quality 

of what they have put into the system. 

Senator CARPER. When do you expect to have that capability? 

Mr. POTTER. We have that capability today, but not on a scale 

that would allow everyone to do it. We have asked mailers to put 

that new code on beginning in 2009, but we have done test mailings today with what we thought were some very high-quality 

mailers. We found out that we were able to count the mail and do 

verification, postage statements by counting mail on automated 

systems, and we are also able to improve, on average, the quality 

of the mail base by about 7 percent. 

If we put this system in place, I believe that we can drive over 

$1 billion worth of costs out of the system just through the implementation of this system, and I believe that we can improve the 

value to the sender because our systems will be totally transparent, 

not only ours, but the whole mailing industry system will be transparent. They will know where their mail is. It will be coded. Trays 

will be coded. If they put mail on pallets, it will be coded. We will 

have a transparent system and we will have a much more efficient 

and effective system and the value of product in the mailstream 

will go up. 

So I am excited about the future. I think that we probably don’t 

talk enough about the opportunities that are out there. 

Now, in addition to that, we are seeing mailers continually moving to make their mail more efficient, not just with this new bar 

code, but also by making it compatible with equipment, by taking 

advantage of discounts that are out there. Some of the rates that 

were referred to earlier are a concern to us. We don’t want to drive 

anyone out of the mail stream. We want them to think about how 

they could use or package their mail a little differently so that they 

can continue to stay in the mail. 

27

One thing we were concerned about with the recent rates, the 

ones we proposed as well as some of the changes at the Rate Commission, we want to make sure that we communicate to people and 

the message is not to drive people out of the system, but make your 

mail compatible with automation and take advantage of discounts 

because we want everyone to stay in the mail stream. 

Senator CARPER. I would like for Mr. Blair to comment. One of 

the responsibilities that you have in light of the new legislation is 

to focus on service, what we can do to make the products that the 

Postal Service delivers more valuable to customers. My time is expired, so I am just going to ask you to be ready, when I ask another question, to respond to that and to follow up with what Mr. 

Potter said. 

And Mr. Potter, I want to come back to you and talk about some 

of the partnerships that you have begun, working with people like 

e–Bay. What you are doing with e–Bay, I think, is a really interesting partnership. Also, the kind of opportunities that you have 

maybe out in Oregon and as people vote by mail as opposed to just 

going to the polls. But I want to ask you to explore with us some 

of those new opportunities. 

Senator Akaka, thank you. 

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

Mr. Potter, employees at the Postal Service have contacted me 

about involuntary reassignments or repositioning rules that cover 

the assignment of displaced management and supervisory employees in downsizing situations. This, in particular, concerns me as 

Chairman of the Veterans Affairs Committee. These employees allege that such action is directed against veterans. They charge that 

these rules are a way of circumventing the prohibition on designer 

reductions in force. If true, such repositioning rules appear to violate the spirit of veterans’ preference laws. 

Can you tell me how many veterans have been subject to these 

repositioning rules and what rights and protections are available to 

veterans of the Postal Service who are subject to these repositioning rules? 

Mr. POTTER. Senator, I am sorry. I don’t have a specific number 

of people who are affected, but we can try and generate one for you. 

Let me just describe for you in layman’s terms, because I am not 

a warrior and I don’t know the exact verbiage, but what we are trying to do, and we are trying to live up to the spirit of OPM’s efforts 

to place people in jobs voluntarily. So when there is a RIF, what 

we basically have done is allowed people to volunteer to get out 

from under the RIF, so that if we are moving people and they can 

get closer to home or they have a job that works for them, we allow 

them to volunteer first. 

Now, unfortunately, some people have taken that, the way we 

are trying to do this, as a means of being anti-veteran. It is not. 

We are very proud employers of veterans. We have more veterans 

working for us than any company in America. So we are very proud 

of all our veterans. But when there is a need to have a reduction 

in force, our preference would be that we allow people to volunteer 

to go to other locations, and in the process of doing that, hopefully 

avoid a reduction in force. 

28

And again, I believe that we are very consistent with guidelines 

that have been put out by OPM, and I believe in the spirit of those 

guidelines. I believe that we should allow people to volunteer. And 

again, unfortunately, I guess, some people are assuming that there 

is some other motivation. There is absolutely no other motivation 

other than to try and allow people to volunteer for assignments and 

give people the opportunity to do that. 

Senator AKAKA. Thank you for that response. 

Mr. Potter, because of Hawaii’s geographic location, consumers 

and businesses are dependent on the U.S. Mail for many commodities, including prescription drugs. In areas of rapid growth, such 

as the islands of Hawaii and Maui, there are insufficient postal facilities to serve residents. On the big island of Hawaii, many residents do not have home delivery. Rather, they must pick up their 

mail at the post office. However, we now see that post office boxes 

in some areas are over-subscribed and residents must use a post 

office that can be up to 30 minutes from their homes. So my question to you is, what steps are being taken to address these types 

of problems? 

Mr. POTTER. This is the first that I am hearing of that problem, 

so what I will do is I would rather work with you and your staff 

to get the specifics of it and then come back to you one-on-one and 

let you know what we are doing to address those specific concerns. 

Senator AKAKA. I would appreciate that, Mr. Potter. 

The Postal Accountability and Enhancement Act requires the 

Postal Service, in consultation with the Postal Regulatory Commission, to set service standards for mail products. I understand that 

the PRC has sat in on meetings of the Mailers Technical Advisory 

Committee, which is reviewing the needs of mailers. Do you view 

the PRC’s current involvement in these meetings, attending them, 

as fulfilling the consultation required by the Act? 

Mr. POTTER. First of all, let me speak from a Postal Service perspective and then perhaps Mr. Blair would like to speak from a 

Regulatory Commission standpoint. 

When we are establishing—the new law says we have to reevaluate our service standards and then put measurement systems in 

place to measure our performance against those standards and 

then establish goals. The first thing we did was said, well, OK, if 

we are going to establish standards, then we need to reach out to 

the mailing community and we have the Mailers Technical Advisory Committee. We formed subcommittees around standards for 

different classes of mail, subcommittees of the Mailers Technical 

Advisory Committee, to give us some guidance on what the requirements of the mailing community are. This is not about the Postal 

Service, this is about the mailing community. 

And as part of that effort, we invited members of the Postal Regulatory Commission to participate in that process. We want to be 

open and transparent around the process that we are going 

through and the procedures. We invite them to sit in and listen 

and participate in the discussions around the establishment of 

standards. And then as soon as that is complete, we are going to 

enter into a discussion around measurement systems and how that 

might be accomplished, and we might have differences of opinion 

29

on that, but we will, over the course of time, come to some agreement on how that should be done. 

You asked a very technical question. I don’t know if that fulfills 

the obligation for their comment. I would rather let Mr. Blair respond to that. 

Senator AKAKA. Mr. Blair. 

Mr. BLAIR. Thank you, Senator Akaka. I think this will probably 

also go to part of the question that you may be asking next, too, 

Mr. Chairman. Our observance on the Mailers Technical Advisory 

Committee is a good first start. But the legislation clearly requires 

consultation and we believe that a vigorous consultation and a true 

consultation that should take place would be a give-and-take between the two bodies, as well as hearing from the mailers. That 

hasn’t taken place yet, not that the opportunity has been foreclosed 

at all. We are in the very initial stages of that. 

But my discussions with the Postmaster General and with others 

in the community is that my view of consultation is a vigorous 

give-and-take here. The Postal Service clearly has the power of the 

pen in this, but that we would expect to see our input into subsequent drafts and into subsequent iterations of what these standards will eventually look like. We look forward to that full consultation. We have high expectations for it and we think that our 

initial observance on the impact is a productive prelude to these 

consultations. 

Senator AKAKA. Mr. Blair, it sounds like the Postal Service may 

think this is the extent of your statutory involvement. What makes 

you believe that the Postal Service will collaborate with the Commission further outside of these meetings? 

Mr. BLAIR. Well, I am an optimist and I think that the Postal 

Service and my good friend Mr. Potter will engage fully in the consultation, and I really do expect that. But I also know that this 

Subcommittee has high hopes for this consultative process, too, and 

so I know that the exercise of your oversight authority will also 

spur these activities forward, as well. 

Senator AKAKA. Thank you, and I thank you all for your responses. Thank you, Mr. Chairman. 

Senator CARPER. Thank you, Senator Akaka. 

Mr. Chairman, let me come back to you and just ask you to follow up in terms of the kind of value added that Mr. Potter was 

talking about earlier to products. Any comments that you might 

have on that? 

Mr. BLAIR. I think that the idea, and what I have heard so far 

of intelligent mail is exciting. I think it is providing value to the 

mail. It is providing a reason that people will continue to use the 

mail stream. And in moving forward on something like that, I 

know he said at this hearing that they have the capabilities today. 

The question is, at what point will the implementation be? I think 

that is something the Regulatory Commission, the mailing community, and this Subcommittee will have high hopes for seeing good 

implementation strategies. I think it is an example of giving value 

to a product that otherwise might not be used as heavily. 

And so the ability for the Postal Service to move forward into 

these areas, using technology to their advantage, will hopefully 

stem off that red and blue on the chart—and I hope that is red and 

30

blue because I am colorblind—but the red and blue converging, or 

if that convergence is well out into the future. 

Senator CARPER. Alright, thanks. 

Mr. Potter, talk to us for a minute or two about some of the opportunities that you see. You obviously have a good one with e–

Bay. The folks out in Oregon decided they would rather mail their 

ballots in. We have 49 other States, some territories, what kind of 

opportunities do you have there? And I think there are some others 

you probably mentioned in your written testimony that I read. 

Mr. POTTER. Well, the Secretary of State from Oregon came and 

visited me recently in Washington, DC and he told me that he was 

hosting a conference of his peers this summer out in Oregon and 

we quickly decided we would help sponsor that event and that I 

would be a keynote speaker at the event because I see the value 

of expanding the use of the mail, particularly for elections, where 

it drives participation up and makes it very convenient for people 

to vote. I am basically out there looking for any new users and uses 

of the mail, and there is one that is a great example, where the 

Postal Service has the ability to, I think, enhance the democracy 

of the United States because of more ubiquity and the ease of use 

of using the mail. 

We have worked closely with NetFlix, as an example, for the 

rental of DVDs, and I think if you look at the fact that their competitors are also offering a similar product, there is a case where 

the convenience of the mail has become a competitive advantage in 

that marketplace. We have opened up our network so anyone that 

wants the Postal Service to deliver a package the last mile is free 

to bring the mail to our delivery units with a parcel select product 

and we will take that package and deliver it the last mile. 

It is interesting that, of our top four customers, three are the 

ones you would think of as our natural competitors because of the 

fact that there is an efficiency, an inherent efficiency in the rural 

areas to have one person who is already going there every day because of delivering letter and flat mail to also carry packages. So 

we are basically looking at this infrastructure that the American 

public has built and we are trying to figure out how we can get 

that infrastructure to best serve the American public. 

One of the areas I would love for the Federal Government to 

think about is the notion of the fact that we have 37,000 retail outlets. I would hope the Federal Government would think of them 

having 37,000 physical locations throughout the country, and what 

in the future that might mean and how you might use it is something that I think we have to let our imaginations run wild here. 

But we have a dilemma going forward. How do we maintain that 

infrastructure, and believe me, Americans love their post offices 

and I know that, but how do we find new sources of revenue so 

that we can maintain that brick-and-mortar structure going forward? 

So today, we help the State Department with passports. In the 

future, we would like to help other Federal agencies with whatever 

services that they need to bring to the American public. One person 

came to me and said, what do you think about having a kiosk in 

a post office? And I said, for what? And they said, well, so that 

John Q. Public could come in and get in there and sit in a cubicle 

31

and talk to somebody at the Secret Service, talk to somebody at 

Medicare, Medicaid, or any other service that they might need to 

be provided by the Federal Government, and it would take some 

infrastructure out of the Federal Government. When you say to 

somebody, go to your post office, it is kind of a no-brainer. They 

know where their post office is. We could work something like that 

out. 

So we are very open minded about taking the infrastructure we 

have, whether it is delivering hard-copy mail or packages and making sure that we have as open a system as possible for people to 

use it so that we can generate revenue going forward to keep universal service available to the American people, and we would also 

entertain anything that would make our post offices serve the government or any other function that would make a contribution to 

our maintenance of universal service. 

Senator CARPER. Alright. Thank you. My little State of Delaware 

is small and a lot of times people have said, well, isn’t that a disadvantage? And what we have done in my State is we have taken 

that disadvantage and made it our advantage. Because we are 

small, we are able to be responsive, turn on a dime, and think 

quicker and smarter, hopefully, to do any number of things. 

You clearly have the opportunity to do that, as well, to take what 

can be a big disadvantage in that you have got this huge infrastructure, all these routes and the requirement to go to everybody’s 

house every day or everybody’s business every day, but there are 

advantages there and you just mentioned some ways to more fully 

capitalize on those advantages. 

Mr. Blair, as I have mentioned, predictability and stability in 

rates for mailers was one of the major goals of postal reform, at 

least from my perspective. We did, however, include a provision in 

the legislation calling for the creation of a mechanism within the 

new rate system whereby the Postal Service may raise rates above 

the CPI cap that we put in place, and when we went back and 

forth on this exigency language, as I am sure some of you recall—

I see Ann Fisher out in the audience. I am sure she recalls going 

back and forth on that, as does John Kilvington over my left shoulder here. 

But we came up finally with language that says the Postal Service can raise rates above the CPI cap during, I think, extraordinary 

and exceptional circumstances. My definition of extraordinary and 

exceptional circumstances has been something like the September 

11, 2001 attacks, a major natural disaster, or some other event 

that causes a significant spike in costs or drop in volume that the 

Postal Service really couldn’t be expected to handle in the normal 

course of business. 

Senator Collins and I laid all this out in a letter to you, Mr. 

Blair. Your thoughts in responding to that letter? 

Mr. BLAIR. I think your sentiments speak for themselves. It is, 

indeed—I think that most in the postal community believe that it 

is a high bar for an exigency rate case. It wasn’t considered to be 

routine. We have had a number of comments on that. I think one 

of the comments that the Postal Service made is that you evaluate 

it on a case-by-case basis. We are still evaluating all the comments, 

but I think those are all good in helping guide the Commission into 

32

what the procedure should be for the consideration of a case like 

this. 

It clearly is a September 11, 2001 or anthrax-like situation. 

While those are not deemed to be the two cases in which it should 

be exercised, I think it gives us some framework for how we would 

consider that. I think that if you don’t have a strong exigency case, 

it makes almost a mockery of the rate cap. So you want to make 

sure that, indeed, it is the rare bird case, and that while you evaluate it in my view, I would want to evaluate it on a case-by-case 

basis, we hopefully, during my tenure, wouldn’t have to see something like that. But we will evaluate the comments, evaluate the 

reply comments, and come forward again. But your sentiments are 

appreciated. 

Senator CARPER. Good. Thank you. I don’t pretend to speak for 

Senator Collins, but in this case, I will. Both she and I appreciate 

the words that you have just said, your response. 

I just have maybe one more question for Mr. Blair, and I will 

yield to Senator Akaka if he has anything further. As we have discussed a little bit here today, the Postal Regulatory Commission is 

currently considering, I think, three requests from the Postal Service to revise rate recommendations that you made earlier this year, 

and I just want to clarify for the record one point, if I may, about 

these rates. 

If the Commission does decide to alter its initial recommendation 

by lowering rates in some cases and those recommendations are accepted by the Postal Service’s Board of Governors, rates for other 

mailers may need to go up to cover the shortfall. I would ask, is 

that true? Will this be a factor during the Commission’s consideration of the rate request? 

Mr. BLAIR. Not to be unresponsive, but since this is pending litigation, I am reluctant to go into that area. Let me just speak hypothetically, however, that under the general rate regime now, with 

the Postal Service’s revenue requests, you try to build in a rate 

structure in which you have rates that meet that revenue request. 

If you don’t raise rates in one area, then you have to raise rates 

in another area. It is a zero-sum game. 

Now, we will see what happens with the reconsideration. Again, 

the one party has asked that the record be reopened. New evidence 

may be introduced. Should that record be reopened, other parties 

will have the opportunity to respond, as well. So the process will 

play itself out. 

But just to give you a flavor of what cost-of-service ratemaking 

is like is that it oftentimes can be a zero-sum game. 

Senator CARPER. Well, this hearing has not been a zero-sum 

game. This has been a good hearing and this is probably not the 

last hearing that we will have of this nature. 

We are, again, mindful of all the work that was done by so many 

people and organizations, some represented in this room but a lot 

not, and I just want to express on my behalf, and I think certainly 

Senator Collins, for the good work and the spirit, including the participation of the Administration, that was pivotal in adopting the 

legislation that we did. 

I think everything that I have ever been a part of doing, I know 

I can always do better. We can do better and my guess is that we 

33

will certainly be able to improve on the work of the last several 

years and the bill that was enacted last December. One important 

thing for us to do from time to time is just to sit down, to invite 

you in to talk with us. We are mindful that there are going to be 

ways to improve our legislation. We don’t know what they are yet. 

I think for the most part, we want to let this play out for a while 

and make, as best we can, this system work. But as we go down 

the line, we will find ways that we can improve on this. 

I want to thank each of you for taking your time to be with us 

today. We thank you for your testimony. We thank you for responding to our questions. I ask that you especially remember us to Postmaster General Walker. We thank him for being present about 6 

years ago when we sort of kicked this into gear and he has been 

a good counselor to us in the intervening years. 

Ensuring that postal reform is implemented properly is real important. I will just mention this. There is a trillion-dollar mailing 

economy. It depends on the efficient operation of our Postal Service, so we look forward to working with our colleagues, Senators 

Akaka and Collins and others, and with the Postal Service and the 

Postal Regulatory Commission in the months and years ahead to 

come to make sure that this new business model turns out the way 

that we intended it. 

The hearing record is going to stay open for 2 weeks for the submission of additional statements and questions. I just ask each of 

our witnesses for your cooperation in getting prompt responses to 

any questions that might be submitted for the record. 

With that having been said, this hearing is adjourned. Thank 

you all so much. 

[Whereupon, at 4:15 p.m., the Subcommittee was adjourned.] 

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