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THE U.S. POSTAL SERVICE: 101

HEARING

BEFORE THE

SUBCOMMITTEE ON FEDERAL WORKFORCE,

POSTAL SERVICE, AND THE DISTRICT

OF COLUMBIA

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

APRIL 17, 2007

Serial No. 110–44

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

(

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

http://www.house.gov/reform

(II)

COMMITTEE ON OVERSISGHT AND GOVERNMENT REFORM

HENRY A. WAXMAN, California, Chairman

TOM LANTOS, California

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

BRIAN HIGGINS, New York

JOHN A. YARMUTH, Kentucky

BRUCE L. BRALEY, Iowa

ELEANOR HOLMES NORTON, District of

Columbia

BETTY MCCOLLUM, Minnesota

JIM COOPER, Tennessee

CHRIS VAN HOLLEN, Maryland

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

JOHN P. SARBANES, Maryland

PETER WELCH, Vermont

TOM DAVIS, Virginia

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

VIRGINIA FOXX, North Carolina

BRIAN P. BILBRAY, California

BILL SALI, Idaho

——— ———

PHIL SCHILIRO, Chief of Staff

PHIL BARNETT, Staff Director

EARLEY GREEN, Chief Clerk

DAVID MARIN, Minority Staff Director

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

COLUMBIA

DANNY K. DAVIS, Illinois

ELEANOR HOLMES NORTON, District of

Columbia

JOHN P. SARBANES, Maryland

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio, Chairman

WM. LACY CLAY, Missouri

STEPHEN F. LYNCH, Massachusetts

KENNY MARCHANT, Texas

JOHN M. MCHUGH, NEW YORK

JOHN L. MICA, Florida

DARRELL E. ISSA, California

——— ———

TANIA SHAND, Staff Director

(III)

C O N T E N T S

Page

Hearing held on April 17, 2007 .............................................................................. 1

Statement of:

Burrus, William, president, American Postal Workers Union, AFL–CIO;

William H. Young, president, National Association of Letter Carriers;

Donnie Pitts, president, National Rural Letter Carriers’ Association;

and John F. Hegarty, national president, National Postal Mail Handlers Union .................................................................................................... 140

Burrus, William ......................................................................................... 140

Hegarty, John F. ....................................................................................... 188

Pitts, Donnie .............................................................................................. 159

Young, William H. ..................................................................................... 148

Goff, Oscar Dale, Jr., national president, National Association of Postmasters of the United States; Charles W. Mapa, president, National

League of Postmasters; and Ted Keating, president, National Association of Postal Supervisors ............................................................................. 218

Goff, Oscar Dale, Jr. .................................................................................. 218

Keating, Ted .............................................................................................. 241

Mapa, Charles W. ...................................................................................... 229

Potter, John E., Postmaster General/CEO, U.S. Postal Service; James

C. Miller III, chairman, Board of Governors, U.S. Postal Service; and

Dan G. Blair, chairman, Postal Regulatory Commission .......................... 13

Blair, Dan G. ............................................................................................. 34

Miller, James C., III .................................................................................. 25

Potter, John E. ........................................................................................... 13

Williams, David C., Inspector General, U.S. Postal Service; and Katherine

A. Siggerud, Director, Physical Infrastructure Issues, U.S. Government

Accountability Office ..................................................................................... 61

Siggerud, Katherine A. ............................................................................. 89

Williams, David C. .................................................................................... 61

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

Blair, Dan G., chairman, Postal Regulatory Commission, prepared statement of ........................................................................................................... 36

Burrus, William, president, American Postal Workers Union, AFL–CIO,

prepared statement of ................................................................................... 144

Clay, Hon. Wm. Lacy, a Representative in Congress from the State of

Missouri, prepared statement of .................................................................. 253

Davis, Hon. Danny K., a Representative in Congress from the State

of Illinois:

Followup questions and responses .................................................................. 45

Prepared statement of ...................................................................................... 3

Goff, Oscar Dale, Jr., national president, National Association of Postmasters of the United States, prepared statement of ................................ 220

Hegarty, John F., national president, National Postal Mail Handlers

Union, prepared statement of ...................................................................... 191

Keating, Ted, president, National Association of Postal Supervisors, prepared statement of ........................................................................................ 243

Lynch, Hon. Stephen F., a Representative in Congress from the State

of Massachusetts, prepared statement of ................................................... 7

Mapa, Charles W., president, National League of Postmasters, prepared

statement of ................................................................................................... 231

Miller, James C., III, chairman, Board of Governors, U.S. Postal Service,

prepared statement of ................................................................................... 28

Pitts, Donnie, president, National Rural Letter Carriers’ Association, prepared statement of ........................................................................................ 161

Page

IV

Letters, statements, etc., submitted for the record by—Continued

Potter, John E., Postmaster General/CEO, U.S. Postal Service, prepared

statement of ................................................................................................... 16

Schakowsky, Hon. Janice D., a Representative in Congress from the

State of Illinois, prepared statement of ...................................................... 254

Siggerud, Katherine A., Director, Physical Infrastructure Issues, U.S.

Government Accountability Office:

Prepared statement of ...................................................................................... 91

Various GAO reports ........................................................................................ 131

Williams, David C., Inspector General, U.S. Postal Service, prepared

statement of ................................................................................................... 63

Young, William H., president, National Association of Letter Carriers,

prepared statement of ................................................................................... 151

(1)

THE U.S. POSTAL SERVICE: 101

TUESDAY, APRIL 17, 2007

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON FEDERAL WORKFORCE, POSTAL

SERVICE, AND THE DISTRICT OF COLUMBIA,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 10:04 a.m. in room

2247, Rayburn House Office Building, Hon. Danny K. Davis of Illinois (chairman of the subcommittee) presiding.

Present: Representatives Davis of Illinois, Norton, Sarbanes,

Cummings, Kucinich, Clay, Lynch, Maloney, Marchant, and

McHugh.

Staff present: Tania Shand, staff director; Lori Hayman, counsel;

Cecelia Morton, clerk; Alex Cooper, minority professional staff

member; and Kay Lauren Miller, minority staff assistant.

Mr. DAVIS OF ILLINOIS. The subcommittee will come to order.

Let me apologize for being a few minutes tardy. I had 45 young

people from the Kip Charter School that I had promised to see.

They got caught in traffic and were a little late. But thank you all

for coming.

Let me welcome Ranking Member Marchant, members of the

subcommittee, hearing witnesses, and all of those in attendance.

Welcome to the Federal Workforce, Postal Service, and the District

of Columbia Subcommittee hearing on the U.S. Postal Service: 101.

Hearing no objection, the Chair, ranking member, and subcommittee members will each have 5 minutes to make an opening

statement, and all Members will have 3 days to submit statements

for the record.

Ranking Member Marchant, who is stuck in a storm, members

of the subcommittee, hearing witnesses, and the entire postal community, welcome to the first hearing the subcommittee will hold on

the U.S. Postal Service in the 110th Congress. As I understand it,

this hearing is long overdue. There has not been an oversight hearing on the Postal Service in close to a decade, and this will be the

first of many.

The U.S. Postal Service performs a valuable national service. It

delivered over 213 billion pieces of mail to over 146 million delivery

points in 2006. Almost $72 billion was s pent in providing these

and other postal services required as part of the meeting of Postal

Service needs and the universal service mandate.

To ensure the financial service of the Service and its primary

function of mail delivery, last year the Congress passed the Postal

Accountability and Enhancement Act of 2006. The act is a direct

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result of the postal community coming together and reaching agreement on work sharing, rate setting, pricing, flexibility, diversity,

and a number of other provisions to ensure that the Service can

compete in today’s marketplace.

To ensure compliance with the act, the subcommittee is going to

conduct aggressive postal oversight and monitoring the implementation of the Postal Accountability and Enhancement Act of 2006.

In addition to the act, the subcommittee will look into mail delivery services in Chicago, diversity in Service’s upper management,

and it will engage the postal community in a discussion about outsourcing the delivery of U.S. mail. Highway contract routes, are a

long-established and accepted postal transportation contracts that

are used for bulk mail and delivery services in rural areas. What

is less established is the Service’s use of contractors to deliver mail

to suburban and rural areas and whether or not this practice is

good public policy. These issues and others raised during this hearing will be the basis for future subcommittee hearings.

Before I thank today’s witnesses for taking the time to testify before this subcommittee, I also want to announce that today Senator

Akaka and I will introduce legislation honoring public servants

during Public Service Recognition Week, May 7th through May

13th. The mail does not get delivered and the Government cannot

function without dedicated public servants. I am pleased to make

this announcement during this hearing, because the Postal Service,

through its employees, ensures equal access to secure, efficient and

affordable mail service, and they should be commended for it.

In closing, I ask unanimous consent to submit for the record the

statement of Representative Jan Schakowsky, a Democrat from Illinois, and other Members wishing to submit statements for the

record.

Hearing no objection, those will be submitted.

[The prepared statement of Hon. Danny K. Davis follows:]

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Mr. DAVIS OF ILLINOIS. At this time I would like to extend 5 minutes for an opening statement to members of the subcommittee.

The gentleman from New York, Mr. McHugh?

Mr. MCHUGH. Mr. Chairman, thank you. I will not take 5 minutes.

This is deja vu all over again for some of us, Mr. Chairman. I

do have a statement that I am going to ask unanimous consent can

be entered in its entirety in the record.

Mr. DAVIS OF ILLINOIS. Without objection.

Mr. MCHUGH. I would say to you, Mr. Chairman, congratulations, not just for holding this hearing, although certainly that is

important, but for taking up this gavel. I look forward to working

with you as we have in the past on these kinds of very critical

issues.

It has been 10 years, as you noted. I think that is why we have

a lot of pent-up interest here today. Obviously, this is a new era

based on a new paradigm for the Postal Service. Many, many folks

in this room joined us in working long and hard in helping to construct the first postal reform legislation in more than 35 years. I

am looking forward to hearing some of the perspective held by

those individuals in the early days of this new reform.

So, Mr. Chairman, again with my words of appreciation and anticipation toward our four panels, I would yield back the balance

of my time.

Mr. DAVIS OF ILLINOIS. Thank you so very much. I appreciate the

comments of the gentleman from New York, who has labored long

and hard on these issues. We look forward to working with you

continuously through this session.

Mr. Lynch.

Mr. LYNCH. Thank you, Mr. Chairman.

I will take an opportunity to use a brief amount of time. I would

like to thank you and Ranking Member Marchant for holding this

hearing. I would also like to thank today’s panelists.

Last year witnessed the enactment of H.R. 6407, the Postal Accountability and Enhancement Act. That was the first major reform

of the U.S. Postal Service in over 35 years and the result of a decade-long effort led by the distinguished chairman of our subcommittee, Mr. Davis, the chairman and ranking member of our

full committee, and Mr. Waxman and Mr. Davis of Virginia and

Mr. McHugh of New York.

However, while this legislation constitutes an important first

step toward addressing the financial challenges faced by the Postal

Service, we must continue to exercise proper oversight of this institution to ensure the responsible implementation of the act and

safeguard the best interests of our postal workers, our partners,

our greatest asset toward effecting a meaningful postal reform.

The bravery, dedication, and sacrifices made by our Postal Service workers was never more evident than in the weeks following

September 11th, during which a series of anthrax attacks were conducted through the U.S. mail system. Tragically, two employees of

the Brentwood mail sorting facility, Joseph Curseen, Jr., and

Thomas Morris, Jr., were among the victims of these attacks. At

the time, every one of our postal workers—every clerk, every carrier, every mail handler—was faced with the very difficult choice

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between continuing to come to work under very difficult and dangerous conditions and staying at home, and thereby risking the stability of our own economy. It was a special responsibility and dilemma for our Postal union representatives, who had the dilemma

of sending their members, sending their workers into an area

where we knew there was anthrax contamination.

Behind the scenes on the September 11th attacks and thereafter,

there was much hanging in the balance. At the end of the day, the

postal unions and the postal workers went to work and the mail

kept running; however, not without great concern.

As we all know, America’s postal workers chose to come to work

because they considered it their patriotic duty to do so. Accordingly, I believe it is our duty to safeguard the best interests of

America’s postal workers as the long process of modernization of

the U.S. Postal Service moves forward. To this end, I welcome the

continued input of our postal worker unions, the American Postal

Workers Union, the National Association of Letter Carriers and the

National Postal Mail Handlers Union and the National Rural Mail

Carriers Association in this hearing.

Thank you, Mr. Chairman. I yield back the balance of my time.

[The prepared statement of Hon. Stephen F. Lynch follows:]

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Mr. DAVIS OF ILLINOIS. Thank you, Mr. Lynch.

Delegate Norton.

Ms. NORTON. Thank you, Mr. Chairman. I very much appreciate

that we are having an early oversight hearing on the Postal Service

and that our committee has reincorporated the Postal Service into

this subcommittee. It is very important oversight.

What your chairmanship and the new committee configuration

promises is the kind of continuous oversight that this most very

important service of the United States of America deserves.

The Postal Service and I have gone through a lot together because of the trauma at Brentwood and the heroic way in which

both the employees and management faced that extraordinary and

unique situation. There were bumps along the way, but if one

walks into that new facility and to the other facilities here in the

region, one sees the resiliency of postal workers and of the way in

which management and workers have worked together, not only to

recover but to move forward in ways that we believe provide far

greater safety.

The new Brentwood is no longer the Brentwood. It has been appropriately renamed for the two employees who lost their lives. I

think that the entire country now has come to grips with the importance of safety first, particularly given the way in which we all

depend upon a vital service like the Postal Service. So my congratulations go to employees and to management for the way in

which they have come to grips with this unique and awful crisis.

Mr. Chairman, I heard the piece on NPR this morning. I don’t

know if you have mentioned it. I was in the shower this morning

and I heard the melodious voice of our own chairman. It is a voice

that you could recognize anywhere. He was describing the upcoming hearing. What I was surprised to hear about, however, was

that there had been some slippage since the bad, old days.

I am not sure what the figures show in the District of Columbia,

but I have very painful recollections of the early 1990’s when this

region was at the bottom in delivery time, and I must tell you I

have never seen anything like what the Postal Service in this region did. It went to the very top. So I have seen what the Postal

Service can do. I have seen what the Postal Service can do in the

midst of the worst crisis imaginable, the anthrax crisis. And I have

seen what the Postal Service can to when this region, in particular,

is in the pits and then rises to the top.

I was concerned that Chicago had not had the same experience

we had, or perhaps you are having the same experience we had,

that you are now below the average and you yearn to be at least

average and perhaps where I suppose we still are—and I will have

to check that out—but where we were was at the very top.

This hearing comes, I think, in time and with the kind of oversight that I can tell you that with oversight, with oversight the

Postal Service, in fact, corrected the problem in this region. With

oversight, I have no doubt that the very same will happen in the

Chicago region.

I thank you again for this hearing, Mr. Chairman.

Mr. DAVIS OF ILLINOIS. Thank you very much. I can assure you

that Chicago shall follow the District of Columbia and in the next

hearing we will see tremendous improvements.

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Our first panel is seated and I would like to just introduce them

before they testify.

Panel one: John Potter was named 72nd Postmaster General of

the United States of America on June 1, 2001. Jack Potter has led

the Postal Service to record numbers of service, efficiency, and financial performance.

Our second witness, Mr. James C. Miller III, was elected chairman of the Board of Governors of the U.S. Postal Service in 2005.

In addition to serving on the Board, he is senior advisor to the

international law firm of Blackwell, Sanders, Pepper and Martin.

The Postmaster General and Deputy Postmaster General serve at

the pleasure of the Governors.

Our third witness, whom we have known in another life, Mr.

Dan Blair, serves as the first chairman of the Independent Postal

Regulatory Commission, the successor agency to the former Postal

Rate Commission. He was unanimously confirmed as a commissioner of the former Postal Rate Commission on December 9, 2006,

by the U.S. Senate, and designated chairman by President George

W. Bush on December 15, 2006.

Gentlemen, thank you very much.

It is our policy that all witnesses are sworn in, so if you would

rise and raise your right hands.

[Witnesses sworn.]

Mr. DAVIS OF ILLINOIS. The record will show that each witness

answered in the affirmative.

Thank you very much.

Of course, your entire statements will be placed in the record.

You have been through this many, many times, so you know the

drill. The green light indicates that you have 5 minutes to summarize your statement. The yellow light means that time is running

down and that you have 1 minute remaining to complete the statement. Of course, the red light means that time has expired and we

would hope that witnesses would stop.

We will begin with our Postmaster General. Mr. Potter, welcome

and thank you very much for being here.

STATEMENTS OF JOHN E. POTTER, POSTMASTER GENERAL/

CEO, U.S. POSTAL SERVICE; JAMES C. MILLER III, CHAIRMAN, BOARD OF GOVERNORS, U.S. POSTAL SERVICE; AND

DAN G. BLAIR, CHAIRMAN, POSTAL REGULATORY COMMISSION

STATEMENT OF JOHN E. POTTER

Mr. POTTER. Good morning, Mr. Chairman and Ranking Member

Marchant and all the members of the subcommittee. I am honored

to be here as America’s postal system enters a new era.

It is appropriate that I am joined by Board of Governors Chairman Jim Miller and Postal Regulatory Commission Chairman Dan

Blair. Our ability to work together as roles are changing is critical

to the success of the new law. 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 improvement. Our people have

done an outstanding job.

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Unfortunately, significant changes in the communications and

delivery markets have made continued success under the original

law problematic. That is why our Nation is fortunate that so many

have recognized this and acted to preserve affordable, universal

Postal services.

I appreciate the efforts of this committee, both houses of Congress, Comptroller General David Walker, the administration, and

the President’s Commission on the U.S. Postal Service. 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 and Enhancement Act of 2006.

Unfortunately, our business model remains broken, even with

the positive pricing and product changes in 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 a better position than ever to respond quickly to market

conditions, and we will operate far more nimbly in the expedited

and packaged product sectors. Growth is our greatest challenge, as

we shift from a transaction-based mail stream to one centered on

lower-margin marketing and advertising mail.

People are also finding new uses for their mail. The State of Oregon conducts elections through the mail, resulting in greater voter

participation. This is encouraging and presents a unique opportunity for our democracy. We will continue our work with all mailers and the use of the latest technology to add even more value to

the mail.

One example is the new intelligent mail bar code. It improves

quality, cuts costs, and increases convenience for mailers and for

the Postal Service. The good news 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, and that is why I am 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, to me,

are extremely challenging.

Because we have little control over some costs such as fuel and

employee retirement and health benefits, we must maintain an intense focus on managing what we spend. 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 in costs

each year. Our preferred path to staying under the rate cap is to

achieve productivity targets consistent with the needed billion dollars in 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 action such as reducing service or contracting out.

Since the earliest days of America’s Postal system, contractors have

transported and delivered the mail safely and securely. They are

15

screened by the Postal Inspection Service, and, like career employees, are subject to legal penalties under Title 18 of the United

States 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

complex give-and-take that marks collective bargaining. Let me assure you that it is not, it is not our intention to take delivery work

performed by Postal employees and contract that work out. We do

contract out new deliveries, but only in those locations where it

makes sense, and in accordance with our national labor agreements. Of new deliveries, those new homes and businesses in 2006,

94 percent are currently being served by U.S. Postal Service city

and rural letter carriers. I do not foresee laying off any carriers as

a result of out-sourcing. That is something I pledge not to do.

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 Postal law

offers opportunities for the Postal Service and the entire mailing

community. We will take full advantage of these opportunities in

support of our historic mission of providing affordable, universal

mail service to our Nation.

Let me just say, since Delegate Norton brought it up, Washington, DC, remains the top performer in the country.

Mr. Chairman, you know that I am committed to Chicago and

the folks in Chicago to provide similar results and a similar turnaround as was seen in Washington, DC.

I would be pleased to answer any questions you may have after

the remaining speakers.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Potter follows:]

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Mr. DAVIS OF ILLINOIS. Thank you very much, Mr. Postmaster

General.

Now we will proceed to Chairman Miller.

STATEMENT OF JAMES C. MILLER

Mr. MILLER. Thank you, Mr. Chairman, Mr. McHugh, Mr. Lynch,

Mr. Sarbanes. Thank you for inviting us here today. Thank you for

holding this hearing. We are always looking for ways and opportunities for improving our service.

I have a statement that I submitted for the record. I ask it be

included in the record.

Mr. DAVIS OF ILLINOIS. Without objection.

Mr. MILLER. Thank you very much.

It is a statement on behalf of the Board of Governors, the entire

Board of Governors of the Postal Service. Our message to you today

is that all of us, the Postal Service employees, the Postal Regulatory Commission, the customers of the Postal Service, and Members of Congress must all pull together if this enterprise is to provide the kind of service at reasonable prices that the American people have come to expect. Yes, we have made substantial progress

in the last few years: transformation plan, rate increases below inflation, increased quality, contraction of the labor force, streamlining the network, overcoming challenges of higher fuel costs, paying

off $11 billion in debt, and 7 years of increased productivity.

However, the centuries-old social compact that has characterized

the Postal Service, where you could defray almost any level of cost

by raising the price on monopoly mail, just doesn’t work any more.

That compact is broken. The reason is that we are in a competitive

environment. In the economists’ terms, the demand for monopoly

mail is shifting to the left and becoming more and more elastic as

time goes forward from competitive sources. They just simply can’t

do that any more. We have to re-evaluate.

The business model, as my friend Jack Potter has indicated, is

broken. By the way, I am delighted and honored to be here with

Mr. Potter and Mr. Blair and the other panelists that will appear

before you today.

We have to be much more consumer oriented. I have in my statement an example of where I bought some stamps in Los Angeles,

and the Postmaster came out and thanked me personally for buying so many stamps, and saying if there is anything else she could

do, she would be glad to do that.

I also gave an example of a letter carrier who complained about

a bunch of mail that I had proffered. Now, it could have been the

other way around. It could have been the mail carrier had done the

customer work, and we have all had mail carriers that have been

delightful and been very solicitous of our business and postmasters

that have not been so solicitous. But we have to be more solicitous

of our customers. We have also got to listen to the needs of our customers, even anticipate the needs of our customers. We have also

got to be much more innovative. We need more win/wins, like the

forever stamp. The forever stamp is good for us and it is good for

customers. Automated postal service where you go in and are able

to weigh something, mail it right there, click and ship, grade innoVerDate 17-JUN-2003 10:16 May 29, 2008 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 C:\DOCS\40873.TXT KATIE PsN: KATIE
26

vation. Our Web site, which is visited by a lot of people every day,

very useful. I visit it all the time.

We need better metrics, as the GAO has pointed out. We need

to, as my friend Allen Murton over at George Mason University

said, what gets measured gets better. If we have the right measures, things will get better.

Even more attention to cost is needed. Flats processing machines

hold potential for substantial savings.

By the way, on the cost side you need to bear in mind that this

new law adds cost to the Postal Service, not just in terms of the

costs that we have had recently announced in February, but adds

cost, Sarbanes/Oxley and other things.

We need to make the structure of rates more closely approximate

the structure of cost. I gave an example in my testimony. When I

was at the undergraduate University of Georgia I worked at a

hardware store, and the manager gave me the key to reading the

little script on there that told me what the wholesale price was of

any big item and authorized me to negotiate down to the wholesale

price. And then after a while I began to think, if we sold everything

at wholesale price there wouldn’t be anything left over to pay the

rent, the building, the light bill, and my meager salary. Now, the

Postal Service can’t sell at wholesale rates, either. We have to do

better than that.

I think it is really important, and my colleague over here, Mr.

Blair, and his colleagues at the Postal Rate Commission, how they

establish the parameters of our competition in our monopoly or

non-competitive sector and also in our competitive sector.

I remember when I was chairman of the Federal Trade Commission, Chairman John Dingle of the Commerce Committee emphasized to me, he said, if I am given the choice of writing the goals

of a bill and writing the process, I will choose the process every

time and I will beat you ever time. The process is really key here.

Members of Congress can help. To ban contracting out is a very

bad idea. As Jack has just said, we don’t anticipate additional contracting out right now. Contracting out is only, like, 2 percent of

our total deliveries. I mean, this is just a small sliver, but to ban

it, to put us in a box and say never is a very bad idea.

You also need to give us more running room with respect to the

streamlining of our logistics system. Constant restraints on our

ability to streamline is very costly. It costs all of the mailers.

Mr. Chairman, by the way, we would like to have better relations

with Congress, the Board and the Postal Service management both.

I think it is only that way we can find out what your concerns are,

and also you can find out what our problems are.

The Postal Service is the 57th largest enterprise in the world

measured by annual sales. It is the 20th largest domestically. It

carries 44 percent of the world’s mail. Its pickup and delivery goes

to 146 million homes six times a week. It is in the top 25 most respected companies in America. It is the most respected Government

agency. All that is a tribute, in my judgment, to our distinguished

Postmaster General, Jack Potter, and his team at the Postal Service, and to postal employees. We are proud of the record that we

have and we want to make it even better.

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At the appropriate time, Mr. Chairman, I would be happy to answer and respond to any of your questions.

[The prepared statement of Mr. Miller follows:]

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Mr. DAVIS OF ILLINOIS. Thank you very much, Mr. Chairman.

We now will proceed to Chairman Blair.

STATEMENT OF DAN G. BLAIR

Mr. BLAIR. Good morning, Chairman Davis, members of the subcommittee. Thank you for the chance to testify here this morning.

I thank you for the opportunity to appear here on the panel today

with Postmaster General Potter, as well as Chairman Miller. I also

want to give a brief thank you to you for your interest in the Postal

Service over the years, and especially thank you to John McHugh

for your efforts over the last 12 years in bringing this to fruition.

I think that your efforts have paid off, so thank you very much.

I also want to acknowledge my fellow commissioners here with

me this morning, and Vice Chairman Tisdale, Commissioners

Goldway, Hammond, and Acton, who are in the audience this

morning.

The passage of the Postal Accountability and Enhancement 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. The act assigns continued

oversight responsibilities to the Commission.

The law equips the PRC with authority to use new enforcement

tools, including subpoena authority; the authority to direct the

USPS to adjust rates and take other remedial actions; and the imposition of fines in case of deliberate noncompliance with applicable

postal laws.

We will analyze and report on the Service’s compliance with the

new law, consider complaints, and report on a regular basis to the

President, Congress, and the public.

The Commission is fully engaged in implementing the strength

and regulatory responsibilities required by the act, as well as completing pending business in the previous law. We understand that

transforming the Commission into the regulator envisioned by the

reform legislation will result in changes to our organizational structure and work force capacity. The PRC is working with an outside

expert in this regard.

Regarding old business, on February 26th the Commission rendered its recommended decision on the most recent omnibus rate

case. This was the first fully litigated case since 2001. We audited

the Service’s projected revenue needs and made adjustments to

their initial estimates based on subsequent Postal Service refinements of these estimates. We also recommended improvements in

the design of rates for many postal products at the Service’s request to 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 the cost savings accrued to the

Postal Service, the approach ratified by the act.

On March 19th the Postal Governors endorsed the Commission’s

rate recommendations with tree limited exceptions, including those

for standard rates, flats, mail. On March 29th the Commission

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issued an order establishing procedures for further consideration of

these issues and invited comments from interested parties before

the end of this month. Because the Commission deliberations are

ongoing, I hope people 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 advanced notice of proposed rulemaking on January 30th soliciting public comments on how the

Commission can best fulfill its responsibilities and achieve the objectives of the act. The initial round of comments was due on April

6th, and reply comments are due May 7th. To date, 32 parties have

submitted comments.

Creating a regulatory framework for the establishment of a more

modern rate setting process 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 marketdominant 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 Service later this spring and summer.

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

consultation with other Government agencies such as Treasury,

State, 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, especially in light of the Postal

Service’s opportunity to file one last omnibus rate request under

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

Postal Service and Commission resources that, in my view, would

be better devoted to developing a new system of regulatory oversight. Nevertheless, the Commission is committed to timely performance of all its statutory obligations, and to doing so in a reasoned and balanced manner.

Mr. Chairman, members of the subcommittee, thank you for this

chance to testify today. I ask that my written statement be included in the record, and am happy to answer your questions.

[The prepared statement of Mr. Blair follows:]

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Mr. DAVIS OF ILLINOIS. Thank you very much, Mr. Blair.

We will now move to the question and answer part of this. I will

begin.

Mr. Postmaster General, why don’t I begin with you. All of us are

proud of the Postal Accountability Act, which was signed into law

on December 20, 2006, which replaced the Federal body that regulated the U.S. Postal Service, the Postal Rate Commission, with the

Postal Regulatory Commission, and gave this new entity greater

powers.

My question is: what do you see in the mix of all of this, and

what do you view as the greatest challenges in implementation of

the Postal Accountability Act?

Mr. POTTER. Mr. Chairman, probably the initial challenge is to

develop the regulatory process, and what we are doing is we are

working as closely as we can with Dan Blair and his fellow Commissioners and the Postal Regulatory Commission, as well as mailers, to make sure that the product of this regulatory process serves

the people that it was intended to, and that is the mailing community. So we are working very closely to develop that process. There

are some hurdles in the new law that, quite frankly, as my testimony stated, are going to be a challenge for us. We have never attempted to manage our cost by product line, which is what this is

asking us to do. We have always taken a tact of we would make

investment that would produce the biggest return for the Postal

Service, not by class of mail but by bottom line for the Postal Service, and it is going to have us rethink some of our investment strategy so that we can meet the tenet of the law, which basically says

keep your rates below inflation by class of mail.

Another issue is going to be the transition and the establishment

of service standards for all classes of mail and tracking systems for

all classes of mail. We do have standards now that we are working

with the Mailers Technical Advisory Committee on, as well as

other mailers, people who use the mail, but establishment of those

standards and goals at the same time to me is problematic. I believe that we should establish the standards, we should put measurement systems in place, but we shouldn’t establish a goal until

we have some base of performance, and then, again, establish a

goal off of that base.

But, in addition to that, the law calls for more transparency

under Sarbanes-Oxley, and we are going to have to work very hard

to live up to what the law is asking us to do.

Let me assure you, though, that we are committed to implementing the law and to taking full advantage of the flexibility that is

built into the law. We understand why different provisions are put

into the law. We are going to live, again, up to the spirit of that,

and we hope to take advantage of the flexibility for pricing that is

built into the law, as well as take advantage of the fact that we

are going to be allowed to compete for package services, expedited

services, and others as decisions are made along the lines of what

is a competitive product and what is a market dominant product.

Mr. DAVIS OF ILLINOIS. Thank you very much.

On January 23, 2007, the Inspector General’s office issued an internal report concerning Cintas, which is a service contractor that

provides a full range of services from uniform programs, interest

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mats, to restroom supplies, and promotional products. The investigation centered on Cintas adding a randomly calculated additional charge or environmental charge to its services. The report ultimately recommended that the Postal Service consider suspension

and debarment of the Cintas Corporation. Have you, since this recommendation, renewed this contract? And if so, can you tell the

committee why?

Mr. POTTER. I am not familiar with that contract.

Mr. DAVIS OF ILLINOIS. Thank you.

[The information referred to follows:]

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Mr. DAVIS OF ILLINOIS. You recently announced that 100 new

carriers would be brought on board in Chicago.

Mr. POTTER. 200.

Mr. DAVIS OF ILLINOIS. 200 new carries would be brought on

board to shore up delivery capability. Overall, we have seen the

number of carriers falling by more than 9,000 in the last 5 years,

according to the annual report. We are talking about across the

board. Is there a connection between these reductions in the carrier

work force and the delivery problems that we are seeing in various

parts of the country?

Mr. POTTER. The bulk of the reduction in the city carrier work

force is the result of increased use of automation on the part of—

or increased bar coding capability of letter mail for those carriers.

So mail that we can put a bar code on, we are able to put into walk

sequence for the letter carriers, and so the letter carrier work is

more productive.

In the case of Chicago and in a couple of cases around the country, we have had decisions made by local management not to hire

the authorized carrier levels, and when those come to our attention, we basically work with the local management to bring those

carrier staffing levels up to speed. So we are monitoring that from

a national level, and Chicago is an example of where the national

authorized staffing for that local area was allowed to be dropped

below what our recommendation would be, and so that is why we

are hiring the carriers.

We now are in the process of checking around the country to see

whether or not other situations like that exist. But the bulk of the

reduction in city letter carriers is a result of improved productivity.

Mr. DAVIS OF ILLINOIS. Thank you very much.

I see that my time has ended, and so we will go to Mr. McHugh.

Mr. MCHUGH. Thank you, Mr. Chairman.

General Potter, you heard Chairman Blair’s comments about his

concerns about your filing another rate case under the old system.

What can you say to assuage some of Chairman Blair’s concerns,

and I might add some of the concerns I have heard amongst the

mailing community, if anything?

Mr. POTTER. Well, I the provision in the law allows us to file one

more time under the old rules, and I think that was a good provision of the law because it basically anticipated that it would take

some time for the new regulatory body to put in new regulation,

and by law they have to do that by June 2008. By law we have

to make a decision whether to file under the old rules or the new

rules by December 2007. So, being pragmatic, not knowing what

the new rules are, you have to move ahead with or anticipate that

you have to prepare a case as if you were filing under the old rules.

We are hoping that over the course of the coming months that the

Commission will be able to make some decisions that will give us

some guidance as to what the outcome of their decisionmaking

process on the new regulations is. Certainly that would weigh

heavily in terms of how the Board of Governors might make a decision on whether to file under the old rules or the new rules.

Mr. MCHUGH. So it hasn’t been a decision made?

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Mr. POTTER. No. No decision has been made. No new rules have

been promulgated. So we are kind of operating in the blind right

now.

Mr. MCHUGH. Of course, 18 months is the outside window.

Chairman Blair, do you think you have a chance of doing it before

then?

Mr. BLAIR. Well, I think we do. Last month we had the opportunity to engage in what was deemed to be a summit at the Bolger

Center, which we had about 300 folks, and at which the Postmaster General and I welcomed and talked about this issue.

One of the things that I wanted to throw out there was the idea

that we would get a framework in place by, say, maybe the fall—

October was the date that I mentioned—in order to allow the Postal Service the opportunity to have a rate increase under the CPI

cap as early as some time next year.

Now, I agree with the Postmaster General that the law clearly

envisions the opportunity for a new rate case filing, but I think

what the law didn’t really take into account was the fact that we

just completed one rate case right as the new law was being enacted, and so the question remains is there a need for a new base

case or can the omnibus rate case that just took place serve as that

base case.

I think there are some issues that still need to be sorted out, and

I think we can sort them out over the next few weeks. Initially I

was going to say over the next few months, but those 18 months

have now dwindled down to 14 months and time is flying by, and

so I think that we really need to make some decisions and work

this out over the course of the next few weeks.

Mr. POTTER. If I could?

Mr. MCHUGH. Sure.

Mr. POTTER. Hopefully my remarks have not created an impression that we are not working as closely as we can. These are very

complicated issues that deserve quite a bit of debate when it comes

to the regulation. And I am not just talking about a discussion between the Postal Service and the regulator; I am talking about the

entire mailing community participating in that process. So this

wasn’t meant to case aspersions; it is just, being a good businessman, you have to sit back and say, all right, keep your options

open.

Mr. MCHUGH. No aspersions cast, or certainly none received.

Trust me, I know a little bit about the complexity of this bill. I understand the challenges therein.

You spoke about it. Your business model is still broken. Chairman Miller, you mentioned, underscored that, as well. You talked

about a need for what I believe I heard you describe as running

room to streamline your logistics system.

What kind of broken system are you dealing with? What still

needs to be fixed? Is this a legislative fix or administrative approaches? What kind of parameters?

Mr. POTTER. Well, let me try to clarify what the weakness is. The

weakness in Postal Service going forward is that our core product,

first class mail, is in a state of decline, so volume is declining. It

is a high margin product. It is largely transaction based—bill preVerDate 17-JUN-2003 10:16 May 29, 2008 Jkt 000000 PO 00000 Frm 00051 Fmt 6633 Sfmt 6633 C:\DOCS\40873.TXT KATIE PsN: KATIE
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sentment, bill payment—business mail. That product is very weak,

or is weakening over time with competition from the Internet.

So the challenge, from a Postal Service perspective, is to be able

to respond to that weakness in volume and revenue growth going

forward, as well as to change our processes and our infrastructure

in response to mailer behavior. As time goes on, there has been a

consolidation of printing industry, list processors, logistics companies. They are taking greater advantage of discounts that are available through the current rate structure, and as they do what we

end up with is under-utilized aspects of our network.

So our response to that low use of network assets might mean

consolidation of facilities or some other changes, staffing levels,

changes that are necessary to keep the Postal Service productive

and to, again, allow us to operate under the rate cap.

Mr. DAVIS OF ILLINOIS. Thank you, Mr. McHugh.

Mr. MILLER. Could I add, Mr. Chairman, just a moment please,

sir? On the question of a rate case under the old law versus the

new law, first let me say I think it is admirable, highly admirable,

that the Postal Regulatory Commission is moving forward with trying to establish these parameters. I appreciate, Dan, your working

with us on that.

The Board of Governors has not yet decided what to do. It is

really their authority would be exercised here. I think the next step

is for us to decide what we would like to see in terms of a rate

structure, a new rate structure, and then we would look at whether

we could do that, accomplish that under the new law with the parameters that the Postal Regulatory Commission would set forth,

or whether we have to do that under the old law. That depends on

what the PRC comes up with, so we haven’t made that determination yet.

I will say to you—I think I am speaking on behalf of the other

Governors—that it is unlikely that in a new rate case we would

have an overall rate increase of anything more than the CPI. As

the new law contemplates, we would anticipate having rate increases annually, something no more than the CPI by class, but

that determination is one that the Governors are focusing on, that

the staff of the Postal Service is helping us evaluate, and some outside people are helping us evaluate, as well.

Mr. DAVIS OF ILLINOIS. Thank you very much.

We will go now to Mr. Lynch.

Mr. LYNCH. Thank you, Mr. Davis, Mr. Chairman.

First of all I want to thank Mr. Potter, Mr. Miller, and Mr. Blair

for coming before the committee and helping with this work. At

these hearings I am required to do a little bit of disclosure. First

of all, my Mom was a postal clerk for 30 years, now retired. My

Aunts Sis and Kay, her two sisters, also clerks. My sister Linda is

a steward with the American Postal Workers Union on tour one.

My sister Karen is a postal worker on tour two. My Aunt Pat and

my Cousins Danny, Bill, Jimmy, Marie, and Joe—Joe was a business agent for Letter Carriers Local 34 in Boston. So when people

suggested that fact that so many of my family are employed at the

Post Office might affect my objectivity here, I must say they are

problem right. [Laughter.]

It is the family business.

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First of all, I want to say that I am encouraged by the statements, Mr. Potter, about trying to work together with your unions,

as well as with the postal supervisors and others, to solve our problems at the Post Office. I must confess that when I hear you say

that we are all pulling together, I must say that I think that the

postal workers are pulling harder than anyone, the employees of all

of our unions here. They are the ones that are doing the great

work, and they are the ones that I think are faced with the greatest challenges.

I want to say that, while I see some managerial improvements,

I must also say that in some of my local Post Offices they have decided to close the Post Office against the will of the employees and

the union at noon hour, where most people would actually use the

Post Office. I scratch my head at that development.

Second, I just want to say that, Mr. Miller, if you are truly interested in having a better relationship with Congress, I would

strongly suggest that you need to have a better relationship with

your employees. Those are the people who we rely on every single

day.

You cite quite rightly that the Post Office is recognized as one

of the top 25 most respected institutions in America today, but I

would just disagree that it is due to the great work of Mr. Potter.

I would suggest that it is due to the fact that the postal clerk when

I drop my mail off in the morning at my local Post Office, because

they greet me with a smile and total professionalism, that is why

the Post Office is so well respected. When my letter carrier comes

up my doorstep on time every day and very reliably and professionally delivers my mail every day, that is why the Post Office is

so widely respected. When my mail handlers work so hard, depending on wet weather in the northeast, and does a very professional

job, as well, that is why the Post Office is so widely respected. As

well, the supervisors who iron out the problems when they do arise

in such a big business, those are all the principal reasons why the

Post Office is so widely respected.

I just want to say this: in the history of this country, we regarded the delivery of the mail as so important to the national security and to the economy of our country that we made a decision

that we would put a special duty upon our postal employees that

they conduct their business in a continuous fashion. In order to ensure that, the Government took away the right to strike from our

postal employees, the very ability to stop work. They cannot stop

work. They must continue working. That was a precious right that

they surrendered to us.

Now I am hearing that this social contract, this agreement that

we made with our workers, is going to be jettisoned, that we are

going to go to privatization, we are going to pay some employees

less. I am wondering, if we are going to tear up that agreement,

that we are going to take away the right to strike from these employees but we are going to treat them with respect and dignity,

if we are going to tear up that agreement, my question to the three

of you is: are we also going to restore the right to strike to these

employees that we strip from them when we ask them to submit

to their labor? I find it troubling, this contracting out business.

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I just came back last night. I flew in last night from Iraq and

Afghanistan, and I heard continuous concerns from our civilian and

military departments that the contracting out of their services in

Iraq and Afghanistan have stripped them of capacity, stripped this

Government of capacity to perform its duties, at great cost.

I just ask you, is that what you are suggesting? Are we going to

renege on our agreement with our postal workers? And, if so, are

we going to restore to them the right to strike?

Mr. MILLER. Mr. Lynch, could I just respond? When I used the

term ‘‘social contract,’’ it was in the context of the ability of the

Postal Service to cover costs by raising price on letter mail. That

was what I meant by the term ‘‘social contract.’’ I didn’t imply that

we would tear up an agreement with respect to employees.

With respect to employees, let me say that I want to congratulate

the postal employees because I think there has been a change in

the attitude of so many postal employees. It is a cultural change

that has taken place in the last 10 years. A member of the U.S.

Supreme Court communicated to me his delight that the attitude

on the part of his local Post Office had changed dramatically over

the past several years, and he attributed this in part to the leadership of Jack Potter, but also the recognition that we are in a competitive environment now, and that is one reason.

But I think it is very important, it is essential that postal employees be part of this effort to be more consumer friendly and

more outgoing and outreaching to customers. We cannot survive

unless we are able to do that.

Mr. DAVIS OF ILLINOIS. Thank you very much.

Jack, did you want to respond?

Mr. POTTER. If I could.

First of all, I would like to say I am from the postal family, as

well. My father was in the business for 40 years, was a letter carrier and then was a member of the unions and worked his way up

in management, and I was a proud member of the APWU under

Bill Burress’ leadership and Beau Biller’s leadership, and so let me

just say that we cherish our employees. But we also have a business challenge, and the hurdles actually got higher with the new

law in the sense that when you look forward you have to keep your

rates under inflation. I would be happy to share with you some of

our cost drivers, because it is really problematic. How do you satisfy both sides?

If I could just make one statement, though, when it comes to the

notion that our employees do not have the ability to strike, in exchange for that they got binding arbitration, so where the Postal

Service management and labor organizations, when they can’t

reach an agreement through the collective bargaining process, that

disagreement goes to a third party. Whether it is the grievance

process or if it is a national contract, it goes to a third party to decide, so that binding arbitration really was the tradeoff for strike.

As far as contracting out, there is a provision in each of the

agreements of our unions that was put in place in 1973 that was

a product of collective bargaining. In exchange for that provision,

management gave up a lot. We really have to be, in my opinion,

true to the collective bargaining process. I am firmly committed to

that. I just wanted to share that information.

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Mr. DAVIS OF ILLINOIS. Thank you very much, Mr. Lynch. I am

pretty sure that both the Postmaster General and the employees

all will accept as many accolades as they can get, no matter which

direction they come from. We just hope that they keep earning

them and that they keep getting them.

We will move now to Mr. Clay.

Mr. CLAY. Thank you very much, Mr. Chairman. I thank the

panelists for being here.

Mr. Blair, you talked about an additional rate increase, I guess

coming within the next year. I heard Mr. Potter say that one of the

reasons for that is because of the decline in volume of the first

class mail. I just wondered, what is the justification for an additional rate increase? Can you tell the American public while they

are watching C-Span if they will have to pay an additional? We

know that May 14th we will go up $0.02 to $0.41 for first class

mail. Will they have to expect an additional increase? And why?

Mr. BLAIR. Well, I think, correctly, that the price of a first class

stamp will go up on May 14th. For periodicals mail, that was delayed until July. But as far as the prospects for a new rate increase

this year, I wouldn’t want to speak for the Governors of the Postal

Service within whom is vested the authority to file a rate increase.

So one of the things that the Commission had posited was

whether or not if we could get a new system of ratemaking up and

running before they would have to raise increases under an old system. I think that, from our viewpoint, that would be a good idea,

but this is part of the ongoing dialog that we are having between

the Postal Service, the Regulatory Commission, and the mailing

community.

I think it is important to note that we have done quite a bit of

outreach on this issue. I referenced the summit that we had a

month ago in which we had about 300 participants. We also put

out this notice of proposed rulemaking back in January. We had 32

comments submitted to us early in April on what this new system

might look like.

What is interesting about these comments—and I haven’t had a

chance to go through all of them yet—is that there are 32 unique

comments. I think that is important and it shows the work and

dedication that those commenters put into putting forth what their

ideas are for this new system down on paper and submitting them

before the Regulatory Commission.

We have given any interested party an opportunity to reply to

those comments. That deadline is in early May. As we sift through

these, I think we will be able to have a better idea of what this

new system might look like, and then I think we can better engage

the Postal Service and help them decide whether or not they are

going to file a new rate case under the old system.

Mr. CLAY. Mr. Potter, give me the additional justification for another rate increase.

Mr. POTTER. OK. If you look at Postal Service’s costs, they go up

every year. And the reason that they go up every year is because

our employees get increases in pay, cost of health benefit grows.

That is the biggest cost for the Postal Service is labor. Labor is 80

percent of our cost. So what I said earlier, we have other things

that drive cost.

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Mr. CLAY. How about the decline in volume?

Mr. POTTER. Well, let’s talk about——

Mr. CLAY. How does that play into that?

Mr. POTTER. Here’s what we have. We have two things going on,

Congressman. We have an increase in the number of deliveries

every year, 1.8 million to 2 million new deliveries every year, and

volume is relatively flat, so there is a cost of $300 million to $400

million to deliver mail to new deliveries when volume of first class

mail is in decline and other mail is relatively flat. So that means

that the carrier is bringing less dollars to every door every day.

That is where the challenge lies, because if those costs are growing

at a greater rate than inflation, and earlier I said that we have to

save a billion dollars every year, well, it is based on calculations

that our financial people have done that project what our costs are

going to grow by, versus what the rate cap is.

So the broken wages and benefits and fuel and other things that

we have to spend is growing above the rate of inflation. The offset

to that is to drive productivity up, as well as the delivery base is

going up without commensurate increase in volume.

Mr. CLAY. Thank you for the explanation.

Mr. Miller.

Mr. MILLER. Mr. Clay, bear in mind that letter mail has a markup of something like 200 percent—it depends on the particular way

it is proffered at center—whereas the fastest-growing mail has a

very small markup. So if you are losing out on the mail that has

the big markup and you are growing the mail that has the little

markup, then obviously there is a problem then. That said, the

postal rates overall have increased less than the cost of living since

1970. We want to drive productivity even more. There are opportunities that we have for increasing our sales, increasing innovations,

and then reducing costs. We need the flexibility in order to achieve

those.

Thank you.

Mr. DAVIS OF ILLINOIS. Thank you very much.

Mr. CLAY. Thank you.

Mr. DAVIS OF ILLINOIS. Thank you, Mr. Clay.

We will move now to Mr. Kucinich.

Mr. KUCINICH. I thank the gentleman.

Mr. DAVIS OF ILLINOIS. I am sorry, Mr. Kucinich, but you are out

of line. I know that you are running for President, but Mr. Sarbanes is actually next. Mr. Sarbanes.

Mr. SARBANES. Thank you, Mr. Chair.

First I wanted to associate myself with the comments of Representative Lynch, which I thought were right on target in all respects, although I feel compelled to confess that I have no members

of my family that are working in the Postal Service or have done.

Many of my great-uncles and-aunts were in the restaurant business, but that is not what this hearing is about today.

I had a visit recently to the main Post Office in Baltimore, MD,

which was fascinating for me. It was my first behind-the-scenes

visit to a Post Office. That one is really state-of-the-art. It is on the

cutting edge in terms of technological innovation, and really has

served as a model in many respects for a lot of the practices, best

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practices that have been brought to bear across the country, from

what I understand.

I want to salute the employees of the Postal Service and salute,

as well, the organizations that represent them so well.

The employees, and in particular those who staff the Post Offices, as it were, at the front desk and the letter carriers, are really

the face of a service which the American people have come to trust

almost implicitly. It is a wonderful success story, the faith and confidence that the average person has in the Postal Service. But in

order to preserve that we have to make sure that the employees

that provide the service on the front line are given the support that

they needs, because when they are under stress that gets communicated and it ends up undermining the tremendous reputation the

Postal Service has.

The other thing which I didn’t appreciate and I do now after the

tour that I took is really understanding the Postal Service as one

of the largest distribution systems in the world, and the implications that has for its ability to respond and support us in this country in times of crisis. In fact, I heard stories of how the first people

in to help, the first faces that appeared after Hurricane Katrina

were the faces of the local postal carriers. We need to keep that in

mind, because this is a system that needs to be state-of-the-art and

we need to preserve its stellar reputation.

Two questions. We have discussed a little bit this contracting out

of services. I would like to hear what the basic criteria are that you

use to determine when that makes sense or not, and we can start

with Mr. Potter.

Mr. POTTER. Are we talking about the contracting out of delivery

services?

Mr. SARBANES. Yes.

Mr. POTTER. Let’s start with that, because we do contract out

highway contract services.

Mr. SARBANES. Delivery services.

Mr. POTTER. So in delivery services if we have an established

route, whether that is a city letter carrier route or a rural letter

carrier route, and there is a new delivery, generally 20 deliveries

or even 50 deliveries within that route, that work goes to the

NALC or the rural carriers, because we already have a person on

that line of travel and that work goes to them.

The only time that we consider contracting out is when we have

major new developments. So if we have a community that is being

built that has 600 homes, we will consider contracting that out and

using contract employees to do that. why would we do that? Because of cost. There is definitely a cost benefit to using contract

employees versus using career employees.

Mr. SARBANES. Well, presumably you have had major new developments in the past that require new deployment of letter carriers

before this era of contracting out. The decision was made to have

the traditional work force handle that.

Mr. POTTER. Well, let me just use data. Today, 2 percent of all

deliveries in America are made by contract employees, generally

highway contract route employees. Last year we had 6 percent of

new deliveries went to contractors versus craft employees of the

U.S. Postal Service. Again, when you look at this as a business

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model—and I grant that we are a service—but you also look at cost

factors, and now a bar that has been raised that we have never

had, which says that we have to keep costs under inflation for all

classes of mail, bottom line is we are trying to comply with the new

law. So, as part of that strategy, we have to look at all of our costs,

what we pay for any product, any service that we get, and we have

to consider what is reasonable going forward.

Mr. SARBANES. I see my time is out, so I just wanted to followup

real quick on one point you made about what happened in Chicago.

You said that the staffing levels were not at the authorized levels,

and that came to your attention. When it came to your attention,

then you moved to respond. I am just curious why the local manager would have been able to depart from the authorization mandate on the first instance.

Mr. POTTER. Well, we don’t operate with—mail delivery is not an

exact science, so the fact that somebody would say hey, I am going

to make an attempt to try to improve productivity, and that was

a rationale for lack of hiring, that is all well and good if they assess

the risk and the risk is to maintain service, I mean, we will lose

service. Once you lose service then, we stepped in and said hey, you

have to bring your staffing levels up. But, believe me, there is

much more in play in Chicago than just city carrier staffing levels.

There are a whole host of issues that are contributing to the service decline that we saw, and there will be a whole host of issues

addressed when we turn service around.

Mr. SARBANES. Thank you, Mr. Chairman.

Mr. DAVIS OF ILLINOIS. Thank you very much, Mr. Sarbanes.

Now, Mr. Kucinich?

Mr. KUCINICH. Thank you very much, Mr. Chairman. Thank you

to the panelists. I want to thank all those who are involved in the

Postal Service. I can tell you that in Cleveland, OH, where I am

from, we are very proud of the service that all of the postal workers

give, all those who deliver that mail on time. The service is excellent, the people appreciate it. I speak not only on behalf of the people in my area, but I know all across the country people are grateful for the work that the Postal Service does.

One of the concerns that I have had brought to my attention in

the last few days relates to what you would know as other mail

and services. According to the GAO testimony that we are going to

receive a little bit later, other mail in this report includes mail

such as magazines, newspapers, and parcels. According to this

chart which has been produced for us by the GAO, we are finding

that other mail provides 6 percent of mail volume, 22 percent of

revenues, and makes an 8 percent contribution to cover overhead

costs.

Now, I understand—and maybe Mr. Blair could be the one to answer this—that the Postal Service is contemplating a significant increase in the mailing costs that would affect a lot of magazines in

this country. I am wondering, first of all, is that true?

Mr. BLAIR. Well, we recommended a significant rate redesigned

for periodicals class this past rate case.

Mr. KUCINICH. When you say ‘‘redesigned,’’ is that an increase?

Mr. BLAIR. It was an increase. It was an increase. Some mailers

saw decreases in their mail, some saw no increases, others saw

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some increases. But it was better reflected to represent the way

that they actually mail and present their mail today. But you are

right that periodicals has been declining as a part of volume over

the last 5 years.

Mr. KUCINICH. Now, when you redesign, as you call it, your rate

structure, do you take into account the possibility that the redesign

of that structure could put some of these smaller magazines that

are very price sensitive out of business?

Mr. BLAIR. We take into account that is part of the fair and equitable and part of the factors that we consider, so yes, we do, sir.

Mr. KUCINICH. So you are saying you consider it. So then if, in

fact, this could drive people out of business, you have considered

that?

Mr. BLAIR. Well, we considered that along with the others that

are saying that they can be more efficient. And then if you have

more efficient rates for more efficient ways of mailing and processing, you want to encourage that, as well, so we have to balance

that against an efficient mail stream, as well.

Mr. KUCINICH. Let me provide some encouragement to you, sir,

as a member of this committee, and that is that part of the first

amendment debates that we have in this country from magazines

and publications of all kinds representing great diversity of political opinion are enabled and, in effect, facilitated by access through

the mail. To the extent that you raise the rates and take out of the

reach of general circulation these magazines because of high pricing, you are proceeding in a way that is actually contrary, I would

think, to the spirit of the Postal Service and to the spirit of the first

amendment which relies on the Postal Service.

I would like your comment.

Mr. BLAIR. I think that you are right that we should and we do

take into effect the editorial content and the need for diversity in

the periodicals class, but we also take into effect that the law requires that mailers pay their fair share cost and that other mailers

should not be cross-subsidizing. So it is a balance of the equities

in this case, but we certainly take into account the factors that you

mentioned.

Mr. KUCINICH. Well, Mr. Chairman, we well know that there are

cross-subsidies that always go on with respect to the mail service,

and the gentleman has recognized that they are aware of the effect

that their rates would have on some of these smaller magazines.

Mr. Chairman, I am appealing to you as a member of this committee to hold a separate hearing on this issue, because this does

relate to the capacity of a free and open debate that takes place

in the diversity of magazines that are out there. I think it would

be interesting to be able to have, as part of that discussion, the internal communications of Mr. Blair’s office so we could see how this

philosophy is reflected that he has just talked about, is reflected in

the workings of their office, Mr. Chairman.

Mr. DAVIS OF ILLINOIS. Thank you very much, Mr. Kucinich. Let

me assure you that the Chair is, indeed, sensitive to the issue that

you raised, as well as the issue of special classes of mail, such as

mail that is prepared by organizations like the National Federation

of the Blind that is having some difficulty now with rates or with

having to change the configuration of their packaging. So I would

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agree with you that a full hearing on this matter is, indeed, appropriate, and the committee would be pleased to accommodate your

request.

Mr. BLAIR. And, Mr. Chairman, could I just—

Mr. KUCINICH. Excuse me. I am having a colloquy here with my

Chair, if I may. Mr. Chairman, I want to let you know how much

your response is appreciated, not only by me but by people all

across this country who are so concerned that their particular relationship that they have with a publication that relates to their political philosophy, and understanding this could be quite a diverse

mix, is going to find an opportunity for expression before the

Chair’s committee and at the Chair’s grace. I want to thank you

very much for indicating a willingness to pursue that. Thank you.

Mr. DAVIS OF ILLINOIS. Thank you very much, Mr. Kucinich, and

thank you for raising the issue.

Mr. Blair.

Mr. BLAIR. Yes, Mr. Chairman and Mr. Kucinich, I think it is important to note that periodicals as a class I think receives the lowest markup of any of the classes out there, and so the Commission

has gone to great pains to make sure that we keep rates and rate

shock as ameliorated as possible for that group.

Mr. KUCINICH. I thank the gentleman. And I want to thank the

Chair for his response. Thank you.

Mr. DAVIS OF ILLINOIS. Thank you very much.

We shall now move to Mr. Cummings.

Mr. CUMMINGS. Thank you very much, Mr. Chairman. I, too,

want to thank you for this hearing.

I want to associate myself, since I didn’t hear all of the comments of our panel, with the comments of my distinguished colleague from Maryland, Mr. Sarbanes. Our main post office just so

happens to be in my District in Baltimore. So often what has happened is that Democrats have been accused, Mr. Chairman, of

being anti-business, and that nothing upsets us more than that.

Speaking of business, I just want to pick up where Mr. Kucinich

left off.

One of my constituents, who is a businessperson who is doing an

outstanding job, wrote me a letter. I just want to read part of it

to Mr. Blair and others that may want to respond to this, because

I think it brings the issue of businesses staying in business to the

forefront. I, too, want to thank all of our postal employees for the

job that they do every day. We take it for granted. We take our

postal system for granted, and we should not do that.

According to this letter, which is dated back on October 5, 2006,

it says: ‘‘The United States Post Office has proposed doubling the

rate to deliver our product, a product that we have mailed for 20

years. This increase will devastate our business and will cause a

substantial portion of our 220 employees and 150 temporary employees to lose their jobs. The United States Postal Service is a monopoly and by law has no competition. Its business practices are

highly questionable. The United States Postal Service utilizes a

piece of equipment that was designed to pass boxes through regular mail streams. it allows our box product, boxes holding CDs and

others, to be priced as regular mail instead of a parcel delivery. In

the latest rate case, they have called for removing the equipment

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and the favorable rates associated with using it. Our product has

been in the regular mail stream since the 1980’s. This raises multiple questions.’’ I am just going to point two out.

‘‘How is it possible that new equipment for sorting mail cannot

meet the U.S. Post Office’s specifications for 10 years ago? Who determined the specs for the equipment? Isn’t the Post Office the

largest purchaser of machines that would sort mail?’’

The other question is: ‘‘What other business facing their wellknown troubles would eliminate a line of business? Included with

our boxes is the elimination of CDs and DVDs in their current

packaging. The U.S. Post Office needs more business and more

mailings to cover their fixed costs, not less business.’’

Could you just comment on that, Mr. Blair?

Mr. BLAIR. I am not aware of the specific case that you mentioned.

Mr. CUMMINGS. I don’t want you to, not necessarily the specific

case, the general—and I do want to hear your answer—so often

what happens is we make our rules in these lofty places, but the

people who are really affected are the people who have to deal with

the rules that we make from day to day. We go off to Wonder-Wonder Land, but there are businesses that are still struggling, trying

to make it, and it is not easy to be in business today. So we are

trying to figure out how do we keep our businesses not only surviving but thriving.

You can go on.

Mr. BLAIR. I think that what you need to realize, and I think this

underscores the fact for need for postal reform. The current cost of

service pricing that we do is intended to generate revenues that

cover the cost for buying that level of mail service. So maybe for

the writer of that letter that you got the Postal Service’s costs may

have increased that dramatically that it costs the Postal Service

that much to carry those packets of CDs or those parcels of CDs.

That would just be my idea at this point. But basically under a cost

of service pricing you ask for the rates that cover those costs. But

under the Postal reform legislation that was recently enacted with

attempted to decouple rates from costs and say that the Postal

Service would be capped at what they can raise their rates for that

class.

I think that will go a long way toward addressing these problems

in the future. While it doesn’t do much for your constituent today,

I think in the future it will say that you, as a businessman engaged in the mail stream, a businessperson in the mail stream,

that you can have usual and predictable rate increases in the future.

I am not sure that really answers your question suitably, but it

gives you an idea for what the efforts were over the last decade and

where we are going to be moving forward.

Mr. CUMMINGS. Always remember that anybody who has been in

business—I have been in business—a businessperson will tell you

that the most important thing they need is predictability. They

need to be able to figure it out because it affects everything they

do. It affects their budget, how many employees they take on, the

whole bit. And so one of the interesting things, as I see my time

has run out, when we contacted the Postal Service and said what

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can we do to help this constituent, they told us to just tell him to

change the packaging. Well, he didn’t have enough time to do that.

In the meantime he sends, and many people, hard-working Americans who get up at 5 every day, working hard, may very well lose

their job.

Mr. DAVIS OF ILLINOIS. Thank you very much, Mr. Cummings.

We do want to get to our next panel, but I need to ask at least

a question, Mr. Potter.

I mentioned just a moment ago about these categories and classes of mail, and of particular concern do I have about the Federation

of the Blind, that for a number of years has been able to get its

mail out to its membership and to a category of individuals who

have a certain kind of need, and we have not been able to work

out to their satisfaction, I don’t believe, or to my satisfaction, the

ability to assist the continuation of a process for them. I think part

of the problem has been that it is so specialized until some kinds

of adjustments have to be made.

Mr. POTTER. If I could just comment and maybe put Congressman Cummings’ issue into perspective, yes, businesses need predictability, and that is one of the things I think we want to make

sure that we work out in the new law is work out a schedule of

rate adjustments that would enable them to build changes in cost,

whether up or down, into their budget process.

What happened with this last round of rates was the Postal

Service made a proposal to the Postal Rate Commission at the

time, now Regulatory Commission, and a lot of people budgeted

against those new rates. Using a strict costing model, the Rate

Commission increased the rates for a lot of mailers, and I believe

the nonprofit mailers that the chairman and Congressman

Cummings are talking about are those where they increased the

rates beyond the Postal Service’s proposal. They were not prepared

to react. I think they were prepared to mail at our proposed rates,

but not at the increased rates.

So our effort has been to try and keep everybody in the mail. We

don’t want people to walk away from the mail, but we have limited

ability to appeal the rates that were given down, and so that is

why we are attempting to work with the mailers to take what are

many times greeting card boxes and convert them into a flat rate

and put them into the mail stream.

The other thing that you are referring to I believe, and I don’t

know the specifics, but I will just describe to you what is going on.

We have two different types of machines that sort flat rate mail,

and flat rate is an oversized envelope or a magazine. We have one

that is automated, called an automated flat sorter 100, that is very

productive, and then we had a machine called the flat sorter 1,000,

which was less productive. Over time, people got a greater discount

for making their mail compatible with the more effective machine.

So what has happened is the mail for the other machine, the

1,000, has dried up. We have gotten our full benefit from that machine, but as that mail stream declines we are trying to move people into the more efficient mail stream.

The new equipment that we are planning, the FSS, the one that

will walk-sequence mail, will accommodate that mail, but in the inVerDate 17-JUN-2003 10:16 May 29, 2008 Jkt 000000 PO 00000 Frm 00062 Fmt 6633 Sfmt 6633 C:\DOCS\40873.TXT KATIE PsN: KATIE
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terim it doesn’t, and the rates reflect that change. So I hope that

is a little fuller explanation of what I believe is going on.

I feel like you, that I am very concerned for those mailers and

I wish we could have known in advance so that they could have

made the adjustments necessary for this fall mailing season. I recognize the fall is their biggest opportunity to get vital funds that

run a lot of these very, very important organizations for our society.

Mr. DAVIS OF ILLINOIS. Thank you very much.

Yes, Mr. Cummings?

Mr. CUMMINGS. Fifteen seconds? One of the things, even with all

that has been said, this constituent said, you know, I will bend

over backward, I will lose money, just get them to give me some

time to make this adjustment. Basically, the answer was no. I

mean, you just sat there and said how much you all want to work

with our folks and whatever, and you can bet your bottom dollar

it is just not my constituents and a constituent in Baltimore. There

are business people all over this country. In some kind of way we

have to help these folks, because they have employees who have to

feed families, got to send kids to school. They have to make a dollar. If there is any way you can give these folks an incentive, here’s

a guy who says I feel like I am getting screwed, but at the same

time I will do what I can to try to work with the Postal Service,

and he still gets a no.

Mr. POTTER. I am in your camp. Let me just say, in the discussion about whether or not we could do that and take individual

classes or people who are most affected by rate changes—some people got up to a 300 percent increase in rates. I mean, could we discriminate for them? If we didn’t have a sound reason to delay the

rates, I was told it was illegal to do so.

Mr. BLAIR. The law would prevent it.

Mr. POTTER. So I feel handicapped. Chairman Blair referred to

the new law. That gives us a lot more flexibility to not be bound

by some strict cost regimen and to take into account the needs of

businesses and to transition rates in a graduated form and to signal to people that these changes are necessary to maintain our efficiency. What the Postal Service proposed was a movement to get

more money where our costs were greater, but not the levels that

some people experienced.

Again, we were advised by counsel that we had no legal ability

to delay certain rates because of the level of increase.

Mr. DAVIS OF ILLINOIS. Thank you very much, Mr. Cummings.

Just so I can go home this weekend in peace, Mr. Potter, could

you just outline those plans for Chicago and recommendations that

you have made personally?

Mr. POTTER. I have been to Chicago twice, as the chairman

knows, and I have walked the floor. What we are intending to do

is, first of all, make sure that our staffing levels are up for the requirements so that we can deliver mail in a timely fashion. We are

overhauling every piece of equipment in Chicago because some of

it, unfortunately, was not well maintained. We are in the process

of going station-by-station to look at our physical plants. Where

they are not up to speed for our customers and our employees, we

are in the process of doing that. In addition to that, we are looking

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at the exchange of mail between the multiple facilities in the Chicago metro that exchange mail for Chicago residents. It is largely

a busy hub, Irving Park Facility at the airport and downtown Curtis Collins facility, all new facilities, state-of-the-art, and ones that

we need to reconfigure in order to serve the people better.

In addition to that, we are going on the street with 75 people

who are going and checking our address data base to make sure

that what is in our system will enable us to sort mail properly and

in the right order for our city letter carriers.

Those are just kind of the higher-level things we are doing, but,

bottom line is we are going to reconfigure that network, we are

going to put fixes in place that will not just have a flash in the pan

for Chicago. I was asked by a reporter when do you think Chicago’s

service will begin moving up, and I said 6 months, but the true test

is 2 years from now, not 6 months from now. We are not going to

walk away from Chicago. We are going to get it fixed.

I was the manager of Capital Metro operations when Baltimore

was fixed, when Washington, DC, was fixed, so I believe I know a

little bit about how to get this done, and you have m you personal

commitment that I am going to be there until it is fixed.

Mr. DAVIS OF ILLINOIS. Thank you very much. I have taken some

time, so, Mr. McHugh, do you have any final questions?

Mr. MCHUGH. That is very gracious, Mr. Chairman, but we do

have three other panels and any other questions I believe we can

submit for the record.

Mr. DAVIS OF ILLINOIS. Thank you very much.

I want to thank all member of the panel. I would just end this

discussion by indicating that I am somewhat concerned about the

new concept of contracting out and what that is going to really

mean and how we defined it and some of the rationale that has

been explained for it. I am sure that is something we will have further discussion about and try and see if we can’t reach an amicable

conclusion to it.

Thank you, gentlemen, very much. We appreciate your being

with us.

And I would like to ask if our second panel will come and be

seated, Mr. David Williams and Ms. Katherine Siggerud.

We want to apologize to all of those who have come to participate

and couldn’t find a seat. We will see if we can’t make absolutely

certain that when room assignments are made that everybody

around here will know that postal issues have come front and center, and that we have to make additional space.

Mr. David Williams was sworn in as the second independent Inspector General for the U.S. Postal Service on August 20, 2003. He

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

major offices nationwide that conducts independent audits and investigations, a work force of about 700,000 career employees, and

nearly 37,000 retail facilities.

Ms. Katherine Siggerud is a Director in the Physical Infrastructure Issues Team at the Government Accountability Office [GAO].

She has directed GAO’s work on postal issues for several years, including recent reports on delivery standards and performance,

process and network realignment, contract and policies, semi-postal

stamps, and biological threats.

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We thank you both. Of course, as the usual custom is, we swear

all witnesses in.

[Witnesses sworn.]

Mr. DAVIS OF ILLINOIS. The answer is in the affirmative, yes, and

we thank you so much.

You know the normal approach, and I won’t necessarily go

through that, but we will go right to Inspector General Williams

and proceed.

STATEMENTS OF DAVID C. WILLIAMS, INSPECTOR GENERAL,

U.S. POSTAL SERVICE; AND KATHERINE A. SIGGERUD, DIRECTOR, PHYSICAL INFRASTRUCTURE ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

STATEMENT OF DAVID C. WILLIAMS

Mr. WILLIAMS. Thank you, Mr. Chairman and members of the

subcommittee. I appreciate the opportunity to appear today to discuss the work of my office and my assessment of Postal Service

challenges.

When I came to the Postal Service in August 2003 the OIG

lacked the confidence of the Postal Service and Congress and the

public. The past 3 years have been years of progress and accomplishment in restoring confidence by fundamentally strengthening

planning and engaging stakeholders in clarifying our statutory

role. We are now a performance-based organization aligned to mirror postal functions.

Our audit resources now focus on network optimization, revenue

assurance, cost reduction, mail delivery operations, and data systems reliability. Our investigative resources focus on contracting,

false disability claims, internal mail theft, and embezzlement.

These changes have resulted in substantial increases to productivity.

Since I arrived, the audit staff has increased monetary benefits by 500 percent to over $441 million. During the same period, our

investigators increased arrests from 6 to 277, and administrative

cases referrals from 8 to over 1,900, with cost avoidance and fines

of over $110 million. Last, new jurisdictional responsibility and resources were transferred from the Postal Service to the OIG.

The Postal Accountability and Enhancement Act represents the

most significant modernization of postal governance in 35 years.

Much is needed for the successful implementation of the act, and

I assure you that my office is prepared to fulfill its new responsibilities.

From my comprehensive statement, I would like to focus on two

areas. The first is the network optimization plan, which is going to

be challenging, given the ongoing electronic communications revolution and the unpredictable ways mail volumes and mix are

changing. Some mail is declining, some is increasing, and some is

establishing a symbiotic relationship with electronic mail.

Streamlining efforts are occurring inside an environment of significant change. The Postal Service is on the edge of a $600 million

annual savings opportunity with the new flats sequencing system,

set to repeat the significant advance made when letters were first

sorted by carrier route.

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The Postal Service is also aggressively seeking cost opportunities

with mailer discounts to keep large amounts of mail outside of upstream processing plants.

Stricter submission requirements will better align mail with

postal equipment.

Last, we must consider enterprise resilience in the event of major

disruptions. Natural disasters or acts of terrorism highlight the

value of maintaining some redundancy if operations are disrupted

or destroyed.

These variables, working alone or in combination, require an

agile streamlining effort, classic models for large-scale projects that

feature elaborate sequencing and require thousands of alterations

when the model changes may not work well. The planning model

needed is not that of a static blueprint, but what one might expect

from an order of battle plan. The Postal Service needs to prepare

and plan as best it is able, while understanding the change will

occur the moment they step on to the field.

Once the build-down begins, it is essential that it continue its

philosophy to avoid protracted, anemic staffing of an oversized network.

Financial viability is the second area I would like to focus on. In

the last 4 years, Postal Service actions have taken it from over a

$600 million net loss to a $900 million surplus, while retiring $11

billion debt. The success of the Postal Service’s transformation efforts and savings from unnecessary CSRS payments are responsible; however, total labor costs are continuing to increase, from

over $51 billion in 2001 to over $56 billion in 2006, despite significant staff reductions.

The Postal Service needs to continuously pull excess work hours

from its mail processing plant as it introduces more automation

and more work share discounts. Cross-reduction opportunities in

delivery are available, also. Most delivery work hours are spent on

the street without direct supervision. Management and control efforts have been expensive and not very effective. The Postal Service

should seek new work rules that incentivize performance and that

are self-policing.

The act imposes some transition costs. In particular, the Postal

Service must make substantial yearly payments to the Retiree

Health Benefit Fund. These payments will help secure long-term financial viability, but they are large expenses in the short term.

The new law also provides increased pricing flexibility, but to

keep prices below the new caps aggressive efficiencies must address

network streamlining and labor costs.

My office stands ready to support postal efforts and we are cognizant of our responsibility to continue to keep Congress fully and

currently informed.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Williams follows:]

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Mr. DAVIS OF ILLINOIS. Thank you very much.

We will go to Ms. Siggerud.

STATEMENT OF KATHERINE E. SIGGERUD

Ms. SIGGERUD. Thank you, Chairman Davis and members of the

subcommittee. Thank you for your invitation to testify at this first

oversight hearing for the U.S. Postal Service since the postal reform law was passed.

To begin, I want to recognize the Congress’ efforts in passing this

law that 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 four areas: first, why GAO recently removed the Service’s transformation efforts and outlook

from GAO’s high-risk list; second, the Service’s current financial

condition; third, opportunities and challenges facing the Service

today; 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

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

bring attention to issues that we think need action by the administration and the Congress. We decided to remove the Postal Service

from the high-risk list because of significant changes that occurred.

Specifically, the Service issued a transformation plan in 2002 and

demonstrated a commitment to the plan by cutting costs, improving productivity, downsizing its work force, and improving its 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 are 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.

The Service’s financial condition 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 on a financially sound, businesslike manner than at any time since the

Service’s inception. It places the Service on the path to eliminating

multi-billion-dollar retiree health obligations, which in turn provides an opportunity to better position the Service financially in

the long term.

Changes to Postal Service finances this year, besides the prefunding I have already mentioned and the transferring of the military pension, include expending escrow funds and eliminating future escrow payments and eliminating certain annual pension

funding requirements.

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The position expects to lose $5.2 billion this year, largely due to a one-time expending of the $3 billion escrowed last year and then

transferred this year to the Retiree Health Benefit Fund, 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 tracked closely

to projections. Factors that could still affect the Service’s finances

are the impact of the recent rate increase, changes in fuel prices,

and resolution of certain 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 mixes changes; controlling

costs, particularly for compensation and long-term health benefits;

and improving productivity while operating under a price cap

structure; promoting the value of mail while providing affordable,

quality service; and establishing mechanisms to measure and report performance; providing useful and reliable financial data; and

managing the Service’s infrastructure and work force 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 this law.

Finally, with regard to potential areas for 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 to establish

the 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, fifth, the Service’s

ability to provide high-quality delivery service as it takes actions

to reduce costs and realign its infrastructure and work force.

The successful transformation of the Postal Service will depend

heavily upon innovative leadership by the Postmaster General and

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

their employee organizations, employees, the mail industry, Congress, and the general public.

Mr. Chairman, this concludes my statement. I am happy to answer any questions the subcommittee may have.

[The prepared statement of Ms. Siggerud follows:]

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Mr. DAVIS OF ILLINOIS. Thank you very much. I thank both of

you for your testimony.

Mr. Williams, you indicated that there had been a significant increase in the number of arrests. I believe you said from 6 to now

more than 200?

Mr. WILLIAMS. Yes, sir.

Mr. DAVIS OF ILLINOIS. To what do you attribute this increase?

What is causing it?

Mr. WILLIAMS. We enlarged the emphasis on enforcement upon

my arrival. As I said, the office, as I took it over, was not particularly productive either on the audit side or the investigative side,

so that was one of the factors. We then received a substantial

amount of new jurisdiction, and I think that is probably the major

cause for the enlargement of the program from the Postal Service.

That was as a result of a long-term transition that had been occurring from the Inspection Service to the Office of the Inspector General for things such as mail theft. Of course, mail theft is probably

the prime example.

Mr. DAVIS OF ILLINOIS. So you are saying that one can actually

expect, when there are allegations of wrongdoings, that there is

going to be an investigation and a finding and in all likelihood

something could and most likely will be done?

Mr. WILLIAMS. Yes, sir. We think the level of accountability for

misconduct has substantially increased, so I would agree with that.

Mr. DAVIS OF ILLINOIS. Thank you.

On October 20, 2005, I, along with 58 of my colleagues, sent a

letter to the Director of OPM supporting Medicare subsidies for the

Postal Service. The Center for Medicare and Medicaid Services in

December 2005, denied the request of the Postal Service for receipt

of the Medicare Part D retiree prescription drug subsidy authorized

under the 2003 Medicare prescription drug modernization law. The

CMS stated that its denial was based upon its belief that OPM, as

the administrator of the Federal employee health benefits program,

was the sponsor of the Postal Service’s retiree prescription drug

plan, and that the Postal Service was not entitled to the subsidy.

The value of the prescription drug subsidy for the Postal Service

is significant. It is approximately $250 million annually. Of course,

it would help to reign in operating expenses, which are financed

through postal rates.

I give that background information to ask this question: what requirements does the Postal Accountability and Enhancement Act

impose on your office, and how are you prepared to meet those requirements?

Mr. WILLIAMS. Thank you, Mr. Chairman.

First of all, on the background material that you supplied, we

were very much in agreement with your office and the other Congressmen. We think there was a basis, and we think that the Postal Service, in many ways, needs to and welcomes being thrust into

an arena ruled by market forces, but we think that if they are not

given an opportunity because their arms are pinioned at their side

by regulation, we really don’t have a chance. And so we did not feel

that was a very positive finding on the part of OPM and my office.

With the coming of the act, we received several new responsibilities. Probably the one that is going to take the most of our time

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is auditing data systems that produce figures used by the Postal

Service and by the postal regulator to establish rates. There have

been some problems with those in the past, and we are trying to

focus on the ones that we know are problematic first. That is going

to require a new body of work. There is a single audit on workplace

safety and accident reduction that comes to us, and we also are

looking at some reforms that were made to the administration of

rate deficiency assessments.

Last, the responsibilities that come to our office are significant

with regard to Sarbanes-Oxley. We will be joining with the external auditor in a substantial additional amount of work to bring us

into compliance with section 404 of the Sarbanes-Oxley Act.

Mr. DAVIS OF ILLINOIS. Thank you very much.

I see that it was very timely, because my time has just expired.

Mr. McHugh.

Mr. MCHUGH. Thank you, Mr. Chairman.

Welcome to both of you. Thank you for being here.

Mr. Williams, just to kind of expand a little bit on what the

chairman’s last inquiry was directed toward that, is your new role

under the new regulatory system. Do you have any concerns or

complaints? I understand the challenges, as you describe them,

both in response to the chairman and also in your testimony, but

as you have taken your first steps into this new process what troubles you, if anything?

Mr. WILLIAMS. I have a high level of confidence. I would have

been very troubled a couple of years ago. We have had some years

to get ready. The act has some really beneficial provisions. We are

anxious to play our part in that. I don’t have any concerns about

resources or the skill levels to address our portion, and we are anxious to begin.

Mr. MCHUGH. And so far so good. That is great.

Let me flip over here to your network optimization plan. do you

have a time table for the implementation of that?

Mr. WILLIAMS. I believe the act requires that the Postal Service

present a plan within 18 months.

Mr. MCHUGH. That is the limit.

Mr. WILLIAMS. Yes, sir.

Mr. MCHUGH. Are you configuring yourself within that, or is that

what you plan to use?

Mr. WILLIAMS. I am uncertain as to what the Postal Service intends to do with regard to bringing a plan together. We are working daily in advance of that to conduct efficiency reviews, to look

at one of the enabling studies for the plan is the area of mail processing plans. We have begun looking at those to try to examine

how well they work and to make improvements to those as one of

the primary tools to right-sizing the network. But I have not been

advised as to the completion dates for their plan.

Mr. MCHUGH. OK. Thank you, sir.

Ms. Siggerud, the GAO has a long and very productive relationship with this subcommittee and with the process of postal reform,

of which I know the chairman and all of us are greatly appreciative. When you placed the Service on your watch list, that was

a big deal.

Ms. SIGGERUD. Yes.

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Mr. MCHUGH. I have no doubt you did not go about that easily.

As I reviewed your testimony, the report at least by my reading

seems awfully darned positive in that the concerns that you had

seem for the moment to have been met. Was this a—this is not a

good phrase to use in this town right now, but was this a slam/

dunk decision in your view, or was it a position that you felt continues to concern you deeply?

Ms. SIGGERUD. Mr. McHugh, it certainly was not a slam/dunk.

We had a lot of in-depth discussions internally in GAO before making the decision to take the Postal Service off the high-risk list.

Let me just mention a few things that tipped the balance for us.

As I mentioned in my short statement, really an important purpose

of the high-risk list is to galvanize action by the agency that is put

on the list, as well as by the Congress, in paying attention to the

issue. The fact that the transformation plan did happen and the

Postal Service stuck to it was important action from the agency’s

point of view. Both the 2003 and the 2006 acts, which provided a

different financial footing for the Postal Service, were also very important.

So the fact that we saw action, both by the Congress and by the

Postal Service, along with a significant change in the financial situation of the Postal Service, for example, with regard to cash-flow

and with regard to debt levels, along with the very important commitment that management made to reducing costs and improving

productivity, that is what really tipped the level for us. However,

we think there are a number of concerns that the committee needs

to continue to provide oversight on, as I outlined in my statement.

Certainly, if they continue or if financial problems do reappear, we

would reconsider the decision.

Mr. MCHUGH. Thank you.

Maybe I can squeeze one more in here on the yellow light here.

Your written testimony, on page 3, talks about the Service’s plan

to borrow $1.8 billion this year, which will push its outstanding

debt to $4 billion. You didn’t characterize that orally. Is that a concern? I mean, that is a lot of money and it is of concern—

Ms. SIGGERUD. Yes.

Mr. MCHUGH [continuing]. But would you consider that within

the parameters of normal operating procedures, or is this a particularly troubling aspect for you.

Ms. SIGGERUD. It is a slightly troubling aspect. We do consider

it generally within what the Postal Service can afford to borrow,

but it is an issue to watch going forward as the Postal Service continues to, as the PMG so ably explained, face both revenue and cost

challenges.

Mr. MCHUGH. Thank you both.

Thank you, Mr. Chairman.

Mr. DAVIS OF ILLINOIS. Thank you very much, Mr. McHugh.

Mr. Sarbanes.

Mr. SARBANES. Thank you, Mr. Chairman.

This might have been a better question for the last panel or the

ones to come, but if you were here you heard that I am intrigued

by the role that the U.S. Postal Service can play in times of crisis,

in terms of being part of a response effort. I mean, if you are the

Department of Homeland Security you are looking around for a deVerDate 17-JUN-2003 10:16 May 29, 2008 Jkt 000000 PO 00000 Frm 00131 Fmt 6633 Sfmt 6633 C:\DOCS\40873.TXT KATIE PsN: KATIE
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livery system, a distribution system, a people-to-people system that

can be there in a time of crisis. There it is, I mean, really, in a

structure that you can’t compete with, I mean, there is nothing else

out there like that. I know that DHS and other departments are

working with the Postal Service to get that kind of perspective forwarded.

I would just like to get your perspective on that, and I would like

to get your perspective on, I mean, we talk a lot about how the rate

structure needs to cover the cost and the Postal Service, but I

would imagine that, as this other dimension of what the Postal

Service can provide is more fleshed out, that there ought to be an

expectation of resources that can be brought to bear. I don’t know

if that is something that you have talked about, thought about,

have any reaction to, but I would be interested in the response.

Mr. WILLIAMS. There were a number of instances in Hurricane

Katrina where the mail carriers were just on their own the lifeline

for a number of residents that were isolated and terrified. Those

were very all-American stories, and they did prove what a powerful

set of muscles can be flexed by such a large distribution system,

and one that is so familiar to the American public.

I know that there have been some discussions. I am unaware of

whether some of them are classified or not with regard to the role

that the Postal Service could play in the event of further natural

disruptions or acts of terrorism, but it is a very good point and it

is a very powerful recommendation.

Mr. SARBANES. Ms. Siggerud.

Ms. SIGGERUD. Yes, Mr. Sarbanes. We have looked at this issue

from a couple of different perspectives. They are sort of narrow, but

all might add up to an overall picture.

We did, in the course of preparing the Comptroller General for

some overall testimony on Hurricane Katrina, look at what the

Postal Service was able to do, both in preparation for the hurricane, and then in response to it, and I think that the Postal Service

came out looking very good in that particular instance.

We have also looked at the Postal Service’s role in responding to

the bio-threat issues, the response to anthrax, as well as a recent

attack that occurred. We have made some recommendations to the

Postal Service in terms of improving both its training of employees

and managers, as well as its response. The Postal Service has acted

on those recommendations.

Our most recent work actually looked at a false anthrax attack

that happened at the Department of Defense in 2005, and our report—to some extent the Postal Service was involved in that because it was believed that this anthrax had come through one of

the processing plants right here in the District of Columbia. The

Postal Service’s response, when it did finally get that news, was

timely, it was exemplary, and it was useful, put the Department

of Defense to shame in comparison.

Mr. SARBANES. Thank you. My question is, in part, a caution because if, over time, the Postal Service and the employees of the

Postal Service are viewed as offering an opportunity to be part of

a kind of response network, then it is critical that not just be lain

on top of the existing work force without the resources to support

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it and the training. I am sure that the organizations who represent

those employees will be quite insistent on that point.

Thank you, Mr. Chairman.

Mr. DAVIS OF ILLINOIS. Thank you very much, Mr. Sarbanes.

Mr. Cummings.

Mr. CUMMINGS. Thank you very much, Mr. Chairman.

Ms. Siggerud, am I pronouncing that right?

Ms. SIGGERUD. Siggerud. Yes.

Mr. CUMMINGS. Siggerud. Ms. Siggerud, you note in your testimony that several unanswered questions remain with regard to the

growing number of career employees that will be leaving, retiring

in the next 5 years, 113,000.

Ms. SIGGERUD. Yes.

Mr. CUMMINGS. What do you recommend that the Service do to

address that issue? That is a major issue?

Ms. SIGGERUD. Well, it is a major issue, and it is one that I will

confess we haven’t looked at in great detail, but I think it would

benefit. I would be glad to work with the subcommittee on that

issue.

I think the real opportunity to address it comes in the fact that

the Postal Service must prepare a plan and provide it to the Congress within the next 18 months having to do with work force realignment issues. The Postal Service has a complement planning

approach. It has a succession planning approach. I think that the

plan will offer the Postal Service the opportunity to explain how it

will use those tools, and perhaps other tools, to respond to the very

issue that we raise in our testimony.

Mr. CUMMINGS. One of the things that our overall committee,

Government Reform, has tried to address over the 11 years that I

have been on the committee is how do we get young people to come

into Government. We created a program where we pay back some

of their student loans and just trying to figure it out. We offer

those people who are within ridership distance of the Capital certain incentives, passes or what have you, to get to work, or whatever. But certainly we are talking about the entire country here.

I am just wondering, this is not going to sneak up on us, because

we know it, but for some reason so often what happens in this

country is we know so, and it still sneaks up on us, and then we

are caught in a situation where we are just in bad shape. When

I think about 113,000 people, that is a lot of folk.

Ms. SIGGERUD. Yes.

Mr. CUMMINGS. So I am just hoping that this will be like a

super-top priority so that we can make sure that people are replaced, but there is another piece to that, too, and certainly that

is retention, trying to make sure we keep folks.

I remember a few years ago there was a concern about the climate in our postal system that perhaps some postal employees did

not find the climate to be one that made them feel happy. I can’t

think of a better way of saying it. I am just wondering if we have

looked at those issues at all or if we are going to.

Ms. SIGGERUD. Some of my colleagues in the Government Accountability Office, specifically those who look at the Federal work

force issues, have identified the very issue that you are talking

about, Mr. Cummings. It has, on occasion, taken the Federal GovVerDate 17-JUN-2003 10:16 May 29, 2008 Jkt 000000 PO 00000 Frm 00133 Fmt 6633 Sfmt 6633 C:\DOCS\40873.TXT KATIE PsN: KATIE
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ernment too long to hire young folks. It is complicated to hire the

kind of young employees that you are talking about. I think that

some of the glamour perhaps of Government service has waned in

the last few years, and there are a number of efforts underway in

agencies across the country to try to deal with those issues.

I will have to admit that I am not familiar with exactly how the

Postal Service is dealing with those issues, but I would certainly

be glad to submit some of those other reports that I mentioned to

you and your staff to see if they are of use.

[The information referred to follows:]

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Mr. WILLIAMS. In addition, Sir, my office does quite a bit of work

with regard to concerns expressed about hostility in the workplace

or hostile workplace or harassment occurring inside it. We try to

evaluate those as best we can and then work to assure that management takes action and advises us of that action and we evaluate

it.

When it is particularly serious, outside third parties are brought

in to evaluate and to conduct a get-well plan, and it is typically

that where it is serious we go in after that has had a time to work

and assure that it has taken hold.

Mr. CUMMINGS. Do we ever get to a point where we figured out,

I mean, was there ever a threat that sort of ran through these incidents since you have done some investigating and whatever? I

guess I am looking more at certain things that you can’t prevent,

but certainly, I mean, did you ever conclude that maybe there were

certain climates, certain specific work conditions, things of that nature that might bring about those kinds of incidents?

Mr. WILLIAMS. The ones that come to mind have not had a kind

of golden thread that run through them. They have been personality based, and they have involved a senior manager, a set of senior

managers that needed to either be removed or undergo very serious

alterations in their conduct and behavior. There are instances in

which very strong action was taken in response to those, but beyond that I haven’t found anything thematic as I have heard about

that have occurred before my arrival. I haven’t seen evidence of

anything since I have been there.

Mr. CUMMINGS. Mr. Chairman, I see my time has run out, but

I just have one question.

My office receives quite a few complaints from woman and minorities about moving up.

Mr. WILLIAMS. Yes.

Mr. CUMMINGS. I am just wondering how we are doing, and how

do you all monitor that. Just curious.

Ms. SIGGERUD. Mr. Cummings, we have done work with this

committee in the past, but I will tell you that work is old and was

toward the end of the 1990’s, so I don’t have updated figures for

you.

Mr. CUMMINGS. In other words, you don’t have them here today

or you don’t have them?

Ms. SIGGERUD. I am sure it is something that we could obtain.

It is not something that we are doing current work on, so I don’t

have them.

Mr. CUMMINGS. I would appreciate it if you would get that information for me. The reason why I say that is we are in a diverse

society.

Ms. SIGGERUD. Yes.

Mr. CUMMINGS. I want to make sure that something like the Post

Office, that we have everybody at the table—women, minorities.

How soon do you think you could get me something updated as to

say where we are?

Ms. SIGGERUD. I am assuming we could request this information

from the Postal Service fairly quickly, Mr. Cummings. I would

want some time to analyze and make sure that we can understand

it.

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Mr. CUMMINGS. OK. Well, I would appreciate it if you would let

me know when you can get it to us so that I can hold you to it.

Ms. SIGGERUD. OK. We will be in communication.

Mr. CUMMINGS. All right. Thank you.

Mr. DAVIS OF ILLINOIS. Thank you very much, Mr. Cummings.

I might just add that our next hearing on May 10th is going to

be on diversity within the Postal Service, and so we will be looking

with you for that information.

Mr. CUMMINGS. Would the gentleman yield?

Mr. DAVIS OF ILLINOIS. Yes.

Mr. CUMMINGS. Do you think we could get it by then, May 10th?

That would be wonderful.

Ms. SIGGERUD. Mr. Cummings, we will do our very best. I believe

that, in fact, the staff of the subcommittee has been in contact with

other GAO staff who are part of this Federal work force issue to

discuss this very issue, so what I would like to do is go back to my

office and understand exactly what they are doing and what they

have agreed to supply for that hearing.

Mr. CUMMINGS. Yes. Mr. Chairman, the only reason why I raise

that is that when you have been around here for a while, what

happens is you try to figure out how do you get the most out of

these hearings.

Ms. SIGGERUD. I understand.

Mr. CUMMINGS. I would hate for that report to come, like, 3 days

after the hearing, when we could have it in our hands. It may very

well be that the things that are being provided may be the very

items that we are talking about. I don’t know.

Ms. SIGGERUD. I see the subcommittee staff nodding back here.

Mr. CUMMINGS. OK.

Ms. SIGGERUD. So my colleagues have been in contact with them

about providing some information in preparation for that hearing.

Mr. CUMMINGS. All right. Thank you.

Mr. DAVIS OF ILLINOIS. Thank you very much.

Delegate Norton, did you have questions?

Ms. NORTON. Thank you, Mr. Chairman.

We have had huge issues that have come to light now that we

have begun to do oversight as to contractors, huge and horrible

issues raised apparently because nobody has figured out how to

hold contractors accountable in the same way that you hold agencies accountable. If they could figure that out, maybe these controversies wouldn’t continue to arise.

I actually have two questions. One has to do with this notion of

contracting out letter carrying services. I need to know to what degree that is happening, whether we are going to get the same kind

of complaints that we do about people working side by side in Federal agencies without cost accountability because they are contracted out and we don’t do the same kind of oversight, at least no

one has ever shown us that they do. To what extent is that happening that if it is a ‘‘new delivery area’’ it can be contracted out? I

mean, that way I could see, with the way in which we build suburbs, you could contract out half the Post Office. What effect would

that have on the continuing Postal Service that we now have? Is

that what we are looking at now? Is that the way we are going to

save money? That is one question.

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The second question would be what I cannot figure out and what

I hope somebody looks at, and that is what, at bottom, the real

problem of the Post Office is. Is it the rapid increase in technology

or does it have anything to do with rate increases that, of course,

periodically occur?

First, would you educate us on contracting out? Is it now beginning of ordinary letter carrying services? To what extent? If it is

to save money, how would accountability be built in so that this

committee isn’t faced with what the overall committee has been

faced with? Where is it occurring? Who is looking at it? Who is

keeping track of it? And who are the contractors?

Mr. WILLIAMS. The previous panel provided a lot of the statistics

with regard to the current picture. It sounds as though there

wasn’t much contracting occurring to date with regard to letter carriers that delivered mail.

With regard to their accountability—

Ms. NORTON. Could I ask you, as experts, given the fact that we

have seen the Federal Government claim that you save money by

contracting out, all without any accountability on where the money

is saved, with huge controversies concerning, in fact, the savings,

I need to know whether or not the Post Office is headed toward—

after all, it is in trouble. It has to find ways to modernize. Is it

going the way of Federal agencies to do more and more contracting

out, in your opinion, and would that, in fact, be one way the Postal

Service might say it is saving money?

Mr. WILLIAMS. I think that is a very large topic. A good place to

begin might be that I do believe that the cost for the small number

of delivery contractors has been lower than the cost of careerists,

but I believe that we are getting a false signal on that, because

they are in very rural areas. I think that if we begin contracting

in urban areas we would discover that much of that disappears.

Ms. NORTON. Mr. Inspector General, are you or anybody else

keeping track of the actual cost of contracting out this service versus the cost of the in-house service?

Mr. WILLIAMS. We have reviewed the cost data, and it shows

that, in the area that I just described, we are getting a reading

that it is less expensive, but I believe most of that is accounting

for the fact that they are in areas that are very rural and the cost

of living is very low.

Ms. NORTON. So if, in fact, it were brought, let us say, to suburban areas around the District of Columbia where there are many

new developments, where you could collar new development and

contract it out, do you expect that there would be any differences?

Mr. WILLIAMS. We are operating in unknown territory with that

regard. A contract has never been offered and responded to, but I

am of the suspicion that the cost of living is going to cause a lot

of the savings that we have seen disappear when it comes to urban

areas.

Ms. NORTON. Do you have any opinion on that?

Ms. SIGGERUD. Ms. Norton, I think your first statement was exactly right. You said you are seeking facts, and what we have

heard today from the Postmaster General is that this contracting

out procedure is a routine business matter that provides important

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zations saying that this contracting out concept is increasing and

that there are certain negative consequences from it.

I think until we get in and actually look at those data and understand the extent to which this is happening and what the implications are, I can’t provide you an overall view on this.

Ms. NORTON. Mr. Chairman, if I may say, this provides us with

a rare opportunity before contracting out becomes a settled cultural

matter to, in fact, ask the appropriate officials to report to us on

the effect of it so that if it is to be done, contracting out is the way

Government operates more and more, so I am certainly not here to

say that the Postal Service, which already does a fair amount of

contracting out, shouldn’t do it. What I am here to say is that we

have seen horrendous, horrific, once insight began to be done, information of waste of taxpayers’ funds. And exactly what you said was

said to us, it costs less, so what are you worried about.

One of the ways to, in fact, perhaps reform that process as it begins is to get regular reports on its accountability.

Finally, I just want to know. I worry about the Postal Service.

I know it has to have rate increases in order to keep up with what

is expected of it. I also see technology, and it is hard for me to understand how businesses can somehow stay ahead of the technology, and then I see businesses that are direct competitors of the

Postal Service, and obviously more facile because they are private

businesses, and wonder whether or not we are in a race against

time with rate increases perhaps turning people in to other forms

of communication, or if there is some real way to head that off so

that they stand on at least the kind of parallel footing that the

Congress would envision. Is technology the problem for the Post Office? Is rate increases the problem for the Post Office? Is there any

way for the Post Office to truly compete with private business,

which, in fact, rapidly gets a hold of this technology, or other people not even in the Postal Service business whose technology is

then used by the general public while, of course, we insist and will

always insist that the mail be delivered every weekday out there.

I just want your honest assessment if we are in a holding action

here or whether this is the kind of service that can keep up with

the changing technology.

Mr. WILLIAMS. I am fairly optimistic with regard to the ability

of the Postal Service and the Postal Service working with its customers and unions and management associations to remain financially viable. I think the Congress has also done some to help that.

The greatest need we have now, in my view, is the right-sizing

of the network. It is much too large. It is going to be complex to

build down because it is a very changing environment, but a lot of

promise in savings remain there.

With regard to technology, I think there is some very important

technology that has been deployed and that is about to be deployed

that is going to serve the bottom line in the Postal Service very

well for the coming years.

I am not pessimistic, but I do believe that we do need to rightsize the network, and that has begun. There has been some

progress and some of it has been impressive, but it needs to continue and complete itself.

Mr. DAVIS OF ILLINOIS. Thank you very much, Delegate Norton.

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Mr. MCHUGH. Mr. Chairman.

Mr. DAVIS OF ILLINOIS. Mr. McHugh.

Mr. MCHUGH. You have been very gracious with your time, and

I was wondering if I may impose upon that grace.

Mr. DAVIS OF ILLINOIS. Yes.

Mr. MCHUGH. Ms. Siggerud, did I understand you to say that

you are going to be looking at this issue of contracting out?

Ms. SIGGERUD. We do not currently have a request from a Member of Congress to do so, but would, of course, respond to one if we

received one.

Mr. MCHUGH. Mr. Chairman, if I may, this is a very complex situation. I don’t want to suggest I know the answer here, but you

clearly have established highway contract routes. As someone who

lives in an area where those are common, they are wonderful.

Those folks do a great job. And to the extent those need to be expanded, I definitely think we should.

I think the issue here, though, is there is a new contracting out

process, contract delivery services, and they are not always in the

traditional less-urban areas. They may be fully justified. There are

some, or at least one I know in New York City in the Bronx. I just

think, as we have heard other panel members suggest, that it is

an important issue. There are provisions in the contract, the basic

labor agreement, which do apply to this and have been around for

a long time, but maybe times have changed again.

I just think, if I may suggest respectfully, Mr. Chairman, in this

subcommittee’s oversight capacity it might be helpful to bring some

clarity and perspective as to what the circumstances are, what, if

any, new trends are out there, and what that means, so that we

can conduct a proper oversight and so that decisions can be made

that are the best for the postal customer, the best for the Postal

Service, but I would argue, as well, serve the men and women that

work so hard to make this Postal Service work appropriately, as

well, if I could just suggest that, Mr. Chairman.

Mr. DAVIS OF ILLINOIS. Let me thank you for your recommendations and suggestions, Mr. McHugh. I think all of us recognize that

this is a contentious issue and it is one that the committee will

thoroughly explore. We looked at what has already been put into

agreements relative to collective bargaining, relative to areas of

work, and any time there is a new thrust, then I think that has

to be scrutinized very carefully.

I am one of these individuals who believe that we all have certain kinds of rights, that labor has certain kind of rights, management has certain kind of rights, but I also believe that my rights

end where the next person’s rights begin, and that we have to do

everything in our power to protect and promote those of all aspects

of our society. I think that is what we will be doing as we wrestle

with this issue. So I appreciate your comments and recommendations.

I have no further questions for this group of witnesses. I want

to thank you very much for coming before us. We appreciate your

being here. We will move to our next panel.

Mr. WILLIAMS. Thanks, Mr. Chairman.

Ms. SIGGERUD. Thank you.

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Mr. DAVIS OF ILLINOIS. Mr. William Burrus, Mr. William

Young—a lot of William’s in this group—Donnie Pitts, and John

Hegarty.

As we are switching places, I will proceed with the witness introductions.

Mr. William Burrus is president of the American Postal Workers

Union [APWU]. The APWU represents the largest single bargaining unit in the United States, which consists of more than 330,000

clerk, maintenance, and motor vehicle employees working in 38,000

facilities of the U.S. Postal Service.

Mr. William Young is the 17th national president of the National

Association of Letter Carriers, the 300,000 member union representing city letter carriers employed by the U.S. Postal Service.

Mr. Donnie Pitts is president of the National Rural Letter Carriers’ Association [NRLCA]. He has over 37 years of experience

with the Postal Service at both the State and national levels.

And Mr. John Hegarty was sworn into office as National Postal

Mail Handlers Union [NPMHU], national president effective July

1, 2002, and was re-elected to that position by acclamation of the

delegates to the Union’s national convention in 2004. More than 10

years prior to becoming national president, he served as president

of Local 301 in New England, the second-largest local union affiliated with the NPMHU.

Gentlemen, as you know, it is the tradition that we always swear

in witnesses.

[Witnesses sworn.]

Mr. DAVIS OF ILLINOIS. The record will show that each witness

answered in the affirmative.

Your entire statement will be included in the record. Of course,

all of you have done this many, many, many times. We will begin

with Mr. Burrus, and we would expect you to give a 5-minute

statement, after which we will have time for questions and responses.

Mr. Burrus.

STATEMENTS OF WILLIAM BURRUS, PRESIDENT, AMERICAN

POSTAL WORKERS UNION, AFL–CIO; WILLIAM H. YOUNG,

PRESIDENT, NATIONAL ASSOCIATION OF LETTER CARRIERS; DONNIE PITTS, PRESIDENT, NATIONAL RURAL LETTER CARRIERS’ ASSOCIATION; AND JOHN F. HEGARTY, NATIONAL PRESIDENT, NATIONAL POSTAL MAIL HANDLERS

UNION

STATEMENT OF WILLIAM BURRUS

Mr. BURRUS. Thank you, Mr. Chairman.

Mr. Chairman and members of the committee, on behalf of the

American Postal Workers Union, thank you for providing me this

opportunity to testify on behalf of the more than 300,000 dedicated

postal employees that we are privileged to represent.

I commend the committee, through your leadership, Mr. Chairman, fulfilling your responsibility of oversight of this important institution. We begin a new era in the long and proud history of a

Postal Service that predates the founding of our country. Over the

past 4 years we have debated the future of the Postal Service and

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now the long struggle to achieve reform has been concluded. We

now turn our attention to its implementation.

As you may recall, our Union opposed postal reform because we

viewed it as a veiled effort to undermine collective bargaining

through regulatory restrictions and rate caps. We did not prevail,

but we now lend our best efforts to making it work.

In this new world of postal reform, each institution must now

find its rightful place. You legislate, unions represent, managers

manage. When these responsibilities overlap, and they sometimes

do, the system can break, and more often than not service and

workers suffer.

As inviting as it may be, when you are asked to intervene with

legislative action in areas best left to the parties, I request that you

resist the temptation to do so.

Let me be clear. I welcome your intervention in collective bargaining matters if you can assure me that your decision will be on

the side of the workers in each and every instance. Of course, you

cannot afford me that assurance. Therefore, to borrow a phrase

from postal critics, we ask with deep respect that you stick to your

knitting and leave collective bargaining to the parties.

In debate preceding the passage of postal reform, the record was

littered with forecasts of gloom and doom for hard copy communication. Predictable rate increases within the CBI, coupled with regulatory oversight, were declared essential to save the U.S. Postal

Service. After much legislative give and take, we are now proceeding with the implementation of a new business plan, but none of

the uncertainties that were cited to justify postal reform have been

resolved.

The gloom and doom scenarios were never reflective of reality,

and the uncertainty that prompted these dire projections remain

unaffected by reform. Although the record is closed and the bills

are now law, on behalf of the APWU members I assert that we will

never accept as fair the changes included in the legislation that

limit compensation for injured postal employees. This was an injustice and our Union will not rest until it is reversed.

Your overview of the U.S. Postal Service is occurring at a watershed moment in the history of this vital institution. The Postal

Service is now facing challenges, including working within the rate

cap and finding a way to support itself by managing services that

compete directly with private sector companies.

The Postal Service faces these challenges under rules that have

yet to be written by the Regulatory Commission, a newly created

body with awesome powers and responsibilities.

A recent decision by the Commission regarding the USPS request

for rate adjustments is a positive sign. It indicates that the Commission intends to serve as an independent reviewer of the postal

rate structure. Under the leadership of Chairman Blair, Commissioners gave careful consideration to the record, and they arrived

at fair conclusions. I commend the Commissioners for their

thoughtful and just decision to recommend the first class rate unburdened by excessive work share discounts.

The American Postal Workers Union is proud that we were the

only intervener to propose a $0.41 first class stamp rather than the

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$0.42 sought by the U.S. Postal Service, and we are pleased by the

Commission’s decisions.

The Board of Governors and the Commission are also commended for conceiving and approving the forever stamp. The very

concept is a reflection of new and innovative thinking.

We applaud the Commission for rejecting the radical proposal referred to as ‘‘de-linking’’ which would separate the rate for single

first class letters from the rate for first class work shared letters.

This proposal, if adopted, would have set the stage for a continual

decline in the uniform rate structure.

The Commission must also be watchful far into the future and

resist demand to erode the very foundation of our mail system, universal service and uniform rates. The British postal system has recently announced a plan to begin zone pricing that could lead to

higher rates for delivery to rural areas. Such a disparity would not

be tolerated in America.

Throughout the debate on postal reform, the American Postal

Workers Union was a vital critic of excessive work share discounts,

and we applaud the recent recommendation of the Commission to

initiate change. This is a start, and we hope to work with the Commission in the appropriate review to determine their relationship

to the cost of what is standard.

My Union has a long history of engagement in the USPS effort

to consolidate the processing network, and in communities throughout the country we have called upon the elected public officials to

join with us. I am not aware of a single congressional representative who has rejected our appeals to require the Postal Service to

seek meaningful immunity input prior to making a final decision.

The record is clear. With your help we have been successful in

preserving service, protecting local postmarks, and defending community identity.

The APWU has also been a consistent advocate for postal efficiencies. We did not appeal for your assistance when postal officials

engaged in massive investment in automation designed to enhance

productivity. More than $20 billion has been invested in the automation of mail processing, and as a result of this investment the

number of craft employees has been reduced by more than 80,000

employees. But there is a line between deficiencies and service.

Highly publicized experiences in Chicago, Boston, and New Mexico

demonstrate that postal management has not yet found the right

balance. This chase to the bottom for savings cannot justify denying the American public a service that is required by law. Our

Union and our Nation’s citizens reject the Circuit City business

model as one to be copied for mail services. We shall need your

oversight to hold the Postal Service accountable.

APWU members are proud to be a part of the most efficient Postal Service in the world, and we intend to be a part of a team effort

to preserve this legacy, including working with this committee.

In closing, Mr. Chairman, I want to take this opportunity to

speak directly to the committee about a unique matter pending before the Postal Service and to seek the committee’s assistance in

its resolution.

For many years I have been advancing that the Postal Service

issue a commemorative stamp honoring the millions of slaves

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whose work in bondage contributed so much to building this country. I have made some progress in these efforts, and the Postal

Service has agreed that a stamp will be issued in 2008 honoring

those human beings who suffered so much for so little reward.

Unfortunately, we may be in disagreement over the image to be

depicted. The Stamp Committee is proposing to depict the ship

transporting slaves across the ocean, and I simply ask do we honor

the oppressed or the oppressors. Tens of millions of human beings

completed their life journey without notice, and this stamp presents an opportunity to display their image, to tell their story in

a stamp. After 400 years, it is the right thing to do.

I thank you, Mr. Chairman, for your leadership and that of the

members of this committee. As we embark on the future under a

new business model, we shall need your attention and your wisdom. Thank you for your efforts.

I will be pleased to respond to any questions the committee may

have.

[The prepared statement of Mr. Burrus follows:]

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Mr. DAVIS OF ILLINOIS. Thank you very much, Mr. Burrus.

We will proceed to Mr. William Young.

STATEMENT OF WILLIAM YOUNG

Mr. YOUNG. Thank you, Chairman Davis.

Before I begin, I want to thank you, Mr. Chairman, for your leadership over the past several years as Congress debated postal reform legislation. Thanks to the bipartisan partnership you and

Chairman Henry Waxman established with Tom Davis and John

McHugh, Congress enacted a reform bill in December that is largely positive and fair to all concerned.

I have submitted an extended statement for the record that

touches on the need for additional reforms, but for the moment I

want to focus on a single issue that I believe is a serious threat

to the future of the U.S. Postal Service, the contracting out of letter

carrier jobs.

In its dealings with the NALC and its management training programs, the Postal Service has signaled its intention to promote the

out-sourcing of mail delivery to new addresses whenever and wherever it can. I am here today to sound an alarm on this penny-wise

but pound-foolish policy and urge Congress to put a stop to it.

Contracting out an inherently governmental function like the delivery of mail is misguided and it is wrong. It runs counter to the

Postal Service’s basic business strategy, and it violates both the intent and the spirit of the Nation’s postal laws.

The Postal Service’s key asset is the trust and confidence of the

Nation’s mailers. Employing part-time, low-wage workers with no

benefits will lead to high turnover and poor service over time. This

will break the trust that Americans have developed with the Postal

Service through their long-term contact with dedicated career letter

carriers.

Out-sourcing core functions is rarely successful business strategy. Uniformed career letter carries and clerks are the public face

of the U.S. Postal Service. They represent the brand, so to speak.

Out-sourcing your brand might save you money in the short term,

but it is sure to backfire over the long run. As the quality and trust

in the system declines, mail volume and mail revenue are bound

to fall, wiping away any real savings. Beyond that, the Postal Service’s strategy to employ intelligent mail technologies in the future

will require an even more dedicated and better skilled letter carrier, a need that will not be met through the widespread use of contractors.

Out-sourcing letter carrier mail also contradicts the basic policy

outlined in the Nation’s postal law, which specifically grants collective bargaining rights and calls on the Postal Service to place particular emphasis on opportunities for career advancement for its

employees and to support their achievement of worthwhile and satisfying careers in the service to the United States.

Yet, the Postal Service appears to be dead set on a policy of outsourcing new deliveries across the country. Although a very small

percentage of total deliveries are contracted out today, with the addition of 1 to 2 million new deliveries each year, it will not be long

before a two-tier system of delivery begins to undermine the trust

and quality of the Postal Service.

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Congress should act to stop the cancer of contracting out now, before it spreads and undermines the most affordable and efficient

Post Office in the world. If this is not stopped now, in 10 to 15

years there could be tens of thousands of contractors out there.

When your constituents begin to complain, they won’t be calling

me, they will be calling you.

Now, the Postal Service would have you believe that contracting

out the final delivery of mail is nothing new and no big deal. I am

sure you read the document sent to every Member of Congress last

week, the paper entitled, ‘‘Contracting Out by the U.S. Postal Service, Not New.’’ The central claim of this misleading document is

simply not true. Yes, the Postal Service has long used contractors

on so-called highway contract routes to transport mail between post

offices and to do occasional deliveries en route in rural areas, but

using contractors to deliver mail in urban and suburban settings

is something totally new.

The fact is the Postal Service has embarked on a radical expansion of out-sourcing in the delivery area, following the same misguided practice used by many private companies to suppress wages

and destroy good middle-class jobs, replacing them with lower-paid,

contingent, and part-time positions.

In 2004 and 2005 Postal Service headquarters initiated an

HCR—that is highway contract route—enhancement and expansion

program. I have provided for the record a copy of the presentation

used by postal management trainers to explain this new program.

Its goal was to broaden and transform the use of HCRs to include

not just the traditional transportation of mail but also the delivery

of mail, as well.

Of course, the Postal Service knew that its new policy would be

controversial. Look at the last slide on its training program. The

Postal Service saw congressional influence as the No. 1 obstacle or

barrier to success of that program. They had good reason to worry

about congressional opposition. In the summer of 2005, the House

of Representatives voted 379 to 51 to oppose an amendment offered

by Representative Jeff Flake to the postal reform bill which was

eventually adopted to experiment with the privatization and alternate forms of deliveries in 20 cities across the country. I note that

the current members of this subcommittee opposed that amendment by a vote of 10 to 1.

In 2006, despite the express views of Congress, the Postal Service went even further. It began advocating contract delivery as a

growth management tool and it introduced contract delivery service

[CDS], routes for new deliveries in urban and suburban areas.

Such routes are to be considered for all new deliveries. That is

their training program. Of course, these CDS routes bear no relation to the traditional highway contract routes. Although the contractors do receive the same low pay and no benefits, their main

duties involve delivery work, not mail transportation.

Why is the Postal Service doing this? According to another management presentation used recently in Seattle, which I have also

provided for the record. Contract routes are ‘‘the most cost efficient,

because they provide no health insurance, no life insurance, no retirement, and no tie to union agreements.’’ They call that efficiency.

I call it an assault on middle class living standards.

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Mr. Chairman, what the Postal Service is doing is not business

as usual. The CDS routes it has established in recent months in

urban areas like the Bronx or suburban areas outside of Fresno,

CA, or Portland, OR, cannot be truthfully described as ‘‘nothing

new.’’

I urge this subcommittee to consider legislation to block the Postal Service from taking the low road that far too many employers

in this country have adopted. The Postal Service should not contribute to wage stagnation and add tens of millions of workers

without health insurance or adequate pension protection. Indeed,

the Postal Service has been and should remain a model employer.

It has combined decent pay and wages with ongoing innovation to

keep Postal Service rates low and affordable. It does not need to

join the race to the bottom with respect to employment standards,

and it should not gamble with the trust and support of the American people.

Before I finish let me address one final issue. You may have

heard from postal management that subcontracting is a bargaining

issue and that Congress should stay out of labor relations that are

currently underway. NALC, like the APWU, does not want Congress to get involved in our collective bargaining. However, what

we do want is for Congress to ensure that there is collective bargaining for all postal employees who deliver the mail. By assigning

new deliveries to contract workers, the Postal Service is seeking to

avoid collective bargaining. Whether they out-source the core function of its mandate is a legitimate public policy issue. You can and

should weigh in on this issue. You can start by enacting H.R. 2978,

a sense of the House resolution to oppose postal out-sourcing.

I know that you did not work dozens of years on postal reform

only to see the Postal Service turn around and throw it all away.

Neither did I.

Thank you again, Mr. Chairman, and thanks to all the members

of this committee for my opportunity to testify.

[The prepared statement of Mr. Young follows:]

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Mr. DAVIS OF ILLINOIS. Thank you very much, Mr. Young.

We will proceed to Mr. Pitts.

STATEMENT OF DONNIE PITTS

Mr. PITTS. Thank you, Mr. Chairman.

Before I start, I would ask that my remarks be included in the

record, the written remarks that I have provided.

Mr. Chairman and members of the committee, my name is

Donnie Pitts and I am president of the 111,000 member National

Rural Letter Carriers’ Association. I want to thank you, Mr. Chairman, for holding this oversight hearing.

Back in 1985 I had the pleasure of testifying before the House

Ways and Means Committee as vice president at that time of the

Alabama Rural Letter Carriers’ Association. It is an honor to be invited to testify again before Congress, this time as president of the

National Rural Letter Carriers’ Association.

Rural carriers serve more than 75,000 total rural routes. We deliver to 37.4 million delivery points, driving a total of 3.3 million

miles per day. We sell stamps, money orders, accept express and

priority mail, collect signature and/or delivery confirmation pieces,

and pick up registered, certified mail and customer parcels. Our

members travel everywhere every day, serving America to the last

mile.

Mr. Chairman, the most important issue affecting our craft at

this moment is the contracting out of delivery service by the Postal

Service. Delivery is a core function of the Postal Service, and outsourcing this function is contrary to the mission of the agency. The

practice jeopardizes the security, sanctity, and service of the Postal

Service. I ask that Congress fulfill its duty of oversight and take

immediate steps to halt the continuation of this practice.

Delivery managers have been encouraged to favor CDS, or contract delivery service, using contract employees over delivery by

city or rural letter carriers for all new deliveries based on cost savings. Contracting out is reported to save roughly $0.15 per delivery

point, but at what cost. When the Postal Service started the contracting out of deliveries, they were still tasked with paying billions

of dollars into an escrow account and covering the cost of postal

employees’ military pension obligation. With the passage of postal

law 109–435, the Postal Service was relieved of both the $27 billion

obligation for military pensions and $3 billion annual payment into

the escrow account, and new laws allow the Postal Service to retain

a profit, and a banking provision allows any unused rate authority

to be saved for use at a future time.

There remains an opportunity to file one last rate increase under

the old law. The Postal Service has not given the new law which

this committee wrote and passed a chance. If the Postal Service

had lived under the new law for 5 to 10 years and then found they

were running huge deficits, perhaps we could understand cost cutting measures, but it has only been 4 months since the bill became

law. Why does the Postal Service see the need for even more cost

savings?

Security has become one of the most important concerns facing

Americans today. Following the terror attacks on September 11,

2001, and anthrax attacks that fall, the White House, Department

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of Homeland Security, and Department of Health and Human

Services, working closely with the Postal Service, the NRLCA, and

the NALC developed a plan to call upon letter carriers to deliver

antibiotics to residential addresses in the event of a catastrophic

incident involving a biological attack. Why us? Because citizens

trust us. Star route carriers aren’t even involved in this service,

and now CDS carriers.

Many contractors subcontract their routes. Letter carriers are

Federal employees who are subject to close scrutiny of their character, background, and criminal history, if any. What kind of scrutiny are subcontractors subjected to? Does a contractor take the

same care in screening a subcontractor employee as the Postal

Service takes?

Sanctity of the mail stream is one of utmost importance. Sensitive materials are mailed every day. Financial documents, credit

cards, Social Security checks, medicine, passports, and ballots must

pass through the mail.

A contract carrier in Benton, AR, stole a person’s credit card

identity, and he was caught by the police. A Bridgeport, PA, contract employee threw away 200 pieces of first class mail. His postal

record indicated he should never have been hired. In Appalachia,

VA, a contractor pleaded guilty in an election rigging scheme where

absentee ballots were forged or votes were purchased with bribes.

Are these the kind of people we want delivering the mail?

Service is the reason that USPS ranks as the most trusted agency in the Federal Government. Letter carriers are the most trusted

part of that equation, according to customer satisfaction surveys.

All new rural carriers are required to attend a 3-day training academy which instructs them on all aspects of their job. This training

academy, staffed by experienced rural carriers, serves as a clearinghouse for the rural craft. There is a direct connection between

our training academies and customer service satisfaction. Contract

carriers don’t have the training academies, and any training they

may receive is inferior to the training developed by the Postal Service and the NRLCA.

There is a lack of accountability and no clear chain of command

for supervision. Neither customers nor the Postal Service will know

who is responsible for service problems or delivery concerns. The

Postal Service sites as a general rule that public interest, cost, efficiency, availability of equipment, and qualification of employees

must be considered when evaluating the need to contract. After

evaluating contract delivery service, I ask is this cost savings worth

the risk. The answer is obvious.

Mr. Chairman and members of the committee, I thank you for

inviting me to testify today. If you have any questions of me, I will

be glad to answer them.

[The prepared statement of Mr. Pitts follows:]

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Mr. DAVIS OF ILLINOIS. Thank you very much, Mr. Pitts.

We now will proceed to Mr. Hegarty.

STATEMENT OF JOHN HEGARTY

Mr. HEGARTY. Good afternoon, and thank you, Chairman Davis

and members of the subcommittee, for inviting us to testify.

The National Postal Mail Handlers Union represents almost

57,000 mail handler employees employed by the Postal Service. I

have submitted written testimony and would ask that it be included in the official record.

There is one crucial and overriding point that I want to emphasize at this hearing. From all indications there is a subcontracting

virus pervading Postal Service headquarters, and not just in delivery services. I will apologize in advance if some of my comments

are similar to my colleagues’, but I think those points need to be

re-emphasized. This is extremely unfortunate, not only for mail

handlers and other career postal employees, but also for postal customers and the American public.

From my perspective, contracting our work out to private employees who receive low pay and even lower or no benefits is effectively destroying any sense of harmonious collective bargaining and

productive labor relations. The parties have freely negotiated

wages and benefits for career mail handlers for more than 30

years. To subcontract out work solely to undermine the results of

collective bargaining without any justification other than saving

money is directly contrary to the purpose of those negotiations and

to the policies set forth in various Federal statutes.

But subcontracting is even more dangerous and more unjustified

when it is viewed from the perspective of the American public. We

believe that privatizing the processing or delivery of mail jeopardizes the very core of the postal system that is the cornerstone of

the American communication system. First, using subcontractors to

process and deliver the mail jeopardizes the sanctity and security

of the mail, raising important concerns about who is handling the

mail and precisely what might find its way into the postal system.

Especially after the terrorist attacks of September 11, 2001, and

the anthrax attacks of October 2001, postal handlers and other career postal employees are better able to deal with the Homeland

Security issues surrounding terrorism and other issues than privately contracted employees.

Mail handlers are hired after written exams, entry and background testing, and often with extensive experience in the military

under veteran preference laws. Mail handlers are hired for a career

job, and therefore have a greater stake in performing their job well

and in the success of their employer.

Private employees certainly are not trained to protect the mail

or the American public from the dangers of biohazards or mailed

explosives, just to name two of many security concerns.

If maximizing our Homeland security is an important goal, then

career mail handlers who are properly trained and experienced are

better able to handle the potentially dangerous situations that may

arise in and around the Nation’s postal system.

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raises a host of other concerns that should give pause to any subVerDate 17-JUN-2003 10:16 May 29, 2008 Jkt 000000 PO 00000 Frm 00192 Fmt 6633 Sfmt 6633 C:\DOCS\40873.TXT KATIE PsN: KATIE
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contracting plans by the Postal Service. To pose just a few items

of concern that deserve the attention of this subcommittee, subcontracting will increase the dangers associated with identity theft.

Subcontracting will defeat the very purpose of veteran preference

laws and eliminate all of the benefits that are meant to accrue both

to employees and to the Postal Service when the agency is encouraged, if not required, to hire our Nation’s veterans. This is especially important today with our service men and women returning

from Iraq, Afghanistan, and other duty stations.

Just to preempt a question that I believe comments that Representative Cummings discussed earlier, how do we get more young

people hired into Government jobs? The first way that you do that

is to have the jobs for them to go into in the first place.

There are more valid concerns, but there is no reason to belabor

the point. The Postal Service’s continuous attempt to subcontract

our work to private contractors follows a disturbing pattern of privatization for privatization’s sake and is not based on any enhancement of the product or services being provided.

The dangers of subcontracting have been confirmed by some recent examples. Approximately 9 years ago the Postal Service decided to contract with Emery Worldwide Airlines to process priority

mail in a network of ten mail processing sites along the eastern

seaboard. Today the work at those facilities has been returned to

mail handlers, but not before the Postal Service suffered losses in

the hundreds of millions of dollars.

At a meeting of the Postal Board of Governors, one Governor said

publicly that the Emery subcontract was one of the worst decisions

they had ever made as a Board.

A similar story can be told about the out-sourcing of the mail

transport and equipment centers [MTECS]. Several years ago

about 400 mail handlers were displaced from these facilities in

favor of private sector employees working for contractors who

passed their costs along to the Postal Service. The Office of the Inspector General audited these contracts and concluded that the

Postal Service had wasted tens of millions of dollars in the inefficient use of these contractors, and that the same work, if kept inside the Postal Service, would have been performed more cheaply.

More recently, just 6 months ago in November 2006, management decided to subcontract the processing of military mail that

was being performed by mail handlers employed at the New Jersey

International and Bulk Mail Center. This is military parcels and

other mail headed to Iraq and Afghanistan, as well as mail coming

back to the States from our service members. Without exaggeration, this is one of the most outrageous subcontracting decisions

that the Postal Service has ever made.

In May 2005, the joint military postal activity for the Atlantic

area representing the U.S. Army, Navy, Air Force, Marines, and

Coast Guard, issued a formal letter of appreciation to the career

postal employees handling this military mail, stating that their

professional work ethic and personal contributions from 2000 to

2005 significantly contributed to the morale and welfare of all of

our service members. They stated, ‘‘Your dedication and honorable

service is appreciated,’’ and the letter said, ‘‘May God bless you and

keep you safe.’’

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One year later, in July 2006, representatives of the military attended a meeting onsite at the New Jersey postal facility and again

took the opportunity to thank the mail handlers for their continued

dedication, hard work, and support for the military. But only a few

weeks later, in early authority, 2006, postal management informed

the union that this operation would be contracted out and the work

subsequently was transferred to private employees in November of

last year.

If there is a rationale for this subcontracting, it has not been explained to the Mail Handlers Union. Rather, the career mail handlers whose dedicated service had ensured that this mail was being

efficiently and timely handled on its way to our troops were

slapped in the face by local postal managers who decided that saving a few dollars should override the views of the U.S. military and

the needs of Homeland security.

Another recent example concerns the Postal Service’s ongoing

consideration of subcontracting for the tender and receipt of mail

at many air mail centers and facilities. Once again, the Postal

Service seems incapable of recognizing that career mail handlers

are part of a permanent and trained work force, one that is particularly well suited to the additional security concerns that are

presented in and near the Nation’s airports.

The members of this subcommittee will remember that shortly

after September 11th Congress insisted that security workers at

the airports should remain Federal employees. We believe that a

similar requirement should be imposed on postal employees who

may be sorting and loading mail for transportation onto commercial

airlines. In this day and age does the American public really want

a series of low-bid workers handling packages and mail that is

being loaded onto airplanes? Does Congress really want to allow

the Postal Service to contract out this work simply to save a few

dollars? To the Mail Handlers Union the answer should be a resounding no.

Again, thank you for this opportunity to testify, Mr. Chairman.

If you have any questions, I would be glad to take them.

[The prepared statement of Mr. Hegarty follows:]

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Mr. DAVIS OF ILLINOIS. Thank you very much, Mr. Hegarty. I

want to thank all of you for your testimony.

I am also pleased to note that we have been joined by our ranking member, whose plane had been delayed as a result of the severe weather that we have been having in some parts of the country. Before we go into the question period, I would like to ask

Ranking Member Marchant if he has any comments that he would

like to make.

Mr. MARCHANT. Thank you, Mr. Chairman.

I again apologize to the whole group of you. It has been a crazy

couple of days on the northeast. They say that if anything happens

in Dallas, anything that happens in Boston happens in Dallas

about 5 minutes afterwards. My deepest apologies. I am very interested in this subject and share with the chairman in appreciation

for all of your participation today.

I have some questions, but I will save them for later. Thank you,

Mr. Chairman.

Mr. DAVIS OF ILLINOIS. Thank you very much.

We will begin with the questions.

Mr. Burrus, the Postal Service has set a goal of reducing work

hours by 40 million this year. In an effort to improve efficiency and

productivity, all of these things are really important and speak well

from an efficiency, effectiveness, and cost containment point of

view.

Do you think that this can be accomplished without causing real

problems in some areas of service and delivery?

Mr. BURRUS. It is possible. With the introduction of technology,

particularly in the mail processing network, the preparation of mail

for delivery, that it does not require time in the office for preparation. There are a number of methods that the postal workers can

undertake that they can achieve reductions of personnel. There is

always friction, though. And where there is friction, we apply the

provisions of our collective bargaining agreement. We don’t come to

Congress to seek your assistance. We apply the collective bargaining agreement. We have the option of going to arbitration over its

provisions if we are not successful in negotiations, but there is always tension between the employer and the Union. The employer’s

responsibility is to achieve the maximum effectiveness at the reduced cost, and our obligation is the absolute reverse, so there is

tension there, and the collective bargaining process is where we

meet and resolve those differences, not always to our satisfaction.

I don’t suggest to you that we are always satisfied with the outcome. We have been wrestling over article 32 subcontracting issues

not just recently, not just in the last year. For 35 years we have

challenged the Postal Service.

I associate myself totally with all the remarks of my colleagues

about the negatives of subcontracting, the impact on service. But

we make those arguments in a different forum. We make those arguments in a forum where the Postal Service has the opportunity

to respond, and if we are dissatisfied with that response we go to

arbitration.

But yes, there is always tension between your employer and the

union in terms of efficiencies, productivity improvements, reduction

of personnel. We fight those as best we can using the tools availVerDate 17-JUN-2003 10:16 May 29, 2008 Jkt 000000 PO 00000 Frm 00208 Fmt 6633 Sfmt 6633 C:\DOCS\40873.TXT KATIE PsN: KATIE
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able to us at the time, but we don’t come to Congress and seek your

assistance when we fail.

Mr. DAVIS OF ILLINOIS. Thank you very much.

Mr. Young, we heard Chairman Miller, we heard the Postmaster

General vigorously and passionately defend this new notion of contracting out in a sense. We have also heard about the difficulty of

maintaining service. We look at decline in first class mail as we

look at the competitiveness of the mail industry in terms of other

entities that deliver mail. So they pretty much indicated that there

is a need to do this as a cost saving function. Are there other ways

perhaps that the cost savings could occur without going to this new

service contracting out that management is talking about?

Mr. YOUNG. The answer is yes, Mr. Davis. Look, I don’t want to

get into collective bargaining here, but, just as a for instance, I offered them a proposal that would save them $20 billion, $20 billion

over the next 30 years. They rejected that proposal because they

would rather have the current language in article 32 which allows

them to contract out than the $20 billion in real savings in their

pocket. So I get a little aggravated when they come up here. I listened to Jack Potter and I listened to Chairman Miller, and they

suggest to you that nothing is new, they have done this forever.

Article 32, as Mr. Burrus said, has been in our contract I think

from the very beginning. There was a need for it to be in the contract. Nobody quarreled with that. Our Union never grieved it,

never appealed it, never tried to get rid of it because in rural

America, the way they used it initially with highway contract

routes, it made good sense. But now they are going too far, in our

view.

Why I don’t think this is collective bargaining, Congressman, I

think this is public policy. The Members of Congress are going to

decide for all of us that work there, all these people out here that

use the mail, everybody else in America, you are going to decide

what kind of a Postal Service do you want, what kind of services

do you want to provide to the American public.

The risk they run with this contracting out itch of theirs is if

they lose the confidence of the American public to deliver the mail

they are gone.

Now, let me just give you one example. I heard what the Postmaster said, but he is not being truthful. In Orange, CA, right in

the middle of one of the city letter carrier routes of people that I

represent, they built a shopping center. The Postal Service decided,

rather than letting the regular letter carrier absorb that shopping

center in his route, that they would contract it out to a private delivery. For 6 weeks it appears as though the private contractor was

performing its functions I guess correctly, because no complaints

were in. Then 1 day he was told that he had to take a mailing, a

full coverage circular mailing, out on his route. He got nasty with

the boss on the workroom floor. I can’t repeat in Congress what he

said. If a letter carrier said it, believe me, they would have gotten

a disciplinary notice, or a clerk said it, or a mail handler said it,

or a rural carrier, they would have been immediately issued a disciplinary notice. But this guy got nothing because the boss said

look, he’s a private contractor, what do you want.

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He started taking the mail home and not delivering it. Calls

started going into the Postmaster in Orange, CA. What do you suppose he told the people that called? Nothing I can do about it. It

is a private contractor.

What I am saying to Congress is this: when the American public

loses faith in the ability of the men and women that currently are

moving that mail from the factories to their homes, we will be out

of business, Congressman. I think they risk that with this path

that they now go on, which requires every—and I don’t know why

they won’t tell you that. I gave you their training programs. They

say it. Every new delivery must be considered for private contractor, not 2 percent, not 6 percent, not 1 percent, every single new

delivery is being given consideration for private contracting.

I will tell the Congress so there is no mystery. Is it cheaper to

use private contractor? The answer is yes. It is very much cheaper.

Why? They don’t get health benefits, they don’t get retirement,

they don’t get annual leave, they don’t get sick leave. There is

about a 40 percent roll-up in the payroll for benefits in most modern companies in America. They are achieving the 40 percent savings by hiring private contractors.

Mr. DAVIS OF ILLINOIS. Thank you very much.

We will now go to Mr. Marchant.

Mr. MARCHANT. I think I would like to ask a couple of questions

about the security issues that arise out of the contracting out and

open that question to the panel.

Mr. YOUNG. If I could just put 2 cents in, when somebody put

anthrax in the mail a number of years ago it was very difficult, and

some of the Members of Congress have already recognized how

bravely the postal employees reacted and behaved during that process. We still to this day, at least as far as Bill Young knows, we

still don’t know who did that. We still haven’t gotten the person

that put that deadly virus in the mail. We haven’t brought them

to justice.

Think how difficult that would be trying to contain that if—let’s

fast forward 10 years. Let’s say Congress makes the decision we

are not going to do anything to disrupt this current contracting out

craze that is going on. Now it is 15 years from now we have 30,000

individual contractors out there, plus the network of whatever is

left of us, the four of us that are sitting here, and we have to try

and contain this virus somehow with all of these tentacles out

there.

The members of my Union, Congressman, they volunteered to deliver vaccinations if, God forbid, we get a biological attack. We and

the rural carriers signed an agreement with Homeland Security

when Tom Ridge was the Director to do that. Does anybody in this

room think private contractors are going to go to that extent? It

isn’t going to happen.

Mr. HEGARTY. The security issues are quite a few, from our perspective, especially with the two examples that I cited, the airport

mail facilities and also the military mail.

If you are paying a private contractor who knows what, I agree

with Bill it certainly saves money if they can hire people as cheaply

as possible, but what type of commitment do they have to the job.

And don’t you think it would be pretty easy for a terrorist group

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who wanted to harm our military members to infiltrate a low-paid

private contractor and have some people working at that New Jersey bulk mail center and put some terrorist bombs or whatever

they may decide to use in the military mail to be shipped over to

Iraq and Afghanistan? It is just unconscionable to me that, for the

sake of saving money, you would do something like that.

The delivery of mail, how do you know what these private contractors are doing once they walk out the door of the Post Office?

Are they opening mail? Are they taking credit card applications

and filling them out in someone else’s name? That is the identity

theft aspect of it.

The airport mail facilities, why would you possibly, with Homeland security—and let me just say this: we are not asking you to

interfere with collective bargaining and we are not asking you to

get involved in collective bargaining. At least I am not, from the

mail handlers perspective. But it is a different Postal Service after

2001, it is a different world after 2001, and we are asking you to

look at the ramifications of this subcontracting out in light of the

security concerns.

One other point that I want to make. It came up earlier about

the right to strike. The Postal Service yes, we are not allowed to

strike. Our members have to perform their duties. What do you

think would happen if a private company subcontracted, big on a

network of airport mail facilities, and all of the sudden their employees became disgruntled? A strike by a private company is not

prohibited, and they could shut down the Nation’s airmail system.

It is just ridiculous.

Mr. PITTS. I echo a lot of what a lot of my predecessors have said

here. One of the big issues that I see is the accountability of who

is carrying the mail. In our craft, the rural craft, you have a regular carrier, then you have a relief employee who backs that person

up. On a day-in, day-out basis the Postal Service knows who is taking care of the mail. Whereas contractors get the contract, they

subcontract to any and everyone to carry the mail. So I think there

is a big risk out there with people handling valuable documents,

as I said in my testimony, that there is no way you can pinpoint

who was delivering the mail there on a given day, so it is a security

issue and the sanctity of the mails. It is a big-time problem, and

it could really get out of hand.

Mr. BURRUS. Security is a major issue with subcontracting, but

I don’t want this committee to misunderstand its scope. It is not

just what’s here today. All of the mail, most of the transportation

of mail is done by contractors. All the airline transportation is by

subcontractors, not by postal employees. So the mail is interacting

with private citizens who are not responsible to the U.S. Postal

Service every day. So I think it raises serious security issues. I

agree that they are imbedded in the fact that the Postal Service

does not control the individuals, and they have no allegiance to the

system, itself. But it doesn’t just begin and end with delivery.

There is subcontracting in transportation, the processing, with the

equipment, MTEC systems.

We have for years fought this issue in collective bargaining, in

other forums where we could join with the Postal Service and address them jointly, and we have had some wins. Priority mail, they

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contracted the entire system out to the private sector. We convinced the Postal Service to bring it back in. Now postal employees

perform that function.

We looked at encoding systems, 25,000 jobs. We didn’t come to

Congress to ask your intervention on remote encoding. We went to

an arbitrator, convinced the arbitrator that it was not consistent

with our agreement, they brought the jobs back in.

There have been a number of hours reaching agreement with the

U.S. Postal Service in 1996, 1998, somewhere in that general timeframe, to ban all contracts for a period of 2 years. We reached that

agreement at the bargaining table. There would be no new contractual initiatives. That time has now elapsed and they are now contracting even more.

But my message is this has been done at the bargaining table.

What I am afraid of, if you get the appetite to decide issues entirely

in the Postal Service, issues that are mandatory subjects of bargaining, where does it end. Does another constituency come to you

next year on an issue that I am opposed to an you entertain it because you have broken the egg, you started to get involved in the

process, itself.

I don’t want to come before you to defend my no lay-off cause,

my cost of living adjustment, because somebody came and said ask

the Congress to intervene for whatever reasons. They will dream

up their own reasons. But I don’t want you to put yourself in a position that now you have entertained involvement in the process.

Where does it end? Does it begin and end with subcontracting?

Fine. I am onboard if it begins and ends. But if you can’t give me

that assurance, I don’t want to return here a year or 2 years from

now where I am facing other issues that I have addressed in collective bargaining and you have a different view.

Mr. DAVIS OF ILLINOIS. Thank you very much.

Mr. Sarbanes, I believe you are next.

Mr. SARBANES. Thank you, Mr. Chairman.

I appreciate the testimony of all four of you. Thank you. And the

issues you have raised are ones that are of deep concern to me.

The notion that contracting services out will lead to more efficiency is really a philosophy that has been embraced by the administration we have in place now and many of their friends. There is

plenty of evidence that the efficiencies are not there. There is even

evidence that the cost savings are not there, although, as you described, if you are going to hire through private contract and people

don’t have health insurance who are low-paid, who are temporary,

etc., it is impossible not to get some cost savings from it.

One of the things that drives me crazy is that the failure to prove

out the notion that private contracting produces more efficiency actually proves out or fulfills another prophecy that is at work, and

that is to demonstrate somehow that good government and good

government services or quasi-government services can exist in this

world. There is a group of folks out there that want to debunk the

notion of quality service coming from Government, governmental

functions. So even if it doesn’t work out that they can show that

contracting out works better, that is OK, because if it works worse

then they can say, see, Government doesn’t function properly, so

they get you coming and they get you going.

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The issues you have raised about security, training, other reasons why it makes sense to have the work force of the Post Office,

the traditional work force of the Postal Service in place I think are

compelling.

As this Congress begins to look across the board at whether this

compulsion to contract services out makes sense, I think it is very

fair for you to push for the notion that the push back against that

ought to start with an organization like the Postal Service, because

I think it is unique. I think its relationship to the public is unique,

and I think that there is a bond there and a trust, as you say, Mr.

Young. Once that is eroded, it is very hard to get it back. So we

have to be very vigilant about it.

My question is this: can you comment on the impact it has on

the morale of the remaining work force to have these services contracting out, because that is relevant, too.

Mr. YOUNG. Yes, I can. Before I do that, I would just like to

make two very brief, quick points.

Point No. 1, if I was successful in convincing this Congress to do

what I have asked you to do this morning, put a ban against contracting out, I do not pick up a single job for the men and women

I represent. The jobs would go to Donnie Pitts’ organization because his craft works somewhat cheaper than ours, and when they

do the cost analysis he will end up with this work. Bill Young will

not end up with the work.

I disagree vehemently with Mr. Burrus. I am not asking you to

get involved in collective bargaining. We are talking about public

policy here now. The Postal Service is a Government function that

is in the Constitution of the United States, and we are talking

about how it is going to be conducted. In the same way as he has

the right to go to Congress and say stop these big discounts, I don’t

think they are justified, we have the right to say is this the kind

of Postal Service you want.

It has a tremendously negative effect on the men and women I

represent. Let me show you how, Congressman, and thank you for

asking.

Our Union has been a cooperative Union. When Postal Service

announced that they were going to implement the sortation of delivery mail with machinery, we went in there and said let us be

your partner, let us do it together, let us help you together, and

we did. We negotiated a series of memos that established rules that

we could use and we tried to make that process roll out just as

easy as we could.

How do I now, knowing what I know in the Postal Service, what

Jim Miller and Jack Potter is going along with for obvious reasons,

what they want to do with the Postal Service, how do I now go to

the men and women I represent and say help the Postal Service.

They are trying to get rid of you. they want your job. They are

going to contract out your job, but help them. Help them implement this new flat sorter that they have sort of over-estimated the

savings on. And I will say it right here in this Congress, they will

never achieve $900 million worth of savings with the flat sorter,

not because we are going to stop them. They do the same thing

every time. When they go to the Board of Governors to get approval

of a large amount of funds—and it cost a lot of money to implement

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those flat sorters—they overestimate the ROI, the return on investment, and then we and the managers that sit behind me are stuck

trying to implement this policy and make it work.

Speaking of these managers behind me, there is going to be an

other panel after ours, is there not?

Mr. SARBANES. Yes.

Mr. YOUNG. Please ask them what they think about contracting

out. If this was an NALC issue, if this was just an employee issue,

why would all these organizations be supporting us? And it is my

information that each and every one of them support us and think

that this path that the Postal Service is on for contracting out will

not serve the Postal Service well in the future. But you get the information from them. I don’t speak for them.

Mr. HEGARTY. If I could answer that, as well, for the mail handlers, I echo Bill’s comments. We have several cooperative programs that we engage in with the Postal Service. One of the oldest

is the quality of work life process, where mail handlers and managers get together in quality circles and work on problems, on the

workroom floor to improve service, to eliminate redundancies in operations. That has been going on for 25 years.

Most recently, the voluntary protection program, which is a cooperative effort through our Union, the APW, OSHA, and the Postal

Headquarters, we go into facilities, we make sure it is a safe place

to work. We are saving the Postal Service millions of dollars and

saving our members the heartache and the physical pain of getting

injured on duty.

The same thing with the ergonomic risk reduction program. We

have committed headquarters employees, and I know some of the

other unions have, as well, to go out in the field and train in the

field and put good practices into place in postal facilities so that

our members are not injuring themselves in repetitive motion type

injuries through ergonomic improvements in the workplace.

You asked how does it affect morale. This is the certificate of appreciation that the mail handlers received at the New Jersey International Bulk Mail Center for processing that military mail. If I got

one of these certificates of appreciation back in 2005, I probably

would have framed it and put it up in my office or in my home and

been very proud of it. But when the Postal Service told me that

they were subcontracting that operation, I probably would have

taken it down and thrown it in the trash. That is how I think it

affects morale.

Mr. DAVIS OF ILLINOIS. Thank you very much, Mr. Sarbanes.

Mr. PITTS. May I add something to it?

Mr. DAVIS OF ILLINOIS. Yes, go ahead, Mr. Pitts.

Mr. PITTS. Our craft, the rural craft, is a little unique in that we

have career employees and relief employees who fill in, rural carrier associates, some PTFs. The rural carrier associates are not career employees; however, they do have the opportunity at some

point to become a career employee. You talk about morale? That is

where the problem is for us in our craft, because you have employees who are working diligently, hoping some day to become a career employee, and they see these new developments coming into

play, and then what happens? The Postal Service is trying to contract out this work. It is territory that under normal circumstances

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would be added to either rural delivery or seated delivery, but it

impacts our craft in that morale to have some contractor working

right beside them making a lot less money with no benefits, getting

territory that would have been a route and a career position for

those employees.

So it does have a big impact on morale inside the Post Office, as

well as service to our patrons out there because, as a rural carrier,

when you serve a route you have an extended family. That is the

patrons that you serve out there. They know who you are, even the

relief employees. They are there. They are dedicated. They work

just about every week. But you earn a trust with those people, because they know you by name. They come to your house and visit

you when your family is sick or when you have a death in the family. They are your extended family. So it is a big issue that we need

to keep in mind when the contracting out arrives, because it is not

for the good of the Postal Service. It is to the detriment of all of

us.

Thank you.

Mr. DAVIS OF ILLINOIS. Thank you very much.

We will shift to Delegate Norton.

Ms. NORTON. Thank you, Mr. Chairman.

It was most interesting to see that this contracting out theme

was, indeed, that, a theme in virtually all your testimony, when

there might have been other things you might have spoken about.

I think we have to take that seriously.

I am not sure that this committee has the answer to it, but I do

want to note for the record, Mr. Chairman, the irony that maybe

the Federal Government has discovered something about contracting out. This is this morning’s business page of the Washington

Post. I couldn’t help but notice something that came up at me

about OPM suggesting retirement reforms and suggesting something we certainly don’t do in the Federal sector, whereas you

might have thought that these jobs might have presented opportunity to contract out.

The kinds of things OPM, this administration, is suggesting is

phasing in retirement rather than having the baby boomers desert

the Federal Government all at one time because they are afraid of

finding replacements. I recognize that the Postal Service is more

like a private business than it is like the Federal Government, but

understand who is the granddaddy of all users of contractors is the

Federal Government.

Instead of saying here’s an opportunity now to really go, here is

OPM saying let’s try to keep a Federal work force. And 60 percent

of the Federal workers will be eligible for retirement in the next

10 years, and it doesn’t say only the very skilled scientists, it says

Federal employees, period. It says that they want to be able to

counter job offers and to allow people to work on a limited basis

and still retain their full pension. It is just most progressive and

interesting, and it comes from an administration where you might

think that this is an opportunity to do more contracting out.

Now let me say this: contracting out is not a Republican thing.

We have seen that in Democratic and Republican administrations

go full throttle. This is a very difficult issue now.

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If it becomes a culture more than what seems to be a process already far along, at least in some parts of the postal service, then

we are seeing another granddaddy of all contracting out controversies, because that is what has developed.

Now, first, Mr. Chairman, I am concerned about what I can only

call the absence of candor in the management witnesses here. Did

they not know that we would have Union? We always do. We always balance. I mean, did they think we wouldn’t find out by calling it something else? I am very concerned about that, and I think

we need to call them to account because if they are not even telling

us about the contracting out that is going on we are already off on

the wrong foot on the question of accountability, which is a primary

concern of this committee when it comes to contracting out.

Now, I also would be very concerned, Mr. Chairman, if our reform legislation, which ultimately the Unions came to accept, was

a cover for contracting out. If there is to be contracting out, hey,

look, we are big boys and girls. We have seen the Government do

a lot of it. Our major concern with it has been accountability. But

we don’t need people to think we don’t know about it and then it

springs up.

And when I say springs up, Mr. Chairman, I happen to have before me a document that surprises me, in light of the fact that we

had very little detail from prior witnesses about contracting out of

the kinds of Postal Services that are represented by these employee

organizations. I am amazed to see that, as of the end of 2004, the

number of routes—city, rural, all routes—242,342. I would think

somebody would tell us about that. Number of deliveries,

142,319,788. Doesn’t sound like a small number to me.

Apparently, like every important large business, the Postal Service is in the process of analyzing and expanding contracting, but it

had very little to say about that to us, even to the point of discussing potential new routes.

Why do I have to get this document not from the witnesses on

the first panel, but I will not tell you how I got it, but I got it. Why

do I have to find out only when I can’t cross examine them, Mr.

Chairman, that current delivery routes in the city, for example,

518. Now, here is their document saying expected new deliveries in

the next 10 years—now, understand the number, going from 518

to 4,940,000. That is just city. rural goes from 495 to 12,350,000,

and it goes on. Very, very concerned, this first oversight hearing,

Mr. Chairman, to find that out through a document that did not

come as part of the testimony so that we could up front, just like

I asked the question, hey, look, is this holding operation or is technology going to overtake us because no amount of raising the

amount of stamps or other costs is going to do it. I need to know

it so that we can think about it.

Now, I must say to you, gentlemen, I have a problem. The chairman raised some of it in the beginning. I talked about ‘‘rightsizing’’ and so forth. I mean, even the IG talked about right-sizing.

And we know that there are planned retirements, and that is one

good way, I guess of right-sizing, as long as you can keep doing the

job, 113,000 or something retirements, assuming—and that is always a problem—that they will have people in the right place.

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But I understand what Mr. Burrus says about two-tier systems,

because the private sector is spawning them everywhere. The only

real answer I see even coming kind of online is what some unions

and truly large corporations are trying to do about health care. I

mean, with the manufacturing sector of the United States going

out of existence largely because of health care, people are finally

understanding that if health care is related only to employment

and those who happen to have good unions get good health care,

to then be passed on as a cost of doing because, then that employer

is disadvantaged, it would seem, with the private sector with whom

you compete, and, of course, the unions can’t be expected to say

don’t do health care. So now you finally have business getting together with unions trying to figure out a national health care system.

We need your advice. You have some difference among yourselves about how we should go at it, obviously, for contracting out

as it exists now. That is, I take it, a collective bargaining issue. For

new services, such as in the cities and the suburbs, I take it they

have a free hand in that.

How has the Congress gone in this? Well, mostly not, but to the

extent that we are now getting into it, we are concerned about the

issue that the ranking member has raised. In a particular service

are there new issues of security raised post-9/11 that we can deal

with?

The second issue is one that we have never gotten a hold of, and

we saw it boom into a hideous plant after the Iraq war, and that

is accountability. The larger enterprise, the less the accountability

that the Government itself is able to bring or that even the Congress can bring. Imagine, if you have somebody employed by you

and you know what he is doing every day, he is accountable. But

if, in fact, this unit is outside of you altogether, unless you are

going to be doing the same thing that you would be doing if he was

your employee, which is keeping track of him every day, then huge

parts of what he does is nothing you are going to know anything

about.

I do all that prefacing to say this: in light of the fact that I can

only think about two security issues, one which has been raised by

the ranking member, and I am not sure how they would deal with

that one. In light of the ‘‘right-sizing issues’’ that even in the best

of services—and Postal Service is doing much better now—you face,

it does seem to me you have a run-away problem here.

I think we need to be informed of how the postal service and perhaps the unions, perhaps the unions by themselves, somebody has

to think it through before it becomes a bigger hippopotamus in the

room than it already is, because I do not readily see a way for us

to control it or for you to control it, at least for new businesses,

some of which you said is really quite terrifying here. After a while

you are going to find people saying something is new that you

never would characterize as new, so you are going to get into categorization.

I think the burden on us all is to say if not this, what, since the

way the Congress is likely to go at it is accountability and security.

Meanwhile, it continues to grow. If not this, if not off-loading benefits, racing to the bottom, which obviously has affects on the qualVerDate 17-JUN-2003 10:16 May 29, 2008 Jkt 000000 PO 00000 Frm 00217 Fmt 6633 Sfmt 6633 C:\DOCS\40873.TXT KATIE PsN: KATIE
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ity of workers, but who cares. The two-tier work force in the Federal Government has grown like nothing else. We have people sitting side by side. If not that, I think the burden on us all who have

seen the monster of contracting out is to say then what, because

if we don’t have a then what I believe it is going to continue to

grow.

Mr. DAVIS OF ILLINOIS. Thank you very much, Representative

Norton.

Ms. NORTON. I would like to know if anybody has a then what,

just before they go.

Mr. PITTS. I would like to say, Ms. Norton, I feel your pain

because——

Ms. NORTON. You are going to feel it even more.

Mr. PITTS. Well, when you are talking about information from

the Postal Service that keeps us up to date, we, too, struggle with

that. Also, I think you heard earlier today comments made that the

CDS routes were put into being because of postal reform. I am here

to tell you that is not the truth. CDS routes have been here prior

to postal reform issues, and you heard them say that I think the

past 5 years the growth in highway contracts, CDS, is about 2 percent, but in the same sentence saying that in 2006 it grew from 2

percent to 6 percent, which is 4 percent, so there is a big issue

there.

Also, I meant to say a while ago when I was talking about relief

employees in our craft, do you know that the Postal Service is requiring our RCAs, our relief employees from the National Rural

Letter Carrier Association, to go out and carry some of these contract routes because they don’t have contractors on them and forcing them to do that, and we have a national level grievance on

that. So they are saying you don’t need the work, but we are going

to use your employees.

So it is a big-time issue with us, as well as I know my counterparts up here, and we are here today to try to come to some kind

of reasoning as to what we can do to stop this. It was never a problem. The almighty dollar is not the answer to everything. Service

to our people is the big issue. It is appalling to me to have a letter

sent from my home State of Alabama to Alexandria, VA, to take

10 to 12 days.

Mr. Davis, the letter that you sent to me about this committee

meeting and testimony, I received it yesterday. It was dated April

5th. I received it on the 16th.

We have to put service back in the Postal Service. You give the

people the product they want and the service they want, they will

pay the price. Give us the service. That is what we need to focus

on, and CDS is not the answer.

Mr. DAVIS OF ILLINOIS. Thank you very much.

We do have a couple of additional panels, and we are going to

try to get Mr. Lynch in now.

Mr. LYNCH. I will try to be brief, Mr. Chairman. Thank you for

the opportunity.

President Burrus, President Young, President Pitts, and President Hegarty, I sincerely wish I had as good a relationship with

every president in Washington as I do with you folks. [Laughter.]

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Let me just say an observation and then a quick question. One

is I think that, as a Postal Service, as a service that provides such

an important service to so many Americans, I think there is a higher standard that we should hold ourselves to, and I include the

Postal Service in that. It is instructive when the officials from the

U.S. Postal Service talk about the need to have workers not have

health care and that in order to be competitive they want to pay

people as low a wage as is humanly possible without any regard

for the quality of life of those people, and that the ability to avoid

paying pensions and benefits to those workers is the way to go.

I see what is happening in the Department of Homeland Security

with our screeners where they are doing that, and I see a continual

revolving door in those employees and the quality of service going

down and down and down, and the morale in that area is just deplorable, and I see the pattern continuing here in the way the Postal Service is treating its employees. I think this country will be far

worse off if that is allowed to proceed.

I, for one, will stand in the way and try to defend the rights of

our workers to have a decent wage and decent retirements and decent health care.

I want to go to the hazmat issue. I was elected on September 11,

2001. That was my election day, the Democratic primary. After I

got elected, we had the whole problem with the anthrax in our Post

Offices, tragedy here in Brentwood. But I agreed to go and visit

every single Post Office and every bulk mail facility in my District.

It took a few months to do it. I had no idea how many facilities

I had when I said that, but with the good help of a lot of my folks,

some of whom are here today—I know Kathy Manson from the

Norfolk and Plymouth Labor Council is here. She is a vice president of the AFL–CIO. Lola Poor with the Boston branch of the

APWU is here. Don Sheehan, a great friend of mine from the

Brockton—I represent the city of Brockton—the Brockton APWU;

Bob Losey from the Mail Handlers; John Casioano from the National Letter Carriers—they took me personally from facility to facility and introduced me to all the workers, just trying to get a

sense on what changes we could make to safeguard our employees.

So we went in there, and over the next couple of years we made

some changes at the larger facilities regarding protection: safeguards first of all for our employees, safeguards that would protect

someone in the event of an anthrax attack; detection methods at

the big postal services, the GMF in Boston, where my sisters both

work. We went and looked at that. There are also issues of quarantine in the event that there is an attack, making sure that employees don’t go home and contaminate their families or other

workers. And then, of course, decontamination and treatment.

I just want to know, you have all got workers in these facilities,

and this is something that you are all, from the rural carrier to the

city carriers to the mail handlers to the postal clerks to our supervisors and our Postmasters, you are all affected here, and so are

the families that you serve.

What is the status right now in terms of that whole process in

our cities and towns?

Mr. BURRUS. The comfort level of the employees is way advanced

from what it was following 9/11. The Postal Service has impleVerDate 17-JUN-2003 10:16 May 29, 2008 Jkt 000000 PO 00000 Frm 00219 Fmt 6633 Sfmt 6633 C:\DOCS\40873.TXT KATIE PsN: KATIE
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mented some safeguards for the employees. The employees, themselves, are not aware of the holes in those safeguards. The employees really aren’t 100 percent protected to day, but the comfort level

of the employees, themselves, has increased dramatically. The employees no longer day to day think about poison in the mail.

Mr. LYNCH. Is that because of the passage of time, where people

haven’t had——

Mr. BURRUS. It is the passage of time and the equipment that

has been installed to provide them some level of protection. It is

not absolute, by any stretch of the imagination. We are still working at the national level trying to find ways of providing additional

protections, but as far as the employees are concerned, they are

much more comfortable than they were on 9/12.

Mr. HEGARTY. I’d like to thank Congress for approving the funding for some of the bioterrorism detection equipment that has been

installed in the postal canceling machines in most of the large and

mid-sized facilities so that when the letters come through this

equipment is very highly able to detect chemical or biological

agents.

I also would say that we have worked with the Postal Service at

the headquarters level on a continuing committee called the Mail

Security Task Force, and all of the unions and management associations have representatives on that task force. Some of their work

obviously can’t be shared with the public, because there are some

security concerns.

But I believe the Postal Service has done a pretty good job developing protocols, training. We have had a number of stand-up talks,

almost weekly, with employees on the workroom floor with the supervisors telling them what to do in case of an emergency, not just

a biological but also suspicious-looking packages, parcels, etc., and

have developed some tabletop exercises where they actually physically demonstrate what to do and what not to do in something like

that happening.

That is a long way from the months or maybe even the first year

after the anthrax attacks, when some powder would spill out on a

table and the supervisor—there have been horror stories that he

tasted it and said, ‘‘Well, that is not anthrax, don’t worry about it.

Go back to work.’’ So we have come a long way since those days.

Mr. YOUNG. Mr. Congressman, I explain it just a little bit different. The men and women that I represent, Donnie said it, they

kind of mesh with the community, and they realize that they live

in the world that we live in. I think everybody’s world changed on

September 11th, maybe not as dramatically as yours. I didn’t realize that was the day you were elected. Congratulations. But outside

of that, not too much positive happened on that day, I might also

say to the Congressman.

Mr. LYNCH. Thank you.

Mr. YOUNG. But, anyway, my point is simply this: the world

changed when that event occurred. The men and women that I represent, they just take it as their responsibility, because they are

meshed with those communities, to do their share in regard to

that. So it is not like I had to talk people into going into work. It

is not like I had to beg people to go to work. They got up and they

went to work the next morning because they realized that seeing

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our members out on the streets, seeing his members out on the

street, seeing the clerks at the Post Offices brings a sense of normalcy to the American society. We just feel like we were just doing

our part.

Are they scared? I am sure they are. Do they recognize it as a

hazard? I am sure they do. But they are committed, dedicated people, which is one of the reasons why I wake up every morning and

try to do my job, because that is my job, to represent them in a

manner that shows favorably upon what they do for this country.

Mr. LYNCH. Thank you.

Mr. PITTS. And I think awareness is a lot better today than it

was prior to 9/11. Even in our craft, especially in the rural areas

with the pipe bombs that were placed in mailboxes, there is another problem, but the carriers are aware of situations and they

know what to look for today. So I think overall awareness is a key

to it.

But I again echo what Bill said: during the 9/11 crisis and the

anthrax, the people of the Postal Service held this country together.

They brought unity because they were the connecting person. And

the Hurricane Katrina areas down there, you saw city carriers, you

saw clerks, you saw mail handlers, you saw rural carriers all coming to the office. They may not have had an office, but they were

there doing what they could. Did you see any contract people

there? Probably not.

Mr. LYNCH. Let me just say in closing I don’t think that the Postal employees have been ever properly thanked for the way that

they responded to both those crises, and I just want to say that we

in the Congress appreciate the work that has been done.

I yield back, Mr. Chairman.

Mr. DAVIS OF ILLINOIS. Thank you very much, Mr. Lynch.

I don’t think I have any further questions. Mr. Marchant, do you

have any further questions for this panel?

Mr. MARCHANT. No, Mr. Chairman.

Mr. DAVIS OF ILLINOIS. Then let me thank you gentlemen very

much. We understand. I think we hear you. We hear the passion,

we hear the concern that you have expressed relative to the contracting out. I can assure you that this committee will give ample

attention to it, very serious attention to it, and we hope that we

will arrive at a resolution, as I indicated earlier, that is, indeed,

amicable.

Let me also just acknowledge, as you are leaving, the president

of the Chicago APWU. I see my good friend Sam Anderson.

Sam, it is so good to see you.

Also, Mr. Hegarty, my good friend Hardy Williams asked me to

say hello to you if I saw you today. I saw him on Sunday.

Gentlemen, thank you very much.

We will proceed to our next panel. Gentlemen, let me thank you

for your patience and the fact that you are still with us.

Let me just introduce our witnesses. Mr. Dale Goff is in his 36th

year with the Postal Service. He began as a postal assistant in

New Orleans and has been a National Association of Postmasters

of the United States [NAPUS], member and a postmaster for 26

years.

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Mr. Charlie Mapa is president of the National League of Postmasters. He has been postmaster at Gold Run for 21 years and is

currently on leave from that position to serve with the League.

And Mr. Ted Keating is the president of the National Association

of Postal Supervisors [NAPS], which represents the interests of

35,000 postal managers, supervisors, and postmasters employed by

the U.S. Postal Service. Mr. Keating assumed the presidency of the

association in 2004 upon the death of President Vincent Palladino

and was elected to continue serving NAPS in that capacity in 2006.

Gentlemen, we are delighted that you are here.

If you would rise and raise your right hands, we will swear you

in and we can proceed.

[Witnesses sworn.]

Mr. DAVIS OF ILLINOIS. The record will show that each one of you

answered in the affirmative.

We will begin with Mr. Goff.

STATEMENTS OF OSCAR DALE GOFF, JR., NATIONAL PRESIDENT, NATIONAL ASSOCIATION OF POSTMASTERS OF THE

UNITED STATES; CHARLES W. MAPA, PRESIDENT, NATIONAL

LEAGUE OF POSTMASTERS; AND TED KEATING, PRESIDENT,

NATIONAL ASSOCIATION OF POSTAL SUPERVISORS

STATEMENT OF DALE GOFF

Mr. GOFF. Good afternoon. I am Dale Goff, president of the National Association of Postmasters of the United States. I know that

the hour is late, and I understand that my more-detailed statement

will be included as part of the official hearing record, so on behalf

of my 40,500 members I am honored to have the opportunity to

summarize the key points of my submitted testimony.

I know that we have done so previously, but please include our

Nation’s postmasters among the many groups who have congratulated your diligence and success shepherding the new postal legislation to enactment.

The 2006 law will help steer the Postal Service on a new course

which we believe will benefit the mailing community, the 9 million

individuals who work within the postal industry, including our own

postal employees, and the Postal Service, itself.

The keystone of our collective efforts will be the preservation, if

not the enhancement, of universal mail services. This goal is predicated upon continued consumer confidence, residential and business, and the integrity of our national postal system. Postmasters

are the linchpin in delivering this achievement.

The community-based Post Office is where the product meets the

consumer, either through retail window service or through management of the countless city and rural routes throughout the country.

Expected regular and universal postal services with appropriate

community input have been the hallmark of our Post Offices. Failure to meet this criteria is a recipe for failure.

I must digress a little bit from my words here, but I have heard

many times this morning about Hurricane Katrina. I lived Katrina.

I know what the Postal Service did the day after Katrina passed

and what we did for the customers back at home and how our employees responded.

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Mr. Chairman and committee members, post offices and the vital

services they provide will be condemned to mediocrity or worse

without adequate staffing. Postmasters have been raising this issue

for years. I must comment that this issue of staffing is not a local

decision, as we heard this morning. Admittedly, in some instances

upper level postal management has responded, more out of a sense

of embarrassment and urgency than of responsibility. For example,

please note the pressure it took for the Postal Service to take remedial actions in areas such as Chicago and Albuquerque. It should

not be so difficult to make necessary staffing accommodations.

Postmasters with inadequate staffing are left few options: send

carriers out after dark to deliver the mail or deliver the residual

mail themselves, again after dark; close window service during the

hours that may be most convenient for many of our customers; or

reduce window service, resulting in long wait times.

Moreover, the excessive hours that postmasters dedicate to serving their customers adversely affects morale and productivity.

Postmasters believe that Congress has a vital role to play in ensuring that the intent of the new law, that quality mail service is

fulfilled, and safeguarding the historic mission of universal, accessible, and affordable mail service.

The Postal Accountability and Enhancement Act will prove to be

the success that most of us hope if we exploit the opportunities the

new law creates, price and product flexibility, realized only if the

Postal Service and the Postal Regulatory Commission, as they collaborate on implementing flexible rates and bringing innovative

products to market. These actions will help generate new postal

revenue.

Mr. Chairman and members of the subcommittee, when history

renders its grade on Public Law 109–435, it will judge us on how

well we continue to provide postal services which our constituents

expect and demand, nothing more, nothing less.

Thank you. I will welcome some questions afterward.

[The prepared statement of Mr. Goff follows:]

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Mr. DAVIS OF ILLINOIS. Thank you very much.

We will proceed to Mr. Mapa.

STATEMENT OF CHARLIE MAPA

Mr. MAPA. Chairman Davis, Ranking Member Marchant, members of the committee, thank you for inviting us to appear before

you today.

My name is Charlie Mapa, and I am president of the National

League of Postmasters. I welcome this opportunity to appear before

you today at this subcommittee’s very first postal hearing. With

your permission, I would like to submit my testimony for the record

and then proceed to briefly summarize it.

At the outset, I would like to say how pleased I am that Congress

has seen fit to reconstitute a Postal Service Subcommittee. Your

work is very important, as you can see from the proceedings before

we came onboard.

Mr. Chairman, the first thing I would like to do is to thank you

and all the Members of Congress, including Congressman John

McHugh, for passing the Postal Accountability and Enhancement

Act of 2007. It will save ratepayers billions upon billions of dollars

per year over the next decade.

The League is also pleased that the Postal Accountability and

Enhancement Act did not negatively affect small, rural, or inner

city Post Offices. Local Post Offices are icons in rural America and

not to be tampered with.

While the long march toward postal reform is over, in some respects the most challenging task lies ahead. With the type of leadership we have at L’Enfant Plaza today, I am sure we will continue

to make good progress. To this point, the critical issue in the future

is going to be how top postal management manages its mid-level

managers and its mid-level resources, including most postmasters.

As I detailed in my written testimony, I have two issues of concern. The first is the negative heavy-handed micro-managing climate that we see in many districts. As important as that is, I

would like to skip, due to expediency and the fact that everybody

has been here all day long, and talk about another issue that is

very dear to my heart and I know to my colleague, Dale, in terms

of the workload of postmasters. Many districts ignore the normal

work week and expect postmasters to be at their Post Office 6 days

a week, 8 to 10 and sometimes 12 hours a day, day after day, week

after week, year after year, working 45 hours per week constantly

is one thing. Working 50 hours a week constantly is another. Working 60 hours a week is yet another, and it is something that inevitably leads to burnout. Seventy-hour work weeks are even beginning to appear.

Why are postmasters working longer? Much of it is because of

the critical staffing shortages that have become epidemic across our

country, and these postmasters are doing the work of carriers and

clerks, in addition to their own work. In the short term the Postal

Service saves money; in the long term, once the burnout sets in,

it does not.

If the Postal Service is going to reach the heights of higher efficiency that the new postal law envisions, this is going to have to

change.

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This concludes my oral testimony.

[The prepared statement of Mr. Mapa follows:]

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Mr. DAVIS OF ILLINOIS. Thank you very much, Mr. Mapa.

We will go to Mr. Keating.

STATEMENT OF TED KEATING

Mr. KEATING. Thank you, Mr. Chairman. It is a pleasure to be

here with you today and represent the 35,000 postal supervisors

and managers throughout the country.

Rather than read a statement, since it is late in the day, I want

to concentrate on two issues that we already discussed here today,

the Chicago-type issues of operations and the contracting out issue.

Today it is Chicago that is in the limelight. A year ago it was

California. Letter carriers in California were delivering mail at 9,

10, and 11 at night. The Post Office continued to deny there was

a problem until Congress got involved. One year ago today I attended a convention in California where the vice president of the

Postal Service at that time—he is now no longer with us—said in

his opening remarks, ‘‘We are no longer going to delay mail in California. We are going to fill vacancies and hire where needed.’’ Miraculously, when they did that all the problems in California went

away.

The issue of staffing, which my colleague has addressed, is a

major concern. I believe I, too, will be going to Chicago at their request. I believe that is part of the problem in Chicago, not the only

problem, but it is definitely a part of it.

You have to trace it back to the source. Why would a manager,

as was inferred today, local managers do not hire. Why would they

do that? Why would they not hire when they have the ability? I

think you have to look at our pay system. We have a pay for performance system in effect, which rewards good numbers. So if you

don’t hire, you carry vacancies, your numbers are going to be better. We are chasing numbers in a pay for performance system.

My members have benefited from pay for performance. We have

gotten good payouts. But I would ask at what price. Service, in my

opinion, has definitely suffered. What is happening in Chicago now

is going to be somewhere else next month or 2 months from now.

As I told the Postmaster General recently, there are more Chicago’s

out there; we just don’t know about them yet.

I would ask you to look at the root cause of staffing and hiring

in the Postal Service and relate that back to the pay for performance system that is in effect. One is really a direct cause of the

other.

The other issue that has been discussed in quite length here is

the issue of contracting out. Like my Congressman from Massachusetts, I, too, come from a postal family—three clerks, letter carrier,

my father was a railway mail clerk. I am very proud of my service

to the Postal Service. I am going to retire for 2 years now. I continue on as president because I love what I do.

I completely agree with the testimony you heard from the unions

here today about the contracting out. It will be the death knell of

the Postal Service.

The letter carrier is one of the most respected people out in the

field. That is what the public identifies with. The idea of contracting that out to me, as a management person, is of heart. We need

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your oversight into that issue, I believe, because it is not going to

change through the collective bargaining or arbitration process.

I am glad to see these committees brought back. I hope you will

continue the process. I spent most of my career in finance. When

you are in finance you see a lot of things that go on behind the

scenes in the Postal Service. Believe me, from my 40 years experience this is a company that definitely needs oversight, and I urge

you to continue that role.

Thank you very much.

[The prepared statement of Mr. Keating follows:]

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Mr. DAVIS OF ILLINOIS. Thank you, gentlemen, very much.

I will begin the questioning.

Mr. Mapa, as I listened to your testimony, you made it sound

like the postmasters are working like politicians, 60 or 70 hours a

week. I am sure that they are, indeed. But my question to you gentlemen is the same question that I asked Mr. Burrus earlier: the

Service has set a goal of reducing work hours. I mean, they are

talking about 40 million. How do they do that or how do we get

that kind of reduction without creating other kinds of problems

with service, with delivery? What is your take on this reduction?

Mr. KEATING. As far as reducing work hours, we say more power

to the Postal Service. We want to operate more efficiently. However, if you look at what is happening with postmasters and supervisors, can you really say that we are saving work hours if you are

calling a work hour an hour that is worked. If you are talking

about paid hours, yes, you are reducing those, but in the case of

the higher-level or medium-level postmasters and supervisors,

what is happening is they are taking up the slack. They are stepping into positions where they are having to do the work of their

rural carriers, their city carriers, and their clerks because they

don’t have the staffing. They are working off the clock. At 40 hours

and 1 minute, they are not getting any more pay. Any of the craft

employees that you listed to this morning, at 40 hours and 1

minute they are on overtime.

Postmasters don’t mind some of that. What is happening is that

the Postal Service is now depending on the fact that the postmasters are going to be taking up the slack, and so they just work

it into their budget. And they are assuming that the postmaster

will be there to make up for 5, 10, 15, 20 hours during the week.

I know that my friends in the supervisor ranks are going through

the same sorts of things.

Mr. DAVIS OF ILLINOIS. Mr. Goff, let me ask you if you would respond to that same question.

Mr. GOFF. Yes, Mr. Chairman. We heard a little bit this morning,

too, in the testimony from Mr. Potter about the transformation,

and we heard about what we did on the transformation. That $40

million equates to, if I remember right, 20,000 career positions in

the Postal Service. Sir, I can tell you now we need those 20,000 positions to day. We are already short those 20,000 positions, and we

are going to need those in the future as the deliveries grow.

Now, we can do everything we can, and we have for 5, 6, 7 years

now, where we have saved money. We lived up to the transformation. We all buckled up our shoes, tightened our belts, and we

did what we could. But eventually you can’t transform any more.

That transformation is starting to lead to mutation, and that is

what is happening.

We can save money in many different ways. Let’s look at some

of the other areas that we could save, instead of cutting the positions where we have to serve our constituents back at home.

Mr. DAVIS OF ILLINOIS. Thank you very much.

Mr. Keating, I think you were very explicit in your testimony relative to your feelings about contracting out and also about performance based compensation. Do you think that performance based

compensation can really work the way that some proponents say?

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Mr. KEATING. My personal opinion is no. The Postal Service has

proven that.

Can I expand on what your question to Mr. Goff was, too? During

my 40 year career in finance it is always is this a budget year or

is this a service year. That was always the joke in finance. You

can’t continue to reduce and cut and cut year after year without

affecting service.

As we sit here this morning, and it is earlier in Oregon, I can

guarantee you that postal supervisors and postmasters in Oregon,

because of the contracting out issue, postal supervisors and postmasters are sorting mail and delivering mail because they will not

give that to the NALC or the rural organization because if they do

they will own it. They are holding it for the contractor. But in that

lag time between when that contractor comes on board there is nobody left to deliver the mail other than the postmaster or supervisor.

Mr. DAVIS OF ILLINOIS. Well, thank you, gentlemen, very much.

I will yield to Mr. Marchant for any questions that he might

have.

Mr. GOFF. Mr. Chairman, before you move on, on the contracting

out issue, I have supervised contract routes for 27 years now, and

I can tell you, to sum it up in one short phrase, you get what you

pay for, and that is just what it is with the contract routes. You

get what you pay for.

I have had contractors walk in on their first day and leave on

the first day. I have had contractors stay 2 days and leave. But I

have also had some great contractors that worked for me. I had one

lady that worked 42 years as a contractor. When Aunt Mimi calls

up and says, can Arlene bring me a gallon of milk, that looks favorable on the Postal Service. Fantastic person. She should have had

a career with the Postal Service and not worked all her time carrying her babies until the day that they were born that she was delivering mail. But also I can tell you I have had some bad, bad experiences with the contracting.

Mr. DAVIS OF ILLINOIS. Thank you very much.

Mr. Marchant.

Mr. MARCHANT. Thank you.

I have a couple of questions, but what do you find the biggest

challenge is in the past year that you have encountered since the

postal act has been passed, in your day-to-day life?

Mr. GOFF. I guess, since I have been here, not being every day

back at home in the office, one of the challenges that I see is that

we are told that everything is changing because of the new law

that was passed. I was here. I am one of the few that was here

back in 1970 when the Postal Service was created. We survived

that. We not only survived it; we got stronger. I look for that same

vision with the new law that has been passed. We will survive this.

We will get stronger as an organization. But it is just so many

things that we are being told that, because of the new law, this is

what we have to do.

I know the intent of us working with this bill for the last 10 or

12 years was not that when it passed that we would have this case

on us all the time saying the new law says this, you have to do

it this way, you have to do it that way. We have been doing our

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job, and this new law is supposed to enhance that. That has been

probably the most troubling part since the law has been passed.

Mr. MAPA. Now that law passed since I came here in August,

and, like Dale, I have been coming back to Washington with the

National League of Postmasters for 12 or 13 years trying to enact

some law that covered postal reform. Everybody at this table supported postal reform from one extent to another. We are very

happy to see that postal reform is here. It will supposedly open up

and free the way that the Postal Service can do business.

We are looking forward to those sorts of things. Some of the restrictions that were on the Postal Service made it very difficult for

them to compete, very difficult to come up with a new product, very

difficult to move into the 21st century.

That being said, I don’t know if anybody from this morning could

have told you or can still tell you what is it going to really give

us. We are anticipating that good things will come of it. We are

hoping that we can minimize the things that we don’t like. But

something had to change, and we are very hopeful that postal reform is the way that we need to go.

Mr. KEATING. Well, I have been here 9 years, and you can’t

blame postal reform for some of the changes that are taking place.

I think it is a convenient excuse. The staffing issues that we have

been talking about have been here for 4 or 5 years. The issues in

California that I talked about, they had nothing to do with postal

reform. It is management. It is postal management throughout the

country that needs to be changed, and that is what we are trying

to do. We are talking to the Postal Service about what we see as

the issues. I will give them credit. They are talking to us. We are

trying to make some changes. But there is a lot of micro-management going on. Again, it is attributed, from my perspective, back

to a pay for performance system that rewards those that get the

numbers in this country, regardless of how they get the numbers.

Mr. MARCHANT. A question for Mr. Goff. In your testimony you

mentioned problems with staffing items. Do you think complying

with section 404 of Sarbanes-Oxley will be a problem?

Mr. GOFF. I would say that the more we get into the staffing

shortages and the postmasters, as Mr. Mapa said earlier, we know

they are out there delivering mail, they are separating mail in

their office, and they are doing different things like that. That

takes away their time from the administrative duties that they are

supposed to do. So as they are doing more of that, yes, they get involved in the Sarbanes-Oxley and the things that we are supposed

to do in our offices to comply with that. And I know that we are

a small part of that law for the Postal Service, but it will affect us

and it will affect on how we deal with that.

Our primary mission is to deliver the mail, and that is what we

should be doing, and if we are doing that and we don’t have the

employees to take and deliver that mail and we are doing that job

for them, then we don’t have the time to do those administrative

duties.

Mr. MARCHANT. And, just as a last comment, I represent a district that is about 15 suburban cities now that were all little farming communities before the Dallas-Fort Worth Airport was built.

Now they are all 50,000 or 60,000 people in these towns. Now some

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of them have hit their peak and are declining. As a Congressman,

I deal with the issue. Just last Friday I was in the little town of

Cedar Hill, and the mayor confronted me with the complaints that

he as the mayor was receiving about the service in the Post Office,

not the delivery out in the neighborhoods but the actual staffing

and the workload that was taking place in the actual Post Office.

What we are finding is that, as our parents are getting older,

they like to physically go to the Post Office. I mean, this becomes

a part of their routine. It is part of their life, depending on when

the mail is going to come to the house. So I think that even in the

most regressive of districts, and I have that, I have growing suburban towns, the Post Office is something that our cities and communities need. They are putting new machines in. Some of the older

people are afraid of the machines. They don’t know how to use the

machines. As Congressmen, we really are in this as a partnership,

because when the Post Office is not living up to the expectations

of the American people, the first thing they do is pick up the phone

and call their Congressman.

I have had very good luck in sitting down with postmasters and

management and letter deliverers and just sitting down and working through a couple of specific problems. I appreciate the willingness to do that. But as Congress looks at this problem, looks at the

implementation of all this modernization, this Congressman still

realizes that the Post Office is a very, very important part of the

American culture. I don’t know that my constituent will know what

a contract person is or not, and I know as postmasters that this

issue of a contract person not having a career, not being part of the

organization, and yet his or her behavior begins to reflect on your

behavior.

I am very open to these hearings, Mr. Davis. Mr. Chairman, I appreciate being included in them. I appreciate your patience today

with all of this.

Thank you.

Mr. DAVIS OF ILLINOIS. Thank you very much, Mr. Marchant. I

want to thank you for coming to participate. We all know the difficulty that you had getting here, but, nevertheless, you were able

to make it before we ended.

I also want to thank not only this panel but all of our panelists.

I also appreciate the audience for your tremendous patience. This

has been a rather lengthy hearing. We we also wanted to get a

good overview and a good look at what is taking place in our Postal

Service and what it is going to take to actually implement the new

reform legislation that was passed last year.

I want to thank all of the witnesses and Members who attended

the hearing today. We expect that we are going to have the dialog

continuing.

The hearing record will remain open for 7 legislative days for any

additional statements or comments.

I want to thank the staff for putting together all of the extensive

information that we have had gathering all of the statements and

for their preparation for the hearing, which has consumed all of

our time up to this point. Now we are ready to go and do some

other things for the rest of the day.

With that, the hearing is adjourned. Thank you all so very much.

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[Whereupon, at 2:32 p.m., the subcommittee was adjourned.]

[The prepared statements of Hon. Wm. Lacy Clay and Hon. Janice D. Schakowsky, and additional information submitted for the

hearing record follows:]

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